<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 3, 1996
REGISTRATION NO. 333-04107
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
THE NORTH FACE, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<C> <S> <C>
DELAWARE 5136 94-3204082
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification Number)
incorporation or
organization)
</TABLE>
------------------------
2013 FARALLON DRIVE
SAN LEANDRO, CALIFORNIA 94577
(510) 618-3500
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
------------------------
MARSDEN S. CASON
CHIEF EXECUTIVE OFFICER
THE NORTH FACE, INC.
2013 FARALLON DRIVE
SAN LEANDRO, CALIFORNIA 94577
(510) 618-3500
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
MITCHELL S. FISHMAN, ESQ. JEFFREY D. SAPER, ESQ.
PAUL, WEISS, RIFKIND, WHARTON & RICHARD C. DEGOLIA, ESQ.
GARRISON WILSON SONSINI GOODRICH & ROSATI, P.C.
1285 AVENUE OF THE AMERICAS 650 PAGE MILL ROAD
NEW YORK, NEW YORK 10019-6064 PALO ALTO, CALIFORNIA 94304-1050
(212) 373-3000 (415) 493-9300
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE NORTH FACE, INC.
CROSS REFERENCE SHEET
(PURSUANT TO ITEM 501(B) OF REGULATION S-K
SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED IN RESPONSE TO ITEMS OF FORM S-1)
<TABLE>
<CAPTION>
ITEM AND CAPTION IN FORM S-1 LOCATION IN PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus............................ Facing Page of Registration Statement and Outside
Front Cover Page of the Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front Cover Page of the Prospectus; Table of
Contents; Available Information
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................... Prospectus Summary; The Company; Risk Factors
4. Use of Proceeds...................................... Use of Proceeds
5. Determination of Offering Price...................... Underwriting
6. Dilution............................................. Dilution
7. Selling Security Holders............................. Principal Stockholders
8. Plan of Distribution................................. Outside Front Cover Page of the Prospectus;
Underwriting
9. Description of Securities to be Registered........... Description of Capital Stock
10. Interests of Named Experts and Counsel............... Legal Matters; Experts
11. Information with Respect to the Registrant........... Prospectus Summary; The Company; Risk Factors;
Dividend Policy; Capitalization; Selected
Consolidated Financial Data; Management's Discussion
and Analysis of Financial Condition and Results of
Operations; Business; Management; Principal
Stockholders; Description of Capital Stock; Shares
Eligible for Future Sale; Experts; Financial
Statements
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... Not Applicable
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
<PAGE>
SUBJECT TO COMPLETION
JUNE 3, 1996
2,600,000 SHARES
THE NORTH FACE, INC. [LOGO]
COMMON STOCK
----------
All of the 2,600,000 shares of Common Stock offered hereby are being sold by
The North Face, Inc. ("The North Face" or the "Company"). Prior to this
offering, there has been no public market for the Common Stock of the Company.
It is currently estimated that the initial public offering price will be between
$12.00 and $14.00 per share. See "Underwriting" for a discussion of the factors
considered in determining the initial public offering price. Application has
been made for quotation of the Common Stock on the Nasdaq National Market under
the symbol "TNFI."
--------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 7.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share................................ $ $ $
Total(3)................................. $ $ $
</TABLE>
(1) See "Underwriting" for information relating to indemnification of the
Underwriters.
(2) Before deducting expenses of the offering payable by the Company estimated
at $1.1 million.
(3) The Company and certain of the Company's stockholders (the "Selling
Stockholders") have granted to the Underwriters a 30-day option to purchase
up to 252,000 and 138,000 additional shares of Common Stock, respectively,
solely to cover over-allotments, if any. To the extent the option is
exercised, the Underwriters will offer the additional shares at the Price to
Public shown above. If the option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions, Proceeds to Company and
Proceeds to Selling Stockholders will be $ , $ , $ and
$ , respectively. See "Underwriting." The Company will not receive
any of the proceeds from the sale of shares by the Selling Stockholders.
--------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the offices
of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about
, 1996.
ALEX. BROWN & SONS
INCORPORATED
HAMBRECHT & QUIST
J.P. MORGAN & CO.
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE>
DESCRIPTION OF PICTURES AND CAPTIONS:
FRONT COVER -- Gray screened image of mountain range.
INSIDE FRONT COVER -- Man standing on snow-covered ledge coiling rope.
CAPTION: "The North Face Climbing Team member Conrad Anker coils rope after a
forced bivouac on Torre Egger, Argentina."
INSIDE FRONT GATE-FOLD -- Man standing next to tent on snow-covered outcrop,
packing his backpack.
CAPTION: "Climbing Team member Alex Lowe at high camp on THE BIRD,
Ak-Su Expedition, Kyrgyzstan."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
THIS PROSPECTUS INCLUDES TRADEMARKS AND SERVICE MARKS OF THE COMPANY AND CERTAIN
OTHER COMPANIES.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO
APPEARING ELSEWHERE IN THIS PROSPECTUS. AS USED IN THIS PROSPECTUS, UNLESS THE
CONTEXT OTHERWISE REQUIRES, THE TERMS "THE NORTH FACE" AND "COMPANY" INCLUDE THE
NORTH FACE, INC. AND ITS SUBSIDIARIES AND THEIR RESPECTIVE OPERATIONS, AND
INCLUDE THE BUSINESS OF THE COMPANY'S PREDECESSOR. UNLESS OTHERWISE INDICATED,
ALL INFORMATION INCLUDED IN THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS'
OVER-ALLOTMENT OPTION WILL NOT BE EXERCISED, AND HAS BEEN RETROACTIVELY ADJUSTED
TO GIVE EFFECT TO THE FOLLOWING TRANSACTIONS, ALL OF WHICH WILL BE COMPLETED
PRIOR TO OR CONCURRENTLY WITH THE CLOSING OF THE OFFERING: (I) STOCK SPLITS
WHICH WILL RESULT IN EACH SHARE OF COMMON STOCK BEING SPLIT INTO 4.44 SHARES AND
(II) THE CONVERSION OF EACH SHARE OF THE COMPANY'S SERIES A CONVERTIBLE
PREFERRED STOCK (THE "PREFERRED STOCK"), INCLUDING SHARES OF PREFERRED STOCK TO
BE ISSUED AS CUMULATIVE DIVIDENDS ON THE PREFERRED STOCK, INTO APPROXIMATELY
1.7743 SHARES OF COMMON STOCK. THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF THE FEDERAL SECURITIES LAWS. ACTUAL RESULTS AND
THE TIMING OF CERTAIN EVENTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE
FORWARD-LOOKING STATEMENTS DUE TO A NUMBER OF FACTORS, INCLUDING THOSE SET FORTH
UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
The Company believes that The North Face-Registered Trademark- is the
world's premier brand of high-performance outdoor apparel and equipment. The
Company designs and distributes technically sophisticated outerwear, skiwear,
functional sportswear, tents, sleeping bags and backpacks, all under The North
Face-Registered Trademark- name.
The North Face has developed a superior reputation for quality, performance
and authenticity by providing technically advanced products capable of
withstanding the most extreme conditions. For nearly 30 years, the Company's
outdoor apparel and equipment have been the brand of choice for numerous high
altitude and polar expeditions. These products are used extensively by
world-class climbers, explorers and extreme skiers, whose lives depend on the
performance of their apparel and equipment. To maintain and further enhance this
unique legacy, the Company continuously develops and introduces innovative
products that are functional, technically superior and designed to set the
industry standard in each product category. The Company cultivates its extreme
image through its targeted marketing efforts and its teams of world-class
climbers, explorers and skiers.
As a result of its extreme image and technological leadership, The North
Face-Registered Trademark- brand has become increasingly popular among a broad
group of consumers. The Company believes this growing popularity is attributable
not only to its strong brand image but also to a fundamental shift in lifestyle
choices and consumer preferences toward more functional and high-performance
outdoor products. While The North Face expects its traditional market segments
to continue to benefit from these trends, the Company believes that it has an
opportunity to leverage The North Face-Registered Trademark- brand and expand
into new and broader product categories. For example, the Company recently
introduced Tekware-TM-, an innovative line of functional sportswear made from a
new generation of synthetic fabrics, designed both for outdoor activities and
everyday use.
To protect the integrity of The North Face-Registered Trademark- brand and
ensure a high level of customer service and education, the Company limits the
distribution of its products to a select number of specialty retailers. The
Company sells its products to over 1,500 wholesale customers representing more
than 2,000 store fronts in the United States, Europe and Canada. In addition,
the Company owns and operates nine retail and two outlet stores in the United
States.
Beginning in January 1993, a new management team began implementing a
variety of strategic and operational improvements, including hiring experienced
senior executives and initiating new sourcing, product development and marketing
strategies. Primarily as a result of these initiatives, the Company's financial
results improved significantly. During the past two years, the Company has
continued to implement additional operational improvements and began introducing
a wide range of new products. As a result, the Company reported net sales and
operating income of $121.5 million and $10.5 million for 1995, increases of 36%
and 43%, respectively, over pro forma 1994.
The Company's growth strategy is to continue to build on the strength of
The North Face-Registered Trademark- brand. To maintain future growth, the
Company intends to (i) continue to develop and introduce new products; (ii)
rapidly introduce "Summit Shops," year-round concept shops dedicated to The
North Face-Registered Trademark- products and primarily to be located within
certain of the Company's wholesale customers; (iii) establish Tekware as a
high-performance, functional alternative to traditional sportswear; and (iv)
selectively pursue international opportunities.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company............. 2,600,000 shares
Common Stock to be outstanding after the
offering....................................... 9,581,666 shares (1)
Use of proceeds................................. Repayment of debt. See "Use of Proceeds."
Proposed Nasdaq National Market symbol.......... TNFI
</TABLE>
- ------------------------------
(1) Excludes 1,170,802 shares of Common Stock issuable upon exercise of stock
options outstanding as of May 17, 1996, at a weighted average exercise price
of $1.63 per share. Also excludes 833,950 shares of Common Stock reserved
for future issuance under the Company's stock incentive plans, employee
stock purchase plan and Directors' stock option plan.
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THE PREDECESSOR (1) THE COMPANY (1)
----------------------------------------------------------------------------
PERIOD
FROM FISCAL YEAR
FISCAL YEAR ENDED MARCH 31, APRIL 1, PERIOD FROM ENDED
TO JUNE 7, TO DECEMBER 31,
------------------------------------ JUNE 6, DEC. 31, ------------
1992 1993 1994 1994 1994 1994 (2)
----------- ----------- ---------- ----------- ----------- ------------
(PRO FORMA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................. $ 68,912 $ 86,710 $ 87,411 $ 9,085 $ 60,574 $ 89,187
Gross profit............................... 27,109 29,528 36,604 3,768 29,514 41,439
Operating income (loss).................... (3,454) (6,548) 3,794 (1,522) 9,855 7,334
Interest expense........................... (3,521) (4,209) (2,046) (58) (2,598) (4,390)
Net income (loss).......................... $ (6,893) $ (10,508) $ 826 $ (1,096) $ 4,635 $ 1,708
Pro forma net income (loss) per share and
share equivalents (3).....................
Pro forma shares used in computing net
income (loss) per share (3)...............
Supplemental pro forma net income (loss)
per share (4).............................
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
----------------------
1995 1995 1996
----------- ---------- ----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................. $ 121,534 $ 23,500 $ 31,020
Gross profit............................... 55,064 10,367 12,603
Operating income (loss).................... 10,524 1,057 139
Interest expense........................... (5,530) (1,326) (1,453)
Net income (loss).......................... $ 3,485 $ (85) $ (629)
Pro forma net income (loss) per share and
share equivalents (3)..................... $ 0.47 $ (0.09)
Pro forma shares used in computing net
income (loss) per share (3)............... 7,427 7,394
Supplemental pro forma net income (loss)
per share (4)............................. $ 0.50 $ (0.02)
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
-----------------------------------------
<S> <C> <C> <C>
AS
ACTUAL PRO FORMA (3) ADJUSTED (5)
--------- --------------- -------------
BALANCE SHEET DATA:
Working capital.......................................................... $ 22,133 $ 22,133 $ 31,356
Total assets............................................................. 90,481 90,481 90,481
Short-term debt.......................................................... 9,513 9,513 290
Long-term debt........................................................... 36,179 36,179 15,102
Stockholders' equity..................................................... 19,874 19,874 50,174
</TABLE>
- ------------------------------
(1) The Company purchased substantially all of the assets and certain of the
liabilities of its predecessor, The North Face, a California corporation, on
June 7, 1994 (the "Acquisition"). See "The Company -- Background and
History" and "Management -- Compensation Committee Interlocks and Insider
Participation." In 1994, The North Face changed its fiscal year-end to
December 31. Due to this change and the Acquisition, a comparison of the
financial results of the Company and its predecessor is not meaningful.
(2) The unaudited pro forma information for the year ended December 31, 1994 has
been prepared assuming the Acquisition occurred on January 1, 1994 and gives
effect to certain adjustments, including amortization of intangibles,
increased interest expense due to higher debt levels and related income tax
effects. The pro forma results are for comparative purposes only and do not
purport to indicate the results of operations which would have occurred had
the combination taken place on January 1, 1994 or which may occur in the
future.
(3) Pro forma to give effect to the conversion of all shares of Preferred Stock
into shares of Common Stock at the beginning of the respective period.
(4) Pro forma to give effect to the issuance of up to 2,600,000 shares offered
hereby, the repayment of up to $30.3 million of the Company's long-term debt
and a corresponding reduction in interest expense at the beginning of the
respective period.
(5) Adjusted to reflect the sale by the Company of the 2,600,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$13.00 per share and the application of the estimated net proceeds
therefrom. See "Use of Proceeds."
4
<PAGE>
THE COMPANY
The Company believes that The North Face-Registered Trademark- is the
world's premier brand of high-performance outdoor apparel and equipment. The
Company designs and distributes technically sophisticated outerwear, skiwear,
functional sportswear, tents, sleeping bags and backpacks, all under The North
Face-Registered Trademark-name.
BACKGROUND AND HISTORY
The North Face was founded in 1965 by outdoor enthusiasts as a retailer of
high-performance climbing and backpacking equipment. The North Face name was
selected because, in the Northern Hemisphere, the north face of a mountain is
generally the coldest, iciest and most formidable to climb. In 1968, the Company
began to manufacture and wholesale backpacking equipment. In the early 1970's,
the Company began to offer outerwear and, in the early 1980's, added extreme
skiwear to its product offerings.
For nearly 30 years, the Company has been known as a leading supplier of
technical products to extreme users and serious outdoor athletes. Many of the
Company's innovative product designs have become industry standards. For
example, in 1975 the Company introduced the first geodesic dome tent, a design
which has set the standard for tents used in high altitude and polar
expeditions. In 1979, The North Face invented shingle construction, which has
become a standard among top-of-the-line sleeping bags with synthetic insulation.
In 1988, the Company introduced its Expedition System-Registered Trademark-, a
comprehensive, integrated cold weather clothing system, which has been widely
used by world-class climbers. By the late 1980's, The North Face had become the
only supplier in the United States to offer a comprehensive collection of
high-performance outerwear, skiwear, sleeping bags, backpacks and tents.
In the late 1980's, the Company's financial performance deteriorated for a
variety of reasons. The Company's inefficient product sourcing policies, which
included manufacturing a significant portion of its products, resulted in high
and volatile costs, excessive inventory of obsolete materials and finished goods
and significant delays in product delivery. In addition, the Company had engaged
in a retail expansion strategy that focused on opening outlet stores. The
Company produced lower priced products to sell in these outlets rather than
using them as a vehicle to dispose of excess inventory. This outlet strategy
failed to enhance the Company's brand image, adversely impacted its
relationships with its wholesale customers, and failed to target its traditional
consumers.
Beginning in January 1993, a new management team, including Marsden S.
Cason, the Company's current Chief Executive Officer, was recruited. The new
management team (i) hired a number of experienced senior executives and
mid-level managers; (ii) focused on profitability by establishing and
implementing specific sales and gross margin objectives; (iii) implemented new
sourcing strategies, which included relying principally on contract
manufacturers; (iv) closed eight outlets and one Company-operated retail store;
(v) implemented a more focused advertising strategy; and (vi) discontinued or
redesigned certain marginally profitable and unprofitable product lines and
styles. Primarily as a result of these actions, the Company achieved a
significant increase in sales and profitability.
BANKRUPTCY OF PARENT. In May 1988, the Company was acquired by a holding
company (the "Parent") which was owned, together with approximately 30
businesses in the outdoor and brand name apparel industries, by Odyssey
Worldwide Holdings B.V. ("Odyssey"). The Chairman and Chief Executive Officer of
both the Parent and of Odyssey was William N. Simon, who is the President and a
director of The North Face and was Chairman of the Board of the Company's
predecessor. In January 1993, Marsden S. Cason, currently the Chief Executive
Officer and a director of The North Face, became a director and executive
officer of Odyssey and the President and a director of the Company's
predecessor. See "Management." In January 1993, the Parent, as well as certain
other holding companies affiliated with Odyssey, filed for protection in the
United States under Chapter 11 of the U.S. Bankruptcy Code. Although the
Company's predecessor did not file for bankruptcy protection, its assets came
under the supervision of the bankruptcy court supervising the sale of the
Parent's assets. In June 1994, the
5
<PAGE>
Company purchased substantially all of the assets and certain of the liabilities
of the Company's predecessor (the "Acquisition"). J.H. Whitney & Co., a New York
limited partnership ("Whitney"), and two of its affiliates provided a
significant portion of the financing for the Acquisition. See "Management --
Compensation Committee Interlocks and Insider Participation."
The Company's principal executive office is located at 2013 Farallon Drive,
San Leandro, California 94577, and its telephone number is (510) 618-3500. The
Company was incorporated in Delaware in 1994 under the name "TNF Holdings
Company, Inc." and changed its name to "The North Face, Inc." following the
Acquisition.
6
<PAGE>
RISK FACTORS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE FEDERAL SECURITIES LAWS. ACTUAL RESULTS AND THE TIMING OF CERTAIN
EVENTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING
STATEMENTS DUE TO A NUMBER OF FACTORS, INCLUDING THOSE SET FORTH BELOW AND
ELSEWHERE IN THIS PROSPECTUS. IN ADDITION TO THE OTHER INFORMATION IN THIS
PROSPECTUS, THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS.
CHANGING CONSUMER PREFERENCES. Although the Company believes that it has
benefitted from changing consumer preferences and increasing consumer interest
in outdoor activities and from lifestyle changes that emphasize apparel designed
for such activities, there can be no assurance that this belief is correct or
that these trends will continue. Any change in these developments or reduction
in consumer interest in outdoor sports and physical activities could have a
material adverse effect on the Company's results of operations and financial
condition. In addition, although the Company believes that its products
historically have not been significantly affected by fashion trends, all of the
Company's products are subject to changing consumer preferences. Consumer
preferences could shift rapidly to other types of outdoor equipment or apparel
or away from these types of products altogether. Any such shift could have a
material adverse effect on the Company's results of operations and financial
condition. Furthermore, there can be no assurance that the introduction of new
product categories, such as Tekware-TM-, or new marketing or distribution
strategies, such as the sale of the Company's products in retail formats that
are new to the Company, will not adversely impact The North Face-Registered
Trademark- brand or result in a shift of consumer preferences away from the
Company's product lines. The Company's future success depends in part on its
ability to anticipate and respond to changes in consumer preferences and there
can be no assurance that the Company will respond in a timely manner to such
changes. Failure to anticipate and respond to changing consumer preferences
could lead to, among other things, lower sales, excess inventories and lower
margins, which would have a material adverse effect on the Company's results of
operations and financial condition. See "Business -- Industry Overview."
ABILITY TO ACHIEVE AND MANAGE POTENTIAL FUTURE GROWTH. The Company's future
profitability is critically dependent on its ability to achieve and manage
potential future growth effectively. There can be no assurance that the Company
will be successful in increasing net sales in the future or that the rate of
period-to-period net sales growth, if any, will not decline. Prior to January
1993, the Company's operational, financial and management systems were
relatively weak. Since that date, the Company implemented certain new controls
in operational, financial and management information systems. In addition, in
order to manage currently anticipated levels of future demand, the Company will
be required to (i) improve its management information systems and controls,
including inventory management, (ii) expand its distribution capabilities and
(iii) attract and retain qualified personnel, including middle management. The
Company currently anticipates spending approximately $1.5 to 2.0 million through
the end of 1997 to upgrade its management information systems. There can be no
assurance that any upgrades of its management information systems will be
completed in a timely manner or that any such upgrades will be adequate to meet
the needs of the Company. Any disruption or slowdown in the Company's order
processing or fulfillment systems could cause orders to be shipped late.
Retailers may cancel orders or refuse to receive goods on account of late
shipments which would result in a reduction of net sales and could mean
increased administrative and shipping costs. See "Business -- Management
Information Systems." If the Company's operations were to continue to grow, for
which there can be no assurance, there could be increasing strain on the
Company's management, financial, product design, marketing, distribution and
other resources and the Company may experience serious operating difficulties,
including difficulties in hiring, training and managing an increasing number of
employees, difficulties in obtaining sufficient materials and manufacturing
capacity to produce its products, problems in upgrading its management
information systems and delays in production and shipments. There can be no
assurance that the Company will be able to manage future growth effectively. Any
failure to manage
7
<PAGE>
growth effectively could have a material adverse effect on the Company's results
of operations and financial condition. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
DEPENDENCE ON NEW PRODUCTS. The Company's continued growth and success
depend in large part on its ability to successfully develop and introduce new
products that are perceived to represent an improvement in performance or value
compared to products available in the marketplace. Failure to regularly develop
and introduce new products successfully could materially and adversely impact
the Company's future growth and profitability. In addition, the Company intends
to introduce certain new products, such as its recently introduced Tekware
product line, that may represent a significant shift in concept, design and
intended use from its traditional products. These products, which are targeted
more towards the recreational segment of the market, may have short life cycles,
thereby requiring more frequent product introductions than the Company's
traditional product lines. Furthermore, these products and the introduction of
more moderately priced products may dilute the Company's image as a leading
supplier of technologically superior products and lead to a reduced demand for
its existing products. See "Business -- Products" and "-- Product Design and
Development."
INTRODUCTION AND ACCEPTANCE OF TEKWARE-TM-. In 1996, The North Face
introduced a new line of synthetic outdoor apparel, called "Tekware-TM-." The
Company's projected future growth is dependent in large part on consumer
acceptance of its Tekware product line. In addition, the Company has recently
hired several highly experienced executives to support the production,
merchandising and promotion of its Tekware products. The Company's limited
experience with marketing casual apparel could materially and adversely affect
its ability to introduce Tekware successfully or to develop the Tekware product
line. Because the Company selectively distributes its products to specialty
retailers, the availability of Tekware will be significantly limited as compared
to the availability of other casual apparel, thereby causing Tekware to receive
reduced exposure to consumers, which may adversely impact the acceptance of
Tekware in the casual apparel market. In addition, because Tekware is produced
from synthetic materials, it may not appeal to those consumers who prefer to
purchase apparel made from cotton or other natural fabrics, further limiting the
potential consumer acceptance of the Tekware products. See "Business -- Products
- -- Tekware."
IMPLEMENTATION OF SUMMIT SHOP STRATEGY. In August 1996, The North Face
plans to open the first of its "Summit Shops," year-round concept shops
dedicated to The North Face-Registered Trademark- products and primarily to be
located within certain of the Company's wholesale customers. The North Face
currently anticipates that approximately 25 Summit Shops will open by the end of
1996; however, there can be no assurance that this number of Summit Shops will
be opened in a timely manner, if at all, or, if opened, that their performance
will meet the Company's expectations. The Company's ability to implement this
expansion program successfully will depend on a number of factors, including the
Company's ability to identify qualified and interested specialty retailers, to
design and monitor the performance of such shops, to maintain the freshness of
the merchandise in Summit Shops and to successfully implement its core inventory
replenishment program. As part of its Summit Shop program, The North Face has
agreed to replenish its core product inventory in each Summit Shop on a timely
basis. This will require the Company to arrange for the materials and production
for certain products throughout the year in order to meet forecasted and actual
demand, a procedure that is substantially different from the Company's current
primarily two season production cycle. In addition, in order to properly
replenish the Summit Shops, the Company will be required to maintain higher
inventory levels than it has maintained historically. There can be no assurance
that the Company will be able to efficiently source merchandise for the Summit
Shops on a cost-effective basis or that such merchandise will be available on a
timely basis. In addition, the Company believes that the success of its Summit
Shop program is highly dependent on market acceptance of its recently introduced
Tekware-TM- line of products. Failure to successfully implement its Summit Shop
program could result in significant write-offs of inventory and fixtures and
have a material adverse effect on the Company's results of operations and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- General," "Business -- Selective
Distribution" and "-- Summit Shops."
8
<PAGE>
RELIANCE ON CONTRACT MANUFACTURING. The Company currently relies on
approximately 50 contract manufacturers to produce substantially all of its
products, with ten of such manufacturers producing approximately 70% of the
Company's products in 1995. In the event any of the Company's key manufacturers
were unable or unwilling to continue to manufacture the Company's products, the
Company would have to rely on other current manufacturing sources or identify
and qualify new contract manufacturers. In such event, there can be no assurance
that the Company would be able to qualify such manufacturers for existing or new
products in a timely manner or that such manufacturers would allocate sufficient
capacity to the Company in order to meet its requirements. Any significant delay
in the Company's ability to obtain adequate supplies of its products from its
current or alternative sources, would materially and adversely affect the
Company's business and results of operations. Although the Company believes that
it has good relationships with its contract manufacturers and maintains good
control with respect to product specifications and quality, there can be no
assurance that these manufacturers will continue to produce products that are
consistent with the Company's standards. In this regard, the Company has
occasionally received, and may in the future continue to receive, shipments of
product from contract manufacturers that fail to conform to the Company's
quality control standards. In such event, unless the Company is able to obtain
replacement products in a timely manner, the Company risks the loss of revenue
resulting from the sale of such products and related increased administrative
and shipping costs. The failure of any key contract manufacturer to supply
products that conform to the Company's standards could materially and adversely
affect the Company's results of operations and its reputation in the
marketplace. The Company has no long-term contracts with its manufacturing
sources and it competes with other companies for production facilities and
import quota capacity. Although the Company believes that it has good
relationships with its principal manufacturing sources, the Company's future
success is substantially dependent upon its ability to maintain such
relationships. If the Company experiences significant increased demand, which
cannot be assured, or if an existing manufacturer needs to be replaced, the
Company will need to significantly expand its manufacturing capacity, both from
current and new manufacturing sources. There can be no assurance that such
additional manufacturing capacity will be available when required on terms that
are acceptable to the Company.
In the past, the Company and its wholesale customers have been unable to
maximize sales of the Company's products due to the Company's inability to
accurately forecast reorder demand for certain of its products. Beginning in
Fall 1996, the Company intends to initiate a core inventory replenishment
program in which significantly increased amounts of its finished core products
will be inventoried for more efficient reorder and certain of its contract
manufacturers will increase their materials inventories in order to manufacture
products more rapidly. There can be no assurance that the Company will be able
to successfully implement this program to meet its future reorder requirements.
Furthermore, the increased inventories resulting from this core inventory
replenishment program may result in increased excess inventory and material,
increased markdowns and lower margins. See "Business -- Sourcing and
Manufacturing."
SEASONALITY AND QUARTERLY FLUCTUATIONS. The Company's business is subject
to significant seasonal and quarterly fluctuations. The Company's results of
operations may fluctuate from quarter to quarter as a result of, among other
things, the amount and timing of shipments to wholesale customers, government
shipments, advertising and marketing expenditures, increases in the number of
employees and overhead to support growth and store opening costs. Historically,
the Company has realized substantially all of its profits in the third quarter
and has recognized losses during the first and second quarters of each year. The
Company anticipates that it will continue to incur net losses during each of the
first and second quarters for the foreseeable future. In addition, during the
second quarter of 1996, the Company expects to significantly increase its
operating expenses due to increased sales commissions as a result of higher
revenues, the hiring of new executive officers, the expansion of its
merchandising department to launch its Summit Shop program and a significant
increase of its product acquisition staff. Due to these factors and as a result
of expenses associated with the operation of the Chicago retail store, which
opened in October 1995, the Company anticipates that it will incur a loss in the
second quarter of 1996
9
<PAGE>
which will be significantly larger than the loss in the second quarter of 1995.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Quarterly Data and Seasonality."
The Company periodically ships tents to the U.S. government which has
resulted in significant quarterly fluctuations in net sales, particularly during
the first and second quarters when net sales have historically been lower. For
example, the Company received $2.3 million and $1.7 million from the shipment of
tents to the U.S. government in the first and second quarters of 1995,
respectively, but shipped no tents to the U.S. government in the first quarter
of 1996 and expects to ship no tents to the government in the second quarter of
1996, resulting in fluctuations that make period-to-period comparisons for these
quarters less meaningful. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations."
Furthermore, the Company expects its overall gross margins to decline in the
near term because the Company expects its lower margin wholesale business to
continue to expand more rapidly than its higher margin retail business. In the
event that the Company's operating results in any future quarters fall below the
expectations of securities analysts and investors, the trading price of the
Company's Common Stock would likely be materially and adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
INTERNATIONAL OPERATIONS. The Company recently expanded its operations in
Europe and Canada. In addition, the Company imports over half of its merchandise
from contract manufacturers located outside of the United States, primarily in
the Far East. As a result, the Company's business is subject to the risks
generally associated with doing business abroad, such as foreign governmental
regulations, foreign consumer preferences, political unrest, disruptions or
delays in shipments and changes in economic conditions in countries in which the
Company's operations and manufacturing sources are located. These factors, among
others, could influence the Company's ability to sell its products in
international markets, as well as its ability to manufacture its products or
procure certain materials. If any such factors were to render the conduct of
business in a particular country undesirable or impractical, there could be a
material and adverse effect on the Company's results of operations and financial
condition. The Company's sales in Europe and Canada are denominated in the local
currencies of the applicable wholesale customer; the Company's inventory
purchases from contract manufacturers in the Far East are denominated in United
States dollars. The Company does not engage in forward foreign exchange hedging
activities for its Canadian revenues, but it enters into certain forward foreign
exchange hedging activities with respect to its European sales revenues. As a
result, unanticipated changes in the value of the United States dollar relative
to the value of certain foreign currencies could have a material adverse effect
on the Company's results of operations and financial condition. In addition, the
Company's business is subject to the risks associated with the imposition of
additional United States legislation and regulations relating to the manufacture
and importation of foreign manufactured apparel products, including quotas,
duties, tariffs, taxes and other charges or restrictions on imported apparel.
The Company cannot predict whether additional United States quotas, duties,
tariffs, taxes or other charges or restrictions will be imposed upon the
importation of its products in the future, or what effect any such actions would
have on its business, financial condition and results of operations. A
significant portion of the Company's products is produced in China. The U.S.
government currently is considering imposing punitive tariffs on certain exports
from China, primarily apparel. There can be no assurance that these sanctions,
if implemented, would not have a material adverse effect on the Company's
results of operations and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Foreign Exchange
Fluctuations," "Business -- International Operations" and "-- Sourcing and
Manufacturing."
ECONOMIC CYCLICALITY; WEATHER. The sale of outerwear, outdoor equipment and
skiwear products historically have been subject to substantial cyclical
fluctuation, with purchases of these products tending to decline during periods
of recession in the general economy or uncertainty regarding future economic
prospects that affect consumer spending habits, particularly on discretionary
items. This cyclicality and any related fluctuation in consumer demand could
have a material adverse effect on the Company's
10
<PAGE>
results of operations and financial condition. In addition, various retailers,
including some of the Company's customers, have experienced financial
difficulties during the past several years, thereby increasing the risk that
such retailers may not pay for the Company's products in a timely manner, if at
all.
Sales of certain of the Company's products are dependent upon the weather
and such sales may decline in years in which weather conditions, such as the
lack of snow, do not favor the use of the Company's products. Sustained periods
of unseasonable weather conditions could have a material adverse effect on the
Company's results of operations and financial condition.
DEPENDENCE ON KEY PERSONNEL; NEW MANAGEMENT. In recent years, the Company
has made significant changes in its executive officers and management team.
Eight of the Company's nine executive officers have joined the Company or its
predecessor since the beginning of 1993, including the Company's vice presidents
of merchandising, marketing and retail, each of whom joined the Company between
January and April 1996, and the Company's vice president of product development,
who joined the Company in May 1995. These new senior executives, among others,
have extensive national retail and wholesale experience and have effected
certain product development, merchandising, marketing and operational strategy
changes. There can be no assurance that the Company will succesfully assimilate
these new executives and make these strategic modifications to certain of its
past operating policies in a timely and efficient manner. Furthermore, the
continued success of the Company is largely dependent on the personal efforts
and abilities of its senior management and certain other key personnel and on
the Company's ability to retain current management and to attract and retain
qualified personnel in the future. The loss of certain key employees or the
Company's inability to retain other qualified employees could have a material
adverse effect on the Company's results of operations and financial condition.
See "Management." The Company has not obtained and does not expect to obtain key
man life insurance on any of its senior management team.
COMPETITION. The markets for the Company's products are highly competitive,
and the recent growth in these markets has encouraged the entry of many new
competitors as well as increased competition from established companies.
Although the Company believes that it does not compete directly with any single
company with respect to its entire range of products, within each product
category the Company has significant competitors. Many of these competitors are
larger and have significantly greater financial, marketing and other resources
than the Company. While the Company believes that it has been able to compete
successfully because of its brand image and recognition, the broad range and
quality of its products, and its selective distribution and customer service
policies, including the lifetime warranty that its products carry, there can be
no assurance that the Company will be able to maintain or increase its market
share in the future. The failure of the Company to compete successfully would
materially and adversely affect the Company's business and results of
operations. See "Business -- Competition."
DEPENDENCE ON KEY SUPPLIERS OF MATERIALS. Certain of the materials used to
manufacture the Company's products are available from a single or limited number
of independent suppliers and there can be no assurance that there will not be a
significant disruption in the supply of these materials from current sources or,
in the event of such disruption, that the Company would be able to locate
alternative suppliers of materials of comparable quality at an acceptable price.
To the extent that delays in deliveries of materials from suppliers cause delays
in shipments of products manufactured from these materials, the Company's
wholesale customers may request delays in delivery to them of complementary
products. Although the Company believes that there are alternative suppliers of
materials necessary to manufacture its products, these materials may not be of
comparable quality or may not be perceived by consumers to be of comparable
quality. As a result, the use of alternative materials may adversely affect the
Company's reputation for high-quality products. In addition, although certain of
the Company's materials suppliers currently bear a portion of the cost of
research and development of key materials used in the Company's products and
help defray the cost of advertising products that incorporate such materials,
there can be no assurance that such suppliers will continue such arrangements or
that other suppliers will make
11
<PAGE>
similar arrangements in the future. Any significant reduction by the Company's
suppliers of their research and development activities or co-op advertising
arrangements would adversely affect the Company's results of operations. See
"Business -- Product Design and Development."
DEPENDENCE ON TRADEMARKS. The Company uses a number of trademarks, certain
of which the Company has registered with the United States Patent and Trademark
Office and in certain foreign countries. The Company believes that its
registered and common law trademarks have significant value and that some of its
trademarks are instrumental to its ability to create and sustain demand for and
market its products. The Company believes that there are no currently pending
challenges to the use or registration of any of the Company's registered
trademarks. There can be no assurance, however, that the Company's trademarks do
not or will not violate the proprietary rights of others, that they would be
upheld if challenged or that the Company would, in such an event, not be
prevented from using its trademarks, any of which could have a material adverse
effect on the Company and its business. In addition, the Company could incur
substantial costs to defend legal actions taken against it relating to the
Company's use of trademarks, which could have a material adverse effect on the
Company's results of operations and financial condition. See "Business --
International Operations" and "-- Trademarks and Licensing."
The Company uses various trademarks owned by other companies in the
promotion, distribution and sale of its products. It uses these trademarks with
the knowledge and, it believes, the approval of such companies and, in only one
case, pursuant to a licensing agreement. There can be no assurance that the
Company will be able to continue to use these trademarks or that the licensing
agreement will be renewed. In the event that the Company is unable to use the
trademarks of other companies in the future, such an occurrence could adversely
affect the Company's results of operations.
From time to time, the Company discovers products in the marketplace that
are counterfeit reproductions of the Company's products or that otherwise
infringe upon trademark rights held by the Company. If the Company is
unsuccessful in challenging a third party's products on the basis of trademark
infringement, continued sales of such product by that or any other third party
could adversely impact The North Face-Registered Trademark- brand, result in the
shift of consumer preferences away from the Company and generally have a
material adverse effect on the Company's results of operations and financial
condition. See "Business -- Trademarks and Licensing."
PRODUCT LIABILITY RISK; WARRANTY EXPOSURE. The Company's products are used
in mountain climbing, polar exploration and other inherently dangerous outdoor
activities, sometimes in severe or extreme weather conditions. Purchasers of the
Company's products rely on the design, integrity and durability of such
products. However there can be no assurance that the Company's products will not
fail to perform properly. Although it has not experienced any significant losses
as a result of product recalls or product liability claims, there can be no
assurance that the Company will not incur liabilities for product recalls or
product liability claims that could have a material adverse effect on the
Company's results of operations and financial condition.
Substantially all of the Company's products carry a lifetime warranty for
defects in quality and workmanship. The Company maintains a warranty reserve for
future warranty claims, but there can be no assurance that the actual costs of
servicing future warranty claims will not significantly exceed such reserve,
which could materially and adversely affect the Company's results of operations
and financial condition. See Note 2 of Notes to Consolidated Financial
Statements and "Business -- Selective Distribution."
NEED FOR ADDITIONAL CAPITAL. Various elements of the Company's business and
growth strategies, including its plans to broaden existing product lines and
introduce new products, will require additional capital. There can be no
assurance that funds will be available to the Company on terms satisfactory to
the Company when needed. To the extent that the Company raises additional equity
capital, it would have a dilutive effect on existing stockholders.
12
<PAGE>
BENEFITS TO EXISTING STOCKHOLDERS AND AFFILIATES. The consummation of this
offering will involve certain benefits to existing stockholders and affiliates
of the Company. The Company will use a portion of the proceeds from this
offering to repay approximately $10.3 million of indebtedness subject to a
subordinated note which is held by an existing stockholder of the Company. See
"Use of Proceeds." The subordinated note was issued in connection with the
Acquisition. See "Management -- Compensation Committee Interlocks and Insider
Participation."
CONTROL BY EXISTING STOCKHOLDERS; ANTI-TAKEOVER DEVICES. Upon the
consummation of this offering, the Company's current stockholders will
beneficially own approximately 73% of the issued and outstanding shares of
Common Stock. Although there are no agreements among such stockholders, if they
were to act in concert, they would be able to elect all of the Company's
directors, increase the Company's authorized capital stock, dissolve, merge or
sell the assets of the Company, or effect other fundamental corporate
transactions requiring stockholder approval, and generally direct the affairs of
the Company. See "Principal Stockholders."
Certain provisions of the Restated Certificate of Incorporation (the
"Charter") and by-laws (the "By-laws") of the Company that will become operative
upon the closing of this offering may be deemed to have anti-takeover effects
and may delay, deter or prevent a change in control of the Company that a
stockholder might consider in his/her best interest. These provisions (i)
classify the Company's Board of Directors into three classes, each of which will
serve for different three-year periods; (ii) provide that only the Board of
Directors or certain members thereof or officers of the Company may call special
meetings of the stockholders; (iii) eliminate the ability of stockholders to
take any action without a meeting; (iv) establish certain advance notice
procedures for nomination of candidates for election as directors and for
stockholder proposals to be considered at stockholders meetings and (v)
authorize the issuance of "blank check" preferred stock having such
designations, rights and preferences as may be determined from time to time by
the Board of Directors. See "Description of Capital Stock -- Anti-takeover
Effects of Certain Provisions of the Company's Restated Certificate of
Incorporation and By-laws" and "-- Preferred Stock."
NO PRIOR MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE. Prior
to this offering, there has been no public market for the Common Stock, and
there can be no assurance that a regular trading market for the Common Stock
will develop after this offering or that, if developed, it will be sustained.
The initial public offering price of the Common Stock has been determined by
negotiation between the Company and the Underwriters based on several factors
and does not necessarily reflect the market price of the Common Stock after this
offering or the price at which the Common Stock may be sold in the public market
after this offering. See "Underwriting."
The market price for the Common Stock may be significantly affected by such
factors as the Company's operating results, changes in any earnings estimates
publicly announced by the Company or by analysts, announcements of new products
by the Company or its competitors, seasonal effects on sales and various factors
affecting the economy, in general. In addition, the stock market has experienced
a high level of price and volume volatility and market prices for the stock of
many companies have experienced wide price fluctuations not necessarily related
to the operating performance of such companies.
SHARES ELIGIBLE FOR FUTURE SALE. Sales of substantial amounts of Common
Stock in the public market after this offering may adversely affect prevailing
market prices for the Common Stock and could impair the Company's ability to
raise capital in the future through the sale of its equity securities. Upon the
consummation of this offering, the Company will have 9,581,666 shares of Common
Stock outstanding. Of these shares, the 2,600,000 shares offered hereby will be
freely tradeable without restriction under the Securities Act of 1933, as
amended (the "Securities Act"). The remaining 6,981,666 shares of Common Stock
are "restricted shares" within the meaning of the Securities Act (the
"Restricted Shares"). Approximately 615,668 and 6,365,998 Restricted Shares will
be eligible for sale in the public market beginning 90 days and 180 days,
respectively, after the effective date of the Registration Statement of which
this Prospectus is a part, pursuant to Rule 144 ("Rule 144") and Rule 701 ("Rule
701") promulgated under
13
<PAGE>
the Securities Act and certain lock-up arrangements entered into between the
Underwriters and the holders of such Restricted Shares. Of such Restricted
Shares, approximately 6,797,768 shares will be subject to certain volume
limitations and other resale restrictions pursuant to Rule 144. In addition, the
Company intends to file a Registration Statement on Form S-8 ("Form S-8") under
the Securities Act approximately 90 days after the effective date of this
offering to register shares of Common Stock issuable upon the exercise of stock
options granted under the Company's stock option plans. As of May 17, 1996,
options to purchase 1,170,802 shares of Common Stock were outstanding under the
Company's stock option plans. Holders of 826,477 stock options to purchase
Common Stock have granted the Underwriters a 180-day lock-up on shares issuable
upon the exercise of such options. Furthermore, pursuant to the terms of a
registration rights agreement, beneficial owners of an aggregate 7,519,011
shares of Common Stock (including shares that can be acquired within 60 days
from May 1, 1996 upon the exercise of options) have demand and/or incidental, or
"piggyback," registration rights, permitting such holders, in the case of demand
registration rights, to request on three occasions (subject to certain
limitations) that such shares be registered for resale under the Securities Act
at the Company's expense and, in the case of piggyback rights, permitting such
holders to include their shares, at the Company's expense, in certain
registration statements filed by the Company. No prediction can be made as to
the effect, if any, that sales of shares of Common Stock or even the
availability of such shares for sale will have on the market prices prevailing
from time to time. See "Shares Eligible for Future Sale" and "Underwriting."
DILUTION. The amount by which the initial public offering price per share
of Common Stock exceeds the pro forma net tangible book value per share after
this offering constitutes dilution to investors in this offering. Investors
purchasing shares of Common Stock in this offering will experience an immediate
and substantial dilution in net tangible book value of $11.06 per share
(assuming an initial public offering price of $13.00 per share). See "Dilution."
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,600,000 shares of
Common Stock offered hereby are estimated to be approximately $30.3 million
($33.4 million if the Underwriters' over-allotment option is exercised in full)
based on an initial public offering price of $13.00 per share and after
deducting underwriting discounts and commissions and estimated offering expenses
payable by the Company.
The Company intends to use such proceeds to repay certain indebtedness
consisting of (i) $14.0 million under the Company's revolving line of credit,
(ii) $6.0 million under the Company's term note debt and (iii) approximately
$10.3 million principal amount of the Company's Subordinated Note due June 7,
2001 (the "Subordinated Note"), plus accrued interest. The revolving line of
credit and term note debt are a part of a combined credit facility
(collectively, the "Credit Facility"), with Heller Financial, Inc. and two
banks. The revolving line of credit bears interest (8.27% at May 16, 1996) at
prime plus 1.0% or LIBOR plus 2.75% and is due in February 2000, with interim
reductions based on collateral availability. Approximately $19.6 million was
outstanding under the line of credit as of May 16, 1996. The term note debt
bears interest (8.44% at May 16, 1996) at prime plus 1.25% or LIBOR plus 3.0%
and is due in quarterly installments through January 2000. Approximately $5.8
million was outstanding under the term note as of May 16, 1996. Effective as of
the closing of this offering, the Credit Facility is expected to be restructured
and interest under the revolving portion of the Credit Facility is expected to
be reduced by 1.25% and interest under the term note portion of the Credit
Facility is expected to be reduced by 1.5%. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." The Subordinated Note bears interest at the rate of 10.101%
per annum and is held by an affiliate of the Company. Approximately $24.3
million was outstanding under the Subordinated Note as of May 16, 1996. The
proceeds from the issuance of the Subordinated Note were used to fund the
Acquisition. See "Management -- Compensation Committee Interlocks and Insider
Participation." In connection with the restructuring of both the Credit Facility
and the Subordinated Note, the Company expects to record a non-cash
extraordinary charge of approximately $0.8 million, net of tax, as a write-off
of deferred debt issuance cost. The Company intends to use the remaining net
proceeds, if any, for debt repayment or for working capital and other general
corporate purposes. Pending such uses, the Company intends to invest the net
proceeds from this offering in short-term, investment-grade, interest-bearing
instruments.
DIVIDEND POLICY
The Company intends to retain any future earnings for funding growth and,
therefore, does not anticipate paying any cash dividends in the foreseeable
future. Further, pursuant to the terms of the Credit Facility, the Company is
and will be restricted in its ability to pay cash dividends on its capital
stock. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
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<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
Company as of March 31, 1996 (i) on an actual basis, (ii) on a pro forma basis
after giving effect to the conversion of all outstanding shares of Preferred
Stock into Common Stock and the filing of an Amended and Restated Certificate of
Incorporation upon the closing of this offering and (iii) as adjusted to reflect
the sale of the 2,600,000 shares of Common Stock offered by the Company hereby
at an assumed initial public offering price of $13.00 per share, after deducting
estimated underwriting discounts and commissions and estimated offering expenses
payable by the Company, and the application of the estimated net proceeds
therefrom. The table should be read in conjunction with the Consolidated
Financial Statements of the Company and related Notes thereto included elsewhere
in this Prospectus. See "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Short-term debt, including current portion of long-term debt.............. $ 9,513 $ 9,513 $ 290
----------- ----------- ------------
----------- ----------- ------------
Long-term debt, less current portion:
Long-term debt and capital leases, less current portion............... $ 11,846 $ 11,846 $ 1,069
Subordinated debt..................................................... 24,333 24,333 14,033
----------- ----------- ------------
Total long-term debt, less current portion........................ 36,179 36,179 15,102
----------- ----------- ------------
Stockholders' equity:
Series A Preferred Stock, $1.00 par value per share; authorized:
4,000,000 shares; issued and outstanding: actual, 1,935,781 shares;
pro forma and as adjusted, no shares................................. 12,267 -- --
Cumulative preferred dividends accrued (1)............................ 2,407 -- --
Common Stock, $0.0025 par value per share; authorized: actual,
10,000,000 shares; pro forma and as adjusted, 50,000,000 shares;
issued and outstanding: actual, 2,901,571 shares; pro forma,
7,010,303 shares; as adjusted, 9,610,303 shares (2).................. 7 17 24
Additional paid-in capital............................................ 645 15,309 45,602
Subscriptions receivable.............................................. (142) (142) (142)
Retained earnings..................................................... 5,084 5,084 5,084
Cumulative translation adjustments.................................... (394) (394) (394)
----------- ----------- ------------
Total stockholders' equity........................................ 19,874 19,874 50,174
----------- ----------- ------------
Total capitalization.......................................... $ 56,053 $ 56,053 $ 65,276
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
- ------------------------------
(1) Represents 379,956 shares of Preferred Stock to be issued upon declaration
of such dividends.
(2) Excludes 1,133,287 shares of Common Stock issuable upon exercise of stock
options outstanding as of March 31, 1996, at a weighted average exercise
price of $1.04 per share. Also excludes 833,950 shares of Common Stock
reserved for future issuance under the Company's stock option plans,
employee stock purchase plan and Directors' stock option plan. See
"Management -- Stock Incentive Plan," "-- Employee Stock Purchase Plan" and
"-- Directors' Compensation."
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<PAGE>
DILUTION
The pro forma net tangible deficit of the Company's Common Stock at March
31, 1996 was approximately $11.6 million, or $(1.66) per share. Pro forma net
tangible book value per share represents the amount of the Company's
stockholders' equity, less intangible assets, divided by the number of shares of
Common Stock outstanding as of March 31, 1996, assuming conversion of each
outstanding share of Preferred Stock into approximately 1.7743 shares of Common
Stock.
Pro forma net tangible book value dilution per share represents the
difference between the amount per share paid by purchasers of shares of Common
Stock in the offering made hereby and the pro forma net tangible book value per
share of Common Stock immediately after completion of the offering. After giving
effect to the sale of the 2,600,000 shares of Common Stock being offered by the
Company hereby at an assumed initial offering price of $13.00 per share and
after deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by the Company, the pro forma net tangible book value
at March 31, 1996 would have been approximately $18.7 million, or $1.94 per
share. This represents an immediate increase in pro forma net tangible book
value of $3.60 per share to existing stockholders and an immediate dilution in
pro forma net tangible book value of $11.06 per share to purchasers of Common
Stock in the offering, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.......................... $ 13.00
Pro forma net tangible deficit per share at March 31, 1996............. $ (1.66)
Increase per share attributable to new investors....................... 3.60
---------
Pro forma net tangible book value per share after the offering........... 1.94
---------
Pro forma net tangible book value dilution per share to new investors.... $ 11.06
---------
---------
</TABLE>
The following table sets forth, as of March 31, 1996, the number of shares
of Common Stock purchased from the Company (assuming conversion of each share of
Preferred Stock into approximately 1.7743 shares of Common Stock), the total
consideration paid and the average price per share paid by existing stockholders
and the new investors purchasing shares in the offering at an assumed initial
public offering price of $13.00 per share (before deducting estimated
underwriting discounts and commissions and estimated offering expenses payable
by the Company):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------------- --------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
----------------- ---------- --------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS) (IN THOUSANDS)
Existing stockholders......................... 7,010 72.9% $ 15,326 31.2% $ 2.19
New investors................................. 2,600 27.1 33,800 68.8 $ 13.00
----- ----- --------------- -----
Total..................................... 9,610 100.0% $ 49,126 100.0%
----- ----- --------------- -----
----- ----- --------------- -----
</TABLE>
The foregoing assumes no exercise of stock options outstanding at March 31,
1996. At March 31, 1996, there were outstanding stock options to purchase an
aggregate of 1,133,287 shares of Common Stock at a weighted average exercise
price of $1.04 per share. To the extent these stock options are exercised, there
will be further dilution to purchasers in this offering. See "Management --
Stock Incentive Plans" and Note 12 of Notes to Consolidated Financial
Statements.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected consolidated financial data presented below as of December 31,
1994 and 1995, and for the periods from April 1, 1994 to June 6, 1994, from June
7, 1994 to December 31, 1994, the fiscal year ended March 31, 1994 and the year
ended December 31, 1995 has been derived from the Company's audited financial
statements, which are included elsewhere in this Prospectus. The selected
consolidated financial data presented below as of March 31, 1994 was derived
from audited consolidated financial statements of the Company, which are not
included in this Propectus. The selected consolidated financial data presented
below as of March 31, 1992, 1993 and 1996, for the years ended March 31, 1992
and 1993, and for the three months ended March 31, 1995 and 1996 was derived
from unaudited financial statements but was prepared on the same basis as the
audited consolidated financial statements and, in the opinion of management,
includes all adjustments which the Company considers necessary for a fair
presentation of the financial information set forth therein. The information
should be read in conjunction with the Consolidated Financial Statements and
related Notes included elsewhere in this Prospectus and "Management's Discussion
and Analysis of Financial Condition and Results of Operations." Results for the
interim periods are not necessarily indicative of results for a full year.
<TABLE>
<CAPTION>
THE PREDECESSOR (1) THE COMPANY (1)
----------------------------------------------------------------------------------------------
PERIOD THREE
FROM FISCAL YEAR MONTHS
FISCAL YEAR ENDED MARCH 31, APRIL 1, PERIOD FROM ENDED ENDED
TO JUNE 7, TO DECEMBER 31, MARCH 31,
------------------------------- JUNE 6, DEC. 31, ------------------------ ---------
1992 1993 1994 1994 1994 1994 (2) 1995 1995
--------- --------- --------- ----------- ----------- ------------- --------- ---------
(PRO FORMA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................... $ 68,912 $ 86,710 $ 87,411 $ 9,085 $ 60,574 $ 89,187 $ 121,534 $ 23,500
Gross profit................. 27,109 29,528 36,604 3,768 29,514 41,439 55,064 10,367
Operating expenses........... 30,563 36,076 32,810 5,290 19,659 34,105 44,540 9,310
--------- --------- --------- ----------- ----------- ------------- --------- ---------
Operating income (loss)...... (3,454) (6,548) 3,794 (1,522) 9,855 7,334 10,524 1,057
Interest expense............. (3,521) (4,209) (2,046) (58) (2,598) (4,390) (5,530) (1,326)
Other income, net............ 82 766 (200) 19 186 (264) 589 85
--------- --------- --------- ----------- ----------- ------------- --------- ---------
Income (loss) before
provision for taxes and
extraordinary item.......... (6,893) (9,991) 1,548 (1,561) 7,443 2,680 5,583 (184)
Provision for income taxes... -- 517 722 112 2,808 972 2,098 (99)
Extraordinary item........... -- -- -- 577 -- -- -- --
--------- --------- --------- ----------- ----------- ------------- --------- ---------
Net income (loss)............ $ (6,893) $ (10,508) $ 826 $ (1,096) $ 4,635 $ 1,708 $ 3,485 $ (85)
--------- --------- --------- ----------- ----------- ------------- --------- ---------
--------- --------- --------- ----------- ----------- ------------- --------- ---------
Pro forma net income (loss)
per share and share
equivalents (3)............. $ 0.47
---------
---------
Pro forma shares used in
computing net income (loss)
per share................... 7,427
---------
---------
Supplemental pro forma net
income (loss) per share
(4)......................... $ 0.50
---------
---------
<CAPTION>
1996
---------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................... $ 31,020
Gross profit................. 12,603
Operating expenses........... 12,464
---------
Operating income (loss)...... 139
Interest expense............. (1,453)
Other income, net............ 167
---------
Income (loss) before
provision for taxes and
extraordinary item.......... (1,147)
Provision for income taxes... (518)
Extraordinary item........... --
---------
Net income (loss)............ $ (629)
---------
---------
Pro forma net income (loss)
per share and share
equivalents (3)............. $ (0.09)
---------
---------
Pro forma shares used in
computing net income (loss)
per share................... 7,394
---------
---------
Supplemental pro forma net
income (loss) per share
(4)......................... $ (0.02)
---------
---------
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, AS OF DECEMBER 31,
------------------------------- ----------------------
1992 1993 1994 1994 1995
--------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................ $ 31,040 $ 23,725 $ 22,987 $ 14,189 $ 22,668
Total assets................... 59,959 53,318 50,363 66,549 84,508
Short-term debt................ 846 782 1,511 1,327 4,838
Long-term debt................. 46,467 48,580 46,895 29,047 36,388
Stockholders' equity........... (2,951) (13,346) (13,130) 17,179 20,568
<CAPTION>
AS OF MARCH 31,
1996
-----------------
<S> <C>
BALANCE SHEET DATA:
Working capital................ $ 22,133
Total assets................... 90,481
Short-term debt................ 9,513
Long-term debt................. 36,179
Stockholders' equity........... 19,874
</TABLE>
- ------------------------------
(1) The Company purchased substantially all of the assets and certain of the
liabilities of its predecessor, The North Face, a California corporation, on
June 7, 1994 (the "Acquisition"). See "The Company -- Background and
History" and "Management -- Compensation Committee Interlocks and Insider
Participation." In 1994, The North Face changed its fiscal year-end to
December 31. Due to this change and the Acquisition, a comparison of the
financial results of the Company and its predecessor is not meaningful.
(2) The unaudited pro forma information for the year ended December 31, 1994 has
been prepared assuming the Acquisition occurred on January 1, 1994 and gives
effect to certain adjustments, including amortization of intangibles,
increased interest expense due to higher debt levels and related income tax
effects. The pro forma results are for comparative purposes only and do not
purport to indicate the results of operations which would have occurred had
the combination taken place on January 1, 1994 or which may occur in the
future.
(3) Pro forma to give effect to the conversion of all shares of Preferred Stock
into shares of Common Stock at the beginning of the respective period.
(4) Pro forma to give effect to the issuance of up to 2,600,000 shares offered
hereby, to fund the repayment of up to $30.3 million of the Company's
long-term debt and a corresponding reduction in interest expense at the
beginning of the respective period.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE FEDERAL SECURITIES LAWS. ACTUAL RESULTS AND THE TIMING OF CERTAIN
EVENTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING
STATEMENTS DUE TO A NUMBER OF FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK
FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
GENERAL
BACKGROUND/TURNAROUND. The North Face was founded in 1965 by outdoor
enthusiasts as a retailer of high-performance climbing and backpacking
equipment. While the Company had developed a reputation for technical excellence
among extreme users of its products, in the late 1980s its financial performance
deteriorated for a variety of reasons. The Company's inefficient product
sourcing policies, which included manufacturing a significant portion of
products itself, resulted in high and volatile costs, excessive inventory of
obsolete materials and finished goods and significant delays in product
delivery. In addition, the Company had engaged in a retail expansion strategy
that focused on opening discount outlets and producing lower priced products to
sell in those outlets. This outlet strategy failed to enhance the Company's
brand image, adversely impacted its relationships with its wholesale customers
and failed to target its traditional consumers.
Beginning in January 1993, a new executive management team, including
Marsden S. Cason, the Company's current Chief Executive Officer, was recruited.
The new management team (i) hired a number of experienced senior executives and
mid-level managers; (ii) focused on profitability by establishing and
implementing specific sales and gross margin objectives; (iii) implemented new
sourcing strategies, which included relying principally on contract
manufacturers; (iv) closed eight outlets and one Company-operated retail store;
(v) implemented a more focused advertising strategy; and (vi) discontinued or
redesigned certain unprofitable and marginally profitable product lines and
styles. Primarily as a result of these initiatives, the Company achieved
profitability in the year ended March 31, 1994. The assets and certain of the
liabilities of the Company's predecessor were acquired in June 1994 by the
Company, which had been formed for this purpose. See "Management -- Compensation
Committee Interlocks and Insider Participation."
ORDER CYCLE. The North Face currently is engaged primarily in a two-season
wholesale business, Spring (January to June) and Fall (July to December).
Wholesale customers place preseason orders, which generally are noncancellable,
with the Company from two to five months prior to the beginning of the season.
Reorders are placed throughout the season and products are shipped based on
availability. Preseason orders typically account for 75 to 85% of total sales to
wholesale customers and historically have been an accurate indicator of actual
product shipments; however, there can be no assurance that preseason orders will
be an accurate indicator of actual product shipments in the future. With the
introduction of Tekware and Summit Shops, the Company expects that it
increasingly will be supplying its products to its wholesale customers on a
year-round basis, which is expected to decrease preseason orders as a percentage
of total sales to wholesale customers. Preseason orders for the 1996 Spring
season were $32.1 million compared to $22.5 million preseason orders for the
1995 Spring season. Preseason orders for the 1996 Fall season are $66.8 million
(as of May 2, 1996) compared to $51.4 million total preseason orders for the
1995 Fall season.
PRODUCTION CYCLE. Based on preseason orders and expected reorders, the
Company places production orders with its contract manufacturers for an entire
season three to five months before the beginning of the season. Fixed production
prices are agreed upon approximately three months prior to placement of such
production orders. As a result, the Company's production costs are relatively
predictable one season in advance of the delivery of products. In the past, the
Company and its wholesale customers were unable to maximize sales of the
Company's most popular products due to the Company's strategy of determining
production quantities based primarily on preseason orders. As a result, the
Company frequently was unable to meet strong reorder demand for its most popular
items. Beginning in Fall 1996, the Company intends to initiate a core inventory
replenishment program in which its core products and
19
<PAGE>
materials will be inventoried for rapid reorder or manufacturing. As a result of
this new program, the Company will maintain higher levels of inventories. See
"Risk Factors -- Reliance on Contract Manufacturing."
SUMMIT SHOPS. The North Face recently developed Summit Shops that are
designed to increase sales to wholesale customers. See "Business -- Selective
Distribution -- Summit Shops." The Company expects that Summit Shops will
showcase the Company's products using modern merchandising techniques, enhance
the Company's brand and increase sales, while minimizing investment. An average
650 square foot Summit Shop will require a total investment for furniture and
fixtures of approximately $40,000, 70% of which will be provided by the Company.
The Company will incur certain additional marketing and monitoring expenses. The
Company's wholesale customers will operate the Summit Shops, own the inventory
and provide the remaining 30% of the initial investment for furniture and
fixtures (which the Company may finance for certain wholesale customers). The
Company will retain ownership of the furniture and fixtures used in the Summit
Shops. See "Risk Factors -- Implementation of Summit Shop Strategy."
COMPANY-OPERATED RETAIL SALES. The North Face currently operates nine
retail stores and two outlets. New stores and outlets are included in comparable
store sales commencing in their thirteenth month of operation. The Company
currently does not plan to open any additional retail stores in the near future
because the Company believes that Summit Shops will provide comparable
merchandising and marketing benefits to those that are received from
Company-operated retail stores, with a lower commitment of financial and
operational resources and a higher return on investment. The North Face's gross
margins for its Company-operated retail stores are higher than for sales to its
wholesale customers. Consequently, due to the expected growing revenue
contribution from the Company's wholesale customers, the Company's overall gross
margins are expected to decline in the near term. The Company intends to open
one outlet store within the next 12 months.
GOVERNMENT SALES. The North Face historically has produced tents for the
U.S. military. The timing of these sales has fluctuated historically and is
dependent on the Company's obtaining contracts from the government. The timing
of the sales under these contracts can significantly affect the Company's
quarterly results. The Company does not expect to ship any tents to the U.S.
government during 1996, but currently is working with the U.S. military to
obtain a contract for future shipments. There can be no assurance, however, that
the Company will obtain any contracts to produce tents for the government in the
future. While the gross margin on government sales typically are lower than on
the Company's wholesale business, such sales incur minimal additional operating
expenses. As a result, the Company's profitability can be impacted significantly
by government sales, particularly in the historically lower revenue first and
second quarters. See "Risk Factors -- Seasonality and Quarterly Fluctuations."
CHANGE IN YEAR-END. In 1994, The North Face changed its fiscal year-end to
December 31. Due to this change and the Acquisition, comparison of the nine
month period ended December 31, 1994 to the fiscal year ended March 31, 1994 is
not meaningful. Therefore, the following discussion of results of operations is
based on the year ended December 31, 1995 compared to the pro forma results for
the year ended December 31, 1994, assuming the Acquisition had taken place on
January 1, 1994, and on the year ended March 31, 1994 compared to the year ended
March 31, 1993.
20
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items in
The North Face's consolidated statements of operations as a percentage of net
sales (except for income taxes which are shown as a percentage of pre-tax
income). As a result of recent strategic and operational changes,
period-to-period comparisons of financial results may not be meaningful and the
results of operations for historical periods may not be indicative of future
results.
<TABLE>
<CAPTION>
FISCAL YEAR YEAR ENDED THREE MONTHS ENDED
ENDED MARCH 31, DECEMBER 31, MARCH 31,
-------------------------- ---------------------------- --------------------------
1993 1994 1995 1995 1996
------------ ------------ 1994 -------------- ------------ ------------
------------
(PRO FORMA)
<S> <C> <C> <C> <C> <C> <C>
Net sales......................... 100.0% 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Gross profit...................... 34.1 41.9 46.5 45.3 44.1 40.6
Operating expenses................ 41.6 37.5 38.3 36.6 39.6 40.2
------------ ------------ ------------ -------------- ------------ ------------
Operating income (loss)........... (7.5 ) 4.4 8.2 8.7 4.5 0.4
Interest expense.................. 4.9 2.3 4.9 4.6 5.6 4.7
------------ ------------ ------------ -------------- ------------ ------------
Income (loss) before provision for
taxes and extraordinary item..... (11.3 ) 1.8 3.0 4.6 (0.8 ) (3.7 )
Provision for income taxes........ (5.2 ) 46.6 36.3 37.6 53.8 45.2
------------ ------------ ------------ -------------- ------------ ------------
Net income (loss)................. (12.1 )% 0.9 % 1.9 % 2.9 % (0.4 )% (2.0 )%
------------ ------------ ------------ -------------- ------------ ------------
------------ ------------ ------------ -------------- ------------ ------------
</TABLE>
The following table sets forth, for the periods indicated, the Company's net
sales by distribution channel and for domestic compared to international net
sales:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH YEAR ENDED THREE MONTHS ENDED
31, DECEMBER 31, MARCH 31,
-------------------------- ---------------------------- --------------------------
1993 1994 1995 1995 1996
------------ ------------ 1994 -------------- ------------ ------------
------------
(PRO FORMA)
<S> <C> <C> <C> <C> <C> <C>
Wholesale customers............... $52,673 $51,720 $61,391 $ 87,386 $14,804 $22,839
Company-operated retail........... 33,681 31,225 26,877 29,968 6,412 8,038
Government........................ 356 4,466 919 4,180 2,284 143
------------ ------------ ------------ -------------- ------------ ------------
Total net sales............... $86,710 $87,411 $89,187 $121,534 $23,500 $31,020
------------ ------------ ------------ -------------- ------------ ------------
------------ ------------ ------------ -------------- ------------ ------------
United States..................... $71,658 $71,994 $70,822 $ 96,069 $17,551 $22,265
International..................... 15,052 15,417 18,365 25,465 5,949 8,755
------------ ------------ ------------ -------------- ------------ ------------
Total net sales............... $86,710 $87,411 $89,187 $121,534 $23,500 $31,020
------------ ------------ ------------ -------------- ------------ ------------
------------ ------------ ------------ -------------- ------------ ------------
</TABLE>
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
NET SALES. Net sales increased by 32.0% to $31.0 million from $23.5 million
for the three months ended March 31, 1996 (the "First Quarter 1996") compared to
the three months ended March 31, 1995 (the "First Quarter 1995").
Net sales to wholesale customers increased by 54.3% to $22.8 million from
$14.8 million for First Quarter 1996 compared to First Quarter 1995. This
increase related primarily to increased unit shipments to the Company's existing
wholesale customers resulting from (i) the introduction of new products,
including the initial shipments of Tekware, (ii) continued strong sales of
existing products, (iii) better service to its wholesale customers and (iv) a
more targeted advertising and marketing campaign. In addition, the Company
believes that its improvement in on-time deliveries to its wholesale
21
<PAGE>
customers has resulted in a shift of sales from the second quarter into the
first quarter 1996. Accordingly, the Company expects net sales in the second
quarter of 1996 to increase at a lower rate than in the first quarter 1996.
Company-operated retail sales increased by 25.4% to $8.0 million from $6.4
million for First Quarter 1996 compared to First Quarter 1995. This increase was
attributable to strong comparable store sales which grew by 23.7% due primarily
to higher levels of sales of discontinued skiwear and sportswear and new product
introductions. In addition, the Company opened one new retail store in October
1995 and closed two outlets in mid-1995.
Government sales decreased by 93.7% to $0.1 million from $2.3 million for
First Quarter 1996 compared to the First Quarter 1995. This decrease is due to
the timing of government tent shipments under a contract which was completed in
1995.
GROSS PROFIT. Gross profit as a percentage of net sales for First Quarter
1996 was 40.6% compared to 44.1% for First Quarter 1995. Gross profit for net
sales to wholesale customers for First Quarter 1996 was 37.7% compared to 41.7%
for First Quarter 1995. Company-operated retail gross profit was 49.2% for the
First Quarter 1996 compared to 54.3% for the First Quarter 1995. The lower
margin for sales to wholesale customers relates primarily to lower initial
margin on the introduction of the Company's new Tekware line and additional air
freight costs related to on-time deliveries. The lower retail margin relates
primarily to higher volumes in First Quarter 1996 of liquidations of
discontinued skiwear and sportswear.
OPERATING EXPENSES. Operating expenses include selling, marketing and
general and administrative expenses. Operating expenses increased by 33.9% to
$12.5 million from $9.3 million for First Quarter 1996 compared to First Quarter
1995, and increased slightly as a percentage of net sales to 40.2% for First
Quarter 1996 from 39.6% for First Quarter 1995. This increase relates primarily
to the increased headcount and other overhead costs related to the growth of the
business, higher advertising and marketing expenses related to earlier spending
of advertising dollars, and operating expenses associated with the Company's new
Chicago store which opened in October 1995.
INTEREST EXPENSE. Interest expense increased to $1.5 million from $1.3
million for First Quarter 1996 compared to First Quarter 1995 primarily as a
result of higher levels of debt incurred to finance working capital growth.
PROVISION FOR INCOME TAXES. Benefit for income taxes as a percent of
pre-tax loss was approximately 45.2% for First Quarter 1996 compared to 53.8%
for First Quarter 1995. This decrease relates to the mix of the Company's
pre-tax earnings/losses between the U.S. and the United Kingdom which have
different tax rates.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO PRO FORMA YEAR ENDED DECEMBER 31, 1994
NET SALES. Net sales increased by 36.3% to $121.5 million from $89.2
million for the year ended December 31, 1995 compared to the pro forma year
ended December 31, 1994.
Net sales to wholesale customers increased by 42.3% to $87.4 million from
$61.4 million for 1995 compared to 1994. This increase related primarily to
increased unit shipments to the Company's existing wholesale customers resulting
from (i) the introduction of new products, such as day packs and Nuptse
down-filled jackets, (ii) continued strong sales of existing products, such as
the Mountain Light family, and (iii) better service to wholesale customers. In
addition, the Company's sales in Canada increased substantially to $5.1 million
due to the termination of the Company's licensing agreement with a third party
and the opening of the Company's new Canadian operations in January 1995.
Company-operated retail sales increased by 11.5% to $30.0 million from $26.9
million for 1995 compared to 1994. This increase related to an increase in
comparable store sales of 13.4% primarily due to the higher level of
liquidations in 1995 at two outlet stores closed in 1995. In addition, the
Company opened one new retail store in October 1995.
22
<PAGE>
Government sales increased to $4.2 million from $0.9 million for 1995
compared to 1994. This increase was due to the timing of tent shipments under a
U.S. government contract. The Acquisition in June 1994 delayed the timing of
shipments under the government contract until January 1995. This contract was
completed in 1995.
GROSS PROFIT. Gross profit as a percentage of net sales for 1995 was 45.3%
compared to 46.5% for 1994. Gross profit for net sales to wholesale customers
was 43.2% in 1995 compared to 43.9% in 1994. Company-operated retail gross
profit in 1995 was 53.6% compared to 52.7% in 1994. While retail gross margins
were slightly higher, the Company's overall gross margin decreased due to the
higher relative portion of sales to wholesale customers. The lower margins for
sales to wholesale customers result primarily from lower margins on the
Company's new Canadian business which carries higher duty costs as well as lower
margins on sales to European customers. The increase in Company-operated retail
gross margin for 1995 resulted principally from the lower percentage of outlet
store sales to total retail sales because of the closure of two Company-operated
outlets in mid-1995.
OPERATING EXPENSES. Operating expenses increased by 30.6% to $44.5 million
from $34.1 million for 1995 compared to 1994 due to increases in variable and
fixed costs to support the growth of the Company's business as well as operating
and start-up costs of a new retail store that opened in October 1995. These
expenses decreased, however, as a percentage of net sales from 38.3% for 1994 to
36.6% for 1995 as a result of a lower growth rate in operating expenses than in
sales.
INTEREST EXPENSE. Interest expense increased to $5.5 million from $4.4
million for 1995 compared to 1994, as a result of higher levels of debt incurred
to finance working capital growth.
PROVISION FOR INCOME TAXES. Provision for income taxes as a percent of
pre-tax income was approximately 37.6% for 1995 compared to 36.3% for 1994. This
increase in effective rate relates to the mix of the Company's earnings, with
higher pre-tax earnings growth in the United States where the tax rate is higher
than in the United Kingdom.
YEAR ENDED MARCH 31, 1994 COMPARED TO YEAR ENDED MARCH 31, 1993
NET SALES. Net sales increased slightly to $87.4 million from $86.7 million
for the year ended March 31, 1994 ("March 1994 Fiscal Year") compared to the
year ended March 31, 1993 ("March 1993 Fiscal Year").
Sales to wholesale customers decreased by 1.8% to $51.7 million from $52.7
million for March 1994 Fiscal Year compared to March 1993 Fiscal Year. The
Company's March 1994 Fiscal Year results were adversely impacted by the
Company's limited ability to finance the production of inventories. In addition,
net sales to wholesale customers for the March 1993 Fiscal Year were bolstered
by high levels of sales of discontinued merchandise and excess inventories.
Company-operated retail sales decreased by 7.3% to $31.2 million from $33.7
million for March 1994 Fiscal Year compared to March 1993 Fiscal Year. This
decrease related primarily to the closing of one Company-operated retail store
and six outlets in March 1994 Fiscal Year. On a comparable store basis, retail
sales increased 3.7%.
Government sales increased to $4.5 million from $0.4 million for March 1994
Fiscal Year compared to March 1993 Fiscal Year. This increase related to
shipments under a new government tent contract.
GROSS PROFIT. Gross profit as a percentage of net sales for March 1994
Fiscal Year was 41.9% compared to 34.1% for March 1993 Fiscal Year. This
increase related to lower costs for sourced products in March 1994 Fiscal Year
and substantial write-downs of excess and obsolete inventory for March 1993
Fiscal Year.
OPERATING EXPENSES. Operating expenses decreased by 9.1% to $32.8 million
from $36.1 million for March 1994 Fiscal Year compared to March 1993 Fiscal
Year, primarily due to (i) write-
23
<PAGE>
offs taken in the March 1993 Fiscal Year by new management in connection with
store closure expenses, bad debt expense and employee termination costs and (ii)
the reduction in payroll and related employee costs related to store closures
and other headcount reductions.
INTEREST EXPENSE. Interest expense decreased by 51% to $2.0 million from
$4.2 million for March 1994 Fiscal Year compared to March 1993 Fiscal Year. This
decrease relates to the significant amounts of borrowings from related parties
which ceased to carry interest charges as a result of the bankruptcy of the
Odyssey Group.
PROVISION FOR INCOME TAXES. The effective income tax rate was approximately
46.6% for March 1994 Fiscal Year compared to 5.2% of the pre-tax loss for March
1993 Fiscal Year. The tax expense for the 1993 Fiscal Year, despite the
Company's pre-tax losses, related to foreign taxable income and the
unavailability of U.S. tax benefits for U.S. losses due to cumulative net
operating loss carryforwards. All cumulative tax net operating loss
carryforwards were eliminated as of the Acquisition. See Note 6 to the
Consolidated Financial Statements included elsewhere in this Prospectus for a
reconciliation of the effective tax rate to the U.S. federal tax rate.
QUARTERLY DATA AND SEASONALITY
The following table sets forth certain unaudited financial data for each of
the Company's last nine fiscal quarters. The operating results for any quarter
are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
------------------------------------------------------------------
(PRO FORMA)(1)
--------------------------------
Q1 Q2 Q3 Q4
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Net sales.................................. $ 19,958 $ 12,552 $ 33,046 $ 23,631
Gross profit............................... 8,587 5,346 15,628 11,878
Operating income (loss).................... (427) (1,719) 6,254 3,226
Net income (loss).......................... (1,227) (1,631) 3,288 1,278
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------------------
Q1 Q2 Q3 Q4
--------------- --------------- --------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales.................................. $ 23,500 $ 19,342 $ 50,061 $ 28,631
Gross profit............................... 10,367 7,852 22,735 14,110
Operating income (loss).................... 1,057 (1,055) 8,456 2,066
Net income (loss).......................... (85) (1,331) 4,565 336
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31, 1996
---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales.................................. $ 31,020
Gross profit............................... 12,603
Operating income (loss).................... 139
Net income (loss).......................... (629)
</TABLE>
- ------------------------------
(1) See footnote (1) to "Selected Consolidated Financial Data."
The Company's business is subject to seasonal and quarterly fluctuations.
Historically, the Company has realized substantially all of its profits in the
third quarter and has recognized losses during the first and second quarters.
The Company's results of operations may fluctuate from quarter to quarter as a
result of, among other things, the amount and timing of shipments to wholesale
customers, government shipments, advertising and marketing expenditures,
increases in the number of employees and overhead to support growth and store
opening costs. For example, the Company received $2.3 million and $1.7 million
from the sale of tents to the U.S. government in the first and second quarters
of 1995,
24
<PAGE>
respectively, but sold no tents to the U.S. government in the first quarter and
expects to sell no tents to the government in the second quarter of 1996,
resulting in fluctuations that make period-to-period comparisons for these
quarters less meaningful. In addition, during the second quarter of 1996, the
Company expects to significantly increase its operating expenses due to
increased sales commissions related to higher net sales, the hiring of new
executive officers, the expansion of its merchandising department to launch its
Summit Shop program and a significant increase of its product acquisition staff.
Accordingly, primarily as a result of the foregoing factors and expenses
associated with the operation of the new Chicago retail store, the Company
anticipates that it will incur a loss in the second quarter of 1996 which will
be significantly larger than the loss incurred in the second quarter of 1995.
See "Risk Factors -- Ability to Achieve and Manage Potential Future Growth." The
Company anticipates that it will continue to incur net losses during the first
and second calendar quarters for the foreseeable future. In addition, the
Company expects to report a non-cash extraordinary charge related to debt
extinguishment of approximately $0.8 million, net of taxes, in the quarter
ending September 30, 1996 as a result of restructuring both the Credit Facility
and the Subordinated Note in connection with this offering. Additionally, the
Company's effective tax rate can vary significantly from quarter to quarter due
to the relative mix of earnings from the Company's domestic and international
operations which are taxed at different rates.
LIQUIDITY AND CAPITAL RESOURCES
In connection with the Acquisition, the Company issued 1,935,781 shares of
Preferred Stock and 2,271,064 shares of Common Stock in exchange for
approximately $12.3 million and borrowed $24.3 million pursuant to the
Subordinated Note. The proceeds from the issuance of the Preferred Stock, Common
Stock and Subordinated Note, together with borrowings under the Credit Facility,
were used to fund the Acquisition. See "Management -- Compensation Committee
Interlocks and Insider Participation."
Since June 7, 1994 (the date of the closing of the Acquisition), the Company
has satisfied its cash requirements principally through borrowings under the
Credit Facility and cash flow from operations. Its primary uses of cash have
been to purchase merchandise inventories, finance growth of the Company's
accounts receivable, upgrade the Company's management information systems and
open one retail store. During the year ended December 31, 1995, the Company used
approximately $2.8 million for operations. These funds were provided by
borrowings under the Credit Facility.
The Company's Credit Facility provides for borrowings up to $58.0 million
under its revolving line of credit with actual borrowings limited to available
collateral (approximately $28.7 million of gross availability as of May 16,
1996) and for up to $7.0 million under a term note for capital expenditures
(approximately $1.2 million of remaining availability as of May 16, 1996) from
Heller Financial, Inc. and two banks. The Credit Facility provides a sub-limit
for letters of credit of up to $10.0 million to finance the Company's foreign
purchases of merchandise inventories. As of May 16, 1996, the Company had
approximately $7.4 million of letters of credit outstanding under the Credit
Facility. The Credit Facility contains certain financial covenants that require
the Company to maintain a specified minimum tangible net worth and interest
coverage and leverage ratios, limit capital expenditures and restrict the
Company's ability to incur additional indebtedness and pay cash dividends on its
capital stock. The Company was in compliance with these covenants as of May 16,
1996 and expects to remain in its compliance with such covenants.
The Company intends to use the net proceeds of this offering to repay
approximately $14.0 million outstanding under the revolving line of credit, $6.0
million outstanding under the term note debt of the Credit Facility and $10.3
million of the Subordinated Note. Upon consummation of the offering, the Company
expects to restructure its $65.0 million Credit Facility to (i) increase the
maximum available under the revolving line of credit to the lesser of $60.0
million or available collateral, (ii) provide for a new capital expenditure term
note of up to $5.0 million and (iii) reduce the rate of interest to prime less
0.25% or LIBOR plus 1.50%, at the Company's option, with the possibility of a
further reduction of 0.25% based on the Company achieving certain levels of
earnings before interest, taxes, depreciation and
25
<PAGE>
amortization for the year ended December 31, 1996. In addition, the Company
expects its restructured Credit Facility will increase the letter of credit
sub-limit to $15.0 million, which amount will reduce availability under the
revolving portion of the Credit Facility. The Company expects its restructured
Credit Facility will continue to be secured by a first priority security
interest in all of the Company's real and personal property.
The Company estimates that its capital expenditures during 1996 will be
approximately $4.0 million. This amount will be used principally for investment
in Summit Shops, the upgrade of management information systems and the expansion
of the Company's distribution facilities.
The Company anticipates that cash generated from this offering, from
operations and from funds available under the Credit Facility will be sufficient
to satisfy its cash requirements for at least the next 12 months.
26
<PAGE>
FOREIGN EXCHANGE FLUCTUATIONS
The Company's inventory purchases from contract manufacturers in the Far
East are denominated in United States dollars; however, purchase prices for the
Company's products may be impacted by fluctuations in the exchange rate between
the United States dollar and the local currencies of the contract manufacturers,
which may have the effect of increasing the Company's cost of goods in the
future. In addition, the Company's sales in Europe and Canada are denominated in
the local currencies of the applicable specialty retailer, which may have a
negative impact on profit margins or the rate of growth of sales in those
countries if the U.S. dollar were to strengthen significantly. During the last
two years, exchange rate fluctuations have not had a material impact on the
Company's inventory costs or consolidated profit margins in Europe or Canada.
However, due to the number of foreign currencies involved and the fact that not
all of these foreign currencies fluctuate in the same manner against the United
States dollar, the Company cannot quantify in any meaningful way the potential
effect of such fluctuations on future income. The Company engages in certain
forward foreign exchange hedging activities with respect to its European sales
revenues. The Company does not engage in forward foreign exchange hedging
activities for its Canadian revenues. See "Risk Factors -- International
Operations."
INFLATION
The Company believes that the relatively moderate rates of inflation over
the last two years in the United States, where it primarily competes, have not
had a significant effect on its net sales or results of operations. Higher rates
of inflation have been experienced in a number of foreign countries in which the
Company's products are manufactured but also have not had a material effect on
the Company's net sales or results of operations. In the past, the Company has
been able to offset its cost increases by increasing selling prices or changing
suppliers.
IMPACT OF NEW ACCOUNTING STANDARDS
See Note 2 to the Consolidated Financial Statements for a discussion of the
impact of new accounting standards.
27
<PAGE>
BUSINESS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE FEDERAL SECURITIES LAWS. ACTUAL RESULTS AND THE TIMING OF CERTAIN
EVENTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING
STATEMENTS DUE TO A NUMBER OF FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK
FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
The Company believes The North Face-Registered Trademark- is the world's
premier brand of high-performance outdoor apparel and equipment. The Company
designs and distributes technically sophisticated outerwear, skiwear, functional
sportswear, tents, sleeping bags and backpacks, all under The North
Face-Registered Trademark- name.
The North Face has developed a superior reputation for quality, performance
and authenticity by providing technically advanced products capable of
withstanding the most extreme conditions. For nearly 30 years, the Company's
outdoor apparel and equipment have been the brand of choice for numerous high
altitude and polar expeditions. These products are used extensively by
world-class climbers, explorers and extreme skiers, whose lives depend on the
performance of their apparel and equipment. To maintain and further enhance this
unique legacy, the Company continuously develops and introduces innovative
products that are functional, technically superior and designed to set the
industry standard in each product category. The Company cultivates its extreme
image through its targeted marketing efforts and its teams of world-class
climbers, explorers and skiers.
To protect the integrity of The North Face-Registered Trademark- brand and
ensure a high level of customer service and education, the Company limits the
distribution of its products to a select number of specialty retailers. The
Company sells its products to over 1,500 wholesale customers representing more
than 2,000 store fronts throughout the United States, Europe and Canada. The
Company also owns and operates nine retail and two outlet stores in the United
States.
INDUSTRY OVERVIEW
Technical outdoor apparel and equipment historically have been used
primarily by professional climbers and serious outdoor enthusiasts. In recent
years, these products have become increasingly popular among a broader group of
consumers. The Company believes that this growth has been the result primarily
of (i) an increase in outdoor recreational activities by the general population,
(ii) a growing demand for highly functional products, (iii) a growing acceptance
of outdoor apparel as casual wear and (iv) an increase in the technical
sophistication of products in this field.
The trend towards more active outdoor lifestyles is demonstrated by
increased participation in a variety of outdoor activities such as camping,
hiking and backpacking. According to The Outdoor Recreation Coalition of
America, from 1993 to 1994 the number of people who participated in rock
climbing increased 32%, while participation in mountain biking increased 20% and
backpacking increased 11%. In addition, outdoor or rugged apparel has been
increasingly worn as casual clothing even by individuals who do not participate
in outdoor activities or require the functionality of a high-performance
product. Casual wear in general also has become increasingly popular,
particularly in the workplace as evidenced by the dramatic increase in "casual
days."
The Company believes that consumers recently have demonstrated an increasing
preference for functional, performance-oriented products. Purchase decisions
often are driven as much by a desire to create a particular perception of
themselves as healthy and active as by an actual need for these products. An
example of this trend is the growing popularity of sport utility vehicles which
have become one of the fastest growing segments of the automotive industry
despite the fact that most owners of such vehicles never venture off paved
streets. Finally, over the last decade, there have been significant
technological advances in materials and features that have increased product
functionality and performance. The number of products and product segments has
increased dramatically as marketers target specific
27
<PAGE>
functions and uses to particular user groups. For example, in the footwear
industry, there has been a proliferation of new products designed to suit a
greater variety of activities and conditions. See "Risk Factors -- Changing
Consumer Preferences."
BUSINESS STRATEGY
The North Face's goal is to design and market the most recognized and
respected brand of high-performance, technically-oriented outerwear, skiwear,
outdoor equipment and functional sportswear in the world. Each element of the
Company's strategy is intended to enhance and reinforce the global brand image
of The North Face-Registered Trademark- among both consumers and retailers. Key
elements of the strategy are to:
OFFER TECHNICALLY SUPERIOR PRODUCTS. The North Face is committed to
offering technically superior products that are functional, reliable and durable
and that set the industry standard in each product category. Many of the
Company's existing product lines feature technically superior, high-performance
products designed to be used in remote, mountainous or polar environments and to
withstand the harshest conditions. To reinforce The North Face-Registered
Trademark- image of quality and reliability, the Company's products carry a
lifetime warranty. The Company believes that this standard of excellence
cultivates, for the entire range of The North Face-Registered Trademark-
products, a technical, extreme and authentic image that also appeals to the more
casual outdoor enthusiast seeking functional, high-performance products.
DESIGN INNOVATIVE PRODUCTS. The North Face is committed to maintaining a
premier position in the outdoor apparel and equipment industries by remaining on
the leading edge of product design and materials technology. More than 85% of
the products currently offered by The North Face are new products or have been
updated since 1993. In designing and developing new product styles and features,
the Company's teams of world-class climbers, explorers and extreme skiers
contribute design ideas and test new products. The Company also works closely
with suppliers to develop high-performance materials that result in lighter,
stronger and more efficient products, and frequently obtains from these
suppliers first and/or exclusive rights to use the new materials for a certain
period of time.
PROMOTE ITS EXTREME BRAND IMAGE. The Company devotes significant resources
to strengthening The North Face-Registered Trademark- brand by projecting a
technical, extreme and authentic image that appeals to professionals and serious
outdoor athletes as well as to broader segments of the population. The North
Face believes that the product choices of professionals and serious outdoor
athletes create greater product visibility and influence general consumer
preferences. The Company provides equipment and outerwear for expeditions and
other high profile outdoor activities and promotes The North Face's products
through its teams of world-class climbers, explorers and extreme skiers.
FOCUS ON SELECTIVE DISTRIBUTION. To protect the integrity of The North
Face-Registered Trademark- brand and promote a high level of customer service,
the Company limits the distribution of its products to a select group of
specialty mountaineering, backpacking and ski retailers, large specialty outdoor
retail chain stores and selected general sporting goods retailers. The Company's
wholesale customers typically sell high quality, technically-oriented products
that are consistent with the Company's standards and have well trained sales
personnel capable of providing superior customer service and technical guidance.
Through selective distribution, The North Face believes it increases brand
loyalty and encourages its wholesale customers to carry a broader array of its
products.
INTRODUCE SUMMIT SHOPS. The North Face recently developed Summit Shops,
year-round concept shops dedicated to The North Face-Registered Trademark-
products and to be primarily located within certain of the Company's wholesale
customers. Summit Shops are designed to increase the Company's sales in
specialty retailers by broadening The North Face-Registered Trademark- product
offerings, improving merchandising and building brand awareness. The North Face
will design and install Summit Shops and provide its specialty retailers with
merchandising and training support. The Company believes that Summit Shops will
provide specialty retailers with an opportunity to increase sales of The North
Face-Registered Trademark- products without devoting substantial additional
resources. By establishing operating guidelines for the Summit Shops, the
Company will promote high levels of service and a broad product selection, while
minimizing its investment and operational commitment.
28
<PAGE>
SELECTIVELY OPERATE RETAIL STORES. To complement its wholesale distribution
strategy and to increase brand awareness in selected markets, The North Face
currently operates nine retail stores. These stores enable the Company to
display the full line of The North Face-Registered Trademark- products, obtain
feedback from customers, closely monitor the retail sell-through of its products
and obtain consumer information. The North Face does not plan to open additional
retail stores due to the recent development of its Summit Shops, which it
expects will provide many of the advantages of Company-operated retail stores,
with a higher return on investment.
GROWTH STRATEGY
The Company's growth strategy is to continue to build on the strong consumer
awareness and technical reputation of The North Face-Registered Trademark-
brand. While professionals and serious outdoor enthusiasts will remain a
critical part of the Company's consumer base, The North Face believes that it
will continue to benefit from increasingly active consumer lifestyles and what
it identifies as a growing preference for functional, high-performance outdoor
apparel and equipment. Key elements of the Company's growth strategy are to:
INTRODUCE NEW PRODUCTS AND COMPLEMENTARY PRODUCT CATEGORIES. The Company
intends to take advantage of the strength of The North Face-Registered
Trademark- brand by continuing to introduce new products within existing product
categories and by adding complementary product categories. The Company
introduces innovative new products within existing categories and extends core
product lines by creating new "families" of products around existing products, a
strategy which has been effective both in launching the new products and
increasing the sales of the core products. In addition, although the Company's
products historically have been concentrated primarily in premium price product
categories, the Company intends to continue to introduce products in more
moderate price-point segments, so as to access a broader consumer base.
Consistent with The North Face-Registered Trademark- image, however, the Company
ensures that these products offer the highest performance and function in their
category. Finally, the Company intends to introduce additional new product
categories, such as its recently introduced lines of windwear, day packs, gloves
and underwear.
ROLL OUT SUMMIT SHOPS. The Company recently developed the concept of
"Summit Shops" to promote The North Face-Registered Trademark- brand and
increase sales at specialty retailers. The Company intends to open Summit Shops
in a controlled manner, selecting specialty retailers willing to make a
substantial commitment to the concept by dedicating sufficient selling space and
financial and operating resources. The Company anticipates initially opening
Summit Shops primarily in large specialty outdoor retail chains and in selected
larger, outdoor specialty stores, and may consider other high-end retail
formats. The Company expects to open its first Summit Shop in late Summer 1996
and anticipates that approximately 25 Summit Shops will open by the end of 1996.
PROMOTE TEKWARE AS A HIGH-PERFORMANCE ALTERNATIVE TO SPORTSWEAR. The
Company intends to broaden the distribution and increase its product offerings
of Tekware, an innovative new line of high-performance, functional clothing made
from a new generation of synthetic fabrics. Tekware generally maintains the look
and feel of cotton, while offering significant functional and performance
advantages over cotton, such as its quick-drying, abrasion- and shrink-resistant
properties. Management expects Tekware to change the way consumers think about
casual clothing for active outdoor use and to provide the Company with a
competitive advantage in the sportswear market. The Company believes that the
initial response from its wholesale customers to Tekware, which was introduced
for Spring 1996, has been positive.
PURSUE INTERNATIONAL OPPORTUNITIES. The North Face intends to pursue sales
in international markets while selectively increasing its distribution in the
United States. The Company believes that many of the same lifestyle and consumer
trends that have benefited the Company in the U.S. are increasingly affecting
international markets, particularly in Europe and Canada. The North Face has
established regional headquarters in Europe and Canada, and recently combined
its domestic and international
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<PAGE>
product development, sourcing and marketing functions to improve efficiencies
and develop an integrated effort designed to increase its global focus. The
Company anticipates that its international sales will benefit both from
expanding the distribution of its products and the increased awareness of The
North Face-Registered Trademark- brand. The Company anticipates that Europe and
Canada will provide the most significant near-term opportunities but also will
selectively pursue new markets in Asia.
PRODUCTS
The North Face offers a broad range of high-performance,
technically-oriented outerwear, skiwear, outdoor equipment and Tekware designed
for extreme applications, such as high altitude mountaineering, ice climbing,
rock climbing, backpacking, skiing and snowboarding. The Company characterizes
its apparel-related products as "equipment for the body." As a result of the
experience gained through nearly 30 years as the brand of choice for many of the
world's most challenging high altitude and polar expeditions, The North
Face-Registered Trademark- has achieved a unique level of authenticity. The
North Face-Registered Trademark- products are original designs and carry a
lifetime warranty for the original owner against defects in materials and
workmanship. In 1995, sales of outerwear, equipment, skiwear and other products
represented approximately 50%, 25%, 14% and 11%, respectively, of net sales.
The Company's goal is to offer the most technically advanced products in its
field and to establish the industry standard in each product category. The
Company designs its premium products for extreme applications, such as high
altitude mountaineering, ice climbing and polar expeditions, which it believes
represents only a small fraction of its potential customers. These premium
products serve to reinforce The North Face-Registered Trademark- brand image
while appealing to non-extreme users. The Company also strives to offer products
at more moderate price-points that remain "best of class" by incorporating many
of the features, materials and technology used in its leading edge designs. The
Company believes that this product design philosophy enhances The North
Face-Registered Trademark- brand while appealing to the broader consumer market.
See "Risk Factors -- Dependence on New Products."
OUTERWEAR
The Company's outerwear is engineered to provide protection in cold, wet and
windy conditions and to accommodate the range of motion required for the most
extreme activities. It is designed to adapt to varying conditions and
situations, taking into account the unpredictability of the weather and the fact
that some outdoor activities alternate between periods of extreme exertion and
total rest, requiring a proper balance between ventilation and insulation. Each
year, the Company enhances its outerwear lines by adding new products and design
innovations. Overall, the Company has introduced 65 new outerwear products in
1996, including two entirely new collections, "Search and Rescue-TM-" and
"Remote Terrain Gear." Among the exclusive features being introduced this year
are ergonomic swivel hoods, ten-piece articulated sleeves and multi-position
double slider underarm zippers. The Company now offers four principal lines of
outerwear and a line of Technical Apparel Accessories.
EXPEDITION SYSTEM-REGISTERED TRADEMARK- is an advanced, integrated cold
weather clothing system in which several pieces (including full body suits,
pants, jackets, vests, anoraks and accessories) work together in layers to
create warmth, protection and safety. Since 1994, the Company has significantly
expanded the Expedition System-Registered Trademark- product line by creating
new families of products around existing products, such as the Mountain Light
and Denali fleece families, adding new product segments, such as the Himalayan
and Kichatna Series, significantly upgrading and restyling existing products,
such as the Nuptse Series, and adding products specifically designed for women.
WEATHER SYSTEMS is a collection of four distinct series of outerwear
designed to provide protection in wet and windy conditions, while maintaining
comfort throughout variations of season, temperature, moisture and wind, and
over a wide range of activities. For example, the Hydrenaline-TM- Series,
introduced in 1994, is a technically advanced line of shell outerwear based on a
proprietary microfiber fabric, Hydrenaline-TM-, that combines features of
breathability and water resistance and is ideal for hiking, running, mountain
biking, cross country skiing and other aerobic outdoor activities.
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<PAGE>
SEARCH AND RESCUE-TM- introduced a new concept to the outdoor industry. This
collection of one piece suits, shells and fleece is designed to support and
protect mountain search and rescue teams in extreme weather conditions. Although
intended for search and rescue experts, several pieces within the collection are
expected to appeal to consumers who desire its protective attributes for less
extreme outdoor activities.
REMOTE TERRAIN GEAR ("RTG") was created for backcountry snowboarding and
combines elements of the Company's Expedition System with unique snowboarding
features to create products such as pants that are cut in the seated
snowboarding position. Unlike most snowboarding clothing which caters to the
fashion tastes of snowboarders, the highly functional RTG is expected to appeal
to a performance-oriented snowboarding market.
TECHNICAL APPAREL ACCESSORIES includes a wide range of high-performance
thermal underwear, head wear, gloves and mittens which have been tested
extensively throughout the world in extreme conditions. This collection has been
expanded significantly in 1996 with the introduction of nine new products.
TEKWARE-TM-
In 1996, The North Face entered the broader casual apparel market with its
introduction of Tekware-TM-, an innovative line of high-performance outdoor
apparel made from a new generation of synthetic fabrics and developed in
collaboration with E.I. DuPont de Nemours & Co. ("DuPont") and other companies.
Tekware is offered in three lines, Climbing, Training and Trekking, each with
versions for men and women. Each line features a broad collection of pants,
shorts, shirts, pullovers, vests, tank tops and tights, each in several styles.
Tekware is designed for serious outdoor pursuits and is especially functional
for everyday use. Overall, the Company introduced 67 Tekware products for Spring
1996 and an additional 44 Tekware products for Fall 1996.
ADVANTAGES OF TEKWARE-TM- OVER COTTON CLOTHING
<TABLE>
<CAPTION>
FEATURES TEKWARE COTTON
- ----------------------------------------- --------- ---------
<S> <C> <C>
Quick Drying............................. X
Abrasion Resistant....................... X
Shrink Resistant......................... X
Tear Resistant........................... X
Fade Resistant........................... X
</TABLE>
Tekware has garnered positive publicity from the press. Explaining why they
selected Tekware for their prestigious "Editors' Choice" award, the editors of
BACKPACKER magazine wrote in the April 1996 issue: "We're not big fans of cotton
clothes for backcountry duty. Once wet, cotton takes forever to dry and in the
process it sucks away precious body warmth. Hypothermia is a real concern when
you wear jeans or a cotton T-shirt in the wilderness, and that's why some wise
woodsperson coined the phrase, 'cotton kills.' Naturally, when The North Face
touted its new Tekware clothing line as '100% Not Cotton,' it grabbed our
attention. During our field tests we found that when nasty weather or hard
hiking soaks you, these non-absorbent, synthetic shirts and pants keep you warm
while your body heat quickly dries the fabric. . . . These sensible clothes are
built for the backcountry but won't make you look or feel like a trail bum when
you hit town."
Tekware provides an effective complement to the Company's other product
offerings and will be prominently featured in the Summit Shops. The Company
believes Tekware will be very appealing to wholesale customers and will increase
the amount of selling space devoted to The North Face-Registered Trademark-
products. The Company believes Tekware's broad, year-round product line and
consistent new product introductions will help create sustained consumer
interest in The North Face-Registered Trademark- brand. In addition, unlike some
of
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the Company's other product categories, Tekware has the potential to become a
repeat or "replenishment" business as consumers purchase new sportswear to
complement or replenish their existing wardrobes. See "Risk Factors --
Introduction and Acceptance of Tekware-TM-."
EQUIPMENT
Equipment is critical to The North Face-Registered Trademark- image and
reputation and plays an extremely important role in its research and
development, field testing and marketing activities. The Company offers three
comprehensive lines of technical outdoor equipment: tents, sleeping bags and
backpacks. The Company has increased its equipment sales over the last two years
by introducing new products and refining existing products. The Company
introduced 65 new equipment products in 1996.
TENTS. The North Face is regarded as the premier supplier of expedition
tents built to withstand extreme weather conditions. The North Face currently
offers an extensive line of 23 tent models, designed to suit a wide variety of
weather conditions and applications. The North Face offers 12 expedition-quality
tents, including models such as the VE-25, long renowned as the world's finest
base camp tent, and the Mountain-24, rated by CLIMBING MAGAZINE in 1995 as the
best two-person expedition tent. The Company's best selling tents are its
three-season and recreational tents that also offer superior features and are
used by a wide range of consumers for backpacking and camping.
SLEEPING BAGS. The Company offers 27 models of sleeping bags for
mountaineering and backpacking that differ in insulations, shell fabrics and
linings. The Company offers 13 models in the goose down line and 14 models in
its synthetic insulated line of sleeping bags to provide comfort in temperatures
ranging from -40 DEG.F to 30 DEG.F. During the last two years, the Company
introduced several innovations in fabrics, insulation and construction of both
its goose down and synthetic insulated lines. For Fall 1996, the Company
introduced synthetic sleeping bags made from Polarguard 3D, a high-performance
product developed by Hoechst Corporation ("Hoechst"), in close collaboration
with The North Face.
BACKPACKS. The North Face offers a comprehensive line of backpacks grouped
into three categories: (i) large volume, internal frame packs for extended
backcountry trips; (ii) "tech packs" for sport specific activities and (iii) day
packs. The large volume, internal frame pack category consists of three
different lines based on differing load carrying efficiencies. These packs are
made in a range of torso lengths and in sizes to fit both men and women. The
"tech pack" line consists of 11 models of sport specific packs designed by The
North Face teams of climbers, explorers and extreme skiers for specific
activities, such as high altitude climbing, ice climbing, rock climbing,
backcountry skiing and snowboarding. During the last year, the Company has
introduced new lines of daypacks, lumbar packs and cargo bags providing an
opportunity for a wide audience of hikers, students and the general public to
own a The North Face-Registered Trademark- product at a more moderate price. In
1996, the Company introduced 33 new products in the categories of backpacks,
"tech packs," day packs, cargo bags and pack accessories.
SKIWEAR
The Company offers skiwear designed for extreme skiing in remote areas.
While the Company's skiwear is designed for extreme users, it has become
increasingly popular among recreational skiers. The North Face-Registered
Trademark- skiwear products include parkas, jackets, anoraks, ski pants, ski
suits, gloves and other accessories. The Company's six skiwear collections --
Heli, Steep Tech-Registered Trademark-, Men's Extreme-Registered Trademark-
Gear, Women's Extreme-Registered Trademark- Gear, Men's Extreme-Registered
Trademark- Light and Women's Extreme-Registered Trademark- Light -- have been
designed for specific applications, including helicopter skiing and backcountry
skiing. The Company's skiwear offers highly technical features for optimal
weather protection, maximum freedom of movement and appropriate ventilation,
including the use of tough, abrasion-resistant fabrics, such as Kevlar, that are
strategically overlaid or inset for added protection in areas of excessive wear
and tear, such as shoulders and elbows. The Company's skiwear collections are
reviewed annually and are redesigned, as appropriate, to add innovative
features. In 1996, the Company introduced 56 new skiwear garment products and 15
new skiwear accessory products.
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<PAGE>
PRODUCT DESIGN AND DEVELOPMENT
The Company's goal is to offer the most technically advanced products in the
world that establish the industry standard in each of the Company's product
categories. To remain on the leading edge of product design and materials
technology, the Company continually evaluates trends, monitors the needs and
desires of its consumers and works with its materials suppliers to develop new
materials and products and enhance product designs. See "Risk Factors --
Dependence on Key Suppliers of Materials" and "-- Dependence on New Products."
The Company regularly reviews its product lines and actively seeks input from a
variety of sources. At the forefront of the product development effort is a
15-member product development team, which includes experts in textiles and
design engineering. This team, which is responsible for overseeing testing of
designs and introducing new outerwear, outdoor equipment, skiwear and Tekware,
is organized along major product lines, each with a product manager. The product
development team works with staff designers and also with outside contract
designers. The Company's teams of climbers, explorers and extreme skiers also
are important components of the Company's product design and development effort.
The product development cycle, from initial design to introduction, can take
from 12 to 18 months, with tents and backpacks requiring more time than other
products. A new product may be produced in several prototypes before being
submitted for testing. New designs are tested by the Company's teams of
climbers, explorers and extreme skiers and by in-house and independent
laboratories, as well as by The North Face personnel. The Company maintains a
materials testing laboratory with equipment to execute a variety of tests,
including water resistance, air permeability, tear strength and abrasion
resistance.
The Company's products are designed with materials that are essential to
their technical performance. Most of these materials are secured through
strategic relationships with major suppliers, such as W.L. Gore Associates,
Inc., DuPont, Hoechst, Burlington Industries, Inc. and Mitsui Textiles. The
Company works closely with these suppliers to develop high-performance materials
that result in lighter, stronger and more efficient products. With an innovative
material, the Company generally seeks an exclusivity period, usually one to two
years, after which the supplier is free to make the material generally
available. These suppliers frequently provide much of the funding for research
and development of the materials they are developing for the Company, and often
will contribute to the costs of promoting products incorporating their material.
See "Risk Factors -- Dependence on Key Suppliers of Materials."
MARKETING AND PROMOTION
The Company's goal is to increase brand awareness by projecting a technical,
extreme and authentic image that appeals to professionals and serious outdoor
enthusiasts as well as to broader segments of the population. The Company
conveys an extreme and highly technical image by featuring world-class climbers,
explorers, skiers and snowboarders using the Company's products on high
altitude, polar or backcountry expeditions. The North Face's marketing materials
utilize language and images that, while directed to the extreme athlete, also
create an emotional connection with broader segments of the population.
Management believes that The North Face has obtained a high level of brand
awareness and loyalty from the extreme users of its products. In order to
bolster the loyalty of these individuals and to further enhance its extreme
image, the Company is increasing its support of selected high altitude and polar
expeditions and its teams of climbers, explorers and skiers. The North
Face-Registered Trademark- products have been the brand choice of many of the
world's most challenging expeditions for nearly 30 years. A small sampling of
these expeditions includes the 1969 Arctic Institute of North America Altitude
Expedition; 1978 American Woman's Himalayan Expedition; 1987 International K-2
Expedition; 1989 Trans-Antarctica Expedition; 1992 American Gasherbrum IV
Expedition; 1994 Sagmartha Environmental Expedition; and the 1995
Ak-Su Kyrgyzstan Expeditions.
Recognizing that the product choices of professional athletes influence
consumer preferences, The North Face employs and/or has entered into contracts
with several world-class professional climbers, including Conrad Anker, Kitty
Calhoun-Grissom, Greg Child, Lynn Hill, Alex Lowe and Jay Smith; extreme
33
<PAGE>
skiers Scot Schmidt and Rob and Eric DesLauriers; and backcountry snowboarders
Jim and Bonnie Zellers. These athletes are essential to the Company's product
design and testing. In addition, they participate in promotional activities on
behalf of the Company, including demonstrations and appearances at exhibitions,
trade shows, retailer clinics and promotional events, and appear in photos to
promote the Company in catalogs, advertisements, posters and videos. The Company
has entered into relationships with the Professional Ski Instructors of America
and with the National Ski Patrol pursuant to which each of these organizations
endorses the Company's skiwear.
In 1994, The North Face began an ongoing comprehensive consumer advertising
campaign in outdoor and ski publications. The Company's advertisements appear in
magazines such as OUTSIDE, CLIMBING MAGAZINE, BACKPACKER and POWDER. The Company
also has received editorial coverage in a wide range of general interest
publications, including VOGUE, ELLE, ESQUIRE, GQ and THE NEW YORK TIMES. The
Company provides a wide assortment of point of purchase advertising support to
retailers, including catalogs, descriptive product hang tags and visual aids.
Many of these point of purchase marketing tools will be integrated into the
Company's newly developed Summit Shops. The Company also promotes sales by
operating sizable product displays at three industry trade shows, two of which
are held in the Spring and one in the Fall of each year. In the year ended
December 31, 1995, the Company incurred expenditures for advertising and
promotional activities which were approximately 4% of net sales.
SELECTIVE DISTRIBUTION
To preserve the integrity of The North Face-Registered Trademark- image and
reputation, the Company currently limits its distribution to retailers that
market products that are consistent with the Company's technical standards and
that provide a high level of customer service and technical expertise. The
Company currently sells its products to a select group of specialty
mountaineering, backpacking and skiing retailers, premium sporting goods
retailers and major outdoor specialty retail chains. The Company does not sell
its products to national general sporting goods chains or to discount stores.
The Company sells its products in the United States to approximately 840
wholesale customers, representing an estimated 1,100 store fronts. In Canada,
the Company sells its products to approximately 200 wholesale customers,
representing an estimated 240 store fronts, and in Europe, it sells to
approximately 460 wholesale customers, representing an estimated 700 store
fronts. Major customers of the Company include Recreational Equipment Inc.
("REI") and Eastern Mountain Sports, Inc. ("EMS"). No single customer accounted
for more than 6% of net sales in 1995.
While The North Face will continue to add selected wholesale customers, it
anticipates focusing primarily on increasing sales at existing wholesale
customers. To accomplish this, the Company recently developed Summit Shops and
established a new core inventory replenishment program. The Company believes
that Summit Shops will increase sales by increasing selling space devoted to,
and improving the merchandising of, The North Face-Registered Trademark-
products. See "Risk Factors -- Implementation of Summit Shop Strategy." The
Company believes the new core inventory replenishment program, which inventories
certain popular core products for quick reorder delivery, will enable it to
provide consistent product flow to both the Summit Shops and its other wholesale
customers. The North Face expects the new core inventory replenishment program
to increase the sales of its strongest selling items by increasing the Company's
ability to meet strong reorder demand.
The Company's products are sold in the United States, Canada and Europe to
wholesale customers by independent sales representatives. Sales representatives
conduct in-store clinics to educate sales personnel on the technical qualities
and uses of the Company's products, provide customer support, review each retail
account on a periodic basis and assist the Company in forecasting levels of
product needs. Sales representatives in the United States, Canada and Europe are
paid on a commission basis. Sales representatives in the United States sell The
North Face-Registered Trademark- products exclusively.
The Company maintains a specialty retailer and customer service department
to handle orders and consumer inquiries, as well as a warranty department to
handle the repair or replacement of defective or damaged merchandise. All of the
Company's products (other than those sold through the Company's
34
<PAGE>
outlet stores) are covered by a lifetime warranty. Defective or damaged products
returned to the Company generally are replaced or repaired within 10 to 14 days
of receipt. Warranty expenses in 1995 were approximately 0.8% of net sales.
Although the Company does not expect warranty expenses to increase as a
percentage of net sales, there can be no assurance that such expenses will not
increase significantly in the future as a percentage of net sales. See "Risk
Factors -- Product Liability Risk; Warranty Exposure."
In June 1995, the Company opened a new 146,500 square foot distribution
facility in San Leandro, California. This facility, which also houses the
Company's executive and administrative headquarters, handles a majority of the
U.S. distribution of the Company's products, with the Company's secondary
distribution center in Richmond, California handling the excess during peak
periods. The Company's distribution centers are highly automated. The majority
of the Company's products are shipped by UPS and common carriers.
SUMMIT SHOPS
The Company recently developed Summit Shops, year-round concept shops
dedicated to The North Face-Registered Trademark- products and primarily to be
located within certain of its wholesale customers. Summit Shops are intended to
increase sales at existing specialty retailers and to attract new specialty
retailers by offering an attractively designed, professionally merchandised,
dedicated selling space featuring a broad array of The North Face-Registered
Trademark- products. The objectives of the Summit Shops are to (i) have
dedicated year-round selling floor space within selected specialty retailers'
stores; (ii) help the Company's specialty retailers compete against mainstream
apparel retailers; (iii) create a repeat customer base; (iv) modernize the
specialty retailers' approach to merchandising The North Face-Registered
Trademark- products; (v) provide the ability to closely monitor retail
sell-through at specialty retailers; and (vi) maintain a consistent product
assortment at the specialty retail level. The Company has designed the
appearance of each Summit Shop, including its fixtures, merchandise displays,
descriptive placards and graphic images, to increase consumer awareness of The
North Face-Registered Trademark- brand and image. The Company will provide
merchandising support for the Summit Shops, while the specialty retailer will
provide the customer service and sales personnel. The Company will also provide
sales and product training for the specialty retailers' personnel who work in
the Summit Shops. Each Summit Shop is expected to follow certain operational
guidelines and maintain minimum inventory levels.
Beginning in March 1996, EMS, a major outdoor retail chain, opened The North
Face-Registered Trademark- concept shops, the precursors to Summit Shops, in 14
of its stores. These concept shops carry only The North Face-Registered
Trademark- products. Unlike Summit Shops, however, the fixtures and
merchandising displays of the concept shops were designed primarily by EMS. EMS
has informed the Company that, based on the initial performance of the 14
concept shops, it intends to open four additional shops, two of which will be
Summit Shops, by the end of 1996.
The Company expects to open its first Summit Shop in late Summer 1996 and
anticipates that approximately 25 Summit Shops, averaging approximately 650
square feet in size, will open by the end of 1996. The North Face intends to
substantially increase the number of Summit Shops within its existing specialty
retailers in 1997. See "Risk Factors -- Implementation of Summit Shop Strategy."
RETAIL OPERATIONS
RETAIL STORES. The Company's retail operations are an important component
of its marketing and product development strategies and provide a distinctive
environment in which to merchandise and sell the complete The North
Face-Registered Trademark- product line. Located primarily in high-end retail
shopping districts and regional shopping malls, these stores carry the full
range of The North Face-Registered Trademark- outerwear, equipment, skiwear and
Tekware as well as complementary products such as footwear and accessories from
other manufacturers. As a result of the Company's ability to control the visual
presentation and product assortment in its retail stores, the stores help build
brand awareness and introduce consumers to the full range of The North
Face-Registered Trademark- products. These stores also provide a means for the
Company to test the appeal
35
<PAGE>
of new products and merchandising techniques. By working closely with store
personnel, many of whom are outdoor enthusiasts, the Company also obtains
customer feedback that influences product design and development.
The following table shows the approximate retail selling space at each of
the Company's nine retail stores:
<TABLE>
<CAPTION>
APPROXIMATE
SELLING
LOCATION SQUARE FOOTAGE YEAR OPENED
- ---------------------------------------------- --------------- -----------
<S> <C> <C>
Denver, CO.................................... 8,500 1973
Boulder, CO................................... 3,400 1982
Seattle, WA................................... 4,600 1985
Oakbrook, IL.................................. 3,000 1991
San Francisco, CA............................. 8,100 1991
Schaumberg, IL................................ 3,400 1991
Costa Mesa, CA................................ 5,500 1993(1)
Palo Alto, CA................................. 7,800 1994(2)
Chicago, IL................................... 12,000 1995
</TABLE>
- ------------------------
(1) Replaced a store in a nearby location initially opened in 1986.
(2) Replaced a store in a nearby location initially opened in 1979.
Although the Company considers its retail stores to be an important aspect
of its business strategy, the Company currently has no plans to open additional
retail stores, particularly given its focus on the introduction of additional
Summit Shops in 1996 and 1997. The Company believes that Summit Shops will
provide many of the same benefits as its Company-operated retail stores and that
the substantially reduced operational and financial commitments associated with
Summit Shops will result in a higher return on investment.
OUTLET STORES. The Company also operates two outlet stores, located in
Berkeley and San Francisco, California. The outlets serve primarily as an
effective means to liquidate discontinued merchandise. The Company intends to
open one additional outlet store during the next 12 months.
INTERNATIONAL OPERATIONS
Sales to customers outside the United States accounted for approximately 23%
and 30% of the Company's net sales in 1995 and the first three months of 1996,
respectively. The Company recently implemented an integrated world-wide approach
to product development, sourcing and marketing in order to reduce costs, ensure
consistent worldwide operations and create a unified global brand. By offering
the same product lines and promoting the same extreme image in catalogs,
advertising and point of purchase materials, the Company has positioned The
North Face-Registered Trademark- brand in Europe consistently with the brand
image in the United States and Canada. Outside the United States, The North Face
products are sold to wholesale customers in Europe and Canada through the
Company's wholly-owned subsidiaries and by a licensee in Hong Kong and Macao. In
Japan and Korea, substantially all of the Company's trademarks are owned by
Kabushiki Kaisha Goldwin ("Goldwin").
EUROPE. The North Face believes that it is currently well positioned in
Europe to take advantage of the same industry trends that are occurring in the
United States. Although the Company has operated in Europe for more than 12
years and believes it is recognized as a leader in the design, marketing and
distribution of highly technical outdoor apparel and equipment, only recently
has it begun to devote additional resources in Europe to increase sales. The
Company's European operations are headquartered in Port Glasgow, Scotland, where
it maintains a small factory and distribution center. The Company distributes
its products directly to approximately 460 wholesale customers representing an
estimated 700 store fronts throughout Europe. Its primary markets are the United
Kingdom, Germany, Italy, France, Spain, Sweden, Denmark and The Netherlands.
Independent sales agents reporting to the Company's sales director are
responsible for sales in each country.
36
<PAGE>
CANADA. The Company's Canadian operations are headquartered in Toronto and
include a distribution center and a customer and warranty service center. Since
early 1995, the Company has sold its products in Canada through independent
sales representatives to approximately 200 wholesale customers representing an
estimated 240 store fronts in Canada, primarily in British Columbia, Ontario and
Quebec. Prior to 1995, the Company's products were sold in Canada through a
licensee. During 1995, The North Face undertook the following initiatives in
Canada: (i) established a sales, sales support, finance and distribution
facility in Toronto; (ii) hired a general manager to head the Canadian
operations; (iii) significantly expanded the available product categories; and
(iv) integrated the marketing and sourcing efforts with those of the U.S.
operations. The Company believes significant additional growth opportunities
exist in the Canadian market.
ASIA. In Japan and Korea, substantially all of the Company's trademarks are
owned by Goldwin, a leading manufacturer and distributor of high-end sports and
outdoor apparel and equipment. The North Face-Registered Trademark-
is the leading high-performance outdoor brand in Japan. The North Face and
Goldwin work closely together in the areas of product design, sourcing and brand
imaging. The Company believes that Goldwin shares the Company's strategy of
building a unified global brand. The Company benefits from this relationship by
selling products made in the United States to Goldwin and by charging an
administration fee for orders which Goldwin adds to the Company's production in
China and Southeast Asia. In Hong Kong and Macao, the Company's products are
sold through a licensee, Mitsui & Co., Ltd. ("Mitsui"). Management plans to
capitalize on the Company's growing worldwide strength by exploring sales
opportunities in other Asian and Pacific Rim countries.
SOURCING AND MANUFACTURING
The Company sources virtually all of its products through approximately 50
contract manufacturers in North America and Asia, including Hong Kong, China,
Taiwan, Korea, Indonesia, Thailand and the Philippines. The Company's European
subsidiary operates a small manufacturing factory in Port Glasgow, Scotland
which accounts for a minor portion of the Company's total production. The
Company has implemented a global sourcing strategy that will enable it to
achieve greater economies of scale, improve gross margins and maintain uniform
quality standards for its products. The Company believes that it enjoys good
relationships with its suppliers and manufacturers and has the ability to secure
the necessary capacity to meet increased demand for its products. See "Risk
Factors -- Reliance on Contract Manufacturing."
To ensure that products manufactured by others are consistent with its
standards, the Company manages all key aspects of the production process,
including establishing product specifications, selecting the materials to be
used to produce its products and the suppliers of such materials, and
negotiating the prices for such materials. The Company maintains a staff of
quality control specialists which conducts on-site inspections throughout the
production process, including at the mills before the fabrics are shipped, at
the factories as the products are made and, finally, before the finished
products are shipped.
The Company currently is engaged primarily in a two season, wholesale
business, Spring (January to June) and Fall (July to December). Wholesale
customers place preseason orders from two to five months prior to the beginning
of the season for deliveries throughout the season. Reorders are taken
throughout the season and are based on availability. With the introduction of
the Company's new Tekware line and Summit Shops, the Company anticipates that it
increasingly will be supplying its products on a year-round basis. The Company
is in the process of implementing a new core inventory replenishment program,
under which it intends to maintain stocks of key products at all times. The
Company has established linked production flow arrangements with its suppliers
in which key raw material vendors and contract manufacturers will be able to
respond quickly to the Company's production needs. As the Company implements its
new core inventory replenishment program, reorder sales are expected to
increase.
37
<PAGE>
The Company's Merchandise Forecasting and Planning Department analyzes
information which it receives from the Company's various sales arms and develops
forecasts for the Company's products. These forecasts are continually updated to
reflect advance orders and reorders and are turned into production quantities.
The Company's Product Acquisition Department, in turn, issues purchase orders to
the Company's contract manufacturers. Contract manufacturers purchase the
materials specified by the Company and manufacture and ship the products to the
Company. The Company's contract manufacturers sell finished products to the
Company on an FOB basis and are at risk for the quality and timely delivery of
the products. Approximately 35 to 40% of the Company's total production
requirements are financed with letters of credit; the balance is purchased under
open terms ranging from 14 to 60 days.
MANAGEMENT INFORMATION SYSTEMS
The Company believes that a high level of computerization is essential to
maintain and improve its competitive position. The Company's management
information and electronic data processing systems consist of a full range of
retail, financial, distribution and merchandizing systems. The Company
anticipates spending a total of approximately $1.5 to $2.0 million through the
end of 1997 to upgrade its systems, with particular emphasis in sourcing, core
inventory replacement and forecasting, and believes that once in place, the
upgraded systems, along with routine upgrades, will be sufficient to accommodate
the Company's anticipated growth in sales and planned expansion for the
foreseeable future. See "Risk Factors -- Ability to Achieve and Manage Potential
Future Growth."
COMPETITION
The markets for the Company's products are highly competitive, and the
recent growth in these markets has encouraged the entry of many new competitors
as well as increased competition from established companies. While the Company
believes that it has been able to compete successfully because of its brand
image and recognition, its broad range and the quality of its products, and its
selective distribution and customer service policies, including the lifetime
warranty that its products carry, there can be no assurance that the Company in
the future will be able to maintain or increase its market share. Although the
Company believes that it does not compete directly with any one single company
with respect to its entire product range, within each product category the
Company has significant competitors. Many of these competitors are larger and
have significantly greater financial, marketing and other resources than the
Company. See "Risk Factors -- Competition."
TRADEMARKS AND LICENSING
The Company considers its trademarks to be among its most valuable assets
and has numerous trademark registrations in the United States, Europe and other
foreign countries. Among the Company's trademarks are The North Face-Registered
Trademark-, Extreme-Registered Trademark-, Tekware-TM-, Steep Tech-Registered
Trademark-, Quick Pitch-TM-, Hydrenaline-TM-, Search and Rescue-TM- and
VaporWick-TM-. Because of the popularity of many of the Company's products and
their strong brand identity and distinctive design, The North Face-Registered
Trademark- brand in recent years has frequently been subject to unauthorized
copying and mislabeling of imitation goods. The Company maintains an aggressive
program of trademark enforcement and cooperation with domestic and foreign
customs officials and other authorities, and will continue to vigorously defend
its trademarks against infringement. See "Risk Factors -- Dependence on
Trademarks."
Currently, the Company has licensed its trademarks to Mitsui which markets
Company-designed products under The North Face-Registered Trademark- name in
Hong Kong and Macao.
In June 1994, Goldwin purchased from the Company substantially all of the
trademarks and trademark applications owned by the Company in Japan and Korea
and obtained the exclusive right to sell and distribute products under the
Company's trademarks in Japan and Korea. At the same time, the Company entered
into a marketing arrangement with Goldwin that ensures that brand, product image
and distribution strategies are synchronized. The Company benefits from this
relationship by selling products made in the U.S. to Goldwin and by charging an
administrative fee for orders which Goldwin adds to the Company's production in
China and Southeast Asia.
38
<PAGE>
EMPLOYEES
As of December 31, 1995, the Company had 504 employees, of which 350 were
employed in the United States, 143 in Scotland and 11 in Canada. None of these
employees is currently covered by collective bargaining agreements. The Company
believes that its relations with its employees are good.
PROPERTIES
The principal executive and administrative offices of the Company are
located at 2013 Farallon Drive, San Leandro, California. The general location,
use and approximate size of the Company's principal properties, all of which,
other than the facility in Scotland, are leased, are set forth below:
<TABLE>
<CAPTION>
APPROXIMATE GROSS
LOCATION USE SQUARE FEET
- -------------------------- -------------------------------------------- -------------------
<S> <C> <C>
San Leandro, CA Executive and administrative offices and 146,500
distribution center
Richmond, CA Distribution center 106,000
San Francisco, CA Retail store 12,300
Palo Alto, CA Retail store 10,700
Costa Mesa, CA Retail store 7,100
Seattle, WA Retail store 6,000
Denver, CO Retail store 17,000
Boulder, CO Retail store 4,300
Chicago, IL Retail store 15,200
Oakbrook, IL Retail store 4,000
Schaumberg, IL Retail store 5,000
Berkeley, CA Outlet 14,200
San Francisco, CA Outlet 10,000
Port Glasgow, Scotland European headquarters, distribution center 77,200
and manufacturing facility
Brampton, Ontario Canadian headquarters and distribution 22,200
center
</TABLE>
LEGAL PROCEEDINGS
The Company is a defendant in a lawsuit alleging wrongful termination of a
sales representative based on age discrimination that was filed in September
1993. The plaintiff seeks damages for future wages and unspecified damages for
emotional distress and punitive damages. The claim was tried in the Superior
Court of Alameda County, California and the jury was unable to return a verdict.
Scheduling of a new trial date is currently pending. The Company believes it has
meritorious defenses to the claim and intends to continue to vigorously defend
against the claim. While the final outcome of this lawsuit cannot be determined
with certainty, management believes that the final outcome will not have a
material adverse effect on the Company's results of operations or financial
condition.
In addition, the Company is party to other claims and litigation that arise
in the normal course of business. Management believes that the ultimate outcome
of these claims and litigation will not have a material adverse effect on the
Company's results of operations or financial condition.
39
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the executive
officers, directors and certain key employees of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- --- ------------------------------------------------------------------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Marsden S. Cason (1)................ 53 Chief Executive Officer and Director
William N. Simon.................... 48 President and Director
Roxanna Prahser..................... 37 Chief Financial Officer
Roger Kase.......................... 48 Vice President of Product Development
Carlo Armenise...................... 47 Vice President of Retail
Maria DiGrande...................... 33 Vice President of Merchandising
Jack A. Boys........................ 38 Vice President of Marketing
Tucker Hacking...................... 40 Vice President of Product Acquisitions
Barton L. Jackson................... 54 Vice President of Management Information Systems & Distribution
Ray E. Newton, III (1)(2)........... 32 Chairman and Director
Peter M. Castleman (2).............. 39 Director
William Laverack, Jr................ 39 Director
KEY EMPLOYEES
Conrad Anker........................ 33 Director of Alpine and Environmental Programs
Rick Fowler......................... 47 Director of Quality Assurance
George Docherty..................... 62 Managing Director of The North Face (Europe), Ltd.
Jean Pascal Papin................... 45 Sales Director of The North Face (Europe), Ltd.
Conrad Tappert...................... 32 General Manager of The North Face (Canada), Inc.
</TABLE>
- ------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
The Company's Restated Certificate of Incorporation will be amended and
restated prior to or concurrent with the closing of this offering to provide,
among other things, that the Board of Directors will be divided into three
classes, each of whose members will serve for a staggered three-year term.
Commencing with the 1997 Annual Meeting of Stockholders, one class of directors
will be elected each year for a three-year term.
The Company expects that, within 90 days following the closing of this
offering, two additional directors who are not otherwise affiliated with the
Company will be elected to the Board of Directors.
Certain additional information concerning the above persons is set forth
below.
MARSDEN S. CASON, CHIEF EXECUTIVE OFFICER AND DIRECTOR. Mr. Cason has been
Chief Executive Officer of the Company and a director since June 1994. Mr. Cason
joined the Company's predecessor in January 1993 as President and director and
served as a director and executive officer of several other Odyssey affiliates.
See "The Company -- Background and History." Prior to joining the Company's
predecessor, from May 1991 through January 1993, Mr. Cason was the Chief
Executive Officer of Carol Management Company and Doral Resort Hotels, an owner
and manager of condominiums, hotels and conference centers. Prior to May 1991,
Mr. Cason was involved in various business ventures as a chief executive
officer.
WILLIAM N. SIMON, PRESIDENT AND DIRECTOR. Mr. Simon has been President of
the Company since December 1995 and a director of the Company since June 1995.
From May 1988 through June 1994,
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<PAGE>
Mr. Simon served as the Chairman of the Board of the Company's predecessor and
was Vice Chairman of the Company from June 1994 to December 1995. From November
1978 through June 1994, Mr. Simon was Chairman and Chief Executive Officer of
Odyssey, a designer and manufacturer of high-end sports and outdoor apparel, and
an executive officer and director of several other Odyssey affiliates. Mr. Simon
has been involved in the design and manufacture of mountaineering and outdoor
clothing and equipment for over 26 years.
ROXANNA PRAHSER, CHIEF FINANCIAL OFFICER. Ms. Prahser has been Chief
Financial Officer of the Company since January 1996. Ms. Prahser served as the
Vice President of Finance for the Company from May 1995 through January 1996 and
as Director of Finance for the Company and its predecessor from March 1993
through May 1995. Prior to joining the Company's predecessor, Ms. Prahser spent
12 years at Arthur Andersen & Co., where she was an audit manager.
ROGER KASE, VICE PRESIDENT OF PRODUCT DEVELOPMENT. Mr. Kase joined the
Company as Vice President of Product Development in May 1995. From September
1993 through May 1995, he was Chief Operating Officer for Cary Children's
Clothing and from April 1991 through July 1993, Vice President -- Apparel
Division for Sam & Libby Inc., a manufacturer of footwear. Mr. Kase has over 20
years of experience in the apparel industry in both design and operations,
including 10 years as an executive with Esprit de Corp., a manufacturer of
women's clothing.
CARLO ARMENISE, VICE PRESIDENT OF RETAIL. Mr. Armenise joined the Company
as Vice President of Retail in April 1996. Prior to joining the Company, Mr.
Armenise was the Director of Full Price Retail Stores for Coach Leatherware Co.,
Inc., a manufacturer and retailer of leather goods, from September 1992 through
April 1996. From June 1977 through September 1992, Mr. Armenise was West Coast
Regional Manager for Gucci America Inc.
MARIA DIGRANDE, VICE PRESIDENT OF MERCHANDISING. Ms. DiGrande joined the
Company as Vice President of Merchandising in January 1996. From January 1995
through January 1996, Ms. DiGrande operated her own retail market consulting
company, MarketQuest, and, from July 1992 through December 1994, she was
President of SIMINT Fashion Corp., which owned and operated the Armani Exchange
Stores. From June 1989 through July 1992, she was Director of Sales & Marketing
of SIMINT (U.S.A.) Inc., a distributor of leading branded Italian apparel. Ms.
DiGrande has over 14 years of experience in the apparel industries, including as
a sales and marketing executive for both Donna Karan International, Inc. and
Calvin Klein Ltd., manufacturers of apparel and accessories.
JACK A. BOYS, VICE PRESIDENT OF MARKETING. Mr. Boys joined the Company as
Vice President of Marketing in March 1996. From December 1993 to March 1996, Mr.
Boys was Marketing Director for Avia Group International, Inc., a manufacturer
of athletic footwear, and from August 1992 to December 1993 he was Marketing
Director for Le Coq Sportif International, an athletic footwear and apparel
manufacturer. Prior to August 1992, Mr. Boys spent over 10 years with Converse
Inc., an athletic footwear company, where he was a senior category manager.
TUCKER HACKING, VICE PRESIDENT OF PRODUCT ACQUISITIONS. Mr. Hacking has
been Vice President of Product Acquisitions for the Company since April 1996 and
Director of Product Acquisitions for the Company and its predecessor from April
1993 through April 1996. From January 1990 to April 1993, Mr. Hacking owned and
operated TTH Enterprises, Inc., a company specializing in the sports apparel
industry. From 1987 to 1989, Mr. Hacking served as the General Manager of
operations and sourcing for Adidas America, Inc., an athletic footwear and
apparel company.
BARTON L. JACKSON, VICE PRESIDENT OF MANAGEMENT INFORMATION SYSTEMS &
DISTRIBUTION. Mr. Jackson has been Vice President of Management Information
Systems & Distribution for the Company since May 1995 and served as Director of
Management Information Systems & Distribution from October 1994 through May
1995. From July 1990 through October 1994, Mr. Jackson owned and operated
Integrated Management Resources, a consulting company specializing in management
information systems.
41
<PAGE>
RAY E. NEWTON, III, CHAIRMAN AND DIRECTOR. Mr. Newton has been a director
of the Company since June 1994 and has served as the Chairman of the Company's
Board of Directors since January 1996. Mr. Newton joined Whitney in 1989 and has
been a General Partner since May 1992. Prior to joining Whitney, he was employed
by Morgan Stanley & Co. Incorporated, an investment banking firm, where he was
in the Merchant Banking Group. Mr. Newton is also a director of Brothers Gourmet
Coffees, Inc.
PETER M. CASTLEMAN, DIRECTOR. Mr. Castleman has been a director of the
Company since June 1994. Mr. Castleman has been a General Partner of J.H.
Whitney & Co. since January 1989 and has served as the Managing Partner of J.H.
Whitney & Co. since December 1992. He is also a director of Advance ParadigM,
Inc., UtiliMed, Inc., Brothers Gourmet Coffees, Inc. and a number of private
companies.
WILLIAM LAVERACK, JR., DIRECTOR. Mr. Laverack has been a director of the
Company since June 1995. Mr. Laverack joined Whitney in 1993, and has been a
General Partner of Whitney since 1993. Prior to joining Whitney, he was with
Gleacher & Co., a mergers and acquisitions advisory firm, from 1991 to 1993 and
employed by Morgan Stanley & Co. Incorporated, where he was in the Merchant
Banking Group from 1985 to 1991. Mr. Laverack is also a director of CRA Managed
Care, Inc.
CONRAD ANKER, DIRECTOR OF ALPINE AND ENVIRONMENTAL PROGRAMS. Mr. Anker has
been the Director of Alpine and Environmental Programs of the Company since
November 1995. Since 1987, Mr. Anker has been a member of the Company's climbing
team and served as a technical consultant to The North Face. Mr. Anker is one of
the most respected rock climbers and mountaineers in the United States. He has
made first ascents of peaks in Baffin Island, Canada, Argentina and the
Himalayas, as well as numerous "big wall" routes in Yosemite Valley.
RICK FOWLER, DIRECTOR OF QUALITY ASSURANCE. Mr. Fowler has been the
Director of Quality Assurance of the Company since March 1996. Prior to joining
the Company, Mr. Fowler spent over 23 years with Eddie Bauer Inc., where he
directed the first employee training program in 1979, started the quality
assurance program in 1981 and was the Director of Quality Assurance from 1986 to
March 1996.
GEORGE DOCHERTY, MANAGING DIRECTOR OF THE NORTH FACE (EUROPE), LIMITED. Mr.
Docherty has been the Managing Director of the Company's European operations
since September 1993. From December 1989 to August 1993, Mr. Docherty was Deputy
Managing Director of the Company's European operations and from April 1983 to
November 1989, was the Director of Manufacturing of the Company's predecessor.
JEAN PASCAL PAPIN, SALES DIRECTOR OF THE NORTH FACE (EUROPE), LIMITED. Mr.
Papin has been the Sales Director of the Company's European operations since
April 1995. From January 1989 to March 1995, Mr. Papin was a Managing Director
with Time Sport International, a manufacturer of bicycle equipment, and, from
May 1984 to December 1988, he was Director of the Golf and Racket Division of
Browning International, a manufacturer and distributor of sporting goods.
CONRAD TAPPERT, GENERAL MANAGER OF THE NORTH FACE (CANADA), INC. Mr.
Tappert has been General Manager of the Company's Canadian subsidiary since
March 1995. Mr. Tappert was Vice President of Benetton Sportsystem Canada Inc.
from April 1994 through February 1995 and was Director of Sales and Marketing
from November 1990 to March 1994. Mr. Tappert has 11 years of sporting goods
industry experience.
In September 1994, Mr. Simon filed a petition under Chapter 7 of the U.S.
Bankruptcy Code and in January 1995 was granted a discharge and the proceeding
was dismissed. Mr. Simon had guaranteed substantially all of the indebtedness of
Odyssey and its affiliated companies and the bankruptcy filing was made in order
to terminate his personal liability for these corporate obligations.
42
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the compensation
of the Company's Chief Executive Officer and each of the four other most highly
compensated executive officers as well as the Company's former President
(collectively, the "Named Executive Officers") for the fiscal year ended
December 31, 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
AWARDS
-----------
ANNUAL COMPENSATION NUMBER OF
----------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1) OPTIONS COMPENSATION
- --------------------------------------- ----------- --------- ----------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Marsden S. Cason....................... $ 360,000 -- $ 1,200 -- --
Chief Executive Officer
William N. Simon....................... 360,000 -- 1,200 701,706 $ 20,500(2)
President
Roxanna Prahser........................ 133,500 $ 17,250 600 -- --
Chief Financial Officer
Roger Kase............................. 91,400 -- 400 16,650 --
Vice President of Product Development
Barton L. Jackson...................... 153,500 20,250 800 -- --
Vice President of Management
Information Systems & Distribution
William A. McFarlane................... 360,000 -- 1,200 -- --
Former President
</TABLE>
- ------------------------------
(1) Life insurance premiums.
(2) Payment for unused vacation time.
43
<PAGE>
OPTION GRANTS. The following table provides information with respect to the
stock option grants made to each Named Executive Officer during 1995:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
NUMBER OF --------------------------------- STOCK PRICE APPRECIATION
SECURITIES % OF TOTAL FOR
UNDERLYING OPTIONS GRANTED OPTION TERM(2)
OPTIONS TO EMPLOYEES IN EXERCISE OR EXPIRATION --------------------------
NAME GRANTED FISCAL YEAR BASE PRICE (1) DATE 5% 10%
- ------------------------- ------------- ---------------- --------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Marsden S. Cason......... -- -- -- -- -- --
William N. Simon......... 701,706(3) 87.8% $ 1.13 6/7/2004 $ 437,163 $ 1,076,768
Roxanna Prahser.......... -- -- -- -- -- --
Roger Kase............... 16,650(4) 2.1 1.13 6/7/2004 10,373 25,549
Barton L. Jackson........ -- -- -- -- -- --
William A. McFarlane..... -- -- -- -- -- --
</TABLE>
- ------------------------------
(1) All options were granted at the fair market value of the Common Stock on the
date of grant, as determined by an independent valuation.
(2) The potential realizable value through the expiration date of the options
has been determined on the basis of the fair market value of the shares at
the time the options were granted, compounded annually over the term of the
option, net of exercise price. These values have been determined based upon
assumed rates of appreciation and are not intended to forecast the possible
future appreciation, if any, of the price or value of the Company's Common
Stock.
(3) Options for 519,067 shares are fully vested and immediately exercisable as
of the date of this Prospectus. The remaining options for 182,639 shares
become exercisable on June 7, 2004 unless certain targets are met as
determined by the Company's Board of Directors, in which case the remaining
option shares vest 50% on June 7, 1997 and 50% on June 7, 1998, with
accelerated vesting on the date of an initial public offering with gross
proceeds of at least $30.0 million. The Company expects that these remaining
options will vest and become exercisable as a result of this offering.
(4) Options for 4,162 shares are fully vested and immediately exercisable as of
the date of this Prospectus. The remaining options for 12,488 shares become
exercisable on June 7, 2004 unless certain targets are met as determined by
the Company's Board of Directors, in which case the options vest one-third
each on each of June 7, 1997, 1998 and 1999.
OPTION EXERCISES AND VALUE. None of the Named Executive Officers exercised
options during fiscal 1995. The following table summarizes the number of
securities underlying unexercised options and the value of such options on an
aggregated basis held by the Named Executive Officers at December 31, 1995:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR END FISCAL YEAR END(2)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------------ ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Marsden S. Cason...................................... 25,643 76,928 $ 80,904 $ 242,708
William N. Simon...................................... 375,202 326,504 844,205 734,634
Roxanna Prahser....................................... 5,550 16,650 17,510 52,531
Roger Kase............................................ -- 16,650 -- 37,463
Barton L. Jackson..................................... 5,550 16,650 17,510 52,531
William A. McFarlane.................................. 12,821 38,464(3) 40,450 121,354
</TABLE>
- ------------------------------
(1) No options were exercised during the year ended December 31, 1995.
(2) Based upon a fair market value of $3.38 at December 31, 1995, as determined
by an independent valuation.
(3) Excludes 51,285 option shares which will be forfeited by Mr. McFarlane
effective July 1, 1996, due to his resignation from the Company.
44
<PAGE>
EMPLOYMENT AGREEMENTS
Each of Ms. Prahser, Mr. Kase and Mr. Jackson received letters from the
Company that offered employment and set forth compensation levels, eligibility
for merit increases and benefits, including eligibility to participate in the
Company's stock incentive plans. Each letter agreement specifies that employment
with the Company is voluntary and can be terminated at any time by either party,
in one case subject to 30 days notice by either party.
OTHER AGREEMENTS
The Management Stock Purchase and Non-Competition Agreement, dated as of
June 7, 1994, among the Company and each of the stockholders party thereto, as
amended (the "Management Purchase Agreement"), provides for the purchase of
Common Stock by certain Named Executive Officers. The Management Purchase
Agreement also contains provisions requiring the individuals party thereto to
retain in confidence any confidential or proprietary information belonging to
the Company and restricts the ability of those individuals, while employed by
the Company and for a specified period thereafter, to own, manage or invest in,
or engage in certain other business relationships with, any competitor of the
Company. The Company retains the right to repurchase Common Stock sold pursuant
to the Management Purchase Agreement in the event of a breach of the
non-competition provisions of the agreement by individual party thereto. Mr.
Cason holds 283,883 shares of Common Stock purchased pursuant to the Management
Purchase Agreement.
Mr. McFarlane resigned as a director and officer of the Company effective
December 19, 1995, but remains an employee of the Company with limited duties
through July 1, 1996. Pursuant to an agreement between Mr. McFarlane and the
Company, Mr. McFarlane is expected to receive $340,000 throughout 1996 as
consideration for his resignation and $20,000 as consideration for his continued
limited duties. Mr. McFarlane holds 283,883 shares of Common Stock purchased
pursuant to the Management Purchase Agreement.
STOCK INCENTIVE PLANS
1994 STOCK INCENTIVE PLAN. In 1994, the Company adopted the 1994 Stock
Incentive Plan (the "1994 Plan"), pursuant to which as of March 31, 1996 the
Named Executive Officers held nonqualified stock options ("NQSOs") to purchase
an aggregate of 951,247 shares of Common Stock with a weighted-average exercise
price of $0.89 per share. All NQSOs were granted at an exercise price that was,
at the time of grant, an amount equal to the fair market value of a share of
Common Stock, as determined by the Board of Directors. Mr. Cason holds 315,253
shares of Common Stock under the 1994 Plan pursuant to the payment of cash and
delivery of a promissory note due June 7, 2004, bearing interest at a rate of
9.0% per annum. As of March 31, 1996, $81,092 of principal and interest was
unpaid on the note. Options and restricted shares under the 1994 Plan become
fully vested on June 7, 2004, with accelerated vesting over the four years
following the date of grant based upon specified performance goals and, in the
case of Mr. Cason, carry accelerated vesting on the date of an initial public
offering with gross proceeds of at least $30 million.
Mr. McFarlane holds 315,253 shares of Common Stock under the 1994 Plan
pursuant to the payment of cash and delivery of a promissory note due June 7,
2004, bearing interest at a rate of 9.0% per annum. As of March 31, 1996,
$81,092 of principal and interest was unpaid on the note. In addition, as a
result of Mr. McFarlane's resignation from the Company, the Company has the
right to repurchase on or about July 1, 1996, at the original purchase price of
$0.22523 per share, 131,355 of such shares held by Mr. McFarlane. The Company
intends to repurchase these shares by canceling the promissary note held by Mr.
McFarlane. NQSOs to purchase 51,285 shares of Common Stock are expected to
expire as of July 1, 1996 as a result of Mr. McFarlane's resignation from the
Company.
45
<PAGE>
1995 AND 1996 STOCK INCENTIVE PLANS. The Company's 1995 Stock Incentive
Plan (the "1995 Plan") was adopted by the Company in April 1995 and the
Company's 1996 Stock Incentive Plan (the "1996 Plan") was adopted by the Company
in May 1996. The terms of the 1995 Plan and the 1996 Plan (together, the "Option
Plans") are substantially the same, except where noted below.
A maximum of 313,020 and 493,950 shares of Common Stock (subject to
adjustment in the case of certain stock splits, stock dividends, and
reorganizations) have been reserved for issuance pursuant to options granted
under the 1995 Plan and the 1996 Plan, respectively. Since inception, NQSOs to
purchase an aggregate of 248,640 shares of Common Stock were granted under the
1995 Plan at a weighted average exercise price of $4.30 per share. NQSOs granted
to Mr. Kase and Ms. Prahser under the 1995 Plan become fully vested on June 7,
2004, with accelerated vesting through May 2000 based upon specified performance
goals and remain exercisable through June 7, 2004.
Under the terms of the Option Plans, NQSOs may be granted to officers,
directors, other employees and consultants of the Company and, in the case of
the 1996 Plan, to officers, directors and other employees of any majority-owned
subsidiary. Under the 1996 Plan, options with respect to no more than 55,500
shares may be granted to any individual in any year and no options may be
granted to a person who, at the time of grant, owns shares possessing 10% or
more of the total combined voting power of all classes of stock of the Company
or its parent or subsidiary corporations. All of the Company's officers,
directors and other salaried employees are eligible to receive options under the
1995 Plan and the 1996 Plan.
Under the terms of the 1996 Plan, "incentive stock options" ("ISOs") within
the meaning of section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") also may be granted to employees of the Company and of any majority
owned subsidiary. To the extent that the aggregate fair value (as defined in the
1996 Plan) of Common Stock with respect to which ISOs granted under the 1996
Plan and all other option plans of the Company (determined as of the date of
grant) or its subsidiaries exercisable for the first time by an individual
during any calendar year exceeds $100,000, such options shall be treated as
NQSOs.
The Option Plans are administered by a committee of the Company's Board of
Directors (the "Compensation Committee"). The Compensation Committee under the
1996 Plan is intended to satisfy the provisions of Rule 16b-3 promulgated under
the Securities Exchange Act of 1934, as amended, and Code section 162(m), in
each case to the extent applicable. The Compensation Committee has authority,
subject to the terms of the Option Plans, to exercise all powers granted to it
under the Option Plans; to construe, interpret and implement the Option Plans
and any agreements executed pursuant thereto; to prescribe, amend and rescind
rules and regulations relating to the Option Plans; to make all necessary or
advisable administrative determinations; to correct any defect, supply any
omission and reconcile any inconsistency in the Option Plans; and to amend the
Option Plans to reflect changes in law.
Subject to the provisions of the Option Plans, the Compensation Committee
has the authority to determine the terms of options granted thereunder, provided
that the per share exercise price of an option shall be no less than 100% of the
fair market value of a share of Common Stock at the date of grant and no options
may be exercisable more than ten years following the date of grant. Under the
1996 Plan, at least 20% of the shares subject to each option granted thereunder
will become exercisable per year over the five years following the date of
grant, unless otherwise permitted by applicable law. The Compensation Committee
may, with the grantee's consent, cancel any award and issue a new award in
substitution therefor, provided that the substituted award satisfies all
applicable Option Plan requirements as of the date made.
Common Stock purchased upon the exercise of an option must be paid for (i)
by cash or certified or official check, (ii) by delivery of previously acquired
shares of Common Stock with a fair market value (as of the exercise date) equal
to the option exercise price, (iii) under the 1995 Plan, by conversion of such
exercisable option and/or (iv) by such other method as may be determined by the
Compensation Committee (including, under the 1996 Plan, by delivery of the
optionee's promissory note or by delivery of an exercise notice along with
instructions to a broker to deliver to the Company, from proceeds of the
46
<PAGE>
sale of Common Stock received on such exercise, the exercise price). Upon
exercise of an option, the Company may require a grantee to remit an amount
sufficient to satisfy applicable tax withholding requirements; with the
Compensation Committee's approval, the grantee may elect to satisfy such
obligation by directing the Company to withhold shares valued at the amount of
the withholding obligation from the number purchased.
Options may be transferred by a grantee only by will or by the laws of
descent and distribution, and may be exercised during the grantee's lifetime
only by the grantee. Generally, unless an option agreement otherwise provides
options that are exercisable immediately prior to the termination of the
optionee's employment remain exercisable for three months following such
termination (one year in the case of termination on account of death or, in the
case of the 1996 Plan, disability), but in no event beyond the stated term of
such option. In addition, options granted under the 1995 Plan terminate in full
on dismissal for cause (as defined in the 1995 Plan).
The Company's Board of Directors may amend, suspend or discontinue the
Option Plans at any time except that no amendment may materially impair an
optionee's rights under any option, without the optionee's consent. In the case
of the 1996 Plan, unless an amendment is approved (at a meeting held within 12
months before or after the date of such amendment) by the holders of a majority
of the issued and outstanding shares of Common Stock entitled to vote, no such
amendment may (i) materially increase the maximum number of shares as to which
awards may be granted under the Option Plans (except for certain adjustments to
reflect stock dividends or other recapitalization), (ii) materially increase the
benefits accruing to participants, (iii) materially change the requirements as
to eligibility for participation in the Option Plans, (iv) provide for the grant
of options having an exercise price less than the fair market value of Common
Stock on the date of grant, (v) permit an award to be exercisable more than 10
years after grant or (vi) extend the term of the Option Plans beyond 10 years.
Since the adoption of the 1994 Plan and the 1995 Plan, options to purchase
an aggregate of 973,447 and 248,640 shares, respectively, of Common Stock have
been granted to the following participants:
<TABLE>
<CAPTION>
1994 PLAN 1995 PLAN
------------------------------- -------------------------------
NUMBER OF OPTIONS EXERCISE NUMBER OF OPTIONS EXERCISE
NAME/GROUP OF OPTIONEE(S) GRANTED PRICE(S) GRANTED PRICE(S)
- ------------------------------------------------ ----------------- ------------ ----------------- ------------
<S> <C> <C> <C> <C>
Marsden S. Cason................................ 102,571 $ 0.23 -- --
William N. Simon (1)............................ 701,706 1.13 -- --
Roxanna Prahser................................. 22,200 0.23 5,550 $ 9.60
Roger Kase...................................... -- -- 27,750 1.13-9.60
Barton L. Jackson............................... 22,200 0.23 -- --
William A. McFarlane............................ 102,571 0.23 -- --
All current officers as a group................. 870,877 0.23-1.13 138,750 1.13-9.60
Each other person who has received 5% of the
options granted:
Conrad Tappert................................ -- -- 16,650 1.13
All other employees as a group.................. -- -- 93,240 1.13
</TABLE>
- ------------------------
(1) Stock options were granted to William N. Simon under the 1994 Plan on June
22, 1995.
Options granted under the 1996 Plan become exercisable over four years. Such
options may be canceled or may be replaced by substitute options in connection
with a change in control, and shares acquired on exercise of such options may be
subject to certain transfer restrictions, as described in option agreements with
the Named Executive Officers. No options have been granted under the 1996 Plan.
An optionee who holds the stock received on exercise of an ISO for at least
two years from the date the option was granted and at least one year from the
date of purchase generally pays no tax until the stock is sold, at which time
any profit or loss realized is long-term capital gain or loss, as the case may
be;
47
<PAGE>
the Company gets no tax deduction with respect to the issuance or sale of such
shares. The spread at exercise of an ISO is effectively treated as a tax
preference item in the year of exercise for purposes of calculating an
optionee's alternative minimum tax.
An optionee who sells the stock received on exercise of an ISO within two
years after the option was granted or within one year of the date of purchase is
taxed on the profit up to the date of exercise (which is ordinary income) and
the Company is entitled to a corresponding tax deduction; the income and
deduction items are recognized by the grantee and the Company, respectively, in
the year the stock is sold. Appreciation or depreciation after the date of
exercise is taxable to the grantee as capital gain or loss, respectively, and is
not deductible for federal income tax purposes by the Company.
Generally, on exercise of an NQSO, the amount by which the fair market value
of the shares of the Common Stock on the date of exercise exceeds the purchase
price of such shares will be taxable to the optionee as ordinary income, and
will be deductible for tax purposes by the Company in the year in which the
optionee recognizes income. If, in any year after 1993, an affected
participant's total compensation (including compensation related to options)
from the Company and its affiliates exceeds $1 million, such compensation in
excess of $1 million may not be tax deductible by the Company under Code section
162(m). Affected participants are generally the Company's chief executive
officer and the four most highly compensated employees of the Company (other
than the chief executive officer) at the end of the Company's taxable year.
Compensation that is "performance-based" within the meaning of Code section
162(m) is excluded from the calculation of total compensation for this purpose.
It is expected that compensation realized upon the exercise of 1996 Plan options
will be "performance-based" and, therefore, that such compensation will be
deductible without regard to the limits of Code section 162(m).
EMPLOYEE STOCK PURCHASE PLAN.
The 1996 Employee Stock Purchase Plan (the "Employee Plan"), adopted in May
1996 and effective upon completion of this offering, subject to stockholder
approval which will be obtained prior to the completion of this offering,
reserves a total of 200,000 shares of Common Stock for issuance. The Employee
Plan, which is intended to qualify under section 423 of the Code, will be
administered by the Compensation Committee.
Generally, Company employees are eligible to participate in the Employee
Plan if they have been employed by the Company for at least 90 days and are
currently working at least 20 hours per week. The Employee Plan permits eligible
employees to purchase Common Stock through payroll deductions, which may not
exceed 10% of the employee's compensation. The price at which stock is purchased
under the Employee Plan is equal to 85% of the fair market value of the Common
Stock on the first day of the applicable offering period or the last day of the
applicable offering period, whichever is lower. Unless terminated earlier, the
Employee Plan will terminate ten years from its effective date. Subject to
certain exceptions and limitations, the Board of Directors has the authority to
amend or terminate the Employee Plan.
DIRECTORS' COMPENSATION
Each member of the Company's Board of Directors is reimbursed by the Company
for out-of-pocket expenses incurred in connection with attending Board meetings.
No member of the Company's Board of Directors currently receives any additional
compensation for such service; provided, however, during 1995 Whitney, which has
three nominees on the Company's Board of Directors, received a management fee in
the amount of $250,000. See "-- Compensation Committee Interlocks and Insider
Participation." The Company anticipates changing the compensation of directors
at such time as it elects independent directors. The terms of any such
compensation have not yet been determined by the Company.
1996 DIRECTORS' STOCK OPTION PLAN. The 1996 Director's Stock Option Plan
(the "Directors' Plan") was adopted by the Board of Directors in May 1996 and
will be submitted to the stockholders for approval prior to the closing of this
offering. A total of 140,000 shares of Common Stock has been
48
<PAGE>
reserved for issuance under the Directors' Plan. The Directors' Plan provides
for the grant of nonqualified stock options to purchase 27,750 shares to each
non-employee director of the Company initially elected to the Board after the
effective date of the Directors' Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Three members of the Company's Board of Directors, Messrs. Newton, Castleman
and Laverack, are general partners of Whitney.
On June 7, 1994, the Company (then known as TNF Holdings Company, Inc.)
which had been organized by Whitney, Marsden S. Cason and William A. McFarlane,
acquired substantially all of the assets and certain of the liabilities of the
Company's predecessor, then a subsidiary of the Parent, for a purchase price of
$62.1 million, pursuant to a Purchase and Sale Agreement, dated as of May 25,
1994, by and among Odyssey Holding Inc. and The North Face and TNF Holdings
Company, Inc., the terms and conditions of which were approved by the U.S.
Bankruptcy Court for the Northern District of California (the "Bankruptcy
Court"), which had jurisdiction over the Chapter 11 proceeding involving Odyssey
and its affiliated companies.
In September 1994, three of Odyssey's principal secured creditors (the
"Banks") commenced an action against Mr. Cason alleging, in substance, that he
had breached his fiduciary duties and violated Bankruptcy Court orders by
causing various fund transfers between certain Odyssey entities and the
Company's predecessor. The Banks also named Mr. McFarlane as a defendant in the
action, alleging, in substance, that he had breached his fiduciary duties and
violated Bankruptcy Court orders by accepting an improper severance payment from
Odyssey. Both Mr. Cason and Mr. McFarlane denied the material allegations of the
complaint. The action was settled without any admission of liability in August
1995; pursuant to such settlement the Company paid the Banks an aggregate of $1
million on behalf of the defendants and reimbursed the defendants for certain
costs of defense.
In connection with the Acquisition, the Company, Whitney and the Whitney
1990 Equity Fund, L.P. (the "Equity Fund"), an affiliate of Whitney, entered
into a Preferred Stock Purchase Agreement pursuant to which the Company issued
an aggregate of 1,920,000 shares of Preferred Stock (currently convertible into
an aggregate of 3,406,590 shares of Common Stock) to Whitney and the Equity Fund
in consideration of $12,166,667. In connection with the sale of the Preferred
Stock, the Company paid Whitney a fee of $200,000. The holders of the Preferred
Stock have unanimously agreed to convert the Preferred Stock, plus accrued
dividends, in accordance with its terms into shares of Common Stock prior to or
concurrently with this offering. The Company also agreed to pay Whitney a
management fee of $250,000 per year, plus reimbursement of reasonable
out-of-pocket travel expenses incurred in connection with attendance by Whitney
representatives on the Board of Directors at regular Board meetings, not to
exceed $50,000 per year (which fee will terminate upon consummation of this
offering). During 1995, the Company paid Whitney a total of $250,000 as a
management fee and $16,009 for reimbursable expenses.
Also in connection with the Acquisition, the Company and the Whitney
Subordinated Debt Fund, L.P. (the "Debt Fund"), an affiliate of Whitney, entered
into a Subordinated Note and Common Stock Purchase Agreement pursuant to which
the Company issued to the Debt Fund a Subordinated Promissory Note due June 7,
2001 (the "Subordinated Note") in the aggregate principal amount of $24,333,333
in return for a loan of $24,013,645 and 1,419,415 shares of Common Stock at a
purchase price of $0.225 per share. In connection with the issuance of the
Subordinated Note, the Company paid Whitney a fee of $730,000. The proceeds from
the issuance of the Preferred Stock, Subordinated Note and Common Stock were
applied, together with borrowings under the Credit Facility, to fund the
Acquisition. Approximately $10,000,000 of the Subordinated Note, together with
accrued interest, will be repaid with the proceeds of this offering. See "Use of
Proceeds."
Through September 22, 1995, the Company was a party to a license agreement
with High Performance Sports, Ltd. ("HPS"), the Managing Director of which is
Lily Simon, the wife of William N. Simon, the President of the Company. Under
this agreement, HPS had exclusive licenses to use the Company's
49
<PAGE>
tradenames, trademarks and logos and to sell its products and accessories in
Hong Kong, Taiwan and Macao. Revenues to the Company under this agreement were
approximately $280,000 during 1995. The Company believes that the terms of the
license agreement with HPS were at least as favorable to the Company as could
have been obtained at the time from an unaffiliated third party. Effective
September 22, 1995, the Company entered into a new license agreement with Mitsui
& Co. covering Hong Kong and Macao.
CERTAIN TRANSACTIONS
The Company has issued Common Stock to certain of its executive officers and
directors. See "Management -- Other Agreements" and "-- Stock Incentive Plans."
In addition, the Company also has been a party to certain transactions involving
the Company's executive officers, directors and stockholders. See "Management --
Compensation Committee Interlocks and Insider Participation."
50
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of shares of Common Stock as of May 1, 1996, and as adjusted to
reflect the sale of Common Stock offered by the Company hereby, for (i) each
person known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock, (ii) each of the Company's directors who
owns shares of Common Stock, (iii) each Named Executive Officer and (iv) all
directors and executive officers as a group:
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
SHARES --------------------------
NAME AND ADDRESS OF BENEFICIALLY BEFORE THE AFTER THE
BENEFICIAL OWNER (1)(2) OWNED OFFERING OFFERING
- ------------------------------------------------------------------------------ ------------ ------------ ------------
<S> <C> <C> <C>
Whitney 1990 Equity Fund, L.P. (3)(4)......................................... 3,341,693 42.3% 31.8%
Whitney Subordinated Debt Fund, L.P. (3)...................................... 1,419,415 18.0 13.5
J.H. Whitney & Co. (3)(5)..................................................... 835,423 10.6 8.0
Marsden S. Cason (6).......................................................... 701,707 8.9 6.7
William N. Simon (7).......................................................... 701,707 8.9 6.7
William A. McFarlane (8)...................................................... 519,066 6.6 5.0
Roxanna Prahser (9)........................................................... 11,100 * *
Roger Kase (10)............................................................... 4,162 * *
Barton L. Jackson (9)......................................................... 11,100 * *
All directors and executive officers as a group (12 persons).................. 1,440,877 18.3 13.7
</TABLE>
- ------------------------------
* Less than 1%.
(1) Determined in accordance with Rule 13d-3 under the Securities Exchange Act
of 1934, as amended. Under this rule, a person is deemed to be the
beneficial owner of securities that can be acquired by such person within
60 days from May 1, 1996 upon the exercise of options, and each beneficial
owner's percentage ownership is determined by assuming that options that
are held by such person (but not those held by any other person) and that
are exercisable within 60 days from May 1, 1996 have been exercised. Unless
otherwise noted, the Company believes that all persons named in the table
have sole voting and investment power with respect to all shares of Common
Stock beneficially owned by them.
(2) Unless otherwise indicated, the address of each of the persons named above
is in care of the Company at 2013 Farallon Drive, San Leandro, California
94577.
(3) Whitney 1990 Equity Fund, L.P., Whitney Subordinated Debt Fund, L.P., and
J.H. Whitney & Co. are limited partnerships in which Ray E. Newton, III ,
Peter M. Castleman, and William Laverack, Jr., directors of the Company,
are general partners. Messrs. Newton, Castleman, and Laverack disclaim
beneficial ownership of the securities held by such partnerships, except to
the extent of their respective ownership interests in such partnerships.
The address of each of Whitney 1990 Equity Fund, L.P., Whitney Subordinated
Debt Fund, L.P. and J.H. Whitney & Co. is 177 Broad Street, Stamford,
Connecticut 06901.
(4) Represents 3,341,693 shares of Common Stock issuable upon conversion of the
Preferred Stock.
(5) Represents 835,423 shares of Common Stock issuable upon conversion of the
Preferred Stock.
(6) Includes 102,571 shares of Common Stock issuable upon exercise of stock
options. Mr. Cason has agreed with the several Underwriters to sell to the
Underwriters 69,000 shares of Common Stock owned by him in the event the
Underwriters exercise their over-allotment option. If the Underwriters'
over-allotment option is exercised in full, Mr. Cason will beneficially own
632,707 shares after the offering, representing 5.9% of total shares
outstanding, and all directors and executive officers as a group will own
1,302,877 shares (12.1%).
(7) Includes 701,707 shares of Common Stock issuable upon exercise of stock
options. Mr. Simon has agreed with the several Underwriters to sell to the
Underwriters 69,000 shares of Common Stock owned by him in the event the
Underwriters exercise their over-allotment option. If the Underwriters'
over-allotment option is exercised in full, Mr. Simon will beneficially own
632,707 shares after the offering, representing 5.9% of total shares
outstanding, and all directors and executive officers as a group will own
1,302,877 shares (12.1%).
(8) Includes 51,285 shares of Common Stock issuable upon exercise of stock
options. Mr. McFarlane's address is 1606 Martin Avenue, Pleasanton,
California 94566.
(9) Includes 11,100 shares of Common Stock issuable upon exercise of stock
options.
(10) Includes 4,162 shares of Common Stock issuable upon exercise of stock
options.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of the Company's capital stock does not purport to
be complete and is subject in all respects to applicable Delaware law and to the
provisions of the Company's Restated Certificate of Incorporation (the
"Charter") and By-laws, each of which will be amended or restated prior to or
simultaneous with the closing of this offering, and copies of which will be
filed as exhibits to the Registration Statement of which this Prospectus is a
part. References to the Company's Charter and By-laws in this Prospectus refer
to the Charter and By-laws as amended or restated.
The authorized capital stock of the Company currently consists of 10,000,000
shares of Common Stock (which will be increased to 50,000,000 shares prior to
the closing of this offering), par value $0.0025 per share, and 4,000,000 shares
of Preferred Stock, par value $1.00 per share. Immediately after the completion
of the offering, the Company estimates that there will be outstanding an
aggregate of 9,581,666 shares of Common Stock, 1,170,802 shares of Common Stock
will be issuable upon exercise of outstanding options and no shares of Preferred
Stock will be issued or outstanding.
COMMON STOCK
Holders of the Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Holders of Common Stock do not
have cumulative voting rights, and therefore holders of a majority of the shares
voting for the election of directors can elect all of the directors. In such
event, the holders of the remaining shares will not be able to elect any
directors.
Holders of the Common Stock are entitled to receive such dividends as may be
declared from time to time by the Board of Directors out of funds legally
available therefor, subject to the terms of the agreements governing the
Company's long-term debt. The Company does not anticipate paying cash dividends
in the foreseeable future and currently is precluded from doing so pursuant to
the terms of the Credit Facility. See "Dividend Policy." In the event of the
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities.
Holders of the Common Stock have no preemptive, conversion or redemption
rights and are not subject to further calls or assessments by the Company.
Immediately upon consummation of this offering, all of the then outstanding
shares of Common Stock will be validly issued, fully paid and nonassessable.
Application has been made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "TNFI."
The transfer agent and registrar for the Common Stock is the America Stock
Transfer & Trust Company.
PREFERRED STOCK
The Board of Directors has the authority, without any vote or action by the
stockholders, to issue Preferred Stock in one or more series and to fix the
designations, preferences, rights, qualifications, limitations and restrictions
thereof, including the voting rights, dividend rights, dividend rate, conversion
rights, terms of redemption (including sinking fund provisions), redemption
price or prices, liquidation preferences and the number of shares constituting
any series.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
The authorized but unissued shares of Common Stock and Preferred Stock are
available for future issuance without stockholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefit plans.
The existence of authorized but unissued and unreserved Common Stock and
Preferred Stock may enable the Board of Directors to issue shares to persons
friendly to current management which could
52
<PAGE>
render more difficult or discourage an attempt to obtain control of the Company
by means of a proxy contest, tender offer, merger, or otherwise, and thereby
protect the continuity of the Company's management.
REGISTRATION RIGHTS OF CERTAIN HOLDERS
Whitney, the Equity Fund, the Debt Fund and Messrs. Cason, and Simon
(holding in the aggregate 6,999,945 shares of Common Stock including shares that
may be acquired within 60 days from May 1, 1996 upon the exercise of options)
have certain demand and/or incidental, or "piggyback," registration rights with
respect to the Common Stock of the Company pursuant to a Registration Rights
Agreement, dated as of June 7, 1994, between the Company and such holders, as
amended (the "Registration Rights Agreement"). The demand registration rights
held by Whitney, the Equity Fund and the Debt Fund (representing 5,596,531
shares of Common Stock) generally provide that those holders of Common Stock
have the right to require that, on three occasions (subject to certain
limitations), the Company file a registration statement under the Securities Act
covering all or part of such shares and that the Company will use its best
efforts to effect such registration. With respect to incidental, or "piggyback,"
registration rights held by all parties defined in the Registration Rights
Agreement, the Company is required to notify the holders of Common Stock having
such rights that it intends to register its securities and, if requested by such
holder, to include additional shares in such registration. The Company generally
is obligated to bear the expenses, other than underwriting discounts and sales
commissions, of the registration of such shares. Any exercise by the holders of
such registration rights may hinder efforts by the Company to arrange future
financings and may have an adverse impact on the market price of the Common
Stock. Mr. McFarlane (holding in the aggregate 519,066 shares of Common Stock)
has certain incidental, or "piggyback," registration rights with respect to the
Common Stock of the Company pursuant to the Registration Rights Agreement.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law ("DGCL"). In general, Section 203 prevents an
"interested stockholder" (defined generally as a person owning 15% or more of a
corporation's outstanding voting stock) from engaging in a "business
combination" (as defined) with a Delaware corporation for three years following
the date such person became an interested stockholder unless (i) before such
person became an interested stockholder, the board of directors of the
corporation approved the transaction in which the interested stockholder became
an interested stockholder or approved the business combination; (ii) upon
consummation of the transaction that resulted in the interested stockholder
becoming an interested stockholder, the interested stockholder owns at least 85%
of the voting stock of the corporation outstanding at the time the transaction
commenced (excluding shares owned by persons who are both officers and directors
of the corporation, and held by certain employee stock ownership plans); or
(iii) following the transaction in which such person became an interested
stockholder, the business combination is approved by the board of directors of
the corporation and authorized at a meeting of stockholders by the affirmative
vote of the holders of at least two-thirds of the outstanding voting stock of
the corporation not owned by the interested stockholder. Whitney, the Equity
Fund and the Debt Fund are interested stockholders under the DGCL. However,
since their acquisitions of the Company's securities were approved in advance by
the Company's Board of Directors, they would not be prohibited from engaging in
a business combination for three years following their becoming interested
stockholders.
In addition, certain provisions of the Charter and By-laws of the Company
summarized in the following paragraphs will become operative upon the closing of
this offering and may be deemed to have an anti-takeover effect and may delay,
defer or prevent an attempt to obtain control of the Company by means of a proxy
contest, tender offer, merger or other transaction that a stockholder might
consider in its best interest, including those attempts that might result in a
premium over the market price for the shares held by stockholders.
CLASSIFIED BOARD OF DIRECTORS. The Charter provides for the Board of
Directors to be divided into three classes of directors serving staggered
three-year terms. As a result, approximately one-third of the
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<PAGE>
Board of Directors will be elected each year. Moreover, under the DGCL, in the
case of a corporation having a classified board, stockholders may remove a
director only for cause. This provision, when coupled with the provision of the
By-laws authorizing only the Board of Directors to fill vacant directorships,
will preclude a stockholder from removing incumbent directors without cause and
simultaneously gaining control of the Board of Directors by filling the
vacancies created by such removal with its own nominees.
SPECIAL MEETING OF STOCKHOLDERS. The Charter provides that special meetings
of stockholders of the Company may be called only by the Board of Directors, the
Chairman of the Board of Directors or the Chief Executive Officer. This
provision will make it more difficult for stockholders to take actions opposed
by the Board of Directors.
STOCKHOLDER ACTION BY WRITTEN CONSENT. The Charter provides that no action
required or permitted to be taken at any annual or special meeting of the
stockholders of the Company may be taken without a meeting, and the power of
stockholders of the Company to consent in writing, without a meeting, to the
taking of any action is specifically denied.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. The By-laws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for election
as directors at an annual or special meeting of stockholders, must provide
timely notice thereof in writing. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Company not less than 60 days nor more than 90 days prior to the meeting;
provided, however, that in the event that less than 70 days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be received no later than the close
of business on the seventh day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was made. The By-laws
also specify certain requirements for a stockholder's notice to be in proper
written form. These provisions may preclude some stockholders from bringing
matters before the stockholders at an annual or special meeting or from making
nominations for directors at an annual or special meeting.
LIMITATION OF LIABILITY
The Charter provides that to the fullest extent permitted by the DGCL, a
director of the Company shall not be liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty as a director. Under current
Delaware law, liability of a director may not be limited (i) for any breach of
the director's duty of loyalty to the Company or its stockholders, (ii) for acts
or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) in respect of certain unlawful dividend payments
or stock redemptions or repurchases and (iv) for any transaction from which the
director derives an improper personal benefit. The effect of the provision of
the Charter is to eliminate the rights of the Company and its stockholders
(through stockholders' derivative suits on behalf of the Company) to recover
monetary damages against a director for breach of the fiduciary duty of care as
a director (including breaches resulting from negligent or grossly negligent
behavior) except in the situations described in clauses (i) through (iv) above.
This provision does not limit or eliminate the rights of the Company or any
stockholder to seek nonmonetary relief such as an injunction or rescission in
the event of a breach of a director's duty of care. In addition, the By-laws
provide that the Company shall indemnify its directors, officers, employees and
agents to the fullest extent permitted by Delaware law.
54
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering there has been no market for the Common Stock of the
Company. Future sales of substantial amounts of Common Stock in the public
market after this offering may adversely affect prevailing market prices for the
Common Stock and could impair the Company's ability to raise capital in the
future through the sale of its equity securities.
Upon the consummation of this offering, the Company will have 9,581,666
shares of Common Stock outstanding, assuming no exercise of the Underwriters'
over-allotment option and no exercise of outstanding options. Of these shares,
the 2,600,000 shares offered hereby will be freely tradeable without restriction
under the Securities Act unless such shares are purchased by "affiliates" of the
Company, as such term is defined in Rule 144 under the Securities Act (the
"Affiliates"). The remaining 6,981,666 shares of Common Stock are "restricted
securities" as that term is defined in Rule 144 under the Securities Act (the
"Restricted Shares"). Restricted Shares may be sold in the public market only if
registered or if they qualify for an exemption from registration under Rules
144, 144(k) or 701 promulgated under the Securities Act, which rules are
summarized below. As a result of contractual restrictions described below and
the provisions of Rules 144 and 701, additional shares will be available for
sale in the public market as follows: (i) no Restricted Shares will be eligible
for immediate sale on the effective date of this Prospectus (the "Effective
Date"); (ii) 615,668 will be eligible for sale 90 days after the Effective Date
and (iii) 6,365,998 Restricted Shares will be eligible for sale upon expiration
of the lock-up agreements 180 days after the Effective Date. Of such Restricted
Shares, approximately 6,797,768 shares will be subject to certain volume
limitations and other resale restrictions pursuant to Rule 144.
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register shares of Common Stock issuable upon the exercise of
stock options granted under the Option Plans. As of May 17, 1996, options to
purchase 1,170,802 shares of Common Stock were outstanding under the Option
Plans. Holders of 826,477 stock options to purchase Common Stock have granted
the Underwriters a 180-day lock-up on shares issuable upon the exercise of such
options. Of the remaining 346,525 options, 89,006 are exercisable at the
effective date of this offering.
Pursuant to the terms of the Registration Rights Agreement, beneficial
owners of an aggregate 7,519,011 shares of Common Stock (including shares that
may be acquired within 60 days from May 1, 1996 upon the exercise of options)
have demand and/or incidental, or "piggyback," registration rights, permitting
such holders, in the case of demand registration rights, to request on three
occasions (subject to certain limitations) that such shares be registered for
resale under the Securities Act at the Company's expense and, in the case of
piggyback rights, permitting such holders to include their shares, at the
Company's expense, in certain registration statements filed by the Company.
Registration of such shares under the Securities Act would result in such shares
becoming saleable without restriction under the Securities Act (except for
shares purchased by Affiliates) immediately upon the effectiveness of such
registration. No prediction can be made as to the effect, if any, that sales of
shares of Common Stock or the availability of such shares for sale will have on
the market prices prevailing from time to time. See "Underwriting."
The Company and certain stockholders of the Company, who collectively hold
7,180,276 shares of Common Stock, including shares that may be acquired within
60 days from May 1, 1996 upon the exercise of options, have agreed with the
Underwriters, with certain limited exceptions, that they will not dispose of any
shares of Common Stock, for a period of 180 days after the date of this
Prospectus without the written consent of the Representatives of the
Underwriters.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, an Affiliate of the Company, or person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least two years, will be entitled to sell in any three-month period a number of
shares that does not exceed the greater of (i) one percent of the outstanding
shares of the Company's Common Stock or (ii) the average weekly trading volume
of the Company's Common Stock in the Nasdaq National Market during the four
calendar weeks immediately preceding the date on which notice of the sale is
filed with the Securities and Exchange Commission. Sales pursuant to Rule 144
are subject
55
<PAGE>
to certain requirements relating to manner of sale, notice and availability of
current public information about the Company. A person (or person whose shares
are aggregated) who is not deemed to have been an Affiliate of the Company at
any time during the 90 days immediately preceding the sale and who has
beneficially owned Restricted Shares for at least three years is entitled to
sell such shares pursuant to Rule 144(k) without regard to the limitations
described above.
The Securities and Exchange Commission has proposed certain amendments to
Rule 144 that would reduce by one year the holding periods required for shares
subject to Rule 144 and Rule 144(k) to become eligible for resale in the public
market. This proposal, if adopted, would increase the number of shares of Common
Stock eligible for immediate resale following the expiration of the lock-up
agreements described above. No assurance can be given concerning whether or when
the proposal will be adopted by the Commission.
An employee, officer, or director of or consultant to the Company who
purchased or was awarded shares pursuant to a written compensatory plan or
contract is entitled to rely on the resale provisions of Rule 701 under the
Securities Act, which permits Affiliates and non-Affiliates to sell their Rule
701 shares without having to comply with Rule 144's holding period restrictions,
in each case commencing 90 days after the date of this Prospectus. In addition,
non-Affiliates may sell Rule 701 shares without complying with the public
information, volume and notice provisions of Rule 144.
56
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Alex. Brown & Sons Incorporated, Hambrecht & Quist LLC and J.P. Morgan
Securities Inc., have severally agreed to purchase from the Company the
following respective numbers of shares of Common Stock at the initial public
offering price less the underwriting discounts and commissions set forth on the
cover page of this Prospectus:
<TABLE>
<S> <C>
NUMBER OF
UNDERWRITER SHARES
-----------
Alex. Brown & Sons Incorporated......................................................................
Hambrecht & Quist LLC................................................................................
J.P. Morgan Securities Inc. .........................................................................
-----------
Total.......................................................................................... 2,600,000
-----------
-----------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all shares of the Common Stock offered hereby if any of such shares are
purchased.
The Company has been advised by the Representatives of the Underwriters that
the Underwriters propose to offer the shares of Common Stock to the public at
the initial public offering price set forth on the cover page of this Prospectus
and to certain dealers at such price less a concession not in excess of
$ per share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to certain other dealers. After
the initial public offering, the offering price and other selling terms may be
changed by the Representatives of the Underwriters.
The Company and the Selling Stockholders have granted to the Underwriters an
option, exercisable not later than 30 days after the date of this Prospectus, to
purchase up to 390,000 additional shares of Common Stock, at the public offering
price less the underwriting discounts and commissions set forth on the cover
page of this Prospectus. To the extent that the Underwriters exercise such
option, each of the Underwriters will have a firm commitment to purchase
approximately the same percentage thereof that the number of shares of Common
Stock to be purchased by it shown in the above table bears to 2,600,000, and the
Company and the Selling Stockholders will be obligated, pursuant to the option,
to sell such shares to the Underwriters. The Underwriters may exercise such
option only to cover over-allotments made in connection with the sale of Common
Stock hereby. If purchased, the Underwriters will offer such additional shares
on the same terms as those on which the 2,600,000 shares are being offered.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
The Company and certain stockholders of the Company have agreed not to
offer, sell, or otherwise dispose of any shares of Common Stock for a period of
180 days after the date of this Prospectus without the prior written consent of
Alex. Brown & Sons Incorporated, except that the Company may issue and grant
options to purchase shares of Common Stock under the Option Plans, and
individual stockholders may dispose of shares of Common Stock under certain
circumstances, provided that the transferee agrees to be bound by the terms of
such agreement. See "Shares Eligible for Future Sale."
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<PAGE>
The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
Prior to this offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock will be determined by negotiation among the Company and the
Representatives of the Underwriters. Among the factors to be considered in such
negotiations will be prevailing market conditions, the results of operations of
the Company in recent periods, the market capitalizations and stages of
development of other companies which the Company and the Representatives of the
Underwriters believed to be comparable to the Company, estimates of the business
potential of the Company, the present state of the Company's development and
other factors deemed relevant. See "Risk Factors -- No Prior Market for Common
Stock; Possible Volatility of Stock Price."
The Underwriters have reserved for sale, at the initial public offering
price, up to 10% of the shares of Common Stock offered hereby for certain
employees, customers and vendors of the Company, and certain other individuals,
who have expressed an interest in purchasing such shares of Common Stock in the
offering. The number of shares available for sale to the general public will be
reduced to the extent such persons purchase such reserved shares. Any reserved
shares not so purchased will be offered by the Underwriters to the general
public on the same basis as other shares offered hereby.
LEGAL MATTERS
The validity of the Common Stock offered hereby is being passed upon for the
Company by Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York. Certain
legal matters will be passed upon for the Underwriters by Wilson Sonsini
Goodrich & Rosati, P.C., Palo Alto, California.
EXPERTS
The financial statements of The North Face, Inc. as of December 31, 1994 and
1995 and for the period from June 7, 1994 to December 31, 1994, and for the year
ended December 31, 1995, and the financial statements of The North Face
("Predecessor") for the period from April 1, 1994 through June 6, 1994 and the
year ended March 31, 1994 included in this Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein, and have been so included in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act with respect to the securities offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and in the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock, reference is made
to the Registration Statement, exhibits and schedules. Statements contained in
this Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each such instance reference is made to the copy of
such contract or document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. This
Registration Statement and the exhibits and schedules thereto may be inspected
without charge at the public reference facilities maintained by the Commission
at 450 Fifth Street N.W., Washington, D.C. 20549, and at the regional offices of
the Commission located at Seven World Trade Center, 13th Floor, New York, New
York 10048 and Citicorp Center, 500 Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such materials may be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by independent public accountants and
with quarterly reports for the first three fiscal quarters of each fiscal year
containing unaudited financial information.
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<PAGE>
THE NORTH FACE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report............................................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations...................................... F-4
Consolidated Statements of Cash Flows...................................... F-5
Consolidated Statements of Stockholders' Equity............................ F-6
Notes to Consolidated Financial Statements................................. F-7
F-1
<PAGE>
The accompanying consolidated financial statements have been adjusted to
give effect to the stock splits of the Company's common stock which will result
in each share of common stock being split into 4.44 shares of common stock as
described in Note 16 to the consolidated financial statements. The May 1996
stock split is expected to be completed prior to the commencement of the public
offering. The following report is in the form that will be furnished by Deloitte
& Touche LLP upon the effectiveness of the May 1996 stock split assuming that
from February 9, 1996 to the effective date of such stock split, no other events
shall have occurred that would materially affect the accompanying consolidated
financial statements or notes thereto.
"INDEPENDENT AUDITORS' REPORT
THE STOCKHOLDERS OF THE NORTH FACE, INC.:
We have audited the accompanying consolidated balance sheets of The North
Face, Inc. and its subsidiaries ("Successor") as of December 31, 1994 and 1995
and the related consolidated statements of operations, stockholders' equity and
cash flows for the period from June 7, 1994 through December 31, 1994, the year
ended December 31, 1995, and the consolidated statements of operations,
stockholders' equity and cash flows of The North Face ("Predecessor") for the
period from April 1, 1994 through June 6, 1994, and the year ended March 31,
1994. These financial statements are the responsibility of the Predecessor's and
Successor's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the Successor consolidated financial statements referred to
above present fairly, in all material respects, the financial position of The
North Face, Inc. and its subsidiaries as of December 31, 1995 and 1994 and the
results of their operations and their cash flows for the year ended December 31,
1995 and for the period from June 7, 1994 through December 31, 1994, in
conformity with generally accepted accounting principles. Further, in our
opinion, the Predecessor consolidated financial statements referred to above
present fairly, in all material respects, the results of their operations and
their cash flows for the period from April 1, 1994 through June 6, 1994 and the
year ended March 31, 1994 in conformity with generally accepted accounting
principles.
San Francisco, California
February 9, 1996 (June , 1996 as to Note 16)"
/s/ DELOITTE & TOUCHE LLP
San Francisco, California
May 31, 1996
F-2
<PAGE>
THE NORTH FACE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1994 1995 1996
--------- --------- ------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Current Assets:
Cash and cash equivalents....................................... $ 826 $ 2,823 $ 705
Accounts receivable, net........................................ 13,486 16,582 17,881
Inventories..................................................... 12,068 21,048 26,690
Deferred taxes.................................................. 1,703 2,230 2,281
Other current assets............................................ 1,180 1,161 2,512
--------- --------- ------------
Total current assets........................................ 29,263 43,844 50,069
Property and equipment, net..................................... 4,066 8,388 8,435
Trademarks and intangibles, net................................. 30,602 30,108 29,919
Debt issuance costs, net........................................ 2,447 1,739 1,600
Other assets.................................................... 171 429 458
--------- --------- ------------
Total assets................................................ $ 66,549 $ 84,508 $ 90,481
--------- --------- ------------
--------- --------- ------------
<CAPTION>
LIABILITIES & STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C>
Current Liabilities:
Accounts payable................................................ $ 4,855 $ 9,526 $ 10,004
Accrued employee expenses....................................... 851 921 1,083
Current portion of long-term debt............................... 1,084 4,630 9,322
Current portion of obligations under capital leases............. 243 208 191
Income taxes payable............................................ 716 561 946
Other current liabilities....................................... 7,325 5,330 6,390
--------- --------- ------------
Total current liabilities................................... 15,074 21,176 27,936
Long-term debt.................................................. 4,449 11,995 11,827
Obligations under capital leases................................ 265 60 19
Other long-term liabilities..................................... 5,249 6,376 6,492
Subordinated debt............................................... 24,333 24,333 24,333
--------- --------- ------------
Total liabilities........................................... 49,370 63,940 70,607
--------- --------- ------------
Commitments and contingencies
<CAPTION>
MARCH 31,
1996
PRO FORMA
------------
(UNAUDITED)
(NOTE 1)
<S> <C> <C> <C> <C>
Stockholders' equity:
Series A Preferred Stock, $1.00 par value - shares authorized
4,000,000; issued and outstanding 1,936,000 (Liquidation
preference of $14,674,000 at March 31, 1996)................... 12,267 12,267 12,267 --
Cumulative Preferred Dividends Accrued (representing 379,956
shares at March 31, 1996)...................................... 696 2,049 2,407 --
Common Stock, $.0025 par value - 10,000,000 shares authorized;
3,431,000 issued and outstanding at December 31, 1994;
2,902,000 at December 31, 1995 and March 31, 1996; 7,010,000 at
March 31, 1996 (pro forma)..................................... 8 7 7 17
Additional paid-in capital...................................... 764 645 645 15,309
Subscriptions receivable........................................ (261) (142) (142) (142)
Retained earnings............................................... 3,939 6,071 5,084 5,084
Cumulative translation adjustments.............................. (234) (329) (394) (394)
--------- --------- ------------ ------------
Total stockholders' equity.................................. 17,179 20,568 19,874 19,874
--------- --------- ------------ ------------
Total liabilities and stockholders' equity.................. $ 66,549 $ 84,508 $ 90,481
--------- --------- ------------
--------- --------- ------------
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
THE NORTH FACE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR THE NORTH FACE, INC. (SUCCESSOR)
---------------------------- ------------------------------------------------
FOR THE
FOR THE PERIOD FROM FOR THE QUARTER
FOR THE PERIOD FROM JUNE 7, 1994 FOR THE ENDED
YEAR ENDED APRIL 1, 1994 TO YEAR ENDED MARCH 31,
MARCH 31, TO DECEMBER 31, DECEMBER --------------------
1994 JUNE 6, 1994 1994 31, 1995 1995 1996
------------- ------------- ------------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net Sales............... $ 87,411 $ 9,085 $ 60,574 $ 121,534 $ 23,500 $ 31,020
Cost of Sales........... 50,807 5,317 31,060 66,470 13,133 18,417
------------- ------------- ------------- ----------- --------- ---------
Gross Profit............ 36,604 3,768 29,514 55,064 10,367 12,603
Operating Expenses...... 32,810 5,290 19,659 44,540 9,310 12,464
------------- ------------- ------------- ----------- --------- ---------
Operating Income
(Loss)................. 3,794 (1,522) 9,855 10,524 1,057 139
Interest expense........ (2,046) (58) (2,598) (5,530) (1,326) (1,453)
Other Income (Expense), Net (200) 19 186 589 85 167
------------- ------------- ------------- ----------- --------- ---------
Income (Loss) Before
Provision for Income
Taxes, and
Extraordinary Item..... 1,548 (1,561) 7,443 5,583 (184) (1,147)
Provision (Benefit) for
Income Taxes........... 722 112 2,808 2,098 (99) (518)
------------- ------------- ------------- ----------- --------- ---------
Income (Loss) Before
Extraordinary Items.... 826 (1,673) 4,635 3,485 (85) (629)
Extraordinary Item --
Gain on Extinguishment
of Debt, Net of Income
Taxes of $0............ 0 577 0 0 0 0
------------- ------------- ------------- ----------- --------- ---------
Net Income (Loss)....... $ 826 $ (1,096) $ 4,635 $ 3,485 $ (85) $ (629)
------------- ------------- ------------- ----------- --------- ---------
------------- ------------- ------------- ----------- --------- ---------
Pro Forma Information
(Unaudited):
Pro forma net income
(loss) per share....... $ 0.47 $ (0.09)
----------- ---------
----------- ---------
Shares used in pro forma
per share
calculation............ 7,427 7,394
----------- ---------
----------- ---------
Supplemental pro forma
net income (loss) per
share.................. $ 0.50 $ (0.02)
----------- ---------
----------- ---------
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
THE NORTH FACE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR THE NORTH FACE, INC. (SUCCESSOR)
--------------------------------- ------------------------------------------
FOR THE
FOR THE QUARTER
FOR THE PERIOD FROM FOR THE ENDED
FOR THE PERIOD FROM JUNE 7, 1994 TO YEAR ENDED MARCH 31,
YEAR ENDED APRIL 1, 1994 TO DECEMBER 31, DECEMBER 31, ---------
MARCH 31, 1994 JUNE 6, 1994 1994 1995 1995
--------------- ---------------- --------------- -------------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from Operating Activities:
Net Income (Loss)............................. $ 826 $ (1,096) $ 4,635 $ 3,485 $ (85)
Adjustments to reconcile net income (loss) to
cash provided by (used in) operating
activities:
Depreciation and amortization............... 1,671 307 1,345 3,075 891
Deferred income taxes....................... (187) (93) (259) (441) 205
Provision for doubtful accounts............. 941 66 268 338 77
Other....................................... 115 0 0 0 0
Extraordinary gain on debt extinguishment... 0 (577) 0 0 0
Effect of changes in:
Accounts receivable......................... (1,235) 1,851 (5,912) (3,434) (1,327)
Inventories................................. 8,862 617 1,195 (8,980) (3,511)
Other assets................................ 2,084 (231) (542) (469) (592)
Accounts payable and accrued liabilities.... 876 (473) 696 3,631 963
--------------- ------- --------------- -------------- ---------
Net Cash Provided by (Used in) Operating
Activities................................... 13,953 371 1,426 (2,795) (3,379)
--------------- ------- --------------- -------------- ---------
Investing Activities:
Acquisition of The North Face assets........ 0 0 (59,710) 0 0
Proceeds from sale of trademark............. 0 0 10,800 0 0
Acquisition of Canadian Subsidiary.......... 0 0 0 (73) (289)
Purchase of minority interest............... (1,725) 0 0 0 0
Purchase of fixed assets.................... (1,002) (58) (327) (5,592) (605)
--------------- ------- --------------- -------------- ---------
Net Cash Used in Investing Activities......... (2,727) (58) (49,237) (5,665) (894)
--------------- ------- --------------- -------------- ---------
Financing Activities:
Debt repayments............................. (201) (729) (476) (2,595) (1,312)
Borrowings on term note..................... 0 0 0 5,600 0
Proceeds (payments) from revolver, net...... 0 0 (761) 7,847 6,163
Proceeds from acquisition debt.............. 0 0 30,559 0 0
Payments of debt acquisition costs.......... 0 0 (2,413) (300) (300)
Proceeds from sale of stock................. 0 0 12,333 0 0
Change in due to/from affiliates, net....... (2,946) (1,030) 0 0 0
--------------- ------- --------------- -------------- ---------
Net Cash Provided by (Used in) Financing
Activities................................... (3,147) (1,759) 39,242 10,552 4,551
--------------- ------- --------------- -------------- ---------
Effect of foreign currency fluctuations on
cash....................................... (18) 65 (234) (95) 186
--------------- ------- --------------- -------------- ---------
Increase (Decrease) in Cash and Cash
Equivalents.................................. 8,061 (1,381) (8,803) 1,997 464
Cash and Cash Equivalents, Beginning of
Period....................................... 2,949 11,010 9,629 826 826
--------------- ------- --------------- -------------- ---------
Cash and Cash Equivalents, End of Period...... $ 11,010 $ 9,629 $ 826 $ 2,823 $ 1,290
--------------- ------- --------------- -------------- ---------
--------------- ------- --------------- -------------- ---------
Supplemental Cash Flow Information:
Cash paid during the year for:
Interest.................................. $ 1,311 $ 2,836 $ 2,398 $ 4,383
--------------- ------- --------------- --------------
--------------- ------- --------------- --------------
Income taxes.............................. $ 456 $ 0 $ 3,476 $ 1,785
--------------- ------- --------------- --------------
--------------- ------- --------------- --------------
Non-Cash Transactions:
Issuance of stock........................... $ 0 $ 0 $ 706 $ 0
--------------- ------- --------------- --------------
--------------- ------- --------------- --------------
Cancellation of stock and related promissory
note....................................... $ 0 $ 0 $ 0 $ 119
--------------- ------- --------------- --------------
--------------- ------- --------------- --------------
<CAPTION>
1996
---------
<S> <C>
Cash flows from Operating Activities:
Net Income (Loss)............................. $ (629)
Adjustments to reconcile net income (loss) to
cash provided by (used in) operating
activities:
Depreciation and amortization............... 850
Deferred income taxes....................... (51)
Provision for doubtful accounts............. (174)
Other....................................... 0
Extraordinary gain on debt extinguishment... 0
Effect of changes in:
Accounts receivable......................... (1,125)
Inventories................................. (5,642)
Other assets................................ (1,385)
Accounts payable and accrued liabilities.... 2,201
---------
Net Cash Provided by (Used in) Operating
Activities................................... (5,955)
---------
Investing Activities:
Acquisition of The North Face assets........ 0
Proceeds from sale of trademark............. 0
Acquisition of Canadian Subsidiary.......... 0
Purchase of minority interest............... 0
Purchase of fixed assets.................... (507)
---------
Net Cash Used in Investing Activities......... (507)
---------
Financing Activities:
Debt repayments............................. (66)
Borrowings on term note..................... 100
Proceeds (payments) from revolver, net...... 4,432
Proceeds from acquisition debt.............. 0
Payments of debt acquisition costs.......... (57)
Proceeds from sale of stock................. 0
Change in due to/from affiliates, net....... 0
---------
Net Cash Provided by (Used in) Financing
Activities................................... 4,409
---------
Effect of foreign currency fluctuations on
cash....................................... (65)
---------
Increase (Decrease) in Cash and Cash
Equivalents.................................. (2,118)
Cash and Cash Equivalents, Beginning of
Period....................................... 2,823
---------
Cash and Cash Equivalents, End of Period...... $ 705
---------
---------
Supplemental Cash Flow Information:
Cash paid during the year for:
Interest..................................
Income taxes..............................
Non-Cash Transactions:
Issuance of stock...........................
Cancellation of stock and related promissory
note.......................................
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
THE NORTH FACE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
PREFERRED STOCK -------------------------------------
------------------------- ADDITIONAL
SHARES SHARES PAID IN
DESCRIPTION OUTSTANDING AMOUNT OUTSTANDING AMOUNT CAPITAL
- ------------------------------------------------------------- ------------- ---------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Predecessor
March 31, 1993............................................. 1,000 $ 5,416 $ 3,882
Net Income...............................................
Translation Adjustments..................................
----- ---------- ----- --------- -----------
March 31, 1994............................................. 1,000 5,416 3,882
Net Loss.................................................
Translation Adjustments..................................
----- ---------- ----- --------- -----------
June 6, 1994............................................... 1,000 $ 5,416 $ 3,882
----- ---------- ----- --------- -----------
----- ---------- ----- --------- -----------
- -------------------------------------------------------------------------------------------------------------------------------
The North Face, Inc. (Successor)
Preferred Stock Issued................................... 1,936 $ 12,267
Common Stock Issued...................................... 3,431 $ 8 $ 764
Net Income...............................................
Stock Dividends on Preferred Stock.......................
Translation Adjustments..................................
----- ---------- ----- --------- -----------
December 31, 1994.......................................... 1,936 12,267 3,431 8 764
Net Income...............................................
Cancellation of Restricted Stock......................... (529) (1) (119)
Stock Dividends on Preferred Stock.......................
Translation Adjustments..................................
----- ---------- ----- --------- -----------
December 31, 1995.......................................... 1,936 12,267 2,902 7 645
Net Income (unaudited)...................................
Stock Dividends on Preferred Stock (unaudited)...........
Translation Adjustments (unaudited)......................
----- ---------- ----- --------- -----------
March 31, 1996 (unaudited)................................. 1,936 $ 12,267 2,902 $ 7 $ 645
----- ---------- ----- --------- -----------
----- ---------- ----- --------- -----------
<CAPTION>
CUMULATIVE
PREFERRED
DIVIDENDS SUBSCRIPTIONS RETAINED TRANSLATION
DESCRIPTION ACCRUED RECEIVABLE EARNINGS ADJUSTMENTS
- ------------------------------------------------------------- ----------- -------------- ------------ -------------
<S> <C>
Predecessor
March 31, 1993............................................. $ (22,841) $ (395)
Net Income............................................... 826
Translation Adjustments.................................. (18)
----------- ------ ------------ ------
March 31, 1994............................................. (22,015) (413)
Net Loss................................................. (1,096)
Translation Adjustments.................................. 65
----------- ------ ------------ ------
June 6, 1994............................................... $ (23,111) $ (348)
----------- ------ ------------ ------
----------- ------ ------------ ------
- -------------------------------------------------------------
The North Face, Inc. (Successor)
Preferred Stock Issued...................................
Common Stock Issued...................................... $ (261)
Net Income............................................... $ 4,635
Stock Dividends on Preferred Stock....................... $ 696 (696)
Translation Adjustments.................................. $ (234)
----------- ------ ------------ ------
December 31, 1994.......................................... 696 (261) 3,939 (234)
Net Income............................................... 3,485
Cancellation of Restricted Stock......................... 119
Stock Dividends on Preferred Stock....................... 1,353 (1,353)
Translation Adjustments.................................. (95)
----------- ------ ------------ ------
December 31, 1995.......................................... 2,049 (142) 6,071 (329)
Net Income (unaudited)................................... (629)
Stock Dividends on Preferred Stock (unaudited)........... 358 (358)
Translation Adjustments (unaudited)...................... (65)
----------- ------ ------------ ------
March 31, 1996 (unaudited)................................. $ 2,407 $ (142) $ 5,084 $ (394)
----------- ------ ------------ ------
----------- ------ ------------ ------
<CAPTION>
DESCRIPTION TOTAL
- ------------------------------------------------------------- ------------
Predecessor
March 31, 1993............................................. $ (13,938)
Net Income............................................... 826
Translation Adjustments.................................. (18)
------------
March 31, 1994............................................. (13,130)
Net Loss................................................. (1,096)
Translation Adjustments.................................. 65
------------
June 6, 1994............................................... $ (14,161)
------------
------------
- -------------------------------------------------------------
The North Face, Inc. (Successor)
Preferred Stock Issued................................... $ 12,267
Common Stock Issued...................................... 511
Net Income............................................... 4,635
Stock Dividends on Preferred Stock....................... 0
Translation Adjustments.................................. (234)
------------
December 31, 1994.......................................... 17,179
Net Income............................................... 3,485
Cancellation of Restricted Stock......................... (1)
Stock Dividends on Preferred Stock....................... 0
Translation Adjustments.................................. (95)
------------
December 31, 1995.......................................... 20,568
Net Income (unaudited)................................... (629)
Stock Dividends on Preferred Stock (unaudited)........... 0
Translation Adjustments (unaudited)...................... (65)
------------
March 31, 1996 (unaudited)................................. $ 19,874
------------
------------
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE>
THE NORTH FACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACQUISITION, BASIS OF PRESENTATION, BUSINESS AND PRO FORMA INFORMATION
ACQUISITION -- On June 7, 1994, TNF Holdings Company, Inc. (a Delaware
corporation) acquired substantially all of the net operating assets and certain
liabilities of The North Face (the "Predecessor") (a California corporation) for
approximately $62.1 million cash (including transaction costs of approximately
$2.4 million) plus assumed liabilities of approximately $18.4 million (the
"Acquisition"). TNF Holdings Company, Inc. then changed its name to The North
Face, Inc. (the "Successor"). The Acquisition was accounted for as a purchase
and accordingly, Successor recorded the assets acquired (including $41.8 million
for trademarks) and liabilities assumed at their fair values. Immediately
subsequent to the purchase, an equity investor purchased Successor's trademark
in Japan for $10.8 million. Due to the Acquisition and resulting change in
accounting basis, and significant differences in the capital structures of the
Successor and the Predecessor, the accompanying consolidated financial
statements of the Successor may not be comparable to those of the Predecessor.
References to the Company throughout these notes to consolidated financial
statements refer to the operations of Successor and Predecessor collectively.
As part of the Acquisition, all amounts due to affiliates remained with the
Predecessor and were not assumed by The North Face, Inc. A substantial portion
of this debt was non-interest bearing during the year ended March 31, 1994.
BUSINESS -- The Company wholesales and retails high-quality technical
outerwear, mountaineering equipment, skiwear and sports apparel. At December 31,
1995 the Company had a corporate headquarters and distribution center in San
Leandro, California, a sales office and distribution center in Toronto, Ontario,
and a European headquarters and factory in Port Glasgow, Scotland. The Company's
products are sold through independent retailers in the United States (the
"U.S."), Europe and Canada, as well as through its own eleven retail stores in
the U.S. The Company sources the majority of its merchandise outside the U.S.
Any event causing a sudden disruption of imports, including the imposition of
additional import restrictions, could have a materially adverse effect on the
Company's operations.
PRO FORMA INFORMATION (UNAUDITED) -- Upon consummation of the Company's
proposed public offering, all outstanding shares of Series A Preferred Stock
will be converted into 4,109,000 shares of Common Stock. The pro forma
stockholders' equity at March 31, 1996 and pro forma net income (loss) per share
and shares used in pro forma per share calculations for the year ended December
31, 1995 and the quarter ended March 31, 1996 reflect this conversion as of the
beginning of each period. In accordance with the rules of the Securities and
Exchange Commission, all common stock equivalents issued within one year of the
Company's anticipated initial public offering have been considered outstanding
for all periods using the treasury stock method. Due to the conversion of the
Series A Preferred Stock into Common Stock, historical earnings per share is not
meaningful.
SUPPLEMENTAL PRO FORMA NET INCOME PER SHARE (UNAUDITED) reflects the
issuance of up to 2,600,000 shares from the Company's proposed public offering
to fund the repayment of up to $30.3 million of the Company's debt and a
reduction in interest expense as of the beginning of each period.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include
the financial statements of the Company and its wholly-owned subsidiaries. All
intercompany accounts have been eliminated.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual amounts could differ from those estimates.
F-7
<PAGE>
THE NORTH FACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CHANGE IN YEAR-END -- The Company changed its year-end to December 31 from
March 31 effective December 31, 1994.
FOREIGN CURRENCY TRANSLATION -- The assets and liabilities of the Company's
foreign subsidiaries have been translated into U.S. dollars using the exchange
rates in effect at period end, and the revenues have been translated into U.S.
dollars using the average exchange rates in effect during the period.
Adjustments resulting from translating foreign financial statements into U.S.
dollars are reported as translation adjustments as a separate component of
stockholders' equity.
ACCOUNTS RECEIVABLE are recorded upon the sale of inventory to independent
retailers. A sale occurs when inventories are shipped and title and risk of loss
have transferred from the Company to the buyer. Seasonal goods are generally
shipped to retailers prior to the selling season. The Company offers extended
payment terms for pre-season orders.
INVENTORIES are stated at the lower of average cost or market. The Company
principally contracts for the manufacture of its products in the U.S., Asia and
Europe. Costs related to these inventories represent landed cost, which consists
of the price paid to third party manufacturers, and inbound duties and freight.
TRADEMARKS AND INTANGIBLES of The North Face, Inc. represent trademarks
(less proceeds from sale of the Japan trademark) recorded in connection with the
Acquisition and are amortized on a straight-line basis over forty years.
Accumulated amortization at December 31, 1995 was approximately $1.2 million.
Amortization expense was $453,000 and $783,000 for the period from June 7, 1994
to December 31, 1994 and the year ended December 31, 1995, respectively.
PROPERTY AND EQUIPMENT is stated at cost. Depreciation and amortization is
computed using the straight-line method over the remaining estimated useful life
of the asset (or over the remaining lease term, if shorter, for capital leases).
The estimated useful lives of certain categories are as follows:
<TABLE>
<S> <C>
Leasehold improvements.................................................. 5-10 years
Machinery and equipment................................................. 5 years
Furniture, fixtures and office equipment................................ 3-7 years
</TABLE>
Expenditures for replacements and improvements are capitalized; maintenance
and repairs are expensed as incurred.
PRODUCT WARRANTY -- Substantially all of the Company's products carry a
lifetime warranty for defects in quality and workmanship. The Company maintains
warranty departments in the U.S., Canada and Europe and repairs the majority of
items returned under warranty. The Company's warranty liability for future
warranty claims related to past sales at December 31, 1994 and 1995 is
approximately $4.3 million and $4.5 million, respectively, of which the
non-current portion of $3.4 million and $3.6 million is classified as other long
term liabilities as of December 31, 1994 and 1995, respectively. The current
portion of the warranty liability is $0.9 million and is classified as other
current liabilities in both years. Warranty expense was approximately $740,000,
$156,000, $467,000 and $1,004,000 for the year ended March 31, 1994, the period
from April 1, 1994 to June 6, 1994 (the "two-month period"), the period from
June 7, 1994 to December 31, 1994 (the "seven-month period"), and the year ended
December 31, 1995, respectively.
DEFERRED RENT -- Certain of the Company's operating leases contain
predetermined fixed increases of the minimum rental rate during the initial
lease term. For these leases, the Company recognizes the related rental expense
on a straight-line basis over the life of the lease and records the difference
between the amount charged to rent expense and the rent paid as deferred rent.
F-8
<PAGE>
THE NORTH FACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES -- The Company applies an asset and liability approach in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109,
Accounting for Income Taxes. SFAS No. 109 requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been recognized in the Company's financial statements or tax returns.
In estimating future tax consequences, SFAS No. 109 generally considers all
expected future events other than enactment of changes in the tax laws or rates.
Deferred taxes are provided for temporary differences between assets and
liabilities for financial reporting purposes and for income tax purposes and
valuation allowances are recorded against net deferred tax assets where
appropriate.
No U.S. income tax provisions have been provided on the cumulative
undistributed earnings of foreign operations as it is the Company's intention to
utilize those earnings in those foreign operations for an indefinite period of
time.
CASH AND CASH EQUIVALENTS represent short-term investments with original
maturities of less than three months.
SFAS NO. 121 -- In 1996, the Company adopted SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of."
SFAS No. 121 establishes recognition and measurement criteria for impairment
losses when the Company no longer expects to recover the carrying value of a
long-lived asset. The effect on the consolidated financial statements of
adopting SFAS No. 121 was not material.
SFAS NO. 123 -- The Company is required to adopt SFAS No. 123, "Accounting
for Stock-Based Compensation" in 1996. SFAS No. 123 establishes accounting and
disclosure requirements using a fair value based method of accounting for stock
based employee compensation plans. Under SFAS No. 123, the Company may either
adopt the new fair value based accounting method or continue the intrinsic value
method and provide pro forma disclosures of net income and earnings per share as
if the accounting provisions of SFAS No. 123 had been adopted. The Company only
adopted the disclosure requirements of SFAS No. 123; and will include such
information in its financial statements for the year ending December 31, 1996.
UNAUDITED INTERIM INFORMATION -- The financial information with respect to
the quarters ended March 31, 1995 and 1996 is unaudited. In the opinion of
management, such information contains all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results of such
periods. The results of operations for the quarter ended March 31, 1996 are not
necessarily indicative of the results to be expected for the full year.
3. ACCOUNTS RECEIVABLE
The allowance for doubtful accounts was $853,000 and $1,067,000 as of
December 31, 1994 and 1995, respectively. Write-offs to accounts receivable
during the year ended March 31, 1994, the two-month period ended June 6, 1994,
the seven-month period ended December 31, 1994, and the year ended December 31,
1995 were approximately $880,000, $123,000, $27,000 and $71,000, respectively.
During the year ended March 31, 1994, the two-month period ended June 6,
1994, the seven-month period ended December 31, 1994 and the year ended December
31, 1995, no customer accounted for more than 10% of net sales.
F-9
<PAGE>
THE NORTH FACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INVENTORIES
Inventories as of December 31, 1994 and 1995 consist of (in thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Finished goods................................................................... $ 9,778 $ 18,414
Work in process.................................................................. 468 237
Raw materials.................................................................... 1,822 2,397
--------- ---------
Total inventories................................................................ $ 12,068 $ 21,048
--------- ---------
--------- ---------
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1994 and 1995 consist of (in
thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Leasehold improvements............................................................. $ 2,865 $ 4,985
Furniture, fixtures and office equipment........................................... 1,333 4,310
Machinery and equipment............................................................ 521 830
--------- ---------
Subtotal........................................................................... 4,719 10,125
Less accumulated depreciation and amortization..................................... (653) (1,737)
--------- ---------
Total property and equipment, net.................................................. $ 4,066 $ 8,388
--------- ---------
--------- ---------
</TABLE>
Depreciation and amortization expense related to property and equipment was
$1,415,000, $99,000, $653,000, and $1,268,000 for the year ended March 31, 1994,
the two-month period ended June 6, 1994, the seven-month period ended December
31, 1994, and the year ended December 31, 1995, respectively. Maintenance and
repair expense was $343,000, $80,500, $241,500, and $565,000 for the year ended
March 31, 1994, the two-month period ended June 6, 1994, the seven-month period
ended December 31, 1994, and the year ended December 31, 1995, respectively.
6. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR THE NORTH FACE, INC. (SUCCESSOR)
-------------------------------------------- -----------------------------------------
FOR THE PERIOD FROM FOR THE PERIOD FROM
FOR THE YEAR ENDED APRIL 1, 1994 TO JUNE 7, 1994 TO FOR THE YEAR ENDED
MARCH 31, 1994 JUNE 6, 1994 DECEMBER 31, 1994 DECEMBER 31, 1995
--------------------- --------------------- -------------------- -------------------
<S> <C> <C> <C> <C>
Federal
Current........ $ 0 $ 0 $ 2,179 $ 825
Deferred....... 0 0 (327) 375
State
Current........ 6 0 530 202
Deferred....... 0 0 (31) 77
Foreign
Current........ 903 205 358 641
Deferred....... (187) (93) 99 (22)
----- ----- ------- -------
$ 722 $ 112 $ 2,808 $ 2,098
----- ----- ------- -------
----- ----- ------- -------
</TABLE>
The Predecessor was not in a U.S. federal tax paying position prior to the
Acquisition due to the availability of net operating loss (NOL) carryforwards.
These NOL carryforwards are not available to Successor as a result of the
Acquisition.
F-10
<PAGE>
THE NORTH FACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
Reconciliation of the U.S. Federal statutory rate to the Company's effective
tax rate is as follows:
<TABLE>
<CAPTION>
PREDECESSOR
----------------------------------- THE NORTH FACE, INC. (SUCCESSOR)
FOR THE PERIOD ----------------------------------------
FOR THE FROM FOR THE PERIOD FROM FOR THE
YEAR ENDED APRIL 1, 1994 TO JUNE 7, 1994 TO YEAR ENDED
MARCH 31, 1994 JUNE 6, 1994 DECEMBER 31, 1994 DECEMBER 31, 1995
----------------- ---------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Statutory rate........... 34.0% 34.0% 34.0% 34.0%
State income taxes, net
of federal benefit...... 0.4% 0.0% 4.4% 4.2%
Net losses without tax
benefit................. 6.9% (40.4)% 0.0% 0.0%
Other.................... 5.3% (0.8)% (0.7)% (0.6)%
------ ------- ------- -------
Effective tax rate..... 46.6% (7.2)% 37.7% 37.6%
------ ------- ------- -------
------ ------- ------- -------
</TABLE>
Deferred income taxes for the Company reflect the tax effects of temporary
differences between amounts of assets and liabilities for financial reporting
purposes and such amounts measured by tax laws. Significant components of the
net deferred tax asset as of December 31, 1994 and 1995 are as follows (in
thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Deferred Tax Assets:
Inventory costs not yet deductible..................................... $ 265 $ 313
State tax provisions................................................... 162 86
Depreciation........................................................... 64 271
Liabilities not yet deductible......................................... 1,891 2,591
--------- ---------
2,382 3,261
--------- ---------
Deferred Tax Liabilities:
Depreciation........................................................... (86) (83)
Intangibles............................................................ (1,583) (2,883)
Liabilities deductible for tax not book................................ (77) (100)
--------- ---------
(1,746) (3,066)
--------- ---------
Net Deferred Income Tax Asset............................................ $ 636 $ 195
--------- ---------
--------- ---------
</TABLE>
Of the $636,000 net deferred income tax asset at December 31, 1994,
$1,703,000 is recorded as a current asset and $1,067,000 is included in other
long-term liabilities in the consolidated balance sheet. Of the $195,000 net
deferred income tax asset at December 31, 1995, $2,230,000 is recorded as a
current asset and $2,035,000 is included in other long-term liabilities in the
consolidated balance sheet.
The cumulative amount of undistributed earnings of the European foreign
subsidiary, which the Company intends to indefinitely reinvest outside of the
U.S. and upon which deferred income taxes are not provided, approximates
$4,908,000 at December 31, 1995.
7. PENSION PLAN
The Company's European subsidiary has a contributory defined benefit pension
plan covering substantially all full-time employees. Benefits are based on years
of service and compensation. The Company funds the plan in amounts not less than
the minimum statutory requirements in the United Kingdom. The plan's assets
consist of investments in the Discretionary Managed Fund operated by Prudential
Portfolio Managers Limited.
F-11
<PAGE>
THE NORTH FACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. PENSION PLAN (CONTINUED)
Net pension plan expense consists of the following (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR THE NORTH FACE, INC. (SUCCESSOR)
-------------------------------------- ----------------------------------------------
FOR THE PERIOD FOR THE PERIOD
FOR THE FROM FROM FOR THE
YEAR ENDED APRIL 1, 1994 TO JUNE 7, 1994 TO YEAR ENDED
MARCH 31, 1994 JUNE 6, 1994 DECEMBER 31, 1994 DECEMBER 31, 1995
----------------- ------------------- ----------------------- ---------------------
<S> <C> <C> <C> <C>
Actual return on plan
assets.................. $ (131) $ 12 $ 35 $ (323)
Service cost............. 173 19 55 55
Interest cost on
projected benefit
obligations............. 126 30 89 180
Net amortization......... 51 (32) (94) 176
------ --- ----- ------
Net pension plan
expense............... $ 219 $ 29 $ 85 $ 88
------ --- ----- ------
Contributions to the
plan.................... $ 250 $ 69 $ 217 $ 346
------ --- ----- ------
------ --- ----- ------
</TABLE>
Actuarial present value of the benefit obligation as of December 31, 1994
and 1995 is as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Accumulated benefit obligation........................................... $ 1,449 $ 1,431
Additional amounts related to pension benefit obligation compensation
increases............................................................... 189 186
--------- ---------
Projected benefit obligation............................................. 1,638 1,617
Less fair value of assets................................................ (1,133) (1,118)
--------- ---------
Projected benefit obligation in excess of fair value..................... $ 505 $ 499
--------- ---------
--------- ---------
</TABLE>
The projected benefit obligation of $505,000 and $499,000 at December 31,
1994 and 1995, respectively, is included in other long-term liabilities in the
consolidated balance sheet.
The significant assumptions for each of the years ended December 31, 1994
and 1995 were as follows:
<TABLE>
<S> <C>
Discount rate.................................................................. 9%
Expected long-term rate of return on plan assets............................... 9%
Rate of increase in future compensation levels................................. 7%
</TABLE>
8. DEBT
Long-term debt as of December 31, 1994 and 1995 consists of the following
(in thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Term note................................................................ $ 1,250 $ 4,600
Revolving line of credit................................................. 3,965 11,812
Other.................................................................... 318 213
--------- ---------
Total.................................................................. 5,533 16,625
Less current portion..................................................... (1,084) (4,630)
--------- ---------
Long-term debt........................................................... $ 4,449 $ 11,995
--------- ---------
--------- ---------
</TABLE>
F-12
<PAGE>
THE NORTH FACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. DEBT (CONTINUED)
Principal repayments on debt are due as follows at December 31, 1995 (in
thousands):
<TABLE>
<S> <C>
Year Ending December 31
1996.............................................................. $4,631
1997.............................................................. 1,126
1998.............................................................. 1,174
1999.............................................................. 1,318
2000.............................................................. 8,376
---------
$16,625
---------
---------
</TABLE>
Successor entered into a credit facility (the "Facility"), expiring in
February 2000, which includes a term note, a revolving line of credit and a
letter of credit facility. The term note (availability up to $6.0 million) is
payable in quarterly installments of $312,500 (pro rata based on amount
outstanding) beginning April 1, 1996, and carries interest payable monthly at
prime plus 1.25% or at LIBOR plus 3.0%. The rate on this term note at December
31, 1995 was 9.0%. The revolving line of credit provides for borrowing up to
$44.0 million with the actual borrowings limited to available collateral,
representing eligible receivables and inventory (approximately $19.5 million of
availability as of December 31, 1995). Interest on the revolving line of credit
is payable monthly at prime plus 1.0% or LIBOR plus 2.75%. The rate on the
revolver at December 31, 1995 was 9.0%. The revolving line of credit agreement
provides a sub limit facility for letters of credit up to a maximum of $15.0
million (approximately $3.5 million outstanding as of December 31, 1995). Fees
for outstanding letters of credit are payable quarterly at 2.0% per annum. The
Company also pays a monthly unused line fee on the revolver at .5% per annum.
Borrowings and outstanding letters of credit under the Facility are secured by
substantially all of the assets of the Company. The Facility includes certain
financial covenants and restrictions on new indebtedness and the payment of cash
dividends. The Facility also carries a prepayment penalty which expires on March
31, 1996. The Company was in compliance with all of its financial covenants as
of December 31, 1995. The Company incurred approximately $1.5 million of debt
issuance costs related to this facility which are being amortized over the
expected life of the Facility. Accumulated amortization of these costs at
December 31, 1994 and 1995 was approximately $225,000 and $1,004,000,
respectively.
During the first quarter of fiscal 1996, borrowings under the Facility
increased to finance the Company's working capital growth and operating loss.
In addition, the Company has a European overdraft facility of approximately
$2.6 million. The Company also has a European letter of credit facility. The
bank overdraft facility is reduced by the value of outstanding letters of credit
at that time. As of December 31, 1995, the Company had outstanding letters of
credit under the European facility of approximately $524,000.
DEBT EXTINGUISHMENT -- In May 1994, the Predecessor settled three notes
payable with a face value of $1,302,000 for cash of $725,000. These settlements
resulted in an extraordinary gain of $577,000.
9. SUBORDINATED DEBT
In connection with the Acquisition, the Company issued approximately $24.3
million of subordinated debt which matures on June 7, 2001 with 10.1% interest
payable quarterly. The subordinated debt agreement includes certain financial
covenants and restricts new indebtedness and the sale of assets and also
contains an acceleration clause in the case of a public offering. The Company
may also prepay this debt (but only after all senior debt has been repaid) with
no prepayment penalty. The Company incurred approximately $1.6 million of debt
issuance costs related to the subordinated debt which are being amortized over
the life of the debt. Accumulated amortization of these costs at December 31,
1994 and 1995 was approximately $128,000 and $357,000, respectively.
F-13
<PAGE>
THE NORTH FACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. LEASES
The Company leases buildings, equipment and vehicles under non-cancelable
lease agreements that expire at various dates through 2003. The leases generally
provide for renewal options for periods ranging from three to ten years. The
building leases generally provide for additional rents based on store sales and
for payments of taxes, insurance and maintenance expenses related to the leased
assets.
Future minimum lease payments under all leases with initial or remaining
non-cancelable lease terms in excess of one year as of December 31, 1995 are as
follows (amounts in thousands):
<TABLE>
<CAPTION>
CAPITAL LEASES OPERATING LEASES
--------------- -----------------
<S> <C> <C>
Year Ending December 31
1996................................................................ $ 225 $ 3,720
1997................................................................ 61 3,323
1998................................................................ 0 3,245
1999................................................................ 0 3,234
2000................................................................ 0 2,823
Thereafter.......................................................... 0 2,590
----- --------
Minimum lease commitments........................................... 286 $ 18,935
--------
--------
Less: amount representing interest.................................. (18)
-----
Present value of net minimum lease payments......................... 268
Less: current portion............................................... (208)
-----
Long term portion................................................... $ 60
-----
-----
</TABLE>
The cost of property under capitalized leases was $348,000 and $245,000, as
of December 31, 1994 and 1995, respectively, and primarily represents furniture,
fixtures and office equipment. Accumulated amortization related to these leases
was approximately $151,000 and $174,000 as of December 31, 1994 and 1995,
respectively.
Rental expense for operating leases was as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE PERIOD FROM FOR THE PERIOD FROM
FOR THE YEAR ENDED APRIL 1, 1994 TO JUNE 7, 1994 TO FOR THE YEAR ENDED
MARCH 31, 1994 JUNE 6, 1994 DECEMBER 31, 1994 DECEMBER 31, 1995
------------------- --------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Minimum
rentals......... $ 4,004 $ 636 $ 1,850 $ 2,569
Contingent
rentals......... 184 4 71 121
------- ----- ------- -------
$ 4,188 $ 640 $ 1,921 $ 2,690
------- ----- ------- -------
------- ----- ------- -------
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
LITIGATION -- The Company is party to claims and litigation that arise in
the normal course of business. Management believes that the ultimate outcome of
these claims and litigation will not have a material impact on the financial
statements of the Company taken as a whole.
PURCHASE COMMITMENTS -- The Company has approximately $20.2 million of
purchase commitments as of December 31, 1995 related to goods ordered for future
production in the normal course of business. Certain of these commitments are
collateralized by the outstanding letters of credit (see Note 8).
F-14
<PAGE>
THE NORTH FACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
FOREIGN CURRENCY RECEIVABLES AND LOANS -- The Company sells merchandise to
retailers through Europe and the U.K. These sales are denominated in the local
currency of the retailer's country. The Company generally hedges these
receivables using foreign currency loans. Cash accounts must be maintained at a
level sufficient to collateralize the foreign currency loans. These cash
accounts and the related foreign currency loans have been offset against each
other in the balance sheet. Receivables and loans denominated in foreign
currencies at December 31, 1994 and 1995 were translated using the exchange
rates at each date. As of December 31, 1995, the Company had unmatched foreign
currency loans equivalent to approximately $3.8 million. These payables are
denominated in various currencies, including German Deutsch Marks, French
Francs, Swedish Krona, Swiss Francs, Spanish Pesetas, Italian Lira, Dutch
Guilders and Belgian Dollars.
12. STOCKHOLDERS' EQUITY
COMMON STOCK -- In connection with the Acquisition, on June 7, 1994 the
Company issued 2,271,000 shares of common stock with a par value of $.0025 per
share for cash of $166,000, services rendered of $26,000 and debt issuance costs
of $320,000.
SERIES A PREFERRED STOCK -- In connection with the Acquisition, on June 7,
1994 the Company issued 1,935,781 shares of Series A Preferred Stock for cash of
$12,166,667 and for services rendered of approximately $100,000. Series A
Preferred Stock is entitled to dividends of 10% of the face value payable
quarterly in either cash or additional shares of Series A Preferred Stock.
Series A Preferred Stock is convertible into Common Stock at a ratio of two and
one half shares of Series A Preferred Stock to 4.44 shares of common stock, as
adjusted in the event of future dilution. Series A Preferred Stock also carries
liquidation preferences of face value ($14,316,459 as of December 31, 1995).
Stockholders' equity includes accrued and undeclared preferred stock dividends.
Series A Preferred Stock has voting rights on an as converted basis.
STOCK INCENTIVE PLANS -- The Company's Stock Incentive Plans, as amended,
provide for the issuance of nonqualified stock options and restricted stock to
key employees and officers. A total of 1,889,000 shares of Common Stock may be
issued under these plans. Stock options must be issued at an exercise price of
not less than fair market value. Restricted stock may be issued with terms
determined by the compensation committee of the Board of Directors. Holders of
such restricted shares have no shareholder rights until all restrictions have
been eliminated. Stock grants vest in 2004 with earlier vesting if the Company
achieves certain profitability targets.
Activity in the stock option plan from inception through December 31, 1995
was as follows:
<TABLE>
<CAPTION>
OPTIONS OPTION PRICE
------------ ---------------------
<S> <C> <C>
Outstanding, June 7, 1994.......................................... 0 $0.00
1994 Activity:
Granted.......................................................... 444,000 $.225
------------
Outstanding, December 31, 1994..................................... 444,000 $.225
1995 Activity:
Granted.......................................................... 808,267 $1.126
Canceled......................................................... (172,259) $.225
------------
Outstanding, December 31, 1995..................................... 1,080,008 $.225 -- $1.126
------------
------------
Exercisable, December 31, 1995..................................... 443,139 $.225 -- $1.126
------------
------------
</TABLE>
At December 31, 1995, 178,710 shares were available for stock option grants.
F-15
<PAGE>
THE NORTH FACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCKHOLDERS' EQUITY (CONTINUED)
During 1994, 1,159,950 restricted shares were issued in exchange for
$261,250 of nonrecourse promissory notes. During 1995, 529,443 of these shares
and $119,244 of the promissory notes were canceled. No shares are available for
restricted stock grants.
SECURITY HOLDERS' AGREEMENT -- Holders of common and preferred stock,
including holders under the Company's Stock Incentive Plans, are bound under the
Security Holders' Agreement which includes certain restrictions on the sale of
their shares, certain preemptive and rights of first refusal for sales of stock
by the Company or other holders of the Company's stock and certain registration
rights. This agreement also provides for the mandatory sale of the holders'
share in certain cases when the major shareholder has agreed to sell its
holdings.
13. RELATED PARTY TRANSACTIONS
A shareholder of the Company provides management services to the Company for
a fee of $250,000 per year, payable quarterly.
During 1995, the Company was a party to a license agreement with High
Performance Sports, Ltd., a related party. Revenues to the Company under this
agreement were approximately $280,000 during 1995.
14. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
requires disclosure of the estimated fair value of financial instruments. The
carrying value of cash and cash equivalents, accounts receivable, accounts
payable and debt approximates their estimated fair values at December 31, 1995,
except for the Company's subordinated debt which has a fair value of
approximately $23.1 million.
F-16
<PAGE>
THE NORTH FACE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. SEGMENT INFORMATION
The following table summarizes the Company's operations by geographical
area. The Company's intercompany sales are insignificant (in thousands).
<TABLE>
<CAPTION>
UNITED
STATES CANADA EUROPE CONSOLIDATED
--------- --------- --------- -------------
<S> <C> <C> <C> <C>
For the fiscal year ended March 31, 1994
Net Sales............................................ $ 71,994 $ 0 $ 15,417 $ 87,411
Operating income..................................... 1,592 0 2,202 3,794
Income (loss) before provision for income taxes and
extraordinary item.................................. (427) 0 1,975 1,548
Identifiable assets.................................. 40,992 0 9,371 50,363
For the period from April 1, 1994 to June 6, 1994
Net Sales............................................ $ 5,714 $ 0 $ 3,371 $ 9,085
Operating income (loss).............................. (1,830) 0 308 (1,522)
Income (loss) before provision for income taxes and
extraordinary item.................................. (1,868) 0 307 (1,561)
Identifiable assets.................................. 36,840 0 9,086 45,926
For the period from June 7, 1994 to December 31, 1994
Net Sales............................................ $ 49,899 $ 0 $ 10,675 $ 60,574
Operating income..................................... 8,268 0 1,587 9,855
Income (loss) before provision for income taxes and
extraordinary item.................................. 5,556 0 1,887 7,443
Identifiable assets.................................. 57,323 0 9,226 66,549
For the fiscal year ended December 31, 1995
Net Sales............................................ $ 96,069 $ 5,130 $ 20,335 $ 121,534
Operating income (loss).............................. 8,635 (200) 2,089 10,524
Income (loss) before provision for income taxes and
extraordinary item.................................. 3,749 (271) 2,105 5,583
Identifiable assets.................................. 72,411 1,617 10,480 84,508
</TABLE>
16. SUBSEQUENT EVENTS
On March 27, 1996, the Company amended its credit facility, principally to
increase the term note availability to $7 million and increase the revolving
line of credit facility to $58 million.
In March 1996 and May 1996, the Board of Directors declared stock dividends
which resulted in each share of common stock being split into 4.44 shares of
Common Stock. All stock related data in the accompanying financial statements
reflect the stock splits for all periods presented.
On May 17, 1996, the Board of Directors authorized the amendment and
restatement of its Articles of Incorporation to increase the number of
authorized shares of Common Stock to 50,000,000.
F-17
<PAGE>
DESCRIPTION OF PICTURES AND CAPTIONS:
BACK INSIDE COVER -- (Four pictures described clockwise from upper left)
1) Man on snowboard jumping off cliff.
CAPTION: "THE NORTH FACE EXTREME TEAM MEMBER JIM ZELLERS ABOVE THE
JUNEAU ICE CAP, ALASKA."
2) Man and woman on portable platform suspended from vertical rock face.
CAPTION: "CLIMBING TEAM MEMBERS LYNN HILL AND CONRAD ANKER ON
EXCALIBUR, EL CAPITAN, YOSEMITE."
3) Man in kayak alongside glacier.
CAPTION: "EXTREME TEAM MEMBER SCOT SCHMIDT SEEKS OUT NEW SKIING TERRAIN
NEAR THE COLUMBIA GLACIER, PRINCE WILLIAM SOUND, ALASKA."
4) Man pulling himself across river, suspended from a rope.
CAPTION: "CLIMBING TEAM MEMBER JAY SMITH CROSSING THE AK-SU RIVER BY
TYROLEAN TRAVERSE, PAMIR MOUNTAINS, KYRGYZSTAN."
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY
OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN
ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 3
The Company.................................... 5
Risk Factors................................... 7
Use of Proceeds................................ 15
Dividend Policy................................ 15
Capitalization................................. 16
Dilution....................................... 17
Selected Consolidated Financial Data........... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 19
Business....................................... 27
Management..................................... 40
Certain Transactions........................... 50
Principal Stockholders......................... 51
Description of Capital Stock................... 52
Shares Eligible for Future Sale................ 55
Underwriting................................... 57
Legal Matters.................................. 58
Experts........................................ 58
Available Information.......................... 58
Index to Consolidated Financial Statements..... F-1
</TABLE>
--------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
2,600,000 SHARES
[LOGO]
COMMON STOCK
------------
PROSPECTUS
------------
ALEX. BROWN & SONS
INCORPORATED
HAMBRECHT & QUIST
J.P. MORGAN & CO.
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses, other than underwriting
discounts and commissions, in connection with the issuance and distribution of
the securities registered hereby. All the amounts shown are estimates, except
for the Securities and Exchange Commission registration fee, the NASD filing fee
and the Nasdaq National Market listing fee. All of the following fees and
expenses will be paid by the Company.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............ $ 14,435
NASD filing fee................................................ 4,686
Nasdaq National Market listing fee............................. *
Printing and engraving expenses................................ *
Legal fees and expenses........................................ *
Accounting fees and expenses................................... *
Blue Sky fees and expenses (including counsel fees and
expenses)..................................................... *
Transfer Agent and Registrar fees and expenses................. *
Miscellaneous.................................................. *
----------
Total...................................................... $1,100,000
----------
----------
</TABLE>
- ------------------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145(a) of the General Corporation Law of the State of Delaware
provides that a Delaware corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise,
against expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no cause to believe his conduct was unlawful.
Section 145(b) provides that a Delaware corporation may indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that such person acted in
any of the capacities set forth above, against expenses actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted under similar standards, except that no indemnification may be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent that
the court in which such action or suit was brought shall determine that despite
the adjudication of liability, such person is fairly and reasonably entitled to
be indemnified for such expenses which the court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful in the defense of any action, suit or proceeding
referred to in subsections (a) and (b) or in the defense of any claim, issue, or
matter therein, he shall be indemnified against expenses actually and reasonably
incurred by him in connection therewith; that indemnification provided for by
Section 145 shall not be deemed exclusive of any other rights to which the
indemnified party may be entitled; and that the corporation may purchase and
maintain insurance on behalf of a director or officer of the
II-1
<PAGE>
corporation against any liability asserted against him or incurred by him in any
such capacity or arising out of his status as such whether or not the
corporation would have the power to indemnify him against such liabilities under
such Section 145.
Section 102(b)(7) of the General Corporation Law provides that a corporation
in its original certificate of incorporation or an amendment thereto validly
approved by stockholders may eliminate or limit personal liability of members of
its board of directors or governing body for breach of a director's fiduciary
duty. However, no such provision may eliminate or limit the liability of a
director for breaching his duty of loyalty, failing to act in good faith,
engaging in intentional misconduct or knowingly violating a law, paying a
dividend or approving a stock repurchase which was illegal, or obtaining an
improper personal benefit. A provision of this type has no effect on the
availability of equitable remedies, such as injunction or rescission, for breach
of fiduciary duty. The Company's Restated Certificate of Incorporation contains
such a provision.
The Company's Restated Certificate of Incorporation provides that the
Company shall indemnify officers and directors, and to the extent authorized by
the Board of Directors, employees and agents of the Company, to the full extent
permitted by and in the manner permissible under the laws of the State of
Delaware. In addition, the Restated Certificate of Incorporation also permits
the Board of Directors to authorize the Company to purchase and maintain
insurance against any liability asserted against any director, officer, employee
or agent of the Company arising out of his capacity as such.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since May 1, 1993, the Registrant issued and sold unregistered securities in
the following transactions:
1. On June 7, 1994, the Company issued to eight investors 2,271,064
shares of Common Stock for aggregate consideration of $511,501.
2. On June 7, 1994, the Company issued to two investors 1,920,000
shares of Series A Convertible Preferred Stock for aggregate consideration
of $12,166,667.
3. On June 7, 1994, the Company issued to one entity 15,781 shares of
Series A Convertible Preferred Stock in consideration for consulting
services rendered.
4. On June 7, 1994, the Company issued to two investors 315,253 shares
of Common Stock each for cash and promissory notes of $71,003 each.
The issuance of the above securities was deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act of 1933, as amended, transactions not involving a public
offering. Appropriate legends were affixed to the share certificates and other
securities issued in such transactions. All purchasers had adequate access to
information about the Registrant through their relationships with the Company
and appropriate disclosure documents.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------
<C> <S>
.+11 Form of Underwriting Agreement.
2.1 Purchase and Sale Agreement, dated as of May 25, 1994 by and among Odyssey Holding Inc. and The
North Face and TNF Holdings Company, Inc.
+3.1 Amended and Restated Certificate of Incorporation of The North Face, Inc.
+3.2 Amended and Restated Bylaws of The North Face, Inc.
+4.1 Specimen Common Stock Certificate of The North Face, Inc.
+5.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison.
10.1 Subordinated Note and Common Stock Purchase Agreement, dated as of June 7, 1994, between TNF
Holdings Company, Inc.,* and Whitney Subordinated Debt Fund, L.P., as amended by Amendment No. 1,
dated as of March 1, 1995, and Amendment No. 2, dated as of March 27, 1996
10.1A Subordinated Promissory Note due June 7, 2001 (issued pursuant to the Subordinated Note and Common
Stock Purchase Agreement, dated as of June 7, 1994, as amended, included in 10.1).
10.2 Preferred Stock Purchase Agreement, dated as of June 7, 1994, among TNF Holdings Company, Inc.,*
Whitney 1990 Equity Fund, L.P. and J.H. Whitney & Co., as amended by Amendment No. 1, dated as of
March 1, 1995, and Amendment No. 2, dated as of March 27, 1996.
10.3 Management Stock Purchase and Non-Competition Agreement, dated as of June 6, 1994, among TNF
Holdings Company, Inc.,* Marsden S. Cason and William A. McFarlane, as amended by Amendment No.
1, dated as of June 22, 1995.
10.4 Investor Stock Purchase Agreement, dated as of June 7, 1994, among TNF Holdings Company, Inc.,*
Richard T. Peery, Jack L. Richardson, Philip S. Schlein and Kenneth F. Siebel.
10.5 Stock Purchase Agreement, dated as of December 28, 1993, between TNF Holdings Company, Inc., a
California corporation, and Kabushiki Kaisha Goldwin, as amended by Memorandum, dated as of March
29, 1994, among TNF Holdings Company, Inc., a California corporation, and Kabushiki Kaisha
Goldwin, and Memorandum No. 2, dated as of May 20, 1994, between TNF Holdings Company, Inc., a
California corporation, and Kabushiki Kaisha Goldwin.
10.6 Securityholders Agreement, dated as of June 7, 1994, among TNF Holdings Company, Inc.,* Marsden S.
Cason, William A. McFarlane, J.H. Whitney & Co., Whitney 1990 Equity Fund, L.P., Whitney
Subordinated Debt Fund, L.P., Richard T. Peery, Jack L. Richardson, Philip S. Schlein and Kenneth
F. Siebel, as amended by Amendment No. 1, dated as of June 22, 1995.
+10.7 Registration Rights Agreement, dated as of June 7, 1994, among TNF Holdings Company, Inc.,* J.H.
Whitney & Co., Whitney 1990 Equity Fund, L.P., Whitney Subordinated Debt Fund, L.P., Marsden S.
Cason and William A. McFarlane, as amended by Amendment No. 1, dated as of June 22, 1995.
+10.8 Amended and Restated Loan and Security Agreement, dated as of March 1, 1995, between The North
Face, Inc. and Heller Financial, Inc., as amended by First Amendment, dated as of May 4, 1995,
Second Amendment, dated as of August , 1995, Third Amendment, dated as of March 27, 1996, and
Fourth Amendment, dated May 8, 1996.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------
+10.9 TNF Holdings Company, Inc.* 1994 Stock Incentive Plan.
<C> <S>
+10.10 The North Face, Inc. 1995 Stock Incentive Plan.
+10.11 The North Face, Inc. 1996 Stock Incentive Plan.
++11.1 Computation of Pro Forma Net Income (Loss) Per Share.
21.1 List of Subsidiaries of The North Face, Inc.
+23.1 Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in the opinion filed as Exhibit 5.1
hereto).
+23.2 Consent of Deloitte & Touche LLP.
++24.1 Powers of Attorney (included on signature pages).
++27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* TNF Holdings Company, Inc., a Delaware corporation, changed its name to The
North Face, Inc. on June 8, 1994.
+ To be filed by amendment.
++ Previously filed.
(b) Financial Statement Schedules
All schedules are omitted because they are not applicable or are not
required, or because the required information is included in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
for such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial BONA FIDE offering thereof.
(3) To provide to each underwriter at the closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by each such underwriter to permit prompt delivery to
each purchaser.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this amendment to the registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of San Leandro, State of California, on June 3, 1996.
THE NORTH FACE, INC.
<TABLE>
<S> <C>
By: /s/ MARSDEN S. CASON
-------------------------------------------
Marsden S. Cason
Chief Executive Officer
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
amendment to the registration statement has been signed by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE OR CAPACITIES DATE
- --------------------------------------------- --------------------------------------------- ----------------
<C> <S> <C>
/s/ MARSDEN S. CASON Chief Executive Officer and Director
----------------------------------- (Principal Executive Officer) June 3, 1996
Marsden S. Cason
/s/ WILLIAM N. SIMON President and Director
----------------------------------- June 3, 1996
William N. Simon
/s/ ROXANNA PRAHSER Chief Financial Officer (Principal Financial
----------------------------------- and Accounting Officer) June 3, 1996
Roxanna Prahser
/s/ RAY E. NEWTON, III Chairman and Director
----------------------------------- June 3, 1996
Ray E. Newton, III
Director
-----------------------------------
Peter M. Castleman
/s/ WILLIAM LAVERACK, JR. Director
----------------------------------- June 3, 1996
William Laverack, Jr.
*By:
Marsden S. Cason
Attorney-in-Fact
</TABLE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -----------------------------------------------------------------------------------
<C> <S> <C>
+1.1 Form of Underwriting Agreement ....................................................
2.1 Purchase and Sale Agreement, dated as of May 25, 1994 by and among Odyssey Holding
Inc. and The North Face and TNF Holdings Company, Inc. ...........................
+3.1 Amended and Restated Certificate of Incorporation of The North Face, Inc...........
+3.2 Amended and Restated Bylaws of The North Face, Inc. ...............................
+4.1 Specimen Common Stock Certificate of The North Face, Inc. .........................
+5.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison ...............................
10.1 Subordinated Note and Common Stock Purchase Agreement, dated as of June 7, 1994,
between TNF Holdings Company, Inc.,* and Whitney Subordinated Debt Fund, L.P., as
amended by Amendment No. 1, dated as of March 1, 1995, and Amendment No. 2, dated
as of March 27, 1996 .............................................................
10.1A Subordinated Promissory Note due June 7, 2001 (issued pursuant to the Subordinated
Note and Common Stock Purchase Agreement, dated as of June 7, 1994, as amended,
included in 10.1) ................................................................
10.2 Preferred Stock Purchase Agreement, dated as of June 7, 1994, among TNF Holdings
Company, Inc.,* Whitney 1990 Equity Fund, L.P. and J.H. Whitney & Co., as amended
by Amendment No. 1, dated as of March 1, 1995, and Amendment No. 2, dated as of
March 27, 1996 ...................................................................
10.3 Management Stock Purchase and Non-Competition Agreement, dated as of June 6, 1994,
among TNF Holdings Company, Inc.,* Marsden S. Cason and William A. McFarlane, as
amended by Amendment No. 1, dated as of June 22, 1995 ............................
10.4 Investor Stock Purchase Agreement, dated as of June 7, 1994, among TNF Holdings
Company, Inc.,* Richard T. Peery, Jack L. Richardson, Philip S. Schlein and
Kenneth F. Siebel ................................................................
10.5 Stock Purchase Agreement, dated as of December 28, 1993, between TNF Holdings
Company, Inc., a California corporation, and Kabushiki Kaisha Goldwin, as amended
by Memorandum, dated as of March 29, 1994, among TNF Holdings Company, Inc., a
California corporation, and Kabushiki Kaisha Goldwin, and Memorandum No. 2, dated
as of May 20, 1994, between TNF Holdings Company, Inc., a California corporation,
and Kabushiki Kaisha Goldwin .....................................................
10.6 Securityholders Agreement, dated as of June 7, 1994, among TNF Holdings Company,
Inc.,* Marsden S. Cason, William A. McFarlane, J.H. Whitney & Co., Whitney 1990
Equity Fund, L.P., Whitney Subordinated Debt Fund, L.P., Richard T. Peery, Jack L.
Richardson, Philip S. Schlein and Kenneth F. Siebel, as amended by Amendment No.
1, dated as of June 22, 1995 .....................................................
+10.7 Registration Rights Agreement, dated as of June 7, 1994, among TNF Holdings
Company, Inc.,* J.H. Whitney & Co., Whitney 1990 Equity Fund, L.P., Whitney
Subordinated Debt Fund, L.P., Marsden S. Cason and William A. McFarlane, as
amended by Amendment No. 1, dated as of June 22, 1995 ............................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- -----------------------------------------------------------------------------------
<C> <S> <C>
+10.8 Amended and Restated Loan and Security Agreement, dated as of March 1, 1995,
between The North Face, Inc. and Heller Financial, Inc., as amended by First
Amendment, dated as of May 4, 1995, Second Amendment, dated as of August , 1995,
and Third Amendment, dated as of March 27, 1996, and Fourth Amendment, dated May
8, 1996 ..........................................................................
+10.9 TNF Holdings Company, Inc.* 1994 Stock Incentive Plan .............................
+10.10 The North Face, Inc. 1995 Stock Incentive Plan ....................................
+10.11 The North Face, Inc. 1996 Stock Incentive Plan ....................................
++11.1 Computation of Pro Forma Net Income (Loss) Per Share ..............................
21.1 List of Subsidiaries of The North Face, Inc. ......................................
+23.1 Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in the opinion filed
as Exhibit 5.1 hereto) ...........................................................
+23.2 Consent of Deloitte & Touche LLP ..................................................
++24.1 Powers of Attorney (included on signature pages) ..................................
++27.1 Financial Data Schedule ...........................................................
</TABLE>
- ------------------------
* TNF Holdings Company, Inc., a Delaware corporation, changed its name to The
North Face, Inc. on June 8, 1994.
+ To be filed by amendment.
++ Previously filed.
<PAGE>
PURCHASE AND SALE AGREEMENT
[Short Form]
dated as of
May 25, 1994
among
ODYSSEY HOLDING INC.,
AS DEBTOR IN POSSESSION
AND
THE NORTH FACE
("Sellers")
and
TNF Holdings company, Inc.
("Purchaser")
<PAGE>
TABLE OF CONTENTS
Page
----
PURCHASE AND SALE
Section 1.1 Purchase and Sale. . . . . . . . . . . . . . . . . . . . . 2
Section 1.2 The Purchase Price . . . . . . . . . . . . . . . . . . . . 7
Section 1.3 Assumption of Liabilities. . . . . . . . . . . . . . . . . 7
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLERS
Section 2.1 Organization and Qualification . . . . . . . . . . . . . . 13
Section 2.2 Corporate Authority; Binding Nature of
Agreement. . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.3 Finders' Fees. . . . . . . . . . . . . . . . . . . . . . . 14
Section 2.4 Title to Property; Patents and Trademarks . . . . . . . . 14
Section 2.5 Bulk Sales . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.6 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.7 Insurance, Contracts and Leases. . . . . . . . . . . . . . 15
Section 2.8 Litigation . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.9 Licenses and Permits . . . . . . . . . . . . . . . . . . . 16
Section 2.10 All Affiliate Claims and Liens Released. . . . . . . . . . 16
Section 2.11 Environmental Compliance . . . . . . . . . . . . . . . . . 17
Section 2.12 ERISA Representations. . . . . . . . . . . . . . . . . . . 18
Section 2.13 No Undisclosed Material Liabilities. . . . . . . . . . . . 18
Section 2.14 Compliance with Laws . . . . . . . . . . . . . . . . . . . 18
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Section 3.1 Organization and Qualification . . . . . . . . . . . . . . 19
Section 3.2 Authority. . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.3 Access to Information; Robertson,
Stephens & Company . . . . . . . . . . . . . . . . . . . . 20
Section 3.4 Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.5 Sellers' Financial Difficulties. . . . . . . . . . . . . . 20
Section 3.6 Information re Purchaser . . . . . . . . . . . . . . . . . 20
ARTICLE IV
COVENANTS
Section 4.1 Access . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.2 (Omitted]. . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.3 Transfer of Assets . . . . . . . . . . . . . . . . . . . . 21
Section 4.4 Conduct of Business Prior to Closing . . . . . . . . . . . 22
Section 4.5 Best Efforts . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.6 Transition Assistance. . . . . . . . . . . . . . . . . . . 22
Section 4.7 Personnel. . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.8 Hart-Scott-Rodino Act. . . . . . . . . . . . . . . . . . . 23
Section 4.9 Notification of Material Events Prior to
Closing. . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 4.10 [Omitted]. . . . . . . . . . . . . . . . . . . . . . . . . 23
i
<PAGE>
Section 4.11 Statements Pending Closing . . . . . . . . . . . . . . . . 23
Section 4.12 Transactions With Affiliates . . . . . . . . . . . . . . . 24
Section 4.13 Confidentiality. . . . . . . . . . . . . . . . . . . . . . 24
Section 4.14 Use of "The North Face" Name . . . . . . . . . . . . . . . 24
Section 4.15 Power of Attorney. . . . . . . . . . . . . . . . . . . . . 24
Section 4.16 Certain Filings. . . . . . . . . . . . . . . . . . . . . . 25
Section 4.17 Public Announcements . . . . . . . . . . . . . . . . . . . 25
Section 4.18 Bankruptcy Court Approval. . . . . . . . . . . . . . . . . 25
Section 4.19 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 4.20 Fairness Opinion . . . . . . . . . . . . . . . . . . . . . 26
Section 4.21 Patent and Trademark Licenses. . . . . . . . . . . . . . . 26
Section 4.22 Certification to the Court . . . . . . . . . . . . . . . . 26
ARTICLE V
TAX MATTERS
Section 5.1 Tax Definitions. . . . . . . . . . . . . . . . . . . . . . 26
Section 5.2 United States Tax Matters. . . . . . . . . . . . . . . . . 27
Section 5.3 Tax Cooperation; Allocation of Taxes . . . . . . . . . . . 27
Section 5.4 Scotland Tax Matters . . . . . . . . . . . . . . . . . . . 27
ARTICLE VI
CONDITIONS TO CLOSING
Section 6.1 Closing Definitions. . . . . . . . . . . . . . . . . . . . 28
Section 6.2 Conditions to the Obligations of
Both Parties . . . . . . . . . . . . . . . . . . . . . . . 30
Section 6.3 Conditions to Obligation of Purchaser. . . . . . . . . . . 30
Section 6.4 Conditions to Obligation of Sellers. . . . . . . . . . . . 34
ARTICLE VII
POST-CLOSING SURVIVAL; INDEMNIFICATION
Section 7.1 By Sellers . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 7.2 By Purchaser . . . . . . . . . . . . . . . . . . . . . . . 35
Section 7.3 Limitation . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 7.4 Notice of and Defense Against Claims . . . . . . . . . . . 36
ARTICLE VIII
TERMINATION
Section 8.1 Termination by Mutual Consent. . . . . . . . . . . . . . . 37
Section 8.2 Termination by Purchaser . . . . . . . . . . . . . . . . . 37
Section 8.3 Termination by Sellers . . . . . . . . . . . . . . . . . . 37
Section 8.4 Effect of Termination. . . . . . . . . . . . . . . . . . . 38
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Amendment and Waiver . . . . . . . . . . . . . . . . . . . 40
Section 9.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 9.3 Counterparts . . . . . . . . . . . . . . . . . . . . . . . 41
Section 9.4 Governing Law; Venue; Dispute Resolution . . . . . . . . . 41
Section 9.5 Entire Agreement . . . . . . . . . . . . . . . . . . . . . 43
Section 9.6 Third Party Rights . . . . . . . . . . . . . . . . . . . . 43
ii
<PAGE>
Section 9.7 Titles and Headings. . . . . . . . . . . . . . . . . . . . 44
Section 9.8 Exhibits and Schedules . . . . . . . . . . . . . . . . . . 44
Section 9.9 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 9.10 Pronouns; Dollar Amounts; Etc. . . . . . . . . . . . . . . 44
Section 9.11 Assignment . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 9.12 Successors and Assigns . . . . . . . . . . . . . . . . . . 44
Section 9.13 Partial Invalidity . . . . . . . . . . . . . . . . . . . . 44
Section 9.14 Waiver of Conditions . . . . . . . . . . . . . . . . . . . 44
Section 9.15 No Presumption . . . . . . . . . . . . . . . . . . . . . . 44
iii
<PAGE>
SCHEDULES
1.1(a) Assets
1.1(a)(vi) Bank Accounts
1.1(d) Assets Linked With Sierra Designs
1.3(a) Odyssey Group Chart
1.3(d) Excluded Liabilities
2.2(b) Required Consents
2.4(a) Real Property
2.4(b) Permitted Liens
2.4(d) Patents and Trademarks
2.5 Bulk Sales
2.7(a) Insurance
2.7(b) Contracts and Lease
2.8 Litigation
2.9 Licenses and Permits
2.11 Environmental Compliance
2.12 Employee Benefit Plan
2.13 Material Liabilities
2.14 Compliance With Laws
3.4 Broker/Advisor
3.6(a) Information re Purchaser
4.18(a) Court Order
5.2(a) Tax Liabilities
6.3(c)(vi) Form of Bank Releases
6.3(c)(viii) Form of Receiver Releases
6.3(c)(ix) Form of Odyssey Releases
6.4(e) Form of Purchaser's Release
iv
<PAGE>
PURCHASE AND SALE AGREEMENT
[Short Form]
This Purchase and Sale Agreement (the "Agreement") is made and entered into
as of May 25, 1994, by and among Odyssey Holding Inc. ("OHI") and The North Face
("TNF") (collectively, "Sellers"), and TNF Holdings Company, Inc., a Delaware
corporation ("Purchaser").
RECITALS
A. TNF and its subsidiary The North Face (Scotland), Ltd. ("NF Scotland")
operate businesses (collectively, the "Business") engaged in the design and
manufacture of outdoor apparel, tents, mountaineering equipment, and other items
for outdoor activity, and also operate retail stores selling such items.
B. Purchaser desires to purchase and Sellers are willing to sell and
assign substantially all of the assets of TNF including, without limitation, its
stock ownership interest in NF Scotland, on the terms and conditions as set
forth below.
C. TNF is a wholly-owned subsidiary of OHI.
D. OHI is a debtor-in-possession in that certain bankruptcy case, Case
No. 93-40358-N (jointly administered), currently pending in the Bankruptcy Court
for the Northern District of California (the "Bankruptcy Court"). Accordingly,
the parties hereby agree and acknowledge that the transactions contemplated by
this Agreement will require, and are subject to, Bankruptcy Court approval, and
that such approval will be sought in connection with the First Amended Plan of
Reorganization for OHI and various affiliated entities, and the Sales Procedures
set forth in Exhibit 6.1(c) to such Plan.
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals, which are
incorporated in this Agreement by reference, and the mutual representations,
warranties and agreements contained herein, the parties hereto, jointly and
severally, intending to be legally bound, agree as follows:
ARTICLE I
PURCHASE AND SALE
Section 1.1 PURCHASE AND SALE. On the terms and subject to the conditions
of this Agreement:
(a) SALE OF ASSETS. TNF shall, by means of the appropriate Transfer and
Related Documents, on the Closing Date,
2
<PAGE>
sell, transfer, assign, convey and deliver to Purchaser, free and clear of all
Liens other than Permitted Liens, all of its right, title and interest in and to
all assets of TNF (the "Assets") as the same shall exist on the Closing Date
except for assets not to be transferred, which are herein called "Excluded
Assets," which Excluded Assets are set forth in paragraph (b). The Assets shall
consist of all the assets of all descriptions of TNF (other than Excluded
Assets) on the Closing Date including, without limitation the following, in
which TNF has any right, title or interest:
(i) All inventories of TNF wherever located including without
limitation all (A) finished goods, (B) work-in-process and (C)
raw materials intended to be made into finished goods.
(ii) All accounts receivable, contract rights and general
intangibles and related records of TNF including, without
limitation, all amounts due from NF Scotland.
(iii) All rights in and to owned and leased real property and
improvements, appurtenances, easements, licenses, and other
rights and interests thereon and therein including, without
limitation, TNF's headquarters and industrial facility located at
999 Harrison Street, Berkeley, California and all of the
machinery, tools, goods, equipment, furniture and fixtures
located at the real property or elsewhere.
(iv) All motor vehicles.
(v) All office equipment, computer hardware and software and
supplies used in TNF's business.
(vi) All of TNF's deposits in banks and other institutions and
all rights to such accounts, and all cash and cash equivalents in
TNF's possession or in bank or other types of deposit accounts
(each such account and the authorized signatories thereto are
identified on Schedule 1.1 (a) (vi) hereto) .
(vii) All prepaid expenses, deposits with landlords and others,
and current assets relating to TNF's Business.
(viii) All patents, copyrights, trademarks, inventions, trade
names, service marks (whether registered or unregistered) owned
or licensed by TNF (and subject to any existing rights or
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interests described on Schedule 2.4(d)) and the applications,
registrations, other governmental filings of every nature, all
goodwill with all the marks and names assigned herewith, and
other rights of every kind on a worldwide basis associated
therewith.
(ix) All rights under (A) all contracts, licenses, leases, and
other agreements to which TNF is a party including, without
limitation, those disclosed on Schedule 2.7(b), (B) Permits, (C)
all policies of insurance (whether or not listed on Schedule
2.7(a), (D) arrangements with independent designers and
consultants, (E) the Settlement and Sale of Goods Agreement
between TNF and CML dated as of May 18, 1994 (the "CML
Agreement"), and (F) rights in connection with or under the
Agreement among The North Face and Sophia Limited and Jean-Luc
Derclaye and The North Face (Scotland) Limited dated February 18,
1994 (the "NFS Settlement Agreement")(collectively the "Assigned
Contracts").
(x) All goodwill and all going concern value relating to the
Business of TNF.
(xi) All books, records and other memorialized information of
TNF relating primarily or exclusively to the Assets and the
Assumed Liabilities.
(xii) All presently existing designs, logos, drawings, patterns
and specifications owned by TNF for all articles offered for sale
by TNF and for all forthcoming articles and any existing designs,
drawings, patterns and specifications produced for but not used
by TNF and all copyrights related thereto.
(xiii) All claims, causes of action or rights of action of TNF
including without limitation, rights on a worldwide basis to
assert remedies for counterfeit products, to contest trademark or
other registrations legally or illegally made within any country,
and otherwise to claim or establish any kind of legal right,
remedy, filing or registration, but not including any claims or
causes of action which are Excluded Assets.
(xiv) To the extent not included above, all mailing lists; all
customer lists; all sales records; all materials, records, files
and other data relating to advertising; all
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research, statistical production, marketing and promotional
materials, records, files and other data; all administration and
business development materials, records, files and other data;
all business post office boxes and business telephone listings;
all trade secrets, inventions and know how; all confidential
information; all manuals, policy statements, operating guides and
other physical embodiments or compilations thereof; all quality
assurance programs and consulting programs for customers; all
specifications and policies regarding land, buildings, furniture,
fixtures, equipment, supplies, materials, design, manufacturing
and marketing operations or management personnel, to the extent
not embodied in the manuals described above; insurance proceeds
to the extent those proceeds relate to loss or damage to any of
the Assets which has not been fully repaired or replaced prior to
the Closing; all financial accounting and credit reports; all
other materials, records, files and data relating to the business
of TNF, except that none of the foregoing shall include legal
advice protected by attorney-client privilege or attorney work-
product principles.
(xv) All other tangible and intangible assets.
(xvi) One hundred percent (100%) of the shares of NF Scotland
(the "Shares").
(b) EXCLUDED ASSETS. The following assets are Excluded Assets and shall
not be Assets within the list in paragraph (a):
(i) All claims, causes of action and rights of action against
any present or former officers, employees or directors of TNF or
of any other member of the Odyssey Group, to the extent arising
from acts, omissions, breaches of duty or wrongful conduct of
such persons regarding certain distribution and licensing
arrangements between TNF and Goldwin, Inc. and any involvement of
Same Trading Company, Limited in such arrangements, and all
rights against Same Trading Company, Limited in connection
therewith (but expressly excluding claims and rights of action,
if any, of every kind against Goldwin, Inc., and its
shareholders, directors, officers and employees, and claims and
rights of action, if any, of every kind against Same Trading
Company, Limited with respect to any other business relationships
(including, without limitation, any other distribution or
licensing
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arrangements), except to the extent any such claims, causes of
action or rights of action are asserted by the Purchaser as a
counterclaim, defense or right of set-off in connection with a
claim, cause of action or right of action asserted against
Purchaser;
(ii) All claims, causes of action and rights of action against
(A) officers, employees or directors of TNF or of any other
member of the Odyssey Group, regarding their employment
relationships, the performance of their legal and contractual
duties, and any breach of their fiduciary obligations and (B)
insiders of TNF (as defined in the Bankruptcy Code) for any
malfeasance, misfeasance or breach of legal duty;
(iii) All claims, causes of action and rights of action against
any Person (as hereafter defined) who furnished accounting and
auditing services to Sellers prior to the filing of the cases
described in Recital D; and
(iv) Copies of financial records reasonably necessary for
Sellers' Tax filing requirements, Sellers' rights under this
Agreement, and general intangibles arising from any of Seller's
agreements with RSC, Deloitte & Touche, Gibson, Dunn & Crutcher,
and other professional advisers, if any, retained by Sellers
prior to the Closing.
(c) CLOSING. The consummation of the transactions contemplated by this
Agreement shall take place at a closing (the "Closing") which shall occur on the
first business day (the "Closing Date") following the date on which the last of
the following shall have occurred: (i) the first day which is at least ten (10)
days (as calculated in accordance with Bankruptcy Rule 9006(a)) after the date
upon which the Court Order is entered and on which no stay of such order is in
effect; and (ii) the necessary waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended ("HSR Act"), if applicable, shall
have expired. The Closing shall take place at 10:00 a.m. California time at the
offices of Gibson, Dunn & Crutcher, One Montgomery Street, Telesis Tower, San
Francisco, California 94104 or at such other time or place as the parties may
mutually agree.
(d) ASSETS LINKED WITH SIERRA DESIGNS. Certain Assets are inextricably
intertwined or linked with assets of Sierra Designs ("SDI") including, without
limitation, trade secrets, customer lists, proprietary information, and
operating and administrative assets. An allocation of such assets is set forth
in Schedule 1.1(d), and the Assets shall include the TNF's right to and title in
such Assets. Notwithstanding the foregoing, SD shall have the right to continue
to use such assets to the extent
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previously used in the ordinary course of its business, and nothing contained
herein shall affect or limit any such continued use by SD, any right, title or
interest of SD in such assets, and SD's right and ability to sell or transfer
its rights, title or interest in such assets in connection with the sale of its
business or any substantial portion of its assets, subject to the rights of
Purchaser therein, and Purchaser agrees to fully comply with, and permit all
such use of the TNF assets. Purchaser specifically acknowledges receipt of a
copy of that certain Agreement for the Purchase and Sale of Certain Assets of
Sierra Designs dated April 11, 1994, and acknowledges and agrees that it takes
any assets of TNF that are inextricably intertwined or linked with the assets of
SD subject to such agreement.
Section 1.2 THE PURCHASE PRICE. On the terms and subject to the
conditions of this Agreement, Purchaser shall pay to TNF, or such entities or
persons as TNF shall designate in writing, by wire transfer at the Closing,
the amount of Thirty-One Million Dollars ($31,000,000.00) as reduced by any
payments to the Banks after the execution of this Agreement pursuant to
section 2.2 of the L/C Agreement (the "Purchase Price") and shall assume
those liabilities set forth in Section 1.3.
Section 1.3 ASSUMPTION OF LIABILITIES.
(a) As used herein the term "L/C Agreement" means the Letter of Credit
Facility Agreement dated as of May 12, 1993 among (i) Sierra Designs, TNF and
Head Sportswear International, Inc., A Member of the Odyssey Group and (ii)
Chemical Bank, individually as a Bank and in its capacity as Agent ("Agent"),
The First National Bank of Boston, and The Hongkong and Shanghai Banking
Corporation Limited, as Banks (the "Banks"), and all agreements and documents
ancillary thereto (including, without limitation, that certain Guaranty
Agreement dated as of May 12, 1993 by and between the Banks and certain members
of the Odyssey Group, all as they may be amended from time to time. The
"Odyssey Group" shall consist of those entities listed on the chart annexed as
Schedule 1.3(a).
(b) On or prior to the Closing, Purchaser will cause to be issued to or
for the benefit of the Banks, and in form and substance and issued by a
financial institution acceptable to the Banks, a stand-by letter or letters of
credit in a face amount equal to existing letters of credit to the extent
outstanding as of the Closing Date and undrawn under the L/C Agreement, which
are outstanding and undrawn on the Closing Date. On or before the Closing Date,
and notwithstanding the provisions of the L/C Agreement, TNF shall satisfy all
reimbursement obligations to the Banks in respect of draws on such letters of
credit made on or prior to the Closing Date for which reimbursement was not made
on or before that Date.
(c) On the Closing Date, the Purchaser will also, by one or more
instruments of assumption consistent with this
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Agreement and reasonably satisfactory to TNF, assume, except to the extent
included in the Excluded Liabilities defined below, the following liabilities
and obligations of TNF (but this Agreement shall not create or expand.
liabilities of TNF to third parties, and section 9.6 shall be specifically
applicable hereto):
(i) All accounts payable, accrued expenses and accrued Taxes
(other than Taxes based on or measured by income or gain)
attributable to the Pre-Closing Tax Period that are either
accrued or subject to a specific reserve maintained by TNF, all
as determined as of the close of business on the Closing Date.
(ii) All reimbursement obligations for draws on letters of
credit issued for the account of TNF under the L/C Agreement
outstanding on or prior to the Closing Date which draws occur
after the close of business on the Closing Date.
(iii) (A) All liabilities to NF Scotland and (B)all liabilities
arising under state "bulk sales" laws in connection with the
transactions contemplated by this Agreement to any Person who is
not an Affiliate of Sellers, but only to the extent required by
and not exempt from such laws. The term "Person" shall be as
defined in the Bankruptcy Code (11 U.S.C. Section 101, ET SEG.);
the term "Affiliate" of any Person shall be any other Person
controlling, controlled by, or under common control with such
Person.
(iv) All liabilities, if any, to customers of TNF incurred
prior to the Closing Date and arising in the ordinary course of
business for short shipments, defective merchandise and the like,
whether or not recorded in accounts payable or accrued expenses.
(v) All obligations and liabilities (arising or accrued on,
prior to or as a result of the Closing) to individuals who are
officers (except for Marsden Cason, William McFarlane and William
Simon) or employees of TNF immediately prior to the Closing Date,
whether or not such employees continue as employees after the
completion of the transactions contemplated herein including,
without limitation, any obligations for wages, fringe benefits,
severance, and vacation, and any obligations or liabilities under
labor laws or laws governing fair employment practices.
(vi) All obligations and liabilities of TNF under the Assigned
Contracts and the CML
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Agreement, and all obligations arising under all real estate
leases described in Schedule 2.7(b) including, without
limitation, leases terminated on or before the Closing Date.
(vii) All obligations and liabilities arising from the OFCCP
Agreement regarding compliance with certain affirmative action
goals and the Sleeping Bag Order, an order of the Oakland
Superior Court relating to the contents of sleeping bags.
(viii) All obligations or liabilities in respect of those
litigation matters, claims, actions, suits, proceedings or
investigations pending or threatened against TNF or any of their
Affiliates or otherwise relating to the business of TNF which are
either described on Schedule 2.8 or involve amounts which are
less than the thresholds set forth in Section 2.8 including,
without limitation, all liabilities under the NFS Settlement
Agreement.
(ix) All obligations or liabilities for any product or service
sold, provided or contracted for prior to the Closing Date
including without limitation any warranty, express or implied,
created by any consensual means, unilaterally imposed by any
Seller or imposed by law or any liability in law, equity or
admiralty for property damage, personal injury or wrongful death.
(x) All obligations or liabilities incident to, or arising out
of, any claims, actions, suits, proceedings, liabilities, fines,
penalties, deficiencies or judgments existing on or which arise
from events occurring before the Closing Date or arising
thereafter as a result of or in connection with the conduct of
the business of TNF up to and including the Closing Date.
(xi) All obligations or liabilities which may be imposed on TNF
in connection with the real property and operations located or
formerly located at 1011 Gilman St., Berkeley, California,
whether or not owned by Odyssey of America, Inc. (including,
without limitation, liabilities or obligations to any employees
who worked at that facility in connection with the closing of the
facility or otherwise), it being agreed that the intent of this
clause (xi) is not to create, expand, or acknowledge liabilities
(if any) of TNF to any third parties.
(xii) Earned and unpaid sales commissions of TNF's independent
sales representatives relating
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to sales of Business products either (A) prior to the Closing
Date or (b) under any sales representative contract existing as
of the Closing Date, whether or not the related goods have been
shipped prior to the Closing Date and whether or not such sales
representative contract is at some later point terminated.
The liabilities referred to in this Section 1.3(c) above, but not any Excluded
Liabilities, are referred to as "Assumed Liabilities."
(d) The following liabilities ("Excluded Liabilities") shall not, except
as otherwise specifically stated below in this subparagraph (d), be Assumed
Liabilities for any purposes of this Agreement or for the transactions
contemplated hereby, and Sellers shall timely pay and perform:
(i) Any obligation or liability for Federal, state or local
income or capital gains Tax obligations of TNF whether arising
out of the sale of the Assets or otherwise.
(ii) Any obligation or liability of TNF or NF Scotland to any
member of the Odyssey Group or its affiliates, receivers,
trustees or other agents (provided that Purchaser agrees that the
Assumed Liabilities include any direct obligation or liability of
TNF to NF Scotland, and the obligations of NF Scotland, if any,
to Odyssey Hong Kong).
(iii) Any obligation or liability of TNF or NF Scotland
incurred, or imposed under applicable law, to guaranty, support,
or hold liable for, directly or indirectly, any liability or
obligation of any other Person, except for such obligations or
liabilities which are incident to the Business as set forth on
Schedule 1.3(d).
(iv) Any obligation or liability of a Seller incident to or
arising out of the negotiation, execution, delivery or
performance of this Agreement including without limitation any
and all such liabilities accrued after the Closing Date.
(v) Any obligation or liability of a Seller to any one or more
of the Banks or to the Receivers or to the entities for which
they act as Receivers (it being understood that nothing in this
clause (v) is intended to be in derogation of the requirement for
assumption of certain liabilities under the L/C Agreement as
provided for in Section 1.3(c) hereof, or to affect the
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obligations of NF Scotland, if any, to Odyssey Hong Kong).
(vi) Any obligation or liability to RSC, Deloitte & Touche,
Gibson, Dunn & Crutcher or other counsel or professional advisers
advising any Seller about this transaction or any other
disposition of TNF or the Business.
(vii) Any obligation or liability asserted against any Person
(including without limitation Purchaser) to the extent relating
to or arising from (A) Excluded Assets, whether by way of
indemnity claims against Purchaser or TNF by Persons sued by any
Seller or otherwise arising directly or indirectly, (B) except as
otherwise provided in Section 1.3(c)(xi), individuals whose
employment by TNF or its predecessors ended for any reason prior
to January 15, 1993, (C) acts or omissions of Sellers or either
of them after the Closing Date, (D) any transfer by TNF (as
seller, assignor, lessor or sublessor) of any real property, real
property leases or interests therein prior to January 15, 1993,
and (E) matters not otherwise included within, and matters
specifically excluded from, the definition of "Assumed
Liabilities."
(viii) Any obligation or liability owed to Marsden Cason, William
McFarlane or William Simon.
(e) ASSIGNED CONTRACTS. TNF shall Assign, and Purchaser shall assume
liability under all contracts, insurance policies, Permits, licenses, leases,
and agreements to which TNF is a party, and all obligations and liabilities
thereunder including, without limitation, the Assigned Contracts and those set
forth on Schedules 2.4(d), 2.7(a), 2.7(b), and 2.9, and arrangements with
independent designers and consultants. Such assumptions and assignments shall
be reflected in documents of assignment reasonably satisfactory to TNF. To the
extent that any of such agreements cannot be assigned, the parties will
cooperate in making a substitute arrangement so that Purchaser obtains the
economic benefits of such agreements.
(f) ALLOCATION OF PURCHASE PRICE.
(i) As soon as practicable after the Closing Date, Deloitte &
Touche shall formulate a statement (the "Allocation Statement"),
setting forth the value of each of the Assets described in
Schedule 1.1(a) hereto, which shall be used for the allocation of
the Purchase Price (together with the Assumed Liabilities) among
the Assets. The parties hereby agree that (except as provided in
the next sentence) fair market value of all
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tangible assets shall be book value on TNF's books calculated in
accordance with GAAP. The Purchase Price (together with the
Assumed Liabilities) shall be allocated among the Assets in
accordance with the requirements of Section 1060 of the Internal
Revenue Code and the regulations promulgated thereunder.
(ii) The Purchaser and TNF shall have a period of 45 days after
the delivery of the Allocation Statement to present in writing to
each other and Deloitte & Touche notice of any objections either
of them may have to the allocation set forth in the Allocation
Statement. Unless either Purchaser or TNF timely objects, the
Allocation Statement shall be binding on the parties without
further adjustment.
(iii) If Purchaser or TNF shall raise any objections within the
45 day period, Purchaser and TNF and Deloitte & Touche shall use
their best efforts to resolve such dispute. If they fail to
agree within 30 days after the delivery of the notice, then the
disputed items shall be resolved by submitting the issue to a
firm of accountants of recognized national standing, to be
selected by Deloitte & Touche. The costs of such accounting firm
shall be borne equally by Purchaser and TNF.
(iv) TNF and Purchaser agree to report an allocation of such
Purchase Price among the Assets in a manner entirely consistent
with the Allocation Statement, and agree to act in accordance
with such Allocation Statement in the preparation of financial
statements and filing of all tax returns (including, without
limitation, filing Form 8594 pursuant to Section 1060 of the
Internal Revenue Code with its Federal income tax return for the
taxable year that includes the date of the Closing) and in the
course of any tax audit, tax review or tax litigation relating
thereto.
(v) Not later than 10 days prior to the filing with the
Internal Revenue Service of their respective Forms 8594 relating
to this transaction, each party shall deliver to the other party
a copy of its Form 8594.
(vi) If Deloitte & Touche should prepare the Allocation
Statement on behalf of both Sellers and Purchaser, each of them
shall pay fifty percent (50%) of the costs and expenses of such
preparation.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers jointly and severally represent and warrant to Purchaser with
respect to the matters set forth below. The only remedy for a breach of such
representations and warranties shall be Purchaser's option, under certain
circumstances, not to close in accordance with Sections 6.3(a) and 8.2 hereof
and, without limiting the foregoing, Purchaser shall have no remedy whatsoever
for any such breach after the Closing. Purchaser (a) acknowledges that the
representations and warranties set forth in Article II were prepared under the
supervision of Marsden Cason and William McFarlane (the "Associated Persons")
and (b) represents and warrants that such representations are true and correct
to the best of the knowledge, information and belief of the Associated Persons.
The foregoing sentence shall be limited in time up to the termination of the
Associated Persons if and only if the Associated Persons shall be involuntarily
terminated as officers of TNF prior to the Closing. Purchaser further has
agreed that if information provided on any Schedule below is called for on
additional Schedules or other Schedules below, then such information shall be
deemed to have been provided on the correct Schedule. Such representations and
warranties are as follows:
Section 2.1 ORGANIZATION AND QUALIFICATION. Each Seller is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, with all requisite corporate power and
authority to own, operate and lease its properties and to carry on its business
as now being conducted. Each Seller is qualified or licensed to conduct its
business and is in good standing in each jurisdiction where the nature of its
activities or where the character of its properties makes such qualification or
licensing necessary and in which failure to so qualify would have a material
adverse effect on it or its business.
Section 2.2 CORPORATE AUTHORITY; BINDING NATURE OF AGREEMENT.
(a) Each of OHI and TNF has the requisite power and authority to execute
and deliver this Agreement and to perform its obligations hereunder and to
consummate the transactions contemplated by this Agreement, and all corporate
action of it necessary for the execution, delivery and performance has been, or
prior to the Closing, will have been, duly and validly taken. This Agreement
has been duly and validly authorized, executed and delivered by each of OHI and
TNF. Subject to obtaining various consents (including without limitation those
required, if any, under the HSR Act), this Agreement, when executed and
delivered by the Purchaser, will constitute each of OHI's and TNF's legal, valid
and binding obligation, enforceable against it in accordance with its terms
subject only to the exceptions in cases of insolvency and the enforcement of
equitable remedies. Except
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for the orders, consents and approvals (i) listed on Schedule 2.2(b) with regard
to the transactions contemplated herein, (ii) listed on Schedule 2.7(b) with
respect to the material assigned contracts, (iii) listed on Schedule 2.9, with
respect to the Permits, (iv) listed on Schedule 2.7(a), with respect to the
policies of insurance, (v) approvals relating to Assigned Contracts or other
transactions for which consents and approvals are not required under the terms
of this Agreement because they fall below dollar limits or for other reasons
stated herein, the execution and delivery of this Agreement by each of OHI and
TNF does not, and the performance and consummation by it of the transactions
contemplated by this Agreement will not, (A) conflict with or result in breach
or violation of, or default under, or give rise to any right of acceleration
(whether by notice or lapse of time or both) or termination of, or require the
creation of a Lien under any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, lease, license, agreement or other instrument or
obligation to which it is a party or by which any of its assets or properties
(or those of NF Scotland) are bound; or (B) violate any judgment, order,
injunction, decree, statute, rule or regulation applicable to it or any of its
assets or properties. TNF does not own any capital stock of or equity interest
in any corporation nor is it a partner in any partnership nor is it a member of
any joint venture, except for NF Scotland. The representations herein are
qualified by the need to get certain approvals from the Bankruptcy Court for the
transactions contemplated herein which will be reflected in the Court Order.
(b) Schedule 2.2(b) lists (i) all consents and approvals required with
respect to contracts to be assigned hereunder which involve amounts above
$100,000 and (ii) all consents and approvals required in connection with the
transactions contemplated herein.
Section 2.3 FINDERS' FEES. Except for Robertson, Stephens & Company
"RSC") whose fees will be paid by TNF in accordance with Section 1.3(d),
there is no investment banker, broker, finder or other intermediary which has
been retained by or is authorized to act on behalf of OHI or TNF who might be
entitled to any fee or commission from Purchaser or any of its affiliates
upon consummation of the transactions contemplated by this Agreement or the
consummation of the transaction contemplated thereby.
Section 2.4 TITLE TO PROPERTY; PATENTS AND TRADEMARKS.
(a) Schedule 2.4(a) lists all real property owned or leased by TNF and NF
Scotland, and all personal property used in the business of TNF or NF Scotland
and which has a book carrying value in excess of five thousand dollars ($5,000).
(b) Except as set forth in Schedule 2.4(b), TNF has, or will have as of
the Closing Date, and Purchaser will have
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acquired on the Closing Date (subject to the terms and conditions of this
Agreement), all right, title and interest in and good and marketable title to
and unrestricted use of, and is or will be as of the Closing Date, in possession
of all of the Assets, and such Assets are free and clear of all liens, financing
statements, pledges, charges, security interests, mortgages, deeds of trust,
restrictions, title retention devices, prior assignments and encumbrances of any
kind whatsoever ("Liens") except for (i) Liens described on Schedule 2.4(a),
(ii) Liens securing liabilities to the Banks, and (iii) Permitted Liens.
"Permitted Liens" shall be all Liens except the following: (A) Liens created,
granted or arising by the agreement or act of the asset owner (but Liens under
this subparagraph A shall not include possessory Liens to secure liabilities
arising in the ordinary course of business in favor of workers or mechanics
which are Permitted Liens); (B) Liens arising out of litigation pending, or
judgments or awards, against the property owner (excluding those which are
adequately bonded pending completion of appropriate legal proceedings being
pursued in good faith with reasonable diligence which are Permitted Liens); and
(C) Liens for Taxes where the tax is due and payable or where the entity
entitled to assess or collect the Tax has initiated any steps to perfect the
Lien, collect the Tax or foreclose on the property.
(c) TNF owns one hundred percent (100%) of the shares of NF Scotland.
(d) Schedule 2.4(d) contains a list of all corporate names, trade names,
trademarks, service marks, licenses, patents, patent licenses, patent
applications and registered copyrights owned or held by TNF. Except as
described in Schedule 2.4(d), TNF has not received written notice that it has
heretofore infringed any patent, trade name, service mark, trademark, copyright,
or trade secret of any other Person. Schedule 2.4(d) also contains a complete
and accurate list of all licenses or sublicenses granted by TNF with respect to
any of the intellectual property listed on Schedule 2.4(d).
Section 2.5 BULK SALES. The list of creditors attached hereto as Schedule
2.5 contains all of the creditors of TNF as of March 14, 1994.
Section 2.6 TAX MATTERS. All amounts required to be withheld by TNF for
periods from January 1, 1994 through the Closing Date for employees for income
taxes, social security and other payroll taxes have been collected and withheld
and either paid to the respective governmental agencies, set aside in accounts
for such purposes, or accrued, reserved against and entered upon the books and
records of TNF.
Section 2.7 INSURANCE, CONTRACTS AND LEASES. Schedule 2.7(a) hereto sets
forth all material insurance policies and agreements of TNF. Schedule 2.7(b)
hereto sets forth all material contracts and personal property leases of TNF.
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Section 2.8 LITIGATION. Schedule 2.8 describes all pending litigation in
which TNF or NF Scotland is a party and the recovery sought is for injunctive
relief or for an amount of more than $50,000. Except as set forth in Schedule
2.8, and except for individual disputes involving liabilities of TNF or NF
Scotland of $50,000 or less alleged to be due to individual customers and
suppliers arising in the ordinary course of business as theretofore conducted,
there is no action, suit, investigation or proceeding pending against, or
threatened in writing against or affecting, their business or any Assets before
any court, arbitrator or other tribunal or any governmental body, agency or
official which, if determined or resolved adversely in accordance with the
plaintiff's or claimant's demands, would reasonably be expected to have a
material adverse effect on the financial condition or results of operations of
TNF or which in any manner challenges or seeks to prevent, enjoin, alter or
materially delay the transactions contemplated hereby. Schedule 2.8 separately
lists litigation which will become as Assumed Liability and litigation which
will become an Excluded Liability.
Section 2.9 LICENSES AND PERMITS. Schedule 2.9 correctly describes each
material license, franchise, permit or other similar authorization affecting, or
relating in any way to, the business of TNF or NF Scotland ("Permits"), together
with the name of the government agency or entity issuing such license or permit,
except (a) normal routine items (such as, without limitation, local business
permits, auto and truck license tags, building permits, etc., which normally
relate to the business of designing and marketing camping equipment, tents,
outerwear, apparel and goods for leisure activities or to the businesses of TNF
or NF Scotland), (b) for Permits as to which the failure to have them would not
have a material adverse effect, and (c) for Permits relating to patent or
trademark licenses listed on Schedule 2.9. Except as set forth on the Schedule
2.9, such Permits are valid and in full force and effect and, assuming the
related Required Consents have been obtained prior to the Closing Date, are
transferable by TNF or are automatically transferred with transfer of the
Shares, and none of the Permits, if material to the Business, will, assuming the
related consents have been obtained prior to the Closing Date or are not
required hereunder, be terminated or impaired or become terminable as a result
of the transactions contemplated hereby. Upon consummation of such
transactions, Purchaser will, assuming the related consents have been obtained
prior to the Closing Date or are not required hereunder, have all of the right,
title and interest in all the Permits which TNF is capable, by unilateral
action, of delivering through bills of sale and other instruments of transfer at
the Closing or which can be transferred by passage of title to the Shares.
Section 2.10 ALL AFFILIATE CLAIMS AND LIENS RELEASED. No Affiliate of TNF
or NF Scotland will have any claim against the Assets or NF Scotland or a Lien
on any of its property as of the Closing Date after giving effect to the
releases delivered pursuant to Section 6.3(c)(ix) hereof and the Court Order,
except
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that inter-company liabilities between TNF and NF Scotland will not be released.
Section 2.11 ENVIRONMENTAL COMPLIANCE.
(a) Except as disclosed in Schedule 2.11 and except with respect to
substances comprising part of the raw materials used to create finished goods
and finished goods, in each case purchased from suppliers and used or
manufactured in the ordinary course of business, other than substances requested
or specified by TNF on any associated purchase order, no written notice,
notification, demand, request for information, citation, summons or order has
been issued, no complaint has been filed, no penalty has been assessed and no
investigation or review is pending, or threatened in writing by any governmental
or other entity (i) with respect to any alleged violation by TNF of any
environmental law, ordinance, rule, regulation or order of any governmental
entity in connection with the conduct of its business, (ii) with respect to any
alleged failure by TNF to have any environmental permit, certificate, license,
approval, registration or authorization required in connection with the conduct
of its business or (iii) in the case of TNF with respect to any generation,
treatment, storage, recycling, transportation or disposal or release, as defined
in 42 U.S.C. Section 9601(22) ("Release") of any toxic, caustic or otherwise
hazardous substance, including petroleum, its derivatives, by-products and other
hydrocarbons, whether or not regulated under applicable environmental statutes,
ordinances, rules, regulations or orders ("Hazardous Substance") generated by
the business of TNF.
(b) Except as disclosed in Schedule 2.11, in connection with the operation
of its Business, (i) TNF has not handled any Hazardous Substance, other than as
a generator, on any property presently owned or leased by TNF; (ii) no
polychlorinated biphenyls are or have been present at any property presently
owned or leased by TNF; (iii) no asbestos is or has been present at any property
presently owned or leased by TNF; (iv) there are no underground storage tanks
for Hazardous Substances, active or abandoned, at any property presently owned
or leased by TNF; (v) no Hazardous Substance has been Released at, on or under
any property presently owned or leased by TNF and (vi) no Hazardous Substance
has been released or is present, in a reportable or threshold planning quantity,
where such a quantity has been established by statute, ordinance, rule,
regulation or order, at, on or under any property presently owned by TNF.
(c) Except as disclosed on Schedule 2.11, in connection with the operation
of its Business, TNF has not transported or arranged for the transportation
(directly or indirectly) of any Hazardous Substance to any location which is
listed or proposed for listing under CERCLA or any similar statute, or on any
similar official list or which is the subject of official enforcement actions
which may lead to claims against any Purchaser for clean-up costs, remedial
work, damages to
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natural resources or for personal injury claims, including, but not limited to,
claims under CERCLA or any comparable statute.
(d) Except as disclosed on Schedule 2.11, no written notification of a
Release of a Hazardous Substance has been filed by or on behalf of TNF with
respect to its Business and no property presently owned or leased by TNF with
respect to the Business is listed or proposed for listing on the National
Priorities List promulgated pursuant to CERCLA or any comparable list under any
comparable law or on any similar official list of sites requiring investigation
or clean-up.
(e) Except as disclosed on Schedule 2.11, there are no environmental Liens
on any of the Assets.
Section 2.12 ERISA REPRESENTATIONS. TNF hereby represents and warrants to
Purchasers that:
(a) Schedule 2.12 includes a list of each "employee benefit plan," as such
term is defined in Section 3(3) of ERISA, which (i) is maintained or sponsored
by TNF or any of its ERISA Affiliates (as defined below) and (ii) covers any
employee of the business of TNF (hereinafter referred to collectively as the
"Employee Plans").
(b) No Employee Plan is a Multiemployer Plan and no Employee Plan is
subject to Title IV of ERISA. Neither TNF nor any of its ERISA Affiliates has
incurred any liability under Title IV of ERISA that could become, after the
Closing Date, an obligation of Purchaser.
(c) Each Employee Plan which is intended to be qualified under Section
401(a) of the Code has received a favorable determination letter from the
Internal Revenue Service regarding such qualification.
(d) Neither TNF nor any of its ERISA Affiliates has any current or
projected liability in respect of post-employment or post-retirement health or
medical or life insurance benefits for retired or former employees of the
business of TNF, except as required to avoid excise tax under Section 4980B of
the Code.
Section 2.13 NO UNDISCLOSED MATERIAL LIABILITIES. Except as described in
Schedule 2.13 and the other Schedules, financial statements and documents
delivered pursuant hereto, there are no liabilities relating to subject areas of
the Business of TNF other than as covered by specific sections of this Article
II (with any reasonable potential of having an amount payable by TNF of more
than $200,000) whether accrued, unaccrued, fixed, contingent, absolute,
determined, liquidated, unliquidated, determinable or otherwise.
Section 2.14 COMPLIANCE WITH LAWS. Except as described in Schedule 2.14,
neither TNF nor NF Scotland has been advised in writing that it is under
investigation with respect to
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or given written notice of any violation of, any law, rule, ordinance or
regulation, or judgment, order or decree entered by any court, arbitrator or
governmental authority, domestic or foreign, applicable to the Assets or the
conduct of the business of TNF or NF Scotland which, if established through any
final determination, would have a material adverse effect upon their financial
condition or results of operation taken as a whole.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Sellers with respect to the matters
set forth below. In addition, each of the Associated Persons, by his signature
below, makes these representations and warranties in his individual capacity.
Such representations and warranties are as follows:
Section 3.1 ORGANIZATION AND QUALIFICATION. Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, with all requisite corporate power and
authority to own, operate and lease its properties and to carry on its business
as now being conducted. It is qualified or licensed to conduct its business and
is in good standing in each jurisdiction where the nature of its activities or
where the character of its properties makes such qualification or licensing
necessary and in which failure to so qualify would have a material adverse
effect on it.
Section 3.2 AUTHORITY. Purchaser has the requisite power and authority to
execute and deliver this Agreement and to perform its obligations hereunder and
to consummate the transactions contemplated by this Agreement, and all corporate
action necessary for the execution, delivery and performance has been, or prior
to the Closing, will have been, duly and validly taken. The Agreement, when
executed by it and delivered to Sellers, will constitute the legal, valid and
binding obligation of Purchaser subject only to the exceptions in cases of
insolvency and the enforcement of equitable remedies. The execution and
delivery of this Agreement by Purchaser does not, and the performance and
consummation by it of the transactions contemplated by this Agreement will not
(a) conflict with or result in breach or violation of, or default under, or give
rise to any right of acceleration (whether by notice or lapse of time or both)
or termination of, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, license, agreement or other instrument or obligation
to which it is a party or by which any of its assets or properties are bound;
(b) violate any judgment, order, injunction, decree, statute, rule or regulation
applicable to it or any of its assets or properties; or (c) contravene, violate
or be impermissible under its Certificate of Incorporation or Bylaws or
amendments thereto. No consent, approval, authorization, order, registration of
or with any court or any regulatory authority or any other
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governmental body is required for the consummation of the transactions
contemplated by this Agreement.
Section 3.3 ACCESS TO INFORMATION; ROBERTSON, STEPHENS & COMPANY. As of
the date of signing of this Agreement, Purchaser has had such access to the
books and records of TNF and NF Scotland, and all other information or data
relevant to the transactions contemplated by this Agreement, and, except as
aforesaid and except for representations set forth in or deemed made pursuant to
this Agreement, is not relying on any representation of Sellers, their
affiliates, or their professional advisors (whether written or oral) in
connection with such transactions except for all documents delivered and to be
delivered to Purchaser by or on behalf of any Seller. Purchaser hereby agrees
and acknowledges that it has not relied on any representation of RSC with
respect to the transactions contemplated by this Agreement, and it hereby
waives, to the maximum extent permitted by law, any rights, claims, or causes of
action against RSC arising out of such transactions.
Section 3.4 BROKERS. Except for any investment or other advisors named on
Schedule 3.4, whose compensation will be paid by Purchaser, Purchaser represents
and warrants that it has not retained or used the services of any Person in such
a manner as to entitle such Person to compensation as a broker or finder as a
result of the execution of this Agreement or the consummation of the
transactions contemplated hereby. In the event a claim by such a person or
entity is asserted with respect to such transactions, Purchaser will indemnify,
defend and hold Sellers harmless against any and all such claims by such persons
or entities in connection with any services provided by any of them in respect
of this Agreement and the transactions contemplated hereby pursuant to Section
7.2 hereof.
Section 3.5 SELLERS' FINANCIAL DIFFICULTIES. Purchaser acknowledges that
(a) Sellers are having considerable financial and related difficulty, including
but not limited to the United States bankruptcy filings of OII and TNF's parent,
OHI, (b) the ownership of approximately thirty percent (30%) of the stock of NF
Scotland has been disputed, and various issues have arisen with respect to
rights of various parties which were resolved in the NFS Settlement Agreement
and (c) a number of senior officers of the Sellers engaged in the negotiation
and performance of this Agreement have been incumbent for less than fifteen
months. Purchaser also acknowledges that TNF may itself at some time in the
future become a debtor under the Bankruptcy Code or merge with another member of
the Odyssey Group which is such a debtor. To the maximum extent permitted by
law, such Seller agrees not to take any such steps until after the Closing Date.
The representations and warranties set forth in Article II are qualified in
their entirety by the acknowledgments set forth herein.
Section 3.6. INFORMATION RE PURCHASER. Purchaser represents and warrants
that: Purchaser shall supplement this
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Schedule promptly if additional Persons acquire an equity interest in Purchaser
after the initial disclosure. Such supplementation shall be made within three
(3) business days of the acquisition of such interest, and at least one (1)
business day prior to the Court Order Date.
(a) Schedule 3.6(a) sets forth a complete list of all Persons with any
equity interest, or option to acquire any equity interest, of any nature in
Purchaser.
(b) All funds which shall be used by Purchaser for the transaction
contemplated herein shall be derived from or have their source in the property
or assets of the Persons set forth in Schedule 3.6(a) and, without limiting the
foregoing, none of such funds shall be derived from or have their source in any
of the property or assets of any member of the Odyssey Group or the 41 loans or
financial accommodations provided to any member of the Odyssey Group by the
Banks (except for any salaries paid by members of the Odyssey Group to the
Associated Persons in the ordinary course of their businesses). This paragraph
shall not be interpreted to prohibit a transaction such as (i) the pledging of
the Purchased Assets as collateral (including the proposed financing with Heller
Business Credit), or (ii) one which is substantially similar to the proposed
transaction with Goldwin, Inc.
(c) Purchaser and the Associated Persons have fully complied with the
Sales Procedures set forth as Exhibit 6.1(c) to the First Amended Plan of
Reorganization described in Recital D, have made their best efforts to assure
that each prospective bidder had access to full and complete information about
TNF, and have sought to assure a fair and open bidding process.
(d) Purchaser and the Associated Persons have not made any arrangement or
agreement, express or implied, to sell all or substantially all of the Assets or
the stock of TNF or a controlling interest in Purchaser after or in conjunction
with the purchase transaction contemplated hereby, and Purchaser is aware of no
offer or arrangements regarding any such transaction.
ARTICLE IV
COVENANTS
Section 4.1 ACCESS. From the date hereof until the Closing, Purchaser
will (a) continue to have reasonable access to the books, records, properties
and personnel of Sellers and (b) continue to be able to make such inspections
as they may reasonably require.
Section 4.2 (omitted)
Section 4.3 TRANSFER OF ASSETS. Purchaser shall be responsible for all
sales taxes, notary fees, and other costs of transfer of the Assets and shares
of NF Scotland.
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Section 4.4 CONDUCT OF BUSINESS PRIOR TO CLOSING.
(a) Prior to the Closing Date, Sellers shall conduct the business of TNF
only in the ordinary and usual course, consistent with past practices, and in
accordance with the Operating order, approved by the Bankruptcy Court on a final
basis on April 23, 1993. Without limiting the generality of the foregoing,
Sellers shall not (i) make any payments other than in the ordinary course and
consistent with past practice on obligations which would constitute Excluded
Liabilities, or (ii) directly or indirectly grant, enter into, extend, modify or
amend any assignments, licenses, transfers, Liens or other agreements or
transactions relating to any patents, trade names, trademarks, copyrights, or
other intellectual property rights of TNF or NF Scotland or retain or purport to
retain after the Closing any kind of rights to use, assign, sell or license any
of the foregoing or any names, marks or other items similar to the foregoing,
anywhere in the world. This paragraph (a) shall only be applicable if the
Associated Persons shall cease to be officers and directors of TNF after this
Agreement is executed.
(b) TNF shall continue to have adequate funds for the operation of the
Business consistent with past practice, and access to letters of credit pursuant
to the L/C Agreement.
Section 4.5 BEST EFFORTS. Upon the terms and subject to the conditions
hereof, and both before and after the Closing, each of the parties hereto agrees
to use its best efforts promptly to take, or cause to be taken, all action and
to do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement
and will use its best efforts to obtain all waivers, permits, consents and
approvals, releases and to effect all registrations, filings, assignments and
notices with or to third parties or governmental or public bodies or authorities
which are necessary or desirable in connection with the transactions
contemplated by this Agreement. The maximum amount of expenditures required
under this Section and Section 4.16 for each party shall aggregate $10,000, but
such limit shall not apply to any costs and expenses relating to the Bankruptcy
case described in Recital D or obtaining the Court Order as provided in Section
4.18(a).
Section 4.6 TRANSITION ASSISTANCE. At the request of Sellers,
Purchaser will provide access to its books and records following the Closing,
upon reasonable notice and during normal business hours, in order for Sellers
to complete tax filings and reports and/or any other similar filings and
reports.
Section 4.7 PERSONNEL. Purchaser shall offer to continue the
employment of all of TNF's employees on conditions reasonably similar to the
present conditions under which said persons are employed. Purchaser further
covenants and agrees that it will offer employment to such number of persons
at the facility located at 999 Harrison Street, Berkeley, California,
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such that the Sellers will not have any liability under the Worker Adjustment
and Retraining Notification Act (29 U.S.C. Section 2101-2109) and the
regulations promulgated thereunder ("WARN"). The employees of TNF who elect
to continue such employment by Purchaser are referred to herein as the
"Transferred Employees." As of the Closing Date, Purchaser shall assume all
existing group health, life, and disability plans, employee welfare plans,
and fringe benefit plans applicable to the Transferred Employees.
Section 4.8 HART-SCOTT-RODINO ACT. Sellers and Purchaser hereto agree
to promptly make all filings that are required or may be required under the
HSR Act, including, without limitation, responses to requests for additional
information.
Section 4.9 NOTIFICATION OF MATERIAL EVENTS PRIOR TO CLOSING. The
Sellers, on the one hand, and the Purchaser, on the other hand, will each
give prompt notice to each of the Persons set forth in Section 9.2 of
material events or matters, including matters or events which may be
discovered in the course of due diligence as follows:
(a) the occurrence, or failure to occur, of any event the occurrence or
failure of which would, or would be likely to, cause any of their respective
representations or warranties contained in this Agreement to be untrue or
incorrect at any time from the date hereof to the Court Order Date;
(b) any failure on their respective parts or on the part of any of
their officers, directors, employees, representatives or agents, if any, to
comply with or satisfy any covenant, condition or agreement to be complied
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by each of them under this Agreement;
(c) any notice or communication from any governmental or regulatory
agency or authority in connection with the transactions contemplated by this
Agreement; and
(d) any actions, suits, claims, investigations or proceedings commenced
or threatened in writing against, relating to or involving or otherwise
affecting TNF or the Business that, if pending on the date of this Agreement,
would have been required to have been disclosed hereunder or that relate to
the consummation of the transactions contemplated by this Agreement.
Nothing herein shall supersede or qualify the provisions relating to
conditions for closing as set forth in Article VI.
Section 4.10 [omitted]
Section 4.11 STATEMENTS PENDING CLOSING. The parties agree to make,
and to cause their respective advisors (including financial advisors) to
make, such public statements pending
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Closing, and to perform such actions pending Closing, as will enhance the
reputation of TNF and NF Scotland during such period and facilitate any
governmental filings or consents referred to elsewhere herein.
Section 4.12 TRANSACTIONS WITH AFFILIATES. Sellers will not, and will not
permit any member of the Odyssey Group or the Receivers to, purchase any asset
or services of any description from, or sell any asset or services of any
description to, TNF except for accounting payroll and data processing costs
incurred in the ordinary course of business as heretofore conducted.
Section 4.13 CONFIDENTIALITY. Purchaser hereby agrees to keep
confidential all information of any type obtained from Sellers or their
professional advisors in connection with the transactions contemplated by
this Agreement; provided, however, that such obligation of confidentiality
shall not apply to information publicly available or matters of public
record, to duties to disclose imposed by mandatory provisions of law, to use
of the Assets and related information after the Closing Date or to use of
such information by Purchaser in litigation or arbitration against any
Seller, or any Seller in litigation or arbitration against Purchaser, subject
to any applicable protective order.
Section 4.14 USE OF "THE NORTH FACE" NAME. Sellers hereby agree that
within a reasonable time (but in no event more than 10 calendar days) after the
Closing Date, they will take such steps as are necessary under applicable law to
remove the name "The North Face" from the corporate name of TNF, and that upon
the Closing Date, and subject to outstanding rights and interests, Sellers will
cease all other use on a worldwide basis of such name, any similar name and any
marks which are the same as or similar to marks included in the Assets.
Section 4.15 POWER OF ATTORNEY. TNF hereby constitutes and appoints,
effective as of the Closing, Purchaser and its successors and assigns as the
true and lawful attorney of TNF with full power of substitution in the name of
any Purchaser or in the name of TNF, but for the benefit of Purchaser (a) to
collect for the account of Purchaser any items of Assets, and (b) to institute
and prosecute in the names of the appropriate Sellers all proceedings which
Purchaser may in its sole discretion deem proper in order to transfer, assert or
enforce any right, title or interest in, to or under the Assets, and to defend
or compromise any and all actions, suits or proceedings in respect of the
Assets, except that in no event shall the foregoing power of attorney include
any power to amend, modify supplement or terminate this Agreement in any
respect. Purchaser shall be entitled to retain for its own account any amounts
collected pursuant to the foregoing powers, including any amounts payable as
interest in respect thereof. The foregoing is intended to be an irrevocable
power of attorney coupled with an interest.
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Section 4.16 CERTAIN FILINGS. Sellers and Purchaser shall cooperate with
one another (a) in determining whether any action by or in respect of, or filing
with, any governmental body, agency, official or authority is required, or any
actions, consents, approvals or waivers are required to be obtained from parties
to any material contracts, in connection with the consummation of the
transactions contemplated by this Agreement and (b) in taking such actions or
making any such filings, furnishing information required in connection therewith
and seeking timely to obtain any such actions, consents, approvals or waivers.
The maximum amount of expenditures required under this Section and Section 4.5
for each party shall aggregate $10,000, but such limit shall not apply to any
costs and expenses relating to the Bankruptcy case described in Recital D or
obtaining the Court Order as provided in Section 4.18(a).
Section 4.17 PUBLIC ANNOUNCEMENTS. The parties agree to consult with each
other before issuing any press release or making any public statement with
respect to this Agreement or the transactions contemplated hereby and, except as
may be required by applicable law or any listing agreement with any national
securities exchange, will not issue any such press release or make any such
public statement prior to such consultation.
Section 4.18 BANKRUPTCY COURT APPROVAL.
(a) As promptly as practicable after the date hereof Sellers shall take
the necessary steps to obtain approval of the proposed transaction in an order
confirming a plan of reorganization for OHI, which order shall contain similar
findings and conclusions as set forth in Schedule 4.18(a) (the "Court Order"),
and shall specifically find that Purchaser has acted in "good faith" as that
term is construed under Section 363(m) of the Bankruptcy Code.
(b) Sellers agree to make promptly any filings, to take all actions and to
use their reasonable best efforts to obtain any and all other approvals and
orders necessary or appropriate for the consummation of the transactions
contemplated hereby including all mailings and publication required or advisable
under applicable law or reasonably requested by Purchaser.
(c) If the Court Order or any other orders of the Bankruptcy Court
relating to this Agreement or the sale shall be appealed by any party (or a
petition for CERTIORARI or motion for rehearing or reargument shall be filed
with respect thereto), Sellers agree to take all steps, as may be reasonable and
appropriate to prosecute such appeal, petition or motion, or defend against such
appeal, petition or motion, and Purchaser agrees to cooperate in such efforts,
and Purchaser and Seller agrees to use their best efforts to obtain an expedited
resolution of any such appeal.
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(d) Various provisions of this Agreement require that actions be taken or
notices served prior to the Court Order Date. The "Court Order Date" shall be
the first date upon which the Bankruptcy Court commences a hearing seeking the
entry of the Court Order, and events which must take place on or before the
Court Order Date must take place prior to the commencement of such hearing.
Section 4.19 EXPENSES. Except as expressly otherwise provided herein,
each of the parties hereto shall pay its own expenses incidental to the
preparation of this Agreement, the carrying out of the provisions of this
Agreement and the consummation of the transactions contemplated hereby.
Section 4.20 FAIRNESS OPINION. If Sellers obtain any fairness or similar
opinions from RSC or any other advisor in connection with the transactions
contemplated hereby they will provide Purchaser with a copy thereof. Such
provision of copies is not intended to create any basis for Purchaser to be in
privity of contract with RSC or such advisor nor to create any obligation of RSC
or such advisor to Purchaser. The exculpation of RSC in Section 3.3 applies to
this Section.
Section 4.21 PATENT AND TRADEMARK LICENSES. Purchaser acknowledges that
the licensees for the patents and trademarks listed on Schedule 2.4(d) enjoy use
of the patents and trademarks under the license agreements specified on Schedule
2.4(d). Purchaser and Sellers agree that, prior to the Closing Date, Sellers
will not agree to extend any of the licenses or grant any new licenses,
sublicenses or rights of use.
Section 4.22 CERTIFICATION TO THE COURT. Promptly after the Closing Date,
Sellers will file such documents as they deem necessary to report for the public
record that the closing has occurred.
ARTICLE V
TAX MATTERS
Sellers hereby make the following representations and warranties relating
to tax matters, which representations and warranties are expressed on the same
basis and are subject to the same restrictions as set forth in the introduction
to Article II above.
Section 5.1 TAX DEFINITIONS. The following terms, as used herein, have
the following meanings (except as otherwise provided in Section 5.4):
"Post-Closing Tax Period" means any Tax period (or portion thereof) ending
after the Closing Date.
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"Pre-Closing Tax Period" means any Tax period (or portion thereof) ending
on or before the close of business on the Closing Date.
"Tax" means any net income, alternative or add-on minimum tax, gross
income, gross receipts, sales, use, ad valorem, franchise, capital, paid-up
capital, profits, greenmail, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property, environmental or windfall
profit tax, custom, duty or other tax, governmental fee or other like assessment
or charge or any kind whatsoever, together with any interest or any penalty,
addition to tax or additional amount imposed by any governmental authority
(domestic or foreign) responsible for the imposition of any such tax.
Section 5.2 UNITED STATES TAX MATTERS. Sellers hereby represent and
warrant to Purchaser that:
(a) Except for unpaid Tax liabilities described on Schedule 5.2(a), TNF
has timely paid all Taxes payable by it for the Pre-Closing Tax Period which are
required to be paid on or prior to the Closing Date, the non-payment of which
would result in a Lien on any purchased Asset, would otherwise adversely affect
the business or would result in TNF becoming liable or responsible therefor.
(b) TNF has established, in accordance with U.S. GAAP applied on a basis
consistent with that of preceding periods, adequate accruals or reserves for the
payment of, and, except insofar as such obligation is an Assumed Liability, will
timely pay all Tax liabilities which arise from or with respect to the Assets or
the operation of the TNF's business and are incurred in or attributable to the
Pre-Closing Tax Period, the non-payment of which would result in a Lien on any
Asset, would otherwise adversely affect the business of TNF or would result in
Purchaser becoming liable therefor.
Section 5.3 TAX COOPERATION: ALLOCATION OF TAXES. Purchaser and Sellers
agree to furnish or cause to be furnished to each other, upon request, as
promptly as practicable, such information and assistance relating to the Assets
and TNF's business as is reasonably necessary for the filing of all Tax returns,
and making of any election related to Taxes, the preparation for any audit by
any taking authority, and the prosecution or defense of any claim, suit or
proceeding relating to any Tax return. Purchaser and Sellers shall cooperate
with each other in the conduct of any audit or other proceeding related to Taxes
involving the U.S. Asset Seller's business and each shall execute and deliver
such powers of attorney and other documents as are necessary to carry out the
intent of this Section 5.3.
Section 5.4 SCOTLAND TAX MATTERS. As used in this Section 5.4, "Taxes"
means all taxes, charges, fees, levies and other assessments including without
limitation income, gross
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receipts, net worth, customs, property, sales, withholding, transfer, license,
payroll and franchise taxes, imposed by any country, state, province,
municipality or other taxing authority. Sellers hereby represent and warrant
that:
(a) NF Scotland has filed all returns and reports which are required to be
filed by it with respect to Taxes and social security dues. Such returns and
reports were true and correct in all material respects and were filed on the
basis of the records, data and information available to NF Scotland at such
time. NF Scotland has maintained all records, data, and information as required
by applicable tax and accounting laws and regulations;
(b) NF Scotland has not received written notice of any material
outstanding questions concerning the accuracy of its returns and reports filed
by it with respect to Taxes and social security dues or of any material disputes
with respect thereto;
(c) NF Scotland has timely paid all Taxes and social security dues payable
by them for the Pre-Closing Tax Period which will have been required to be paid
on or prior to the Closing Date. All withholding Taxes, social security and
retirement contributions required to be withheld by NF Scotland has been timely
withheld and paid over to the respective taxing authority by NF Scotland; and
(d) NF Scotland has established in accordance with the applicable laws and
regulations on a basis consistent with that of proceeding periods, adequate
accruals or reserves for the payment of all Taxes and social security dues
incurred in or attributable to the Pre-closing Tax Period.
ARTICLE VI
CONDITIONS TO CLOSING
Section 6.1 CLOSING DEFINITIONS.
(a) As used herein, the term "Transfer and Related Documents" means:
(i) with respect to the Assets other than real property and
the patents and trademarks such general bills of sale, general
assignments and consents to assignment of assets and any other
documents reasonably required by Purchaser;
(ii) with respect to real property, such limited deeds,
assignments of leases, consents to assignments of leases and
other documents of transfer reasonably required by Purchaser, in
each case in form and substance reasonably satisfactory to
Purchaser such that on the Closing Date
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Purchaser will be vested with all of TNF's right, title and
interest in and to real property; and
(iii) with respect to the patents and trademarks, such duly and
validly authorized and executed documents reasonably required by
Purchaser, in form and substance reasonably satisfactory to
Purchaser, such that on the Closing Date Purchaser will be vested
with all of TNF's worldwide rights, title and interest in and to
the patents and trademarks subject only to rights to use the name
"The North Face" as provided in Section 4.14.
The purpose of this provision is to assure that Purchaser obtains all of
TNF's right, title and interest in the Assets, and is not intended to expand,
supplement or affect the scope of the representations and warranties as to such
matters as set forth elsewhere.
(b) With respect to the Shares the Sellers shall deliver an irrevocable
power of attorney from TNF in form and substance reasonably satisfactory to
Purchaser authorizing Purchaser to sign and execute an assignment contract in
the form of a notarial deed or other instrument for and on behalf of TNF, by
which the Shares of TNF in NF Scotland may be assigned and transferred to
Purchaser according to the provisions and conditions of this Agreement; and
(c) With respect to other matters the parties shall deliver:
(i) the Bank documents referred to in 6.3(c)(vi) below;
(ii) the Receiver documents referred to in 6.3(c)(viii) below;
(iii) the Odyssey Group releases referred to in 6.3(c)(ix)
below;
(iv) the name change papers referred to in Section 6.3(c)(x)
below;
(v) such releases, documents complying with Section 1.3(b) and
other related documents for delivery to the Banks on the Closing
Date as they shall reasonably have requested;
(vi) the releases referred to in Section 6.4(e)below; and
(vii) the instruments of assumption ref erred to in Section
1.3(e).
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SECTION 6.2 CONDITIONS TO THE OBLIGATIONS OF BOTH PARTIES. The
obligations of Purchaser and Sellers to consummate the Closing are subject to
the satisfaction of only the following conditions: (a) the Court order shall
have been signed and the ten day period described in Section 1.1(c) shall
have expired, (b) no provision of any applicable law or regulation and no
judgment, stay, injunction, order or decree of the Bankruptcy Court or any
other court or governmental agency wherever located shall (i) prohibit the
CONSUMMATION of the Closing or (ii) restrain, prohibit or otherwise interfere
with the effective operation or enjoyment by Purchaser of all or any material
portion of the Assets or the Shares, and (c) the waiting period under the HSR
Act, if applicable, shall have expired.
Section 6.3 CONDITIONS TO OBLIGATIONS OF PURCHASER. The obligations of
Purchaser to consummate the Closing shall be subject only to the satisfaction of
the following further conditions set forth in paragraph (c) below, and in
accordance with the procedures set forth in this Section.
(a) Prior to the Court Order Date, Purchaser may decline to consummate
this transaction if it delivers timely notice to all Persons identified in
Section 9.2 that it will not close in that (i) it has discovered a material
matter following the execution of this Agreement, which matter was previously
not known to the best of the knowledge, information or belief of Purchaser or
the Associated Persons, which would constitute a material breach of a
representation, warranty, or covenant hereunder, and which was not the result of
the malfeasance or misfeasance of the Associated Persons, (ii) if both of the
Associated Persons have been involuntarily terminated as officers of TNF, or
(iii) one of the closing conditions set forth in paragraph (c) below shall not
have been satisfied. The notice shall be timely under subparagraph (i) if it is
given at the earlier of ten days after Purchaser has discovered sufficient
information to know or is otherwise aware of such material breach or two days
prior to the Court Order Date (except for a material breach discovered within
two days of the Court Order Date in which case notice shall be timely on the
Court Order Date), under subparagraph (ii) if it is given within five days after
such termination (but no later than the Court Order Date), under subparagraph
(ii) if it is given at least two days prior to the Court Order Date. Failure to
give timely notice under subparagraph (i) shall constitute a waiver of all
conditions to closing which are based on breaches of representations, warranties
and covenants, under subparagraph (ii) shall waive such basis for termination,
and failure to give timely notice under subparagraph (iii) shall constitute a
waiver of each condition to closing set forth in paragraph c hereof including a
waiver of any objection to the form of documents to be delivered under paragraph
(c) hereof, but shall not constitute a waiver of the closing conditions set
forth in subparagraphs (c)(ii) and (c)(iii) below or of Sellers' obligations to
deliver documents and otherwise perform at the Closing.
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(b) On or after the Court Order Date, Purchaser shall be required to
consummate this transaction, notwithstanding any other provision of this
Agreement, unless it gives timely notice that a condition set forth in such
paragraph (c)(ii) or (c)(iii) below has not been met, or unless Sellers fail to
deliver documents or otherwise perform at the Closing.
(c) The closing conditions are as follows:
(i) AUTHORIZATIONS, PERMITS, ETC.
(A) All consents, waivers, approvals, expirations of
government-mandated waiting periods, authorizations and
permits reasonably required or reasonably advisable in order
to consummate the transactions expressly described in this
Agreement, the absence of which would have a material
adverse effect upon the performance of this Agreement or the
transactions contemplated hereby or the capability of
Purchaser to operate the Business shall have been obtained
and not revoked or under material threat of revocation and
shall be in form and substance reasonably satisfactory to
Purchaser.
(B) (I) Sellers shall have performed in all material
respects all of their obligations hereunder required to be
performed by them at or prior to the Court Order Date, (II)
the representations and warranties of Sellers contained in
this Agreement and in any Schedule, certificate or other
writing delivered by Sellers pursuant hereto shall be true
in all material respects and on the Court Order Date as if
made at and as of such date with only such exceptions as
would not in the aggregate reasonably be expected to have a
material adverse effect on the Business and (III) Purchaser
shall have received certificates to the foregoing effect
signed by the Associated Persons, such certificates to be
expressed upon the same basis and subject to the same
qualifications and exceptions as set forth in such
introduction.
(ii) No event has occurred which results in a substantial and
material adverse change in the business of TNF between the Court Order Date and
the Closing Date, which event was unknown by Purchaser as of the Court Order
Date and not included or reflected in any of the disclosures in this Agreement
or the Schedules hereunder delivered on or before the Court Order
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Date, which would significantly diminish the value of the Business, and which
event was not caused by the malfeasance or misfeasance of the Associated
Persons.
(iii) TNF shall continue to have adequate funds for the
operation of the Business consistent with past practice, and access to letters
of credit pursuant to the L/C Agreement.
(iv) TRANSFER AND CORPORATE DOCUMENTS. Purchaser shall have
received all documents it may reasonably request (A) relating to the
existence of Sellers and the authority of Sellers for this Agreement, all in
form and substance reasonably satisfactory to Purchaser, and (B) consisting
of or relating to the Transfer and Related documents to be duly executed and
delivered by Sellers on or before the Closing Date.
(v) CERTIFICATES. Purchaser shall have been furnished with
certificates dated the Court Order Date and signed by the Secretary or Assistant
Secretary of each of the Sellers setting forth (A) the names, signatures and
positions of the officers of Sellers who have executed this Agreement or any
other document executed as a title transfer document hereunder, and (B) a copy
of the resolutions adopted by the Board of Directors of each Seller authorizing
the execution, delivery and performance of this Agreement and the performance of
the transactions contemplated hereby. Purchaser shall receive a date down of
such certificates as of the Closing Date.
(vi) BANK ACTION. The Banks shall have delivered to the
Purchaser (A) all duly and validly authorized and executed documents reasonably
requested by Purchaser in form and substance reasonably satisfactory to them to
assure Purchaser that the Assets and the Shares are being transferred to
Purchaser free and clear of all Liens asserted or assertible by the Banks, (B)
an agreement of the Banks of further assurance as to elimination of such Liens
after the Closing Date in form and substance reasonably satisfactory to
Purchaser and (C) releases of Purchaser (which shall include mutual releases of
the Banks), the Assets of TNF, and NF Scotland, and the Associated Persons
(which shall exclude claims for wrongful or fraudulent conduct) with respect to
the negotiation of this Agreement and the transactions contemplated hereby and
any and all other acts or omissions after January 15, 1993 (but not releasing
any claims or causes of action which are described within the definition of
Excluded Assets), in the form of Schedule 6.3(c)(vi). The releases shall
specifically exclude claims or causes of action under this Agreement or the
documents executed in connection with this Agreement.
(vii) BULK TRANSFER. Purchaser shall be satisfied that all
reasonable and timely actions shall have been taken under applicable bulk
transfer and vendor in possession laws such as Cal. Civil Code Section
3440.1(h). Purchaser shall have
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the power to request that filings be made even though such filings may not be
required under applicable law.
(viii) RECEIVERS. The Purchaser shall have received from Odyssey
International, Ltd., a Hong Kong corporation in receivership and liquidation,
and its direct and indirect subsidiaries ("Odyssey Hong Kong"), acting by and
through the Receivers, all duly and validly authorized and executed documents
reasonably requested by the Purchaser in form and substance reasonably
satisfactory to them (A) to release the Assets (including the patents and
trademarks) and the Shares from all Liens, claims or interests asserted or
assertible by Odyssey Hong Kong (or its affiliates, agents, receivers or
trustees), acting by and through the Receivers, (B) an agreement of Odyssey Hong
Kong, acting by and through the Receivers of further assurances as to the
elimination of such Liens and (C) adequate released of Purchaser, TNF and NF
Scotland (and the Associated Persons) from Odyssey Hong Kong (on behalf of
itself and all Persons it controls), acting by and through the Receivers with
respect to this Agreement, the transactions contemplated hereby and all claims
of Odyssey Hong Kong and its affiliates against Purchaser, the Assets (including
the patents and trademarks), the Shares, NF Scotland and the Associated Persons.
The releases shall be similar to those given in connection with the sale of the
assets of Head Sports Wear International, Inc., and shall be substantially in
the form attached hereto as Schedule 6.3(c)(viii). The releases shall
specifically exclude claims or causes of action under this Agreement or the
documents executed in connection with this Agreement, and the release of TNF
Scotland shall exclude any liability of NF Scotland to Odyssey Hong Kong in
connection with the sale of goods to NF Scotland (which liability is disputed by
NF Scotland).
(ix) ODYSSEY RELEASES. The Purchaser shall have received from
each other member of the Odyssey Group all duly and validly authorized and
executed documents reasonably requested by the Purchaser in form and substance
satisfactory to them (i) to establish the assignment to Purchaser of all
worldwide right, title and interest of TNF to use of the patents and trademarks
by such member, (ii) to assure Purchaser that the Assets and the Shares are
being transferred free and clear of all Liens asserted or assertible by such
member, (iii) an agreement of further assurances as to the elimination of such
Liens, and (iv) general releases of Purchaser and NF Scotland and the Associated
Persons from such member with respect to this Agreement, the transactions
contemplated hereby and all claims of such member against Purchaser, the
Associated Persons, the Assets and the Shares, in the form of Schedule
6.3(c)(ix) attached hereto. The releases shall specifically exclude claims or
causes of action under this Agreement or the documents executed in connection
with this Agreement, and which are described within the definition of Excluded
Assets.
(x) NAME CHANGE. TNF shall have delivered such documents to
Purchaser as Purchaser shall have reasonably
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requested so as to permit Purchaser to file with the Secretary of State of
California on the Closing Date an amendment of TNF's Articles of Incorporation
changing TNF's name to TNF Corporation.
Section 6.4 CONDITIONS TO OBLIGATION OF SELLERS. The obligations of
Sellers to effect the transactions contemplated hereby are, at their option and
in their discretion, with the written consent of the Banks, subject to the
following conditions:
(a) REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF PURCHASER. All
representations and warranties made herein by Purchaser shall in all material
respects be true as of the date made and as of the Closing Date and Purchaser
shall have performed all obligations, covenants and agreements undertaken by
them herein to be performed at or prior to the Closing Date. Sellers shall have
received at the Closing, a certificate to such effect dated the Closing Date and
executed by duly authorized executive officers of senior rank.
(b) TITLE TRANSFER CERTIFICATES. Sellers shall have been furnished with
certificates dated the Closing Date and signed by the Secretary or Assistant
Secretary of each Purchaser setting forth (i) the names, signatures and
positions of the officers who have executed this Agreement or any other document
executed as a title transfer document hereunder, and (ii) a copy of the
resolutions adopted by the Board of Directors of Purchaser authorizing the
execution, delivery and performance of this Agreement or, in the case of
Purchaser organized under the law of a non-U.S. jurisdiction, such equivalent
documentation as may be reasonable and appropriate.
(c) PAYMENT OF PURCHASE PRICE. The Purchaser shall have made the payment
of the Purchase Price by wire transfer in immediately available funds as
provided in Section 1.2.
(d) WAIVERS, CONSENTS AND APPROVALS. All consents, waivers and approvals
required with respect to the transactions contemplated by this Agreement,
including the Court Order, shall have been obtained.
(e) PURCHASER'S RELEASE. Sellers shall have received release from
Purchaser, which release shall mutually release Purchaser (and shall include the
Associated Persons except for claims for wrongful or fraudulent conduct), in the
form of Schedule 6.4(e) attached hereto.
(f) NO LEGAL PROCEEDINGS. Except for the proceedings described pursuant
to Section 2.8 hereof, on the Closing Date no court, arbitrator or government
body, agency or official shall have issued any order, and there shall not be any
statute, rule or regulation, restraining or prohibiting or threatening to obtain
substantial damages from any Seller upon the consummation of the Closing, and no
proceeding challenging the Agreement or the transactions contemplated hereby or
thereby or seeking to
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prohibit, alter, prevent or materially delay the Closing or threatened in
writing shall have been instituted or threatened in writing by any Person or
before any court arbitrator or governmental body, agency or official and be
pending.
(g) CORPORATE PROCEEDINGS; OPINIONS. Sellers shall have received such
documents dated the Closing Date as to corporate authority and proceedings of
Purchaser as they may reasonably request.
ARTICLE VII
POST-CLOSING SURVIVAL; INDEMNIFICATION
Section 7.1 BY SELLERS.
(a) The representations and warranties of Sellers as set forth in this
Agreement, including without limitation, those in Articles II and V (except for
Section 2.3), shall not survive the Closing, and Purchaser shall have no remedy
or right of action in connection therewith.
(b) Purchasers shall have the remedy described below for each of the
following:
(i) any breach or default in the performance or observance by
any of the Sellers of any of the covenants or agreements which
either Seller is to perform or observe after the Closing Date
hereunder including Section 4.6 and Article V, except as
otherwise provided by paragraph (a));
(ii) any failure by any of the Sellers to pay or perform any
liabilities, obligations or responsibilities arising out of
matters not being assumed by the Purchaser under this Agreement;
or
(iii) any brokerage, finder's fee or the like, owed to RSC.
The provisions of this Section 7.1(b) shall survive the Closing Date for a
period of six (6) months, and Purchaser shall thereafter have no claims or
causes of action against Seller arising thereunder except for claims, causes of
action and related proceedings and remedies with respect to breaches of a Seller
or other matters described in reasonable detail in written notice(s) to Sellers
given by Purchaser prior to the end of the 6 month period.
Section 7.2 BY PURCHASER. Purchaser agrees to indemnify and hold harmless
each of the Sellers from and against (a) any and all liabilities, debts,
obligations, losses, damages, deficiencies, claims, actions, suits, proceedings,
demands,
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assessments, Taxes, penalties, interest or any other costs, orders and judgments
(whether discoverable or not at the Closing Date known or unknown, fixed or
contingent, accrued or unaccrued, absolute or otherwise), joint or several, to
which Sellers may become subject, arising out of (i) any breach or default in
the performance or observance by any Purchaser of any of the covenants or
agreements which it is to perform or observe hereunder; (ii) any failure by any
Purchaser to pay or perform any liability assumed by Purchaser hereunder; or
(iii) any brokerage, finder's fee or the like incurred as a result of any of
Purchaser's actions in connection with the transactions herein contemplated and
(b) any and all actual costs, fees and expenses (including, without limitation,
reasonable legal and accounting fees) related to, resulting from or arising out
of any of the foregoing.
Section 7.3 LIMITATION. Notwithstanding anything to the contrary
contained herein, neither party shall have any liability under Sections
7.1(b) or 7.2 unless the actual aggregate net loss suffered by the party
entitled to indemnity or recovery for all claims pursuant to those paragraphs
exceeds a cumulative aggregate amount of two hundred thousand dollars
($200,000), and thereupon such party shall be entitled to losses established
above that threshold; except that with respect to the Assigned Contracts and
any amounts owed to RSC, no such dollar limitation shall apply.
Section 7.4 NOTICE OF AND DEFENSE AGAINST CLAIMS. Promptly after receipt
by an indemnified party or party entitled to recovery of notice of the
commencement of any action, such party entitled to indemnity or recovery shall,
if a claim in respect thereof is to be made against the indemnifying or other
party send written notice of the commencement thereof to the indemnifying or
other party. In case any such action shall be brought against any indemnified
party or party entitled to recovery and the indemnified or other party shall
have notified the indemnifying or other party of the commencement thereof, then
the indemnifying or other party shall be entitled to participate in, and, to the
extent that the indemnifying or other party shall wish, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnifying or other
party, and after notice from the indemnifying or other party to such indemnified
or other party of its election so to assume the defense thereof, the
indemnifying or other party shall not be liable to such indemnified or other
party under such action for any legal or other expenses subsequently incurred by
the indemnified or other party after the date such notice is given to such
indemnified or other party in connection with the defense thereof. No
indemnifying or other party shall be liable for any settlement of any claim or
action pursuant to this Article VII effected without the prior written consent
of such indemnifying or other party; PROVIDED, HOWEVER, that if the indemnifying
or other party does not consent to a settlement, the indemnified or other party
may nevertheless settle, unless the indemnifying or other party
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secures the indemnified party against loss to the reasonable satisfaction of the
indemnified or other party.
ARTICLE VIII
TERMINATION
Section 8.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be
terminated at any time prior to the Closing Date by the mutual written consent
of the Purchaser, Sellers, the Banks, and all Proponents of any plan of
reorganization which is then on file on behalf of the debtors in the bankruptcy
case described in Recital C. This Agreement shall automatically terminate if the
Court Order Date has not occurred on or prior to May 25, 1994, or the Closing
has not occurred on or before June 9, 1994, unless such date is extended by
written consent of all the parties hereto, with the written consent of the
Banks. Notwithstanding the foregoing sentence, Purchaser may unilaterally
extend the dates herein if the Bankruptcy Court sets a proposed Court Order Date
after May 25, 1994 so that the Court Order Date is the one set by the Bankruptcy
Court, and the Closing must take place fourteen days thereafter by serving
written notice to Persons listed in Section 9.2 within five days after the
Bankruptcy Court sets a proposed Court Order Date which is after May 25, 1994.
Section 8.2 TERMINATION BY PURCHASER. Purchaser may terminate this
Agreement by written notice from the Purchaser to the Sellers and the Banks at
any time prior to the Court Order Date, if:
(a) a condition to the performance of Purchaser set forth herein shall not
be fulfilled on or before the date specified for the fulfillment thereof, unless
such failure is a result of acts or failures to act of Purchaser; or
(b) a material default under or a material breach of this Agreement or a
material misrepresentation or breach of any representation, warranty or covenant
of any Seller set forth in this Agreement or in any instrument delivered by any
Seller pursuant hereto shall have occurred and be continuing.
Notwithstanding the foregoing, Purchaser must comply with the notice provisions
of Section 6.3(a) for any such termination to be effective.
Section 8.3 TERMINATION BY SELLERS. Sellers may terminate this Agreement,
with the written consent of the Banks, by written notice from the Sellers to the
Purchaser at any time:
(a) prior to the Closing Date, if a condition to the performance of
Sellers set forth herein shall not be fulfilled on or before the date specified
for the fulfillment thereof, unless such failure is a result of acts or failures
to act of any Seller;
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(b) prior to the Closing Date, if a material default under or a material
breach of this Agreement or a material misrepresentation or breach of any
representation, warranty or covenant of Purchaser set forth in this Agreement or
in any instrument delivered by Purchaser pursuant hereto shall have occurred and
be continuing; or
(c) prior to the entry of the Court Order, if Sellers receive a bona fide
third party offer to acquire all or substantially all of the Assets and
Business, or all of the outstanding shares of capital stock of TNF, on terms and
conditions determined by the Sellers, after consultation in good faith with RSC
and the Banks, which meets the following conditions: (i) the proposed
transaction represents a higher and better offer (which determination shall
include reference to price and contractual terms and conditions) , (ii) the
purchase price is reasonably certain to be paid by Purchaser in cash upon
closing, and (iii) the proposed transaction is determined to be a higher or
better offer by at least one million eight hundred thousand dollars
($1,800,000).
Section 8.4 EFFECT OF TERMINATION.
(a) In the event of the termination and abandonment of this Agreement by
Purchaser or by Sellers pursuant to the provisions of this Article VIII, this
Agreement shall become void and have no effect, and each party shall pay all of
its own expenses incurred in connection herewith, without any liability on the
part of any party or its directors, officers or shareholders. Notwithstanding
the foregoing, in the event of any termination (i) the confidentiality
obligations between the parties described in Section 4.13 shall continue, (ii)
if such termination is pursuant to Section 8.3(c), Section 8.4(b) and (c) shall
continue, (iii) if the termination is because of the Court Order Date or the
Closing Date has not occurred on or before the dates set forth in Section 8.1,
or any extended dates pursuant to that Section, Section 8.4(b) shall apply to
any sale of the Assets or the stock of TNF to any purchaser and (iv) if either
party hereto willfully fails to perform its obligations hereunder the other
party shall recover its expenses incident to the negotiation, preparation and
other agreements and activities relating to this Agreement (including but not
limited to financing commitment fees, due diligence and other fees, legal and
accounting fees, and other costs and expenses incurred) from the party at fault
and shall have any other remedies provided by applicable law.
(b) In the event Sellers give notice of termination pursuant to Section
8.3 (c), TNF shall pay to Purchaser (i) an amount, up to Eight Hundred Thousand
Dollars ($800,000), to reimburse Purchaser's actual expenses (including
professional fees, lender fees, commitment fees, and other similar items) in
connection with its bid for TNF, (ii) a topping fee of Five Hundred Thousand
Dollars if the successful acquirer of TNF pays Thirty Five Million Dollars
($35,000,000) or more in gross
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proceeds (defined to include any holdback or escrow amount), and (iii) a
supplemental fee of Two Hundred Fifty Thousand Dollars ($250,000) if there is
any "bona fide" bid or offer (i.e., a bid or offer from a bidder who has
established the financial ability to close) for TNF at a price of at least
Thirty Five Million Dollars ($35,000,000) that proposes to execute the short
form agreement agreed to by the Banks (which shall be this Agreement) or an
agreement which is substantially similar in all material respects to the short
form (i.e., no holdback or escrow amount and assumption of substantially the
same liabilities as provided under the short form), and regardless of whether
such offer is the winning bid. Any payments required hereunder shall be made on
the closing of a transaction involving a sale of the stock or Assets of TNF to a
party other than Purchaser (i.e., when the Banks receive all or any substantial
portion of the proceeds of such transaction), and payments shall be made
directly from the sales proceeds without any further approvals or consents.
Such payments shall take place for a qualifying transaction even if such
transaction shall take place after June 30, 1994 and even if Purchaser's
financing commitment, as described in paragraph (f), is no longer effective
because the June 30, 1994 date has passed. In connection with the reimbursement
of expenses under subparagraph (i), Purchaser shall verify such expenses by
providing a written declaration identifying the Person to whom money is owed, a
brief description of the charge or fee, and the amount owed to the Person.
Marsden Cason will sign the declaration stating that the expenses referenced
therein are due and owing or have previously been paid.
(c) In the event Sellers give notice of termination pursuant to Section
8.3(c), and Sellers seek to sell the Assets in some form of auction or bidding
procedure, Sellers agree that (i) the first overbid shall be a higher and better
offer by at least $1,800,000, and (ii) subsequent bids shall be in increments of
at least $100,000 more than the prior bid.
(d) Purchaser may unilaterally increase the Purchase Price hereunder prior
to the completion of the second stage of due diligence by RSC (as described in
Exhibit 6.3(c) to the Plan) by sending a written notification stating the
increased Purchase Price to each Person entitled to notice under Section 9.2
and, thereafter, the Purchase Price under this Agreement shall be deemed amended
to reflect such increased Purchase Price. The termination provisions of Section
8.3(c)(iii) and minimum overbid provisions of subsection (c)(i) of this Section
shall apply to such increased Purchase Price.
(e) Purchaser may seek an increase in the amount payable under subsection
(b)(i) if the closing of the sale of TNF shall be delayed for any reason past
June 30, 1994.
(f) Purchaser hereby agrees that it will keep its financing commitment in
place during the due diligence and bidding process; provided, however that such
commitment need not be kept in place past June 30, 1994. Compliance with this
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covenant shall be a prerequisite to the application of paragraph (c)(i) to the
bidding process and to any recovery under paragraph (b).
(g) The provisions of paragraphs (b) and (c)(i) shall not be applicable to
the extent that the Associated Persons obtain an equity interest in the
Purchased Assets (or the Person who purchases such Assets) as parties to a sale
to a bidder other than Purchaser.
(h) Notwithstanding any other provision hereof, Purchaser shall receive no
payment under paragraph (b) if it shall be the purchaser of the Purchased
Assets.
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 AMENDMENT AND WAIVER. Any term of this Agreement may be
amended, modified or supplemented, and, except as otherwise provided in Section
9.14, the observance of any term of this Agreement may be waived (either
generally or in a particular instance, either retroactively or prospectively,
and either for a specified period of time or indefinitely), only by the written
consent of all the parties hereto and the Banks. Any agreement on the part of a
party to any such extension or waiver shall only be valid if set forth in an
instrument in writing signed by all parties. Any such waiver or extension shall
not operate as waiver or extension of any other or subsequent condition or
obligation.
Section 9.2 NOTICES. All notices, instructions and other communications
required or permitted to be given hereunder or necessary or convenient in
connection herewith (each a "Notice") shall be in writing and may be personally
served or may be sent by overnight courier addressed as follows:
If to Sellers: 999 Harrison Street
Berkeley, California 94710
Attention: Marsden Cason
with copies to:
Gibson, Dunn & Crutcher
One Montgomery Street, 26th Floor
San Francisco, CA 94104
Attention: Jonathan M. Landers, Esq.
or Lawrence Calof, Esq.
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If to Purchaser: TNF Holdings Company, Inc.
999 Harrison Street
Berkeley, California 94710
Attention: Marsden S. Cason
with copies to:
Philip L. Bush
Crosby, Heafey, Roach & May
Professional Corporation
1999 Harrison Street
Oakland, California 94612
And in all cases, Chemical Bank
with copies to: 270 Park Avenue
New York, New York 10017
Attention: Thomas M. Dinneen
Chemical Bank
270 Park Avenue
New York, New York 10017
Attention: Kevin C. Kelley, Esq.
Murphy, Weir & Butler
101 California Street
Suite 3900
San Francisco, California 94111
Attention: Patrick A. Murphy, Esq.
Murphy, Weir & Butler
2049 Century Park East 21st Floor
Los Angeles, California 90067
Attention: Gregory A. Bray, Esq.
or such other address as Sellers or Purchaser, or any of them, as the case may
be, shall designate in writing delivered to the other parties. Notices sent as
provided herein shall be deemed given on the next day following the date so
sent.
Section 9.3 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
Section 9.4 GOVERNING LAW; VENUE; DISPUTE RESOLUTION. The validity of
this Agreement, its construction, interpretation and enforcement, and the
rights of the parties hereto, shall be determined under, governed by,
construed and enforced in accordance with the laws of the State of California
(without regard to principles of conflicts of law) except to the extent that
any rights or remedies hereunder are governed by the mandatory laws of a
jurisdiction other than the State of California.
41
<PAGE>
(a) The Bankruptcy Court shall retain jurisdiction as to all matters
pertaining to this Agreement and the transactions contemplated hereby until
the Closing, and the Court Order shall provide for jurisdiction after the
confirmation of the plan over any disputes arising under or connected with
this Agreement. If for any reason the Bankruptcy Court declines to accept or
retain jurisdiction over any such dispute, the following mandatory
arbitration provisions shall govern any such dispute, whether arising in
contract, tort, law, equity or otherwise.
(b) If a party has a good faith claim against any other party, the
claiming party shall notify the other parties in writing, describing such
claim, the amount of claimed damages, and other relief sought in reasonable
detail. The defending party shall within 15 calendar days after receipt of
the claimant's notice, provide to the claimant a written response in
comparable detail. All parties shall for the next succeeding 20 calendar
days use good faith efforts to discuss and negotiate a mutually agreed upon
resolution of the dispute. If no resolution is reached within the foregoing
time periods, then any party may initiate fast track private arbitration in
accordance with the following provisions of this subparagraph. A party shall
provide written notice of commencement of arbitration to the defending party
which shall also specify the appointment of an individual to serve as a
private arbitrator in the arbitration proceedings. Within twenty (20) days
after receipt of the initial arbitration notice, the defending party shall
give the initiating party written notice specifying the appointment of a
second individual to serve as a private arbitrator (provided that failure to
timely deliver this notice shall constitute agreement by the defending party
that the arbitration proceedings shall be conducted and determined solely by
the individual appointed by the initiating party). If two individuals are
timely appointed, they shall, within twenty (20) days after the second
appointment appoint a third individual to serve as private arbitrator (or, if
they do not timely do so, either of them or any party may seek appointment of
the third individual pursuant to the Commercial Rules of the American
Arbitration Association from the senior officer thereof in San Francisco,
California. The third individual, but neither of the first two individuals,
selected as arbitrators must be neutral, have at least ten (10) years
experience in dispute resolution matters (including any years as a judge
and/or panel member of any arbitration or mediation association or company)
and have no affiliation with any of the parties to the arbitration. Within
ten (10) days after the arbitrators have been appointed as described above,
they shall notify the parties of a hearing to be held in San Francisco,
California, not less than five (5) nor more than fifteen (15) days after
notice of the hearing is given. The arbitrators shall have the power to
grant or limit discovery and to implement or disregard the Commercial Rules
as they may determine (but shall not have the power to vary the provisions of
this Agreement), and shall hold such number of hearings as they may determine
but shall render a decision based on the written submissions of the parties,
hearings that may have been held, and other information
42
<PAGE>
they deem appropriate, within forty-five (45) days after the notice of the
first hearing is given. A decision concurred in by a majority of the
arbitrators shall be final and binding (provided that if the decision
concerns the payment of a sum of money on which a majority cannot timely
agree, the sum which is neither the highest nor lowest specified among the
arbitrators shall be the final and binding decision on that issue). The
arbitration decision shall be nonappealable, and judgment on the award of the
arbitrators may be entered in any court having competent jurisdiction. The
arbitrators shall have discretion to award legal fees and expenses and/or the
fees and costs of the arbitrators to the prevailing party.
Section 9.5 ENTIRE AGREEMENT. This Agreement, and all other documents
(including Schedules, Exhibits and/or Appendices), and agreements executed in
connection herewith, constitute the entire understanding of the parties with
respect to purchase by Purchaser of the Assets and the Shares, and supersedes
all prior discussions, agreements and representations, whether oral or
written, and whether or not executed by Purchaser or Sellers. There are no
other understandings or agreements between the parties, and Sellers have not
made any representations or promises, unless specifically set forth in this
Agreement or in any other document delivered in connection herewith. Each
party acknowledges that it has expressly bargained for a prohibition of any
implied or oral amendments or modifications of any kind, nature or character.
Each party acknowledges and agrees that this Agreement, together with the
documents executed in connection herewith, is fully integrated and not in
need of parol evidence in order to reflect the intentions of the parties, and
that the parties intend the literal words of this Agreement and the documents
executed in connection herewith to govern the transactions described herein
and therein, and for all prior negotiations, drafts and other extraneous
communications to have no significance or evidentiary effect whatsoever.
Section 9.6 THIRD PARTY RIGHTS. The parties do not intend to confer any
benefit hereunder upon any person, firm or corporation other than the parties
hereto or their shareholders. The Sellers and Purchaser hereby acknowledge
and agree that the Banks and the Receivers are neither parties to nor
third-party beneficiaries of this Agreement except that the Banks shall have
third party beneficiary rights with respect to Section 1.2 (regarding, among
other things, purchase price), Section 1.3(b) (regarding stand-by letters of
credit), Section 1.3(c) (regarding payments to the Banks), Section 6.3 and
6.4 dealing with closing conditions, Sections 8.1, 8.2 and 8.3 dealing with
termination, and any section requiring consent of the Banks, and RSC shall be
a third-party beneficiary under Section 3.3 (regarding its exculpation).
Notwithstanding the foregoing, the parties acknowledge and agree that none of
them shall have any recourse against Agent or any of the Banks in the event
of a breach of this Agreement by any Purchaser or Seller.
43
<PAGE>
Section 9.7 TITLES AND HEADINGS. Titles and headings of sections of
this Agreement are for convenience of reference only and shall not affect the
construction of any provision of this Agreement.
Section 9.8 EXHIBITS AND SCHEDULES. Each of the exhibits and schedules
referred to herein and attached hereto is an integral part of this Agreement
and is incorporated herein by this reference.
Section 9.9 EXPENSES. Except as otherwise provided in this Agreement,
each party shall bear its own expenses in connection with the transactions
covered by this Agreement.
Section 9.10 PRONOUNS; DOLLAR AMOUNTS; ETC. All pronouns and any
variations thereof shall be deemed to refer to the masculine, feminine or
neuter, singular or plural as the context requires. Unless otherwise
specified, all Dollar amounts in this Agreement are in United States Dollars.
Section 9.11 ASSIGNMENT. This Agreement and the rights, duties and
obligations hereunder may not be assigned or delegated by any party without
the prior written consent of the other parties, and any attempted assignment
is, to the maximum extent permitted by law, void. Notwithstanding the
foregoing, Sellers may assign or delegate any of their rights and/or
obligations hereunder to the Banks, and Purchaser may assign its rights
hereunder or any interest therein to any institutional lender for security
providing credit facilities to Purchaser.
Section 9.12 SUCCESSORS AND ASSIGNS. Subject to Section 9.11, this
Agreement and the provisions hereof shall be binding upon each of the
parties, their successors and assigns.
Section 9.13 PARTIAL INVALIDITY. If any provision of this Agreement is
found to be invalid by any court, the invalidity of such provision shall not
affect the validity of the remaining provisions hereof.
Section 9.14 WAIVER OF CONDITIONS. Any condition to the obligations of
the parties hereto may be waived by a writing duly executed by the individual
party or parties, or if a corporate party, by an officer of such party or
parties, whose performance is subject to the satisfaction of such condition,
except that no such waiver by any Seller shall be valid unless the Banks
shall have given their written consent thereto.
Section 9.15 NO PRESUMPTION. This Agreement has been negotiated
extensively between the parties, and the parties hereby agree that there
shall be no presumption against either Sellers or Purchaser as the result of
the identity of the party drafting all, or a relevant portion, of this
Agreement.
44
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first written above. *
SELLERS
Odyssey HOLDING
debtor in possession
/s/ Marsden Cason
---------------------------------------
By: Marsden Cason
Its: President
THE NORTH FACE
/s/ Marsden Cason
---------------------------------------
By: Marsden Cason
Its: President
PURCHASER
TNF HOLDINGS COMPANY, INC., a
Delaware corporation
/s/ Marsden Cason
---------------------------------------
By:
Its:
Executed solely to confirm the representations and warranties of the
Associated Persons in Article III hereof:
/s/ Marsden Cason
---------------------------------------
Marsden Cason
/s/ William McFarlane
---------------------------------------
William McFarlane
<PAGE>
DEFINITION REFERENCE PAGE
TERM DEFINED
Affiliate 1.3(c)(iii)
Agent 1.3(a)
Agreement Recital
Allocation Statement 1.3(f)(i)
Assets 1.1(a)
Assigned Contracts 1.1(a)(ix)
Associated Person Article II
Assumed Liabilities 1.3(c)(Viii)
Bankruptcy Court Recital
Banks 1.3(a)
Bulk Sale 1.3(c)(iii)
Business Recital
Closing 1.1(c)
Closing Date 1.1(c)
CML Agreement 1.1(a)(ix)
Court Order Date 4.18(d)
Court Order 4.18(a)
Employee Benefit Plan 2.12(a)
Employee Plans 2.12(a)
Excluded Assets 1.1(a)
Excluded Liabilities 1.3(d)
Hazardous Substance 2.11(a)
HSR Act 1.1(c)
L/C Agreement 1.3(a)
Liens 2.4(b)
NF Scotland Recital
NFS Settlement Agreement 1.1(a)(ix)
Notice 9.2
Odyssey Group 1.3(a)
Odyssey Hong Kong 6.3(c)(viii)
OHI Recital
Permits 2.9
Permitted Liens 2.4(b)
Person 1.3(c)(iii)
Post-Closing Tax Period 5.1
Pre-Closing Tax Period 5.1
Purchase Price 1.2
Purchaser Recital
Release 2.11(a)
RSC 2.3
SD 1.1(d)
Sellers Recital
Shares 1.1(a)(xvi)
Tax 5.1
Taxes 5.4
The North Face 4.14
<PAGE>
TNF Recital
Transfer and Related Documents 6.1(a)
Transferred Employees 4.7
WARN 4.7
<PAGE>
[EXECUTION COPY]
- --------------------------------------------------------------------------------
SUBORDINATED NOTE
AND COMMON STOCK PURCHASE AGREEMENT
between
TNF HOLDINGS COMPANY, INC.
and
WHITNEY SUBORDINATED DEBT FUND, L.P.
Dated as of June 7, 1994
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
(Not part of the Agreement)
Page
-----
ARTICLE 1 -- DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Accounting Terms; Financial Statements. . . . . . . . . 13
1.3 Other Definitional Provisions . . . . . . . . . . . . . 14
ARTICLE 2 -- PURCHASE AND SALE OF THE NOTE AND COMMON STOCK. . . . . . . . 14
2.1 Purchase and Sale of Note . . . . . . . . . . . . . . . 14
2.2 Purchase and Sale of Common Stock . . . . . . . . . . . 14
2.3 Fees and Expenses . . . . . . . . . . . . . . . . . . . 14
2.4 Closing . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 3 -- CONDITIONS TO THE
OBLIGATION OF THE PURCHASER TO CLOSE . . . . . . . . . . . . 15
3.1 Representations and Warranties . . . . . . . . . . . . 15
3.2 Compliance with this Agreement. . . . . . . . . . . . . 15
3.3 Officers Certificate. . . . . . . . . . . . . . . . . . 16
3.4 Secretary's Certificate . . . . . . . . . . . . . . . . 16
3.5 Documents . . . . . . . . . . . . . . . . . . . . . . . 16
3.6 Financial Matters . . . . . . . . . . . . . . . . . . . 16
(a) Budgets; Financial Statements . . . . . . . . 16
(b) Payment at Closing. . . . . . . . . . . . . . 17
3.7 Purchase Permitted by Applicable Laws . . . . . . . . . 17
3.8 Approval of Counsel to the Purchaser. . . . . . . . . . 17
3.9 Consents and Approvals. . . . . . . . . . . . . . . . . 17
3.10 No Material Adverse Change. . . . . . . . . . . . . . . 17
3.11 Opinions of Counsel . . . . . . . . . . . . . . . . . . 18
3.12 No Material Judgment or Order . . . . . . . . . . . . . 18
3.13 Restated Certificate of Incorporation
and By-laws. . . . . . . . . . . . . . . . . . . . 18
3.14 Other Transaction Documents. . . . . . . . . . . . . . 18
3.15 Disbursement Instructions. . . . . . . . . . . . . . . 18
3.16 Other Transactions . . . . . . . . . . . . . . . . . . 19
3.17 Confirmation Order . . . . . . . . . . . . . . . . . . 19
3.18 Bankruptcy Plan. . . . . . . . . . . . . . . . . . . . 19
ARTICLE 4 -- CONDITIONS TO THE
OBLIGATION OF THE COMPANY TO CLOSE . . . . . . . . . . . . . 20
4.1 Representations and Warranties True . . . . . . . . . . 20
4.2 Compliance with this Agreement. . . . . . . . . . . . . 20
4.3 Issuance Permitted by Applicable Laws . . . . . . . . . 20
4.4 Approval of Counsel to the Company. . . . . . . . . . . 20
4.5 Consents and Approvals. . . . . . . . . . . . . . . . . 20
4.6 No Material Judgment or Order . . . . . . . . . . . . . 21
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4.7 Other Transaction Documents. . . . . . . . . . . . . . . 21
ARTICLE 5 -- REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . 21
5.1 Corporate Existence and Power . . . . . . . . . . . . . 21
5.2 Corporate Authorization;
Non-Contravention. . . . . . . . . . . . . . . . . 21
5.3 Governmental Authorization; Third
Party Consents . . . . . . . . . . . . . . . . . . 22
5.4 Binding Effect. . . . . . . . . . . . . . . . . . . . . 22
5.5 No Legal Bar. . . . . . . . . . . . . . . . . . . . . . 22
5.6 Litigation. . . . . . . . . . . . . . . . . . . . . . . 22
5.7 No Default or Breach. . . . . . . . . . . . . . . . . . 23
5.8 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.9 Disclosure. . . . . . . . . . . . . . . . . . . . . . . 23
(a) Agreement and Other Documents . . . . . . . . 23
(b) Material Adverse Effect . . . . . . . . . . . 23
5.10 Investment Company/Government
Regulations. . . . . . . . . . . . . . . . . . . . 24
5.11 Capitalization . . . . . . . . . . . . . . . . . . . . 24
5.12 Private Offering . . . . . . . . . . . . . . . . . . . 25
5.13 Broker's, Finder's or Similar Fees . . . . . . . . . . 25
5.14 Transaction Documents. . . . . . . . . . . . . . . . . 25
5.15 Certain Representations Made
in the Senior Loan Agreement . . . . . . . . . . . 26
ARTICLE 6 -- REPRESENTATIONS AND WARRANTIES OF THE PURCHASER . . . . . . . 26
6.1 Authorization; No Contravention . . . . . . . . . . . . 26
6.2 Binding Effect. . . . . . . . . . . . . . . . . . . . . 27
6.3 No Legal Bar. . . . . . . . . . . . . . . . . . . . . . 27
6.4 Purchase for Own Account. . . . . . . . . . . . . . . . 27
6.5 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.6 Broker's, Finder's or Similar Fees. . . . . . . . . . . 28
6.7 Governmental Authorization;
Third Party Consent. . . . . . . . . . . . . . . . 28
ARTICLE 7 -- INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . 28
7.1 Indemnification. . . . . . . . . . . . . . . . . . . . . 28
7.2 Notification . . . . . . . . . . . . . . . . . . . . . . 29
7.3 Registration Rights Agreement. . . . . . . . . . . . . . 30
ARTICLE 8 -- AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . 31
8.1 Financial Statements
and Other Information. . . . . . . . . . . . . . . 31
(a) Monthly Financials. . . . . . . . . . . . . . 31
(b) Quarterly Financials. . . . . . . . . . . . . 31
(c) Year-end Financials . . . . . . . . . . . . . 32
(d) Compliance Certificate. . . . . . . . . . . . 32
(e) Accountants' Reports. . . . . . . . . . . . . 33
ii
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(f) Management Report . . . . . . . . . . . . . . 33
(g) Budgets . . . . . . . . . . . . . . . . . . . 33
(h) Events of Defaults, etc. . . . . . . . . . . 34
(i) Litigation. . . . . . . . . . . . . . . . . . 34
8.2 Access to Accountants . . . . . . . . . . . . . . . . . 34
8.3 Inspection. . . . . . . . . . . . . . . . . . . . . . . 34
8.4 Corporate Existence . . . . . . . . . . . . . . . . . . 35
8.5 Payment of Taxes. . . . . . . . . . . . . . . . . . . . 35
8.6 Maintenance of Properties; Insurance. . . . . . . . . . 35
8.7 Compliance with Laws. . . . . . . . . . . . . . . . . . 35
8.8 Payment of Notes. . . . . . . . . . . . . . . . . . . . 36
8.9 Books and Records . . . . . . . . . . . . . . . . . . . 36
8.10 Use of Proceeds . . . . . . . . . . . . . . . . . . . . 36
8.11 Post-Closing Audit. . . . . . . . . . . . . . . . . . . 36
ARTICLE 9 -- NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . 36
9.1 Indebtedness and Liabilities. . . . . . . . . . . . . . 36
9.2 Guaranties. . . . . . . . . . . . . . . . . . . . . . . 37
9.3 Transfers, Liens and Related Matters. . . . . . . . . . 38
9.4 Investments and Loans . . . . . . . . . . . . . . . . . 39
9.5 Restriction on Fundamental Changes. . . . . . . . . . . 39
9.6 Transactions with Affiliates. . . . . . . . . . . . . . 40
9.7 Environmental Liabilities . . . . . . . . . . . . . . . 40
9.8 Conduct of Business . . . . . . . . . . . . . . . . . . 40
9.9 Compliance with ERISA . . . . . . . . . . . . . . . . . 40
9.10 Tax Consolidations. . . . . . . . . . . . . . . . . . . 41
9.11 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . 41
9.12 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . 41
9.13 Press Release; Public Offering Materials. . . . . . . . 41
9.14 Restriction on Certain Amendments . . . . . . . . . . . 41
9.15 No Inconsistent Agreements. . . . . . . . . . . . . . . 42
9.16 Financial Covenants . . . . . . . . . . . . . . . . . . 42
(a) Minimum EBITDA. . . . . . . . . . . . . . . . 42
(b) Fixed Charge Coverage . . . . . . . . . . . . 42
(c) Total Interest Coverage . . . . . . . . . . . 43
(d) Leverage Ratio. . . . . . . . . . . . . . . . 43
ARTICLE 10 -- PREPAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE 11-- MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 43
11.1 Survival of Representations
and Warranties . . . . . . . . . . . . . . . . . . 43
11.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . 43
11.3 Successors and Assigns . . . . . . . . . . . . . . . . 44
11.4 Amendment and Waiver . . . . . . . . . . . . . . . . . 45
11.5 Determinations . . . . . . . . . . . . . . . . . . . . 45
11.6 Counterparts . . . . . . . . . . . . . . . . . . . . . 46
11.7 Headings . . . . . . . . . . . . . . . . . . . . . . . 46
iii
<PAGE>
11.8 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . 46
11.9 CONSENT TO JURISDICTION. . . . . . . . . . . . . . . . 46
11.10 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . 46
11.11 Severability . . . . . . . . . . . . . . . . . . . . . 47
11.12 Rule of Construction . . . . . . . . . . . . . . . . . 47
11.13 Entire Agreement . . . . . . . . . . . . . . . . . . . 47
11.14 Certain Expenses . . . . . . . . . . . . . . . . . . . 47
11.15 Publicity. . . . . . . . . . . . . . . . . . . . . . . 47
11.16 Further Assurances . . . . . . . . . . . . . . . . . . 48
Schedule 1
Schedule 2
Schedule 5.3 -- Authorizations and Consents
Schedule 5.6 -- Litigation
Schedule 9.1(c) -- Existing Indebtedness
Schedule 9.3(a)(ii) -- Trademarks to be Sold
Schedule 9.3(a)(iv) -- Liens to be Terminated
Exhibit A -- Form of Subordinated Note
Exhibit B -- Form of Restated Certificate of Incorporation
Exhibit C -- Form of Securityholders Agreement
Exhibit D -- Form of Confirmation Order
iv
<PAGE>
SUBORDINATED NOTE
AND COMMON STOCK PURCHASE AGREEMENT
AGREEMENT, dated as of June 7, 1994, between TNF HOLDINGS
COMPANY, INC., a Delaware corporation ("TNF" or the "Company"), and WHITNEY
SUBORDINATED DEBT FUND, L.P., a Delaware limited partnership ("Whitney Debt
Fund" or the "Purchaser").
WHEREAS, TNF has entered into a Purchase and Sale Agreement dated
as of May 25, 1994 (as amended to date, the "Asset Purchase Agreement") with
Odyssey Holding Inc., a Delaware corporation ("Odyssey Holdings"), and The North
Face, a California corporation ("Old TNF" and, together with Odyssey Holdings,
the "Sellers"), relating to the acquisition (the "Acquisition") by TNF of
certain assets and the assumption of certain liabilities of Old TNF;
WHEREAS, in order to consummate the Acquisition, TNF has entered
into a Loan and Security Agreement, dated as of the date hereof (the "Senior
Loan Agreement"), with Heller Financial, Inc. ("Heller") to provide for a
secured $1,500,000 term loan and a secured $26,500,000 revolving credit
facility, which may include a secured seasonal overadvance facility and which
includes secured letters of credit and guaranties not to exceed $10,000,000 at
any time outstanding;
WHEREAS, it is contemplated that, concurrently with the closing
of the Acquisition, TNF proposes to issue and sell to the Purchaser a
Subordinated Promissory Note due June 7, 2001 in the aggregate principal amount
of $24,333,333 (the "Note"), and 319,688 shares of Common Stock, par value $.01
per share (the "Common Shares"), of TNF, in each case pursuant to the terms and
subject to the conditions of this Agreement;
WHEREAS it is contemplated that concurrently with the closing of
the Acquisition, pursuant to a Preferred Stock Purchase Agreement, dated as of
the date hereof (the "Preferred Stock Purchase Agreement"), among TNF, Whitney
1990 Equity Fund, L.P. ("Whitney Equity Fund") and J.H. Whitney & Co.
("Whitney"), TNF will issue and sell to Whitney Equity Fund and Whitney shares
of Series A Convertible Preferred Stock, par value $1.00 per share, of TNF for
an aggregate cash purchase price of $12,166,667 (the "Preferred Stock Sale");
and
<PAGE>
WHEREAS, it is contemplated that, concurrently with the closing
of the Acquisition, TNF will issue and sell shares of its Common Stock pursuant
to the Goldwin Purchase Agreement, the Management Purchase Agreement and the
Investor Purchase Agreement (each, as hereinafter defined);
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for good and valuable consideration, the receipt
and adequacy of which is hereby acknowledged, the parties hereto agree as
follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. As used in this Agreement, and unless the
context requires a different meaning, the following terms have the meanings
indicated:
"ACQUISITION" has the meaning assigned to such term in the first
Whereas clause.
"AFFILIATE" means any Person: (a) directly or indirectly
controlling, controlled by, or under common control with, the Company; (b)
directly or indirectly owning or holding five percent (5%) or more of any equity
interest in the Company; or (c) five percent (5%) or more of whose voting stock
or other equity interest is directly or indirectly owned or held by the Company.
For purposes of this definition, "control" (including with correlative meanings,
the terms "controlling", "controlled by" and "under common control with") means
the possession directly or indirectly of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities or by contract or otherwise provided, however,
that "Affiliate" shall not include the Purchaser or any of its Affiliates, other
than the Company and its Subsidiaries.
"AGREEMENT" means this Agreement as the same may be amended,
supplemented or modified in accordance with the terms hereof.
"ASSET DISPOSITION" means the disposition, whether by sale,
lease, transfer, loss, damage, destruction, condemnation or otherwise, of any of
the following: (i) any of the capital stock of any of the Company's Subsidiaries
or
2
<PAGE>
(ii) any or all of the assets of the Company or any of its
Subsidiaries other than sales of Inventory in the ordinary course of business.
"ASSET PURCHASE AGREEMENT" has the meaning assigned to such term
in the first Whereas clause.
"BANKRUPTCY PLAN" means the Second Amended Joint Plan of
Reorganization dated as of April 8, 1994 as filed by the Odyssey Bankruptcy
Debtors in April 1994, with the amendments thereto set forth in the Confirmation
Order, and without giving effect to any subsequent changes thereto that were not
approved in writing by the Purchaser in its sole discretion, which approval
shall not be unreasonably withheld or delayed with respect to changes that the
Purchaser determines would not have a Material Adverse Effect.
"BUDGET" means the annual budget for the Company and its
Subsidiaries prepared by the management of the Company for the Board of
Directors, including consolidated and consolidating: (a) balance sheets; (b)
statements of income; (c) cash flow statements; and (d) statements of
stockholder's equity, all prepared on a division by division and Subsidiary by
Subsidiary basis and otherwise consistent with Old TNF's historical financial
statements, together with appropriate supporting details and a statement of
underlying assumptions.
"BUSINESS DAY" means any day other than a Saturday, Sunday or
other day on which commercial banks in the City of New York are authorized or
required by law or executive order to close.
"CAPITAL EXPENDITURES" means all expenditures for (including
deposits), or contracts for expenditures (including only the principal portion
of payments made under or with respect to Capital Leases) with respect to, any
fixed assets or improvements, or for replacements, substitutions or additions
thereto, which have a useful life of more than one year, including the direct or
indirect acquisition of such assets by way of increased product or service
charges, offset items or otherwise.
"CAPITAL LEASE" shall mean any lease of any property (whether
real, personal or mixed) that, in conformity with GAAP, should be accounted for
as a capital lease.
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"CASH EQUIVALENTS" means: (a) marketable direct obligations
issued or unconditionally guaranteed by the United States Government or issued
by any agency thereof and backed by the full faith and credit of the United
States, in each case maturing within six (6) months from the date of acquisition
thereof; (b) commercial paper maturing no more than six (6) months from the date
issued and, at the time of acquisition, having a rating of at least A-1 from
Standard & Poor's Corporation or at least P-1 from Moody's Investors Service,
Inc.; and (c) certificates of deposit or bankers' acceptances maturing within
six (6) months from the date of issuance thereof issued by, or overnight reverse
repurchase agreements from, any commercial bank organized under the laws of the
United States of America or any state thereof or the District of Columbia having
combined capital and surplus of not less than $250,000,000 and not subject to
setoff rights in favor of such bank.
"CLOSING" has the meaning assigned to that term in Section 2.4.
"CLOSING DATE" means the date specified in Section 2.4.
"CODE" means the Internal Revenue Code of 1986, as amended, or
any successor statute thereto.
"COMMISSION" means the Securities and Exchange Commission or any
similar agency then having jurisdiction to enforce the Securities Act.
"COMMON SHARES" has the meaning assigned to such term in the
third Whereas clause.
"COMMON STOCK" means the Common Stock, par value $.01 per share,
of the Company, or any other capital stock of TNF into which such stock is
reclassified or reconstituted.
"COMPANY" has the meaning assigned to such term in the preamble.
"CONDITION OF THE COMPANY" means the assets, business,
properties, operations or financial condition of the Company and its
Subsidiaries, taken as a whole.
"CONFIRMATION ORDER" means an order of the Bankruptcy Court for
the Northern District of California
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which is duly entered in that certain Chapter 11 case, Case No. 93-40358-N
(jointly administered) of the Odyssey Bankruptcy Debtors, in the form
attached hereto as Exhibit D.
"CONFIRMATION ORDER DATE" means the first date upon which the
Bankruptcy Court commences a hearing seeking the entry of the Confirmation
Order.
"CONTEMPLATED RESTRICTIONS" has the meaning assigned to such term
in Section 9.15.
"CONTINGENT OBLIGATION" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person: (a) with
respect to any indebtedness, lease, dividend or other obligation of another
Person if the primary purpose or intent of the Person incurring such liability,
or the primary effect thereof, is to provide assurance to the obligee of such
liability that such liability will be paid or discharged, or that any agreements
relating thereto will be complied with, or that the holders of such liability
will be protected (in whole or in part) against or with respect thereto; (b)
with respect to any letter of credit issued for the account of that Person or as
to which that Person is otherwise liable for reimbursement of drawings; or (c)
under any foreign exchange contract, currency swap agreement, interest rate
agreement or other similar agreement or arrangement designed to protect that
Person against fluctuations in currency values or interest rates. Contingent
Obligations shall include without limitation (i) the direct or indirect
guaranty, endorsement (otherwise than for collection or deposit in the ordinary
course of business), co-making, discounting with recourse or sale with recourse
by such Person of the obligation of another Person, (ii) the obligation to make
take-or-pay or similar payments if required regardless of nonperformance by any
other party or parties to an agreement, and (iii) any liability of such Person
for the obligations of another Person through any agreement to purchase,
repurchase or otherwise acquire such obligation or any property constituting
security therefor, to provide funds for the payment or discharge of such
obligation or to maintain the solvency, financial condition or any balance sheet
item or level of income of another Person. The amount of any Contingent
Obligation shall be equal to the amount of the obligation so guaranteed or
otherwise supported or, if not a fixed and determined amount, the maximum amount
so guaranteed.
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"CONTRACTUAL OBLIGATION" means, as applied to any Person, any
provision of any security issued by that Person or of any indenture,
mortgage, deed of trust, contract, undertaking, agreement or other instrument
to which such Person is a party or by which it or any of its properties is
subject, including the Acquisition Documents (as defined in the Senior Loan
Agreement).
"DOMESTIC SUBSIDIARY" means any Subsidiary of the Company or any
of its Subsidiaries organized in the United States or having any business
operations in the United States.
"EBITDA" means, for any period, without duplication, the total of
the following for the Company and its Domestic Subsidiaries on a consolidated
basis, each calculated for such period: (1) net income determined in accordance
with GAAP plus, to the extent included in the calculation of net income, (2) the
sum of (a) taxes paid or accrued; (b) Interest Expenses, net of interest income,
paid or accrued; (c) depreciation and amortization; and (d) other non-cash
charges (excluding accruals for cash expenses made in the ordinary course of
business), less (or plus, in the case of non-cash losses), to the extent
included in the calculation of net income, and (3) the sum of (e) the income of
any Person (other than wholly-owned Domestic Subsidiaries of the Company in
which the Company or any of its wholly-owned Domestic Subsidiaries has an
ownership-interest unless such income is received by the Company or such
wholly-owned Domestic Subsidiary in a cash distribution; (f) gains or losses
from sales or other dispositions of assets (other than Inventory in the normal
course of business); and (g) extraordinary or non-recurring gains or non-cash
losses but not net of extraordinary or non-recurring "cash" losses.
"EMPLOYEE BENEFIT PLAN" means any employee benefit plan within
the meaning of Section 3(3) of ERISA which (a) is maintained for employees of
any Loan Party or any ERISA Affiliate or (b) has at any time within the
preceding six (6) years been maintained for the employees of the Company or any
of its Subsidiaries or any Seller or any current or former ERISA Affiliate.
"ENVIRONMENTAL LAWS" means any present or future federal, state
or local law, rule, regulation or order relating to pollution, waste disposal,
industrial hygiene, land use or the protection of human health or safety, plant
life or animal life, natural resources or the environment.
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"ERISA AFFILIATE", as applied to any of the Company and its
Subsidiaries or any Seller, means any Person who is a member of a group which is
under common control with such Person, who together with such Person is treated
as a single employer within the meaning of Section 414(b) and (c) of the Code.
"EVENT OF DEFAULT" has the meaning assigned to such term in the
Note.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder.
"FISCAL YEAR" means a twelve month period ending on the last day
of March of each year.
"FIXED CHARGE COVERAGE" means, for any period, operating Cash
Flow divided by Fixed Charges.
"FIXED CHARGES" means, for any period, without duplication, for
the Company and its Domestic Subsidiaries on a consolidated basis, and each
calculated for such period, (a) Interest Expenses; plus (b) scheduled
payments of principal with respect to all Indebtedness; plus (c) any
provision for (to the extent it is greater than zero) income or franchise
taxes included in the determination of net income, excluding any provision
for deferred taxes included in net income less (d) payment of deferred taxes
accrued in any prior period.
"GAAP" means generally accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board that are applicable
to the circumstances as of the date of determination.
"GOLDWIN PURCHASE AGREEMENT" means that certain Stock Purchase
Agreement dated as of December 28, 1993 between the Company and Kabushiki Kaisha
Goldwin, as amended prior to the date hereof, and as it may be further amended
with the prior written approval of the Purchaser.
"GOVERNMENTAL AUTHORITY" means the government of any nation,
state, city, locality or other political subdivision of any thereof, any entity
exercising executive,
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legislative, judicial, regulatory or administrative functions of
or pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
"HAZARDOUS MATERIAL" means all or any of the following: (a)
substances that are defined or listed in, or otherwise classified pursuant
to, any applicable laws or regulations as "hazardous substances", "hazardous
materials", "hazardous wastes", "toxic substances" or any other formulation
intended to define, list or classify substances by reason of deleterious
properties such as ignitability, corrosivity, reactivity, carcinogenicity,
reproductive toxicity or "EP toxicity"; (b) oil, petroleum or petroleum
derived substances, natural gas, natural gas liquids or synthetic gas and
drilling fluids, produced waters and other wastes associated with the
exploration, development or production of crude oil, natural gas or
geothermal resources; (c) any flammable substances or explosives or any
radioactive materials; and (d) asbestos in any form or electrical equipment
which contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of fifty parts per million.
"HOLDER" means a holder of any of the Notes.
"INDEBTEDNESS" means as applied to any Person (a) all
indebtedness for borrowed money; (b) that portion of obligations with respect to
Capital Leases that is properly classified as a liability on a balance sheet in
conformity with GAAP; (c) notes payable and drafts accepted representing
extensions of credit whether or not representing obligations for borrowed money,
including reimbursement obligations in respect of letters of credit; (d) any
obligation owed for all or any part of the deferred purchase price of property
or services if the purchase price is due more than six months from the date the
obligation is incurred or is evidenced by a note or similar written instrument
(but excluding operating leases); and (e) all indebtedness secured by any Lien
on any property or asset owned or held by that Person regardless of whether the
indebtedness secured thereby shall have been assumed by that Person or is
nonrecourse to the credit of that Person (but only as to indebtedness which is
non-recourse to the credit of such Person, not in excess of the value of the
asset so secured). Obligations under interest rate agreements constitute
Contingent Obligations and not Indebtedness.
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"INTEREST EXPENSES" means, without duplication, for any period,
the sum of the following for the Company and its Domestic Subsidiaries, each
calculated for such period: interest expenses deducted in the determination of
net income (excluding (i) the amortization of fees and costs with respect to the
transactions contemplated hereunder on the Closing Date which have been
capitalized as transaction costs and (ii) interest paid in kind.
"INVENTORY" means, with respect to the applicable Person, all
"inventory" (as defined in the UCC) now owned or hereafter acquired by such
Person, wherever located including finished goods, raw materials, work in
progress and other materials and supplies used or consumed in its business and
goods which are returned to or repossessed by such Person.
"INVESTOR PURCHASE AGREEMENT" means the Investor Stock Purchase
Agreement, dated as of the date hereof, between TNF and the parties named in
Schedule A thereto.
"LEVERAGE RATIO" means as of any date of determination, the
ratio of (a) the sum of all long term Indebtedness of the Company and its
Domestic Subsidiaries (including the current portion thereof but excluding any
Revolving Loan as such term is defined in the Senior Loan Agreement) outstanding
plus the average daily balance of the Revolving Loan during the applicable
period to (b) EBITDA for such period.
"LIEN" means any lien, mortgage, pledge, security interest,
charge or encumbrance of any kind, whether voluntary or involuntary (including
any conditional sale or other title retention agreement, any lease in the nature
thereof, and any agreement to give any security interest)
"LOAN DOCUMENTS" has the meaning assigned to such term in the
Senior Loan Agreement.
"LOAN DOCUMENTS" has the meaning assigned to such term in
the Senior Loan Agreement.
"MANAGEMENT OPTIONS" means options issued, on the Closing Date
and from time to time thereafter, pursuant to the TNF 1994 Stock Incentive Plan.
"MANAGEMENT PURCHASE AGREEMENT" means the Stock Purchase and
Non-Competition Agreement, dated as of the date
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hereof, between TNF and Marsden S. Cason and William A.
McFarlane.
"MANAGEMENT RESTRICTED SHARES" means shares of restricted stock,
issued on the Closing Date and from time to time thereafter, pursuant to the
TNF 1994 Stock Incentive Plan.
"MATERIAL ADVERSE EFFECT" means (a) a material adverse effect
upon the business, operations, properties, assets or condition (financial or
otherwise) of the Company on an individual basis or on the Company and its
Subsidiaries, taken as a whole or (b) the impairment in any material respect of
the ability of the Company or any of its Subsidiaries to perform its obligations
under this Agreement or the Note or of the Purchaser to enforce or collect any
of such obligations or (c) prior to consummation of the Acquisition, a material
adverse effect upon the business, operations, properties, assets or condition
(financial or otherwise) of Old TNF on an individual basis or on Old TNF and TNF
Scotland, taken as a whole.
"NOTE" has the meaning assigned to that term in the third Whereas
clause.
"OBLIGATIONS" has the meaning assigned to that term in the Senior
Loan Agreement.
"ODYSSEY BANKRUPTCY DEBTORS" means Odyssey International Inc.,
Odyssey Holding Inc., Odyssey International Pte. Ltd. and Odyssey Worldwide
Holdings B.V.
"OPERATING CASH FLOW" means, for any period, (a) EBITDA; less (b)
Capital Expenditures.
"PBGC" means the Pension Benefit Guaranty Corporation or any
successor thereto.
"PERMITTED ENCUMBRANCES" means the following types of Liens: (a)
Liens (other than Liens relating to Environmental Laws or ERISA) for taxes,
assessments or other governmental charges not yet due and payable; (b) statutory
Liens of landlords, carriers, warehousemen, mechanics, materialmen and other
similar liens imposed by law, which are incurred in the ordinary course of
business for sums not more than thirty (30) days delinquent or which are being
contested in good faith (provided that a reserve shall have been made therefor);
(c) Liens (other than any Lien imposed
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by ERISA) incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other types of
social security, statutory obligations, surety and appeal bonds, bids, leases,
utilities, government contracts, trade contracts, licenses of computer software
or hardware, performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money); (d) easements,
rights-of-way, restrictions, and other similar charges or encumbrances not
interfering in any material respect with the ordinary conduct of the business of
any the Company or any of its Subsidiaries; (e) Liens for purchase money
obligations or Capital Leases, provided that (i) the purchase of the asset
subject to any such Lien is permitted under subsection 6.3 of the Senior Loan
Agreement, (ii) the Indebtedness secured by any such Lien is permitted under
subsection 9.1, and (iii) any such Lien encumbers only the asset so purchased;
(f) Liens to secure the Obligations; (g) judgment Liens which do not create an
Event of Default; (h) Liens set forth on Schedule 1.1(B) of the Senior Loan
Agreement; and (i) Liens to secure Indebtedness incurred to refinance the
Obligations, provided that such Indebtedness is permitted under subsection 9.1.
"PERSON" means any individual, firm, corporation, partnership,
trust, limited liability company, incorporated or unincorporated association,
joint venture, joint stock company, Governmental Authority or other entity of
any kind, and shall include any successor (by merger or otherwise) of such
entity.
"PREFERRED STOCK PURCHASE AGREEMENT" has the meaning assigned to
such term in the fourth Whereas clause,
"PREFERRED STOCK SALE" has the meaning assigned to such term in
the fourth Whereas clause.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of the date hereof, among TNF, Purchaser, Whitney and
Whitney Equity Fund relating to the registration of offerings of the Common
Stock.
"REQUIREMENTS OF LAW" means, as to any Person, the Certificate
of Incorporation and By-laws or other organizational or governing documents
of such Person, and any law, treaty, rule, regulation, right, privilege,
qualification, license or franchise or determination of an arbitrator or a
court or other Governmental Authority, in each case
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applicable or binding upon such Person or any of its property or to which such
person or any of its property is subject or pertaining to any or all of the
transactions contemplated or referred to herein.
"RESTATED CERTIFICATE OF INCORPORATION" means the Restated
Certificate of Incorporation of the Company, substantially in the form annexed
hereto as Exhibit B to be filed on the Closing Date.
"RESTRICTED PAYMENT" means (a) any dividend or other
distribution, direct or indirect, on account of any shares of any class of stock
of the Company or any of its Subsidiaries now or hereafter outstanding, except a
dividend payable solely in shares of that class of stock to the holders of that
class; and (b) any redemption, conversion, exchange, retirement, sinking fund or
similar payment, purchase or other acquisition for value, direct or indirect, of
any shares of any class of stock of the Company or any of its Subsidiaries now
or hereafter outstanding.
"SECURITIES" means collectively, the Note and the Common Shares.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission thereunder.
"SECURITYHOLDERS AGREEMENT" means the Securityholders Agreement,
substantially in the form attached hereto as Exhibit C, among the holders of the
equity securities of TNF named therein.
"SELLERS" has the meaning assigned to such term in the first
Whereas clause.
"SENIOR DEBT" has the meaning assigned to such term in the Note.
"SENIOR LOAN AGREEMENT" has the meaning assigned to such term in
the second Whereas clause, as the same may be modified, amended or supplemented
from time to time in accordance with the terms thereof and hereof.
"SERIES A PREFERRED STOCK" means the Series A Convertible
Preferred Stock, par value $1.00 per share, of the Company to be issued pursuant
to the Preferred Stock Purchase Agreement, or any other capital stock of the
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Company into which such stock is reclassified or reconstituted.
"SUBORDINATED DEBT" has the meaning assigned to that term in the
Senior Loan Agreement
"SUBSIDIARY" means, with respect to any Person, a corporation or
other entity of which 50% or more of the voting power or the voting equity
securities or equity interest is owned, directly or indirectly, by such Person.
Unless otherwise qualified, all references to a "Subsidiary" or to
"Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of
the Company.
"TNF SCOTLAND" means The North Face (Scotland) Limited, a private
limited company incorporated in Scotland under the Companies Act,
"TOTAL INTEREST COVERAGE" means, for any period, operating Cash
Flow divided by Interest Expenses.
"TRANSACTION DOCUMENTS" means collectively, this Agreement, the
Note, the Asset Purchase Agreement, the Senior Loan Agreement and the other Loan
Documents, the Securityholders Agreement, the Registration Rights Agreement, the
Preferred Stock Purchase Agreement, the Goldwin Purchase Agreement, the
Management Purchase Agreement, the TNF 1994 Stock Incentive Plan and any option
agreements and restricted stock agreements dated as of the Closing Date, and the
Restated Certificate of Incorporation.
1.2 Accounting Terms; Financial Statements. All accounting
terms used herein not expressly defined in this Agreement shall have the
respective meanings given to them in accordance with sound accounting
practice. The term "sound accounting practice" shall mean such accounting
practice as, in the opinion of the independent certified public accountants
regularly retained by the Company, conforms at the time to GAAP applied on a
consistent basis except for changes with which such accountants concur. If
any changes in accounting principles are hereafter occasioned by promulgation
of rules, regulations, pronouncements or opinions of or are otherwise
required by, the Financial Accounting Standards Board or the American
Institute of Certified Public Accountants (or successors thereto or agencies
with similar functions), and any of such changes results in a change in the
method of calculation of, or affects the results of such calculation of, any
of the financial covenants,
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standards or terms found herein, then the parties hereto agree to enter
into and diligently pursue negotiations in order to amend such financial
covenants, standards or terms so as to reflect fairly and equitably such
changes, with the desired result that the criteria for evaluating the Company's
financial condition and results of operations shall be the same after such
changes as if such changes had not been made.
1.3 Other Definitional Provisions. References to "Sections",
"Whereas clauses", "Exhibits" and "Schedules" shall be to Sections, Whereas
clauses, Exhibits and Schedules, respectively, of this Agreement unless
otherwise specifically provided. Any of the terms defined in subsection 1.1
may, unless the context otherwise requires, be used in the singular or the
plural depending on the reference. In this Agreement, words importing any
gender include the other genders; the words "including" "includes" and
"include" shall be deemed to be followed by the words "without limitation"; and
all references to statutes and related regulations shall include any amendments
of same and any successor statutes and regulations.
ARTICLE 2
PURCHASE AND SALE OF THE NOTE AND COMMON STOCK
2.1 Purchase and Sale of Note. Subject to the terms and
conditions herein set forth, the Company agrees that it will issue to the
Purchaser, and the Purchaser agrees that it will acquire from the Company, on
the Closing Date, the Note in the principal amount set forth on Schedule 1, with
such Note being substantially in the form attached hereto as Exhibit A,
appropriately completed in conformity herewith. The purchase price of the Note
shall be as set forth on Schedule 1.
2.2 Purchase and Sale of Common Stock. Subject to the terms and
conditions herein set forth, the Company agrees that it will issue to Purchaser,
and Purchaser agrees that it will acquire from the Company, on the Closing Date,
the number of shares of Common Stock set forth on Schedule 1. The purchase price
of the Common Shares shall be as set forth on Schedule 1.
2.3 Fees and Expenses. Concurrently with the execution hereof, the Company
shall pay to Whitney a
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placement fee in an amount equal to three percent (3%) of the principal amount
of the Note. In addition, the Company shall reimburse the Purchaser's reasonable
out-of-pocket expenses (including attorney's fees, charges and disbursements
and consultants' fees and expenses) incurred in connection with the transactions
contemplated by this Agreement.
2.4 Closing. The purchase and issuance of the Securities shall
take place at the closing (the "Closing") to be held at the offices of Latham &
Watkins, 885 Third Avenue, New York, New York 10022, at 10:00, a.m., local time,
on June 7, 1994, or at such other time and place as the Company and the
Purchaser may agree in writing (the "Closing Date"). At the Closing, the
Company shall deliver to the Purchaser the Note and the Common Shares against
delivery to the Company by the Purchaser of the purchase prices therefor by wire
transfer of immediately available funds to one or more accounts designated by
the Company at least 3 business days prior to the Closing.
ARTICLE 3
CONDITIONS TO THE
OBLIGATION OF THE PURCHASER TO CLOSE
The obligation of the Purchaser to purchase the Securities, to
pay the purchase prices therefor at the Closing and to perform any obligations
hereunder shall be subject to the satisfaction as determined by, or waiver by,
the Purchaser of the following conditions on or before the Closing Date. The
Purchaser shall not be obligated to purchase the Note unless the purchase and
sale of the Common Shares occurs concurrently therewith and shall not be
obligated to purchase the Common Shares unless the purchase and sale of the Note
occurs concurrently therewith.
3.1 Representations and Warranties. The representations and
warranties of the Company contained in Section 5 hereof shall be true and
correct in all material respects at and as of the Closing Date as if made at and
as of such date.
3.2 Compliance with this Agreement. The Company shall have
performed and complied with all of its agreements and conditions set forth or
contemplated herein that are
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required to be performed or complied with by the Company on or before the
Closing Date.
3.3 Officers Certificate. The Purchaser shall have received a
certificate dated as of the Closing Date from the chief executive officer and
chief financial officer of the Company, in form and substance satisfactory to
the Purchaser, to the effect that all representations and warranties of the
Company contained in this Agreement are true, correct and complete in all
material respects; that the Company is not in violation of any of the covenants
contained in this Agreement; that all conditions precedent to the Closing of
this Agreement to be performed by the Company have been duly performed; and
that, after giving effect to the transactions contemplated by this Agreement, no
Event of Default has occurred and is continuing.
3.4 Secretary's Certificate. The Purchaser shall have received
a certificate from the Company, dated the Closing Date and signed by the
Secretary or an Assistant Secretary of the Company, certifying (a) that the
attached copies of the Restated Certificate of Incorporation and Bylaws of the
Company, and resolutions of the Board of Directors of the Company approving this
Agreement and the transactions contemplated hereby, are all true, complete and
correct and remain unamended and in full force and effect, and (b) as to the
incumbency and specimen signature of each officer of the Company executing any
Transaction Document or any other document delivered in connection herewith on
behalf of the Company.
3.5 Documents. The Purchaser shall have received true, complete
and correct copies of the Transaction Documents and such other documents as they
may request in connection with or relating to the sale of the Securities and the
transactions contemplated hereby, all in form and substance satisfactory to the
Purchaser,
3.6 Financial Matters.
(a) Budgets; Financial Statements. The Purchaser
shall have received the financial statements and certificates (addressed to the
Purchaser) to be delivered pursuant to Sections 3.1(A) and 3.1(L) of the Senior
Loan Agreement, including the draft auditor's opinion and financial statements
of Old TNF for the three-month period ended March 31, 1994, prepared by Deloitte
& Touche.
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(b) Payment at Closing. There shall have been paid by
the Company to the Purchaser the placement and commitment fees and any other
accrued and unpaid fees due hereunder (including without limitation, legal fees
and expenses), and to any other Person such amount as may be due, including
all-taxes, fees and other charges in connection with the execution, delivery,
recording, filing and registration of any of the Transaction Documents.
3.7 Purchase Permitted by Applicable Laws. The acquisition of
and payment for the Securities to be acquired by the Purchaser hereunder and the
consummation of the transactions contemplated hereby (a) shall not be prohibited
by any Requirement of Law, (b) shall not subject the Purchaser to any penalty or
other onerous condition under or pursuant to any Requirement of Law, and (c)
shall be permitted by all Requirements of Law to which it or the transactions
contemplated by or referred to herein are subject; and the Purchaser shall have
received such certificates or other evidence as they may reasonably request to
establish compliance with this condition.
3.8 Approval of Counsel to the Purchaser. All actions and
proceedings hereunder and all documents required to be delivered by the Company
hereunder or in connection with the consummation of the transactions
contemplated hereby, and all other related matters, shall have been in form and
substance acceptable to Friedman & Kaplan, counsel to Whitney Debt Fund, in its
reasonable judgment.
3.9 Consents and Approvals. All consents, exemptions,
authorizations, or other actions by, or notices to, or filings with,
Governmental Authorities and other Persons in respect of all Requirements of Law
and with respect to those Contractual Obligations of the Company necessary,
desirable, or required in connection with the execution, delivery or performance
(including, without limitation, the payment of interest on the Note) by the
Company or enforcement against the Company of the Transaction Documents shall
have been obtained and be in full force and effect, and the Purchaser shall have
been furnished with appropriate evidence thereof, and all waiting periods shall
have lapsed without extension or the imposition of any conditions or
restrictions.
3.10 No Material Adverse Change. No event has occurred which
results in a substantial and material adverse change in the business of the
Company between the
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Confirmation Order Date and the Closing Date, which event was unknown by the
Purchaser as of the Confirmation Order Date and not included or reflected in any
of the disclosures in the Asset Purchase Agreement or the Schedules thereunder
delivered on or before the Confirmation Order Date, which would significantly
diminish the value of the Business (as such term is defined in Recital A of the
Asset Purchase Agreement), and which event was not caused by the malfeasance or
misfeasance of Marsden S. Cason or William A. McFarlane.
3.11 Opinions of Counsel. The Purchaser shall have received
opinions of Crosby, Heafey, Roach & May; McGrigor Donald; and Limbach &
Limbach, dated the Closing Date, each in form and substance acceptable to the
Purchaser.
3.12 No Material Judgment or Order. There shall not be on the
Closing Date any judgment or order of a court of competent jurisdiction or any
ruling of any Governmental Authority or any condition imposed under any
Requirement of Law which, in the judgment of the Purchaser, would prohibit the
purchase of the Securities hereunder or subject the Purchasers to any penalty
or other onerous condition under or pursuant to any Requirement of Law if the
Securities were to be purchased hereunder.
3.13 Restated Certificate of Incorporation and By-laws. The
Restated Certificate of Incorporation and Bylaws of the Company shall be in form
and substance satisfactory to the Purchaser.
3.14 Other Transaction Documents. Each of the Transaction
Documents (including, without limitation, the Asset Purchase Agreement) shall
have been duly executed and delivered by the parties thereto and shall be in
full force and effect, there shall be no default thereunder, and no term or
condition thereof shall have been supplemented, amended, modified or waived
without the Purchaser's prior written consent,
3.15 Disbursement Instructions. The Purchaser shall have
received written instructions from the Company directing the payment of any
proceeds of the Securities that are to be paid on the Closing Date. In the case
of any Indebtedness of Old TNF being refinanced with the proceeds of the
Securities, the funds required for such payoff shall be earmarked for the
benefit of the refinanced lender and
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shall be paid directly from the Purchasers to such refinanced lender. The
Purchaser shall have received evidence, in form and substance reasonably
satisfactory to the Purchaser, that any Indebtedness being refinanced or
otherwise paid off with proceeds of the Securities has been fully satisfied and
discharged and that any Liens in respect of any such obligations have been or
will be terminated and cancelled of record.
3.16 Other Transactions. On or prior to the Closing Date, no
later than concurrently with the Closing, the Company shall have consummated:
(a) the Acquisition; (b) the Preferred Stock Sale; (c) the transactions
contemplated in the Goldwin Purchase Agreement and the Management Purchase
Agreement; and (d) the transactions contemplated by the Senior Loan Agreement,
in each case upon the terms and subject to conditions set forth in the
Transaction Documents, without any waiver by any party of any of the conditions
to its obligations to consummate the transactions contemplated thereby, and the
Purchaser shall have received a certificate from the Company to that effect
dated the Closing Date and signed by the President of the Company. Each of the
releases and other documents required to be delivered in connection with the
closing under the Asset Purchase Agreement shall have been duly executed and
delivered by the parties thereto and shall be in full force and effect.
3.17 Confirmation Order. The Confirmation Order shall have been
entered and the conditions set forth in Section 6.2 of the Asset Purchase
Agreement shall have been satisfied.
3.18 Bankruptcy Plan. The Bankruptcy Plan shall not have been
modified, whether before or after confirmation, except as set forth in the
Confirmation Order and all actions required to be taken and conditions required
to be met under the terms of the Bankruptcy Plan in order for the Bankruptcy
Plan to become effective or for the consummation of the Acquisition shall have
been timely and fully taken or met (whether or not the Bankruptcy Plan
contemplates that the Odyssey Bankruptcy Debtors or any other Person may waive
such action or condition and without giving effect to any such waiver). The
Effective Date under and as defined in the Bankruptcy Plan shall have occurred.
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ARTICLE 4
CONDITIONS TO THE
OBLIGATION OF THE COMPANY TO CLOSE
The obligations of the Company to issue and sell the Securities
and to perform its other obligations hereunder shall be subject to the
satisfaction as determined by, or waiver by, the Company of the following
conditions on or before the Closing Date.
4.1 Representations and Warranties True. The representations
and warranties of the Purchaser contained in Section 6 shall be true and correct
at and as of the Closing Date as if made at and as of such date.
4.2 Compliance with this Agreement. The Purchaser shall have
performed and complied with all of its agreements and conditions set forth or
contemplated herein that are required to be performed or complied with by the
Purchaser on or before the Closing Date.
4.3 Issuance Permitted by Applicable Laws. The issuance of the
Securities to be issued by the Company hereunder and the consummation of the
transactions contemplated hereby (a) shall not be prohibited by any Requirement
of Law, (b) shall not subject the Company to any penalty or, in its reasonable
judgment, other onerous condition under or pursuant to any Requirement of Law
and (c) shall be permitted by all Requirements of Law to which the Company is
subject.
4.4 Approval of Counsel to the Company. All documents required
to be delivered by the Purchaser hereunder shall have been in form and substance
acceptable to Crosby, Heafey, Roach & May, counsel to the Company, in its
reasonable judgment.
4.5 Consents and Approvals. All consents, exemptions,
authorizations, or other actions by, or notices to, or filings with,
Governmental Authorities and other Persons in respect of all Requirements of Law
necessary or required in connection with the execution, delivery or performance
by the Purchaser or enforcement against the Purchaser of this Agreement shall
have been obtained and be in full force and effect, and the Company shall have
been furnished with appropriate evidence thereof.
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4.6 No Material Judgment or Order. There shall not be on the
Closing Date any judgment or order of a court of competent jurisdiction or any
ruling of any Governmental Authority or any condition imposed under any
Requirement of Law which, in the reasonable judgment of the Company, would
prohibit the sale of the Securities hereunder or subject the Company to any
material penalty or other onerous condition under or pursuant to any Requirement
of Law if the Securities were to be sold hereunder.
4.7 Other Transaction Documents. Each of the Transaction
Documents (including, without limitation, the Asset Purchase Agreement) shall
have been duly executed and delivered by the parties thereto and shall be in
full force and effect.
ARTICLE 5
REPRESENTATIONS AND
WARRANTIES OF THE COMPANY
The Company hereby represents and-warrants to the Purchaser,
before and after giving effect to the Acquisition, the sale of the Note and
Common Shares hereunder, the Preferred Stock Sale and the other transactions
contemplated by the Transaction Documents, as follows:
5.1 Corporate Existence and Power. The Company (a) is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware; (b) is duly qualified and authorized to do business in
each jurisdiction in which the character of its properties or the nature of its
business requires such qualification and authorization; (c) has all requisite
corporate power and authority to own and operate its property, to lease the
property it operates as lessee and to conduct the business in which it is
currently, or is currently proposed to be, engaged; and (d) has the corporate
power and authority to execute, deliver and perform its obligations under each
Transaction Document to which it is or will be a party and to borrow hereunder.
5.2 Corporate Authorization; Non-Contravention. The execution,
delivery and performance by the Company of each Transaction Document to which it
is or will be a party and the transactions contemplated thereby, including
without
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limitation the issuance of the Securities: (a) has been duly authorized by all
necessary corporate, and if required, stockholder action; (b) does not
contravene the terms of the Company's Restated Certificate of Incorporation or
By-laws, or any amendment of either thereof; and (c) will not violate, conflict
with or result in any breach or contravention of or the creation of any Lien
under, any Contractual obligation of the Company or any of its Subsidiaries
(other than Liens under the Loan Documents), or any Requirement of Law
applicable to the Company or any of its Subsidiaries.
5.3 Governmental Authorization; Third Party Consents. Except as
set forth on Schedule 5.3, no approval, consent, compliance, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority or any other Person in respect of any Requirement of Law,
and no lapse of a waiting period under a Requirement of Law, is necessary or
required in connection with the execution, delivery or performance (including,
without limitation, the payment of interest on the Note) by the Company or
enforcement against the Company of the Transaction Documents or the transactions
contemplated hereby or thereby.
5.4 Binding Effect. Each of the Transaction Documents has been
duly executed and delivered by the Company and constitutes the legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms.
5.5 No Legal Bar. Neither the execution, delivery and
performance of the Transaction Documents nor the issuance of or performance of
the terms of the Securities will violate any Requirement of Law or any
Contractual Obligation of the Company or any of its Subsidiaries. Neither the
Company nor any of its Subsidiaries has previously entered into any agreement
which is currently in effect or to which the Company or any of its Subsidiaries
is currently bound, granting any rights to any Person which are inconsistent
with the rights to be granted by the Company in the Transaction Documents.
5.6 Litigation. Except as set forth on Schedule 5-6, there are
no legal actions, suits, proceedings, claims or disputes pending or to the
knowledge of the Company or its Subsidiaries, threatened, at law, in equity, in
arbitration or before any Governmental Authority against or
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affecting the Company (a) with respect to the Transaction Documents, or any of
the transactions contemplated hereby or thereby, or (b) which would, if
adversely determined, have an adverse effect on the ability of the Company to
perform its obligations under the Transaction Documents. No injunction, writ,
temporary restraining order, decree or any order of any nature has been issued
by any court or other Governmental Authority purporting to enjoin or restrain
the execution, delivery or performance of the Transaction Documents.
5.7 No Default or Breach. No event has occurred and is
continuing or would result from the incurring of obligations by the Company
under the Transaction Documents which constitutes or, with the giving of notice
or lapse of time or both, would constitute an Event of Default. Neither the
Company nor any of its Subsidiaries is in default under or with respect to any
Contractual Obligation in any respect, which, individually or together with all
such defaults, could adversely affect the ability of the Company to perform its
obligations under the Transaction Documents.
5.8 ERISA. The execution and delivery of the Transaction
Documents, the purchase and sale of the Securities hereunder and the
consummation of the transactions contemplated hereby and thereby will not result
in any prohibited transaction within the meaning of Section 406 of ERISA or
Section 4975 of the Code or any other violations of ERISA or any other
Requirement of Law related thereto.
5.9 Disclosure.
(a) Agreement and Other Documents. This Agreement and the
documents and certificates furnished to the Purchaser by the Company at the
Closing do not contain any untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which they were made, not
misleading.
(b) Material Adverse Effect. There is no fact known to the
Company, which the Company has not disclosed to the Purchaser in writing, which
materially adversely affects, or insofar as the Company can reasonably foresee
could materially adversely affect, the ability of the Company to perform its
obligations under the Transaction Documents or any document contemplated
thereby.
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5.10 Investment Company/Government Regulations. Neither the
Company nor any Person controlling, controlled by or under common control with
the Company is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended. Neither the Company nor any of its
Subsidiaries is subject to regulation under the Public Utility Holding Company
Act of 1935, as amended, the Federal Power Act, the Interstate Commerce Act, or
any federal or state statute or regulation limiting its ability to incur
Indebtedness. The Company is not engaged principally or as one of its
activities in the business of extending credit for the purpose of "purchasing"
or "carrying" any "margin stock" (as each such term is defined or used in
Regulations G and U of the Board of Governors of the Federal Reserve System).
No part of the proceeds of any of the Notes will be used for purchasing or
carrying margin stock or for any purpose which violates, or which would be
inconsistent with, the provisions of Regulation G, T, U or X of such Board of
Governors.
5.11 Capitalization. As of the Closing Date, the authorized
capital stock of the Company consists of 5,000,000 shares of Common Stock and
6,000,000 shares of Series A Preferred Stock, and after giving effect to the
transactions contemplated by this Agreement and by the other Transaction
Documents:
(1) (i) 759,001 shares of Common Stock will be issued and
outstanding and the Persons set forth on Schedule 2 own of record and
beneficially the number of shares of Common Stock set forth opposite
their names (which includes 247,500 shares of Management Restricted
Stock); (ii) 2,500,000 shares of Common Stock will be reserved for
issuance upon conversion of the Series A Preferred Stock (including
conversion of shares of Series A Preferred Stock to be issued to the
holders of Series A Preferred Stock by the Company as payment of
dividends); (iii) 123,750 shares of Common Stock will be reserved for
issuance upon exercise of the Management Options; (iv) 1,920,000
shares of Series A Preferred Stock will be issued and outstanding and
the Persons set forth on Schedule 2 own of record and beneficially the
number of shares of Preferred Stock set forth opposite their names;
and (v) 4,000,000 shares of Series A Preferred Stock will be reserved
for issuance as dividends on shares of Series A Preferred Stock.
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(2) All outstanding shares of capital stock of the Company
will be duly authorized, and the shares of Common Stock issuable upon
conversion of shares of Series A Preferred Stock, when issued, will
be, validly issued, fully paid, nonassessable and free and clear of
any Liens. Except for the Common Stock, the Series A Preferred Stock
and the Management Options, no other class of capital stock or other
ownership interests of the Company are authorized or outstanding.
(3) Except for the Series A Preferred Stock and the Management
Options, there will be no outstanding securities convertible into or
exchangeable for capital stock of the Company or options, warrants or
other rights to purchase or subscribe to capital stock of the Company
or any of its Subsidiaries, or contracts, commitments, agreements,
understandings or arrangements of any kind to which the Company is a
party relating to the issuance of any capital stock of the Company or
any of its Subsidiaries, any such convertible or exchangeable
securities or any such options, warrants or rights.
5.12 Private Offering. No form of general solicitation or
general advertising was used by the Company or its representatives in connection
with the offer or sale of the Securities or the Preferred Stock. No
registration of the Securities pursuant to the provisions of the Securities Act
or any state securities or "blue sky" laws will be required by the offer, sale
or issuance of the Securities pursuant to this Agreement. The Company agrees
that neither it, nor anyone acting on its behalf, will offer or sell the
Securities or any other security so as to require the registration of the
Securities pursuant to the provisions of the Securities Act or any state
securities or "blue sky" laws, unless such Securities are so registered.
5.13 Broker's, Finder's, or Similar Fees. There are no
brokerage commissions, finder's fees or similar fees or commissions payable in
connection with the transactions contemplated hereby or by any other
Transaction Document to which the Company is a party, based on any agreement,
arrangement or understanding with the Company, or any action taken by any
such entity.
5.14 Transaction Documents. The Company has delivered to the
Purchaser true, complete and correct
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copies of the Asset Purchase Agreement and each other Transaction Document and
all documents, agreements and certificates, delivered in connection therewith,
together with all amendments and modifications thereto. Such documents
(including the schedules and exhibits thereto) comprise a full and complete copy
of all agreements between the parties thereto with respect to the subject matter
thereof and all transactions related thereto, and there are no agreements or
understandings, oral or written, or side agreements not contained therein that
relate to or modify the substance thereof. The Loan Documents have been duly
authorized by all necessary corporate action on the part of the Loan Parties (as
defined in the Senior Loan Agreement), were validly executed and delivered by
the applicable Loan Party and are the legal, valid and binding obligations of
the applicable Loan Party and its successors, enforceable in accordance with
their terms. The Asset Purchase Agreement and each other Transaction Document
has been duly authorized by all necessary corporate action on the part of the
Company, was validly executed and delivered by the Company and is the legal,
valid and binding obligation of the Company and its successors, enforceable in
accordance with its terms. Each of the Transaction Documents are in full force
and effect, and none of their provisions have been waived by any party thereto.
5.15 Certain Representations made in the Senior Loan Agreement.
The representations and warranties of the Company made in Section 4 of the
Senior Loan Agreement as in effect on the date hereof are true and correct in
all material respects and are hereby incorporated herein by reference as if
fully set forth herein.
ARTICLE 6
REPRESENTATIONS AND
WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company as
follows:
6.1 Authorization; No Contravention. The execution, delivery
and performance by the Purchaser of this Agreement: (a) is within the
Purchaser's power and authority and has been duly authorized by all necessary
action; (b) does not contravene the terms of the Purchaser's organizational
documents (if any) or any amendment thereof;
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and (c) will not violate, conflict with or result in any breach or contravention
of any Contractual Obligation of the Purchaser, or any directly relating to the
Purchaser.
6.2 Binding Effect. This Agreement has been duly executed and
delivered by the Purchaser, and this Agreement constitutes the legal, valid and
binding obligation of the Purchaser enforceable against it in accordance with
its terms.
6.3 No Legal Bar. The execution, delivery and performance of
this Agreement by the Purchaser will not violate any Requirement of Law,
6.4 Purchase for Own Account The Note and the Common Shares to
be acquired by the Purchaser pursuant to this Agreement are being or will be
acquired for its own account and with no intention of distributing or reselling
such securities or any part thereof in any transaction that would be in
violation of the securities laws of the United States of America, or any state,
without prejudice, however, to the rights of such Purchaser at all times to sell
or otherwise dispose of all or any part of the-Note or Common Shares including
shares of Common Stock received upon exercise of the Common Shares under an
effective registration statement under the Securities Act, or under an exemption
from such registration available under the Securities Act, and subject,
nevertheless, to the disposition of the Purchaser's property being at all times
within its control. If the Purchaser should in the future decide to dispose of
any of its Note or Common Shares, the Purchaser understands and agrees that it
may do so only in compliance with the Securities Act and applicable state
securities laws, as then in effect. The Purchaser agrees to the imprinting, so
long as required by law, of a legend on certificates representing the Note or
Common Shares to the following effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED
OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH
LAWS."
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6.5 ERISA. No part of the funds used by the Purchaser to
purchase the Securities hereunder constitutes assets of any "employee benefit
plan" (as defined in Section 3(3) of ERISA) or "plan" (as defined in Section
4975 of the Code).
6.6 Broker's, Finders, or Similar Fees. There are no brokerage
commissions, finder's fees or similar fees or commissions payable in connection
with the transactions contemplated hereby, or by any other Transaction Document
to which the Purchaser is a party, based on any agreement, arrangement or
understanding with the Purchaser or any action taken by the Purchaser.
6.7 Governmental Authorization; Third Party Consent. No
approval, consent, compliance, exemption, authorization, or other action by, or
notice to, or filing with, any Governmental Authority or any other Person in
respect of any Requirement of Law, and no lapse of a waiting period under a
Requirement of Law, is necessary or required in connection with the execution,
delivery or performance by the Purchaser or enforcement against the Purchaser of
this Agreement or the transactions contemplated hereby.
ARTICLE 7
INDEMNIFICATION
7.1 Indemnification. In addition to all other sums due
hereunder or provided for in this Agreement, the Company agrees to indemnify and
hold harmless the Purchaser and its Affiliates, and their respective officers,
directors, agents, employees, subsidiaries, partners and controlling persons
(each, an "Indemnified Party") to the fullest extent permitted by law from and
against any and all losses, claims, damages, expenses (including reasonable
fees, disbursements and other charges of counsel) or other liabilities
(collectively, "Liabilities") resulting from or arising out of any breach of any
representation or warranty, covenant or agreement of the Company in this
Agreement or in any of the other Transaction Documents, including without
limitation, the failure to make payment when due of amounts owing pursuant to
the Note on the due date thereof (whether at the scheduled maturity, by
acceleration or otherwise) or any legal, administrative or other actions
(including actions brought by the Purchaser or the Company or any equity holders
of the Company or derivative actions brought
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by any Person claiming through or in the Company's name), proceedings or
investigations (whether formal or informal), or written threats thereof, based
upon, relating to or arising out of this Agreement or any of the other
Transaction Documents or the transactions contemplated hereby, and thereby, or
any Indemnified Party's role therein or in the transactions contemplated
thereby; provided, however, that the Company shall not be liable under this
Section 7.1 to an Indemnified Party: (a) for any amount paid in settlement of
claims without the Company's consent (which consent shall not be unreasonably
withheld), (b) to the extent that it is finally judicially determined that such
Liabilities resulted primarily from the willful misconduct or gross negligence
of such Indemnified Party, and (c) to the extent that it is finally judicially
determined that such Liabilities resulted primarily from the material breach by
such Indemnified Party of any representation, warranty, covenant or other
agreement of such Indemnified Party contained in the applicable Transaction
Document; provided further, that if and to the extent that such indemnification
is unenforceable for any reason, the Company shall make the maximum contribution
to the payment and satisfaction of such Liabilities which shall be permissible
under applicable laws. In connection with the obligation of the Company to
indemnify for expenses as set forth above, the Company further agrees, upon
presentation of appropriate invoices containing reasonable detail, to reimburse
each Indemnified Party for all such expenses (including reasonable fees,
disbursements and other charges of counsel) as they are incurred by such
Indemnified Party; provided, however, that if an Indemnified Party is reimbursed
hereunder for any expenses, such reimbursement of expenses shall be refunded to
the extent it is finally judicially determined that the Liabilities in question
resulted primarily from (i) the willful misconduct or gross negligence of such
Indemnified Party or (ii) the material breach by such Indemnified Party of any
representation, warranty, covenant or other agreement of such Indemnified Party
contained in the applicable Transaction Document.
7.2 Notification. Each Indemnified Party under this Article 7
will, promptly after the receipt of notice of the commencement of any action,
investigation, claim or other proceeding against such Indemnified Party in
respect of which indemnity may be sought from the company under this Article
7, notify the Company in writing of the commencement thereof. The omission
of any Indemnified Party so to notify the Company of any such action shall
not relieve the Company
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from any liability which it may have to such Indemnified Party (a) other than
pursuant to this Article 7 or (b) under this Article 7 unless, and only to
the extent that, such omission results in the Company's forfeiture of
substantive rights or defenses. In case any such action, claim or other
proceeding shall be brought against any Indemnified Party and it shall notify
the Company of the commencement thereof, the Company shall be entitled to
assume the defense thereof at its own expense, with counsel satisfactory to
such Indemnified Party in its reasonable judgment; provided, however, that
any Indemnified Party may, at its own expense, retain separate counsel to
participate in such defense. Notwithstanding the foregoing, in any action,
claim or proceeding in which both the Company, on the one hand, and an
Indemnified Party, on the other hand, is, or is reasonably likely to become,
a party, such Indemnified Party shall have the right to employ separate
counsel at the Company's expense and to control its own defense of such
action, claim or proceeding if, in the reasonable opinion of counsel to such
Indemnified Party, a conflict or potential conflict exists between the
Company, on the one hand, and such Indemnified Party, on the other hand, that
would make such separate representation advisable. The Company agrees that
it will not, without the prior written consent of the Purchaser, settle,
compromise or consent to the entry of any judgment in any pending or
threatened claim, action or proceeding relating to the matters contemplated
hereby (if any Indemnified Party is a party thereto or has been actually
threatened to be made a party thereto) unless such settlement, compromise or
consent includes an unconditional release of the Purchaser and each other
Indemnified Party from all liability arising or that may arise out of such
claim, action or proceeding. The Company shall not be liable for any
settlement of any claim, action or proceeding effected against an Indemnified
Party without its written consent, which consent shall not be unreasonably
withheld. The rights accorded to Indemnified Parties hereunder shall be in
addition to any rights that any Indemnified Party may have at common law, by
separate agreement or otherwise.
7.3 Registration Rights Agreement. Notwithstanding anything to
the contrary in this Article 7, the indemnification and contribution provisions
of the Registration Rights Agreement shall govern any claim made with respect to
registration statements filed pursuant thereto or sales made thereunder.
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ARTICLE 8
AFFIRMATIVE COVENANTS
Until the payment by the Company of all principal of and interest
on the Notes and all other amounts due at the time of payment of such principal
and interest to the Holder under this Agreement and the Notes, including,
without limitation, all fees, expenses and amounts due at such time in respect
of indemnity obligations under Article 7, the Company hereby covenants and
agrees with the Holder as follows:
8.1 Financial Statements and Other Information.
The Company shall deliver to the Holder, in form and substance
satisfactory to the Holder, the following documents in the manner provided
below.
(a) Monthly Financials. As soon as available and in any event,
within twenty-five (25) days after the end of each month, the Company will
deliver. (1) the consolidated and consolidating balance sheet of the Company and
its Subsidiaries as at the end of such month and the related consolidated and
consolidating stsatement of income, stockholders' equity and cash flow for such
month and for the period from the beginning of the then current Fiscal Year to
the end of such month and (2) a schedule of the outstanding Indebtedness for
borrowed money of the Company and its Subsidiaries describing in reasonable
detail each such debt issue or loan outstanding and the principal amount and
amount of accrued and unpaid interest with respect to each such debt issue or
loan.
(b) Quarterly Financials. As soon as available and in any event
within forty-five (45) days after the end of each fiscal quarter, the Company
will deliver (1) the consolidated balance sheet of the Company and its
Subsidiaries as at the end of such period and the related consolidated
statements of income, stockholders' equity and cash flow for such fiscal quarter
and for the period from the beginning of the then current Fiscal Year to the end
of such quarter of a Fiscal Year; (2) a schedule of the outstanding Indebtedness
for borrowed money of the Company and its Subsidiaries describing in reasonable
detail each such debt issue or loan outstanding and the principal amount and
amount of accrued and unpaid interest with respect to each such debt issue or
loan; and (3) copies of the consolidating financial statements of the Company
and its
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Subsidiaries including (a) consolidating balance sheets of the Company and its
Subsidiaries as at the end of such fiscal quarter and showing intercompany
eliminations and (b) related consolidating statements of income of the Company
and its Subsidiaries showing intercompany eliminations.
(c) Year-end Financials. As soon as available and in any event
within ninety (90) days after the end of each Fiscal Year, the Company will
deliver (1) the consolidated balance sheet of the Company and its Subsidiaries
as at the end of such year and the related consolidated statements of income,
stockholders' equity and cash flow for such Fiscal Year; (2) a schedule of the
outstanding Indebtedness for borrowed money of the Company and its subsidiaries
describing in reasonable detail each such debt issue or loan outstanding and the
principal amount and amount of accrued and unpaid interest with respect to each
such debt issue or loan; (3) a report with respect to the financial statements
from a firm of independent certified public accountants of recognized national
outstanding which report shall be unqualified as to going concern and scope of
audit and shall state that: (a) such consolidated financial statements present
fairly the consolidated financial position of the Company and its Subsidiaries
as at the dates indicated and the results of their operations and cash flow for
the periods indicated in conformity with GAAP applied on a basis consistent with
prior years and (b) that the examination by such accountants in connection with
such consolidated financial statements has been made in accordance with
generally accepted auditing standards; and (4) copies of the consolidating
financial statements of the Company and its Subsidiaries, including (a)
consolidating balance sheets of the Company and its Subsidiaries as at the end
of such Fiscal Year showing intercompany eliminations and (b) related
consolidating statements of earnings of the Company and its Subsidiaries showing
intercompany eliminations.
(d) Compliance Certificate. Together with each delivery of
financial statements of the Company and its Subsidiaries pursuant to
subdivisions (b) and (c) above, the Company will deliver a Compliance
Certificate signed by the Company's chief executive officer or chief financial
officer stating that: (1) such statements fairly present the financial condition
of the Company and its Subsidiaries as of the dates indicated; (2) such officer
has reviewed the terms of this Agreement and the Note and has made, or caused to
e made under such officer's supervision, a review in
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reasonable detail of the transactions and condition of the Company and its
Subsidiaries during the accounting period covered by such financial statements;
(3) such review has not disclosed the existence during or at the-end of such
accounting period, and such officer does not have knowledge of the existence as
at the date of the Compliance Certificate, of any condition or event that
constitutes an Event of Default or, if any such condition or event existed or
exists, specifying the nature and period of existence thereof and what action
the Company has taken, is taking and proposes to take with respect thereto and
(4) the Company is in compliance with the financial covenants contained in
Section 6 and the restrictions contained in subsections 7.1, 7.3, 7.4 and 7.5 of
the Senior Loan Agreement as in effect on the date hereof and demonstrating same
in reasonable detail.
(e) Accounts' Report. Promptly upon receipt thereof, the
Company will deliver to the Purchaser copies of all significant reports
submitted to the Company by independent public accountants in connection with
each annual, interim or special audit of the financial statements of the Company
made by such accountants, including the comment letter submitted by such
accountants to management in connection with their annual audit.
(f) Management Report. Together with each delivery of financial
statements of the Company and its Subsidiaries pursuant to subdivisions (b) and
(c) of this subsection 8.1. the Company will deliver a management report (1)
describing the operations and financial condition of the Company and its
Subsidiaries for the month or quarter then ended and the portion of the current
Fiscal Year then elapsed (or for the Fiscal Year then ended in the case of
year-end financials); (2) setting forth in comparative form the corresponding
figures for the corresponding periods of the previous Fiscal Year of the Company
(or, with respect to the first year of Old TNF); and (3) discussing the reasons
for any significant variations. The information above shall be presented in
reasonable detail and shall be certified by the chief financial officer of the
Company to the effect that such information fairly presents the results of
operations and financial condition of the Company and its Subsidiaries as at the
dates and for the periods indicated.
(g) Budgets. As soon as available and in any event no later
than thirty (30) days prior to the end of each Fiscal Year of the Company, the
Company will deliver a
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Budget of the Company and its Subsidiaries for the forthcoming
Fiscal Year, month by month.
(h) Events of Defaults, etc. Promptly upon any officer of the
Company obtaining knowledge of any of the following events or conditions, the
Company will deliver a certificate of the Company's chief executive officer
specifying the nature and period of existence of such condition or event and
what action the Company has taken, is taking and proposes to take with respect
thereto: (1) any condition or event that constitutes an Event of Default; (2)
any notice that any Person has given the Company or any of its Subsidiaries or
any other action taken with respect to a claimed default or event or condition
of the type referred to in subsection 8.1(B) of the Senior Loan Agreement as in
effect on the date hereof; or (3) any Material Adverse Effect.
(i) Litigation. Promptly upon any officer of the Company
obtaining knowledge of (1) the institution of any action, suit, proceeding,
governmental investigation -or arbitration against or affecting the Company or
any of its Subsidiaries or any property of the Company or any of its
Subsidiaries, not previously disclosed by the Company to the Holders and except
for such matters as to which the sole claim is for money damages not exceeding
$25,000, or (2) any material Development in any action, suit, proceeding,
governmental investigation or arbitration at any time pending against or
affecting the Company or any of its Subsidiaries, or any property of the Company
or any of its Subsidiaries, the Company will promptly give notice thereof to
each Holder and provide such other information as may be reasonably available to
them to enable the Holders and their counsel to evaluate such matter.
8.2 Access to Accountants. The Company authorizes the Purchaser
to discuss the financial condition and financial statements of the Company and
its Subsidiaries with Company's or any of its Subsidiaries' independent public
accountants upon reasonable notice to the Company of its intention to do so and
hereby authorizes such accountants to respond to all of the Purchaser's
inquiries.
8.3 Inspection. The Company shall permit the Purchaser and any
authorized representatives designated by the Purchaser to visit and inspect any
of the properties of the Company or any of its Subsidiaries, including its and
their financial and accounting records, and to make copies
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and take extracts therefrom, and to discuss its and their affairs, finances and
business with its and their employees and independent public accountants, at
such reasonable times during normal business hours and as often as may be
reasonably requested.
8.4 Corporate Existence. The Company will, and will cause
each of its Subsidiaries to, at all times preserve and keep in full force and
effect its corporate existence and all rights and franchises material to its
business. The Company will promptly notify the Purchaser of any change in
its or any of its Subsidiaries' corporate structures.
8.5 Payment of Taxes. The Company will, and will cause each of
its Subsidiaries to, pay all taxes, assessments and other governmental charges
imposed upon it or any of its properties or assets or with respect to any of its
franchises, business, income or property before any penalty accrues thereon;
provided that no such tax need be paid if the Company or such Subsidiary is
contesting same in good faith by appropriate proceedings promptly instituted and
diligently conducted and if the Company or such Subsidiary has established
appropriate reserves as shall be required in conformity with GAAP.
8.6 Maintenance of Properties; Insurance. The Company will
maintain or cause to be maintained in good repair, working order and condition
all material properties used in the business of the Company and its Subsidiaries
and will make or cause to be made all appropriate repairs, renewals and
replacements thereof. The Company will maintain or cause to be maintained, with
financially sound and reputable insurers, business interruption insurance (with
no exclusion for earthquakes), public liability and property damage and casualty
insurance with respect to its business and properties and the business and
properties of its Subsidiaries against loss or damage of the kinds customarily
carried or maintained by corporations of established reputation engaged in
similar businesses and in amounts acceptable to the Purchaser.
8.7 Compliance with Laws. The Company will, and will cause each
of its Subsidiaries to, comply with the requirements of all applicable laws,
rules, regulations and orders of any Governmental Authority as now in effect and
which may be imposed in the future in all jurisdictions in which the Company or
any of its Subsidiaries is now doing
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business or may hereafter be doing business, other than those laws the
noncompliance with which would not have a material adverse effect on the
Condition of the Company.
8.8 Payment of Notes. The Company shall, subject to the
subordination provisions set forth in Section 8 of the Notes, pay the principal
of, interest on and other amounts due in respect of, the Notes on the dates and
in the manner provided in the Notes.
8.9 Books and Records. The Company shall, and shall cause each
of its Subsidiaries to, keep proper books of record and account, in which full
and correct entries shall be made of all financial transactions and the assets
and business of the Company and each of its Subsidiaries in accordance with GAAP
consistently applied to the Company and its Subsidiaries taken as a whole.
8.10 Use of Proceeds. The Company shall use the proceeds of the
sale of Securities hereunder only (a) in connection with the Acquisition, (b)
for the payment of fees and expenses in connection with the transactions
contemplated in the Transaction Documents and (c) as working capital for the
Company and its Subsidiaries.
8.11 Post-Closing Audit. Promptly following the Closing Date,
the Company shall cause an audit of its balance sheet to be undertaken by
Deloitte & Touche and shall provide the results thereof to the Purchaser on or
before the date which is forty-five (45) days after the Closing Date.
ARTICLE 9
NEGATIVE COVENANTS
Until the payment by the Company of all principal of and interest
on the Notes and all other amounts due at the time of payment of such principal
and interest to the Holders under this Agreement and the Notes, including,
without limitation, all fees, expenses and amounts due at such time in respect
of indemnity obligations under Article 7, the Company hereby covenants and
agrees with the Holders of the Notes as follows:
9.1 Indebtedness and Liabilities. The Company will not, and
will not permit any of its Subsidiaries to,
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directly or indirectly create, incur, assume, guaranty, or otherwise become or
remain directly or indirectly liable, on a fixed or contingent basis, with
respect to any Indebtedness except: (a) the Obligations and any refinancings
thereof subject to the limitations on refinancings set forth in the definition
of "Senior Indebtedness" in the Note; (b) Indebtedness not to exceed $250,000 in
the aggregate at any time outstanding secured by purchase money Liens; (c)
Indebtedness with respect to Capital Leases not to exceed $1,000,000 in the
aggregate at any time outstanding; (d) Indebtedness existing on the Closing Date
and identified on Schedule 9.1(c) and refinancings thereof in amounts not in
excess of that set forth on such Schedule 9.1(c); provided, that in no event
may any refinancing of the Indebtedness of TNF Scotland require any guaranty of
payment or other credit support by the Company; and (e) Subordinated Debt in an
amount not in excess of $25,200,000. Except for Indebtedness described in the
preceding sentence and agreements required by subsection 5.17 of the Senior Loan
Agreement, the Company will not, and will not permit any of its Subsidiaries to,
incur any indebtedness or liabilities except for trade payables and other
liabilities not constituting Indebtedness in the ordinary course of business not
yet due and payable or with respect to which the Company or any of its
Subsidiaries is contesting in good faith the amount or validity thereof by
appropriate proceedings and then only to the extent that the Company or any of
its Subsidiaries has established adequate reserves therefor, if appropriate
under GAAP.
9.2 Guaranties. Except for guaranties issued to the Purchaser
or under the Loan Documents or endorsements of instruments or items of payment
for collection in the ordinary course of business, the Company shall not, and
shall not permit any of its Subsidiaries to, guaranty, endorse, or otherwise in
any way become or be responsible for any obligations of any other Person,
whether directly or indirectly by agreement to purchase the indebtedness of any
other Person or through the purchase of goods, supplies or services, or
maintenance of working capital or other balance sheet covenants or conditions,
or by way of stock purchase, capital contribution, advance or loan for the
purpose of paying or discharging any indebtedness or obligation of such other
Person or otherwise. The foregoing shall not prohibit Subsidiaries from
guarantying the Obligations.
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9.3 Transfers, Liens and Related Matters.
(a) Transfers. The Company shall not, and shall not
permit any of its Subsidiaries to, sell, assign (by operation of law or
otherwise) or otherwise dispose of, or grant any option with respect to the
assets of such Person, except that the Company and its Subsidiaries may (i) sell
Inventory in the ordinary course of business; (ii) sell the trademarks listed
on Schedule 9.3(a)(ii) pursuant to the Goldwin Purchase Agreement; (iii) with
the prior written consent of the Purchaser not to be unreasonably withheld or
delayed, license trademarks and tradenames in the ordinary course of business
consistent with past practices of Old TNF prior to the Closing Date; (iv)
terminate the leases described on Schedule 9.3(a)(iv); and (v) make voluntary
Asset Dispositions if all of the following conditions are met: (1) the market
value of assets sold or otherwise disposed of in any single transaction or
series of related transactions does not exceed $50,000 and the aggregate market
value of assets sold or otherwise disposed of in any Fiscal Year does not
exceed $150,000; (2) the consideration received is at least equal to the fair
market value of such assets; (3) the sole consideration received is cash; (4)
the net proceeds of such Asset Disposition are applied as required by subsection
2.4(B) of the Senior Loan Agreement; (5) after giving effect to the sale or
other disposition of the assets included within the Asset Disposition and the
repayment of the Obligations with the proceeds thereof, the Company is in
compliance on a pro forma basis with the covenants set forth in Section 9.16
recomputed for the most recently ended month for which information is available
and is in compliance with all other terms and conditions contained in this
Agreement; and (6) no Event of Default shall result from such sale or other
disposition.
(b) Liens. Except for Permitted Encumbrances, the
Company will not, and will not permit any of its Subsidiaries to, directly or
indirectly create, incur, assume or permit to exist any Lien on or with respect
to any of the assets of such Person or any proceeds, income or profits
therefrom.
(c) No Negative Pledges. Neither the Company nor any
Subsidiary of the Company shall enter into or assume any agreement (other
than this Agreement and the Loan Documents) prohibiting the creation or
assumption of any Lien upon its properties or assets, whether now owned or
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hereafter acquired, other than any such agreement entered into by TNF Scotland
prior to the Closing Date or in connection with a refinancing of Indebtedness of
TNF Scotland permitted by subsection 9.1.
(d) No Restrictions on Subsidiary Distributions to
the Company. Except as provided herein, the Company will not and will not
permit any of its Subsidiaries directly or indirectly to create or otherwise
cause or suffer to exist or become effective any consensual encumbrance or
restriction of any kind on the ability of any such Subsidiary to: (1) pay
dividends or make any other distribution on any of such Subsidiary's capital
stock owned by the Company or any Subsidiary of the Company, other than any such
agreement entered into by TNF Scotland prior to the Closing Date; or (2) subject
to subordination provisions, pay any indebtedness owed to the Company or any
other Subsidiary; (3) make loans or advances to the Company or any other
Subsidiary; or (4) transfer any of its property or assets to the Company or any
other Subsidiary.
9.4 Investments and Loans. The Company shall not, and shall not
permit any of its Subsidiaries to, make or permit to exist investments in or
loans to any other Person, except: (a) Cash Equivalents; (b) loans and advances
to employees for moving, entertainment, travel and other similar expenses in the
ordinary course of business in an aggregate outstanding amount not in excess of
$50,000 at any time; and (c) the investment of the Company in the stock of TNF
Scotland existing on the Closing Date (but excluding any additional investments,
by capital contribution or otherwise, or loans).
9.5 Restriction on Fundamental Changes. Neither the Company nor
any of its Subsidiaries will: (a) enter into any transaction of merger or
consolidation; (b) liquidate, wind-up or dissolve itself (or suffer any
liquidation or dissolution); (c) convey, sell, lease, sublease, transfer or
otherwise dispose of, in one transaction or a series of transactions, all or any
substantial part of its business or assets, or the capital stock of any of its
Subsidiaries, whether now owned or hereafter acquired; or (d) acquire by
purchase or otherwise all or any substantial part of the business or assets of,
or stock or other evidence of beneficial ownership of, any Person.
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9.6 Transactions with Affiliates. The Company will not, and
will not permit any of its Subsidiaries to, directly or indirectly, enter into
or permit to exist any transaction (including the purchase, sale or exchange of
property or the rendering of any service) with any Affiliate or with any
officer, director or employee of the Company or any of its Subsidiaries, except
for (a) transactions in the ordinary course of, and pursuant to the reasonable
requirements of, the Company's or a Subsidiary's business and upon fair and
reasonable terms which are fully disclosed to the Purchaser and which are no
less favorable to the Company or such Subsidiary than it would obtain in a
comparable arm's length transaction with an unaffiliated Person; (b) the
transactions set forth in the Goldwin Purchase Agreement; (c) the issuance of
Management Options; and (d) the payment of fees pursuant to this Agreement to
the extent permitted under subsection 7.8 of the Senior Loan Agreement. The
foregoing shall not prohibit the transactions contemplated by the Preferred
Stock Purchase Agreement, the Restated Certificate of Incorporation or the
Management Options
9.7 Environmental Liabilities. The Company will not, and will
not permit any of its Subsidiaries to: (a) violate in any material respect any
applicable Environmental Law; (b) dispose of any Hazardous Materials (except in
accordance with applicable law) into or onto or from, any real property owned,
leased or operated by any of its Subsidiaries; or (c) permit any Lien imposed
pursuant to any Environmental Law to be imposed or to remain on any real
property owned, leased or operated by the Company or any of its Subsidiaries.
9.8 Conduct of Business. From and after the Closing Date, the
Company will not, and will not permit any of its Subsidiaries to, engage in any
business other than businesses of the type engaged in by Old TNF or such
Subsidiary on the Closing Date.
9.9 Compliance with ERISA. The Company will not, and will not
permit any of its Subsidiaries to, establish any new Employee Benefit Plan or
amend any existing Employee Benefit Plan if the liability or increased liability
resulting from such establishment or amendment is material. Neither the Company
nor any Subsidiary shall fail to establish, maintain and operate each Employee
Benefit Plan in compliance in all material respects with the provisions
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of ERISA, the Code and all other applicable laws and the regulations and
interpretations thereof.
9.10 Tax Consolidations. The Company will not, and will not
permit any of its Subsidiaries to, file or consent to the filing of any
consolidated income tax return with any Person other than the Company or any of
its Subsidiaries.
9.11 Subsidiaries. The Company will not and will not permit any
of its Subsidiaries to, establish, create or acquire any new Subsidiaries
without the Purchaser's prior written consent.
9.12 Fiscal Year. Neither the Company nor any Subsidiary of the
Company shall change its Fiscal Year.
9.13 Press Release; Public Offering Materials. The Company will
not, and will not permit any of its Subsidiaries to, disclose the name of the
Purchaser in any press release or in any prospectus, proxy statement or other
materials filed with any governmental entity relating to a public offering of
the capital stock of the Company or any of its Subsidiaries without prior
notice to the Purchaser and the Purchaser's approval of the disclosure.
9.14 Restriction on Certain Amendments. The Company shall not
agree to or permit any alteration, amendment or supplement to the Senior Loan
Agreement if, as a result of or in connection with such alteration, amendment
or supplement, (i) the principal amount of Senior Debt outstanding (including
the maximum commitment for any revolving credit, letter of credit or similar
commitment for any revolving credit, letter of credit or similar credit
facility) would exceed $33,000,000, (ii) the annual rate of interest
applicable in connection with the Senior Debt would be increased, (iii) the
fees, prepayment charges or other amount (other than interest) due in
connection with the Senior Debt would be increased (provided that this shall
not prohibit payment of reasonable fees in connection with any amendment or
waiver of the Senior Loan Agreement), (iv) the final maturity date of any
Senior Debt or the maturity date of any regular or scheduled payment or
prepayment of principal of the Senior Debt would be advanced to an earlier
date, or (v) any of the covenants contained in Section 6 of the Senior Loan
Agreement, or any of the related definitions contained in Section 1.1
thereof, shall be made more restrictive, nor shall any covenants not present
in the Loan
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Documents as of the date hereof, if based on the financial condition of the
Company or its Subsidiaries, be added.
9.15 No Inconsistent Agreements. Except as contemplated in the
Note, the Senior Loan Agreement or any other Transaction Document (the
"Contemplated Restrictions"), neither the Company nor any of its Subsidiaries
shall enter into any Contractual Obligation or enter into any amendment or other
modification to any currently existing Contractual Obligation or to the Restated
Certificate of Incorporation or By-laws of the Company which by its terms
restricts or prohibits the ability of the Company, to a greater extent than the
Contemplated Restrictions, to pay the principal of or interest on the Note.
9.16 Financial Covenants.
(a) Minimum EBITDA. Minimum EBITDA at the end of each
fiscal quarter set forth below for the rolling four (4) quarter period (or such
lesser period as may equal the number of fiscal quarters elapsed since the
Closing Date) ending on the last day of each fiscal quarter set forth below
shall not be less than the amount set forth below opposite such date.
Fiscal Quarter Ending Amount
--------------------- ------
9/30/94 $3,600,000
12/31/94 $5,400,000
3/31/95 $6,800,000
6/30/95 $6,100,000
9/30/95 $6,300,000
12/31/95 $6,500,000
3/31/96 $6,500,000
6/30/96 $6,500,000
9/30/96 $7,200,000
12/31/96 $7,800,000
3/31/97 $7,900,000
(b) Fixed Charge Coverage. Fixed Charge Coverage at the end of
each fiscal quarter for the rolling four (4) quarter period (or such lesser
period as may equal the number of fiscal quarters which have elapsed since June
30, 1994 not including the quarter ended June 30, 1994) ending on the last day
of each fiscal quarter shall not be less than 1.0.
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(c) Total Interest Coverage. Total Interest Coverage at the end
of each fiscal quarter for the rolling four (4) quarter period (or such lesser
period as may equal the number of fiscal quarters which have elapsed since June
30, 1994 not including the quarter ended June 30, 1994) ending on the last day
of each fiscal quarter shall not be less than 1.4.
(d) Leverage Ratio. The Leverage Ratio at the end of each
fiscal quarter commencing with the quarter beginning January 1 1995 for the
rolling four (4) quarter period (or such lesser period as may equal the number
of fiscal quarters which have elapsed since June 30, 1994) ending on the last
day of such fiscal quarter set forth below shall be less than 5.50 to 1.
ARTICLE 10
PREPAYMENT
The Company shall prepay outstanding principal (together with
accrued interest) on all of the Notes pro rata in accordance with the Mandatory
Prepayments provision set forth in Section 3 of the Notes. The Company may
prepay outstanding principal (together with accrued interest) on the Notes only
if prepaid in accordance with the Optional Prepayments provision set forth in
Section 4 of the Notes.
ARTICLE 11
MISCELLANEOUS
11.1 Survival of Representations and Warranties. All of the
representations and warranties made herein shall survive the execution and
delivery of this Agreement, any investigation by or on behalf of the Purchaser,
acceptance of the Securities and payment therefor, or termination of this
Agreement.
11.2 Notices. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first class mail, return receipt requested, telecopier,
recognized overnight courier service or personal delivery,
(a) if to the Whitney Debt Fund:
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Whitney Subordinated Debt Fund, L.P.
630 Fifth Avenue New York, New York 10011-0302
Telecopier No.: (212) 332-2422
Attention: Daniel J. O'Brien
with a copy to:
Friedman & Kaplan
875 Third Avenue New York, New York 10022
Telecopier No.: (212) 355-6401
Attention: Marjorie S. White, Esq.
(b) if to the Company:
The North Face
999 Harrison Street
Berkeley, California 94710
Telecopy No: (510) 525-3346
Attention: President
with a copy to:
Crosby, Heafey, Roach & May
1999 Harrison Street
Oakland, California 94612-3573
Telecopy No.: (510) 273-8832
Attention: Philip L. Bush, Esq.
All such notices and communications shall be deemed to have been
duly given: when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial overnight courier service; five Business
Days after being deposited in the mail, postage prepaid, if mailed; and when
receipt is confirmed, if telecopied.
11.3 Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of the
parties hereto. Provisions of Articles 8 and 9 will inure to the benefit of
each Holder. Subject to applicable securities laws and except as otherwise set
forth in the Transaction Documents (including, without limitation, the
Securityholders Agreement), the Purchaser may assign any of its rights under
this Agreement. The Company may not assign any of its rights under this
Agreement without the written consent of the Purchaser. Except as provided in
Article 7 or in this
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Section 11.3 or as provided in Section 8(h) of the Note, no
Person other than the parties hereto and their successors and permitted assigns
is intended to be a beneficiary of any of the Transaction Documents.
11.4 Amendment and Waiver.
(a) No failure or delay on the part of the Company or
the Purchaser in exercising any right, power or remedy hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to the
Company or the Purchaser at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to
any provision of this Agreement, any waiver of any provision of this Agreement,
and any consent to any departure by the Company from the terms of any provision
of this Agreement, shall be effective (i) only if it is made or given in writing
and signed by the Company and the Purchaser in accordance with Section 11.5, and
(ii) only in the specific instance and for the specific purpose for which made
or given. Except where notice is specifically required by this Agreement, no
notice to or demand on the Company in any case shall entitle the Company to any
other or further notice or demand in similar or other circumstances.
11.5 Determinations, Requests or Consents. All
determinations, requests, consents, waivers or amendments to be made by the
Purchaser in its opinion or judgment or with its approval or otherwise
pursuant to the Transaction Document shall be made (i) with respect to the
Notes (including, without limitation, Articles 8 and 9 hereof), by Holders of
a majority in aggregate principal amount of Notes outstanding or to be issued
pursuant to this Agreement, and (ii) with respect to the Common Shares, by
the holders of a majority of the Common Stock outstanding or to be issued
pursuant to this Agreement; provided, however, that the consent of all
Holders is needed to: (a) reduce the principal of, rate of interest on or
fees payable with respect to the Notes; (b) extend the final scheduled
maturity date of the principal amount of the Notes; (c) change the percentage
of the aggregate principal amount of Notes which shall be required for the
Holders to take any
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action hereunder; (d) amend or waive Section 8.1 or this Section 11.5 or the
definitions of the terms used in Section 8.1 or this Section 11.5 insofar as
such definitions affect the substance of Section 8.1 or this Section 11.5; or
(e) consent to the assignment or other transfer by the Company of any of its
rights and obligations under this Agreement or the Notes.
11.6 Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
11.7 Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
11.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO PRINCIPLES OF CONFLICT OF LAWS OF SUCH STATE.
11.9 CONSENT TO JURISDICTION. THE COMPANY HEREBY CONSENTS TO
THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE BOROUGH OF
MANHATTAN, STATE OF NEW YORK AND IRREVOCABLY AGREES THAT, SUBJECT TO THE
PURCHASER'S ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR THE NOTE SHALL BE LITIGATED IN SUCH COURTS. THE COMPANY
ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND
WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE
BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT, THE
NOTE OR THE OBLIGATIONS.
11.10 WAIVER OF JURY TRIAL. THE COMPANY AND THE PURCHASER HEREBY
WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF THIS AGREEMENT OR THE NOTE. THE COMPANY AND THE
PURCHASER ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A
BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING
INTO THIS AGREEMENT AND THE NOTE AND THAT EACH WILL CONTINUE TO RELY ON THE
WAIVER IN THEIR RELATED FUTURE DEALINGS. THE COMPANY AND PURCHASER FURTHER
WARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL,
AND THAT EACH
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KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.
11.11 Severability. If any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired, unless the
provisions held invalid, illegal or unenforceable shall substantially impair the
benefits of the remaining provisions hereof.
11.12 Rule of Construction. Unless the context otherwise
requires, "or" is not exclusive.
11.13 Entire Agreement. This Agreement, together with the
Exhibits and Schedules and the other Transaction Documents, is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein and therein. There are
no restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein or therein. This Agreement, together with the
Exhibits and Schedules, and the other Transaction Documents supersede all prior
agreements and understandings between the parties with respect to such subject
matter.
11.14 Certain Expenses. The Company will pay all expenses of the
Purchaser (including reasonable fees, charges and disbursements of counsel) in
connection with any amendment, supplement, modification or waiver of or to any
provision of this Agreement or the Note, or any consent to any departure by the
Company from the terms of any provision of this Agreement or the Note.
11.15 Publicity. Except as may be required by applicable law,
neither party hereto shall issue a publicity release or announcement or
otherwise make any public disclosure concerning this Agreement or the
transactions contemplated hereby, without prior approval by the other party
hereto. If any announcement is required by law to be made by any party hereto,
prior to making such announcement such party will deliver a draft of such
announcement to the other party and shall give the other party an opportunity to
comment thereon.
47
<PAGE>
11.16 Further Assurances. Each of the parties shall execute such
documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations, or other actions by, or
giving any notice to, or making any filings with, any Governmental Authority or
any other Person) as may be reasonably required or desirable to carry out or to
perform the provisions of this Agreement.
48
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed and delivered by their respective officers hereunto duly
authorized as of the date first above written.
TNF HOLDINGS COMPANY, INC.
By:/s/Marsden S. Cason
---------------------------------
Name: Marsden S. Cason
Title: President
WHITNEY SUBORDINATED DEBT
FUND, L.P.
By:/s/Ray E. Newton, III
---------------------------------
Name: Ray E. Newton, III
A General Partner
49
<PAGE>
SCHEDULE 1
SUBORDINATED NOTE
$24,333,333 principal amount
$24,013,645 purchase price
COMMON SHARES
319,688 Shares of Common Stock
$319,688 purchase price
<PAGE>
SCHEDULE 2
Number of Shares
Name of Stockholder of Common Stock
------------------- ----------------
Whitney Subordinated Debt Fund, L.P. 319,688
Marsden S. Cason 63,937.5
William A. McFarlane 63,937.5
Kabushiki Kaisha Goldwin 38,362.8
Richard T. Peery 6,393.8
Jack L. Richardson 6,393.8
Philip S. Schlein 6,393.8
Kenneth F. Siebel 6,393.8
TOTAL 511,501
Number of Shares
Name of Stockholder of Preferred Stock
------------------- ------------------
Whitney 1990 Equity Fund, L.P. 1,536,000
J.H. Whitney & Co. 384,000
---------
TOTAL 1,920,000
<PAGE>
AMENDMENT NO. 1 DATED AS OF MARCH 1, 1995 ("Amendment No. 1") TO
SUBORDINATED NOTE AND COMMON STOCK PURCHASE AGREEMENT DATED AS OF
JUNE 7, 1994, BETWEEN THE NORTH FACE, INC. AND WHITNEY SUBORDINATED
DEBT FUND, L.P. AND THE SUBORDINATED PROMISSORY NOTE DUE JUNE 7, 2001
This Amendment No. 1, dated as of March 1, 1995, is entered into between THE
NORTH FACE, INC., a Delaware corporation (the "Company") and WHITNEY
SUBORDINATED DEBT FUND, L.P., a Delaware limited partnership ("Whitney Debt
Fund"), in its capacity as sole holder of the Securities as defined in, and
issued and sold to the Whitney Debt Fund pursuant to, the provisions of the
Subordinated Note and Common Stock Purchase Agreement (the "Note Agreement")
dated as of June 7, 1994, between the Company and Whitney Debt Fund.
WHEREAS, the Company desires to enter into that certain Amended and Restated
Loan and Security Agreement (the "Loan Agreement") dated as of March 1, 1995,
among Heller Financial, Inc. as a lender and as agent ("Agent") for the
financial investigators parties to the Loan Agreement ("Lenders") and the
Company, which provides, among other things, for (i) the Loan Agreement to
increase the revolving line of credit commitment to $44 million and replace the
existing Loan and Security Agreement dated as of June 7, 1994, (ii) certain term
loans in the aggregate principal amount of $6 million for certain proposed
Capital Expenditures, (iii) provisions respecting The North Face (Canada), Inc.,
and (iv) other related loan documents, exhibits and documents as described in
the Loan Agreement; and
WHEREAS, the Whitney Investors (as defined in the Loan Agreement) have consented
to the Loan Agreement; and
WHEREAS the parties hereto desire to make certain revisions to the Note
Agreement and the Subordinated Promissory Note due June 7, 2001 issued pursuant
thereto (the "Note"),
NOW, THEREFORE, in consideration of the forgoing, the agreements set forth
herein and for good and valuable consideration, the receipt and adequacy of
which is hereby acknowledged, the parties hereto agree as follows:
1. Amendments to Article 1 of the Note Agreement
(a) The following definitions are hereby added to Article 1 of the Note
Agreement:
"Agent" means Heller Financial, Inc. as Agent under the Senior
Loan Agreement, any successor agent under the Senior Loan Agreement and any
agent under any agreement refinancing the Senior Loan Agreement.
"Canadian Documents" has the meaning set forth in the Senior Loan
Agreement.
"First Amendment" means Amendment No. 1 dated as of March 1, 1996
to Subordinated Note and Common Stock Purchase Agreement dated as of June 7,
1994 between The North Face, Inc. and Whitney Subordinated Debt Fund, L.P. and
the Subordinated Promissory Note due June 7, 2001.
"Lenders" means those financial institutions parties to the
Senior Loan Agreement.
"TNF Canada" means The North Face (Canada), Inc.
"Permitted Canadian Financing" has the meaning set forth in the
Senior Loan Agreement.
<PAGE>
(b) The following definitions in Article 1 of the Note Agreement are
hereby amended as follows:
"Domestic Subsidiary" shall include TNF Canada and its
Subsidiaries until TNF Canada enters into a Permitted Canadian Financing, and
thereafter TNF Canada and its Subsidiaries shall no longer be Domestic
Subsidiaries.
"Fiscal Year" means each twelve-month period ending on December
31 to each year (or for the first fiscal year following the Closing Date, the
period from the Closing Date to December 31, 1994).
"Fixed Charges"; the word "less" before clause (d) is changed to
"plus".
"Permitted Encumbrance" is amended to add the following clauses
(i) and (j): (I) Liens in favor of the Company granted by TNF Canada, which may
be assigned to Agent, and (J) Liens securing Indebtedness to TNF Canada
permitted under the Senior Loan Agreement.
"Senior Debt"; shall mean Senior Indebtedness as defined in the
Note.
"Senior Loan Agreement" shall mean the Loan Agreement as defined
in the First Amendment, as the same may be modified, amended or supplemented
from time to time in accordance with the terms thereof and of the Note
Agreement.
"TNF Scotland" shall be redesignated TNF Europe (with corresponding
changes to each reference to TNF Scotland) and shall mean The North Face
(Europe) Limited, a private limited company incorporated in Scotland under the
Companies Act.
2. Consent and amendments relating to TNF Canada:
(a) Whitney Debt Fund hereby consents to the formation of TNF Canada, and
to the Investments of the Company in TNF Canada in the form of capital
contributions, intercompany loans or intercompany accounts receivable.
(b) Section 9.1 of the Note Agreement is amended to add the following
clauses (f) and (g) as permitted Indebtedness:
"(f) intercompany Indebtedness and accounts receivable of TNF Canada
to the Company; and
(g) Indebtedness of TNF Canada permitted under the Senior Loan
Agreement."
and to delete the last sentence of such Section 9.1 and replace it with the
following:
"Except for Indebtedness and intercompany liabilities described in the
preceding sentence, Borrower will not, and will not permit any of its
Subsidiaries to, incur any Indebtedness or liabilities except for trade
payables, operating leases and other liabilities not constituting
Indebtedness in the ordinary course of business not delinquent or with
respect to which Borrower or any of its Subsidiaries is consenting in good
faith the amount or validity thereof by appropriate proceedings and then only
to the extent that Borrower or any of its Subsidiaries has established
adequate reserves therefor, if appropriate under GAAP."
2
<PAGE>
(c) Notwithstanding the provisions of Section 9.3, TNF Canada may enter
into a Permitted Canadian Financing.
(d) Whitney Debt Fund hereby consents to the regulation by the Company of
The North Face branded inventory of La Sport Fashions, Inc.
(e) If TNF Canada enters into a Permitted Canadian Financing, the Company
and Whitney Debt Fund agree to negotiate in good faith in order to amend the
covenants contained in Section 9.16 of the Note Agreement and the related
definitions to exclude TNF Canada and provide criteria for evaluating the
Company's performance and financial condition which shall be the same after such
exclusion and consistent with corresponding amendments to the Loan Agreement.
(f) Section 9.11 of the Note Agreement is amended to add the following:
"TNF Canada will remain a wholly-owned Subsidiary of the Company."
3. Consent and amendments relating to the Loan Agreement:
(a) Whitney Debt Fund hereby consents to the Company's entering into the
Senior Loan Agreement, as defined in this Amendment, and to the terms thereof.
(b) Section 9.14(1) of the Note Agreement is amended by deleting the
number "$33,000,000" and replacing it with "$59,000,000."
(c) Section 8.1(d) of the Note Agreement is amended by deleting the words
"as in effect on the date hereof" form clause (4).
(d) Section 9.2 of the Note Agreement is amended to insert the following
in line 4 at the end of the first clause: "customary indemnities to agents,
officers and directors, and any guaranty by the Company of the obligations of
TNF Canada under its lease."
4. Leverage Ratio: Section 9.16(d) of the Note Agreement shall be deleted, and
there shall be substituted in place the following;
"(d) Leverage Ratio. Commencing with the fiscal quarter ending March 31,
1995, the Leverage Ratio at the end of each fiscal quarter for the rolling four
(4) quarter period (or three (3) fiscal quarters as of March 31, 1995) ending on
the last day of each fiscal quarter shall not exceed 7.00."
5. Consent to Change of Fiscal Year. Whitney Debt Fund hereby consents to the
Company's change of its fiscal year to be as defined in this Amendment No. 1.
6. Amendments to the Note. The Note is hereby amended as follows:
(a) The definitions of "Lender", "Senior Indebtedness" and "Senior Loan
Agreement" in Section 8(a) of the Note shall be deleted and replaced with the
following:
"Lender" shall mean the Agent as defined in the Senior Loan Agreement,
or if there is no Agent, the Lender(s) under the Senior Loan Agreement.
3
<PAGE>
"Senior Indebtedness" shall mean the Obligations under and as
defined in the Senior Loan Agreement (including without limitation any
interest that accrues after the commencement of any case, proceeding or other
legal action relating to the bankruptcy, insolvency or reorganization of the
Company whether or not such interest constitutes an allowed claim) and any
renewal, extension or refinancing thereof; provided, however that the
principal amount of Senior Indebtedness shall not exceed $50,000,000 less the
amount of any payment or prepayment of principal on the Term Loan (as defined
in the Senior Loan Agreement), less any permanent reductions of the aggregate
amount of all Revolving Loan Commitments (as defined in the Senior Loan
Agreement) plus $9,000,000; and provided further that any such refinancing
shall not (i) result in any increase in the amount of, or any earlier
scheduled maturity date or payment date of, any required payment or
prepayment of the principal amount of Senior Indebtedness of the Company of
its Subsidiaries, nor (ii) result in any increases in the due rate of
interest under the Senior Loan Agreement, nor (iii) result in any material
increase in the prepayment charges, loan or other amounts payable with
respect to such Senior Indebtedness, taken as a whole in relation to the
comparable terms and provisions of the Senior Loan Agreement as in effect on
the date of the First Amendment (as defined in the Purchase Agreement), and
the terms, provisions and conditions of such renewal, extension or
refinancing, taken as a whole, that are comparable to the terms, provisions
and conditions of the Senior Loan Agreement shall not be materially more
burdensome to the Company and its Subsidiaries than such terms, provisions
and conditions of the Senior Loan Agreement as in effect on the date of the
First Amendment.
"Senior Loan Agreement" shall mean the Amended and Restated Loan and
Security Agreement dated as of March 1, 1995 among the Company, certain
financial institutions from time to time parties thereto and Heller Financial,
Inc., as agent for such institutions, as amended, supplemented, reserved or
modified from time to time (in accordance with the terms thereof) and any
agreement restructuring, refunding or refinancing all or any portion of the
obligations under such agreements.
(b) All references in the Note to the Purchase Agreement shall mean the
Purchase Agreement as amended by the First Amendment.
7. Effect of Amendment. This Amendment No. 1 is duly executed in accordance
with Section 11.4 and 11.5 of the Note Agreement and Section 6 of the Note, and,
except as specifically set forth above, all covenants, terms, provisions and
conditions of the Note Agreement and the Notes are, and shall remain, in full
force and effect.
8. Effectiveness. This Amendment No. 1 shall be effective upon the Closing
Date, as defined in the Loan Agreement.
9. Governing Law. This Amendment No. 1 shall be governed by and construed in
accordance with the internal laws of the State of New York without regard to
principles of conflict of laws of such state.
4
<PAGE>
10. Counterparts. This Amendment No. 1 may be executed in any number of
counterparts and by the parties hereto in separate counterparts, such of which
when so executed shall be deemed to be an original and all of which when taken
together shall constitute one and the same agreement.
THE NORTH FACE, INC. WHITNEY SUBORDINATED
DEBT FUND, L.P.
By /s/ William A. McFarlane By /s/ Ray E. Newton, III
--------------------------------- -------------------------------------
William A. McFarlane Ray E. Newton, III
President a General Partner
5
<PAGE>
AMENDMENT NO. 2 DATED AS OF MARCH 27, 1996 ("Amendment No. 2") TO
SUBORDINATED NOTE AND COMMON STOCK PURCHASE AGREEMENT DATED AS OF JUNE 7,
1994 BETWEEN THE NORTH FACE, INC. AND WHITNEY SUBORDINATED DEBT FUND, L.P.
AND THE SUBORDINATED PROMISSORY NOTE DUE JUNE 7, 2001
This Amendment No. 2, dated as of March 27, 1996, is entered into between
THE NORTH FACE, INC., a Delaware corporation (the "Company"), and WHITNEY
SUBORDINATED DEBT FUND, L.P., a Delaware limited partnership ("Whitney Debt
Fund"), in its capacity as sole holder of the Securities as defined in, and
issued and sold to the Whitney Debt Fund pursuant to, the provisions of the
Subordinated Note and Common Stock Purchase Agreement (the "Note Agreement")
dated as of June 7, 1994, between the Company and Whitney Debt Fund, as amended
by Amendment No. 1 thereto dated as of March 1, 1995.
WHEREAS, the Company desires to enter into that certain Third Amendment to
Amended and Restated Loan and Security Agreement dated as of March 27, 1996,
which amends the Amended and Restated Loan and Security Agreement (together with
the amendments thereto described in this clause, the "Amended Loan Agreement")
dated as of March 1, 1995, among Heller Financial, Inc. as a lender and as agent
("Agent") for the financial institutions parties to the Loan Agreement
("Lenders") and the Company, as previously amended by that certain First
Amendment and Second Amendment thereto, which Third Amendment provides, among
other things, for (i) the Amended Loan Agreement to increase the revolving line
of credit commitment to $58 million, (ii) certain term loans in the aggregate
principal amount of $7 million for certain Capital Expenditures, and (iii) other
related amendments, loan documents and exhibits as described in the Amended Loan
Agreement; and
WHEREAS, the Whitney Investors (as described in the Amended Loan Agreement)
have consented to the Amended Loan Agreement; and
WHEREAS the parties hereto desire to make certain revisions to the Note
Agreement and the Subordinated Promissory Note due June 7, 2001 issued pursuant
thereto (the "Note").
NOW, THEREFORE, in consideration of the foregoing, the agreements set forth
herein and for good and valuable consideration, the receipt and adequacy of
which is hereby acknowledged, the parties hereto agree as follows:
1
<PAGE>
1. Amendments to Article 1 of the Note Agreement.
(a) The following definition is hereby added to Article 1 of the Note
Agreement:
"Second Amendment" means Amendment No. 2 dated as of March 27, 1996,
to Subordinated Note and Common Stock Purchase Agreement dated as of June 7,
1994 between The North Face, Inc. And Whitney Subordinated Debt Fund, L.P. and
the Subordinated Promissory Note due June 7, 2001, as amended by the First
Amendment.
(b) The following definition in Article 1 of the Note Agreement is hereby
amended as follows:
"Senior Loan Agreement" shall mean the Amended Loan Agreement as
defined in the Second Amendment, as the same may be modified, amended or
supplemented from time to time in accordance with the terms thereof and of the
Note Agreement.
2. Consent And Amendments Relating To Loan Agreement
(a) Whitney Debt Fund hereby consents to the Company's entering into the
Amended Loan Agreement, as defined in this Amendment No. 2, and to the terms
thereof.
(b) Section 9.14(i) of the Note Agreement is amended by deleting the
number "$59,000,000" and replacing it with "$77,000,000."
3. Amendments To The Note. The Note is hereby amended as follows:
(a) The definitions of "Senior Indebtedness," and "Senior Loan Agreement"
in Section 8(a) of the Note shall be deleted and replaced with the following:
"Senior Indebtedness" shall mean the Obligations under and as
defined in the Senior Loan Agreement (including without limitation any
interest that accrues after the commencement of any case, proceeding or other
legal action relating to the bankruptcy, insolvency or reorganization of the
Company whether or not such interest constitutes an allowed claim) and any
renewal, extension or refinancing thereof; provided, however, that the
principal amount of Senior Indebtedness shall not exceed $65,000,000 less the
amount of any payment or prepayment of principal on the Term Loan (as defined
in the Senior Loan Agreement), less any permanent reductions of the aggregate
amount of all Revolving Loan Commitments (as defined in the Senior Loan
Agreement) plus $12,000,000; and provided further that any such refinancing
shall not (i) result in any increase in the amount of, or any earlier
scheduled maturity date or
2
<PAGE>
payment date of, any required payment or prepayment of the principal amount
of Senior Indebtedness of the Company or its Subsidiaries, nor (ii) result in
any increase in the rate of interest under the Senior Loan Agreement, nor
(iii) result in any material increase in the prepayment charges, fees or
other amounts payable with respect to such Senior Indebtedness, taken as a
whole in relation to the comparable terms and provisions of the Senior Loan
Agreement as in effect on the date of the Second Amendment (as defined in the
Purchase Agreement), and the terms, provisions and conditions of such
renewal, extension or refinancing, taken as a whole, that are comparable to
the terms, provisions and conditions of the Senior Loan Agreement shall not
be materially more burdensome to the Company and its Subsidiaries than such
terms, provisions and conditions of the Senior Loan Agreement as in effect on
the date of the Second Amendment.
"Senior Loan Agreement" shall mean the Amended and Restated Loan and
Security Agreement dated as of March 1, 1995 among the Company, certain
financial institutions from time to time parties thereto and Heller Financial,
Inc., as agent for such institutions, as amended by the First Amendment, Second
Amendment and Third Amendment thereto, as amended, supplemented, renewed or
modified from time to time (in accordance with the terms thereof) and any
agreement restructuring, refunding or refinancing all or any portion of the
obligations under such agreement.
(b) All references in the Note to the Purchase Agreement shall mean the
Purchase Agreement as amended by Amendment No. 1 thereto dated as of March 1,
1995, and the Second Amendment.
4. Effect Of Amendment. This Amendment No. 2 is duly executed in accordance
with Sections 11.4 and 11.5 of the Note Agreement and Section 6 of the Note,
and, except as specifically set forth above, all covenants, terms, provisions
and conditions of the Note Agreement and the Note are, and shall remain, in full
force and effect.
5. Effectiveness. This Amendment No. 2 shall be effective upon the effective
date of the Third Amendment to the Amended Loan Agreement described in the
second paragraph hereof.
6. Governing Law. This Amendment No. 2 shall be governed by and construed in
accordance with the internal laws of the State of New York without regard to
principles of conflict of laws of such state.
7. Counterparts. This Amendment No. 2 may be executed in any number of
counterparts evidenced by manual signatures hereto delivered directly or sent by
facsimile transmission, and by the parties hereto in separate counterparts, each
of which when so
3
<PAGE>
executed and delivered shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
THE NORTH FACE, INC. WHITNEY SUBORDINATED DEBT
FUND, L.P.
By /s/ Marsden S. Cason By /s/ Ray E. Newton, III
--------------------------------- -------------------------------------
Marsden S. Cason Ray E. Newton, III
Chief Executive Officer a General Partner
4
<PAGE>
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT
TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT
AND SUCH LAWS.
THIS NOTE IS SUBORDINATE AND JUNIOR IN RIGHT OF PAYMENT IN THE MANNER PROVIDED
IN SECTION 8 HEREOF.
TNF HOLDINGS COMPANY INC.
SUBORDINATED PROMISSORY NOTE
DUE JUNE 7, 2001
New York, New York
June 7, 1994
FOR VALUE RECEIVED, the undersigned, TNF HOLDINGS COMPANY, INC.. a Delaware
corporation (the "Company"), promises to pay to the order of Whitney
Subordinated Debt Fund, L.P., or its registered assigns (the "Holder"), the
principal sum of TWENTY-FOUR THREE HUNDRED THOUSAND AND THIRTY-THREE
($24,333,333) on June 7, 2001, with interest thereon from time to time as
provided herein.
1. Purchase Agreement. This Subordinated Promissory Note (this
"Note") is one of the Notes (the "Notes") issued pursuant to the Subordinated
Note and Common Stock Purchase Agreement, dated as of the date hereof, between
the Company and the initial Holder (the "Purchase Agreement"), and the Holder is
entitled to the benefits of this Note and the Purchase Agreement and may enforce
the agreements of the Company contained herein and therein and exercise the
remedies provided for hereby and thereby or otherwise available in respect
hereto and thereto.
<PAGE>
exercise the remedies provided for hereby and thereby or otherwise
available in respect hereto and thereto. Capitalized terms used herein
without definition are used herein with the meanings ascribed to such term
in the Purchase Agreement.
2. Interest.
The Company promises to pay interest on the principal amount of
this Note at the rate of 10.1011% per annum. The Company shall pay accrued
interest quarterly on each March 20, June 20, September 20, and December 20
of each year or, if any such date shall not be a Business Day, on the next
succeeding Business Day to occur after such date (each date upon which
interest shall be so payable, an "INTEREST PAYMENT DATE"), beginning on June
20, 1994. Interest on this Note shall be paid by wire transfer of immediately
available funds to an account designated by the Holder. Interest on this
Note shall accrue from the date of issuance until repayment of the principal
and payment of all accrued interest in full. Interest shall be computed on
the basis of a 360 day year of twelve 30-day months. Notwithstanding the
foregoing provisions of this Section 2, but subject to applicable law, upon
the occurrence and during the continuance of an Event of Default, principal
of and overdue interest on this Note shall bear interest, from the date of
the occurrence of such Event of Default until such Event of Default is cured
or waived payable on demand in immediately available funds, at a rate equal
to the rate of interest otherwise in effect pursuant to this Section 2, PLUS
2% per annum. Subject to applicable law, any interest that shall accrue on
overdue interest on this Note as provided in the preceding sentence and shall
not have been paid in full on or before the next Interest Payment Date to
occur after the Interest Payment Date on which the overdue interest became
due and payable shall itself be deemed to be overdue interest on this Note to
which the preceding sentence shall apply.
3. Mandatory Prepayment.
(a) Initial Public Offerings. Upon the consummation of an
Initial Public Offering (as hereinafter defined) and after the prior payment in
full in cash of all Senior Indebtedness and termination of all commitments to
extend financing pursuant thereto, the Company shall prepay this Note (together
with interest accrued thereon) in an amount equal to the lesser of (i) the Net
Cash Proceeds (as
2
<PAGE>
hereinafter defined) received from the Initial Public Offering, or (ii) the
outstanding principal amount of this Note (together with interest accrued
thereon) and all other amounts due under this Note and the Purchase Agreement,
within 5 Business Days after receipt by the Company of the proceeds of such
Initial Public Offering.
For the purposes hereof, "Initial Public Offering" means the sale by the
Company or any Subsidiary of the Company of its capital stock pursuant to a
registration statement on Form S-1 or otherwise under the Securities Act; and
"NET CASH PROCEEDS" means (a) the cash proceeds received by the Company or any
Subsidiary of the Company from an Initial Public Offering, MINUS (b) reasonable
brokerage commissions or underwriting fees and other reasonable fees and
expenses (including,, without limitation, reasonable fees, charges and
disbursements of counsel and reasonable fees and expenses of investment bankers)
relating to such Initial Public Offering MINUS (c) the amount required to pay in
full all Senior Indebtedness.
(b) NOTICE. The Company. shall give written notice to-the
Holder of any mandatory prepayment pursuant to this Section 3 at least 10
Business Days prior to the date of such prepayment. Such notice shall n in the
manner specified in Section 11.2 of the Purchase Agreement.
4. OPTIONAL PREPAYMENT.
(a) UPON NOTICE GIVEN, to the Holder as provided in subsection
(b) of this Section 4, the Company, at its option, may, at any time after the
prior payment in full in CASH OF THE SENIOR INDEBTEDNESS AND TERMINATION OF all
COMMITMENTS TO EXTEND FINANCING FOR SENIOR INDEBTEDNESS, prepay all or any
portion of this Note, pro rata with the prepayment of all other Notes issued
pursuant to the Purchase Agreement, at any time, by paying an amount equal to
the outstanding principal amount of this Note, or the portion of this Note
called for prepayment, together with interest accrued and unpaid thereon to the
date fixed for prepayment and all other amounts due under this Note and the
Purchase Agreement, WITHOUT PENALTY OR PREMIUM.
(b) The Company shall give written notice of prepayment of this
Note or any portion THEREOF NOT LESS THAN 30 NOR MORE THAN 60 DAYS PRIOR TO THE
DATE FIXED FOR SUCH PREPAYMENT. Such notice of prepayment shall be given in the
manner specified in Section 11.2 of the Purchase Agreement.
3
<PAGE>
Upon notice of prepayment being given by the Company, the Company covenants
and agrees that it will prepay, on the date therein fixed for prepayments,
this Note or the portion hereof so called for prepayment, at the outstanding
principal amount thereof or the portion thereof so called for prepayment
together with interest accrued and unpaid thereon to the date fixed for such
prepayment.
5. APPLICATION OF PREPAYMENTS. All mandatory prepayments under
Section 3 of this Note and all optional prepayments under Section 4 of this Note
shall include payment of accrued interest on the principal amount so prepaid and
all other amounts due under this Note and the Purchase Agreement and shall be
applied first to such other amounts, including all Costs, expenses and
indemnities payable under the Purchase Agreement, then to payment of default
interest, if any, then to payment of accrued interest, and thereafter to
principal.
6. AMENDMENTS. Amendments and modifications of this Note may be
made only in the manner provided in Section 11.4 of the Purchase Agreement.
7. DEFAULTS AND REMEDIES.
(a) EVENTS OF DEFAULT. An Event of Default shall occur if:
(i) the Company shall default in the payment of the
principal of this Note, when and as the same shall become due and payable,
whether at maturity or at a date fixed for prepayment or by acceleration or
otherwise; or
(ii) the Company shall default in the payment of any
installment of interest on this Note according to its terms, when and as the
same shall become due and payable and such default shall continue for a period
of 5 days; or
(iii)the Company shall default in the due observance or
performance of any covenant, condition or agreement contained in Sections
8.1(A), (B) and (C), 8.3, 8.4 or 9.6 of the Purchase Agreement; or
(iv) the Company shall default in the due observance or
performance of any covenant, condition or
4
<PAGE>
agreement on the part of the Company to be observed or performed pursuant to the
terms hereof or pursuant to the terms of the Purchase Agreement (other than
those referred to in clauses (i), (ii) or (iii) of this Section 7 (a)), and
such default is not remedied or waived within fifteen (15) days after receipt by
the Company of notice from the Holder of such default; or
(v) any representation, warranty, certification or
statement made by or oh behalf of the Company in the Purchase Agreement, the
Note, or in any certificate or other document delivered pursuant hereto or
thereto shall have been incorrect in any material respect when made; or
(vi) the Company shall default (as principal or
guarantor) in the payment of principal of any Indebtedness (other than the
Notes) in a principal amount, individually or in the aggregate, in excess of
$500,000 (other than the Notes), when and as they shall become due and payable
whether at stated maturity, by acceleration or otherwise; or
(vii)any event or condition shall occur that results in
the acceleration of the maturity of any Indebtedness of the Company or any of
its Subsidiaries (other than the Notes), in a principal amount, individually or
in the aggregate, in excess of $500,000; or
(viii)an involuntary proceeding shall be commenced or
an involuntary petition shall be filed in a court of competent jurisdiction
seeking (a) relief in respect of the Company or any Subsidiary, or of a
substantial part of its property or assets, under Title 11 of the United States
Code, as now constituted or hereafter amended, or any other Federal or state
bankruptcy, insolvency, receivership or similar law, (b) the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar official for
the Company or any Subsidiary, or for a substantial part of its property or
assets, or (c) the winding up or liquidation of the Company or any Subsidiary;
and such proceeding or petition shall continue undismissed for 60 days, or an
order or decree approving or ordering any of the foregoing shall be entered; or
(ix) the Company or any Subsidiary shall (a)
voluntarily commence any proceeding or file any petition seeking relief under
Title 11 of the United States Code, as
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<PAGE>
now constituted or hereafter amended, or any other Federal or state bankruptcy,
insolvency, receivership or similar law, (b) consent to the institution of, or
fail to contest in a timely and appropriate manner, any proceeding or the
filing of any petition described in paragraph (viii) of this Section 7(a), (c)
apply for or consent to the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for the Company or any Subsidiary,
or for a substantial part of its property or assets, (d) file an answer
admitting the material allegations of a petition filed against it in any such
proceeding, (e) make a general assignment for the benefit of creditors, (f)
become unable, admit in writing its inability or fail generally to pay its debts
as they become due or (g) take any action for the purpose of effecting any of
the foregoing; or
(x) one or more judgments for the payment of money in
an aggregate amount in excess of $25,000 (to the extent not covered by
insurance) shall be rendered against the Company, any Subsidiary or both and the
same shall remain undischarged for a period of 60 days during which execution
shall not be effectively stayed, or any action shall be legally taken by a
judgment creditor to levy upon assets or properties of the Company or any
Subsidiary to enforce any such judgment.
(b) ACCELERATION. If an Event of Default occurs under clauses
(a) (viii) or (ix) (other than subclauses (f) or (g)) of this Section 7, then
the outstanding principal of and all accrued interest on this Note shall
automatically become immediately due and payable, without presentment, demand,
protest or notice of any kind, all of which are expressly waived. If any other
Event of Default occurs and is continuing, Holders of a majority of the then
outstanding principal amount of the Notes, by written notice to the Company, may
(subject to Section 8(d) hereof) declare the principal of and accrued interest
on all the Notes to be due and payable immediately. Upon such declaration, such
principal and interest shall become immediately due and payable. The Holders of
a majority of the then outstanding principal amount of the Notes may rescind an
acceleration and its consequences if all existing Events of Default have been
cured or waived, except nonpayment of principal or interest that has become due
solely because of the acceleration, and if the rescission would not conflict
with any judgment or decree. Any notice of rescission shall be given in the
manner specified in Section 11.2 of the Purchase Agreement.
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<PAGE>
8. SUBORDINATION. The initial Holder of this Note covenants and
agrees, and each subsequent Holder of this Note, by its acceptance hereof, shall
be deemed to have covenanted and agreed, that the payment of the Subordinated
Indebtedness shall be subordinated Indebtedness shall be subordinate and subject
in right of payment, to the extent and in the manner hereinafter set forth, and
that each holder of Senior Indebtedness shall be deemed to have acquired Senior
Indebtedness in reliance upon the provisions of this Section 8. The provisions
of this Section 8 shall be reinstated if at any time any payment of any of the
Senior Indebtedness is rescinded or must otherwise be returned by any holder of
Senior Indebtedness or any representative of such holder upon the insolvency,
bankruptcy or reorganization of any Loan Party (as defined in the Senior Loan
Agreement). Other than as expressly provided in this Section 8, no Holder shall
accept, demand or retain (by set off, redemption, repurchase or in any other
manner) any payment or prepayment of principal of Subordinated Indebtedness.
(a) DEFINITIONS. As used in this Section 8, the following terms
shall have the following meanings:
"LENDER" shall mean the Lender as defined in the Senior Loan
Agreement.
"MATERIAL SENIOR COVENANT DEFAULT" shall mean (i) any default under
the provisions of subsections 5.1(A) through (C), 5.1(E) through (G)r 5.3, 5.8
5.9, 5.10, 5.13, 5.17 or Section 6 or 7 of the Senior Loan Agreement, or (ii)
the existence of an Event of Default under subsections 8.1(B) (excluding a
default on this Note unless and until the Holder has delivered a notice pursuant
to 8(d) hereof with respect to such default), 8.1(G), 8.1(H), 8.1(K), 8.1(M) or
8.1(N), 8.1(0) or 8.1(P) of the Senior Loan Agreement.
"SENIOR DEFAULT' shall mean a Senior Payment Default or a Material
Senior Covenant Default.
"SENIOR INDEBTEDNESS" shall mean the Obligations under and as defined
in the Senior Loan Agreement (including without limitation any interest that
accrues after the commencement of any case, proceeding or other legal action
relating to the bankruptcy, insolvency or reorganization of the Company whether
or not such interest constitutes an allowed claim) and any renewal, extension or
refinancing
7
<PAGE>
thereof; PROVIDED, HOWEVER, that the principal amount of Senior Indebtedness
shall not exceed the aggregate principal amount of the Commitments (as defined
in the Senior Loan Agreement) as in effect as of the date of this Note, LESS the
amount of any payment or prepayment of principal on the Term Loan (as defined in
the Senior Loan Agreement), LESS any permanent reductions of the aggregate
amount of all Revolving Loan Commitments (as defined in the Senior Loan
Agreement) PLUS $5,000,000; and PROVIDED further that any such refinancing shall
not result in any increase in the amount of, or any earlier scheduled maturity
date or payment date of, any required payment or prepayment of the principal
amount of Senior Indebtedness of the Company or its Subsidiaries, nor result in
any increase in the rate of interest under the Senior Loan Agreement, nor result
in any material increase in the prepayment charges, fees or other amounts
payable with respect to such Senior Indebtedness, taken as a whole in relation
to the comparable terms and provisions of the Senior Loan Agreement as in effect
on the date hereof, and the terms, provisions and conditions of such renewal,
extension or refinancing, taken as a whole, that are comparable to the terms,
provisions and conditions of the Senior Loan Agreement shall not be materially
more burdensome to the Company and its Subsidiaries than such terms, provisions
and conditions of the Senior Loan Agreement as in effect on the date hereof.
"SENIOR PAYMENT DEFAULT" shall mean any default in the payment of any
Senior Indebtedness.
"SENIOR LOAN AGREEMENT" shall mean the Loan and Security Agreement
dated as of the date hereof between the Company and Heller Financial, Inc., as
amended, supplemented, renewed or modified from time to time (in accordance with
the terms thereof), and any agreement restructuring, refunding or refinancing
all or any portion of the obligations under such agreement.
"SUBORDINATED INDEBTEDNESS" shall mean (i) the principal of and
interest (including, without limitation, interest that accrues but. is not paid
pursuant to Section 2(b)) on this Note; and (ii) any other obligations of the
Company arising out of or under the Purchase Agreement or this Note.
(b) GENERAL. Subject to the rights of the Holder to receive any
distribution of subordinated securities provided in Section 8(e)(ii), upon the
maturity
8
<PAGE>
of any Senior Indebtedness by lapse of time, acceleration, required prepayment
or otherwise, all Senior Indebtedness shall first be paid in-full, in cash or in
a manner satisfactory to the holders of such Senior Indebtedness,, before any
payment is made on account of the Subordinated Indebtedness or to acquire this
Note.
(c) LIMITATION ON PAYMENT.
(i) Upon the giving by Lender of a Blockage Notice (as defined
below), then unless and until (1) all Senior Defaults that existed on the date
of such Blockage Notice shall have been cured to the satisfaction of Lender or
effectively waived in writing, or (2) the Senior Indebtedness in respect of
which such Senior Defaults shall have occurred shall have been paid in full in
cash or in a manner satisfactory to the holders of the Senior Indebtedness, no
direct or indirect payment (in cash, property, securities or by set-off or
otherwise) of or on account of any Subordinated Indebtedness or as a sinking
fund for this Note or in respect of any redemption, retirement, purchase or
other acquisition. of this Note shall be made during any period prior to the
expiration of the Blockage Period (as defined below).
(ii) For purposes of this Section 8, a "BLOCKAGE NOTICE" is a
notice of a Senior Default, given to the Company and the Holder (or if more
than one Holder, to a designated agent for the Holders, which shall be the
initial Holder until the Lender is otherwise notified in writing) by the
holder or holders of a majority in principal amount of the Senior
Indebtedness then outstanding (or their authorized agent); PROVIDED, HOWEVER,
that (i) in any 360-day period, no more than four effective Blockage Notices
may be given and (ii) no Blockage Notice may be given by reason of any Senior
Default which existed at the time of the giving of a prior Blockage Notice
and which was known at such time to any holder of Senior Indebtedness.
(iii)For purposes of this Section 8. a "BLOCKAGE PERIOD" with
respect to a Blockage Notice is the period commencing upon the date on which a
Blockage Notice is given by Lender and having a duration as follows:
(1) 180 days if the Senior Default to which the Blockage
Notice refers is a Senior Payment Default; or
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<PAGE>
(2) 120 days if the Senior Default to which the Blockage
Notice refers is a Material Senior Covenant Default.
Notwithstanding anything to the contrary in this Section 8, no
Blockage Period or Periods may be in effect for more than 180 days in any period
of 360 consecutive days; and PROVIDED FURTHER, that no Blockage Period or
Periods resulting from a Material Senior Covenant Default may be in effect for
more than 120 days in any period of 360 consecutive days.
(d) LIMITATION ON REMEDIES. As long as any Senior Indebtedness
remains outstanding, upon the occurrence of an Event of Default under this Note,
no Holder shall declare or join in any declaration of this Note to be Due and
payable by reason of such Event of Default or otherwise take or cause to be
taken any action against the Company (including, without limitation, commencing
any legal action against the Company or filing or joining in the filing of any
insolvency petition against the Company) prior to the expiration of 10 Business
Days after a notice of intention to accelerate on account of the occurrence of
such Event of Default shall have been given by Holders entitled to cause such
acceleration pursuant to Section 7(b) of this Note to, and received by, the
Company and the holders of the Senior Indebtedness (a "REMEDY STANDSTILL
PERIOD"); PROVIDED, HOWEVER, that in the case of the existence, at the time the
Remedy Standstill Period would otherwise expire, of an effective Blockage
Period, such Remedy Standstill Period shall be extended to the end of such
Blockage Period; PROVIDED FURTHER, that any Remedy Standstill Period shall
expire immediately in the event the holders of any Senior Indebtedness shall
have caused such Senior Indebtedness to become due prior to its stated maturity.
Notwithstanding the foregoing, the Blockage Period and Remedy
Standstill Period shall be inapplicable or cease to be effective if an Event of
Default pursuant to Section 7(a)(viii) or (ix) (other than under clauses (f) or
(g) thereof) shall have occurred and is continuing. In addition, any existing
Remedy Standstill Period shall cease to be effective if at any time during such
period, any holder of Senior Indebtedness seeks to foreclose upon, attach,
seize, take control of or otherwise exercise remedies under the Senior Loan
Agreement or any Security Document (as defined in the Senior Loan Agreement) on
or with respect to a material portion of the assets of the Loan
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<PAGE>
Parties (as defined in the Senior Loan Agreement) taken as a whole.
Upon the expiration or termination of any Remedy Standstill Period,
the Holder shall be entitled to exercise any of its rights with respect to this
Note other than any right to accelerate the maturity date of this Note based
upon the occurrence of any Event of Default in respect thereto which has been
cured or otherwise remedied during the Remedy Standstill Period.
(e) Subordination upon Certain Events. Upon the occurrence of any
Event of Default under Sections 7(a) (viii) or (ix) of this Note:
(i) Upon any payment or distribution of assets of the Company to
creditors of the Company, holders of Senior Indebtedness shall be entitled to
receive indefeasible payment in full in cash of all obligations with respect to
the Senior Indebtedness before the holder of this Note shall be entitled to
receive any payment in respect of the Subordinated Indebtedness.
(ii) Until all Senior Indebtedness is paid in full, any
distribution to which the Holder would be entitled but for this Section 8 shall
be made to the holders of Senior Indebtedness, as their interests may appear,
except that the Holder may, pursuant to a plan of reorganization under Chapter
11 of the Bankruptcy Code of 1978, as amended, or any similar provision of any
successor legislation thereto, receive securities that are subordinate to the
Senior Indebtedness to at least the same extent as this Note if pursuant to such
plan the aggregate distributions to the holders of the Senior Indebtedness in
the form of cash, securities or other property, by set-off or otherwise, is
equal in value to the full amount of the allowed claim, whether secured or
unsecured, of the holders of the Senior Indebtedness in the manner provided
under Section 8(e)(i) hereof; provided however that no Holder shall accept,
demand or retain (by setoff, redemption, repurchase or in any other manner) any
payment or prepayment of principal of any such securities until the Senior
Indebtedness has been paid in full in cash, and any such payment or prepayment
of principal to which the Holder would be entitled but for this Section 8 shall
be made to the holders of Senior Indebtedness.
(iii) For purposes of this Section 8, a
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<PAGE>
distribution may consist of cash, securities or other property, by set-off or
otherwise.
(iv) Upon any distribution of assets of the Company, the Holders
shall be entitled to rely upon any order or decree made by any court of
competent jurisdiction in which such dissolution, winding-up, liquidation or
reorganization proceeding is pending, or a certificate of the liquidating
trustee or the holders of Senior Indebtedness (or their agent) or other Person
making any distribution to such Holders, for the purpose of ascertaining the
Persons entitled to participate in such distribution (subject in all events in
the case of the Holders to the provisions of this Section 8(e)), the holders of
the Senior Indebtedness, the amount thereof or payable thereon, the amount or
amounts paid or distributed thereon and all other facts pertinent thereto or to
this Section 8.
(f) Payments and Distributions Received. If the Holder shall have
received any payment from or distribution of assets of the Company in respect of
the Subordinated Indebtedness in contravention of the terms of this Section 8
before all Senior Indebtedness is paid in full in cash, then and in such event
such payment or distribution shall be received and held in trust for and shall
be paid over or delivered to the holders of Senior Indebtedness to the extent
necessary to pay all such Senior Indebtedness in full.
(g) Proofs of Claim. If, while any Senior Indebtedness is
outstanding, any Event of Default under Section 7(a)(viii) or (ix) of this Note
occurs, the Holder shall duly and promptly take such action as any holder of
Senior Indebtedness may reasonably request to collect any payment with respect
to this Note for the account of the holders of the Senior Indebtedness and to
file appropriate claim or proofs of claim in respect of this Note. Upon the
failure of the Holder to take any such action, each holder of Senior
Indebtedness is hereby irrevocably authorized and empowered (in its own name or
otherwise), but shall have no obligation, to demand, sue for, collect and
receive every payment or distribution referred to in respect of this Note and to
file claims and proofs of claim and take such other action as it may deem
necessary or advisable for the exercise or enforcement of any of the rights or
interests of the Holder with respect to this Note and the Holder hereby appoints
each holder of Senior Indebtedness or its representative as attorney-in-fact for
such Holder to take
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<PAGE>
any and all actions permitted by this paragraph to be taken by such Holder.
(h) Subrogation. After all amounts payable under or in respect of
Senior Indebtedness are paid in full in cash, the holder of this Note shall be
subrogated to the rights of holders of Senior Indebtedness to receive payments
or distributions applicable to Senior Indebtedness to the extent that
distributions otherwise payable to the holder of this Note have been applied to
the payment of Senior Indebtedness. A distribution made under this Section 8 to
a holder of Senior Indebtedness which otherwise would have been made to the
Holder is not, as between the Company and the Holder, a payment by the Company
on Senior Indebtedness.
(i) Relative Rights. This Section 8 defines the relative rights of
the Holder and the holders of Senior Indebtedness. Nothing in this Section 8
shall (i) impair, as between the Company and the Holder, the obligation of the
Company, which is absolute and unconditional, to pay principal of and interest
(including default interest) on this Note in accordance with its terms; (ii)
affect the relative rights of the Holder and creditors of the Company other than
holders of Senior Indebtedness; or (iii) prevent the Holder from exercising its
available remedies upon a default or Event of Default, subject to the rights, if
any, under this Section 8 of holders of Senior Indebtedness.
(j) Subordination May Not Be Impaired by the Company. No right of any
holder of any Senior Indebtedness to enforce the subordination of the
indebtedness evidenced by this Note shall be impaired by any failure to act by
the Company or such holder of Senior Indebtedness or by the failure of the
Company or such holder to comply with this Note. The provisions of this Section
8 shall continue to be effective or be reinstated, as the case may be, if at any
time any payment of any of the Senior Indebtedness is rescinded or must
otherwise be returned by any holder of Senior Indebtedness as a result of the
insolvency, bankruptcy or reorganization of the Company or any of its
Subsidiaries or otherwise, all as though such payment had not been made.
(k) Payments. A payment with respect to principal of or interest on
the Subordinated Indebtedness shall include, without limitation, payment of
principal of, and interest on this Note, any depositing of funds for the
defeasance of the Subordinated Indebtedness, any sinking
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<PAGE>
fund and any payment on account of mandatory prepayment or optional prepayment
provisions.
(l) Section Not to Prevent Events of Default. The failure to make a
payment on account of principal of or interest on or other amounts constituting
Subordinated Indebtedness by reason of any provision of this Section 8 shall not
be construed as preventing the occurrence of an Event of Default under Section
7.
(m) Subordination. The Holder agrees and consents that without notice
to or assent by such Holder, and without affecting the liabilities and
obligations of the Company and any holder of the Notes and the rights and
benefits of the Holders of the Senior Indebtedness set forth in this Section 8:
(i) The obligations and liabilities of the Company and any other
party or parties for or upon the Senior Indebtedness may, from time to time, be
increased, renewed, refinanced, extended, modified, amended, restated,
compromised, supplemented, terminated, waived or released, except as prohibited
by Section 9.14 of the Purchase Agreement;
(ii) The holders of Senior Indebtedness, and any representative
or representatives acting on behalf thereof, may exercise or refrain from
exercising any right, remedy or power granted by or in connection with any
agreements relating to the Senior Indebtedness; and
(iii) Any balance or balances of funds with any holder of Senior
Indebtedness at any time outstanding to the credit of the Company may, from time
to time, in whole or in part, be surrendered or released, all as the holders of
the Senior Indebtedness, and any representative or representatives acting on
behalf thereof, may deem advisable, and all without impairing, abridging,
diminishing, releasing or affecting the subordination of the Subordinated
Indebtedness to the Senior Indebtedness provided for herein.
(n) Certain Beneficiaries. The provisions of this Section 8, and
Sections 2, 3(a) and 4(a) hereof are for the benefit of the holders from time to
time of Senior Indebtedness and, so long as any Senior Indebtedness remains
unpaid and the obligation to make advances under the
14
<PAGE>
Revolving Loan Commitment (as defined in the Senior Loan Agreement) has not
terminated, may not be modified, rescinded or canceled in whole or in part
without the prior written consent thereto of all holders of Senior
Indebtedness.
(o) Covenants of Holder. Until all of Senior Indebtedness has been
fully paid and the obligation to make advances under the Revolving Loan
Commitment has terminated:
(i) The Holder shall not hereafter (1) give any subordination in
respect of this Note, (2) convert any or all of this Note to capital stock or
other securities of the Company or (3) take any collateral to secure the Note.
(ii) The Holder shall not release, exchange, extend the time of
payment of, compromise, set off or otherwise discharge any part of, this Note or
modify or amend this Note unless otherwise permitted pursuant to the Senior Loan
Agreement.
(iii) The Holder hereby undertakes and agrees for the benefit of
the holders of Senior Indebtedness that, upon the occurrence and during the
continuance of a Senior Default, it shall take any actions reasonably requested
by any holder of Senior Indebtedness to effectuate the full benefit of the
subordination contained herein.
(p) Miscellaneous.
(i) To the extent permitted by applicable law, the Holders of the
Notes and the Company hereby waive (1) notice of acceptance hereof by the
holders of the Senior Indebtedness and (2) all diligence in the collection or
protection of or realization upon the Senior Indebtedness.
(ii) The Company and the Holder hereby expressly agree that the
holders of Senior Indebtedness may enforce any and all rights derived herein by
suit, either in equity or law, for specific performance of any agreement
contained in this Section 8 or in Sections 2, 3(a) or 4(a) hereof or for
judgment at law and any other relief whatsoever appropriate to such action or
procedure.
(iii) The Holder acknowledges and agrees
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<PAGE>
that the foregoing subordination provisions are, and are intended to be, an
inducement and a consideration to each holder of Senior Indebtedness, whether
such Senior Indebtedness was created or acquired before or after the issuance
of this Agreement, and each holder of Senior Indebtedness shall be deemed
conclusively to have relied upon such subordination provisions in acquiring
and continuing to hold such Senior Indebtedness.
9. Suits for Enforcement.
(a) Subject to Section 8, upon the occurrence of any one or more
Events of Default, the holders of a majority in principal amount of the
outstanding Notes may proceed to protect and enforce the rights of all holders
of the Notes by suit in equity, action at law or by other appropriate
proceeding, whether for the specific performance of any covenant or agreement
contained in the Purchase Agreement or the Notes or in aid of the exercise of
any power granted in the Purchase Agreement or the Notes, or may proceed to
enforce the payment of the Notes, or to enforce any other legal or equitable
right of the holders of the Notes.
(b) The holders of a majority in principal amount of the outstanding
Motes may direct the time, method and place of conducting any proceeding for any
remedy available to the holders of the Notes.
(c) In case of any default under this Note, the Company will pay to
the Holder such amount as shall be sufficient to cover the costs and expenses of
such Holder due to such default, as provided in Article 7 of the Purchase
Agreement.
10. Remedies Cumulative. No remedy herein conferred upon the Holder
is intended to be exclusive of any other remedy and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise. To the extent permitted by applicable law, the Company and the
holders of the Notes severally waive presentment for payment, demand, protest
and notice of dishonor.
11. Remedies Not Waived. No course of dealing between the Company and
the Holder or any delay on the part of the Holder in exercising any rights
hereunder
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<PAGE>
shall operate as a waiver of any right.
12. Holder; Transfer.
(a) The term "Holder" as used herein shall also include any transferee
of this Note whose name has been recorded by the Company in the register
referred to in Section 12(b) below. Each transferee of this Note acknowledges
that this Note has not been registered under the Securities Act, and may be
transferred only upon receipt by the Company of an opinion of counsel, which
opinion shall be satisfactory in form and substance to the Company, stating that
this Note may be transferred without registration under the Securities Act in
reliance on an exemption therefrom.
(b) The Company shall maintain a register in its office for the
purpose of registering the Notes and any transfer thereof, which register shall
reflect and identify, at all times, the ownership of any interest in the Notes.
Upon the issuance of this Note, the Company shall record the name of the initial
purchaser of this Note in such register as the first Holder. Thereafter, the
Company shall duly record the name of a transferee on such register promptly
after receipt of the opinion referred to in Section 12(a) above.
13. Payments. All payments and prepayments of principal of and
interest on this Note shall be made in lawful money of the United States of
America.
14. Covenants Bind Successors and Assigns. All the covenants,
stipulations, promises and agreements in this Note contained by or on behalf of
the Company shall bind its successors and assigns, whether so expressed or not.
15. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW OF SUCH STATE.
16. Variation in Pronouns. All pronouns and any variation thereof
refer to the masculine, feminine or neuter, singular or plural, as the context
may require.
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<PAGE>
17. Headings. The headings in this Note are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
TNF HOLDINGS COMPANY, INC,
By: /s/ Marsden S. Cason
------------------------------------
Name: Marsden S. Cason
Title: President
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[EXECUTION COPY]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PREFERRED STOCK
PURCHASE AGREEMENT
among
TNF HOLDINGS COMPANY, INC.,
WHITNEY 1990 EQUITY FUND, L.P.
and
J.H. WHITNEY & CO.
Dated as of June 7 1994
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
(Not part of the Agreement)
Page
----
ARTICLE 1 -- DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Accounting Terms; Financial Statements . . . . . . . . . 10
1.3 Other Definitional Provisions. . . . . . . . . . . . . . 10
ARTICLE 2 -- PURCHASE AND SALE OF PREFERRED SHARES
2.1 Purchase and Sale of Preferred Shares. . . . . . . . . . 11
2.2 Powers, Rights and Preferences . . . . . . . . . . . . . 11
2.3 Fees and Expenses. . . . . . . . . . . . . . . . . . . . 11
2.4 Closing . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE 3 -- CONDITIONS TO THE
OBLIGATION OF THE PURCHASERS TO CLOSE. . . . . . . . . . . . 11
3.1 Representations and Warranties . . . . . . . . . . . . . 12
3.2 Compliance with this Agreement . . . . . . . . . . . . . 12
3.3 Officers Certificate . . . . . . . . . . . . . . . . . . 12
3.4 Secretary's Certificate. . . . . . . . . . . . . . . . . 12
3.5 Documents. . . . . . . . . . . . . . . . . . . . . . . . 12
3.6 Financial Matters. . . . . . . . . . . . . . . . . . . . 13
(a) Budgets; Financial Statements . . . . . . . 13
(b) Payment at Closing. . . . . . . . . . . . . 13
3.7 Purchase Permitted by Applicable Laws. . . . . . . . . . 13
3.8 Approval of Counsel to the Purchasers. . . . . . . . . . 13
3.9 Consents and Approvals . . . . . . . . . . . . . . . . . 13
3.10 No Material Adverse Change . . . . . . . . . . . . . . . 14
3.11 Opinions of Counsel. . . . . . . . . . . . . . . . . . . 14
3.12 No Material Judgment or Order. . . . . . . . . . . . . . 14
3.13 Restated Certificate of Incorporation
and By-laws . . . . . . . . . . . . . . . . . . 14
3.14 Other Transaction Documents. . . . . . . . . . . . . . . 14
3.15 Disbursement Instructions. . . . . . . . . . . . . . . . 15
3.16 Other Transactions . . . . . . . . . . . . . . . . . . . 15
3.17 Confirmation Order . . . . . . . . . . . . . . . . . . . 15
3.18 Bankruptcy Plan. . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 4 -- CONDITIONS TO THE
OBLIGATION OF THE COMPANY TO CLOSE . . . . . . . . . . . . . 16
4.1 Representations and Warranties True. . . . . . . . . . . 16
4.2 Compliance with this Agreement . . . . . . . . . . . . . 16
4.3 Issuance Permitted by Applicable Laws. . . . . . . . . . 16
4.4 Approval of Counsel to the Company . . . . . . . . . . . 16
4.5 Consents and Approvals . . . . . . . . . . . . . . . . . 17
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4.6 No Material Judgment or Order. . . . . . . . . . . . . . 17
4.7 Other Transaction Documents. . . . . . . . . . . . . . . 17
ARTICLE 5 -- REPRESENTATIONS AND
WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . . 17
5.1 Corporate Existence and Power. . . . . . . . . . . . . . 17
5.2 Corporate Authorization;
Non-Contravention . . . . . . . . . . . . . . . 18
5.3 Governmental Authorization;
Third Party Consents. . . . . . . . . . . . . . 18
5.4 Binding Effect . . . . . . . . . . . . . . . . . . . . . 18
5.5 No Legal Bar . . . . . . . . . . . . . . . . . . . . . . 18
5.6 Litigation . . . . . . . . . . . . . . . . . . . . . . . 19
5.7 No Default or Breach . . . . . . . . . . . . . . . . . . 19
5.8 Disclosure . . . . . . . . . . . . . . . . . . . . . . . 19
(a) Agreement and Other Documents. . . . . . . 19
(b) Material Adverse Effect. . . . . . . . . . 19
5.9 Investment Company/Government Regulations. . . . . . . . 20
5.10 Capitalization . . . . . . . . . . . . . . . . . . . . . 20
5.11 Private Offering . . . . . . . . . . . . . . . . . . . . 21
5.12 Broker's, Finder's or Similar Fees . . . . . . . . . . . 21
5.13 Transaction Documents. . . . . . . . . . . . . . . . . . 22
5.14 Certain Representations
Made in the Senior Loan Agreement . . . . . . . 22
ARTICLE 6 -- REPRESENTATIONS AND
WARRANTIES OF THE PURCHASERS . . . . . . . . . . . . . . . . 22
6.1 Authorization; No Contravention. . . . . . . . . . . . . 22
6.2 Binding Effect . . . . . . . . . . . . . . . . . . . . . 23
6.3 No Legal Bar . . . . . . . . . . . . . . . . . . . . . . 23
6.4 Purchase for Own Account . . . . . . . . . . . . . . . . 23
6.5 ERISA . . . . . . . . . . . . . . . . . . . . . . . . 24
6.6 Broker's, Finder's or Similar Fees . . . . . . . . . . . 24
6.7 Governmental Authorization;
Third Party Consent . . . . . . . . . . . . . . 24
ARTICLE 7 -- INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . 24
7.1 Indemnification. . . . . . . . . . . . . . . . . . . . . 24
7.2 Notification . . . . . . . . . . . . . . . . . . . . . . 25
7.3 Registration Rights Agreement. . . . . . . . . . . . . . 26
ARTICLE 8 -- AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . 27
8.1 Financial Statements and
Other Information . . . . . . . . . . . . . . . 27
(a) Monthly Financials. . . . . . . . . . . . . 27
(b) Quarterly Financials. . . . . . . . . . . . 27
(c) Year-end Financials . . . . . . . . . . . . 28
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(d) Compliance Certificate. . . . . . . . . . . 28
(e) Accountants' Reports. . . . . . . . . . . . 29
(f) Management Report . . . . . . . . . . . . . 29
(g) Budgets . . . . . . . . . . . . . . . . . . 29
(h) Litigation. . . . . . . . . . . . . . . . . 30
8.2 Reservation of Shares. . . . . . . . . . . . . . . . . . 30
8.3 Books and Records. . . . . . . . . . . . . . . . . . . . 30
8.4 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . 30
8.5 Management Fee . . . . . . . . . . . . . . . . . . . . . 31
8.6 Post-Closing Audit . . . . . . . . . . . . . . . . . . . 31
ARTICLE 9 -- NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . 31
9.1 Indebtedness and Liabilities . . . . . . . . . . . . . . 31
9.2 Guaranties . . . . . . . . . . . . . . . . . . . . . . . 32
9.3 Investments and Loans. . . . . . . . . . . . . . . . . . 32
9.4 Restriction on Fundamental Changes . . . . . . . . . . . 33
9.5 Transactions with Affiliates . . . . . . . . . . . . . . 33
9.6 Conduct of Business. . . . . . . . . . . . . . . . . . . 33
9.7 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . 33
9.8 No Inconsistent Agreements . . . . . . . . . . . . . . . 34
ARTICLE 10 -- MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . 34
10.1 Survival of Representations
and Warranties. . . . . . . . . . . . . . . . . 34
10.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . 34
10.3 Successors and Assigns. . . . . . . . . . . . . . . . . 35
10.4 Amendment and Waiver. . . . . . . . . . . . . . . . . . 36
10.5 Determinations. . . . . . . . . . . . . . . . . . . . . 36
10.6 Counterparts. . . . . . . . . . . . . . . . . . . . . . 37
10.7 Headings. . . . . . . . . . . . . . . . . . . . . . . . 37
10.8 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . 37
10.9 CONSENT TO JURISDICTION . . . . . . . . . . . . . . . . 37
10.10 WAIVER OF JURY TRIAL. . . . . . . . . . . . . . . . . . 37
10.11 Severability. . . . . . . . . . . . . . . . . . . . . . 37
10.12 Rule of Construction. . . . . . . . . . . . . . . . . . 38
10.13 Entire Agreement. . . . . . . . . . . . . . . . . . . . 38
10.14 Certain Expenses. . . . . . . . . . . . . . . . . . . . 38
10.15 Publicity . . . . . . . . . . . . . . . . . . . . . . . 38
10.16 Further Assurances. . . . . . . . . . . . . . . . . . . 39
Schedule 1
Schedule 2
Schedule 5.3--Authorizations and Consents
Schedule 5.6--Litigation
Schedule 9.1(c)-- Existing Indebtedness
Exhibit A--Form of Restated Certificate of Incorporation
Exhibit B--Form of Securityholders Agreement
Exhibit C--Form of Confirmation Order
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PREFERRED STOCK
PURCHASE AGREEMENT
AGREEMENT, dated as of June 7, 1994, among TNF HOLDINGS COMPANY,
INC., a Delaware corporation ("TNF" or the "Company"), Whitney 1990 Equity Fund,
L.P., a Delaware limited partnership ("Whitney Equity Fund"), and J.H. Whitney &
Co., a New York limited partnership ("Whitney" and, together with Whitney Equity
Fund, the "Purchasers").
WHEREAS, TNF has entered into a Purchase and Sale Agreement dated
as of May 25, 1994 (as amended to date, the "Asset Purchase Agreement") with
Odyssey Holding Inc., a Delaware corporation ("Odyssey Holdings"), and The North
Face, a California corporation ("Old TNF" and, together with Odyssey Holdings,
the "Sellers"), relating to the acquisition (the "Acquisition") by TNF of
certain assets and the assumption of certain liabilities of Old TNF;
WHEREAS, in order to consummate the Acquisition, TNF has entered
into a Loan and Security Agreement, dated as of the date hereof (the "Senior
Loan Agreement"), with Heller Financial, Inc. ("Heller") to provide for a
secured $1,500,000 term loan and a secured $26,500,000 revolving credit
facility, which may include a secured seasonal overadvance facility and which
includes secured letters of credit and guaranties not to exceed $10,000,000 at
any time outstanding;
WHEREAS, it is contemplated that, concurrently with the closing of
the Acquisition, pursuant to a Subordinated Note and Common Stock Purchase
Agreement, dated as of the date hereof (the "Subordinated Note and Common Stock
Purchase Agreement"), between TNF and Whitney Subordinated Debt Fund, L.P.
("Whitney Debt Fund"), TNF will issue and sell to Whitney Debt Fund a
Subordinated Promissory Note due June 7, 2001 in the aggregate principal amount
of $24,333,333 (the "Note"), and 319,688 shares of Common Stock, par value $.01
per share (the "Common Shares"), of TNF (the "Subordinated Note and Common Stock
Sale");
WHEREAS, it is contemplated that, concurrently with the closing of
the Acquisition, TNF proposes to issue and sell to Purchasers 1,920,000 shares
of Series A Convertible Preferred Stock, par value $1.00 per share, of TNF (the
"Preferred Shares"), for an aggregate cash purchase
<PAGE>
price of $12,166,667, pursuant to the terms and subject to the conditions of
this Agreement; and
WHEREAS, it is contemplated that, concurrently with the closing of
the Acquisition, TNF will issue and sell shares of its Common Stock pursuant to
the Goldwin Purchase Agreement, and the Management Purchase Agreement and the
Investor Purchase Agreement (each, as hereinafter defined);
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for good and valuable consideration, the receipt
and adequacy of which is hereby acknowledged, the parties hereto agree as
follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. As used in this Agreement, and unless the
context requires a different meaning, the following terms have the meanings
indicated:
"Acquisition" has the meaning assigned to such term in the first
Whereas clause.
"Affiliate" means any Person: (a) directly or indirectly
controlling, controlled by, or under common control with, the Company; (b)
directly or indirectly owning or holding five percent (5%) or more of any equity
interest in the Company; or (c) five percent (5%) or more of whose voting stock
or other equity interest is directly or indirectly owned or held by the Company.
For purposes of this definition, "control" (including with correlative meanings,
the terms "controlling", "controlled by" and "under common control with") means
the possession directly or indirectly of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities or by contract or otherwise provided, however,
that "Affiliate" shall not include the Purchaser or any of its Affiliates, other
than the Company and its Subsidiaries.
"Agreement" means this Agreement as the same may be amended,
supplemented or modified in accordance with the terms hereof.
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"Asset Purchase Agreement" has the meaning assigned to such term
in the first Whereas clause.
"Bankruptcy Plan" means the Second Amended Joint Plan of
Reorganization dated as of April 8, 1994 as filed by the Odyssey Bankruptcy
Debtors in April 1994, with the amendments thereto set forth in the Confirmation
Order, and without giving effect to any subsequent changes thereto that were not
approved in writing by the Purchasers in their sole discretion, which approval
shall not be unreasonably withheld or delayed with respect to changes that the
Purchasers determine would not have a Material Adverse Effect.
"Budget" means the annual budget for the Company and its
Subsidiaries prepared by the management of the Company for the Board of
Directors, including consolidated and consolidating: (a) balance sheets; (b)
statements of income; (c) cash flow statements; and (d) statements of
stockholder's equity, all prepared on a division by division and Subsidiary by
Subsidiary basis and otherwise consistent with Old TNF's historical financial
statements, together with appropriate supporting details and a statement of
underlying assumptions.
"Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in the City of New York are authorized or
required by law or executive order to close.
"Capital Lease" shall mean any lease of any property (whether
real, personal or mixed) that, in conformity with GAAP, should be accounted for
as a capital lease.
"Cash Equivalents" means: (a) marketable direct obligations issued
or unconditionally guaranteed by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within six (6) months from the date of acquisition thereof;
(b) commercial paper maturing no more than six (6) months from the date issued
and, at the time of acquisition, having a rating of at least A-1 from Standard &
Poor's Corporation or at least P-1 from Moody's Investors Service, Inc.; and (c)
certificates of deposit or bankers' acceptances maturing within six (6) months
from the date of issuance thereof issued by, or overnight reverse repurchase
agreements from, any commercial bank organized under the
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laws of the United States of America or any state thereof or the District of
Columbia having combined capital and surplus of not less than $250,000,000 and
not subject to setoff rights in favor of such bank.
"Closing" has the meaning assigned to that term in Section 2.4.
"Closing Date" means the date specified in Section 2.4.
"Closing Date" means the date specified in Section 2.4.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor statute thereto.
"Commission" means the Securities and Exchange Commission or any
similar agency then having jurisdiction to enforce the Securities Act.
"Common Shares" has the meaning assigned to such term in the third
Whereas clause.
"Common Stock" means the Common Stock, par value $.01 per share,
of the Company, or any other capital stock of TNF into which such stock is
reclassified or reconstituted.
"Company" has the meaning assigned to such term in the preamble.
"Condition of the Company" means the assets, business, properties,
operations or financial condition of the Company and its Subsidiaries, taken as
a whole.
"Confirmation Order" means an order of the Bankruptcy Court for
the Northern District of California which is duly entered in that certain
Chapter 11 case, Case No. 93-40358-N (jointly administered) of the Odyssey
Bankruptcy Debtors, in the form attached hereto as Exhibit C.
"Confirmation Order Date" means the first date upon which the
Bankruptcy Court commences a hearing seeking the entry of the Confirmation
Order.
"Contemplated Restrictions" has the meaning assigned to such term
in Section 9.2.
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<PAGE>
"Contingent Obligation" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person: (a) with
respect to any indebtedness, lease, dividend or other obligation of another
Person if the primary purpose or intent of the Person incurring such liability,
or the primary effect thereof, is to provide assurance to the obligee of such
liability that such liability will be paid or discharged, or that any agreements
relating thereto will be complied with, or that the holders of such liability
will be protected (in whole or in part) against or with respect thereto; (b)
with respect to any letter of credit issued for the account of that Person or
as to which that Person is otherwise liable for reimbursement of drawings; or
(c) under any foreign exchange contract, currency swap agreement, interest rate
agreement or other similar agreement or arrangement designed to protect that
Person against fluctuations in currency values or interest rates. Contingent
Obligations shall include without limitation (i) the direct or indirect
guaranty, endorsement (otherwise than for collection or deposit in the ordinary
course of business), co-making, discounting with recourse or sale with recourse
by such Person of the obligation of another Person, (ii) the obligation to make
take-or-pay or similar payments if required regardless of nonperformance by any
other party or parties to an agreement, and (iii) any liability of such Person
for the obligations of another Person through any agreement to purchase,
repurchase or otherwise acquire such obligation or any property constituting
security therefor, to provide funds for the payment or discharge of such
obligation or to maintain the solvency, financial condition or any balance sheet
item or level of income of another Person. The amount of any Contingent
Obligation shall be equal to the amount of the obligation so guaranteed or
otherwise supported or, if not a fixed and determined amount, the maximum amount
so guaranteed.
"Contractual Obligation" means, as applied to any Person, any
provision of any security issued by that Person or of any indenture, mortgage,
deed of trust, contract, undertaking, agreement or other instrument to which
such Person is a party or by which it or any of its properties is subject,
including the Acquisition Documents (as defined in the Senior Loan Agreement).
"Environmental Laws" means any federal, state or local law, rule,
regulation or order relating to pollution, waste disposal, industrial hygiene,
land use or the
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<PAGE>
protection of human health or safety, plant life or animal life, natural
resources or the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, and any successor statute and all rules and
regulations promulgated thereunder.
"ERISA Affiliate", as applied to any of the Company and its
Subsidiaries or any Seller, means any Person who is a member of a group which is
under common control with such Person, who together with such Person is treated
as a single employer within the meaning of Section 414(b) and (c) of the Code.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder.
"Fiscal Year" means a twelve month period ending on the last day
of March of each year.
"GAAP" means generally accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board that are applicable
to the circumstances as of the date of determination.
"Goldwin Purchase Agreement" means that certain Stock Purchase
Agreement dated as of December 28, 1993 between the Company and Kabushiki Kaisha
Goldwin, as amended prior to the date hereof, and as it may be further amended
with the prior written approval of the Purchasers.
"Governmental Authority" means the government of any nation,
state, city, locality or other political subdivision of any thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other entity
owned or controlled, through stock or capital ownership or otherwise, by any of
the foregoing.
"Indebtedness" means as applied to any Person (a)
all indebtedness for borrowed money; (b) that portion of obligations with
respect to Capital Leases that is properly
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<PAGE>
classified as a liability on a balance sheet in conformity with GAAP; (c) notes
payable and drafts accepted representing extensions of credit whether or not
representing obligations for borrowed money, including reimbursement obligations
in respect of letters of credit; (d) any obligation owed for all or any part of
the deferred purchase price of property or services if the purchase price is due
more than six months from the date the obligation is incurred or is evidenced by
a note or similar written instrument; and (e) all indebtedness secured by any
Lien on any property or asset owned or held by that Person regardless of whether
the indebtedness secured thereby shall have been assumed by that Person or is
nonrecourse to the credit of that Person (but only as to indebtedness which is
nonrecourse to the credit of such Person, not in excess of the value of the
amount so secured). Obligations under interest rate agreements constitute
Contingent Obligations and not Indebtedness.
"Investor Purchase Agreement" means the Investor Stock Purchase
Agreement, dated as of the date hereof, between TNF and the parties named on
Schedule A thereto.
"Lien" means any lien, mortgage, pledge, security interest, charge
or encumbrance of any kind, whether voluntary or involuntary (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, and any agreement to give any security interest).
"Loan Documents" has the meaning assigned to such term in the
Senior Loan Agreement.
"Loan Party" has the meaning assigned to such term in the Senior
Loan Agreement.
"Management Options" means options issued, on the Closing Date and
from time to time thereafter, pursuant to the TNF 1994 Stock Incentive Plan.
"Management Purchase Agreement" means the Stock Purchase and
Non-Competition Agreement, dated as of the date hereof, between TNF and Marsden
S. Cason and William A. McFarlane.
"Management Restricted Shares" means shares of restricted stock,
issued on the Closing Date and from time to time thereafter, pursuant to the TNF
1994 Stock Incentive Plan.
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"Note" has the meaning assigned to that term in the third Whereas
clause.
"Obligations" has the meaning assigned to that term in the Senior
Loan Agreement.
"Odyssey Bankruptcy Debtors" means Odyssey International Inc.,
Odyssey Holding Inc., Odyssey International Pte. Ltd. and Odyssey Worldwide
Holdings B.V.
"PBGC" means the Pension Benefit Guaranty Corporation or any
successor thereto.
"Person" means any individual, firm, corporation, partnership,
trust, limited liability company, incorporated or unincorporated association,
joint venture, joint stock company, Governmental Authority or other entity of
any kind, and shall include any successor (by merger or otherwise) of such
entity.
"Preferred Shares" has the meaning assigned to such term in the
fourth Whereas clause.
"Preferred Stock" means the Series A Convertible Preferred Stock,
par value $1.00 per share, of the Company to be issued pursuant to the Preferred
Stock Purchase Agreement, or any other capital stock of the Company into which
such stock is reclassified or reconstituted.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date hereof, among TNF, Whitney Debt Fund, Whitney
and Whitney Equity Fund relating to the registration of offerings of the Common
Stock.
"Requirements of Law" means, as to any Person, the Certificate of
Incorporation and By-laws or other organizational or governing documents of such
Person, and any law, treaty, rule, regulation, right, privilege, qualification,
license or franchise or determination of an arbitrator or a court or other
Governmental Authority, in each case applicable or binding upon such Person or
any of its property or to which such Person or any of its property is subject or
pertaining to any or all of the transactions contemplated or referred to herein.
"Restated Certificate of Incorporation" means the Restated
Certificate of Incorporation of the Company,
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<PAGE>
substantially in the form annexed hereto as Exhibit A, to be filed on the
Closing Date.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder.
"Securityholders Agreement" means the Securityholders Agreement,
substantially in the form attached hereto as Exhibit B, among the holders of
equity securities of TNF named therein.
"Senior Loan Agreement" has the meaning assigned to such term in
the second Whereas clause, as the same may be modified, amended or supplemented
from time to time in accordance with the terms thereof.
"Subordinated Debt" has the meaning assigned to such term in the
Senior Loan Agreement.
"Subordinated Note and Common Stock Purchase Agreement" has the
meaning assigned to such term in the third Whereas clause.
"Subordinated Note and Common Stock Sale" has the meaning assigned
to such term in the fourth Whereas clause.
"Subsidiary" means, with respect to any Person, a corporation or
other entity of which 50% or more of the voting power or the voting equity
securities or equity interest is owned, directly or indirectly, by such Person.
Unless otherwise qualified, all references to a "Subsidiary" or to
"Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of
the Company.
"TNF Scotland" means The North Face (Scotland) Limited, a private
limited company incorporated in Scotland under the Companies Act.
"Transaction Documents" means collectively, this Agreement, the
Note, the Asset Purchase Agreement, the Senior Loan Agreement and the other Loan
Documents, the Securityholders Agreement, the Registration Rights Agreement, the
Subordinated Note and Common Stock Purchase Agreement, the Goldwin Purchase
Agreement, the Management Purchase Agreement, the TNF 1994 Stock Incentive Plan
and any option agreements and restricted stock agreements dated
9
<PAGE>
as of the Closing Date and the Restated Certificate of Incorporation.
1.2 Accounting Terms; Financial Statements. All accounting terms
used herein not expressly defined in this Agreement shall have the respective
meanings given to them in accordance with sound accounting practice. The term
"sound accounting practice" shall mean such accounting practice as, in the
opinion of the independent certified public accountants regularly retained by
the Company, conforms at the time to GAAP applied on a consistent basis except
for changes with which such accountants concur. If any changes in accounting
principles are hereafter occasioned by promulgation of rules, regulations,
pronouncements or opinions of or are otherwise required by, the Financial
Accounting Standards Board or the American Institute of Certified Public
Accountants (or successors thereto or agencies with similar functions), and any
of such changes results in a change in the method of calculation of, or affects
the results of such calculation of, any of the financial covenants, standards or
terms found herein, then the parties hereto agree to enter into and diligently
pursue negotiations in order to amend such financial covenants, standards or
terms so as to reflect fairly and equitably such changes, with the desired
result that the criteria for evaluating the Company's financial condition and
results of operations shall be the same after such changes as if such changes
had not been made.
1.3 Other Definitional Provisions. References to "Sections",
"Whereas clauses", "Exhibits" and "Schedules" shall be to Sections, Whereas
clauses, Exhibits and Schedules, respectively, of this Agreement unless
otherwise specifically provided. Any of the terms defined in subsection 1.1
may, unless the context otherwise requires, be used in the singular or the
plural depending on the reference. In this Agreement, words importing any
gender include the other genders; the words "including" "includes" and "include"
shall be deemed to be followed by the words "without limitation"; and all
references to statutes and related regulations shall include any amendments of
same and any successor statutes and regulations.
10
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ARTICLE 2
PURCHASE AND SALE OF PREFERRED SHARES
2.1 Purchase and Sale of Preferred Shares. Subject to the terms
and conditions herein set forth, the Company agrees that it will issue to
each of the Purchasers, and each of the Purchasers agrees that it will acquire
from the Company, on the Closing Date, the number of shares of Preferred Stock
set forth next to such Purchaser's name on Schedule 1 hereto. The purchase
price of the Preferred Shares shall be as set forth next to each Purchaser's
name on Schedule 1.
2.2 Powers, Rights and Preferences. The Preferred Shares shall
have the powers, rights and preferences as set forth in Article IV of the
Restated Certificate of Incorporation or any successor provision.
2.3 Fees and Expenses. Concurrently with the Closing, the
Company shall pay to Whitney a transaction fee of $200,000. In addition, the
Company shall reimburse each purchaser's reasonable out-of-pocket expenses
(including attorney's fees, charges and disbursements and consultants' fees and
expenses) incurred in connection with the transactions contemplated by this
Agreement.
2.4 Closing. The purchase and issuance of the Preferred Shares
shall take place at the closing (the "Closing") to be held at the offices of
Latham & Watkins, 885 Third Avenue, New York, New York 10022, 10:00, a.m., local
time, on June 7, 1994, or at such other time and place as the Company and the
Purchasers may agree in writing (the "Closing Date"). At the Closing, the
Company shall deliver to the Purchasers the Preferred Shares against delivery to
the Company by the Purchasers of the purchase prices therefor by wire transfer
of immediately available funds to one or more accounts designated by the Company
at least three business days prior to the Closing.
ARTICLE 3
CONDITIONS TO THE
OBLIGATION OF THE PURCHASERS TO CLOSE
The obligation of the Purchasers to purchase the Preferred Shares,
to pay the purchase price therefor at the
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Closing and to perform any obligations hereunder shall be subject to the
satisfaction as determined by, or waiver by, the Purchasers of the following
conditions on or before the Closing Date.
3.1 Representations and Warranties. The representations and
warranties of the Company contained in Section 5 hereof shall be true and
correct in all material respects at and as of the Closing Date as if made at and
as of such date.
3.2 Compliance with this Agreement. The Company shall have
performed and complied with all of its agreements and conditions set forth or
contemplated herein that are required to be performed or complied with by the
Company on or before the Closing Date.
3.3 Officers Certificate. The Purchasers shall have received a
certificate dated as of the Closing Date from the chief executive officer and
chief financial officer of the Company, in form and substance satisfactory to
the Purchasers, to the effect that all representations and warranties of the
Company contained in this Agreement are true, correct and complete in all
material respects; that the Company is not in violation of any of the covenants
contained in this Agreement; that all conditions precedent to the Closing of
this Agreement to be performed by the Company have been duly performed; and
that, after giving effect to the transactions contemplated by this Agreement, no
Event of Default has occurred and is continuing.
3.4 Secretary's Certificate. The Purchasers shall have
received a certificate from the Company, dated the Closing Date and signed by
the Secretary or an Assistant Secretary of the Company, certifying (a) that
the attached copies of the Restated Certificate of Incorporation and By-laws
of the Company, and resolutions of the Board of Directors of the Company
approving this Agreement and the transactions contemplated hereby, are all
true, complete and correct and remain unamended and in full force and effect,
and (b) as to the incumbency and specimen signature of each officer of the
Company executing any Transaction Document or any other document delivered in
connection herewith on behalf of the Company.
3.5 Documents. The Purchasers shall have received true, complete
and correct copies of the Transaction Documents and such other documents as they
may
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request in connection with or relating to the sale of the Preferred Shares and
the transactions contemplated hereby, all in form and substance satisfactory to
the Purchasers.
3.6 Financial Matters.
(a) Budgets; Financial Statements. The Purchasers shall
have received the financial statements and certificates (addressed to the
Purchasers) to be delivered pursuant to Sections 3.1(A) and 3.1(L) of the Senior
Loan Agreement, including the draft auditor's opinion and financial statements
of Old TNF for the three-month period ended March 31, 1994 prepared by Deloitte
& Touche.
(b) Payment at Closing. There shall have been paid by the
Company to the Purchasers the transaction fee referred to in Section 2.3 and any
other accrued and unpaid fees due hereunder (including legal fees and expenses),
and to any other Person such amount as may be due, including all taxes, fees and
other charges in connection with the execution, delivery, recording, filing and
registration of any of the Transaction Documents.
3.7 Purchase Permitted by Applicable Laws. The acquisition of
and payment for the Preferred Shares to be acquired by the Purchasers hereunder
and the consummation of the transactions contemplated hereby (a) shall not be
prohibited by any Requirement of Law, (b) shall not subject the Purchasers to
any penalty or other onerous condition under or pursuant to any Requirement of
Law, and (c) shall be permitted by all Requirements of Law to which it or the
transactions contemplated by or referred to herein are subject; and the
Purchasers shall have received such certificates or other evidence as they may
reasonably request to establish compliance with this condition.
3.8 Approval of Counsel to the Purchasers. All actions and
proceedings hereunder and all documents required to be delivered by the Company
hereunder or in connection with the consummation of the transactions
contemplated hereby, and all other related matters, shall have been in form and
substance acceptable to Friedman & Kaplan, counsel to Whitney and Whitney Equity
Fund, in its reasonable judgment.
3.9 Consents and Approvals. All consents, exemptions,
authorizations, or other actions by, or notices to, or filings with,
Governmental Authorities and other
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Persons in respect of all Requirements of Law and with respect to those
Contractual Obligations of the Company necessary, desirable, or required in
connection with the execution, delivery or performance (including the payment of
interest on the Note) by the Company or enforcement against the Company of the
Transaction Documents shall have been obtained and be in full force and effect,
and the Purchasers shall have been furnished with appropriate evidence thereof,
and all waiting periods shall have lapsed without extension or the imposition of
any conditions or restrictions.
3.10 No Material Adverse Change. No event has occurred which
results in a substantial and material adverse change in the business of the
Company between the Confirmation Order Date and the Closing Date, which event
was unknown by the Purchaser as of the Confirmation Order Date and not included
or reflected in any of the disclosures in the Asset Purchase Agreement or the
Schedules thereunder delivered on or before the Confirmation Order Date, which
would significantly diminish the value of the Business (as such term is defined
in Recital A of the Asset Purchase Agreement), and which event was not caused by
the malfeasance or misfeasance of Marsden S. Cason or William A. McFarlane.
3.11 Opinions of Counsel. The Purchasers shall have received
opinions of Crosby, Heafey, Roach & May; McGrigor Donald; and Limbach & Limbach,
dated the Closing Date, each in form and substance acceptable to the Purchasers.
3.12 No Material Judgment or Order. There shall not be on the
Closing Date any judgment or order of a court of competent jurisdiction or any
ruling of any Governmental Authority or any condition imposed under any
Requirement of Law which, in the judgment of the Purchasers, would prohibit the
purchase of the Preferred Shares hereunder or subject the Purchasers to any
penalty or other onerous condition under or pursuant to any Requirement of Law
if the Preferred Shares were to be purchased hereunder.
3.13 Restated Certificate of Incorporation and By-laws. The
Restated Certificate of Incorporation and By-laws of the Company shall be in
form and substance satisfactory to the Purchasers.
3.14 Other Transaction Documents. Each of the Transaction
Documents (including the Asset Purchase
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Agreement) shall have been duly executed and delivered by the parties thereto
and shall be in full force and effect, there shall be no default thereunder, and
no term or condition thereof shall have been supplemented, amended, modified or
waived without the Purchasers' prior written consent.
3.15 Disbursement Instructions. The Purchasers shall have
received written instructions from the Company directing the payment of any
proceeds of the Preferred Shares that are to be paid on the Closing Date. In
the case of any Indebtedness of Old TNF being refinanced with the proceeds of
the Preferred Shares, the funds required for such payoff shall be earmarked for
the benefit of the refinanced lender and shall be paid directly from the
Purchasers to such refinanced lender. The Purchasers shall have received
evidence, in form and substance reasonably satisfactory to the Purchasers, that
any Indebtedness being refinanced or otherwise paid off with proceeds of the
Preferred Shares has been fully satisfied and discharged and that any Liens in
respect of any such obligations have been or will be terminated and cancelled of
record.
3.16 Other Transactions. On or prior to the Closing Date, no
later than concurrently with the Closing, the Company shall have consummated:
(a) the Acquisition; (b) the Subordinated Note and Common Stock Sale; (c) the
transactions contemplated in the Goldwin Purchase Agreement and the Management
Purchase Agreement; and (d) the transactions contemplated by the Senior Loan
Agreement, in each case upon the terms and subject to conditions set forth in
the Transaction Documents, without any waiver by any party of any of the
conditions to its obligations to consummate the transactions contemplated
thereby, and the Purchasers shall have received a certificate from the Company
to that effect dated the Closing Date and signed by the President of the
Company. Each of the releases and other documents required to be delivered in
connection with the closing under the Asset Purchase Agreement shall have been
duly executed and delivered by the parties thereto and shall be in full force
and effect.
3.17 Confirmation Order. The Confirmation Order shall have been
entered and the conditions set forth in Section 6.2 of the Asset Purchase
Agreement shall have been satisfied.
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3.18 Bankruptcy Plan. The Bankruptcy Plan shall not have been
modified, whether before or after confirmation, except as set forth in the
Confirmation Order, and all actions required to be taken and conditions required
to be met under the terms of the Bankruptcy Plan in order for the Bankruptcy
Plan to become effective or for the consummation of the Acquisition shall have
been timely and fully taken or met (whether or not the Bankruptcy Plan
contemplates that the Odyssey Bankruptcy Debtors or any other Person may waive
such action or condition and without giving effect to any such waiver). The
Effective Date (as defined in the Bankruptcy Plan) shall have occurred.
ARTICLE 4
CONDITIONS TO THE
OBLIGATION OF
THE COMPANY TO CLOSE
The obligations of the Company to issue and sell the Preferred
Shares and to perform its other obligations hereunder shall be subject to the
satisfaction as determined by, or waiver by, the Company of the following
conditions on or before the Closing Date.
4.1 Representations and Warranties True. The representations and
warranties of the Purchasers contained in Section 6 shall be true and correct at
and as of the Closing Date as if made at and as of such date.
4.2 Compliance with this Agreement. The Purchasers shall have
performed and complied with all of its agreements and conditions set forth or
contemplated herein that are required to be performed or complied with by the
Purchasers on or before the Closing Date.
4.3 Issuance Permitted by Applicable Laws. The issuance of the
Preferred Shares to be issued by the Company hereunder and the consummation of
the transactions contemplated hereby (a) shall not be prohibited by any
Requirement of Law, (b) shall not subject the Company to any penalty or, in its
reasonable judgment, other onerous condition under or pursuant to any
Requirement of Law and (c) shall be permitted by all Requirements of Law to
which the Company is subject.
4.4 Approval of Counsel to the Company. All documents required
to be delivered by the Purchasers hereunder shall have been in form and
substance acceptable
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to Crosby, Heafey, Roach & May, counsel to the Company, in its reasonable
judgment.
4.5 Consents and Approvals. All consents, exemptions,
authorizations, or other actions by, or notices to, or filings with,
Governmental Authorities and other Persons in respect of all Requirements of Law
necessary or required in connection with the execution, delivery or performance
by the Purchasers or enforcement against the Purchasers of this Agreement shall
have been obtained and be in full force and effect, and the Company shall have
been furnished with appropriate evidence thereof.
4.6 No Material Judgment or Order. There shall not be on the
Closing Date any judgment or order of a court of competent jurisdiction or any
ruling of any Governmental Authority or any condition imposed under any
Requirement of Law which, in the reasonable judgment of the Company, would
prohibit the sale of the Preferred Shares hereunder or subject the Company to
any material penalty or other onerous condition under or pursuant to any
Requirement of Law if the Preferred Shares were to be sold hereunder.
4.7 Other Transaction Documents. Each of the Transaction
Documents (including the Asset Purchase Agreement) shall have been duly executed
and delivered by the parties thereto and shall be in full force and effect.
ARTICLE 5
REPRESENTATIONS AND
WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchasers,
before and after giving effect to the Acquisition, the sale of the Preferred
Shares hereunder, the Subordinated Note and Common Stock Sale and the other
transactions contemplated by the Transaction Documents, as follows:
5.1 Corporate Existence and Power. The Company (a) is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware; (b) is duly qualified and authorized to do business in each
jurisdiction in which the character of its properties or the nature of its
business requires such qualification and authorization; (c) has all requisite
corporate power and
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authority to own and operate its property, to lease the property it operates as
lessee and to conduct the business in which it is currently, or is currently
proposed to be, engaged; and (d) has the corporate power and authority to
execute, deliver and perform its obligations under each Transaction Document to
which it is or will be a party and to borrow hereunder.
5.2 Corporate Authorization; Non-Contravention. The execution,
delivery and performance by the Company of each Transaction Document to which it
is or will be a party and the transactions contemplated thereby, including the
issuance of the Preferred Shares: (a) has been duly authorized by all necessary
corporate, and if required, stockholder action; (b) does not contravene the
terms of the Company's Restated Certificate of Incorporation or By-laws, or any
amendment of either thereof; and (c) will not violate, conflict with or result
in any breach or contravention of or the creation of any Lien under, any
Contractual Obligation of the Company or any of its Subsidiaries (other than
Liens under the Loan Documents), or any Requirement of Law applicable to the
Company or any of its Subsidiaries.
5.3 Governmental Authorization; Third Party Consents. Except as
set forth on Schedule 5.3, no approval, consent, compliance, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority or any other Person in respect of any Requirement of Law,
and no lapse of a waiting period under a Requirement of Law, is necessary or
required in connection with the execution, delivery or performance (including
the payment of interest on the Note) by the Company or enforcement against the
Company of the Transaction Documents or the transactions contemplated hereby or
thereby.
5.4 Binding Effect. Each of the Transaction Documents has been
duly executed and delivered by the Company and constitutes the legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms.
5.5 No Legal Bar. Neither the execution, delivery and
performance of the Transaction Documents nor the issuance of or performance of
the terms of the Preferred Shares will violate any Requirement of Law or any
Contractual Obligation of the Company or any of its Subsidiaries. Neither the
Company nor any of its
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Subsidiaries has previously entered into any agreement which is currently in
effect or to which the Company or any of its Subsidiaries is currently bound,
granting any rights to any Person which are inconsistent with the rights to be
granted by the Company in the Transaction Documents.
5.6 Litigation. Except as set forth on Schedule 5.6, there are
no legal actions, suits, proceedings, claims or disputes pending, or to the
knowledge of the Company or its Subsidiaries, threatened, at law, in equity, in
arbitration or before any Governmental Authority against or affecting the
Company (a) with respect to the Transaction Documents, or any of the
transactions contemplated hereby or thereby, or (b) which would, if adversely
determined, have an adverse effect on the ability of the Company to perform its
obligations under the Transaction Documents. No injunction, writ, temporary
restraining order, decree or any order of any nature has been issued by any
court or other Governmental Authority purporting to enjoin or restrain the
execution, delivery or performance of the Transaction Documents.
5.7 No Default or Breach. No event has occurred and is
continuing or would result from the incurring of obligations by the Company
under the Transaction Documents which constitutes or, with the giving of notice
or lapse of time or both, would constitute an Event of Default. Neither the
Company nor any of its Subsidiaries is in default under or with respect to any
Contractual Obligation in any respect, which, individually or together with all
such defaults, could adversely affect the ability of the Company to perform its
obligations under the Transaction Documents.
5.8 Disclosure.
(a) Agreement and Other Documents. This Agreement and the
documents and certificates furnished to the Purchasers by the Company at the
Closing do not contain any untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which they were made, not
misleading.
(b) Material Adverse Effect. There is no fact known to the
Company, which the Company has not disclosed to the Purchasers in writing, which
materially adversely affects, or insofar as the Company can reasonably foresee
could materially adversely affect, the ability of
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the Company to perform its obligations under the Transaction Documents or any
document contemplated thereby.
5.9 Investment Company/Government Regulations. Neither the
Company nor any Person controlling, controlled by or under common control with
the Company is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended. Neither the Company nor any of its
Subsidiaries is subject to regulation under the Public Utility Holding Company
Act of 1935, as amended, the Federal Power Act, the Interstate Commerce Act,
or any federal or state statute or regulation limiting its ability to
incur Indebtedness. The Company is not engaged principally or as one of
its activities in the business of extending credit for the purpose of
"purchasing" or "carrying" any "margin stock" (as each such term is defined or
used in Regulations G and U of the Board of Governors of the Federal Reserve
System). No part of the proceeds of any of the Preferred Shares will be used
for purchasing or carrying margin stock or for any purpose which violates, or
which would be inconsistent with, the provisions of Regulation G, T, U or X
of such Board of Governors.
5.10 Capitalization. As of the Closing Date, the authorized
capital stock of the Company consists of 5,000,000 shares of Common Stock and
6,000,000 shares of Preferred Stock, and after giving effect to the
transactions contemplated by this Agreement and by the other Transaction
Documents:
(1) (i) 759,001 shares of Common Stock will be issued and
outstanding and the Persons set forth on Schedule 2 own of record and
beneficially the number of shares of Common Stock set forth opposite their
names (which includes 247,500 shares of Management Restricted Stock); (ii)
2,500,000 shares of Common Stock will be reserved for issuance upon
conversion of the Preferred Stock (including conversion of shares of
Preferred Stock to be issued to the holders of Preferred Stock by the
Company as payment of dividends); (iii) 123,750 shares of Common Stock
will be reserved for issuance upon exercise of the Management Options;
(iv) 1,920,000 shares of Preferred Stock will be issued and outstanding
and the Persons set forth on Schedule 2 own of record and beneficially
the number of shares of Preferred Stock set forth opposite their names; and
(v) 4,000,000 shares of Preferred Stock will be reserved for issuance as
dividends on shares of Preferred Stock.
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(2) All outstanding shares of capital stock of the Company will
be duly authorized, and the shares of Common Stock issuable upon conversion
of shares of Preferred Stock, when issued, will be, validly issued, fully
paid, nonassessable and free and clear of any Liens. Except for the Common
Stock, the Preferred Stock and the Management Options, no other class of
capital stock or other ownership interests of the Company are authorized
or outstanding.
(3) Except for the Preferred Stock and the Management Options,
there will be no outstanding securities convertible into or exchangeable
for capital stock of the Company or options, warrants or other rights to
purchase or subscribe to capital stock of the Company or any of its
Subsidiaries, or contracts, commitments, agreements, understandings or
arrangements of any kind to which the Company is a party relating to the
issuance of any capital stock of the Company or any of its Subsidiaries,
any such convertible or exchangeable securities or any such options,
warrants or rights.
5.11 Private Offering. No form of general solicitation or general
advertising was used by the Company or its representatives in connection
with the offer or sale of the Preferred Shares. No registration of the
Preferred Shares pursuant to the provisions of the Securities Act or any
state securities or "blue sky" laws will be required by the offer, sale or
issuance of the Preferred Shares pursuant to this Agreement. The Company
agrees that neither it, nor anyone acting on its behalf, will offer or sell
the Preferred Shares or any other security so as to require the
registration of the Preferred Shares pursuant to the provisions of the
Securities Act or any state securities or "blue sky" laws, unless such
Preferred Shares are so registered.
5.12 Broker's, Finder's or Similar Fees. There are no brokerage
commissions, finder's fees or similar fees or commissions payable in
connection with the transactions contemplated hereby or by any other
Transaction Document to which the Company is a party, based on any
agreement, arrangement or understanding with the Company, or any action
taken by any such entity.
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5.13 Transaction Documents. The Company has delivered to the
Purchasers true, complete and correct copies of the Asset Purchase Agreement and
each other Transaction Document and all documents, agreements and certificates,
delivered in connection therewith, together with all amendments and
modifications thereto. Such documents (including the schedules and exhibits
thereto) comprise a full and complete copy of all agreements between the parties
thereto with respect to the subject matter thereof and all transactions related
thereto, and there are no agreements or understandings, oral or written, or side
agreements not contained therein that relate to or modify the substance thereof.
The Loan Documents have been duly authorized by all necessary corporate action
on the part of the Loan Parties (as defined in the Senior Loan Agreement), were
validly executed and delivered by the applicable Loan Party and are the legal,
valid and binding obligations of the applicable Loan Party and its successors,
enforceable in accordance with their terms. The Asset Purchase Agreement and
each other Transaction Document has been duly authorized by all necessary
corporate action on the part of the Company, was validly executed and delivered
by the Company and is the legal, valid and binding obligation of the Company and
its successors, enforceable in accordance with its terms. Each of the
Transaction Documents are in full force and effect, and none of their provisions
have been waived by any party thereto.
5.14 Certain Representations Made in the Senior Loan Agreement.
The representations and warranties of the Company made in Section 4 of the
Senior Loan Agreement as in effect on the date hereof are true and correct in
all material respects and are hereby incorporated herein by reference as if
fully set forth herein.
ARTICLE 6
REPRESENTATIONS AND
WARRANTIES OF THE PURCHASERS
Each of the Purchasers, severally and not jointly, hereby
represents and warrants to the Company as follows:
6.1 Authorization; No Contravention. The execution, delivery and
performance by such Purchaser of this Agreement: (a) is within such Purchaser's
power and authority and has been duly authorized by all necessary
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action; (b) does not contravene the terms of such Purchaser's organizational
documents (if any) or any amendment thereof; and (c) will not violate, conflict
with or result in any breach or contravention of any Contractual Obligation of
such Purchaser, or any directly relating to such Purchaser.
6.2 Binding Effect. This Agreement has been duly executed and
delivered by such Purchaser, and this Agreement constitutes the legal, valid and
binding obligation of such Purchaser enforceable against it in accordance with
its terms.
6.3 No Legal Bar. The execution, delivery and performance of
this Agreement by such Purchaser will not violate any Requirement of Law.
6.4 Purchase for Own Account. The Preferred Shares to be
acquired by such Purchaser pursuant to this Agreement are being or will be
acquired for its own account and with no intention of distributing or reselling
such securities or any part thereof in any transaction that would be in
violation of the securities laws of the United States of America, or any state,
without prejudice, however, to the rights of such Purchaser at all times to sell
or otherwise dispose of all or any part of the Preferred Shares under an
effective registration statement under the Securities Act, or under an exemption
from such registration available under the Securities Act, and subject,
nevertheless, to the disposition of such Purchaser's property being at all times
within its control. If such Purchaser should in the future decide to dispose of
any of its Preferred Shares, such Purchaser understands and agrees that it may
do so only in compliance with the Securities Act and applicable state securities
laws, as then in effect. Such Purchaser agrees to the imprinting, so long as
required by law, of a legend on certificates representing the Preferred Shares
to the following effect:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS."
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6.5 ERISA. No part of the funds used by such Purchaser to
purchase the Preferred Shares hereunder constitutes assets of any "employee
benefit plan" (as defined in Section 3(3) of ERISA) or "plan" (as defined in
Section 4975 of the Code).
6.6 Broker's, Finder's or Similar Fees. There are no brokerage
commissions, finder's fees or similar fees or commissions payable in connection
with the transactions contemplated hereby, or by any other Transaction Document
to which such Purchaser is a party, based on any agreement, arrangement or
understanding with such Purchaser or any action taken by such Purchaser.
6.7 Governmental Authorization; Third Party Consent. No
approval, consent, compliance, exemption, authorization, or other action by, or
notice to, or filing with, any Governmental Authority or any other Person in
respect of any Requirement of Law, and no lapse of a waiting period under a
Requirement of Law, is necessary or required in connection with the execution,
delivery or performance by such Purchaser or enforcement against such Purchaser
of this Agreement or the transactions contemplated hereby.
ARTICLE 7
INDEMNIFICATION
7.1 Indemnification. In addition to all other sums due hereunder
or provided for in this Agreement, the Company agrees to indemnify and hold
harmless each of the Purchasers and their respective Affiliates, and their
respective officers, directors, agents, employees, subsidiaries, partners and
controlling persons (each, an "Indemnified Party") to the fullest extent
permitted by law from and against any and all losses, claims, damages, expenses
(including reasonable fees, disbursements and other charges of counsel) or other
liabilities (collectively, "Liabilities") resulting from or arising out of any
breach of any representation or warranty, covenant or agreement of the Company
in this Agreement or in any of the other Transaction Documents, or any legal,
administrative or other actions (including actions brought by any Purchaser or
the Company or any equity holders of the Company or derivative actions brought
by any Person claiming through or in the Company's name), proceedings or
investigations (whether formal or informal), or written threats thereof, based
upon,
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relating to or arising out of this Agreement or any of the other Transaction
Documents or the transactions contemplated hereby, and thereby, or any
Indemnified Party's role therein or in the transactions contemplated thereby;
provided, however, that the Company shall not be liable under this Section 7.1
to an Indemnified Party: (a) for any amount paid in settlement of claims without
the Company's consent (which consent shall not be unreasonably withheld), (b) to
the extent that it is finally judicially determined that such Liabilities
resulted primarily from the willful misconduct or gross negligence of such
Indemnified Party, and (c) to the extent that it is finally judicially
determined that such Liabilities resulted primarily from the material breach by
such Indemnified Party of any representation, warranty, covenant or other
agreement of such Indemnified Party contained in the applicable Transaction
Document; provided further, that if and to the extent that such indemnification
is unenforceable for any reason, the Company shall make the maximum contribution
to the payment and satisfaction of such Liabilities which shall be permissible
under applicable laws. In connection with the obligation of the Company to
indemnify for expenses as set forth above, the Company further agrees, upon
presentation of appropriate invoices containing reasonable detail, to reimburse
each Indemnified Party for all such expenses (including reasonable fees,
disbursements and other charges of counsel) as they are incurred by such
Indemnified Party; provided, however, that if an Indemnified Party is reimbursed
hereunder for any expenses, such reimbursement of expenses shall be refunded to
the extent it is finally judicially determined that the Liabilities in question
resulted primarily from (i) the willful misconduct or gross negligence of such
Indemnified Party or (ii) the material breach by such Indemnified Party of any
representation, warranty, covenant or other agreement of such Indemnified Party
contained in the applicable Transaction Document.
7.2 Notification. Each Indemnified Party under this Article 7
will, promptly after the receipt of notice of the commencement of any action,
investigation, claim or other proceeding against such Indemnified Party in
respect of which indemnity may be sought from the Company under this Article 7,
notify the Company in writing of the commencement thereof. The omission of any
Indemnified Party so to notify the Company of any such action shall not relieve
the Company from any liability which it may have to such Indemnified Party (a)
other than pursuant to this Article 7 or (b) under this Article 7 unless, and
only to the extent that, such
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omission results in the Company's forfeiture of substantive rights or defenses.
In case any such action, claim or other proceeding shall be brought against any
Indemnified Party and it shall notify the Company of the commencement thereof,
the Company shall be entitled to assume the defense thereof at its own expense,
with counsel satisfactory to such Indemnified Party in its reasonable judgment;
provided, however, that any Indemnified Party may, at its own expense, retain
separate counsel to participate in such defense. Notwithstanding the foregoing,
in any action, claim or proceeding in which both the Company, on the one hand,
and an Indemnified Party, on the other hand, is, or is reasonably likely to
become, a party, such Indemnified Party shall have the right to employ separate
counsel at the Company's expense and to control its own defense of such action,
claim or proceeding if, in the reasonable opinion of counsel to such Indemnified
Party, a conflict or potential conflict exists between the Company, on the one
hand, and such Indemnified Party, on the other hand, that would make such
separate representation advisable. The Company agrees that it will not, without
the prior written consent of the Purchasers, settle, compromise or consent to
the entry of any judgment in any pending or threatened claim, action or
proceeding relating to the matters contemplated hereby (if any Indemnified Party
is a party thereto or has been actually threatened to be made a party thereto)
unless such settlement, compromise or consent includes an unconditional release
of the Purchasers and each other Indemnified Party from all liability arising or
that may arise out of such claim, action or proceeding. The Company shall not
be liable for any settlement of any claim, action or proceeding effected against
an Indemnified Party without its written consent, which consent shall not be
unreasonably withheld. The rights accorded to Indemnified Parties hereunder
shall be in addition to any rights that any Indemnified Party may have at common
law, by separate agreement or otherwise.
7.3 Registration Rights Agreement. Notwithstanding anything to the
contrary in this Article 7, the indemnification and contribution provisions of
the Registration Rights Agreement shall govern any claim made with respect to
registration statements filed pursuant thereto or sales made thereunder.
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ARTICLE 8
AFFIRMATIVE COVENANTS
Until no shares of Preferred Stock are outstanding and until the
payment by the Company of all amounts due at such time to the Purchasers under
this Agreement, including all fees, expenses and amounts due at such time in
respect of indemnity obligations under Article 7, the Company hereby covenants
and agrees with the Purchasers as follows:
8.1 Financial Statements and Other Information. The Company
shall deliver to the Purchasers, in form and substance satisfactory to the
Purchasers, the following documents in the manner provided below.
(a) Monthly Financials. As soon as available and in any event
within 25 days after the end of each month, the Company will deliver (1) the
consolidated and consolidating balance sheet of the Company and its Subsidiaries
as at the end of such month and the related consolidated and consolidating
statement of income, stockholders' equity and cash flow for such month and for
the period from the beginning of the then current Fiscal Year to the end of such
month and (2) a schedule of the outstanding Indebtedness for borrowed money of
the Company and its Subsidiaries describing in reasonable detail each such debt
issue or loan outstanding and the principal amount and amount of accrued and
unpaid interest with respect to each such debt issue or loan.
(b) Quarterly Financials. As soon as available and in any event
within 45 days after the end of each fiscal quarter, the Company will deliver
(1) the consolidated balance sheet of the Company and its Subsidiaries as at the
end of such period and the related consolidated statements of income,
stockholders' equity and cash flow for such fiscal quarter and for the period
from the beginning of the then current Fiscal Year to the end of such quarter of
a Fiscal Year; (2) a schedule of the outstanding Indebtedness for borrowed money
of the Company and its Subsidiaries describing in reasonable detail each such
debt issue or loan outstanding and the principal amount and amount of accrued
and unpaid interest with respect to each such debt issue or loan; and (3) copies
of the consolidating financial statements of the Company and its Subsidiaries
including (a) consolidating balance sheets of
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<PAGE>
the Company and its Subsidiaries as at the end of such fiscal quarter and
showing intercompany eliminations and (b) related consolidating statements of
income of the Company and its Subsidiaries showing intercompany eliminations.
(c) Year-end Financials. As soon as available and in any event
within 90 days after the end of each Fiscal Year, the Company will deliver (1)
the consolidated balance sheet of the Company and its Subsidiaries as at the end
of such year and the related consolidated statements of income, stockholders'
equity and cash flow for such Fiscal Year; (2) a schedule of the outstanding
Indebtedness for borrowed money of the Company and its Subsidiaries describing
in reasonable detail each such debt issue or loan outstanding and the principal
amount and amount of accrued and unpaid interest with respect to each such debt
issue or loan; (3) a report with respect to the financial statements from a firm
of independent certified public accountants of recognized national standing
which report shall be unqualified as to going concern and scope of audit and
shall state that: (a) such consolidated financial statements present fairly the
consolidated financial position of the Company and its Subsidiaries as at the
dates indicated and the results of their operations and cash flow for the
periods indicated in conformity with GAAP applied on a basis consistent with
prior years and (b) that the examination by such accountants in connection with
such consolidated financial statements has been made in accordance with
generally accepted auditing standards; and (4) copies of the consolidating
financial statements of the Company and its Subsidiaries, including (a)
consolidating balance sheets of the Company and its Subsidiaries as at the end
of such Fiscal Year showing intercompany eliminations and (b) related
consolidating statements of earnings of the Company and its Subsidiaries showing
intercompany eliminations.
(d) Compliance Certificate. Together with each delivery of
financial statements of the Company and its Subsidiaries pursuant to
subdivisions (b) and (c) above, the Company will deliver a Compliance
Certificate signed by the Company's chief executive officer or chief financial
officer stating that: (1) such statements fairly present the financial condition
of the Company and its Subsidiaries as of the dates indicated; (2) such officer
has reviewed the terms of this Agreement and the Note and has made, or caused to
be made under such officer's supervision, a review in reasonable detail of the
transactions and condition of the Company and its Subsidiaries during the
accounting period
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<PAGE>
covered by such financial statements; (3) such review has not disclosed the
existence during or at the end of such accounting period, and such officer does
not have knowledge of the existence as at the date of the Compliance
Certificate, of any condition or event that constitutes an Event of Default or,
if any such condition or event existed or exists, specifying the nature and
period of existence thereof and what action the Company has taken, is taking and
proposes to take with respect thereto and (4) the Company is in compliance with
the financial covenants contained in Section 6 and the restrictions contained in
subsections 7.1, 7.3, 7.4 and 7.5 of the Senior Loan Agreement as in effect on
the date hereof and demonstrating same in reasonable detail.
(e) Accountants' Reports. Promptly upon receipt thereof, the
Company will deliver to the Purchasers copies of all significant reports
submitted to the Company by independent public accountants in connection with
each annual, interim or special audit of the financial statements of the Company
made by such accountants, including the comment letter submitted by such
accountants to management in connection with their annual audit.
(f) Management Report. Together with each delivery of financial
statements of the Company and its Subsidiaries pursuant to subdivisions (b) and
(c) of this subsection 8.1, the Company will deliver a management report (1)
describing the operations and financial condition of the Company and its
Subsidiaries for the month or quarter then ended and the portion of the current
Fiscal Year then elapsed (or for the Fiscal Year then ended in the case of
year-end financials); (2) setting forth in comparative form the corresponding
figures for the corresponding periods of the previous Fiscal Year of the Company
(or, with respect to the first year, of Old TNF); and (3) discussing the reasons
for any significant variations. The information above shall be presented in
reasonable detail and shall be certified by the chief financial officer of the
Company to the effect that such information fairly presents the results of
operations and financial condition of the Company and its Subsidiaries as at the
dates and for the periods indicated.
(g) Budgets. As soon as available and in any event no later than
30 days prior to the end of each Fiscal Year of the Company, the Company will
deliver a Budget of the Company and its Subsidiaries for the forthcoming Fiscal
Year, month by month.
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<PAGE>
(h) Litigation. Promptly upon any officer of the Company
obtaining knowledge of (1) the institution of any action, suit, proceeding,
governmental investigation or arbitration against or affecting the Company or
any of its Subsidiaries or any property of the Company or any of its
Subsidiaries, not previously disclosed by the Company to the Purchasers and
except for such matters as to which the sole claim is for money damages not
exceeding $25,000, or (2) any material development in any action, suit,
proceeding, governmental investigation or arbitration at any time pending
against or affecting the Company or any of its Subsidiaries, or any property of
the Company or any of its Subsidiaries, the Company will promptly give notice
thereof to each Purchaser and provide such other information as may be
reasonably available to them to enable the Purchasers and their counsel to
evaluate such matter.
8.2 Reservation of Shares. The Company shall reserve 4,000,000
shares of Preferred Stock for issuance as dividends on shares of Preferred
Stock. The Company shall at all times reserve and keep available out of its
authorized Common Stock, solely for purposes of issue or delivery upon
conversion of Preferred Shares as provided in the Restated Certificate of
Incorporation (including conversion of shares of Preferred Stock to be issued to
holders of Preferred Stock by the Company as payment of dividends on shares of
Preferred Stock), the maximum number of shares of Common Stock that may be
issuable or deliverable upon such conversions. Such shares of Preferred Stock
and Common Stock shall, when issued or delivered in accordance with the
provisions of the Restated Certificate of Incorporation, be duly and validly
issued and fully paid and non-assessable. The Company shall issue such
Preferred Stock and Common Stock in accordance with the provisions of the
Restated Certificate of Incorporation and shall otherwise comply with the terms
thereof.
8.3 Books and Records. The Company shall, and shall cause each
of its Subsidiaries to, keep proper books of record and account, in which full
and correct entries shall be made of all financial transactions and the assets
and business of the Company and each of its Subsidiaries in accordance with GAAP
consistently applied to the Company and its Subsidiaries taken as a whole.
8.4 Use of Proceeds. The Company shall use the proceeds of the
sale of Preferred Shares hereunder only (a)
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in connection with the Acquisition, (b) for the payment of fees and expenses in
connection with the transactions contemplated in the Transaction Documents and
(c) as working capital for the Company and its Subsidiaries.
8.5 Management Fee. So long as Whitney and Whitney Equity Fund
or any of their Affiliates has the right (pursuant to the Securityholders
Agreement) to designate one or more of the members of the Company's Board of
Directors (whether or not any such individual has been designated or is serving
as a director), the Company shall pay to Whitney, as compensation for the
management services to be rendered by Whitney and Whitney Equity Fund or any of
their Affiliates to the Company and its Subsidiaries, an annual fee at the fixed
rate of $250,000 per annum (plus reimbursement of reasonable out-of-pocket
travel expenses incurred in connection with regular Board meetings not to exceed
$50,000) during any Fiscal Year of the Company, payable in advance in quarterly
installments on the last day of March, June, September and December of each year
with the first installment payable on the Closing Date, consisting of a pro
rata payment for the period from the Closing Date to the date of next scheduled
payment.
8.6 Post-Closing Audit. Promptly following the Closing Date, the
Company shall cause an audit of its balance sheet to be undertaken by Deloitte &
Touche and shall provide the results thereof to the Purchasers on or before the
date which is forty-five (45) days after the Closing Date.
ARTICLE 9
NEGATIVE COVENANTS
Until no shares of Preferred Stock are outstanding and until the
payment by the Company of all amounts due at such time to the Purchasers under
this Agreement, including all fees, expenses and amounts due at such time in
respect of indemnity obligations under Article 7, the Company hereby covenants
and agrees with the Purchasers as follows:
9.1 Indebtedness and Liabilities. The Company will not, and will
not permit any of its Subsidiaries to, directly or indirectly create, incur,
assume, guaranty, or otherwise become or remain directly or indirectly liable,
on a fixed or contingent basis, with respect to any
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<PAGE>
Indebtedness except: (a) the Obligations; (b) Indebtedness not to exceed
$250,000 in the aggregate at any time outstanding secured by purchase money
Liens; (c) Indebtedness with respect to Capital Leases not to exceed $1,000,000
in the aggregate at any time outstanding; (d) Indebtedness existing on the
Closing Date and identified on Schedule 9.1(C) and refinancings thereof in
amounts not in excess of that set forth on such Schedule 9.1(c); provided, that
in no event may any refinancing of the Indebtedness of TNF Scotland require any
guaranty of payment or other credit support by the Company; and (f) Subordinated
Debt in an amount not in excess of $25,200,000. Except for Indebtedness
described in the preceding sentence and agreements required by subsection 5.17
of the Senior Loan Agreement, the Company will not, and will not permit any of
its Subsidiaries to, incur any indebtedness or liabilities except for trade
payables and other liabilities not constituting Indebtedness in the ordinary
course of business not yet due and payable or with respect to which the Company
or any of its Subsidiaries is contesting in good faith the amount or validity
thereof by appropriate proceedings and then only to the extent that the Company
or any of its Subsidiaries has established adequate reserves therefor, if
appropriate under GAAP.
9.2 Guaranties. Except for guaranties issued to the Purchasers
or endorsements of instruments or items of payment for collection in the
ordinary course of business, the Company shall not, and shall not permit any of
its Subsidiaries to, guaranty, endorse, or otherwise in any way become or be
responsible for any obligations of any other Person, whether directly or
indirectly by agreement to purchase the indebtedness of any other Person or
through the purchase of goods, supplies or services, or maintenance of working
capital or other balance sheet covenants or conditions, or by way of stock
purchase, capital contribution, advance or loan for the purpose of paying or
discharging any indebtedness or obligation of such other Person or otherwise.
The foregoing shall not prohibit Subsidiaries from guarantying the Obligations.
9.3 Investments and Loans. The Company shall not, and shall not
permit any of its Subsidiaries to, make or permit to exist investments in or
loans to any other Person, except: (a) Cash Equivalents; (b) loans and advances
to employees for moving, entertainment, travel and other similar expenses in the
ordinary course of business in an aggregate outstanding amount not in excess of
$50,000 at
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<PAGE>
any time; and (c) the investment of the Company in the stock of TNF Scotland
existing on the Closing Date (but excluding any additional investments, by
capital contribution or otherwise, or loans).
9.4 Restriction on Fundamental Changes. Neither the Company nor
any of its Subsidiaries will: (a) enter into any transaction of merger or
consolidation; (b) liquidate, wind-up or dissolve itself (or suffer any
liquidation or dissolution); (c) convey, sell, lease, sublease, transfer or
otherwise dispose of, in one transaction or a series of transactions, all or any
substantial part of its business or assets, or the capital stock of any of its
Subsidiaries, whether now owned or hereafter acquired; or (d) acquire by
purchase or otherwise all or any substantial part of the business or assets of,
or stock or other evidence of beneficial ownership of, any Person.
9.5 Transactions with Affiliates. The Company will not, and will
not permit any of its Subsidiaries to, directly or indirectly, enter into or
permit to exist any transaction (including the purchase, sale or exchange of
property or the rendering of any service) with any Affiliate or with any
officer, director or employee of the Company or any of its Subsidiaries, except
for (a) transactions in the ordinary course of, and pursuant to the reasonable
requirements of, the Company's or a Subsidiary's business and upon fair and
reasonable terms which are fully disclosed to the Purchasers and which are no
less favorable to the Company or such Subsidiary than it would obtain in a
comparable arm's length transaction with an unaffiliated Person; (b) the
transactions set forth in the Goldwin Purchase Agreement; (c) the issuance of
Management options; and (d) the payment of fees pursuant to this Agreement. The
foregoing shall not prohibit the transactions contemplated by the Subordinated
Note and Common Stock Purchase Agreement, the Restated Certificate of
Incorporation or the Management Options.
9.6 Conduct of Business. From and after the Closing Date, the
Company will not, and will not permit any of its Subsidiaries to, engage in any
business other than businesses of the type engaged in by Old TNF or such
Subsidiary on the Closing Date.
9.7 Subsidiaries. The Company will not and will not permit any
of its Subsidiaries to, establish, create or
33
<PAGE>
acquire any new Subsidiaries without the Purchasers' prior written consent.
9.8 No Inconsistent Agreements. Except as contemplated in the
Notes, the Senior Loan Agreement or any other Transaction Document (the
"Contemplated Restrictions"), neither the Company nor any of its Subsidiaries
shall enter into any Contractual Obligation or enter into any amendment or other
modification to any currently existing Contractual Obligation or to the Restated
Certificate of Incorporation or By-laws of the Company which by its terms
restricts or prohibits the ability of the Company, to a greater extent than the
Contemplated Restrictions, to issue Common Stock upon conversion of the
Preferred Shares or to issue shares of Preferred Stock as dividends on shares of
Preferred Stock.
ARTICLE 10
MISCELLANEOUS
10.1 Survival of Representations and Warranties. All of the
representations and warranties made herein shall survive the execution and
delivery of this Agreement, any investigation by or on behalf of the Purchasers,
acceptance of the Preferred Shares and payment therefor, or termination of this
Agreement.
10.2 Notices. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first class mail, return receipt requested, telecopier,
recognized overnight courier service or personal delivery,
(a) if to the Whitney Equity Fund:
Whitney Equity Fund, L.P.
630 Fifth Avenue New York, New York 10011-0302
Telecopier No.: (212) 332-2422
Attention: Daniel J. O'Brien
with a copy to:
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<PAGE>
Friedman & Kaplan
875 Third Avenue
New York, New York 10022
Telecopier No.: (212) 355-6401
Attention: Marjorie S. White, Esq.
(b) if to J.H. Whitney & Co.:
J.H. Whitney & Co.
630 Fifth Avenue
New York, New York 10011-0302
Telecopier No.: (212) 332-2422
Attention: Daniel J. O'Brien
with a copy to:
Friedman & Kaplan
875 Third Avenue
New York, New York 10022
Telecopier No.: (212) 355-6401
Attention: Marjorie S. White, Esq.
(c) if to the Company:
The North Face
999 Harrison Street
Berkeley, California 94710
Telecopy No.: (510) 525-3346
Attention: President
with a copy to:
Crosby, Heafey, Roach & May
1999 Harrison Street
Oakland, California 94612-3573
Telecopy No.: (510) 273-8832
Attention: Philip L. Bush, Esq.
All such notices and communications shall be deemed to have been
duly given: when delivered by hand, if personally delivered; when delivered
by courier, if delivered by commercial overnight courier service; five
Business Days after being deposited in the mail, postage prepaid, if mailed;
and when receipt is confirmed, if telecopied.
10.3 Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of the
parties hereto.
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<PAGE>
Provisions of Articles 8 and 9 will inure to the benefit of each
Purchaser. Subject to applicable securities laws and except as otherwise
set forth in the Transaction Documents (including the Securityholders
Agreement), each of the Purchasers may assign any of its rights under this
Agreement. The Company may not assign any of its rights under this
Agreement without the written consent of the Purchasers. Except as provided
in Article 7 or in this Section 10.3 or as provided in Section 8(n) of the
Note, no Person other than the parties hereto and their successors and
permitted assigns is intended to be a beneficiary of any of the Transaction
Documents.
10.4 Amendment and Waiver.
(a) No failure or delay on the part of the Company or the
Purchasers in exercising any right, power or remedy hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any such
right, power or remedy preclude any other or further exercise thereof or the
exercise of any other right, power or remedy. The remedies provided for
herein are cumulative and are not exclusive of any remedies that may be
available to the Company or the Purchasers at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any
provision of this Agreement, any waiver of any provision of this Agreement,
and any consent to any departure by the Company from the terms of any
provision of this Agreement, shall be effective (i) only if it is made or
given in writing and signed by the Company and the Purchasers in accordance
with Section 10.5, and (ii) only in the specific instance and for the
specific purpose for which made or given. Except where notice is
specifically required by this Agreement, no notice to or demand on the
Company in any case shall entitle the Company to any other or further notice
or demand in similar or other circumstances.
10.5 Determinations, Requests or Consents. All determinations,
requests, consents, waivers or amendments to be made by the Purchasers in
their opinion or judgment or with their approval or otherwise pursuant to
the Transaction Documents (unless otherwise specifically provided therein)
shall be made by the holders of 90% of the Preferred Stock outstanding or to
be issued pursuant to this Agreement.
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<PAGE>
10.6 Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and ail of which
taken together shall constitute one and the same agreement.
10.7 Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
10.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO PRINCIPLES OF CONFLICT OF LAWS OF SUCH STATE.
10.9 CONSENT TO JURISDICTION. THE COMPANY HEREBY CONSENTS TO THE
JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE BOROUGH OF
MANHATTAN, STATE OF NEW YORK AND IRREVOCABLY AGREES THAT, SUBJECT TO THE
PURCHASERS' ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO
THIS AGREEMENT SHALL BE LITIGATED IN SUCH COURTS. THE COMPANY ACCEPTS FOR
ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE
NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF
FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT
RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT OR THE OBLIGATIONS.
10.10 WAIVER OF JURY TRIAL. THE COMPANY AND THE PURCHASERS
HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR THE NOTE. THE COMPANY AND
PURCHASERS ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A
BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING
INTO THIS AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR
RELATED FUTURE DEALINGS. THE COMPANY AND PURCHASERS FURTHER WARRANT AND
REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT
EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL.
10.11 Severability. If any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any
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<PAGE>
way impaired, unless the provisions held invalid, illegal or unenforceable shall
substantially impair the benefits of the remaining provisions hereof.
10.12 Rule of Construction. Unless the context otherwise
requires, "or" is not exclusive.
10.13 Entire Agreement. This Agreement, together with the
Exhibits and Schedules and the other Transaction Documents, is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein and therein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein or therein. This Agreement, together with the Exhibits
and Schedules, and the other Transaction Documents supersede all prior
agreements and understandings between the parties with respect to such subject
matter.
10.14 Certain Expenses. The Company will pay all expenses of the
Purchasers (including reasonable fees, charges and disbursements of counsel) in
connection with any amendment, supplement, modification or waiver of or to any
provision of this Agreement or the Restated Certificate of Incorporation, or any
consent to any departure by the Company from the terms of any provision of this
Agreement or the Restated Certificate of Incorporation.
10.15 Publicity. Except as may be required by applicable law,
neither party hereto shall issue a publicity release or announcement or
otherwise make any public disclosure concerning this Agreement or the
transactions contemplated hereby, without prior approval by the other party
hereto. If any announcement is required by law to be made by any party hereto,
prior to making such announcement such party will deliver a draft of such
announcement to the other party and shall give the other party an opportunity to
comment thereon.
38
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed and delivered by their respective officers thereunto duly
authorized as of the date first above written.
TNF HOLDINGS COMPANY. INC.
By:/s/Marsden S. Cason
----------------------------
Name: Marsden S. Cason
Title: President
WHITNEY 1990 EQUITY FUND L.P.
By:/s/Ray E. Newton, III
----------------------------
Name: Ray E. Newton, III
A General Partner
J.H. WHITNEY & CO.
By:/s/Ray E. Newton, III
----------------------------
Name: Ray E. Newton, III
A General Partner
39
<PAGE>
Schedule 1
Preferred Shares
Whitney 1990 Equity Fund, L.P.
1,536,000 Shares of Series A Preferred Stock
$9,733,334 aggregate purchase price
J.H. Whitney & Co.
384,000 Shares of Series A Preferred Stock
$2,433,333 aggregate purchase price
<PAGE>
Schedule 2
Number of Shares
Name of Stockholder of Common Stock
------------------- ---------------
Whitney Subordinated Debt Fund, L.P. 319,688
Marsden S. Cason 63,937.5
William A. McFarlane 63,937.5
Kabushiki Kaisha Goldwin 38,362.8
Richard T. Peery 6,393.8
Jack L. Richardson 6,393.8
Philip S. Schlein 6,393.8
Kenneth F. Siebel 6,393.8
---------
Total 511,501
Number of Shares
Name of Stockholder of Preferred Stock
------------------- ------------------
Whitney 1990 Equity Fund, L.P. 1,536,OOO
J.H. Whitney & Co. 384,000
---------
Total l,920,000
<PAGE>
Schedule 2
Number of Shares
Name of Stockholder of Common Stock
------------------- ---------------
Whitney Subordinated Debt Fund, L.P. 319,688
Marsden S. Cason 63,937.5
William A. McFarlane 63,937.5
Kabushiki Kaisha Goldwin 38,362.8
Richard T. Peery 6,393.8
Jack L. Richardson 6,393.8
Philip S. Schlein 6,393.8
Kenneth F. Siebel 6,393.8
---------
Total 511,501
Number of Shares
Name of Stockholder of Preferred Stock
------------------- ------------------
Whitney 1990 Equity Fund, L.P. l,536,000
J.H. Whitney & Co. 384,000
---------
Total 1,920,000
<PAGE>
AMENDMENT NO. 1 DATED AS OF MARCH 1, 1995 ("Amendment No. 1") TO
PREFERRED STOCK PURCHASE AGREEMENT DATED AS OF JUNE 7, 1994
AMONG The NORTH FACE, INC., WHITNEY 1990 EQUITY FUND, L.P.
AND J.H. WHITNEY & CO.
This Amendment No. 1, dated as of March 1, 1995, is entered into between THE
NORTH FACE, INC., a Delaware corporation (the "Company"), and the holders of the
Company's Series A Convertible Preferred Stock ("Holders") issued and sold
pursuant to the provisions of the Preferred Stock Purchase Agreement (the
"Purchase Agreement") dated as of June 7, 1994.
WHEREAS, the Company desires to enter into that certain Amended and Restated
Loan and Security Agreement (the "Loan Agreement") dated as of March 1, 1995,
among Heller Financial, Inc. as a lender and as agent ("Agent") for the
financial institution parties to the Loan Agreement ("Lenders") and the Company,
which provides, among other things, for (1) the Loan Agreement to increase the
revolving line of credit commitment to $44 million and replace the existing Loan
and Security Agreement dated as of June 7, 1994, (ii) certain term loans in the
aggregate principal amount of $6 million for certain proposed Capital
Expenditures, (iii) provisions respecting The North Face (Canada), Inc., and
(iv) other related loan documents, exhibits and documents as described in the
Loan Agreement; and
WHEREAS, the Whitney Investors (as defined in the Loan Agreement) have consented
to the Loan Agreement; and
WHEREAS the parties hereto desire to make certain revisions to the Purchase
Agreement;
NOW, THEREFORE, in consideration of the forgoing, the agreements set forth
herein and for good and valuable consideration, the receipt and adequacy of
which is hereby acknowledged, the parties hereto agree as follows:
1. Amendments to Article 1 of the Purchase Agreement.
(a) The following definitions are hereby added to Article 1 of the
Purchase Agreement:
"First Amendment" means Amendment No. 1 dated as of March 1, 1995
to Preferred Stock Purchase Agreement dated as of June 7, 1994 among The North
Face, Inc., Whitney 1990 Equity Fund, L.P. and J.H. Whitney & Co.
"TNF Canada" means The North Face (Canada), Inc.
(b) The following definitions in Article 1 of the Purchase Agreement are
hereby amended as follows:
"Fiscal Year" means each twelve-month period ending on December
31 in each year (or for the first fiscal year following the Closing Date, the
period from the Closing Date to December 31, 1994).
"Senior Loan Agreement" shall mean the Loan Agreement as defined
in the First Amendment, as the same may be modified, amended or supplemented
from time to time in accordance with the terms thereof.
<PAGE>
"TNF Scotland" shall be redesignated TNF Europe (with
corresponding changes to each reference to TNF Scotland) and shall mean The
North Face (Europe) Limited, a private limited company incorporated in Scotland
under the Companies Act.
2. Consent and amendment relating to TNF Canada.
(a) The Holders hereby consent to the formation of TNF Canada, and to the
investments of the Company in TNF Canada in the form of capital contributions,
intercompany loans or intercompany accounts receivable.
(b) Section 9.1 of the Purchase Agreement is amended to change clause (f)
to clause (e) and to add the following clauses (f) and (g) as permitted
indebtedness;
"(f) intercompany Indebtedness and accounts receivable of TNF
Canada to the Company; and
(g) Indebtedness of TNF Canada permitted under the Senior Loan
Agreement."
and to delete the last sentence of such Section 9.1 and replace it with the
following:
"Except for Indebtedness and intercompany liabilities described in the
preceding sentence, Borrower will not, and will not permit any of its
Subsidiaries to, incur any Indebtedness of liabilities except for trade
payables, operating losses and other liabilities not containing Indebtedness in
the ordinary course of business not delinquent or which respect to which
Borrower or any of its Subsidiaries is contesting in good faith the amount or
validity thereof by appropriate proceedings and then only to the extent that
Borrower or any of its Subsidiaries has established adequate reserves therefor,
if appropriate under GAAP."
(c) The Holders hereby consent to the acquisition by the Company of The
North Face branded inventory of In Sport Fashions, Inc.
(d) Section 9.7 of the Purchase Agreement is hereby amended to add the
following:
"TNF Canada will remain a wholly-owned Subsidiary of the Company."
3. Consent and amendments relating to the Loan Agreement:
(a) The Holders hereby consent to the Company's entering into the Senior
Loan Agreement, as defined in this Amendment, and to the terms thereof, to the
extent that consent may be required under the Purchase Agreement.
(b) Section 8.1(d) of the Purchase Agreement is amended by deleting the
words "as in effect of the date hereof" from clause (4).
(c) Section 9.2 of the Purchase Agreement is amended to insert the
following in line 3 at the end of the first clause; "customary indemnities to
agents, officers and directors, and any guaranty by the Company of the
obligations of TNF Canada under its lease."
2
<PAGE>
5. Effect of Amendment. This Amendment No. 1 is duly examined in accordance
with Sections 10.4 and 10.5 of the Purchase Agreement and, except as
specifically set forth above, all covenants, terms, provisions and conditions
of the Purchase Agreement are, and shall remain, in full force and effect.
6. Effectiveness. This Amendment No. 1 shall be effective upon the Closing
Date, as defined in the Loan Agreement.
7. Governing Law. This Amendment No. 1 shall be governed by and construed in
accordance with the internal laws of the State of New York without regard to
principles of conflict of laws of such state.
8. Counterparts. This Amendment No. 1 may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be as original and all of which taken
together shall constitute one and the same agreement.
THE NORTH FACE, INC. WHITNEY 1990 EQUITY FUND, L.P.
By /s/ William A. McFarlane By /s/ Ray E. Newton, III
--------------------------------- -------------------------------------
William A. McFarlane Ray E. Newton, III
President a General Partner
CORPORATE DECISIONS INC. J.H. WHITNEY & CO.
By By /s/ Ray E. Newton, III
--------------------------------- -------------------------------------
Ray E. Newton, III
Its
--------------------------------
General Partner
3
<PAGE>
AMENDMENT NO. 2 DATED AS OF MARCH 27, 1996 ("Amendment No. 2") TO PREFERRED
STOCK PURCHASE AGREEMENT DATED AS OF JUNE 7, 1994 AMONG THE NORTH FACE,
INC., WHITNEY 1990 EQUITY FUND, L.P. AND J.H. WHITNEY & CO.
This Amendment No. 2, dated as of March 27, 1996, is entered into between
THE NORTH FACE, INC., a Delaware corporation (the "Company"), and holders of the
Company's Series A Convertible Preferred Stock ("Holders") issued and sold
pursuant to the provisions of the Preferred Stock Purchase Agreement (the
"Purchase Agreement") dated as of June 7, 1994, as amended by Amendment No. 1
thereto dated as of March 1, 1995.
WHEREAS, the Company desires to enter into that certain Third Amendment to
Amended and Restated Loan and Security Agreement dated as of March 27, 1996,
which amends the Amended and Restated Loan and Security Agreement (together with
the amendments thereto described in this clause, the "Amended Loan Agreement")
dated as of March 1, 1995, among Heller Financial, Inc. as a lender and as agent
("Agent") for the financial institutions parties to the Loan Agreement
("Lenders") and the Company, as previously amended by that certain First
Amendment and Second Amendment thereto, which Third Amendment provides, among
other things, for (i) the Amended Loan Agreement to increase the revolving line
of credit commitment to $58 million, (ii) certain term loans in the aggregate
principal amount of $7 million for certain Capital Expenditures, and (iii) other
related amendments, loan documents and exhibits as described in the Amended Loan
Agreement; and
WHEREAS, the Whitney Investors (as described in the Amended Loan Agreement)
have consented to the Amended Loan Agreement; and
WHEREAS the parties hereto desire to make certain revisions to the Purchase
Agreement;
NOW, THEREFORE, in consideration of the foregoing, the agreements set forth
herein and for good and valuable consideration, the receipt and adequacy of
which is hereby acknowledged, the parties hereto agree as follows:
1. Amendments to Article 1 of the Purchase Agreement
(a) The following definition is hereby added to Article 1 of the Purchase
Agreement:
"Second Amendment" means Amendment No. 2 dated as of March 27,
1996, to Preferred Stock Purchase Agreement dated as of June 7, 1994, among The
North Face, Inc., Whitney 1990 Equity Fund, L.P. and J.H. Whitney & Co., as
amended by the First Amendment.
1
<PAGE>
(b) The following definition in Article 1 of the Purchase Agreement is
hereby amended as follows:
"Senior Loan Agreement" shall mean the Amended Loan Agreement as defined in
the Second Amendment, as the same may be modified, amended of supplemented from
time to time in accordance with the terms thereof.
2. Consent And Amendments Relating To Loan Agreement
The Holders hereby consent to the Company's entering into the Amended Loan
Agreement, as defined in this Amendment No. 2, and to the terms thereof, to the
extent that consent may be required under the Purchase Agreement.
3. Effect Of Amendment. This Amendment No. 2 is duly executed in accordance
with Sections 10.4 and 10.5 of the Purchase Agreement, and, except as
specifically set forth above, all covenants, terms, provisions and conditions of
the Purchase Agreement are, and shall remain, in full force and effect.
4. Effectiveness. This Amendment No. 2 shall be effective upon the effective
date of the Third Amendment to the Amended Loan Agreement described in the
second paragraph hereof.
5. Governing Law. This Amendment No. 2 shall be governed by and construed in
accordance with the internal laws of the State of New York without regard to
principles of conflict of laws of such state.
6. Counterparts. This Amendment No. 2 may be executed in any number of
counterparts evidenced by manual signatures hereto delivered directly or by
facsimile transmission and by the parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed to be an original and
all of which taken together shall constitute one and the same agreement.
The North Face, Inc. Whitney 1990 Equity Fund, L.P.
By /s/ Marsden S. Cason By /s/ Ray E. Newton, III
--------------------------------- -------------------------------------
Marsden S. Cason Ray E. Newton, III
Chief Executive Officer a General Partner
J.H. Whitney & Co.
By /s/ Ray E. Newton, III
---------------------------------
Ray E. Newton, III
a General Partner
2
<PAGE>
[EXECUTION COPY]
MANAGEMENT STOCK PURCHASE
AND NON-COMPETITION AGREEMENT
MANAGEMENT STOCK PURCHASE AND NON-COMPETITION AGREEMENT (the
"Agreement"), dated as of June 7, 1994 by and among TNF HOLDINGS COMPANY, INC.,
a Delaware corporation ("TNF" or the "Company"), and each of the persons listed
on Schedule A hereto (each hereafter referred to individually as a "Stockholder"
and collectively as the "Stockholders").
WHEREAS, TNF has been organized under the laws of the State of
Delaware with an authorized capitalization of 5,000,000 shares of Common Stock,
par value $.01 per share ("Common Stock"), and 6,000,000 shares of Series A
Convertible Preferred Stock, par value $1.00 per share ("Preferred Stock");
WHEREAS, TNF has entered into a Purchase and Sale Agreement dated as
of May 25, 1994 (as amended to date, the "Asset Purchase Agreement") with
Odyssey Holding Inc., a Delaware corporation, and The North Face, a California
corporation ("Old TNF"), relating to the acquisition (the "Acquisition") by TNF
of certain assets and the assumption of certain liabilities of Old TNF;
WHEREAS, TNF has entered into a Loan and Security Agreement, dated as
of the date hereof, with Heller Financial, Inc. to provide for a secured
$1,500,000 term loan and a secured $26,500,000 revolving credit facility, which
may include a secured seasonal overadvance facility and which includes secured
letters of credit and guaranties not to exceed $10,000,000 at any time
outstanding;
WHEREAS, TNF has entered into a Subordinated Note and Common Stock
Purchase Agreement, dated as of the date hereof (the "Note and Common Stock
Purchase Agreement"), with Whitney Subordinated Debt Fund, L.P., and
concurrently with the closing of the Acquisition, TNF proposes to issue and sell
thereunder a Subordinated Promissory Note and shares of Common Stock;
WHEREAS, TNF has entered into a Preferred Stock Purchase Agreement,
dated as of the date hereof, with Whitney 1990 Equity Fund, L.P. and J.H.
Whitney & Co. ("J.H. Whitney"), and concurrently with the Acquisition, TNF
proposes to issue and sell shares of Preferred Stock;
WHEREAS, TNF has entered into the Goldwin Agreement (as defined in the
Note and Common Stock Purchase Agreement); and
WHEREAS, the Stockholders have determined that it is in their joint
and mutual interest to invest in TNF, which shall, concurrently with the
consummation of the transactions described herein, acquire certain assets and
assume certain liabilities of Old TNF.
NOW, THEREFORE, in consideration of the premises and mutual covenants
and obligations hereinafter set forth, it is agreed as follows:
1. Issuance of Shares.
(a) Purchase and Sale of Shares. Each Stockholder hereby agrees to
purchase from TNF, and TNF hereby agrees to sell to each Stockholder, the number
of shares of Common Stock set forth on Schedule A opposite such Stockholder's
name for a subscription price (the "Subscription Price") of $1.00 per share.
The shares of Common Stock so subscribed for by the Stockholders are hereinafter
sometimes referred to collectively as the "Shares."
(b) Closing. The closing of the purchase and sale of the Shares as
provided in Section 1(a) shall take place with the closing of the transactions
contemplated by the agreements referred to in the recitals set forth above, and
TNF agrees to provide to the Stockholders prior to such closing such
information, financial and otherwise, regarding TNF and Old TNF, and their
respective businesses as the Stockholders shall reasonably request; provided
that the issuance of the Shares and the purchase thereof by the Stockholders
shall be deemed to be an acknowledgment by the Stockholders of the receipt from
TNF of such information. The obligation of the Company to consummate the sale
contemplated hereby is conditioned on the Stockholders entering into the
Securityholders Agreement (as defined in the Note and Common Stock Purchase
Agreement).
2
<PAGE>
2. Representations and Warranties of the Parties.
(a) Each Stockholder hereby represents that he has full power to
enter into this Agreement and the Securityholders Agreement, consummate the
transactions contemplated hereby and perform his obligations hereunder and
thereunder, and that this Agreement and the Securityholders Agreement is
enforceable against him in accordance with its terms.
(b) TNF hereby represents and warrants that (i) it is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware; (ii) it has full power to own and lease its properties and to
conduct its business as presently conducted; (iii) the execution, delivery and
performance of this Agreement by TNF has been duly authorized; (iv) the
execution and delivery of this Agreement and the consummation by TNF of the
transactions contemplated hereby (including, without limitation, the issuance
and sale of the Shares (as defined below) does not and will not conflict with,
violate or cause a default, or an event that, with the giving of notice or lapse
of time or both, would constitute a default, under TNF's Certificate of
Incorporation, its By-Laws, or any agreement, instrument, law, rule or
regulation to which TNF is a party or by which TNF or its properties are bound;
(v) the Shares will constitute, as of the closing of the purchase and sale
thereof, ten percent (10%) of the voting power of TNF's issued and outstanding
capital stock (excluding any Restricted Shares, as such term is defined in the
Securityholders Agreement); and (vi) there are, as of the date hereof, no
options, warrants or other rights to acquire capital stock or other equity
interests of TNF, nor are there outstanding securities convertible into capital
stock or other equity interests of TNF, other than the Preferred Stock and the
Management Options (as defined in the Note and Common Stock Purchase Agreement).
3. Certain Repurchase Rights.
(a) The parties acknowledge and agree that the Company's
determination to enter into this Agreement and consummate the Acquisition was
induced, in part, by the commitment by the Stockholders to continue their
employment with TNF for at least one (1) year from the date hereof and by the
Stockholders entering into this Agreement (including,
3
without limitation, making the covenants set forth in Section 6 hereof), and
that the damages incurred by the Company if a Stockholder's employment with the
Company resigns or is terminated within such one (1) year period, or a
Stockholder violates the terms of Section 6 of this Agreement, may be difficult
or impossible to ascertain. The parties therefore agree that if a Stockholder
resigns or is terminated by the Company for cause within such one (1) year
period, or a Stockholder violates the terms of Section 6 hereof, the Company
shall have the right (exercisable by notice to such Stockholder given within six
months of the date of his resignation, termination or violation, as applicable)
to require such Stockholder to sell to the Company all the Shares then owned by
him. If such purchase is from a Stockholder who resigned or was terminated for
cause (other than pursuant to clause 3(b)(v)), the purchase price payable by
the Company for such Shares shall equal the fair market value thereof,
determined by the Company's Board of Directors in its good faith judgment, as of
the date of such resignation or termination; if such purchase is from a
Stockholder who violated the terms of Section 6 hereof, the purchase price
payable by the Company for such Shares shall equal the price per share paid by
such Stockholder for the Shares purchased hereunder. The closing of any sale
pursuant to this Section 3 shall take place at a date mutually acceptable to the
Company and such Stockholder no later than 30 days after notice from the
Company.
(b) For the purposes of this Section 3, "Cause" shall mean, with
respect to a Stockholder, any of the following: (i) such Stockholder's
indictment for, or commission or conviction of, any crime or offense
involving monies or other property, any felony crime or offense or any crime
or offense of moral turpitude; (ii) such Stockholder's indictment or becoming
a defendant for, or commission or conviction of, fraud or embezzlement; (iii)
such Stockholder's breach of any of his fiduciary duties to the Company and
its subsidiaries or the Company's stockholders, or making of a willful
misrepresentation or omission which breach or misrepresentation or omission
could reasonably be expected to materially adversely effect the business,
operations, condition or prospects of the Company or any of its subsidiaries;
(iv) the willful and continual neglect or failure to discharge his duties or
responsibilities or obligations prescribed by the Company's Board of
Directors; or (v) such Stockholder's violation of any noncompetition or
4
confidentiality agreement with the Company or any of its subsidiaries, including
without limitation Section 6 hereof.
(c) On any closing date under Section 3, a Stockholder shall deliver
to the Company, against payment of the applicable purchase price in cash, the
certificate or certificates representing the Shares, duly endorsed for transfer
with all requisite transfer taxes paid and stamps affixed. TNF may require the
delivery on the applicable closing date of such consents to transfer, and
certificates and opinions of counsel as may be reasonably appropriate in
connection with the transfer of any of the Shares. On the applicable closing
date, all right, title and interest in the Shares being sold shall be conveyed
to TNF, free and clear of all liens, claims and encumbrances, and the
transferring Stockholder shall thereafter cease to be, and shall have no rights,
as a shareholder of TNF and shall have no rights under this Agreement.
(d) The Company may in its sole discretion elect to effectuate a
repurchase pursuant to this Section 3 or pursuant to Section 5 of the
Securityholders Agreement dated as of the date hereof between the Company and
the other parties thereto to the extent that either provision would be
applicable.
4. Investment Intent.
(a) Each Stockholder represents and warrants to TNF that: he is
acquiring the Shares for his own account, for investment only and not with a
view toward the resale or distribution thereof; that he understands that the
Shares are not registered under the Securities Act of 1933, as amended and that
such Shares may not be sold, unless they are subsequently registered or an
exemption from registration is available; he understands and agrees that TNF is
under no obligation to register the Shares or take any step to enable him to
secure an exemption from registration; and he may, therefore, be required to
bear the economic risk of his investment for an indefinite period of time.
(b) Each Stockholder further acknowledges that he is thoroughly
familiar with TNF and Old TNF, their respective businesses, operations and
financial conditions, that he has received and reviewed all documents, records
and
5
books pertaining to TNF and Old TNF, requested by him and any person he has
retained to advise him with respect to this investment and that he and such
persons have been supplied with such additional information concerning this
investment as he or they have requested. Each Stockholder represents that by
reason of his business and financial experience, and the business and financial
experience of those persons he has retained to advise him with respect to this
investment in TNF, he, together with his advisors, has such knowledge and
experience in business and financial matters that he is capable of evaluating
the merits and risks of the prospective investment in TNF. Each Stockholder
further represents that he is able to bear the risk of loss of his entire
investment.
5. Inventions and Patents.
Each Stockholder agrees that all Confidential Information (as defined
in Section 6(b)(iv)) of the Company and its subsidiaries (collectively, the
"Companies") conceived, discovered or made by him and his interest in any
copyright, trademark, patent or patent application during his employment by the
Company or within six months thereafter belong to the Company. Each Stockholder
will promptly disclose such Confidential Information to the Company to establish
and confirm such ownership, including executing any copyright assignment or
other instrument as the Company may deem reasonably necessary to evidence,
establish, maintain, protect, enforce or defend any and all of the Company's
interests under this Section 5.
6. Non-Competition; Non-Interference; and Non-Disclosure.
(a) For purposes of this Agreement, (i) the term "business" refers to
any of the businesses conducted or proposed to be conducted by the Companies at
any time during a Stockholder's employment by the Company or within the period
of six months thereafter, including, but not limited to, manufacturing,
distributing, purchasing, sourcing or selling (wholesale or retail) of technical
and high-performance outerwear, mountaineering or camping equipment, skiwear or
accessories related thereto and (ii) the term "Market" refers to any and every
county in the United States of America and the United Kingdom and each similar
jurisdiction in any other country in which the Business is conducted or proposed
to be conducted at any time during
6
such Stockholder's employment or the period of six months thereafter.
(b) Each Stockholder acknowledges that the services to be provided by
him to the Company are unique and that their loss would cause irreparable injury
to the Company. In order to induce the Company to enter into this Agreement,
each Stockholder covenants and agrees that:
(i) During the period commencing on the date hereof and ending on the
later of (x) the fifth anniversary of the date hereof or (y) three
years after the termination of such Stockholder's employment with the
Company (the "Restricted Period"), neither such Stockholder nor any
entity of which 5% or more of the beneficial ownership or 5% or more
of the controlling interest is held by such Stockholder or a related
family member, or controlled by such Stockholder or a related family
member ("Entity"), will, anywhere in the Market, directly or
indirectly, own, manage, operate, control, invest or acquire an
interest in, or otherwise engage or participate in, whether as a
proprietor, partner, stockholder, director, officer, "Key Employee"
(defined herein to include any person who is employed in a management,
executive, supervisory, marketing, sales or sourcing capacity for
another person), joint venturer, investor or other participant, in any
business which competes, directly or indirectly, with the Business
("Competitive Business") without regard to (A) whether the
Competitive Business has its office, manufacturing or other business
facilities within or without the Market, (B) whether any of the
activities of such Stockholder referred to above occur or are
performed within or without the Market or (C) whether such Stockholder
resides, or reports to an office, within or without the Market.
(ii) During the Restricted Period, neither a Stockholder nor any
Stockholder Entity will directly or indirectly solicit, induce or
influence any customer, supplier, lender, lessor or any other person
which has a business relationship with any of the Companies, at any
time during the Restricted Period, to discontinue or reduce the extent
of such relationship with any of the Companies.
7
(iii) During the Restricted Period, neither a Stockholder nor any
Stockholder Entity will (i) directly or indirectly recruit, solicit or
otherwise induce or influence any employee or sales agent of any of
the Companies to discontinue such employment or agency relationship
with any of the Companies, or (ii) employ or seek to employ, or cause
or permit any Competitive Business to employ or seek to employ for any
Competitive Business, any person who is then (or was at any time
within six months prior to the date such Stockholder or the
Competitive Business employs or seeks to employ such person) employed
by the Companies. Nothing herein shall prevent such Stockholder from
providing a letter of recommendation to an employee with respect to a
future employment opportunity.
(iv) During the Restricted Period and thereafter, neither a
Stockholder nor any Stockholder Entity will, directly or indirectly,
disclose to anyone, or use or otherwise exploit for such Stockholder's
or any Stockholder Entity's own benefit or for the benefit of anyone
other than the Companies, any confidential information, including,
without limitation, any "know-how," trade secrets, customer lists,
details of client or consultant contracts, pricing policies,
operational methods, marketing plans or strategies, product
development techniques or plans, business acquisition plans,
acquisition plans of the Companies related to the business or any
portion or phase of any scientific or technical information, ideas,
discoveries, designs, computer programs (including source or object
codes), process, procedure, formula or improvement of the Companies
that is valuable and not generally known to the competitors of the
Companies whether or not in written or tangible form, and including
all memoranda, notes, plans, reports, records, documents and other
evidence thereof (hereinafter referred to as "Confidential
Information"). The term "Confidential Information" does not include,
and there shall be no obligation hereunder with respect to information
that becomes generally available to the public other than as a result
of a disclosure by such Stockholder or a Stockholder Entity or any
agent or other representative thereof. Neither such Stockholder nor
any Stockholder Entity shall have any obligation hereunder to keep
confidential any Confidential Information if and to the
8
extent disclosure of any thereof is required by law, or determined in
good faith by such Stockholder to be necessary to comply with any
legal or regulatory order, regulation or requirement, such Stockholder
or Stockholder Entity concerned shall provide the Companies with
prompt notice of such requirement, prior to making any disclosure, so
that the Companies may seek an appropriate protective order. At the
request of the Company, each Stockholder agrees to deliver to the
Company, at any time during the Restricted Period, or at the
termination or expiration thereof, all Confidential Information which
he may possess or control.
7. Notice.
Any notice, request, demand or other communication required or
permitted to be given under this Agreement shall be sufficient if in writing and
if delivered personally, or sent by certified or registered mail as follows (or
to such other addressee or address as shall be set forth in a notice given in
the same manner):
If to any Stockholder, at his address set forth on Schedule A.
If to the Company: The North Face
999 Harrison Street
Berkeley, California 94710
Attention: President
Any such notices shall be deemed to be given on the date delivered or
mailed in the manner provided above.
8. Validity.
If for any reason any provision hereof shall be determined to be
invalid or unenforceable, the validity and effect of the other provisions hereof
shall not be affected thereby.
9. Severability.
Whenever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable law,
but if any
9
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under such applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or any jurisdiction as if such invalid, illegal or unenforceable provision had
never been, contained herein. If any court determines that any provision of
Section 7 hereof is unenforceable because of the duration or scope of such
provision, such court shall have the power to reduce the scope or duration of
such provision, as the case may be, and, in its reduced form, such provision
shall then be enforceable.
10. Waiver of Breach; Specific Performance.
The waiver by the Company or a Stockholder of a breach of any
provision of this Agreement by the other party shall not operate, or be
construed, as a waiver of any other breach of such other party. Each of the
parties to this Agreement will be entitled to enforce its rights under this
Agreement specifically, to recover damages by reason of any breach of any
provision of this Agreement and to exercise all other rights existing in its
favor. The parties hereto agree and acknowledge that money damages may not be
an adequate remedy for any breach of the provisions of this Agreement and that
any party may in its sole discretion apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive relief in
order to enforce or prevent any violations of the provisions of this Agreement.
11. Assignment; Third Parties.
No Stockholder may assign, transfer, pledge, encumber or otherwise
dispose of this Agreement or any of his respective rights or obligations
hereunder, without the written consent of the Company. The Company may assign,
transfer, pledge, encumber or otherwise dispose of its rights, but not its
obligations, hereunder, without the consent of the Stockholders.
12. Entire Agreement.
This Agreement contains the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior agreements,
written or oral,
10
with respect thereto.
13. Amendments.
This Agreement may not be changed orally but only by an agreement in
writing agreed to by the party against whom enforcement of any waiver, change,
modification, extension or discharge is sought.
14. Remedies Cumulative.
No remedy herein conferred upon the Company (including, but not
limited to, its rights under Section 3 hereof) is intended to be exclusive of
any other remedy and each and every such remedy shall be cumulative and shall be
in addition to every other remedy given hereunder or now or hereafter existing
at law or in equity or by statute or otherwise.
15. GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED, APPLIED AND ENFORCED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, EXCEPT THAT NO DOCTRINE
OR CHOICE OF LAW SHALL BE USED TO APPLY ANY LAW OTHER THAN THAT OF NEW YORK.
NO DEFENSE, COUNTERCLAIM OR RIGHT OF SET-OFF GIVEN OR ALLOWED BY THE LAWS OF
ANY OTHER STATE OR JURISDICTION, OR ARISING OUT OF THE ENACTMENT,
MODIFICATION OR REPEAL OF ANY LAW REGULATION, ORDINANCE OR DECREE OF ANY
FOREIGN JURISDICTION, BE INTERPOSED IN ANY ACTION HEREON.
16. ARBITRATION.
ANY DISPUTE BETWEEN OR AMONG THE PARTIES TO THIS AGREEMENT RELATING TO
OR IN RESPECT OF THIS AGREEMENT, ITS NEGOTIATION, EXECUTION, PERFORMANCE,
SUBJECT MATTER, OR ANY COURSE OF CONDUCT OR DEALING OR ACTIONS UNDER OR IN
RESPECT OF THIS AGREEMENT, INCLUDING WITHOUT LIMITATION ANY CLAIM UNDER THE
SECURITIES ACT OF 1933, THE SECURITIES EXCHANGE ACT OF 1934, ANY OTHER STATE OR
FEDERAL LAW RELATING TO SECURITIES OR FRAUD OR BOTH, THE RACKETEER INFLUENCED
AND CORRUPT ORGANIZATIONS ACT, OR FEDERAL OR STATE COMMON LAW, SHALL BE
SUBMITTED TO AND RESOLVED EXCLUSIVELY PURSUANT TO ARBITRATION IN ACCORDANCE WITH
THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION. SUCH
ARBITRATION SHALL TAKE PLACE IN NEW YORK CITY AND SHALL BE
11
SUBJECT TO THE SUBSTANTIVE LAW OF THE STATE OF NEW YORK. SUCH ARBITRATION SHALL
BE CONDUCTED BY THREE ARBITRATORS, ONE OF WHOM SHALL BE SELECTED BY THE
STOCKHOLDER(S), ONE OF WHOM SHALL BE SELECTED BY THE COMPANY, AND THE THIRD OF
WHICH SHALL BE SELECTED BY THE OTHER TWO ARBITRATORS. DECISIONS PURSUANT TO SUCH
ARBITRATION SHALL BE FINAL, CONCLUSIVE AND BINDING ON THE PARTIES.
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, EITHER PARTY MAY SEEK
INTERIM OR PROVISIONAL RELIEF, IN THE FORM OF A TEMPORARY RESTRAINING ORDER,
PRELIMINARY INJUNCTION OR OTHER INTERIM EQUITABLE RELIEF CONCERNING ANY DISPUTE
IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK OR THE
SUPREME COURT OF THE STATE OF NEW YORK, NEW YORK COUNTY; PROVIDED, HOWEVER,
THAT ONCE THE SELECTION OF THE ARBITRATORS IS COMPLETE, THE CONTINUATION,
TERMINATION, AMENDMENT OR MODIFICATION OF THE INTERIM OR PROVISIONAL RELIEF
SHALL BE DETERMINED BY THE ARBITRATORS AND, AFTER AN ARBITRATION PROCEEDING IS
COMMENCED, THE ACTION, SUIT OR PROCEEDING COMMENCED IN SUCH COURT SEEKING SUCH
INTERIM OR PROVISIONAL RELIEF SHALL BE DISMISSED BY THE STIPULATION OF BOTH
PARTIES. IN THE EVENT THAT THE PARTIES FAIL TO STIPULATE TO THE DISMISSAL OF
THE ACTION, THE PARTIES HEREBY AGREE THAT THE ARBITRATOR(S) MAY SUBMIT A
STIPULATION DISMISSING THE ACTION. THE ARBITRATOR(S) MAY CONDUCT ANY HEARINGS
OR ORDER ANY DISCOVERY THEY DEEM NECESSARY TO PROPERLY REVIEW THE INTERIM OR
PROVISIONAL RELIEF.
12
IN WITNESS WHEREOF, the parties hereto have set their hands as of the
day and year first above written.
TNF HOLDINGS COMPANY, INC.
By /s/ Marsden S. Cason
-------------------------------------
Name: Marsden S. Cason
Title: President
/s/ Marsden S. Cason
-------------------------------------
Marsden S. Cason
/s/ William A. McFarlane
-------------------------------------
William A. McFarlane
13
SCHEDULE A
Number of Shares
of Common Stock
Name and Address of Issued as of the
Stockholder Closing Date
------------------- ---------------------
Marsden S. Cason 63,937.5
33 Normandie Terrace
San Francisco, CA 94115
William A. McFarlane 63,937.5
1606 Martin Avenue
Pleasanton, CA 94566
---------------
Total: 127,875
AMENDMENT NO. 1 DATED AND EFFECTIVE AS OF JUNE 22,1995 ("Amendment No. 1")
TO MANAGEMENT STOCK PURCHASE AND NON-COMPETITION AGREEMENT (the "Agreement")
DATED AS OF JUNE 7, 1994, AMONG THE NORTH FACE, INC. (formerly named "TNF
Holdings Company, Inc."), MARSDEN S. CASON, AND WILLIAM A. MCFARLANE.
This Amendment No. 1 is entered into among the parties named above and
William N. Simon ("Simon"). Capitalized terms used but not defined below
shall have the meanings given them in the Agreement.
1. Additional Party. For purposes of Sections 3 through and including 16 of
the Agreement, William N. Simon shall be a Stockholder in addition to Marsden
S. Cason and William A. McFarlane and shall have the rights and obligations
of a Stockholder under those sections of the Agreement, provided that for
purposes of Section 3, (i) the parties acknowledge that Simon has completed
more than one (1) year of employment by the Company; and (ii) the "Shares"
owned by Simon which shall be subject to the repurchase provisions of Section
3 in the event he violates the terms of Section 6 shall consist of (A) the
first 63,938 shares of the Company's Common Stock issued to him pursuant to
that certain Nonqualified Stock Option Agreement (the "Option Agreement")
dated as of the date hereof, plus (B) if fewer than 63,938 shares have been
issued to him pursuant to the Option Agreement, non-forfeitable shares which
are then subject to the Option Agreement which, when added to any such issue
shares, total 63,938 shares, and (iii) if the Company is entitled to
repurchase shares from Simon under clause (ii) above which have not then been
issued, the Company shall be entitled unilaterally to cancel the Option
Agreement as to the up to 63,938 non-forfeitable shares subject to the
provisions of clause (ii) above, without any payment to Simon.
2. General. This Amendment No. 1 is duly approved and executed in accordance
with Section 11(i) of the Agreement, and, except as specifically set forth
above, all covenants, terms, provisions and conditions of the Agreement are, and
shall remain, in full force and effect. This Amendment No. 1 shall be governed
by and construed in accordance with the internal laws of the State of Delaware
without regard to principles of conflicts of law of such state, and may be
executed in any number of counterparts and by the parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
THE NORTH FACE, INC.
By /s/ Marsden S. Cason
-----------------------
Marsden S. Cason
/s/ Marsden S. Cason /s/ William A. McFarlane /s/ William N. Simon
- ------------------------- ------------------------ --------------------
MARSDEN S. CASON WILLIAM A. McFARLANE WILLIAM N. SIMON
1
<PAGE>
INVESTOR STOCK PURCHASE AGREEMENT
INVESTOR STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of June
7, 1994 by and among TNF HOLDINGS COMPANY, INC., a Delaware corporation ("TNF"
or the "Company"), and each of the persons listed on Schedule A hereto (each
hereafter referred to individually as a "Stockholder" and collectively as the
"Stockholders").
WHEREAS, TNF has been organized under the laws of the State of
Delaware with an authorized capitalization of 5,000,000 shares of Common Stock,
par value $. 01 per share ("Common Stock"), and 6,000,000 shares of Series A
Convertible Preferred Stock, par value $1.00 per share ("Preferred Stock");
WHEREAS, TNF has entered into a Purchase and Sale Agreement dated as
of May 25, 1994 with Odyssey Holding Inc., a Delaware corporation, and The North
Face, a California corporation ("Old TNF"), relating to the acquisition (the
"Acquisition") by TNF of certain assets and the assumption of certain
liabilities of Old TNF;
WHEREAS, TNF has entered into a Loan and Security Agreement, dated as
of the date hereof, with Heller Financial, Inc. to provide for a secured
$1,500,000 term loan and a secured $26,500,000 revolving credit facility, which
may include a secured seasonal overadvance facility and which includes secured
letters of credit and guaranties not to exceed $10,000,000 at any time
outstanding;
WHEREAS, TNF has entered into a Subordinated Note and Common Stock
Purchase Agreement, dated as of the date hereof (the "Note and Common Stock
Purchase Agreement"), with Whitney Subordinated Debt Fund, L.P., and
concurrently with the closing of the Acquisition, TNF proposes to issue and sell
thereunder a Subordinated Promissory Note and shares of Common Stock;
WHEREAS, TNF has entered into a Preferred Stock Purchase Agreement,
dated as of the date hereof, with Whitney 1990 Equity Fund, L.P. and J.H.
Whitney & Co. ("J.H. Whitney"), and concurrently with the Acquisition, TNF
proposes to issue and sell shares of Preferred Stock;
WHEREAS, TNF has entered into the Goldwin Agreement (as defined in the
Note and Common Stock Purchase Agreement); and
<PAGE>
WHEREAS, the Stockholders have determined that it is in their joint
and mutual interest to invest in TNF.
NOW, THEREFORE, in consideration of the premises and mutual covenants
and obligations hereinafter set forth, it is agreed as follows:
1. Issuance of Shares.
(a) Purchase and Sale of Shares. Each Stockholder hereby agrees to
purchase from TNF, and TNF hereby agrees to sell to each Stockholder, the number
of shares of Common Stock set forth on Schedule A opposite such Stockholder's
name for a subscription price the "Subscription Price") of $1.00 per share. The
shares of Common Stock so subscribed for by the Stockholders are hereinafter
sometimes referred to collectively as the "Shares".
(b) Closing. The closing of the purchase and sale of the Shares as
provided in Section l(a) shall take place with the closing of the transactions
contemplated by the agreements referred to in the recitals set forth above and
TNF agrees to provide to the Stockholders prior to such closing such
information, financial and otherwise, regarding TNF and Old TNF, and their
respective businesses as the Stockholders shall reasonably request; provided
that the issuance of the Shares and the purchase thereof by the Stockholders
shall be deemed to be an acknowledgment by the Stockholders of the receipt from
TNF of such information. The obligation of the Company to consummate the sale
contemplated hereby is conditioned on the Stockholders entering into the
Securityholders Agreement (as defined in the Note and Common Stock Purchase
Agreement).
2. Representations and Warranties of the Parties.
(a) Each Stockholder hereby represents that he has full power to
enter into this Agreement and the Securityholders Agreement, consummate the
transactions contemplated hereby and perform his obligations hereunder and
thereunder, and that this Agreement and the Securityholders Agreement is
enforceable against him in accordance with its terms.
(b) TNF hereby represents and warrants that (i) it is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware; (ii)
2
<PAGE>
it has full power to own and lease its properties and to conduct its business as
presently conducted; (iii) the execution, delivery and performance of this
Agreement by TNF has been duly authorized; (iv) the execution and delivery of
this Agreement and the consummation by TNF of the transactions contemplated
hereby (including, without limitation, the issuance and sale of the Shares (as
defined below) does not and will not conflict with, violate or cause a default
or an event that, with the giving of notice or lapse of time or both, would
constitute a default, under TNF's Certificate of Incorporation, its By-Laws, or
any agreement, instrument, law, rule or regulation to which TNF is a party or by
which TNF or its properties are bound; and (v) there are, as of the date hereof,
no options, warrants or other rights to acquire capital stock or other equity
interests of TNF, nor are there outstanding securities convertible into capital
stock or other equity interests of TNF, other than the Preferred Stock and the
Management Options (as defined in the Note and Common Stock Purchase Agreement).
3. Investment Intent, Etc.
(a) Each Stockholder represents and warrants to TNF that: he is
acquiring the Shares for his own account, for investment only and not with a
view toward the resale or distribution thereof; that he understands that the
Shares are not registered under the Securities Act of 1933, as amended and that
such Shares may not be sold, unless they are subsequently registered or an
exemption from registration is available; he understands and agrees that TNF is
under no obligation to register the Shares or take any step to enable him to
secure an exemption from registration; and he may, therefore, be required to
bear the economic risk of his investment for an indefinite period of time.
(b) Each Stockholder further acknowledges that he is thoroughly
familiar with TNF and Old TNF, their respective businesses, operations and
financial conditions, that he has received and reviewed all documents, records
and books pertaining to TNF and Old TNF, requested by him and any person he has
retained to advise him with respect to this investment and that he and such
persons have been supplied with such additional information concerning this
investment as he or they have requested. Each Stockholder represents that by
reason of his business and financial experience, and the business and financial
experience of
3
<PAGE>
those persons he has retained to advise him with respect to this investment in
TNF and Old TNF, he, together with his advisors, has such knowledge and
experience in business and financial matters that he is capable of evaluating
the merits and risks of the prospective investment in TNF and Old TNF. Each
Stockholder further represents that he is able to bear the risk of loss of his
entire investment. Each Stockholder further acknowledges that none of the
Company, its affiliates or any of their respective officers, directors,
employees or agents has made any representations or warranties in connection
with this Agreement or the transactions contemplated herein, except those
expressly set forth in Section 2. Each Stockholder has, independently (or
together with his financial advisor) and without reliance on the Company or any
of its affiliates, and based upon such documents and information as he deemed
appropriate, made his own analysis and decision to enter into this Agreement.
In connection with that decision, neither the Company nor any of its affiliates
has made (and has no responsibility with respect to), and such Stockholder is
not relying upon, any representation or warranty (other than those expressly set
forth in Section 2), express or implied, or any duty of disclosure by the
Company or any of its affiliates, as to any matter, including without limitation
matters relating to shares of Common Stock or the Company.
4. Notice.
Any notice, request, demand or other communication required or
permitted to be given under this Agreement shall be sufficient if in writing and
if delivered personally, or sent by certified or registered mail as follows (or
to such other addressee or address as shall be set forth in a notice given in
the same manner):
If to any Stockholder, at his address set forth on Schedule A.
If to the Company: The North Face
999 Harrison Street
Berkeley, California 94710
Attention: President
Any such notices shall be deemed to be given on the date delivered or
mailed in the manner provided above.
4
<PAGE>
5. Validity.
If for any reason any provision hereof shall be determined to be
invalid or unenforceable, the validity and effect of the other provisions hereof
shall not be affected thereby.
6. Severability.
Whenever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under such applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any jurisdiction as if such invalid, illegal or
unenforceable provision had never been contained herein.
7. Waiver of Breach.
The waiver by the Company or a Stockholder of a breach of any
provision of this Agreement by the other party shall not operate, or be
construed, as a waiver of any other breach of such other party.
8. Assignment; Third Parties.
No Stockholder may assign, transfer, pledge, encumber or otherwise
dispose of this Agreement or any of his respective rights or obligations
hereunder, without the written consent of the Company. The Company may assign,
transfer, pledge, encumber or otherwise dispose of its rights, but not its
obligations, hereunder, without the consent of the Stockholders.
9. Entire Agreement.
This Agreement contains the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior agreements,
written or oral, with respect thereto,
10. Amendments.
This Agreement may not be changed orally but only by an agreement in
writing agreed to by the party against
5
<PAGE>
whom enforcement of any waiver, change, modification, extension or discharge is
sought.
11. Remedies Cumulative.
No remedy herein conferred upon the Company is intended to be
exclusive of any other remedy and each and every such remedy shall be cumulative
and shall be in addition to every other remedy given hereunder or now or
hereafter existing at law or in equity or by statute or otherwise.
12. GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS OF SUCH STATE.
13. CONSENT TO JURISDICTION.
THE COMPANY HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR
FEDERAL COURT LOCATED WITHIN THE BOROUGH OF MANHATTAN, STATE OF NEW YORK AND
IRREVOCABLY AGREES THAT, SUBJECT TO ANY STOCKHOLDER'S ELECTION, ALL ACTIONS OR
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE LITIGATED IN
SUCH COURTS. THE COMPANY ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE
AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY
AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS
AGREEMENT.
14. WAIVER OF JURY TRIAL.
THE COMPANY AND THE STOCKHOLDERS HEREBY WAIVE THEIR RESPECTIVE RIGHTS
TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF
THIS AGREEMENT OR THE NOTE. THE COMPANY AND THE STOCKHOLDERS ACKNOWLEDGE THAT
THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT
EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT
EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. THE
COMPANY AND THE STOCKHOLDERS FURTHER WARRANT AND REPRESENT THAT EACH HAS
REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set their hands as of the
day and year first above written.
TNF HOLDINGS COMPANY, INC.
By /s/ Marsden S. Cason
------------------------------------
Name:
Title:
/s/ Richard T. Peery
------------------------------------
Richard T. Peery
/s/ Jack L. Richardson
------------------------------------
Jack L. Richardson
/s/ Philip S. Schlein
------------------------------------
Philip S. Schlein
/s/ Kenneth F. Seibel
------------------------------------
Kenneth F. Siebel
7
<PAGE>
SCHEDULE A
Number of Shares of
Name and Address Common Stock Issued as of
of Stockholder the Closing Date
---------------- -------------------------
Richard T. Peery 6,393.8
Jack L. Richardson 6,393.8
Philip S. Schlein 6,393.8
Kenneth F. Siebel 6,393.8
--------
TOTAL 25,575.2
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is entered into as of
December 28,1993 by and between TNF Holdings Company, Inc., a California
corporation (the "Company") and Kabushiki Kaisha Goldwin, a Japanese corporation
("Goldwin").
Whereas, The North Face, a California corporation ("TNF"), and its wholly
owned subsidiary The North Face (Scotland), Ltd. ("NF Scotland"), are engaged in
the design, manufacture and wholesale distribution of outdoor apparel, tents,
mountaineering equipment, and other items for outdoor activity, and operation of
retail outlets selling such items;
Whereas, TNF is a wholly owned subsidiary of Odyssey Holding & Inc.;
Whereas, Odyssey Holding & Inc. and certain affiliated corporations
(collectively, "Odyssey") are debtors in possession in certain bankruptcy cases
administered in the United States Bankruptcy Court for the Northern District of
California (the "Bankruptcy Court") and have filed a plan of reorganization in
the Bankruptcy Court providing, among other things, for a procedure for the sale
of TNF, subject to approval by the Bankruptcy Court;
Whereas, the Company desires to acquire TNF and NF Scotland and their
existing businesses by means of purchasing their assets and assuming liabilities
to the extent defined, and on the terms and conditions to be set forth in a bid
and related purchase agreement to be submitted for approval by the Bankruptcy
Court, or, alternatively, to acquire all outstanding shares of TNF through a
similar procedure as may be elected by the Company, subject to such approval
(the "Acquisition");
Whereas, Goldwin is engaged in the business of manufacturing and
distributing a wide range of sporting goods and related products, and is a party
to certain existing agreements with TNF regarding trademark licenses and related
matters in Japan, and desires to purchase shares in the Company and an option
from the Company to acquire certain rights on the terms described below;
Now, therefore, in consideration of the foregoing, the expenses incurred
and expected to be incurred by the Company in connection with the Acquisition
and the mutual promises set forth below, the Company and Goldwin agree as
follows:
1. PURCHASE OF SHARES.
1.1 AUTHORIZATION. The Company will, before the Share Purchase Closing
(as defined in Section 3.1), have duly authorized the sale and issuance to
Goldwin of shares representing thirty percent (30%) of the total number of
shares of capital stock of the Company to be issued and outstanding as of the
Share Purchase Closing.
<PAGE>
(a) CAPITAL STRUCTURE. The Company has the right to determine
whether one or more classes or series of shares will be issued, the rights,
restrictions, preferences and privileges of these classes, the number of
authorized shares, and the prices and other terms of the remaining 70% of the
shares issued as of the Share Purchase Closing. However, in all events if the
Share Purchase Closing occurs, Goldwin shall be issued upon the Share Purchase
Closing 30% of the shares as described above, and, if more than one class or
series is authorized or issued, all of the shares issued to Goldwin shall (as of
the date of the Share Purchase Closing) consist of shares of the most senior or
preferred shares having the most favorable rights, references and privileges and
voting right at least equal to 30% of the combined voting power of all classes
or series, provided that the Company may require that any preferred stock issued
to Goldwin shall be automatically converted to common stock if Goldwin exercises
the Option defined in Section 2 below. The shares to be issued to Goldwin are
referred to below as the "Shares," and the remaining shares to be issued and
outstanding before or immediately after the Share Purchase Closing are referred
to below as the "Other Shares"
(b) OTHER PURCHASERS. The Company shall have the right to
determine the owners of the Other Shares, so long as a majority of the Other
Shares is beneficially owned by one or both of Marsden Cason and William
McFarlane immediately prior to the Share Purchase Closing.
1.2 SALE OF THE SHARES. Subject to the terms and conditions of this
Agreement, the Company hereby irrevocably agrees to sell and issue to Goldwin at
the Share Purchase Closing, and Goldwin hereby irrevocably agrees to purchase at
the Share Purchase Closing, the Shares for a total purchase price of Twelve
Million United States Dollars (U.S.$12,000,000) (the "Purchase Price").
2. OPTION TO PURCHASE JAPANESE/KOREAN TRADEMARK RIGHTS
2.1 GRANT OF OPTION. The Company hereby irrevocably grants to Goldwin the
option (the "Option") to purchase all trademarks and trademark applications
currently owned by TNF in Japan and Korea as listed in Schedule 2.1
(collectively, the "Option Trademarks") together with all goodwill directly
associated in Japan and Korea with the Option Trademarks. The Option is
personal to Goldwin and is not transferable.
2.2 EXERCISE OF OPTION. The Option shall be exercisable by Goldwin if and
only if the Share Purchase Closing occurs in accordance with the terms and
conditions of this Agreement. If the Option becomes exercisable, Goldwin shall
have the right to exercise the Option on, or within 365 calendar days after, the
date of the Share Purchase Closing.
2.3 EXERCISE PRICE. The purchase price (the "Exercise Price") for the
Option
- 2 -
<PAGE>
Trademarks payable upon exercise of the Option shall be five sixths (5/6ths) of
the total number of shares of the Company issued or issuable to Goldwin under
Section 1.
2.4 EXERCISE PROCEDURE. If Goldwin elects to exercise the Option as
provided above, it shall give written notice of exercise to the Company
setting forth the date on which Goldwin desires to exercise the Option (the
"Option Exercise Date"). Goldwin may designate as the Option Exercise Date
the same date of such written notice if such written notice is delivered to
the Company by personal delivery. On the Option Exercise Date, the Company
shall execute and deliver to Goldwin Japanese and Korean applications for
trademark transfer forms as, may be properly prepared and requested by
Goldwin covering the Option Trademarks and other documents reasonably
requested and identified by Goldwin at least ten (10) days prior to the Share
Purchase Closing to cause the transfer of the Option Trademarks to Goldwin.
Goldwin shall, concurrent with the foregoing, deliver to the Company the
Exercise Price evidenced by appropriate share certificates duly endorsed by
Goldwin for transfer to the Company together with such evidence of due
authorization thereof by Goldwin as may be reasonably requested and
identified by the Company at least ten (10) days prior to the Share Purchase
Closing.
2.5 TREATMENT OF EXISTING GOLDWIN LICENSES. If the Company purchases
the assets of TNF pursuant to the Acquisition, the Company agrees to assume
and perform on and after the Acquisition Closing (as defined in Section 5.1)
obligations of TNF under the license agreement and distribution agreement
between TNF and Goldwin as the same exist as of the date of this Agreement.
If the Company purchases the stock of TNF pursuant to the Acquisition, the
Company agrees to cause TNF to continue to perform TNF's obligations under
those agreements. If Goldwin exercises the Option, such agreements shall
automatically terminate without further action of the parties upon completion
of the exercise procedure under Section 2.4, provided that all monetary (the
minimum royalty being prorated) and other obligations accrued through such
date under the agreement shall be fulfilled by each party so obligated within
one(1)month after the Option Exercise Date.
2.6 ALTERNATE TRANSFER PROCEDURE. If the Company purchases the stock of
TNF pursuant to the Acquisition and Goldwin exercises the Option, the Company
shall cause TNF to transfer the Option Trademarks to Goldwin in accordance with
the terms of this Agreement and Goldwin agrees to accept such transfer directly
from TNF.
2.7 INDEMNITY. Provided that the Share Purchase Closing has occurred and
Goldwin exercises the Option in accordance with the provisions of this
Agreement, the Company shall indemnify, defend and hold harmless Goldwin against
and from any and all claims, damages, losses and reasonable costs and expenses
(collectively, "Claims") to the extent arising from any breach by the Company of
the Company's
- 3 -
<PAGE>
obligations under this Section 2 and/or the Company's representation and
warranty set forth in Section 4.1(e). The Company's obligation under this
Section 2.7 shall automatically expire on the second (2nd) anniversary date of
the Share Purchase Closing Date as to all Claims which have not then or
previously been described in a written notice given by Goldwin to the Company
requesting indemnity therefor pursuant to this Section 2.7. Goldwin shall
promptly notify the Company in writing of all Claims as to which Goldwin intends
to seek indemnity under this Section 2.7. The Company shall have the right to
select legal counsel to defend the Claims, subject to approval of the legal
counsel by Goldwin, which approval shall not be unreasonably withheld or
delayed, and the right of Goldwin to retain its own counsel and participate in
the defense of any Claim at any time at Goldwin's expense. The Company shall
not be liable for the payment, settlement or other resolution of any Claim to
the extent the Company has not been permitted to control the defense thereof,
provided that the Company has diligently responded or offered to respond to any
notice of a Claim given to the Company by Goldwin. In no event shall the
aggregate obligations of the Company under this Section 2.7 exceed U.S.$12
million, and the Company shall have no liability hereunder to the extent of any
Claims agreed to or caused by Goldwin.
3. THE SHARE PURCHASE CLOSING
3.1 TIME AND PLACE. The closing (the "Share Purchase Closing") of the
purchase and sale of the Shares under Section 1.2 shall take place on or before
March 31, 1994, at one location in the United States of America, as such date
and place may be selected by the Company after consultation with Goldwin, so
long as the Share Purchase Closing occurs on the date on which the Acquisition
Closing occurs and so long as all conditions under Section 5 to each party's
obligations to complete the sale and purchase of the Shares are duly fulfilled
or waived by the party entitled to waive such conditions. The date of the Share
Purchase Closing is referred to in this Agreement as the "Share Purchase Closing
Date." The Company shall give Goldwin at least fifteen (15) days prior written
notice of the Share Purchase Closing Date, and the Company may, with reasonable
cause, defer the Share Purchase Closing Date by up to twenty (20) business days.
3.2 DELIVERY OF SHARES. At the Share Purchase Closing, the Company shall
deliver to Goldwin share certificates in such number as the Company shall
determine representing the number of Shares being purchased from the Company, to
be registered on the Company's books in the name of Goldwin. The certificates
shall be in proper legal form under the laws of California.
3.3 PAYMENT. The delivery specified in Section 3.2 shall be against
payment of the Purchase Price for the Shares, and such payment shall be paid by
Goldwin at the Share Purchase Closing by delivering to the Company all documents
to be delivered by Goldwin under the escrow agreements described in Section 3.4
in order to cause the amounts held in the escrow accounts to be released as
provided in
- 4 -
<PAGE>
Section 3.4.
3.4 ESCROW DEPOSIT.
(a) INITIAL DEPOSIT. No later than January 7, 1994 (Tokyo time), Goldwin
shall remit (and provide the Company with notice of such remittance by
facsimile) the sum of one million two hundred thousand United States dollars
(U.S.$1,200,000) into an escrow account with a branch or office in San
Francisco, California, of Union Bank or other mutually selected bank (the
"Bank") pursuant to such bank's customary escrow agreement to be executed by
Goldwin and the Company and to provide for such bank to hold the deposit for the
benefit of the Company as secured party to secure Goldwin's obligation to
purchase the Shares in accordance with this Agreement. If the Share Purchase
Closing is consummated under this Agreement, the U.S.$1,200,000 shall, upon the
Share Purchase Closing, be paid directly to the Company or the party designated
by the Company pursuant to the terms and conditions of the Acquisition Closing.
If the Share Purchase Closing is not consummated because of a breach of
Goldwin's obligation under Sections 3.3 and 3.4, which breach is not cured by
Goldwin within five (5) business days after notice is given by the Company to
Goldwin specifying the basis of such breach or (ii) because of a breach of any
other material obligation under this Agreement on the part of Goldwin, which
breach is not cured by Goldwin fifteen (15) business days after notice is given
by the Company to Goldwin specifying the basis of such breach, the deposit with
any interest earned thereon shall be immediately paid to the Company as
liquidated damages for such breach by Goldwin. The parties acknowledge that the
Company's actual damages in the event of such breach by Goldwin would be
extensive but extremely difficult or impracticable to determine. Therefore, by
placing their initials below, the parties acknowledge that the deposit has been
agreed upon, after negotiation, as the parties' reasonable estimate of the
minimum amount of the Company's damages and as the Company's sole remedy against
Goldwin in the event Goldwin fails to perform such obligations under this
Agreement.
Goldwin Initials /s/ T.N. Company Initials /s/ M.S.L.
------------ ------------
The term "business day" used in this Agreement means any day on which banks
are open for business in both Tokyo and San Francisco.
(b) CLOSING DEPOSIT. At least ten (10) days prior to the Share Purchase
Closing, Goldwin shall deposit the $10,800,000 balance of the Purchase Price
into an escrow account with a branch or office in San Francisco, California, of
the Bank pursuant to such bank's customary escrow agreement to be executed by
Goldwin and the Company, which shall provide that the amount held in such escrow
account (other than the interest earned thereon) will, upon the Share Purchase
Closing, be paid in immediately available funds directly to the Company or the
party designated by the Company pursuant to the terms and conditions of the
- 5 -
<PAGE>
Acquisition Closing.
(c) INTEREST. Except where specified to the contrary, all interest earned
on amounts deposited by Goldwin in escrow accounts pursuant to this Section 3.4
shall be for the benefit of Goldwin.
3.5 COMMITMENT LETTER. No later than January 7, 1994 (Tokyo time), Goldwin
shall, by facsimile with the original thereof sent simultaneously by recognized
over night courier, furnish a commitment letter from Hokuriku Bank addressed to
the Company, in the form set forth as Schedule 3.5, to the effect that such bank
is committed to fund for the benefit of Goldwin and the Company the amount of
the Purchase Price in accordance with the terms and conditions of this
Agreement.
4. REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS OF THE COMPANY. The Company hereby represents and
warrants to Goldwin, as of the Share Purchase Closing Date, as follows:
(a) ORGANIZATION. Each of the Company and its subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation, and has all requisite power and authority to
own, lease, and operate its properties and to carry on its business as it is
now conducted and proposed to be conducted and the Company has all requisite
corporate, legal and other power and authority to enter into and perform the
terms and conditions of this Agreement.
(b) CAPITALIZATION. All of the issued and outstanding shares of
capital stock of the Company have been duly authorized and validly issued and
are fully paid and nonassessable and have been offered, issued and sold by the
Company in compliance with all applicable federal and state securities laws.
Schedule 4.1(b), to be attached hereto prior to the Share Purchase Closing, sets
forth as of the Share Purchase Closing and immediately following the Share
Purchase Closing the authorized capital stock of the Company, the number of
shares thereof issued and outstanding and a list of the shareholders of the
Company indicating the shares of the Company held by each of them.
(c) AUTHORIZATION AND COMPLIANCE. The issuance, sale and delivery
of the Shares in accordance with this Agreement together with the execution,
delivery and performance by the Company of this Agreement have been duly
authorized by all necessary corporate action on the part of the Company, and
the Shares, when so issued, sold and delivered against payment therefor in
accordance with this Agreement, will be duly and validly issued, fully paid
and nonassessible. The execution, delivery and performance of this Agreement
by the Company and the offer, sale and delivery of the Shares do not and will
not conflict with, violate or
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result in any default under or breach of any of the provisions of (i) any law of
the United States of America or its political subdivisions, (ii) the Articles of
Incorporation or Bylaws of the Company, (iii) any decree, judgment or order,
applicable to the Company or (iv)any contract or agreement by which the Company
is bound. The Company has satisfied itself that it has complied with all
applicable laws in connection with the execution, delivery and performance of
this Agreement.
(d) OPTION TRADEMARKS. To the best of the Company's knowledge,
Schedule 2.1 is a complete and correct list of all trademarks owned or used by
TNF in Japan and Korea.
(e) TITLE. As of the Option Exercise Date, the Option Trademarks
shall be free and clear of any liens and security interests (other than such
liens or security interests as may have been agreed to or caused by Goldwin) and
shall not be subject to any attachment (SASHIOSAE) or provisional attachment
(KARISASHIOSAE).
4.2 REPRESENTATIONS OF GOLDWIN.
Goldwin hereby represents and warrants to the Company, as of the Share
Purchase Closing Date, as follows:
(a) ORGANIZATION. Goldwin is a corporation duly organized, validly
existing and in good standing under the laws of Japan and has all requisite
power and authority to own, lease and operate its properties and to carry on its
business as it is now conducted and proposed to be conducted; and Goldwin has
all requisite corporate, legal and other power and authority to enter into and
perform the terms and conditions of this Agreement.
(b) AUTHORIZATION AND COMPLIANCE. The execution, delivery and
performance of this Agreement by Goldwin have been duly authorized by all
necessary corporate action on the part of Goldwin. The execution, delivery and
performance of this Agreement by Goldwin do not and will not conflict with,
violate or result in any default under or breach of any of the provisions of (i)
any law of Japan or its political subdivisions, (ii) the articles of
incorporation and other organizational documents of Goldwin, (iii) any decree,
judgment or order, applicable to Goldwin or (iv) any contract or agreement by
which Goldwin is bound. Goldwin has satisfied itself that it has complied with
all applicable laws in connection with the execution, delivery and performance
of this Agreement.
(c) INVESTMENT REPRESENTATION. Goldwin is purchasing the Shares for
its own account (and not as nominee or agent) and not with a view to or for sale
in connection with any distribution of the Shares under circumstances which
would violate the securities laws of any country or its political subdivisions;
has total assets in excess of U.S.$5,000,000; has a preexisting business
relationship with TNF and
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business experience such that Goldwin is capable of understanding the merits and
risks of an investment in the Shares and protecting its own interests in
connection with this Agreement; and does not have any contract or other
undertaking with any person to sell, transfer or otherwise dispose of the
Shares (other than if it exercises the Option hereunder).
5. CONDITIONS TO CLOSING
5.1 CONDITIONS TO OBLIGATIONS OF THE COMPANY AND GOLDWIN. The obligations
of each of the Company and Goldwin under this Agreement to cause the Share
Purchase Closing to take place shall be subject to the satisfaction, at and as
of the Share Purchase Closing, of the conditions that:
(a) the closing of the Acquisition (the "Acquisition Closing") shall
have occurred in accordance with applicable Bankruptcy Court approval and in
accordance with such other terms and conditions as may be agreeable to the
Company, so long as, in all events, the Company receives all of the documents
necessary for the Company to acquire the Option Trademarks directly without any
further cooperation from TNF, or acquire the Option Trademarks indirectly by
acquisition of all outstanding shares of TNF's capital stock,
(b) there shall not have been entered a preliminary or permanent
injunction, temporary restraining order or other judicial or administrative
order or decree in any jurisdiction, the effect of which prohibits the Share
Purchase Closing or the Acquisition Closing or the Company from performing its
material obligations under this Agreement and there shall be no legal actions or
proceedings pending that will, if determined adversely, prohibit the Company
from performing its material obligations under this Agreement; and
(c) the Option Trademarks shall not be subject to any attachment or
provisional attachment.
5.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY. Except to the
extent expressly waived in writing by the Company, the obligations of the
Company under this Agreement to cause the Share Purchase Closing to take place
shall also be subject to the fulfillment at or prior to the Share Purchase
Closing of each of the following conditions:
(a) The representations and warranties of Goldwin in Section 4 shall
have been true and correct when made, and shall be true and correct on the Share
Purchase Closing Date as if made on and as of such date, and Goldwin shall have
paid the Purchase Price for the Shares in the manner referred to in Section 3.3
hereof and otherwise shall have performed all of its obligations required by
this Agreement to be performed on or prior to the Share Purchase Closing.
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(b) Goldwin shall have delivered to the Company (i) a certificate
executed by Goldwin's chief executive officer certifying that, based upon his
best knowledge, the conditions specified in Section 5.2(a) have been fulfilled
as of the Share Purchase Closing and (ii) a written opinion of Yanagida, Nomura
& Akai, Japanese counsel to Goldwin, dated as of the Share Purchase Closing,
which opinion shall address the Japanese law matters set forth in Section 4.2(a)
and the first sentence of (b), need not address financial or other matters of
fact except to the extent of counsel's actual knowledge, and shall be reasonably
satisfactory to the Company.
5.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF GOLDWIN. Except to the extent
expressly waived in writing by Goldwin, the obligations of Goldwin under this
Agreement to cause the Share Purchase Closing to take place shall also be
subject to the fulfillment at or prior to the Share Purchase Closing of each of
the following conditions:
(a) The representations and warranties of the Company in Section 4
shall have been true and correct when made, and shall be true and correct on the
Share Purchase Closing Date as if made on and as of such date, and the Company
shall have delivered certificates representing the Shares and otherwise shall
have performed all of its obligations required by this Agreement, to be
performed on or prior to the Share Purchase Closing.
(b) The Company and its shareholders shall have duly elected an
individual designated by Goldwin as a member of the Company's board of directors
(provided that Goldwin shall have notified the Company at least ten (10) days
prior to the Share Purchase Closing of the name and address of such individual).
(c) The Company shall have delivered to Goldwin (i) a certificate
executed by the Company's chief executive officer certifying that, based upon
his best knowledge, the conditions specified in Sections 5.1 and 5.3(a) have
been fulfilled as of the Share Purchase Closing and (ii) a written opinion of
Crosby, Heafey, Roach & May, California counsel to the Company, dated as of the
Share Purchase Closing, which opinion shall address the California law matters
set forth in Section 4.1(a),(b) and the first sentence of (c), need not address
financial or other matters of fact except to the extent of counsel's actual
knowledge, and shall be reasonably satisfactory to Goldwin.
6. COVENANTS OF THE COMPANY AND GOLDWIN
6.1 OVERSEAS TRADEMARK REGISTRATIONS. Promptly after Goldwin's exercise
of the Option, the Company shall cooperate with Goldwin in expanding the
categories of registration of the Option Trademarks in Japan and Korea and shall
endeavor to acquire trademark rights with respect to North Face Marks (as
defined in Section 6.5 (a)) which are registered in the name of third parties in
Korea and transfer such trademark rights to Goldwin free of charge, provided
that the
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Company shall not be obligated to pay or incur any costs or expenses to achieve
the foregoing in excess of twenty five thousand United States dollars
(U.S.$25,000). In the event such costs or expenses exceed U.S.$25,000 the
parties shall discuss, in good faith, the allocation between them of such
excess.
6.2 BOARD REPRESENTATION. So long as Goldwin holds shares which entitle
it to 5% or more of the combined voting power of all stock issued by the Company
and, if Goldwin has exercised the Option, so long as Goldwin has not sold the
Option Trademarks, Goldwin shall be entitled to elect one member of the
Company's board of directors. This right to elect a director is personal to
Goldwin and is not transferable with any shares or otherwise.
6.3 WITHHOLDING TAX. Any withholding tax in Japan payable on the purchase
of the Option Trademarks shall be borne by the Company, provided that Goldwin
shall use reasonable efforts to minimize the amount of such withholding tax.
Immediately following receipt by the Company from Goldwin of the notice of
exercise of Option pursuant to Section 2.4, the Company shall deposit one
million United States dollars (U.S.$1,000,000) into an escrow account with a
branch or office in San Francisco, California, of the Bank pursuant to such
bank's customary escrow agreement to be executed by the Company and Goldwin,
which shall provide that such U.S.$1,000,000 will be paid to Goldwin upon
receipt by the Company of a certificate from the relevant Japanese tax authority
for the Company's tax credit in the United States under the U. S. Japan Tax
Treaty that Goldwin has paid the withholding tax, payable in Japan in connection
with the exercise of the Option, in the amount of at least U.S.$1,000,000. If
such certificate is not received by the Company within forty-five (45) days
after the making of the deposit, such $1,000,000 will be repaid to the Company.
All interest earned on amounts deposited by the Company in the escrow account
established pursuant to this Section 6.3 shall be for the benefit of the
Company. Upon Goldwin's request, the Company shall, immediately after the
Option Exercise Date, deliver to Goldwin a power of attorney for the withholding
tax application to be submitted to the relevant Japanese tax authority in
accordance with the U.S. Japan Tax Treaty.
6.4 STOCK RESTRICTION AGREEMENT. Goldwin agrees that no shares of any
class of stock of the Company or any interest in those shares now or later owned
of record or beneficially by Goldwin shall be sold, assigned, encumbered,
pledged, held in trust, transferred or otherwise disposed of, voluntarily or
involuntarily, directly or indirectly, with or without consideration, by
operation of law, or otherwise (collectively, as a noun or verb, referred to as
"Transfer"), except as expressly permitted by this Agreement. Any attempted
Transfer shall be null and void and shall confer no rights on the transferee,
except to the extent expressly permitted by this Agreement.
(a) RIGHT OF FIRST REFUSAL. Goldwin agrees that no such shares shall
be Transferred for a period of twenty-four (24) months after the Closing. If
Goldwin
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thereafter desires to Transfer any such shares, Goldwin shall give notice of the
proposed Transfer to the Company, setting forth in detail the identity of all
transferees, intended price and all other terms and conditions of the Transfer
(the "Transfer Notice). Within ninety (90) calendar days after receiving the
Transfer Notice, the Company and any other persons designated by the Company
shall have the right and option (but no obligation) to purchase any or all of
the shares of the Company then owned by Goldwin (whether or not designated in
the Transfer Notice) for a price equal to the lower of the price (and on the
other terms and conditions) specified in the Transfer Notice or fair market
value determined under this Section 6.4.
(b) PURCHASE PROCEDURE. The foregoing right and option may be
exercised, if at all, by notice (the "Election Notice") to Goldwin delivered
within such 90 day period specifying the number of shares to be purchased, the
price therefor (and reasonably detailed basis for specifying fair market value
if selected in place of the price designated in the Transfer Notice), and
closing procedures (which shall be as reasonably specified by the Company so
long as the closing of the purchase from Goldwin occurs within thirty (30) days
after the Election Notice is given to Goldwin and payment is made to Goldwin in
United States dollars in immediately available funds against delivery of share
certificates duly endorsed for transfer to persons designated by the Company).
(c) PRICE DETERMINATION. If Goldwin and the Company disagree as to
the fair market value specified in the Election Notice, either party may
initiate arbitration to determine such value under Section 7.11 hereof. The
period in which the Company has the right to purchase shares specified in the
Election Notice shall be tolled and extended during the period in which the
Company is participating in good faith in such arbitration proceedings.
(d) RIGHT TO TRANSFER. To the extent shares included in the Transfer
Notice are not timely designated for purchase in an Election Notice, Goldwin
shall be free for a period of sixty (60) days to Transfer such shares solely in
accordance with the terms and conditions stated in the Transfer Notice, provided
that the transferees thereof shall be bound by the provisions of this Section
6.4 and shall execute such agreements to that effect as may be requested by the
Company.
6.5 MARKETING ALLIANCE.
The following provisions in Section 6.5 shall become effective upon
Goldwin's exercise of the Option in accordance with the terms and conditions of
this Agreement.
(a) GEOGRAPHICAL LIMITATIONS. The Company and its affiliates shall
not sell in Japan or Korea (other than through distribution arrangements with or
first approved in writing by Goldwin) any products identified by the marks
listed in
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Schedule 2.1 or similar marks incorporating the name "The North Face" or
existing logo designs (collectively, "The North Face Marks") or similar marks
and shall use good faith efforts to prevent its customers and affiliates from
doing so. Goldwin and its affiliates shall not sell outside the geographical
boundaries of Japan or Korea (other than through distribution arrangements with
or first approved in writing by the Company) any products identified by The
North Face Marks or similar marks, and shall use good faith efforts to prevent
its customers and affiliates from doing so. Goldwin hereby acknowledges that it
shall have no rights in or to The North Face Marks other than such rights as are
expressly granted to it by this Agreement. The term "affiliate" used in this
Section 6.5 means any corporation, partnership or other person directly or
indirectly controlling controlled by or under common control with the party
designated above, and the term "customer" used in this Section 6.5 means any
retailer, wholeseller, exporter, distributor and licensee of the designated
party and its affiliate, and any other third party which purchases relevant
products from the designated party and its affiliate. If the Company or its
affiliate licenses a third party (except for TNF's existing licensees) to
manufacture, promote or sell products identified by the North Face Marks or
similar marks in any country other than Japan and Korea, the Company or its
affiliate shall, to the extent permitted by applicable laws, include in its
license agreement with that third party a provision prohibiting that third party
and its customers and affiliates promoting or selling such products in Japan and
Korea. If Goldwin or its affiliate licenses a third party to manufacture,
promote or sell products identified by the North Face Marks or similar marks in
Japan or Korea, Goldwin or its affiliate shall, to the extent permitted by
applicable laws, include in its license agreement with that third party a
provision prohibiting that third party and its customers and affiliates
promoting or selling such products in any country other than Japan and Korea.
(b) QUALITY REQUIREMENTS. Goldwin and its affiliates and licensees
and the Company and its affiliates and licensees shall not manufacture or sell
any products identified by The North Face Marks or similar marks unless the
quality of each product is comparable to or better than the general quality
standards evidenced by the products historically produced by or for TNF or
produced by or for Goldwin in accordance with its existing license agreement
with TNF. Goldwin and its affiliates and licensees and the Company and its
affiliates and licensees shall cooperate with each other to prevent the
proliferation of and exchange information concerning counterfeit products
bearing The North Face Marks or similar marks.
(c) PRODUCT AND INFORMATION SHARING. The Company and Goldwin each
agree to allow the other upon request reasonable inspection of facilities and
processes used to manufacture their products bearing The North Face Marks and to
supply designs (free of charge), specimens of such products (at the cost of the
requesting party) and related trademarks. Goldwin and its affiliates may freely
copy and use the designs and products of the Company and the Company and its
affiliates may freely copy and use the design and products of Goldwin provided
that (i) each party shall inform the other parties of the designs and products
so copied and used,
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and (ii) such copied designs and products shall not be sold or licensed to
licensees or foreign distributors of the copying party without the written
consent of the other party, except that the Company may sell or license such
copied designs and products to its licensees and distributors in the United
States and Canada.
(d) EXCLUSIVE SALES ARRANGEMENTS. The Company shall have the
exclusive right to purchase, for sale outside of Japan and Korea, products
produced by or for Goldwin bearing The North Face Marks and the Goldwin shall
have the exclusive right to purchase, for sale in Japan and Korea, products
produced by or for the Company bearing The North Face Marks in accordance with
terms and conditions to be agreed upon by the parties in good faith negotiations
in respect of each particular sale. Goldwin and the Company shall also discuss
in good faith the possibility of licensing or purchasing each other's
manufacturing know-how in relation to the manufacture of products bearing The
North Face Marks.
(e) PERMITTED CATEGORIES. Goldwin and its affiliates and licensees
shall not register The North Face Marks or similar marks in any country other
than Japan and Korea. The Company and its affiliates and licensees shall not
register the North Face Marks or similar marks in Japan and Korea. Furthermore,
although Goldwin may register The North Face Marks in Japan and Korea for every
category of products, it and its affiliates and licensees shall not use for
commercial purposes any of The North Face Marks so registered or similar marks
except for in those categories of consumer products consisting of sleeping bags,
tents, backpacks, ski wear and equipment, camping, hiking, fishing, canoeing
kayaking and mountain biking equipment, casual wear, outdoor footwear, other
products representative of the outdoor lifestyle in areas similar to the
foregoing and accessories and promotional items directly related to or to the
sales of the foregoing.
(f) EXISTING SKI WEAR, CASUAL WEAR AND SHOE LICENSES. Goldwin
acknowledges the existence of certain license agreements and distributorship
agreements listed in Schedule 6.5(f) (with such changes as described in Schedule
6.5(f)) governing the sale by licensees in Japan of ski wear, casual wear, shoes
and related accessories identified by The North Face Marks. So long as those
agreements remain in effect, whether or not Goldwin exercises the Option,
Goldwin shall not act in any way that would violate or interfere with the rights
and obligations under those agreements The Company shall not amend those
agreements in a manner that would extend the existing terms thereof or assign
additional trademark rights to those licenses. If and when Goldwin exercises the
Option, the Company will assign the license agreements and distributorship
agreements to Goldwin, to the extent possible, and cause all payments received
by the Company from those licensees for periods after Goldwin exercises the
Option to be remitted promptly to Goldwin.
(g) TRADEMARK RIGHT OF FIRST REFUSAL. If Goldwin will have exercised
the Option, Goldwin shall not Transfer the Option Trademarks or any interest
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therein without first giving notice of the proposed Transfer to the Company
setting forth in reasonable detail the proposed assignee, the marks and related
rights proposed to be Transferred, and the price and other terms and conditions
of the Transfer (the "Trademark Transfer Notice"). Within ninety (90) days after
receiving the Trademark Transfer Notice, the Company or any of its wholly owned
subsidiaries shall have the right and option (but no obligation) to purchase all
of the marks and associated rights specified in the Trademark Transfer Notice
for a price equal to the lower of the price (and on the other terms and
conditions) specified in the Trademark Transfer Notice or fair market value
(determined by agreement of the parties or, if agreement cannot be reached, by
arbitration under Section 7.11 hereof). The Company may exercise such option by
giving notice thereof to Goldwin within such ninety (90) day period, and the
parties shall consummate the sale and purchase of the marks and related rights
designated in the Company's notice within thirty (30) days after the Company
gives such notice to Goldwin (pursuant to documents to be reasonably agreed upon
by each party and with such 30 day period extended by the period in which the
Company is participating in good faith in any related arbitration proceedings).
If the Company does not timely exercise such option, Goldwin shall have the
right to consummate the Transfer if and only if the assignee thereof is approved
in writing by the Company, which approval shall not be unreasonably withheld or
delayed. Notwithstanding the foregoing, Goldwin shall have the right to
Transfer all or part of the Option Trademarks to one or more corporations
controlled by Goldwin which agree in writing to be bound by all of the
provisions of this Agreement which otherwise constitute obligations of Goldwin.
(h) OTHER MARKETING MATTERS. The Company and Goldwin shall cooperate
with each other to enhance design, production, and development of products to be
identified by The North Face Marks, share design, image and advertising
strategies and materials, cosponsor marketing events on mutually agreeable
terms, and meet at least twice per year to discuss matters of mutual interest.
7. GENERAL PROVISIONS
7.1 GOVERNING LAW. This Agreement shall be governed in all respects by
the internal laws of the State of California without application of principles
of conflicts of law.
7.2 SURVIVAL. All representations, warranties, covenants and agreements
made herein shall survive any investigation made by any party and the closing of
the transactions contemplated hereby.
7.3 SUCCESSORS AND ASSIGNS. Neither Goldwin nor the Company shall
assign or otherwise transfer any of their rights under this Agreement other than
to a successor to all or substantially all of the business of such party by way
of merger, consolidation or purchase of assets, and except that the Company's
rights hereunder
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shall inure to the benefit of and shall be assignable to any institutional
lender which has provided or committed to provide acquisition, working capital
or other financing to the Company. Except as provided in the preceding sentence
and other specific provisions hereof, the provisions hereof shall inure to the
benefit of, and be binding upon, the successors, assigns, heirs, executors and
administrators of the parties hereto.
7.4 ENTIRE AGREEMENT AMENDMENT. This Agreement and its exhibits expressly
described herein constitute the full and entire understanding and agreement
among the parties with regard to the subjects hereof. Prior to the Share
Purchase Closing, any term of this Agreement may be amended and the observance
of any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of each of the parties hereto.
7.5 NOTICES AND OTHER COMMUNICATIONS. Every notice or other communication
required or contemplated by this Agreement by either party shall be delivered
either by (i) personal delivery, (ii) postage prepaid return receipt requested
registered or certified mail (airmail if available), or the equivalent of
registered or certified mail under the laws of the country where mailed, (iii)
internationally recognized overnight courier, such as Federal Express or UPS, or
(iv) facsimile with a confirmation copy sent simultaneously by postage prepaid,
return receipt requested, registered or certified mail, in each case addressed
to the Company at 999 Harrison Street, Berkeley, California and addressed to
Goldwin at 20-6, Shoto 2-chome, Shibuya-ku, Tokyo. Notice by registered or
certified mail shall be effective on the date it is officially recorded as
delivered to the intended recipient by return receipt or equivalent, and in the
absence of such record of delivery, the effective date shall be presumed to have
been the fifth (5th) business day after it was deposited in the mail. All
notices and other communications required or contemplated by this Agreement
delivered in person or sent by courier shall be deemed to have been delivered to
and received by the addressee and shall be effective on the date of personal
delivery; notices delivered by "tested" telex or by facsimile with simultaneous
confirmation copy by registered or certified mail shall be deemed delivered to
and received by the addressee and effective on the date sent. Notice not given
in writing shall be effective only if acknowledged in writing by a duly
authorized representative of the party to whom it was given.
7.6 COUNSEL FEES. Each party shall bear its own legal fees and other
expenses incident to this Agreement.
7.7 FINDER'S FEES.
(a) The Company (i) represents and warrants that it has not retained
any finder or broker in connection with the transactions contemplated by this
Agreement and (ii) hereby agrees to indemnify and to hold Goldwin harmless Of
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and from any liability for any commission or compensation in the nature of a
finder's fee to any broker or other person or firm (and the costs and expenses
of defending against such liability or asserted liability) for which the Company
or any of its employees or representatives, is responsible.
(b) Goldwin (i) represents and warrants that it has retained no
finder or broker in connection with the transactions contemplated by this
Agreement and (ii) hereby agrees to indemnify and to hold the Company and the
other shareholders harmless of and from any liability for any commission or
compensation in the nature of a finder's fee to any broker or other person or
firm (and the costs and expenses of defending against such liability or asserted
liability) for which Goldwin, or any of its employees or representatives, is
responsible.
7.8 SECURITIES LEGEND. The Company is authorized to imprint on all
certificates evidencing the Shares or any other securities issued in exchange
therefor the following legend or similar statement needed to comply with United
States securities laws deemed appropriate by the Company:
THE SECURITIES REPRESENTED HEREBY (1) HAVE NOT BEEN REGISTERED OR QUALIFIED
UNDER FEDERAL OR STATE SECURITIES LAW, (2) HAVE BEEN ACQUIRED FOR INVESTMENT AND
NOT WITH A VIEW TO OR IN CONNECTION WITH THE SALE OR DISTRIBUTION THEREOF, AND
(3) MAY NOT BE SOLD OR OTHERWISE DISPOSED OF WITHOUT AN EFFECTIVE FEDERAL
REGISTRATION STATEMENT AND STATE QUALIFICATION RELATED THERETO OR AN OPINION OF
COUNSEL FURNISHED AT HOLDER'S EXPENSE IN FORM AND SUBSTANCE AND FROM COUNSEL
SATISFACTORY TO THE ISSUER OF THESE SECURITIES THAT SUCH REGISTRATION AND
QUALIFICATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1993 AND APPLICABLE
STATE LAW. THE SHARES REPRESENTED HEREBY ARE SUBJECT TO RIGHT OF FIRST REFUSAL
AND RELATED TRANSFER RESTRICTIONS SET FORTH IN AN AGREEMENT BETWEEN THE ISSUER
HEREOF AND THE HOLDER OF RECORD DESIGNATED ON THE FACE OF THIS CERTIFICATE. A
COPY OF SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL BUSINESS OFFICE OF THE
ISSUER.
7.9 TITLES AND SUBTITLES. The titles of the paragraphs and subparagraphs
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
7.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument. Execution and delivery of this Agreement
and/or its exhibits by exchange of facsimile copies bearing the facsimile
signature of a party hereto shall constitute a valid and binding execution and
delivery of this Agreement by such party. Such facsimile copies shall
constitute enforceable original
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documents.
7.11 ARBITRATION. UNLESS OTHERWISE AGREED BY THE COMPANY AND GOLDWIN IN
WRITING, ALL DISPUTE, CONTROVERSIES, OR DIFFERENCES WHICH MAY ARISE BETWEEN THE
PARTIES OUT OF OR IN RELATION TO OR IN CONNECTION WITH THIS CONTRACT, OR THE
BREACH THEREOF, SHALL BE FINALLY SETTLED BY ARBITRATION PURSUANT TO THE JAPAN-
AMERICAN TRADE ARBITRATION AGREEMENT OF SEPTEMBER 16,1962, BY WHICH EACH PARTY
HERETO IS BOUND. IF GOLDWIN INITIATES THE ARBITRATION, THE PLACE OF ARBITRATION
SHALL BE SAN FRANCISCO, CALIFORNIA, U.S.A.; AND IF THE COMPANY INITIATES THE
ARBITRATION, THE PLACE OF ARBITRATION SHALL BE TOKYO, JAPAN. IN ALL EVENTS,
THE ARBITRATION SHALL BE CONDUCTED IN THE ENGLISH LANGUAGE. THIS ARBITRATION
PROVISION SHALL APPLY WHETHER THE DISPUTE, CONTROVERSY OR DIFFERENCE ARISES
UNDER CONTRACT, TORT, LAW, EQUITY OR OTHERWISE, PROVIDED THAT IN ANY ARBITRATION
UNDER SECTION 6.4(c) THE PLACE OF ARBITRATION SHALL BE SAN FRANCISCO,
CALIFORNIA, U.S.A., THE ARBITRATION SHALL BE CONDUCTED IN ACCORDANCE WITH THE
COMMERCIAL RULES OF THE AMERICAN ARBITRATION ASSOCIATION AND EACH PARTY SHALL
APPOINT AN INVESTMENT BANKER EXPERIENCED IN VALUING COMPANIES OF THE SIZE OF THE
COMPANY, EACH OF THOSE APPOINTEES SHALL APPOINT A THIRD SUCH EXPERIENCED
INVESTMENT BANKER, AND THE THREE SUCH ARBITRATORS SHALL VALUE THE SHARES SUBJECT
TO THE ELECTION NOTICE IN ACCORDANCE WITH VALUATION PRINCIPLES CUSTOMARILY USED
IN THE UNITED STATES FOR COMPARABLE COMPANIES AND TAKING INTO ACCOUNT AN
APPROPRIATE DISCOUNT FOR THE MINORITY INTEREST REPRESENTED THEREBY, LACK OF
PUBLIC TRADING MARKET AND RESTRICTIONS ON TRANSFER.
NOTWITHSTANDING THE FOREGOING, GOLDWIN SHALL BE ENTITLED WITHIN JAPAN AND KOREA,
AND THE COMPANY SHALL BE WITHIN ANY COUNTRY OTHER THAN JAPAN AND KOREA, TO SEEK
INJUNCTIVE RELIEF, DAMAGES, AND RELATED LEGAL OR EQUITABLE REMEDIES BY JUDICIAL
ACTION AGAINST THE OTHER PARTY OR ANYONE ELSE BASED ON ANY INFRINGEMENT OR OTHER
VIOLATION OF TRADEMARK RIGHTS RESPECTIVELY OWNED BY SUCH PARTY.
7.12 EFFECTIVENESS. Goldwin shall use its reasonable effort to complete,
by January 7, 1994, all procedures under the Japanese Foreign Exchange Control
Law which are required to complete before the execution, delivery and
performance of this Agreement. Upon completion of such procedures, Goldwin
shall notify the Company of it by facsimile and, thereupon, all other provisions
of this Agreement become effective.
Having read and accepted this Agreement, the parties hereby sign and
deliver
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this Agreement as of the day and year first set forth in this Agreement.
TNF Holdings Company, Inc.
a California corporation
By /s/ Marsden Cason, President
----------------------------
Kabushiki Kaisha Goldwin
a Japanese corporation
By /s/ Tosaku Nishida
---------------------------
Tosaku Nishida, President
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MEMORANDUM
This Memorandum is entered into as of March 29, 1994 by and between TNF
Holdings Company, Inc., a California corporation (the "Company") and
Kabushiki Kaisha Goldwin, a Japanese corporation ("Goldwin").
Whereas, the parties hereto entered into a Stock Purchase Agreement dated
as of December 28, 1993 (the "Agreement", all terms used herein not otherwise
defined shall have the meaning ascribed thereto in the Agreement);
Whereas, pursuant to the Agreement, the Share Purchase Closing was
scheduled to take place on or before March 31, 1994; and
Whereas, the parties desire to postpone the Share Purchase Closing so that
it will take place on or before June 30, 1994, and to amend the Agreement to
reflect such postponement.
Now, Therefore, in consideration of the foregoing and the following, the
Company and Goldwin hereby agree as follows:
1. The Share Purchase Closing shall be postponed to take place on or
before June 30, 1994.
2. All references in the Agreement to the "Share Purchase Closing", "Share
Purchase Closing Date" or "on or before March 31, 1994" shall be taken to
mean "on or before June 30, 1994".
3. The terms and conditions of the Agreement as amended above shall
continue in full force and effect.
In Witness Whereof, each of the parties have executed this Memorandum as
of the day and year first above written.
TNF Holdings Company, Inc.,
a California Corporation
By /s/ Marsden S. Cason
--------------------------------------
Marsden S. Cason, President
Kabushiki Kaisha Goldwin,
a Japanese Corporation
By: /s/ Tosaku Nishida
--------------------------------------
Tosaku Nishida, President
<PAGE>
MEMORANDUM NO. 2
This Memorandum No. 2 is entered into as of May 20, 1994 by and between
TNF Holdings Company, Inc., a California corporation (the "Company") and
Kabushiki Kaisha Goldwin, a Japanese corporation ("Goldwin").
Whereas, the parties hereto entered into a Stock Purchase Agreement dated
as of December 28, 1993 (the "Agreement", all terms used herein not
otherwise defined shall have the meaning ascribed thereto in the Agreement);
and pursuant to the Memorandum dated as of March 29, 1994, the Share Purchase
Closing was rescheduled to take place on or before on or before June 30,
1994, and the additional Memorandum dated as of March 29, 1994 amended the
Escrow Agreement dated as of January 6, 1994 between the parties hereto and
Bank of America National Trust and Savings Association (collectively, the
"Escrow Agreement") to reflect the revised Share Purchase Closing;
Whereas, the Bankruptcy Court has scheduled May 25, 1994, as the date on
which the buyer of The North Face assets and business will be selected; and
if the Company is the successful bidder therefor, the Acquisition Closing
(and Share Purchase Closing and Option Exercise Date as described below) is
expected to occur on June 6, 1994;
Whereas, the draft of this Memorandum when delivered to Goldwin is
intended to constitute notice to Goldwin at least 15 days prior to the
Acquisition Closing and Share Purchase Closing under Section 3.1 of the
Agreement;
Whereas, the Company is hereby requesting that Goldwin forward the $10.8
million balance of the Purchase Price under the Escrow Agreement (LESS an
amount described below for payment of a certain Japanese tax) to the escrow
account with Bank of America National Trust and Savings Association on or
before May 23, 1994, to further demonstrate to the Bankruptcy Court that the
Company's financing commitments are available if the Company's bid is
accepted;
Whereas, Goldwin desires to exercise the Option set forth in Section 2 of
the Agreement on the date of the Acquisition Closing and Share Purchase
Closing as permitted under Section 2.2 of the Agreement;
Whereas, the Company as defined in the Agreement expects to reincorporate
in Delaware with the same corporate name, and assign the Agreement to such
new corporation as permitted by Section 7.3 of the Agreement;
Whereas, certain further changes in the Agreement are needed to
accommodate certain terms of financing now being arranged by the Company
which were not
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contemplated at the time the Agreement was entered into, including but not
limited to changes in valuation of shares based on the presently proposed
capital structure of the Company; the proposed senior credit facility of
Heller Financial, Inc.; and certain proposed equity and subordinated debt
financing to be provided by certain investors (the "Other Investors")
designated by the Company, on terms previously described by the Company to
Goldwin;
Now, therefore, in consideration of the foregoing and the following, the
Company and Goldwin hereby agree as follows:
1. NOTICE OF OPTION EXERCISE.
(a) OPTION EXERCISE. Goldwin hereby gives notice and agrees that the
Option shall be exercised on and as of the date of the Acquisition Closing.
As a result of this exercise, Goldwin and the Company further agree that for
all accounting, legal and other purposes, the exercise of the Option shall
constitute and be treated by the parties as a purchase by Goldwin from the
Company of the Option Trademarks and other rights related thereto as such
rights are described in the Agreement. For purposes of the Agreement, the
Option Exercise Date, date of Share Purchase Closing, and date of Acquisition
Closing shall occur on the same date (referred to herein as the "Closing
Date"). Sections 1.1, 1.2, 2.3, 2.4, 3.1, 3.2 and 3.3 of the Agreement shall
be interpreted to conform to and shall be governed by the provisions of this
Memorandum No. 2.
(b) TREATMENT OF PURCHASE PRICE. The Purchase Price shall be and remain
Twelve Million United States Dollars (U.S.$12,000,000), provided that the
parties agree to allocate U.S.$11,995,000 as the price and value of the
Option Trademarks and related rights, and to allocate U.S.$5,000 as the price
and value of the shares of Common Stock to be issued under Section 2 below.
(c) DELIVERIES AT CLOSING. On the Closing Date, Goldwin shall deliver to
the Company all documents to be delivered by Goldwin under the Escrow
Agreement in order to cause the amounts held in such escrow accounts to be
released to the Company as otherwise provided in the Agreement and the Escrow
Agreement, against delivery by the Company to Goldwin of the trademark
transfer forms requested by Goldwin (as described in Section 2.4 of the
Agreement) and certificates representing the shares of Common Stock described
in Section 2 below.
(d) REMAINING DEPOSIT. Goldwin agrees on or before 11:00 a.m., May 23,
1994 (California time) to deposit into escrow the sum of U.S.$9,600,500,
being the $10,800,000 balance of the Purchase Price as described in Section
3.4(b) of the Agreement, less the sum of $1,199,500 withheld under Section 6
below.
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2. REVISED SHARE PURCHASE. In place of the Shares otherwise issuable under
Section 1 of the Agreement, the Company agrees to sell and issue to Goldwin,
and Goldwin agrees to purchase at the Share Purchase Closing, for a total
price of U.S.$5,000 a total number of shares of Common Stock representing
three percent (3%) of the total number of shares of capital stock of the
Company determined on a fully diluted basis immediately after the Share
Purchase Closing (taking into account all issued and outstanding shares and
shares subject to then outstanding options, warrants and convertible equity
or debt securities). No other securities of the Company shall be issuable by
the Company to Goldwin under the Agreement.
3. CERTAIN DELETIONS. Goldwin agrees to waive and delete (1) Section 1.1(b)
regarding ownership of a majority of Other Shares by Marsden Cason and
William McFarlane, and (2) Section 6.2 concerning election of a director to
the Company's board of directors.
4. ASSIGNMENT TO DELAWARE CORPORATION. As used in the Agreement, the
"Company" shall be deemed to include TNF Holdings Company, Inc., a Delaware
corporation, effective upon the assignment of the Agreement to that
corporation by TNF Holdings Company, Inc., a California corporation.
5. ADDRESSEES OF LEGAL OPINION. Goldwin agrees to cause the legal opinion of
its counsel to be delivered under Section 5.2(b) to be addressed to the
Company, Heller Financial, Inc., and the Other Investors.
6. WITHHOLDING TAX ESCROW. Section 6.3 of the Agreement is deleted. Goldwin
shall be entitled to withhold from the Purchase Price (and from the deposit
into escrow) the sum of $1,199,500 constituting ten percent (10%) of the
amount allocated to the Option Trademarks, for the sole purpose of paying any
withholding tax due in Japan. Goldwin hereby agrees that this sum shall be
used solely to pay such withholding tax in Japan to the extent Goldwin
determines such tax to be legally due, and shall promptly remit to the
Company any portion not used to pay such tax or refunded by the taxing agency
in Japan. Goldwin shall as soon as practicable deliver to the Company a
certificate from the relevant Japanese tax authority that Goldwin has paid
the withholding tax, for the Company's expected tax credit in the United
States under the U.S. Japan Tax Treaty.
7. BRING-ALONG RIGHT. If the Other Investors shall have received a bona fide
offer from one or more persons that is not an affiliate of the Other
Investors (or shall have entered into a bona fide written agreement with such
person(s)) relating to (i) the sale to such person(s) of all of the issued
and outstanding shares of the Company (a "Sale Transaction") or (ii) (x) a
merger, consolidation or similar business combination involving the Company
and such person(s), (y) a sale of all or a substantial portion of the assets
of the Company to such person(s) or (z) a recapitalization of the Company, if
(and only if), in the case of (x), (y), or (z) above, the Company and/or the
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Company's stockholders receive and proceeds (i.e., the gross proceeds in such
transaction less amounts used to repay indebtedness or other liabilities
being refinanced or satisfied in connection with such transaction and less
commissions, underwriting discounts, legal fees and other expenses incurred
by the Company or its stockholders in connection therewith) consisting of
cash, cash equivalents or marketable securities having a value of at least
U.S.$10,000,000 (a "Significant Transaction"), and the Other Investors desire
to effect such Sale Transaction or cause the Company and/or if stockholders
to effect such Significant Transaction, the Other Investors shall be entitled
to deliver a notice (a "Significant Transaction Notice") to all of the other
stockholders of the Company, stating that they propose to effect (or cause
the Company and/or its stockholders to effect) such transaction, and
specifying the name and address of the proposed parties to such transaction,
the consideration payable in connection therewith, and attaching a copy of
all writings between the Other Investors (or the Company) and the other
parties to such Sale Transaction or Significant Transaction necessary to
establish the terms of such transaction. Goldwin agrees that, upon receipt of
a Significant Transaction Notice, it shall be obligated to vote (if
applicable) all of its shares of capital stock of the Company now or XXX
owned in favor of the proposed Sale Transaction or Significant Transaction
and (if applicable) to sell all such shares held by it upon the terms and
conditions of the Sale Transaction or Significant Transaction (and otherwise
take all necessary action in its capacity as a stockholder to enable the
Company to consummate the proposed transaction). The Other Investors shall
have the right to determine the timing and procedures for consummating a Sale
Transaction or Significant Transaction.
8. OTHER TERMS AND CONDITIONS. The terms and conditions of the Agreement as
amended by the Memorandum and as stated above shall continue in full force
and effect.
In witness whereof, each of the parties have executed this Memorandum No. 2
as of the day and year first above written.
TNF Holdings Company, Inc.,
a California Corporation
By /s/ MARSDEN S. CASON
-------------------------------
Marsden S. Cason, President
Kabushiki Kaisha Goldwin,
a Japanese Corporation
By: /s/ Tosaku Nishida
------------------------------
Tosaku Nishida, President
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SECURITYHOLDERS AGREEMENT
SECURITYHOLDERS AGREEMENT ("Agreement"), dated as of June 7, 1994, by
and among TNF Holdings Company, Inc., a Delaware corporation ("TNF" or the
"Company"), each of the persons named on Schedule I hereto (each a "Management
Stockholder" and collectively the "Management Stockholders"), and each of the
persons named on Schedule II hereto (each a "Whitney Stockholder" and
collectively the "Whitney Stockholders") and each of the persons named on
Schedule III hereto.
WHEREAS, TNF has been organized under the laws of the State of
Delaware with an authorized capitalization of 5,000,000 shares of Common Stock,
par value $.01 per share ("Common Stock"), and 6,000,000 shares of Series A
Convertible Preferred Stock, par value $1.00 per share ("Preferred Stock");
WHEREAS, TNF has entered into a Purchase and Sale Agreement dated as
of May 25, 1994 (as amended to date, the "Asset Purchase Agreement") with
Odyssey Holding Inc., a Delaware corporation ("Odyssey Holdings"), and The North
Face, a California corporation ("Old TNF" and, together with Odyssey Holdings,
the "Sellers"), relating to the acquisition (the "Acquisition") by TNF of
certain assets and the assumption of certain liabilities of Old TNF;
WHEREAS, in order to consummate the Acquisition, TNF has entered into
a Loan and Security Agreement, dated as of the date hereof, with Heller
Financial, Inc. to provide for a secured $1,500,000 term loan and a secured
$26,500,000 revolving credit facility, which may include a secured seasonal
overadvance facility and which includes secured letters of credit and guaranties
not to exceed $10,000,000 at any time outstanding;
WHEREAS, TNF has entered into a Subordinated Note and Common Stock
Purchase Agreement, dated as of the date hereof (the "Note and Common Stock
Purchase Agreement"), with Whitney Subordinated Debt Fund, L.P. ("Whitney Debt
Fund"), and concurrently with the closing of the Acquisition, TNF proposes to
issue and sell thereunder a Subordinated Promissory Note and shares of Common
Stock;
<PAGE>
WHEREAS, TNF has entered into a Preferred Stock Purchase Agreement,
dated as of the date hereof, with Whitney 1990 Equity Fund, L.P. ("Whitney
Equity Fund") and J.H. Whitney & Co. ("Whitney"), and concurrently with the
Acquisition, TNF proposes to issue and sell thereunder shares of Preferred
Stock;
WHEREAS, it is contemplated that, concurrently with the closing of the
Acquisition, TNF will issue and sell shares of its Common Stock pursuant to the
Goldwin Agreement (as defined in the Note and Common Stock Purchase Agreement)
and pursuant to the Investor Purchase Agreement (as hereinafter defined);
WHEREAS, the Management Stockholders and Whitney Stockholders desire
to enter into this Agreement for the purpose of agreeing to certain aspects of
their relationship as holders of Common Stock and Common Stock Equivalents (as
herein defined) (collectively, the "Securities") of the Company.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, and for good and valuable consideration the receipt
and sufficiency of which is hereby acknowledged the parties hereto agree as
follows:
1. Definitions.
As used in this Agreement, the following terms shall have the meanings
ascribed to them below:
An "Affiliate" of any Person shall mean any other Person (other than
the Company) directly or indirectly controlling or controlled by or under direct
or indirect common control with such Person, including without limitation, in
the case of any Whitney Stockholder, any other Whitney Stockholder and any
general or limited partner of, or holder of any other equity interest in, any
Whitney Stockholder. For the purposes of this definition, "control," when used
with respect to any Person, means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
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"Applicable Percentage" of any Stockholder means the percentage, on a
Fully Diluted Basis, arrived at by dividing (i) the number of shares of Common
Stock then owned by that Stockholder by (ii) the aggregate number of shares of
Common Stock then owned by all Stockholders.
"Acquisition" has the meaning assigned to such term in the second
WHEREAS clause.
"Board" shall mean the Board of Directors of the Company.
"Book Value" of the Shares means the amount, not less than zero, which
such Shares would receive (taking into account any and all liquidation
preferences) upon a liquidation, or other distribution of assets, of the Company
in which the amount to be distributed equalled the net worth of the Company as
reflected on the Company's audited balance sheet for the Company's most recently
completed fiscal year.
"Cason" has the meaning assigned to such term in Section 6(c)(iii).
"Charter Documents" means the Restated Certificate of Incorporation
and By-Laws of the Company as in effect on the date hereof, copies of which have
been delivered to all parties.
"Common Stock" shall have the meaning assigned to such term in the
first Whereas clause hereof.
"Common Stock Equivalents" means (i) the Preferred Stock, (ii) any
other security or obligation which by its terms is convertible into shares of
Common Stock and (iii) any warrant, option, including without limitation, any
option issued pursuant to the 1994 TNF Stock Incentive Plan (to the extent
vested), or other subscription or purchase right with respect to Common Stock.
"Company" has the meaning assigned to such term in the first paragraph
hereof.
"Co-Sale Total" means the aggregate number of Shares owned by (i) the
Whitney Stockholders and all of its Affiliates and (ii) all other Stockholders
participating in a sale by the Offering Stockholder or the Selling Stockholder,
as the case may be.
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"Fair Market Value" of the Shares means the fair market value of the
Shares as of the last day of the fiscal year preceding the date of
determination, as determined by the Board in its good faith judgment.
"Fully Diluted Basis" mean, with respect to any computation, that each
reference to shares of Common Stock shall be deemed to reflect the conversion or
exercise of all Common Stock Equivalents, if any, then owned by all Stockholders
into Shares of Common Stock.
"GCL" means the General Corporation Law of the State of Delaware.
"Incentive Plan" means the TNF Holdings Company, Inc. 1994 Stock
Incentive Plan, adopted as of the date hereof.
"Initial Public Offering" means the Company's initial Public Offering.
"Investor Purchase Agreement" means the Investor Stock Purchase
Agreement, dated as of the date hereof, between TNF and the parties named in
Schedule A thereto.
"Involuntary Transfer" means any transfer, proceeding or action (other
than pursuant to Section 4(b)) by or in which a Stockholder shall be deprived or
divested of any right, title or interest in or to any Common Stock or Common
Stock Equivalents, including, without limitation, any seizure under levy of
attachment or execution, any transfer in connection with bankruptcy (whether
pursuant to the filing of a voluntary or an involuntary petition under the
Federal Bankruptcy Code of 1978, or any modifications or revisions thereto) or
other court proceeding to a debtor in possession, trustee in bankruptcy or
receiver or other officer or agency, any transfer to a state or to a public
officer or agency pursuant to any statute pertaining to escheat or abandoned
property, or any transfer pursuant to a divorce or separation agreement or a
final decree of a court in a divorce action.
"Joint Director" has the meaning assigned to such term in Section 6
(c) (iv) .
"Management Directors" has the meaning assigned to such term in
Section 6(c)(iii).
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"Management Purchase Agreement" means the Management Stock Purchase
and Non-Competition Agreement, dated as of the date hereof, between TNF and
Marsden S. Cason and William A. McFarlane.
"Management Stockholder" has the meaning assigned to such term in the
first paragraph hereof.
"McFarlane" has the meaning assigned to such term in Section
6(c)(iii).
"Net Proceeds" means, with respect to any Significant Transaction, all
of the proceeds available to the Company and/or the Stockholders upon
consummation of such Significant Transaction, less (x) any amounts used to repay
indebtedness or other liabilities being refinanced or satisfied in connection
with such Significant Transaction and (y) commissions, underwriting discounts,
legal fees and other expenses incurred by the Company or its Stockholders in
connection therewith.
"Note and Common Stock Purchase Agreement" has the meaning assigned to
such term in the fourth Whereas clause hereof.
"Offered Securities" has the meaning assigned to such term in Section
7(a).
"Offered Shares" has the meaning assigned to such term in Section
3(c)(i).
"Offering Notice" has the meaning assigned to such term in Section
3(c)(i),
"Offering Stockholder" has the meaning assigned to such term in
Section 3(c)(i).
"Old TNF" has the meaning assigned to such term in the second WHEREAS
clause hereof.
"Permitted Transferees" has the meaning assigned to such term in
Section 3(b)(ii).
"Person" shall mean an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint venture,
limited liability company or any other entity of whatever nature,
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"Preferred Stock" shall have the meaning assigned to such term in the
first Whereas clause hereof.
"Prospective Stockholder" has the meaning assigned to such term in
Section 3(c)(i).
"Public Offering" means any offer for sale of Common Stock pursuant to
an effective registration statement filed under the Securities Act.
"Purchaser's Notice" has the meaning assigned to such term in Section
3(c)(iv).
"Restricted Shares" means, as of any date, shares of Common Stock
issued as awards of "restricted stock" pursuant to the Incentive Plan, which
shares have not vested pursuant to the terms of the applicable agreement entered
into pursuant to such Plan.
"Sale Transaction" has the meaning assigned to such term in Section
4(b).
"Securities" has the meaning assigned to such term in the sixth
WHEREAS clause hereof.
"Securities Act" means the Securities Act of 1933, as amended.
"Selling Stockholder" has the meaning assigned to such term in Section
4(a).
"Selling Stockholder's Notice" has the meaning assigned to such term
in Section 4(a).
"Shares" means all of the shares of Common Stock and Preferred Stock
held by the Stockholders, whether now owned or hereafter acquired. For purposes
of all computations under this Agreement, each reference to Shares shall be
deemed to reflect the conversion or exercise of all Common Stock Equivalents, if
any, then outstanding into shares of Common Stock.
"Significant Transaction" has the meaning assigned to such term in
Section 4(b).
"Significant Transaction Notice" has the meaning assigned to such term
in Section 4(b).
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"Special Co-Sale Percentage" means for any Stockholder the percentage,
on a Fully Diluted Basis, arrived at by dividing (i) the number of Shares then
owned by such Stockholder by (ii) the Co-Sale Total.
"Stockholders" means the Management Stockholders and the Whitney
Stockholders and any combination thereof, any additional stockholder of the
Company who is or becomes a party to this Agreement and any transferee who has
agreed to be bound by the terms and conditions of this Agreement in accordance
with Section 3(d) hereof, and the term "Stockholder" shall mean any such person.
"Stockholder's Meeting" has the meaning assigned to such term in
Section 6(a).
"Term" has the meaning assigned to such term in Section 2.
"TNF" has the meaning assigned to such term in the first paragraph
hereof.
"transfer" means sell, assign, donate, pledge, encumber or otherwise
dispose of, or contract to do any of the foregoing.
"Whitney" has the meaning assigned to such term in the fifth WHEREAS
clause hereof.
"Whitney Co-Sale Percentage" means the percentage, on a Fully Diluted
Basis, arrived at by dividing (i) the number of Shares then owned by all the
Whitney Stockholders by (ii) the Co-Sale Total.
"Whitney Debt Fund" has the meaning assigned to such term in the
fourth WHEREAS clause.
"Whitney Directors" has the meaning assigned to such term in Section
6(c)(i).
"Whitney Equity Fund" has the meaning assigned to such term in the
fifth WHEREAS clause.
"Whitney Equity Fund Director" has the meaning assigned to such term
in Section 6(c)(ii).
"Whitney Stockholder" has the meaning assigned to such term in the
first paragraph hereof.
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"Written-Consent" has the meaning assigned to such term in Section
6(a).
2. Term of Agreement.
The term of this Agreement shall begin on the date hereof and shall
terminate on the first to occur of the following events:
(a) the written consent of the holders of at least 90% of the
outstanding shares of Common Stock, determined on a Fully Diluted Basis;
(b) the dissolution or liquidation of the Company or the closing of a
Public Offering with gross proceeds to the Company of at least $20,000,000; or
(c) ten years from the date hereof.
3. Restrictions On Stock Transfer.
(a) General. Each Stockholder agrees that it will not, directly or
indirectly, transfer any Securities or any interest therein held by such
Stockholder, except as provided in this Agreement and, in that case, only if
such transfer would not result in a default under the terms of the Loan and
Security Agreement referred to in the third WHEREAS clause hereof. Each
Management Stockholder agrees that he will not, nor will he permit any of his
Permitted Transferees to, directly or indirectly, transfer any Securities or any
interest therein prior to the later of (x) the fifth anniversary of the date
hereof or (y) the first anniversary of the cessation of such individual's
employment by the Company, except (i) in a transfer pursuant to Section 3(b),
4(b) or 5 hereof, (ii) in a Public Offering, only to the extent permitted in
accordance with the terms of the Registration Rights Agreement, dated as of the
date hereof, among the parties hereto, (iii) in a transfer pursuant to Section 3
of the Management Purchase Agreement. (iv) in a transfer required or expressly
permitted pursuant to the terms of the Incentive Plan or an agreement entered
into in connection with an award thereunder or (v) with the written consent of
the holders of sixty-six and two-thirds percent (66-2/3%) of the outstanding
shares of Preferred Stock. Any transfer of any Securities or of any interest
therein, other than in compliance with the provisions of this Agreement, shall
be void, and the Company shall refuse to register any such transfer.
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(b) Exempt Transfers.
(i) A Stockholder who is an individual may at any time transfer
any Securities to his spouse or any of his children, or to a trust corporation
or partnership, the beneficiaries, stockholders or partners of which include
only the Stockholder, his spouse and his children, or to a corporation or
partnership wholly owned by such Persons; provided, however, that during the
period any such trust, corporation or partnership owns any Securities, no Person
other than the Stockholder, his spouse and his children may be or become
beneficiaries, stockholders or partners thereof.
(ii) A Stockholder that is not an individual may at any time
transfer any Securities to any Affiliate of such Stockholder (collectively, the
"Permitted Transferees"); provided, however, that any such Stockholder Affiliate
(other than a former general or limited partner of any Whitney Stockholder)
shall transfer back to such Stockholder any Securities previously transferred
pursuant to this Section 3(b)(ii) within five days of losing its status as a
Stockholder Affiliate.
(iii) If any Stockholder desires to transfer all or any portion
of its Securities pursuant to this Section 3(b), it shall give notice to the
Company of its intention to make such transfer not less than five days prior to
effecting such transfer, which notice shall state the name and address of each
such Person to whom such transfer is proposed and the amount of Securities to be
so transferred. The Company shall give prompt notice of such proposed transfer
to each other Stockholder.
(c) Right of First Refusal.
(i) If any Stockholder (an "Offering Stockholder") desires to
transfer all or any portion of its Securities to any Person (except (i) in a
transfer pursuant to Section 3(b), 4(b) or 5 hereof, (ii) in a Public Offering,
only to the extent permitted in accordance with the terms of the Registration
Rights Agreement, dated as of the date hereof, among the parties hereto, (iii)
in a transfer, pursuant to Section 3 of the Management Purchase Agreement, or
(iv) in a transfer required or expressly permitted pursuant to the terms of the
Incentive Plan or an agreement entered into in connection with an award
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thereunder), such Offering Stockholder shall give written notice thereof (the
"Offering Notice") to the Company and to the other Stockholders. The Offering
Notice shall state (A) the number and class of Securities to be transferred (the
"Offered Shares"), (B) the name of the Person (the "Prospective Stockholder") to
whom the Offering Stockholder desires to transfer such Offered Shares, (C) the
price of the offered Shares to be paid by the Prospective Stockholder which
price must be payable in cash, (D) that the proposed purchase of the Offered
Shares shall be consummated no later than the first business day which occurs 45
business days after the expiration of the options referred to in Sections
3(c)(iii) and 3(c)(iv) below, and (E) that the offer of the Prospective
Stockholder has been accepted by the Offering Stockholder subject to the rights
of the Company and the other Stockholders contained in this Section 3 and
Section 4(a).
(ii) The Offering Notice shall be accompanied by a certificate of
the Prospective Stockholder stating that (A) its offer to purchase the Offered
Shares has been approved by its board of directors (or the equivalent if the
Prospective Stockholder is not a corporation), if necessary, (B) the description
of its offer contained in the Offering Notice is complete and accurate, (C) it
is aware of the rights of the Company and the other Stockholders contained in
this Section 3 and Section 4(a) and (D) prior to the purchase of any Offered-
Shares by the Prospective Stockholder it will become a party to this Agreement
and agree to be bound by the terms and conditions hereof to the same extent and
in the same manner as the offering Stockholders. In addition, the Offering
Notice shall be accompanied by evidence reasonably satisfactory to the Company
as to the Prospective Stockholder's financial ability to consummate the proposed
purchase.
(iii) For a period of 60 days after receipt of the Offering
Notice and the certificate referred to in Section 3(c)(ii), the Company shall
have the right to purchase all, but not less than all, of the Offered Shares.
The company's option to purchase the Offered Shares hereunder shall be
exercisable by delivering written notice to such effect, prior to the expiration
of such option, to the Offering Stockholder and the other Stockholders. The
Company's purchase of Offered Shares hereunder shall be on the same terms
contained in the Offering Notice on which the Prospective Stockholder has agreed
to purchase the Offered Shares; provided, however, that the Company shall not
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purchase any offered Shares from any Stockholder unless each other Stockholder
is allowed to participate, if it so elects, in such sale to the Company, by
selling a number of Shares (the "Co-Sale") equal to (w) the number of Offered
Shares to be sold by such Offering Stockholder to the Company, multiplied by (x)
such selling Stockholder's Applicable Percentage immediately prior to giving
effect to such sale; provided further, that if any Whitney Stockholder or their
respective Affiliates are participating in such sale to the Company (i) the
Whitney Stockholders and their respective Affiliates as a group shall be
entitled to participate by selling a number of Shares in the aggregate equal to
(y) the number of Shares proposed to be sold by the Offering Stockholder in such
sale multiplied by (z) the Whitney Co-Sale Percentage; and (ii) each other
Stockholder participating in such sale shall be entitled to participate by
selling a number of Shares equal to (y) the number of Shares proposed to be sold
by the Offering Stockholder in such sale multiplied by the Special Co-Sale
Percentage. The number of Shares entitled to be sold by a group pursuant to the
proviso of the preceding sentence shall be allocated among the members of such
group by agreement among themselves. The Co-Sale shall be made on the same
terms and conditions as the sale by such Offering Stockholder. The number of
Offered Shares to be sold by the Offering Stockholder shall be reduced by the
number of Securities sold by the other Stockholders pursuant to the Co-Sale.
The failure of the Company to exercise its option to purchase all of the offered
Shares within such 60-day period shall be deemed to be a waiver of its right to
purchase the Offered Shares.
(iv) If the Company does not elect to purchase all of the Offered
Shares pursuant to Section 3(c) (iii), each Stockholder shall then have the
right, for a period of 90 days after receipt of the Offering Notice and the
certificate referred to in Section 3 (c) (ii), to purchase its Applicable
Percentage of the Offered Shares. Each Stockholder's option to purchase Offered
Shares hereunder shall be exercisable by delivering written notice to such
effect, prior to the expiration of such option, to the Offering Stockholder, to
the Company and the other Stockholders (a "Purchaser's Notice"). Each
Stockholder has the right and may indicate in its Purchaser's Notice its desire,
to participate in the purchase of such Offered Shares in excess of its
Applicable Percentage. Each Stockholder's purchase of Offered Shares hereunder
shall be on the same terms contained in the Offering Notice on which
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the Prospective Stockholder has agreed to purchase the Offered Shares. The
failure of a Stockholder to exercise its option to purchase Offered Shares
within such 90-day period shall be deemed to be a waiver of its right to
participate in the purchase of the Offered Shares.
If one or more Stockholders do not elect to purchase their Applicable
Percentage of the Offered Shares, then the Offered Shares which were available
for purchase by such declining Stockholder or Stockholders (the "Excess Offered
Shares") shall automatically be deemed to be accepted by the Stockholders who
indicated in their Purchase Notices a desire to participate in the purchase of
Offered Shares in excess of their Applicable Percentage. Each such Stockholder
shall purchase that number of Excess Offered Shares equal to the product of
multiplying the number of Excess Offered Shares by a fraction:
(A) the numerator of which is the number of Shares then owned by such
Stockholder; and
(B) the denominator of which is the aggregate number of Shares then
owned by all such Stockholders who participate in the purchase of Excess offered
Shares.
(v) Unless the Company or the Stockholders elect to purchase all of
the Offered Shares as set forth above, neither the Company nor any Stockholder
may purchase any of the Offered Shares, and the Offering Stockholder shall be
free, up to and including the date specified in the Offering Notice, to transfer
all, but not less than all, of the Offered Shares to the Prospective Stockholder
in accordance with the terms set forth in the Offering Notice subject in the
case of each such transfer to the provisions of Section 4(a) hereof. If such
sale is not consummated by such date, the restrictions provided for herein shall
again become effective, and no transfer of such Offered Shares may be made
thereafter (other than in a transaction pursuant to Section 3(b), 4(b) or 5
hereof) by the Offering Stockholder without again offering the same to the
Company and the other Stockholders in accordance with this Section 3.
(vi) The closing of any purchase of Offered Shares by the Company or
the Stockholders pursuant to this Section 3 shall be held at the principal
office of the Company at 10:00 a.m. local time on the date specified in the
Offering Notice (subject to extension pursuant to
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Section 3 (c) (vii) below), or at such other time and place as the parties to
the transaction may agree upon. At such closing, the Offering Stockholder shall
deliver certificates representing the Offered Shares, duly endorsed for transfer
and accompanied by all requisite stock transfer taxes, if any, and the Offered
Shares to be transferred shall be free and clear of any liens, claims or
encumbrances (other than restrictions imposed pursuant to this Agreement and
applicable federal and state securities laws) and the Offering Stockholder shall
so represent and warrant, and further represent and warrant that it is the
record and beneficial owner of such Offered Shares. The Company or the
Stockholders participating in the purchase, shall deliver at such closing, by
wire transfer of immediately available funds, payment in full for such Offered
Shares.
(vii) The date of closing of any purchase of Offered Shares by the
Stockholders pursuant to Section 3(c) (vi) above shall be extended for such
reasonable period of time as shall be necessary to obtain requisite governmental
or regulatory approvals in respect of such purchase and sale, including the
expiration of any applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 and the rules and regulations promulgated
thereunder, such extension not to exceed 45 days.
(d) Transferees' Agreements to be Bound; Securities Laws. No
transfer may be made pursuant to this Section 3 unless (i) each transferee of
the Securities has agreed in writing to be bound by the terms and conditions of
this Agreement to the same extent and in the same manner as the Stockholder
transferring such Securities and (ii) the transfer complies in all respects with
applicable federal and state securities laws. Upon becoming a party to this
Agreement, a transferee shall be substituted fully for and shall enjoy the same
rights and be subject to the same obligations as its predecessor hereunder.
(e) Involuntary Transfers. If an Involuntary Transfer of any of the
Securities (including any Securities held by a Permitted Transferee) owned by
any Stockholder (or its Permitted Transferees) shall occur, the Company shall
have the same rights of purchase with respect thereto (the "Transferred Shares")
as if the Involuntary Transfer had been a voluntary sale as contemplated by
Section 3(c), except that: (i) the periods within which such rights must be
exercised shall run from the date notice is received by
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the Company of the Involuntary Transfer (ii) such rights shall be exercised by
notice to the involuntary transferee and (iii) the purchase price per Share of
the Transferred Shares shall be the lower of (A) the Book Value of such Shares
on the date of the Involuntary Transfer and (B) the Fair Market Value of such
Shares as of the last day of the fiscal year preceding the date of
determination. The closing of any purchase of Transferred Shares shall be held
as set forth in Section 3(c)(vi).
4. Certain Sales.
(a) Co-Sale Right. In the event of a proposed
sale of Securities by any Stockholder (except (i) in a transfer pursuant to
Section 3(b), 4(b) or 5 hereof, (ii) in a Public Offering, only to the extent
permitted in accordance with the terms of the Registration Rights Agreement,
dated as of the date hereof, among the parties hereto, (iii) in a transfer
pursuant to Section 3 of the Management Purchase Agreement, or (iv) in a
transfer required or expressly permitted pursuant to the terms of the Incentive
Plan or in an agreement entered into in connection with an award thereunder),
such selling Stockholder (the "Selling Stockholder") shall at least 30 days
prior to such sale, deliver to each other Stockholder written notice (the
"Selling Stockholder's Notice") thereof describing the terms and conditions of
such sale. Upon receipt of a Selling Stockholder's Notice, each such other
Stockholder, by giving written notice thereof to the Selling Stockholder not
later than 10 days following delivery of the Selling Stockholder's Notice, may
participate in such sale by including therein a number of shares equal to (w)
the number of Shares to be sold by the Selling Stockholder in connection with
such sale multiplied by (x) such other selling Stockholder's Applicable
Percentage immediately prior to giving effect to such sale; provided, however,
that, if any Whitney Stockholder or their respective Affiliates propose to
participate in such sale of Securities hereunder, (i) the Whitney Stockholders
and their respective Affiliates as a group shall be entitled to participate by
selling a number of Shares in the aggregate equal to (y) the number of Shares
proposed to be sold by the Selling Stockholder in such sale multiplied by (z)
the Whitney Co-Sale Percentage; and (ii) each other Stockholder participating in
such sale shall be entitled to participate by selling a number of Shares equal
to (y) the number of Shares proposed to be sold by the Selling Stockholders in
such sale multiplied by the Special Co-Sale Percentage. The number of Shares
entitled to be
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sold by a group pursuant to the proviso of the preceding sentence shall be
allocated among the members of such group by agreement among themselves. Such
sale shall be made on the same terms and conditions of the sale described in the
Selling Stockholder's Notice. The number of Shares to be sold by the Selling
Stockholder in connection with such sale shall be reduced by the number of
Shares sold by the other Stockholders pursuant to this Section 4(a). Each sale
by any Stockholder under this Section 4(a) shall be subject to the prior
exercise of rights of first refusal contained in Section 3(c) hereof.
(b) Bring-Along Right. If the Whitney Stockholders shall have
received a bona fide offer from one or more Persons that is not an Affiliate of
any Whitney Stockholder (or shall have entered into a bona fide written
agreement with such Person(s)) relating to (i) the sale to such Person(s) of all
of the issued and outstanding Shares (a "Sale Transaction") or (ii) (x) a
merger, consolidation or similar business combination involving the Company and
such Person(s), (y) a sale of all or a substantial portion of the assets of
the Company to such Person(s), or (z) a recapitalization of the Company, if (and
only if), in the case of (x), (y) or (z) above, the Company and/or the
Stockholders receive Net Proceeds consisting of cash, cash equivalents or
marketable securities having a value of at least $10,000,000 (a "Significant
Transaction"), and the Whitney Stockholders desire to effect such Sale
Transaction or cause the Company and/or the Stockholders to effect such
Significant Transaction, the Whitney Stockholders shall be entitled to deliver a
notice (a "Significant Transaction Notice") to all of the other Stockholders,
stating that they propose to effect (or cause the Company and/or the
Stockholders to effect) such transaction, and specifying the name and address of
the proposed parties to such transaction, the consideration payable in
connection therewith, and attaching a copy of all writings between the Whitney
Stockholders (or the Company) and the other parties to such Sale Transaction or
Significant Transaction necessary to establish the terms of such transaction.
Each Stockholder agrees that, upon receipt of a Significant Transaction Notice,
it shall be obligated to vote (if applicable) all of its Securities in favor of
the proposed Sale Transaction or Significant Transaction and (if applicable) to
sell all Shares held by it upon the terms and conditions of the Sale Transaction
or Significant Transaction (and otherwise take all necessary action to cause the
Company to consummate the proposed transaction).
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(c) Closing. The closing of any sale pursuant to this Section 4
shall be held at such time and place as the Selling Stockholder or the Whitney
Stockholders, as the case may be, shall reasonably specify. At such closing,
the Selling Stockholders shall deliver certificates representing the Shares to
be sold, duly endorsed for transfer and accompanied by all requisite stock
transfer taxes, if any, and the Offered Shares to be transferred shall be free
and clear of any liens, claims or encumbrances (other than restrictions imposed
pursuant to this Agreement and applicable federal and state securities laws) and
each Selling Stockholder shall so represent and warrant, and
further represent and warrant that it is the record and beneficial owner of such
Shares.
(d) Equivalent Consideration. The consideration per Share paid with
respect to any Shares to be sold by any other Stockholder, or otherwise involved
in any Significant Transaction, pursuant to this Section 4 shall be the same
consideration per Share paid with respect to Shares owned by the Selling
Stockholder or the Whitney Stockholders, as the case may be, determined as if
all Common Stock Equivalents were converted into shares of Common Stock.
5. Certain Repurchase Rights.
In the event that any Management Stockholder
ceases to be employed by the Company for any reason (including, but not limited
to, death or disability), the Company shall have the right to purchase, and to
require such former employee and each of his Permitted Transferees to sell, up
to all of the Shares or Common Stock Equivalents (except for the Shares acquired
pursuant to the Management Purchase Agreement) then owned by such former
employee or such Permitted Transferees. The Company may exercise such right at
any time within one year of the date of any Management Stockholder's cessation
of employment. Such right may be exercised by the Company's giving notice to
the former employee and his Permitted Transferees, with a copy to each other
Stockholder. The purchase price payable for any securities purchased under this
Section 5 shall be the Fair Market Value thereof. The closing of any purchase
under this Section 5 shall be held at the principal offices of the Company at
10:00 a.m. local time on a date specified by the Company no later than 30 days
after the date of its notice. At such closing, the Management Stockholder and
his Permitted Transferees shall deliver certificates
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representing the shares to be purchased, duly endorsed for transfer and
accompanied by all requisite stock transfer taxes, if any, and the Shares to be
transferred shall be free and clear of any liens, claims or encumbrances (other
than restrictions imposed pursuant to this Agreement and applicable federal and
state securities laws) and the Management Stockholder and his Permitted
Transferees shall so represent and warrant, and further represent and warrant
that each is the record and beneficial owner of such Shares. The Company shall
deliver at such closing, by wire transfer of immediately available funds,
payment in full for such Shares.
6. Governance.
(a) General. From and after the execution of this Agreement, each
Stockholder shall vote its Shares, at any regular or special meeting of
stockholders of the Company (a "Stockholders' Meeting"), or in any written
consent executed in lieu of such a meeting of stockholders (a "Written
Consent"), and shall take all other actions necessary to give effect to the
agreements contained in this Agreement and to ensure that the Charter Documents
do not at any time hereafter conflict in any respect with the provisions of this
Agreement. In addition, each Stockholder shall vote its Shares at any
Stockholders' Meeting, or act by Written Consent with respect to such Shares
upon any matter submitted for action by the Company's stockholders, or with
respect to which such Stockholder may vote or act by Written Consent, in
conformity with the specific terms and provisions of this Agreement and the
Charter Documents. For the purposes of this Section 6, Stockholders are
agreeing to vote their Shares for certain matters only to the extent that such
Shares have the power to vote for such matters.
(b) Stockholders' Actions. In order to effectuate the provisions of
this Section 6, each Stockholder hereby agrees that, when any action or vote is
required to be taken by such Stockholder pursuant to this Agreement, such
Stockholder shall use its best efforts to call, or cause the appropriate officer
and directors of the Company to call, a Stockholders' Meeting or to execute or
cause to be executed a Written Consent pursuant to Section 228(a) of the GCL to
effectuate such stockholder action. Further, each Stockholder shall use its
best efforts to cause the Board or by unanimous written consent of the Board
pursuant to Section 141(f) of the GCL, all the resolutions necessary to
effectuate the provisions of this Agreement.
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Each Stockholder shall use its best efforts to cause the Board to cause the
Secretary of the Company, or if there be no Secretary, such other officer of the
Company as the Board may appoint to fulfill the duties of Secretary, not to
record any vote or consent contrary to the terms of this Section 6.
(c) Election of Directors. Each Stockholder shall votes its Shares
at any Stockholders' Meeting, or act by Written Consent with respect to such
Shares, and take all other actions necessary to ensure that the number of
directors constituting the entire Board shall be seven, as provided for below.
Each Stockholder shall vote its Shares at any Stockholders' Meeting called for
the purpose of filling the positions on the Board, or in any Written Consent
executed for such purpose, and take all other actions necessary to ensure the
election to the Board of the following individuals:
(i) two individuals, who shall be designated by Whitney
(the "Whitney Directors");
(ii) one individual, who shall be designated by Whitney
Equity Fund (the "Whitney Equity Fund Director");
(iii) Marsden S. Cason ("Cason"), so long as he is serving as
an executive officer of the Company, William A. McFarlane ("McFarlane"), so long
as he is serving as an executive officer of the Company, and one additional
executive officer of the Company designated by Cason and McFarlane, or by their
successors designated pursuant to Section 6(d)(iii) (collectively, the
"Management Directors"); and
(iv) one individual, who shall not be an employee or
Affiliate of the Company or any Stockholder and who shall be designated jointly
(but not individually) by the directors designated under clauses (i), (ii) and
(iii) above (each such director chosen under this clause (iv) is referred to
herein as a "Joint Director").
(d) Removal and Replacement. Whitney shall be entitled at any time
and for any reason (or for no reason) to designate each of the Whitney Directors
for removal and Whitney Equity Fund shall be entitled at any time and for any
reason (or for no reason) to designate the Whitney Equity Fund Director for
removal. The directors designating a Joint Director shall jointly (but not
individually) be
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entitled at any time and for any reason (or for no reason) to designate any
Joint Director for removal. If, at any time, a vacancy is created on the Board
by reason of the death, removal or resignation of a Whitney Director, the
Whitney Equity Fund Director, either Management Director or the Joint Director,
each Stockholder shall, as soon as practicable after the date such vacancy first
occurs and in any event prior to the transaction of any other business by the
Stockholders or the Board, take action, including the voting of its Shares, to
elect a director or directors designated to fill such vacancy or vacancies in
the following manner:
(i) if a vacancy is created by reason of the death, removal
or resignation of a Whitney Director, Whitney shall designate a nominee to be
elected to fill such vacancy;
(ii) if a vacancy is created by reason of the death, removal
or resignation of the Whitney Equity Fund Director, the Whitney Equity Fund
shall designate a nominee to be elected to fill such vacancy;
(iii) if a vacancy is created by reason of the death,
incapacity, removal or resignation of Cason or McFarlane (or their successors),
the executive officer who succeeds to Cason's and/or McFarlane's position as an
executive officer of the Company shall be designated as a nominee to be elected
to fill such vacancy;
(iv) if a vacancy is created by reason of the death, removal
or resignation of a Management Director (not referred to in clause (iii) above),
Cason and McFarlane (or their successors designated pursuant to clause (iii)
above) shall designate an executive officer to be elected to fill such vacancy;
and
(v) if a vacancy is created by reason of the death,
removal or resignation of a Joint Director, a successor shall be designated as a
nominee to be elected to fill such vacancy, in the same manner as was designated
the Person whom he or she succeeds.
(e) Termination of Sections 6(c) and 6(d). Notwithstanding anything
herein to the contrary, (i) from and after the date that Whitney, Whitney Equity
Fund and their Affiliates own in the aggregate Shares (or other securities for
which the Shares are subsequently exchanged)
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representing less than 50% of the Shares owned in the aggregate by them on the
date hereof, Whitney and its Affiliates shall no longer be entitled to designate
any directors for election or removal pursuant to Section 6(c) or 6(d),
respectively, and (ii) from and after the date that Cason and McFarlane and
their Permitted Transferees cease to own in the aggregate Shares (or other
securities for which the Shares are subsequently exchanged) representing at
least 5O% of the Shares owned in the aggregate by them on the date hereof, they
shall no longer be entitled to designate any directors pursuant to Section
6(c)(ii); provided, that the number of Shares owned by any Person on the date
hereof for purposes of this Section 6(e) shall be adjusted for any dividend,
subdivision, combination or reclassification of the Shares or any merger or
consolidation of the Company with or into any other Person and such Person shall
be deemed to own on the date hereof that number of Shares or other securities
which such Person was entitled to receive as a result of such dividend,
subdivision, combination, reclassification, merger or consolidation.
(f) Board Committees. The Stockholders shall cause the Company to
have (i) an audit/finance committee, which shall be composed of three members,
one of whom shall be designated jointly by Whitney and Whitney Equity Fund, and
two of whom shall be designated by the Board of Directors as a whole, and (ii) a
compensation committee, which shall be composed of three members, one of whom
shall be designated jointly by Whitney and Whitney Equity Fund, two of whom
shall be designated by the Board, and none of whom shall be a Management
Director. Each Stockholder agrees that it will not take, cause to be taken or
approve any action (including, but not limited to, any amendment of the Restated
Certificate of Incorporation of the Company) that would be inconsistent with the
first sentence of this Section 6(f).
(g) Liability Insurance. Within 90 days after the date hereof, each
Stockholder shall take, or cause to be taken, all action necessary (including,
but not limited to, action at a Stockholders' Meeting or pursuant to a Written
Consent thereof) to cause the Company to maintain a directors' liability
insurance policy that is acceptable in all reasonable respects to the Whitney
Directors, the Whitney Equity Fund Director, and the Joint Director.
(h) Restricted Shares. Each holder of Restricted Shares shall cast
all the votes represented by such
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Restricted Shares it is entitled to cast in connection with each and every
matter on which any or all shareholders of the Company are entitled to vote
(whether at a Stockholder's Meeting of by a Written Consent) in the same
proportion as all holders of outstanding Shares entitled to vote on such matter
cast the votes represented by their respective Shares (excluding any Restricted
Shares).
7. Issuance of Capital Stock by the Company.
(a) Pre-emptive Right. The Company shall give each Stockholder 30
days' prior written notice of any proposed issuance of any capital stock of the
Company ("Offered Securities" excluding any issuance in connection with an
acquisition, combination, reorganization, reclassification, split-up, employee
stock option plan or other employee stock benefit plan, employment or
compensation agreement or award or any Public Offering). Each such notice shall
contain a description of the price of the Offered Securities and the other terms
and conditions of sale. By written notice to the Company (a "Purchaser's
Notice") given within 15 days of being notified of such proposed issuance, each
Stockholder shall be entitled to purchase, at the proposed issuance price and on
the proposed terms, a number of such Offered Securities up to (a) such
Stockholder's Applicable Percentage multiplied by (b) the total number of shares
of Offered Securities to be issued.
(b) Closing. The closing of any purchase by any of the Stockholders
of Offered Securities under Section 7(a) shall be held at the time and place of
the closing of the Offered Securities to the other purchasers thereof, unless
such parties agree otherwise. At such closing, each such Stockholder shall
deliver, by wire transfer of immediately available funds, so much of the
purchase price for the Offered Securities as is payable in cash and shall pay
the balance in accordance with the terms of the transaction, and all parties to
the transaction shall execute such documents as are otherwise customary and
appropriate.
8. Legally Binding Obligation.
The making of an offer, the delivery or failure to deliver a notice
within the stated period and the acceptance of an offer in each case as provided
in Sections 3, 4 and 5 shall create a legally binding obligation to buy or sell,
as the case may be, Shares, or otherwise take all necessary action, as provided
in such Sections. In addition, the
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Company is hereby authorized (i) to transfer such Shares on the books of the
Company in accordance with this Agreement and without regard to the surrender of
certificates representing such Shares held by such Stockholder and (ii) to place
on all certificates representing Shares a legend reflecting this authority to
transfer such Shares in accordance with Section 9. Any such certificates not
surrendered as required by this Agreement shall become upon such transfer null
and void.
9. Legend.
Each of the parties hereto agrees that a legend in substantially the
following form shall be placed on the certificates representing any Shares owned
by it:
THE SALE, ASSIGNMENT, DONATION, PLEDGE, ENCUMBRANCE OR OTHER
DISPOSITION (EACH A "TRANSFER") AND VOTING OF ANY OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED BY THE TERMS OF THE
SECURITYHOLDERS' AGREEMENT, DATED AS OF June 7, 1994, AMONG THE
COMPANY AND THE SECURITYHOLDERS NAMED THEREIN, A COPY OF WHICH MAY BE
INSPECTED AT THE COMPANY'S PRINCIPAL OFFICE, THE COMPANY WILL NOT
REGISTER THE TRANSFER OF SUCH SECURITIES ON THE BOOKS OF THE COMPANY
UNLESS AND UNTIL THE TRANSFER HAS BEEN MADE IN COMPLIANCE WITH THE
TERMS OF SUCH SECURITYHOLDERS' AGREEMENT.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH
LAWS.
10. Specific Performance.
Each of the parties hereto acknowledges and agrees that in the event
of any breach of this Agreement, the nonbreaching party or parties would be
irreparably harmed and could not be made whole by monetary damages, and
therefore hereby waives the defense in any action for specific performance that
a remedy at law would be adequate.
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Each of the parties hereto further agrees that all other Stockholders, in
addition to any other remedy to which they may be entitled at law or in equity,
shall be entitled to compel specific performance of this Agreement in any action
instituted in a court of proper jurisdiction.
11. Miscellaneous.
(a) Headings. The headings in this Agreement are for convenience of
reference only and shall not control or affect the meaning or construction of
any provisions hereof.
(b) Entire Agreement. This Agreement constitutes the entire
agreement and understanding of the parties hereto in respect of the subject
matter contained herein, and there are no restrictions, promises,
representations, warranties, covenants or undertakings with respect to the
subject matter hereof other than those expressly set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings
between the parties hereto with respect to the subject matter hereof.
(c) Notices. Any notice, request, instruction or other document to
be given hereunder by any party hereto to another party hereto shall be in
writing, and shall be deemed to have been delivered when delivered personally or
by nationally recognized overnight courier, or seven days after being sent by
registered or certified mail, postage prepaid, return receipt requested, to the
address of the party set forth below and on Schedules I and II hereto or to such
other address as the party to whom notice is to be given may provide in a
written notice to the Company, a copy of which written notice shall be on file
with the Secretary of the Company.
The Company:
The North Face
999 Harrison Street
Berkeley, California 94710
Attention: President
With a copy to:
Crosby, Heafy, Roach & May
1999 Harrison Street
Oakland, California 94612-3573
Attention: Philip L. Bush, Esq.
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Each Other Stockholder:
At the address set forth below his signature
The Whitney Stockholders:
Whitney 1990 Equity Fund, L.P.
630 Fifth Avenue
New York, New York 10022-0302
Attention: Mr. Daniel J. O'Brien
Whitney Subordinated Debt Fund, L.P.
630 Fifth Avenue
New York, New York 10022-0302
Attention: Mr. Daniel J. O'Brien
J. H. Whitney & Co.
630 Fifth Avenue
New York, New York 10022-0302
Attention: Mr. Daniel J. O'Brien
With a copy to:
Friedman & Kaplan
875 Third Avenue
New York, New York 10022
Attention: Marjorie S. White, Esq.
(d) Applicable Law. The internal laws of the State of Delaware shall
govern the interpretation, validity and performance of the terms of this
Agreement, without regard to principles of conflicts of law.
(e) Severability. The invalidity, illegality or unenforceability of
one or more of the provisions of this Agreement in any jurisdiction shall not
affect the validity, legality or enforceability of the remainder of this
Agreement in such jurisdiction or the validity, legality or enforceability of
this Agreement, including any such provision, in any other jurisdiction, it
being intended that all rights and obligations of the parties hereunder shall be
enforceable to the fullest extent permitted by law.
(f) Other Agreements. Nothing contained in this Agreement shall be
deemed to be a waiver of, or release from, any obligations any party hereto may
have under, or any restrictions on the transfer of Common Stock or Preferred
Stock imposed by, any other agreement.
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(g) Successors; Assigns; Transferees. The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective heirs, successors and permitted assigns.
(h) Defaults. A default by any party to this Agreement in such
party's compliance with any of the terms or conditions hereof or performance of
any of the obligations of such party hereunder shall not constitute or excuse a
default by any other party.
(i) Amendments; Waivers. This Agreement may not be amended, modified
or supplemented and no waivers of or consents to departures from the provisions
hereof may be given unless agreed or consented to in a writing by the Company
and the holders of 90% of the Shares subject to this Agreement.
(j) Variation in Pronouns. All pronouns and any variations thereof
shall be deemed to refer to the masculine, feminine or neuter, singular or
plural, as the identity of the antecedent Person or Persons may require.
(k) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same Agreement.
25
<PAGE>
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be
duly executed as of the date first above written.
TNF HOLDINGS COMPANY, INC.
By:/s/Marsden S. Cason
--------------------------
Name: Marsden S. Cason
Title: President
J.H. WHITNEY & CO.
By:/s/Ray E. Newton, III
--------------------------
Name: Ray E. Newton, III
Title: General Partner
WHITNEY 1990 EQUITY FUND, L.P.
By:/s/Ray E. Newton, III
--------------------------
Name: Ray E. Newton, III
Title: General Partner
WHITNEY SUBORDINATED DEBT FUND,L.P.
By:/s/Ray E. Newton, III
--------------------------
Name: Ray E. Newton, III
Title: General Partner
/s/Marsden S. Cason
-----------------------------
Marsden S. Cason
Adress: 33 Normandie Terrace
San Francisco, CA 94115
/s/William A. McFarlane
-----------------------------
William A. McFarlane
Address: 1606 Martin Avenue
Pleasanton, CA 94566
<PAGE>
-----------------------------
/s/Richard T. Peery
-----------------------------
Richard T. Peery
Address:
---------------------
-----------------------------
/s/Jack L. Richardson
-----------------------------
Jack L. Richardson
Address:
---------------------
-----------------------------
/s/Philip S. Schlein
-----------------------------
Philip S. Schlein
Address:
---------------------
-----------------------------
/s/Kenneth F. Siebel
-----------------------------
Kenneth F. Siebel
Address:
---------------------
-----------------------------
<PAGE>
Schedule I
WHITNEY STOCKHOLDERS
J.H. Whitney & Co.
Whitney 1990 Equity Fund, L.P.
Whitney Subordinated Debt Fund, L.P.
<PAGE>
Schedule II
MANAGEMENT STOCKHOLDERS
Marsden S. Cason
William A. McFarlane
<PAGE>
Schedule III
Richard T. Peery
Jack L. Richardson
Philip S. Schlein
Kenneth F. Siebel
<PAGE>
AMENDMENT NO. 1 DATED AND EFFECTIVE AS OF JUNE 22, 1995 ("Amendment No. 1) TO
SECURITYHOLDERS AGREEMENT (the "Agreement") DATED AS OF JUNE 7, 1994, AMONG THE
NORTH FACE, INC. (formerly named "TNF Holdings Company, Inc."), J.H. WHITNEY &
CO., WHITNEY 1990 EQUITY FUND, L.P., WHITNEY SUBORDINATED DEBT FUND, L.P.,
MARSDEN S. CASON, WILLIAM A. MCFARLANE, AND CERTAIN OTHER INDIVIDUALS.
This Amendment No. 1 is entered into among the parties named above and William
N. Simon. Capitalized terms used but not defined below shall have the meanings
given them in the Agreement.
1. Additional Party. For all purposes of the Agreement, William N. Simon shall
be a Management Stockholder in addition to Marsden S. Cason and William A.
McFarlane and shall have the rights and obligations of a Management Stockholder
under the Agreement.
2. General. This Amendment No. 1 is duly approved and executed in accordance
with Section 11 (I) of the Agreement, and, except as specifically set forth
above, all covenants, terms, provisions and conditions of the Agreement are, and
shall remain, in full force and effect. This Amendment No. 1 shall be governed
by and construed in accordance with the internal laws of the State of Delaware
without regard to principles of conflicts of law of such state, and may be
executed in any number of counterparts and by the parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
THE NORTH FACE, INC. J.H. WHITNEY & CO.
By /s/Marsden S. Cason By /s/Ray E. Newton, III
---------------------------- ------------------------------
Marsden S. Cason, Chairman Ray E. Newton, III, a General Partner
WHITNEY 1990 EQUITY FUND, L.P. WHITNEY SUBORDINATED DEBT
FUND, L.P.
By /s/Ray E. Newton, III By /s/Ray E. Newton, III
---------------------------- ------------------------------
Ray E. Newton, III, a General Partner Ray E. Newton, III, a General Partner
/s/Marsden S. Cason /s/William A. McFarlane /s/William N. Simon
- ------------------- ----------------------- -------------------
Marsden S. Cason William A. McFarlane William N. Simon
<PAGE>
Exhibit 21.1
SUBSIDIARIES
1) The North Face (Europe) Limited, a company incorporated under the laws of
Scotland.
2) The North Face (Canada), Inc., a company incorporated under the laws of
Canada. The North Face (Canada), Inc. also does business under the names
The North Face and La Face Nord (Canada), Inc.