<PAGE>
As filed with the Securities and Exchange Commission on July 7, 1998
Registration No. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
THE NORTH FACE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-3204082
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
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)
--------------------------
JAMES FIFIELD
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:
PATRICK J. SCHULTHEIS, ESQ.
WILSON SONSINI GOODRICH & ROSATI
PROFESSIONAL CORPORATION
650 PAGE MILL ROAD
PALO ALTO, CA 94304
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are offered pursuant to
dividend or interest reinvestment plans, check the following box. / /
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, please 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, please check the following box. / /
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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- -------------------------------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS AMOUNT OFFERING AGGREGATE AMOUNT OF
OF SECURITIES TO TO BE PRICE OFFERING REGISTRATION
BE REGISTERED REGISTERED PER SECURITY(1) PRICE FEE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.0025 par value 1,698,395 $24.25 $41,186,078.75 $12,149.89
- -------------------------------------------------------------------------------------------------------------------------------
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</TABLE>
(1) The price of $24.25 per share, which was the average of the high and
low prices of the Registrant's Common Stock on the Nasdaq National Market
on July 3, 1998, is set forth solely for the purposes of calculating the
registration fee in accordance with Rule 457(c) of the Securities Act of
1933, as amended.
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<PAGE>
THE 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
AN OFFER 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 REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY 7, 1998
1,698,395 SHARES
THE NORTH FACE, INC.
COMMON STOCK
------------------------
This Prospectus relates to the public offering, which is not being
underwritten, of 1,698,395 shares (the "Shares") of Common Stock, $0.0025 par
value, of The North Face, Inc., a Delaware corporation (the "Company"). The
Shares are outstanding shares of Company Common Stock that may be sold from
time to time by or on behalf of certain stockholders of the Company or by
pledges, donees, transferees or other successors in interest that receive
such Shares as a gift, distribution or other non-sale related transfer (the
"Selling Stockholders"). The Selling Stockholders acquired the Shares in
private transactions in which the Company acquired La Sportiva USA, Inc., a
Colorado corporation ("LUSA"), pursuant to a Stock Purchase Agreement by and
among the Company, LUSA and certain stockholders of LUSA, dated July 1,
1998, or in accordance with that certain Employment Agreement by and between
the Company and James Fifield, dated May 13, 1998, which Employment Agreement
contained provisions for the purchase for cash and a promissory note of
665,060 shares of Company Common Stock and the grant of an option to purchase
up to 900,000 shares of Company Common Stock.
The Shares may be offered by the Selling Stockholders from time to time
in transactions on the Nasdaq National Market, in privately negotiated
transactions, or by a combination of such methods of sale, at fixed prices
that may be changed, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices or at negotiated prices. The
Selling Stockholders may effect such transactions by selling the Shares to or
through broker-dealers and such broker-dealers may receive compensation in
the form of discounts, concessions or commissions from the Selling
Stockholders or the purchasers of the Shares for whom such broker-dealers may
act as agent or to whom they sell as principal or both (which compensation to
a particular broker-dealer might be in excess of customary commissions). See
"Selling Stockholders" and "Plan of Distribution."
The Company will not receive any of the proceeds from the sale of the
Shares by the Selling Stockholders. The Company has agreed to bear certain
expenses in connection with the registration and sale of the Shares being
offered by the Selling Stockholders. In addition, the Company has agreed to
indemnify the Selling Stockholders against certain liabilities, including
liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"), or the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
1
<PAGE>
On July 3, 1998, the closing bid price of the Company's Common Stock on
the Nasdaq National Market was $23.375 per share. The Common Stock is traded
under the Nasdaq symbol "TNFI."
------------------
The Selling Stockholders and any broker-dealers or agents that participate
with the Selling Stockholders in the distribution of the Shares may be deemed
to be "underwriters" within the meaning of Section 2(11) of the Securities
Act, and any commissions received by them and any profit on the resale of the
Shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.
------------------
SEE "RISK FACTORS" COMMENCING ON PAGE 6 FOR A DISCUSSION OF RISK FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE SECURITIES OFFERED
HEREBY.
------------------
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 REPRESENTATI0N
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------
The date of this Prospectus is July 7, 1998
------------------
2
<PAGE>
TRADEMARKS
This Prospectus contains trademarks of the Company, including The North
Face-Registered Trademark-, Tekware-TM- and Ascentials. This Prospectus may
contain other trademarks as well.
------------------
AVAILABLE INFORMATI0N
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files or filed, as the case may be, reports,
proxy statements and other information with the Securities & Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information filed with the Commission by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices located at 500 West Madison Street, Room 1400, Chicago, Illinois
60661 and at 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such material can be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, Washington, D.C. 20549, at prescribed
rates, or on the World Wide Web at http://www.sec.gov. Copies of other
materials concerning the Company can be inspected at the offices of the
National Association of Securities Dealers, Inc. at 1735 K Street, N.W.,
Washington, D.C. 20006.
------------------
ADDITIONAL INFORMATION
The Company has filed with the Commission a registration statement on
Form S-3, including this Prospectus and other information (herein, together
with all amendments, exhibits and schedules, referred to as the "Registration
Statement"), under the Securities Act, with respect to the Shares offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission, and to which reference is hereby
made. Statements made in this Prospectus as to the contents of any document
referred to are not necessarily complete. With respect to each such document
filed as an exhibit to the Registration Statement, reference is made to the
exhibit for a more complete description of the matter involved, and each such
statement shall be deemed qualified in its entirety by such reference. The
Registration Statement, including the exhibits and schedules thereto, may be
inspected at the public reference facilities maintained by the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of such material may be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates.
3
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission (File No.
0-28596) pursuant to the Exchange Act are incorporated by reference in this
Prospectus:
1. The Company's Annual Report on Form 10-K for the year ended
December 31, 1997 filed with the Commission on March 6, 1998;
2. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998 filed with the Commission on May 15, 1998;
3. The Company's Current Report on Form 8-K filed with the Commission
on July 7, 1998;
4. The description of the Company's Common Stock contained in its
Registration Statement on Form 8-A filed with the Commission on
June 24, 1996, including any amendments or reports filed for the
purpose of updating such description;
5. The description of the Company's Preferred Share Purchase Rights
contained in its Registration Statement on Form 8-A filed with the
Commission on July 7, 1998, including any amendments or reports filed
for the purpose of updating such description.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus but
prior to the termination of the offering to which this Prospectus relates
shall be deemed to be incorporated by reference in this Prospectus and to be
part hereof from the date of filing of such documents. Any statement
contained in a document incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that
a statement contained herein or in any other subsequently filed document
which also is incorporated herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, in its unmodified
form, to constitute a part of this Prospectus.
Upon written or oral request, the Company will provide without charge to
each person to whom a copy of this Prospectus is delivered a copy of any of
the documents incorporated by reference herein (other than exhibits to such
documents unless such exhibits are specifically incorporated by reference
into such documents). Requests for such documents should be submitted to
Christopher F. Crawford, Chief Financial Officer, at the principal executive
offices of the Company in writing at The North Face, Inc., 2013 Farallon
Drive, San Leandro, California 94577 or by telephone at (510) 618-3500.
------------------
FORWARD-LOOKING STATEMENTS
This Prospectus, including the documents incorporated by reference
herein, contains forward-looking statements that involve risks and
uncertainties. The statements contained in this Prospectus or incorporated by
reference herein that are not purely historical are forward-looking
statements within the meaning of Section 27A of the Securities Act and
Section 21E of the Exchange Act, including without limitation statements
regarding the Company's expectations, beliefs, intentions or strategies
regarding the future. All forward-looking statements included in this
document or incorporated by reference herein are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward-looking statements. The Companys actual
results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those
set forth in "Risk Factors" and elsewhere in this Prospectus.
4
<PAGE>
THE COMPANY
The North Face, Inc., together with its consolidated subsidiaries,
designs and distributes technically sophisticated outerwear, skiwear,
functional sportswear, tents, sleeping bags, backpacks and daypacks, all
under The North Face-Registered Trademark- name. The Company believes that
The North Face-Registered Trademark- is the world's premier brand of
high-perforrnance outdoor apparel and equipment.
The Company offers a broad range of high-performance,
technically-oriented outerwear, skiwear, outdoor equipment and functional
sportswear ("Tekware") designed for extreme applications, such as high
altitude mountaineering, ice climbing, rock climbing, backpacking, skiing,
snowboarding, hiking, training and adventure travel. The Company
characterizes its apparel-related products as "equipment for the body." As a
result of the experience gained over more than 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 Company's broad product line and manifesto: "For over
thirty years, individuals whose lives depend on the performance of their gear
consistently choose The North Face," truly differentiates The North Face from
any other company in the world. 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 1996, sales of outerwear,
equipment, skiwear, Tekware and other products represented approximately 52%,
25%, 12%, 7% and 4%, of net sales, respectively. In 1997, sales of outerwear,
equipment, skiwear, Tekware, Ascentials and other products represented
approximately 48%, 22%, 10%, 12%, 4%, and 4%, of net sales, respectively.
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 many of its products for extreme applications, such as
high altitude mountaineering, ice climbing and back-country skiing, which it
believes represent only a small fraction of its potential customers. These
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.
The Company is a Delaware corporation originally incorporated on May 16,
1994. The Company's principal executive offices are located at 2013 Farallon
Drive, San Leandro, California 94577. Its telephone number at that address is
(510) 618-3500.
RECENT DEVELOPMENTS
RECENT ACQUISITIONS.
On July 1, 1998, the Company acquired 100% of the outstanding share
capital of La Sportiva USA, Inc., a Colorado corporation ("LUSA"), pursuant
to the terms and conditions of that certain Stock Purchase Agreement by and
among the Company, LUSA, Mr. Colin Lantz, Mr. C. Edward Sampson and Mr. Heinz
Mariacher, dated July 1, 1998. The Company issued 133,335 shares of Company
Common Stock to the stockholders of LUSA in exchange for their combined
ownership interest. The acquisition was accounted for as a purchase. LUSA is
a North American distributor of specialty outdoor footwear based in Boulder,
Colorado.
On June 30, 1998, The North Face, Inc., a Delaware corporation (the
"Company"), acquired 20% of the outstanding capital stock of La Sportiva
S.r.l., a corporation duly organized and existing under the laws of Italy
("LSRL"), pursuant to the terms and conditions of that certain Share Purchase
Agreement by and among the Company, LSRL, Mr. Francesco Delladio, Mr. Lorenzo
Delladio and Mr. Marco Delladio, dated on or about June 30, 1998. The Company
is also committed to acquire an additional 31% of the outstanding capital
stock of LSRL over the course of the next two to five years pursuant to other
terms and conditions. The consideration paid by the Company for the combined
51% interest in LSRL will be approximately $6.6 million. LSRL is a premier
manufacture and distributor of specialty outdoor footwear based in Ziano di
Fiemme, Italy.
RELOCATION OF CORPORATE HEADQUARTERS.
On July 6, 1998, the Company announced that it is currently negotiating
to acquire approximately 36 acres of land in Carbondale, Colorado as the site
of its future corporate headquarters. The Company will relocate a portion of
its executive offices to Carbondale in August 1998 while maintaining its
current facility in San Leandro, California. The Company's Marketing,
Research Design and Development, Product Acquisition and the majority of its
Executive Team will be moved to the Carbondale site.
PREFERRED SHARE PURCHASE RIGHTS
On July 6, 1998, pursuant to a Preferred Shares Rights Agreement between
the Company and American Stock Transfer & Trust, Co. as Rights Agent, the
Company's Board of Directors declared a dividend of one right (a "Right") to
purchase one one-thousandth of a share of the Company's Series A
Participating Preferred Stock, $1.00 par value per share, ("Series A
Preferred") for each outstanding share of Common Stock, $0.0025 par value per
share, of the Company. The dividend is payable on July 20, 1998 to
stockholders of record as of the close of business on that day. Each Right
entitles the registered holder to purchase from the Company one
one-thousandth of a share of Series A Preferred at an exercise price of
$140.00, subject to adjustment.
5
<PAGE>
------------------
RISK FACTORS
THIS PROSPECTUS, INCLUDING THE DOCUMENTS INCORPORATED BY REFERENCE
HEREIN, CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE STATEMENTS CONTAINED IN THIS PROSPECTUS OR INCORPORATED BY
REFERENCE HEREIN THAT ARE NOT PURELY HISTORICAL ARE FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND
SECTION 21E OF THE EXCHANGE ACT, INCLUDING WITHOUT LIMITATION STATEMENTS
REGARDING THE COMPANY'S EXPECTATIONS, BELIEFS, INTENTIONS OR STRATEGIES
REGARDING THE FUTURE. ALL FORWARD-LOOKING STATEMENTS INCLUDED IN THIS
DOCUMENT OR INCORPORATED BY REFERENCE HEREIN ARE BASED ON INFORMATION
AVAILABLE TO THE COMPANY ON THE DATE HEREOF, AND THE COMPANY ASSUMES NO
OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY'S
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE
SET FORTH IN "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
CONSUMER PREFERENCES. Consumer demand for the Company's products may be
adversely affected if consumer interest in outdoor activities does not grow
or declines. If the Company is unable to respond successfully to changes in
consumer preferences, or if consumer preferences shift toward competing
products or away from the Company's product categories altogether, the
Company's business would be adversely affected. The Company cannot assure
future growth or consumer demand for its products.
MANAGING GROWTH. If the Company's business grows, the Company may have
increased difficulties in managing product design, hiring, marketing,
distribution, management information and other resources, and in obtaining
supplies, manufacturing services and working capital. The Company's future
profitability will be critically dependent on its ability to achieve and
manage potential future growth effectively.
WHOLESALE STRATEGY. The Company's wholesale customers consist, primarily,
of specialty outdoor product retailers. The Company cannot assure that its
existing customers will increase their purchases of the Company's products,
that future pre-season wholesale orders will increase, or that the Company will
be able to fill re-orders during each season. Because the Company expects its
wholesale business to constitute an increasing percentage of total sales
going forward, overall gross margins may continue to decline in the future.
The Company's wholesale strategy also depends on its ability to achieve
increased sales through its Summit Shop program. Risks of this program
include sourcing and managing higher inventory levels, funding all or most of
the cost of the Summit Shop fixtures without assurance of additional sales
and profits, and the need to supply products that maintain consumer demand on
a year-round basis. There can be no assurance that additional Summit Shops
will be opened in a timely manner or that their cost or performance will meet
the Company's expectations. If the Summit Shop program is unsuccessful, the
Company risks writeoffs of inventory and fixtures that could have a material
adverse effect on the Company's business. The Company believes that the
success of its Summit Shop program will be highly dependent on market
acceptance of its Tekware-TM- line of products, which was introduced in 1996.
DEPENDENCE ON NEW PRODUCTS. To continue its growth, the Company must
successfully introduce new products and improvements to existing products on
an ongoing basis. Risks of new product introductions include targeting new
markets involving more casual outdoor uses, offering products in wider price
ranges, product obsolescence, increased costs and competition, possible
consumer rejection of new products or styles and possible
6
<PAGE>
dilution of the Company's product image. In 1996, the Company introduced
"Tekware-TM-," a line of synthetic outdoor apparel. The Company's limited
experience in marketing casual apparel, limited distribution channels, and
possible consumer resistance to synthetic fabrics could result in slow sales
of Tekware-TM-. In May 1998, the Company announced its intention to design
and contract for the manufacturing of a line of outdoor performance footwear,
scheduled to launch in Spring 1999. There can be no assurance that this new
effort by the Company will be successful.
RELIANCE ON UNAFFILIATED MANUFACTURERS. The Company currently relies on
approximately 50 unaffiliated manufacturers to produce nearly all of its
products, with ten of the manufacturers producing approximately 75% of the
Company's products in 1997 and 1998. The Company has no long-term contracts
with its manufacturing sources, and it competes with other companies for
production facilities and import quota capacity. Any disruption in the
Company's ability to obtain manufacturing services could have a material
adverse effect on the Company's business. None of the manufacturers used by
the Company produces the Company's products exclusively. The Company has
occasionally received, and may in the future receive, shipments of products
from manufacturers that fail to conform to the Company's quality control
standards. The Company established its core inventory replenishment program
to facilitate re-orders of core products, and cannot assure that this program
will meet re-order requirements or avoid excess inventory.
The Company requires its independent manufacturers to operate in
compliance with applicable laws and regulations. Although the Company's
internal and vendor operating guidelines promote ethical business practices
and the Company's sourcing personnel periodically visit and monitor the
operations of its independent manufacturers, the Company does not control
these vendors or their labor practices. The violation of labor or other laws
by an independent manufacturer of the Company, or the divergence of an
independent manufacturer's labor practices from those generally accepted as
ethical in the United States, could result in adverse publicity for the
Company and could have a material adverse effect on the Company.
KEY SUPPLIERS. Certain important materials used in the Company's products
are only available from one or a limited number of independent suppliers. The
Company's future success may depend upon the Company's continued ability to
purchase supplies of technically advanced textiles developed by third
parties. The Company cannot assure that it will be able to obtain in the
future adequate supplies of technically advanced materials or that desired
purchase terms or other benefits of past purchases, such as suppliers'
funding of development costs and co-op advertising arrangements, will
continue.
FLUCTUATIONS IN SALES. Sales of the Company's products historically have
fluctuated due to conditions, such as weather and economic recessions or
other conditions which reduce consumer spending, which are beyond the
Company's control.
INTERNATIONAL OPERATIONS. The Company's business is subject to the risks
generally associated with doing business abroad. The Company imports more
than 60% of its merchandise from contract manufacturers located outside of
the United States, primarily in the Far East. A significant portion of the
Company's products is produced in China. From time to time, the U.S.
government has considered imposing punitive tariffs on apparel and other
exports from China. The imposition of any such tariffs could disrupt the
supply of the Company's products, which could have a material adverse effect
on the Company's results of operations.
COMPETITION AND TRADEMARKS. The Company faces intense competition from
major brand-name apparel companies, other large companies, and smaller
businesses specializing in outdoor products. The Company owns and uses a
number of trademarks, some of which may be important in maintaining or
creating a competitive advantage and consumer demand. Certain competitors in
the United States and abroad have copied and may in the future copy certain
of the Company's trademarks and designs. The Company is also aware of certain
counterfeiting of the Company's products. Without authorization by the
Company, a third party has filed an application in China to register as a
trademark the Chinese characters for "North Face" and a copy of the
7
<PAGE>
Company's "N" design. Unless successfully opposed, this application could
result in significant adverse consequences to the Company's business. There
is no assurance that the Company's efforts to stop or reduce the copying or
counterfeiting of its trademarks or products will be successful, that the
Company's trademarks will not violate the proprietary rights of others, or
that the Company will be able to avoid or successfully defend challenges to
its trademarks or other intellectual property in the United States or abroad.
KEY PERSONNEL. The Company's future success will depend, in part, upon
the continued efforts of its executive officers and other key personnel and
upon the Company's ability to successfully retain current personnel and
recruit and retain new personnel. There can be no assurance that any of such
persons will remain executive officers or employees of the Company in the
future. The loss of one or more current executive officer or key employees
could have a significant adverse effect on the Company's business. James P.
Reilly joined the Company as its Chief Operating Officer in March 1998 and
James Fifield joined the Company as President and Chief Executive Officer of
the Company in May, 1998. There can be no assurance that any newly hired
executive or key employee can successfully manage or contribute to the
Company's operations.
PRODUCT AND WARRANTY LIABILITY. The Company's products are often used in
severe weather and other extreme conditions. In 1997, the Company began
selling porta ledges used as sleeping platforms in big wall rock climbing.
There can be no assurance that insurance maintained by the Company will cover
possible future losses from product liability claims. The Company maintains a
warranty reserve for the lifetime warranty offered on its products, but
cannot assure that future claims will not exceed this reserve. Further, in
the event that the Company experiences problems with product quality or
reliability, its reputation as a provider of high quality products could
suffer, which could have a material adverse effect on the Company's business.
STOCK MARKET RISKS. The trading price of the Company's Common Stock has
fluctuated significantly since the Company's initial public offering in July
1996, and may fluctuate in the future as a result of many factors, including
the Company's operating results, new products introduced by the Company or
its competitors, market conditions for the Company's products, changes in
earnings estimates by analysts, actual results reported by the Company which
may be better or worse than estimates provided by analysts, insider selling
of common stock and speculation in the trade or business press. The trading
price may also be affected by retail industry, stock market, or economic
factors unrelated to the Company's operating performance. Future sales of
substantial amounts of Common Stock by existing stockholders may also
adversely affect prevailing market prices for the Common Stock and could
impair the Company's ability to raise equity capital in the future. As of
February 20, 1998, the Company's directors, officers and certain other
affiliates beneficially owned approximately 3.5% of the outstanding shares of
the Company's Common Stock.
YEAR 2000 COMPLIANCE. Many currently installed computer systems and
software products are coded to accept only two digit entries in the date code
field. These date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, in less
than two years, computer systems and software used by many companies may need
to be upgraded to comply with such "Year 2000" requirements. Although the
Company has conducted an internal review of such matters and believes that
its products and internal systems will be Year 2000 compliant, the Company
believes that the purchasing patterns of customers and potential customers
may be affected by Year 2000 issues as companies expend significant resources
to upgrade their current software systems for Year 2000 compliance. These
expenditures may result in reduced funds available to purchase products such
as those offered by the Company, which could have a material adverse effect
on the Company's business, operating results, and financial condition.
-------------
SELLING STOCKHOLDERS
The following table lists the Selling Stockholders and the number of
shares of the Company's Common Stock which each owned or had the right to
acquire as of July 7, 1998. Because the Selling Stockholders may offer all or
some of the Shares which they hold pursuant to the offering contemplated by
this Prospectus, and because there are currently no agreements, arrangements
or understandings with respect to the sale of any of the Shares, no estimate
can be given as to the amount of Shares that will be held by the Selling
Stockholders after completion of this offering. The Shares are being
registered to permit public secondary trading of the Shares, and the Selling
Stockholders may offer the Shares for resale from time to time. See "Plan of
Distribution."
The Shares being offered by the Selling Stockholders were acquired from
the Company in connection with, (i) the Company's acquisition of 100% of the
issued and outstanding Common Stock of LUSA
8
<PAGE>
(the "LUSA Acquisition"), and (ii) that certain Employment Agreement by and
between the Company and James Fifield, dated May 13, 1998. The LUSA
Acquisition was accomplished pursuant to the terms and conditions of that
certain Stock Purchase Agreement, dated as of July 1, 1998, whereby the
Company acquired all of the issued and outstanding Common Stock of LUSA in
exchange for 133,335 shares of Company Common Stock.
The Company has filed with the Commission, under the Act, a Registration
Statement on Form S-3, of which this Prospectus forms a part, with respect to
the resale of the Shares from time to time on the Nasdaq National Market or
in privately-negotiated transactions. The Company has agreed to use
reasonable efforts to keep such Registration Statement effective for 365 days
from the date of effectiveness of the Registration Statement on Form S-3, of
which this Prospectus forms a part, subject to certain restrictions, or, if
earlier, until the distribution contemplated in this Prospectus has been
completed.
The Shares offered by this Prospectus may be offered from time to time
by the Selling Stockholders named below:
<TABLE>
<CAPTION>
Number of Shares of Common
Stock Beneficially Owned
Name of Selling Stockholder Prior to the Offering Percentage of Outstanding Shares
- --------------------------- -------------------------- --------------------------------
<S> <C> <C>
James Fifield 1,565,060(1) 12.7%
Colin Lantz 44,445 *
C. Edward Sampson 44,445 *
Heinz Mariacher 44,445 *
</TABLE>
- ----------
* Less than 1%
(1) Includes options to purchase up to 900,000 shares of Company Common
Stock pursuant to the terms and conditions of that certain Employment
Agreement by and between the Company and Jim Fifield, dated May 13, 1998.
--------------
PLAN OF DISTRIBUTION
All or a portion of the Shares offered hereby by the Selling
Stockholders may be delivered and/or sold from time to time in transactions
on the Nasdaq National Market, in privately negotiated transactions, or by a
combination of such methods of sale, at fixed prices that may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. After the effectiveness of
the Registration Statement of which this Prospectus is a part, the Selling
Stockholders may make short sales of the Company's Common Stock and may use
the Shares to cover the resulting short positions. The Selling Stockholders
may effect such transactions by selling the Shares to or through
broker-dealers and such broker-dealers may receive compensation in the form
of discounts, concessions or commissions from the Selling Stockholders or the
purchasers of the Shares for whom such broker-dealers may act as agent or to
whom they sell as principal or both (which compensation to a particular
broker-dealer might be in excess of customary commissions). There is no
assurance that any of the Selling Stockholders will sell any or all of the
Shares offered by them.
Any Selling Stockholder and any broker-dealers that participate in the
distribution may under certain circumstances be deemed to be "underwriters"
within the meaning of the Securities Act, and any commissions received by
such broker-dealers and any profits realized on the resale of Shares may be
deemed to be underwriting discounts and commissions under the Securities Act.
Each Selling Stockholder may agree to indemnify such broker-dealers against
certain liabilities, including liabilities under the Securities Act. In
addition, the Company has agreed to indemnify in certain circumstances
certain Selling Stockholders against certain liabilities, including
9
<PAGE>
liabilities arising under the Securities Act and Exchange Act. Certain
Selling Stockholders have agreed to indemnify in certain circumstances the
Company and certain related persons against certain liabilities, including
liabilities arising under the Securities Act and Exchange Act.
Any brbker-dealer participating in such transactions as agent may
receive commissions from a Selling Stockholder (and, if it acts as agent for
the purchase of such Shares, from such purchaser). Broker-dealers may agree
with such Selling Stockholder to sell a specified number of Shares at a
stipulated price per share, and, to the extent such a broker-dealer is unable
to do so acting as agent for such Selling Stockholder, to purchase as
principal any unsold Shares. Broker-dealers who acquire Shares as principal
may thereafter resell such Shares from time to time in transactions (which
may involve crosses and block transactions and which may involve sales to and
through other broker-dealers, including transactions of the nature described
above) on the Nasdaq National Market, in privately negotiated transactions,
or by a combination of such methods of sale, at fixed prices that may be
changed, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices, and in connection
with such resales may pay to or receive from the purchasers of such Shares
commissions computed as described above.
Each Selling Stockholder will be subject to applicable provisions of the
Exchange Act, and the rules and regulations thereunder, including, without
limitation, Regulation M, which provisions may limit the time of bids for and
purchases of shares of the Company's Common Stock by such Selling Stockholder.
Each Selling Stockholder will pay all commissions and other expenses
associated with the sale of the Shares by such Selling Stockholder. The
Shares offered hereby are being registered pursuant to contractual
obligations of the Company, and the Company has agreed to bear certain
expenses in connection with the registration and sale of the Shares being
offered by every such Selling Stockholder. The Company has not made any
underwriting arrangements with respect to the sale of Shares offered hereby.
---------------------
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Common Stock
by the Selling Stockholders.
---------------------
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon for
the Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation,
Palo Alto, California.
---------------------
EXPERTS
The consolidated financial statements incorporated in this Prospectus by
reference from the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated herein by reference,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
---------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
10
<PAGE>
INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE SELLING STOCKHOLDERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTTON IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM 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 OF THIS PROSPECTUS.
11
<PAGE>
TABLE OF CONTENTS
Page
----
Trademarks 3
Available Information 3
Additional Information 3
Information Incorporated by Reference 4
Forward-Looking Statements 4
The Company 5
Risk Factors 6
Selling Stockholders 8
Plan of Distribution 9
Use of Proceeds 10
Legal Matters 10
Experts 10
1,698,395 SHARES
THE NORTH FACE, INC.
Common Stock
------------
____________, 1998
------------
12
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The fees and expenses incurred by the Company in connection with the
offering are payable by the Company and, other than filing fees, are
estimated as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee ....... $ 12,149.89
NASDAQ Filing Fee ......................................... $ 15,967.90
Legal Fees and Expenses ................................... $ 8,000
Accounting Fees ........................................... $ 2,000
Miscellaneous ............................................. $ 1,500
Total ................................................. $ 39,617.79
</TABLE>
ITEM 15. INDEMMFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the Delaware General Corporation law ("DGCL") empowers a
Delaware corporation to indemnify any persons who are, or are threatened to
be made, parties to any threatened, pending or completed legal action, suit
or proceedings, whether civil, criminal, administrative or investigative
(other than action by or in the right of such corporation), by reason of the
fact that such person was an officer or director of such corporation, or is
or was serving at the request of such corporation as a director, officer,
employee or agent of another corporation or enterprise. The indemnity may
include expenses (including attorneys' fees), judgments, fees and amounts
paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided that such officer
or director acted in good faith and in a manner he reasonably believed to be
in or not opposed to the corporation's best interest, and, for criminal
proceedings, had no reasonable cause to believe his conduct was illegal. A
Delaware corporation may indemnify officers and directors in an action by or
in the right of the corporation under the same conditions, except that no
indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation in the performance of
his duty. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation
must indemnify him against the expenses which such officer or director
actually and reasonably incurred.
In accordance with the DGCL, the Company's Amended and Restated
Certificate of Incorporation (the "Restated Certificate"), contains a
provision to limit the personal liability of the directors of the Registrant
for violations of their fiduciary duty. This provision eliminates each
director's liability to the Registrant or its stockholders for monetary
damages except (i) for any breach of the director's duty of loyalty to the
Registrant or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the DGCL providing for liability of directors for
unlawful payment of dividends or unlawful stock purchases or redemptions, or
(iv) for any transaction from which a director derived an improper personal
benefit. The effect of this provision is to eliminate the personal liability
of directors for monetary damages for actions involving a breach of their
fiduciary duty of care, including any such actions involving gross negligence.
II-1
<PAGE>
Article FOURTH, Section 9 of the Company's Restated Certificate and
Article 8 of the Company's Amended and Restated Bylaws provide for
indemnification of the officers and directors of the Registrant to the
fullest extent permitted by applicable law.
The Registrant has entered into indemnification agreements with each
director and executive officer which provide indemnification to such
directors and executive officers under certain circumstances for acts or
omissions which may not be covered by directors' and officers' liability
insurance.
ITEM 16. EXHIBITS.
The following exhibits are filed with this Registration Statement:
<TABLE>
<CAPTION>
Exhibit
Number Description
- ---------------------
<S> <C>
2.1 Stock Purchase Agreement by and among The North Face, Inc., a Delaware
corporation, La Sportiva USA, Inc., a Colorado corporation, Mr. Colin
Lantz, Mr. C. Edward Sampson and Mr. Heinz Mariacher, dated July 1,
1998.
2.2 Registration Rights Agreement by and between The North Face, Inc.,
a Delaware corporation, and the stockholders of La Sportiva USA, Inc.,
a Colorado corporation, dated July 1, 1998.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
10.1 Employment Agreement by and between The North Face, Inc., a
Delaware corporation, and James Fifield, dated May 13, 1998.
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1).
23.2 Consent of Deloitte & Touche LLP
24.1 Power of Attorney (included on pg. II-4 of this Registration
Statement under the caption "Signatures").
</TABLE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement: (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act; (ii) to
reflect in the prospectus any facts or events arising after the effective
date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) (Section
230.424(b) of this chapter) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and (iii) to include any material
information with respect to the plan of distribution not previously disclosed
in the Registration Statement or any material change to such information in
the Registration Statement; provided, however, that (i) and (ii) do not apply
if the Registration Statement is on Form S-3, Form S-8
II-2
<PAGE>
or Form F-3, and the information required to be included in a post-effective
amendment by (i) and (ii) is contained in periodic reports filed with or
furnished to the Commission by the Registrant pursuant to Section 13 or
Section 15(d) of the Exchange Act that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment 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 remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement 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.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the registrant pursuant to the provisions described in Item 15 above, 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 against liabilities (other than
the payment of 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 liability under the Securities Act of
l933, 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 determming liability under the Securities Act of
l933, 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.
11-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of San Leandro, State of California on
this 7th day of July, 1998.
THE NORTH FACE, INC.
By: /s/ Christopher F. Crawford
--------------------------------
Christopher F. Crawford
Chief Financial Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Christopher F. Crawford, his
attorney-in-fact, with the power of substitution, for him in any and all
capacities, to sign any amendment to this Registration Statement on Form S-3,
and to file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorney-in-fact, or his substitute or substitutes,
may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on July 7, 1998.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Marsden S. Cason
--------------------------- Chairman
Marsden S. Cason
/s/ Christopher F. Crawford
--------------------------- Chief Financial Officer and Secretary
Christopher F. Crawford
/s/ James Fifield
--------------------------- President, Chief Executive Officer and Director
James Fifield
/s/ Michael F. Doyle
--------------------------- Director
Michael F. Doyle
/s/ Robert P. Bunje
--------------------------- Director
Robert P. Bunje
/s/ William N. Simon
--------------------------- Vice Chairman
William N. Simon
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ---------------------
<S> <C>
2.1 Stock Purchase Agreement by and among The North Face, Inc., a Delaware
corporation, La Sportiva USA, Inc., a Colorado corporation, Mr. Colin
Lantz, Mr. C. Edward Sampson and Mr. Heinz Mariacher, dated July 1,
1998.
2.2 Registration Rights Agreement by and between The North Face, Inc.,
a Delaware corporation, and the stockholders of La Sportiva USA, Inc.,
a Colorado corporation, dated July 1, 1998.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
10.1 Employment Agreement by and between The North Face, Inc., a
Delaware corporation, and James Fifield, dated May 13, 1998.
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1).
23.2 Consent of Deloitte & Touche LLP
24.1 Power of Attorney (included on pg. II-4 of this Registration
Statement under the caption "Signatures").
</TABLE>
<PAGE>
Exhibit 2.1
STOCK PURCHASE AGREEMENT
AMONG
THE NORTH FACE, INC.,
LA SPORTIVA USA,
AND THE SHAREHOLDERS OF LA SPORTIVA USA
July 1, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2. Purchase and Sale of Company Shares . . . . . . . . . . . . . . 5
(a) Basic Transaction . . . . . . . . . . . . . . . . . . . . 5
(b) Purchase Price. . . . . . . . . . . . . . . . . . . . . . 5
(c) The Closing . . . . . . . . . . . . . . . . . . . . . . . 6
(d) Deliveries at the Closing . . . . . . . . . . . . . . . . 6
(e) Escrow Deposit. . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3. Representations and Warranties Concerning the Transaction . . . 8
(a) Representations and Warranties of the Sellers . . . . . . 8
(b) Representations and Warranties of the Buyer . . . . . . . 9
ARTICLE IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4. Representations and Warranties Concerning the Company . . . . . 10
(a) Organization, Qualification, and Corporate Power. . . . . 10
(b) Capitalization. . . . . . . . . . . . . . . . . . . . . . 10
(c) Noncontravention. . . . . . . . . . . . . . . . . . . . . 11
(d) Brokers' Fees . . . . . . . . . . . . . . . . . . . . . . 11
(e) Title to Assets . . . . . . . . . . . . . . . . . . . . . 11
(f) Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . 11
(g) Financial Statements. . . . . . . . . . . . . . . . . . . 11
(h) Events Subsequent to Most Recent Fiscal Year End. . . . . 12
(i) Undisclosed Liabilities . . . . . . . . . . . . . . . . . 14
(j) Legal Compliance. . . . . . . . . . . . . . . . . . . . . 14
(k) Tax Matters . . . . . . . . . . . . . . . . . . . . . . . 14
(l) Real Property . . . . . . . . . . . . . . . . . . . . . . 15
(m) Intellectual Property . . . . . . . . . . . . . . . . . . 16
(n) Tangible Assets . . . . . . . . . . . . . . . . . . . . . 18
(o) Inventory . . . . . . . . . . . . . . . . . . . . . . . . 18
(p) Contracts . . . . . . . . . . . . . . . . . . . . . . . . 19
(q) Notes and Accounts Receivable . . . . . . . . . . . . . . 20
(r) Powers of Attorney . . . . . . . . . . . . . . . . . . . 20
(s) Insurance . . . . . . . . . . . . . . . . . . . . . . . . 20
(t) Litigation . . . . . . . . . . . . . . . . . . . . . . . 21
(u) Product Warranty . . . . . . . . . . . . . . . . . . . . 21
(v) Product Liability . . . . . . . . . . . . . . . . . . . . 21
-i-
<PAGE>
TABLE OF CONTENTS
(Continued)
PAGE
----
(w) Employees . . . . . . . . . . . . . . . . . . . . . . . . 21
(x) Employee Benefits . . . . . . . . . . . . . . . . . . . . 21
(y) Guaranties . . . . . . . . . . . . . . . . . . . . . . . 22
(z) Environmental, Health, and Safety Matters . . . . . . . . 22
(aa) Certain Business Relationships with the Company . . . . . 23
(bb) Disclosure . . . . . . . . . . . . . . . . . . . . . . . 23
(cc) Bank Accounts . . . . . . . . . . . . . . . . . . . . . . 23
(dd) Materiality . . . . . . . . . . . . . . . . . . . . . . . 23
(ee) Solvency . . . . . . . . . . . . . . . . . . . . . . . . 23
(ff) Predecessor Status . . . . . . . . . . . . . . . . . . . 23
(gg) Minute Books . . . . . . . . . . . . . . . . . . . . . . 23
(hh) Disclosure Schedule . . . . . . . . . . . . . . . . . . . 23
ARTICLE V . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5. Pre-Closing Covenants . . . . . . . . . . . . . . . . . . . . . 24
(a) General . . . . . . . . . . . . . . . . . . . . . . . . . 24
(b) Notices and Consents . . . . . . . . . . . . . . . . . . 24
(c) Operation of Business . . . . . . . . . . . . . . . . . . 24
(d) Preservation of Business. . . . . . . . . . . . . . . . . 24
(e) Full Access . . . . . . . . . . . . . . . . . . . . . . . 24
(f) Notice of Developments . . . . . . . . . . . . . . . . . 24
(g) Exclusivity . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE VI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6. Post-Closing Covenants . . . . . . . . . . . . . . . . . . . . 25
(a) General . . . . . . . . . . . . . . . . . . . . . . . . . 25
(b) Litigation Support . . . . . . . . . . . . . . . . . . . 25
(c) Transition . . . . . . . . . . . . . . . . . . . . . . . 25
(d) Confidentiality . . . . . . . . . . . . . . . . . . . . . 26
(e) Release from Preferred Stock Agreement . . . . . . . . . 26
ARTICLE VII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7. Conditions to Obligation to Close . . . . . . . . . . . . . . . 26
(a) Conditions to Obligation of the Buyer . . . . . . . . . . 26
(b) Conditions to Obligation of the Sellers . . . . . . . . . 28
ARTICLE VIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8. Remedies for Breaches of This Agreement . . . . . . . . . . . . 28
(a) Survival of Representations and Warranties. . . . . . . . 29
-ii-
<PAGE>
TABLE OF CONTENTS
(Continued)
PAGE
----
(b) Other Indemnification Provisions . . . . . . . . . . . . 29
ARTICLE IX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(a) Termination of Agreement . . . . . . . . . . . . . . . . 32
(b) Effect of Termination . . . . . . . . . . . . . . . . . . 32
ARTICLE X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
10. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . 32
(a) Press Releases and Public Announcements . . . . . . . . . 33
(b) Entire Agreement . . . . . . . . . . . . . . . . . . . . 33
(c) Succession and Assignment's Parties in Interest . . . . . 33
(d) Counterparts. . . . . . . . . . . . . . . . . . . . . . . 33
(e) Headings. . . . . . . . . . . . . . . . . . . . . . . . . 33
(f) Notices . . . . . . . . . . . . . . . . . . . . . . . . . 33
(g) Governing Law . . . . . . . . . . . . . . . . . . . . . . 35
(h) Amendments and Waivers . . . . . . . . . . . . . . . . . 35
(i) Severability . . . . . . . . . . . . . . . . . . . . . . 35
(j) Expenses. . . . . . . . . . . . . . . . . . . . . . . . . 35
(k) Construction . . . . . . . . . . . . . . . . . . . . . . 35
(l) Incorporation of Exhibits and Schedules . . . . . . . . . 35
(m) Submission to Jurisdiction . . . . . . . . . . . . . . . 35
Exhibit A--Financial Statements
Exhibit B1--Form of Registration Rights Agreement
Exhibit B2--Form of Investor Representation Certificate
Exhibit B3--Form of General Release
Exhibit C--Form of Opinion of Counsel to the Sellers
Exhibit D--Form of Opinion of Counsel to the Buyer
Disclosure Schedule--Exceptions to Representations and Warranties of Sellers
-iii-
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PURCHASE AGREEMENT
This Agreement is entered into as of July 1, 1998, by and among The
North Face, Inc. ("TNF"), a Delaware corporation (the "BUYER"), La Sportiva
USA, Inc. ("LUSA"), a Colorado corporation (the "COMPANY"), Mr. Colin Lantz,
Mr. C. Edward Sampson and Mr. Heinz Mariacher, each a shareholder of the
Company (each a "SELLER" and collectively, the "SELLERS"). The Buyer, the
Company and the Sellers are referred to collectively herein as the "PARTIES."
RECITALS
A. The Sellers in the aggregate own one hundred percent (100%) of
the outstanding common stock, no par value, of the Company.
B. This Agreement contemplates a transaction in which the Buyer will
purchase (the "PURCHASE") from the Sellers, and the Sellers will sell to the
Buyer, all of the common stock of the Company held by Sellers (the "PURCHASED
SHARES") in exchange for the Purchase Price (as set forth herein).
C. The Parties agree that a specified fraction of the Earn Out
Amount portion of the Purchase Price paid by the Buyer shall be subject to
set-off, contingent on certain events and conditions, as security for the
performance of Sellers' obligations and the accuracy of the Sellers'
representations and warranties.
D. The Buyer and the Sellers desire to make certain representations
and warranties and other agreements in connection with the Purchase.
E. In connection with and as a condition of the execution and
delivery of this Agreement the Parties are entering into a Registration
Rights Agreement and certain other Collateral Documents.
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows:
ARTICLE I
1. DEFINITIONS.
"AFFILIATE" shall mean with respect to any Person, (a) any other Person
at the time directly or indirectly controlling, controlled by or under direct
or indirect common control with such Person, (b) any Person of which such
person at the time owns or has the right to acquire, directly or indirectly,
twenty percent (20%) or more of any class of the capital stock or beneficial
interest, (c) any other Person which at the time owns, or has the right to
acquire, directly or indirectly, twenty percent (20%) or more of any class of
capital stock or beneficial interest of such Person, (d) any executive
officer or director of such
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person, (e) with respect to any partnership, joint venture or similar entity,
any general partner thereof and (f) any individual's immediate family or
family trust.
"BASIS" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
"BUYER" has the meaning set forth in the preface above.
"BUYER COMMON STOCK" shall mean the common stock, par value $0.0025, of
Buyer.
"CLAIMS PERIOD" shall mean one year or eighteen months from the Closing
Date, as the case may be, as designated in Article 8(a). As set forth in
Article 8(a) Buyer may only recover for Losses or for an action or event that
later causes Losses that arises during the relevant Claims Period.
"CLOSING" has the meaning set forth in Article 2(c) below.
"CLOSING DATE" has the meaning set forth in Article 2(c) below.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COLLATERAL DOCUMENTS" shall mean Exhibit B-1 to B-3.
"COMPANY" shall mean La Sportiva USA, Inc., a Colorado corporation.
"COMPANY SHARES" shall mean the common stock, no par value, of the
Company.
"CONFIDENTIAL INFORMATION" means any information concerning the
businesses and affairs of the Buyer and the Company that is not already
generally available to the public.
"DISCLOSURE SCHEDULE" has the meaning set forth in Article 4 below.
"EARN OUT AMOUNT" shall have the meaning set forth in Article 2(b).
"EMPLOYEE BENEFIT PLAN" means any (a) deferred compensation or
retirement plan or arrangement, (b) defined contribution retirement plan or
arrangement, (c) defined benefit retirement plan or arrangement, or (d)
material fringe benefit or other retirement, bonus, or incentive plan or
program, either formally adopted by the Company or consistently implemented
in the Ordinary Course of Business (including the Variable Pay System, Profit
Sharing Plan and annual bonuses, each as fully described in the Disclosure
Schedule).
"ENVIRONMENTAL, HEALTH, AND SAFETY REQUIREMENTS" shall mean all
national, provincial, regional, federal, state, local and foreign statutes,
regulations, ordinances and other provisions having
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the force or effect of law, all judicial and administrative orders and
determinations, all contractual obligations and all common law concerning
public health and safety, worker health and safety, and pollution or
protection of the environment, including without limitation all those
relating to the presence, use, production, generation, handling,
transportation, treatment, storage, disposal, distribution, labeling,
testing, processing, discharge, release, threatened release, control, or
cleanup of any hazardous materials, substances or wastes, chemical substances
or mixtures, pesticides, pollutants, contaminants, toxic chemicals, petroleum
products or byproducts, asbestos, polychlorinated biphenyls, noise or
radiation, each as amended and as now or hereafter in effect.
"FINANCIAL STATEMENT" has the meaning set forth in Article 4(g) below.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"HART-SCOTT-RODINO ACT" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"INTELLECTUAL PROPERTY" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements
thereto, and all patents, patent applications, and patent disclosures,
together with all reissuances, continuations, continuations-in-part,
revisions, extensions, and reexaminations thereof, (b) all trademarks,
service marks, trade dress, logos, trade names, and corporate names, together
with all translations, adaptations, derivations, and combinations thereof and
including all goodwill associated therewith, and all applications,
registrations, and renewals in connection therewith, (c) all copyrightable
works, all copyrights, and all applications, registrations, and renewals in
connection therewith, (d) all mask works and all applications, registrations,
and renewals in connection therewith, (e) all trade secrets and confidential
business information (including ideas, research and development, know-how,
formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing
plans and proposals), (f) all computer software (including data and related
documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"KNOWLEDGE" means actual knowledge, or such knowledge as would be
imputed to a reasonably prudent business person considering the underlying
facts and circumstances.
"LIABILITY" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"MATERIAL ADVERSE CHANGE" means any change(s), event(s) or condition(s)
that, individually or in the aggregate result(s) in a Loss (as defined in
Article VIII) in excess of $10,000.
"MOST RECENT BALANCE SHEET" means the balance sheet contained within the
Most Recent Financial Statements.
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"MOST RECENT FINANCIAL STATEMENTS" has the meaning set forth in Article
4(g) below.
"MOST RECENT FISCAL MONTH END" has the meaning set forth in Article 4(g)
below.
"MOST RECENT FISCAL YEAR END" has the meaning set forth in Article 4(g)
below.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity
and frequency).
"PARTIES" has the meaning set forth in the preface above.
"PERSON" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, limited
liability company, an unincorporated organization, or a governmental entity
(or any department, agency, or political subdivision thereof).
"PURCHASE PRICE" has the meaning set forth in Article 2(b) below.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"SECURITY INTEREST" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar liens, (b) liens for Taxes not yet due and payable, (c) purchase
money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business
and not incurred in connection with the borrowing of money.
"SELLER(S)" has the meaning set forth in the preface above.
"SUBSIDIARY" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has
the power to vote or direct the voting of sufficient securities to elect a
majority of the directors.
"TAX" means any national, provincial, regional, federal, state, local,
or foreign income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, windfall profits, environmental,
customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or
add-on minimum, estimated, or other tax of any kind whatsoever, including any
interest, penalty, or addition thereto, whether disputed or not.
"TAX RETURN" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
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"TERMINATION DATE" means July 31, 1998.
"THIRD PARTY CLAIM" has the meaning set forth in Article VIII below.
ARTICLE II
2. PURCHASE AND SALE OF COMPANY SHARES.
(a) BASIC TRANSACTION. On and subject to the terms and
conditions of this Agreement, the Buyer agrees to purchase from each of the
Sellers, and each of the Sellers agrees to sell to the Buyer, all Company
Shares owned by him, in the amount set forth in SCHEDULE 1 hereto, for the
consideration specified below in this Article II, which Company Shares shall
in the aggregate comprise the Purchased Shares.
(b) PURCHASE PRICE.
(i) The Buyer agrees to deliver to the Sellers at the
Closing an aggregate of 133,335 shares of Buyer Common Stock (the
"PURCHASE PRICE") allocated among the Sellers as set forth in SCHEDULE I
hereto. The Parties hereto have entered into a Registration Rights
Agreement attached hereto as EXHIBIT B-1 which sets forth their
respective rights and obligations in connection with the shares of Buyer
Common Stock that comprise the Purchase Price. In the event that the SEC
has not declared a Registration Statement (as defined in the
Registration Rights Agreement) with respect to the Registerable
Securities (as defined in the Registration Rights Agreement) effective
prior to ten days following the Closing Date (the "First Delay") the
Buyer shall pay each Seller a pro rata share of $9,000, payable in cash
within (10) days of such First Delay (a "Delay Payment"). Further at the
end of each (30) day period subsequent to the First Delay, and until the
one year anniversary of the Closing Date (after which no further Delay
Payments shall accrue), if a Registration Statement with respect to the
Registerable Securities has not been declared effective by the SEC Buyer
shall make a Delay Payment; PROVIDED, HOWEVER, that each Delay Payment
made after the 70th calendar day following the Closing Date shall be in
an aggregate amount of $18,000 (paid pro-rata among the Sellers).
(ii) EARN OUT AMOUNT. In addition to the Purchase Price, in
consideration of the Purchased Shares, Buyer will deliver to each
Seller, $50,000 per year for a five year period beginning on the first
anniversary of the Closing Date (the "EARN OUT AMOUNT"). In no event
shall the aggregate Earn Out Amount exceed $250,000 for any Seller, or
$750,000 for all Sellers. Each annual payment comprising a portion of
the Earn Out Amount will be paid in the form of unrestricted, publicly
tradable shares of the common stock of the Buyer (valued at the closing
bid price on NASDAQ as of the third trading day prior to the date such
shares become due pursuant to this Article II(b)(ii)). The Earn Out
Amount shall be subject to a right of set-off as set forth in Article
VIII.
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(c) THE CLOSING. The closing of the transactions contemplated by
this Agreement (the "CLOSING") shall take place at the offices of LUSA, 3280
Pearl Street, Boulder, Colorado 80301 or such other place as Buyer and
Sellers mutually determine, upon the satisfaction or waiver of all conditions
to the obligations of the Parties to consummate the transactions contemplated
hereby (other than conditions with respect to actions the respective Parties
will take at the Closing itself) or such other date as the Buyer and the
Sellers may mutually determine (the "CLOSING DATE"); PROVIDED, HOWEVER, that
the Closing Date must occur no later than the Termination Date.
(d) DELIVERIES AT THE CLOSING. At the Closing, (i) the Sellers
will deliver to the Buyer the various certificates, instruments, and
documents referred to in Article 7(a) below, (ii) the Buyer will deliver to
the Sellers the various certificates, instruments, and documents referred to
in Article 7(b) below, (iii) each of the Sellers will deliver to the Buyer
stock certificates representing the number of his Company Shares set forth in
SCHEDULE I hereto, endorsed in blank or accompanied by duly executed
assignment documents, and (iv) the Buyer will deliver to the Sellers the
number of shares of Buyer Common Stock as set forth in Article 2(b) above.
The Buyer will file a Registration Statement (as defined in the Registration
Rights Agreement) within three (3) SEC working days following the Closing
Date.
(e) PURCHASE PRICE ADJUSTMENT. The Purchase Price will be
subject to adjustment as follows:
(i) CLOSING BALANCE SHEET. As soon as practicable (but in
no event later than 30 days) following the Closing, the Company will, at
the expense of the Buyer, prepare and cause to be audited by Deloitte &
Touche LLP, independent accountants, and the Company will deliver to
Buyer and the Sellers' Agent (as defined in Article VIII), a balance
sheet of the Company as of the Closing Date (the "CLOSING BALANCE
SHEET"). The Closing Balance Sheet will be prepared in accordance with
GAAP or consistent with the basis of accounting and procedures and
methods employed by the Company in its Financial Statements, as defined
in Article 4(g) below, delivered on the Closing Date pursuant to Article
4(g). During the conduct of the audit, the Company will cooperate in all
respects with the independent auditors for the purposes of completing
the Closing Balance Sheet. In addition, the Company and the independent
auditors shall be available for periodic inquiry by Buyer, the Sellers'
Agent and the Company, and the independent auditors will answer such
questions as Buyer or the Sellers' Agent may have and provide such
additional schedules and materials as Buyer or the Sellers' Agent may
reasonably request in order to permit a meaningful review of the Closing
Balance Sheet.
(ii) DEFINITION. "TANGIBLE NET WORTH" will mean the
aggregate of all tangible assets (net of all reserves and excluding all
intangible assets, including without limitation, all goodwill and
capitalized software), less all liabilities of any kind (including
without limitation accounts payable, royalties payable, warranty
reserves, deferred revenue, litigation reserves, and debt and other
liabilities, but excluding, write-downs for inventory deemed to be
slow-moving or obsolete, and properly accrued bonuses (including the
bonus to Kellie Beran of $10,500), accrued vacation, ordinary course
employee expense obligations, the $10,000 paid to La Sportiva S.r.l.
to repurchase Company Common Stock, and legal and professional fees
incurred in relation
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to the transactions contemplated by this Agreement) determined in
accordance with GAAP or consistent with the basis of accounting and
procedures and methods employed by the Company in its Financial
Statements and the considerations specified in Section 4(g) of the
Disclosure Schedule.
(iii) DISPUTES. At any time within 30 days following the
delivery of the Closing Balance Sheet to Buyer and the Sellers' Agent
(the "REVIEW PERIOD"), Buyer or the Sellers' Agent may dispute any
amounts reflected or not reflected on the Closing Balance Sheet to the
extent the net effect of all such disputed amounts in the aggregate
would affect the Tangible Net Worth amount, but only on the basis that
such amounts were not arrived at in accordance with GAAP or consistent
with the basis of accounting and procedures and methods employed by the
Company in its Financial Statements; each of Buyer and the Sellers'
Agent will notify the other in writing of each such disputed item, and
will specify the amount thereof in dispute, not later than the
expiration of the Review Period. If Buyer and the Sellers' Agent are
able to resolve all the disputed items, then the Closing Balance Sheet
agreed upon by Buyer and the Sellers' Agent will be final, binding and
conclusive on the parties hereto. If Buyer and the Sellers' Agent are
unable to resolve any disputed item and are therefore unable to agree as
to the Closing Balance Sheet and the resultant Tangible Net Worth amount
within 20 days following the expiration of the Review Period, then
within 10 days thereafter either Buyer or the Sellers' Agent may elect
that the items remaining in dispute be submitted for resolution to a
nationally recognized accounting firm (the member of which who will be
primarily responsible for resolving such disputes will have had
substantial auditing experience and substantial experience in
arbitration or other dispute resolution proceedings concerning
accounting issues) selected by mutual agreement of Buyer and the
Sellers' Agent (or failing such agreement between Buyer and the Sellers'
Agent, as selected by mutual agreement between Buyer's independent
accountants and the Company's independent accountants, or failing such
agreement, appointed by the American Arbitration Association) (the
"ACCOUNTANTS"). The Accountants will, within 30 days after submission,
determine, based solely on presentations by Buyer and the Sellers' Agent
(and their representatives) and not by independent review, and render a
written report to the parties upon, such remaining disputed items and
the resultant calculation of the Closing Balance Sheet and the Tangible
Net Worth amount in accordance with the provisions hereof, and such
report and the resultant Closing Balance Sheet will be final, binding
and conclusive on the parties hereto. In resolving any disputed item,
the Accountants may not assign a value to such item greater than the
greatest value for such item claimed by either party or less than the
smallest value for such item claimed by either party. The fees and
disbursements of the Accountants (and of the American Arbitration
Association, if any) (a) will be paid with a set-off of the Earn Out
Amount pursuant to Article VIII if the Tangible Net Worth amount finally
determined pursuant to this Article II shall be more than $25,000 below
the Tangible Net Worth amount reflected on the Closing Balance Sheet
originally submitted pursuant to Article 2(f)(i) hereof, or (b) will be
borne by Buyer if the Tangible Net Worth amount finally determined
pursuant to this Article 2(f)(i) is less than $25,000 below the Tangible
Net Worth amount reflected on the Closing Balance Sheet originally
submitted pursuant to Article 2(f)(i) hereof. Buyer and the
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Sellers hereby agree to cooperate and work in good faith and as
expeditiously as reasonably possible to resolve any and all Closing
Balance Sheet disputes.
(iv) ADJUSTMENT. In the event that the Tangible Net Worth
of the Company as of the Closing Date as reported in the Closing Balance
Sheet is less than $1,230,000, then the Earn Out Amount shall be
reduced, and the amounts payable to the Sellers shall be reduced, to the
extent of such deficiency. Buyer shall provide written notice of such
deficiency to the Sellers' Agent pursuant to the provisions of Article
VIII, and the deficiency shall be payable to the Buyer as a set-off
claim thereunder (pursuant to the procedure set forth in such Article
VIII, except that no objection may be made by Sellers' Agent to a claim
submitted following the resolution of a dispute pursuant to Article
2(e)(iii)). In the event that the Tangible Net Worth of the Company as
of the Closing Date as reported in the Closing Balance Sheet is greater
than $1,230,000 then Buyer will within 30 days deliver to each Seller
cash (without interest) equal to a pro rata portion of amount the
Tangible Net Worth exceeds $1,230,000.
ARTICLE III
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
(a) REPRESENTATIONS AND WARRANTIES OF THE SELLERS. Except as set
forth in the Disclosure Schedule attached hereto, each of the Sellers
severally (but not jointly) represents and warrants to the Buyer that the
statements contained in this Article 3(a) are correct and complete as of the
date of this Agreement and will be correct and complete as of the Closing
Date (as though made then and as though the Closing Date were substituted for
the date of this Agreement throughout this Article 3 (a)) with respect to
himself.)
(i) AUTHORIZATION OF TRANSACTION. Each Seller has full
power and authority to execute and deliver this Agreement and to perform
his obligations hereunder. This Agreement constitutes the valid and
legally binding obligation of each Seller, enforceable in accordance
with its terms and conditions. To the best of Sellers' Knowledge none of
the Sellers need give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental
agency in order to consummate the transactions contemplated by this
Agreement.
(ii) NONCONTRAVENTION. Except as set forth in Section
3(a)(ii) of the Disclosure Schedule, neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court to
which any Seller is subject or (B) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel, or require
any notice under any agreement, contract, lease, license, instrument, or
other arrangement to which any Seller is a party or by which he is bound
or to which any of his assets is subject.
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(iii) BROKERS' FEES. None of the Sellers has any Liability
or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement or
the Collateral Documents for which the Buyer could become liable or
obligated.
(iv) COMPANY SHARES. Each Seller holds of record and owns
beneficially the number of Company Shares set forth next to his name in
Section 4(b) of the Disclosure Schedule, free and clear of any
restrictions on transfer (other than any restrictions under the
Securities Act and state securities laws), Taxes, Security Interests,
options, warrants, purchase rights, contracts, commitments, equities,
claims, and demands. None of the Sellers is a party to any option,
warrant, purchase right, or other contract or commitment that could
require any Seller to sell, transfer, or otherwise dispose of any
capital stock of the Company (other than this Agreement). None of the
Sellers is a party to any voting trust, proxy, or other agreement or
understanding with respect to the voting of any capital stock of the
Company. Each Seller is solvent.
(b) REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer
represents and warrants to each of the Sellers that the statements contained
in this Article 3(b) are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of
this Agreement throughout this Article 3(b)).
(i) ORGANIZATION AND CAPITALIZATION OF THE BUYER. The
Buyer is a corporation duly organized, validly existing, and in good
standing under the laws of the jurisdiction of its incorporation. The
entire authorized capital stock of the Buyer consists of 50,000,000
shares, par value .0025 per share, of Common Stock, of which as of June
12, 1998 12,355,920 were issued and outstanding; and 4,000,000 shares of
Series A Preferred Stock, par value $1.00 per share, of which as of June
12, 1998 none were issued and outstanding.
(ii) AUTHORIZATION OF TRANSACTION. The Buyer has full
power and authority (including full corporate power and authority) to
execute and deliver this Agreement and to perform its obligations
hereunder. The person signing this Agreement on behalf of the Buyer has
full corporate authority to do so. No further approval of the Buyer's
Board of Directors is required in order for this Agreement and the
Collateral Documents to constitute and they do constitute the valid and
legally binding obligation of the Buyer, enforceable in accordance with
their terms and conditions. The Buyer need not give any notice to, make
any filing with, or obtain any authorization, consent, or approval of
any government or governmental agency in order to consummate the
transactions contemplated by this Agreement.
(iii) NONCONTRAVENTION. Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will violate any constitution, statute, regulation,
rule, injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which
the Buyer is subject or any provision of its charter or bylaws.
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(iv) BROKERS' FEES. The Buyer has no Liability or
obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement or
the Collateral Documents for which any Seller could become liable or
obligated.
ARTICLE IV
4. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY. Except as
set forth in the disclosure schedule delivered by the Sellers to the Buyer on
the date hereof and initialed by the Parties (the "DISCLOSURE SCHEDULE"), the
Company and Sellers jointly and severally represent and warrant to the Buyer
that the statements contained in this Article 4 are correct and complete as
of the date of this Agreement and will be correct and complete as of the
Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Article 4). The
mere listing (unless a copy is included and incorporated) of a document or
other item shall not be deemed adequate to disclose an exception to a
representation or warranty made herein (unless the representation or warranty
has to do with the existence of the document or other item itself). The
Disclosure Schedule will be arranged in paragraphs corresponding to the
lettered and numbered paragraphs contained in this Article IV.
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. The
Company is a corporation duly organized, validly existing, and in good
standing under the laws of Colorado. The Company is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required, except to the extent such failure to be
in good standing would not have a Material Adverse Effect. The Company has
full corporate power and authority and all licenses, permits and
authorizations necessary to carry on the businesses in which it is engaged
and in which it presently proposes to engage and to own and use the
properties owned and used by it. Section 4(a) of the Disclosure Schedule
lists the directors and officers of the Company. The Sellers have made
available to the Buyer correct and complete copies of the charter and bylaws
of the Company (as amended to date). To the best of Sellers Knowledge, prior
to December 31, 1994, and since December 31, 1994 (without any Knowledge
qualifier) the minute books (containing the records of meetings of the
stockholders, the board of directors, and any committees of the board of
directors), the stock certificate books, and the stock record books of the
Company are correct and complete. The Company is not in default under or in
violation of any provision of its charter or bylaws.
(b) CAPITALIZATION. The entire authorized capital stock of the
Company consists of 50,000 Company Shares, of which 15,000 Company
Shares are issued and outstanding; 100,000 shares of Class A Preferred
Stock, of which 63,271 shares are issued and outstanding; 20,000 shares
of Class B Preferred Stock of which none are issued and outstanding; no
Company Shares or Preferred Stock of any Class are held in treasury. All
of the issued and outstanding Company Shares have been duly authorized,
are validly issued, fully paid, and nonassessable. The Purchased Shares
are held of record by the respective Sellers as set forth in Section
4(b) of the Disclosure Schedule. As of the Closing there are no
outstanding or authorized options, warrants, purchase rights, rights of
first refusal, subscription rights, conversion rights, exchange rights,
or other contracts or commitments that could require the Company to
issue, sell, or otherwise cause to become outstanding any of its capital
stock; and there are
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no outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to the Company. There are no
voting trusts, proxies, or other agreements or understandings with respect to
any of the voting of the capital stock of the Company.
(c) NONCONTRAVENTION. Neither the execution and the delivery of
this Agreement and the Collateral Documents, nor the consummation of the
transactions contemplated hereby or thereby, will (i) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency,
or court to which the Company is subject or any provision of the charter or
bylaws of the Company or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which the Company is a party or by which it is bound or to
which any of its assets is subject (or result in the imposition of any
Security Interest upon any of its assets). Except as set forth in Section
4(c) of the Disclosure Schedule, the Company does not need to give any notice
to, make any filing with, or obtain any authorization, consent, or approval
of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
(d) BROKERS' FEES. The Company has no Liability or obligation
to pay any fees or commissions to any broker, finder, or agent with respect
to the transactions contemplated by this Agreement or the Collateral
Documents.
(e) TITLE TO ASSETS. The Company has good and marketable title
to, or a valid leasehold interest in, the properties and assets used by it,
located on its premises, or shown on the Most Recent Balance Sheet or
acquired after the date thereof, free and clear of all Security Interests,
except for properties and assets disposed of in the Ordinary Course of
Business since the date of the Most Recent Balance Sheet.
(f) SUBSIDIARIES. The Company does not have and has never had
any subsidiaries. The Company does not control directly or indirectly or have
any direct or indirect equity participation in any corporation, partnership,
trust, or other business association which is not a subsidiary of the Company.
(g) FINANCIAL STATEMENTS. The Sellers have provided and made
available to Buyer Company Financial Statements that fairly and accurately
represent the financial condition of the Company. Attached hereto as EXHIBIT
A are the following financial statements (collectively the "FINANCIAL
STATEMENTS"): (i) unaudited Balance Sheets and Statements of Income, changes
in stockholders' equity, and cash flow as of and for the fiscal years ended
September, 1995, 1996, and 1997, (the "MOST RECENT FISCAL YEAR END"); and
(ii) unaudited Balance Sheets and Statements of Income (the "MOST RECENT
FINANCIAL STATEMENTS") as of and for the eight months ended May, 1998 (the
"MOST RECENT FISCAL MONTH END") for the Company. Except as set forth in
Section 4(g) of the Disclosure Schedule, the Financial Statements (including
the notes thereto) have been prepared in accordance with GAAP or consistent
with the basis of accounting and procedures and methods employed by the
Company in its Financial Statements applied on a consistent basis throughout
the periods covered
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thereby, present fairly the financial condition of the Company as of such
dates and the results of operations of the Company for such periods, are
correct and complete and are consistent with the books and records of the
Company (which books and records are correct and complete).
(h) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END. Except as
set forth in Section 4(h) of the Disclosure Schedule, since the Most Recent
Fiscal Year End, there has not been any Material Adverse Change in the
business, financial condition, operations, results of operations, of the
Company. Without limiting the generality of the foregoing, except as set
forth in the Disclosure Schedule, since that date:
(i) the Company has not sold, leased, transferred, or
assigned any of its assets, tangible or intangible, other than for a
fair consideration in the Ordinary Course of Business;
(ii) the Company has not entered into any agreement,
contract, lease, or license (or series of related agreements, contracts,
leases, and licenses) either involving more than $10,000 or outside the
Ordinary Course of Business;
(iii) no party (including the Company) has accelerated,
terminated, modified, or canceled any agreement, contract, lease, or
license (or series of related agreements, contracts, leases, and
licenses) involving more than $10,000 to which the Company is a party or
by which it is bound;
(iv) the Company has not imposed or has had imposed upon
it any Security Interest upon any of its assets, tangible or intangible
except in the Ordinary Course of Business and consistent with prior
practice;
(v) the Company has not made any capital expenditure (or
series of related capital expenditures) either involving more than
$10,000 or outside the Ordinary Course of Business;
(vi) the Company has not made any capital investment in,
any loan to, or any acquisition of the securities or assets of, any
other Person (or series of related capital investments, loans, and
acquisitions) either involving more than $10,000 or outside the Ordinary
Course of Business;
(vii) the Company has not issued any note, bond, or other
debt security or created, incurred, assumed, or guaranteed any
indebtedness for borrowed money or capitalized lease obligation either
involving more than $10,000 singly or $25,000 in the aggregate;
(viii) the Company has not delayed or postponed the payment
of accounts payable and other Liabilities outside the Ordinary Course of
Business;
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(ix) the Company has not canceled, compromised, waived,
or released any right or claim (or series of related rights and claims)
either involving more than $10,000 in any single instance or $25,000 in
the aggregate or outside the Ordinary Course of Business;
(x) the Company has granted any license or sublicense of
any rights under or with respect to any Intellectual Property;
(xi) there have been no changes authorized or made in the
charter or bylaws of the Company since May 30, 1998;
(xii) the Company has not issued, sold, or otherwise
disposed of any of its capital stock, or granted any options, warrants,
or other rights to purchase or obtain (including upon conversion,
exchange, or exercise) any of its capital stock;
(xiii) the Company has not declared, set aside, or paid any
dividend or made any distribution with respect to its capital stock
(whether in cash or in kind) or redeemed, purchased, or otherwise
acquired any of its capital stock;
(xiv) the Company has not experienced any damage,
destruction, or loss (whether or not covered by insurance) to its
property in excess of $10,000 in the aggregate;
(xv) the Company has not made any loan to, or entered
into any other transaction with, any of its directors, officers, and
employees outside the Ordinary Course of Business;
(xvi) the Company has not entered into any employment
contract or collective bargaining agreement, written or oral, or
modified the terms of any existing such contract or agreement;
(xvii) the Company has not granted any increase in the base
compensation of any of its directors, officers, and employees outside
the Ordinary Course of Business;
(xviii) the Company has not adopted, amended, modified, or
terminated any bonus, profit-sharing, incentive, severance, or other
plan, contract, or commitment for the benefit of any of its directors,
officers, and employees (or taken any such action with respect to any
other Employee Benefit Plan);
(xix) the Company has not made any other change in
employment terms for any of its directors, officers, and employees
outside the Ordinary Course of Business;
(xx) the Company has not made or pledged to make any
charitable or other capital contribution outside the Ordinary Course of
Business;
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(xxi) there has not been any other material occurrence,
event, incident, action, failure to act, or transaction outside the
Ordinary Course of Business involving the Company; and
(xxii) the Company has not committed to any of the
foregoing.
(i) UNDISCLOSED LIABILITIES. The Company has no Liability (and
to the best of Sellers' Knowledge there is no Basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim,
or demand against any of them giving rise to any Liability), except for (i)
Liabilities set forth on the face of the Most Recent Balance Sheet (rather
than in any notes thereto) and (ii) Liabilities which have arisen after the
Most Recent Fiscal Month End in the Ordinary Course of Business (none of
which results from, arises out of, relates to, is in the nature of, or was
caused by any breach of contract, breach of warranty, tort, infringement, or
violation of law), and (iii) except for Liabilities contained in the
Disclosure Schedule.
(j) LEGAL COMPLIANCE. To the best of Sellers' Knowledge prior
to December 31, 1994, and since December 31, 1994 (without any Knowledge
qualifier) the Company and its predecessors have complied with all applicable
laws (including rules, regulations, codes, plans, injunctions, judgments,
orders, decrees, rulings, and charges thereunder) of national, provincial,
federal, state, regional, local, and foreign governments (and all agencies
thereof), and no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand, or notice has been filed or commenced against any
of them alleging any failure so to comply. Section 4(j) of the Disclosure
Schedule accurately lists each consent, license, permit, grant or other
authorization issued to the Company by a Governmental Entity (i) pursuant to
which the Company currently operates or holds any interest in any of its or
their properties or (ii) which is required for the operation of its or their
business or the holding of any such interest (herein collectively called
"COMPANY AUTHORIZATIONS"), which Company Authorizations are in full force and
effect and constitute all Company Authorizations required to permit the
Company to operate or conduct its business or hold any interest in their
properties or assets.
(k) TAX MATTERS.
(i) To the best of Sellers' Knowledge prior to December
31, 1994, and since December 31, 1994 (without any Knowledge qualifier)
the Company has filed all Tax Returns that it was required to file. All
such Tax Returns were correct and complete in all material respects.
All Taxes owed by the Company (whether or not shown on any Tax Return)
have been paid. The Company currently is not the beneficiary of any
extension of time within which to file any Tax Return. No claim has ever
been made by an authority in a jurisdiction where the Company does not
file Tax Returns that it is or may be subject to taxation by that
jurisdiction. There are no Security Interests on any of the assets of
the Company that arose in connection with any failure (or alleged
failure) to pay any Tax.
(ii) To the best of Sellers' Knowledge prior to December
31, 1994, and since December 31, 1994 (without any Knowledge qualifier)
the Company has withheld and paid all
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Taxes required to have been withheld and paid in connection with amounts
paid or owing to any employee, independent contractor, creditor,
stockholder, or other third party.
(iii) No Seller or director or officer of the Company
expects any authority to assess any additional Taxes for any period for
which Tax Returns have been filed. There is no dispute or claim
concerning any Tax Liability of the Company either (A) claimed or raised
by any authority in writing or (B) as to which any of the Sellers and
the directors and officers (and employees responsible for Tax matters)
of the Company has Knowledge based upon personal contact with any agent
of such authority. Section 4(k) of the Disclosure Schedule lists all
national, provincial, federal, state, regional, local, and foreign
income Tax Returns filed with respect to the Company for taxable periods
ended on or after September 30, 1996 and September 30, 1997 indicates
those Tax Returns that have been audited, and indicates those Tax
Returns that currently are the subject of audit. The Sellers have
provided Buyer access to correct and complete copies of all Tax Returns,
examination reports, and statements of deficiencies assessed against or
agreed to by the Company since September 30, 1996.
(iv) To the best of Sellers' Knowledge prior to December
31, 1994, and since December 31, 1994 (without any Knowledge qualifier)
the Company has not waived any statute of limitations in respect of
Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(v) The unpaid Taxes of the Company (A) did not, as of
the Most Recent Fiscal Month End, exceed the reserve for Tax Liability
in accordance with the past custom and practice of the Company and (B)
do not exceed that reserve as adjusted for the passage of time through
the Closing Date in accordance with the past custom and practice of the
Company in filing their Tax Returns.
(l) REAL PROPERTY.
(i) The Company does not own nor has agreed or is
otherwise committed to purchase any real property.
(ii) Section 4(l)(ii) of the Disclosure Schedule lists
and describes briefly all real property leased or subleased to the
Company. The Sellers have delivered to the Buyer correct and complete
copies of the leases and subleases (as amended to date) listed in
Section 4(l)(ii) of the Disclosure Schedule. With respect to each lease
and sublease listed in Section 4(l)(ii) of the Disclosure Schedule:
(A) the lease or sublease is in full force and
effect and to the best of Sellers' Knowledge legal, valid, binding,
enforceable, and
(B) the lease or sublease will continue to be
legal, valid, binding, enforceable, and in full force and effect on
identical terms following the consummation of the transactions
contemplated hereby;
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<PAGE>
(C) no party to the lease or sublease is in breach
or default, and no event has occurred which, with notice or lapse
of time, would constitute a breach or default or permit
termination, modification, or acceleration thereunder;
(D) no party to the lease or sublease has
repudiated any provision thereof;
(E) there are no disputes, oral agreements, or
forbearance programs in effect as to the lease or sublease;
(F) the Company has not assigned, transferred,
conveyed, mortgaged, deeded in trust, or encumbered any interest in
the leasehold or subleasehold;
(G) all facilities leased or subleased thereunder
have received all approvals of governmental authorities (including
licenses and permits) required in connection with the operation
thereof and have been operated and maintained in accordance with
applicable laws, rules, and regulations;
(H) all facilities leased or subleased thereunder
are supplied with utilities and other services necessary for the
operation of said facilities; and
(I) to the best of Sellers' Knowledge the owner of
the facility leased or subleased has good and marketable title to
the parcel of real property, free and clear of any Security
Interest, easement, covenant, or other restriction, except for
installments of special easements not yet delinquent and recorded
easements, covenants, and other restrictions which do not impair
the current use, occupancy, or value, or the marketability of
title, of the property subject thereto.
(m) INTELLECTUAL PROPERTY.
(i) The Company owns or has the right to use pursuant to
license, sublicense, agreement, or permission all Intellectual Property
necessary for the operation of the businesses of the Company as
presently conducted and as presently proposed to be conducted. Each item
of Intellectual Property owned or used by the Company immediately prior
to the Closing hereunder will be owned or available for use by the
Company on identical terms and conditions immediately subsequent to the
Closing hereunder. The Company has taken all action reasonably necessary
to maintain and protect each item of Intellectual Property that it owns
or uses.
(ii) The Company has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of third parties, and none of the Sellers and the
directors and officers of the Company has ever received any charge,
complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that
the Company must license or refrain from using any Intellectual Property
rights of any third party). To the Knowledge of any of the
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Sellers and the directors and officers of the Company, no third party
has interfered with, infringed upon, misappropriated, or otherwise come
into conflict with any Intellectual Property rights of the Company.
(iii) Section 4(m)(iii) of the Disclosure Schedule
identifies each patent or trademark registration which has been issued
to the Company with respect to any of its Intellectual Property,
identifies each pending patent application or application for trademark
registration which the Company has made with respect to any of its
Intellectual Property, and identifies each license, agreement, or other
permission which the Company has granted to any third party with respect
to any of its Intellectual Property (together with any exceptions). The
Sellers have made available to the Buyer correct and complete copies of
all such patents, trademark registrations, applications, licenses,
agreements, and permissions (as amended to date) and have made available
to the Buyer correct and complete copies of all other written
documentation evidencing ownership and prosecution (if applicable) of
each such item. Section 4(m)(iii) of the Disclosure Schedule also
identifies each trade name or unregistered trademark used by the Company
in connection with any of its businesses. With respect to each item of
Intellectual Property required to be identified in Section 4(m)(iii) of
the Disclosure Schedule:
(A) the Company possesses all right, title, and
interest in and to the item, free and clear of any Security
Interest, license, or other restriction;
(B) the item is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
(C) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or is
threatened which challenges the legality, validity, enforceability, use,
or ownership of the item; and
(D) the Company has never agreed to indemnify any
Person for or against any interference, infringement,
misappropriation, or other conflict with respect to the item.
(iv) Section 4(m)(iv) of the Disclosure Schedule identifies each
item of Intellectual Property that any third party owns and that the
Company uses pursuant to license, sublicense, agreement, or permission.
The Sellers have made available to the Buyer correct and complete copies
of all such licenses, sublicenses, agreements, and permissions (as
amended to date). With respect to each item of Intellectual Property
required to be identified in Section 4(m)(iv) of the Disclosure Schedule:
(A) the license, sublicense, agreement, or
permission coverning the item is legal, valid, binding,
enforceable, and in full force and effect;
(B) the license, sublicense, agreement, or
permission will continue to be legal, valid, binding, enforceable,
and in full force and effect on identical terms
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following the consummation of the transactions contemplated hereby
(including the assignments and assumptions referred to in Section 2
above);
(C) to the best of Sellers' Knowledge no party to
the license, sublicense, agreement, or permission is in breach or
default, and no event has occurred which with notice or lapse of
time would constitute a breach or default or permit termination,
modification, or acceleration thereunder;
(D) to the best of Sellers' Knowledge no party to
the license, sublicense, agreement, or permission has repudiated
any provision thereof;
(E) with respect to each sublicense, the
representations and warranties set forth in subsections (A) through
(D) above are true and correct with respect to the underlying
license;
(F) the underlying item of Intellectual Property is
not subject to any outstanding injunction, judgment, order, decree,
ruling, or charge;
(G) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or to
the best of Sellers' Knowledge is threatened which challenges the
legality, validity, or enforceability of the underlying item of
Intellectual Property; and
(H) the Company has not granted any sublicense or
similar right with respect to the license, sublicense, agreement,
or permission.
(v) To the Knowledge of any of the Sellers and the
directors and officers (and employees with responsibility for
Intellectual Property matters) of the Company, the Company will not
interfere with, infringe upon, misappropriate, or otherwise come into
conflict with, any Intellectual Property rights of third parties as a
result of the continued operation of its businesses as presently
conducted.
(n) TANIGIBLE ASSETS. The Company owns or leases all buildings,
machinery, equipment, and other tangible assets, other than inventory,
necessary for the conduct of its businesses as presently conducted. Each such
tangible asset is free from material defects (patent and latent), has been
maintained in accordance with normal industry practice, is in good operating
condition and repair (subject to normal wear and tear), and is suitable for
the purposes for which it presently is used.
(o) INVENTORY. The inventory of the Company consists of
purchased goods and finished goods, all of which to the best of Sellers'
Knowledge are merchantable and fit for the purpose for which they were
procured and none of which is damaged, or defective, except for defective
goods received from La Sportiva S.r.l.
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(p) CONTRACTS. Section 4(p) of the Disclosure Schedule lists
the following contracts and other agreements to which the Company is
currently a party:
(i) any agreement (or group of related agreements) for
the lease of personal property to or fromany Person providing for lease
payments in excess of $10,000 per annum;
(ii) any agreement (or group of related agreements) for
the purchase or sale of raw materials, commodities, supplies, products,
or other personal property, or for the furnishing or receipt of services,
the performance of which will extend over a period of more than one
year, result in a material loss to the Company, or involve consideration
in excess of $10,000;
(iii) any agreement concerning a partnership or joint
venture;
(iv) any agreement (or group of related agreements) under
which it has created, incurred, assumed, or guaranteed any indebtedness
for borrowed money, or any capitalized lease obligation, in excess of
$10,000 or under which it has imposed a Security Interest on any of its
assets, tangible or intangible;
(v) any agreement concerning confidentiality or
noncompetition;
(vi) any agreement with any of the Sellers and their
Affiliates (other than the Company);
(vii) any profit sharing, stock option, stock purchase,
stock appreciation, deferred compensation, severance, or other material
plan or arrangement for the benefit of its current or former directors,
officers, and employees;
(viii) any collective bargaining agreement;
(ix) any agreement for the employment of any individual
on a full-time, part-time, consulting, or other basis providing annual
compensation in excess of $25,000 (U.S.) or providing severance benefits;
(x) any agreement under which it has advanced or loaned
any amount to any of its directors, officers, and employees outside the
Ordinary Course of Business; or
(xi) any agreement under which the consequences of a
default or termination could have a Material Adverse Change on the
business, financial condition, operations, results of operations, or
future prospects of the Company.
The Sellers have made available and prior to the Closing will deliver to the
Buyer a correct and complete copy of each written agreement listed in Section
4(p) of the Disclosure Schedule (as amended to date) and a written summary
setting forth the terms and conditions of each oral agreement referred to in
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Section 4(p) of the Disclosure Schedule. With respect to each such agreement:
(A) the agreement is legal, valid, binding, enforceable, and in full force
and effect; (B) the agreement will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms following the
consummation of the transactions contemplated hereby; (C) no party is in
breach or default, and except as otherwise set forth in the Disclosure
Schedule no event has occurred which with notice or lapse of time would
constitute a breach or default, or permit termination, modification, or
acceleration, under the agreement; and (D) no party has repudiated any
provision of the agreement.
(q) NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts
receivable of the Company are reflected properly on their books and records,
are valid receivables subject to no setoffs or counterclaims, are current
and collectible, and to the best of Sellers' Knowledge will be collected in
accordance with their terms at their recorded amounts, subject only to the
item for bad debts set forth in the Company Financial Statements, Income
Statement and Annual Budget adjusted for the passage of time through the
Closing Date in accordance with the past custom and practice of the Company.
(r) POWERS OF ATTORNEY. To the best of Sellers' Knowledge,
prior to December 31, 1994, and since December 31, 1994 (without any
Knowledge qualifier) there have been no powers of attorney executed or
outstanding on behalf of the Company.
(s) INSURANCE. Section 4(s) of the Disclosure Schedule sets
forth the following information with respect to each insurance policy
(including policies providing property, casualty, liability, and workers'
compensation coverage and bond and surety arrangements) to which the Company
has been a party, a named insured, or otherwise the beneficiary of coverage
at any time within the past three (3) years:
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder,
and the name of each covered insured;
(iii) the policy number and the period of coverage;
With respect to each such insurance policy to the best of Sellers' Knowledge:
(A) the policy is legal, valid, binding, enforceable, and in full force and
effect; (B) the policy will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms following the
consummation of the transactions contemplated hereby; (C) neither the Company
nor any other party to the policy is in breach or default (including with
respect to the payment of premiums or the giving of notices), and no event
has occurred which, with notice or the lapse of time, would constitute such a
breach or default, or permit termination, modification, or acceleration,
under the policy; and (D) no party to the policy has repudiated any provision
thereof. The Company has been covered during the past three (3) years by
insurance in scope and amount customary and reasonable for the business in
which it has engaged during the aforementioned period. Section 4(s) of the
Disclosure Schedule describes any self-insurance arrangements affecting the
Company.
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(t) LITIGATION. Section 4(t) of the Disclosure Schedule sets
forth each instance in which the Company (i) is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (ii) is a party or
is threatened to be made a party to any action, suit, proceeding, hearing, or
investigation of, in, or before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or before any
arbitrator. None of the Sellers of the Company has any Basis to believe that
any such action, suit, proceeding, hearing, or investigation may be brought
or threatened against the Company.
(u) PRODUCT WARRANTY. Each product sold, leased, or delivered
the Company has been in conformity with all applicable contractual
commitments and all express and implied warranties, and the Company has no
material Liability (and to the best of Sellers' Knowledge there is no Basis
for any present or future action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand against any of them giving rise to any
material Liability) for replacement or repair thereof or other damages in
connection therewith, except as stated in the Company Income Statement and
Annual Budget as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Company. No product
manufactured, sold, leased, or delivered by the Company is subject to any
guaranty, warranty, or other indemnity beyond the applicable standard terms
and conditions of sale or lease. Section 4(u) of the Disclosure Schedule
includes copies of the standard terms and conditions of sale or lease for the
Company (containing applicable guaranty, warranty, and indemnity provisions).
(v) PRODUCT LIABILITY. The Company has no material Liability
(and to the best of Sellers' Knowledge there is no Basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against any of them giving rise to any material Liability)
arising out of any injury to individuals or property as a result of the
ownership, possession, or use of any product manufactured, sold, leased, or
delivered by the Company.
(w) EMPLOYEES. The Company is not a party to or bound by any
collective bargaining agreement, nor has it experienced any strikes,
grievances, claims of unfair labor practices, or other collective bargaining
disputes. The Company has not committed any unfair labor practice. None of
the Sellers and the directors and officers (and employees with responsibility
for employment matters) of the Company has any Knowledge of any
organizational effort presently being made or threatened by or on behalf of
any labor union with respect to employees of the Company.
(x) EMPLOYEE BENEFITS. Section 4(x) of the Disclosure Schedule
lists each Employee Benefit Plan that the Company maintains or to which the
Company contributes or has any obligation to contribute.
(A) Each such Employee Benefit Plan (and each related
trust, insurance contract, or fund) complies in form and in
operation in all respects with the applicable requirements of all
applicable laws.
(B) All required reports and descriptions have been
timely filed and distributed appropriately with respect to each
such Employee Benefit Plan.
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(C) All contributions (including all employer
contributions and employee salary reduction contributions) which
are due have been paid to each such Employee Benefit Plan and all
contributions for any period ending on or before the Closing Date
which are not yet due have been paid to each such Employee Benefit
Plan or accrued in accordance with the past custom and practice of
the Company. All premiums or other payments for all periods ending
on or before the Closing Date have been paid with respect to each
such Employee Benefit Plan.
(D) There have been no prohibited transactions with
respect to any such Employee Benefit Plan. No fiduciary has any
Liability for breach of fiduciary duty or any other failure to act
or comply in connection with the administration or investment of
the assets of any such Employee Benefit Plan. No action, suit,
proceeding, hearing, or investigation with respect to the
administration or the investment of the assets of any such Employee
Benefit Plan (other than routine claims for benefits) is pending or
to the best of Sellers' Knowledge is threatened. None of the
Sellers has any Knowledge of any Basis for any such action, suit,
proceeding, hearing, or investigation.
(y) GUARANTIES. Except as set forth in Section 4(y) of the
Disclosure Schedule, the Company is not a guarantor nor otherwise liable for
any Liability or obligation (including indebtedness) of any other Person.
(z) ENVIRONMENTAL, HEALTH, AND SAFETY MATTERS.
(i) To the best of Sellers' Knowledge each of the Company
and its predecessors and Affiliates has complied and is in compliance
with all Environmental, Health, and Safety Requirements.
(ii) Since December 31, 1994, the Company has not received
any written or oral notice, report or other information regarding any
actual or alleged violation of Environmental, Health, and Safety
Requirements, or any liabilities or potential liabilities (whether
accrued, absolute, contingent, unliquidated or otherwise), including any
investigatory, remedial or corrective obligations, relating to it or its
facilities arising under Environmental, Health, and Safety Requirements.
(iii) To the best of Sellers' Knowledge no facts, events or
conditions relating to the past or present facilities, properties or
operations of the Company or any of its predecessors or Affiliates will
prevent, hinder or limit continued compliance with Environmental,
Health, and Safety Requirements, give rise to any investigatory,
remedial or corrective obligations pursuant to Environmental, Health,
and Safety Requirements, or give rise to any other liabilities (whether
accrued, absolute, contingent, unliquidated or otherwise) pursuant to
Environmental, Health, and Safety Requirements, including without
limitation any relating to onsite or offsite releases or threatened
releases of hazardous materials, substances or wastes, personal injury,
property damage or natural resources damage.
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(aa) CERTAIN BUSINESS RELATIONSHIPS WITH THE COMPAMY. Except as
set forth in Section 4(aa) of the Disclosure Schedule, none of the Sellers
and their Affiliates has been involved in any business arrangement or
relationship with the Company since December 31, 1994, and none of the
Sellers and their Affiliates owns any asset, tangible or intangible, which is
used in the business of the Company.
(bb) DISCLOSURE. To the best of Sellers' Knowledge the
representations and warranties contained in this Article 4 and the Disclosure
Schedule do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Article 4 not misleading.
(cc) BANK ACCOUNTS. Section 4(cc) of the Disclosure Schedule
contains a true, correct and complete list as of the date hereof of all
banks, trust companies, savings and loan associations and brokerage firms in
which the Company has an account or safe deposit box and the names of all
persons authorized to draw thereon or with access thereto.
(dd) MATERIALITY. The matters and items excluded from the
representations and warranties set forth in this Article by operations of the
materiality exceptions and materiality qualifications contained in such
representations and warranties, in the aggregate for all such excluded
matters and items, do not constitute a Material Adverse Change to the Company.
(ee) SOLVENCY. As of the execution and delivery of this
Agreement, the Company is, and, as of the Closing Date, will be solvent.
(ff) PREDECESSOR STATUS. Set forth in Section 4(ff) of the
Disclosure Schedule is a listing of all predecessor companies of the Company
and the names of any Entities from which, since December 31, 1994, the
Company previously acquired material properties or assets. The Company has
never been a subsidiary or division of another entity, nor part of an
acquisition that was later rescinded.
(gg) MINUTE BOOKS. To the best of Sellers' Knowledge the minute
books of the Company made available to counsel for Buyer are the only minute
books of the Company and reference all material transactions approved by the
directors (or committees thereof) and stockholders since the time of
incorporation of the Company.
(hh) DISCLOSURE SCHEDULE. The Disclosure Schedule has been
prepared and executed by the Sellers and dated and delivered on the date of
this Agreement. The Sellers shall endeavor to disclose in the Disclosure
Schedule each item of information in each separate section in which such
item may reasonably be required to be disclosed.
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ARTICLE V
5. PRE-CLOSING COVENANTS. The Parties agree as follows with respect
to the period between the execution of this Agreement and the Closing.
(a) GENERAL. Each of the Parties will use his or its best good
faith efforts to take all action and to do all things necessary in order to
consummate and make effective the transactions contemplated by this Agreement
and the Collateral Documents.
(b) NOTICES AND CONSENTS. The Sellers will cause the Company to
give any notices to third parties, and will cause the Company to use its
reasonable best efforts to obtain any third party consents, that the Buyer
may reasonably request in connection with the matters referred to in Article
4(c) above. Each of the Parties will (and the Sellers will cause the Company
to) give any notices to, make any filings with, and use its reasonable best
efforts to obtain any authorizations, consents, and approvals of governments
and governmental agencies in connection with the matters referred to in
Article 3(a)(ii), Article 3(b)(ii), and Article 4(c) above.
(c) QPERATION OF BUSINESS. After the execution and delivery of
this Agreement and until and including the Closing Date, the Sellers will not
cause or permit the Company to engage in any practice, take any action, or
enter into any transaction outside the Ordinary Course of Business. Without
limiting the generality of the foregoing, the Sellers will not cause or
permit the Company to (i) declare, set aside, or pay any dividend or make any
distribution with respect to its capital stock or redeem, purchase, or
otherwise acquire any of its capital stock, or (ii) otherwise engage in any
practice, take any action, or enter into any transaction of the sort
described in Article 4(h) above.
(d) PRESERVATION OF BUSINESS. The Sellers will use their
reasonable best efforts to cause each of the Company to keep its business and
properties substantially intact, including its present operations, physical
facilities, working conditions, and relationships with lessors, licensors,
suppliers, customers, and employees.
(e) FULL ACCESS. Each of the Sellers will permit, and the
Sellers will cause the Company to permit, representatives of the Buyer to
have full access at all reasonable times, and in a manner so as not to
interfere with the normal business operations of the Company, to all
premises, properties, personnel, books, records (including Tax records),
contracts, and documents of or pertaining to each of the Company.
(f) NOTICE OF DEVELOPMENTS. The Sellers will give prompt
written notice to the Buyer of any adverse development causing a breach of
any of the representations and warranties in Article 4 above. Each Party will
give prompt written notice to the others of any adverse development causing a
breach of any of his or its own representations and warranties in Article 3
above. Such disclosure will be deemed to amend the Disclosure Schedule. No
disclosure by any Party pursuant to this Article 5(f), however, shall be
deemed to prevent or cure any misrepresentation, breach of warranty, or
breach of covenant.
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(g) EXCLUSIVITY. Except as otherwise contained in the Letter of
Intent, dated May 27, 1998 between the Buyer and the Sellers, upon the
execution and delivery of this Agreement none of the Sellers will (and the
Sellers will not cause or permit the Company to) (i) solicit, initiate, or
encourage the submission of any proposal or offer from any Person relating to
the acquisition of any capital stock or other voting securities, or any
substantial portion of the assets, of the Company (including any acquisition
structured as a merger, consolidation, or share exchange) or (ii) participate
in any discussions or negotiations regarding, furnish any information with
respect to, assist or participate in, or facilitate in any other manner any
effort or attempt by any Person to do or seek any of the foregoing. None of
the Sellers will vote their Company Shares in favor of any such acquisition
structured as a merger, consolidation, or share exchange. The Sellers will
notify the Buyer immediately if any Person makes any proposal, offer,
inquiry, or contact with respect to any of the foregoing.
ARTICLE VI
6. POST-CLOSING COVENANTS. The Parties agree as follows with respect
to the period following the Closing.
(a) GENERAL. In case at any time after the Closing any further
action is necessary or desirable to vest the Buyer with full right, title and
possession to the Purchased Shares or otherwise carry out the purposes of
this Agreement and the Collateral Documents, each of the Parties will take
such further action (including the execution and delivery of such further
instruments and documents) as any other Party reasonably may request, all at
the sole cost and expense of the requesting Party. Further, the officers and
directors of the Company are fully authorized in the name of the Company or
otherwise to take, and will take, all such lawful and necessary and/or
desirable action so long as such action is consistent with this Agreement.
(b) LITIGATION SUPPORT. In the event and for so long as any
Party actively is contesting or defending against any action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand in
connection with (i) any transaction contemplated under this Agreement or (ii)
any fact, situation, circumstance, status, condition, activity, practice,
plan, occurrence, event, incident, action, failure to act, or transaction on
or prior to the Closing Date involving the Company, each of the other Parties
will cooperate with him or it and his or its counsel in the contest or
defense, make available their personnel, and provide such testimony and
access to their books and records as shall be necessary in connection with
the contest or defense, all at the sole cost and expense of the contesting or
defending Party.
(c) TRANSITION. None of the Sellers will take any action that
is designed or intended to have the effect of discouraging any lessor,
licensor, customer, supplier, or other business associate of the Company from
maintaining the same business relationships with the Company after the
Closing as it maintained with the Company prior to the Closing, PROVIDED,
HOWEVER, the foregoing is not intended to impose any noncompetition
restriction upon any of the Sellers. The Buyer shall pay Company employees
all accrued but unpaid profit sharing and bonus benefits that are due
consistent with prior practice of the Company. The Buyer shall also pay
reasonable severance packages to those Company Employees who are terminated
by the Buyer within six months following the Closing Date.
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(d) CONFIDENTIALITY. Each of the Sellers will treat and hold as
such all of the Confidential Information, refrain from using any of the
Confidential Information except in connection with this Agreement and the
Collateral Documents, and deliver promptly to the other Party or destroy, at
the request and option of the other Party, all tangible embodiments (and all
copies) of the Confidential Information which are in his or its possession.
In the event that any of the Parties is requested or required (by oral
question or request for information or documents in any legal proceeding,
interrogatory, subpoena, civil investigative demand, or similar process) to
disclose any Confidential Information, then the party receiving such request
will notify the other Party promptly of the request or requirement so that
the other Party may seek an appropriate protective order or waive compliance
with the provisions of this Article 6(d). If, in the absence of a protective
order or the receipt of a waiver hereunder, any of the Parties is, on the
advice of counsel, compelled to disclose any Confidential Information to any
tribunal or else stand liable for contempt, that Party may disclose the
Confidential Information to the tribunal; PROVIDED, HOWEVER, that the
disclosing Party shall use his or its reasonable best efforts to obtain, at
the reasonable request of the Buyer (and at Buyer's sole expense), an order
or other assurance that confidential treatment will be accorded to such
portion of the Confidential Information required to be disclosed as the Buyer
shall designate. The foregoing provisions shall not apply to any Confidential
Information which is generally available to the public immediately prior to
the time of disclosure.
(e) RELEASE FROM PREFERRED STOCK AGREEMENT. The Buyer agrees to
use its reasonable best efforts to promptly cause the release each of the
Sellers from their respective obligations contained in the Preferred Stock
Agreement dated October 29, 1998 by and among the shareholders of the Company.
ARTICLE VII
7. CONDITIONS TO OBLIGATION TO CLOSE AND DELIVERIES.
(a) CONDITIONS TO OBLIGATION OF THE BUYER AND DELIVERIES. The
obligation of the Buyer to consummate the transactions to be performed by it
in connection with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties set forth in
Article 3(a) and Article 4 above shall be true and correct in all
material respects at and as of the Closing Date;
(ii) the Sellers shall have performed and complied with
all of their covenants hereunder in all material respects through the
Closing;
(iii) Buyer shall be satisfied with the results of its
ongoing business, financial and legal due diligence of the Company;
(iv) the Company shall have procured all of the third
party consents requested by the Buyer and specified in Article 5(c)
above;
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(v) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any national, provincial, federal, regional, state, local, or foreign
jurisdiction or before any arbitrator wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would (A) prevent
consummation of any of the transactions contemplated by this Agreement,
(B) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation, (C) affect adversely the right of the
Buyer to own the Company Shares and to control the Company, or (D)
affect adversely the right of the Company to own its assets and to
operate its businesses (and no such injunction, judgment, order, decree,
ruling, or charge shall be in effect);
(vi) the Sellers shall have delivered to the Buyer a
certificate to the effect that each of the conditions specified above in
Article 7(a)(i), (ii), (iv) and (v) is satisfied in all respects;
(vii) the relevant parties shall have executed and
delivered the Collateral Documents in form and substance as set forth in
EXHIBIT B-l through EXHIBIT B-3 attached hereto and the same shall be in
full force and effect;
(viii) the Buyer shall have received from counsel to the
Company an opinion in form and substance as set forth in EXHIBIT C
attached hereto, addressed to the Buyer, and dated as of the Closing
Date;
(ix) all actions to be taken by the Sellers in connection
with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Buyer; and
(x) this Agreement, the Collateral Documents and all the
transactions contemplated hereby and thereby shall be duly approved and
authorized by the Board of Directors of the Buyer.
(xi) The Shareholders Agreement by and among the
shareholders of the Company dated December 28, 1994, as amended to date
shall have been terminated by the mutual written consent of each of the
parties thereto.
(xii) The Employment Agreements dated December 31, 1994
between the Company and each of the Sellers, respectively, shall be
terminated by mutual written agreement of the Company and each Seller,
unless the Buyer desires any Seller to continue working for the Company,
in which case the Employment Agreement as amended and currently in
effect pertaining to such Seller shall remain in effect.
(xiii) The Buyer shall have received the written
resignation of each Officer and Director of the Company.
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(xiv) The Buyer shall have received documentation
satisfactory in form and substance that the Company has purchased all
Common Stock owned by La Sportiva S.r.l.
The Buyer may waive any condition specified in this Article 7(a) if it
executes a writing so stating at or prior to the Closing.
(b) CONDITIONS TO OBLIGATION OF THE SELLERS. The obligation of
the Sellers to consummate the transactions to be performed by them in
connection with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties set forth in
Article 3(b) above shall be true and correct in all material respects at
and as of the Closing Date;
(ii) the Buyer shall have performed and complied with all
of its covenants hereunder in all material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any national, provincial, federal, state, local, or foreign
jurisdiction or before any arbitrator wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would (A) prevent
consummation of any of the transactions contemplated by this Agreement;
(B) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation (and no such injunction, judgment,
order, decree, ruling, or charge shall be in effect); or (C) prevent the
Buyer from registering and Sellers from subsequently trading the shares
of Buyer Common Stock comprising the Purchase Price on the NASDAQ
national market.
(iv) the Buyer shall have delivered to the Sellers a
certificate to the effect that each of the conditions specified above in
Article 7(b)(i)-(iii) is satisfied in all respects;
(v) the relevant parties shall have entered into the
Collateral Documents in form and substance as set forth in EXHIBITS B-1
through B-3 and each of the same shall be in full force and effect;
(vi) the Sellers shall have received from counsel to the
Buyer an opinion in form and substance as set forth in EXHIBIT D
attached hereto, addressed to the Sellers, and dated as of the Closing
Date;
The Requisite Sellers may waive any condition specified in this Article 7(b)
if they execute a writing so stating at or prior to the Closing.
ARTICLE VIII
8. REMEDIES FOR BREACHES OF THIS AGREEMENT.
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(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
covenants, representations and warranties of the Parties contained in this
Agreement shall survive the Closing hereunder (unless a Party had actual
knowledge of any misrepresentation or breach of warranty or covenant at the
time of Closing) and continue in full force and effect for one year
thereafter, except for those representations, warranties and covenants
contained in Articles 3(a)(i), 3(a)(ii), 3(a)(iv), 4(a), (b), (c), (i), (k),
(m), (r), (t) and (y) which shall survive for eighteen months thereafter
(subject to the earlier expiration of any applicable statutes of limitations).
(b) SET-OFF ARRANGEMENTS.
(i) SET-OFF AGAINST EARN OUT AMOUNT. The right to
set-off against the Earn Out Amount shall be available to compensate
Buyer and its Subsidiaries for any claim, loss, expense, liability or
other damage, including fees and disbursements (but excluding attorneys'
fees) in connection with any action, suit or proceeding, to the extent
of the amount of such claim, loss, expense, liability or other damage
arising (though not necessarily resolved or actual incurred), net of any
insurance recovery (and Buyer hereby waives any right of subrogation in
connection with such recovery), during the relevant Claims Period
("LOSS" or collectively "LOSSES") that Buyer and its Subsidiaries or any
of their affiliates suffers by reason of the breach by the Sellers of
any representation, warranty, covenant or agreement of the Sellers or
the Company contained herein. Buyer shall not be entitled to receive any
disbursement with respect to any Loss under this Article VIII arising in
respect of any Losses that (1) do not amount to $10,000 in any single
instance or $15,000 in the aggregate (Losses below these amounts shall
be borne by Buyer), (2) Losses arising from slow-moving or obsolete
inventory, or (3) any Losses that occur subsequent to the expiration of
the relevant Claims Period. Notwithstanding anything herein contained,
absent fraud, Buyer shall not be entitled to a right to set-off against
the Earn Out Amount, or any other recovery or recourse, for any amount
that Losses exceeds $175,000 in the aggregate in satisfaction of any and
all Losses (the "SET-OFF AMOUNT"). In the event of fraud committed by
any Seller there shall be no limitation to the Set-Off Amount, or other
recovery or recourse available to the Buyer, nor shall expiration of the
relevant Claims Period apply to bar any such claim of fraud by the
Buyer. The Buyer will only make a set-off against the portion of the
Earn Out Amount paid on the second and third anniversary of the Closing
Date, and to the extent practicable will make such set-off ratably from
the Earn Out Amount paid on such Second and Third Anniversary.
(ii) OBJECTIONS TO CLAIMS. Buyer shall be obligated to
deliver to Sellers' Agent a notice of any claim of Losses forty-five (45)
days prior to making any set-off against the Earn Out Amount. At the
time of delivery of any Officer's Certificate giving notice of a claim
to set-off against the Earn Out Amount to the Sellers' Agent, Seller's
Agent shall have forty-five (45) days to object in a written statement to
the claim made in the Officer's Certificate. The Sellers' Agent will only
submit an objection in good faith. If, upon the expiration of such
forty-five (45) day period no objection is received by the Buyer then
the Sellers waive any and all right to object,
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contest, challenge, or impede the Buyer's right to make a set-off
against the Earn Out Amount as provided in Article 8(b)(i).
(iii) RESOLUTION OF CONFLICTS; ARBITRATION.
(A) In case the Sellers' Agent shall so object in
writing to any claim or claims made in any Officer's Certificate,
the Sellers' Agent and Buyer shall attempt in good faith to agree
upon the rights of the respective parties with respect to each of
such claims.
(B) If no such agreement can be reached after good
faith negotiation, either Buyer or the Sellers' Agent may demand
arbitration of the matter unless the amount of the damage or loss
is at issue in pending litigation with a third party, in which
event arbitration shall not be commenced until such amount is
ascertained or both parties agree to arbitration; and in either
such event the matter shall be settled by arbitration conducted by
three arbitrators. Buyer and the Sellers' Agent shall each select
one arbitrator, and the two arbitrators so selected shall select a
third arbitrator (who shall be affiliated with a Big Six accounting
firm or any successor thereto). The arbitrators shall, within ten
(10) business days after the last day of any hearings on any motion,
issue a definitive written ruling on such motion. The arbitrator
shall also, within twenty (20) business days from the last day of
any hearings regarding the issuance of any awards, issue a
definitive written ruling on the issuance of any such award in such
arbitration. The arbitrators shall also establish procedures
designed to reduce the cost and time for discovery while allowing
the parties an opportunity, adequate in the sole judgement of the
arbitrators, to discover relevant information from the opposing
parties about the subject matter of the dispute. The arbitrators
shall rule upon motions to compel or limit discovery and shall have
the authority to impose sanctions, including attorneys fees and
costs, to the extent as a court of competent law or equity, should
the arbitrators determine that discovery was sought without
substantial justification or that discovery was refused or objected
to without substantial justification. The decision of a majority of
the three arbitrators as to the validity and amount of any claim in
such Officer's Certificate shall be binding and conclusive upon the
parties to this Agreement, and notwithstanding anything in Article
VIII hereof, the Buyer shall be entitled to act in accordance with
such decision and make or withhold payments out of the Earn Out
Amount in accordance therewith. Such decision shall be written and
shall be supported by written findings of fact and conclusions
which shall set forth the award, judgment, decree or order awarded
by the arbitrators.
(C) In no event may punitive or exemplary damages
be awarded in any arbitration, and arbitration between the parties
shall be final and binding. Judgment upon any award rendered by the
arbitrators may be entered in any court having jurisdiction. Any
such arbitration shall be held in Boulder or Denver, Colorado, USA.
Each party to any arbitration pursuant to this Article VIII shall
pay its own expenses; the fees of each
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arbitrator and any administrative fee of the sponsoring arbitration
entity, if any, shall be borne equally by Buyer, on the one hand,
and the Sellers' Agent, on the other.
(iv) SELLERS' AGENT; POWER OF ATTORNEY.
(A) Effective upon the Closing, and without
further act of any Seller, Colin Lantz shall be appointed as agent
and attorney-in-fact (the "SELLERS' AGENT") for each Seller, for and
on behalf of such Sellers, to give and receive notices and
communications, to authorize a set-off by the Buyer of the Earn Out
Amount in satisfaction of claims by Buyer, to object to such
deliveries, to agree to, negotiate, enter into settlements and
compromises of, and demand arbitration and comply with orders of
courts and awards of arbitrators with respect to such claims, and
to take all actions necessary or appropriate in the judgment of the
Sellers' Agent for the accomplishment of the foregoing. Such agency
may be changed by the Sellers (and their heirs, legal
representatives and permitted assigns) from time to time upon not
less than thirty (30) days prior written notice to Buyer or in the
event of the death or permanent disability of the Sellers' Agent.
No bond shall be required of the Sellers' Agent, and the Sellers'
Agent shall not receive compensation for his or her services.
Notices or communications to or from the Sellers' Agent shall
constitute notice to or from each of the Sellers of the Company.
(B) The Sellers' Agent shall not be liable for any
act done or omitted hereunder as Sellers' Agent while acting in
good faith and in the exercise of reasonable judgment. The Sellers
shall severally indemnify the Sellers' Agent and hold the Sellers'
Agent harmless against any loss, liability or expense incurred
without negligence or bad faith on the part of the Sellers' Agent
and arising out of or in connection with the acceptance or
administration of the Sellers' Agent's duties hereunder, including
the reasonable fees and expenses of any legal counsel retained by
the Sellers' Agent.
(v) ACTIONS OF THE SELLERS' AGENT. A decision, act,
consent or instruction of the Sellers' Agent shall constitute a decision
of all the Sellers and shall be final, binding and conclusive upon each
of the Sellers, and the Buyer may rely upon any such decision, act,
consent or instruction of the Sellers' Agent as being the decision, act,
consent or instruction of each every such Seller. The Buyer is hereby
relieved from any liability to any person for any acts done by them in
accordance with such decision, act, consent or instruction of the
Sellers' Agent.
(vi) THIRD-PARTY CLAIMS. In the event Buyer becomes aware
of a third-party claim which Buyer believes may result in a set-off
against the Earn Out Amount, Buyer shall promptly notify the Sellers'
Agent of such claim, and the Sellers' Agent shall be entitled, at their
expense, to participate in any defense of such claim. Buyer shall
consult with the Sellers' Agent prior to the settlement of any such
claim and discuss with the Sellers' Agent in good faith any input
regarding the claim and potential settlement the Sellers' Agent may have
prior to any settlement. After such consultation, Buyer shall have the
right in its sole discretion to settle any such claim.
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ARTICLE IX
9. TERMINATION.
(a) TERMINATION OF AGREEMENT. Certain of the Parties may
terminate this Agreement as provided below:
(i) the Buyer and the Sellers may terminate this
Agreement by mutual written consent at any time prior to the Closing;
(ii) the Buyer may terminate this Agreement by giving
written notice to the Sellers on or before the Closing Date if the Buyer
is not reasonably satisfied with the results of its continuing business,
legal, environmental, and accounting due diligence regarding the Company;
(iii) the Buyer may terminate this Agreement by giving
written notice to the Sellers at any time prior to the Closing (A) in
the event any of the Sellers has breached any material representation,
warranty, or covenant contained in this Agreement in any material
respect, the Buyer has notified the Sellers of the breach, and the
breach has continued without cure for a period of ten (10) days after
the notice of breach or (B) if the Closing shall not have occurred on or
before the Termination Date by reason of the failure of any condition
precedent under Article 7(a) hereof (unless the failure results
primarily from the Buyer itself breaching any representation, warranty,
or covenant contained in this Agreement); and
(iv) the Sellers may terminate this Agreement by giving
written notice to the Buyer at any time prior to the Closing (A) in the
event the Buyer has breached any material representation, warranty, or
covenant contained in this Agreement in any material respect, any of the
Sellers has notified the Buyer of the breach, and the breach has
continued without cure for a period of ten (10) days after the notice of
breach or (B) if the Closing shall not have occurred on or before the
Termination Date by reason of the failure of any condition precedent
under Article 7(b) hereof (unless the failure results primarily from any
of the Sellers themselves breaching any representation, warranty, or
covenant contained in this Agreement).
(b) EFFECT OF TERMINATION. If any Party terminates this
Agreement pursuant to Article 8(a) above, all rights and obligations of the
Parties hereunder shall terminate without any Liability of any Party to any
other Party (except for any Liability of any Party then in breach). If any
Party terminates this Agreement for any reason other than those set forth in
Article 8(a) above (a "WITHDRAWING PARTY") such Withdrawing Party shall,
within thirty (30) days after such termination, pay the other non-Withdrawing
Party the sum of $10,000.
ARTICLE X
10. MISCELLANEOUS.
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(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall
issue any press release or make any public announcement relating to the
subject matter of this Agreement prior to the Closing without the prior
written approval of the Buyer and the Sellers; PROVIDED, HOWEVER, that any
Party may make any public disclosure it believes in good faith is required
by applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the disclosing Party will use its
best efforts to advise the other Parties prior to making the disclosure).
(b) ENTIRE AGREEMEMENT. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements (including, but not limited
to the Letter of Intent dated May 27, 1998), or representations by or among
the Parties, written or oral, to the extent they related in any way to the
subject matter hereof.
(c) SUCCESSION AND ASSIGNMENT; PARTIES IN INTEREST. This
Agreement shall be binding upon and inure to the benefit of the Parties named
herein and their respective successors and permitted assigns. No Party may
assign either this Agreement or any of his or its rights, interests, or
obligations hereunder without the prior written approval of the Buyer and the
Sellers; PROVIDED, HOWEVER, that the Buyer may (i) assign any or all of its
rights and interests hereunder to one or more of its Affiliates and (ii)
designate one or more of its Affiliates to perform its obligations hereunder
(in any or all of which cases the Buyer nonetheless shall remain responsible
for the performance of and shall unconditionally guarantee all of Buyer's
obligations hereunder). Nothing in this Agreement, express or implied, is
intended to or shall confer upon any Person any right, benefit or remedy of
any nature whatsoever under or by reason of this Agreement.
(d) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(e) HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and
then two business days after) it is sent by registered or certified mail,
return receipt requested, postage prepaid, and addressed to the intended
recipient as set forth below:
If to the Sellers:
Colin Lantz
16679 North St. Vrain
Lyons, CO 80540
303-823-6968
With a Copy to:
The Law Offices of Christopher J. Archer, P.C.
2602 Pine Street
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Telephone: 303-449-0427
Telecopier: 303-449-0428
If to the Company:
La Sportiva USA, Inc.
3280 Pearl Street
Boulder, CO 80301
Attention: Colin Lantz
Telephone: 303-443-8710
Telecopier: 303-442-7541
With a Copy to:
The Law Offices of Christopher J. Archer, P.C.
(Address listed above)
If to the Buyer:
The North Face, Inc.
2013 Farallon Drive
San Leandro, California 94577
Attention: Mardy Cason
Telephone: (510) 618-3500
Telecopier: (510) 618-3530
With a Copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304
Attention: Jeffrey D. Saper, Esq.
Telephone: (650) 493-9300
Telecopier: (650) 493-6811
Any Party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set forth
above using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail, or electronic mail), but
no such notice, request, demand, claim, or other communication shall be
deemed to have been duly given unless and until it actually is received by
the intended recipient. Any Party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Parties notice in the manner herein set forth.
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(g) GOVERNING LAW. This Agreement is entered into in Boulder
Colorado with respect to assets, property and activities located in or
occurring in Boulder Colorado. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Colorado
without giving effect to any choice or conflict of law provision or rule
(whether of the State of Colorado or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
Colorado.
(h) AMENDMENTS AND WAIVERS. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed
by the Buyer and each of the Sellers. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent
such occurrence.
(i) SEVERABILITY. Any term or provision of this Agreement that
is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision
in any other situation or in any other jurisdiction.
(j) EXPENSES. The Company and the Buyer shall bear their own
costs and expenses (including legal fees and expenses) incurred in connection
with this Agreement and the transactions contemplated hereby. The Buyer
agrees that the Company has borne and will bear all of the Sellers' costs and
expenses (including all of their legal fees and expenses) in connection with
this Agreement and any of the transactions contemplated hereby.
(k) CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be
construed as if drafted jointly by the Parties and no presumption or burden
of proof shall arise favoring or disfavoring any Party by virtue of the
authorship of any of the provisions of this Agreement. Any reference to any
national, provincial, federal, regional, state, local, or foreign statute or
law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. The word "including" shall
mean including without limitation. The Parties intend that each
representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter which the Party has not breached shall not detract from or
mitigate the fact that the Party is in breach of the first representation,
warranty, or covenant.
(l) INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits, and
Schedules identified in this Agreement are incorporated herein by reference
and made a part hereof.
(m) SUBMISSION TO JURISDICTION. Each of the Parties submits to
the jurisdiction of any state or federal court sitting in Boulder or Denver,
Colorado, in any action or proceeding arising out of or relating to this
Agreement and agrees that all claims in respect of the action or proceeding
may be
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<PAGE>
heard and determined in any such court. Each of the Parties waives any
defense of inconvenient forum to the maintenance of any action or proceeding
so brought and waives any bond, surety, or other security that might be
required of any other Party with respect thereto.
*****
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<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on
as of the date first above written.
THE NORTH FACE
a Delaware corporation
By:___________________________________
Marsden S. Cason, Chairman
LA SPORTIVA USA
a Colorado Corporation
By:___________________________________
Its:__________________________________
SELLERS
______________________________________
Colin Lantz
______________________________________
C. Edward Sampson
______________________________________
Heinz Mariacher
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<PAGE>
Exhibit 2.2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of July 1, 1998, by and
between The North face, Inc., a Delaware corporation (the "COMPANY"), and the
undersigned shareholders of La Sportiva USA, Inc., a Colorado corporation (the
"SHAREHOLDERS").
RECITALS
WHEREAS, concurrent with delivery of this Agreement, the Company, and
the Shareholders are entering into a Stock Purchase Agreement (the "PURCHASE
AGREEMENT") which provides for the purchase (the "PURCHASE") of all of the
issued and outstanding shares of common stock of the La Sportiva USA, Inc.
all of which are held by the Shareholders by the Company in exchange for
shares of Company Common Stock;
WHEREAS, as an inducement to the Shareholders to enter into the Purchase
Agreement, as of the Closing Date, the shares of Company Common Stock that are
issued to the Shareholders pursuant to the Purchase Agreement shall be granted
registration rights as set forth herein; and
WHEREAS, all terms not otherwise defined herein shall have the same
meanings ascribed to them in the Purchase Agreement;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. REGISTRATION RIGHTS. The Company covenants and agrees as follows:
1.1 DEFINITIONS. For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933, as amended.
(b) The term "1934 Act" shall mean the Securities Exchange Act
of 1934, as amended.
(c) The term "register," "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document.
(d) The term "Registrable Securities" means the Common Stock
of the Company ("Common Stock") issued to the Shareholders in accordance with
the terms and conditions of the Purchase Agreement and any securities of the
Company issued as a dividend on or other distribution with respect to, or in
exchange for or replacement of, such common stock.
(e) The term "SEC" shall mean the Securities and Exchange
Commission.
<PAGE>
1.2 OBLIGATIONS OF THE COMPANY. Whenever required under this
Section 1 to effect the registration of any Registrable Securities, the
Company shall, as soon as reasonably possible:
(a) Prepare and file with the SEC within three (3) SEC
working days after the Closing Date, a registration statement on Form S-3, or
other available form of registration statement with respect to such
Registrable Securities (hereinafter referred to as the "Registration
Statement") and use its reasonable best efforts to cause such registration
statement to become effective as soon as reasonably practicable thereafter,
and, subject to the provisions below, use its reasonable best efforts to,
keep such registration statement effective for a period of 365 days or, if
earlier, until the Shareholders have sold all of the Registrable Securities.
If at any time after a registration statement becomes effective, the Company
advises the Shareholders' Agent (defined below) in writing that due to the
existence of material infor-mation that has not been disclosed to the public
and included in the registration statement it is necessary to amend the
registration statement, the Shareholders shall suspend any further sale of
Registrable Securities pur-suant to the Registration Statement until the
Company advises the Shareholders' Agent that the registration statement has
been amended. In such event, the Company shall cause the registration
statement to be amended promptly thereafter. In addition, the Company may
suspend use of the registration statement to the extent the Company is
advised by its legal counsel, such action is reasonably necessary to comply
with federal securities law. Buyer will promptly take all reasonably
practicable steps to correct such non-compliance. In the event the sales of
Registrable Securities of the Shareholders are suspended as provided above,
the 365-day period during which a registration statement must be kept
effective shall be extended for the total number of days during which sales
are suspended.
(b) Subject to subsection 1.2(a), prepare and file with the
SEC such amendments and supplements to such Registration Statement and the
prospectus used in connection with such Registration Statement as may be
necessary to comply with the provisions of the Act with respect to the
disposition of all securities covered by such Registration Statement.
(c) Furnish to Colin Lantz (the "Shareholders' Agent") such
numbers of copies of a prospectus, including a preliminary prospectus, in
conformity with the requirements of the Act, and such other documents as the
Shareholders may reasonably request in order to facilitate the disposition of
Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Shareholders, provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions,
unless the Company is already subject to service in such jurisdiction and except
as may be required by the Act.
(e) The Company may include securities issued in connection
with any acquisition not otherwise registered on an S-4 Registration Statement
in the registration pursuant to this Agreement.
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<PAGE>
(f) In the event that the SEC has not declared a
Registration Statement with respect to the Registerable Securities effective
prior to ten days following the Closing Date (the "First Delay") the Buyer
shall pay each Shareholder a pro rata share of $9,000, payable in cash within
(10) days of such First Delay (a "Delay Payment"). Further at the end of each
(30) day period subsequent to the First Delay, and until the one year
anniversary of the Closing Date (after which no Delay Payments shall accrue),
if a Registration Statement with respect to the Registerable Securities has
not been declared effective by the SEC Buyer shall make a Delay Payment;
PROVIDED, HOWEVER, that each Delay Payment made after the 70th calender day
following the Closing Date shall be in an aggregate amount of $18,000 (to be
paid pro rata among the Shareholders.
1.3 INFORMATION FROM SHAREHOLDERS. It shall be a condition
precedent to the obligations of the Company to take any action pursuant to
this Section 1 with respect to the Registrable Securities of the Shareholders
that the Shareholders shall furnish to the Company in writing such information
regarding themselves, the Registrable Securities held by them, and the
intended method of disposition of such securities, as shall be requested by
the Company and required to effect the registration of the Registrable
Securities, which is the only information upon which the Buyer shall be
entitled to rely for purposes of this Section 1.3.
1.4 EXPENSES OF REGISTRATION. All expenses of the Shareholders,
including (without limitation) all registration, filing and qualification fees,
printers' and accounting fees, fees and disbursements of counsel for the
Company shall be borne by the Company; provided, however, that the Company shall
not be required to pay any professional fees of the Shareholders other than the
fees of one counsel to the Shareholders' Agent (not to exceed $5,000).
1.5 INDEMNIFICATION. In the event any Registrable Securities
are included in the Registration Statement under this Section 1:
(a) The Company will indemnify and hold harmless the
Shareholders, each of their directors, officers, trustees or beneficiaries,
if applicable, and each person, if any, who controls a non-individual
shareholder within the meaning of the Act against any losses, claims,
damages, or liabilities joint or several) to which the Shareholders may
become subject under the Act, or the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"): (i) any
untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii)
the omission or alleged omission to state therein a material fact required to
be stated therein, or necessary to make the statements therein not
misleading, or (iii) any violation or alleged violation by the Company of the
Act, the 1934 Act, or any rule or regulation promulgated under the Act, or
the 1934 Act; and the Company will pay to the Shareholders as incurred any
legal or other expenses reasonably incurred by the Shareholders in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in this
subsection 1.5(a) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability, or action if such settlement is effected
without the consent of
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<PAGE>
the Company, which consent shall not be unreasonably withheld, nor shall the
Company be liable in any such case for any such loss, claim, damage,
liability, or action to the extent that it arises out of or is based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing expressly for use in connection with such registration by
the Shareholders seeking indemnification hereunder. In addition, the Company
shall not be liable for any untrue statement or omission in any prospectus if
a supplement or amendment thereto correcting such untrue statement or
omission was delivered to the Shareholders' Agent prior to the pertinent sale
or sales by the Shareholders.
(b) Each Shareholder will indemnify and hold harmless the
Company, each of its directors, each of its officers who has signed the
Registration Statement, each person, if any, who controls the Company within
the meaning of the Act, any other shareholder selling securities in such
Registration Statement and any controlling person of any such shareholder,
against any losses, claims, damages, or liabilities (joint or several) to
which any of the foregoing persons may become subject, under the Act, or the
1934 Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereto) arise out of or are
based upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished by such Shareholder solely for such Shareholder's
behalf expressly for use in connection with such registration; and such
Shareholder will pay, as incurred, any legal or other expenses reasonably
incurred by any person intended to be indemnified pursuant to this subsection
1.5(b), in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity agreement
contained in this subsection 1.5(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of such Shareholder, which consent
shall not be unreasonably withheld; provided, that, in no event shall any
indemnity under this subsection 1.5(b) by such Shareholder exceed the gross
proceeds from the offering containing the Violation at issue received by such
Shareholder.
(c) Promptly after receipt by an indemnified party under
this Section 1.5 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 1.5,
deliver to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to participate in,
and, to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with
counsel mutually satisfactory to the parties; provided, however, that an
indemnified party (together with all other indemnified parties which may be
represented without conflict by one counsel) shall have the right to retain
one separate counsel, with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to
actual or potential differing interests between such indemnified party and
any other party represented by such counsel in such proceeding. The failure
to deliver written notice to the indemnifying party promptly upon the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 1.5, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section
1.5.
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<PAGE>
(d) If the indemnification provided for in this Section
1.5 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage, or
expense referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party hereunder, shall contribute to the
amount paid or payable by such indemnified party as a result of such loss,
liability, claim, damage, or expense in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and of
the indemnified party on the other in connection with the statements or
omissions that resulted in such loss, liability, claim, damage, or expense as
well as any other relevant equitable considerations. The relative fault of
the indemnifying party and of the indemnified party shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates
to information supplied by the indemnifying party or by the indemnified party
and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
(e) The obligations of the Company, and the Shareholders
under this Section 1.5 shall survive the completion of any offering of
Registrable Securities in a registration statement under this Section 1, and
otherwise.
1.6 REPORTS UNDER THE SECURITIES EXCHANGE ACT. The Company
agrees to file with the SEC in a timely manner all reports and other
documents and information required of the Company under the 1934 Act, and
take such other actions as may be necessary to assure the availability of
Form S-3 for use in connection with the registration rights provided in this
Agreement.
1.7 RULES 144 AND 144A. The Company shall use commercially
reasonable efforts to file the reports required to be filed by it under the
Act and the 1934 Act in a timely manner and, if at any time the Company is
not required to file such reports, it will, upon the written request of the
Shareholders' Agent, make publicly available other information so long as
necessary to permit sales of the Shareholders' securities pursuant to Rule
144 and 144A. The Company covenants that it will take such further action as
the Shareholders may reasonably request, all to the extent required from time
to time to enable the Shareholders to sell securities without registration
under the Act within the limitation of the exemptions provided by Rules 144 and
144A (including the requirements of Rule 144A(d)(4)). The Company will
reimburse Sellers for costs reasonably incurred in connection with sales made
pursuant to Rules 144 and 144A.
2. MISCELLANEOUS.
2.1 NOTICES. Notice to the Shareholders' Agent shall constitute
notice to all the shareholders party hereto. All notices and other
communications hereunder shall be in writing and shall be deemed given if
delivered personally or by commercial delivery service, or mailed by
registered or certified mail (return receipt requested) or sent via facsimile
(with acknowledgment of complete transmission) to the parties at the
following addresses (or at such other address for a party as shall be
specified by like notice):
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(1) if to the Company:
The North Face, Inc.
2013 Fallon Drive
San Leandro, California 94577
Attn: Marsden S. Cason
Telephone: (510)618-3500
Telecopier: (510)618-3530
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Jeffrey D. Saper, Esq.
Facsimile No.: (415)493-6811
(2) if to the Shareholders' Agent, to
Colin Lantz
16679 North St. Vrain
Lyons, CO 80540
Facsimile No.: (303)823-6968
with a copy to:
The Law Offices of Christopher J. Archer, P.C.
2602 Pine Street
Boulder, CO 80302
Attention: Christopher Archer
Facsimile No.: (303)449-0428
2.2 INTERPRETATION. The words "include," "includes" and
"including" when used herein shall be deemed in each case to be followed by
the words "without limitation." The table of contents and headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement.
2.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
2.4 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement and the
documents and instruments and other agreements among the parties hereto
referenced herein: (a) constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof;
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(b) are not intended to confer upon any other person (including, without
limitation, those persons listed on any exhibits hereto) any rights or
remedies hereunder; and (c) without the prior written consent of each party
shall not be assigned by operation of law or otherwise, except that the
Company may assign its rights and obligations hereunder to an affiliate of
the Company provided that the Company shall remain liable for all its
obligations hereunder notwithstanding such assignment. Any assignment of
rights or delegation of duties under this Agreement by a party without the
prior written consent of the other parties, if such consent is required
hereby, shall be void.
2.5 SEVERABILITY. In the event that any provision of this
Agreement or the application thereof, becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforceable, the remainder of
this Agreement will continue in full force and effect and the application of
such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with
a valid and enforceable provision that will achieve, to the extent possible,
the economic, business and other purposes of such void or unenforceable
provision.
2.6 OTHER REMEDIES. Except as otherwise provided herein, any
and all remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any other remedy conferred hereby, or by
law or equity upon such party, and the exercise by a party of any one remedy
will not preclude the exercise of any other remedy.
2.7 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts
of laws thereof.
****
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first above written.
THE NORTH FACE, INC.
By:______________________
Address: 2013 Fallon Drive
San Leandro, California 94577
SHAREHOLDERS
_________________________
Colin Lantz
_________________________
C. Edward Sampson
_________________________
Heinz Mariacher
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
<PAGE>
Exhibit 5.1
July 7, 1998
The North Face, Inc.
2013 Farallon Drive
San Leandro, CA 94577
RE: REGISTRATION STATEMENT ON FORM S-3
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-3 to be filed by
you with the Securities and Exchange Commission on or about July 7, 1998 (the
"Registration Statement"), in connection with the registration under the
Securities Act of 1933, as amended, of a total of 798,395 shares of your
Common Stock (the "Shares"). We understand that the Shares are to be sold
from time to time on the NASDAQ National Market at prevailing prices or as
otherwise described in the Registration Statement. As legal counsel for The
North Face, Inc., we have examined the proceedings taken by you in connection
with the sale of the Shares.
It is our opinion that the Shares are legally and validly issued, fully
paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in
the Registration Statement and any amendments to it.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
<PAGE>
THE NORTH FACE, INC.
EMPLOYMENT AGREEMENT
This Agreement is made by and between The North Face, Inc. (the "Company"),
and James Fifield ("Executive") as of the last date set forth by the parties
below.
1. DUTIES AND SCOPE OF EMPLOYMENT.
(a) POSITION; EMPLOYMENT COMMENCEMENT DATE; DUTIES. Executive's
employment with the Company pursuant to this Agreement shall commence on May 18,
1998 (the "Employment Commencement Date"). As of the Employment Commencement
Date, the Company shall employ the Executive as the Chief Executive Officer and
President of the Company reporting to the Board Directors of the Company (the
"Board"). In addition, if Executive is employed hereunder upon such date,
Executive will be appointed as the Chairman of the Board upon the resignation of
the Company's current Chairman from such position no later than April 30, 1999.
The period of Executive's employment hereunder is referred to herein as the
"Employment Term." During the Employment Term, Executive will have such
authority as is customarily associated with the position of Chief Executive
Officer and President (and with the position of Chairman when Executive is
appointed as Chairman) at other public companies and Executive shall render such
business and professional services in the performance of his duties, consistent
with Executive's position within the Company, as shall reasonably be assigned to
him by the Board.
(b) BOARD MEMBERSHIP. During the Employment Term, the Company
agrees to nominate Executive for Board membership at its next annual
shareholders meeting (or, if earlier, will appoint Executive to fill any vacancy
on the Board) and to re-nominate Executive for Board membership when Executive's
term as a member of the Board is due to expire. Subject to continued election to
the Board by the Company's stockholders, Executive shall remain a member of the
Board during the period of his employment with the Company.
(c) OBLIGATIONS. During the Employment Term, Executive shall
devote his full business efforts and time to the Company. Executive agrees,
during the Employment Term, not to actively engage in any other employment,
occupation or consulting activity for any direct or indirect remuneration
without the prior approval of the Board; provided, however, that Executive may
serve in any capacity with any civic, educational or charitable organization, as
a member of corporate Boards of Directors or committees thereof upon which
Executive currently serves or continue to engage in other activities, all of
which are listed on EXHIBIT A hereto, without the approval of the Board, so long
as such activities do not materially interfere with his duties and obligations
under this Agreement.
<PAGE>
2. EMPLOYEE BENEFITS.
(a) During the Employment Term, Executive shall be eligible to
participate in the employee benefit plans maintained by the Company and its
affiliates (including, without limitation, any retirement, supplemental or
excess retirement, annual bonus, long-term incentive compensation, stock option,
stock purchase, group life insurance, accident and death insurance, medical and
dental insurance, sick leave, and disability plans, programs or practices) that
are applicable to other senior management of the Company on a basis which is no
less favorable than that made available to any other senior executive of the
Company.
(b) EXPENSES. The Company shall reimburse Executive, following
submission of detailed written invoices, for the fees and expenses of
Executive's counsel in connection with the negotiation and preparation of the
Agreement up to a maximum of $20,000.
3. AT-WILL EMPLOYMENT. Executive and the Company understand and
acknowledge that Executive's employment with the Company constitutes "at-will"
employment. Executive and the Company acknowledge that this employment
relationship may be terminated at any time, with or without good cause or for
any or no cause, and with or without notice, at the option either of the Company
or Executive, subject only to the Company's obligations with respect to
severance compensation and benefits under Section 4.
4. COMPENSATION
(a) BASE SALARY. While employed by the Company, the Company
shall pay the Executive as compensation for his services a base salary at the
annualized rate of $500,000, subject to annual increases at the discretion of
the Board (the "Base Salary"). Such salary shall be paid to Executive in
Colorado periodically in accordance with normal Company payroll practices in
Colorado and subject to the usual, required federal and Colorado withholding.
(b) ANNUAL BONUS. The Board agrees to establish, in consultation
with the Executive, a new annual bonus program for members of the senior
management group. Subject to the provisions of Section 4(d), (e) and (f), with
respect to each full or partial fiscal year of the Company, Executive shall be
eligible to receive an annual bonus under such annual bonus program.
(c) STOCK PURCHASE.
(i) PURCHASE. On the signing date of this Agreement, the
Company agrees to issue and sell to Executive, and Executive agrees to purchase
from the Company, that number of shares of the Company's Common Stock having a
fair market value (based on the closing market price on the signing date of this
Agreement), when combined with the forty-five thousand (45,000) shares of
Company Common Stock currently owned by Executive, of fifteen million dollars
($15,000,000) (the new shares being purchased referred to herein as the
"Shares") for a price equal to
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100% of the fair market value of such Shares on such date. At least $7,500,000
of such purchase price shall be paid to the Company by wire transfer or by
cashiers' check from Executive. At Executive's option, the balance of the
purchase price may be paid to the Company by Executive in the form of a
thirty-day full recourse promissory note, bearing interest at a 5.43% annual
rate and secured by the Shares purchased with such note. The parties agree and
acknowledge that the sale and issuance of such Shares is an inducement essential
to Executive's entering into this Agreement with the Company.
(ii) RISK. Executive is aware that an investment in the
Company is highly speculative, that there can be no assurance as to what, if
any, return there may be on Executive's investment in the Shares, and that
there can be no assurance that Executive will not incur a loss of some or all
of the amount invested. Executive is aware of the Company's business affairs
and financial condition and has acquired sufficient information about the
Company to be able to evaluate the risks and merits of the proposed
investment and to reach an informed and knowledgeable decision to acquire the
Shares.
(iii) EXPERIENCE. Executive has substantial experience in
evaluating and investing in private placement transactions of securities.
Executive is capable of evaluating the merits and risks of its investment in the
Company and has the capacity to protect his or her own interests.
(iv) INVESTMENT. Executive is acquiring the Shares for
investment for his own account, not as a nominee or agent, and not with the view
to, or for resale in connection with, any distribution thereof. Executive
further represents that he does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participations to such
person or to any third person, with respect to the Shares.
(v) REGISTRATION EXEMPTION. Executive understands and
acknowledges that the offering of the Shares will not be registered under the
Securities Act of 1933, as amended (the "Securities Act") on the grounds that
the sale is exempt pursuant to Section 4(2) of the Securities Act, and that the
Company's reliance on such exemption is predicated on Executive's
representations set forth herein.
(vi) RULE 144. Executive acknowledges that the Shares must be
held indefinitely unless subsequently registered under the Securities Act or
unless an exemption from such registration is available. Executive is aware of
the provisions of Rule 144 promulgated under the Securities Act which permit
limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things, the existence
of a public market for the shares, the availability of certain current public
information about the Company, the resale occurring not less than one year after
a party has purchased and paid for the security to be sold, the sale being
effected through a "broker's transaction" or in transactions directly with a
"market maker"
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<PAGE>
and the number of shares being sold during any three-month period not exceeding
specified limitations.
(vii) ACCESS TO DATA. Executive has had an opportunity to
discuss the Company's business, management and financial affairs with its
management and the opportunity to review the Company's facilities and financial
data. Executive has also had an opportunity to ask questions of officers of the
Company, which questions were answered to his satisfaction. Executive
understands that such discussions, as well as any written information issued by
the Company were intended to describe certain aspects of the Company's business
and prospects but were not a thorough or exhaustive description.
(viii) REGISTRATION RIGHTS.
(A) RESTRICTIONS ON TRANSFERABILITY. The Shares shall
not be transferable except upon the conditions specified in this Agreement,
which conditions are intended to ensure compliance with the provisions of the
Securities Act. Executive will cause any proposed transferee of the Shares
held by the Executive to agree to take and hold such Shares subject to the
provisions and upon the conditions specified in this Agreement.
(B) RESTRICTIVE LEGEND. Each certificate representing the
Shares and any shares issued upon conversion of the Shares pursuant to any
stock split, stock dividend, recapitalization, merger, consolidation or
similar event, shall (unless otherwise permitted by the provisions of Section
4(c)(viii)(C) below) be stamped or otherwise imprinted with a legend in the
following form (in addition to any legend required under applicable state
securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THESE
SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT. COPIES OF THE AGREEMENTS COVERING THE
PURCHASE OF THESE SHARES AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO
COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
CORPORATION.
(C) NOTICE OF PROPOSED TRANSFERS. Executive agrees to
comply in all respects with the provisions of this Section 4(c)(viii)(C). Prior
to any proposed transfer of any of the Shares, unless there is in effect a
registration statement under the Securities Act covering the proposed transfer
or such transfer is made in compliance with Rule 144, Executive shall give
written notice to the Company of his intention to effect such transfer. Each
such notice shall describe the manner and circumstances of the proposed transfer
in sufficient detail, and shall, if the Company so
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<PAGE>
requests, be accompanied (except in transactions made in compliance with Rule
144) by either (i) an unqualified written opinion of legal counsel who shall
be reasonably satisfactory to the Company, addressed to the Company and
reasonably satisfactory in form and substance to the Company's counsel, to
the effect that the proposed transfer of the Shares may be effected without
registration under the Securities Act, or (ii) a "No Action" letter from the
Securities & Exchange Commission (the "Commission") to the effect that the
transfer of such securities without registration will not result in a
recommendation by the staff of the Commission that action be taken with
respect thereto, whereupon Executive shall be entitled to transfer the Shares
in accordance with the terms of the notice delivered by Executive to the
Company; PROVIDED, HOWEVER, that no opinion or No Action letter need be
obtained with respect to a transfer to (1) Executive's estate, (2) the
spouse, children, grandchildren or spouse of such children or grandchildren
of the Executive (the "Family Members") or (3) to any trust for the benefit
of the Executive or any Family Members, in each case if the transferee agrees
to be subject to the terms hereof. Each certificate evidencing the Shares
transferred as above provided shall bear the appropriate restrictive legend
set forth in Section 4(c)(viii)(B) above, except that such certificate shall
not bear such restrictive legend if in the opinion of counsel for the Company
such legend is not required in order to establish compliance with any
provision of the Securities Act.
(D) EXPENSES OF REGISTRATION. All Registration
Expenses (as defined below) incurred in connection with any registration
pursuant to Section 4(c)(viii)(E) shall be borne by the Company; PROVIDED,
HOWEVER, that the Company shall not be required to bear the cost of fees and
disbursement of counsel to Executive. All Selling Expenses (as defined below)
relating to securities registered by Executive shall be borne by Executive on
the basis of the number of shares so registered.
(E) REGISTRATION ON FORM S-3. As soon as practicable
after the Employment Commencement Date but, in any event, no later than ninety
(90) days following the Employment Commencement Date, the Company will file a
registration statement on Form S-3 with the Commission covering the Shares and
any shares acquired by Executive upon exercise of stock options granted to
Executive pursuant to Section 4(d) hereof (the "Option Shares") (and any shares
issued upon conversion of the Shares or the Option Shares pursuant to any
stock split, stock dividend, recapitalization, merger, consolidation or similar
event), and will use its commercially reasonable best efforts to cause such
registration statement to be declared effective as soon as is practicable
thereafter.
(F) REGISTRATION PROCEDURES. The Company will keep
Executive advised in writing as to the filing of the registration statement and
as to the status thereof. At its expense the Company will:
(I) Keep such registration statement
effective until Executive has completed the distribution of all of the
securities covered by such registration statement; and
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<PAGE>
(II) Furnish such number of prospectuses and
other documents incident thereto as Executive from time to time may
reasonably request.
(III) prepare and file with the Commission any
necessary amendments and supplements to the registration statement and the
prospectus used in connection therewith, as may be necessary to keep such
registration statement effective and to comply with the Securities Act and
the rules and regulations thereunder and the instructions to Form S-3 with
respect to the disposition of all securities covered by the registration
statement;
(IV) use its best efforts to register or
qualify all securities covered by the registration statement under the
securities or blue sky laws of such jurisdictions where an exemption is not
available;
(V) notify the Executive upon discovery
that, or upon the occurrence of an event as a result of which, the
registration statement or prospectus as then in effect includes an untrue
statement of material fact or omits to state therein a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading;
(VI) use its best efforts to obtain and
maintain the quotation of the Shares and Option Shares on the Nasdaq National
Market;
(VII) promptly notify the Executive of any
stop order issued or threatened by the Commission and take all reasonable
steps to prevent the entry of such order or use its best efforts to obtain
the withdrawal of any order suspending the effectiveness of the registration
statement at the earliest possible time; and
(VIII) otherwise use its best efforts to comply
with all applicable rules and regulations of the Commission and make
available to securityholders as soon as reasonably practicable an earnings
statement covering a period of 12 months beginning three months after the
effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11 (a) of the Securities Act.
(G) SUSPENSION OF REGISTRATION. Executive agrees that,
for such period of time as is reasonably requested by the Company, he will not
make any sale of Shares or Option Shares registered pursuant to this Section
4(c)(viii) if he receives a certificate signed in good faith by an executive
officer of the Company indicating that (I) the sale of Shares or Option Shares
would require disclosure of a proposed transaction involving the Company, which
disclosure would have a material adverse effect on the negotiation of such
transaction or (II) the prospectus included in the registration statement
contains an untrue statement of a material fact or omits any material fact
necessary to make the statements therein, in the light of the circumstances
under which they are made, not misleading. In the case of an event described in
clause (I) of this Section 4(c)(viii)(G), the period of time Executive shall be
required not to make any sale of Shares or Option Shares
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<PAGE>
registered in this Section 4(c)(viii) shall not exceed sixty (60) days. In
the case of the event described in clause (II) of this Section 4(c)(viii)(G),
the Company will use its best efforts to amend or otherwise correct such
prospectus as soon as practicable, but in no event more than thirty (30) days
after the date upon which the Company notifies Executive of such event.
(H) TERMINATION OF REGISTRATION RIGHTS. The Company's
obligation to register the Shares and Option Shares pursuant to Section
4(c)(viii)(E) shall terminate as to Shares or Option Shares, as the case may be,
at such time as Executive is eligible to sell such Shares or Option Shares, as
the case may be, pursuant to Rule 144(k) promulgated under the Securities Act
and the Company will cause new certificates representing such Shares or Option
Shares, as the case may be (without any restrictive legends) to be issued to the
Executive (or other holder of such Shares or Option Shares) at such time.
(I) INFORMATION BY EXECUTIVE. Executive shall furnish
to the Company such information regarding Executive and the distribution
proposed by Executive as the Company may request in writing and as shall be
required in connection with any registration referred to in this Agreement.
(J) INDEMNIFICATION. In the event that any Shares or
Options Shares are included in a registration statement under this Section
4(c)(viii):
(I) To the extent permitted by law, the Company will
indemnify and hold harmless Executive, any underwriter (as defined in the
Securities Act) for Executive and each person, if any, who controls such
underwriter within the meaning of the Securities Act or the Securities
Exchange Act of 1934, as amended (the "1934 Act") against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the Securities Act, the 1934 Act or other federal or state law, insofar
as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "VIOLATION"): (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii)
the omission or alleged omission to state therein a material fact required to
be stated therein, or necessary to make the statements therein not
misleading, or (iii) any violation or alleged violation by the Company of the
Securities Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the Securities Act, the 1934 Act or any state
securities law; and the Company will pay, as incurred, to Executive, each
such underwriter or controlling person any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability, or action, as such expenses are incurred; PROVIDED,
HOWEVER, that the indemnity agreement contained in this Section
4(c)(viii)(J)(I) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability, or action if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case for any such
loss, claim, damage, liability, or action to the extent
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<PAGE>
that it arises out of or is based upon a Violation which occurs in reliance
upon and in conformity with information furnished expressly for use in
connection with such registration by Executive or any underwriter or
controlling person.
(II) To the extent permitted by law, Executive will
indemnify and hold harrnless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act or the 1934
Act, any underwriter and any controlling person of any such underwriter,
severally but not jointly, against any losses, claims, damages, or
liabilities (joint or several) to which any of the foregoing persons may
become subject, under the Securities Act, the 1934 Act or other federal or
state law, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information furnished by
Executive expressly for use in connection with such registration; and
Executive will pay, as incurred, any legal or other expenses reasonably
incurred by any person intended to be indemnified pursuant to this Section
4(c)(viii)(J)(II), in connection with investigating or defending any such
loss, claim, damage, liability, or action; PROVIDED, HOWEVER, that the
indemnity agreement contained in this Section 4(c)(viii)(J)(II) shall not
apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of
Executive, which consent shall not be unreasonably withheld; PROVIDED,
FURTHER, that in no event shall Executive's cumulative, aggregate liability
under this Section 4(c)(viii)(J)(II) exceed the gross proceeds from the sale
or offering of Shares or Option Shares by Executive.
(III) Promptly after receipt by an indemnified party
under this Section 4(c)(viii)(J) of notice of the commencement of any action
(including any governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under this Section
4(c)(viii)(J), deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with one counsel mutually satisfactory to the parties; PROVIDED,
HOWEVER, that an indemnified party (together with all other indemnified parties
which may be represented without conflict by one counsel) shall have the right
to retain one separate counsel, with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate due to actual or
potential differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action shall not relieve such indemnifying party of any liability to
the indemnified party under this Section 4(c)(viii)(J) unless the failure to
deliver notice is materially prejudicial to its ability to defend such action.
Any omission to so deliver written notice to the indemning@g party will not
relieve it of any liability that it may have to any indemnified party otherwise
than under this Section 4(c)(viii)(J).
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<PAGE>
(IV) If the indemnification provided for in this
Section 4(c)(viii)(J) is held by a court of competent jurisdiction to be
unavailable to an indemnified party with respect to any loss, liability,
claim, damage, or expense referred to herein, then the indemnifying party, in
lieu of indemnifying such indemnified party hereunder, shall contribute to
the amount paid or payable by such indemnified party as a result of such
loss, liability, claim, damage, or expense in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the
one hand and of the indemnified party on the other in connection with the
statements or omissions that resulted in such loss, liability, claim, damage,
or expense as well as any other relevant equitable considerations; PROVIDED,
HOWEVER, that in no event shall Executive's cumulative, aggregate liability
under this Section 4(c)(viii)(J)(IV), or under Section 4(c)(viii)(J)(IV)
exceed the gross proceeds from the sale or offering of Shares or Option
Shares by Executive. Notwithstanding anything to the contrary herein, no
party shall be liable for contribution under this Section 4(c)(viii)(J)(IV),
except to the extent and under the circumstances as such party would have
been liable to indemnity under Section 4(c)(viii)(J)(I) or Section
4(c)(viii)(J)(II), as the case may be, if such indemnification were
enforceable under applicable law. The relative fault of the indemnifying
party and of the indemnified party shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material
fact or the omission to state a material fact relates to information supplied
by the indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information, and opportunity to correct
or prevent such statement or omission.
(K) DEFINITIONS. For purposes of this Section 4(c), the
following definitions shall apply:
The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"REGISTRATION EXPENSES" shall mean all expenses incurred by the
Company in complying with Section 4(c)(viii)(E) hereof, including, without
limitation, all registration, qualification and filing fees, printing expenses,
and fees and disbursements of counsel for the Company.
"SELLING, EXPENSES" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
Executive.
(d) STOCK OPTION. Upon the Employment Commencement Date,
Executive shall be granted a nonstatutory stock option covering nine hundred
thousand (900,000) shares of Company Common Stock with a per share exercise
price equal to 100% of the per share fair market value on the date of grant
(the "Option"). The parties agree and acknowledge that the grant of the
Option is an inducement essential to Executive's entering into this Agreement
with the Company. The Option shall be for a term of ten years, or shorter
upon termination of Executive's employment with the
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<PAGE>
Company for "Cause" (as defined herein). Except as otherwise specified in
this Agreement, the Option is in all respects subject to the terms,
definitions and provisions of the Company's 1998 Non-Statutory Stock Option
Plan (the "Stock Option Plan") and the standard form of option agreement
thereunder (the "Option Agreement") attached hereto as EXHIBIT B. Any shares
issuable pursuant to the Option shall be registered by the Company on Form
S-8 prior to any vesting of the Option. The Company represents that it has or
will obtain any necessary authority form any regulatory body to effect the
lawful grant of the Option and the issuance and sale of the Shares subject to
the Option.
(i) 300,000 SHARE EMPLOYMENT-BASED VESTING COMPONENT.
Three hundred thousand (300,000) shares subject to the Option shall vest as
to twenty percent (20%) (i.e., 60,000 shares) on each anniversary of the
Employment Commencement Date, so as to be one hundred percent (100%) vested
on the fifth anniversary of the Employment Commencement Date, subject to
Executive remaining employed by the Company on such vesting dates.
(ii) PERFORMANCE/EMPLOYMENT-BASED "HYBRID" VESTING
COMPONENT. The remaining six hundred thousand (600,000) shares subject to the
Option (the "Hybrid Vesting Component") shall vest one hundred percent (100%)
on the fifth anniversary of the Employment Commencement Date, subject to
Executive remaining employed by the Company on such vesting date; subject to
accelerated vesting as follows:
(A) 15% PERFORMANCE TRANCHE. One hundred and fifty
thousand (150,000) shares of the Hybrid Vesting Component (the "15%
Performance Tranche") shall vest as follows:
(I) With respect to thirty thousand (30,000)
shares of the 15% Performance Tranche (the "First-Year 15% Sub-Tranche"),
such shares shall vest upon the earliest of the following dates (i) the date
of the issuance of the Company's audited annual financial statements for
fiscal year 1998, but only if such financial statements reflect at least a
fifteen percent (15%) increase in Company net income after tax, determined
in accordance with generally accepted U.S. accounting principles, but
excluding for purposes of such computation any Company expenses related to
the relocation of the Company's corporate headquarters ("Net Income"), when
measured against the Company's 1997 Net Income, (ii) the date of the issuance
of the Company's audited annual financial statements for fiscal year 1999,
but only if such financial statements reflect at least a thirty-two percent
(32%) increase in Company Net Income when measured against the Company's 1997
Net Income, (iii) the date of the issuance of the Company's audited annual
financial statements for fiscal year 2000, but only if such financial
statements reflect at least a fifty-two percent (52%) increase in Company Net
Income when measured against the Company's 1997 Net Income, (iv) the date of
the issuance of the Company's audited annual financial statements for
fiscal year 2001, but only if such financial statements reflect at least a
seventy-five percent (75%) increase in Company Net Income when measured
against the Company's 1997 Net Income, or (v) the date of the issuance of the
Company's audited annual financial statements for fiscal year 2002, but only
if such financial statements reflect at least a one hundred and one percent
(101%) increase in Company Net Income
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<PAGE>
when measured against the Company's 1997 Net Income, with any such vesting of
the First-Year 15% Sub-Tranche conditioned upon Executive's remaining an
employee of the Company as of the vesting date.
(II) With respect to a separate thirty thousand (30,000)
shares of the 15% Performance Tranche (the "Second-Year 15% Sub-Tranche"), such
shares shall vest upon the earliest of the following dates (i) the date of the
issuance of the Company's audited annual financial statements for fiscal year
1999, but only if such financial statements reflect at least a thirty-
two percent (32%) increase in Company Net Income when measured against the
Company's 1997 Net Income, (ii) the date of the issuance of the Company's
audited annual financial statements for fiscal year 2000, but only if such
financial statements reflect at least a fifty-two percent (52%) increase in
Company Net Income when measured against the Company's 1997 Net Income, (iii)
the date of the issuance of the Company's audited annual financial statements
for fiscal year 2001, but only if such financial statements reflect at least a
seventy-five percent (75%) increase in Company Net Income when measured against
the Company's 1997 Net Income, or (iv) the date of the issuance of the Company's
audited annual financial statements for fiscal year 2002, but only if such
financial statements reflect at least a one hundred and one percent (101%)
increase in Company Net Income when measured against the Company's 1997 Net
Income, with any such vesting of the Second-Year 15% Sub-Tranche conditioned
upon Executive's remaining an employee of the Company as of the vesting date.
(III) With respect to a separate thirty thousand
(30,000) shares of the 15% Performance Tranche (the "Third-Year 15%
Sub-Tranche"), such shares shall vest upon the earliest of the following
dates (i) the date of the issuance of the Company's audited annual financial
statements for fiscal year 2000, but only if such financial statements
reflect at least a fifty-two percent (52%) increase in Company Net Income
when measured against the Company's 1997 Net Income, (ii) the date of the
issuance of the Company's audited annual financial statements for fiscal year
2001, but only if such financial statements reflect at least a seventy-five
percent (75%) increase in Company Net Income when measured against the
Company's 1997 Net Income, or (iii) the date of the issuance of the Company's
audited annual financial statements for fiscal year 2002, but only if such
financial statements reflect at least a one hundred and one percent (101%)
increase in Company Net Income when measured against the Company's 1997 Net
Income, with any such vesting of the Third-Year 15% Sub-Tranche conditioned
upon Executive's remaining an employee of the Company as of the vesting date.
(IV) With respect to a separate thirty thousand (30,000)
shares of the 15% Performance Tranche (the "Fourth-Year 15% Sub-Tranche"), such
shares shall vest upon the earliest of the following dates (i) the date of the
issuance of the Company's audited annual financial statements for fiscal year
2001, but only if such financial statements reflect at least a seventy-five
percent (75%) increase in Company Net Income when measured against the
Company's 1997 Net Income, or (ii) the date of the issuance of the Company's
audited annual financial statements for fiscal year 2002, but only if such
financial statements reflect at least a one hundred
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<PAGE>
and one percent (101%) increase in Company Net Income when measured against the
Company's 1997 Net Income, with any such vesting of the Fourth-Year 15%
Sub-Tranche conditioned upon Executive's remaining an employee of the Company as
of the vesting date.
(V) With respect to a separate thirty thousand
(30,000) shares of the 15% Performance Tranche (the "Fifth-Year 15%
Sub-Tranche"), such shares shall vest upon the date of the issuance of the
Company's audited annual financial statements for fiscal year 2002, but only
if such financial statements reflect at least a one hundred and one percent
(101%) increase in Company Net Income when measured against the Company's
1997 Net Income, with any such vesting of the Fifth-Year 15% Sub-Tranche
conditioned upon Executive's remaining an employee of the Company as of the
vesting date.
(B) 20% PERFORMANCE TRANCHE. A separate one hundred and
fifty thousand (150,000) shares of the Hybrid Vesting Component (the "20%
Performance Tranche") shall vest as follows:
(I) With respect to thirty thousand (30,000) shares
of the 20% Performance Tranche (the "First-Year 20% Sub-Tranche"), such
shares shall vest upon the earliest of the following dates (i) the date of
the issuance of the Company's audited annual financial statements for fiscal
year 1998, but only if such financial statements reflect at least a twenty
percent (20%) increase in Company Net Income when measured against the
Company's 1997 Net Income, (ii) the date of the issuance of the Company's
audited annual financial statements for fiscal year 1999, but only if such
financial statements reflect at least a forty-four percent (44%) increase in
Company Net Income when measured against the Company's 1997 Net Income, (iii)
the date of the issuance of the Company's audited annual financial statements
for fiscal year 2000, but only if such financial statements reflect at least
a seventy-three percent (73%) increase in Company Net Income when measured
against the Company's 1997 Net Income, (iv) the date of the issuance of the
Company's audited annual financial statements for fiscal year 2001, but only
if such financial statements reflect at least a one hundred and seven percent
(107%) increase in Company Net Income when measured against the Company's
1997 Net Income, or (v) the date of the issuance of the Company's audited
annual financial statements for fiscal year 2002, but only if such financial
statements reflect at least a one hundred and forty-nine percent (149%)
increase in Company Net Income when measured against the Company's 1997 Net
Income, with any such vesting of the First-Year 20% Sub-Tranche conditioned
upon Executive's remaining an employee of the Company as of the vesting date.
(II) With respect to a separate thirty thousand
(30,000) shares of the 20% Performance Tranche (the "Second-Year 20%
Sub-Tranche"), such shares shall vest upon the earliest of the following
dates (i) the date of the issuance of the Company's audited annual financial
statements for fiscal year 1999, but only if such financial statements
reflect at least a forty-four percent (44%) increase in Company Net Income
when measured against the Company's 1997 Net Income, (ii) the date of the
issuance of the Company's audited annual financial statements for fiscal year
2000, but only if such financial statements reflect at least a seventy-three
percent (73%)
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<PAGE>
increase in Company Net Income when measured against the Company's 1997 Net
Income, (iii) the date of the issuance of the Company's audited annual financial
statements for fiscal year 2001, but only if such financial statements reflect
at least a one hundred and seven percent (107%) increase in Company Net Income
when measured against the Company's 1997 Net Income, or (iv) the date of the
issuance of the Company's audited annual financial statements for fiscal year
2002, but only if such financial statements reflect at least a one hundred and
forty-nine percent (149%) increase in Company Net Income when measured against
the Company's 1997 Net Income, with any such vesting of the Second-Year 20%
Sub-Tranche conditioned upon Executive's remaining an employee of the Company as
of the vesting date.
(III) With respect to a separate thirty thousand
(30,000) shares of the 20% Performance Tranche (the "Third-Year 20%
Sub-Tranche"), such shares shall vest upon the earliest of the following
dates (i) the date of the issuance of the Company's audited annual financial
statements for fiscal year 2000, but only if such financial statements
reflect at least a seventy-three percent (73%) increase in Company Net Income
when measured against the Company's 1997 Net Income, (ii) the date of the
issuance of the Company's audited annual financial statements for fiscal year
2001, but only if such financial statements reflect at least a one hundred
and seven percent (107%) increase in Company Net Income when measured against
the Company's 1997 Net Income, or (iii) the date of the issuance of the
Company's audited annual financial statements for fiscal year 2002, but only
if such financial statements reflect at least a one hundred and forty-nine
percent (149%) increase in Company Net Income when measured against the
Company's 1997 Net Income, with any such vesting of the Third-Year 20%
Sub-Tranche conditioned upon Executive's remaining an employee of the Company
as of the vesting date.
(IV) With respect to a separate thirty thousand
(30,000) shares of the 20% Performance Tranche (the "Fourth-Year 20%
Sub-Tranche"), such shares shall vest upon the earliest of the following
dates (i) the date of the issuance of the Company's audited annual financial
statements for fiscal year 2001, but only if such financial statements
reflect at least a one hundred and seven percent (107%) increase in Company
Net Income when measured against the Company's 1997 Net Income, or (ii) the
date of the issuance of the Company's audited annual financial statements for
fiscal year 2002, but only if such financial statements reflect at least a
one hundred and forty-nine percent (149%) increase in Company Net Income when
measured against the Company's 1997 Net Income, with any such vesting of the
Fourth-Year 20% Sub-Tranche conditioned upon Executive's remaining an
employee of the Company as of the vesting date.
(V) With respect to a separate thirty thousand (30,000)
shares of the 20% Performance Tranche (the "Fifth-Year 20% Sub-Tranche"), such
shares shall vest upon the date of the issuance of the Company's audited annual
financial statements for fiscal year 2002, but only if such financial statements
reflect at least a one hundred and forty-nine percent (149%) increase in
Company Net Income when measured against the Company's 1997 Net Income, with any
such vesting of the Fifth-Year 20% Sub-Tranche conditioned upon Executive's
remaining an employee of the Company as of the vesting date.
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<PAGE>
(C) 25% PERFORMANCE TRANCHE. A separate one hundred
and fifty thousand (150,000) shares of the Hybrid Vesting Component (the
"25% Performance Tranche") shall vest as follows:
(I) With respect to thirty thousand (30,000)
shares of the 25% Performance Tranche (the "First-Year 25% Sub-Tranche"),
such shares shall vest upon the earliest of the following dates (i) the date
of the issuance of the Company's audited annual financial statements for
fiscal year 1998, but only if such financial statements reflect at least a
twenty-five percent (25%) increase in Company Net Income when measured
against the Company's 1997 Net Income, (ii) the date of the issuance of the
Company's audited annual financial statements for fiscal year 1999, but only
if such financial statements reflect at least a fifty-six percent (56%)
increase in Company Net Income when measured. against the Company's 1997 Net
Income, (iii) the date of the issuance of the Company's audited annual
financial statements for fiscal year 2000, but only if such financial
statements reflect at least a ninety-five percent (95%) increase in Company
Net Income when measured against the Company's 1997 Net Income, (iv) the date
of the issuance of the Company's audited annual financial statements for
fiscal year 2001, but only if such financial statements reflect at least a
one hundred and forty-four percent (144%) increase in Company Net Income when
measured against the Company's 1997 Net Income, or (v) the date of the
issuance of the Company's audited annual financial statements for fiscal year
2002, but only if such financial statements reflect at least a two hundred
and five percent (205%) increase in Company Net Income when measured against
the Company's 1997 Net Income, with any such vesting of the First-Year 25%
Sub-Tranche conditioned upon Executive's remaining an employee of the Company
as of the vesting date.
(II) With respect to a separate thirty thousand
(30,000) shares of the 25% Performance Tranche (the "Second-Year 25%
Sub-Tranche"), such shares shall vest upon the earliest of the following
dates (i) the date of the issuance of the Company's audited annual financial
statements for fiscal year 2000, but only if such financial statements
reflect at least a fifty-six percent (56%) increase in Company Net Income
when measured against the Company's 1997 Net Income, (ii) the date of the
issuance of the Company's audited annual financial statements for fiscal year
2000, but only if such financial statements reflect at least a ninety-five
percent (95%) increase in Company Net Income when measured against the
Company's 1997 Net Income, (iii) the date of the issuance of the Company's
audited annual financial statements for fiscal year 2001, but only if such
financial statements reflect at least a one hundred and forty-four percent
(144%) increase in Company Net Income when measured against the Company's
1997 Net Income, or (iv) the date of the issuance of the Company's audited
annual financial statements for fiscal year 2002, but only if such financial
statements reflect at least a two hundred and five percent (205%) increase in
Company Net Income when measured against the Company's 1997 Net Income, with
any such vesting of the Second-Year 25% Sub-Tranche conditioned upon
Executive's remaining an employee of the Company as of the vesting date.
(III) With respect to a separate thirty thousand
(30,000) shares of the 25% Performance Tranche (the "Third-Year 25%
Sub-Tranche"), such shares shall vest upon
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<PAGE>
the earliest of the following dates (i) the date of the issuance of the
Company's audited annual financial statements for fiscal year 2000, but only
if such financial statements reflect at least a ninety-five percent (95%)
increase in Company Net Income when measured against the Company's 1997 Net
Income, (ii) the date of the issuance of the Company's audited annual
financial statements for fiscal year 2001, but only if such financial
statements reflect at least a one hundred and forty-four percent (144%)
increase in Company Net Income when measured against the Company's 1997 Net
Income, or (iii) the date of the issuance of the Company's audited annual
financial statements for fiscal year 2002, but only if such financial
statements reflect at least a two hundred and five percent (205%) increase in
Company Net Income when measured against the Company's 1997 Net Income, with
any such vesting of the Third-Year 25% Sub-Tranche conditioned upon
Executive's remaining an employee of the Company as of the vesting date.
(IV) With respect to a separate thirty thousand (30,000)
shares of the 25% Performance Tranche (the "Fourth-Year 25% Sub-Tranche"), such
shares shall vest upon the earliest of the following dates (i) the date of the
issuance of the Company's audited annual financial statements for fiscal year
2001, but only if such financial statements reflect at least a one hundred and
forty-four percent (144%) increase in Company Net Income when measured against
the Company's 1997 Net Income, or (ii) the date of the issuance of the Company's
audited annual financial statements for fiscal year 2002, but only if such
financial statements reflect at least a two hundred and five percent (205%)
increase in Company Net Income when measured against the Company's 1997 Net
Income, with any such vesting of the Fourth-Year 25% Sub-Tranche conditioned
upon Executive's remaining an employee of the Company as of the vesting date.
(V) With respect to a separate thirty thousand (30,000)
shares of the 25% Performance Tranche (the "Fifth-Year 25% Sub-Tranche"), such
shares shall vest upon the date of the issuance of the Company's audited annual
financial statements for fiscal year 2002, but only if such financial statements
reflect at least a two hundred and five percent (205%) increase in Company Net
Income when measured against the Company's 1997 Net Income, with any such
vesting of the Fifth-Year 25% Sub-Tranche conditioned upon Executive's remaining
an employee of the Company as of the vesting date.
(D) 30% PERFORMANCE TRANCHE. A separate one hundred and
fifty thousand (1 5 0,000) shares of the Hybrid Vesting Component (the "30%
Performance Tranche") shall vest as follows:
(I) With respect to thirty thousand (30,000) shares
of the 30% Performance Tranche (the "First-Year 30% Sub-Tranche"), such
shares shall vest upon the earliest of the following dates (i) the date of
the issuance of the Company's audited annual financial statements for fiscal
year 1998, but only if such financial statements reflect at least a thirty
percent (30%) increase in Company Net Income when measured against the
Company's 1997 Net Income, (ii) the date of the issuance of the Company's
audited annual financial statements for fiscal year 1999, but only if such
financial statements reflect at least a sixty-nine percent (69%) increase in
Company Net
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<PAGE>
Income when measured against the Company's 1997 Net Income, (iii) the date of
the issuance of the Company's audited annual financial statements for fiscal
year 2000, but only if such financial statements reflect at least a one
hundred and twenty percent (120%) increase in Company Net Income when
measured against the Company's 1997 Net Income, (iv) the date of the issuance
of the Company's audited annual financial statements for fiscal year 2001,
but only if such financial statements reflect at least a one hundred and
eighty-six percent (186%) increase in Company Net Income when measured
against the Company's 1997 Net Income, or (v) the date of the issuance of the
Company's audited annual financial statements for fiscal year 2002, but only
if such financial statements reflect at least a two hundred and seventy-one
percent (271%) increase in Company Net Income when measured against the
Company's 1997 Net Income, with any such vesting of the First-Year 30%
Sub-Tranche conditioned upon Executive's remaining an employee of the Company
as of the vesting date.
(II) With respect to a separate thirty thousand
(30,000) shares of the 30% Performance Tranche (the "Second-Year 30%
Sub-Tranche"), such shares shall vest upon the earliest of the following
dates (i) the date of the issuance of the Company's audited annual financial
statements for fiscal year 2000, but only if such financial statements
reflect at least a sixty-nine percent (69%) increase in Company Net Income
when measured against the Company's 1997 Net Income, (ii) the date of the
issuance of the Company's audited annual financial statements for fiscal year
2000, but only if such financial statements reflect at least a one hundred
and twenty percent (120%) increase in Company Net Income when measured
against the Company's 1997 Net Income, (iii) the date of the issuance of the
Company's audited annual financial statements for fiscal year 2001, but only
if such financial statements reflect at least a one hundred and eighty-six
percent (186%) increase in Company Net Income when measured against the
Company's 1997 Net Income, or (iv) the date of the issuance of the Company's
audited annual financial statements for fiscal year 2002, but only if such
financial statements reflect at least a two hundred and seventy-one percent
(271%) increase in Company Net Income when measured against the Company's
1997 Net Income, with any such vesting of the Second-Year 30% Sub-Tranche
conditioned upon Executive's remaining an employee of the Company as of the
vesting date.
(III) With respect to a separate thirty thousand
(30,000) shares of the 30% Performance Tranche (the "Third-Year 30%
Sub-Tranche"), such shares shall vest upon the earliest of the following
dates (i) the date of the issuance of the Company's audited annual financial
statements for fiscal year 2000, but only if such financial statements
reflect at least a one hundred and twenty percent (120%) increase in Company
Net Income when measured against the Company's 1997 Net Income, (ii) the date
of the issuance of the Company's audited annual financial statements for
fiscal year 2001, but only if such financial statements reflect at least a
one hundred and eighty-six percent (186%) increase in Company Net Income when
measured against the Company's 1997 Net Income, or (iii) the date of the
issuance of the Company's audited annual financial statements for fiscal year
2002, but only if such financial statements reflect at least a two hundred
and seventy-one percent (271%) increase in Company Net Income when measured
against
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<PAGE>
the Company's 1997 Net Income, with any such vesting of the Third-Year 30%
Sub-Tranche conditioned upon Executive's remaining an employee of the Company as
of the vesting date.
(IV) With respect to a separate thirty thousand
(30,000) shares of the 30% Performance Tranche (the "Fourth-Year 30%
Sub-Tranche"), such shares shall vest upon the earliest of the following
dates (i) the date of the issuance of the Company's audited annual financial
statements for fiscal year 2001, but only if such financial statements
reflect at least a one hundred and eighty-six percent (186%) increase in
Company Net Income when measured against the Company's 1997 Net Income, or
(ii) the date of the issuance of the Company's audited annual financial
statements for fiscal year 2002, but only if such flnancial statements
reflect at least a two hundred and seventy-one percent (271%) increase in
Company Net Income when measured against the Company's 1997 Net Income, with
any such vesting of the Fourth-Year 30% Sub-Tranche conditioned upon
Executive's remaining an employee of the Company as of the vesting date.
(V) With respect to a separate thirty thousand
(30,000) shares of the 30% Performance Tranche (the "Fiftieth-Year 30%
Sub-Tranche"), such shares shall vest upon the date of the issuance of the
Company's audited annual financial statements for fiscal year 2002, but only
if such financial statements reflect at least a two hundred and seventy-one
percent (271%) increase in Company Net Income when measured against the
Company's 1997 Net Income, with any such vesting of the Fifth-Year 30%
Sub-Tranche conditioned upon Executive's remaining an employee of the Company
as of the vesting date.
(e) SEVERANCE. In the event that Executive's employment with the
Company is involuntarily terminated by the Company without "Cause" or Executive
resigns for "Good Reason" (both as defined below) (a "Severance Termination"),
then the Company shall provide Executive with the following benefits:
(i) SEVERANCE PAYMENT. A lump-sum cash payment in an
amount equal to one hundred percent (100%) of Executive's annual Base Salary
and the highest annual bonus earned by Executive with respect to any
previously completed fiscal year (or, if greater, Executive's targeted annual
bonus for the year of termination) (the "Highest Annual Bonus"), PLUS any
accrued but unpaid compensation (including any bonus earned, but not yet
paid, in respect of any previously completed fiscal year) (less applicable
withholding);
(ii) CONTINUED GROUP HEALTH INSURANCE. Company-paid
health, dental and vision coverage under Title X of the Consolidated Budget
Reconciliation Act of 1985 ("COBRA") in the same proportion of Company-paid
coverage as was provided to Executive immediately prior to the termination of
employment. If such coverage included the Executive's spouse and/or
dependents immediately prior to the termination of employment, such spouse
and/or dependents shall also be covered. Company-Paid Coverage shall continue
until the earlier of (i) one year from the date of termination, or (ii) the
date upon which the Executive and his dependents become covered under
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<PAGE>
another employer's group health, dental and vision insurance plans that
provide Executive and his dependents with comparable benefits and levels of
coverage.
(iii) ACCELERATED VESTING. Notwithstanding any other
provision of this Agreement, the Option Plan or the Option Agreement,
accelerated vesting of shares subject to the Option as follows; provided,
however that in no event shall the Option accelerate in excess of the number
of shares subject thereto:
<TABLE>
<S> <C>
Number of Months Following
Employment Commencement Date
in Which Severance Termination Occurs Number of Shares Accelerated
- ------------------------------------- ----------------------------
0- 12 months 450,000
12-24 months 600,000
24-48 months 400,000
48-60 months 300,000
</TABLE>
EXAMPLE: EXECUTIVE IS INVOLUNTARILY TERMINATED BY THE COMPANY WITHOUT
CAUSE ON MAY 17,1999. 450,000 SHARES SUBJECT TO THE OPTION HAVE THEIR
VESTING ACCELERATED.
For the purposes of this Agreement, "Cause" shall mean (i) Executive's
engaging in willful or negligent misconduct which is injurious to the Company
or its affiliates, (ii) Executive's conviction of or plea of NOLO CONTENDERE
to a felony relating to the business or assets of the Company, (ii)
Executive's committing a material act of fraud against the Company or its
affiliates; or (iii) Executive's gross negligence in the performance of his
duties. However, Executive may not be terminated for Cause without (i)
reasonable notice to Executive setting forth the reasons for the Company's
intention to terminate for Cause, (ii) reasonable opportunity for Executive
to cure, and (iii) an opportunity for Executive, together with his counsel,
if any, to be heard before the Board.
For the purposes of this Agreement, "Good Reason" shall mean (i) the
assignment to Executive of duties incommensurate with his status as President
and Chief Executive Officer (and Chairman after Executive's appointment as
Chairman) or any material reduction of the Executive's duties, authority or
responsibilities relative to the Executive's duties, authority as in effect
immediately prior to such reduction, except if agreed to in writing by the
Executive; provided, however, that a reduction in duties, authority or
responsibilities solely by virtue of the Company being acquired and made part of
a larger entity (as, for example, when the Executive remains Chief Executive
Officer and President of the Company following a Change of Control and is not
made the Chief Executive Officer and President of the acquiring corporation)
shall not constitute "Good Reason;" (ii) a reduction by the Company in the Base
Salary or target bonus of the Executive as in effect immediately prior to such
reduction; (iii) the failure of the Company to establish, on or prior to April
30, 1999, a significant corporate presence in the Aspen, Colorado area,
sufficient for the Company to conduct its business from such location; (iv) the
failure of the Company to appoint Executive as Chairman of the Board by April
30, 1999 or the failure of the Company's shareholders
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<PAGE>
at any time to elect Executive as a member of the Board, (v) Executive's
resignation for any reason upon, or within 1 year following a Change of Control;
or (vi) any material breach of this Agreement by the Company.
(f) CHANGE OF CONTROL. In the event of a Change of Control (as
defined below) of the Company occurring while Executive remains employed
hereunder or within six (6) months following Executive's termination of
employment pursuant to a Severance Termination, then notwithstanding any
other provision of this Agreement, the Option Plan or the Option Agreement,
all of the shares subject to the Option shall become 100% vested.
For the purposes of this Agreement, "Change of Control" of the Company
shall mean:
- Any "person" or "group," as such terms are used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing 40% or more of the total
voting power represented by the Company's then outstanding voting securities; or
- The consummation of a merger or consolidation of the Company
with any other corporation other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least forty
percent (40%) of the total voting power represented by the voting securities
of the Company or such surviving entity outstanding immediately after such
merger or consolidation; or
- A change in the composition of the Board of Directors of the
Company occurring within a two-year period, as a result of which fewer than a
majority of the directors are Incumbent Directors. "Incumbent Directors" shall
mean directors who either (A) are directors of the Company as of the date
hereof, or (B) are elected, or nominated for election, to the Board of Direc-
tors of the Company with the affirmative votes of at least a majority of the
Incumbent Directors at the time of such election or nomination; or
- The approval by the.Board of a plan of complete liquidation of
the Company or of an agreement for the sale or disposition by the Company of all
or substantially all of the Company's assets.
(g) TERMINATION DUE TO EXECUTIVE'S DEATH OR DISABILITY. In the
event of Executive's termination of employment with the Company due to his death
or Disability (as defined below), then the Company shall (i) continue to pay
Executive's base salary through the end of the month in which such termination
occurs and (ii) pay Executive a lump-sum cash payment in an amount equal to the
sum of (x) a pro-rata portion of the Highest Annual Bonus, based upon the
percentage of the fiscal year that shall have elapsed through the date of
Executive's termination of
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<PAGE>
employment and (y) any accrued but unpaid compensation (including any bonus
earned, but not yet paid, in respect, in respect of any previously completed
fiscal year).
(h) TERMINATION BY THE COMPANY FOR CAUSE OR DUE TO EXECUTIVE'S
RESIGNATION WITHOUT GOOD REASON. In the event of Executive's termination of
employment with the Company by the Company for Cause or due to Executive's
resignation without Good Reason, then the Company shall pay Executive a lump-sum
cash payment in an amount equal to any accrued but unpaid compensation
(including any bonus earned, but not yet paid, in respect of any previously
completed fiscal year).
5. ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of (a) the heirs, executors and legal representatives of Executive
upon Executive's death and (b) any successor of the Company. Any such
successor of the Company shall be deemed substituted for the Company under
the terms of this Agreement for all purposes. As used herein, "successor"
shall include any person, firm, corporation or other business entity which
at any time, whether by purchase, merger or otherwise, directly or
indirectly acquires all or substantially all of the assets or business of the
Company. None of the rights of Executive to receive any form of compensation
payable pursuant to this Agreement shall be assignable or transferable except
through a testamentary disposition or by the laws of descent and distribution
upon the death of Executive following termination without cause. Any
attempted assignment, transfer, conveyance or other disposition (other than
as aforesaid) of any interest in the rights of Executive to receive any form
of compensation hereunder shall be null and void.
6. NOTICES. All notices, requests, demands and other communications
called for hereunder shall be in writing and shall be deemed given if (i)
delivered personally, (ii) one (1) day after being sent by Federal Express or a
similar commercial overnight service, or (iii) three (3) days after being mailed
by registered or certified mail, return receipt requested, prepaid and addressed
to the parties or their successors in interest at the following addresses, or at
such other addresses as the parties may designate by written notice in the
manner aforesaid:
<TABLE>
<S> <C>
If to the Company: The North Face, Inc.
2013 Farallon Drive
San Leandro, CA. 94577
ATTN: Chief Financial Officer
If to Executive: James Fifield
at the last residential address known by the Company.
</TABLE>
7. SEVERABILITY. In the event that any provision hereof becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision.
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<PAGE>
8. CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT. Executive agrees
to enter into the Company's standard Confidentiality and Conflict of Interest
Agreements (the "Confidentiality and Conflict of Interest Agreements") attached
hereto as EXHIBIT C upon commencing employment hereunder.
9. ENTIRE AGREEMENT. This Agreement, the Stock Option Plan, the Option
Agreement and the Confidentiality and Conflict of Interest Agreements represent
the entire agreement and understanding between the Company and Executive
concerning Executive's employment relationship with the Company, and supersede
and replace any and all prior agreements and understandings concerning
Executive's employment relationship with the Company.
10. ARBITRATION AND EQUITABLE RELIEF
(a) Executive and the Company agree that any dispute or
controversy arising out of, relating to, or in connection with this Agreement,
or the interpretation, validity, construction, performance, breach, or
termination thereof shall be settled by arbitration to be held in Alameda
County, California, in accordance with the National Rules for the Resolution of
Employment Disputes then in effect of the American Arbitration Association (the
"Rules") before a board of three disinterested persons, consisting of one
arbitrator to be appointed by the Company, one by Executive, and one by the
arbitrators so chosen. The arbitrators may grant injunctions or other relief in
such dispute or controversy. The decision of the arbitrators shall be final,
conclusive and binding on the parties to the arbitration. Judgment may be
entered on the arbitrator's decision in any court having jurisdiction.
(b) The arbitrators shall apply California law to the merits of
any dispute or claim, without reference to rules of conflict of law. The
arbitration proceedings shall be governed by federal arbitration law and by the
Rules, without reference to state arbitration law. Executive and the Company
hereby expressly consent to the personal jurisdiction of the state and federal
courts located in California for any action or proceeding arising from or
relating to this Agreement and/or relating to any arbitration in which the
parties are participants.
(c) The Company and Executive shall each pay one-half of the costs
and expenses of such arbitration, and shall separately pay its counsel fees and
expenses.
(d) EXECUTIVE HAS READ AND UNDERSTANDS SECTION 10, WHICH DISCUSSES
ARBITRATION. EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, EXECUTIVE
AGREES TO SUBMIT ANY FUTURE CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION
WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE,
BREACH, OR TERMINATION THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION
CLAUSE CONSTITUTES A WAIVER OF EXECUTIVE'S RIGHT TO A JURY TRIAL AND
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<PAGE>
RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE
EMPLOYER/EXECUTIVE RELATIONSHIP.
11. NO ORAL MODIFICATION, CANCELLATION OR DISCHARGE. This Agreement
may only be amended, canceled or discharged in writing signed by Executive
and a duly authorized officer (other than Executive) of the Company.
12. WITHHOLDING. The Company shall be entitled to withhold, or cause
to be withheld, from payment any amount of withholding taxes required by law
with respect to payments made to Executive in connection with his employment
hereunder.
13. NO MITIGATION. Executive shall not be required to mitigate any
amounts payable to Executive hereunder in connection with the termination of
his employment with the Company by seeking new employment or otherwise, and
the amounts payable by the Company to Executive hereunder shall not be
reduced by any compensation that may be earned by Executive in connection
with any other employment, self-employment or otherwise.
14. PARACHUTE PAYMENTS.
(a) In the event it shall be determined that any payment,
compensation, or distribution by the Company to or for the benefit of the
Executive, including any accelerated vesting of any stock options or other
equity securities (whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement of otherwise) (a "TERMINATION PAYMENT")
would be subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (or any corresponding provision of any
successor law), or any interest or penalties are incurred by the Executive with
respect to such excise tax (such excise tax, together with any such interest and
penalties, being herein referred to as the "EXCISE TAX"), then the Executive
shall be entitled to receive an additional amount (a "GROSS-UP PAYMENT") in an
amount such that after payment by the Executive of all taxes imposed upon the
Gross-Up Payment (including any interest or penalties imposed with respect to
such taxes), including, without limitation, any income tax (and any interest and
penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up
Payment, the Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Termination Payment.
(b) All determinations under this Section 14 shall be made by the
Company's independent auditors in consultation with an advisor selected by
Executive, or by an independent agency selected by both parties.
15. ACKNOWLEDGMENT. Executive acknowledges that he has had the
opportunity to discuss this matter with and obtain advice from his private
attorney, has had sufficient time to, and has carefully read and fully
understands all the provisions of this Agreement, and is knowingly and
voluntarily entering into this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
respective dates set forth below:
THE NORTH FACE, INC.
<TABLE>
<S> <C>
By:
----------------------------- -----------------------------
Signature
Title:
----------------------------
Date:
-----------------------------
EXECUTIVE
-----------------------------
James Fifield
Date:
-----------------------------
</TABLE>
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EXHIBIT A
---------
BOARD MEMBERSHIPS AND OTHER ACTIVITIES
Multifoods, Inc.
Board Member
Rhythm & Blues Foundation
Board Member
Jazz Aspen & Snowmass
Board Member
Aspen Music Festival and School
Board Member
Societe Generale Corporation
Investor and Consultant
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of The North Face, Inc. on Form S-3 of our report dated February 6, 1998,
appearing in the Annual Report on Form 10-K of The North Face, Inc. for the
year ended December 31, 1997 and to the reference to us under the heading
"Experts" in the Prospectus, which is a part of the Registration Statement.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
San Francisco, California
July 6, 1998
