<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 22, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
COLDWATER CREEK INC.
(Exact name of registrant as specified in its charter)
--------------------------
<TABLE>
<S> <C> <C>
DELAWARE 5961 82-0419266
(State or other jurisdiction of (Primary standard industrial (I.R.S. employer
incorporation or organization) classification code number) identification number)
</TABLE>
--------------------------
ONE COLDWATER CREEK DRIVE, SANDPOINT, IDAHO 83864, (208) 263-2266
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
--------------------------
DENNIS PENCE, PRESIDENT
COLDWATER CREEK INC.
ONE COLDWATER CREEK DRIVE
SANDPOINT, IDAHO 83864
(208) 263-2266
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
THOMAS A. BEVILACQUA, ESQ. EDWARD S. ROSENTHAL, ESQ.
BROBECK, PHLEGER & HARRISON LLP FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
TWO EMBARCADERO PLACE, 2200 GENG ROAD 350 SOUTH GRAND AVE., 32ND FLOOR
PALO ALTO, CALIFORNIA 94043 LOS ANGELES, CALIFORNIA 90071
(415) 424-0160 (213) 473-2000
</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 is 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, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock, $.01 par value...................................... $40,250,000 $12,196.97
</TABLE>
(1)Estimated solely for the purpose of calculating the registration fee pursuant
to Rule 457 under the Securities Act of 1933.
--------------------------
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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
COLDWATER CREEK INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(b) OF REGULATION S-K
SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF FORM S-1
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION IN FORM S-1 LOCATION IN PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus..................... Facing Page of Registration Statement and Outside
Front Cover Page of the Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus......................................... Inside Front Cover Page of the Prospectus; Table of
Contents; Additional Information
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges.......................... Prospectus Summary; Risk Factors
4. Use of Proceeds...................................... Prospectus Summary; S Corporation Distributions; Use
of Proceeds
5. Determination of Offering Price...................... Underwriting
6. Dilution............................................. Dilution
7. Selling Security Holders............................. Not Applicable
8. Plan of Distribution................................. Outside Front Cover and Inside Front Cover of the
Prospectus; Underwriting
9. Description of Securities to be Registered........... Prospectus Summary; Capitalization; Description of
Capital Stock
10. Interests of Named Experts and Counsel............... Legal Matters; Experts
11. Information with Respect to the Registrant........... Prospectus Summary; Risk Factors; Dividend Policy;
Capitalization; Selected Financial and Operating
Data; Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Business; Management; Certain Transactions;
Principal Stockholders; Description of Capital
Stock; Shares Eligible for Future Sale; Experts;
Financial Statements
12. Disclosure of Commission Position on Indemnification
for Securities Act
Liabilities........................................ Not Applicable
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 22, 1996
SHARES
[LOGO]
COMMON STOCK
ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE
COMPANY. PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON
STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING
PRICE FOR THE COMMON STOCK WILL BE BETWEEN $ AND $ PER SHARE. SEE
"UNDERWRITING" FOR A DISCUSSION OF FACTORS TO BE CONSIDERED IN DETERMINING THE
INITIAL PUBLIC OFFERING PRICE.
THE COMMON STOCK HAS BEEN APPROVED FOR LISTING ON THE NASDAQ NATIONAL
MARKET, UPON COMPLETION OF THIS OFFERING, UNDER THE SYMBOL "CWTR."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER SHARE....................................... $ $ $
TOTAL(3)........................................ $ $ $
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
</TABLE>
(1) SEE "UNDERWRITING" FOR INFORMATION CONCERNING INDEMNIFICATION OF THE
UNDERWRITERS AND OTHER MATTERS.
(2) BEFORE DEDUCTING EXPENSES ESTIMATED AT $ , PAYABLE BY THE COMPANY.
(3) THE COMPANY HAS GRANTED THE UNDERWRITERS A 30-DAY OPTION TO PURCHASE UP TO
ADDITIONAL SHARES OF COMMON STOCK SOLELY TO COVER OVER-ALLOTMENTS, IF
ANY. IF THE UNDERWRITERS EXERCISE THIS OPTION IN FULL, THE PRICE TO PUBLIC,
UNDERWRITING DISCOUNT AND PROCEEDS TO COMPANY WILL TOTAL $ , $
AND $ , RESPECTIVELY. SEE "UNDERWRITING."
THE SHARES OF COMMON STOCK ARE OFFERED BY THE SEVERAL UNDERWRITERS NAMED
HEREIN, AS AND IF DELIVERED TO AND ACCEPTED BY THE UNDERWRITERS AND SUBJECT TO
THEIR RIGHT TO REJECT ANY ORDER IN WHOLE OR IN PART. IT IS EXPECTED THAT
DELIVERY OF THE CERTIFICATES REPRESENTING SUCH SHARES WILL BE MADE AGAINST
PAYMENT THEREFOR AT THE OFFICE OF MONTGOMERY SECURITIES ON OR ABOUT ,
1997.
-------------------
MONTGOMERY SECURITIES WILLIAM BLAIR & COMPANY
, 1997
<PAGE>
[INSIDE FRONT COVER]
[COLLAGE OF THE COMPANY'S CATALOGS]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND THE NOTES THERETO APPEARING ELSEWHERE
IN THIS PROSPECTUS. AS USED IN THIS PROSPECTUS, UNLESS THE CONTEXT OTHERWISE
REQUIRES, THE TERMS "COLDWATER CREEK" AND "COMPANY" INCLUDE COLDWATER CREEK INC.
AND INCLUDE THE BUSINESS OF THE COMPANY'S PREDECESSOR. UNLESS OTHERWISE
INDICATED, ALL INFORMATION INCLUDED IN THIS PROSPECTUS ASSUMES THAT THE
UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED AND GIVES RETROACTIVE
EFFECT TO (I) THE REINCORPORATION INTO DELAWARE OF THE COMPANY ON APRIL 17, 1996
AND (II) A FOR 1 STOCK SPLIT OF THE COMMON STOCK EFFECTED IN ,
1996. SEE NOTES 8 AND 12 OF NOTES TO FINANCIAL STATEMENTS. REFERENCES TO "FISCAL
YEAR" REFER TO THE CALENDAR YEAR IN WHICH SUCH FISCAL YEAR COMMENCES. FOR
EXAMPLE, FISCAL 1995 BEGAN ON MARCH 5, 1995 AND ENDED ON MARCH 2, 1996.
THE COMPANY
Coldwater Creek is a specialty direct mail retailer of apparel, gifts and
jewelry. The Company currently markets its merchandise primarily through a
family of four distinctive catalogs. Coldwater Creek targets well-educated,
middle-to upper-income households and seeks to differentiate itself from other
retail and catalog operations by offering exceptional value through superior
customer service and a merchandise assortment that reflects a casual, uniquely
American spirit. The Company believes that the successful execution of its
marketing and merchandising strategies coupled with its high customer service
standards and efficient order entry and fulfillment operations has allowed it to
develop a unique brand identity and strong relationships with its loyal customer
base.
Coldwater Creek's rapid growth has been accompanied by a consistently high
degree of profitability. The Company has increased sales every year since it
commenced operations in 1984 and has been profitable every year since fiscal
1986. Over the past five fiscal years, the Company's net sales have grown at a
compound annual growth rate of 61.8% from $11.1 million to $75.9 million.
Despite significant increases in paper and postage costs in recent years, the
Company's operating income has grown at a compound annual growth rate of 36.8%
from $1.6 million in fiscal 1991 to $5.8 million in fiscal 1995. During fiscal
1995, the Company's mailing list grew 45.2% to include approximately 2.5 million
names.
During the first six months of fiscal 1996, the Company successfully
introduced a men's apparel catalog, re-merchandised and initiated a Spring
edition of its women's apparel catalog and expanded and broadened its
merchandise offerings in its core catalog. These merchandising changes have
resulted in dramatic growth in sales and profitability. Net sales during the
first six months of fiscal 1996 grew 143.8% to $39.4 million from $16.2 million
during the same period in fiscal 1995, while operating income grew to $1.3
million from a loss of $1.6 million. In addition, the average order increased to
$139 in the first six months of fiscal 1996 from $87 during the same period in
fiscal 1995. At the end of the second quarter of fiscal 1996, the number of
active customers was 847,971, an increase of 306,831 from the end of the second
quarter of fiscal 1995.
During fiscal 1994, fiscal 1995 and the first six months of fiscal 1996, the
Company hired additional key management personnel and invested $13.9 million in
infrastructure improvements. These investments were made to expand the Company's
distribution facilities, upgrade its telecommunications systems and install and
implement more sophisticated database technologies and management information
systems. Coldwater Creek believes that this timely investment of capital in its
infrastructure has been critical in successfully executing its customer
service-based strategy and supporting its rapid growth.
Coldwater Creek focuses on providing customer service well above industry
standards. All aspects of the Company's operations are designed to provide a
superior catalog buying experience as well as strengthen relationships with
existing and new customers. During fiscal 1995, the Company achieved faster
telephone answer times, lower abandoned call rates, and more accurate order
processing than industry averages. The Company plans to stimulate future growth
through a variety of strategic initiatives designed to increase catalog
circulation, yield higher customer response rates and expand merchandise
offerings. In
3
<PAGE>
addition, the Company believes that significant opportunities exist to expand
its customer base by targeting new members of existing customer households with
additional merchandise offerings and catalog titles.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company............ shares
Common Stock to be outstanding after the shares(1)
offering.....................................
Use of proceeds................................ To fund a distribution of approximately
$12.8 million in S corporation earnings,
repay certain outstanding indebtedness,
fund capital expenditures related to the
expansion of the Company's operations and
for working capital and other general
corporate purposes.
Proposed Nasdaq National Market symbol......... CWTR
</TABLE>
- ------------------------------
(1) Excludes (i) shares of Common Stock issuable upon exercise of stock
options, outstanding as of August 31, 1996, at an average exercise price of
$ per share and (ii) an additional shares of Common Stock reserved
for future issuance under the Company's stock option plan. See
"Management--1996 Stock Option/Stock Issuance Plan."
------------------------------
REPORTS TO SECURITY HOLDERS
The Company intends to furnish to its stockholders annual reports containing
audited financial statements and an opinion thereon expressed by its independent
public accountants and quarterly reports containing unaudited financial
information for the first three quarters of each fiscal year.
------------------------
Coldwater Creek-Registered Trademark-, SPIRIT OF THE WEST-Registered
Trademark- and ECOSONG-Registered Trademark- are registered trademarks of the
Company. An application has been filed to register the mark MILEPOST FOUR-TM- as
a trademark of the Company. Tradenames and trademarks of other companies
appearing in this Prospectus are the property of their respective holders.
------------------------
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE FEDERAL SECURITIES LAWS. ACTUAL RESULTS AND THE TIMING OF CERTAIN
EVENTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING
STATEMENTS DUE TO A NUMBER OF FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK
FACTORS" AND ELSEWHERE IN THIS PROSPECTUS. SEE "SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS."
4
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND SELECTED OPERATING DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED(1)
FISCAL YEAR ENDED(1)
--------------------------------------------------------- --------------------
FEB. 29, FEB. 27, FEB. 26, MARCH 4, MARCH 2, SEP. 2, AUG. 31,
1992 1993 1994 1995 1996 1995 1996
--------- --------- --------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................... $ 11,085 $ 18,785 $ 31,763 $ 45,223 $ 75,905 $ 16,153 $ 39,385
Gross profit................................. 6,534 11,073 18,258 26,161 43,119 8,957 20,353
Income (loss) from operations................ 1,644 1,726 5,321 4,659 5,763 (1,581) 1,325
Net income (loss)(2)......................... 1,702 1,684 5,352 4,757 5,614 (1,634) 1,271
PRO FORMA STATEMENT OF OPERATIONS DATA:
Pro forma net income (loss)(3)............... $ 1,021 $ 1,010 $ 3,211 $ 2,854 $ 3,368 $ (980) $ 763
Pro forma net income per share(4)............ $ $
SELECTED OPERATING DATA:
Net sales growth............................. n/a 69.5% 69.1% 42.4% 67.8% 67.4% 143.8%
Total catalogs mailed (000s)................. n/a 12,273 19,045 31,625 45,868 12,813 20,405
Total active customers(5).................... n/a 247,520 382,862 493,946 747,234 541,140 847,971
Average order (in dollars)(6)................ n/a $ 56.26 $ 72.69 $ 81.85 $ 97.16 $ 87.14 $ 138.54
</TABLE>
<TABLE>
<CAPTION>
AUGUST 31, 1996
--------------------------
ACTUAL AS ADJUSTED(7)
--------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................................................... $ 2,499 $
Total assets.............................................................................. 39,035
Long-term debt (net of current maturities)................................................ 7,368
Stockholders' equity...................................................................... 13,796
</TABLE>
- ------------------------------
(1) References to a fiscal year refers to the calendar year in which such fiscal
year commences. The Company has a 52/53 week fiscal year that ends on the
Saturday closest to February 28. Fiscal 1994 is the only fiscal year
presented that consists of 53 weeks. References to a six month period refer
to the 26 weeks ended on the date indicated.
(2) For all periods indicated, the Company has operated as an S corporation and
has not been subject to federal and certain state income taxes.
(3) Pro forma net income (loss) reflects historical net income (loss) less pro
forma income taxes. Pro forma income taxes are provided at an assumed 40%
effective rate, as if the Company had been a C corporation rather than an S
corporation for the above periods. Prior to the closing of this offering,
the Company's S corporation status will terminate; at that date, the Company
will provide a non-recurring, non-cash charge to earnings to recognize
deferred income taxes in accordance with Statement of Financial Accounting
Standards No. 109 ("SFAS 109"). See "S Corporation Distributions" and Notes
1 and 11 of Notes to Financial Statements.
(4) Pro forma net income per share is based on the average shares of Common
Stock and stock equivalents outstanding, including actual shares
outstanding, shares deemed to be outstanding and the dilutive effect of
shares issuable under stock options. The shares deemed to be outstanding
represent the number of shares being offered by the Company hereby
sufficient to fund an assumed S corporation distribution of approximately
$14.5 million at March 2, 1996 or approximately $13.8 million at August 31,
1996.
(5) An "active customer" is defined as a customer who has purchased merchandise
from the Company within the 12 months preceding the end of the period
indicated.
(6) An "order" is defined as the dollar amount of a processed customer invoice
or a pending order on file. The "average order" is calculated by dividing
the aggregate amount of all customer invoices and pending orders processed
in a period by the number of customer orders placed in such period.
(7) As adjusted to reflect (i) the sale of shares of Common Stock offered
by the Company hereby at an assumed initial public offering price of $
per share and the application of the estimated net proceeds therefrom,
including the assumed August 31, 1996 distribution of an estimated $13.8
million to stockholders upon termination of the Company's S corporation
status (further distributions of approximately $5.6 million are expected to
be made related to earnings for the period September 1, 1996 through the
assumed termination of the Company's S corporation status) and (ii)
recognition of approximately $1.6 million of deferred income taxes for the
net effect of cumulative temporary differences upon termination of the
Company's S corporation status in accordance with SFAS 109. See "S
Corporation Distributions" and "Use of Proceeds."
5
<PAGE>
RISK FACTORS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE FEDERAL SECURITIES LAWS. ACTUAL RESULTS AND THE TIMING OF CERTAIN
EVENTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING
STATEMENTS DUE TO A NUMBER OF FACTORS, INCLUDING THOSE SET FORTH BELOW AND
ELSEWHERE IN THIS PROSPECTUS. SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS." IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE
FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN
THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS.
RISKS ASSOCIATED WITH CATALOG OPERATIONS
The Company's success depends predominately on the success of its catalog
operations, which the Company believes is achieved through the efficient
targeting of its mailings, a high volume of prospect mailing, appropriate shifts
in the Company's merchandise mix and the Company's ability to achieve adequate
response rates to its mailings. Catalog mailings entail substantial paper,
postage, merchandise acquisition and human resource costs, including costs
associated with catalog development and increased inventories, virtually all of
which are incurred prior to the mailing of each catalog. As a result, the
Company is not able to adjust the costs being incurred in connection with a
particular mailing to reflect the actual performance of the catalog. If, for any
reason, the Company were to experience a significant shortfall in anticipated
revenue from a particular mailing, and thereby not recover the costs associated
with that mailing, the Company's financial condition and results of operations
would be adversely affected. In addition, response rates to the Company's
mailings and, as a result, revenues generated by each mailing can be affected by
factors such as consumer preferences, economic conditions, the timing and mix of
catalog mailings and changes in the merchandise mix, several of which may be
outside the Company's control. Further, the Company has historically experienced
fluctuations in the response rates to its catalog mailings. Any inability of the
Company to accurately target the appropriate segment of the consumer catalog
market or to achieve adequate response rates could result in lower sales,
significant markdowns or write-offs of inventory, increased merchandise returns,
and lower margins, which would have a material adverse effect on the Company's
results of operations and financial condition.
RISKS ASSOCIATED WITH GROWTH STRATEGY
The Company's growth strategy primarily includes the following components:
increasing catalog circulation, expanding the Company's customer base through
aggressive prospect mailings, introducing expanded catalog and merchandise
offerings, publishing new catalog titles, expanding international sales and
increasing the use of other marketing channels, such as retail stores and the
Internet. The Company's growth strategy involves various risks, including a
reliance on a high degree of prospect mailings, which may lead to less
predictable response rates. The failure of the Company to successfully implement
any or all of its growth strategies would have a material adverse effect on the
Company's financial condition and results of operations.
The Company believes its growth has been attributable in large part to the
Company's success in meeting the merchandise, timing and service demands of an
expanding customer base with certain demographic characteristics. There can be
no assurance that the Company will be able to continually identify and offer new
merchandise that appeals to its customer base or that the introduction of new
merchandise categories or new marketing or distribution strategies, such as the
sale of the Company's merchandise in retail stores or through new catalog
titles, will be successful or profitable, or that any such efforts will achieve
sustainable acceptance in the market. Any substantial inability on the part of
the Company to sustain the growth of its catalog operations and sales, to
maintain its current average order size and response rates, to leverage the
success of existing catalog titles to new merchandise lines, catalogs and retail
stores or to cross sell the Company's merchandise to different members of the
target customer household would have a material adverse effect on the Company's
financial condition and results of operations.
6
<PAGE>
As part of its brand-building strategy, the Company plans to open 6 to 10
additional retail stores over the course of the next five years. To date, the
Company has had limited experience operating retail stores and has no experience
operating stores outside the vicinity of its headquarters. In addition, retail
store operations entail substantial fixed costs, including costs associated with
real estate, inventory maintenance and staffing. There can be no assurance that
the planned number of stores will be opened, will be opened in a timely manner,
or, if opened, that these stores will be profitable. Failure to successfully
implement this store-based strategy could result in significant write-offs of
inventory and fixtures and would have a material adverse effect on the Company's
financial condition and results of operations.
The Company may need to raise additional funds in order to support greater
expansion, develop enhanced services, respond to competitive pressures, acquire
complementary businesses or respond to unanticipated or seasonal requirements.
In addition, various elements of the Company's growth strategies, including its
aggressive mailing program, its plans to broaden existing merchandise lines
including its private label offerings and its plans to introduce new
merchandise, may require additional capital. There can be no assurance that
funds will be available to the Company on terms satisfactory to the Company when
needed. See "Business--Growth Strategies."
QUARTERLY AND SEASONAL FLUCTUATIONS
The Company's revenue and results of operations have fluctuated and can be
expected to continue to fluctuate on a quarterly basis as a result of a number
of factors including, among other things, the timing of new merchandise and
catalog offerings, recognition of costs or net sales contributed by new
merchandise and catalog offerings, fluctuations in response rates, fluctuations
in paper, production and postage costs and expenses, merchandise returns,
adverse weather conditions that affect distribution or shipping, shifts in the
timing of holidays and changes in the Company's merchandise mix. In addition,
the Company maintains a common industry policy of deferring the recognition of
the costs of catalog development and production until sales are realized on each
mailing and recognizes such costs as sales are realized. Consequently, quarter
to quarter revenue and expense comparisons will be impacted by the timing of the
mailing of the Company's catalogs. Catalog mailings may occur in different
quarters from year to year depending on the performance of third party couriers,
the day of the week on which certain holidays fall and the Company's assessment
of prevailing market opportunities. A portion of the revenue from a catalog
mailing may be recognized in the quarter after the quarter in which the catalog
was mailed and the revenue from a particular catalog offering may be recognized
in a quarter different from the quarter in which the revenue from the offering
was recognized in the previous year.
During the first six months of fiscal 1996, the Company successfully
introduced a men's apparel catalog, re-merchandised and initiated a Spring
edition of its women's apparel catalog and expanded and broadened its
merchandise offerings in its core catalog. These merchanding changes resulted in
dramatic growth in the Company's sales, profitability and average order size.
This growth should not be considered as an indication of the Company's future
performance.
The Company has experienced, and may continue to experience, seasonal
fluctuations in its sales and operating results, which is typical of many
specialty retailers. In past fiscal years, the Company's net sales and profits
have been heavily reliant on the November and December holiday season. The
Company believes that in the future this seasonality will continue. In
anticipation of increased sales activity during November and December, the
Company incurs significant additional expenses, including the hiring of a
substantial number of temporary employees to supplement its permanent, full-time
staff. If, for any reason, the Company's sales were to fall below its
expectations during November and December, the Company's financial condition and
results of operations would be adversely affected. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Quarterly and
Seasonal Fluctuations."
7
<PAGE>
RISKS ASSOCIATED WITH OFFERING APPAREL MERCHANDISE
The Company believes that its recent growth has been driven in significant
part by the Company's shift toward offering a much greater percentage of
apparel, including private label apparel. In the past two years, the Company has
offered an increasing amount of apparel merchandise in all of its catalogs.
Prior to these efforts, the Company has had limited experience selling apparel
and there can be no assurance that the Company will be able to successfully
continue the integration of an increasing percentage of apparel merchandise into
its merchandise mix and operations. Apparel merchandise, particularly private
label apparel, generally requires longer lead times, increased inventory and
high shipping costs. There can be no assurance that the Company will be able to
accurately or efficiently predict appropriate lead times and inventory levels to
meet consumer demand. As a result of offering increasing amounts of apparel
merchandise, the Company has experienced a significant increase in the level of
back orders for its apparel merchandise. In the event the Company is unable to
satisfy such back orders in a timeframe comparable to the satisfaction of orders
of its other merchandise, such orders may be lost, and delays may result in the
impairment of the Company's superior customer service reputation. The increase
in apparel merchandise as a percentage of total merchandise, including the
Company's private label apparel offerings, has also had the effect, and may
continue to have the effect, of increasing merchandise return rates. In
addition, the increased offering of apparel merchandise, including the Company's
private label apparel offerings, has and may continue to lead to increased
markdowns of merchandise prices resulting in lower margins. The Company may need
to find alternative methods for disposing of an anticipated increase in the
volume of clearance merchandise. This increasing volume may make it difficult
for the Company to realize its current margins on clearance merchandise. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
MERCHANDISE RETURNS
As part of its customer service commitment, the Company maintains a liberal
merchandise return policy which allows customers to return any merchandise,
virtually at any time and for any reason, and regardless of merchantable
condition. The Company makes allowances in its financial statements for
anticipated merchandise returns based on historical return rates. While the
Company believes its allowances are adequate, there can be no assurance that
actual merchandise returns will not exceed the Company's allowances. In
addition, because the Company's allowances are based on historical return rates,
there can be no assurance that the introduction of new merchandise in existing
catalogs or the introduction of new catalogs, changes in the merchandise mix or
other factors will not cause actual returns to exceed return allowances. Any
significant increase in merchandise returns or merchandise returns that exceed
the Company's allowances could materially adversely affect the Company's
financial condition and results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
PAPER, POSTAGE AND SHIPPING COSTS
Paper and postage, as well as packaging and shipping supplies, are
significant cost components of the Company's catalog operations. The Company's
paper costs have historically been quite volatile. In particular, the Company's
paper costs increased dramatically in 1995. Although paper prices stabilized
late in 1995 and declined in 1996, paper prices have historically been cyclical
and any future increases, despite any offsetting measures implemented by the
Company, may have an adverse effect on the Company's financial condition and
results of operations. Postage for catalog mailings is also a significant
expense of the Company and effective January 1, 1995, postage rates for mailing
the Company's catalogs in the U.S. increased approximately 14%. The Company
generally mails its catalogs by third class mail service. Postage prices
increase periodically and can be expected to increase in the future. Further,
although the Company mails the majority of its merchandise through the U.S.
Postal Service, the Company also maintains a contract with Federal Express for
the delivery of its merchandise. There can be no assurance that, once this
8
<PAGE>
contract expires or is terminated, the Company will be able to negotiate similar
or better terms with Federal Express or another shipping company or that the
resulting contract(s) will be on terms favorable to the Company. Any inability
of the Company to secure suitable or commercially favorable contracts for the
delivery of its merchandise could have a material adverse effect on the
Company's financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
ABILITY TO MANAGE EXPANDING OPERATIONS
The Company's growth has resulted in an increased demand on the Company's
managerial, operational and administrative resources. The Company has recently
invested significant resources in physical plant, management information systems
and telephone infrastructure and has hired additional management personnel. The
Company believes that this investment establishes the basic infrastructure to
meet the presently anticipated growth in the reasonably foreseeable future.
However, in order to manage currently anticipated levels of future demand, the
Company will be required to continue, among other things, to (i) improve and
integrate its management information systems and controls, including inventory
management, (ii) expand its distribution capabilities and (iii) attract and
retain qualified personnel, including middle management. In addition, there can
be no assurance that any upgrades, improvements and expansions in the Company's
information or telephone systems or its distribution facilities and operations
will increase the productivity or efficiency of the Company's operations or that
the same will be adequate to meet the present or future needs of the Company.
Continued growth could result in a strain on the Company's management,
financial, merchandising, marketing, distribution and other resources and the
Company may experience operating difficulties, including difficulties in
training and managing an increasing number of employees, difficulties in
obtaining sufficient materials and manufacturing capacity to produce its
merchandise, problems in upgrading its management information systems and delays
in production and shipments. There can be no assurance that the Company will be
able to manage future growth effectively and any failure to manage growth
effectively could have a material adverse effect on the Company's results of
operations and financial condition. The inability of the Company to respond to
and manage these changing business conditions could have a material adverse
impact on the Company. See "Business--Growth Strategies."
COMPETITION
The markets for the Company's merchandise are highly competitive, and the
recent growth in these markets has encouraged the entry of many new competitors
as well as increased competition from established companies. Although the
Company believes that it does not compete directly with any single company with
respect to its entire range of merchandise, within each merchandise category the
Company has significant competitors and may face new competition from new
entrants or existing competitors who focus on market segments currently served
by the Company. These competitors include large retail operations, including
some with catalog operations, other catalog and direct marketing companies and
international competitors. In addition, since fiscal 1995, the Company has
offered an increasingly higher volume and percentage of apparel merchandise.
With respect to the apparel merchandise offered by the Company, the Company is
in direct competition with more established catalog operations, some with
substantially greater experience in selling apparel merchandise and which may
focus on prospective customers sharing some of the demographic characteristics
of the Company's customers. Any failure on the part of the Company to
successfully market its apparel merchandise or compete effectively against such
competitors would have a material adverse effect on the Company's growth and
could adversely affect the Company's financial condition and results of
operations. Many of these competitors are larger and have significantly greater
financial, marketing and other resources than the Company. Increased catalog
mailings by the Company's competitors may adversely affect response rates to the
Company's own catalog mailings. In addition, because the Company sources its
merchandise from suppliers and manufacturers located in the United States, where
labor and production costs may be higher than in foreign countries,
9
<PAGE>
there can be no assurance that the Company's merchandise will or can be
competitively priced when compared to merchandise offered by other retailers.
While the Company believes that it has been able to compete successfully because
of its brand recognition, the exclusivity and broad range and quality of its
merchandise, including its private label merchandise offerings, and its superior
customer service policies, there can be no assurance that the Company will be
able to maintain or increase its market share in the future. The failure of the
Company to compete successfully would materially and adversely affect the
Company's financial condition and results of operations. See
"Business--Competition."
CHANGING CONSUMER PREFERENCES; GENERAL ECONOMIC CONDITIONS
Although the Company believes that it has benefited from increasing consumer
interest in merchandise that reflects casual and relaxed styles, there can be no
assurance that this belief is correct or that such trends will continue. Any
change in these trends could have a material adverse effect on the Company's
results of operations and financial condition. In addition, although the Company
believes that the sale of its merchandise historically has not been primarily
driven by fashion trends, all of the Company's merchandise is subject to
changing consumer preferences. A shift in consumer preferences away from the
merchandise which the Company offers could have a material adverse effect on the
Company's results of operations and financial condition. The Company's future
success depends in part on its ability to anticipate and respond to changes in
consumer preferences and there can be no assurance that the Company will respond
in a timely or commercially appropriate manner to such changes. Failure to
anticipate and respond to changing consumer preferences could lead to, among
other things, lower sales of the Company's products, significant markdowns or
write-offs of inventory, increased merchandise returns, and lower margins, which
would have a material adverse effect on the Company's results of operations and
financial condition. The Company's business is sensitive to regional changes in
customers' spending and discretionary income patterns which, in turn, are
controlled to a large extent by prevailing economic conditions. Adverse economic
conditions in one or more regions in which it has significant sales could have a
material adverse effect on sales of the Company's merchandise and, as a result,
on the Company's financial condition and results of operations.
RISKS AFFECTING ABILITY TO FULFILL ORDERS
The Company's ability to provide superior customer service and efficiently
fulfill orders and distribute catalogs depends, to a large degree, on the
efficient and uninterrupted operation of its two call centers, one distribution
center, management information systems and on the timely performance of third
parties such as shipping companies and the United States Postal Service.
Although the Company believes it has built redundancy into its telephone and
management information systems and maintains relationships with several
different shipping companies, any material disruption or slowdown in the
Company's order processing or fulfillment systems resulting from strikes or
labor disputes, telephone down times, electrical outages, mechanical problems,
human error or accidents, fire, natural disasters or comparable events could
cause delays in the Company's ability to receive and distribute orders and may
cause orders to be lost or to be shipped or delivered late. As a result,
customers may cancel orders or refuse to receive goods on account of late
shipments which would result in a reduction of net sales and could mean
increased administrative and shipping costs. The Company experienced telephone
call volumes in excess of its telephone system capacity during peak portions of
one two-day period during fiscal 1995. Such excess call volume resulted in
telephone answer delays and delays in placing orders. Although the Company
believes that its recent improvements in telephone system infrastructure are
adequate to meet anticipated growth in the foreseeable future, there can be no
assurance that telephone call volumes will not exceed present telephone system
capacity and that, as a result, telephone answer delays and delays in placing
orders will not occur. As the Company believes that its success to date has been
based in part on its reputation for levels of customer service substantially
superior to the standards in the catalog industry, any impairment of its
superior customer service reputation could have a material adverse effect on the
Company's business. In addition, the Company currently maintains a single
distribution and packaging center at its headquarters in
10
<PAGE>
Sandpoint, Idaho. Any material disruption in or destruction of part or all of
the Company's distribution and packaging center caused by strike, fire or
natural disaster would have a material adverse effect on the Company's ability
to provide the timely delivery of merchandise and its financial condition and
results of operations.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends largely on the efforts of its key personnel,
including Dennis and Ann Pence, the Company's founders. Dennis and Ann Pence
have been involved in all aspects of the Company's business, including
marketing, merchandising and operations. The loss of either of their services
would have a material adverse effect on the Company's financial condition and
results of operations. In addition, the Company believes several other key
employees, including Vice President and Chief Financial Officer Don Robson, Vice
President of Merchandising Robin Sheldon, Vice President of Operations Tony
Saulino and other operational, marketing and merchandising personnel are
important to the Company's financial condition and results of operations. The
Company's ability to attract and retain well-qualified key personnel, including,
but not limited to, the above-named individuals, is crucial to the Company's
successful continued operations and expansion, and the loss of any such key
personnel could have a material adverse effect on the Company's financial
condition and results of operations. In addition, the Company's relatively
remote location may make it more difficult to replace key employees who leave
the Company, or to add the employees required to manage the Company's further
growth. See "Management," "Business" and "Principal Stockholders."
RISKS ASSOCIATED WITH CREDIT CARD PROGRAM
As part of its brand building strategy, Coldwater Creek offers its customers
a Coldwater Creek credit card. The Company has historically relied on third
party administrative, managerial and monitoring services in connection with the
operation of its credit card program. During the next 12 months, the Company
plans to assume the responsibility for qualifying the Company's credit card
customers and may retain additional or alternative third party service providers
for credit processing. As the Company's credit card program expands, the Company
will increasingly be subject to greater credit risks and risks associated with
forecasting adequate reserves for uncollected or uncollectible amounts. Any
inability on the part of the Company to manage such risks may adversely affect
the Company's operating results. Although the Company believes that the
experience of its present management team is adequate to manage the
qualification component of its credit card program, the Company has no prior
history of managing this component of the Company's credit card program or in
estimating adequate reserves in connection therewith. There can be no assurance
that the Company will be able to manage this component of its credit card
program effectively or efficiently or that reserves will be adequate to cover
uncollected or uncollectible amounts.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company intends to increase its catalog mailings in Japan and Canada and
to introduce its catalogs in selected European countries. As a result, the
Company's business is subject to the risks generally associated with doing
business abroad, such as foreign governmental regulations, political unrest and
disruptions or delays in shipments. These factors, among others, could influence
the Company's ability to sell its merchandise in international markets. If any
such factors were to render the conduct of business in a particular country
undesirable or impractical, there could be a material adverse effect on the
Company's results of operations and financial condition. Because the majority of
the Company's sales are in the United States, most of the Company's current
information on customer preferences and buying patterns are based on sales and
customers in the United States. As a result, predicting foreign consumer
preferences may be harder for the Company than predicting United States consumer
preferences. There can be no assurance that the Company's merchandise or
marketing efforts will be successful in foreign
11
<PAGE>
markets. Further, because the Company currently prices its merchandise
exclusively in United States dollars for international sales, fluctuations
causing the relative value of the United States dollar to increase when compared
to foreign currency may cause the Company's merchandise to be perceived as too
expensive relative to its value or competitive merchandise. As a consequence,
sales of the Company's merchandise may be adversely affected.
STATE SALES TAX COLLECTION
Various states have sought to impose on direct marketers the burden of
collecting state sales and use taxes on the sale of merchandise shipped to that
state's residents. The U.S. Supreme Court has held that the various states,
absent Congressional legislation, may not impose tax collection obligations on
an out-of-state mail order company whose only contacts with the taxing state are
the distribution of catalogs and other advertisement materials through the mail,
and whose subsequent delivery of purchased goods is by mail or interstate common
carriers. In November 1995, however, the Supreme Court let stand a decision of
New York's highest state court requiring an out-of-state catalog company to
collect a use tax (including a retroactive assessment, plus interest) on its
mail order sales in the state, where the catalog company's reported contacts
with New York included a limited number of visits by salesforce employees. In
fiscal 1995, 0.9% of the Company's net catalog sales were subject to state sales
tax, all in Idaho. If such legislation (or similar legislation) is ultimately
enacted or if the Company otherwise becomes subject to payment of additional
sales or use tax, the imposition of additional tax collection obligations could
have a material adverse effect on the Company's financial condition and results
of operations.
BENEFITS TO SOLE STOCKHOLDERS
The consummation of this offering will result in certain benefits to Dennis
and Ann Pence, the sole stockholders of the Company. The Company will use a
portion of the proceeds from this offering to make a distribution to Dennis and
Ann Pence of S corporation retained earnings as a result of the termination of
the Company's S corporation status. See "S Corporation Distributions."
CONTROL BY EXISTING STOCKHOLDERS; ANTI-TAKEOVER DEVICES
Upon the consummation of this offering, Dennis and Ann Pence will
beneficially own approximately % of the issued and outstanding shares of
Common Stock of the Company (approximately % if the underwriters'
over-allotment option is exercised in full). If they were to act in concert,
they would be able to elect all of the Company's directors, increase the
Company's authorized capital stock, dissolve, merge or sell the assets of the
Company, or effect other fundamental corporate transactions requiring
stockholder approval, and generally direct the affairs of the Company. See
"Principal Stockholders." Such control by Dennis and Ann Pence may discourage
certain types of transactions involving an actual or potential change of control
of the Company, including transactions in which the holders of Common Stock
might receive a premium for their shares over prevailing market prices.
Certain provisions of the Amended and Restated Certificate of Incorporation
(the "Certificate of Incorporation") and bylaws (the "Bylaws") of the Company
may be deemed to have anti-takeover effects and may delay, deter or prevent a
change in control of the Company that stockholders purchasing shares in this
offering may consider to be in their best interest. These provisions (i)
classify the Company's Board of Directors into three classes, each of which will
serve for different three-year periods; (ii) provide that only the Board of
Directors or certain members thereof or officers of the Company may call special
meetings of the stockholders; (iii) eliminate the ability of stockholders to
take any action without a meeting; (iv) establish certain advance notice
procedures for nomination of candidates for election as directors and for
stockholder proposals to be considered at stockholders meetings and (v)
authorize the issuance of "blank check" preferred stock having such
designations, rights and preferences as may be determined from time to time by
the Board of Directors. See "Description of Capital Stock--Preferred Stock,"
"--Certain
12
<PAGE>
Effects of Authorized But Unissued Stock" and "--Certain Certificate of
Incorporation and Bylaw Provisions."
NO PRIOR MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that a regular trading market for the
Common Stock will develop after this offering or that, if developed, it will be
sustained. The initial public offering price of the Common Stock will be
determined by negotiation between the Company and the Underwriters based on
several factors and does not necessarily reflect the market price of the Common
Stock after this offering or the price at which the Common Stock may be sold in
the public market after this offering. See "Underwriting."
The market price for the Common Stock may be significantly affected by such
factors as the Company's quarterly operating results, changes in any earnings
estimates publicly announced by the Company or by analysts, announcements of new
merchandise offerings by the Company or its competitors, seasonal effects on
sales and various factors affecting the economy in general. In addition, the
Nasdaq National Market has experienced a high level of price and volume
volatility and market prices for the stock of many companies have experienced
wide price fluctuations not necessarily related to the operating performance of
such companies.
SHARES ELIGIBLE FOR FUTURE SALE
Assuming the Underwriters do not exercise the over-allotment option,
following this offering the Company will have outstanding shares of Common
Stock. Of such shares, the shares of Common Stock offered hereby will be
freely tradeable. All of the remaining shares are held by Dennis and Ann
Pence who, together with the Company, have agreed not to sell, contract to sell,
or otherwise dispose of any shares of Common Stock without the consent of
Montgomery Securities for a period of 180 days after the date of this
Prospectus. Upon expiration of such agreements, all of such shares will be
eligible for sale in the public markets in accordance with Rule 144 promulgated
under the Securities Act of 1933, as amended (the "Securities Act"). The Company
currently has outstanding options to purchase a total of shares of Common
Stock and may issue additional options to purchase a total of shares of
Common Stock (or shares in the aggregate). Upon the execution of the
Underwriting Agreement associated with this offering, options to purchase an
additional shares of Common Stock will be granted to non-employee
directors under the Company's automatic option grant program. Of the shares
underlying these outstanding options, all are subject to the agreements
described above. Future sales of substantial amounts of Common Stock in the open
market, or the availability of such shares for sale following this offering,
could adversely affect the prevailing market price of the Common Stock. See
"Description of Capital Stock," "Shares Eligible for Future Sale," "Management"
and "Underwriting."
DILUTION
The amount by which the initial public offering price per share of Common
Stock exceeds the pro forma net tangible book value per share after this
offering constitutes dilution to investors in this offering. Investors
purchasing shares of Common Stock in this offering will experience immediate and
substantial dilution in net tangible book value of $ per share (assuming an
initial public offering price of $ per share). See "Dilution."
13
<PAGE>
S CORPORATION DISTRIBUTIONS
Since January 4, 1988, until prior to the closing date of the offering, the
Company has been and will be treated for federal and Idaho income tax purposes
as an S corporation under Subchapter S of the Internal Revenue Code of 1986, as
amended (the "Code"), and comparable tax laws in the State of Idaho. As a
result, the Company's earnings from January 4, 1988 through the date preceding
the date of termination of the Company's S corporation status (the "Termination
Date") have been and will be taxed, with certain exceptions, for federal and
Idaho income tax purposes directly to Dennis and Ann Pence, the existing
stockholders of the Company (the "Existing Stockholders") rather than to the
Company. The Termination Date will occur on or immediately prior to the date of
closing of the offering. On the Termination Date, the Company will become
subject to Idaho and federal income taxes and will adopt Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." See Note 1 of Notes
to Financial Statements.
STOCKHOLDER DISTRIBUTIONS. The Company has historically paid distributions
to the Existing Stockholders to enable them to pay their income tax liabilities
as a result of the Company's status as an S corporation and, from time to time,
to distribute previously undistributed accumulated S corporation earnings.
During fiscal 1993, fiscal 1994, fiscal 1995 and the first nine months of fiscal
1996, the Company has made S corporation distributions to the Existing
Stockholders of $1,740,000, $1,387,000, $2,157,000 and $8,500,000 respectively.
Immediately prior to the consummation of the offering, the Existing
Stockholders and the Company intend to enter into an Agreement for Distribution
of Retained Earnings and Tax Indemnification (the "Agreement"). Pursuant to the
Agreement, the Existing Stockholders will receive a distribution (the
"Distribution") of the Company's remaining undistributed accumulated S
corporation earnings, in the form of promissory notes (the "Distribution Notes")
issued by the Company, prior to the Termination Date. The Distribution Notes
will be paid in full promptly after the closing of the offering. Based on the
present estimate of the Termination Date, the Company estimates that the
distribution to be paid will approximate $12.8 million and will be paid from a
portion of the net proceeds of the offering. Purchasers of Common Stock in this
offering will not receive any portion of the Distribution. No additional S
corporation distributions will be made subsequent to the Distribution (although
the Distribution Notes will be paid in full). However, under certain
circumstances, payments may be made to the Existing Stockholders from the
Company to satisfy certain tax liabilities with respect to pre-offering tax
periods. In addition, under certain circumstances, the Existing Stockholders may
make payments to the Company to satisfy any tax liabilities (i) resulting from
an unexpected pre-offering loss of S corporation status and/or (ii) with respect
to post-offering taxable periods for which the Existing Stockholders receive a
tax benefit, provided however that the indemnity provided by the Existing
Stockholders is limited to any federal and state refunds they receive as a
result of a loss of S corporation status or other tax adjustments for such
taxable periods. See "Use of Proceeds" and "Certain Transactions."
ACCOUNTING EFFECT. The termination of the Company's S corporation status
will result in a non-cash, non-recurring charge to earnings in the quarter in
which the offering closes. This charge will reflect the tax effect of cumulative
temporary differences between financial and tax reporting. The actual current
and deferred income tax assets and liabilities and the related income tax
provision will be recorded in the Company's financial statements based on
temporary differences as of the Termination Date currently expected to occur in
the fourth quarter of fiscal 1996, the period in which the Company will elect to
terminate its S corporation status. If the offering had closed and the Company
had terminated its S corporation status on August 31, 1996, the Company
currently estimates the net charge to earnings would have been approximately
$1.6 million. The Company currently estimates that the net charge to be
recognized upon the termination of the Company's S corporation status in the
fourth quarter of fiscal 1996 will be approximately $1.0 million. The actual
amount of the net charge to earnings will depend on a number of factors,
including the actual closing date of the offering and its effect on the actual S
corporation termination date, seasonality and other factors. Several of these
factors are beyond the control
14
<PAGE>
of the Company and there can be no assurance that the actual net charge to
earnings will not exceed $1.0 million. Such net charge will have a material
adverse impact on the Company's reported results of operations for the quarter
and year in which the offering closes. See Notes 1 and 11 of Notes to Financial
Statements.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common
Stock offered hereby are estimated to be $ ($ if the Underwriters'
over-allotment option is exercised in full), based upon an assumed initial
public offering price of $ per share and after deducting underwriting
discounts and estimated offering expenses. The Company intends to use
approximately $12.8 million of the net proceeds to pay the Distribution Notes to
the Existing Stockholders in full (representing a distribution of S corporation
earnings to the Existing Stockholders). See "S Corporation Distributions."
The Company intends to use the remaining net proceeds of this offering,
estimated to be $ million, to repay outstanding indebtedness due March 31,
1999 of approximately $ (at an interest rate, at the option of the Company,
which is five basis points below the prevailing bank reference rate or LIBOR
plus one and three quarters percent), to fund capital expenditures related to
the expansion of the Company operations and for working capital and other
general corporate purposes. Pending such uses, the net proceeds will be invested
in short-term, investment-grade, interest-bearing securities.
DIVIDEND POLICY
Following the offering, the Company intends to retain its earnings, if any,
for use in operation and expansion of its business and therefore does not
anticipate paying any cash dividends in the foreseeable future. The payment of
the future dividends, if any, will be made at the discretion of the Company's
Board of Directors and will depend upon, among other things, the future
earnings, operations, capital requirements, general financial condition of the
Company, general business conditions and other factors. Historically, the
Company made dividend distributions to the Existing Stockholders as a result of
the Company's status as an S corporation. See "S Corporation Distributions" and
Note 9 of Notes to Financial Statements.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
August 31, 1996 (i) on an actual basis, and (ii) as adjusted to reflect the sale
of the shares of Common Stock offered by the Company hereby assuming an
initial public offering price of $ per share, after deducting underwriting
discounts and estimated offering expenses, and the application of the estimated
net proceeds therefrom. The table should be read in conjunction with the
financial statements of the Company and related Notes thereto included elsewhere
in this Prospectus. See "Use of Proceeds," "Selected Financial and Operating
Data" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
AUGUST 31, 1996
-------------------------
ACTUAL AS ADJUSTED(1)
--------- --------------
<S> <C> <C>
(IN THOUSANDS)
Short-term obligations:
Revolving line of credit............................................................. $ -- $
Current portion of capital lease obligations......................................... 150
--------- -------
Total short-term obligations..................................................... $ 150 $
--------- -------
--------- -------
Long-term liabilities:
Revolving line of credit............................................................. 7,337
Capital lease obligations, less current portion...................................... 31
Stockholders' equity:
Preferred Stock, $.01 par value per share; 1,000,000 shares authorized, no shares
issued and outstanding............................................................. --
Common Stock, $.01 par value per share, one vote per share; 15,000,000 shares
authorized, shares issued and outstanding and shares issued and
outstanding on an as adjusted basis(2)............................................. 43
Additional paid-in capital........................................................... 1
Retained earnings.................................................................... 13,752
--------- -------
Total stockholders' equity......................................................... 13,796
--------- -------
Total capitalization............................................................. $ 21,164 $
--------- -------
--------- -------
</TABLE>
- ------------------------------
(1) As adjusted to reflect (i) the sale of shares of Common Stock offered
by the Company hereby at an assumed initial public offering price of $
per share and the application of the estimated net proceeds therefrom,
including the assumed August 31, 1996 distribution of an estimated $13.8
million to the Existing Stockholders upon termination of the Company's S
corporation status (further distributions of approximately $5.6 million are
expected to be made related to earnings for the period September 1, 1996
through the assumed termination of the Company's S corporation status), and
(ii) recognition of approximately $1.6 million of deferred income taxes for
the net effect of cumulative temporary differences upon termination of the
Company's S corporation status in accordance with SFAS 109. See "S
Corporation Distributions" and "Use of Proceeds."
(2) Excludes (i) shares of Common Stock issuable upon exercise of stock
options outstanding as of August 31, 1996, at an exercise price of $ per
share and (ii) an additional shares of Common Stock reserved for
future issuance under the Company's stock option plan. See "Management--1996
Stock Option/Stock Issuance Plan."
16
<PAGE>
DILUTION
The net tangible book value of the Company's Common Stock at August 31, 1996
was $ million or $ per share. Net tangible book value per share represents
the amount of the Company's net tangible book value (total net tangible assets
less total liabilities) divided by shares of Common Stock outstanding as
of August 31, 1996. Net tangible book value dilution per share represents the
difference between the amount per share paid by purchasers of Common Stock in
this offering and the pro forma net tangible book value per share of Common
Stock immediately after completion of the offering.
After giving effect to (i) a distribution declared prior to the offering of
$13.8 million to the Existing Stockholders of undistributed accumulated S
corporation earnings as of August 31, 1996, and (ii) the recording of a $1.6
million deferred tax liability as of August 31, 1996 in connection with the
termination of the Company's S corporation status, the pro forma net tangible
book value as of August 31, 1996 would have been $ million or $ per share.
See "S Corporation Distributions," "Selected Financial and Operating Data," and
Note 1 of Notes to Financial Statements.
After giving effect to the sale of shares of Common Stock offered
hereby at an assumed initial public offering price of $ per share and the
deduction of underwriting discounts and estimated offering expenses, the pro
forma net tangible book value as of August 31, 1996 would have been $ million
or $ per share. This represents an immediate increase in net tangible book
value of $ per share to the Existing Stockholders and immediate dilution of
net tangible book value of $
per share to purchasers of Common Stock in the offering, as illustrated by the
following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............................. $
Net tangible book value per share at August 31, 1996...................... $
Pro forma adjustments per share...........................................
---------
Pro forma net tangible book value per share before offering...............
Increase per share attributable to sales of shares to new investors.......
Pro forma net tangible book value per share after offering..................
---------
Dilution per share to new investors......................................... $
---------
---------
</TABLE>
The following table sets forth, as of August 31, 1996, the number of shares
of Common Stock purchased from the Company, the total consideration paid and the
average price per share of Common Stock paid by the Existing Stockholders and
new investors purchasing shares of Common Stock in this offering.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- ----------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing Stockholders(1)...............................
New investors..........................................
---------- ----- ---------- ----- -----------
Total..............................................
---------- ----- ---------- ----- -----------
---------- ----- ---------- ----- -----------
</TABLE>
- ------------------------------
(1) If the Underwriters' over-allotment option is exercised in full, the number
of shares to be purchased by new investors will increase to or %
of the total number of shares of Common Stock to be outstanding after this
offering.
The foregoing discussion and tables assume no exercise of any outstanding
stock options. As of , options to purchase shares of Common
Stock at $ per share were outstanding. To the extent such options are
exercised, there will be further dilution to new investors in the offering. See
"Management--Directors, Executive Officers and Key Employees" and
"Management--1996 Stock Option/Stock Issuance Plan" and Note 7 of Notes to
Financial Statements for additional information regarding the Company's
outstanding stock options.
17
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND SELECTED OPERATING DATA)
The selected financial and operating data in the following table sets forth
(i) statement of operations data and balance sheet data of the Company as of and
for each of the fiscal years ended February 26, 1994, March 4, 1995 and March 2,
1996 derived from the Company's financial statements audited by Arthur Andersen
LLP, independent public accountants, which are included elsewhere in this
Prospectus, (ii) statement of operations data and balance sheet data of the
Company as of and for each of the periods ended February 29, 1992, February 27,
1993, September 2, 1995 and August 31, 1996 derived from the Company's unaudited
financial statements, (iii) pro forma statement of operations data, computed as
indicated in the footnotes set forth below, and (iv) selected operating data as
of and for the periods indicated derived or computed from the Company's
circulation records or the statement of operations data identified above. The
unaudited financial data has been prepared on the same basis as the audited
financial statements and, in the opinion of management, contain all normal
recurring adjustments necessary for a fair presentation of the data. The
Company's business is impacted by seasonal fluctuations and, therefore, interim
results are not necessarily indicative of results to be expected for the full
year. The information below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED(1) ENDED(1)
--------------------------------------------------------------- -----------
FEB. 29, FEB. 27, FEB. 26, MARCH 4, MARCH 2, SEP. 2,
1992 1993 1994 1995 1996 1995
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................ $ 11,085 $ 18,785 $ 31,763 $ 45,223 $ 75,905 $ 16,153
Cost of sales........................................ 4,551 7,712 13,505 19,062 32,786 7,196
----------- ----------- ----------- ----------- ----------- -----------
Gross profit......................................... 6,534 11,073 18,258 26,161 43,119 8,957
Selling, general and administrative expense.......... 4,890 9,347 12,937 21,502 37,356 10,538
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) from operations........................ 1,644 1,726 5,321 4,659 5,763 (1,581)
Interest, net........................................ 58 (5) 31 98 (236) (140)
Other income (expense)............................... -- (37) -- -- 87 87
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)(2)................................. $ 1,702 $ 1,684 $ 5,352 $ 4,757 $ 5,614 $ (1,634)
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
PRO FORMA STATEMENT OF OPERATIONS DATA:
Net income (loss) as reported........................ $ 1,702 $ 1,684 $ 5,352 $ 4,757 $ 5,614 $ (1,634)
Pro forma provision (benefit) for income taxes(3).... 681 674 2,141 1,903 2,246 (654)
----------- ----------- ----------- ----------- ----------- -----------
Pro forma net income (loss).......................... $ 1,021 $ 1,010 $ 3,211 $ 2,854 $ 3,368 $ (980)
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Pro forma net income per share(4).................... $
-----------
-----------
SELECTED OPERATING DATA:
Net sales growth..................................... n/a 69.5% 69.1% 42.4% 67.8% 67.4%
Total catalogs mailed (000s)......................... n/a 12,273 19,045 31,625 45,868 12,813
Total active customers(5)............................ n/a 247,520 382,862 493,946 747,234 541,140
Average order (in dollars)(6)........................ n/a $ 56.26 $ 72.69 $ 81.85 $ 97.16 $ 87.14
BALANCE SHEET DATA:
Working capital...................................... $ 1,248 $ 1,857 $ 4,095 $ 623 $ 2,169 $ (3,753)
Total assets......................................... 4,016 5,782 9,820 19,032 23,450 22,770
Long-term debt (net of current maturities)........... -- 545 408 248 100 182
Stockholders' equity................................. 2,874 4,086 7,698 11,068 14,525 7,829
<CAPTION>
AUG. 31,
1996
----------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................ $ 39,385
Cost of sales........................................ 19,032
----------
Gross profit......................................... 20,353
Selling, general and administrative expense.......... 19,028
----------
Income (loss) from operations........................ 1,325
Interest, net........................................ (29)
Other income (expense)............................... (25)
----------
Net income (loss)(2)................................. $ 1,271
----------
----------
PRO FORMA STATEMENT OF OPERATIONS DATA:
Net income (loss) as reported........................ $ 1,271
Pro forma provision (benefit) for income taxes(3).... 508
----------
Pro forma net income (loss).......................... $ 763
----------
----------
Pro forma net income per share(4).................... $
----------
----------
SELECTED OPERATING DATA:
Net sales growth..................................... 143.8%
Total catalogs mailed (000s)......................... 20,405
Total active customers(5)............................ 847,971
Average order (in dollars)(6)........................ $ 138.54
BALANCE SHEET DATA:
Working capital...................................... $ 2,499
Total assets......................................... 39,035
Long-term debt (net of current maturities)........... 7,368
Stockholders' equity................................. 13,796
</TABLE>
- ------------------------------
(1) The Company has a 52/53 week fiscal year that ends on the Saturday closest
to February 28. Fiscal 1994 is the only fiscal year presented that consisted
of 53 weeks. References to a fiscal year refers to the calendar year in
which such fiscal year commences. References to a six month period refer to
the 26 weeks ended on the date indicated.
(2) For all periods indicated, the Company has operated as an S corporation and
has not been subject to federal and certain state income taxes.
(3) Pro forma income taxes are provided at an assumed 40% effective rate, as if
the Company had been a C corporation rather than an S corporation for the
above periods. Prior to the closing of this offering, the Company's S
corporation status will terminate; at that date, the Company will provide a
non-recurring non-cash charge to earnings to recognize deferred income taxes
in accordance with Statement of Financial Accounting Standards No. 109
("SFAS 109"). See "S Corporation Distributions" and Notes 1 and 11 of Notes
to Financial Statements.
(4) Pro forma net income per share is based on average shares of Common Stock
and stock equivalents outstanding, including actual shares outstanding,
shares deemed to be outstanding and the dilutive effect of shares issuable
under stock options. The shares deemed to be outstanding represent the
number of shares being offered by the Company hereby sufficient to fund an
assumed S corporation distribution of approximately $14.5 million at March
2, 1996 or approximately $13.8 million at August 31, 1996.
(5) An "active customer" is defined as a customer who has purchased merchandise
from the Company within the 12 months preceding the end of the period
indicated.
(6) An "order" is defined as the dollar amount of a processed customer invoice
or a pending order on file. The "average order" is calculated by dividing
the aggregate amount of all customer invoices and pending orders processed
in a period by the number of customer orders placed in such period.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE FEDERAL SECURITIES LAWS. ACTUAL RESULTS AND THE TIMING OF CERTAIN
EVENTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING
STATEMENTS DUE TO A NUMBER OF FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK
FACTORS" AND ELSEWHERE IN THIS PROSPECTUS. SEE "SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS."
GENERAL
Coldwater Creek is a specialty direct mail retailer of apparel, gifts and
jewelry. The Company has increased its net sales every year since it commenced
operations in 1984 and has been profitable every year since fiscal 1986. Over
the past five fiscal years, the Company's net sales have grown at a compound
annual growth rate of 61.8% from $11.1 million to $75.9 million. Despite
significant increases in paper and postage costs in recent years, the Company's
operating income has grown at a compound annual growth rate of 36.8% from $1.6
million in fiscal 1991 to $5.8 million in fiscal 1995. The Company markets it
merchandise primarily through four distinct catalogs and operates a retail store
as part of its brand building strategy.
A key element of Coldwater Creek's strategy has been to pursue an aggressive
circulation strategy. In anticipation of the January 1995 postage increase, the
Company significantly increased its catalog circulation during fiscal 1994 and,
as a result, experienced lower overall response rates and recorded lower
operating income of $4.7 million in fiscal 1994 versus $5.3 million in fiscal
1993. In January 1995, postage prices associated with mailing the Company's
catalogs increased approximately 14%. In addition, paper prices increased by
approximately 44% during the course of the calendar year. Despite these
increased operating costs, Coldwater Creek continued its growth in target
mailings in 1995, increasing total circulation by 45.0% in fiscal 1995 and
building its mailing list to approximately 2.5 million names.
As a result of the Company's introduction of a line of private label
apparel, the introduction of its MILEPOST FOUR men's apparel catalog and changes
in merchandise mix and price points in its SPIRIT OF THE WEST women's apparel
catalog and its NORTHCOUNTRY catalog, the Company began offering a substantially
greater percentage of apparel merchandise in fiscal 1995 than in prior periods.
The Company expects that its offering of apparel merchandise will continue to
increase during fiscal 1996. The Company believes that offering a greater
percentage of apparel merchandise was a significant factor in its strong sales
growth during fiscal 1995 and the first six months of fiscal 1996. However, the
continuing increase in offering apparel has had the effect, and may continue to
have the effect, of increasing merchandise return rates and markdowns, thereby
reducing the Company's gross margins. See "Risk Factors--Risks Associated with
Offering Apparel Merchandise."
During fiscal 1994, fiscal 1995 and the first six months of fiscal 1996, the
Company hired additional management personnel and invested $13.9 million in
infrastructure improvements such as expanded distribution and headquarters
facilities and telecommunications and management information systems to support
its customer service and marketing programs, inventory management and market
analysis. Key components of the infrastructure investment consisted of an
expanded distribution and customer service facilities, on which the Company
expended $7.2 million, two new, higher capacity telephone switches, on which the
Company expended $1.3 million and the purchase of software and corresponding
hardware upgrades to the Company's management information systems, on which the
Company expended $2.5 million.
Quarter to quarter comparisons will be impacted by the timing of the mailing
of the Company's catalogs. Approximately 75% of the revenue generated by each
mailing is recognized within 30 to 45 days after such mailing. Mailings may
occur in different quarters from year to year depending on the day of the week
on which certain holidays fall and the Company's assessment of prevailing market
opportunities. As a result, a portion of the revenue from a catalog mailing may
be recognized in the quarter after the quarter
19
<PAGE>
in which the catalog was mailed and the revenue from a particular catalog
offering may be recognized in a quarter different from the quarter in which the
revenue from the offering was recognized in the previous year. See "Risk
Factors--Quarterly and Seasonal Fluctuations."
The Company has operated as an S corporation and, as a result has not been
subject to federal or certain state income taxes. Prior to the consummation of
this offering, the Company will become subject to federal and state income taxes
and will recognize an estimated non recurring, non-cash charge of $1.0 million
to earnings in the fourth quarter of fiscal 1996 to record deferred income taxes
for the tax effect of cumulative temporary differences between financial and tax
reporting. See "S Corporation Distributions."
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated information from
the Company's statement of operations and pro forma statement of operations
expressed as a percentage of net sales.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL ------------------------
------------------------------- SEP. 2, AUG. 31,
1993 1994 1995 1995 1996
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales....................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................................................... 42.5 42.2 43.2 44.5 48.3
--------- --------- --------- ----- -----
Gross profit.................................................... 57.5 57.8 56.8 55.5 51.7
Selling, general and administrative expense..................... 40.7 47.5 49.2 65.2 48.3
--------- --------- --------- ----- -----
Income (loss) from operations................................... 16.8 10.3 7.6 (9.7) 3.4
Interest, net................................................... 0.1 0.2 (0.3) (0.9) (0.1)
Other income (expense).......................................... -- -- 0.1 0.5 (0.1)
--------- --------- --------- ----- -----
Net income (loss)............................................... 16.9% 10.5% 7.4% (10.1)% 3.2%
--------- --------- --------- ----- -----
--------- --------- --------- ----- -----
Pro forma net income (loss)..................................... 10.1% 6.3% 4.4% (6.1)% 1.9%
</TABLE>
SIX MONTHS ENDED AUGUST 31, 1996 COMPARED TO SIX MONTHS ENDED SEPTEMBER 2, 1995
Net sales increased by $23.2 million, or 143.8%, to $39.4 million during the
six months ended August 31, 1996 from $16.2 million for the comparable period in
fiscal 1995. This increase was attributable to unusually strong response rates
to the Company's new Spring Edition of its SPIRIT OF THE WEST catalog and to
certain new merchandise offerings in the Company's NORTHCOUNTRY catalog. In
addition, the Company introduced a new men's apparel catalog in the 1996 Spring
season. Catalog mailings increased to 20.4 million for the six months ended
August 31, 1996 from 12.8 million for the comparable period in fiscal 1995. The
strong response rates and financial results for the six months ended August 31,
1996 should not be considered an indication of future performance. See "Risk
Factors--Quarterly and Seasonal Fluctuations."
Gross profit consists of net sales minus cost of sales, which primarily
consists of merchandise acquisition costs, freight in and storage costs. Gross
profit increased $11.4 million to $20.4 million for the six months ended August
31, 1996 from $9.0 million for the comparable period in fiscal 1995. Gross
profit decreased as a percentage of net sales to 51.7% of net sales for the six
months ended August 31, 1996 from 55.5% of net sales for the comparable period
in fiscal 1995. The decline in gross profit as a percentage of net sales was
attributable to increased sales of marked down merchandise associated with
offering a greater percentage of apparel merchandise. In addition, the Company
experienced increased sales of more popularly priced apparel and decreased
proportion of sales of higher margin jewelry and gifts. As part of the Company's
marketing strategy, the Company also reduced prices on selected items in its
catalogs. As a result of the shift to a greater percentage of apparel
merchandise, the Company anticipates that its gross margins will not return to
historical levels.
20
<PAGE>
Selling, general and administrative expense primarily consists of marketing,
distribution and general and administrative expenses. Marketing expense
primarily consists of catalog production and postage costs. Production costs
primarily consist of paper, printing, computer services and list rental costs
(net of list rental revenue). Selling, general and administrative expense
increased by $8.5 million to $19.0 million for the six months ended August 31,
1996 from $10.5 million for the comparable period in fiscal 1995. Selling,
general and administrative expense decreased as a percentage of net sales to
48.3% of net sales for the six months ended August 31, 1996 from 65.2% of net
sales for the comparable period in fiscal 1995. The decrease in selling, general
and administrative expense as a percentage of net sales was primarily
attributable to operating leverage from increased sales due to strong customer
response to the Company's catalog offerings.
Operating income increased by $2.9 million to $1.3 million during the six
months ended August 31, 1996 from an operating loss of $1.6 million for the
comparable period in fiscal 1995.
FISCAL 1995 COMPARED TO FISCAL 1994
Net sales increased by $30.7 million, or 67.8%, to $75.9 million in fiscal
1995 from $45.2 million in fiscal 1994. This increase was attributable to a
45.0% increase in catalog mailings to 45.9 million in fiscal 1995 from 31.6
million in fiscal 1994, higher response rates and average orders as a result of
an increase in targeted mailings to existing customer households as a percentage
of total mailings, and merchandise and price point changes in the Company's
NORTHCOUNTRY and SPIRIT OF THE WEST catalogs.
Gross profit increased $17.0 million to $43.1 million in fiscal 1995 from
$26.1 million in fiscal 1994. Gross profit decreased as a percentage of net
sales to 56.8% of net sales in fiscal 1995 from 57.8% of net sales in fiscal
1994. The decline in gross profit as a percentage of net sales was attributable
to the Company's increased focus on apparel merchandise starting in the fall
season of 1995 which led to increased sales of marked down merchandise. During
fiscal 1994, sales of discontinued items did not have a significant effect on
the Company's operating performance.
Selling, general and administrative expense increased $15.9 million to $37.4
million in fiscal 1995 from $21.5 million in fiscal 1994. Selling, general and
administrative expense increased as a percentage of net sales to 49.2% of net
sales in fiscal 1995 from 47.5% of net sales in fiscal 1994. The increase in
selling, general and administrative expense as a percentage of net sales was
primarily attributable to increased paper and postage costs which affected the
industry generally as well as the Company's decision to pursue an aggressive
mailing program and to increase the page counts of all of its catalogs to
accommodate new merchandise offerings. The increase as a percentage of net sales
was also attributable to infrastructure investments including the addition of a
new administration center and the costs associated with relocating certain of
the Company's operations to the new administration center, continued hiring of
personnel, costs associated with implementing new technologies, consulting costs
and upgrades to software. The Company also entered into a lease agreement to
open a new retail store in February.
Operating income increased by $1.1 million to $5.8 million in fiscal 1995
from $4.7 million in fiscal 1994.
FISCAL 1994 COMPARED TO FISCAL 1993
Net sales increased by $13.4 million, or 42.4%, to $45.2 million in fiscal
1994 from $31.8 million in fiscal 1993. The increase was primarily attributable
to a 66.1% increase in catalog mailings to 31.6 million in fiscal 1994 from 19.0
million in fiscal 1993. However, the Company experienced lower response rates
primarily due to heavy industry 1994 fall mailings, unfavorable economic
conditions during the fiscal 1994 holiday season and the Company's strategy of
mailing its catalogs to an expanded set of customers in anticipation of heavy
industry mailings.
21
<PAGE>
Gross profit increased $7.9 million to $26.2 million in fiscal 1994 from
$18.3 million in fiscal 1993. Gross profit increased as a percentage of net
sales to 57.8% of net sales in fiscal 1994 from 57.5% of net sales in fiscal
1993. The increase in gross profit as a percentage of net sales was attributable
to changes in the Company's merchandise mix resulting primarily from the
introduction of a new catalog.
Selling, general and administrative expense increased $8.6 million to $21.5
million in fiscal 1994 from $12.9 million in fiscal 1993. Selling, general and
administrative expense increased as a percentage of net sales to 47.5% of net
sales in fiscal 1994 from 40.7% of net sales in fiscal 1993. The increase in
selling, general and administrative expenses as a percentage of net sales was
primarily attributable to the Company's decision to increase and broaden its
catalog mailings and catalog production in anticipation of the postal increase
in January 1995 as well as the Company's introduction of its SPIRIT OF THE WEST
catalog. This increase was also attributable to the addition of new
merchandising and senior level personnel, duplicate costs associated with the
opening of the newly expanded distribution center and retention of the existing
space which was not sold until fiscal 1995.
Operating income decreased by $0.6 million to $4.7 million in fiscal 1994
from $5.3 million in fiscal 1993.
QUARTERLY AND SEASONAL FLUCTUATIONS
The Company's revenue and results of operations have fluctuated and can be
expected to continue to fluctuate on a quarterly basis as a result of a number
of factors including, among other things, the timing of new merchandise and
catalog offerings, recognition of costs or net sales contributed by new
merchandise and catalog offerings, fluctuations in response rates, fluctuations
in paper, production and postage costs and expenses, merchandise returns,
adverse weather conditions that affect distribution or shipping, shifts in the
timing of holidays and changes in the Company's merchandise mix.
The Company maintains a common industry policy of deferring the recognition
of the costs of catalog development and production until sales are recognized on
each mailing and records such costs as sales are recognized. Consequently,
quarter to quarter revenue and expense comparisons will be impacted by the
timing of the mailing of the Company's catalogs. Mailings may occur in different
quarters from year to year depending on the performance of third party couriers,
the day of the week on which certain holidays fall and the Company's assessment
of prevailing market opportunities. A portion of the revenue from a catalog
mailing may be recognized in the quarter after the quarter in which the catalog
was mailed and the revenue from a particular catalog offering may be recognized
in a quarter different from the quarter in which the revenue from the offering
was recognized in the previous year.
The Company has experienced, and may continue to experience, seasonal
fluctuations in its sales and operating results, which is typical of many
specialty retailers. In past fiscal years, the Company's net sales and profits
have been heavily reliant on the November and December holiday season. The
Company believes that in the future this seasonality will continue. In
anticipation of increased sales activity during November and December, the
Company incurs significant additional expenses, including the hiring of a
substantial number of temporary employees to supplement its permanent, full-time
staff. In addition, due to the larger percentage of gifts and accessories
offered in the second half of the fiscal year related to holiday gift-giving,
the Company expects higher gross margins in the second half of the fiscal year
than in the first half. If, for any reason, the Company's sales were to fall
below its expectations during November and December, the Company's financial
condition and results of operations would be adversely affected.
The following table contains selected unaudited quarterly financial data for
fiscal 1994 and 1995 and for the first six months of fiscal 1996. In the opinion
of management, this unaudited information has been
22
<PAGE>
prepared on the same basis as the audited information and includes all normal
recurring adjustments necessary to present fairly, in all material respects, the
information set forth therein.
<TABLE>
<CAPTION>
FISCAL 1994
----------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales............................................................... $ 6,057 $ 3,590 $ 17,979 $ 17,597
Gross profit............................................................ 3,498 1,974 10,287 10,402
Selling, general and administrative expense............................. 3,420 2,220 7,666 8,196
Income (loss) from operations........................................... 78 (246) 2,621 2,206
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1995
--------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales.............................................................. $ 9,496 $ 6,657 $ 28,419 $ 31,333
Gross profit........................................................... 5,594 3,363 16,317 17,845
Selling, general and administrative expense............................ 6,144 4,394 12,905 13,913
Income (loss) from operations.......................................... (550) (1,031) 3,412 3,932
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1996
--------------------
FIRST SECOND
QUARTER QUARTER
--------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales............................................................. $ 23,604 $ 15,781
Gross profit.......................................................... 12,091 8,262
Selling, general and administrative expense........................... 10,540 8,488
Income (loss) from operations......................................... 1,551 (226)
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Coldwater Creek has historically funded its growth through a combination of
funds generated from operations, supplier credit and short term bank credit
facilities. Working capital requirements generally precede the realization of
sales on a monthly basis. The Company draws on its working capital lines to
produce catalogs and increase inventory levels in anticipation of future sales
realization.
Net cash provided by operating activities was $4.9 million, $3.7 million and
$6.2 million in fiscal 1993, 1994 and 1995, respectively. For the first six
months of fiscal 1996, cash used by operations was $1.3 million. As a result of
the Company generating net income during the first half of fiscal 1996 as
compared to a net loss during the comparable period in fiscal 1995, cash used by
operations during the first half of fiscal 1996 was significantly less than cash
used in the comparable period in fiscal 1995. Deferred catalog costs increased
substantially in the first half of fiscal 1996.
Net cash used in investing activities, principally related to capital
expenditures for infrastructure improvements, was approximately $3.9 million,
$4.6 million, $1.5 million and $4.4 million in fiscal 1993, 1994, 1995 and the
first six months of fiscal 1996, respectively.
Capital expenditures for infrastructure improvements such as expanded
distribution facilities, administrative offices, upgrades in telecommunications
and management information systems were $6.9 million in fiscal 1994, $2.6
million in fiscal 1995 and $4.4 million in the first six months of fiscal 1996.
The Company presently anticipates that it will spend approximately $7 million in
capital expenditures in the second six months of fiscal 1996 and approximately
$3.5 million in fiscal 1997.
23
<PAGE>
Net cash provided by (used in) financing activities for fiscal 1993, 1994,
1995, and the first six months of 1996 was ($1.9) million, $2.2 million, ($6.0)
million and $5.3 million, respectively. Distributions to the Company's Existing
Stockholders totaled $1.7 million, $1.4 million, $2.2 million, and $2.0 million
in fiscal 1993, 1994, 1995, and the first six months of fiscal 1996. During the
first six months of fiscal 1996, the Company drew upon its revolving lines of
credit in the amount of $7.3 million primarily to finance the purchase of
property and equipment, net working capital requirements and distributions to
stockholders.
Coldwater Creek entered into an agreement with West One Bank (now U.S. Bank)
on March 20, 1995, and amended the agreement on September 9, 1996, for an
unsecured line of credit allowing the Company to borrow up to $8,500,000 (at an
interest rate, at the option of the Company, which is five basis points below
the bank's prevailing reference rate or LIBOR plus one and three quarters
percent). The unsecured line expires on June 1, 1997. The agreement also
provides for a secured line of credit which allows the Company to borrow up to
$11,500,000 at an interest rate which is equal to the bank's prevailing
reference rate or LIBOR plus one and eighty five hundredths percent (1.85%) and
is secured with certain of the Company's real property, equipment and fixtures.
The secured line of credit expires on March 31, 1999. The agreement provides
that the Company must maintain specified levels of tangible net worth, insurance
and certain financial ratios. The agreement also places restrictions on
indebtedness, mergers and other items. At August 31, 1996, the Company had
$7,337,000 aggregate outstanding indebtedness under the agreement. The Company
is currently negotiating an amendment to its credit agreement to extend and
expand its working capital lines. Upon completion of this offering, the Company
intends to repay certain indebtedness under its current bank agreement.
The Company believes that its available cash after this offering, together
with cash flow from operations and borrowing capacity under its credit facility,
will be sufficient to support operations and future growth at least through
fiscal 1997. The Company may be required to seek additional sources of funds for
accelerated growth or continued growth after that point, and there can be no
assurance that such funds will be available on satisfactory terms. Failure to
obtain such financing could delay or prevent the Company's planned growth, which
could adversely affect the Company's business, financial condition and results
of operations.
24
<PAGE>
BUSINESS
OVERVIEW
Coldwater Creek is a specialty direct mail retailer of apparel, gifts and
jewelry. The Company currently markets its merchandise primarily through a
family of four distinctive catalogs. Coldwater Creek targets well-educated,
middle-to upper-income households and seeks to differentiate itself from other
retail and catalog operations by offering exceptional value through superior
customer service and a merchandise assortment that reflects a casual, uniquely
American spirit. The Company believes that the successful execution of its
marketing and merchandising strategies coupled with its high customer service
standards and efficient order entry and fulfillment operations has allowed it to
develop a unique brand identity and strong relationships with its loyal customer
base.
Coldwater Creek focuses on providing extraordinary customer service well
above industry standards. All aspects of the Company's operations are designed
to provide a superior catalog buying experience as well as strengthen
relationships with existing and new customers. Coldwater Creek has strived to
make timely investments in its telephone and distribution infrastructure to
support its customer service-based strategy. During fiscal 1995, the Company
achieved faster telephone answer times, lower abandoned call rates and more
accurate order processing than industry averages. The Company plans to stimulate
future growth through a variety of strategic initiatives designed to increase
catalog circulation, yield higher customer response rates and expand merchandise
offerings. In addition, the Company believes that significant opportunities
exist to expand its customer base by targeting new members of existing customer
households with additional merchandise offerings and catalog titles.
INDUSTRY OVERVIEW
The direct marketing industry has experienced substantial growth over the
past decade as many retail customers have migrated toward the convenience and
service offered by home shopping. According to statistics published by the
Direct Marketing Association, between 1993 and 1995, consumer catalog sales
volume grew at a rate of 8.2% annually to $38.6 billion in 1995. Additional data
published by the Direct Marketing Association estimates that consumer catalog
sales will grow to $51.9 billion by 2000. Between 1990 and 1995, catalog sales
growth has consistently outpaced the growth of traditional retail sales. The
Company believes that the catalog industry will continue to experience
substantial growth principally due to the convenience and security of shopping
at home, the increasing time constraints facing two-career families, the
availability and convenience of overnight delivery and favorable demographic
trends.
The direct marketing industry is highly fragmented, with over 7,000 catalog
titles currently in circulation, many of which generate limited revenue and
profitability. Many smaller catalog companies are facing substantial challenges
in the current environment, including declines in profitability due to
significant fluctuations in postage, paper and other operating costs and
insufficient capital necessary to provide for growth or to access
technologically advanced database and customer service systems required in an
increasingly competitive market. The Company believes that, as a result of its
having developed a large and loyal customer base and its recent investments in
infrastructure, it is well positioned to take advantage of emerging market and
distribution opportunities not available to smaller catalog companies.
HISTORY AND PHILOSOPHY OF COLDWATER CREEK
Coldwater Creek was founded on a shoestring budget in 1983 by Dennis and Ann
Pence. In its infancy, Coldwater Creek operated out of a small apartment in
Sandpoint, Idaho, had one phone line and, through the use of flyers and magazine
advertisements, sold approximately 15 items including binoculars and
birdfeeders. The Company's first customer database consisted of handwritten
customer information on 3x5 index cards. Since its inception, the Company has
remained committed to the vision of providing extraordinary customer service and
offering high value merchandise as the primary means to develop a loyal customer
base. Quick telephone answer speeds and rapid order fulfillment have also been
hallmarks
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of the Company since its founding. As the Company pursued its growth, Dennis and
Ann hired individuals who shared their commitment to offering extraordinary
customer service.
The Company believes it is more than just a purveyor of goods. The Company's
philosophy is closely aligned with the romance of wide open spaces and the
unhurried approach to living and familiarity found in small town settings.
Apparel and other merchandise is selected and displayed to promote the Company's
philosophy and enhance its image and is presented honestly without price
inflation in anticipation of planned sales. The merchandise offering has evolved
over time away from the Company's original emphasis on nature related gifts to a
broader range of merchandise focusing on a casual lifestyle and the needs of its
growing customer base.
The Company believes that its location in a small town setting in the
mountains of Northern Idaho allows it to draw upon a dedicated, unique workforce
that excels in delivering an enjoyable shopping and catalog buying experience to
its customers. The Coldwater Creek philosophy is team-oriented, friendly, honest
and casual, with a commitment to building a loyal, actively purchasing customer
base within a rapidly growing, profitable enterprise.
BUSINESS STRATEGIES
Coldwater Creek's objective is to become the highest quality service
provider in the consumer catalog industry. The Company attributes its success
primarily to its ability to execute this customer service objective and to offer
a unique assortment of high quality merchandise that appeals to a large,
targeted group of existing and new customers. Each of the Company's catalog
titles seeks to convey a unique spirit and lifestyle orientation which the
Company believes attracts a distinct customer demographic and results in a
larger overall customer base. The key elements of the Company's business
strategy are set forth below:
PROVIDE SUPERIOR CATALOG BUYING EXPERIENCE THROUGH EXCEPTIONAL CUSTOMER
SERVICE. Offering a superior catalog buying experience through exceptional
customer service has been the hallmark of the Coldwater Creek strategy since its
inception. The Company believes that consistently providing every customer with
prompt, knowledgeable and courteous service as well as rapid order fulfillment
increases the Company's ability to attract and retain customers, builds customer
loyalty and promotes the purchase of its merchandise by the customer household.
The Company's employee training programs, call centers, telephone and management
information systems, as well as its order fulfillment and return policy, are all
designed to carry out this strategy through adherence to strict operating
standards. The Company believes its operating performance is well above industry
standards. For example, during fiscal 1995, the Company achieved average
telephone answer speeds of 3.8 seconds, abandoned call rates of 0.37%,
distribution error rates of 0.14% and shipped 92.6% of in-stock orders within
one shipping day of order processing.
OFFER A HIGH QUALITY, DIFFERENTIATED MERCHANDISE ASSORTMENT. Coldwater
Creek's catalogs offer a broad assortment of high quality apparel, gifts and
jewelry which the Company believes is not commonly found in other consumer
catalogs. The Company believes that its customers buy into a relaxed lifestyle,
not just clothing and collectibles, and it seeks to differentiate its catalogs
through the extensive use of spirited merchandise narratives, thematic and
seasonal photographs, and unique yet practical merchandise displays and layouts.
The Company's merchandise mix is structured to reflect a uniquely American,
relaxed style. In addition, the Company attempts to provide its customers with a
dynamic merchandise assortment by regularly test marketing new merchandise and
merchandise concepts and updating its merchandise selection frequently. For
example, in recent years the Company has shifted its merchandise mix to include
a greater percentage of apparel and introduced its own line of private label
apparel offerings.
PROMOTE INCREASED HOUSEHOLD PURCHASING. The Company attempts to promote
purchase relationships with different members of the target customer household
and to increase customer retention by increasing the frequency and variety of
its catalog mailings, by frequent merchandise turns and through the increased
usage of its customer file and purchase analysis. In addition, the Company's
marketing efforts are designed
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to promote additional purchase relationships within each customer household by
selectively cross-mailing the Company's other catalog titles to existing
customer households based on past merchandise purchases and demographic overlay
data. The Company also maintains a Preferred Customer Program which is designed
to offer its best customers an enhanced level of customer service including
special purchasing and packaging services. As a result of these and other
programs, the Company's customer retention rate increased approximately 20%
between fiscal 1994 and fiscal 1995.
CONTINUE INVESTMENT IN INFRASTRUCTURE. The Company is committed to ongoing
investment in infrastructure development in order to increase operating
efficiency, provide extraordinary customer service and maximize the Company's
growth potential. The Company believes that investing in infrastructure in
anticipation of customer and sales growth allows it to maintain operational
flexibility to capture strategic or market opportunities, including increased
sales volumes and shifts in consumer preferences. During fiscal 1994, fiscal
1995 and the first six months of fiscal 1996, the Company hired key management
personnel and invested $13.9 million in infrastructure improvements. These
investments were made to expand the Company's distribution facilities, upgrade
its telecommunications systems and install and implement more sophisticated
database technologies and management information systems. The Company plans to
continue to invest in improving its management information systems, inventory
controls and distribution capabilities to support its growth.
ADVANCE THE COLDWATER CREEK BRAND. In all aspects of its operations, from
catalog design to order fulfillment, the Company is committed to promoting
Coldwater Creek as a name that represents a superior catalog purchasing
experience. The Company seeks to promote this brand image through its high level
of customer service and strict operating standards as well as offering the
unique, high quality merchandise assortments in its catalogs. In addition, the
Company believes that increased efforts to develop its private label apparel and
expansion of its store-based operations will increase customer awareness of the
Coldwater Creek brand. The Company recently launched a national advertising
campaign designed to build the Coldwater Creek brand as a name synonymous with
exemplary customer service. The advertising campaign commenced in the Fall of
1996 and appeared in such major national publications as Smithsonian Magazine
and The New Yorker.
GROWTH STRATEGIES
Coldwater Creek believes that it has significant opportunities to attract
and retain new customers and increase sales through several strategic
initiatives including the following:
INCREASE CATALOG CIRCULATION. Coldwater Creek plans to pursue an aggressive
mailing strategy designed to attract new customers and to generate additional
sales from cross-mailings of the Company's catalogs to existing customer
households. The Company also intends to continue its name acquisition and market
segmentation program, including the rental of other catalog customer lists and
use of the Company's new database technologies to more efficiently analyze
existing and prospective customer files in an effort to increase response rates
to each mailing. In addition, since the Company's MILEPOST FOUR and SPIRIT OF
THE WEST catalog titles are at the beginning of their respective life cycles,
the Company believes that they have significant opportunities for growth.
Circulation of the Company's catalogs has grown at a compound annual growth rate
of 55.2% over the last three fiscal years, generating a compound annual growth
rate of 54.6% in net sales over the same period.
EXPAND MERCHANDISE SELECTION; INCREASE PAGE COUNT OF CATALOGS. Coldwater
Creek believes that an important part of its overall growth strategy involves
expanding its merchandise selection and refining its existing assortment with
merchandise lines that can leverage the Company's purchase relationship with,
and understanding of, the target customer household. The Company regularly
evaluates new merchandise in an effort to increase the appeal of its merchandise
offerings and expects to increase catalog page counts to accommodate new
merchandise in its catalogs. The Company believes that a significant opportunity
27
<PAGE>
exists to generate additional sales from existing customer households by
expanding the merchandise selection in its existing catalogs.
INTRODUCE NEW CATALOG TITLES. Coldwater Creek intends to periodically offer
new catalog titles featuring complementary and new merchandise concepts that
promote the spirit of Coldwater Creek while allowing the Company to further
penetrate distinct segments of the market. The Company's goal is to create
catalog titles that leverage information gathered by the Company, including
customer characteristics and demographic information, purchase histories and
merchandise performance, to capture distinct and increasingly discrete segments
of the market. As part of this strategy, the Company recently introduced
MILEPOST FOUR, its men's apparel and accessory catalog. Based on the successful
introduction of this catalog, the Company intends to expand the circulation of
MILEPOST FOUR during fiscal 1996 and 1997. The Company is currently evaluating
other potential merchandise categories that may be capable of supporting
additional new catalog introductions.
EXPAND INTERNATIONAL SALES. A limited percentage of Coldwater Creek's net
sales are derived from sales in Japan and Canada. During the next twelve months,
the Company expects to increase its mailing efforts in these countries and also
begin mailing its catalogs in selected countries in Europe. Based on the strong
initial response to the Company's merchandise in Japan and Canada, the Company
believes that a significant opportunity exists to generate additional sales in
international markets. To accommodate this growth, the Company employs sales
agents who are fluent in foreign languages, including Japanese and French.
EXPAND OTHER DISTRIBUTION CHANNELS. Coldwater Creek is currently pursuing
two additional distribution channels for its merchandise: retail stores and the
Internet. The Company believes that a small base of retail stores provides a
physical presence that helps build Coldwater Creek's brand recognition with
prospective and existing customers. The Company's current plans include
expanding its retail operations by 6 to 10 stores, in addition to its retail
store in Sandpoint, Idaho, in the next five years. All of the Company's stores
will be located in areas that have a high volume of tourist traffic and are near
"destination points" such as national parks. This expansion will begin with the
opening of the Company's second store within the next twelve months in Jackson
Hole, Wyoming. In addition, the Company has recently developed and posted a
"home-page" on the world-wide web through which potential customers can receive
and view general Company and merchandise information, make merchandise inquiries
and request a catalog. The Company believes its current order entry, credit
approval and distribution capabilities position it to take advantage of on-line
ordering of merchandise, if and when such on-line commerce becomes commercially
viable.
THE COLDWATER CREEK CATALOGS
Coldwater Creek currently publishes four primary catalogs, each with a
distinct merchandise mix and each designed to appeal to a different segment of
the target customer household. The Company's family of catalogs include the
following:
NORTHCOUNTRY. First introduced in 1985, NORTHCOUNTRY is the Company's most
established and highest volume catalog and features the broadest selection of
merchandise, including affordable natural fiber apparel, jewelry, art and gift
items, reflecting a uniquely American spirit and a casual and open lifestyle.
The Company believes that NORTHCOUNTRY, its core catalog, has the broadest
market appeal and attempts to feature merchandise in NORTHCOUNTRY that has
demonstrated the most sustainable life cycles. Most NORTHCOUNTRY items are
priced between $15 and $90, generating an average customer order of $116 during
the six months ended August 31, 1996.
SPIRIT OF THE WEST. First introduced in the Fall of 1993, SPIRIT OF THE
WEST is the Company's fastest growing catalog. SPIRIT OF THE WEST currently
features upscale women's apparel and jewelry, including dresses and coordinates,
blouses, shirts, jackets, pants and skirts, as well as high quality,
contemporary
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<PAGE>
jewelry. The apparel is office-appropriate, can also serve as weekend-wear, and
is typically made of linens, silks and cottons. The quality is typically higher
than the women's apparel found in the Company's other catalogs. Intended as the
Company's premium women's apparel and jewelry catalog, the merchandise selection
in SPIRIT OF THE WEST has evolved towards a greater selection of more popular
priced merchandise. The Company believes that this new merchandising strategy,
coupled with the introduction of a Spring edition of SPIRIT OF THE WEST in 1996,
contributed significantly to the Company's particularly strong performance
during the first six months of fiscal 1996. Most items are now priced between
$30 and $135, generating an average customer order of $216 during the six months
ended August 31, 1996.
MILEPOST FOUR. First introduced in the Spring of 1996, MILEPOST FOUR is the
Company's men's apparel and accessory catalog. MILEPOST FOUR is designed to
reinforce the household relationship by offering merchandise to the male members
of the target customer household. MILEPOST FOUR attempts to capitalize on
purchases of men's clothing featured in NORTHCOUNTRY and the trend towards
"casual Friday" office attire. Coldwater Creek's MILEPOST FOUR catalog features,
among other things, traditional, natural fiber, casual yet office-appropriate
apparel, shoes and accessory items including shirts, shorts, pants, jackets,
caps, belts, ties, shoes, socks, watches, and carrying items such as shaving
kits and brief bags in varying earth tones and muted but rich colors. Most items
are priced between $15 and $110, generating an average customer order of $126
during the six months ended August 31, 1996.
ECOSONG. First introduced in the Fall of 1994, ECOSONG features merchandise
with environmental, nature and wildlife themes. The merchandise selection in
ECOSONG currently includes gifts, T-shirts, sweatshirts and jewelry designed to
appeal to the Company's early targeted audience that was drawn to NORTHCOUNTRY'S
original emphasis on nature related themes. Most ECOSONG items are priced
between $10 and $50, generating an average customer order of $60 during the six
months ended August 31, 1996. The lower price points are designed to widen the
Company's target audience by appealing to a younger customer.
The Company regularly evaluates the performance of its catalogs and catalog
mailings and adjusts its mailings in response to anticipated market demand. In
addition, in connection with the holiday buying season, the Company offers a
"Gifts-to-Go" catalog to its customers. The "Gifts-to-Go" catalog is mailed
primarily to the Company's existing customers, consists of merchandise selected
from the Company's various catalogs and is not material to the Company's total
net sales.
Coldwater Creek catalogs include full color photographs displaying the
merchandise and pricing information and features original artwork or photographs
on the cover designed to appeal to the targeted customer of each catalog. Each
catalog includes merchandise narratives describing the merchandise and their
specifications in a manner designed to stimulate the reader's interest, promote
purchasing decisions and convey the unique spirit of each item to the customer.
Apparel photographs often include the jewelry and accessories needed to complete
an outfit. In certain catalogs, photographs of outfits are often placed against
lifestyle backgrounds and scenes that include mountain ranges, streams or tree
covered hills, while in others, apparel is placed against a color-coordinated,
textured backdrop to accentuate the colors of an outfit. Merchandise narratives
are presented in a lyrical, thematic manner designed to deliver the Coldwater
Creek experience to each customer and to personalize the catalog shopping
experience. Further, Coldwater Creek was one of the first catalog companies to
show apparel items "off-figure," leaving the customer to decide if an item of
merchandise was right for him or her based on the item's inherent style and not
how the item looked on a model.
All catalogs are created and designed by an in-house team of artists, copy
writers and editors. From conception to publication, the in-house team uses a
collaborative approach to design the catalog, make merchandise display and
placement decisions and monitor the overall look, feel and quality of each
catalog. The Company also maintains its own in-house photographic studio and
regularly contracts with independent photographers for all the Company's
photographic needs. These capabilities allow the Company to preserve each
catalog's distinctive character and also allow the Company greater control of
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the catalog production schedule, which the Company believes reduces the lead
time necessary to produce catalogs and reduces the costs of preparing pages for
printing. These capabilities also provide the Company with greater flexibility
and creativity in catalog production and in selecting the merchandise to be
included in its catalogs. The Company continually strives to reduce the
production time for its catalogs.
DEVELOPMENT OF CUSTOMER BASE AND MARKETING
As of August 31, 1996, Coldwater Creek had a housefile of approximately 2.8
million individuals. The Company believes that building a large and loyal
customer base is critical to its growth strategy. Coldwater Creek's various
marketing programs and catalog mailings are designed to accomplish the following
three goals with respect to the Company's customer base: (i) attract new
customers, (ii) generate additional sales from existing customers and (iii)
generate sales from additional members of the target customer household.
Attracting new customers is principally accomplished through prospecting using
targeted mailings to individuals identified through rented mailing lists,
outside marketing information services and the Company's own market segmentation
analysis. Generating sales from existing customers and additional members of the
target customer household involves selective, directed mailing of the Company's
catalogs based on past purchase history and demographic overlay data.
THE COLDWATER CREEK CUSTOMER. Coldwater Creek sells its merchandise
primarily to, and has gained a unique understanding of, a set of actively
purchasing customers with distinct demographic characteristics. The typical
Coldwater Creek customer is a 35 to 65 year old college educated female and is
part of a dual income household with annual income above $50,000. This customer
has a strong interest in such areas as culture, the arts, gourmet cooking, and
politics. The Company's analysis also indicates that the typical customer has
owned his or her home for at least five years. The Company believes that it can
leverage its current customer base by targeting other members of the existing
customer household with additional catalogs that extend the unique Coldwater
Creek experience to such new members and which offer other related merchandise
lines. The Company also plans to target customers in foreign markets that share
many of the demographic characteristics of its current customer base.
CUSTOMER PROSPECTING; GROWTH OF MAILING LIST. Coldwater Creek attempts to
attract new customers and generate additional sales from existing customer
households through targeted direct mailings. During fiscal 1995, Coldwater Creek
mailed over 45.8 million copies of three different catalog titles, of which over
50% were mailed to prospective customers. The Company's catalog mailings to
prospective customers historically have made a positive contribution to
operating income. The Company believes that mailing additional catalog titles to
existing customer households produces higher revenue-per-catalog figures than
mailing to prospective customers who have no previous relationship with the
Company. Since fiscal 1993, the Company has added over 1.3 million individuals
to its proprietary mailing list.
The Company uses its NORTHCOUNTRY catalog as its primary prospecting
catalog. The merchandise selection in NORTHCOUNTRY is competitively priced and
includes merchandise styles and types reflective of the Company's other
catalogs. Customers generally receive additional catalog titles and other
mailings based on past purchases, a strategy designed to promote continued
merchandise purchases and enhance the Company's understanding of the buying
patterns of each customer. In addition, the Company regularly test-markets its
catalogs to large groups of prospective customers based on research conducted by
third-party marketing information services using criteria specified by the
Company. The following table sets forth certain information with respect to the
Company's customer base during the fiscal years 1993, 1994,
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1995 and for the six months ended September 2, 1995 and August 31, 1996,
respectively (all figures include international customers):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------
SEP. 2, AUG. 31,
FISCAL 1993 FISCAL 1994 FISCAL 1995 1995 1996
----------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Active Customers...................................... 382,862 493,946 747,234 541,140 847,971
Growth in Active Customers............................ 55% 29% 51% 38% 57%
Average Order......................................... $ 72.69 $ 81.85 $ 97.16 $ 87.14 $ 138.54
</TABLE>
CUSTOMER DATABASE MANAGEMENT; CUSTOMER SEGMENTATION. Coldwater Creek uses a
proprietary customer database which stores detailed information on each customer
in the Company's customer file, including personal information, demographic data
and purchase history. The customer database is updated regularly with
information as new transactions are recorded. The database is also supplemented
with names of prospective customers obtained through rented mailing lists,
outside marketing information services and other sources. These lists include
other catalog and retail subscription lists and lists of compiled names from
businesses offering merchandise in the same broad categories as that of the
Company's merchandise.
In fiscal 1996, the Company began using a marketing database system to allow
its marketing and merchandising personnel to use more sophisticated and
efficient methods of analysis to determine the performance of each catalog
mailing. The Company's marketing database system allows the Company to segment
its customer base according to many variables and analyze each segment's
performance and buying patterns. The resulting information is used to refine the
frequency and selectivity of Coldwater Creek's various catalog mailings to
maximize the productivity of its mailings. This analysis also enables the
Company to strengthen the merchandising of its catalogs through an analysis of
product profitability.
CUSTOMER RETENTION PROGRAMS. Coldwater Creek currently offers customers who
have met certain purchase levels a unique customer service program called the
"Preferred Customer Program." Services provided under the Preferred Customer
Program include correspondence tailored to repeat purchasers, pre-approved
credit, preferential status for back-order items, free gift-wrapping and special
packaging services, and a single shipping and handling charge for multiple
shipments. The program also includes personalized follow-up letters and
telephone calls, and a preferred shopping program that assists customers in
locating and purchasing merchandise not found in the Company's catalogs,
including competitors' merchandise. The Company believes the Preferred Customer
Program has resulted in higher retention rates and higher average orders per
customer. During the next twelve months, the Company expects to expand its
Preferred Customer Program to include multiple levels of customized service
based on each customer's purchase history. The Company believes that this
program, coupled with the Company's other customer service strategies, promotes
greater customer loyalty and higher retention rates.
COLDWATER CREEK CREDIT CARD. Since 1994, the Company has issued its own
Coldwater Creek credit cards as part of its customer retention and brand
building strategy. The Company's credit card carries the Coldwater Creek name
and includes a nature-themed background. The Company believes that, by providing
its customers with an available credit line against which purchases of the
Company's merchandise may be made, the Coldwater Creek credit card reinforces
the purchase relationship with existing customers and promotes additional
purchases from these customers. During fiscal 1995, purchases of the Company's
merchandise using the Coldwater Creek credit card accounted for 7.4% of net
sales. As of October 31, 1996, the Company had approximately 47,000 Coldwater
Creek credit card customers.
The Company currently relies on third party managerial, administrative,
qualification and monitoring services in connection with the operation of its
credit card program. During the next 12 months, the Company plans to assume the
responsibility for qualifying the Company's credit card customers and may
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retain additional or alternative third party service providers for credit
processing. See "Risk Factors -- Risks Associated with Credit Card Program."
MERCHANDISING
Coldwater Creek's merchandising strategy is to provide a differentiated
selection of high quality, casual merchandise which reflects a uniquely
American, relaxed lifestyle. The Company markets each of its catalogs with a
distinct merchandise mix and each catalog title seeks to convey a unique spirit
and lifestyle orientation which the Company believes attracts a distinct
customer demographic. All aspects of the Company's merchandising strategy are
designed to promote the Company's brand identity and make customers feel that
they are not just buying clothing and collectibles, but that they are buying
into a relaxed lifestyle. Through its family of four catalogs and retail store
operation, Coldwater Creek currently offers over 4,200 different merchandise
items with price points ranging from approximately $6.50 to $500.00.
MERCHANDISE MIX. Coldwater Creek's merchandise offerings have both evolved
and expanded significantly in recent years. In fiscal 1992, the Company's
apparel offering, jewelry and accessories offerings, and hardgoods offering each
accounted for approximately one-third of the Company's total net sales. During
fiscal 1995, the Company's apparel offering represented approximately 50% of the
Company's net sales with the other two categories representing approximately 25%
each. The Company has shifted its merchandise mix towards a greater percentage
of apparel as customer inquiries and the Company's market research indicated
that the Company's customers were willing to purchase apparel in the styles, of
the quality and at the price points selected and offered by the Company. During
fiscal 1996, Coldwater Creek introduced a Spring edition of its SPIRIT OF THE
WEST women's apparel catalog as well as MILEPOST FOUR, its men's apparel
catalog. Management believes that as a result of these new catalogs and the
initial success that they have achieved, the Company's apparel offering will
represent a greater percentage of the Company's total net sales in fiscal 1996
than experienced in fiscal 1995. The Company believes it prices its apparel
competitively with apparel offered by other retailers. In addition, the Company
believes that, because its apparel merchandise provides a counter cyclical
source of revenue, it will become less reliant on sales generated during the
holiday buying season.
NEW PRODUCT INTRODUCTION. A critical element of the Company's successful
merchandising strategy is the dynamic nature of its product assortment. The
Company seeks to continually add new merchandise and to refine existing
merchandise categories in an effort to promote additional purchases from the
target customer households and increase retention rates by responding to
customers' changing preferences. The Company expects to increase the page counts
of its catalogs to accommodate the introduction of new, related or similar
merchandise and merchandise categories. The Company's merchandising personnel
continually evaluate the performance of the Company's existing products and make
merchandise placement and promotion decisions based on item quality, sales
trends, customer demand, performance histories, current inventory positions and
the projected success of each item as well as plan the introduction and testing
of new items. Consequently, the Company's merchandise mix is continually refined
as new items are introduced and tested and as items which do not meet the
Company's performance standards are replaced.
PRIVATE LABEL MERCHANDISE. The Company recently introduced its own line of
private label apparel. Management believes that the Company's commitment to
offering a line of high quality, Company-developed apparel is an important
element in differentiating its merchandise from other retailers. The Company's
design and buying teams work closely together with selected vendors to select
color schemes, materials and designs and create an image consistent with the
theme for the Company's merchandise offerings. The Company generally is able to
exercise greater control of these aspects of the merchandise development process
with its private label merchandise than with third party-sourced merchandise.
Management plans to expand its private label offerings and believes that such
merchandise will represent a larger percentage of total net sales in the future.
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MERCHANDISE SOURCING AND VENDOR RELATIONSHIPS. The Company purchases its
merchandise from a wide variety of vendors. The Company's merchandise
acquisition strategy emphasizes relationships with domestic vendors which the
Company believes supports its just-in-time inventory management processes,
provides for greater quality control and results in faster turnaround times for
merchandise reorders. In fiscal 1995, approximately 75% of the Company's
merchandise was manufactured in the United States. The Company's buyers work
closely with its suppliers to ensure high standards of merchandise quality.
In addition, Coldwater Creek seeks to offer unique merchandise which the
Company believes is not commonly found in other consumer catalogs. Approximately
70% of the merchandise purchased from its vendors is acquired with exclusive
rights to the Company's catalog distribution. The Company believes such
exclusivity enhances identity of the Coldwater Creek brand and reinforces the
uniqueness of the Company's offerings.
The Company believes it has an excellent relationship with its vendors. No
single vendor accounted for more than 6% of total net sales in fiscal 1995. The
Company does not have any long-term or exclusive commitments with any of its
vendors.
CUSTOMER SERVICE AND OPERATIONS
Coldwater Creek believes that its emphasis on extraordinary customer service
and customer relations is critical to its ability to expand its customer base
and build brand recognition. This customer service focus can be found at every
level of operations, including the Company's call center operations, its order
entry and fulfillment processes, its employee and sales agent training programs
and its merchandise return policy. In addition, the Company's infrastructure
investments, such as its investment in telephone and management information
systems, have enabled the Company to continue to provide high levels of customer
service and adhere to strict operating standards throughout its development.
CALL CENTERS. The Company offers prompt, knowledgeable and courteous order
entry services through the use of its toll-free telephone numbers which may be
called 24 hours a day, seven days a week to place orders, request a catalog, or
make merchandise or catalog inquiries. During fiscal 1995, approximately 80% of
the Company's orders were received by telephone with the remaining 20% of its
orders received by mail and facsimile. During fiscal 1995, customer calls were
answered at an average rate of 3.8 seconds. The Company's abandoned call rate
was 0.22%, 0.25% and 0.37% during fiscal years 1993, 1994 and 1995,
respectively. The following graphs show the Company's telephone answer and
abandoned call rates as compared to industry averages during 1995:
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1995 TELEPHONE ANSWER SPEED
<S> <C>
(in seconds)
Coldwater Creek Industry Average*
3.8 28.0
1995 Abandoned Customer Call Rate
Coldwater Creek Industry Average*
.37% 4.35%
*Source: Industry Share Group
</TABLE>
The Company's two call centers are organized to provide prompt, seamless
response to customer calls. The Company recently expanded its telephone system
capabilities by opening a new call center in Coeur d'Alene, Idaho, approximately
50 miles from the call center at the Company's headquarters in Sandpoint,
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Idaho. Backup systems and rerouting capabilities allow the Coeur d'Alene call
center to service the Company's entire inbound 1-800 traffic if required by a
failure of the Sandpoint system. As the Company grows, the Company expects the
majority of calls to be directed to the Coeur d'Alene call center to take
advantage of its larger facilities and labor pool, and the facility's extensive
rerouting capabilities. The Company's two call centers are equipped with a total
of 315 stations, 120 of which are located at the Sandpoint call center and 195
of which are located at the Company's Coeur d'Alene call center. The Company
monitors and shifts calls between the two call centers if calls at either center
become backlogged. In the event that either center reaches capacity, an
all-hands bell sounds throughout the facility, alerting Company personnel,
including middle and senior level personnel, to answer any waiting incoming
calls. During fiscal 1995, the Company handled approximately 1.1 million calls
and received approximately 9,000 calls per day during peak sales periods.
ORDER ENTRY. The Company uses an integrated management information system
which allows telephone orders to be captured on-line and mail orders to be
efficiently entered. The Company's system is an on-line transaction processing
system which handles all order entry and fulfillment tasks. Specifically, this
includes the inputting of mail and telephone orders, credit authorization, order
processing and distribution, and shipment. The Company's sales agents process
orders directly into the Company's on-line data processing system which
provides, among other things, customer history information, merchandise
availability information, merchandise specifications, available substitutes and
accessories, expected ship date and order number. The Company's sales agents are
knowledgeable in key merchandise specifications and features, and have ready
access to samples of the entire merchandise line, which enables the agents to
answer detailed merchandise inquiries from customers on-line. The Company
completes telephone orders in approximately three and a half minutes depending
upon the nature of the order and whether the customer is a first-time buyer or a
repeat customer. Customers can pay with the Coldwater Creek credit card, major
credit cards, checks or money orders. All credit charges are pre-authorized
prior to shipping the order and credit authorization occurs coincident with
order processing.
DISTRIBUTION AND ORDER FULFILLMENT. The Company believes that delivery of
ordered merchandise promptly and in good condition promotes customer loyalty and
repeat buying. During fiscal 1995, approximately 92.6% of in-stock orders were
shipped within one shipping day of order processing. The Company has achieved
low distribution error rates of 0.16%, 0.22% and 0.14% during fiscal years 1993,
1994 and 1995, respectively. Customers normally receive their items within three
to five business days after shipping, although customers may request overnight
delivery for an extra charge.
Once a customer's telephone order is completed, the Company's computer
system prints the order in the Company's distribution center, where it is
proofread and all necessary distribution and shipping documents, including
customs forms for international orders, are attached to expedite processing.
Thereafter, the orders are prepared, packed and shipped in batches three times a
day during normal operation, with extended distribution hours during peak
periods. Shipped orders are bar-coded and scanned and the merchandise, quantity,
and ship date are entered automatically into the customer order file for access
by sales agents.
The Company uses a semi-automated picking, packing and shipping system with
56 packing stations and 7 gift wrapping sections. Gift orders are gift wrapped
and handwritten notes accompany each gift as per the customer's instructions.
Employees process orders and generate warehouse selection tickets and packing
slips for order fulfillment operations. The Company adjusts the number of
employees and the processing system to meet variable demand levels, particularly
during the peak selling season. To meet increased order volume during the
Company's peak selling season, the Company has successfully utilized temporary
employees and plans to continue this practice. During fiscal 1995, approximately
55% of all shipments were sent via first class mail through the U.S. Postal
Service, with which the Company believes it has an excellent relationship. Each
order is usually charged a shipping and handling fee which is based upon the
total order price. In fiscal 1995, the Company shipped over 1.1 million
packages.
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The Company recently expanded its distribution facility and capabilities to
add approximately 48,000 square feet and a semi-automated system for order
processing. The Company believes that this expansion increased its capacity to
ship up to approximately 30,000 packages per day.
EMPLOYEE AND SALES AGENT TRAINING. The Company's training is designed to
instill in each employee a commitment to provide a consistently high level of
prompt, knowledgeable and personal service to each customer. The Company
reinforces this emphasis with internal programs, including posting customer
comments and operating statistics, which are designed to recognize and
illustrate exceptional service provided by the Company's personnel. The Company
does not maintain a separate customer service department. Instead, each sales
agent receives training to allow him/her to handle customer complaints and
inquiries, ensuring that a customer does not need to be transferred or placed on
hold.
The Company seeks to create a supportive working environment. When possible,
it is the philosophy of the Company to empower line employees to make decisions,
reducing the need for several management levels. The Company encourages its
sales agents to seek out creative solutions to customer problems and concerns
and to remain responsive to each customer's needs. The vision and Company goals
emphasizing "customers first" are well communicated throughout the Company and
are shared by all employees. This vision drives the training programs for new
and existing employees.
Ongoing employee training at Coldwater Creek addresses professional and
personal development. Training for all new employees, including temporary
employees, emphasizes serving the customer and seeks to instill in each employee
the commitment to deliver the Coldwater Creek experience. Supervisory and
management training programs begin at the time of promotion and continue
throughout the employee's career. Coldwater Creek provides opportunity for
advancement for each employee dependent on his/her skill level, personal effort,
and future potential. New sales agents participate in a ten-day training
program, which includes merchandise and computer system training, mock telephone
orders and a mentor system for working with more experienced personnel. Sales
agents are monitored to review performance and are retrained periodically on an
as-needed basis.
RETURN POLICY. The Company has an unconditional return policy for all of
its merchandise under which a customer can return an item for any reason at any
time at the Company's expense. The Company believes that its return policy
builds customer loyalty and helps overcome a customer's initial reluctance to
purchase merchandise from catalogs.
INVESTMENT IN INFRASTRUCTURE. The Company has consistently invested in
infrastructure improvements designed to increase the efficiency of its
operations and the level of customer service provided to its customers. During
fiscal 1994, fiscal 1995 and the first six months of fiscal 1996, the Company
invested $13.9 million in infrastructure improvements such as expanded
distribution facilities and upgraded telecommunications and management
information systems which the Company believes increases the efficiency of its
operations, positions the Company to efficiently process up to 25,000 orders per
day, and provides the Company with greater market analysis and segmentation
capabilities which allow the Company to more efficiently offer catalogs and
merchandise to discrete market segments.
INFORMATION SYSTEMS AND TECHNOLOGY
The Company has adopted a widely used, state of the art, catalog order
processing system as the cornerstone of its software strategy. This system is
widely used by leading companies in the direct marketing industry for all order
entry and fulfillment tasks, the inputting of mail and telephone orders, credit
authorization, order processing and distribution and shipment. In order to
provide a key decision support system, the Company recently installed a
marketing database system. This system allows customer data to be searched and
segmented according to different variables, as well as allowing application of
demographic overlays. The system is fully compatible and interfaces with the
Company's catalog system to perform monthly batch downloads of ordering
information into the database. The Company believes these
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<PAGE>
improvements will help Coldwater Creek improve customer retention through more
efficient market modeling and segmentation.
Coldwater Creek's main hardware platform is the Hewlett Packard 3000 series
of computers. The Company believes its recent investments in the HP/3000
processors and the installment of a Northern Telecom telephone switch at each
call center provide the Company with a scaleable platform to accommodate future
growth.
The Company's telecommunications system strategy is designed to reduce the
risk of telephone delays and capacity constraints. In the event either call
center is unable to receive incoming calls due to factors such as natural
disasters, equipment or electrical problems or failures, calls are routed to the
other call center. If neither center can be accessed, the Company has contracted
with its long-distance carriers to redirect incoming calls to sales agents'
homes to ensure that uninterrupted service can be provided to its customers.
The Company's management information system strategy is designed to reduce
the risk of lost data and delays in the order entry or order fulfillment
processes. In 1996, the Company installed information systems processors in its
Coeur d'Alene center that are largely identical to those in the Sandpoint
headquarters. Software implemented in July 1996 renders the system fully
mirrored on a real-time basis such that customer orders as well as all other
operational data are entered simultaneously in each of the Sandpoint and Coeur
d'Alene centers. The entire process is transparent, within minutes, to the order
entry process, such that customers and sales agents in the event of disabled
lines, limited power outages or natural disasters are unaware of the rerouting.
The Company believes this redundancy reduces the risk of interruption of
customer service or other critical operations due to failure of its computing
system.
RETAIL STORES
Coldwater Creek maintains a retail store operation as part of its brand
building strategy. In 1995, the Company leased the entire Cedar Street Bridge, a
beautifully renovated covered bridge spanning Cedar Creek in Sandpoint, Idaho,
and created its first destination shopping environment for the Company's
customers. The Company's store at the Cedar Street Bridge is a two level
structure with over 14,000 feet of prime retail space. Over the course of 1995,
the Company developed Cedar Street Bridge into a unique Coldwater Creek shopping
experience, with separate stores for each of the NORTHCOUNTRY, SPIRIT OF THE
WEST, MILEPOST FOUR and ECOSONG merchandise lines as well as an outlet store.
Each store at the Cedar Street Bridge is designed and fixtured different from
the others, with basic themes consistent with each catalog's image and customer
segmentation. During fiscal 1995, the stores at the Cedar Street Bridge
accounted for 3.0% of the total net sales of the Company.
The Company's Cedar Street Bridge operations leverage the success of the
Company's catalog operations by offering, in some circumstances, a greater
selection of catalog-based merchandise as well as non-catalog merchandise. The
Company's current plans involve the opening of 6 to 10 Coldwater Creek stores at
"destination locations" such as near major national parks or other resort areas
which the Company believes have the greatest potential for name brand
identification. The Company expects its stores to provide an additional source
of demand for its catalogs as vacationers visit the stores and become acquainted
with the Company's merchandise. In addition, the Company anticipates the peak
selling cycle for many of these stores to include the months of June, July,
August and September and, as a result, the Company expects this strategy to
provide counter cyclical cash flow that may improve overall second quarter
performance. The Company is currently evaluating several potential locations and
has recently entered into a lease for a store in Jackson Hole, Wyoming, the
gateway to Grand Teton and Yellowstone National Parks and a major ski resort.
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<PAGE>
COMPETITION
The markets for the Company's merchandise are highly competitive, and the
recent growth in these markets has encouraged the entry of many new competitors
as well as increased competition from established companies. Although the
Company believes that it does not compete directly with any single company with
respect to its entire range of merchandise, within each merchandise category the
Company has significant competitors and may face new competition from new
entrants or existing competitors who focus on market segments currently served
by the Company. These competitors include large retail operations, including
some with catalog operations, other catalog and direct marketing companies and
international competitors. In addition, since fiscal 1995, the Company has
offered an increasingly higher volume and percentage of apparel merchandise.
With respect to the apparel merchandise offered by the Company, the Company is
in direct competition with more established catalog operations, some with
substantially greater experience in selling apparel merchandise and which may
focus on prospective customers sharing some of the demographic characteristics
of the Company's customers. Any failure on the part of the Company to
successfully market its apparel merchandise or compete effectively against such
competitors would have a material adverse affect on the Company's growth and
could adversely affect the Company's business and results of operations. Many of
these competitors are larger and have significantly greater financial, marketing
and other resources than the Company. Increased catalog mailings by the
Company's competitors may adversely affect response rates to the Company's own
catalog mailings. In addition, because the Company sources its merchandise from
suppliers and manufacturers located in the United States, where labor and
production costs may be higher than in foreign countries, there can be no
assurance that the Company's merchandise will or can be competitively priced
when compared to merchandise offered by other retailers. While the Company
believes that it has been able to compete successfully because of its brand
recognition, the exclusivity and broad range and quality of its merchandise,
including its private label merchandise offerings, and its extraordinary
customer service policies, there can be no assurance that the Company will be
able to maintain or increase its market share in the future. The failure of the
Company to compete successfully would materially and adversely affect the
Company's business and results of operations.
EMPLOYEES
As of August 31, 1996, the Company had 300 full-time employees and 183
temporary employees. During the peak selling season, which for the Company
includes the months of November and December, the Company utilizes a substantial
number of temporary employees, many of whom return year after year. None of
these employees is currently covered by collective bargaining agreements. The
Company considers its employee relations to be excellent.
TRADEMARKS
Coldwater Creek-Registered Trademark-, SPIRIT OF THE WEST-Registered
Trademark- and ECOSONG-Registered Trademark- are registered trademarks of the
Company. An application has been filed to register the mark MILEPOST FOUR-TM- as
a trademark of the Company. The Company believes that its registered and common
law trademarks have significant value and that all of its trademarks are
instrumental to its ability to create and sustain demand for and market its
merchandise.
PROPERTIES
The principal executive and administrative offices of the Company are
located at 1 Coldwater Creek Drive, Sandpoint, Idaho 83864. The telephone
numbers of the Company's principal executive and administrative offices is (208)
263-2266. The general location, use and approximate size of the Company's
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<PAGE>
principal properties, all of which, other than the retail stores at the Cedar
Street Bridge and in Jackson Hole and the call center at Coeur d'Alene, are
owned by the Company, are set forth below:
<TABLE>
<CAPTION>
FACILITY ADDRESS SIZE
- ------------------------------------------- -------------------------------- --------------------
<S> <C> <C>
Corporate Offices 1 Coldwater Creek Drive 33,000 sq. ft.
Sandpoint, Idaho 83864
Distribution/Warehousing 3333 McGee Road 130,000 sq. ft.
Sandpoint, Idaho 83864
Sandpont Customer Service Center 2 Coldwater Creek Drive 14,000 sq. ft.
Sandpoint, Idaho 83864
Human Resources Building 3 Coldwater Creek Drive 3,500 sq. ft.
Sandpoint, Idaho 83864
Cedar Street Bridge Retail Store 334 North First Street 14,000 sq. ft.
Sandpoint, Idaho 83864
Coeur d'Alene Call Center 1201 Ironwood Drive 24,000 sq. ft.
Coeur d'Alene, Idaho 83814
Jackson Hole Retail Store 10 East Broadway 10,000 sq. ft.
Jackson, Wyoming 83001
</TABLE>
LEGAL PROCEEDINGS
The Company is party to claims and litigation that arise in the normal
course of business. Management believes that the ultimate outcome of these
claims and litigation will not have a material impact on the financial position
or results of operations of the Company.
The direct response business as conducted by the Company is subject to the
merchandise Mail Order Rule and related regulations promulgated by the Federal
Trade Commission. While the Company believes it is in compliance with such
regulations, no assurance can be given that new laws or regulations will not be
enacted or adopted which might adversely affect the Company's operations.
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<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
Below is a table setting forth the name, age and position of the Company's
directors, executive officers and key employees:
<TABLE>
<CAPTION>
NAME AGE POSITIONS HELD
- ------------------------------------------------ --- ---------------------------------------------------------
<S> <C> <C>
Dennis Pence.................................... 47 President, Chief Executive Officer, Vice Chairman of the
Board of Directors, and Director
Ann Pence....................................... 47 Chairman of the Board of Directors and Director
Donald Robson................................... 50 Chief Financial Officer, Treasurer, Secretary, and
Director
Tony Saulino.................................... 39 Vice President of Operations
Robin Sheldon................................... 51 Vice President of Merchandising
Robert H. McCall, CPA(1)(2)..................... 51 Director
James R. Alexander(1)........................... 54 Director
Curt Hecker(2).................................. 36 Director
</TABLE>
- ------------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
DENNIS PENCE co-founded the Company in 1984, and has served as President and
Chief Executive Officer and as a Director since its incorporation in 1988. Prior
to co-founding Coldwater Creek Mr. Pence was employed by Sony Corp of America
from 1975 to 1983, where his final position was National Marketing Manager,
Consumer Video Products.
ANN PENCE co-founded the Company in 1984, where she has acted as its
Creative Director. Since its incorporation in 1988, she has also served as a
Director and as the Chairman of the Board of the Company. Prior to co-founding
Coldwater Creek, Mrs. Pence had an eleven year career in retail advertising, and
was employed by Macy's California from 1974 to 1982 where her final position was
Copy Director.
DONALD ROBSON has served as Chief Financial Officer, Vice President of
Finance and Administration, Secretary, Treasurer and as a Director of the
Company since January 1995. From 1992 to 1995, prior to joining the Company, Mr.
Robson was a Financial Executive Consultant. From 1978 to 1992, Mr. Robson
served as Executive Vice President and Chief Financial Officer for Neiman Marcus
Stores, a nationally established high-end department store chain and cataloger.
His responsibilities included managing the Company's financial operations,
information services, merchandise distribution and investment strategies, as
well as its substantial credit portfolio, central and store operations, and
telemarketing and distribution in the Direct Marketing Division.
TONY SAULINO has served as Vice President of Operations of the Company since
March 1993. Tony Saulino joined Coldwater Creek in September of 1992 as
Operations Manager. Prior to joining the Company, from 1991 to 1992, Mr. Saulino
was the Customer Service Director of Bear Creek Operations, Inc., servicing the
Harry & David and Jackson & Perkins catalogs where he managed a seasonal staff
of 75-250 employees. From 1988 to 1991, Mr. Saulino served as Customer Service
Manager of Current, Inc., a direct marketer of social expression and
personalized checks, where he managed a seasonal staff of 100-250 employees.
ROBIN SHELDON has served as Vice President of Merchandising of the Company
since June 1994. From 1989 to 1994, prior to joining the Company, Ms. Sheldon
served as Director of Catalogs and managed development and production of five
direct mail catalogs for the National Wildlife Federation where she also served
as Senior Merchant from 1988 to 1989. Prior to that, from 1983 to 1988, Ms.
Sheldon was
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<PAGE>
President of Robin Clark Designs, Inc., an interior design firm. In 1979, Ms.
Sheldon founded, developed and managed THE MIXED BAG, an upscale gift catalog
business, where she served as President until 1983.
ROBERT H. MCCALL, a Certified Public Accountant, has served as a Director
since 1994 and since February 1995 has served as Chairman of the Audit Committee
and as a member of the Compensation Committee. Since 1981 he has been President
of McCall & Landwehr, P.A., an accounting firm based in Hayden Lake, Idaho,
which provided accounting, tax and auditing services to the Company from 1984 to
1993, and has provided a limited amount of other services since that time.
JAMES R. ALEXANDER has served as a Director since 1994 and is Chairman of
the Compensation Committee. He has been an independent consultant for the past
17 years, serving a variety of high ticket mail order companies selling apparel,
home decor and gift merchandise. Mr. Alexander currently resides in New York
City.
CURT HECKER has served as a Director since August 1995 and is a member of
the Audit Committee. Since August 1995, his principal occupation has been
President and Chief Executive Officer of Panhandle State Bank in Sandpoint,
Idaho. Prior to Mr. Hecker's employment with Panhandle, he served as Vice
President of West One Bank (now U.S. Bank) with which the Company has had its
primary banking relationship.
No executive officer or director of the Company bears any relation by blood,
marriage or adoption to any other executive officer or director, except for
Dennis and Ann Pence, who are married to each other.
The Company's Board of Directors, in accordance with the Bylaws of the
Company, has fixed the size of the Board at six directors. The Company's Board
of Directors is divided into three classes with the members of each class
serving for terms of office expiring at the third annual meeting of stockholders
following their election and until successors are duly qualified, except that
the terms of office of the Class I, II, and III directors serving as of June 1,
1996 expire at the annual meetings of stockholders in 1999, 1998 and 1997,
respectively. As of June 1, 1996, the Class III directors are Dennis Pence and
Robert H. McCall; Class II directors are James R. Alexander and Donald Robson;
and Class I directors are Curt Hecker and Ann Pence.
The President, Treasurer and Secretary are elected each year at the first
meeting of directors following the annual meeting of the stockholders and each
holds office until resignation, death or removal at the discretion of the Board
of Directors or until the Board of Directors appoints a different person to the
office. Other officers may be appointed by the Board of Directors at any
meeting.
BOARD COMMITTEES
The Company's Board of Directors has a Compensation Committee and an Audit
Committee. The Audit Committee is responsible for recommending to the Board of
Directors the appointment of independent public accountants, reviewing and
approving the scope of audit activities of the auditors, reviewing accounting
practices and controls, performing independent director duties and reviewing
audit results. The Audit Committee is composed of Robert H. McCall (Chairman)
and Curt Hecker. The Compensation Committee is responsible for reviewing and
establishing the compensation structure for the Company's officers and
directors, including salary rates, participation in incentive compensation and
benefit plans, 401(k) plans, stock purchase plans and other forms of
compensation, and, after the effective date of the initial registration of the
Company's Common Stock under Section 12(g) of the Securities Exchange Act of
1934, administering the Company's 1996 Stock Option/Stock Issuance Plan. See
"1996 Stock Option/Stock Issuance Plan." The Compensation Committee is composed
of Mr. Alexander (Chairman) and Mr. McCall.
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<PAGE>
DIRECTOR COMPENSATION
The directors currently receive an annual retainer of $10,000. In addition,
each director received a fee of $1,000 for each regular Board of Directors
meeting attended. Any director who was a committee chair received an annual
retainer in the amount of $1,500, and any director who was a committee member
received an annual retainer of $1,000. During fiscal 1997, non-employee
directors will receive annual compensation of $12,000, plus each chairperson of
each committee will receive an additional $1,500 per year and each committee
member will receive an additional $1,000 per year, and each director will
receive an additional $1,000 per regular quarterly meeting attended. Directors
are also reimbursed for certain expenses in connection with attendance at Board
of Directors and committee meetings.
Under the Company's 1996 Stock Option/Stock Issuance Plan automatic option
grant program, each non-employee director of the Company upon execution of the
Underwriting Agreement associated with the Company's initial public offering or
at the date such person first becomes a director if after the effective date of
this offering will receive options to purchase shares of Common Stock at
an exercise price per share equal to the fair market price of the Company's
Common Stock on such date. On the date of each annual stockholders meeting
beginning with the first annual meeting following this offering, each
non-employee director who has served for at least six months and continues to
serve at that meeting will receive an automatic option grant for an additional
shares of Common Stock exercisable at the fair market value of such stock
as of the date of the option grant. See "1996 Stock Option/Stock Issuance Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Chairman of the Compensation Committee is Mr. Alexander, and Mr. McCall
is a member of the Compensation Committee. No member of the Compensation
Committee was at any time during the fiscal year ended March 2, 1996, or at any
other time, an officer or employee of the Company. However, Robert H. McCall has
provided accounting, tax and auditing services to the Company in the past,
including acting as the Company's principal outside accountant from 1984 to 1993
and providing a limited amount of other services since 1993. In addition, Mr.
McCall has performed personal tax accounting services for Dennis and Ann Pence
from 1984 through the present.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
paid to, earned by or awarded to the Company's Chief Executive Officer and each
of the Company's three other most highly compensated executive officers or
employees for the fiscal year ended March 2, 1996. No other employee of the
Company received salary and bonus of $100,000 or more during the fiscal year
ended March 2, 1996. The persons named in the table are sometimes referred to
herein as the "Named Executive Officers."
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION -------------
------------------------------------------- SECURITIES
NAME AND OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION($)(2) OPTIONS (#) COMPENSATION($)
- -------------------------------------- --------- ----------- ------------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Dennis Pence(3)....................... 207,372 21,000 3,600 -- --
President, Chief Executive
Officer and Vice Chairman of the
Board
Ann Pence(3).......................... 207,372 21,000 3,600 -- --
Chairman of the Board and Creative
Director
Donald Robson......................... 146,538 15,750 -- -- --
Chief Financial Officer, Vice
President of Finance and
Administration, Secretary and
Treasurer
Robin Sheldon......................... 104,647 11,550 2,150 -- --
Vice President of Merchandising
</TABLE>
- ------------------------------
(1) In accordance with the rules of the Securities and Exchange Commission (the
"Commission"), the compensation described in this table does not include
medical, group life insurance, or other benefits received by the Named
Executive Officers which are available generally to all salaried employees
of the Company, and certain perquisites and other personal benefits received
by the Named Executive Officers which do not exceed the lesser of $50,000 or
10% of any such officer's salary and bonus disclosed in this table.
(2) Contributions by the Company to individuals' 401(k) accounts.
(3) Compensation in this table does not include S Corporation Distributions. See
"S Corporation Distributions."
1996 STOCK OPTION/STOCK ISSUANCE PLAN
The Company's 1996 Stock Option/Stock Issuance Plan (the "1996 Plan") was
adopted by the Board of Directors and approved by the stockholders on March 4,
1996. shares of Common Stock have been authorized for issuance under the
1996 Plan.
The 1996 Plan is divided into three separate components: (i) the
Discretionary Option Grant Program under which eligible individuals, which
include officers and other key employees, non-employee directors and consultants
and other independent advisors, may, at the discretion of the Plan
Administrator, be granted options to purchase shares of Common Stock at an
exercise price not less than 85% of their fair market value for non-statutory
options and 100% of their fair market value for incentive options on the grant
date, (ii) the Stock Issuance Program under which such individuals may, in the
Plan Administrator's discretion, be issued shares of Common Stock directly at a
price not less than 100% of their fair market
42
<PAGE>
value at the time of issuance or as a bonus tied to the performance of services
and/or the achievement of performance goals and (iii) the Automatic Option Grant
Program under which option grants will automatically be made at periodic
intervals to eligible non-employee Board members to purchase shares of Common
Stock at an exercise price equal to 100% of their fair market value on the grant
date.
The Discretionary Option Grant Program and the Stock Issuance Program will
be administered by the Compensation Committee. The Compensation Committee as
Plan Administrator will have complete discretion (subject to the provisions of
the 1996 Plan) to determine (i) with respect to options, which eligible
individuals are to receive option grants, the time or times when such option
grants are to be made, the number of shares subject to each such grant, the
status of any granted option as either an incentive stock option or a
non-statutory stock option under the Federal tax laws, the vesting schedule to
be in effect for the option grant and the maximum term for which any granted
option is to remain outstanding, and (ii) with respect to stock issuances, the
number of shares to be issued to each eligible person, any vesting schedule to
be applicable and consideration for such shares.
Common Stock purchased upon the exercise of an option must be paid for by
cash or by delivery of certain previously acquired shares of Common Stock with a
fair market value (as of the exercise date) equal to the option exercise price
or, with the consent of the Compensation Committee under the Discretionary
Option Grant Program, by delivery of the optionee's promissory note. With the
Compensation Committee's approval, the employee option holder may elect to
satisfy tax withholding obligations by directing the Company to withhold shares
valued at the amount of the withholding obligation from the number purchased or
by delivery of previously acquired shares of Common Stock.
Upon certain acquisitions of the Company by merger, consolidation or asset
sale, outstanding options and unvested stock issuances will be subject to
accelerated vesting under certain circumstances.
The Plan Administrator has the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program in return for
the grant of new options for the same or different number of option shares with
an exercise price per share of 85%, 100% or 110% (under certain circumstances)
of the fair market value of the Common Stock on the new grant date.
Under the Automatic Option Grant Program, each individual serving as a
non-employee Board member on the date the Underwriting Agreement for this
Offering is executed will receive an option grant on such date for shares
of Common Stock, provided such individual has not otherwise been in the prior
employ of the Company. Each individual who first becomes a non-employee Board
member thereafter will receive an -share option grant on the date such
individual joins the Board, provided such individual has not been in the prior
employ of the Company. In addition, at each Annual Stockholders Meeting,
beginning with the first Annual Meeting held after the offering, each individual
who is to continue to serve as a non-employee Board member after the meeting
will receive an additional option grant to purchase shares of Common Stock
whether or not he or she is standing for reelection at that meeting or has been
in the prior employ of the Company, provided such individual has served as a
non-employee Board member for at least six months.
Each automatic grant will have a maximum term of 10 years, subject to
earlier termination for vested shares not exercised two years following the
optionee's cessation of Board service. The initial -share grant will vest
in three equal and successive annual installments over the optionee's period of
Board service. Each additional -share grant will vest upon the optionee's
completion of one year of Board service measured from the grant date. However,
each outstanding option will immediately vest upon (i) certain changes in the
ownership or control of the Company or (ii) the death or disability of the
optionee while serving as a Board member.
The Board may amend or modify the 1996 Plan at any time, subject to certain
limitations. The 1996 Plan will terminate on March 3, 2006, unless sooner
terminated by the Board.
43
<PAGE>
On March 4, 1996, the Board granted options to purchase shares of
Common Stock in the aggregate under the 1996 Plan to certain employees of the
Company, including grants to the following executive officers: Donald Robson,
shares; Tony Saulino, shares; and Robin Sheldon, shares. The
options vest over a four-year period measured from the grant date and have an
exercise price of $ per share. Such exercise price is equal to the fair
market value of the Common Stock on the grant date, as determined by the Board
on the basis of a number of factors, including the anticipated offering price,
and reflects the volatile nature of the stock market and the uncertainty which
existed at the time of grant as to the ultimate completion of the offering.
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
The Company does not presently have any employment contracts in effect with
the Chief Executive Officer or any of the other executive officers named in the
Summary Compensation Table.
The Compensation Committee as Plan Administrator of the 1996 Plan will have
the authority to provide for the accelerated vesting of the shares of Common
Stock subject to outstanding options held by the Chief Executive Officer and any
other executive officer or the shares of Common Stock subject to direct
issuances held by such individual, in connection with certain changes in control
of the Company or the subsequent termination of the officer's employment
following the change in control event.
401(K) PLAN
Effective October 8, 1991, and as amended from time to time, the Company
adopted a tax-qualified employee savings, retirement and profit sharing plan
qualified under Section 401(k) of the Internal Revenue Code (the "401(k) Plan")
under which eligible employees may elect to defer their current compensation by
up to certain statutorily prescribed annual limits and to contribute such
amounts to the 401(k) Plan. Contributions to the 401(k) Plan and income earned
on the contributions are not taxable to employees until withdrawn from the
401(k) Plan. All employees with 1,000 hours of service who have been working
with the Company for one year are eligible to participate in the 401(k) Plan.
The Company matches a certain percentage of the employees' contribution and
provides a discretionary profit sharing contribution based on overall
profitability of the Company. Company contributions to the 401(k) Plan were
$119,000, $76,000, and $83,000 for the fiscal years 1993, 1994 and 1995.
44
<PAGE>
CERTAIN TRANSACTIONS
As a result of the Company's status as an S corporation, the Company has
historically paid distributions to its stockholders to enable them to pay their
income tax liabilities and, from time to time, to distribute previously
undistributed S corporation earnings. During fiscal 1993, fiscal 1994, fiscal
1995 and the first nine months of fiscal 1996, the Company has made S
corporation distributions to the Existing Stockholders of $1,740,000,
$1,387,000, $2,157,000 and $8,500,000, respectively. Immediately prior to the
consummation of the offering, the Company will make the Distribution to the
Existing Stockholders of all of the Company's remaining accumulated
undistributed S corporation earnings through the Termination Date pursuant to an
Agreement for Distribution of Retained Earnings and Tax Indemnification. See "S
Corporation Distributions."
The Agreement for Distribution of Retained Earnings and Tax Indemnification
provides that the Existing Stockholders will be indemnified by the Company with
respect to any federal and state income tax liability (including penalties,
interest and any taxes resulting from the payments under the indemnity) incurred
by the Existing Stockholders as a result of a final determination of an
adjustment to the Company's tax returns for any period ending prior to the
Termination Date. The Agreement for Distribution of Retained Earnings and Tax
Indemnification also provides that the Existing Stockholders will indemnify the
Company from and against any and all taxes of the Company (i) for any periods
ending prior to the Termination Date for which it is determined that the Company
was not an S corporation, and (ii) for any and all taxes arising from
adjustments to the Company's tax returns which increase the Company's tax
liability for a taxable period ending after the Termination Date and decrease
the Existing Stockholders' tax liability for a taxable period ending prior to
the Termination Date, provided however that the indemnity provided by the
Existing Stockholders is limited to any federal and state refunds they receive
as a result of a loss of S corporation status or other tax adjustments for such
taxable periods.
Any future transactions between the Company and its officers, directors, and
affiliates will be on terms no less favorable to the Company than can be
obtained from unaffiliated third parties. Such transactions with such persons
will be subject to approval by a majority of the Company's outside directors or
will be consistent with policies approved by such outside directors.
45
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of shares of Common Stock as of November 15, 1996, and as adjusted to
reflect the sale of Common Stock offered by the Company hereby, for (i) each
person known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock, (ii) each of the Company's directors, (iii)
each Named Executive Officer and (iv) all directors and executive officers as a
group:
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED(1)
SHARES ----------------------------
BENEFICIALLY PRIOR TO AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) OFFERING OFFERING(2)
- ------------------------------------------------------------------------------ ----------- ------------- -------------
<S> <C> <C> <C>
Dennis Pence(3) .............................................................. 50%
c/o Coldwater Creek Inc.
One Coldwater Creek Drive
Sandpoint, Idaho 83864
Ann Pence(3) ................................................................. 50%
c/o Coldwater Creek Inc.
One Coldwater Creek Drive
Sandpoint, Idaho 83864
Donald Robson................................................................. 0 0%
Tony Saulino.................................................................. 0 0%
Robin Sheldon................................................................. 0 0%
Robert H. McCall.............................................................. 0 0%
James R. Alexander............................................................ 0 0%
Curt Hecker................................................................... 0 0%
All Directors and Executive Officers as a group(8 persons)....................
</TABLE>
- ------------------------------
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect to
securities. Subject to community property laws where applicable, the Company
believes, based on information furnished by such persons, that the persons
named in the table above have sole voting and investment power with respect
to all shares of Common Stock shown as beneficially owned by them.
Percentage of beneficial ownership is based on shares of Common Stock
outstanding as of , 1996 and shares of Common Stock
outstanding after the completion of this offering.
(2) Assumes no exercise of the Underwriters' over-allotment option.
(3) Dennis and Ann Pence are husband and wife.
46
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of the Company's capital stock does not purport to
be complete and is subject in all respects to applicable Delaware law and to the
provisions of the Company's Certificate of Incorporation and Bylaws, copies of
which will be filed as exhibits to the Registration Statement of which this
Prospectus is a part. References herein to the Company's Certificate of
Incorporation and Bylaws refer to the Certificate of Incorporation as filed with
the Delaware Secretary of State on March 1, 1996, and the Bylaws as adopted by
the Board of Directors of the Company on March 4, 1996. The Company was
originally incorporated in Idaho on January 4, 1988.
The authorized capital stock of the Company currently consists of 15,000,000
shares of Common Stock, par value $0.01 per share, and 1,000,000 shares of
Preferred Stock, par value $0.01 per share. Immediately after the completion of
the offering, the Company estimates that there will be outstanding an aggregate
of shares of Common Stock, and no shares of Preferred Stock will be issued
or outstanding. Upon exercise of options outstanding immediately after the
completion of the offering pursuant to the Company's 1996 Stock Option/Stock
Issuance Plan, shares of Common Stock will be issuable.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share and to receive
ratably such dividends if, as and when declared by the Company's Board of
Directors out of funds legally available therefor, subject to preferences that
may be applicable to any outstanding Preferred Stock. There are no cumulative
voting rights, the absence of which will, in effect, allow the holders of a
majority of the outstanding shares of Common Stock to elect all the directors
then standing for election. The absence of cumulative voting rights could have
the effect of delaying, deterring or preventing a change of control of the
Company. According to the Delaware General Corporation Law ("DGCL"), in the
event of any liquidation, dissolution or winding up of the Company, each holder
of the Company's Common Stock will be entitled to participate, subject to the
rights of the outstanding Preferred Stock, ratably in all assets of the Company
remaining after payment of liabilities and preferences of the holders of
Preferred Stock. Holders of Common Stock have no preemptive or conversion
rights. All outstanding shares of Common Stock are, and all shares of Common
Stock offered in this offering will be, fully paid and nonassessable.
The provisions described above will result in Dennis and Ann Pence, the sole
stockholders of the Company, retaining substantial control over the Company. See
"Risk Factors--Control by Existing Stockholders; Anti-Takeover Devices."
Application has been made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "CWTR."
PREFERRED STOCK
The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors is expressly authorized, in the resolution or resolutions
providing for the issuance of any wholly unissued series of Preferred Stock, to
fix, state and express the powers, rights, designations, preferences,
qualifications, limitations and restrictions thereof, including without
limitation, the rate of dividends upon which and the times at which dividends on
shares of such series shall be payable and the preference, if any, which such
dividends shall have relative to dividends on shares of any other class or
classes or any other series of stock of the Company; whether such dividends
shall be cumulative or noncumulative, and if cumulative, the date or dates from
which dividends on shares of such series shall be cumulative; the voting rights,
if any, to be provided for shares of such series; the rights, if any, which the
holders of shares of such series shall have in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Company; the rights, if any, which the holders of shares of such series shall
have to convert such shares into or exchange such shares for shares of stock of
the Company, and the terms and conditions,
47
<PAGE>
including price and rate of exchange of such conversion or exchange; the
redemption rights (including sinking fund provisions), if any, for shares of
such series; and such other powers, rights, designations, preferences,
qualifications, limitations and restrictions as the Board of Directors may
desire to so fix. The Board of Directors is also expressly authorized to fix the
number of shares constituting such series and to increase or decrease the number
of shares of any series prior to the issuance of shares of that series and to
increase or decrease the number of shares of any series subsequent to the
issuance of shares of that series, but not to decrease such number below the
number of shares of such series then outstanding. In case the number of shares
of any series shall be so decreased, the shares constituting such decrease shall
resume the status which they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
The authorized but unissued shares of Common Stock and Preferred Stock are
available for future issuance without stockholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefit plans.
The existence of authorized but unissued and unreserved Common Stock and
Preferred Stock may enable the Board of Directors to issue shares to persons
friendly to current management which could render more difficult or discourage
an attempt to obtain control of the Company by means of a proxy contest, tender
offer, merger, or otherwise, and thereby protect the continuity of the Company's
management.
CERTAIN CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
Certain provisions of the Certificate of Incorporation and Bylaws of the
Company as summarized in the following paragraphs, may be deemed to have an
anti-takeover effect and may delay, deter or prevent an attempt to obtain
control of the Company by means of a proxy contest, tender offer, merger or
other transaction that a stockholder might consider in its best interest,
including those attempts that might result in a premium over the market price
for the shares held by stockholders.
CLASSIFIED BOARD OF DIRECTORS. The Certificate of Incorporation provides
for the Board of Directors to be divided into three classes of directors serving
staggered three-year terms. As a result, one-third of the Board of Directors
will be elected each year. In addition, the Certificate of Incorporation
provides that any Director or the entire Board of Directors may be removed by
the affirmative vote of the holders of at least a majority of the combined
voting power of all shares of the Company entitled to vote generally in the
election of directors, voting together as a single class. Under the DGCL, in the
case of a corporation having a classified board and not having a provision in
its Certificate of Incorporation to the contrary (as is the case with the
Company), stockholders may remove a director only for cause.
Under the Bylaws, any vacancy in the Board of Directors unless and until
filled by the stockholders, however occurring, may be filled by majority vote of
the remaining Directors, except that a vacancy created by the removal of a
director by the vote of the stockholders or by court order may be filled only by
the affirmative vote of a majority of the shares represented and voting at a
duly held meeting at which a quorum is present. These provisions, together with
the constraints placed on calling stockholder meetings as discussed below, may
preclude a stockholder from removing incumbent directors without cause and
simultaneously gaining control of the Board of Directors by filling the
vacancies created by such removal with its own nominees.
SPECIAL MEETING OF STOCKHOLDERS. The Certificate of Incorporation provides
that special meetings of stockholders of the Company may be called only by the
Chairman of the Board of Directors or Vice Chairman of the Board of Directors,
or by the Chairman, the Vice Chairman or the Secretary at the written request of
a majority of the total number of Directors the Company would have if there were
no
48
<PAGE>
vacancies on the Board. The request shall be sent to the Chairman, Vice Chairman
and the Secretary and shall state the purposes of the proposed meeting. Special
meetings of holders of the outstanding Preferred Stock may be called in the
manner and for the purposes provided in the resolutions of the Board of
Directors providing for the issue of such stock. Business transacted at special
meetings shall be confined to the purpose or purposes stated in the notice of
meeting. These provisions will make it more difficult for stockholders to take
actions opposed by the Board of Directors.
STOCKHOLDER ACTION BY WRITTEN CONSENT. The Certificate of Incorporation
provides that any action required or permitted to be taken by the stockholders
of the Company must be effected at an annual or special meeting of the
stockholders of the Company and may not be effected by any consent in writing of
such stockholders.
ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS. The Bylaws
provide that stockholders seeking to bring business before an annual meeting of
stockholders, or to nominate candidates for election as directors at a meeting
of stockholders, must provide timely notice thereof in writing. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Company not less than 60 days nor more than
90 days prior to the meeting; provided, however, that in the event public
announcement of the date of such annual meeting is first made by the Company
fewer than 70 days prior to the date of such annual meeting, notice by the
stockholder to be timely must be received no later than the close of business on
the tenth (10th) day following the day on which such public announcement was
made by the Company. The Bylaws also specify certain requirements for a
stockholder's notice to be in proper written form. These provisions may preclude
some stockholders from bringing matters before the stockholders at an annual
meeting or from making nominations for directors at a stockholders meeting.
VOTING REQUIREMENTS REGARDING CERTAIN ACTIONS. Certain provisions of the
Certificate of Incorporation require the affirmative vote of the holders of at
least two-thirds of the combined voting power of all shares of the Company
entitled to vote generally in the election of directors, voting together as a
single class, for certain activities. Such an affirmative vote is required for
any Business Combination (as defined in the Certificate of Incorporation)
(unless the Business Combination has been approved by two-thirds of the whole
Board of Directors) and for the adoption of new Bylaws or the repeal or
amendment of existing Bylaws by the stockholders. Similarly, such a vote is
required for alteration, change, amendment, or repeal of, or adoption of any
provision inconsistent with, the provisions of the Certificate of Incorporation
relating to classification, terms and removal of directors, provisions relating
to special meetings of stockholders, and provisions defining certain key terms.
LIMITATION OF LIABILITY
The Certificate of Incorporation provides that to the fullest extent
permitted by the DGCL, as that
law may be amended and supplemented from time to time, a Director of the Company
shall not be personally liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a Director, except for liability (i) for
any breach of the Director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL,
or (iv) for any transaction from which the Director derived any improper
personal benefit. The effect of the provision of the Certificate of
Incorporation is to eliminate the rights of the Company and its stockholders
(through stockholders' derivative suits on behalf of the Company) to recover
monetary damages against a director for breach of the fiduciary duty of care as
a director (including breaches resulting from negligent behavior) except in the
situations described in clauses (i) through (iv) above. The Bylaws also set
forth certain indemnification provisions. The foregoing provision of the
Certificate of Incorporation may reduce the likelihood of derivative litigation
against directors and may discourage or deter stockholders or management from
bringing a lawsuit against directors for breaches of their fiduciary duties,
even though such an action, if successful, otherwise might have benefited the
Company and its stockholders.
49
<PAGE>
INDEMNIFICATION AGREEMENTS
In addition, the Company has entered into agreements (the "Indemnification
Agreements") with each of its directors and certain of its officers pursuant to
which the Company agrees to indemnify such director or officer against expenses,
judgments, fines or amounts paid in settlement incurred by such director or
officer and arising out of his capacity as a director, officer, employee and/or
agent of the Company or other enterprise of which he is a director, officer,
employee or agent acting at the request of the Company to the maximum extent
permitted by applicable law, subject to certain limitations. In addition, such
director or officer shall be entitled to an advance of expenses, to the maximum
extent authorized or permitted by law, to meet the obligations indemnified
against, subject to certain limitations. Finally, under Delaware law, the
Company may purchase and maintain insurance for the benefit and on behalf of its
directors and officers insuring against all liabilities that may be incurred by
such director or officer in or arising out of his capacity as a director,
officer, employee and/or agent of the Company.
CERTAIN STATUTORY PROVISIONS
Section 203 of the DGCL contains certain provisions that may make more
difficult the acquisition of control of the Company by means of a tender offer,
open market purchase, proxy fight or otherwise. These provisions are designed to
encourage persons seeking to acquire control of the Company to negotiate with
the Board of Directors. However, these provisions could have the effect of
discouraging a prospective acquirer from making a tender offer or otherwise
attempting to obtain control of the Company. To the extent that these provisions
discourage takeover attempts, they could deprive stockholders of opportunities
to realize takeover premiums for their shares or could depress the market price
of shares. Set forth below is a description of the relevant provisions of
Section 203 of the DGCL. This description is intended as summary only and is
qualified in its entirety by reference to Section 203 of the DGCL.
Section 203 of the DGCL prohibits certain "business combination"
transactions between a publicly held Delaware corporation, such as the Company
after the Offering, and any "interested stockholder" for a period of three years
after the date on which such stockholder became an interested stockholder (the
"Time"), unless (i) the board of directors approves, prior to the Time, either
the proposed business combination or the proposed acquisition of stock which
resulted in the stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the Company outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares outstanding those
shares owned by persons who are both directors and officers or by certain
employee stock plans, or (iii) on or subsequent to the Time, the business
combination with the interested stockholder is approved by the board of
directors and also approved at a stockholders' meeting by the affirmative vote
of the holders of at least two-thirds of the outstanding shares of the
corporation's voting stock other than shares held by the interested stockholder.
For purposes of Section 203, a "business combination" includes certain mergers,
asset sales or other transactions resulting in a financial benefit to the
interested stockholder. The Company, at its option, may exclude itself from the
coverage of Section 203 by amending its charter or Bylaws by action of its
stockholders to exempt itself from coverage, provided that such Bylaw or charter
amendment shall not become effective until 12 months after the date it is
adopted and shall not apply to any business combination between the Company and
any person who became an interested stockholder on or prior to such adoption
(unless the Company, among other things, does not have a class of voting stock
listed on a national securities exchange or on the NASDAQ Stock Market). In
addition, the restrictions of Section 203 may not be applicable to Dennis and
Ann Pence. To date, the Company has not elected to opt out of Section 203 of the
DGCL pursuant to its terms.
In addition to the requirements of Section 203, under the Certificate of
Incorporation, the approval of the holders of two-thirds of the voting power in
the Company is required for certain business combinations involving the Company
and "interested stockholders," defined as persons who, together with affiliates
and associates, own (or within two years, did own) 10% or more of the Company's
voting stock.
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<PAGE>
TRANSFER AGENT
The transfer agent and registrar for the Company's Common Stock is .
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
shares of Common Stock. Of these shares, the shares sold in this
offering plus any additional shares sold upon exercise of the Underwriters'
over-allotment option will be freely tradable without restriction or further
registration under the Securities Act except for any of such shares held by
"affiliates" of the Company.
The remaining shares of Common Stock held by the Existing Stockholders
are "restricted securities" under the Securities Act. All of these restricted
securities are held by Dennis and Ann Pence (who are also executive officers and
directors of the Company), who, together with the Company, have agreed not to
sell, contract to sell, or otherwise dispose of any shares of Common Stock
without the consent of Montgomery Securities for a period of 180 days after the
date of this Prospectus. Upon expiration of such agreements, all of such shares
will be eligible for sale in the public markets in accordance with Rule 144.
In general, under Rule 144 as currently in effect, beginning 90 days after
the conclusion of this offering, a person (or persons whose shares are
aggregated) who has beneficially owned restricted shares for at least two years,
including persons who may be deemed "affiliates" of the Company, will be
entitled to sell in any three-month period a number of shares that does not
exceed the greater of (i) 1% of the then-outstanding shares of Common stock or
(ii) the average weekly trading volume of the Common Stock during the four
calendar weeks immediately preceding the date on which notice of the sale is
filed with the Securities and Exchange Commission. Sales pursuant to Rule 144
are also subject to certain other requirements relating to manner of sale,
notice and availability of current public information about the Company. A
person (or persons whose shares are aggregated) who is not deemed to have been
an affiliate of the Company at any time during the three months immediately
preceding the sale is entitled to sell restricted shares pursuant to Rule 144(k)
without regard to the limitations described above, provided that three years
have expired since the later of the date on which such restricted shares were
first acquired from the Company or from an affiliate of the Company.
The Company has granted options to purchase shares of Common Stock to
certain officers and key employees of the Company pursuant to the 1996 Plan and
an additional shares are available for the grant of future options under
the 1996 Plan. Upon the execution of the Underwriting Agreement associated with
this offering, options to purchase an additional shares of Common Stock
will be granted to non-employee directors under the Company's automatic option
grant program. All of the shares underlying these outstanding options are
subject to the agreements described above restricting the sale of such shares
for a period of 180 days after the date of this Prospectus. Following this
offering, the Company intends to file a Registration Statement under the
Securities Act to register shares of Common Stock issuable upon the exercise of
stock options granted under the Company's 1996 Plan. Except as limited by the
agreements described above, shares issued upon the exercise of stock options
after the effective date of such registration statement generally will be
available for sale in the open market. See "Management."
Because there has been no public market for shares of Common Stock of the
Company, the Company is unable to predict the effect the sales made under Rule
144, pursuant to future registration statements, or otherwise may have on any
then-prevailing market price for shares of the Common Stock. Nevertheless, sales
of a substantial amount of Common Stock in the public market, or the perception
that such sales could occur, could adversely affect market prices.
51
<PAGE>
UNDERWRITING
The Underwriters named below, acting through their representatives,
Montgomery Securities and William Blair & Company, L.L.C. (the
"Representatives"), have severally agreed, subject to the terms and conditions
set forth in the Underwriting Agreement, to purchase from the Company the number
of shares of Common Stock indicated below opposite their respective names at the
initial public offering price less the underwriting discount set forth on the
cover page of this Prospectus. The Underwriting Agreement provides that the
obligations of the Underwriters are subject to certain conditions precedent and
that the Underwriters are committed to purchase all of the shares if they
purchase any.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ------------------------------------------------------------------------------ --------------
<S> <C>
Montgomery Securities.........................................................
William Blair & Company, L.L.C................................................
--------------
Total.......................................................................
--------------
--------------
</TABLE>
The Representatives have advised the Company that the Underwriters propose
initially to offer the Common Stock to the public on the terms set forth on the
cover page of this Prospectus. The Underwriters may allow selected dealers a
concession of not more than $ per share; and the Underwriters may allow,
and such dealers may reallow, a concession of not more than $ per share to
certain other dealers. After the initial public offering, the offering price and
other selling terms may be changed by the Representatives. The Common Stock is
offered subject to receipt and acceptance by the Underwriters, and to certain
other conditions, including the right to reject orders in whole or in part. The
Representatives have advised the Company that they intend to make a market in
the Common Stock after the effective date of this offering.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of an aggregate of additional shares of Common Stock to cover
over-allotments, if any, at the same price per share as the shares initially to
be purchased by the Underwriters. To the extent that the Underwriters exercise
this option, the Underwriters will be committed, subject to certain conditions,
to purchase such additional shares in approximately the same proportion as set
forth in the above table. The Underwriters may purchase such shares only to
cover over-allotments made in connection with this offering.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters and their controlling persons against certain liabilities,
including civil liabilities under the Securities Act, or will contribute to
payments the Underwriters may be required to make in respect thereof.
The Company's Existing Stockholders have agreed that, subject to certain
limited exceptions, for a period of 180 days after the date of this Prospectus,
they will not offer, sell or dispose of any shares of their Common Stock without
the prior written consent of Montgomery Securities.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority in excess of 5% of the number of shares of Common Stock offered
hereby.
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<PAGE>
Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price of the Common Stock will
be determined by negotiations among the Company and the Representatives. Among
the factors considered in such negotiations were the history of, and the
prospects for, the Company and the industry in which it competes, an assessment
of the Company's management, the Company's past and present operations, its past
and present earnings and the trend of such earnings, the general conditions of
the securities markets at the time of the offering and the market prices of
publicly traded common stocks of comparable companies in recent periods.
LEGAL MATTERS
The validity of the Common Stock offered hereby is being passed upon for the
Company by Brobeck, Phleger & Harrison LLP, Palo Alto, California. Certain legal
matters will be passed upon for the Underwriters by Fried, Frank, Harris,
Shriver & Jacobson (a partnership including professional corporations), Los
Angeles, California.
EXPERTS
The financial statements included in this Prospectus and elsewhere in the
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act with respect to the securities offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and in the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock, reference is made
to the Registration Statement, exhibits and schedules. Statements contained in
this Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each such instance reference is made to the copy of
such contract or document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. This
Registration Statement and the exhibits and schedules thereto may be inspected
without charge at the public reference facilities maintained by the Commission
at 450 Fifth Street N.W., Judiciary Plaza, Washington, D.C. 20549, and at the
regional offices of the Commission located at Seven World Trade Center, 13th
Floor, New York, New York 10048 and Citicorp Center, 500 Madison Street, Suite
1400, Chicago, Illinois 60661-2511. Copies of such materials may be obtained
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549, at prescribed rates. Also, the
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of that Web site is (http://www.sec.gov).
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by independent public accountants and
with quarterly reports for the first three fiscal quarters of each fiscal year
containing unaudited financial information.
53
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements under the captions "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in this prospectus, constitute "forward-looking
statements" within the meaning of the Reform Act. Such forward-looking
statements involve known and unknown risks, uncertainties, and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, those described under "Risk Factors" and the following: general
economic and business conditions; competition; success of operating initiatives;
development and operating costs; advertising and promotional efforts; brand
awareness; the existence or adherence to development schedules; the existence or
absence of adverse publicity; availability, locations and terms of sites for
store development; changes in business strategy or development plans; quality of
management; availability, terms and deployment of capital; business abilities
and judgment of personnel; availability of qualified personnel; labor and
employee benefit costs; changes in, or the failure to comply with, government
regulations; construction costs and other factors referenced in this Prospectus.
See "Risk Factors."
54
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Public Accountants................................................................... F-2
Balance Sheet as of March 4, 1995 and March 2, 1996, and Unaudited Historical and Pro Forma Interim Balance
Sheet as of August 31, 1996............................................................................... F-3
Statement of Operations for the fiscal years ended February 26, 1994, March 4, 1995 and March 2, 1996,
Unaudited Interim Statements of Operations for the six months ended September 2, 1995 and August 31, 1996
and unaudited pro forma data for each of the periods presented............................................ F-4
Statement of Stockholders' Equity for the fiscal years ended February 26, 1994, March 4, 1995 and March 2,
1996, and the Unaudited Interim Statement of Stockholders' Equity for the six months ended August 31,
1996...................................................................................................... F-5
Statement of Cash Flows for the fiscal years ended February 26, 1994, March 4, 1995 and March 2, 1996, and
Unaudited Interim Statements of Cash Flows for the six months ended September 2, 1995 and August 31,
1996...................................................................................................... F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Coldwater Creek Inc.:
We have audited the accompanying balance sheets of Coldwater Creek Inc. (a
Delaware corporation) as of March 4, 1995 and March 2, 1996, and the related
statements of operations, stockholders' equity and cash flows for the fiscal
years ended February 26, 1994, March 4, 1995 and March 2, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Coldwater Creek Inc. as of
March 4, 1995 and March 2, 1996, and the results of its operations and its cash
flows for the fiscal years ended February 26, 1994, March 4, 1995 and March 2,
1996, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Boise, Idaho
July 3, 1996
(except for the subsequent events discussed
in Notes 2 and 12, as to which the date is
November 19, 1996)
F-2
<PAGE>
COLDWATER CREEK INC.
BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
AUGUST 31, 1996
MARCH 4, MARCH 2, -----------------------
1995 1996 ACTUAL PRO FORMA
--------- --------- --------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................................... $ 1,695 $ 418 $ 5 $
Receivables..................................................... 275 1,573 1,807
Inventories..................................................... 5,811 8,252 16,452
Prepaid expenses................................................ 169 174 313
Prepaid catalog costs........................................... 389 577 1,793
--------- --------- --------- ------------
Total current assets.......................................... 8,339 10,994 20,370
DEFERRED CATALOG COSTS............................................ 810 2,082 4,582
PROPERTY AND EQUIPMENT, net....................................... 9,883 10,374 14,083
--------- --------- --------- ------------
Total assets.................................................. $ 19,032 $ 23,450 $ 39,035 $
--------- --------- --------- ------------
--------- --------- --------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of capital lease obligations.................... $ 148 $ 159 $ 150 $
Revolving line of credit........................................ 3,700 -- --
Accounts payable................................................ 3,469 6,155 14,360
Accrued liabilities............................................. 399 2,511 3,361
Distributions payable to stockholders........................... -- -- --
--------- --------- --------- ------------
Total current liabilities..................................... 7,716 8,825 17,871
REVOLVING LINE OF CREDIT.......................................... -- -- 7,337
CAPITAL LEASE OBLIGATIONS, net of current portion................. 248 100 31
DEFERRED INCOME TAXES............................................. -- -- --
--------- --------- --------- ------------
Total liabilities............................................. 7,964 8,925 25,239
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 1,000,000 shares authorized,
none issued and outstanding................................... -- -- --
Common Stock, $.01 par value 15,000,000 shares authorized,
issued and outstanding.................................. 43 43 43
Additional paid-in capital...................................... 1 1 1
Retained earnings............................................... 11,024 14,481 13,752
--------- --------- --------- ------------
Total stockholders' equity.................................... 11,068 14,525 13,796
--------- --------- --------- ------------
Total liabilities and stockholders' equity.................... $ 19,032 $ 23,450 $ 39,035 $
--------- --------- --------- ------------
--------- --------- --------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
COLDWATER CREEK INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE INFORMATION)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED (UNAUDITED)
---------------------------------- -------------------------
FEBRUARY 26, MARCH 4, MARCH 2, SEPTEMBER 2, AUGUST 31,
1994 1995 1996 1995 1996
------------ --------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
NET SALES........................................... $ 31,763 $ 45,223 $ 75,905 $ 16,153 $ 39,385
COST OF SALES....................................... 13,505 19,062 32,786 7,196 19,032
------------ --------- --------- ------------ -----------
GROSS PROFIT........................................ 18,258 26,161 43,119 8,957 20,353
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE......... 12,937 21,502 37,356 10,538 19,028
------------ --------- --------- ------------ -----------
INCOME (LOSS) FROM OPERATIONS....................... 5,321 4,659 5,763 (1,581) 1,325
INTEREST, NET....................................... 31 98 (236) (140) (29)
OTHER INCOME (EXPENSE).............................. -- -- 87 87 (25)
------------ --------- --------- ------------ -----------
NET INCOME (LOSS)................................... $ 5,352 $ 4,757 $ 5,614 $ (1,634) $ 1,271
------------ --------- --------- ------------ -----------
------------ --------- --------- ------------ -----------
PRO FORMA INCOME DATA (Unaudited):
Net income (loss) as reported..................... $ 5,352 $ 4,757 $ 5,614 $ (1,634) $ 1,271
Pro forma provision (benefit) for income taxes.... 2,141 1,903 2,246 (654) 508
------------ --------- --------- ------------ -----------
Pro forma net income (loss)....................... $ 3,211 $ 2,854 $ 3,368 $ (980) $ 763
------------ --------- --------- ------------ -----------
------------ --------- --------- ------------ -----------
Pro forma net income per share.................... $ $
--------- -----------
--------- -----------
Pro forma weighted average number of common shares
outstanding..................................... $ $
--------- -----------
--------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
COLDWATER CREEK INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED
FEBRUARY 26, 1994, MARCH 4, 1995 AND MARCH 2, 1996
AND THE UNAUDITED SIX MONTHS ENDED AUGUST 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
----------- ----------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance, February 27, 1993................................... 4,333 $ 43 $ 1 $ 4,042 $ 4,086
Net income................................................... -- -- -- 5,352 5,352
Distributions to Stockholders................................ -- -- -- (1,740) (1,740)
----- ----- ----- --------- ---------
Balance, February 26, 1994................................... 4,333 43 1 7,654 7,698
Net income................................................... -- -- -- 4,757 4,757
Distributions to Stockholders................................ -- -- -- (1,387) (1,387)
----- ----- ----- --------- ---------
Balance, March 4, 1995....................................... 4,333 43 1 11,024 11,068
Net income................................................... -- -- -- 5,614 5,614
Distributions to Stockholders................................ -- -- -- (2,157) (2,157)
----- ----- ----- --------- ---------
Balance, March 2, 1996....................................... 4,333 43 1 14,481 14,525
Net income (unaudited)....................................... -- -- -- 1,271 1,271
Distributions to Stockholders (unaudited).................... -- -- -- (2,000) (2,000)
----- ----- ----- --------- ---------
Balance, August 31, 1996 (unaudited)......................... 4,333 $ 43 $ 1 $ 13,752 $ 13,796
----- ----- ----- --------- ---------
----- ----- ----- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
COLDWATER CREEK INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
------------------------------------- -------------------------
FEB. 26, MARCH 4, MARCH 2, SEPTEMBER 2, AUGUST 31,
1994 1995 1996 1995 1996
--------- ----------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
OPERATING ACTIVITIES:
Net income (loss)................................. $ 5,352 $ 4,757 $ 5,614 $ (1,634) $ 1,271
Noncash items:
Depreciation and amortization................... 325 579 995 446 650
Loss on disposal of equipment................... -- -- -- -- 30
Net change in current assets and liabilities:
Accounts receivable............................. 48 (145) (1,299) (357) (234)
Inventories..................................... (1,445) (2,915) (2,441) (1,700) (8,201)
Prepaid catalog costs........................... (103) (286) (189) (1,661) (1,216)
Prepaid expenses................................ 47 (143) (5) (570) (138)
Accounts payable................................ 594 2,171 2,685 2,299 8,205
Accrued liabilities............................. (40) 120 2,112 406 850
(Increase) decrease in deferred catalog costs..... 86 (477) (1,271) (645) (2,500)
--------- ----------- ------------- ------------ -----------
Net cash provided by (used in) operating
activities...................................... 4,864 3,661 6,201 (3,416) (1,283)
--------- ----------- ------------- ------------ -----------
INVESTING ACTIVITIES:
Sale of short-term investments.................... 700 3,247 -- -- --
Purchase of short-term investments................ (2,921) (1,026) -- -- --
Proceeds on sale of equipment..................... -- 89 1,105 1,105
Purchase of property and equipment................ (1,647) (6,874) (2,590) (1,964) (4,388)
--------- ----------- ------------- ------------ -----------
Net cash provided by (used in) investing
activities...................................... (3,868) (4,564) (1,485) (859) (4,388)
--------- ----------- ------------- ------------ -----------
FINANCING ACTIVITIES:
Payments on capital leases........................ (128) (149) (136) (73) (79)
Distributions to stockholders..................... (1,740) (1,387) (2,157) (1,603) (2,000)
Proceeds from (payments on) revolving lines of
credit, net..................................... -- 3,700 (3,700) 4,331 7,337
--------- ----------- ------------- ------------ -----------
Net cash provided by (used in) financing
activities...................................... (1,868) 2,164 (5,993) 2,655 5,258
--------- ----------- ------------- ------------ -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS..................................... (872) 1,261 (1,277) (1,620) (413)
CASH AND CASH EQUIVALENTS, beginning of period.... 1,306 434 1,695 1,695 418
--------- ----------- ------------- ------------ -----------
CASH AND CASH EQUIVALENTS, end of period.......... $ 434 $ 1,695 $ 418 $ 75 $ 5
--------- ----------- ------------- ------------ -----------
--------- ----------- ------------- ------------ -----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for interest.......... $ 53 $ 39 $ 339 $ 184 $ 18
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
COLDWATER CREEK INC.
NOTES TO THE FINANCIAL STATEMENTS
(DATA AS OF AUGUST 31, 1996 AND FOR THE SIX MONTHS
ENDED SEPTEMBER 2, 1995 AND AUGUST 31, 1996 ARE UNAUDITED.)
1. SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Coldwater Creek Inc. (the "Company") is a specialty direct mail retailer of
apparel, gifts and jewelry, marketing its merchandise through regular catalog
mailings. The principal markets for the Company's merchandise are individuals
within the United States and Canada, with expansion into Japan in fiscal 1995.
In addition, the Company leases retail space in Sandpoint, Idaho where it sells
catalog items and unique store merchandise.
INTERIM FINANCIAL INFORMATION
The interim financial information, as of August 31, 1996 and for the six
months ended September 2, 1995 and August 31, 1996, was prepared by the Company
in a manner consistent with the audited financial statements and pursuant to the
rules and requirements of the Securities and Exchange Commission (the "SEC").
The unaudited information, in management's opinion, reflects all adjustments
which are of a normal recurring nature and which are necessary to present
fairly, in all material respects, the results for the periods presented. The
results of operations for the six months ended August 31, 1996 are not
necessarily indicative of the results to be expected for the entire year.
Historically, a disproportionately higher amount of the Company's sales and most
of its profits have been realized during its third and fourth fiscal quarters.
FINANCIAL STATEMENT PRESENTATION
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reported
period. Actual results could differ from those estimates.
FISCAL YEAR END
The Company's fiscal year ends on the Saturday closest to February 28. The
fiscal year is generally 52 weeks and periodically consists of 53 weeks.
References to a fiscal year refers to the calendar year in which such fiscal
year commences. Fiscal 1994 is the only fiscal year presented that consists of
53 weeks. References to a six month period refer to the 26 weeks ended on the
date indicated.
REVENUE RECOGNITION
The Company recognizes sales and the related cost of sales at the time
merchandise is shipped to customers. The Company provides an allowance for
returns, based on historical experience. Shipping and handling fees charged to
customers and list rental income are netted against selling, general and
administrative expenses in the accompanying statement of operations. Collections
for unshipped orders are reflected as a component of accounts payable.
F-7
<PAGE>
COLDWATER CREEK INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(DATA AS OF AUGUST 31, 1996 AND FOR THE SIX MONTHS
ENDED SEPTEMBER 2, 1995 AND AUGUST 31, 1996 ARE UNAUDITED.)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid debt instruments that
had a maturity date of three months or less at the date of purchase.
INVENTORIES
Inventories consist primarily of merchandise purchased for resale and are
stated at the lower of first-in, first-out cost or market.
PREPAID CATALOG COSTS
Catalog costs associated with the production of the Company's direct mail
catalogs are classified as prepaid catalog costs until they are mailed.
DEFERRED CATALOG COSTS
When the Company's direct mail catalogs are mailed, costs associated with
the production and mailing are deferred and amortized over the periods in which
the related revenues are generated. Substantially all revenues are generated
within the first three months after the catalog is mailed. In accordance with
SEC requirements, deferred catalog costs are classified as noncurrent assets.
Amortization of deferred catalog costs was $8.5 million in fiscal 1993, $14.2
million in fiscal 1994 and $24.8 million in fiscal 1995. For the first six
months of fiscal 1995 and 1996, amortization of deferred catalog costs was $6.2
million and $10.4 million.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Cost includes expenditures for
major additions and improvements and the interest cost associated with
significant capital additions (not significant for any periods presented).
Maintenance and repairs, which do not increase the useful life of the property,
are charged to operations as incurred.
The net book value of property sold or retired is removed from the asset and
related depreciation accounts, and the net gain or loss is included in the
determination of net income.
The provision for depreciation is computed using the straight-line method.
The estimated useful lives are fifteen to forty years for buildings and land
improvements, and three to seven years for furniture and fixtures and machinery
and equipment.
LEASES
Leases for which the Company assumes substantially all property rights and
risks of ownership are considered capital leases and are capitalized as property
and equipment. The related obligation, net of the current portion, is shown as a
long-term liability. All other leases are considered operating leases and rental
payments are charged to operations as incurred.
F-8
<PAGE>
COLDWATER CREEK INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(DATA AS OF AUGUST 31, 1996 AND FOR THE SIX MONTHS
ENDED SEPTEMBER 2, 1995 AND AUGUST 31, 1996 ARE UNAUDITED.)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
For all periods presented, the Company elected to be treated as an S
corporation for federal and state income tax purposes. Accordingly, the
historical statements of operations do not include a provision for income taxes
as the net income of the Company was included in the individual tax returns of
the stockholders. The unaudited pro forma provision for income taxes included in
the statements of operations represent federal and state income taxes that would
have been required had the Company been treated as a C corporation for tax
purposes.
The consummation of this offering will terminate the Company's S corporation
status and the Company will thereafter be treated and taxed as a C corporation.
The C corporation will assume the tax basis of the assets and liabilities of the
terminated S corporation and will record deferred income taxes for the tax
effect of cumulative temporary differences in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." Had the
Company become a C corporation as of August 31, 1996, deferred income taxes of
$1.6 million would have been recorded, arising from the following temporary
differences (in millions):
<TABLE>
<S> <C>
Prepaid and deferred catalog costs................................... $ 2.5
Accrued sales returns................................................ (0.7)
Other................................................................ (0.2)
---------
$ 1.6
---------
---------
</TABLE>
POST-RETIREMENT/POST-EMPLOYMENT BENEFITS
The Company does not provide any post-retirement or post-employment benefits
for employees, other than a qualified profit sharing plan.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist mainly of cash, short-term trade
receivables and payables, borrowing under its revolving lines of credit and a
capital lease for which carrying amounts approximate fair value.
NEW ACCOUNTING STANDARDS
In 1995, Statement of Financial Accounting Standards No. 121 ("SFAS 121"),
"Accounting For the Impairment of Long-lived Assets and For Long-lived Assets to
be Disposed Of" was issued. As required, the Company adopted SFAS 121 during the
first quarter of fiscal 1996. The adoption of this standard did not have a
material impact on the financial statements.
2. REVOLVING LINES OF CREDIT
On March 20, 1995, the Company entered into an agreement (amended September
9, 1996) with a bank to renew and increase its revolving credit facilities. The
agreement provides for an unsecured line of credit which allows the Company to
borrow up to $8,500,000 at an interest rate which is five basis points
F-9
<PAGE>
COLDWATER CREEK INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(DATA AS OF AUGUST 31, 1996 AND FOR THE SIX MONTHS
ENDED SEPTEMBER 2, 1995 AND AUGUST 31, 1996 ARE UNAUDITED.)
2. REVOLVING LINES OF CREDIT (CONTINUED)
below the bank's prevailing reference rate or LIBOR plus one and three quarters
percent (1.75%). The unsecured line of credit expires on June 1, 1997. The
agreement also provides for a secured revolving line of credit which allows the
Company to borrow up to $11,500,000 at an interest rate which is equal to the
bank's prevailing reference rate or LIBOR plus one and eighty-five hundredths
percent (1.85%) and is secured by certain real property, equipment and fixtures
of the Company. The secured line of credit expires on March 31, 1999.
At August 31, 1996, the Company had $7,337,000 outstanding under the
unsecured line of the credit agreement. Under the terms of the agreement, the
Company has the ability to refinance the outstanding amount under the secured
line of credit on a long term basis and intends to do so. Accordingly, the
$7,337,000 outstanding has been classified as long-term.
Under its previous revolving credit facilities, the Company borrowed on an
unsecured basis, at the same interest rates as its present unsecured credit
facilities. At March 4, 1995, the Company had $3,700,000 outstanding under its
unsecured line of credit at 8.95% interest.
The credit agreement provides that the Company must maintain specified
levels of insurance, tangible net worth and debt service coverage. The agreement
also places restrictions on indebtedness to tangible net worth, mergers and
other items.
3. LEASES
CAPITAL LEASES
Certain computer equipment is leased under capital leases. At the end of the
lease term, ownership of the equipment reverts to the Company. The minimum
future lease payments under the capital leases as of March 2, 1996 are as
follows (in thousands):
<TABLE>
<S> <C>
Fiscal 1996............................................. $ 173
Fiscal 1997............................................. 103
---------
Total minimum lease payments............................ 276
Less amount representing interest....................... (17)
---------
Present value of minimum lease payments................. 259
Less current maturities of capital lease obligations.... (159)
---------
Capital lease obligations, net of current portion....... $ 100
---------
---------
</TABLE>
OPERATING LEASES
The Company leases telephone equipment, office equipment and retail space
under operating leases. Rental expense under these leases was $52,000 in fiscal
1993, $85,000 in fiscal 1994 and $356,000 in fiscal 1995. Certain of these
operating leases are noncancellable and have minimum lease payment requirements
of $371,000 in fiscal 1996, $359,000 in fiscal 1997, $342,000 in fiscal 1998,
$315,000 in fiscal 1999 and $12,000 in fiscal 2000.
F-10
<PAGE>
COLDWATER CREEK INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(DATA AS OF AUGUST 31, 1996 AND FOR THE SIX MONTHS
ENDED SEPTEMBER 2, 1995 AND AUGUST 31, 1996 ARE UNAUDITED.)
4. PROPERTY AND EQUIPMENT
Property and equipment, net consists of:
<TABLE>
<CAPTION>
MARCH 4, MARCH 2, AUGUST 31,
1995 1996 1996
--------- --------- -----------
<S> <C> <C> <C>
(IN THOUSANDS)
Land........................................................ $ 266 $ 150 $ 150
Building and land improvements.............................. 4,187 7,625 10,174
Furniture and fixtures...................................... 462 971 1,206
Machinery and equipment..................................... 2,504 3,821 5,417
Construction in progress.................................... 3,753 -- 6
--------- --------- -----------
11,172 12,567 16,953
Less: accumulated depreciation.............................. 1,289 2,193 2,870
--------- --------- -----------
$ 9,883 $ 10,374 $ 14,083
--------- --------- -----------
--------- --------- -----------
</TABLE>
5. ACCRUED LIABILITIES
Accrued liabilities consist of:
<TABLE>
<CAPTION>
MARCH 4, MARCH 2, AUGUST 31,
1995 1996 1996
----------- ----------- -----------
<S> <C> <C> <C>
(IN THOUSANDS)
Accrued salaries, wages and employee benefits............... $ 95 $ 559 $ 1,326
Accrued payroll taxes....................................... 86 153 49
Accrued sales returns....................................... 150 1,523 1,806
Other....................................................... 68 276 180
----- ----------- -----------
$ 399 $ 2,511 $ 3,361
----- ----------- -----------
----- ----------- -----------
</TABLE>
6. RETIREMENT PLAN
Effective October 8, 1991, and as amended from time to time, the Company
adopted a tax-qualified employee savings, retirement and profit sharing plan
qualified under Section 401(k) of the Internal Revenue Code (the "401(k) Plan")
under which eligible employees may elect to defer their current compensation by
up to certain statutorily prescribed annual limits and to contribute such
amounts to the 401(k) Plan. Contributions to the 401(k) Plan and income earned
on the contributions are not taxable to employees until withdrawn from the
401(k) Plan. All employees with 1,000 hours of service who have been working
with the Company for one year are eligible to participate in the 401(k) Plan.
The Company matches a certain percentage of the employees' contribution and
provides a discretionary profit sharing contribution based on overall
profitability of the Company. Company contributions to the 401(k) Plan were
$119,000, $76,000, and $83,000 for the fiscal years 1993, 1994 and 1995.
F-11
<PAGE>
COLDWATER CREEK INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(DATA AS OF AUGUST 31, 1996 AND FOR THE SIX MONTHS
ENDED SEPTEMBER 2, 1995 AND AUGUST 31, 1996 ARE UNAUDITED.)
7. 1996 STOCK OPTION/STOCK ISSUANCE PLAN
The Company's 1996 Stock Option/Stock Issuance Plan (the "1996 Plan") was
adopted by the Board of Directors and approved by the stockholders on March 4,
1996. 665,000 shares of Common Stock have been authorized for issuance under the
1996 Plan.
The 1996 Plan is divided into three separate components: (i) the
Discretionary Option Grant Program under which eligible individuals, which
include officers and other key employees, non-employee directors and consultants
and other independent advisors, may, at the discretion of the Plan
Administrator, be granted options to purchase shares of Common Stock at an
exercise price not less than 85% of their fair market value for non-statutory
options and 100% of their fair market value for incentive options on the grant
date, (ii) the Stock Issuance Program under which such individuals may, in the
Plan Administrator's discretion, be issued shares of Common Stock directly at a
price not less than 100% of their fair market value at the time of issuance or
as a bonus tied to the performance of services and/or the achievement of
performance goals and (iii) the Automatic Option Grant Program under which
option grants will automatically be made at periodic intervals to eligible
non-employee Board members to purchase shares of Common Stock at an exercise
price equal to 100% of their fair market value on the grant date.
The Discretionary Option Grant Program and the Stock Issuance Program will
be administered by the Compensation Committee. The Compensation Committee as
Plan Administrator will have complete discretion (subject to the provisions of
the 1996 Plan) to determine (i) with respect to options, which eligible
individuals are to receive option grants, the time or times when such option
grants are to be made, the number of shares subject to each such grant, the
status of any granted option as either an incentive stock option or a
non-statutory stock option under the Federal tax laws, the vesting schedule to
be in effect for the option grant and the maximum term for which any granted
option is to remain outstanding, and (ii) with respect to stock issuances, the
number of shares to be issued to each eligible person, any vesting schedule to
be applicable and consideration for such shares.
Common Stock purchased upon the exercise of an option must be paid for by
cash or by delivery of certain previously acquired shares of Common Stock with a
fair market value (as of the exercise date) equal to the option exercise price
or, with the consent of the Compensation Committee under the Discretionary
Option Grant Program, by delivery of the optionee's promissory note. With the
Compensation Committee's approval, the employee option holder may elect to
satisfy tax withholding obligations by directing the Company to withhold shares
valued at the amount of the withholding obligation from the number purchased or
by delivery of previously acquired shares of Common Stock.
Upon certain acquisitions of the Company by merger, consolidation or asset
sale, outstanding options and unvested stock issuances will be subject to
accelerated vesting under certain circumstances.
The Plan Administrator has the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program in return for
the grant of new options for the same or different number of option shares with
an exercise price per share of 85%, 100% or 110% (under certain circumstances)
of the fair market value of the Common Stock on the new grant date.
Under the Automatic Option Grant Program, each individual serving as a
non-employee Board member on the date the Underwriting Agreement for this
Offering is executed will receive an option grant on such date for 8,000 shares
of Common Stock, provided such individual has not otherwise been in the
F-12
<PAGE>
COLDWATER CREEK INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(DATA AS OF AUGUST 31, 1996 AND FOR THE SIX MONTHS
ENDED SEPTEMBER 2, 1995 AND AUGUST 31, 1996 ARE UNAUDITED.)
7. 1996 STOCK OPTION/STOCK ISSUANCE PLAN (CONTINUED)
prior employ of the Company. Each individual who first becomes a non-employee
Board member thereafter will receive an 8,000-share option grant on the date
such individual joins the Board, provided such individual has not been in the
prior employ of the Company. In addition, at each Annual Stockholders Meeting,
beginning with the first Annual Meeting held after the offering, each individual
who is to continue to serve as a non-employee Board member after the meeting
will receive an additional option grant to purchase 1,000 shares of Common Stock
whether or not he or she is standing for reelection at that meeting or has been
in the prior employ of the Company, provided such individual has served as a
non-employee Board member for at least six months.
Each automatic grant will have a maximum term of 10 years, subject to
earlier termination for vested shares not exercised two years following the
optionee's cessation of Board service. The initial 8,000-share grant will vest
in three equal and successive annual installments over the optionee's period of
Board service. Each additional 1,000-share grant will vest upon the optionee's
completion of one year of Board service measured from the grant date. However,
each outstanding option will immediately vest upon (i) certain changes in the
ownership or control of the Company or (ii) the death or disability of the
optionee while serving as a Board member.
The Board may amend or modify the 1996 Plan at any time, subject to certain
limitations. The 1996 Plan will terminate on March 3, 2006, unless sooner
terminated by the Board.
Options to purchase 265,000 shares of Common Stock have been granted under
the discretionary option grant component of the plan to certain key employees.
Each option may be tendered, along with $11.00, for one share of the Company's
Common Stock. The options granted become exercisable on a pro-rata basis over
four years. The Board of Directors believes that the exercise price represents
the fair market value of the Company's Common Stock at the date of grant. No
compensation expense has been recorded related to these options.
8. REINCORPORATION, COMMON AND PREFERRED STOCK
On March 4, 1996, the Board approved the reincorporation of the Company in
Delaware and the merger of Coldwater Creek Inc. (an Idaho corporation) with and
into Coldwater Creek Inc. (a Delaware corporation), effective April 17, 1996.
The Certificate of Incorporation filed with the State of Delaware authorized
15,000,000 shares of $.01 par value common stock and 1,000,000 shares of $.01
par value preferred stock. As a result of the merger, each share of the Idaho
corporation common stock, $1.00 par value, issued and outstanding was converted
into and exchanged for 140 shares of $.01 par value common stock of the Delaware
corporation.
9. DISTRIBUTIONS TO STOCKHOLDERS
Immediately prior to the consummation of the offering, the stockholders of
the Company and the Company intend to enter into an Agreement for Distribution
of Retained Earnings and Tax Indemnification (the "Agreement"). Pursuant to the
Agreement, the remaining undistributed accumulated S corporation earnings will
be distributed in the form of promissory notes issued by the Company, as of the
date of the Company's S corporation status is terminated. The notes will be paid
in full promptly after the closing of the offering.
F-13
<PAGE>
COLDWATER CREEK INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(DATA AS OF AUGUST 31, 1996 AND FOR THE SIX MONTHS
ENDED SEPTEMBER 2, 1995 AND AUGUST 31, 1996 ARE UNAUDITED.)
9. DISTRIBUTIONS TO STOCKHOLDERS (CONTINUED)
The Agreement also provides that (i) the existing stockholders will be
indemnified by the Company with respect to federal and state income tax
liabilities as a result of an adjustment to the Company's taxable income which
increases the tax liability of the Existing Stockholders for taxable periods
ending prior to the termination of the S corporation status, and (ii) the
Existing Stockholders will indemnify the Company with respect to any federal and
state tax liabilities as a result of an adjustment which decreases the Existing
Stockholders' tax liability for taxable periods ending prior to the termination
of the Company's S corporation status and correspondingly increases the tax
liability of the Company for a taxable period commencing on or after the
termination of the Company's S corporation status.
10. CONTINGENCIES
The Company is involved in litigation and administrative proceedings
primarily arising in the normal course of its business. In the opinion of
management, the Company's recovery, if any, or the Company's liability, if any,
under any pending litigation or administrative proceedings would not materially
affect its financial condition, operations or liquidity.
The Company's direct mail business is based solely in the state of Idaho and
sales taxes are collected solely from customers in the state of Idaho. Various
states have sought to impose on direct marketers the burden of collecting state
sales taxes on the sale of merchandise shipped to that state's residents. The
U.S. Supreme Court has held that the various states, absent Congressional
legislation, may not impose tax collection obligations on an out-of-state mail
order company whose only contacts with the taxing state are the distribution of
catalogs and other advertisement materials through the mail, and whose
subsequent delivery of purchased goods is by mail or interstate common carriers.
In November 1995, however, the Supreme Court let stand a decision of New York's
highest state court requiring an out-of-state catalog company to collect a use
tax (including a retroactive assessment, plus interest) on its mail order sales
in the State, where the Catalog Company's reported contacts with New York
included a limited number of visits by salesforce employees. The Company has not
received an assessment from any state. The Company anticipates that any
legislative changes, if adopted, would be applied only on a prospective basis.
11. PRO FORMA ADJUSTMENTS (UNAUDITED)
UNAUDITED PRO FORMA BALANCE SHEET
The unaudited pro forma balance sheet as of August 31, 1996 reflects an
assumed S corporation distribution to the Existing Stockholders of the Company
of $13.8 million, which represents the accumulated undistributed earnings of the
Company as of that date. Distributions of approximately $5.6 million are
expected to be made related to earnings for the period from September 1, 1996
through the termination of the S corporation status. The pro forma balance sheet
as of August 31, 1996 also reflects an estimated deferred income tax liability
of $1.6 million that would be recorded if the Company terminated its S
corporation status at that date and the reclassification of $1.6 million of
accumulated deficit, after giving effect to the above pro forma adjustments, to
additional paid-in capital.
F-14
<PAGE>
COLDWATER CREEK INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(DATA AS OF AUGUST 31, 1996 AND FOR THE SIX MONTHS
ENDED SEPTEMBER 2, 1995 AND AUGUST 31, 1996 ARE UNAUDITED.)
11. PRO FORMA ADJUSTMENTS (UNAUDITED) (CONTINUED)
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
The unaudited pro forma income data presents the pro forma effects on
historical net income adjusted for pro forma provision for income taxes. Such
provision reflects the income taxes had the Company been taxed as a C
corporation for all periods presented at the statutory rates in effect at the
time. The effective tax rate is 40% for all periods presented. The pro forma
provision for income taxes varies from the amount which would be provided by
applying the statutory federal rate to historic net income (loss). The primary
reason for this difference is the effect of state of Idaho income taxes.
Pro forma net income per share is based on pro forma net income as described
above divided by pro forma weighted average number of common stock and
stock equivalents outstanding, including actual shares outstanding,
shares deemed to be outstanding and the dilutive effect of shares issuable under
stock options. The shares deemed to be outstanding represent the number of
shares sufficient to fund the anticipated S corporation distribution of $13.8
million to be made out of the proceeds of the offering.
12. SUBSEQUENT EVENT
On November 19, 1996, the Board approved a $6.5 million distribution to the
stockholders.
F-15
<PAGE>
[INSIDE BACK COVER]
[collage of Company merchandise]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY SECURITIES
OFFERED HEREBY BY ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
----------------------
TABLE OF CONTENTS
----------------------
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
PROSPECTUS SUMMARY............................. 3
RISK FACTORS................................... 6
S CORPORATION DISTRIBUTIONS.................... 14
USE OF PROCEEDS................................ 15
DIVIDEND POLICY................................ 15
CAPITALIZATION................................. 16
DILUTION....................................... 17
SELECTED FINANCIAL AND OPERATING DATA.......... 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................... 19
BUSINESS....................................... 25
MANAGEMENT..................................... 39
CERTAIN TRANSACTIONS........................... 45
PRINCIPAL STOCKHOLDERS......................... 46
DESCRIPTION OF CAPITAL STOCK................... 47
SHARES ELIGIBLE FOR FUTURE SALE................ 51
UNDERWRITING................................... 52
LEGAL MATTERS.................................. 53
EXPERTS........................................ 53
ADDITIONAL INFORMATION......................... 53
SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS................................... 54
INDEX TO FINANCIAL STATEMENTS.................. F-1
</TABLE>
----------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
SHARES
[LOGO]
COMMON STOCK
-------------------
PROSPECTUS
-------------------
MONTGOMERY SECURITIES
WILLIAM BLAIR & COMPANY
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of Common Stock being registered. All the amounts shown are estimates except for
the SEC registration fee, the NASD filing fee and the Nasdaq National Market
application fee.
<TABLE>
<S> <C>
SEC Registration Fee.................................................... $
NASD Filing Fee.........................................................
Nasdaq National Market Application Fee..................................
Blue Sky Qualification Fee and Expenses.................................
Printing and Engraving Expenses.........................................
Legal Fees and Expenses.................................................
Accounting Fees and Expenses............................................
Transfer Agent and Registrar Fees.......................................
Directors and Officers Insurance Premium................................
Miscellaneous...........................................................
---------
Total...............................................................
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act. The
Registrant's Certificate of Incorporation and/or Bylaws provide for mandatory
indemnification of its directors, officers and certain fiduciaries to the
maximum extent permitted by the Delaware General Corporation Law. The Registrant
has entered into indemnification agreements with certain of its officers and
directors, a form of which is attached as Exhibit hereto and incorporated
herein by reference. The indemnification agreements provide the Registrant's
directors with further indemnification to the maximum extent permitted by the
Delaware General Corporation Law. The Company has also obtained directors and
officers insurance to insure its directors and officers against certain
liabilities, including certain liabilities under the Securities Laws. Reference
is also made to the Underwriting Agreement, to be filed as Exhibit 1.1 hereto,
indemnifying officers and directors of the Registrant against certain
liabilities.
ITEM 15. RECENT SALE OF UNREGISTERED SECURITIES
Since January 1, 1993, the Company has issued options to purchase securities
without registration under the Securities Act of 1933, as amended (the "Act") in
the transactions and in reliance on the exemptions from registration described
below.
On March 4, 1996, the Company issued options to purchase an aggregate of
shares of Common Stock pursuant to the 1996 Stock Option/Stock Issuance
Plan in reliance on Rule 701 promulgated under the Act.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation
3.2 Bylaws
4.1* Specimen Stock Certificate
5.1* Opinion of Brobeck, Phleger & Harrison LLP
10.1.1 Form of Indemnity Agreement between the Registrant and each of its Directors
10.1.2* Form of Agreement for Distribution of Retained Earnings and Tax Indemnification between the Company and
Dennis and Ann Pence
10.1.3 Lease to Coeur d'Alene Call Facility
10.1.4 Lease to Cedar Street Bridge Store
10.1.5 Lease to Jackson Hole Retail Store
10.1.6 Loan Agreement dated September 9, 1996 between the Company and U.S. Bank of Idaho, formerly West One
Bank, Idaho
10.2 1996 Stock Option/Stock Issuance Plan
10.2.1 Form of Stock Option Agreement under 1996 Stock Option/Stock Issuance Plan
11 Computation of Pro Forma earnings per share
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1)
24.1 Power of Attorney (included on the signature page to the Registration Statement)
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed with amendment.
(B) FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are not required, they are not
applicable or the information is already included in the financial statements or
notes thereto.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters, at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
II-2
<PAGE>
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Sandpoint,
State of Idaho, on this 22nd day of November, 1996.
COLDWATER CREEK INC.
By: /s/ DENNIS PENCE
-----------------------------------------
Dennis Pence
PRESIDENT AND CHIEF EXECUTIVE OFFICER
AND CHAIRMAN OF THE BOARD OF DIRECTORS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Dennis Pence and Donald Robson, and each of them
singly, as his true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities to sign the Registration Statement filed herewith and any
or all amendments to said Registration Statement (including post-effective
amendments and registration statements filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended and otherwise), and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission granting unto said attorneys-in-fact and
agents the full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the foregoing, as full to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or his or
her substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
President, Chief Executive
/s/ DENNIS PENCE Officer, Vice Chairman
- ------------------------------ of the Board of November 22, 1996
Dennis Pence Directors, and Director
/s/ ANN PENCE Chairman of the Board of
- ------------------------------ Directors, Creative November 22, 1996
Ann Pence Director and Director
Chief Financial Officer,
Vice President of
/s/ DONALD ROBSON Finance and
- ------------------------------ Administration, November 22, 1996
Donald Robson Treasurer, Secretary,
and Director
/s/ ROBERT H. MCCALL
- ------------------------------ Director November 22, 1996
Robert H. McCall
/s/ JAMES R. ALEXANDER
- ------------------------------ Director November 22, 1996
James R. Alexander
/s/ CURT HECKER
- ------------------------------ Director November 22, 1996
Curt Hecker
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT PAGE
- --------- ----------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
1.1* Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation..............................................
3.2 Bylaws.........................................................................................
4.1* Specimen Stock Certificate
5.1* Opinion of Brobeck, Phleger & Harrison LLP
10.1.1 Form of Indemnity Agreement between the Registrant and each of its Directors...................
10.1.2* Form of Agreement for Distribution of Retained Earnings and Tax Indemnification between the
Company and Dennis and Ann Pence
10.1.3 Lease to Coeur d'Alene Call Facility...........................................................
10.1.4 Lease to Cedar Street Bridge Store.............................................................
10.1.5 Lease to Jackson Hole Retail Store.............................................................
10.1.6 Loan Agreement dated September 9, 1996 between the Company and U.S. Bank of Idaho, formerly
West One Bank, Idaho...........................................................................
10.2 1996 Stock Option/Stock Issuance Plan..........................................................
10.2.1 Form of Stock Option Agreement under 1996 Stock Option/Stock Issuance Plan.....................
11 Computation of Pro Forma earnings per share....................................................
23.1 Consent of Arthur Andersen LLP.................................................................
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1)...........................
24.1 Power of Attorney (included on the signature page to the Registration Statement)...............
27.1 Financial Data Schedule........................................................................
</TABLE>
- ------------------------
* To be filed with amendment.
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
COLDWATER CREEK INC.
(Pursuant to Sections 242, 245 and 228 of
the Delaware General Corporation Law)
Coldwater Creek Inc., (the "Corporation"), a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"General Corporation Law")
FIRST. The name of the corporation is Coldwater Creek Inc. (the
"Corporation"). The Corporation was originally incorporated in Delaware on
March 1, 1996.
SECOND. The address of its registered office in the State of Delaware is
1013 Centre Road, in the City of Wilmington, County of New Castle. The name of
its registered agent at such address is The Prentice-Hall Corporation System,
Inc.
THIRD. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH. (a) The Corporation is authorized to issue 16,000,000 shares of
capital stock, $0.01 par value. The shares shall be divided into two classes,
designated as follows:
Designation of Class Number of Shares Par Value
--------------------- ----------------- -----------
Common Stock 15,000,000 $0.01
Preferred Stock 1,000,000 $0.01
-----------------------
TOTAL: 16,000,000
(b) The Preferred Stock may be issued from time to time in one
or more series. The Board of Directors is expressly authorized, in the
resolution or resolutions providing for the issuance of any wholly unissued
series of Preferred Stock, to fix, state and express the powers, rights,
designations, preferences, qualifications, limitations and restrictions thereof,
including without limitation: the rate of dividends upon which and the times at
which dividends on shares of such series shall be payable and the preference, if
any,
<PAGE>
which such dividends shall have relative to dividends on shares of any other
class or classes or any other series of stock of the Corporation; whether
such dividends shall be cumulative or noncumulative, and if cumulative, the
date or dates from which dividends on shares of such series shall be
cumulative; the voting rights, if any, to be provided for shares of such
series; the rights, if any, which the holders of shares of such series shall
have in the event of any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Corporation; the rights, if any, which the
holders of shares of such series shall have to convert such shares into or
exchange such shares for shares of stock of the Corporation, and the terms
and conditions, including price and rate of exchange of such conversion or
exchange; and the redemption rights (including sinking fund provisions), if
any, for shares of such series; and such other powers, rights, designations,
preferences, qualifications, limitations and restrictions as the Board of
Directors may desire to so fix. The Board of Directors is also expressly
authorized to fix the number of shares constituting such series and to
increase or decrease the number of shares of any series prior to the issuance
of shares of that series and to increase or decrease the number of shares of
any series subsequent to the issuance of shares of that series, but not to
decrease such number below the number of shares of such series then
outstanding. In case the number of shares of any series shall be so
decreased, the shares constituting such decrease shall resume the status
which they had prior to the adoption of the resolution originally fixing the
number of shares of such series.
FIFTH. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is authorized to make, alter or repeal any or
all of the Bylaws of the Corporation; provided, however, that any Bylaw
amendment adopted by the Board of Directors increasing or reducing the
authorized number of Directors shall require the affirmative vote of
two-thirds of the total number of Directors which the Corporation would have
if there were no vacancies. In addition, new Bylaws may be adopted or the
Bylaws may be amended or repealed by the affirmative vote of at least 66-2/3%
of the combined voting power of all shares of the Corporation entitled to
vote generally in the election of directors, voting together as a single
class. Notwithstanding anything contained in this Amended and Restated
Certificate of Incorporation to the contrary, the affirmative vote of the
holders of at least 66-2/3% of the combined voting power of all shares of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required to alter, change, amend, repeal
or adopt any provision inconsistent with, this Article FIFTH.
SIXTH. (a) Any action required or permitted to be taken by the
stockholders of the Corporation must be effected at an annual or special meeting
of stockholders of the Corporation and may not be effected by any consent in
writing of such stockholders.
(b) Special meetings of stockholders of the Corporation may be
called only by the Chairman of the Board of Directors or Vice Chairman of the
Board of Directors, or by the Chairman, the Vice Chairman or the Secretary at
the written request of a majority of the total number of Directors which the
Corporation would have if there were no vacancies upon not fewer than 10 nor
more than 60 days' written notice. The
2.
<PAGE>
request shall be sent to the Chairman, Vice Chairman and the Secretary and
shall state the purposes of the proposed meeting. Special meetings of
holders of the outstanding Preferred Stock may be called in the manner and
for the purposes provided in the resolutions of the Board of Directors
providing for the issue of such stock. Business transacted at special
meetings shall be confined to the purpose or purposes stated in the notice of
meeting.
(c) Notwithstanding anything contained in this Amended and
Restated Certificate of Incorporation to the contrary, the affirmative vote
of the holders of at least 66-2/3% of the combined voting power of all shares
of the Corporation entitled to vote generally in the election of directors,
voting together as a single class, shall be required to alter, change, amend,
repeal or adopt any provision inconsistent with, this Article SIXTH.
SEVENTH. (a) The number of Directors which shall constitute the whole
Board of Directors of this corporation shall be as specified in the Bylaws of
this corporation, subject to this Article SEVENTH.
(b) The Directors shall be classified with respect to the time
for which they severally hold office into three classes designated Class I,
Class II and Class III, as nearly equal in number as possible, as shall be
provided in the manner specified in the Bylaws of the Corporation. Each
Director shall serve for a term ending on the date of the third annual meeting
of stockholders following the annual meeting at which the Director was elected;
provided, however, that each initial Director in Class I shall hold office until
the annual meeting of stockholders in 1999, each initial Director in Class II
shall hold office until the annual meeting of stockholders in 1998, and each
initial Director in Class III shall hold office until the annual meeting of
stockholders in 1997. Notwithstanding the foregoing provisions of this Article,
each Director shall serve until his successor is duly elected and qualified or
until his death, resignation or removal.
(c) In the event of any increase or decrease in the authorized
number of Directors, (i) each Director then serving as such shall nevertheless
continue as a Director of the class of which he is a member until the expiration
of his current term, or his early resignation, removal from office or death, and
(ii) the newly created or eliminated directorship resulting from such increase
or decrease shall be apportioned by the Board of Directors among the three
classes of Directors so as to maintain such classes as nearly equally as
possible.
(d) Any Director or the entire Board of Directors may be removed
by the affirmative vote of the holders of a majority of the combined voting
power of all shares of the Corporation entitled to vote generally in the
election of directors, voting together as a single class.
(e) Notwithstanding anything contained in this Amended and
Restated Certificate of Incorporation to the contrary, the affirmative vote
of the holders of at least 66-2/3% of the combined voting power of all shares
of the Corporation entitled to
3.
<PAGE>
vote generally in the election of directors, voting together as a single
class, shall be required to alter, change, amend, repeal or adopt any
provision inconsistent with, this Article SEVENTH.
EIGHTH. (a) 1. In addition to any affirmative vote required by law,
any Business Combination (as hereinafter defined) shall require the affirmative
vote of at least 66-2/3% of the combined voting power of all shares of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class (for purposes of this Article EIGHTH, the "Voting
Shares"). Such affirmative vote shall be required notwithstanding the fact
that no vote may be required, or that some lesser percentage may be specified by
law or in any agreement with any national securities exchange or otherwise.
2. The term "Business Combination" as used in this
Article EIGHTH shall mean any transaction which is referred to in any one or
more of the following clauses (A) through (E):
(A) any merger or consolidation of the Corporation or
any Subsidiary (as hereinafter defined) with or into (i) any Interested
Stockholder (as hereinafter defined) or (ii) any other corporation (whether or
not itself an Interested Stockholder) which is, or after such merger or
consolidation would be, an Affiliate (as hereinafter defined) or Associate (as
hereinafter defined) of an Interested Stockholder; or
(B) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a series of related
transactions) to or with, or proposed by or on behalf of, any Interested
Stockholder or any Affiliate or Associate of any Interested Stockholder, of any
assets of the Corporation or any Subsidiary constituting not less than 5% of the
total assets of the Corporation, as reported in the consolidated balance sheet
of the Corporation as of the end of the most recent quarter with respect to
which such balance sheet has been prepared; or
(C) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of related transactions) of any
securities of the Corporation or any Subsidiary to, or proposed by or on behalf
of, any Interested Stockholder or any Affiliate or Associate of any Interested
Stockholder in exchange for cash, securities or other property (or a combination
thereof) constituting not less than 5% of the total assets of the Corporation,
as reported in the consolidated balance sheet of the Corporation as of the end
of the most recent quarter with respect to which such balance sheet has been
prepared; or
(D) the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation, or any spin-off or split-up of
any kind of the Corporation or any Subsidiary, proposed by or on behalf of an
Interested Stockholder or any Affiliate or Associate of any Interested
Stockholder; or
4.
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(E) any reclassification of securities (including
any reverse stock split), or recapitalization of the Corporation, or any
merger or consolidation of the Corporation with any of its Subsidiaries or
any similar transaction (whether or not with or into or otherwise involving
an Interested Stockholder) which has the effect, directly or indirectly, of
increasing the percentage of the outstanding shares of (i) any class of
equity securities of the Corporation or any Subsidiary or (ii) any class of
securities of the Corporation or any Subsidiary convertible into equity
securities of the Corporation or any Subsidiary, represented by securities of
such class which are directly or indirectly owned by any Interested
Stockholder or any Affiliate or Associate of any Interested Stockholder.
(b) The provisions of section (a) of this Article EIGHTH
shall not be applicable to any particular Business Combination, and such
Business Combination shall require only such affirmative vote as is required
by law and any other provision of this Amended and Restated Certificate of
Incorporation, if such Business Combination has been approved by two-thirds
of the whole Board of Directors.
(c) For the purposes of this Article EIGHTH:
1. A "person" shall mean any individual, firm,
corporation or other entity.
2. "Interested Stockholder" shall mean, in respect of
any Business Combination, any person (other than the Corporation or any
Subsidiary) who or which, as of the record date for the determination of
stockholders entitled to notice of and to vote on such Business Combination, or
immediately prior to the consummation of any such transaction
(A) is or was, at any time within two years prior
thereto, the beneficial owner, directly or indirectly, of 10% or more of the
then outstanding Voting Shares, or
(B) is an Affiliate or Associate of the Corporation
and at any time within two years prior thereto was the beneficial owner,
directly or indirectly, of 10% or more of the then outstanding Voting Shares, or
(C) is an assignee of or has otherwise succeeded to
any shares of capital stock of the Corporation which were at any time within two
years prior thereto beneficially owned by any Interested Stockholder, if such
assignment or succession shall have occurred in the course of a transaction, or
series of transactions, not involving a public offering within the meaning of
the Securities Act of 1933, as amended.
3. A "person" shall be the "beneficial owner" of any
Voting Shares
5.
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(A) which such person or any of its Affiliates and
Associates (as hereinafter defined) beneficially own, directly or indirectly, or
(B) which such person or any of its Affiliates or
Associates has (i) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any agreement,
arrangement or understanding or upon the exercise of conversion rights, exchange
rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to
any agreement, arrangement or understanding, or
(C) which are beneficially owned, directly or
indirectly, by any other person with which such first mentioned person or any of
its Affiliates or Associates has any agreement, arrangement or understanding for
the purposes of acquiring, holding, voting or disposing of any shares of capital
stock of the Corporation.
4. The outstanding Voting Shares shall include shares
deemed owned through application of paragraph 3 above but shall not include any
other Voting Shares which may be issuable pursuant to any agreement, or upon
exercise of conversion rights, warrants or options, or otherwise.
5. "Affiliate" and "Associate" shall have the
respective meanings given those terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in effect on the
date of adoption of this Amended and Restated Certificate of Incorporation
(the "Exchange Act").
6. "Subsidiary" shall mean any corporation of which a
majority of any class of equity security (as defined in Rule 3a11-1 of the
General Rules and Regulations under the Exchange Act) is owned, directly or
indirectly, by the Corporation; PROVIDED, HOWEVER, that for the purposes of the
definition of Interested Stockholder set forth in paragraph 2 of this
section (c) the term "Subsidiary" shall mean only a corporation of which a
majority of each class of equity security is owned, directly or indirectly, by
the Corporation.
(d) A majority of the directors shall have the power and duty to
determine for the purposes of this Article EIGHTH on the basis of information
known to them, (1) whether a person is an Interested Stockholder, (2) the number
of Voting Shares beneficially owned by any person, (3) whether a person is an
Affiliate or Associate of another, (4) whether a person has an agreement,
arrangement or understanding with another as to the matters referred to in
paragraph 3 of section (c), or (5) whether the assets subject to any Business
Combination or the consideration received for the issuance or transfer of
securities by the Corporation or any Subsidiary constitutes not less than 5% of
the total assets of the Corporation.
(e) Nothing contained in this Article EIGHTH shall be construed
to relieve any Interested Stockholder from any fiduciary obligation imposed by
law.
6.
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(f) Notwithstanding anything contained in this Amended and
Restated Certificate of Incorporation to the contrary, the affirmative vote
of the holders of at least 66-2/3% of the combined voting power of all shares
of the Corporation entitled to vote generally in the election of directors,
voting together as a single class, shall be required to alter, change, amend,
repeal or adopt any provision inconsistent with, this Article EIGHTH.
NINTH. This Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred on stockholders herein are granted subject to this
reservation.
TENTH. A Director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a Director, except for liability (i) for any breach of the
Director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under Section 174 of the General
Corporation Law of Delaware, or (iv) for any transaction from which the
Director derived any improper personal benefit. If the General Corporation
Law of Delaware is hereafter amended to authorize, with the approval of a
corporation's stockholders, further reductions in the liability of a
corporation's directors for breach of fiduciary duty, then a Director of the
Corporation shall not be liable for any such breach to the fullest extent
permitted by the General Corporation Law of Delaware as so amended. Any
repeal or modification of the foregoing provisions of this Article ELEVENTH
by the stockholders of the Corporation shall not adversely affect any right
or protection of a Director of the Corporation existing at the time of such
repeal or modification.
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been signed by the President of the Corporation this 22nd
day of November, 1996.
COLDWATER CREEK INC.
By: /s/ Dennis C. Pence
--------------------------------
Dennis C. Pence
President
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BYLAWS
OF
COLDWATER CREEK INC.
(A DELAWARE CORPORATION)
ARTICLE 1 - STOCKHOLDERS
1.1 PLACE OF MEETINGS. All meetings of stockholders shall be held at
such place within or without the State of Delaware as may be designated from
time to time by the Board of Directors or the President or, if not so
designated, at the registered office of the corporation.
1.2 ANNUAL MEETING. The annual meeting of stockholders for the
election of directors and for the transaction of such other business as may
properly be brought before the meeting shall be held each year beginning in the
calendar year 1997 on such date and at such time as the Board of Directors
determines. If this date shall fall upon a legal holiday at the place of the
meeting, then such meeting shall be held on the next succeeding business day at
the same hour. If no annual meeting is held in accordance with the foregoing
provisions, the Board of Directors shall cause the meeting to be held as soon
thereafter as convenient.
1.3 SPECIAL MEETINGS. Special meetings of stockholders may be called
only in accordance with Article SIXTH of the Certificate of Incorporation as it
may be amended from time to time (the "Certificate of Incorporation").
1.4 NOTICE OF MEETINGS. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the corporation.
1.5 VOTING LIST. The officer who has charge of the stock ledger of
the corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, at a place within the city where the meeting is to
be held. The list shall also be produced and kept at the time and place of the
meeting during the whole time of the meeting, and may be inspected by any
stockholder who is present.
1.
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1.6 QUORUM. Except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.7 ADJOURNMENTS. Any meeting of stockholders may be adjourned to
another time and to any other place at which a meeting of stockholders may be
held under these Bylaws by the stockholders present or represented at the
meeting and entitled to vote, although less than a quorum, or, if no stockholder
is present, by any officer entitled to preside at or to act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting.
1.8 VOTING AND PROXIES. Each stockholder shall have one vote for
each share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
in the Certificate of Incorporation. Each stockholder of record entitled to
vote at a meeting of stockholders may vote in person or may authorize another
person or persons to vote or act for him by written proxy executed by the
stockholder or his authorized agent and delivered to the Secretary of the
corporation. No such proxy shall be voted or acted upon after three years from
the date of its execution, unless the proxy expressly provides for a longer
period.
1.9 ACTION AT MEETING. In all matters other than the election of
directors, when a quorum is present at any meeting, the holders of a majority of
the stock present or represented and entitled to vote on the subject matter (or
if there are two or more classes of stock entitled to vote as separate classes,
then in the case of each such class, the holders of a majority of the stock of
that class present or represented and entitled to vote on the subject matter)
shall decide any matter to be voted upon by the stockholders at such meeting,
except when a different vote is required by express provision of law, the
Certificate of Incorporation or these Bylaws. Any election of directors by
stockholders shall be determined by a plurality of the votes cast by the
stockholders entitled to vote at the election.
1.10 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS.
(a) At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (A) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, (B) otherwise properly brought before the meeting by
or at the direction of the Board of Directors, or (C) otherwise properly brought
before the meeting by a stockholder. For business to be properly brought before
an annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the
2.
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corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the corporation not
later than the close of business on the sixtieth (60th) day nor earlier than the
close of business on the ninetieth (90th) day prior to the first anniversary of
the preceding year's annual meeting; provided, however, that in the event that
no annual meeting was held in the previous year or the date of the annual
meeting has been changed by more than thirty (30) days from the date
contemplated at the time of the previous year's proxy statement, notice by the
stockholder to be timely must be so received not earlier than the close of
business on the ninetieth (90th) day prior to such annual meeting and not later
than the close of business on the later of the sixtieth (60th) day prior to such
annual meeting or, in the event public announcement of the date of such annual
meeting is first made by the corporation fewer than seventy (70) days prior to
the date of such annual meeting, the close of business on the tenth (10th) day
following the day on which public announcement of the date of such meeting is
first made by the corporation. A stockholder's notice to the Secretary shall
set forth as to each matter the stockholder proposes to bring before the annual
meeting: (i) a brief description of the business desired to be brought before
the annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and address, as they appear on the corporation's books,
of the stockholder proposing such business, (iii) the class and number of shares
of the corporation which are beneficially owned by the stockholder, (iv) any
material interest of the stockholder in such business and (v) any other
information that is required to be provided by the stockholder pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the "1934
Act"), in his or her capacity as a proponent to a stockholder proposal.
Notwithstanding the foregoing, in order to include information with respect to a
stockholder proposal in the proxy statement and form of proxy for a
stockholder's meeting, stockholders must provide notice as required by the
regulations promulgated under the 1934 Act. Notwithstanding anything in these
Bylaws to the contrary, no business shall be conducted at any annual meeting
except in accordance with the procedures set forth in this paragraph (a). The
chairman of the annual meeting shall, if the facts warrant, determine and
declare at the meeting that business was not properly brought before the meeting
and in accordance with the provisions of this paragraph (a), and, if he or she
should so determine, such chairman shall so declare at the meeting that any such
business not properly brought before the meeting shall not be transacted.
(b) Only persons who are nominated in accordance with the procedures set
forth in this paragraph (b) shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors of the corporation
may be made at a meeting of stockholders by or at the direction of the Board of
Directors or by any stockholder of the corporation entitled to vote in the
election of directors at the meeting who complies with the notice procedures set
forth in this paragraph (b). Such nominations, other than those made by or at
the direction of the Board of Directors, shall be made pursuant to timely notice
(as set forth in paragraph (a) of this Section 1.10) in writing to the Secretary
of the corporation in accordance with the provisions of paragraph (b) of this
Section 1.10. Such stockholder's notice shall set forth (i) as to each person,
if any, whom the stockholder proposes to nominate for election or re-election as
a director: (A) the name, age, business address and residence address of such
person, (B) the principal occupation
3.
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or employment of such person, (C) the class and number of shares of the
corporation which are beneficially owned by such person, (D) a description of
all arrangements or understandings between the stockholder and each nominee and
any other person or persons (naming such person or persons) pursuant to which
the nominations are to be made by the stockholder, and (E) any other information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the 1934 Act (including without limitation such
person's written consent to being named in the proxy statement, if any, as a
nominee and to serving as a director if elected), and (ii) as to such
stockholder giving notice, the information required to be provided pursuant to
paragraph (a) of this Section 1.10. At the request of the Board of Directors,
any person nominated by a stockholder for election as a director shall furnish
to the Secretary of the corporation that information required to be set forth in
the stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a director of the corporation unless nominated
in accordance with the procedures set forth in this paragraph (b). The chairman
of the meeting shall, if the facts warrant, determine and declare at the meeting
that a nomination was not made in accordance with the procedures prescribed by
these Bylaws, and if he or she should so determine, such chairman shall so
declare at the meeting, and the defective nomination shall be disregarded.
(c) For purposes of this Section 1.10, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the 1934 Act.
ARTICLE 2 - DIRECTORS
2.1 GENERAL POWERS. The business and affairs of the corporation
shall be managed by or under the direction of a Board of Directors, who may
exercise all of the powers of the corporation except as otherwise provided by
law, the Certificate of Incorporation or these Bylaws. In the event of a
vacancy in the Board of Directors, the remaining directors, except as otherwise
provided by law, may exercise the powers of the full Board of Directors until
the vacancy is filled.
2.2 NUMBER; ELECTION; TENURE AND QUALIFICATION. The number of
Directors of the Corporation shall be six (6), subject to amendment in
accordance with Article FIFTH of the Certificate of Incorporation. The
Directors shall be classified and their successors elected in accordance with
Article SEVENTH of the Certificate of Incorporation. Subject to the requirement
of the Certificate of Incorporation that the classes be as nearly equal in
number as possible, the size of each class of Directors shall be as determined
from time to time by resolution adopted by a majority of the Board of Directors.
Any reduction in the size of any class of Directors shall not
4.
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shorten the term of office of any incumbent Director. Directors need not be
stockholders of the corporation.
2.3 ENLARGEMENT OF THE BOARD OF DIRECTORS. The authorized number of
directors on the Board of Directors may be increased in accordance with Article
FIFTH of the Certificate of Incorporation.
2.4 VACANCIES. Unless and until filled by the stockholders, any
vacancy in the Board of Directors, however occurring, including a vacancy
resulting from an enlargement of the Board of Directors, may be filled by vote
of a majority of the directors then in office, although less than a quorum, or
by a sole remaining director; provided, however, a vacancy created by the
removal of a director by the vote of the stockholders or by court order may be
filled only by the affirmative vote of a majority of the shares represented and
voting at a duly held meeting at which a quorum is present (which shares voting
affirmatively also constitute a majority of the required quorum). Any director
elected in accordance with the preceding sentence shall hold office for the
remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor shall have been elected and qualified, or until such director's
earlier death, resignation or removal.
2.5 RESIGNATION. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
2.6 REMOVAL. Any director or the entire Board of Directors may be
removed, only as permitted by applicable law and Article SEVENTH of the
Certificate of Incorporation.
2.7 REGULAR MEETINGS. Regular meetings of the Board of Directors may
be held without notice at such time and place, within or without the State of
Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
2.8 SPECIAL MEETINGS. Special meetings of the Board of Directors may
be held at any time and place, within or without the State of Delaware,
designated in a call by the Chairman of the Board, Vice Chairman of the Board,
President, two or more directors, or by one director in the event that there is
only a single director in office.
2.9 NOTICE OF SPECIAL MEETINGS. Notice of any special meeting of
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be given to each
director in person, by telephone, by facsimile transmission
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or by telegram sent to his business or home address at least 48 hours in advance
of the meeting, or by written notice mailed to his business or home address at
least 72 hours in advance of the meeting. A notice or waiver of notice of a
meeting of the Board of Directors need not specify the purposes of the meeting.
2.10 MEETINGS BY TELEPHONE CONFERENCE CALLS. Directors or any members
of any committee designated by the directors may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
2.11 QUORUM. A majority of the number of directors fixed pursuant to
Section 2.2 shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such director
so disqualified; provided, however, that in no case shall less than one-third
(1/3) of the number so fixed constitute a quorum. In the absence of a quorum at
any such meeting, a majority of the directors present may adjourn the meeting
from time to time without further notice other than announcement at the meeting,
until a quorum shall be present.
2.12 ACTION AT MEETING. At any meeting of the Board of Directors at
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law, the
Certificate of Incorporation or these Bylaws.
2.13 ACTION BY CONSENT. Any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board of
Directors or committee, as the case may be, consent to the action in writing,
and the written consents are filed with the minutes of proceedings of the Board
of Directors or committee.
2.14 COMMITTEES. The Board of Directors may, by resolution passed by
a majority of the whole Board of Directors, designate one or more committees,
each committee to consist of one or more of the directors of the corporation.
The Board of Directors may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of a member of a
committee, the member or members of the committee present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors
and subject to the provisions of the General Corporation Law of Delaware, shall
have and may exercise all the powers and authority of the Board of Directors in
the management of the business and affairs of the corporation and may authorize
the seal of the corporation to be affixed
6.
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to all papers which may require it. Each such committee shall keep minutes and
make such reports as the Board of Directors may from time to time request.
Except as the Board of Directors may otherwise determine, any committee may make
rules for the conduct of its business, but unless otherwise provided by the
directors or in such rules, its business shall be conducted as nearly as
possible in the same manner as is provided in these Bylaws for the Board of
Directors.
2.15 COMPENSATION FOR DIRECTORS. Directors may be paid such
compensation for their services and such reimbursement for expenses of
attendance at meetings as the Board of Directors may from time to time
determine. No such payment shall preclude any director from serving the
corporation or any of its parent or subsidiary corporations in any other
capacity and receiving compensation for such service.
ARTICLE 3 - OFFICERS
3.1 ENUMERATION. The officers of the corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice Chairman of the Board, and one or more Vice Presidents, Assistant
Treasurers, and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
3.2 ELECTION. The President, Treasurer and Secretary shall be
elected by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3.3 QUALIFICATION. The Chairman must be an officer of the
corporation. The President need not be a director. No officer need be a
stockholder. Any two or more offices may be held by the same person.
3.4 TENURE. Except as otherwise provided by law, by the Certificate
of Incorporation or by these Bylaws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
3.5 RESIGNATION AND REMOVAL. Any officer may resign by delivering
his written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
The Board of Directors, or a committee duly authorized to do so,
may remove any officer with or without cause. Except as the Board of Directors
may otherwise
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determine, no officer who resigns or is removed shall have any right to any
compensation as an officer for any period following his resignation or removal,
or any right to damages on account of such removal, whether his compensation be
by the month or by the year or otherwise, unless such compensation is expressly
provided in a duly authorized written agreement with the corporation.
3.6 VACANCIES. The Board of Directors may fill any vacancy occurring
in any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of President, Treasurer
and Secretary. Each such successor shall hold office for the unexpired term of
his predecessor and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
3.7 CHAIRMAN OF THE BOARD AND VICE CHAIRMAN OF THE BOARD. If the
Board of Directors appoints a Chairman of the Board, he shall, when present,
preside at all meetings of the Board of Directors. He shall perform such duties
and possess such powers as are usually vested in the office of the Chairman of
the Board or as may be vested in him by the Board of Directors. If the Board of
Directors appoints a Vice Chairman of the Board, he shall, in the absence or
disability of the Chairman of the Board, perform the duties and exercise the
powers of the Chairman of the Board and shall perform such other duties and
possess such other powers as may from time to time be vested in him by the Board
of Directors.
3.8 PRESIDENT. The President shall be the chief operating officer of
the corporation. He shall also be the chief executive officer of the
corporation unless such title is assigned to a Chairman of the Board. The
President shall, subject to the direction of the Board of Directors, have
general supervision and control of the business of the corporation. Unless
otherwise provided by the directors, he shall preside at all meetings of the
stockholders and of the Board of Directors (except as provided in Section 3.7
above). The President shall perform such other duties and shall have such other
powers as the Board of Directors may from time to time prescribe.
3.9 VICE PRESIDENTS. Any Vice President shall perform such duties
and possess such powers as the Board of Directors or the President may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing shall have all the powers of and
be subject to all the restrictions upon the President. The Board of Directors
may assign to any Vice President the title of Executive Vice President, Senior
Vice President or any other title selected by the Board of Directors.
3.10 SECRETARY AND ASSISTANT SECRETARY. The Secretary shall perform
such duties and shall have such powers as the Board of Directors or the
President may from time to time prescribe. In addition, the Secretary shall
perform such duties and have such powers as are incident
8.
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to the office of the secretary, including without limitation the duty and power
to give notices of all meetings of stockholders and special meetings of the
Board of Directors, to attend all meetings of stockholders and the Board of
Directors and keep a record of the proceedings, to maintain a stock ledger and
prepare lists of stockholders and their addresses as required, to be custodian
of corporate records and the corporate seal and to affix and attest to the same
on documents.
Any Assistant Secretary shall perform such duties and possess
such powers as the Board of Directors, the President or the Secretary may from
time to time prescribe. In the event of the absence, inability or refusal to
act of the Secretary, the Assistant Secretary (or if there shall be more than
one, the Assistant Secretaries in the order determined by the Board of
Directors) shall perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any
meeting of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
3.11 TREASURER AND ASSISTANT TREASURER. The Treasurer shall be the
chief financial officer and the chief accounting officer of the corporation.
The Treasurer shall perform such duties and shall have such powers as may from
time to time be assigned to him by the Board of Directors or the President. In
addition, the Treasurer shall perform such duties and have such powers as are
incident to the office of treasurer, including without limitation the duty and
power to keep and be responsible for all funds and securities of the
corporation, to deposit funds of the corporation in depositories selected in
accordance with these Bylaws, to disburse such funds as ordered by the Board of
Directors, to make proper accounts of such funds, and to render as required by
the Board of Directors statements of all such transactions and of the financial
condition of the corporation.
Any Assistant Treasurers shall perform such duties and possess
such powers as the Board of Directors, the President or the Treasurer may from
time to time prescribe. In the event of the absence, inability or refusal to
act of the Treasurer, the Assistant Treasurer (or if there shall be more than
one, the Assistant Treasurers in the order determined by the Board of Directors)
shall perform the duties and exercise the powers of the Treasurer.
3.12 BONDED OFFICERS. The Board of Directors may require any officer
to give the corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors upon such terms and conditions
as the Board of Directors may specify, including without limitation a bond for
the faithful performance of his duties and for the restoration to the
corporation of all property in his possession or under his control belonging to
the corporation.
9.
<PAGE>
3.13 SALARIES. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
ARTICLE 4 - CAPITAL STOCK
4.1 ISSUANCE OF STOCK. Unless otherwise voted by the stockholders
and subject to the provisions of the Certificate of Incorporation, the whole or
any part of any unissued balance of the authorized capital stock of the
corporation held in its treasury may be issued, sold, transferred or otherwise
disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2 CERTIFICATES OF STOCK. Every holder of stock of the corporation
shall be entitled to have a certificate, in such form as may be prescribed by
law and by the Board of Directors, certifying the number and class of shares
owned by him in the corporation. Each such certificate shall be signed by, or
in the name of the corporation by, the Chairman or Vice Chairman, if any, of the
Board of Directors, or the President or a Vice President, and by the Treasurer
or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the
corporation. Any or all of the signatures on the certificate may be a
facsimile.
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the
Bylaws, applicable securities laws or any agreement among any number of
stockholders or among such holders and the corporation shall have conspicuously
noted on the face or back of the certificate either the full text of the
restriction or a statement of the existence of such restriction.
4.3 TRANSFERS. Subject to the restrictions, if any, stated or noted
on the stock certificates, shares of stock may be transferred on the books of
the corporation by the surrender to the corporation or its transfer agent of the
certificate representing such shares properly endorsed or accompanied by a
written assignment or power of attorney properly executed, and with such proof
of authority or the authenticity of signature as the corporation or its transfer
agent may reasonably require. Except as may be otherwise required by law, by
the Certificate of Incorporation or by these Bylaws, the corporation shall be
entitled to treat the record holder of stock as shown on its books as the owner
of such stock for all purposes, including the payment of dividends and the right
to vote with respect to such stock, regardless of any transfer, pledge or other
disposition of such stock until the shares have been transferred on the books of
the corporation in accordance with the requirements of these Bylaws.
4.4 LOST, STOLEN OR DESTROYED CERTIFICATES. The corporation may
issue a new certificate of stock in place of any previously issued certificate
alleged to have been lost, stolen, or destroyed, upon such terms and conditions
as the Board of Directors may prescribe, including
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the presentation of reasonable evidence of such loss, theft or destruction and
the giving of such indemnity as the Board of Directors may require for the
protection of the corporation or any transfer agent or registrar.
4.5 RECORD DATE. The Board of Directors may fix in advance a date as
a record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders or to express consent (or dissent) to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than 10 days before
the date of such meeting, nor more than 60 days prior to any other action to
which such record date relates.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be the close of business on the day before the day on which notice is given, or,
if notice is waived, at the close of business on the day before the day on which
the meeting is held. The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is necessary, shall be the day on which the
first written consent is expressed. The record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
ARTICLE 5 - INDEMNIFICATION
The corporation shall, to the fullest extent permitted by Section 145
of the General Corporation Law of Delaware, as that Section may be amended and
supplemented from time to time, indemnify any director or officer which it shall
have power to indemnify under the Section against any expenses, liabilities or
other matters referred to in or covered by that Section. The indemnification
provided for in this Article: (i) shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any bylaw, agreement or
vote of stockholders or disinterested directors or otherwise, both as to action
in their official capacities and as to action in another capacity while holding
such office; (ii) shall continue as to a person who has ceased to be a director
or officer; and (iii) shall inure to the benefit of the heirs, executors and
administrators of such a person. The corporation's obligation to provide
indemnification under this Article shall be offset to the extent of any other
source of indemnification or any otherwise applicable insurance coverage under a
policy maintained by the corporation or any other person.
11.
<PAGE>
Expenses incurred by a director of the corporation in defending a
civil or criminal action, suit or proceeding by reason of the fact that he is or
was a director of the corporation (or was serving at the corporation's request
as a director or officer of another corporation) shall be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the corporation as authorized by relevant sections of the
General Corporation Law of Delaware.
To assure indemnification under this Article of all such persons who
are determined by the corporation or otherwise to be or to have been
"fiduciaries" of any employee benefit plan of the corporation which may exist
from time to time, such Section 145 shall, for the purposes of this Article, be
interpreted as follows: an "other enterprise" shall be deemed to include such
an employee benefit plan, including, without limitation, any plan of the
corporation which is governed by the Act of Congress entitled "Employee
Retirement Income Security Act of 1974," as amended from time to time; the
corporation shall be deemed to have requested a person to serve an employee
benefit plan where the performance by such person of his duties to the
corporation also imposes duties on, or otherwise involves services by, such
person to the plan or participants or beneficiaries of the plan; excise taxes
assessed on a person with respect to an employee benefit plan pursuant to such
Act of Congress shall be deemed "fines"; and action taken or omitted by a
person with respect to an employee benefit plan in the performance of such
person's duties for a purpose reasonably believed by such person to be in the
interest of the participants and beneficiaries of the plan shall be deemed to be
for a purpose which is not opposed to the best interests of the corporation.
ARTICLE 6 - GENERAL PROVISIONS
6.1 FISCAL YEAR. Except as from time to time otherwise designated by
the Board of Directors, the fiscal year of the corporation shall end on the
Saturday closest to February 28.
6.2 CORPORATE SEAL. The corporate seal shall be in such form as
shall be approved by the Board of Directors.
6.3 EXECUTION OF INSTRUMENTS. The President, the Chief Executive
Officer, any Vice President, the Secretary or the Treasurer shall have power to
execute and deliver on behalf and in the name of the corporation any instrument
requiring the signature of an officer of the corporation, except as otherwise
provided in these Bylaws, or where the execution and delivery of such an
instrument shall be expressly delegated by the Board of Directors to some other
officer or agent of the corporation.
6.4 WAIVER OF NOTICE. Whenever any notice whatsoever is required to
be given by law, by the Certificate of Incorporation or by these Bylaws, a
waiver of such notice either in
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writing signed by the person entitled to such notice or such person's duly
authorized attorney, or by telegraph, cable or any other available method,
whether before, at or after the time stated in such waiver, or the appearance of
such person or persons at such meeting in person or by proxy, shall be deemed
equivalent to such notice.
6.5 VOTING OF SECURITIES. Except as the directors may otherwise
designate, the President, the Chief Executive Officer, any Vice President, the
Secretary or Treasurer may waive notice of, and act as, or appoint any person or
persons to act as, proxy or attorney-in-fact for this corporation (with or
without power of substitution) at, any meeting of stockholders or shareholders
of any other corporation or organization, the securities of which may be held by
this corporation.
6.6 EVIDENCE OF AUTHORITY. A certificate by the Secretary, or an
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith be
conclusive evidence of such action.
6.7 CERTIFICATE OF INCORPORATION. All references in these Bylaws to
the Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
These Bylaws are subject to the provisions of the Certificate of Incorporation
and applicable law.
6.8 TRANSACTIONS WITH INTERESTED PARTIES. No contract or transaction
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or a committee of the
Board of Directors which authorizes the contract or transaction or solely
because his or their votes are counted for such purpose, if:
(a) The material facts as to his relationship or interest and as
to the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board of Directors or committee in good
faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum;
(b) The material facts as to his relationship or interest and as
to the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
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(c) The contract or transaction is fair as to the corporation as
of the time it is authorized, approved or ratified, by the Board of Directors, a
committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
6.9 SEVERABILITY. Any determination that any provision of these
Bylaws is for any reason inapplicable, illegal or ineffective shall not affect
or invalidate any other provision of these Bylaws.
6.10 PRONOUNS. All pronouns used in these Bylaws shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person or persons may require.
ARTICLE 7 - AMENDMENTS
7.1 BY THE BOARD OF DIRECTORS. Subject to the provisions of the
Certificate of Incorporation, these Bylaws may be altered, amended or repealed
or new Bylaws may be adopted by the affirmative vote of a majority of the
directors present at any regular or special meeting of the Board of Directors at
which a quorum is present.
7.2 BY THE STOCKHOLDERS. Subject to the provisions of the
Certificate of Incorporation, these Bylaws may be altered, amended or repealed
or new Bylaws may be adopted by the affirmative vote of the holders of at least
66-2/3% of the shares of the capital stock of the corporation issued and
outstanding and entitled to vote at any regular meeting of stockholders, or at
any special meeting of stockholders, provided notice of such alteration,
amendment, repeal or adoption of new bylaws shall have been stated in the notice
of such special meeting.
14.
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COLDWATER CREEK INC.
DIRECTORS AND OFFICERS
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made and entered into this 1st day of March 1996 between
Coldwater Creek Inc., a Delaware corporation ("Corporation"), and _____________
("Indemnitee").
RECITALS:
A. Indemnitee, an executive officer or a member of the Board of
Directors of Corporation, performs a valuable service in such capacity for
Corporation; and
B. The stockholders of Corporation have adopted Bylaws (the
"Bylaws") providing for the indemnification of the officers, directors, agents
and employees of Corporation to the maximum extent authorized by Section 145 of
the Delaware Corporations Code, as amended ("Code"); and
C. The Bylaws and the Code, by their non-exclusive nature, permit
contracts between Corporation and the members of its Board of Directors and
executive officers with respect to indemnification of such directors and
executive officers; and
D. In accordance with the authorization as provided by the Code,
Corporation may purchase and maintain a policy or policies of Directors and
Officers Liability Insurance ("D & O Insurance"), covering certain liabilities
which may be incurred by its directors and executive officers in the performance
as directors of Corporation; and
E. As a result of developments affecting the terms, scope and
availability of D & O Insurance there exists general uncertainty as to the
extent of protection afforded members of the Board of Directors and executive
officers by such D & O Insurance and by statutory and bylaw indemnification
provisions; and
F. In order to induce Indemnitee to continue to serve as a member of
the Board of Directors or executive officer of Corporation, Corporation has
determined and agreed to enter into this contract with Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's continued service as
a director or executive officer after the date hereof, the parties hereto agree
as follows:
1.
<PAGE>
1. INDEMNITY OF INDEMNITEE. Corporation hereby agrees to hold
harmless and indemnify Indemnitee to the fullest extent authorized or permitted
by the provisions of the Code, as may be amended from time to time.
2. ADDITIONAL INDEMNITY. Subject only to the exclusions set forth
in Section 3 hereof, Corporation hereby further agrees to hold harmless and
indemnify Indemnitee:
(a) against any and all expenses (including attorneys' fees),
witness fees, judgments, fines and amounts paid in settlement actually and
reasonably incurred by Indemnitee in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (including an action by or in the right of Corporation) to which
Indemnitee is, was or at any time becomes a party, or is threatened to be made a
party, by reason of the fact that Indemnitee is, was or at any time becomes a
director, officer, employee or agent of Corporation, or is or was serving or at
any time serves at the request of Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise; and
(b) otherwise to the fullest extent as may be provided to
Indemnitee by Corporation under the non-exclusivity provisions of Article V of
the Bylaws of Corporation and the Code.
3. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to
Section 2 hereof shall be paid by Corporation:
(a) except to the extent the aggregate of losses to be
indemnified thereunder exceeds the sum of such losses for which the Indemnitee
is indemnified pursuant to Section 1 hereof or pursuant to any D & O Insurance
purchased and maintained by Corporation;
(b) in respect to remuneration paid to Indemnitee if it shall be
determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(c) on account of any suit in which judgment is rendered against
Indemnitee for an accounting of profits made from the purchase or sale by
Indemnitee of securities of Corporation pursuant to the provisions of Section
16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar
provisions of any federal, state or local statutory law;
(d) on account of Indemnitee's conduct which is finally adjudged
to have been knowingly fraudulent or deliberately dishonest, or to constitute
willful misconduct;
2.
<PAGE>
(e) on account of Indemnitee's conduct which is the subject of
an action, suit or proceeding described in Section 7(c)(ii) hereof;
(f) on account of any action, claim or proceeding (other than a
proceeding referred to in Section 8(b) hereof) initiated by the Indemnitee
unless such action, claim or proceeding was authorized in the specific case by
action of the Board of Directors; or
(g) if a final decision by a Court having jurisdiction in the
matter shall determine that such indemnification is not lawful (and, in this
respect, both Corporation and Indemnitee have been advised that the Securities
and Exchange Commission believes that indemnification for liabilities arising
under the federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication).
4. CONTRIBUTION. If the indemnification provided in Sections 1 and
2 hereof is unavailable by reason of a Court decision described in subsection
3(g) hereof based on grounds other than any of those set forth in paragraphs (b)
through (f) of Section 3 hereof, then in respect of any threatened, pending or
completed action, suit or proceeding in which Corporation is jointly liable with
Indemnitee (or would be if joined in such action, suit or proceeding),
Corporation shall contribute to the amount of expenses (including attorneys'
fees, judgments, fines and amounts paid in settlement actually and reasonably
incurred and paid or payable by Indemnitee in such proportion as is appropriate
to reflect (i) the relative benefits received by Corporation on the one hand and
Indemnitee on the other hand from the transaction from which such action, suit
or proceeding arose, and (ii) the relative fault of Corporation on the one hand
and of Indemnitee on the other in connection with the events which resulted in
such expenses, judgments, fines or settlement amounts, as well as any other
relevant equitable considerations. The relative fault of Corporation on the one
hand and of Indemnitee on the other shall be determined by reference to, among
other things, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent the circumstances resulting in such expenses,
judgments, fines or settlement amounts. Corporation agrees that it would not be
just and equitable if contribution pursuant to this Section 4 were determined by
pro rata allocation or any other method of allocation which does not take
account of the foregoing equitable considerations.
5. CONTINUATION OF OBLIGATIONS. All agreements and obligations of
Corporation contained herein shall continue during the period Indemnitee is a
director, officer, employee or agent of Corporation (or is or was serving at the
request of Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise) and shall continue thereafter so long as Indemnitee shall be subject
to any possible claim or threatened, pending or completed action, suit or
proceeding, whether civil, criminal or investigative, by reason of the fact that
Indemnitee was a director of Corporation or serving in any other capacity
referred to herein.
3.
<PAGE>
6. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30)
days after receipt by Indemnitee of notice of the commencement of any action,
suit or proceeding, Indemnitee will, if a claim in respect thereof is to be made
against Corporation under this Agreement, notify Corporation of the commencement
thereof; but the omission so to notify Corporation will not relieve it from any
liability which it may have to Indemnitee otherwise than under this Agreement.
With respect to any such action, suit or proceeding as to which Indemnitee
notifies Corporation of the commencement thereof:
(a) Corporation will be entitled to participate therein at its
own expense;
(b) except as otherwise provided below, to the extent that it
may wish, Corporation jointly with any other indemnifying party similarly
notified will be entitled to assume the defense thereof, with counsel reasonably
satisfactory to Indemnitee. After notice from Corporation to Indemnitee of its
election so as to assume the defense thereof, Corporation will not be liable to
Indemnitee under this Agreement for any legal or other expenses subsequently
incurred by Indemnitee in connection with the defense thereof other than
reasonable costs of investigation or as otherwise provided below. Indemnitee
shall have the right to employ its counsel in such action, suit or proceeding
but the fees and expenses of such counsel incurred after notice from
Corporation of its assumption of the defense thereof shall be at the expense
of Indemnitee unless (i) the employment of counsel by Indemnitee has
been authorized by Corporation, (ii) Indemnitee shall have reasonably concluded
that there may be a conflict of interest between Corporation and Indemnitee in
the conduct of the defense of such action or (iii) Corporation shall not in fact
have employed counsel to assume the defense of such action, in each of which
cases the fees and expenses of Indemnitee's separate counsel shall be at the
expense of Corporation. Corporation shall not be entitled to assume the defense
of any action, suit or proceeding brought by or on behalf of Corporation or as
to which Indemnitee shall have made the conclusion provided for in (ii) above;
and
(c) Corporation shall not be liable to indemnify Indemnitee
under this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. Corporation shall be permitted to settle
any action except that it shall not settle any action or claim in any manner
which would impose any penalty or limitation on Indemnitee without Indemnitee's
written consent. Neither Corporation nor Indemnitee will unreasonably withhold
its consent to any proposed settlement.
7. ADVANCEMENT AND REPAYMENT OF EXPENSES.
(a) In the event that Indemnitee employs his own counsel
pursuant to Section 6(b)(i) through (iii) above, Corporation shall advance to
Indemnitee, prior to any final disposition of any threatened or pending action,
suit or proceeding, whether civil, criminal, administrative or investigative,
any and all reasonable expenses (including legal fees and expenses) incurred
in investigating or defending any such action, suit or proceeding
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within ten (10) days after receiving copies of invoices presented to Indemnitee
for such expenses.
(b) Indemnitee agrees that Indemnitee will reimburse Corporation for
all reasonable expenses paid by Corporation in defending any civil or criminal
action, suit or proceeding against Indemnitee in the event and only to the
extent it shall be ultimately determined by a final judicial decision (from
which there is no right of appeal) that Indemnitee is not entitled, under the
provisions of the Code, the Bylaws, this Agreement or otherwise, to be
indemnified by Corporation for such expenses.
(c) Notwithstanding the foregoing, Corporation shall not be
required to advance such expenses to Indemnitee if Indemnitee (i) commences any
action, suit or proceeding as a plaintiff unless such advance is specifically
approved by a majority of the Board of Directors or (ii) is a party to an
action, suit or proceeding brought by Corporation and approved by a majority of
the Board which alleges willful misappropriation of corporate assets by
Indemnitee, disclosure of confidential information in violation of Indemnitee's
fiduciary or contractual obligations to Corporation, or any other willful and
deliberate breach in bad faith of Indemnitee's duty to Corporation or its
stockholders.
8. ENFORCEMENT.
(a) Corporation expressly confirms and agrees that it has entered
into this Agreement and assumed the obligations imposed on Corporation hereby in
order to induce Indemnitee to continue as a director or executive officer of
Corporation, and acknowledges that Indemnitee is relying upon this Agreement in
continuing in such capacity.
(b) In the event Indemnitee is required to bring any action to
enforce rights or to collect moneys due under this Agreement and is successful
in such action, the Corporation shall reimburse Indemnitee for all Indemnitee's
reasonable fees and expenses in bringing and pursuing such action.
9. SUBROGATION. In the event of payment under this Agreement,
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable
Corporation effectively to bring suit to enforce such rights.
10. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Indemnitee by this
Agreement shall not be exclusive of any other right which Indemnitee may have or
hereafter acquire under any statute, provision of Corporation's Certificate of
Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.
5.
<PAGE>
11. SURVIVAL OF RIGHTS. The rights conferred on Indemnitee by this
Agreement shall continue after Indemnitee has ceased to be a director, officer,
employee or other agent of Corporation and shall inure to the benefit of
Indemnitee's heirs, executors and administrators.
12. SEPARABILITY. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any or all of
the provisions hereof shall be held to be invalid or unenforceable for any
reason, such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereof or the obligation of the
Corporation to indemnify the Indemnitee to the full extent provided by the
Bylaws or the Code.
13. GOVERNING LAW. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware.
14. BINDING EFFECT. This Agreement shall be binding upon Indemnitee and
upon Corporation, its successors and assigns, and shall inure to the benefit of
Indemnitee, his heirs, personal representatives and assigns and to the benefit
of Corporation, its successors and assigns.
15. AMENDMENT AND TERMINATION. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.
COLDWATER CREEK INC.,
a Delaware corporation
By:
--------------------------------------
President and Chief Executive Officer
--------------------------------------
Indemnitee
6.
<PAGE>
EXHIBIT 10.1.2
AGREEMENT FOR DISTRIBUTION
OF RETAINED EARNINGS AND
TAX INDEMNIFICATION
This AGREEMENT FOR DISTRIBUTION OF RETAINED EARNINGS AND TAX
INDEMNIFICATION (the "Agreement") is entered into effective the ________
day of __________, 1996, between Coldwater Creek, Inc., a Delaware corporation
(the "Company"), and Dennis Pence and Elizabeth Ann Pence (the "Stockholders").
WHEREAS, the Company is undertaking a public offering of its stock in
order to raise additional equity (the "Public Offering");
WHEREAS, the Company and the Stockholders have entered into this
Agreement in connection with the Public Offering;
WHEREAS, the Company will be classified as an S corporation until
immediately prior to the public offering, after which it will be classified as a
C corporation;
WHEREAS, the Stockholders are stockholders of the Company;
WHEREAS, the Company wishes to make a distribution to the Stockholders
of all of its retained earnings prior to the termination of its status as an S
corporation; and
WHEREAS, the Company and the Stockholders wish to provide for tax
indemnification arrangements in connection with the Company's termination as an
S corporation.
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
DISTRIBUTION OF RETAINED EARNINGS
The Company hereby agrees to distribute to the Stockholders the amount
of the Company's retained earnings, as determined for financial accounting
purposes under generally accepted accounting principles, as of the Termination
Date (as defined below). The Company currently estimates that its retained
earnings as of the Termination Date will be approximately $_____ million. The
distribution shall be effected by the
1.
<PAGE>
issuance of a promissory note (or notes) of the Company prior to the Termination
Date. The promissory note (or notes) shall provide for upward or downward
adjustments based on a final determination of such retained earnings.
ARTICLE II
TERMINATION OF S CORPORATION STATUS
The Company's status as an S corporation under Section 1362 of the
Internal Revenue Code of 1986, as amended (the "Code"), will be terminated as of
the earlier of (i) the date of the closing of the Public Offering or (ii) the
date specified in a revocation of S corporation status duly filed by the Company
(such date being referred to hereinafter as the "Termination Date"). The
Company's status as an S corporation under pertinent state tax laws will also be
terminated on the Termination Date. The Company shall use the pro rata
allocation method prescribed in Section 1362(e)(2) of the Code in order to
allocate its taxable income between the short S corporation taxable year ending
the day prior to the Termination Date and the C corporation short taxable year
commencing on the Termination Date; provided that, if the Company has revoked
its S corporation status prior to the date of the Public Offering, it shall use
the "closing-of-the-books" method prescribed in Section 1362(e)(3) of the Code.
ARTICLE III
TAXES
3.1 FILING OF TAX RETURNS. The Company covenants and agrees that:
(a) the Company shall be responsible for and shall effect the filing of all
federal, state, foreign and local returns for the Company with respect to any
and all taxable periods; and (b) the Company shall pay any and all taxes
required to be paid by the Company for all periods covered by the returns as
required by applicable law, subject to reimbursement by the Stockholders to the
extent prescribed herein.
3.2 COMPANY'S INDEMNIFICATION OF THE STOCKHOLDERS FOR ADDITIONAL
PRE-OFFERING TAXES. The Company hereby indemnifies and agrees to hold the
Stockholders harmless from, against and in respect of any federal and state
income tax liability (including penalties, interest and any taxes resulting from
the payments under this section) incurred by the Stockholders as a result of a
final determination of an adjustment (by reason of an amended return, claim for
refund, audit or otherwise) to the Company's tax returns which increases the tax
liability of the Stockholders for taxable periods ending prior to the
Termination Date (including the short taxable period ending the day before the
Termination Date).
2.
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3.3 STOCKHOLDERS' INDEMNIFICATION OF THE COMPANY. The Stockholders
hereby indemnify and agree to hold the Company harmless from, against and in
respect of any federal and state income tax liability (including penalties,
interest and any taxes resulting from the payments under this sentence) incurred
by the Company as a result of a final determination that the Company was not an
S corporation for federal or state income tax purposes for any taxable period
ending prior to the Termination Date (including a short taxable period ending
the day before the Termination Date); provided that in no event shall the
Stockholders' aggregate liability under this sentence exceed any refund of taxes
and interest received by the Stockholders as a result of such final
determination and/or any ensuing claim for refund. The Stockholders further
hereby indemnify and agree to hold the Company harmless from, against and in
respect of any federal and state income tax liability (including penalties,
interest and any taxes resulting from the payments under this sentence) incurred
by the Company as a result of final determination of an adjustment (by reason of
an amended return, claim for refund, audit or otherwise) to the Company's or the
Stockholders' tax returns which decreases the Stockholders' tax liability for a
taxable period ending prior to the Termination Date (including the short taxable
period ending the day before the Termination Date) and correspondingly increases
the tax liability of the Company (or its consolidated subsidiaries) for a
taxable period ending after the Termination Date; provided that in no event
shall the Stockholders' aggregate liability under this sentence exceed any
refund of taxes and interest received by the Stockholders as a result of such
final determination and/or ensuing claim for refund.
3.4 PAYMENTS. The Stockholders or the Company, as the case may be,
shall make any payment required under this Agreement within seven days after
receipt of notice from the other party that a payment is due by such party to
the appropriate taxing authority, which notice shall be accompanied by
appropriate documentation demonstrating that such payment is due.
3.5 COOPERATION. The parties shall cooperate with each other in
connection with the contest of any additional tax liability asserted by any
taxing authority. The parties shall also cooperate with each other in securing
a refund of federal and state income tax for the Stockholders as a result of any
final determinations described in Section 3.3.
3.6 RESPECTIVE LIABILITY. Each of the Stockholders shall be liable
to the Company for his or her allocable share of the total liabilities of the
Stockholders under this Agreement. Such allocable share shall be based on the
Stockholders' relative percentage interests in the Company as of the day before
the Termination Date.
3.
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ARTICLE IV
MISCELLANEOUS
4.1 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
counterparts collectively shall constitute an instrument representing the
Agreement between the parties hereto.
4.2 CONSTRUCTION OF TERMS. Nothing herein expressed or implied is
intended, or shall be construed, to confer upon or give any person, firm or
corporation, other than the parties hereto to their respective successors and
assigns, any rights or remedies under or by reason of this Agreement.
4.3 GOVERNING LAW. This Agreement and the legal relations between
the parties hereto shall be governed by and construed in accordance with the
substantive laws of the State of Delaware without regard to Delaware choice of
law rules.
4.4 AMENDMENT AND MODIFICATION. This Agreement may be amended,
modified or supplemented only by a written agreement executed by the parties.
4.5 ASSIGNMENT. This Assignment and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto without the prior written consent of the other parties, nor
is this Agreement intended to confer upon any other person except the parties
any rights or remedies hereunder.
4.6 INTERPRETATION. The title, article and section headings
contained in this Agreement are solely for the purpose of reference, are not
part of the agreement of the parties and shall not in any way affect the meaning
or interpretation of this Agreement.
4.7 SEVERABILITY. In the event that any one or more of the
provisions of this Agreement shall be held to be illegal, invalid or
unenforceable in any respect, the same shall not in any respect affect the
validity, legality or enforceability of the remainder of this Agreement, and the
parties shall use their best efforts to replace such illegal, invalid or
unenforceable provisions with an enforceable provision approximating, to the
extent possible, the original intent of the parties.
4.8 ENTIRE AGREEMENT. This Agreement embodies the entire agreement
and understanding of the parties hereto in respect of the subject matter
contained herein. There are no representations, promises, warranties,
covenants, or undertakings, other than those expressly set forth or referred to
herein. This Agreement supersedes all prior agreements and the understandings
between the parties with respect to such subject matter.
4.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
COLDWATER CREEK, INC.
By
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STOCKHOLDERS:
----------------------------------------
Dennis Pence
----------------------------------------
Elizabeth Ann Pence
5.
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LEASE
THIS LEASE made and entered into the 9th day of June, 1996, by and
between Par III Associates, by Barry Davidson, Receiver, ("Lessor"), and
Coldwater Creek Inc., a Delaware Corporation ("Lessee").
In consideration for the mutual covenants, conditions and restrictions
contained herein, and in consideration for the payment of the rental in the
amounts and at the times as hereinafter specified, the parties hereto agree
as follows:
1. DESCRIPTION OF PREMISES. Lessor hereby leases to Lessee, and Lessee
hereby leases from Lessor, a portion of the office structure located at 1201
Ironwood Drive, Coeur d'Alene, Idaho, consisting of the intermediate entry
level floor and next lower level floor, and more particularly described on
Exhibit "A-1" and "A-2" attached hereto and by this reference incorporated
herein.
Specifically, this Lease shall apply to those premises referred to as the
intermediate entry level floor and next lower level floor of the office
structure, set forth on the site plan attached hereto as Exhibit "A-2" and by
this reference incorporated herein, consisting of approximately 24,480 square
feet, more or less. The parking area for the demised premises shall be
located on the parking lot to the west of the leased facility. Lessee agrees
to allow Lessor access to the existing warehouse building located on the
Western Parking Lot and to the portions of the office structure not leased
hereunder. The warehouse, together with the code required number of parking
spaces adjacent thereto are specifically reserved from this lease. So long as
no other tenant(s) occupy the office structure, the Lessee has the right to
use portions of the Eastern Parking Lot, with the written permission of the
Lessor. At such time as Lessee needs additional parking for its on-site
employees, Lessee may use for employee parking the gravel area north and east
of the office structure.
Floors one and four of the office structure are not included in the
demised premises. In the event Lessor leases space on floors one and four to
a party other than Lessee, Lessor shall install sufficient barriers to
maintain private access and security to Lesses's demised premises.
2. TERM. The term of this Lease shall be for a period of 24 months,
commencing on the 1st day of July, 1996, and ending at midnight, the 30th day
of June, 1998, unless sooner renewed, or terminated, as provided for herein.
3. BASE RENT.
(a) Lessee agrees to pay monthly installments of $13,666.67 as Base
Rent, and a minimum of $4,000.00 per month as Additional Rent, for the
demised premises, subject to
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adjustment as hereafter provided. The first payment will be due on or before
the 1st day of July 1996, and the remaining payments on the 1st day of each
succeeding month thereafter, until the expiration of this Lease. In the event
that the Lessee shall take possession prior to the first of the month at
which the Lease Term commences, rent for the partial month shall be prorated
on a daily basis. Each monthly installment shall be paid to Lessor in
advance, on or before the 1st day of the month for which said installment is
due, at the address set forth herein or at such other place as shall be
designated in writing by Lessor. After the 5th day of each month there shall
be a late fee assessed and payable of 1% of the Base Rent for each day the
rent is not received.
(b) Lessee shall pay as Additional Rent, in addition to the Base Rent
herein reserved, any taxes, assessments, utility charges, common area
expenses, maintenance, management fees or insurance premiums of other
operating expenses as hereinafter provided in paragraphs 8, 9, 10, 11 and 12.
The minimum Additional Rent is $4,000.00 per month.
4. OPTION TO RENEW. As long as the Lessee is not in default under the
provisions of this lease, an option to renew and continue the provisions of
this lease for one additional two year period will be granted by Lessor.
Notice of renewal to be given by Lessee 180 days prior to expiration of
initial lease term. All terms and conditions of the lease to remain the same,
except for the monthly Base Rent and Additional Rent amounts, which will be
increased by the cumulative total of the Consumer Price Index for all Urban
Consumers for the initial two year lease term. Example: if the index
increased 3% per year for the initial lease term, the new base rent amount
would increase 6%. The Additional Rent as hereinafter provided would continue
to be billed to Lessee as indicated in paragraphs 8, 9, 10, 11 and 12.
5. ACCEPTANCE OF PREMISES. The Lessee, having examined the building and
having made a careful and complete inspection thereof, accepts the premises
in their present condition without any representations or warranties by the
Lessor, its officers, agents, employees or representatives, and subject to
any state of facts that a personal inspection might reveal.
6. SECURITY DEPOSIT.
(a) Upon execution of this Lease, Lessee has delivered to Lessor the
sum of $17,666.67 as security for the faithful performance by Lessee of all
of the obligations of this Lease to be kept and performed by Lessee.
(b) If Lessee defaults with respect to any provision of this Lease,
or should Lessor make any payment on behalf of Lessee, Lessor may (but shall
not be required to) use, apply or retain all or any part of said deposit in
the amount of said default or payment. If any portion of said deposit is so
paid or retained, Lessee shall forthwith upon Lessor's demand therefore
deposit cash with Lessor in an amount sufficient to restore said deposit to
its original sum. Any sums not so paid within ten (10) days of demand therefore
shall bear interest at the rate of eighteen percent (18%) per annum until
paid, in addition to all other remedies of Lessor in the event of default
under this Lease.
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(c) Upon full and faithful performance of all of Lessee's
obligations hereunder, the security deposit or its then remaining balance
shall be refunded to Lessee within thirty (30) days after the expiration of
the term of this Lease or any renewal or extension hereof.
7. USE OF PREMISES.
(a) Use of the demised premises by Lessee shall be for general
office use. Any change in use shall require the prior written consent of
Lessor, which may not be unreasonably withheld.
(b) Lessee shall neither use nor occupy the demised premises or any
part thereof for any unlawful, disreputable or ultra hazardous business
purpose, nor operate or conduct its business in a manner constituting a
nuisance of any kind. In addition, Lessee agrees that it will not use the
premises in any manner that would cause the property to be subject to an
extraordinary insurance risk, or which would prevent the procurement of
insurance by Lessor. Lessee shall immediately upon discovery of any unlawful,
disreputable or ultra hazardous use, take action to halt such activity.
8. TAXES AND ASSESSMENTS.
(a) Lessor shall pay, on or before the last day on which payment may
be made without penalty or interest, all taxes, assessments, local
improvement district or business improvement district assessments, or other
governmental charges that shall or may during the lease term be imposed upon,
or arise in connection with the use of, the demised premises or any part
thereof, except as expressly modified herein. Any increase in taxes and
assessments over the 1995 calendar year amount is a common area expense, a
proportionate amount of which is to be paid by Lessee in accordance with
paragraph 12 below.
(b) Lessee shall be solely liable for all taxes assessed during the
term of this Lease upon Lessee's personal property and trade fixtures placed,
kept or maintained by Lessee in or about the demised premises.
9. INSURANCE.
(a) Lessor shall acquire such insurance as it deems reasonably
necessary to insure the demised premises against the risk of fire and other
casualty, and for general comprehensive liability coverage. Any increase in
the insurance premium over the 1995 calendar year amount shall be a common
area expense, a proportionate amount of which is to be paid by Lessee in
accordance with paragraph 12 below.
(b) Lessee shall insure, and shall bear the risk of loss by fire or
other casualty, all alterations, additions and improvements placed on the
demised premises by Lessee, including but not necessarily limited to all
inventory, equipment and trade fixtures of the Lessee.
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(c) Lessee shall provide all risk insurance against liability for
bodily injury and property damage arising out of Lessee's operations, in
amounts and in forms of insurance policies as may from time to time be
required by Lessor, but, in any event, not less than two million dollars
($2,000,000.00) of coverage.
(d) All insurance provided by Lessee as required by this section
shall be carried in favor of Lessor and Lessee, as named insureds, as their
respective interests may appear.
(e) Lessor and Lessee each mutually release the other from every
right, claim and demand which may hereafter arise in favor of either arising
out of or in connection with any loss occasioned by fire and such other
perils as are included in the provision of the normal All Direct Cause of
Loss clause of fire insurance policies, and do hereby waive all rights of
subrogation in favor of insurance carriers arising out of any such losses and
sustained by either the Lessor or the Lessee in or to the premises or any
property therein.
10. UTILITIES & SERVICES. Lessor shall contract for and obtain, in its
name all services including gas, sewer, water, electricity, heating and
cooling costs, garbage, solid waste fees, snow removal and parking lot
maintenance which shall be paid by Lessor. Such payment is a Common Area
Expense, a proportionate amount of which shall be paid by lessee in
accordance with paragraph 12(b) below.
11. MAINTENANCE.
(a) Lessee hereby agrees to maintain the demised premises in
reasonable repair and in a clean and sanitary condition, and abide by all
rules and regulations of all city and county offices concerning the premises.
Lessee shall provide at its sole cost all janitorial services and supplies
including, without limitation, toilet supplies, paper, bulbs, tubes,
ballasts, painting and carpet cleaning, to the demised premises.
At the expiration of this Lease, the Lessee shall surrender the leased
premises in good condition, reasonable wear and tear or other unavoidable
casualty excepted.
(b) Repair and maintenance of the mechanical, electrical and
structural components in the building shall be paid by Lessor, and a
proportionate amount of which is to be paid by Lessee as common area expenses
in accordance with paragraph 12 below. Any repairs made necessary by Lessee's
misuse, abuse, negligence or fault shall be paid for by Lessee.
12. COMMON AREA EXPENSE.
(a) In addition to the Base Rent provided for herein, Lessee shall
pay to Lessor an amount equal to Lessee's prorated share of all common area
expenses in accordance with paragraph 12(b) below. Common area expenses shall
include, but not be limited to: Increase in property taxes over the 1995
calendar year, assessments, insurance premium increases over
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the 1996 premium, building maintenance and utilities and services as provided
for above, as well as general maintenance including snow removal, repairs,
supplies, security, street lights, elevator and HVAC maintenance and repair,
and reserves therefore, and such other services which Landlord may deem
reasonable or necessary. HVAC maintenance and repair includes without
limitation replacing filters, periodic maintenance and minor repairs. Failure
of structural HVAC components shall be the Lessor's responsibility and shall
not be considered normal maintenance and repair.
(b) Lessee's share of all common area expenses shall be calculated
as follows. So long as the Lessee is the sole tenant of the office facility,
Lessee shall pay a pro rata share of any increases in taxes, assessments and
insurance over the base years of 1995 and 1996, respectively (which shall be
pro rated based upon the ratio of the square footage of the demised premises
to the entire office facility) and 100% of the remaining common area
expenses, provided that, if other tenant(s) occupy any portion of the office
structure, the remaining common area expenses shall be pro rated among Lessee
and any other tenants in the building based upon the ratio of the square
footage of the demised premises of each tenant.
(c) Any increase over the base amount of Lessee's Proportionate
Share of Common Area Expenses shall be payable as Additional Rent by Lessee
within ten (10) days after a prepared statement of actual expenses is
presented to Lessee by Lessor. At Lessor's option Lessor may bill Lessee for
Lessee's Share of Common Area and Direct Expenses monthly or quarterly.
13. LEASEHOLD IMPROVEMENTS. The terms of this Lease, including Base Rent
and Additional Rent contemplate that the Lessor shall not be obligated to
provide any improvements or upgrades to the facility. Lessee shall have the
right to make improvements to the demised premises, at its sole cost and
expense, with prior written approval of Lessor for any alternations or
improvements (which approval will not be unreasonably withheld), provided,
however, that improvements having a cost of less than $1,000.00 in any
consecutive twelve (12) month period may be made without Lessor's prior
approval. Any such alterations, additions or improvements, including trade
fixtures, appliances and equipment, shall become part of the premises leased
herein, and shall not be removed by Lessee, unless the removal of such items
would not do material physical damage to the premises, provided that Lessee
may remove so much of the special telecommunications equipment installed by
Lessee as will not deprive Lessor of telecommunications equipment similar to
such equipment as is in the building at the inception of this Lease. Lessee
shall repair all physical damage occasioned by its removal of any such
telecommunication equipment.
14. LESSOR'S COVENANTS OF TITLE. Lessor covenants and warrants as
follows: That it has the full right and authority to enter into this Lease
for the full term hereof; that it will deliver the leased premises free and
clear of all tenancies or occupancies; that there are no title defects or
other matters, except those agreed to in writing by Lessor and Lessee, which
will prevent Lessee's business operations in the leased premises as provided
for in this Lease; and that Lessee, so long as it shall not be in default in
the performance of the covenants and
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agreements of this Lease to be performed by Lessee, will have, hold and enjoy
quiet possession of the leased premises.
15. GENERAL OBLIGATIONS OF LESSEE.
(a) Lessee shall keep the premises clean and free from rubbish,
dirt and any unlawful structure, at all times. There shall be no outside
storage of materials, supplies, goods, products, rubbish or other items,
except in designated areas and with Lessor's prior written consent.
(b) Lessee agrees to pay when due, all sums of money that may
become due for labor, services, materials, supplies or equipment furnished or
alleged to be furnished to or for Lessee upon or about the premises and which
may be secured by any mechanics' or materialmen's lien against the premises
or Lessor's interest therein, and will cause each such lien to be fully
discharged and released at the time performance of any obligation secured by
any such lien matures and/or becomes due, and shall indemnify and save Lessor
harmless from any costs, expense or damage incurred as a result of such lien.
16. INDEMNITY. Lessee shall indemnify Lessor and its agents against all
expenses, liabilities and claims of every kind, including, but not limited
to, reasonably attorneys' fees, by or on behalf of any person or entity,
arising out of either: (1) a failure by Lessee to perform any of the terms or
conditions of this Lease; (2) any injury or damage happening on or about, or
arising out of the Lessee's use of the demised premises; (3) failure of
Lessee to comply with any law of any governmental authority; or (4) any
mechanic's lien or security interest filed against the demised premises or
equipment, materials or alterations of buildings or improvements thereon.
17. DESTRUCTION OF PREMISES.
(a) If any improvements placed upon the demised premises are
destroyed or damaged by fire, the elements (including earthquake), or acts of
war to such an extent as to render the same untenantable in whole or in
substantial part, Lessor will cause the same to be properly repaired at its
own expense, to the extent of any applicable insurance proceeds, with any
deductible paid by Lessee in proportion to its share of any Common Area
Expenses up to maximum of $3,000.00 dollars: If such total or partial
destruction shall render the property unfit for occupancy or use in the
manner and form theretofore used, then the rent or a fair and just proportion
thereof, according to the nature and extent of the damage or injuries, shall,
until the premises has been repaired and/or rebuilt and made ready for
occupancy or use, be temporarily abated.
(b) In case the premises are destroyed by fire or otherwise
damaged to the extent of fifty percent (50%) or more of the total of the
premises, the Lease may be terminated at the option of either Lessor or
Lessee, upon written notice to the other.
(c) In the event the improvements are damaged so that they cannot
be repaired and made fit for reoccupancy within sixty (60) days from the date
of damage, then the Lease
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may be terminated at the option of Lessee. In the event Lessee desires to
exercise this option, it shall give notice thereof within ten (10) days after
the occurrence of the damage, and the parties shall thereupon agree upon an
architect or contractor, or both, who shall make the determination as to the
period of time within which the improvements could be repaired and made fit
for reoccupancy, which decision shall thereupon be binding upon the parties
hereto. In the event that the parties are unable to agree upon an architect
or upon a contractor within ten (10) days after the giving of the notice as
provided, then Lessor and Lessee shall each appoint a contractor or
architect, and the two so selected shall pick a third, and the decision of
the three so selected shall be binding and final. The cost of such
arbitration shall be divided equally between lessor and Lessee.
18. CONDEMNATION. All compensation awarded or paid upon such a total or
partial taking of the fee of the premises shall belong to and be the property
of Lessor, whether such compensation be awarded or paid as compensation for
diminution in value of the Leasehold or to the fee. Lessor shall not be
entitled to any award made to Lessee for loss of business, or depreciation to
and cost of removal of stock and fixtures.
19. ADVERTISING AND SIGNS. All individual advertising, signs and
displays shall be at Lessee's sole expense, and Lessee shall be fully
responsible for ensuring compliance with all applicable city, county or state
sign regulations or ordinances. All signs, advertising and displays shall be
subject to Lessor's approval as to type and placement. Lessee shall remove
signs, displays, advertisements or decorations it has placed on the premises
that, in the opinion of Lessor, are offensive or otherwise objectionable. If
Lessee fails to remove such signs, displays, advertisements or decorations
within ten (10) days after receiving written notice from Lessor to remove
them, Lessor reserves the right to enter the premises and remove them at the
expense of Lessee.
20. NOTICE OF INTENT TO VACATE. In the event that Lessee elects to
vacate the premises at the end of the Lease term, Lessee to give notice in
writing to Lessor to that effect at least ninety (90) days prior to the end
of the original Lease term. If Lessee desires to continue to occupy the
premises, a new lease agreement will need to be worked out between the
parties.
21. ASSIGNMENTS BY LESSEE.
(a) Lessee shall not assign, mortgage or hypothecate this Lease,
or grant any security interest therein, or permit the use of the premises by
any person or persons other than Lessee, or sublet the premises, or any part
thereof, without the prior written consent of Lessor, which shall not be
unreasonably withheld. Any attempt to do so may be deemed a default, at the
option of Lessor. Any transfer of this Lease from Lessee by merger,
consolidation or liquidation shall constitute an assignment for purposes of
this Section 20. This Lease shall not be assigned by operation of law.
(b) It is agreed that if a qualified lending institution requests
assignment of this Leasehold interest by Lessee for security purposes solely
for the purpose of lending for
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improvements or equipment on the demised premises, Lessor hereby gives
consent to such assignment. This consent does not waive any other term or
condition of this Lease.
(c) If consent is once given by Lessor to the assignment of this
Lease or any interest therein, Lessor shall not be barred from afterwards
refusing to consent to any further assignment. Lessor shall not unreasonably
withhold its consent to assignments of this Lease or subletting of the
premises by Lessee to responsible assignees or tenants.
22. SURRENDER OF PREMISES.
(a) On the last day of the term of this Lease, or in the event that
the Lease be sooner terminated by agreement of the parties or otherwise,
Lessee shall peaceably and quietly leave, surrender and deliver to Lessor the
demised premises, broom-clean, in good order and repair, reasonable wear and
tear excepted.
(b) Lessee shall remove all its property from the premises, and all
property not so removed shall be deemed abandoned by Lessee or, at Lessor's
option, removed from the premises at Lessee's expense. Lessee may remove at
any time any additions and improvements which it has made to the premises
which can be removed without injury the structural portion of the building.
It is mutually understood and agreed that Lessee, at or prior to the
termination of this Lease or any renewal thereof, may remove all trade
fixtures, equipment, floor covering, signs, and lighting fixtures attached or
placed by Lessee in or on the demised premises. With respect to the removal
of Lessee's improvements and fixtures, it shall be the duty of Lessee to
restore the building to the same general condition as existed at the time
Lessee obtained possession, reasonable wear and tear excepted, and to repair
any and all injury or damage to the premises resulting from the removal of
any fixture or improvement made by Lessee, including the restoration of all
lighting fixtures.
(c) In the event any signs are placed upon the exterior of the
builing by Lessee, the same shall be painted out by Lessee, including, if
necessary to make the exterior of the building appear uniform, the repainting
of the entire exterior of the building in such color as Lessor may direct.
23. DEFAULT.
(a) If Lessee, after written notice, should (1) fail to remedy any
default in the payment of any sum due under this Lease for ten (10) days or
(2) fail to remedy any breach of any other term, covenant or condition herein
within thirty (30) days, then Lessor shall have the right, at its option,
without any further demand or notice and in addition to any other remedies
remove all persons and property therefrom, either by a suitable action or
proceeding at law or by reasonable force or otherwise, without being liable
for any damage therefor. In such event, Lessor may either (1) declare this
Lease at an end, in which event Lessee shall immediately pay Lessor a sum of
money equal to the amount, if any, by which the then cash value of the rent
reserved hereunder for the remainder of the term of the Lease exceeds the
then cash reasonable rental value of the premises for the balance of the
term, or (b) without terminating this Lease
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may relet the premises, or any part thereof, as the agent and for the account
of the Lessee upon such terms and conditions as Lessor may deem advisable, in
which event the rents received on such reletting shall be applied first to
the expenses of such reletting--including necessary renovation and alterations
of the premises, reasonable atorneys' fees, and any real estate commissions
paid--and thereafter toward payment of all sums due or to become due Lessor
under this Lease. If a sufficient sum shall not be realized to pay such sums
and other charges, Lessee shall pay Lessor any deficiency. In no event shall
Lessor be under any obligation to relet the premises for any purpose other
than that specified in this Lease, which the Lessor may regard as injurious
to the demised premises or the building, or to any tenant which Lessor in the
exercise of reasonable discretion shall deem to be objectionable.
(b) If Lessee becomes insolvent, voluntarily or involuntarily
bankrupt, or if a receiver, assignee, or other liquidating officer is
appointed for the business of Lessee, then Lessor may cancel this Lease at
its option.
24. INSPECTION. Lessee shall at any time during the term of this Lease,
or any renewal or extension hereof, permit inspection of the leased premises
during reasonable hours by Lessor, or Lessor's agents or representatives for
and on behalf of Lessor. If at any time an entry shall be necessary for the
purposes of making any repairs which are the obligation of Lessor under this
Lease, Lessor or Lessor's agents may enter the premises by any reasonable
means necessary to accomplish such repair.
25. NOTICES. Unless otherwise directed by notice given pursuant to the
terms of this Lease, all payments, notices or oher communications shall be
given to the parties at the following addresses:
Lessor: Par III Associates, Barry Davidson, Receiver
601 W. Riverside Avenue
Spokane, WA 99201
Lessee: Coldwater Creek Inc.
One Coldwater Creek Drive
Sandpoint, ID 83864
Any notice so given shall be deemed given at the time the notice is deposited
in the United States mail, either registered or certified, with postage
prepaid.
26. ATTORNEYS' FEES. In the event that it becomes necessary for either
party to this Lease to seek legal advice, or if any suit, action or other
proceeding shall be instituted, relating to any term or condition of this
Lease, or relating to any of the rights, duties or obligations arising under
it, the prevailing party shall be entitled to recover from the other party,
and the other party agrees to pay to the prevailing party, whether or not the
matter proceeds to final judgment or decree, in addition to costs and
disbursements allowed by law, the prevailing party's reasonable attorneys'
fees incurred in seeking such advise, or such sum as the trial and each
-9-
<PAGE>
appellate court may adjudge reasonable in any suit, action or other
proceeding, and in any appeal therefrom.
27. ENTIRE AGREEMENT.
(a) This instrument contains all the agreements and conditions made
between the parties hereto and may not be modified orally or in any other
manner than by an agreement in writing signed by all of the parties hereto,
or their respective successors or assigns.
(b) The receipt of rent by Lessor with knowledge of any such breach
of this Lease by Lessee, or of any default on the part of Lessee in the
observance or performance of any of the conditions or covenants of this
Lease, shall not be deemed to be a waiver of any provision of this Lease
unless so specified in writing by Lessor. No failure on the part of Lessor to
enforce any covenant or provision contained herein shall discharge or
invalidate such covenant or provision or affect the right of Lessor to
enforce the same in the event of any subsequent breach or default, unless so
stipulated in writing by Lessor.
(c) The receipt by Lessor of any rent or any other sum of money or
any other consideration hereunder paid by Lessee after the termination in any
manner of this Lease, or after Lessor has given any notice to effect such
termination, shall not reinstate, continue or extend the term of this Lease,
or destroy or in any manner impair the efficacy of any such notice of
termination as may have been given, unless so agreed to in writing and signed
by Lessor. Neither acceptance of the keys nor any other act or thing done by
Lessor or any agent or employees during the term of this Lease shall be
deemed to be an acceptance of a surrender of the premises, unless so
stipulated in writing signed by Lessor.
28. BENEFIT. This Lease shall be binding upon the parties hereto, their
heirs, personal representatives, successors and assigns.
29. AGENCY. Jim Koon, Shawn McMahon and Acuff Northwest Inc. represent
the Lessor. Coldwater Creek, Inc. represent themselves and are not relying on
any statements concerning the property by the Owners or their Agents.
Furthermore, Coldwater Creek has done their own independent study of the
premises and is taking the property in AS IS condition.
IN WITNESS WHEREOF, the parties hereto have execute this Lease the day
and year first above written.
LESSEE: COLDWATER CREEK, INC.
Date June 6, 1996 By /s/ Don Robson
----------------- -------------------------------
Its Chief Financial Officer
-------------------------
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<PAGE>
LESSOR: PAR III ASSOCIATES
Date 6-13-96 By /s/ Barry Davidson
----------------- -----------------------------
Barry Davidson, Receiver
-11-
<PAGE>
STATE OF IDAHO )
) ss.
COUNTY OF KOOTENAI )
On this 6th day of June, 1996, before me, SHAWN T. McMAHON a Notary
Public for the State of Idaho personally appeared DON ROBSON known or
identified to me to be the CFO of Coldwater Creek Inc., a Delaware
corporation, the corporation that executed that foregoing instrument, and
acknowledged the said instrument to be the free and voluntary act and deed of
said corporation for the uses and purposes therein mentioned, and on oath
stated that he/she is authorized to execute the said instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and seal the day and
year in this certificate first above written.
/s/ SHAWN T. McMAHON
----------------------------------
NOTARY PUBLIC for Idaho
----------------
Residing at: Hayden Lake
---------------------
Commission Expires: 7-22-2000
--------------
STATE OF WASHINGTON )
) ss.
COUNTY OF SPOKANE )
On this 3rd day of June, 1996, before me, CORINNE E. NICKERL a Notary
Public for the State of Washington personally appeared Barry Davidson, known
or identified to me to be the Receiver of Par III Associates, and
acknowledged the said instrument to be the free and voluntary act and deed of
said corporation for the uses and purposes therein mentioned, and on oath
stated that he is authorized to execute the said instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and seal the day and
year in this certificate first above written.
/s/ CORINNE E. NICKERL
----------------------------------
NOTARY PUBLIC for Washington
[SEAL] ----------------
Residing at: Spokane
---------------------
Commission Expires: 6-1-97
-------------
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<PAGE>
EXHIBIT B-1
1. Lessee's proportionate share of the demised premises is
approximately 24,480 square feet, which is 53% of the total area of
approximately 46,220 square feet. This proportionate share (53%) will be used
for calculating common area expenses such as landscaping maintenance,
increases in property taxes and increases in insurance over the base years,
and any other fixed expenses.
2. For the operating expenses such as electricity, gas, water, sewer,
snowplowing and other services that vary month to month, as long as the
lessee is the sole occupant of the building, the proportionate share will be
100%. If other tenants move into the building, the proportionate share will
be divided among the tenants based upon comparative square footage of
premises leased.
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<PAGE>
EXHIBIT A-1
Tax No. 10,272 From Copy of Survey-Kirsch Realty
11/30/76
That portion of the West half of the NE 1/4 of the NW 1/4; and that portion of
the West half of Government Lot 6, all being in Section 11, Township 50
North, Range 4 W. B.M., Kootenai County, State of Idaho, being described as
follows: Commencing at the Northwest corner of said Section 11; thence East
along the North line of said Section, 1331.3 feet; thence South along the
West line of the NE 1/4 of the NW 1/4 of said Section 11, 680.4 feet to a point
on the South right of way line of Interstate Highway 90, being the true point
of beginning; thence S. 85DEG.28/00" East 310.15 feet to a point on the South
line of said highway; thence S. 0DEG.13'00" West, to a point on the North
line of Ironwood Drive; thence Northwesterly along the North line of said
Ironwood Drive, to a point of intersection with the West line of the NE 1/4 of
the NW 1/4 of said Section 11; thence North along said West line to the true
point of beginning.
<PAGE>
EXHIBIT A-2
EXISTING SITE PLAN
[MAP]
<PAGE>
COMMERCIAL LEASE
BY THIS AGREEMENT, made this _____ day of January, 1995, between Cedar Street
Bridge Co., an Idaho limited partnership, and Sandpoint Real Estate
Development Partnership, an Idaho limited partnership, for itself and as
successor to Cedar Street Bridge Co., both having principal business offices
in Bonner County and a mailing address of 104 E. Pacific, Sandpoint, Idaho
83864-1496, hereinafter referred to as "Lessor," Gourmet, Inc., an Idaho
Corporation duly authorized to transact business in the State of Idaho, whose
address is 517 N. 4th Ave., Sandpoint, ID 83864, and who executes this lease
as an additional "Lessor" as to that property expressly designated herein as
belonging to said Corporation, and Coldwater Creek Inc., an Idaho corporation
with principal place of business at 1123 Lake Street, Sandpoint, Idaho,
herein referred to as "Lessee," Lessor rents to Lessee, and Lessee hires from
Lessor, for the uses herein described, the following demised premises in the
City of Sandpoint, State of Idaho, upon the following items and conditions:
SECTION ONE: DEMISE:
This instrument creates a sub-lease of real property, and a lease of certain
other property. Subject to the provisions on permitted and prohibited uses,
Lessee may sub-let or assign any portion of the demised premises, without
prior or additional consent of Lessor.
Lessor leases to Lessee the following real property in Sandpoint, Idaho,
together with all improvements, appurtenances, licenses, easements and rights
appertaining, in that developed property known as the "Cedar Street Bridge"
or "Cedar Street Bridge Public Market", including specifically all common
areas and facilities, signs, and rights to post signs, which property is more
particularly described as:
A tract of land located in the Southeast Quarter of the Northeast
Quarter of Section 22, Township 57 North, Range 2 West, and in
Government Lot 2 of Section 23, Township 57 North, Range 2 West, Boise
Meridian, Bonner County, Idaho described as follows:
Beginning at a point which is 80.0 feet East of the Southeast
corner of Lot 10, Block 15, Farmin's Addition, according to the plat
thereof, recorded in Book 1, page 155, records of Bonner County, Idaho;
thence South 80.0 feet; thence East to the Southwesterly right of way of
the Northern Pacific Railroad right of way in Government Lot 2 of said
Section 23; thence Northwesterly along said right of way to a point
which is East of the Point of Beginning; thence West to the Point of
Beginning.
The parties recognize that Lessor's estate in the foregoing realty arises by
virtue of a lease (hereafter "City Lease") which it holds with the City of
Sandpoint, dated
SREDP/CWC LEASE - 1
<PAGE>
October 6, 1982, recorded at Book 6 of Leases, Page 455 Records of Bonner
County, Idaho. This instrument is intended to vest in Lessee physical
possession of the entire estate created by the City Lease, and is subject to
paragraph 6 of said lease regarding access across Sand Creek, which provides:
Tenant's exclusive possession notwithstanding, during the term of this
lease, as extended, tenant shall maintain, during reasonable business
hours, at least ten (10.0) feet of access for public pedestrian travel
across Sand Creek. Further, but only to the extent permissible by
applicable safely regulations and considerations concerning vandalism,
loitering and the like, tenant shall keep open a four (4.0) foot wide
outside corridor, located along the south edge of the existing
structure, after reasonable business hours, as access to the Burlington
Northern depot. Said four foot access may be considered by tenant as
part of the ten foot access specified above, in the event applicable
safely regulations permit its use. All references to access and corridor
herein shall refer only to the same at ground level, and shall not
include any corridors or floors at other than "ground" level.
Said right of way may be interrupted from time to time when, in the
reasonable opinion of tenant, pedestrian travel is deemed hazardous.
Tenant agrees to consult with appropriate City officials prior to such
closure and to follow the reasonable guidance and advice given. However,
in no event shall the giving of such advice by deemed a participation by
the landlord in the risk of loss arising from injury on or to the leased
property.
Nothing contained herein shall be construed in derogation of such access.
Lessee has read and understands the provisions of the City Lease, and agrees
to do no act which violates the terms thereof. An uncured default of the
City Lease by either party shall constitute a default of this sub-lease.
Lessor represents that the City Lease sets forth all the material terms
between the City and Lessor, and Lessee relies upon such representation.
This demise also includes, to the extent not included in the City Lease:
a. That portion of the leasehold leased to Lessor by Burlington Northern
Railroad Company pursuant to lease # 244,712 depicted as areas E and C (and
designated in orange on attached exhibit A), together with such rights to the
use of the adjoining dumpster area on BN property as are now held or enjoyed
by Lessor. This lease does not include other of the property subject to said
railroad lease, nor are the duties and obligations of said lease assigned to,
or the responsibility of, Lessee. Lessor under this Lease remains responsible
for rents payable to B.N.R.R. and all other obligations of its Lease with
B.N.R.R.
b. The rights and interest, if any, to the use and occupation of Bonner
County
SREDP/CWC LEASE - 2
<PAGE>
property lying within the area depicted in yellow on Exhibit "A," however
arising.
c. The areas extending outward from the west side of the improvements to the
right of way for First Avenue, which area is sometimes called the "plaza."
d. Subject to the provisions of Idaho Code Title 23 Chapter 9, the existing
liquor license held by Gourmet, Inc., which is presently held for use in
conjunction with the leasehold, and as to which Gourmet, Inc. is the sole
Lessor, the parties intending that Lessee may operate pursuant to the
authority granted by such license(s). Annual license fees payable to the
State of Idaho shall be divided between the parties, except that in any
calendar year in which Lessee utilizes the license for sale of liquor to the
public, then Lessee shall be responsible for the entire license fee for that
year. Lessee shall do no act, nor suffer acts to be done, which cause or
could cause loss of such liquor license, and Gourmet, Inc. reserves the right
to take all steps reasonably necessary to insure the continuation of such
licensure.
Gourmet specifically authorizes Lessee to sell liquor by the drink on the
premises. Nevertheless, Lessee shall obtain and maintain liquor liability
insurance for all periods during which it is actually selling liquor pursuant
to said license, naming lessee and lessor as insureds as their interests may
appear.
e. The dock, and stairway leading to the dock, located on the east side of
Sand Creek, and the right to let, license or otherwise control enterprises
operating on Sand Creek from the bridge facility or dock, including but not
limited to canoe/kayak operations and food/refreshment operations, to the
extent that such operations have been, or can be, under the control of Lessor.
f. the right, though not the obligation, to use all signage on or associated
with the property, including the free standing "Cedar Street Public Market"
sign on the west side of the property.
g. non-exclusive use of the 4 foot wide outside corridor required by the
City Lease.
h. that personal property described on Exhibit B, attached hereto. Items
whose useful life as shown in said exhibit is less than the period of
possession by Lessee under this lease and any extension thereof are deemed
"consumable" in the course of ordinary use, wear and tear, and need not be
accounted for or returned by Lessee at termination.
Lessor shall promptly notify Lessee of any claim or suit instituted or
threatened against it which could impact Lessee's continuing quiet possession
of the demised premises.
SECTION TWO: EXCLUSIVE AND QUIET POSSESSION:
Except for those rights for access across Sand Creek in favor of the public
which are established by the lease between Lessor and the City of Sandpoint
and described in Section One, this demise is exclusive, even as to formerly
"common" areas, it being expressly understood that all existing tenancies,
licenses or other
SREDP/CWC LEASE - 3
<PAGE>
permissive uses (but not including the liquor license) or interests shall be
terminated, all other tenants shall have vacated the premises prior to
commencement of the term hereof, and Lessee shall have full, exclusive,
complete and entire possession (hereafter "full possession").
Lessee has offered to sub-let the current "Special Effects" space to the
current tenant thereof, if such tenant will terminate her existing lease with
Lessor. If the tenant accepts this offer, then her continuing possession
shall not be deemed to violate Lessee's requirement of full possession. If
she declines this offer, then:
a. Lessor will commence and diligently pursue eviction at its earliest
availability, and at Lessor's expense; and
b. Said tenants continuing presence shall not be deemed to violate
Lessee's requirement of full possession; and
c. If said tenant is still holding possession on or after January 1,
1996, then Lessee's full possession shall be deemed interrupted, and
obligations regarding rents, repair, maintenance, and repair shall be as in
this lease set forth in the event full possession is not obtained.
Lessor covenants that Lessee shall and may peaceably and quietly have, and
hold and enjoy said premises during the entire term of this lease and any
rightful extension hereof, without interference, limitation, hindrance or
molestation by the Lessor, any tenant or former tenant of Lessor, or any
other person lawfully claiming by, through or under Lessor. Lessor agrees to
protect, indemnify and hold harmless Lessee against the claims of any party
or parties should any contests ever arise as to the Lessor's possessory
interest in the premises, Lessor's right to enter into this lease and any of
the agreements contained herein, and Lessee's right to exclusive possession
of the property.
Lessee shall be entitled to enter onto the premises, and shall have exclusive
possession, on and after February 1, 1995. The existence of a leasehold
interest in Lessee, pursuant to its pre-existing lease or any extension
thereof, shall not constitute a violation of the foregoing covenants.
PROVIDED, HOWEVER, THAT if at the commencement of the term Lessor has not,
cannot or does not provide complete and exclusive possession of the demised
real property as described herein, then:
1. Lessor and Lessee shall not be obligated to contribute to the cost of
improvements and renovations set forth in Section Six, and shall not be
obligated for repair or maintenance as set forth in Section Seven, and such
obligations shall remain abated until full possession is delivered or this
lease is terminated. Repair, maintenance and utilities obligations of the
parties in that case shall be as set forth in the parties' existing 1992
lease.
2. Lessee shall retain possession of the space now held by it under lease.
SREDP/CWC LEASE - 4
<PAGE>
3. Lessee shall take occupancy of the following additional retail space, or
so much thereof as is available:
Silver Lady (Hebert) space, as of August, 1994
Delightful Diversions (Beers and Thiele) space as of August, 1994
Mole Hole (Ogilvie) space of August, 1994
4. Lessee shall take possession of all other available space, as such space
becomes available.
5. Lessee shall pay, as rent for each such space the rental rates shown in
Exhibit "C."
SECTION THREE: TERM:
The term of this Lease shall be five years, beginning February 1, 1995, and
continuing through 11:59 p.m. on January 31, 2000, PROVIDED, HOWEVER, that if
full, complete and exclusive possession of the premises is not provided by
Lessor on that date, then the term shall extend for 5 years from the date on
which such full possession is achieved, and the renewal term, if exercised,
shall extend for an additional 5 years.
Lessee shall have the right to renew this lease for an additional 5 year
term. The election to renew shall be exercised by delivering notice in
writing of said election at least 150 days prior to the expiration of the
term. Delivery to Lessor shall be at the address then being used for payment
of rent. If notice of election is given by mail it shall be deemed given when
placed into the United States postal system.
Should Lessee holdover after termination, a month to month tenancy shall
result, for which the monthly rent, absent other written agreement between
the parties, shall be .0875 (105% of one twelfth) of the last effective
annual rent payable.
In consideration of the mutual covenants and agreements herein, Lessee is
hereby granted the following right of first refusal, which is a material
consideration for this lease:
A. During the original term of this lease, and during all but the final one
year of any renewal thereof, Lessee may purchase the property under the
terms, and for the purchase price, Lessor proposes to sell such property to
any third party. Implementation of this right shall be as follows:
1. Lessor shall immediately deliver to Lessee a copy of the executed
offer of purchase which Lessor intends to accept. If the period for
acceptance of the offer is too short to afford Lessee at least 7 days in
which to respond after receipt of its copy, Lessor shall reject the offer,
provided that Lessor may counter-offer on the same terms but made subject to
this right of first refusal.
2. Lessor shall not accept any offer of purchase, nor otherwise bind
itself to sell, until expiration of at least 7 days from delivery of a copy
of such offer to Lessee. If terms additional to those contained in the
written offer of purchase have been proposed, these shall likewise be
conveyed to Lessee.
3. Lessee may verify the proposed purchase and sale, through the
SREDP/CWC LEASE - 5
<PAGE>
prospective purchaser, its agents, or agents of Lessor.
4. Lessee shall exercise its right by tendering written notice of
acceptance of the proposed purchase terms, and tendering all such sums as are
required to be tendered under the purchase offer, within the 7 day period so
reserved. Upon such tender, the parties shall proceed to close the
transaction, upon the terms so accepted. On failure to so tender, the right
of first refusal for purchase shall terminate.
SECTION FOUR: RENT:
For each month of the term in any part of which Lessee does not have full
possession, Lessee shall pay rents as provided for in Section Two, in
advance, on or before the first day of the month for which due.
Commencing upon full possession, and for the five remaining years of the
term, Lessee shall pay as rent the sum of $250,000.00 per year (the full
rent). For each year of the 5 year renewal term of this lease, Lessee shall
pay as rent the sum of $275,000.00 per year (the full rent). As used in this
section, "rents" means the total of all ground rents, fees and charges except
those otherwise herein specifically assumed by Lessee.
Subject to the provisions of Section Thirteen, one twelfth of the annual rent
(e.g. $20,833.33 during the first 5 year term) shall be due and payable to
Lessor on the 1st day of each calendar month. All rentals shall be paid to
the account of Sandpoint Real Estate Development Partnership at Panhandle
State Bank, Sandpoint, Idaho, or such other address as said Partnership shall
in writing instruct. The appointment of rents between the Lessors herein is
the responsibility of said Lessors.
Lessee shall secure from its bank a letter of credit guaranteeing payment of
the rents due from Lessee for the ensuing 24 months. This guarantee shall be
renewed or extended from time to time such that it shall always cover the
next 24 months. The cost of obtaining and maintaining the letter shall be
paid equally by the parties. Costs, including attorneys fees, of the party
not in default, and of the bank, if any, shall be paid by the non-prevailing
party.
SECTION FIVE: UTILITIES AND SIGNS:
Lessee shall pay for all utilities supplied to the demised premises during
that portion of the term of this Lease in which it has full possession,
including, but not limited to, water, trash removal, electricity, snow
removal and telephone service.
Lessee may modify, install and remove signs for identification, advertising,
and all other purposes which are not in conflict with existing State and
Local Statutes, Ordinances and Regulations, provided, however, that Lessee
agrees to maintain the "identify" and "character" of the Cedar Street Bridge,
in a fashion aesthetically acceptable to both parties. Lessee intends to
remove current signage on the west face of the building (Cedar Street Bridge
Public Market) and replace it with its own business name(s) and/or logos, and
may do so without additional consent of Lessor. All sign installation shall
be in a manner such that no structural damage
SREDP/CWC LEASE - 6
<PAGE>
shall be done to the building upon removal. So long as Lessee is not in full
and complete possession of the property, Lessor's rights as against other
tenants to abate or control such tenant(s)' individual signage and
advertising is hereby assigned to Lessee. Upon termination of this Lease
Lessee shall remove said signs at its own expense, and restore and repair any
damage arising from such removal.
SECTION SIX: REMODELING TO SUIT:
The following renovations shall be performed forthwith:
A. Re-surface the existing bricked outside (west side) plaza area, extending
westward from the bridge building to the right of way of First Avenue or the
beginning of avenue curbing, whichever is farther. ALSC architects, of
Spokane, Washington, shall be employed by the parties jointly, to render
design assistance and oversee the work, including inspections and oversight
of the contractor(s).
Contractors will be required to post a performance bond and show proof of
insurance indemnifying the parties, as their interests may appear, from
liability arising from construction, in an amount of not less than
$1,000,000.00.
The materials to be used, colors and other aesthetics shall be in the first
instance determined by Lessee, and then reviewed by Lessor, which may veto
any part of the proposed construction, and present counter proposals. In the
event the parties are unable to mutually agree on any detail, the architect
shall propose a binding compromise.
The project will be undertaken and diligently pursued, so as to be completed
on or before June 1, 1995.
If Lessor is unable to provide full possession, this project shall proceed
only by mutual agreement. When Lessee has full possession, the project
becomes mandatory, time frames shall be reasonably adjusted, and Lessee shall
pay (and as appropriate reimburse Lessor) for the entire project cost. All of
such cost, up to a maximum of $25,000.00 shall be credited as advance rent,
subject to interest accrual as set out in Section Twenty Two.
B. Air conditioning shall be installed in and for the property, including
retail units and former common areas. ALSC architects, of Spokane,
Washington, shall be employed by the parties jointly, to design the system
and oversee the work, including inspections and oversight of the
contractor(s).
Contractors will be required to post a performance bond and show proof of
insurance indemnifying the parties, as their interests may appear, from
liability arising from construction, in an amount of not less than
$1,000,000.00.
Attached hereto as Exhibit "D" are baseline specifications which shall be
applied to the design absent structural or functional necessity to the
contrary. The system shall employ heat pumps. In the event of dispute between
Lessor and Lessee as to design and implementation of the system which is not
resolved after direct discussion, the disputed issue(s) will be resolved by
vote, where each
SREDP/CWC LEASE - 7
<PAGE>
Lessee and Lessor shall each have one vote, and the architect shall have one
vote.
If Lessor is unable to provide full possession, this project shall proceed
only by mutual agreement. When Lessee has full possession, the project
becomes mandatory, time frames shall be reasonably adjusted, and Lessee shall
pay 100% of the cost (reimbursing Lessor as appropriate), and the following
sums shall be credited as advance rents: 50% of the first $100,000.00 cost of
the project, inclusive of architect and engineering fees; and 25% of the next
$50,000.00 of such cost. There shall be no credit for costs exceeding
$150,000.00. Sums credit as advanced rent shall be subject to interest as set
out in Section Twenty Three.
The project will be undertaken and diligently pursued, so as to be completed
on or before June 1, 1995.
C. The fixtures in restrooms will be forthwith replaced with new fixtures,
to be completed on or before April 30, 1995. Lessor shall pay the first
$7500.00 of the cost thereof, and any balance payable shall be paid by
Lessee. Lessee may elect to make other improvements to the restrooms, at its
own expense, provided all applicable codes are complied with and Lessor gives
prior consent, which shall not be unreasonably withheld.
D. Modifications to the improvements which are required to comply with
federal, state or local ordinances or codes, whether now extant or whether
adopted during the term of this lease, shall be performed by Lessor, at its
expense.
E. The following remodeling and renovation may be undertaken by Lessee, at
its expense, without additional approval, and without the obligation to
restore the same upon termination:
1. Cutouts in or of walls now separating retail units.
Contemplated cutouts are shown on Exhibit "E".
2. Removal of the walls and trade fixtures which currently define the
area now leased to Ogilvie, and sometimes known as the "Mole Hole Space."
3. Changes in the number, location, size, and shape of entries, and
installation of walls, doors, windows and partitions; provided, however,
that no such change shall be undertaken which violates the rights of way
reserved to the public in the lease with the City.
4. Changes in lighting and signage.
5. Changes to food preparation areas, and redesign and relocation within
the property of the food, beverage and liquor dispensing areas.
6. Installation of new or additional interior telephone wiring and
computer hookups.
If Lessee's remodeling has the effect of eliminating an existing retail unit
as depicted on Exhibit "E" (other than the Mole Hole), it shall restore such
unit upon
SREDP/CWC LEASE - 8
<PAGE>
termination, at its expense, should Lessor so demand.
All remodeling under this Section shall be properly engineered so as not to
damage the structural integrity of the premises, nor destroy existing
mechanical systems.
Lessee may not make any structural changes, changes to the exterior of the
building or other remodeling changes to the interior not set forth herein
except as specifically permitted by lessor in writing, which permission will
not be unreasonably withheld, but which may be conditioned on lessee's
agreement, on termination, to return those changes to their pre-sublease
concept and character.
SECTION SEVEN: REPAIR AND MAINTENANCE:
Any damage to the existing property caused by or during the departure of
existing tenants shall be repaired by Lessor. All mechanical, electrical,
heating, plumbing, sprinkling and utility systems shall be in good working
order and comply with applicable codes, or promptly brought to compliance at
Lessor's expense.
Lessor shall at its own expense provide routine repair and maintenance of the
structural components of the improvements, including but not limited to the
foundation of each, the building exterior, roof, air conditioning system,
sprinkling system, plumbing, electrical, heating and other mechanical
systems, except:
a. those items which are assigned to Lessee as shown in the maintenance
chart dated 12/28/94, attached hereto as Exhibit "F"; and
b. Lessee shall repair at its own expense all injuries or deteriorations
to the premises occasioned by Lessee's want of ordinary care or greater
degree of culpability; and
c. those repair or maintenance obligations otherwise herein specifically
assigned to Lessee.
d. Lessee shall be responsible for the care and control of the outside
walkway across Sand Creek.
Lessor is specifically responsible for damage arising from, or as a result
of, frozen or burst pipes, including lost profits, except to the extent such
damage arises from intentional or negligent acts of Lessee.
Lessee shall at its own expense, and in addition to the payments required by
Section Three hereof, repair and maintain the interior of the building,
including walls, floors, ceilings, and lighting of the original building and
of all alterations and renovations thereof made by Lessee, including formerly
"common areas," except:
a. those items which are assigned to Lessor as shown in the maintenance
chart dated 12/28/94, attached hereto as Exhibit F; and
b. Lessor shall repair at its own expense all injuries or deteriorations
to the premises occasioned by Lessor's want of ordinary care or greater
degree of culpability; and
c. those repair or maintenance obligations otherwise herein specifically
assigned to Lessor.
SREDP/CWC LEASE - 9
<PAGE>
Lessee shall keep the premises in a clean condition and businesslike
appearance, and shall use all reasonable precautions to prevent waste,
damage, or injury to the demised premises. Lessee shall maintain in a clean
condition and businesslike appearance the exterior walkways and parking areas
included in the demise.
Lessee and Lessor shall comply with all statutes, ordinances, and
requirements of all municipal, state, and federal authorities now in force,
or which may hereafter be in force, pertaining to the premises, occasioned by
or affecting the use thereof by Lessee or the possessory interest therein of
Lessor.
At termination of this lease, the air conditioning, structural remodeling,
and other improvements and renovations which are part of the building, and
not readily removable without substantial damage to the property, shall be
fully the property of Lessor. Trade fixtures, fixtures and improvements
readily removable shall remain the property of Lessee. Lessee is not
obligated at termination to restore the property to its original condition or
floorplan.
SECTION EIGHT: MERCHANT'S ASSOCIATION:
The parties recognize that a merchant's association, known generally as the
Cedar Street Bridge Merchant's Association, has existed for and among
merchant's operating in the property. Upon full possession, this association
shall be deemed suspended during the term of this lease and any extension
thereof. Rules and regulations for tenants, "sign ordinance(s)" and other
regulatory pronouncements which have been issued by Lessor or by the
merchant's association shall be not apply during the terms of this lease,
except as expressly incorporated herein.
SECTION NINE: AUTHORIZED USES:
Lessee shall neither use nor occupy the demised premises or any part thereof
for any unlawful, disreputable or ultrahazardous business purpose, nor
operate or conduct its business in a manner constituting a nuisance of any
kind. Lessee shall comply with all laws, ordinances, and regulations
applicable to its use of the premises which may now or hereafter be
promulgated by any governmental agency having appropriate jurisdiction.
Lessee shall utilize the premises principally as a commercial shopping area
with associated features and facilities, and open to the public. Other
compatible uses, including office space, shall be permitted.
Lessee may sublet or assign the whole, or any part, or its interest, without
additional consent of Lessor, provided that the bank guarantee of payment of
rent is retained, and the sub-lessee or assignee accepts full obligation to
perform Lessee's obligations hereunder.
SECTION TEN: INSPECTION:
Lessee shall permit agents of Lessor to enter into and upon the demised
premises during business hours, or by mutual arrangement at other reasonable
times, for the purpose of inspecting the same, or
SREDP/CWC LEASE - 10
<PAGE>
for the purpose of posting notices of non-responsibility for alterations,
additions or repairs. Lessee intends, and is permitted, to install new locks
and a security system. Lessor will be supplied a key for entry into the
property. Lessee will not provide Lessor with the security system codes, it
being the parties intention that entries by Lessor or its agents to address
building or other emergencies shall be possible, but shall result in alert to
Lessee and agencies connected to the security system.
At any time during the final year of this lease, or during the final year of
any renewal term hereof, Lessor may show the property to prospective tenants,
provided Lessor supplies Lessee with 48 hours prior notice, and the showing
is conducted so as to minimize interference with retail operations or patron
usage.
During the fifty (50) days preceding the end of the term, Lessor may
discreetly display on the premises a sign or signs that the premises are
available for Lease. Lessee shall co-operate with Lessor in showing the
property at reasonable times to prospective tenants.
SECTION ELEVEN: INSURANCE:
Each party shall obtain and maintain at its own expense premises liability
insurance in an amount not less than One Million Dollars [$1,000,000] on
which the other party is shown as a named insured, as its interest may appear.
Lessee shall obtain and maintain fire insurance covering damage or loss from
fire or other casualties to its own personal property within the premises,
commencing with the earliest date on which Lessee takes possession of the
property.
Lessee shall promptly notify Lessor of any claim or suit instituted or
threatened against Lessee.
Lessor shall keep the building upon the demised premises insured against loss
or damage by fire, wind, storm, lightening, vandalism and other causes to the
extent of the full insurable value thereof, and shall apply all proceeds
collected thereunder toward full compliance with the its obligations
hereunder.
SECTION ELEVEN A: ABATEMENTS AND TERMINATION:
In the event that, by virtue of a loss, including by fire, the elements,
unavoidable accident, condemnation or other taking by eminent domain, or
other calamity, not the fault of Lessee, the leased property is rendered
unavailable or untenantable in whole or in part, the rent shall be abated in
appropriate proportion to the diminished use of the premises resulting from
the loss, according to the following formulae:
a. If by virtue of such loss a portion of the critical areas depicted in
yellow on Exhibit G materially affecting access to the retail area are or
will be unsafe or unusable, then:
i. rent will automatically abate by 75%; and
iii. If cure and repair are not completed within 90 days, then Lessee
shall, in the 30 days following Lessors 90 day cure period notify Lessor
SREDP/CWC LEASE - 11
<PAGE>
in writing whether it shall terminate this lease, or affirm the lease at the
reduced rent. If affirmed, full rent shall be restored upon completion of
cure and repairs. If terminated, Lessee shall vacate the premises within 180
days, and shall pay abated rent, pro rata, during the period of possession.
b. If the diminished use affects 3 or more of the 9 critical bays depicted
on Exhibit G in orange, then Lessors obligations to repair and Lessees rights
to terminate or abate rent are as set forth in subparagraph a above.
c. If the diminished use is not of Exhibit G critical areas, or affects
fewer than 3 critical (orange) bays, then the lease shall be affirmed, and
rents abated by that proportion as the August 1994 rent payable for the lost
use area bears to the entire rents payable in August 1994 (Exhibit C). Lessor
will diligently pursue full repair and restoration. Full rent shall be
restored upon complete repair and restoration.
Upon termination, any advance of rentals (as provided for in Section Thirteen
hereof) not offset shall be repaid by Lessor to Lessee, together with interest
from date of Lessor's receipt at the rate provided for judgments.
Following a loss as to which termination is not elected, Lessor shall
promptly cause the damage to be repaired to a condition at least as good as
existed prior to the loss. When the damage has been fully corrected, and the
property restored to its prior condition, full rent shall again be due. If
damage occurs to the leased property, whether partial or complete, as a
result of the fault or neglect of the Lessee, its employees, agents,
assignees or subtenants, there shall be no apportionment or abatement of rent
during the term of this Lease, and Lessee shall be responsible to repair the
premises to their condition prior to the loss.
SECTION TWELVE: LIQUOR LICENSES
Lessor presently holds a liquor license, which is associated with the premise
subject of this lease. The parties have agreed that Lessor will lease said
license to Lessee. If such a lease of the license is not authorized or
approved by the state authorities concerned, the parties will cooperate in
establishing such alternate arrangement with regard to the license as will
permit Lessee to operate under such license, and in the manner most nearly
equivalent to a lease of the license.
The parties will cooperate in timely executing such documents as are
requested or required by the State of Idaho to process and approve lease of
the license, the alternate arrangement, including the qualification of Lessee
corporation to hold such license as lessee or equivalent. However, Lessor is
not responsible if, by reason of the identity of the stockholders, directors
or other principals in Lessee, the State refuses to authorize Lessee to
operate under a liquor license, nor if Lessee loses its authorization to so
operate based upon violation of law or other bad acts.
Lessee will make its own application for beer and wine licenses, and no
transfer
SREDP/CWC LEASE - 12
<PAGE>
or assignment of such licenses held by Lessor shall be required.
SECTION THIRTEEN: SPECIAL ADVANCE:
Lessee will place into the trust account of its attorney, serving as an
escrow, the total sum of $160,000.00, for payment to tenants as follows:
To Ogilvie: $25,000.00
To Hebert: $75,000.00
To Beer and Thiele: $60,000.00
The first $155,000.00 of such sum paid out shall be credited as advance
payment of rent. The remaining $5000.00 is Lessee's contribution to the
buyouts.
The condition for the disbursement is that the tenant to be paid has in fact
vacated and surrendered possession, as verified by a signed and notarized
writing by the tenant acknowledging surrender and termination of leasehold
rights. One alternate original of each such writing shall be delivered to the
escrow prior to disbursement; but it is not necessary that all three tenants
have vacated in order to authorize the payment to any one tenant. To the
extent that Lessor had advanced any portion of the above tenant buyout sums,
it shall be reimbursed from the funds in escrow. Moneys still held by the
escrow on February 1, 1995 shall be returned to Lessee.
Lessee shall have right of possession for a period not less than the period
corresponding to the rents so prepaid (which period will depend on whether
and when full possession is delivered). If full possession has not been
provided to Lessee by the end of such period, Lessee thereafter has the
right, for the next 30 days, to terminate this lease or to confirm it on
these same terms. Thereafter, either party may terminate this lease on 180
days written notice to the other. Upon such termination, sums advanced by
Lessee, including against future rent, shall be reimbursed by Lessor to
Lessee.
Lessee's agreement to advance rents under this Section is personal to Lessor,
and cannot be assigned.
In the event of cancellation, termination, rescission or other event which
prevents application of amounts advanced to ongoing rents until fully offset,
Lessor shall repay to Lessee the portion of such advance which has not been
offset, together with interest at the rate fixed for judgments, accruing from
the date of the event. The provisions of Section Eighteen regarding
mediation, legal action and attorneys fees shall apply to the implementation
or, or disputes regarding, the repayment of rent advances provided in this
Section.
SECTION FOURTEEN: INDEMNIFICATION:
Each party shall indemnify and hold the other harmless from liability and
expense arising out of or resulting from the intentional and negligent acts
or omissions of the indemnifying party.
SECTION FIFTEEN: DEFAULT:
Time is of the essence of this Lease.
SREDP/CWC LEASE - 13
<PAGE>
A. If Lessee shall default in payment of rent, and such default continues for
three (3) days after receipt of written notice of the breach, then Lessor may
terminate this lease, and in addition pursue any or all of the remedies set
out herein, the same being cumulative.
B. If Lessor shall default in its covenant of quiet enjoyment and peaceable
possession, such that Lessee's possession of any portion of the Exhibit G
critical areas is lost, compromised, or contested, then Lessee may terminate
this lease, and in addition pursue any or all of the remedies set out herein,
the same being cumulative.
C. If the default constitutes an abandonment of the premises without cause
(for purposes of this clause, failure to occupy the premises for thirty (30)
days shall be deemed abandonment). Lessor may re-take possession without
additional orders of court, and bring an action for all damages provided by
law.
D. If the default is for failure to pay money other than rent, or for
failure to do, or refrain from doing, some other affirmative act herein
stated, and the default
- - is one which could reasonably be cured within 30 days, but such default
continues for thirty (30) days after written notice has been given to the
party in default, or
- - is one which could not reasonably be satisfied within 30 days, but cure of
such breach is not begun within such 30 days, and thereafter diligently
pursued,
then, the party not in default may at its election:
1. Cure the default, and charge back the cost of cure to the party in
default. If Lessee is the party in default, the chargeback shall be
considered as additional rent. If Lessor is the party in default, the
chargeback shall be taken as a credit against rents due until satisfied.
Written notice of the costs of such cure shall be delivered to the party
in default, and shall be deemed due upon delivery.
2. Bring an action to collect the amount in default.
3. Bring an action for specific performance.
4. Bring an action for damages, which may include incidental and
consequential damages, including lost profits. The parties agree,
however, that the maximum damage for lost profits payable to either party
shall not exceed $1,000,000.00
In the event of termination Lessor may re-enter the premises and remove all
persons and property from the premises.
SECTION SIXTEEN: LIENS:
SREDP/CWC LEASE - 14
<PAGE>
Lessee covenants to keep the demised premises free of mechanics, materialman
and other liens, and shall hold Lessor harmless therefrom. Lessor covenants
to keep its estate in the demised premises free of mechanics, materialman and
other liens which could interfere with Lessee's quiet and peaceable
possession, and to hold Lessee harmless therefrom.
SECTION SEVENTEEN: SURRENDER OF POSSESSION:
Lessee shall at the end of the term, or on earlier termination or forfeiture
of this Lease, peaceably and quietly surrender and deliver the demised
premises to Lessor in as good condition and repair as it was after completion
of construction, reasonable wear and tear excepted. Lessee shall remove its
personal property from the premises at the time of such termination; and any
personal property remaining on the premises after fifteen (15) days written
notice from Lessor shall be deemed abandoned by Lessee. Lessor may, in its
discretion, take ownership of abandoned property, or cause the same to be
removed, stored or destroyed at Lessee's expense.
Alterations, additions and improvements to the premises which are of a
permanent nature, including, but not limited to renovated or remodeled walls,
doors, windows; carpeting, wall paneling, ceiling tiles and light fixtures;
are the property of Lessor, and shall not be removed.
SECTION EIGHTEEN: MEDIATION, LEGAL ACTION AND ATTORNEY'S FEES:
In the event of a default described in Section FIFTEEN other than for the
non-payment of rent, the parties shall seek resolution as follows prior to
resorting to actions at law:
1. Attempt informal resolution of the default by direct communication.
This process shall begin not later than 5 working days after the notice
of breach is issued, and shall conclude, whether by agreement over remedy
or by failure to so agree, 5 calendar days thereafter. This attempt is
mandatory.
2. If direct discussion fails to produce mutual agreement, the parties
will seek in good faith to resolve the dispute by mediation administered
by the American Arbitration Association. Each party shall be represented
at mediation by a senior executive with sufficient knowledge of the
issues to participate in the mediation, and with authority to commit the
party to mediated solutions agreed upon. This attempt is mandatory. Good
faith mediation requires:
i. each party shall prepare a statement of the issues, and provide
reasonable supporting documentation for its position, and
ii. at least 2 sessions on different days.
3. If mediation fails, the parties may elect to engage in binding
arbitration. Venue for arbitration
SREDP/CWC LEASE - 15
<PAGE>
shall be Bonner County, Idaho, and the law of Idaho shall control. The
statement of issues, with supporting documentation, as used in the
mediation, shall be supplied to the arbitrator. If the mediator is
willing and available to serve as the arbitrator, he or she shall so
serve.
4. If the parties do not mutually elect binding arbitration, either
party may file an action with a court of appropriate jurisdiction.
In addition to all of the rents, credits or other sums due or payable by one
party to the other pursuant to the terms of this Lease, a party in Default
shall be required to pay the party not in Default the reasonable attorney's
fees and costs incurred by the party not in Default in
1. Preparing Notices of Default.
2. Preparing Notices of Election.
3. In prosecuting this action in any mediation or arbitration panel, and
in Court proceedings. In the event both parties prevail in part, then each
shall pay that proportion of the others attorneys' fees as the value of the
recovery obtained by the other party bears to the value of the entire
recovery granted in the cause.
All notices, demands or other writing in this Lease provided to be given,
made or sent by either party hereto the other shall be deemed to have fully
given, made or sent when made in writing and hand delivered or sent by
certified or registered United States Mail, postage prepaid, and addressed as
follows:
Lessor: Sandpoint Real Estate
Development Partnership
c/o Scott Glickenhaus
104 East Pacific
Sandpoint, ID 83864
Lessee: Coldwater Creek Inc.
1123 Lake Street
Sandpoint, ID 83864
SECTION NINETEEN: TAXES:
Lessor shall pay all real property taxes assessed against the demised
premises.
At present there are no special assessments levied against the property. If
any valid special assessment is hereafter during the original (not renewal)
term of this lease levied against the property by a local taxing authority,
then in each year of the renewal term (if renewed) in which such levy or
levies is imposed and payable, Lessee agrees to pay one half of the amount
payable in such year. Payment shall be made at the time the same falls due.
The sums so payable by Lessee shall not be considered "rent" for purposes of
Idaho unlawful detainer statutes.
SECTION TWENTY: FORCE MAJEURE
In the event that either party hereto shall be delayed or hindered in or
prevented from the performance of any act required hereunder by reason of
inability to procure materials, failure of power, restrictive governmental
laws or regulations, riots, war or other reason of a like nature not the fault
of the party delayed in performing work or doing acts required under the
terms of this Lease, then performance of such act shall be excused for the
period of
SREDP/CWC LEASE - 16
<PAGE>
the delay and the period for the performance of any such act shall be
extended for a period equivalent to the period of such delay.
SECTION TWENTY-ONE: INTEGRATION AND CONSTRUCTION OF LANGUAGE:
This Lease contains the entire agreement between the parties. No modification
of this Lease is valid unless in writing executed by the parties. No
representations, warranties, covenants or agreements, expressed or implied,
have been made, other than as expressly set forth herein. This Lease shall be
governed by the Laws of the State of Idaho. The use of the singular herein
shall include the plural and the use of one pronoun shall be construed to
include other pronouns of appropriate gender. The terms of this Lease are
binding on the heirs, administrators, executors, legal representatives,
successors and assigns of both parties.
The language in all parts of the Lease shall in all cases be construed as a
whole according to its fair meaning and not strictly for nor against either
Landlord or Tenant. The words "Lessor" and "Lessee," as herein used, shall
include the plural as well as the singular, and include successors,
representatives and assigns. The terms of this lease apply to each Lessor, as
its interests appear, unless limited to a specified lessor. The neutral
gender includes the masculine and feminine. In the event any term, covenant,
or condition herein contained is held to be invalid or void by any court of
competent jurisdiction, the invalidity of any such term, covenant, or
conditions shall in no way affect any other term, covenant, or condition
herein contained.
SECTION TWENTY-THREE: MISCELLANEOUS PROVISIONS
Lessor will on or before February 1, 1995, supply Lessee with a list of its
vendors' names, addresses, telephone numbers, contact person, and brief
description of the product or service provided.
The mini-storage unit rented by Lessor and kept in the dumpster area on the
each bank of Sand Creek shall be removed by Lessor, unless Lessee elects to
take over the lease. Notice of such election shall be delivered to Lessor on
or before February 28, 1995.
If Lessee has full possession, then upon written request by Lessor delivered
at any time within the first year of the original term, Lessee will make an
additional cash advance of rent to Lessor under the following terms:
a. the amount of this advance shall be $250,000.00, less all other sums
credited against rent, including the advances described in Sections Six,
Thirteen and Fifteen; and
b. this rent advance, together with any rent advance made under Section
Six, shall earn interest at 12% per annum, calculated on the full sum of such
advances from the date the advance is made through the end of the period
prepaid by the Section Thirteen rent advance (pro-rated to the day); and
SREDP/CWC LEASE - 17
<PAGE>
c. thereafter, rents due under this lease shall be subtracted from the
initial amount of these advances, plus accrued interest, and the (declining)
balance remaining shall earn interest at 12% per annum until exhausted by
such application to rents due.
IN WITNESS WHEREOF the parties have made this Lease the day and year
first above written, executed in two (2) counterparts, each of which shall be
an original.
Sandpoint Real Estate Development Partnership
By: /s/ Scott Glickenhaus
------------------------------------------
Scott Glickenhaus, General Partner
Cedar Street Bridge Co.
By: /s/ Scott Glickenhaus
------------------------------------------
Scott Glickenhaus, General Partner
Coldwater Creek Inc.
By: /s/ Dennis Pence
------------------------------------------
Dennis Pence, President
SREDP/CWC LEASE - 18
<PAGE>
STATE OF IDAHO )
) ss
County of Bonner )
On this 3rd day of January, 1995, before me, the undersigned notary
public for Idaho, personally appeared Dennis Pence, known or identified to me
to be the president of Coldwater Creek, Inc., an Idaho corporation, and the
person who executed the within instrument on behalf of said corporation, and
acknowledged to me that such corporation executed the same.
In witness whereof, I have executed this certificate as of the date set
forth above.
/s/ Notary Public for Idaho
--------------------------------
Notary Public for Idaho
Residing at Sandpoint
STATE OF IDAHO )
) ss
County of Bonner )
On this 3rd day of January, 1995, before me, the undersigned notary
public for Idaho, personally appeared Scott Glickenhaus, known to me
to be the general partner of Sandpoint Real Estate Development Partnership,
an Idaho limited partnership, and the partner who subscribed said partnership
name to the foregoing instrument, and acknowledged to me that he executed the
same in said partnership name.
In witness whereof, I have executed this certificate as of the date set
forth above.
/s/ Notary Public for Idaho
--------------------------------
Notary Public for Idaho
Residing at Sandpoint
STATE OF IDAHO )
) ss
County of Bonner )
On this 3rd day of January, 1995, before me, the undersigned notary
public for Idaho, personally appeared Scott Glickenhaus, known to me to be
the general partner of Cedar Street Bridge Company Partnership, an Idaho
limited partnership, and the partner who subscribed said partnership name to
the foregoing instrument, and acknowledged to me that he executed the same in
said partnership name.
In witness whereof, I have executed this certificate as of the date set
forth above.
/s/ Notary Public for Idaho
--------------------------------
Notary Public for Idaho
Residing at Sandpoint
<PAGE>
EXHIBIT A
BURLINGTON NORTHERN INC.
SANDPOINT, I.D.
[MAP]
<PAGE>
EXHIBIT B
Cedar Street Bridge Page 1 of 1
Equipment & Fixtures Inventory Date: 12/28/94
<TABLE>
<CAPTION>
Expected Life
- -----------------------------------------------------------------------------------------------
5 yrs
5-10 or
Item Description 10 yrs yrs less Remove Notes
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Outdoor bench (West Plaza Area) 4
2 Metal frame picnic table w attached benches 2
3 Flag poles w assorted colored flags 6
4 Ariens ST824 Snowblower 1
5 Window washer & extension w hose 1
6 75' garden hose and reel 1
7 Metal tree for lg flower pots 1
8 Green/white awning tent 1
9 Tenant Trend 170E floor scrubber 1
10 Advance floor waxer 1
11 Assorted cleaning supplies (brooms, mops, etc.) 1
12 Covered Sales Carts (1 in bad shape) 9
13 Planter/divider 7
14 Walk-in storage box (10 x 5 x 6) 1
15 Stage riser 4 x 8 4
16 Stage riser 3 x 3 2
17 Bench from railway station 1
18 25' aluminum extension ladder 1
19 6' folding table 2
20 Assorted potted plants A
21 Assorted trash containers (not counted)
</TABLE>
Notes:
A All potted plants will be left by CSB Management. There was no attempt to
make an accurate count.
Prepared by: David Erickson Date: 12/28/94 12/94
<PAGE>
EXHIBIT B
Gourmet, Inc. Page 1 of 4
Equipment & Fixtures Inventory Date: 12/28/94
<TABLE>
<CAPTION>
Expected Life
- -----------------------------------------------------------------------------------------------
5 yrs
5-10 or
Item Description 10 yrs yrs less Remove Notes
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 3 x 3 table 4
2 2 x 2 oak top table 8
3 Assorted dining chairs B
4 4 ft. round table 2
5 Older model upright piano 1
6 Allied Safe & Vault 2 chamber safe 1
7 Cleveland Steamcraft II 1
8 Gyro Machine 1
9 Qualheim Vegetable Slicer 1
10 Metal sinks & dishwasher from former bar 1
11 Hot dog warmer #112-76-224 1
12 Meat slicer #1000651 1
13 Three burner grill 1
14 Fryer #10-B-1/051SNE (w 2 baskets) 1
15 2 door freezer #C22207 1
16 2 door refrigerator 1
17 Stainless cart 1
18 Non functioning warmer 1
19 Food processor 1
20 Storage rack 6
21 Coffee warmer #E052757 1
22 Cash register MA 141 3D255219
(journal tape will not feed) 1
23 Food chopper #37353D 1
24 Four burner stove 1
25 Dishwasher w 8 full racks, 8 half racks 1
</TABLE>
Notes:
B CSB Mgmt will leave behind all dining chairs in useable condition.
No count made.
Prepared by: David Erickson Date: 12/28/94 12/94
<PAGE>
EXHIBIT B
Gourmet, Inc. Page 2 of 4
Equipment & Fixtures Inventory Date: 12/28/94
<TABLE>
<CAPTION>
Expected Life
- -----------------------------------------------------------------------------------------------
5 yrs
5-10 or
Item Description 10 yrs yrs less Remove Notes
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 3 ft prep table 1
2 6 ft prep table 1
3 file cabinet 1
4 clear glass bowls 6
5 glass pitchers 4
6 salt & pepper racks 11
7 microwave oven 2
8 orange serving tray 36
9 Savory's serving tray 29
10 ladle (2 lg, 6 med, 4 sm) 12
11 wooden chair 31
12 dessert cart 1
13 lighted sign board 1
14 cook line refrigerated table 1
15 booster chair 2
16 wooden chair 31
17 vases 10
18 bus tab 3
19 trash cans 7
20 cutting board 4
21 filter for fryer 1
22 pump 2
23 can opener 1
24 soup cups 10
25 slotted spoons 5
</TABLE>
<PAGE>
EXHIBIT B
Gourmet, Inc. Page 3 of 4
Equipment & Fixtures Inventory Date: 12/28/94
<TABLE>
<CAPTION>
Expected Life
- -----------------------------------------------------------------------------------------------
5 yrs
5-10 or
Item Description 10 yrs yrs less Remove Notes
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Non slotted spoon 5
2 wire whip 3
3 tongs 3
4 lg fry pan 1
5 sm fry pan 4
6 pot 4
7 lg pot 1
8 metal strainer 1
9 40 qt bin 1
10 full size bin 9
11 xxx size bin 4
12 lid 6
13 metal collander 2
14 stainless bowl 3
15 lg plastic salad bowl 3
16 sm plastic salad bowl 3
17 6 x 3 salad crock 13
18 oval crock 11
19 platter 40
20 lg plate 85
21 med plate 55
22 sm plate 35
23 black coffee cup 33
24 salt & pepper shaker 18
25 soup bowl 9
</TABLE>
<PAGE>
EXHIBIT B
Gourmet, Inc. Page 4 of 4
Equipment & Fixtures Inventory Date: 12/28/94
<TABLE>
<CAPTION>
Expected Life
- -----------------------------------------------------------------------------------------------
5 yrs
5-10 or
Item Description 10 yrs yrs less Remove Notes
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 salad pressing 1
2 ash tray 38
3 napkin holder 15
4 scale 4
5 2 gal round insert 1
6 2 gal lid 3
7 1 gal round insert 7
8 1 gal lid 3
9 2 qt round insert 5
10 full pan 5
11 1/2 pan 4
12 1/4 pan 4
13 1/8 pan 11
14 1/3 pan 4
15 1/6 pan (2 in) 10
16 1/6 pan (4 in) 5
17 assorted lids 11
18 rubber spatula 3
19 stainless spatula 2
</TABLE>
<PAGE>
EXHIBIT C
Exhibit ______ to Coldwater Creek/SRP Sublease
August 1994 Rents, Cedar Street Bridge
Alpine Cedar $ 400/month
Alternative Architecture 100/month
Better Homes & Gardens 1,200/month
Blue Sky Broadcasting 500/month
B J's Games & Books 900/month
Candy Cottage 325/month
Cedar Street Bridge offices 400/month
Cedar Street Buffet 1,000/month
Coldwater Creek (incl carts) 3,286/month
Counselling Associates 200/month
Delightful Diversions 900/month
Festival at Sandpoint 850/month
Ken's Tooth Studio 450/month
Monthly cart rentals 2,328/month
Nick's Coffee 300/month
Old Idaho Trading Co 700/month
Panhandle Signs 450/month
Silver Lady 750/month
Special Effects 400/month
Total --------------
$15,439/month
<PAGE>
EXHIBIT D
Page 1 of 1
Date: 12-30-94
Project: CEDAR STREET BRIDGE
To: John J. Manning Jr.
Company: ALSC
From: DICK LUHN
Subject: HVAC CRITERIA
HVAC SYSTEM
The HVAC System shall be designed in accordance with all applicable codes
including, but not limited to, the Idaho Energy Code, the Uniform Building
Code and the Uniform Mechanical Code. The system shall be capable of
maintaining a temperature of 76DEG.F plus or minus ___ DEG.F in all occupied
spaces at any time of the year. Individual, separate temperature control
shall be provided for each permanent tenant space. Annual operating costs for
HVAC energy usage shall not exceed $0.40/SF per year based on $0.45/Therm
natural gas and $0.05/KWH electric costs.
<PAGE>
EXHIBIT E
FLOOR PLAN
[MAP 1]
[MAP 2]
<PAGE>
MAINTENANCE
CEDAR STREET BRIDGE
Maintenance Considerations
<TABLE>
<CAPTION>
AREA TO BE MAINTAINED MAINTENANCE REQUIREMENTS FREQUENCY RESPONSIBILITY
<S> <C> <C> <C>
Heat system boiler Spring/Summer Shut-down Apr/May CSB Management
Fall/Winter Start-up (with 48 hours notice) Sep/Oct CSB Management
System bleeding/fill-up As required CSB Management
Heating system units Number each in-store unit once CSB Management
Establish a maintenance log once CSB Management
Change filter/clean unit annually CSB Management
Fire Sprinkler System Annual Insurance Certification TBD CSB Management
Annual Test of Alarm April CSB Management
Establish response procedure review annually CWC & CSB
Weatherization & freezing prevention As required CSB Management
Water Supply System Provide water supply from city mains to stud wall Continual CSB Management
Repair any leakage damage from frost or general system failure On occurance CSB Management
Inspection, maintenance & replacement of hot water heaters April or as needed CSB Management
Weatherization & freezing prevention As required CSB Management
Sewer Maintenance of restaurant area grease trap As required CWC & tenants
Maintenance of restroom sink traps As required CWC
Maintenance of toilets (prevention & clean-up from back-ups) On occurrance CWC
Maintenance of outside west end sewer piper Oct CSB Management
Electrical Replacement of interior and exterior light bulbs As needed CWC
Cleaning interior & exterior light fixtures As needed CWC
</TABLE>
Page 1
12/28/94
<PAGE>
MAINTENANCE
<TABLE>
<CAPTION>
AREA TO BE MAINTAINED MAINTENANCE REQUIREMENTS FREQUENCY RESPONSIBILITY
<S> <C> <C> <C>
Physical plant Repairs for exterior damage, including glass, caused by vandals As needed CSB Management
Repairs for interior damage, including glass, caused by vandals As needed CWC
Cleaning/maintaining west plaza area Continual CWC
Repairing west plaza area Continual CSB Management
Cleaning/maintaining creekside under bridge West to East Apr & Oct CSB Management
Cleaning dumpster area Continual CWC
Maintaining dumpster area Continual CSB Management
Cleaning/maintaining footbridge Continual CWC
Repairing footbridge Continual CSB Management
Cleaning/maintaining dock & stairway Continual CWC
Repairing dock & stairwell Continual CSB Management
Cleaning outside windows, all levels As needed CWC
Cleaning inside windows, all levels As needed CWC
Fittings, Fixtures, Prepare an inventory of all items covered by the lease,
Equip including an assessment of condition. List to include, Once CWC & CSB
plants, maintenance equip., restaurant equip, etc.
Locks & Keys Prepare a master lock/key system Once CWC
</TABLE>
Page 2
12/28/94
<PAGE>
EXHIBIT G
FLOOR PLAN
[MAP 1]
[MAP 2]
<PAGE>
LEASE AGREEMENT
(COMMERCIAL)
This Lease Agreement is made and entered into to be effective as of the 1st
day of November, 1996, by and between Jane A. Skeoch and Raymond J. Kominsky, as
Co-Trustees, or their successors in trust, of the Thomas A. Skeoch Trust U/T/A
dated October 9, 1975 and as amended ("Landlord"), and Coldwater Creek, Inc., an
Idaho Corporation ("Tenant") (the "Lease").
WITNESSETH:
WHEREAS, Landlord is the owner of that certain real property and
improvements consisting of a basement, ground floor and partial second floor at
the location commonly known as 10 E. Broadway, Jackson, Wyoming, and more
particularly described as the westerly portion of Lot 1, Block 1, of the Cache
Creek Addition to the Town of Jackson, Teton County, Wyoming, as depicted on
Exhibits "A" and "B" attached hereto and by this reference made a part hereof
(the "Leased Premises"); and
WHEREAS, the parties hereto desire to enter into a written lease agreement
providing the terms, covenants and conditions for the occupancy of the Leased
Premises by Tenant.
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
undertakings and benefits to the parties, the parties agree as follows:
1. LEASE OF LEASED PREMISES. Landlord agrees to lease to Tenant and
Tenant agrees to lease from Landlord the Leased Premises according to the terms
and conditions of this Lease.
2. TERM OF LEASE. The term of the Lease shall be for a term of ten (10)
years, commencing on the 1st day of November, 1996, and terminating on the 31st
day of October, 2006, unless sooner terminated or extended under the provisions
of the Lease.
3. RENT AND PAYMENT.
(a) BASE RENT. Tenant covenants and agrees to pay Landlord each year
during the first five (5) years of the initial term of the Lease, net
rent totaling Two Hundred Fifty Thousand Dollars ($250,000.00),
subject to credits as hereinafter provided. The net rent for the
second five years of the initial term hereof shall increase effective
the 1st day of November, 2001, by
1
<PAGE>
ten percent (10%) to a net annual rent of Two Hundred Seventy-Five
Thousand Dollars ($275,000.00).
Tenant shall pay to Landlord, on the 1st day of each month during
the term of this Lease, the sum equivalent to one-twelfth (1/12) of
the total sum due, after credits, for the particular Lease year. Rent
payments shall commence on the earlier of January 1, 1997 or the date
Tenant opens for business, and on the 1st day of each month
thereafter, and shall be made payable to Landlord as follows: Thomas
A. Skeoch Trust, c/o Hawkins, Kominsky, DeVries & Associates, P.0.
Box 8, Jackson, Wyoming, 83001, until directed, otherwise.
(b) PERFORMANCE DEPOSIT. Upon execution of this Lease, Tenant shall
deposit funds in the amount of One Hundred Thousand Dollars
($100,000.00) in an escrow account subject to an escrow agreement
approved by Landlord and Tenant, or shall deliver to Landlord, a bank
Irrevocable Letter of Credit in the face amount of One Hundred
Thousand Dollars ($100,000.00), payable to Landlord and in a form
acceptable to Landlord and Tenant, which escrow deposit or Irrevocable
Letter of Credit shall secure, in favor of Landlord, Tenant's
obligations pursuant to this Lease Agreement from the date of
execution through the first six (6) months of the term of this Lease.
Upon six months' satisfactory performance by Tenant of all of the
terms and conditions of the Lease, the escrowed funds or the
Irrevocable Letter of credit shall be released.
(c) ADDITIONAL PERCENTAGE RENTAL. On or before the 15th day of each
quarter, the Tenant shall mail to or deliver to the Landlord a sworn
statement showing the Gross Sales, as defined hereafter, made in, out,
through or from the Leased Premises during the preceding three (3)
months. At the end of the first quarter of each calendar year during
the term of this Lease, gross sales shall be calculated by adding the
total gross sales for that quarter and the preceding three quarters.
In the event that six percent (6%) of the resulting calculation of
total gross sales for the preceding four quarters exceeds the base
rent paid during the said preceding four quarters, Tenant shall pay to
the Landlord on or before the 1st day of April of each year of the
term of this Lease, a sum
2
<PAGE>
equivalent to such excess. "Gross Sales" includes all sales
(regardless of delivery point) of merchandise and services made in,
out, through or from the Leased Premises (whether by Tenant,
sub-tenants, concessionaires or other assigns of Tenant) for cash or
on credit, whether paid or unpaid, collected or uncollected, less all
credits for returned merchandise, exchanged and refunded. Unless
otherwise agreed in writing, the only revenue excluded from Gross
Sales shall be the amount of sales tax or excise tax based on sales
imposed by any governmental taxing authorities and bonafide discounted
sales to Tenant and Tenant's employees.
The Tenant shall keep full, complete and proper books, records
and accounts of its daily, weekly, monthly, quarterly and annual Gross
Sales, both for cash and on credit, of Tenant and each subtenant and
concessionaire at any time operating in the Leased Premises. The
Landlord and its agents and employees shall have the right upon five
(5) days written notice, during regular business hours in Teton
County, to examine and inspect all of the books and records of the
Tenant, including any sales tax reports and income tax returns
pertaining to the business of the Tenant conducted in, out, upon or
from the Leased Premises, for the purpose of investigating and
verifying the accuracy of any statement of Gross Sales. The Landlord
may, once in any lease year, cause an audit of the business of Tenant
to be made by a certified public accountant of Landlord's selection
and, if any statement of Gross Sales previously made to Landlord shall
be found to be inaccurate, then and in that event, there shall be an
adjustment and one party shall pay to the other on demand such sums
as may be necessary to settle in full the accurate amount of said
percentage rent that should have been paid to Landlord for the period
or periods covered by such inaccurate statement or statements. If
said audit shall disclose an inaccuracy reflecting an understatement
of greater than two percent (2%) error with respect to the amount of
Gross Sales reported by Tenant for the period of said report, then the
Tenant shall immediately pay to Landlord the cost of such audit;
otherwise, the cost of such audit shall be paid by Landlord.
3
<PAGE>
(d) LEASEHOLD EXPENSE REIMBURSEMENTS. Tenant agrees to pay and/or
reimburse Landlord for all of Landlord's reasonable and necessary
operating and maintenance expenses, pertaining to the Leased Premises,
including, but not limited to, real estate taxes, insurance expenses,
real estate assessments, and any reasonable and necessary maintenance
costs paid by Landlord, all as set forth in paragraphs 10, 12 and 14
of this Lease Agreement. Any such charges and sums shall be deemed to
be rent and shall be payable in the manner provided and recoverable as
rent, and Landlord shall have all rights specified in this Lease
against Tenant for default in the payment thereof as in the case of
arrears of rent.
(e) PAYMENT OF LEASEHOLD EXPENSE REIMBURSEMENTS. Landlord has estimated
the amount of additional rent by way of leasehold expense
reimbursement to be paid to Landlord by Tenant for the first year's
term of this Lease (based on the last twelve months' experience) to be
___________________________________________________________Dollars
($_______). Concurrently with the payment of the base rent each
month, Tenant shall pay to Landlord one twelfth (1/12) of such
estimated amount ($_______). If at any time or times it appears to
Landlord that the amount payable as leasehold expense reimbursement
for the current lease year will vary from its estimate by more than
10%, Landlord shall, by written notice to Tenant, revise its estimate
for such twelve month period, and subsequent payments by Tenant for
such year shall be based upon such revised estimate.
Within ninety (90) days after the close of each lease year of
this Lease, using November as the first month of each lease year,
Landlord shall deliver to Tenant a statement of amounts payable as
leasehold expense reimbursements for such year, certified by an
accountant designated by Landlord, and such certified statement shall
be final and binding upon Landlord and Tenant. If such statement
shows an amount owing by Tenant that is more than the estimated
payments for such lease year previously made by Tenant, Tenant shall
pay the deficiency to Landlord within thirty (30) days after delivery
of the statement.
If for any reason other than the default of Tenant, this Lease
shall terminate on a day other than the last day of a lease year, the
amount of increase,
4
<PAGE>
if any, in leasehold expense reimbursement payments payable by Tenant
applicable to the lease year in which such termination shall occur,
shall be prorated on the basis of the ratio determined by dividing the
number of days from the commencement of the calendar year to and
including the termination date by 365.
4. RENEWAL OPTION. In the event Tenant is not in default of the terms
and conditions of this Lease at the time for notice of exercise of intent to
renew as hereinafter provided, or at the time for commencement of the renewal
option period, the Tenant shall have the right to renew this Lease for one (1)
additional term of five (5) years, provided that Tenant shall give Landlord not
less than 120 days notice in writing of its intent to exercise such renewal
option. In default of the giving of such notice, this renewal option shall fail
and shall be of no force or effect. Base rent for the five-year renewal option
term shall be increased by an amount equal to the percentage increase in the
Consumer Price Index for all items from moderate income families in large cities
as determined by the United States Department of Labor, Bureau of Labor
Statistics (CPI-Universal), or in the event such index should no longer be
published, then by the increase in its most comparable successor index. In
determining the percentage increase, the base month for the beginning figure
shall he the month of November, 1996. The rental increase shall be determined
by multiplying the annual rental for the first year of the lease term by the
percentage increase in said Consumer Price Index, with that resulting dollar
amount to be added to the rental amount for the first year of the term of this
Lease. The increased rental amount shall be due and payable thereafter in equal
monthly installments over the five year renewal term as in this Lease
hereinabove provided.
5. REQUIRED IMPROVEMENTS, FEE PAYMENTS AND RENTAL CREDIT. Tenant will
undertake, at its sole cost and expense, any and all necessary changes to the
roof structure of the Leased Premises and shall be solely responsible for the
conduct of such work and any and all damage to the Leased Premises resulting
from such work. In addition, Tenant will pay any and all required fees in lieu
of parking and fees in lieu of providing employee housing assessed by the Town
of Jackson to permit the conversion of a portion of the Leased Premises to
additional retail space to be utilized by Tenant. Fees in lieu of parking and
fees in lieu of employee housing are estimated, but not warranted, to be
approximately One Hundred Thousand Dollars ($100,000.00). Tenant shall be
entitled to reimbursement for up to Fifty Thousand
5
<PAGE>
Dollars ($50,000.00) in expenses for roof repairs and/or replacement and fifty
percent (50%) of all fees in lieu of parking and fees in lieu of employee
housing paid by Tenant. Such reimbursement shall be by full offset in
percentage rents payable up to the total reimbursement provided herein, or by a
minimum of one-fifth (1/5) of the total sum per year to be offset against base
rents, or a combination of offsets against base rent in the amount of one-fifth
of the total in each of the first five years and additional percentage rent
until the Tenant has been reimbursed in full for such costs. Upon termination
of this Lease for any reason, including expiration of the term hereof, all
credits with the Town of Jackson for parking and/or employee housing shall
belong to and be the property of Landlord, without further reimbursement to
Tenant.
6. LATE RENT CHARGES. In the event the monthly rent payments are not paid
within ten (10) clays of the due date, a late charge of two percent (2%) shall
be paid by Tenant. Additionally, said late rent payments shall automatically
accrue interest at an interest rate of twelve percent (12%) from the due date,
which accrual of interest shall continue until the rent payment, together with
accrued interest, is paid. Such interest shall begin to accrue automatically on
all delinquent rent payments (not paid within the ten (10) day grace period) and
shall be payable on demand without notice to Tenant.
7. USE OF THE LEASED PREMISES. The use of the Leased Premises shall be
restricted to retail and catalog sales and offices and such other uses as
Landlord shall approve in writing, which approval will not be unreasonably
withheld, provided that use for food and/or beverage services shall be
prohibited. Furthermore, the Leased Premises shall be used and occupied by
Tenant in a careful, safe and proper manner and Tenant shall pay on demand for
any damage to the Leased Premises caused by the misuse of same by it, its
agents, employees, licensees and invitees. Tenant shall use the Leased Premises
only for purposes not prohibited by the laws, regulations, covenants and
ordinances of the United States, the State of Wyoming and the Town of Jackson.
Tenant shall not use or keep any substance or material in or about the Leased
Premises which may vitiate or endanger the validity of the insurance on the
Leased Premises or increase the hazard of the risk.
8. ACCEPTANCE OF LEASED PREMISES. Taking possession of the Leased
Premises by Tenant shall be conclusive evidence as against the Tenant that such
premises were in good and
6
<PAGE>
satisfactory condition when possession of same was taken. Tenant has inspected
the Leased Premises and accept the same in "as is" condition.
9. SUBORDINATION TO MORTGAGE. This Lease shall be and is hereby made
subordinate to any mortgages or other security instruments which may now or
hereafter encumber the Leased Premises, and to all renewals, modifications,
consolidations, replacements and extensions thereof. This clause shall be
self-operative and no further instrument of subordination need be required by
any mortgagee or security holder. Tenant shall, at Landlord's request, promptly
execute any appropriate estoppel certificate, subordination agreement or
instrument that Landlord may reasonably request in this regard.
10. TAXES AND ASSESSMENTS. Landlord shall pay all real estate taxes, real
estate assessments, and any and all other governmental charges, assessments or
taxes payable in respect to the Leased Premises or any part thereof during the
term of this Lease, but subject to reimbursement as provided in paragraph 5 of
this Lease. Tenant shall be liable for taxes levied against its personal
property, trade fixtures and other property placed by Tenant in, on or about the
Leased Premises.
11. UTILITIES. Tenant shall pay for the use of all the water, sewage,
electrical, gas, telephone, cable television, garbage and other utility services
to or used by and in connection with the Leased Premises. Tenant shall
establish and maintain all utilities accounts in its name.
12. REPAIR AND MAINTENANCE. Tenant acknowledges that the Leased Premises
are in good repair and working order, with the exception of the roof which
Tenant shall undertake to repair or replace. Tenant shall, at its sole expense,
maintain the interior and exterior of the Leased Premises (including, without
limitation, all electrical, plumbing and mechanical systems) in as good order
and repair as it was at the date of the commencement of this Lease, reasonable
wear and tear excepted. Tenant shall not knowingly commit or willingly permit
to be committed any act or thing contrary to the rules and regulations of any
federal, state, municipal or quasi-governmental authority.
Tenant shall permit Landlord, or its representatives, to inspect upon
reasonable notice the Leased Premises and to make repairs to the' Leased
Premises as Landlord may now or hereafter deem to be necessary and/or
appropriate for the Leased Premises. All such repairs shall be done, so far as
practicable, to avoid
7
<PAGE>
interference with Tenant's occupancy and use of the Leased Premises, provided
that Tenant shall not be entitled to compensation for unavoidable interference
with its occupancy and use.
13. ALTERATIONS. Landlord shall have the right at any time to enter the
Leased Premises to make such additions, repairs or alterations as it may deem
necessary or proper for the safety or preservation of the Leased Premises.
Tenant shall make no alterations in or additions to the Leased Premises
without first obtaining the written consent of the Landlord, and all additions
or improvements made by Tenant shall be deemed a part of the Leased Premises and
permanent structure thereon and shall remain upon and be surrendered with the
Leased Premises at the termination of this Lease by lapse of time or otherwise.
Landlord acknowledges Tenant's intent to remodel the interior and the exterior
of the Leased Premises subject to review and approval of plans by Landlord,
which approval will not be unreasonably withheld.
14. INSURANCE. Landlord shall maintain fire and extended "all-risk"
coverage insurance upon the Leased Premises. Such insurance shall be maintained
with an insurance company authorized to do business in Wyoming in an amount not
less than ______________________________Thousand Dollars ($______) during the
term of the Lease, subject to reimbursement by Tenant as provided in paragraph 5
of this Lease.
Tenant shall maintain at its expense fire and extended coverage insurance
on all of its personal property, including trade fixtures and on all additions
and improvements made by Tenant not required to be insured by Landlord.
Tenant shall, at Tenant's expense, maintain a policy or policies of
comprehensive general liability insurance with the premiums thereon fully paid
on or before due date, issued by and binding upon an insurance company with a
Best Rating Guide A plus Class 15 Rating, such insurance to afford minimum
protection of not less than a single limit of One Million Dollars
($1,000,000.00) in respect to personal injury and/or death to one or more
persons and for property damage. The insurance policy shall name Landlord as an
additional insured and shall cover all risks incident to Tenant's use of the
Leased Premises and business in connection therewith.
Tenant shall furnish Landlord with certificates and copies of all insurance
policies to be maintained by Tenant with evidence of payment of the premiums
thereon. All such insurance policies shall contain a clause or endorsement to
the effect that
8
<PAGE>
they may not be terminated or materially amended during the term of this Lease
except after fifteen (15) days written notice thereof to Landlord.
15. ASSIGNMENT, SUBLEASE AND MORTGAGE BY TENANT. Tenant shall not assign
or create a security interest in, pledge or encumber this Lease or the Leased
Premises, in whole or in part, or sublet the whole or permit the use of the
whole or any part thereof by any sub-tenant, licensee or concessionaire, unless
Tenant first obtains landlord's written consent. In the event of any such
assignment, subletting, licensing or granting of a concession, Tenant shall
never-the-less remain liable for the performance of all the terms, conditions
and covenants of this Lease (including, without limitation, the covenant to pay
rent).
16. SIGNS. Tenant shall have the right to erect and maintain signs in, on
or about the Leased Premises, provided, that same shall comply with governing
laws, regulations, covenants and ordinances of the United States, State of
Wyoming and the Town of Jackson.
17. TENANT'S COVENANTS. Tenant covenants that it shall:
(a) Comply with all laws, orders, regulations, rules, ordinances and
covenants of any state or federal statute or local ordinance or
regulation applicable to Tenant and/or its use of the Leased Premises.
(b) Give to Landlord prompt written notice of any accident, fire or damage
occurring on or to the Leased Premises.
(c) Keep the Leased Premises sufficiently heated to prevent freezing of
pipes, waterlines and fixtures.
(d) Keep the Leased Premises orderly, clean, sanitary and free from
objectionable odors and insects, vermin, pets, pests or nuisances.
(e) Do all things reasonably possible to prevent filing of any mechanics'
or other liens against the Leased Premises or any part thereof by
reason of work, labor, services or materials furnished or claimed to
have been furnished to Tenant, or anyone holding the Leased Premises
or any part thereof, through or under Tenant. If any such lien shall
be filed against the Leased Premises, Tenant shall either cause the
same to be discharged of record within twenty (20) days after the date
of the filing of same, or if the Tenant, in Tenant's discretion and in
good faith, determines the lien should be contested, Tenant shall
furnish such security as may be necessary or required to prevent any
foreclosure against Tenant's or Landlord's interest in the Leased
premises. If tenant shall fail to discharge such lien within such
period, or fail to furnish adequate security, then in addition to any
other right of remedy of Landlord, Landlord may but shall not be
obligated to discharge the lien either by paying the
9
<PAGE>
amount claimed to be due or by procuring the discharge of such lien by
obtaining security or in any other manner available to Landlord.
Nothing herein contained shall imply any consent or agreement on the
part of Landlord to subject Landlord's interest in the Leased Premises
to liability under any mechanics' or other lien law.
(f) Repay Landlord, as additional rent, on demand, all sums disbursed or
deposited by Landlord pursuant to the provisions of this section,
including Landlord's costs, expenses and reasonable attorneys' fees
incurred by Landlord in connection therewith.
(g) Permit no one other than employees, agents, servants and business
invitees to remain in or loiter upon the Leased Premises.
(h) Comply with all reasonable rules and regulations that may be
established, from time to time, by Landlord. Tenant covenants that it
shall not do or suffer to be done anything objectionable to the fire
insurance companies, whereby the fire insurance or any other insurance
now in force or hereafter to be placed on the Leased Premises or any
part thereof shall become void or suspended, or be rated as a more
hazardous risk than at the date when Tenant receives possession
hereunder. In the event of breach of this covenant, in addition to
all other remedies of Landlord, Tenant shall pay to Landlord as
additional rent any increase in insurance premiums.
18. LANDLORD'S COVENANTS OF QUIET ENJOYMENT. The Landlord covenants that
the Tenant, upon paying the rentals and performing the covenants upon its part
to be performed herein, shall peacefully and quietly have, hold and enjoy the
Leased Premises during the term hereof.
19. DAMAGE OR DESTRUCTION TO LEASED PREMISES. If the Leased Premises
shall be damaged by fire, the elements, unavoidable accident or other casualty,
without the fault or negligence of Tenant, or Tenant's servants, employees,
agents, visitors, licensees, invitees or sub-tenants, and the Leased Premises
are not thereby rendered untenantable in whole or in part, Landlord shall, at
its expense, cause such damage to be repaired, and the rent shall not be abated.
If, by reason of such occurrence, the Leased Premises shall be rendered
untenantable only in part, Landlord shall promptly cause the damage to be
repaired and the rent, during such period of repair, shall be abated
proportionately to the portion of the Leased Premises rendered untenantable.
If, by reason of such occurrence, the Leased Premises shall be rendered wholly
untenantable, Landlord shall cause such damage to be repaired and the rent,
during such period of repair, shall be abated in whole. There shall be no
extension of the term of this Lease by reason of such abatement. Notwithstanding
the foregoing provisions, if
10
<PAGE>
the Leased Premises shall be rendered wholly untenantable by reason of such
occurrence and the Leased Premises cannot be repaired within three (3) months
from the date such damage occurs, Landlord or Tenant shall, at their option,
have the right to declare the balance of the term of this Lease to be null and
void.
If any such damage or destruction occurring to the Leased Premises, whether
partial or complete, shall occur as the result of the fault or any negligence of
Tenant or Tenant's servants, employees, agents, business invitees, licensees or
sub-tenants, there shall be no apportionment or abatement of rent during the
term of this Lease.
20. DEFAULT BY TENANT. The Tenant agrees to observe and perform the
conditions and covenants set forth in this Lease, and further agrees that if
default be made in the payment of any rent and such payment default continues
for ten (10) days following the due date for such payment, or if Tenant shall
fail to observe or perform any of the other conditions or covenants and such
other default shall continue for more than thirty (30) days after written notice
of such default, then and in that event, and as often as the same may happen, it
shall be lawful for Landlord, at its election, with or without previous notice,
to terminate this Lease or to re-enter and repossess itself of the Leased
Premises without termination, with or without legal proceeding, using such force
as may be necessary, and to remove therefrom any personal property belonging to
Tenant without prejudice to any claim for rent or for breach of the covenants
hereof, or without being guilty of any manner of trespass or forcible entry and
detainer. The foregoing described rights shall be non-exclusive and shall be in
addition to any and all of the rights and remedies Landlord may have pursuant to
governing law.
21. PAYMENT AFTER TERMINATION. No payments of money by Tenant to Landlord
after the termination of this Lease, in any manner or after the giving of any
notice by Landlord to Tenant shall reinstate, continue or extend the term of
this Lease or affect any notice given to Tenant prior to the payment of such
money.
22. ABANDONMENT OF LEASED PREMISES. If Tenant shall abandon or vacate the
Leased Premises or close the business opened on the Leased Premises for any
period longer than forty-five (45) consecutive days before the end of the term
of this Lease, or if Landlord re-enters the Leased Premises without termination,
the Landlord may, at its option and without notice
11
<PAGE>
to Tenant, enter the Leased Premises, and re-let the same, or any part thereof,
as it may see fit, without thereby voiding or terminating this Lease, and, for
the purpose of such re-letting, Landlord is authorized to make any repairs,
changes, alterations or additions in or to the Leased Premises, as may, in the
sole discretion of Landlord, be necessary or desirable for the purpose of such
re-letting, and if a sufficient sum shall not be realized from such re-letting
each month to equal the monthly rental under the provisions of this Lease, then
Tenant agrees to pay such deficiency.
23. INDEMNIFICATION. Tenant shall indemnify Landlord and save it harmless
from and against any and all claims, actions, damages, liability and expense in
connection with loss of life, personal injury or damage to property occurring in
or about, or arising out of or from the Leased Premises and adjacent sidewalks
and loading areas, or the occupancy or use of the Leased Premises by Tenant or
its sub-tenants, or occasioned wholly or in part by any act or omission of
Tenant, its agents, licensees, business invitees, concessionaires, contractors,
customers, employees or sub-tenants.
In case Landlord shall be made a party to any litigation commenced by or
against Tenant, its agents, licensees, business invitees, concessionaires,
contractors, customers, employees or sub-tenants, Tenant shall protect and hold
Landlord harmless and shall pay all costs, expenses and reasonable attorneys'
fees incurred or paid by Landlord in connection with such litigation.
24. ATTORNEYS' FEES. In the event either party shall find it necessary to
obtain the services of an attorney to enforce any of the covenants and
conditions of this Lease, the prevailing party shall be entitled to
reimbursement for all costs and expenses, including reasonable attorneys' fees,
whether or not litigation is commenced.
25. TRADE FIXTURES. Trade fixtures installed by Tenant in the Leased
Premises shall remain the property of the Tenant and shall be removable at any
time by it on or before the termination of this Lease by lapse of time or
otherwise. Any damage caused to the Leased Premises that is the result of such
removal shall be repaired by Tenant at its expense. Any such trade fixtures not
removed at or prior to the termination shall become the property of Landlord.
Lighting fixtures, whether or not installed by Tenant, shall not be removable at
the expiration or earlier termination of this Lease, and shall become the sole
property of Landlord.
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26. LANDLORD'S ACCESS. Landlord and its agents, employees or other
representatives may enter the Leased Premises at any reasonable time after
reasonable notice for the purpose of (a) inspecting the Leased Premises to
ascertain Tenant's compliance with the terms and conditions of this Lease, (b)
in order to make repairs, additions or alterations as the Landlord deems
necessary, (c) to post notices of non-responsibility under mechanics' lien law,
(d) to exhibit the Leased Premises for sale, lease or mortgage financing, or (e)
for any other reasonable purposes.
27. NOTICES. Any notices required or permitted to be given or served by either
party to the other shall be deemed to have been duly given or served there if in
writing and forwarded by certified mail, postage prepaid, return receipt
requested, to the respective addresses set forth below. Such notices shall be
deemed given upon mailing of same.
Tenant: Coldwater Creek, Inc.
One Coldwater Creek Drive
Sandpoint, Idaho 83864
Landlord: Thomas A. Skeoch Trust
c/o Hawkins, Kominsky, DeVries & Associates
P.0. Box 8
Jackson, Wyoming 83001
with a copy to:
David K. Larson
Mullikin, Larson & Swift
P.0. Box 3345
Jackson, Wyoming 83001
28. AMENDMENT OR MODIFICATION. Tenant acknowledges and agrees that it has
not relied upon any statement, representation, agreement or warranty, except
such as are expressly stated herein, and that no amendment or modification of
this Lease shall be valid or binding unless expressed in writing and executed by
the parties hereto in the same manner as the execution of this lease.
29. MEMORANDUM OF LEASE. The parties may execute a short-form memorandum
of this Lease in recordable form which may, at either parties' option, be placed
of record in the Teton County real estate records.
30. NO PARTNERSHIP. No partnership or joint venture is created by this
Lease. The Landlord and Tenant shall be construed to be that relationship of
landlord and tenant only.
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31. MISCELLANEOUS. Time is of the essence.
No waiver of any breach of any one or more of the conditions or covenants
in this Lease by Landlord shall be deemed to imply or constitute a waiver of any
succeeding or other breach hereunder.
This Lease and its provisions shall be construed and enforced in accordance
with and pursuant to governing Wyoming law.
The headings used in this Lease are for convenience only and are not to be
used in its construction.
Whenever used, the singular shall include the plural, the plural the
singular and the use of any gender shall include all genders.
If there is more than one person comprising the Tenant, the covenants,
agreements, undertakings, and obligations hereunder shall be the joint and
several obligations of all such persons.
This Lease may be executed in multiple counterparts, each of which shall be
deemed to be an original.
IN WITNESS WHEREOF, the parties hereto have executed this Lease to be
effective as of the day and year first above written.
LANDLORD:
/s/ Jane A. Skeoch
-----------------------------------
Jane A. Skeoch, as Trustee of the
Thomas A. Skeoch Trust
/s/ Raymond J. Kominsky
-----------------------------------
Raymond J. Kominsky, as Trustee of
the Thomas A. Skeoch Trust
TENANT:
/s/ Don Robson
-----------------------------------
COLDWATER CREEK, INC., an Idaho
Corporation
BY: /s/ Donald Robson
--------------------------------
its Chief Financial Officer
ATTEST:
BY:
-------------------------------
its
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LOAN AGREEMENT
Dated as of: SEPTEMBER 9, 1996
Parties: COLDWATER CREEK, INC. ("BORROWER")
And: U.S. BANK OF IDAHO, FORMERLY KNOWN AS ("LENDER")
WEST ONE BANK, IDAHO
ARTICLE I
<PAGE>
LOAN AGREEMENT
Dated as of: SEPTEMBER 9, 1996
Parties: COLDWATER CREEK, INC. ("BORROWER")
And: U.S. BANK OF IDAHO, FORMERLY KNOWN AS ("LENDER")
WEST ONE BANK, IDAHO
ARTICLE I
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
"Access Laws" means the Americans With Disabilities Act of 1990; the
Fair Housing Amendments Act of 1988; all other federal, state and local laws
or ordinances related to disabled access; and all statutes, rules,
regulations, ordinances, orders of governmental bodies and regulatory
agencies and orders and decrees of any court adopted, enacted or issued with
respect thereto; all as now existing or hereafter amended or adopted.
"Borrower" means Coldwater Creek, Inc., a Delaware corporation.
"Debt Service Coverage Ratio" means net income plus depreciation and
amortization minus dividends divided by $2,100,000.00.
"Debt to Tangible Net Worth Ratio" means total liabilities divided by
Tangible Net Worth.
"Default" means any Event of Default or any event which with the giving
of notice or the passage of time, or both, would constitute an Event of
Default.
"Environmental Laws" means all local, state or federal laws, rules,
regulations, or ordinances pertaining to Hazardous Substances and
environmental regulation, contamination or clean-up including, without
limitation, the federal statutes commonly known as CERCLA and RCRA and all
other federal or state lien or environmental clean-up statutes, all as now
existing or hereafter amended or adopted.
"GAAP" means generally accepted accounting principles consistently
applied. The definition of any accounting term used in this Agreement that is
not specifically defined shall be the GAAP definition therefor.
"Hazardous Substances" means (a) any substance or material defined or
designated as hazardous or toxic waste, hazardous or toxic material, or a
hazardous, toxic or radioactive substance (or designated by any similar term)
by or for purposes of any applicable Environmental Law; (b) asbestos and any
substance or compound containing asbestos; and (c) any other
<PAGE>
hazardous, toxic or dangerous waste, substance or material, including but not
limited to gasoline, crude oil, fuel oil, diesel oil and any other related
petroleum products.
"Loan Documents" means this Agreement, the Notes, and the Security
Documents and all other documents and instruments attached hereto, referred
to herein or heretofore, contemporaneously herewith or hereafter executed or
delivered to Lender by any Person in connection with any indebtedness of
Borrower to Lender.
"Long Term Revolving Loan Review Date" means the earlier of March 31,
1999, and the date Lender demands payment in full of the then outstanding
balance of the Long Term Revolving Note.
"Maximum Long Term Revolving Loan Amount" means $11,500,000.00.
"Maximum Short Term Revolving Loan Amount" means $8,500,000.00.
"Note(s)" means any one or more of Short Term Revolving Note or the Long
Term Revolving Note.
"Person" means an individual or entity, including without limitation a
corporation, general or limited partnership, limited liability company,
trust, unincorporated association, government or government agency.
"Short Term Revolving Loan Review Date" means the earlier of March 17,
1997, and the date Lender demands payment in full of the then outstanding
balance of the Short Term Revolving Note.
"Security Documents" means any document or instrument evidencing a
security interest given by the Borrower to the Lender together with all
amendments, replacements, substitutions, or additions thereto.
"Tangible Net Worth" means total assets minus intangible assets minus
total liabilities.
ARTICLE II
CURRENT INDEBTEDNESS
2.1 PROMISSORY NOTES. Borrower is indebted to Lender pursuant to
the terms of the following promissory notes which may renew promissory notes
previously executed by Borrower ("Current Indebtedness"). Borrower may also
have other indebtedness or obligations to Lender.
2.1.1 Promissory note dated March 18, 1996, in the principal amount
of $6,500,000.00, which promissory note shall be superseded by the Short Term
Revolving Note. The principal balance is $0 as of June 24, 1996.
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2.1.2 Promissory note dated March 8, 1996, in the principal amount of
$8,500,000.00, which promissory note shall be superseded by the Long Term
Revolving Note. The principal balance is $0 as of June 24, 1996.
2.2 CURRENT SECURITY. The Current Indebtedness is secured by the
collateral described in the following documents, in any related Uniform
Commercial Code financing statements and certificates of title and in any
other security documents executed by Borrower ("Current Security Documents").
2.2.1 Commercial Security Agreement dated March 8, 1996, executed by
the Borrower.
2.2.2 Deed of Trust dated March 20, 1995, executed by the Borrower
and recorded in the real estate records of Bonner County on July 3, 1995, as
instrument #467892.
ARTICLE III
SHORT TERM REVOLVING LOANS
3.1 MAXIMUM AMOUNT. Subject to the terms and conditions of this
Agreement, Lender agrees to make loans to Borrower from time to time on a
revolving credit basis (each a "Short Term Revolving Advance", collectively,
"Short Term Revolving Loans"), provided that the aggregate principal amount
of outstanding Short Term Revolving Loans shall at no time exceed the Maximum
Short Term Revolving Loan Amount. The availability of Short Term Revolving
Advances shall terminate on the Short Term Revolving Loan Review Date.
3.2 USE OF PROCEEDS. Borrower shall use the proceeds of the Short
Term Revolving Loans for its normal working capital needs.
3.3 SHORT TERM REVOLVING NOTE. The Short Term Revolving Loans
shall be evidenced by a promissory note executed by Borrower in the principal
amount of $8,500,000.00 substantially in the form attached as Exhibit A
("Short Term Revolving Note"). The Short Term Revolving Loans shall be
subject to all terms and conditions of the Short Term Revolving Note and of
this Agreement.
3.4 INTEREST. Interest on the unpaid principal balance of the
Short Term Revolving Note shall be due and payable at the times and at the
rates set forth in the Short Term Revolving Note.
3.5 PRINCIPAL PAYMENTS. The principal balance of the Short Term
Revolving Note shall be due and payable on the Short Term Revolving Note
Review Date.
3.6 ADDITIONAL PAYMENTS. In addition to the payments otherwise
required on the Short Term Revolving Note, if at any time the outstanding
principal balance of the Short Term Revolving Note exceeds the Maximum Short
Term Revolving Loan Amount, Borrower shall pay to Lender on demand an amount
equal to the amount by which such principal balance exceeds the Maximum Short
Term Revolving Loan Amount.
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3.7 REQUESTS FOR SHORT TERM REVOLVING ADVANCES. Whenever Borrower
wishes to request a Short Term Revolving Advance, Borrower shall give Lender
notice thereof in accordance with the provisions of the Short Term Revolving
Note.
ARTICLE IV
LONG TERM REVOLVING LOANS
4.1 MAXIMUM AMOUNT. Subject to the terms and conditions of this
Agreement, Lender agrees to make loans to Borrower from time to time on a
revolving credit basis (each a "Long Term Revolving Advance", collectively,
"Long Term Revolving Loans"), provided that the aggregate principal amount of
outstanding Long Term Revolving Loans shall at no time exceed the Maximum
Long Term Revolving Loan Amount. The availability of Long Term Revolving
Advances shall terminate on the Long Term Revolving Loan Review Date.
4.2 USE OF PROCEEDS. Borrower shall use the proceeds of the Long
Term Revolving Loans for the purchase of fixed assets.
4.3 LONG TERM REVOLVING NOTE. The Long Term Revolving Loans shall
be evidenced by a promissory note executed by Borrower in the principal
amount of $11,500,000.00 substantially in the form attached as Exhibit B
("Long Term Revolving Note"). The Long Term Revolving Loans shall be subject
to all terms and conditions of the Long Term Revolving Note and of this
Agreement.
4.4 INTEREST. Interest on the unpaid principal balance of the Long
Term Revolving Note shall be due and payable at the times and at the rates
set forth in the Long Term Revolving Note.
4.5 PRINCIPAL PAYMENTS. The principal balance of the Long Term
Revolving Note shall be due and payable on the Long Term Revolving Note
Review Date.
4.6 ADDITIONAL PAYMENTS. In addition to the payments otherwise
required on the Long Term Revolving Note, if at any time the outstanding
principal balance of the Long Term Revolving Note exceeds the Maximum Long
Term Revolving Loan Amount, Borrower shall pay to Lender on demand an amount
equal to the amount by which such principal balance exceeds the Maximum Long
Term Revolving Loan Amount.
4.7 REQUESTS FOR LONG TERM REVOLVING ADVANCES. Whenever Borrower
wishes to request a Long Term Revolving Advance, Borrower shall give Lender
notice thereof in accordance with the provisions of the Long Term Revolving
Note.
ARTICLE V
LOAN FEES
Borrower shall pay to Lender the following fees:
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7.1 A non-usage fee of .125% of the daily unused portion of the
Short Term Revolving Loans which fee shall be due and payable quarterly in
arrears.
7.2 A non-usage fee of .125% of the daily unused portion of the
Long Term Revolving Loans which fee shall be due and payable quarterly in
arrears.
ARTICLE VI
ADDITIONAL TERMS APPLICABLE TO CERTAIN CREDIT FACILITIES
6.1 REPRESENTATION AND WARRANTY OF CREDIT AVAILABILITY. Each
request by Borrower for a Short Term Revolving Advance or Long Term Revolving
Advance shall be deemed to be its representation and warranty that (a) such
Short Term Revolving Advance or Long Term Revolving Advance may be made
without exceeding the applicable maximum amount determined in accordance with
the provisions of this Agreement, (b) no Default has occurred, or will occur
as a result of making such Short Term Revolving Advance or Long Term
Revolving Advance, and (c) all representations and warranties set forth in
this Agreement are true, accurate and complete as of the date of such request.
ARTICLE VII
SECURITY AND RELATED MATTERS
7.1 SECURITY.
7.1.1 COLLATERAL. The Long Term Revolving Loans shall be secured
by a first priority security interest in the following property and in all
such other real and personal property collateral as Lender may from time to
time require (collectively, "Collateral"):
(a) all of the Borrower's now owned and hereafter acquired
equipment and fixtures;
(b) real property located in Bonner County, State of Idaho;
and
(c) all products and proceeds of the foregoing.
7.1.2 SECURITY DOCUMENTS. Lender's security interests in the
Collateral shall be evidenced by the Current Security Documents and by such
other security agreements, Uniform Commercial Code financing statements,
certificates of title, trust deeds and other security documents covering the
Collateral as Lender may at any time require.
7.1.3 ADDITIONAL ACTS. As a condition precedent to the
effectiveness of this Agreement, and from time to time at Lender's request,
Borrower shall execute and/or deliver to Lender such security agreements,
Uniform Commercial Code financing statements, certificates of title, deeds of
trust and any other documents and instruments (endorsed or assigned to Lender
as Lender may request), which may be required under applicable law or which
Lender may request
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<PAGE>
to effectuate the transactions contemplated hereunder and to grant, preserve,
protect, perfect and continue the validity and first priority of Lender's
security interests.
7.1.4 MAXIMUM SECURITY AMOUNT. Notwithstanding any contrary
provision of any Security Document executed by the Borrower, the security
interest granted to Lender by Borrower under the Security Documents shall be
limited to Collateral having a value equal to the maximum amount which can be
transferred to Lender without rendering Borrower's grant of a security
interest to Lender subject to avoidance as a fraudulent transfer or fraudulent
conveyance or any similar term under any applicable state or federal law.
7.2 NEGATIVE PLEDGE.
7.2.1 Borrower shall not grant, create, assume or permit to
exist any pledge, assignment for security purposes, encumbrance, mortgage,
hypothecation, or any other security interest on any of the Borrower's
accounts or inventory.
ARTICLE VIII
CONDITIONS PRECEDENT
8.1 INITIAL CONDITIONS PRECEDENT. The effectiveness of this
Agreement is subject to satisfaction of each of the following conditions
precedent concurrently with or prior to execution of this Agreement:
8.1.1 Lender shall have received executed originals of this
Agreement, the Notes, and each other Loan Document required by Lender.
8.1.2 Lender shall have received all documents and information
Lender may request relating to the authority for and validity of this
Agreement and the other Loan Documents, and to any other related matters,
each in form and substance satisfactory to Lender.
8.1.3 Lender shall have received such additional documents and
information and the Borrower shall have satisfied such additional
requirements as Lender reasonably requires.
8.2 CONDITIONS PRECEDENT TO EACH SHORT TERM OR LONG TERM REVOLVING
ADVANCE. Lender's Agreement to make a Short Term or a Long Term Revolving
Loan Advance is subject to satisfaction of the following conditions on the
date any loan is made.
8.2.1 No Default shall have occurred or will occur as a result
of the Borrower's action or inaction.
8.2.2 The representations and warranties in this Agreement shall
be true and correct as of such date.
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ARTICLE IX
REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants:
9.1 EXISTENCE AND POWER. It is a duly organized and validly existing
corporation, is duly qualified and in good standing in each jurisdiction
where the conduct of its business or the ownership of its properties requires
such qualification, and has full power, authority and legal right to carry on
its business as presently conducted, to own and operate its properties and
assets, and to execute, deliver and perform the Loan Documents and all other
documents to be executed and delivered by it.
9.2 AUTHORIZATION. Its execution, delivery and performance of the Loan
Documents and all documents to be executed, delivered or performed by it and
any borrowing in connection therewith have been duly authorized by all
necessary corporate action, do not contravene any law, regulation, rule or
order binding on it or its articles of incorporation, and do not contravene
the provisions of or constitute a default under any agreement or instrument
to which it is a party or by which it may be bound or affected.
9.3 LITIGATION. There are no actions, proceedings, investigations, or
claims pending against it, or to its knowledge, threatened against or
affecting it, before any court or arbitrator or any governmental body or
agency which would be likely to result in a judgment or order against it (in
excess of insurance coverage) for more than $100,000.00 individually or in
the aggregate.
9.4 FINANCIAL CONDITION. Its most recent balance sheet and related
statements of income, retained earnings and changes in financial position
heretofore delivered to Lender fairly present as of the date thereof its
financial condition for the period then ended, all in accordance with GAAP.
Since that date there have been no material adverse changes in its financial
condition or operations, except as disclosed to Lender in writing.
9.5 TAXES. It has filed all tax returns and reports required of it, and
has paid all taxes payable by it which have become due pursuant to such tax
returns and all other taxes and assessments payable by it.
9.6 OTHER AGREEMENTS. It is not in breach of or in default under any
agreement to which it is a party or which is binding on it or any of its
assets, which such breach or default would have a material adverse effect on
its financial condition or operations.
9.7 GOOD TITLE AND VALIDITY. It is the true and lawful owner of and has
good title to all Collateral which it now owns and it will have good title
to all such Collateral acquired hereafter, free of any security interests,
liens or encumbrances, except in favor of Lender.
9.8 FIRST PRIORITY SECURITY INTEREST. The liens created or to be created
in favor of Lender under the Security Documents do and will at all times on
and after the effective date of this Agreement, constitute first priority
security interests in the Collateral as security for the obligations of
Borrower under the Loan Documents.
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9.9 COMPLIANCE WITH LAWS. It is in compliance with all applicable
federal, state, regional and local laws, regulations and ordinances, including
without limitation all environmental permits, Environmental Laws and Access
Laws.
9.10 ERISA AND FLSA COMPLIANCE. Any employee pension benefit plan
("Plan") maintained for its employees which is subject to the Employment
Retirement Income Security Act of 1974 and any regulations issued thereto
complies in all material respects with ERISA and any other applicable laws
and (a) such Plan has not incurred any material accumulated "funding
deficiency" and (b) with respect to such Plan, no "reportable event" nor
"prohibited transaction" has occurred. It is in full compliance with the Fair
Labor Standards Act.
9.11 NO MATERIAL MISSTATEMENTS. No report, financial statement,
representation or other information furnished by it to Lender contains any
material misstatement of fact or omits to state any material fact necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading.
9.12 ENFORCEABILITY. This Agreement constitutes, and each other Loan
Document to which it is a party when executed and delivered to Lender will
constitute a legal, valid and binding obligation of Borrower, enforceable in
accordance with its terms.
ARTICLE X
FINANCIAL COVENANTS AND INFORMATION
10.1 FINANCIAL COVENANTS. Until payment and performance in full of all
obligations of the Borrower under the Loan Documents, the Borrower agrees
that:
10.1.1 DEBT TO TANGIBLE NET WORTH RATIO. The Borrower shall have a
Debt to Tangible Net Worth Ratio not to exceed 1.50 to 1, which ratio shall
be calculated at the end of each fiscal year of the Borrower.
10.1.2 MINIMUM TANGIBLE NET WORTH. The Borrower shall have
Tangible Net Worth of at least $18,000,000.00, which amount shall be
calculated at the end of each fiscal year of the Borrower.
10.1.3 DEBT SERVICE COVERAGE RATIO. The Borrower shall have a Debt
Service Coverage Ratio of at least 1.25:1, which ratio shall be calculated at
the end of each fiscal year of the Borrower.
10.2 FINANCIAL INFORMATION.
10.2.1. As soon as available and in any event within 90 days after
the end of each of its fiscal years, the Borrower shall deliver to Lender its
CPA audited balance sheet as at the end of such fiscal year; related
statements of income, retained earnings and changes in financial position for
such year; and report, if any, to management by the accountant who prepared
the financial statements, in each case certified by a certified public
accountant acceptable to Lender.
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No document or report shall contain a disclaimer of opinion or adverse
opinion except such as Lender in its sole discretion may determine to be
immaterial.
10.2.2 As soon as available and in any event within 30 days after
the end of each of its fiscal quarters, the Borrower shall deliver to Lender
its internally prepared balance sheet and related statements of income,
retained earnings and changes in financial position as at the end of such
quarter, and for the fiscal year to date.
10.2.3 From time to time, Borrower shall provide to Lender such
information as Lender may reasonably request concerning the financial
condition and business affairs of Borrower.
ARTICLE XI
AFFIRMATIVE COVENANTS
Until payment and performance in full of all obligations of the Borrower
under the Loan Documents, the Borrower agrees that:
11.1 INSPECTION RIGHTS. At any reasonable time, and from time to time,
it will permit Lender to examine and make copies of and abstracts from its
records and books of account, to visit its properties and to discuss its
affairs, finances and accounts with any of its officers or representatives.
11.2 COLLATERAL AUDITS. It will permit Lender by or through any of
Lender's representatives, attorneys or accountants and at the expense of
Borrower, at such intervals as may be required by Lender in its sole
discretion, to conduct audits of and to verify, the Collateral.
11.3 KEEPING OF BOOKS AND RECORDS. It will keep adequate records and
books of account in which complete entries will be made reflecting all
material financial transactions, and except as otherwise specifically
provided herein, will prepare all financial statements, computations and
information required hereunder in accordance with GAAP.
11.4 OTHER OBLIGATIONS. It will pay and discharge before the same shall
become delinquent all indebtedness, taxes and other obligations for which it
is liable or to which its income or property is subject and all claims for
labor and materials or supplies which, if unpaid, might become by law a lien
upon its assets, unless it is contesting the indebtedness, taxes, or other
obligations in good faith and provision has been made to the reasonable
satisfaction of Lender for the payment thereof in the event any such contest
is determined adversely to it.
11.5 INSURANCE. It will provide and maintain policies of insurance on
its properties and operations, carried with companies acceptable to Lender,
in such form and amounts and covering such risks as Lender may require, with
loss payable to Lender.
11.6 ERISA COMPLIANCE. It will cause each Plan to comply in all material
respects with ERISA and any other applicable laws, will promptly make all
contributions necessary to meet the minimum funding standards set forth in
ERISA and will promptly notify Lender of the occurrence of any "reportable
event" (as defined in ERISA) or any other event which might
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constitute grounds for termination of any ERISA Plan. It will not terminate
any ERISA Plan nor permit to exist any "termination event" (as defined in
ERISA).
11.7 COMPLIANCE WITH LAWS. It shall comply in all material respects with
all federal, state, regional and local laws, regulations and ordinances
(including but not limited to all Environmental Laws, Access Laws and the
Fair Labor Standards Act) and promptly provide written notice to Lender of
the receipt of any notice of violation thereof from any governmental
authority which violation, alone or together with any other such violations,
could reasonably be expected to have a material adverse effect on its
business, assets, operations or condition, financial or otherwise.
11.8 NOTIFICATION. Promptly after learning thereof, it will notify
Lender in writing of:
11.8.1 The occurrence of any Default, and if such Default is then
continuing, a certificate of its chief financial officer or other authorized
officer setting forth the details thereof and the action which it is taking
or proposes to take with respect thereto;
11.8.2 The occurrence of any release of any Hazardous Substances
onto or affecting any of its property or any adjacent property, any
Collateral, or any other environmental problem or liability with respect to
any such property; and
11.8.3 The details of any claim, lien, litigation, administrative
proceeding or judgment involving $100,000.00 or more individually or in the
aggregate threatened, instituted or completed against Borrower, any
Collateral or any assets of Borrower, including but not limited to any and
all enforcement, cleanup, removal or other governmental or regulatory
proceedings pursuant to any Environmental Laws.
ARTICLE XII
NEGATIVE COVENANTS
Until payment and performance in full of all obligations of Borrower
under the Loan Documents, Borrower agrees that except with the written
consent of Lender:
12.1 LIQUIDATION, MERGER. It shall not liquidate, dissolve or enter
into any merger, consolidation or other combination.
12.2 SALE OF ASSETS. It shall not sell, lease or dispose of any portion
of its business or assets except in the ordinary course of business.
12.3 GUARANTIES, ETC. It shall not assume, guarantee, endorse or
otherwise become directly or contingently liable for, nor obligated to
purchase, pay or provide funds for payment of, any obligation or indebtedness
of any other Person.
12.4 LIENS. It shall not at any time grant a security interest in any or
all of its presently owned or hereafter acquired property which constitutes
Collateral, accounts or inventory except to Lender.
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12.5 TYPE OF BUSINESS. It shall not make any material change in the
character of its business.
12.6 STRUCTURE. It shall not make any material change in its
corporate structure.
ARTICLE XIII
DEFAULT
13.1 EVENT OF DEFAULT. The occurrence of any of the following shall
constitute an Event of Default under this Agreement and each of the Loan
Documents:
13.1.1 Any default in the payment of any portion of any
principal, interest, fees or any other amount when due under this Agreement,
any Note or any other Loan Document.
13.1.2 Any other default in the performance of or compliance with
any term of this Agreement, any other Loan Document, or any other agreement
between Lender and Borrower.
13.1.3 Any indebtedness of Borrower under any note, indenture,
agreement, undertaking or obligation of any kind to any Person, including
Lender, becomes due by acceleration or otherwise and is not paid.
13.1.4 Any default under any security instrument securing any
indebtedness or obligation of Borrower to Lender or any security interest or
lien created or purported to be created by any Security Document shall cease
to be, or shall be asserted by any Person not to be, a valid, first priority
security interest or lien.
13.1.5 Any warranty, representation, statement, or information
made or furnished to Lender by or on behalf of Borrower proves to have been
false or misleading in any material respect when made or furnished or when
deemed made or furnished.
13.1.6 The commencement of any proceeding under any bankruptcy or
insolvency laws by or against, appointment of a receiver for any part of the
property of, insolvency or business failure of, or any attachment, seizure or
levy on any property of, Borrower.
13.1.7 The dissolution or liquidation of Borrower.
13.1.8 The interruption or cessation of a material portion of
Borrower's ordinary business operations.
13.1.9 Any judgement, writ of attachment or similar process in
an amount in excess of $250,000.00 individually or in the aggregate shall be
entered or filed against Borrower
11
<PAGE>
or any property of Borrower and remains unpaid, unvacated, unbonded or
unstayed for a period of 30 days or more.
13.1.10 The failure of Borrower to provide Lender with financial
information promptly when requested.
13.1.11 Any change in ownership of 40% or more of the capital
stock of Borrower in one or more transactions.
13.1.12 Any material adverse change, as determined solely by
Lender, in the financial condition or management of Borrower or Lender
reasonably deems itself insecure with respect to the payment or performance
of the obligations of Borrower to Lender.
13.2 CURE PERIOD. Notwithstanding the foregoing, the Borrower
shall have 30 days to cure any default occurring under Sections 13.1.1,
13.1.2, 13.1.8, 13.1.9, 13.1.10, 13.1.11, or 13.1.12.
13.3 CONSEQUENCES OF DEFAULT; LENDER'S RIGHTS AND REMEDIES. Time is
of the essence of this Agreement.
13.2.1 Without prejudice to any right of Lender to require
payment of any obligations of Borrower to Lender under any of the Loan
Documents on demand, upon the occurrence of any Event of Default and at any
time thereafter Lender may, at its sole option, do any one or more of the
following:
(a) Without notice to Borrower, declare the entire outstanding
balance of principal and interest on the Notes and other Loan Documents
immediately due and payable, whereupon the same shall become immediately due
and payable without presentment, demand, protest or other requirements of
any kind, all of which are expressly waived by Borrower; and
(b) Exercise any and all other rights and remedies provided
in the Loan Documents and in any related agreements and documents, and as
otherwise provided by law.
13.2.2 Notwithstanding any right to cure events of default
provided in any Note or any of the other Loan Documents, Borrower agrees that
Borrower shall have only such cure rights as may be set forth herein.
ARTICLE XIV
MISCELLANEOUS
14.1 NO WAIVER BY LENDER. No failure or delay of Lender in
exercising any right, power or remedy under this Agreement or any Loan
Document shall operate as a waiver of such right, power or remedy of Lender
or of any other right. A waiver of any provision of any Loan Document shall
not constitute a waiver of or prejudice Lender's right otherwise to demand
strict
12
<PAGE>
compliance with that provision or any other provision. Any waiver, permit,
consent or approval of any kind or character on the part of Lender must be in
writing and shall be effective only to the extent specifically set forth in
such writing.
14.2 COSTS AND FEES. Without limiting any other provisions of this
Agreement, Borrower hereby agrees to pay Lender on demand an amount equal to all
costs and expenses incurred by Lender in connection with the negotiation,
preparation, execution, administration and enforcement of the Loan Documents,
including without limitation all recording costs, filing fees, costs of
appraisals, collateral audits, costs of perfecting, maintaining and defending
Lender's security interest in the Collateral and fees of in-house and outside
counsel.
14.3 AGREEMENTS ENFORCEABLE. Borrower reaffirms the representations
and warranties in each of the existing Loan Documents and acknowledges that
except as amended previously or herein, each such Loan Document remains in
full force and effect and is and shall remain valid and enforceable in
accordance with its terms.
14.4 NOTICES. Except as otherwise specifically set forth in any
Loan Document, all notices, requests and demands hereunder shall be in
writing, and shall be deemed to have been given when hand-delivered, when
deposited in the mail as first class, registered or certified mail, postage
prepaid, or when sent by telecopier, addressed as set forth below; PROVIDED,
however, that any notice, request or demand by Borrower to Lender pursuant to
Section 11.8 shall not be effective until received by Lender. Any party may
at any time change its address for notices by giving notice of such change to
the other parties.
If to Borrower: Coldwater Creek, Inc.
One Cold Water Creek Drive
Sandpoint, ID 83864
If to Lender: U.S. Bank of Idaho
Corporate Banking Department - IDW 0475
P.O. Box 8247
Boise, Idaho 83733
Facsimile (208) 383-7563
14.5 COLLECTION COSTS AND ATTORNEY FEES. Whether or not litigation
or arbitration is commenced, Borrower promises to pay all costs of collecting
any amounts which may become due to Lender under any of the Loan Documents.
Without limiting the foregoing, if litigation or arbitration is commenced to
enforce or construe any term of any of the Loan Documents, the prevailing
party shall be entitled to recover from the other party all costs thereof,
including but not limited to such sums as the court or arbitrator(s) may
adjudge reasonable as attorney fees at trial, in any appellate proceeding,
proceeding under the bankruptcy code or receivership and post-judgment
attorney fees incurred in enforcing any judgment.
14.6 INTEGRATION; CONFLICTING TERMS. This Agreement together with
the other Loan Documents comprises the entire agreement of the parties on the
subject matter hereof and supersedes and replaces all prior agreements, oral
and written, on such subject matter. If any term of any of the other Loan
Documents expressly conflicts with the provisions of this
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Agreement, the provisions of this Agreement shall control; provided, however,
that the inclusion of supplemental rights and remedies of Lender in any of
the other Loan Documents shall not be deemed a conflict with this Agreement.
14.7 GOVERNING LAW. Except to the extent that Lender has greater
rights and remedies under federal law, this Agreement shall be governed by
and construed and enforced in accordance with the laws of the State of Idaho
without regard to conflicts of law principles.
14.8 ADDITIONAL ACTS. Upon request by Lender, Borrower will from
time to time provide such information, execute such documents and do such
acts as may reasonably be required by Lender in connection with any
indebtedness or obligations of any of them to Lender.
14.9 DOCUMENTS SATISFACTORY TO LENDER. All information, documents
and instruments required to be executed or delivered to Lender shall be in
form and substance satisfactory to Lender.
14.10 JURY WAIVER. LENDER AND BORROWER HEREBY WAIVE THE RIGHT TO ANY
JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT BY
EITHER LENDER OR BORROWER AGAINST THE OTHER.
14.11 EXHIBITS. All Exhibits referred to herein are attached hereto
and hereby incorporated by reference as if fully set forth herein.
14.12 REFERENCES.
14.12.1 References to any Loan Document shall mean such Loan
Document as amended, modified, supplemented or extended from time to time and
any number of substitutions, renewals and replacements thereof or therefor.
14.12.2 References to governmental laws, statutes, ordinances,
rules and regulations shall be construed as including all amendments,
consolidations and replacements thereof or therefor.
BORROWER ACKNOWLEDGES RECEIPT OF A COPY OF THIS AGREEMENT.
BORROWER LENDER
COLDWATER CREEK, INC. U.S. BANK OF IDAHO FORMERLY
KNOWN AS WEST ONE BANK, IDAHO
BY /S/ Donald A. Robson BY /S/ Anthony W. Olbrich
------------------------- -------------------------
Donald A. Robson, Vice President & Anthony W. Olbrich
Chief Financial Officer
TITLE C.F.O. TITLE SR. VP
------------------------- -------------------------
14
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1996 STOCK OPTION/STOCK ISSUANCE PLAN
The Company's 1996 Stock Option/Stock Issuance Plan (the "1996 Plan") was
adopted by the Board of Directors and approved by the stockholders on March 4,
1996. 665,000 shares of Common Stock have been authorized for issuance under
the 1996 Plan.
The 1996 Plan is divided into three separate components: (i) the
Discretionary Option Grant Program under which eligible individuals, which
include officers and other key employees, non-employee directors and consultants
and other independent advisors, may, at the discretion of the Plan
Administrator, be granted options to purchase shares of Common Stock at an
exercise price not less than 85% of their fair market value on the grant date,
(ii) the Stock Issuance Program under which such individuals may, in the Plan
Administrator's discretion, be issued shares of Common Stock directly, through
the purchase of such shares at a price not less than 100% of their fair market
value at the time of issuance or as a bonus tied to the performance of services
and/or the achievement of performance goals and (iii) the Automatic Option Grant
Program under which option grants will automatically be made at periodic
intervals to eligible non-employee Board members to purchase shares of Common
Stock at an exercise price equal to 100% of their fair market value on the grant
date.
The Discretionary Option Grant Program and the Stock Issuance Program will
be administered by the Compensation Committee. The Compensation Committee as
Plan Administrator will have complete discretion to determine which eligible
individuals are to receive option grants or stock issuances, the time or times
when such option grants or stock issuances are to be made, the number of shares
subject to each such grant or issuance, the status of any granted option as
either an incentive stock option or a non-statutory stock option under the
Federal tax laws, the vesting schedule to be in effect for the option grant or
stock issuance and the maximum term for which any granted option is to remain
outstanding.
Upon an acquisition of the Company by merger or asset sale, each
outstanding option and unvested stock issuance will be subject to accelerated
vesting under certain circumstances.
The Plan Administrator has the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program in return for
the grant of new options for the same or different number of option shares with
an exercise price per share based upon the fair market value of the Common Stock
on the new grant date.
Under the Automatic Option Grant Program, each individual serving as a non-
employee Board member on the date the Underwriting Agreement for this Offering
is executed will receive an option grant on such date for 8,000 shares of Common
Stock, provided such individual has not otherwise been in the prior employ of
the Company. Each individual who first becomes a non-employee Board member
thereafter will receive an 8,000-share option grant on the date such individual
joins the Board, provided such individual has not been in the prior employ of
the Company. In addition, at each Annual Stockholders Meeting, beginning with
the 1996 Annual Meeting, each individual who is to continue to serve as a non-
employee Board after the meeting will receive an additional option grant to
purchase 1,000 shares of Common Stock whether or not he or she is standing for
reelection at that meeting or has been in the prior employ of the Company,
provided such individual has served as a non-employee Board member for at least
six months.
Each automatic grant will have a maximum term of 10 years, subject to
earlier termination two years following the optionee's cessation of Board
service. Each automatic option will be immediately exercisable; however, any
shares purchased upon exercise of the option will be subject to repurchase
should the optionee's service as a non-employee Board member cease prior to
vesting in the shares. The initial 8,000-share grant will vest in three equal
and successive annual installments over the optionee's period of Board service.
Each additional 1,000-share grant will vest upon the optionee's completion of
one year of Board service measured from the grant date. However, each
outstanding option will immediately vest upon (i) certain changes in the
ownership or control of the Company or (ii) the death or disability of the
optionee while serving as a Board member.
<PAGE>
Common Stock purchased upon the exercise of an option must be paid for by
cash or by delivery of certain previously acquired shares of Common Stock with a
fair market value (as of the exercise date) equal to the option exercise price
or, with the consent of the Compensation Committee under the Discretionary
Option Grant Program, by delivery of the optionee's promissory note. With the
Compensation Committee's approval, the employee option holder may elect to
satisfy tax withholding obligations by directing the Company to withhold shares
valued at the amount of the withholding obligation from the number purchased or
by delivery of previously acquired shares of Common Stock.
The Board may amend or modify the 1996 Plan at any time, subject to certain
limitations. The 1996 Plan will terminate on March 3, 2006, unless sooner
terminated by the Board.
On March 4, 1996, the Board granted options to purchase 265,000 shares of
Common Stock in the aggregate under the 1996 Plan to certain employees of the
Company, including grants to the following executive officers: Donald Robson,
60,000 shares; Tony Saulino, 50,000 shares; and Robin Sheldon, 50,000 shares.
The options vest over a four-year period measured from the grant date and have
an exercise price of $11.00 per share. Such exercise price is equal to the fair
market value of the Common Stock on the grant date, as determined by the Board
on the basis of a number of factors, including the anticipated Offering price,
and reflects the volatile nature of the stock market and the uncertainty which
existed at the time of grant as to the ultimate completion of the Offering.
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
The Company does not presently have any employment contracts in effect with
the Chief Executive Officer or any of the other executive officers named in the
Summary Compensation Table.
The Compensation Committee as Plan Administrator of the 1996 Plan will have
the authority to provide for the accelerated vesting of the shares of Common
Stock subject to outstanding options held by the Chief Executive Officer and any
other executive officer or the shares of Common Stock subject to direct
issuances held by such individual, in connection with certain changes in control
of the Company or the subsequent termination of the officer's employment
following the change in control event.
401(K) PLAN
Effective October 8, 1991, and as amended from time to time, the Company
adopted a tax-qualified employee savings, retirement and profit sharing plan
qualified under Section 401(k) of the Internal Revenue Code (the "401(k)
Plan") under which eligible employees may elect to defer their current
compensation by up to certain statutorily prescribed annual limits and to
contribute such amounts to the 401(k) Plan. Contributions to the 401(k) Plan
and income earned on the contributions are not taxable to employees until
withdrawn from the 401(k) Plan. All employees with 1,000 hours of service who
have been working with the Company for one year are eligible to participate in
the 401(k) Plan. The Company matches a certain percentage of the employees'
contribution and provides a discretionary profit sharing contribution based on
overall profitability of the Company. Company contributions to the 401(k) Plan
were $_____, $76,000, and $83,000 for the fiscal years 1993, 1994 and 1995.
2
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COLDWATER CREEK INC.
STOCK OPTION AGREEMENT
RECITALS
A. The Board has adopted the Plan for the purpose of retaining the
services of select individuals who provide valuable services to the Corporation
(or any Parent or Subsidiary).
B. Optionee is an individual who is to render such services to the
Corporation (or a Parent or Subsidiary), and this Agreement is executed pursuant
to, and is intended to carry out the purposes of, the Plan in connection with
the Corporation's grant of an option to Optionee.
C. All capitalized terms in this Agreement shall have the meaning
assigned to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. The Corporation hereby grants to Optionee, as
of the Grant Date, an option to purchase up to the number of Option Shares
specified in the Grant Notice. The Option Shares shall be purchasable from time
to time during the option term specified in Paragraph 2 at the Exercise Price.
2. OPTION TERM. This option shall have a term of ten (10) years
measured from the Grant Date and shall accordingly expire at the close of
business on the Expiration Date, unless sooner terminated in accordance with
Paragraph 5, 6 or 17.
3. LIMITED TRANSFERABILITY. This option shall be neither
transferable nor assignable by Optionee other than by will or by the laws of
descent and distribution following Optionee's death and may be exercised, during
Optionee's lifetime, only by Optionee. However, if this option is designated a
Non-Statutory Option in the Grant Notice, then this option may also be assigned
in accordance with the terms of a Qualified Domestic Relations Order. If so
assigned, the assigned option shall be exercisable only by the person or persons
who acquire a proprietary interest in the option pursuant to such Qualified
Domestic Relations Order. The terms applicable to the assigned option (or
portion thereof) shall be the same as those in effect for this option
immediately prior to such assignment and shall be set forth in such documents
issued to the assignee as the Plan Administrator may deem appropriate.
<PAGE>
4. DATES OF EXERCISE. This option shall become exercisable for the
Option Shares in a series of installments as specified in the Grant Notice. As
the option becomes exercisable for one or more installments, those installments
shall accumulate, and the option shall remain exercisable for the accumulated
installments until the Expiration Date or sooner termination of the option term
under Paragraph 5, 6 or 17.
5. CESSATION OF SERVICE. The option term specified in Paragraph 2
shall terminate and this option shall ceases to be outstanding prior to the
Expiration Date should any of the following provisions become applicable:
(i) Should Optionee cease to remain in Service for any
reason (other than death, Disability or Misconduct) while this option
is outstanding, then Optionee shall have a period of three (3) months
(commencing with the date of such cessation of Service) during which
to exercise this option, but in no event shall this option be
exercisable at any time after the Expiration Date.
(ii) Should Optionee die while this option is
outstanding, then the personal representative of Optionee's estate or
the person or persons to whom the option is transferred pursuant to
Optionee's will or in accordance with the laws of descent and
distribution shall have the right to exercise this option. Such right
shall lapse and this option shall cease to be outstanding upon the
EARLIER of (i) the expiration of the twelve (12)month period measured
from the date of Optionee's death or (ii) the Expiration Date.
(iii) Should Optionee cease Service by reason of
Disability while this option is outstanding, then Optionee shall have
a period of twelve (12) months (commencing with the date of such
cessation of Service) during which to exercise this option. In no
event shall this option be exercisable at any time after the
Expiration Date.
(iv) During the applicable post-Service exercise
period, this option may not be exercised in the aggregate for more
than the number of Option Shares for which the option is exercisable
at time of Optionee's cessation of Service. Upon the expiration of
such limited exercise period or (if earlier) upon the Expiration Date,
this option shall terminate and cease to be outstanding for any of
those Option Shares for which the option has not been exercised.
However, this option shall, immediately upon Optionee's cessation of
service, terminate and cease to be outstanding with respect to any
Option Shares for which this option is not otherwise at that time
exercisable.
2.
<PAGE>
(v) Should Optionee's Service be terminated for
Misconduct, then this option shall immediately terminate and cease to
be outstanding.
6. SPECIAL ACCELERATION OF OPTION.
(a) In the event of a Corporate Transaction, this option, to the
extent outstanding at the time of such transaction but not otherwise fully
exercisable, shall automatically accelerate so that this option shall,
immediately prior to the specified effective date for the Corporate Transaction,
become fully exercisable for all of the shares of Common Stock at the time
subject to this option and may be exercised for all or any portion of those
shares as fully-vested shares of Common Stock. No such acceleration of this
option, however, shall occur if and to the extent: (i) this option is, in
connection with the Corporate Transaction, either to be assumed by the successor
corporation (or parent thereof) or to be replaced with a comparable option to
purchase shares of the capital stock of the successor corporation (or parent
thereof) or (ii) this option is to be replaced with a cash incentive program of
the successor corporation which preserves the spread existing on the Option
Shares at the time of the Corporate Transaction (the excess of the Fair Market
Value of the Option Shares over the aggregate Exercise Price payable for such
shares) and provides for subsequent pay-out in accordance with the same exercise
schedule in effect for the option pursuant to the option exercise schedule set
forth in the Grant Notice. The determination of option comparability under
clause (i) shall be made by the Plan Administrator, and such determination shall
be final, binding and conclusive.
(b) This option shall terminate and cease to be outstanding
immediately upon the consummation of such Corporate Transaction, except to the
extent assumed by the successor corporation or parent thereof in connection with
such Corporate Transaction. To the extent this option is assumed in connection
with a Corporate Transaction, appropriate adjustments shall be made, immediately
after such Corporate Transaction, so that the option shall apply to the number
and class of securities which would have been issuable to Optionee in
consummation of such Corporate Transaction had the option been exercised
immediately prior to such Corporate Transaction, and appropriate adjustments
shall also be made to the Exercise Price, PROVIDED the aggregate Exercise Price
shall remain the same.
(c) This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
7. ADJUSTMENT IN OPTION SHARES. Should any change be made to the
Common Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be made to (i) the total
3.
<PAGE>
number and/or class of securities subject to this option and (ii) the Exercise
Price in order to reflect such change and thereby preclude a dilution or
enlargement of benefits hereunder.
8. STOCKHOLDER RIGHTS. The holder of this option shall not have any
stockholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become the holder of
record of the purchased shares.
9. MANNER OF EXERCISING OPTION.
(a) In order to exercise this option with respect to all or any
part of the Option Shares for which this option is at the time exercisable,
Optionee (or any other person or persons exercising the option) must take the
following actions:
(i) Execute and deliver to the Corporation a Purchase
Agreement for the Option Shares for which the option is exercised.
(ii) Pay the aggregate Exercise Price for the purchased
shares in one or more of the following forms:
(A) cash or check made payable to the Corporation; or
(B) a promissory note payable to the Corporation, but
only to the extent authorized by the Plan Administrator in accordance
with Paragraph 14.
Should the Common Stock be registered under Section 12(g) of
the 1934 Act at the time the option is exercised, then the Exercise
Price may also be paid as follows:
(C) in shares of Common Stock held by Optionee (or any
other person or persons exercising the option) for the requisite
period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date; or
(D) through a special sale and remittance procedure
pursuant to which Optionee (or any other person or persons exercising
the option) shall concurrently provide irrevocable written
instructions (I) to a Corporation-designated brokerage firm to effect
the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement
date, sufficient funds to cover the aggregate Exercise Price payable
for the purchased shares plus all applicable Federal, state and local
income and employment taxes required to be withheld by the Corporation
by reason of such exercise and (II) to
4.
<PAGE>
the Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale.
Except to the extent the sale and remittance procedure is
utilized in connection with the option exercise, payment of the
Exercise Price must accompany the Purchase Agreement delivered to the
Corporation in connection with the option exercise.
(iii) Furnish to the Corporation appropriate
documentation that the person or persons exercising the option (if
other than Optionee) have the right to exercise this option.
(iv) Execute and deliver to the Corporation such
written representations as may be requested by the Corporation in
order for it to comply with the applicable requirements of Federal and
state securities laws.
(v) Make appropriate arrangements with the Corporation
(or Parent or Subsidiary employing or retaining Optionee) for the
satisfaction of all Federal, state and local income and employment tax
withholding requirements applicable to the option exercise.
(b) As soon as practical after the Exercise Date, the
Corporation shall issue to or on behalf of Optionee (or any other person or
persons exercising this option) a certificate for the purchased Option Shares,
with the appropriate legends affixed thereto.
(c) In no event may this option be exercised for any fractional
shares.
10. CALL RIGHT/REPURCHASE RIGHTS.
(a) THIS OPTION SHALL BE SUBJECT TO A CALL RIGHT EXERCISABLE BY
THE CORPORATION IN ACCORDANCE WITH THE TERMS AND CONDITIONS SET FORTH IN ARTICLE
SIX OF THE PLAN AND THE ADDENDUM ATTACHED TO THIS AGREEMENT.
(b) ALL OPTION SHARES ACQUIRED UPON THE EXERCISE OF THIS OPTION
SHALL BE SUBJECT TO CERTAIN REPURCHASE RIGHTS AND RIGHTS OF FIRST REFUSAL
EXERCISABLE BY THE CORPORATION AND ITS ASSIGNS IN ACCORDANCE WITH THE PURCHASE
AGREEMENT.
11. COMPLIANCE WITH LAWS AND REGULATIONS.
5.
<PAGE>
(a) The exercise of this option and the issuance of the Option
Shares upon such exercise shall be subject to compliance by the Corporation and
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange (or the Nasdaq National Market if
applicable) on which the Common Stock may be listed for trading at the time of
such exercise and issuance.
(b) The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of the Common Stock as to which such approval shall not have been obtained.
The Corporation, however, shall use its best efforts to obtain all such
approvals.
12. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided
in Paragraphs 3 and 6, the provisions of this Agreement shall inure to the
benefit of, and be binding upon, the Corporation and its successors and assigns
and Optionee, Optionee's permitted assigns and the legal representatives, heirs
and legatees of Optionee's estate.
13. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation at its principal corporate offices. Any notice required to
be given or delivered to Optionee shall be in writing and addressed to Optionee
at the address indicated below Optionee's signature line on the Grant Notice.
All notices shall be deemed effective upon personal delivery or upon deposit in
the U.S. mail, postage prepaid and properly addressed to the party to be
notified.
14. FINANCING. The Plan Administrator may, in its absolute
discretion and without any obligation to do so, permit Optionee to pay the
Exercise Price for the purchased Option Shares by delivering a promissory note.
The terms of any such promissory note (including the interest rate, the
requirements for collateral and the terms of repayment) shall be established by
the Plan Administrator in its sole discretion.(1)
15. CONSTRUCTION. This Agreement and the option evidenced hereby are
made and granted pursuant to the Plan and are in all respects limited by and
subject to the terms of the Plan. All decisions of the Plan Administrator with
respect to any question or issue arising under the Plan or this Agreement shall
be conclusive and binding on all persons having an interest in this option.
- ----------------------------
(1) Authorization of payment of the Exercise Price by a promissory note under
such provisions may, under currently proposed Treasury Regulations, result in
the loss of incentive stock option treatment under the Federal tax laws.
6.
<PAGE>
16. GOVERNING LAW. The interpretation, performance and enforcement
of this Agreement shall be governed by the laws of the State of Idaho without
resort to that State's conflict-of-laws rules.
17. STOCKHOLDER APPROVAL.
(a) The grant of this option is subject to approval of the Plan
by the Corporation's stockholders within twelve (12) months after the adoption
of the Plan by the Board. NOTWITHSTANDING ANY PROVISION OF THIS AGREEMENT TO
THE CONTRARY, THIS OPTION MAY NOT BE EXERCISED IN WHOLE OR IN PART UNTIL SUCH
STOCKHOLDER APPROVAL IS OBTAINED. In the event that such stockholder approval
is not obtained, then this option shall terminate in its entirety and Optionee
shall have no further rights to acquire any Option Shares hereunder.
(b) If the Option Shares covered by this Agreement exceed, as of
the Grant Date, the number of shares of Common Stock which may without
stockholder approval be issued under the Plan, then this option shall be void
with respect to such excess shares, unless stockholder approval of an amendment
sufficiently increasing the number of shares of Common Stock issuable under the
Plan is obtained in accordance with the provisions of the Plan.
18. ADDITIONAL TERMS APPLICABLE TO AN INCENTIVE OPTION. In the event
this option is designated an Incentive Option in the Grant Notice, the following
terms and conditions shall also apply to the grant:
(i) This option shall cease to qualify for favorable
tax treatment as an Incentive Option if (and to the extent) this
option is exercised for one or more Option Shares: (i) more than three
(3) months after the date Optionee ceases to be an Employee for any
reason other than death or Disability or (ii) more than twelve (12)
months after the date Optionee ceases to be an Employee by reason of
Disability.
(ii) No installment under this option shall qualify for
favorable tax treatment as an Incentive Option if (and to the extent)
the aggregate Fair Market Value (determined at the Grant Date) of the
Common Stock for which such installment first becomes exercisable
hereunder would, when added to the aggregate value (determined as of
the respective date or dates of grant) of any earlier installments of
Common Stock and or other securities for which this option or any
other Incentive Options granted to Optionee prior to the Grant Date
(whether under the Plan or any other option plan of the Corporation or
any Parent or Subsidiary) first become exercisable during the same
calendar year, exceed One Hundred Thousand Dollars ($100,000) in the
aggregate. Should such One Hundred Thousand Dollar ($100,000)
limitation be exceeded in any calendar year,
7.
<PAGE>
this option shall nevertheless become exercisable for the excess shares in
such calendar year as a Non-Statutory Option.
(iii) Should the exercisability of this option be
accelerated upon a Corporate Transaction, then this option shall
qualify for favorable tax treatment as an Incentive Option only to the
extent the aggregate Fair Market Value (determined at the Grant Date)
of the Common Stock for which this option first becomes exercisable in
the calendar year in which the Corporate Transaction occurs does not,
when added to the aggregate value (determined as of the respective
date or dates of grant) of the Common Stock or other securities for
which this option or one or more other Incentive Options granted to
Optionee prior to the Grant Date (whether under the Plan or any other
option plan of the Corporation or any Parent or Subsidiary) first
become exercisable during the same calendar year, exceed One Hundred
Thousand Dollars ($100,000) in the aggregate. Should the applicable
One Hundred Thousand Dollar ($100,000) limitation be exceeded in the
calendar year of such Corporate Transaction, the option may
nevertheless be exercised for the excess shares in such calendar year
as a Non-Statutory Option.
(iv) Should Optionee hold, in addition to this option,
one or more other options to purchase Common Stock which become
exercisable for the first time in the same calendar year as this
option, then the foregoing limitations on the exercisability of such
options as Incentive Options shall be applied on the basis of the
order in which such options are granted.
8.
<PAGE>
APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Option Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following stockholder-
approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.
F. CORPORATION shall mean Coldwater Creek Inc. a Delaware corporation.
G. DISABILITY shall mean the inability of Optionee to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which is expected to result in death or has lasted or can be
expected to last for a continuous period of not less than twelve (12) months.
H. DOMESTIC RELATIONS ORDER shall mean any judgment, decree or order
(including approval of a property settlement agreement) which provides or
otherwise conveys, pursuant to applicable State domestic relations laws
(including community property laws), marital property rights to any spouse or
former spouse of the Optionee.
I. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
A-1.
<PAGE>
J. EXERCISE DATE shall mean the date on which the option shall have been
exercised in accordance with Paragraph 9 of the Agreement.
K. EXERCISE PRICE shall mean the exercise price per share as specified in
the Grant Notice.
L. EXPIRATION DATE shall mean the date on which the option expires as
specified in the Grant Notice.
M. FAIR MARKET VALUE per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:
(i) If the Common Stock is not at the time listed or
admitted to trading on any national securities exchange but is traded
on the Nasdaq National Market, the Fair Market Value shall be the
closing selling price per share on the date in question, as such price
is reported by the National Association of Securities dealers through
the Nasdaq National Market. If there is no reported closing selling
price for the Common Stock on the date in question, then the closing
selling price on the last preceding date for which such quotation
exists shall be determinative of Fair Market Value.
(ii) If the Common Stock is at the time listed or admitted
to trading on any national securities exchange, then the Fair Market
Value shall be the closing selling price per share on the date in
question on the exchange determined by the Plan Administrator to be
the primary market for the Common Stock, as such price is officially
quoted in the composite tape of transactions on such exchange. If
there is no reported sale of Common Stock on such exchange on the date
in question, then the Fair Market Value shall be the closing selling
price on the exchange on the last preceding date for which such
quotation exists.
(iii) If the Common Stock is on the date in question
neither listed nor admitted to trading on any national securities
exchange nor traded on the Nasdaq National Market, then the Fair
Market Value of the Common Stock on such date shall be determined by
the Plan Administrator after taking into account such factors as the
Plan Administrator shall deem appropriate.
N. GRANT DATE shall mean the date of grant of the option as specified in
the Grant Notice.
O. GRANT NOTICE shall mean the Notice of Grant of Stock Option
accompanying the Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.
A-2.
<PAGE>
P. INCENTIVE OPTION shall mean an option which satisfies the requirements
of Code Section 422.
Q. MISCONDUCT shall mean the commission of any act of fraud, embezzlement
or dishonesty by Optionee, any unauthorized use or disclosure by Optionee of
confidential information or trade secrets of the Corporation (or any parent or
subsidiary), or any other intentional misconduct by Optionee adversely affecting
the business or affairs of the Corporation (or any parent or subsidiary) in a
material manner. The foregoing definition shall not be deemed to be inclusive
of all the acts or omissions which the Corporation (or any parent or subsidiary)
may consider as grounds for the dismissal or discharge of the Optionee or any
other person in the Service of the Corporation (or any parent or subsidiary).
R. 1933 ACT shall mean the Securities Act of 1933, as amended from time
to time.
S. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
T. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.
U. OPTION SHARES shall mean the number of shares of Common Stock subject
to the option.
V. OPTIONEE shall mean the person to whom the option is granted as
specified in the Grant Notice.
W. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each such
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
X. PLAN shall mean the Corporation's 1996 Stock Option/Stock Issuance
Plan.
Y. PLAN ADMINISTRATOR shall mean either the Board or a committee of Board
members, to the extent the committee is at the time responsible for the
administration of the Plan.
Z. PURCHASE AGREEMENT shall mean the stock purchase agreement in
substantially the form of Exhibit B to the Grant Notice.
AA. QUALIFIED DOMESTIC RELATIONS ORDER shall mean a Domestic Relations
Order which substantially complies with the requirements of Code Section 414(p).
The Plan Administrator
A-3.
<PAGE>
shall have the sole discretion to determine whether a Domestic Relations Order
is a Qualified Domestic Relations Order.
BB. SERVICE shall mean the Optionee's performance of services on a
periodic basis for the Corporation (or any Parent or Subsidiary) in the capacity
of an Employee, a non-employee member of the board of directors or a consultant.
CC. SUBSIDIARY shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
such corporation in the unbroken chain (other than the last corporation in such
chain) owns, at the time of the determination, stock possessing fifty percent
(50%) or more of the total combined voting power of all classes of stock in one
of the other corporations in such chain.
A-4.
<PAGE>
EXHIBIT 11
COLDWATER CREEK INC.
COMPUTATION OF PRO FORMA EARNINGS PER SHARE
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
MARCH 2, 1996 AUGUST 31, 1996
----------------- -----------------
<S> <C> <C>
COMPUTATION OF PRIMARY EARNINGS PER SHARE
Net income as reported.................................................... $ 5,614 $ 1,271
------ ------
Pro forma income taxes.................................................... 2,246 508
------ ------
Net income available to common stock........................................ $ 3,368 $ 763
------ ------
------ ------
Weighted average shares outstanding
Actual shares outstanding (post split)....................................
Deemed shares outstanding for Sub-S distribution..........................
Net effect of dilutive stock options based on the treasury stock method
using average market price..............................................
------ ------
Total common shares and equivalents.......................................
------ ------
Pro forma primary earnings per share........................................
------ ------
------ ------
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
Net income available to common stock........................................ $ 3,368 $ 763
------ ------
------ ------
Weighted average shares outstanding
Actual shares outstanding (post split)....................................
Deemed shares outstanding for Sub-S distribution..........................
Net effect of dilutive stock options based on the treasury stock method
using the higher of quarter-end market price or average market price....
------ ------
Total common shares and equivalents.......................................
------ ------
------ ------
Pro forma fully diluted earnings per share..................................
------ ------
------ ------
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all references to our firm included in or made a part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
Boise, Idaho
November 22, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-01-1997
<PERIOD-END> AUG-31-1996
<CASH> 5,000
<SECURITIES> 0
<RECEIVABLES> 1,807,000
<ALLOWANCES> 0
<INVENTORY> 16,452,000
<CURRENT-ASSETS> 20,370,000
<PP&E> 16,953,000
<DEPRECIATION> 2,870,000
<TOTAL-ASSETS> 39,035,000
<CURRENT-LIABILITIES> 17,871,000
<BONDS> 0
0
0
<COMMON> 43,000
<OTHER-SE> 13,753,000
<TOTAL-LIABILITY-AND-EQUITY> 39,735,000
<SALES> 39,385,000
<TOTAL-REVENUES> 39,385,000
<CGS> 19,032,000
<TOTAL-COSTS> 38,060,000
<OTHER-EXPENSES> 25,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,000
<INCOME-PRETAX> 1,271,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,271,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,271,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
