<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 26, 1999.
REGISTRATION NO. 333-61527
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
G.I. JOE'S, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
OREGON 5940 93-0500948
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NUMBER)
</TABLE>
9805 SW BOECKMAN ROAD
WILSONVILLE, OREGON 97070
(503) 682-2242
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
NORMAN P. DANIELS
CHIEF EXECUTIVE OFFICER, PRESIDENT
AND CHAIRMAN OF THE BOARD
G.I. JOE'S, INC.
9805 SW BOECKMAN ROAD
WILSONVILLE, OREGON 97070
(503) 682-2242
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
PATRICK J. SIMPSON TODD A. BAUMAN
DAVID S. MATHESON STOEL RIVES LLP
PERKINS COIE LLP 900 SW FIFTH AVENUE, SUITE 2300
1211 SW FIFTH AVENUE, 15TH FLOOR PORTLAND, OREGON 97204
PORTLAND, OREGON 97204 (503) 224-3380
(503) 727-2000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
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.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED FEBRUARY 26, 1999
2,500,000 SHARES
LOGO
COMMON STOCK
------------------------
The 2,500,000 shares of Common Stock (the "Common Stock") offered hereby
(the "Offering") are being sold by G.I. Joe's, Inc. ("G.I. Joe's" or the
"Company"). Prior to the Offering, there has been no public market for the
Common Stock. It is currently estimated that the initial public offering price
per share will be between $8.00 and $10.00. See "Underwriting" for information
relating to the factors to be considered in determining the initial public
offering price. Application has been made for quotation of the Common Stock on
the Nasdaq National Market under the symbol "GIJO."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C>
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PRICE UNDERWRITING PROCEEDS TO
TO PUBLIC(1) DISCOUNTS(2) COMPANY(3)
- -----------------------------------------------------------------------------------------------------------------
Per Share...................................... $ $ $
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Total(4)....................................... $ $ $
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</TABLE>
(1) In connection with the Offering, the Underwriters may reserve up to 125,000
shares of Common Stock for sale at the initial public offering price to
persons associated with the Company.
(2) In addition, the Company has agreed to sell to each of Cruttenden Roth
Incorporated and Black & Company, Inc., as representatives for the
Underwriters, for nominal consideration, warrants to purchase an aggregate
of 250,000 shares of Common Stock at an exercise price equal to 120% of the
Price to Public. The Company has agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(3) Before deducting expenses payable by the Company, estimated at $750,000. The
Company intends to use approximately $8.5 million of the net proceeds from
the Offering to redeem all of the Company's outstanding Series A 9%
Non-Voting Redeemable Preferred Stock (the "Redeemable Preferred Stock").
Peregrine Capital, Inc. ("Peregrine"), an affiliate of the Company, will be
paid an aggregate of $700,000 upon such redemption of shares they hold. If
the Offering is not completed prior to May 8, 1999, holders of the Company's
preferred stock may require Peregrine to purchase their shares. See "Use of
Proceeds" and "The Reorganization."
(4) The Company has granted to the Underwriters a 30-day option to purchase up
to 375,000 additional shares of Common Stock, on the same terms as set forth
above, solely to cover over-allotments, if any. If such option is exercised
in full, the total Price to Public, Underwriting Discounts and Proceeds to
Company will be $ , $ and $ , respectively. See
"Underwriting."
------------------------
The shares of Common Stock are being offered by the Underwriters subject to
prior sale, when, as and if delivered to and accepted by the Underwriters and
subject to certain other conditions, including the right of the Underwriters to
withdraw, cancel, modify or reject any order in whole or in part. It is expected
that delivery of certificates representing the shares will be made on or about
, 1999 at the offices of Cruttenden Roth Incorporated, Irvine,
California.
------------------------
CRUTTENDEN ROTH BLACK & COMPANY, INC.
INCORPORATED
The date of this Prospectus is , 1999.
<PAGE> 3
[PICTURE]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH SECURITY,
AND THE IMPOSITION OF PENALTY BIDS. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights information found elsewhere in this Prospectus. It
is not complete and may not contain all of the information prospective
purchasers should consider before investing in the Common Stock. Prospective
purchasers should read the entire Prospectus carefully, including the "Risk
Factors" section and the financial statements and the notes to those statements.
Except as otherwise noted, all information in this Prospectus (i) assumes no
exercise of the Underwriters' over-allotment option, (ii) gives effect to the
redemption of the Company's Redeemable Preferred Stock to be effected with a
portion of the proceeds from the Offering and (iii) gives retroactive effect to
a 2.5567-for-1 split of the Common Stock effected in July 1998 and a 3-for-4
reverse split of the Common Stock effected in January 1999. See "Underwriting"
and "Use of Proceeds." The Company's fiscal year ends January 31. Financial and
other data presented for the Company for the 12-month period ended January 31,
1999, is unaudited.
"G.I. Joe's" is among the Company's trademarks. This Prospectus includes
other trademarks and trade names of the Company and of other companies.
RISK FACTORS
Prospective purchasers of the Common Stock should consider all of the
information contained in this Prospectus before making an investment in the
Common Stock. The Company's business, financial condition and results of
operations are subject to various risks, including risks related to the
Company's ability to implement its business and growth and expansion strategies
and manage growth, including the integration of any acquired businesses,
competition in the markets in which the Company operates, seasonality and
fluctuations in the Company's periodic operating results, the effects of weather
on the Company's sales, fluctuations in comparable store sales, and changing
economic conditions and consumer preferences. Prospective purchasers should
consider these and other factors set forth in the "Risk Factors" section of this
Prospectus.
THE COMPANY
OVERVIEW
G.I. Joe's is a leading operator of full-service sports and automotive
merchandise superstores in the Pacific Northwest. The Company currently has 16
stores, eight in the Portland, Oregon metropolitan area, two in the
Seattle/Puget Sound area of Washington and six in various other Oregon
communities. These stores average approximately 55,000 square feet in size. In
calendar year 1997, the Company was among the top 15 full-line sporting goods
retailers in the nation based on revenue. The Company has developed a successful
store concept that has significantly increased same-store sales and sales per
square foot in recently remodeled stores. For the 12-month period ended January
31, 1999, the Company's four remodeled stores generated average annual sales per
store of approximately $10.6 million, compared to approximately $8.7 million for
the Company's other stores. In addition, these remodeled stores achieved average
sales per selling square foot of $227 for that same period, compared to $194 for
other stores. For the fiscal year ended January 31, 1998, the Company's four
remodeled stores generated average annual sales per store of approximately $9.9
million, compared to approximately $8.6 million for the Company's other stores.
In fiscal 1998, these remodeled stores achieved average sales per selling square
foot of $213, compared to $193 for other stores. Average annual per store
contribution (i.e., average per store gross margin less average per store
expenses) in fiscal 1998 was approximately $1.6 million for remodeled stores and
$1.3 million for other stores. The Company has opened a new store in each of the
last two fiscal years and remodeled four existing stores over the past five
fiscal years using its updated store concept.
Most of the products offered by the Company are geared to traditionally
male-oriented activities and the majority of the consumers of G.I. Joe's
merchandise are males between the ages of 21 and 59. However, approximately 45%
of the Company's customers are women, who either purchase merchandise for men
or, increasingly, for themselves. The Company offers full lines of (i) sporting
goods, including equipment for snow and water skiing, snowboarding, kayaking,
canoeing, camping, fishing and hunting, (ii) outdoor apparel and
3
<PAGE> 5
footwear and (iii) automotive aftermarket parts and accessories. The Company's
net sales of $142.7 million in the 12-month period ended January 31, 1999 were
derived 42% from the sale of sporting goods, 32% from the sale of outdoor
apparel and footwear, 20% from the sale of automotive parts and accessories and
6% from the sale of other assorted products.
G.I. Joe's began operations in 1952 in Portland, Oregon as a government
surplus store. Over the years the Company shifted its focus from surplus goods
to new, general merchandise. By 1995, under the direction of Norman Daniels, the
Company's current Chairman of the Board, President and Chief Executive Officer,
the Company had streamlined its product offerings to focus on sports and
automotive merchandise, its best-selling product lines. Through 1997 the Company
pursued a conservative operating strategy while refining its internal systems,
distribution system and training programs and undertaking selective management
additions, all of which created a solid foundation to support future expansion.
In May 1998, Mr. Daniels acquired majority ownership of the Company and the
Company began implementing an aggressive growth strategy. See "The
Reorganization" and "Business -- Growth and Expansion Strategy."
BUSINESS AND GROWTH AND EXPANSION STRATEGIES
The Company's business strategy is based on the following key competitive
strengths:
- Unique merchandise mix consisting of full lines of sporting goods,
outdoor apparel and footwear, and automotive aftermarket parts and
accessories, which generates substantial cross-shopping by
customers.
- Proven improved store design concept and remodeling strategy, which
has significantly increased same-store sales and sales per square
foot.
- Leading position in and focus on the Pacific Northwest, which has
increased the Company's buying power and economies of scale.
- Competitively priced quality merchandise as a result of favorable
pricing from vendors and internal efficiencies.
- Superior customer service, which the Company believes differentiates
it from mass merchandisers and other large format sporting goods and
automotive parts and accessories retailers.
- Enhanced margins as a result of increased sales of higher margin
merchandise, vendor concept stores and increased direct imports and
buying power.
- Significant management ownership of and experience with the Company.
G.I. Joe's intends to expand its business by implementing a growth and
expansion strategy that includes the following key features:
- Remodeling 10 existing stores over the next four years to increase
same-store sales and sales per square foot.
- Opening eight new stores in the Pacific Northwest, primarily in
Washington, over the next four years.
- Pursuing strategic acquisitions in portions of Montana, Idaho, Utah,
Nevada and Northern California that have consumer demographics and
seasonal outdoor activity patterns similar to those of the Pacific
Northwest.
- Further developing alternative channels of distribution, primarily
mail order catalog and Internet-based retail channels.
- Examining opportunities for national expansion and vertical
integration.
4
<PAGE> 6
RECENT ACQUISITION
In September 1998, the Company acquired certain assets and assumed certain
liabilities of Timberline Direct, a direct marketing retailer that sells
merchandise complementary to that offered by the Company though catalog and
Internet-based channels. The purchase price for the acquisition is $5.4 million,
consisting of $1.2 million payable in cash, $896,000 of assumed liabilities and
the balance payable, in installments, in shares of the Company's Common Stock.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
------------------------
The Company was founded in 1952 and incorporated under Oregon law in 1961.
The Company's executive offices are located at 9805 SW Boeckman Road,
Wilsonville, OR 97070, and its telephone number is (503) 682-2242.
5
<PAGE> 7
THE OFFERING
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<S> <C>
Common Stock offered hereby.................. 2,500,000 shares
Common Stock to be outstanding after the 7,155,760 shares(1)
Offering...................................
Use of proceeds.............................. To redeem all of the Company's outstanding
Redeemable Preferred Stock, to remodel
existing stores and to open new stores. See
"Use of Proceeds."
Proposed Nasdaq National Market Symbol....... GIJO
</TABLE>
- ---------------
(1) Based on shares outstanding as of February 1, 1999. Includes 80,000 shares
issued in February 1999 to David Orkney, a Director and the former majority
shareholder of the Company, in exchange for the cancellation of a warrant
that was exercisable for a number of shares equal to 5% of the Company's
Common Stock outstanding, on a fully-diluted basis, on the date of exercise
at an exercise price equal to 70% of the fair market value of the Common
Stock on the exercise date (the "Orkney Warrant"). Excludes (i) 371,125
shares issuable upon exercise of outstanding stock options, with a weighted
average exercise price of $9.53 per share, (ii) 428,875 shares reserved for
future grants under the Company's 1998 Stock Incentive Compensation Plan, as
amended (the "1998 Plan") and (iii) 300,000 shares reserved for issuance
under the Company's 1999 Employee Stock Purchase Plan (the "ESPP"). See
"Certain Related Transactions," "Management -- Retirement and Certain Other
Benefit Plans" and "Description of Capital Stock -- Warrants and Stock
Options."
6
<PAGE> 8
SUMMARY FINANCIAL AND OTHER DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND SELECTED OPERATING DATA)
<TABLE>
<CAPTION>
PREDECESSOR(1) PRO FORMA(2) PREDECESSOR(1)
---------------------------------------------------- ------------ -------------------------
FISCAL YEAR THREE MONTHS
FISCAL YEARS ENDED JANUARY 31, ENDED ENDED APRIL 30,
---------------------------------------------------- JAN. 31, -------------------------
1994 1995 1996 1997 1998 1998 1997 1998
-------- -------- -------- -------- -------- ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales................ $136,629 $127,008 $124,052 $128,112 $128,238 $128,238 $24,013 $25,908
Gross margin............. 41,631 41,742 41,706 43,928 43,686 43,686 7,588 8,238
Selling, general and
administrative
expense................. 39,574 36,598 37,154 37,976 39,528 42,671 8,717 9,755
Income (loss) from
operations.............. 2,057 5,144 4,552 5,952 4,158 1,015 (1,129) (1,517)
Extraordinary item: loss
on early extinguishment
of debt................. -- -- -- -- -- -- -- (2,220)
Net income (loss)........ $ (1,364) $ 1,398 $ 851 $ 2,340 $ 681 $ (1,176) $(1,951) $(4,059)
Income (loss) per share
before extraordinary
item(3):
-- Basic................ $(0.44) $0.45 $0.28 $0.77 $0.22 $(0.43) $(0.64) $(0.60)
-- Diluted.............. $(0.44) $0.45 $0.26 $0.69 $0.20 $(0.43) $(0.64) $(0.60)
Net income (loss) per
share(3):
- -- Basic................. $(0.44) $0.45 $0.28 $0.77 $0.22 $(0.43) $(0.64) $(1.34)
- -- Diluted............... $(0.44) $0.45 $0.26 $0.69 $0.20 $(0.43) $(0.64) $(1.34)
Weighted average shares
outstanding, as
adjusted(3):
- -- Basic................. 3,080 3,073 3,057 3,049 3,040 4,464 3,040 3,040
- -- Diluted............... 3,080 3,129 3,233 3,381 3,469 4,464 3,040 3,040
SELECTED OPERATING DATA:
Number of stores open for
full period............. 14 14 14 14 14 14 14 15
Number of remodeled
stores open for full
period.................. -- -- 2 3 3 3 3 4
Gross margin as a
percentage of sales..... 30.5% 32.9% 33.6% 34.3% 34.1% 34.1% 31.6% 31.8%
Store contribution(4).... $1,436 $1,373 $1,321 $1,351 $1,417 $1,192 $154 $195
Total comparable store
net sales increase
(decrease)(5)........... (1.7)% (7.0)% (2.3)% 3.3% (1.8)% (1.8)% (5.6)% 3.0%
Remodeled same store net
sales increase(6)....... -- -- 1.6% 14.6% -- -- -- 24.0%
<CAPTION>
G.I. JOE'S, INC. PRO FORMA(2)
---------------- ------------
SIX MONTHS NINE MONTHS
ENDED ENDED
OCTOBER 31, OCTOBER 31,
1998 1998
---------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales................ $75,201 $101,109
Gross margin............. 25,589 33,827
Selling, general and
administrative
expense................. 23,086 33,626
Income (loss) from
operations.............. 2,503 201
Extraordinary item: loss
on early extinguishment
of debt................. -- --
Net income (loss)........ $ 376 $ (1,123)
Income (loss) per share
before extraordinary
item(3):
-- Basic................ $ (0.00) $ (0.38)
-- Diluted.............. $ (0.00) $ (0.38)
Net income (loss) per
share(3):
- -- Basic................. $ (0.00) $ (0.38)
- -- Diluted............... $ (0.00) $ (0.38)
Weighted average shares
outstanding, as
adjusted(3):
- -- Basic................. 4,464 4,464
- -- Diluted............... 4,464 4,464
SELECTED OPERATING DATA:
Number of stores open for
full period............. 15 15
Number of remodeled
stores open for full
period.................. 4 4
Gross margin as a
percentage of sales..... 34.0% 33.5%
Store contribution(4).... $737 $901
Total comparable store
net sales increase
(decrease)(5)........... 2.0% 2.3%
Remodeled same store net
sales increase(6)....... 22.0% 22.7%
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 31, 1998
-----------------------------
ACTUAL(3) AS ADJUSTED(7)
----------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $20,493 $32,168
Inventories................................................. 44,778 44,778
Total assets................................................ 83,289 94,964
Total liabilities........................................... 70,974 70,974
Total shareholders' equity.................................. 12,315 23,990
</TABLE>
(Footnotes on following page)
7
<PAGE> 9
(1) Effective May 1, 1998, the Company underwent a reorganization in which
Norman Daniels, the Company's current Chairman of the Board, President and
Chief Executive Officer, acquired a majority interest in ND Holdings, Inc.,
an Oregon corporation ("Holdings"), which owned more than 80% of the
outstanding capital stock of G.I. Joe's. In July 1998, Holdings merged into
G.I. Joe's, with G.I. Joe's being the surviving corporation. See "The
Reorganization." The financial information with respect to periods prior to
May 1, 1998 reflects information for G.I. Joe's prior to the Reorganization
(the "Predecessor").
(2) The pro forma statement of operations data for the fiscal year ended January
31, 1998 and the nine-month period ended October 31, 1998 give effect to the
Reorganization as if it had occurred as of February 1, 1997 and February 1,
1998, respectively. Prior to the Reorganization, the Company was an S
corporation and, accordingly, was not subject to federal and state income
taxes during the periods indicated, other than during the six-month period
ended October 31, 1998. As of May 1, 1998, the Company was converted to a C
corporation and is now subject to federal and applicable state income
taxation. See "Dividend Policy and Prior S Corporation Status" and Note 1 to
Financial Statements.
(3) The per share statement of operations data for the six-month period ended
October 31, 1998 and the pro forma per share statement of operations data
for the fiscal year ended January 31, 1998 and the nine-month period ended
October 31, 1998 give effect to the issuance of 4,461,227 shares of the
Company's Common Stock in the Merger as if it had occurred at the beginning
of such periods and include dividends payable on the Company's Redeemable
Preferred Stock. See "The Reorganization."
(4) Store contribution is determined by deducting average per store expenses
from average per store gross margin.
(5) A new or remodeled store becomes comparable after it has been open or
remodeled for a full 12 months.
(6) Compares first full fiscal year following the remodeling to the preceding
fiscal year.
(7) Adjusted to reflect (i) the sale of the shares of Common Stock offered
hereby at an assumed initial public offering price of $9.00 per share (the
mid-point of the range set forth on the cover page of this Prospectus) and
(ii) the application of the net proceeds from such transaction.
8
<PAGE> 10
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Certain statements under the captions "Prospectus Summary," "Use
of Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," as well as statements made in the
following "Risk Factors" and elsewhere in this Prospectus, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors, such as the risk factors set
forth below and elsewhere in this Prospectus, that may cause actual results to
be materially different from those projected in the forward-looking statements.
In addition to the other information contained in this Prospectus, the following
factors should be considered carefully by potential purchasers in evaluating an
investment in the Company's Common Stock offered hereby.
ABILITY TO IMPLEMENT BUSINESS AND GROWTH AND EXPANSION STRATEGIES AND MANAGE
GROWTH
Principal components of the Company's business and growth and expansion
strategies are to increase sales and income from operations in the Company's
existing markets, to complete the remodeling of the Company's stores, to open
new stores, primarily in Washington, to enter new geographic markets through the
acquisition of complementary businesses or internal growth, to further develop
the Company's channels of distribution by means of internal growth or
acquisitions and to examine opportunities for national expansion and vertical
integration. The Company's future growth will depend upon a number of factors,
both within and outside of the Company's control, including: the identification
of new geographic markets in which the Company can successfully compete; the
identification and lease or acquisition on favorable terms of suitable new store
sites; the identification and acquisition on favorable terms of complementary
businesses; the receipt of any required governmental authorizations for proposed
development or expansion; the construction cost of and build-out time required
for new stores; the remodeling of certain existing stores without undue delay,
expense or disruption of operations; results of operations for new and remodeled
stores; the acceptance by potential customers of the Company's expansion into
new markets; and the Company's ability to obtain required financing on favorable
terms. Management estimates that the capital cost of new and remodeled stores
will be approximately $1.45 million and $1.2 million, respectively, per store,
and that each new store will require approximately $2.1 million for inventory
and approximately $175,000 in pre-opening and promotional expenses. Actual costs
to remodel or to construct and open stores may substantially exceed such
amounts. The Company has opened only two stores since 1991. The Company has
remodeled only four stores using its updated store concept, and only two stores
since 1994. Consequently, the Company has a limited history of opening,
remodeling and operating new and remodeled stores. The results achieved to date
by the Company's remodeled stores, particularly the two stores remodeled since
1994, may not be indicative of results that will be achieved from stores
remodeled as part of the Company's growth and expansion strategy. In addition,
the results achieved by the Company to date in Oregon, particularly in the
Portland metropolitan area, may not be indicative of its prospects in or its
ability to penetrate new geographic markets, many of which may have different
competitive conditions and demographic characteristics than the Company's
current markets. See "Business -- Business Strategy" and "Business -- Growth and
Expansion Strategy." The Company may not be able to successfully expand its
operations or to operate remodeled or new stores or acquired businesses on a
profitable basis.
As the Company expands its operations, it will experience growth in the
number of its employees, the scope of its distribution, operating and financial
systems and the geographic area of its operations. This growth will increase the
operating complexity of the Company and the level of responsibility of existing
and new management personnel. As the Company grows, it may not be able to hire,
train and retain qualified management and employees. In addition, the Company's
current distribution, operating, and financial systems and controls may become
inadequate, and failure by the Company to expand, supplement or improve such
systems and controls adequately and in a timely and cost effective manner could
have an adverse impact on the Company's business, financial condition and
results of operations. Management estimates that the Company's existing
distribution center can accommodate at least five additional stores in the
Pacific Northwest without material modification or increased expense. The
Company may not be able to successfully integrate
9
<PAGE> 11
new stores into its existing operating and financial systems. Any failure to
manage growth effectively could have a material adverse effect on the Company's
business, financial condition and results of operations.
LIMITED EXPERIENCE WITH ACQUISITIONS
As part of its growth and expansion strategy, the Company expects to
acquire complementary businesses. To date, the Company has grown primarily by
means of internal growth and has limited experience with completing and
integrating acquisitions. In September 1998, the Company acquired certain assets
and assumed certain liabilities of Timberline Direct, a direct marketing
retailer that sells merchandise complementary to that offered by the Company
through catalog and Internet-based channels. See "Management Discussion and
Analysis of Financial Condition and Results of Operations -- Overview." The
Company has no current understandings or agreements regarding potential
acquisitions. Any acquisitions would involve risks commonly encountered in
acquisitions of companies, such as the difficulty of assimilating the operations
and personnel of the acquired companies into the Company's existing structure,
the potential disruption of the Company's ongoing business, diversion of
management time and resources, increases in administrative costs, potential loss
of key employees of acquired companies and additional costs associated with debt
or equity financing of any such acquisitions. The failure to integrate
effectively any acquired businesses, including Timberline Direct, could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, acquisitions may require additional
financing. Such financing may involve public or private offerings of debt or
equity securities, and may include bank debt. Debt financing may increase the
Company's leveraged position, require the Company to devote significant cash to
service debt and limit funds available for working capital, capital
expenditures, acquisitions and general corporate purposes, all of which could
increase the Company's vulnerability to adverse economic and industry conditions
and competitive pressures. Equity financing may cause additional dilution to
purchasers of the Common Stock in the Offering. The Company has issued 111,657
shares of Common Stock and may be required to issue additional shares in
connection with the Timberline Direct acquisition. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Overview." The
Company has no other commitments for, and may not be able to obtain, any debt or
equity financing for future acquisitions. In addition, restrictions contained in
the Company's existing revolving line of credit facility limit the Company's
ability to obtain additional bank or similar financing. Any inability to obtain
required financing when needed on terms favorable to the Company could have a
material adverse effect on the Company's ability to implement its growth and
expansion strategy and on the Company's business, financial condition and
results of operations. The Company may not be successful in overcoming these
risks or any other problems encountered in connection with potential
acquisitions. See "Business -- Growth and Expansion Strategy."
COMPETITION
The markets for sports and automotive merchandise are highly competitive.
Within the sporting goods and outdoor apparel and footwear markets, the Company
faces significant competition from national, regional and local retailers,
including mass merchandisers, as well as from manufacturers' own retail stores
(such as stores owned and operated by Nike, Inc.). Within the automotive parts
and accessories markets, the Company faces significant competition from
national, regional and local retailers. These and other competitors, including
catalog and Internet-based direct marketing retailers, pose significant
challenges to the Company's market share in its existing markets and will make
it more difficult for the Company to succeed in new markets. Many of the
Company's competitors have substantially greater financial, distribution,
marketing and other resources and have achieved greater name recognition than
the Company. Increased competition by existing and future competitors could
result in reductions in the Company's sales or margins. The Company may not be
able to compete successfully against present or future competitors and
competitive pressures faced by the Company may have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business -- Competition."
10
<PAGE> 12
SEASONALITY AND FLUCTUATIONS IN PERIODIC OPERATING RESULTS
The Company's results of operations have fluctuated and likely will
continue to fluctuate significantly from period to period. The Company's
seasonal sporting goods merchandise mix is weighted substantially toward the
summer and winter seasons. Consequently, the Company's results of operations for
the quarters ending July 31 and January 31 have in the past been much stronger
than results for the other two quarters. The Company has historically incurred
net losses in the quarters ending April 30 and achieved limited net income or
incurred net losses in the quarters ending October 31. In addition, the
Company's sporting goods and outdoor apparel and footwear operations are subject
to traditional retail seasonality patterns related to the holiday season. This
seasonality, along with other factors, including weather conditions, general and
regional economic conditions, changes in consumer preferences and changes in the
Company's merchandise mix, could adversely affect the Company's business and
cause its periodic results of operations to fluctuate. The timing and expenses
associated with the Company's store remodeling program and the opening of new
stores or the acquisition of other businesses as part of the Company's growth
and expansion strategy will also contribute to fluctuations in periodic
operating results. Accordingly, results of operations in any period may not be
indicative of the results to be expected for any future period. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Quarterly Operating Results and Seasonality." Because a high
percentage of the Company's operating expenses are relatively fixed, if sales in
any quarter do not occur as expected, the Company's operating results may be
adversely affected and fall short of expectations.
FLUCTUATIONS IN COMPARABLE STORE SALES
A variety of factors affect the Company's comparable store sales,
including, among others, the general retail sales environment, the Company's
ability to source and distribute products efficiently, changes in the Company's
merchandise mix, the impact of competition and the Company's ability to execute
its business strategy effectively. The Company's comparable store sales results
have fluctuated significantly in the past and the Company believes that such
fluctuations will continue. The Company's comparable store net sales increases
and decreases for the fiscal years ended January 31, 1997 and 1998 and for the
12-month period ended January 31, 1999 were 3.3%, (1.8)% and 4.2%, respectively.
Past comparable store sales results may not be indicative of future results.
EFFECTS OF WEATHER
Weather and changes in weather significantly affect the Company's sales of
sporting goods equipment and outdoor apparel and footwear. Net sales and margins
are adversely affected in periods of unseasonable weather conditions. Customers
delay or forego purchases of skiing and snowboarding equipment and winter
outdoor apparel and footwear in periods of unseasonably warm fall or winter
weather. Unseasonably cool or wet spring or summer weather adversely affects
sales of sporting goods for warmer weather activities, such as camping, fishing,
water sports, golf and tennis, and of spring and summer apparel and footwear.
Delays in seasonal weather changes also shorten the selling period for the
Company's seasonal merchandise and the Company may have to reduce prices in
order to sell seasonal merchandise before the season expires or carry over
merchandise. Any such delays in or reductions of sales of seasonal merchandise
could have a material adverse effect on the Company's business, financial
condition and results of operations.
CHANGING ECONOMIC CONDITIONS; DEPENDENCE ON REGIONAL ECONOMIES
The Company's business is sensitive to changes in discretionary consumer
spending. Such changes are significantly related to prevailing economic
conditions and particularly affect the Company's sales of sporting goods and
outdoor apparel and footwear. A recession in the national or regional economies,
particularly in the Pacific Northwest or Oregon, where a majority of Company's
business is conducted, or uncertainties regarding future economic prospects,
could affect consumer spending habits and have a material adverse effect on the
Company's business, financial condition and results of operations.
11
<PAGE> 13
CHANGING CONSUMER PREFERENCES
Any change in consumer preferences or consumer interest in sports or
outdoor activities, outdoor apparel and footwear, or automotive aftermarket
parts and accessories could have a material adverse effect on the Company's
business, financial condition and results of operations. Failure to anticipate
and appropriately respond to changes in consumer preferences could lead to,
among other things, lower sales, excess inventories and lower margins, any of
which could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company often works with vendors to
plan future orders as much as 12 months in advance to ensure timely delivery.
This, together with the seasonal nature of much of the Company's merchandise
mix, can result in unbalanced inventories, increased inventory levels, and
related carrying costs if consumer preferences change prior to delivery.
SMALL STORE BASE
The Company operated 16 stores as of January 31, 1999. Five of the
Company's stores were opened before 1980, an additional nine stores were opened
between 1980 and 1991 and only two stores have been opened since 1991.
Consequently, the Company has a limited recent history of opening and operating
new stores. The results achieved to date by the Company's relatively small store
base may not be indicative of the results that may be achieved from a larger
number of stores. In addition, should any store (including any new or remodeled
store) be unprofitable, experience a decline in profitability or be
significantly damaged or destroyed, the effect on the Company's results of
operations would be more significant than would be the case if the Company had a
larger store base.
DEPENDENCE ON VENDORS
The Company offers an extensive and changing mix of merchandise,
substantially all of which is supplied by independent vendors. The Company must
develop and maintain relationships with these vendors in order to maintain an
adequate supply of merchandise for the Company's stores. The Company does not
have long-term supply contracts with its vendors. In addition, the Company
competes with other companies for the merchandise supplied by these vendors and
many of these other companies have substantially greater leverage and financial
and other resources than the Company. As a result, the Company may be unable to
obtain from its vendors adequate merchandise at the times or prices or in the
quantities it desires, if at all. The Company's failure to obtain any such
merchandise or to obtain favorable or competitive prices and terms could result
in reduced sales or margins and could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Vendors, Purchasing and Distribution."
The Company's ten largest vendors for the fiscal year ended January 31,
1998, which accounted for approximately 24% of the Company's purchases for such
year, were Nike, Inc., Columbia Sportswear Co., All Sports Supply, Inc., Coleman
Company, Inc., Coast Auto Supply, World Wide Distributors, Remington Arms Co.,
Inc., Adidas U.S.A. Incorporated, Levi Strauss & Company, and Valvoline
Incorporated. The Company is not dependent on any vendor.
Vendors provide the Company with substantial incentives in the form of
volume discounts, longer payment terms and cooperative advertising. Vendor funds
used to offset outside advertising costs amounted to approximately 35%, 46% and
42%, respectively, of such costs in the fiscal years ended January 31, 1996,
1997 and 1998, respectively. A reduction in or discontinuation of these
incentives could have a material adverse effect on the Company's business,
financial condition and results of operations.
INTERNATIONAL RISKS AND CONSTRAINTS
A majority of the Company's merchandise (other than automotive parts and
accessories) is manufactured outside the United States. As a result, the
Company's operations are subject to risks generally associated with
international business, such as foreign governmental regulation, political
unrest, disruptions or delays in shipments, changes in economic conditions and
fluctuations of currency exchange rates. These factors, among others, including
the recent economic turmoil in Asia, could adversely affect the Company's
ability to obtain certain merchandise, which, in turn, could have a material
adverse effect on the Company's business, financial
12
<PAGE> 14
condition and results of operations. In addition, a significant portion of the
merchandise supplied to the Company is subject to existing or potential duties,
tariffs or quotas that may limit the quantity of certain types of goods that may
be imported into the United States. The imposition of additional duties, tariffs
or quotas or the adverse adjustment of existing duties, tariffs or quotas could
have a material adverse effect on the Company's business, financial condition
and results of operations. To date the Company has not experienced any material
adverse effects on its operations due to uncertainties involving international
risks and constraints.
DEPENDENCE ON KEY PERSONNEL; STAFFING AND LABOR COSTS
The Company's future success will depend in part on the continued service
of certain key management and other personnel, including Norman Daniels, the
Company's Chairman of the Board, President and Chief Executive Officer, Philip
M. Pepin, the Company's Vice President of Finance and Chief Financial Officer,
Edward A. Ariniello, the Company's Vice President of Operations, B.G. Eilertson,
Patrick E. Hortsch and Ron J. Menconi, the Company's three Merchandise Managers,
Mark H. Mieher, Vice President and Chief Information Officer, and Douglas B.
Spink, General Manager of Direct Marketing. Another important factor in the
Company's future success will be its ability to attract and retain qualified
managerial, purchasing, sales and marketing personnel. Competition for these
employees is intense. A shortage of qualified personnel may require the Company
to increase compensation and benefit levels in order to compete successfully.
The Company is also dependent upon the available labor pool of lower-wage
employees. The Company may be unable to retain its existing key personnel, may
not be able to attract and retain sufficient numbers of qualified employees in
the future and may experience increased labor costs which may not be matched by
corresponding increases in revenues. Any of these factors could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management." The Company maintains life insurance on Mr.
Daniels in the amount of $3.0 million, but does not maintain life insurance on
any other employee. The Company has no employment agreements with any of its
employees other than Mr. Spink. See "Management -- Employment Agreement."
DEPENDENCE ON DISTRIBUTION CENTER AND LEASED PREMISES
The Company maintains a single warehouse and distribution center adjacent
to its corporate headquarters in Wilsonville, Oregon. If this facility were to
be destroyed or significantly damaged by fire or other disaster, the Company
would need to obtain alternative facilities and replenish its inventory, either
of which would result in significant costs and delays in distributing
merchandise to its stores. The costs and delays associated with any such
disruption could have a material adverse effect on the Company's business,
financial condition and results of operations. Although the Company maintains
business interruption insurance in the amount of $19.3 million, the level of
coverage may not be adequate. In addition, all of the Company's current stores
are located on leased premises. If leases were prematurely terminated for any
reason or if the Company were unable to renew leases, the Company would be
required to relocate subject stores to other locations. Relocations would result
in substantial additional costs and could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Properties."
CONTROL BY PRINCIPAL SHAREHOLDERS
Upon the closing of the Offering, Norman Daniels, the Company's Chairman of
the Board, President and Chief Executive Officer, and Peregrine (together, the
"Controlling Shareholders") will beneficially own approximately 51.1% of the
Company's issued and outstanding Common Stock (approximately 48.6% if the
Underwriters' over-allotment option is exercised in full). As a result, the
Controlling Shareholders will be able to elect all the Company's directors and
to control the vote on substantially all other matters, including significant
corporate actions, without the approval of other shareholders. Such ownership
and control may have the effect of delaying or preventing a takeover of the
Company by third parties, which could deprive the Company's shareholders of a
control premium that might otherwise be realized by them in connection with an
acquisition of the Company. See "Principal Shareholders."
13
<PAGE> 15
ENVIRONMENTAL AND OTHER GOVERNMENTAL REGULATION
The Company is subject to federal, state and local laws and regulations
which affect its business, relating to, among other things, advertising, worker
safety and the use, storage, discharge and disposal of environmentally sensitive
materials. Although management of the Company is not aware of any significant
environmental contamination at any of the Company's properties from its own or
prior activities at such locations or from neighboring properties, such
contamination may exist at such properties or at additional store sites or
facilities acquired or leased by the Company, and any such contamination could
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, the Company is subject to various local
zoning requirements with regard to the location and design of its stores. The
Company's ability to obtain zoning permits in a timely manner, if at all, will
have an impact on the Company's planned expansion. The failure to comply with
such laws, regulations and requirements or material changes to them could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Sales of hunting equipment, including firearms, ammunition and shooting
accessories accounted for approximately 4.0% of the Company's sales in the
fiscal year ended January 31, 1998. Government regulation of firearms or hunting
can affect sales of these and other goods offered by the Company, and an
increase or material changes in such regulation could have a material adverse
effect on the Company's business, financial condition and results of operations.
POTENTIAL PRODUCT LIABILITY EXPOSURE
The Company's merchandise includes firearms, ammunition, air guns,
paintball guns, bows, knives, automobile and marine parts, kayaks, canoes and
water and snow skiing and snowboarding equipment and other products that create
product liability risks. Although the Company is not a manufacturer of any of
these products, the sale of these and other products carried by the Company
involves a risk of being named as a defendant in product liability litigation.
The Company's insurance may not cover all potential claims arising from the sale
of such products, the amount of coverage may not be adequate, and adequate
insurance coverage may not be available in the future at acceptable rates, if at
all. Any uninsured or inadequately insured claim or liability could have a
material adverse effect on the Company's business, financial condition and
results of operations.
DEPENDENCE ON TRADEMARKS
The Company uses a number of trademarks in connection with the operation of
its business. The Company's "G.I. Joe's" trademark is registered with the United
States Patent and Trademark Office. The Company's other trademarks are not
registered. The Company believes its trademarks are important to its ability to
create and sustain demand for its business and private label products. Although
the Company's operations have not been materially restricted as a result of
trademark disputes, significant obstacles may arise as the Company expands its
business into new market segments and geographic markets. In addition, it may be
determined that the Company's trademarks violate the proprietary rights of
others, they may not be upheld if challenged and the Company may be prevented
from using these trademarks, any of which could have a material adverse effect
on the Company's business, financial condition and results of operations.
YEAR 2000 COMPLIANCE
The Company relies on computer systems and software to operate its
business, including applications used in sales, purchasing, inventory
management, finance and various administrative functions. The Company has
determined that certain of its software applications will be unable to interpret
appropriately the calendar year 2000 and subsequent years. Management believes
that only minor modifications will be required to make its systems "Year 2000"
compliant. However, failure by the Company to achieve full Year 2000 compliance
in a timely manner or consistent with its current cost estimates could have an
adverse effect on the Company's business, financial condition and results of
operations. In addition, the Company could be adversely affected by the failure
of one or more of its vendors, lenders or other organizations with which it
conducts business to
14
<PAGE> 16
become fully Year 2000 compliant. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Year 2000 Compliance."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF SHARE PRICE
Prior to the Offering there has been no public market for the Common Stock.
An active trading market for the Common Stock may not develop or be sustained as
a result of the Offering and the price of the Common Stock may drop below the
initial public offering price. The initial public offering price of the Common
Stock will be determined through negotiations between the Company and
representatives of the Underwriters and may not be indicative of the price at
which the Common Stock will actually trade after the Offering. See
"Underwriting" for a discussion of the factors that will be considered in
determining the initial public offering price of the Common Stock.
Following the Offering, the market price of the Common Stock could be
subject to significant variation due to fluctuations in the Company's operating
results, changes in or actual results varying from earnings or other estimates
made by securities analysts, the degree of success the Company achieves in
implementing its growth and expansion strategy, changes in business or economic
conditions affecting the Company, its customers or its competitors and other
factors both within and outside the Company's control. In addition, the stock
market may experience volatility that affects the market prices of companies in
ways unrelated to the operating performance of such companies, and such
volatility may adversely affect the market price of the Common Stock.
SUBSTANTIAL DILUTION TO NEW INVESTORS
The initial public offering price will be substantially higher than the net
tangible book value per share of the Common Stock immediately prior to the
Offering. Investors purchasing Common Stock in the Offering will be subject to
immediate dilution of $6.03 per share in net tangible book value, assuming an
initial public offering price of $9.00 (the mid-point of the range set forth on
the cover page of this Prospectus). Further dilution would result from the
exercise of outstanding warrants or options. See "Dilution" and "Description of
Capital Stock -- Warrants and Stock Options."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of the Common Stock in the public
market following the Offering, or the prospect of such sales, could adversely
affect the market price of the Common Stock and the Company's ability to raise
capital in the equity markets. Upon the closing of the Offering, there will be
approximately 7,155,760 shares of Common Stock outstanding (approximately
7,530,760 shares if the Underwriters' over-allotment option is exercised in
full). Of these shares, all the shares to be sold in the Offering will be
eligible for immediate resale without restriction under the Securities Act of
1933, as amended (the "Securities Act"), unless such shares were purchased by an
"affiliate" of the Company, as that term is defined in Rule 144 under the
Securities Act. The remaining outstanding shares of Common Stock, which
constitute "restricted securities" as defined in Rule 144, are not yet eligible
for resale under Rule 144, but generally will become eligible in July 1999
subject to Rule 144 restrictions (other than shares to be issued in connection
with the Timberline Direct acquisition and the shares issued in exchange for the
cancellation of the Orkney Warrant, which will become eligible for resale under
Rule 144 on the first anniversary of their issuance). The holders of 2,087,806
of the restricted shares (including the shares issued to date in connection with
the Timberline Direct acquisition and the cancellation of the Orkney Warrant)
have certain registration rights with respect to such shares. See "Description
of Capital Stock -- Registration Rights." The Company, its directors, executive
officers and other shareholders holding an aggregate of 4,295,857 shares have
agreed that, without the prior written consent of Cruttenden Roth Incorporated,
they will not directly or indirectly offer to sell, sell, or otherwise dispose
of shares of Common Stock or any securities convertible or exchangeable
therefor, for a period of 360 days after the date of this Prospectus, subject to
certain limited exceptions. See "Underwriting" and "Shares Eligible for Future
Sale."
15
<PAGE> 17
The Company intends to file a registration statement under the Securities
Act following the date of this Prospectus to register the future issuance of up
to 800,000 shares of Common Stock under the Company's 1998 Plan and up to
300,000 shares under the Company's ESPP. Shares issued under the 1998 Plan and
the ESPP after the effective date of such registration statement will be freely
tradable in the open market, subject to the lock-up agreements with the
Underwriters described above and, in the case of sales by affiliates, to certain
requirements of Rule 144. As of February 1, 1999, options to purchase
approximately 371,125 shares of Common Stock were outstanding under the 1998
Plan, of which options to purchase 51,775 shares of Common Stock were vested. In
addition, up to 252,264 additional shares of Common Stock may be issued in
connection with the Timberline Direct acquisition (assuming an initial public
offering price of $9.00, the mid-point of the range set forth on the cover page
of this Prospectus), all of which shares will be covered by certain registration
rights granted to the recipients thereof. See "Description of Capital
Stock -- Warrants and Stock Options," "Management -- Retirement and Certain
Other Benefit Plans," "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview," "Description of Capital
Stock -- Registration Rights" and "Shares Eligible For Future Sale."
POTENTIAL ISSUANCE OF PREFERRED STOCK; ANTI-TAKEOVER EFFECT OF OREGON LAW
The Company is authorized to issue up to 10,000,000 shares of Preferred
Stock and the Company's Board of Directors has the authority to fix the rights,
preferences, privileges and restrictions of such shares without any further vote
or action by the Company's shareholders. The potential issuance of Preferred
Stock may have the effect of delaying, deferring or preventing a change in
control of the Company, may discourage bids for the Common Stock at a premium
over the market price of the Common Stock and may adversely affect the market
price and the voting and other rights of the holders of Common Stock. Moreover,
certain "business combination" provisions of Oregon law could make it more
difficult to consummate a merger or tender offer involving the Company, even if
such event could be beneficial to the interests of the shareholders. See
"Description of Capital Stock."
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<PAGE> 18
THE REORGANIZATION
During the fiscal quarter ended July 31, 1998, the Company was reorganized
in connection with a management buy-out by Norman Daniels, the Company's current
Chairman of the Board, President and Chief Executive Officer. Prior to the
reorganization, Mr. Daniels owned approximately 6% of the Company's outstanding
capital stock and David Orkney, a Director of the Company and the son of the
Company's founder, owned approximately 78% of the outstanding capital stock.
Peregrine Capital, Inc., an affiliate of the Company ("Peregrine"), acted as an
advisor to Mr. Daniels in connection with the transaction and assisted in
arranging financing for, and invested in the Company as part of, the
reorganization. The primary components of the reorganization -- the Redemption,
the Exchange and the Merger (as defined below) -- as well as its primary
benefits to certain key participants, are described below. The Redemption, the
Exchange and the Merger are referred to in this Prospectus as the
"Reorganization."
REDEMPTION
In May 1998, in order to effect the Reorganization, the Company redeemed
all the Company's outstanding capital stock, other than shares held by Mr.
Daniels and two individuals who elected not to have their shares redeemed and
are not affiliates of the Company (the "Redemption"), and repurchased
outstanding options held by nine individuals, including Wayne Jackson, the
Company's former Chief Operating Officer. The Company was an S corporation at
the time of the Redemption. The redeemed shares and repurchased options
represented approximately 83% of the Company's outstanding capital stock on a
fully-diluted basis prior to the Redemption. The Company financed the Redemption
and stock option repurchases primarily with proceeds from the sale and
lease-back of substantially all the Company's owned real estate and proceeds
from the sale to 61 individuals and entities, including Peregrine (the
"Investors"), of 9% subordinated notes of the Company (the "Subordinated
Notes"). See "Certain Related Transactions." In connection with the Redemption,
the Company also issued to Mr. Orkney the Orkney Warrant, which entitled him to
purchase a number of shares equal to 5% of the Company's Common Stock
outstanding, on a fully-diluted basis, on the date of exercise at a purchase
price equal to 70% of the fair market value of the Common Stock on the exercise
date. The Orkney Warrant was cancelled in February 1999 in exchange for the
issuance to Mr. Orkney of 80,000 shares of Common Stock and the Company's
agreement to reimburse Mr. Orkney for up to $225,000 in income taxes arising as
a result of such share issuance. See "Certain Related Transactions." Prior to
the Redemption, the Company made S corporation distributions to its shareholders
which were intended to cover all state and federal income tax liabilities
arising from the Company's income prior to the Redemption and from the sale of
the Company's real estate. The Redemption resulted in no gain for state and
federal income tax purposes for the redeemed shareholders.
Set forth below are the sources and uses of funds related to the
Redemption:
<TABLE>
<CAPTION>
SOURCES
-------
<S> <C>
Sale of real estate............. $31.2 million
Sale of Subordinated Notes...... 9.5 million
Notes payable to former option
holders....................... 0.5 million
Repayment of officers' notes.... 0.1 million
-------------
Total................. $41.3 million
=============
</TABLE>
<TABLE>
<CAPTION>
USES
----
<S> <C>
Redemption of stock............. $16.6 million
Repurchase of options........... 3.9 million
S-corporation distributions to
redeemed shareholders......... 5.5 million
S-corporation distributions to
continuing shareholders....... 1.7 million
Mortgage payoffs................ 8.9 million
Mortgage and loan prepayment
fees........................ 1.9 million
Real estate fee to Peregrine
affiliate................... 1.0 million
Miscellaneous fees and
expenses...................... 0.5 million
Working capital................. 1.3 million
-------------
Total................. $41.3 million
=============
</TABLE>
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<PAGE> 19
EXCHANGE
Following the Redemption, ND Holdings, Inc. ("Holdings") was organized and
Mr. Daniels exchanged his Common Stock in the Company for all the outstanding
common stock of Holdings, which resulted in the Company becoming a subsidiary of
Holdings. Peregrine, which had purchased $1.45 million principal amount of the
Subordinated Notes from the Company, exchanged $1.0 million principal amount of
the Subordinated Notes for common stock of Holdings. See "Certain Related
Transactions." In addition, Peregrine and the other Investors exchanged the
remaining $8.5 million principal amount of Subordinated Notes for preferred
stock of Holdings and warrants to purchase common stock of Holdings (the
"Exchange"). For services rendered in connection with the Reorganization,
Peregrine received an additional warrant exercisable for shares of Holdings
common stock (the "Master Warrant"). The exercise price for the warrants,
including the Master Warrant, was $0.01 per share. The Master Warrant was
exercisable for a number of shares of Holdings common stock equal to 1,784,490
minus the aggregate number of shares issuable upon exercise of the warrants
granted to other investors. The number of shares for which warrants granted to
other investors were exercisable was to be determined by dividing a stated
amount by the initial public offering price of the Company's Common Stock.
Following the Redemption and the Exchange, (i) Mr. Daniels and the Investors
owned 54% and 46%, respectively, of the common stock of Holdings, on a
fully-diluted basis, (ii) the Investors owned all the outstanding preferred
stock of Holdings and (iii) Holdings owned 82% of the Company's outstanding
Common Stock and held all of the Subordinated Notes.
MERGER
In July 1998, Holdings merged with and into the Company, with the Company
being the surviving corporation (the "Merger"). In the Merger, (i) the
outstanding preferred stock of Holdings was exchanged for an aggregate of 85,000
shares of the Company's Redeemable Preferred Stock, (ii) the outstanding common
stock of Holdings was exchanged for an aggregate of 2,676,737 shares of the
Company's Common Stock, (iii) warrants to purchase common stock of Holdings,
other than the Master Warrant, were exchanged for an aggregate of 587,763 shares
of the Company's Common Stock, (iv) the Master Warrant was exchanged for
1,196,727 shares of the Company's Common Stock and (v) the Subordinated Notes
were canceled. The warrants, other than the Master Warrant, originally were
exercisable for a number of shares of Holdings common stock determined by
dividing a stated amount by the initial public offering price of the Company's
Common Stock. In the Merger, a price of $14.67 per share, rather than the
initial public offering price, was used in determining the number of shares of
the Company's Common Stock to be issued to holders of these warrants. The
Redeemable Preferred Stock issued in the Merger will be redeemed with $8.5
million of the proceeds from the Offering. See "Use of Proceeds." Following the
Merger, there were 4,464,103 shares of the Company's Common Stock outstanding,
which excludes 35,897 shares that otherwise would have been issued to an
individual who dissented from the Merger. Under Oregon law, this shareholder is
entitled to receive from the Company the fair value of his shares immediately
prior to the Merger. The Company has tendered to this shareholder $154,000,
which is the Company's estimate of the fair value of this shareholder's shares
immediately prior to the Merger. The dissenting shareholder contends that the
fair value of his shares is $3.8 million. The Company has 60 days after
receiving a payment demand in which to file an action in state court for
judicial determination of the fair value of the dissenting shareholder's shares.
If the Company does not file such an action within the 60-day period, the
Company must pay the dissenting shareholder the amount demanded. Although the
Company believes that its estimate of the fair value of the shares is accurate,
a court could determine that the amount demanded by the dissenting shareholder,
or more, represents the actual fair value. See "Business -- Legal Proceedings."
18
<PAGE> 20
BENEFITS OF THE REORGANIZATION TO CERTAIN KEY PARTICIPANTS
Certain key participants received material benefits in connection with the
Reorganization, as described below:
Norman P. Daniels. Prior to the Reorganization, Mr. Daniels owned
approximately 6% of the Company's outstanding Common Stock. He also held options
which after the Merger would have been exercisable for 558,959 shares of Common
Stock at a weighted average exercise price of $2.24 per share. If exercised,
these options would have increased Mr. Daniels' ownership of the Company's
outstanding Common Stock prior to the Reorganization to approximately 16%. As a
result of the Reorganization, Mr. Daniels owned approximately 54% of the
Company's outstanding Common Stock as of July 31, 1998. In connection with the
Reorganization, Mr. Daniels' options to purchase shares of the Company's Common
Stock were canceled. See "Certain Related Transactions."
Peregrine Capital, Inc. In connection with the Reorganization, Peregrine
purchased $1.45 million principal amount of Subordinated Notes from the Company.
For services rendered in connection with the Reorganization, Peregrine also
received the Master Warrant. Peregrine exchanged $1.0 million principal amount
of the Subordinated Notes for common stock of Holdings, which was converted into
267,674 shares of the Company's Common Stock in the Merger. Peregrine exchanged
the remaining $450,000 principal amount of the Subordinated Notes for preferred
stock of Holdings and an additional warrant to purchase common stock of
Holdings. In the Merger, the shares of preferred stock of Holdings were
converted into 4,500 shares of the Company's Redeemable Preferred Stock and this
warrant was converted into 30,682 shares of the Company's Common Stock.In the
Merger, the Master Warrant was converted into 1,196,727 shares of the Company's
Common Stock. Prior to the Merger, Peregrine assigned to various unaffiliated
third parties a portion of the Master Warrant which otherwise would have
entitled Peregrine to 228,067 of the shares of the Company's Common Stock
issuable upon conversion of the Master Warrant. Peregrine has certain
registration rights with respect to the shares of the Company's Common Stock it
received in exchange for the Holdings warrants. See "Description of Capital
Stock -- Registration Rights." An affiliate of Peregrine received a $1.0 million
fee for assisting with the sale of certain of the Company's real estate in
connection with the Reorganization, which fee was credited against the purchase
price for two parcels of the Company's real estate purchased by that affiliate.
See "Certain Transactions."
As part of the Reorganization, Peregrine agreed to pay all accounting,
legal and other expenses incurred by Holdings and the Company in connection with
the Reorganization, paid a fee of $100,000 to David Orkney to induce him to
extend the terms of his agreement regarding the sale of his interest in the
Company and agreed to reimburse the Company for all dividends paid on the
Company's Redeemable Preferred Stock. In addition, Peregrine has agreed to
purchase from the Investors all outstanding shares of the Company's Redeemable
Preferred Stock for $8.5 million, plus accumulated dividends, if the Company
does not complete, prior to May 8, 1999, an initial public offering of its
Common Stock with net proceeds to the Company of at least $12.0 million. In
connection with the Reorganization, four individuals associated with Peregrine,
including Roy Rose, a Director of the Company and a director and the president
and chief executive officer of Peregrine, and his wife, agreed to guarantee the
Company's obligations under six leases arising from the sale and lease-back of
the Company's owned real estate to unaffiliated third parties. Aggregate annual
base rent under these leases is approximately $3.0 million. This guarantee will
expire upon the closing of the Offering. See "Certain Related Transactions."
As of February 1, 1999, Peregrine beneficially owned 1,232,925 shares of
the Company's Common Stock and 7,000 shares of the Company's Redeemable
Preferred Stock. Peregrine's shares of Redeemable Preferred Stock include 2,500
shares issued upon conversion in the Merger of 250,000 shares of Holdings
preferred stock purchased by Peregrine from another Investor.
Other Investors. The Investors, other than Peregrine, purchased $8.05
million in principal amount of the Company's Subordinated Notes. None of these
Investors are affiliates of the Company. In the Exchange, these Investors
exchanged the Subordinated Notes for preferred stock of Holdings and warrants to
purchase common stock of Holdings. In the Merger, these Investors exchanged the
shares of Holdings preferred stock for an aggregate of 80,500 shares of the
Company's Redeemable Preferred Stock, which will be redeemed
19
<PAGE> 21
with $8.05 million of the Offering proceeds, and exchanged the warrants to
purchase common stock of Holdings for an aggregate of 557,081 shares of the
Company's Common Stock. These Investors have certain registration rights with
respect to these shares of Common Stock. See "Description of Capital Stock --
Registration Rights." In addition, these Investors will receive accrued
dividends payable with respect to the Redeemable Preferred Stock (which will be
paid by Peregrine upon redemption of such shares). The Investors have the right
to require Peregrine to repurchase these shares of Redeemable Preferred Stock
for an aggregate of $8.05 million plus accrued dividends if the Company does not
complete, prior to May 8, 1999, an initial public offering of its Common Stock
with net proceeds to the Company of at least $12.0 million. See "Certain Related
Transactions."
20
<PAGE> 22
USE OF PROCEEDS
The Company will receive approximately $20.2 million (approximately $23.3
million if the Underwriter's over-allotment option is exercised in full) in net
proceeds from the sale of the shares of Common Stock offered hereby, assuming an
initial public offering price of $9.00 per share (the mid-point of the range set
forth on the cover page of this Prospectus), and after deducting underwriting
discounts and estimated offering expenses.
The Company intends to use approximately $8.5 million of the net proceeds
from the Offering to redeem all of the Company's outstanding Redeemable
Preferred Stock and the remaining net proceeds to remodel the Company's stores
and open new stores over the next four fiscal years. The Company intends to open
eight new stores and remodel ten existing stores prior to the end of fiscal
2003. The Company intends to raise the additional funds, estimated at $11.9
million (excluding inventory), required to complete its remodeling program and
to open new stores through cash generated from operations, lease financings and
borrowings under the Company's revolving credit facility.
The foregoing represents the Company's best estimate of its use of the net
proceeds from the Offering based on current planning and business conditions.
The Company reserves the right to change its use of proceeds when and if market
conditions or unexpected changes in operating conditions or results occur.
Pending any specific application, the net proceeds from the Offering will be
used to pay off existing outstanding balances under the Company's revolving
credit facility or invested in short-term, interest bearing securities.
Outstanding amounts under the revolving credit facility bore interest at the
rate of 8.25% as of January 31, 1999.
DIVIDEND POLICY AND PRIOR S CORPORATION STATUS
The Company intends to retain all earnings for use in its business and,
therefore, does not anticipate paying any cash dividends in the foreseeable
future. The payment of any future dividends will be at the discretion of the
Company's Board of Directors and will depend upon the Company's results of
operations, financial condition, contractual restrictions and other factors
deemed relevant by the Board of Directors. The Company's existing revolving line
of credit facility prohibits the payment of dividends.
Prior to May 1, 1998, the Company was treated for federal and state income
tax purposes as an S corporation under Subchapter S of the Internal Revenue Code
of 1986, as amended (the "Code"), and comparable state laws. As a result, the
earnings of the Company were included in the taxable income of the Company's
shareholders, at their individual federal and state income tax rates, rather
than those otherwise applicable to the Company. As of May 1, 1998, the Company's
S corporation status was terminated in connection with the Reorganization. See
"The Reorganization." Since that date the Company has been fully subject to
federal and applicable state income taxes on its earnings. See Note 1 to
Financial Statements.
In the fiscal years ended January 31, 1997 and 1998 and the three-month
period ended April 30, 1998, the Company paid cash dividends to its shareholders
in the aggregate amounts of approximately $618,000, $410,000 and $6.9 million,
respectively, principally for the payment of the shareholders' income tax
liabilities in connection with the Company's status as an S corporation.
21
<PAGE> 23
DILUTION
As of October 31, 1998, the Company's net tangible book value per share of
Common Stock was approximately $2.03. Net tangible book value per share
represents the amount of the Company's tangible assets less the amount of its
liabilities, divided by the number of shares of Common Stock outstanding.
Giving effect to the issuance of the shares of Common Stock offered hereby
at an assumed initial public offering price of $9.00 per share (the mid-point of
the range set forth on the cover page of this Prospectus) and the deduction of
underwriting discounts and estimated offering expenses, and assuming no exercise
of outstanding options, the net tangible book value of the Company as of October
31, 1998, would have been approximately $2.97 per share. This represents an
immediate increase in net tangible book value of $0.94 per share to existing
shareholders of shares of Common Stock in the Offering. The following table
illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $ 9.00
Net tangible book value per share as of October 31,
1998(1)................................................ $2.03
Increase in net tangible book value per share attributable
to new investors....................................... 0.94
-----
Pro forma net tangible book value per share after the
Offering(1)............................................... 2.97
------
Dilution of net tangible book value per share to new
investors................................................. $ 6.03
======
</TABLE>
The following table summarizes as of October 31, 1998, after giving effect
to the Offering, the differences between existing shareholders and purchasers of
shares of Common Stock in the Offering with respect to the number of shares of
Common Stock purchased from the Company, the total consideration paid and the
average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED(1) TOTAL CONSIDERATION
-------------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ------- -------- -------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Existing shareholders......... 4,464,103 64.1% $ 2.9 11.4% $0.65
New investors................. 2,500,000 35.9 22.5 88.6 9.00
--------- ----- ----- -----
Total............... 6,964,103 100.0% $25.4 100.0%
========= ===== ===== =====
</TABLE>
- ---------------
(1) Includes 4,461,227 shares of the Company's Common Stock issued in the
Merger. Excludes (i) 371,125 shares issuable upon exercise of outstanding
stock options, with a weighted average exercise price of $9.53 per share,
(ii) 428,875 shares reserved for future grants under the Company's 1998
Plan, (iii) 300,000 shares reserved for issuance under the Company's ESPP,
(iv) 111,657 shares issued in January 1999 in connection with the Timberline
Direct acquisition and (v) 80,000 shares issued in February 1999 to David
Orkney, a Director and the former majority shareholder of the Company, in
exchange for the cancellation of the Orkney Warrant. See "Certain Related
Transactions," "Management -- Retirement and Certain Other Benefit Plans,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview" and "Description of Capital Stock -- Warrants and
Stock Options."
22
<PAGE> 24
CAPITALIZATION
The following table sets forth the Company's capitalization as of October
31, 1998 and as adjusted to give effect to the sale of the shares of Common
Stock offered hereby at an assumed initial public offering price of $9.00 per
share (the mid-point of the range set forth on the cover page of this
Prospectus) and the application of the estimated net proceeds therefrom. See
"Use of Proceeds." The information set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's financial statements and related notes thereto and
other financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
OCTOBER 31, 1998
----------------------
ACTUAL AS ADJUSTED
------- -----------
(DOLLAR AMOUNTS IN
THOUSANDS)
<S> <C> <C>
Current portion of long-term debt and capital lease
obligations............................................... $ 1,447 $ 1,447
Long-term debt and capital lease obligations, less current
portion................................................... 39,615 39,615
------- -------
Shareholders' equity:
Preferred Stock, no par value; 10,000,000 shares authorized;
85,000 shares of Series A 9% Non-Voting Redeemable
Preferred Stock issued and outstanding, actual; no shares
issued and outstanding, as adjusted(1).................... 7,887 --
Common Stock, no par value; 50,000,000 shares authorized;
4,464,103 shares issued and outstanding, actual; 6,964,103
shares issued and outstanding, as adjusted(2)............. 2,888 23,063
Issued warrant(3)........................................... 950 950
Additional paid-in capital.................................. 597 597
Accumulated deficit......................................... (7) (620)
------- -------
Total shareholders' equity............................. 12,315 23,990
------- -------
Total capitalization.............................. $53,377 $65,052
======= =======
</TABLE>
- ---------------
(1) The outstanding shares of Redeemable Preferred Stock will be redeemed with
$8.5 million of the proceeds from the Offering. Approximately $613,000 of
such amount will be treated as an addition to the Company's accumulated
deficit.
(2) Excludes 371,125 shares issuable upon exercise of outstanding stock options,
with a weighted average exercise price of $9.53 per share, (ii) 428,875
shares reserved for future grants under the Company's 1998 Plan, (iii)
300,000 shares reserved for issuance under the Company's ESPP, (iv) 111,657
shares issued in January 1999 in connection with the Timberline Direct
acquisition and (v) 80,000 shares issued in February 1999 to David Orkney, a
Director and the former majority shareholder of the Company, in exchange for
the cancellation of the Orkney Warrant. See "Certain Related Transactions,"
"Management -- Retirement and Certain Other Benefit Plans," "Management's
Discussion and Analysis of Financial condition and Results of
Operations -- Overview" and "Description of Capital Stock -- Warrants and
Stock Options."
(3) Consists of the Orkney Warrant, which was exercisable for a number of shares
equal to 5% of the Company's Common Stock outstanding, on a fully-diluted
basis, on the date of exercise at an exercise price equal to 70% of the fair
market value of the Common Stock on the exercise date. As noted in Note 2
above, the Orkney Warrant was cancelled in February in exchange for the
issuance to Mr. Orkney of 80,000 shares of the Company's Common Stock and
the Company's agreement to reimburse Mr. Orkney for up to $225,000 in income
taxes arising as a result of such share issuance. See "Certain Related
Transactions."
23
<PAGE> 25
SELECTED FINANCIAL AND OTHER DATA
The following selected financial and other data relating to the Predecessor
(as defined in footnote 1 to the following table) and the Company has been taken
or derived from the financial statements and other records of the Company and
should be read in conjunction with the financial statements and the related
notes thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the other financial information included elsewhere in
this Prospectus. The selected financial data for the Predecessor for each of the
years in the five-year period ended January 31, 1998 and for the three-month
period ended April 30, 1998 have been derived from financial statements which
have been audited by Arthur Andersen LLP, independent public accountants. The
selected financial data for the Predecessor for the three-month period ended
April 30, 1997 has been derived from unaudited financial statements for that
period prepared on the same basis as the audited financial statements and, in
the opinion of management, include all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of such financial data.
As of May 1, 1998, a new entity for purposes of financial accounting treatment
("G.I. Joe's, Inc.") was created through a management buy-out that was accounted
for as a purchase transaction. The selected financial and other data for G.I.
Joe's, Inc. for the six-month period ended October 31, 1998 has been derived
from unaudited financial statements for that period prepared on the same basis
as the audited financial statements as of and for the two-month period ended
June 30, 1998 and, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of such financial data. The selected financial and other data for
the six-month period ended October 31, 1998 are not necessarily indicative of
the results to be expected for any other period. Pro forma data for the fiscal
year ended January 31, 1998 and the nine-month period ended October 31, 1998 has
been provided to show the effect upon the Company's statement of operations of
the Reorganization, as if it had occurred as of February 1, 1997 and 1998,
respectively. See "The Reorganization." The pro forma financial data, which is
based upon available information and certain assumptions that management
believes are reasonable, is provided for informational purposes only and should
not be construed to be indicative of the Company's results of operations had the
Reorganization been consummated prior to the periods presented and does not
project the Company's results of operations for any future period.
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND SELECTED OPERATING DATA)
<TABLE>
<CAPTION>
PRO
PREDECESSOR(1) FORMA(2) PREDECESSOR(1)
---------------------------------------------------- ----------- -------------------------
FISCAL YEAR THREE MONTHS ENDED
FISCAL YEARS ENDED JANUARY 31, ENDED APRIL 30,
---------------------------------------------------- JAN. 31, -------------------------
1994 1995 1996 1997 1998 1998 1997 1998
-------- -------- -------- -------- -------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................... $136,629 $127,008 $124,052 $128,112 $128,238 $128,238 $24,013 $25,908
Cost of sales.................. 94,998 85,266 82,346 84,184 84,552 84,552 16,425 17,670
-------- -------- -------- -------- -------- -------- ------- -------
Gross margin................... 41,631 41,742 41,706 43,928 43,686 43,686 7,588 8,238
Selling, general and
administrative expense........ 39,574 36,598 37,154 37,976 39,528 42,671 8,717 9,755
-------- -------- -------- -------- -------- -------- ------- -------
Income (loss) from
operations.................... 2,057 5,144 4,552 5,952 4,158 1,015 (1,129) (1,517)
Interest expense, net.......... (3,421) (3,746) (3,726) (3,612) (3,477) (2,975) (822) (962)
Gain on sale of real estate.... -- -- 25 -- -- -- -- 640
-------- -------- -------- -------- -------- -------- ------- -------
Income (loss) before income
taxes and extraordinary
item.......................... (1,364) 1,398 851 2,340 681 (1,960) (1,951) (1,839)
(Provision for) benefit from
income taxes.................. -- -- -- -- -- 784 -- --
-------- -------- -------- -------- -------- -------- ------- -------
Income (loss) before
extraordinary item............ (1,364) 1,398 851 2,340 681 (1,176) (1,951) (1,839)
Extraordinary item: loss on
early extinguishment of
debt.......................... -- -- -- -- -- -- -- (2,220)
-------- -------- -------- -------- -------- -------- ------- -------
Net income (loss).............. $ (1,364) $ 1,398 $ 851 $ 2,340 $ 681 $ (1,176) $(1,951) $(4,059)
======== ======== ======== ======== ======== ======== ======= =======
Income (loss) per share before
extraordinary item(3):
- -- Basic....................... $(0.44) $0.45 $0.28 $0.77 $0.22 $(0.43) $(0.64) $(0.60)
- -- Diluted..................... $(0.44) $0.45 $0.26 $0.69 $0.20 $(0.43) $(0.64) $(0.60)
Net income (loss) per share(3):
- -- Basic....................... $(0.44) $0.45 $0.28 $0.77 $0.22 $(0.43) $(0.64) $(1.34)
- -- Diluted..................... $(0.44) $0.45 $0.26 $0.69 $0.20 $(0.43) $(0.64) $(1.34)
Weighted average shares
outstanding, as adjusted(3):
- -- Basic....................... 3,080 3,073 3,057 3,049 3,040 4,464 3,040 3,040
- -- Diluted..................... 3,080 3,129 3,233 3,381 3,469 4,464 3,040 3,040
<CAPTION>
G.I. JOE'S, PRO
INC. FORMA(2)
----------- -----------
SIX MONTHS NINE MONTHS
ENDED ENDED
OCTOBER 31, OCTOBER 31,
1998 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................... $75,201 $101,109
Cost of sales.................. 49,612 67,282
------- --------
Gross margin................... 25,589 33,827
Selling, general and
administrative expense........ 23,086 33,626
------- --------
Income (loss) from
operations.................... 2,503 201
Interest expense, net.......... 1,876 (2,073)
Gain on sale of real estate.... -- --
------- --------
Income (loss) before income
taxes and extraordinary
item.......................... 627 (1,872)
(Provision for) benefit from
income taxes.................. (251) 749
------- --------
Income (loss) before
extraordinary item............ 376 (1,123)
Extraordinary item: loss on
early extinguishment of
debt.......................... -- --
------- --------
Net income (loss).............. $376 $(1,123)
======= ========
Income (loss) per share before
extraordinary item(3):
- -- Basic....................... $(0.00) $(0.38)
- -- Diluted..................... $(0.00) $(0.38)
Net income (loss) per share(3):
- -- Basic....................... $(0.00) $(0.38)
- -- Diluted..................... $(0.00) $(0.38)
Weighted average shares
outstanding, as adjusted(3):
- -- Basic....................... 4,464 4,464
- -- Diluted..................... 4,464 4,464
</TABLE>
24
<PAGE> 26
<TABLE>
<CAPTION>
PRO
PREDECESSOR(1) FORMA(2) PREDECESSOR(1)
---------------------------------------------------- ----------- -------------------------
FISCAL YEAR THREE MONTHS ENDED
FISCAL YEARS ENDED JANUARY 31, ENDED APRIL 30,
---------------------------------------------------- JAN. 31, -------------------------
1994 1995 1996 1997 1998 1998 1997 1998
-------- -------- -------- -------- -------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Number of stores open for full
period........................ 14 14 14 14 14 14 14 15
Number of remodeled stores open
for full period............... -- -- 2 3 3 3 3 4
Gross margin as a percentage of
sales......................... 30.5% 32.9% 33.6% 34.3% 34.1% 34.1% 31.6% 31.8%
Store contribution(4).......... $1,436 $1,373 $1,321 $1,351 $1,417 $1,192 $154 $193
Total comparable store net
sales increase
(decrease)(5)................. (1.7)% (7.0)% (2.3)% 3.3% (1.8)% (1.8)% (5.6)% 3.0%
Remodeled same store net sales
increase (6).................. -- -- 1.6% 14.6% -- -- -- 24.0%
<CAPTION>
G.I. JOE'S, PRO
INC. FORMA(2)
----------- -----------
SIX MONTHS NINE MONTHS
ENDED ENDED
OCTOBER 31, OCTOBER 31,
1998 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
SELECTED OPERATING DATA:
Number of stores open for full
period........................ 15 15
Number of remodeled stores open
for full period............... 4 4
Gross margin as a percentage of
sales......................... 34.0% 33.5%
Store contribution(4).......... $737 $901
Total comparable store net
sales increase
(decrease)(5)................. 2.0% 2.3%
Remodeled same store net sales
increase (6).................. 22.0% 22.7%
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR G.I. JOE'S, INC.
------------------------------------------------------- ----------------------------
AS OF JANUARY 31, OCTOBER 31, 1998
------------------------------------------------------- ----------------------------
1994 1995 1996 1997 1998 ACTUAL(3) AS ADJUSTED(7)
------- -------- -------- -------- -------- ----------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital....................... $11,637 $ 9,762 $ 12,041 $ 14,923 $ 15,527 $20,493 $32,168
Inventories........................... 26,916 27,042 28,961 29,442 33,368 44,778 44,778
Total assets.......................... 61,792 62,212 58,365 58,527 66,539 83,289 94,964
Total liabilities..................... 55,538 54,758 50,552 48,734 57,119 70,974 70,974
Total shareholders' equity............ 6,254 7,454 7,813 9,793 9,420 12,315 23,990
</TABLE>
- ---------------
(1) Effective May 1, 1998, the Company underwent a reorganization in which
Norman Daniels, the Company's current Chairman of the Board, President and
Chief Executive Officer, acquired a majority interest in ND Holdings, Inc.,
an Oregon corporation ("Holdings"), which owned more than 80% of the
outstanding capital stock of G.I. Joe's. In July 1998, Holdings merged into
G.I. Joe's, with G.I. Joe's being the surviving corporation. See "The
Reorganization." The financial information with respect to periods prior to
May 1, 1998 reflects information for G.I. Joe's prior to the Reorganization
(the "Predecessor").
(2) The pro forma statement of operations data for the fiscal year ended January
31, 1998 and the nine-month period ended October 31, 1998 give effect to the
Reorganization as if it had occurred as of February 1, 1997 and February 1,
1998, respectively. Prior to the Reorganization, the Company was an S
corporation and, accordingly, was not subject to federal and state income
taxes during the periods indicated, other than during the six-month period
ended October 31, 1998. As of May 1, 1998, the Company was converted to a C
corporation and is now subject to federal and applicable state income
taxation. See "Dividend Policy and Prior S Corporation Status" and Note 1 to
Financial Statements.
(3) The per share statement of operations data for the six-month period ended
October 31, 1998 and the pro forma per share statement of operations data
for the fiscal year ended January 31, 1998 and the nine-month period ended
October 31, 1998 give effect to the issuance of 4,461,227 shares of the
Company's Common Stock in the Merger as if it had occurred at the beginning
of such periods and include dividends payable on the Company's Redeemable
Preferred Stock. See "The Reorganization."
(4) Store contribution is determined by deducting average per store expenses
from average per store gross margin.
(5) A new or remodeled store becomes comparable after it has been open or
remodeled for a full 12 months.
(6) Compares first full fiscal year following the remodeling to the preceding
fiscal year.
(7) Adjusted to reflect (i) the sale of the shares of Common Stock offered
hereby at an assumed initial public offering price of $9.00 per share (the
mid-point of the range set forth on the cover page of this Prospectus) and
(ii) the application of the net proceeds from such transaction.
25
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and
results of operations of the Company should be read in conjunction with the
selected financial and operating data and the financial statements of the
Company and the related notes thereto included elsewhere in this Prospectus.
OVERVIEW
G.I. Joe's is a leading operator of full-service sports and automotive
merchandise superstores in the Pacific Northwest. The Company currently has 16
stores, eight in the Portland, Oregon metropolitan area, two in the
Seattle/Puget Sound area of Washington and six in various other Oregon
communities. These stores average approximately 55,000 square feet in size. In
calendar year 1997, the Company was among the top 15 full-line sporting goods
retailers in the nation based on revenue. The Company has developed a successful
store concept that has significantly increased same-store sales and sales per
square foot in recently remodeled stores. For the 12-month period ended January
31, 1999, the Company's four remodeled stores generated average annual sales per
store of approximately $10.6 million, compared to approximately $8.7 million for
the Company's other stores. In addition, these remodeled stores achieved average
sales per selling square foot of $227 for that same period, compared to $194 for
other stores. For the fiscal year ended January 31, 1998, the Company's four
remodeled stores generated average annual sales per store of approximately $9.9
million, compared to approximately $8.6 million for the Company's other stores.
In fiscal 1998, these remodeled stores achieved average sales per selling square
foot of $213, compared to $193 for other stores. Average annual per store
contribution (i.e., average per store gross margin less average per store
expenses) in fiscal 1998 was approximately $1.6 million for remodeled stores and
$1.3 million for other stores. The Company has opened a new store in each of the
last two fiscal years and remodeled four existing stores over the past five
fiscal years using its updated store concept.
Most of the products offered by the Company are geared to traditionally
male-oriented activities and the majority of the consumers of G.I. Joe's
merchandise are males between the ages of 21 and 59. However, approximately 45%
of the Company's customers are women, who either purchase merchandise for men
or, increasingly, for themselves. The Company offers full lines of (i) sporting
goods, including equipment for snow and water skiing, snowboarding, kayaking,
canoeing, camping, fishing and hunting, (ii) outdoor apparel and footwear and
(iii) automotive aftermarket parts and accessories. The Company's net sales of
$142.7 million in the 12-month period ended January 31, 1999 were derived 42%
from the sale of sporting goods, 32% from the sale of outdoor apparel and
footwear, 20% from the sale of automotive parts and accessories and 6% from the
sale of other assorted products.
G.I. Joe's began operations in 1952 in Portland, Oregon as a government
surplus store. Over the years the Company shifted its focus from surplus goods
to new, general merchandise. By 1995, under the direction of Norman Daniels, the
Company's current Chairman of the Board, President and Chief Executive Officer,
the Company had streamlined its product offerings to focus on sports and
automotive merchandise, its best-selling product lines. Through 1997 the Company
pursued a conservative operating strategy while refining the Company's internal
systems, distribution system and training programs and undertaking selective
management additions, all of which created a solid foundation to support future
expansion. In May 1998, Mr. Daniels acquired majority ownership of the Company
and the Company began implementing an aggressive growth strategy. See "The
Reorganization" and "Business -- Growth and Expansion Strategy."
G.I. Joe's growth and expansion strategy is to increase the profitability
of the Company's existing stores through a major remodeling program; selectively
open new stores, primarily in Washington; enter new geographic markets in
Montana, Idaho, Utah, Nevada and Northern California through complementary
acquisitions or internal growth; further develop alternative distribution
channels; and examine opportunities for national expansion and vertical
integration.
As part of its growth and expansion strategy, the Company plans to open
eight new stores and remodel ten existing stores prior to the end of the fiscal
year ending January 31, 2003. Stores open for at least 12 months have generally
contributed positively to the Company's margins. For the fiscal year ended
26
<PAGE> 28
January 31, 1998, the average annual per store contribution for stores open for
at least 12 months was approximately $1.4 million, or approximately 16% of
average annual per store sales. Management estimates that new stores will
contribute positively to the Company's margins after 12 months of operation and
that after approximately three full years of operation new stores will generate
net sales comparable to average net sales generated at existing stores. However,
new stores may not achieve historic or anticipated levels of operating results.
Unless and until new stores contribute positively to operating margins or
generate anticipated levels of sales, the opening of new stores will result in
reduced average per store results for the Company. See "Risk Factors -- Ability
to Implement Business and Growth and Expansion Strategies and Manage Growth."
The Company has remodeled four stores using its updated store concept. Two
of these stores were remodeled in 1994, while the Company was in the process of
streamlining its product offerings to focus on sports and automotive
merchandise. See "Business -- Properties." Consequently, management does not
believe that same-store results of those two remodeled stores are comparable to
the same-store results for the two stores remodeled subsequent to the
streamlining of the Company's merchandise mix. Same-store sales at the Company's
two most recently remodeled stores increased approximately 17% on average in the
first year of operation after remodeling.
Weather and changes in weather significantly affect the Company's sales of
sporting goods equipment and outdoor apparel and footwear. Net sales and margins
are adversely affected in periods of unseasonable weather conditions. In
addition, the Company's seasonal sporting goods merchandise mix is weighted
substantially toward the summer and winter seasons, which historically has led
to much stronger results of operations for the quarters ending July 31 and
January 31 than for the other two quarters. The Company has historically
incurred net losses in the quarters ending April 30 and achieved limited net
income or incurred net losses in the quarters ending October 31. In addition,
the Company's sporting goods and outdoor apparel and footwear operations are
subject to traditional retail seasonality patterns related to the holiday
season. This seasonality, dependence on weather conditions and other factors
contribute to fluctuations in periodic operating results. Accordingly, results
of operations in any period may not be indicative of the results to be expected
for any future period. See "Risk Factors -- Effects of Weather," "Risk
Factors -- Seasonality and Fluctuations in Periodic Operating Results" and
"-- Quarterly Operating Results and Seasonality."
Sales by the Company's automotive aftermarket parts and accessories
department have been relatively unchanged for each of the four fiscal years
ended January 31, 1998, and accounted for 21% of the Company's sales in fiscal
1998. For the purpose of increasing sales of its automotive merchandise, the
Company hired a new Automotive Merchandise Manager in June 1998, and has
implemented a revised automotive merchandise marketing plan. This plan features
lower everyday prices made possible by a change in product lines and more
aggressive promotional strategies. The plan also calls for an update of the
electronic automotive parts look-up systems at all stores, which are intended to
increase the efficiency with which the Company serves its automotive parts
customers.
In the first quarter of the fiscal year ended January 31, 1998, the Company
implemented a revised inventory management strategy that focused on reducing
inventory levels, increasing inventory turns and lowering carrying costs.
Although the strategy successfully met its direct objectives, it adversely
affected sales by limiting the availability of in-stock merchandise at the
Company's stores. In the second quarter of fiscal 1998, the Company returned to
its traditional inventory management strategy.
In the three-month period ended July 31, 1998, the Company was restructured
pursuant to the Reorganization. See "The Reorganization." The Reorganization was
financed primarily with net proceeds of approximately $19.6 million from the
sale and lease-back of substantially all the Company's owned real estate (net of
related mortgage payoffs, prepayment penalties and miscellaneous fees and
expenses) and proceeds from the sale of $9.5 million of the Company's
Subordinated Notes, which notes have since been exchanged for shares of the
Company's Redeemable Preferred Stock and Common Stock. The terms of the leases
covering the real estate sold and leased back to the Company are triple net at
market rates, over a period of 15 years with two five-year renewal options. The
Company estimates that the incremental annual operating cost to lease these
facilities as compared to owning them is approximately $2.3 million, taking into
account, among other things, rental expense, reduced interest expense as a
result of mortgage payoffs and reduced depreciation. In
27
<PAGE> 29
conjunction with the sale and lease-back of the real estate, the Company paid
off mortgage loans and the Company's former revolving credit facility before
maturity, resulting in an extraordinary loss on early extinguishment of debt of
approximately $2.2 million recorded in the three-month period ended April 30,
1998. Prior to the Reorganization, the Company made S corporation distributions
of approximately $7.2 million to its shareholders which were intended to cover
all state and federal income tax liabilities arising from the Company's income
prior to the Redemption and from the sale of the Company's real estate. As a
result of the Reorganization, including the termination of the Company's S
corporation status discussed below, results for the six-month period ended
October 31, 1998 are not, and results for future periods will not be, comparable
to results for prior periods.
Prior to the Reorganization, the Company was an S corporation and,
accordingly, not subject to federal or state income taxes. As part of the
Reorganization, the Company was converted to a C corporation and is now subject
to federal and applicable state income taxation. Pro forma statement of
operations data has been provided to give effect to estimated income tax
expenses that would have been incurred if the Company had been subject to
federal and state income taxes for all periods shown. Such pro forma statement
of operations data should not be construed as indicative of future tax expenses.
In September 1998, the Company acquired certain assets and assumed certain
liabilities of three affiliated direct marketing retailers (collectively,
"Timberline Direct") that sell merchandise complementary to that offered by the
Company through catalog and Internet-based channels. The purchase price for the
acquisition is $5.4 million. The Company made cash payments of $450,000,
$350,000 and $250,000 in September 1998, December 1998 and January 1999,
respectively. The Company will pay an additional $150,000 of the purchase price
in cash in three equal payments in April, July and October 1999. An additional
portion of the purchase price consists of approximately $896,000 in assumed
liabilities. The balance of the purchase price will be paid in shares of the
Company's Common Stock, valued at $14.67 per share or, if the initial public
offering price of the Company's Common Stock is less than $11.73 per share, the
initial public offering price. The Common Stock is payable in four equal
installments. The first two installments of 55,829 shares each were paid in
January 1999 and are subject to adjustment if the initial public offering price
is less than $11.73 per share. An aggregate of 70,303 adjustment shares will be
issued if the initial public offering price is $9.00 (the mid-point of the range
set forth on the cover page of this Prospectus). The third installment will be
paid following the fiscal year ending January 31, 2000 or any subsequent fiscal
year in which the Company's catalog and Internet-based sales division achieves
(i) earnings before interest, depreciation and amortization, income taxes and
bonus payments to Douglas Spink, the Company's General Manager of Direct
Marketing, of at least 10% of the division's gross sales and (ii) gross sales of
at least $5.5 million. The final installment shall be paid following the fiscal
year ending January 31, 2001 or any subsequent fiscal year in which standards
similar to those for the third installment are achieved but at levels of 12% and
$8.0 million, respectively. Assuming the division achieves these performance
goals and that the initial public offering price is $9.00 per share, a total of
181,960 shares of Common Stock would be issued in the third and fourth
installments. The Company has granted registration rights with respect to the
shares to be issued as part of the purchase price. See "Description of Capital
Stock -- Registration Rights." See "Business -- Legal Proceedings" for a
description of litigation with respect to Timberline Direct.
28
<PAGE> 30
RESULTS OF OPERATIONS
The tables below set forth, for the periods indicated, (i) the percentage
of net sales of the Company and the Predecessor (as defined in footnote 1 to the
following table) represented by certain statement of operations and (ii) certain
store data. As a result of the Reorganization, results for the six-months ended
October 31, 1998 are not comparable to prior periods.
<TABLE>
<CAPTION>
G.I.
JOE'S,
PREDECESSOR(1) INC.
----------------------------------------------------- -----------
THREE THREE SIX
FISCAL YEARS ENDED MONTHS MONTHS MONTHS
JANUARY 31, ENDED ENDED ENDED
------------------------- APRIL 30, APRIL 30, OCTOBER 31,
1996 1997 1998 1997 1998 1998
------ ------ ------ ----------- --------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............................. 66.4 65.7 65.9 68.4 68.2 66.0
------ ------ ------ ------ ------ ------
Gross margin............................ 33.6 34.3 34.1 31.6 31.8 34.0
Selling, general and administrative
expense................................. 30.0 29.6 30.8 36.3 37.7 30.7
------ ------ ------ ------ ------ ------
Income (loss) from operations............. 3.6 4.7 3.3 (4.7) (5.9) 3.3
Interest expense, net..................... (3.0) (2.9) (2.8) (3.4) (3.7) (2.5)
Gain on sale of real estate............... 0.1 -- -- -- 2.5 --
------ ------ ------ ------ ------ ------
Income (loss) before income taxes and
extraordinary item...................... 0.7 1.8 0.5 (8.1) (7.1) 0.8
(Provision for) benefit from income
taxes(2)................................ -- -- -- -- -- 0.3
------ ------ ------ ------ ------ ------
Income (loss) before extraordinary item... 0.7 1.8 0.5 (8.1) (7.1) 0.5
Extraordinary item: loss on early
extinguishment of debt, net of
taxes(2)................................ -- -- -- -- (8.6) --
------ ------ ------ ------ ------ ------
Net income (loss)......................... 0.7% 1.8% 0.5% (8.1)% (15.7)% 0.5%
====== ====== ====== ====== ====== ======
STORE DATA:
Number of stores open for full period..... 14 14 14 14 15 15
Number of remodeled stores open for full
period.................................. 2 3 3 3 4 4
Average sales per store (in
thousands)(3)........................... $8,861 $9,151 $8,999 $1,715 $1,725 $5,277
Store contribution (in thousands)(4)...... $1,321 $1,351 $1,417 $ 154 $ 195 $ 737
Total comparable store net sales increase
(decrease)(5)........................... (2.3)% 3.3% (1.8)% (5.6)% 3.1% 2.0%
Remodeled same store net sales
increase(6)............................. 1.6% 14.6% -- -- 24.0% 22.0%
</TABLE>
- ---------------
(1) Effective May 1, 1998, the Company underwent a reorganization in which
Norman Daniels, the Company's current Chairman of the Board, President and
Chief Executive Officer, acquired a majority interest in ND Holdings, Inc.,
an Oregon corporation ("Holdings"), which owned more than 80% of the
outstanding capital stock of G.I. Joe's. In July 1998, Holdings merged into
G.I. Joe's, with G.I. Joe's being the surviving corporation. See "The
Reorganization." The financial information with respect to periods prior to
May 1, 1998 reflects information for G.I. Joe's prior to the Reorganization
(the "Predecessor").
(2) The Company was an S corporation prior to May 1, 1998, and, accordingly, was
not subject to federal and state income taxes during the periods indicated
other than during the six-month period ended October 31, 1998. See Note 1 to
Financial Statements.
(3) Based upon the weighted average number of stores open during the period
indicated.
(4) Store contribution is determined by deducting average per store expenses
from average per store gross margin.
(5) A new or remodeled store becomes comparable after it has been open or
remodeled for a full 12 months.
(6) Compares first full fiscal year following the remodeling to the preceding
fiscal year.
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<PAGE> 31
Selling, general and administrative expense includes store payroll, store
occupancy, advertising expenses, other store expenses, distribution expenses and
general and administrative expenses, including salary, bonuses and benefits of
corporate employees, administrative office occupancy expenses, data processing,
credit card and bank fees and expenses, professional expenses and other related
expenses.
Cost of sales includes inventory and certain freight costs.
SIX-MONTH PERIOD ENDED OCTOBER 31, 1998 COMPARED TO SIX-MONTH PERIOD ENDED
OCTOBER 31, 1997.
Net sales. Net sales for the six-month period ended October 31, 1998, were
approximately $75.2 million, compared with approximately $68.8 million for the
six-month period ended October 31, 1997, an increase of approximately $6.4
million, or 9.3%. Approximately $5.0 million of the overall sales increase was
attributable to the Puyallup, Washington and Hillsboro, Oregon stores, which
opened in October 1997 and July 1998, respectively. Comparable store sales for
the period increased by approximately $1.4 million, or 2.0%. The increase in
comparable store sales resulted from increased demand due to seasonal weather
conditions more favorable to the Company's summer and fall merchandise lines in
the six-month period ended October 31, 1998, the Company's return to its
traditional inventory management strategy for its stores, and a 22% sales
increase in the Bend, Oregon store, which was remodeled in August 1997. See
"-- Overview."
Gross Margin. Gross margin was 34.0% of net sales for the six-month period
ended October 31, 1998, compared with 33.7% of net sales for the six-month
period ended October 31, 1997. The increase in gross margin for the recent
period was the result of increased demand for seasonal merchandise due to more
favorable weather conditions as well as a change in promotional strategy, both
of which resulted in less discounting and fewer promotional markdowns. The
change in promotional strategy included a shift from distribution of coupon
books that focused heavily on automotive parts and accessories at discounted
prices, to distribution of color catalogs. The catalog format enhanced
merchandise presentation, was directed at higher margin merchandise (including
seasonal apparel and footwear, camping, fitness, and seasonal sporting goods),
and resulted in sales of merchandise with a higher gross margin. Separate print
advertising was provided to customers that focused on automotive merchandise.
Selling, General and Administrative Expense. Selling, general and
administrative expense was approximately $23.1 million, or 30.7% of net sales
for the six-month period ended October 31, 1998, compared to $20.1 million, or
29.3% of net sales, for the six-month period ended October 31, 1997.
Approximately $1.3 million of the $3.0 million increase in selling, general and
administrative expense relates to operating costs associated with the Puyallup,
Washington and Hillsboro, Oregon stores, which opened in October 1997 and July
1998, respectively. The balance of the increase is attributable primarily to
increased rent expense and amortization as a result of the sale and lease-back
of the Company's owned real estate in April 1998 in connection with the
Reorganization. See "-- Overview" and "The Reorganization."
Net Interest Expense. Net interest expense was approximately $1.9 million
for the six-month period ended October 31, 1998, compared to approximately $1.7
million for the six-month period ended October 31, 1997. The increase in net
interest expense resulted from an increase in average outstanding borrowings
under the Company's revolving line of credit facility due to higher inventory
levels, primarily from the addition of the Puyallup, Washington and Hillsboro,
Oregon stores, costs associated with the Reorganization, and by an increase in
interest on capitalized lease obligations, due primarily to the addition of the
two stores. These increases in interest expense were offset in part by a
reduction for the period of approximately $372,000 in mortgage interest expense
resulting from the sale and lease-back of the Company's owned real estate.
Net Income before Income Taxes. As a result of the foregoing factors, the
Company's net income before income taxes for the six-month period ended October
31, 1998 was $627,000, compared to net income of $1.4 million for the six-month
period ended October 31, 1997.
30
<PAGE> 32
THREE-MONTH PERIOD ENDED APRIL 30, 1998 COMPARED TO THREE-MONTH PERIOD ENDED
APRIL 30, 1997
Net Sales. Net sales for the three-month period ended April 30, 1998, were
$25.9 million, compared with $24.0 million for the three-month period ended
April 30, 1997, an increase of $1.9 million, or 7.9%. Comparable store sales
increased by $744,000, or 3.1%, for the same period because of several factors,
including weather conditions more favorable to the sale of the Company's late
winter and spring merchandise lines, the Company's return to its traditional
inventory management strategy for its stores, and a 24% sales increase at the
Bend, Oregon store, which was remodeled in August 1997. See "-- Overview."
Gross Margin. Gross margin was 31.8% of net sales for the three-month
period ended April 30, 1998, compared with 31.6% of net sales for the
three-month period ended April 30, 1997. The increase in gross margin for the
period was due primarily to the liquidation during the three-month period ended
April 30, 1998 of certain LIFO inventory quantities carried at lower levels
compared with the cost of current purchases.
Selling, General and Administrative Expense. Selling, general and
administrative expense was $9.8 million, or 37.7% of net sales, for the
three-month period ended April 30, 1998, compared to $8.7 million, or 36.3% of
net sales, for the three-month period ended April 30, 1997. Approximately
$402,000 of the $1.1 million increase in selling, general and administrative
expense related to operating costs associated with the Puyallup, Washington
store, which opened in October 1997. The balance of the increase in selling,
general and administrative expense related primarily to increased payroll costs
attributable to inflationary salary adjustments as well as bonuses based on
sales increases, and to increased rent expense as a result of the sale and
lease-back of the Company's owned real estate in April 1998. See "-- Overview"
and "The Reorganization."
Net Interest Expense. Net interest expense was $962,000 for the three-month
period ended April 30, 1998, compared to $822,000 for the three-month period
ended April 30, 1997. The increase in net interest expense of $140,000 resulted
from an increase in average outstanding borrowings for the period to finance the
Company's operations, including increased borrowings due to higher inventory
levels, primarily from the addition of the Puyallup, Washington store, and
interest on capital lease obligations incurred in connection with opening such
store.
Gain on Sale of Real Estate. The gain on the sale of real estate was
$640,000 for the three-month period ended April 30, 1998. The gain resulted from
the sale of a tract of undeveloped land adjacent to the Company's headquarters
and distribution center. The sale was made in conjunction with the sale and
leaseback of substantially all the Company's owned real estate as part of the
Reorganization. Because the undeveloped land was not leased back by the Company,
a gain was recognized on the sale.
Extraordinary Item: Loss on Early Extinguishment of Debt. In conjunction
with the sale and leaseback of substantially all the Company's owned real estate
in April 1998, the Company paid off mortgages and the Company's former revolving
credit facility before maturity, resulting in an extraordinary loss on early
extinguishment of debt of approximately $2.2 million. See "-- Overview" and "The
Reorganization."
Net Loss. As a result of the foregoing factors, the Company incurred a net
loss of $4.1 million for the three-month period ended April 30, 1998, as
compared to a net loss of $2.0 million for the three-month period ended April
30, 1997.
FISCAL YEAR ENDED JANUARY 31, 1998 COMPARED TO FISCAL YEAR ENDED JANUARY
31, 1997
Net Sales. Net sales for the fiscal year ended January 31, 1998 were $128.2
million, compared with $128.1 million for the fiscal year ended January 31,
1997. While total net sales increased slightly, due to the opening in October
1997 of the Puyallup, Washington store, comparable store sales decreased by
1.8%. The comparable store sales decrease was due primarily to unseasonably mild
weather in the fall and early winter of calendar 1997, which had a significant
impact on sales of winter sports merchandise and cold weather apparel and
footwear during fiscal 1998, and to the Company's revised inventory management
strategy implemented in the first quarter of fiscal 1998. See "-- Overview." In
the second quarter of fiscal 1998, the Company returned to its traditional
inventory management strategy.
31
<PAGE> 33
Gross Margin. Gross margin was 34.1% of net sales in the fiscal year ended
January 31, 1998, compared with 34.3% of net sales in the fiscal year ended
January 31, 1997. This reduction in gross margin was due primarily to an
increase in inventory shrinkage, from approximately 1.0% to 1.3% of net sales.
The Company believes this level of inventory shrinkage is less than the average
in its industry.
Selling, General and Administrative Expense. Selling general and
administrative expense was $39.5 million, or 30.8% of net sales, in the fiscal
year ended January 31, 1998, compared to $38.0 million, or 29.6% of net sales,
in the fiscal year ended January 31, 1997. Approximately $925,000 of the $1.5
million increase in selling, general and administrative expense related to
pre-opening, promotional and operating costs associated with the Company's
Puyallup, Washington store, which opened in October 1997. It is the Company's
policy to expense all pre-opening costs as incurred. The balance of the increase
was due primarily to additional advertising and promotional costs incurred to
stimulate sales which were adversely affected by the mild fall and winter
weather conditions in calendar year 1997.
Net Interest Expense. Net interest expense was $3.5 million for the fiscal
year ended January 31, 1998, compared to $3.6 million for the fiscal year ended
January 31, 1997. The reduction in net interest expense resulted from lower
interest rates and lower average borrowings outstanding under the Company's
revolving line of credit facility, offset in part by an increase in interest
expense on capitalized lease obligations incurred in connection with the
construction of the Puyallup, Washington store. Interest income was virtually
unchanged for the fiscal year ended January 31, 1998 from 1997 levels. Interest
income relates primarily to interest earned by the Company on market-rate loans
to the Henway Partnerships, which partnership's partners are officers and former
officers of the Company, as well as interest earned on direct loans to officers
and former officers. See "Certain Related Transactions."
Net Income. As a result of the foregoing factors, the Company's net income
decreased to $681,000 in the fiscal year ended January 31, 1998, from $2.3
million in the preceding fiscal year.
FISCAL YEAR ENDED JANUARY 31, 1997 COMPARED TO FISCAL YEAR ENDED JANUARY
31, 1996
Net Sales. Net sales for the fiscal year ended January 31, 1997 were $128.1
million, compared with $124.1 million for the fiscal year ended January 31,
1996, an increase of $4.0 million, or 3.3%. This increase in net sales was
primarily the result of unusually cold weather and winter storms in the Pacific
Northwest during February, March, October and November of 1996. The cold weather
and storms in February and March resulted in significant increases in sales of
winter clothing and footwear, rain gear and winter-related automotive products
and sporting goods. The cold weather and storms in late October and November
provided an early start to the winter sports season and allowed the Company to
sell its winter clothing and footwear and skiing and snowboarding merchandise
early in the season at regular retail prices instead of at promotional prices
during the holiday season. Increased sales at remodeled stores and the
installation of additional concept shops featuring nationally prominent brands
within the Company's stores also contributed to increased sales in the fiscal
year ended January 31, 1997.
Gross Margin. Gross margin was 34.3% of net sales in the fiscal year ended
January 31, 1997, compared with 33.6% of net sales in the fiscal year ended
January 31, 1996. The increase in gross margin as a percent of sales was due
primarily to a reduction in inventory shrinkage from approximately 1.2% of net
sales in fiscal 1996 to 1.0% of net sales in fiscal 1997, the liquidation in
fiscal 1997 of certain LIFO inventory quantities carried at lower costs compared
with the cost of current purchases and fewer promotional markdowns as a
percentage of sales in fiscal 1997 as compared to fiscal 1996.
Selling, General and Administrative Expense. Selling, general and
administrative expense was $38.0 million, or 29.6% of net sales, in the fiscal
year ended January 31, 1997, compared to $37.2 million, or 30.0% of net sales,
in the fiscal year ended January 31, 1996. Selling, general and administrative
expense as a percentage of sales decreased in fiscal 1997 because net sales
growth exceeded the growth of selling, general and administrative expense in
that period. The $800,000 increase in selling, general and administrative
expense in fiscal 1997 was due primarily to a $705,000, or 4.0%, increase in
payroll costs attributable to inflationary salary adjustments, as well as to
bonuses based on sales increases. Other increases in employee benefit expenses,
32
<PAGE> 34
store operating expenses and credit card discount fees were offset in part by
reductions in advertising and promotional expenses.
Net Interest Expense. Net interest expense was $3.6 million for the fiscal
year ended January 31, 1997, compared to $3.7 million for the fiscal year ended
January 31, 1996. A $600,000 reduction in interest expense from $4.3 million in
the fiscal year ended January 31, 1996 to $3.7 million in the fiscal year ended
January 31, 1997 was largely offset by a reduction in interest income from
fiscal 1996 to fiscal 1997. The reduction in interest expense resulted from
lower interest rates and lower average borrowings outstanding under the
Company's revolving line of credit facility, the repayment in fiscal 1997 of a
bank term loan and the refinancing in late fiscal 1996 of two existing real
estate mortgages at lower interest rates. The decrease in interest income was
attributable to the repayment of a loan by the Henway Partnerships, the proceeds
of which were used to pay down the revolving credit facility and pay off the
term loan. See "Certain Related Transactions."
Net Income. As a result of the foregoing factors, the Company's net income
increased to $2.3 million for the fiscal year ended January 31, 1997, from
$851,000 in the preceding fiscal year.
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<PAGE> 35
QUARTERLY OPERATING RESULTS AND SEASONALITY
The following tables set forth certain unaudited financial information for
each of the four quarters in the fiscal years ended January 31, 1997 and 1998
and for the first three quarters of fiscal 1999. This unaudited quarterly
information has been prepared on the same basis as the audited financial
statements and, in the opinion of management, includes all necessary adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the data presented. The unaudited quarterly results should be
read in conjunction with the financial statements and related notes thereto
included elsewhere in this Prospectus. As a result of the recent Reorganization
and for other reasons, the Company believes that quarter-to-quarter comparisons
of its historical financial results should not be relied upon as an indication
of future performance. See "The Reorganization," "Risk Factors -- Effects of
Weather" and "Risk Factors -- Seasonality and Fluctuations in Periodic Operating
Results."
<TABLE>
<CAPTION>
PREDECESSOR(1)
------------------------------------------------------------------------------------------------
QUARTER ENDED
------------------------------------------------------------------------------------------------
APR. 30, JULY 31, OCT. 31, JAN. 31, APR. 30, JULY 31, OCT. 31, JAN. 31, APR. 30,
1996 1996 1996 1997 1997 1997 1997 1998 1998
-------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $25,450 $35,991 $31,868 $34,803 $24,013 $36,215 $32,538 $35,472 $25,908
Cost of sales........... 17,103 24,408 20,848 21,825 16,425 24,134 21,434 22,559 17,670
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross margin.......... 8,347 11,583 11,020 12,978 7,588 12,081 11,104 12,913 8,238
Selling, general and
administrative
expense............... 8,659 9,581 9,609 10,127 8,717 9,871 10,244 10,696 9,755
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations............ (312) 2,002 1,411 2,851 (1,129) 2,210 860 2,217 (1,517)
Interest expense, net... (903) (930) (882) (897) (822) (851) (816) (988) (962)
Gain on sale of real
estate................ -- -- -- -- -- -- -- -- 640
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
taxes and
extraordinary item.... (1,215) 1,072 529 1,954 (1,951) 1,359 44 1,229 (1,839)
(Provision for) benefit
from income
taxes(2).............. -- -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
extraordinary item.... (1,215) 1,072 529 1,954 (1,951) 1,359 44 1,229 (1,839)
Extraordinary item: loss
on early
extinguishment of
debt.................. -- -- -- -- -- -- -- -- (2,220)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)....... $(1,215) $ 1,072 $ 529 $ 1,954 $(1,951) $ 1,359 $ 44 $ 1,229 $(4,059)
======= ======= ======= ======= ======= ======= ======= ======= =======
Basic income (loss) per
share before
extraordinary item.... $ (0.40) $ 0.35 $ 0.17 $ 0.64 $ (0.64) $ 0.45 $ 0.01 $ 0.40 $ (0.60)
======= ======= ======= ======= ======= ======= ======= ======= =======
Diluted income (loss)
per share before
extraordinary item.... $ (0.40) $ 0.34 $ 0.16 $ 0.58 $ (0.64) $ 0.41 $ 0.01 $ 0.36 $ (0.60)
======= ======= ======= ======= ======= ======= ======= ======= =======
Basic net income (loss)
per share............. $ (0.40) $ 0.35 $ 0.17 $ 0.64 $ (0.64) $ 0.45 $ 0.01 $ 0.40 $ (1.34)
======= ======= ======= ======= ======= ======= ======= ======= =======
Diluted net income
(loss) per share...... $ (0.40) $ 0.34 $ 0.16 $ 0.58 $ (0.64) $ 0.41 $ 0.01 $ 0.36 $ (1.34)
======= ======= ======= ======= ======= ======= ======= ======= =======
<CAPTION>
G.I. JOE'S, INC.
-------------------
QUARTER ENDED
-------------------
JULY 31, OCT. 31,
1998 1998
-------- --------
<S> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $38,212 $36,989
Cost of sales........... 25,263 24,349
------- -------
Gross margin.......... $12,949 12,640
Selling, general and
administrative
expense............... 11,226 11,860
------- -------
Income (loss) from
operations............ 1,723 780
Interest expense, net... (896) (980)
Gain on sale of real
estate................ -- --
------- -------
Income (loss) before
taxes and
extraordinary item.... 827 (200)
(Provision for) benefit
from income
taxes(2).............. (331) 80
------- -------
Income (loss) before
extraordinary item.... 496 (120)
Extraordinary item: loss
on early
extinguishment of
debt.................. -- --
------- -------
Net income (loss)....... $ 496 $ (120)
======= =======
Basic income (loss) per
share before
extraordinary item.... $ 0.07 $ (0.07)
======= =======
Diluted income (loss)
per share before
extraordinary item.... $ 0.07 $ (0.07)
======= =======
Basic net income (loss)
per share............. $ 0.07 $ (0.07)
======= =======
Diluted net income
(loss) per share...... $ 0.07 $ (0.07)
======= =======
</TABLE>
34
<PAGE> 36
<TABLE>
<CAPTION>
PREDECESSOR(1)
------------------------------------------------------------------------------------------------
QUARTER ENDED
------------------------------------------------------------------------------------------------
APR. 30, JULY 31, OCT. 31, JAN. 31, APR. 30, JULY 31, OCT. 31, JAN. 31, APR. 30,
1996 1996 1996 1997 1997 1997 1997 1998 1998
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <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%
Cost of sales........ 67.2 67.8 65.4 62.7 68.4 66.6 65.9 63.6 68.2
----- ----- ----- ----- ----- ----- ----- ----- -----
Gross margin....... 32.8 32.2 34.6 37.3 31.6 33.4 34.1 36.4 31.8
Selling, general and
administrative
expense............ 34.0 26.6 30.2 29.1 36.3 27.3 31.5 30.1 37.7
----- ----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from
operations......... (1.2) 5.6 4.4 8.2 (4.7) 6.1 2.6 6.3 (5.9)
Interest expense,
net................ (3.6) (2.6) (2.8) (2.6) (3.4) (2.3) (2.5) (2.8) (3.7)
Gain on sale of real
estate............. -- -- -- -- -- -- -- -- 2.5
----- ----- ----- ----- ----- ----- ----- ----- -----
Income (loss) before
extraordinary
item............... (4.8) 3.0 1.6 5.6 (8.1) 3.8 0.1 3.5 (7.1)
(Provision for)
benefit from income
taxes(2)........... -- -- -- -- -- -- -- -- --
Income (loss) before
extraordinary
item............... (4.8) 3.0 1.6 5.6 (8.1) 3.8 0.1 3.5 (7.1)
Extraordinary item:
loss on early
extinguishment of
debt............... -- -- -- -- -- -- -- -- (8.6)
----- ----- ----- ----- ----- ----- ----- ----- -----
Net income (loss).... (4.8)% 3.0% 1.6% 5.6% (8.1)% 3.8% 0.1% 3.5% (15.7)%
===== ===== ===== ===== ===== ===== ===== ===== =====
<CAPTION>
G.I. JOE'S, INC.
-------------------
QUARTER ENDED
-------------------
JULY 31, OCT. 31,
1998 1998
-------- --------
<S> <C> <C>
Net sales............ 100.0% 100.0%
Cost of sales........ 66.1 65.8
----- -----
Gross margin....... 33.9 34.2
Selling, general and
administrative
expense............ 29.4 32.1
----- -----
Income (loss) from
operations......... 4.5 2.1
Interest expense,
net................ (2.3) (2.6)
Gain on sale of real
estate............. -- --
----- -----
Income (loss) before
extraordinary
item............... 2.2 (0.5)
(Provision for)
benefit from income
taxes(2)........... (0.9) 0.2
Income (loss) before
extraordinary
item............... 1.3 (0.3)
Extraordinary item:
loss on early
extinguishment of
debt............... -- --
----- -----
Net income (loss).... 1.3% (0.3)%
===== =====
</TABLE>
- ---------------
(1) Effective May 1, 1998, the Company underwent a reorganization in which
Norman Daniels, the Company's current Chairman of the Board, President and
Chief Executive Officer, acquired a majority interest in ND Holdings, Inc.,
an Oregon corporation ("Holdings"), which owned more than 80% of the
outstanding capital stock of G.I. Joe's. In July 1998, Holdings merged into
G.I. Joe's, with G.I. Joe's being the surviving corporation. See "The
Reorganization." The financial information with respect to periods prior to
May 1, 1998 reflects information for G.I. Joe's prior to the Reorganization
(the "Predecessor").
(2) The Company was an S corporation prior to May 1, 1998, and, accordingly, was
not subject to federal and state income taxes during the periods indicated
other than during the three-month period ended July 31, 1998 and the
three-month period ended October 31, 1998. See Note 1 to Financial
Statements.
The Company's results of operations have fluctuated, and likely will
continue to fluctuate, significantly from period to period. Weather and changes
in weather significantly affect the Company's sales of sporting goods equipment
and outdoor apparel and footwear. Net sales and margins are adversely affected
in periods of unseasonable weather conditions. In addition, the Company's
seasonal sporting goods merchandise mix is weighted substantially toward the
summer and winter seasons, which historically has led to much stronger results
of operations for the quarters ending July 31 and January 31 than for the other
two quarters. The Company has historically incurred net losses in the quarters
ending April 30 and achieved limited net income or incurred net losses in the
quarters ending October 31. The Company's sporting goods and outdoor apparel and
footwear operations are also subject to traditional retail seasonality patterns
related to the holiday season and to changes in general and regional economic
conditions and changes in consumer preferences. The timing and expenses
associated with the Company's store remodeling program and the opening of new
stores or the acquisition of other businesses as part of the Company's growth
and expansion strategy will also contribute to fluctuations in periodic
operating results. Accordingly, the Company's operating results may vary
materially from quarter to quarter. See "Risk Factors -- Effects on Weather,"
"Risk Factors -- Seasonality and Fluctuations in Periodic Operating Results" and
"Business -- Growth and Expansion Strategy."
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital principally to finance working capital needs,
remodel and upgrade existing stores and open new stores. Historically, these
activities have been funded by internally generated cash, long-term mortgage
financing, capital and operating leases and borrowings under the Company's
revolving line of
35
<PAGE> 37
credit facilities. Prior to the end of the fiscal year ending January 31, 2003,
the Company plans to open eight new stores and remodel ten existing locations at
an estimated aggregate cost of approximately $23.6 million, which figure
excludes inventory for the new stores. See "Business -- Growth and Expansion
Strategy." Management expects to fund these expenditures through internally
generated cash, lease financings, borrowings under the Company's revolving line
of credit facility and proceeds from the sale of shares in the Offering. See
"Use of Proceeds." This or further expansion of the Company's operations,
including the possible acquisition of complementary businesses, may also be
funded by public or private debt or subsequent equity offerings by the Company.
See "Risk Factors -- Risks Associated With Potential Acquisitions." Management
estimates that the capital cost of new and remodeled stores will be
approximately $1.45 million and $1.2 million, respectively, per store. In
addition, management expects that each new store will require approximately $2.1
million for inventory, which will be financed on normal trade credit terms, and
approximately $175,000 in pre-opening and promotional expenses. Actual costs to
remodel or to construct and open stores may substantially exceed such amounts.
Capital expenditures by the Company in the nine months ended October 31,
1998 and in the fiscal years ended January 31, 1998, 1997 and 1996 were
approximately $1.8 million, $2.5 million, $2.3 million and $1.7 million,
respectively. These capital expenditures were primarily for remodeling existing
stores, acquiring land for new store locations and constructing and opening new
stores.
In March 1998, the Company entered into a three-year revolving line of
credit facility with Foothill Capital Corporation to replace an existing
revolving line of credit facility and term loan. The amount available under the
new line of credit facility is the lesser of $20.0 million or an amount equal to
60% of eligible FIFO inventory, less specified reserves and the aggregate amount
of all undrawn letters of credit. Interest is payable monthly at either (i) the
lender's prime reference rate plus 1/4% or (ii) an adjusted rate based on the
lender's Eurodollar rate. Letters of credit are issuable against the revolving
line of credit facility up to a maximum of the lesser of $1.0 million or
available borrowings under the facility. The line of credit facility is secured
by a security interest in substantially all of the Company's assets and contains
covenants which restrict, among other things, the Company's ability to incur
additional indebtedness.
In conjunction with the Reorganization, in May 1998, the Company redeemed
all of the Company's outstanding capital stock, other than shares held by Norman
Daniels and two minority shareholders, for an aggregate purchase price of
approximately $16.6 million, and repurchased certain of the Company's
outstanding options to purchase Common Stock for an aggregate purchase price of
approximately $3.9 million. See "The Reorganization" and "Certain Related
Transactions." The redemption of shares as part of the Reorganization resulted
in no gain to redeemed shareholders for state or federal income tax purposes.
The Company financed the stock redemption and the repurchase of stock options
primarily with the net proceeds of approximately $19.6 million from the sale and
lease-back of substantially all its owned real estate (net of related mortgage
payoffs, prepayment penalties and miscellaneous fees and expenses) and the
proceeds from the sale of $9.5 million of the Company's Subordinated Notes. See
"The Reorganization." The terms of the leases covering the real estate sold by
and leased back to the Company are triple net at market rates, over a period of
15 years with two five-year renewal options. The Company estimates that the
incremental annual operating cost to lease these facilities as compared to
owning them is approximately $2.3 million, taking into account, among other
things, rental expense, reduced interest expense as a result of mortgage payoffs
and reduced depreciation. In conjunction with the sale and lease back of the
real estate, the Company paid off mortgage loans and the Company's former
revolving credit facility before maturity, resulting in an extraordinary loss on
early extinguishment of debt of approximately $2.2 million recorded in the
three-month period ended April 30, 1998. Prior to the Reorganization, the
Company made S corporation distributions of approximately $7.2 million to its
shareholders which are intended to cover all state and federal income tax
liabilities arising from the Company's income prior to the Redemption and from
the sale of the Company's real estate. See "The Reorganization."
The Company believes that the net proceeds from the Offering, combined with
borrowings under its line of credit facility and internally generated funds,
will be sufficient to fund its requirements for working capital and capital
expenditures for at least the next 12 months.
36
<PAGE> 38
As of October 31, 1998, the Company had checks outstanding in excess of
cash deposits of $1.3 million and borrowing capacity under its revolving line of
credit facility of approximately $2.5 million.
Cash Flow for the Six-Month Period Ended October 31, 1998. During the
six-month period ended October 31, 1998, checks outstanding in excess of cash
deposits increased by $1.1 million. Net cash used by operating activities was
$943,000, derived principally from cash net income (net income plus depreciation
and amortization) of $1.7 million and an increase in accounts payable and
accrued liabilities of $2.9 million, offset by an increase in inventory of $3.8
million and an increase in accounts receivable and other current assets of $1.8
million.
Investing activities during the period included capital expenditures of
$1.8 million, related principally to the Company's new store in Hillsboro,
Oregon, which opened in July 1998. Approximately $1.5 million of these
expenditures were offset by the proceeds from the sale and lease back of
substantially all of the fixtures and improvements associated with the Hillsboro
store. Investing activities also included a cash payment of $450,000 and an
increase in notes receivable of $100,000 in conjunction with the acquisition of
Timberline Direct, and $508,000 related to professional fees and financing fees
incurred by the Company in connection with the Reorganization and the Offering.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview" and "The Reorganization."
Financing activities during the period consisted of a net increase in
borrowing of $1.9 million under the Company's revolving line of credit facility,
principal payments of $212,000 on term loan obligations and $457,000 on capital
lease obligations.
Cash Flow for the Three-Month Period Ended April 30, 1998. During the
three-month period ended April 30, 1998, checks outstanding in excess of cash
deposits decreased by $370,000. Net cash used by operating activities was $1.2
million, derived principally from a cash net loss (net loss less depreciation
and amortization, plus the gain on sale of real estate, less the extraordinary
loss on early extinguishment of debt) of $1.9 million, an increase in accounts
payable and accrued liabilities of $2.8 million and a net reduction in all other
current assets, excluding inventory, of $289,000, offset in part by an increase
in inventory of $2.6 million. The increase in inventory is due primarily to
seasonal increases in spring and summer merchandise and inventory designated for
the new Hillsboro, Oregon store, which opened in July 1998.
Investing activities during the three-month period ended April 30, 1998
included the proceeds of $25.1 million from the sale and lease-back of
substantially all the Company's owned real estate and capital expenditures of
$90,000. Investing activities also included an increase in other non-current
assets of $768,000, related to professional and financing fees incurred by the
Company in conjunction with the Reorganization. See "The Reorganization."
Financing activities during the period included a net reduction in
borrowings of $3.5 million under the Company's revolving line of credit
facility. Net proceeds resulting from the sale and lease-back in late April 1998
of substantially all the Company's owned real estate (net of related mortgage
payoffs, prepayment penalties and miscellaneous fees and expenses) were used to
pay down temporarily the revolving line of credit facility prior to the
redemption in May 1998 of capital stock and options of the Company as part of
the Reorganization. See "The Reorganization." This reduction in the revolving
line of credit facility was net of an increase of approximately $1.0 million
attributable to a term loan that was rolled into the revolving credit facility
when the Company replaced its former revolving credit facility in May 1998.
Prior to the sale and lease-back transaction, borrowings under the revolving
line of credit facility had actually increased for the period to finance the
Company's operations. The Company historically incurs net operating losses
during the three-month period ending April 30.
Financing activities during the three-month period ended April 30, 1998
also included a pay-down of long term debt of $10.1 million, which related
primarily to the payoff of mortgage obligations on the properties included in
the sale and lease-back transaction and the rollover of the term loan discussed
above, principal payments on capital lease obligations of $226,000, prepayment
penalties of $1.9 million incurred on the payoff of the mortgages and the
Company's former revolving credit facility, and S corporation distributions in
the
37
<PAGE> 39
amount of $6.9 million to cover shareholder tax liabilities for the fiscal years
ended January 31, 1997 and 1998, and the three-month period ended April 30,
1998. See "The Reorganization."
Cash Flow for the Fiscal Year Ended January 31, 1998. During the fiscal
year ended January 31, 1998, checks outstanding in excess of cash decreased by
$87,000. Operating activities generated net cash of $1.5 million, principally
from cash net income (net income plus depreciation and amortization) of $3.0
million and an increase in accounts payable and accrued liabilities of $2.0
million, offset in part by an increase in inventory of $3.9 million. The
increase in inventory was due primarily to the opening of the Puyallup,
Washington store in October 1997.
Investing activities during the period included capital expenditures of
$2.5 million, the majority of which was used to remodel an existing store in
Bend, Oregon, and to open the Puyallup, Washington store.
Financing activities during the period consisted principally of a net
increase of $1.4 million in borrowings under a revolving line of credit
facility, $3.2 million borrowed to refinance mortgages on two Company owned
store locations, and $1.3 million borrowed for fixtures and equipment for the
Puyallup, Washington store. Other financing activities included principal
payments of $3.4 million on term loan obligations, payments of $854,000 on
capital lease obligations and S corporation distributions of $370,000 to cover
shareholder tax liabilities.
YEAR 2000 COMPLIANCE
The Company relies on computer systems and software to operate its
business, including applications used in sales, purchasing, inventory
management, finance and various administrative functions. The Company has
determined that certain of its software applications will be unable to interpret
appropriately the calendar Year 2000 and subsequent years.
Since June 1997, the Company has been actively engaged in achieving Year
2000 compliance. The Company's Year 2000 compliance project has been divided
into several phases. First, all hardware and operating system software
applications were audited and found to be Year 2000 compliant. Second, all
third-party software applications were checked for compliance. Since the Company
has developed most of its applications internally, few applications needed to be
checked. Of these, only two minor applications were found to have Year 2000
issues and the Company has taken steps to replace these applications. Third, the
Company has completed an inventory of its database files and
internally-developed software applications, and has developed an application to
modify non-Year-2000-compliant database files, re-compile software applications
and monitor progress. Finally, the Company re-prioritized existing information
technology ("IT") projects to allocate programming resources to the Company's
Year 2000 project.
As of January 31, 1999, approximately 85 percent of the Company's systems
are Year 2000 compliant. The target date for full compliance is June 30, 1999.
The Company's total budget for its Year 2000 project is $145,000,
approximately half of which amount had been spent through December 31, 1998.
This amount represents approximately 10 percent of total IT expenditures
budgeted for the period from June 1997 through June 1999. The Company continues
to manage total IT expenses by re-prioritizing or curtailing less critical
investments, incorporating Year 2000 readiness into previously planned system
enhancements and by using existing staff to implement its Year 2000 program. The
Company has not hired any outside consultants for its Year 2000 project, nor has
it needed to purchase any hardware or software.
The Company has also conducted an inventory of non-computer equipment that
may contain date-sensitive microprocessor chips. All of the Company's telephone
systems, environmental controls, copiers, fax machines, forklift equipment and
other similar equipment have been found to be Year 2000 compliant. Upgrades will
need to be made to camera surveillance systems installed in two of the Company's
16 retail stores. These upgrades are scheduled for the second quarter of fiscal
1999.
The Company acquires a majority of its inventory from approximately 30
vendors. If these vendors have unresolved Year 2000 issues which affect their
ability to supply merchandise, the Company could be adversely
38
<PAGE> 40
affected. The Company completed a Year 2000 readiness survey of its top vendors
in January 1999. None of the Company's top vendors indicated that it will be
adversely affected by Year 2000 issues. In the event that it appears a vendor
will be adversely affected by Year 2000 issues, the Company believes that it
will be able to find alternative suppliers.
Should the Company not achieve full compliance in a timely manner or
complete its Year 2000 project within its current cost estimates, the Company's
business, financial condition and results of operations could be adversely
affected. However, in the event that the Company fails to meet the deadlines
above, the Company believes that the financial impact will not be material since
all systems believed by the Company to be critical have already been certified
as Year 2000 compliant.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130 "Reporting Comprehensive Income" ("SFAS 130"). This statement
establishes standards for reporting and displaying comprehensive income and its
components in a full set of general purpose financial statements. The objective
of SFAS 130 is to report a measure of all changes in equity of an enterprise
that result from transactions and other economic events of the period other than
transactions with owners. The Company adopted SFAS 130 during the first quarter
of fiscal 1999. Comprehensive loss did not differ from currently reported net
loss in the periods presented.
Effective in its fiscal year ending January 31, 1999, the Company will be
required to adopt SFAS No. 131 "Disclosures about Segments of an Enterprise and
Related Information." SFAS No. 131 changes current practice under SFAS No. 14 by
establishing a new framework on which to base segment reporting (referred to as
the "management" approach) and also requires interim reporting of segment
information. Management does not expect that the impact of adoption of this
pronouncement will be material to the Company's financial position or results of
operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for all derivative instruments.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. The
Company currently has no derivative instruments and, therefore, the adoption of
SFAS 133 will have no impact on the Company's financial position or results of
operations.
39
<PAGE> 41
BUSINESS
INTRODUCTION
G.I. Joe's is a leading operator of full-service sports and automotive
merchandise superstores in the Pacific Northwest. The Company currently has 16
stores, eight in the Portland, Oregon metropolitan area, two in the
Seattle/Puget Sound area of Washington and six in various other Oregon
communities. These stores average approximately 55,000 square feet in size. In
calendar year 1997, the Company was among the top 15 full-line sporting goods
retailers in the nation based on revenue. The Company has developed a successful
store concept that has significantly increased same-store sales and sales per
square foot in recently remodeled stores. For the 12-month period ended January
31, 1999, the Company's four remodeled stores generated average annual sales per
store of approximately $10.6 million, compared to approximately $8.7 million for
the Company's other stores. In addition, these remodeled stores achieved average
sales per selling square foot of $227 for that same period, compared to $194 for
other stores. For the fiscal year ended January 31, 1998, the Company's four
remodeled stores generated average annual sales per store of approximately $9.9
million, compared to approximately $8.6 million for the Company's other stores.
In fiscal 1998, these remodeled stores achieved average sales per selling square
foot of $213, compared to $193 for other stores. Average annual per store
contribution (i.e., average per store gross margin less average per store
expenses) in fiscal 1998 was approximately $1.6 million for remodeled stores and
$1.3 million for other stores. The Company has opened a new store in each of the
last two fiscal years and remodeled four existing stores over the past five
fiscal years using its updated store concept.
Most of the products offered by the Company are geared to traditionally
male-oriented activities and the majority of the consumers of G.I. Joe's
merchandise are males between the ages of 21 and 59. However, approximately 45%
of the Company's customers are women, who either purchase merchandise for men
or, increasingly, for themselves. The Company offers full lines of (i) sporting
goods, including equipment for snow and water skiing, snowboarding, kayaking,
canoeing, camping, fishing and hunting, (ii) outdoor apparel and footwear and
(iii) automotive aftermarket parts and accessories. The Company's net sales of
$142.7 million in the 12-month period ended January 31, 1999 were derived 42%
from the sale of sporting goods, 32% from the sale of outdoor apparel and
footwear, 20% from the sale of automotive parts and accessories and 6% from the
sale of other assorted products.
G.I. Joe's began operations in 1952 in Portland, Oregon as a government
surplus store. Over the years the Company shifted its focus from surplus goods
to new, general merchandise. By 1995, under the direction of Norman Daniels, the
Company's current Chairman of the Board, President and Chief Executive Officer,
the Company had streamlined its product offerings to focus on sports and
automotive merchandise, its best-selling product lines. Through 1997 the Company
pursued a conservative operating strategy while refining its internal systems,
distribution system and training programs and undertaking selective management
additions, all of which created a solid foundation to support future expansion.
In May 1998, Mr. Daniels acquired majority ownership of the Company and the
Company began implementing an aggressive growth strategy. See "The
Reorganization" and "Business -- Growth and Expansion Strategy."
G.I. Joe's growth and expansion strategy is to increase the profitability
of the Company's existing stores through a major remodeling program; selectively
open new stores, primarily in Washington; enter new geographic markets in
Montana, Idaho, Utah, Nevada and Northern California through complementary
acquisitions or internal growth; further develop alternative distribution
channels; and examine opportunities for national expansion and vertical
integration.
INDUSTRY OVERVIEW
According to the National Sporting Goods Association, between 1992 and 1997
the U.S. sports merchandise retail market grew 23% to $42.9 billion from $34.9
billion, representing a compound annual growth rate of 4.0%. There are four
principal categories of sports merchandise retailers in the United States: (i)
traditional sports merchandise retailers which generally operate stores under
30,000 square feet in size and are regional in focus, (ii) specialty sports
merchandise retailers which generally focus on high-end products relating to a
40
<PAGE> 42
single activity category, such as The Orvis Company, Inc., (iii) mass
merchandisers such as Wal-Mart and K-Mart and (iv) large format sports
merchandise retailers which generally operate stores larger than 50,000 square
feet in size, such as The Sports Authority, Inc. and Gart/Sportmart. Large
format sports merchandise retailers represent a rapidly increasing percentage of
this retail market. From 1995 to 1997, sales by the top five large format sports
merchandise retailers grew approximately 20%, from approximately $3.0 billion to
approximately $3.6 billion.
According to the Automotive Parts and Accessories Association, between 1992
and 1997 the U.S. market for automotive aftermarket parts and accessories grew
35% to $30.0 billion from $22.3 billion, representing a compound annual growth
rate of 6%. Automotive parts retailers account for over one-third of all sales
in this market. Growth in this market has been driven primarily by two trends:
(i) the increasing sales of pickup trucks, mini-vans and sports-utility vehicles
and (ii) the increasing average age of automobiles in the United States. In
1997, sales of light trucks accounted for 45% of all new U.S. vehicle sales and
a record 6.9 million pickup trucks, mini-vans and sport-utility vehicles were
sold, representing a 4.5% increase over 1996. Increased sales of pickup trucks,
mini-vans and sport-utility vehicles have increased demand for automotive
accessories such as utility racks, running boards and truck bed liners and
covers. In addition, as the average sales price of new vehicles has continued to
increase, so has the average length of vehicle ownership. In 1996, more than 33%
of vehicles were five to ten years old, and more than 35% of the remaining
vehicles were more than ten years old. These factors have led to growth in the
"do-it-yourself" automotive parts market, as vehicle owners reduce costs by
performing repairs and maintenance. People who perform work on their own
automobiles account for more than half of the purchases of starting, fuel system
and charging system parts, and more than one-third of all purchases of brake and
engine parts.
The retail markets for sports and automotive merchandise are both highly
fragmented on a national and regional basis. This fragmentation presents
numerous opportunities for consolidation. Although there is substantial overlap
between consumers of sports merchandise and automotive merchandise, most
participants in these retail markets carry only sports or automotive merchandise
or a limited mix of these products. Few participants take advantage of the
cross-selling opportunities available by carrying full lines of both types of
merchandise.
BUSINESS STRATEGY
The Company's business strategy is based on the following key competitive
strengths.
Unique Merchandise Mix. G.I. Joe's carries full lines of sporting goods,
outdoor apparel and footwear, and automotive aftermarket parts and accessories.
The Company's merchandise mix has led to substantial cross-shopping by customers
between the sporting goods and automotive departments. Based on a survey of
approximately 1,400 customers conducted by the Company in 1997, during the same
visit to a G.I. Joe's store over 30% of the Company's sporting goods customers
also purchased automotive products, and over 50% of the Company's automotive
customers also purchased sporting goods products. For example, a customer may
purchase both a bicycle and a bicycle rack for his vehicle, or snow skis, a ski
rack and snow chains for his vehicle. The Company continually adjusts its
merchandise mix to respond to changes in consumer preference, to target higher
margin products and to attract additional customers in an ongoing effort to
increase sales and improve profitability. A typical G.I. Joe's store stocks over
75,000 active stock keeping units ("SKUs") (including different styles and
colors as separate units) of sports and automotive merchandise. No other
superstore retailer pursues the Company's two-stores-in-one merchandise mix
strategy, and the Company's extensive and diverse merchandise selection
differentiates it from other retailers of sports or automotive merchandise.
Proven Store Concept and Remodeling Strategy. The Company has developed a
successful open ceiling, racetrack design concept for its stores that has
significantly increased same-store sales and sales per square foot. See "Store
Concept." Same-store sales at the Company's two stores remodeled in the last
four years have increased approximately 17% on average in the first year of
operation after remodeling, which equates to an improvement in average sales for
those stores from $214 per selling square foot in the year prior to remodeling
to $250 per selling square foot in the first year after remodeling. For the
12-month period ended January 31,
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<PAGE> 43
1999, the Company's four remodeled stores generated average annual sales per
store of approximately $10.6 million, compared to approximately $8.7 million for
the Company's other stores. In addition, these four remodeled stores achieved
average sales per selling square foot of $227 for that same period, compared to
$194 for other stores. For the fiscal year ended January 31, 1998, the Company's
four remodeled stores generated average annual sales per store of approximately
$9.9 million, compared to approximately $8.6 for the Company's other stores. In
fiscal 1998, these remodeled stores achieved average sales per selling square
foot of $213, compared to $193 for other stores. Average annual per store
contribution in fiscal 1998 was approximately $1.6 million for remodeled stores
and $1.3 million for other stores. In addition, in fiscal 1998 the average sale
per transaction at the Company's remodeled stores was $34, which is 17% higher
than the $29 amount at the Company's other stores. The Company has opened a new
store in each of the last two fiscal years and remodeled four existing stores
over the past five fiscal years using its updated store concept. The Company
intends to open eight new stores and remodel ten existing stores prior to the
end of fiscal 2003. See "Business -- Growth and Expansion Strategy."
Leading Position in the Pacific Northwest. By focusing on the Pacific
Northwest, the Company has established a significant presence in the region. The
Company has developed customer loyalty by offering an extensive selection of
quality merchandise. The Company has gained strong regional name recognition by
sponsoring nationally and regionally promoted sporting events, such as the
nationally televised Budweiser/G.I. Joe's 200 Champ Car race. The Company's
status as a leading regional retailer has increased its buying power with
vendors. In addition, the Company's regional focus has allowed it to benefit
from certain economies of scale, including those related to the Company's
concentrated advertising and marketing plan and centralized distribution system.
Management believes that favorable economic conditions and population trends in
the Northwest will result in increased demand for the Company's merchandise and
provide further opportunities for the Company to leverage its strong market
position in the region.
Quality Merchandise Competitively Priced. G.I. Joe's focuses on providing
customer value. The Company has developed strong working relationships with its
vendors, which contributes to the Company's ability to obtain leading brand name
merchandise at favorable prices. The Company frequently receives significant
volume discounts from vendors because of its strong regional presence, high
sales volume and membership in national buying groups. Favorable pricing from
vendors, together with the Company's direct purchasing and efficient
distribution system, enables the Company to offer premium quality merchandise at
competitive prices.
Superior Customer Service. Superior customer service is a key component of
the quality shopping experience provided at G.I. Joe's. The Company has
established a reputation in its markets for sales associates who understand the
needs of customers and are knowledgeable about the Company's merchandise. The
Company extensively trains its sales associates by merchandise department and
activity category, and many sales associates actively participate in the
activities related to the specific merchandise they sell. The Company also
specially trains its sales associates to serve female customers shopping in
traditionally male-oriented product categories, such as field and stream and
automotive products. The Company believes that the extensive product knowledge
of its sales associates and the Company's superior customer service and
after-sale support differentiate it from mass merchandisers and other large
concept sporting goods and automotive parts and accessories retailers.
Enhanced Margins. The Company continually seeks to improve its gross margin
and operating margin. The Company has improved its gross margin by: increasing
sales of higher margin outdoor apparel and footwear and private label products;
including vendor concept shops within the Company's stores; increasing the
quantity of merchandise the Company directly imports; and increasing its buying
power as a result of its expanded operations and membership in national buying
groups. To the extent the Company expands its business in the Pacific Northwest,
the Company anticipates that its operating margin will improve as a result of
further economies of sale, including those related to the Company's concentrated
advertising and marketing plan and centralized distribution system. Stores open
for at least 12 months have generally contributed positively to the Company's
margins. For the fiscal year ended January 31, 1998, the average annual per
store contribution for stores open for at least 12 months was approximately $1.4
million, or approximately 16% of average annual per store sales.
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<PAGE> 44
Management Ownership and Experience. In May 1998, Norman Daniels, the
Company's current Chairman, President and Chief Executive Officer, acquired
control of the Company in a management buy-out. After the Offering, Mr. Daniels
will own approximately 33.7% of the Company's outstanding Common Stock
(approximately 32.0% if the Underwriters' over-allotment option is exercised in
full). Mr. Daniels has served in various positions with the Company over the
past 34 years and the Company's executive officers have an average of over 20
years' experience with the Company. Ten of the Company's 14 full-time
purchasing, sales and managerial employees (excluding the executive officers)
have been with the Company for over ten years. The Company's store managers
average over 12 years of service with the Company.
GROWTH AND EXPANSION STRATEGY
G.I. Joe's intends to expand its business by implementing the following
growth and expansion strategy:
Remodel Existing Stores to Increase Sales. The Company has embarked upon a
major remodeling program to increase same-store sales. Same-store sales at the
two stores remodeled in the last four years have increased approximately 17% on
average in the first year of operation after remodeling, which equates to an
improvement in average sales from $214 per selling square foot in the year prior
to remodeling to $250 per selling square foot in the first year after
remodeling. The Company has remodeled four of its existing stores over the past
five fiscal years using its updated store concept and intends to remodel the
following ten stores prior to the end of the fiscal year ending January 31,
2003.
<TABLE>
<CAPTION>
SCHEDULED DATE PLACED IN
LOCATION REMODELING DATE(1) SERVICE SQUARE FOOTAGE
-------- ------------------ -------------- --------------
<S> <C> <C> <C>
Beaverton, Oregon 6/99 04/74 55,120
Tualatin, Oregon 8/99 09/85 55,120
Gresham, Oregon 8/99 05/87 55,120
Medford, Oregon 2/00 03/86 48,500
Federal Way, Washington 2/00 03/91 55,120
Vancouver, Washington 2/00 06/89 55,120
Oak Grove, Oregon 2/01 04/72 67,100
South Salem, Oregon 2/01 03/85 55,120
Albany, Oregon 2/01 11/89 55,120
Portland, Oregon 2/02 03/79 55,120
</TABLE>
- ---------------
(1) Scheduled remodeling dates represent management's estimates of the dates
remodeling will commence. Actual commencement dates may differ from these
estimates.
The criteria used by the Company in determining when a store will be
remodeled includes the store's sales volume, the remaining term of the related
lease, proximity to other G.I. Joe's stores (to limit cannibalization of sales)
and to competitors' stores and the general prospects for the store based on
local population and demographic trends, including items such as income levels
and distribution, age and family size.
The remodeling procedure includes improvements in store layout, lighting,
signage, fixtures and merchandise presentation and a conversion from a drop
ceiling to an open ceiling. Remodeling of each store is performed in stages in
order to permit continued operation during the typical 70- to 90-day remodeling
period. Remodeling costs are estimated to be approximately $1.2 million per
store, including approximately $650,000 for fixtures and approximately $550,000
for leasehold improvements. Actual remodeling costs may be higher. The average
annual per store contribution (i.e., store gross margin less store expenses) in
fiscal 1998 for the Company's four remodeled stores that had been operating for
over a year was approximately $1.6 million, compared to a corresponding per
store contribution of approximately $1.3 million for the Company's non-remodeled
stores (excluding newer stores).
Open New Stores in the Pacific Northwest. The Company intends to expand its
presence in the Pacific Northwest, primarily in Washington, by selectively
opening two new stores each year for the next four fiscal years. The Company
currently has two stores operating in the Seattle/Puget Sound area of
Washington, with
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<PAGE> 45
two additional stores scheduled to open in this area, and an additional store
scheduled to open in Longview, Washington, in calendar year 1999. The Company
believes that it can successfully expand its business in Washington because of
the geographic proximity of this area to the Company's Oregon operations, which
strengthens name-brand recognition for the Company in the Washington markets,
and the lack of a dominant sports merchandise retailer in Washington. Weather
patterns and consumer demographics in Washington and Oregon are similar, which
will assist the Company in predicting the merchandise mix suitable for
Washington stores and enable the Company to employ advertising campaigns used
successfully to target Oregon consumers. The Company intends to implement in the
Seattle/Puget Sound area its strategic multi-store placement strategy used
successfully in the Portland metropolitan area, where a cluster of stores in an
urban center has led to increased market penetration and economies of scale.
Management believes that the Company's distribution center can accommodate at
least five additional stores in the Pacific Northwest without material
modification. Expansion beyond five additional stores in the Pacific Northwest
and expansion into other geographic areas may require material modification of
the Company's distribution center or the construction or development of
additional distribution facilities. See " -- Vendors, Purchasing and
Distribution."
The Company carefully evaluates potential new store sites in an effort to
maximize profitability and market share. Factors considered by the Company in
evaluating a potential site include: proximity to other G.I. Joe's stores
(balancing the benefits of market penetration with possible cannibalization of
sales) and to competitors' stores; local demographics (such as income levels and
distribution, age and family size), and population base and trends; availability
of adequate parking; and proximity to commercial thoroughfares. The Company
generally decides whether to construct its standard 55,000 square foot store or
the smaller 35,000 square foot version based upon the size of the population of
the surrounding community, with larger stores typically serving local
populations in excess of 50,000 people and smaller stores typically serving
smaller communities.
The Company currently operates all of its stores on a long-term operating
lease basis. Management estimates that capital expenditures required to open new
stores on an operating lease basis will be approximately $1.45 million per
store. In addition, management expects that each new store will require
approximately $2.1 million of inventory, which will be financed on normal trade
credit terms. If the Company purchases the underlying real estate and building,
or if opening a new store at a location requires that an existing building be
retrofitted, the initial investment by the Company will increase. In addition to
capital expenditures, the Company anticipates incurring expenses of
approximately $175,000 for pre-opening and promotional activities associated
with each store opening, including the cost of training employees and stocking
the store. It is the Company's policy to expense all pre-opening costs as
incurred.
Stores open for at least 12 months have generally contributed positively to
the Company's margins. For the fiscal year ended January 31, 1998, the average
annual per store contribution for stores open for at least 12 months was
approximately $1.4 million, or approximately 16% of average annual per store
sales. Management estimates that new stores will contribute positively to the
Company's margins after 12 months of operation and that after approximately
three full years of operation new stores will generate net sales comparable to
average net sales generated at existing stores. However, new stores may not
achieve historic or anticipated levels of operating results for the Company. See
"Risk Factors -- Ability to Implement Business and Growth and Expansion
Strategies and Manage Growth."
Pursue Acquisitions in Existing and New Markets. The retail markets for
sports and automotive merchandise are both highly fragmented. Management
believes that the fragmented nature of these markets, together with the
similarity of the consumer demographics and seasonal outdoor activity patterns
in the Pacific Northwest and portions of Montana, Idaho, Utah, Nevada and
Northern California, provide attractive expansion opportunities for the Company
by means of strategic acquisitions. Most participants in the retail sports and
automotive markets carry only sports or automotive merchandise or a limited mix
of these products. After a strategic acquisition of a local or regional sports
or automotive retail chain, the Company would introduce its other product
categories into those stores' merchandise mix where management deems such new
product introductions to be profitable. The Company has no current
understandings or agreements regarding potential acquisitions.
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<PAGE> 46
Further Develop Alternative Channels of Distribution. G.I. Joe's is
entering new distribution channels that the Company believes are suited to its
competitive strengths. For example, management believes that expansion
opportunities exist in the mail order catalog and Internet-based retail
distribution channels. As part of this expansion, the Company has completed a
test mailing of catalogs to 50,000 potential customers in the Pacific Northwest
and has developed the G.I. Joe's Online Store, a complete Internet store to sell
its products. The Company is planning additional catalogs for specific
categories of its merchandise, including bicycles, camping gear, backpacking
equipment, snowboards, skateboards and aftermarket automotive supplies. In
addition, in September 1998 the Company acquired Timberline Direct, a direct
marketing retailer which sells merchandise complementary to that offered by the
Company through catalog and Internet-based channels. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Overview." Management anticipates that use of these types of
alternative distribution channels will present additional up-selling and
cross-selling opportunities to the Company on a national level.
Examine Opportunities for National Expansion and Vertical
Integration. Management believes that the Company's experience in developing a
strong position in the Pacific Northwest and the fragmented nature of the sports
and automotive retail markets place it in a position to replicate its success in
other regions. Management further believes that the Company's sports and
automotive merchandise mix would prove equally effective in other regions,
particularly in the Northern and Central portions of the United States. The
Company intends to evaluate national expansion opportunities, particularly those
available by means of acquisitions and alternative distribution channels. The
Company also intends to explore vertical integration opportunities through the
acquisition of complementary manufacturing operations.
TARGET CUSTOMERS
The Company tailors its merchandise mix of full lines of sports and
automotive products to the active Pacific Northwest lifestyle. The majority of
the consumers of the Company's merchandise are males between the ages of 21 and
59 who engage in outdoor activities, especially field and stream activities, and
who perform light to medium work on their vehicles. While many of the products
carried by the Company are geared to traditionally male-oriented activities
(such as hunting and fishing), approximately 45% of the Company's customers are
women purchasing products for themselves, as women's participation in outdoor
and team activities increases, or for men. In response to increasing numbers of
female customers, the Company has expanded its women's activewear departments.
The Company is also in the process of adding active kids' clothing departments
to its stores.
MERCHANDISE
G.I. Joe's stores offer full lines of sports and automotive merchandise at
a wide range of retail price points. A typical store stocks over 75,000 active
SKUs (including different styles and colors as separate units). The Company
supplements its extensive selection of in-stock merchandise by means of a
special order department. The Company's understanding of the Pacific Northwest's
seasonal weather patterns and its customers' active lifestyles allows it to
stock merchandise that appeals to its customers' unique needs. The demographics
of consumers drawn to the Company's sporting goods and automotive product lines
are similar, which leads to significant cross-shopping between G.I. Joe's
sporting goods and automotive departments.
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<PAGE> 47
The following charts set forth the approximate percentage of sales and SKUs
attributable to each merchandise category during the 12-month period ended
January 31, 1999.
PERCENTAGE SALES BY PRODUCT CATEGORY TOTAL SKUS BY PRODUCT CATEGORY
[GRAPHIC] [GRAPHIC]
Sporting Goods
Sales of sporting goods have increased at an average annual rate of 5.8%
for the three fiscal years ended January 31, 1998 and the 12-month period ended
January 31, 1999, and such sales accounted for approximately 42% of the
Company's sales in the 12-month period ended January 31, 1999. The sporting
goods departments of the Company's stores carry equipment for, among other
activities, cycling, golf, tennis, outdoor games, snow skiing and snowboarding,
water skiing and water sports, kayaking and canoeing, camping, backpacking,
fishing, hunting, archery, team sports and general fitness. The sporting goods
departments also stock fishing boats and motors and marine accessories.
The Company sells leading name-brand products, including sporting goods
supplied by the following manufacturers, among others:
- - ALUMACRAFT
- - BAUSCH AND LOMB
- - COLEMAN
- - CLEVELAND GOLF
- - DIAMONDBACK
- - DYNASTAR
- - EUREKA
- - G-LOOMIS
- - GARCIA
- - HOSPORTS
- - HUFFY SPORT
- - JANSPORT
- - K2
- - MARKER
- - NORDICA
- - O'BRIEN
- - OLD TOWN
- - RAICHLE
- - RAWLINGS
- - RIDE
- - ROLLERBLADE
- - ROSSIGNOL
- - SALOMON
- - SPALDING
- - TOMMY ARMOUR
- - WILSON
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<PAGE> 48
Outdoor Apparel and Footwear
The Company's fastest growing department is the outdoor apparel and
footwear department, which also generates the highest gross margin for the
Company. Sales attributable to this department have grown at an average annual
rate of 4.5% for the three fiscal years ended January 31, 1998 and the 12-month
period ended January 31, 1999, and such sales accounted for approximately 32% of
the Company's sales in the 12-month period ended January 31, 1999. The outdoor
apparel and footwear department includes several categories of products: men's,
women's and youth sports and active wear; team-licensed apparel (with special
emphasis on Northwest professional and college teams); work clothing; outdoor
and rain wear; and ski and snowboard apparel. Footwear includes various types of
athletic shoes as well as seasonal footwear, "brown shoes" (i.e., leather
outdoor, non-athletic footwear) and hiking, fishing and hunting boots, including
waders and insulated pak boots.
The Company purchases outdoor apparel and footwear from leading sports and
apparel manufacturers such as:
- - ADIDAS
- - AIRWALK
- - ASICS
- - CARHART
- - CHAMPION
- - COLUMBIA SPORTSWEAR
- - DANNER
- - HELLY-HANSEN
- - LEVI STRAUSS
- - NIKE
- - PACIFIC TRAIL
- - REEBOK
- - ROFFE
- - RUSSELL ATHLETICS
- - SPEEDO
- - STARTER
- - THE NORTH FACE
- - TIMBERLAND
- - VANS
- - WOLVERINE
- - WOOLRICH
Automotive Aftermarket Parts and Accessories
Each G.I. Joe's store features a full-service automotive aftermarket parts
and accessory department. Sales by these departments have been relatively
unchanged for each of the three fiscal years ended January 31, 1998 and the
12-month period ended January 31, 1999, and such sales accounted for
approximately 20% of the Company's sales in the 12-month period ended January
31, 1999. These "stores-within-a-store" are divided into parts, accessories and
lube sections. The parts section carries a full selection of name-brand parts,
including brakes, shocks, tune-up, exhaust and engine parts and batteries, as
well as certain private label products. Merchandise in the accessory section
includes seat covers, floor mats, light truck and sport utility vehicle
accessories, recreational vehicle parts, supplies and accessories (including
chemical toilets, propane accessories, solar panels and recreational vehicle
hookup parts), lift equipment, engine additives, utility racks and custom parts
and accessories. The sport utility and recreational vehicle parts, supplies and
accessories merchandise categories are the Company's fastest growing merchandise
categories within this department. The lube section of this department offers
oil and antifreeze and generates year-round traffic for the Company's stores.
For the purpose of increasing sales of its automotive merchandise, the Company
hired a new Automotive Merchandise Manager in June 1998, and has implemented a
revised automotive merchandise marketing plan. This plan features lower everyday
prices made possible by a change in product lines and more aggressive
promotional strategies. The plan also calls for an update of the electronic
automotive parts look-up systems at all stores, which are intended to increase
the efficiency with which the Company serves its automotive parts customers.
The Company purchases name-brand automotive aftermarket parts and
accessories from leading manufacturers such as:
- - BOSCH
- - CHAMPION
- - FELPRO
- - FRAM
- - GNB
- - KENCO
- - LUND
- - MONROE
- - OMNIGUARD
- - PENNZOIL
- - PUROLATOR
- - STANDARD BATTERY
- - SUPERWINCH
- - SYLVANIA
- - VALVOLINE
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<PAGE> 49
Other Merchandise
The Company enhances its sporting goods and automotive merchandise mix with
related electronics equipment and other assorted merchandise. Sales of
electronics equipment and other assorted merchandise accounted for approximately
6% of the Company's sales in the 12-month period ended January 31, 1999. The
electronics department features name-brand electronic automotive accessories,
primarily for sports utility and recreational vehicles, and electronics suited
for an active lifestyle. Such products include auto alarms, CB and VHF radios,
cellular phones, radar detectors, compact stereos and CD players, car stereos,
personal electronics, sport watches, GPS (global positioning system) units and
marine and fishing electronics. The Company also offers a wide selection of
outdoor cooking and furniture merchandise on a seasonal basis.
TicketMaster
Each of the Company's retail locations includes a TicketMaster outlet,
which is located near the main entrance. During calendar 1998, the G.I. Joe's
TicketMaster outlets accounted for approximately 70% of all entertainment ticket
sales by ticket outlets in Oregon. These TicketMaster outlets offer tickets to
sporting events, concerts and plays as well as game licenses, ski lift tickets,
river running passes and snow park permits. Pursuant to an operating agreement
with TicketMaster-Oregon, the Company receives a percentage of the convenience
charges to which TicketMaster-Oregon is entitled under its own operating
agreement with TicketMaster Northwest for sales generated in G.I. Joe's Oregon
stores. The Company has established a similar arrangement directly with
TicketMaster Northwest with respect to its Washington stores. Revenue to the
Company generated by the TicketMaster outlets is generally offset by related
expenses, primarily for labor. The primary benefits to the Company of having
TicketMaster outlets in its stores are the increased foot traffic and
familiarity with the Company's store locations generated thereby. Norman P.
Daniels, the Company's Chairman of the Board, President and Chief Executive
Officer, is a partner in TicketMaster-Oregon. See "Certain Related
Transactions."
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<PAGE> 50
STORE CONCEPT
The Company has developed a successful open-ceiling, racetrack design
concept for its new and remodeled stores. This store concept offers a flexible
store footprint that uses floor space more efficiently and is designed to
enhance the customers' shopping experience by creating an inviting atmosphere.
High ceilings, bright lighting and wide aisles create an open, spacious
environment and increase customer traffic flow and exposure to merchandise.
Within each store, merchandise is organized by activity category, and each
department and product category is identified with extensive, easy-to-read
signage to facilitate access to the Company's major product lines. The store
layout increases floor space by decreasing the area used for back room and
office purposes. Increased selling-floor space typically is used for the
prominent display of soft goods and other high margin products. The store layout
also promotes cross-shopping by strategically placing complementary departments
adjacent to one another.
A map of the Company's typical store layout is set forth below.
[MAP OF STORE LAYOUT]
The Company changes its merchandise mix by season and shifts its seasonal
display areas to highlight high margin products, which result in increases in
same-store sales and gross and operating margins for stores which employ this
layout.
VENDORS, PURCHASING AND DISTRIBUTION
The Company offers its customers a changing mix of products supplied by
over 2,600 vendors. The Company considers numerous factors in selecting vendors,
including: customer demand for the vendor's
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<PAGE> 51
merchandise; product availability, quality and performance; vendor return
policies; and price and credit terms. Although the Company has no long-term
contracts with vendors for the purchase of merchandise, the Company has
developed strong working relationships with its vendors. These relationships,
together with the Company's high sales volume and strong regional presence,
frequently result in favorable volume discounts, additional advertising funds
and extended payment terms for the Company. The Company also receives volume
discounts and additional advertising funds as a result of its participation in
national buying groups. No vendor accounted for more than 5% of total purchases
by the Company in any of the three fiscal years ended January 31, 1998, and the
Company is not dependent on any vendor. The Company's ten largest vendors for
the fiscal year ended January 31, 1998, which accounted for approximately 24% of
the Company's purchases for such year, were Nike, Inc., Columbia Sportswear Co.,
All Sports Supply, Inc., Coleman Company, Inc., Coast Auto Supply, World Wide
Distributors, Remington Arms Co., Inc., Adidas U.S.A. Incorporated, Levi Strauss
& Company and Valvoline Incorporated. Although brand name products and
individual items are important to the Company's business, management believes
that competitive sources of supply are available in substantially all of the
merchandise categories that the Company carries. However, the Company competes
with other companies for the merchandise supplied by its vendors and many of
these other companies have substantially greater leverage and financial and
other resources than the Company. As a result, the Company may be unable to
obtain from its vendors adequate merchandise at the times or prices or in the
quantities it desires, if at all. See "Risk Factors -- Dependence on Vendors."
The Company's buying group utilizes three centralized buying teams: a
sporting goods team, an apparel and footwear team and an automotive parts and
accessories team. In addition, the Company has activity-based sub-teams (e.g.
skiing, fishing, hunting, etc.) to ensure that there is coordination between
equipment and apparel for certain activities. Each team is led by a merchandise
manager and is supported by individual category buyers, a store merchandiser and
an administrative assistant. The primary objective of the teams is to maintain
close relationships with vendors and store and department managers, and to
monitor changes in consumer preferences. Each buyer's performance is measured
against sales, inventory turns and gross margin targets.
The Company's purchasing system allows its buyers to ship inventory
directly to individual stores or to the Company's centralized, 150,000 square
foot distribution center located adjacent to the Company's headquarters. A
perpetual inventory system monitors each store's sales and replenishes the
inventory two or three times a week with shipments from the distribution center.
By monitoring SKU movements, the Company is able to optimize its purchasing and
maintain adequate amounts of merchandise at its distribution center. This system
has greatly reduced the levels of surplus inventory at the Company's retail
stores. Stores can obtain merchandise rapidly from the Company's distribution
center or can place special orders with vendors for items not held in inventory.
Approximately 80% of the merchandise purchased by the Company is shipped by
vendors to the Company's distribution center. The remaining merchandise is
shipped directly to individual stores. The Company makes two or three weekly
deliveries to its stores using its fleet of 3 leased tractors and 22 owned
trailers. Management believes this system is substantially less expensive than
drop shipping goods directly to its stores because it allows more timely
matching of store inventory needs, reduces each retail store's inventory
investment, allows better use of relatively higher cost store floor space and
reduces freight costs. Management believes that the distribution center has
sufficient capacity to support at least five additional stores, which would be
sufficient to support the Company's planned expansion in Washington for the next
two to three years. As the Company enters new markets and the geographic scope
of its operations increases, the Company will examine several options for
supplying new stores. Such options include increasing its use of direct vendor
deliveries and increasing its use of contract shipping to transport merchandise
to its retail stores from the distribution center. In addition, the Company may
establish one or more additional regional distribution centers as the Company
expands its operations beyond Oregon and Washington.
MARKETING, ADVERTISING AND PROMOTION
The Company's extensive marketing plan is designed to identify and promote
the Company as a major retailer of sports and automotive merchandise, and to
differentiate the Company from its competition by
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<PAGE> 52
emphasizing its extensive selection, excellent customer service and competitive
prices. The Company's marketing plan primarily targets males between the ages of
21 and 59, who make up the bulk of the consumers of the Company's merchandise.
The Company has highlighted its "Joe's" brand name in its advertisements in
recognition of its greater acceptability as a brand name in its markets. The
Company created its "Go to Joe's. Grab the Gear. Seize the Weekend." advertising
campaign to target its main customer base. Key components of the Company's
marketing program include multi-focus advertising via print, radio and
television, in-store, vendor-specific concept shops, sponsorship of high-profile
local sports and outdoors events and selective special promotional events.
The Company's advertising strategy allocates its advertising budget
approximately as follows: 62% print; 34% radio and television; and 4% event
advertising. The Company's print advertising campaign employs newspaper
advertisements (usually in the form of inserts or run of the press display
advertisements), catalogs (which are direct mailed to targeted households) and
coupon books (which are direct mailed to potential customers three times each
year). The Company produces several newspaper inserts annually, which are run in
various local newspapers. The Company's television and radio commercials
generally focus on seasonal messages to promote specific sales events, and
showcase two to three non-competing products.
The Company was an early proponent of vendor-sponsored concept shops.
Concept shops create a shopping environment that is consistent with the vendor's
specific image and enable the Company to display and stock a greater volume of
the vendor's products per square foot of retail space. The Columbia Sportswear
concept shops at the Company's Bend and Eugene, Oregon stores have increased
same-store sales of Columbia Sportswear products by as much as 45%. The
Company's stores feature two of the first 25 Adidas concept shops installed on
the West Coast. Installation of concept shops in the Company's stores as part of
the remodeling process boosts the potential for increasing sales and margins by
using the manufacturer's own fixtures and signage, and by targeting higher
margin products. As of January 31, 1999, the Company had over 28 concept shops
in its stores, including shops for Columbia Sportswear, Nike clothing, Woolrich,
Levi Strauss and Adidas.
Cooperative advertising is a vital part of the Company's advertising
strategy. The Company works closely with vendors to obtain cooperative
advertising funds. The Company's flexibility and mid-size market have led
vendors to make funds available in excess of normal allowances. Vendor funds
used to offset outside advertising costs amounted to approximately 35%, 46% and
42% of such costs in the fiscal years ended January 31, 1996, 1997 and 1998,
respectively. Vendor promotions further supplement the Company's marketing
efforts.
As part of its marketing efforts, the Company sponsors sporting and auto
racing events in the Pacific Northwest. These include the nationally televised
Budweiser/G.I. Joe's 200 Champ Car race, and the G.I. Joe's/Thriftway Portland
Invitational Golf Tournament. The Budweiser/G.I. Joe's 200 Champ Car race is one
of 19 such races held annually worldwide and is broadcast to over 61 million
viewers in 188 countries. This race was attended by more than 150,000 people in
1998, which is the largest attendance of any sporting event in Oregon. The
Company has sponsored this race for 15 years and will continue to sponsor the
race for at least two more years. As a major annual golf event in the Pacific
Northwest, the G.I. Joe's/Thriftway Portland Invitational Golf Tournament draws
professional golfers from around the country to compete. The Company has
sponsored the golf tournament for 12 years and intends to continue this
sponsorship for the foreseeable future. The Company is also a long-time radio
sponsor of Portland Trailblazers basketball games, which are broadcast on more
than 25 radio stations in Oregon and Washington, and hosts several in-arena
promotions during home games. In addition to reinforcing the effects of the
Company's marketing efforts in its local markets, these sponsorships give the
Company regional and national exposure it would not otherwise receive.
Part of the Company's annual promotion events include sales designed to
highlight the latest sports and automotive merchandise. The Company has four
major annual sales events: the Anniversary Sale, the Sidewalk Sale, the Fall
Kick-Off and the Thanksgiving Weekend Sale. Other significant promotions are
seasonal or target specific holidays and special events. These activities are
designed to promote the Company as a leading retailer of sports and automotive
merchandise in the Pacific Northwest.
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CUSTOMER SERVICE
The Company believes that the extensive product knowledge of its employees,
and its superior customer service and after-sale product support differentiate
G.I. Joe's from mass merchandisers and other large concept sporting goods and
automotive parts retailers. The Company strongly emphasizes the training of its
sales associates so that they are prepared to address customer inquiries and
assist with purchasing decisions. The Company trains its employees using
seminars, videos, vendor representative tours and product knowledge events. In
addition, the Company specially trains sales associates to serve female
customers shopping for traditionally male-oriented products. Key departments of
each store are supported by "Pro Staff" personnel who have met specified
technical requirements and have extensive sales and service experience. These
highly qualified specialists offer exceptional product knowledge and assistance
to customers.
The Company's Sports and Recreation Services Department provides customers
certain product assembly, installation, testing, repair and other support
services, as well as winter equipment rental services. The Company's service
technicians are trained and certified by merchandise manufacturers. A Sports and
Recreation Service Department located at the Company's distribution center
provides much of this support for the Portland metropolitan area. Additional
Sports and Recreation Service Departments are prominently included in a majority
of the Company's stores in geographic areas located outside the Portland area
and will be included in the Company's new and remodeled stores. The Sports and
Recreation Departments primarily offer services in connection with the sale of
high-quality branded merchandise.
MANAGEMENT INFORMATION SYSTEM
The Company makes significant expenditures with respect to its information
system in order to operate efficiently and to control costs. Expenditures for
the nine-month period ended October 31, 1998 and each of the three fiscal years
ended January 31, 1998 were $500,000, $587,000, $516,000 and $499,000,
respectively. The Company's IBM AS/400-based information system includes fully
integrated store, merchandising, distribution and financial systems and includes
a local area network and a sophisticated wide area network, on-line credit and
check authorization and electronic data exchange. The wide area network links
all store locations with the Company's headquarters and distribution center and
allows (i) direct communications to all store locations, (ii) point-of-sale
("POS") data collection and (iii) daily reporting of store sales. This system
provides an immediate link between the Company, its stores and its customers,
enhancing the Company's ability to monitor its performance against historical
and budgetary benchmarks, as well as to make better informed operational
decisions. Other in-store systems capture payroll hours and inventory receipts,
and maintain on-hand inventory quantities. The perpetual inventory reporting
system monitors, at cost and retail, all SKUs carried in inventory. This system
interfaces with the merchandising, receiving and POS systems to provide the
Company with accurate real-time inventory information which assists management
in implementing merchandise assortment, allocation and markdown decisions, as
well as decisions regarding future merchandise orders. Each day, the Company's
IBM AS/400 processes merchandise movement by SKU to automatically generate
orders for the Company's distribution center and stores. This is accomplished by
calculating the store inventory, comparing it to the desired inventory level and
ordering appropriately. The Company utilizes a series of Microsoft Windows NT
servers to run in-house developed applications and a variety of third-party
software and maintains a high-speed Internet connection which supports the G.I.
Joe's Online Store. An in-house information systems staff performs development,
programming and support services for the Company's information system.
The Company's information system allows the Company to efficiently
integrate new stores, as demonstrated by the recent addition of the Company's
Puyallup, Washington and Hillsboro, Oregon stores. The system is also capable of
expansion as needed to service additional locations. Although management
believes that the Company's operating systems will provide the Company with an
adequate platform to support its growth and expansion strategy for the
foreseeable future, the Company intends to continue to invest in its information
systems as necessary to remain competitive.
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COMPETITION
The markets for sports and automotive merchandise are highly competitive.
Within the sporting goods and outdoor apparel and footwear markets the Company
faces significant competition from national, regional and local retailers, as
well as from manufacturers' own retail stores (such as stores owned and operated
by Nike, Inc.). The Company's retail competitors in the sporting goods market
include, among others: large format sporting goods retailers which generally
operate stores larger than 50,000 square feet in size, such as Gart/Sportmart
and The Sports Authority, Inc.; traditional sporting goods retailers which
generally operate stores under 30,000 square feet in size, such as Big 5
Corporation, Copeland's Sports, Inc. and Recreational Equipment, Inc. (REI);
specialty sporting goods retailers which focus on high-end products relating to
a specific activity category, such as The Orvis Company, Inc.; and mass
merchandisers such as Wal-Mart, K-Mart, Target and Fred Meyer. The Company
competes with these companies, chains such as Foot Locker and with department
stores in the apparel and footwear markets. Within the automotive parts and
accessories markets the Company faces competition from: national chains such as
Shucks Auto Supply, Sears and NAPA; regional and local companies such as Thrifty
Auto Supply, Baxter's Auto Supply and Al's Auto Supply; and from mass
merchandisers with automotive departments, such as Wal-Mart, K-Mart, Target and
Fred Meyer. Many of the Company's competitors have substantially greater
financial, distribution, marketing and other resources and have achieved greater
name recognition than the Company. The primary competitive factors in the sports
and automotive markets are merchandise selection, quality and mix, price and
customer service. See "Risk Factors -- Competition."
ENVIRONMENTAL AND OTHER GOVERNMENTAL REGULATIONS
The Company is subject to federal, state and local laws and regulations
which affect its business, relating to, among other things, advertising, worker
safety and the use, storage, discharge and disposal of environmentally sensitive
materials. Although Company's management is not aware of any significant
environmental contamination at any of the Company's properties from its own or
prior activities at such locations or from neighboring properties, such
contamination may exist at such properties or at additional store sites or
facilities acquired or leased by the Company, and any such contamination could
have a material adverse effect on the Company's business, financial condition
and results of operations. Because the Company is subject to various local
zoning requirements with regard to the location and design of its stores, the
development or expansion of the Company's operations will be contingent upon the
timely receipt of required licenses, permits and other governmental
authorizations. The Company is also subject to laws and regulations in certain
jurisdictions which may restrict the sale of certain merchandise, such as
firearms, ammunition and shooting accessories. In addition, state and local
government regulation of hunting can also affect the sales of hunting equipment
by the Company. See "Risk Factors -- Environmental and Other Governmental
Regulation." The Company believes that it is in compliance in all material
respects with all laws, regulations and requirements that affect its business,
and that compliance with such laws, regulations and requirements does not impose
a material impediment on the Company's ability to conduct its business.
TRADEMARKS
The Company uses a number of trademarks in connection with the operation of
its business, primarily in connection with its private label products. The
Company's "G.I. Joe's" trademark is registered with the United States Patent and
Trademark Office. The Company's other trademarks are not registered. The
Company's private label trademarks include: "Power Plus," used for automobile
supplies such as oil, anti-freeze and batteries; "North X Northwest," used for
fishing rods; "Cotton Wear By Joe's" and "Rugged Wear By Joe's," used for
certain outdoor apparel; "Comfort Plus by Joe's" for casual wear; and "Power
Play By Joe's," which it intends to use for additional private label sports and
active wear apparel. See "Risk Factors -- Dependence on Trademarks."
PROPERTIES
The Company's retail stores range in size from 35,000 to 73,000 square
feet, with an average size of approximately 55,000 square feet. The Company
generally decides whether to construct its standard 55,000
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square foot store or a smaller 35,000 square foot version based upon the size of
the population of the surrounding community, with larger stores typically
serving local populations in excess of 50,000 people and smaller stores
typically serving smaller communities. The stores are either free standing units
or located in malls or strip centers which are easily accessible and provide
ample parking. G.I. Joe's stores are open seven days a week, typically from 9
a.m. to 9 p.m. All of the Company's retail store properties are leased. The
Company generally obtains long-term leases for its retail stores, with a minimum
initial term of 15 years and renewal options for up to an additional 10 years.
These leases generally provide for fixed monthly rental payments plus additional
amounts calculated as a percentage of income earned on the leased premises above
a given threshold. The aggregate annualized minimum rental commitment under the
Company's real estate leases for the 12-month period ended January 31, 1999 was
approximately $7.5 million. See Note 10 to Financial Statements. The 16 stores
currently operated by the Company are located in Oregon and Washington,
including eight in the Portland metropolitan area. An additional two stores are
scheduled to open in the Seattle/Puget Sound area of Washington, and an
additional store is scheduled to open in Longview, Washington, in calendar year
1999.
The following table includes certain information for each of the Company's
properties:
<TABLE>
<CAPTION>
DATE
REMODELED OR
SCHEDULED LEASE
SQUARE DATE PLACED REMODELING MATURITY TYPE OF STORE
LOCATION FOOTAGE IN SERVICE DATE(1) DATE LOCATION
-------- ------- ----------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C>
RETAIL STORES:
North Portland, Oregon............... 73,000 03/82 5/94 8/2008 Free-Standing
Tualatin, Oregon..................... 55,120 09/85 8/99 4/2013 Strip Center
Gresham, Oregon...................... 55,120 05/87 8/99 4/2013 Strip Center
Oak Grove, Oregon.................... 67,100 04/72 2/01 4/2013 Free-Standing
Beaverton, Oregon.................... 55,120 04/74 6/99 4/1999 Mall
Portland, Oregon..................... 55,120 03/79 2/02 2/2004 Strip Center
Hillsboro, Oregon.................... 55,000 08/98 New 7/2018 Strip Center
Vancouver, Washington................ 55,120 06/89 2/00 6/2014 Strip Center
South Salem, Oregon.................. 55,120 03/85 2/01 4/2013 Free-Standing
Salem, Oregon........................ 67,100 08/76 5/94 4/2013 Free-Standing
Albany, Oregon....................... 55,120 11/89 2/01 10/2014 Free-Standing
Eugene, Oregon....................... 55,120 03/83 10/95 12/2005 Free-Standing
Medford, Oregon...................... 48,500 03/86 2/00 10/2009 Strip Center
Bend, Oregon......................... 35,400 07/79 8/97 1/2018 Mall
Federal Way, Washington.............. 55,120 03/91 2/00 3/2021 Free-Standing
Puyallup, Washington................. 53,000 10/97 New 9/2017 Strip Center
DISTRIBUTION CENTER.................. 150,000 06/79 4/2013
HEADQUARTERS......................... 20,000 07/82 4/2013
</TABLE>
- ---------------
(1) Scheduled remodeling dates represent management's estimates of the dates
remodeling will commence. Actual commencement dates may differ from these
estimates.
In addition, the Company owns vacant parcels of land in Renton, Washington
and Grants Pass, Oregon. The Company is currently under contract to sell part of
the Renton property.
EMPLOYEES
As of February 1, 1999, the Company employed approximately 1,050 employees,
approximately 30% of whom worked part-time. The number of part-time employees
varies seasonally. The Company expects to increase its number of employees as it
expands its operations and hires additional employees to staff new stores. The
Company is not subject to any collective bargaining agreements and believes that
its relationships with its employees are good.
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<PAGE> 56
A typical G.I. Joe's store requires a store manager, a manager in training,
a training specialist, five department managers and 57 sales, merchandising and
support staff.
LEGAL PROCEEDINGS
From time to time the Company has been, and expects to continue to be,
subject to legal proceedings and claims in the ordinary course of its business,
including claims related to employment practices, claims for personal injury and
claims arising out of alleged defects in merchandise sold by the Company. Such
claims, even if lacking merit, could result in the expenditure of significant
financial and managerial resources. In addition, because litigation is subject
to many uncertainties and the outcome of individual claims is not predictable
with assurance, it is reasonably possible that some claims may be decided
unfavorably to the Company. At this time, however, the Company is not aware of
any legal proceedings or claims that it believes will have, individually or in
the aggregate, a material adverse effect on the Company's business, financial
condition or results of operations.
Ski Gear Direct Litigation
The Company, Timberline Direct and Douglas B. Spink, the Company's General
Manager of Direct Marketing and a founder and the former President and Chief
Executive Officer of Timberline Direct, are defendants in a lawsuit filed by Ski
Gear Direct Co., a Colorado company that specializes in catalog sales of ski,
snowboard, softball and baseball equipment, two of its shareholders, and another
company. The suit was originally filed in the Boulder County, Colorado, District
Court. The defendants removed the case to the United States District Court for
the District of Colorado. The plaintiffs allege, among other things, that
Timberline Direct and Mr. Spink breached an agreement to (i) acquire a majority
interest in Ski Gear Direct, (ii) assume all indebtedness of Ski Gear Direct,
(iii) employ one of the plaintiff shareholders and (iv) provide a sales catalog
and Internet web site for Ski Gear Direct. The plaintiffs also allege that
Timberline Direct and Mr. Spink inappropriately used confidential information
acquired during the course of negotiations with Ski Gear Direct. The plaintiffs
also allege that the Company wrongfully interfered with contractual relations,
or prospective business relations, between plaintiffs and Timberline Direct by
inducing Timberline Direct to terminate negotiations with Ski Gear Direct. The
Company acquired certain assets and assumed certain liabilities of Timberline
Direct in September 1998. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview." The plaintiffs seek, among
other things, unspecified compensatory and punitive damages against the
defendants, as well as an order prohibiting the defendants from entering into
catalog or Internet sales of skiing, softball and baseball products. On January
4, 1999, three of Ski Gear Direct's creditors filed an involuntary bankruptcy
petition against Ski Gear Direct. On February 9, 1999, the bankruptcy court
stayed this action until further order.
The Company intends to vigorously defend this action and believes that the
ultimate disposition of this lawsuit will not have a material adverse effect on
the Company's business, results of operations or financial condition.
Dissenting Shareholder
A former shareholder of the Company has dissented from the Merger effected
as part of the Reorganization. See "The Reorganization." Under Oregon law, this
shareholder, who otherwise would have received 35,897 shares in the Merger, is
entitled to receive from the Company the fair value of his shares immediately
prior to the Merger. The dissenting shareholder has recently made a payment
demand on the Company and contends that the fair value of his shares is $3.8
million. The Company has 60 days after receiving a payment demand in which to
file an action in state court for judicial determination of the fair value of
the dissenting shareholder's shares. The Company intends to file such an action
within the 60-day period. If the Company does not file such an action within the
60-day period, the Company must pay the dissenting shareholder the amount
demanded. Although the Company believes that its estimate of the fair value of
the shares is accurate, a court could determine that the amount demanded by the
dissenting shareholder, or more, represents the actual fair value. See
"Business -- Legal Proceedings."
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<PAGE> 57
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The executive officers, directors and key employees of the Company and
their ages and positions as of February 1, 1999 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Norman P. Daniels................ 50 Chairman of the Board, President and Chief
Executive Officer
Philip M. Pepin.................. 47 Vice President of Finance and Chief Financial
Officer
Edward A. Ariniello.............. 37 Vice President of Operations
Marc H. Mieher................... 35 Vice President of Information Services and
Chief Information Officer
Robert R. Ames................... 58 Director
David E. Orkney.................. 52 Director
Charles H. Putney................ 59 Director
Roy Rose......................... 40 Director
KEY EMPLOYEES
B.G. Eilertson................... 44 Merchandise Manager
David N. Fouts................... 44 Director of Planning and Logistics
Patrick E. Hortsch............... 43 Merchandise Manager
Dennis E. Irish.................. 48 Director of Advertising and Promotions
Ron J. Menconi................... 47 Merchandise Manager
Douglas B. Spink................. 27 General Manager of Direct Marketing
</TABLE>
EXECUTIVE OFFICERS AND DIRECTORS
Norman P. Daniels joined the Company in 1965. Mr. Daniels has been a
Director since 1975 and was named President of the Company in March 1992 and
Chief Executive Officer in January 1996. Mr. Daniels became Chairman of the
Board in June 1998. Mr. Daniels also has served as the Company's Advertising
Manager, Sporting Goods Merchandise Manager and Vice President of Merchandise
and Marketing.
Philip M. Pepin joined the Company in 1994 as Controller and was promoted
to Vice President of Finance and Chief Financial Officer in November 1996. Prior
to joining the Company, from 1990 to 1994 and from 1982 to 1988, Mr. Pepin
worked in public accounting with Arthur Andersen LLP in Portland, Oregon and
Seattle, Washington. In addition, from 1988 to 1990, Mr. Pepin served as
corporate controller of VWR Corporation, a wholesale distributor of scientific
and laboratory equipment. Mr. Pepin is a Certified Public Accountant.
Edward A. Ariniello joined the Company in 1982 and has worked in various
operations positions, including Department Manager, Warehousing and Store
Manager. Mr. Ariniello was promoted to Director of Training and Merchandising in
March 1994, and Vice President of Operations in December 1996.
Marc H. Mieher joined the Company in 1989 as Programmer/Analyst and was
promoted to Director of Information Services in May 1994 and to Vice President
of Information Services and Chief Information Officer on October 1, 1998.
Robert R. Ames has served as a director of the Company since February 1999.
From 1991 to 1995 Mr. Ames served as vice-chairman of First Interstate Bank of
Oregon. In addition, since 1978 Mr. Ames has developed and invested in real
estate on his own behalf. Mr. Ames serves on the board of directors of the
following companies: Barrett Business Services, Inc., Portland Bottling Company,
Golden Northwest Aluminum, Inc., David Evans and Associates, Inc. and Brooks
USA.
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<PAGE> 58
David E. Orkney has served as a Director of the Company since 1974, and
served as Chairman of the Board of Directors from 1976 until May 1998. Mr.
Orkney has served in various positions at the Company, including President from
1976 to 1992 and Chief Executive Officer from 1976 to 1996. Mr. Orkney founded
and has served as chief executive officer of Buckingham Investment Group, a
personal investment company, since December 1997.
Charles H. Putney has served as a director of the Company since February
1999. Since 1964 Mr. Putney has been employed with Paine Webber in various
positions. Since 1994 Mr. Putney has served as a Senior Vice President for Paine
Webber. In addition, Mr. Putney serves on the Advisory Board of the Oregon
Medical Laser Center at Saint Vincent Hospital.
Roy Rose has served as a Director of the Company since May 1998. Mr. Rose
founded and has served as the president and chief executive officer of Peregrine
Holdings (Oregon), Ltd. since 1991 and Peregrine Capital, Inc. since 1997. These
entities are involved in making investments in various businesses. Peregrine
Capital, Inc. is a principal shareholder of the Company and, together with
affiliated entities, has entered into various transactions with the Company. See
"Certain Related Transactions."
KEY EMPLOYEES
B.G. Eilertson joined the Company in 1972 and has held various operations
and merchandising positions with the Company, including Department Manager,
Assistant Store Manager and Sporting Goods Buyer. He was promoted to Merchandise
Manager for Sporting Goods in March 1996.
David Fouts joined the Company in 1974 and became Director of Planning and
Logistics in October 1995. From 1980 until 1995, Mr. Fouts served as a Store
Manager. From 1974 to 1979 he held positions in location retail and distribution
center management. Mr. Fouts is a member of APICS Resource Management
Educational Society.
Patrick E. Hortsch joined the Company in June 1998 as Merchandise Manager
for the Automotive Group. Prior to joining the Company, from January 1997 to
June 1998, Mr. Hortsch owned and operated a retail automotive parts store in
Vancouver, Washington. From 1986 to 1996, Mr. Hortsch was the executive vice
president of Team Marketing Inc., a manufacturer's representative firm and from
1982 to 1986 was a district manager for Rognlien, Wright & Harrison, Inc., a
manufacturer's representative firm. Mr. Hortsch has over 23 years of experience
in the automotive aftermarket industry.
Dennis E. Irish joined the Company in 1974 and has worked in various
positions, including Store Manager. In 1987, Mr. Irish became Advertising
Manager and in March 1992 was promoted to Director of Advertising and
Promotions.
Ron J. Menconi joined the Company in 1967 and has held various positions
with the Company, including Department Manager and Buyer. Mr. Menconi became
Merchandise Manager for Sporting Goods in 1989 and Merchandise Manager for
Apparel and Footwear, Cycling, Athletics, Fitness and Winter Sports in May 1992.
Mr. Menconi served as the inaugural president of the Oregon Ski Industry
Association from 1988 to 1996, and as a board member from 1992 to 1995. Mr.
Menconi has been serving as a director of the National Sporting Goods
Association since June 1998.
Douglas B. Spink has served as the General Manager of Direct Marketing
since September 1998, when the Company acquired Timberline Direct. Mr. Spink was
a founder and the President and Chief Executive Officer of Timberline Direct, a
catalog and Internet-based retailer, since May 1997. From March 1996 to April
1997, Mr. Spink served as Western Regional Director for Tessera Enterprise
Systems, a leading builder of database marketing systems for large direct
marketers. From October 1994 to March 1996, he was Vice President of Finance for
Ideon Group, a financial services company. Mr. Spink, who started his career as
a database marketing analyst with Leo Burnett & Co., has also served as a
strategic consultant with the Boston Consulting Group.
The Company has no employment or noncompetition agreements with any of its
employees other than Mr. Spink. See "-- Employment Agreement."
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DIRECTOR COMMITTEES AND COMPENSATION
The Company will establish an Audit Committee and a Compensation Committee,
each of which will be comprised of independent directors. The Audit Committee
will review the functions of the Company's management and independent auditors
pertaining to the Company's financial statements and will perform such other
related duties and functions as are deemed appropriate by the Audit Committee
and the Board of Directors. The Compensation Committee will determine officer
and director compensation and administer the Company's compensation plans.
Directors who are employees of the Company receive no additional
compensation for their service as directors. Nonemployee directors will each
receive $1,000 for each Board of Directors meeting attended and $500 for each
committee meeting attended, plus reimbursement for travel expenses in attending
meetings. In addition, on February 24, 1999, the Company granted to each
nonemployee director stock options to purchase 1,875 shares of Common Stock at
an exercise price equal to the initial public offering price per share. These
options will fully vest in February 2000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No executive officer of the Company serves as a member of the compensation
committee of any entity that has one or more executive officers serving as a
member of the Company's Board of Directors.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information with respect to
compensation paid by the Company in the 12-month period ended January 31, 1999
to its Chief Executive Officer and the other executive officers of the Company
whose total annual salary and bonus exceeded $100,000 (collectively the "Named
Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
------------------------------------- SECURITIES ALL OTHER
OTHER ANNUAL UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1) OPTIONS (2)
--------------------------- -------- -------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Norman P. Daniels,
President and Chief Executive
Officer.............................. $250,000 $187,000 $12,000 -- $2,270
Philip M. Pepin,
Chief Financial Officer.............. 137,500 -- 8,400 26,250 2,352
David E. Orkney(3)
Chairman of the Board of Directors... 122,500 -- -- -- 1,725
Edward A. Ariniello
Vice President of Operations......... 110,000 -- 8,400 22,500 1,592
</TABLE>
- ---------------
(1) Consists of amounts paid for car allowance.
(2) Consists of Company matching contributions to the 401(k) Savings Plan.
(3) Mr. Orkney resigned as Chairman of the Board of the Company in May 1998.
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Option Grants in Last Fiscal Year
The following table sets forth certain information regarding stock options
granted to the Named Executive Officers during the 12-month period ended January
31, 1999.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------- VALUE AT ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO PER SHARE OPTION TERM(2)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ------------------------
NAME GRANTED FISCAL YEAR(1) PRICE DATE 5% 10%
---- ---------- -------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Norman P. Daniels........... -- -- -- -- -- --
Philip M. Pepin............. 26,250 8.2 10.67 11/30/2008 $176,146 $446,387
David E. Orkney............. -- -- -- -- -- --
Edward A. Ariniello......... 22,500 7.0 10.67 11/30/2008 150,975 382,618
</TABLE>
- ---------------
(1) Based on a total of 319,350 shares subject to options granted to employees
in the 12-month period ended January 31, 1999.
(2) The assumed rates of growth are prescribed by the Securities and Exchange
Commission (the "Commission") for illustrative purposes only and are not
intended to forecast or predict future stock prices.
Year-End Option Values
No options were exercised by the Named Executive Officers during the
12-month period ended January 31, 1999. The following table sets forth certain
information regarding unexercised stock options held by the Named Executive
Officers as of January 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END(1)
------------------------------ ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Norman P. Daniels................... -- -- -- --
Philip M. Pepin..................... 12,464 26,250 $79,645 --
David E. Orkney..................... -- -- -- --
Edward A. Ariniello................. 2,876 22,500 16,604 --
</TABLE>
- ---------------
(1) Calculated based on the difference between the exercise price and the
assumed initial public offering price of $9.00 per share (the mid-point of
the range set forth on the cover page of this Prospectus).
RETIREMENT AND CERTAIN OTHER BENEFIT PLANS
Defined Benefit Pension Plan
The Company established a defined benefit retirement plan (the "Pension
Plan"), effective March 1, 1976, which is intended to be qualified under Section
401(a) of the Code. The Pension Plan covers all non-union employees who have
both attained the age of 21 and completed one year of service with the Company.
The Pension Plan generally provides each participant with a retirement
benefit in an amount equal to the benefit accrued by such participant as of
February 28, 1993, under the terms of the Pension Plan as then in effect, plus
the sum of 1.1% of such participant's annual compensation and .364% of the
participant's excess compensation for each plan year of participation in the
plan during which the participant completes at least 1,000 hours of service with
the Company. A participant's annual compensation generally is the participant's
compensation for the plan year for federal income tax withholding purposes,
except that for the plan year commencing March 1, 1993, a participant's annual
compensation is limited to $235,840 and for plan years commencing after February
28, 1994, a participant's annual compensation is limited to $150,000 (plus
cost-of-living increases promulgated by the Internal Revenue Service). A
participant's excess contribution for a plan year is the amount of such
participant's annual compensation for such plan year in excess of the social
security taxable wage base in effect under Section 230 of the Social Security
Act for the calendar year in which such plan year begins. A plan year is the
12-consecutive-month period beginning each March 1. The formula set
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<PAGE> 61
forth above calculates benefits in the form of a single life annuity (payable
for the participant's lifetime) with a 10-year term commencing at age 65. If a
participant's benefit is distributed in a form other than a single life annuity
with a 10-year term or commencing prior to the participant's 65th birthday, the
benefit amount will be the actuarial equivalent of such an annuity. Actuarial
adjustments may also be made to a participant's benefit, if that benefit
commences after the participant's 65th birthday.
The Pension Plan provides for full vesting of benefits upon the earliest of
the participant's completion of five years of service with the Company,
attainment of age 65 while employed by the Company or death while employed by
the Company. Payment of the participant's vested benefit will generally commence
upon the latest of the participant's separation from service, attainment of age
55 or completion of a distribution request.
The Company funds at least the minimum annual contribution required under
Section 412 of the Code and the Employee Retirement Income Security Act of 1974,
as amended. Effective February 28, 1999, the Company will freeze future benefit
accruals under the Pension Plan.
The estimated annual benefit (calculated as a single life annuity with a
10-year term) payable under the Pension Plan upon retirement at normal
retirement age (age 65) for each of the Named Executive Officers, based on their
fiscal 1998 compensation levels, are as follows:
<TABLE>
<CAPTION>
ESTIMATE OF
NAME ANNUAL BENEFIT
- ---- --------------
<S> <C>
Norman P. Daniels $60,882
Philip M. Pepin 3,790
David E. Orkney 71,142
Edward A. Ariniello 6,597
</TABLE>
401(k) Savings Plan
The G. I. Joe's, Inc. Savings Plan (the "Savings Plan"), established in
1991, is intended to be qualified under Sections 401(a) and 401(k) of the Code.
The Savings Plan covers all non-union employees who have both attained age 21
and completed one year of service with the Company. Subject to certain
limitations imposed by the Code and the regulations promulgated thereunder,
under the Savings Plan, employees may contribute up to 15% of their compensation
each calendar year on a pre-income-tax basis and the Company may make matching
contributions in such amount as it determines each calendar year. Only the first
6% of compensation deferred by a participant during a calendar year will be
taken into account for purposes of allocating any matching contributions made by
the Company for such year. In addition, the Company may make supplemental
contributions for any calendar year in such amount as it determines.
Supplemental contributions are allocated among eligible participants in
proportion to their compensation. Only participants who have completed 1,000
hours of service with the Company during the calendar and are employed with the
Company on the last day of such year and participants whose employment with the
Company terminated during the calendar year on account of their retirement,
disability or death are eligible to share in the Company's supplemental
contributions for such calendar year. The Company's matching and supplemental
contributions to the Savings Plan for the fiscal years ended January 31, 1997
and 1998 and for the 12-month period ended January 31, 1999 totaled $103,000,
$109,000 and $120,000, respectively.
1998 Stock Incentive Compensation Plan
In July 1998, the Company adopted the 1998 Plan. The purpose of the 1998
Plan is to enhance the long-term shareholder value of the Company by offering
employees, directors, officers, consultants, agents, advisors and independent
contractors of the Company an opportunity to participate in the Company's growth
and success, and to encourage them to remain in the service of the Company and
acquire and maintain stock ownership in the Company. The 1998 Plan includes both
stock options and stock awards, including restricted stock. A maximum of 800,000
shares of Common Stock are subject to the 1998 Plan. As of February 1, 1999,
371,125 shares of Common Stock were issuable upon the exercise of outstanding
stock options under the 1998 Plan, with a weighted average exercise price of
$9.53 per share, and 428,875 shares were reserved for future grants. Of such
outstanding options, options exerciseable for 51,775 shares of Common Stock were
issued
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<PAGE> 62
under a prior stock option plan of the Company and rolled over into the 1998
Plan when it was adopted in July 1998. As of February 1, 1999, outstanding
options under the 1998 Plan included options granted to Philip M. Pepin, the
Company's Chief Financial Officer, for 38,714 shares of Common Stock with a
weighted average exercise price of $8.08 per share, options granted to Edward A.
Ariniello, the Company's Vice President of Operations, for 25,376 shares of
Common Stock with an exercise price of $9.83 per share, and options granted to
Marc H. Mieher, the Company's Vice President of Information Services and Chief
Information Officer, for 15,000 shares of Common Stock at an exercise price of
$10.67 per share. In addition, on February 24, 1999, the Company granted to each
nonemployee director stock options to purchase 1,875 shares of Common Stock at
an exercise price equal to the initial public offering price per share.
Stock Option Grants. The Plan Administrator of the 1998 Plan is currently
the Company's Board of Directors, which has the authority to select individuals
who are to receive options under the 1998 Plan and to specify the terms and
conditions of each option granted (incentive or nonqualified), the exercise
price (which, for incentive stock options, must be at least equal to the fair
market value of the Common Stock on the date of grant), the vesting provisions
and the option term. For purposes of the 1998 Plan, fair market value means the
closing sale price of the Common Stock as reported on the Nasdaq National Market
on the date of grant. Unless otherwise provided by the Plan Administrator, and
to the extent required for incentive stock options by the Code, an option
granted under the 1998 Plan will expire 10 years from the date of grant or, if
earlier, three months after the optionee's termination of service, other than
termination for cause, or one year after the optionee's retirement, early
retirement at the Company's request, death or disability. Once established, the
Compensation Committee of the Board of Directors will serve as the Plan
Administrator.
Stock Awards. The Plan Administrator is authorized under the 1998 Plan to
issue shares of Common Stock to eligible participants on such terms and
conditions and subject to such restrictions, if any, as the Plan Administrator
may determine in its sole discretion. Restrictions may be based on continuous
service with the Company or its subsidiaries or the achievement of such
performance goals as the Plan Administrator may determine. Holders of restricted
stock are recorded as shareholders of the Company and have, subject to certain
restrictions, all the rights of shareholders with respect to such shares.
Adjustments. Proportional adjustments to the aggregate number of shares
issuable under the 1998 Plan and to outstanding awards will be made for stock
splits and other capital adjustments.
Corporate Transactions. In the event of certain Corporate Transactions (as
defined below), each outstanding option and restricted stock award under the
1998 Plan will automatically accelerate so that it will become fully vested
immediately before the Corporate Transaction, except that acceleration will not
occur if such option or restricted stock award is, in connection with the
Corporate Transaction, to be assumed by the successor corporation or parent
thereof. Any option or restricted stock award granted to an "executive officer"
(as defined below) that is assumed or replaced in the Corporate Transaction and
does not otherwise accelerate at that time shall be accelerated in the event the
executive officer, for Good Reason (as defined below), or the successor
corporation, without cause, terminates the executive officer's employment or
services within two years following such Corporate Transaction.
As used in this paragraph, the term "Corporate Transaction" means any of
the following events: (a) consummation of any merger or consolidation of the
Company in which the Company is not the continuing or surviving corporation, or
pursuant to which shares of Common Stock are converted into cash, securities or
other property, if following such merger or consolidation the holders of the
Company's outstanding voting securities immediately prior to such merger or
consolidation own less than 66 2/3% of the outstanding voting securities of the
surviving corporation; (b) consummation of any sale, lease, exchange or other
transfer in one transaction or a series of related transactions of all or
substantially all of the Company's assets other than a transfer of the Company's
assets to a majority-owned subsidiary corporation of the Company; (c) approval
by the holders of the Common Stock of any plan or proposal for the liquidation
or dissolution of the Company; or (d) acquisition by a person of a majority or
more of the Company's outstanding voting securities (whether directly or
indirectly, beneficially or of record). The term "executive officer" means the
Company's president, principal financial officer, principal accounting officer
(or, if there is no such accounting officer, the controller), any vice president
of the Company in charge of a principal business unit, division or function
(such as
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<PAGE> 63
sales, administration or finance), any other officer who performs a
policy-making function, or any other person who performs similar policy-making
functions for the Company. The term "Good Reason" means the occurrence of any of
the following events or conditions and the failure of the successor corporation
to the Company after a Corporate Transaction (or the parent company of such
successor corporation) to cure such event or condition within 30 days after
receipt of written notice by the option holder: (a) a change in the holder's
status, title, position or responsibilities (including reporting
responsibilities) that, in the holder's reasonable judgment, represents a
substantial reduction in the status, title, position or responsibilities as in
effect immediately prior thereto; the assignment to the holder of any duties or
responsibilities that, in the holder's reasonable judgment, are materially
inconsistent with such status, title, position or responsibilities; or any
removal of the holder from or failure to reappoint or reelect the holder to any
of such positions, except in connection with the termination of the holder's
employment for cause, for disability or as a result of his or her death, or by
the holder other than for Good Reason; (b) a reduction in the holder's annual
base salary; (c) the successor corporation's requiring the holder (without the
holder's consent) to be based at any place outside a 50-mile radius of his or
her place of employment prior to a Corporate Transaction, except for reasonably
required travel on the successor corporation's business that is not materially
greater than such travel requirements prior to the Corporate Transaction; (d)
the successor corporation's failure to (i) continue in effect any material
compensation or benefit plan (or the substantial equivalent thereof) in which
the holder was participating at the time of a Corporate Transaction, including,
but not limited to, the 1998 Plan, or (ii) provide the holder with compensation
and benefits substantially equivalent (in terms of benefit levels and/or reward
opportunities) to those provided for under each material employee benefit plan,
program and practice as in effect immediately prior to the Corporate
Transaction; (e) any material breach by the successor corporation of its
obligations to the holder under the 1998 Plan or any substantially equivalent
plan of the successor corporation; or (f) any purported termination of the
holder's employment or service for cause by the successor corporation that does
not comply with the terms of the 1998 Plan or any substantially equivalent plan
of the successor corporation.
Employee Stock Purchase Plan
In January 1999, the Company adopted the G.I. Joe's, Inc. 1999 Employee
Stock Purchase Plan (the "ESPP"). No shares have been issued under the ESPP. The
Company intends for the ESPP to qualify under Section 423 of the Internal
Revenue Code of 1986, as amended. The ESPP permits the eligible employees of the
Company and its subsidiaries to purchase Common Stock through payroll deductions
of up to 10% of their cash compensation. The Company will implement the ESPP
with six-month offering periods, except that the first offering period will
begin April 1, 1999 and end on June 30, 1999. Subsequent offering periods will
begin on each January 1 and July 1. Under the ESPP, no employee may purchase
Common Stock worth more than $25,000 in any offering period or in any calendar
year, valued as of the first day of each offering period. In addition, owners of
5% of more of the combined voting power or value of all classes of stock of the
Company or a subsidiary of the Company may not participate in the ESPP. The
Company authorized the issuance of a total of 300,000 shares of Common Stock
under the ESPP, plus an automatic increase on the first day of the Company's
fiscal year beginning in 2000 and each anniversary thereafter that will be equal
to the lesser of (i) 10,500 shares; (ii) 0.125% of the average common shares
outstanding as used to calculate fully diluted earnings per share as reported in
the Annual Report to shareholders for the preceding fiscal year; or (iii) a
lesser amount determined by the Company's Board of Directors. Any unissued
shares resulting from increases in previous years will be added to the aggregate
number of shares available for issuance under the ESPP.
The price of the Common Stock purchased under the ESPP will be the lesser
of 85% of the fair market value on the first day of an offering period and 85%
of the fair market value on the last day of an offering period. The ESPP will
terminate in January 2009, but the Board of Directors may terminate it at any
earlier time. The Company has not issued any shares of Common Stock under the
ESPP.
In the event of a merger or proposed sale of all or substantially all of
the Company's assets, the ESPP provides that each outstanding option to purchase
shares under the ESPP will be assumed or an equivalent option substituted by the
successor corporation. If the successor corporation refuses to assume or provide
an equivalent substitute for the option, the offering period during which a
participant may purchase stock will be
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<PAGE> 64
shortened to a specified date before the merger or proposed sale. In the event
of a proposed liquidation or dissolution of the Company, the offering period
during which a participant may purchase stock will be shortened to a specified
date before the date of the proposed liquidation or dissolution.
Employment Agreement
As part of the Timberline Direct acquisition, the Company entered into an
employment agreement with Douglas B. Spink, an executive officer and a majority
shareholder of Timberline Direct. Mr. Spink serves as the Company's General
Manager of Direct Marketing. The employment agreement, which continues until
January 31, 2004 unless earlier terminated, provides for an annual base salary
of $100,000 for Mr. Spink. It also provides for an annual bonus for Mr. Spink in
an amount equal to 0.6% of the annual sales for the Company's catalog and
Internet-based sales division, but only if certain net profit and sales
thresholds are achieved. The net profit thresholds are calculated before income
taxes and bonus payments to this employee and range from 10% to 15% of sales for
the Company's catalog and Internet-based sales division; the minimum sales
thresholds range from $5.5 million to $30.0 million. The employment agreement
may be terminated by the Company at any time, generally upon notice. However, if
Mr. Spink is terminated without cause, the agreement provides that his base
salary will continue to be paid through January 31, 2004, as will bonuses in
annual amounts equal to the average of bonuses paid prior to termination of
employment. Mr. Spink also entered into a noncompetition agreement that contains
noncompetition, nonsolicitation and confidentiality provisions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
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<PAGE> 65
CERTAIN RELATED TRANSACTIONS
Prior to the Offering, the Company entered into transactions and business
relationships with certain of its officers, directors and 5% shareholders. Any
future transactions between the Company and its officers, directors and 5%
shareholders will be subject to approval by a majority of the Company's
disinterested directors and will be on terms no less favorable to the Company
than would be available from unaffiliated third parties.
TicketMaster-Oregon, a partnership whose partners have included, among
others, Norman Daniels, the Company's Chairman of the Board, President and Chief
Executive Officer, and David Orkney, a Director of the Company
("TicketMaster-Oregon"), has entered into an operating agreement with
TicketMaster Northwest. TicketMaster-Oregon has placed TicketMaster outlets
which are operated by the Company in all of the Company's Oregon stores. The
Company receives a percentage of the convenience charges to which
TicketMaster-Oregon is entitled under its own operating agreement with
TicketMaster Northwest for sales generated in G.I. Joe's Oregon stores. The
Company has established a similar arrangement directly with TicketMaster
Northwest with respect to its Washington stores. For the 12-month periods ended
January 31, 1997, 1998 and 1999, TicketMaster-Oregon received an aggregate of
approximately $284,000, $280,000 and $294,000, respectively, from TicketMaster
fees. Prior to February 1, 1999, Messrs. Daniels and Orkney each beneficially
owned 20% of TicketMaster-Oregon. As of February 1, 1999, Mr. Daniels'
beneficial ownership increased to 50% and Mr. Orkney is no longer a partner in
Ticketmaster-Oregon. Revenue to the Company generated by the TicketMaster
outlets is generally offset by related expenses, primarily for labor. The
primary benefits to the Company of having TicketMaster outlets in its stores are
the increased foot traffic and familiarity with the Company's store locations
generated thereby. See "Business -- Merchandise -- TicketMaster."
In July 1994, the Company loaned $181,788 and $97,769 to Messrs. Daniels
and Orkney, respectively. Each loan was made pursuant to a promissory note with
an annual interest rate equal to the Applicable Federal Rate determined by the
Internal Revenue Service, and which required minimum annual payments of $10,000
each year until all interest and principal was paid in full. In November 1995,
the Company loaned Mr. Daniels an additional $37,735 and from April 1996 through
April 1997, the Company loaned Mr. Orkney an additional $99,970, each on the
same terms described above. Just prior to the Reorganization, the outstanding
balances of Mr. Daniels' and Mr. Orkney's indebtedness to the Company were
approximately $187,000 and $132,000, respectively. In April 1998, the Company
awarded a bonus payment to Mr. Daniels which was paid by canceling his
indebtedness of $187,000. In connection with the Reorganization, the Company
forgave Mr. Orkney's indebtedness to the Company.
In July 1994, the Company loaned approximately $5.6 million in the
aggregate to two partnerships in which Messrs. Daniels and Orkney were two of
four partners (the "Henway Partnerships") to refinance two parcels of real
estate upon which are located the Company's stores in Vancouver, Washington and
Albany, Oregon. Each partner held a 25% interest in each Henway Partnership. The
Henway Partnerships leased these properties to the Company. These loans accrued
interest at Bank of America's prime rate plus 2.5% per year, and were due in
August 1996. The Henway Partnerships repaid all amounts outstanding under these
loans in January 1996, other than $257,849, which was refinanced pursuant to a
promissory note from one of the Henway Partnerships in favor of the Company,
with an annual interest rate of 10.5% and a 60-month payment schedule. The
leases for the Vancouver and Albany stores were entered into in June and
November 1989, respectively, and each has a 25-year term and a 10-year renewal
option. Base rental payments under these leases are $385,836 and $391,344 per
year for the Vancouver and Albany locations, respectively, on a triple-net
basis. In addition, the Company is obligated to pay additional rent for the
Vancouver and Albany stores in the amount of 1.5% of gross receipts in excess of
approximately $15.3 million and $11.9 million, respectively, but has not been
required to pay any such additional rent in the last three fiscal years. The
Company believes the leases for the Vancouver and Albany stores were entered
into on terms no less favorable to the Company than would have been obtained
from unaffiliated third parties. In December 1998, the Henway Partnerships were
terminated and the former partners entered into a co-tenancy agreement with
respect to these parcels of real estate.
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<PAGE> 66
In April 1998, in connection with the Reorganization, the Company sold two
parcels of real estate to PD Properties, LLC ("PD"), an Oregon limited liability
company affiliated with Roy Rose, a Director of the Company and a director and
the president and chief executive officer of Peregrine, a principal shareholder
of the Company. Linda Rose, Mr. Rose's wife, has a controlling interest in both
PD and Peregrine. PD paid approximately $2.7 million in the aggregate to the
Company for the South Salem, Oregon store location and for the Company's vacant
land located in Forest Grove, Oregon (the "PD Real Properties"). The Company
leases the South Salem property from PD pursuant to a lease which commenced in
April 1998 (the "PD Lease"). The initial term of the PD Lease is 15 years, with
two renewal options of 5 years each. Rental payments under the PD Lease consist
of a base rent of $385,836 per year on a triple net basis. The base rent will be
adjusted every five years based on changes in the consumer price index. The PD
Lease is in substantially the same form as the six leases (the "Non-PD Leases")
entered into with an unaffiliated party in connection with the sale and
lease-back of the Company's owned store locations consummated in connection with
the Reorganization. The Company believes the PD Lease was entered into on terms
no less favorable to the Company than would have been obtained from an
unaffiliated third party. In connection with the Reorganization, four
individuals associated with Peregrine, including Mr. Rose and his spouse, agreed
to guarantee the Company's performance of its obligations under the Non-PD
Leases. Aggregate annual base rent under the Non-PD Leases is approximately $3.0
million. This guarantee will expire upon the closing of an initial public
offering of the Company's Common Stock. PD received a fee of $1.0 million in
connection with the sale of the properties subject to the Non-PD Leases, which
fee was credited against the purchase price for the PD Real Properties.
As stated above, Roy Rose, a Director of the Company, is a director and the
president and chief executive officer of Peregrine, a principal shareholder of
the Company. Mr. Rose's wife, Linda Rose, has a controlling interest in
Peregrine. In connection with the Reorganization, Peregrine purchased $1.45
million of Subordinated Notes from the Company. For services rendered in
connection with the Reorganization, Peregrine also received a warrant
exercisable for shares of Holdings common stock (the "Master Warrant").
Peregrine exchanged $1.0 million of the Subordinated Notes for common stock of
ND Holdings, Inc. ("Holdings"), which was converted into 267,674 shares of the
Company's Common Stock in the Merger. Peregrine exchanged the remaining $450,000
of the Subordinated Notes for preferred stock of Holdings and an additional
warrant to purchase common stock of Holdings. In the Merger, the shares of
preferred stock of Holdings were converted into 4,500 shares of the Company's
Redeemable Preferred Stock and this warrant was converted into 30,682 shares of
the Company's Common Stock. In the Merger the Master Warrant was converted into
1,196,727 shares of the Company's Common Stock. See "The Reorganization." Prior
to the Merger, Peregrine assigned to various unaffiliated third parties a
portion of the Master Warrant which otherwise would have entitled Peregrine to
228,067 shares of the Company's Common Stock issuable upon conversion of the
Master Warrant. Peregrine has certain registration rights with respect to the
shares of the Company's Common Stock it received in exchange for the Holdings
warrants. See "Description of Capital Stock -- Registration Rights." Peregrine
purchased from another Investor 250,000 shares of Holdings preferred stock,
which in the Merger were converted into 2,500 shares of Redeemable Preferred
Stock. All outstanding shares of Redeemable Preferred Stock will be redeemed for
$100 per share using proceeds from the Offering. See "Use of Proceeds."
Peregrine has agreed to pay all accounting, legal and other expenses incurred by
Holdings and the Company in connection with the Reorganization, paid a fee of
$100,000 to David Orkney to induce him to extend the terms of his agreement
regarding the sale of his interest in the Company and agreed to reimburse the
Company for all dividends paid on the Company's Redeemable Preferred Stock. In
addition, Peregrine has agreed to purchase from the Investors all outstanding
shares of the Company's Redeemable Preferred Stock for $8.5 million, plus
accumulated dividends, if the Company does not complete, prior to May 8, 1999,
an initial public offering of its Common Stock with net proceeds to the Company
of at least $12.0 million. See "The Reorganization."
In October 1998, the Company and Peregrine entered into an agreement that
provides that Peregrine will act as a non-exclusive independent representative
of the Company to identify potential acquisition or investment candidates and
assist in completing any such acquisitions or investments the Company chooses to
pursue. As compensation for Peregrine's services, the Company has agreed to pay
to Peregrine 4% of the gross amount of all cash and non-cash fees and
consideration paid by the Company or any of its affiliates as a result
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<PAGE> 67
of or directly related to any transaction between the Company and candidates
identified by Peregrine that is completed within the term of the agreement or
one year thereafter. The agreement terminates on October 31, 2003, unless
earlier terminated by either party upon at least 30 days' notice to the other
party.
In connection with the Reorganization, in May 1998 the Company redeemed all
of Mr. Orkney's outstanding shares of Common Stock in the Company for an
aggregate purchase price of approximately $13.9 million. In addition, the
Company issued to Mr. Orkney the Orkney Warrant, which was exercisable for a
number of shares equal to 5% of the Company's Common Stock outstanding, on a
fully-diluted basis, at the time of exercise at a purchase price equal to 70% of
the fair market value of the Common Stock on the exercise date. The Orkney
Warrant was cancelled in February 1999 in exchange for the issuance to Mr.
Orkney of 80,000 shares of Common Stock and the Company's agreement to reimburse
Mr. Orkney for up to $225,000 in income taxes arising as a result of such share
issuance. Mr. Orkney has certain registration rights with respect to the Common
Stock issued in exchange for the cancellation of the Orkney Warrant. See "The
Reorganization" and "Description of Capital Stock -- Registration Rights." In
connection with the Reorganization, the Company also entered into an agreement
with Mr. Orkney pursuant to which Mr. Orkney received a $140,000 bonus in May
1998 (consisting of $132,000 in debt forgiveness and a Company car with an
estimated value of $8,000) and will be paid an additional $150,000 over the
following two years ($100,000 of which is to be paid in 12 equal monthly
installments during the first year, and the remaining $50,000 of which is to be
paid in 12 equal monthly installments during the second year). During the first
year, Mr. Orkney will also receive a car allowance in accordance with the
Company's past practice as well as health insurance and certain other benefits.
Mr. Orkney's mother and sister received compensation from the Company for the
last three fiscal years in the aggregate amounts of approximately $105,000 and
$59,000, respectively. The Company stopped making such payments in May 1998.
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PRINCIPAL SHAREHOLDERS
The following table sets forth, as of the date of this Prospectus, certain
information with respect to the beneficial ownership of the Company's Common
Stock by (i) each person (or group of affiliated persons) known by the Company
to beneficially own more than a number of shares equal to 5% of the Common
Stock, (ii) each director of the Company, (iii) each of the Named Executive
Officers and (iv) all of the Company's directors and executive officers as a
group. Except as otherwise indicated, the Company believes that the beneficial
owners of the Common Stock listed below, based on information furnished by such
owners, have sole voting and investment power with respect to such shares.
<TABLE>
<CAPTION>
PERCENTAGE OF COMMON STOCK
SHARES BENEFICIALLY --------------------------------
NAME AND ADDRESS OWNED(1) BEFORE OFFERING AFTER OFFERING
---------------- ------------------- --------------- --------------
<S> <C> <C> <C>
Norman P. Daniels(2)..................... 2,409,063 52.6% 34.0%
c/o G.I. Joe's, Inc.
9805 S.W. Boeckman Road
Wilsonville, OR 97070
Roy Rose(3).............................. 1,249,970 27.3 17.7
c/o Peregrine Capital, Inc.
9725 S.W. Beaverton-Hillsdale Highway,
#350
Beaverton, OR 97005
Peregrine Capital, Inc.(3)............... 1,249,970 27.3 17.7
9725 S.W. Beaverton-Hillsdale Highway,
#350
Beaverton, OR 97005
David E. Orkney(4)....................... 80,000 1.7 1.1
2562 S.W. Buckingham Avenue
Portland, OR 97201
Philip M. Pepin(5)....................... 12,464 * *
c/o G.I. Joe's, Inc.
9805 S.W. Boeckman Road
Wilsonville, OR 97070
Edward A. Ariniello(5)................... 2,876 * *
c/o G.I. Joe's, Inc.
9805 S.W. Boeckman Road
Wilsonville, OR 97070
Charles H. Putney........................ -- -- --
c/o Paine Webber
1000 S.W. Broadway, #2100
Portland, OR 97205
Robert R. Ames........................... -- -- --
1231 N.W. Hoyt St.
Portland, OR 97209
All directors and executive officers as a
group
(eight persons)(6)..................... 3,754,373 80.4 52.4
</TABLE>
- ---------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with rules of the
Commission and includes shares over which the indicated beneficial owner
exercises voting and/or investment power. Shares of Common Stock subject to
options or warrants currently exercisable or exercisable within 60 days are
deemed outstanding for purposes of computing the percentage ownership of the
person holding the options or warrants, but are not deemed outstanding for
computing the percentage ownership of any other person.
(2) Includes 4,000 shares owned by Mr. Daniels' children.
67
<PAGE> 69
(3) Consists entirely of shares beneficially owned by Peregrine, of which Mr.
Rose is the president and chief executive officer. Includes up to 17,045
shares of Common Stock which Peregrine is entitled to repurchase from a
lender upon prepayment of a loan.
(4) Consists solely of shares issued in February 1999 in exchange for the
cancellation of the Orkney Warrant. See "Certain Related Transactions."
(5) Consists solely of shares subject to options exercisable within 60 days.
(6) Includes (i) 15,340 shares subject to options exercisable within 60 days,
(ii) 1,249,970 shares beneficially owned by Peregrine (see Note 3 above) and
(iii) 80,000 shares issued in February 1999 to Mr. Orkney in exchange for
the cancellation of the Orkney Warrant (see Note 4 above).
68
<PAGE> 70
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 50,000,000 shares
of Common Stock, having no par value, and 10,000,000 shares of preferred stock,
having no par value.
The following summary description of the Company's capital stock is
qualified in its entirety by reference to the Company's Amended and Restated
Articles of Incorporation (the "Articles") and Amended and Restated Bylaws,
copies of which are filed as exhibits to the Registration Statement of which
this Prospectus forms a part.
COMMON STOCK
As of February 1, 1999, there were 4,575,760 shares of Common Stock
outstanding held of record by approximately 101 shareholders. In February 1999,
the Company issued an additional 80,000 shares to David Orkney, a Director and
the former majority shareholder of the Company.
The holders of shares of Common Stock, on the basis of one vote per share,
have the right to vote for the election of members of the Board of Directors of
the Company and the right to vote on all other matters. Subject to preferences
that may be applicable to any preferred stock outstanding at the time, holders
of Common Stock are entitled to receive ratably such dividends, if any, as may
be declared from time to time by the Board of Directors out of funds legally
available therefor. In the event of a liquidation, dissolution or winding up of
the Company, holders of Common Stock are entitled to share ratably in all assets
remaining after payment of the Company's liabilities and the liquidation
preference, if any, of any outstanding shares of preferred stock. Holders of
Common Stock have no preemptive rights and no rights to convert their Common
Stock into any other securities, and there are no redemption provisions with
respect to such shares. All the outstanding shares of Common Stock are fully
paid and nonassessable. The rights, preferences and privileges of holders of
Common Stock are subject to, and may be adversely affected by, the rights of
holders of shares of any series of preferred stock that the Company may
designate and issue in the future.
PREFERRED STOCK
The Board of Directors has the authority to issue up to 10,000,000 shares
of preferred stock in one or more series and to fix the powers, designations,
preferences and relative, participating, optional or other rights thereof,
including dividend rights, conversion rights, voting rights, redemption terms,
liquidation preferences and the number of shares constituting each such series,
without any further vote or action by the Company's shareholders. As of January
31, 1999 there were 85,000 shares of Redeemable Preferred Stock outstanding, all
of which will be redeemed with $8.5 million of the net proceeds from the
Offering. See "Use of Proceeds."
The issuance of additional shares of preferred stock could have one or more
of the following effects: (i) restrict Common Stock dividends if preferred stock
dividends have not been paid, (ii) dilute the voting power and equity interest
of holders of Common Stock to the extent that any series of preferred stock has
voting rights or is convertible into Common Stock or (iii) prevent current
holders of Common Stock from participating in the Company's assets upon
liquidation until any liquidation preferences granted to holders of preferred
stock are satisfied. In addition, the issuance of preferred stock may, under
certain circumstances, have the effect of discouraging a change in control of
the Company by, for example, granting voting rights to holders of preferred
stock that require approval by the separate vote of the holders of preferred
stock for any amendment to the Articles or any reorganization, consolidation or
merger (or other similar transaction involving the Company). As a result, the
issuance of such preferred stock may discourage bids for the Company's Common
Stock at a premium over the market price therefor and could have a material
adverse effect on the market value of the Common Stock. The Board of Directors
does not currently intend to issue any additional shares of preferred stock. See
"Risk Factors -- Potential Issuance of Preferred Stock; Anti-Takeover Effect of
Oregon Law."
69
<PAGE> 71
WARRANTS AND STOCK OPTIONS
In connection with the Offering, the Company has agreed to issue to each of
Cruttenden Roth Incorporated and Black & Company, Inc., as representatives for
the Underwriters, warrants (the "Representatives' Warrants") to purchase an
aggregate of 250,000 shares. The Representatives' Warrants are exercisable for a
period of four years, beginning one year from the date of this Prospectus. The
Representatives' Warrants are exercisable at a price equal to 120% of the
initial public offering price per share. The number of shares covered by the
Representatives' Warrants and the exercise price are subject to adjustment in
certain circumstances to prevent dilution. The Representatives' Warrants are
nontransferable for a period of one year following the date of this Prospectus,
except to (i) members of the selling group for the Offering or their respective
officers and/or partners and (ii) officers and/or partners of the
Representatives. The holders of the Representatives' Warrants will have, in that
capacity, no voting, dividend or other shareholder rights.
As of February 1, 1999, the Company had options outstanding to purchase
371,125 shares of Common Stock, with a weighted average exercise price of $9.53
per share. Of such options, options exercisable for 51,775 shares of Common
Stock had vested as of such date and an additional 428,875 shares were reserved
for future grants under the 1998 Plan. See "Management -- Retirement and Certain
Other Benefit Plans -- 1998 Stock Incentive Compensation Plan."
REGISTRATION RIGHTS
Pursuant to the terms of a Registration Rights Agreement, individuals and
entities, including Peregrine and its affiliates who received in the Merger an
aggregate of 1,896,148 shares of the Company's Common Stock in exchange for
warrants exercisable for Holdings common stock may request that their Common
Stock be included in any public offering of Common Stock of the Company at the
Company's expense. In addition, at any time after the first anniversary of the
closing of the Offering, the holders of 50% or more of such shares of Common
Stock may make one request that the Company use its best efforts to register
such shares of Common Stock under the Securities Act at the Company's expense.
In any underwritten offering of shares of Common Stock being issued by the
Company, if the underwriters determine that marketing factors require a
limitation on the number of shares to be sold on account of shareholders, the
Company may limit or exclude from the registration such shares of Common Stock.
David Orkney, a Director and the former majority shareholder of the
Company, received registration rights with respect to the 80,000 shares of
Common Stock issued to him in exchange for the cancellation of the Orkney
Warrant. The Company has also granted registration rights with respect to the
shares of Common Stock to be issued in connection with the Company's acquisition
of Timberline Direct. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview" and "Certain Related
Transactions." Mr. Orkney and the holders of the shares issued in connection
with the Timberline Direct acquisition may request that their shares of Common
Stock be included in any public offering of capital stock of the Company at the
Company's expense. In any underwritten offering of the Company's capital stock,
if the underwriters determine that marketing factors require a limitation on the
number of shares to be sold for the account of shareholders, then the Company
may limit or exclude from the registration such shares of Common Stock.
At any time during the period in which the Representatives' Warrants are
exercisable, the holders of the Representatives' Warrants have the right,
subject to certain limitations, to require the Company on one occasion to
register under the Securities Act, at the Company's expense, the shares of
Common Stock issuable upon exercise of the Representatives' Warrants. Such
holders also may request that such shares be included in any public offering of
Common Stock of the Company at the Company's expense. In any underwritten
offering of the Company's capital stock, if the underwriters determine that
marketing factors require a limitation on the number of shares to be sold for
the account of shareholders, then the Company may limit or exclude from the
registration such shares of Common Stock.
70
<PAGE> 72
OREGON CONTROL SHARE AND BUSINESS COMBINATION STATUTES
The Company is subject to certain provisions of the Oregon Business
Corporation Act that, in certain circumstances, restrict the ability of
significant shareholders to exercise voting rights (the "Control Share Act").
The Control Share Act generally provides that a person (the "Acquiring Person")
who acquires voting stock of an Oregon corporation in a transaction that results
in the Acquiring Person holding more than 20%, 33 1/3% or 50% of the total
voting power of the corporation (a "Control Share Acquisition") cannot vote the
shares such person acquires in a Control Share Acquisition ("Control Shares")
unless voting rights are accorded to the Control Shares by (i) a majority of
each voting group entitled to vote and (ii) the holders of a majority of the
outstanding voting shares, excluding the Control Shares held by the Acquiring
Person and shares held by the corporation's officers and inside directors. The
term "Acquiring Person" is broadly defined to include persons acting as a group.
The Acquiring Person may, but is not required to, submit to the corporation
a statement setting forth certain information about the Acquiring Person and its
plans with respect to the corporation. The statement may also request that the
corporation call a special meeting of shareholders to determine whether voting
rights will be accorded to the Control Shares. If the Acquiring Person does not
request a special meeting of shareholders, the issue of voting rights of Control
Shares will be considered at the next annual or special meeting of shareholders.
If the Acquiring Person's Control Shares are accorded voting rights and
represent a majority of all voting power, shareholders who do not vote in favor
of voting rights for the Control Shares will have the right to receive the
appraised "fair value" of their shares, which may not be less than the highest
price paid per share by the Acquiring Person for the Control Shares.
The Company is also subject to certain provisions of the Oregon Business
Corporation Act that govern business combinations between corporations and
interested shareholders (the "Business Combination Act"). The Business
Combination Act generally provides that if a person or entity acquires 15% or
more of the voting stock of an Oregon corporation (an "Interested Shareholder"),
the corporation and the Interested Shareholder, or any affiliated entity of the
Interested Shareholder, may not engage in certain business combination
transactions for three years following the date the person became an Interested
Shareholder. Business combination transactions for this purpose include (a) a
merger or plan of share exchange, (b) any sale, lease, mortgage or other
disposition of 10% or more of the assets of the corporation and (c) certain
transactions that result in the issuance of capital stock of the corporation to
the Interested Shareholder. These restrictions do not apply if (i) the
Interested Shareholder, as a result of the transaction in which such person
became an Interested Shareholder, owns at least 85% of the outstanding voting
stock of the corporation (disregarding shares owned by directors who are also
officers and certain employee benefit plans), (ii) the board of directors
approves the share acquisition or business combination before the Interested
Shareholder acquired 15% or more of the corporation's outstanding voting stock
or (iii) the board of directors and the holders of at least two-thirds of the
outstanding voting stock of the corporation (disregarding shares owned by the
Interested Shareholder) approve the transaction after the Interested Shareholder
acquires 15% or more of the corporation's voting stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services L.L.C.
71
<PAGE> 73
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the Company's
Common Stock and a significant public market for the Common Stock may not be
developed or sustained after the Offering. Future sales of substantial amounts
of the Company's Common Stock in the public market, or the prospect of such
sales, could adversely affect the prevailing market prices of the Company's
Common Stock or the future ability of the Company to raise capital through an
offering of equity securities.
Upon the closing of the Offering, the Company will have 7,155,760 shares of
Common Stock outstanding (7,530,760 shares if the Underwriters' over-allotment
option is exercised in full), assuming no exercise of outstanding options under
the Company's 1998 Plan. The 2,500,000 shares sold in the Offering will be
freely tradable without restriction or limitation under the Securities Act,
except for any such shares purchased by "affiliates" of the Company, as such
term is defined under Rule 144 of the Securities Act, which will be subject to
the resale limitations of Rule 144. The remaining 4,655,760 shares of the
Company's Common Stock issued and outstanding are "restricted securities" within
the meaning of Rule 144 and were issued and sold by the Company in private
transactions. Such restricted securities may be publicly sold only if registered
under the Securities Act or sold in accordance with an applicable exemption from
registration, such as Rule 144.
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
for at least one year, including an affiliate of the Company, would be entitled
to sell, within any three-month period, that number of shares that does not
exceed the greater of 1% of the then-outstanding shares of Common Stock (72,000
shares upon the closing of the Offering) or the average weekly trading volume in
the Common Stock during the four calendar weeks immediately preceding the date
on which a notice of sale is filed with the Commission, provided certain manner
of sale and notice requirements and requirements as to the availability of
current public information about the Company are satisfied. In addition,
affiliates of the Company must comply with the restrictions and requirements of
Rule 144, other than the one-year holding period requirement, in order to sell
shares of Common Stock which are not restricted securities. As defined in Rule
144, an "affiliate" of an issuer is a person who directly or indirectly through
the use of one or more intermediaries controls, or is controlled by, or is under
common control with, such issuer. Under Rule 144(k), a holder of "restricted
securities" who is not deemed an affiliate of the issuer and who has
beneficially owned shares for at least two years would be entitled to sell
shares under Rule 144(k) without regard to the limitations described above.
Currently outstanding restricted shares of the Company's Common Stock are
not yet eligible for sale under Rule 144, but generally will become eligible for
sale in July 1999 subject to Rule 144 restrictions (other than shares to be
issued in connection with the Timberline Direct acquisition and the shares
issued in exchange for the cancellation of the Orkney Warrant, which will become
eligible for resale under Rule 144 on the first anniversary of their issuance).
The holders of 2,087,806 of the Company's outstanding restricted shares
(including the shares issued to date in connection with the Timberline Direct
acquisition and the cancellation of the Orkney Warrant), including Peregrine,
have certain registration rights with respect to such shares. All shares
registered under the Securities Act upon exercise of these registration rights
will be freely tradable without restriction or limitation under the Securities
Act, except for any such shares (i) purchased by affiliates of the Company,
which will remain subject to the resale limitations of Rule 144, or (ii) subject
to lock-up agreements with the Underwriters. The Company, its directors,
executive officers and other certain shareholders holding an aggregate of
4,295,857 shares have agreed that, without the prior written consent of
Cruttenden Roth Incorporated, they will not directly or indirectly offer to
sell, sell, or otherwise dispose of shares of Common Stock or any securities
convertible or exchangeable therefor, for a period of 360 days after the date of
this Prospectus, subject to certain limited exceptions. See "Underwriting."
The Company intends to file a registration statement under the Securities
Act following the date of this Prospectus to register the future issuance of up
to 800,000 shares of Common Stock under the 1998 Plan and up to 300,000 shares
of Common Stock under the Company's ESPP. Shares issued under the 1998 Plan and
the ESPP after the effective date of such registration statement will be freely
tradable in the open market, subject to the lock-up agreements with the
Underwriters described above and, in the case of sales by affiliates, to certain
requirements of Rule 144. As of February 1, 1999, options to purchase 371,125
shares of Common
72
<PAGE> 74
Stock were outstanding under the 1998 Plan, of which options exercisable for
51,775 shares of Common Stock were vested. In addition, up to 252,264 additional
shares of Common Stock may be issued in connection with the Timberline Direct
acquisition (assuming an initial public offering price of $9.00, the mid-point
of the range set forth on the cover page of this Prospectus), all of which
shares will be covered by certain registration rights granted to the recipients
thereof. See "Management's Discussion and Analysis of Results of Operations and
Financial Condition -- Overview," "Description of Capital Stock -- Warrants and
Stock Options," "Management -- Retirement and Certain Other Benefit Plans," and
"Description of Capital Stock -- Registration Rights."
73
<PAGE> 75
UNDERWRITING
Under the terms and subject to the conditions of the Underwriting
Agreement, the Underwriters named below (the "Underwriters"), for whom
Cruttenden Roth Incorporated and Black & Company, Inc. are acting as
representatives (the "Representatives"), have severally agreed to purchase from
the Company, and the Company has agreed to sell to each Underwriter, the
aggregate number of shares of Common Stock set forth opposite their respective
names in the table below. The Underwriting Agreement provides that the
obligations of the Underwriters to pay for and accept delivery of the shares of
Common Stock are subject to certain conditions precedent and that the
Underwriters are committed to purchase and pay for all shares if any shares are
purchased.
<TABLE>
<CAPTION>
NUMBER
OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Cruttenden Roth Incorporated......................
Black & Company, Inc..............................
---------
Total................................... 2,500,000
=========
</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 to certain
dealers (who may include the Underwriters) at such price less a concession not
in excess of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession to certain other dealers (who may include the
Underwriters) not in excess of $ per share. After the initial offering to
the public, the offering price and other selling items may be changed by the
Representatives.
The Company has granted an option to the Underwriters exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 375,000 shares of Common Stock at the initial public offering price per
share, less the underwriting discounts, set forth on the cover page of this
Prospectus. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of the Common Stock offered
hereby. To the extent the Underwriters exercise such option, each of the
Underwriters will be committed, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number of
shares of Common Stock to be purchased by such underwriter as shown in the above
table bears to the total shown.
In the Underwriting Agreement, the Company has agreed to indemnify the
Underwriters against certain liabilities that may be incurred in connection with
the Offering, including liabilities under the Securities Act, or to contribute
payments that the Underwriters may be required to make in respect thereof.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
The Company, its directors, executive officers and other shareholders have
agreed that, without the prior written consent of Cruttenden Roth Incorporated,
they will not directly or indirectly offer to sell, sell, or otherwise dispose
of shares of Common Stock or any securities convertible or exchangeable
therefor, for a period of 360 days after the date of this Prospectus, subject to
certain limited exceptions.
74
<PAGE> 76
In connection with the Offering, the Underwriters may reserve up to
approximately 125,000 shares of Common Stock for sale at the initial public
offering price to persons associated with the Company. The number of shares
available for sale to the general public will be reduced to the extent any
reserved shares are purchased. Any reserved shares not so purchased will be
offered by the Underwriters on the same basis as the other shares offered
hereby.
In connection with the Offering, the Company has agreed to issue to the
Representatives Representatives' Warrants to purchase an aggregate of 250,000
shares of Common Stock. The Representatives' Warrants are exercisable for a
period of four years, beginning one year from the date of this Prospectus. The
Representatives' Warrants are exercisable at a price equal to 120% of the
initial public offering price per share. The number of shares covered by the
Representatives' Warrants and the exercise price are subject to adjustment in
certain circumstances to prevent dilution. The Representatives' Warrants are
nontransferable for a period of one year following the date of this Prospectus,
except to (i) officers and/or partners of the Representatives and (ii) members
of the selling group for the Offering or their respective officers and/or
partners. The holders of the Representatives' Warrants will have, in that
capacity, no voting, dividend or other shareholder rights. At any time during
the period in which the Representatives' Warrants are exercisable, the holders
of the Representatives' Warrants shall have the right, subject to certain
limitations, to require the Company on one occasion to register under the
Securities Act, at the Company's expense, the shares of Common Stock issuable
upon exercise of the Representatives' Warrants. Such holders also may request
that such shares be included in any registered public offering of Common Stock
of the Company at the Company's expense.
Prior to the Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price will be determined by
negotiations between the Company and the Representatives. Among the factors to
be considered in such negotiations will be the history of and prospects for the
Company and the industry in which it competes, an assessment of the Company's
management, its past and present operations and financial performance, the
present state of the Company's development, the general condition of the
securities markets at the time of the Offering and the market prices of and
demand for publicly traded common stock of comparable companies in recent
periods.
LEGAL MATTERS
Certain legal matters will be passed on for the Company by Perkins Coie
LLP, Portland, Oregon. Certain legal matters will be passed on for the
Underwriters by Stoel Rives LLP, Portland, Oregon.
EXPERTS
The financial statements included in this Prospectus and elsewhere in the
Registration Statement, to the extent and for the periods indicated in their
reports, have been audited by Arthur Andersen LLP, independent public
accountants, and are included herein in reliance upon the authority of said firm
as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby (as
amended, the "Registration Statement"). This Prospectus, which constitutes part
of the Registration Statement, omits certain information contained in the
Registration Statement and the exhibits and schedules thereto on file with the
Commission pursuant to the Securities Act and the rules and regulations of the
Commission thereunder. The Registration Statement, including the exhibits and
schedules thereto, may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the Commission's Regional Offices at 7 World
Trade Center, Suite 1300, New York, New York 10048, and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, and copies may be obtained at the
prescribed rates from the Public Reference Section of the Commission at its
principal office in Washington, D.C. The Commission also maintains a Web site on
the Internet that contains reports, proxy and information statements and other
information regarding registrants that file electronically, including the
Company, with the Commission at http://www.sec.gov.
75
<PAGE> 77
Statements contained in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete, and in
each instance reference is made to the copy of such contract, agreement or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference. All provisions of such
contracts, agreements and other documents that are material to the subject of
such statements, however, are described in the appropriate portions of this
Prospectus.
The Company will furnish its shareholders with annual reports containing
audited financial statements and an opinion thereon expressed by independent
auditors and will furnish its shareholders with quarterly reports for the first
three quarters of each fiscal year containing unaudited summary financial
information.
76
<PAGE> 78
G.I. JOE'S, INC.
INDEX TO FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Arthur Andersen LLP, Independent Public
Accountants............................................... F-2
Financial Statements:
Balance Sheets............................................ F-3
Statements of Operations.................................. F-4
Statements of Shareholders' Equity........................ F-5
Statements of Cash Flows.................................. F-6
Notes to Financial Statements............................. F-7
</TABLE>
F-1
<PAGE> 79
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
G.I. Joe's, Inc.:
We have audited the accompanying balance sheets of G.I. Joe's, Inc. (an
Oregon corporation) as of June 30, 1998, and the related statements of
operations, shareholders' equity and cash flows for the two months ended June
30, 1998. We have also audited the accompanying balance sheets of the
Predecessor, as described in Note 1, as of January 31, 1997 and 1998 and April
30, 1998, and the related statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended January 31, 1998 and
for the three months ended April 30, 1998. 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 financial position of G.I. Joe's, Inc. as of June
30, 1998, and the results of its operations and its cash flows for the two
months ended June 30, 1998, and the financial position of the Predecessor as of
January 31, 1997 and 1998 and April 30, 1998, and the results of its operations
and its cash flows for each of the three years in the period ended January 31,
1998 and for the three months ended April 30, 1998, in conformity with generally
accepted accounting principles.
Portland, Oregon /s/ ARTHUR ANDERSEN LLP
September 18, 1998 (except with respect to
the matter discussed
in Note 14, as to which the
date is February 24, 1999)
F-2
<PAGE> 80
G.I. JOE'S, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
PREDECESSOR G.I. JOE'S, INC. G.I. JOE'S, INC.
------------------------------- ---------------- ----------------
JANUARY 31,
----------------- APRIL 30, JUNE 30, OCTOBER 31,
1997 1998 1998 1998 1998
------- ------- ----------- ---------------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash................................... $ -- $ -- $ -- $ -- $ --
Accounts and notes receivable.......... 302 264 235 260 362
Current portion of receivables from
officers and employees............... 48 49 39 9 10
Merchandise inventories................ 29,442 33,368 35,919 41,687 44,778
Prepaid expenses and other............. 1,236 873 613 1,371 1,629
Amounts held in escrow................. -- -- 5,002 819 787
------- ------- ------- ------- -------
Total current assets............ 31,028 34,554 41,808 44,146 47,566
PROPERTY AND EQUIPMENT, net.............. 17,393 18,531 7,255 8,545 7,781
CAPITALIZED LEASED PROPERTY AND
EQUIPMENT, net......................... 8,797 12,021 13,312 17,323 22,184
OTHER ASSETS:
Receivables from officers and
employees, net of current portion.... 583 631 449 250 246
Other, net............................. 726 802 1,252 1,702 5,512
------- ------- ------- ------- -------
Total other assets.............. 1,309 1,433 1,701 1,952 5,758
------- ------- ------- ------- -------
$58,527 $66,539 $64,076 $71,966 $83,289
======= ======= ======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Checks outstanding in excess of cash
deposits............................. $ 705 $ 618 $ 248 $ 522 $ 1,330
Current portion of long-term
obligations.......................... 1,194 1,560 1,089 1,102 1,447
Accounts payable....................... 9,641 11,665 14,787 17,219 18,581
Accrued payroll and related
liabilities.......................... 1,280 1,201 1,205 1,311 934
Deferred income taxes.................. -- -- -- 1,844 1,877
Other accrued liabilities.............. 3,285 3,983 2,922 3,905 2,904
------- ------- ------- ------- -------
Total current liabilities....... 16,105 19,027 20,251 25,903 27,073
REVOLVING LINE OF CREDIT................. 11,563 12,976 9,445 14,348 17,497
LONG-TERM DEBT, net of current portion... 9,758 10,532 948 900 800
CAPITAL LEASE OBLIGATIONS, net of current
portion................................ 11,308 14,584 15,874 15,728 20,467
NOTES PAYABLE............................ -- -- -- 474 851
DEFERRED GAIN ON SALE LEASEBACK.......... -- -- 18,363 -- --
DEFERRED INCOME TAXES.................... -- -- -- 2,624 2,648
PURCHASE OBLIGATION PAYABLE IN COMMON
STOCK.................................. -- -- -- -- 1,638
COMMITMENTS AND CONTINGENCIES (Note 10)
SHAREHOLDERS' EQUITY:
Preferred stock, no par value,
10,000,000 shares authorized, Series
A nonvoting redeemable preferred 0,
0, 0, 85,000 and 85,000 shares issued
and outstanding, $8,500 redemption
value................................ -- -- -- 7,887 7,887
Common stock, no par value, 50,000,000
shares authorized, 3,039,680,
3,039,680, 3,039,680, 4,464,103 and
4,464,103 shares issued and
outstanding.......................... 1,585 1,585 1,585 2,888 2,888
Warrants for common stock.............. -- -- -- 950 950
Additional paid-in capital............. 911 911 911 342 597
Retained earnings (accumulated
deficit)............................. 7,297 6,924 (3,301) (78) (7)
------- ------- ------- ------- -------
Total shareholders' equity...... 9,793 9,420 (805) 11,989 12,315
------- ------- ------- ------- -------
$58,527 $66,539 $64,076 $71,966 $83,289
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE> 81
G.I. JOE'S, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREDECESSOR G.I. JOE'S, INC. G.I. JOE'S, INC.
---------------------------------------------------------- ---------------- ----------------
THREE THREE TWO SIX
MONTHS MONTHS MONTHS MONTHS
JANUARY 31, ENDED ENDED ENDED ENDED
------------------------------ APRIL 30, APRIL 30, JUNE 30, OCTOBER 31,
1996 1997 1998 1997 1998 1998 1998
-------- -------- -------- ----------- ----------- ---------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
NET SALES............ $124,052 $128,112 $128,238 $24,013 $25,908 $23,461 $75,201
COST OF GOODS SOLD... 82,346 84,184 84,552 16,425 17,670 15,511 49,612
-------- -------- -------- ------- ------- ------- -------
Gross margin....... 41,706 43,928 43,686 7,588 8,238 7,950 25,589
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSE............ 37,154 37,976 39,528 8,717 9,755 7,264 23,086
OTHER INCOME
(EXPENSE):
Interest expense..... (4,331) (3,663) (3,542) (829) (971) (602) (1,885)
Interest income...... 605 51 65 7 9 -- 9
Gain on sale of real
estate............. 25 -- -- -- 640 -- --
-------- -------- -------- ------- ------- ------- -------
(3,701) (3,612) (3,477) (822) (322) (602) (1,876)
-------- -------- -------- ------- ------- ------- -------
INCOME (LOSS) BEFORE
TAXES AND EXTRA-
ORDINARY ITEM...... 851 2,340 681 (1,951) (1,839) 84 627
INCOME TAX
PROVISION.......... -- -- -- -- -- 34 251
-------- -------- -------- ------- ------- ------- -------
INCOME (LOSS) BEFORE
EXTRAORDINARY
ITEM............... 851 2,340 681 (1,951) (1,839) 50 376
EXTRAORDINARY ITEM:
Loss on early
extinguishment of
debt............... -- -- -- -- (2,220) -- --
-------- -------- -------- ------- ------- ------- -------
NET INCOME (LOSS).... 851 2,340 681 (1,951) (4,059) 50 376
Preferred
dividends.......... -- -- -- -- -- (128) (383)
-------- -------- -------- ------- ------- ------- -------
INCOME (LOSS)
ATTRIBUTABLE TO
COMMON
SHAREHOLDERS....... $ 851 $ 2,340 $ 681 $(1,951) $(4,059) $ (78) (7)
======== ======== ======== ======= ======= ======= =======
INCOME (LOSS) PER
SHARE BEFORE
EXTRAORDINARY ITEM
Basic.............. $ 0.28 $ 0.77 $ 0.22 $ (0.64) $ (0.60) $ (0.02) $ (0.00)
Diluted............ $ 0.26 $ 0.69 $ 0.20 $ (0.64) $ (0.60) $ (0.02) $ (0.00)
NET INCOME (LOSS) PER
SHARE
Basic.............. $ 0.28 $ 0.77 $ 0.22 $ (0.64) $ (1.34) $ (0.02) $ (0.00)
Diluted............ $ 0.26 $ 0.69 $ 0.20 $ (0.64) $ (1.34) $ (0.02) $ (0.00)
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 82
G.I. JOE'S, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
RETAINED
PREFERRED STOCK COMMON STOCK ADDITIONAL EARNINGS
--------------- ------------------- PAID-IN (ACCUMULATED)
SHARES AMOUNT SHARES AMOUNT WARRANTS CAPITAL DEFICIT) TOTAL
------ ------ ---------- ------ -------- ---------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 31, 1995
Predecessor................. 3,056,938 $1,594 $946 $ 4,914 $ 7,454
Acquisition of common
stock..................... (3,413) (2) (6) -- (8)
Dividends................... -- -- -- (484) (484)
Net income.................. -- -- -- 851 851
---------- ------ ---- ------- -------
BALANCE, January 31, 1996
Predecessor................. 3,053,525 1,592 940 5,281 7,813
Acquisition of common
stock..................... (13,845) (7) (29) -- (36)
Dividends................... -- -- -- (324) (324)
Net income.................. -- -- -- 2,340 2,340
---------- ------ ---- ------- -------
BALANCE, January 31, 1997
Predecessor................. 3,039,680 1,585 911 7,297 9,793
Dividends................... -- -- -- (1,054) (1,054)
Net income.................. -- -- -- 681 681
---------- ------ ---- ------- -------
BALANCE, January 31, 1998
Predecessor................. 3,039,680 1,585 911 6,924 9,420
Dividends................... -- -- -- (6,166) (6,166)
Net loss.................... -- -- -- (4,059) (4,059)
---------- ------ ---- ------- -------
BALANCE, April 30, 1998
Predecessor................. 3,039,680 $1,585 $911 $(3,301) $ (805)
========== ====== ==== ======= =======
=======================================================================================================================
BALANCE, May 1, 1998
G.I. Joe's, Inc............. 85,000 $7,887 4,464,103 $2,888 $950 $214 $ -- $11,939
Net income.................. -- -- -- -- -- -- 50 50
Dividends accrued but
undeclared................ -- -- -- -- -- 128 (128) --
------ ------ ---------- ------ ---- ---- ------- -------
BALANCE, June 30, 1998
G.I. Joe's, Inc............. 85,000 $7,887 4,464,103 $2,888 $950 $342 $ (78) $11,989
Net income.................. -- -- -- -- -- -- 326 326
Dividends accrued but
undeclared................ -- -- -- -- -- 255 (255) --
------ ------ ---------- ------ ---- ---- ------- -------
BALANCE, October 31, 1998
G.I. Joe's, Inc.
(unaudited)............... 85,000 $7,887 4,464,103 $2,888 $950 $597 $ (7) $12,315
====== ====== ========== ====== ==== ==== ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 83
G.I. JOE'S, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR G.I. JOE'S, INC. G.I. JOE'S, INC.
---------------------------------------------------- ---------------- ----------------
THREE THREE TWO SIX
MONTHS MONTHS MONTHS MONTHS
JANUARY 31, ENDED ENDED ENDED ENDED
-------------------------- APRIL 30, APRIL 30, JUNE 30, OCTOBER 31,
1996 1997 1998 1997 1998 1998 1998
------- ------ ------- ----------- --------- ---------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss)................. $ 851 $2,340 $ 681 $(1,951) $ (4,059) $ 50 $ 376
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities --
Extraordinary item:
Loss on early extinguishment of
debt.......................... -- -- -- -- 2,220 -- --
Gain on sale of property and
equipment..................... (25) -- -- -- (640) -- --
Depreciation and amortization... 2,481 2,472 2,366 573 604 378 1,368
Amortization of deferred gain on
sale leaseback................ -- -- -- -- (32) -- --
Forgiveness of officer
receivables................... -- -- -- -- 187 -- --
Change in deferred income
taxes......................... -- -- -- -- -- (36) 21
Changes in current assets and
liabilities:
Accounts and notes
receivable.................. 153 358 38 182 29 (25) (127)
Merchandise inventories....... (1,919) (481) (3,926) 805 (2,551) (757) (3,812)
Prepaid expenses and other.... (26) (129) 363 (6) 260 (735) (1,721)
Accounts payable and accrued
liabilities................. 879 (3,266) 1,959 (268) 2,779 3,278 2,952
------- ------ ------- ------- -------- ------- -------
Net cash provided by (used in)
operating activities........ 2,394 1,294 1,481 (665) (1,203) 2,153 (943)
------- ------ ------- ------- -------- ------- -------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Additions to property and
equipment....................... (1,668) (2,292) (2,491) (199) (90) (896) (1,754)
Proceeds from sale of property and
equipment, net.................. 82 -- -- -- 25,057 -- 1,463
Increase in deposits and other
assets.......................... (238) (71) (196) (75) (768) (77) (508)
Business acquisition.............. -- -- -- -- -- -- (450)
Increase in receivables from
officers, employees and
others.......................... (315) (94) (86) (38) -- -- (100)
Payments received on receivables
from officers and employees..... 5,439 227 37 2 5 -- 3
------- ------ ------- ------- -------- ------- -------
Net cash provided by (used in)
investing activities........ 3,300 (2,230) (2,736) (310) 24,204 (973) (1,346)
------- ------ ------- ------- -------- ------- -------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Change in checks outstanding in
excess of cash deposits......... (1,027) 705 (87) (705) (370) 274 1,082
Net borrowings (repayments) on
revolving line of credit........ (2,062) 843 1,413 2,765 (3,531) (1,273) 1,876
Borrowings on long-term debt...... 6,300 1,100 4,525 -- -- -- --
Payments on long-term debt........ (7,725) (291) (3,372) (90) (10,054) (48) (212)
Payments on capital lease
obligations..................... (896) (883) (854) (202) (226) (133) (457)
Prepayment penalties due to early
extinguishment of debt.......... -- -- -- -- (1,940) -- --
Acquisition of common stock....... (8) (36) -- -- -- -- --
Cash dividends.................... (160) (618) (370) (147) (6,880) -- --
------- ------ ------- ------- -------- ------- -------
Net cash provided by (used in)
financing activities........ (5,578) 820 1,255 1,621 (23,001) (1,180) 2,289
------- ------ ------- ------- -------- ------- -------
NET INCREASE (DECREASE) IN CASH..... 116 (116) -- 646 -- -- --
CASH, beginning of period........... -- 116 -- -- -- -- --
------- ------ ------- ------- -------- ------- -------
CASH, end of period................. $ 116 $ -- $ -- $ 646 $ -- $ -- $ --
======= ====== ======= ======= ======== ======= =======
SUPPLEMENTAL CASH FLOW
INFORMATION --
Cash paid for interest............ $ 4,297 $3,662 $ 3,559 $ 906 $ 897 $ 602 $ 1,885
NONCASH TRANSACTIONS:
Additions of capital leases for
property and equipment.......... -- 268 4,117 -- 1,515 -- 5,408
Applied deposits to purchase
options of leased equipment..... -- 108 -- -- -- -- --
Dividends declared but unpaid..... 324 30 714 -- -- 128 383
Sale of property in exchange for
note receivable................. 211 -- -- -- -- -- --
Proceeds from sale of property
held in escrow.................. -- -- -- -- 5,002 -- --
Deferred gain on sale of property
and equipment................... -- -- -- -- 18,395 -- --
Write-off of unamortized loan
fees............................ -- -- -- -- 280 -- --
Business Acquisition:
Liabilities assumed in business
acquisition................... -- -- -- -- -- -- 896
Purchase obligation payable in
Common Stock.................. -- -- -- -- -- -- 1,638
Goodwill........................ -- -- -- -- -- -- 750
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 84
G.I. JOE'S, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1997, JANUARY 31, 1998, APRIL 30, 1998 AND JUNE 30, 1998
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
AND AS OTHERWISE INDICATED)
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company
G.I. Joe's, Inc. (the "Company") was founded in 1952 by Edward Orkney as a
government surplus store, and evolved over the years into a mass merchandiser.
By 1995, under the direction of Norman Daniels, the Company's current Chairman
of the Board, President and Chief Executive Officer, the Company had streamlined
its product offerings to focus on sports and automotive merchandise, its
best-selling product lines. The Company currently has 16 stores in Oregon and
Washington, and also maintains a corporate office and operates an attached
150,000 square foot distribution center at its headquarters location in
Wilsonville, Oregon. In addition, the Company sells tickets to all major
entertainment and sporting events through TicketMaster outlets located in all of
its retail locations. TicketMaster-Oregon, which has entered into an operating
agreement with TicketMaster Northwest to operate TicketMaster outlets in Oregon,
includes officers and former officers of the Company. Ticket sales are made on
behalf of, or for the benefit of, related parties and are not a direct
revenue-producing activity of the Company. (See Note 12 for further discussion
of TicketMaster-Oregon).
Reorganization and Prior S Corporation Status
A majority of the Company's capital stock was owned by David Orkney, the
founder's son and a Director of the Company. On May 5, 1998, the Company
redeemed all of the Company's outstanding capital stock and options, other than
shares held by Mr. Daniels and two minority shareholders, for an aggregate
consideration of approximately $20,500 (the "Redemption"). In connection with
the Redemption, the Company granted David Orkney a warrant to purchase 5% of the
Company's Common Stock outstanding on the date of exercise at a purchase price
equal to 70% of the fair market value of the Common Stock on such date (the
"Orkney Warrant") (see Note 14).
The Company financed the Redemption with the proceeds from the sale of its
owned real estate and the sale of $9,500 of subordinated notes of the Company to
investors (the "Investors"). Following the Redemption, Mr. Daniels exchanged his
common stock in the Company for all the common stock of ND Holdings, Inc., an
Oregon corporation ("Holdings"), which resulted in the Company becoming a
subsidiary of Holdings. In addition, holders of the Company's subordinated notes
exchanged their notes for preferred stock, common stock and warrants to purchase
common stock of Holdings (the "Exchange"). Following the Redemption and the
Exchange, Mr. Daniels and the Investors owned 54% and 46%, respectively, of the
common stock of Holdings, on a fully-diluted basis, and the Investors owned all
of the outstanding preferred stock of Holdings.
In July 1998, Holdings merged with and into the Company, with the Company
being the surviving corporation (the "Merger"). In the Merger, all preferred
shareholders of Holdings received shares of preferred stock of the Company, and
all common shareholders and warrant holders of Holdings received 4,461,227
shares of the Company's Common Stock. Following the Merger, there were 85,000
outstanding shares of the Company's Series A Non-Voting Redeemable Preferred
Stock, all of which shares are redeemable with approximately $8,500 of the
proceeds from an initial public offering, and 4,464,103 outstanding shares of
the Company's Common Stock.
The Redemption, the Exchange and the Merger are a series of planned
transactions (the "Reorganization") executed to consummate the acquisition of
the Company. Accordingly, this series of transactions has been reflected as if
they occurred on May 1, 1998. The financial statements with respect to periods
prior to May 1, 1998 reflect the financial position and results of operations of
the Company prior to the Reorganization (the "Predecessor").
F-7
<PAGE> 85
G.I. JOE'S, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997, JANUARY 31, 1998, APRIL 30, 1998 AND JUNE 30, 1998
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
AND AS OTHERWISE INDICATED)
The acquisition was accounted for as a purchase. The total purchase price
was comprised of cash of $20,500, common stock valued at $1,888, the Orkney
Warrant valued at $950, forgiveness of loans of $132 (see Note 5), and $475 of
fees and expenses related to the acquisition. The aggregate consideration has
been allocated to the assets of the Company, based on fair market value. The
excess of the purchase price over the assets acquired and liabilities assumed
was allocated as follows:
<TABLE>
<S> <C>
Inventory.................................................. $ 5,011
Property................................................... 572
Capitalized leased property and equipment.................. 4,209
Goodwill................................................... 887
-------
$10,679
=======
</TABLE>
The following unaudited pro forma financial information has been prepared
based upon the historical financial statements of the Company as if the
acquisition had occurred at the beginning of the respective periods.
<TABLE>
<CAPTION>
FOR THE NINE
FOR THE YEAR ENDED MONTHS
JANUARY 31, ENDED OCTOBER 31,
1998 1998
------------------ -------------------
<S> <C> <C>
Net sales................................ $128,238 $101,109
Net loss attributable to common
shareholders........................... (1,941) (1,697)
Basic net loss per share................. (0.43) (0.38)
Diluted net loss per share............... (0.43) (0.38)
</TABLE>
Prior to the Exchange, the Company was treated for federal and state income
tax purposes as an S Corporation under Subchapter S of the Internal Revenue Code
of 1986, as amended (the "Code"), and comparable state laws. Upon the Exchange,
the Company's S Corporation status was terminated and, accordingly, the Company
is fully subject to federal and state income taxes on its earnings. See also
"Income Taxes" below.
Use of 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 amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Company's financial instruments consist of accounts and notes
receivable and debt instruments. For the periods presented, the fair value of
the Company's receivables and debt under the loan and security agreement
approximated the carrying value.
Advertising
Advertising costs are expensed as incurred. The Company has cooperative
advertising arrangements with certain vendors whereby the vendors will reimburse
the Company for advertising their products. Cooperative advertising funds are
accounted for as a reduction in advertising expense. For the fiscal years ended
F-8
<PAGE> 86
G.I. JOE'S, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997, JANUARY 31, 1998, APRIL 30, 1998 AND JUNE 30, 1998
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
AND AS OTHERWISE INDICATED)
January 31, 1996, 1997 and 1998 and for the three months ended April 30, 1998
and the two months ended June 30, 1998, advertising costs were $4,963, $3,828,
$4,498, $890 and $756, respectively.
Property and Equipment
The Financial Accounting Standards Board has issued SFAS 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," which establishes criteria for measuring impairment losses of long-lived
assets and determining when such losses should be recognized. In fiscal year
1997, the Company adopted SFAS 121, with no effect on its financial position or
results of operations.
Property and equipment are recorded at cost. Additions and improvements,
including interest costs incurred during construction, are capitalized, whereas
maintenance and repairs are charged to expense as incurred.
Revenue Recognition
Revenues are recorded at the time of sale of merchandise to customers.
Capitalized Leased Property and Equipment
Capitalized leased property and equipment are recorded at the lesser of the
present value of minimum lease payments or the fair value of the leased
property.
Depreciation and Amortization
Depreciation of property and equipment is computed using the straight-line
method over the estimated useful lives of the assets. Leasehold improvements are
amortized on the straight-line method over the shorter of the remaining lease
period or the estimated useful life of the asset. Capital leases are amortized
using the straight-line method over the shorter of the estimated useful lives of
the leased assets or primary terms of the leases. The estimated useful lives of
property and equipment are as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings............................................ 20-40
Fixtures & equipment................................. 3-10
Leasehold improvements............................... 10-25
</TABLE>
Sale-Leaseback Transaction
The Company entered into a sale-leaseback transaction totaling $31,200 in
April 1998, relating to 5 store locations and the Company's distribution center.
The net gain of $18,395 was deferred and was being amortized over the applicable
leaseback period. In conjunction with the acquisition, the deferred amount was
reduced to zero. The leases for the distribution center and four of the five
store locations are operating leases and the lease for the remaining store
location is a capital lease.
Goodwill
Goodwill is the excess of the purchase price paid over the value of net
assets acquired. Amortization expense is calculated on a straight-line basis
over forty years. The carrying value of goodwill is reviewed quarterly if the
facts and circumstances suggest that it may be permanently impaired. If the
review indicates that goodwill will not be recoverable, as determined by the
undiscounted cash flow method, the asset will be
F-9
<PAGE> 87
G.I. JOE'S, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997, JANUARY 31, 1998, APRIL 30, 1998 AND JUNE 30, 1998
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
AND AS OTHERWISE INDICATED)
reduced to its estimated recoverable value. Goodwill is included in other
long-term assets in the accompanying balance sheet as of June 30, 1998.
Income Taxes
Prior to the Exchange, the Company was treated for federal and state income
tax purposes as an S Corporation under Subchapter S of the Internal Revenue Code
of 1986, as amended (the "Code"), and comparable state laws. As a result, the
earnings of the Company prior to the Exchange were included in the taxable
income of the Company's shareholders at their individual federal and state
income tax rates, rather than that of the Company. Upon the Exchange, the
Company's S Corporation status was terminated and, accordingly, the Company is
fully subject to federal and state income taxes on its earnings.
In connection with the Redemption and Exchange, the Company established a
net deferred tax liability of $4,504 using the asset and liability method.
Under the asset and liability method, deferred income tax assets and
liabilities 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 bases. Deferred income 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 income tax assets and liabilities
of changes in tax rates is recognized in income in the period that includes the
enactment date.
Computation of Per Share Amounts
Basic earnings per share (EPS) and diluted EPS are computed using the
methods prescribed by Statement of Financial Accounting Standard No. 128,
Earnings per Share (SFAS 128). Basic EPS is calculated using the weighted
average number of common shares outstanding for the period and diluted EPS is
computed using the weighted average number of common shares and dilutive common
equivalent shares outstanding. Following is a reconciliation of basic EPS and
diluted EPS (all share amounts in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
---------------------------------------------------------------------------------------
1996 1997 1998
--------------------------- --------------------------- ---------------------------
PER SHARE PER SHARE PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------ ------ --------- ------ ------ --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS:
Income available to Common
Shareholders.............. $851 3,057 $0.28 $2,340 3,049 $0.77 $681 3,040 $0.22
===== ===== =====
Effect of Dilutive
Securities:
Stock Options............... -- 176 -- 332 -- 429
---- ----- ------ ----- ---- -----
Diluted EPS:
Income available to Common
Shareholders.............. $851 3,233 $0.26 $2,340 3,381 $0.69 $681 3,469 $0.20
===== ===== =====
</TABLE>
F-10
<PAGE> 88
G.I. JOE'S, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997, JANUARY 31, 1998, APRIL 30, 1998 AND JUNE 30, 1998
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
AND AS OTHERWISE INDICATED)
<TABLE>
<CAPTION>
PERIOD ENDED APRIL 30, PERIOD ENDED APRIL 30, PERIOD ENDED JUNE 30,
1997 1998 1998
---------------------------- ---------------------------- ---------------------------
PER SHARE PER SHARE INCOME PER SHARE
LOSS SHARES AMOUNT LOSS SHARES AMOUNT (LOSS) SHARES AMOUNT
------- ------ --------- ------- ------ --------- ------ ------ ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net Income (Loss)........... $(1,951) $(4,059) $ 50
Preferred Dividends......... -- -- (128)
------- ------- ------
Loss attributable to Common
Shareholders.............. $(1,951) 3,040 $(0.64) $(4,059) 3,040 $(1.34) $ (78) 4,464 $(0.02)
====== ====== ======
Effect of Dilutive
Securities:
Stock Options and
Warrants.................. -- -- -- -- -- --
------- ----- ------- ----- ------ ------
Diluted EPS:
Loss attributable to Common
Shareholders.............. $(1,951) 3,040 $(0.64) $(4,059) 3,040 $(1.34) $ (78) 4,464 $(0.02)
====== ====== ======
<CAPTION>
PERIOD ENDED OCTOBER 31,
1998
---------------------------
INCOME PER SHARE
(LOSS) SHARES AMOUNT
------ ------ ---------
(UNAUDITED)
<S> <C> <C> <C>
Basic EPS:
Net Income (Loss)........... $ 376
Preferred Dividends......... (383)
-----
Loss attributable to Common
Shareholders.............. $ (7) 4,464 $(0.00)
======
Effect of Dilutive
Securities:
Stock Options and
Warrants.................. -- -- --
----- ------ ------
Diluted EPS:
Loss attributable to Common
Shareholders.............. $ (7) 4,464 $(0.00)
======
</TABLE>
Reclassifications
Certain amounts in the prior year financial statements have been
reclassified to conform to current year presentation.
Interim Financial Statements
The accompanying interim financial statements of the Company for the
three-month period ended April 30, 1997 and for the six-month period ended
October 31, 1998 have been prepared by the Company without audit. Certain
information and footnote disclosures normally included in financial statements
presented in accordance with generally accepted accounting principles have been
condensed or omitted for these periods. G.I. Joe's, Inc. believes the
disclosures made are adequate to make the information presented not misleading.
However, the interim financial statements should be read in conjunction with the
financial statements and notes thereto.
In the opinion of G.I. Joe's, Inc., the accompanying unaudited financial
statements reflect all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position of G.I. Joe's,
Inc. as of April 30, 1997 and October 31, 1998 and the results of operations and
cash flows for the three months ended April 30, 1997 and for the six months
ended October 31, 1998. Interim results are not necessarily indicative of fiscal
year performance because of the impact of seasonal and short-term variations.
Recent Accounting Pronouncements
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130 "Reporting Comprehensive Income" ("SFAS 130"). This statement
establishes standards for reporting and displaying comprehensive income and its
components in a full set of general purpose financial statements. The objective
of SFAS 130 is to report a measure of all changes in equity of an enterprise
that result from transactions and other economic events of the period other than
transactions with owners. The Company adopted SFAS 130 during the first quarter
of fiscal 1999. Comprehensive loss did not differ from currently reported net
loss in the periods presented.
Effective in its fiscal year ending January 31, 1999, the Company will be
required to adopt SFAS No. 131 "Disclosures about Segments of an Enterprise and
Related Information." SFAS No. 131 changes current practice under SFAS No. 14 by
establishing a new framework on which to base segment reporting (referred to as
the "management" approach) and also requires interim reporting of segment
information. Management
F-11
<PAGE> 89
G.I. JOE'S, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997, JANUARY 31, 1998, APRIL 30, 1998 AND JUNE 30, 1998
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
AND AS OTHERWISE INDICATED)
does not expect that the impact of adoption of this pronouncement will be
material to the Company's financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for all derivative instruments.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. The
Company currently has no derivative instruments and, therefore, the adoption of
SFAS No. 133 will have no impact on the Company's financial position or results
of operations.
2. MERCHANDISE INVENTORIES:
Substantially all of the Company's inventories are determined using the
retail last-in, first-out (LIFO) inventory valuation method. Vendor discounts on
inventory are accounted for as a reduction in inventory cost. Merchandise
inventories are summarized as follows:
<TABLE>
<CAPTION>
PREDECESSOR G.I. JOE'S, INC.
------------------------------- ----------------
JANUARY 31,
------------------ APRIL 30, JUNE 30,
1997 1998 1998 1998
------- ------- --------- ----------------
<S> <C> <C> <C> <C>
Inventories at retail cost..................... $36,231 $39,686 $42,131 $41,687
Less -- LIFO reserve........................... (6,789) (6,318) (6,212) --
------- ------- ------- -------
$29,442 $33,368 $35,919 $41,687
======= ======= ======= =======
</TABLE>
During fiscal years 1996, 1997 and 1998, certain inventory quantities were
reduced, resulting in a liquidation of LIFO inventory quantities carried at
lower costs than prevailing in prior years as compared with the cost of
purchases. The effect of these liquidations was to increase net income by
approximately $146, $190 and $98 for the years ended January 31, 1996, 1997 and
1998, respectively. For the three months ended April 30, 1998 and the two months
ended June 30, 1998, the effect of liquidation of LIFO inventory quantities on
net income was not material.
F-12
<PAGE> 90
G.I. JOE'S, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997, JANUARY 31, 1998, APRIL 30, 1998 AND JUNE 30, 1998
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
AND AS OTHERWISE INDICATED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
PREDECESSOR G.I. JOE'S, INC.
--------------------------------- ----------------
JANUARY 31,
-------------------- APRIL 30, JUNE 30,
1997 1998 1998 1998
-------- -------- --------- ----------------
<S> <C> <C> <C> <C>
Property and equipment used in operations --
Land...................................... $ 2,871 $ 2,940 $ -- $ --
Buildings................................. 11,089 11,370 -- --
Fixtures and equipment.................... 9,401 8,969 8,857 2,646
Leasehold improvements.................... 4,238 5,416 4,134 2,942
Construction in progress.................. 80 111 81 973
-------- -------- ------- ------
27,679 28,806 13,072 6,561
Less -- Accumulated depreciation and
amortization.............................. (12,979) (12,877) (7,405) (178)
-------- -------- ------- ------
Net property and equipment used in
operations...................... 14,700 15,929 5,667 6,383
-------- -------- ------- ------
Property held for future development or
sale:
Land...................................... 2,071 2,010 1,588 2,162
Buildings................................. 1,058 1,007 -- --
-------- -------- ------- ------
3,129 3,017 1,588 2,162
Less -- Accumulated depreciation............ (436) (415) -- --
-------- -------- ------- ------
Net property held for future
development or sale............. 2,693 2,602 1,588 2,162
-------- -------- ------- ------
$ 17,393 $ 18,531 $ 7,255 $8,545
======== ======== ======= ======
</TABLE>
4. CAPITALIZED LEASED PROPERTY AND EQUIPMENT:
Capitalized leased property and equipment consist of the following:
<TABLE>
<CAPTION>
G.I. JOE'S,
PREDECESSOR INC.
--------------------------------- ----------------
JANUARY 31,
-------------------- APRIL 30, JUNE 30,
1997 1998 1998 1998
-------- -------- --------- ----------------
<S> <C> <C> <C> <C>
Buildings.................................. $ 15,223 $ 19,132 $ 19,899 $17,308
Fixtures and equipment..................... 6,790 6,645 6,645 213
-------- -------- -------- -------
22,013 25,777 26,544 17,521
Less -- Accumulated amortization........... (13,216) (13,756) (13,232) (198)
-------- -------- -------- -------
$ 8,797 $ 12,021 $ 13,312 $17,323
======== ======== ======== =======
</TABLE>
5. RECEIVABLES FROM OFFICERS AND EMPLOYEES:
Receivables from officers include loans made by the Company to four current
and former officers at interest rates that approximate market rates. They also
include advances, at market rates, made to a partnership comprised of former
officers and shareholders of the Company. Receivables from employees consist
mainly of advances made by the Company to facilitate employee relocations.
Interest income earned on these receivables was $588, $46, $48, $9 and $0 for
the years ended January 31, 1996, 1997 and 1998 and for the three months ended
April 30, 1998 and the two months ended June 30, 1998, respectively.
F-13
<PAGE> 91
G.I. JOE'S, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997, JANUARY 31, 1998, APRIL 30, 1998 AND JUNE 30, 1998
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
AND AS OTHERWISE INDICATED)
In 1994, the Company advanced amounts to the partnership referred to above
for bridge financing for two retail sites owned by the partnership which are
leased to and operated by the Company. In fiscal years 1997 and 1998, and the
three months ended April 30, 1998, $31, $34 and $9, including principal and
interest, of these advances were repaid to the Company, respectively. In May
1998, in conjunction with the termination of their employment, two officers of
the Company repaid the principal and interest on their loans totaling $99. The
outstanding balance of the partnership at January 31, 1997, January 31, 1998,
April 30, 1998 and June 30, 1998 was $251, $243, $240, and $240, respectively.
In April 1998, the Company awarded a bonus to one officer which was paid by
forgiving all principal and interest owed by the officer of approximately $187.
In May 1998, in connection with the Redemption and Exchange the Company
forgave all principal and interest owed by one officer of the Company, who was a
selling shareholder, totaling approximately $132. This forgiveness was
considered a part of the purchase price in connection with the acquisition of
the Company. (See Note 1.)
Outstanding receivables from current and former officers and employees are
as follows:
<TABLE>
<CAPTION>
G.I. JOE'S,
PREDECESSOR INC.
------------------------- -----------
JANUARY 31,
------------ APRIL 30, JUNE 30,
1997 1998 1998 1998
---- ---- --------- -----------
<S> <C> <C> <C> <C>
Officers.............................................. $612 $660 $469 $240
Employees............................................. 19 20 19 19
---- ---- ---- ----
631 680 488 259
Less -- Current portion............................... (48) (49) (39) (9)
---- ---- ---- ----
$583 $631 $449 $250
==== ==== ==== ====
</TABLE>
6. OTHER ACCRUED LIABILITIES:
Other accrued liabilities consist of the following:
<TABLE>
<CAPTION>
PREDECESSOR G.I. JOE'S, INC.
----------------------------- -----------------
JANUARY 31,
---------------- APRIL 30, JUNE 30,
1997 1998 1998 1998
------ ------ --------- -----------------
<S> <C> <C> <C> <C>
Amounts due to TicketMaster.................... $1,597 $1,399 $1,133 $1,671
Unredeemed customer gift certificates.......... 835 973 893 873
Other.......................................... 853 1,611 896 1,361
------ ------ ------ ------
$3,285 $3,983 $2,922 $3,905
====== ====== ====== ======
</TABLE>
F-14
<PAGE> 92
G.I. JOE'S, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997, JANUARY 31, 1998, APRIL 30, 1998 AND JUNE 30, 1998
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
AND AS OTHERWISE INDICATED)
7. LONG-TERM DEBT:
Following is a summary of long-term debt:
<TABLE>
<CAPTION>
PREDECESSOR G.I. JOE'S, INC.
------------------------------- -----------------
JANUARY 31,
------------------ APRIL 30, JUNE 30,
1997 1998 1998 1998
------- ------- --------- -----------------
<S> <C> <C> <C> <C>
Term loan, prime plus .25%, payable $6
monthly plus interest, matures August 1999
with final payment of $1,027............... $ 1,100 $ 1,033 $ -- $ --
Term loan, 8.80%, payable $33 monthly
including interest, matures 2001........... -- 1,293 1,246 1,198
Revolving line of credit facility, prime plus
.25%, balance refinanced in March 1998..... 11,563 12,976 -- --
Revolving line of credit facility, reference
rate plus .50%, due March 2001............. -- -- 9,445 14,348
Mortgage notes:
8.63%, payable $12 monthly including
interest, matures 2011..................... 1,193 1,185 -- --
8.63%, payable $21 monthly including
interest, matures 2011..................... 1,794 1,974 -- --
8.30%, payable $22 monthly including
interest, fully amortizing, matures 2010... 2,205 2,116 -- --
7.96%, payable $38 monthly including
interest, fully amortizing, matures 2011... 3,855 3,699 -- --
------- ------- ------- -------
21,710 24,276 10,691 15,546
Less -- Current portion...................... (389) (768) (298) (298)
------- ------- ------- -------
$21,321 $23,508 $10,393 $15,248
======= ======= ======= =======
</TABLE>
On March 10, 1998, the Company entered into a $20,000, three-year loan and
security agreement with Foothill Capital Corporation (Foothill) to replace its
existing revolving line of credit facility and term loan. Amounts available
under this line of credit facility are the lesser of $20,000, or an amount
calculated as the sum of 60% of eligible FIFO inventory, as defined, less
specified reserves and the aggregate amount of all undrawn outstanding letters
of credit. Interest is payable at the bank's reference rate plus .50% (9% at
June 30, 1998). Letters of credit are issuable against the revolving line of
credit up to a maximum of the lesser of $1,000 or available borrowings under the
revolving line of credit facility.
Borrowings outstanding under the Foothill loan and security agreement are
secured by all of the assets of the Company, including receivables, inventory,
and property and equipment. The loan and security agreement contain restrictive
covenants relating to minimum levels of EBITDA and net worth, and restrictions
on dividend payments and capital expenditures. The Company was in compliance
with these covenants at June 30, 1998.
During the three months ended April 30, 1998, the Company used the proceeds
from the sale of certain properties to pay-off certain mortgages and other
long-term debt prior to maturity. This resulted in an extraordinary charge of
$2,220 ($0.55 per diluted share).
F-15
<PAGE> 93
G.I. JOE'S, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997, JANUARY 31, 1998, APRIL 30, 1998 AND JUNE 30, 1998
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
AND AS OTHERWISE INDICATED)
Principal payment requirements on long-term debt after June 30, 1998 are as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING JANUARY 31,
------------------------------
<S> <C>
1999(for the remaining 7 months)............................ $ 203
2000........................................................ 324
2001........................................................ 352
2002........................................................ 14,667
-------
$15,546
=======
</TABLE>
8. SHAREHOLDERS' EQUITY:
Common Stock
In the fiscal year ended January 31, 1998, the Company declared a 10-for-1
stock split of its common stock effective April 15, 1997 and in the fiscal year
ending January 31, 1999, the Company declared a 2.5567-for-1 stock split of its
common stock effective in July 1998 and a 3-for-4 reverse stock split of its
Common Stock effective in January 1999. All share and per share amounts have
been retroactively restated for the stock splits.
Redeemable Preferred Stock
In connection with the Redemption, Exchange and Merger, the Company
authorized 10,000,000 shares of preferred stock without par value. Of the total
authorized shares, 85,000 shares were issued. These shares designated as Series
A Non-Voting Preferred Stock (Preferred Stock), are non-voting and have a
redemption price equal to the original issue price of $100 per share, together
with any accrued and unpaid dividends thereon. The Preferred Stock is redeemable
upon the completion of an initial public offering of the Company's common stock
in which the aggregate offering proceeds to the Company are not less than
$12,000.
The net proceeds received have been classified as Preferred Stock on the
Company's balance sheet. The difference between the stated value and the
carrying amount represents the fair value of warrants issued to the holders of
Preferred Stock. This difference will be accreted to the Preferred Stock upon
redemption with a corresponding charge to retained earnings (accumulated
deficit).
Dividends on the Preferred Stock are due at a rate of 9% of the original
issue price per share, payable when, as and if declared by the Board of
Directors. Accrued but undeclared dividends totaled $128 for the two months
ended June 30, 1998. No dividends have been paid by the Company.
The Preferred Stock has liquidation preferences over any other class of
preferred stock and the common stock. The Preferred Stock is nonconvertible and
has a liquidation value equal to the original issue price of $100 per share plus
any accrued and unpaid dividends.
F-16
<PAGE> 94
G.I. JOE'S, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997, JANUARY 31, 1998, APRIL 30, 1998 AND JUNE 30, 1998
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
AND AS OTHERWISE INDICATED)
9. INCOME TAXES
The provision for income taxes for the two months ended June 30, 1998 is as
follows:
<TABLE>
<S> <C>
Current
Federal................................................... $ 58
State..................................................... 12
----
70
Deferred.................................................... (36)
----
Total............................................. $ 34
====
</TABLE>
Total deferred income tax assets were $246 and liabilities were $4,714 at
June 30, 1998. Individually significant temporary differences, which are
primarily a result of the purchase accounting treatment for the Redemption and
Exchange and the allocation of excess purchase price to the fair value of assets
and liabilities, are as follows at June 30, 1998:
<TABLE>
<S> <C>
Inventory (including unicap)................................ $(1,844)
Fixed Assets................................................ (2,709)
Other....................................................... 85
-------
$(4,468)
=======
</TABLE>
The Company's deferred tax assets are realizable as a result of past and
future income, therefore, a valuation allowance is not considered necessary.
The difference between the effective tax rate of 40% and the statutory
federal income tax rate of 34% is a result of state income taxes.
10. COMMITMENTS AND CONTINGENCIES:
Operating Leases
The Company leases certain retail store facilities, fixtures and equipment
under operating leases. The real estate leases generally range in terms from 15
to 20 years with renewal options from 5 to 10 years. Certain real estate leases,
with terms of 25 years, are leased from a partnership made up of current and
former officers and stockholders of the Company. Rental expense incurred on
operating leases was $1,636, $1,767 and $1,909 for the years ended January 31,
1996, 1997 and 1998, respectively, and $618 and $888 for the three months ended
April 30, 1998 and the two months ended June 30, 1998, respectively. These
amounts include rental expense incurred on leases from related parties of $403,
$415 and $314 for the years ended January 31, 1996, 1997 and 1998, respectively,
and $61 and $40 for the three months ended April 30, 1998 and the two months
ended June 30, 1998, respectively. The Company also incurs other direct rental
costs associated with its operating leases, principally real estate taxes and
insurance.
F-17
<PAGE> 95
G.I. JOE'S, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997, JANUARY 31, 1998, APRIL 30, 1998 AND JUNE 30, 1998
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
AND AS OTHERWISE INDICATED)
Future minimum rental commitments after June 30, 1998 for all noncancelable
operating leases are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING JANUARY 31,
------------------------------
<S> <C>
1999 (for the remaining 7 months).......................... $ 2,770
2000....................................................... 4,486
2001....................................................... 4,301
2002....................................................... 4,239
2003....................................................... 4,221
Thereafter................................................. 45,203
-------
$65,220
=======
</TABLE>
Capital Leases
Capital leases for retail store facilities and equipment range in terms
from 5 to 30 years with renewal options on certain leases to 70 years.
Future minimum lease payments under capital leases as of June 30, 1998 are
as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING JANUARY 31,
------------------------------
<S> <C>
1999 (for the remaining 7 months).......................... $ 1,585
2000....................................................... 2,639
2001....................................................... 2,572
2002....................................................... 2,516
2003....................................................... 2,292
Thereafter................................................. 23,923
--------
Total minimum lease payments..................... 35,527
Less -- Amount representing interest (at a weighted average
interest rate of 11.4%).................................. (18,995)
--------
Present value of minimum lease payments.................... 16,532
Less -- Current portion.................................... (804)
--------
$ 15,728
========
</TABLE>
The Company pays contingent rentals based on sales volume for certain of
its retail store facilities under capital leases. Total contingent rentals were
$198, $218 and $200 in fiscal years 1996, 1997 and 1998. Total contingent
rentals were $5 and $23 for the three months ended April 30, 1998 and the two
months ended June 30, 1998, respectively. The Company also incurs other direct
expenses for its capital leases, principally real estate taxes and insurance.
Included in total capital lease obligations is $4,154, $4,086, $4,067 and
$4,055 at January 31, 1997, January 31, 1998, April 30, 1998 and June 30, 1998,
respectively, payable to a partnership comprised of current and former officers
and shareholders of the Company.
Contingencies
From time to time the Company has been, and expects to continue to be,
subject to legal proceedings and claims in the ordinary course of its business,
including claims related to employment practices, claims for personal injury and
claims arising out of alleged defects in the merchandise sold by the Company.
The
F-18
<PAGE> 96
G.I. JOE'S, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997, JANUARY 31, 1998, APRIL 30, 1998 AND JUNE 30, 1998
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
AND AS OTHERWISE INDICATED)
liability, if any, associated with these matters was not determinable at June
30, 1998. It is the opinion of management that the ultimate resolution of these
claims will not have a materially adverse effect on the Company's financial
position or results of operations.
11. PENSION AND OTHER POST-RETIREMENT PLANS:
Defined Benefit Pension Plan
Full-time employees who have attained the age of 21 and have completed one
year of service are covered under a Company sponsored defined benefit pension
plan (the Plan). The Plan provides benefits based on participants' years of
service and compensation. The Company funds at least the minimum annual
contribution required by the Employee Retirement Income Security Act of 1974.
The following table sets forth the funded status of the Plan:
<TABLE>
<CAPTION>
PREDECESSOR
-----------------------------
JANUARY 31,
----------------- APRIL 30,
1997 1998 1998
------- ------- ---------
<S> <C> <C> <C>
Accumulated benefit obligations:
Vested.................................................... $(3,857) $(5,287) $(5,287)
Nonvested................................................. (286) (333) (333)
------- ------- -------
(4,143) (5,620) (5,620)
Projected benefit obligation................................ (5,258) (6,591) (6,591)
Plan assets at fair value................................... 5,054 5,756 5,756
------- ------- -------
Projected benefit obligation in excess of plan assets....... (204) (835) (835)
Unrecognized prior service cost............................. (1,020) (933) (933)
Unrecognized net obligation at February 1, 1987 being
recognized over 15 years.................................. 144 115 115
Unrecognized net loss from past experience different from
that assumed and effects from changes in assumptions...... 611 1,032 1,032
------- ------- -------
Accrued pension cost........................................ $ (469) $ (621) $ (621)
======= ======= =======
</TABLE>
In connection with the Merger and Exchange, and in accordance with APB 16,
the Company recorded an additional accrued pension cost of $214 in order to
record the projected benefit obligation in excess of plan assets at May 1, 1998.
This represents the projected benefit obligation in excess of plan assets as of
the most recent actuarial valuation received by the Company.
Net pension expense included the following components:
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------------
THREE
MONTHS
JANUARY 31, ENDED
--------------------- APRIL 30,
1996 1997 1998 1998
----- ----- ----- ---------
<S> <C> <C> <C> <C>
Service cost -- benefits earned during the period...... $ 233 $ 236 $ 289 $ 88
Interest cost on projected benefit obligations......... 354 363 429 127
Actual return on plan assets........................... (863) (553) (786) (136)
Net amortization and deferral.......................... 525 108 293 (4)
----- ----- ----- -------
Net periodic pension cost.............................. $ 249 $ 154 $ 225 $ 75
===== ===== ===== =======
</TABLE>
F-19
<PAGE> 97
G.I. JOE'S, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997, JANUARY 31, 1998, APRIL 30, 1998 AND JUNE 30, 1998
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
AND AS OTHERWISE INDICATED)
Rates used in determining the actuarial present value of the projected
benefit obligation were as follows:
<TABLE>
<CAPTION>
PREDECESSOR
-------------------------
JANUARY 31,
------------ APRIL 30,
1997 1998 1998
---- ---- ---------
<S> <C> <C> <C>
Discount rate............................................... 8.0% 7.5% 7.5%
Increase in future compensation levels...................... 5.0 5.0 5.0
Expected long-term rate of return........................... 9.0 9.0 9.0
</TABLE>
The Company has a custodial agreement with a trust wherein certain plan
assets are invested in one or more pooled investment funds.
Savings Plan
The G.I. Joe's, Inc. Savings Plan is a defined contribution plan and covers
substantially all employees who have attained age 21 and have completed one year
of service. The Savings Plan provides for employer matching contributions, which
are determined annually by the Company. Contributions to the Savings Plan made
by the Company were $99, $103, $109, $27 and $19 in fiscal years 1996, 1997 and
1998 and the three months ended April 30, 1998 and the two months ended June 30,
1998, respectively.
Executive Stock Option Plan
The Company has three Incentive Stock Option Plans (the Plans), the purpose
of which is to make available common stock of the Company for purchase by
eligible officers and other key employees. The Plans have authorized an
aggregate of 1,662,498 shares of common stock, no par value, to be reserved for
issuance under the Plans. The administrator of the Plans, an officer of the
Company, is responsible for granting options, and is not eligible to receive any
options. The option price shall be set by the administrator of the Plans, and
shall approximate, as nearly is feasible without appraisal, the fair market
value of the common stock as of the date on which the options are granted, but
may not be less than the stated par value. The options vest over three to five
years from date of grant and expire at dates no later than March 31, 2010.
<TABLE>
<CAPTION>
SHARES
AVAILABLE FOR SHARES SUBJECT WEIGHTED AVERAGE
GRANT TO OPTIONS EXERCISE PRICE
------------- -------------- ----------------
<S> <C> <C> <C>
BALANCE, January 31, 1995 -- Predecessor.......... 224,351 1,438,147 $2.23
--------- ---------- -----
BALANCE, January 31, 1996 -- Predecessor.......... 224,351 1,438,147 $2.23
Granted......................................... (9,588) 9,588 $2.44
--------- ---------- -----
BALANCE, January 31, 1997 -- Predecessor.......... 214,763 1,447,735 $2.23
Granted......................................... (32,598) 32,598 $3.23
--------- ---------- -----
BALANCE, January 31, 1998 -- Predecessor.......... 182,165 1,480,333 $2.25
--------- ---------- -----
BALANCE, April 30, 1998 -- Predecessor............ 182,165 1,480,333 $2.25
Redeemed........................................ 869,598 (869,598) $2.24
Canceled........................................ 558,960 (558,960) $2.24
--------- ---------- -----
BALANCE, June 30, 1998 -- G.I. Joe's, Inc. ....... 1,610,723 51,775 $2.53
========= ========== =====
</TABLE>
During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 123 ("SFAS 123"), Accounting for Stock Based
Compensation, which defines a fair value based method of accounting for employee
stock options and similar equity instruments and encourages all entities to
adopt that method of accounting for all of their employee stock compensation
plans. However, SFAS123 also
F-20
<PAGE> 98
G.I. JOE'S, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997, JANUARY 31, 1998, APRIL 30, 1998 AND JUNE 30, 1998
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
AND AS OTHERWISE INDICATED)
allows an entity to continue to measure compensation cost for those plans using
the method of accounting prescribed by APB25. Entities electing to remain with
the accounting in APB25 must make pro forma disclosures of net income and, if
presented, earnings per share, as if the fair value based method of accounting
defined in SFAS123 had been adopted.
The Company has elected to account for its stock based compensation plans
under APB25; however, the Company has computed, for pro forma disclosure
purposes, the value of all options granted during fiscal 1997 and 1998 (no
options were granted during fiscal 1996) using the minimum value method, as
prescribed by SFAS123, using the following weighted average assumptions for
grants:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JANUARY 31, 1997 1998
------------------------------ ---- ----
<S> <C> <C>
Risk-free interest rate..................................... 6% 6.25%
Expected dividend yield..................................... 0% 0%
Expected lives (years)...................................... 6 4
</TABLE>
Using the minimum value methodology, the total value of options granted
during fiscal 1997 and fiscal 1998 was $7 and $23, respectively, which would be
amortized on a pro forma basis over the vesting period of the options (5 years
for 1997 grants and 3 years for 1998 grants). The weighted average fair value of
options granted during 1997 and 1998 was $0.55 per share and $0.53 per share,
respectively.
If the Company had accounted for its stock-based compensation plan in
accordance with SFAS123, the Company's net income would not have been materially
different and net income (loss) per share would have been the same as reported
net income (loss) per share amounts.
The following table summarizes information about stock options outstanding
on June 30, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- --------------------------------------------------- ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
PRICES AT 6/30/98 LIFE (YEARS) PRICE AT 6/30/98 PRICE
- ------------ ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$2.04 19,175 5.8 $2.04 19,175 $2.04
2.44 9,588 7.8 2.44 9,588 2.44
2.65 9,588 4.8 2.65 9,588 2.65
3.23 13,424 9.1 3.23 13,424 3.23
- ------------ ------ --- ----- ------ -----
$2.04 - 3.23 51,775 6.8 $2.53 51,775 $2.53
============ ====== === ===== ====== =====
</TABLE>
At January 31, 1996, 1997 and 1998, 287,629, 575,258 and 862,886 options,
respectively, were exercisable at a weighted average exercise price of $2.15 per
share at each date. At April 30, 1998, 1,150,516 options were exercisable at a
weighted average exercise price of $2.28.
1998 Stock Incentive Compensation Plan (unaudited)
In July 1998, the Company adopted the G.I. Joe's, Inc. 1998 Stock Incentive
Compensation Plan (the "1998 Plan"). In conjunction with the adoption of the
1998 Plan, options outstanding under the Plans covering 51,775 shares of the
Company's common stock were converted to options outstanding under the 1998 Plan
and the Plans were terminated. The purpose of the 1998 Plan is to enhance the
long-term shareholder value of the Company by offering employees, directors,
officers, consultants, agents, advisors and independent contractors of the
Company an opportunity to participate in the Company's growth and success, and
to encourage them to remain in the service of the Company and acquire and
maintain stock ownership in the Company. The
F-21
<PAGE> 99
G.I. JOE'S, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997, JANUARY 31, 1998, APRIL 30, 1998 AND JUNE 30, 1998
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
AND AS OTHERWISE INDICATED)
1998 Plan includes both stock options and stock awards, including restricted
stock. A maximum of 600,000 shares of common stock are available for issuance
under the 1998 Plan.
The Plan Administrator of the 1998 Plan will be the Compensation Committee
of the Board of Directors (the "Plan Administrator"), which will have the
authority to select individuals who are to receive options under the 1998 Plan
and to specify the terms and conditions of each option granted (incentive or
nonqualified), the exercise price (which, for incentive stock options, must be
at least equal to the fair market value of the common stock on the date of
grant), the vesting provisions and the option term. For purposes of the 1998
Plan, fair market value means the closing sale price of the common stock as
reported on the Nasdaq National Market on the date of grant. Unless otherwise
provided by the Plan Administrator, and to the extent required for incentive
stock options by the Code, an option granted under the 1998 Plan will expire 10
years from the date of grant or, if earlier, three months after the optionee's
termination of service, other than termination for cause, or one year after the
optionee's retirement, early retirement at the Company's request, death or
disability.
At June 30, 1998, there were options covering 51,775 shares of the
Company's common stock outstanding at a weighted average exercise price of
$2.53, all of which were exercisable. At June 30, 1998, there were 600,000
shares of the Company's common stock reserved for issuance under the 1998 Plan
and 548,225 shares available for future grant.
Employee Stock Purchase Plan
In January 1999, the Company adopted the G.I. Joe's, Inc. 1999 Employee
Stock Purchase Plan (the "ESPP"). The Company intends for the ESPP to qualify
under Section 423 of the Internal Revenue Code of 1986, as amended. The ESPP
permits the eligible employees of the Company and its subsidiaries to purchase
Common Stock through payroll deductions of up to 10% of their cash compensation.
The Company authorized the issuance of a total of 300,000 shares of Common Stock
under the ESPP, plus certain automatic future increases.
The price of the Common Stock purchased under the ESPP will be the lesser
of 85% of the fair market value on the first day of an offering period and 85%
of the fair market value on the last day of an offering period. The ESPP will
terminate in January 2009, but the Board of Directors may terminate it at any
earlier time. The Company has not issued any shares of Common Stock under the
ESPP.
12. RELATED PARTY TRANSACTIONS:
TicketMaster-Oregon
TicketMaster-Oregon, a partnership whose partners have included, among
others, Norman P. Daniels, the Company's Chairman of the Board, President and
Chief Executive Officer, and David E. Orkney, a Director of the Company
("TicketMaster-Oregon"), has entered into an operating agreement with
TicketMaster Northwest to operate TicketMaster outlets in Oregon.
TicketMaster-Oregon has placed TicketMaster outlets in all of the Company's
Oregon stores. The Company has established a similar arrangement directly with
TicketMaster Northwest with respect to its Washington stores. The Company
receives a percentage of the convenience charges to which TicketMaster-Oregon is
entitled under its operating agreement with TicketMaster Northwest for sales
generated in G.I. Joe's Oregon stores. For the fiscal years ended January 31,
1996, 1997 and 1998 and for the three months ended April 30, 1998 and the two
months ended June 30, 1998, the Company received an aggregate of $665, $539,
$589, $125 and $88 respectively, from TicketMaster fees.
F-22
<PAGE> 100
G.I. JOE'S, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997, JANUARY 31, 1998, APRIL 30, 1998 AND JUNE 30, 1998
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
AND AS OTHERWISE INDICATED)
Officer Loans
In July 1994, the Company loaned $182 and $98 to Messrs. Daniels and
Orkney, respectively. Each loan was made pursuant to a promissory note with an
annual interest rate equal to the applicable federal rate determined by the
Internal Revenue Service, and require minimum annual payments of $10 each year
until all interest and principal was paid in full. In November 1995, the Company
loaned Mr. Daniels an additional $38 and from April 1996 through April 1997, the
Company loaned Mr. Orkney an additional $100, each on the same terms described
above. Just prior to the Redemption and Exchange, the outstanding balance of Mr.
Daniels' and Mr. Orkney's indebtedness to the Company were approximately $187
and $132, respectively. In April 1998, the Company awarded a bonus payment to
Mr. Daniels which was paid by canceling his indebtedness of $187. In connection
with the Redemption and Exchange, the Company canceled Mr. Orkney's indebtedness
to the Company. See also Note 5.
Henway Partnerships
In July 1994, the Company loaned $5,672 in the aggregate to two
partnerships in which Messrs. Daniels and Orkney were two of four partners (the
"Henway Partnerships") to finance the purchase by the partnerships of two
parcels of real estate upon which are located the Company's stores in Vancouver,
Washington and Albany, Oregon. Each partner held a 25% interest in each Henway
Partnership. The Henway Partnerships leased these properties to the Company.
These loans accrued interest at Bank of America's prime rate plus 2.5% per year,
and were due in August 1996. The Henway Partnerships repaid all amounts
outstanding under these loans in January 1996, other than $258, which was
refinanced pursuant to a promissory note from one of the Henway Partnerships in
favor of the Company, with an annual interest rate of 10.5% and a 60-month
payment schedule. The leases for the Vancouver and Albany stores were entered
into in June and November 1989, respectively, and each has a 25-year term and a
10-year renewal option. Base rental payments under these leases are $386 and
$391 per year for the Vancouver and Albany locations, respectively, on a
triple-net basis. In addition, the Company is obligated to pay additional rent
for the Vancouver and Albany stores in the amount of 1.5% of gross receipts to
the extent that gross receipts exceed $15,304 and $11,898, respectively, but has
not been required to pay any such additional rent in the last three fiscal
years. The Company believes the leases for the Vancouver and Albany stores were
entered into on terms no less favorable to the Company than would have been
obtained from unaffiliated third parties.
PD Properties
In April 1998, in connection with the Redemption and Exchange, the Company
sold two parcels of real property to PD Properties, LLC ("PD"), an Oregon
limited liability company affiliated with Roy Rose, a Director of the Company
and of Peregrine Capital, Inc. ("Peregrine"), a principal shareholder of the
Company. PD paid $2,725 in the aggregate to the Company for the South Salem,
Oregon store location and for the Company's vacant land located in Forest Grove,
Oregon (the "PD Real Properties"). The Company leases the South Salem property
from PD pursuant to a lease, which commenced in April 1998 (the "PD Lease"). The
initial term of the PD Lease is 15 years, with two renewal options of 5 years
each. Rental payments under the PD Lease consist of a base rent of $386 per year
on a triple net basis. The base rent will be adjusted every five years based on
changes in the consumer price index. The PD Lease is in substantially the same
form as the six leases (the "Non-PD Leases") entered into with an unaffiliated
party in connection with the sale and lease-back of the Company's owned store
locations consummated in connection with the Reorganization. The Company
believes the PD Lease was entered into on terms no less favorable to the Company
than would have been obtained from an unaffiliated third party. In addition, in
connection with the Reorganization, four individuals associated with Peregrine,
including Roy Rose and his wife, agreed to guarantee the performance of the
Company's obligations under the Non-PD Leases. Aggregate annual base rent under
the Non-PD
F-23
<PAGE> 101
G.I. JOE'S, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997, JANUARY 31, 1998, APRIL 30, 1998 AND JUNE 30, 1998
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
AND AS OTHERWISE INDICATED)
Leases is approximately $3,000. This guarantee will expire upon the closing of
an initial public offering of the Company's Common Stock. PD received a fee of
$1,000 in connection with the sale of the properties subject to the Non-PD
Leases, which fee was credited against the purchase price for the PD Real
Properties.
Peregrine Capital, Inc.
In connection with the Redemption and Exchange, Peregrine Capital, Inc.
("Peregrine") purchased $1,450 of subordinated notes from the Company. For
services rendered in connection with the Redemption and Exchange, Peregrine also
received a warrant exercisable for shares of Holdings common stock (the "Master
Warrant"). Peregrine exchanged $1,000 of the subordinated notes for common stock
of Holdings, which was converted into 267,674 shares of the Company's Common
Stock in the Merger. Peregrine exchanged the remaining $450 of the subordinated
notes for preferred stock of Holdings and an additional warrant to purchase
common stock of Holdings, which in the Merger were converted into 4,500 shares
of the Company's Series A Non-Voting Redeemable Preferred Stock (the "Redeemable
Preferred Stock") and 30,682 shares of the Company's common stock. In the
Merger, the Master Warrant was converted into 1,196,727 shares of the Company's
Common Stock. Prior to the Merger, Peregrine assigned to various unaffiliated
third parties a portion of the Master Warrant which otherwise would have
entitled Peregrine to 228,067 shares of the Company's Common Stock issued upon
conversion of the Master Warrant. In addition, Peregrine has agreed to purchase
from the Investors all outstanding shares of the Company's Redeemable Preferred
Stock for $8,500, plus accumulated dividends, if the Company does not complete,
prior to May 8, 1999, an initial public offering of its Common Stock with net
proceeds to the Company of at least $12,000.
In October 1998, the Company and Peregrine entered into an agreement that
provides that Peregrine will act as a non-exclusive independent representative
of the Company to identify potential acquisition or investment candidates and
assist in completing any such acquisitions or investments the Company chooses to
pursue. As compensation for Peregrine's services, the Company has agreed to pay
to Peregrine 4% of the gross amount of all cash and non-cash fees and
consideration paid by the Company or any of its affiliates as a result of or
directly related to any transaction between the Company and candidates
identified by Peregrine which is completed within the term of the agreement or
one year thereafter. The agreement terminates on October 31, 2003, unless
earlier terminated by either party upon at least 30 days' notice to the other
party.
Orkney Agreement
In connection with the Redemption and Exchange, in May 1998 the Company
redeemed all of Mr. Orkney's outstanding shares of common stock in the Company
for an aggregate purchase price of $13,893. In addition, the Company issued to
Mr. Orkney a warrant (the "Orkney Warrant") which is exercisable for a number of
shares equal to 5% of the Company's common stock outstanding, on a fully-diluted
basis, at the time of exercise at a purchase price equal to 70% of the fair
market value of the common stock on the exercise date. Mr. Orkney has
registration rights with respect to the common stock issuable upon exercise of
the warrant (see Note 14). The Company also entered into an agreement with Mr.
Orkney, pursuant to which Mr. Orkney received a $140 bonus in May 1998
(consisting of $132 in debt forgiveness and a Company car worth $8) and will be
paid an additional $150 over the following two years ($100 of which is to be
paid in 12 equal monthly installments during the first year, and the remaining
$50 of which is to be paid in 12 equal monthly installments during the second
year). During the first year, Mr. Orkney will also receive a car allowance in
accordance with the Company's past practice as well as health insurance and
certain other benefits. Mr. Orkney's mother and sister received compensation
from the Company for the last two fiscal years in the aggregate amounts of
approximately $105 and $59, respectively. The Company stopped making such
payments in May 1998.
F-24
<PAGE> 102
G.I. JOE'S, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997, JANUARY 31, 1998, APRIL 30, 1998 AND JUNE 30, 1998
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS
AND AS OTHERWISE INDICATED)
13. RECENT ACQUISITION:
In September 1998, the Company acquired certain assets and assumed certain
liabilities of three affiliated direct marketing retailers (collectively,
"Timberline Direct") that sell merchandise complementary to that offered by the
Company through catalog and Internet-based channels. The purchase price for the
acquisition will total up to $5.4 million, consisting of $1.2 million payable in
cash, $896,000 of assumed liabilities and the balance payable in shares of the
Company's Common Stock. The first cash payment of $450 was made in September
1998. The remaining cash portion of $750 will be paid beginning in December 1998
and was recorded as accrued liabilities in the accompanying balance sheets at
October 31, 1998. The balance of the purchase price, $3,275, is payable in four
equal installments. The first two installments of 55,829 shares each were issued
in January 1999 and the shares issued are subject to adjustment if the initial
public offering price is less than $11.73 per share. This obligation of $1,638
was classified as a purchase obligation payable in Common Stock in the
accompanying balance sheets at October 31, 1998. The final two installments
totaling $1,638 are payable contingent (the Contingent Shares) upon meeting
certain performance criteria and therefore, have not been recorded in the
accompanying balance sheets at October 31, 1998. The acquisition was accounted
for as a purchase. The aggregate consideration recorded at October 31, 1998 was
allocated to the assets of Timberline Direct based on fair market value. The
excess of the purchase price over the assets acquired and liabilities assumed
was allocated to goodwill. The value of Contingent Shares issued, if any, will
be allocated to goodwill when the contingencies are resolved and the shares
issued.
14. SUBSEQUENT EVENTS:
The Orkney Warrant was cancelled in February 1999 in exchange for the
issuance to Mr. Orkney of 80,000 shares of Common Stock and the Company's
agreement to reimburse Mr. Orkney for up to $225,000 in income taxes arising as
a result of such share issuance.
F-25
<PAGE> 103
G.I. JOE'S INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 31, 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
(PREDECESSOR) PRO FORMA G.I. JOE'S, INC.
G.I. JOE'S, INC. ADJUSTMENTS PRO FORMA
---------------- ----------- ----------------
<S> <C> <C> <C>
Net sales.......................................... $128,238 $ -- $128,238
Cost of goods sold................................. 84,552 -- 84,552
-------- ------- --------
Gross margin..................................... 43,686 -- 43,686
Selling, general and administrative expense........ 39,528 3,143(a) 42,671
Other income (expense)
Interest expense................................. (3,542) 502(b) (3,040)
Interest income.................................. 65 -- 65
-------- ------- --------
(3,477) 502 (2,975)
-------- ------- --------
Income (loss) before income taxes.................. 681 (2,641) (1,960)
Benefit from income taxes.......................... -- 784(c) 784
-------- ------- --------
Net income (loss).................................. 681 (1,857) (1,176)
Preferred dividends................................ -- (765)(d) (765)
-------- ------- --------
Loss attributable to common shareholders........... $ 681 $(2,622) $ (1,941)
======== ======= ========
Basic net income (loss) per share.................. $ 0.22 $ -- $ (0.43)
======== ======= ========
Diluted net income (loss) per share................ $ 0.20 $ -- $ (0.43)
======== ======= ========
Shares used in per share calculations:
Basic............................................ 3,040 -- 4,464
Diluted.......................................... 3,469 -- 4,464
</TABLE>
PF-1
<PAGE> 104
G.I. JOE'S INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED OCTOBER 31, 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
(PREDECESSOR) G.I. JOE'S, INC.
G.I. JOE'S, INC. SIX MONTHS
THREE MONTHS ENDED
ENDED OCTOBER 31, PRO FORMA G.I. JOE'S, INC.
APRIL 30, 1998 1998 ADJUSTMENTS PRO FORMA
---------------- ---------------- ----------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales................................. $25,908 $75,201 $ -- $101,109
Cost of goods sold........................ 17,670 49,612 -- 67,282
------- ------- ------ --------
Gross margin............................ 8,238 25,589 -- 33,827
Selling, general and administrative
expense................................. 9,755 23,086 785(a) 33,626
Other income (expense)
Interest expense........................ (971) (1,885) 125(b) (2,731)
Interest income......................... 9 9 -- 18
Gain on sale of real estate............. 640 -- -- 640
------- ------- ------ --------
(322) (1,876) 125 (2,073)
------- ------- ------ --------
Income (loss) before income taxes......... (1,839) 627 (660) (1,872)
(Provision for) benefit from income
taxes................................... -- (251) 1,000(c) 749
------- ------- ------ --------
Net income (loss)......................... (1,839) 376 340 (1,123)
Preferred dividends....................... -- (383) (191)(d) (574)
------- ------- ------ --------
Loss attributable to common
shareholders............................ $(1,839) $ (7) $ 149 $ (1,697)
======= ======= ====== ========
Basic net loss per share.................. $ (0.60) $ (0.00) $ -- $ (0.38)
======= ======= ====== ========
Diluted net loss per share................ $ (0.60) $ (0.00) $ -- $ (0.38)
======= ======= ====== ========
Shares used in per share calculations:
Basic and diluted....................... 3,040 4,464 -- 4,464
</TABLE>
PF-2
<PAGE> 105
G.I. JOE'S, INC.
FOOTNOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS)
1. BASIS OF PRESENTATION
The accompanying unaudited pro forma financial statements have been
prepared to present the effect of the Redemption, the Exchange and the Merger of
the Company as more fully discussed in Note 1 to the financial statements. The
pro forma financial statements have been prepared based upon the historical
financial statements of the Predecessor and the Company as if the Redemption,
the Exchange and the Merger had occurred at the beginning of the respective
periods.
A Pro Forma Balance Sheet is not included since the most recent balance
sheet filed with the Company's financial statements includes the effects of the
Redemption, the Exchange and the Merger. The Redemption, the Exchange and the
Merger are a series of planned transactions executed to consummate the
acquisition of the Company. Accordingly, this series of transactions has been
reflected as if they occurred on May 1, 1998.
The Pro Forma Statements of Operations may not be indicative of the results
of operations that actually would have occurred if the transactions had been in
effect as of the beginning of the respective periods nor do they purport to
indicate the results of future operations of the Company. The pro forma
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's audited financial statements and
notes thereto, included elsewhere in this Prospectus. Management believes that
all adjustments necessary to present fairly such pro forma financial statements
have been made based on the terms and structure of the transaction.
2. EXTRAORDINARY ITEM
The Pro Forma Statement of Operations for the nine-month period ended
October 31, 1998 does not include an extraordinary loss item related to the
early extinguishment of debt in the amount of $1,332, net of tax benefit of
$888.
3. PRO FORMA ADJUSTMENTS
(a) The adjustment to selling, general and administrative expense consists
of the following:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
JANUARY 31, 1998 OCTOBER 31, 1998
---------------- -----------------
<S> <C> <C>
Reduction in depreciation from properties sold
and leased back............................. $ (336) $(84)
Rental expense on properties sold and leased
back........................................ 3,092 773
Amortization expense on capitalized leased
assets recorded at fair market value........ 387 96
------ ----
$3,143 $785
====== ====
</TABLE>
(b) To record the reduction in interest expense related to mortgages on
sold properties.
(c) To record income taxes at an effective rate of 40%.
(d) To record 9% cumulative dividend on preferred stock.
PF-3
<PAGE> 106
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER TO SELL OR SOLICITATION IS NOT AUTHORIZED, OR
IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO,
OR TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER OR SOLICITATION
------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary...................... 3
Risk Factors............................ 9
The Reorganization...................... 17
Use of Proceeds......................... 21
Dividend Policy and Prior S Corporation
Status................................ 21
Dilution................................ 22
Capitalization.......................... 23
Selected Financial and Other Data....... 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 26
Business................................ 40
Management.............................. 56
Certain Related Transactions............ 64
Principal Shareholders.................. 67
Description of Capital Stock............ 69
Shares Eligible for Future Sale......... 72
Underwriting............................ 74
Legal Matters........................... 75
Experts................................. 75
Additional Information.................. 75
Index to Financial Statements........... F-1
</TABLE>
------------------------
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
2,500,000 SHARES
[LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
CRUTTENDEN ROTH
INCORPORATED
BLACK & COMPANY, INC.
, 1999
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 107
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in connection
with the sale of the Common Stock being registered hereby. All amounts shown are
estimates, except the Securities and Exchange Commission registration fee, the
NASD filing fee and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 9,330
NASD filing fee............................................. 3,663
Nasdaq National Market listing fee.......................... 72,875
Printing and engraving expenses............................. 90,000
Legal fees and expenses..................................... 250,000
Accounting fees and expenses................................ 170,000
Directors' and Officers' Liability Insurance................ 96,000
Transfer Agent and Registrar fees........................... 4,000
Miscellaneous expenses...................................... 54,132
--------
Total............................................. $750,000
--------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As an Oregon corporation, the registrant is subject to the laws of the
State of Oregon governing private corporations and the exculpation from
liability and indemnification provisions contained therein. Pursuant to Section
60.047(2)(d) of the Oregon Revised Statutes ("ORS"), Article 6 of the
registrant's Amended and Restated Articles of Incorporation, as amended (the
"Articles"), eliminates the liability of the registrant's directors to the
registrant or its shareholders except for any liability related to (i) breach of
the duty of loyalty; (ii) acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law; (iii) any unlawful
distribution under ORS 60.367; or (iv) any transaction from which the director
derived an improper personal benefit.
ORS Section 60.391 allows corporations to indemnify their directors and
officers against liability where the director or officer has acted in good faith
and with a reasonable belief that actions taken were in the best interests of
the corporation or at least not opposed to the corporation's best interests and,
if in a criminal proceeding, the individual had no reasonable cause to believe
the conduct in question was unlawful. Under ORS Sections 60.387 to 60.414,
corporations may not indemnify a director or officer against liability in
connection with a claim by or in the right of the corporation or for any
improper personal benefit in which the director or officer was adjudged liable
to the corporation. ORS Section 60.394 mandates indemnification for all
reasonable expenses incurred in the successful defense of any claim made or
threatened whether or not such claim was by or in the right of the corporation.
Finally, pursuant to the ORS Section 60.401, a court may order indemnification
in view of all the relevant circumstances, whether or not the director or
officer met the good-faith and reasonable belief standards of conduct set out in
ORS Section 60.391.
ORS Section 60.414 also provides that the statutory indemnification
provisions are not deemed exclusive of any other rights to which directors or
officers may be entitled under a corporation's articles of incorporation or
bylaws, any agreement, general or specific action of the board of directors,
vote of shareholders or otherwise.
The Articles provide that the registrant is required to indemnify its
current and former directors to the fullest extent permitted by law. The Company
intends to enter into indemnification agreements with all its directors and
executive officers which would obligate the registrant to indemnify such
individuals for liabilities incurred by such individuals while serving as
directors or officers of the registrant.
II-1
<PAGE> 108
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since December 31, 1995, the registrant has issued and sold the following
unregistered securities (adjusted to give retroactive effect to a 3-for-4
reverse split of the registrant's Common Stock):
1. On July 31, 1997, the registrant granted to 15 of its employees
stock options exercisable for an aggregate of 32,600 shares of the
registrant's Common Stock at an exercise price of $3.23 per share, the fair
market value per share of Common Stock on the grant date. The options were
granted under a written stock option plan of the registrant in
consideration of these employees' services to the registrant, and in
issuing these securities the registrant relied on an exemption from
registration pursuant to Rule 701 under Section 3(b) of the Securities Act.
2. On May 8, 1998, the registrant issued to 61 individuals and
entities an aggregate principal amount of $9.5 million of its 9%
Subordinated Notes due 2008. One of these investors, Peregrine Capital,
Inc., is an affiliate of the registrant and received an aggregate amount of
$450,000 of the Subordinated Notes. The consideration paid for the notes
was $9.5 million. Each such investor represented that he, she or it is an
"accredited investor" within the meaning of Rule 501 under the Securities
Act and the shares were not offered or sold by means of a general
solicitation or general advertising. In issuing these securities, the
registrant relied on an exemption from registration pursuant to Rule 506
under Section 4(2) of the Securities Act.
3. On May 8, 1998, the registrant issued to David E. Orkney, a
director of the registrant, a warrant to purchase an amount of the
registrant's Common Stock equal to 5% of the registrant's outstanding
shares of Common Stock (on a fully-diluted basis) at an exercise price
equal to 70% of the initial public offering price. Mr. Orkney represented
that he is an "accredited investor" within the meaning of Rule 501 under
the Securities Act. This warrant was issued in connection with the
redemption of shares of the registrant's Common Stock owned by Mr. Orkney.
In February 1999, the registrant issued to Mr. Orkney 80,000 shares of the
registrant's Common Stock in exchange for the cancellation of this warrant.
In issuing the warrant and these shares, the registrant relied on
exemptions from registration under Section 4(2) of the Securities Act.
4. On July 27, 1998, and in connection with the merger of ND Holdings,
Inc. with and into the registrant (with the registrant being the surviving
corporation), the registrant issued to (a) 95 individuals and entities an
aggregate of 4,461,227 shares of the registrant's Common Stock in exchange
for common stock and warrants exercisable for common stock of ND Holdings,
Inc. and (b) to 61 individuals and entities an aggregate of 85,000 shares
of the registrant's Series A 9% Non-Voting Redeemable Preferred Stock in
exchange for preferred stock of ND Holdings, Inc. One of these investors,
Peregrine Capital, Inc., is an affiliate of the registrant and received
4,500 shares of the registrant's Series A 9% Non-Voting Redeemable
Preferred Stock and 1,267,016 shares of the registrant's Common Stock. Each
such investor represented that he, she or it is an "accredited investor"
within the meaning of Rule 501 under the Securities Act and the shares were
not offered or sold by means of a general solicitation or general
advertising. In issuing these securities, the registrant relied on an
exemption from registration pursuant to Rule 506 under Section 4(2) of the
Securities Act.
5. On December 1, 1998, the registrant granted to 342 of its employees
stock options for an aggregate of 319,350 shares of the registrant's Common
Stock at an exercise price of $10.67 per share, the fair market value per
share of the Common Stock on the grant date. The options were granted under
a written stock option plan of the registrant in consideration of these
employees' services to the registrant, and, in issuing these securities,
the registrant relied on an exemption from registration pursuant to Section
3(b) of the Securities Act.
6. On January 1, 1999, the registrant issued to three entities an
aggregate of 55,829 shares of the registrant's Common Stock as partial
consideration for the purchase of certain assets from Timberline Direct. In
issuing these securities, the registrant relied on an exemption from
registration pursuant to Section 4(2) of the Securities Act.
II-2
<PAGE> 109
7. On January 31, 1999, the registrant issued to three entities an
aggregate of 55,829 shares of the registrant's Common Stock as partial
consideration for the purchase of certain assets from Timberline Direct. In
issuing these securities, the registrant relied on an exemption from
registration pursuant to Section 4(2) of the Securities Act.
8. On February 24, 1999, the registrant issued to each of Robert R.
Ames, David E. Orkney, Charles H. Putney and Roy Rose, the four nonemployee
directors of the registrant, stock options for 1,875 shares of the
registrant's Common Stock at an exercise price equal to the initial public
offering price per share. The options were granted under a written stock
option plan of the registrant in consideration of these individual's
services to the registrant as directors, and in issuing these securities
the registrant relied on an exemption from registration pursuant to Section
3(b) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement between G.I. Joe's, Inc., and
Cruttenden Roth Incorporated and Black & Company, Inc., as
agents for the Underwriters
*2.1 Agreement and Plan of Merger dated July 1, 1998 between ND
Holdings, Inc. and G.I. Joe's, Inc.
*3.1 Amended and Restated Articles of Incorporation
3.2 Bylaws, as amended
*4.1 Form of Common Stock Certificate
*5.1 Opinion of Perkins Coie LLP
*10.1 Ticket Center Agreement dated as of August 1, 1998 between
TicketMaster-Oregon and G.I. Joe's, Inc. (certain portions
of this Exhibit have been omitted based upon a request for
confidential treatment; such portions have been filed
separately with the SEC)
*10.2 Lease dated June 3, 1997, as amended, between Milestone
Properties, Inc. and G.I. Joe's, Inc. (Bend, Oregon)
*10.3 Eastport Plaza Lease dated April 21, 1978 between Eastport
Plaza Shopping Center and G.I. Joe's, Inc.
*10.4 Lease dated May 10, 1973, as amended, between Center
Development Oreg., Ltd. and G.I. Joe's, Inc. (Beaverton,
Oregon)
*10.5 Sublease dated March 28, 1984 between Donald R. Wyant, Sr.
and Martin L. Peterson, (dba The Wyant-Peterson Company) and
G.I. Joe's, Inc. (Medford, Oregon)
*10.6 Building Lease dated October 9, 1980, as amended, between
Hayden Meadows and G.I. Joe's, Inc. (North Portland, Oregon)
*#10.7 Lease dated April 17, 1998 between PD Properties, L.L.C. and
G.I. Joe's, Inc. (South Salem, Oregon)
*10.8 Purchase and Sale Agreement dated April 17, 1998 among WREP
1998-1 LLC, G.I. Joe's, Inc., and PD Properties, L.L.C.
*10.9 Real Estate Purchase and Sale Agreement dated April 17, 1997
between PD Properties, L.L.C. and G.I. Joe's, Inc.
*10.10 Sublease dated October 8, 1981 between Pacific Cascade
Corporation, dba PCC Associates and G.I. Joe's, Inc.
*10.11 First Amendment to Lease dated June 15, 1991 between Eugenie
E. Keene and Philip A. Keene and G.I. Joe's, Inc. (Eugene,
Oregon)
</TABLE>
II-3
<PAGE> 110
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
*10.12 Lease dated May 12, 1997 between South Hill Village Limited
Partnership and G.I. Joe's, Inc. (Puyallup, Washington)
*#10.13 Lease dated June 23, 1989, as amended, between The Henway
Group XII and G.I. Joe's, Inc. (Vancouver, Washington)
*10.14 Lease dated June 23, 1989, as amended, between West Campus
Square Joint Venture and G.I. Joe's, Inc. (Federal Way,
Washington)
*10.15 Lease dated January 28, 1998 between Pacific Realty
Associates, L.P. and G.I. Joe's, Inc. (Hillsboro, Oregon)
*10.16 Purchase and Sale Agreement dated April 21, 1998 between
G.I. Joe's and ESA Management, Inc. (Renton, Washington)
*10.17 G.I. Joe's, Inc. Pension Plan
*10.18 1998 Incentive Compensation Plan
*10.19 Loan and Security Agreement dated March 10, 1998 between
G.I. Joe's, Inc. and Foothill Capital Corporation, as
amended
*#10.20 9% Subordinated Note Due 2008 dated May 4, 1998 in favor of
certain investors
*10.21 ND Holdings, Inc. Common Stock Purchase Warrant dated May 8,
1998 evidencing the right of Peregrine Capital, Inc. to
purchase shares of common stock of ND Holdings, Inc.
*#10.22 Warrant dated May 8, 1998 by ND Holdings, Inc. in favor of
Blackwell Donaldson & Company
*#10.23 Warrant dated May 8, 1998 by ND Holdings, Inc. in favor of
certain investors
*10.24 Registration Rights Agreement dated May 8, 1998 between ND
Holdings, Inc. and certain investors
*10.25 Security Agreement dated October 31, 1997 between G.I.
Joe's, Inc. and Heller Financial, Inc.
*10.26 Promissory Notes dated October, 1997 and December 22, 1997
in the amounts of $929,092.82 and $396,003.00, respectively,
in favor of Heller Financial, Inc.
*10.27 Promissory Note dated April, 1998 in the amount of
$283,410.00 in favor of Wayne T. Jackson
*10.28 Promissory Note dated April, 1998 in the amount of
$191,106.00 in favor of B. Duane Mellen
*10.29 Agreement between David Orkney and G.I. Joe's, Inc.
10.30 Warrant Exchange Agreement dated as of February 24, 1999
between G.I. Joe's, Inc. and David E. Orkney
</TABLE>
II-4
<PAGE> 111
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
10.31 G.I. Joe's, Inc. 1999 Employee Stock Purchase Plan
*10.32 Finder Agreement date October 6, 1998 between Peregrine
Capital, Inc. and G.I. Joe's, Inc.
*10.33 Asset Purchase Agreement dated August 24, 1998 between Joe
Direct, Inc. and Athletica, Inc., Gravity Games, Inc. and TS
Holding, Inc. as amended
10.34 Form of Warrant by G.I. Joe's, Inc. in favor of Cruttenden
Roth Incorporated and Black & Company, Inc., respectively
*10.35 Lease dated December 15, 1998 by and between Issaquah
Associates and G.I. Joe's, Inc.
*10.36 Sublease by and between FADCO, LLC, and G.I. Joe's, Inc.
dated July 22, 1998
10.37 Agreement dated as of March 1, 1998, between G.I. Joe's,
Inc. and Peregrine Capital, Inc.
*23.1 Consent of Perkins Coie LLP (included in Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP (included on page II-8)
*27.1 Financial Data Schedule for the Fiscal Year Ended January
31, 1998
*27.2 Financial Data Schedule for the Three-Month Period Ended
April 30, 1998
*27.3 Financial Data Schedule for the Two-Month Period Ended June
30, 1998
*27.4 Financial Data Schedule for the Six-Month Period Ended
October 31, 1998
</TABLE>
- ---------------
* Previously filed.
# A schedule attached to this exhibit identifies all other documents not
required to be filed as exhibits because such exhibits are substantially
identical to this exhibit. The Schedule also sets forth material detail by
which the omitted documents differ from this exhibit.
(b) FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are inapplicable.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, 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 of whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-5
<PAGE> 112
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE> 113
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused Amendment No. 4 to this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Wilsonville, State of Oregon, on the 25th day of February, 1999.
G.I. JOE'S, INC.
By: /s/ NORMAN P. DANIELS
------------------------------------
Norman P. Daniels
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
Amendment No. 4 to this Registration Statement has been signed by the following
persons in the capacities indicated below on the 25th day of February, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ NORMAN P. DANIELS Chairman of the Board, President
- -------------------------------------------------------- and Chief Executive Officer
Norman P. Daniels (principal executive officer)
PHILIP M. PEPIN* Chief Financial Officer
- -------------------------------------------------------- (principal financial and accounting officer)
Philip M. Pepin
DAVID E. ORKNEY* Director
- --------------------------------------------------------
David E. Orkney
ROY ROSE* Director
- --------------------------------------------------------
Roy Rose
CHARLES H. PUTNEY* Director
- --------------------------------------------------------
Charles H. Putney
ROBERT R. AMES* Director
- --------------------------------------------------------
Robert R. Ames
</TABLE>
* By: /s/ NORMAN P. DANIELS
---------------------------------
Norman P. Daniels,
Attorney-in-Fact
II-7
<PAGE> 114
CONSENT OF INDEPENDENT AUDITORS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our firm) included in or made a part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
Portland, Oregon
February 26, 1999
II-8
<PAGE> 115
EXHIBIT LIST
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement between G.I. Joe's, Inc., and
Cruttenden Roth Incorporated and Black & Company, Inc., as
agents for the Underwriters.................................
*2.1 Agreement and Plan of Merger dated July 1, 1998 between ND
Holdings, Inc. and G.I. Joe's, Inc. ........................
*3.1 Amended and Restated Articles of Incorporation..............
3.2 Bylaws, as amended..........................................
*4.1 Form of Common Stock Certificate............................
*5.1 Opinion of Perkins Coie LLP.................................
*10.1 Ticket Center Agreement dated as of August 1, 1998 between
TicketMaster-Oregon and G.I. Joe's, Inc. (certain portions
of this Exhibit have been omitted based upon a request for
confidential treatment; such portions have been filed
separately with the SEC)....................................
*10.2 Lease dated June 3, 1997, as amended, between Milestone
Properties, Inc. and G.I. Joe's, Inc. (Bend, Oregon)........
*10.3 Eastport Plaza Lease dated April 21, 1978 between Eastport
Plaza Shopping Center and G.I. Joe's, Inc. .................
*10.4 Lease dated May 10, 1973, as amended, between Center
Development Oreg., Ltd. and G.I. Joe's, Inc. (Beaverton,
Oregon).....................................................
*10.5 Sublease dated March 28, 1984 between Donald R. Wyant, Sr.
and Martin L. Peterson, (dba The Wyant-Peterson Company) and
G.I. Joe's, Inc. (Medford, Oregon)..........................
*10.6 Building Lease dated October 9, 1980, as amended, between
Hayden Meadows and G.I. Joe's, Inc. (North Portland,
Oregon).....................................................
*#10.7 Lease dated April 17, 1998 between PD Properties, L.L.C. and
G.I. Joe's, Inc. (South Salem, Oregon)......................
*10.8 Purchase and Sale Agreement dated April 17, 1998 among WREP
1998-1 LLC, G.I. Joe's, Inc., and PD Properties, L.L.C. ....
*10.9 Real Estate Purchase and Sale Agreement dated April 17, 1997
between PD Properties, L.L.C. and G.I. Joe's, Inc. .........
*10.10 Sublease dated October 8, 1981 between Pacific Cascade
Corporation, dba PCC Associates and G.I. Joe's, Inc. .......
*10.11 First Amendment to Lease dated June 15, 1991 between Eugenie
E. Keene and Philip A. Keene and G.I. Joe's, Inc. (Eugene,
Oregon).....................................................
*10.12 Lease dated May 12, 1997 between South Hill Village Limited
Partnership and G.I. Joe's, Inc. (Puyallup, Washington).....
*#10.13 Lease dated June 23, 1989, as amended, between The Henway
Group XII and G.I. Joe's, Inc. (Vancouver, Washington)......
*10.14 Lease dated June 23, 1989, as amended, between West Campus
Square Joint Venture and G.I. Joe's, Inc. (Federal Way,
Washington).................................................
*10.15 Lease dated January 28, 1998 between Pacific Realty
Associates, L.P. and G.I. Joe's, Inc. (Hillsboro, Oregon)...
*10.16 Purchase and Sale Agreement dated April 21, 1998 between
G.I. Joe's and ESA Management, Inc. (Renton, Washington)....
*10.17 G.I. Joe's, Inc. Pension Plan...............................
</TABLE>
<PAGE> 116
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C>
*10.18 1998 Incentive Compensation Plan............................
*10.19 Loan and Security Agreement dated March 10, 1998 between
G.I. Joe's, Inc. and Foothill Capital Corporation, as
amended.....................................................
*#10.20 9% Subordinated Note Due 2008 dated May 4, 1998 in favor of
certain investors...........................................
*10.21 ND Holdings, Inc. Common Stock Purchase Warrant dated May 8,
1998 evidencing the right of Peregrine Capital, Inc. to
purchase shares of common stock of ND Holdings, Inc. .......
*#10.22 Warrant dated May 8, 1998 by ND Holdings, Inc. in favor of
Blackwell Donaldson & Company...............................
*#10.23 Warrant dated May 8, 1998 by ND Holdings, Inc. in favor of
certain investors...........................................
*10.24 Registration Rights Agreement dated May 8, 1998 between ND
Holdings, Inc. and certain investors........................
*10.25 Security Agreement dated October 31, 1997 between G.I.
Joe's, Inc. and Heller Financial, Inc. .....................
*10.26 Promissory Notes dated October, 1997 and December 22, 1997
in the amounts of $929,092.82 and $396,003.00, respectively,
in favor of Heller Financial, Inc. .........................
*10.27 Promissory Note dated April, 1998 in the amount of
$283,410.00 in favor of Wayne T. Jackson....................
*10.28 Promissory Note dated April, 1998 in the amount of
$191,106.00 in favor of B. Duane Mellen.....................
*10.29 Agreement between David Orkney and G.I. Joe's, Inc. ........
10.30 Warrant Exchange Agreement dated as of February 24, 1999
between G.I. Joe's, Inc. and David E. Orkney................
10.31 G.I. Joe's, Inc. 1999 Employee Stock Purchase Plan..........
*10.32 Finder Agreement date October 6, 1998 between Peregrine
Capital, Inc. and G.I. Joe's, Inc. .........................
*10.33 Asset Purchase Agreement dated August 24, 1998 between Joe
Direct, Inc. and Athletica, Inc., Gravity Games, Inc. and TS
Holding, Inc. as amended....................................
10.34 Form of Warrant by G.I. Joe's, Inc. in favor of Cruttenden
Roth Incorporated and Black & Company, Inc., respectively...
*10.35 Lease dated December 15, 1998 by and between Issaquah
Associates and G.I. Joe's, Inc. ............................
*10.36 Sublease by and between FADCO, LLC, and G.I. Joe's, Inc.
dated July 22, 1998.........................................
10.37 Agreement dated as of March 1, 1998, between G.I. Joe's,
Inc. and Peregrine Capital, Inc.............................
*23.1 Consent of Perkins Coie LLP (included in Exhibit 5.1).......
23.2 Consent of Arthur Andersen LLP (included on page II-8)......
*27.1 Financial Data Schedule for the Fiscal Year Ended January
31, 1998....................................................
*27.2 Financial Data Schedule for the Three-Month Period Ended
April 30, 1998..............................................
*27.3 Financial Data Schedule for the Two-Month Period Ended June
30, 1998....................................................
*27.4 Financial Data Schedule for the Six-Month Period Ended
October 31, 1998............................................
</TABLE>
- ---------------
* Previously filed.
# A schedule attached to this exhibit identifies all other documents not
required to be filed as exhibits because such exhibits are substantially
identical to this exhibit. The Schedule also sets forth material detail by
which the omitted documents differ from this exhibit.
<PAGE> 1
EXHIBIT 1.1
2,500,000 SHARES*
G.I. JOE'S, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
_____________, 1999
CRUTTENDEN ROTH INCORPORATED
BLACK & COMPANY, INC.
As Representatives of the several Underwriters
c/o Cruttenden Roth Incorporated
24 Corporate Plaza
Newport Beach, California 92660
Ladies and Gentlemen:
G.I. Joe's, Inc., an Oregon corporation (the "Company"), proposes to
sell an aggregate of 2,500,000 shares (the "Firm Shares") of the Company's
common stock, no par value per share (the "Common Stock"), to you and to the
several other underwriters named in Schedule I hereto (collectively, the
"Underwriters"), for whom you are acting as the representatives (the
"Representatives"). All of the shares will be sold by the Company. The Company
also proposes to sell at the Underwriters' option (the "Option") an aggregate of
up to 375,000 additional shares of Common Stock (the "Option Shares") on the
terms and for the purposes set forth in Section 1(b). The Firm Shares and the
Option Shares are referred to collectively herein as the "Shares."
The Company confirms as follows its agreement with the Representatives
and the several other Underwriters.
1. Agreement to Sell and Purchase.
(a) On the basis of the representations, warranties and
agreements of the parties herein contained and subject to all of the terms and
conditions of this Agreement,
- --------
* Plus an option to purchase up to an additional 375,000 shares from the
Company to cover over-allotments.
<PAGE> 2
(i) the Company agrees to sell an aggregate of 2,500,000 shares of Common Stock
to the several Underwriters and (ii) each of the Underwriters, severally and not
jointly, agrees to purchase from the Company the respective number of Firm
Shares set forth opposite that Underwriter's name in Schedule I hereto, at the
purchase price of $[________] for each Firm Share, subject to adjustments in
accordance with Section 8 hereof.
(b) Subject to all the terms and conditions of this Agreement,
the Company grants the Option to the several Underwriters to purchase, severally
and not jointly, up to the maximum number of Option Shares at the same price per
share as the Underwriters shall pay for the Firm Shares. The Option may be
exercised only to cover over-allotments in the sale of the Firm Shares by the
Underwriters and may be exercised in whole or in part at any time (but not more
than once) on or before the 30th day after the date of this Agreement upon
written or telegraphic notice (the "Option Shares Notice") by the
Representatives to the Company no later than 12:00 noon, New York City time, at
least two and no more than five business days before the date specified for the
closing in the Option Shares Notice (the "Option Closing Date") setting forth
the aggregate number of Option Shares to be purchased and the time and date for
such purchase. The number of Option Shares to be purchased by each Underwriter
shall be in the same proportion to the total number of Option Shares being
purchased as the number of Firm Shares being purchased by such Underwriter bears
to the total number of Firm Shares, adjusted by you in such manner as to avoid
fractional shares.
2. Delivery and Payment.
(a) Payment for the Firm Shares to be sold hereunder is to be
made in New York Clearing House funds by wire transfers to an account designated
in writing by the Company for the Shares to be sold by it against delivery of
certificates therefor to the Representatives for the several accounts of the
Underwriters. Such payment and delivery are to be made at the offices of Stoel
Rives LLP, 900 S.W. Fifth Avenue, Suite 2300, Portland, Oregon, at 7:00 a.m.,
Portland time, on the fourth business day after the date of this Agreement or at
such other time and date not later than four business days thereafter as you and
the Company shall agree upon, such time and date being herein referred to as the
"Closing Date." (As used herein, "business day" means a day on which the New
York Stock Exchange is open for trading and on which banks in New York are open
for business and not permitted by law or executive order to be closed.)
(b) To the extent the Option is exercised, delivery of the
Option Shares against payment by the Underwriters (in the manner specified
above) will take place at the offices specified above at the time and date
(which may be the Closing Date) specified in the Option Shares Notice.
(c) Certificates evidencing the Shares shall be in definitive
form and shall be registered in such names and such denominations as the
Representatives shall request at least two business days prior to the Closing
Date or the Option Closing Date, as the case may be, by written notice to the
Company. For the purpose of expediting the checking and
<PAGE> 3
packaging of certificates for the Shares, the Company agrees to make such
certificates available for inspection at 10:00 a.m. Pacific time on the business
day preceding the Closing Date or the Option Closing Date, as the case may be.
(d) The cost of any original issue tax stamps and any transfer
or other taxes in connection with the issuance and delivery of the Firm Shares
and Option Shares by the Company to the respective Underwriters shall be borne
by the Company. The Company will save each Underwriter and any subsequent holder
of the Shares harmless from any and all liabilities with respect to or resulting
from any failure or delay by the Company in paying federal and state stamp and
other transfer taxes, if any, that may be payable or determined to be payable in
connection with the original issuance, transfer or sale to such Underwriter of
the Firm Shares and Option Shares. The Underwriters will save the Company
harmless from any and all liabilities with respect to or resulting from any
failure or delay by the Underwriters in paying federal and state stamp and other
transfer taxes, if any, that may be payable or determined to be payable in
connection with the transfer or sale by the Underwriters of the Firm Shares and
Option Shares.
(e) In addition to the sums payable to you as provided
elsewhere herein, you shall be entitled to receive on the Closing Date, for
yourselves alone and not as Representatives of the Underwriters, as additional
compensation for your services for an aggregate purchase price of $10.00 cash,
one or more purchase warrants (collectively, the ARepresentatives' Warrant@) for
the purchase of an aggregate of 250,000 shares of Common Stock at a price of
$[____] per share, upon the terms and subject to adjustment as described in the
form of Representatives' Warrant attached as Exhibit A hereto.
3. Representations and Warranties of the Company.
(a) The Company represents, warrants and covenants to each
Underwriter that:
(i) A registration statement on Form S-1 (File No.
333-61527) with respect to the Shares has been prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as amended (the
"Act"), and the Rules and Regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") thereunder and has been
filed with the Commission. Copies of such registration statement, including any
amendments thereto, the preliminary prospectuses (meeting the requirements of
the Rules and Regulations) contained therein and the exhibits, financial
statements and schedules, as finally amended and revised, have heretofore been
delivered by the Company to you. Such registration statement, as amended,
together with any registration statement filed by the Company pursuant to Rule
462(b) of the Act, herein referred to as the "Registration Statement," which
shall be deemed to include all information omitted therefrom in reliance upon
Rule 430A and contained in the Prospectus referred to below, has been declared
effective by the Commission under the Act and no post-effective amendment to the
Registration Statement has been filed as of the date of this Agreement.
<PAGE> 4
"Prospectus" means (a) the form of prospectus first filed with the Commission
pursuant to Rule 424(b), or (b) if the Company has elected to rely upon Rule 434
of the Act, the last preliminary prospectus included in the Registration
Statement filed prior to the time it becomes effective or filed pursuant to Rule
424(a) under the Act that is delivered by the Company to the Underwriters for
delivery to purchasers of the Shares, together with the term sheet or
abbreviated term sheet filed with the Commission pursuant to Rule 424(b)(7)
under the Act. Each preliminary prospectus included in the Registration
Statement prior to the time it becomes effective is herein referred to as a
"Preliminary Prospectus."
(ii) The Company has been duly organized and is an
active corporation under the laws of the state of Oregon, with corporate power
and authority to own or lease its properties and conduct its business as
described in the Registration Statement. There are no subsidiaries, direct or
indirect, of the Company. The Company is duly qualified to transact business in
all jurisdictions in which the failure so to qualify would have a material
adverse effect on the earnings, business, properties, assets, rights,
operations, condition (financial or other) or prospects of the Company.
(iii) The outstanding shares of Common Stock of the
Company have been duly authorized and validly issued, are fully paid and
nonassessable, were issued in compliance with the registration and qualification
provisions of applicable federal and state securities laws, and were not issued
in violation of or subject to any preemptive rights or other rights to subscribe
for or purchase securities; the Shares to be issued and sold by the Company have
been duly authorized and when issued and paid for as contemplated herein will be
validly issued, fully paid and non-assessable; and no preemptive rights of
shareholders exist with respect to any of the Shares or the issue and sale
thereof. The Redemption and the Merger, as described in the Registration
Statement, were duly and validly authorized by all necessary corporate action by
the Company and (in the case of the Merger) by all necessary corporate action by
ND Holdings, Inc. The Redemption was effected in compliance with ORS 60.181 and
the Merger has taken effect pursuant to Oregon law. Except as and to the extent
described in the Registration Statement, no shareholder or former shareholder of
the Company is a "Dissenter" within the meaning of ORS 60.551 with respect to
the Merger. Neither the filing of the Registration Statement nor the offering or
sale of the Shares as contemplated by this Agreement gives rise to any rights,
other than those that have been waived or satisfied, for or relating to the
registration of any shares of Common Stock. No options, warrants or other rights
to purchase, agreements or other obligations to issue or other rights to convert
any obligations into shares of capital stock or ownership interests in the
Company are outstanding except as set forth in the Prospectus.
(iv) All of the Shares conform to the description
thereof contained in the Registration Statement. The form of certificates for
the Shares conforms to the corporate law of the jurisdiction of the Company's
incorporation.
(v) The Commission has not issued an order preventing
or suspending the use of any Preliminary Prospectus relating to the proposed
offering of the
<PAGE> 5
Shares or, to the Company's knowledge, instituted proceedings for that purpose.
The Registration Statement contains, and the Prospectus and any amendments or
supplements thereto will contain, all statements that are required to be stated
therein by, and will conform to, the requirements of the Act and the Rules and
Regulations. The Registration Statement and any amendment thereto do not
contain, and through the Closing Date will not contain, any untrue statement of
a material fact and do not omit, and through the Closing Date will not omit, to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading. The Prospectus and any amendments and
supplements thereto do not contain, and will not contain, any untrue statement
of material fact and do not omit, and will not omit, to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
provided, however, that the Company makes no representations or warranties as to
information contained in or omitted from the Registration Statement or the
Prospectus, or any such amendment or supplement, in reliance upon, and in
conformity with, written information furnished to the Company by or on behalf of
any Underwriter through the Representatives, specifically for use in the
preparation thereof.
(vi) The financial statements of the Company (other
than pro forma financial statements), together with related notes as set forth
in the Registration Statement, present fairly the financial position and the
results of operations and cash flows of the Company at the indicated dates and
for the indicated periods. Such financial statements have been prepared in
accordance with generally accepted accounting principles, consistently applied
throughout the periods involved, except as disclosed therein, and all
adjustments necessary for a fair presentation of results for such periods have
been made. The summary financial and statistical data included in the
Registration Statement present fairly the information shown therein, and such
data have been compiled on a basis consistent with the financial statements
presented therein. The unaudited pro forma financial statements included in the
Registration Statement and the Prospectus comply as to form in all material
respects with the applicable accounting requirements of the Act and the Rules
and Regulations, and management of the Company believes, (i) the assumptions
underlying the pro forma adjustments are reasonable, (ii) that such adjustments
have been properly applied to the historical amounts in the compilation of such
statements and (iii) that such statements fairly present the pro forma results
of operations and the other information purported to be shown therein for the
respective periods therein specified.
(vii) Arthur Andersen LLP (the "Accountants"), which
has certified certain of the financial statements filed with the Commission as
part of the Registration Statement, is an independent public accountant as
required by the Act and the Rules and Regulations.
(viii) There is no action, suit, claim or proceeding
pending or, to the knowledge of the Company, threatened against the Company
before any court or administrative agency or otherwise that if determined
adversely to the Company might (A) result in any material change in the
earnings, business, properties, assets, rights,
<PAGE> 6
operations, condition (financial or other) or prospects of the Company, or (B)
prevent the consummation of the transactions contemplated hereby, except as set
forth in the Registration Statement, and there are no contracts or documents of
the Company that would be required to be filed as exhibits to the Registration
Statement by the Act or by the Rules and Regulations that have not been filed as
exhibits to the Registration Statement.
(ix) The Company has good and marketable title to all
of the properties and assets reflected as owned in the latest balance sheet
included in the financial statements (or as described in the Registration
Statement) hereinabove described (other than for properties or assets disposed
of in the ordinary course of business since the date of such balance sheet),
subject to no lien, mortgage, pledge, charge or encumbrance of any kind except
those reflected in such financial statements (or as described in the
Registration Statement) or that are not material in amount. The Company occupies
its material leased properties under valid and binding leases conforming in all
material respects to the description thereof set forth in the Registration
Statement.
(x) The Company has filed all federal, state, local
and foreign income tax returns that are required to have been filed by the
Company and has paid all taxes indicated by said returns and all assessments
received by the Company to the extent that such taxes have become due and are
not being contested in good faith. All tax liabilities have been adequately
provided for in the financial statements or records of the Company.
(xi) Since the respective dates as of which
information is given in the Registration Statement, as it may be amended or
supplemented, there has not been any change or, to the Company's knowledge, any
development involving a prospective change in or affecting the earnings,
business, properties, assets, rights, operations, condition (financial or
other), or prospects of the Company that is materially adverse to the Company,
whether or not occurring in the ordinary course of business, and there has not
been any transaction entered into by the Company that is material to the Company
other than transactions in the ordinary course of business and changes and
transactions contemplated by the Registration Statement, as it may be amended or
supplemented.
(xii) The Company is not and, with the giving of
notice or lapse of time or both, will not be in violation of or in default under
its articles of incorporation or bylaws or under any agreement, lease, contract,
indenture or other instrument or obligation to which it is a party or by which
it, or any of its properties, is bound and which default is of material
significance in respect of the business, properties, assets, rights, operations,
condition (financial or other) or prospects of the Company. The execution and
delivery of this Agreement and the consummation of the transactions herein
contemplated and the fulfillment of the terms hereof will not conflict with or
result in a breach of any of the terms or provisions of, or constitute a default
under, any indenture, mortgage, deed of trust or other agreement or instrument
to which the Company is a party, or of the articles of incorporation, charter or
bylaws of the Company or any order, rule or regulation applicable
<PAGE> 7
to the Company of any court or of any regulatory body or administrative agency
or other governmental body having jurisdiction.
(xiii) The Company has full legal right, power and
authority to enter into this Agreement and perform the transactions contemplated
hereby and to file the Registration Statement, and each has been duly
authorized, executed and delivered by the Company, and this Agreement
constitutes a valid and binding obligation of the Company in accordance with its
terms, except as may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general principles of equity (regardless of whether considered
in a proceeding in equity or at law) and to the extent that rights of indemnity
or contribution under this Agreement may be limited by federal or state
securities laws or the public policies underlying such laws. Each approval,
consent, order, authorization, designation, declaration or filing by or with any
regulatory, administrative or other governmental body necessary in connection
with the execution and delivery by the Company of this Agreement and the
consummation by the Company of the transactions herein contemplated (except such
additional steps as may be required by the Commission, the National Association
of Securities Dealers, Inc. (the "NASD") or any additional steps as may be
necessary to qualify the Shares for public offering by the Underwriters under
state securities or Blue Sky laws) has been obtained or made and is in full
force and effect.
(xiv) The Company holds all material licenses,
certificates and permits from governmental authorities that are necessary to the
conduct of its business, and, to the Company's knowledge, the Company has not
infringed any patents, patent rights, trade names, trademarks, copyrights or
other proprietary rights, which infringement is material to the business of the
Company. The Company knows of no current infringement by others of material
patents, patent rights, trade names, trademarks, copyrights or other proprietary
rights owned by or licensed to the Company.
(xv) The Company has not taken and will not take,
directly or indirectly, any action designed to cause or result in, or which has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the shares of Common Stock to
facilitate the sale or resale of the Shares.
(xvi) The Company is not an "investment company"
within the meaning of such term under the Investment Company Act of 1940, as
amended (the "1940 Act") and the rules and regulations of the Commission
thereunder.
(xvii) The Company maintains 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
<PAGE> 8
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.
(xviii) The Company carries, or is covered by,
insurance in such amounts and covering such risks as is adequate for the conduct
of its business and the value of its properties and as is customary for
companies engaged in similar industries.
(xix) The Company is in compliance in all material
respects with all presently applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) for
which the Company would have any liability; the Company has not incurred and
does not expect to incur liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or
4971 of the Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder (the "Code"); and each "pension plan"
for which the Company would have any liability that is intended to be qualified
under Section 401(a) of the Code is so qualified in all material respects and
nothing has occurred, whether by action or by failure to act, that would cause
the loss of such qualification.
4. Agreements of the Company.
(a) The Company agrees with the several Underwriters as
follows:
(i) The Company will not, either prior to the date on
which the Registration Statement is declared effective (the "Effective Date") or
thereafter during such period as the Prospectus is required by law to be
delivered in connection with sales of the Shares by an Underwriter or dealer,
file any amendment or supplement to the Registration Statement or the
Prospectus, unless a copy thereof shall first have been submitted to the
Representatives within a reasonable period of time prior to the filing thereof
and the Representatives shall not have objected thereto in good faith.
(ii) The Company will use its reasonable best efforts
to cause the Registration Statement to become effective and will notify the
Representatives promptly, and will confirm such notification in writing, (1)
when the Registration Statement has become effective and when any post-effective
amendment thereto becomes effective, (2) of any request by the Commission for
amendments or supplements to the Registration Statement or the Prospectus or for
additional information, (3) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the initiation of
any proceedings for that purpose or the threat thereof, (4) of the happening of
any event during the period mentioned in the second sentence of Section 4(a)(v)
that in the judgment of the Company makes any material statement made in the
Registration Statement or the Prospectus untrue or that requires the making of
any changes in the Registration Statement or the Prospectus in order to make the
statements therein, in light of the circumstances in which
<PAGE> 9
they are made, not misleading and (5) of receipt by the Company or any
representative or attorney of the Company of any other communication from the
Commission relating to the Company, the Registration Statement, any preliminary
prospectus or the Prospectus. If at any time the Commission issues any order
suspending the effectiveness of the Registration Statement, the Company will
make every reasonable effort to obtain the withdrawal of such order at the
earliest possible moment. If the Company has omitted any information from the
Registration Statement pursuant to Rule 430A of the Rules and Regulations, the
Company will use its best efforts to comply with the provisions of and make all
requisite filings with the Commission pursuant to said Rule 430A and to notify
the Representatives promptly of all such filings.
(iii) The Company will furnish to the Representatives
or counsel for the Representatives without charge, two signed copies of the
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, and all exhibits thereto and will furnish to
the Representatives, without charge, for transmittal to each of the other
Underwriters, a copy of the Registration Statement and any post-effective
amendment thereto, including financial statements and schedules but without
exhibits.
(iv) The Company will comply with all the provisions
of any undertakings contained in the Registration Statement.
(v) On the Effective Date, and thereafter from time
to time during the period during which the Prospectus is required by law to be
delivered, the Company will deliver to each of the Underwriters, without charge,
as many copies of the Prospectus or any amendment or supplement thereto as the
Representatives may reasonably request. The Company consents to the use of the
Prospectus or any amendment or supplement thereto by the several Underwriters
and by all dealers to whom the Shares may be sold, both in connection with the
offering or sale of the Shares and for any period of time thereafter during
which the Prospectus is required by law to be delivered in connection therewith.
If during such period of time any event shall occur that in the judgment of the
Company or counsel to the Underwriters should be set forth in the Prospectus in
order to make any statement therein, in the light of the circumstances under
which it was made, not misleading, or if it is necessary to supplement or amend
the Prospectus to comply with law, the Company will forthwith prepare and duly
file with the Commission an appropriate supplement or amendment thereto and will
deliver to each of the Underwriters, without charge, such number of copies of
such supplement or amendment to the Prospectus as the Representatives may
reasonably request.
(vi) Prior to any public offering of the Shares, the
Company will cooperate with the Representatives and counsel to the Underwriters
in connection with the registration or qualification of the Shares for offer and
sale under the securities or Blue Sky laws of such jurisdictions as the
Representatives may reasonably request; provided, that in no event shall the
Company be obligated to qualify to do business in any jurisdiction where it is
<PAGE> 10
not now so qualified or to take any action that would subject it to general
service of process in any jurisdiction where it is not now so subject.
(vii) During the period of three years commencing on
the Effective Date, the Company will furnish to the Representatives copies of
such financial statements and other periodic and special reports as the Company
may from time to time distribute generally to the holders of any class of its
capital stock and will furnish to the Representatives a copy of each annual or
other report it shall be required to file with the Commission.
(viii) The Company will make generally available to
holders of its securities as soon as may be practicable but in no event later
than the last day of the fifteenth full calendar month following the calendar
quarter in which the Effective Date falls, an earnings statement (which need not
be audited but shall be in reasonable detail) for a period of 12 months ended
commencing after the Effective Date and satisfying the provisions of Section
11(a) of the Act (including Rule 158 of the Rules and Regulations).
(ix) Whether or not the transactions contemplated by
this Agreement are consummated or this Agreement is terminated, the Company will
pay, or reimburse if paid by the Representatives, all costs and expenses
incident to the performance of the obligations of the Company under this
Agreement, including but not limited to costs and expenses of or relating to (1)
the preparation, printing and filing of the Registration Statement and exhibits
to it, each preliminary prospectus, Prospectus and any amendment or supplement
to the Registration Statement or Prospectus, (2) the preparation and delivery of
certificates representing the Shares, (3) the printing of this Agreement, the
Agreement Among Underwriters, any Dealer Agreements and any Underwriters'
Questionnaires, (4) furnishing (including costs of shipping and mailing) such
copies of the Registration Statement, the Prospectus and any preliminary
prospectus, and all amendments and supplements thereto, as may be reasonably
requested for use in connection with the offering and sale of the Shares by the
Underwriters or by dealers to whom Shares may be sold, (5) the quotation of the
Shares on the Nasdaq National Market System, (6) any filings required to be made
by the Underwriters with the NASD and the fees, disbursements and other charges
of counsel for the Underwriters in connection therewith, (7) the registration or
qualification of the Shares for offer and sale under the securities or Blue Sky
laws of such jurisdictions designated pursuant to Section 4(a)(vi), including
the fees, disbursements and other charges of counsel to the Underwriters in
connection therewith, and the preparation and printing of preliminary,
supplemental and final Blue Sky memoranda, (8) fees, disbursements and other
charges of counsel to the Company (but not those of counsel for the
Underwriters, except as otherwise provided herein) and (9) the transfer agent
for the Shares. In addition, the Company will pay all travel and lodging
expenses incurred by management of the Company in connection with any
informational "road show" meetings held in connection with the offering and will
also pay for the preparation of all materials used in connection with such
meetings. It is understood, however, that except as provided in Sections 4(x)
and 6 below, the Underwriters will pay all of their own costs and expenses,
including the fees of counsel for the Underwriters, stock transfer taxes on
resale of any of the Shares by them and any
<PAGE> 11
advertising expenses connected with any offers they make, together with all
expenses of the road show, other than direct expenses of the Company for travel
and lodging for Company participants in the road show.
(x) If this Agreement is terminated by the Company
pursuant to any of the provisions hereof (other than pursuant to Section 8
hereof) or if for any reason the Company is unable to perform its obligations
hereunder, the Company will reimburse the several Underwriters for all
out-of-pocket expenses (including the fees, disbursements and other charges of
counsel to the Underwriters) reasonably incurred by them in connection herewith.
(xi) The Company will not at any time, directly or
indirectly, take any action designed, or that might reasonably be expected, to
cause or result in, or that will constitute, stabilization of the price of the
shares of Common Stock to facilitate the sale or resale of any of the Shares.
(xii) The Company will apply the net proceeds from
the offering and sale of the Shares to be sold by the Company in the manner set
forth in the Prospectus under "Use of Proceeds" and shall file such reports with
the Commission with respect to the sale of the Shares and the application of the
proceeds therefrom as may be required in accordance with Rule 463 under the Act.
(xiii) The Company will not, and will cause each of
its officers, directors and the shareholders designated on Schedule II to enter
into an agreement (the "Lockup Agreements") with the Representatives to the
effect that they will not, without the prior written consent of Cruttenden Roth
Incorporated, offer, sell, offer to sell, contract to sell, assign, grant any
option to purchase, or otherwise dispose of or transfer any Common Stock of the
Company or any other security of the Company, convertible into, or exchangeable
or exercisable for, Common Stock for a period of 360 days after the date of the
Prospectus except (i) directors, officers and shareholders may make bona fide
gifts to donees who agree to be bound by such restrictions and (ii) the Company
may issue Common Stock or options to purchase Common Stock under the Company's
stock option plans described in the Prospectus.
5. Conditions of the Obligations of the Underwriters. The obligations
of each Underwriter hereunder are subject to the following conditions:
(a) Notification that the Registration Statement has become
effective shall be received by the Representatives not later than 5:00 p.m., New
York City time, on the date of this Agreement or at such later date and time as
shall be consented to in writing by the Representatives and all filings required
by Rule 424 and Rule 430A of the Rules and Regulations shall have been made, and
the Shares shall be qualified or registered for sale in such jurisdictions as
the Representatives shall request, except where the failure to qualify or
<PAGE> 12
register Shares would not, in the reasonable judgment of the Representatives,
have a material adverse effect on its ability to market the Shares.
(b) (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall be pending or threatened by the Commission, (ii) no order
suspending the effectiveness of the Registration Statement or the qualification
or registration of the Shares under the securities or Blue Sky laws of any
applicable jurisdiction shall be in effect, and no proceeding for such purpose
shall be pending before or threatened or contemplated by the authorities of any
such jurisdiction, except where the failure to qualify or register Shares in
such jurisdiction would not, in the reasonable judgment of the Representatives,
have a material adverse effect on its ability to market the Shares, (iii) any
request for additional information on the part of the staff of the Commission or
any such authorities shall have been complied with to the satisfaction of the
staff of the Commission or such authorities and (iv) after the date hereof no
amendment or supplement to the Registration Statement or the Prospectus shall
have been filed unless a copy thereof was first submitted to the Representatives
and the Representatives do not object thereto in good faith, and the
Representatives shall have received certificates, dated the Closing Date and the
Option Closing Date and signed by the Chief Executive Officer and the Chief
Financial Officer of the Company (who may, as to proceedings threatened and
clause (iii) above, rely upon the best of their information and belief) to the
effect of clauses (i), (ii) and (iii).
(c) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, (i) there shall not have
been a material adverse change in the general affairs, business, business
prospects, properties, management, condition (financial or other) or results of
operations of the Company, whether or not arising from transactions in the
ordinary course of business, in each case other than as set forth in or
contemplated by the Registration Statement and the Prospectus and (ii) the
Company shall not have sustained any material loss or interference with its
business or properties from fire, explosion, flood or other casualty, whether or
not covered by insurance, or from any labor dispute or any court or legislative
or other governmental action, order or decree, that is not set forth in the
Registration Statement and the Prospectus, if in the reasonable judgment of the
Representatives any such development makes it impracticable or inadvisable to
consummate the sale and delivery of the Shares by the Underwriters at the public
offering price.
(d) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there shall have been no
litigation or other proceeding instituted against the Company or any of its
officers or directors in their capacities as such, before or by any federal,
state or local court, commission, regulatory body, administrative agency or
other governmental body, domestic or foreign, in which litigation or proceeding
an unfavorable ruling, decision or finding would materially and adversely affect
the business, properties, business prospects, condition (financial or other) or
results of operations of the Company.
<PAGE> 13
(e) Each of the representations and warranties of the Company
contained herein shall be true and correct in all material respects at the
Closing Date and, with respect to the Option Shares, at the Option Closing Date,
and all covenants and agreements contained herein to be performed on the part of
the Company and all conditions contained herein to be fulfilled or complied with
by the Company at or prior to the Closing Date and, with respect to the Option
Shares, at or prior to the Option Closing Date, shall have been duly performed,
fulfilled or complied with.
(f) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, the opinion of Perkins Coie
LLP, counsel for the Company dated the Closing Date or the Option Closing Date,
as the case may be, addressed to the Underwriters to the effect that:
(i) The Company has been duly organized and is an
active corporation under the laws of the state of Oregon, with corporate power
and authority to own or lease its properties and conduct its business as
described in the Registration Statement; the Company is duly qualified to
transact business in all jurisdictions in which the failure so to qualify would
have a materially adverse effect upon the business of the Company.
(ii) The Company has authorized and outstanding
capital stock as set forth under the caption "Capitalization" in the Prospectus;
the authorized shares of the Company's Common Stock have been duly authorized.
The outstanding shares of the Company's Common Stock have been duly authorized
and validly issued, are fully paid and non-assessable, and to the actual
knowledge of such counsel were not issued in violation of or subject to any
preemptive rights or other rights to subscribe for or purchase securities. The
outstanding shares of the Company's Common Stock were issued in compliance with
the registration and qualification provisions of applicable federal and state
securities laws. The Redemption and the Merger, as described in the Registration
Statement, were duly and validly authorized by all necessary corporate action by
the Company and (in the case of the Merger) by all necessary corporate action by
ND Holdings, Inc. The Redemption was effected in compliance with ORS 60.181 and
the Merger has taken effect pursuant to Oregon law. Except as and to the extent
described in the Registration Statement, to the actual knowledge of such
counsel, no shareholder or former shareholder of the Company is a "Dissenter"
within the meaning of ORS 60.551 with respect to the Merger. All of the Shares
conform to the description thereof contained in the Prospectus; the certificates
for the Shares comply as to form with the requirements of Oregon law. The Shares
of Common Stock to be sold by the Company pursuant to this Agreement have been
duly authorized and will be validly issued, fully paid and non-assessable when
issued and paid for as contemplated by this Agreement. No preemptive rights of
shareholders exist under any statute or, to the actual knowledge of such
counsel, otherwise with respect to any of the Shares or the issue or sale
thereof.
<PAGE> 14
(iii) Except as described in or contemplated by the
Prospectus, to the actual knowledge of such counsel, there are no (a)
outstanding securities of the Company convertible or exchangeable into or
evidencing the right to purchase or subscribe for, any shares of capital stock
of the Company or (b) outstanding or authorized options, warrants or rights of
any character obligating the Company to issue any shares of its capital stock or
any securities convertible or exchangeable into or evidencing the right to
purchase or subscribe for any shares of such stock, and, except as described in
the Prospectus, to the actual knowledge of such counsel, no holder of any
securities of the Company or any other person has the right, contractual or
otherwise, which has not been satisfied or effectively waived to cause the
Company to sell or otherwise issue to them, or to permit them to underwrite the
sale of, any of the Shares or the right to have any shares of Common Stock or
other securities of the Company included in the Registration Statement or the
right, as a result of the filing of the Registration Statement, to require
registration under the Act of any shares of Common Stock or other securities of
the Company.
(iv) The Registration Statement has been declared
effective under the Act and, to the actual knowledge of such counsel, no stop
order proceedings with respect thereto have been instituted or are pending or
threatened under the Act.
(v) The Registration Statement, the Prospectus and
each amendment or supplement thereto complied as as of their respective
effective or filing dates as to form in all material respects with the
requirements of the Act and the Rules and Regulations (except that such counsel
need express no opinion as to the financial statements and the notes thereto
complied and other financial and statistical data included therein or omitted
therefrom).
(vi) The statements under the captions "Risk
Factors--Shares Eligible for Future Sale," "Risk Factors--Potential Issuance of
Preferred Stock; Anti-Takeover Effect of Oregon Law," "Description of Capital
Stock," and "Shares Eligible for Future Sale" in the Prospectus, insofar as such
statements constitute a summary of matters of law, are correct in all material
respects.
(vii) Such counsel does not know of any contracts or
documents required to be filed as exhibits to the Registration Statement or
described in the Registration Statement or the Prospectus that are not so filed
or described as required by the Act, and such contracts and documents as are
summarized in the Registration Statement or the Prospectus are fairly and
accurately summarized in all material respects.
(viii) Such counsel knows of no material legal or
governmental proceedings pending or threatened against the Company except as set
forth in the Prospectus.
(ix) The execution and delivery of this Agreement and
the consummation of the transactions herein contemplated do not and will not
conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, the
<PAGE> 15
articles of incorporation or bylaws of the Company or any agreement or
instrument known to such counsel to which the Company is a party or by which the
Company may be bound (except for such conflicts, breaches and defaults under
such agreements and instruments that would not have a materially adverse effect
upon the business of the Company).
(x) This Agreement has been duly and validly
authorized by all necessary corporate action by the Company, has been duly and
validly executed and delivered by and on behalf of the Company and is a valid,
binding and enforceable agreement of the Company in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization or other laws relating to or affecting creditor's rights
generally or by general principles of equity (regardless of whether considered
in a proceeding in equity or at law) and except as to those provisions relating
to indemnity or contribution for liabilities arising under the Act as to which
no opinion need be expressed.
(xi) No approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory, administrative or
other governmental body is required to be made or obtained by the Company in
connection with the execution and delivery of this Agreement by the Company and
the consummation by the Company of the transactions herein contemplated (other
than as may be required by the NASD or as required by state securities and Blue
Sky laws as to which such counsel need express no opinion), except such as have
been obtained or made specifying the same.
(xii) The Company is not, and will not become, as a
result of the consummation of the transactions contemplated by this Agreement
and application of the net proceeds therefrom as described in the Prospectus,
required to register as an investment company under the 1940 Act.
In addition to the matters set forth above, such counsel shall
also provide to the Representatives a letter to the effect that nothing has come
to the attention of such counsel which causes it to believe that (i) the
Registration Statement, at the time it became effective under the Act (but after
giving effect to any modifications incorporated therein pursuant to Rule 430A
under the Act) and as of the Closing Date or the Option Closing Date, as the
case may be, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) the Prospectus, or any supplement
thereto, on the date it was filed pursuant to the Rules and Regulations and as
of the Closing Date or the Option Closing Date, as the case may be, contained an
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the 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 and
the other financial and statistical data included therein or omitted therefrom.
With respect to such statement, counsel for the Company may state that their
belief is based upon the procedures set forth therein but is without independent
investigation or verification.
<PAGE> 16
(g) The Representatives shall have received from Stoel Rives
LLP, counsel for the Underwriters, an opinion dated the Closing Date or the
Option Closing Date, as the case may be, substantially to the effect specified
in the penultimate sentence of subparagraph (ii) and subparagraph (x) of
Paragraph (f) of this Section 5 and that the Company is a duly incorporated and
validly existing corporation under the laws of the state of Oregon. 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 that leads
them to believe that (i) the Registration Statement, or any amendment thereto,
as of the time it became effective under the Act (but after giving effect to any
modifications incorporated therein pursuant to Rule 430A under the Act) as of
the Closing Date or the Option Closing Date, as the case may be, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
and (ii) the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact necessary in order to make the
statements, in the light of the circumstances under which they are made, not
misleading (except that such counsel need express no view as to financial
statements, schedules and statistical information therein). With respect to such
statement, counsel for the Underwriters may state that their belief is based
upon the procedures set forth therein but is without independent check and
verification.
(h) The Representatives shall have received at or prior to the
Closing Date from counsel for the Underwriters a memorandum or summary, in form
and substance satisfactory to the Representatives, with respect to the
qualification for offering and sale by the Underwriters of the Shares under the
state securities or Blue Sky laws of such jurisdictions as the Representatives
may reasonably have designated to the Company.
(i) Concurrently with the execution and delivery of this
Agreement, the Accountants shall have furnished to the Representatives a letter,
dated the date of its delivery, addressed to the Representatives and in form and
substance reasonably satisfactory to the Representatives, confirming that they
are independent accountants with respect to the Company as required by the Act
and the Rules and Regulations and with respect to certain financial and other
statistical and numerical information contained in the Registration Statement.
At the Closing Date and, as to the Option Shares, the Option Closing Date, the
Accountants shall have furnished to the Representatives a letter, dated the date
of its delivery, that shall confirm, on the basis of a review in accordance with
the procedures set forth in the letter from the Accountants, that nothing has
come to their attention during the period from the date of the letter referred
to in the prior sentence to a date (specified in the letter) not more than five
days prior to the Closing Date and the Option Closing Date, as the case may be,
that would require any change in their letter dated the date hereof if it were
required to be dated and delivered at the Closing Date and the Option Closing
Date.
(j) Concurrently with the execution and delivery of this
Agreement and at the Closing Date and, as to the Option Shares, the Option
Closing Date, there shall be
<PAGE> 17
furnished to the Representatives a certificate of the Company, dated the date of
its delivery, signed by each of the Chief Executive Officer and the Chief
Financial Officer and on behalf of the Company, in form and substance
satisfactory to the Representatives, to the effect that:
(i) Each signer of such certificate has carefully
examined the Registration Statement and the Prospectus on behalf of the Company.
As of the date of such certificate, such documents are true and correct in all
material respects and do not omit to state a material fact required to be stated
therein or necessary in order to make the statements therein not untrue or
misleading. In the case of the certificate delivered at the Closing Date and the
Option Closing Date, since the Effective Date no event has occurred as a result
of which it is necessary to amend or supplement the Prospectus in order to make
the statements therein not untrue or misleading in any material respect.
(ii) Each of the representations and warranties of
the Company contained in this Agreement were, when originally made, and are, at
the time such certificate is delivered, true and correct in all material
respects.
(iii) Each of the covenants required to be performed
by the Company herein on or prior to the date of such certificate has been duly,
timely and fully performed, and each condition herein required to be satisfied
or fulfilled on or prior to the date of such certificate has been duly, timely
and fully satisfied or fulfilled.
(k) On or prior to the Closing Date, the Representatives shall
have received the executed agreements referred to in Section 4(a)(xiii).
(l) Prior to the Closing Date, the Shares shall have been duly
authorized for listing on the Nasdaq National Market System upon notice of
issuance.
6. Indemnification.
(a) The Company will indemnify and hold harmless each
Underwriter, the directors, officers, employees and agents of each Underwriter
and each person, if any, who controls each Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act from and against any and
all losses, claims, liabilities, expenses and damages (including any and all
investigative, legal and other expenses reasonably incurred in connection with,
and, subject to Section 6(c) below, any reasonable amount paid in settlement of,
any action, suit or proceeding or any claim asserted) to which they, or any of
them, may become subject under the Act, the Exchange Act or other federal or
state statutory law or regulation, at common law or otherwise, insofar as such
losses, claims, liabilities, expenses or damages arise out of or are based on
any untrue statement or alleged untrue statement of a material fact contained in
any preliminary prospectus, the Registration Statement or the Prospectus or any
amendment or supplement to the Registration Statement or the Prospectus, or the
omission or alleged omission to state in such document a material fact required
to be stated in it or necessary to make the statements in it not misleading in
<PAGE> 18
light of the circumstances in which they were made, provided that the Company
will not be liable to the extent that such loss, claim, liability, expense or
damage arises from the sale of the Shares in the public offering to any person
by an Underwriter and is based on an untrue statement or omission or alleged
untrue statement or omission made in reliance on and in conformity with
information furnished in writing to the Company by the Representatives on behalf
of any Underwriter expressly for inclusion in the Registration Statement, the
preliminary prospectus or the Prospectus, and provided further that the Company
will not be liable to any Underwriter, the directors, officers, employees or
agents of such Underwriter or any person controlling such Underwriter with
respect to any loss, claim, liability, expense, charge or damage arising out of
or based on any untrue statement or omission or alleged untrue statement or
omission in any preliminary prospectus that is corrected in the Prospectus if
the person asserting any such loss, claim, liability, charge or damage purchased
Shares but was not sent or given a copy of the Prospectus at or prior to the
written confirmation of the sale of such Shares to such person. This indemnity
agreement will be in addition to any liability that the Company might otherwise
have.
(b) Each Underwriter will indemnify and hold harmless the
Company, each person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, each director of the
Company and each officer of the Company who signs the Registration Statement to
the same extent as the foregoing indemnity from the Company to each Underwriter,
but only insofar as losses, claims, liabilities, expenses or damages arise out
of or are based on any untrue statement or omission or alleged untrue statement
or omission made in reliance on and in conformity with information furnished in
writing to the Company by the Representatives on behalf of such Underwriter
expressly for use in the Registration Statement, the preliminary prospectus or
the Prospectus. The Company acknowledges that the statements set forth in the
last paragraph of the front cover page of the Prospectus, in the legend on the
inside front cover of the preliminary prospectus and the Prospectus, and under
the heading "Underwriting" in the preliminary prospectus and the Prospectus
constitute the only information furnished in writing to the Company by the
Representatives on behalf of the Underwriters expressly for inclusion in the
Registration Statement, the preliminary prospectus or the Prospectus. This
indemnity will be in addition to any liability that each Underwriter might
otherwise have.
(c) Any party that proposes to assert the right to be
indemnified under this Section 6 will, promptly after receipt of notice of
commencement of any action against such party in respect of which a claim is to
be made against an indemnifying party or parties under this Section 6, notify
each such indemnifying party of the commencement of such action, enclosing a
copy of all papers served, but the omission so to notify any such indemnifying
party will not relieve it from any liability that it may have to any indemnified
party under the foregoing provisions of this Section unless, and only to the
extent that, such omission materially prejudices the indemnifying party as a
result thereof. If any such action is brought against any indemnified party and
it notifies the indemnifying party of its commencement, the indemnifying party
will be entitled to participate in and, to the extent that it elects by
delivering written notice to the indemnified party promptly after receiving
notice of the
<PAGE> 19
commencement of the action from the indemnified party, jointly with any other
indemnifying party similarly notified, to assume the defense of the action, with
counsel reasonably satisfactory to the indemnified party, and after notice from
the indemnifying party to the indemnified party of its election to assume the
defense, the indemnifying party will not be liable to the indemnified party for
any legal or other expenses except as provided below and except for the
reasonable costs of investigation subsequently incurred by the indemnified party
in connection with the defense. The indemnified party will have the right to
employ its own counsel in any such action, but the fees, expenses and other
charges of such counsel will be at the expense of such indemnified party unless
(1) the employment of counsel by the indemnified party has in such instance been
authorized in writing by the indemnifying party, (2) the indemnified party has
reasonably concluded (based on advice of counsel) that there may be legal
defenses available to it or other indemnified parties that are different from or
in addition to those available to the indemnifying party, (3) a conflict or
potential conflict exists (based on advice of counsel to the indemnified party)
between the indemnified party and the indemnifying party (in which case the
indemnifying party will not have the right to direct the defense of such action
on behalf of the indemnified party) or (4) the indemnifying party has not in
fact employed counsel to assume the defense of such action within a reasonable
time after receiving notice of the commencement of the action, in each of which
cases the reasonable fees, disbursements and other charges of counsel will be at
the expense of the indemnifying party or parties. It is understood that the
indemnifying party or parties shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable fees,
disbursements and other charges of more than one separate firm admitted to
practice in such jurisdiction at any one time for all such indemnified party or
parties. All such fees, disbursements and other charges will be reimbursed by
the indemnifying party promptly as they are incurred, provided that reasonable
evidence thereof is provided to the indemnifying party. Any indemnifying party
will not be liable for any settlement of any action or claim effected without
its written consent (which consent will not be unreasonably withheld).
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in the foregoing
paragraphs of this Section 6 is applicable in accordance with its terms but for
any reason is held to be unavailable from the Company or the Underwriters, the
Company and the Underwriters will contribute to the total losses, claims,
liabilities, expenses and damages (including any investigative, legal and other
expenses reasonably incurred in connection with, and, subject to Section 6(c)
above, any amount paid in settlement of, any action, suit or proceeding or any
claim asserted, but after deducting any contribution received by the Company
from persons other than the Underwriters or by the Underwriters from persons
other than the Company, to which the Company or one or more of the Underwriters
may be subject in such proportion as shall be appropriate to reflect the
relative benefits received by the Company and the Underwriters. The relative
benefits received by the Company and the Underwriters shall be deemed to be in
the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bears 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
<PAGE> 20
Prospectus. If, but only if, the allocation provided by the foregoing sentence
is not permitted by applicable law, the allocation of contribution shall be made
in such proportion as is appropriate to reflect not only the relative benefits
referred to in the foregoing sentence but also the relative fault of the Company
and the Underwriters, with respect to the statements or omissions that resulted
in such loss, claim, liability, expenses or damage, or action in respect
thereof, as well as any other relevant equitable considerations with respect to
such offering. Such relative fault shall be determined by reference to whether
the untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by the Company
or the Representatives on behalf of the Underwriters, the intent of the parties
and their relative knowledge, access to information and opportunity to correct
or prevent such statement or omission. The Company and the Underwriters agree
that it would not be just and equitable if contributions pursuant to this
Section 6(d) were to be determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other method
of allocation that does not take into account the equitable considerations
referred to herein. The amount paid or payable by an indemnified party as a
result of the loss, claim, liability, expense or damage, or action in respect
thereof, referred to above in this Section 6(d) shall be deemed to include, for
purposes of this Section 6(d), any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 6(d), (i) no
Underwriter shall be required to contribute any amount in excess of the
underwriting discounts received by it and (ii) no person found guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
will be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute as
provided in this Section 6(d) are several in proportion to their respective
underwriting obligations and not joint. For purposes of this Section 6(d), any
person who controls a party to this Agreement within the meaning of the Act will
have the same rights to contribution as that party, and each director and
officer of the Company who signed the Registration Statement will have the same
rights to contribution as the Company, subject in each case to the provisions
hereof. Any party entitled to contribution, promptly after receipt of notice of
commencement of any action against any such party in respect of which a claim
for contribution may be made under this Section 6(d), will notify any such party
or parties from whom contribution may be sought, but the omission so to notify
will not relieve the party or parties from whom contribution may be sought from
any other obligation it or they may have under this Section 6(d) unless, and
only to the extent that, as a result thereof such omission materially prejudices
the party or parties from whom contribution may be sought. No party will be
liable for contribution with respect to any action or claim settled without its
written consent (which consent will not be unreasonably withheld).
(e) The indemnity and contribution agreements contained in
this Section 6 and the representations and warranties of the Company contained
in this Agreement shall remain operative and in full force and effect regardless
of (i) any investigation made by or on behalf of the Underwriters or the
Company, (ii) acceptance by the Underwriters of any of the Shares and payment
therefor or (iii) any termination of this Agreement.
<PAGE> 21
7. Termination. The obligations of the several Underwriters under this
Agreement may be terminated at any time on or prior to the Closing Date (or,
with respect to the Option Shares, on or prior to the Option Closing Date) by
notice to the Company from the Representatives, without liability on the part of
any Underwriter to the Company if, prior to delivery and payment for the Shares,
as the case may be, (i) trading in any of the equity securities of the Company
shall have been suspended by the Commission, by an exchange that lists the
Shares or by the Nasdaq National Market System, (ii) trading in securities
generally on the New York Stock Exchange or the Nasdaq Stock Market shall have
been suspended or limited or minimum or maximum prices shall have been generally
established on such exchange, or additional material governmental restrictions,
not in force on the date of this Agreement, shall have been imposed upon trading
in securities generally by such exchange or by order of the Commission or any
court or other governmental authority, (iii) a general banking moratorium shall
have been declared by either federal or New York State authorities or (iv) in
the reasonable opinion of the Representatives, there is any material adverse
change in the financial or securities markets in the United States or in
political, financial or economic conditions in the United States or any outbreak
or material escalation of hostilities or other calamity or crisis shall have
occurred, the effect of which is such as to make it, in the reasonable judgment
of the Representatives, impracticable to market the Shares.
8. Substitution of Underwriters. If any one or more of the Underwriters
shall fail or refuse to purchase any of the Firm Shares that it or they have
agreed to purchase hereunder, and the aggregate number of Firm Shares that such
defaulting Underwriter or Underwriters agreed but failed or refused to purchase
is not more than one-tenth of the aggregate number of Firm Shares, the other
Underwriters shall be obligated, severally, to purchase the Firm Shares that
such defaulting Underwriter or Underwriters agreed but failed or refused to
purchase in the proportions that the number of Firm Shares that they have
respectively agreed to purchase pursuant to Section 1 bears to the aggregate
number of Firm Shares that all such nondefaulting Underwriters have so agreed to
purchase, or in such other proportions as the Representatives may specify;
provided that in no event shall the maximum number of Firm Shares that any
Underwriter has become obligated to purchase pursuant to Section 1 be increased
pursuant to this Section 8 by more than one-ninth of such number of Firm Shares
without the prior written consent of such Underwriter. If any Underwriter or
Underwriters shall fail or refuse to purchase any Firm Shares and the aggregate
number of Firm Shares that such defaulting Underwriter or Underwriters agreed
but failed or refused to purchase exceeds one-tenth of the aggregate number of
the Firm Shares and arrangements satisfactory to the Representatives and the
Company for the purchase of such Firm Shares are not made within 48 hours after
such default, this Agreement will terminate without liability on the part of any
nondefaulting Underwriter or the Company for the purchase or sale of any Shares
under this Agreement. In the event that within the 48-hour period referred to
above, the Representatives notify the Company that they have so arranged for the
purchase of such Firm Shares, or the Company notifies the Representatives that
it has so arranged for the purchase of such Firm Shares, either the
Representatives or the Company shall have the right
<PAGE> 22
to postpone the Closing Date, but in no event for longer than seven days, in
order that the required changes, if any, in the Registration Statement and the
Prospectus or in any other documents or arrangements may be effected. Any action
taken pursuant to this Section 8 shall not relieve any defaulting Underwriter
from liability in respect of any default of such Underwriter under this
Agreement.
9. Miscellaneous. Notice given pursuant to any of the provisions of
this Agreement shall be in writing and, unless otherwise specified, shall be
mailed or delivered (a) if to the Company, at the office of the Company, 9805 SW
Boeckman Road, Wilsonville, Oregon, 97070, Attention: Chief Financial Officer,
with a copy to Patrick J. Simpson, Perkins Coie LLP, 1211 SW Fifth Avenue, 15th
Floor, Portland, Oregon, 97204, or (b) if to the Underwriters, to the
Representatives at the offices of Cruttenden Roth Incorporated, 24 Corporate
Plaza, Newport Beach, California 92660, Attention: Corporate Finance Department
with a copy to Todd A. Bauman, Stoel Rives LLP, 900 SW Fifth Avenue, Suite 2300,
Portland, Oregon 97204. Any such notice shall be effective only upon receipt.
Any notice may be made by telex, telephone or facsimile, but if so made shall be
subsequently confirmed in writing.
This Agreement has been and is made solely for the benefit of
the several Underwriters and the Company and of the controlling persons,
directors and officers referred to in Section 6, and their respective successors
and assigns, and no other person shall acquire or have any right under or by
virtue of this Agreement. The term "successors and assigns" as used in this
Agreement shall not include a purchaser, as such purchaser, of Shares from any
of the several Underwriters.
This Agreement shall be governed by and construed in
accordance with the laws of the state of Oregon applicable to contracts made and
to be performed entirely within such state.
This Agreement may be signed in two or more counterparts with
the same effect as if the signatures thereto and hereto were upon the same
instrument.
In case any provision in this Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
The Company and the Underwriters each hereby waive any right
they may have to a trial by jury in respect of any claim based upon or arising
out of this Agreement or the transactions contemplated hereby.
<PAGE> 23
Please confirm that the foregoing correctly sets forth the
agreement among the Company and the several Underwriters.
Very truly yours,
G.I. JOE'S, INC.
By:
-----------------------------------------
Norman P. Daniels
Chief Executive Officer, President and
Chairman of the Board
Confirmed as of the date first above mentioned:
CRUTTENDEN ROTH INCORPORATED
BLACK & COMPANY, INC.
Acting on behalf of themselves and as the
Representatives of the other several
Underwriters named in Schedule I hereof.
By: CRUTTENDEN ROTH INCORPORATED
By:
--------------------------------------
Title:
<PAGE> 24
SCHEDULE I
UNDERWRITERS
Number of
Firm Shares To Be
Underwriter Purchased
Cruttenden Roth Incorporated
Black & Company, Inc.
Total
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
G.I. JOE'S, INC.
ARTICLE I
OFFICES
The principal office shall be in Wilsonville, Oregon. The Corporation
may also have offices at such other places within or without Oregon as the Board
of Directors may from time to time determine or as the business of the
Corporation may require.
ARTICLE II
SHAREHOLDERS
Section 1. ANNUAL MEETINGS: The annual meeting of the shareholders
shall be held within ninety (90) days immediately prior to, or immediately
after, the end of the Corporation's fiscal year. At the annual meeting, the
shareholders shall elect a Board of Directors and transact any other business
that may legally come before the meeting.
Section 2. SPECIAL MEETINGS: Special meetings of the shareholders may
be called by the President, the Board of Directors, or shareholders holding at
least twenty-five percent (25%) of all votes entitled to be cast on any issue
proposed to be considered at the special meeting.
Section 3. PLACE OF MEETINGS: Meetings of the shareholders shall be
held at the Corporation's principal office or any other place designated by the
Board of Directors.
Section 4. NOTICE OF MEETINGS: Written or printed notice stating the
date, time and place of the meeting and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be given not earlier
than sixty (60) days nor less than ten (10) days before the meeting date, either
personally or by mail, by or at the direction of the President, the Secretary,
the Board of Directors or the persons calling the meeting, to each shareholder
of record entitled to receive notice of the meeting. The notice is effective
when mailed, if it is mailed postpaid and is correctly addressed to the
shareholders' addresses shown in the Corporation's current record of
shareholders.
Section 5. PROOF OF NOTICE: An entry of the service of notice of a
meeting of the shareholders, given in the manner above provided, shall be made
in the minutes of the proceedings of the shareholders, and such entry, if read
and approved at the next meeting of the shareholders, shall be conclusive on the
question of such service.
PAGE 1 - BYLAWS
<PAGE> 2
Section 6. QUORUM: A majority of the shares entitled to vote,
represented in person or by proxy, shall constitute a quorum at a meeting of
shareholders. If a quorum is present, the affirmative vote of the majority of
the shares represented at the meeting and entitled to vote on the subject matter
shall be the act of the shareholders. The shareholders present at a duly
organized meeting may continue to transact business until adjournment,
not-withstanding the withdrawal of enough shareholders to leave less than a
quorum.
Section 7. ADJOURNMENT: Any regular or special meeting of the
shareholders may adjourn from day to day, or from time to time, without further
notice, until its business is completed; and any regular or special meeting of
the shareholders may adjourn from day to day, or from time to time, without
further notice, if for any reason the holders of a majority of the shares of
stock of the Corporation entitled to vote are not present, in person or by
proxy, until a quorum shall attend, such adjournment and the reasons therefor
being recorded in the minutes of the proceedings of the shareholders. When a
quorum shall attend, any business may be transacted that might have been held on
the day on which the same originally was appointed or called.
Section 8. PRESIDING OFFICER: The President, or in the President's
absence, the Vice President, or in the absence of the President and Vice
President, a Chairman, elected by the shareholders present, shall call the
meetings of the shareholders to order and shall act as a presiding officer
thereof.
Section 9. SECRETARY: The Secretary of the Corporation shall act as
Secretary at all meetings of the shareholders, and in the Secretary's absence,
the presiding officer may appoint any person to act as Secretary.
Section 10. ELECTION OF BOARD: At the regular Annual Meeting of the
shareholders, the shareholders entitled to vote shall elect a Board of Directors
as constituted by these Bylaws. Every shareholder entitled to vote at such
election shall have the right to vote, in person or by proxy, the number or
shares owned by such shareholder for as many persons as there are Directors to
be elected and for whose election such shareholder has a right to vote.
Section 11. VOTING: At each meeting of the shareholders, each
shareholder shall have the right to vote, in person or by proxy, the number of
common shares entitled to vote standing in the shareholder's own name on the
books of the Corporation. Notwithstanding the foregoing, the shares held by an
administrator, executor, guardian, conservator, or receiver may be voted by such
person, either in person or by proxy, without a transfer of such shares into the
name of the administrator, executor, guardian, conservator, or receiver.
Section 12. MAJORITY VOTE: When a quorum is present or represented at
any meeting in person or by proxy and entitled to vote on the subject matter,
action on any matter, other than the election of directors, is approved if the
votes cast favoring the action exceed the votes cast opposing the action, unless
the vote of a greater number is required by law, the Articles of Incorporation
or these Bylaws, in which case the contrary provision shall be controlling.
PAGE 2 - BYLAWS
<PAGE> 3
Section 13. PROXIES: All proxies must be in writing, executed by the
shareholders themselves or by their duly authorized attorney-in-fact, and must
be filed with the Secretary of the Corporation at or before the meeting of
shareholders. No proxy shall be valid after eleven months from the date of its
execution, unless otherwise provided in the proxy.
ARTICLE III
BOARD OF DIRECTORS
Section 1. NUMBER, QUALIFICATIONS, AND TERM OF OFFICE: The management
of all the affairs, property and business of the Corporation shall be vested in
a Board of Directors, except as otherwise provided in this paragraph, consisting
of between a minimum of one (1) and a maximum of seven (7) persons, inclusive,
and the exact number between such minimum and maximum shall be fixed from time
to time by resolution of the Board of Directors, but no decrease shall have the
effect of shortening the term of an incumbent Director. The Board of Directors
shall elect a Chairman, who shall have the authority to call meetings of the
Board of Directors. Each director shall be elected by a majority of the votes
cast by the shares entitled to vote in the election at a shareholders' meeting
for a term of one (1) year, and shall hold office until their successors are
elected and qualified, or until death, resignation or removal. Directors need
not be shareholders or residents of the State of Oregon. In addition to the
powers and authority expressly conferred upon it by these Bylaws and the
Articles of Incorporation, the Board of Directors may exercise all powers of the
Corporation and may do all lawful acts that are not by statute or by the
Articles of Incorporation or by these Bylaws directed or required to be
exercised or done by the shareholders.
Section 2. VACANCIES: All vacancies in the Board of Directors, whether
caused by resignation, death or removal, by a majority vote of the shareholders
represented at any meeting, may be filled by appointment by the remaining
Directors. A Director thus appointed to fill any vacancy shall hold office for
the unexpired term of such Director's predecessor and until such Director's
successor is elected and qualified, or until the death, resignation, or removal
of the appointed Director.
Section 3. ANNUAL MEETINGS: A regular annual meeting of the Board of
Directors shall be held without notice other than this bylaw immediately after
the adjournment of the annual meeting of the shareholders.
Section 4. SPECIAL MEETINGS: Special meetings of the Board of
Directors may be called at any time and place on the order of the Chairman of
the Board, President, Secretary or on the order of any member of the Board of
Directors.
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Section 5. NOTICE OF SPECIAL MEETINGS: Notices of special meetings of
the Board of Directors, stating the date and hour, the place, and, in general
terms, the purpose(s) shall be mailed, telegraphed or personally delivered to
the Directors not later than five (5) days before the day appointed for the
meeting. An entry of the service of the notice, given in the manner above
provided, shall be made in the minutes of the proceedings of the Board of
Directors, and such entry, if read and approved at the next meeting of the Board
of Directors, shall be conclusive on the question of service. If all of the
Directors shall be present at any Directors' meeting, however called, any
business may be transacted at such meeting, and the transactions of such meeting
shall be valid as if had at a meeting regularly called.
Section 6. PLACE OF MEETINGS: Meetings of the Board of Directors shall
be at the Corporation's principal office or any other place designated by the
Board of Directors. Meetings of the Board of Directors may be held by means of
conference telephone or similar communications equipment by which all persons
participating may simultaneously hear each other during the meeting. A director
participating in a meeting by this means is deemed to be present in person at
the meeting.
Section 7. WAIVER OF NOTICE: A director's attendance at or
participation in a meeting waives any required notice of the meeting unless the
director at the beginning of the meeting, or promptly upon the director's
arrival, objects to holding the meeting, or transacting business at the meeting
and does not there-after vote for or assent to action taken at the meeting.
Section 8. QUORUM: A majority of the number of directors in office
immediately before the meeting begins shall constitute a quorum for the
transaction of business at any meeting of the Board of Directors. The
affirmative vote of a majority of directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors, unless the vote of
a greater number of directors is required by law, the Articles of Incorporation
or these Bylaws, in which case the contrary provision shall control.
Section 9. REMOVAL: Any director may be removed by the shareholders,
with or without cause. A director may be removed by the shareholders only at a
meeting called for the purpose of removing the director and the meeting notice
must state that the purpose, or one of the purposes, of the meeting is removal
of the director.
Section 10. RESIGNATION: A director may resign at any time by
delivering written notice to the Board of Directors, its chairman or the
Corporation. A resignation is effective when delivered, unless the notice
specifies a later effective date, and the Board of Directors accepts the later
date. Once delivered, a notice of resignation is irrevocable unless revocation
is permitted by the Board of Directors. Unless otherwise specified in the
notice, the acceptance of such resignation shall not be necessary to make it
effective.
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Section 11. COMPENSATION: By resolution of the Board of Directors, the
directors (i) may be paid their expenses, if any, of attendance at each meeting
of the Board of Directors, and (ii) may be paid a fixed sum for attendance at
each meeting or a stated salary as director, or (iii) may be paid any
combination of the foregoing. No such payments shall prevent any director from
serving the Corporation in any other capacity and receiving compensation for
that service. Members of committees may be allowed similar compensation for
attending committee meetings.
Section 12. COMMITTEES: The Board of Directors may create one or more
committees and appoint members of the Board of Directors to serve on them. Each
committee shall have two (2) or more members, who serve at the pleasure of the
Board of Directors. Creation of a committee and appointment of members to it
shall be approved by a majority of all the directors in office when the action
is taken. Any such committee shall have and may exercise such authority as
authorized by the Board of Directors in the management of the Corporation except
to the extent such delegation of authority is prohibited by law. Until further
action by the Board of Directors, there shall be two (2) authorized committees,
an Audit Committee and a Compensation Committee.
Section 13. PRESUMPTION OF ASSENT: A director of the Corporation who
is present at a meeting of the Board of Directors or a committee of the Board of
Directors shall be presumed to have assented to the action taken:
(a) Unless the director's dissent to the action is entered in the
minutes of the meeting;
(b) Unless a written dissent to the action is filed with the person
acting as the Secretary of the meeting before the adjournment thereof or
forwarded by certified or registered mail to the Secretary of the Corporation
immediately after the adjournment of the meeting; or
(c) Unless the director objects at the meeting to the holding of the
meeting or transacting business at the meeting. The right to dissent shall not
apply to a director who voted in favor of the action.
ARTICLE IV
OFFICERS
Section 1. DESIGNATION: The officers of this Corporation shall be a
President and a Secretary, and shall be appointed by the Board of Directors. The
Board of Directors may appoint additional officers or assistant officers, as
necessary from time to time including a Treasurer and one or more
Vice-Presidents. If not appointed by the Board of Directors, the President may
appoint additional officers or assistant officers from time to time. Any two or
more offices may be held by the same person.
Section 2. APPOINTMENT: The officers shall be appointed by the Board
of Directors at the first meeting after the organization of the Corporation and
thereafter, at the regular meeting of Directors after the Annual Meeting of the
shareholders, and they shall hold office for one year, unless removed by the
Board of Directors, and until their successors are appointed.
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Section 3. COMPENSATION: The compensation of the officers and
employees of the Corporation shall be fixed by the Board of Directors.
ARTICLE V
DUTIES OF OFFICERS
Section 1. PRESIDENT: The President shall be the chief executive
officer of the Corporation. The President shall preside at all the meetings of
the shareholders and of the Board of Directors. The President shall execute,
with the Secretary, in the name of the Corporation, all deeds, bonds, contracts
and other obligations and instruments authorized by the Board of Directors to be
executed, and with the Secretary shall sign all certificates of stock of the
Corporation. The President shall also have such other powers and perform such
other duties as may be assigned to that office by the Board of Directors.
Section 2. VICE PRESIDENT: The Vice President, if such office is
created by the Board of Directors, shall assist the President in the performance
of the President's duties; and whenever, for any reason, the President is unable
to act, the Vice President shall possess the powers and perform the duties of
the President; and, in the event of the death or resignation of the President,
the Vice President shall, until a new President is elected by the Board of
Directors, possess all the powers and perform all of the duties of the
President. The Vice President shall also have such other powers and shall
perform such other duties as may be assigned to that office by the Board of
Directors.
Section 3. SECRETARY: The Secretary shall keep the minutes of all
proceedings of the shareholders and of the Board of Directors in books provided
for that purpose. The Secretary shall attend to the giving and service of notice
of all meetings of the shareholders and of the Board of Directors and otherwise.
The Secretary shall execute with the President, in the name of the Corporation,
all deeds, bonds, contracts and other obligations and instruments authorized by
the Board of Directors to be executed, and with the President shall sign all
certificates for shares of the Corporation. The Secretary shall be the custodian
of the corporate seal of the Corporation, and when so ordered by the Board of
Directors shall affix the seal to deeds, bonds, contracts, and other obligations
and instruments. The Secretary shall keep and have charge of the journal of the
meetings of the shareholders and of the Board of Directors, the stock and
transfer book, the book of stock certificates, the Bylaws, and such other books
and papers as the Board of Directors may direct. The Secretary shall, in
general, perform all the duties incident to the office of Secretary subject to
the control of the Board of Directors.
Section 4. TREASURER: The Treasurer, if such office is created by the
Board of Directors, shall perform such duties as are incident to the office of
Treasurer or as are required of the Treasurer by law and by the Board of
Directors.
Section 5. VACANCIES: If any office becomes vacant by reason of death,
resignation, removal or otherwise, the Board of Directors shall elect a
successor who shall hold office for the unexpired term and until the successor
is elected.
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Section 6. ABSENCE OR INABILITY TO ACT: In the case of absence or
inability to act of any officer of the Corporation and of any person herein
authorized to act in such officer's place, the Board of Directors may from time
to time delegate the powers or duties of such officer to any other officer, or
any Director or other person whom it may select.
ARTICLE VI
INDEMNIFICATION
Section 1. RIGHTS TO INDEMNIFICATION; STANDARD OF CONDUCT:
1.1 Nonderivative Actions. Subject to the provisions of this Article,
the Corporation shall indemnify and hold harmless any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative,
or investigative (including all appeals (other than an action by or in the right
of the Corporation)), by reason of or arising from the fact that the person is
or was a director or officer of the Corporation or is or was serving at the
request of the Corporation as a director, officer, partner, or trustee of
another foreign or domestic corporation, partnership, joint venture, trust
employee benefit plan or other enterprise against reasonable expenses (including
attorney's fees), judgments, fines, penalties, excise taxes assessed with
respect to any employee benefit plan and amounts paid in settlement actually and
reasonably incurred by the person to be indemnified in connection with such
action, suit or proceeding if the person:
(a) Acted in good faith;
(b) Reasonably believed his conduct to be in, or at least not opposed
to, the best interests of the Corporation; and
(c) With respect to any criminal action or proceeding, did not know
and had no reasonable cause to believe the conduct was unlawful.
1.2 Derivative Actions. Subject to the provisions of this Article, the
Corporation shall indemnify and hold harmless any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit (including all appeals) by or in the right of the Corporation by
reason of or arising from the fact that the person is or was a director of
officer of the Corporation or is or was serving at the request of the
Corporation as a director, officer, partner, or trustee of another foreign or
domestic corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise, against reasonable expenses (including attorneys' fees)
actually incurred by the person to be indemnified in connection with such
action, suit or proceeding if the person:
(a) Acted in good faith;
(b) Reasonably believed his conduct to be in, or at least not opposed
to, the best interests of the Corporation; and
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(c) With respect to any criminal action or proceeding, did not know
and had no reasonable cause to believe the conduct was unlawful.
However, no indemnification shall be made hereunder in connection with
any action suit or proceeding by or in the right of the Corporation in which
such person shall have been adjudged to be liable to the Corporation.
1.3 Effect of Plea of Nolo Contendere. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a presumption
that the person did not meet the above-described standard of conduct.
1.4 Improper Personal Benefit. The Corporation shall not indemnify any
person in connection with any suit, action or proceeding charging improper
personal benefit to such person in the event such person is adjudged liable by
reason of having improperly received personal benefit unless indemnification is
ordered by a court of competent jurisdiction.
1.5 Conduct with Respect to Employee Benefit Plan. The conduct of an
officer or director with respect to an employee benefit plan shall meet the
requirement of Sections 1.1 and 1.2 that such person must have reasonably
believed his conduct to be in or at least not opposed to the best interests of
the Corporation if the person acted for a purpose he reasonably believed to be
in the interests of the plan participants and beneficiaries.
1.6 Reports to Shareholders. In the event the Corporation indemnifies
or advances expenses in connection with a proceeding described in Section 1.2,
the Corporation shall report such indemnification or advance to the shareholders
with or before notice of the next shareholders' meeting.
1.7 Initiation of Proceedings. The Corporation shall indemnify any
person seeking indemnification hereunder 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, except proceedings to enforce
indemnification hereunder for which such person shall be indemnified to the
extent such person is successful in whole or in part.
Section 2. DETERMINATION AND AUTHORIZATION OF RIGHT TO INDEMNIFICATION
OF CERTAIN CASES:
2.1 Determination of Right to Indemnification. Indemnification under
Section 1 of this Article shall not be made by the Corporation unless it is
expressly determined that indemnification is proper in the circumstances because
the person to be indemnified has met the applicable standard of conduct set
forth in Section 1. That determination may be made by any of the following:
(a) By the Board of Directors by majority vote of a quorum consisting
of directors who are not at the time parties to the action, suit or
proceeding;
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(b) If a quorum cannot be obtained under paragraph (a) of this
subsection, by majority vote of a committee duly designated by the Board of
Directors consisting solely of two or more directors not at the time
parties to the proceeding (directors who are parties to the proceeding may
participate in designation of the committee);
(c) By special legal counsel selected by the Board of Directors or its
committee in the manner prescribed in (a) or (b), or if a quorum of the
Board of Directors cannot be obtained under (a) and a committee cannot be
designated under (b), the special legal counsel shall be selected by
majority vote of the full Board of Directors, including directors who are
parties to the proceeding; or
(d) By the shareholders.
2.2 Authorization of indemnification. Authorization of indemnification
and evaluation of reasonableness of expenses shall be made in the same manner as
set forth in Section 2.1, except that if the determination is made by special
legal counsel, the authorization and evaluation shall be made by a majority vote
of those entitled under Section 2.1(c) to select the legal counsel.
Section 3. INDEMNIFICATION OF PERSONS OTHER THAN OFFICERS OR
DIRECTORS: In the event any person not included within the group of persons
referred to in Section 1 of this Article was or is a party or is threatened to
be made a party to any threatened pending or completed action, suit or
proceeding of a type referred to in Section 1 of this Article by reason of or
arising from the fact that such person is or was an employee or agent (including
an attorney) of the Corporation or one of its subsidiaries, or is or was serving
at the request of the Corporation as an employee or agent (including an attorney
of another foreign or domestic Corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, the Board of Directors of the
Corporation by a majority vote of a quorum (whether or not such quorum consists
in whole or part of directors who were parties to such action, suit or
proceeding) may, but shall not be required to, grant to such person a right of
indemnification as if the person were an officer or director referred to herein,
provided that such person meets the applicable standard of conduct set forth
herein. Furthermore, the Board of Directors may designate by resolution in
advance of any action, suit or proceeding, those employees or agents (including
attorneys) who shall have all right of indemnification granted to officers and
directors under this Article.
Section 4. SUCCESSFUL DEFENSE: Notwithstanding the provisions of
Sections 1 and 2 of this Article, to the extent a director or officer is
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Sections 1 or 2 of this Article, or in defense of any
claim, issue or matter therein, the Corporation shall indemnify that person
against expenses (including attorney's fees) actually and reasonably incurred by
him in connection therewith.
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Section 5. ADVANCES FOR EXPENSES: Reasonable expenses incurred by a
person indemnified hereunder in connection with a civil, criminal,
administrative or investigative action, suit or proceeding (including all
appeals) or threat thereof, shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt by the
Corporation of an undertaking by or on behalf of such person to repay such
expenses if it shall ultimately be determined that the person is not entitled to
be indemnified by the Corporation and a written affirmation of the person's good
faith belief that he has met the applicable standard of conduct. The undertaking
must be a general personal obligation of the party receiving the advances, but
need not be secured and may be accepted without reference to financial ability
to make repayment.
Section 6. RIGHT OF CLAIMANT TO BRING SUIT:
6.1 A person seeking indemnification or payment pursuant to Section 1
of this Article shall submit a written claim therefor to the Board of Directors.
If such claim under Section 1 of this Article is not paid in full be the
Corporation within 60 days after a written claim has been received by the
Corporation, except in the case of a claim for reasonable expenses incurred in
connection with a proceeding in advance of its final disposition, in which case
the applicable period shall be 30 days, the claimant may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the claim.
6.2 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 Oregon Business
Corporation Act for the Corporation to indemnify the claimant for the amount
claimed, but the burden of proving such defense shall be on the Corporation.
6.3 Neither the failure of the Corporation, including its Board of
Directors, independent legal counsel or its shareholders, to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in the Oregon Business Corporation Act nor an
actual determination by the Corporation, including its Board of Directors,
independent legal counsel or its shareholders, 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.
6.4 In the event a claimant brings suit against the Corporation
pursuant to this Section 6, then to the extent the claimant is successful, the
claimant shall be entitled to be paid reasonable expenses incurred in presenting
such claim, but to the extent the Corporation is successful in defending such
claim, the claimant shall be required to pay the reasonable expenses of the
Corporation in defending such claim.
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Section 7. INSURANCE: The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation or one of its subsidiaries or is or was serving at the
request of the Corporation as a director, officer, partner, trustee, employee or
agent of another foreign or domestic Corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise against any liability asserted
against and incurred by that person in any such capacity arising out of his
status as such, whether or not the Corporation would have the power to indemnify
that person against such liability under the provisions of this Article or under
the Oregon Business Corporation Act.
Section 8. NONEXCLUSIVITY: The indemnification referred to in this
Article shall be deemed to be in addition to and not in lieu of any other rights
to which those indemnified may be entitled under any statute, rule of law or
equity, order issued by a court of competent jurisdiction, agreement, vote of
the Board of Directors or otherwise. The provisions of this Article shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall issue to the benefit of the heirs, executors and administrators
of such person. The Corporation is authorized to enter into agreements of
indemnification.
Section 9. SEVERABILITY: If any provision of this Article is found, in
any action, suit or proceeding, to be invalid or ineffective, the validity and
the effect of the remaining provisions shall not be affected.
Section 10. EFFECT OF STATUTE: The Corporation shall indemnify any
person who is or was a director or officer of the Corporation, or who is or was
serving at the request of the Corporation as a director, officer, partner or
trustee of another foreign or domestic Corporation, partnership, joint venture,
trust, employees benefit plan or other enterprise to the fullest extent
permitted by the Oregon Business Corporation Act as in effect as of the date of
the adoption of these provisions and as may be subsequently amended; provided,
however, in the event such subsequent amendment reduces or diminishes such
person's rights to indemnification, such amendments shall not apply to the
extent permitted by law.
ARTICLE VII
CORPORATE RECORDS - INSPECTION
Section 1. MAINTENANCE OF RECORDS: The Corporation shall maintain
adequate and correct books, records and accounts of its business and properties.
Except as otherwise provided by law, all of these books, records and accounts
shall be kept at its principal office.
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Section 2. INSPECTION OF BOOKS AND RECORDS: A shareholder of the
Corporation is entitled to inspect and copy, during regular business hours at a
reasonable location specified by the Corporation, all books, records and
accounts of the Corporation if the shareholder gives the Corporation written
notice of the shareholder's demand at least five (5) business days before the
date on which the shareholder wishes to inspect and copy. The shareholder may
inspect and copy such records only if the shareholder's demand is made in good
faith and for a proper purpose; the shareholder describes with reasonable
particularity the shareholder's purpose and the records the shareholder desires
to inspect; and the records are directly connected with the shareholder's
purpose.
Section 3. INSPECTION OF BYLAWS AND ARTICLES OF INCORPORATION: A
shareholder of the Corporation is entitled to inspect and copy, during regular
business hours at the Corporation's principal office, the Articles of
Incorporation and all amendments or restatements, the Bylaws and all amendments
or restatements and any resolution adopted by the Board of Directors, if the
shareholder gives the Corporation written notice of the shareholder's demand at
least five (5) business days before the date on which the shareholder wishes to
inspect and copy. The Corporation may impose a reasonable charge covering the
costs of labor and materials for copies of any documents provided to the
shareholder. Such charge may not exceed the estimated cost of production or
reproduction of the records.
ARTICLE VIII
STOCK AND CERTIFICATES FOR STOCK
Section 1. FORMS: Certificates for shares of this Corporation shall be
issued in such form as shall be provided by the Board of Directors and shall
fully comply with the laws of the state of its incorporation. The certificates
shall be signed by the President and by the Secretary. The signatures of such
officers on a certificate may be facsimiles if the certificate is countersigned
by a transfer agent, or registered by a registrar, other than the corporation
itself or an employee of the corporation. All certificates for shares or stock
shall be consecutively numbered or otherwise identified. The name and address of
the person to whom the shares represented thereby are issued, with the number of
shares and date of issue, shall be entered on the stock transfer books of the
corporation. All certificates surrendered to the corporation for transfer shall
be canceled and no new certificates shall be issued until the former certificate
for a like number of shares shall have been surrendered and canceled, except
that in case of a lost, stolen, destroyed, or mutilated certificate a new
certificate may be issued therefor pursuant to Article VIII, Section 3 hereof on
such terms and indemnity to the corporation as the board of directors may
prescribe.
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Section 2. TRANSFER ON THE BOOKS: Upon surrender to the Corporation of
a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, the Corporation shall issue a
new certificate to the person entitled to that certificate, cancel the old
certificate and record the transaction upon its stock transfer books. Transfer
of shares of stock of the corporation shall be made only on the stock transfer
books of the corporation by the holder of record thereof or by his or her legal
representative, who shall furnish proper evidence of authority to transfer, or
by his or her attorney thereunto authorized by power of attorney duly executed
and filed with the secretary of the corporation, and on surrender for
cancellation of the certificate for such shares. The person in whose name shares
of stock stand on the books of the corporation shall be deemed by the
corporation to be the owner thereof for all purposes.
Section 3. LOST, STOLEN OR DESTROYED CERTIFICATES: In the event a
certificate is represented to be lost, stolen or destroyed, a new certificate
shall be issued in place of that certificate upon such proof of the loss, theft
or destruction and upon the giving of a bond or other security as may be
required by the Board of Directors.
ARTICLE IX
ACTION WITHOUT MEETING
Any action required to be taken at a meeting of the shareholders or
Directors of this Corporation, or any action which may be taken at a meeting of
this Corporation's shareholders or Directors, may be taken without a meeting if
a consent in writing setting forth the action so taken is signed by all those
entitled to participate at such meeting. Such consent shall have the same force
and effect as the unanimous vote at a duly called, convened and conducted
meeting of the shareholders or Directors.
ARTICLE X
CONTRACTS WITH INTERESTED DIRECTORS
No contract or other transaction between this Corporation and any
other Corporation shall be affected by the fact that any Director of this
Corporation is interested in, or is a director or officer of, such other
Corporation, and any Director, individually or jointly, may be a party to, or
may be interested in, any con-tract or transaction of this Corporation or in
which this Corporation is interested. No contract or other transaction of this
Corporation with any person, firm, or Corporation, shall be affected by the fact
that any Director of this Corporation is a party to, or is interested in, such
contract, act, or transaction, or in any way connected with such person, firm,
or Corporation, and every person who may become a Director of this Corporation
is hereby relieved from any liability that might otherwise exist from
contracting with the Corporation for the benefit of such person or any firm,
association, or Corporation in which such person may be in any way interested.
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ARTICLE XI
DIVIDENDS AND FINANCE
Section 1. DIVIDENDS. Dividends may be declared by the Board of
Directors and paid by the Corporation in the manner provided for by the Oregon
Business Corporation Act. The stock transfer books may be closed for the payment
of dividends during such periods of not exceeding sixty (60) days, as from time
to time may be fixed by the Board of Directors. The Board of Directors, however,
without closing the books of the Corporation, may declare dividends payable only
to the holders of record at the close of business, on any business day not more
than sixty (60) days prior to the date on which the dividend is paid.
Section 2. DEPOSITORIES: The monies of the Corporation shall be
deposited in the name of the Corporation in such bank or banks or trust company
or trust companies as the Board of Directors shall designate, and shall be drawn
out only by check or other order for payment of money signed by such persons and
in such manner as may be determined by resolution of the Board of Directors.
ARTICLE XII
GENERAL PROVISIONS
Section 1. AMENDMENT OF BYLAWS: The Board of Directors may amend or
repeal these Bylaws, except as otherwise provided by law.
Section 2. WAIVER OF NOTICE: Whenever a notice is required to be given
to any shareholder or director of this Corporation by law, the Articles of
Incorporation or these Bylaws, a written waiver of that notice describing the
meeting for which notice is waived and signed by the person entitled to the
notice, before or after the meeting stated in the notice, and delivered to the
Corporation for inclusion in the minutes of the meeting, shall be equivalent to
giving notice.
Section 3. EXECUTION OF DOCUMENTS: Unless otherwise specified by
resolution of the Board of Directors, any documents may be executed on behalf of
the Corporation by the President or other officer or officers as may be
designated by the President.
ARTICLE XIII
AMENDMENTS, REVISIONS AND REPEAL
The power to amend, revise or repeal these Bylaws, or to adopt new
Bylaws, shall be solely vested in the Board of Directors.
EFFECTIVE DATE: ______________, 199__.
/s/
-----------------------------------------
____________________, Secretary
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AMENDMENTS
Article and Section Date Text
- ------------------- ---- ----
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Effective July 1, 1998:
The second sentence of Article VIII, Section 1, of the Restated Bylaws shall be
deleted. The following text shall be inserted after the first sentence of this
section:
The certificates shall be signed by at least two officers of the
Corporation. If one individual holds two or more offices, that individual
may sign in all capacities with one signature. If an individual holds two
or more offices at the time he or she signs a certificate, it shall be
conclusively presumed that individual is signing in all official
capacities, and therefore signing as "two officers of the corporation," in
satisfaction of ORS 60.161(4) and this Article of the Bylaws.
<PAGE> 1
Exhibit 10.30
WARRANT EXCHANGE AGREEMENT
THIS WARRANT EXCHANGE AGREEMENT (this "Agreement") is dated as of
February 24, 1999, by and between G.I. JOE'S, INC., an Oregon corporation (the
"Company"), and DAVID E. ORKNEY ("Orkney").
RECITALS
A. Orkney, a director of the Company, is the holder of a warrant dated
April 17, 1998 (the "Warrant"), exercisable for a number of shares of the
Company's Common Stock equal to 5% of the Company's Common Stock outstanding, on
a fully diluted basis, on the date of exercise.
B. Effective January 31, 1999, the Company effected a reclassification
of stock pursuant to which each four shares of outstanding stock were
reclassified into three shares of common stock.
C. Orkney and the Company desire to exchange the Warrant for 80,000
post-reclassification shares of the Company's Common Stock.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
agreements and covenants hereinafter set forth, and intending to be legally
bound hereby, the parties hereto hereby agree as follows:
SECTION 1. WARRANT CANCELLATION AND SHARE ISSUANCE
Orkney hereby surrenders the Warrant to the Company for cancellation in
exchange for 80,000 shares of the Company's Common Stock (the "Shares") that the
Company will promptly issue to Orkney. The Shares will be subject to the
Registration Rights Provisions attached hereto as Exhibit A.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF ORKNEY
Orkney represents and warrants to the Company as follows:
2.1 OWNERSHIP OF WARRANT. Orkney is the sole owner of the Warrant, free
and clear of liens, claims, pledges, charges, or encumbrances of any kind and
has made no assignment or transfer of any interest in the Warrant.
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2.2. AUTHORIZATION AND CONSENTS. No declaration, filing, or
registration with, or notice to, or authorization, consent, or approval of, any
governmental or regulatory body or authority or nongovernmental third party, is
necessary for the execution and delivery of this Agreement by Orkney or the
consummation by Orkney of the transactions contemplated by this Agreement.
2.3 PURCHASE ENTIRELY FOR OWN ACCOUNT. The Shares are being acquired by
Orkney for investment for his own account and not with a view to the
distribution of any part thereof.
2.4 INVESTMENT EXPERIENCE; ACCREDITED INVESTOR STATUS. Orkney
acknowledges that the Shares are a speculative risk. Orkney is able to fend for
himself in the transactions contemplated by this Agreement, can bear the
economic risk of his investment (including possible complete loss of such
investment) for an indefinite period of time and has such knowledge and
experience in financial and business matters that he is capable of evaluating
the merits and risks of the investment in the Shares. Orkney understands that
the Shares have not been registered under the United States Securities Act of
1933, as amended (the "Act"), or applicable state or other securities laws, by
reason of reliance upon certain exemptions, and that the reliance of the Company
on such exemptions is predicated upon the accuracy of Orkney's representations
and warranties. Orkney is an "accredited investor" as defined in Rule 501(a) of
Regulation D promulgated under the Act.
2.5 RESTRICTED SHARES. Orkney understands that the Shares are
characterized as "restricted securities" under the Act and applicable
regulations and the Shares may be resold without registration under the Act only
in certain limited circumstances and in accordance with the terms and conditions
set forth in the legend described in Section 2.6 below.
2.6 LEGEND. It is understood that the certificates evidencing the
Shares may bear the following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
APPLICABLE STATE OR OTHER SECURITIES LAWS, AND NO INTEREST THEREIN MAY
BE SOLD, DISTRIBUTED, ASSIGNED, OFFERED, PLEDGED OR OTHERWISE
TRANSFERRED UNLESS (i) THERE IS AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT AND APPLICABLE SECURITIES LAWS COVERING ANY SUCH
TRANSACTION INVOLVING SAID SECURITIES, (ii) THIS CORPORATION RECEIVES
AN OPINION OF LEGAL COUNSEL
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FOR THE HOLDER OF THESE SECURITIES SATISFACTORY TO THIS CORPORATION
THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION, OR (iii) THIS
CORPORATION OTHERWISE SATISFIES ITSELF THAT SUCH TRANSACTION IS EXEMPT
FROM REGISTRATION.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Orkney as follows:
3.1 EXISTENCE OF CORPORATION. The Company is a corporation duly
incorporated and validly existing under the laws of the State of Oregon.
3.2 POWER AND AUTHORITY; GOVERNMENTAL AUTHORIZATION; CONSENTS. The
Company has all requisite power and authority to execute, deliver and perform
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery by the Company of this Agreement and the performance by
the Company of its obligations hereunder have been duly and validly authorized
by all necessary action on the part of the Company, and this Agreement
constitutes its valid and binding obligation of the Company, enforceable against
it in accordance with its terms.
3.3 VALID ISSUANCE OF SHARES. The Shares, when issued, sold and
delivered in accordance with the terms hereof for the consideration expressed
herein, will be duly and validly issued, fully paid and nonassessable, free of
any liens or encumbrances created by the Company.
SECTION 4. SURVIVAL
The representations, warranties, covenants and agreements of the
parties contained herein shall survive and remain in full force and effect after
the Closing, regardless of any investigation made by or on behalf of the Company
or Orkney.
SECTION 5. TAX MATTERS
The Company agrees to indemnify Orkney, in an amount not to exceed
$225,000, against all federal and state income taxes that are or may be payable
by Orkney as a result of the issuance of the Shares in exchange for the
cancellation of the Warrant. Payment by the Company of any amounts due under
this Section 5 in respect of taxes shall be made, subject to receipt from Orkney
of calculations and other materials supporting the tax liability, (i) at least
three calendar days before the due date of the applicable estimated or final tax
return required to be filed by Orkney,
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provided that no such payment shall be due from the Company prior to five
business days following receipt of written notice from Orkney, or (ii) within
five business days following an agreement between the Company and Orkney that an
indemnity amount is payable.
SECTION 6. RELEASE OF CLAIMS
6.1 RELEASE BY ORKNEY. Orkney hereby releases and forever discharges
the Company, its officers, directors, shareholders, and employees, and each of
their respective successors, assigns, representatives, affiliates, agents and
attorneys (collectively, the "Releasees"), from all claims, rights, demands,
damages, expenses (including attorneys' fees), actions or causes of action of
every name, nature, kind and description whatsoever, whether in tort, contract
or statute, that Orkney may have or claim to have now or that may hereafter
arise out of or in connection with any act or omission existing or occurring on
or before the date of this Agreement including, without limitation, those that
relate to any stock, equity or other ownership interest of Orkney in all or any
portion of the Company, or any predecessor, or their respective property or
business (hereinafter, collectively referred to as the "Claims"); provided,
however, that the foregoing shall not release or discharge the Company from any
Claims resulting from the breach of any representations, warranties, covenants
or agreements of the Company contained in this Agreement. Orkney represents and
warrants that there has been no assignment or other transfer of any interest in
any Claims that he may have against the Releasees.
6.2 RELEASE BY THE COMPANY. The Company hereby releases and forever
discharges Orkney and his successors, assigns, representatives, affiliates,
agents and attorneys (collectively, the "Releasees") from all claims, rights,
demands, damages, expenses (including attorneys' fees), actions or cause of
action of every name, nature, kind and description whatsoever, whether in tort,
contract or statute, the Company may have or claim to have now or that may
hereafter arise out of or in connection with any sums paid to Orkney to defray
personal income taxes arising out of the sale of property by the Company. The
Company represents and warrants that there has been no assignment or other
transfer of any interest in the claims that it may have against the Releasees.
SECTION 7. MISCELLANEOUS AND GENERAL
7.1 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings, oral and written, among the
parties hereto with respect to the subject matter hereof.
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7.2 BINDING EFFECT: BENEFIT. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective successors,
assigns, heirs and legal representatives. Nothing express or implied in this
Agreement is intended or shall be construed to confer upon or give to any person
or entity other than the parties hereto, any rights or remedies under, in or by
reason of this Agreement or any transaction contemplated hereby.
7.3 FURTHER ASSURANCES. Each of the parties hereto, upon the request of
the other party hereto, shall do, execute, or cause to be done, executed,
acknowledged and delivered, all such further acts, documents, certificates,
assignments, transfers, conveyances, powers of attorney and assurances as may be
reasonably necessary or desirable to fully complete consummation of the
transactions contemplated by this Agreement.
7.4 WAIVERS AND AMENDMENT. This Agreement may be amended or modified,
and the terms and conditions hereof may be waived, only by a written instrument
signed by the parties or, in the case of a waiver, by the party waiving
compliance. No delay on the part of either party in exercising any right or
remedy hereunder shall operate as a waiver thereof, nor shall any waiver on the
part of either party of any such right or remedy, nor any single or partial
exercise of any such right or remedy, preclude any other or further exercise
thereof or the exercise of any other right or remedy hereunder.
7.5 GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Oregon applicable to agreements
made and to be performed entirely within such State.
7.6 SEVERABILITY. If any provision of this Agreement or the application
of any provision hereof to either party hereto or to any given set of
circumstances is held invalid, the remainder of this Agreement and the
application of such provision to the other party hereto or to other
circumstances shall not be affected, unless the provisions held invalid shall
substantially impair the benefits of the remaining portions of this Agreement.
7.7 COUNTERPARTS. For the convenience of the parties hereto, this
Agreement may be executed in any number of counterparts, each such counterpart
being deemed to be an original instrument, and all such counterparts shall
together constitute the same agreement.
7.8 CAPTIONS. The captions and headings herein are for convenience of
reference only, do not constitute a part of this Agreement, and shall not be
deemed to limit or otherwise affect any of the provisions hereof.
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7.9 NOTICES. All notices, requests, demands, waivers, and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if delivered personally
or mailed, certified or registered mail with postage prepaid, or sent by
telecopier as follows:
If to Orkney, to him at:
2562 S.W. Buckingham Avenue
Portland, OR 97201
If to the Company, to:
G.I. Joe's, Inc.
9805 S.W. Boeckman Road
Wilsonville, OR 97070
Attention: Norm Daniels
Facsimile: (503) 682-7200
or to such other person or address as any party shall specify by notice in
writing. All such notices, requests, demands, waivers, and communications shall
be deemed to have been received (a) on the date of delivery, if delivered during
normal business hours, (b) on the business day immediately following the date of
delivery, if delivered after normal business hours or (c) with respect to mailed
notices, on the third business day after deposit in the U.S. Mail.
7.10 ATTORNEYS' FEES. If any suit or action arising out of or related
to this Agreement is brought by any party, the prevailing party shall be
entitled to recover the costs and fees (including, without limitation,
reasonable attorneys' fees, the fees and costs of experts and consultants,
copying, courier and telecommunication costs, and deposition costs and all other
costs of discovery) incurred by such prevailing party in such suit or action,
including, without limitation, any post-trial or appellate proceeding, or in the
collection or enforcement of any judgment or award entered or made in such suit
or action.
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IN WITNESS WHEREOF, this Warrant Cancellation and Stock Subscription
Agreement has been duly executed and delivered by the parties hereto as of the
date first written above.
/s/ David E. Orkney
------------------------------------------
David E. Orkney
G.I. JOE'S, INC.
By /s/ Norman P. Daniels
----------------------------------------
NAME: NORMAN P. DANIELS
TITLE: PRESIDENT
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EXHIBIT A
REGISTRATION RIGHTS
1. DEFINITION OF CERTAIN TERMS
The following terms shall have the following meanings:
1.1 "ACT" SHALL MEAN THE SECURITIES ACT OF 1933, AS AMENDED.
1.2 "COMMISSION" SHALL MEAN THE SECURITIES AND EXCHANGE
COMMISSION.
1.3 "HOLDER" MEANS ANY PERSON OWNING OR HAVING THE RIGHT TO
ACQUIRE REGISTRABLE SECURITIES.
1.4 "REGISTER," "REGISTERED," AND "REGISTRATION" SHALL MEAN A
REGISTRATION EFFECTED BY PREPARING AND FILING A REGISTRATION STATEMENT IN
COMPLIANCE WITH THE ACT AND THE DECLARATION OR ORDERING OF EFFECTIVENESS OF SUCH
REGISTRATION STATEMENT.
1.5 "REGISTRABLE SECURITIES" SHALL MEAN (i) THE 80,000 SHARES
OF THE COMPANY'S COMMON STOCK (THE "SHARES") DESCRIBED IN THE WARRANT EXCHANGE
AGREEMENT TO WHICH THESE REGISTRATION RIGHTS PROVISIONS ARE ATTACHED AS AN
EXHIBIT AND (ii) ANY COMMON STOCK OF THE COMPANY ISSUED AS (OR ISSUABLE UPON THE
CONVERSION OR EXERCISE OF ANY WARRANT, RIGHT OR OTHER SECURITY THAT IS ISSUED
AS) A DIVIDEND OR OTHER DISTRIBUTION WITH RESPECT TO, OR IN EXCHANGE FOR OR IN
REPLACEMENT OF, THE SHARES, EXCLUDING IN ALL CASES, HOWEVER, ANY REGISTRABLE
SECURITIES SOLD BY A PERSON IN A TRANSACTION IN WHICH SUCH PERSON'S RIGHTS UNDER
THIS SECTION 1 ARE NOT ASSIGNED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 8.
1.6 "REGISTRATION EXPENSES" SHALL MEAN ALL EXPENSES INCURRED
BY THE COMPANY IN COMPLYING WITH THESE REGISTRATION PROVISIONS, INCLUDING
WITHOUT LIMITATION ALL REGISTRATION AND FILING FEES, PRINTING EXPENSES, FEES AND
DISBURSEMENTS OF COUNSEL FOR THE COMPANY, AND BLUE SKY FEES AND EXPENSES.
1.7 "SELLING EXPENSES" SHALL MEAN ALL UNDERWRITING DISCOUNTS
AND SELLING COMMISSIONS APPLICABLE TO THE SALE OF REGISTRABLE SECURITIES OF A
HOLDER AND ALL FEES AND DISBURSEMENTS OF COUNSEL FOR SUCH HOLDER.
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2. COMPANY REGISTRATIONS
2.1 Notice; Request of Inclusion of Shares
If at any time after its initial public offering, the Company
determines to register any of its capital stock for sale to the general public
solely for cash on a form that would also permit sale of the Registrable
Securities, either for its own account or the account of a security holder or
holders exercising demand registration rights, the Company will (i) promptly
give to each Holder written notice thereof and (ii) use its best efforts to
include in such registrations and in any related underwriting all Registrable
Securities specified in a written request by any Holder (which request shall
state the intended method of distribution of the Registrable Securities),
received by the Company within 15 days after receipt of such written notice from
the Company by any Holder, except as set forth in Section 2.2 below.
2.2 UNDERWRITTEN OFFERINGS; MARKET CUT-BACK
If the registration of which the Company gives notice under this
Section 2 is for a registered public offering involving an underwriting, the
Company will so advise the Holders as a part of the written notice given such
Holders pursuant to Section 2.1. In such event the right of any Holder to
registration pursuant to this Section 2 will be conditioned on such Holder's
participation in such underwriting and the inclusion of such Holder's shares in
the underwriting to the extent provided herein. All Holders proposing to
distribute shares through such underwriting will (together with the Company and
the other Holders distributing their securities through such underwriting) enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by the Company. Notwithstanding any
other provision of this Section 2, if the underwriter of the offering determines
that marketing factors require a limitation on the number of shares to be sold
for the account of security holders, the Company may exclude all Registrable
Securities from, or limit the number of Registrable Securities to be included
in, the registration and underwriting. If less than all Registrable Securities
for which registration is sought are to be included in the registration and
underwriting, the number of Registrable Securities included will be reduced pro
rata among the Holders requesting registration based on the number of
Registrable Securities of such Holders for which registration is sought.
3. LIMITS ON REGISTRATIONS
Notwithstanding any other provision of these Registration Rights, the
Company shall not be obligated to register any Registrable Securities if it
furnishes the Holder a written opinion of counsel to the Company that such
Holder will be able to sell all the Registrable Securities that such Holder in
good faith wishes to sell in a three-month
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period pursuant to Rule 144 (or a comparable successor rule adopted by the
Commission).
4. INDEMNIFICATION
4.1 INDEMNIFICATION BY THE COMPANY
The Company will indemnify each Holder distributing shares pursuant to
an underwriting provided for in Section 2, any officers, directors, or partners
of the Holder, if the Holder is an entity, and any person controlling a Holder,
to the extent shares of such Holder have been registered, qualified, or for
which compliance has been effected pursuant to Section 2, and each underwriter,
if any, and each person who controls any underwriter, 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 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, and will reimburse such
Holder, each of its officers, directors, or partners, as the case may be, and
each person controlling such Holder, each such underwriter, and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred by each such person so indemnified in connection with investigating or
defending any such claim, loss, damage, liability, or action; provided, however,
that the Company will not be liable in any such case to the extent any such
claim, loss, damage, liability or expense arises out of or is based on any
untrue statement or omission based on written information furnished to the
Company by such Holder or underwriter specifically for use in the prospectus or
offering circular.
4.2 INDEMNIFICATION BY HOLDERS
Each Holder whose shares are included in the securities for which any
such registration, qualification or compliance is being effected will indemnify
to the extent permitted by law the Company, each of its directors and officers,
each legal counsel and independent accountant of the Company, 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
the Act, and each other shareholder whose shares are included in such
registration, and each of such other shareholder's officers and directors and
each person controlling such 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 prospectus, offering circular or other document,
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including any related registration statement, notification, or the like,
incident to any such registration, qualification or compliance, and will
reimburse the Company, such shareholder, and such directors, officers, persons,
underwriters, or control persons for any legal or any other expenses reasonably
incurred by such persons 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 is made in
such registration statement, prospectus, offering circular, or other document in
reliance on and in conformity with written information furnished to the Company
by the Holder furnishing the same specifically for use therein; provided,
however, that the obligations of any indemnifying Holder hereunder will be
limited to an amount equal to the proceeds to such Holder from the sale of such
Holder's shares in such registration.
4.3 NOTICE; THIRD-PARTY CLAIMS
Each party entitled to indemnification under this Section 4 (such party
being referred to in this Section 4 as the "Indemnified Party") will give notice
to the party required to provide indemnification (such party being referred to
in this Section 4 as the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be sought, and
will permit the Indemnifying Party to assume the defense of any such claim or
any litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who will conduct the defense of such claim or litigation, is approved by
the Indemnified Party (whose approval will not unreasonably be withheld), and
the Indemnified Party may participate in such defense at such party's expense;
provided, however, that, if the Indemnified Party is advised by its counsel that
there may be differing defenses, expenses of counsel will be paid by the
Indemnifying Party, and, provided further, that the failure of any Indemnified
Party to give notice as provided herein will not relieve the Indemnifying Party
of its obligations under this Section 4. No Indemnifying Party, in the defense
of any such claim or litigation, will, 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.
5. EXPENSES
5.1 REGISTRATION EXPENSES
All Registration Expenses incurred in connection with a registration
pursuant to Section 2 will be borne by the Company.
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5.2 SELLING EXPENSES
All Selling Expenses will be borne by the Holder or Holders of the
securities so registered apportioned on a pro rata basis.
5.3 ADJUSTMENTS
Notwithstanding any other provision of this Section 5, the provisions
of this Section 5 shall be deemed amended to incorporate and comply with the
provisions of any applicable state securities laws, regulations, and
administrative policies, and the rules of the National Association of Securities
Dealers, Inc. and stock exchanges upon which the Registrable Securities are or
will be eligible for listing.
6. PROCEDURES
Whenever required under Section 2 to use its best efforts to effect the
registration of any of the Registrable Securities, the Company will, as
expeditiously as reasonably possible: (a) prepare and file with the Commission a
registration statement with respect to such Registrable Securities and use its
best efforts to cause such registration statement to become and remain
effective; (b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to comply with the provisions of the Act with
respect to the disposition of all securities covered by such registration
statement; (c) furnish to each Holder with respect to whom Registrable
Securities are included in such registration statement such numbers of copies of
a prospectus, including a preliminary prospectus, and such other documents as
the Holder reasonably may require to facilitate the disposition of such
Registrable Securities; and (d) use its reasonable efforts to register and
qualify the securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as reasonably are appropriate
for the distribution of the securities covered by such registration statement;
provided, however, that the Company will not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such state or jurisdiction unless the Company is
already subject to service in such jurisdiction; and, provided further, that in
connection with any proposed registration, the Company will in no event be
obligated to cause any such registration to remain effective for more than 90
days.
7. INFORMATION FROM HOLDERS
Each Holder whose shares are included in any registration under Section
2 of this Agreement will furnish in writing to the Company such information
regarding such Holder and the distribution proposed by such Holder as the
Company may
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request in writing and as may be required in connection with registration,
qualification or compliance referred to in Section 2.
8. ASSIGNMENT
Orkney's registration rights may be assigned by Orkney to a transferee
or assignee of the Shares if the Company is given written notice of the
transfer, stating the name and address of the transferee or assignee and
identifying the securities with respect to which such registration rights are
being assigned; provided, however, that such assignment will be effective only
if immediately following such assignment the transferee or assignee holds at
least 50 percent of the Registrable Securities.
9. STAND-OFF AGREEMENT
No Holder who participates in the registration, if so requested by the
Company and an underwriter of securities of the Company, will sell or otherwise
transfer or dispose of any other securities of the Company held by such Holder
other than pursuant to the registration statement during the 180-day period
following and including the effective date of a registration statement;
provided, however, that such Holder's agreement in this Section 9 will apply
only if all officers and directors of the Company enter into similar agreements
in writing in a form satisfactory to the Company and such underwriter covering
shares of Common Stock owned by such officers and directors. The Company may
impose stop transfer instructions with respect to the securities subject to the
restriction in this Section 9 until the end of the 180-day period.
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EXHIBIT 10.31
G.I. JOE'S, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. PURPOSE
The purposes of the G.I. Joe's, Inc. 1999 Employee Stock Purchase Plan
(the "Plan") are (a) to assist employees of G.I. Joe's, Inc., an Oregon
corporation (the "Company"), and its designated subsidiaries in acquiring a
stock ownership interest in the Company pursuant to a plan that is intended to
qualify as an "employee stock purchase plan" under Section 423 of the Internal
Revenue Code of 1986, as amended and (b) to encourage employees to remain in the
employ of the Company and its subsidiaries.
SECTION 2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set
forth below.
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the Company's Compensation Committee.
"COMPANY" means G.I. Joe's, Inc., an Oregon corporation.
"DESIGNATED SUBSIDIARY" has the meaning set forth under the definition
of "Eligible Employee" in this Section 2.
"ELIGIBLE COMPENSATION" means all regular cash compensation including
overtime, cash bonuses and commissions. Regular cash compensation does not
include severance pay, hiring and relocation bonuses, pay in lieu of vacations,
sick leave or any other special payments.
"ELIGIBLE EMPLOYEE" means any employee of the Company or any domestic
Subsidiary Corporation or any other Subsidiary Corporation designated by the
Board or the Committee (each a "Designated Subsidiary"), who is in the employ of
the
<PAGE> 2
Company (or any Designated Subsidiary) on one or more Offering Dates and who
meets the following criteria:
(a) the employee does not, immediately after the option is
granted, own stock (as defined by the Code) possessing 5%
or more of the total combined voting power or value of all
classes of stock of the Company or of a Parent Corporation
or Subsidiary Corporation of the Company;
(b) the employee's customary employment is for more than 20
hours per week; provided, however, that the Plan
Administrator may decrease this minimum requirement for
future Offering Periods; and
(c) the employee has been employed for at least five (5)
months as of the Offering Date.
If the Company permits any employee of a Designated Subsidiary to participate in
the Plan, then all employees of that Designated Subsidiary who meet the
requirements of this paragraph shall also be considered Eligible Employees.
"ENROLLMENT PERIOD" has the meaning set forth in Section 7.1.
"ESPP BROKER" has the meaning set forth in Section 10.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"NEW PURCHASE DATE" has the meaning set forth in Sections 10.2 and 10.3.
"OFFERING" has the meaning set forth in Section 5.1.
"OFFERING DATE" means the first day of an Offering.
"OPTION" means an option granted under the Plan to an Eligible Employee
to purchase shares of Stock.
"PARENT CORPORATION" means any corporation, other than the Company, in
an unbroken chain of corporations ending with the Company, if, at the time of
the granting of the Option, each of the corporations, other than the Company,
owns stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
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<PAGE> 3
"PARTICIPANT" means any Eligible Employee who has elected to participate
in an Offering in accordance with the procedures set forth in Section 7.1 and
who has not withdrawn from the Plan or whose participation in the Plan is not
terminated.
"PLAN" means the G.I. Joe's, Inc. 1998 Employee Stock Purchase Plan.
"PURCHASE DATE" means the last day of each Purchase Period.
"PURCHASE PERIOD" has the meaning set forth in Section 5.2.
"PURCHASE PRICE" has the meaning set forth in Section 6.
"STOCK" means the common stock of the Company.
"SUBSCRIPTION" has the meaning set forth in Section 7.1.
"SUBSIDIARY CORPORATION" means any corporation, other than the Company,
in an unbroken chain of corporations beginning with the Company, if, at the time
of the granting of the Option, each of the corporations, other than the last
corporation in the unbroken chain, owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
SECTION 3. ADMINISTRATION
3.1 PLAN ADMINISTRATOR
The Plan shall be administered by the Board or the Committee or, if and
to the extent the Board or the Committee designates an executive officer of the
Company to administer the Plan, by such executive officer (each, the "Plan
Administrator"). Any decisions made by the Plan Administrator shall be
applicable equally to all Eligible Employees.
3.2 ADMINISTRATION AND INTERPRETATION BY THE PLAN ADMINISTRATOR
Subject to the provisions of the Plan, the Plan Administrator shall have
the authority, in its sole discretion, to determine all matters relating to
Options granted under the Plan, including all terms, conditions, restrictions
and limitations of Options; provided, however, that all Participants granted
Options pursuant to the Plan shall have the same rights and privileges within
the meaning of Code Section 423. The Plan Administrator shall also have
exclusive authority to interpret the Plan and may from time to time adopt, and
change, rules and regulations of general application for the Plan's
administration. The Plan Administrator's interpretation of the Plan and its
rules and regulations, and all actions taken and determinations made by the Plan
Administrator pursuant to the Plan, unless reserved to the Board or the
Committee,
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<PAGE> 4
shall be conclusive and binding on all parties involved or affected. The Plan
Administrator may delegate administrative duties to such of the Company's other
officers or employees as the Plan Administrator so determines.
SECTION 4. STOCK SUBJECT TO PLAN
Subject to adjustment from time to time as provided in Section 10, the
maximum number of shares of Stock which shall be available for issuance under
the Plan shall be 300,000 shares, plus an annual increase to be added on the
first day of the Company's fiscal year beginning in 2000 equal to the lesser of
(a) 10,500 shares, (b) 0.125% of the adjusted average common shares outstanding
of the Company used to calculate fully diluted earnings per share as reported in
the Annual Report to shareholders for the preceding year, or (c) a lesser amount
determined by the Board; provided, however, that any shares from any increases
in previous years that are not actually issued shall be added to the aggregate
number of shares available for issuance under the Plan. Shares issued under the
Plan shall be drawn from authorized and unissued shares or shares now held or
subsequently acquired by the Company as treasury shares.
SECTION 5. OFFERING DATES
5.1 OFFERING PERIODS
(a) Except as otherwise set forth below, the Plan shall be implemented
by a series of Offerings (each, an "Offering"). Offerings shall commence on
January 1 and July 1 of each year and end on the next June 30 and December 31,
respectively, occurring thereafter; provided, however, that the first Offering
shall begin on April 1, 1999, or such later date as approved by the Plan
Administrator.
(b) Notwithstanding the foregoing, the Plan Administrator may establish
(i) a different term for one or more Offerings and (ii) different commencing and
ending dates for such Offerings; provided, however, that an Offering may not
exceed five years; and provided, further, that if the Purchase Price may be less
than 85% of the fair market value of the Stock on the Purchase Date, the
Offering may not exceed 27 months.
(c) In the event the first or the last day of an Offering is not a
regular business day, then the first day of the Offering shall be deemed to be
the next regular business day and the last day of the Offering shall be deemed
to be the last preceding regular business day. An employee who becomes eligible
to participate in the Plan after an Offering has commenced shall not be eligible
to participate in such Offering but may participate in any subsequent Offering,
provided that such employee is still
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<PAGE> 5
an Eligible Employee as of the commencement of any such subsequent Offering.
Eligible Employees may not participate in more than one Offering at a time.
5.2 PURCHASE PERIODS
Each Offering shall consist of one or more consecutive purchase periods
(each, a "Purchase Period"). The last day of each Purchase Period shall be the
Purchase Date for such Purchase Period. Except as otherwise set forth below,
each Purchase Period shall commence on January 1 and July 1 of each year and end
on the next June 30 and December 31, respectively, occurring thereafter;
provided, however, that the Purchase Period for the first Offering shall
commence on April 1, 1999 and end on June 30, 1999. Notwithstanding the
foregoing, the Board may establish (a) a different term for one or more Purchase
Periods and (b) different commencing and ending dates for any such Purchase
Period. In the event the first or last day of a Purchase Period is not a regular
business day, then the first day of the Purchase Period shall be deemed to be
the next regular business day and the last day of the Purchase Period shall be
deemed to be the last preceding regular business day.
5.3 GOVERNMENTAL APPROVAL; STOCKHOLDER APPROVAL
Notwithstanding any other provision of the Plan to the contrary, an
Option granted pursuant to the Plan shall be subject to (a) obtaining all
necessary governmental approvals and qualifications of the Plan and the issuance
of Options and sale of Stock pursuant to the Plan and (b) obtaining stockholder
approval of the Plan.
SECTION 6. PURCHASE PRICE
The purchase price (the "Purchase Price") at which Stock may be acquired
in an Offering pursuant to the exercise of all or any portion of an Option
granted under the Plan (the "Offering Exercise Price") shall be 85% of the
lesser of (a) the fair market value of the Stock on the Offering Date of such
Offering and (b) the fair market value of the Stock on the Purchase Date. The
fair market value of the Stock on the Offering Date or on the Purchase Date
shall be the closing price for the Stock as reported for such day by the Nasdaq
National Market, the New York Stock Exchange or other trading market on which
the Company's Stock may then be traded (the "Exchange"). If no sales of the
Stock were made on the Exchange on such day, fair market value shall mean the
closing price for the Stock as reported for the next preceding day on which
sales of the Stock were made on the Exchange. If the Stock is not listed on an
Exchange, the Board shall designate an alternative method of determining the
fair market value of the Stock.
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<PAGE> 6
SECTION 7. PARTICIPATION IN THE PLAN
7.1 INITIAL PARTICIPATION
An Eligible Employee shall become a Participant on the first Offering
Date after satisfying the eligibility requirements and delivering to the Plan
Administrator during the enrollment period established by the Plan Administrator
(the "Enrollment Period") a subscription (the "Subscription"):
(a) indicating the Eligible Employee's election to participate in the
Plan;
(b) authorizing payroll deductions and stating the amount to be deducted
regularly from the Participant's pay; and
(c) authorizing the purchase of Stock for the Participant in each
Purchase Period.
An Eligible Employee who does not deliver a Subscription as provided
above during the Enrollment Period shall not participate in the Plan for that
Offering or for any subsequent Offering unless such Eligible Employee
subsequently enrolls in the Plan by filing a Subscription with the Company
during the Enrollment Period for such subsequent Offering. The Company may, from
time to time, change the Enrollment Period for any future Offering as deemed
advisable by the Plan Administrator, in its sole discretion, for the proper
administration of the Plan.
7.2 CONTINUED PARTICIPATION
A Participant shall automatically participate in the next Offering until
such time as such Participant withdraws from the Plan pursuant to Section 12.1
or 12.2 or terminates employment as provided in Section 13.
SECTION 8. LIMITATIONS ON RIGHT TO PURCHASE SHARES
8.1 NUMBER OF SHARES PURCHASED
The maximum number of shares of stock that may be offered to a
Participant on any Offering Date shall be equal to $25,000 divided by the fair
market value of one share of Stock of the Company on the applicable Offering
Date. Further, no Participant shall be entitled to purchase Stock under the Plan
(or any other employee stock purchase plan that is intended to meet the
requirements of Code Section 423 sponsored by the Company, a Parent Corporation
or a Subsidiary Corporation) with a fair market value exceeding $25,000,
determined as of the Offering Date for each
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<PAGE> 7
Offering (or such other limit as may be imposed by the Code), in any calendar
year in which a Participant participates in the Plan (or other employee stock
purchase plan described in this Section 8.1).
8.2 PRO RATA ALLOCATION
In the event the number of shares of Stock that might be purchased by
all Participants in the Plan exceeds the number of shares of Stock available in
the Plan, the Plan Administrator shall make a pro rata allocation of the
remaining shares of Stock in as uniform a manner as shall be practicable and as
the Plan Administrator shall determine to be equitable. Fractional shares may
not be issued under the Plan unless the Plan Administrator determines otherwise
for future Offerings.
SECTION 9. PAYMENT OF PURCHASE PRICE
9.1 GENERAL RULES
Subject to Section 9.12, Stock that is acquired pursuant to the exercise
of all or any portion of an Option may be paid for only by means of payroll
deductions from the Participant's Eligible Compensation. Except as set forth in
this Section 9, the amount of compensation to be withheld from a Participant's
Eligible Compensation during each pay period shall be determined by the
Participant's Subscription.
9.2 CHANGE NOTICES
During an Offering, a Participant may elect to decrease, but not
increase, the amount withheld from his or her compensation by filing an amended
Subscription with the Company on or before the change notice date. The change
notice date shall initially be the seventh day prior to the end of the first pay
period for which such election is to be effective; provided, however, that the
Plan Administrator may change such change notice date from time to time. Unless
otherwise determined by the Plan Administrator for a future Offering, a
Participant may elect to increase or decrease the amount to be withheld from his
or her compensation for future Offerings; provided, however, that notice of such
election must be delivered to the Plan Administrator in such form and in
accordance with such terms as the Plan Administrator may establish for an
Offering.
9.3 PERCENT WITHHELD
The amount of payroll withholding for each Participant for purchases
pursuant to the Plan during any pay period shall be at least 1% but shall not
exceed 10% of the
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<PAGE> 8
Participant's Eligible Compensation for such pay period. Amounts shall be
withheld in whole percentages only.
9.4 PAYROLL DEDUCTIONS
Payroll deductions shall commence on the first payday following the
Offering Date and shall continue through the last payday of the Offering unless
sooner altered or terminated as provided in the Plan.
9.5 MEMORANDUM ACCOUNTS
Individual accounts shall be maintained for each Participant for
memorandum purposes only. All payroll deductions from a Participant's
compensation shall be credited to such account but shall be deposited with the
general funds of the Company. All payroll deductions received or held by the
Company may be used by the Company for any corporate purpose.
9.6 NO INTEREST
No interest shall be paid on payroll deductions received or held by the
Company.
9.7 ACQUISITION OF STOCK
On each Purchase Date of an Offering, each Participant shall
automatically acquire, pursuant to the exercise of the Participant's Option, the
number of shares of Stock arrived at by dividing the total amount of the
Participant's accumulated payroll deductions for the Purchase Period by the
Purchase Price; provided, however, that the number of shares of Stock purchased
by the Participant shall not exceed the number of whole shares of Stock so
determined, unless the Plan Administrator has determined for any future Offering
that fractional shares may be issued under the Plan; and provided, further, that
the number of shares of Stock purchased by the Participant shall not exceed the
number of shares for which Options have been granted to the Participant pursuant
to Section 8.1.
9.8 REFUND OF EXCESS AMOUNTS
Any cash balance remaining in the Participant's account at the
termination of each Purchase Period shall be refunded to the Participant as soon
as practical after the Purchase Date without the payment of any interest;
provided, however, that if the Participant participates in the next Purchase
Period, any cash balance remaining in the Participant's account shall be applied
to the purchase of Stock in the new Purchase Period, provided such purchase
complies with Section 8.1.
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<PAGE> 9
9.9 WITHHOLDING OBLIGATIONS
At the time the Option is exercised, in whole or in part, or at the time
some or all of the Stock is disposed of, the Participant shall make adequate
provision for federal and state withholding obligations of the Company, if any,
that arise upon exercise of the Option or upon disposition of the Stock. The
Company may withhold from the Participant's compensation the amount necessary to
meet such withholding obligations.
9.10 TERMINATION OF PARTICIPATION
No Stock shall be purchased on behalf of a Participant on a Purchase
Date if his or her participation in the Offering or the Plan has terminated on
or before such Purchase Date.
9.11 PROCEDURAL MATTERS
The Company may, from time to time, establish (a) limitations on the
frequency and/or number of any permitted changes in the amount withheld during
an Offering, as set forth in Section 9.2, (b) an exchange ratio applicable to
amounts withheld in a currency other than U.S. dollars, (c) payroll withholding
in excess of the amount designated by a Participant in order to adjust for
delays or mistakes in the Company's processing of properly completed withholding
elections and (d) such other limitations or procedures as deemed advisable by
the Company in the Company's sole discretion that are consistent with the Plan
and in accordance with the requirements of Code Section 423.
9.12 LEAVES OF ABSENCE
During leaves of absence approved by the Company and meeting the
requirements of the applicable Treasury Regulations promulgated under the Code,
a Participant may elect to continue participation in the Plan by delivering cash
payments to the Plan Administrator on the Participant's normal paydays equal to
the amount of his or her payroll deduction under the Plan had the Participant
not taken a leave of absence. Currently, the Treasury Regulations provide that a
Participant may continue participation in the Plan only during the first 90 days
of a leave of absence unless the Participant's reemployment rights are
guaranteed by statute or contract.
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<PAGE> 10
SECTION 10. STOCK PURCHASED UNDER THE PLAN
10.1 ESPP BROKER
If the Plan Administrator designates or approves a stock brokerage or
other financial services firm (the "ESPP Broker") to hold shares purchased under
the Plan for the accounts of Participants, the following procedures shall apply.
Promptly following each Purchase Date, the number of shares of Stock purchased
by each Participant shall be deposited into an account established in the
Participant's name with the ESPP Broker. Each Participant will be the beneficial
owner of the Stock purchased under the Plan and will have all rights of
beneficial ownership in such Stock. A Participant shall be free to undertake a
disposition of the shares of Stock in his or her account at any time, but, in
the absence of such a disposition, the shares of Stock must remain in the
Participant's account at the ESPP Broker until the holding period set forth in
Code Section 423 has been satisfied. With respect to shares of Stock for which
the holding period set forth above has been satisfied, the Participant may move
those shares of Stock to another brokerage account of the Participant's choosing
or request that a stock certificate be issued and delivered to him or her.
Dividends paid in the form of shares of Stock with respect to Stock in a
Participant's account shall be credited to such account. A Participant who is
not subject to payment of U.S. income taxes may move his or her shares of Stock
to another brokerage account of his or her choosing or request that a stock
certificate be delivered to him or her at any time, without regard to the Code
Section 423 holding period.
10.2 NOTICE OF DISPOSITION
By entering the Plan, each Participant agrees to promptly give the
Company notice of any Stock disposed of within the later of one year from the
Purchase Date and two years from the Offering Date for such Stock, showing the
number of such shares disposed of and the Purchase Date and Offering Date for
such Stock. This notice shall not be required if and so long as the Company has
a designated ESPP Broker.
SECTION 11. MARKET STANDOFF
In connection with the underwritten initial public offering by the
Company of its Stock, neither the Participant nor any beneficiary receiving
shares of Stock pursuant to Section 14.2 hereof shall sell, make any short sale
of, loan, hypothecate, pledge, grant any option for the purchase of, or
otherwise dispose of or transfer for value or otherwise agree to engage in any
of the foregoing transactions with respect to any Stock issued under the Plan
for a period of 180 days after the IPO Date.
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<PAGE> 11
In the event of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
Company's Stock effected as a class without the Company's receipt of
consideration, any new, substituted or additional securities distributed with
respect to the purchased Stock shall be immediately subject to the provisions of
this Section 11.
In order to enforce the limitations of this Section 11, the Company may
issue stop-transfer instructions to the ESPP Broker and/or the Company's
transfer agent until the end of the period ending 180 days after the IPO Date.
SECTION 12. VOLUNTARY WITHDRAWAL
12.1 WITHDRAWAL FROM AN OFFERING
A Participant may withdraw from an Offering by signing and delivering to
the Company's Plan Administrator a written notice of withdrawal on a form
provided by the Company for such purpose. Such withdrawal must be elected at
least ten days prior to the end of the Purchase Period for which such withdrawal
is to be effective or by any other date specified by the Plan Administrator for
any future Offering. If a Participant withdraws after the Purchase Date for a
Purchase Period of an Offering, the withdrawal shall not affect Stock acquired
by the Participant in any earlier Purchase Periods. Unless otherwise indicated,
withdrawal from an Offering shall not result in a withdrawal from the Plan or
any succeeding Offering therein. A Participant is prohibited from again
participating in the same Offering at any time upon withdrawal from such
Offering. The Company may, from time to time, impose a requirement that the
notice of withdrawal be on file with the Plan Administrator for a reasonable
period prior to the effectiveness of the Participant's withdrawal.
12.2 WITHDRAWAL FROM THE PLAN
A Participant may withdraw from the Plan by signing a written notice of
withdrawal on a form provided by the Company for such purpose and delivering
such notice to the Plan Administrator. Such notice must be delivered at least
ten days prior to the end of the Purchase Period for which such withdrawal is to
be effective or by any other date specified by the Plan Administrator for any
future Offering. In the event a Participant voluntarily elects to withdraw from
the Plan, the Participant may not resume participation in the Plan during the
same Offering, but may participate in any subsequent Offering under the Plan by
again satisfying the definition of Eligible Employee. The Company may impose,
from time to time, a requirement that the notice of withdrawal be on file with
the Plan Administrator for a reasonable period prior to the effectiveness of the
Participant's withdrawal.
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<PAGE> 12
12.3 RETURN OF PAYROLL DEDUCTIONS
Upon withdrawal from an Offering pursuant to Section 12.1 or from the
Plan pursuant to Section 12.2, the withdrawing Participant's accumulated payroll
deductions that have not been applied to the purchase of Stock shall be returned
as soon as practical after the withdrawal, without the payment of any interest,
to the Participant and the Participant's interest in the Offering shall
terminate. Such accumulated payroll deductions may not be applied to any other
Offering under the Plan.
SECTION 13. TERMINATION OF EMPLOYMENT
Termination of a Participant's employment with the Company for any
reason, including retirement, death or the failure of a Participant to remain an
Eligible Employee, shall immediately terminate the Participant's participation
in the Plan. The payroll deductions credited to the Participant's account since
the last Purchase Date shall, as soon as practical, be returned to the
Participant or, in the case of a Participant's death, to the Participant's legal
representative or designated beneficiary as provided in Section 14.2, and all of
the Participant's rights under the Plan shall terminate. Interest shall not be
paid on sums returned to a Participant pursuant to this Section 13.
SECTION 14. RESTRICTIONS ON ASSIGNMENT
14.1 TRANSFERABILITY
An Option granted under the Plan shall not be transferable and such
Option shall be exercisable during the Participant's lifetime only by the
Participant. The Company will not recognize, and shall be under no duty to
recognize, any assignment or purported assignment by a Participant of the
Participant's interest in the Plan, of his or her Option or of any rights under
his or her Option.
14.2 BENEFICIARY DESIGNATION
The Plan Administrator may permit a Participant to designate a
beneficiary who is to receive any shares and cash, if any, from the
Participant's account under the Plan in the event the Participant dies after the
Purchase Date for an Offering but prior to delivery to such Participant of such
shares and cash. In addition, the Plan Administrator may permit a Participant to
designate a beneficiary who is to receive any cash from the Participant's
account under the Plan in the event that the Participant dies before the
Purchase Date for an Offering. Such designation may be changed by the
Participant at any time by written notice to the Plan Administrator.
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SECTION 15. NO RIGHTS AS STOCKHOLDER UNTIL SHARES ISSUED
With respect to shares of Stock subject to an Option, a Participant
shall not be deemed to be a stockholder of the Company, and he or she shall not
have any of the rights or privileges of a stockholder. A Participant shall have
the rights and privileges of a stockholder of the Company when, but not until, a
certificate or its equivalent has been issued to the Participant for the shares
following exercise of the Participant's Option.
SECTION 16. LIMITATIONS ON SALE OF STOCK PURCHASED UNDER THE PLAN
The Plan is intended to provide Stock for investment and not for resale.
The Company does not, however, intend to restrict or influence any Participant
in the conduct of his or her own affairs. A Participant, therefore, may sell
Stock purchased under the Plan at any time he or she chooses, subject to
compliance with any applicable federal and state securities laws. A Participant
assumes the risk of any market fluctuations in the price of the Stock.
SECTION 17. AMENDMENT OF THE PLAN
The Board may amend the Plan in such respects as it shall deem
advisable; provided, however, that, to the extent required for compliance with
Code Section 423 or any applicable law or regulation, stockholder approval will
be required for any amendment that will (a) increase the total number of shares
as to which Options may be granted under the Plan, (b) modify the class of
employees eligible to receive Options, or (c) otherwise require stockholder
approval under any applicable law or regulation.
SECTION 18. TERMINATION OF THE PLAN
The Plan shall continue in effect for 10 years after the date of its
adoption by the Board. Notwithstanding the foregoing, the Board may suspend or
terminate the Plan at any time. During any period of suspension or upon
termination of the Plan, no Options shall be granted; provided, however, that
suspension or termination of the Plan shall have no effect on Options granted
prior thereto.
SECTION 19. NO RIGHTS AS AN EMPLOYEE
Nothing in the Plan shall be construed to give any person (including any
Eligible Employee or Participant) the right to remain in the employ of the
Company or a Parent or Subsidiary Corporation or to affect the right of the
Company or a Parent or
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<PAGE> 14
Subsidiary Corporation to terminate the employment of any person (including any
Eligible Employee or Participant) at any time with or without cause.
SECTION 20. EFFECT UPON OTHER PLANS
The adoption of the Plan shall not affect any other compensation or
incentive plans in effect for the Company or any Parent or Subsidiary
Corporation. Nothing in this Plan shall be construed to limit the right of the
Company, any Parent Corporation or Subsidiary Corporation to (a) establish any
other forms of incentives or compensation for employees of the Company, a Parent
Corporation or Subsidiary Corporation or (b) grant or assume options otherwise
than under this Plan in connection with any proper corporate purpose, including,
but not by way of limitation, the grant or assumption of options in connection
with the acquisition, by purchase, lease, merger, consolidation or otherwise, of
the business, stock or assets of any corporation, firm or association.
SECTION 21. ADJUSTMENTS
21.1 ADJUSTMENT OF SHARES
In the event that, at any time or from time to time, a stock dividend,
stock split, spin-off, combination or exchange of shares, recapitalization,
merger, consolidation, distribution to stockholders other than a normal cash
dividend, or other change in the Company's corporate or capital structure
results in (a) the outstanding shares, or any securities exchanged therefor or
received in their place, being exchanged for a different number or kind of
securities of the Company or of any other corporation or (b) new, different or
additional securities of the Company or of any other corporation being received
by the holders of shares of Stock, then (subject to any required action by the
Company's stockholders), the Board or the Committee, in its sole discretion,
shall make such equitable adjustments as it shall deem appropriate in the
circumstances in (i) the maximum number and kind of shares of Stock subject to
the Plan as set forth in Section 4 and (ii) the number and kind of securities
that are subject to any outstanding Option and the per share price of such
securities. The determination by the Board or the Committee as to the terms of
any of the foregoing adjustments shall be conclusive and binding.
Notwithstanding the foregoing, a dissolution, liquidation, merger or asset sale
of the Company shall not be governed by this Section 21.1 but shall be governed
by Sections 21.2 and 21.3, respectively.
21.2 DISSOLUTION OR LIQUIDATION OF THE COMPANY
In the event of the proposed dissolution or liquidation of the Company,
the Offering then in progress shall be shortened by setting a new Purchase Date
(the
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<PAGE> 15
"New Purchase Date"), and shall terminate immediately prior to the consummation
of such proposed dissolution or liquidation, unless provided otherwise by the
Board. The New Purchase Date shall be a specified date before the date of the
Company's proposed dissolution or liquidation. The Board shall notify each
Participant in writing, at least 10 business days prior to the New Purchase
Date, that the Purchase Date for the Participant's Option has been changed to
the New Purchase Date and that the Participant's Option shall be exercised
automatically on the New Purchase Date, unless prior to such date the
Participant has withdrawn from the Offering or the Plan as provided in Section
12 hereof.
21.3 MERGER OR ASSET SALE OF THE COMPANY
In the event of a proposed sale of all or substantially all of the
assets of the Company, or the merger of the Company with or into another
corporation, each outstanding Option shall be assumed or an equivalent option
substituted by the successor corporation or a parent or subsidiary corporation
of the successor corporation. In the event that the successor corporation
refuses to assume or substitute for the Option, the Offering then in progress
shall be shortened by setting a new Purchase Date (the "New Purchase Date"). The
New Purchase Date shall be a specified date before the date of the Company's
proposed sale or merger. The Board shall notify each Participant in writing, at
least 10 business days prior to the New Purchase Date, that the Purchase Date
for the Participant's Option has been changed to the New Purchase Date and that
the Participant's Option shall be exercised automatically on the New Purchase
Date, unless prior to such date the Participant has withdrawn from the Offering
or the Plan as provided in Section 12 hereof.
21.4 LIMITATIONS
The grant of Options will in no way affect the Company's right to
adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.
SECTION 22. REGISTRATION; CERTIFICATES FOR SHARES
The Company shall be under no obligation to any Participant to register
for offering or resale under the Securities Act of 1933, as amended, or register
or qualify under state securities laws, any shares of Stock. The Company may
issue certificates for shares with such legends and subject to such restrictions
on transfer and stop-transfer instructions as counsel for the Company deems
necessary or desirable for compliance by the Company with federal and state
securities laws.
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SECTION 23. EFFECTIVE DATE
Subject to the required ratification and consent of the Company's
stockholders, the Plan's effective date is January 31, 1999.
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<PAGE> 1
EXHIBIT 10.34
WARRANT
TO SUBSCRIBE FOR AND PURCHASE COMMON STOCK OF
G.I. JOE'S, INC.
THIS CERTIFIES THAT, for value received, ____________________
(herein called "Purchaser") or registered assigns is entitled to subscribe for
and purchase from G.I. Joe's, Inc. (the "Company"), a corporation organized and
existing under the laws of the State of Oregon, at the warrant purchase price
specified below (subject to adjustment as noted below) at any time from and
after the first anniversary of the date on which the Company's Registration
Statement on Form S-1 (No. 33-61527) is declared effective by the Securities and
Exchange Commission (the "Effective Date") to and including the fifth
anniversary of the Effective Date, ___________ fully paid and nonassessable
shares of the Company's Common Stock (subject to adjustment as noted below).
The warrant purchase price (subject to adjustment as noted below)
shall be $[_____](1) per share.
This Warrant is subject to the following provisions, terms and
conditions:
1. Exercise. Subject to the terms of this Warrant, the rights
represented by this Warrant may be exercised by the holder hereof, in whole or
in part, but not for less than 10,000 shares (appropriately adjusted for stock
dividends, splits or combinations) at a time (or such lesser amount then
issuable upon the entire exercise of this Warrant) by written notice of exercise
in the form attached hereto delivered to the Company and by the surrender of
this Warrant (properly endorsed if required) at the principal office of the
Company and upon payment to the Company by cashier's check or wire transfer of
funds of the purchase price for such shares. The Company agrees that the shares
so purchased shall be and are deemed to be issued to the holder hereof as the
record owner of such shares as of the close of business on the date on which
this Warrant shall have been surrendered and payment made for such shares as
aforesaid. Subject to the provisions of paragraph 2, certificates for the shares
of stock so purchased shall be delivered to the holder hereof within a
reasonable time, not exceeding fourteen days, after the rights represented by
this Warrant shall have been so exercised, and,
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(1) 120% of the initial public offering price per share.
<PAGE> 2
unless this Warrant has expired, a new Warrant representing the number of
shares, if any, with respect to which this Warrant shall not then have been
exercised shall also be delivered to the holder hereof within such time.
2. Restriction on Transferability. Notwithstanding the foregoing,
however, the Company shall not be required to deliver any certificate for shares
of stock upon exercise of this Warrant except in accordance with the provisions,
and subject to the limitations, of paragraph 6 hereof and the restrictive legend
under the heading "Restriction on Transfer" below. Neither this Warrant nor any
interest herein shall be sold, transferred, assigned or hypothecated for a
period of one year from the Effective Date except to (a) officers and/or
partners of [Cruttenden Roth Incorporated] [Black & Company, Inc.], or (b)
members of the selling group for the Company's initial public offering or their
respective officers and/or partners provided that, in each such case, the
transferee or transferees agree in writing to be bound by the terms of this
Section 2 with respect to further sales, transfers, assignments or
hypothecations of this Warrant or any interest herein.
3. Covenants of the Company. The Company covenants and agrees
that all shares which may be issued upon the exercise of the rights represented
by this Warrant will, upon issuance, and receipt by the Company of the purchase
price for the shares as set forth herein, be duly authorized and issued, fully
paid and nonassessable. The Company further covenants and agrees that during the
period within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized and reserved for the purpose of issue
upon exercise of the subscription rights evidenced by this Warrant, a sufficient
number of shares of its Common Stock to provide for the exercise of the rights
represented by this Warrant.
4. Anti-Dilution Adjustments. The above provisions are, however,
subject to the following:
(a) The warrant purchase price shall, from and after the
date of issuance of this Warrant, be subject to adjustment from time to time as
hereinafter provided. Upon each adjustment of the warrant purchase price, the
holder of this Warrant shall thereafter be entitled to purchase, at the warrant
purchase price resulting from such adjustment, the number of shares obtained by
multiplying the warrant purchase price in effect immediately prior to such
adjustment by the number of shares purchasable pursuant hereto immediately prior
to such adjustment and dividing the product thereof by the warrant purchase
price resulting from such adjustment.
(b) In case the Company shall at any time prior to the
exercise or termination hereof subdivide its outstanding shares of Common Stock
into a greater number of shares, including any stock dividend declared to effect
a subdivision of the outstanding shares of Common Stock, the warrant purchase
price in effect immediately prior to such subdivision shall be proportionately
reduced, and conversely, in case the outstanding shares of Common
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<PAGE> 3
Stock of the Company shall be combined into a smaller number of shares, the
warrant purchase price in effect immediately prior to such combination shall be
proportionately increased.
(c) If at any time prior to the exercise or termination
hereof any capital reorganization or reclassification of the capital stock of
the Company, or consolidation or merger of the Company with another corporation,
or the sale of all or substantially all of its assets to another corporation
shall be effected in such a way that holders of Common Stock shall be entitled
to receive stock, securities or assets with respect to or in exchange for Common
Stock, then, in each such case, lawful and adequate provision shall be made
whereby the holder hereof shall, after the consummation of such reorganization,
reclassification, consolidation, merger or sale, have the right to purchase and
receive, upon the basis and upon the terms and conditions specified in this
paragraph 4(c) and in lieu of the shares of the Common Stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby (at the aggregate warrant purchase price in effect for
all shares of Common Stock issuable upon such exercise immediately prior to the
consummation of such transaction as adjusted at the time of such transaction),
such shares of stock, securities or assets as may be issued or payable with
respect to or in exchange for a number of outstanding shares of such Common
Stock equal to the number of shares of such stock immediately theretofore
purchasable and receivable upon the exercise of the rights represented hereby
had such reorganization, reclassification, consolidation, merger or sale not
taken place, and in any such case appropriate provision shall be made with
respect to the rights and interests of the holder of this Warrant to the end
that the provisions hereof (including without limitation provisions for
adjustments of the warrant purchase price and of the number of shares
purchasable upon the exercise of this Warrant) shall thereafter be applicable,
as nearly as may be, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise hereof.
(d) Upon any adjustment of the warrant purchase price, then
and in each such case the Company shall give written notice thereof, by
first-class mail, postage prepaid, addressed to the registered holder of this
Warrant at the address of such holder as shown on the books of the Company,
which notice shall state the warrant purchase price resulting from such
adjustment and the increase or decrease, if any, in the number of shares
purchasable at such price upon the exercise of this Warrant, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based.
(e) In case any time prior to the exercise or termination
hereof:
(1) the Company shall declare any cash dividend on its
Common Stock;
(2) the Company shall pay any dividend payable in
stock upon its Common Stock or make any distribution (other than
regular cash dividends and dividends payable solely in Common Stock
of the Company) to the holders of its Common Stock;
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<PAGE> 4
(3) the Company shall offer for subscription pro rata
to the holders of its Common Stock any additional shares of stock of
any class or other rights;
(4) there shall be any capital reorganization, or
reclassification of the capital stock of the Company, or
consolidation or merger of the Company with, or sale of all or
substantially all of its assets to, another corporation; or
(5) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give written notice,
addressed to the registered holder of this Warrant at the address of such holder
as shown on the books of the Company and to Todd A. Bauman, Stoel Rives LLP, 900
S.W. Fifth Avenue, Suite 2300, Portland, Oregon 97204-1268, of the date on which
(A) the books of the Company shall close or a record shall be taken for such
dividend, distribution or subscription rights, or (B) such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up shall take place, as the case may be. Such notice shall also specify
the date as of which the holders of Common Stock of record shall participate in
such dividend, distribution or subscription rights, or shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, as the case may be. Such written notice shall be
received at least 15 days prior to the action in question and not less than 10
days prior to the record date or the date on which the Company's transfer books
are closed in respect thereto.
(f) No fractional shares of Common Stock shall be issued
upon the exercise of this Warrant, but, instead of any fraction of a share which
would otherwise be issuable, the Company shall pay a cash adjustment (which may
be effected as a reduction of the amount to be paid by the holder hereof upon
such exercise) in respect of such fraction in an amount equal to the same
fraction of the market price per share of Common Stock as of the close of
business on the date of the written notice of exercise required by paragraph 1
above. "Market price" for purposes of this paragraph 4(f) shall mean, if the
Common Stock is traded on a securities exchange or on the Nasdaq National
Market, the closing price of the Common Stock on such exchange or the last sale
price on the Nasdaq National Market, or, if the Common Stock is otherwise traded
in the over-the-counter market, the closing bid price, in each case averaged
over a period of five consecutive trading days prior to the date as of which
"market price" is being determined. If at any time the Common Stock is not
traded on an exchange or the Nasdaq National Market, or otherwise traded in the
over-the-counter market, the "market price" shall be deemed to be the fair value
thereof determined in good faith by the Board of Directors of the Company as of
a date which is within 15 days of the date as of which the determination is to
be made.
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<PAGE> 5
5. No Shareholder Rights. This Warrant shall not entitle the
holder hereof to any voting rights, rights to receive dividends or other rights
as a shareholder of the Company.
6. Notice of Transfer of Warrant or Resale of Shares. The holder
of this Warrant, by acceptance hereof, agrees to give written notice to the
Company before transferring this Warrant or transferring any Common Stock
issuable or issued upon the exercise hereof of such holder's intention to do so,
describing briefly the manner of any proposed transfer of this Warrant or such
holder's intention as to the disposition to be made of shares of Common Stock
issuable or issued upon the exercise hereof. Such holder shall also provide the
Company with written representations from the holder and the proposed transferee
satisfactory to the Company regarding the transfer or, at the election of the
Company, an opinion in form and from counsel reasonably satisfactory to the
Company to the effect that the proposed transfer of this Warrant or disposition
of shares may be effected without registration or qualification (under any
Federal or State law) of this Warrant or the shares of Common Stock issuable or
issued upon the exercise hereof. Upon receipt of such written notice and either
such representations or opinion by the Company, such holder shall, subject to
the last sentence of paragraph 2, be entitled to transfer this Warrant, or to
exercise this Warrant in accordance with its terms and dispose of the shares
received upon such exercise or to dispose of shares of Common Stock received
upon the previous exercise of this Warrant, all in accordance with the terms of
the notice delivered by such holder to the Company. An appropriate legend, if
any, respecting the aforesaid restrictions on transfer and disposition may be
endorsed on this Warrant or the certificates for such shares.
7. Transferability. Subject to the provisions of paragraph 2 and
paragraph 6 hereof, this Warrant and all rights hereunder are transferable, in
whole or in part, at the principal office of the Company by the holder hereof in
person or by duly authorized attorney, upon surrender of this Warrant properly
endorsed.
This Warrant is exchangeable, upon the surrender hereof by the
holder hereof at the principal office of the Company, for new Warrants of like
tenor representing in the aggregate the right to subscribe for and purchase the
number of shares which may be subscribed for and purchased hereunder, each of
such new Warrants to represent the right to subscribe for and purchase such
number of shares as shall be designated by said holder hereof at the time of
such surrender.
8. Registration Rights. The holder of this Warrant and of the
Common Stock issuable or issued upon the exercise hereof shall, subject to the
terms and conditions of Exhibit A, be entitled to the registration rights set
forth in Exhibit A attached hereto.
9. Governing Law. All questions concerning this Warrant will be
governed and interpreted and enforced in accordance with the internal law of the
State of Oregon without regard for principles of conflicts of law.
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<PAGE> 6
10. Notices. All notices required or permitted to be given under
this Warrant or the associated registration rights shall be in writing. Notices
may be served by certified or registered mail, postage paid with return receipt
requested; by private courier, prepaid; by telex, facsimile or other
telecommunication device capable of transmitting or creating a written record;
or personally. Mailed notices shall be deemed received five days after mailing,
properly addressed. Couriered notices shall be deemed received on the date that
the courier warrants that delivery will occur. Telex or telecommunicated notices
shall be deemed received when receipt is either confirmed by confirming
transmission equipment or acknowledged by the addressee or its office. Personal
delivery shall be effective when accomplished.
11. "Holder". All references herein to the "holder" of this
Warrant shall refer to the registered holder of this Warrant as reflected on the
books and records of the Company. The Company may deem and treat the registered
holder of this Warrant as the absolute owner hereof for the purpose of any
exercise hereof and for all other purposes, and the Company shall not be
affected by any notice to the contrary.
12. Investment Intent; Accredited Investor Status. By accepting
this Warrant, the holder represents that it is (a) acquiring this Warrant and
the shares of stock issuable upon exercise hereof for investment for its own
account and not with a view to, or for sale in connection with, any distribution
thereof, (b) an "accredited investor," as defined in Rule 501 under the
Securities Act of 1933, as amended, and (c) a resident of the State of
___________. By accepting this Warrant, the holder acknowledges that neither
this Warrant nor the shares of stock issuable upon exercise hereof have been
registered under the Securities Act of 1933, as amended.
13. Amendments. This Warrant may be amended, supplemented or
modified only by means of a writing signed by the Company and the holder.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer and this Warrant to be dated as of
______________, 1999.
G.I. JOE'S, INC.
By:________________________________
Title:_____________________________
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<PAGE> 7
RESTRICTION ON TRANSFER
In addition to the other restrictions on transfer provided in this
Warrant, this Warrant or the shares of Common Stock issuable upon exercise
hereof may not be resold or transferred unless such resale or transfer is
exempted from the registration requirements of the Securities Act of 1933, as
amended (the "Act"), and any applicable state securities laws ("Laws"), and the
Company receives, prior to resale or transfer, written representations of the
holder and proposed transferee satisfactory to the Company regarding such
transfer or, at the election of the Company, an opinion in form and from counsel
reasonably satisfactory to the Company to the effect that the proposed transfer
of this Warrant or of such shares may be effected without registration under the
Act or qualification under the Laws, or the resale or transfer of this Warrant
or of such shares is registered under the Act and any applicable Laws. Each
certificate representing shares of Common Stock issuable upon exercise of the
Warrant may, at the Company's election, bear a legend substantially in
accordance with the foregoing sentence.
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<PAGE> 8
FORM OF ASSIGNMENT
(TO BE SIGNED ONLY UPON ASSIGNMENT)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto _____________________________________ this Warrant, and appoints
_____________________________________ to transfer this Warrant on the books of
the Company with the full power of substitution in the premises.
Dated:
In the presence of:
Signature:_________________________
NOTE: The signature must conform in all
respects to the name of the holder as
written on the face of this Warrant
without alteration, enlargement or any
change whatsoever, and the signature must
be guaranteed in the usual manner.
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<PAGE> 9
SUBSCRIPTION FORM
TO BE EXECUTED BY THE HOLDER OF THIS WARRANT IF SUCH HOLDER
DESIRES TO EXERCISE THIS WARRANT IN WHOLE OR IN PART:
To: G.I. Joe's, Inc. (the "Company")
The undersigned ______________________ (please insert Social
Security or other identifying number of Subscriber) ____________
______________________, hereby irrevocably elects to exercise the right of
purchase represented by this Warrant for, and to purchase thereunder, _______
shares of the Common Stock provided for therein and tenders payment herewith to
the order of the Company in the amount of $___________, such payment being made
as provided on the face of this Warrant.
The undersigned requests that certificates for such shares of Common
Stock be issued as follows:
Name: _________________________________
Address: ______________________________
Deliver to: ___________________________
Address: ______________________________
and, if such number of shares of Common Stock shall not be all the shares of
Common Stock purchasable hereunder, that a new Warrant for the balance remaining
of the shares of Common Stock purchasable under this Warrant be registered in
the name of, and delivered to, the undersigned at the address stated above.
Dated:
Signature:_________________________
Note: The signature must conform in all
respects to the name of the holder as
written on the face of this Warrant
without alteration, enlargement or any
change whatsoever.
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<PAGE> 10
EXHIBIT A to Warrant
REGISTRATION RIGHTS
1. Incidental Registration. Subject to Section 7 hereof, each time the
Company shall determine to proceed with the actual preparation and filing of a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), in connection with the proposed offer and sale for cash of
any of its securities by it or any of its security holders (other than a
registration statement on Form S-8 relating to shares issuable under an employee
stock option or other employee benefit plan, or a registration statement on a
form that does not permit the inclusion of the Purchased Stock), the Company
will give written notice of its determination to all record holders of Purchased
Stock (as hereinafter defined). Upon the written request of a record holder of
any shares of Purchased Stock given within 15 days after receipt of any such
notice from the Company, the Company will, except as herein provided, cause all
such shares of Purchased Stock, the record holders of which have so requested
registration thereof, to be included in such registration statement; provided,
however, that nothing herein shall prevent the Company from, at any time,
abandoning or delaying any registration. If any registration pursuant to this
Section 1 shall be underwritten in whole or in part, the Company may require, as
a condition to the inclusion of Purchased Stock in any registration under this
Section 1, that the Purchased Stock requested for inclusion pursuant to this
Section 1 be included in the underwriting on the same terms and conditions as
the securities otherwise being sold through the underwriters. If in the good
faith judgment of the managing underwriter of such public offering the inclusion
of all of the Purchased Stock originally covered by a request for registration
would reduce the number of shares to be offered by the Company and/or other
selling shareholders or interfere with the successful marketing of the shares of
stock offered by the Company and/or other selling shareholders, the number of
shares of Purchased Stock otherwise to be included in the underwritten public
offering may be reduced pro rata (by number of shares) among the holders of
Purchased Stock requesting such registration and the shares to be included in
the registration shall be allocated (x) first, to the Company and/or any selling
shareholders with registration rights, granted prior to March ___, 1999, that
entitled them to have shares included in the registration in preference to
shares of the Purchased Stock and (y) then, pro rata (by number of shares
requested to be included in such registration) among the holders of Purchased
Stock and any other selling shareholders in such registration (other than the
selling shareholders described in clause (x) above) pro rata (by number of
shares requested to be included in such registration) among such holders of
Purchased Stock and other selling shareholders.
The rights granted by this Section 1 may be transferred to and are
exercisable by subsequent transferee of any shares of Purchased Stock, provided
that the Company is, within a reasonable period of time after such transfer,
furnished with written notice the name and address of such transferee and the
securities with respect to which such registration rights are being transferred;
and provided, further, that such transfer shall be effective only if immediately
following such transfer the further disposition of such securities by the
transferee
<PAGE> 11
is restricted under the Securities Act and that the transferee is (i) a
director, officer or partner of [Cruttenden Roth Incorporated] [Black & Company,
Inc.], (ii) a member of the selling group for the Company's initial public
offering or an officer or partner of such member, or (iii) as a result of such
transfer the holder of at least 25,000 shares of Purchased Stock.
2. Required Registration at Company's Expense.
(a) If the Company shall receive a written request therefor from
any record holder or holders of an aggregate of at least a majority of the
shares of Purchased Stock then outstanding that the Company file a
registration statement under the Securities Act covering the registration
of at least a majority of the shares of the Purchased Stock having an
aggregate offering price to the public of not less than $500,000, the
Company shall, subject to Section 7, prepare and file on one occasion a
registration statement under the Securities Act covering the shares of
Purchased Stock which are the subject of such request and shall use its
best efforts to cause such registration statement to become effective. In
addition, upon the receipt of such request, the Company shall promptly
give written notice to all other record holders of shares of Purchased
Stock then outstanding that such registration is to be effected. The
Company shall include in such registration statement such shares of
Purchased Stock for which it has received written requests to register by
such other record holders within 15 days after the delivery of the
Company's written notice to such other record holders. The Company shall
be obligated to prepare, file and cause to become effective only one
registration statement pursuant to this Section 2.
(b) In the event that the holders of a majority of the Purchased
Stock for which registration has been requested pursuant to Section 2(a)
determine for any reason not to proceed with a registration at any time
before a registration statement has been declared effective by the
Securities and Exchange Commission (the "Commission"), and such
registration statement, if theretofore filed with the Commission, is
withdrawn with respect to the Purchased Stock covered thereby, and the
holders of such Purchased Stock agree to bear their own expenses incurred
in connection therewith and to reimburse the Company for the expenses
incurred by it attributable to the registration of such Purchased Stock,
then the holders of such Purchased Stock shall not be deemed to have
exercised their right to require the Company to register Purchased Stock
pursuant to Section 2(a).
(c) If at any time any written request for registration is
received by the Company pursuant to Section 2(a), and the Company has
determined to proceed with the actual preparation and filing of a
registration statement under the Securities Act in connection with the
proposed offer and sale for cash of any of its securities by it or any of
its security holders, such written request shall be deemed to have been
given pursuant to Section 1 hereof rather than Section 2(a), and the
rights of the holders of Purchased Stock covered by such written request
shall be governed by Section 1 hereof.
(d) Without the written consent of the holders of a majority of
the Purchased Stock for which registration has been requested pursuant to
Sections 2(a), neither the Company nor
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<PAGE> 12
any other holder of securities of the Company may include securities in
such registration if in the good faith judgment of the managing
underwriter, if any, of such public offering determines that the inclusion
of such securities would interfere with the successful marketing of the
Purchased Stock or require the exclusion of any portion of the Purchased
Stock to be registered.
(e) The rights granted by Sections 2(a) may be transferred to and
are exercisable by subsequent transferee of any shares of Purchased Stock
provided that the Company is, within a reasonable period of time after
such transfer, furnished with written notice of the name and address of
such transferee and the securities with respect to which such registration
rights are being transferred; and, provided, further, that such transfer
shall be effective only if immediately following such transfer the further
disposition of such securities by the transferee is restricted under the
Securities Act and that such transferee is the transferee of at least
25,000 shares of the Purchased Stock.
(f) Notwithstanding the foregoing, the Company shall not be
obligated to take any action pursuant to Sections 2(a):
(i) if the Company, within 15 days after the receipt of a
request for registration pursuant to Section 2(a), gives notice to
the holders of Purchased Stock of its bona fide intention to effect
the filing of a registration with the Commission, pertaining to an
underwritten public offering of securities for the account of the
Company, within 90 days after receipt of such request (other than
with respect to a registration statement relating to a Rule 145
transaction, an offering solely to employees or any other
registration which is not appropriate for the registration of
Purchased Stock); or
(ii) during the period starting with the date 60 days prior
to the Company's good faith estimate of the date of filing of, and
ending on a date three months following the effective date of, a
registration statement, pertaining to an underwritten public
offering of securities for the account of the Company (other than
with respect to a registration statement relating to a Rule 145
transaction, an offering solely to employees or any other
registration which is not appropriate for the registration of
Purchased Stock), provided that the Company is actively employing in
good faith all reasonable efforts to cause such registration
statement to become effective; or
(iii) if the Company shall furnish to such requesting parties
a certificate signed by the President of the Company stating that in
the good faith judgment of the Board of Directors it would be
seriously detrimental to the Company or its shareholders for a
registration statement to be filed in the near future or for certain
disclosure to be made that, in the opinion of the Board of Directors
duly advised by counsel, is required to be made in connection with
the offer or sale of securities pursuant to such registration,
provided that the
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<PAGE> 13
Company's obligation to use its best efforts to file a registration
statement shall be deferred for a period not to exceed 90 days from
the receipt of the request to file such registration by such
requesting parties, and provided, further, that the Company shall
not exercise its rights under this clause to defer such obligation
more than once in any twelve-month period; or
(iv) if the Company is not then eligible to register an
offering of the Purchased Stock on a Form S-3 Registration Statement
for any reason other than its failure to meet registrant
requirements I.A.3. or I.A.5. (or any successor thereto) in the
General Instructions related to Form S-3.
3. Registration Procedures. If and whenever the Company files a
registration statement pursuant to the provisions of Sections 1 or 2 hereof to
effect the registration of shares of Purchased Stock under the Securities Act,
the Company will:
(a) prepare and file with the Commission a registration statement
with respect to such securities, and use its best efforts to cause such
registration statement to become and remain effective for such period as
may be reasonably necessary to effect the sale of such securities, not to
exceed six months;
(b) prepare and file with the Commission such amendments to such
registration statement and supplements to the prospectus contained therein
as may be necessary to comply with the provisions of the Securities Act,
with respect to the disposition of the shares of stock subject to such
registration statement;
(c) furnish to the holders of Purchased Stock participating in
such registration and to the underwriters of the securities being
registered such reasonable number of copies of the registration statement,
preliminary prospectus, final prospectus and such other documents as such
underwriters may reasonably request in order to facilitate the public
offering of such securities;
(d) use its best efforts to register or qualify the securities
covered by such registration statement under such state securities or blue
sky laws of such jurisdictions as such participating holders may
reasonably request in writing within 20 days following the original filing
of such registration statement, except that the Company shall not for any
purpose be required (i) to execute a general consent to service of process
or to qualify to do business as a foreign corporation in any jurisdiction
wherein it is not so qualified; (ii) to register or qualify the securities
covered by such registration statement under the securities or blue sky
laws of any state in which such registration or qualification would
require merit review of the offering;
(e) notify the holders of Purchased Stock participating in such
registration, promptly after it shall receive notice thereof, of the time
when such registration
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<PAGE> 14
statement has become effective or a supplement to any prospectus forming a
part of such registration statement has been filed;
(f) notify such holders promptly of any request by the Commission
for the amending or supplementing of such registration statement or
prospectus or for additional information;
(g) for a period not to exceed six months following the
effectiveness of such registration statement, prepare and file with the
Commission, promptly upon the request of any such holders, any amendments
or supplements to such registration statement or prospectus which, in the
opinion of counsel for such holders (and concurred in by counsel for the
Company), is required under the Securities Act or the rules and
regulations thereunder in connection with the distribution of the
Purchased Stock by such holder;
(h) for a period not to exceed six months following the
effectiveness of such registration statement, prepare and promptly file
with the Commission such amendment or supplement to such registration
statement or prospectus as may be necessary to correct any statements or
omissions if, at the time when a prospectus relating to such securities is
required to be delivered under the Securities Act, any event shall have
occurred as the result of which any such 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 the light of the circumstances in which they were
made, not misleading;
(i) advise such holders, promptly after it shall receive notice or
obtain knowledge thereof, of the issuance of any stop order by the
Commission suspending the effectiveness of such registration statement or
the initiation or threatening of any proceeding for that purpose and
promptly use its best efforts to prevent the issuance of any stop order or
to obtain its withdrawal if such stop order should be issued;
(j) at the request of any such holder, furnish (i) an opinion,
dated as of the closing date, of the counsel representing the Company for
the purposes of such registration, addressed to the underwriters, with a
copy to the holder or holders making such request, covering such matters
as such underwriters may reasonably request; and (ii) letters dated as of
the effective date of the registration statement and as of the closing
date, from the independent certified public accountants of the Company,
addressed to the underwriters, with a copy to the holder or holders making
such request, covering such matters as such underwriters may reasonably
request.
4. Expenses. With respect to Sections 1 and 2 hereof, the Company shall
bear the following fees, costs and expenses: all registration and filing fees
payable to the Securities and Exchange Commission and any state securities
division, printing expenses, fees and disbursements of counsel and accountants
for the Company, fees and disbursements of counsel
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<PAGE> 15
for the underwriter or underwriters of such securities (but only if and to the
extent the Company is otherwise required to bear such fees and disbursements),
all internal Company expenses, all legal fees and disbursements and other
expenses of the Company in complying with state securities or blue sky laws of
any jurisdictions in which the securities to be offered are to be registered or
qualified, and the premiums and other costs of policies of insurance issued to
the Company against liability (if any) arising out of such public offering. Fees
and disbursements of counsel and accountants for the selling security holders,
underwriting discounts and commissions and transfer taxes relating to the shares
included in the offering by the selling security holders, and any other expenses
incurred by the selling security holders not expressly included above, shall be
borne pro rata by the selling security holders.
5. Indemnification.
(a) The Company will indemnify and hold harmless each holder of
shares of Purchased Stock which are included in a registration statement
pursuant to the provisions of Sections 1 or 2 hereof, its directors and
officers, any underwriter (as defined in the Securities Act) for such
holder and each person, if any, who controls such holder or such
underwriter within the meaning of the Securities Act, from and against,
and will reimburse such holder and each such underwriter and controlling
person with respect to, any and all loss, damage, liability, cost and
expense to which such holder or any such underwriter or controlling person
may become subject under the Securities Act or otherwise, insofar as such
losses, damages, liabilities, costs or expenses are caused by any untrue
statement or alleged untrue statement of any material fact contained in
such registration statement, any prospectus contained therein or any
amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading; provided,
however, that the Company will not be liable in any such case to the
extent that any such loss, damage, liability, cost or expense arises out
of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission so made in conformity with information
furnished by such holder, such underwriter or such controlling person in
writing specifically for use in the preparation of such registration
statement, prospectus or amendment or supplement thereto; provided,
however, that the indemnity agreement contained in this Section 5(a) shall
not apply to amounts paid in settlement of any such loss, damage,
liability, cost or expense if such settlement is effected without the
consent of the Company, which consent shall not be unreasonably withheld.
(b) Each holder of shares of Purchased Stock which are included in
a registration pursuant to the provisions of Sections 1 or 2 hereof will
indemnify and hold harmless the Company, its directors and officers, any
controlling person and any underwriter from and against, and will
reimburse the Company, its directors and officers, any controlling person
and any underwriter with respect to, any and all loss, damage, liability,
cost or expense to which the Company or any controlling person
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and/or any underwriter may become subject under the Securities Act or
otherwise, insofar as such losses, damages, liabilities, costs or expenses
are caused by any untrue or alleged untrue statement of any material fact
contained in such registration statement, any prospectus contained therein
or any amendment or supplement thereto, or arise out of or are based upon
the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading, in
each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was
so made in reliance upon and in strict conformity with written information
furnished by such holder specifically for use in the preparation of such
registration statement, prospectus or amendment or supplement thereto;
provided, however, that the indemnity agreement contained in this Section
5(b) shall not apply to amounts paid in settlement of any such loss,
damage, liability, cost or expense if such settlement is effected without
the consent of such holder, which consent shall not be unreasonably
withheld.
(c) Promptly after receipt by an indemnified party pursuant to the
provisions of paragraph (a) or (b) of this Section 5 of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions such indemnified party will, if a claim thereof is to
be made against the indemnifying party pursuant to the provisions of said
paragraph (a) or (b), promptly notify the indemnifying party of the
commencement thereof; but the omission to so notify the indemnifying party
will not relieve it from any liability which it may have to any
indemnified party otherwise than hereunder. In case such action is brought
against any indemnified party and it notifies the indemnifying party of
the commencement thereof, the indemnifying party shall have the right to
participate in, and, to the extent that it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party,
provided, however, if the defendants in any action include both the
indemnified party and counsel to the indemnified party shall have
reasonably concluded that there may be legal defenses available to the
indemnified party and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, or if
there is a conflict of interest which would prevent counsel for the
indemnifying party from also representing the indemnified party, the
indemnified party or parties shall have the right to select separate
counsel to participate in the defense of such action on behalf of such
indemnified party or parties. 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
pursuant to the provisions of said paragraph (a) or (b) for any legal or
other expense subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation, unless (i) the indemnified party shall have employed
counsel in accordance with the proviso of the preceding sentence, (ii) the
indemnifying party shall not have employed counsel reasonably satisfactory
to the indemnified party to represent the indemnified party within a
reasonable time after the notice of the commencement of
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the action, or (iii) the indemnifying party has authorized the employment
of counsel for the indemnified party at the expense of the indemnifying
party;
(d) In the event of a conflict between the provisions of Sections
5(a) and 5(b) governing the indemnification of an underwriter and any
person controlling such underwriter, and the corresponding provisions of
an underwriting agreement between the Company, the holders of the
Purchased Stock and such underwriter, the underwriting agreement shall
control; provided, however, that the Company shall indemnify the
underwriter and any person controlling such underwriter as set forth in
Section 5(a) if necessary to reach agreement on the terms of an
underwriting agreement.
6. Special Definition. "Purchased Stock" shall mean, collectively, the
Common Stock of the Company issued or issuable upon exercise of the Warrants
dated as of March ___, 1999 issued by the Company to Cruttenden Roth
Incorporated and Black & Company, Inc., respectively (together with any warrant
or warrants issued in substitution or exchange therefor, the "Warrant"), to
purchase a total of 250,000 shares of Common Stock of the Company, and all
shares of Common Stock of the Company issued in a stock split or
reclassification of, or a stock dividend or other distribution on or in
substitution or exchange for any of the foregoing securities. Notwithstanding
the foregoing, any Purchased Stock shall cease to be Purchased Stock when (x) a
registration statement covering such Purchased Stock has been declared effective
and such Purchased Stock has been disposed of pursuant to such effective
registration statement, (y) such Purchased Stock is sold or otherwise
transferred by a person in a transaction in which the rights under the
provisions of Section 1 and 2 are not transferred as specified therein or (z)
such Purchased Stock may be sold within any 90-day period (commencing on or
after the first anniversary of the Effective Date) pursuant to Rule 144 (or any
similar provision then in force) under the Securities Act. For purposes hereof,
the record holder of the Warrant shall be treated as the record holder of the
related Common Stock then issuable upon the exercise thereof. Nothing in this
Section 6 shall, however, be deemed to require the Company to register the
Warrant, it being understood that the registration rights granted hereby relate
only to shares of Purchase Stock.
7. Availability of Registration Rights. The right to registration
pursuant hereto shall commence on the first anniversary of the Effective Date
(as defined in the Warrant to which these Registration Rights are attached) and
shall terminate, with respect to the provisions of Sections 1 and 2 hereof, on
the fifth anniversary of the Effective Date.
8. Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Exhibit A that
the selling holders of Purchased Stock shall furnish to the Company such
information regarding themselves, the Purchased Stock held by them and the
intended method of disposition of such securities as shall be reasonably
required to effect the registration of their Purchased Stock and to execute such
documents in connection with such registration as the Company may reasonably
request.
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9. Delay of Registration. No holder of Purchased Stock shall have any
right to obtain or seek an injunction restraining or otherwise delaying any
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Exhibit A.
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EXHIBIT 10.37
AGREEMENT
This Agreement, dated as of March 1, 1998, is entered into between G.I.
Joe's, Inc. ("G.I. Joe's") and Peregrine Capital, Inc. ("Peregrine").
RECITALS
A. G.I. Joe's is being restructured in connection with a management
buy-out thereof by Norman P. Daniels, the President and Chief Executive Officer
of G.I. Joe's, and Peregrine (such restructuring being referred to herein as the
"Restructuring").
B. As part of the Restructuring, ND Holdings, Inc. ("Holdings"), a
corporation controlled by Mr. Daniels, will be merged with and into G.I.Joe's,
with G.I. Joe's being the surviving entity.
C. Peregrine is acting as an advisor to Mr. Daniels in connection with the
Restructuring and is assisting in arranging financing for, and investing in G.I.
Joe's as a part of, the Restructuring.
D. Peregrine has agreed to pay certain fees and expenses and to undertake
certain obligations in connection with the Restructuring, as set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
SECTION 1. PAYMENT OF FEES, EXPENSES AND DIVIDENDS
Peregrine agrees to pay the following:
(a) Any and all fees and expenses (including, without limitation, legal,
accounting and other professional fees) incurred by G.I. Joe's and Holdings in
connection with the Restructuring;
(b) All fees required to be paid to David Orkney, the majority shareholder
of G.I. Joe's, to extend the term of Mr. Orkney's agreement to sell his interest
in G.I. Joe's as part of the Restructuring; and
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(c) All dividends accruing with respect to the Series A 9% Non-Voting
Redeemable Preferred Stock of G.I. Joe's (the "Redeemable Preferred Stock") to
be issued in connection with the Restructuring.
SECTION 2. MISCELLANEOUS PROVISIONS
2.1 SUCCESSORS AND ASSIGNS
Peregrine may not assign any rights or delegate any duties under this
Agreement without the prior written consent of G.I. Joe's. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
2.2 NOTICES
All notices required or permitted to be given under this Agreement shall
be in writing. Notices may be served by certified or registered mail, postage
prepaid with return receipt requested; by private courier, prepaid; by facsimile
or other telecommunication device capable of transmitting or creating a written
record; or personally. Mailed notices shall be deemed delivered two (2) days
after deposit in the U.S. mail, properly addressed. Couriered notices shall be
deemed delivered on the date that the courier warrants that delivery will occur.
Telecommunicated notices shall be deemed delivered when receipt is either
confirmed by confirming transmission equipment or acknowledged by the addressee
or its office. Personal delivery shall be effective when accomplished. Unless a
party changes its address by giving notice to the other party as provided
herein, notices shall be delivered to the parties at the following addresses:
If to G.I. Joe's:
G.I. Joe's, Inc.
9805 SW Boeckman Road
Wilsonville, Oregon 97070
Attention: Norman P. Daniels
Telecopier No. (503) 682-7200
If to Peregrine:
Peregrine Capital, Inc.
9725 SW Beaverton-Hillsdale Hwy., #350
Beaverton, Oregon 97005-3366
Attention: Daniel J. Alderman
Telecopier No. (503) 350-0672
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2.3 ATTORNEY'S FEES
If any suit or action is filed by any party to enforce this Agreement or
otherwise with respect to the subject matter of this Agreement, the prevailing
party shall be entitled to recover the costs and fees (including, without
limitation, reasonable attorneys' fees, the fees and costs of experts and
consultants, copying, courier and telecommunication costs, and deposition costs
and all other costs of discovery) incurred in preparation or in prosecution or
defense of such suit or action as fixed by the trial court, and if any appeal is
taken from the decision of the trial court, reasonable attorneys' fees as fixed
by the appellate court, in addition to all other sums provided by law.
2.4 INTEGRATION
This Agreement constitutes the entire agreement of the parties relating to
the subject matter hereof. There are no promises, terms, conditions, obligations
or warranties other than those contained in this Agreement, and this Agreement
supersedes all prior communications, representations or agreements, verbal or
written, among the parties relating to the subject matter hereof.
2.5 HEADINGS
Section titles and headings are for convenience of reference only and
shall not be used in interpreting the meaning of this Agreement.
2.6 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of Oregon.
2.7 SEVERABILITY
If any provision of this Agreement shall be invalid or unenforceable in
any respect for any reason, the validity and enforceability of any such
provision in any other respect and of the remaining provisions of this Agreement
shall, to the fullest extent permitted by law, not be in any way impaired.
2.8 AMENDMENT; WAIVER
This Agreement may be amended only by an instrument in writing executed by
all the parties hereto. A provision of this Agreement may be waived only by a
written instrument executed by the party waiving compliance. No waiver of any
provision of this Agreement shall constitute a waiver of any other provision,
whether or not similar, nor shall any waiver constitute a continuing waiver.
Failure to enforce any
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provision of this Agreement shall not operate as a waiver of such provision or
any other provision.
2.9 COUNTERPARTS
This Agreement may be executed by the parties in separate counterparts,
each of which when executed and delivered shall be an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above set forth.
G.I. JOE'S, INC.
By /s/ NORMAN P. DANIELS
---------------------------------------------
Name: Norman P. Daniels
Title: President
PEREGRINE CAPITAL, INC.
By /s/ ALLAN A. FULSHER
---------------------------------------------
Name: Allan A. Fulsher
Title: General Counsel
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