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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 (Fee Required)
For the fiscal year ended December 31, 1999
or
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No Fee Required)
For the transition period from ........ to .............
Commission file number 0-28596
THE NORTH FACE, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 94-3204082
(State of incorporation) (I.R.S. Employer Identification No.)
2013 Farallon Drive, San Leandro, CA 94577
(Address of principal executive offices) (Zip Code)
(510) 618-3500
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.0025 PER SHARE
(Title of Class)
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __________.
----------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
As of April 10, 2000, the aggregate market value of the registrant's voting
stock held by non-affiliates was $24,717,131.
As of April 10, 2000, the number of shares of the registrant's Common Stock
outstanding was 12,757,229.
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The undersigned company (the "Company") hereby amends its Annual Report on
Form 10-K for the fiscal year ended December 31, 1999 as follows:
By amending and restating Items 10, 11, 12 and 13 (Part III) in their entirety
and amending Item 14(C) (Part IV) as follows:
PART III
Item 10. Directors and Executive Officers of the Registrant
See "Board of Directors and Executive Officers," "The Current Members of
the Board of Directors of the Company," "The Current Executive Officers of the
Company," and "Section 16(a) Beneficial Ownership Reporting Compliance" on pages
A-1 through A-4 and A-11 of Annex A of the Company's Schedule 14D-9 dated April
19, 2000, which is attached hereto as Exhibit 99.1 (the "Schedule 14D-9"), which
is incorporated herein by reference.
Item 11. Executive Compensation
See "Directors Compensation," "Executive Officer Compensation,"
"Compensation Committee Report on Executive Compensation," "Compensation
Committee Interlocks and Insider Participation" and "Performance Graph" on page
A-4 and pages A-6 through A-10 of Annex A of the Schedule 14D-9, which is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
See "Stock Ownership of Certain Beneficial Owners and Management" on pages
A-5 through A-6 of Annex A of the Schedule 14D-9 and Items 1, 2, 3, 4 and 5 on
pages 1 through 8 of the Schedule 14D-9, which is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
None.
Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K
(C). Exhibits
99.1 The Company's Schedule 14D-9 filed with the Securities and Exchange
Commission on April 19, 2000.
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SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE NORTH FACE, INC.
Date: April 28, 2000 /s/ Geoffrey D. Lurie
________________________________
Geoffrey D. Lurie
Chief Executive Officer
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EXHIBIT 99.1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
SCHEDULE 14D-9
(Rule 14D-101)
Solicitation/Recommendation Statement Pursuant to
Section 14(d)(4) of the Securities Exchange Act of 1934
_______________
THE NORTH FACE, INC.
(Name of Subject Company)
THE NORTH FACE, INC.
(Name of Person(s) Filing Statement)
Common Stock, Par Value $0.0025 Per Share
(Title of Class of Securities)
659317101
(CUSIP Number of Common Stock)
Geoffrey D. Lurie
Chief Executive Officer
The North Face, Inc.
2013 Farallon Drive
San Leandro, California 94577
(510) 618-3500
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of the Person(s) Filing Statement)
_______________
With a copy to
Edward W. Kerson, Esq.
Proskauer Rose LLP
1585 Broadway
New York, New York 10036
(212) 969-3000
[_] Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
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Item 1. Subject Company Information
The name of the subject company is The North Face, Inc., a Delaware
corporation (the "Company"). The address of the Company's principal executive
offices is 2013 Farallon Drive, San Leandro, California 94577. The telephone
number of the principal executive offices of the Company is (510) 618-3500. The
title of the class of equity securities to which this Schedule 14D-9 relates is
the common stock, par value $0.0025 per share, of the Company and the associated
preferred share purchase rights (the "Common Stock"). As of April 10, 2000,
there were 12,757,229 shares of Common Stock issued and outstanding, options
outstanding to purchase an aggregate of 3,226,964 shares of Common Stock under
the Company's 1994 Stock Incentive Plan, 1995 Stock Incentive Plan, 1996 Stock
Incentive Plan, 1996 Directors' Stock Option Plan and 1998 Non-statutory Stock
Option Plan (collectively, the "Option Plans") and warrants outstanding to
purchase an aggregate of 202,597 shares of Common Stock.
Item 2. Identity and Background of Filing Person
The name and business address of the Company, which is the person filing
this Statement, are set forth in Item 1 above.
This statement relates to the tender offer being made by Sequoia
Acquisition, Inc., a Delaware corporation (the "Purchaser") and a wholly owned
subsidiary of VF Corporation, a Pennsylvania corporation (the "Parent"),
disclosed in a Tender Offer Statement on Schedule TO (the "Schedule TO"), dated
April 19, 2000 and filed with the Securities and Exchange Commission (the
"Commission"), to purchase all the outstanding shares of Common Stock, at a
price of $2.00 per share, net to the sellers in cash, upon the terms and subject
to the conditions set forth in the Offer to Purchase for Cash, dated April 19,
2000 (the "Offer to Purchase"), and the related Letter of Transmittal (which,
together with the Offer to Purchase and any amendments or supplements thereto,
constitute the "Offer") included in the Schedule TO. A copy of the Offer to
Purchase and the related Letter of Transmittal have been filed as Exhibit 1 and
Exhibit 2 hereto, respectively, and each is incorporated herein by reference.
Copies of the Offer to Purchase and the Letter of Transmittal are being
furnished to the Company's stockholders concurrently with this Schedule 14D-9.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of April 7, 2000, among the Parent, the Purchaser and the Company (the
"Merger Agreement"). The Merger Agreement provides, among other things, for the
commencement of the Offer by the Purchaser and further provides that, as soon as
practicable after consummation of the Offer and the satisfaction or waiver of
the other conditions set forth in the Merger Agreement, and in accordance with
the relevant provisions of the General Corporation Law of the State of Delaware,
the Purchaser will be merged with the Company (the "Merger"), with the Company
continuing as the surviving corporation and a subsidiary of the Parent. A copy
of the Merger Agreement is filed as Exhibit 3 hereto.
The Offer is conditioned upon, among other things, (i) there being validly
tendered and not withdrawn prior to the expiration of the Offer a number of
shares of Common Stock that, together with the shares then owned by the
Purchaser and the Parent, would represent at least a majority of the total
number of outstanding shares of Common Stock on a fully diluted basis (the
"Minimum Condition") and (ii) the expiration or termination of any applicable
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended. The Offer also is subject to certain other conditions set forth in
Annex A to the Merger Agreement.
As set forth in the Schedule TO, the principal executive offices of the
Purchaser are located at 628 Green Valley Road, Suite 500, Greensboro, NC 27408.
All information in this Schedule 14D-9 or incorporated by reference herein
concerning the Purchaser or its affiliates, or actions or events in respect of
any of them, was provided by the Purchaser or the Parent, and the Company
assumes no responsibility therefor.
Item 3. Past Contacts, Transactions, Negotiations and Agreements
Certain contracts, agreements, arrangements or understandings between the
Company or its affiliates with certain of its directors and executive officers
are, except as noted below, described in the Information Statement pursuant to
Schedule 14f-1 that is attached as Annex A hereto and is incorporated herein by
reference. Except as described or referred to herein and in Annex A, to the
knowledge of the Company, as of the date hereof, there are no
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material agreements, arrangements or understandings, or any actual or potential
conflicts of interest, between the Company or its affiliates and (i) the
Company, its executive officers, directors or affiliates; or (ii) the Parent or
the Purchaser, their respective officers, directors or affiliates.
In considering the recommendation of the Board of Directors set forth in
Item 4 below, the Company's stockholders should be aware that certain members of
the Company's management and certain members of the Company's Board of Directors
have interests in the Offer and the Merger, which are described herein and in
Annex A hereto and which may present them with certain conflicts of interest.
The Board of Directors is aware of these potential conflicts and considered them
along with the other factors described in Item 4 below.
The Merger Agreement. A summary of the material provisions of the Merger
Agreement is included in "The Offer -- Section 12 -- Purpose of the Offer; Plans
for the Company; The Merger Agreement" of the Offer to Purchase, which is
incorporated herein by reference. Such summary is qualified in its entirety by
reference to the complete text of the Merger Agreement, a copy of which is filed
as Exhibit 3 hereto and is incorporated herein by reference. Such summary may
not contain all the information that is important to you. Accordingly, you
should read the Merger Agreement in its entirety for a more complete description
of the material summarized in the Offer to Purchase.
Employment and Other Agreements. Geoffrey D. Lurie, the Company's Chief
Executive Officer, is a party to an employment agreement with the Company, which
sets forth Mr. Lurie's compensation arrangements, including salary, bonus, stock
options and benefits. The agreement provides that, among other things, in the
event of Mr. Lurie's termination by the Company without cause or in the event
Mr. Lurie's employment is constructively terminated, Mr. Lurie will generally be
entitled to continued salary, bonus, benefits and vesting of his stock options
during the period from the date of Mr. Lurie's termination to (i) December 31,
2002 or (ii) the date 18 months from Mr. Lurie's termination (or, if the
termination occurs prior to the first anniversary of the agreement, the date 18
months from such first anniversary), whichever is shorter.
Karl Heinz Salzburger, the Company's President, is a party to an employment
agreement, a director's agreement and an umbrella agreement with the Company and
certain of its subsidiaries. Such agreements set forth various operating
arrangements between the Company, it subsidiaries and Mr. Salzburger and set
forth Mr. Salzburger's compensation arrangements, including salary, bonus, stock
options and benefits. In addition, such agreements provide that, among other
things, in the event of Mr. Salzburger's termination by the Company or its
subsidiaries without cause or in the event his employment is constructively
terminated, Mr. Salzburger will generally be entitled to continued salary,
bonus, benefits and vesting of his stock options during the period from the date
of Mr. Salzburger's termination to (i) December 31, 2002 or (ii) the date 18
months from Mr. Salzburger's termination, whichever is shorter.
Pursuant to a separation agreement with the Company, Mr. Fifield resigned
as the Company's Chief Executive Officer and President, effective on September
1, 1999. Pursuant to his separation agreement, Mr. Fifield will receive a
monthly severance payment of $83,333, less applicable withholding, during the
12-month period following his termination. In addition, the Company accelerated
the vesting and exercisability of options to purchase 400,000 shares subject to
Mr. Fifield's stock option agreement with the Company upon his termination; such
options remain exercisable until May 18, 2008. Mr. Fifield forfeited unvested
options to purchase 500,000 shares subject to his stock option agreement upon
his termination of employment. Mr. Fifield also is entitled to continued health
benefits for himself and his family through the date one year from his
termination or the date upon which Mr. Fifield and his family become covered
under another employer's health plans, whichever occurs first.
Item 4. The Solicitation or Recommendation
(a) Recommendation of the Board of Directors
The Board of Directors of the Company has (1) unanimously determined that
each of the Merger Agreement, the Offer and the Merger is fair to, and in the
best interests of, the stockholders of the Company, (2) duly approved the Merger
Agreement and the transactions contemplated thereby, including the Offer and the
Merger, and (3) unanimously recommended that the stockholders of the Company
accept the Offer and tender their shares pursuant to the Offer, and approve and
adopt the Merger Agreement and the Merger.
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A copy of the press release issued by the Company on April 7, 2000
announcing the Merger and the Offer is filed herewith as Exhibit 1 and is
incorporated herein by reference. A copy of a letter to the Company's
stockholders communicating the recommendation of the Board of Directors is filed
herewith as Exhibit 4 and is incorporated herein by reference.
(b) Background of the Transaction; Reasons for the Board's Recommendation
Background of the Offer. On February 27, 1999, the Company entered into a
Transaction Agreement (the "Transaction Agreement") with TNF Acquisition LLC, an
affiliate of Leonard Green & Partners, L.P. ("LGP"). The Transaction Agreement
provided for a cash tender offer for all the Company's outstanding shares (other
than shares held by James G. Fifield, then President and Chief Executive
Officer), at $17.00 per share, and the acquisition of control of the Company by
LGP and Mr. Fifield.
On March 5, 1999, because the Company was experiencing delays in preparing
its audited financial statements for 1998, the tender offer was withdrawn.
Although the Transaction Agreement remained in effect, LGP had informed the
Company that it was reevaluating the transactions contemplated by the
Transaction Agreement (the "Transactions").
On March 31, 1999, the Company announced that its consolidated financial
statements for 1997 and 1998 required restatement, as a result of which 1997
consolidated revenues were reduced from $208.4 million to $203.2 million and
1997 consolidated net income was reduced from $11.1 million to $8.0 million, and
1998 consolidated revenues were reduced from $263.2 million to $247.1 million
and 1998 consolidated net income was reduced from $9.5 million to $3.6 million.
During March and April 1999, a number of class action lawsuits growing out
of the events described above commenced against the Company and its officers and
directors. Those lawsuits contained numerous allegations that, if sustained,
could result in substantial liabilities to the Company.
During the spring and summer of 1999, LGP continued its reevaluation of the
Transactions, as the Company's operating and financial condition worsened.
On July 8, 1999, Christopher Crawford, the Company's General Manager and
Chief Financial Officer, resigned.
During July 1999, LGP introduced the Company to a potential joint venturer
with whom LGP indicated it might consider pursuing a transaction with the
Company. After the potential joint venturer had conducted a due diligence
investigation, however, it determined not to proceed with a transaction.
On September 1, 1999, the Transaction Agreement was terminated and the
Company agreed to pay LGP $2.2 million. At the same time, Mr. Fifield resigned
as President and Chief Executive Officer, and William Simon, the Company's
former President and a member of the Board of Directors, was named Acting Chief
Executive Officer.
On September 6, 1999, Mardy Cason resigned as Chairman of the Board, and
was replaced by Robert Bunje, a member of the Board of Directors and Chairman of
the Audit Committee; on November 5, 1999, Geoffrey D. Lurie replaced Mr. Simon
as the Company's Chief Executive Officer, and the Company appointed Karl Heinz
Salzburger, then the Company's Chief Executive Officer for Europe, as the
Company's President; on November 19, 1999, Messrs. Cason and Fifield resigned as
members of the Board of Directors and were replaced by Messrs. Lurie and
Salzburger; and on February 3, 2000, Michael Solomon resigned as a member of the
Board of Directors.
Following the termination of the Transaction Agreement in September 1999,
the Company announced that Deutsche Bank Securities Inc. ("DB") was advising it
on strategic alternatives. In October 1999, the Company amended its bank credit
facility, which was then in default, to provide, among other things, an
expiration date of March 31, 2000. From October 1999 through early January 2000,
the Company explored various financing alternatives intended to improve its
worsening financial condition. In particular, the Company sought equity and
subordinated debt investments, and, in addition, the Company sought to replace
its bank credit facility. The Company contacted eight potential investors, only
one of which made a proposal, which was subject to various conditions and
ultimately was effectively withdrawn in mid-January 2000.
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In mid-January 2000, after a number of discussions with the Company's
banks, and in light of the failure to obtain equity or subordinated debt
financing, the Board of Directors engaged DB to provide advisory services with
respect to strategic alternatives for the Company.
In late October 1999, the Parent's financial advisor, Salomon Smith Barney
Inc. ("SSB"), on the Parent's behalf, had expressed to DB the Parent's interest
in possibly acquiring the Company on mutually agreed upon terms. After
consulting with the Company's Board of Directors, DB informed SSB that the
Company was not then interested in entering into discussions regarding a
potential acquisition.
On December 1, 1999, Mackey J. McDonald, Chairman, President and Chief
Executive Officer of the Parent, wrote a letter addressed to Messrs. Bunje and
Lurie. The letter stated that the Parent remained interested in discussing a
possible acquisition of the Company by the Parent. Messrs. McDonald and Lurie
had a telephone conversation discussing the letter, during which Mr. Lurie
reiterated that the Company was not then interested in entering into discussions
regarding a potential acquisition of the entire Company.
In early January 2000, Mr. Lurie told Mr. McDonald that the Company was
interested in pursuing strategic alternatives and that DB would contact the
Parent regarding the process. Subsequently, the Company and the Parent entered
into a Confidentiality Agreement dated as of January 20, 2000.
In early February 2000, representatives of the Parent and Davis Polk &
Wardwell, counsel to the Parent, conducted due diligence at a data room
established by the Company. At such time, representatives of the Parent attended
an information session with Company representatives. Following this initial due
diligence through the execution of the Merger Agreement, the Parent and its
advisors conducted further due diligence with respect to the Company.
During January and February 2000, DB contacted a total of 40 possible
purchasers of the Company. Of the 40 parties contacted, 13 indicated a possible
interest in pursuing a transaction. In light of the limited time and resources
available to the Company, and after concluding that certain of the parties that
had indicated a possible interest in pursuing a transaction were not likely to
be able to consummate a transaction in the limited time required and/or were
direct competitors of the Company to whom the Company was reluctant to reveal
competitively sensitive information, the Company elected to pursue discussions
with most, but not all, of the 13 parties. Two of the parties who were scheduled
to engage in due diligence meetings with the Company ultimately cancelled those
meetings.
In early March 2000, DB provided the Parent and other possible purchasers
bid solicitation materials, including a draft agreement and plan of merger.
On March 16, 2000, the Company announced that it expected to report a pre-
tax loss for 1999 of approximately $75 million, and that its credit facility was
to expire at the end of the month.
Of the parties who conducted due diligence, two submitted acquisition
proposals. One proposal would have required the Company, among other things, to
seek protection under the Bankruptcy Code. The Board of Directors determined
that, if this conditional proposal resulted in a transaction, the transaction
was likely to provide little or no value to stockholders.
The other proposal to emerge from this process was the Parent's. On March
20, 2000, the Parent submitted a written proposal to acquire all the outstanding
shares of Common Stock for $2.00 per share in cash pursuant to a tender offer
followed by a merger. The written proposal, which included a proposed mark-up of
the agreement and plan of merger, was subject to a number of conditions,
including a commitment by the Company to negotiate exclusively with the Parent,
the approval of the Parent's board of directors, additional due diligence and
execution of a mutually acceptable definitive agreement.
In the days that followed, representatives of the Company and the Parent
spoke on several occasions regarding the draft agreement and plan of merger and
the satisfaction of certain conditions in the Parent's bid. On March 23, 2000,
DB requested that the Parent submit a letter confirming its bid and removing any
conditions to proceeding with a transaction that already had been satisfied.
On March 24, 2000, counsel for the Company discussed the proposed agreement
with counsel for the Parent. Counsel for the Company reported the results of
that discussion to the Board of Directors later the same day, and
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was instructed, among other things, to continue to attempt to narrow the scope
of the proposed representations and warranties in the agreement, to limit the
conditions to the obligations of the Purchaser to consummate the Offer, to
expand the Board of Directors' right to pursue a superior proposal, if one were
made by a third party before the consummation of the Offer, and to limit the
circumstances in which the Parent would be entitled to a so-called "break-up
fee".
On March 27, 2000, the Parent furnished the Company a revised proposal
letter and a revised mark-up of the agreement and plan of merger. The revised
proposal eliminated certain conditions to the Parent's proceeding with the
transaction and reflected a number of changes in the proposed agreement and plan
of merger.
Later on March 27, 2000, the Board of Directors met to discuss the revised
proposal letter and agreement and plan of merger. At the meeting, the Board
discussed with counsel the issues that remained unresolved in the proposed
agreement and plan of merger, and determined to continue to engage in
discussions with the Parent on an exclusive basis at least through March 31,
2000.
Over the next several days, counsel for the Company and counsel for the
Parent engaged in discussions regarding the proposed agreement and plan of
merger, and Mr. Lurie and the banks engaged in discussions that led to an
extension of the maturity of the Company's bank credit facility from March 31,
2000 to April 15, 2000.
In the course of the discussions among the parties during this period, the
Company disclosed to the Parent that the Company would be required to pay the
banks, among other fees, $3.5 million upon consummating the transactions
contemplated by the proposed agreement and plan of merger. On April 4, 2000, the
Parent advised the Company that a condition to its willingness to proceed with
negotiations was that the banks agree to eliminate this $3.5 million fee.
On April 5, 2000, the Board of Directors met to discuss the situation. In
light of the Parent's condition to continue negotiations, the Board of Directors
determined to issue a press release to the effect that, among other things, the
Company's auditors were expected to express a qualification in their report on
the Company's 1999 financial statements, indicating substantial doubt regarding
the Company's viability as a "going concern", and that, although the Company was
continuing to explore various alternatives, such alternatives involved payment
to stockholders materially less than the then current market price of the Common
Stock and that there was no assurance that the alternatives being considered
would be consummated and, if no such alternatives were consummated, that the
Board of Directors would be required to consider seeking protection under
Chapter 11 of the Bankruptcy Code.
On April 6, 2000, the parties again discussed with the banks the $3.5
million fee. As a result of these discussions, the banks agreed to reduce the
$3.5 million fee to $876,000 in the case of a transaction with the Parent, and
counsel for the Company and the Parent completed their discussions of the few
remaining unresolved issues in the agreement and plan of merger.
Later on April 6, 2000, the Board of Directors met to consider the
proposed, final form of agreement and plan of merger, and received an oral
opinion of DB, which was subsequently confirmed in writing as set forth in Annex
B hereto, that the consideration to be received by the stockholders of the
Company in the proposed Offer and the Merger was fair, from a financial point of
view, to such stockholders. Based upon the considerations described under
"Reasons for the Board of Directors' Recommendation" below, the Board of
Directors (i) unanimously determined that each of the Merger Agreement, the
Offer and the Merger is fair to, and in the best interests of, the stockholders
of the Company, (ii) duly approved the Merger Agreement and the transactions
contemplated thereby, including the Offer and the Merger, and (iii) unanimously
recommended that the stockholders of the Company accept the Offer and tender
their shares pursuant to the Offer, and approve and adopt the Merger Agreement
and the Merger.
On April 7, 2000, the Parent and the Company executed the Merger Agreement.
Following the execution, delivery and public announcement of the Merger
Agreement, one of the parties that had indicated a possible interest in pursuing
a transaction with the Company indicated that the announced price in the Merger
Agreement appeared to be below the price that party had been considering, and
that it was prepared to commence negotiations and conduct due diligence. The
Company had elected not to pursue discussions with this third party in the past
because of concerns about revealing to a competitor sensitive information.
Inasmuch as that
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party did not set forth a specific proposal or specific financing terms, the
Company, in accordance with the Merger Agreement, did not engage in discussions
with it.
On April 19, 2000, the Purchaser commenced the Offer.
Reasons for the Board of Directors' Recommendation. In reaching the
determination and recommendation described above, the Board of Directors
considered a number of factors, including, among other things, the following:
(1) The Company had incurred a pre-tax loss of $97,938,000 in 1999,
and the Company's auditors planned to express a qualification in their
report on the Company's financial statements for 1999, indicating
substantial doubt regarding the Company's viability as a "going concern".
(2) The Company had not been able to obtain additional capital, and,
in addition, the Company had no prospects for replacing its bank credit
facility, which was scheduled to expire April 15, 2000. The Company's
lenders had indicated that they did not intend to extend the facility
further. In the absence of such an extension, the Company would be required
to consider bankruptcy proceedings.
(3) If the Company were liquidated on an expedited basis, management
believed it was highly unlikely that stockholders would receive much, if
any, value for their shares.
(4) The Company's stock price, which had been declining, declined
from $3.69 on April 5, 2000 to $1.22 on April 6, 2000, after the Company
publicly announced that the Company's auditors were expected to express a
qualification in their report on the Company's 1999 financial statements,
indicating substantial doubt regarding the Company's viability as a "going
concern", and that, although the Company was continuing to explore various
alternatives, such alternatives involved payment to stockholders materially
less than the then current market price of the Common Stock and that there
was no assurance that the alternatives being considered would be
consummated and, if no such alternative were consummated, that the Board of
Directors would be required to consider seeking protection under Chapter 11
of the Bankruptcy Code.
(5) Notwithstanding the fact that the Company's worsening financial
condition was widely known and that it was widely known that the Company
was actively seeking to be acquired, no other potential buyer made a
definitive proposal to complete a transaction, and no other potential buyer
made a proposal that could reasonably be expected to provide stockholders
with any payment.
(6) The fact that the Board, in exercising its duty of care, had
considered a variety of alternatives to a sale over a long period.
(7) The financial and other terms and conditions of the Offer, the
Merger and the Merger Agreement.
(8) The experience, reputation and financial condition of the Parent
and the Parent's knowledge about the Company's industry.
(9) The presentation made to the Company's Board of Directors by DB
and the written opinion dated April 7, 2000 of DB addressed to the Board of
Directors that stated that, as of the date of such opinion, the $2.00 per
share price to be received by the stockholders pursuant to the Offer and
the Merger is fair to such stockholders from a financial point of view.
(10) The likelihood that the proposed acquisition would be
consummated, including the fact that few regulatory approvals are required
to consummate the Offer and the Merger and the likelihood of obtaining
those regulatory approvals, as well as the likelihood of satisfying the
other conditions to the Offer and the Merger, and the risks to the Company
if the acquisition were not consummated.
(11) The fact that the obligations of the Parent and the Purchaser to
consummate the transactions pursuant to the Merger Agreement are not
conditioned upon financing.
(12) The fact that, under the Merger Agreement, the Company has agreed
that it and its subsidiaries will not, and will use their respective best
efforts to ensure that their respective officers, directors, employees or
other agents will not, directly or indirectly, (i) initiate, solicit or
knowingly encourage or knowingly take any action to facilitate the making
of any offer or proposal that constitutes or is reasonably likely to lead
to an
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Acquisition Proposal (as defined in the Merger Agreement); (ii) enter into
any agreement with respect to any Acquisition Proposal; (iii) in the event
of any unsolicited Acquisition Proposal, (x) grant any waiver or release
under any standstill or similar agreement to which the Company or any of
its subsidiaries is a party in effect on the date of the Merger Agreement
or (y) engage in negotiations with, or disclose any non-public information
relating to, the Company or any of its subsidiaries, or afford access to
the properties, books or records of the Company or any of its subsidiaries
to any person that may be considering making, or has made, an Acquisition
Proposal. The Company has agreed to notify the Purchaser promptly, but in
no event later than 24 hours, after receipt of any Acquisition Proposal or
any request for non-public information relating to the Company or any of
its subsidiaries or for access to the properties, books or records of the
Company or any of its subsidiaries by any person that may be considering
making, or has made, an Acquisition Proposal.
(13) The fact that, if the Board of Directors decides to accept a
Superior Proposal (as defined in the Merger Agreement) from a third party,
the Board of Directors may terminate the Merger Agreement prior to the
consummation of the Offer and pay the Parent a cash termination fee of $5
million plus the amount of reasonable out-of-pocket fees and expenses
incurred by the Parent in connection with the transactions contemplated by
the Merger Agreement. Such payment must be made, but only if a Third Party
Acquisition (as defined in the Merger Agreement) occurs within 12 months
after termination of the Merger Agreement.
The foregoing discussion of the information and factors considered by the
Board of Directors is not meant to be exhaustive, but summarizes the material
factors the Board of Directors considered. The Board of Directors did not
quantify or attach any particular weight to the various factors, or determine
that any particular factors were of primary importance. Rather, the Board of
Directors made its determination that the Merger Agreement, the Offer and the
Merger are fair to, and in the best interests of, the stockholders of the
Company based on the totality of the information presented to and considered by
the Board of Directors. Individual members of the Board of Directors may have
given different weight to these different factors.
The full text of DB's written opinion discussed in paragraph (9) above,
which sets forth, among other things, the assumptions made, matters considered
and limitations in the review undertaken by DB in connection with the opinion,
is attached hereto as Annex B and is incorporated herein by reference. DB's
opinion is directed only to the Board of Directors, addresses only the fairness
of the consideration, from a financial point of view, to be received in the
Offer and the Merger by holders of shares and does not constitute a
recommendation to any stockholder to approve the Merger, or to tender his shares
pursuant to the Offer. Holders of shares are urged to read the opinion carefully
and in its entirety. The summary of the opinion of DB in this Schedule 14D-9 is
qualified in its entirety by reference to the full text of such opinion.
(c) Intent to Tender
To the Company's knowledge, all its executive officers, directors,
affiliates or subsidiaries currently intend to tender all shares of the
Company's Common Stock that are held of record or are beneficially owned by them
pursuant to the Offer, other than the Common Stock, if any, held by such persons
that, if tendered, could cause them to incur liability under section 16(b) of
the Securities Exchange Act of 1934.
Item 5. Persons Retained, Employed or to be Compensated
Pursuant to a letter agreement entered into on January 10, 2000, the
Company retained DB as the Company's exclusive financial advisor to provide
financial advisory and investment banking services in connection with a
potential business combination involving the Company. Pursuant to the terms of
the letter agreement, the Company agreed to pay DB (i) a cash fee of $750,000
payable at the time of its rendering of the opinion referred to in Item 3 above
and (ii) a transaction fee (calculated as set forth below and against which the
$750,000 fee would be credited) if any business combination involving the
Company was consummated during the term of the letter agreement or within 24
months thereafter. The transaction fee with respect to the Offer and the Merger
is to be calculated as 1% of Aggregate Consideration (as defined), which would
result in a fee of approximately $1,300,000. In addition, the Company agreed to
reimburse DB for its reasonable travel and other out-of-pocket expenses,
including reasonable fees and disbursements of counsel, and to indemnify DB
against liabilities and expenses arising out of the engagement and the
transactions in connection therewith.
7
<PAGE>
Except as set forth above, neither the Company nor any person acting on its
behalf has or currently intends to employ, retain or compensate any other person
to make solicitations or recommendations to stockholders of the Company on its
behalf with respect to the Offer and the Merger.
Item 6. Recent Transactions and Intent with Respect to Securities
No transactions in the Shares have been effected in the past 60 days by the
Company or any subsidiary of the Company, or, to the knowledge of the Company,
any affiliate or any executive officer or director of the Company.
Item 7. Purposes of the Transaction and Plans or Proposals
(a) The Company currently is negotiating the possible sale of La Sportiva
USA, Inc., a wholly-owned subsidiary engaged in the rugged footwear business.
Except as set forth in this Schedule 14D-9, no negotiation is being undertaken
or is underway by the Company in response to the Offer that relates to: (i) a
tender offer for or other acquisition of the Company's securities by the
Company, any subsidiary of the Company or any other person; (ii) any
extraordinary transaction, such as a merger, reorganization or liquidation,
involving the Company or any subsidiary of the Company; (iii) any purchase, sale
or transfer of a material amount of assets of the Company or any subsidiary of
the Company; or (iv) any material change in the present dividend rate or policy,
or indebtedness or capitalization, of the Company.
(b) Except as set forth in this Schedule 14D-9, there are no transactions,
board resolutions, agreements in principle or signed contracts in response to
the Offer that relate to or would result in one or more of the events referred
to in the first paragraph of this Item 7.
Item 8. Additional Information
During the course of discussions between the Parent and the Company, the
Company provided the Parent with certain financial projections for the Company
for 2000. These projections were not prepared with a view to the public
disclosure or compliance with published guidelines of the Commission or the
guidelines established by the American Institute of Certified Public Accountants
regarding projections, and are included in this Offer to Purchase only because
the Company provided them to the Parent. Neither the Parent nor the Company, nor
either's financial advisors, assumes any responsibility for the accuracy of
these projections. While presented with numerical specificity, these projections
are based upon a variety of assumptions relating to the businesses of the
Company, which may not be realized and are subject to significant uncertainties
and contingencies, many of which are beyond the control of the Company. There
can be no assurance that the projections will be realized, and actual results
may vary materially from those shown.
Set forth below is a summary of the projections provided by the Company.
The projections should be read together with the financial statements contained
in the Company's filings with the Commission.
2000
------------
Revenues.......................................... $ 284,923,000
Operating Income.................................. $ 11,414,000
Net (Loss)........................................ $ (272,000)
(Loss) per Share (on a fully diluted basis)....... $ (.02)
8
<PAGE>
Item 9. Material to be Filed as Exhibits
Exhibit 1. Offer to Purchase dated April 19, 2000 (incorporated by
reference to Exhibit (a)(1) to the Schedule TO).
Exhibit 2. Letter of Transmittal (incorporated by reference to Exhibit
(a)(2) to the Schedule TO).
Exhibit 3. Agreement and Plan of Merger dated as of April 7, 2000 among VF
Corporation, the Purchaser and the Company (incorporated by
reference to Exhibit (d)(1) to the Schedule TO).
Exhibit 4. Letter to Stockholders dated April 19, 2000.
Exhibit 5. Opinion of Deutsche Bank Securities Inc. (attached to this
Statement as Annex B).
9
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
THE NORTH FACE, INC.
By: /s/ Geoffrey D. Lurie
---------------------
Name: Geoffrey D. Lurie
Title: Chief Executive Officer
Dated: April 19, 2000
10
<PAGE>
Annex A
INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE SECURITIES EXCHANGE ACT OF 1934 AND
RULE 14f-1 THEREUNDER
_______________
NO VOTE OR OTHER ACTION OF THE NORTH FACE, INC.'S
STOCKHOLDERS IS REQUIRED IN CONNECTION WITH THIS INFORMATION STATEMENT.
NO PROXIES ARE BEING SOLICITED AND YOU ARE REQUESTED NOT TO SEND A PROXY
TO THE NORTH FACE, INC.
______________
GENERAL
This Information Statement is being mailed on or about April 19, 2000 as
part of the Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") of The North Face, Inc., a Delaware corporation (the
"Company"), to the holders of record of shares of common stock, par value
$0.0025 per share, of the Company (the "Common Stock"). Capitalized terms used
and not otherwise defined herein shall have the meanings set forth in the
Schedule 14D-9. You are receiving this Information Statement in connection with
the possible election of persons designated by the Purchaser (as defined below)
to the Board of Directors of the Company. Such designation is to be made
pursuant to an Agreement and Plan of Merger, dated April 7, 2000 (the "Merger
Agreement"), among VF Corporation, a Pennsylvania corporation (the "Parent"),
Sequoia Acquisition, Inc., a Delaware corporation (the "Purchaser"), and the
Company.
The Merger Agreement provides that, after the purchase by the Purchaser
pursuant to the Offer, the Parent will be entitled to designate the number of
directors, rounded up to the next whole number, on the Company's Board (the
"Parent Designees") as will give the Parent representation on the Company's
Board equal to the product of (i) the total number of directors on the Company's
Board and (ii) the percentage that the aggregate number of shares beneficially
owned by the Purchaser bears to the total number of shares then outstanding. The
Company has agreed in the Merger Agreement to take all action necessary to cause
the Parent Designees to be elected to the Company's Board, including, in
connection therewith, increasing the size of the Company's Board or securing the
resignations of incumbent directors or both. Notwithstanding the foregoing,
until the closing of the Merger, under the terms of the Merger Agreement at
least two members of the Company's Board who were directors of the Company as of
the date of the Merger Agreement and who are not employees of the Company or
designees, stockholders, affiliates or associates of the Parent remain members
of the Company's Board.
You are urged to read this Information Statement carefully. You are not,
however, required to take any action in connection with this Information
Statement.
The information contained in this Information Statement concerning the
Parent and the Purchaser has been furnished to the Company by the Parent. The
Company assumes no responsibility for the accuracy or completeness of such
information.
VOTING SECURITIES OF THE COMPANY
The Common Stock is the only class of voting securities of the Company
outstanding. Each share of Common Stock has one vote. As of April 10, 2000,
there were 12,757,229 shares of Common Stock outstanding.
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors of the Company currently consists of five members.
The Parent has informed the Company that the Parent Designees will be any of Mr.
Mackey J. McDonald, Mr. Robert K. Shearer, Mr. Daniel G. MacFarlan, Mr. Frank C.
Pickard III or any other of the directors and executive officers of the Parent
listed in Schedule I of the Purchaser's Offer to Purchase, a copy of which is
being mailed to the Company's
A-1
<PAGE>
stockholders together with the Schedule 14D-9 and this Information Statement.
The information on such Schedule I is incorporated herein by reference. The
business address of each such person is 628 Green Valley Road, Suite 500,
Greensboro, N.C. 27408.
None of the directors, during the past five years, has (i) been convicted
in a criminal proceeding or (ii) been a party to any judicial or administrative
proceeding that resulted in a judgment, decree or final order enjoining the
person from future violations of, or prohibiting activities subject to, federal
or state securities laws, or a finding of any violation of federal or state
securities laws. Each director is a citizen of the United States.
The Parent and the Purchaser have advised the Company that none of the
individuals listed above (i) is currently a director of, or holds any position
with, the Company, (ii) has any familial relationship with any directors or
executive officers of the Company and (iii) to the knowledge of the Parent and
the Purchaser, beneficially owns any equity securities (or rights to acquire any
such securities) of the Company. The Company has been advised by the Parent and
the Purchaser that, to the Parent's and the Purchaser's knowledge, none of the
individuals listed above has been involved in any transaction with the Company
or any of its directors, executive officers or affiliates that are required to
be disclosed pursuant to the rules and regulations of the Commission, except as
may be disclosed herein, in the Schedule 14D-9 or in the Schedule TO.
THE CURRENT MEMBERS OF THE BOARD OF DIRECTORS OF THE COMPANY
The current directors of the Company, their ages, and their principal
occupation and business experience are set forth below:
Name Age Principal Occupation and Business Experience
---- --- --------------------------------------------
Geoffrey D. Lurie........ 54 Mr. Lurie, 54, has served as Chief Executive
Officer of the Company since November 1999.
From March 1996 to October 1999, Mr. Lurie
was a principal at GDL Management Services, a
division of Mahoney Cohen & Company CPA, P.C.
Prior to that, he was the President of The
GDL Group Inc., a turnaround and
restructuring firm he founded in 1985. Prior
to that, Mr. Lurie was a partner at Touche
Ross & Co., the predecessor to Deloitte &
Touche LLP. Mr. Lurie received a CTA degree
from the University of South Africa.
Robert P. Bunje.......... 55 Mr. Bunje, 55, has served as the Company's
Chairman of the Board since September 1999.
Mr. Bunje has been the President of Bunje
Pacific Consulting Corporation since April
1994. From 1977 to March 1994, he was a
partner at Deloitte & Touche LLP and its
predecessor, Touche Ross & Co., and served as
Managing Director of International Merger and
Acquisition Services from 1984 to 1994. In
his capacity as partner at Deloitte & Touche,
Mr. Bunje assisted clients in the evaluation,
structuring and negotiation of international
mergers, acquisitions and reorganizations. In
addition, Mr. Bunje continues to assist a
number of organizations in strategic and
financial planning. Mr. Bunje's clients have
included Nippon Electric Glass Co. Ltd.,
Sumitomo Bank Ltd., Techneglas, Inc., The
Kimpton Hotel & Restaurant Group, Inc. and
The Gap Stores, Inc. Mr. Bunje also serves as
a director and chairman of the compensation
committee of Techneglas and is a member and
former chairman of the Board of Regents of
Santa Clara University. Mr. Bunje received a
B.S. in Commerce from Santa Clara University.
A-2
<PAGE>
Name Age Principal Occupation and Business Experience
---- --- --------------------------------------------
Michael Doyle........... 56 Mr. Doyle, 56, is Chairman of the Board of
The Soft Bicycle Company and has been the
President of Michael Doyle and Associates
since September 1987. He has been an advisor
to boards of directors and senior management
in the areas of strategic planning, visioning
and organizational renewal and
transformation. Mr. Doyle's clients have
included Arthur Andersen, Builders Square,
DuPont, General Electric, Hambrecht & Quist,
Lucasfilm and Motorola. Mr. Doyle holds a
B.A. from the University of Cincinnati.
Karl Heinz Salzburger.... 42 Mr. Salzburger, 42, was appointed President
of the Company in November 1999. From April
1997 to October 1999, Mr. Salzburger served
as Chief Executive Officer for the Company's
European operations. From 1990 to 1997, Mr.
Salzburger served in varying capacities with
Benetton Sports System, where he supervised
the European subsidiaries, which market and
distribute Nordica, Prince, Rollerblade,
Asolo and Killer Loop. He also served as the
General Manager of Sales and Marketing for
the Nordica Group with Benetton Sports
System. Mr. Salzburger holds a Bachelor of
Commerce and Economics from the University of
Padua.
William N. Simon......... 52 Mr. Simon, 52, has been Vice Chairman of the
Company since May 1998. From September 1999
to October 1999, he served as acting Chief
Executive Officer of the Company. From March
1997 to May 1998, he served as the Company's
President and as a director, and, from
January 1994 to December 1995, he served as
the Company's Vice Chairman. Mr. Simon holds
a B.A. from the University of California at
Berkeley.
The Board of Directors is divided into three classes, serving staggered
three-year terms. The terms of Messrs. Bunje and Doyle expire at the 2000 Annual
Meeting; the terms of Messrs. Salzburger and Simon expire at the 2001 Annual
Meeting; and the term of Mr. Lurie expires at the 2002 Annual Meeting.
THE CURRENT EXECUTIVE OFFICERS OF THE COMPANY
The current executive officers of the Company, their ages, and their
positions with the Company and business experience are set forth below:
Name Age Principal Occupation and Business Experience
---- --- --------------------------------------------
Geoffrey D. Lurie........ 54 Mr. Lurie, 54, has served as Chief Executive
Officer of the Company since November 1999.
From March 1996 to October 1999, Mr. Lurie
was a principal at GDL Management Services, a
division of Mahoney Cohen & Company CPA, P.C.
Prior to that, he was the President of The
GDL Group Inc., a turnaround and
restructuring firm he founded in 1985. Prior
to that, Mr. Lurie was a partner at Touche
Ross & Co., the predecessor to Deloitte &
Touche LLP. Mr. Lurie received a CTA degree
from the University of South Africa.
A-3
<PAGE>
Name Age Principal Occupation and Business Experience
---- --- --------------------------------------------
Karl Heinz Salzburger.... 42 Mr. Salzburger, 42, was appointed President
of the Company in November 1999. From April
1997 to October 1999, Mr. Salzburger served
as Chief Executive Officer for the Company's
European operations. From 1990 to 1997, Mr.
Salzburger served in varying capacities with
Benetton Sports System, where he supervised
the European subsidiaries, which market and
distribute Nordica, Prince, Rollerblade,
Asolo and Killer Loop. He also served as the
General Manager of Sales and Marketing for
the Nordica Group with Benetton Sports
System. Mr. Salzburger holds a Bachelor of
Commerce and Economics from the University of
Padua.
Michael Benedetto........ 48 Mr. Benedetto, 48, was appointed Senior Vice
President of Operations in January 2000. From
1986 to January 2000, Mr. Benedetto held
various positions with Buster Brown Apparel,
Inc., most recently as Executive Vice
President of Sales -- Domestic and
International Divisions. Mr. Benedetto holds
a B.A. from Southeastern Louisiana
University.
DIRECTORS COMPENSATION
Each member of the Company's Board of Directors is reimbursed by the
Company for out-of-pocket expenses incurred in connection with attending Board
meetings. Except for the Chairman of the Board, who is receiving $10,000 per
month for his service as Chairman, no member of the Company's Board of Directors
currently receives any additional cash compensation for such service.
Non-employee members of the Board of Directors receive awards under the
Company's Non-Employee Directors Stock Option Plan (the "Directors' Plan"). A
total of 100,000 shares of Common Stock has been reserved for issuance under the
Directors' Plan. The Directors' Plan initially provided for the formula grant of
options to purchase 25,000 shares to each non-employee director of the Company
initially elected to the Board after the effective date of the Directors' Plan.
The Directors' Plan provides that, in lieu of the formula grants, awards may be
made under the Directors' Plan on a discretionary basis to non-employee
directors of the Company. On September 6, 1999, upon his election as Chairman of
the Board, Mr. Bunje was granted options to purchase 25,000 shares under the
Directors' Plan at an exercise price of $7.438 per share. In addition, at the
end of each month that Mr. Bunje serves as Chairman, Mr. Bunje is entitled to
additional options outside the Directors' Plan to purchase 5,000 shares.
Mr. Cason voluntarily terminated his options in November 1999.
BOARD COMMITTEES AND MEETINGS
The Board of Directors held 22 meetings during 1999.
The Board established an Audit Committee and a Compensation Committee in
1996. It has no nominating committee.
The Audit Committee, which consists of two non-employee directors, Messrs.
Bunje (Chairman) and Doyle, met six times during 1999. This committee approves
the engagement of the independent auditors; meets with the Company's independent
auditors and management to review and discuss the draft annual financial
statements; reviews the auditors' comments to management on internal accounting
controls and other matters the auditors may include in their report to
management; and undertakes related functions.
The Compensation Committee, which consists of two non-employee directors,
Messrs. Doyle (Chairman) and Bunje, met once during 1999. This committee makes
recommendations to the Board of Directors concerning executive cash and non-cash
compensation and compensation performance standards, makes awards under and
otherwise administers the Company's stock incentive plans to the extent not
undertaken by the full Board of
A-4
<PAGE>
Directors, and otherwise performs such other functions regarding compensation as
may be delegated by the Board of Directors.
No director attended, during the period he was a director, fewer than 75%
of the total number of meetings of the Board of Directors and meetings of the
committees of the Board of Directors on which he served.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of April 10, 2000 by (i) each
director who owned shares as of that date, (ii) each of the executive officers
named in the Summary Compensation Table set forth herein, (iii) all executive
officers and directors of the Company as a group and (iv) each person known by
the Company to be the beneficial owner of more than 5% of the outstanding shares
of Common Stock:
<TABLE>
<CAPTION>
Shares Beneficially
Name and Address of Beneficial Owner(1)(2) Owned Percent of Total(3)
- ------------------------------------------ ------------------- -------------------
<S> <C> <C>
Royce and Associates(4)................................ 1,383,400 10.8%
1414 Avenue of the Americas
New York, New York 10019
James Fifield(5)(6).................................... 1,120,060 8.8%
350 Eagle Rock Drive
Aspen, Colorado 81611
William N. Simon(6).................................... 232,706 1.8%
Michael F. Doyle(6).................................... 49,667 *
Karl Heinz Salzburger(6)(7)............................ 222,500 1.7%
Robert P. Bunje(6)..................................... 76,667 *
Geoffrey D. Lurie(6)(8)................................ 150,000 1.2%
Tucker Hacking(6)(9)................................... 28,275 *
Michael Benedetto...................................... * *
All directors and executive officers as a group (7 759,815 5.6%
persons)(6)(7)(8)(9).................................
</TABLE>
____________
* Less than 1%.
(1) Determined in accordance with Rule 13d-3 under the Securities Exchange Act
of 1934. Under this rule, a person is deemed to be the beneficial owner of
securities that can be acquired by such person within 60 days upon the
exercise of options. Each beneficial owner's percentage ownership as of a
particular date is determined by assuming that all options held by such
person (but not those held by any other person) that are exercisable within
60 days from that date have been exercised. Unless otherwise noted, the
Company believes that all persons named in the table have sole voting and
investment power with respect to all shares of Common Stock beneficially
owned by them.
(2) Unless otherwise noted, the address of each of the persons named above is
in care of the Company at 2013 Farallon Drive, San Leandro, California
94577.
(3) Applicable percentage ownership for each stockholder is based on 12,757,229
shares of Common Stock outstanding as of April 10, 2000, together with
applicable options for such stockholder that are exercisable within 60 days
of April 10, 2000.
(4) Based solely on information contained in a Schedule 13G filed January 5,
2000.
(5) Based solely on information contained in a Schedule 13D filed February 7,
2000.
(6) Includes shares issuable upon exercise of options exercisable within 60
days of April 10, 2000. Shares beneficially owned by Messrs. Fifield,
Simon, Doyle, Salzburger, Bunje, Lurie and Hacking include those that may
be acquired upon exercise of options to purchase the following respective
numbers of shares: 400,000, 232,706, 11,667, 222,500, 76,667, 150,000 and
28,075, respectively.
(7) Mr. Salzburger was appointed President of the Company in November 1999.
(8) Mr. Lurie was appointed Chief Executive Officer of the Company in November
1999.
A-5
<PAGE>
(9) Mr. Hacking is no longer employed by the Company.
EXECUTIVE OFFICER COMPENSATION
The following table sets forth information regarding the annual compensation
of the Company's Chief Executive Officer and the additional executive officers
of the Company set forth below (collectively, the "Named Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
Awards
------
Number of
Securities
Underlying All Other
Name and Principal Position Year Salary Bonus Options Compensation
- --------------------------- ---- ------ ----- ------ ------------
<S> <C> <C> <C> <C> <C>
Geoffrey D. Lurie................................. 1999 $ 115,385 -- 750,000 $ 2,572(2)
Chief Executive 1998 -- -- -- --
Officer(1) 1997 -- -- -- --
James G. Fifield.................................. 1999 $ 346,154 -- -- $373,017(5)
President and Chief 1998 305,769 $255,769(4) 400,000 415(6)
Executive Officer(3) 1997 -- -- -- --
William N. Simon.................................. 1999 -- -- -- $239,761(9)
President and Chief 1998 $ 190,385 $147,949(4) 40,000 864(6)
Executive Officer (7) 1997 370,800 95,760(8) 50,000 1,200(6)
Karl Heinz Salzburger............................. 1999 $ 451,794 -- 325,000 $ 7,328(11)
President 1998 391,678 $240,000(4) 30,000 2,206(11)
1997 138,716 43,312(10) -- 121,054(12)
Christopher F. Crawford........................... 1999 $ 121,154 -- -- $104,542(13)
General Manager(3) 1998 205,153 $164,123(4) 70,000 15,639(14)
1997 61,192 24,605(8) 30,000 222(6)
Todd Katz......................................... 1999 $ 164,923 $ 86,600 -- $ 25,382(15)
Vice President of Sales(3) 1998 360,000 163,803(4) 57,450 88,706(16)
1997 158,769 -- 37,000 --
Tucker Hacking.................................... 1999 $ 224,654 -- -- $123,755(17)
Vice President of Product 1998 195,878 $ 62,960(4) 70,000 18,974(18)
Acquisition(3) 1997 150,000 45,000(8) 12,000 756(6)
</TABLE>
____________
(1) Appointed Chief Executive Officer on November 1, 1999.
(2) Represents a car allowance of $1,500 and life insurance premiums of $1,072.
(3) No longer employed by the Company.
(4) Paid in 1999 for service in 1998.
(5) Represents severance of $313,462, accrued but unused vacation time of
$53,120 and life insurance premiums of $6,435.
(6) Represents life insurance premiums.
(7) Served as Acting Chief Executive Officer without compensation during
September and October 1999.
(8) Paid in 1998 for service in 1997.
(9) Represents accrued but unused vacation time of $55,084, severance of
$183,462 and life insurance premiums of $1,215.
(10) Represents a hiring bonus.
(11) Represents a car allowance.
(12) Represents director's fees of $12,500 per month for nine months for
services as a director of The North Face (Europe) Ltd., and use of an
automobile having an annual value of $8,554.
(13) Represents severance in the amount of $103,846 and life insurance premiums
of $696.
(14) Represents relocation reimbursement of $15,333 and life insurance premiums
of $306.
(15) Represents accrued but unused vacation time of $18,462, a car allowance of
$6,000 and life insurance premiums of $920.
(16) Represents relocation reimbursement of $75,842, a car allowance of $12,000
and life insurance premiums of $864.
A-6
<PAGE>
(17) Represents moving expenses of $77,010, educational expenses for Mr.
Hacking's children of $45,975 and life insurance premiums of $770.
(18) Represents relocation reimbursement of $18,656 and life insurance premiums
of $318.
Option Grants
The following table provides information with respect to the stock option
grants made to each Named Executive Officer during 1999:
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
-----------------
Potential Realizable Value of
Number of % of Total Assumed Annual Rates of Stock
Securities Options Price Appreciation for Option
Underlying Granted to Exercise Term(2)
------
Options Employees in Price Per Expiration
Name Granted Fiscal Year Share(1) Date 5% 10%
- ----- ------- ----------- -------- ---- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Geoffrey D. Lurie........... 750,000 65% $ 6.188 11/1/09 $3,296,683 $8,600,313
James G. Fifield............ -- -- -- -- --
William N. Simon............ -- -- -- -- -- --
Christopher F. Crawford..... -- -- -- -- -- --
Karl Heinz Salzburger....... 325,000 28% $ 6.063 11/1/09 $1,399,705 $3,651,520
Todd Katz................... -- -- -- -- -- --
Tucker Hacking.............. -- -- -- -- -- --
</TABLE>
____________
(1) All options that were granted have exercise prices equal to the fair market
value of the Common Stock on the date of the grant.
(2) The potential realizable value through the expiration date of the options
has been determined on the basis of the fair market value of the shares at
the time the options were granted, compounded annually over the term of the
option, net of the price. These values have been determined based upon
assumed rates of appreciation and are not intended to forecast the possible
future appreciation, if any, of the price or value of the Company's stock.
Option Exercises and Value
During 1999, none of the Named Executive Officers exercised any options.
The following table summarizes the number of shares underlying unexercised
options and the value of such options on an aggregated basis held by each Named
Executive Officer at December 31, 1999:
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-end Option
Values
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Shares Options at In-the-Money Options
Acquired Value Fiscal Year-End At Fiscal Year-End(1)
--------------- ---------------------
Name on Exercise Realized(2) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Geoffrey D. Lurie........... -- -- 150,000 600,000 -- --
James G. Fifield............ -- -- 400,000 -- -- --
William N. Simon............ -- -- 232,706 40,000 $507,220 --
Christopher F. Crawford..... -- -- 32,500 67,500 -- --
Karl Heinz Salzburger....... -- -- 242,500 417,500 -- --
Todd Katz................... -- -- 42,113 52,337 $ 8,147 --
Tucker Hacking.............. -- -- 34,825 53,887 $ 21,108 --
</TABLE>
____________
(1) Based on the difference between the closing market price of the Common
Stock at December 31, 1999, which was $4.063, and the option exercise
price. The actual value of unexercised options fluctuates with the market
price of the Common Stock.
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<PAGE>
(2) Based on the difference between the fair market value of the Common Stock
at the date of exercise and the exercise price.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Committee") of the Company's Board of
Directors currently consists of Messrs. Doyle (Chairman) and Bunje, each of whom
is a non-employee director of the Company. The Committee was established in
early 1996, and its members made recommendations concerning executive
compensation matters to the Board of Directors during 1999.
General Policies
Executive compensation policies and decisions were conceived by the Board
of Directors prior to the Company's initial public offering in 1996. The
policies and decisions for 1999 were based primarily upon goals of attracting
and retaining executive officers who are motivated to contribute to the
Company's business objectives, and offering competitive compensation to these
officers based upon their individual contributions and the overall performance
of the Company. Compensation is offered in the form of base salaries intended to
reflect competitive salaries at comparable companies, cash bonuses based
primarily on corporate performance and stock options intended to align the
interests of executive officers and stockholders.
Base salaries for the executive officers reflect the historic salary
structure for the levels of executive responsibility at the Company and the
recommendations of the Committee members as to appropriate salary levels and
competitive factors, including salaries believed necessary to employ certain
executive officers who joined the Company during 1999.
Upon the recommendations of the Committee members, the Board of Directors
approved cash bonuses to Messrs. Fifield, Katz, Hacking and Salzburger. The
Board of Directors considered relative base salaries and each officer's
individual performance in determining specific cash bonuses.
Messrs. Lurie and Salzburger received grants of stock options in 1999.
Individual grants in 1999 were allocated by the Board of Directors, as
recommended by the Committee members, based on (i) goals of providing potential
stock ownership in order to align the interests of management and stockholders
and to motivate officers to achieve goals set by the Company, (ii) individual
performance prior to the date of grant, in the case of Mr. Salzburger, and (iii)
overall cash compensation and potential stock ownership believed to be needed.
The Company's 1998 Nonstatutory Stock Option Plan (the "1998 Plan") was adopted
in May 1995 and amended in September 1998. A maximum of 1,700,000 shares have
been reserved for issuance upon exercise of options granted under the 1998 Plan.
Options granted under the 1998 Plan vest as determined by the Plan
Administrator. The term of the 1998 Plan is ten years and will expire in March
2008. The exercise price of options granted under the 1998 Plan was the fair
market value of the underlying stock on the date of grant. The option agreements
provide that options vest in 2004, if the individual is then employed, with
earlier accelerated vesting on an annual basis based on certain criteria
established by the Board of Directors.
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to a publicly held corporation to the extent that more than $1 million
is paid to any of its chief executive officer and four other most highly
compensated executive officers employed at the end of any fiscal year. The
Committee believes it unlikely that cash compensation paid for 1998 to any of
these officers would exceed $1 million. The Committee does not expect that the
limitation of Section 162(m) as now in effect will apply to awards of stock or
stock options previously made to these individuals. The Committee may adopt a
policy concerning this limitation when the Committee considers a policy to be
necessary or appropriate.
Compensation of CEO and President
William N. Simon served as Acting Chief Executive Officer from September
1999 to October 1999 without pay. James G. Fifield (who was appointed Chief
Executive Officer in May 1998, in addition to his positions as President and a
director) received an annual base cash salary of $346,154 in 1999. Geoffrey D.
Lurie (who was appointed Chief Execution Officer in November 1999, in addition
to his position as a director) received a base cash
A-8
<PAGE>
salary in 1999 of $115,385. The base salaries for Messrs. Fifield and Lurie were
established by the Board of Directors under the policies described above. Mr.
Fifield also earned a cash bonus for 1998 based on the cash bonus policies
described above. The Board approved this bonus on January 29, 1999 and such
bonus was paid on February 11, 1999. In November 1999, Mr. Lurie was granted an
option to purchase shares of Common Stock. The Board of Directors exercised its
judgment to determine the compensation for these officers based on the factors
and the policies described above.
COMPENSATION COMMITTEE
Michael F. Doyle (Chairman)
Robert P. Bunje
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<PAGE>
Performance Graph
The following graph shows a comparison of cumulative returns for the
Company's Common Stock, the Nasdaq National Market Composite Index and the S&P
Textile (Apparel Manufacturers) Index beginning July 2, 1996, when the Company's
Common Stock commenced public trading, and ending April 13, 2000. This
information assumes investments of $100 at the beginning of that period in the
Company's Common Stock at the initial public offering price of $14.00 and in
these indexes, and assumes reinvestment of dividends, where applicable. This
information is not necessarily indicative of future price performance.
The North Face, Inc. Nasdaq National Market Composite
Index S&P Textile (Apparel Manufacturers)Index
July 2, 1996 100.00 100.00 100.00
1996 137.50 108.80 120.25
1997 157.14 133.16 109.32
1998 92.86 186.75 109.32
1999 29.02 347.09 80.01
April 13, 2000 13.73 329.60 83.19
Fiscal Year Ended
December 31, 1997 $ 157.14 $133.16 $109.32
Fiscal Year Ended
December 31, 1998 $ 92.86 $186.75 $109.32
Fiscal Year Ended
December 31, 1999 $ 29.02 $347.09 $ 80.91
Fiscal Year Ended
April 13, 2000 $ 13.73 $329.60 $ 83.19
TRANSACTIONS WITH MANAGEMENT
No reportable transactions occurred during 1999 between the Company and its
officers and directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee of the Board of Directors currently consists of
Messrs. Doyle (Chairman) and Bunje. No member of the Compensation Committee or
executive officer of the Company has a relationship that would constitute an
interlocking relationship with executive officers or directors of another
entity.
The report of the Compensation Committee and Performance Graph are not
considered filed with the Commission and are not considered to be incorporated
by reference into any filings with the Commission, whether
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<PAGE>
the filing is made before or after the date of this Information Statement, and
irrespective of any general language otherwise incorporating filings by the
Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who beneficially own more than 10% of a
registered class of the Company's equity securities, to file with the Commission
initial reports of ownership and changes in ownership of Common Stock and other
equity securities of the Company. Commission regulations require these persons
to furnish the Company with copies of all Section 16(a) forms they file. Based
solely on a review of the copies of such reports furnished to the Company, the
Company believes that one required report on Form 4 or Form 5 was not filed on a
timely basis by Mr. Simon in 1998 or 1999, respectively, and one required report
on Form 4 or Form 5 was not filed on a timely basis by Mr. Fifield in 1998 or
1999, respectively. To the Company's knowledge, based solely on a review of the
Forms submitted to the Company by Mr. Simon and Mr. Fifield, neither Mr. Simon
nor Mr. Fifield have failed to file a Form required by Section 16(a).
A-11
<PAGE>
Annex B
Deutsche Banc Alex, Brown [DEUTSCHE BANK LOGO]
April 7, 2000
Board of Directors
The North Face, Inc.
2013 Farallon Drive
San Leandro, California 94577
Gentlemen:
Deutsche Bank Securities Inc. ("Deutsche Bank") has acted as financial
advisor to The North Face, Inc. (the "Company") in connection with the proposed
acquisition of the Company by VF Corporation ("VF") pursuant to an Agreement and
Plan of Merger, dated April 7, 2000, among the Company, VF and Sequoia
Acquisition, Inc. ("VF Sub"), a wholly owned subsidiary of VF (the "Agreement"),
which provides, among other things, for VF Sub to commence a cash tender offer
to acquire all issued and outstanding shares of common stock, par value $0.0025
per share, of the Company (the "Company Common Stock"), to be followed by a
merger of VF Sub with and into the Company (the cash tender offer and the merger
being herein referred to collectively as the "Transaction"), as a result of
which the Company will become a wholly owned subsidiary of VF. As set forth more
fully in the Agreement, the Transaction will result in each share of the Company
Common Stock not owned directly or indirectly by the Company or VF, other than
shares as to which dissenters' rights have been perfected, being purchased for
or converted into the right to receive $2.00 in cash (the "Consideration"). The
terms and conditions of the Transaction are more fully set forth in the
Agreement.
You have requested Deutsche Bank's opinion, as investment bankers, as to
the fairness, from a financial point of view, of the Consideration to the
stockholders of the Company.
In connection with Deutsche Bank's role as financial advisor to the
Company, and in arriving at its opinion, Deutsche Bank reviewed certain publicly
available financial and other information concerning the Company and VF, and
certain internal analyses and other information furnished to it by the Company.
Deutsche Bank also held discussions with members of the senior management of the
Company regarding the businesses and prospects of the Company, and attended
meetings between the Company and its bank lenders. In addition, Deutsche Bank
(i) reviewed the reported prices and trading activity for Company Common Stock,
(ii) compared certain financial and stock market information for the Company
with similar information for certain other companies whose securities are
publicly traded, (iii) reviewed the financial terms of certain recent business
combinations which it deemed comparable in whole or in part, (iv) reviewed the
terms of the Agreement and certain related documents, (v) reviewed a liquidation
plan for the Company prepared by Company management, and (vi) performed such
other studies and analyses and considered such other factors as it deemed
appropriate. It should be noted that the absence of any prospect that the
Company would obtain financing on a going-forward basis rendered the Company
unable to provide Deutsche Bank with any guidance in respect of the Company's
future prospects. Accordingly, due to the lack of financial projections for the
Company beyond the current fiscal year, Deutsche Bank did not perform a
discounted cash flow analysis in connection with rendering its opinion.
Deutsche Bank has not assumed responsibility for independent verification
of, and has not independently verified, any information, whether publicly
available or furnished to it, concerning the Company or VF, including, without
limitation, any financial information considered in connection with the
rendering of its opinion. Accordingly, for purposes of its opinion, Deutsche
Bank has assumed and relied upon the accuracy and completeness of all such
information and Deutsche Bank has not conducted a physical inspection of any of
the properties or assets, and has not prepared or obtained any independent
evaluation or appraisal of any of the assets or liabilities, of the Company or
VF. With respect to the current fiscal year financial forecasts and projections
made available to Deutsche Bank by the Company and used in its analyses,
Deutsche Bank has assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
management of the Company, as to the matters covered thereby. In rendering its
opinion, Deutsche Bank expresses no view as to the reasonableness of such
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<PAGE>
current fiscal year forecasts and projections or the assumptions on which they
are based. Deutsche Bank's opinion is necessarily based upon economic, market
and other conditions as in effect on, and the information made available to it
as of, the date hereof.
For purposes of rendering its opinion, Deutsche Bank has assumed that, in
all respects material to its analysis, the representations and warranties of the
Company, VF and VF Sub contained in the Agreement are true and correct, the
Company, VF and VF Sub will each perform all of the covenants and agreements to
be performed by it under the Agreement and all conditions to the obligations of
each of the Company, VF and VF Sub to consummate the Transaction will be
satisfied without any waiver thereof. Deutsche Bank has also assumed that all
material governmental, regulatory or other approvals and consents required in
connection with the consummation of the Transaction will be obtained, and that
in connection with obtaining any necessary governmental, regulatory or other
approvals and consents, or any amendments, modifications or waivers to any
agreements, instruments or orders to which either the Company, VF or VF Sub is a
party or is subject or by which it is bound, no limitations, restrictions or
conditions will be imposed, or amendments, modifications or waivers made, that
would have a material adverse effect on the Company, VF or VF Sub or would
materially reduce the contemplated benefits of the Transaction to the Company.
The Company's Annual Report on Form 10-K for the year ended December 31,
1999, which was due to be filed by March 31, 2000, was not filed by that date,
and the Company has informed Deutsche Bank that such report is not expected to
be filed before April 14, 2000. The Company has also informed Deutsche Bank that
the report of the Company's independent auditors with respect to the Company's
financial statements for the year ended December 31, 1999 will express a
qualification indicating substantial doubt regarding the Company's viability as
a "going concern". The Company's primary bank credit facility, under which the
Company has outstanding indebtedness of approximately $103 million, was
scheduled to expire on March 31, 2000. The Company has not been able to obtain
alternative financing to date, and the Company has informed Deutsche Bank that
it has no prospects for doing so, except pursuant to the Transaction. The
Company's bank lenders have granted the Company an extension of such facility
through April 15, 2000 in order to allow the Company to enter into the
Agreement. However, the Company has informed Deutsche Bank that the Company's
bank lenders do not intend to renew such credit facility beyond such date if the
Agreement is not executed, and intend instead to commence involuntary bankruptcy
proceedings against the Company. Deutsche Bank has relied upon the foregoing
facts and representations in rendering its opinion.
This opinion is addressed to, and for the use and benefit of, the Board of
Directors of the Company and is not a recommendation to the stockholders of the
Company to approve, or to tender their shares pursuant to, the Transaction. This
opinion is limited to the fairness, from a financial point of view, to the
stockholders of the Company of the Consideration, and Deutsche Bank expresses no
opinion as to the merits of the underlying decision by the Company to engage in
the Transaction.
Deutsche Bank will be paid a fee for its services as financial advisor to
the Company in connection with the Transaction, a portion of which is contingent
upon consummation of the Transaction. We are an affiliate of Deutsche Bank AG
(together with its affiliates, the "DB Group"). One or more members of the DB
Group have, from time to time, provided investment banking and other financial
services to the Company or its affiliates for which it has received customary
compensation, including serving as lead manager for the Company's 1996 initial
public offering, and for a subsequent offering of the Company's equity
securities in the same year. In the ordinary course of business, members of the
DB Group may actively trade in the securities and other instruments and
obligations of the Company and VF for their own accounts and for the accounts of
their customers. Accordingly, the DB Group may at any time hold a long or short
position in such securities, instruments and obligations.
Based upon and subject to the foregoing, it is Deutsche Bank's opinion as
investment bankers that the Consideration is fair, from a financial point of
view, to the stockholders of the Company.
Very truly yours,
DEUTSCHE BANK SECURITIES INC.
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