<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 13, 1996
REGISTRATION NO. 333-07573
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
GARGOYLES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
WASHINGTON 3851 91-1247269
(STATE OF INCORPORATION) (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
5866 SOUTH 194TH STREET
KENT, WASHINGTON 98032
(206) 872-6100
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
STEVEN R. KINGMA
VICE PRESIDENT, CHIEF FINANCIAL OFFICER,
SECRETARY AND TREASURER
GARGOYLES, INC.
5866 SOUTH 194TH STREET
KENT, WASHINGTON 98032
(206) 872-6100
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
STEWART M. LANDEFELD CYNTHIA L. POPE MICHAEL J. ERICKSON
L. MICHELLE WILSON 114 W. Magnolia Street LAURA A. BERTIN
Perkins Coie 4th Floor JONATHAN K. WRIGHT
1201 Third Avenue, 40th Floor Bellingham, Washington 98225 Heller, Ehrman, White &
McAuliffe
Seattle, Washington 98101-3099 (360) 671-5939 6100 Columbia Center
(206) 583-8888 701 Fifth Avenue
Seattle, Washington 98104
(206) 447-0900
</TABLE>
------------------------
Approximate date of commencement of proposed sale to the public: AS SOON AS
PRACTICABLE AFTER THIS
REGISTRATION STATEMENT BECOMES EFFECTIVE.
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, 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 of 1933, 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 of 1933, 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. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement
3.1 Form of Amended and Restated Articles of Incorporation currently in effect
(filed as Exhibit 3.1(b) to the registrant's initial filing)
3.2(a) Bylaws of the registrant currently in effect
3.2(b) Form of Bylaws of the registrant to become effective prior to the closing
of the Offering
5.1* Opinion of Perkins Coie regarding legality of shares
10.1* Stock Purchase Agreement, dated as of March 14, 1995, among Gargoyles and
certain other parties
10.2 Indemnity Agreement, dated as of March 22, 1995, by Gargoyles, Inc., in
favor of Trillium Corporation
10.3 Amended and Restated Promissory Note, dated as of March 17, 1995, made by
Gargoyles, Inc. to Dennis Burns (the "Founder")
10.4 Guaranty, dated March 17, 1995, by Conquest Sports, Inc. (formerly
Pro-Tec, Inc.) for the benefit of the Founder
10.5 Guaranty by Gargoyles, Inc. for the benefit of the Founder
10.6 Nondisclosure, Noncompetition and Indemnity Agreement, dated as of March
22, 1995, among Gargoyles, Inc., Conquest Sports, Inc., Antone
Manufacturing, Inc. and the Founder
10.7 Credit Agreement, dated as of March 22, 1995, between U.S. Bank of
Washington, National Association and Gargoyles, Inc.
10.8 Revolving Note, dated March 22, 1995, made by Gargoyles, Inc. to U.S. Bank
of Washington, National Association
10.9 Term Note, dated March 22, 1995, made by Gargoyles, Inc. to U.S. Bank of
Washington, National Association
10.10 Security Agreement, dated March 22, 1995, between U.S. Bank of Washington,
National Association and Gargoyles, Inc.
10.11 Limited Guaranty, dated March 22, 1995, by Trillium Corporation for the
benefit of U.S. Bank of Washington, National Association
10.12 Third Party Pledge Agreement, dated March 22, 1995, by Trillium
Corporation for the benefit of U.S. Bank of Washington, National
Association
10.13 First Amendment to Credit Agreement, dated as of August 17, 1995, between
U.S. Bank of Washington, National Association and Gargoyles, Inc.
10.14 Renewal Revolving Note, dated August 17, 1995, made by Gargoyles, Inc. to
U.S. Bank of Washington, National Association
10.15 Second Amendment to Credit Agreement, dated as of December 15, 1995,
between U.S. Bank of Washington, National Association and Gargoyles, Inc.
10.16 Renewal Revolving Note, dated December 15, 1995, made by Gargoyles, Inc.
to U.S. Bank of Washington, National Association
10.17 Third Amendment to Credit Agreement, dated as of February 13, 1996,
between U.S. Bank of Washington, National Association and Gargoyles, Inc.
10.18 Renewal Revolving Note, dated February 13, 1996, made by Gargoyles, Inc.
to U.S. Bank of Washington, National Association
10.19 Acquisition Note, dated February 13, 1996, made by Gargoyles, Inc. to U.S.
Bank of Washington, National Association
10.20 Amended and Restated Limited Guaranty, dated as of February 13, 1996, by
Trillium Corporation for the benefit of U.S. Bank of Washington, National
Association
10.21 Pledge Agreement, dated as of February 13, 1996, by Gargoyles, Inc. for
the benefit of U.S. Bank of Washington, National Association
</TABLE>
II-2
<PAGE> 3
<TABLE>
<S> <C>
10.22 Third Party Pledge Agreement, dated as of February 13, 1996, by Trillium
Investors II, L.L.C. for the benefit of U.S. Bank of Washington, National
Association
10.23 Indemnity Agreement, dated as of February 13, 1996, by Gargoyles, Inc. and
Trillium Corporation
10.24 Stock Purchase Agreement, dated as of January 25, 1996, among Gargoyles,
Inc., H.S.C., Inc., Douglas B. Hauff, H.S.I., a California corporation,
dba Hobie Sunglasses and the Sellers listed therein
10.25 Industrial Real Estate Lease (Multi-Tenant Facility), dated October 12,
1995, between Gargoyles, Inc. and Cascade Investors
10.26 Industrial Real Estate Lease (Single Tenant Facility), dated December 16,
1993, between Gargoyles, Inc. and DB&D Partnership
10.27 Lease Amendment, dated as of March 17, 1995, between Gargoyles, Inc. and
DB&D Partnership
10.28 Agreement, dated April 5, 1996, between Gargoyles, Inc. and Master Sports
Equipment GmbH
10.29 Shareholders Agreement, dated as of March 22, 1995, among Gargoyles, Inc.,
Trillium Corporation, the Founder, Douglas Hauff and the other
Shareholders listed therein
10.30 Amendment to Shareholders Agreement, dated as of December 8, 1995, among
Gargoyles, Inc. and the Shareholders listed therein
10.31 Amendment to Shareholders Agreement, dated as of December 8, 1995, among
Gargoyles, Inc. and the Shareholders listed therein
10.32 Gargoyles, Inc. Common Stock Purchase Warrant, dated January 1996, between
Gargoyles, Inc. and Wally Walker
10.33 Amended and Restated Option Agreement, dated as of March 17, 1995, among
Gargoyles, Inc., the Founder and Douglas B. Hauff
10.34 Assignment and Assumption of Amended and Restated Option Agreement, dated
as of March 22, 1995, between the Founder and the Investors listed therein
10.35 Option Agreement, dated as of March 22, 1995, between Douglas Hauff and
the Investors listed therein
10.36+ License Agreement between Gargoyles, Inc. and Dale Earnhardt
10.37+ License Agreement, dated as of October 1995, as amended as of October 18,
1995, between Gargoyles, Inc. and Ken Griffey, Jr.
10.38 Employment Agreement, dated as of March 22, 1995, between Gargoyles, Inc.
and Douglas B. Hauff
10.39 Employment Agreement, dated as of March 22, 1995, between Gargoyles, Inc.
and Steven R. Kingma
10.40 Employment Agreement, dated as of November 1, 1995, between Gargoyles,
Inc. and G. Travis Worth
10.41 Employment Agreement, dated as of March 22, 1995, between Gargoyles, Inc.
and David W. Jobe
10.42 Form of Indemnity Agreement between Gargoyles, Inc. and each of its
directors
10.43 1995 Stock Incentive Compensation Plan
10.44 Form of Equipment Note made by Gargoyles, Inc. to U.S. Bank of Washington,
National Association
10.45 Guaranty, dated as of March 7, 1995, by Gargoyles, Inc. to and for the
benefit of Trillium Corporation
10.46 Retail License Agreement, dated August 7, 1995, between Warner Bros.
Division of Time Warner Entertainment Company L.P. and Gargoyles, Inc., as
amended
10.47 Amended and Restated Agreement Regarding Claim Rights, dated July 3, 1996,
by and between the Founder, Gargoyles, Inc. and Conquest Sports, Inc.
10.48+* Ratification of Settlement Agreement and General Release, dated August 27,
1996
10.49+* Trademark License Agreement dated as of April 12, 1995
10.50 Agreement for Purchase of Common Stock, dated as of May 17, 1996, among
Gargoyles, Inc., The Timberland Company, Douglas W. Lauer and the kindling
company (formerly The D.W. Lauer Company)
</TABLE>
II-3
<PAGE> 4
<TABLE>
<S> <C>
10.51 Promissory Note, dated May 17, 1996, made by Gargoyles, Inc. to the
kindling company
10.52 Contingent Demand Note, dated May 17, 1996, made by Gargoyles, Inc. to the
kindling company
10.53 Employment Agreement, effective as of May 17, 1996, between Douglas W.
Lauer and the kindling company
10.54 Investor Rights Agreement, dated as of May 17, 1996, among The D.W. Lauer
Company, Douglas W. Lauer, Gargoyles, Inc. and The Timberland Company
10.55+ License Agreement, dated as of May 17, 1996, among The Timberland Company,
Gargoyles, Inc. and the kindling company
10.56 Incentive Pool Agreement, effective as of May 17, 1996, between Gargoyles,
Inc. and Douglas W. Lauer
10.57 License Agreement, effective January 1, 1989, between Hobie Designs, Inc.
and H.S.I.
10.58+ License Agreement, dated as of June 1996, between Scottie Pippen and
Gargoyles, Inc.
10.59+ License Agreement, dated as of May 31, 1996, among Ixela, Inc., Alexi
Lalas and Gargoyles, Inc.
10.60 Fourth Amendment to Credit Agreement, dated as of March 15, 1996, between
U.S. Bank of Washington, National Association and Gargoyles, Inc.
10.61 Form of Promissory Note made by Gargoyles, Inc. to Trillium Corporation
10.62 Fifth Amendment to Credit Agreement, dated as of June 25, 1996, between
U.S. Bank of Washington, National Association and Gargoyles, Inc.
10.63 Renewal Revolving Note, dated June 25, 1996, made by Gargoyles, Inc. to
U.S. Bank of Washington, National Association
10.64 Renewal Acquisition Note, dated June 25, 1996, made by Gargoyles, Inc. to
U.S. Bank of Washington, National Association
10.65 Consent on behalf of Alexi Lalas
10.66 Consent of Mike Jacoby
10.67 Consent on behalf of Ken Griffey, Jr.
10.68 Consent on behalf of Scottie Pippen
10.69 Consent on behalf of Dale Earnhardt
10.70 Consent on behalf of Michele Taggart
10.71 Consent of Tommy Moe
11.1 Computation of pro forma net income (loss) per share
16.1 Letter regarding change in accountants
21.1 Subsidiaries of the registrant
23.1 Consent of Ernst & Young LLP, Independent Accountants
23.2* Consent of Perkins Coie (contained in the opinion filed as Exhibit 5.1
hereto)
24.1 Power of Attorney
24.2 Power of Attorney for William D. Ruckelshaus
27.1 Financial Data Schedule
</TABLE>
- ---------------
+ Confidential Treatment Requested.
* Filed herewith.
(b) Financial Statement Schedules
All schedules are omitted because they are inapplicable or the requested
information is shown in the consolidated financial statements of the registrant
or related notes thereto.
II-4
<PAGE> 5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Seattle, State of Washington, on the 12th day of September, 1996.
GARGOYLES, INC.
By: DOUGLAS B. HAUFF
------------------------------------
Douglas B. Hauff, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed by the following
persons in the capacities indicated below on the 12th day of September, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
DOUGLAS B. HAUFF President, Chief Executive Officer and
- --------------------------------------------- Director (Principal Executive Officer)
Douglas B. Hauff
STEVEN R. KINGMA Vice President, Chief Financial Officer,
- --------------------------------------------- Secretary and Treasurer (Principal Financial
Steven R. Kingma and Accounting Officer)
*ERIK J. ANDERSON Chairman of the Board
- ---------------------------------------------
Erik J. Anderson
*TIMOTHY C. POTTS Director
- ---------------------------------------------
Timothy C. Potts
*WILLIAM D. RUCKELSHAUS Director
- ---------------------------------------------
William D. Ruckelshaus
*PAUL S. SHIPMAN Director
- ---------------------------------------------
Paul S. Shipman
*WALTER F. WALKER Director
- ---------------------------------------------
Walter F. Walker
*By DOUGLAS B. HAUFF
- ---------------------------------------------
Douglas B. Hauff
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 6
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBITS DESCRIPTION PAGE
- -------- ------------------------------------------------------------------------ ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement..........................................
3.1 Form of Amended and Restated Articles of Incorporation currently in
effect (filed as Exhibit 3.1(b) to the registrant's initial filing).....
3.2(a) Bylaws of the registrant currently in effect............................
3.2(b) Form of Bylaws of the registrant to become effective prior to the
closing of the Offering.................................................
5.1* Opinion of Perkins Coie regarding legality of shares....................
10.1* Stock Purchase Agreement, dated as of March 14, 1995, among Gargoyles
and certain other parties...............................................
10.2 Indemnity Agreement, dated as of March 22, 1995, by Gargoyles, Inc., in
favor of Trillium Corporation...........................................
10.3 Amended and Restated Promissory Note, dated as of March 17, 1995, made
by Gargoyles, Inc. to Dennis Burns (the "Founder")......................
10.4 Guaranty, dated March 17, 1995, by Conquest Sports, Inc. (formerly
Pro-Tec, Inc.) for the benefit of the Founder...........................
10.5 Guaranty by Gargoyles, Inc. for the benefit of the Founder..............
10.6 Nondisclosure, Noncompetition and Indemnity Agreement, dated as of March
22, 1995, among Gargoyles, Inc., Conquest Sports, Inc., Antone
Manufacturing, Inc. and the Founder.....................................
10.7 Credit Agreement, dated as of March 22, 1995, between U.S. Bank of
Washington, National Association and Gargoyles, Inc. ...................
10.8 Revolving Note, dated March 22, 1995, made by Gargoyles, Inc. to U.S.
Bank of Washington, National Association................................
10.9 Term Note, dated March 22, 1995, made by Gargoyles, Inc. to U.S. Bank of
Washington, National Association........................................
10.10 Security Agreement, dated March 22, 1995, between U.S. Bank of
Washington, National Association and Gargoyles, Inc. ...................
10.11 Limited Guaranty, dated March 22, 1995, by Trillium Corporation for the
benefit of U.S. Bank of Washington, National Association................
10.12 Third Party Pledge Agreement, dated March 22, 1995, by Trillium
Corporation for the benefit of U.S. Bank of Washington, National
Association.............................................................
10.13 First Amendment to Credit Agreement, dated as of August 17, 1995,
between U.S. Bank of Washington, National Association and Gargoyles,
Inc. ...................................................................
10.14 Renewal Revolving Note, dated August 17, 1995, made by Gargoyles, Inc.
to U.S. Bank of Washington, National Association........................
10.15 Second Amendment to Credit Agreement, dated as of December 15, 1995,
between U.S. Bank of Washington, National Association and Gargoyles,
Inc. ...................................................................
10.16 Renewal Revolving Note, dated December 15, 1995, made by Gargoyles, Inc.
to U.S. Bank of Washington, National Association........................
10.17 Third Amendment to Credit Agreement, dated as of February 13, 1996,
between U.S. Bank of Washington, National Association and Gargoyles,
Inc. ...................................................................
10.18 Renewal Revolving Note, dated February 13, 1996, made by Gargoyles, Inc.
to U.S. Bank of Washington, National Association........................
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBITS DESCRIPTION PAGE
- -------- ------------------------------------------------------------------------ ------------
<C> <S> <C>
10.19 Acquisition Note, dated February 13, 1996, made by Gargoyles, Inc. to
U.S. Bank of Washington, National Association...........................
10.20 Amended and Restated Limited Guaranty, dated as of February 13, 1996, by
Trillium Corporation for the benefit of U.S. Bank of Washington,
National Association....................................................
10.21 Pledge Agreement, dated as of February 13, 1996, by Gargoyles, Inc. for
the benefit of U.S. Bank of Washington, National Association............
10.22 Third Party Pledge Agreement, dated as of February 13, 1996, by Trillium
Investors II, L.L.C. for the benefit of U.S. Bank of Washington,
National Association....................................................
10.23 Indemnity Agreement, dated as of February 13, 1996, by Gargoyles, Inc.
and Trillium Corporation................................................
10.24 Stock Purchase Agreement, dated as of January 25, 1996, among Gargoyles,
Inc., H.S.C., Inc., Douglas B. Hauff, H.S.I., a California corporation,
dba Hobie Sunglasses and the Sellers listed therein.....................
10.25 Industrial Real Estate Lease (Multi-Tenant Facility), dated October 12,
1995, between Gargoyles, Inc. and Cascade Investors.....................
10.26 Industrial Real Estate Lease (Single Tenant Facility), dated December
16, 1993, between Gargoyles, Inc. and DB&D Partnership..................
10.27 Lease Amendment, dated as of March 17, 1995, between Gargoyles, Inc. and
DB&D Partnership........................................................
10.28 Agreement, dated April 5, 1996, between Gargoyles, Inc. and Master
Sports Equipment GmbH...................................................
10.29 Shareholders Agreement, dated as of March 22, 1995, among Gargoyles,
Inc., Trillium Corporation, the Founder, Douglas Hauff and the other
Shareholders listed therein.............................................
10.30 Amendment to Shareholders Agreement, dated as of December 8, 1995, among
Gargoyles, Inc. and the Shareholders listed therein.....................
10.31 Amendment to Shareholders Agreement, dated as of December 8, 1995, among
Gargoyles, Inc. and the Shareholders listed therein.....................
10.32 Gargoyles, Inc. Common Stock Purchase Warrant, dated January 1996,
between Gargoyles, Inc. and Wally Walker................................
10.33 Amended and Restated Option Agreement, dated as of March 17, 1995, among
Gargoyles, Inc., the Founder and Douglas B. Hauff.......................
10.34 Assignment and Assumption of Amended and Restated Option Agreement,
dated as of March 22, 1995, between the Founder and the Investors listed
therein.................................................................
10.35 Option Agreement, dated as of March 22, 1995, between Douglas Hauff and
the Investors listed therein............................................
10.36+ License Agreement between Gargoyles, Inc. and Dale Earnhardt............
10.37+ License Agreement, dated as of October 1995, as amended as of October
18, 1995, between Gargoyles, Inc. and Ken Griffey, Jr. .................
10.38 Employment Agreement, dated as of March 22, 1995, between Gargoyles,
Inc. and Douglas B. Hauff...............................................
10.39 Employment Agreement, dated as of March 22, 1995, between Gargoyles,
Inc. and Steven R. Kingma...............................................
</TABLE>
<PAGE> 8
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBITS DESCRIPTION PAGE
- -------- ------------------------------------------------------------------------ ------------
<C> <S> <C>
10.40 Employment Agreement, dated as of November 1, 1995, between Gargoyles,
Inc. and G. Travis Worth................................................
10.41 Employment Agreement, dated as of March 22, 1995, between Gargoyles,
Inc. and David W. Jobe..................................................
10.42 Form of Indemnity Agreement between Gargoyles, Inc. and each of its
directors...............................................................
10.43 1995 Stock Incentive Compensation Plan..................................
10.44 Form of Equipment Note made by Gargoyles, Inc. to U.S. Bank of
Washington, National Association........................................
10.45 Guaranty, dated as of March 7, 1995, by Gargoyles, Inc. to and for the
benefit of Trillium Corporation.........................................
10.46 Retail License Agreement, dated August 7, 1995, between Warner Bros.
Division of Time Warner Entertainment Company L.P. and Gargoyles, Inc.,
as amended..............................................................
10.47 Amended and Restated Agreement Regarding Claim Rights, dated July 3,
1996, by and between the Founder, Gargoyles, Inc. and Conquest Sports,
Inc. ...................................................................
10.48+* Ratification of Settlement Agreement and General Release, dated as of
August 27, 1996.........................................................
10.49+* Trademark License Agreement dated as of April 12, 1995..................
10.50 Agreement for Purchase of Common Stock, dated as of May 17, 1996, among
Gargoyles, Inc., The Timberland Company, Douglas W. Lauer and the
kindling company (formerly The D.W. Lauer Company)......................
10.51 Promissory Note, dated May 17, 1996, made by Gargoyles, Inc. to the
kindling company........................................................
10.52 Contingent Demand Note, dated May 17, 1996, made by Gargoyles, Inc. to
the kindling company....................................................
10.53 Employment Agreement, effective as of May 17, 1996, between Douglas W.
Lauer and the kindling company..........................................
10.54 Investor Rights Agreement, dated as of May 17, 1996, among The D.W.
Lauer Company, Douglas W. Lauer, Gargoyles, Inc. and The Timberland
Company.................................................................
10.55+ License Agreement, dated as of May 17, 1996, among The Timberland
Company, Gargoyles, Inc. and the kindling company.......................
10.56 Incentive Pool Agreement, effective as of May 17, 1996, between
Gargoyles, Inc. and Douglas W. Lauer....................................
10.57 License Agreement, effective January 1, 1989, between Hobie Designs,
Inc. and H.S.I. ........................................................
10.58+ License Agreement, dated as of June 1996, between Scottie Pippen and
Gargoyles, Inc. ........................................................
10.59+ License Agreement, dated as of May 31, 1996, among Ixela, Inc., Alexi
Lalas and Gargoyles, Inc. ..............................................
10.60 Fourth Amendment to Credit Agreement, dated as of March 15, 1996,
between U.S. Bank of Washington, National Association and Gargoyles,
Inc. ...................................................................
10.61 Form of Promissory Note made by Gargoyles, Inc. to Trillium
Corporation.............................................................
10.62 Fifth Amendment to Credit Agreement, dated as of June 25, 1996, between
U.S. Bank of Washington, National Association and Gargoyles, Inc. ......
</TABLE>
<PAGE> 9
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBITS DESCRIPTION PAGE
- -------- ------------------------------------------------------------------------ ------------
<C> <S> <C>
10.63 Renewal Revolving Note, dated June 25, 1996, made by Gargoyles, Inc. to
U.S. Bank of Washington, National Association...........................
10.64 Renewal Acquisition Note, dated June 25, 1996, made by Gargoyles, Inc.
to U.S. Bank of Washington, National Association........................
10.65 Consent on behalf of Alexi Lalas........................................
10.66 Consent of Mike Jacoby..................................................
10.67 Consent on behalf of Ken Griffey, Jr....................................
10.68 Consent on behalf of Scottie Pippen.....................................
10.69 Consent on behalf of Dale Earnhardt.....................................
10.70 Consent on behalf of Michele Taggart....................................
10.71 Consent of Tommy Moe....................................................
11.1 Computation of pro forma net income (loss) per share....................
16.1 Letter regarding change in accountants..................................
21.1 Subsidiaries of the registrant..........................................
23.1 Consent of Ernst & Young LLP, Independent Accountants...................
23.2* Consent of Perkins Coie (contained in the opinion filed as Exhibit 5.1
hereto).................................................................
24.1 Power of Attorney.......................................................
24.2 Power of Attorney for William D. Ruckelshaus............................
27.1 Financial Data Schedule.................................................
</TABLE>
- ---------------
+ Confidential Treatment Requested.
* Filed herewith.
<PAGE> 1
[Perkins Coie Letterhead]
September 12, 1996
Gargoyles, Inc.
5866 South 194th Street
Kent, WA 98032
Ladies and Gentlemen:
We have acted as counsel to you in connection with the proceedings for
the authorization and issuance by Gargoyles, Inc. (the "Company") of up to
1,785,715 shares (the "Company Shares") of the Company's common stock, having no
par value (the "Common Stock"), and the sale of up to 1,071,430 shares of the
Common Stock (the "Selling Shareholder Shares") offered by certain of the
Company's shareholders (the "Selling Shareholders"), together with an additional
428,571 shares of Common Stock if and to the extent the underwriters exercise an
over-allotment option granted by the Company and the Selling Shareholders (the
"Over-Allotment Shares"), and the preparation and filing of a registration
statement on Form S-1 (the "Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act"), which you are filing with the
Securities and Exchange Commission with respect to the Company Shares, the
Selling Shareholder Shares and the Over-Allotment Shares (collectively, the
"Shares").
We have examined the Registration Statement and such documents and
records of the Company and other documents as we have deemed necessary for the
purpose of this opinion. Based upon the foregoing, we are of the opinion that
upon the happening of the following events:
(a) the effectiveness of the Registration Statement and any amendments
thereto,
(b) due execution by the Company and registration by its registrar of
the Shares,
(c) the offering and sale of the Shares as contemplated by the
Registration Statement, and
(d) receipt by the Company of the consideration required for the
Company Shares and the Over-allotment Shares to be sold by the
Company as contemplated by the Registration Statement,
the Shares will be duly authorized, validly issued, fully paid and
nonassessable.
<PAGE> 2
Gargoyles, Inc.
September 12, 1996
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and any amendment thereto, including any and all
post-effective amendments and any registration statement relating to the same
offering that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act, and to the reference to our firm in the Prospectus of the
Registration Statement under the heading "Legal Matters." In giving such
consent, we do not thereby admit that we are in the category of persons whose
consent is required under Section 7 of the Securities Act.
Very truly yours,
PERKINS COIE
<PAGE> 1
EXHIBIT 10.1
TO
GARGOYLES, INC.
FORM S-1
<PAGE> 2
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made as of this
14th day of March, 1995, by and between GARGOYLES, INC., a Washington
corporation ("Gargoyles"), PRO-TEC, INC., a Washington corporation ("Pro-Tec"),
ANTONE MANUFACTURING, INC., a Washington corporation ("Antone"), CAROL AND
DENNIS BURNS, husband and wife (collectively "Burns"), DOUGLAS HAUFF ("Hauff"),
JOHN STECKLER ("Steckler"), TRILLIUM CORPORATION, a Washington corporation
("Trillium"), DAVID R. SYRE ("Syre"), and the other investors listed on Exhibit
2. Gargoyles, Pro-Tec and Antone shall sometimes collectively be referred to
herein as the "Companies." Trillium, Syre, and those persons listed on the
attached Exhibit 2 shall sometimes collectively be referred to herein as the
"Investors" and each as an "Investor".
RECITALS
A. Burns owns 68.4 shares, representing ninety-five percent (95%) of
the issued and outstanding shares, of capital stock of Gargoyles; 50,400 shares,
representing ninety percent (90%) of the issued and outstanding shares, of
capital stock of Pro-Tec; and 1000 shares, representing one hundred percent
(100%) of the issued and outstanding capital stock of Antone.
B. Hauff is the President of Gargoyles and Pro-Tec, and owns 3.6
shares, representing five percent (5%) of the issued and outstanding shares, of
the Gargoyles Common Stock; and 5,600 shares, representing ten percent (10%) of
the issued and outstanding shares, of the Pro-Tec Common Stock. In addition,
Hauff has an option to acquire an additional ten percent interest in Gargoyles
and five percent interest in Pro-Tec under Employment Agreements between the
corporations, Burns and Hauff dated January 5, 1994 (the "Hauff-Gargoyles
Employment Agreement and the Hauff-Pro-Tec Employment Agreement", respectively).
C. Gargoyles and Antone design, develop, manufacture, market and
distribute performance eyewear and sun glasses under the Gargoyles trade name
and mark. Pro-Tec designs, markets and distributes sports helmets and other
sports products. The three Companies are operated out of premises located at
5866 South 194th Street, Kent, Washington (the "Premises").
D. Subject to the terms and conditions set forth in this Agreement,
Burns and Hauff desire to reorganize and recapitalize Gargoyles, Pro-Tec and
Antone and to
<PAGE> 3
sell shares in Gargoyles and Pro-Tec to the Investors, and the Investors desire
to purchase such shares.
E. Capitalized terms shall have the meanings ascribed to them herein.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions set forth herein, the parties hereto hereby agree as
follows:
1. REORGANIZATION; RECAPITALIZATION
1.1 MERGER OF ANTONE INTO GARGOYLES; RECAPITALIZATION
Prior to the Closing Date, Burns and Hauff shall cause to be properly
performed all corporate action required to merge Antone into Gargoyles and to
recapitalize the surviving entity, Gargoyles. On or before the Closing Date,
Antone shall be merged into Gargoyles and Gargoyles shall be recapitalized in
accordance with the Merger and Recapitalization Agreement and Articles of Merger
attached as Exhibit 1 hereto (the "Merger and Recapitalization"). As part of the
Merger and Recapitalization, the Articles of Incorporation of Gargoyles shall be
amended and restated substantially in the form attached hereto as Exhibit 6.1 in
which Gargoyles shall authorize the issuance of two million shares of common
stock of Gargoyles (the "Gargoyles Common Stock"). The Gargoyles Common Stock
will have the rights, restrictions, privileges and preferences set forth in the
Gargoyles Amended and Restated Articles of Incorporation. Following the closing
of the Merger and Recapitalization, there shall be one million (1,000,000)
shares of Gargoyles Common Stock issued and outstanding; Burns shall hold
950,000 shares of Gargoyles Common Stock and Hauff shall hold 50,000 shares of
Gargoyles Common Stock. Of those shares held by Burns, one hundred thousand
(100,000) shares of the Gargoyles Common Stock (the "Optioned Shares") will be
subject to the option to purchase granted by Burns to Hauff under the Gargoyles
- - Hauff Employment Agreement (the "Hauff Option").
1.2 RECAPITALIZATION OF PRO-TEC
Prior to the Closing Date, Burns and Hauff shall cause to be properly
performed all corporate action required to amend and restate the Articles of
Incorporation for Pro-Tec in the form of the attached Exhibit 6.1 and to
recapitalize Pro-Tec as set forth in such Amended and Restated Articles. Upon
filing the Amended and Restated Articles of Incorporation for Pro-Tec, Pro-Tec
shall be authorized to issue two million (2,000,000) shares of common stock (the
"Pro-Tec Common
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<PAGE> 4
Stock"). The Pro-Tec Common Stock will have the rights, restrictions, privileges
and preferences set forth in the Pro-Tec Amended and Restated Articles of
Incorporation. Following the recapitalization of Pro-Tec, there shall be one
million (1,000,000) shares of Pro-Tec Common Stock issued and outstanding of
which 900,000 shares shall be held by Burns and 100,000 shares shall be held by
Hauff.
2. REDEMPTION AND SALE OF COMMON STOCK OF GARGOYLES AND PRO-TEC
2.1 PURCHASE AND SALE OF PRO-TEC COMMON STOCK
(a) Investors. Subject to the terms and conditions of this
Agreement, on the Closing Date, Burns shall sell to the Investors and, and each
Investor and shall purchase from Burns, severally and not jointly, the total
number of shares of Pro-Tec Common Stock set opposite such Investor's name on
the attached Exhibit 2 for a purchase price of $.05416 per share. The total
number of shares of Pro-Tec Common Stock to be purchased by the Investors and
shall be six hundred thousand (600,000) shares. The purchase price for the
Pro-Tec Common Stock shall be paid by each of the Investors other than Trillium
by wire transfer made on the Closing Date into an account or accounts specified
by Burns. Trillium will pay the purchase price for its shares of Pro-Tec Common
Stock by delivering to Burns a Promissory Note in the principal amount scheduled
for Trillium on Exhibit 2 (the "First Trillium Note"). Interest on the First
Trillium Note shall accrue at the rate of seven percent (7%) per annum. Only
accrued interest on the First Trillium Note shall be payable beginning with the
first payment of interest due April 1, 1995 and continuing on the first day of
each month thereafter so long as any principal amount shall remain unpaid. The
principal amount of the First Trillium Note shall be due in full on January 2,
1996. The First Trillium Note shall be secured in full by an irrevocable
stand-by letter of credit on terms reasonably acceptable to Trillium and Burns.
The First Trillium Note shall carry a prepayment prohibition. All payments to
Burns under the terms of the First Trillium Note shall be paid to Burns free and
clear of any restrictions, conditions, claims, counterclaims, or defenses, and
free and clear of and without deductions, set-offs, or withholdings of any
nature, present or future.
(b) Steckler. Subject to the terms and conditions of this
Agreement, Burns shall sell to Steckler and Steckler shall purchase from Burns
fifty thousand 50,000 shares of Pro-Tec Common Stock for a purchase price of
$.05416 per share. The purchase price for the Pro-Tec Common Stock shall be paid
by Steckler by wire transfer made on the Closing Date into an account or
accounts specified by Burns.
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<PAGE> 5
2.2 PURCHASE AND SALE OF OPTIONED SHARES
Subject to the terms and conditions of this Agreement, on the Closing
Date, Burns shall sell to the Investors, and each Investor shall purchase from
Burns, severally and not jointly, the total number of Optioned Shares set
opposite such Investor's name on the attached Exhibit 2 for a purchase price of
five dollars ($5.00) per share, plus the assumption of the obligations to Burns
under the terms of the Hauff Option. The total number of Optioned Shares to be
purchased by the Investors shall be one hundred thousand (100,000) shares. The
purchase price for the Optioned Shares shall be paid by each of the Investors
other than Trillium by wire transfer made on the Closing Date into an account or
accounts specified by Burns. Trillium will pay the purchase price for its shares
of Optioned Shares by delivering to Burns a Promissory Note in the principal
amount scheduled for Trillium on Exhibit 2 (the "Second Trillium Note").
Interest on the Second Trillium Note shall accrue at the rate of seven percent
(7%) per annum. Only accrued interest on the Second Trillium Note shall be
payable beginning with the first payment of interest due April 1, 1995 and
continuing on the first day of each month thereafter so long as any principal
amount shall remain unpaid. The principal amount of the Second Trillium Note
shall be due in full on January 2, 1996. The Second Trillium Note shall be
secured in full by an irrevocable stand-by letter of credit on terms reasonably
acceptable to Trillium and Burns. The Second Trillium Note shall carry a
prepayment prohibition. All payments to Burns under the terms of the Second
Trillium Note shall be paid to Burns free and clear of any restrictions,
conditions, claims, counterclaims, or defenses, and free and clear of and
without deductions, set-offs, or withholdings of any nature, present or future.
2.3 PURCHASE OF GARGOYLES COMMON STOCK FROM GARGOYLES
Subject to the terms and conditions of this Agreement, on the Closing
Date, Gargoyles shall sell to the Investors, and each Investor shall purchase
from Gargoyles, severally and not jointly, the total number of shares of
Gargoyles Common Stock set opposite such Investor's name on the attached Exhibit
2 for a purchase price of eight and 97916/100 dollars ($8.97916) per share. The
total number of shares of Gargoyles Common Stock to be purchased by the
Investors shall be six hundred thousand (600,000) shares. The purchase price for
the Gargoyles Common Stock shall be paid by each of the Investors as follows:
(a) Investors other than Trillium. Each of the Investors other than
Trillium shall pay the purchase price for their Gargoyles Common Stock by wire
transfer made on the Closing Date into an account specified by Gargoyles.
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<PAGE> 6
(b) Trillium. Trillium shall pay the purchase price for its
Gargoyles Common Stock by executing and delivering to Gargoyles on the Closing
Date a promissory note in the principal amount of the purchase price set
opposite Trillium's name on the attached Exhibit 2 (the "Third Trillium Note").
Interest on the Third Trillium Note shall accrue at the rate of seven percent
(7%) per annum. Only accrued interest on the Third Trillium Note shall be
payable beginning with the first payment of interest due April 1, 1995 and
continuing on the first day of each month thereafter so long as any principal
amount shall remain unpaid. The principal amount of the Third Trillium Note
shall be due in full on January 2, 1996. The Third Trillium Note shall carry a
prepayment prohibition. All payments to Burns under the terms of the Third
Trillium Note shall be paid to Burns free and clear of any restrictions,
conditions, claims, counterclaims, or defenses, and free and clear of and
without deductions, set-offs, or withholdings of any nature, present or future.
2.4 REDEMPTION
Subject to the terms and conditions of this Agreement, on the Closing
Date Gargoyles shall redeem from Burns six hundred thousand (600,000) shares
(the "Redemption") of his Gargoyles Common Stock (the "Redeemed Shares") for a
redemption price of Ten Million Eight Hundred Ninety Five Thousand Five Hundred
Dollars ($10,895,500) plus the agreed value of all Gargoyles personal property
which will be distributed to Burns at Closing as listed on Exhibit 8.9 hereto
(the "Redemption Price"). The Redemption Price shall be paid by (i) delivery by
Gargoyles to Burns of a promissory note in principal amount of Four Million Four
Hundred Eighty-Nine Thousand Five Hundred Eighty and 00/100 Dollars
($4,489,580.00) (the Burns Note"), and (ii) wire transfer of the balance of the
purchase price made on the Closing Date into an account or accounts specified by
Burns. Interest on the Burns Note shall accrue at the rate of seven percent (7%)
per annum. Only accrued interest on the Burns Note shall be payable beginning
with the first payment of interest due April 1, 1995 and continuing on the first
day of each month thereafter so long as any principal amount shall remain
unpaid. The principal amount of the Burns Note shall be due in full on January
2, 1996. The Burns Note shall carry a prepayment prohibition. The Burns Note
shall be secured in full by an irrevocable stand-by letter of credit on terms
reasonably acceptable to Gargoyles and Burns. All payments to Burns under the
terms of the Burns Note shall be paid to Burns free and clear of any
restrictions, conditions, claims, counterclaims, or defenses, and free and clear
of and without deductions, set-offs, or withholdings of any nature, present or
future.
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<PAGE> 7
The Redeemed Shares, the Optioned Shares, the Pro-Tec Common Stock and
the Gargoyles Common Stock to be purchased and sold under this Agreement shall
hereinafter be referred to collectively as the "Stock."
3. CLOSING
3.1 DATE; LOCATION
The Closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of Trillium, 1313 North Commercial,
Bellingham, Washington at 10:00 AM local time on or before March 24, 1995 or
such other date as the parties hereto may agree (the "Closing Date").
3.2 DELIVERIES
Subject to satisfaction or waiver of the conditions to Closing set
forth herein, on the Closing Date:
(a) Burns shall deliver to each of the Investors in accordance with
stock certificates representing the Pro-Tec Stock held by Burns to be purchased
by the Investors, duly endorsed in blank or accompanied by stock powers duly
executed by Burns and the Investors shall wire transfer the purchase price for
such shares into the account specified by Burns;
(b) Burns shall deliver to each of the Investors stock certificates
representing the Optioned Shares, duly endorsed in blank or accompanied by stock
powers duly executed by Burns, and the Investors shall wire transfer the
purchase price for such shares into the account specified by Burns. In addition,
Burns and the Investors, shall execute and deliver the Assignment and Assumption
of Amended and Restated Option Agreement substantially in the form of the
attached Exhibit 3.2;
(c) Gargoyles shall deliver to the Investors stock certificates
representing the Gargoyles Common Stock to be newly issued to the Investors.
Trillium shall execute and deliver to Gargoyles the Trillium Note, and the other
Investors shall wire transfer the purchase price for such newly issued shares
into the account specified by Gargoyles;
(d) Burns shall deliver to Gargoyles stock certificates
representing the Redeemed Shares, duly endorsed in blank or accompanied by stock
powers duly executed by Burns, and Gargoyles shall execute and deliver to Burns
the Burns Note and shall wire transfer the balance of the Redemption Price into
the account specified by Burns. Gargoyles shall also execute and deliver to
Burns a bill of sale for the personal property to be distributed to Burns at
closing;
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<PAGE> 8
(e) Burns, Hauff and the Companies shall each deliver to the
Investors a certificate dated as of the Closing Date stating that all the
representations and warranties made by them hereunder are true as of the Closing
Date; and
(f) the parties hereto shall deliver each of the other instruments
or documents required to be delivered at Closing under the terms of this
Agreement (the "Related Documents").
4. REPRESENTATIONS AND WARRANTIES OF BURNS; CERTAIN TAX REPRESENTATIONS BY
BURNS AND THE COMPANIES
4.1 REPRESENTATIONS AND WARRANTIES OF BURNS
Burns represents and warrants to the Investors, the Companies and Hauff
that the following statements are true and correct as of the date of this
Agreement and will be true and correct as of the Closing Date:
(a) Authority of Burns. Burns has full right, power, capacity and
authority to execute and deliver this Agreement and the Related Documents to be
executed and delivered by Burns hereunder. This Agreement has been, and each of
the Related Documents to be executed by Burns will be, duly executed and
delivered by Burns and will constitute a valid and binding obligation of Burns
enforceable against Burns in accordance with their terms.
(b) Ownership of Stock. As of the date hereof with respect to the
Companies, and immediately prior to the Closing with respect to Gargoyles and
Pro-Tec, the issued and outstanding Stock is owned as set forth on the attached
Schedule 4.1(b). Except for the Hauff Option, the Stock is validly issued, fully
paid and non-assessable shares of common stock owned of record and beneficially
by parties listed on Schedule 4.1(b), free and clear of all liens, charges,
encumbrances, agreements, claims or restrictions of any kind ("Liens"), by or on
the part of any person, firm, corporation or other entity ("Person"), and upon
delivery of the certificates representing the Stock duly endorsed in blank or
accompanied by a duly executed stock power, good and marketable title to the
Stock will be sold, assigned, conveyed, transferred and delivered to the
Investors or Hauff, as the case may be, free and clear of all Liens by or on the
part of any Person.
(c) No Broker or Finder. Burns has retained no broker in connection
with the transactions contemplated by this Agreement nor has he dealt with a
broker or finder in connection with the transactions contemplated by this
Agreement which would create an entitlement by any Person to a finders' or
brokers' fee.
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<PAGE> 9
(d) Accuracy of Statements. Neither this Agreement nor any of the
exhibits, schedules, written statements, documents, certificates or other items
furnished to the Investors by or on behalf of Burns with respect to this
Agreement and the transactions contemplated hereby contains any untrue statement
of a material fact or omits a material fact necessary to make each statement
contained herein or therein not misleading.
4.2 REPRESENTATION AND WARRANTIES OF BURNS AND THE COMPANIES REGARDING
TAXES
Burns and the Companies jointly and severally represent and warranty to
the Investors that each of the Companies has prepared and filed in a timely
manner all tax returns and reports required to be filed by law. Such returns and
reports are true, correct and complete in all material respects. Each of the
Companies has timely paid, or made adequate provisions for the payment in full
of, all taxes and other assessments which are due or that will become due
pursuant to such returns, except those presently being contested by them in good
faith. The provision, if any, for taxes of the Companies in respect of taxes as
shown in the Financial Statements or the Review Statements, as defined below, of
the Companies is adequate for taxes due or accrued as of the date thereof.
Except as set forth on Schedule 4.2, no deficiencies for taxes, fees or other
charges have been proposed or assessed by any taxing authority against the
Companies. The Companies have no knowledge of any ongoing or pending
examinations or audits with respect to taxes owed by the Companies by any taxing
authority, and the Companies have no knowledge of any facts that, if known to
any taxing authority, would be likely to result in the issuance of a notice of
proposed deficiency or similar notice of intention to assess any taxes against
the Companies. None of the Companies has executed any waiver of any statute of
limitations on the assessment or collection of any tax or governmental charge.
Except as set forth on Schedule 4.2, none of the Companies' tax returns or tax
compliance filings have ever been audited by governmental authorities. Any
taxes, fees or other charges imposed upon any of the Companies under any
applicable law payable in connection with the execution and delivery of, or the
consummation of, the transactions contemplated by this Agreement shall be paid
by the Companies on a timely basis (including any penalties or interest payable
in respect of such taxes, fees or other charges).
5. REPRESENTATIONS AND WARRANTIES OF HAUFF
5.1 TO INVESTORS
Hauff represents and warrants to the Investors that the following
statements are true and correct as of the date of this Agreement and will be
true and correct as of the Closing Date:
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<PAGE> 10
(a) Authority. Hauff has full right, power, capacity and authority
to execute and deliver this Agreement and the Related Documents to be executed
and delivered by Hauff hereunder. This Agreement has been, and each of the
Related Documents to be executed by Hauff will be, duly executed and delivered
by Hauff and will constitute a valid and binding obligation of Hauff enforceable
against Hauff in accordance with their terms.
(b) No Broker or Finder. Hauff has retained no broker in connection
with the transactions contemplated by this Agreement nor has he dealt with a
broker or finder in connection with the transactions contemplated by this
Agreement which would create an entitlement by any Person to a finders' or
brokers' fee.
(c) Accuracy of Statements. Neither this Agreement nor any of the
exhibits, schedules, written statements, documents, certificates or other items
furnished to the Investors by or on behalf of Hauff with respect to this
Agreement and the transactions contemplated hereby contains any untrue statement
of a material fact or omits a material fact necessary to make each statement
contained herein or therein not misleading.
5.2 TO BURNS
Hauff represents and warrants to Burns that the following statements
are true and correct as of the date of this Agreement and will be true and
correct as of the Closing Date:
(a) Disclosure of Third Party Inquiries. Except as set forth on
Schedule 5.2(a), Hauff has not received within the last three years any third
party serious inquiries with follow-up discussions or offers, whether written or
oral, to purchase all or part of the stock or assets of the Companies nor any
inquiries or offers to purchase or license or transfer any of the Companies'
patents, trademarks, intellectual property rights, discoveries, inventions,
designs, experimental work, or trade secrets.
(b) Disclosure of Contract Expectancies and Business Opportunities.
Except as disclosed on Schedule 5.2(b), Hauff has disclosed to Burns all
material contract expectancies and business opportunities of the Companies
arising within the last two years. A contract expectancy or business opportunity
includes: any solicitation, negotiation, or discussion, whether written or oral,
with a prospective customer of any of the Companies involving a transaction,
potential transaction, or series of transactions in an amount greater than
$500,000; any solicitation, negotiation, or discussion, whether written or oral
with a current customer of any of the Companies in an amount greater than
$500,000. For purposes of this
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<PAGE> 11
representation, a contract expectancy or business opportunity shall only exist
if the Companies have entered into negotiations with that prospective customer
or current customer and there is a reasonable expectation by the Companies that
the expectancy opportunity will occur.
(c) Gargoyles Common Stock. All Gargoyles Common Stock issued to
Hauff was validly issued, fully paid, and non-assessable, and was issued in
compliance with any applicable federal or state securities laws.
(d) Pro-Tec Common Stock. All Pro-Tec Common Stock issues to Hauff
was validly issued, fully paid, and non-assessable, and was issued in compliance
with any applicable federal or state securities laws.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANIES, BURNS AND HAUFF
The Companies, Burns and Hauff jointly and severally represent and
warrant to the Investors that the following statements are true and correct as
of the date of this Agreement and will be true and correct as of the Closing
Date:
6.1 ORGANIZATION AND GOOD STANDING
Each of the Companies is a corporation duly organized, validly existing
and in good standing under the laws of the state of Washington. Each of the
Companies has all requisite corporate power and authority to own and operate its
properties and assets and to carry on its business as currently conducted in the
state of Washington. The Companies have sales representatives and/or
distributors outside the state of Washington but do not have offices or own or
operate properties in any state other than Washington. None of the Companies is
duly qualified to do business as a foreign corporation in any state in the USA.
As of the Closing, the Amended and Restated Articles of Incorporation and the
Amended and Restated Bylaws of Gargoyles and Pro-Tec will be in the forms
attached to Exhibit 6.1, and, in such form, will be true, correct and complete
and contain all amendments through the Closing Date. None of the Companies have
any subsidiaries.
6.2 CORPORATE POWER AND AUTHORITY
Each of the Companies has all requisite corporate power and authority
to execute and deliver this Agreement and all the Related Documents to be
executed and delivered by the Companies hereunder and to carry out and perform
its obligations under the terms of this Agreement and the Related Documents. The
execution, delivery and performance of this Agreement and the Related Documents
have been duly authorized by all requisite action on the part of the officers,
directors and
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<PAGE> 12
shareholders of the Companies. This Agreement and each of the Related Documents
to which the Companies are a party have been, and at closing will be, duly
executed and delivered by each of the Companies and will constitute, a valid and
binding obligation of each of the Companies enforceable against the Companies in
accordance with their terms.
6.3 CAPITALIZATION OF GARGOYLES
As of the date of this Agreement, the authorized capital stock of
Gargoyles consists solely of shares of Gargoyles Common Stock, of which 72
shares are issued and outstanding, and held of record by Burns, who owns 68.4
shares, and Hauff, who owns 3.6 shares. All of the Gargoyles Common Stock is
validly issued, fully paid and non-assessable, and was issued without violation
of any applicable federal or state securities laws or any preemptive or similar
rights. Other than as contemplated by this Agreement and the Hauff-Gargoyles
Employment Agreement or as disclosed on Schedule 6.3, there are no agreements,
arrangements, options, warrants, calls, rights or other commitments of any kind
whatsoever relating to the issuance, sale, purchase, retirement or redemption of
any shares of capital stock of Gargoyles, including the Gargoyles Common Stock.
6.4 CAPITALIZATION OF PRO-TEC
The authorized capital stock of Pro-Tec consists solely of the Pro-Tec
Common Stock, of which 56,000 shares are issued and outstanding, and held of
record by Burns, who owns 50,400 shares, and Hauff, who owns 5,600 shares. All
of the Pro-Tec Common Stock is validly issued, fully paid and non-assessable,
and was issued without violation of any applicable federal or state securities
laws or any preemptive or similar rights. Other than as contemplated by this
Agreement and the Hauff-Pro-Tec Employment Agreement or disclosed on Schedule
6.4, there are no agreements, arrangements, options, warrants, calls, rights or
other commitments of any kind whatsoever relating to the issuance, sale,
purchase, retirement or redemption of any shares of capital stock of Pro-Tec,
including the Pro-Tec Common Stock.
6.5 FINANCIALS
Gargoyles has delivered to the Investors audited financial statements
for the period ending November 30, 1994, and the interim statements of income
prepared by Gargoyles for the months of December 1994 and January 1995 (the
"Financial Statements") together with the reports thereon of McClinton, Workman
and Associates, P.S., an independent certified public accounting firm
("McClinton, Workman"). Pro-Tec and Antone have delivered to the Investors
reviewed and compiled, respectively, financial statements for the period ending
November 30,
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1994, for Pro-Tec and December 31, 1994, for Antone (the "Reviewed and Compiled
Statements") together with reports thereon of McClinton, Workman. The Financial
Statements and Reviewed and Compiled Statements, together with the notes related
thereto, are complete and correct in all material respects and fairly present
the financial condition of the Companies as of the dates indicated therein, all
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods involved. Investors acknowledge they
have received and have had the opportunity to review Gargoyles statements of
income for the months of December 1994 and January 1995.
6.6 OPERATIONS SINCE BALANCE SHEET DATES
(a) Except as set forth in Schedule 6.6(a), since the date of the
audited or reviewed, as the case may be, balance sheets dated as of the last day
of the accounting year ending in 1994 for each of the Companies (the "Balance
Sheet Dates"), there has been no material adverse change in the assets,
properties, liabilities, business, prospects or condition (financial or
otherwise) of the Companies and no fact or condition exists or is contemplated
or threatened which might reasonably be expected to cause such a change in the
future.
(b) Except as set forth in Schedule 6.6(b), since the Balance Sheet
Dates, the Companies have conducted their businesses in the usual, regular and
ordinary course and consistent with past practice. Without limiting the
generality of the foregoing, since the Balance Sheet Dates (except as
contemplated by this Agreement), the Companies have not:
(i) issued, delivered, or agreed to issue or deliver, or
granted any option, warrant or other right to purchase or otherwise acquire any
capital stock or security convertible into or exchangeable for capital stock, or
issued or agreed to issue any bonds, notes or other securities or evidences of
indebtedness, or borrowed or agreed to borrow any funds;
(ii) sold, leased, transferred or otherwise disposed of or
mortgaged or pledged, or imposed or suffered to be imposed any Lien on any of
their assets, other than in the ordinary course of business;
(iii) increased the rate of compensation or commission payable
or made any accrual or arrangement for or payment of any bonus or special
compensation of any kind or any severance or termination pay to any officer or
employee or commissioned salesperson or similar agent;
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(iv) made or declared, or agreed to make or declare, any
payment of dividends or distributions to stockholders;
(v) entered into any material contract or other agreement of
any amendment or termination thereof;
(vi) made any change in the accounting policies, methods or
practices followed by the Companies; or
(vii) entered into or become committed to enter into any other
transaction except in the ordinary course of business.
6.7 UNDISCLOSED LIABILITIES
Except as reflected in the Financial Statements or as disclosed on
Schedule 6.7, the Companies have no material liabilities, contingent or
otherwise, or obligations other than (i) liabilities incurred in the ordinary
course of business and (ii) obligations under contracts and commitments duly
entered into by the Companies in the ordinary course of business, which, in both
cases, individually or in the aggregate, are not material to the condition
(financial or otherwise) or operating results of the Companies. For purposes of
this Section 6.7, undisclosed liabilities shall not be financially material
unless they exceed in the aggregate One Hundred Thousand Dollars ($100,000).
6.8 OUTSTANDING INDEBTEDNESS
Except as reflected in the Financial Statements or as disclosed on
Schedule 6.8, the Companies have no indebtedness for borrowed money which the
Companies have directly or indirectly created, incurred, assumed or guaranteed,
or with respect to which the Companies have become directly or indirectly
liable.
6.9 ACCOUNTS RECEIVABLE
Except to the extent reflected in Schedule 6.9 hereto, the accounts
receivable of the Companies, as reflected in the Financial Statements and
thereafter arising, are (i) owned by the Companies and are not subject to any
Lien, (ii) not subject to any offset, deduction, defense, dispute or
counterclaim, (iii) not subject to any discounts or allowances, and (iv) legal,
valid and binding obligations of the account debtors in respect of such accounts
receivable. The Companies cannot warrant the financial viability of any of the
account debtors, but to the best of the Companies' knowledge the accounts
receivable are collectible.
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6.10 INVENTORY
Except as set forth on Schedule 6.10, the inventory of the Companies as
reflected in the Financial Statements and thereafter acquired, is (i) owned by
the Companies and not subject to any Lien, (ii) in good and salable condition,
(iii) not obsolete or unmerchantable and (iv) valued on the Companies' books,
records and reports at the lower of cost or fair market value (assuming an
orderly disposition).
6.11 COMPLIANCE WITH LAWS
The Companies have complied in all material respects and are in
compliance in all material respects with all federal, state, local and foreign
laws, rules, regulations, ordinances, orders, decrees and similar requirements
applicable to them, their businesses, their properties or their employees. None
of the Companies has received written notice of any asserted present or past
unremedied failure by the Companies to comply with any of the foregoing.
6.12. LITIGATION
Except as set forth on Schedule 6.12, there are no actions, suits,
proceedings or investigations pending or, to the knowledge of Burns, Hauff or
the Companies, threatened against any of the Companies, or any of their
properties, including intellectual properties, before any court or governmental
agency. Except as set forth on Schedule 6.12, none of the Companies is a party
or subject to the provisions of any order, writ, injunction, judgment or decree
of any court or governmental agency or instrumentality and there is no action,
suit, proceeding or investigation by any of the Companies currently pending or
that and of the Companies intend to initiate.
6.13 INTENTIONALLY LEFT BLANK
6.14 EMPLOYEE MATTERS
(a) Schedule 6.14(a) sets forth a list of all employees of the
Companies and sets forth the following information with respect to each
employee: employee name, title, current salary, commissions, bonuses, fringe
benefits, hire date, and whether any employment agreement exists between the
Companies and any employee.
(b) None of the Companies is a party to any collective bargaining
agreement, and there currently exists no demand for collective bargaining by any
union or labor organization.
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(c) None of the Companies is aware that any of their employees or
agents or any other person working on behalf of any of the Companies is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere materially with the use
of the employee's best efforts to promote the interests of the Companies or that
would materially conflict with the Companies' businesses. To the best knowledge
of the Companies, no employee of any of the Companies is in violation of any
material term of any employment contract, proprietary information agreement or
other contract or agreement relating to the relationship of such employee with
any of the Companies or any other party because of the nature of the business
conducted by the Companies.
(d) With respect to all employees and former employees, except as
set forth on Schedule 6.14(d), none of the Companies presently maintains,
contributes to, or has any liability (including current or potential
multi-employer plan withdrawal liability) under any (i) non-qualified deferred
compensation or retirement plan or arrangement which is an "employee pension
benefit plan" as such term is defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), (ii) qualified defined
contribution retirement plan, (iii) qualified defined benefit pension plan, (iv)
funded or unfunded medical, health or life insurance plan or arrangement for
present or future retirees or present or future terminated employees which is an
employee welfare benefit plan as defined in Section 3(1) of ERISA, or (v) any
other employee welfare benefit plan.
6.15 THIRD PARTY CONSENTS
Except as set forth on Schedule 6.15, neither the execution of this
Agreement nor the consummation of the transactions contemplated hereunder
requires the approval or consent of any Person, governmental authority, or any
party to any contract with Burns, Hauff, or any of the Companies.
6.16 TITLE TO ASSETS
Except as set forth on Schedule 6.16, each of the Companies has good
and marketable title to its properties and assets as reflected in the Financial
Statements, and has good title to all their leasehold interests, in each case
subject to no Liens except (i) Liens in respect of current taxes not yet due and
payable and (ii) Liens reflected in the Financial Statements. With respect to
properties and assets which are leased by the Companies, the Companies are in
compliance with such leases in all material respects and hold valid leasehold
interests free of any material Liens, claims or encumbrances. The assets,
whether owned, licensed or leased by the Companies,
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constitute all the assets necessary or appropriate to conduct the Companies'
businesses. None of the Companies own any real property.
6.17 PERMITS
Except as set forth on Schedule 6.17, the Companies own, hold or
possess all governmental and regulatory licenses, registrations, franchises,
permits, privileges, immunities, approvals and other authorizations which are
necessary to entitle them to carry on and conduct their businesses substantially
as currently conducted (the "Permits"). The Companies have fulfilled and
performed their obligations under each of the Permits which, if failed to be
performed, could have a material adverse effect on the Companies.
6.18 INTELLECTUAL PROPERTY
(a) Except as set forth on Schedule 6.18(a), each of the Companies
owns or otherwise has rights or licenses to use or possess the patents,
trademarks, service marks, tradenames, copyrights, licenses, applications for
patents, inventions, trade secrets, know-how, proprietary processes and
formulae, and other intellectual property rights used in or necessary to the
operation of the businesses of the Companies (the "Intellectual Property").
(b) Schedule 6.18(b) contains a list of the Intellectual Property
of each of the Companies which has been duly registered in, filed in, or issued
by the United States Patent and Trademark Office, the United States Register of
Copyrights or the corresponding offices of other countries, states or other
jurisdictions (the "Registers"). Neither Burns, Hauff or the Companies have any
knowledge (i) of an adverse claim of ownership by any third party of any of the
Companies' Intellectual Property, (ii) of any invalidity or unenforceability of
any of the Companies' Intellectual Property, or (iii) of any act of fraud or
inequitable conduct committed on the Registers.
(c) Except as set forth on Schedule 6.18(c), use of the Companies'
Intellectual Property does not require the consent of any third party, and the
same are freely transferable and are owned exclusively by the Companies free and
clear of any attachments, security interests, Liens, royalties, encumbrances,
adverse claims, licenses or any other ownership interest whatsoever.
(d) Except as set forth on Schedule 6.18(d), to the best knowledge
of the Companies there are no claims, actions, or proceedings pending by or
against the Companies with respect to its Intellectual Property. In addition, to
the best knowledge of Burns, Hauff and the Companies, the use by the Companies
of any of the
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Intellectual Property in any of the Companies' businesses as currently conducted
or as proposed to be conducted will not infringe any trademarks, service marks,
trade names, copyrights patents or other rights of another Person.
(e) Schedule 6.18(e) contains a list of license agreements and
other contracts currently being negotiated for and on behalf of the Companies
with any third parties related to any of the Intellectual Property.
(f) Investors acknowledge that the Companies have actively pursued
intellectual property rights that may give rise to future litigation not
presently pending. Investors have had the opportunity to inquire with the
Companies' legal counsel on Patents and Intellectual Property regarding the
Intellectual Property of the Companies, pending application for patents,
inventions, trade secrets, proprietary processes and formulae, as well as all
pending claims, actions, or proceedings regarding Intellectual property.
6.19 CUSTOMERS; SALES
Schedule 6.19 hereto contains a list of the top ten (10) customers of
Gargoyles (measured by dollar amount) and the sales figures for such customers
for the years ended 1993 and 1994 and projections for sales in 1995. Except as
set forth in Schedule 6.19, neither Burns, nor Hauff nor Gargoyles knows of any
fact which would lead any of them to believe that any of such listed customers
will change materially their business relationship with Gargoyles.
6.20 SUPPLIERS OF GOODS AND SERVICES
Schedule 6.20 hereto contains a list of the top ten (10) suppliers of
goods and/or services to the Companies (measured by dollar amount) and the total
cost of goods or services purchased from such suppliers for the years ended 1993
and 1994 and projections for purchases in 1995. Except as set forth in Schedule
6.20, neither Burns, nor Hauff nor any of the Companies knows of any fact which
would lead any of them to believe that any of such listed suppliers will change
materially their business relationship with the Companies.
6.21 INSURANCE
The Companies currently have insurance contracts or policies in full
force and effect, and have had in full force and effect during the past two
years, which provide for coverages that are usual and customary as to amount and
scope in respect to the Companies' businesses. Schedule 6.21 contains a list of
all such insurance policies and a summary of coverages under each such policy.
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6.22 ENVIRONMENTAL MATTERS
The operations of the Companies comply and have at all times complied
in all material respects with all applicable laws, rules and regulations
concerning environmental health and safety. The Companies have obtained all
environmental, health and safety permits necessary for their operations and all
such permits are in good standing. The Companies are, in all material respects,
in compliance with all terms and conditions of such permits. None of the
Companies has been notified that any of their present or past operations is the
subject of any investigation by any governmental authority evaluating whether
any remedial action is required nor has it needed to respond to or file any
notice with respect to a release or threatened release of a hazardous or
dangerous substance or other contaminant into the environment. None of the
Companies, nor to the best knowledge of Burns, Hauff or the Companies, has any
agent or subcontractor of the Companies, disposed of any hazardous or dangerous
substance or other contaminants in violation of any requirement of law.
6.23 PRODUCTS LIABILITY
Except as set forth in Schedule 6.23 hereto, there are no claims by or
before any court or governmental or other regulatory or administrative agency,
commission or other authority against or involving the Companies concerning any
product manufactured, repaired, shipped, sold or delivered by or on behalf of
any of the Companies which is pending or, to the best knowledge of the
Companies, threatened, and there has been no happening or event which has
occurred as a result of a defect in a product manufactured, repaired, shipped,
sold or delivered by or on behalf of any of the Companies and which might give
rise to liability on the part of any of the Companies. Investors acknowledge
that the Companies have placed consumer products in the stream of commerce in
the U.S.A. and throughout the world which may give rise to future product
liability claims. Consumer products include but are not limited to: eyewear,
face guards, protective helmets, sunglasses, protective eyeglasses, and shin
guards.
6.24 RELATED PARTY TRANSACTIONS
Except as disclosed on Schedule 6.24, no current or former shareholder,
director, officer, or employee, or any of their affiliates (as defined in Rule
144 of the Securities Act of 1933, as amended (the "Securities Act")) is, or
since January 1, 1990, has been (i) a party to any transaction with any of the
Companies, (ii) the direct or indirect owner of any interest in any business
organization which is a present or potential competitor of, customer of, or
supplier of products and/or services to the Companies, or (iii) the recipient of
income from any source other than the Companies which relates to the business
of, or should properly accrue to, the Companies. For any
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natural person, the term "affiliate" shall include but not be limited to any of
such person's immediate family members and their affiliates.
6.25 NO BROKER OR FINDER
None of the Companies has retained a broker in connection with the
transactions contemplated by this Agreement or has dealt with a broker or finder
in connection with the transactions contemplated by this Agreement which would
create an entitlement by any Person to a finders' or brokers' fee.
6.26 ACCURACY OF STATEMENTS
Neither this Agreement nor any of the exhibits, schedules, written
statements, documents, certificates or other items furnished to the Investors by
or on behalf of the Companies with respect to this Agreement and the
transactions contemplated hereby contains any untrue statement of a material
fact or omits a material fact necessary to make each statement contained herein
or therein not misleading.
7. REPRESENTATIONS AND WARRANTIES OF INVESTORS
In the case of the Investors, each such Investor severally represents
and warrants to Burns, Hauff and the Companies that the following statements are
true and correct as of the date of this Agreement and will be true and correct
as of the Closing Date:
7.1 AUTHORITY
Each individual Investor represents and warrants that such Investor has
full right, power, capacity and authority to execute and deliver this Agreement
and the Related Documents to be executed and delivered by such Investor
hereunder. With respect to Trillium, Trillium represents it is a corporation
duly organized, validly existing and in good standing under the laws of the
state of Washington and that it has all requisite corporate power and authority
to execute and deliver this Agreement and all the Related Documents to be
executed and delivered by Trillium hereunder and to carry out and perform its
obligations under the terms of this Agreement and the Related Documents. This
Agreement has been, and each of the Related Documents to be executed by such
Investor will be, duly executed and delivered by such Investor and will
constitute a valid and binding obligation of such Investor enforceable against
such Investor in accordance with their terms.
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7.2 SOPHISTICATION OF THE INVESTORS
In connection with the purchase of the Gargoyles Common Stock and the
Pro-Tec Common Stock hereunder, each such Investor acknowledges, represents and
warrants to the Companies, Burns and Hauff as follows:
(a) That such Investor has the financial ability to bear the
economic risk of an investment in the Gargoyles Common Stock and the Pro-Tec
Common Stock, has adequate means of providing for such Investor's current needs
and personal contingencies, has no need for liquidity in such investment and can
afford a complete loss of such investment;
(b) That such Investor is aware that an investment in the
Gargoyles Common Stock and the Pro-Tec Common Stock involves certain risks, that
such Investor has sufficient knowledge and experience in financial and business
matters to be able to evaluate the merits and risks of an investment in the
Gargoyles Common Stock and the Pro-Tec Common Stock and that such Investor has
reviewed the merits of such an investment in the Gargoyles Common Stock and the
Pro-Tec Common Stock with tax and legal counsel and with an investment adviser
to the extent such Investors has deemed advisable;
(c) That such Investor has been given a full opportunity to ask
questions and to receive answers from the control persons of the Companies,
including Burns and Hauff, concerning the business of each of the Companies and
to obtain additional information necessary to verify the accuracy of the
information delivered them pursuant to this Agreement and such other information
as such Investor desired in order to evaluate an investment in the Gargoyles
Common Stock and the Pro-Tec Common Stock, and all such questions have been
answered to the full satisfaction of such Investor;
(d) That such Investor acknowledges that the Gargoyles Common
Stock and the Pro-Tec Common Stock have not been registered under the Securities
Act or the securities laws of certain states and that the Companies are relying
on specific exemptions from registration thereunder, and such Investor agrees
that such Investor's Gargoyles Common Stock and Pro-Tec Common Stock may not be
sold, offered for sale, transferred, pledged, hypothecated or otherwise disposed
of except in compliance with the Securities Act and applicable state securities
laws and the restrictions imposed by this Agreement and the Related Documents,
which restrictions require the approval of the Companies and/or other
shareholders for the transfer of any Gargoyles Common Stock or Pro-Tec Common
Stock, as the case may be. Such Investor has been advised that neither Gargoyles
nor Pro-Tec has an obligation to cause the Gargoyles Common Stock or the Pro-Tec
Common Stock to be registered
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under the Securities Act or to comply with any exemption under the Securities
Act. Such Investor understands that it is not anticipated that there will be any
market for resale of the Gargoyles Common Stock or the Pro-Tec Common Stock, and
that it may not be possible for such Investor to liquidate the investment on an
emergency basis. Such Investor understands the legal consequences of the
foregoing to mean that such Investor must bear the economic risk of such
Investor's investment in the Gargoyles Common Stock and the Pro-Tec Common Stock
for an indefinite period of time;
(e) Such Investor understands that no federal or state agency has
made any finding or determination as to the fairness of an investment in, or any
recommendation or endorsement of, the Gargoyles Common Stock or the Pro-Tec
Common Stock; and
(f) Such Investor is acquiring the Gargoyles Common Stock and the
Pro-Tec Common Stock in good faith solely for such Investor's own account, for
investment purposes and not with a view to, or for, subdivision, distribution,
fractionalization or resale, or for the account, in whole or in part, to others.
Further, such Investor will hold the Gargoyles Common Stock and the Pro-Tec
Common Stock as an investment and has no reason to anticipate any change in
circumstances or other particular occasion or event which would cause such
Investor to attempt to sell any of the Gargoyles Common Stock and Pro-Tec Common
Stock purchased hereunder.
7.3 NO BROKER OR FINDER
Such Investor has retained no broker in connection with the
transactions contemplated by this Agreement and has dealt with no broker or
finder in connection with the transactions contemplated by this Agreement which
would create an entitlement by any Person to a finders' or brokers' fee.
7.4 FUTURE SALE
Such Investor does not intent to sell in whole or in part before the
first anniversary of the Closing the Companies' assets or stock to undisclosed
third Persons for profit. Except as set forth in Schedule 7.4, such Investor has
not received or initiated any third-party inquiries or offers, whether written
or oral, to purchase all or part of the stock or assets of the Companies; nor
any inquiries or offers to purchase or license any of the Companies'
Intellectual Property. Such Investor has not had discussions with Oakley
regarding the sale or future sale of all or part of the Companies' stock, assets
or Intellectual Property to Oakley or any affiliate or subsidiary company of
Oakley. If there is a sale or transfer of the Companies' stock or assets or
Intellectual Property to Oakley on or before the first anniversary of the
Closing, such Investor agrees to pay to Burns thirty-three percent (33%) of the
net
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gain of such Investor on the sale to Oakley. For purposes of this Subsection
7.4, "net gain" shall be the selling price to Oakley reduced by the costs of the
sale and further reduced by the Investors' cost basis in the stock sold to
Oakley.
8. COVENANTS OF BURNS, HAUFF AND THE COMPANIES
Burns, Hauff, and the Companies covenant to and agree with the
Investors as follows:
8.1 CONDUCT OF BUSINESSES PENDING THE CLOSING
From the date of this Agreement to the Closing Date, the Companies
shall operate their businesses in the ordinary and usual course and shall
maintain their records and books of account in a manner that fairly and
accurately reflects its transactions, assets and liabilities and otherwise in
accordance with standard accounting practices applied on a basis consistent with
prior periods. The Companies shall pay and discharge all obligations and
indebtedness as they come due in a manner consistent with past practice. Burns,
Hauff and the Companies shall exercise their best efforts to preserve intact the
present business organization and personnel of the Companies, preserve the
present goodwill of the Companies with all persons having business dealings with
them, and comply with all laws applicable to the conduct of the Companies'
businesses.
8.2 REPRESENTATIONS AND WARRANTIES; INTERFERENCE
Burns, Hauff, and the Companies shall each conduct their businesses in
such a manner that the representations and warranties of each of them contained
in this Agreement shall continue to be true and correct on and as of the Closing
Date as if made on and as of the Closing Date, and none of the parties hereto
shall take any action which would interfere with or prevent performance of this
Agreement.
8.3 ACCESS TO RECORDS AND ASSETS OF THE COMPANIES
From the date of this Agreement to the Closing Date, Burns, Hauff and
the Companies agree to give to the Investors and their counsel, accountants and
other authorized representatives, reasonable access during business hours to the
offices, warehouse, properties, books and records of the Companies in order that
the Investors may have full opportunity to make such reasonable investigations
of the Companies as the Investors shall desire; provided, however, such
investigation shall be conducted in a manner as not to interfere unreasonably
with the operation of the Companies. The Investors agree that they shall be
subject to all obligations of the Investors contained
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in the Confidentiality Agreement dated ____________, 1995, with respect to any
confidential information disclosed by Burns, Hauff or the Companies to the
Investors.
8.4 PRO-TEC-HAUFF EMPLOYMENT AGREEMENT
At Closing, Pro-Tec and Hauff shall terminate the Hauff-Pro-Tec
Employment Agreement.
8.5 NON-DISCLOSURE, NON-COMPETITION AND INDEMNITY AGREEMENT
At Closing, Pro-Tec, Gargoyles and Burns shall execute and deliver a
Non-Disclosure, Non-competition and Indemnity Agreement substantially in the
form of the attached Exhibit 8.5.
8.6 AMENDED LEASE FOR PREMISES
At Closing, Burns, as landlord, and Gargoyles, as tenant, shall execute
and deliver an Amendment to Lease Agreement for the Premises substantially in
the form of the attached Exhibit 8.6.
8.7 EMPLOYMENT AGREEMENTS; RESIGNATION OF BURNS
At Closing, Gargoyles shall enter into employment agreements with
Hauff, John Steckler (for both Gargoyles and Pro-Tec), Charles Bernheiser, Steve
Kingma, and David W. Jobe substantially in the forms of the agreements attached
hereto as Exhibits 8.7(a) through (f), respectively. At Closing, Burns shall
resign as an employee of each of the Companies.
8.8 INTELLECTUAL PROPERTY
On or before the Closing Date, the Companies shall cause the following
actions to be taken with respect to the Intellectual Property:
(a) Deliver to the Investors the following documents: For each
patent or copyright or application therefore set forth in Schedule 6.18(b)
hereto, and including at least PCT applications corresponding to U.S. patent
application serial number 08/198,183 and 08/216,528, (i) copies of recorded
assignments or an abstract of title or similar documentation showing a chain of
title from the inventors or authors to the Companies and (b) copies of official
filing receipts, postcard receipts or acknowledgments by a foreign associate
attorney showing the filing date;
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(b) Adopt and authorize the implementation of an Intellectual
Property Security Policy for each of Pro-Tec and Gargoyles substantially in the
form of the attached Exhibit 8.8(b);
(c) Adopt and authorize to be distributed to all employees of the
Companies a Confidentiality Undertaking and Memorandum of Understanding in the
form of the attached Exhibit 8.8(c); and
(d) Gargoyles and Pro-Tec shall execute and deliver a Technologies
Sharing Agreement substantially in the form of the attached Exhibit 8.8(d).
8.9 PROPERTY TO BE TRANSFERRED TO BURNS
Before the Closing Date, the personal property listed on Exhibit 8.9
owned by Antone and Pro-Tec shall be transferred to Burns. On the Closing Date,
the personal property listed on Exhibit 8.9 owned by Gargoyles shall be
transferred from Gargoyles to Burns. Burns shall pay when due all sales or use
taxes payable upon transfer of such personal property.
8.10 INVESTORS' GRANT OF OPTION TO HAUFF
On the Closing Date, the Investors and Hauff shall execute and deliver
an Option Agreement in form satisfactory to them under which the Investors,
prorata, shall grant to Hauff the option to purchase Twenty-Five Thousand
(25,000) of the Investors' shares of Gargoyles Common Stock to be purchased
pursuant to the terms of Section 2.3 hereof.
9. CONDITIONS OF BURNS AND HAUFF TO CLOSE
The obligation of Burns to sell Stock to the Investors and for Burns
and Hauff to consummate the transactions contemplated by this Agreement are
subject to fulfillment of the following conditions at or prior to the Closing
Date (unless waived in writing by Burns and/or Hauff, as the case may be):
9.1 REPRESENTATIONS AND PERFORMANCE
The representations and warranties made by the Investors hereunder
shall be true and correct in all material respects at and as of Closing, and the
Investors shall have performed and complied in all material respects with all
agreements, covenants and conditions contained in this Agreement required to be
performed or complied with by the Investors prior to or at Closing;
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9.2 FINANCING
The Redemption Loan shall have closed and funds shall be available on
or before the Closing Date to fund the Redemption; and
9.3 SHAREHOLDERS AGREEMENT
The Investors shall have executed and delivered at Closing Shareholders
Agreements related to their shareholdings in each of Gargoyles and Pro-Tec
substantially in the forms of the Shareholders Agreements attached hereto as
Exhibit 9.3.
10. CONDITIONS OF THE INVESTORS TO CLOSE
The obligation of the Investors to purchase Stock from Burns and
Gargoyles and to consummate the transactions contemplated by this Agreement are
subject to fulfillment of the following conditions at or prior to the Closing
Date (unless waived in writing by the Investors):
10.1 REPRESENTATIONS AND PERFORMANCE
The representations and warranties made by Burns, Hauff and the
Companies hereunder shall be true and correct in all material respects at and as
of Closing, and Burns, Hauff and the Companies shall have performed and complied
in all material respects with all agreements, covenants and conditions contained
in this Agreement required to be performed or complied with by them prior to or
at Closing;
10.2 NO ADVERSE CHANGE
Except as contemplated by this Agreement, there shall have been no
material adverse change in the condition, business or operations, financial or
otherwise, of the Companies from the date of this Agreement to the Closing Date;
10.3 REVIEW OF FINANCIALS
The Investors shall be satisfied with their review of the Financial
Statements.
10.4 FINANCING
The Redemption Loan shall have closed and funds shall be available on
or before the Closing Date to fund the Redemption, and the Investors shall have
obtained financing, including the letter of credit, for the purchase of shares
of Stock and funds
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shall be available on or before the Closing Date to the Investors to fund the
purchase of the Stock from Burns; and
10.5 SHAREHOLDERS AGREEMENT
Hauff, Burns, Gargoyles and Pro-Tec shall have executed and delivered
at Closing Shareholders Agreements related to their shareholdings in each of
Gargoyles and Pro-Tec substantially in the forms of the Shareholders Agreements
attached hereto as Exhibit 9.3(a) and (b), respectively.
11. MEDICAL BENEFITS FOR BURNS AND FAMILY
From and after the Closing Date, Burns and the members of his immediate
family who are his dependents shall receive the medical and dental benefits
provided by Gargoyles from time to time to its employees. The cost of such
benefits shall be deemed self-employment compensation to Burns in consideration
of services rendered as a director of Gargoyles. Burns shall pay all taxes
related to such benefit.
12. RIGHT TO PURCHASE PRODUCTS
From and after the Closing Date so long as Burns is a shareholder of
Gargoyles, the owners and employees of Deer Creek Ranch, a ranch owned by Burns
and located in Oregon, shall have the right to purchase all products
manufactured by the Companies, for personal use and not for resale, at the same
price and for the same purpose offered to Gargoyles and Pro-Tec employees. In
addition, so long as Burns is a director of Gargoyles, Burns and his immediate
family shall be entitled to receive or purchase at a discount Gargoyles eyewear
under the program established from time to time by Gargoyles for its Board of
Directors. In addition, Burns shall receive at no cost to him Gargoyles eyewear
for personal and promotional use; provided Burns shall receive no more than
twenty-four (24) pairs of Gargoyles eyewear per year.
13. PRO-TEC NOTE TO BURNS
At Closing, Pro-Tec shall execute and deliver to Burns that certain
Promissory Note, substantially in the form of the attached Exhibit 13. Gargoyles
shall unconditionally guarantee the Pro-Tec Note with no right of set off.
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14. GARGOYLES NOTE TO BURNS; DISNEY SETTLEMENT
At Closing, Gargoyles shall execute and deliver to Burns that certain
Promissory Note, substantially in the form of the attached Exhibit 14. Pro-Tec
shall unconditionally guarantee the Gargoyles Note with no right of set off.
Burns and Gargoyles acknowledge and agree that Gargoyles has been negotiating a
settlement with the Disney Company of a trademark infringement case filed by
Gargoyles against the Disney Company in the United States District Court for the
Western District of Washington (the "Disney Litigation"). By agreement in
principal dated January 30, 1995, Gargoyles and the Disney Company reached a
settlement of the Disney Litigation. If for any reason, settlement negotiations
break down and the Disney Litigation is not settled and prosecution of the
Disney Litigation is continued, then on the date Gargoyles resumes prosecution
of such litigation the Gargoyles Note shall be reduced by the sum of One
Hundred Ninety-Five Thousand Dollars ($195,000) and all interest accrued
thereon. If Gargoyles is successful and is awarded damages from the Disney
Company in the Disney Litigation, then Burns shall receive Twenty-Five percent
(25%) of the net damage award actually received by Gargoyles from the Disney
Company.
15. LOAN FROM US BANK FOR REDEMPTION
To finance the Redemption, on or before the Closing Date, Gargoyles
shall execute and deliver to US Bank the loan agreements and related instruments
in a form acceptable to Gargoyles and Trillium (the "Redemption Loan"). Trillium
shall guarantee the outstanding indebtedness under the Redemption Loan. As
consideration for the guaranty, on the Closing Date, and annually thereafter so
long as Trillium is the guarantor of the Redemption Loan, Gargoyles shall pay to
Trillium a guaranty fee equal to one percent (1%) of the outstanding principal
amount of the Redemption Loan.
16. AMENDED AND RESTATED OPTION AGREEMENT BETWEEN HAUFF AND THE INVESTORS
On the Closing Date, Hauff and the Investors shall execute and deliver
an Amended and Restated Option Agreement with respect to Hauff's Option
substantially in the form of the attached Exhibit 16.
-27-
<PAGE> 1
EXHIBIT 10.48
TO
GARGOYLES, INC.
FORM S-1
<PAGE> 2
SETTLEMENT AGREEMENT AND GENERAL RELEASE
THIS SETTLEMENT AGREEMENT AND GENERAL RELEASE (the "Agreement") is
entered into as of April 12, 1995, between Gargoyles, Inc. ("G.I.") and The
Walt Disney Company ("Disney").
WHEREAS G.I. has filed Civil Action No. C94-1579R against Disney in the
United States District Court for the Western District of Washington (the
"Lawsuit") alleging inter alia, that Disney's use of the mark "GARGOYLES" is
an infringement of G.I.'s rights; and
WHEREAS Disney has denied and continues to deny all claims made by
G.I. in the Lawsuit but is nevertheless prepared to compromise the matter; and
WHEREAS G.I. and Disney desire to resolve any and all disputes between
them, including but not limited to those raised in the Lawsuit;
NOW, THEREFORE, in consideration of the promises and conditions set
forth below and other good and valuable consideration, the receipt of which is
hereby acknowledged, G.I. and Disney agree as follows:
1.0 COMPROMISE AND STIPULATION OF DISMISSAL
1.1 G.I. acknowledges and agrees that this Agreement is the result of a
compromise of disputed claims and shall not be construed as an admission by
Disney of any liability to or wrongful acts against G.I. or any other person.
Disney expressly disclaims any liability to or wrongful conduct against G.I. or
any other person, on the part of itself, its affiliated or related companies, or
any of their respective officers, employees or agents.
1.2 G.I. and Disney agree to enter into a Stipulation of Dismissal with
prejudice pursuant to Rule 41 of the Federal Rules of Civil Procedure in the
form annexed hereto as Attachment D, which may be filed by either party hereto
upon execution of this Agreement and payment of the amount referred to in
paragraph 4.l hereof.
2.0 ASSIGNMENT OF RIGHTS TO G.I.
2.l Disney hereby assigns to G.I. all its right, title and interest
in the United States and Canada in and to the mark "GARGOYLES," the mark
"GARGOYLE," any
<PAGE> 3
composite terms including the term "GARGOYLE" or "GARGOYLES" but not to the
extent such terms include other Disney marks (hereinafter collectively "the
Mark"), U.S. trademark application Serial No. 74/469,209 and U.S. Trademark
Registration No. 1,100,890, and all goodwill associated with the Mark, such
application and such registration. Disney agrees to execute the Trademark
Assignments attached hereto as Attachment A and, at G.I.'s request, any other
documents, including an amendment to allege use, reasonably required to
perfect, establish or record the transfer of all its right, title and interest
in the Mark.
2.2 Disney agrees not to directly or indirectly challenge, oppose, or
contest G.I.'s ownership of or rights in the Mark, or G.I.'s efforts to
register or maintain registrations for the Mark anywhere in the world. Disney
and G.I. agree not to directly or indirectly challenge, oppose, or contest the
use by the other of the Mark anywhere in the world.
3.0 TRADEMARK LICENSE TO DISNEY
3.1 Upon execution of this Agreement, G.I. agrees to execute and
deliver to Disney the Trademark License Agreement in the form attached to this
Agreement as Attachment B. Disney agrees not to challenge or contest the
validity of the license granted under this Agreement.
4.0 PAYMENT TO G.I.
4.1 Promptly upon execution of this Agreement by both parties, Disney
will pay or cause to be paid to G.I. one million dollars ($1,000,000).
4.2 As a material inducement to Disney to enter into this Agreement,
G.I. agrees that it is not entitled to the payment of any royalties or any
other payment of any kind whatsoever with respect to the use, exhibition,
performance, display, exploitation, delivery, transmission, sale or sublicense
of Disney's "Gargoyles" characters, works, or any element thereof in any form
or by any method whether now or hereafter known or devised other than as set
forth in paragraph 4.1 hereof and in the Trademark License Agreement referred
to in paragraph 3.1 hereof. G.I. agrees that it does not and shall not have any
ownership interest in Disney's Gargoyles characters, works, or any element
thereof.
2
<PAGE> 4
5.0 DISNEY PURCHASE OF G.I. PERFORMANCE EYEWEAR
5.1 Disney will arrange for representatives of G.I. to meet with
merchandise buyers responsible for purchases of goods for sale at Disney's
subsidiaries' retail sales locations within the Walt Disney World Resort and
the Disneyland Resort. The parties will engage in meaningful, substantive and
good faith discussions concerning the possible purchase of Gargoyles
sunglasses and related products for resale at such stores and locations. Peter
Nolan, Vice President-Business Affairs of Disney Consumer Products, will
personally recommend to the appropriate merchandise buyer executives that such
purchase be seriously considered.
6.0 G.I. PRODUCT
6.1 If in Disney's discretion a live action theatrical motion picture
produced by a Disney entity as a Hollywood Picture, Touchstone Picture, Walt
Disney Picture, or Caravan Picture requires the use of sunglasses in G.I.'s
product line, then as such opportunities arise over the four year period April
1, 1995-April 1, 1999, Disney will accord to G.I. the opportunity to place its
products for that use, with no payment by G.I. to Disney, before giving such an
opportunity to another party, up to a total of twelve such motion pictures.
Products furnished for any specific placement shall be furnished by G.I. at no
cost to Disney. Disney cannot commit to any given use or any use at all and
will retain all creative control over whether the use of G.I.'s products is
appropriate to any motion picture. Within sixty days of the effective date of
the Agreement, appropriate representatives of Disney and G.I. will meet on this
subject. In addition, Disney will accord G.I. the opportunity to discuss what,
if any, other promotional uses, including cards and stills, may be available at
no cost to G.I. in the instance of a specific placement.
7.0 LICENSE OF DISNEY'S GARGOYLES CHARACTERS FOR USE ON BICYCLE HELMETS
7.1 Disney agrees to execute a Character License Agreement for bicycle
helmets in the form annexed to this Agreement as Attachment D.
8.0 GENERAL RELEASE
8.1 As a material inducement to Disney to enter into this Agreement,
G.I. hereby irrevocably and unconditionally releases, acquits and forever
discharges Disney and each of its owners, stockholders, predecessors,
successors, assigns, agents, directors, officers, employees, representatives,
insurers, attorneys, divisions, subsidiaries, affiliates (and agents,
directors, officers, employees, representatives, insurers and attorneys of
such divisions, subsidiaries and affiliates), and all persons acting by,
through, under or in concert with any of them, all such persons other than
3
<PAGE> 5
Disney in their capacities as such relative to Disney and not as private
individuals (collectively, "Releasees"), or any of them, from any and all
charges, complaints, claims, liabilities, obligations, promises, agreements,
controversies, damages, actions, causes of action, suits, rights, demands,
costs, losses, debts and expenses (including attorneys' fees and costs actually
incurred) of any nature whatsoever, known or unknown, suspected or unsuspected,
which G.I. now has or claims to have, or which G.I. at any time hereafter may
have or claim to have against Disney or any of the Releasees based upon any
act, event, fact or omission which occurred on or before the date of this
Agreement ("Claims"). G.I. expressly waives and relinquishes all rights and
benefits afforded by California Civil Code Section 1542 and does so
understanding and acknowledging the significance of such specific waiver of
Section 1542. Section 1542 states as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR.
Thus, notwithstanding the provisions of Section 1542, and for the
purpose of implementing a full and complete release and discharge of the
Releasees, G.I. expressly acknowledges that this Agreement is intended to
include in its effect, without limitation, all Claims that G.I. does not know
or suspect to exist in Releasees' favor at the time of execution hereof, and
that this Agreement contemplates the extinguishment of any such Claims.
8.2 As a material inducement to G.I. to enter into this Agreement,
Disney hereby irrevocably and unconditionally releases, acquits and forever
discharges G.I. and each of its owners, stockholders, predecessors, successors,
assigns, agents, directors, officers, employees, representatives, insurers,
attorneys, divisions, subsidiaries, affiliates (and agents, directors,
officers, employees, representatives, insurers and attorneys of such divisions,
subsidiaries and affiliates), and all persons acting by, through, under or in
concert with any of them, all such persons other than G.I. in their capacities
as such relative to G.I. and not as private individuals (collectively,
"Releasees"), or any of them, from any and all charges, complaints, claims,
liabilities, obligations, promises, agreements, controversies, damages,
actions, causes of action, suits, rights, demands, costs, losses, debts and
expenses (including attorneys' fees and costs actually incurred) of any nature
whatsoever, known or
4
<PAGE> 6
suspected, which Disney now has or claims to have, or which Disney at any time
hereafter may have or claim to have against G.I. or any of the Releasees based
upon any act, event, fact or omission which occurred on or before the date of
this Agreement ("Claims").
9.0 INDEMNIFICATION
9.1 G.I. agrees that if any shareholder of G.I. makes any claim or
brings any litigation against G.I. or Disney on account of this settlement or
arising out of any of the terms of the Agreement, G.I. shall indemnify and
defend Disney (including the payment of reasonable attorneys' fees) against any
such claims or in any such litigation.
9.2 G.I. and Disney each represent that, except for the Lawsuit, it has
neither filed or commenced any charge, claim, complaint or grievance of any
kind against the other or Releasees with any agency or tribunal nor filed or
commenced any proceeding at law or otherwise with respect to any Claims. If G.I.
or Disney violates its promise in paragraph 8.1 or 8.2, respectively, and
initiates any charge, claim, complaint or grievance based upon any claim that it
has released in this Agreement, such violating party will pay for all loss,
damages, costs and expenses, including reasonable attorneys' fees, incurred by
the other party or the Releasees, or any of them in defending against such
claim.
9.3. G.I. represents that it has not heretofore assigned or
transferred, or purported to assign or transfer, to any person or entity, any
of the Claims or portion thereof or interest therein.
10.0 CONFIDENTIALITY
10.1 G.I. represents and agrees that it will keep the existence, fact,
terms, and amount of this Agreement completely confidential, except (a) as
necessary for the purpose of its enforcement, (b) in response to a court order
or an authorized request from a duly constituted governmental body, or (c) as
to its financial and tax advisors, or prospective investors in G.I. in the
course of their due diligence, provided that any such prospective investor
shall first agree in writing to preserve and maintain the confidentiality
pursuant to its own confidentiality provisions and shall not be used to
circumvent the obligation of confidentiality in this paragraph. Should either
party be required to disclose this Agreement or any term or condition thereof
in any court or administrative proceeding, it will promptly notify the other
with reasonable expedition once the possibility that disclosure may be ordered
is known, and in any event prior to
5
<PAGE> 7
such disclosure, and will use reasonable efforts to preserve the confidentiality
of such disclosure under a suitable protective order. In the event of a media
inquiry made directly to G.I. concerning the Lawsuit, the following may be
disclosed: "The parties have resolved their differences and the Lawsuit has been
terminated." In the event of a customer inquiry made directly to G.I.
concerning the use by Disney of the trademark "GARGOYLES," the following may be
disclosed: "We have a license agreement with Disney for use of the GARGOYLES'
trademark." Neither G.I. nor any of its representatives will make any statement
or comment of any kind about any matters related hereto except for the
preceding ones. Other than those two statements, G.I. and all of its
representatives will answer all inquiries or questions with the words, "No
comment." G.I. will not initiate, invite, or encourage any media, press or
other attention to the fact of this Agreement or any dispute between G.I. and
Disney, nor shall it disclose any confidential information acquired pursuant to
this Agreement to anyone. G.I. understands and agrees that any disclosure of
information contrary to the terms of this confidentiality provision by it or
its representatives or by any person with whom it is in privity or acting in
concert would be damaging to Disney, and G.I. further agrees that Disney would
be irreparably harmed by a violation of this confidentiality provision and
therefore shall be entitled to an injunction prohibiting G.I. or its
representatives or any person with whom it is in privity or acting in concert
from any violation or threatened violation of this confidentiality provision.
11.0 GENERAL PROVISIONS
11.1 Headings. Section headings are used in this Agreement for
convenience and reference only and shall not affect the meaning of any
provision of this Agreement.
11.2 Entire Agreement; Amendments. The parties represent and
acknowledge in executing this Agreement that they do not rely and have not
relied upon any representation or statement not expressly contained herein made
by either party to the other with respect to the subject matter, basis or
effect of this Agreement or otherwise. This Agreement (including its
attachments) sets forth the entire agreement between the parties hereto and
fully supersedes any and all prior agreements or understandings between the
parties hereto pertaining to the subject matter hereof. This Agreement shall
not be amended except by a written agreement subsequent to the date of this
Agreement and signed on behalf of the parties by their respective authorized
representatives.
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<PAGE> 8
11.3 Binding Effect. This Agreement shall be binding upon G.I.,
Disney, and their respective predecessors, successors, affiliates,
subsidiaries, related companies, and in the case of G.I., all companies owned
or controlled by the owner, chairman or president of G.I. This Agreement shall
inure to the benefit of Disney, the Releases and G.I., and to their
predecessors, successors, affiliates, subsidiaries, related companies,
divisions, officers, directors, employees, assigns, heirs, administrators,
representatives, and executors.
11.4 Severability. Should any provision in this Agreement be declared
or determined by any court to be illegal or invalid, the validity of the
remaining parts, terms or provisions shall not be affected thereby and said
illegal or invalid part, term or provision shall be deemed not to be a part of
this Agreement.
11.5 Governing Law. This Agreement is made and entered into in the
State of California and shall in all respects be construed, enforced and
governed under the laws of the State of California, excluding choice of law
rules.
11.6 Agreement Jointly Drafted. The parties acknowledge that they
both have participated in the drafting of this Agreement, and the language of
all parts of this Agreement shall in all cases be construed as a whole,
according to its fair meaning, and not strictly for or against any of the
parties.
11.7 Signers Authorized. The undersigned persons hereby represent
that they are vested with the authority to execute and enter into this
Agreement on behalf of the respective parties.
11.8 No Partnership. Neither this Agreement, nor any terms and
conditions contained herein, shall be construed as creating a partnership,
joint venture or agency relationship or as granting a franchise.
11.9 No Waiver. Failure of either party to enforce any provision of
this Agreement shall not constitute a waiver of any prior, concurrent or
subsequent breach of the same or any other provision hereof, and no waiver
shall be effective unless made in writing and signed by an authorized
representative of the waiving party.
11.10 Signed in Counterparts. This Agreement may be signed in two
counterparts, each of which shall (when the Agreement is or counterparts have
been signed by all parties) be an original, to the same effect as if all
signatures were on the same instrument.
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<PAGE> 9
11.11 Attachments. This Agreement includes the following attachments
which are hereby incorporated by reference:
Attachment A - Trademark Assignments (2)
Attachment B - Trademark License Agreement
Attachment C - Disney Character License Agreement for Helmets
Attachment D - Stipulation for Dismissal
This Agreement is effective as of April 12, 1995.
GARGOYLES, INC.
Date: April 12, 1995 By /s/ Douglas B. Hauff
------------------ -----------------------
President
-----------------------
(Print or type name and title)
THE WALT DISNEY COMPANY
Date: April 11, 1995 By /s/ Peter V. Nolan
------------------------
Vice President/Asst. General Counsel
------------------------
(Print or type name and title)
8
<PAGE> 1
Previously filed with S-1 on July 3, 1996
EXHIBIT 10.49
TO
GARGOYLES, INC.
FORM S-1
"[*]" = confidential information omitted and filed separately with the
Securities and Exchange Commission pursuant to a request for confidential
treatment.
<PAGE> 2
TRADEMARK LICENSE AGREEMENT
This Trademark License Agreement (hereinafter "Agreement") is made and
entered into as of the last date signed by one of the parties, below
(hereinafter "Effective Date"), by and between Gargoyles, Inc., a Washington
corporation having a place of business in Kent, Washington (hereinafter "G.I."),
and The Walt Disney Company, a Delaware corporation having a place of business
in Burbank, California (hereinafter "Disney").
The parties hereby agree as follows:
1.0 LICENSE GRANT
1.1 Subject to the terms and conditions of this Agreement, including
payment of the royalties due hereunder, G.I. hereby grants to Disney an
exclusive right to use and/or to license the use of the mark GARGOYLES
(hereinafter the "Mark") on and in connection with Disney Products, Disney
Services, Licensed Products and Licensed Promotions, as defined herein.
1.2 "Disney Services" as used in this Agreement means services
performed by or for Disney in connection with the production, distribution,
promotion or exhibition of Disney's animated "Gargoyles" television series, home
video thereof and any derivative entertainment works based on said series
(together, "Disney's Gargoyles").
1.3 "Disney Products" as used in this Agreement means products bearing
the Mark or marketed in conjunction with the Mark that are sold either by Disney
only or by Disney and others but as to any of which Disney receives no License
Revenue, as defined herein. By way of example, Disney Products include, but are
not limited to, home video products, artwork and art editions, and certain
products distributed in electronic form.
1.4 "Licensed Products" as used in this Agreement means products
manufactured, marketed, distributed or licensed by Disney's licensees which are
associated with "Disney's Gargoyles" and bear the Mark or are marketed in
conjunction with the Mark as to the sale of which by the licensees Disney
receives License Revenue, as defined herein. By way of example, Licensed
Products include, but are not limited, to, certain T-shirts, caps, shoes, and
products distributed in electronic form.
1.5 "Licensed Promotions" as used in this Agreement means promotional
uses of the Mark by Disney itself or under arrangements between Disney and third
parties
<PAGE> 3
intended by Disney primarily to increase the market exposure of "Disney's
Gargoyles" (by way of example, Disney's present agreements with Burger King and
Campbell Soup to promote "Disney's Gargoyles"). Licensed Promotions may include
the distribution of promotional items bearing the Mark or marketed in
conjunction with the Mark.
1.6 Disney's exclusive rights under this Agreement are limited to
products and services associated with "Disney's Gargoyles" licensed hereunder.
Nothing in this Agreement shall limit or restrict G.I.'s rights with respect to
uses of the Mark in connection with the sale or promotion of GARGOYLES
Performance Eyewear or other products or services not associated with "Disney's
Gargoyles."
1.7 Any rights not expressly granted to Disney hereunder are reserved
by G.I.
2.0 ROYALTY OBLIGATIONS AND PAYMENTS
2.1 Disney agrees to pay G.I. a royalty of [*] percent ([*]) of its
License Revenue (as defined below) for the first [*] dollars ([*]) of License
Revenue.
2.2 Disney agrees to pay G.I. a royalty of [*] percent ([*]) of its
License Revenue (as defined below) on all License Revenue in excess of [*]
dollars ([*]) of License Revenue.
2.3 Disney shall have no obligation to pay G.I. royalties on revenue it
receives in conjunction with Disney Services, Disney Products or Licensed
Promotions.
2.4 "License Revenue" as used in this Section 2.0 means all past,
present and future money due and received by Disney from third-party licensees
for Licensed Products manufactured or sold in the United States or Canada
(including all money due and received from licensees identified in Appendix 2,
hereto).
3.0 ACKNOWLEDGMENT OF RIGHTS
3.1 Disney acknowledges that the Mark is a valid and enforceable
trademark of G.I., and agrees not to challenge or contest G.I.'s ownership of
the Mark or to challenge or contest the validity of the license granted under
this Agreement.
3.2 All rights Disney has acquired or may acquire in the Mark,
including all associated goodwill, shall be the sole property of G.I. and are
hereby assigned to G.I. All use of the Mark by Disney and its licensees shall
inure to the benefit of G.I.
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[*] Confidential Treatment Requested
2
<PAGE> 4
4.0 QUALITY, INSPECTION AND LICENSE APPROVAL
4.1 Disney agrees that the quality of the products sold and services
distributed under this Agreement shall meet or exceed industry standards. In the
case of Disney Services performed by Disney, Disney agrees that such services
shall be of the same general quality as those services provided by it prior to
the Effective Date of this Agreement.
4.2 Disney further agrees that it shall monitor the quality and
performance of its licensees and their products under this Agreement in
accordance with its standard licensing procedures, including requiring its
licensees to enter into agreements having quality control and approval
provisions substantially as provided in the standard Disney license agreement
attached hereto as Appendix l. Disney agrees that its use and licensing of the
Mark shall be consistent with Disney's practices, as they may evolve from time
to time, for children's programs and products.
4.3 Disney shall cooperate with G.I. to facilitate periodic review of
products distributed and services performed under this license, as and when
reasonably requested by G.I.
4.4 Disney shall use its reasonable efforts to ensure that all products
distributed and services performed under this license comply with all applicable
laws, rules, and regulations and do not violate or infringe any right of any
third party.
4.5 Appendix 2 to this Agreement is a list of actual and prospective
(i.e., under negotiation) U.S. licensees for Licensed Products, as of the
Effective Date of this Agreement.
4.6 Disney agrees to consult with G.I. from time to time, at least
quarterly, concerning the nature of future Licensed Products and Licensed
Promotions and to afford G.I. a reasonable and timely opportunity to comment and
suggest modifications which may impact consumers' perception of the Mark with
respect to the nature of the Licensed Products and Licensed Promotions and the
manner in which the Mark is used in such promotions. Disney agrees to work with
G.I. to make such modifications, when and to the extent mutually reasonably
desirable.
5.0 IDENTIFICATION AND USE OF THE MARKS
5.1 Disney and its licensees shall use the Mark in a manner consistent
with proper trademark usage. Nothing in this paragraph shall obligate Disney or
its licensees to modify any advertisements or promotional material already
released or in production.
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<PAGE> 5
6.0 WARRANTY
6.1 Disney represents and warrants that it will not use or authorize
others to use the Mark, or other trademark or service mark including "GARGOYLES"
or "GARGOYLE," except as expressly provided in this Agreement. This section
shall not limit or otherwise restrict Disney's right to make descriptive uses of
the terms "gargoyle" or "gargoyles."
6.2 G.I. makes no warranty or representation concerning the
availability of the Mark for use in any jurisdiction.
7.0 ROYALTY PAYMENTS, REPORTS, AND AUDITS
7.1 Within forty-five (45) days of the close of each calendar quarter
after the Effective Date of this Agreement, Disney shall pay G.I. the royalties
due hereunder for the preceding calendar quarter.
7.2 Each royalty payment to G.I. hereunder shall be accompanied with a
report identifying the total sales by Disney's licensees corresponding to the
payment period, the License Revenue received by Disney from each license and any
other information reasonably required to calculate the royalties due hereunder.
The report shall also identify any new licensees and the product(s) for which
such licensee is authorized to use the Mark. Any license terminations occurring
within the preceding calendar quarter shall also be identified in the report.
7.3 Payments made more than ten (10) days late shall be subject to a
late payment fee of [*] percent ([*]) per month, calculated daily, or the
maximum allowed by law, whichever is less. In no event, however shall Disney be
subject to late payment fees in any amount exceeding [*] per annum.
7.4 Disney agrees to keep accurate records of all transactions relating
to this Agreement and to preserve such records for the lesser of seven (7) years
or two (2) years after the termination of this Agreement. Upon reasonable
request and notice by G.I., G.I. shall have the right to audit Disney's records
relating to this Agreement and all licenses entered hereunder by a mutually
agreeable independent auditor. In the event that such audit reveals a deficiency
of [*] percent ([*]) or more of any amount reported as owed to G.I. for any
calendar quarter, all reasonable costs of an outside accounting firm associated
with such audit shall be borne by Disney. Any audit conducted pursuant to this
Section 7.4 shall be conducted confidentially in conformity with Section 11.
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[*] Confidential Treatment Requested
4
<PAGE> 6
8.0 INDEMNIFICATION
8.1 Disney agrees to indemnify, defend and hold G.I. and its employees,
officers, directors and agents harmless against any and all actual or asserted
claims, losses, costs and expenses (including reasonable attorneys' fees),
liabilities and damages of any kind arising out of or relating to use of the
Mark by Disney or its licensees, including all third party claims concerning
Licensed Products and Disney Services under this Agreement but excluding
trademark or service mark infringement claims against G.I. In the event of such
a claim, G.I. shall promptly notify Disney and G.I. shall provide reasonable
assistance to Disney in the defense of any such claim.
9.0 ADDITIONAL TRADEMARK FILINGS, REGISTRATIONS
9.1 Should G.I. desire to obtain any additional registrations for the
Mark, it will do so at its own expense. Should Disney desire that G.I. seek or
obtain an additional registration for the Mark, it shall so notify G.I. Upon
receipt of such notice, G.I. shall proceed with filing such application at
Disney's expense or, if G.I. has a reasonable basis for not filing an
application for such registration, so advise Disney.
9.2 Disney agrees to provide G.I. with all information and documents
reasonably required by G.I. to file, prosecute or maintain registrations for the
Mark.
9.3 Nothing in this Agreement shall require G.I. to prosecute or
maintain any application or registration for the Mark in any jurisdiction.
10.0 POLICING, ENFORCEMENT
10.1 Disney agrees to investigate and police infringements of its own
or its licensees' use of the Mark in a manner comparable to its regular
practices for its own marks.
10.2 G.I. agrees to cooperate in such policing and enforcement efforts
at Disney's request and expense. In the event G.I. is required to be named as a
party in any enforcement action by Disney, it agrees to be so named at Disney's
expense unless it has a legitimate business reason not to proceed with such
action, in which case it will so advise Disney. In the event that Disney's
overall policing and enforcement of the Mark results in a net gain to Disney
(i.e., settlements and recoveries on all enforcement activities relating to the
Mark exceed expenses on all such activities), such net gain shall be treated as
License Revenue under this Agreement.
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10.3 Nothing in this Agreement shall limit or restrict G.I.'s rights to
police infringement of the Mark or otherwise enforce its rights in the Mark. For
policing or enforcement actions involving use of the Mark that are associated
with "Disney's Gargoyles," G.I. agrees to contact Disney prior to commencing
such action and give Disney the first opportunity to pursue such infringement.
11.0 CONFIDENTIALITY
11.1 The parties agree to keep this Agreement and its terms and
conditions confidential and not to disclose same without the prior written
consent of the other party, except (a) as necessary for the purpose of its
enforcement, (b) as necessary for purposes of sublicense or other execution of
the rights and obligations pursuant to it, (c) in response to a court order or
an authorized request from a duly constituted governmental body, or (d) as to
their financial and tax advisors or, as to G.I., prospective investors in the
course of their due diligence, provided that any such prospective investor shall
first agree in writing to preserve and maintain the confidentiality of such
information. Should either party be required to disclose this Agreement or any
term or condition thereof in any court or administrative proceeding, it will
promptly notify the other with reasonable expedition once the possibility that
disclosure may be ordered is known, and in any event, prior to such disclosure,
and will use reasonable efforts to preserve the confidentiality of such
disclosure under a suitable protective order.
11.2 In response to inquiries from third parties, nothing in this
Agreement shall restrict either party from disclosing the fact that they have
entered into a license for use of the Mark.
12.0 TERM AND TERMINATION
12.1 This Agreement shall remain in effect unless terminated as
provided herein.
12.2 G.I. may terminate this Agreement in the event that (i) Disney and
its licensees have stopped use of the Mark; or (ii) Disney is in material breach
of this Agreement or the accompanying Settlement Agreement and has not cured
such breach as provided in this section.
12.3 In the event of a material breach of this Agreement or the
accompanying Settlement Agreement, G.I. shall notify Disney of such breach.
Disney shall have sixty (60) days from the date of such notice to cure the
breach, or if cure is not possible within
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the sixty (60) days, notify G.I. that it has taken action reasonably calculated
to cure such breach as soon as is reasonably possible. Upon Disney's failure to
cure or, when applicable, to so notify G.I., this Agreement shall terminate.
12.4 Upon termination of this Agreement, Disney shall cease all use of
the Mark within sixty (60) days. Termination shall not affect the term of any
licenses granted by Disney under this Agreement, or Disney's obligations to pay
G.I. royalties for revenue received from its licensees hereunder.
12.5 Termination shall not affect the confidentiality provisions of
this Agreement.
13.0 NOTICES
All notices and other communications under this Agreement shall be in
writing and shall be deemed given if delivered personally, mailed by registered
or certified mail, return receipt requested, by overnight courier, or sent by
facsimile with a receipt confirmed by telephone, to the parties at the following
addresses or to such other addresses as a party may from time to time notify the
other party in accordance with this provision.
GARGOYLES: Gargoyles, Inc.
5866 S. 194th
Kent, WA 98032
Attention: Doug Hauff, President
Fax: (206) 872-3267
With a copy to: Michael Goldfarb, Esq.
Rohan, Goldfarb & Shapiro
1601 One Union Square
600 University Street
Seattle, WA 98101-3112
Fax: (206) 467-0298
DISNEY: The Walt Disney Company
500 South Buena Vista Street
Burbank, California
Attention: Peter F. Nolan
Fax: (818) 563-2538
14.0 GENERAL PROVISIONS
14.1 Headings. Section headings are used in this Agreement for
convenience and reference only and shall not affect the meaning of any provision
of this Agreement.
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14.2 Agreement Worldwide. This Agreement and its provisions shall be
effective worldwide.
14.3 Signers Authorized. The undersigned represent and warrant that
they have the authority to execute this Agreement on behalf of the parties.
14.4 Binding Effect. The terms of this Agreement shall be binding on
the parties, their officers, employees, agents, successors, assigns, and related
companies.
14.5 Severability. If any provisions of this Agreement shall be held by
a court of competent jurisdiction to be illegal, invalid, or unenforceable, the
remaining provisions shall remain in full force and effect.
14.6 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of California, excluding choice of law
rules.
14.7 No Partnership. Neither this Agreement, nor any terms and
conditions contained herein, shall be construed as creating a partnership, joint
venture or agency relationship or as granting a franchise.
14.8 No Waiver. The failure of either party to enforce any provision of
this Agreement shall not constitute a waiver of any prior, concurrent or
subsequent breach of the same or any other provision hereof, and no waiver shall
be effective unless made in writing and signed by an authorized representative
of the waiving party.
14.9 Entire Agreement: Amendments. This Agreement contains the entire
agreement of the parties with respect to the subject matter hereof, and shall
supersede all prior and contemporaneous communications. This Agreement shall not
be amended except by a written agreement subsequent to the date of this
Agreement and signed on behalf of the parties by their respective authorized
representatives.
14.10 Sublicenses, Assignment. The parties agree that Disney may not
sublicense any right under this Agreement except as expressly provided herein
and shall not assign this Agreement except as part of the sale of its business
or substantially all of its assets relating to the Mark.
14.11 Signed in Counterparts. This Agreement may be signed in two
counterparts, each of which shall (when the Agreement is or counterparts have
been signed by all parties) be an original, to the same effect as if all
signatures were on the same instrument.
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14.12 Appendix. This Agreement includes the following attachments and
appendices which are hereby incorporated by reference:
Appendix 1 - Standard Disney License
Appendix 2 - Existing and Prospective Disney Licensees
IN WITNESS HEREOF, the parties hereto have executed this Agreement as
of the Effective Date.
GARGOYLES, INC.
Date April 12, 1995 By /s/ Douglas B. Hauff
------------------------ -----------------------------
President
(Print or type name and title)
THE WALT DISNEY COMPANY
Date: April 11, 1995 By /s/ Peter V. Nolan
------------------------ -----------------------------
Vice President --
Asst. General Counsel
(Print or type name and title)
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