<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 26, 1997
REGISTRATION NO. 333-23195
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
TRACK 'N TRAIL, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 5661 91-1778085
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) No.)
</TABLE>
4961-A WINDPLAY DRIVE
EL DORADO HILLS, CA 95762
(916) 933-4525
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
DANIEL J. NAHMENS
TRACK 'N TRAIL, INC.
4961-A WINDPLAY DRIVE
EL DORADO HILLS, CA 95762
(916) 933-4525
(Name, address, including zip code, and telephone number,
including area code, of agent for service of process)
---------------------
COPIES TO:
<TABLE>
<S> <C>
NATHANIEL M. CARTMELL III RICHARD H. GILDEN
DAVID R. LAMARRE GREGG J. BERMAN
SHANNON M. HERNANDEZ FULBRIGHT & JAWORSKI L.L.P.
PILLSBURY MADISON & SUTRO LLP 666 FIFTH AVENUE
235 MONTGOMERY STREET NEW YORK, NY 10103
SAN FRANCISCO, CA 94104
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
---------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
- ------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
- ------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 SEPTEMBER , 1997
PROSPECTUS
2,727,272 SHARES
TRACK 'N TRAIL [TRACK 'N TRAIL LOGO]
COMMON STOCK
--------------
All of the shares of Common Stock, par value $0.01 per share (the "Common
Stock"), of Track 'n Trail ("Track 'n Trail" or the "Company") offered hereby
are being sold by the Company. Prior to this offering (the "Offering"), there
has been no public market for the Common Stock. It is currently estimated that
the initial public offering price will be between $10.00 and $12.00 per share.
See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price.
The Company has applied to have the Common Stock approved for quotation on
The Nasdaq National Market, subject to official notice of issuance, under the
symbol "TKTL."
-------------------
THE OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON
PAGE 8 OF THIS PROSPECTUS.
-------------------
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>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share.............................. $ $ $
Total(3)............................... $ $ $
</TABLE>
(1) The Company and certain stockholders (the "Selling Stockholders") have
agreed to indemnify the several Underwriters against certain liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the Offering, payable by the Company, estimated
at $1.4 million.
(3) The Selling Stockholders have granted the Underwriters a 30-day option (the
"Over-allotment Option") to purchase up to 409,090 additional shares of
Common Stock on the same terms and conditions as set forth above solely to
cover over-allotments, if any. If the Over-allotment Option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Selling Stockholders will be $ , $ and
$ , respectively. See "Principal and Selling Stockholders" and
"Underwriting."
-------------------
The shares of Common Stock offered by this Prospectus are offered by the
several Underwriters, subject to prior sale, when, as and if issued to and
accepted by them, and subject to approval of certain legal matters by counsel
for the Underwriters and certain other conditions. The Underwriters reserve the
right to withdraw, cancel or modify such offer and to reject orders in whole or
in part. It is anticipated that delivery of the shares of Common Stock subject
to the Offering will be made at the offices of Alex. Brown & Sons Incorporated,
Baltimore, Maryland, on or about , 1997.
-------------------
ALEX. BROWN & SONS
INCORPORATED
A.G. EDWARDS & SONS, INC.
LADENBURG THALMANN & CO. INC.
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
[INSIDE FRONT COVER OF PROSPECTUS]
[TRACK 'N TRAIL LOGO]
[PICTURE OF UNITED STATES MAP
INDICATING 100 TRACK 'N TRAIL LOCATIONS]
Track 'n Trail-TM-, Overland Trading Company-TM-, Nordic Trail-TM-, Coloma
Trail-TM-, Forza-TM-, New Terrain-TM- and Mole-TM- are trademarks of the
Company. This Prospectus also includes trade names and trademarks of other
companies.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE COMMON
STOCK, INCLUDING SYNDICATE COVERING TRANSACTIONS AND THE IMPOSITION OF A PENALTY
BID. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
[INSIDE FRONT COVER GATEFOLD OF PROSPECTUS]
[PHOTOGRAPH SHOWS FRONT EXTERIOR OF TRACK 'N TRAIL STORE]
Every day is an adventure
[PHOTOGRAPH SHOWS INTERIOR WALL OF TRACK 'N TRAIL STORE WITH DISPLAY OF HIKING
BOOTS]
hike . . .
[PHOTOGRAPH SHOWS CLOSE-UP VIEW OF TREKKING BOOTS]
trek . . .
[PHOTOGRAPH SHOWS PANORAMIC VIEW OF LEGS AND FEET]
[PHOTOGRAPH SHOWS INTERIOR WALL OF TRACK 'N TRAIL STORE WITH DISPLAY OF WALKING
SHOES]
walk . . .
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES APPEARING
ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS SET FORTH IN THE CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES THERETO OR OTHERWISE AS SPECIFIED HEREIN, ALL INFORMATION
IN THIS PROSPECTUS ASSUMES (I) NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT
OPTION, (II) THAT TRACK 'N TRAIL, A CALIFORNIA CORPORATION ("TRACK 'N
TRAIL-CALIFORNIA"), AND OVERLAND MANAGEMENT CORPORATION ("OVERLAND") HAVE BECOME
SUBSIDIARIES OF THE COMPANY, WHICH WILL OCCUR PRIOR TO THE EFFECTIVENESS OF THE
REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART (THE "REORGANIZATION")
AND (III) THAT THE COMPANY HAS THE NUMBER OF OUTSTANDING SHARES OF COMMON STOCK
THAT WILL BE OUTSTANDING IMMEDIATELY AFTER THE REORGANIZATION. SEE
"UNDERWRITING" AND NOTE 14 OF NOTES TO THE COMPANY'S CONSOLIDATED FINANCIAL
STATEMENTS. EFFECTIVE JUNE 28, 1992, THE COMPANY CHANGED ITS FISCAL YEAR-END
FROM THE LAST SATURDAY IN JUNE TO THE LAST SATURDAY IN DECEMBER. AS USED IN THIS
PROSPECTUS, "FISCAL 1992," "FISCAL 1993," "FISCAL 1994," "FISCAL 1995" AND
"FISCAL 1996" REFER TO THE COMPANY'S FISCAL YEARS ENDED JUNE 27, 1992, DECEMBER
25, 1993, DECEMBER 31, 1994, DECEMBER 30, 1995 AND DECEMBER 28, 1996,
RESPECTIVELY, AND "FISCAL 1997" REFERS TO THE COMPANY'S FISCAL YEAR ENDING
DECEMBER 27, 1997. "STORE CONTRIBUTION" REFERS TO GROSS PROFIT AFTER DEDUCTING
SELLING AND MARKETING EXPENSES. EXCEPT AS OTHERWISE SPECIFIED OR WHERE THE
CONTEXT OTHERWISE REQUIRES, REFERENCES TO THE "COMPANY" OR "TRACK 'N TRAIL"
INCLUDE THE RESULTS OF OVERLAND FROM AND AFTER THE ACQUISITION OF OVERLAND.
THE COMPANY
Track 'n Trail ("Track 'n Trail" or the "Company") is one of the largest
full-service specialty retailers in the United States focusing on a broad range
of high-quality casual, outdoor and adventure footwear. The Company has
increased its store base and net sales each year since inception. In addition,
the Company's net income has grown at a compound annual rate of 37.5% from $1.1
million in fiscal 1993 to $2.9 million in fiscal 1996, after giving effect to
assumed C corporation income taxes.
As of August 23, 1997, the Company operated 135 stores in 24 states under
the Track 'n Trail and Overland Trading names. All but three of these stores
were located in regional or super-regional shopping malls, concentrated in
California, the Midwest and the Northeast. Each store offers a wide range of
rugged walking and fashion casual shoes, sandals and boots, featuring brands
such as Timberland, Dr. Martens, Birkenstock, Vans, Teva, Airwalk, Clarks, Ecco
and Rockport.
The Company targets middle to upper income consumers, with the Track 'n
Trail stores focusing on consumers in the 15- to 40-year-old age group and the
Overland Trading stores focusing on the 25- to 55-year-old age group. The
Company markets to these two different customer segments through distinct
merchandise assortments and store designs. The Track 'n Trail stores offer a
merchandise selection that emphasizes fashionable, performance-oriented footwear
and typically feature an all-glass front, often accented with rock fixtures, and
earth-tone interiors reminiscent of an outdoor setting. The Company's Overland
Trading stores are merchandised and designed to appeal to a slightly older and
more conservative consumer, with a focus on traditional and comfort-oriented
styles displayed in a contemporary, natural wood setting. The Company operates
these two distinct retail concepts to capitalize on the rapid population growth
in the 15- to 24-year old age group and the 40- to 55-year-old age group, which
the U.S. Bureau of the Census estimates will grow 19.4% and 21.7%, respectively,
from 1996 to 2010. Track 'n Trail stores average approximately 1,881 square feet
in size, while the Overland Trading stores average approximately 1,393 square
feet. As of August 23, 1997, the Company operated 100 Track 'n Trail stores in
23 states, and 35 Overland Trading stores in seven states.
The Company obtained 33 Overland Trading stores by acquiring control of
Overland Management Corporation, a Massachusetts corporation ("Overland"), on
October 25, 1996. Overland generated net sales of approximately $23.8 million
and total store contribution of approximately $2.4 million for the 12 months
preceding the acquisition under prior management. In addition to obtaining a
distinct retail venue, by acquiring Overland the Company strengthened its
presence in the northeastern United States. The Company also believes that the
acquisition increases its purchasing power and negotiating position with
3
<PAGE>
suppliers and real estate developers, permits it to realize operational
economies of scale, and increases the potential number of stores it can open in
both existing and future markets.
OPERATING STRATEGIES
The Company's goal is to become the premier destination specialty retailer
of better casual, outdoor and adventure footwear. To accomplish its goal, the
Company is pursuing the following operational strategies:
- Focus on authentic, well-established brands.
- Emphasize customer service and convenience.
- Appeal to two rapidly growing demographic groups through two distinct
retail concepts.
- Implement its focused merchandising strategy on a store-by-store basis.
- Recognize and respond to changing lifestyle trends and their effect on
customer preferences.
- Establish complementary private label brands.
GROWTH STRATEGIES
The Company's senior management team intends to continue to invest in and
strengthen the infrastructure of the Company. These investments in
infrastructure are designed to enhance the Company's ability to continue to grow
through new store openings and acquisitions. Management has developed the
following strategies to accelerate the Company's growth and increase its future
profitability:
- Strengthen its position in certain of its current markets by selectively
opening new Track 'n Trail and Overland Trading stores where demographics
are attractive and where management believes opportunities exist to
achieve economies of scale in management and distribution. The Company
plans to open approximately 20 stores in fiscal 1997 and at least 30
stores in fiscal 1998.
- Increase comparable store net sales by gaining greater recognition through
increased market presence and by fully implementing the Track 'n Trail
operating strategies at the Overland Trading stores.
- Increase the store contribution of the Overland Trading stores as a
percentage of net sales to the level historically achieved by the Track 'n
Trail stores by improving gross profit margin and implementing the
Company's operating expense controls.
- Acquire, as appropriate, other regional specialty footwear retailers from
within the large and fragmented industry for high-quality casual, outdoor
and adventure footwear.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered hereby....... 2,727,272 shares
Common Stock to be outstanding
after the Offering.............. 6,834,880 shares(1)
Use of proceeds................... To repay indebtedness and fund S corporation
distributions to stockholders, and for general corporate
purposes.
Proposed Nasdaq National Market
symbol.......................... TKTL
</TABLE>
- ------------------------
(1) Excludes options to purchase 831,659 shares of Common Stock at a weighted
average exercise price of $2.32, and warrants to purchase 49,392 and 74,089
shares of Common Stock at exercise prices equal to the initial public
offering price and 120% of such price, respectively.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER SQUARE FOOT AMOUNTS)
<TABLE>
<CAPTION>
OFFERING,
REORGANIZATION
AND 26 WEEKS 26 WEEKS
FISCAL ACQUISITION ENDED ENDED
-------------------------------------------- PRO FORMA JUNE 29, JUNE 28,
1993 1994(1) 1995 1996 1996(2) 1996 1997
--------- ----------- --------- --------- -------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................... $ 41,858 $ 48,165 $ 50,691 $ 66,233 $ 84,186 $ 23,286 $ 37,528
Gross profit........................ 19,955 23,085 24,499 32,171 39,726 11,266 18,115
Operating income (loss)............. 2,224 3,175 2,821 5,603 5,467 158 143
Income (loss) before income taxes
and minority interest.............. 1,838 2,814 2,427 4,957 5,401 (71) (608)
Net income (loss)(3)................ $ 1,783 $ 2,747 $ 2,386 $ 4,364 $ 4,375 $ (69) $ (236)(3)
PRO FORMA STATEMENT OF OPERATIONS
DATA(4):
Historical income (loss) before
income taxes and minority
interest........................... $ 1,838 $ 2,814 $ 2,427 $ 4,957 $ 5,401 $ (71) $ (608)
Pro forma income tax expense
(benefit).......................... 735 1,125 971 1,983 2,160 (28) (243)
Minority interest................... -- -- -- 105 -- -- --
--------- ----------- --------- --------- -------------- --------- ---------
Pro forma net income (loss)......... $ 1,103 $ 1,688 $ 1,456 $ 2,869 $ 3,241 $ (43) $ (365)
--------- ----------- --------- --------- -------------- --------- ---------
--------- ----------- --------- --------- -------------- --------- ---------
Pro forma net income (loss) per
share.............................. $ 0.52 $ 0.46 $ (0.07)
--------- -------------- ---------
--------- -------------- ---------
Common and common equivalent shares
used in computing per share
amounts(5)......................... 5,557,867 7,015,137 5,329,247
SELECTED STORE OPERATING DATA:
Store contribution(6)............... $ 6,880 $ 8,110 $ 7,647 $ 11,111 $ 12,450 $ 2,474 $ 3,587
Number of stores:
Opened or acquired during
period.......................... 9 9 12 51(7) 21 (7) 8 6
Closed during period.............. 2 4 4 5 5 5 --
Open at end of period............. 69 74 82 128 128 85 134
Total weighted average square
feet(8)............................ 114,813 130,542 144,612 168,966 205,265 151,775 228,656
Average square feet per store....... 1,851 1,894 1,873 1,744 1,744 1,861 1,758
Weighted average net sales per
square foot(9)..................... $ 365 $ 369 $ 351 $ 392 $ 410 $ 153 $ 164
Increase (decrease) in comparable
store net sales(10)................ 4.1% 0.6% (1.4)% 3.1% 3.1% 3.1% 2.5%
<CAPTION>
OFFERING AND
REORGANIZATION
PRO FORMA
26 WEEKS ENDED
JUNE 28,
1997(2)
--------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................... $ 37,528
Gross profit........................ 18,115
Operating income (loss)............. 224
Income (loss) before income taxes
and minority interest.............. 183
Net income (loss)(3)................ $ 1,325
PRO FORMA STATEMENT OF OPERATIONS
DATA(4):
Historical income (loss) before
income taxes and minority
interest........................... $ 183
Pro forma income tax expense
(benefit).......................... 73
Minority interest................... --
--------------
Pro forma net income (loss)......... $ 110
--------------
--------------
Pro forma net income (loss) per
share.............................. $ 0.02
--------------
--------------
Common and common equivalent shares
used in computing per share
amounts(5)......................... 6,888,570
SELECTED STORE OPERATING DATA:
Store contribution(6)............... $ 3,587
Number of stores:
Opened or acquired during
period.......................... 6
Closed during period.............. --
Open at end of period............. 134
Total weighted average square
feet(8)............................ 228,656
Average square feet per store....... 1,758
Weighted average net sales per
square foot(9)..................... $ 164
Increase (decrease) in comparable
store net sales(10)................ 2.5%
</TABLE>
<TABLE>
<CAPTION>
JUNE 28, 1997
------------------------------
REORGANIZATION
PRO FORMA AS
ACTUAL ADJUSTED(11)(12)
--------- -------------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital..................................................................... $ 5,870 $ 19,940
Total assets........................................................................ 38,303 40,306
Total debt.......................................................................... 18,993 329
Stockholders' equity................................................................ 8,214 29,225
</TABLE>
- ------------------------------
(1) Fiscal 1994 consisted of 53 weeks. All other fiscal years presented consist
of 52 weeks. During the 53rd week of fiscal 1994, the Company generated
$1.2 million in net sales. As a result, the Company's operating results in
fiscal 1994 are not comparable to its results in any other fiscal year
presented. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
(2) Gives effect to (i) for fiscal 1996 only, the Company's acquisition of 100%
of Overland's common stock, (ii) the Reorganization and the resulting
conversion of Track 'n Trail-California from S corporation to C corporation
status, (iii) the sale by the Company, in addition to those shares
described in footnote 5 below, of only those shares of Common Stock
necessary to fund the repayment of indebtedness as described in "Use of
Proceeds" at an assumed initial public offering price of $11.00 per share
(the midpoint of the Offering range), net of estimated underwriting
discounts and Offering expenses, and the application of such portion of the
net proceeds as described in "Use of Proceeds," and (iv) certain other
events intended or mandated to occur in connection with the Offering, as if
all of the foregoing had occurred on the first day of fiscal 1996 or the
first day of the 26-week
5
<PAGE>
period ended June 28, 1997, respectively. See "The Company" and "Pro Forma
Condensed Consolidated Financial Information."
(3) The net loss for the 26 weeks ended June 28, 1997 has been computed based
upon a tax expense or benefit for Track 'n Trail-California as an S
corporation for federal tax and state tax purposes in certain states and as
a C corporation in certain other states, including California, the state in
which the Company has its headquarters and its highest concentration of
store locations. If California and certain other states adopt tax
legislation by the end of 1997 which retroactively conforms to federal law
regarding S corporation tax status, the Company will be taxed for all of
1997 as an S corporation in those states. The effect of such state tax
legislation would be to reduce the Company's tax benefit and increase its
net loss for the 26 weeks ended June 28, 1997 by approximately $111,000.
See Note 9 of Notes to Consolidated Financial Statements.
(4) Includes, for fiscal 1993, 1994, 1995 and 1996 and for the 26-week periods
ended June 29, 1996 and June 28, 1997, pro forma provision for income taxes
using an assumed combined federal and state tax rate of 40.0%, which the
Company believes approximates the statutory federal and state income tax
rates that would have been applied had Track 'n Trail-California been taxed
as a C corporation. Commencing June 28, 1992, Track 'n Trail-California has
operated as an S corporation and has not been subject to federal and
certain state income taxes. In connection with the Reorganization and the
Offering, the S corporation election of Track 'n Trail-California and the
Company, respectively, will be terminated under circumstances under which
income to be reported by the Company and Track 'n Trail-California for
their respective terminated S corporation taxable years will be determined
utilizing a "closing of the books" method.
(5) Shares outstanding include 669,240 shares issuable upon exercise of stock
options outstanding at December 28, 1996 and June 28, 1997, after applying
the treasury stock method assuming an initial public offering price of
$11.00 per share (the midpoint of the Offering range). The pro forma common
and common equivalent shares also give effect to the sale by the Company of
only those shares of Common Stock necessary to fund the payment of the
excess of (i) the sum of stockholder distributions during the previous
12-month period (during fiscal 1996 for the determination of shares
outstanding for fiscal 1996 and during the 12 months ended June 28, 1997
for the determination of shares outstanding for the 26 weeks ended June 28,
1997) and distributions thereafter until the Reorganization over (ii) the S
corporation earnings in the previous 12-month period, assuming that such
shares are sold at an initial public offering price of $11.00 per share
(the midpoint of the Offering range), net of estimated underwriting
discounts and Offering expenses. See "Capitalization" and "Pro Forma
Condensed Consolidated Financial Information."
(6) Store contribution refers to gross profit after deducting selling and
marketing expenses. Store contribution is presented to provide additional
information about the Company and is commonly used as a performance
measurement by retail companies. Store contribution should not be
considered in isolation or as a substitute for operating income, cash flow
from operating activities and other income or cash flow data prepared in
accordance with generally accepted accounting principles, or as a measure
of the Company's profitability or liquidity.
(7) On October 25, 1996, the Company acquired 33 Overland Trading stores. The
Company opened one additional Overland Trading store in November 1996
pursuant to a commitment previously entered into by Overland. Opened or
acquired stores in fiscal 1996, pro forma for the acquisition, the
Reorganization and the Offering, are shown as if the acquisition had
occurred prior to fiscal 1996.
(8) Weighted to reflect store openings and closings during each period,
assuming that all periods presented consist of 52 weeks (except for the
26-week periods ended June 29, 1996 and June 28, 1997).
(9) Weighted average net sales for fiscal 1994 have been adjusted as if such
year consisted of 52 weeks.
(10) Comparable store net sales include only those stores that were open both
for the full fiscal period and for the full prior fiscal period. The fiscal
1994 and 1995 increases have been calculated by comparing net sales in such
years to net sales for the prior 53 and 52 weeks, respectively. The
increases for fiscal 1996 and for the 26 weeks ended June 28, 1997 exclude
the Overland Trading stores acquired in October 1996. If such stores had
been included in the Company's comparable store net sales comparison since
the acquisition, the increases (decreases) in comparable store net sales
for fiscal 1996 and for the 26 weeks ended June 28, 1997 would have been
2.4% and (0.3%), respectively.
(11) Pro forma balance sheet data give effect to (i) the Reorganization, (ii)
$215,000 of S corporation distributions made or to be made in fiscal 1997
subsequent to June 28, 1997 and (iii) the $6.4 million distribution of
previously undistributed accumulated S corporation earnings to the Existing
Stockholders, as if all of the foregoing had occurred on December 29, 1996,
the first day of fiscal 1997. See "Pro Forma Condensed Consolidated
Financial Information."
(12) Adjusted to reflect (i) the sale by the Company of 2,727,272 shares of
Common Stock offered hereby at an assumed initial public offering price of
$11.00 per share (the midpoint of the Offering range) and the application of
the estimated net proceeds therefrom and (ii) certain other events intended
or mandated to occur in connection with the Offering. See "Use of Proceeds,"
"Capitalization" and "Pro Forma Condensed Consolidated Financial
Information."
6
<PAGE>
THE COMPANY
THE OVERLAND ACQUISITION
On October 25, 1996, the Company, together with its three stockholders (the
"Existing Stockholders"), obtained 33 Overland Trading stores by acquiring the
outstanding common stock of Overland in exchange for subordinated promissory
notes in the principal amount of approximately $3.2 million (the "Seller Notes")
and warrants to purchase one percent of the Company's Common Stock calculated on
a fully diluted basis immediately prior to an initial public offering. In
connection with the acquisition, Overland repurchased all of its outstanding
preferred stock in exchange for a $3.5 million subordinated promissory note (the
"Subordinated Note"), which the Company guaranteed. Due to the then-existing
prohibition against an S corporation owning 80.0% or more of a subsidiary's
stock, the Company initially purchased 79.0% of Overland's common stock, while
the Existing Stockholders personally acquired the remaining 21.0%. Following
legislative changes to the S corporation rules under federal and certain state
statutes, the Company acquired the remaining 21.0% effective January 1, 1997,
and assumed the Existing Stockholders' pro rata portion of the Seller Notes (the
"Minority Interest Acquisition"). Total payments in connection with the
acquisition were approximately $9.0 million, including the Seller Notes, the
Subordinated Note, the refinancing of approximately $2.1 million in indebtedness
under Overland's credit facility through borrowings under the Company's
revolving loan agreement with a commercial bank (the "Revolving Loan
Agreement"), and associated expenses of approximately $240,000. The Seller
Notes, the Subordinated Note and the Revolving Loan Agreement mature upon the
consummation of the Offering. Pursuant to consulting agreements entered into in
connection with the acquisition, the Company currently pays an aggregate of
approximately $23,400 per month plus related benefit expenses to certain former
Overland stockholders. The consulting agreements terminate upon the consummation
of the Offering.
THE REORGANIZATION
The Company was formed to own the businesses conducted by Track 'n
Trail-California and its subsidiary, Overland. In connection with its formation,
the Company issued an aggregate of 40,816 shares of Common Stock to the Existing
Stockholders and filed an S corporation election. The Board of Directors of the
Company has approved a reorganization of Track 'n Trail-California (the
"Reorganization") in which the Track 'n Trail-California stockholders will
exchange 100% of their Track 'n Trail-California common stock for 4,107,608
shares of the Company's Common Stock, inclusive of the 40,816 shares of the
Company's Common Stock issued upon formation. The Reorganization, which will be
accounted for in a manner similar to a pooling of interests, will be
accomplished in an exchange of one share of Track 'n Trail-California common
stock for approximately 100 shares of the Company's Common Stock. The
Reorganization will occur prior to the effectiveness of the Registration
Statement of which this Prospectus is a part. In connection with the
Reorganization, all of the common stock of Overland will be transferred to the
Company as a dividend, resulting in the predecessor businesses becoming wholly
owned subsidiaries of the Company.
GENERAL
The Company was incorporated in Delaware in 1997, and Track 'n
Trail-California was incorporated in California in 1980. Except where the
context otherwise requires, all references to the "Company" in this Prospectus
are to Track 'n Trail, a Delaware corporation, and its consolidated
subsidiaries. The Company's executive offices are located at 4961-A Windplay
Drive, El Dorado Hills, CA 95762, and its telephone number is (916) 933-4525.
7
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING
RISK FACTORS IN ADDITION TO THE OTHER INFORMATION PRESENTED IN THIS PROSPECTUS,
BEFORE PURCHASING THE SHARES OF COMMON STOCK OFFERED HEREBY. THIS PROSPECTUS
CONTAINS, IN ADDITION TO HISTORICAL INFORMATION, FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS
THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED
BELOW, AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS.
RISKS ASSOCIATED WITH EXPANSION
The Company's continued growth will depend largely upon the Company's
ability to open or acquire new stores in a timely manner and to operate them
profitably. The Company opened 18 stores in fiscal 1996 and six stores in the
first six months of fiscal 1997, and presently anticipates opening a substantial
number of stores in fiscal 1997 and 1998. The success of the Company's planned
expansion will depend on many factors, including the Company's ability to secure
suitable store sites on satisfactory leasing terms and to complete any necessary
construction or refurbishment of these sites, the hiring, training and retention
of qualified managers and other personnel and the successful integration of new
stores into existing operations. No assurance can be given that the Company will
be able to expand as planned in fiscal 1997, fiscal 1998 or any future period,
that new stores will achieve results similar to those achieved at prior
locations, or that the Company will be able to manage any future growth
successfully. Because the Company's business is highly seasonal, any delays in
store openings past peak selling periods could significantly reduce the new
stores' near-term contribution to total net sales. See "Use of Proceeds,"
"Business--Growth Strategies," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Growth
Strategies."
DEPENDENCE ON MAJOR SUPPLIERS
The Company's business depends to a significant degree upon its ability to
obtain timely and plentiful shipments of brand name merchandise at competitive
prices. In fiscal 1995 and fiscal 1996, the Company's ten largest suppliers
(eight of which were the same in each period) accounted for approximately 66.8%
and 68.0% of its net sales, respectively. The extent to which the Company is
dependent upon any particular supplier varies from season to season. The Company
does not have any long-term supply agreements or other contractual assurances of
continued supply, pricing or access to new products. The deterioration of the
Company's relationship with any key vendor could result in delivery delays,
merchandise shortages or less favorable trade terms than the Company currently
enjoys. The Company has occasionally received allocations of merchandise from
vendors, particularly merchandise in high demand by many footwear retailers,
that are insufficient to meet the Company's desired levels of such merchandise.
There can be no assurance that the Company will receive its desired levels of
such merchandise in the future. The Company's business is also affected by its
suppliers' ability to manufacture and deliver merchandise in a timely and
cost-effective manner, which depends upon a number of factors beyond the
Company's control, including fluctuations in currency exchange rates, trade
barriers, and economic, labor and political conditions in the countries in which
the Company's vendors have manufacturing operations. In particular, a
significant deterioration in China's trade relationship with the United States
could adversely affect the supply and pricing of a substantial portion of the
Company's merchandise.
UNCERTAINTIES IN MERCHANDISE TRENDS
The Company's success depends in part on its ability to anticipate and
respond to changing merchandise trends and consumer demands in a timely manner.
Any failure by the Company to identify and respond to emerging trends could
adversely affect consumer acceptance of the merchandise in the Company's stores,
which in turn could adversely affect the Company's business, financial condition
and
8
<PAGE>
results of operations. Failure to anticipate and respond to changing consumer
preferences could lead to, among other things, shortages of styles in high
demand, lower net sales, additional markdowns and lower margins, which would
have a material adverse effect on the Company's results of operations and
financial condition.
DEPENDENCE ON MALL TRAFFIC
All but three of the Company's stores are located in regional or
super-regional shopping malls. The Company's net sales are derived, in large
part, from the volume of traffic in these malls, particularly because the
Company does little independent advertising to attract customers. The Company
therefore depends upon the ability of mall "anchor" tenants and other mall
attractions to generate consumer traffic in the vicinity of the Company's
stores, as well as the continuing popularity of malls as shopping destinations.
Mall traffic and the Company's net sales and profitability may be adversely
affected by regional economic downturns, competition from non-mall retailers and
other malls, the closing of "anchor" tenants or declines in the desirability of
the shopping environment in a particular mall. As with other specialty footwear
retailers, the Company's business is also subject to general economic
conditions, including the possibility of a nationwide recession, consumer
confidence and the level of consumer spending.
SEASONALITY
The Company's business is highly seasonal. The Company typically incurs
losses in the first six months and recorded a larger loss in the first six
months of fiscal 1997 than in the first six months of fiscal 1996, due to the
operating loss and interest expense associated with the Overland acquisition.
The Company derives a substantial percentage of its annual net sales and
operating profitability during the "back-to-school" and year-end holiday
periods. In anticipation of increased net sales activity during these periods,
the Company incurs significant additional expenses, including the hiring of a
substantial number of temporary employees. As a result of this seasonality, the
Company's working capital needs are greatest in October and early November, and
late in the first quarter of each fiscal year. The Company's net sales are
affected by weather patterns in California, the Northeast and the Midwest,
particularly during the Spring and Fall selling seasons. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
COMPETITION
The retail footwear business is intensely competitive. Most of the items
sold by the Company are sold by department stores, outdoor and sporting goods
stores, athletic footwear stores and traditional shoe stores. Some of these
stores are owned or franchised by the Company's footwear suppliers. Many of the
stores with which the Company competes are units of large national or regional
chains that have substantially greater financial and other resources than the
Company. In many cases, the Company's stores are located in shopping malls in
which one or more of its competitors also has a presence. To a lesser extent,
the Company also competes with mail order retailers. A significant change in
price, level of promotion or other strategies by the Company's competitors could
have a material adverse effect on the Company's results of operations. See
"Business--Competition."
UNCERTAINTIES ASSOCIATED WITH PRIVATE LABEL SOURCING
Private label products accounted for approximately 12.0% and 8.7% of net
sales in fiscal 1996 and the first six months of fiscal 1997, respectively. The
Company has no long-term contracts with its private label manufacturing sources
and competes with other companies for production facilities. In addition, the
Company's private label products may experience higher mark-downs than branded
products, because they require longer lead times and must be ordered in larger
volumes, and because the Company is typically unable to return private label
products to its manufacturers. There can be no assurance that the foregoing
9
<PAGE>
factors will not disrupt the Company's supply of private label goods or
otherwise adversely impact the Company's operations in the future. See
"Business--Purchasing and Sourcing."
INTERNATIONAL PURCHASING RISKS
Substantially all of the Company's private label manufacturers are located
outside of the United States. Accordingly, the Company is subject to the risks
typically associated with an import business, including unexpected changes in
foreign regulatory requirements, disruptions or delays in shipments and the
risks associated with United States import laws and regulations, including
quotas, duties, taxes, tariffs and other restrictions. The Company has not, to
date, been materially affected by any such risk, but there can be no assurance
that such risks will not adversely impact the Company's operations in the
future. See "Business--Purchasing and Sourcing."
POTENTIAL FOREIGN CURRENCY FLUCTUATIONS
Because a portion of the Company's purchases of private label goods are
denominated in foreign currencies, the Company's operating results are subject
to fluctuations in the exchange rates between such currencies and the U.S.
dollar. The Company has not typically engaged in hedging transactions designed
to manage currency fluctuation risks. Although the Company entered into three
forward contracts to purchase foreign currency in fiscal 1996, these contracts
were designed to hedge only a small portion of the Company's overall exchange
rate risk. There can be no assurance that exchange rate fluctuations will not
have a material adverse effect on the Company's future operating results or
financial condition. See "Business--Purchasing and Sourcing."
RISKS ASSOCIATED WITH ACQUISITIONS
The Company's business strategy includes expanding through acquisitions, as
well as through new store openings. See "Business--Growth Strategies." No
assurance can be given that any acquisition by the Company will occur, or that
any such acquisition will enhance the Company's results of operations. Any
acquisition will involve numerous risks, including difficulties in the
assimilation of the acquired company's operations, the diversion of management's
attention, uncertainties associated with operating stores in new markets and the
potential loss of the acquired company's key employees. Acquisitions may also
result in potentially dilutive issuances of equity securities, the incurrence of
debt and contingent liabilities, potential reductions in income due to losses
incurred by the acquired business and increased amortization expense related to
intangible assets acquired, any of which could materially adversely affect the
Company's financial condition and results of operations.
CONTROL BY EXISTING STOCKHOLDERS
David L. Suechting, Jr., the Company's Chairman of the Board, Barbara
Suechting, a director of the Company, and Deborah Suechting, the Existing
Stockholders, in the aggregate will own beneficially approximately 60.1% of the
Company's outstanding shares of Common Stock after the Offering (54.1%, if the
Underwriters' Over-allotment Option is exercised in full). As a result, the
Existing Stockholders, acting together, will be able to control all matters
requiring approval by the stockholders of the Company, including the election of
the Board of Directors. See "Principal and Selling Stockholders."
FUTURE CAPITAL NEEDS
The Company expects that the net proceeds of the Offering remaining after
the repayment of indebtedness and the payment of the stockholder distribution
described under "Use of Proceeds," together with anticipated cash flow from
operations and anticipated borrowings under a new credit facility for which the
Company has obtained a commitment from Union Bank of California, one of its
existing lenders, and which will become effective at the closing of the
Offering, will satisfy its cash requirements through fiscal
10
<PAGE>
1998. However, in connection with its growth strategy, the Company will incur
significant working capital requirements and capital expenditures. To the extent
that the foregoing cash resources are insufficient to fund the Company's
activities, including new store openings planned for fiscal 1997 and 1998,
additional funds will be required. There can be no assurance that additional
financing will be available on reasonable terms or at all. Failure to obtain
such financing could delay or prevent the Company's planned expansion, which
could adversely affect the Company's business, financial condition and operating
results. In addition, if additional capital is raised through the sale of
additional equity or convertible securities, dilution to the Company's
stockholders could occur. See "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON KEY PERSONNEL
The Company's future success depends to a significant extent on the efforts
and abilities of its executive officers. The loss of the services of certain of
these individuals could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company does not
maintain any key man life insurance. The Company's recent growth, particularly
as a result of the acquisition of Overland, has resulted in an increase in
responsibilities for management personnel. The Company's ability to manage
growth effectively will require it to continue to train, motivate and manage its
employees, and to attract, motivate and retain additional skilled managerial and
merchandising personnel. Competition for such personnel is intense, and there
can be no assurance that the Company will be successful in attracting,
assimilating and retaining the personnel it requires to grow and operate
profitably.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of Common Stock by existing stockholders under Rule 144 and
Rule 701 of the Securities Act of 1933, as amended (the "Securities Act"),
through the exercise of outstanding registration rights or otherwise could have
an adverse effect on the price of the Company's Common Stock. The 2,727,272
shares offered hereby will be eligible for sale in the public market following
the Offering. The 4,107,608 shares of Common Stock outstanding prior to the
Offering and 831,659 shares of Common Stock issuable pursuant to the exercise of
options that become fully vested and immediately exercisable upon completion of
the Offering will be eligible for sale in the public market 180 days after the
date of this Prospectus upon expiration of lockup agreements with the
Underwriters, subject to Rule 144 or Rule 701 under the Securities Act.
Additionally, 49,392 and 74,089 shares of Common Stock issuable pursuant to
warrants that become exercisable upon completion of the Offering and one year
following completion of the Offering, respectively, will be available for sale
in the public market one year from the date of exercise of such warrants (or
earlier if certain cashless exercise provisions are utilized), subject to Rule
144 and the 180-day lockup restrictions described above. The Company intends to
register up to a total of 1,055,735 shares of Common Stock reserved for issuance
under the Stock Option Plan (including shares already subject to stock options)
and up to a total of 150,000 shares of Common Stock reserved for issuance under
the Company's Employee Stock Purchase Plan as soon as practicable following the
date of this Prospectus. Certain existing stockholders and warrant holders have
rights under certain circumstances to require the Company to register their
shares for future sale. See "Shares Eligible for Future Sale" and "Description
of Capital Stock--Registration Rights."
LACK OF PRIOR PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock
and there can be no assurance that an active trading market will develop or be
sustained. The initial offering price for the Common Stock to be sold by the
Company and the Selling Stockholders will be determined by negotiations among
the Company, the Selling Stockholders and the representatives of the
Underwriters and may bear no relationship to the price at which the Common Stock
will trade after completion of the Offering. See "Underwriting" for factors to
be considered in determining such offering price. The market price of the Common
Stock could be subject to significant fluctuations in response to
quarter-to-quarter variations in
11
<PAGE>
operating results, announcements of pricing or promotional changes by the
Company or its suppliers or competitors, changes in earnings estimates by
securities analysts, disruptions in the supply of merchandise and other events
or factors. In addition, the stock market in recent years has experienced
extreme price and volume fluctuations that have particularly affected the market
prices of many retailers and that have often been unrelated or disproportionate
to the operating performance of such companies. These fluctuations, as well as
general economic and market conditions, may adversely affect the market price of
the Common Stock. See "Seasonality."
DILUTION AND BENEFITS TO EXISTING STOCKHOLDERS
Purchasers of shares of Common Stock in the Offering will incur immediate
and substantial dilution in net tangible book value per share. See "Dilution."
The consummation of the Offering will result in certain benefits to the
Company's stockholders other than the investors in the Offering, including the
Company's Chairman of the Board and one of its directors. The Company intends to
use a portion of the proceeds from the Offering to fund a $6.4 million
distribution by Track 'n Trail-California to the Existing Stockholders, which is
intended as a distribution of previously undistributed accumulated S corporation
retained earnings (the "Distribution"). See "S Corporation Distributions." A
portion of the net proceeds of the Offering will also be used to repay
indebtedness currently guaranteed by the Existing Stockholders.
INTELLECTUAL PROPERTY
Prior to being acquired by Track 'n Trail, Overland entered into an
agreement with a third party for the exclusive use of the Overland Trading
Company trademark in nine Midwestern states. The agreement prohibits the Company
from opening Overland Trading stores in those states until the agreement is
terminated. There can be no assurance that the activities of the third party
will not detract from the Company's efforts to maintain its Overland Trading
stores as a distinct retail concept, particularly in the Midwest, or from the
Company's reputation.
ANTITAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS
Upon completion of the Offering, the Board of Directors will have the
authority to issue up to 2,000,000 shares of Preferred Stock, and to determine
the rights, preferences and restrictions of such shares, without further
stockholder approval. The rights of holders of Common Stock will be subject to,
and may be adversely affected by, the rights of the holders of any Preferred
Stock that may be issued in the future. The issuance of Preferred Stock may have
the effect of delaying or preventing a change in control of the Company. In
addition, certain provisions of the Company's Certificate of Incorporation and
Bylaws and of Delaware law could discourage potential acquisition proposals and
could delay or prevent a change in control of the Company. Such provisions could
diminish the opportunities for a stockholder to participate in tender offers,
including tender offers at a price above the then-current market value of the
Common Stock. See "Description of Capital Stock."
12
<PAGE>
S CORPORATION DISTRIBUTIONS
From June 28, 1992 until the Reorganization, Track 'n Trail-California has
been and will be treated for federal and certain state 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 certain states. As a result,
the earnings of Track 'n Trail-California from June 28, 1992 through the date
preceding the date of termination of Track 'n Trail-California's S corporation
status (the "Termination Date") have been and will be taxed, with certain
exceptions, for federal and state income tax purposes directly to the
stockholders of Track 'n Trail-California rather than to Track 'n
Trail-California. On the Termination Date, which will occur prior to the
effectiveness of the Registration Statement of which this Prospectus is a part,
Track 'n Trail-California will be treated for federal and state income tax
purposes as a corporation under Subchapter C of the Code and, as a result, will
become subject to state and federal income taxes. See Note 14 of Notes to
Consolidated Financial Statements.
STOCKHOLDER DISTRIBUTIONS
Track 'n Trail-California has historically paid distributions to its
stockholders to enable them to pay their income tax liabilities as a result of
Track 'n Trail-California's status as an S corporation and, from time to time,
to distribute previously undistributed accumulated S corporation earnings.
During fiscal 1994, fiscal 1995 and fiscal 1996, Track 'n Trail-California made
S corporation distributions to stockholders of $1.7 million, $376,000 and $3.1
million, respectively. In addition, through June 28, 1997 Track 'n Trail-
California had made distributions of $2.2 million to stockholders in fiscal
1997.
Prior to the Reorganization, Track 'n Trail-California, the Existing
Stockholders and a predecessor in interest thereto intend to enter into an
Agreement for Distribution of Accumulated Adjustments Account and Tax
Indemnification (the "Distribution and Tax Agreement"). Pursuant to the
Distribution and Tax Agreement, Track 'n Trail-California will declare to the
Existing Stockholders, as the sole stockholders of record on a date prior to the
Termination Date, the $6.4 million Distribution which is designed to constitute
substantially all of Track 'n Trail-California's remaining undistributed
accumulated S corporation earnings. The Distribution will be paid in cash and
will be funded from a portion of the net proceeds to the Company of the
Offering. Purchasers of Common Stock in the Offering will not receive any
portion of the Distribution. Under certain circumstances, the Company may make
payments to the Existing Stockholders or the predecessor in interest to satisfy
certain tax liabilities with respect to pre-Reorganization tax periods resulting
from adjustments to the Company's tax returns. In addition, under certain
circumstances, the Existing Stockholders or the predecessor in interest may make
payments to the Company to satisfy any tax liabilities (i) resulting from an
unexpected pre-Reorganization loss of S corporation status and/or (ii) with
respect to post-Reorganization taxable periods for which the Existing
Stockholders or the predecessor in interest receive a tax benefit, provided that
the indemnity provided by the Existing Stockholders will be 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
Upon the Termination Date, deferred income taxes representing the tax effect
of differences between the Company's financial statement and tax bases in
certain assets and liabilities will be recorded as an asset of the Company on
its consolidated balance sheet, with a corresponding non-recurring decrease in
the Company's tax expense in its consolidated statement of operations. The
amount of the non-recurring decrease in tax expense will depend on a number of
factors, including the actual date of the Reorganization and the timing and
nature of transactions with differing treatment for tax and financial statement
purposes. If the Termination Date had been June 28, 1997, the non-recurring
decrease in tax expense would have been approximately $1.1 million. Management
expects the amount of the non-recurring decrease in tax expense at the
Termination Date to approximate this amount.
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<PAGE>
Additionally, income or loss during the period preceding the Termination
Date will be taxed to the Existing Stockholders, which may affect the Company's
effective tax rate for fiscal 1997. Consequently, management anticipates that
the effective tax rate for fiscal 1997, before considering the non-recurring
reduction upon conversion from an S corporation to a C corporation, will be less
than the combined federal and state statutory tax rate.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,727,272 shares of
Common Stock being offered by the Company are estimated to be $26.5 million,
assuming an initial public offering price of $11.00 per share (the midpoint of
the Offering range) and after deducting estimated underwriting discounts and
commissions and Offering expenses.
The Company intends to use its net proceeds from the Offering (i) to repay
all outstanding indebtedness under its Revolving Loan Agreement, which
aggregated approximately $11.1 million as of June 28, 1997, all of which bore
interest at the prime rate (8.50% per annum, as of June 28, 1997) plus 0.5% per
annum, (ii) to repay indebtedness under a secured loan agreement (the "Merrill
Lynch Loan"), which aggregated $867,000 at June 28, 1997 and bore interest at
the 30-day commercial paper rate (5.55% per annum at June 28, 1997) plus 2.95%
per annum, (iii) to repay in full approximately $3.2 million in Seller Notes and
the $3.5 million Subordinated Note, all of which presently bear interest at
10.0% per annum, and (iv) to fund the payment of the $6.4 million Distribution
to the Existing Stockholders. See "S Corporation Distributions." Effective March
31, 1997, the interest rate on the term loan portion of the Revolving Loan
Agreement was amended to the London Inter-Bank Offered Rate (5.69% at June 28,
1997) plus 3.0% or the bank reference rate (8.50% per annum, as of June 28,
1997) plus 0.5% per annum, at the Company's option. Additionally, on July 3,
1997, a second amendment to the Revolving Loan Agreement occurred which allowed
for an additional $1.0 million to be borrowed against the revolving line of
credit. All borrowings against the additional $1.0 million of available
borrowings are due and payable on the earlier of September 30, 1997 or the
consummation of the Offering. The Company anticipates that the outstanding
balance under the Revolving Loan Agreement will be approximately $11.4 million
immediately prior to the closing of the Offering. The balance of the net
proceeds from the Offering will be used for general corporate purposes,
including new store expansion and possible acquisitions of businesses that
complement that of the Company. No such acquisitions are being negotiated as of
the date of this Prospectus. Pending such uses, the Company intends to invest
its net proceeds from the Offering in short-term, investment-grade,
interest-bearing instruments.
DIVIDEND POLICY
Following the Offering, the Company currently intends to retain its
earnings, if any, for the development of its business and therefore does not
anticipate paying any dividends in the foreseeable future. Historically, Track
'n Trail-California made certain distributions to its stockholders as a result
of its status as an S corporation. See "S Corporation Distributions" and Note 1
and Note 6 of Notes to Consolidated Financial Statements.
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<PAGE>
DILUTION
The actual net tangible book value of the Company as of June 28, 1997 was
$3.6 million, or $0.87 per share. Net tangible book value per share represents
the amount of total tangible assets less total liabilities, divided by the
number of shares of Common Stock outstanding. After giving effect to the
Distribution, the Reorganization and the vesting of certain stock options upon
the closing of the Offering (including the associated compensation expense and
tax effects), the pro forma net tangible book deficit of the Company at June 28,
1997 would have been $3.0 million or $0.74 per share. After giving effect to the
sale of the shares of Common Stock offered by the Company hereby at an assumed
initial public offering price of $11.00 per share (the midpoint of the Offering
range) and after deduction of estimated underwriting discounts and commissions
and Offering expenses, the pro forma net tangible book value of the Company at
June 28, 1997 would have been $24.3 million, or $3.55 per share. This represents
an immediate increase in such net tangible book value of $4.29 per share to the
Existing Stockholders and an immediate dilution of $7.45 per share to new
investors purchasing shares in the Offering. Net tangible book value dilution
per share represents the difference between the amount per share paid by new
investors purchasing shares of Common Stock in the Offering and the pro forma
net tangible book value per share of Common Stock immediately after the
completion of the Offering. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price........................................... $11.00
Actual net tangible book value before the Offering............................ $ 0.87
Pro forma adjustment.......................................................... (1.61)
------
Pro forma net tangible book value (deficit) before the Offering............... (0.74)
Increase attributable to new investors........................................ 4.29
------
Pro forma net tangible book value after the Offering............................ 3.55
------
Dilution to new investors....................................................... $ 7.45
------
------
</TABLE>
The following table summarizes, on a pro forma basis as of June 28, 1997,
the differences between the Existing Stockholders and new investors with respect
to the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company, and the average consideration paid per share,
based upon an assumed initial public offering price of $11.00 per share (the
midpoint of the Offering range), and before deduction of estimated underwriting
discounts and commissions and Offering expenses payable by the Company:
<TABLE>
<CAPTION>
SHARES
PURCHASED(1) TOTAL CONSIDERATION
------------------ -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders....................................... 4,107,608 60.1% $ 773,230(2) 2.51% $ 0.19
New investors............................................... 2,727,272 39.9% 29,999,992 97.49% 11.00
--------- ------- ----------- -------
Total................................................... 6,834,880 100% $30,773,222 100%
--------- ------- ----------- -------
--------- ------- ----------- -------
</TABLE>
- ------------------------
(1) If the Underwriters' Over-allotment Option is exercised in full, the number
of shares held by new investors would increase to 3,136,362, or
approximately 45.9%, of the total number of shares of Common Stock
outstanding after the Offering.
(2) Excludes all undistributed accumulated S corporation earnings, substantially
all of which are assumed to be distributed prior to the closing of the
Offering.
The foregoing table assumes no exercise of any outstanding stock options. At
June 28, 1997, there were outstanding options to purchase an aggregate of
851,786 shares of Common Stock at a weighted average exercise price of $2.36 per
share. In August 1997, options to purchase 20,127 shares were terminated,
leaving options to purchase 831,659 shares of Common Stock currently outstanding
at a weighted average exercise price of $2.32 per share. All of these options
will become exercisable upon the consummation of the Offering. To the extent
these options are exercised, there will be further dilution to new investors.
See "Management--Stock Option Plan" and Note 5 of Notes to Consolidated
Financial Statements.
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<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
Company (i) as of June 28, 1997, (ii) on a pro forma basis after giving effect
to (a) a nonrecurring reduction in tax expense in connection with the
termination of Track 'n Trail-California's S corporation status, (b) $215,000 of
S corporation distributions made or to be made subsequent to June 28, 1997, and
(c) the $6.4 million Distribution of previously undistributed accumulated S
corporation earnings to the Existing Stockholders, and (iii) pro forma as
adjusted to give effect to (a) the sale of the 2,727,272 shares of Common Stock
being offered by the Company at an assumed initial public offering price of
$11.00 per share (the midpoint of the Offering range) and the application of the
estimated net proceeds therefrom as set forth under "Use of Proceeds" and (b)
the vesting of certain stock options upon the closing of the Offering, including
the associated compensation expense of $59,000 and related tax effects.
<TABLE>
<CAPTION>
JUNE 28, 1997
----------------------------------------
REORGANIZATION
REORGANIZATION PRO FORMA AS
ACTUAL PRO FORMA ADJUSTED(6)
------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revolving line of credit(1)(2).......................................................... $ 8,740 $ 8,955(4) $--
------- ------- -------
------- ------- -------
Long-term debt, current portion(1)...................................................... $ 2,742 $ 2,742 $ 142
------- ------- -------
------- ------- -------
Distributions payable................................................................... $ -- $ 6,400(4) $--
------- ------- -------
------- ------- -------
Subordinated Note....................................................................... $ 3,500 $ 3,500 $--
Seller Notes............................................................................ 3,157 3,157 --
Other long-term debt.................................................................... 855 855 188
------- ------- -------
Total long-term debt, net of current portion(2)......................................... 7,511 7,511 188
------- ------- -------
Stockholders' equity:
Preferred Stock, $.01 par value; 2,000,000 shares authorized; no shares issued and
outstanding......................................................................... -- -- --
Common Stock, $.01 par value; 20,000,000 shares authorized; 4,107,608 shares issued
and outstanding actual and pro forma; 6,834,880 shares issued and outstanding pro
forma as adjusted(3)................................................................ 41 41 68
Additional paid-in capital.............................................................. 732 732 27,264
Retained earnings....................................................................... 7,441 1,928(4)(5) 1,893
------- ------- -------
Total stockholders' equity.............................................................. 8,214 2,701 29,225
------- ------- -------
Total capitalization.................................................................... $15,725 $10,212 $29,413
------- ------- -------
------- ------- -------
</TABLE>
- ------------------------
(1) At June 28, 1997, the $11.1 million balance under the Revolving Loan
Agreement consisted of $8.7 million under the revolving line of credit and
$2.4 million under the term loan, which is included in the table under
long-term debt, current portion.
(2) See Note 4 of Notes to Consolidated Financial Statements for a description
of the Company's long-term debt and revolving line of credit.
(3) Shares issued and outstanding excludes 905,735 shares of Common Stock
reserved for issuance and available for grant or sale under the Company's
Stock Option Plan at June 28, 1997, under which there were options
outstanding to purchase an aggregate of 851,786 shares of Common Stock as of
June 28, 1997. Upon completion of the Offering, 1,055,735 shares of Common
Stock will be reserved for issuance under such plan. Also excludes 123,983
shares of Common Stock issuable pursuant to the exercise of warrants. See
"Management--Stock Option Plan," "Description of Capital Stock-- Warrants"
and Notes 5 and 13 of Notes to Consolidated Financial Statements.
16
<PAGE>
(4) Gives effect to $215,000 of S corporation distributions made or to be made
subsequent to June 28, 1997, all to the Existing Stockholders, assuming such
distributions were made from borrowings available under the Company's
revolving line of credit. Also gives effect to the $6.4 million Distribution
to the Existing Stockholders.
(5) Gives effect to $1.1 million of nonrecurring deferred tax assets to be
recorded in connection with the Reorganization.
(6) Reflects assumed net proceeds of approximately $26.5 million from the sale
by the Company of 2,727,272 shares of Common Stock in the Offering at an
assumed initial public offering price of $11.00 per share (the midpoint of
the Offering range), net of estimated underwriting discounts and Offering
expenses, and reflects the repayment of the revolving line of credit
assuming that approximately $215,000 in S corporation distributions will be
made subsequent to June 28, 1997 and the payment of the Distribution to the
Existing Stockholders of $6.4 million. Also reflects a non-cash compensation
charge of $59,000, subject to a tax effect of $24,000, relating to options
that will vest upon the Offering and will be expensed at that time. This
charge results in a net reduction in retained earnings of $35,000, which is
more than offset by a $59,000 increase in additional paid-in capital.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(dollars in thousands, except per share and per square foot amounts and store
operating data)
The selected consolidated financial information set forth below under the
captions "Statement of Operations Data" and "Balance Sheet Data" has been
derived from the Company's financial statements. The consolidated financial
statements as of December 30, 1995 and December 28, 1996, and for the fiscal
years then ended and the independent auditors' reports of Coopers & Lybrand
L.L.P. thereon, are included elsewhere in this Prospectus. The financial
statements for the fiscal year ended December 31, 1994 and the independent
auditors' report thereon of Deloitte & Touche LLP are included elsewhere in this
Prospectus. Unaudited consolidated financial statements as of June 28, 1997 and
for the 26-week periods ended June 29, 1996 and June 28, 1997 are included
elsewhere in this Prospectus. The selected consolidated financial data set forth
below under the caption "Statement of Operations Data" as of and for the fiscal
periods ended June 27, 1992, December 26, 1992, December 25, 1993 and under the
caption "Balance Sheet Data" as of December 31, 1994 are derived from audited
financial statements not included herein. In the opinion of management, the
unaudited consolidated financial information for the 26-week periods ended June
29, 1996 and June 28, 1997 has been prepared on the same basis as the audited
information and includes all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the information set forth therein. The
statement of operations data for the 26-week period ended June 28, 1997 are not
necessarily indicative of the results of operations that may be expected for the
full fiscal year. The information for all periods set forth below under the
captions "Pro Forma Statement of Operations Data" and "Selected Store Operating
Data" is derived from unaudited data. The data set forth below are qualified by,
and should be read in conjunction with, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements and related notes included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
26 WEEKS 26 WEEKS ENDED
ENDED FISCAL --------------------
FISCAL DECEMBER 26, ------------------------------------ JUNE 29, JUNE 28,
1992 1992(1) 1993 1994(2) 1995 1996 1996(1) 1997(1)
------- ------------ ------- ------- ------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................... $38,181 $22,762 $41,858 $48,165 $50,691 $ 66,233 $23,286 $ 37,528
Cost of sales........................... 19,906 12,027 21,902 25,079 26,192 34,062 12,020 19,413
------- ------------ ------- ------- ------- --------- -------- ---------
Gross profit............................ 18,275 10,735 19,955 23,085 24,499 32,171 11,266 18,115
Selling and marketing expense........... 12,150 6,633 13,076 14,975 16,852 21,059 8,791 14,527
Administrative and distribution
expense............................... 3,637 2,104 4,656 4,935 4,826 5,508 2,316 3,444
------- ------------ ------- ------- ------- --------- -------- ---------
Operating income (loss)................. 2,488 1,998 2,224 3,175 2,821 5,603 158 143
Interest expense........................ 386 166 330 324 435 670 240 730
Other expense (income).................. 76 335 56 38 (40) (24) (11) 21
------- ------------ ------- ------- ------- --------- -------- ---------
Income (loss) before income taxes and
minority interest..................... 2,027 1,497 1,838 2,814 2,427 4,957 (71) (608)
Income tax expense (benefit)............ 825 45 55 67 41 488 (2) (373)(3)
Minority interest....................... -- -- -- -- -- 105 -- --
------- ------------ ------- ------- ------- --------- -------- ---------
Net income (loss)....................... $1,202 $ 1,452 $ 1,783 $2,747 $ 2,386 $ 4,364 $ (69) $ (236)
------- ------------ ------- ------- ------- --------- -------- ---------
------- ------------ ------- ------- ------- --------- -------- ---------
PRO FORMA STATEMENT OF OPERATIONS
DATA(4):
Historical income (loss) before income
taxes and minority interest........... $ 1,497 $ 1,838 $2,814 $ 2,427 $ 4,957 $ (71) $ (608)
Pro forma income tax expense
(benefit)............................. 599 735 1,125 971 1,983 (28) (243)
Minority interest....................... -- -- -- -- 105 -- --
------------ ------- ------- ------- --------- -------- ---------
Pro forma net income (loss)............. $ 898 $ 1,103 $1,688 $ 1,456 $ 2,869 $ (43) $ (365)
------------ ------- ------- ------- --------- -------- ---------
------------ ------- ------- ------- --------- -------- ---------
Pro forma net income (loss) per share... $ 0.52 $ (0.07)
--------- ---------
--------- ---------
Common and common equivalent shares used
in computing per share amounts(5)..... 5,557,867 5,329,247
SELECTED STORE OPERATING DATA:
Store contribution(6)................... $6,125 $ 4,102 $ 6,880 $8,110 $ 7,647 $ 11,111 $ 2,474 $ 3,587
Number of stores:
Opened or acquired during period...... 2 1 9 9 12 51(7) 8 6
Closed during period.................. -- -- 2 4 4 5 5 --
Open at end of period................. 61 62 69 74 82 128 85 134
Total weighted average square feet(8)... 110,147 110,732 114,813 130,542 144,612 168,966 151,775 228,656
Average square feet per store........... 1,792 1,792 1,851 1,894 1,873 1,744 1,861 1,758
Weighted average net sales per square
foot(9)............................... $ 347 $ 206 $ 365 $ 369 $ 351 $ 392 $ 153 $ 164
Increase (decrease) in comparable store
net sales(10)......................... 2.0 % 2.5% 4.1% 0.6 % (1.4)% 3.1% 3.1% 2.5%
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
AS OF
---------------------------------------------------------------------------------------------------
JUNE 27, DECEMBER 26, DECEMBER 25, DECEMBER 31, DECEMBER 30, DECEMBER 28, JUNE 28,
1992 1992(1) 1993 1994 1995 1996(1) 1997(1)
----------- ------------- ------------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............... $ 3,182 $ 3,527 $ 5,695 $ 5,742 $ 6,710 $ 9,430 $ 5,870
Total assets.................. 12,478 13,537 15,409 15,630 17,050 31,858 38,303
Total debt.................... 4,604 3,722 3,633 2,396 2,734 10,765 18,993
Stockholders' equity.......... 4,754 5,233 5,650 6,349 7,648 10,646 8,214
</TABLE>
- ------------------------------
(1) Effective June 28, 1992, the Company changed its fiscal year end from the
last Saturday in June to the last Saturday in December. Results for the
26-week period ended December 26, 1992 and for the 26-week periods ended
June 29, 1996 and June 28, 1997 are not indicative of full calendar year
results, as the second half of the year includes the Company's strongest
selling season.
(2) Fiscal 1994 consisted of 53 weeks. All other fiscal years presented
consisted of 52 weeks. During the 53rd week of fiscal 1994, the Company
generated $1.2 million in net sales. As a result, the Company's operating
results in fiscal 1994 are not comparable to its results in any other fiscal
year presented. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(3) The net loss for the 26 weeks ended June 28, 1997 has been computed based
upon a tax expense or benefit for Track 'n Trail-California as an S
corporation for federal tax and state tax purposes in certain states and as
a C corporation in certain other states, including California, the state in
which the Company has its headquarters and its highest concentration of
store locations. If California and certain other states adopt tax
legislation by the end of 1997 which retroactively conforms to federal law
regarding S corporation tax status, the Company will be taxed for all of
1997 as an S corporation in those states. The effect of such state tax
legislation would be to reduce the Company's tax benefit and increase its
net loss for the 26 weeks ended June 28, 1997 by approximately $111,000. See
Note 9 of Notes to Consolidated Financial Statements.
(4) Includes, for the 26 weeks ended December 26, 1992, for fiscal 1993, 1994,
1995 and 1996, and for the 26-week periods ended June 29, 1996 and June 28,
1997, pro forma provision for income taxes using an assumed combined federal
and state tax rate of 40.0%, which the Company believes approximates the
statutory federal and state income tax rates that would have been applied
had Track 'n Trail-California been taxed as a C corporation. Commencing June
28, 1992, Track 'n Trail-California has operated as an S corporation and has
not been subject to federal and certain state income taxes. The Company's
earnings during such periods have been taxed directly to the Company's
stockholders, rather than to the Company. In connection with the
Reorganization and the Offering, the S corporation election of Track 'n
Trail-California and the Company, respectively, will be terminated under
circumstances under which income to be reported by the Company and Track 'n
Trail-California for their respective terminated S corporation taxable years
will be determined utilizing a "closing of the books" method.
(5) Shares outstanding include 669,240 shares issuable upon exercise of stock
options outstanding at December 28, 1996 and June 28, 1997, after applying
the treasury stock method assuming an initial public offering price of
$11.00 per share (the midpoint of the Offering range). The pro forma common
and common equivalent shares also give effect to the sale by the Company of
only those shares of Common Stock necessary to fund the payment of the
excess of (i) the sum of stockholder distributions during the previous
12-month period (during fiscal 1996 for the determination of shares
outstanding for fiscal 1996, and during the 12 months ended June 28, 1997
for the determination of shares outstanding for the 26 weeks ended June 28,
1997) and distributions thereafter until the Reorganization over (ii) the S
corporation earnings in the previous 12-month period, assuming that such
shares are sold at an initial public offering price of $11.00 per share (the
midpoint of the Offering range), net of estimated underwriting discounts and
Offering expenses. See "Capitalization," "Management--Stock Option Plan" and
"Pro Forma Condensed Consolidated Financial Information."
(6) Store contribution refers to gross profit after deducting selling and
marketing expenses. Store contribution is presented to provide additional
information about the Company and is commonly used as a performance
measurement by retail companies. Store contribution should not be considered
in isolation or as a substitute for operating income, cash flow from
operating activities and other income or cash flow data prepared in
accordance with generally accepted accounting principles, or as a measure of
the Company's profitability or liquidity.
(7) On October 25, 1996, the Company acquired 33 Overland Trading stores. The
Company opened one additional Overland Trading store in November 1996
pursuant to a commitment previously entered into by Overland.
(8) Weighted to reflect store openings and closings during each period, assuming
that all periods presented consisted of 52 weeks (except for the 26-week
periods ended June 29, 1996 and June 28, 1997).
(9) Weighted average net sales for the 26 weeks ended December 26, 1992 reflect
only sales for that 26-week period. Weighted average net sales for fiscal
1994 have been adjusted as if such year consisted of 52 weeks.
(10) Comparable store net sales include only those stores that were open both
for the full fiscal period and for the full prior fiscal period. The fiscal
1994 and 1995 increases have been calculated by comparing net sales in such
years to net sales for the prior 53 and 52 weeks, respectively. The
increases for fiscal 1996 and for the 26 weeks ended June 28, 1997 exclude
the Overland Trading stores acquired in October 1996. If such stores had
been included in the Company's comparable store net sales comparison since
the acquisition, the change in comparable store net sales for fiscal 1996
and for the 26 weeks ended June 28, 1997 would have been 2.4% and (0.3%),
respectively.
19
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
The following Pro Forma Condensed Consolidated Financial Information should
be read in conjunction with the historical consolidated financial statements and
the notes thereto included elsewhere in this Prospectus. The Pro Forma Condensed
Consolidated Financial Information:
(i) Reflects the Reorganization and the Company's resulting conversion from
S corporation status to C corporation status; and
(ii) Is adjusted for the sale of the shares of Common Stock offered by the
Company hereby at an assumed initial public offering price of $11.00 per share
(the midpoint of the Offering range), the application of the estimated net
proceeds therefrom as described in "Use of Proceeds" and certain events intended
or mandated to occur in connection with the Offering.
The Pro Forma Condensed Consolidated Statement of Operations for the year
ended December 28, 1996 reflects financial information with respect to the
Company's acquisition in (a) October 1996 of 79.0% of Overland's common stock
and (b) January 1997 of the remaining Overland common stock (the "Minority
Interest") from certain of the Company's stockholders (the "Minority Interest
Acquisition" and, collectively with the Company's acquisition of 79.0% of
Overland, the "Acquisition"), which has been accounted for under the purchase
method of accounting. The Pro Forma Condensed Consolidated Statement of
Operations for the year ended December 28, 1996 was prepared as if the
Acquisition, the Reorganization and the Offering occurred on December 31, 1995,
the first day of fiscal 1996. The Pro Forma Condensed Consolidated Statement of
Operations for the 26-week period ended June 28, 1997 was prepared as if the
Reorganization and the Offering occurred on December 29, 1996, the first day of
fiscal 1997. The Pro Forma Condensed Consolidated Balance Sheet was prepared as
if the Reorganization and the Offering occurred on June 28, 1997. As there were
no material differences, no pro forma adjustments to the Pro Forma Condensed
Consolidated Statement of Operations for the 26 weeks ended June 28, 1997 were
necessary to record the Minority Interest Acquisition, which occurred on January
1, 1997, as if it had occurred on December 29, 1996.
The Pro Forma Condensed Consolidated Statements of Operations for fiscal
1996 and for the 26-week period ended June 28, 1997 do not include any potential
operational cost savings other than the elimination of consulting agreements
with former Overland stockholders which will terminate by their contractual
terms upon the closing of the Offering. The Company believes that it may be able
to further reduce operational costs as it consolidates the Overland operations
into the Company. There can be no assurance that the Company will be successful
in effecting any such cost savings.
The Pro Forma Condensed Consolidated Financial Information is unaudited and
is not necessarily indicative of the consolidated financial position and results
which actually would have occurred if the Acquisition, the Reorganization and
the Offering had been consummated as of the dates presented, nor does it purport
to present the financial position or results of operations of the Company for
future periods.
20
<PAGE>
TRACK 'N TRAIL
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 28, 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
REORGANIZATION REORGANIZATION
PRO FORMA REORGANIZATION OFFERING PRO FORMA AS
COMPANY HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS ADJUSTED
------------------ -------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets.................................. $ 27,031 $ 662(1) $ 27,693 $ 1,724(4) $ 29,417
Noncurrent assets............................... 11,272 440(1) 11,712 24(5) 10,889
(847)(4)
------- ------- ------- ------------- -------
Total assets................................ $ 38,303 $ 1,102 $ 39,405 $ 901 $ 40,306
------- ------- ------- ------------- -------
------- ------- ------- ------------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities............................. $ 21,162 $ 215(2) $ 27,777 $ (18,300)(4) $ 9,477
6,400(3)
Noncurrent liabilities.......................... 8,927 8,927 (7,323)(4) 1,604
------- ------- ------- ------------- -------
Total liabilities........................... 30,089 6,615 36,704 (25,623) 11,081
------- ------- ------- ------------- -------
Stockholders' equity:
Common stock.................................. 41 41 27(4) 68
Paid-in capital............................... 732 732 26,473(4) 27,264
59(5)
Retained earnings............................. 7,441 1,102(1) 1,928 (35)(5) 1,893
(215)(2)
(6,400)(3)
------- ------- ------- ------------- -------
Total stockholders' equity.................. 8,214 (5,513) 2,701 26,524 29,225
------- ------- ------- ------------- -------
Total liabilities and stockholders' $ 1,102
equity.................................. $ 38,303 $ 39,405 $ 901 $ 40,306
------- ------- ------- ------------- -------
------- ------- ------- ------------- -------
</TABLE>
21
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 28, 1997
(UNAUDITED)
(1) To give effect to $1.1 million of deferred tax assets arising from the
conversion of the Company from an S corporation to a C corporation. Such
deferred tax assets relate to temporary differences in the basis of assets
and liabilities for tax and accounting purposes.
(2) To reflect $215,000 of S corporation distributions made or to be made
subsequent to June 28, 1997 and before the Reorganization.
(3) To give effect to the declaration of the $6.4 million Distribution, which is
designed to constitute substantially all remaining undistributed accumulated
S corporation earnings of Track 'n Trail-California immediately prior to the
Reorganization.
(4) To reflect assumed net proceeds from the sale by the Company of 2,727,272
shares of Common Stock in the Offering at an assumed initial public offering
price of $11.00 per share (the midpoint of the Offering range), net of
estimated underwriting discounts and offering expenses of approximately $3.5
million, and the payment of the Distribution and the repayment of
indebtedness as described under "Use of Proceeds."
(5) To give effect to changes in deferred taxes, retained earnings and
additional paid-in capital with respect to stock options that will vest upon
the Offering in accordance with the terms of the Stock Option Plan. The
total compensation in connection with the options at the time of grant was
$170,000, of which $103,000 and $8,000 were recorded as expense in fiscal
1996 and in the 26-week period ended June 28, 1997, respectively. The
remaining $59,000 relates to options that will vest upon the Offering and
will be expensed at that time. The non-cash compensation charge of $59,000,
subject to a tax effect of $24,000, results in a net reduction in retained
earnings of $35,000. This net reduction is more than offset by a $59,000
increase in additional paid-in capital. The tax effect of $24,000 is
recorded as a deferred tax asset.
22
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWENTY-SIX WEEKS ENDED JUNE 28, 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
OFFERING PRO OFFERING AND
COMPANY REORGANIZATION REORGANIZATION FORMA REORGANIZATION
HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
---------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.............................. $ 37,528 $ $ 37,528 $ $ 37,528
Cost of sales.......................... 19,413 19,413 19,413
---------- ------- -------------- ----- --------------
Gross profit........................... 18,115 18,115 18,115
---------- ------- -------------- ----- --------------
Selling and marketing expenses......... 14,527 14,527 14,527
Administration and distribution
expenses.............................. 3,444 3,444 (140)(3) 3,363
59(4)
---------- ------- -------------- ----- --------------
Total operating expenses............... 17,972 17,972 (81) 17,891
---------- ------- -------------- ----- --------------
Operating income (loss)................ 143 143 81 224
Other (income) expense:
Interest expense..................... 730 730 (710)(5) 20
Other, net........................... 21 21 21
---------- ------- -------------- ----- --------------
Income (loss) before income taxes...... (608) (608) 791 183
Income tax provision (benefit)......... (373) (1,102)(1) (1,458) 316(6) (1,142)
17(2)
---------- ------- -------------- ----- --------------
Net income (loss)...................... $ (236) $ 1,085 $ 850 $ 475 $ 1,325
---------- ------- -------------- ----- --------------
---------- ------- -------------- ----- --------------
PRO FORMA STATEMENT OF OPERATIONS
DATA(7):
Historical income (loss) before income
taxes................................. $ (608) $ (608) $ 183
Pro forma income tax provision
(benefit)............................. (243) (243) 73
---------- -------------- --------------
Pro forma net income (loss)............ $ (365) $ (365) $ 110
---------- -------------- --------------
---------- -------------- --------------
Pro forma net income (loss) per
share(8).............................. $ (0.07) $ (0.07) $ 0.02
---------- -------------- --------------
---------- -------------- --------------
Pro forma weighted average number of
common and common equivalent
shares(9)............................. 5,329,247 5,329,247 6,888,570
</TABLE>
23
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE 26-WEEK PERIOD ENDED JUNE 28, 1997
(UNAUDITED)
(1) To give effect to a nonrecurring reduction in tax expense resulting from the
conversion of Track 'n Trail-California from an S corporation to a C
corporation upon the Reorganization which is associated with the recording
of deferred tax assets due to temporary differences in the basis of assets
and liabilities for tax and financial statement purposes. See Note 14 of
Notes to Consolidated Financial Statements.
(2) To reflect an effective tax rate of 40.0%, representing management's
estimate of the effective tax rate had Track 'n Trail-California been a C
corporation for the period presented. Overland was a C corporation for the
entire period presented.
(3) To eliminate payments under consulting agreements with certain former owners
of Overland common stock that, by the terms of the agreements, terminate
upon the closing of the Offering, as if the Offering had occurred on
December 29, 1996, the first day of fiscal 1997.
(4) To record a non-cash compensation expense resulting from the vesting of
stock options as a result of the Offering in accordance with the terms of
the Stock Option Plan. The total compensation expense in connection with the
options at the date of grant was $170,000, less the portion that was
recorded as expense through June 28, 1997 of $111,000. See Note 14 of Notes
to Consolidated Financial Statements.
(5) To eliminate interest expense of $158,000, $175,000 and $377,000 associated
with the Seller Notes, the Subordinated Note and other indebtedness,
respectively, all of which will be repaid from the net proceeds of the
Offering as described under "Use of Proceeds."
(6) To record income taxes on pro forma adjustments to administrative and
distribution expense due to the elimination of payments under consulting
agreements, the vesting of stock options and the elimination of certain
interest expense, as described in footnotes 3, 4 and 5 above. Income taxes
on such pro forma adjustments were computed at 40.0%, representing
management's estimate of the effective rate had Track 'n Trail-California
been a C corporation for the 26 weeks ended June 28, 1997.
(7) Reflects an effective tax rate of 40.0%, representing management's estimate
of the effective tax rate had Track 'n Trail-California been a C corporation
for the period presented. Overland was a C corporation for the entire period
presented. The pro forma income tax provision reflects the tax provisions
that would have been recorded if Track 'n Trail-California had been a C
corporation throughout the 26-week period ended June 28, 1997 and,
accordingly, eliminates the $1.1 million nonrecurring reduction in income
tax expense resulting from the conversion of Track 'n Trail-California from
an S corporation to a C corporation. See Note 14 of Notes to Consolidated
Financial Statements.
(8) Pro forma net income (loss) per share has been computed by dividing pro
forma net income (loss) by the weighted average number of common and common
equivalent shares outstanding using the treasury stock method and an assumed
initial public offering price of $11.00 per share (the midpoint of the
Offering range), net of underwriting discounts and estimated Offering
expenses, after giving retroactive effect to (i) a change in the number of
outstanding shares effected by the Reorganization, (ii) the common stock
options issued during the 12-month period preceding the Offering computed
under the treasury stock method and (iii) the number of shares of Common
Stock being sold in the Offering, at an assumed offering price, the proceeds
of which would be necessary to pay the excess of S corporation distributions
during the 12-month period ended June 28, 1997 and thereafter until the
Reorganization over S corporation earnings during the 12-month period ended
June 28, 1997.
(9) The pro forma common and common equivalent shares give effect to the sale by
the Company, in addition to those shares described in footnote 8 above, of
only that number of offered shares of Common Stock, the proceeds (net of
underwriting discounts and estimated Offering expenses) of which would be
necessary to fund the repayment of indebtedness as described in "Use of
Proceeds," assuming that such shares are sold at an initial public offering
price of $11.00 per share (the midpoint of the Offering range). The amount
of indebtedness assumed to be outstanding for the purpose of calculating the
pro forma number of common and common equivalent shares outstanding is equal
to the weighted average indebtedness assumed to have been outstanding had
the Reorganization occurred on December 29, 1996, the first day of the 1997
fiscal year.
24
<PAGE>
TRACK 'N TRAIL
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 28, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
OVERLAND
TEN MONTHS REORGANIZATION
ENDED ACQUISITION ACQUISITION AND
TRACK 'N OCTOBER 25, PRO FORMA PRO FORMA REORGANIZATION ACQUISITION
TRAIL 1996 ADJUSTMENTS COMBINED ADJUSTMENTS PRO FORMA
--------- ----------- -------------- ----------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales....................... $ 66,233 $ 17,953 $ $ 84,186 $ $ 84,186
Cost of sales................... 34,062 10,398 44,460 44,460
--------- ----------- ----- ----------- ------- --------------
Gross profit.................... 32,171 7,555 39,726 39,726
--------- ----------- ----- ----------- ------- --------------
Selling and marketing
expenses....................... 21,060 6,216 27,276 27,276
Administrative and distribution 143(1)
expenses....................... 5,508 1,655 (32)(2) 7,274 7,274
--------- ----------- ----- ----------- ------- --------------
Total operating expenses........ 26,568 7,871 111 34,550 34,550
--------- ----------- ----- ----------- ------- --------------
Operating income (loss)......... 5,603 (316) (111) 5,176 5,176
Other (income) expense:
Interest expense.............. 670 232 552(3) 1,425 1,425
(29)(4)
Other, net.................... (24) 32 8 8
--------- ----------- ----- ----------- ------- --------------
Income (loss) before income
taxes and minority interest.... 4,957 (580) (634) 3,743 3,743
Income tax provision (1,134)(7)
(benefit)...................... 488 (232) (89)(5) 167 1,330(8) 363
--------- ----------- ----- ----------- ------- --------------
Income before minority
interest....................... 4,469 (348) (545) 3,576 (196) 3,380
Minority interest............... 105 (105)(6) 0
--------- ----------- ----- ----------- ------- --------------
Net income (loss)............... $ 4,364 $ (348) $ (440) $ 3,576 $ (196) $ 3,380
--------- ----------- ----- ----------- ------- --------------
--------- ----------- ----- ----------- ------- --------------
PRO FORMA STATEMENT OF
OPERATIONS DATA(13):
Historical income before income
taxes and minority interest.... $ 4,957 $ 3,743 $ 3,743
Pro forma income tax
provision...................... 1,983 1,497 1,497
--------- ----------- --------------
Pro forma income before minority
interest....................... 2,974 2,246 2,246
Minority interest............... 105
--------- ----------- --------------
Pro forma net income............ $ 2,869 $ 2,246 $ 2,246
--------- ----------- --------------
--------- ----------- --------------
Pro forma net income per
share(14)...................... $ 0.52 $ 0.40 $ 0.40
--------- ----------- --------------
--------- ----------- --------------
Pro forma weighted average
number of common and common
equivalent shares(15).......... 5,557,867 5,557,867 5,557,867
<CAPTION>
OFFERING,
REORGANIZATION
OFFERING PRO AND
FORMA ACQUISITION
ADJUSTMENTS PRO FORMA
-------------- --------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales....................... $ $ 84,186
Cost of sales................... 44,460
------- --------------
Gross profit.................... 39,726
------- --------------
Selling and marketing
expenses....................... 27,276
Administrative and distribution (358) (9)
expenses....................... 67 (10 6,983
------- --------------
Total operating expenses........ (291) 34,259
------- --------------
Operating income (loss)......... 291 5,467
Other (income) expense:
Interest expense.............. (1,367)(11) 58
Other, net.................... 8
------- --------------
Income (loss) before income
taxes and minority interest.... 1,658 5,401
Income tax provision
(benefit)...................... 663 (12 1,026
------- --------------
Income before minority
interest....................... 995 4,375
Minority interest...............
------- --------------
Net income (loss)............... $ 995 $ 4,375
------- --------------
------- --------------
PRO FORMA STATEMENT OF
OPERATIONS DATA(13):
Historical income before income
taxes and minority interest.... $ 5,401
Pro forma income tax
provision...................... 2,160
--------------
Pro forma income before minority
interest....................... 3,241
Minority interest...............
--------------
Pro forma net income............ $ 3,241
--------------
--------------
Pro forma net income per
share(14)...................... $ 0.46
--------------
--------------
Pro forma weighted average
number of common and common
equivalent shares(15).......... 7,015,137
</TABLE>
25
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE YEAR ENDED DECEMBER 28, 1996
(UNAUDITED)
(1) To reflect the amortization over a 20-year period of goodwill of
$3,295,000 in connection with the Acquisition as if it had occurred in its
entirety on December 31, 1995, the first day of fiscal 1996. The
adjustment represents amortization for the period from December 31, 1995
through October 25, 1996 of goodwill associated with acquisition of 79.0%
of Overland and for all of fiscal 1996, goodwill associated with
acquisition of the remaining 21.0%. See Note 13 of Notes to Consolidated
Financial Statements for additional information.
(2) To adjust depreciation expense to reflect (i) adjustments to reduce the
carrying value of fixed assets acquired by $189,000 to the fair value at
acquisition and (ii) adjustments to convert the depreciation method
previously used by Overland to the straight line method employed by the
Company and (iii) adjustments to convert the assets' useful lives from
lives previously used by Overland to the three to ten year lives used by
the Company for similar assets.
(3) To give effect to the interest expense associated with the Seller Notes
and the Subordinated Note, including the Seller Notes assumed in
connection with the Minority Interest Acquisition, as if such indebtedness
had been outstanding since December 31, 1995, the first day of fiscal
1996. Interest was calculated based on Seller Notes of $3,157,000 at 10%
per annum, and the Subordinated Note of $3,500,000 at 10% per annum, as
though such notes were outstanding from December 31, 1995 through October
25, 1996, the date of the Acquisition.
(4) To reflect the difference in interest expense in connection with the
mandatory refinancing of Overland's previous bank line of credit and Small
Business Administration term loan with the Company's Revolving Loan
Agreement, resulting from the associated difference in interest rates, as
if such refinancing had occurred on December 31, 1995, the first day of
fiscal 1996. The interest adjustment was computed as the excess of (i) the
weighted average interest rates on Overland's previous line of credit and
Small Business Administration term loans over (ii) the weighted average
interest rate on the Company's Revolving Line of Credit, such excess then
being applied to the weighted average balances outstanding for the period
from December 31, 1995, the beginning of fiscal 1996, to October 25, 1996.
(5) To record income taxes on pro forma adjustments to depreciation expense as
described in footnote 2 above, and interest expense as described in
footnotes 3 and 4 above, with respect to Overland (a C corporation) at
40.0% estimated effective rate applicable to Overland, and state income
taxes at reduced S corporation rates on adjustments resulting from the
Minority Interest Acquisition, as described in footnote 6 below, for Track
'n Trail-California, which is treated as an S corporation for the period
presented prior to adjustments for the Reorganization.
(6) To reverse the elimination of the minority interest in Overland's net
income, as if the Minority Interest Acquisition had occurred on December
31, 1995.
(7) To give effect to a nonrecurring reduction in tax expense resulting from
the conversion of Track 'n Trail-California from an S corporation to a C
corporation upon the Reorganization, which is associated with the
recording of deferred tax assets due to temporary differences in the basis
of assets and liabilities for tax and financial statement purposes. See
Note 14 of Notes to Consolidated Financial Statements.
(8) To reflect an effective tax rate of 40.0%, representing management's
estimate of the effective tax rate had Track 'n Trail-California been a C
corporation for the period presented. Overland was a C corporation for the
entire period presented.
(9) To eliminate payments under consulting agreements with certain former
owners of Overland common stock that by the terms of the agreements
terminate upon the closing of the Offering, as if the Offering had
occurred on December 31, 1995.
26
<PAGE>
(10) To record a non-cash compensation expense resulting from the vesting of
stock options as a result of the Offering, in accordance with the terms of
the Stock Option Plan. The total compensation expense in connection with
the options at the date of grant was $170,000, less the portion that was
recorded as expense during the 1996 fiscal year of $103,000. The remaining
$67,000 relates to options that will vest upon the Offering. See Note 14
of Notes to Consolidated Financial Statements.
(11) To eliminate interest expense of $316,000, $350,000 and $701,000
associated with the Seller Notes, the Subordinated Note and other
indebtedness, respectively, inclusive of the effects of adjustments to
interest described in footnote 3 above, as such debts will be repaid from
the net proceeds of the Offering as described under "Use of Proceeds."
(12) To record income taxes on pro forma adjustments to administrative and
distribution expense due to the elimination of payments under consulting
agreements, the vesting of stock options and the elimination of certain
interest expense, as described in footnotes 9, 10 and 11 above. Income
taxes on such pro forma adjustments were computed at 40.0%, representing
management's estimate of the effective rate had Track 'n Trail-California
been a C corporation for all of fiscal 1996.
(13) Reflects an effective tax rate of 40.0%, representing management's
estimate of the effective tax rate had Track 'n Trail-California been a C
corporation for the period presented. Overland was a C corporation for the
entire period presented. The pro forma income tax provision is accounted
for as if Track 'n Trail-California had been a C corporation throughout
the year and, accordingly, eliminates the $1.1 million nonrecurring
reduction in income tax expense resulting from the conversion of Track 'n
Trail-California from an S corporation to a C corporation. See Note 14 of
Notes to Consolidated Financial Statements.
(14) Pro forma net income per share has been computed by dividing pro forma net
income by the weighted average number of common and common equivalent
shares outstanding using the treasury stock method and an assumed initial
public offering price of $11.00 per share (the midpoint of the Offering
range), net of underwriting discounts and estimated Offering expenses,
after giving retroactive effect to (i) a change in the number of
outstanding shares effected by the Reorganization, (ii) those common stock
options issued during the 12-month period preceding the Offering computed
under the treasury stock method, and (iii) the number of shares of Common
Stock being sold in the Offering, at an assumed offering price, the
proceeds of which would be necessary to pay the excess of S corporation
distributions during fiscal 1996 and thereafter until the Reorganization
over S corporation earnings during fiscal 1996.
(15) The pro forma common and common equivalent shares give effect to the sale
by the Company, in addition to those shares described in footnote 14
above, of only that number of offered shares of Common Stock, the proceeds
(net of underwriting discounts and estimated Offering expenses) of which
would be necessary to fund the repayment of indebtedness as described in
"Use of Proceeds," assuming that such shares are sold at an initial public
offering price of $11.00 per share (the midpoint of the Offering range).
The amount of indebtedness assumed to be outstanding for the purpose of
calculating the pro forma number of common and common equivalent shares
outstanding is equal to the weighted average indebtedness assumed to have
been outstanding had the Acquisition and the Reorganization occurred on
December 31, 1995, the first day of fiscal 1996.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS PROSPECTUS CONTAINS, IN ADDITION TO HISTORICAL INFORMATION,
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE THOSE DISCUSSED BELOW, AS WELL AS THOSE DISCUSSED ELSEWHERE
IN THIS PROSPECTUS.
INTRODUCTION
The Company is one of the largest full-service specialty retailers in the
United States focusing on a broad range of high-quality casual, outdoor and
adventure footwear. As of August 23, 1997, the Company operated 100 Track 'n
Trail stores and 35 Overland Trading stores in 24 states, concentrated in
California, the Midwest and the Northeast. All but three of these stores were
located in regional or super-regional shopping malls. Track 'n Trail stores
average approximately 1,881 square feet in size, while Overland Trading stores
average approximately 1,393 square feet.
On October 25, 1996, the Company, together with the Existing Stockholders,
obtained control of 33 Overland Trading stores by acquiring the outstanding
common stock of Overland in exchange for the $3.2 million of Seller Notes and
warrants to purchase one percent of the Company's Common Stock calculated on a
fully diluted basis immediately prior to an initial public offering. In
connection with the acquisition, Overland repurchased all of its outstanding
preferred stock in exchange for the $3.5 million Subordinated Note, which the
Company guaranteed. Due to the then-existing prohibition against an S
corporation owning 80.0% or more of a subsidiary's stock, the Company initially
purchased 79.0% of Overland's common stock, while the Existing Stockholders
personally acquired the remaining 21.0%. Following legislative changes to the S
corporation rules, the Company acquired the remaining 21.0% effective at the
beginning of fiscal 1997, and assumed the Existing Stockholders' pro rata
portion of the Seller Notes. Total payments in connection with the acquisition
were approximately $9.0 million, including the Seller Notes, the Subordinated
Note, the refinancing of approximately $2.1 million in indebtedness under
Overland's credit facility through borrowings under the Revolving Loan
Agreement, and associated expenses of approximately $240,000. In connection with
the acquisition, which was accounted for under the purchase method of
accounting, $3.3 million was allocated to goodwill. The Seller Notes, the
Subordinated Note and the Revolving Loan Agreement mature upon the consummation
of the Offering. Pursuant to consulting agreements entered into in connection
with the acquisition, the Company currently pays an aggregate of approximately
$23,400 per month plus related benefit expenses to certain former Overland
stockholders. The consulting agreements terminate upon the consummation of the
Offering.
Since the acquisition of Overland, the Company has reduced overhead by
closing Overland's corporate office and distribution facility, centralizing
these functions within the Company's corporate office. Additionally, the Company
converted Overland's MIS systems to the Company's MIS systems. As a result,
management is able to analyze sales and inventory by SKU on a daily basis in
order to implement its focused merchandising strategy. The Company's employee
development, incentive compensation, customer service, marketing and loss
prevention programs have also been implemented in the Overland Trading stores.
The Company's net sales have grown at a compound annual rate of 16.5% from
$41.9 million in fiscal 1993 to $66.2 million in fiscal 1996 as a result of the
Company's store expansion program, increased sales from existing stores and the
acquisition of Overland in October 1996. During that three-year period, the
number of stores increased from 69 to 128. In addition, the Company's net income
has grown at a compound annual rate of 37.5% from $1.1 million in fiscal 1993 to
$2.9 million in fiscal 1996, after giving effect to assumed C corporation income
taxes.
The Company defines comparable stores as those stores that were open for the
full fiscal period and for the full prior fiscal period. The Company's
comparable store net sales grew 4.1% and 0.6% in fiscal
28
<PAGE>
1993 and 1994, respectively, declined by 1.4% in fiscal 1995, and grew by 3.1%
in fiscal 1996 and 2.5% in the first six months of fiscal 1997, excluding the
acquired Overland Trading stores. Had the Overland Trading stores acquired by
the Company on October 25, 1996 been included in the Company's comparable store
net sales comparison since the acquisition, comparable store net sales would
have grown 2.4% in fiscal 1996 and declined by 0.3% in the first six months of
1997.
Track 'n Trail-California has been treated as an S corporation for federal
and certain state income tax purposes since June 28, 1992. As a result, the
earnings of Track 'n Trail-California from June 28, 1992 through the date
preceding the Termination Date have been and will be taxed, with certain
exceptions, directly to the stockholders of Track 'n Trail-California rather
than to Track 'n Trail-California. Track 'n Trail-California's S corporation
status will terminate as a result of the Reorganization on the Termination Date.
Thereafter, Track 'n Trail-California will be subject to state and federal
income taxes as a C corporation, and all references to net income in this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" are presented as if Track 'n Trail-California had been subject to
income taxes at a combined state and federal income tax rate of 40.0%.
In connection with Track 'n Trail-California's conversion to C corporation
status, the Company will record a nonrecurring tax benefit, which would have
been $1.1 million had the conversion occurred at June 28, 1997.
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of net
sales for the periods indicated:
<TABLE>
<CAPTION>
26 WEEKS
ENDED
FISCAL --------------------
------------------------------- JUNE 29, JUNE 28,
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales............................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........................... 52.1 51.7 51.4 51.6 51.7
--------- --------- --------- --------- ---------
Gross profit............................ 47.9 48.3 48.6 48.4 48.3
Selling and marketing expenses.......... 31.1 33.2 31.8 37.8 38.7
--------- --------- --------- --------- ---------
Store contribution(1)................... 16.8 15.1 16.8 10.6 9.6
Administrative and distribution
expenses............................... 10.2 9.5 8.3 9.9 9.2
--------- --------- --------- --------- ---------
Operating income (loss)................. 6.6 5.6 8.5 0.7 0.4
Interest expense........................ 0.7 0.9 1.0 1.0 1.9
Other expense (income).................. 0.1 (0.1) (0.0) 0.0 0.1
--------- --------- --------- --------- ---------
Income (loss) before income taxes and
minority interest...................... 5.8 4.8 7.5 (0.3) (1.6)
Pro forma income tax provision
(benefit)(2)........................... 2.3 1.9 3.0 (0.1) (0.6)
Minority interest....................... -- -- 0.2 -- --
--------- --------- --------- --------- ---------
Pro forma net income (loss)(2).......... 3.5% 2.9% 4.3% (0.2)% (1.0)%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
- ------------------------
(1) Store contribution refers to gross profit after deducting selling and
marketing expenses. Store contribution is presented to provide additional
information about the Company and is commonly used as a performance
measurement by retail companies. Store contribution should not be considered
in isolation or as a substitute for operating income, cash flow from
operating activities and other income
29
<PAGE>
or cash flow data prepared in accordance with generally accepted accounting
principles, or as a measure of the Company's profitability or liquidity.
(2) Reflects an assumed combined federal and state tax rate of 40.0%, which the
Company believes approximates the statutory federal and state income tax
rates that would have been applied had Track 'n Trail-California been taxed
as a C corporation. Commencing June 28, 1992, Track 'n Trail-California has
operated as an S corporation and has not been subject to federal and certain
state income taxes.
RECENT RESULTS
Net sales were $15.5 million for the eight-week period ended August 23,
1997, an increase of $5.4 million, or 53.3%, over the $10.1 million in net sales
during the comparable period in the prior year. The Company's comparable store
net sales grew by 2.9% in the eight-week period ended August 23, 1997. Had the
Overland Trading stores acquired by the Company on October 25, 1996 been
included in the Company's store base for all of fiscal 1996, comparable store
net sales would have grown 4.7% for the eight-week period ended August 23, 1997.
TWENTY-SIX WEEKS ENDED JUNE 28, 1997 COMPARED TO TWENTY-SIX WEEKS ENDED JUNE 29,
1996
NET SALES
Net sales were $37.5 million for the 26 weeks ended June 28, 1997, an
increase of $14.2 million, or 61.2%, over the $23.3 million in net sales for the
comparable period in the prior year. The 34 Overland Trading stores accounted
for $10.0 million or 70.8% of the increase in net sales. A comparable store net
sales increase of 2.5% for the Track 'n Trail stores contributed $546,000 to the
net sales gain, while the six Track 'n Trail stores opened in the first six
months of 1997 contributed $516,000 in net sales. The remaining increase in net
sales of $3.1 million is primarily attributable to stores opened in fiscal 1996.
GROSS PROFIT
Gross profit was $18.1 million for the 26 weeks ended June 28, 1997, an
increase of $6.8 million, or 60.8%, over the $11.3 million gross profit for the
comparable period in the prior year. Gross profit as a percentage of net sales
decreased to 48.3% for the 26 weeks ended June 28, 1997 from 48.4% in the
comparable period in the prior year. Gross profit at the Track 'n Trail stores
for the 26 weeks ended June 28, 1997 was 49.0% of net sales, a 0.6% margin
improvement over the 48.4% gross profit as a percentage of net sales in the 26
weeks ended June 29, 1996. This increase was primarily attributable to enhanced
cumulative markups and lower markdowns. Overland's gross profit for the 26 weeks
ended June 28, 1997 was $4.7 million, or 46.4% of net sales, which had a
negative impact on the consolidated gross profit as a percentage of net sales
for the 26 weeks ended June 28, 1997. The level of gross profit as a percentage
of net sales realized at the Overland Trading stores represented an improvement
over the 39.4% gross profit margin recorded by Overland under previous
management in the comparable period in 1996. This improvement was due, in part,
to increased purchasing economies of scale after the acquisition of Overland.
Management also believes that liquidity problems at Overland contributed to
Overland's low gross profit margin in the comparable period in 1996.
SELLING AND MARKETING EXPENSES
Selling and marketing expenses were $14.5 million for the 26 weeks ended
June 28, 1997, an increase of $5.7 million, or 65.2%, over the comparable period
in the prior year. Overland accounted for $4.0 million of the increase. The
remaining $1.7 million increase is primarily attributable to the 17 stores
opened in 1996 and the six stores opened in 1997 which were not open for the
full comparable period in the prior year. As a percentage of net sales, selling
and marketing expenses increased to 38.7% in the 26 weeks ended June 28, 1997
from 37.8% in the comparable period in 1996, primarily as a result of higher
30
<PAGE>
operating expenses as a percentage of net sales at Overland, which were 39.9% of
Overland's net sales in the 1997 period. As a percentage of net sales, selling
and marketing expenses at the Track 'n Trail stores increased slightly to 38.3%
in the 26 weeks ended June 28, 1997 from 37.8% in the comparable period in 1996,
primarily due to new store openings.
ADMINISTRATIVE AND DISTRIBUTION EXPENSES
Administrative and distribution expenses were $3.4 million for the 26 weeks
ended June 28, 1997, an increase of $1.1 million, or 48.7%, over the $2.3
million recorded in the comparable period in 1996. Overland accounted for
$958,000 of the increase. The remaining $171,000 increase is attributable to
increases in the Track 'n Trail staff and associated expenses as a result of the
Company's expansion. As a percentage of net sales, administrative and
distribution expenses decreased to 9.2% from 9.9% in the comparable period in
1996. In the absence of the Overland acquisition, administrative and
distribution expenses would have been 9.1% of Track 'n Trail net sales, down
from the 9.9% experienced in the comparable period in 1996, as a result of
spreading such expenses over a larger revenue base.
INTEREST EXPENSE
Interest expense increased to $730,000, or 1.9% of net sales, for the 26
weeks ended June 28, 1997, from $240,000, or 1.0% of net sales, in the
comparable period in 1996. The $490,000 increase was primarily attributable to
$333,000 of interest on the Seller Notes and Subordinated Note incurred in
connection with the Overland acquisition, and $83,000 of interest on Overland's
borrowings under its line of credit.
NET LOSS
The net loss for the 26 weeks ended June 28, 1997 was $365,000, an increase
of $323,000 over the net loss of $43,000 incurred in the comparable period in
1996. The increase was more than accounted for by the net loss of $445,000
attributable to Overland. Excluding such loss, the Company would have realized
net income of $80,000 for the 26 weeks ended June 28, 1997, which would have
represented a $123,000 improvement over the comparable period in 1996. The
$445,000 net loss attributable to Overland in the 26 weeks ended June 28, 1997
compares to a net loss of $471,000 for the comparable period in 1996 under
previous management. This decrease in Overland's net losses was attributable to
an improved gross margin and lower operating costs, partially offset by interest
costs of $333,000 incurred as a result of the Overland acquisition.
FISCAL 1996 COMPARED TO FISCAL 1995
NET SALES
Net sales for fiscal 1996 were $66.2 million, an increase of $15.5 million,
or 30.7%, over fiscal 1995 net sales of $50.7 million. The 34 Overland Trading
stores accounted for $6.6 million of the increase in net sales since the
acquisition in October 1996, while the 17 Track 'n Trail stores opened during
the year accounted for an additional $6.2 million. These increases were
partially offset by a reduction in net sales of $1.8 million due to the closure
of five stores in 1996. These stores had net sales of only $117,000 in fiscal
1996 due to their closure, compared to net sales of $1.9 million in 1995. The
remaining increase in net sales of $4.4 million is primarily attributable to the
3.1% growth in comparable store net sales at Track 'n Trail stores and the
full-year benefit in fiscal 1996 of the stores opened during fiscal 1995.
GROSS PROFIT
Gross profit was $32.2 million in fiscal 1996, an increase of $7.7 million,
or 31.3%, over the $24.5 million gross profit in fiscal 1995. Gross profit as a
percentage of net sales increased to 48.6% in fiscal 1996 from 48.3% in fiscal
1995. The increase as a percentage of net sales was primarily related to a
reduction in freight costs in fiscal 1996 due to shipping efficiencies. Gross
profit at Overland for the two months since
31
<PAGE>
the acquisition was $3.2 million, or 48.3% of net sales, which had a slightly
negative impact on the consolidated gross profit as a percentage of net sales in
fiscal 1996. Nevertheless, Overland generated a higher gross profit as a
percentage of net sales for that two-month period, which was during the
Company's peak selling season, than it is expected to produce for a full fiscal
year.
SELLING AND MARKETING EXPENSES
Selling and marketing expenses were $21.1 million in fiscal 1996, an
increase of $4.2 million, or 25.0%, over fiscal 1995. Overland accounted for
$1.6 million of the increase, and $2.6 million of the remaining increase is
primarily attributable to the net increase of 12 Track 'n Trail stores during
the year. As a percentage of net sales, selling and marketing expenses decreased
to 31.8% from 33.2% in fiscal 1995. In the absence of the Overland acquisition,
selling and marketing expenses would have been $19.4 million, or 32.5% of net
sales, in fiscal 1996. This decrease in selling and marketing expense as a
percentage of net sales was primarily attributable to the higher net sales at
the Track 'n Trail stores. For the two months since the acquisition, Overland
recorded selling and marketing expenses of $1.6 million, or 24.8% of net sales.
This level of selling and marketing expenses as a percentage of net sales is not
indicative of Overland's anticipated performance for a full fiscal year because
the acquisition occurred immediately prior to the Company's peak selling season.
ADMINISTRATIVE AND DISTRIBUTION EXPENSES
Administrative and distribution expenses were $5.5 million in fiscal 1996,
an increase of $682,000, or 14.1%, over fiscal 1995. Such expenses decreased as
a percentage of net sales to 8.3% in fiscal 1996 from 9.5% in fiscal 1995. The
increase in administrative and distribution expenses from fiscal 1995 to 1996
was primarily attributable to increases in the Company's corporate staff as a
result of the Company's expansion. The reduction in administrative and
distribution expenses as a percentage of net sales was the result of spreading
such expenses over a larger revenue base. In the absence of the Overland
acquisition, administrative and distribution expenses would have been $4.9
million, or 8.3% of Track 'n Trail's net sales, in fiscal 1996. The Company
incurred $653,000 in legal and accounting expenses in fiscal 1995, primarily in
defending itself and certain of its directors and executive officers in lawsuits
filed by the Company's former Chairman of the Board. These lawsuits were
subsequently resolved favorably.
INTEREST EXPENSE
Interest expense increased to $670,000, or 1.0% of net sales, in fiscal
1996, from $435,000, or 0.9% of net sales, in fiscal 1995. The increase is
attributable to additional borrowings for store expansion as well as two months
of interest on the Seller Notes and the Subordinated Note incurred in connection
with the Overland acquisition.
MINORITY INTEREST
The minority interest elimination of $105,000 represents the 21.0% interest
in Overland net income owned by the Company's Existing Stockholders in fiscal
1996. No minority interest existed in fiscal 1995.
NET INCOME
The Company's consolidated net income in fiscal 1996 would have been $2.5
million excluding the operations of Overland. This amount would have represented
a 71.5% increase over fiscal 1995. Fiscal 1996 net income also reflects $477,000
in net income attributable to Overland from the acquisition of Overland in
October 1996 through the end of fiscal 1996, partially offset by the $105,000
minority interest. On a consolidated basis, the Company's net income was $2.9
million in fiscal 1996, which represents a 97.0% increase over the net income of
$1.5 million in fiscal 1995.
32
<PAGE>
FISCAL 1995 COMPARED TO FISCAL 1994
NET SALES
Net sales in fiscal 1995 were $50.7 million, an increase of $2.5 million, or
5.2%, over fiscal 1994 net sales of $48.2 million. Fiscal 1995 had 52 weeks of
net sales, whereas fiscal 1994 had 53 weeks of net sales. The additional week in
fiscal 1994 generated $1.2 million in net sales. On a comparable 52-week basis,
fiscal 1995 net sales increased $3.7 million, which was primarily attributable
to the 12 stores opened in fiscal 1995, which generated $3.3 million in net
sales, and a $1.6 million net sales increase due to a full year of sales in
fiscal 1995 by stores opened in fiscal 1994. These increases were partially
offset by the closure of four stores that had accounted for net sales of
$632,000 in fiscal 1994, and a decrease in comparable store net sales of 1.4%
which resulted in a reduction of net sales of $583,000.
GROSS PROFIT
Gross profit was $24.5 million in fiscal 1995, an increase of $1.4 million,
or 6.1%, from $23.1 million in fiscal 1994. Gross profit as a percentage of net
sales increased to 48.3% in fiscal 1995 from 47.9% in fiscal 1994. The increase
was primarily attributable to increased sales of higher-margin private label
products as a percentage of total net sales.
SELLING AND MARKETING EXPENSES
Selling and marketing expenses were $16.9 million in fiscal 1995, an
increase of $1.9 million, or 12.5%, from $15.0 million in fiscal 1994. Such
expenses represented 33.2% of net sales in fiscal 1995, compared to 31.1% in
fiscal 1994. The increase in selling and marketing expenses as a percentage of
net sales was primarily attributable to the operating expenses of the 12 new
stores opened, the four stores remodeled during the year and the impact of a
52-week year in fiscal 1995 compared to a 53-week year in fiscal 1994. In fiscal
1994, the 53rd week accounted for an additional $1.2 million in net sales, which
leveraged the Company's fixed costs over a larger sales base in comparison to
the 52 weeks in fiscal 1995. Excluding these additional net sales, selling and
marketing expenses would have been 31.9% of net sales in fiscal 1994 compared to
33.2% in fiscal 1995.
ADMINISTRATIVE AND DISTRIBUTION EXPENSES
Administrative and distribution expenses were $4.8 million in fiscal 1995, a
decrease of $108,000, or 2.2%, from fiscal 1994. Administrative and distribution
expenses were 9.5% of net sales in fiscal 1995, compared to 10.2% in fiscal
1994. Performance-based bonuses in fiscal 1995 were lower by $195,000 and the
Company achieved approximately $47,000 in cost savings at its central
distribution facility through operational efficiencies. The reduction in
administrative and distribution expenses as a percentage of net sales is
attributable to the spreading of the Company's relatively fixed costs over a
larger sales base. The reduction in administrative and distribution expenses was
partially offset by an increase in legal expenses from $514,000 in fiscal 1994
to $653,000 in fiscal 1995 primarily due to increased activity in the litigation
previously described.
INTEREST EXPENSE
Interest expense increased to $435,000 in fiscal 1995, an increase of
$110,000, or 34.1%, from fiscal 1994. Interest expense increased to 0.9% of net
sales in fiscal 1995 from 0.7% of net sales in fiscal 1994. The change was
attributable to additional borrowings for store expansion.
NET INCOME
Net income in fiscal 1995 was $1.5 million, a decrease of $232,000, or
13.7%, from $1.7 million in fiscal 1994. The decrease was primarily attributable
to the additional week of net sales in fiscal 1994, which was a
33
<PAGE>
53-week fiscal period. The additional week in fiscal 1994 accounted for
approximately $1.2 million in net sales, without a corresponding increase in
certain fixed expenses under the categories of selling and marketing expenses,
administrative and distribution expenses and interest expense.
QUARTERLY RESULTS OF OPERATIONS
The Company typically incurs losses in the first quarter, and derives a
substantial percentage of its annual net sales and operating profitability
during the "back-to-school" and year-end holiday periods. The table below sets
forth quarterly operating data of the Company, including such data as a
percentage of net sales, for fiscal 1995, fiscal 1996 and the first and second
quarters of fiscal 1997. This quarterly information is unaudited, but in
management's opinion reflects all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the information for
the periods presented when read in conjunction with the audited financial
statements of the Company and notes thereto. The operating results for any
quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
FISCAL
FISCAL 1995 FISCAL 1996 1997
---------------------------------------- ----------------------------------------- --------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................ $9,326 $10,757 $13,963 $16,645 $10,249 $13,037 $16,580 $26,367 $16,867
Cost of sales............ 4,876 5,494 7,454 8,368 5,430 6,590 8,575 13,467 8,857
------- -------- -------- -------- -------- -------- -------- -------- --------
Gross profit............. 4,450 5,263 6,509 8,277 4,819 6,447 8,005 12,900 8,010
Selling and marketing
expenses................ 3,791 3,923 4,411 4,727 4,259 4,532 5,013 7,255 7,194
------- -------- -------- -------- -------- -------- -------- -------- --------
Store contribution(1).... 659 1,340 2,098 3,550 560 1,915 2,992 5,645 816
Administrative and
distribution expenses... 1,162 1,185 1,239 1,240 1,180 1,137 1,151 2,041 1,781
------- -------- -------- -------- -------- -------- -------- -------- --------
Operating income (loss).. $ (503) $ 155 $ 859 $ 2,310 $ (620) $ 778 $ 1,841 $ 3,604 $ (965)
------- -------- -------- -------- -------- -------- -------- -------- --------
------- -------- -------- -------- -------- -------- -------- -------- --------
<CAPTION>
SECOND
QUARTER
--------
<S> <C>
Net sales................ $20,660
Cost of sales............ 10,556
--------
Gross profit............. 10,105
Selling and marketing
expenses................ 7,333
--------
Store contribution(1).... 2,772
Administrative and
distribution expenses... 1,664
--------
Operating income (loss).. $ 1,108
--------
--------
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF NET SALES
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales........... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales....... 52.3 51.1 53.4 50.3 53.0 50.5 51.7 51.1 52.5 51.1
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit........ 47.7 48.9 46.6 49.7 47.0 49.5 48.3 48.9 47.5 48.9
Selling and
marketing
expenses........... 40.6 36.5 31.6 28.4 41.6 34.8 30.2 27.5 42.7 35.5
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Store
contribution(1).... 7.1 12.5 15.0 21.3 5.5 14.7 18.0 21.4 4.8 13.4
Administrative and
distribution
expenses........... 12.5 11.0 8.9 7.4 11.5 8.7 6.9 7.7 10.6 8.1
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income
(loss)............. (5.4)% 1.4% 6.2% 13.9% (6.0)% 6.0% 11.1% 13.7% (5.7)% 5.4%
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
- ------------------------
(1) Store contribution refers to gross profit after deducting selling and
marketing expenses. Store contribution is presented to provide additional
information about the Company and is commonly used as a performance
measurement by retail companies. Store contribution should not be considered
in isolation or as a substitute for operating income, cash flow from
operating activities and other income or cash flow data prepared in
accordance with generally accepted accounting principles, or as a measure of
the Company's profitability or liquidity.
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<PAGE>
The Company anticipates that operating results will fluctuate as a result of
a number of factors, including seasonality, changes in pricing or promotion
policies by the Company, its competitors or its suppliers, the availability and
cost of merchandise, consumer acceptance of the products sold by the Company,
and the number and timing of store openings and closures. The availability and
cost of merchandise may, in turn, fluctuate due to a number of factors including
changes in the Company's relationships with major suppliers, the Company's
access to private label manufacturing capacity, foreign currency fluctuations
and other risks associated with importing private label products from foreign
countries.
LIQUIDITY AND CAPITAL RESOURCES
The Company had $5.8 million in working capital as of June 28, 1997,
compared to $9.4 million at the end of fiscal 1996. The Company's capital
requirements relate primarily to working capital and the build-out of new
stores. The Company's working capital needs are somewhat seasonal and typically
peak in the second and fourth quarters. The peak in the second quarter is due to
the incurrence of operating losses in the first quarter and increased inventory
purchased for the Spring selling season. Working capital needs peak in the
fourth quarter due to increases in inventory in advance of the holiday selling
season, payments coming due for back-to-school merchandise and construction
payments on third-quarter store build-outs. In addition, the Company requires
incremental working capital to stock each new store upon opening. Although the
Company has historically opened the highest percentage of stores in its third
quarter, this pattern may change in the future. Seasonally strong holiday sales
at the end of the fourth quarter, and relatively low first-quarter inventory
levels, typically reduce working capital needs in the first quarter.
Historically, the Company has funded its cash requirements primarily through
cash flow from operations and borrowings under its Revolving Loan Agreement. Net
cash used by operating activities for the 26 weeks ended June 29, 1996 and June
28, 1997 was $1.7 million and $4.2 million, respectively. Net cash provided by
operating activities was $3.7 million, $3.4 million and $5.1 million for fiscal
1994, 1995 and 1996, respectively. Net cash provided by operating activities has
historically been driven by net income levels combined with fluctuations in
inventory and accounts payable. Inventory levels have increased throughout these
periods due to an increase in the number of stores.
Capital expenditures were $958,000 and $910,000 for the 26 weeks ended June
29, 1996 and June 28, 1997, respectively. Capital expenditures excluding the
cost of acquisitions were $1.3 million, $1.6 million and $1.7 million in fiscal
1994, 1995 and 1996, respectively. Expenditures in the first 26 weeks of fiscal
1997 were primarily for the build-out of six new stores as well as the
completion of three stores opened in 1996. Expenditures in the first 26 weeks of
1996 were primarily for the build-out of eight new stores as well as the
remodeling of two stores. Expenditures in fiscal 1996 were primarily for the
build-out of 14 of the 17 Track 'n Trail stores that were opened in fiscal 1996,
plus the remodeling of two existing stores. The full build-outs of the other
three Track 'n Trail stores opened in fiscal 1996 were delayed until fiscal
1997. These build-outs were completed in the first quarter of fiscal 1997.
Expenditures in fiscal 1995 were primarily for the build-out of 12 of the new
stores opened, plus the remodeling of four existing stores. The Company
estimates that capital expenditures in fiscal 1997, excluding the cost of any
acquisitions, will total approximately $2.5 million, primarily for the
construction of approximately 20 new stores and the completion of three stores
opened in late 1996.
Financing activities provided cash of $2.6 million and $4.9 million for the
26 weeks ended June 29, 1996 and June 28, 1997, respectively. The increase
primarily reflects additional borrowings under the Revolving Loan Agreement to
fund increased working capital requirements as a result of the larger store
base. This increase was partially offset by increased stockholder distributions.
The Company used cash of $2.9 million, $1.7 million and $2.7 million in
financing activities in fiscal 1994, 1995 and 1996, respectively. Cash was used
in financing activities primarily for advances and distributions to stockholders
and repayment of long-term debt, primarily financed by borrowings under the
Company's Revolving Loan Agreement. The Company has historically paid
distributions to its stockholders as a result of the
35
<PAGE>
Company's status as an S corporation. During fiscal 1994, 1995 and 1996 and the
first six months of fiscal 1997, the Company made S corporation distributions to
stockholders of $1.7 million, $376,000, $3.1 million and $2.2 million,
respectively. Subsequent to June 28, 1997, the Company made or will make an
additional $215,000 in distributions to the Existing Stockholders. Prior to the
Termination Date, Track 'n Trail-California will declare the $6.4 million
Distribution to the Existing Stockholders, which will be paid from a portion of
the Company's proceeds from the Offering. Under certain circumstances, the
Company may make payments to the Existing Stockholders to satisfy certain tax
liabilities with respect to pre-Reorganization tax periods resulting from
adjustments to the Company's tax returns. 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-Reorganization
loss of S corporation status and/or (ii) with respect to post-Reorganization
taxable periods for which the Existing Stockholders receive a tax benefit,
provided that the indemnity provided by the Existing Stockholders will be
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 "S
Corporation Distributions."
The Company's Revolving Loan Agreement includes a revolving line of credit,
a term loan and a letter of credit facility. As of June 28, 1997, the Company
had approximately $360,000 in available borrowing capacity under the revolving
line of credit, as well as $134,000 available in the form of additional letters
of credit. Borrowings under the Revolving Loan Agreement aggregated
approximately $11.1 million as of June 28, 1997 ($2.4 million of which was in
the form of a term loan), are collateralized by substantially all of the
Company's assets and are guaranteed by the Existing Stockholders. The term loan
bears interest at the Company's option at (i) the prime rate (8.5% per annum, at
June 28, 1997) plus 0.5% per annum or (ii) the London Inter-Bank Offered Rate
(5.69% at June 28, 1997) plus 3%. Borrowings under the line of credit bear
interest at the prime rate (8.50% per annum, at June 28, 1997) plus 0.5% per
annum. On July 3, 1997, the Revolving Loan Agreement was amended to allow for an
additional $1.0 million to be borrowed against the revolving line of credit. All
borrowings against the additional $1.0 million of available borrowings are due
and payable on the earlier of September 30, 1997 or the consummation of the
Offering. The Revolving Loan Agreement requires the Company to meet certain
financial covenants, including minimum financial ratios, and contains
limitations on loans and dividends to stockholders and on expenditures to
acquire fixed or capital assets. The Company intends to use a portion of the net
proceeds of the Offering to repay all outstanding indebtedness under the
Revolving Loan Agreement.
The Company also intends to use a portion of the net proceeds of the
Offering to repay all outstanding indebtedness under its secured Merrill Lynch
Loan, which aggregated $867,000 at June 28, 1997 and bore interest at the 30-day
commercial paper rate (5.55% per annum, at June 28, 1997) plus 2.95% per annum.
The Company has outstanding indebtedness incurred in connection with the
Acquisition. In October 1996, the Company and the Existing Stockholders together
issued approximately $3.2 million in subordinated Seller Notes to the former
common stockholders of Overland in connection with the Acquisition. Also in
connection with the Acquisition, Overland repurchased all of its outstanding
preferred stock in exchange for the $3.5 million Subordinated Note, which the
Company guaranteed. The Company subsequently assumed the Existing Stockholders'
pro rata portion of the Seller Notes in exchange for the remaining 21.0% of
Overland's common stock. The Company intends to use a portion of the net
proceeds of the Offering to repay the Seller Notes and the Subordinated Note.
After the foregoing reductions in indebtedness and payment of the $6.4
million Distribution, the Company plans to use the remaining net proceeds of the
Offering for general corporate purposes, including new store expansion. See "Use
of Proceeds."
The Company has obtained a commitment letter from Union Bank of California,
Track 'n Trail-California's current lender under the Revolving Loan Agreement,
to provide Track 'n Trail-California and Overland with a two-year, $10.0 million
revolving line of credit, effective upon the consummation of the Offering. This
credit facility will replace the Revolving Loan Agreement and will be guaranteed
by the
36
<PAGE>
Company. The bank's commitment is conditioned upon the consummation of the
Offering by December 31, 1997 and the associated repayment of certain other
indebtedness. The commitment letter provides that the line of credit will bear
interest at the option of the Company at either the bank's reference rate (which
was 8.50% at June 28, 1997), or the London Inter-Bank Offered Rate (which was
5.69% at June 28, 1997) plus 2.0%, and will be collateralized by all of the
Company's assets. Of the $10.0 million available under this facility, up to $1.5
million may be allocated to letters of credit with durations of up to 180 days.
Advances under the revolving line of credit will be limited to 50.0% of eligible
inventory, subject to reduction by any amounts outstanding under letters of
credit. As stated in the commitment letter, the new credit facility will require
the Company to meet certain financial covenants, including minimum financial
ratios and profitability tests. The new credit facility will also prohibit the
Company from paying dividends without the bank's consent and will limit the
Company's capital expenditures to $5.0 million in 1997, $8.0 million in 1998 and
$10.0 million in 1999.
As part of its growth strategy, the Company plans to pursue opportunities to
acquire complementary businesses, although no such transactions are being
negotiated as of the date of this Prospectus. Accordingly, a portion of any
remaining proceeds of the Offering may be used to fund one or more potential
acquisitions that complement the business of the Company. To the extent that the
foregoing cash resources are insufficient to fund the purchase price of future
acquisitions, if any, or the operations of any acquired business, additional
external capital may be required. There can be no assurance that additional
financing will be available on reasonable terms or at all.
Management believes that the net proceeds of the Offering, together with
operating cash flow and borrowings under its credit facilities, will be
sufficient to complete the Company's fiscal 1997 and fiscal 1998 store expansion
program and to satisfy the Company's other capital requirements through fiscal
1997 and fiscal 1998. The Company's capital requirements may vary significantly
from those anticipated depending upon such factors as operating results, the
number and timing of new store openings, and the number and size of any future
acquisitions.
IMPACT OF INFLATION
Management does not believe that inflation has had a material adverse effect
on the Company's results of operations. However, the Company cannot predict
accurately the effect of inflation on future operating results.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
During fiscal year 1996, the Company implemented Statement of Financial
Accounting Standards (SFAS) No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF and SFAS No. 123, ACCOUNTING
FOR STOCK-BASED COMPENSATION. In February 1997, the Financial Accounting
Standards Board issued SFAS No. 128, EARNINGS PER SHARE.
SFAS No. 121 requires the recognition of an impairment loss when the
carrying amount of a long-lived asset may not be recoverable. Implementation of
this accounting standard had no effect on the Company's financial position or
results of operations.
SFAS No. 123 establishes an alternative method (the "fair value" method) of
accounting for compensation in connection with stock issued to employees and
permits companies to elect to continue measuring and recording compensation
costs relative to stock option plans in accordance with the provisions of
Accounting Principles Board (APB) Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, and make pro forma disclosure of net income and net income per share
as if the fair value method of valuing stock options had been applied. As
described in Note 5 to the Consolidated Financial Statements, the Company
elected to continue measuring and recording compensation costs relative to stock
option plans in accordance with the provisions of APB No. 25. Pro forma net
income and net income per share calculations indicated that net income would
have been unchanged if the fair value method had been used.
37
<PAGE>
SFAS No. 128 changes the method of calculating earnings per share and is
effective for interim and annual periods ending after December 15, 1997. It
requires a dual presentation of basic and diluted earnings per share. Basic
earnings per share will be computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted earnings per share will reflect the potential dilution if
securities or other contracts to issue common stock were exercised or converted
into Common Stock. Early application is not permitted, and all periods presented
must be restated when SFAS No. 128 is implemented. Management is in the process
of determining the effects of implementing SFAS No. 128.
38
<PAGE>
BUSINESS
THIS PROSPECTUS CONTAINS, IN ADDITION TO HISTORICAL INFORMATION,
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE THOSE DISCUSSED BELOW, AS WELL AS THOSE DISCUSSED UNDER
"RISK FACTORS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS."
Track 'n Trail is one of the largest full-service specialty retailers in the
United States focusing on a broad range of high-quality casual, outdoor and
adventure footwear. The Company has increased its store base and net sales each
year since inception. In addition, the Company's net income has grown at a
compound annual rate of 37.5% from $1.1 million in fiscal 1993 to $2.9 million
in fiscal 1996, after giving effect to assumed C corporation income taxes.
As of August 23, 1997, the Company operated 135 stores in 24 states under
the Track 'n Trail and Overland Trading names. All but three of these stores
were located in regional or super-regional shopping malls, concentrated in
California, the Midwest and the Northeast. Each store offers a wide range of
rugged walking and fashion casual shoes, sandals and boots, featuring brands
such as Timberland, Dr. Martens, Birkenstock, Vans, Teva, Airwalk, Clarks, Ecco
and Rockport.
The Company targets middle to upper income consumers, with the Track 'n
Trail stores focusing on consumers in the 15- to 40-year-old age group and the
Overland Trading stores focusing on the 25- to 55-year-old age group. The
Company markets to these two different customer segments through distinct
merchandise assortments and store designs. The Track 'n Trail stores offer a
merchandise selection that emphasizes fashionable, performance-oriented footwear
and typically feature an all-glass front, often accented with rock fixtures, and
earth-tone interiors reminiscent of an outdoor setting. The Company's Overland
Trading stores are merchandised and designed to appeal to a slightly older and
more conservative consumer, with a focus on traditional and comfort-oriented
styles displayed in a contemporary, natural wood setting. The Company operates
these two distinct retail concepts to capitalize on the rapid population growth
in the 15- to 24-year old age group and the 40- to 55-year-old age group, which
the U.S. Bureau of the Census estimates will grow 19.4% and 21.7%, respectively,
from 1996 to 2010. Track 'n Trail stores average approximately 1,881 square feet
in size, while the Overland Trading stores currently average approximately 1,393
square feet. As of August 23, 1997, the Company operated 100 Track 'n Trail
stores in 23 states, and 35 Overland Trading stores in seven states.
The Company obtained 33 Overland Trading stores by acquiring control of
Overland Management Corporation ("Overland") on October 25, 1996. Overland
generated net sales of approximately $23.8 million and total store contribution
of approximately $2.4 million for the 12 months preceding the acquisition, under
prior management. In addition to obtaining a distinct retail venue, by acquiring
Overland the Company strengthened its presence in the northeastern United
States. The Company also believes that the acquisition increases its purchasing
power and negotiating position with suppliers and real estate developers,
permits it to realize operational economies of scale, and increases the
potential number of stores it can open in both existing and future markets.
INDUSTRY BACKGROUND
According to published industry sources, total retail footwear sales in the
United States during 1996 were approximately $36.8 billion, representing a 3.4%
increase over 1995 retail footwear sales. Of that total, approximately $19.7
billion, or 53.5%, was derived from casual and rugged shoes, boots and sandals,
including hiking, work, winter weather and casual western boots. Casual footwear
expenditures, which accounted for $17.7 billion in retail sales in 1996, grew
6.6% from 1995 levels of $16.6 billion, or at almost twice the rate of the total
footwear market. Rugged footwear increased 17.6% to $2.0 billion in 1996 from
$1.7 billion in 1995 and has grown at a compound annual rate of 30.0% since
1992. These two categories are projected by published industry sources to
continue to outpace the overall footwear market, growing 6.2% and 13.7% per
year, respectively, over the next five years compared to projected overall
annual
39
<PAGE>
industry growth of 4.0%. By comparison, athletic footwear has grown only 3.1%
annually since 1992 and grew only 2.6% to $12.1 billion in 1996 from $11.8
billion. The growth of the athletic shoe segment of the industry is expected to
continue to slow and underperform the overall footwear market, growing only 2.4%
per year for the next five years.
The footwear industry historically has been served by a variety of retail
distribution channels, including department stores, mall-based specialty
footwear retailers, traditional shoe stores, outdoor specialty retailers,
sporting goods stores and other retailers. Family shoe stores and specialty shoe
stores are expected to account for approximately 20.8% of all footwear sold at
retail in 1997. Management believes that few of the retailers providing footwear
in these formats are focused exclusively on casual, outdoor and adventure
footwear and, of those that are, even fewer carry the depth and breadth of
merchandise carried by the Company. Management believes that this segment of the
industry is very fragmented and that the Company is one of the largest retailers
dedicated to this niche.
OPERATING STRATEGIES
The Company's goal is to become the premier destination specialty retailer
of better casual, outdoor and adventure footwear. To accomplish its goal, the
Company is pursuing the following operational strategies:
- BRAND NAME MERCHANDISE. Management believes that brand name identity is of
paramount importance to its target customer in making footwear purchasing
decisions. The Company focuses on carrying authentic, well-established
brand names for each product category. For example, the Company offers the
Timberland brand for quality hiking, work, performance and casual boots
and shoes. For younger buyers of "alternative" footwear, the Company
offers Dr. Martens, Vans, Simple and Airwalk shoes. The Company features
the Ecco and Rockport brands in the walking shoe and rugged walking
category and the Birkenstock brand in walking sandals. In the category of
performance, water and active sandals, the Company offers the Teva brand.
Management believes that each of the foregoing brands is recognized as one
of the originals in the primary category of footwear it represents.
- CUSTOMER SERVICE AND CONVENIENCE. The Company is committed to achieving
customer satisfaction and to building a loyal customer base by providing a
high level of knowledgeable, attentive and personalized customer service.
The Company believes that educating consumers about the features and
benefits of its product offerings is a critical component of its success,
and management considers its sales associates' knowledge of the Company's
customers and products to be essential to its marketing approach and
customer satisfaction. The Company's extensive employee training and
development programs are designed to provide its field personnel with the
knowledge and skills needed to understand and communicate the performance
characteristics of the Company's merchandise, and to better serve its
customers' needs.
- CAPITALIZE ON TWO DISTINCT DEMOGRAPHIC GROUPS. Management believes that
the Company's distinct Track 'n Trail and Overland Trading retail concepts
enable it to serve two diverse and rapidly growing demographic groups.
Track 'n Trail stores are designed and merchandised to target 15- to
40-year-olds, while Overland Trading stores target 25- to 55-year-olds.
Although the customer base of the two concepts overlaps to some extent,
the Track 'n Trail concept is intended to focus more on active and
performance-oriented lifestyles, which it believes are particularly
popular with the fast-growing 15- to 24-year-old age group. The United
States Bureau of the Census estimates that the 15- to 24-year-old age
group included 35.9 million people in 1996 and will expand 19.4% to 42.9
million people by 2010. Overland Trading stores are designed to appeal
more to the large and growing 40- to 55-year-old age group, which the U.S.
Bureau of the Census estimates will grow 21.7% from 55.5 million people in
1996 to 67.6 million people in 2010. Management plans to differentiate the
two retail concepts to a greater degree in malls in which the Company
operates both concepts, and slightly less so in malls in which the Company
operates only one store.
40
<PAGE>
- FOCUSED MERCHANDISING STRATEGY. To tailor merchandise mix to individual
stores' customer profiles, increase inventory efficiency and minimize lost
sales due to out-of-stock occurrences, the Company analyzes detailed sales
and inventory data generated by the Company's advanced information and
distribution systems on a daily basis. The Company's systems, which
feature automatic replenishment, point-of-sale ("POS") data collection and
electronic data interchange ("EDI"), capture net sales and inventory data
daily on a store-by-store basis for each stock keeping unit ("SKU").
- RECOGNIZE AND RESPOND TO CHANGING LIFESTYLE TRENDS. The Company strives to
recognize and quickly respond to lifestyle trends that affect footwear
customer preferences. Most recently, prevailing lifestyle trends that have
affected footwear sales have included (i) the growth in alternative sports
such as skate, wake and snow boarding, in-line skating and mountain biking
as well as the footwear trends these sports have inspired, (ii) the
movement to outdoor activities and to nature as evidenced by the
resurgence of walking, hiking, biking, fly fishing and camping and (iii)
the increased acceptance of casual dress for both work and social
settings.
Management believes that it has developed strong relationships with the
primary suppliers of the more than 100 brand names that the Company
carries. These relationships provide access to market information
regarding emerging merchandise trends. Management believes that the
breadth and strength of these relationships, together with the Company's
focused merchandising strategy, provide the Company with the flexibility
necessary to permit it to respond accurately and quickly to changing
customer preferences.
- ESTABLISH COMPLEMENTARY PRIVATE LABEL BRANDS. The Company's brand strategy
is complemented by its private label merchandise, which is marketed in
several product categories under brand names including Forza-TM-,
Mole-TM-, New Terrain-TM-, Nordic Trail-TM- and Coloma Trail-TM-. Private
label merchandise, which represented approximately 12.0% and 8.7% of total
net sales in fiscal 1996 and the first six months of fiscal 1997,
respectively, has provided the Company with higher maintained gross
margins than branded products. The Company's private label strategy is to
offer merchandise with quality and features equal or superior to branded
products at lower prices.
GROWTH STRATEGIES
The Company's senior management team has successfully increased the store
base and net sales level each year since joining the Company, and intends to
continue to build and strengthen the Company's infrastructure. To enhance the
Company's ability to continue to grow through new store openings and
acquisitions, the Company currently plans to lease a new corporate headquarters
and distribution facility in 1999, which will be sufficient to supply at least
500 stores when expanded to its full anticipated capacity. The Company has also
made and will continue to make investments in management information systems.
Management has developed the following strategies to accelerate the Company's
growth and increase its future profitability:
- NEW STORE OPENINGS. The Company plans to strengthen its position in its
current markets by selectively opening new Track 'n Trail and Overland
Trading stores in markets with attractive demographics and in which
management believes the Company can gain economies of scale in management
and distribution. In determining new store locations, the Company
considers regional and local economic conditions, mall locations, site
locations within the mall, vacancy rates, sales per square foot, "anchor"
tenant stores, tenant mix, consumer traffic, competition and occupancy,
construction and other costs associated with opening a store. By
solidifying the Company's position in certain markets, management believes
that the Company can establish a higher degree of name recognition through
increased market representation and a correspondingly stronger market
presence. In addition, management believes that new store openings will
permit the Company to realize greater distribution efficiencies. The
Company plans to open approximately 20 stores in fiscal 1997 and at least
30 stores in fiscal 1998.
- COMPARABLE STORE NET SALES GROWTH. Management plans to leverage the
increased market presence and recognition gained by opening new stores to
drive comparable store net sales increases in
41
<PAGE>
existing markets. Management also believes that the Company can achieve
comparable store net sales growth in its recently acquired Overland
Trading stores by (i) implementing the store-by-store sales analysis and
focused merchandising strategies employed in the Track 'n Trail stores,
(ii) supplementing existing assortments with style additions and private
label merchandise, (iii) improving inventory management to reduce lost
sales due to out-of-stock occurrences and (iv) emphasizing accessories
sales through the sales associate training programs currently employed at
the Track 'n Trail stores.
- GROSS MARGIN IMPROVEMENT AND OPERATING EXPENSE CONTROLS. The Track 'n
Trail store contribution for fiscal 1995 and fiscal 1996 as a percentage
of net sales was approximately six percentage points higher than that of
the recently acquired Overland Trading stores for the fiscal year prior to
the Overland acquisition. The superior performance of Track 'n Trail
stores reflects a higher maintained gross margin and better management of
store-level operating expenses. Management intends to improve the
maintained gross profit levels of the Overland Trading stores, with the
goal of achieving results similar to those of the Track 'n Trail stores,
by (i) implementing the Company's MIS systems and focused merchandising
strategies, (ii) taking advantage of increased purchasing economies of
scale, (iii) selectively eliminating less profitable styles, (iv)
increasing sales associates' emphasis on accessories sales at Overland
Trading stores and (v) broadening these stores' offering of private label
footwear, which carries higher maintained gross margins than branded
products. The Company also intends to improve management controls and
accountability at the Overland Trading stores, leveraging the systems
already in place at Track 'n Trail stores, in an effort to reduce Overland
Trading store-level expenses as a percentage of net sales.
- ADDITIONAL ACQUISITIONS. Management believes that the market for
high-quality outdoor, casual and adventure footwear is large and
fragmented. Accordingly, management intends to identify opportunities to
acquire one or more regional specialty footwear retailers in this market.
Management plans to pursue such opportunities where, as in the case of the
Overland acquisition, it believes that (i) the target company's stores are
strategically well-located within their local market and regionally
well-located within the United States, (ii) the Company can bring
merchandising and operational efficiencies and improvements to the target
company's operations, (iii) the retail concept of the target company fits
or can be easily adapted to Track 'n Trail's strategic objectives and (iv)
the acquisition can be accomplished on terms advantageous to the Company.
MERCHANDISING
The Company's merchandising philosophy is to maintain a core group of basic
styles while identifying and stocking emerging brands and styles. The Company
avoids taking significant inventory risk on new items by carefully testing and
monitoring their sales. The Company generally tests and monitors numerous new
styles each year. Typically, a new style is tested initially in approximately
ten stores. Successful new styles are then tested in 20 to 30 additional stores.
After further evaluation, a new style may be rolled out to a broader segment of
stores or system-wide. New styles are rolled out selectively, with attention to
test results in particular regions or in stores known to serve a higher
percentage of a certain demographic group. Each store typically carries 250 to
300 styles.
Merchandising decisions, including merchandise mix, pricing, promotions and
markdowns, are made at the Company's corporate offices. The Company's product
purchasing is coordinated through a centralized merchandising department under
the direction of its Executive Vice President--Merchandising. The merchandising
department currently consists of 20 persons, including two merchandising
managers, five buyers for the Track 'n Trail stores and two buyers for the
Overland Trading stores. The Company's Track 'n Trail and Overland Trading
buyers operate independently, allowing them to focus on their distinct
customers' merchandise preferences and lifestyles. These buyers are supported by
three stock analysts and six assistants, who manage the Company's computerized
merchandise planning system and other systems personnel. Management also
receives input from the Company's 17 district managers regarding local or
regional factors relevant to merchandising decisions.
42
<PAGE>
FOOTWEAR
The principal categories of footwear offered by Track 'n Trail and Overland
Trading stores, and selected vendors for each, are summarized below:
<TABLE>
<CAPTION>
SELECTED TRACK SELECTED
'N TRAIL OVERLAND TRADING
CATEGORY DESCRIPTION VENDORS VENDORS
<S> <C> <C> <C>
Rugged Casual Rugged footwear with technical features Ecco Clarks
designed to perform on adverse terrain, Merrill Ecco
including internal support systems, Rockport H.H. Brown
waterproof leathers or membranes, comfort Timberland Rockport
technology built into the midsole and Timberland
insole, and technical outsoles.
Walking/Comfort Traditional walking shoes incorporating Clarks Clarks
comfort technology in design and Ecco Ecco
construction. Rockport Rockport
Joseph Seibel
Hikers Functional backpacking, lightweight hiking Rockport Rockport
and approach boots and shoes. These Solomon Timberland
products contain the technical features and Timberland
benefits necessary to support activities Vasque
ranging from heavy backpacking to
recreational day hiking and trail running.
Work/Fashion Functional (work, field and duty) and Caterpillar Dr. Martens
fashion boots and shoes, including steel Dr. Martens H.H. Brown
toe, insulated, waterproof and ANSI Timberland Timberland
approved footwear.
Sandals Comfort footbed, sports specific, casual Birkenstock Birkenstock
and fashion sandals, as well as clogs. Born Born
Clarks Clarks
Dr. Martens Dr. Martens
Simple Rockport
Stegmann Joseph Seibel
Teva Stegmann
Teva
Sportleisure Youth-oriented and alternative products Airwalk --
designed for skateboarding, BMX biking and Etnies
other "extreme" sports activities. Duffs
Simple
Vans
Lightweight Casual Lightweight footwear, including boat shoes Born Born
and opened-up casuals. Sperry Clarks
Timberland Rockport
Joseph Seibel
Sperry
Timberland
Cold Weather Seasonal products designed for foul Columbia Canada North
weather. Most products are waterproof and Sorel Columbia
temperature rated. Ugg Sorel
Ugg
</TABLE>
43
<PAGE>
Private label merchandise accounted for approximately 12.0% of the Company's
net sales in each of fiscal 1995 and fiscal 1996. The Company sells its private
label merchandise under names such as Forza-TM-, New Terrain-TM-, Mole-TM-,
Nordic Trail-TM- and Coloma Trail-TM-. The Company introduced private label
merchandise at Overland Trading stores in fiscal 1997.
ACCESSORIES
The Company also offers accessories, including socks and shoe care products
such as sprays and polishes. Some of these accessories carry the same brand
names as the shoes, boots and sandals sold by the Company, although most are
supplied by different manufacturers than the Company's footwear suppliers.
Accessories accounted for approximately 6.7% of net sales at Track 'n Trail
stores in fiscal 1996, and accounted for less than 2.0% of net sales at Overland
Trading stores for Overland's fiscal year ended August 3, 1996. The Company has
increased accessories sales to 3.7% of Overland's net sales in the 26 weeks
ended June 28, 1997, and intends to continue to increase accessories sales at
Overland Trading stores in fiscal 1997.
PURCHASING AND SOURCING
The Company believes that its ability to buy in large quantities directly
from suppliers helps it to plan merchandise flow effectively and to obtain
competitive pricing and trade terms. Although the Company deals with
approximately 100 vendors, a substantial portion of the Company's merchandise is
provided by a limited number of brand name suppliers. The Company's ten largest
suppliers accounted for approximately 66.8% and 68.0% of the Company's net sales
in fiscal 1995 and fiscal 1996, respectively, of which eight were the same in
each period. In fiscal 1996, Dr. Martens, Timberland and Birkenstock accounted
for 18.3%, 12.8% and 8.7% of the Company's total net sales, respectively.
The Company strives to build and maintain strong and interactive
relationships with its major suppliers. Buyers meet regularly with major vendors
to stay abreast of new product lines, new features and changes in styling
direction. The Company frequently shares information with its vendors about
market research, merchandising trends and the Company's goals. In addition, the
Company has established EDI programs with most of its major suppliers in order
to improve its inventory efficiency. The Company develops and transmits purchase
orders through its EDI links, and receives information about order status,
delivery times and pricing. These programs thus permit more rapid merchandise
replenishment and faster inventory turns. The Company believes that its
relationships with major suppliers improve its ability to obtain desired styles
and give the Company flexibility to adjust to shifting market demand for
different vendors' products from season to season. In an effort to secure
appropriate quantities of items in high demand, the Company advises its major
vendors of its forecasted needs approximately six to 12 months in advance.
However, the Company has no long-term purchase contracts or other contractual
assurances of continued supply or pricing with any of its suppliers.
Most private label products are sourced from the Far East (primarily China,
Taiwan and South Korea) and Europe (primarily Spain, Italy and Portugal). The
Company's Product Development Manager is responsible for identifying developing
styles for private label manufacture, arranging for product design and locating
manufacturers with the assistance of local agents. The Company actively seeks
advantageous sourcing opportunities and works with a variety of manufacturers.
During fiscal 1996, the Company relied on approximately 25 private label
manufacturers. Generally, private label products are delivered to the Company
approximately four to six months after initial order placement, with longer lead
times for products manufactured in the Far East. Upon order, the Company
typically posts an irrevocable letter of credit in the amount of the purchase
price. The Company has no long-term contracts with its manufacturing sources and
competes with other companies for production facilities. See "Risk
Factors--Dependence on Major Suppliers," "Risk Factors--Uncertainties Associated
with Private Label Sourcing," "Risk Factors--International Purchasing Risks" and
"Risk Factors--Potential Foreign Currency Fluctuations."
44
<PAGE>
STORE OPERATIONS
The Company operated 135 stores as of August 23, 1997, all but three of
which were located in regional or super-regional shopping malls. Each store
typically carries 250 to 300 styles of footwear. Although all stores are
integrated into the Company's inventory control, distribution and management
information systems, Track 'n Trail and Overland Trading stores differ in format
and decor because of their different targeted customer bases.
TRACK 'N TRAIL STORE FORMAT
The Track 'n Trail storefront design typically features an all glass 20- to
30-foot front, enabling customers to view featured products on display as well
as the extensive product assortment available inside the store. The edges of the
storefront are often accented with rock fixtures that are a signature element in
the Track 'n Trail design theme. Product display fixtures at several stores are
designed to represent rock formations, which may also be incorporated into
customer seating fixtures and waterfall display pieces. The store interiors
feature natural-tone walls, accent trim, furniture and fixtures. Floor coverings
are natural wood or soft earth-tone carpeting, and often include colorful murals
depicting outdoor scenes, providing an environment that is both aesthetically
pleasing and complementary to the product displays. Each style of footwear is
displayed by category, such as hiking boots or sandals. Merchandise is typically
featured on rock displays or fixtures along the walls of the stores, with
product categories indicated by an overhead sign. Track 'n Trail stores range in
size from 931 to 2,650 square feet and average approximately 1,881 square feet
in size, of which 40% to 60% is devoted to the sales floor.
OVERLAND TRADING STORE FORMAT
Overland Trading stores generally feature interiors that are well lighted,
open and inviting. Most stores have two display windows in which a
representative collection of merchandise is presented. Store furnishings are
constructed of high-quality light woods that contrast against the rich, emerald
green floor coverings. Management believes that the Overland Trading stores'
more traditional environment conveys the high quality of merchandise and service
sought by the Overland Trading concept's more mature target consumer. The
Overland Trading merchandising approach focuses on the high-quality brands
carried. Each major brand is housed as a "collection" in a distinct wall
section, which is delineated by architectural elements and by a distinctive,
back-lit overhead sign carrying the vendor's logo. For example, men's Timberland
footwear is presented as a collection within a defined wall section, with a
back-lit Timberland sign overhead. Overland Trading stores have sales floors
similar in size to those at Track 'n Trail stores, but have smaller stockrooms.
The Company plans to incorporate larger stockrooms in future Overland Trading
stores in order to minimize missed sales opportunities due to shortages of
high-demand products. Overland Trading stores average approximately 1,393 square
feet in size.
OUTLET STORES
The Company consolidates older or slow-moving merchandise to two outlet
stores for additional or final markdown. Inventory transfers are initiated by
the merchandising department and are effected directly between the retail store
and the outlet store. The Company's Track 'n Trail outlet store, opened in
August 1996, currently features a contemporary "industrial" decor, with a moving
conveyor belt carrying merchandise along the storefront's perimeter. The Company
also operates an Overland Trading outlet store. The Company is currently
evaluating the merchandising, format and interiors of its outlet stores.
STORE MANAGEMENT AND COMPENSATION
The Company's Vice President-Stores, two regional managers and 17 district
managers visit each of the Company's stores on a regular basis to review the
implementation of Company policy, monitor operations and review inventories and
the merchandise presentation. Each store has a store manager who
45
<PAGE>
is responsible for supervision and overall operations, two to three assistant
managers and approximately four to eight sales associates, most of whom work
part-time.
The regional, district and store managers receive fixed salaries and are
eligible for incentive bonuses, primarily based on their achievement of the
goals stated in the Company's Management by Objective ("MBO") program. The MBO
program focuses on reviewing, managing and improving three key objectives: net
sales, selling cost and inventory shrinkage. All field incentive compensation
programs are based upon goals within these three key objectives. To support the
MBO program, the Company has developed an appraisal system to monitor each
store's performance on a monthly and quarterly basis. Each appraisal focuses on
a store's performance in a key compliance area such as customer service, visual
presentation, store operations or loss prevention, to support performance in the
three key MBO objectives. The Company also monitors many other store-level
variables from its corporate offices, including refund levels, register
variances, telephone bills and similar items.
The Company intends for store employees to focus a substantial portion of
their efforts on customer service. As a consequence, the Company has centralized
as many administrative functions as possible, including buying, development of
in-store merchandising displays, inventory allocation, human resources and
accounting functions, at its El Dorado Hills, California corporate offices.
CUSTOMER SERVICE
The Company is committed to achieving customer satisfaction and to building
a loyal customer base by providing a high level of knowledgeable, attentive and
personalized customer service. The Company believes that educating consumers
about the features and benefits of its product offerings is a critical component
of its success, and management considers its sales associates' knowledge of the
Company's customers and products to be essential to its marketing approach and
customer satisfaction.
To develop knowledgeable, responsive sales associates, the Company has
devoted significant resources to developing and implementing employee
development and incentive programs. All store employees receive extensive
training on merchandise features, benefits and technology, as well as customer
relations and selling skills. The training program focuses on "six steps" to
achieve sales and customer satisfaction: greeting the customer; assessing his or
her needs; exceeding customer expectations; overcoming objections; suggestive
selling; and closing the sale. In addition to training from the store manager,
each employee attends regional product information seminars, receives in-store
training through vendor presentations and vendor-supplied videotapes, and is
required to complete a formal, written training program. Store managers are also
required to complete a 12-week training program, during which they are
instructed in the technical aspects of footwear, management skills and employee
relations. To provide managers with hands-on training, new store and district
managers are typically required to work alongside individuals in comparable
positions for two to three weeks before they are asked to perform their duties
without direct supervision. Managers also attend a minimum of three management
training meetings per year. Supplemental product information bulletins are
distributed frequently from the Company's corporate offices to educate store
managers and sales associates about new products as they are introduced. The
Company also employs an independent agency to send unidentified "mystery
shoppers" to Company stores, and to report on the service provided to these
shoppers by store personnel. The Company also monitors the level of customer
service on an ongoing basis through various initiatives, such as customer
comment forms and telephone surveys. The Company is implementing the foregoing
employee development and incentive programs and customer service initiatives at
its Overland Trading stores, and has undertaken a review of all of the policies
and procedures for Overland Trading store operations.
STORE LOCATIONS
The Company considers its ability to obtain attractive, high-traffic store
locations to be a critical element of its business and a key factor in the
Company's future growth and profitability. In determining
46
<PAGE>
new store locations, the Company considers regional and local economic
conditions and household income data, mall locations, site locations within the
mall, vacancy rates, sales per square foot, "anchor" tenant stores, tenant mix,
consumer traffic, competition and occupancy, construction and other costs
associated with opening a store. Site selection and lease negotiation are
supervised by the Company's Vice President-Real Estate and senior management.
The Company operated 135 stores in 24 states as of August 23, 1997, as set
forth in the following table, and has signed leases for an additional two stores
which have not commenced commercial operations.
TRACK 'N TRAIL STORES
<TABLE>
<CAPTION>
CURRENT
STATE STORES
- --------------------------------------------- -------------
<S> <C>
Alaska....................................... 2
California................................... 26
Colorado..................................... 6
Connecticut.................................. 1
Idaho........................................ 1
Illinois..................................... 8
Indiana...................................... 5
Maine........................................ 1
Maryland..................................... 1
Massachusetts................................ 3
Michigan..................................... 10
Minnesota.................................... 2
<CAPTION>
CURRENT
STATE STORES
- --------------------------------------------- -------------
<S> <C>
Missouri..................................... 1
Nevada....................................... 1
New Hampshire................................ 2
New York..................................... 7
Ohio......................................... 5
Oregon....................................... 3
Pennsylvania................................. 3
Tennessee.................................... 1
Virginia..................................... 1
Washington................................... 7
Wisconsin.................................... 3
</TABLE>
OVERLAND TRADING STORES
<TABLE>
<CAPTION>
CURRENT
STATE STORES
- --------------------------------------------- -------------
<S> <C>
Connecticut.................................. 2
Massachusetts................................ 9
New Jersey................................... 4
New York..................................... 10
<CAPTION>
CURRENT
STATE STORES
- --------------------------------------------- -------------
<S> <C>
Ohio......................................... 5
Pennsylvania................................. 2
Virginia..................................... 3
</TABLE>
The Company leases all of its stores. Initial lease terms of the Company's
stores generally range from eight to ten years in duration without renewal
options, ten-year leases being the most common. The leases generally provide for
a fixed minimum rental plus a percentage of store sales in excess of a specified
amount.
MARKETING
The Company's policy is to price its merchandise competitively with
department stores and specialty footwear retailers in the particular mall in
which each Company store is located. The Company is primarily a full-price
retailer, selling most merchandise at full retail prices. However, the Company
conducts promotions that generally revolve around themes such as back-to-school,
and holiday seasons. In addition, the Company promotes individual items as
needed and consolidates seasonal and slow-moving merchandise into selected
mall-based stores prior to consolidation into its two outlet format stores for
liquidation.
The Company relies primarily on mall traffic and the visual appeal of its
stores to attract customers, and on the breadth of its product offering and the
quality of its customer service to retain them. In-store promotions with
point-of-purchase materials are also an important part of the Company's
marketing
47
<PAGE>
strategy. The Company also takes advantage of advertising and promotional
assistance from many of its suppliers, which takes the form of cooperative
advertising programs, point-of-purchase materials, product training for
employees and other programs. The Company spends very little on advertising,
primarily contributing to mall merchant association funds which will advertise
both the mall and individual stores within the mall.
DISTRIBUTION
The Company believes that strong distribution support for its stores is a
critical element in its strategy to maintain a low cost operating structure and
to expand in the future. The Company leases a single 24,192 square foot
distribution center in El Dorado Hills, California and manages the distribution
process centrally from its corporate offices located at the same site. The
Company also leases a 6,000 square foot staging facility in Rancho Cordova,
California. The Company receives approximately 85.0% of its merchandise at its
central distribution center, of which approximately two-thirds is distributed to
Track 'n Trail stores and one-third is distributed to the Overland Trading
stores. Other merchandise is drop-shipped from vendors directly to individual
stores. The Overland Trading stores currently receive a higher proportion of
drop-shipped merchandise than the Track 'n Trail stores. The Company intends to
process an increasing percentage of Overland Trading merchandise through its
central distribution center, as it expands the stockroom capacity of future
Overland Trading stores.
The central distribution center is operated primarily as a "cross-docking"
facility rather than as a warehouse. The Company attempts to retain minimal
inventory at this facility, although it will occasionally back-stock high-demand
items that are expected to be in short supply and inventory for peak seasonal
needs. The central distribution center has multi-access docks, enabling the
Company to receive and ship simultaneously and to pack separate trailers for
shipments to different regions of the country at the same time.
Upon receipt at the central distribution center, merchandise is inspected,
recorded in the Company's MIS system, allocated to stores by the system's
automatic replenishment function, price tagged and repackaged for distribution
(to the extent it was not prepared and pre-ticketed by the vendor according to
individual store). Merchandise is typically shipped via common carrier from the
central distribution center to the various stores once a week, or as needed
during peak seasonal periods.
The Company believes that its current central distribution facility will
support as many as 200 stores, which the Company believes is sufficient to
continue to service existing stores and to accommodate anticipated growth
through mid-1999. The current corporate facility's lease expires in March 1998;
however, the Company intends to exercise an option to extend the lease to March
1999. The Company presently anticipates moving its distribution facility and
corporate offices to a larger, leased "build-to-suit" facility in 1999, which is
expected to have 45,000 square feet of distribution facility space initially,
and could accommodate at least 500 stores if expanded to its anticipated full
capacity of 80,000 square feet.
MANAGEMENT INFORMATION SYSTEMS
The Company has a computerized management information system that includes a
network of terminals at the corporate offices to support management decision
making, along with PC-based POS computers at the stores that are connected via
modem to the computers at the corporate offices. Each store's POS system
accumulates detailed sales transaction data that is polled by the Company's main
system nightly and reviewed by management each day. The system's perpetual
inventory feature enables the Company's buyers to review and analyze daily the
inventory levels at each individual store by department, class and SKU in order
to replenish fast-selling items on a timely basis. The system also includes an
automated replenishment system for core products that orders replacement stock
of such products based on factors such as current sales trends or store
inventory levels. The minimal inventory that is maintained at the Company's
central distribution center is also managed through daily inventory
48
<PAGE>
management reports. During fiscal 1996, the Company upgraded the computer
hardware at its corporate offices to accommodate its presently anticipated
growth. The Company completed the integration of the Overland Trading stores
into its management information system in January 1997.
COMPETITION
The business in which the Company is engaged is highly competitive. Most of
the items sold by the Company are sold by department stores, outdoor and
sporting goods stores, athletic footwear stores and traditional shoe stores.
Some of these stores are owned or franchised by major suppliers of the Company.
Many of the stores with which the Company competes are units of large national
and regional chains that have substantially greater financial and other
resources than the Company. To a lesser extent, the Company competes with mail
order retailers. In many cases, the Company's stores are located in shopping
malls in which one or more of its competitors also has a store.
The Company believes that it has been able to compete favorably with its
competitors by operating attractive, well-stocked stores in high retail traffic
areas, offering competitive prices and providing knowledgeable and courteous
customer service. The Company seeks to provide competitive pricing by
effectively mixing high profile, brand name merchandise with private label
merchandise and opportunistic purchases of other brand name merchandise, and by
controlling both store and administrative expenses.
EMPLOYEES
As of June 28, 1997, the Company had approximately 475 full-time employees
and 470 part-time employees, none of whom is represented by a labor union. The
number of part-time employees fluctuates depending on seasonal needs. The
Company considers its relationship with its employees to be good and has not
experienced any interruptions of operations due to labor disagreements.
LEGAL PROCEEDINGS
Although the Company is subject to various claims and legal actions that
arise in the ordinary course of its business, the Company is not presently a
party to any material legal proceedings.
49
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------ --- ------------------------------------------------
<S> <C> <C>
David L. Suechting, Jr.......................... 38 Chairman of the Board
Gregory M. Kilgore.............................. 48 President, Chief Operating Officer and Director
John E. Wilkinson............................... 47 Executive Vice President-Marketing
Daniel J. Nahmens............................... 39 Vice President-Finance, Chief Financial Officer,
Treasurer and Secretary
David T. Morgan................................. 54 Vice President-Real Estate
William Forsberg................................ 52 Vice President-Stores
Barbara J. Suechting............................ 56 Director
Helen C. Bulwik................................. 48 Prospective Director
Steven D. Tough................................. 46 Prospective Director
</TABLE>
DAVID L. SUECHTING, JR. has served as Chairman of the Board since the
Company's organization in March 1997. Mr. Suechting co-founded Track 'n
Trail-California and has served as Chairman of the Board since January 1993.
From January 1993 to April 1996, Mr. Suechting served as President of Track 'n
Trail-California. Prior to that time, he served Track 'n Trail-California in
various capacities, including Vice President-Stores from July 1991 to April
1996, Vice President-Operations from October 1989 to July 1991, Vice
President-Merchandise from February 1982 to October 1989 and as Store
Manager/District Manager from 1980 to February 1982.
GREGORY M. KILGORE has served as President and Chief Operating Officer of
the Company since its organization in March 1997. Mr. Kilgore has also served as
President and Chief Operating Officer of Track 'n Trail-California since April
1996. Prior to being appointed President, Mr. Kilgore served as Executive Vice
President and Chief Operating Officer from September 1991 to April 1996. From
May 1987 to September 1991, Mr. Kilgore functioned as interim President and
Chief Operating Officer of several turnaround and emerging retail operations.
From 1981 to 1987, Mr. Kilgore was Vice President-- Operations of Berman's
Leather Experts. Mr. Kilgore has served as a director of the Company since March
1997, and as a director of Track 'n Trail-California since July 1996.
JOHN E. WILKINSON has served Executive Vice President-Marketing of the
Company since its organization in March 1997. Mr. Wilkinson has also served as
Executive Vice President-Marketing of Track 'n Trail-California since June 1996.
From September 1991 to May 1996, he held the position of Vice
President-Marketing. From 1982 to September 1991, Mr. Wilkinson was associated
with Weinstock's Department Store, a division of Carter Hawley Hale, where he
held the positions of Senior Vice President and General Merchandise Manager from
1989 to 1991, Vice President and General Merchandise Manager from 1987 to 1989
and Divisional Vice President from 1982 to 1987.
DANIEL J. NAHMENS has served as Chief Financial Officer and Vice
President-Finance of the Company since its organization in March 1997. Mr.
Nahmens has also served as Chief Financial Officer and Vice President-Finance of
Track 'n Trail-California since November 1993, and as Treasurer since June 1996.
From August 1988 to November 1993, Mr. Nahmens served as Controller of Track 'n
Trail-California. From February 1988 to June 1988, he held the position of Chief
Financial Officer of Greenwood Development Co., a local chain of fast-food
stores. From October 1981 to February 1988, Mr. Nahmens was associated with Cal
Gas Corporation, a nationwide liquid gas retailer, where he last held the
position of Financial Accounting Manager. From 1980 to 1981, Mr. Nahmens was
employed by Peat Marwick, Mitchell & Co. (presently known as KPMG Peat Marwick
LLP) as a Certified Public Accountant.
50
<PAGE>
DAVID T. MORGAN has served as Vice President-Real Estate of the Company
since its organization in March 1997. Mr. Morgan has also served as Vice
President-Real Estate of Track 'n Trail-California since June 1996, and from
August 1992 to June 1996, he served as Director of Real Estate and Development.
From May 1990 to August 1992, Mr. Morgan was a Real Estate Representative of
Payless Shoe Source, a national retail shoe store chain, and from April 1986 to
May 1990, he was Vice President-Real Estate of Round Table Franchise
Corporation.
WILLIAM FORSBERG has served as Vice President-Stores of the Company since
its organization in March 1997, and as Vice President-Stores of Track 'n
Trail-California since June 1996. Prior to joining Track 'n Trail-California,
Mr. Forsberg was President and Chief Operating Officer of New Century Co. Inc.,
an owner and operator of a chain of video stores and a chain of tailoring and
alteration stores, from April 1994 to June 1996. From October 1983 to April
1994, Mr. Forsberg was employed by Wilsons Suede & Leather, where he last held
the position of Director of In Store Operations. From 1974 to 1983, he was
Regional Manager of Fanny Farmer Candy Shops.
BARBARA J. SUECHTING has served as a director of the Company since its
organization in March 1997. Ms. Suechting co-founded Track 'n Trail-California
and has also served as Secretary and a director since 1980.
HELEN C. BULWIK is expected to become a director of the Company immediately
following the consummation of the Offering. Ms. Bulwik has been President of
Seagate International, Inc., a management services and financial advisory
services firm based in Oakland, California, since 1988. She was Executive Vice
President of Palo Alto Consulting Center, a division of the Tom Peters Group (a
consulting firm), from 1987 to 1988. From 1982 to 1987, Ms. Bulwik was co-owner
and founder of Sanca International, Inc., a private label apparel manufacturer.
She served as General Manager of Bullock's Northern California from 1978 to 1982
and as Store Merchandiser and Buyer for Macy's California from 1972 to 1978.
STEVEN D. TOUGH is expected to become a director of the Company immediately
following the consummation of the Offering. Mr. Tough has served as Senior Vice
President of Operations of Foundation Health Corporation, a provider of managed
health care services based in Sacramento, California, since 1993. Mr. Tough has
also been President and Chief Operating Officer of Foundation Health Federal
Services, a subsidiary of Foundation Health Corporation, since 1990. He also
served as President and Chief Operating Officer of Foundation Health (a
California Health Plan) from 1988 to 1992.
The Company currently has authorized three directors. The Company intends to
expand the size of the Board to five directors, two of whom will be non-employee
directors, prior to the closing of the Offering. The size of the Board is
presently fixed at three, but upon expansion will be fixed at not less than
three nor more than nine members, to be divided into three approximately equal
classes serving staggered three-year terms or until their successors are duly
elected and qualified. As a result, approximately one-third of the total number
of directors will be elected each year.
The Board of Directors will also establish an Audit Committee and a
Compensation Committee prior to the closing of the Offering. The functions of
the Audit Committee will include recommending to the Board of Directors the
retention of independent auditors, reviewing the scope of the annual audit
undertaken by the Company's independent auditors and the progress and results of
their work, and reviewing the Company's financial statements, internal
accounting and auditing procedures and corporate program to ensure compliance
with applicable laws. The functions of the Compensation Committee will include
reviewing and approving executive compensation policies and practices, reviewing
salaries and bonuses for certain officers of the Company, administering the
Company's Stock Option Plan and other benefit plans, and considering such other
matters as may from time to time be referred to the committee by the Board of
Directors.
51
<PAGE>
Directors of the Company who are not also employees of the Company or one of
its subsidiaries will receive $1,000 for each Board meeting attended and $750
for each committee meeting attended. No other director will receive cash
compensation for services as a director. All directors will, however, be
reimbursed for their expenses incurred in attending meetings. In addition,
directors who are not common law employees or officers of the Company will
receive options to purchase 5,000 shares of the Company's Common Stock upon
their initial appointment as a director of the Company, and will receive options
to purchase 1,250 shares of Common Stock upon reelection at succeeding
stockholders' meetings. Certain of the Company's directors have received
distributions and loans from the Company in their capacity as stockholders. See
"Certain Transactions."
Officers are elected at the first board of directors meeting following the
stockholders' meeting at which directors are elected and serve at the discretion
of the Board of Directors. There are no family relationships among any of the
directors or executive officers of the Company, except that David L. Suechting,
Jr., the Chairman of the Board, is the son of Barbara Suechting, who is a
director.
EXECUTIVE COMPENSATION
The following table summarizes all compensation earned by or paid to the
Company's Chairman of the Board and to each of the Company's four most highly
compensated executive officers other than the Chairman of the Board whose total
annual salary and bonus exceeded $100,000, for services rendered in all
capacities to the Company during the fiscal year ended December 28, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
ANNUAL COMPENSATION SECURITIES
---------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION(1)
- --------------------------------------------------------------- ---------- ---------- ------------- -----------------
<S> <C> <C> <C> <C>
David L. Suechting, Jr. ....................................... $ 36,750 $ 0 0 $ 3,137
Chairman of the Board
Gregory M. Kilgore ............................................ 153,951 158,000 350,618 5,977
President and Chief Operating Officer
John E. Wilkinson ............................................. 117,869 102,000 200,468 5,340
Executive Vice President-Marketing
Daniel J. Nahmens ............................................. 92,350 131,000 100,234 4,947
Vice President-Finance and Chief Financial Officer
David T. Morgan ............................................... 70,066 54,000 50,117 4,161
Vice President-Real Estate
</TABLE>
- ------------------------
(1) Represents Company-paid health and life insurance premiums and Company
contributions to the Company's 401(k) plan, as follows: Mr. Suechting,
$3,137 and $0; Mr. Kilgore, $2,638 and $3,339; Mr. Wilkinson, $2,638 and
$2,702; Mr. Nahmens, $2,638 and $2,309; and Mr. Morgan, $2,638 and $1,523.
The following tables set forth certain information as of December 28, 1996
and for the fiscal year then ended with respect to stock options granted to and
exercised by the individuals named in the Summary Compensation Table above.
52
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------ POTENTIAL REALIZED VALUE
NUMBER OF PERCENTAGE OF AT ASSUMED ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(4)
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------------
NAME GRANTED(#)(1)(2) FISCAL YEAR ($/SH) DATE(3) 5%($) 10%($)
- -------------------------- ----------------- --------------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
David L. Suechting, Jr.... 0 0 $ -- -- $ -- $ --
Gregory M. Kilgore........ 100,234 11.8 4.00 7/1/06 252,590 638,491
250,384 29.4 0.01 7/1/06 1,630,000 2,593,978
John E. Wilkinson......... 100,234 11.8 4.00 7/1/06 252,590 638,491
100,234 11.8 0.01 7/1/06 652,523 1,038,424
Daniel J. Nahmens......... 100,234 11.8 4.00 7/1/06 252,590 638,491
David T. Morgan........... 50,117 5.9 4.00 7/1/06 126,295 319,245
</TABLE>
- ------------------------
(1) The options listed in the table were originally granted under the 1996 Stock
Option Plan of Track 'n Trail-California, and will, upon adoption by the
Company of such stock option plan, be substituted with options to purchase
Common Stock of the Company.
(2) The options listed in the table vest ratably on an annual basis over a
five-year period, on December 15 of each year, except that 148,238 and
29,587 options granted to Mr. Kilgore and Mr. Wilkinson, respectively,
vested immediately upon grant. Upon the closing of the Offering, all
outstanding options will vest in full. See "--Stock Option Plan."
(3) The options will expire earlier than the stated expiration date upon a sale
of the Company.
(4) The 5% and 10% assumed rates of appreciation are mandated by the rules of
the Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future Common Stock price. There can be no
assurance that any of the values reflected in the table will be achieved.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED IN-THE-
UNEXERCISED OPTIONS AT MONEY OPTIONS AT FISCAL YEAR-
FISCAL YEAR-END(#) END($)(2)
---------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE(3) EXERCISABLE UNEXERCISABLE(3)
- ---------------------------------------------------- ----------- --------------- ------------ ---------------
<S> <C> <C> <C> <C>
David L. Suechting, Jr.............................. 0 0 $ -- $ --
Gregory M. Kilgore.................................. 188,713 161,905 1,993,972 1,459,385
John E. Wilkinson................................... 63,762 136,706 620,761 1,182,449
Daniel J. Nahmens................................... 20,046 80,188 140,322 561,316
David T. Morgan..................................... 10,023 40,094 70,161 280,658
</TABLE>
- ------------------------
(1) No stock options were exercised in fiscal 1996.
(2) Based on an assumed initial public offering price of $11.00 per share of
Common Stock (the midpoint of the Offering range) minus the exercise price,
multiplied by the number of shares underlying the options.
(3) All stock options will vest in full upon the closing of the Offering.
STOCK OPTION PLAN
In April 1997, the Company approved the assumption of the 1996 Stock Option
Plan of Track 'n Trail-California (the "Stock Option Plan" or the "Plan")
effective upon the Reorganization, and amended and restated the Plan, effective
as of the date of the Offering. Upon the Reorganization, options to purchase
53
<PAGE>
shares of the Company's Common Stock will be exchanged for all options to
purchase shares of the Common Stock of Track 'n Trail-California then
outstanding under the Plan.
The Stock Option Plan provides for awards in the form of options, including
incentive stock options ("ISOs") and nonstatutory stock options ("NSOs").
Employees, directors, consultants and advisors of the Company will be eligible
for the grant of NSOs, while only employees will be eligible for the grant of
ISOs. The Plan also provides for formula grants for non-employee directors of
the Company ("Outside Directors"). Each Outside Director will automatically
receive NSOs to purchase 5,000 shares of Common Stock upon initial appointment
as an Outside Director and, upon each annual stockholders' meeting following the
meeting at which such director was initially appointed, will receive NSOs to
purchase 1,250 shares of Common Stock (unless the Outside Director was appointed
prior to such a meeting, in which case the annual grant will occur at the second
annual meeting following the initial appointment). Outside Director options will
have a term of ten years and will vest at a rate of 25% on each anniversary of
the date of grant. Such options will become 100% vested upon a change of control
of the Company (defined as the acquisition without prior Board approval by a
person of 25% or more of the combined voting power of the Company's outstanding
voting securities). The number of shares available for issuance pursuant to
formula grants to Outside Directors will equal the number of shares with respect
to which NSOs are granted pursuant to the formula. In addition, Outside
Directors may, to the extent permitted by the Board of Directors, elect to
receive any director fees in NSOs.
Effective as of the Offering, a total of 1,055,735 shares of Common Stock
will be reserved for issuance pursuant to the exercise of stock options granted
under the Stock Option Plan.
The Stock Option Plan will be administered by the Compensation Committee,
which will consist of at least two directors who are "nonemployee directors," as
defined in Rule 16b-3 under the Securities Exchange Act of 1934. The Board of
Directors may amend the Stock Option Plan as desired without further action by
the Company's stockholders except as required by applicable law. The Plan will
continue in effect until terminated by the Board or, with respect to ISOs, for a
term of ten years from its original adoption date, whichever is earlier.
The consideration for each award under the Stock Option Plan will be
established by the Compensation Committee, but in no event will the option
exercise price for ISOs and Outside Director options be less than 100% of the
fair market value of the Common Stock on the date of grant. Awards for key
employees will have such terms and be exercisable in such manner and at such
time as the Compensation Committee may determine, and the Committee may permit
the deferred payment of awards. However, each ISO must expire no later than ten
years from the date of grant.
The Stock Option Plan provides that, in the event of a merger or
reorganization of the Company, outstanding options shall be subject to the
agreement of merger or reorganization.
As of June 28, 1997, the Company had outstanding options to purchase an
aggregate of 851,786 shares of Common Stock at a weighted average per share
exercise price of $2.36. Upon the closing of the Offering, a total of 224,076
shares of Common Stock will be available for future issuance under the Plan.
EMPLOYEE STOCK PURCHASE PLAN
The Employee Stock Purchase Plan (the "Purchase Plan") of the Company was
adopted by the Board of Directors in April 1997, to become effective as of the
closing of the Offering. The Purchase Plan will cover an aggregate of 150,000
shares of Common Stock and is intended to qualify as an employee stock purchase
plan within the meaning of Section 423 of the Code. The Purchase Plan will be
administered by a plan administrator appointed by the Board. Under the Purchase
Plan, the plan administrator may authorize participation by eligible employees,
including officers, in periodic offerings following the commencement of the
Purchase Plan. The initial offering under the Purchase Plan will commence on the
effective date of the Purchase Plan and terminate no more than 27 months after
the commencement of the Offering.
54
<PAGE>
Employees will be eligible to participate in the Purchase Plan if they have
been employed by the Company or a participating subsidiary for at least one year
prior to the commencement of a participation period. However, any highly
compensated employee (as defined in Section 414 of the Code) who owns 3% or more
of the outstanding stock in the Company may not participate in the Purchase
Plan. Employees who participate in an offering may have a percentage of their
earnings (as established by the plan administrator) withheld pursuant to the
Purchase Plan. The amount withheld will then be used to purchase shares of
Common Stock on specified dates determined by the Board. The price of Common
Stock purchased under the Purchase Plan will be equal to 85% of the lesser of
the fair market value of the Common Stock at the commencement date of each
offering period or the relevant purchase date. Employees may end their
participation in the offering at any time during the offering period except as
provided by the plan administrator under the terms of the offering, and
participation will end automatically on termination of employment with the
Company.
In the event of a merger, reorganization, consolidation or liquidation
involving the Company, unless otherwise provided, the Purchase Plan will
terminate and all participants' accumulated payroll deductions will be refunded
without interest. The Board will have the authority to amend or terminate the
Purchase Plan, provided, however, that no such action may adversely affect any
outstanding rights to purchase Common Stock.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements (collectively, the
"Employment Agreements") with Gregory Kilgore, President and Chief Operating
Officer; John Wilkinson, Executive Vice President-Marketing; Daniel Nahmens,
Vice President-Finance and Chief Financial Officer; and David Morgan, Vice
President-Real Estate. Each of the Employment Agreements provides for an initial
two-year term expiring on January 3, 1996, with automatic one-year renewals upon
the expiration of the initial term and on each anniversary thereafter. Each of
the Employment Agreements may be terminated by the Company or the employee
without cause (as defined in the Employment Agreements) upon 30 days' notice, or
for cause without any notice. Under the Employment Agreements, Messrs. Kilgore,
Wilkinson, Nahmens and Morgan are entitled to minimum compensation of $130,000,
$105,000, $75,000 and $60,000, respectively. Each of the Employment Agreements
provides that if the Company breaches any portion of such Employment Agreement
or terminates it without cause, the Company must pay to the employee an amount
equal to one year of his salary, calculated at the highest salary rate paid to
such employee by the Company in the two-year period prior to the termination.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company has adopted provisions in its Certificate of Incorporation that
limit the liability of its directors for monetary damages for breach of their
fiduciary duty as directors, except for liability that cannot be eliminated
under the Delaware General Corporation Law ("Delaware Law"). The Delaware Law
provides that directors of a company will not be personally liable for monetary
damages for breach of their fiduciary duty as directors, except for liability
(i) for any breach of their 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) for unlawful payment of dividend
or unlawful stock repurchase or redemption, as provided in Section 174 of the
Delaware Law, or (iv) for any transaction from which the director derived an
improper personal benefit. Any amendment or repeal of these provisions requires
the approval of the holders of shares representing at least 66 2/3% of the
shares of the Company entitled to vote in the election of directors, voting as
one class.
The Company's By-Laws also provide that the Company shall indemnify its
directors and officers to the fullest extent permitted by the Delaware Law. The
Company intends to enter into separate indemnification agreements with its
directors and certain of its officers that could require the Company, among
other things, to indemnify them against certain liabilities that may arise by
reason of their status or service
55
<PAGE>
as directors or officers and to advance their expenses incurred as a result of
any proceeding against them as to which they could be indemnified. The Company
believes that the limitation of liability provision in its Certificate of
Incorporation and the indemnification agreements will facilitate the Company's
ability to continue to attract and retain qualified individuals to serve as
directors and officers of the Company.
The Employment Agreements with each of Gregory Kilgore, John Wilkinson,
Daniel Nahmens and David Morgan also provide that the Company will indemnify
such individuals for any losses, costs, damages or expenses incurred as a direct
consequence of the discharge of their duties or by reason of their status as
agents of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors will consist of two
directors, neither of whom will be an officer or employee of the Company. All
matters concerning executive compensation in fiscal 1996 were addressed by the
full Board of Directors of Track 'n Trail-California, including Messrs.
Suechting and Kilgore, who were executive officers in fiscal 1996.
56
<PAGE>
CERTAIN TRANSACTIONS
As a result of Track 'n Trail-California's status as an S corporation, Track
'n Trail-California 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 1994,
fiscal 1995 and fiscal 1996, Track 'n Trail-California made S corporation
distributions to the Existing Stockholders of $1.7 million, $376,000 and $3.1
million, respectively. In addition, through June 28, 1997 the Company had made
distributions of $2.2 million to stockholders in fiscal 1997, and has made or
will make additional distributions of approximately $215,000 between June 28,
1997 and the Reorganization. Prior to the Reorganization, Track 'n
Trail-California will declare the $6.4 million Distribution to the Existing
Stockholders, which is designed to constitute substantially all of the
accumulated undistributed S corporation earnings through the Termination Date,
pursuant to the Distribution and Tax Agreement. The Distribution will be paid
out of a portion of the Company's proceeds of the Offering. See "S Corporation
Distributions."
The Company has from time to time extended loans to its stockholders and
their family members. See Note 6 of Notes to Consolidated Financial Statements.
All of the foregoing loans were repaid in March 1996, through a distribution to
the obligors of the remaining $1.7 million in notes.
In fiscal 1994 and 1995, the Company paid $514,000 and $653,000,
respectively, in legal expenses in defending lawsuits filed by the Company's
former Chairman of the Board against the Company and certain executive officers
and directors, pursuant to an indemnification arrangement with such officers and
directors.
In July 1996, the Company granted options to purchase an aggregate of
350,618 shares of Common Stock to two of its executive officers, in
consideration, in part, of such officers' cancellation of stock appreciation
rights granted in 1994. See "Management--Executive Compensation."
In October 1996, the Existing Stockholders acquired 21.0% of the outstanding
common stock of Overland in return for $663,000 of Seller Notes, which the
Company guaranteed. Effective January 1, 1997, the Existing Stockholders
assigned their Overland stock to the Company, in consideration of the Company's
assumption of their Seller Notes exclusive of accrued interest.
The Existing Stockholders have also guaranteed the Company's obligations
under the Revolving Loan Agreement and approximately $1.1 million in other
secured debt as of June 28, 1997, substantially all of which will be repaid from
the proceeds of the Offering, and several equipment leases currently providing
for aggregate annual rental payments of $118,000, which will remain outstanding
after the Offering.
In connection with the formation of the Company, the Company issued an
aggregate of 40,816 shares of its Common Stock to the Existing Stockholders. In
connection with the Reorganization, Track 'n Trail-California stockholders will
enter into a Stock Exchange Agreement to exchange 100% of their Track 'n
Trail-California common stock for 4,107,608 shares of the Company's Common
Stock; inclusive of the 40,816 shares of Company Common Stock issued upon
formation. The exchange of Track 'n Trail-California stock for Company Common
Stock will be accomplished in an exchange of one share of Track 'n
Trail-California common stock for approximately 100 shares of the Company's
Common Stock.
The Company believes that the foregoing transactions were in its best
interests.
For information concerning indemnification of directors and officers, see
"Management--Limitation of Liability and Indemnification Matters."
57
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of August 15, 1997, and as adjusted
to reflect the sale by the Company of the shares offered hereby (assuming no
exercise of the Underwriters' over-allotment option), by: (i) each person who is
known by the Company to own beneficially more than 5% of the Company's Common
Stock, (ii) each of the Company's directors and prospective directors, (iii)
each of the Company's officers named under "Management--Summary Compensation
Table," and (iv) all directors, prospective directors and executive officers of
the Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(2) OFFERING(2)(3)
--------------------- ---------------------
NAME AND ADDRESS(1) NUMBER PERCENT NUMBER PERCENT
- --------------------------------------------------------------------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Barbara Suechting.................................................... 1,811,470 44.1% 1,811,470 26.5%
David L. Suechting, Jr.(4)........................................... 1,390,403 33.8 1,390,403 20.3
Deborah Suechting.................................................... 905,735 22.1 905,735 13.3
Gregory M. Kilgore(5)................................................ 350,618 7.9 350,618 4.9
John E. Wilkinson(5)................................................. 200,468 4.7 200,468 2.9
Daniel J. Nahmens(5)................................................. 100,234 2.4 100,234 1.4
David T. Morgan(5)................................................... 50,117 1.2 50,117 *
Helen C. Bulwik...................................................... 0 -- 0 --
Steven D. Tough...................................................... 0 -- 0 --
All directors, prospective directors and executive officers as a
group (9 persons)(6)............................................... 3,953,427 81.4% 3,953,427 52.1%
</TABLE>
- ------------------------
* Less than 1%.
(1) The address for each listed stockholder is c/o Track 'n Trail, 4961-A
Windplay Drive, El Dorado Hills, CA 95672. To the Company's knowledge, the
persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them,
subject to community property laws where applicable and the information
contained in the footnotes to this table.
(2) The percentage of beneficial ownership is calculated assuming 4,107,608
shares of Common Stock were outstanding on August 15, 1997 and 6,834,880
shares outstanding immediately following the completion of the Offering.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares subject to options
presently exercisable or exercisable within 60 days of August 15, 1997 are
deemed to be beneficially owned by the holder but are not treated as
outstanding for the purpose of computing the beneficial ownership of any
other person.
(3) If the Underwriters exercise their Over-allotment Option in full, the
Selling Stockholders will sell the following shares of Common Stock and will
beneficially own the following percentages of the Common Stock after the
Offering: Barbara J. Suechting will sell 180,410 shares and will
beneficially own 23.9%; David L. Suechting, Jr. will sell 138,475 shares and
will beneficially own 18.3%; and Deborah Suechting, who is not a director or
executive officer, will sell 90,205 shares and will beneficially own 11.9%.
In such event, all directors and executive officers as a group will sell
318,885 shares of Common Stock and will beneficially own 47.9% of the Common
Stock after the Offering.
(4) Represents 1,390,403 shares held by the Suechting Family Trust for which Mr.
Suechting and his wife, Jackie Suechting, serve as co-trustees and hold
joint voting and investment power.
(5) Represents shares subject to stock options exercisable on August 15, 1997 or
within 60 days thereafter.
(6) Includes 751,554 shares subject to stock options exercisable on August 15,
1997 or within 60 days thereafter.
58
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 shares of
Common Stock, $.01 par value, and 2,000,000 shares of Preferred Stock, $.01 par
value.
COMMON STOCK
As of June 28, 1997, there were 4,107,608 shares of Common Stock outstanding
held by three stockholders of record.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders, including the
election of directors, and do not have cumulative voting rights. Accordingly,
the holders of a majority of the shares of Common Stock entitled to vote in any
election of directors can elect all of the directors standing for election, if
they so choose. Subject to preferences that may be applicable to any then
outstanding Preferred Stock, holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared by the Board of Directors out
of funds legally available therefor. See "Dividend Policy." Upon a liquidation,
dissolution or winding up of the Company, the holders of Common Stock will be
entitled to share ratably in the net assets legally available for distribution
to stockholders after the payment of all debts and other liabilities of the
Company, subject to the prior rights of any Preferred Stock then outstanding.
Holders of Common Stock have no preemptive or conversion rights or other
subscription rights and there are no redemption or sinking funds provisions
applicable to the Common Stock. All outstanding shares of Common Stock are, and
the Common Stock to be outstanding upon completion of the Offering will be,
fully paid and nonassessable.
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes 2,000,000 shares of
undesignated Preferred Stock, none of which is currently outstanding. The Board
of Directors has the authority, without further action by the stockholders, to
issue from time to time the Preferred Stock in one or more series and to fix the
number of shares, designations, preferences, powers, and relative,
participating, optional or other special rights and the qualifications or
restrictions thereof. The preferences, powers, rights and restrictions of
different series of Preferred Stock may differ with respect to dividend rates,
amounts payable on liquidation, voting rights, conversion rights, redemption
provisions, sinking fund provisions and other matters. The issuance of Preferred
Stock could reduce the amount of earnings and assets available for distribution
to holders of Common Stock or affect adversely the rights and powers, including
voting rights, of the holders of Common Stock, and may have the effect of
delaying, deferring or preventing a change in control of the Company. The
Company has no present plan to issue any shares of Preferred Stock.
WARRANTS
The former stockholders of Overland currently hold warrants to purchase an
aggregate of 49,392 shares of Common Stock at an exercise price equal to the
initial public offering price. These warrants expire on October 25, 2001.
In consideration for financial advisory services provided to the Company in
the Overland acquisition, Ladenburg Thalmann & Co. Inc., a representative of the
Underwriters, received a warrant to purchase 74,089 shares of Common Stock at an
exercise price equal to 120% of the initial public offering price. This warrant
will become exercisable one year after the closing of the Offering, or upon a
change in control of the Company, a sale of all or substantially all of its
assets or the commencement of the liquidation or dissolution of the Company (in
which event the exercise price per share will be the par value of one share of
Common Stock). This warrant expires on the fifth anniversary of the closing of
the Offering.
59
<PAGE>
REGISTRATION RIGHTS
After the Offering, the holders of warrants to purchase 123,481 shares of
Common Stock, or their permitted transferees, are, upon exercise of such
warrants, entitled to certain rights with respect to the registration of such
shares under the Securities Act. If the Company proposes to register any of its
securities under the Securities Act either for its own account or the account of
any holders of securities exercising registration rights, holders of shares
registrable pursuant to registration rights are entitled to notice of such
registration and are entitled to include such registrable shares therein,
provided, among other conditions, that the underwriters of any such offering
have the right to limit the number of shares included in such registration.
However, such registration rights are not triggered by a registration relating
solely to an employee benefit plan or a transaction pursuant to Rule 145 under
the Securities Act, or a registration on any registration form that does not
permit secondary sales.
In connection with the Offering, the Company intends to enter into a
Registration Rights Agreement (the "Registration Rights Agreement") with the
Existing Stockholders. Pursuant to the Registration Rights Agreement, the
Existing Stockholders will have the right to require the Company to use its best
efforts to register under the Securities Act all or a portion of the issued and
outstanding Common Stock owned by the Existing Stockholders. Such demand rights
would be subject to the condition that the Company would not be required to
effect more than three demand registrations. The Existing Stockholders will also
have the right to participate in equity offerings initiated by the Company,
subject to a reduction in the size of the offering on the advice of the managing
underwriter. The Company will pay all expenses relating to the performance of,
or compliance with, demand or "piggy-back" registrations under the Registration
Rights Agreement. In either case, however, the Existing Stockholders will be
responsible for underwriters' discounts and selling commissions with respect to
the shares being sold pursuant to the agreement, and the fees and expenses of
their counsel in connection with such registration. The Existing Stockholders'
rights under the Registration Rights Agreement will be assignable to certain
transferees of shares of Common Stock who agree to be bound by the Registration
Rights Agreement.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
After the consummation of the offering, the Company will be subject to the
provisions of Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, this statute prohibits a publicly held Delaware
corporation from engaging in a business combination with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes a merger, asset sale or other transaction resulting in financial
benefit to the stockholder. An "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years prior, did
own) 15% or more of the corporation's voting stock.
The Company's Certificate of Incorporation requires that all stockholder
action be taken at a stockholders' meeting, and the Bylaws permit special
stockholders' meetings to be called only by the Board of Directors or by a
stockholder owning at least 15% of the outstanding Common Stock. The Bylaws also
provide that directors may only be removed for cause, and require advance
notification to the Company in order for a stockholder to nominate a director
for election or to propose other business at a stockholders' meeting. In
addition, the foregoing provisions of the Certificate of Incorporation may only
be amended or repealed by the holders of at least two-thirds of the voting power
of the then-outstanding shares of stock entitled to vote generally for the
election of directors voting together as a single class, and the foregoing Bylaw
provisions may only be repealed or amended by a two-thirds vote of the Board of
Directors or a two-thirds stockholder vote. The provisions described above,
together with the ability of the Board of Directors to issue Preferred Stock as
described under "--Preferred Stock," may have the effect of deterring a hostile
takeover or delaying a change in control or management of the Company.
60
<PAGE>
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Securities
Transfer & Trust, Inc.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the Common Stock
of the Company, and no predictions can be made regarding the effect, if any,
that market sales of shares or the availability of shares for sale will have on
the market price prevailing from time to time. As described below, only a
limited number of shares will be available for sale shortly after the Offering
due to certain contractual and legal restrictions on resale. Nevertheless, sales
of substantial amounts of Common Stock of the Company in the public market after
the restrictions lapse could adversely affect the prevailing market price.
Upon completion of the Offering, the Company will have outstanding 6,834,880
shares of Common Stock. The 2,727,272 shares of Common Stock being sold hereby
will be freely tradable (other than by an "affiliate" of the Company as such
term is defined in the Securities Act) without restriction or registration under
the Securities Act. All remaining shares were issued and sold by the Company in
private transactions ("Restricted Shares") and are eligible for public sale if
registered under the Securities Act or sold in accordance with Rule 144 or Rule
701 thereunder (as described below).
The Existing Stockholders, who collectively hold an aggregate of 4,107,608
shares of Common Stock, have agreed pursuant to certain agreements that they
will not sell any Common Stock owned by them without the prior written consent
of the Representatives of the Underwriters (the "Representatives") for a period
of 180 days from the date of this Prospectus (the "Lockup Period"). Following
the expiration of the Lockup Period, all such shares will be available for
resale, subject to compliance with Rule 144. Certain of the Company's executive
officers and other employees, who hold stock options to purchase 826,728 shares
of Common Stock, have agreed that, should they exercise such options, they will
not sell any Common Stock owned by them during the Lockup Period without the
prior written consent of the Representatives. Following the expiration of the
Lockup Period, such 826,728 shares of Common Stock issuable upon the exercise of
options will be available for sale in the public market subject to compliance
with Rule 144 and Rule 701. See "Underwriting." In addition, 49,392 shares of
Common Stock issuable upon the exercise of warrants, and 74,089 shares of Common
Stock issuable pursuant to warrants that become exercisable one year after the
closing of the Offering, will be available for sale in the public market one
year from the date of exercise of such warrants (or earlier if certain cashless
exercise provisions are utilized), subject to Rule 144 and the 180-day lockup
restrictions described above.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, an affiliate of the Company, or a holder of
Restricted Shares who owns beneficially shares that were not acquired from the
Company or an affiliate of the Company within the previous two years, would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of 1% of the then outstanding shares of Common Stock
(approximately 68,348 shares immediately after the Offering) or the average
weekly trading volume of the Common Stock during the four calendar weeks
preceding the date on which notice of the sale is filed with the Securities and
Exchange Commission (the "Commission"). Sales under Rule 144 are subject to
certain requirements relating to manner of sale, notice and availability of
current public information about the Company. However, 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 90 days immediately preceding the sale and who
owns beneficially Restricted Shares is entitled to sell such shares under Rule
144(k) without regard to the limitations described above; provided that at least
two years have elapsed since the later of the date the shares were acquired from
the Company or from an affiliate of the Company. The foregoing is a summary of
Rule 144 and is not intended to be a complete description of it.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the
61
<PAGE>
Company by its employees, directors, officers, consultants or advisers prior to
the closing of the Offering, pursuant to written compensatory benefit plans or
written contracts relating to the compensation of such persons. In addition, the
Commission has indicated that Rule 701 will apply to stock options granted by
the Company before the Offering, along with the shares acquired upon exercise of
such options. Securities issued in reliance on Rule 701 are deemed to be
Restricted Shares and, beginning 90 days after the date of this Prospectus
(unless subject to the contractual restrictions described above), may be sold by
persons other than affiliates subject only to the manner of sale provisions of
Rule 144 and by affiliates under Rule 144 without compliance with its minimum
holding period requirements.
The Company intends to file one or more registration statements under the
Securities Act to register up to 1,055,735 shares of Common Stock that will be
reserved for issuance pursuant to the Stock Option Plan and 150,000 shares of
Common Stock reserved for issuance pursuant to the Purchase Plan. Each such
registration statement will become effective immediately upon filing.
Accordingly, the resale in the public market of such registered shares by
non-affiliates will be permitted without restriction under the Securities Act,
unless such shares are subject to vesting restrictions imposed by the Company or
the contractual restrictions described above.
In addition, after the Offering, the holders of warrants to purchase
approximately 123,481 shares of Common Stock will be entitled to certain rights
with respect to the registration of such shares under the Securities Act.
Registration of such shares under the Securities Act would result in such shares
becoming freely tradable without restriction under the Securities Act (except
for shares purchased by affiliates of the Company) immediately upon the
effectiveness of such registration. Pursuant to an agreement with the Company,
the Existing Stockholders will also be entitled to certain rights with respect
to the registration of shares under the Securities Act. Upon registration under
the Securities Act, such shares would become available for resale, subject to
compliance with Rule 144. See "Description of Capital Stock--Registration
Rights."
62
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
(the "Underwriting Agreement"), the Company has agreed to sell to the
underwriters named below (the "Underwriters"), and each of the Underwriters, for
whom Alex. Brown & Sons Incorporated, A.G. Edwards & Sons, Inc. and Ladenburg
Thalmann & Co. Inc. are acting as representatives (the "Representatives"), has
severally agreed to purchase from the Company, the aggregate number of shares of
Common Stock set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ----------------------------------------------------------------------------------------------------- ----------
<S> <C>
Alex. Brown & Sons Incorporated......................................................................
A.G. Edwards & Sons, Inc.............................................................................
Ladenburg Thalmann & Co. Inc.........................................................................
----------
Total.............................................................................................. 2,727,272
----------
----------
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the shares of Common
Stock offered by this Prospectus (other than those subject to the Over-allotment
Option described below) if any such shares are purchased. In the event of a
default by the Underwriters, the Underwriting Agreement provides that, in
certain circumstances, the purchase commitments of non-defaulting Underwriters
may be increased or the Underwriting Agreement may be terminated.
The Selling Stockholders have granted to the Underwriters an option,
exercisable by the Representatives during the 30-day period after the date of
this Prospectus, to purchase up to an aggregate of 409,090 shares of Common
Stock at the same price per share as the initial shares of Common Stock to be
purchased by the Underwriters. The Representatives may exercise such option only
to cover over-allotments in the sale of shares of Common Stock. To the extent
that the Representatives exercise such option, the Underwriters will have a firm
commitment, subject to certain conditions, to purchase the same proportion of
such additional shares of Common Stock as the number of shares of Common Stock
to be purchased and offered by such Underwriters in the above table bears to the
total number of shares in the above table.
The Company has been advised by the Representatives that the Underwriters
propose initially to offer the shares of Common Stock to the public at the
offering price set forth on the cover page of this Prospectus, and through the
Representatives to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to certain other dealers. After the
Offering, the public offering price and other selling terms may be changed.
The Company and its officers, directors and present stockholders and
optionholders have agreed that they will not offer, sell, contract to sell, or
otherwise dispose of, directly or indirectly, any shares of Common Stock, or any
interests therein, or any securities convertible into, or exchangeable for,
shares of Common Stock, or rights to acquire the same, for a period of 180 days
from the date of this Prospectus without the prior written consent of the
Representatives, except pursuant to the Underwriting Agreement. Such consent may
be given without any public notice.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
63
<PAGE>
Prior to the Offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price of the Common Stock will be
determined after negotiation among the Company, the Selling Stockholders and the
Representatives. Among the factors to be considered in such negotiations are
prevailing market conditions, the results of operations of the Company in recent
periods, the market capitalization and stages of development of other companies
which the Company and the Representatives believed to be comparable to the
Company, estimates of the business potential of the Company, the present state
of the Company's development and other factors deemed relevant.
In connection with the Offering, certain persons participating in the
Offering may engage in transactions that stabilize, maintain or otherwise affect
the price of the Common Stock. Specifically, the Representatives may bid for and
purchase Common Stock in the open market to stabilize the price of the Common
Stock. The Underwriters may also over-allot the Offering, creating a syndicate
short position, and may bid for and purchase Common Stock in the open market to
cover the syndicate short position. The Representatives may also impose a
penalty bid pursuant to which the Representatives may reclaim from any
Underwriter or dealer participating in the Offering the selling concession on
shares sold by them and purchased by the Representatives in stabilizing or short
covering transactions. In addition, the Underwriters may bid for and purchase
the Common Stock in market making transactions. These activities may stabilize
or maintain the market price of the Common Stock above market levels that may
otherwise prevail. The Underwriters are not required to engage in these
activities, and may end these activities at any time.
The Underwriters have reserved for sale, at the initial public offering
price, up to 5% of the Common Stock offered hereby for employees and directors
of the Company and certain other individuals who have expressed an interest in
purchasing such shares of Common Stock in the Offering. The number of shares
available for sale to the general public will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares not so purchased will
be offered by the Underwriters to the general public on the same basis as other
shares offered hereby.
The Company has issued to Ladenburg Thalmann & Co. Inc. warrants (the
"Warrants") to purchase 74,089 shares of Common Stock. The Warrants were issued
in consideration for financial advisory services provided to the Company in
connection with the Overland acquisition. The Warrants are exercisable for a
period of four years commencing one year after the closing of the Offering, at a
price equal to 120% of the initial public offering price, subject to adjustment
in certain events. The Warrants contain certain registration rights relating to
the shares issuable thereunder. For the life of the Warrants, Ladenburg Thalmann
& Co. Inc. will have the opportunity to profit from a rise in the market price
for the Common Stock. See "Description of Capital Stock--Warrants."
The Underwriters have informed the Company that they do not intend to
confirm sales of Common Stock offered hereby for accounts over which they
exercise discretionary authority.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Common Stock
offered hereby will be passed upon for the Company by Pillsbury Madison & Sutro
LLP, San Francisco, California, and for the Underwriters by Fulbright & Jaworski
L.L.P., New York, New York.
EXPERTS
The consolidated financial statements of the Company as of December 30, 1995
and December 28, 1996 and for the years then ended included in this Prospectus
have been audited by Coopers & Lybrand L.L.P., independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report of Coopers & Lybrand L.L.P. given upon the authority
of that firm as experts in accounting and auditing. The financial statements of
the Company for the year ended December 31, 1994 included in this Prospectus
have been audited by Deloitte & Touche LLP, independent
64
<PAGE>
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report of Deloitte & Touche LLP given upon
the authority of that firm as experts in accounting and auditing.
The financial statements of Overland Management Corporation as of August 3,
1996 and for the year then ended included in this Prospectus have been audited
by KPMG Peat Marwick LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report of KPMG Peat Marwick LLP given upon the authority of that firm as experts
in accounting and auditing. The financial statements of Overland Management
Corporation as of July 29, 1995 and for each of the years in the two-year period
then ended included in this Prospectus have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report appearing herein, and are
included in reliance upon the report of Deloitte & Touche LLP given upon the
authority of that firm as experts in accounting and auditing.
CHANGE IN INDEPENDENT ACCOUNTANTS
Effective January 15, 1996, Coopers & Lybrand L.L.P. was engaged as the
Company's principal independent auditors, replacing Deloitte & Touche LLP
("Deloitte"). The decision to change independent accountants was approved by the
Company's Board of Directors. In the period from December 26, 1993 through
January 15, 1996, Deloitte issued no audit report which was qualified or
modified as to uncertainty, audit scope or accounting principles, or which
contained adverse opinions or disclaimers of opinion on any of the Company's
financial statements, and there were no disagreements with Deloitte on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedures. Prior to January 15, 1996, the Company had not
consulted with Coopers & Lybrand L.L.P. on items which involved the Company's
accounting principles, the application of accounting principles to a specified
transaction, or the form of audit opinion to be rendered on the Company's
financial statements.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act with respect to
the Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Common Stock offered hereby, reference is hereby made to such Registration
Statement, exhibits and schedules. Statements contained in this Prospectus
regarding the contents of any contract or other document are not necessarily
complete; with respect to each such contract or document filed as an exhibit to
the Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference. A copy of the Registration
Statement, including the exhibits and schedules thereto, may be inspected
without charge at the principal office of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, and copies of such material may be obtained from
such office upon payment of the fees prescribed by the Commission. Such
documents may also be accessed electronically at the Commission's home page on
the Internet at http://www.sec.gov.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by independent certified public
accountants and quarterly reports containing unaudited financial information for
the first three quarters of each fiscal year.
65
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
TRACK 'N TRAIL
Reports of Independent Auditors............................................................................ F-2
Consolidated Balance Sheets as of December 30, 1995, December 28, 1996, June 28, 1997 (unaudited) and Pro
Forma June 28, 1997 (unaudited).......................................................................... F-4
Consolidated Statements of Operations for the fiscal years ended December 31, 1994, December 30, 1995,
December 28, 1996 and for the 26 weeks ended June 29, 1996 and June 28, 1997 (unaudited)................. F-5
Consolidated Statements of Changes in Stockholders' Equity for the fiscal years ended December 31, 1994,
December 30, 1995 and December 28, 1996 and for the 26 weeks ended June 28, 1997 (unaudited)............. F-6
Consolidated Statements of Cash Flows for the fiscal years ended December 31, 1994, December 30, 1995,
December 28, 1996 and for the 26 weeks ended June 29, 1996 and June 28, 1997 (unaudited)................. F-7
Notes to Consolidated Financial Statements................................................................. F-8
OVERLAND MANAGEMENT CORPORATION
Reports of Independent Auditors............................................................................ F-27
Balance Sheets as of July 29, 1995, August 3, 1996 and October 25, 1996 (unaudited)........................ F-29
Statements of Operations for the fiscal years ended July 30, 1994, July 29, 1995 and August 3, 1996 and for
the 12 week periods ended October 21, 1995 and October 25, 1996 (unaudited).............................. F-30
Statements of Changes in Stockholders' Equity for the fiscal years ended July 30, 1994, July 29, 1995 and
August 3, 1996 and for the 12 week periods ended October 21, 1995 and October 25, 1996 (unaudited)....... F-31
Statements of Cash Flows for the fiscal years ended July 30, 1994, July 29, 1995 and August 3, 1996 and for
the 12 week periods ended October 21, 1995 and October 25, 1996 (unaudited).............................. F-32
Notes to Financial Statements.............................................................................. F-33
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Track 'n Trail
El Dorado Hills, California
We have audited the accompanying consolidated balance sheets of Track 'n
Trail and subsidiaries as of December 30, 1995 and December 28, 1996, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the fifty-two week periods then ended. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Track 'n Trail
and subsidiaries as of December 30, 1995 and December 28, 1996, and the
consolidated results of their operations and their cash flows for each of the
fifty-two week periods then ended in conformity with generally accepted
accounting principles.
Sacramento, California
March 12, 1997 except for Note 14,
as to which the date is August 23, 1997
-------------------
The accompanying financial statements give effect to changes in
stockholders' equity, including an increase of approximately 100 to 1 in the
number of shares outstanding, as the result of a planned Reorganization of the
Company as described in Note 14 as a newly formed holding company incorporated
in Delaware with the predecessor company and its subsidiary as separate
subsidiaries of the newly formed holding company. The above opinion is in the
form which will be signed by Coopers & Lybrand L.L.P. upon completion of such
Reorganization and assuming that from August 23, 1997 to the date of completion
of such Reorganization, no other material events have occurred that would affect
the accompanying financial statements or require disclosure therein.
COOPERS & LYBRAND L.L.P.
Sacramento, California
August 23, 1997
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Track 'n Trail
El Dorado Hills, California
We have audited the accompanying statements of operations, changes in
stockholders' equity, and cash flows of Track 'n Trail ("the Company") for the
fifty-three week period ended December 31, 1994. 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 audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such 1994 financial statements present fairly, in all material
respects, the results of Track 'n Trail's operations and its cash flows for the
fifty-three week period ended December 31, 1994 in conformity with generally
accepted accounting principles.
Sacramento, California
March 13, 1995
-------------------
The accompanying financial statements of Track 'n Trail give effect to changes
in stockholders' equity, including an increase of approximately 100 to 1 in the
number of shares outstanding, as the result of a planned reorganization of the
Company as described in Note 14 to the financial statements. The above opinion
is in the form which will be signed by Deloitte & Touche LLP upon completion of
such Reorganization and assuming that from August 23, 1997 to the date of
completion of such Reorganization, no other material events have occurred that
would affect the accompanying 1994 financial statements of Track 'n Trail or
require disclosure therein.
DELOITTE & TOUCHE LLP
Sacramento, California
August 23, 1997
F-3
<PAGE>
TRACK 'N TRAIL AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 30, DECEMBER 28, JUNE 28, JUNE 28,
1995 1996 1997 1997
------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash.................................................................... $ 489,458 $ 976,571 $ 749,053 $ 749,053
Accounts receivable..................................................... 401,960 1,010,151 808,207 808,207
Inventories............................................................. 11,949,237 19,867,764 24,801,065 24,801,065
Prepaid expenses........................................................ 126,347 212,461 190,811 190,811
Prepaid income taxes.................................................... -- -- 390,957 390,957
Deferred income taxes................................................... 44,000 49,225 91,177 91,177
------------ ------------ ----------- -----------
Total current assets................................................ 13,011,002 22,116,172 27,031,270 27,031,270
Fixed assets, net......................................................... 4,039,491 6,582,102 6,717,501 6,717,501
Goodwill, net............................................................. -- 2,690,832 3,166,239 3,166,239
Deferred income taxes..................................................... -- 468,890 540,771 540,771
Deferred offering costs................................................... -- -- 847,431 847,431
------------ ------------ ----------- -----------
$ 17,050,493 $ 31,857,996 $38,303,212 $38,303,212
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving line of credit................................................ $ 450,000 $ 680,000 $ 8,740,000 $ 8,955,000
Current maturities of long-term debt.................................... 701,251 3,060,480 2,741,888 2,741,888
Accounts payable........................................................ 3,730,391 5,835,186 8,024,543 8,024,543
Accrued payroll and bonuses............................................. 377,056 1,032,221 541,561 541,561
Sales tax payable....................................................... 540,296 751,788 408,499 408,499
Income taxes payable.................................................... -- 476,115 -- --
Accrued expenses and other liabilities.................................. 501,866 850,753 705,027 705,027
Distributions payable................................................... -- -- -- 6,400,000
------------ ------------ ----------- -----------
Total current liabilities........................................... 6,300,860 12,686,543 21,161,518 27,776,518
Deferred rent............................................................. 934,564 1,395,046 1,416,652 1,416,652
Stock appreciation rights................................................. 584,263 -- -- --
Long-term debt, net of current maturities................................. 1,582,799 7,025,017 7,510,658 7,510,658
------------ ------------ ----------- -----------
Total liabilities................................................... 9,402,486 21,106,606 30,088,828 36,703,828
------------ ------------ ----------- -----------
Minority interest in consolidated subsidiary.............................. -- 105,151 -- --
------------ ------------ ----------- -----------
Commitments and contingencies (Notes 5, 7, 8 and 15).
Stockholders' equity:
Preferred stock, $0.01 par value; 2,000,000 shares authorized, no shares
issued or outstanding................................................. -- -- -- --
Common stock, $0.01 par value; 20,000,000 shares authorized, 4,107,608
shares issued and outstanding......................................... 41,076 41,076 41,076 41,076
Additional paid-in capital.............................................. 23,924 723,738 732,154 732,154
Retained earnings....................................................... 8,651,792 9,881,425 7,441,154 826,154
Less notes receivable from related parties.............................. (1,068,785) -- -- --
------------ ------------ ----------- -----------
Total stockholders' equity.......................................... 7,648,007 10,646,239 8,214,384 1,599,384
------------ ------------ ----------- -----------
$ 17,050,493 $ 31,857,996 $38,303,212 $38,303,212
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
TRACK 'N TRAIL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FOR THE PERIOD ENDED
------------------------------------------ ------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28, JUNE 29, JUNE 28,
1994 1995 1996 1996 1997
(53 WEEKS) (52 WEEKS) (52 WEEKS) (26 WEEKS) (26 WEEKS)
------------ ------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.................................................. $ 48,164,675 $ 50,691,164 $ 66,232,884 $23,285,590 $37,527,863
Cost of sales.............................................. 25,079,211 26,191,741 34,062,252 12,020,022 19,413,199
------------ ------------ ------------ ----------- -----------
Gross profit......................................... 23,085,464 24,499,423 32,170,632 11,265,568 18,114,664
------------ ------------ ------------ ----------- -----------
Operating expenses:
Selling and marketing.................................... 14,975,365 16,852,124 21,059,485 8,791,499 14,527,464
Administrative and distribution.......................... 4,934,682 4,826,290 5,508,333 2,315,673 3,444,313
------------ ------------ ------------ ----------- -----------
Total operating expenses............................. 19,910,047 21,678,414 26,567,818 11,107,172 17,971,777
------------ ------------ ------------ ----------- -----------
Operating income (loss).............................. 3,175,417 2,821,009 5,602,814 158,396 142,887
Other (income) expense:
Interest................................................. 324,067 434,530 670,118 239,941 730,438
Other, net............................................... 37,633 (40,428) (24,467) (10,661) 20,848
------------ ------------ ------------ ----------- -----------
Income (loss) before income taxes and minority
interest........................................... 2,813,717 2,426,907 4,957,163 (70,884) (608,399)
Income tax provision (benefit)............................. 67,000 40,838 487,990 (1,772) (372,503)
------------ ------------ ------------ ----------- -----------
Income (loss) before minority interests.............. 2,746,717 2,386,069 4,469,173 (69,112) (235,896)
Minority interest in net income of consolidated
subsidiaries............................................. -- -- 105,151 -- --
------------ ------------ ------------ ----------- -----------
Net income (loss).................................... $ 2,746,717 $ 2,386,069 $ 4,364,022 $ (69,112) $ (235,896)
------------ ------------ ------------ ----------- -----------
------------ ------------ ------------ ----------- -----------
Pro Forma Income Data (unaudited):
Historical income (loss) before income taxes and minority
interest............................................... $ 2,813,717 $ 2,426,907 $ 4,957,163 $ (70,884) $ (608,399)
Pro forma income tax provision (benefit) (Note 9)........ 1,125,487 970,763 1,982,865 (28,354) (243,360)
------------ ------------ ------------ ----------- -----------
Pro forma income (loss) before minority interest......... 1,688,230 1,456,144 2,974,298 (42,530) (365,039)
Minority interest........................................ -- -- 105,151 -- --
------------ ------------ ------------ ----------- -----------
Pro forma net income (loss).............................. $ 1,688,230 $ 1,456,144 $ 2,869,147 $ (42,530) $ (365,039)
------------ ------------ ------------ ----------- -----------
------------ ------------ ------------ ----------- -----------
Pro forma net income (loss) per common and common
equivalent share....................................... $ 0.52 $ (0.07)
------------ -----------
------------ -----------
Pro forma weighted average number of shares of common
stock and common stock equivalents..................... 5,557,867 5,329,247
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
TRACK 'N TRAIL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NOTES
COMMON STOCK ADDITIONAL RECEIVABLE
--------------------- PAID-IN FROM RELATED RETAINED
NUMBER AMOUNT CAPITAL PARTIES EARNINGS TOTAL
---------- --------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 26, 1993.................... 4,107,608 $ 41,076 $ 23,924 $ (29,437) $ 5,585,259 $ 5,620,822
Cash advances to stockholders and related
party..................................... -- -- -- (328,749) -- (328,749)
Distributions to stockholders............... -- -- -- -- (1,689,854) (1,689,854)
Net income.................................. -- -- -- -- 2,746,717 2,746,717
---------- --------- ----------- ------------ ------------ ------------
Balance, December 31, 1994.................... 4,107,608 41,076 23,924 (358,186) 6,642,122 6,348,936
Cash advances to stockholders and related
party..................................... -- -- -- (710,599) -- (710,599)
Distributions to stockholders............... -- -- -- -- (376,399) (376,399)
Net income.................................. -- -- -- -- 2,386,069 2,386,069
---------- --------- ----------- ------------ ------------ ------------
Balance, December 30, 1995.................... 4,107,608 41,076 23,924 (1,068,785) 8,651,792 7,648,007
Cash advances to stockholders............... -- -- -- (591,215) -- (591,215)
Distribution of notes to stockholders....... -- -- -- 1,660,000 (1,660,000) --
Distributions to stockholders............... -- -- -- -- (1,474,389) (1,474,389)
Exchange of stock appreciation rights for
stock option grants....................... -- -- 596,424 -- -- 596,424
Compensation recorded under stock option
plans..................................... -- -- 103,390 -- -- 103,390
Net income.................................. -- -- -- -- 4,364,022 4,364,022
---------- --------- ----------- ------------ ------------ ------------
Balance, December 28, 1996.................... 4,107,608 41,076 723,738 -- 9,881,425 10,646,239
Distributions to stockholders (unaudited)... -- -- -- -- (2,204,375) (2,204,375)
Compensation recorded under stock option
plans (unaudited)......................... -- -- 8,416 -- -- 8,416
Net loss (unaudited)........................ -- -- -- (235,896) (235,896)
---------- --------- ----------- ------------ ------------ ------------
Balance, June 28, 1997 (unaudited) 4,107,608 $ 41,076 $ 732,154 $ -- $ 7,441,154 $ 8,214,384
---------- --------- ----------- ------------ ------------ ------------
---------- --------- ----------- ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
TRACK 'N TRAIL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FOR THE PERIOD ENDED
---------------------------------------- --------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28, JUNE 29, JUNE 28,
1994 1995 1996 1996 1997
(53 WEEKS) (52 WEEKS) (52 WEEKS) (26 WEEKS) (26 WEEKS)
------------ ------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 2,746,717 $ 2,386,069 $ 4,364,022 $ (69,112) $ (235,896)
Adjustments to reconcile to cash provided by operating
activities:
Depreciation and amortization........................... 763,398 915,956 1,120,867 494,387 842,779
Minority interest....................................... -- -- 105,151 -- --
Loss (gain) on disposal of fixed assets................. 24,744 3,490 -- -- (13,200)
Compensation recorded in connection with stock options
plans................................................. -- -- 103,390 -- 8,416
Deferred income taxes................................... (33,000) 22,000 81,454 -- (113,833)
Cash provided by (used for) changes in operating assets
and liabilities, net of effects of business
combination:
Accounts receivable................................... 269,623 (72,762) (375,313) 15,962 201,944
Inventories........................................... (495,621) (612,478) (1,007,933) (2,692,644) (4,933,301)
Prepaid expenses...................................... (30,938) (10,304) 87,480 17,859 21,650
Other assets.......................................... 87,212 -- -- -- --
Accounts payable and other accrued liabilities........ (73,509) 452,784 280,868 422,332 865,003
Income taxes payable.................................. -- -- 290,964 56,072 (867,072)
Stock appreciation rights............................. 307,908 195,797 12,161 12,161 --
Deferred rent......................................... 128,973 86,448 41,761 7,659 21,606
------------ ------------ ------------ ------------ ------------
Cash provided by (used for) operating activities...... 3,695,507 3,367,000 5,104,872 (1,735,324) (4,201,904)
------------ ------------ ------------ ------------ ------------
Cash flows from investing activities:
Purchases of fixed assets................................. (1,320,114) (1,604,299) (1,721,599) (957,970) (910,234)
Proceeds from sale of fixed assets........................ -- -- -- -- 27,573
Cash paid for business combination........................ -- -- (239,599) -- --
------------ ------------ ------------ ------------ ------------
Cash used for investing activities.................... (1,320,114) (1,604,299) (1,961,198) (957,970) (882,661)
------------ ------------ ------------ ------------ ------------
Cash flows from financing activities:
Bank line of credit:
Borrowings.............................................. 15,035,000 20,906,000 31,154,000 13,125,000 24,455,000
Repayments.............................................. (15,465,000) (20,626,000) (33,483,961) (10,300,000) (16,395,000)
Long-term debt:
Borrowings.............................................. 16,000 766,674 2,486,605 1,483,333 --
Repayments.............................................. (823,281) (708,569) (747,601) (378,468) (495,826)
Advances to related parties under notes receivable........ (328,749) (710,599) (591,215) (591,215) --
Payment of distributions to stockholders.................. (1,293,354) (1,328,399) (1,474,389) (728,210) (2,204,375)
Offering expenses paid.................................... -- -- -- -- (502,752)
------------ ------------ ------------ ------------ ------------
Cash provided by (used for) financing activities...... (2,859,384) (1,700,893) (2,656,561) 2,610,440 4,857,047
------------ ------------ ------------ ------------ ------------
Increase (decrease) in cash........................... (483,991) 61,808 487,113 (82,854) (227,518)
Cash, beginning of period................................... 911,641 427,650 489,458 489,458 976,571
------------ ------------ ------------ ------------ ------------
Cash, end of period......................................... $ 427,650 $ 489,458 $ 976,571 $ 406,604 $ 749,053
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
TRACK 'N TRAIL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE TWENTY-SIX WEEKS
ENDED JUNE 29, 1996 AND JUNE 28, 1997)
1. SIGNIFICANT ACCOUNTING POLICIES:
BACKGROUND
Track 'n Trail, a Delaware corporation (Company), is the successor to
businesses formerly conducted by Track 'n Trail, a California corporation (Old
Track 'n Trail), and its subsidiary, Overland Management Corporation (Overland).
In connection with the formation of the Company, the Company issued an aggregate
of 40,816 shares of its Common Stock to existing stockholders of Old Track 'n
Trail. As described in Note 14, the Company's Board of Directors has approved a
reorganization of Old Track 'n Trail (the Reorganization) in which the Old Track
'n Trail stockholders will exchange 100% of their Old Track 'n Trail common
stock for 4,107,608 shares of the Company's Common Stock, inclusive of the
40,816 shares of the Company's Common Stock issued upon formation. The
Reorganization, which will be accounted for in a manner similar to a
pooling-of-interests, will be accomplished in an exchange of one share of Old
Track 'n Trail common stock for approximately 100 shares of the Company's common
stock. In connection with the Reorganization, all of the common stock of
Overland will be transferred to the Company in the form of a dividend resulting
in the predecessor businesses being wholly owned subsidiaries of the Company.
The accompanying financial statements reflect, for all periods presented, the
capital structure and number of shares that will be outstanding as a result of
the Reorganization.
The Company is a retailer of footwear and related accessories. As of
December 28, 1996 and June 28, 1997, the Company operated 128 and 134 stores in
23 and 24 states, respectively, under the Track 'n Trail and Overland Trading
names concentrated in California, the Midwest and the Northeast. Each store
offers a wide range of rugged walking and fashion casual shoes, sandals and
boots. The Company ends its fiscal year on the last Saturday in December.
The Company operates in a single business segment of retailing footwear and
related accessories. The Company acquires its shoes from a number of
manufacturers; however, during the fiscal year ended December 28, 1996, 39.7% of
the Company's net sales was of products purchased from three manufacturers.
INTERIM RESULTS (UNAUDITED)
The accompanying balance sheet as of June 28, 1997 and the statements of
operations, changes in stockholders' equity and cash flows for the 26-week
periods ended June 29, 1996 and June 28, 1997 are unaudited. In the opinion of
management, these statements have been prepared on the same basis as the audited
financial statements and include all adjustments, consisting of only normal
recurring adjustments, necessary for the fair presentation of the results of the
interim periods. The data disclosed in these notes to the financial statements
for those interim periods are also unaudited.
PRINCIPLES OF CONSOLIDATION
The financial statements include the consolidated accounts of the Company
and its two subsidiaries, Old Track 'n Trail and Overland, which became a 79.0%
owned subsidiary on October 25, 1996. Effective January 1, 1997, the Company
acquired the remaining 21.0% interest in Overland (Note 13). All intercompany
transactions and balances have been eliminated in consolidation.
INVENTORIES
Inventories are stated at lower of average cost or market using the retail
inventory method.
F-8
<PAGE>
TRACK 'N TRAIL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE TWENTY-SIX WEEKS
ENDED JUNE 29, 1996 AND JUNE 28, 1997)
1. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
FIXED ASSETS
Fixed assets are stated at cost and depreciated on the straight-line basis
over estimated useful lives ranging from three to ten years; the cost of
leasehold improvements are amortized over the shorter of the lease term or
useful life of the related assets. When assets are retired or otherwise disposed
of, the cost and related accumulated depreciation are removed from the accounts
and any resulting gain or loss is reflected in income for the period. The cost
of maintenance and repairs is charged to income as incurred; significant
renewals and betterments are capitalized.
STORE PRE-OPENING COSTS
Costs of a noncapital nature incurred prior to store openings are expensed
as incurred.
GOODWILL
Goodwill represents the excess of the purchase price over the fair value of
the net assets of acquired companies and is being amortized using the
straight-line method over 20 years.
MINORITY INTEREST
Minority interest represents the minority stockholders' proportionate share
of the equity of Overland, including their share of Overland's net income during
the period from October 25, 1996 to December 28, 1996. At December 28, 1996, the
Company owned 79.0% of the common stock of Overland and the Company's
stockholders owned the 21.0% minority interest. Effective January 1, 1997, the
Company acquired the remaining 21.0% interest in Overland (Note 13).
INCOME TAXES
Commencing June 28, 1992 and until the Reorganization, Old Track 'n Trail
had elected S corporation status for federal income taxes and most state income
taxes. Its subsidiary, Overland, is a C corporation for federal and state income
tax purposes. Under S corporation status, Old Track 'n Trail's income, other
than that of Overland, was taxable to the stockholders personally, with only
minimal state income taxes charged to Old Track 'n Trail (Note 9).
The Company accounts for the federal and state income taxes of Overland and
the state income taxes of the Company, under the provisions of Statement of
Financial Accounting Standards (SFAS) No. 109, ACCOUNTING FOR INCOME TAXES,
using the liability method. The estimated future tax effect of differences
between the Company's basis in assets and liabilities for tax and accounting
purposes is accounted for as deferred taxes. In accordance with the provisions
of SFAS No. 109, a valuation allowance would be established to reduce deferred
tax assets if it is more likely than not that all, or some portion, of such
deferred tax assets will not be realized. No allowance against deferred tax
assets was provided by the Company as of December 28, 1996 or June 28, 1997.
STOCKHOLDER DISTRIBUTIONS
Old Track 'n Trail has historically provided distributions of a portion of
its earnings to the stockholders, as necessary, to satisfy their income tax
requirements as well as for other purposes.
F-9
<PAGE>
TRACK 'N TRAIL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE TWENTY-SIX WEEKS
ENDED JUNE 29, 1996 AND JUNE 28, 1997)
1. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
STOCK OPTIONS
As permitted by SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, the
Company has elected to measure and record compensation costs relative to stock
option plans in accordance with the provisions of Accounting Principles Board
(APB) Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and make pro
forma disclosure of net income and net income per common and common equivalent
share as if the fair value based method of valuing stock options had been
applied.
RENT EXPENSE
Rent expense is generally recognized on the straight-line basis over the
respective lease term. Rents accrued but not contractually due are reported as
deferred rent. Contingent rental expense, based on store sales, is recognized
when incurred.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. Actual results could differ from those estimates
RECLASSIFICATIONS
Certain reclassifications were made to the 1994 and 1995 financial
statements to conform to the 1996 presentation.
PRO FORMA INFORMATION (UNAUDITED)
The pro forma balance sheet reflects, as of June 28, 1997, adjustments for
distributions to stockholders that management expects will be paid or declared
between June 28, 1997 and the date of the Company's planned initial public
offering (the Offering) assuming that $215,000 of such distributions were made
from borrowings available under the Company's revolving line of credit and
assuming that an additional distribution of $6.4 million had been declared and
will be paid from proceeds of the Offering (Note 14).
Pro forma net income (loss) (unaudited) has been computed to include a
provision for income taxes at an effective tax rate of 40.0% representing
management's estimate of the effective tax rate as if the Reorganization had
been in effect and the Company had been a C corporation for all periods
presented.
Pro forma net income (loss) per common and common equivalent share
(unaudited) for fiscal 1996 has been computed by dividing pro forma net income
by the weighted average number of common and common equivalent shares
outstanding (using the treasury stock method and an assumed initial public
offering price) after giving retroactive effect to (i) a change in the number of
outstanding shares effected by the Reorganization (Note 14), (ii) those common
stock options issued during the twelve month period preceding the Offering
computed under the treasury stock method and (iii) the number of shares of
common stock to be sold in the Offering, at an assumed offering price, the
proceeds of which would be
F-10
<PAGE>
TRACK 'N TRAIL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE TWENTY-SIX WEEKS
ENDED JUNE 29, 1996 AND JUNE 28, 1997)
1. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
necessary to pay the excess of S corporation distributions during fiscal 1996
and thereafter until the Reorganization over earnings during fiscal 1996.
Warrants, which were issued during fiscal 1996, were not dilutive.
Pro forma net loss per common and common equivalent share (unaudited) for
the 26 weeks ended June 28, 1997 has been computed using the same methodology as
for fiscal 1996 except that the number of shares included in the computation
relative to item (iii) in the above paragraph is the number of shares of common
stock to be sold in the Offering, at an assumed offering price, the proceeds of
which would be necessary to pay the excess of S corporation distributions during
the period from June 30, 1996 and thereafter until the Reorganization over
earnings during the 12-month period ended June 28, 1997.
Historical net income per share information is not presented on the face of
the consolidated statement of operations as such information is not meaningful.
Historical primary and fully diluted net income per common and common equivalent
share were $0.58, $0.50 and $0.91 for the 1994, 1995 and 1996 fiscal years,
respectively, with 4,776,848 as the weighted average common and common
equivalent shares outstanding for each period. Historical net loss per share,
both primary and fully diluted, for the 26-week period ended June 28, 1997 was
$(0.07), with 4,776,848 as the weighted average common and common equivalent
shares outstanding.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, EARNINGS PER SHARE. SFAS No.
128 changes the method of calculating earnings per share and is effective for
interim and annual periods ending after December 15, 1997. Early application is
not permitted, and all periods presented must be restated when SFAS No. 128 is
implemented. Management is in the process of determining the effects of
implementing SFAS No. 128.
2. CONCENTRATION OF CREDIT RISK:
The Company deposits its excess cash with major financial institutions. As
of December 28, 1996, the Company had $2,614,000 on deposit (inclusive of
outstanding checks) in excess of the federally insured level.
F-11
<PAGE>
TRACK 'N TRAIL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE TWENTY-SIX WEEKS
ENDED JUNE 29, 1996 AND JUNE 28, 1997)
3. FIXED ASSETS:
Fixed assets consist of:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------- ------------- JUNE 28, 1997
-------------
(UNAUDITED)
<S> <C> <C> <C>
Leasehold improvements..................................... $ 4,952,835 $ 7,236,478 $ 7,860,161
Furniture, fixtures and equipment.......................... 2,805,688 3,671,082 3,957,634
Vehicles................................................... 8,055 16,000 --
------------- ------------- -------------
7,766,578 10,923,560 11,817,795
Less accumulated depreciation.............................. (3,727,087) (4,341,458) (5,100,294)
------------- ------------- -------------
Fixed assets, net.......................................... $ 4,039,491 $ 6,582,102 $ 6,717,501
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Depreciation expense for fiscal years 1994, 1995 and 1996 was $763,000,
$916,000 and $1,098,000, respectively. Depreciation expense for the 26 week
periods ended June 29, 1996 and June 28, 1997 was $494,000 and $760,000,
respectively.
4. REVOLVING LINE OF CREDIT AND LONG-TERM DEBT:
The Company has a revolving loan agreement (Revolving Loan Agreement) with a
bank which includes a $7,100,000 revolving line of credit, a term loan of which
$2,700,000 is outstanding at December 28, 1996, and a letter of credit facility
for up to an additional $800,000. Maximum aggregate borrowings under the
Revolving Loan Agreement, including outstanding letters of credit (of which
$389,000 were issued at December 28, 1996) and the term loan are limited to a
percentage of eligible inventory held by the Company. Available additional
borrowings under the Revolving Loan Agreement amounted to approximately
$6,319,000 at December 28, 1996. Borrowings under the Revolving Loan Agreement
are collateralized by substantially all the Company's assets and are guaranteed
by the Company's stockholders.
Interest accrues on the revolving line of credit at the bank's prime rate
(8.25% at December 28, 1996) plus 0.5%. Interest is payable monthly, and the
outstanding principal is due on the earlier of June 30, 1997, or the closing of
the Offering. The weighted average interest rates for fiscal years 1994, 1995
and 1996 were 8.05%, 9.40% and 8.77%, respectively.
The Revolving Loan Agreement requires the Company to meet certain financial
covenants including minimum financial ratios and limits on loans to stockholders
and expenditures to acquire fixed or capital assets. At December 28, 1996 and
June 28, 1997, the Company had complied with such covenants.
Interest accrues on the revolving line of credit at the bank's reference
rate (8.5% at June 28, 1997) plus 0.5%. The weighted average interest rate for
the 26 week periods ended June 29, 1996 and June 28, 1997, was 8.79% and 8.88%,
respectively.
Effective March 31, 1997, the Company received an amendment to the Revolving
Loan Agreement which increased the revolving line of credit to $9,100,000,
extended the expiration date on both the revolving line of credit and term loan
(of which $2,400,000 was outstanding at June 28, 1997) to the earlier of March
31, 1998 or the consummation of an initial public offering, and changed the
interest rate on the term loan to the Company's option of either the bank's
reference rate (8.5% at June 28, 1997) plus 0.5% or the LIBOR (5.69% at June 28,
1997) plus 3.0%.
F-12
<PAGE>
TRACK 'N TRAIL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE TWENTY-SIX WEEKS
ENDED JUNE 29, 1996 AND JUNE 28, 1997)
4. REVOLVING LINE OF CREDIT AND LONG-TERM DEBT: (CONTINUED)
Available additional borrowings under the Revolving Loan Agreement amounted
to approximately $360,000 at June 28, 1997. Letters of credit outstanding under
the agreement were $666,000 as of June 28, 1997.
On July 3, 1997, the Company received a second amendment to the Revolving
Loan Agreement which provided an addition to the line of credit of $1,000,000.
All borrowings against the additional $1,000,000 in available borrowings under
the line of credit are due on the earlier of September 30, 1997, or the
consummation of an initial public offering.
F-13
<PAGE>
TRACK 'N TRAIL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE TWENTY-SIX WEEKS
ENDED JUNE 29, 1996 AND JUNE 28, 1997)
4. REVOLVING LINE OF CREDIT AND LONG-TERM DEBT: (CONTINUED)
Long-term debt consists of:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28, JUNE 28,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Bank term loan under Revolving Loan Agreement, interest at 8.75% at December 28, 1996
(amended on March 31, 1997 to Company's option of the bank's reference rate (8.50% at
June 28, 1997) plus 0.5% or LIBOR (5.69% at June 28, 1997) plus 3.0%, due in monthly
installments of $50,000 plus interest, balance due the earlier of March 1998 or an
initial public offering.............................................................. $1,933,333 $2,700,000 $ 2,400,000
Subordinated promissory note, interest at 10% until October 25, 1997 and 12%
thereafter, without collateral due the earlier of June 30, 1998 or an initial public
offering............................................................................. -- 3,500,000 3,500,000
Subordinated promissory notes, interest at 10% until October 25, 1997, 12% on October
25, 1997 and thereafter, without collateral, due the earlier of June 30, 1998 or an
initial public offering.............................................................. -- 2,493,673 3,156,548
Term note, interest at 30 day commercial paper rate (5.55% at December 28, 1996 and
June 28, 1997) plus 2.95% collateralized by leasehold improvements, due the earlier
of 2001 or acceleration of any other indebtedness.................................... -- 966,667 866,685
Auto loan, interest at 12.36%, collateralized by a vehicle, repaid in 1997............. -- 9,719 --
Auto loan, interest at 10.5%, collateralized by a vehicle, repaid in 1997.............. -- 10,578 --
Construction notes to store lessors, interest at 12%, without collateral, maturing at
various dates throughout 1998........................................................ -- 33,027 21,589
Bank notes, interest at 10.59%, collateralized by leasehold improvements, repaid in
1996................................................................................. 16,281 -- --
Construction notes to store lessors, interest ranging from 10% to 12%, without
collateral, maturing at various dates through 2000................................... 262,050 111,174 85,605
Construction note to store lessor, federal funds rate plus 3.30% (not to be less than
6%), collateralized by leasehold improvements, due 1998.............................. 50,511 27,198 15,542
Promissory note, interest at 9.36%, collateralized by leasehold improvements, due
2000................................................................................. -- 219,086 195,952
Construction note to store lessor, prime plus 1% (not to exceed 11%), collateralized by
leasehold improvements, due 1998..................................................... 21,875 14,375 10,625
------------ ------------ -----------
Total.............................................................................. 2,284,050 10,085,497 10,252,546
Less current portion............................................................... (701,251) (3,060,480) (2,741,888)
------------ ------------ -----------
Long-term portion.................................................................. $1,582,799 $7,025,017 $ 7,510,658
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
F-14
<PAGE>
TRACK 'N TRAIL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE TWENTY-SIX WEEKS
ENDED JUNE 29, 1996 AND JUNE 28, 1997)
4. REVOLVING LINE OF CREDIT AND LONG-TERM DEBT: (CONTINUED)
Scheduled maturities of long-term debt at December 28, 1996, without giving
effect to acceleration upon the Offering, are as follows:
<TABLE>
<S> <C>
1997........................................................... $3,060,480
1998........................................................... 6,327,618
1999........................................................... 290,124
2000........................................................... 238,958
2001........................................................... 168,317
----------
Total...................................................... $10,085,497
----------
----------
</TABLE>
5. STOCK INCENTIVE PLANS:
STOCK APPRECIATION RIGHTS
Until canceled on July 1, 1996, the Company had granted stock appreciation
rights to certain key employees, which were measured and were vesting over the
period from 1992 to 1997. Under the agreements, the employees were to receive
certain percentages of appreciation of the Company's capital stock during the
measurement period based on agreed-upon appreciation measurement methodologies.
Payment was to be made in five equal annual installments following the earlier
of June 1, 2007, sale of 50% or more of the Company's outstanding stock or the
employees' death, retirement, disability or termination of employment with the
Company. Compensation expense was accrued over the term of the agreements for
the cost of the stock appreciation rights.
The stock appreciation rights were canceled on July 1, 1996, in exchange for
grants of nonqualified options under the Company's 1996 Stock Option Plan, as
described below. The accrued liability at the date of cancellation in connection
with compensation previously recognized under the stock appreciation rights was
offset against total compensation inherent in the nonqualified stock options
granted.
STOCK OPTION PLAN
In June 1996, the Company's stockholders approved the adoption of the 1996
Stock Option Plan (Plan) which provides for the granting of up to 905,735
options to purchase common shares to employees. Options granted under the Plan
may be incentive stock options or nonqualified stock options. The exercise price
and vesting term of the options is to be determined by a committee of the Board
of Directors at the time of grant. The vesting term for incentive and
nonqualified options cannot exceed ten years (five years for options granted to
stockholders who own 10% or more of the total voting power of all classes of the
Company's common stock at the date of the grant). The exercise price of
incentive stock options cannot be less than fair market value of a share of
common stock (110% of fair market value for options granted to stockholders who
own 10% or more of the total voting power of all classes of the Company's common
stock at the date of the grant).
F-15
<PAGE>
TRACK 'N TRAIL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE TWENTY-SIX WEEKS
ENDED JUNE 29, 1996 AND JUNE 28, 1997)
5. STOCK INCENTIVE PLANS: (CONTINUED)
The following is a summary of the activity in stock options granted during
the fiscal year ended December 28, 1996:
<TABLE>
<CAPTION>
INCENTIVE STOCK NONQUALIFIED STOCK
OPTIONS OPTIONS
---------------------- ----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Balance as of December 31, 1995................... -- $ -- -- $ --
Granted........................................... 501,168 4.00 350,618 0.01
--------- ----- --------- -----
Balance as of December 28, 1996................... 501,168 4.00 350,618 $ 0.01
--------- ----- --------- -----
--------- ----- --------- -----
Options exercisable as of December 28, 1996....... 100,228 $ 4.00 212,383 $ 0.01
--------- ----- --------- -----
--------- ----- --------- -----
</TABLE>
There was no change in the number of options granted or exercisable during
the 26-week period ended June 28, 1997. In July 1997, 20,127 incentive stock
options were terminated, resulting in a reduced balance of 831,659 incentive
stock options outstanding, all of which are or will be exercisable at $4.00 per
share.
The incentive stock options vest pro rata on December 15 of each of five
years commencing December 15, 1996, and have an exercise term of ten years after
the date of grant. In the event of a public offering or sale of the Company, the
incentive stock options fully vest and are exercisable. No compensation resulted
from the grant of incentive stock options in fiscal 1996.
The nonqualified stock options partially vested upon grant (177,825 shares)
and the balance vest pro rata on each December 15 for the five years commencing
December 15, 1996, and have an exercise term of ten years after the date of
grant. In the event of a public offering or sale of the Company, the
nonqualified stock options vest and become exercisable in full. The excess of
the fair value of common stock at the date of the grant (determined by
appraisal) over the exercise price of the nonqualified stock options, net of the
liability recorded in connection with stock appreciation rights canceled in
exchange for the nonqualified stock options (an aggregate net amount of
$170,000), represents the per share compensation of the nonqualified stock
options that is being recorded as compensation and as an increase in additional
paid-in capital when the stock options vest. An increase in additional paid-in
capital at the date of grant was recorded for the liability under the stock
appreciation rights that were eliminated upon exchange for the nonqualified
stock options.
Compensation expense recognized for stock compensation awards, including
stock appreciation rights, amounted to $308,000, $196,000 and $116,000 during
the 1994, 1995 and 1996 fiscal years, respectively. Compensation expense
recognized for stock compensation awards, including stock appreciation rights,
amounted to $12,000 and $8,000 for the 26-week periods ended June 29, 1996 and
June 28, 1997, respectively.
The weighted-average, grant-date fair value, computed in accordance with
SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, of all options granted
during 1996, net of the liability recorded in connection with stock appreciation
rights canceled in exchange for the nonqualified stock options, was
F-16
<PAGE>
TRACK 'N TRAIL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE TWENTY-SIX WEEKS
ENDED JUNE 29, 1996 AND JUNE 28, 1997)
5. STOCK INCENTIVE PLANS: (CONTINUED)
$170,000. The weighted-average, grant-date fair value was estimated assuming a
risk-free interest rate of 6.49%, an expected life of five years, no expected
volatility as the Company has no trading record and no expected dividends in
excess of those necessary to provide Old Track 'n Trail's stockholders funds
with which to pay their income taxes on S corporation income of the Company.
Pro forma results of operations, computed to assume the provisions of SFAS
No. 123 had been adopted, for fiscal year 1996 would have been the same as the
historical results of operations, as presented.
6. NOTES RECEIVABLE FROM RELATED PARTIES:
Notes receivable from related parties at December 30, 1995, consisted of:
<TABLE>
<S> <C>
Stockholder notes, interest at prime (8.5% at December 30,
1995) plus 1.75%, principal and interest due on demand..... $1,036,322
Related party note, interest at prime (8.5% at December 30,
1995) plus 1.25%, principal and interest due on demand..... 32,463
----------
$1,068,785
----------
----------
</TABLE>
The balance outstanding at December 30, 1995, of both the stockholder notes
and the note from a related party (who became a stockholder in October 1995)
were distributed to the stockholders in 1996 along with additional notes of
$591,215 related to advances made to such parties in 1996.
7. LEASE COMMITMENTS:
The Company operates its stores, main office and warehouse from facilities
under operating lease agreements which expire at various dates through 2007. The
store leases require minimum annual rentals plus, in some cases, periodic
increases stipulated in the lease agreements (fixed amounts or percentages, in
some cases, and increases indexed to consumer price increases, in other cases).
Some leases also provide for contingent rentals based on sales. The Company is
generally responsible for maintenance, insurance and property taxes. At December
28, 1996, minimum lease payments under all noncancelable leases are as follows:
<TABLE>
<S> <C>
1997........................................................... $8,613,000
1998........................................................... 7,697,000
1999........................................................... 6,493,000
2000........................................................... 5,751,000
2001........................................................... 5,545,000
Thereafter..................................................... 17,587,000
----------
Total...................................................... $51,686,000
----------
----------
</TABLE>
F-17
<PAGE>
TRACK 'N TRAIL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE TWENTY-SIX WEEKS
ENDED JUNE 29, 1996 AND JUNE 28, 1997)
7. LEASE COMMITMENTS: (CONTINUED)
Rent expense was $4,351,000, $4,964,000 and $6,160,000 during fiscal years
1994, 1995 and 1996, including contingent rentals of $141,000, $130,000 and
$123,000, respectively. Rent expense was approximately $2,679,000 and $4,342,000
including contingent rentals of $16,000 and $18,000 for the 26-week periods
ended June 29, 1996 and June 28, 1997, respectively.
8. EMPLOYEE BENEFIT PLAN:
The Company has a 401(k) profit-sharing plan for the benefit of employees
who meet certain eligibility requirements. Participants may make tax deferred
contributions of up to 15% of earned income, limited to $9,240 annually in
fiscal year 1996. Employer contributions match at least 50% of participant
contributions to a maximum of 4% of earned income. Employee contributions vest
immediately. Employer contributions vest based on years of employment with the
Company, with full vesting in five years. The employer contribution was $53,000,
$58,000 and $50,000 in fiscal years 1994, 1995 and 1996, respectively. Employer
contributions were $27,000 and $49,000 for the 26-week periods ended June 29,
1996 and June 28, 1997, repectively.
9. INCOME TAXES:
The provision for income taxes consists of:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Income taxes:
Current......................................... $ 100,000 $ 18,838 $ 406,536
Deferred........................................ (33,000) 22,000 81,454
------------ ------------ ------------
$ 67,000 $ 40,838 $ 487,990
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
For the 26-week periods ended June 29, 1996 and June 28, 1997, the provision
for income taxes consists of the amounts computed at management's estimate of
the effective tax rate during the related fiscal years. For the 26-week period
ended June 28, 1997, the estimated effective rate takes into account the portion
of the income (loss) that will be taxed as S corporation income (Old Track 'n
Trail's federal and most state income) and as C corporation income (Overland's
federal and state loss and a portion of Old Track 'n Trail's state income), and
is adjusted by a nonrecurring deferred income tax benefit related to the change
in tax status of Old Track 'n Trail in certain states from that of an S
corporation to a C corporation, as described in the following paragraph.
Old Track 'n Trail converted from an S corporation to a C corporation for
state income tax purposes in certain states on January 1, 1997, as the result of
acquiring 100% ownership of Overland (Note 13). Certain states in which Old
Track 'n Trail did business have not conformed their state statutes to revised
Internal Revenue Code provisions that, effective beginning January 1, 1997,
permit S corporations to own 100% of subsidiaries. Accordingly, the provision
for income taxes for the 26-week period ended June 28, 1997 includes (i) C
corporation state taxes on the 1997 income of Old Track 'n Trail related to
income in states that have not conformed their S corporation regulations to the
Internal Revenue Code and (ii) a
F-18
<PAGE>
TRACK 'N TRAIL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE TWENTY-SIX WEEKS
ENDED JUNE 29, 1996 AND JUNE 28, 1997)
9. INCOME TAXES: (CONTINUED)
reduction of $114,000 in the provision for income taxes related to recording
deferred tax assets representing the net tax effect (computed using the
applicable state income tax rates) of temporary differences between Old Track 'n
Trail's financial statement and tax bases in certain assets and liabilities as
of the date of converting to a C corporation status in certain states.
Management believes it is likely that some or all of the states in which it does
business that currently do not allow S corporations to own 100% of subsidiaries
will revise their regulations to conform to those of the Internal Revenue Code
(Conforming Regulations) and that such revisions will be retroactive to January
1, 1997. If such Conforming Regulations are made and are retroactive to January
1, 1997, the difference between the income tax provision for the 26-week period
ended June 28, 1997 computed as a C corporation in certain states will be
adjusted through adjustments to the income tax provision of future quarters to
reverse the tax effects of the conversion to C corporation status in states
adopting retroactive Conforming Regulations. The effect of future Conforming
Regulations, if they occur, will be an increase in the provision for income
taxes in the quarter that the Conforming Regulations occur by up to $111,000,
depending on which states, if any, adopt Conforming Regulations.
The components of deferred tax assets are:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
<S> <C> <C>
Depreciation..................................................... $ 16,930 $ 269,009
Inventory--Uniform Capitalization................................ 10,620 116,095
Stock compensation programs...................................... 10,520 --
Deferred rent.................................................... 3,200 199,881
Accrued liabilities.............................................. 2,070 34,049
Other............................................................ 660 --
Basis differences of assets acquired in business combination..... -- (58,319)
Federal effect of deferred state taxes........................... -- (42,600)
------------ ------------
$ 44,000 $ 518,115
------------ ------------
------------ ------------
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
taxes will not be realized. Based upon the availability of management's
projections for future taxable income over the periods in which the deferred tax
assets are deductible, management believes the existing net deductible temporary
differences will reverse during periods in which carrybacks are available and/or
in which the Company generates net taxable income.
F-19
<PAGE>
TRACK 'N TRAIL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE TWENTY-SIX WEEKS
ENDED JUNE 29, 1996 AND JUNE 28, 1997)
9. INCOME TAXES: (CONTINUED)
Differences between the Company's provision for income taxes and the federal
statutory tax rate are:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
Federal statutory rate............................ 34.0% 34.0% 34.0%
Benefit due to Subchapter S status................ (34.0) (34.0) (28.3)
State income taxes................................ 2.4 1.7 3.9
Permanent differences............................. -- -- 0.2
------ ------ ------
2.4% 1.7% 9.8%
------ ------ ------
------ ------ ------
</TABLE>
10. FORWARD FOREIGN CURRENCY CONTRACTS:
The Company occasionally enters into forward foreign contracts with the
objective of minimizing the short-term impact of foreign currency fluctuations
on commitments to purchase products from foreign manufacturers in foreign
currencies. A forward foreign currency contract, which is individually
negotiated and privately traded by currency traders, is a commitment to purchase
or sell a specific currency for an agreed-upon price at a future date. As of
December 28, 1996, all contracts were held for hedging purposes. The gain or
loss on these contracts is reported in the financial statements based upon the
fair value of the contracts obtained from published market prices and quotations
from major investment firms and offsets the corresponding gain or loss
recognized on the commitments to purchase products in foreign currencies. The
Company could be exposed to risk if the counterparties to the contracts are
unable to meet the terms of their contracts. The Company seeks to minimize risk
from counterparties by establishing minimum credit quality standards and maximum
credit limits.
The contracts outstanding as of December 28, 1996, consisted of the
following:
<TABLE>
<CAPTION>
CONTRACT TO BUY
ITALIAN LIRA IN EXCHANGE FOR SETTLEMENT DATE GAIN (LOSS)
- --------------- --------------- --------------- -----------
<S> <C> <C> <C>
54,329,640 U.S. $36,107 1/31/97 $ (185)
139,327,820 U.S. $92,480 2/28/97 (591)
76,882,761 U.S. $50,979 3/31/97 (378)
-----------
$ (1,154)
-----------
-----------
</TABLE>
During the 26-week period ended June 28, 1997, the contracts outstanding at
December 28, 1996 settled without material gain or loss, and no new contracts
were entered into.
F-20
<PAGE>
TRACK 'N TRAIL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE TWENTY-SIX WEEKS
ENDED JUNE 29, 1996 AND JUNE 28, 1997)
11. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used by the Company in estimating
the fair value of its significant financial instruments:
CASH, ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE, ACCRUED PAYROLL AND BONUSES
PAYABLE AND ACCRUED EXPENSES AND OTHER LIABILITIES: The carrying amount
reported in the consolidated balance sheet approximates its fair value
because of the immediate or short-term maturity of those financial
instruments.
BANK LINE OF CREDIT: The carrying amount approximates fair value due to
the floating interest rate and short maturity nature of this financial
instrument.
LONG-TERM DEBT: The carrying amount approximates fair value due to
floating rates or recent issuance of the fixed rate notes.
NOTES RECEIVABLE FROM RELATED PARTIES: The fair value cannot be
determined.
12. SUPPLEMENTAL CASH FLOW INFORMATION:
Supplemental cash flow information is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
------------- ------------- ------------ TWENTY-SIX WEEKS ENDED
------------------------
JUNE 29, JUNE 28,
1996 1997
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest paid.............................. $ 342,013 $ 401,433 $ 615,412 $ 230,766 $ 739,448
------------- ------------- ------------ ----------- -----------
------------- ------------- ------------ ----------- -----------
Income taxes paid.......................... $ 65,045 $ 77,540 $ 72,706 $ 54,300 $ 608,401
------------- ------------- ------------ ----------- -----------
------------- ------------- ------------ ----------- -----------
Noncash investing and financing
transactions:
Acquisition of Overland:
Purchase price, including acquisition
costs................................ $ -- $ -- $2,733,272 $ -- $ 557,724
Minority interest eliminated........... $ -- $ -- $ -- $ -- $ 105,151
Less debt issued in connection with the
acquisition.......................... -- -- (2,493,673) -- (662,875)
------------- ------------- ------------ ----------- -----------
Cash paid for acquisition............ $ -- $ -- $ 239,599 $ -- $ --
------------- ------------- ------------ ----------- -----------
------------- ------------- ------------ ----------- -----------
Increase in liability for distributions
payable to stockholders................ $ 396,500 $ -- $ -- $ -- $ --
------------- ------------- ------------ ----------- -----------
------------- ------------- ------------ ----------- -----------
Distribution of notes receivable to
stockholders........................... $ -- $ -- $1,660,000 $1,660,000 $ --
------------- ------------- ------------ ----------- -----------
------------- ------------- ------------ ----------- -----------
Cancellation of stock appreciation
rights................................. $ -- $ -- $ 596,424 $ 596,424 $ --
------------- ------------- ------------ ----------- -----------
------------- ------------- ------------ ----------- -----------
</TABLE>
13. BUSINESS COMBINATION:
On October 25, 1996, Old Track 'n Trail, together with its stockholders,
obtained 33 Overland Trading stores by acquiring the outstanding common stock of
Overland (Note 1, Principles of Consolidation; Minority Interest). Old Track 'n
Trail purchased the 79.0% interest for approximately $2,733,000 consisting
F-21
<PAGE>
TRACK 'N TRAIL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE TWENTY-SIX WEEKS
ENDED JUNE 29, 1996 AND JUNE 28, 1997)
13. BUSINESS COMBINATION: (CONTINUED)
of promissory notes to the sellers of $2,493,673 and warrants issued to the
sellers valued at nominal amounts, plus acquisition costs of $239,599. In the
event of an initial public offering of the Company's common stock, the warrants
give the sellers the right to purchase up to 1.0% of the shares of the Company's
stock, on a fully diluted basis, outstanding immediately prior to an initial
public offering, at the initial public offering price until October 25, 2001. In
the absence of such initial public offering, the warrants require that the
Company purchase the warrants from the sellers for cash on October 25, 2001, in
an amount equal to one percent of the then fair value of the Company.
The remaining 21.0% interest in Overland was purchased by Old Track 'n
Trail's stockholders for $662,875 of promissory notes which the Company had
guaranteed.
Total promissory notes issued by Old Track 'n Trail and its stockholders in
exchange for the common stock of Overland was $3,156,548 (the Seller Notes). The
Seller Notes are not collateralized and bear interest at 10.0% per year through
October 25, 1997, and 12.0% thereafter. The Seller Notes are due on June 30,
1998, or earlier upon a firm underwritten initial public offering of the
Company's common stock. Interest payments are due quarterly through October
1997, and monthly thereafter.
Also, in connection with the acquisition, Overland repurchased all of its
outstanding preferred stock in exchange for a $3,500,000 subordinated promissory
note (the Subordinated Note) and borrowed $2,559,000 under a line of credit
arranged by Old Track 'n Trail, which was used to repay Overland's outstanding
line of credit, retire a note payable, pay accumulated dividends to its
preferred stockholders and provide additional working capital, all of which were
recorded by Overland in connection with the acquisition. Old Track 'n Trail
guaranteed the Subordinated Note.
Additionally, the Company issued warrants to an investment bank in
consideration of financial advisory services rendered in connection with the
acquisition of Overland. The warrants allow the investment bank to purchase up
to 1.5% of the shares of the Company's common stock, on a fully diluted basis,
outstanding immediately prior to an initial public offering, at a price equal to
120% of the initial public offering price for four years commencing upon the
first anniversary of the initial public offering. In the absence of such initial
public offering, the warrants require that the Company pay cash to the
investment bank on October 25, 2001, in an amount equal to 1.5% of the then fair
value of the Company. The warrants held by both the Overland sellers and the
investment bank were assigned only a nominal value because of the restrictive
terms of the warrants.
Effective on January 1, 1997, Old Track 'n Trail acquired the 21.0% interest
in Overland from its stockholders at their purchase price by assuming the
$662,875 Seller Notes previously issued by Old Track 'n Trail's stockholders.
F-22
<PAGE>
TRACK 'N TRAIL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE TWENTY-SIX WEEKS
ENDED JUNE 29, 1996 AND JUNE 28, 1997)
13. BUSINESS COMBINATION: (CONTINUED)
The assets and liabilities of Overland were recorded at the fair value at
the time of the acquisition, based on management's estimates of value, and the
excess of the purchase price over amounts allocated to identifiable net assets
was recorded as goodwill, as follows:
<TABLE>
<CAPTION>
21.0%
79.0% INTEREST INTEREST
-------------- -------------
<S> <C> <C>
Inventory..................................................... $ 6,911,000
Store fixtures, leasehold improvements and office equipment... 1,908,000
Accounts receivable and prepaid expenses...................... 406,000
Deferred income taxes......................................... 555,000
Accounts payable and accrued liabilities...................... (3,040,000)
Line of credit and long-term debt............................. (6,124,000)
Other liabilities............................................. (608,000)
Minority interest (21%) in net assets......................... $ 105,000
-------------- -------------
Net identifiable assets..................................... 8,000 105,000
Goodwill...................................................... 2,725,000 558,000
-------------- -------------
Purchase price.............................................. $ 2,733,000 $ 663,000
-------------- -------------
-------------- -------------
</TABLE>
Except for inventories and fixed assets, which were reduced to their
respective fair values by adjustments of $220,000 and $189,000, respectively,
offset by related deferred taxes on the fair value adjustments amounting to
$164,000, management determined that the fair value of assets and liabilities
acquired was equal to the book value recorded by Overland and that there were no
identifiable intangible assets other than goodwill. Goodwill recorded in
connection with the acquisition is being amortized using the straight line
method over a 20-year period.
Results of operations of Overland are included in the consolidated financial
statements from October 25, 1996 with the portion attributable to the 21.0%
minority interest held by Old Track 'n Trail's stockholders shown as minority
interest in 1996. Acquisition of the minority interest effective January 1,
1997, eliminated the minority interest from the balance sheet as of that date.
If the Company had purchased 100% of Overland's common stock as of the
beginning of fiscal year 1995, condensed consolidated results of operations
would have been (unaudited):
<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Net sales...................................................... $ 70,660,000 $ 84,186,000
Gross profit................................................... 33,275,000 39,726,000
Operating income............................................... 2,763,195 5,176,000
Net income..................................................... $ 1,467,000 $ 3,576,000
Pro forma net income (unaudited)............................... $ 728,000 $ 2,246,000
Pro forma net income per share (unaudited)..................... $ 0.40
</TABLE>
F-23
<PAGE>
TRACK 'N TRAIL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE TWENTY-SIX WEEKS
ENDED JUNE 29, 1996 AND JUNE 28, 1997)
13. BUSINESS COMBINATION: (CONTINUED)
Pro forma net income (unaudited) in the above table is computed after
deducting a pro forma provision for income taxes at the effective rate estimated
to have been in effect had Old Track 'n Trail been a C corporation. Pro forma
net income per share (unaudited) has been computed by dividing pro forma net
income by the weighted average number of common and common equivalent shares
outstanding (using the treasury stock method and an assumed initial public
offering price) after giving retroactive effect to (i) a change in the number of
outstanding shares effected by the Reorganization (Note 14), (ii) those common
stock options issued during the twelve month period preceding the Offering
computed under the treasury stock method and (iii) the number of shares of
common stock to be sold in the Offering, at an assumed offering price, the
proceeds of which would be necessary to pay the excess of S corporation
distributions during fiscal 1996 and thereafter until the Reorganization over
earnings during fiscal 1996.
14. SUBSEQUENT EVENTS:
REORGANIZATION
The Company is the successor to businesses formerly conducted by Old Track
'n Trail and its subsidiary, Overland. On March 12, 1997, the Board of Directors
approved, subject to the execution of definitive agreements, the Reorganization
of Old Track 'n Trail which will be effective prior to completion of the
Offering (Note 1, Background). In connection with the Reorganization, the Old
Track 'n Trail stockholders will exchange 100% of their common stock of Old
Track 'n Trail for 4,107,608 shares of the common stock of the Company, a newly
formed holding company incorporated in Delaware, inclusive of 40,816 shares
issued upon the Company's formation. Also, all of the common stock of Overland
will be transferred to the Company in the form of a dividend. As a result of the
Reorganization, the Old Track 'n Trail stockholders will own 100% of the Common
Stock of the Company and the predecessor businesses will become wholly owned
subsidiaries of the Company. The Reorganization will result in an increase of
approximately 100 to one in the shares of common stock outstanding immediately
before the Reorganization. Upon the effective date of the Reorganization, the
Company will have 4,107,608 shares of common stock outstanding. The
Reorganization will be accounted for in a manner similar to a pooling of
interests. All references to the number of common and common equivalent shares
and to per share information in the consolidated financial statements have been
adjusted to reflect the capital structure resulting from the Reorganization on a
retroactive basis to all periods presented.
Upon completion of the Reorganization, Old Track 'n Trail will convert from
an S corporation to a C corporation under provisions of the Internal Revenue
Code and, accordingly, will become subject to federal and state income tax on
all of its income. Upon termination of the S corporation election, deferred
income taxes representing the net tax effect of differences between the
Company's financial statement and tax bases in certain assets and liabilities as
of the date of the conversion to a C corporation will become a net asset of the
Company and will be included in the consolidated balance sheet with a
corresponding non-recurring decrease in tax expense in the consolidated
statement of operations as of the date of the Reorganization. Had Old Track 'n
Trail converted from an S corporation to a C corporation at June 28, 1997, an
increase in deferred tax assets, net, of $1,102,000 and a corresponding
reduction of income tax expense would have been recorded. Such deferred tax
assets relate primarily to differences in the financial statement and tax bases
of fixed assets and inventory and the effect of stock compensation plan
deductions
F-24
<PAGE>
TRACK 'N TRAIL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE TWENTY-SIX WEEKS
ENDED JUNE 29, 1996 AND JUNE 28, 1997)
14. SUBSEQUENT EVENTS: (CONTINUED)
for accounting, but not tax, purposes. In 1997, income or loss during the period
preceding the Reorganization while still an S corporation will continue to be
taxed to Old Track 'n Trail's stockholders which will affect the Company's
effective tax rate for that year.
PLANNED INITIAL PUBLIC OFFERING
The Company has filed a registration statement with the Securities and
Exchange Commission to sell shares of the Company's common stock to the public.
If the Offering is consummated in 1997 under the proposed terms, the Company's
nonqualified and incentive stock options will vest resulting in a non-cash
compensation charge reducing net income by approximately $35,000, after netting
the related income tax effect of $24,000.
Upon completion of the Offering, certain notes payable, which have an
aggregate balance of $18,663,000 at June 28, 1997, will become due and payable.
Management intends to use a portion of the proceeds to the Company of the
Offering to retire these obligations. The weighted average interest rate on the
balance of such notes outstanding at June 28, 1997, was 9.24%.
Between June 28, 1997 and the date of the Offering, Old Track 'n Trail
intends to pay or declare distributions aggregating $6,615,000, representing
management's estimate of substantially all of previously undistributed
accumulated S corporation earnings remaining at the date of the Reorganization.
Management expects to pay approximately $6,400,000 of such distributions from a
portion of the Company's proceeds of the Offering. The balance will have been
paid prior to the Offering.
In connection with the Reorganization and the Offering, the S corporation
election of Old Track 'n Trail and the Company, respectively, will be terminated
under circumstances under which income to be reported by the Company and Old
Track 'n Trail for their respective terminated S corporation taxable years will
be determined utilizing a "closing of the books" method.
STOCK OPTION AND PURCHASE PLANS
STOCK OPTION PLAN. In April 1997, the Company approved the assumption of
the 1996 Stock Option Plan of Old Track 'n Trail (the Plan); effective upon the
Reorganization, and amended and restated the Plan, effective as of the date of
the Offering. Upon the Reorganization, options to purchase shares of the
Company's common stock will be exchanged for all stock options then outstanding
pursuant to the Plan to purchase shares of the common stock of Old Track 'n
Trail. A total of 1,055,735 shares of common stock will be reserved for issuance
under the Plan.
As amended and restated, the Plan provides for the granting of nonstatutory
stock options (NSOs) to employees, directors, consultants and advisors of the
Company. The Plan also provides for the granting of incentive stock options
(ISOs) to employees. The plan provides for formula grants to non-employee
directors of the Company (Outside Directors). Such Outside Directors will
automatically receive NSOs to purchase 5,000 shares of common stock upon their
initial appointment as an Outside Director and, upon each annual meeting of
stockholders after their initial appointment, will receive NSOs to purchase
1,250 shares (unless the Outside Director was appointed prior to such a meeting,
in which case the annual grant will occur at the second annual meeting following
the initial appointment). The Plan provides that the
F-25
<PAGE>
TRACK 'N TRAIL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE TWENTY-SIX WEEKS
ENDED JUNE 29, 1996 AND JUNE 28, 1997)
14. SUBSEQUENT EVENTS: (CONTINUED)
option exercise price for ISOs and Outside Director options must be at least
equal to 100% of the fair market value of the common stock on the date of grant.
Options will have an exercise term as determined by a compensation committee of
the Company's board of directors at the date of the grant; however, ISOs must
have an exercise term of no more than ten years from the date of grant.
EMPLOYEE STOCK PURCHASE PLAN. In April 1997, the Company adopted the
Employee Stock Purchase Plan (the Purchase Plan) to become effective as of the
closing of the Offering. The Purchase Plan will cover an aggregate of 150,000
shares of common stock and is intended to qualify as an employee stock purchase
plan within the meaning of Section 423 of the Internal Revenue Code. The plan
administrator, appointed by the Company's board of directors, may authorize
participation by eligible employees, including officers, in periodic offerings
following commencement of the Purchase Plan.
Substantially all full-time (as defined) employees with at least one year
service prior to the commencement of the participation period will be eligible
to participate in the Purchase Plan; however, any highly compensated employee
(as defined) who owns 3.0% or more of the outstanding stock in the Company may
not participate in the Purchase Plan. Employees who participate in an offering
may have a percentage of their earnings (as established by the plan
administrator) withheld pursuant to the Purchase Plan. The amount withheld will
be used to purchase shares of common stock on dates specified by the Board at a
price that will be equal to 85.0% of the lesser of the fair market value of the
common stock at the commencement of each offering period or at the relevant
purchase date. Employees may end their participation in an offering at any time
during the offering period except as provided under the terms of the offering.
Participation ends automatically on termination of employment with the Company.
COMMITTED REVOLVING LINE OF CREDIT
In August 1997, the Company obtained a commitment letter from a bank to
provide a two-year, $10.0 million revolving line of credit, effective upon the
consummation of the Offering and conditioned on the Offering being completed by
December 31, 1997 and the repayment of certain indebtedness from the proceeds of
the Offering. The line of credit will bear interest, at the option of the
Company, at either the bank's reference rate (8.5% at June 28, 1997) or LIBOR
(5.69% at June 28, 1997) plus 2.0%, and will be collateralized by all of the
assets of the Company. Of the total amount available under the line, up to $1.5
million may be allocated to letters of credit. Advances under the line are
limited to a percentage of eligible inventory, and the Company will be required
to meet certain financial covenants.
15. CONTINGENCIES:
The Company is also involved in various claims arising out of the normal
course of the conduct of business. Management believes, after reviewing such
matters with legal counsel, that the outcome of pending claims will not have a
material adverse effect on the Company's results of operations or financial
position.
F-26
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Overland Management Corporation:
We have audited the accompanying balance sheet of Overland Management
Corporation as of August 3, 1996, and the related statements of operations,
changes in stockholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1996 financial statements referred to above present fairly,
in all material respects, the financial position of Overland Management
Corporation as of August 3, 1996, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
September 27, 1996
F-27
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Overland Management Corporation:
We have audited the accompanying balance sheet of Overland Management
Corporation at July 29, 1995, and the related statements of operations, changes
in stockholders' equity, and cash flows for the years ended July 30, 1994 and
July 29, 1995. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Overland Management Corporation at July 29,
1995 and the results of its operations and its cash flows for the years ended
July 30, 1994 and July 29, 1995, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
September 25, 1995
F-28
<PAGE>
OVERLAND MANAGEMENT CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 29, AUGUST 3, OCTOBER 25,
1995 1996 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................. $ 40,072 $ 285,377 $ --
Inventory................................................................. 5,367,121 6,389,101 7,130,968
Prepaid expenses and other assets......................................... 232,001 292,515 147,031
Other receivables......................................................... 29,260 298,751 232,878
Refundable income taxes................................................... 12,537 56,349 --
Deferred income tax asset................................................. -- 10,592 93,128
---------- ---------- -----------
Total current assets.................................................... 5,680,991 7,332,685 7,604,005
---------- ---------- -----------
Property and equipment:
Leasehold improvements.................................................... 1,539,422 1,889,366 1,935,474
Motor vehicles............................................................ 107,083 124,096 124,087
Machinery and equipment................................................... 845,564 1,086,803 1,117,184
Furniture and fixtures.................................................... 14,417 14,417 14,417
---------- ---------- -----------
Total property and equipment............................................ 2,506,486 3,114,682 3,191,162
Less accumulated depreciation............................................. (543,656) (979,213) (1,094,497)
---------- ---------- -----------
Net property and equipment............................................ 1,962,830 2,135,469 2,096,665
---------- ---------- -----------
Other assets:
Deferred income tax asset................................................. 313,500 269,837 298,814
Prepaid expenses and other assets......................................... 30,037 23,622 23,622
---------- ---------- -----------
Total other assets.................................................... 343,537 293,459 322,436
---------- ---------- -----------
$7,987,358 $9,761,613 $10,023,106
---------- ---------- -----------
---------- ---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft............................................................ $ -- $ -- $ 355,449
Note payable--line of credit.............................................. 3,700,000 1,900,000 1,600,000
Current portion of long-term debt......................................... 129,840 134,354 135,172
Accounts payable and accrued expenses..................................... 946,949 2,838,331 2,882,765
Income taxes payable...................................................... -- -- 149,743
Deferred income tax liability............................................. 97,300 -- --
---------- ---------- -----------
Total current liabilities............................................. 4,874,089 4,872,685 5,123,129
Long-term debt, less current portion........................................ 523,693 400,647 375,452
Deferred rent............................................................... 364,747 411,247 423,247
---------- ---------- -----------
Total liabilities..................................................... 5,762,529 5,684,579 5,921,828
---------- ---------- -----------
Commitments (Note 6).
Redeemable preferred stock:
Redeemable Series A preferred stock, $.01 par value; 368,850 shares
authorized, issued and outstanding; $4.07 per share liquidation
preference.............................................................. 1,498,953 1,675,524 1,720,812
Redeemable Series B preferred stock, $.01 par value; 2,000,000 shares
authorized, issued and outstanding; $1.00 per share liquidation
preference.............................................................. -- 2,000,000 2,000,000
---------- ---------- -----------
Total redeemable preferred stock...................................... 1,498,953 3,675,524 3,720,812
---------- ---------- -----------
Stockholders' equity:
Common stock, $.01 par value, 3,000,000 voting shares authorized;
1,500,000 shares issued and outstanding................................. 15,000 15,000 15,000
Additional paid-in-capital................................................ 35,000 35,000 35,000
Retained earnings......................................................... 675,876 351,510 330,466
---------- ---------- -----------
Total stockholders' equity............................................ 725,876 401,510 380,466
---------- ---------- -----------
$7,987,358 $9,761,613 $10,023,106
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
OVERLAND MANAGEMENT CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED
FOR THE YEAR ENDED ----------------------
------------------------------------- OCTOBER OCTOBER
JULY 30, JULY 29, AUGUST 3, 21, 25,
1994 1995 1996 1995 1996
(52 WEEKS) (52 WEEKS) (53 WEEKS) (12 WEEKS) (12 WEEKS)
----------- ----------- ----------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.......................................................... $13,898,519 $18,041,403 $22,659,979 $4,691,001 $5,865,505
Cost of sales...................................................... 7,622,825 9,846,341 12,953,906 2,608,576 3,399,568
----------- ----------- ----------- ---------- ----------
Gross profit................................................... 6,275,694 8,195,062 9,706,073 2,082,425 2,465,937
----------- ----------- ----------- ---------- ----------
Operating expenses:
Selling and marketing............................................ 3,815,710 6,022,821 7,347,075 1,573,461 1,874,924
Administrative and distribution.................................. 1,784,175 1,948,253 2,012,404 449,179 419,801
----------- ----------- ----------- ---------- ----------
Total operating expenses....................................... 5,599,885 7,971,074 9,359,479 2,022,640 2,294,725
----------- ----------- ----------- ---------- ----------
Operating income............................................... 675,809 223,988 346,594 59,785 171,212
Other (income) expense:
Interest......................................................... 105,899 211,571 357,852 102,954 54,543
Other, net....................................................... 526 4,419 114,833 36,810 15,154
----------- ----------- ----------- ---------- ----------
Income (loss) before provision for income taxes................ 569,384 7,998 (126,091) (79,979) 101,515
Income tax expense (benefit)....................................... 239,362 3,200 (53,500) (31,992) 40,605
----------- ----------- ----------- ---------- ----------
Net income (loss).............................................. $ 330,022 $ 4,798 $ (72,591) $ (47,987) $ 60,910
----------- ----------- ----------- ---------- ----------
----------- ----------- ----------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
OVERLAND MANAGEMENT CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
--------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Balance, August 1, 1993....................................... $ 150 $ 49,850 $ 521,700 $ 571,700
One hundred for one stock split (1,500,000 shares)............ 14,850 (14,850) -- --
Accretion of preferred stock to stock redemption value........ (18,814) (18,814)
Net income.................................................... -- -- 330,022 330,022
--------- ------------ ---------- ------------
Balance, July 30, 1994........................................ 15,000 35,000 832,908 882,908
Accretion of preferred stock to stock redemption value........ (161,830) (161,830)
Net income.................................................... -- -- 4,798 4,798
--------- ------------ ---------- ------------
Balance, July 29, 1995........................................ 15,000 35,000 675,876 725,876
Accretion of preferred stock to stock redemption value........ (176,571) (176,571)
Net loss...................................................... -- -- (72,591) (72,591)
Issuance of redeemable preferred stock........................
Issuance of 656,592 warrants to purchase common stock at $0.25
per share................................................... -- -- -- --
Dividends paid................................................ -- -- (75,204) (75,204)
--------- ------------ ---------- ------------
Balance, August 3, 1996....................................... 15,000 35,000 351,510 401,510
Accretion of preferred stock to stock redemption value........ (45,288) (45,288)
Net income (unaudited)........................................ -- -- 60,910 60,910
Dividends paid (unaudited).................................... -- -- (36,666) (36,666)
--------- ------------ ---------- ------------
Balance, October 25, 1996 (unaudited)......................... $ 15,000 $ 35,000 $ 330,466 $ 380,466
--------- ------------ ---------- ------------
--------- ------------ ---------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
OVERLAND MANAGEMENT CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED FOR THE PERIOD ENDED
------------------------------------- ------------------------
JULY 30, JULY 29, AUGUST 3, OCTOBER 21, OCTOBER 25,
1994 1995 1996 1995 1996
(52 WEEKS) (52 WEEKS) (53 WEEKS) (12 WEEKS) (12 WEEKS)
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................. $ 330,022 $ 4,798 $ (72,591) $ (47,987 ) $ 60,910
Adjustments to reconcile net income (loss) to cash provided by
operating activities:
Depreciation and amortization............................... 144,986 266,435 435,557 110,565 115,284
Loss on disposal of property and equipment.................. -- 4,380 2,620 -- --
Effect of changes in:
Employee receivables........................................ 4,054 -- -- -- --
Inventory................................................... (914,805) (1,755,501) (1,021,980) (1,307,186 ) (741,867)
Prepaid expenses and other assets........................... (30,973) (103,384) (54,099) (24,529 ) 145,484
Other receivables........................................... -- (29,260) (269,491) (293,097 ) 65,873
Refundable income taxes..................................... -- (12,537) (43,812) -- 56,349
Deferred income tax asset................................... (38,000) (236,500) 33,071 -- (111,513)
Other assets................................................ (24,311) -- -- -- --
Accounts payable and accrued expenses....................... 122,054 (422,894) 1,891,382 2,012,882 44,434
Deferred rent............................................... 82,010 195,027 46,500 -- 12,000
Income taxes payable........................................ 26,590 (182,540) -- -- 149,743
Deferred income tax liability............................... -- 97,300 (97,300) -- --
----------- ----------- ----------- ----------- -----------
Cash provided by operating activities..................... (298,373) (2,174,676) 849,857 450,648 (203,303)
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment........................... (458,089) (1,428,423) (612,816) (244,878 ) (76,480)
Proceeds from sale of property and equipment.................. -- 7,000 2,000 -- --
----------- ----------- ----------- ----------- -----------
Cash used for investing activities........................ (458,089) (1,421,423) (610,816) (244,878 ) (76,480)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of preferred stock..................... 1,318,309 -- 2,000,000 -- --
Borrowings from line of credit................................ 1,150,000 4,500,000 2,000,000 -- 355,449
Principal payments on line of credit.......................... (2,420,000) (800,000) (3,800,000) (200,000 ) (300,000)
Dividends paid................................................ -- -- (75,204) -- (36,666)
Proceeds from long-term debt.................................. 750,000 -- -- -- --
Payments on long-term debt.................................... (89,036) (135,966) (118,532) (28,201 ) (24,377)
----------- ----------- ----------- ----------- -----------
Cash provided by financing activities..................... 709,273 3,564,034 6,264 (228,201 ) (5,594)
----------- ----------- ----------- ----------- -----------
Increase (decrease) in cash and cash equivalents.......... (47,189) (32,065) 245,305 (22,431 ) (285,377)
Cash, beginning of period....................................... 119,326 72,137 40,072 40,072 285,377
----------- ----------- ----------- ----------- -----------
Cash, end of period............................................. $ 72,137 $ 40,072 $ 285,377 $ 17,641 $ --
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Supplemental cash flow information:
Interest paid................................................. $ 128,655 $ 211,571 $ 353,121 $ 101,506 $ 65,974
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Income taxes paid............................................. $ 212,772 $ 337,170 $ 54,541 $ 6,970 $ 2,475
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
OVERLAND MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE TWELVE WEEKS ENDED
OCTOBER 21, 1995 AND OCTOBER 25, 1996)
1. BUSINESS OF CORPORATION:
As of August 3, 1996, Overland Management Corporation (the Corporation)
operated 32 retail shoe stores under the name of Overland Trading Company. One
additional store was opened in August 1996.
The Corporation operates in a single segment of retailing footwear and
related accessories. The Corporation acquires shoes from a number of
manufacturers; however, during the fiscal year ended August 3, 1996, 47.0% of
the Corporation's net sales was of products purchased from three manufacturers.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
FISCAL YEAR
The Corporation's fiscal year ends on the Saturday closest to July 31 in
each year.
INTERIM RESULTS (UNAUDITED)
The accompanying balance sheet as of October 25, 1996 and the statements of
operations, changes in stockholders' equity and cash flows for the 12-week
periods ended October 21, 1995 and October 25, 1996 are unaudited. In the
opinion of management, these statements have been prepared on the same basis as
the audited financial statements and include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the results
of the interim periods. The data disclosed in the notes to the financial
statements for those interim periods are also unaudited.
CASH AND CASH EQUIVALENTS
The Corporation considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORY
Inventory, which consists mainly of goods for resale, is stated at the lower
of cost (first-in, first-out method) or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Expenditures for maintenance
and repairs are charged to income as incurred. Depreciation is provided on the
double-declining balance basis over the following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
---------
<S> <C>
Motor vehicles......................................................................... 5
Machinery and equipment................................................................ 7
Furniture and fixtures................................................................. 7
Leasehold improvements................................................................. 2-15
</TABLE>
Leasehold improvements are depreciated over the terms of the lease or the
useful lives of the improvement, whichever is shorter.
F-33
<PAGE>
OVERLAND MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE TWELVE WEEKS ENDED
OCTOBER 21, 1995 AND OCTOBER 25, 1996)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
STORE PRE-OPENING COSTS
Costs of a noncapital nature incurred prior to store openings are expensed
as incurred.
INCOME TAXES
The Corporation accounts for income taxes using the asset and liability
method. Under the asset and liability method, deferred income taxes are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax basis. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred taxes of a change in tax rate is recognized in income in the
period that includes the enactment date.
DEFERRED RENT AND RENTAL EXPENSE
The Corporation accounts for rental expense on stores, including leases with
scheduled base rent escalations, on a straight-line basis over the noncancelable
lease term.
RECLASSIFICATION
Certain amounts in 1995 have been reclassified to conform with the 1996
presentation.
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
During 1995, additional long-term debt of $29,024 was recognized as a result
of the acquisition of certain fixed assets.
USE OF ESTIMATES
Management of the Corporation has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalents, other receivables, accounts
payable and accrued expenses and short and long term debt is a reasonable
estimate of its fair value based on instruments with similar terms and
maturities.
STOCK OPTIONS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION. SFAS No. 123 establishes fair value-based accounting and reporting
standards for stock-based employee compensation plans. The statement defines a
fair value based method of accounting for an employee stock option or similar
equity instrument
F-34
<PAGE>
OVERLAND MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE TWELVE WEEKS ENDED
OCTOBER 21, 1995 AND OCTOBER 25, 1996)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
and allows parties to elect to continue to measure compensation costs using the
intrinsic value method of accounting prescribed in Accounting Principles Board
(APB) Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. SFAS No. 123
requires, for those electing to remain with the APB Opinion No. 25 accounting,
pro forma disclosure of net income as if the fair value-based method had been
applied.
3. STOCK TRANSACTIONS:
On June 13, 1994, the Corporation amended the Articles of Organization in
order to provide for one class of Common Stock, par value $.01 per share,
increase the number of authorized shares of Common Stock to 3,000,000 and
establish a class of Convertible Preferred Stock consisting of 368,850 shares,
par value $.01 per share. In addition, each share of Class A and B Common Stock
issued and outstanding as of June 13, 1994, was reclassified and exchanged into
100 shares of Common Stock, $.01 par value, of the Corporation.
On June 15, 1994, the Corporation issued and sold 368,850 shares of
Convertible Preferred Stock, $.01 par value, at $4.0667 per share. Each share of
Preferred Stock is convertible into approximately one share of the Corporation's
Common Stock for approximately $4.07 per share, and is entitled upon liquidation
to receive approximately $4.07 per share, plus any unpaid dividends. Holders of
Preferred Stock share ratably with holders of Common Stock in all common stock
dividends payable in cash (not in dividends payable in any Capital Stock or in
any other property) declared by the Board of Directors of the Corporation
computed as if the Preferred Stock had been converted into Common Stock at the
Conversion Ratio in effect at the date of declaration of the cash dividend.
Dividends on each share of Preferred Stock accumulate at an annual rate of 9% on
the liquidation value of each such share of Preferred Stock. Certain events,
including the sale of the Corporation, would cause the accumulated dividends to
become declared and payable immediately. At August 3, 1996 and October 25, 1996,
there were approximately $285,000 and $350,000, respectively, of accumulated but
undeclared Preferred Stock dividends.
On September 6, 1994, the stockholders approved a nonqualified stock option
plan with a maximum aggregate of 93,400 shares reserved for grant to key
personnel. Also, on that date, employees of the Corporation were granted fully
vested options to buy 32,888 Common Stock shares, $.01 par value, at an exercise
price of $3.50 per share with an expiration date of September 6, 2004. During
fiscal year 1996, 2,010 options were terminated. As of July 29, 1995, August 3,
1996 and October 25, 1996, 32,888, 30,878 and 30,878 options remained
outstanding. None of the options granted under the stock option plan have been
exercised.
On March 28, 1996, the Corporation amended the Articles of Organization in
order to convert the 368,850 authorized shares of Preferred Stock, $.01 par
value, into 368,850 authorized shares of Series A Preferred Stock, and to
authorize 2,000,000 shares of Series B Preferred Stock, $.01 par value. Any of
the Preferred Stock may be redeemed by the Corporation at any time. Series A
Preferred Stock is scheduled to be redeemed on June 23, 2000 and Series B is
scheduled to be redeemed on June 23, 2001.
On March 29, 1996, the Corporation issued and sold 2,000,000 shares of
Series B Preferred Stock, $.01 par value, at $1.00 per share. On the last day of
each calendar month, holders of Series B Preferred Stock are entitled to receive
any funds legally available for Series B preferred stock cumulative cash
dividends which have been declared by the Board of Directors.
F-35
<PAGE>
OVERLAND MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE TWELVE WEEKS ENDED
OCTOBER 21, 1995 AND OCTOBER 25, 1996)
3. STOCK TRANSACTIONS: (CONTINUED)
Dividends on each share of Series B Preferred Stock shall accumulate and
accrue from day to day at the annual rate of eleven percent (11%) on the
liquidation value of each share of Series B Preferred Stock. Provisions in the
Preferred Stock Agreement call for the Series B Preferred shareholders to
receive additional amounts in the event the dividends accumulate. There are no
accumulated dividends on the Series B Preferred Stock at August 3, 1996 and
October 25, 1996. In the event of liquidation of the Corporation, the holders of
outstanding Series B Preferred Stock shall be entitled to receive $1.00 per
share plus all accumulated and unpaid dividends.
4. STOCK WARRANTS:
As of July 29, 1995, the Corporation was in default of several covenants on
its loan agreements with Fleet Bank (formerly Shawmut Bank, N.A.). The balance
outstanding as of this date was $571,400. The debt covenants for these loans
were amended on August 25, 1995, which enabled the Corporation to be in
compliance with all covenants. On August 25, 1995, the Corporation entered into
a guarantee agreement with a stockholder (the Guarantor) to guarantee a portion
of the Corporation's loan agreement with the bank. As consideration for this
agreement, the Guarantor paid to the Corporation the amount of $2.00, and the
Corporation issued the Guarantor two series of warrants to purchase certain
shares of Common stock of the Corporation. The first warrant entitled the holder
to purchase 30,000 shares of the Corporation's Common Stock at a purchase price
of $0.25 per share. The second warrants entitled the holder to purchase 200,000
shares of the Corporation's Common Stock at a purchase price of $0.25 per share.
Both warrants were canceled under the terms of the Securities Purchase Agreement
(Agreement) dated March 29, 1996.
On March 29, 1996, the Corporation entered into an Agreement with a
stockholder to sell three series of warrants, at a price of $1.00 each, to
purchase certain shares of Common Stock of the Corporation. The first warrant
(Warrant 1996-1), entitles the holder to purchase nineteen percent (19%) of the
"Fully Diluted Shares of Common Stock of the Corporation" (as such term is
defined in the Agreement) at a purchase price of $0.25 per share. Warrant 1996-1
will expire on the earlier of the sixth anniversary of the redemption of the
Series B Preferred Stock or March 28, 2006. The second warrant (Warrant 1996-2)
entitles the holder to purchase nine percent (9%) of the "Fully Diluted Shares
of Common Stock of the Corporation" (as such term is defined in the Agreement)
at a purchase price of $0.25 per share. The third warrant (Warrant 1996-3) is
not exercisable until the earlier of June 24, 2000 or in the event of a default
to the stockholder (as defined in the Agreement). Warrant 1996-3 entitles the
holder to purchase two percent (2%) of the "Fully Diluted Shares of Common Stock
of the Corporation" (as such term is defined in the Agreement) at a purchase
price of $0.25 per share. Warrants 1996-2 and 1996-3 will expire on the earlier
of the sixth anniversary of the redemption of the Series A Preferred Stock or
June 23, 2004. As of August 3, 1996, the Corporation has reserved 656,592 shares
of the Common Stock for issuance upon exercise of Warrant 1996-1, Warrant 1996-2
and Warrant 1996-3.
F-36
<PAGE>
OVERLAND MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE TWELVE WEEKS ENDED
OCTOBER 21, 1995 AND OCTOBER 25, 1996)
5. DEBT:
LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
OCTOBER
JULY 29, AUGUST 3, 25,
1995 1996 1996
--------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to Fleet Bank, 11.99%, payable
in monthly installments of principal and
interest of $317 from February 16, 1995
through January 16, 2000.................. $ 13,081 $ 10,768 $ 10,146
Note payable to Fleet Bank, 7.90%, payable
in monthly installments of principal and
interest of $364 from August 29, 1994
through July 29, 1998..................... 11,595 8,038 7,103
Note payable to IRA Olds/Toyota Corp.,
payable in monthly installments of
principal and interest of $244 from August
29, 1996 through July 29, 2001............ -- 11,308 10,874
Promissory note to PCM Development
Corporation for Middletown store leasehold
improvements, 12%, payable in monthly
installments of principal and interest of
$883 from April 1, 1992 through February
1, 1998................................... 23,390 15,156 12,939
Promissory note to Pyramid Company of
Buffalo for Buffalo store leasehold
improvements, 12%, payable in monthly
installments of principal and interest of
$1,017 from January 1, 1992 through
December 1, 1998.......................... 34,067 25,490 23,182
Notes payable to Fleet Bank, 80%, guaranteed
by the Small Business Administration,
10.75%, payable in monthly installments of
principal and interest of $8,930 from
December 6, 1993 through October 25,
2000...................................... 571,400 464,241 446,380
--------- --------- ---------
Total................................... 653,533 535,001 510,624
Less current portion........................ (129,840) (134,354) (135,172)
--------- --------- ---------
$ 523,693 $ 400,647 $ 375,452
--------- --------- ---------
--------- --------- ---------
</TABLE>
On December 6, 1993, the Corporation entered into a Term Loan Agreement (the
Agreement) guaranteed by the Small Business Administration. Under the terms of
the Agreement and the line-of-
F-37
<PAGE>
OVERLAND MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE TWELVE WEEKS ENDED
OCTOBER 21, 1995 AND OCTOBER 25, 1996)
5. DEBT: (CONTINUED)
credit agreement, substantially all of the assets of the Corporation were
pledged as collateral. The Agreement places limitations on the payment of
dividends and the incurrence of additional debt and also contains certain other
financial and operational covenants. The Corporation was in default of certain
covenants as of July 29, 1995. The debt covenants for these loans were amended
on August 25, 1995, which enabled the Corporation to be in compliance with all
covenants (see Note 4). The interest rate of the loan is based on the bank's
Corporate Base Rate plus 2% (10.25%, 10.75% and 10.25% at July 29, 1995, August
3, 1996 and October 25, 1996, respectively).
REVOLVING LINE OF CREDIT
The Corporation has a line-of-credit agreement with Fleet Bank (the Bank)
for $4,000,000. Interest is payable monthly at the Bank's prime rate plus 1.0%
(9.25% as of August 3, 1996). The line of credit is collateralized by inventory,
furniture, fixtures and the personal guarantees of the stockholders. There was
$1,900,000 outstanding at August 3, 1996. The weighted average interest rate for
the fiscal years ended July 29, 1995 and August 3, 1996, were 9.43% and 10.55%,
respectively. The weighted average interest rate for the periods ended October
21, 1995 and October 25, 1996, were 10.51% and 9.25%, respectively. The
Corporation has been notified by the Bank that the line of credit will not be
renewed upon its termination on December 31, 1996.
6. COMMITMENTS:
As of August 3, 1996, the Corporation leased its principal office and 32
retail shoe stores under noncancelable operating leases expiring on various
dates through January 2009. The Corporation opened an additional store in August
1996. The leases provide for base rental and, in some instances, for the payment
of percentage rents based on sales volume, real estate taxes and common area
maintenance charges. At August 3, 1996, future minimum lease payments under
these noncancelable leases were approximately as follows:
<TABLE>
<S> <C>
1997........................................................ $ 2,050,000
1998........................................................ 2,053,000
1999........................................................ 1,839,000
2000........................................................ 1,529,000
2001........................................................ 1,318,000
Thereafter.................................................. 5,391,000
-----------
$14,180,000
-----------
-----------
</TABLE>
Rent expense was approximately $1,063,000, $1,756,000 and $1,992,000 for the
years ended July 31, 1994, July 29, 1995 and August 3, 1996, respectively. Rent
expense was approximately $486,000 and $551,000 for the twelve week periods
ended October 21, 1995 and October 25, 1996, respectively.
F-38
<PAGE>
OVERLAND MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE TWELVE WEEKS ENDED
OCTOBER 21, 1995 AND OCTOBER 25, 1996)
7. INCOME TAXES:
The components of income tax expense (benefit) are approximately as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------
JULY 30, JULY 29, AUGUST 31,
1994 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal................................................ $ 249,362 $ 121,000 $ 8,200
State.................................................. 28,000 21,400 13,500
Deferred:
Federal................................................ (34,000) (118,400) (62,400)
State.................................................. (4,000) (20,800) (12,800)
---------- ----------- -----------
Total................................................ $ 239,362 $ 3,200 $ (53,500)
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
The deferred income tax balance at July 29, 1995, August 3, 1996 and October
25, 1996, represents income taxes at enacted statutory rates on temporary
differences. There is no valuation allowance with respect to the deferred income
tax asset as of July 29, 1995, August 3, 1996 and October 25, 1996. The
effective rate varied from the statutory rate of 34.0% primarily as a result of
state income taxes.
Components of the deferred income tax balance are as follows:
<TABLE>
<CAPTION>
JULY 29, AUGUST 3,
1995 1996
---------- -----------
<S> <C> <C>
Deferred tax assets:
Inventory--Uniform Capitalization.................................. $ 62,000 $ 88,601
Compensated absences............................................... 0 11,054
Depreciation....................................................... 97,600 289,553
Deferred rent...................................................... 145,600 0
Other.............................................................. 8,300 0
---------- -----------
Total gross deferred tax assets.................................. $ 313,500 $ 389,208
Deferred tax liabilities:
Prepaid expenses................................................... (86,400) 0
Prepaid rent....................................................... 0 (108,779)
Other.............................................................. (10,900) 0
---------- -----------
Total gross deferred tax liability............................... (97,300) (108,779)
---------- -----------
Net deferred tax asset......................................... $ 216,200 $ 280,429
---------- -----------
---------- -----------
</TABLE>
8. LICENSE AGREEMENT:
The Corporation has acquired the rights to use the trademarks "Overland" and
"Overland Trading Co." under a license agreement. The terms of the agreement
commenced on January 28, 1989 and continued through January 27, 1996, at which
time the licensor transferred and assigned to the Corporation its entire right,
title, and interest in the trademarks for no additional consideration. During
the term of
F-39
<PAGE>
OVERLAND MANAGEMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED WITH RESPECT TO THE TWELVE WEEKS ENDED
OCTOBER 21, 1995 AND OCTOBER 25, 1996)
8. LICENSE AGREEMENT: (CONTINUED)
the agreement, the Corporation paid to the licensor a royalty equal to 3.0% of
the gross sales of all products for six stores with royalties payable every six
months in February and August. At July 29, 1995, accrued royalties amounted to
$68,915 and were included in accounts payable and accrued expenses. All
obligations under the license agreement have been fulfilled as of August 3,
1996.
9. SALE OF THE COMPANY:
On October 25, 1996, Track 'n Trail and its stockholders purchased 79.0% and
21.0%, respectively, of the outstanding common stock of the Corporation for an
aggregate price of $3,156,548, paid with promissory notes plus warrants. The
notes issued by the Track 'n Trail stockholders have been guaranteed by Track 'n
Trail. In the event of an initial public offering of Track 'n Trail's common
stock, the warrants give the previous stockholders of the Corporation the right
to purchase up to 1.0% of the outstanding shares of Track 'n Trail's stock, on a
fully diluted basis, outstanding immediately prior to an initial public
offering, at the initial public offering price. In the absence of such an
initial public offering, the warrants require that Track 'n Trail purchase the
warrants from the Corporation's stockholders for cash on October 25, 2001, in an
amount equal to one percent of the then fair value of Track 'n Trail.
In connection with this acquisition, the Corporation redeemed all of the
outstanding shares of Series A Preferred Stock and Series B Preferred Stock in
exchange for a subordinated promissory note without collateral in the principal
amount of $3,500,000 due on June 30, 1998, or immediately upon a firm
underwritten initial public offering of Track 'n Trail. The note is guaranteed
by Track 'n Trail and bears interest at a rate of 10.0% through October 25,
1997, and 12.0% thereafter, with payments of interest due quarterly through
October 25, 1997, and monthly thereafter.
Under a line of credit arranged by Track 'n Trail, the Corporation borrowed
$2,559,000 and (i) repaid the outstanding line of credit of $1,600,000, (ii)
retired a note payable for $446,380, (iii) paid accumulated dividends to its
preferred stockholders of $350,000 and (iv) paid certain fees and expenses
associated with the acquisition. Additionally, the warrants (discussed in Note
4) were exercised for 597,288 shares of common stock, for total consideration of
$149,322 in connection with the acquisition.
F-40
<PAGE>
[INSIDE BACK COVER OF PROSPECTUS]
[OVERLAND TRADING COMPANY LOGO]
[PICTURE OF UNITED STATES MAP INDICATING OVERLAND TRADING COMPANY STORE
LOCATIONS]
35 Eastern Locations
<PAGE>
[INSIDE BACK COVER GATEFOLD OF PROSPECTUS]
[PHOTOGRAPH SHOWS INTERIOR PANEL WALL OF OVERLAND TRADING COMPANY STORE WITH
DISPLAY OF WOMEN'S SHOES]
[PHOTOGRAPH SHOWS EXTERIOR OF OVERLAND TRADING COMPANY STORE]
Quality, Comfort and Tradition Always in Style
[PHOTOGRAPH SHOWS PANORAMIC VIEW OF LEGS AND FEET]
[PHOTOGRAPH SHOWS INTERIOR PANEL WALL OF OVERLAND TRADING COMPANY STORE WITH
DISPLAY OF MEN'S SHOES]
<PAGE>
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT 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, THE SELLING STOCKHOLDERS OR ANY
OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY
SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH
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 THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 3
The Company.................................... 7
Risk Factors................................... 8
S Corporation Distributions.................... 13
Use of Proceeds................................ 14
Dividend Policy................................ 14
Dilution....................................... 15
Capitalization................................. 16
Selected Consolidated Financial Information.... 18
Pro Forma Condensed Consolidated Financial
Information.................................. 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 28
Business....................................... 39
Management..................................... 50
Certain Transactions........................... 57
Principal and Selling Stockholders............. 58
Description of Capital Stock................... 59
Shares Eligible for Future Sale................ 61
Underwriting................................... 63
Legal Matters.................................. 64
Experts........................................ 64
Change in Independent Accountants.............. 65
Additional Information......................... 65
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 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.
2,727,272 SHARES
[TRACK 'n TRAIL LOGO]
COMMON STOCK
--------------
PROSPECTUS
--------------
ALEX. BROWN & SONS INCORPORATED
A.G. EDWARDS & SONS, INC.
LADENBURG THALMANN & CO. INC.
, 1997
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses expected to be incurred
by the Registrant in connection with the sale and distribution of the securities
being registered hereby, other than underwriting discounts and commissions. All
amounts are estimated except the Securities and Exchange Commission registration
fee and the National Association of Securities Dealers, Inc. filing fee.
<TABLE>
<CAPTION>
PAYABLE BY
REGISTRANT
------------
<S> <C>
SEC registration fee............................................................ $ 10,637
National Association of Securities Dealers, Inc. filing fee..................... 4,010
Nasdaq National Market listing fee.............................................. 34,132
Blue Sky fees and expenses...................................................... 5,000
Accounting fees and expenses.................................................... 565,000
Legal fees and expenses......................................................... 640,000
Printing and engraving expenses................................................. 130,000
Registrar and Transfer Agent's fees............................................. 3,000
Miscellaneous fees and expenses................................................. 8,221
------------
Total....................................................................... $ 1,400,000
------------
------------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides for the
indemnification of officers, directors, and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933, as amended (the "Act"). Article VIII of the Registrant's
Certificate of Incorporation (Exhibit 3.1 hereto) and Article VIII of the
Registrant's Bylaws (Exhibit 3.2 hereto) provide for indemnification of the
Registrant's directors, officers, employees and other agents to the extent and
under the circumstances permitted by the Delaware General Corporation Law. The
Registrant also intends to enter into agreements with its directors and certain
of its officers that would require the Registrant, among other things, to
indemnify them against certain liabilities that may arise by reason of their
status or service as directors or officers to the fullest extent not prohibited
by law.
The Underwriting Agreement (Exhibit 1.1) provides for indemnification by the
Underwriters of the Registrant, its directors and its officers, and by the
Registrant of the Underwriters, for certain liabilities, including liabilities
arising under the Act, and affords certain rights of contribution with respect
thereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On May 14, 1997, the Registrant issued 40,816 shares of Common Stock to the
three stockholders of its predecessor, Track 'n Trail, a California corporation,
in connection with the formation of the Registrant. The Registrant relied on the
exemption provided by Section 4(2) under the Act.
In September 1997, in order to effect the reorganization of the Registrant
in Delaware, the Registrant issued an aggregate of 4,066,792 shares of Common
Stock to the three former stockholders of its predecessor, Track 'n Trail, a
California corporation, in exchange for all outstanding shares of such
corporation. The Registrant relied on the exemption provided by Section 4(2) of
the Act.
II-1
<PAGE>
The recipients of the above-described securities represented their intention
to acquire the securities for investment only and not with a view to
distribution thereof. Appropriate legends were affixed to the stock certificates
and warrants issued in such transactions. All recipients had adequate access,
through employment or other relationships, to information about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- ---------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.
3.1(a)** Certificate of Incorporation of the Registrant.
3.1(b)* Form of Amended and Restated Certificate of Incorporation of the Registrant.
3.2(a) Bylaws of the Registrant.
3.2(b)* Form of Amended and Restated Bylaws of the Registrant.
4.1 Form of Common Stock Certificate.
4.2 Form of Registration Rights Agreement among the Registrant and certain
stockholders.
5.1 Form of Opinion of Pillsbury Madison & Sutro LLP.
10.1** Employment Agreement dated January 3, 1994 between the Registrant and Gregory M.
Kilgore.
10.2** Employment Agreement dated January 3, 1994 between the Registrant and John E.
Wilkinson.
10.3** Employment Agreement dated January 3, 1994 between the Registrant and Daniel J.
Nahmens.
10.4** Employment Agreement dated January 3, 1994 between the Registrant and David T.
Morgan.
10.5 Amended and Restated 1996 Stock Option Plan.
10.6 Form of Incentive Stock Option and Stock Option Agreement, as amended.
10.7 Form of Nonqualified Stock Option and Stock Option Agreement, as amended.
10.8 Form of Agreement for Distribution of Accumulated Adjustments Account and Tax
Indemnification.
10.9 Form of Indemnification Agreement between the Company and directors and certain
officers.
10.10 Form of Stock Exchange Agreement between the Company, Track 'n Trail-California
and certain stockholders.
10.11 Warrant to Purchase Common Stock issued to Ladenburg Thalmann & Co. Inc.
10.12 Form of Warrant to Purchase Common Stock issued to stockholders of Overland
Management Corporation.
11.1 Statement of computation of earnings per share.
16.1** Letter from former independent accountant.
21.1** List of Subsidiaries of the Registrant.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Deloitte & Touche LLP.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- ---------------------------------------------------------------------------------
<S> <C>
23.3 Consent of Deloitte & Touche LLP.
23.4 Consent of KPMG Peat Marwick LLP.
23.5 Consent of Pillsbury Madison & Sutro LLP (included in Exhibit 5.1).
24.1** Power of Attorney.
27.1 Financial Data Schedule.
99.1 Consent of prospective director, Helen C. Bulwik.
99.2 Consent of prospective director, Steven D. Tough.
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed.
(B) FINANCIAL STATEMENT SCHEDULES
Not applicable.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "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 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, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the 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 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 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.
(3) It will provide to the underwriters at the closing(s) 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.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of El Dorado
Hills, State of California, on the 26th day of August, 1997.
TRACK 'N TRAIL, INC.
By: /s/ DANIEL J. NAHMENS
-----------------------------------------
Daniel J. Nahmens
VICE PRESIDENT-FINANCE
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- -------------------------- -------------------
<C> <S> <C>
/s/ DAVID L. SUECHTING, JR. * Chairman of the Board
- ----------------------------------- (Principal Executive August 26, 1997
David L. Suechting, Jr. Officer) and Director
Vice President-Finance and
/s/ DANIEL J. NAHMENS Chief Financial Officer
- ----------------------------------- and Treasurer (Principal August 26, 1997
Daniel J. Nahmens Financial Officer and
Accounting Officer)
/s/ GREGORY M. KILGORE *
- ----------------------------------- Director August 26, 1997
Gregory M. Kilgore
/s/ BARBARA J. SUECHTING *
- ----------------------------------- Director August 26, 1997
Barbara J. Suechting
*By DANIEL J. NAHMENS
- -----------------------------------
Daniel J. Nahmens
Attorney-in-Fact
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF DOCUMENT NUMBERED PAGE
- ----------- ------------------------------------------------------------------- -------------
<S> <C> <C>
1.1 Form of Underwriting Agreement.....................................
3.1(a)** Certificate of Incorporation of the Registrant.....................
3.1(b)* Form of Amended and Restated Certificate of Incorporation of the
Registrant.......................................................
3.2(a) Bylaws of the Registrant...........................................
3.2(b)* Form of Amended and Restated Bylaws of the Registrant..............
4.1 Form of Common Stock Certificate...................................
4.2 Form of Registration Rights Agreement among the Registrant and
certain stockholders.............................................
5.1 Form of Opinion of Pillsbury Madison & Sutro LLP...................
10.1** Employment Agreement dated January 3, 1994 between the Registrant
and Gregory M. Kilgore...........................................
10.2** Employment Agreement dated January 3, 1994 between the Registrant
and John E. Wilkinson............................................
10.3** Employment Agreement dated January 3, 1994 between the Registrant
and Daniel J. Nahmens............................................
10.4** Employment Agreement dated January 3, 1994 between the Registrant
and David T. Morgan..............................................
10.5 1996 Stock Option Plan, as amended.................................
10.6 Form of Incentive Stock Option and Stock Option Agreement, as
amended..........................................................
10.7 Form of Nonqualified Stock Option and Stock Option Agreement, as
amended..........................................................
10.8 Form of Agreement for Distribution of Accumulated Adjustments
Account and Tax Indemnification..................................
10.9 Form of Indemnification Agreement between the Company and directors
and certain officers.............................................
10.10 Form of Stock Exchange Agreement between the Company, Track 'n
Trail-California and certain stockholders........................
10.11 Warrant to Purchase Common Stock issued to Ladenburg Thalmann & Co.
Inc..............................................................
10.12 Form of Warrant to Purchase Common Stock issued to stockholders of
Overland Management Corporation..................................
11.1 Statement of computation of earnings per share.....................
16.1** Letter from former independent accountant..........................
21.1** List of Subsidiaries of the Registrant.............................
23.1 Consent of Coopers & Lybrand L.L.P.................................
23.2 Consent of Deloitte & Touche LLP...................................
23.3 Consent of Deloitte & Touche LLP...................................
23.4 Consent of KPMG Peat Marwick LLP...................................
23.5 Consent of Pillsbury Madison & Sutro LLP
(included in Exhibit 5.1)........................................
24.1** Power of Attorney..................................................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF DOCUMENT NUMBERED PAGE
- ----------- ------------------------------------------------------------------- -------------
<S> <C> <C>
27.1 Financial Data Schedule............................................
99.1 Consent of prospective director, Helen C. Bulwik...................
99.2 Consent of prospective director, Steven D. Tough...................
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed.
<PAGE>
Exhibit 1.1
2,727,272 Shares
TRACK 'N TRAIL
Common Stock
UNDERWRITING AGREEMENT
___________, 1997
ALEX. BROWN & SONS INCORPORATED
A.G. EDWARDS & SONS, INC.
LADENBURG THALMANN & CO. INC.
As Representatives of the several Underwriters
named in Schedule A hereto
c/o Alex. Brown & Sons Incorporated
1 South Street
Baltimore, MD 21202
Dear Sirs:
1. INTRODUCTORY. Track 'n Trail, a Delaware corporation (the "Company"),
proposes to sell, pursuant to the terms of this Agreement, to the several
underwriters named in Schedule A hereto (the "Underwriters," or, each, an
"Underwriter"), an aggregate of 2,727,272 shares of Common Stock, par value $.01
per share (the "Common Stock"), of the Company. The aggregate of 2,727,272
shares so proposed to be sold is hereinafter referred to as the "Firm Stock".
The selling stockholders named in Schedule B hereto (the "Selling Stockholders")
propose to sell to the Underwriters, upon the terms and conditions set forth in
Section 3 hereof, up to an additional 409,090 shares of Common Stock (the
"Option Stock"). The Firm Stock and the Option Stock are hereinafter
collectively referred to as the "Stock". Alex. Brown & Sons Incorporated
("Alex. Brown") and the other Representatives are acting as representatives of
the several Underwriters and in such capacity are hereinafter referred to as the
"Representatives".
2. (a) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND A CERTAIN
SELLING STOCKHOLDER. The Company and the Selling Stockholder named in Part I of
<PAGE>
Schedule B, jointly and severally, represent and warrant to, and agree with, the
several Underwriters that:
(i) A registration statement on Form S-1 (File No.
333-23195), in the form in which it became or becomes effective and also in
such form as it may be when any post-effective amendment thereto shall
become effective, with respect to the Stock, including any effective
prospectuses included as part of the registration statement as originally
filed or as part of any amendment or supplement thereto, or filed pursuant
to Rule 424 under the Securities Act of 1933, as amended (the "Securities
Act"), and the rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") thereunder, copies of
which have heretofore been delivered to you, has been carefully prepared by
the Company in conformity with the requirements of the Securities Act and
has been filed with the Commission under the Securities Act; one or more
amendments to such registration statement, including in each case an
amended preeffective prospectus, copies of which amendments have heretofore
been delivered to you, have been so prepared and filed. Such registration
statement at the time which it became effective is referred to hereinafter
as the "Registration Statement". If it is contemplated, at the time this
Agreement is executed, that a post-effective amendment to the Registration
Statement will be filed and must be declared effective before the offering
of the Stock may commence, the term "Registration Statement" as used in
this Agreement means the Registration Statement as amended by said
post-effective amendment. The term "Registration Statement" as used in
this Agreement shall also include any registration statement relating to
the Stock that is filed and declared effective pursuant to Rule 462(b)
under the Securities Act. The term "Prospectus" as used in this Agreement
means the prospectus in the form included in the Registration Statement,
or, (A) if the prospectus included in the Registration Statement omits
information in reliance on Rule 430A under the Securities Act and such
information is included in a prospectus filed with the Commission pursuant
to Rule 424(b) under the Securities Act, the term "Prospectus" as used in
this Agreement means the prospectus in the form included in the
Registration Statement as supplemented by the addition of the Rule 430A
information contained in the prospectus filed with the Commission pursuant
to Rule 424(b) and (B) if prospectuses that meet the requirements of
Section 10(a) of the Securities Act are delivered pursuant to Rule 434
under the Securities Act, then (i) the term "Prospectus" as used in this
Agreement means the "prospectus subject to completion" (as such term is
defined in Rule 434(g) under the Securities
-2-
<PAGE>
Act) as supplemented by (a) the addition of Rule 430A information or other
information contained in the form of prospectus delivered pursuant to Rule
434(b)(2) under the Securities Act or (b) the information contained in the
term sheets described in Rule 434(b)(3) under the Securities Act, and (ii)
the date of such prospectuses shall be deemed to be the date of the term
sheets. The term "Preeffective Prospectus" as used in this Agreement means
the prospectus subject to completion in the form included in the
Registration Statement at the time of the initial filing of the
Registration Statement with the Commission, and as such prospectus shall
have been amended from time to time prior to the date of the Prospectus.
(ii) The Commission has not issued or threatened to issue
any order preventing or suspending the use of any Preeffective
Prospectus, and, at its date of issue, each Preeffective Prospectus
conformed in all material respects with the requirements of the
Securities Act and did not include any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and, when
the Registration Statement becomes effective and at all times
subsequent thereto up to and including the Closing Date, the
Registration Statement and the Prospectus and any amendments or
supplements thereto contained and will contain all material statements
and information required to be included therein by the Securities Act
and conformed and will conform in all material respects to the
requirements of the Securities Act and neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto,
included or will include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided,
however, that the foregoing representations, warranties and agreements
shall not apply to information contained in or omitted from any
Preeffective Prospectus or the Registration Statement or the
Prospectus or any such amendment or supplement thereto in reliance
upon, and in conformity with, written information furnished to the
Company by or on behalf of any Underwriter, directly or through you,
specifically for use in the preparation thereof; there is no
franchise, lease, contract, agreement or document required to be
described in the Registration Statement or Prospectus or to be filed
as an exhibit to the Registration Statement which is not described or
filed therein as required; and all descriptions of any such
franchises, leases, contracts, agreements or documents
-3-
<PAGE>
contained in the Registration Statement are accurate and complete
descriptions of such documents in all material respects.
(iii) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, and
except as set forth or contemplated in the Prospectus, neither the
Company nor any of its subsidiaries has incurred any liabilities or
obligations, direct or contingent not in the ordinary course of
business, nor entered into any transactions not in the ordinary course
of business, and there has not been any material adverse change in the
condition (financial or otherwise), properties, business, management,
prospects, net worth or results of operations of the Company and its
subsidiaries considered as a whole, or any change in the capital stock
(other than pursuant to the exercise of outstanding stock options),
short-term or long-term debt of the Company and its subsidiaries which
is material to the Company and its subsidiaries considered as a whole.
(iv) The financial statements, together with the related
notes and schedules, set forth in the Prospectus and elsewhere in the
Registration Statement fairly present, on the basis stated in the
Registration Statement, the financial position and the results of
operations and changes in financial position of the Company and its
consolidated subsidiaries at the respective dates or for the
respective periods therein specified. Such statements and related
notes and schedules have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis except as
may be set forth in the Prospectus. The selected financial and
statistical data set forth in the Prospectus under the captions
"Summary Consolidated Financial Information" and "Selected
Consolidated Financial Information" fairly present, on the basis
stated in the Registration Statement, the information set forth
therein. The pro forma financial information included in the
Registration Statement and the Prospectus has been prepared in
accordance with the applicable published rules and regulations of the
Commission with respect to pro forma financial information and the
assumptions used in preparing such information are reasonable.
(v) Coopers & Lybrand L.L.P., Deloitte & Touche LLP and
KPMG Peat Marwick LLP, who have expressed their opinions on the
audited financial statements and related schedules included in the
Registration Statement and the Prospectus, are independent public
-4-
<PAGE>
accountants as required by the Securities Act and the Rules and
Regulations.
(vi) The Company was formed as a holding company for
Track 'n Trail, a California corporation, and Overland Management
Corporation, a Massachusetts corporation, pursuant to a Stock Exchange
Agreement (the "Exchange Agreement") among the Company, Track n'
Trail, a California corporation, and the Selling Stockholders. The
transactions contemplated by the Exchange Agreement occurred prior to
the effectiveness of the Registration Statement. The Company has and
each of its subsidiaries has been duly organized and is validly
existing and in good standing as a corporation under the laws of its
jurisdiction of incorporation, with corporate power and corporate
authority to own or lease its properties and to conduct its businesses
as described in the Prospectus; except as described in the Prospectus,
the Company is and each of its subsidiaries is in possession of and
operating in compliance with all material franchises, grants,
authorizations, licenses, permits, easements, consents, certificates
and orders required for the conduct of their respective businesses,
all of which are, to the Company's knowledge, valid and in full force
and effect; and the Company is and each of its subsidiaries is duly
qualified to do business and in good standing as a foreign corporation
in all other jurisdictions where its ownership or leasing of
properties or the conduct of its businesses requires such
qualification, except where the failure to be so qualified and in good
standing would not have a material adverse effect on the Company and
its subsidiaries taken as a whole. The Company has and each of its
subsidiaries has all necessary consents, approvals, authorizations,
orders, registrations, qualifications, licenses and permits of and
from all public regulatory or governmental agencies and bodies to own,
lease and operate their respective properties and conduct their
respective businesses as now being conducted and as described in the
Registration Statement and the Prospectus, and no such consent,
approval, authorization, order, registration, qualification, license
or permit contains a materially burdensome restriction not adequately
disclosed in the Registration Statement and the Prospectus. The
Company owns 100% of the capital stock of Track 'n Trail, a California
corporation, and Overland Management Corporation, a Massachusetts
corporation, free and clear of any liens, encumbrances, equities or
claims except that the outstanding shares of capital stock of Track 'n
Trail, a California corporation, are pledged to Union Bank of
California, which pledge will be removed on or before the First
Closing Date. The Company does not directly or indirectly own or
control any other corporations or entities.
-5-
<PAGE>
(vii) The Company's authorized and outstanding capital
stock is on the date hereof, and will be on the Closing Dates (as
defined below), as set forth under the heading "Capitalization" in the
Prospectus; the outstanding shares of common stock (including the
outstanding shares of Stock) of the Company conform to the description
thereof in the Prospectus and have been duly authorized and validly
issued and are fully paid and nonassessable; have been duly authorized
for quotation on the Nasdaq National Market, subject to official
notice of issuance; have been issued in compliance with all federal
and state securities laws; and have not been issued in violation of
(other than violations subsequently cured and waived) or subject to
any preemptive rights or similar rights to subscribe for or purchase
securities. Except as disclosed in and or contemplated by the
Prospectus and the financial statements of the Company and related
notes thereto included in the Prospectus, neither the Company nor its
subsidiaries have outstanding any options or warrants to purchase, or
any preemptive rights or other rights to subscribe for or to purchase
any securities or obligations convertible into, or any contracts or
commitments to issue or sell, shares of its capital stock or any such
options, rights, convertible securities or obligations. The
description of the Company's stock option and other stock plans or
arrangements, and the options or other rights granted or exercised
thereunder, as set forth in the Prospectus, accurately and fairly
presents the information required to be shown with respect to such
plans, arrangements, options and rights. All outstanding shares of
capital stock of each subsidiary of the Company have been duly
authorized and validly issued, and are fully paid and non-assessable.
(viii) The shares of Stock to be issued and sold by the
Company to the Underwriters hereunder have been duly and validly
authorized and, when issued and delivered against payment therefor as
provided herein, will be duly and validly issued, fully paid and
nonassessable and free of any preemptive or similar rights and will
conform to the description thereof in the Prospectus.
(ix) Except as set forth in the Prospectus, there are no
legal or governmental proceedings pending to which the Company or any
of its subsidiaries or affiliates is a party or of which any property
of the Company or any subsidiary or affiliate is subject, which, if
determined adversely to the Company or any such subsidiary or
affiliate, would reasonably be expected, individually or in the
aggregate, to (i) prevent or adversely affect the transactions
contemplated by this Agreement, (ii) suspend the effectiveness of the
Registration Statement, (iii) prevent or
-6-
<PAGE>
suspend the use of the Preeffective Prospectus in any jurisdiction or
(iv) result in a material adverse change in the condition (financial
or otherwise), properties, business, management, prospects, net worth
or results of operations of the Company and its subsidiaries
considered as a whole; and to the Company's knowledge no such
proceedings are threatened or contemplated against the Company or any
subsidiary or affiliate of the company by governmental authorities or
others. Neither the Company nor any of its subsidiaries is a party or
subject to the provisions of any material injunction, judgment, decree
or order of any court, regulatory body or other governmental agency or
body.
(x) The execution, delivery and performance of this
Agreement and the consummation of the transactions herein contemplated
will not result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, note agreement or other material agreement or
instrument to which the Company or any of its subsidiaries is a party
or by which it or any of them or any of their properties is or may be
bound, the Certificate of Incorporation, By-laws or other
organizational documents of the Company or any of its subsidiaries, or
any law, order, rule or regulation of any court or governmental agency
or body having jurisdiction over the Company or any of its
subsidiaries or any of their properties or will result in the creation
of a lien [on the Company or any of its subsidiaries or any of their
properties.]
(xi) No consent, approval, authorization or order of any
court or governmental agency or body is required for the consummation
by the Company of the transactions contemplated by this Agreement,
except such as may be required by the Commission or the National
Association of Securities Dealers, Inc. (the "NASD") or under the
securities or "Blue Sky" laws of any jurisdiction in connection with
the purchase and distribution of the Stock by the Underwriters.
(xii) The Company has the full corporate power and
authority to enter into this Agreement and to perform its obligations
hereunder (including to issue, sell and deliver the Stock), and this
Agreement has been duly and validly authorized, executed and delivered
by the Company and is a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except
to the extent that rights to indemnity and contribution hereunder may
be limited by federal or state securities laws or the public policy
underlying such laws and except as the enforcement hereof may be
limited by
-7-
<PAGE>
applicable bankruptcy, insolvency, moratorium or similar laws
affecting creditors' rights generally, or by general equitable
principles regardless of whether considered in a proceeding at law or
in equity.
(xiii) The Company is and its subsidiaries are in all
material respects in compliance with, and are currently conducting
their businesses in conformity with, all applicable federal, state,
local and foreign laws, rules and regulations of each court or
governmental agency or body having jurisdiction over the Company and
its subsidiaries except where the failure to be in compliance or to so
conduct their businesses would not have a material adverse effect on
the Company and its subsidiaries, taken as a whole; to the knowledge
of the Company, except as set forth in the Registration Statement and
the Prospectus, no prospective change in any of such federal or state
laws, rules or regulations has been adopted which, when made
effective, would have a material adverse effect on the operations of
the Company and its subsidiaries.
(xiv) The Company and its subsidiaries have filed all
necessary federal, state, local and foreign income, payroll, franchise
and other tax returns and have paid all taxes shown as due thereon or
with respect to any of their properties, and there is no tax
deficiency that has been, or to the knowledge of the Company is likely
to be, asserted against the Company or any of its subsidiaries or any
of their respective properties or assets that would adversely affect
the financial position, business or operations of the Company and its
subsidiaries.
(xv) No person or entity has the right to require
registration of shares of Common Stock or other securities of the
Company because of the filing or effectiveness of the Registration
Statement, except for persons and entities who have expressly waived
such right or who have been given proper notice and have failed to
exercise such right within the time or times required under the terms
and conditions of such right.
(xvi) Neither the Company nor, to its knowledge, any of its
officers, directors or affiliates has taken or will take, directly or
indirectly, any action designed or intended to stabilize or manipulate
the price of any security of the Company, or which caused or resulted
in, or which might in the future reasonably be expected to cause or
result in, stabilization or manipulation of the price of any security
of the Company.
-8-
<PAGE>
(xvii) The Company has provided you with all financial
statements since June 28, 1997, to the date hereof that are available
to the officers of the Company.
(xviii) The Company and its subsidiaries own or possess all
trademarks (including Track 'n Trail-TM-, Forza-TM-, New Terrain-TM-,
Mole-TM-, Overland Trading Company-TM-, Nordic Trail-TM- and Coloma
Trail-TM-) trademark registrations, service marks, service mark
registrations, tradenames, copyrights, licenses, inventions, trade
secrets and rights described in the Prospectus as being owned by them
or any of them or necessary for the conduct of their respective
businesses, and the Company is not aware of any claim to the contrary
or any challenge by any other person to the rights of the Company and
its subsidiaries with respect to the foregoing. The Company's
business as now conducted and as proposed to be conducted does not
and, to its knowledge, will not infringe or conflict with any patents,
trademarks, service marks, trade names, copyrights, trade secrets,
licenses or other intellectual property or franchise right of any
person. To the Company's knowledge, no claim has been made against
the Company or its subsidiaries alleging the infringement by the
Company or its subsidiaries of any patent, trademark, service mark,
tradename, copyright, trade secret, license in or other intellectual
property right or franchise right of any person.
(xix) The Company and its subsidiaries have performed all
material obligations required to be performed by them under any
indenture, mortgage, deed of trust, note agreement or other agreement
or instrument to which they are a party or by which they or any of
their properties may be bound, and neither the Company nor any of its
subsidiaries nor any other party to such indenture, mortgage, deed of
trust, note agreement or other agreement or instrument is in default
under or in breach of any such obligations which default or breach
would reasonably be expected to have a material adverse effect on the
Company and its subsidiaries taken as a whole. Neither the Company
nor any of its subsidiaries has received any notice of such default or
breach.
(xx) The Company is not involved in any labor dispute nor
TO THE COMPANY'S KNOWLEDGE is any such dispute threatened. The
Company is not aware that (A) any executive, key employee or
significant group of employees of the Company or any subsidiary plans
to terminate employment with the Company or any such subsidiary or (B)
any such executive or key employee is subject to any noncompete,
nondisclosure, confidentiality, employment, consulting or similar
agreement that would
-9-
<PAGE>
be violated by the present or proposed business activities of the
Company and its subsidiaries. Neither the Company nor any subsidiary
has or expects to have any liability for any prohibited transaction or
funding deficiency or any complete or partial withdrawal liability
with respect to any pension, profit sharing or other plan which is
subject to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), to which the Company or any subsidiary makes or
ever has made a contribution and in which any employee of the Company
or any subsidiary is or has ever been a participant. With respect to
such plans, the Company and each subsidiary are in compliance in all
material respects with all applicable provisions of ERISA.
(xxi) The Company has obtained the written agreement
described in Section 8(k) of this Agreement from each of its officers,
directors and holders of Common Stock, or securities convertible into
Common Stock, listed on Schedule C hereto.
(xxii) The real property and buildings held under lease by
the Company and its subsidiaries are held by them under valid and
enforceable leases with such exceptions as would not have a material
adverse effect on the Company and its subsidiaries considered as a
whole or as are described in the Prospectus.
(xxiii) The Company and its subsidiaries are insured
against such losses and risks and in such amounts as are customary in
the businesses in which they are engaged; and neither the Company nor
any subsidiary of the Company has any reason to believe that it will
not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue their business at a cost that would
not materially and adversely affect the condition, financial or
otherwise, or the earnings, business or operations of the Company and
its subsidiaries considered as a whole, except as described in or
contemplated by the Prospectus.
(xxiv) Other than as contemplated by this Agreement, there
is no broker, finder or other party that is entitled to receive from
the Company any brokerage or finder's fee or other fee or commission
as a result of any of the transactions contemplated by this Agreement.
(xxv) The inventory of the Company and its subsidiaries is
in fit and merchantable condition and can be sold in the ordinary
course
-10-
<PAGE>
of business at the carrying value of such inventory, as shown on the
Company's consolidated financial statements, subject, however, to
pricing reductions in the ordinary course of business.
(xxvi) The Company and each of its subsidiaries maintain a
system of internal accounting controls sufficient to provide
reasonable assurances that (i) transactions are executed in accordance
with management's general or specific authorization; (ii) transactions
are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles
and to maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(xxvii) To the Company's knowledge, neither the Company nor
any of its subsidiaries nor any employee or agent of the Company or
any of its subsidiaries has made any payment of funds of the Company
or any of its subsidiaries or received or retained any funds in
violation of any law, rule or regulation, which payment, receipt or
retention of funds is of a character required to be disclosed in the
Prospectus.
(xxviii) Neither the Company nor any of its subsidiaries is
an "investment company" or an entity "controlled" by an "investment
company" as such terms are defined in the Investment Company Act of
1940, as amended.
(xxix) For all periods from its election under Subchapter S
of the Internal Revenue Code of 1986, as amended (the "Code"), until
[_____, 1997 (the "Termination Date"), Track 'n Trail, a California
corporation, was qualified as an S Corporation pursuant to an election
validly made under Subchapter S of the Code (which election has not
been and will not be revoked or terminated for any such period) and
Track 'n Trail, a California corporation, has not been and will not be
subject to federal corporate taxes for such periods. THE Subchapter S
election of Track 'n Trail, a California corporation will be duly
terminated on the Termination Date, and such corporation will be
subject to federal corporate income taxes from and after the date of
such termination but not for any prior period.
-11-
<PAGE>
(b) REPRESENTATIONS AND WARRANTIES AND AGREEMENTS OF THE SELLING
STOCKHOLDERS. Each Selling Stockholder severally represents and warrants to,
and severally agrees with, the several Underwriters that such Selling
Stockholder:
(i) Now has, and on the option Closing Date will have, good and
marketable title to the Stock to be sold by such Selling Stockholder,
without notice of any adverse claim and free and clear of any lien,
claim, security interest or other encumbrance, including, without
limitation, any restriction on transfer, and has full right, power and
authority to enter into this Agreement, the Power of Attorney and the
Custody Agreement (each as hereinafter defined).
(ii) Now has, and on the Option Closing Date will have, upon
delivery of and payment for each share of Stock being sold by such
Selling Stockholder hereunder, full right, power and authority and any
approval required by law to sell, transfer, assign and deliver such
shares, and, upon delivery and payment for such shares as contemplated
hereby and assuming that the Underwriters are bona fide purchasers
within the meaning of the Uniform Commercial Code, the several
Underwriters will acquire good and marketable title to such shares,
free and clear of any liens, encumbrances, equities, claims,
restrictions on transfer or other defects whatsoever.
(iii) For a period of 180 days after the date of the Prospectus,
without the consent of Alex. Brown, such Selling Stockholder will not
offer to sell, sell, contract to sell or otherwise dispose of any
Stock or securities convertible into or exchangeable for Stock,
including without limitation Stock which may be deemed to be
beneficially owned by such Selling Stockholder in accordance with the
Rules and Regulations, except for the Stock being sold hereunder.
(iv) Has duly executed and delivered a power of attorney in
substantially the form heretofore delivered to the Representatives
(the "Power of Attorney"), appointing David L. Suechting, Jr., Gregory
M. Kilgore and Daniel J. Nahmens, and each of them, as
attorney-in-fact (the "Attorneys-in-fact") with authority to execute
and deliver this Agreement on behalf of such Selling Stockholder, to
authorize the delivery of the shares of Stock to be sold by such
Selling Stockholder hereunder and otherwise to act on behalf of such
Selling Stockholder in connection with the transactions contemplated
by this Agreement.
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<PAGE>
(v) Has duly executed and delivered a custody agreement in
substantially the form heretofore delivered to the Representatives
(the "Custody Agreement"), with American Securities Transfer & Trust,
Inc. as custodian (the "Custodian"), pursuant to which certificates in
negotiable form for the shares of Stock to be sold by such Selling
Stockholder hereunder have been placed in custody for delivery under
this Agreement.
(vi) Has, by execution and delivery of each of this Agreement,
the Power of Attorney and the Custody Agreement, created valid and
binding obligations of such Selling Stockholder, enforceable against
such Selling Stockholder in accordance with its terms, except to the
extent that rights to indemnity hereunder may be limited by federal or
state securities laws or the public policy underlying such laws and
except as the enforcement hereof may be limited by applicable
bankruptcy, insolvency, moratorium or similar laws affecting
creditors' rights generally, or by general equitable principles
regardless of whether considered in a proceeding at law or in equity.
(vii) The performance of this Agreement, the Custody Agreement
and the Power of Attorney, and the consummation of the transactions
contemplated hereby and thereby will not result in a breach or
violation by such Selling Stockholder of any of the terms or
provisions of, or constitute a default by such Selling Stockholder
under, any indenture, mortgage, deed of trust, trust, loan agreement,
lease, franchise, license or other material agreement or material
instrument to which such Selling Stockholder is a party or by which
such Selling Stockholder or any of its properties is bound, or any
judgment of any court or governmental agency or body applicable to
such Selling Stockholder or any of its properties, or to such Selling
Stockholder's knowledge, any statute, decree, order, rule or
regulation of any court or governmental agency or body applicable to
such Selling Stockholder or any of its properties.
(viii) Without having undertaken to determine independently the
accuracy or completeness of either the representations and warranties
of the Company contained herein or the information contained in the
Registration Statement, such Selling Stockholder (other than the
Selling Stockholder named in Part 1 of Schedule B) has no reason to
believe that the representations and warranties of the Company
contained in Section 2 hereof are not true and correct. Such Selling
Stockholder is familiar with the Registration Statement and has no
knowledge of any material fact, condition or information not disclosed
in the Registration
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<PAGE>
Statement which has adversely affected or is reasonably likely to
adversely affect the business of the Company; and the sale of the
Stock by such Selling Stockholder pursuant hereto is not prompted by
any information concerning the Company which is not set forth in the
Registration Statement.
(ix) The information pertaining to such Selling Stockholder
under the caption "Principal and Selling Stockholders" in the
Prospectus is complete and accurate in all material respects.
Each Selling Stockholder agrees that the shares of Stock represented
by the certificates held in custody under the Custody Agreement are for the
benefit of and coupled with and subject to the interests of the Underwriters,
the Company and the other Selling Stockholders hereunder, and that the
arrangement for such custody and the appointment of the Attorneys-in-fact are
irrevocable; that the obligations of such Selling Stockholder hereunder shall
not be terminated by operation of law, whether by the death or incapacity,
liquidation or distribution of such Selling Stockholder, or any other event,
that if such Selling Stockholder should die or become incapacitated or is
liquidated or dissolved or any other event occurs, before the delivery of the
Stock hereunder, certificates for the Stock to be sold by such Selling
Stockholder shall be delivered on behalf of such Selling Stockholder in
accordance with the terms and conditions of this Agreement and the Custody
Agreement, and action taken by the Attorneys-in-fact or any of them under the
Power of Attorney shall be as valid as if such death, incapacity, liquidation or
dissolution or other event had not occurred, whether or not the Custodian, the
Attorneys-in-fact or any of them shall have notice of such death, incapacity,
liquidation or dissolution or other event.
3. PURCHASE BY, AND SALE AND DELIVERY TO, UNDERWRITERS--CLOSING DATES. The
Company agrees to sell to the Underwriters the Firm Stock, with the number of
shares to be sold by the Company being the number of shares of Stock set forth
on Schedule B; and on the basis of the representations, warranties, covenants
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Underwriters agree, severally and not jointly, to purchase the
Firm Stock from the Company; the number of shares of Firm Stock to be purchased
by each Underwriter being set opposite its name in Schedule A, subject to
adjustment in accordance with Section 12 hereof.
The purchase price per share to be paid by the Underwriters to the
Company will be $_________ per share (the "Purchase Price").
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The Company will deliver the Firm Stock to the Representatives for the
respective accounts of the several Underwriters (in the form of definitive
certificates, issued in such names and in such denominations as the
Representatives may direct by notice in writing to the Company and the Selling
Stockholders given at or prior to 12:00 Noon, New York City Time), on the second
full business day preceding the First Closing Date (as defined below) or, if no
such direction is received, in the names of the respective Underwriters or in
such other names as Alex. Brown may designate (solely for the purpose of
administrative convenience) and in such denominations as Alex. Brown may
determine), against payment of the aggregate Purchase Price therefor by wire
transfer of same-day funds, payable to the order of the Company and American
Securities Transfer & Trust, Inc. as Custodian for the Selling Stockholders, all
at the offices of [Fulbright & Jaworski L.L.P., 666 Fifth Avenue, New York, New
York 10103]. The time and date of the delivery and closing shall be at 10:00
A.M., New York City Time), on ________, 1997 , in accordance with Rule 15c6-1 of
the Securities Exchange Act of 1934 (the "Exchange Act"). The time and date of
such payment and delivery are herein referred to as the "First Closing Date".
The First Closing Date and the location of delivery of, and the form of payment
for, the Firm Stock may be varied by agreement among the Company and Alex.
Brown. The First Closing Date may be postponed pursuant to the provisions of
Section 12.
The Company shall make the certificates for the Stock available to the
Representatives for examination on behalf of the Underwriters not later than
10:00 A.M., New York City Time, on the business day preceding the First Closing
Date at the offices of Alex. Brown, New York, New York.
It is understood that Alex. Brown or the other Representatives,
individually and not as Representatives of the several Underwriters, may (but
shall not be obligated to) make payment to the Company on behalf of any
Underwriter or Underwriters, for the Stock to be purchased by such Underwriter
or Underwriters. Any such payment by Alex. Brown or the other Representative
shall not relieve such Underwriter or Underwriters from any of its or their
other obligations hereunder.
The several Underwriters agree to make an initial public offering of
the Firm Stock at the initial public offering price as soon after the
effectiveness of the Registration Statement as in their judgment is advisable.
The Representatives shall promptly advise the Company and the Selling
Stockholders of the making of the initial public offering.
For the purpose of covering any over-allotments in connection with the
distribution and sale of the Firm Stock as contemplated by the Prospectus, the
Selling Stockholders hereby grant to the Underwriters an option to purchase,
severally and not jointly, up to the aggregate number of shares of Option Stock
set forth opposite each
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Selling Stockholder's name on Schedule B hereto, for an aggregate of up to
409,090 shares. The price per share to be paid for the Option Stock shall be
the Purchase Price. The option granted hereby may be exercised as to all or any
part of the Option Stock at any time on or after the First Closing Date but not
more than once thereafter, and from time to time, not more than thirty (30) days
subsequent to the effective date of this Agreement. No Option Stock shall be
sold and delivered unless the Firm Stock previously has been, or simultaneously
is, sold and delivered. The right to purchase the Option Stock or any portion
thereof may be surrendered and terminated at any time upon notice by the
Underwriters to the Company and the Selling Stockholders.
The option granted hereby may be exercised by the Underwriters by
giving written notice from Alex. Brown to the Company and the Selling
Stockholders setting forth the number of shares of the Option Stock to be
purchased by them and the date and time for delivery of and payment for the
Option Stock. Each date and time for delivery of and payment for the Option
Stock (which may be the First Closing Date, but not earlier) is herein called
the "Option Closing Date" and shall in no event be earlier than two (2) business
days nor later than ten (10) business days after written notice is given. (The
Option Closing Date and the First Closing Date are herein called the "Closing
Dates".) All purchases of Option Stock from the Selling Stockholders shall be
made on a pro rata basis. Option Stock shall be purchased for the account of
each Underwriter in the same proportion as the number of shares of Firm Stock
set forth opposite such Underwriter's name in Schedule A hereto bears to the
total number of shares of Firm Stock (subject to adjustment by the Underwriters
to eliminate odd lots). Upon exercise of the option by the Underwriters, the
Selling Stockholders agree to sell to the Underwriters the number of shares of
Option Stock set forth in the written notice of exercise and the Underwriters
agree, severally and not jointly and subject to the terms and conditions herein
set forth, to purchase the number of such shares determined as aforesaid.
The Selling Stockholders will deliver the Option Stock to the
Underwriters (in the form of definitive certificates, issued in such names and
in such denominations as the Representatives may direct by notice in writing to
the Company and the Selling Stockholders given at or prior to 12:00 Noon, New
York City Time, on the second full business day preceding the Option Closing
Date or, if no such direction is received, in the names of the respective
Underwriters or in such other names as Alex. Brown may designate (solely for the
purpose of administrative convenience) and in such denominations as Alex. Brown
may determine), against payment of the aggregate Purchase Price therefor by wire
transfer of same-day funds, payable as directed by the Custodian (or such
Selling Stockholder, as the case may be), all at the offices of [Fulbright &
Jaworski L.L.P., 666 Fifth Avenue, New York, New York 10103]. The Selling
Stockholders shall make the certificates for the Option Stock available to the
Underwriters for examination not later than 10:00 A.M., New York
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City Time, on the business day preceding the Option Closing Date at the offices
of Alex. Brown, New York, New York. The Option Closing Date and the location of
delivery of, and the form of payment for, the Option Stock may be varied by
agreement among the Company, the Selling Stockholders and Alex. Brown. The
Option Closing Date may be postponed pursuant to the provisions of Section 12.
4. COVENANTS AND AGREEMENTS OF THE COMPANY. The Company covenants
and agrees with the several Underwriters that:
(a) The Company will (i) if the Company and the Representatives have determined
not to proceed pursuant to Rule 430A, use its best efforts to cause the
Registration Statement to become effective, (ii) if the Company and the
Representatives have determined to proceed pursuant to Rule 430A, use its best
efforts to comply with the provisions of and make all requisite filings with the
Commission pursuant to Rule 430A and Rule 424 of the Rules and Regulations and
(iii) if the Company and the Representatives have determined to deliver
Prospectuses pursuant to Rule 434 of the Rules and Regulations, to use its best
efforts to comply with all the applicable provisions thereof. The Company will
advise the Representatives promptly as to the time at which the Registration
Statement becomes effective, will advise the Representatives promptly of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the institution of any proceedings for that
purpose, and will use its best efforts to prevent the issuance of any such stop
order and to obtain as soon as is reasonably practicable the lifting thereof, if
issued. The Company will advise the Representatives promptly of the receipt of
any comments of the Commission or any request by the Commission for any
amendment of or supplement to the Registration Statement or the Prospectus or
for additional information and will not at any time file any amendment to the
Registration Statement or supplement to the Prospectus which shall not
previously have been submitted to the Representatives a reasonable time prior to
the proposed filing thereof or to which the Representatives shall reasonably
object in writing within a reasonable time or which is not in compliance with
the Securities Act and the Rules and Regulations.
(b) If at any time after the effective date of the Registration
Statement when a prospectus relating to the Stock is required to be
delivered under the Securities Act any event relating to or affecting
the Company or any of its subsidiaries occurs as a result of which in
the judgment of the Company or the reasonable judgment of the
Representatives the Prospectus or any other prospectus as then in
effect would include an untrue statement of a material fact, or omit
to state any material fact necessary to make the statements therein,
in light of the
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circumstances under which they were made, not misleading, or if it is
necessary at any time to amend the Prospectus to comply with the
Securities Act, the Company will promptly notify the Representatives
thereof and will prepare an amended or supplemented prospectus which
will correct such statement or omission; and in case any Underwriter
is required to deliver a prospectus relating to the Stock nine (9)
months or more after the effective date of the Registration Statement,
the Company upon the request of the Representatives and at the expense
of such Underwriter will prepare promptly such prospectus or
prospectuses as may be necessary to permit compliance with the
requirements of Section 10(a)(3) of the Securities Act.
(c) The Company will deliver to the Representatives, at or
before the First Closing Date, signed copies of the Registration
Statement, as originally filed with the Commission, and all amendments
thereto including all financial statements and exhibits thereto, and
will deliver to the Representatives such number of copies of the
Registration Statement, including such financial statements but
without exhibits, and all amendments thereto, as the Representatives
may reasonably request. The Company will deliver or mail to or upon
the order of the Representatives, from time to time until the
effective date of the Registration Statement, as many copies of the
Preeffective Prospectus as the Representatives may reasonably request.
The Company will deliver or mail to or upon the order of the
Representatives on the date of the initial public offering, and
thereafter from time to time during the period when delivery of a
prospectus relating to the Stock is required under the Securities Act,
as many copies of the Prospectus, in final form or as thereafter
amended or supplemented as the Representatives may reasonably request;
provided, however, that the expense of the preparation and delivery of
any prospectus required for use nine (9) months or more after the
effective date of the Registration Statement shall be borne by the
Underwriters required to deliver such prospectus.
(d) The Company will make generally available to its
stockholders as soon as practicable, but not later than fifteen (15)
months after the effective date of the Registration Statement, an
earnings statement which will be in reasonable detail (but which need
not be audited) and which will comply with Section 11(a) of the
Securities Act, covering a period of at least twelve (12) months
beginning after the "effective date" (as defined in Rule 158 under the
Securities Act) of the Registration Statement.
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(e) The Company will cooperate with the Representatives to
enable the Stock to be registered or qualified for offering and sale
by the Underwriters and by dealers under the securities laws of such
jurisdictions in the United States as the Representatives may
designate and at the request of the Representatives will make such
applications and furnish such consents to service of process or other
documents as may be required of it as the issuer of the Stock for that
purpose; provided, however, that the Company shall not be required to
qualify to do business or to file a general consent to service of
process in any such jurisdiction where it is not now so subject. The
Company will advise the Representatives promptly after the Company
becomes aware of the suspension of the qualifications or registration
of (or any such exception relating to) the Common Stock of the Company
for offering, sale or trading in any jurisdiction or of any initiation
or threat of any proceeding for any such purpose, and in the event of
the issuance of any orders suspending such qualifications,
registration or exception, the Company will, with the cooperation of
the Representatives, use its best efforts to obtain the withdrawal
thereof.
(f) The Company will furnish to its stockholders annual reports
containing financial statements certified by independent public
accountants and with quarterly summary financial information in
reasonable detail which may be unaudited. During the period of five
(5) years from the date hereof, the Company will deliver to the
Representatives and, upon request, to each of the other Underwriters,
as soon as they are available, copies of each annual report of the
Company containing the balance sheet of the Company as of the close of
such fiscal year and statements of income, stockholders' equity and
cash flows for the year then ended and the opinion thereon of the
Company's independent public accountants and will deliver to the
Representatives, (i) as soon as they are available, copies of any
other reports or communication (financial or other) which the Company
shall publish or otherwise make available to any of its stockholders
as such and (ii) as soon as they are available, copies of any reports
and financial statements furnished to or filed with the Commission, or
the NASD or any national securities exchange. So long as the Company
has active subsidiaries, such financial statements will be on a
consolidated basis to the extent the accounts of the Company and its
subsidiaries are consolidated in reports furnished to its stockholders
generally. Similar reports shall be furnished for all subsidiaries
whose accounts are not consolidated but which at the time are
significant subsidiaries as defined in the Rules and Regulations.
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(g) The Company has received approval for listing the Stock,
subject to official notice of issuance, on the Nasdaq National Market.
(h) The Company will maintain a transfer agent and a registrar
(if required by its jurisdiction of incorporation) for its Common
Stock.
(i) The Company will not offer, sell, assign, transfer,
encumber, contract to sell, grant an option to purchase or otherwise
dispose of any shares of Common Stock or securities convertible into
or exercisable or exchangeable for Common Stock during the 180 days
following the date of the Prospectus, other than the Company's sale of
Common Stock hereunder and the Company's issuance of Common Stock upon
the exercise of warrants and of stock options which are presently
outstanding and described in the Prospectus or pursuant to employee
benefit plans described in the Prospectus.
(j) The Company will apply the net proceeds from the sale of the
Stock as set forth in the description under "Use of Proceeds" in the
Prospectus.
(k) The Company will supply you with copies of all
correspondence to and from, and all documents issued to and by, the
Commission in connection with the registration of the Stock under the
Securities Act.
(l) Prior to the Closing Dates the Company will furnish to you,
as soon as they have been prepared, copies of any unaudited interim
consolidated financial statements of the Company and its subsidiaries
for any periods subsequent to the periods covered by the financial
statements appearing in the Registration Statement and the Prospectus.
(m) Prior to the Closing Dates the Company will issue no press
release or other communications to the general public directly or
indirectly and will hold no press conference with respect to the
Company or any of its subsidiaries, the financial condition, results
of operation, business, prospects, assets or liabilities of any of
them, or the offering of the Stock, without your prior written
consent.
5. PAYMENT OF EXPENSES. (a) The Company will pay (directly or by
reimbursement) all costs, expenses and fees incident to the performance of the
Company and the Selling Stockholders under this Agreement, including the
following: the fees and expenses of the Company's independent public
accountants; the fees and
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disbursements of counsel for the Company and the Selling Stockholders (except as
expressly provided below with respect to counsel to be paid for by the Selling
Stockholders); the filing fees of the Commission; the costs of preparing stock
certificates (including printing and engraving costs); all fees and expenses of
the registrar and transfer agent for the Common Stock; all necessary transfer
and other stamp taxes in connection with the issuance and sale of the Stock to
the Underwriters hereunder; the cost of printing and delivering to, or as
requested by, the Underwriters copies of the Registration Statement, Preliminary
Prospectus, Prospectus and any supplements or amendments thereto except as
provided in Section 4(c) hereof; the NASD filing fees incident to securing any
required review by the NASD of the terms of the sale of the Stock; the listing
fee of the Nasdaq National Market; and the expenses, including the reasonable
fees and disbursements of counsel for the Underwriters incurred in connection
with review by the NASD of the terms of the sale of the Stock and exemptions
from qualifying or registering (or obtaining qualification or registration of)
all or any part of the Stock for offer or sale under the Blue Sky or other
securities laws of such jurisdictions within the United States as the
Representatives may designate. To the extent, if at all, that any Selling
Stockholder engages special legal counsel to represent such Selling Stockholder
in connection with this offering, the fees and expenses of such counsel shall be
borne by such Selling Stockholder. The Company shall not, however, be required
to pay for any of the Underwriters' expenses (other than the fees incident to
securing any required review by the NASD and those related to qualification
under state securities or "blue sky" laws), except as provided in Section 11
hereof.
(b) Each Selling Stockholder will pay (directly or by reimbursement)
all fees and expenses incident to the performance of such Selling Stockholder's
obligations under this Agreement which are not otherwise specifically provided
for herein, including but not limited to any fees and expenses of counsel for
such Selling Stockholder other than Pillsbury Madison & Sutro LLP, and all
transfer, stamp and other taxes incident to the sale and delivery of the Stock
to be sold by such Selling Stockholder to the Underwriters hereunder.
6. INDEMNIFICATION AND CONTRIBUTION. (a) The Company and each
Selling Stockholder, jointly and severally, agree to indemnify and hold harmless
each Underwriter and each person, if any, who controls such Underwriter within
the meaning of the Securities Act and the respective officers, directors,
partners, employees, representatives and agents of each of such Underwriter
(collectively, the "Underwriter Indemnified Parties" and, each, an "Underwriter
Indemnified Party"), against any losses, claims, damages, liabilities or
expenses (including the reasonable cost of investigating and defending against
any claims therefor and counsel fees incurred in connection therewith), joint or
several, which may be based upon the Securities Act, or any other statute or at
common law, on the ground or alleged ground
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that any Preeffective Prospectus, the Registration Statement or the Prospectus
(or any Preeffective Prospectus, the Registration Statement or the Prospectus as
from time to time amended or supplemented) includes or allegedly includes an
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading, unless
such statement or omission was made in reliance upon, and in conformity with,
written information furnished to the Company or any subsidiary by any
Underwriter, directly or through the Representatives, specifically for use in
the preparation thereof; provided, however, that neither the Company nor any
Selling Stockholder will be liable to any Underwriter Indemnified Party with
respect to any loss, claim, damage, expense or liability arising out of or based
upon any untrue statement or alleged untrue statement or omission or alleged
omission to state a material fact in the Preeffective Prospectus which is
corrected in the Prospectus if the person asserting such loss, claim, damage,
expense or liability was not sent or given a copy of the Prospectus at or prior
to the written confirmation of the sale of Stock to such person. In no event,
shall the liability of any Selling Stockholder to the Underwriter Indemnified
Parties under this Agreement (including with respect to such Selling
Stockholder's representations hereunder) exceed the proceeds, net of
underwriting discounts and commissions, received by such Selling Stockholder
from the Underwriters in the offering of the stock. The Company or such Selling
Stockholder will be entitled to participate at its own expense in the defense
or, if it so elects, to assume jointly the defense of any suit brought to
enforce any such liability, but if the Company or such Selling Stockholder elect
to assume the defense, such defense shall be conducted by counsel chosen by it.
In the event the Company or any Selling Stockholder as applicable elects to
assume the defense of any such suit and retain such counsel, any Underwriter
Indemnified Parties, defendant or defendants in the suit, may retain additional
counsel but shall bear the fees and expenses of such counsel unless (i) the
Company or such Selling Stockholder as applicable shall have specifically
authorized the retaining of such counsel or (ii) the parties to such suit
include any such Underwriter Indemnified Parties, and the Company or such
Selling Stockholder and such Underwriter Indemnified Parties at law or in equity
have been advised by counsel to the Underwriters that one or more legal defenses
may be available to it or them which may not be available to the Company or any
Selling Stockholder, in which case the Company or such Selling Stockholder shall
not be entitled to assume the defense of such suit notwithstanding its
obligation to bear the fees and expenses of such counsel. It is understood that
the Company Indemnified Parties and Stockholder Indemnified Parties shall not,
in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than one
separate firm for all Underwriter Indemnified Parties. The Company and the
Selling Stockholders against whom indemnity may be sought shall not be liable to
indemnify any person for any settlement of any such claim effected without the
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consent of the Company or such Selling Stockholder, as applicable. In no case
is the Company or any Selling Stockholder to be liable with respect to any
claims made against any Underwriter Indemnified Party against whom the action is
brought unless such Indemnified Party shall have notified the Company and the
Selling Stockholders in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the claim shall
have been served upon the Underwriter Indemnified Party, but failure to notify
the Company and the Selling Stockholders of such claim shall not relieve them
from any liability which they may have to any Underwriter Indemnified Party
otherwise then on account of its indemnity agreement contained in this
paragraph. This indemnity agreement is not exclusive and will be in addition to
any liability which the Company or any Selling Stockholder might otherwise have.
(b) Each Underwriter severally and not jointly agrees to indemnify
and hold harmless the Company, each of its directors, each person named as a
prospective director in the Registration Statement, each of its officers who
have signed the Registration Statement and each person, if any, who controls the
Company within the meaning of the Securities Act (collectively, the "Company
Indemnified Parties") and the Selling Stockholders and each person, if any, who
controls any Selling Stockholder within the meaning of the Securities Act
(collectively, the "Stockholder Indemnified Parties"), against any losses,
claims, damages, liabilities or expenses (including, unless the Underwriter or
Underwriters elect to assume the defense, the reasonable cost of investigating
and defending against any claims therefor and counsel fees incurred in
connection therewith), joint or several, which arise out of or are based in
whole or in part upon the Securities Act, the Exchange Act or any other federal,
state, local or foreign statute or regulation, or at common law, on the ground
or alleged ground that any Preeffective Prospectus, the Registration Statement
or the Prospectus (or any Preeffective Prospectus, the Registration Statement or
the Prospectus, as from time to time amended and supplemented) includes an
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances in which they were made, not misleading, but only
insofar as any such statement or omission was made in reliance upon, and in
conformity with, written information furnished to the Company by such
Underwriter, directly or through the Representatives, specifically for use in
the preparation thereof; provided, however, that in no case is such Underwriter
to be liable with respect to any claims made against any Company Indemnified
Party or Stockholder Indemnified Party against whom the action is brought unless
such Company Indemnified Party or Stockholder Indemnified Party shall have
notified such Underwriter in writing within a reasonable time after the summons
or other first legal process giving information of the nature of the claim shall
have been served upon the Company Indemnified Party or Stockholder Indemnified
Party, but failure to notify
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such Underwriter of such claim shall not relieve it from any liability which it
may have to any Company Indemnified Party or Stockholder Indemnified Party
otherwise than on account of its indemnity agreement contained in this
paragraph. Such Underwriter shall be entitled to participate at its own expense
in the defense, or, if it so elects, to assume the defense of any suit brought
to enforce any such liability, but, if such Underwriter elects to assume the
defense, such defense shall be conducted by counsel chosen by it. In the event
that any Underwriter elects to assume the defense of any such suit and retain
such counsel, the Company Indemnified Parties or Stockholder Indemnified Parties
and any other Underwriter or Underwriters or controlling person or persons,
defendant or defendants in the suit, shall bear the fees and expenses of any
additional counsel retained by them, respectively, unless (i) the Underwriters
shall have specifically authorized the retaining of such counsel or (ii) the
parties to such suit includes any such Company Indemnified Parties and the
Underwriters, and the Underwriters and such Company Indemnified Parties at law
or in equity have been advised by counsel to the Company and the Selling
Stockholders that one or more legal defenses may be available to it or them
which may not be available to the Underwriters, in which case the Underwriters
shall not be entitled to assume the defense of such suit notwithstanding their
obligation to bear the fees and expenses of such counsel. It is understood that
the Underwriter Indemnified Parties shall not, in connection with any proceeding
or related proceedings in the same jurisdiction, be liable for the reasonable
fees and expenses of more than one separate firm for all Company Indemnified
Parties and Stockholder Indemnified Parties. The Underwriter against whom
indemnity may be sought shall not be liable to indemnify any person for any
settlement of any such claim effected without such Underwriter's consent. This
indemnity agreement is not exclusive and will be in addition to any liability
which such Underwriter might otherwise have and shall not limit any rights or
remedies which may otherwise be available at law or in equity to any Company
Indemnified Party or Stockholder Indemnified Party.
(c) If the indemnification provided for in this Section 6 is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages,
liabilities or expenses (or actions in respect thereof) referred to herein, then
each indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) in such proportion as is appropriate to
reflect the relative benefits received by the Company and the Selling
Stockholders on the one hand, and the Underwriters on the other, from the
offering of the Stock. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law, then each indemnifying
party shall contribute to such amount paid or payable by such indemnified party
in such proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of the
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Company and the Selling Stockholders on the one hand and the Underwriters on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or expenses (or actions in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Selling Stockholders on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses) received
by the Company and the Selling Stockholders bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company, the
Selling Stockholders or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company, the Selling Stockholders and the
Underwriters agree that it would not be just and equitable if contribution were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above. The amount paid
or payable by an indemnified party as a result of the losses, claims, damages,
liabilities or expenses (or actions in respect thereof) referred to above shall
be deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating, defending, settling or
compromising any such claim. Notwithstanding the provisions of this subsection
(c), no Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the shares of the Stock underwritten by
it and distributed to the public were offered to the public exceeds the amount
of any damages which such Underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission and no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute are several in
proportion to their respective underwriting obligations and not joint.
7. SURVIVAL OF INDEMNITIES, REPRESENTATIONS, WARRANTIES, ETC. The
respective indemnities, covenants, agreements, representations, warranties and
other statements of the Company, the Selling Stockholders and the several
Underwriters, as set forth in this Agreement or made by them respectively,
pursuant to this Agreement, shall remain in full force and effect, regardless of
any investigation made by or on behalf of any Underwriter, the Selling
Stockholders, the Company or any of their officers or directors or any
controlling persons, and shall survive delivery of and payment for the Stock.
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8. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The respective
obligations of the several Underwriters hereunder shall be subject to the
accuracy, at and (except as otherwise stated herein) as of the date hereof and
at and as of the Closing Dates, of the representations and warranties made
herein by the Company and the Selling Stockholders, to compliance at and as of
the Closing Dates by the Company and the Selling Stockholders with their
covenants and agreements herein contained and other provisions hereof to be
satisfied at or prior to the Closing Dates, and to the following additional
conditions:
(a) The Registration Statement shall have become effective
and no stop order suspending the effectiveness thereof shall have been
issued and no proceedings for that purpose shall have been initiated
or, to the knowledge of the Company or the Representatives, shall be
threatened by the Commission, and any request for additional
information on the part of the Commission (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been
complied with to the reasonable satisfaction of the Representatives.
Any filings of the Prospectus, or any supplement thereto, required
pursuant to Rule 424(b) or Rule 434 of the Rules and Regulations,
shall have been made in the manner and within the time period required
by Rule 424(b) and Rule 434 of the Rules and Regulations, as the case
may be.
(b) The Representatives shall have been satisfied that the
Registration Statement or the Prospectus, or any amendment or
supplement thereto, does not contain an untrue statement of fact
which, in the opinion of the Representatives, is material, or omits to
state a fact which, in the opinion of the Representatives, is required
to be stated therein or is necessary to make the statements therein
not misleading.
(c) At the time of execution of this Agreement, the
Representatives shall have received from each of Coopers & Lybrand
L.L.P., Deloitte & Touche LLP and KPMG Peat Marwick LLP, independent
certified public accountants, a letter, dated the date hereof, in form
and substance satisfactory to the Representatives.
(d) The Representatives shall have received from each of
Coopers & Lybrand L.L.P., Deloitte & Touche LLP and KPMG Peat Marwick
LLP, independent certified public accountants, a letter, dated the
Closing Dates, to the effect that such accountants reaffirm, as of the
Closing Dates, and as though made on the Closing Dates, the statements
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made in the letter furnished by such accountants pursuant to paragraph
(b) of this Section 8.
(e) The Representatives shall have received from Pillsbury
Madison & Sutro LLP, counsel for the Company, an opinion, dated the
Closing Dates, to the effect set forth in Exhibit I hereto.
(f) The Representatives shall have received from Pillsbury
Madison & Sutro LLP, counsel for the Selling Stockholders, an opinion
dated the Closing Dates to the effect set forth in Exhibit II hereto.
(g) The Representatives shall have received from Fulbright
& Jaworski L.L.P., counsel for the Underwriters, their opinion or
opinions dated the Closing Dates with respect to the incorporation of
the Company, the validity of the Stock, the Registration Statement and
the Prospectus and such other related matters as it may reasonably
request, and the Company and the Selling Stockholders shall have
furnished to such counsel such documents as they may request for the
purpose of enabling them to pass upon such matters.
(h) The Representatives shall have received a certificate,
dated the Closing Dates, of the president and the chief financial
officer of the Company to the effect that:
(i) No stop order suspending the effectiveness of the
Registration Statement has been issued, and, to the best of the
knowledge of the signers, no proceedings for that purpose have
been instituted or are pending or contemplated under the
Securities Act;
(ii) Such officers have carefully reviewed the
Registration Statement, and in their opinion none of any
Preeffective Prospectus, as of its date, nor the Registration
Statement nor the Prospectus, nor any amendment or supplement
thereto, as of the time when the Registration Statement became
effective and at all times subsequent thereto up to the delivery
of such certificate, included any untrue statement of a material
fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading;
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(iii) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, and except as set forth or contemplated in the
Prospectus, neither the Company nor any of its subsidiaries has
incurred any material liabilities or obligations, direct or
contingent not in the ordinary course of business, nor entered
into any material transactions not in the ordinary course of
business and there has not been any material adverse change in
the condition (financial or otherwise), properties, business,
management, prospects, net worth or results of operations of the
Company and its subsidiaries considered as a whole, or any change
in the capital stock (other than pursuant to the exercise of
outstanding stock options), short-term or long-term debt of the
Company and its subsidiaries which is material to the Company and
its subsidiaries considered as a whole;
(iv) The representations and warranties of the Company
in this Agreement are true and correct at and as of the Closing
Dates, and the Company has complied with all the agreements and
performed or satisfied all the conditions on its part to be
performed or satisfied at or prior to the Closing Dates; and
(v) Since the respective dates as of which information
is given in the Registration Statement and the Prospectus, and
except as disclosed in or contemplated by the Prospectus, (i)
there has not been any material adverse change or a development
involving a material adverse change in the condition (financial
or otherwise), properties, business, management, prospects, net
worth or results of operations of the Company and its
subsidiaries considered as a whole; (ii) the business and
operations conducted by the Company and its subsidiaries have not
sustained a loss by strike, fire, flood, accident or other
calamity (whether or not insured) of such a character as to
interfere materially with the conduct of the business and
operations of the Company and its subsidiaries considered as a
whole; (iii) no legal or governmental action, suit or proceeding
is pending or threatened against the Company which is material to
the Company, whether or not arising from transactions in the
ordinary course of business, or which may materially and
adversely affect the transactions contemplated by this Agreement;
(iv) since such dates and except as so disclosed, the Company has
not repurchased or otherwise
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<PAGE>
acquired any of the Company's capital stock (other than pursuant
to written plans or agreements existing on the date of the
Prospectus, copies of which have been provided to counsel for the
Underwriters); and (v) the Company has not declared or paid any
dividend, or made any other distribution, upon its outstanding
capital stock payable to stockholders of record on a date prior
to the Closing Date.
(j) The Representatives shall have received a certificate or certificates,
dated the Closing Dates, of each Selling Stockholder to the effect that as of
the Closing Dates such Selling Stockholder's representations and warranties in
this Agreement are true and correct as if made on and as of the Closing Dates,
and that he has performed all his obligations and satisfied all the conditions
on such Selling Stockholder's part to be performed or satisfied at or prior to
the Closing Dates.
(k) Alex. Brown shall have received the written agreements
of the officers and directors of the Company and the holders of
securities of the Company listed in Schedule C that each will not
offer, sell, assign, transfer, encumber, contract to sell, grant an
option to purchase or otherwise dispose of, other than by operation of
law, gifts, pledges or dispositions by estate representatives, any
shares of Common Stock (including, without limitation, Common Stock
which may be deemed to be beneficially owned by such officer, director
or holder in accordance with the Rules and Regulations) or securities
convertible into or exercisable or exchangeable for Common Stock
during the 180 days following the date of the final Prospectus, except
for the Stock being sold hereunder by the Selling Stockholders.
(l) The Nasdaq National Market shall have approved the Stock for
inclusion, subject only to official notice of issuance.
All opinions, certificates, letters and other documents will be in
compliance with the provisions hereunder only if they are satisfactory in form
and substance to the Representatives. The Company will furnish to the
Representatives conformed copies of such opinions, certificates, letters and
other documents as the Representatives shall reasonably request. If any of the
conditions hereinabove provided for in this Section shall not have been
satisfied when and as required by this Agreement unless such failure to satisfy
results from any default or omission on the part of any Underwriter, this
Agreement may be terminated by the Representatives by notifying the Company of
such termination in writing or by telegram at or prior to
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<PAGE>
the First Closing Date, but Alex Brown shall be entitled to waive any of such
conditions.
9. EFFECTIVE DATE. This Agreement shall become effective immediately.
10. TERMINATION. This Agreement (except for the provisions of
Section 5) may be terminated by the Company at any time before it becomes
effective in accordance with Section 9 by notice to the Representatives and may
be terminated by the Representatives at any time before it becomes effective in
accordance with Section 9 by notice to the Company. In the event of any
termination of this Agreement under this or any other provision of this
Agreement, there shall be no liability of any party to this Agreement to any
other party, other than as provided in Sections 5, 6 and 11 and other than as
provided in Section 12 as to the liability of defaulting Underwriters.
This Agreement may be terminated after it becomes effective by the
Representatives by notice to the Company and the Selling Stockholders (i) if at
or prior to the First Closing Date trading in securities on any of the New York
Stock Exchange, American Stock Exchange or Nasdaq National Market, shall have
been suspended or minimum or maximum prices shall have been established on any
such exchange or market, or a banking moratorium shall have been declared by New
York State or United States authorities; (ii) trading of any securities of the
Company shall have been suspended on any exchange or in any over-the-counter
market; (iii) if at or prior to the First Closing Date there shall have been (A)
an outbreak or escalation of hostilities between the United States and any
foreign power or of any other insurrection or armed conflict involving the
United States or (B) any change in financial markets or any calamity or crisis
which, in the reasonable judgment of the Representatives, makes it impractical
or inadvisable to offer or sell the Firm Stock on the terms contemplated by the
Prospectus; or (iv) if there shall have been any development or prospective
development involving particularly the business or properties or securities of
the Company or any of its subsidiaries or the transactions contemplated by this
Agreement, which, in the reasonable judgment of the Representatives, makes it
impracticable or inadvisable to offer or deliver the Firm Stock on the terms
contemplated by the Prospectus.
11. REIMBURSEMENT OF UNDERWRITERS. Notwithstanding any other
provisions hereof, if this Agreement shall not become effective by reason of any
election of the Company pursuant to the first paragraph of Section 10 or shall
be terminated by the Representatives under Section 8 or Section 10 (other than a
termination due to any failure, refusal or inability by the Company or any
Selling Stockholder to perform any covenant or satisfy any condition of this
Agreement on their part to be performed or satisfied which is due to the default
or omission of any Underwriter), the Company
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<PAGE>
will bear and pay the expenses specified in Section 5 hereof and, in addition to
its obligations pursuant to Section 6 hereof, the Company will reimburse the
reasonable out-of-pocket expenses of the several Underwriters (including
reasonable fees and disbursements of counsel for the Underwriters) incurred in
connection with this Agreement and the proposed purchase of the Stock, and
promptly upon demand the Company will pay such amounts to you as
Representatives; provided, that the Company shall not in any event be liable to
any of the several Underwriters for damages on account of loss of anticipated
profits from the sale by them of the Stock.
12. SUBSTITUTION OF UNDERWRITERS. If on the First Closing Date any
Underwriter or Underwriters shall default in its or their obligations to
purchase shares of Stock hereunder (otherwise than by reason of default on the
part of the Company or the Selling Stockholders), you, as Representatives of the
Underwriters, shall use your reasonable efforts to procure within 48 hours
thereafter one or more of the other Underwriters, or any others, to purchase
from the Company such amounts as may be agreed upon and upon the terms set forth
herein, the shares of Stock which the defaulting Underwriter or Underwriters
failed to purchase. If during such 48 hours you, as such Representatives, shall
not have procured such other Underwriters, or any others, to purchase the shares
of Stock agreed to be purchased by the defaulting Underwriter or Underwriters,
then (a) if the aggregate number of shares which such defaulting Underwriter or
Underwriters agreed but failed to purchase does not exceed ten percent (10%) of
the total number of shares underwritten, the other Underwriters shall be
obligated severally, in proportion to their respective commitments hereunder, to
purchase the shares of Stock which such defaulting Underwriter or Underwriters
agreed but failed to purchase, or (b) if the aggregate number of shares of Stock
with respect to which such default or defaults occur is more than ten percent
(10%) of the total number of shares underwritten, the Company or you, as the
Representatives of the Underwriters, will have the right, by written notice
given within the next 48-hour period to the parties to this Agreement, to
terminate this Agreement without liability on the part of the non-defaulting
Underwriters or the Company and the Selling Stockholders.
If the remaining Underwriters or substituted Underwriters are required
hereby or agree to take up all or part of the shares of Stock of a defaulting
Underwriter or Underwriters as provided in this Section 12, (i) the Company and
the Selling Stockholders shall have the right to postpone the Closing Dates for
a period of not more than five (5) full business days in order that the Company
and the Selling Stockholders may effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement or supplements to the Prospectus which
may thereby be made necessary, and (ii) the respective numbers of shares to be
purchased by the remaining Underwriters or
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<PAGE>
substituted Underwriters shall be taken as the basis of their underwriting
obligation for all purposes of this Agreement. The term "Underwriter" herein
includes any person or entity substituted for a defaulting underwriter
hereunder. Nothing herein contained shall relieve any defaulting Underwriter of
its liability to the Company, the Selling Stockholders or the other Underwriters
for damages occasioned by its default hereunder. Any termination of this
Agreement pursuant to this Section 12 shall be without liability on the part of
any non-defaulting Underwriter, the Selling Stockholders or the Company, except
for the provisions of Section 6.
13. NOTICES. All communications hereunder shall be in writing and,
if sent to the Underwriters shall be mailed, delivered or telegraphed and
confirmed to you, as their Representatives c/o Alex. Brown & Sons Incorporated
at 1 South Street, Baltimore, Maryland 21202, attention: Gregory J. Shaia, with
a copy to Richard H. Gilden, Esq., Fulbright & Jaworski L.L.P., 666 Fifth
Avenue, New York, New York 10103 except that notices given to an Underwriter
pursuant to Section 6 hereof shall be sent to such Underwriter at the address
furnished by the Representatives or, if sent to the Company or any Selling
Stockholder, shall be mailed, delivered or telegraphed and confirmed c/o Track
'n Trail, 4961-A Windplay Drive, El Dorado Hills, California 95762 attention:
Daniel J. Nahmens with a copy to Nathaniel M. Cartmell III, Esq., Pillsbury
Madison & Sutro LLP, 235 Montgomery Street, San Francisco, California 94104.
14. SUCCESSORS. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters, the Company and the Selling Stockholders
and their respective successors and legal representatives. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any person
other than the persons mentioned in the preceding sentence any legal or
equitable right, remedy or claim under or in respect of this Agreement, or any
provisions herein contained, this Agreement and all conditions and provisions
hereof being intended to be and being for the sole and exclusive benefit of such
persons and for the benefit of no other person; except that the representations,
warranties, covenants, agreements and indemnities of the Company and the Selling
Stockholders contained in this Agreement shall also be for the benefit of the
person or persons, if any, who control any Underwriter or Underwriters within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act, and the indemnities of the several Underwriters shall also be for the
benefit of each director of the Company, each of its officers who has signed the
Registration Statement and the person or persons, if any, who control the
Company or any Selling Stockholders within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act.
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<PAGE>
15. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without giving
effect to the choice of law principles thereof.
16. AUTHORITY OF THE REPRESENTATIVES. In connection with this
Agreement, you will act for and on behalf of the several Underwriters, and any
action taken under this Agreement by you, as Representatives, or individually as
a Representative, will be binding on all the Underwriters; and any action taken
under this Agreement by any of the Attorneys-in-fact will be binding on the
Selling Stockholders.
17. PARTIAL UNENFORCEABILITY. The invalidity or unenforceability of
any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) thereto as are necessary to make it
valid and enforceable.
18. GENERAL. This Agreement constitutes the entire agreement of the
parties to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with respect to
the subject matter hereof.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and the observance of any term of this Agreement may be waived,
only by a writing signed by the Company, the Selling Stockholder and the
Representatives.
19. COUNTERPARTS. This Agreement may be signed in two (2) or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
Any person executing and delivering this Agreement as Attorney-in-fact
for the Selling Stockholders represents by so doing that he has been duly
appointed as Attorney-in-fact by such Selling Stockholder pursuant to a validly
existing and binding Power of Attorney which authorizes such Attorney-in-fact to
take such action.
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<PAGE>
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter and your acceptance shall constitute a binding agreement
between us.
Very truly yours,
TRACK 'N TRAIL
By:
-------------------------
[ ]
SELLING STOCKHOLDERS LISTED
IN SCHEDULE B
By: Attorney-in-fact
By:
-------------------------
Attorney-in-fact
Acting on his own behalf and on behalf of the
Selling Stockholders listed in Schedule B.
Accepted and delivered in
New York, New York
as of the date first above
written.
By: ALEX. BROWN & SONS INCORPORATED
A.G. EDWARDS & SONS, INC.
LADENBURG THALMANN & CO. INC.
Acting on their own behalf
and as Representatives of several
Underwriters referred to in the
foregoing Agreement.
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By:
-------------------------
Title:
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<PAGE>
SCHEDULE A
Number of
shares of
Firm Stock
to be
Name Purchased
---- ---------
Alex. Brown & Sons Incorporated
A.G. Edwards & Sons, Inc.
Ladenburg Thalmann & Co. Inc.
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<PAGE>
SCHEDULE B
Number of shares Number of shares
of Firm Stock of Option Stock
Seller to be sold to be sold
- ------ ---------- ----------
Track 'n Trail 2,727,272 --
Part 1
David L. Suechting, Jr. and --
Jackie Suechting, as Trustees of
the Suechting Family Trust
Part 2
Barbara Suechting --
--
------------ ----------
Deborah Suechting 2,727,272 409,090
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<PAGE>
SCHEDULE C
Barbara Suechting
David L. Suechting, Jr. and Jackie Suechting,
as Trustees of The Suechting Family Trust
Deborah Suechting
Gregory M. Kilgore
John E. Wilkinson
Daniel J. Nahmens
David T. Morgan
William Forsberg
Douglas L. Adel
Gregory Batchelder
Douglas Bell
Michael F. Burke
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EXHIBIT I
MATTERS TO BE COVERED IN
OPINION OF COUNSEL TO THE COMPANY*
1. The Company and each of its subsidiaries has been duly organized and
is validly existing as a corporation in good standing under the laws of its
jurisdiction of organization, is duly qualified to do business and is in good
standing as a foreign corporation in each jurisdiction in which its leasing of
property or the conduct of its businesses requires such qualification, and has
all power and authority necessary to own or hold its properties and conduct the
businesses in which it is engaged. The transactions contemplated by the
Exchange Agreement occurred prior to effectiveness of the Registration
Statement. Upon the consummation of the transactions contemplated in the
Underwriting Agreement, the Company's Subchapter S election was duly terminated.
2. The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company have
been duly and validly authorized and issued, are fully paid and non-assessable
and all of the shares of Stock to be issued and sold by the Company to the
Underwriters pursuant to the Underwriting Agreement have been duly and validly
authorized and, when issued and delivered against payment therefor as provided
for in the Underwriting Agreement, will be duly and validly issued, fully paid
and non-assessable and free of any preemptive or similar rights; and all of the
issued shares of capital stock of each subsidiary of the Company have been duly
and validly authorized and issued and are fully paid, non-assessable and are
owned directly or indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims.
3. Except as disclosed in and or contemplated by the Prospectus and the
financial statements of the Company and related notes thereto included in the
Prospectus, the Company does not have outstanding any options or warrants to
purchase, or any preemptive rights or other rights to subscribe for or to
purchase any securities or obligations convertible into, or any contracts or
- ----------------------------
* Capitalized terms used herein but not defined shall have the meanings given
such terms in the Underwriting Agreement.
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<PAGE>
commitments to issue or sell, shares of its capital stock or any such options,
rights, convertible securities or obligations. There are no restrictions upon
the voting or transfer of, any of the Stock pursuant to the Certificate of
Incorporation or By-laws, other organizational documents or any agreement or
other instrument of the Company or its subsidiaries.
4. To the best of such counsel's knowledge, except as set forth in the
Prospectus, there are no material legal or governmental proceedings pending to
which the Company or any of its subsidiaries is a party or of which any property
or assets of the Company or any of its subsidiaries is the subject which, if
determined adversely to the Company or any of its subsidiaries, could have a
material adverse effect on the Company and its subsidiaries or prevent or
adversely affect the transactions contemplated by the Underwriting Agreement;
and, to the best of such counsel's knowledge, no such proceedings are threatened
or contemplated by governmental authorities or other third parties. To the best
of such counsel's knowledge, neither the Company nor any of its subsidiaries is
a party or subject to the provisions of any material injunction, judgment,
decree or order of any court, regulatory body or other governmental agency or
body.
5. The Company has the full corporate power and authority to enter into
the Underwriting Agreement and to perform its obligations thereunder (including
to issue, sell and deliver the Stock), and the Underwriting Agreement has been
duly and validly authorized, executed and delivered by the Company.
6. The execution, delivery and performance of the Underwriting Agreement
and the consummation of the transactions therein contemplated will not result in
a breach or violation of any of the terms or provisions of or constitute a
default under the Certificate of Incorporation, By-laws or other organizational
documents of the Company or any of its subsidiaries, or any indenture, mortgage,
deed of trust, note agreement or other agreement or instrument known to such
counsel to which the Company or any of its subsidiaries is a party or by which
or any of them or any of its their properties is or may be bound, or any law,
order, rule or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of their
properties or result in the creation of a lien.
7. No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation by the Company of
the transactions contemplated by the Underwriting Agreement (except such as may
be required by the NASD or as required by the securities or "Blue Sky" laws of
any jurisdiction as to which such counsel need express no opinion) in
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connection with the purchase and distribution of the Stock by the Underwriters
except such as have been obtained or made, specifying the same.
8. The Registration Statement was declared effective under the Securities
Act as of _____________, 1997, the Prospectus was filed with the Commission
pursuant to Rule 424(b) of the Rules and Regulations on , 1997 and,
to the best of such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceeding
for that purpose is pending or threatened by the Commission.
9. The Registration Statement and the Prospectus and any amendments or
supplements thereto (except for the financial statements and notes thereto and
related schedules as to which such counsel need express no opinion) comply as to
form in all respects with the requirements of the Securities Act and the Rules
and Regulations.
10. To the best of such counsel's knowledge, there are no franchise,
lease, contract, agreement or other document required to be described in the
Registration Statement or Prospectus or to be filed as an exhibit to the
Registration Statement which is not described or filed therein as required. All
descriptions of any such franchises, leases, contracts, agreements or documents
contained in the Registration Statement are accurate and complete descriptions
of such documents in all material respects.
11. To the best of such counsel's knowledge, no person or entity has the
right to require registration of shares of Common Stock or other securities of
the Company because of the filing or effectiveness of the Registration Statement
or otherwise, except for persons and entities who have expressly waived such
right or who have been given proper notice and have failed to exercise such
right within the time or times required under the terms and conditions of such
right.
12. The statements in the Prospectus, to the extent they constitute a
summary of documents referred to therein or they reflect matters of law or legal
conclusions relating to such law, accurately summarize and fairly present the
information called for with respect to such documents and matter and the legal
and regulatory matters described therein.
13. Neither the Company nor any of its subsidiaries is an "investment
company" or an entity "controlled" by an "investment company" as such terms are
defined in the Investment Company Act of 1940, as amended.
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<PAGE>
In addition to the matters set forth above, such opinion shall also include a
statement to the effect that nothing has come to the attention of such counsel
which leads them to believe that (i) the Registration Statement or any amendment
thereto, as of the time it became effective under the Securities Act (but after
giving effect to any modifications incorporated therein pursuant to Rule 430A
under the Securities Act), contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, or (ii) that the
Prospectus, or any supplement thereto, on the date it was filed pursuant to the
Rules and Regulations and as of the First Closing Date or the Option Closing
Date, as the case may be, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading (except that such counsel need express no view as
to financial statements and notes thereto, schedules and statistical information
therein). With respect to such statement, such counsel may state that their
belief is based upon the procedures set forth therein, but is without
independent check and verification.
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EXHIBIT II
MATTERS TO BE COVERED IN OPINION
OF COUNSEL TO THE SELLING STOCKHOLDERS**
1. Each Selling Stockholder has valid and marketable title to the
Stock to be sold by such Selling Stockholder, free and clear of any lien, claim,
security interest or other encumbrance, including, without limitation, any
restriction on transfer, and has full right, power and authority to enter into
the Underwriting Agreement, the Power of Attorney and the Custody Agreement.
2. Each Selling Stockholder has, and on the Closing Date will have,
upon delivery of and payment for each share of Stock being sold by such Selling
Stockholder hereunder, full right, power and authority, any approval required by
law to sell, transfer, assign and deliver such shares, and each of the several
Underwriters will acquire valid and marketable title to such shares, free and
clear of any liens, encumbrances, equities claims, restrictions on transfer or
other defects whatsoever.
3. Each of the Underwriting Agreement, the Power of Attorney and the
Custody Agreement has been duly executed and delivered by or on behalf of such
Selling Stockholder, and the Power of Attorney and the Custody Agreement each
constitutes a valid and binding obligation of such Selling Stockholder,
enforceable against such Selling Stockholder in accordance with its terms,
except to the extent that rights to indemnity hereunder may be limited by
federal or state securities laws or the public policy underlying such laws.
4. To the best of such counsel's knowledge, the performance of the
Underwriting Agreement, the Custody Agreement and the Power of Attorney, and the
consummation of the transactions contemplated thereby will not result in a
breach or violation by such Selling Stockholder of any of the terms or
provisions of, or constitute a default by such Selling Stockholder under, any
indenture, mortgage, deed of trust, trust (constructive or other), loan
agreement, lease, franchise, license or other agreement or instrument to which
such Selling Stockholder is a party or by which such Selling Stockholder or any
of its properties is bound, or any judgment
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** Capitalized terms used herein but not defined shall have the meanings given
such terms in the Underwriting Agreement.
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<PAGE>
of any court or governmental agency or body applicable to such Selling
Stockholder or any of its properties, or to such counsel's knowledge, any
statute, decree, order, rule or regulation of any court or governmental agency
or body applicable to such Selling Stockholder or any of its properties.
In addition to the matters set forth above, such opinion shall also include a
statement to the effect that nothing has come to the attention of such counsel
which leads them to believe that (i) the Registration Statement or any amendment
thereto, as of the time it became effective under the Securities Act (but after
giving effect to any modifications incorporated therein pursuant to Rule 430A
under the Securities Act), contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, or (ii) that the
Prospectus, or any supplement thereto, on the date it was filed pursuant to the
Rules and Regulations and as of the First Closing Date or the Option Closing
Date, as the case may be, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading (except that such counsel need express no view as
to financial statements and notes thereto, schedules and statistical information
therein). With respect to such statement, such counsel may state that their
belief is based upon the procedures set forth therein, but is without
independent check and verification.
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<PAGE>
Exhibit 3.2(a)
BYLAWS
OF
TRACK 'N TRAIL, INC.
Adopted March 12, 1997
<PAGE>
TABLE OF CONTENTS
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Page
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ARTICLE I - Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. Registered Office . . . . . . . . . . . . . . . . . . . . 1
Section 2. Other Offices . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II - Meetings of Stockholders . . . . . . . . . . . . . . . . . . . 1
Section 1. Place of Meetings . . . . . . . . . . . . . . . . . . . . 1
Section 2. Annual Meeting. . . . . . . . . . . . . . . . . . . . . . 1
Section 3. Notice of Annual Meeting. . . . . . . . . . . . . . . . . 1
Section 4. Stockholders List . . . . . . . . . . . . . . . . . . . . 1
Section 5. Special Meetings. . . . . . . . . . . . . . . . . . . . . 2
Section 6. Notice of Special Meetings. . . . . . . . . . . . . . . . 2
Section 7. Business. . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 8. Quorum and Adjournment. . . . . . . . . . . . . . . . . . 2
Section 9. Organization. . . . . . . . . . . . . . . . . . . . . . . 2
Section 10. Voting. . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 11. Action by Written Consent . . . . . . . . . . . . . . . . 3
Section 12. Inspectors of Election. . . . . . . . . . . . . . . . . . 3
Section 13. Notice of Stockholder Business at Annual Meeting. . . . . 3
Section 14. Notice of Stockholder Nominees. . . . . . . . . . . . . . 4
ARTICLE III - Directors . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 1. Number, Election and Term . . . . . . . . . . . . . . . . 5
Section 2. Vacancies and Newly Created Directorships . . . . . . . . 5
Section 3. Resignation and Removal . . . . . . . . . . . . . . . . . 5
Section 4. General Powers. . . . . . . . . . . . . . . . . . . . . . 5
Section 5. Compensation of Directors . . . . . . . . . . . . . . . . 5
Section 6. Advisory Directors. . . . . . . . . . . . . . . . . . . . 6
ARTICLE IV - Meetings of the Board of Directors . . . . . . . . . . . . . . 6
Section 1. Place of Meetings . . . . . . . . . . . . . . . . . . . . 6
Section 2. Regular Meetings. . . . . . . . . . . . . . . . . . . . . 6
Section 3. Special Meetings. . . . . . . . . . . . . . . . . . . . . 6
Section 4. Quorum. . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 5. Action by Written Consent . . . . . . . . . . . . . . . . 7
Section 6. Telephone Participation . . . . . . . . . . . . . . . . . 7
ARTICLE V - Committees. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 1. Committees of Directors . . . . . . . . . . . . . . . . . 7
Section 2. Other Committees. . . . . . . . . . . . . . . . . . . . . 8
Section 3. Committee Procedures. . . . . . . . . . . . . . . . . . . 8
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ARTICLE VI - Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 1. Number and Titles . . . . . . . . . . . . . . . . . . . . 8
Section 2. Compensation. . . . . . . . . . . . . . . . . . . . . . . 8
Section 3. Term of Office. . . . . . . . . . . . . . . . . . . . . . 8
Section 4. Chairman of the Board . . . . . . . . . . . . . . . . . . 9
Section 6. President . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 7. Vice Presidents . . . . . . . . . . . . . . . . . . . . . 9
Section 8. Secretary . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 9. Assistant Secretaries . . . . . . . . . . . . . . . . . . 10
Section 10. Treasurer . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 11. Assistant Treasurers. . . . . . . . . . . . . . . . . . . 10
Section 12. Delegation of Authority . . . . . . . . . . . . . . . . . 10
ARTICLE VII - Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 1. Certificates. . . . . . . . . . . . . . . . . . . . . . . 10
Section 2. Registrars and Transfer Agents. . . . . . . . . . . . . . 11
Section 3. Lost Certificates . . . . . . . . . . . . . . . . . . . . 11
Section 4. Transfers of Stock. . . . . . . . . . . . . . . . . . . . 11
Section 5. Fixing Record Date. . . . . . . . . . . . . . . . . . . . 11
Section 6. Registered Stockholders . . . . . . . . . . . . . . . . . 12
Section 7. Dividends . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 8. Reserves. . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE VIII - Indemnification. . . . . . . . . . . . . . . . . . . . . . . 12
Section 1. Right to Indemnification. . . . . . . . . . . . . . . . . 12
Section 2. Right of Claimant to Bring Suit . . . . . . . . . . . . . 13
Section 3. Non-Exclusivity of Rights . . . . . . . . . . . . . . . . 13
Section 4. Insurance . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5. Severability. . . . . . . . . . . . . . . . . . . . . . . 14
Section 6. Intent of Article . . . . . . . . . . . . . . . . . . . . 14
ARTICLE IX - Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 1. Form of Notices . . . . . . . . . . . . . . . . . . . . . 14
Section 2. Waiver of Notice. . . . . . . . . . . . . . . . . . . . . 14
ARTICLE X - Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 1. Annual Statements . . . . . . . . . . . . . . . . . . . . 15
Section 2. Checks. . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4. Seal. . . . . . . . . . . . . . . . . . . . . . . . . . .15
ARTICLE XI - Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . 15
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<PAGE>
TRACK 'N TRAIL
BYLAWS
ARTICLE I
OFFICES
Section 1. REGISTERED OFFICE. The registered office shall be in the
City of Wilmington, County of New Castle, State of Delaware.
Section 2. OTHER OFFICES. The corporation may also have offices at such
other places both within and without the State of Delaware as the board of
directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. PLACE OF MEETINGS. All meetings of the stockholders for the
election of directors shall be held in the City of El Dorado Hills, County of
Placer, State of California, at such place as may be fixed from time to time by
the board of directors, or at such other place either within or without the
State of Delaware as shall be designated from time to time by the board of
directors and stated in the notice of the meeting. Meetings of stockholders for
any other purpose may be held at such time and place, within or without the
State of Delaware, as shall be stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
Section 2. ANNUAL MEETING. The annual meeting of stockholders shall be
held on such date and at such time as shall be determined by the Board of
Directors. At such meeting, directors shall be elected and any other proper
business may be transacted which is within the powers of the stockholders.
Section 3. NOTICE OF ANNUAL MEETING. Written notice of the annual
meeting stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten (10) nor more
than sixty (60) days before the date of the meeting.
Section 4. STOCKHOLDERS LIST. The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten (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
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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 ten (10) days prior to the
meeting either at a place within the city where the meeting is to be held, which
place shall be specified in the notice of the meeting, or, if not so specified,
at the place 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 thereof, and
may be inspected by any stockholder who is present.
Section 5. SPECIAL MEETINGS. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation, may be called by the chairman of the board or the
president and shall be called by the chairman of the board or the president or
secretary at the request in writing of a majority of the board of directors, or
at the request in writing of stockholders owning at least fifteen percent (15%)
of the entire capital stock of the corporation issued and outstanding and
entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting.
Section 6. NOTICE OF SPECIAL MEETINGS. Written notice of a special
meeting stating the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called, shall be given not less than ten (10)
nor more than sixty (60) days before the date of the meeting to each stockholder
entitled to vote at such meeting.
Section 7. BUSINESS. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
Section 8. QUORUM AND ADJOURNMENT. The holders of a majority of the
stock issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise provided by
statute or by the certificate of incorporation. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified. If the adjournment is for more than thirty
(30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 9. ORGANIZATION. At every meeting of the stockholders the
chairman of the board or, in his or her absence, the president, shall preside.
In the absence of said officers, any other officer of the rank of vice president
present shall call such meeting to order and preside. The secretary or, in the
secretary's absence, the appointee of the presiding officer of the meeting shall
act as secretary of the meeting.
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Section 10. VOTING. When a quorum is present or represented at any
meeting, the vote of the holders of a majority of the stock having voting power
present in person or represented by proxy shall decide any question brought
before such meeting, unless the question is one upon which by express provision
of the statutes or of the certificate of incorporation, a different vote is
required in which case such express provision shall govern and control the
decision of such question.
Unless otherwise provided in the certificate of incorporation each
stockholder shall at every meeting of the stockholders be entitled to one vote
in person or by proxy for each share of the capital stock having voting power
held by such stockholder. No proxy shall be voted on after three (3) years from
its date, unless the proxy provides for a longer period.
Section 11. ACTION BY WRITTEN CONSENT. Unless otherwise provided in the
certificate of incorporation, and until the registration of the corporation with
the Securities and Exchange Commission under Section 12(b) of the Securities
Exchange Act of 1934, as amended (the "Section 12(b) Registration"), any action
required or permitted to be taken at any annual or special meeting of
stockholders of the corporation may be taken without a meeting, without prior
notice except as otherwise provided by applicable law, and without a vote, if a
consent in writing setting forth the action so taken shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Prompt notice of
the taking of corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
Effective upon the Section 12(b) Registration, no action required or permitted
to be taken at any annual or special meeting of the stockholders of the
corporation may be taken without a meeting and the power of the stockholders to
consent in writing, without a meeting, to the taking of any action is
specifically denied.
Section 12. INSPECTORS OF ELECTION. The board of directors may at any
time appoint one or more persons to serve as inspectors of election at any
meeting of stockholders with respect to the votes of stockholders at such
meeting. If any inspector appointed is absent or refuses to act, a majority of
the inspectors, if such be present, may act. If a majority of the inspectors is
not present, the presiding officer of the meeting may appoint one or more
persons to serve as inspectors for the meeting. The inspectors appointed to act
at any meeting of the stockholders shall perform their duties faithfully and
impartially, and shall notify the secretary of the corporation in writing of the
votes cast at such meeting by the stockholders.
Section 13. NOTICE OF STOCKHOLDER BUSINESS AT ANNUAL MEETING. At an
annual meeting of the stockholders only such business shall be conducted as
shall have been brought before the meeting (a) by or at the direction of the
board of directors or (b) by any stockholder of the corporation entitled to vote
at the meeting who complies with the notice procedures set forth in this
section. 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 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 less than
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fifty (50) days nor more than seventy-five (75) days prior to the meeting;
PROVIDED, HOWEVER, that if less than sixty-five (65) days' notice or prior
public disclosure of the date of the meeting is given to stockholders, notice by
the stockholder to be timely must be received not later than the close of
business on the tenth day following the day on which such notice of the date of
the annual meeting was mailed. A stockholder's notice to the secretary shall
set forth as to each matter the stockholder proposes to bring before the annual
meeting (a) 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, (b) the name and address, as they appear on the corporation's books, of
the stockholder proposing such business, (c) the class and number of shares of
the corporation's stock which are owned by the stockholder and (d) any material
interest of the stockholder in such business. Notwithstanding anything in these
bylaws to the contrary, no business shall be conducted at an annual meeting
except in accordance with the procedures set forth in this section. The
chairman of an annual meeting shall, if the facts warrant, determine and declare
to the meeting that any business proposed at the meeting was not properly
brought before the meeting in accordance with the provisions of this section,
and if he or she should so determine and declare, such business shall not be
transacted.
Section 14. NOTICE OF STOCKHOLDER NOMINEES. Only persons who are
nominated in accordance with the procedures set forth in this section 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
(a) by or at the direction of the board of directors or (b) by any stockholder
of the corporation entitled to vote for the election of directors at the meeting
who has complied with the notice procedures set forth in this section. Such
nominations, other than those made by or at the direction of the board of
directors, shall be made pursuant to timely notice in writing to the secretary
of the corporation. To be timely, a stockholder's notice shall be delivered to
or mailed and received at the principal executive offices of the corporation not
less than one hundred twenty (120) days prior to the meeting; PROVIDED, HOWEVER,
that if less than one hundred thirty (130) days' notice of the date of the
meeting is given to stockholders, notice by the stockholder to be timely must be
so received not later than the close of business on the tenth day following the
day on which such notice of the date of the meeting was mailed. A stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or re-election as a director, all information relating to
such person that is required to be disclosed in solicitations or proxies for
election of directors pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (including such person's written consent to being named
in the proxy statement as a nominee and to serving as a director if elected);
and (b) as to the stockholder giving the notice (i) the name and address, as
they appear on the corporation's books, of such stockholder and (ii) the class
and number of shares of the corporation's stock which are owned by such
stockholder. At the request of the board of directors, any person nominated by
the board of directors for election as a director shall furnish to the secretary
of the corporation that information required to be set forth in a 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 section. The chairman of the meeting
shall, if the facts warrant, determine and declare to the meeting that a
nomination made at the meeting was not made in accordance with the
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provisions of this section, and if he or she should so determine and declare,
the nomination shall be disregarded.
ARTICLE III
DIRECTORS
Section 1. NUMBER, ELECTION AND TERM. The board of directors shall
consist of one or more members, the number thereof to be determined from time to
time by resolution of the Board of Directors. Until such determination by the
Board of Directors, the number thereof shall be three. At each annual meeting
of the stockholders, directors shall be elected for that class of directors
whose terms are then expiring, except as provided in Section 2 of this Article,
and each director so elected shall hold office until his successor is elected
and qualified or until his earlier resignation or removal. Directors need not
be stockholders.
Section 2. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Vacancies and
newly created directorships resulting from any increase in the authorized number
of directors elected by all of the stockholders having the right to vote as a
single class may be filled by a majority of the directors then in office,
although less than a quorum, or by a sole remaining director, and the directors
so chosen shall hold office until the next annual election and until their
successors are elected and qualified, or until their earlier resignations or
removals. If there are no directors in office, then an election of directors
may be held in the manner provided by statute. In the event of a vacancy in the
board of directors, the remaining directors, except as otherwise provided by
law, the Certificate of Incorporation or these bylaws, may exercise the powers
of the full board until the vacancy is filled.
Section 3. RESIGNATION AND REMOVAL. Any director of the corporation may
resign at any time by giving written notice to the chairman of the board, or to
the president, or to the secretary of the corporation. The resignation of any
director shall take effect at the date of receipt of such notice or at any later
date specified therein; and unless otherwise specified therein the acceptance of
such resignation by the board of directors shall not be necessary to make it
effective. Any director or the entire board of directors may be removed, but
only for cause, by the holders of a majority of the shares then entitled to vote
at an election of directors, unless otherwise specified by law or the
certificate of incorporation.
Section 4. GENERAL POWERS. The business of the corporation shall be
managed by or under the direction of its board of directors which may exercise
all such powers of the corporation and do all such lawful acts and things as are
not by statute or by the certificate of incorporation or by these bylaws
directed or required to be exercised or done by the stockholders.
Section 5. COMPENSATION OF DIRECTORS. Unless otherwise restricted by
the certificate of incorporation or these bylaws, the board of directors shall
have the authority to fix from time to time the compensation of directors. The
directors may be paid their expenses, if any, of attendance at each meeting of
the board of directors and may be paid a
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fixed sum for attendance at each meeting of the board of directors and/or a
stated salary as director. No such payment shall preclude any director from
serving the corporation or its parent or subsidiary corporations in any other
capacity and receiving compensation therefor. Members of special or standing
committees may be allowed compensation as determined by the Board or Directors
for attending committee meetings.
Section 6. ADVISORY DIRECTORS. The board of directors may, from time to
time, appoint one or more advisory directors, the number to be determined by the
board of directors. Such advisory directors shall serve at the pleasure of the
board and shall attend the meetings of the board for the purposes of providing
general policy advice. Advisory directors shall receive the same fees and
expenses as may be paid to the members of the board of directors.
ARTICLE IV
MEETINGS OF THE BOARD OF DIRECTORS
Section 1. PLACE OF MEETINGS. The board of directors of the corporation
may hold meetings, both regular and special, either within or without the State
of Delaware.
Section 2. REGULAR MEETINGS. Regular meetings of the board of directors
may be held without notice at such time and at such place as shall from time to
time be determined by the board of directors.
Section 3. SPECIAL MEETINGS. Special meetings of the board of directors
for any purpose or purposes may be called at any time by the chairman of the
board or president or, if the chairman of the board and the president are each
absent or are unable or refuse to act, by any two directors. Notice of the time
and place of special meetings shall be delivered personally or by telephone to
each director, or sent by first-class mail or telegram or facsimile
transmission, charges prepaid, addressed to him or her at his or her home or
office address as they appear upon the records of the corporation or, if not so
shown on the records and not readily ascertainable, at the place at which the
meetings of the directors are regularly held. In case such notice is mailed, it
shall be deposited in the United States mail at least four (4) days prior to the
date of the meeting. In case such notice is telegraphed or sent by facsimile
transmission, it shall be delivered to a common carrier for transmission to the
director or actually transmitted by the person giving the notice by electronic
means to the director at least forty-eight (48) hours prior to the time of the
holding of the meeting. In case such notice is delivered personally or by
telephone as above provided, it shall be so delivered at least four (4) hours
prior to the time of the holding of the meeting. Any notice given personally,
by facsimile or by telephone may be communicated to either the director or to a
person at the office of the director whom the person giving the notice has
reason to believe will promptly communicate it to the director. Such deposit in
the mail, delivery to a common carrier, transmission by electronic means or
delivery, personally or by telephone, as above provided, shall be due, legal and
personal notice to such directors. The notice need
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not specify the place of the meeting if the meeting is to be held at the
principal executive office of the corporation, and need not specify the purpose
of the meeting.
Section 4. QUORUM. At all meetings of the board of directors a majority
of the then authorized directors shall constitute a quorum for the transaction
of business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the board of directors, except as
may be otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum shall not be present at any meeting of the board of
directors the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present. A meeting at which a quorum is initially present may continue
to transact business notwithstanding the withdrawal of directors, provided that
any action taken is approved by at least a majority of the required quorum for
such meeting.
Section 5. ACTION BY WRITTEN CONSENT. Unless otherwise restricted by
the certificate of incorporation or these bylaws, any action required or
permitted to be taken at any meeting of the board of directors or any committee
thereof may be taken without a meeting, if all members of the board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the board or committee.
Section 6. TELEPHONE PARTICIPATION. Unless otherwise restricted by the
certificate of incorporation or these bylaws, members of the board of directors
may participate in a meeting of the board of directors by means of conference
telephone or other communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation shall
constitute presence in person at the meeting.
ARTICLE V
COMMITTEES
Section 1. COMMITTEES OF DIRECTORS. The board of directors may, by
resolution passed by a majority of the whole board, designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The board 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. Any such committee, to the extent provided in the
resolution of the board of directors, 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 to all papers which may require it; but no such committee shall have
power or authority in reference to the following matters: (1) approving or
adopting or recommending to the stockholders any action or matter expressly
required by the Delaware General Corporation Law to be submitted to stockholders
for approval, or (2) adopting, amending or repealing any bylaw of the
corporation, all such powers and authorities being reserved to the board of
directors.
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Section 2. OTHER COMMITTEES. The board of directors may from time to
time by resolution create such other committee or committees of directors,
officers, employees, or other persons designated by it for the purpose, and with
such functions, powers and responsibilities, as the board shall by resolution
prescribe, subject to the restriction in Section 1.
Section 3. COMMITTEE PROCEDURES. Each committee created by the board of
directors shall have such name as may be determined from time to time by
resolution adopted by the board of directors. The board of directors shall have
power to change the members of any such committee at any time, to fill
vacancies, and to dissolve any such committee at any time. Unless specifically
provided to the contrary in or otherwise restricted by the certificate of
incorporation, these bylaws or a resolution adopted by the board of directors,
the procedures set forth in Sections 1, 3, 4, 5, 6 and 7 of Article IV apply to
each committee created by the board of directors in the same manner as those
sections apply to the board of directors, as though references therein to
directors were to members of the committee. Each such committee shall keep
regular minutes of its meetings and report the same to the board of directors
when required.
ARTICLE VI
OFFICERS
Section 1. NUMBER AND TITLES. The officers of the corporation shall be
appointed by the board of directors and shall be a chairman of the board, a
president, a secretary and a treasurer. The board of directors may also appoint
a chief executive officer, one or more vice presidents, one or more assistant
secretaries and assistant treasurers, and such other officers as the board may
by resolution create, or as may be appointed in accordance with Section 2 of
this Article. Any one or more vice presidents may be designated executive vice
president or senior vice president. One person may hold any number of offices,
unless the certificate of incorporation or these bylaws otherwise provide.
Section 2. COMPENSATION. The compensation of all officers and agents of
the corporation shall be fixed by the board of directors or by a committee
created or officers designated for that purpose.
Section 3. TERM OF OFFICE. The officers of the corporation shall hold
office until their successors are chosen and qualify or until their earlier
resignation or removal. Any officer elected or appointed by the board of
directors may be removed at any time by the affirmative vote of a majority of
the board of directors. Any vacancy occurring in any office of the corporation
shall be filled by the board of directors. Any officer may resign by delivering
such officer's written resignation to the corporation at its principal place of
business or to the chief executive officer or the 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.
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Section 4. CHAIRMAN OF THE BOARD. The chairman of the board shall
preside at all meetings of the stockholders and the board of directors and shall
exercise and perform such other powers and duties as may from time to time be
assigned by the board of directors or prescribed by these bylaws. The chairman
of the board shall, if the board of directors has not appointed a chief
executive officer, serve as the chief executive officer of the corporation and
shall have the powers and duties prescribed in Section 5 of Article VI of these
bylaws; provided, that the chairman of the board under such circumstances shall
have the right to delegate some or all of such powers and duties to the
president.
Section 5. CHIEF EXECUTIVE OFFICER. Subject to such powers and duties,
if any, as may be prescribed by these bylaws or the board of directors for the
chairman of the board, if there be such officer, the chief executive officer
shall, subject to the control of the board of directors, have general
supervision, direction and control of the business and officers of the
corporation. In the absence of the chairman of the board, or if there be none,
he or she shall preside at all meetings of the stockholders and all meetings of
the board of directors. He or she shall have all the powers and shall perform
all of the duties which are ordinarily inherent in the office of chief executive
officer of a corporation, and he or she shall have such further powers and shall
perform such further duties as may be prescribed for him or her by the board of
directors.
Section 6. PRESIDENT. The president shall, in addition to any other
duties delegated to him or her, be the chief operating officer of the
corporation, shall have active management of the business of the corporation and
shall see that all orders and resolutions of the board of directors, chairman of
the board and chief executive officer are carried into effect.
Section 7. VICE PRESIDENTS. Vice presidents shall perform such duties
and have such powers as the board of directors may from time to time prescribe.
The executive vice presidents shall be senior in rank to all other vice
presidents, including senior vice presidents, unless specifically provided
otherwise in a resolution of the board of directors.
Section 8. SECRETARY. The secretary shall have such powers and perform
such duties as are incident to the office of secretary. The secretary shall
maintain a stock ledger and prepare lists of stockholders and their addresses as
required and shall be the custodian of corporate records. The secretary shall
attend all meetings of the board of directors and all meetings of the
stockholders and record all the proceedings of the meetings of the corporation
and of the board of directors in a book to be kept for that purpose and shall
perform like duties for the standing committees when required. The secretary
shall give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the board of directors, and shall perform such other duties
as may be from time to time prescribed by the board of directors or chief
executive officer, under whose supervision the secretary shall be. The
secretary shall have custody of the corporate seal of the corporation and the
secretary, or an assistant secretary, shall have authority to affix the same to
any instrument requiring it and when so affixed, it may be attested by the
secretary's signature or by the signature of such assistant secretary. The
board of directors may give general
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authority to any other officer to affix the seal of the corporation and to
attest the affixing by such officer's signature.
Section 9. ASSISTANT SECRETARIES. The assistant secretary, or if there
be more than one, the assistant secretaries in the order determined by the board
of directors, the president or the secretary (or if there be no such
determination, then in the order determined by their tenure in office), shall,
in the absence of the secretary or in the event of the secretary's inability or
refusal to act, perform the duties and exercise the powers of the secretary and
shall perform such other duties and have such other powers as the board of
directors, the president or the secretary may from time to time prescribe. 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 or acting secretary to keep a record of the meeting.
Section 10. TREASURER. The treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the corporation in such depositories as may be designated by the board of
directors. The treasurer shall also disburse the funds of the corporation as
may be ordered by the board of directors, at its regular meetings, or when the
board of directors so requires. The treasurer shall give an account of all
transactions as treasurer and of the financial condition of the corporation.
Section 11. ASSISTANT TREASURERS. The assistant treasurer, or if there
shall be more than one, the assistant treasurers in the order determined by the
board of directors, the president or the treasurer (or if there be no such
determination, then in the order determined by their tenure in office), shall,
in the absence of the treasurer officer or in the event of the treasurer's
inability or refusal to act, perform the duties and exercise the powers of the
treasurer and shall perform such other duties and have such other powers as the
board of directors, the president or the treasurer may from time to time
prescribe.
Section 12. DELEGATION OF AUTHORITY. The board of directors may from
time to time delegate the powers or duties of any officer to any other officers
or agents, notwithstanding any provision hereof.
ARTICLE VII
CAPITAL STOCK
Section 1. CERTIFICATES. Every holder of stock in the corporation shall
be entitled to have a certificate, signed by or in the name of the corporation
by the chairman of the board of directors, or the president or a vice president
and the treasurer or an assistant treasurer, or the secretary or an assistant
secretary of the corporation, certifying the number of shares owned by such
holder in the corporation. If the corporation shall be authorized to issue more
than one class of stock or more than one series of any class, the powers,
designations, preferences and relative, participating, optional or other special
rights of each
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class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in Section 202 of the Delaware General Corporation Law, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the corporation shall issue to represent such class or
series of stock a statement that the corporation will furnish without charge to
each stockholder who so requests, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
Section 2. REGISTRARS AND TRANSFER AGENTS. Where a certificate is
countersigned (1) by a transfer agent other than the corporation or its
employee, or, (2) by a registrar other than the corporation or its employee, any
other signature on the certificate may be a facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if such person were such officer, transfer
agent or registrar at the date of issue.
Section 3. LOST CERTIFICATES. The board of directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the board of
directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or such owner's legal representative, to advertise the same in
such manner as it shall require and/or to give the corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen or
destroyed.
Section 4. TRANSFERS OF STOCK. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, including evidence of approval of such transfer by the corporation as
required by the certificate of incorporation, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
Section 5. FIXING RECORD DATE. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any right in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the board of directors may fix, in
advance, a record date, which shall not be more than sixty (60) days nor less
than five (5) days prior to the date of such meeting, nor more than sixty (60)
days prior to any other
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action. 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. 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 at 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 for any
other purpose within this Section 5 shall be at the close of business on the day
on which the board of directors adopts the resolution relating to such purpose.
Section 6. REGISTERED STOCKHOLDERS. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of Delaware.
Section 7. DIVIDENDS. Dividends upon the capital stock of the
corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the board of directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the certificate of
incorporation.
Section 8. RESERVES. Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purpose as the directors shall think conducive to the interest of
the corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ARTICLE VIII
INDEMNIFICATION
Section 1. RIGHT TO INDEMNIFICATION. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that such person, or another
person of whom such person is the legal representative, is or was a director,
officer, or employee of the corporation or is or was serving at the request of
the corporation as a director, officer, or employee of, or in some other
representative capacity for, another corporation or a partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, whether the basis of such proceeding is alleged action in an
official capacity as a director, officer, or employee or in
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any other capacity while serving as a director, officer, or employee, shall be
indemnified and held harmless by the corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended, against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
to be paid in settlement) reasonably incurred or suffered by such person in
connection therewith and such indemnification shall continue as to a person who
has ceased to be a director, officer, or employee and shall inure to the benefit
of such person's heirs, executors and administrators; provided, however, that
except as provided in Section 2 hereof with respect to proceedings seeking to
enforce rights to indemnification, the corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the board of directors of the corporation. The right to
indemnification conferred in this Article shall be a contract right and shall
include the right to be paid by the corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that, if the Delaware General Corporation Law so requires, the payment
of such expenses incurred by a director, officer, employee or representative in
such person's capacity as a director, officer, employee or representative (and
not in any other capacity in which service was or is rendered by such person
while a director, officer, employee or representative, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the corporation
of an undertaking, by or on behalf of such person, to repay all amounts so
advanced if it shall ultimately be determined that such director or officer is
not entitled to be indemnified under this Article or otherwise.
Section 2. RIGHT OF CLAIMANT TO BRING SUIT. If a claim under Section 1
of this Article is not paid in full by the corporation within ninety (90) days
after a written claim has been received by the corporation, the claimant may at
any time thereafter bring suit against the corporation to recover the unpaid
amount of the claim and, if successful in whole or in part, the claimant shall
be entitled to be paid also the expense of prosecuting such claim. It shall be
a defense to any such action (other than an action brought to enforce a claim
for expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the corporation) that the claimant has not met the standards of
conduct which make it permissible under the Delaware General Corporation Law for
the corporation to indemnify the claimant for the amount claimed, but the burden
of proving such defense shall be on the corporation. Neither the failure of the
corporation (including its board of directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because the claimant has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the corporation
(including its board of directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
Section 3. NON-EXCLUSIVITY OF RIGHTS. The right to indemnification and
the payment of expenses incurred in defending a proceeding in advance of its
final disposition
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conferred in this Article shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be director,
officer, employee or agent of the corporation and shall inure to the benefit of
the heirs, executors and administrators of such a person.
Section 4. INSURANCE. The corporation may maintain insurance, at its
expense, to protect itself and any director, officer, or employee of the
corporation serving in any capacity on behalf of the corporation or at its
request for any other entity to the fullest extent authorized by the Delaware
General Corporation Law, as the same exists or may hereafter be amended, whether
or not the corporation would have the power to indemnify such person against
such expense, liability or loss under the Delaware General Corporation Law.
Section 5. SEVERABILITY. If any word, clause or provision of this
Article VIII or any award made hereunder shall for any reason be determined to
be invalid, the provisions hereof shall not otherwise be affected thereby but
shall remain in full force and effect.
Section 6. INTENT OF ARTICLE. The intent of this Article VIII is to
provide for indemnification to the fullest extent permitted by section 145 of
the Delaware General Corporation Law. To the extent that such section or any
successor section may be amended or supplemented from time to time, this
Article VIII shall be amended automatically and construed so as to permit
indemnification to the fullest extent from time to time permitted by law.
ARTICLE IX
NOTICES
Section 1. FORM OF NOTICES. Unless otherwise provided in these bylaws,
whenever, under the provisions of the Delaware General Corporation Law or of the
certificate of incorporation or of these bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by United States mail, postage
prepaid, or other means of written communication (which includes, without
limitation, telegraphic, facsimile and other electronic communication),
addressed to such director or stockholder, at his or her address as it appears
on the records of the corporation, and such notice shall be deemed to be given
at the time when the same shall be deposited in the United States mail or sent
by telegraphic, facsimile or other electronic communication.
Section 2. WAIVER OF NOTICE. Whenever any notice is required to be
given under the provisions of the statutes or of the certificate of
incorporation or of these bylaws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether
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before or after the time stated therein, shall be deemed equivalent thereto.
Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting, subject to any exceptions provided in the Delaware General Corporation
Law.
ARTICLE X
MISCELLANEOUS
Section 1. ANNUAL STATEMENTS. The board of directors may present at any
annual meeting, or at any special meeting of the stockholders when called for by
vote of the stockholders, a full and clear statement of the business and
condition of the corporation.
Section 2. CHECKS. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
Section 3. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the board of directors.
Section 4. SEAL. The corporate seal shall be in such form as may be
approved from time to time by the board of directors, and said seal, or a
facsimile thereof, may be imprinted or affixed by any process or in any manner
reproduced. Affixing the seal is not necessary to make the execution of any
document effective or binding.
ARTICLE XI
AMENDMENTS
The board of directors is expressly empowered to adopt, amend or repeal
these bylaws, provided, however, that any adoption, amendment or repeal of these
bylaws by the board of directors shall require the approval of at least
sixty-six and two-thirds percent (66 2/3%) of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any resolution providing for adoption, amendment or
repeal is presented to the board). The stockholders shall also have power to
adopt, amend or repeal these bylaws, provided, however, that in addition to any
vote of the holders of any class or series of stock of this corporation required
by law or by the certificate of incorporation of this corporation, the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66 2/3%) of the voting power of all of the then outstanding shares of the stock
of the corporation entitled to vote generally in the election of directors,
voting together as a single class, shall be required for such adoption,
amendment or repeal by the stockholders of any provisions of these bylaws.
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EXHIBIT 4.1
NUMBER [Logo] SHARES
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK CUSIP 891924 10 2
SEE REVERSE FOR CERTAIN DEFINITIONS
This Certifies That
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.01
PER SHARE, OF
Track 'n Trail, a Delaware corporation (the "Corporation"). The shares
represented by this certificate are transferable only on the stock transfer
books of the Corporation by the holder of record hereof, or by the holder's duly
authorized attorney or legal representative, upon the surrender of this
certificate properly endorsed. This certificate is not valid until
countersigned by the Corporation's transfer agent and registrar.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
executed by the facsimile signatures of it duly authorized offers and has caused
a facsimile of its corporate seal to be hereunto affixed.
Dated:
/s/ DANIEL J. NAHMENS [SEAL] /s/ DAVID L. SUECHTING, JR.
SECRETARY CHAIRMAN OF THE BOARD
COUNTERSIGNED AND REGISTERED:
AMERICAN SECURITIES TRANSFER & TRUST, INC.
TRANSFER AGENT AND REGISTRAR
By
AUTHORIZED SIGNATURE
<PAGE>
A statement of the rights, preferences, privileges and restrictions granted
to or imposed upon the respective classes or series of shares of stock of the
Corporation, and upon the holders thereof as established by the Certificate of
Incorporation or by any certificate of determination of preferences, and the
number of shares constituting each series or class and the designations thereof,
may be obtained by any stockholder of the Corporation upon request and without
charge from the Secretary of the Corporation at the principal office of the
Corporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN ACT - ..............Custodian..............
(Cust) (Minor)
under Uniform Gifts to Minors
Act..................................
(State)
UNIF TRF MIN ACT - ..............Custodian (until age...)
(Cust)
...............under Uniform Transfers
(Minor)
to Minors Act........................
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
. . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- -------------------------------------------------------------------------
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- -----------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
----------------------------------
----------------------------------------
NOTICE: THE SIGNATURE TO THIS
ASSIGNMENT MUST CORRESPOND WITH THE NAME
AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
Signature(s) Guaranteed:
By
-------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
<PAGE>
Exhibit 4.2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered
into as of this _______ day of ___________, 1997 by and among TRACK 'N TRAIL,
INC., a Delaware corporation ("Track 'n Trail"), and DAVID L. SUECHTING, JR.
AND JACKIE SUECHTING, Trustees of The Suechting Family Trust (the "Trust"),
BARBARA SUECHTING, and DEBORAH L. SUECHTING (collectively, the "Suechtings"),
RECITALS
A. TRACK 'N TRAIL. Track 'n Trail is an existing corporation duly
organized and in good standing under the laws of the State of Delaware, with
its principal executive offices located in El Dorado Hills, California.
B. THE SUECHTINGS. Together the Suechtings currently own all of the
outstanding Common Stock of Track 'n Trail.
C. CORPORATE AND TRUST APPROVAL. Track 'n Trail has obtained all
necessary corporate approvals for the execution and delivery of this
Agreement. The Trust has obtained all necessary approvals for the execution
and delivery of this Agreement.
D. ARM'S LENGTH RELATIONSHIP. The parties to this Agreement intend to
conduct their relationships hereunder on an arm's length basis.
E. THE OFFERING. Track 'n Trail is contemplating the issuance of
shares of its Common Stock, $.01 par value per share (the "Common Stock"), in
an initial public offering pursuant to a Registration Statement on Form S-1
(Registration No. 333-23195) (the "Offering").
F. REGISTRATION RIGHTS. In conjunction with the Offering, the
Suechtings and Track 'n Trail desire to enter into this Agreement to provide
the Suechtings with certain registration rights as provided herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. DEFINITIONS. As used herein, the following terms shall have the
following respective meanings:
"Affiliate" of a specified Person shall mean any Person that directly or
indirectly controls, is controlled by, or is under common control with such
specified Person. A Person shall be deemed to control another Person if such
Person owns fifty percent (50%) or more
<PAGE>
of any equity interest in the "controlled" Person or possesses, directly or
indirectly, the power to direct or cause the direction of the management or
policies of the controlled Person, whether through ownership of stock or
partnership interests, by contract, agreement or understanding (whether oral
or written), or otherwise.
"Designated Transferee" shall have the meaning set forth in Section 10
hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Holders" shall mean Barbara Suechting, the Trust and Deborah L.
Suechting, any Affiliate of Barbara Suechting, the Trust and/or Deborah L.
Suechting and any Designated Transferees who are holders of record of any
Registrable Shares, and any combination of one or more such Holders.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Other Holders" shall mean Persons who are holders of record of equity
securities of Track 'n Trail who subsequent to the date hereof acquire more
than five percent (5%) of the outstanding shares of Common Stock pursuant to
a transaction with Track 'n Trail and to whom Track 'n Trail grants
registration rights pursuant to a written agreement in connection with such
transaction.
"Person" shall mean any individual, corporation, association,
partnership, group (as defined in Section 13(d)(3) of the Exchange Act),
limited liability company, joint venture, business trust or unincorporated
organization, or a government or any agency or political subdivision thereof.
"Registrable Shares" shall mean (i) 4,107,608 shares of Common Stock
owned by the Holders on the date hereof, representing all of the currently
outstanding Common Stock of Track 'n Trail, and (ii) any shares of Common
Stock acquired by a Holder directly or upon exercise of conversion of any
equity securities of Track 'n Trail issued or distributed after the date of
this Agreement to a Holder in respect of Registrable Shares by way of any
stock dividend, stock split or other distribution or any recapitalization or
reclassification. As to any particular Registrable Share, such Registrable
Share shall cease to be a Registrable Share when (w) it shall have been sold,
transferred or otherwise disposed of or exchanged pursuant to a registration
statement under the Securities Act, including sales in the Offering; (x) it
shall have been distributed to the public pursuant to Rule 144 (or any
successor provision) under the Securities Act; (y) it shall have been sold or
transferred to a Person other than a Designated Transferee in a private
transaction effected other than pursuant to a registration statement; or (z)
it shall have been sold, transferred or otherwise disposed of in violation of
this Agreement.
"Registration Expenses" shall have the meaning set forth in Section 7(a)
hereof.
"SEC" shall mean the Securities and Exchange Commission or any successor
agency thereto.
"Securities Act" shall mean the Securities Act of 1933, as amended.
<PAGE>
2. INCIDENTAL REGISTRATIONS
(a) RIGHT TO INCLUDE REGISTRABLE SHARES. Each time Track 'n Trail shall
determine to file a registration statement under the Securities Act in
connection with a proposed offer and sale for cash of any equity securities
(other than an offering of debt securities that are convertible into equity
securities, an offering of equity securities in an amount not in excess of
five percent (5%) of the number of shares of Common Stock outstanding at such
time, or an offering of equity securities solely pursuant to an employee
stock option plan or other employee benefit plan registered on Form S-8 or
any similar form under the Securities Act) either by it or by any holders of
its outstanding equity securities, Track 'n Trail will give prompt written
notice of its determination to each Holder and of such Holder's rights under
this Section 2, at least thirty (30) days prior to the anticipated filing
date of such registration statement. Upon the written request of each Holder
made within twenty-one (21) days after the receipt of any such notice from
Track 'n Trail (which request shall specify the Registrable Shares intended
to be disposed of by such Holder), Track 'n Trail will use its best efforts
to effect the registration under the Securities Act of all Registrable Shares
that Track 'n Trail has been so requested to register by the Holders thereof,
to the extent required to permit the disposition of the Registrable Shares so
to be registered; PROVIDED, HOWEVER, that (i) if, at any time after giving
written notice of its intention to register any securities and prior to the
effective date of the registration statement filed in connection with such
registration, Track 'n Trail shall determine for any reason not to proceed
with the proposed registration of the securities to be sold by it, Track 'n
Trail may, at its election, give written notice of such determination to each
Holder of Registrable Shares and thereupon shall be relieved of its
obligation to register any Registrable Shares in connection with such
registration (but not from its obligation to pay the Registration Expenses in
connection therewith), and (ii) if such registration involves an underwritten
offering, all Holders of Registrable Shares requesting to be included in
Track 'n Trail's registration must sell their Registrable Shares to the
underwriters on the same terms and conditions as apply to Track 'n Trail,
with such differences, including any with respect to indemnification and
liability insurance, as may be customary or appropriate in combined primary
and secondary offerings. If a registration requested pursuant to this
Section 2(a) involves an underwritten public offering, any Holder of
Registrable Shares requesting to be included in such registration may elect,
in writing prior to the effective date of the registration statement filed in
connection with such registration, not to register such securities in
connection with such registration. No registration effected under this
Section 2 shall relieve Track 'n Trail of its obligations to effect
registrations upon request under Section 4 hereof.
(b) PRIORITY IN INCIDENTAL REGISTRATION. If a registration pursuant to
this Section 2 involves an underwritten offering and the managing
underwriter(s) in good faith advise(s) Track 'n Trail in writing that, in its
opinion, the number of securities that Track 'n Trail, the Holders and any
other Persons intend to include in such registration exceeds the largest
number of securities that can be sold in such offering without having an
adverse effect on such offering (including the price at which such securities
can be sold), then Track 'n Trail will include in such registration (i)
first, if the registration pursuant to this Section 2 was initiated by Other
Holders exercising demand registration rights, one hundred percent (100%) of
the securities such Other Holders propose to sell (except to the extent the
terms of such Other Holders' registration rights provide otherwise); (ii)
second, one hundred percent (100%) of the securities Track 'n Trail proposes
to sell for its own account; iii) third, to the extent that the number of
securities that such Other Holders exercising
<PAGE>
demand registration rights and Track 'n Trail propose to sell is less than
the number of securities that Track 'n Trail has been advised can be sold in
such offering without having the adverse effect referred to above, such
number of Registrable Shares that the Holders have requested to be included
in such registration pursuant to Section 2(a) hereof and which, in the
opinion of such managing underwriter(s), can be sold without having the
adverse effect referred to above (provided that if the number of Registrable
Shares requested to be registered pursuant to Section 2(a) hereof exceeds the
number that Track 'n Trail has been advised can be sold in such offering
without having the adverse effect referred to above, the number of such
Registrable Shares to be included in such registration by the Holders shall
be allocated pro rata among such Holders on the basis of the relative number
of Registrable Shares each such Holder has requested to be included in such
registration); and (iv) fourth, to the extent that the number of securities
that are to be included in such registration pursuant to clauses (i), (ii)
and (iii) is, in the aggregate, less than the number of securities that Track
'n Trail has been advised can be sold in such offering without having the
adverse effect referred to above, such number of other securities requested
to be included in the offering for the account of any Other Holders that, in
the opinion of such managing underwriter(s), can be sold without having the
adverse effect referred to above (provided that if the number of such
securities of such Other Holder requested to be registered exceeds the number
that Track 'n Trail has been advised can be sold in such offering without
having the adverse effect referred to above, the number of such securities to
be included in such registration pursuant to this Section 2(b) shall be
allocated pro rata among all such Other Holders on the basis of the relative
number of securities each such Other Holder has requested to be included in
such registration).
3. HOLDBACK AGREEMENTS.
(a) If any registration of Registrable Shares shall be in connection
with an underwritten public offering, the Holders shall not effect any public
sale or distribution (except in connection with such public offering), of any
equity securities of Track 'n Trail, or of any security convertible into or
exchangeable or exercisable for any equity security of Track 'n Trail (in
each case, other than as part of such underwritten public offering), during
the ninety- (90-) day period (or such lesser period as the managing
underwriter(s) may permit) beginning on the effective date of such
registration, if, and to the extent, the managing underwriter(s) of any such
offering determine(s) such action is necessary or desirable to effect such
offering; PROVIDED, HOWEVER, that each Holder has received the written notice
required by Section 2(a) hereof; PROVIDED, HOWEVER, that each Holder shall
not be obligated to comply with such restrictions arising as a result of an
underwritten public offering subject to Section 2 hereof more than once in
any 12-month period; and PROVIDED, FURTHER, that no Holder owning less than
five percent (5%) of the outstanding shares of Track 'n Trail shall be
obligated to comply with such restrictions if such Holder is not including
shares for sale in such offering.
(b) If any registration of Registrable Shares shall be in connection
with any underwritten public offering, Track 'n Trail shall not effect any
public sale or distribution (except in connection with such public offering)
of any of its equity securities or of any security convertible into or
exchangeable or exercisable for any of its equity securities (in each case
other than as part of such underwritten public offering) during the ninety-
(90-) day period (or such lesser period as the managing underwriter(s) may
permit) beginning on the effective date of such registration, and Track 'n
Trail shall use its best efforts to cause
<PAGE>
each member of the management of Track 'n Trail who holds any equity security
and each other holder of five percent (5%) or more of the outstanding shares
of any equity security, or of any security convertible into or exchangeable
or exercisable for any equity security, of Track 'n Trail purchased from
Track 'n Trail (at any time other than in a public offering) to so agree.
4. REGISTRATION ON REQUEST.
(a) REQUEST BY HOLDERS. Upon the written request of the Holders of at
least ten percent (10%) of the Registrable Shares (based on the number in
clause (i) of the definition thereof) that Track 'n Trail effect the
registration under the Securities Act of all or part of such Holders'
Registrable Shares, and specifying the amount (which shall not be less than
ten percent (10%) of the Registrable Shares (based on the number in clause
(i) of its definition) in the aggregate) and the intended method of
disposition thereof, Track 'n Trail will promptly give notice of such
requested registration to all other Holders of Registrable Shares and, as
expeditiously as possible, use its best efforts to effect the registration
under the Securities Act of: (i) the Registrable Shares that Track 'n Trail
has been so requested to register by Holders of at least ten percent (10%) of
the Registrable Shares; and (ii) all other Registrable Shares that Track 'n
Trail has been requested to register by any other Holder thereof by written
request received by Track 'n Trail within twenty-one (21) days after the
giving of such written notice by Track 'n Trail (which request shall specify
the intended method of disposition of such Registrable Shares); PROVIDED,
HOWEVER, that Track 'n Trail shall not be required to effect more than three
(3) registrations pursuant to this Section 4; PROVIDED, FURTHER, that Track
'n Trail shall not be obligated to file a registration statement relating to
a registration request under this Section 4 (x) if the registration request
is delivered after delivery of a notice by Track 'n Trail of an intended
registration and prior to the effective date of the registration statement
referred to in such notice, (y) within a period of ninety (90) days after the
effective date of any other registration statement of Track 'n Trail
requested by a Holder pursuant to this Section 4 or pursuant to which any
Holder included Registrable Shares, or (z) if the Board of Directors of Track
'n Trail determines in good faith that, in view of the advisability of
deferring public disclosure of material corporate developments, such
registration and the disclosure required to be made in connection therewith
would not be in the best interests of Track 'n Trail at such time or that, in
light of other factors and considerations (including without limitation the
pendency of a presently effective registration statement initiated by Track
'n Trail), such registration would be seriously detrimental to Track 'n Trail
(in which event Track 'n Trail's obligation to file a registration statement
under this Section 4 shall be deferred for a period not to exceed ninety (90)
days from the receipt of the registration request). The Holders initially
requesting a registration pursuant to this Section 4 may, at any time prior
to the effective date of the registration statement relating to such
registration, revoke such request by providing a written notice to Track 'n
Trail revoking such request; PROVIDED, HOWEVER, that, in the event the
Holders shall have made a written request for a demand registration (I) that
is subsequently withdrawn by the Holders after Track 'n Trail has filed a
registration statement with the SEC in connection therewith but prior to such
demand registration being declared effective by the SEC or (II) that is not
declared effective solely as a result of the failure of Holders to take all
actions reasonably required in order to have the registration and the related
registration statement declared effective by the SEC, then, in any such
event, such demand registration shall be counted as a demand registration for
purposes of this Section 4(a). Promptly after the expiration of the
twenty-one- (21-) day period referred to in
<PAGE>
clause (ii) above, Track 'n Trail will notify all the Holders to be included
in the registration of the other Holders and the number of shares of
Registrable Shares requested to be included therein.
(b) REGISTRATION STATEMENT FORM. If any registration requested pursuant
to this Section 4 that is proposed by Track 'n Trail to be effected by the
filing of a registration statement on Form S-3 (or any successor or similar
short-form registration statement) shall be in connection with an
underwritten public offering, and if the managing underwriter(s) shall advise
Track 'n Trail in writing that, in its opinion, the use of another form of
registration statement is of material importance to the success of such
proposed offering, then such registration shall be effected on such other
form.
(c) EFFECTIVE REGISTRATION STATEMENT. A registration requested
pursuant to this Section 4 will not be deemed to have been effected unless it
has become effective under the Securities Act and has remained effective for
two hundred seventy (270) days or such shorter period as all the Registrable
Shares included in such registration have actually been sold thereunder. In
addition, if within one hundred eighty (180) days after it has become
effective, the offering of Registrable Shares pursuant to such registration
is interfered with by any stop order, injunction or other order or
requirement of the SEC or other governmental agency or court, such
registration will be deemed not to have been effected for purposes of this
Section 4.
(d) PRIORITY IN REQUESTED REGISTRATIONS. If a requested registration
pursuant to this Section 4 involves an underwritten offering and the managing
underwriter(s) in good faith advise(s) Track 'n Trail in writing that, in its
opinion, the number of securities requested to be included in such
registration (including securities of Track 'n Trail that are not Registrable
Shares) exceeds the largest number of securities that can be sold in such
offering without having an adverse effect on such offering (including the
price at which such securities can be sold), then Track 'n Trail will include
in such registration (i) first, one hundred percent (100%) of the Registrable
Shares requested to be registered pursuant to Section 4(a) hereof (provided
that if the number of Registrable Shares requested to be registered pursuant
to Section 4(a) hereof exceeds the number that Track 'n Trail has been
advised can be sold in such offering without having the adverse effect
referred to above, the number of such Registrable Shares to be included in
such registration by the Holders shall be allocated pro rata among such
Holders on the basis of the relative number of Registrable Shares each such
Holder has requested to be included in such registration); (ii) second, to
the extent that the number of Registrable Shares requested to be registered
pursuant to Section 4(a) hereof is less than the number of securities that
Track 'n Trail has been advised can be sold in such offering without having
the adverse effect referred to above, such number of shares of equity
securities Track 'n Trail requests to be included in such registration, and
(iii) third, to the extent that the number of Registrable Shares requested to
be included in such registration pursuant to Section 4(a) hereof and the
securities that Track 'n Trail proposes to sell for its own account are, in
the aggregate, less than the number of equity securities that Track 'n Trail
has been advised can be sold in such offering without having the adverse
effect referred to above, such number of other securities proposed to be sold
by any Other Holder that, in the opinion of such managing underwriter(s), can
be sold without having the adverse effect referred to above (provided that if
the number of such securities of such Other Holder requested to be registered
exceeds the number that Track 'n Trail has been advised can be sold in such
offering without having the adverse effect
<PAGE>
referred to above, the number of such securities to be included in such
registration pursuant to this Section 4(d) shall be allocated pro rata among
all such Other Holders on the basis of the relative number of securities each
such Other Holder has requested to be included in such registration).
(e) ADDITIONAL RIGHTS. If Track 'n Trail at any time grants to any
other holders of equity securities of Track 'n Trail any rights to request
Track 'n Trail to effect the registration of any such shares of equity
securities on terms more favorable to such holders than the terms set forth
in this Section 4 and in Section 5 hereof, the terms of this Section 4 and of
Section 5 hereof shall be deemed amended or supplemented to the extent
necessary to provide the Holders such more favorable rights and benefits. In
no event shall Track 'n Trail grant to any person any rights to request Track
'n Trail to effect the registration of any shares of equity securities of
Track 'n Trail on terms that are adverse to rights of the Holders set forth
in Section 2 and this Section 4.
5. REGISTRATION PROCEDURES.
(a) If and whenever Track 'n Trail is required by the provisions of
Section 2 or 4 hereof to use its best efforts to effect or cause the
registration of Registrable Shares, Track 'n Trail shall as expeditiously as
possible:
(i) prepare and, in any event within sixty (60) days after the
end of the period within which a request for registration may be given
to Track 'n Trail, file with the SEC a registration statement with
respect to such Registrable Shares and use its best efforts to cause
such registration statement to become effective;
(ii) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for a period not in excess of 270 days and to
comply with the provisions of the Securities Act, the Exchange Act,
and the rules and regulations promulgated thereunder with respect to
the disposition of all the securities covered by such registration
statement during such period in accordance with the intended methods
of disposition by the Holders thereof set forth in such registration
statement; PROVIDED, HOWEVER, that (A) before filing a registration
statement (including an initial filing) or prospectus, or any
amendments or supplements thereto, Track 'n Trail will furnish to one
counsel selected by the Holders of a majority of the Registrable
Shares covered by such registration statement copies of all documents
proposed to be filed, which documents will be subject to the review
and comment of such counsel, and (B) Track 'n Trail will notify each
Holder of Registrable Shares covered by such registration statement of
any stop order issued or threatened by the SEC, any other order
suspending the use of any preliminary prospectus or of the suspension
of the qualification of the registration statement for offering or
sale in any jurisdiction, and take all reasonable actions required to
prevent the entry of such stop order, other order or suspension or to
remove it if entered;
<PAGE>
(iii) furnish to each Holder and each underwriter, if
applicable, of Registrable Shares covered by such registration
statement such number of copies of the registration statement and of
each amendment and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus included in such
registration statement (including each preliminary prospectus and
summary prospectus), in conformity with the requirements of the
Securities Act, and such other documents as each Holder of Registrable
Shares covered by such registration statement may reasonably request
in order to facilitate the disposition of the Registrable Shares by
such Holder;
(iv) use its best efforts to register or qualify such
Registrable Shares covered by such registration statement under the
state securities or blue sky laws of such jurisdictions as each Holder
of Registrable Shares covered by such registration statement and, if
applicable, each underwriter, may reasonably request, and do any and
all other acts and things that may be reasonably necessary to
consummate the disposition in such jurisdictions of the Registrable
Shares owned by such Holder, except that Track 'n Trail shall not for
any purpose be required to qualify generally to do business as a
foreign corporation in any jurisdiction where, but for the
requirements of this clause (iv), it would not be obligated to be so
qualified;
(v) use its best efforts to cause such Registrable Shares
covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable the Holders thereof to consummate the disposition
of such Registrable Shares;
(vi) if at any time when a prospectus relating to the
Registrable Shares is required to be delivered under the Securities
Act, any event shall have occurred as the result of which any such
prospectus as then in effect would include an untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading,
immediately give written notice thereof to each Holder and the
managing underwriter or underwriters, if any, of such Registrable
Shares and prepare and furnish to each such Holder a reasonable number
of copies of an amended or supplemental prospectus as may be necessary
so that, as thereafter delivered to the purchasers of such Registrable
Shares, such prospectus shall not include an untrue statement of
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading;
(vii) use its best efforts to list any portion of such
Registrable Shares not already listed on any securities exchange on
which similar securities of Track 'n Trail are then listed, and enter
into customary agreements including a listing application and
indemnification agreement in customary form, provided that the
applicable listing requirements are satisfied, and provide a transfer
agent and registrar for such Registrable Shares covered by such
registration statement not later than the effective date of such
registration statement;
<PAGE>
(viii) enter into such customary agreements (including an
underwriting agreement in customary form) and take such other actions
as each Holder of Registrable Shares being sold or the underwriter or
underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of such Registrable Shares, including
customary indemnification and opinions;
(ix) use its best efforts to obtain a "cold comfort" letter or
letters from Track 'n Trail's independent public accountants in
customary form and covering matters of the type customarily covered by
"cold comfort" letters as the Holders of the Registrable Shares being
sold or the underwriters retained by such Holders shall reasonably
request;
(x) make available for inspection by representatives of any
Holder of Registrable Shares covered by such registration statement,
by any underwriter participating in any disposition to be effected
pursuant to such registration statement and by any attorney,
accountant or other agent retained by such Holders or any such
underwriter, all financial and other records pertinent corporate
documents and properties of Track 'n Trail and its subsidiaries'
officers, directors and employees to supply all information and
respond to all inquiries reasonably requested by such Holders or any
such representative, underwriter, attorney, accountant or agent in
connection with such registration statement;
(xi) promptly prior to the filing of any document that is to be
incorporated by reference into the registration statement or the
prospectus (after initial filing of the registration statement),
provide copies of such document to counsel to the Holders of
Registrable Shares covered by such registration statement and to the
managing underwriter(s), if any, make Track 'n Trail's representatives
available for discussion of such document and make such changes in
such document prior to the filing thereof as counsel for such Holders
or underwriter(s) may reasonably request;
(xii) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make available to its
security holders, as soon as reasonably practicable after the
effective date of the registration statement, an earning statement
that shall satisfy the provisions of Section 11(a) of the Securities
Act and the rules and regulations promulgated thereunder;
(xiii) not later than the effective date of the applicable
registration statement, use its best efforts to provide a CUSIP number
for any portion of such Registrable Shares not already included in a
CUSIP number for similar securities of Track 'n Trail, and provide the
applicable transfer agents with printed certificates for the
Registrable Shares that are in a form eligible for deposit with the
Depository Trust Company;
(xiv) notify counsel for the Holders of Registrable Shares
included in such registration statement and the managing underwriter
or underwriters, if
<PAGE>
any, immediately and confirm the notice in writing, (A) when the
registration statement, or any post-effective amendment to the registration
statement, shall have become effective, or any supplement or amendment to
the prospectus shall have been filed, (B) of the receipt of any comments
from the SEC and (C) of any request of the SEC to amend the registration
statement or amend or supplement the prospectus or for additional
information; and
(xv) cooperate with each seller of Registrable Shares and each
underwriter, if any, participating in the disposition of such
Registrable Shares and their respective counsel in connection with any
filings required to be made with the NASD.
(b) Each Holder of Registrable Shares hereby agrees that, upon receipt
of any notice from Track 'n Trail of the happening of any event of the type
described in Section 5(a)(vi) hereof, such Holder shall forthwith discontinue
disposition of such Registrable Shares covered by such registration statement
or related prospectus until such Holder's receipt of the copies of the
supplemental or amended prospectus contemplated by Section 5(a)(vi) hereof,
and, if so directed by Track 'n Trail, such Holder will deliver to Track 'n
Trail (at Track 'n Trail's expense) all copies, other than permanent file
copies then in such Holder's possession, of the prospectus covering such
Registrable Shares at the time of receipt of such notice. In the event Track
'n Trail shall give any such notice, the period mentioned in Section 5(a)(ii)
hereof shall be extended by the number of days during the period from and
including the date of the giving of such notice pursuant to Section 5(a)(vi)
hereof and including the date when such Holder shall have received the copies
of the supplemental or amended prospectus contemplated by Section 5(a)(vi)
hereof. If for any other reason the effectiveness of any registration
statement filed pursuant to Section 4 hereof is suspended or interrupted
prior to the expiration of the time period regarding the maintenance of the
effectiveness of such Registration Statement required by Section 5(a)(ii)
hereof so that Registrable Shares may not be sold pursuant thereto, the
applicable time period shall be extended by the number of days equal to the
number of days during the period beginning with the date of such suspension
or interruption to and ending with the date when the sale of Registrable
Shares pursuant to such registration statement may be recommenced.
(c) Each Holder hereby agrees to provide Track 'n Trail, upon receipt of
its request, with such information about such Holder to enable Track 'n Trail
to comply with the requirements of the Securities Act and to execute such
certificates as Track 'n Trail may reasonably request in connection with such
information and otherwise to satisfy any requirements of law.
6. UNDERWRITTEN REGISTRATIONS. Subject to the provisions of Sections
2, 3 and 4 hereof, any of the Registrable Shares covered by a registration
statement may be sold in an underwritten offering at the discretion of the
Holder thereof. In the case of an underwritten offering pursuant to Section
2 hereof, the managing underwriter(s) that will administer the offering shall
be selected by Track 'n Trail; PROVIDED, HOWEVER, that such managing
underwriter(s) shall be reasonably satisfactory to the Holders of a majority
of the Registrable Shares to be registered. In the case of any underwritten
offering pursuant to Section 4 hereof, the managing underwriter(s) that will
administer the offering shall be selected by the
<PAGE>
Holders of a majority of the Registrable Shares to be registered; PROVIDED,
HOWEVER, that such underwriter(s) shall be reasonably satisfactory to Track
'n Trail.
7. EXPENSES.
(a) Subject to Section 7(b), Track 'n Trail shall pay all fees, costs
and expenses of all registrations pursuant to Sections 2 or 4 hereof,
including all SEC and stock exchange or NASD registration and filing fees and
expenses, reasonable fees and expenses of any "qualified independent
underwriter" and its counsel as may be required by the rules of the NASD,
fees and expenses of compliance with securities or blue sky laws (including
reasonable fees and disbursements of counsel for the underwriters, if any, in
connection with blue sky qualifications of the Registrable Shares), rating
agency fees, printing expenses (including expenses of printing certificates
for Registrable Shares and prospectuses), messenger, telephone and delivery
expenses, the fees and expenses incurred in connection with the listing of
the securities to be registered on each securities exchange or national
market system on which similar securities issued by Track 'n Trail are then
listed, fees and disbursements of counsel for Track 'n Trail and all
independent certified public accountants (including the expenses of any
annual audit, special audit and "cold comfort" letters required by or
incident to such performance and compliance), the fees and disbursements of
the underwriters customarily paid by issuers or sellers of securities
(including expenses relating to "road shows" and other marketing activities),
the reasonable fees and expenses of special experts required to be retained
by Track 'n Trail in connection with such registration, and the reasonable
fees and expenses of other Persons required to be retained by Track 'n Trail
(collectively, "Registration Expenses").
(b) The Holders shall pay the following: (i) any underwriting discounts
or commissions or transfer taxes, if any, attributable to the sale of
Registrable Shares by the Holders pursuant to this Agreement and (ii) all
fees, costs and expenses of counsel to the Holders in connection with any
registration pursuant to this Agreement.
8. INDEMNIFICATION.
(a) INDEMNIFICATION BY TRACK 'N TRAIL. In the event of any registration
of any securities of Track 'n Trail under the Securities Act pursuant to
Section 2 or 4 hereof, Track 'n Trail will, and it hereby does, indemnify and
hold harmless, to the extent permitted by law, each of the Holders of any
Registrable Shares covered by such registration statement, each Affiliate of
such Holder (other than Track 'n Trail) and their respective directors and
officers, each other Person who participates as an underwriter in the
offering or sale of such securities and each other Person, if any, who
controls such Holder or any such underwriter within the meaning of the
Securities Act (collectively, the "Indemnified Parties"), against any and all
losses, claims, damages or liabilities, joint or several, and expenses
(including any amounts paid in any settlement effected with Track 'n Trail's
consent, which consent shall not be unreasonably withheld) to which any
Indemnified Party may become subject under the Securities Act, state
securities or blue sky laws, common law or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof,
whether or not such Indemnified Party is a party thereto) or expenses arise
out of or are based upon (i) any untrue statement or alleged untrue statement
of any material fact contained in any registration statement under which such
securities were registered under the Securities Act, any preliminary, final
or summary prospectus contained therein, or any
<PAGE>
amendment or supplement thereof, (ii) any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading or (iii) any violation by Track 'n
Trail of any federal, state or common law rule or regulation applicable to
Track 'n Trail and relating to action required of or inaction by Track 'n
Trail in connection with any such registration, and Track 'n Trail will
reimburse such Indemnified Party for any legal or any other expenses
reasonably incurred by it in connection with investigating or defending any
such loss, claim, liability, action or proceeding; PROVIDED, HOWEVER, that
Track 'n Trail shall not be liable to any Indemnified Party in any such case
to the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of or is based upon any
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement or amendment or supplement thereof or in
any such preliminary, final or summary prospectus in reliance upon and in
conformity with written information with respect to such Holder furnished to
Track 'n Trail by such Holder specifically for use in the preparation
thereof. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such Holder or any Indemnified
Party and shall survive the transfer of such securities by such Holder.
(b) INDEMNIFICATION BY THE HOLDERS AND THE UNDERWRITERS. Track 'n Trail
may require, as a condition to including any Registrable Shares in any
registration statement filed in accordance with Section 2 or 4 hereof, that
Track 'n Trail shall have received an undertaking reasonably satisfactory to
it from the Holders of such Registrable Shares or any underwriter to
indemnify and hold harmless (in the same manner and to the same extent as set
forth in Section 8(a) hereof) Track 'n Trail with respect to any statement or
alleged statement in or omission or alleged omission from such registration
statement, any preliminary, final or summary prospectus contained therein, or
any amendment or supplement, if such statement or alleged statement or
omission or alleged omission was made in reliance upon and in conformity with
written information with respect to the Holders of the Registrable Shares
being registered or such underwriter furnished to Track 'n Trail by such
Holders or such underwriter specifically for use in the preparation of such
registration statement, preliminary, final or summary prospectus or amendment
or supplement, or a document incorporated by reference into any of the
foregoing; PROVIDED, HOWEVER, that no such Holder shall be liable for any
indemnity claims in excess of the amount of the net proceeds received by such
Holder from the sale of Registrable Shares. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
Track 'n Trail or any of the Holders, or any of their respective Affiliates
(other than Track 'n Trail), directors, officers or controlling Persons, and
shall survive the transfer of such securities by such Holder.
(c) NOTICES OF CLAIMS, ETC. Promptly after receipt by an indemnified
party hereunder of written notice of the commencement of any action or
proceeding with respect to which a claim for indemnification may be made
pursuant to this Section 8, such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party, give written
notice to the latter of the commencement of such action; PROVIDED, HOWEVER,
that the failure of the indemnified party to give notice as provided herein
shall not relieve the indemnifying party of its obligations under this
Section 8, except to the extent that the indemnifying party is actually
materially prejudiced by such failure to give notice. In case any such
action is brought against an indemnified party, the indemnifying party will
be entitled to participate in and to assume the defense thereof, with counsel
satisfactory to
<PAGE>
such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation; PROVIDED,
HOWEVER, that the indemnified party shall have the right, at the sole cost
and expense of the indemnifying party, to employ counsel to represent the
indemnified party and its respective controlling persons, directors,
officers, employees or agents who may be subject to liability arising out of
any claim in respect of which indemnity may be sought by the indemnified
party against such indemnifying party under this Section 8 if (i) the
employment of such counsel shall have been authorized in writing by such
indemnifying party in connection with the defense of such action, (ii) the
indemnifying party shall not have promptly employed counsel reasonably
satisfactory to the indemnified party to assume the defense of such action or
counsel, or (iii) any indemnified party shall have reasonably concluded that
there may be defenses available to such indemnified party or its respective
controlling persons, directors, officers, employees or agents which are in
conflict with or in addition to those available to an indemnifying party;
PROVIDED, FURTHER, that the indemnifying party shall not be obligated to pay
for more than the expenses of one firm of separate counsel for the
indemnified party (in addition to the reasonable fees and expenses of one
firm serving as local counsel). No indemnifying party will consent to entry
of any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation.
(d) If the indemnification provided for in this Section 8 shall for any
reason be unavailable to any indemnified party under Section 8(a) or 8(b)
hereof or is insufficient to hold it harmless in respect of any loss, claim,
damage or liability, or any action in respect of any loss, claim, damage or
liability, or any action in respect thereof referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, claim, damage or liability, or
action in respect thereof, (i) in such proportion as shall be appropriate to
reflect the relative benefits received by the indemnified party and
indemnifying party or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) but also the
relative fault of the indemnified party and indemnifying party with respect
to the statements or omissions that resulted in such loss, claim, damage or
liability, or action in respect thereof, as well as any other relevant
equitable considerations. Notwithstanding any other provision of this
Section 8(d), no Holder of Registrable Shares shall be required to contribute
an amount greater than the dollar amount of the net proceeds received by such
Holder with respect to the sale of any such Registrable Shares. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f)
of the Securities Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation.
(e) OTHER INDEMNIFICATION. Indemnification similar to that specified in
the preceding subdivisions of this Section 8 (with appropriate modifications)
shall be given by Track 'n Trail and each Holder of Registrable Shares with
respect to any required registration or other qualification of securities
under any federal or state law or regulation other than the Securities Act.
<PAGE>
(f) NON-EXCLUSIVITY. The obligations of the parties under this Section
8 shall be in addition to any liability that any party may otherwise have to
any other party.
9. RULE 144. Track 'n Trail covenants that it will file in a timely
manner the reports required to be filed by it under the Securities Act and
the Exchange Act and the rules and regulations promulgated thereunder (or, if
Track 'n Trail is not required to file such reports, it will, upon the
request of any Holder of Registrable Shares, make publicly available such
information), and it will take such further action as any Holder of
Registrable Shares may reasonably request, all to the extent required from
time to time to enable such Holder to sell Registrable Shares without
registration under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144 under the Securities Act, as such Rule may be
amended from time to time, or (b) any similar rule or regulation hereafter
adopted by the SEC. Upon the request of any Holder of Registrable Shares,
Track 'n Trail will deliver to such Holder a written statement as to whether
it has complied with such requirements.
10. ASSIGNABILITY. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors and
permitted assigns. Except as provided herein, no party may assign any of its
rights or delegate any of its duties under this Agreement without the express
consent of the other parties hereto. The provisions of this Agreement that
are for the benefit of the parties hereto other than Track 'n Trail shall
also be for the benefit of and enforceable by any subsequent Holder of any
Registrable Shares, subject to the provisions contained herein. Any Holder
may assign any of its rights or delegate any of its duties under this
Agreement, in whole or in part, without any prior consent of Track 'n Trail
only to a Person (a "Designated Transferee") (a) who is a beneficiary of the
Trust pursuant to the terms thereof and who agrees in writing to be bound by
the terms of this Agreement or (b) who is a transferee (whether through
purchase, share exchange, bequest or otherwise) of at least 100,000
Registrable Shares (as presently constituted and subject to subsequent
adjustments for stock splits, stock dividends, reverse stock splits and the
like) and who agrees in writing to be bound by the terms of this Agreement;
PROVIDED in each case that written notice is provided to Track 'n Trail at
the time of or within a reasonable time after such assignment, stating the
name and address of such Designated Transferee and identifying the
Registrable Shares with respect to which such registration rights are being
assigned. Any purported assignment in violation of this Section 10 shall be
void.
11. NOTICES. Any and all notices, designations, consents, offers,
acceptances or any other communications shall be given in writing by either
(a) personal delivery to and receipted for by the addressee or by (b)
telecopy or registered or certified mail that shall be addressed, in the case
of Track 'n Trail, to: 4961-A Windplay Drive, El Dorado Hills, California
95672; in the case of Holders, to the address or addresses thereof appearing
on the books of Track 'n Trail or of the transfer agent and registrar for its
Common Stock. All such notices and communications shall be deemed to have
been duly given and effective: when delivered by hand, if personally
delivered; two business days after being deposited in the mail, postage
prepaid, if mailed; and when receipt is acknowledged, if telecopied.
12. NO INCONSISTENT AGREEMENTS. Track 'n Trail will not hereafter enter
into any agreement with respect to its securities that is inconsistent with
the rights granted to the Holders in this Agreement.
<PAGE>
13. SPECIFIC PERFORMANCE. Track 'n Trail acknowledges that the rights
granted to the Holders in this Agreement are of a special, unique and
extraordinary character, and that any breach of this Agreement by Track 'n
Trail could not be compensated for by damages. Accordingly, if Track 'n
Trail breaches its obligations under this Agreement, the Holders shall be
entitled, in addition to any other remedies that they may have, to
enforcement of this Agreement by a decree of specific performance requiring
Track 'n Trail to fulfill its obligations under this Agreement. Track 'n
Trail consents to personal jurisdiction in any such action brought in the
United States District Court for the Northern District of California or any
such other court and to service of process upon it in the manner set forth in
Section 11 hereof.
14. SEVERABILITY. If any provision of this Agreement or any portion
thereof is finally determined by a court of competent jurisdiction to be
unlawful or unenforceable, such provision or portion thereof shall in no way
affect any other provision of this Agreement, the application of any such
provision and any other circumstances, and any portion of such invalidated
provision that is not invalidated by such a determination shall remain in
full ofrce and effect.
15. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which,
together, shall constitute one and the same instrument.
16. DEFAULTS. A default by any party to this Agreement in such party's
compliance with any of the conditions or covenants hereof or performance of
any of the obligations of such party hereunder shall not constitute a default
by any other party.
17. AMENDMENTS, WAIVERS. This Agreement may not be amended, modified or
supplemented and no waivers of or consents to or departures from the
provisions hereof may be given unless consented to in writing by Track 'n
Trail and the holders of a majority of the Registrable Shares; PROVIDED,
HOWEVER, that no such amendment, supplement, modification or waiver shall
deprive any Holder of any rights under Section 2 or 4 hereof without the
consent of such Holder.
18. CONSTRUCTION. The captions contained in this Agreement are for
reference purposes only and shall not constitute a part of this Agreement.
Unless the context requires otherwise, the use of the masculine shall include
the feminine, and the use of the singular shall include the plural. The word
"including" shall mean "including, without limitation."
19. ATTORNEYS' FEES. In any action or proceeding brought to enforce any
provision of this Agreement, or where any provision hereof is validly
asserted as a defense, the successful party shall be entitled to recover
reasonable attorneys' fees in addition to any other available remedy.
20. THIRD PARTY BENEFICIARIES. Except as expressly provided in this
Agreement, the parties hereto intend that this Agreement shall not benefit or
create any right or cause of action in or on behalf of any person other than
the parties hereto.
21. ENTIRE AGREEMENT. This Agreement contains the entire agreement
among the parties hereto with respect to the transactions contemplated herein
and understandings
<PAGE>
among the parties relating to the subject matter hereof (other than that
certain Stockholders' Agreement of even date herewith among the Suechtings).
Any and all previous agreements and understandings between or among the
parties hereto regarding the subject matter hereof are, whether written or
oral, superseded by this Agreement.
22. GOVERNING LAW. This Agreement is made pursuant to and shall be
construed in accordance with the laws of the State of Delaware without regard
to the conflicts of laws principles of that state.
IN WITNESS WHEREOF, the Suechtings have executed this Agreement, and
Track 'n Trail, Inc. has caused this Agreement to be executed by its duly
authorized officer, as of the date first written above.
TRACK 'N TRAIL, INC.
By
-----------------------------------------
Name
--------------------------------------
Title
--------------------------------------
DAVID L. SUECHTING, JR., AND JACKIE
SUECHTING, CO-TRUSTEES OF THE
SUECHTING FAMILY TRUST
---------------------------------------
David L. Suechting, Jr., Trustee
---------------------------------------
Jackie Suechting, Trustee
--------------------------------------------
Barbara Suechting
--------------------------------------------
Deborah L. Suechting
<PAGE>
Exhibit 5.1
PILLSBURY MADISON & SUTRO LLP
P.O. BOX 7880
SAN FRANCISCO, CA 94120
Tel: (415) 983-1000
Fax: (415) 983-1200
_________, 1997
Track 'n Trail, Inc.
4961-A Windplay Drive
El Dorado Hills, CA 95762
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
We are acting as counsel for Track 'n Trail, Inc., a Delaware corporation
(the "Company"), in connection with the registration under the Securities Act
of 1933, as amended (the "Securities Act"), of 3,136,362 shares of Common
Stock, par value $.01 per share (the "Common Stock"), of the Company
(including 409,090 shares subject to the underwriters' over-allotment option)
to be offered and sold by the Company. In this regard we have participated
in the preparation of a Registration Statement on Form S-1 (File No.
333-23195) relating to such 3,136,362 shares of Common Stock. (Such
Registration Statement, as amended, and including any registration statement
related thereto and filed pursuant to Rule 462(b) under the Securities Act (a
"Rule 462(b) registration statement") is herein referred to as the
"Registration Statement.")
We are of the opinion that the shares of Common Stock to be offered and
sold by the Company (including any shares of Common Stock registered pursuant to
a Rule 462(b) registration statement) have been duly authorized and, when issued
and sold by the Company in the manner described in the Registration Statement
and in accordance with the resolutions adopted by the Board of Directors of the
Company, will be legally issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Registration Statement and in the Prospectus included therein.
Very truly yours,
<PAGE>
Exhibit 10.5
TRACK 'N TRAIL
1996 STOCK OPTION PLAN
(Amended and Restated)
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE 1. INTRODUCTION....................................................1
ARTICLE 2. ADMINISTRATION..................................................1
2.1 Committee Composition...........................................1
2.2 Committee Responsibilities......................................1
ARTICLE 3. SHARES AVAILABLE FOR GRANTS.....................................2
ARTICLE 4. ELIGIBILITY.....................................................2
4.1 General Rules...................................................2
4.2 Incentive Stock Options.........................................2
4.3 Outside Directors...............................................2
4.4 Limits on Options...............................................3
ARTICLE 5. OPTIONS.........................................................3
5.1 Stock Option Agreement..........................................3
5.2 Number of Shares................................................3
5.3 Exercise Price..................................................4
5.4 Exercisability and Term.........................................4
5.5 Effect of Change in Control.....................................4
5.6 Modification or Assumption of Options...........................4
ARTICLE 6. PAYMENT FOR OPTION SHARES.......................................4
6.1 General Rule....................................................4
6.2 Surrender of Stock..............................................4
6.3 Exercise/Sale...................................................5
6.4 Exercise/Pledge.................................................5
6.5 Promissory Note.................................................5
6.6 Other Forms of Payment..........................................5
ARTICLE 7. PROTECTION AGAINST DILUTION.....................................5
7.1 Adjustments.....................................................5
7.2 Reorganizations.................................................6
ARTICLE 8. PAYMENT OF DIRECTOR'S FEES IN SECURITIES........................6
8.1 Effective Date..................................................6
8.2 Elections to Receive NSOs.......................................6
8.3 Number and Terms of NSOs........................................6
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<PAGE>
ARTICLE 9. LIMITATION ON RIGHTS............................................6
9.1 Retention Rights................................................6
9.2 Stockholders' Rights............................................6
9.3 Regulatory Requirements.........................................6
ARTICLE 10. LIMITATION ON PAYMENTS..........................................7
10.1 Basic Rule......................................................7
10.2 Reduction of Payments...........................................7
10.3 Overpayments and Underpayments..................................7
10.4 Related Corporations............................................8
ARTICLE 11. WITHHOLDING TAXES...............................................8
11.1 General.........................................................8
11.2 Share Withholding...............................................8
ARTICLE 12. ASSIGNMENT OR TRANSFER OF OPTIONS...............................8
ARTICLE 13. FUTURE OF THE PLAN..............................................8
13.1 Term of the Plan................................................8
13.2 Amendment or Termination........................................8
ARTICLE 14. DEFINITIONS.....................................................9
14.10 "IPO"......................................................... 10
ARTICLE 15. EXECUTION..................................................... 11
-ii-
<PAGE>
TRACK 'N TRAIL
1996 STOCK OPTION PLAN
(Amended and Restated)
ARTICLE 1. INTRODUCTION.
The Plan was adopted by the Board of Directors of Track 'n Trail, a
California corporation ("TNT") on June 13, 1996, and approved by TNT's
stockholders on June 14, 1996. Effective as of the corporate reorganization of
TNT (the "Reorganization"), the Company became the sponsor of the Plan and
substituted its common shares for that of TNT as the stock subject to the Plan.
The purpose of the Plan is to promote the long-term success of the Company and
the creation of stockholder value by (a) encouraging Key Employees to focus on
critical long-range objectives, (b) encouraging the attraction and retention of
Key Employees with exceptional qualifications and (c) linking Key Employees
directly to stockholder interests through increased stock ownership. The Plan
seeks to achieve this purpose by providing for Options which may constitute
incentive stock options or nonstatutory stock options. This amendment and
restatement of the Plan was approved by the Board on April 16, 1997, and is
subject to approval by the Company's shareholders. The amended and restated
Plan is effective as of the Reorganization.
The Plan shall be governed by, and construed in accordance with, the laws
of the State of Delaware (except their choice-of-law provisions).
ARTICLE 2. ADMINISTRATION.
2.1 COMMITTEE COMPOSITION. The Plan shall be administered by the
Committee. The Committee shall satisfy the requirements of Rule 16b-3 (or its
successor) under the Exchange Act with respect to the grant of Options to
persons who are officers or directors of the Company subject to Section 16 of
the Exchange Act. The Board may also appoint one or more separate committees of
the Board, each composed of one or more directors of the Company who need not
qualify under Rule 16b-3, who may administer the Plan with respect to Key
Employees who are not considered officers or directors of the Company subject to
Section 16 of the Exchange Act, may grant Options under the Plan to such Key
Employees and may determine all terms of such Options.
2.2 COMMITTEE RESPONSIBILITIES. The Committee shall:
(a) Select the Key Employees who are to receive Options under the Plan;
(b) Determine the type, number, vesting requirements and other features and
conditions of such Options;
(c) Interpret the Plan and Options grated thereunder; and
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<PAGE>
(d) Act to correct any defect or omission or reconcile any inconsistency
in the Plan or any Option granted thereunder; and
(e) Make all other decisions relating to the operation of the Plan.
The Committee may adopt such rules or guidelines as it deems appropriate to
implement the Plan. The Committee's determinations under the Plan shall be
final and binding on all persons.
ARTICLE 3. SHARES AVAILABLE FOR GRANTS.
Effective as of the IPO, the aggregate number of Options awarded under the
Plan (exclusive of Section 4.3) shall not exceed 150,000 Common Shares plus the
number of shares that remained available for grant under the Plan as of
April 16, 1997, including any shares subject to any Option granted under the
Plan and outstanding on such date that is terminated prior to exercise. Any
Options that are forfeited, lapse or terminate for any reason before being
exercised, then such options shall again become available for awards under the
Plan.
ARTICLE 4. ELIGIBILITY.
4.1 GENERAL RULES. Only Key Employees (including, without limitation,
independent contractors who are not members of the Board) shall be eligible for
designation as Participants by the Committee. All Outside Directors shall be
eligible for making an election described in Article 8.
4.2 INCENTIVE STOCK OPTIONS. Only Key Employees who are common-law
employees of the Company, a Parent or a Subsidiary shall be eligible for the
grant of ISOs. In addition, a Key Employee who owns more than five percent (5%)
of the total combined voting power of all classes of outstanding stock of the
Company or any of its Parents or Subsidiaries shall not be eligible for the
grant of an ISO unless the requirements set forth in section 422(c)(5) of the
Code are satisfied.
4.3 OUTSIDE DIRECTORS. Outside Directors who are not officers of the
Company, a Parent or Subsidiary shall also be eligible to receive Options as
described in this Section 4.3 on the date the Board has determined to implement
this provision. The number of Shares available for the grant of Options to
Outside Directors pursuant to this Section 4.3 shall equal the number of Shares
to be issued upon the exercise of Options granted hereunder.
(a) Each eligible Outside Director shall automatically be granted
an NSO to purchase 5,000 Common Shares (subject to adjustment under
Article 7) as a result of their initial appointment as an Outside
Director. Following the effective date of this provision, each
eligible Outside Director who will continue serving as a member of the
Board thereafter shall receive an NSO to purchase 1,250 Common Shares
(subject to adjustment under
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<PAGE>
Article 7) upon the conclusion of each regular annual meeting of the
Company's shareholders subsequent to the meeting at which the Shareholders
initially appoint the Outside Director. All such NSOs shall vest and
become exercisable at the rate of twenty-five percent (25%) upon each one
(1) year anniversary of the date the Option is granted to the Outside
Director.
(b) All NSOs granted to an Outside Director under this
Section 4.3 shall become exercisable in full in the event of the
death, total and permanent disability (as defined the Company's long
term disability plan), retirement after age 55, or upon a Change in
Control with respect to the Company.
(c) The Exercise Price under all NSOs granted to an Outside
Director under this Section 4.3 shall be equal to one hundred percent
(100%) of the Fair Market Value of a Common Share on the date of
grant, payable in one of the forms described in Sections 6.1, 6.2, 6.3
and 6.4.
(d) All NSOs granted to an Outside Director under this
Section 4.3 shall terminate on the earlier of:
(i) The 10th anniversary of the date of grant; or
(ii) The date ninety (90) days after the termination of such
Outside Director's service for any reason.
4.4 LIMITS ON OPTIONS. Subject to Article 7, no Key Employee shall receive
Options to purchase Common Shares during any fiscal year covering in excess of
50,000 Common Shares; provided, however, a newly hired Key Employee may receive
Options to purchase up to 75,000 Common Shares during the portion of the fiscal
year remaining after his or her date of hire.
ARTICLE 5. OPTIONS.
5.1 STOCK OPTION AGREEMENT. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms of the Plan and may be
subject to any other terms that are not inconsistent with the Plan, including
but not limited to rights of repurchase and rights of first refusal. The Stock
Option Agreement shall specify whether the Option is an ISO or an NSO. The
provisions of the various Stock Option Agreements entered into under the Plan
need not be identical. Options may be granted in consideration of a cash
payment or in consideration of a reduction in the Optionee's other compensation.
A Stock Option Agreement may provide that new Options will be granted
automatically to the Optionee when he or she exercises the prior Options.
5.2 NUMBER OF SHARES. Each Stock Option Agreement shall specify the number
of Common Shares subject to the Option and shall provide for the adjustment of
such number in accordance with Article 7.
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<PAGE>
5.3 EXERCISE PRICE. Each Stock Option Agreement shall specify the Exercise
Price; provided that the Exercise Price of an ISO shall in no event be less than
one hundred percent (100%) of the Fair Market Value of a Common Share on the
date of grant. In the case of an NSO, a Stock Option Agreement may specify an
Exercise Price that varies in accordance with a predetermined formula while the
NSO is outstanding.
5.4 EXERCISABILITY AND TERM. Each Stock Option Agreement shall specify the
date when all or any installment of the Option is to become exercisable. The
Stock Option Agreement shall also specify the term of the Option; provided that
the term of an ISO shall in no event exceed ten (10) years from the date of
grant. A Stock Option Agreement may provide for accelerated exercisability in
the event of the Optionee's death, disability or retirement or other events and
may provide for expiration prior to the end of its term in the event of the
termination of the Optionee's service.
5.5 EFFECT OF CHANGE IN CONTROL. The Committee may determine, at the time
of granting an Option or thereafter, that such Option shall become fully
exercisable as to all Common Shares subject to such Option in the event that a
Change in Control occurs with respect to the Company.
5.6 MODIFICATION OR ASSUMPTION OF OPTIONS. Within the limitations of the
Plan, the Committee may modify, extend or assume outstanding options or may
accept the cancellation of outstanding options (whether granted by the Company
or by another issuer) in return for the grant of new options for the same or a
different number of shares and at the same or a different exercise price. The
foregoing notwithstanding, no modification of an Option shall, without the
consent of the Optionee, alter or impair his or her rights or obligations under
such Option.
ARTICLE 6. PAYMENT FOR OPTION SHARES.
6.1 GENERAL RULE. The entire Exercise Price for the Common Shares issued
upon exercise of Options shall be payable in cash at the time when such Common
Shares are purchased, except as follows:
(a) In the case of an ISO granted under the Plan, payment shall be
made only pursuant to the express provisions of the applicable Stock Option
Agreement. The Stock Option Agreement may specify that payment may be made
in any form(s) described in this Article 6.
(b) In the case of an NSO, the Committee may at any time accept
payment in any form(s) described in this Article 6.
6.2 SURRENDER OF STOCK. To the extent that this Section 6.2 is applicable,
payment for all or any part of the Exercise Price may be made with Common Shares
which have already been owned by the Optionee for such duration as shall be
specified by the Committee. Such Common Shares shall be valued at their Fair
Market Value on the date when the new Common Shares are purchased under the
Plan.
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<PAGE>
6.3 EXERCISE/SALE. To the extent that this Section 6.3 is applicable,
payment may be made by the delivery (on a form prescribed by the Company) of an
irrevocable direction to a securities broker approved by the Company to sell
Common Shares and to deliver all or part of the sales proceeds to the Company in
payment of all or part of the Exercise Price and any withholding taxes.
6.4 EXERCISE/PLEDGE. To the extent that this Section 6.4 is applicable,
payment may be made by the delivery (on a form prescribed by the Company) of an
irrevocable direction to pledge Common Shares to a securities broker or lender
approved by the Company, as security for a loan, and to deliver all or part of
the loan proceeds to the Company in payment of all or part of the Exercise Price
and any withholding taxes.
6.5 PROMISSORY NOTE. To the extent that this Section 6.5 is applicable,
payment may be made with a full-recourse promissory note; provided that the par
value of the Common Shares shall be paid in cash.
6.6 OTHER FORMS OF PAYMENT. To the extent that this Section 6.6 is
applicable, payment may be made in any other form that is consistent with
applicable laws, regulations and rules.
ARTICLE 7. PROTECTION AGAINST DILUTION.
7.1 ADJUSTMENTS. In the event of a subdivision of the outstanding Common
Shares, a declaration of a dividend payable in Common Shares, a declaration of a
dividend payable in a form other than Common Shares in an amount that has a
material effect on the price of Common Shares, a combination or consolidation of
the outstanding Common Shares (by reclassification or otherwise) into a lesser
number of Common Shares, a recapitalization, a spinoff or a similar occurrence,
the Committee shall make such adjustments as it, in its sole discretion, deems
appropriate and equitable in one or more of:
(a) The number of Options available for future Options under
Article 3;
(b) The number of Options included in awards to Non-Employee Directors
pursuant to Section 4.3;
(c) The number of Common Shares covered by each outstanding Option; or
(d) The Exercise Price under each outstanding Option.
Except as provided in this Article 7, a Participant shall have no rights by
reason of any issue by the Company of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation of shares
of stock of any class, the payment of any stock dividend or any other increase
or decrease in the number of shares of stock of any class.
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<PAGE>
7.2 REORGANIZATIONS. In the event that the Company is a party to a merger
or other reorganization, outstanding Options shall be subject to the agreement
of merger or reorganization. Such agreement may provide, without limitation,
for the assumption of outstanding Options by the surviving corporation or its
parent, for their continuation by the Company (if the Company is a surviving
corporation), for accelerated vesting and accelerated expiration, or for
settlement in cash.
ARTICLE 8. PAYMENT OF DIRECTOR'S FEES IN SECURITIES.
8.1 EFFECTIVE DATE. No provision of this Article 8 shall be effective
unless and until the Board has determined to implement such provision.
8.2 ELECTIONS TO RECEIVE NSOS. An Outside Director may elect to receive
his or her annual retainer payments and meeting fees from the Company in the
form of cash, NSOs, or a combination thereof. Such NSOs shall be issued under
the Plan. An election under this Article 8 shall be filed with the Company on
the prescribed form and subject to such filing deadlines and election procedures
as shall be established by the Committee.
8.3 NUMBER AND TERMS OF NSOS. The number of NSOs to be granted to Outside
Directors in lieu of annual retainers and meeting fees that would otherwise be
paid in cash shall be calculated in a manner determined by the Board. The terms
of such NSOs shall also be determined by the Board.
ARTICLE 9. LIMITATION ON RIGHTS.
9.1 RETENTION RIGHTS. Neither the Plan nor any Award granted under the
Plan shall be deemed to give any individual a right to remain an employee,
consultant or director of the Company, a Parent or a Subsidiary. The Company
and its Parents and Subsidiaries reserve the right to terminate the service of
any employee, consultant or director at any time, and for any reason, subject to
applicable laws, the Company's certificate of incorporation and by-laws and a
written employment agreement (if any).
9.2 STOCKHOLDERS' RIGHTS. A Participant shall have no dividend rights,
voting rights or other rights as a stockholder with respect to any Common Shares
covered by his or her Award prior to the issuance of a stock certificate for
such Common Shares. No adjustment shall be made for cash dividends or other
rights for which the record date is prior to the date when such certificate is
issued, except as expressly provided in Article 7.
9.3 REGULATORY REQUIREMENTS. Any other provision of the Plan
notwithstanding, the obligation of the Company to issue Common Shares under the
Plan shall be subject to all applicable laws, rules and regulations and such
approval by any regulatory body as may be required. The Company reserves the
right to restrict, in whole or in part, the delivery of Common Shares pursuant
to any Award prior to the satisfaction of all legal requirements relating to the
issuance of such Common Shares, to their registration, qualification or listing
or to an exemption from registration, qualification or listing.
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<PAGE>
ARTICLE 10. LIMITATION ON PAYMENTS.
10.1 BASIC RULE. Any provision of the Plan to the contrary
notwithstanding, in the event that the independent auditors most recently
selected by the Board (the "Auditors") determine that any payment or transfer by
the Company under the Plan to or for the benefit of a Participant (a "Payment")
would be nondeductible by the Company for federal income tax purposes because of
the provisions concerning "excess parachute payments" in section 280G of the
Code, then the aggregate present value of all Payments shall be reduced (but not
below zero) to the Reduced Amount; provided that the Committee, at the time of
making an Award under this Plan or at any time thereafter, may specify in
writing that such Award shall not be so reduced and shall not be subject to this
Article 10. For purposes of this Article 10, the "Reduced Amount" shall be the
amount, expressed as a present value, which maximizes the aggregate present
value of the Payments without causing any Payment to be nondeductible by the
Company because of section 280G of the Code.
10.2 REDUCTION OF PAYMENTS. If the Auditors determine that any Payment
would be nondeductible by the Company because of section 280G of the Code, then
the Company shall promptly give the Participant notice to that effect and a copy
of the detailed calculation thereof and of the Reduced Amount, and the
Participant may then elect, in his or her sole discretion, which and how much of
the Payments shall be eliminated or reduced (as long as after such election the
aggregate present value of the Payments equals the Reduced Amount) and shall
advise the Company in writing of his or her election within ten (10) days of
receipt of notice. If no such election is made by the Participant within such
ten (10) day period, then the Company may elect which and how much of the
Payments shall be eliminated or reduced (as long as after such election the
aggregate present value of the Payments equals the Reduced Amount) and shall
notify the Participant promptly of such election. For purposes of this
Article 10, present value shall be determined in accordance with
section 280G(d)(4) of the Code. All determinations made by the Auditors under
this Article 10 shall be binding upon the Company and the Participant and shall
be made within sixty (60) days of the date when a Payment becomes payable or
transferable. As promptly as practicable following such determination and the
elections hereunder, the Company shall pay or transfer to or for the benefit of
the Participant such amounts as are then due to him or her under the Plan and
shall promptly pay or transfer to or for the benefit of the Participant in the
future such amounts as become due to him or her under the Plan.
10.3 OVERPAYMENTS AND UNDERPAYMENTS. As a result of uncertainty in the
application of section 280G of the Code at the time of an initial determination
by the Auditors hereunder, it is possible that Payments will have been made by
the Company which should not have been made (an "Overpayment") or that
additional Payments which will not have been made by the Company could have been
made (an "Underpayment"), consistent in each case with the calculation of the
Reduced Amount hereunder. In the event that the Auditors, based upon the
assertion of a deficiency by the Internal Revenue Service against the Company or
the Participant which the Auditors believe has a high probability of success,
determine that an Overpayment has been made, such Overpayment shall be treated
for all purposes as a loan to the Participant which he or she shall repay to the
Company, together with interest at the applicable federal rate provided in
section 7872(f)(2) of the
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<PAGE>
Code; provided, however, that no amount shall be payable by the Participant to
the Company if and to the extent that such payment would not reduce the amount
which is subject to taxation under section 4999 of the Code. In the event that
the Auditors determine that an Underpayment has occurred, such Underpayment
shall promptly be paid or transferred by the Company to or for the benefit of
the Participant, together with interest at the applicable federal rate provided
in section 7872(f)(2) of the Code.
10.4 RELATED CORPORATIONS. For purposes of this Article 10, the term
"Company" shall include affiliated corporations to the extent determined by the
Auditors in accordance with section 280G(d)(5) of the Code.
ARTICLE 11. WITHHOLDING TAXES.
11.1 GENERAL. To the extent required by applicable federal, state, local
or foreign law, a Participant or his or her successor shall make arrangements
satisfactory to the Company for the satisfaction of any withholding tax
obligations that arise in connection with the Plan. The Company shall not be
required to issue any Common Shares or make any cash payment under the Plan
until such obligations are satisfied.
11.2 SHARE WITHHOLDING. A Participant may satisfy all or part of his or
her withholding or income tax obligations by having the Company withhold all or
a portion of any Common Shares that otherwise would be issued to him or her or
by surrendering all or a portion of any Common Shares that he or she previously
acquired. Such Common Shares shall be valued at their Fair Market Value on the
date when taxes otherwise would be withheld in cash. Any payment of taxes by
assigning Common Shares to the Company may be subject to restrictions imposed by
the Committee.
ARTICLE 12. ASSIGNMENT OR TRANSFER OF OPTIONS.
Except as provided in the Stock Option Agreement, an Option may be
exercised during the lifetime of the Optionee only by him or her or by his or
her guardian or legal representative. This Article 12 shall not preclude a
Participant from designating a beneficiary who will receive any outstanding
Options in the event of the Participant's death, nor shall it preclude a
transfer of Options by will or by the laws of descent and distribution.
ARTICLE 13. FUTURE OF THE PLAN.
13.1 TERM OF THE PLAN. The Plan shall remain in effect until it is
terminated under Section 13.2, except that no ISOs shall be granted after the
tenth anniversary of the adoption of the Plan.
13.2 AMENDMENT OR TERMINATION. The Board may, at any time and for any
reason, amend or terminate the Plan. An amendment of the Plan shall be subject
to the approval of the Company's stockholders only to the extent required by
applicable laws, regulations or rules. No Options shall be granted under the
Plan after the termination thereof. The
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<PAGE>
termination of the Plan, or any amendment thereof, shall not affect any Award
previously granted under the Plan.
ARTICLE 14. DEFINITIONS.
14.1 "BOARD" means the Company's Board of Directors, as constituted from
time to time.
14.2 "CHANGE IN CONTROL" shall be deemed to occur upon any "person" (as
defined in Section 13(d) of the Exchange Act), other than the Company, its
Parent or Subsidiary or employee benefit plan or trust maintained by the
Company, its Parent or Subsidiary, becoming the "beneficial owner" (as defined
in Rule 13d-3 of the Exchange Act), directly or indirectly, of more than 25% of
the Common Shares of the Company outstanding at such time, without the prior
approval of the Board.
14.3 "CODE" means the Internal Revenue Code of 1986, as amended.
14.4 "COMMITTEE" means the full Board and/or a committee of the Board, as
described in Article 2.
14.5 "COMMON SHARE" means one share of the common stock of the Company.
14.6 "COMPANY" means Track 'n Trail, Inc., a Delaware corporation, or its
successor.
14.7 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
14.8 "EXERCISE PRICE" means the amount for which one Common Share may be
purchased upon exercise of such Option, as specified in the applicable Stock
Option Agreement.
14.9 "FAIR MARKET VALUE" means the market price of Common Shares,
determined by the Committee as follows:
(a) If the Common Shares were traded over-the-counter on the date in
question but were not classified as a national market issue, then the Fair
Market Value shall be equal to the mean between the last reported
representative bid and asked prices quoted by the Nasdaq system for such
date;
(b) If the Common Shares were traded over-the-counter on the date in
question and were classified as a national market issue, then the Fair
Market Value shall be equal to the last-transaction price quoted by the
Nasdaq system for such date;
(c) If the Common Shares were traded on a stock exchange on the date
in question, then the Fair Market Value shall be equal to the closing
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<PAGE>
price reported by the applicable composite transactions report for such
date; and
(d) If none of the foregoing provisions is applicable, then the Fair
Market Value shall be determined by the Committee in good faith on such
basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in the Western Edition of THE WALL STREET
JOURNAL. Such determination shall be conclusive and binding on all persons.
14.10 "IPO" means the Company's initial public offering.
14.11 "ISO" means an incentive stock option described in section 422(b) of
the Code.
14.12 "KEY EMPLOYEE" means (a) a common-law employee of the Company, a
Parent or a Subsidiary, (b) an Outside Director and (c) a consultant or adviser
who provides services to the Company, a Parent or a Subsidiary as an independent
contractor.
14.13 "NSO" means a stock option not described in sections 422 or 423 of
the Code.
14.14 "OPTION" means an ISO or NSO granted under the Plan and entitling the
holder to purchase one Common Share.
14.15 "OPTIONEE" means an individual or estate who holds an Option.
14.16 "OUTSIDE DIRECTOR" shall mean a member of the Board who is not a
common-law employee of the Company, a Parent or a Subsidiary.
14.17 "PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns 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 corporation that attains the status of a
Parent on a date after the adoption of the Plan shall be considered a Parent
commencing as of such date.
14.18 "PARTICIPANT" means an individual or estate who holds an Award.
14.19 "PLAN" means the Track 'n Trail 1996 Stock Option Plan, as amended
from time to time.
14.20 "STOCK OPTION AGREEMENT" means the agreement between the Company and
an Optionee which contains the terms, conditions and restrictions pertaining to
his or her Option.
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<PAGE>
14.21 "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing fifty percent (50%) or more of the total combined voting power of all
classes of shares in one of the other corporations in such chain. A corporation
that attains the status of a Subsidiary on a date after the adoption of the Plan
shall be considered a Subsidiary commencing as of such date.
ARTICLE 15. EXECUTION.
To record the adoption of the amended and restated Plan by the Board, the
Company has caused its duly authorized officer to affix the corporate name and
seal hereto.
TRACK 'n TRAIL, INC.
By
--------------------------------
Its
-------------------------------
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<PAGE>
Exibit 10.6
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
TRACK 'N TRAIL
1996 STOCK OPTION PLAN
INCENTIVE STOCK OPTION AGREEMENT
Track 'n Trail, a Delaware corporation (the "Company"), hereby grants an
option to purchase Shares of its common stock to the optionee named below. The
terms and conditions of the option are set forth in this cover sheet, in the
attachment and in the Company's 1996 Stock Option Plan (the "Plan").
Date of Option Grant: __________, 199__
Name of Optionee:
-------------------------------------------------------------
Optionee's Social Security Number: _____-____-_____
Number of Shares of Common Stock Covered by Option:
----------------------------
Exercise Price per Share: $
----------------------------------------------------
Vesting Start Date: __________, 199__
BY SIGNING THIS COVER SHEET, YOU AGREE TO ALL OF THE TERMS AND
CONDITIONS DESCRIBED IN THE ATTACHED AGREEMENT AND IN THE PLAN, A COPY
OF WHICH IS ALSO ENCLOSED.
Optionee:
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(Signature)
Company:
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(Signature)
Title:
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<PAGE>
ATTACHMENT
<PAGE>
TRACK 'N TRAIL
1996 STOCK OPTION PLAN
INCENTIVE STOCK OPTION AGREEMENT
INCENTIVE STOCK This option is intended to be an incentive stock option
OPTION under section 422 of the Internal Revenue Code and will
be interpreted accordingly.
VESTING Your right to exercise this option vests as to 25% of
the shares covered by this option on each one-year
anniversary of the Vesting Start Date, as shown on the
cover sheet. The number of Shares which may be
purchased under this option by you at the Exercise
Price shall be equal to the difference between (i) the
product of the number of one-year anniversaries of your
continuous employment with the Company (including all
days of any approved leaves of absence) from the
Vesting Starting Date times the number of Shares
covered by this option times .25 minus (ii) the number
of Shares purchased pursuant to this Option prior to
such exercise. The resulting number of Shares will be
rounded to the nearest whole number. No additional
Shares will vest after your Company service has
terminated for any reason.
TERM Your option will expire in any event at the close of
business at Company headquarters on the day before the
10th anniversary of the Date of Grant, as shown on the
cover sheet. (It will expire earlier if your Company
service terminates, as described below.)
TERMINATION FOR CAUSE If you terminate employment for cause, the option will
immediately cease to be exercisable.
REGULAR TERMINATION If your service as an employee of the Company (or any
subsidiary) terminates for any reason except for cause,
death or Disability, then your option will expire at
the close of business at Company headquarters on the
90th day after your termination date.
Notwithstanding anything else in this Agreement to the
contrary, in the event that you cease to be employed by
the Company within one year from the Date of Grant for
any reason all rights to purchase shares under this
Option shall immediately terminate.
DEATH If you die as an employee of the Company (or any
subsidiary), then your option will expire at the close
of business at Company headquarters on the date 12
months after the date of death. During that 12-month
period, your estate or heirs may exercise the vested
portion of your option.
<PAGE>
DISABILITY If your service as an employee of the Company (or any
subsidiary) terminates because of your Disability, then
your option will expire at the close of business at
Company headquarters on the date 12 months after your
termination date.
"Disability" means that you are unable to engage in any
substantial gainful activity by reason of any medically
determinable physical or mental impairment.
LEAVES OF ABSENCE For purposes of this option, your service does not
terminate when you go on a BONA FIDE leave of absence
that was approved by the Company in writing, if the
terms of the leave provide for continued service
crediting, or when continued service crediting is
required by applicable law. However, for purposes of
determining whether your option is entitled to ISO
status, your service will be treated as terminating 90
days after you went on leave, unless your right to
return to active work is guaranteed by law or by a
contract. Your service terminates in any event when
the approved leave ends unless you immediately return
to active work.
The Company determines which leaves count for this
purpose, and when your service terminates for all
purposes under the Plan.
RESTRICTIONS ON The Company will not permit you to exercise this
EXERCISE option if the issuance of Shares at that time would
violate any law or regulation.
NOTICE OF EXERCISE When you wish to exercise this option, you must notify
the Company by filing the proper "Notice of Exercise"
form at the address given on the form. Your notice
must specify how many Shares you wish to purchase.
Your notice must also specify how your Shares should be
registered (in your name only or in your and your
spouse's names as community property or as joint
tenants with right of survivorship). The notice will
be effective when it is received by the Company.
If someone else wants to exercise this option after
your death, that person must prove to the Company's
satisfaction that he or she is entitled to do so.
PERIODS OF Any other provision of this Agreement notwithstanding,
NONEXERCISABILITY the Company shall have the right to designate one or
more periods of time, each of which shall not exceed
180 days in length, during which this option shall not
be exercisable if the Company determines (in its sole
discretion) that such limitation on exercise could in
any way facilitate a lessening of any restriction on
transfer pursuant to the Securities Act of 1933, as
amended (the "Securities Act") or any state securities
laws with respect to any issuance of securities by the
Company, facilitate the registration or qualification
of any securities by the Company under the
<PAGE>
Securities Act or any state securities laws, or
facilitate the perfection of any exemption from the
registration or qualification requirements of the
Securities Act or any applicable state securities laws
for the issuance or transfer of any securities. Such
limitation on exercise shall not alter the vesting
schedule set forth in this Agreement other than to
limit the periods during which this option shall be
exercisable.
FORM OF PAYMENT When you submit your notice of exercise, you must
include payment of the option price for the Shares you
are purchasing. Payment may be made in one (or a
combination) of the following forms:
- A cashier's check or a money order.
- Common Shares which have already been owned by you
for any time period specified by the Committee and
which are surrendered to the Company. The value
of the Shares, determined as of the effective date
of the option exercise, will be applied to the
option price.
- To the extent that a public market for the Shares
exists as determined by the Company, by delivery
(on a form prescribed by the Committee) of an
irrevocable direction to a securities broker to
sell Shares and to deliver all or part of the sale
proceeds to the Company in payment of the
aggregate Exercise Price.
WITHHOLDING TAXES You will not be allowed to exercise this option
unless you make acceptable arrangements to pay any
withholding or other taxes that may be due as a
result of the option exercise or the sale of
shares acquired upon exercise of this option and
the sale of the shares.
RESTRICTIONS ON RESALE By signing this Agreement, you agree not to sell
any option Shares at a time when applicable laws,
regulations or Company or underwriter trading
policies prohibit a sale. In connection with any
underwritten public offering by the Company of its
equity securities pursuant to an effective
registration statement filed under the Securities
Act, including the Company's initial public
offering, you agree not to sell, make any short
sale of, loan, hypothecate, pledge, grant any
option for the purchase of, or otherwise dispose
or transfer for value or agree to engage in any of
the foregoing transactions with respect to any
shares without the prior written consent of the
Company or its underwriters, for such period of
time after the effective date of such registration
statement as may be requested by the Company or
such underwriters.
<PAGE>
In order to enforce the provisions of this
paragraph, the Company may impose stop-transfer
instructions with respect to the shares until the
end of the applicable stand-off period.
You represent and agree that the Shares to be
acquired upon exercising this option will be
acquired for investment, and not with a view to
the sale or distribution thereof.
In the event that the sale of Shares under the
Plan is not registered under the Securities Act
but an exemption is available which requires an
investment representation or other representation,
you shall represent and agree at the time of
exercise that the Shares being acquired upon
exercising this option are being acquired for
investment, and not with a view to the sale or
distribution thereof, and shall make such other
representations as are deemed necessary or
appropriate by the Company and its counsel.
THE COMPANY'S In the event that you propose to sell, pledge or
RIGHT OF FIRST otherwise transfer to a third party any Shares
REFUSAL acquired under this Agreement, or any interest in
such Shares, the Company shall have the "Right of
First Refusal" with respect to all (and not less
than all) of such Shares. If you desire to
transfer Shares acquired under this Agreement, you
must give a written "Transfer Notice" to the
Company describing fully the proposed transfer,
including the number of Shares proposed to be
transferred, the proposed transfer price and the
name and address of the proposed transferee. The
Transfer Notice shall be signed both by you and by
the proposed new transferee and must constitute a
binding commitment of both parties to the transfer
of the Shares. The Company shall have the right
to purchase all, and not less than all, of the
Shares on the terms of the proposal described in
the Transfer Notice (subject, however, to any
change in such terms permitted in the next
paragraph) by delivery of a notice of exercise of
the Right of First Refusal within 30 days after
the date when the Transfer Notice was received by
the Company. The Company's rights under this
Subsection shall be freely assignable, in whole or
in part.
If the Company fails to exercise its Right of
First Refusal within 30 days after the date when
it received the Transfer Notice, you may, not
later than 90 days following receipt of the
Transfer Notice by the Company, conclude a
transfer of the Shares subject to the Transfer
Notice on the terms and conditions described in
the Transfer Notice. Any proposed transfer on
terms and conditions different from those
described in the Transfer Notice, as well as any
subsequent proposed transfer by you, shall again
be subject to the Right of First Refusal and shall
require compliance with the procedure described in
the paragraph above. If the Company exercises its
Right of First Refusal, the parties shall
consummate the sale of the Shares on the terms set
forth in
<PAGE>
the Transfer Notice within 60 days after the date
when the Company received the Transfer Notice (or
within such longer period as may have been
specified in the Transfer Notice); provided,
however, that in the event the Transfer Notice
provided that payment for the Shares was to be
made in a form other than lawful money paid at the
time of transfer, the Company shall have the
option of paying for the Shares with lawful money
equal to the present value of the consideration
described in the Transfer Notice.
The Company's Right of First Refusal shall inure
to the benefit of its successors and assigns and
shall be binding upon any transferee of the
Shares.
The Company's Right of First Refusal shall
terminate in the event that Stock is listed on an
established stock exchange or is quoted regularly
on the Nasdaq National Market.
RIGHT OF REPURCHASE Following termination of your employment for any
reason, the Company shall have the right to
purchase all of those Shares that you have or will
acquire under this option. If the Company
exercises its right to purchase such Shares, the
purchase price shall be the higher of the Fair
Market Value of those Shares on the date of
purchase or the aggregate Exercise Price for those
Shares and shall be paid in cash. The Company
will notify you of its intention to purchase such
shares, and will consummate the purchase within
the period established by applicable law. The
Company's right of repurchase shall terminate in
the event that Stock is listed on an established
stock exchange or is quoted regularly on the
Nasdaq National Market.
TRANSFER OF OPTION Prior to your death, only you may exercise this
option. You cannot transfer or assign this
option. For instance, you may not sell this
option or use it as security for a loan. If you
attempt to do any of these things, this option
will immediately become invalid. You may,
however, dispose of this option in your will.
Regardless of any marital property settlement
agreement, the Company is not obligated to honor a
notice of exercise from your spouse or former
spouse, nor is the Company obligated to recognize
such individual's interest in your option in any
other way.
RETENTION RIGHTS Your option or this Agreement do not give you the
right to be retained by the Company (or any
subsidiaries) in any capacity. The Company (and
any subsidiaries) reserve the right to terminate
your service at any time and for any reason.
SHAREHOLDER RIGHTS You, or your estate or heirs, have no rights as a
shareholder of the Company until a certificate for
your option Shares has been issued. No
adjustments are made for dividends or other rights
if
<PAGE>
the applicable record date occurs before your
stock certificate is issued, except as described
in the Plan.
ADJUSTMENTS In the event of a stock split, a stock dividend or
a similar change in the Company stock, the number
of Shares covered by this option and the exercise
price per share may be adjusted pursuant to the
Plan. Your option shall be subject to the terms
of the agreement of merger, liquidation or
reorganization in the event the Company is subject
to such corporate activity.
LEGENDS All certificates representing the Shares issued
upon exercise of this option shall, where
applicable, have endorsed thereon the following
legends:
"THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND OPTIONS TO
PURCHASE SUCH SHARES SET FORTH IN AN
AGREEMENT BETWEEN THE COMPANY AND THE
REGISTERED HOLDER, OR HIS OR HER
PREDECESSOR IN INTEREST. A COPY OF SUCH
AGREEMENT IS ON FILE AT THE PRINCIPAL
OFFICE OF THE COMPANY AND WILL BE
FURNISHED UPON WRITTEN REQUEST TO THE
SECRETARY OF THE COMPANY BY THE HOLDER
OF RECORD OF THE SHARES REPRESENTED BY
THIS CERTIFICATE."
"THE SHARES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, PLEDGED, OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION
THEREOF UNDER SUCH ACT OR AN OPINION OF
COUNSEL, SATISFACTORY TO THE COMPANY AND
ITS COUNSEL, THAT SUCH REGISTRATION IS
NOT REQUIRED."
APPLICABLE LAW This Agreement will be interpreted and
enforced under the laws of the State of
California.
THE PLAN AND OTHER The text of the Plan is incorporated in this
AGREEMENTS Agreement by reference. Certain capitalized
terms used in this Agreement are defined in
the Plan.
This Agreement and the Plan constitute the
entire understanding between you and the
Company regarding this option. Any prior
<PAGE>
agreements, commitments or negotiations
concerning this option are superseded.
BY SIGNING THE COVER SHEET OF THIS AGREEMENT, YOU AGREE TO ALL OF THE TERMS AND
CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.
<PAGE>
Exhibit 10.7
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
TRACK 'N TRAIL
1996 STOCK OPTION PLAN
NONSTATUTORY STOCK OPTION AGREEMENT
Track 'n Trail, a Delaware corporation (the "Company"), hereby grants an
option to purchase Shares of its common stock to the optionee named below. The
terms and conditions of the option are set forth in this cover sheet, in the
attachment and in the Company's 1996 Stock Option Plan (the "Plan").
Date of Option Grant: __________, 199__
Name of Optionee: _____________________________________________________________
Optionee's Social Security Number: _____-____-_____
Number of Shares of Common Stock Covered by Option: __________________________
Exercise Price per Share: $___________________________________________________
Vesting Start Date: __________, 199__
BY SIGNING THIS COVER SHEET, YOU AGREE TO ALL OF THE TERMS AND
CONDITIONS DESCRIBED IN THE ATTACHED AGREEMENT AND IN THE PLAN, A COPY
OF WHICH IS ALSO ENCLOSED.
Optionee:
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(Signature)
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TRACK 'N TRAIL
1996 STOCK OPTION PLAN
NONSTATUTORY STOCK OPTION AGREEMENT
NONSTATUTORY This option is not intended to be an incentive stock
STOCK OPTION option under section 422 of the Internal Revenue Code and
will be interpreted accordingly.
VESTING Your right to exercise this option vests as to 25% of
the shares covered by this option on each one-year
anniversary of the Vesting Start Date, as shown on the
cover sheet. The number of Shares which may be
purchased under this option by you at the Exercise
Price shall be equal to the difference between (i) the
product of the number of one-year anniversaries of
your continuous employment with the Company (including
all days of any approved leaves of absence) from the
Vesting Starting Date times the number of Shares
covered by this option times .25 minus (ii) the number
of Shares purchased pursuant to this Option prior to
such exercise. The resulting number of Shares will be
rounded to the nearest whole number. No additional
Shares will vest after your Company service has
terminated for any reason.
TERM Your option will expire in any event at the close of
business at Company headquarters on the day before the
10th anniversary of the Date of Grant, as shown on the
cover sheet. (It will expire earlier if your Company
service terminates, as described below.)
TERMINATION If you terminate employment for cause, the option will
FOR CAUSE immediately cease to be exercisable.
REGULAR If your service as an employee of the Company (or any
TERMINATION subsidiary) terminates for any reason except for cause,
death or Disability, then your option will expire at the
close of business at Company headquarters on the 90th day
after your termination date.
Notwithstanding anything else in this Agreement to the
contrary, in the event that you cease to be employed by
the Company within one year from the Date of Grant for
any reason all rights to purchase shares under this
Option shall immediately terminate.
DEATH If you die as an employee of the Company (or any
subsidiary), then your option will expire at the close
of business at Company headquarters on the date 12
months after the date of death. During that 12-month
period, your estate or heirs may exercise the vested
portion of your option.
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DISABILITY If your service as an employee of the Company (or any
subsidiary) terminates because of your Disability, then
your option will expire at the close of business at
Company headquarters on the date 12 months after your
termination date.
"Disability" means that you are unable to engage in any
substantial gainful cativity by reason of any medically
edterminable physical or mental impairment.
LEAVES OF For purposes of this option, your service does not
ABSENCE terminate when you go on a military leave, a sick leave
or another BONA FIDE leave of absence, if the leave was
approved by the Company in writing. And your service
terminates in any event when the approved leave ends,
unless you immediately return to active work.
The Company determines which leaves count for this
purpose, and when your service terminates for all
purposes under the Plan.
RESTRICTIONS ON The Company will not permit you to exercise this option
EXERCISE if the issuance of Shares at that time would violate any
law or regulation.
NOTICE OF When you wish to exercise this option, you must notify
EXERCISE the Company by filing the proper "Notice of Exercise"
form at the address given on the form. Your notice must
specify how many Shares you wish to purchase. Your
notice must also specify how your Shares should be
registered (in your name only or in your and your
spouse's names as community property or as joint tenants
with right of survivorship). The notice will be
effective when it is received by the Company.
If someone else wants to exercise this option after your
death, that person must prove to the Company's
satisfaction that he or she is entitled to do so.
PERIODS OF Any other provision of this Agreement notwithstanding,
NONEXERCISABILITY the Company shall have the right to designate one or
more periods of time, each of which shall not exceed 180
days in length, during which this option shall not be
exercisable if the Company determines (in its sole
discretion) that such limitation on exercise could in
any way facilitate a lessening of any restriction on
transfer pursuant to the Securities Act of 1933, as
amended (the "Securities Act"), or any state securities
laws with respect to any issuance of securities by the
Company, facilitate the registration or qualification
of any securities by the Company under the Securities
Act or any state securities laws, or facilitate the
perfection of any exemption from the registration or
qualification requirements of the Securities Act or any
applicable state securities laws for the issuance or
transfer of any securities.
<PAGE>
Such limitation on exercise shall not alter the vesting
schedule set forth in this Agreement other than to limit
the periods during which this option shall be exercisable.
FORM OF PAYMENT When you submit your notice of exercise, you must include
payment of the option price for the Shares you are
purchasing. Payment may be made in one (or a
combination) of the following forms:
- A cashier's check or a money order.
- Common Shares which have already been owned by you
any time period specified by the Committee and
which are surrendered to the Company. The value
of the Shares, determined as of the effective date
of the option exercise, will be applied to the
option price.
- To the extent that a public market for the Shares
exists as determined by the Company, by delivery
(on a form prescribed by the Committee) of an
irrevocable direction to a securities broker to
sell Shares and to deliver all or part of the sale
proceeds to the Company in payment of the aggregate
Exercise Price.
WITHHOLDING TAXES You will not be allowed to exercise this option unless
you make acceptable arrangements to pay any withholding
or other taxes that may be due as a result of the
option exercise or the sale of shares acquired upon
exercise of this option.
RESTRICTIONS ON By signing this Agreement, you agree not to sell any
RESALE option Shares at a time when applicable laws,
regulations or Company or underwriter trading policies
prohibit a sale. In connection with any underwritten
public offering by the Company of its equity securities
pursuant to an effective registration statement filed
under the Securities Act, including the Company's initial
public offering, you agree not to sell, make any short
sale of, loan, hypothecate, pledge, grant any option for
the purchase of, or otherwise dispose or transfer for
value or agree to engage in any of the foregoing
transactions with respect to any shares without the prior
written consent of the Company or its underwriters, for
such period of time after the effective date of such
registration statement as may be requested by the
Company or such underwriters.
In order to enforce the provisions of this paragraph,
the Company may impose stop-transfer instructions with
respect to the shares until the end of the applicable
stand-off period.
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You represent and agree that the Shares to be acquired
upon exercising this option will be acquired for
investment, and not with a view to the sale or
distribution thereof.
In the event that the sale of Shares under the Plan is
not registered under the Securities Act but an
exemption is available which requires an investment
representation or other representation, you shall
represent and agree at the time of exercise that the
Shares being acquired upon exercising this option are
being acquired for investment, and not with a view to
the sale or distribution thereof, and shall make such
other representations as are deemed necessary or
appropriate by the Company and its counsel.
THE COMPANY'S In the event that you propose to sell, pledge or
RIGHT OF FIRST otherwise transfer to a third party any Shares acquired
REFUSAL under this Agreement, or any interest in such Shares, the
Company shall have the "Right of First Refusal" with
respect to all (and not less than all) of such Shares.
If you desire to transfer Shares acquired under this
Agreement, you must give a written "Transfer Notice" to
the Company describing fully the proposed transfer,
including the number of Shares proposed to be
transferred, the proposed transfer price and the name
and address of the proposed transferee. The Transfer
Notice shall be signed both by you and by the
proposed new transferee and must constitute a binding
commitment of both parties to the transfer of the Shares.
The Company shall have the right to purchase all, and not
less than all, of the Shares on the terms of the proposal
described in the Transfer Notice (subject, however, to
any change in such terms permitted in the next paragraph)
by delivery of a notice of exercise of the Right of First
Refusal within 30 days after the date when the Transfer
Notice was received by the Company. The Company's rights
under this Subsection shall be freely assignable, in
whole or in part. If the Company fails to exercise its
Right of First Refusal within 30 days after the date when
it received the Transfer Notice, you may, not later than
90 days following receipt of the Transfer Notice by the
Company,conclude a transfer of the Shares subject to the
Transfer Notice on the terms and conditions described in
the Transfer Notice. Any proposed transfer on terms
and conditions different from those described in the
Transfer Notice, as well as any subsequent proposed
transfer by you, shall again be subject to the Right of
First Refusal and shall require compliance with the
procedure described in the paragraph above. If the
Company exercises its Right of First Refusal, the parties
shall consummate the sale of the Shares on the terms set
forth in the Transfer Notice within 60 days after the
date when the Company received the Transfer Notice (or
within such longer period as may have been specified in
the Transfer Notice); provided, however, that in the
event the Transfer Notice provided that payment for the
Shares was to be made in a form other than
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lawful money paid at the time of transfer, the Company
shall have the option of paying for the Shares with
lawful money equal to the present value of the
consideration described in the Transfer Notice.
The Company's Right of First Refusal shall inure to the
benefit of its successors and assigns and shall be
binding upon any transferee of the Shares.
The Company's Right of First Refusal shall terminate in
the event that Stock is listed on an established stock
exchange or is quoted regularly on the Nasdaq National
Market.
RIGHT OF Following termination of your employment for any reason,
REPURCHASE the Company shall have the right to purchase all of those
Shares that you have or will acquire under this option.
If the Company exercises its right to purchase such
Shares, the purchase price shall be the higher of the
Fair Market Value of those Shares on the date of
purchase or the aggregate Exercise Price for those Shares
and shall be paid in cash. The Company will notify you
of its intention to purchase such shares, and will
consummate the purchase within the period established by
applicable law. The Company's rights of repurchase shall
terminate in the event that Stock is listed on an
established stock exchange or is quoted regularly on the
Nasdaq National Market.
TRANSFER OF Prior to your death, only you may exercise this option.
OPTION You cannot transfer or assign this option. For instance,
you may not sell this option or use it as security for a
loan. If you attempt to do any of these things, this
option will immediately become invalid. You may, however,
dispose of this option in your will.
Regardless of any marital property settlement
agreement, the Company is not obligated to honor a
notice of exercise from your spouse or former spouse,
nor is the Company obligated to recognize such
individual's interest in your option in any other way.
RETENTION RIGHTS Your option or this Agreement do not give you the right
to be retained by the Company (or any subsidiaries) in
any capacity. The Company (and any subsidiaries)
reserve the right to terminate your service at any time
and for any reason.
SHAREHOLDER You, or your estate or heirs, have no rights as a
RIGHTS shareholder of the Company until a certificate for your
option Shares has been issued. No adjustments are made
for dividends or other rights if the applicable record
date occurs before your stock certificate is issued,
except asdescribed in the Plan.
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ADJUSTMENTS In the event of a stock split, a stock dividend or a
similar change in the Company stock, the number of
Shares covered by this option and the exercise price
per share may be adjusted pursuant to the Plan. Your
option shall be subject to the terms of the agreement
of merger, liquidation or reorganization in the event
the Company is subject to such corporate activity.
LEGENDS All certificates representing the Shares issued upon
exercise of this option shall, where applicable, have
endorsed thereon the following legends:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND
OPTIONS TO PURCHASE SUCH SHARES SET FORTH IN AN
AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED
HOLDER, OR HIS OR HER PREDECESSOR IN INTEREST. A
COPY OF SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL
OFFICE OF THE COMPANY AND WILL BE FURNISHED UPON
WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY BY
THE HOLDER OF RECORD OF THE SHARES REPRESENTED BY
THIS CERTIFICATE."
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION
OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS
COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED."
APPLICABLE LAW This Agreement will be interpreted and enforced under the
laws of the State of California.
THE PLAN AND The text of the Plan is incorporated in this Agreement by
OTHER AGREEMENTS reference. Certain capitalized terms used in this
Agreement are defined in the Plan.
This Agreement and the Plan constitute the entire
understanding between you and the Company regarding this
option. Any prior
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agreements, commitments or negotiations concerning this
option are superseded.
BY SIGNING THE COVER SHEET OF THIS AGREEMENT, YOU AGREE TO ALL OF THE TERMS
AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.
<PAGE>
Exhibit 10.8
AGREEMENT FOR DISTRIBUTION
OF ACCUMULATED ADJUSTMENTS ACCOUNT
AND TAX INDEMNIFICATION
This AGREEMENT FOR DISTRIBUTION OF ACCUMULATED ADJUSTMENTS ACCOUNT AND TAX
INDEMNIFICATION ("Agreement") is entered into and effective the ________ day of
__________, 1997, between TRACK 'N TRAIL, a California corporation (the
"Company"), DAVID L. SUECHTING, JR. and JACKIE SUECHTING, as trustees of the
Suechting Family Trust, BARBARA SUECHTING and DEBORAH L. SUECHTING (the
"Stockholders") and DAVID L. SUECHTING, JR. and DEBORAH L. SUECHTING, as
administrators of the Estate of David L. Suechting, aka David L. Suechting, Sr.
(the "Estate").
WHEREAS, the Company and the Stockholders expect to implement on a tax-free
basis a Delaware holding company structure by contribution, reorganization,
reincorporation or otherwise (the "Reorganization");
WHEREAS, it is contemplated that the Delaware holding company will
undertake a public offering of its stock following the Reorganization in order
to raise additional equity capital (the "Public Offering");
WHEREAS, the Company, the Stockholders and the Estate have entered into
this Agreement in connection with the Reorganization and the Public Offering;
WHEREAS, the Company will be classified as an S corporation for United
States federal income tax purposes until immediately prior to the
Reorganization, after which (in the absence of certain elections) it will be
classified as a C corporation;
WHEREAS, the Stockholders are stockholders of the Company and the Estate
was previously a stockholder of the Company;
WHEREAS, the Company wishes to declare a distribution to the Stockholders
of an amount approximately equal to it its accumulated adjustments account,
within the meaning of section 1368(e) of the Internal Revenue Code of 1986 (the
"Code"), prior to the termination of its status as an S corporation; and
WHEREAS, the Company, the Stockholders and the Estate wish to provide for
tax indemnification arrangements in connection with the Company's termination as
an S corporation.
<PAGE>
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
DISTRIBUTION OF ACCUMULATED ADJUSTMENTS ACCOUNT
SECTION 1.1. Subject to compliance with applicable law, the Company hereby
agrees to distribute to the Stockholders $______, representing the amount of the
Company's accumulated adjustments account, within the meaning of section 1368(e)
of the Code, as of _______ __, 1997. The distribution shall be made in cash to
the Company's shareholders of record immediately prior to the Reorganization and
shall be payable immediately upon receipt by the Company of a cash contribution
equal to the foregoing amount following consummation of the Public Offering.
ARTICLE II
TERMINATION OF S CORPORATION STATUS
SECTION 2.1. The Company's status as an S corporation under section 1362
of the Code will be terminated as of the earlier of (i)the date of consummation
of the Reorganization (in the absence of certain elections the effect of which
will be to preserve such status) or (ii) the date of the closing of the Public
Offering (such date being referred to hereinafter as the "Federal Termination
Date"). The Company's status as an S corporation under pertinent state tax laws
will also be terminated no later than the Federal Termination Date. For
purposes of this Agreement, the term "Termination Date" when used with respect
to the federal income tax laws of the United States shall mean the Federal
Termination Date, and when used with respect to the tax laws of a particular
state shall mean the date the Company's status as an S corporation terminates
under the tax laws of such state. The Company shall use the
"closing-of-the-books" allocation method prescribed in section 1362(e)(3) 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's S corporation status has not terminated prior to the date of the
Public Offering, it shall use the PRO RATA allocation method prescribed in
section 1362(e)(2) of the Code.
ARTICLE III
TAXES
SECTION 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 tax 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 and the
Estate to the extent prescribed herein.
SECTION 3.2. COMPANY'S INDEMNIFICATION OF THE STOCKHOLDERS AND THE ESTATE
FOR ADDITIONAL PRE-TERMINATION TAXES. The Company hereby indemnifies and agrees
to hold the Stockholders and the Estate harmless from, against and in respect of
any
<PAGE>
federal and state income tax liability (including penalties, interest and any
taxes resulting from the payments under this section) incurred by the
Stockholders or the Estate 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 or
the Estate for taxable periods ending prior to the Termination Date (including
the short taxable period ending the day before the Termination Date).
SECTION 3.3. STOCKHOLDERS' AND ESTATE'S INDEMNIFICATION OF THE COMPANY.
The Stockholders and the Estate 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 the short taxable period ending the day before the Termination Date);
PROVIDED that in no event shall the aggregate liability of any Stockholder or
the Estate under this sentence exceed any refund of taxes and interest received
by such party as a result of such final determination, any ensuing claim for
refund or both. The Stockholders and the Estate 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 a final determination of an adjustment (by reason of an amended
return, claim for refund, audit or otherwise) to the Company's, the
Stockholders' or the Estate's tax returns which decreases the Stockholders' or
the Estate's 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 aggregate liability of any Stockholder
or the Estate under this sentence exceed any refund of taxes and interest
received by such party as a result of such final determination, ensuing claim
for refund or both.
SECTION 3.4. PAYMENTS. The Stockholders, the Estate 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
or, if earlier in the case of any Stockholder or the Estate, upon receipt by a
Stockholder or the Estate of a refund of taxes any portion of which is payable
to the Company under Section 3.3.
SECTION 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 and the Estate as
a result of any final determinations described in Section 3.3.
<PAGE>
ARTICLE IV
MISCELLANEOUS
SECTION 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 a single instrument representing the
Agreement between the parties hereto.
SECTION 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 or their respective successors and
assigns, any rights or remedies under or by reason of this Agreement.
SECTION 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 California without regard to the choice of
law rules of such State.
SECTION 4.4. AMENDMENT AND MODIFICATION. This Agreement may be amended,
modified or supplemented only by a written agreement executed by the parties.
SECTION 4.5. ASSIGNMENT. This Agreement 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.
SECTION 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.
SECTION 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.
SECTION 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 with respect to the subject matter of this Agreement,
other than those
<PAGE>
expressly set forth or referred to herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
TRACK 'N TRAIL, A CALIFORNIA
CORPORATION
By
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GREGORY M. KILGORE
PRESIDENT AND CHIEF
OPERATING OFFICER
DAVID L. SUECHTING, JR. and JACKIE
SUECHTING, as trustees of the
Suechting Family Trust
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DAVID L. SUECHTING, JR.
TRUSTEE
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JACKIE SUECHTING
TRUSTEE
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BARBARA SUECHTING
--------------------------------------------
DEBORAH L. SUECHTING
<PAGE>
DAVID L. SUECHTING, JR. and
DEBORAH L. SUECHTING, as
administrators of the Estate of
David L. Suechting, aka David L.
Suechting, Sr.
---------------------------------------
DAVID L. SUECHTING, JR.
ADMINISTRATOR
---------------------------------------
DEBORAH L. SUECHTING
ADMINISTRATRIX
<PAGE>
Exhibit 10.9
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT, dated as of _________ ___, 1997, between TRACK 'N
TRAIL, INC., a Delaware corporation (the "Corporation"), and _____________
("Indemnitee"),
W I T N E S S E T H:
WHEREAS, Indemnitee is either a member of the board of directors of the
Corporation (the "Board of Directors") or an officer of the Corporation, or
both, and in such capacity or capacities, or otherwise as an Agent (as
hereinafter defined) of the Corporation, is performing a valuable service for
the Corporation; and
WHEREAS, Indemnitee is willing to serve, continue to serve and to take on
additional service for or on behalf of the Corporation on the condition that he
be indemnified as herein provided; and
WHEREAS, it is intended that Indemnitee shall be paid promptly by the
Corporation all amounts necessary to effectuate in full the indemnity provided
herein:
NOW, THEREFORE, in consideration of the premises and the covenants in this
Agreement, and of Indemnitee continuing to serve the Corporation as an Agent and
intending to be legally bound hereby, the parties hereto agree as follows:
1. SERVICES BY INDEMNITEE. Indemnitee agrees to serve (a) as a director
or an officer of the Corporation, or both, so long as he is duly appointed or
elected and qualified in accordance with the applicable provisions of the
Certificate of Incorporation and By-laws of the Corporation, and until such time
as he resigns or fails to stand for election or is removed from his position, or
(b) otherwise as an Agent (as hereinafter defined) of the Corporation.
Indemnitee may from time to time also perform other services at the request or
for the convenience of, or otherwise benefiting the Corporation. Indemnitee may
at any time and for any reason resign or be removed from such position (subject
to any other contractual obligation or other obligation imposed by operation of
law), in which event the Corporation shall have no obligation under this
Agreement to continue Indemnitee in any such position.
2. INDEMNIFICATION. Subject to the limitations set forth herein and in
Section 6 hereof, the Corporation hereby agrees to indemnify Indemnitee as
follows:
The Corporation shall, with respect to any Proceeding associated with
Indemnitee's being an Agent of the Corporation, indemnify Indemnitee to the
fullest extent permitted by applicable law and the Certificate of Incorporation
of the Corporation
<PAGE>
in effect on the date hereof or as such law or Certificate of Incorporation may
from time to time be amended (but, in the case of any such amendment, only to
the extent such amendment permits the Corporation to provide broader
indemnification rights than the law or Certificate of Incorporation permitted
the Corporation to provide before such amendment). The right to indemnification
conferred herein and in the Certificate of Incorporation shall be presumed to
have been relied upon by Indemnitee in serving or continuing to serve the
Corporation as an Agent and shall be enforceable as a contract right. Without
in any way diminishing the scope of the indemnification provided by this
Section 2, the Corporation will indemnify Indemnitee to the full extent
permitted by law if and wherever he is or was a party or is threatened to be
made a party to any Proceeding, including any such Proceeding brought by or in
the right of the Corporation, by reason of the fact that he is or was an Agent
or by reason of anything done or not done by him in such capacity, against
Expenses and Liabilities actually and reasonably incurred by Indemnitee or on
his behalf in connection with the investigation, defense, settlement or appeal
of such Proceeding. In addition to, and not as a limitation of, the foregoing,
the rights of indemnification of Indemnitee provided under this Agreement shall
include those rights set forth in Sections 3 and 8 below. Notwithstanding the
foregoing, the Corporation shall be required to indemnify Indemnitee in
connection with a Proceeding commenced by Indemnitee (other than a Proceeding
commenced by Indemnitee to enforce Indemnitee's rights under this Agreement)
only if the commencement of such Proceeding was authorized by the Board of
Directors.
3. ADVANCEMENT OF EXPENSES; LETTER OF CREDIT.
(a) ADVANCEMENT OF EXPENSES. All reasonable Expenses incurred by or on
behalf of Indemnitee (including costs of enforcement of this Agreement) shall be
advanced from time to time by the Corporation to him within thirty (30) days
after the receipt by the Corporation of a written request for an advance of
Expenses, whether prior to or after final disposition of a Proceeding (except to
the extent that there has been a Final Adverse Determination that Indemnitee is
not entitled to be indemnified for such Expenses), including without limitation
any Proceeding brought by or in the right of the Corporation. The written
request for an advancement of any and all expenses under this paragraph shall
contain reasonable detail of the Expenses incurred by Indemnitee. In the event
that such written request shall be accompanied by an affidavit of counsel to
Indemnitee to the effect that such counsel has reviewed such expenses and that
such expenses are reasonable in such counsel's view, then such expenses shall be
deemed reasonable in the absence of clear and convincing evidence to the
contrary. By execution of this Agreement, Indemnitee shall be deemed to have
made whatever undertaking may be required by law at the time of any advancement
of Expenses with respect to repayment to the Corporation of such Expenses. In
the event that the Corporation shall breach its obligation to advance Expenses
under this Section 3, the parties hereto agree that Indemnitee's remedies
available at law would not be adequate and that Indemnitee would be entitled to
specific performance.
<PAGE>
(b) LETTER OF CREDIT. In order to secure the obligations of the
Corporation to indemnify and advance Expenses to Indemnitee pursuant to this
Agreement, the Corporation shall obtain at the time of any Change in Control an
irrevocable standby letter of credit naming Indemnitee as the sole beneficiary
(the "Letter of Credit"). The Letter of Credit shall be in an appropriate
amount not less than one million dollars ($1,000,000), shall be issued by a
commercial bank headquartered in the United States having assets in excess of
$10 billion and capital according to its most recent published reports equal to
or greater than the then applicable minimum capital standards promulgated by
such bank's primary federal regulator and shall contain terms and conditions
reasonably acceptable to Indemnitee. The Letter of Credit shall provide that
Indemnitee may from time to time draw certain amounts thereunder, upon written
certification by Indemnitee to the issuer of the Letter of Credit that
(i) Indemnitee has made written request upon the Corporation for an amount not
less than the amount he is drawing under the Letter of Credit and that the
Corporation has failed or refused to provide him with such amount in full within
thirty (30) days after receipt of the request, and (ii) Indemnitee believes that
he is entitled under the terms of this Agreement to the amount which he is
drawing upon under the Letter of Credit. The issuance of the Letter of Credit
shall not in any way diminish the Corporation's obligation to indemnify
Indemnitee against Expenses and Liabilities to the full extent required by this
Agreement.
(c) TERM OF LETTER OF CREDIT. Once the Corporation has obtained the
Letter of Credit, the Corporation shall maintain and renew the Letter of Credit
or a substitute letter of credit meeting the criteria of Section 3(b) during the
term of this Agreement so that the Letter of Credit shall have an initial term
of five years, be renewed for successive five-year terms, and always have at
least one year of its term remaining.
4. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS. Upon making a request
for indemnification, Indemnitee shall be presumed to be entitled to
indemnification under this Agreement and the Corporation shall have the burden
of proof to overcome that presumption in reaching any contrary determination.
The termination of any Proceeding by judgment, order, settlement, arbitration
award or conviction, or upon a plea of nolo contendere or its equivalent shall
not affect this presumption or, except as determined by a judgment or other
final adjudication adverse to Indemnitee, establish a presumption with regard to
any factual matter relevant to determining Indemnitee's rights to
indemnification hereunder. If the person or persons so empowered to make a
determination pursuant to Section 5 hereof shall have failed to make the
requested determination within ninety (90) days after any judgment, order,
settlement, dismissal, arbitration award, conviction, acceptance of a plea of
nolo contendere or its equivalent, or other disposition or partial disposition
of any Proceeding or any other event which could enable the Corporation to
determine Indemnitee's entitlement to indemnification, the requisite
determination that Indemnitee is entitled to indemnification shall be deemed to
have been made.
<PAGE>
5. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION.
(a) Whenever Indemnitee believes that he is entitled to indemnification
pursuant to this Agreement, Indemnitee shall submit a written request for
indemnification to the Corporation. Any request for indemnification shall
include sufficient documentation or information reasonably available to
Indemnitee for the determination of entitlement to indemnification. In any
event, Indemnitee shall submit his claim for indemnification within a reasonable
time, not to exceed five years after any judgment, order, settlement, dismissal,
arbitration award, conviction, acceptance of a plea of nolo contendere or its
equivalent, or final termination, whichever is the later date for which
Indemnitee requests indemnification. The Secretary or other appropriate officer
shall, promptly upon receipt of Indemnitee's request for indemnification, advise
the Board of Directors in writing that Indemnitee has made such request.
Determination of Indemnitee's entitlement to indemnification shall be made not
later than thirty (30) days after the Corporation's receipt of his written
request for such indemnification, provided that any request for indemnification
for Liabilities, other than amounts paid in settlement, shall have been made
after a determination thereof in a Proceeding.
(b) The Corporation shall be entitled to select the forum in which
Indemnitee's entitlement to indemnification will be heard; provided, however,
that if there is a Change in Control of the Corporation, Independent Legal
Counsel shall determine whether Indemnitee is entitled to indemnification. The
forum shall be any one of the following:
(i) the stockholders of the Corporation;
(ii) a majority vote of Disinterested Directors (as hereinafter defined),
even though less than a quorum;
(iii) Independent Legal Counsel, whose determination shall be made in a
written opinion; or
(iv) a panel of three arbitrators, one selected by the Corporation, another
by Indemnitee and the third by the first two arbitrators; or if for any reason
three arbitrators are not selected within thirty (30) days after the appointment
of the first arbitrator, then selection of additional arbitrators shall be made
by the American Arbitration Association. If any arbitrator resigns or is unable
to serve in such capacity for any reason, the American Arbitration Association
shall select his replacement. The arbitration shall be conducted pursuant to
the commercial arbitration rules of the American Arbitration Association now in
effect.
6. SPECIFIC LIMITATIONS ON INDEMNIFICATION. Notwithstanding anything in
this Agreement to the contrary, the Corporation shall not be obligated under
this Agreement to make any payment to Indemnitee with respect to any Proceeding:
<PAGE>
(a) To the extent that payment is actually made to Indemnitee under any
insurance policy, or is made to Indemnitee by the Corporation or an affiliate
otherwise than pursuant to this Agreement. Notwithstanding the availability of
such insurance, Indemnitee also may claim indemnification from the Corporation
pursuant to this Agreement by assigning to the Corporation any claims under such
insurance to the extent Indemnitee is paid by the Corporation;
(b) Provided there has been no Change in Control, for Liabilities in
connection with Proceedings settled without the Corporation's consent, which
consent, however, shall not be unreasonably withheld;
(c) For an accounting of profits made from the purchase or sale by
Indemnitee of securities of the Corporation within the meaning of section 16(b)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
similar provisions of any state statutory or common law;
(d) To the extent it would be otherwise prohibited by law, if so
established by a judgment or other final adjudication adverse to Indemnitee.
7. FEES AND EXPENSES OF INDEPENDENT LEGAL COUNSEL. The Corporation
agrees to pay the reasonable fees and expenses of Independent Legal Counsel or a
panel of three arbitrators should such Counsel or such arbitrators be retained
to make a determination of Indemnitee's entitlement to indemnification pursuant
to Section 5(b) of this Agreement, and to fully indemnify such Counsel or
arbitrators against any and all expenses and losses incurred by any of them
arising out of or relating to this Agreement or their engagement pursuant
hereto.
8. REMEDIES OF INDEMNITEE.
(a) In the event that (i) a determination pursuant to Section 5 hereof is
made that Indemnitee is not entitled to indemnification, (ii) advances of
Expenses are not made pursuant to this Agreement, (iii) payment has not been
timely made following a determination of entitlement to indemnification pursuant
to this Agreement, or (iv) Indemnitee otherwise seeks enforcement of this
Agreement, Indemnitee shall be entitled to a final adjudication in the Court of
Chancery of the State of Delaware of the remedy sought. Alternatively, unless
(i) the determination was made by a panel of arbitrators pursuant to Section
5(b)(iv) hereof, or (ii) court approval is required by law for the
indemnification sought by Indemnitee, Indemnitee at his option may seek an award
in arbitration to be conducted by a single arbitrator pursuant to the commercial
arbitration rules of the American Arbitration Association now in effect, which
award is to be made within ninety (90) days following the filing of the demand
for arbitration. The Corporation shall not oppose Indemnitee's right to seek
any such adjudication or arbitration award. In any such proceeding or
arbitration Indemnitee shall be presumed to be entitled to indemnification and
advancement of Expenses under this Agreement and the Corporation shall have the
burden of proof to overcome that presumption.
<PAGE>
(b) In the event that a determination that Indemnitee is not entitled to
indemnification, in whole or in part, has been made pursuant to Section 5
hereof, the decision in the judicial proceeding or arbitration provided in
paragraph (a) of this Section 8 shall be made DE NOVO and Indemnitee shall not
be prejudiced by reason of a determination that he is not entitled to
indemnification.
(c) If a determination that Indemnitee is entitled to indemnification has
been made pursuant to Section 5 hereof, or is deemed to have been made pursuant
to Section 4 hereof or otherwise pursuant to the terms of this Agreement, the
Corporation shall be bound by such determination in the absence of a
misrepresentation of a material fact by Indemnitee in connection with such
determination.
(d) The Corporation shall be precluded from asserting that the procedures
and presumptions of this Agreement are not valid, binding and enforceable. The
Corporation shall stipulate in any such court or before any such arbitrator that
the Corporation is bound by all the provisions of this Agreement and is
precluded from making any assertion to the contrary.
(e) Expenses reasonably incurred by Indemnitee in connection with his
request for indemnification under, seeking enforcement of or to recover damages
for breach of this Agreement shall be borne by the Corporation when and as
incurred by Indemnitee irrespective of any Final Adverse Determination that
Indemnitee is not entitled to indemnification.
9. CONTRIBUTION. To the fullest extent permissible under applicable law,
if the indemnification provided for in this Agreement is unavailable to
Indemnitee for any reason whatsoever, the Corporation, in lieu of indemnifying
Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for
judgments, fines, penalties, excise taxes, amounts paid or to be paid in
settlement and/or for Expenses, in connection with any claim relating to an
indemnifiable event under this Agreement, in such proportion as is deemed fair
and reasonable in light of all of the circumstances of such Proceeding in order
to reflect (i) the relative benefits received by the Corporation and Indemnitee
as a result of the event(s) and/or transaction(s) giving cause to such
Proceeding; and/or (ii) the relative fault of the Corporation (and its
directors, officers, employees and agents) and Indemnitee in connection with
such event(s) and/or transaction(s).
10. MAINTENANCE OF INSURANCE. Upon the Corporation's purchase of
directors' and officers' liability insurance policies covering its directors and
officers, then, subject only to the provisions within this Section 10, the
Corporation agrees that so long as Indemnitee shall have consented to serve or
shall continue to serve as a director or officer of the Corporation or both, or
as an Agent of the Corporation, and thereafter so long as Indemnitee shall be
subject to any possible Proceeding (such periods being hereinafter sometimes
referred to as the "Indemnification Period"), the Corporation will use its best
efforts to maintain in effect for the benefit of Indemnitee one
<PAGE>
or more valid, binding and enforceable policies of directors' and officers'
liability insurance providing, in all respects, coverage both in scope and
amount which is no less favorable than that provided by such preexisting
policies. Notwithstanding the foregoing, the Corporation shall not be required
to purchase or maintain said policies of directors' and officers' liability
insurance if such insurance is not reasonably available or if it is in good
faith determined by the then directors of the Corporation either that:
(i) The premium cost of maintaining such insurance is substantially
disproportionate to the amount of coverage provided thereunder; or
(ii) The protection provided by such insurance is so limited by exclusions,
deductions or otherwise that there is insufficient benefit to warrant the cost
of maintaining such insurance.
Anything in this Agreement to the contrary notwithstanding, to the extent
that and for so long as the Corporation shall choose to continue to maintain any
policies of directors' and officers' liability insurance during the
Indemnification Period, the Corporation shall maintain similar and equivalent
insurance for the benefit of Indemnitee during the Indemnification Period
(unless such insurance shall be less favorable to Indemnitee than the
Corporation's existing policies).
11. MODIFICATION, WAIVER, TERMINATION AND CANCELLATION. No supplement,
modification, termination, cancellation or amendment of this Agreement shall be
binding unless executed in writing by both of the parties hereto. No waiver of
any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provisions hereof (whether or not similar), nor shall such
waiver constitute a continuing waiver.
12. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the Corporation effectively to
bring suit to enforce such rights.
13. NOTICE BY INDEMNITEE AND DEFENSE OF CLAIM. Indemnitee shall promptly
notify the Corporation in writing upon being served with any summons, citation,
subpoena, complaint, indictment, information or other document relating to any
matter, whether civil, criminal, administrative or investigative, but the
omission so to notify the Corporation will not relieve it from any liability
which it may have to Indemnitee if such omission does not prejudice the
Corporation's rights. If such omission does prejudice the Corporation's rights,
the Corporation will be relieved from liability only to the extent of such
prejudice; nor will such omission relieve the Corporation from any liability
which it may have to Indemnitee otherwise than under this Agreement. With
respect to any Proceeding as to which Indemnitee notifies the Corporation of the
commencement thereof:
<PAGE>
(a) The Corporation will be entitled to participate therein at its own
expense; and
(b) The Corporation jointly with any other indemnifying party similarly
notified will be entitled to assume the defense thereof, with counsel reasonably
satisfactory to Indemnitee; provided, however, that the Corporation shall not be
entitled to assume the defense of any Proceeding if there has been a Change in
Control or if Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Corporation and Indemnitee with respect to such
Proceeding. After notice from the Corporation to Indemnitee of its election to
assume the defense thereof, the Corporation will not be liable to Indemnitee
under this Agreement for any 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 own counsel in such Proceeding, but the fees and expenses of such
counsel incurred after notice from the 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 the
Corporation;
(ii) Indemnitee shall have reasonably concluded that counsel engaged by the
Corporation may not adequately represent Indemnitee; or
(iii) the Corporation shall not in fact have employed counsel to assume the
defense in such Proceeding or shall not in fact have assumed such defense and be
acting in connection therewith with reasonable diligence;
in each of which cases the fees and expenses of such counsel shall be at the
expense of the Corporation.
(c) The Corporation shall not settle any Proceeding in any manner which
would impose any penalty or limitation on Indemnitee without Indemnitee's
written consent; provided, however, that Indemnitee will not unreasonably
withhold his consent to any proposed settlement.
14. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
(i) delivered by hand and receipted for by the party to whom said notice or
other communication shall have been directed, or (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:
(a) If to Indemnitee, to:
c/o Track 'n Trail, Inc.
4961-A Windplay Drive
El Dorado Hills, CA 95672
<PAGE>
(b) If to the Corporation, to:
Track 'n Trail, Inc.
4961-A Windplay Drive
El Dorado Hills, CA 95672
Attn: Secretary
or to such other address as may have been furnished to Indemnitee by the
Corporation or to the Corporation by Indemnitee, as the case may be.
15. NONEXCLUSIVITY. The rights of Indemnitee hereunder shall not be
deemed exclusive of any other rights to which Indemnitee may be entitled under
applicable law, the Corporation's Certificate of Incorporation or By-laws, or
any agreements, vote of stockholders, resolution of the Board of Directors or
otherwise, and to the extent that during the Indemnification Period the rights
of the then existing directors and officers are more favorable to such directors
or officers than the rights currently provided to Indemnitee thereunder or under
this Agreement, Indemnitee shall be entitled to the full benefits of such more
favorable rights.
16. PRONOUNS. Use of the masculine pronoun shall be deemed to include
usage of the feminine pronoun where appropriate.
17. CERTAIN DEFINITIONS.
(a) "AGENT" shall mean any person who is or was, or who has consented to
serve as, a director, officer, employee, agent, fiduciary, joint venturer,
partner, manager or other official of the Corporation or a subsidiary or an
affiliate of the Corporation, or any other entity (including without limitation,
an employee benefit plan) either at the request of, for the convenience of, or
otherwise to benefit the Corporation or a subsidiary of the Corporation.
(b) "CHANGE IN CONTROL" shall mean the occurrence of any of the following:
(i) Both (A) any "person" (as defined below) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Corporation representing at least 15% of the
total voting power represented by the Corporation's then outstanding voting
securities; and (b) the beneficial ownership by such person of securities
representing such percentage has not been approved by a majority of the
"continuing directors" (as defined below); or
(ii) Any "person" (as defined below) is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Corporation representing at least 50% of the total voting
power represented by the Corporation's then outstanding voting securities; or
(iii) A change in the composition of the Board occurs, as a result of which
fewer than two-thirds of the incumbent directors are directors who either
(A) had been directors of the
<PAGE>
Corporation on the "look-back date" (as defined below) (the "Original
Directors") or (B) were elected, or nominated for election, to the Board with
the affirmative votes of at least a majority in the aggregate of the Original
Directors who were still in office at the time of the election or nomination and
directors whose election or nomination was previously so approved (the
"continuing directors"); or
(iv) The stockholders of the Corporation approve a merger or consolidation
of the Corporation with any other corporation, if such merger or consolidation
would result in the voting securities of the Corporation outstanding immediately
prior thereto representing (either by remaining outstanding or by being
converted into voting securities of the surviving entity) 50% or less of the
total voting power represented by the voting securities of the Corporation or
such surviving entity outstanding immediately after such merger or
consolidation; or
(v) The stockholders of the Corporation approve (A) a plan of complete
liquidation of the Corporation or (B) an agreement for the sale or disposition
by the Corporation of all or substantially all of the Corporation's assets.
For purposes of Subsection (i) above, the term "person" shall have the same
meaning as when used in sections 13(d) and 14(d) of the Exchange Act, but shall
exclude (x) a trustee or other fiduciary holding securities under an employee
benefit plan of the Corporation or of a parent or subsidiary of the Corporation
or (y) a corporation owned directly or indirectly by the stockholders of the
Corporation in substantially the same proportions as their ownership of the
common stock of the Corporation.
For purposes of Subsection (iii) above, the term "look-back date" shall
mean the later of (x) April 7, 1997 or (y) the date 24 months prior to the date
of the event that may constitute a "Change in Control."
Any other provision of this Section 17(b) notwithstanding, the term "Change
in Control" shall not include a transaction, if undertaken at the election of
the Corporation, the result of which is to sell all or substantially all of the
assets of the Corporation to another corporation (the "surviving corporation");
provided that the surviving corporation is owned directly or indirectly by the
stockholders of the Corporation immediately following such transaction in
substantially the same proportions as their ownership of the Corporation's
common stock immediately preceding such transaction; and provided, further, that
the surviving corporation expressly assumes this Agreement.
(c) "DISINTERESTED DIRECTOR" shall mean a director of the Corporation who
is not or was not a party to or otherwise involved in the Proceeding in respect
of which indemnification is being sought by Indemnitee.
(d) "EXPENSES" shall include all direct and indirect costs (including,
without limitation, attorneys' fees, retainers, court costs, transcripts, fees
of experts, witness fees, travel
<PAGE>
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, all other disbursements or out-of-pocket
expenses and reasonable compensation for time spent by Indemnitee for which he
is otherwise not compensated by the Corporation or any third party) actually and
reasonably incurred in connection with either the investigation, defense,
settlement or appeal of a Proceeding or establishing or enforcing a right to
indemnification under this Agreement, applicable law or otherwise; provided,
however, that "Expenses" shall not include any Liabilities.
(e) "FINAL ADVERSE DETERMINATION" shall mean that a determination that
Indemnitee is not entitled to indemnification shall have been made pursuant to
Section 5 hereof and either (1) a final adjudication in the Court of Chancery of
the State of Delaware or decision of an arbitrator pursuant to Section 8(a)
hereof shall have denied Indemnitee's right to indemnification hereunder, or
(2) Indemnitee shall have failed to file a complaint in a Delaware court or seek
an arbitrator's award pursuant to Section 8(a) for a period of one hundred
twenty (120) days after the determination made pursuant to Section 5 hereof.
(f) "INDEPENDENT LEGAL COUNSEL" shall mean a law firm or a member of a
firm selected by the Corporation and approved by Indemnitee (which approval
shall not be unreasonably withheld) or, if there has been a Change in Control,
selected by Indemnitee and approved by the Corporation (which approval shall not
be unreasonably withheld), that neither is presently nor in the past five years
has been retained to represent: (i) the Corporation or any of its subsidiaries
or affiliates, or Indemnitee or any corporation of which Indemnitee was or is a
director, officer, employee or agent, or any subsidiary or affiliate of such a
corporation, in any material matter, or (ii) any other party to the Proceeding
giving rise to a claim for indemnification hereunder. Notwithstanding the
foregoing, the term "Independent Legal Counsel" shall not include any person
who, under the applicable standards of professional conduct then prevailing,
would have a conflict of interest in representing either the Corporation or
Indemnitee in an action to determine Indemnitee's right to indemnification under
this Agreement.
(g) "LIABILITIES" shall mean liabilities of any type whatsoever including,
but not limited to, any judgments, fines, ERISA excise taxes and penalties,
penalties and amounts paid in settlement (including all interest assessments and
other charges paid or payable in connection with or in respect of such
judgments, fines, penalties or amounts paid in settlement) of any Proceeding.
(h) "PROCEEDING" shall mean any threatened, pending or completed action,
claim, suit, arbitration, alternate dispute resolution mechanism, investigation,
administrative hearing or any other proceeding whether civil, criminal,
administrative or investigative, that is associated with Indemnitee's being an
Agent of the Corporation.
18. BINDING EFFECT; DURATION AND SCOPE OF AGREEMENT. This Agreement shall
be binding upon and inure to the benefit of and
<PAGE>
be enforceable by the parties hereto and their respective successors and assigns
(including any direct or indirect successor by purchase, merger, consolidation
or otherwise to all or substantially all of the business or assets of the
Corporation), spouses, heirs and personal and legal representatives. This
Agreement shall continue in effect during the Indemnification Period, regardless
of whether Indemnitee continues to serve as an Agent.
19. SEVERABILITY. If any provision or provisions of this Agreement (or
any portion thereof) shall be held to be invalid, illegal or unenforceable for
any reason whatsoever:
(a) The validity, legality and enforceability of the remaining provisions
of this Agreement shall not in any way be affected or impaired thereby; and
(b) To the fullest extent legally possible, the provisions of this
Agreement shall be construed so as to give effect to the intent of any provision
held invalid, illegal or unenforceable.
20. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware, as applied to
contracts between Delaware residents entered into and to be performed entirely
within the State of Delaware, without regard to conflict of laws rules.
21. ENTIRE AGREEMENT. This Agreement represents the entire agreement
between the parties hereto, and there are no other agreements, contracts or
understandings between the parties hereto with respect to the subject matter of
this Agreement, except as specifically referred to herein or as provided in
Section 15 hereof.
Executed as of the ____ day of _________, 1997.
TRACK 'n TRAIL, INC.
By
--------------------------------
INDEMNITEE
-----------------------------------
<PAGE>
Exhibit 10.10
STOCK EXCHANGE AGREEMENT
AMONG
TRACK 'N TRAIL, INC., A DELAWARE CORPORATION,
BARBARA J. SUECHTING,
DEBORAH SUECHTING,
DAVID L. SUECHTING, JR. AND JACKIE SUECHTING,
TRUSTEES OF THE SUECHTING FAMILY TRUST,
AND
TRACK 'N TRAIL, A CALIFORNIA CORPORATION
___________ __, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE 1 - EXCHANGE OF SHARES . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Closing Date. . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Exchange of Shares. . . . . . . . . . . . . . . . . . . . . . 2
1.3 Delivery of Shares at Closing . . . . . . . . . . . . . . . . 2
1.4 Tax Treatment . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 2 - REPRESENTATIONS AND WARRANTIES OF THE SUECHTINGS. . . . . . . 2
2.1 Capacity; . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Status of TNT-CA Shares . . . . . . . . . . . . . . . . . . . 3
2.3 Conflicts, Consents and Approval. . . . . . . . . . . . . . . 3
2.4 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.5 Investment Intent; Restricted Securities. . . . . . . . . . . 3
2.6 Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF TNT-DE. . . . . . . . . . . 4
3.1 Corporate Power and Authority . . . . . . . . . . . . . . . . 4
3.2 Conflicts; Consents; Approvals. . . . . . . . . . . . . . . . 5
3.3 TNT-DE Shares . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 4 - COVENANTS AND CONSENTS OF THE PARTIES . . . . . . . . . . . . 5
4.1 Mutual Covenants. . . . . . . . . . . . . . . . . . . . . . . 5
4.2 Covenants of TNT-DE . . . . . . . . . . . . . . . . . . . . . 5
4.3 Consent of TNT-CA . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 5 - CONDITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.1 Mutual Conditions . . . . . . . . . . . . . . . . . . . . . . 6
5.2 Additional Conditions to Obligations of TNT-DE. . . . . . . . 6
5.3 Additional Conditions to Obligations of Suechtings. . . . . . 6
ARTICLE 6 - INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . 7
6.1 Indemnification by Suechtings . . . . . . . . . . . . . . . . 7
6.2 Notice and Right To Defend Third-Party Claims . . . . . . . . 7
ARTICLE 7 - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 8
7.1 Survival of Representations and Warranties. . . . . . . . . . 8
7.2 Termination . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.3 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . 9
7.4 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . 9
7.5 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.6 No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.7 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 9
7.8 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . 9
-i-
<PAGE>
7.9 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.10 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
-ii-
<PAGE>
STOCK EXCHANGE AGREEMENT
THIS STOCK EXCHANGE AGREEMENT (this "Agreement") is made and entered
into as of the ____ day of _________, 1997, by and among TRACK 'N TRAIL, INC., a
Delaware corporation ("TNT-DE"), BARBARA J. SUECHTING ("BJS"), DEBORAH SUECHTING
("DS"), and DAVID L. SUECHTING, JR. and JACKIE SUECHTING, trustees ("Trustees")
of THE SUECHTING FAMILY TRUST (the "Trust") (BJS, DS and the Trust are
hereinafter collectively referred to as the "Suechtings"), and for purposes of
Section 3.1(b) and 4.3 only, TRACK 'N TRAIL, a California corporation
("TNT-CA").
RECITALS
A. The Trust is the owner of 13,816 shares of the issued and outstanding
common stock of TNT-CA (the "Trust Shares"), BJS is the owner of 18,000 shares
of the issued and outstanding common stock of TNT-CA (the "BJS Shares"), and DS
is the owner of 9,000 shares of the issued and outstanding common stock of
TNT-CA (the "DS Shares").
B. The Trust Shares, BJS Shares and DS Shares (collectively, the "TNT-CA
Shares") constitute all of the issued and outstanding capital stock of TNT-CA.
C. The Suechtings desire to exchange the TNT-CA Shares for shares of the
common stock of TNT-DE, on the terms and subject to the conditions set forth
herein.
D. The respective boards of directors of TNT-DE and TNT-CA have
determined the stock exchange in the manner contemplated herein to be desirable
and in the best interests of their respective corporations and, by resolutions
duly adopted, have approved and adopted this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of these premises and the mutual and
dependent promises hereinafter set forth, the parties hereto agree as follows:
ARTICLE 1
EXCHANGE OF SHARES
1.1 CLOSING DATE. The date on which the Closing is held shall be referred
to as the "Closing Date." Subject to the satisfaction of the conditions to
closing set forth in Article 5, the closing of the exchange of shares
contemplated hereby (the "Closing") shall be held at the offices of Pillsbury
Madison & Sutro LLP, 235 Montgomery Street, San Francisco, California, at such
time and date specified by the parties, which date shall be as
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soon as practicable, but in any event not later than five (5) business days
prior to the effectiveness of the Registration Statement on Form S-1 filed with
the Securities and Exchange Commission (the "Commission") by TNT-DE on March 12,
1997, SEC File No. 333-23195 (the "Registration Statement"), or at such other
time and place as the parties may agree.
1.2 EXCHANGE OF SHARES. On the terms and subject to the satisfaction or
waiver of the conditions set forth herein, at the Closing, each of the
Suechtings shall transfer, convey and assign all of their respective TNT-CA
Shares to TNT-DE and shall receive in exchange therefor that number of newly
issued shares of the Common Stock, $.01 par value per share, of TNT-DE (the
"TNT-DE Common Stock") determined by multiplying the number of TNT-CA Shares
owned by each of them by 100.63723 (the "Exchange Ratio"), rounded upward to the
nearest whole number. The exchange of the TNT-CA Shares for shares of TNT-DE
Common Stock pursuant to this Agreement is hereinafter referred to as the
"Exchange." The shares of TNT-DE Common Stock to be issued by TNT-DE pursuant
to the Exchange are hereinafter collectively referred to as the "TNT-DE Shares."
1.3 DELIVERY OF SHARES AT CLOSING. At the Closing, the Trust shall
deliver to TNT-DE certificates evidencing the Trust Shares, BJS shall deliver to
TNT-DE certificates evidencing the BJS Shares and DS shall deliver to TNT-DE
certificates evidencing the DS Shares, each duly endorsed for transfer thereon
or by means of duly executed stock powers attached thereto against delivery by
TNT-DE of the respective number of TNT-DE Shares determined pursuant to Section
1.2 hereof.
1.4 TAX TREATMENT. The parties intend that the Exchange will qualify as a
tax-free exchange under Section 351 of the United States Internal Revenue Code
of 1986, as amended.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE SUECHTINGS
The Suechtings represent and warrant to TNT-DE as follows:
2.1 CAPACITY; AUTHORITY; ENFORCEABILITY.
(a) Each of BJS and DS has all requisite capacity to enter into this
Agreement and to consummate the transactions contemplated by this Agreement.
The Trustees are the sole trustees under the Trust and have all requisite power
and authority necessary to own and operate its properties, to carry on its
business as now conducted and presently proposed to be conducted and to execute,
deliver and perform its obligations under this Agreement and the documents,
instruments and certificates to be executed and delivered by the Trustees
pursuant to this Agreement.
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(b) This Agreement constitutes the legal, valid and binding
obligation of each of BJS, DS and the Trust enforceable against each of them in
accordance with its terms, subject to the effects of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law) and an
implied covenant of good faith and fair dealing.
2.2 STATUS OF TNT-CA SHARES. There are no voting trusts, stockholders
agreements, proxies or other similar agreements or understandings in effect with
respect to the voting or transfer of any of the TNT-CA Shares. The TNT-CA
Shares constitute all of the issued and outstanding capital stock of TNT-CA.
2.3 CONFLICTS, CONSENTS AND APPROVAL. Neither the execution and delivery
of this Agreement by any of the Suechtings nor the consummation of the
transactions contemplated hereby will violate, conflict with, or result in a
breach of any provision of, or constitute a default (or an event which, with the
giving of notice, the passage of time or otherwise, would constitute a default)
under, require any consent under, or entitle any party (with the giving of
notice, the passage of time or otherwise) to terminate, accelerate, modify or
call a default under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties of TNT-CA or the TNT-CA Shares
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, contract, undertaking, agreement, lease or
other instrument or obligation to which TNT-CA or the Suechtings or any of them
is a party, including, without limitation, the trust agreement or other
instruments governing the organization and operation of the Trust.
2.4 TITLE. Each of the Trust, BJS and DS is the sole owner of, and has,
or will have as of the Closing Date, good and marketable title to and possession
of, the Trust Shares, BJS Shares and DS Shares, respectively, free and clear of
any lien, claim, voting trust, proxy, arrangement, security interest, mortgage,
pledge, encumbrance, agreement, right or restriction (other than restrictions
related to the status of the TNT-Shares as "restricted securities" for purposes
of federal and state securities laws) of any kind whatsoever (collectively,
"Liens") and, upon consummation of the Exchange, TNT-DE shall acquire good and
marketable title to the TNT-CA Shares, free and clear of any Liens.
2.5 INVESTMENT INTENT; RESTRICTED SECURITIES. The TNT-DE Shares to be
received by the each of the Suechtings pursuant to the Exchange will be acquired
for investment for each of the Trust's, BJS' and DS' own account, not as a
nominee or agent, and not with a view to the resale or distribution of any part
thereof; PROVIDED, HOWEVER, that if the Registration Statement is declared
effective by the Commission, the Suechtings may sell such TNT-DE Shares pursuant
to the Registration Statement. Each of the Suechtings understands that the
TNT-DE Shares to be received hereunder may not be sold, transferred or otherwise
disposed of without registration under the Securities Act of 1933, as amended
(the "Securities Act") or an exemption therefrom, and that if the Registration
Statement is not declared effective or in the absence of any other effective
registration statement covering such TNT-DE Shares or an available exemption
from registration under the Securities Act, the TNT-DE Shares must be held
indefinitely. In particular, each of the Suechtings is aware
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that the TNT-DE Shares may not be sold pursuant to Rule 144 promulgated under
the Securities Act unless all of the conditions of that Rule are met.
2.6 LEGENDS. It is understood that the certificates evidencing the TNT-DE
Shares may bear one or all of the following legends:
(a) "The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. They may not be sold,
offered for sale, pledged or hypothecated in the absence of a registration
statement in effect with respect to the securities under such Act or an opinion
of counsel satisfactory to the Company that such registration is not required or
unless sold pursuant to Rule 144 of such Act or another applicable exemption."
(b) Any legend required by the laws of the State of California or
other jurisdiction.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF TNT-DE AND TNT-CA
3.1 CORPORATE POWER AND AUTHORITY; ENFORCEABILITY.
(a) TNT-DE represents to the Suechtings that: (i) it has all
requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated by this Agreement; (ii) the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of TNT-DE; and (iii) this Agreement has been duly executed and
delivered by TNT-DE and constitutes the legal, valid and binding obligation of
TNT-DE enforceable against it in accordance with its terms, subject to the
effects of bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally, general equitable principles (whether considered in a proceeding in
equity or at law) and an implied covenant of good faith and fair dealing.
(b) TNT-CA represents to the Suechtings that: (i) it has all
requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated by this Agreement to be performed by
it; (ii) the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of TNT-CA; and (iii) this Agreement has been duly
executed and delivered by TNT-DE and constitutes the legal, valid and binding
obligation of TNT-CA enforceable against it in accordance with its terms,
subject to the effects of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally, general equitable principles (whether considered in
a proceeding in equity or at law) and an implied covenant of good faith and fair
dealing.
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3.2 CONFLICTS; CONSENTS; APPROVALS. TNT-DE represents to the Suechtings
that neither the execution and delivery of this Agreement by TNT-DE, nor the
consummation of the transactions contemplated hereby will violate, conflict
with, or result in a breach of any provision of, or constitute a default (or an
event which, with the giving of notice, the passage of time or otherwise, would
constitute a default) under, require any consent under, or entitle any party
(with the giving of notice, the passage of time or otherwise) to terminate,
accelerate, modify or call a default under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties of
TNT-DE or the TNT-DE Shares under any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, deed of trust, license, contract,
undertaking, agreement, lease or other instrument or obligation to which TNT-DE
is a party.
3.3 TNT-DE SHARES. TNT-DE represents to the Suechtings that, when issued,
the TNT-DE Shares shall not be subject to any statutory or contractual
preemptive rights, and when received by the Suechtings in exchange for the
TNT-CA Shares, shall be duly authorized, validly issued, fully paid and
nonassessable.
ARTICLE 4
COVENANTS AND CONSENTS OF THE PARTIES
The parties hereto agree as follows with respect to the period from
and after the execution of this Agreement.
4.1 MUTUAL COVENANTS. Each of the parties shall use its reasonable best
efforts to take all action and to do all things necessary, proper or advisable
to consummate the Exchange and the transactions contemplated by this Agreement
and to prepare, execute and deliver such further instruments and take or cause
to be taken such other and further action as any other party hereto shall
reasonably request.
4.2 COVENANTS OF TNT-DE.
(a) ASSUMPTION OF 1996 STOCK OPTION PLAN. On or before the Closing,
the TNT-CA 1996 Stock Option Plan (the "Plan") shall be amended to substitute
TNT-DE as sponsor thereunder and TNT-DE shall assume and thereafter perform all
obligations of sponsor under the Plan. The options outstanding under the Plan
as of the Closing (the "Outstanding Options") shall be exercisable for that
number of shares, rounded up to the nearest whole number, of TNT-DE Common Stock
equal to the number of shares of TNT-CA Common Stock previously issuable under
such options multiplied by the Exchange Ratio, and the exercise price of each
Outstanding Option shall correspondingly be divided by the Exchange Ratio.
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4.3 CONSENT OF TNT-CA TO ASSUMPTION OF PLAN. TNT-CA hereby consents to
the amendment, effective upon the Closing, of the Plan to substitute TNT-DE as
sponsor thereunder and to the amendments of the Outstanding Options described in
Section 4.2.
ARTICLE 5
CONDITIONS
5.1 MUTUAL CONDITIONS. The obligations of the parties hereto to
consummate the Exchange shall be subject to satisfaction or waiver on or prior
to the Closing Date of the following conditions:
(a) No temporary restraining order, preliminary or permanent
injunction or other order or decree which prevents the consummation of the
Exchange shall have been issued and remain in effect, and no statute, rule or
regulation shall have been enacted by any governmental authority which prevents
the consummation of the Exchange.
(b) All authorizations, consents and approvals (contractual or
otherwise) of any state, federal, local or foreign government agency, regulatory
body or official or any person (other than TNT-CA or TNT-DE) necessary for the
valid consummation of the Merger in accordance with this Agreement shall have
been obtained and shall be in full force and effect.
5.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF TNT-DE. The obligations of
TNT-DE to consummate the Exchange and the transactions contemplated hereby shall
be subject to the satisfaction or waiver on or prior to the Closing Date of the
following additional conditions unless waived by TNT-DE:
(a) The representations and warranties of the Suechtings set forth in
Article 2 shall be true and correct in all material respects on the date hereof
and on and as of the Closing Date as though made on and as of the Closing Date.
(b) The Suechtings shall have performed in all material respects each
obligation and agreement and shall have complied in all material respects with
each covenant to be performed and complied with by them hereunder at or prior to
the Closing Date.
5.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF SUECHTINGS. The obligations
of the Suechtings to consummate the Exchange and the other transactions
contemplated hereby shall be subject to the satisfaction or waiver on or prior
to the Closing Date of the following additional conditions:
(a) The representations and warranties of TNT-DE and TNT-CA set forth
in Article 3 shall be true and correct in all material respects on the date
hereof and on and as of the Closing Date as though made on and as of the Closing
Date.
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(b) TNT-DE shall have performed in all material respects each
obligation and agreement and shall have complied in all material respects with
each covenant to be performed and complied with by it hereunder at or prior to
the Closing Date.
ARTICLE 6
INDEMNIFICATION
6.1 INDEMNIFICATION BY SUECHTINGS. Each of the Suechtings agrees to
indemnify TNT-DE and its affiliates, directors, officers, shareholders, agents
and employees against and hold each of them harmless from any and all losses,
liabilities, claims, suits, proceedings, demands, judgments, damages, expenses
and costs, including, without limitation, counsel fees and disbursements, expert
fees and costs and expenses incurred in the investigation, defense or settlement
of any claims covered by this indemnity which any such indemnified party may
suffer or incur by reason of the inaccuracy of any representation or warranty of
the Suechtings to TNT-DE in Article 2 of this Agreement.
6.2 NOTICE AND RIGHT TO DEFEND THIRD-PARTY CLAIMS.
(a) Upon receipt of written notice of any claim, demand or assessment
or the commencement of any suit, action or proceeding in respect of which
indemnity may be sought on account of the indemnity contained in Section 6.1,
the party seeking indemnification (the "Indemnitee") shall promptly, but in no
event later than twenty (20) days prior to the date a response or answer thereto
is due (unless a response or answer is due within fewer than twenty (20) days
from the date of Indemnitee's receipt of notice thereof), inform the party
against whom indemnification is sought (the "Indemnitor") in writing thereof.
The failure, refusal or neglect of such Indemnitee to notify the Indemnitor
within the time period specified above of any such claim or action shall relieve
such Indemnitor from any liability which it may have to such Indemnitee in
connection therewith, but only to the extent the effect of such failure, refusal
or neglect is to prejudice materially the rights of the Indemnitor in defending
against the claim or action.
(b) In case any claim, demand or assessment shall be asserted or
suit, action or proceeding commenced against an Indemnitee, and such Indemnitee
shall have timely and properly notified the Indemnitor of the commencement
thereof, the Indemnitor will be entitled to participate therein, and, to the
extent that it may wish, to assume the defense, conduct or settlement thereof,
with counsel selected by the Indemnitor. After notice from the Indemnitor to
the Indemnitee of its election to assume the defense, conduct or settlement
thereof, the Indemnitor will not be liable to the Indemnitee for expenses
incurred by Indemnitee in connection with the defense, conduct or settlement
thereof, except for such expenses as may be reasonably required to enable the
Indemnitor to take over such defense, conduct or settlement.
(c) The Indemnitee will cooperate with the Indemnitor in connection
with any such claim, make personnel, witnesses, books and records relevant to
the claim available
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to the Indemnitor at no cost, and grant such authorizations or powers of
attorney to the agents, representatives and counsel of the Indemnitor as the
Indemnitor may reasonably request in connection with the defense or settlement
of any such claim.
(d) In the event that the Indemnitor does not wish to assume the
defense, conduct or settlement of any claim, demand or assessment, the
Indemnitee shall have the exclusive right to prosecute, defend, compromise,
settle or pay the claim in its sole discretion and pursue its rights under this
Agreement; provided that, before settling any claim hereunder, the Indemnitee
shall give five (5) business days' notice to the Indemnitor to allow the
Indemnitor to reject the settlement, in which case the Indemnitor shall defend
the claim.
(e) Notwithstanding the foregoing in this Section 6.2, the Indemnitee
shall have the right to employ separate counsel in any such action, claim or
proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be its fees and expenses unless (i) the Indemnitor has
agreed to pay such fees and expenses, (ii) the Indemnitor has failed to assume
the defense of such action, claim or proceeding or (iii) the named parties to
any such action, claim or proceeding (including any impleaded parties) include
both the Indemnitor and the Indemnitee and the Indemnitee has been advised by
counsel that there may be one or more legal defenses available to it which are
different from or additional to those available to the Indemnitor (in which
case, if the Indemnitee informs the Indemnitor in writing that it elects to
employ separate counsel at the expense of the Indemnitor, the Indemnitor shall
not have the right to assume the defense of such action, claim or proceeding on
behalf of the Indemnitee, it being understood, however, that the Indemnitor
shall not, in connection with any one such action, claim or proceeding or
separate but substantially similar or related actions, claims or proceedings in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys at any time for the Indemnitee, which firm shall be
designated in writing by the Indemnitee).
ARTICLE 7
MISCELLANEOUS
7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties made herein by the parties hereto and any indemnification obligations
for breach thereof shall survive until the first anniversary of the Closing
Date, except that the representations and warranties set forth in Section 2.4
(title), 3.3 (TNT-DE Shares) and the related indemnification obligations for
breach thereof under Section 6.1 shall survive indefinitely.
7.2 TERMINATION. This Agreement may be terminated at any time prior to
the Closing Date by mutual consent of the Suechtings and TNT-DE.
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7.3 ENTIRE AGREEMENT. This Agreement contains the entire agreement among
the parties with respect to the Exchange and supersedes all prior and concurrent
arrangements, letters of intent or understandings relating to the Exchange.
7.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be an original, but all of which when taken
together shall constitute one and the same agreement. This Agreement shall
become effective when one or more counterparts has been signed by each of the
parties and delivered to each of the parties.
7.5 HEADINGS. The article, section and paragraph headings in this
Agreement are intended principally for convenience and shall not, by themselves,
determine rights and obligations of the parties to this Agreement.
7.6 NO WAIVER. No waiver by any part of any condition, or the breach of
any term or covenant contained in this Agreement, whether by conduct or
otherwise, in any one or more instances, shall be deemed to be a further or
continuing waiver of any such condition or breach or a waiver of any other
condition or breach of any other term or covenant contained in this Agreement.
7.7 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without reference to
principles of conflicts of law.
7.8 AMENDMENT. This Agreement may be amended only by a writing executed
by all parties hereto.
7.9 ASSIGNMENT. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any of the parties hereto (whether
by operation of law or otherwise) without the prior written consent of the other
parties. Subject to the preceding sentence, this Agreement shall be binding
upon, inure to the benefit of and be enforceable by the parties and their
respective successors and assigns.
7.10 EXPENSES. TNT-DE shall pay all costs and expenses associated with the
transactions contemplated by this Agreement except as provided in Article 6.
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IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of the
date first written above.
TRACK 'N TRAIL, INC., a Delaware corporation
By:
-----------------------------------------
President
--------------------------------------------
BARBARA J. SUECHTING
--------------------------------------------
DEBORAH SUECHTING
DAVID L. SUECHTING, CO-TRUSTEE OF
THE SUECHTING FAMILY TRUST
--------------------------------------------
David L. Suechting, Trustee
JACKIE SUECHTING, CO-TRUSTEE OF THE
SUECHTING FAMILY TRUST
--------------------------------------------
Jackie Suechting, Trustee
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For purposes of Sections 3.1(b) and
4.3 only:
TRACK 'N TRAIL, a California corporation
By:
-----------------------------------------
President
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Exhibit 10.11
WARRANT
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE, AND MAY BE OFFERED AND
SOLD ONLY IF REGISTERED AND QUALIFIED PURSUANT TO THE RELEVANT PROVISIONS
OF FEDERAL AND STATE SECURITIES LAWS OR IF THE COMPANY IS PROVIDED AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION AND
QUALIFICATION UNDER FEDERAL AND STATE SECURITIES LAWS IS NOT REQUIRED.
No. W-008 Warrant to Purchase Shares of
Common Stock (subject
to adjustment)
WARRANT TO PURCHASE COMMON STOCK
OF
TRACK 'N TRAIL
VOID AFTER OCTOBER 25, 2001
This certifies that, for value received, LADENBURG THALMANN & CO. INC., or
registered assigns (the "Holder") is entitled, subject to the terms set forth
below, to purchase from TRACK 'N TRAIL, a California corporation (the
"Company"), the number of shares of Common Stock of the Company equal to 1.5% of
the issued and outstanding Common Stock of the Company on a fully diluted basis
(without giving effect to this Warrant and Warrants No. W-001 through and
including W-007 issued by the Company in connection with the acquisition of
Overland Management Corporation) as determined immediately prior to the earlier
to occur of (i) the closing of the sale and issuance of shares of Common Stock
of the Company or any entity owning 100% of the issued and outstanding Common
Stock of the Company in a firm commitment underwritten initial public offering
pursuant to an effective registration statement under the Securities Act (as
hereinafter defined) (the "IPO"), or (ii) the closing of a Change of Control
(hereinafter defined) event or transaction. (Hereinafter, (i) said Common
Stock, together with any other equity securities which may be issued by the
Company with respect thereto or in substitution therefor, is referred to as the
"Common Stock," (ii) the shares of the Common Stock purchasable hereunder or
under any other Warrant (as hereinafter defined) are referred to individually as
a "Warrant Share" and collectively as the "Warrant Shares," (iii) the aggregate
purchase price payable for the Warrant Shares hereunder is referred to as the
"Aggregate Exercise Price," (iv) the price
<PAGE>
payable for each of the Warrant Shares hereunder is referred to as the "Per
Share Exercise Price," (v) this Warrant, all similar Warrants issued on the date
hereof and all Warrants hereafter issued in exchange or substitution for this
Warrant or such similar Warrants are referred to as the "Warrants" and (vi) the
holder of this Warrant is referred to as the "Holder" and the holder of this
Warrant and all other Warrants or Warrant Shares issued upon the exercise of any
Warrant are referred to as the "Holders"). The Aggregate Exercise Price is not
subject to adjustment. The Per Share Exercise Price is subject to adjustment as
hereinafter provided; in the event of any such adjustment, the number of Warrant
Shares shall be adjusted by dividing the Aggregate Exercise Price by the Per
Share Exercise Price in effect immediately after such adjustment.
Nothing herein shall be construed as creating any obligation of the Company
to effect or consummate an IPO or any other transaction involving an offering of
shares of its capital stock.
1. TERM OF WARRANT. Subject to the terms and conditions set forth
herein, the purchase right represented by this Warrant shall terminate at
5:00 P.M., Pacific Standard Time, on the fifth anniversary of the closing of the
IPO and may be exercised commencing on the earlier to occur of (a) the first
anniversary of the closing of the IPO or (b) the closing of a Change in Control
event or transaction.
2. EXERCISE PRICE. The Exercise Price at which this Warrant may be
exercised shall be (a) 120% of the initial offering price to the public in the
IPO per share of Common Stock or (b) in the event this Warrant is exercised
pursuant to Section 3(b)(ii), the par value of the Common Stock purchasable
hereunder.
3. EXERCISE OF WARRANT.
(a) Following an IPO,
(i) the Holder may exercise this Warrant, in whole or in part,
as follows:
(A) By presentation and surrender of this Warrant to the
Company at the office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the Holder or the address of
the Holder appearing on the books of the Company), with the Notice of
Subscription annexed hereto (or a reasonable facsimile thereof) duly executed
and accompanied by payment of the Per Share Exercise Price for each Warrant
Share to be purchased. Payment for Warrant Shares shall be made by certified or
official bank check payable to the order of the Company; or
(B) By presentation and surrender of this Warrant to the
Company at the address set forth above, with a Cashless Exercise Form annexed
hereto (or a reasonable facsimile thereof) duly executed (a "Cashless
Exercise"). Such presentation and surrender shall be deemed a waiver of the
Holder's obligation to pay all or any portion of the Aggregate Exercise Price.
In the event of a Cashless Exercise, the Holder shall exchange this Warrant for
that number determined by multiplying the number of Warrant Shares being
exercised by a fraction, the numerator of which shall be the difference between
<PAGE>
the then current market price per share of the Common Stock and the Per Share
Exercise Price, and the denominator of which shall be the then current market
price per share of Common Stock. For purposes of any computation under this
Section 3(a)(i)(B), the then current market price per share of Common Stock at
any date shall be deemed to be the average for the thirty (30) consecutive
business days immediately prior to the Cashless Exercise of the daily closing
prices of the Common Stock on the principal national securities exchange on
which the Common Stock is admitted to trading or listed, or if not listed or
admitted to trading on any such exchange, the closing prices as reported by the
Nasdaq National Market, or if not then listed on the Nasdaq National Market, the
average of the highest reported bid and lowest reported asked prices as reported
by the National Association of Securities Dealers, Inc. Automated Quotations
System ("NASDAQ") or if not then publicly traded, the fair market price of the
Common Stock as determined by the Board of Directors of the Company.
(ii) If this Warrant is exercised in part, this Warrant must be
exercised for a number of whole shares of the Common Stock (not less than 1,000
in number), and the Holder is entitled to receive a new Warrant covering the
Warrant Shares which have not been exercised and setting forth the proportionate
part of the Aggregate Exercise Price applicable to such Warrant Shares. Upon
such surrender of this Warrant, the Company will (i) issue a certificate or
certificates, in such denominations as are requested for delivery by the Holder,
in the name of the Holder for the largest number of whole shares of Common Stock
to which the Holder shall be entitled and, if this Warrant is exercised in
whole, in lieu of any fractional share of the Common Stock to which the Holder
shall be entitled, pay to the Holder cash in an amount equal to the fair value
of such fractional share (determined in such reasonable manner as the Board of
Directors of the Company shall determine), and (ii) deliver the other securities
and properties receivable upon the exercise of this Warrant, or the
proportionate part thereof if this Warrant is exercisable in part, pursuant to
the provisions of this Warrant. The Holder shall be deemed to be the holder of
record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such shares of Common Stock shall not
then be actually delivered to the Holder.
(b) FOLLOWING A CHANGE IN CONTROL. Upon a Change of Control, this
Warrant shall be exercised by the surrender of this Warrant and the Notice of
Subscription annexed hereto duly completed and executed on behalf of the Holder
and accompanied by the Per Share Exercise Price for each Warrant Share to be
purchased, at the office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the Holder at the address of
the Holder appearing on the books of the Company), upon payment in cash or by
check acceptable to the Company. For purposes of this Section, "Change of
Control" shall mean the occurrence of any of the following events: (i) the
consummation of a merger, consolidation or other reorganization of the Company
(other than a reincorporation of the Company or reorganization of the Company
into a holding company structure), if after giving effect to such merger,
consolidation or other reorganization of the Company, the shareholders of the
Company immediately prior to such merger, consolidation or other reorganization
do not represent a majority in interest of the holders of voting securities (on
a fully diluted basis) with the ordinary voting power to elect directors of the
surviving or resulting entity after such merger, consolidation or other
reorganization; (ii) a transaction involving the sale of outstanding shares of
capital stock of the Company to
<PAGE>
a third party if after giving effect to such transaction, the shareholders of
the Company immediately prior to such transaction do not represent a majority in
interest of the holders of voting securities (on a fully diluted basis) with the
ordinary voting power to elect directors of the Company; (iii) the sale of all
or substantially all of the assets of the Company to a third party; or (iv) the
commencement of a proceeding for the voluntary liquidation or dissolution of the
Company pursuant to applicable law.
(c) This Warrant shall be deemed to have been exercised immediately
prior to the close of business on the date of its surrender for exercise as
provided above, and the person entitled to receive the shares of Common Stock
issuable upon such exercise shall be treated for all purposes as the holder of
record of such shares as of the close of business on such date. As promptly as
practicable on or after such date and in any event within ten (10) days
thereafter, the Company at its expense will also execute and shall issue and
deliver to the person or persons entitled to receive the same a certificate or
certificates for the number of shares issuable upon such exercise. In the event
that this Warrant is exercised in part, the Company at its expense will execute
and deliver a new Warrant of like tenor exercisable for the number of shares for
which this Warrant may then be exercised.
4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which the Holder would otherwise be
entitled, the Company shall make a cash payment equal to the excess of the
prevailing market price over the Per Warrant Exercise Price multiplied by such
fraction.
5. REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and substance to the Company
or, in the case of mutilation, on surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new Warrant of like tenor and amount.
6. RIGHTS OF SHAREHOLDERS. This Warrant shall not entitle its Holder to
any of the rights of a shareholder of the Company.
7. TRANSFER OF WARRANT.
(a) WARRANT REGISTER. The Company will maintain a register (the
"Warrant Register") containing the names and addresses of the Holder or Holders.
Any Holder of this Warrant or any portion thereof may change his address as
shown on the Warrant Register by written notice to the Company requesting such
change. Any notice or written communication required or permitted to be given
to the Holder may be delivered or given by mail to such Holder as shown on the
Warrant Register and at the address shown on the Warrant Register. Until this
Warrant is transferred on the Warrant Register of the Company, the Company may
treat the Holder as shown on the Warrant Register as the absolute owner of this
Warrant for all purposes, notwithstanding any notice to the contrary.
(b) WARRANT AGENT. The Company may, by written notice to the Holder,
appoint an agent for the purpose of maintaining the Warrant Register referred to
in
<PAGE>
Section 7(a) above, issuing the Common Stock then issuable upon the exercise of
this Warrant, exchanging this Warrant, replacing this Warrant, or any or all of
the foregoing. Thereafter, any such registration, issuance, exchange, or
replacement, as the case may be, shall be made at the office of such agent.
(c) RESTRICTIONS ON TRANSFER. Holder understands that this Warrant
and the Warrant Shares may not be sold, transferred or otherwise disposed of
without registration under the Securities Act or an exemption therefrom, and
that in the absence of an effective registration statement covering this Warrant
or the Warrant Shares or an available exemption from registration under the
Securities Act, this Warrant and the Warrant Shares must be held indefinitely.
This Warrant may not be sold, transferred, assigned or hypothecated by the
Holder (i) except in compliance with the provisions of the Securities Act, and
(ii) until the first anniversary of the closing of the IPO except for purposes
of this clause (ii), (A) to any successor firm or corporation of Ladenburg
Thalmann & Co. Inc., (B) to any of the officers of Ladenburg Thalmann & Co. Inc.
or of any such successor firm or (C) in the case of an individual, pursuant to
such individual's last will and testament or the laws of descent and
distribution, and is so transferable only upon the books of the Company which it
shall cause to be maintained for the purpose; provided, however, that prior to a
transfer pursuant to clause (ii)(B) above, the transferee shall provide the
Company with a letter signed by such transferee containing the representations
and warranties set forth in Section 9 hereof. The Company may treat the
registered Holder of this Warrant as he or it appears on the Company's books at
any time as the Holder for all purposes. The Company shall permit any Holder of
this Warrant or his duly authorized attorney, upon written request during
ordinary business hours, to inspect and copy or make extracts from its books
showing the registered holders of Warrants. All Warrants issued upon the
transfer or assignment of this Warrant will be dated the same date as this
Warrant, and all rights of the Holder thereof shall be identical to those of the
Holder.
8. RESERVATION OF COMMON STOCK. The Company covenants that during the
term this Warrant is exercisable, the Company will reserve from its authorized
and unissued Common Stock a sufficient number of shares to provide for the
issuance of Common Stock upon the exercise of this Warrant and, from time to
time, will take all steps necessary to amend its articles of incorporation to
provide sufficient reserves of shares of Common Stock issuable upon exercise of
this Warrant. The Company further covenants that all Warrant Shares that may be
issued upon exercise of this Warrant and payment of the Per Share Exercise
Price, all as set forth herein, will be duly paid and nonassessable, free from
all taxes, liens and charges in respect of the issue thereof (other than taxes
in respect of any transfer occurring contemporaneously or otherwise specified
herein). The Company agrees that its issuance of this Warrant shall constitute
full authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for shares of
Common Stock upon the exercise of this Warrant.
9. REPRESENTATIONS AND WARRANTIES AS TO INVESTMENT. Holder represents
and warrants to the Company that:
(a) PURCHASE ENTIRELY FOR OWN ACCOUNT. This Warrant and the Shares
are being acquired for investment for Holder's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and Holder has no present
<PAGE>
intention of selling, granting any participation in, or otherwise distributing
the same. By executing this Warrant, Holder further represents that it does not
have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participations to such person or to any third person,
with respect to this Warrant or the Shares.
(b) INVESTMENT EXPERIENCE. Holder is experienced in evaluating and
investing in securities similar to this Warrant and the Shares and acknowledges
that it is able to fend for itself, can bear the economic risk of its
investment, and has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of the investment
in this Warrant and the Shares.
(c) ACCREDITED INVESTOR. Holder is an Accredited Investor as defined
in Rule 501 of Regulation D under the Securities Act.
(d) PREEXISTING RELATIONSHIP. Holder has a preexisting personal or
business relationship with the Company or one or more of its officers,
directors, or control persons or by reason of its business and financial
experience, Holder is capable of evaluating the risks and merits of an
investment in this Warrant and the Shares and of protecting Holder's own
interests in connection with an investment in this Warrant and the Shares.
10. PURCHASE OF WARRANT. In the event the Company does not effect an IPO
or a Change of Control event or transaction has not occurred prior to
October 25, 2001, the Company shall pay Holder cash in an amount equal to the
then appraised fair market value of 1.5% of the issued and outstanding Common
Stock of the Company on October 25, 2001. The appraisal shall be effected by a
reputable nationally-recognized appraiser or investment banking firm mutually
selected by the Company and the Holder. If the Company and the Holder are
unable to agree upon an appraiser or investment banking firm within thirty (30)
days, such firm shall be selected in accordance with the rules and procedures of
the American Arbitration Association in San Francisco, California. The Company
and the Holder shall each pay one-half of the cost of such appraisal.
11. NOTICES.
(a) Whenever the Per Share Exercise Price or number or type of shares
purchasable hereunder shall be adjusted pursuant to Section 13 hereof, the
Company shall issue a certificate signed by its Chief Financial Officer setting
forth, in reasonable detail, the event requiring the adjustment, the amount of
the adjustment, the method by which such adjustment was calculated, and the
number and type of shares purchasable hereunder after giving effect to such
adjustment, and shall cause a copy of such certificate to be mailed (by
first-class mail, postage prepaid) to the Holder of this Warrant. The Company
shall, upon the written request, at any time, of any such Holder, furnish or
cause to be furnished to such Holder a like certificate setting forth: (i) such
adjustments and readjustments; (ii) the Per Share Exercise Price at the time in
effect; and (iii) the number of shares and the amount, if any, of other property
(or the cash equivalency thereof) that at the time would be received upon the
exercise of this Warrant.
(b) After the IPO, in case:
<PAGE>
(i) the Company shall take a record of the holders of its
Common Stock (or other stock or securities at the time receivable upon the
exercise of this Warrant) for the purpose of entitling them to receive any
dividend or other distribution, or any right to subscribe for or purchase any
shares of stock of any class or any other securities, or to receive any other
right, or
(ii) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation, or any conveyance of all
or substantially all of the assets of the Company to another corporation, or
(iii) of any voluntary dissolution, liquidation or winding-up of
the Company,
then, and in each such case, the Company will mail or cause to be mailed to the
Holder a notice specifying, as the case may be, (A) the date on which a record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right, or (B)
the date on which such reorganization, reclassification, consolidation, merger,
conveyance, dissolution, liquidation or winding-up is to take place, and the
time, if any is to be fixed, as of which the holders of record of Common Stock
(or such stock or securities at the time receivable upon the exercise of this
Warrant) shall be entitled to exchange their shares of Common Stock (or such
other stock or securities) for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up. Such notice shall be mailed at least
fifteen (15) days prior to the date therein specified.
(c) Any notice or demand desired or required to be given hereunder
shall be in writing and deemed given when personally delivered, sent by
telecopier, overnight courier or deposited in the mail, postage prepaid, sent
certified or registered, return receipt requested, and addressed as set forth
below or to such other address as any party shall have previously designated by
such a notice. Any notice so delivered personally or by telecopy shall be
deemed to be received on the date of delivery or transmission by telecopier; any
notice so sent by overnight courier shall be deemed to be received one (1)
business day after the date sent; and any notice so mailed shall be deemed to be
received on the date shown on the receipt. Rejection or other refusal to accept
or inability to deliver because of a change of address of which no notice was
given shall be deemed to be receipt of the notice.
If to the Company:
Track 'n Trail
4961-A Windplay Drive
El Dorado Hills, CA 95763
Attention: Mr. David L. Suechting, Jr.
Telecopier: (916) 933-4521
<PAGE>
If to Holder:
Ladenburg Thalmann & Co. Inc.
590 Madison Avenue, 35th Floor
New York, NY 10022
Telecopier: (212) 409-2172
12. AMENDMENTS.
(a) This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
(b) No waivers of, or exceptions to, any term, condition or provision
of this Warrant, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such term, condition or
provision.
13. ADJUSTMENTS. The Per Share Exercise Price and the number and type of
shares purchasable hereunder are subject to adjustment from time to time after
the IPO as follows:
13.1 MERGER, SALE OF ASSETS, ETC. If at any time while this Warrant,
or any portion thereof, is outstanding and unexpired there shall be (i) a
reorganization of the Company (other than a combination, reclassification,
exchange or subdivision of shares otherwise provided for herein), including
without limitation a reorganization of the Company into a holding company
structure, (ii) a merger or consolidation of the Company with or into another
corporation in which the Company is not the surviving entity, or a reverse
triangular merger in which the Company is the surviving entity but the shares of
the Company's capital stock outstanding immediately prior to the merger are
converted by virtue of the merger into other property, whether in the form of
securities, cash or otherwise, or (iii) a sale or transfer of the Company's
properties and assets as, or substantially as, an entirety to any other person,
then, as a part of such reorganization, merger, consolidation, sale or transfer,
lawful provision shall be made so that the holder of this Warrant shall
thereafter be entitled to receive upon exercise of this Warrant, during the
period specified herein and upon payment of the Exercise Price, the number of
shares of stock or other securities or property of the successor corporation
resulting from such reorganization, merger, consolidation, sale or transfer that
a holder of the shares deliverable upon exercise of this Warrant would have been
entitled to receive in such reorganization, consolidation, merger, sale or
transfer if this Warrant had been exercised immediately before such
reorganization, merger, consolidation, sale or transfer, all subject to further
adjustment as provided in this Section 13. The foregoing provisions of this
Section 13.1 shall similarly apply to successive reorganizations,
consolidations, mergers, sales and transfers and to the stock or securities of
any other corporation that are at the time receivable upon the exercise of this
Warrant. If the per-share consideration payable to the holder hereof for shares
in connection with any such transaction is in a form other than cash or
marketable securities, then the cash equivalency of such consideration shall be
determined in good faith by the Company's Board of Directors and the holder
hereof shall accept such cash equivalency in exchange for such share
consideration. In all events, appropriate adjustment (as determined in good
faith
<PAGE>
by the Company's Board of Directors) shall be made in the application of the
provisions of this Warrant with respect to the rights and interests of the
Holder after the transaction, to the end that the provisions of this Warrant
shall be applicable after that event, as near as reasonably may be, in relation
to any shares or other property deliverable after that event upon exercise of
this Warrant.
13.2 RECLASSIFICATION, ETC. If the Company, at any time while this
Warrant, or any portion thereof, remains outstanding and unexpired, by
reclassification of securities or otherwise shall change any of the securities
as to which purchase rights under this Warrant exist into the same or a
different number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities that were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the Per Share
Exercise Price therefor shall be appropriately adjusted, all subject to further
adjustment as provided in this Section 13.
13.3 SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the Company at
any time while this Warrant, or any portion thereof, remains outstanding and
unexpired, shall split, subdivide or combine the securities as to which purchase
rights under this Warrant exist, into a different number of securities of the
same class, the Per Share Exercise Price for such securities shall be
proportionately decreased in the case of a split or subdivision or
proportionately increased in the case of a combination, and the number of shares
purchasable hereunder shall be proportionately increased in the case of a split
or subdivision or proportionately decreased in the case of a combination.
13.4 ADJUSTMENTS FOR DIVIDENDS IN STOCK OR OTHER SECURITIES OR
PROPERTY. If while this Warrant, or any portion hereof, remains outstanding and
unexpired the holders of the securities as to which purchase rights under this
Warrant exist at the time shall have received, or, on or after the record date
fixed for the determination of eligible shareholders, shall have become entitled
to receive, without payment therefor, other or additional stock or other
securities or property (other than an Excluded Dividend (as defined below)) of
the Company by way of dividend, then and in each case, this Warrant shall
represent the right to acquire, in addition to the number of shares of the
security receivable upon exercise of this Warrant, and without payment of any
additional consideration therefor, the amount of such other or additional stock
or other securities or property (other than cash dividends or cash distributions
paid out of net profits legally available therefor (such excluded cash dividend
or distribution being referred to as an "Excluded Dividend")) of the Company
that such holder would hold on the date of such exercise had it been the holder
of record of the security receivable upon exercise of this Warrant on the date
hereof and had thereafter, during the period from the date hereof to and
including the date of such exercise, retained such shares and/or all other
additional stock available by it as aforesaid during such period, giving effect
to all adjustments called for during such period by the provisions of this
Section 13.
13.5 NO IMPAIRMENT. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 13 and in
the taking of all such action as
<PAGE>
may be necessary or appropriate in order to protect the rights of the Holder of
this Warrant against impairment.
14. REGISTRATION RIGHTS.
14.1 CERTAIN DEFINITIONS. As used in this Warrant, the following
terms shall have the meanings set forth below:
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Other Shareholders" shall mean persons other than Shareholders who,
by virtue of agreements with the Company, are entitled to include their
securities in certain registrations hereunder.
"Registrable Securities" shall mean the Warrant Shares; PROVIDED,
HOWEVER, that Registrable Securities shall not include any shares of Common
Stock which have previously been registered or which have been sold to the
public pursuant to Rule 144.
The terms "register," "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registration Expenses" shall mean all expenses incurred in effecting
any registration pursuant to Section 14 of this Warrant, including, without
limitation, all registration, qualification, and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for the Company, blue sky fees
and expenses, listing fees and expenses of any regular or special audits
incident to or required by any such registration, but shall not include Selling
Expenses and fees and disbursements of counsel for the Shareholders (but
excluding the compensation of regular employees of the Company, which shall be
paid in any event by the Company).
"Rule 144" shall mean Rule 144 as promulgated by the Commission under
the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
"Rule 145" shall mean Rule 145 as promulgated by the Commission under
the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar successor federal statute and the rules and regulations thereunder,
all as the same shall be in effect from time to time.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and fees and
disbursements of
<PAGE>
counsel for any Shareholder (other than the fees and disbursements of counsel
included in Registration Expenses).
"Shareholder" shall mean any person who holds Registrable Securities
and any holder of Registrable Securities to whom the registration rights
conferred by this Section 14 have been transferred.
14.2 REGISTRATION.
(a) COMPANY REGISTRATION. If, after consummation of the IPO, the
Company shall determine to register any of its securities under the Securities
Act either for its own account or the account of a security holder or holders
exercising registration rights, other than a registration relating solely to
employee benefit plans, or a registration relating solely to a Rule 145
transaction, or a registration on any registration form that does not permit
secondary sales, the Company will:
(i) promptly give to each Shareholder written notice thereof;
and
(ii) use its best efforts to include in such registration (and
any related qualification under blue sky laws or other compliance), except as
set forth in Section 14.3(b) below, and in any underwriting involved therein,
all the Registrable Securities specified in a written request or requests, made
by any Shareholder and received by the Company within twenty (20) days after the
written notice from the Company described in clause (i) above is mailed or
delivered by the Company. Such written request may specify all or a part of a
Shareholder's Registrable Securities.
14.3 UNDERWRITING.
(a) If the registration of which the Company gives notice under
Section 14.2 is for a registered public offering involving an underwriting, the
Company shall so advise the Shareholders as a part of the written notice given
pursuant to Section 14.2(a)(i). In such event, the right of any Shareholder to
registration pursuant to Section 14 shall be conditioned upon such Shareholder's
participation in such underwriting and the inclusion of such Shareholder's
Registrable Securities in the underwriting to the extent provided herein. All
Shareholders proposing to distribute their securities through such underwriting
shall (together with the Company and the other holders of securities of the
Company with registration rights to participate therein distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the representative of the underwriter or underwriters
selected by the Company.
(b) Notwithstanding any other provision of this Section 14, if the
representative of the underwriters advises the Company in writing that marketing
factors require a limitation on the number of shares to be underwritten, the
representative may (subject to the limitations set forth below) exclude all
Registrable Securities from, or limit the number of Registrable Securities to be
included in, the registration and underwriting. The Company may limit, to the
extent so advised by the underwriters, the amount of
<PAGE>
securities to be included in the registration by the Company's shareholders
(including the Shareholders). The Company shall so advise all holders of
securities requesting registration, and the number of shares of securities that
are entitled to be included in the registration and underwriting shall be
allocated first to the Company for securities being sold for its own account and
thereafter as set forth in Section 14.9. If any person does not agree to the
terms of any such underwriting, he shall be excluded therefrom by written notice
from the Company or the underwriter. Any Registrable Securities or other
securities excluded or withdrawn from such underwriting shall be withdrawn from
such registration.
(c) If shares are so withdrawn from the registration and if the
number of shares of Registrable Securities to be included in such registration
was previously reduced as a result of marketing factors, the Company shall then
offer to all persons who have retained the right to include securities in the
registration the right to include additional securities in the registration in
an aggregate amount equal to the number of shares so withdrawn, with such shares
to be allocated among the persons requesting additional inclusion in accordance
with Section 14.10. Any Registrable Securities not included in the underwriting
shall retain the right to be included in subsequent registrations on the terms
and conditions set forth herein.
14.4 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Section 14.2 hereof shall be borne by the Company. All Selling Expenses
relating to securities so registered hereof shall be borne by the holders of
such securities pro rata on the basis of the number of shares of securities so
registered on their behalf.
14.5 REGISTRATION PROCEDURES. In the case of each registration
effected by the Company pursuant to Section 14.2, the Company will keep each
Shareholder advised in writing as to the initiation of each registration and as
to the completion thereof. At its expense, the Company will use its best
efforts to:
(a) Keep such registration effective for a period of ninety (90)
days, until the Shareholder or Shareholders have completed the distribution
described in the registration statement relating thereto, or until the
securities included in such registration can be sold pursuant to Rule 144 over a
period of three (3) months or less, whichever first occurs; PROVIDED, HOWEVER,
such ninety day period shall be extended for a period of time equal to the
period the Holder refrains from selling any securities included in such
registration at the request of the Company or an underwriter pursuant to Section
14.8 hereof;
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
(c) Furnish such number of prospectuses and other documents incident
thereto, including any amendment of or supplement to the prospectus, as a
Shareholder from time to time may reasonably request;
<PAGE>
(d) Notify each seller of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or incomplete in the light of the
circumstances then existing, and at the request of any such seller, prepare and
furnish to such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading or
incomplete in the light of the circumstances then existing;
(e) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed; and
(f) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant to such registration statement and a CUSIP number
for all such Registrable Securities, in each case not later than the effective
date of such registration.
14.6 INDEMNIFICATION.
(a) The Company will indemnify each Shareholder, each of its
officers, directors and partners, legal counsel, and accountants and each person
controlling such Shareholder within the meaning of Section 15 of the Securities
Act, with respect to which registration, qualification, or compliance has been
effected pursuant to this Section 14, and each underwriter, if any, and each
person who controls within the meaning of Section 15 of the Securities Act any
underwriter, against all expenses, claims, losses, damages, and liabilities (or
actions, proceedings, or settlements in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular, or other document (including any
related registration statement, notification, or the like) incident to any such
registration, qualification, or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of the Securities Act or any rule or regulation thereunder applicable to
the Company and relating to action or inaction required of the Company in
connection with any such registration, qualification, or compliance, and will
reimburse each such Shareholder, each of its officers, directors, partners,
legal counsel, and accountants and each person controlling such Shareholder,
each such underwriter, and each person who controls any such underwriter, for
any legal and any other expenses reasonably incurred in connection with
investigating and defending or settling any such claim, loss, damage, liability,
or action, provided that the Company will not be liable in any such case to the
extent that any such claim, loss, damage, liability, or expense arises out of or
is based on any untrue statement or omission based upon written information
furnished to the Company by such Shareholder or underwriter and stated to be
specifically for use therein. It is agreed that the obligations of the Company
contained in this Section 14.6(a) shall not apply to amounts paid in settlement
<PAGE>
of any such loss, claim, damage, liability, or action if such settlement is
effected without the consent of the Company (which consent shall not be
unreasonably withheld).
(b) Each Shareholder will, if Registrable Securities held by him are
included in the securities as to which such registration, qualification, or
compliance is being effected, indemnify the Company, each of its directors,
officers, partners, legal counsel, and accountants and each underwriter, if any,
of the Company's securities covered by such a registration statement, each
person who controls the Company or such underwriter within the meaning of
Section 15 of the Securities Act, each other such Shareholder and Other
Shareholder, and each of their officers, directors, and partners, and each
person controlling such Shareholder or Other Shareholder, against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, offering
circular, or other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and such
Shareholders, Other Shareholders, directors, officers, partners, legal counsel,
and accountants, persons, underwriters, or control persons for any legal or any
other expenses reasonably incurred in connection with investigating or defending
any such claim, loss, damage, liability, or action, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such registration statement,
prospectus, offering circular, or other document in reliance upon and in
conformity with written information furnished to the Company by such Shareholder
and stated to be specifically for use therein PROVIDED, HOWEVER, that the
obligations of such Shareholder hereunder shall not apply to amounts paid in
settlement of any such claims, losses, damages, or liabilities (or actions in
respect thereof) if such settlement is effected without the consent of such
Shareholder (which consent shall not be unreasonably withheld).
(c) Each party entitled to indemnification under this Section 14.6
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 14, to the extent such
failure is not prejudicial. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation. Each Indemnified Party shall furnish such information
regarding itself or the claim in question as an Indemnifying Party may
reasonably request in writing and as shall be reasonably required in connection
with defense of such claim and litigation resulting therefrom.
<PAGE>
(d) If the indemnification provided for in this Section 14.6 is held
by a court of competent jurisdiction to be unavailable to an Indemnified Party
with respect to any loss, liability, claim, damage, or expense referred to
therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.
14.7 INFORMATION BY SHAREHOLDER. Each Shareholder of Registrable
Securities shall furnish to the Company such information regarding such
Shareholder and the distribution proposed by such Shareholder as the Company may
reasonably request in writing and as shall be reasonably required in connection
with any registration, qualification, or compliance referred to in this Section
14.
14.8 "MARKET STAND-OFF" AGREEMENT. If requested by the Company and an
underwriter of Common Stock (or other securities) of the Company in connection
with a registration pursuant to this Section 14, a Shareholder shall not sell or
otherwise transfer or dispose of any Common Stock (or other securities) of the
Company held by such Shareholder (other than those included in the registration)
during the one hundred eighty (180) day period (or such shorter period as may be
required by the proviso below) following the effective date of a registration
statement of the Company filed under the Securities Act (other than in
connection with the IPO); PROVIDED, HOWEVER, that the Shareholder will not be
subject to a lockup period that is longer than any officer, director or 1%
shareholder of the Company and shall only be subject to a lockup period if all
officers, directors and 1% shareholders are subject to lockup periods. The
Company may impose stop-transfer instructions with respect to the shares (or
securities) subject to the foregoing restriction until the end of such one
hundred eighty (180) day period (or shorter period, as applicable).
14.9 ALLOCATION OF REGISTRATION OPPORTUNITIES. In any circumstance in
which all of the Registrable Securities and other shares of Common Stock of the
Company with registration rights (the "Other Shares") requested to be included
in a registration on behalf of the Shareholders or other selling shareholders
cannot be so included as a result of limitations of the aggregate number of
shares of Registrable Securities and Other Shares that may be so included, the
number of shares of Registrable Securities and Other Shares that may be so
included shall be allocated among the Shareholders and other selling
shareholders requesting inclusion of shares pro rata on the basis of the number
of shares of Registrable
<PAGE>
Securities and Other Shares that would be held by such Shareholders and other
selling shareholders, assuming conversion; PROVIDED, HOWEVER, so that such
allocation shall not operate to reduce the aggregate number of Registrable
Securities and Other Shares to be included in such registration, if any
Shareholder or other selling shareholder does not request inclusion of the
maximum number of shares of Registrable Securities and Other Shares allocated to
him pursuant to the above-described procedure, the remaining portion of his
allocation shall be reallocated among those requesting Shareholders and other
selling shareholders whose allocations did not satisfy their requests pro rata
on the basis of the number of shares of Registrable Securities and Other Shares
which would be held by such Shareholders and other selling shareholders,
assuming conversion, and this procedure shall be repeated until all of the
shares of Registrable Securities and Other Shares which may be included in the
registration on behalf of the Shareholders and other selling shareholders have
been so allocated. The Company shall not limit the number of Registrable
Securities to be included in a registration pursuant to this Section 14.9 in
order to include shares held by shareholders with no registration rights.
14.10 TERMINATION OF REGISTRATION RIGHTS. The right of any
Shareholder to request registration or inclusion in any registration pursuant to
Section 14.2 shall terminate five (5) years after the IPO or at such time as the
Shares can be sold pursuant to Rule 144 over a period of three (3) months or
less.
15. MISCELLANEOUS.
15.1 GOVERNING LAW. This Agreement shall be construed in accordance
with, and governed by, the laws of the State of California without reference to
conflicts of law.
15.2 SUBMISSION TO JURISDICTION; CHOICE OF FORUM. The Company and
Holder each submit to the jurisdiction of any state or federal court sitting in
San Francisco County, California, and New York County, New York, in any action
or proceeding arising out of or related to this Warrant or the transactions
contemplated herein and agrees that all claims in respect of such action or
proceeding may be heard and determined in any such court. Each of the parties
waives any defense of inconvenient forum to the maintenance of any action or
proceeding so brought and waives any bond, surety or other security that might
be required of any party with respect thereto.
<PAGE>
IN WITNESS WHEREOF, TRACK 'N TRAIL has caused this Warrant to be executed
by its officers thereunto duly authorized.
Dated as of October 25, 1996.
HOLDER: COMPANY:
LADENBURG THALMANN & CO. INC. TRACK 'N TRAIL
By: /s/ RONALD J. KRAMER By: /s/ GREGORY M. KILGORE
------------------------------------- --------------------------------
Ronald J. Kramer Gregory M. Kilgore
Chairman and Chief Executive Officer President
<PAGE>
NOTICE OF SUBSCRIPTION
----------------------
To: TRACK 'N TRAIL (the "Company")
(1) The undersigned hereby elects to purchase
shares of Common Stock of the Company. ---------------------------------
(2) In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the shares of Common Stock are being acquired solely for
the account of the undersigned and not as a nominee for any other party, or
for investment, and that the undersigned will not offer, sell or otherwise
dispose of any such shares of Common Stock except under circumstances that
will not result in a violation of the Securities Act of 1933, as amended,
or any state securities laws.
(3) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
-----------------------------------
(Name)
-----------------------------------
(Name)
(4) Please issue a new Warrant for the unexercised portion of the attached
Warrant in the name of the undersigned or in such other name as is
specified below:
-----------------------------------
(Name)
- ----------------------------------- -----------------------------------
(Date) (Signature)
<PAGE>
CASHLESS EXERCISE FORM
----------------------
(To be executed upon exercise of Warrant
pursuant to Section 3(a)(i)(B))
The undersigned hereby irrevocably elects to surrender ________ shares
purchasable under this Warrant for such shares of Common Stock issuable in
exchange therefor pursuant to the Cashless Exercise provisions of the within
Warrant, as provided for in Section 3(a)(i)(B) of such Warrant.
Please issue a certificate or certificates for such Common Stock in the
name of, and pay cash for fractional shares to:
Name:
------------------------------
(Please Print Name, Address and
Social Security No.)
Address:
---------------------------
Social
Security Number:
-------------------
Signature:
-------------------------
NOTE: The above signature should
correspond exactly with the name on
the first page of this Warrant or
with the name of the assignee
appearing in the assignment form
below.
Date:
------------------------------
And if said number of shares shall not be all the shares exchangeable or
purchasable under the within Warrant, a new Warrant is to be issued in the name
of the undersigned for the balance remaining of the shares purchasable
thereunder.
<PAGE>
ASSIGNMENT
----------
FOR VALUE RECEIVED, ___________________________________ hereby sells,
assigns and transfers unto _________________________________________________ the
foregoing Warrant and all rights evidenced thereby, and does irrevocably
constitute and appoint ___________________________________________, attorney, to
transfer said Warrant on the books of Track 'n Trail.
Dated: Signature:
----------------------------- -------------------------
Address:
---------------------------
-----------------------------------
PARTIAL ASSIGNMENT
------------------
FOR VALUE RECEIVED, _________________________________________ hereby sells,
assigns and transfers unto _________________________________________________ the
right to purchase ______________ shares of the shares of the Common Stock of
Track 'n Trail covered by the foregoing Warrant, and a proportionate part of
said Warrant and the rights evidenced thereby, and does irrevocably constitute
and appoint
__________________________________________________________________, attorney, to
transfer that part of said Warrant on the books of Track 'n Trail.
Dated: Signature:
----------------------------- -------------------------
Address:
---------------------------
-----------------------------------
<PAGE>
Exhibit 10.12
WARRANT PERCENTAGE OF
NUMBER NAME OF WARRANT HOLDER OUTSTANDING STOCK (1)
W-001 Daniel P. Bazinet .42912604
W-002 Wayne T. Samuels .24793948
W-003 Seacoast Capital Partners, L.P. .28488996
W-004 Donald J. McGillicuddy .00953613
W-005 Donald J. McGillicuddy, Trustee of the
Ashley A. Samuels Minor's Trust .00953613
W-006 Donald J. McGillicuddy, Trustee of the
Eryn J. Samuels Minor's Trust .00953613
W-007 Donald J. McGillicuddy, Trustee of the
Nathan W. Samuels Minor's Trust .00953613
- ----------------------
(1) Calculation based on the outstanding Common Stock of the Company on a fully
diluted basis.
<PAGE>
WARRANT
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE, AND MAY BE OFFERED
AND SOLD ONLY IF REGISTERED AND QUALIFIED PURSUANT TO THE RELEVANT
PROVISIONS OF FEDERAL AND STATE SECURITIES LAWS OR IF THE COMPANY IS
PROVIDED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
REGISTRATION AND QUALIFICATION UNDER FEDERAL AND STATE SECURITIES LAWS IS
NOT REQUIRED. TRANSFER OF THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON
EXERCISE HEREOF IS FURTHER RESTRICTED BY THE TERMS OF A STOCK PURCHASE AND
EXCHANGE AGREEMENT DATED AS OF OCTOBER 25, 1996 BY AND AMONG THE COMPANY
AND THE OTHER PARTIES SIGNATORY THERETO, A COPY OF WHICH IS MAINTAINED AT
THE COMPANY'S PRINCIPAL OFFICES.
No. W-___ Warrant to Purchase Shares of
Common Stock (subject
to adjustment)
WARRANT TO PURCHASE COMMON STOCK
OF
TRACK 'N TRAIL
VOID AFTER OCTOBER 25, 2001
This certifies that, for value received, , or registered
assigns (the "Holder") is entitled, subject to the terms set forth below, to
purchase from TRACK 'N TRAIL, a California corporation (the "Company"), the
number of shares of Common Stock of the Company equal to ____% of the issued and
outstanding Common Stock of the Company on a fully diluted basis (without giving
effect to this Warrant) as determined immediately prior to (i) closing of the
sale and issuance of shares of Common Stock of the Company in a firmly
underwritten initial public offering pursuant to an effective registration
statement under the Securities Act (the "IPO"), or (ii) the closing of a Change
of Control event or transaction, upon surrender hereof, at the principal office
of the Company referred to below, with the subscription form attached hereto
duly executed. The number and character of such shares of Common Stock are
subject to adjustment as provided below.
-2-
<PAGE>
The term "Warrant" as used herein shall include this Warrant, and any warrants
delivered in substitution or exchange therefor as provided herein.
Nothing herein shall be construed as creating any obligation of the
Company to effect or consummate an IPO or any other transaction involving an
offering of shares of its capital stock.
This Warrant was issued pursuant to that certain Stock Purchase and
Exchange Agreement dated as of October 25, 1996, as amended and modified from
time to time in accordance with its terms (the "Purchase Agreement") by and
among the Company, Holder and the other parties signatory thereto. This Warrant
is one of the Warrants referred to in the Purchase Agreement, and all provisions
of the Purchase Agreement are hereby incorporated in this Warrant in full by
reference. Unless otherwise defined herein all capitalized terms used in this
Warrant shall have the respective meanings given to such terms in the Purchase
Agreement.
I. TERM OF WARRANT. Subject to the terms and conditions set forth
herein, the purchase right represented by this Warrant shall terminate at
5:00 P.M., Pacific Standard Time, on October 25, 2001.
II. EXERCISE PRICE. Except as provided in Section 3(b) hereof, the
Exercise Price at which this Warrant may be exercised shall be the initial
offering price to the public in the IPO per share of Common Stock.
III. EXERCISE OF WARRANT.
1. The purchase rights represented by this Warrant are exercisable
by the Holder in whole (or in part for purposes of Section 3(a)(i) but not for
less than 1,000 shares at a time, or such lesser number of shares which may then
constitute the maximum number purchasable) upon the earlier to occur of: (i) on
or after the closing of the sale and issuance of shares of Common Stock of the
Company in the IPO, or (ii) upon a Change of Control (hereinafter defined) prior
to the IPO, by the surrender of this Warrant and the Notice of Exercise annexed
hereto duly completed and executed on behalf of the Holder, at the office of the
Company (or such other office or agency of the Company as it may designate by
notice in writing to the Holder at the address of the Holder appearing on the
books of the Company), upon payment (A) in cash or by check acceptable to the
Company, (B) by cancellation by the Holder of indebtedness of the Company to the
Holder, (C) by surrendering the holder's right to shares of Common Stock for
which this Warrant is then exercisable (the value of such surrendered shares
being the Market Price for such shares) or (D) by any combination of (A), (B)
and (C), of the aggregate Exercise Price of the shares to be purchased. The
"Market Price" of shares of Common Stock for purposes of clause (i)(C) above
shall be the closing price (if listed on a stock exchange or quoted on the
NASDAQ National Market System or any successor thereto) or the average of the
bid and asked prices (if quoted on NASDAQ or otherwise publicly traded) of the
Common Stock on the trading day immediately prior to the date of exercise. In
the event that the shares of Common Stock surrendered to the Company pursuant to
clause (i)(C) have a Market Price that, when
-3-
<PAGE>
added to the other consideration from the Holder pursuant to (i)(A) and (i)(B),
exceeds the Exercise Price for all shares of Common Stock for which this Warrant
is then being exercised, the Company may pay cash to the Holder pursuant to
Section 4 in lieu of issuing any fractional shares.
2. In the event this Warrant is exercised pursuant to Section
3(a)(ii), the Exercise Price per share of Common Stock shall be the par value
thereof. For purposes of this Section, "Change of Control" shall mean the
occurrence prior to an IPO of any of the following events: (i) the consummation
of a merger, consolidation or other reorganization of the Company (other than a
reincorporation of the Company), if after giving effect to such merger,
consolidation or other reorganization of the Company, the shareholders of the
Company immediately prior to such merger, consolidation or other reorganization
do not represent a majority in interest of the holders of voting securities (on
a fully diluted basis) with the ordinary voting power to elect directors of the
surviving or resulting entity after such merger, consolidation or other
reorganization; (ii) a transaction involving the sale of outstanding shares of
capital stock of the Company to a third party if after giving effect to such
transaction, the shareholders of the Company immediately prior to such
transaction do not represent a majority in interest of the holders of voting
securities (on a fully diluted basis) with the ordinary voting power to elect
directors of the Company; (iii) the sale of all or substantially all of the
assets of the Company to a third party; or (iv) the commencement of a proceeding
for the voluntary liquidation or dissolution of the Company pursuant to
applicable law.
3. This Warrant shall be deemed to have been exercised immediately
prior to the close of business on the date of its surrender for exercise as
provided above, and the person entitled to receive the shares of Common Stock
issuable upon such exercise shall be treated for all purposes as the holder of
record of such shares as of the close of business on such date. As promptly as
practicable on or after such date and in any event within ten (10) days
thereafter, the Company at its expense will also execute and shall issue and
deliver to the person or persons entitled to receive the same a certificate or
certificates for the number of shares issuable upon such exercise. In the event
that this Warrant is exercised in part, the Company at its expense will execute
and deliver a new Warrant of like tenor exercisable for the number of shares for
which this Warrant may then be exercised.
IV. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which the Holder would otherwise be
entitled, the Company shall make a cash payment equal to the excess of the
prevailing market price over the Exercise Price multiplied by such fraction.
V. REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and substance to the Company
or, in the case of mutilation, on surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor and amount.
-4-
<PAGE>
VI. RIGHTS OF SHAREHOLDERS. This Warrant shall not entitle its Holder
to any of the rights of a shareholder of the Company.
VII. TRANSFER OF WARRANT.
1. WARRANT REGISTER. The Company will maintain a register (the
"Warrant Register") containing the names and addresses of the Holder or Holders.
Any Holder of this Warrant or any portion thereof may change his address as
shown on the Warrant Register by written notice to the Company requesting such
change. Any notice or written communication required or permitted to be given
to the Holder may be delivered or given by mail to such Holder as shown on the
Warrant Register and at the address shown on the Warrant Register. Until this
Warrant is transferred on the Warrant Register of the Company, the Company may
treat the Holder as shown on the Warrant Register as the absolute owner of this
Warrant for all purposes, notwithstanding any notice to the contrary.
2. WARRANT AGENT. The Company may, by written notice to the Holder,
appoint an agent for the purpose of maintaining the Warrant Register referred to
in Section 7(a) above, issuing the Common Stock then issuable upon the exercise
of this Warrant, exchanging this Warrant, replacing this Warrant, or any or all
of the foregoing. Thereafter, any such registration, issuance, exchange, or
replacement, as the case may be, shall be made at the office of such agent.
3. RESTRICTIONS ON TRANSFER. The Holder of this Warrant by
acceptance hereof agrees that the transfer of this Warrant and the shares of
Common Stock issuable upon the exercise of all or any portion of this Warrant
are subject to the provisions of Sections 6.2(g) and (h) of the Purchase
Agreement, which include restrictions on transfer thereof; and this Warrant and
the shares of Common Stock issuable upon the exercise of all or any portion of
this Warrant shall be entitled to all rights and benefits accorded thereto in
the Purchase Agreement, and the applicable provisions of the Purchase Agreement
are hereby incorporated herein by reference.
VIII. RESERVATION OF COMMON STOCK. The Company covenants that during the
term this Warrant is exercisable, the Company will reserve from its authorized
and unissued Common Stock a sufficient number of shares to provide for the
issuance of Common Stock upon the exercise of this Warrant and, from time to
time, will take all steps necessary to amend its Articles of Incorporation to
provide sufficient reserves of shares of Common Stock issuable upon exercise of
the Warrant. The Company further covenants that all shares that may be issued
upon exercise of the rights represented by this Warrant and payment of the
Exercise Price, all as set forth herein, will be duly paid and nonassessable,
free from all taxes, liens and charges in respect of the issue thereof (other
than taxes in respect of any transfer occurring contemporaneously or otherwise
specified herein). The Company agrees that its issuance of this Warrant shall
constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates for
shares of Common Stock upon the exercise of this Warrant.
-5-
<PAGE>
IX. NOTICES.
1. Whenever the Exercise Price or number or type of shares
purchasable hereunder shall be adjusted pursuant to Section 11 hereof, the
Company shall issue a certificate signed by its Chief Financial Officer setting
forth, in reasonable detail, the event requiring the adjustment, the amount of
the adjustment, the method by which such adjustment was calculated, and the
number and type of shares purchasable hereunder after giving effect to such
adjustment, and shall cause a copy of such certificate to be mailed (by
first-class mail, postage prepaid) to the Holder of this Warrant.
2. After the IPO, in case:
a. the Company shall take a record of the holders of its Common
Stock (or other stock or securities at the time receivable upon the exercise of
this Warrant) for the purpose of entitling them to receive any dividend or other
distribution, or any right to subscribe for or purchase any shares of stock of
any class or any other securities, or to receive any other right, or
b. of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation, or any conveyance of all
or substantially all of the assets of the Company to another corporation, or
c. of any voluntary dissolution, liquidation or winding-up of
the Company,
then, and in each such case, the Company will mail or cause to be mailed to the
Holder a notice specifying, as the case may be, (A) the date on which a record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right, or (B)
the date on which such reorganization, reclassification, consolidation, merger,
conveyance, dissolution, liquidation or winding-up is to take place, and the
time, if any is to be fixed, as of which the holders of record of Common Stock
(or such stock or securities at the time receivable upon the exercise of this
Warrant) shall be entitled to exchange their shares of Common Stock (or such
other stock or securities) for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up. Such notice shall be mailed at least
15 days prior to the date therein specified.
3. Any notice or demand desired or required to be given hereunder
shall be in writing and deemed given when personally delivered, sent by
telecopier, overnight courier or deposited in the mail, postage prepaid, sent
certified or registered, return receipt requested, and addressed as set forth
below or to such other address as any party shall have previously designated by
such a notice. Any notice so delivered personally or by telecopy shall be
deemed to be received on the date of delivery or transmission by telecopier; any
notice so sent by overnight courier shall be deemed to be received one (1)
business day after the date sent; and any notice so mailed shall be deemed to be
received on
-6-
<PAGE>
the date shown on the receipt. Rejection or other refusal to accept or
inability to deliver because of a change of address of which no notice was given
shall be deemed to be receipt of the notice.
If to the Company:
Track 'n Trail
4961-A Windplay Drive
El Dorado Hills, CA 95763
Attention: Mr. David L. Suechting, Jr.
Telecopier: (916) 933-4521
If to Holder:
X. AMENDMENTS.
1. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
2. No waivers of, or exceptions to, any term, condition or provision
of this Warrant, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such term, condition or
provision.
XI. ADJUSTMENTS. The Exercise Price and the number and type of shares
purchasable hereunder are subject to adjustment from time to time after the IPO
as follows:
A. MERGER, SALE OF ASSETS, ETC. If at any time while this Warrant, or
any portion thereof, is outstanding and unexpired there shall be (i) a
reorganization of the Company (other than a combination, reclassification,
exchange or subdivision of shares otherwise provided for herein), (ii) a merger
or consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a reverse triangular merger in which the
Company is the surviving entity but the shares of the Company's capital stock
outstanding immediately prior to the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise, or (iii) a sale or transfer of the Company's properties and assets
as, or substantially as, an entirety to any other person, then, as a part of
such reorganization, merger, consolidation, sale or transfer, lawful provision
shall be made so that the holder of this Warrant shall thereafter be entitled to
receive upon exercise of this Warrant, during the period specified herein and
upon payment of the Exercise Price, the number of shares of stock or other
securities or property of the successor corporation resulting from such
reorganization, merger,
-7-
<PAGE>
consolidation, sale or transfer that a holder of the shares deliverable upon
exercise of this Warrant would have been entitled to receive in such
reorganization, consolidation, merger, sale or transfer if this Warrant had been
exercised immediately before such reorganization, merger, consolidation, sale or
transfer, all subject to further adjustment as provided in this Section 11. The
foregoing provisions of this Section 11.1 shall similarly apply to successive
reorganizations, consolidations, mergers, sales and transfers and to the stock
or securities of any other corporation that are at the time receivable upon the
exercise of this Warrant. If the per-share consideration payable to the holder
hereof for shares in connection with any such transaction is in a form other
than cash or marketable securities, then the cash equivalency of such
consideration shall be determined in good faith by the Company's Board of
Directors and the holder hereof shall accept such cash equivalency in exchange
for such share consideration. In all events, appropriate adjustment (as
determined in good faith by the Company's Board of Directors) shall be made in
the application of the provisions of this Warrant with respect to the rights and
interests of the Holder after the transaction, to the end that the provisions of
this Warrant shall be applicable after that event, as near as reasonably may be,
in relation to any shares or other property deliverable after that event upon
exercise of this Warrant.
B. RECLASSIFICATION, ETC. If the Company, at any time while this
Warrant, or any portion thereof, remains outstanding and unexpired, by
reclassification of securities or otherwise shall change any of the securities
as to which purchase rights under this Warrant exist into the same or a
different number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities that were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the Exercise
Price therefor shall be appropriately adjusted, all subject to further
adjustment as provided in this Section 11.
C. SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the Company at any
time while this Warrant, or any portion thereof, remains outstanding and
unexpired, shall split, subdivide or combine the securities as to which purchase
rights under this Warrant exist, into a different number of securities of the
same class, the Exercise Price for such securities shall be proportionately
decreased in the case of a split or subdivision or proportionately increased in
the case of a combination, and the number of shares purchasable hereunder shall
be proportionately increased in the case of a split or subdivision or
proportionately decreased in the case of a combination.
D. ADJUSTMENTS FOR DIVIDENDS IN STOCK OR OTHER SECURITIES OR PROPERTY.
If while this Warrant, or any portion hereof, remains outstanding and unexpired
the holders of the securities as to which purchase rights under this Warrant
exist at the time shall have received, or, on or after the record date fixed for
the determination of eligible shareholders, shall have become entitled to
receive, without payment therefor, other or additional stock or other securities
or property (other than cash) of the Company by way of dividend, then and in
each case, this Warrant shall represent the right to acquire, in addition to the
number of shares of the security receivable upon exercise of this Warrant, and
without payment of any additional consideration therefor, the amount of such
other or additional stock or other
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<PAGE>
securities or property (other than cash) of the Company that such holder would
hold on the date of such exercise had it been the holder of record of the
security receivable upon exercise of this Warrant on the date hereof and had
thereafter, during the period from the date hereof to and including the date of
such exercise, retained such shares and/or all other additional stock available
by it as aforesaid during such period, giving effect to all adjustments called
for during such Period by the provisions of this Section 11.
E. CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 11, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each Holder of this Warrant a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Company shall, upon
the written request, at any time, of any such Holder, furnish or cause to be
furnished to such Holder a like certificate setting forth: (i) such adjustments
and readjustments; (ii) the Exercise Price at the time in effect; and (iii) the
number of shares and the amount, if any, of other property (or the cash
equivalency thereof) that at the time would be received upon the exercise of the
Warrant.
F. NO IMPAIRMENT. The Company will not, by any voluntary action, avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 11 and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Holder of this Warrant against impairment.
XII. "MARKET STAND-OFF" AGREEMENT. If requested by an underwriter of
Common Stock (or other securities) of the Company, Holder shall not sell or
otherwise transfer or dispose of portion of this Warrant or the Common Stock
issuable upon exercise hereof during a period not to exceed three hundred
sixty-five (365) days (or such shorter period as may be required by the proviso
below) (the "Lockup Period") following the effective date of a registration
statement of the Company filed under the Securities Act in connection with the
IPO; PROVIDED, HOWEVER, that the Holder will not be subject to a Lockup Period
that is longer than any officer, director or 1% shareholder of the Company and
shall only be subject to a Lockup Period if all officers, directors and 1%
shareholders are subject to Lockup Periods. The Company may impose
stop-transfer instructions with respect to the Warrant and the shares of Common
Stock subject to the foregoing restriction until the end of the Lockup Period.
-9-
<PAGE>
XIII. PURCHASE OF WARRANT. In the event the Company does not effect an IPO
prior to October 25, 2001, and the Warrant has not otherwise become exercisable
pursuant to Section 3(b) hereof the Company shall pay Holder cash in an amount
equal to the then appraised fair market value of .42912604% of the issued and
outstanding Common Stock of the Company on October 25, 2001. The appraisal
shall be effected by a reputable appraisal firm mutually selected by the Company
and Holder. The Company and Holder shall each pay one-half of the cost of such
appraisal.
XIV. REGISTRATION RIGHTS.
14.1 CERTAIN DEFINITIONS. As used in this Warrant, the following terms
shall have the meanings set forth below:
"Commission" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
"Other Shareholders" shall mean persons other than Shareholders who,
by virtue of agreements with the Company, are entitled to include their
securities in certain registrations hereunder.
"Registrable Securities" shall mean (i) the shares of Common Stock
issued pursuant to the exercise of this Warrant and (ii) any Common Stock issued
as a dividend or other distribution with respect to or in exchange for or in
replacement of the shares referenced in (i) above, PROVIDED, HOWEVER, that
Registrable Securities shall not include any shares of Common Stock which have
previously been registered or which have been sold to the public pursuant to
Rule 144.
The terms "register," "registered" and "registration" shall refer to
a registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registration Expenses" shall mean all expenses incurred in
effecting any registration pursuant to Section 14 of this Warrant, including,
without limitation, all registration, qualification, and filing fees, printing
expenses, escrow fees, fees and disbursements of counsel for the Company, blue
sky fees and expenses, and expenses of any regular or special audits incident to
or required by any such registration, but shall not include Selling Expenses and
fees and disbursements of counsel for the Shareholders (but excluding the
compensation of regular employees of the Company, which shall be paid in any
event by the Company).
"Rule 144" shall mean Rule 144 as promulgated by the Commission
under the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
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<PAGE>
"Rule 145" shall mean Rule 145 as promulgated by the Commission
under the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended,
or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to time.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and fees and
disbursements of counsel for any Shareholder (other than the fees and
disbursements of counsel included in Registration Expenses).
"Shareholder" shall mean any Person who holds Registrable Securities
and any holder of Registrable Securities to whom the registration rights
conferred by this Section 14 have been transferred in compliance with Section
14.8.
14.2 REGISTRATION.
(a) COMPANY REGISTRATION. If, after consummation of the IPO,
the Company shall determine to register any of its securities under the
Securities Act either for its own account or the account of a security holder or
holders exercising registration rights, other than a registration relating
solely to employee benefit plans, or a registration relating solely to a Rule
145 transaction, or a registration on any registration form that does not permit
secondary sales, the Company will:
(i) promptly give to each Shareholder written notice thereof;
and
(ii) use its best efforts to include in such registration (and
any related qualification under blue sky laws or other compliance), except as
set forth in Section 14.3(b) below, and in any underwriting involved therein,
all the Registrable Securities specified in a written request or requests, made
by any Shareholder and received by the Company within twenty (20) days after the
written notice from the Company described in clause (i) above is mailed or
delivered by the Company. Such written request may specify all or a part of a
Shareholder's Registrable Securities.
14.3 UNDERWRITING.
(a) If the registration of which the Company gives notice is for
a registered public offering involving an underwriting, the Company shall so
advise the Shareholders as a part of the written notice given pursuant to
Section 14.2(a)(i). In such event, the right of any Shareholder to registration
pursuant to this Section 14 shall be conditioned upon such Shareholder's
participation in such underwriting and the inclusion of such Shareholder's
Registrable Securities in the underwriting to the extent provided herein. All
Shareholders proposing to distribute their securities through such underwriting
shall
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<PAGE>
(together with the Company and the other holders of securities of the Company
with registration rights to participate therein distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the representative of the underwriter or underwriters selected by the
Company.
(b) Notwithstanding any other provision of this Section 14, if
the representative of the underwriters advises the Company in writing that
marketing factors require a limitation on the number of shares to be
underwritten, the representative may (subject to the limitations set forth
below) exclude all Registrable Securities from, or limit the number of
Registrable Securities to be included in, the registration and underwriting.
The Company may limit, to the extent so advised by the underwriters, the amount
of securities to be included in the registration by the Company's shareholders
(including the Shareholders). The Company shall so advise all holders of
securities requesting registration, and the number of shares of securities that
are entitled to be included in the registration and underwriting shall be
allocated first to the Company for securities being sold for its own account and
thereafter as set forth in Section 14.10. If any person does not agree to the
terms of any such underwriting, he shall be excluded therefrom by written notice
from the Company or the underwriter. Any Registrable Securities or other
securities excluded or withdrawn from such underwriting shall be withdrawn from
such registration.
(c) If shares are so withdrawn from the registration and if the
number of shares of Registrable Securities to be included in such registration
was previously reduced as a result of marketing factors, the Company shall then
offer to all persons who have retained the right to include securities in the
registration the right to include additional securities in the registration in
an aggregate amount equal to the number of shares so withdrawn, with such shares
to be allocated among the persons requesting additional inclusion in accordance
with Section 14.10. Any Registrable Securities not included in the underwriting
shall retain the right to be included in subsequent registrations on the terms
and conditions set forth herein.
14.4 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Section 14.2 hereof shall be borne by the Company. All Selling Expenses
relating to securities so registered shall be borne by the holders of such
securities pro rata on the basis of the number of shares of securities so
registered on their behalf.
14.5 REGISTRATION PROCEDURES. In the case of each registration effected
by the Company pursuant to Section 14.2, the Company will keep each Shareholder
advised in writing as to the initiation of each registration and as to the
completion thereof. At its expense, the Company will use its best efforts to:
(a) Keep such registration effective for a period of one hundred
twenty (120) days or until the Shareholder or Shareholders have completed the
distribution described in the registration statement relating thereto, whichever
first occurs; PROVIDED, HOWEVER, that such 120-day period shall be extended for
a period of time equal to the period
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<PAGE>
the Shareholder refrains from selling any securities included in such
registration at the request of the Company pursuant to Section 14.5(d);
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
(c) Furnish such number of prospectuses and other documents
incident thereto, including any amendment of or supplement to the prospectus, as
a Shareholder from time to time may reasonably request;
(d) Notify each seller of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or incomplete in the light of the
circumstances then existing, and at the request of any such seller, prepare and
furnish to such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading or
incomplete in the light of the circumstances then existing;
(e) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed; and
(f) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant to such registration statement and a CUSIP number
for all such Registrable Securities, in each case not later than the effective
date of such registration.
14.6 INDEMNIFICATION.
(a) The Company will indemnify each Shareholder, each of its
officers, directors and partners, legal counsel, and accountants and each person
controlling such Shareholder within the meaning of Section 15 of the Securities
Act, with respect to which registration, qualification, or compliance has been
effected pursuant to this Section 14, and each underwriter, if any, and each
person who controls within the meaning of Section 15 of the Securities Act any
underwriter, against all expenses, claims, losses, damages, and liabilities (or
actions, proceedings, or settlements in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular, or other document (including any
related registration statement, notification, or the like) incident to any such
registration, qualification, or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be
-13-
<PAGE>
stated therein or necessary to make the statements therein not misleading, or
any violation by the Company of the Securities Act or any rule or regulation
thereunder applicable to the Company and relating to action or inaction required
of the Company in connection with any such registration, qualification, or
compliance, and will reimburse each such Shareholder, each of its officers,
directors, partners, legal counsel, and accountants and each person controlling
such Shareholder, each such underwriter, and each person who controls any such
underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating and defending or settling any such claim, loss,
damage, liability, or action, provided that the Company will not be liable in
any such case to the extent that any such claim, loss, damage, liability, or
expense arises out of or is based on any untrue statement or omission based upon
written information furnished to the Company by such Shareholder or underwriter
and stated to be specifically for use therein. It is agreed that the indemnity
agreement contained in this Section 14.6(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent has not
been unreasonably withheld).
(b) Each Shareholder will, if Registrable Securities held by him
are included in the securities as to which such registration, qualification, or
compliance is being effected, indemnify the Company, each of its directors,
officers, partners, legal counsel, and accountants and each underwriter, if any,
of the Company's securities covered by such a registration statement, each
person who controls the Company or such underwriter within the meaning of
Section 15 of the Securities Act, each other such Shareholder and Other
Shareholder, and each of their officers, directors, and partners, and each
person controlling such Shareholder or Other Shareholder, against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, offering
circular, or other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and such
Shareholders, Other Shareholders, directors, officers, partners, legal counsel,
and accountants, persons, underwriters, or control persons for any legal or any
other expenses reasonably incurred in connection with investigating or defending
any such claim, loss, damage, liability, or action, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such registration statement,
prospectus, offering circular, or other document in reliance upon and in
conformity with written information furnished to the Company by such Shareholder
and stated to be specifically for use therein PROVIDED, HOWEVER, that the
obligations of such Shareholder hereunder shall not apply to amounts paid in
settlement of any such claims, losses, damages, or liabilities (or actions in
respect thereof) if such settlement is effected without the consent of such
Shareholder (which consent shall not be unreasonably withheld).
(c) Each party entitled to indemnification under this Section
14.6 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of such
claim or any litigation resulting therefrom, provided that counsel
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<PAGE>
for the Indemnifying Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be approved by the Indemnified Party
(whose approval shall not unreasonably be withheld), and the Indemnified Party
may participate in such defense at such party's expense, and provided further
that the failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this Section
1, to the extent such failure is not prejudicial. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
that does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation. Each Indemnified Party shall furnish
such information regarding itself or the claim in question as an Indemnifying
Party may reasonably request in writing and as shall be reasonably required in
connection with defense of such claim and litigation resulting therefrom.
(d) If the indemnification provided for in this Section 14.6 is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage, or expense referred to
therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
14.7 INFORMATION BY SHAREHOLDER. Each Shareholder of Registrable
Securities shall furnish to the Company such information regarding such
Shareholder and the distribution proposed by such Shareholder as the Company may
reasonably request in writing and as shall be reasonably required in connection
with any registration, qualification, or compliance referred to in this Section
14.
14.8 TRANSFER OR ASSIGNMENT OF REGISTRATION RIGHTS. In addition to the
restrictions set forth in Section 7(c) of this Warrant, the rights to register
securities granted to a Shareholder by the Company under this Section 14 may be
transferred or assigned by a shareholder only to a transferee or assignee of not
less than 50,000 shares of Registrable Securities (as presently constituted and
subject to subsequent adjustments for stock splits, stock dividends, reverse
stock splits, and the like), provided that the Company is given
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<PAGE>
written notice at the time of or within a reasonable time after such transfer or
assignment, stating the name and address of the transferee or assignee and
identifying the securities with respect to which such registration rights are
being transferred or assigned, and, provided further, that the transferee or
assignee of such rights assumes the obligations of such Shareholder under this
Section 14.
14.9 "MARKET STAND-OFF" AGREEMENT. If requested by the Company and an
underwriter of Common Stock (or other securities) of the Company in connection
with a registration pursuant to this Section 14, a Shareholder shall not sell or
otherwise transfer or dispose of any Common Stock (or other securities) of the
Company held by such Shareholder (other than those included in the registration)
during the one hundred eighty (180) day period (or such shorter period as may be
required by the proviso below) following the effective date of a registration
statement of the Company filed under the Securities Act (other than in
connection with the IPO); PROVIDED, HOWEVER, that the Shareholder will not be
subject to a lockup period that is longer than any officer, director or 1%
shareholder of the Company and shall only be subject to a lockup period if all
officers, directors and 1% shareholders are subject to lockup periods. The
obligations described in this Section 14.9 shall not apply to a registration
relating solely to employee benefit plans on Form S-1 or Form S-8 or similar
forms that may be promulgated in the future, or a registration relating solely
to a Commission Rule 145 transaction on Form S-4 or similar forms that may be
promulgated in the future. The Company may impose stop-transfer instructions
with respect to the shares (or securities) subject to the foregoing restriction
until the end of such one hundred eighty (180) day period.
14.10 ALLOCATION OF REGISTRATION OPPORTUNITIES. In any circumstance in
which all of the Registrable Securities and other shares of Common Stock of the
Company with registration rights (the "Other Shares") requested to be included
in a registration on behalf of the Shareholders or other selling shareholders
cannot be so included as a result of limitations of the aggregate number of
shares of Registrable Securities and Other Shares that may be so included, the
number of shares of Registrable Securities and Other Shares that may be so
included shall be allocated among the Shareholders and other selling
shareholders requesting inclusion of shares pro rata on the basis of the number
of shares of Registrable Securities and Other Shares that would be held by such
Shareholders and other selling shareholders, assuming conversion; PROVIDED,
HOWEVER, so that such allocation shall not operate to reduce the aggregate
number of Registrable Securities and Other Shares to be included in such
registration, if any Shareholder or other selling shareholder does not request
inclusion of the maximum number of shares of Registrable Securities and Other
Shares allocated to him pursuant to the above-described procedure, the remaining
portion of his allocation shall be reallocated among those requesting
Shareholders and other selling shareholders whose allocations did not satisfy
their requests pro rata on the basis of the number of shares of Registrable
Securities and Other Shares which would be held by such Shareholders and other
selling shareholders, assuming conversion, and this procedure shall be repeated
until all of the shares of Registrable Securities and Other Shares which may be
included in the registration on behalf of the Shareholders and other selling
shareholders have been so allocated. The Company shall not limit the number of
Registrable Securities to be included
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<PAGE>
in a registration pursuant to this Section 14.10 in order to include shares held
by shareholders with no registration rights.
14.11 DELAY OF REGISTRATION. No Shareholder shall have any right to take
any action to restrain, enjoin, or otherwise delay any registration as the
result of any controversy that might arise with respect to the interpretation or
implementation of this Section 14.
14.12 TERMINATION OF REGISTRATION RIGHTS. The right of any Shareholder to
request registration or inclusion in any registration pursuant to Section 14.2
shall terminate three years after the IPO.
XV. MISCELLANEOUS.
A. GOVERNING LAW. This Agreement shall be construed in accordance
with, and governed by, the laws of the State of California without reference to
conflicts of law.
B. SUBMISSION TO JURISDICTION; CHOICE OF FORUM. The Company and Holder
each submit to the jurisdiction of any state or federal court sitting in
Sacramento County, California, and Essex County, Massachusetts, in any action or
proceeding arising out of or related to this Warrant or the transactions
contemplated herein and agrees that all claims in respect of such action or
proceeding may be heard and determined in any such court. Each of the parties
waives any defense of inconvenient forum to the maintenance of any action or
proceeding so brought and waives any bond, surety or other security that might
be required of any party with respect thereto.
C. RIGHT OF SET-OFF.
(a) Subject to Section 15.3(b), the Company may set-off the
value of any shares of Common Stock to be issued upon exercise of this Warrant
or any cash due to Holder under Section 13 hereof against Holder's obligations
("Indemnification Obligations") to the Company under Section 10.1 of the
Purchase Agreement. For purposes of this Section 15.3, the value of the shares
of Common Stock shall be determined after deduction of the Exercise Price
thereof.
(b) The Company shall not set-off the value of any shares of
Common Stock issuable hereunder against any Indemnification Obligations unless,
prior to such set-off, the Company shall have complied with each of the
following conditions:
(i) the Company shall have set-off all outstanding obligations
of the Company to the Holder under the TNT Note and Suechting Note against such
Indemnification Obligations;
(ii) the Company shall have made a demand upon the Holder for
payment of such Indemnification Obligations in accordance with Section 10.4 of
the Purchase Agreement and the Holder shall have failed to pay such
Indemnification Obligations for a period of twenty (20) days after such demand;
and
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(iii) if such set-off would be effected prior to consummation of
the IPO, an appraisal of the fair market value of the Common Stock as described
in Section 13 hereof shall have been completed in order to determine the value
of the shares of Common Stock.
IN WITNESS WHEREOF, TRACK 'N TRAIL has caused this Warrant to be executed
by its officers thereunto duly authorized.
Dated: October 25, 1996.
HOLDER: TRACK 'N TRAIL
By:
- ----------------------------------- ------------------------------------
David L. Suechting, Jr.
Chairman of the Board
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NOTICE OF EXERCISE
To: TRACK 'N TRAIL (the "Company")
(1) The undersigned hereby elects to purchase ___________ shares of
Common Stock of the Company.
(2) In exercising this Warrant, the undesigned hereby confirms and
acknowledges that the shares of Common Stock are being acquired solely for the
account of the undersigned and not as a nominee for any other party, or for
investment, and that the undersigned will not offer, sell or otherwise dispose
of any such shares of Common Stock except under circumstances that will not
result in a violation of the Securities Act of 1933, as amended, or any state
securities laws.
(3) Please issue a certificate or certificates representing said shares
of Common Stock in the name of the undersigned or in such other name as is
specified below:
---------------------------------------
(Name)
---------------------------------------
(Name)
(4) Please issue a new Warrant for the unexercised portion of the
attached Warrant in the name of the undersigned or in such other name as is
specified below:
---------------------------------------
(Name)
- ----------------------------------- ---------------------------------------
(Date) (Signature)
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EXHIBIT 11.1
TRACK 'N TRAIL AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
PERIOD ENDED
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ACQUISITION
REORGANIZATION REORGANIZATION
AND OFFERING AND OFFERING
PRO FORMA PRO FORMA
12/31/94 12/30/95 12/28/96 12/28/96 6/28/97 6/28/97
----------- ----------- ----------- -------------- ----------- --------------
HISTORICAL EARNINGS PER SHARE
Weighted average common shares
outstanding.......................... 4,107,608 4,107,608 4,107,608 4,107,608
Shares, warrants and options treated as
common share equivalent pursuant to
SEC Staff Accounting Bulletin Topic
4d................................... 669,240 669,240 669,240 669,240
----------- ----------- ----------- -----------
Total common and common equivalent
shares............................... 4,776,848 4,776,848 4,776,848 4,776,848
----------- ----------- ----------- -----------
Net income (loss)...................... $ 2,746,717 $ 2,386,069 $ 4,364,022 $ (235,896)
----------- ----------- ----------- -----------
Earnings (loss) per common and common
equivalent shares.................... $ 0.58 $ 0.50 $ 0.91 $ (0.05)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
PRO FORMA EARNINGS PER SHARE
Weighted average common shares
outstanding.......................... 4,107,608 4,107,608 4,107,608 4,107,608
Shares, warrants and options treated as
common share equivalent pursuant to
SEC Staff Accounting Bulletin
Topic 4d............................. 669,240 669,240 669,240 669,240
Shares, warrants and options treated as
common share equivalent pursuant to
SEC Staff Accounting Bulletin Topic
1b3.................................. 781,019 781,019 552,399 552,399
Shares, warrants and options treated as
common share equivalents in
connection with the retirement of
debt from offering proceeds.......... -- 1,457,270 -- 1,559,323
----------- -------------- ----------- --------------
Pro forma weighted average number of
shares of common stock and common
stock equivalents.................... 5,557,867 7,015,137 5,329,247 6,888,570
----------- -------------- ----------- --------------
Pro forma net income (loss)............ $ 2,869,147 $ 3,241,000 $ (365,039) $ 110,000
----------- -------------- ----------- --------------
Pro forma earnings (loss) per common
and common equivalent shares......... $ 0.52 $ 0.46 $ (0.07) $ 0.02
----------- -------------- ----------- --------------
----------- -------------- ----------- --------------
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this registration statement on Form S-1 of
our report dated August 23, 1997, on our audits of the financial statements of
Track 'n Trail. We also consent to the reference to our firm under the caption
"Selected Consolidated Financial Information" and "Experts."
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Sacramento, California
August 25, 1997
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Track 'n Trail on
Form S-1 of our report dated March 13, 1995, appearing in the Prospectus, which
is part of this Registration Statement, and to the references to us under the
headings "Selected Consolidated Financial Information" and "Experts" in such
Prospectus.
Sacramento, California
, 1997
-------------------
The financial statements of Track 'n Trail appearing elsewhere in this
Prospectus give effect to changes in stockholders' equity, including an increase
of approximately 100 to 1 in the number of shares outstanding, as the result of
a planned reorganization of the Company as described in Note 14 to the financial
statements. The above consent is in the form which will be signed by Deloitte &
Touche LLP upon completion of such Reorganization and assuming that from August
23, 1997 to the date of completion of such Reorganization, no other material
events have occurred that would affect the accompanying 1994 financial
statements of Track 'n Trail or require disclosure therein.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Sacramento, California
August 23, 1997
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Track 'n Trail on
Form S-1 of our report dated September 25, 1995 on the financial statements of
Overland Management Corporation at July 29, 1995 and for each of the years in
the two-year period then ended, appearing in the Prospectus, which is part of
this Registration Statement, and to the reference to us under the heading
"Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
August 23, 1997
<PAGE>
Exhibit 23.4
The Board of Directors
Track 'n Trail:
We consent to the use of our report included herein (or incorporated herein by
reference) and to the reference to our firm under the heading "Experts" in the
prospectus.
/s/ KPMG PEAT MARWICK LLP
August 26, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF OPERATIONS FILED AS PART OF
THE COMPANY'S REGISTRATION STATEMENT ON FORM S-1 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> JUN-28-1997
<CASH> 749,053
<SECURITIES> 0
<RECEIVABLES> 808,207
<ALLOWANCES> 0
<INVENTORY> 24,801,065
<CURRENT-ASSETS> 27,031,270
<PP&E> 11,817,795
<DEPRECIATION> 5,100,294
<TOTAL-ASSETS> 38,303,212
<CURRENT-LIABILITIES> 21,161,518
<BONDS> 7,510,658
0
0
<COMMON> 41,076
<OTHER-SE> 8,173,308
<TOTAL-LIABILITY-AND-EQUITY> 38,303,212
<SALES> 37,527,863
<TOTAL-REVENUES> 37,527,863
<CGS> 19,413,199
<TOTAL-COSTS> 17,971,777
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 730,438
<INCOME-PRETAX> (608,399)
<INCOME-TAX> (372,503)
<INCOME-CONTINUING> (235,896)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (235,896)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
<PAGE>
EXHIBIT 99.1
CONSENT OF PROSPECTIVE DIRECTOR
The undersigned consents to being named as a prospective director of Track
'n Trail, Inc., a Delaware corporation (the "Company"), in the Registration
Statement on Form S-1 (File No. 333-23195) filed by the Company with the
Securities and Exchange Commission, and to the filing of this consent as an
exhibit to such Registration Statement.
Dated: August 20, 1997
/s/ Helen C. Bulwik
--------------------------------------------
Helen C. Bulwik
<PAGE>
EXHIBIT 99.2
CONSENT OF PROSPECTIVE DIRECTOR
The undersigned consents to being named as a prospective director of Track
'n Trail, Inc., a Delaware corporation (the "Company"), in the Registration
Statement on Form S-1 (File No. 333-23195) filed by the Company with the
Securities and Exchange Commission, and to the filing of this consent as an
exhibit to such Registration Statement.
Dated: August 25, 1997
/s/ Steven D. Tough
--------------------------------------------
Steven D. Tough
