<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE PERIOD ENDED SEPTEMBER 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO ______________
Commission File Number: 1-13042
RIDE, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Washington 91-1571027
- ------------------------------------ ---------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
8160 304th Avenue Southeast
Preston, Washington 98050
- ------------------------------------ ---------------------------------
(Address of principal executive (Zip Code)
offices)
(425) 222-6015
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, without par value -- 11,700,947 shares as of October 31, 1997
<PAGE> 2
INDEX
RIDE, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets -- September 30, 1997 and
December 31, 1996
Condensed consolidated statements of operations -- Three months and
nine month periods ended September 30, 1997 and 1996
Condensed consolidated statements of cash flows -- Nine months ended
September 30, 1997 and 1996
Notes to condensed consolidated financial statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosure about Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBITS
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RIDE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
(Unaudited)
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 121 $ 3,232
Receivables, less allowance for doubtful accounts
of $733 at September 30, 1997 and $655 at 17,300 14,193
December 31, 1996
Inventories (Note 3) 11,065 5,986
Prepaid expenses and other current assets 890 450
Income taxes receivable 3,930 2,836
Deferred tax assets 1,423 1,423
------- -------
Total current assets 34,729 28,120
Plant and equipment, net of accumulated depreciation 5,871 5,757
Notes receivable, net of discount 2,000 1,884
Goodwill, net of accumulated amortization 16,674 14,292
Other assets 805 602
------- -------
Total assets $60,079 $50,655
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,313 $ 4,631
Accrued expenses 1,383 2,776
Short-term borrowings 11,265 --
-------- --------
Total current liabilities 17,961 7,407
Long-term liabilities 761 604
Deferred income taxes 335 335
Shareholders' equity:
Preferred stock 500 500
Common stock 42,097 39,583
Retained earnings (accumulated deficit) (1,575) 2,226
-------- --------
Total shareholders' equity 41,022 42,309
-------- --------
Total liabilities and shareholders' equity $ 60,079 $ 50,655
======== ========
</TABLE>
See accompanying notes.
2
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RIDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
--------------------- ---------------------
1997 1996 1997 1996
--------------------- ---------------------
<S> <C> <C> <C> <C>
Net sales $ 18,215 $ 35,329 $ 25,774 $ 61,606
Cost of goods sold 12,391 23,985 17,957 42,712
-------- -------- -------- --------
Gross profit 5,824 11,344 7,817 18,894
Selling, general and administrative
expenses 4,585 5,419 12,977 14,090
-------- -------- -------- --------
Operating income (loss) 1,239 5,925 (5,160) 4,804
Interest income 50 14 153 292
Interest expense (188) (125) (231) (152)
-------- -------- -------- --------
Income (loss) before income taxes 1,101 5,814 (5,238) 4,944
Income tax expense (benefit) 440 2,172 (1,463) 1,874
-------- -------- -------- --------
Net income (loss) $ 661 $ 3,642 $( 3,775) $ 3,070
======== ======== ======== ========
Per share:
Primary $ 0.06 $ 0.32 ($ 0.34) $ 0.27
Fully diluted $ 0.06 $ 0.32 ($ 0.34) $ 0.27
Weighted average common shares
outstanding:
Primary 11,605 11,258 11,085 11,334
Fully diluted 11,813 11,485 11,085 11,534
</TABLE>
See accompanying notes.
3
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RIDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine months ended
September 30,
----------------------
1997 1996
-------- ---------
<S> <C> <C>
Net cash used in operating activities $(12,175) $(21,960)
INVESTING ACTIVITIES:
Acquisitions of Device Mfg Corp. and Smiley (1,824) --
Hats, Inc
Purchase of plant and equipment (616) (4,669)
Proceeds from sale of securities -- 3,840
Other (11) (448)
-------- --------
Net cash used in investing activities (2,451) (1,277)
FINANCING ACTIVITIES:
Proceeds from short-term borrowings 13,290 13,301
Repayments of short-term borrowings (2,025) (4,080)
Proceeds from exercise of Common Stock options 319 744
Proceeds from Employee Stock Purchase Plan 28 62
Repayment of notes payable -- (938)
Proceeds from long term debt -- 640
Repayments of long term debt (71) --
Dividends paid (26) (26)
-------- --------
Net cash provided by financing activities 11,515 9,703
-------- --------
Net decrease in cash and cash equivalents (3,111) (13,534)
Cash and cash equivalents at beginning of period 3,232 14,271
-------- --------
Cash and cash equivalents at end of period $121 $737
======== ========
SUPPLEMENTAL DISCLOSURE:
Cash paid (received) for income taxes $(369) $386
Cash paid for interest $242 $126
NONCASH FINANCING ACTIVITY:
Common stock issued in acquisitions $2,175 --
Tax benefit of stock option exercises -- $166
</TABLE>
See accompanying notes.
4
<PAGE> 6
RIDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared by Ride, Inc. (the "Company"), in accordance with generally accepted
accounting principles for interim financial statements and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and disclosures required by generally accepted accounting
principles for complete financial statements. In the opinion of the Company's
management, all adjustments (consisting of normal recurring accruals) necessary
for a fair presentation have been included. The Company's revenues are highly
seasonal, occurring primarily between July and December as its products are
shipped to customers. The results of operations for the three and nine month
periods ended September 30, 1997, therefore may not be indicative of the results
for the full fiscal year. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1996. All amounts are stated
in US dollars.
2. NET INCOME (LOSS) PER SHARE
Primary net income per share has been computed by dividing net income, after
reduction for Preferred Stock dividends, by the weighted average number of
common shares and equivalents outstanding. Common share equivalents included in
the computation represent shares issuable upon assumed exercise of stock options
having exercise prices below the average market price of the Common Stock using
the treasury stock method. Fully diluted net income per share has been computed
by dividing net income by the weighted average number of common shares and
equivalents outstanding assuming the conversion of the Preferred Stock occurred
at the beginning of the period. The number of common share equivalents included
in the fully diluted computations represent shares issuable upon exercise of
stock options having exercise prices below the higher of the average or ending
market price of the Common Stock using the treasury stock method. Net loss per
share for the nine months ended September 30, 1997 has been computed by dividing
the net loss, after reduction for Preferred Stock dividends, by the weighted
average number of common shares outstanding. Common equivalent shares are
excluded from the net loss per share computation because their effects are
antidilutive.
3. INVENTORIES
Inventories at September 30, 1997 and December 31, 1996 consisted of the
following:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
--------------------------------
(In thousands)
<S> <C> <C>
Finished goods $ 10,769 $ 9,415
Raw materials and work in process 2,159 2,487
Obsolescence reserve (1,863) (5,916)
-------- --------
$ 11,065 $ 5,986
======== ========
</TABLE>
5
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RIDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
4. FOREIGN CURRENCY TRANSACTIONS
The Company enters into foreign currency forward contracts to hedge firm
purchase and sales orders denominated in foreign currencies. At September 30,
1997, the Company had open positions to purchase 2.0 million Deutsche Marks
which mature through November 28, 1997. The net loss on these forward contracts
as of September 30, 1997 of approximately $158,000 has been deferred and will be
recognized when the related commitments are settled.
5. ACQUISITIONS
On June 12, 1997, the Company purchased substantially all of the assets (except
cash and accounts receivable) and liabilities of Device Mfg Corp, a manufacturer
of step-in snowboard bindings and boots based in Boulder, Colorado. The purchase
price was comprised of approximately $1.0 million in assumed liabilities and
514,382 shares of Common Stock. Of the shares issued, 257,191 are subject to
forfeiture should 1997 Device product sales fail to meet certain targeted
amounts. The acquisition has been accounted for using the purchase method.
On July 22, 1997, the Company purchased substantially all of the assets of
Galena Creek Trading Company, Inc. (d.b.a. Smiley Hats), a manufacturer of
winter hats based in Sparks, Nevada. The purchase price was comprised of
approximately $550,000 in cash and 320,000 shares of Common Stock. Galena Creek
Trading Company is majority owned and controlled by the Company's Chief
Executive Officer. A valuation opinion from an investment banking company was
obtained in connection with this transaction. The acquisition was accounted for
using the purchase method.
6. NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128 "Earnings Per Share" which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating primary or "basic" earnings per share, the
dilutive effect of stock options will be excluded. The impact of Statement 128
on the calculation of fully diluted or "diluted" earnings per share is not
expected to be material.
The FASB also recently issued SFAS No. 130, "Reporting Comprehensive Income" and
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." Statement 130 establishes standards for reporting comprehensive
income in annual and interim financial statements. Statement 131 establishes
standards for the way public companies report information about operating
segments in annual and interim financial statements. It also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. Statements 130 and 131 are effective for financial
statements for fiscal years beginning after December 15, 1997. These statements
will have no impact on the Company's results of operations, financial position
or cash flows.
7. SUBSEQUENT EVENT
On November 11, 1997, the Company announced that it had entered into a letter of
intent to merge with US2 Sports Group, Inc. (US2), a manufacturer and marketer
of wakeboards and related equipment based in Woodinville, Washington. The terms
of the proposed merger call for the issuance of approximately $1.7 million in
Ride common stock in exchange for all of the outstanding common stock of US2.
The merger is expected to be completed before the end of 1997 and is expected to
be accounted for as a pooling of interests.
6
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
To the extent that this Quarterly Report on Form 10-Q discusses financial
projections, information or expectations about the Company's products or
markets, or otherwise makes statements about the future, such statements are
forward looking and are subject to a number of risks and uncertainties that
could cause actual results to differ materially from the statements made. These
factors include the competitive environment, industry and product
concentrations, dependence on third-party selling efforts and other risks
outlined in more detail in the Company's Annual Report on Form 10-K as filed
with the Securities and Exchange Commission for the fiscal year ended December
31, 1996. Certain forward looking statements contained in the following
discussion are more specifically identified with the symbol (*).
GENERAL
The Company is a leading designer, manufacturer and marketer of snowboards and
related products through its subsidiaries, Ride Snowboard Company ("Ride
Snowboards"), Ride Manufacturing, Inc. ("Ride Manufacturing," formerly Thermal
Snowboards, Inc.), Ride Canada, Inc. ("Ride Canada"), SMP Clothing, Inc. ("SMP")
and Smiley Hats, Inc. ("Smiley"). The Company was founded in 1992 and acquired
Ride Manufacturing in September 1995, SMP in October 1995 and Smiley in July
1997. In June 1997, the Company purchased the majority of the assets and
liabilities of Device Mfg Corp. ("Device") and merged the operations of that
company into Ride Snowboards. The results of operations of the acquired entities
are included in the Company's financial statements from the respective dates of
acquisition.
In August 1994, the Company acquired C.A.S. Sports International, Inc. and
C.A.S. Sports Agency, Inc. (collectively, "CAS"). On October 11, 1996, the
Company sold the CAS entities and the related excess inventory and brokered-OEM
businesses. The results of operations of the CAS excess inventory and
brokered-OEM businesses are included in the Company's financial statements
through the date those businesses were sold.
The Company's operations vary significantly during the year based on the winter
sports season. The season for winter sports, which includes snowboarding,
typically runs from November through March in northern hemisphere markets.
Accordingly, the Company generates the majority of its sales in the third and
fourth quarters, as snowboard retailers time their purchases to meet expected
retail demand.* Because relatively lower net sales are generated in the first
and second quarters of the year, the Company expects to incur operating losses
during those periods for the foreseeable future.*
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 1997 COMPARED WITH QUARTER ENDED SEPTEMBER 30, 1996
Net sales in the third quarter of 1997 were $18.2 million compared to $35.3
million in the third quarter of 1996. Approximately $7.5 million of the 1996
amount was generated by the CAS excess inventory and brokered-OEM businesses
sold in October 1996. Net sales generated by the 1997 acquisitions of Smiley and
Device totaled $800,000 during the third quarter. The remaining net decrease was
due primarily to soft market conditions throughout the industry due to an
oversupply of snowboard products.
Hard goods (defined as snowboards, bindings, boots and skateboards) represented
77% of third quarter 1997 net sales while soft goods (apparel and accessories)
made up 23%. For the third quarter of 1996, hard goods comprised 78% of sales
and soft goods 22%. For the third quarter of 1997, sales in North America made
up 60% of total sales with international sales representing the remaining 40%.
For the third quarter of 1996, North America represented 66% of total sales and
international 34%. The increase in international sales during the 1997 quarter
was due to the Company's strategy of selling its "Ride," "Liquid," and "Preston"
branded products directly to the top retailers in Japan instead of selling
exclusively through distributors. This strategy has had the effect of shifting
more Japanese shipments into the third and fourth quarters of the year.
7
<PAGE> 9
Gross margins remained at 32% for the three month periods ended September 30,
1997 and 1996. Gross margins were positively impacted by favorable sourcing
arrangements and manufacturing cost reductions, offset by sales of lower margin
1996 close out products.
Selling, general and administrative expenses were $4.6 million for the third
quarter of 1997 compared to $5.4 million in the third quarter of 1996. This
decrease was due primarily to staff reductions, lower executive salaries, lower
variable expenses associated with the lower sales volumes (primarily commissions
and bad debt accruals) and the disposition of the CAS businesses, offset partly
by increased occupancy and legal expenses as well as the expenses of the Smiley
and Device entities acquired in 1997.
Interest income was $50,000 in the third quarter of 1997 compared with $14,000
for the third quarter of 1996. The increase was due to interest accrued on the
long term note receivable received in the sale of the CAS businesses in October
1996. Interest expense in the third quarter of 1997 increased to $188,000 from
$125,000 in the third quarter of 1996 due to a generally higher level of direct
advances on the Company's revolving credit facility during the 1997 period.
The effective tax rate for the third quarter of 1997 was 40% compared with 37%
for the third quarter of 1996. The Company expects the effective tax benefit for
the full year to be approximately 25%.*
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1996
Net sales in the first nine months of 1997 were $25.8 million compared to $61.6
million in the first nine months of 1996. Approximately $15 million of the 1996
amount was generated by the CAS excess inventory and brokered-OEM businesses
sold in October 1996. The remaining net decrease was due primarily to soft
market conditions throughout the industry due to an oversupply of snowboard
products.
Hard goods represented 69% of net sales in the first nine months of 1997 while
soft goods made up 31%. For the first nine months of 1996, hard goods comprised
81% of sales and soft goods 19%. The relative increase in soft goods sales was
attributable primarily to growth in Spring season sales at the Company's SMP
subsidiary coupled with the fact that the sold CAS businesses were predominantly
hard goods oriented. For the first nine months of 1997 and 1996, respectively,
sales in North America made up 64% and 56% of total sales with international
sales representing the remaining 36% and 44%. The decrease in international
sales is largely attributable to the excess inventory situation in Japan and the
resulting decline in sales to that market.
Gross margins for the nine months ended September 30, 1997 were 30% compared to
31% for the same period in 1996. Gross margins were positively impacted by
favorable sourcing arrangements and manufacturing cost reductions, offset by
sales of lower margin 1996 close out products.
Selling, general and administrative expenses for the first nine months of 1997
decreased to $13.0 million from $14.0 million in the first nine months of 1996.
This decrease was due primarily to staff reductions, lower executive salaries,
lower variable expenses associated with the lower sales volumes (primarily
commissions and bad debt accruals) and the disposition of the CAS businesses,
offset partly by increased occupancy and legal expenses as well as the expenses
of the Smiley and Device entities acquired in 1997.
Interest income totaled $153,000 in the first nine months of 1997 compared with
$292,000 for the same period in 1996. The decrease was due to overall lower
invested cash balances in the first nine months of 1997 as compared to the same
period in 1996, offset in part by interest accrued on the long term note
receivable received in the sale of the CAS businesses in October 1996. Interest
expense was $231,000 in the first nine months of 1997 compared to $152,000 in
the first nine months of 1996 due to a generally higher level of direct advances
on the Company's revolving credit facility during the 1997 period.
The effective tax rate for the first nine months of 1997 was a 28% benefit
compared with a 38% expense for the 1996 period. The lower rate is due primarily
to the establishment of a valuation allowance on the Company's net
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operating loss carryforwards. The Company expects the effective tax benefit for
the full year to be approximately 25%.*
LIQUIDITY AND CAPITAL RESOURCES
During the third quarter of 1997 and 1996, the Company financed its operations
primarily through collection of receivables and the Company's line of credit
facility. Net cash used in operating activities totaled $12.2 million in the
first nine months of 1997 compared with $22.0 million in the comparable period
of 1996. This decrease was due to primarily to a smaller inventory buildup in
1997 than in 1996 and lower accounts receivable due to the reduction in net
sales. Net cash used in investing activities totaled $2.5 million during the
first nine months of 1997 compared to $1.3 million in the first nine months of
1996. The 1997 period included $1.8 million related to the acquisitions of
Device Mfg Corp. and Smiley Hats, and $616,000 in capital expenditures. The 1996
period includes capital expenditures of approximately $4.7 million, offset by
$3.8 million in proceeds from the sale of short term investments. A significant
portion of the capital expenditures acquired in the first six months of both
1997 and 1996 were associated with molds and tooling for snowboards and
snowboard bindings. Capital expenditures in the 1996 period also included
leasehold improvements related to the expansion of the Company's Preston,
Washington office and warehouse facilities. Net cash provided by financing
activities totaled $11.5 million in the first nine months of 1997 compared with
$9.7 million in the comparable period of 1996. The primary financing activity
for both periods were net advances on the Company's line of credit of $11.3
million in 1997 and $9.2 million in 1996.
The Company has a revolving line of credit arrangement with a bank to finance
import letters of credit and working capital needs. Through October 30, 1997,
the maximum amount available under the line is $15 million. The maximum amount
available thereafter fluctuates based on the seasonality of the Company's cash
flows but is never less than $2 million. Advances on the line bear interest at
the bank's prime rate. At October 31, 1997, the Company had approximately
$600,000 in outstanding import letters of credit and direct advances of $9.8
million drawn against this line. The line of credit expires on June 30, 1998 and
has certain operating covenants, including financial ratios, working capital
restrictions and restrictions on payment of dividends on the Company's Common
Stock. In order to meet working capital requirements or make additional
acquisitions, the Company may need to obtain additional financing to replenish
cash used in current year operations.* There can be no assurance that the
Company will be able to obtain such additional financing when needed or on terms
favorable to the Company.*
Certain of the Company's purchase commitments and sales are denominated in
foreign currencies. Because a change in the value of such currencies relative to
the U.S. dollar will affect the Company's gross profit and net income, the
Company enters into forward currency contracts to hedge against adverse currency
fluctuations. Although the Company believes that these contracts decrease the
overall exposure to gains and losses from currency fluctuations, such exposure
cannot be entirely eliminated.*
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Not applicable.
9
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In 1996, the Company's Preston Binding Company subsidiary initiated legal
proceedings against Switch Manufacturing, alleging infringement by Switch of
certain Preston-owned patented binding technologies. In answer to the lawsuit,
Switch counterclaimed, alleging misuse of patent and unfair business practices
by the Company. In April 1997, the Company filed a motion to dismiss Switch's
counterclaims and certain affirmative defenses. On July 28, 1997, the Court
granted the Company's motion to dismiss Switch's counterclaims and certain
affirmative defenses and directed Switch to file an amended answer no later than
August 27, 1997. Switch timely filed an Amended Answer that did not include
counterclaims. The case is pending in the United States District Court for the
Northern District of California as Raines, et al. v. Switch Manufacturing v.
Ride, Inc., Civil Action No. C96-2648-DLJ.
On March 14, 1997, a shareholder filed a lawsuit against the Company and four of
its current or former officers and directors in the United States District Court
for the Western District of Washington at Seattle, styled Murray v. Ride, Inc.
et al., Civil Action No. C97-0402Z. A second lawsuit was filed against the same
parties on April 9, 1997 by two shareholders in the same court under Taylor et
al. v. Ride, Inc. et al., Civil Action No. C97-560Z. Identical except for the
named plaintiffs and facts specific to each, the lawsuits allege violations of
certain federal securities laws and state laws, and purport to seek damages on
behalf of a class of shareholders who purchased the Company's common stock
during the period August 10, 1995 through December 30, 1996. The lawsuits have
been consolidated under Civil Action No. C97-0402 WD and plaintiffs in the
Murray action have been appointed Lead Plaintiffs under applicable statutory
provisions. On October 6, 1997, the Company filed a Motion to Dismiss the
consolidated claims. The Motion is pending as additional pleadings related to
the Motion are filed with the Court.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3.1 Restated Articles of Incorporation and Certificate of
Designation of Relative Rights and Preferences of the Series A
7% Cumulative Nonvoting Preferred Stock (1)
3.2 Bylaws of the Company (1)
3.3 Articles of Amendment to Articles of Incorporation (9)
</TABLE>
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<TABLE>
<S> <C>
3.4 Articles of Amendment to Articles of Incorporation (10)
3.5 Articles of Correction (12)
4.1 Article VI of the Articles of Incorporation regarding
Shareholder Rights (See Exhibit 3.1) (1)
4.2 Article VIII of the Articles of Incorporation regarding Voting
Rights (See Exhibit 3.1) (1)
4.4 Specimen Stock Certificate (2)
10.10 Exclusive Distributorship Agreement dated December 7, 1992, by
and between Ride Snowboard Company and Far East Trading Co.,
Ltd. (3)
10.24 Exchange Agreement, dated December 31, 1993, between Ride
Snowboard Company and Mark M. Salter (1)
10.25 Employment Agreement, dated August 18, 1994, by and between
Ride Snowboard Company and James J. Salter (4)
10.26 Form of Employment Agreement between Ride Snowboard Company and Roger
B. Madison, Jr. (1)
10.27 Employment Agreement, dated January 1, 1995, by and between
Ride Snowboard Company and Timothy G. Pogue (7)
10.28 Form of Ride Snowboard Company 1994 Stock Option Plan (1)
10.29 Form of Ride Snowboard Company 1994 Directors' Nonqualified
Stock Option Plan (1)
10.30 Lease Agreement with Teachers Insurance & Annuity Association dated
January 10, 1994 (1)
10.32 Amended Form of Underwriting Agreement (5)
10.34 Standard Form Multiple Occupancy Lease, dated November 29,
1994, by and between Ride Snowboard Company and BDC Preston
Properties One Limited Partnership (6)
10.35 Business Loan Agreement, dated June 30, 1997, by and between
Ride, Inc. and U.S. Bank of Washington, N.A.
10.36 Stock Purchase Agreement, dated August 18, 1994, between Ride
Snowboard Company and James J. Salter, the James Salter Family
Trust, Kenneth Finkelstein Family Trust, The Snow Trust, Robert
Marcovitch, Kerry Wasserman, Rick Clarfield, Howard Cohen, Gary
Kell, Sandra Pelegrin, Alan Langer, Dan Opyc, C.A.S. Sports
International, Inc. and C.A.S. Sports Agency, Inc. (8)
10.45 Ride Snowboard Company 1995 Employee Stock Purchase Plan (9)
10.46 Ride Snowboard Company 1995 Foreign Subsidiary Employee Stock
Purchase Plan (9)
10.47* Exclusive OEM Agreement, dated July 26, 1995, by and between
Ride Snowboard Company and Straight Line Water Sports, Inc. (11)
10.48 Employment Agreement, dated September 1, 1995, between the
Company and David A. Janes, Jr. (13)
10.49 Employment Agreement, dated September 1, 1995, between the
Company and Bernard Gervasoni (13)
</TABLE>
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<TABLE>
<S> <C>
10.50 Employment Agreement, dated October 19, 1995, between the
Company and David Milo Myers (14)
10.51 Registration Rights Agreement dated October 19, 1995, between
the Company and David Milo Myers, Lawrence Kraus and Michael
Wise (14)
10.52 Stock Purchase Agreement, dated September 1, 1995, between the
Company and the shareholders and option holders of 5150
Snowboards, Inc. and Thermal Snowboards, Inc. (15)
10.53 Asset Purchase Agreement, dated October 19, 1995, among the
Company, Sex Money Power Clothing, Inc., David Milo Myers,
Lawrence Kraus and Michael Wise (16)
10.54 Form of Underwriting Agreement by and between the Company and
Hambrecht & Quist LLC and Dain Bosworth Incorporated (17)
10.55* Amendment No.1 to Exclusive Distributorship Agreement, dated
October 24, 1995, by and between Ride Snowboard Company, 5150
Snowboards, Inc., SMP Clothing, Inc. and Far East Trading
Company Ltd. (18)
10.56 Employment Agreement, dated October 14, 1995, by and between
the Company and Kenneth J. Finkelstein (19)
10.57 Employment Agreement, dated January 1, 1996, by and between
C.A.S. Sports International, Inc. and Robert F. Marcovitch (19)
10.58 First Amendment, dated August 4, 1995, to Lease Agreement by
and between Ride Snowboard Company and BDC Preston Properties
One Limited Partnership (19)
10.59 Second Amendment, dated November 21, 1995, to Lease Agreement
by and between Ride Snowboard Company and BDC Preston
Properties One Limited Partnership (19)
10.60 Third Amendment, dated March 26, 1996, to Lease Agreement by
and between Ride Snowboard Company and BDC Preston Properties
One Limited Partnership (19)
10.61 Amendment No. 2 to Exclusive Distributorship Agreement, dated
October 24, 1995, by and between Ride Snowboard Company, 5150
Snowboards, Inc., SMP Clothing, Inc. and Far East Trading
Company Ltd. (20)
10.63 Agreement, dated May 7, 1996, by and between Ride, Inc. and
James J. Salter (21)
10.64 Agreement, dated August 2, 1996, by and between Ride, Inc. and
Kenneth J. Finkelstein (21)
10.65 Agreement, dated August 7, 1996, by and between Ride, Inc. and
Robert E. Hall (21)
10.66 Stock Purchase Agreement, dated October 11, 1996, by and
between Ride, Inc. and Gen-X Equipment, Inc. (22)
10.67 Amendment No. 1 to Resignation Agreement, dated October 11,
1996, by and between Ride, Inc. and James J. Salter. (22)
10.68 Amendment No. 1 to Resignation Agreement, dated October 11,
1996, by and between Ride, Inc. and Kenneth J. Finkelstein. (22)
10.69 Resignation and Release Agreement, dated October 28, 1996, by
and between
</TABLE>
12
<PAGE> 14
<TABLE>
<S> <C>
Ride, Inc. and Timothy G. Pogue (23)
10.70 Letter agreement, dated December 6, 1996, by and between Ride,
Inc. and Straight Line Water Sports, Inc. (23)
10.71 Letter agreement, dated December 12, 1996, by and between Ride,
Inc. and Straight Line Water Sports, Inc. (23)
10.72* Financial Advisory Agreement, dated January 15, 1997, by and
between Ride, Inc. and Roger Madison, Jr. (24)
10.73 Asset Purchase Agreement, dated July 15, 1997, by and between
Ride, Inc. and Galena Creek Trading Company, Inc. (dba Smiley
Hats)
11.1 Computation of earnings per share
27.1 Financial Data Schedule
</TABLE>
- ----------
(1) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Registration Statement on Form SB-2, file no.
33-75770-LA.
(2) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Amendment No. 1 to Registration Statement on Form SB-2,
file no. 33-75770-LA.
(3) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Registration Statement on Form SB-2, file no.
33-75770-LA, with confidential portions omitted and filed separately
with the Commission pursuant to a Request of Confidential Treatment
under Rule 406 of the Securities Act of 1933.
(4) Exhibit is incorporated by reference to Exhibit No. 10.1 to the
Company's Current Report on Form 8-K, dated August 31, 1994.
(5) Exhibit is incorporated by reference to Exhibit No. 1.1A to the
Company's Amendment No. 1 to Registration Statement on Form SB-2, file
no. 33-75770-LA.
(6) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.
(7) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Post-Effective Amendment No. 1 to the Registration
Statement on Form SB-2, file no. 33-75770-LA.
(8) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Post-Effective Amendment No. 2 to the Registration
Statement on Form SB-2, file no. 33-75770-LA.
(9) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Registration Statement on Form S-1, file no. 33-94814.
(10) Exhibit is incorporated by reference to an identically numbered exhibit
to Amendment No. 1 to the Company's Registration Statement on Form S-1,
file no. 33-94814.
(11) Exhibit is incorporated by reference to an identically numbered exhibit
to Amendment No. 1 to the Company's Registration Statement on Form S-1,
file no. 33-94814, with confidential portions omitted and filed
separately with the Commission pursuant to a Request of Confidential
Treatment under Rule 406 of the Securities Act of 1933.
13
<PAGE> 15
(12) Exhibit is incorporated by reference to an identically numbered exhibit
to Amendment No. 2 to the Company's Registration Statement on Form S-1,
file no. 33-94814.
(13) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Current Report on Form 8-K, dated September 1, 1995.
(14) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Current Report on Form 8-K, dated October 20, 1995.
(15) Exhibit is incorporated by reference to Exhibit No. 2.1 to the Company's
Current Report on Form 8-K, dated September 1, 1995.
(16) Exhibit is incorporated by reference to Exhibit No. 2.2 to the Company's
Current Report on Form 8-K, dated October 20, 1995.
(17) Exhibit is incorporated by reference to Exhibit No. 1.1 to the Company's
Registration Statement on Form S-1, file no. 33-94814.
(18) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Quarterly Report on Form 10-Q, for the fiscal quarter
ended September 30, 1995.
(19) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.
(20) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1996.
(21) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1996.
(22) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Current Report on Form 8-K, dated October 11, 1996.
(23) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.
(24) Exhibit is incorporated by reference to an identically numbered exhibit
to the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1997.
* Certain portions of this exhibit have been omitted and filed separately
with the Commission pursuant to an Application for Confidential
Treatment.
(b) Reports on Form 8-K
Not applicable.
14
<PAGE> 16
SIGNATURES
In accordance with the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RIDE, INC.
-----------------------------------
(Registrant)
Dated: November 13, 1997 By /s/ Robert E. Hall
-----------------------------------
Robert E. Hall
President and Chief Executive
Officer
Dated: November 13, 1997 By /s/ G. Scott Stewart
-----------------------------------
G. Scott Stewart
Chief Financial Officer
15
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
Manual
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C>
10.35 Business Loan Agreement, dated June 30, 1997, by and between Ride,
Inc. and U.S. Bank of Washington, N.A.
10.73 Asset Purchase Agreement, dated July 15, 1997, by and between
Ride, Inc. and Galena Creek Trading Company, Inc. (dba Smiley
Hats)
11.1 Computation of earnings per share
27.1 Financial data schedule
</TABLE>
15
<PAGE> 1
BUSINESS LOAN AGREEMENT
Borrower: Ride, Inc.
8160 304TH AVE SE
Preston, WA 98050
Lender: US Bank
East King County Corporate Banking
10800 NE 8th Street, Suite 1000
Bellevue, WA 98004
THIS BUSINESS LOAN AGREEMENT between RIDE, INC. ("Borrower") and U.S. BANK
("Lender") is made and executed on the following terms and conditions. Borrower
has received prior commercial loans from Lender or has applied to Lender for a
commercial loan or loans and other financial accommodations, including those
which may be described on any exhibit or schedule attached to this Agreement.
All such loans and financial accommodations, together with all future loans and
financial accommodations from Lender to Borrower, are referred to in this
Agreement individually as the "Loan" and collectively as the "Loans." Borrower
understands and agrees that: (a) in granting, renewing, or extending any Loan,
Lender is relying upon Borrower's representations, warranties and agreements, as
set forth in this Agreement; (b) the granting, renewing, or extending of any
Loan by Lender at all times shall be subject to Lender's sole judgment and
discretion; and (c) all such Loans shall be and shall remain subject to the
following terms and conditions of this Agreement.
TERM. This Agreement shall be effective as of June 30, 1997, and shall continue
thereafter until all Indebtedness of Borrower to Lender has been performed in
full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
Agreement. The word "Agreement" means this Business Loan Agreement, as
this Business Loan Agreement may be amended or modified from time to time,
together with all exhibits and schedules attached to this Business Loan
Agreement from time to time.
Borrower. The word "Borrower" means RIDE, INC. The word "Borrower" also
includes, as applicable, all subsidiaries and affiliates of Borrower as
provided below in the paragraph titled "Subsidiaries and Affiliates."
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
Cash Flow. The words "Cash Flow" mean net income after taxes, and
exclusive of extraordinary gains and income, plus depreciation and
amortization.
<PAGE> 2
Collateral. The word "Collateral" means and includes without limitation
all property and assets granted as collateral security for a Loan, whether
real or personal property, whether granted directly or indirectly, whether
granted now or in the future, and whether granted in the form of a
security interest, mortgage, deed of trust, assignment, pledge, chattel
mortgage, chattel trust, factor's lien, equipment trust, conditional sale,
trust receipt, lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise.
Debt. The word "debt" means all Borrower's liabilities excluding
Subordinate Debt.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
Event of Default. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "EVENTS OF DEFAULT".
Grantor. The word "Grantor" means and includes without limitation each and
all of the persons or entities granting a Security Interest in any
Collateral for the Indebtedness, including without limitation all
Borrowers granting such a Security Interest.
Guarantor. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with any Indebtedness.
Indebtedness. The word "Indebtedness" means and includes without
limitations all Loans, together with all other obligations, debts and
liabilities of Borrower to Lender, or any one or more of them, as well as
all claims by Lender against Borrower, or any one or more of them; whether
now or hereafter existing, voluntary or involuntary, due or not due,
absolute or contingent, liquidated or unliquidated; whether Borrower may
be liable individually or jointly with others; whether Borrower may be
obligated as a guarantor, surety, or otherwise; whether recovery upon such
Indebtedness may be or hereafter may become barred by any statute of
limitations; and whether such Indebtedness may be or hereafter may become
otherwise unenforceable.
Lender. The word "Lender" means U.S. BANK, its successors and assigns.
Liquid Assets. The words "Liquid Assets" mean Borrower's cash on hand plus
Borrower's readily marketable securities.
Loan. The word "Loan" or "Loans" means and includes without limitation any
and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to this
Agreement from time to time.
Note. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations
in favor of Lender, as well as any substitute, replacement or refinancing
note or notes therefor.
<PAGE> 3
Permitted Liens. The words "Permitted Liens" mean: (a) liens and security
interests securing Indebtedness owed by Borrower to Lender; (b) liens for
taxes, assessments, or similar charges either not yet due or being
contested in good faith; (c) liens of materialmen, mechanics,
warehousemen, or carriers, or other like liens arising in the ordinary
course of business and securing obligations which are not yet delinquent;
(d) purchase money liens or purchase money security interests upon or in
any property acquired or held by Borrower in the ordinary course of
business to secure Indebtedness outstanding on the date of this Agreement
or permitted to be incurred under the paragraph of this Agreement titled
"Indebtedness and Liens"; (e) liens and security interests which, as of
the date of this Agreement, have been disclosed to and approved by the
Lender in writing; and (f) those liens and security interests which in the
aggregate constitute an immaterial and insignificant monetary amount with
respect to the net value of Borrower's assets.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages,
deeds of trust, and all other instruments, agreements and documents,
whether now or hereafter existing, executed in connection with the
Indebtedness.
Security Agreement. The words "Security Agreement" mean and include
without limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
Interest.
Security Interest. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien or title retention contract, lease or consignment intended
as a security device, or any other security or lien interest whatsoever,
whether created by law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization
Act of 1986 as now or hereafter amended.
Subordinate Debt. The words "Subordinate Debt" mean indebtedness and
liabilities of Borrower which have been subordinated by written agreement
to indebtedness owed by Borrower to Lender in form and substance
acceptable to Lender.
Tangible Net Worth. The words "Tangible net Worth" mean Borrower's total
assets excluding all intangible assets (i.e., goodwill, trademarks,
patents, copyrights, organizational expenses, and similar intangible
items, but including leaseholds and leasehold improvements) less total
Debt.
Working Capital. The words "Working Capital" mean Borrower's current
assets, excluding prepaid expenses, less Borrower's current liabilities.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial
Loan Advance and each subsequent Loan Advance under this Agreement shall be
subject to the fulfillment to Lender's satisfaction of all of the conditions set
forth in this Agreement and in the Related Documents.
<PAGE> 4
Loan Documents. Borrower shall provide to Lender in form satisfactory to
Lender the following documents for the Loan: (a) the Note, (b) Security
Agreements granting to Lender security interests in the Collateral, (c)
Financing Statements perfecting Lender's Security Interests; (d) evidence
of insurance as required below; and (e) any other documents required under
this Agreement or by Lender or its counsel, including without limitation
any guaranties described below.
Borrower's Authorization. Borrower shall have provided in form and
substance satisfactory to Lender properly certified resolutions, duly
authorizing the execution and delivery of this Agreement, the Note and the
Related Documents, and such other authorizations and other documents and
instruments as Lender or its counsel, in their sole discretion, may
require.
Payment of Fees and Expenses. Borrower shall have paid to Lender all fees,
charges, and other expenses which are then due and payable as specified in
this Agreement or any Related Document.
Representations and Warranties. The representations and warranties set
forth in this Agreement, in the Related Documents, and in any document or
certificate delivered to Lender under this Agreement are true and correct.
No Event of Default. There shall not exist at the time of any advance a
condition which would constitute an Event of Default under this Agreement.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:
Organization. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of Washington
and is validly existing and in good standing in all states in which
Borrower is doing business. Borrower has the full power and authority to
own its properties and to transact the businesses in which it is presently
engaged or presently proposes to engage. Borrower also is duly qualified
as a foreign corporation and is in good standing in all states in which
the failure to so qualify would have a material adverse effect on its
businesses or financial condition.
Authorization. The execution, delivery, and performance of this Agreement
and all Related Documents by Borrower, to the extent to be executed,
delivered or performed by Borrower, have been duly authorized by all
necessary action by Borrower; do not require the consent or approval of
any other person, regulatory authority or governmental body; and do not
conflict with, result in a violation of, or constitute a default under (a)
any provision of its articles of incorporation or organization, or bylaws,
or any agreement or other instrument binding upon Borrower or (b) any law,
governmental regulation, court decree, or order applicable to Borrower.
Financial information. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change
in Borrower's financial condition subsequent to the date of the most
recent financial statement supplied to Lender. Borrower has no material
contingent obligations except as disclosed in such financial statements.
<PAGE> 5
Legal Effect. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms.
Properties. Except as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to Lender and as
accepted by Lender, and except for property tax liens for taxes not
presently due and payable, Borrower owns and has good title to all of
Borrowers properties free and clear of all Security Interests, and has not
executed any security documents or financing statements relating to such
properties. All of Borrower's properties are titled in Borrower's legal
name, and Borrower has not used, or filed a financing statement under, any
other name for at least five (5) years.
Hazardous Substances. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this
Agreement, shall have the same meanings as set forth in the "CERCLA,"
"SARA," the Hazardous Materials Transportation Act, 49 U.S.C. Section
1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901, et seq., or other applicable state or Federal laws, rules,
or regulations adopted pursuant to any of the foregoing. Except as
disclosed to and acknowledged by Lender in writing, Borrower represents
and warrants that: (a) During the period of Borrower's ownership of the
properties, there has been no use, generation, manufacture, storage,
treatment, disposal, release or threatened release of any hazardous waste
or substance by any person on, under, about or from any of the properties.
(b) Borrower has no knowledge of, or reason to believe that there has
been; (i) any use, generation, manufacture, storage, treatment, disposal,
release, or threatened release of any hazardous waste or substance on,
under, about or from the properties by any prior owners or occupants of
any of the properties, or (ii) any actual or threatened litigation or
claims of any kind by any person relating to such matters. (c) Neither
Borrower nor any tenant, contractor, agent or other authorized user of any
of the properties shall use, generate, manufacture, store, treat, dispose
of, or release any hazardous waste or substance on, under, about or from
any of the properties; and any such activity shall be conducted in
compliance with all applicable federal, state, and local laws,
regulations, and ordinances, including without limitation those laws,
regulations and ordinances described above. Borrower authorizes Lender and
its agents to enter upon the properties to make such inspections and tests
as Lender may deem appropriate to determine compliance of the properties
with this section of the Agreement. Any inspections or tests made by
Lender shall be at Borrower's expense and for Lender's purposes only and
shall not be construed to create any responsibility or liability on the
part of Lender to Borrower or to any other person. The representations and
warranties contained herein are based on Borrower's due diligence in
investigating the properties for hazardous waste and hazardous substances.
Borrower hereby (a) releases and waives any future claims against Lender
for indemnity or contribution in the event Borrower becomes liable for
cleanup or other costs under any such laws, and (b) agrees to indemnify
and hold harmless Lender against any and all claims, losses, liabilities,
damages, penalties, and expenses which Lender may directly or indirectly
sustain or suffer resulting from a breachof this section of the Agreement
or as a consequence of any use, generation, manufacture, storage,
disposal, release or threatened release occurring prior to Borrower's
ownership or interest in the properties, whether or not the same was or
should have been known to Borrower. The provisions of this section of the
Agreement, including the obligation to
<PAGE> 6
indemnify, shall survive the payment of the Indebtedness and the
termination or expiration of this Agreement and shall not be affected by
Lender's acquisition of any interest in any of the properties, whether by
foreclosure or otherwise.
Litigation and Claims. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which
may materially adversely affect Borrower's financial condition or
properties, other than litigation, claims, or other events, if any, that
have been disclosed to and acknowledged by Lender in writing.
Taxes. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith
in the ordinary course of business and for which adequate reserves have
been provided.
Lien Priority. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or
permitted the filing or attachment of any Security Interests on or
affecting any of the Collateral directly or indirectly securing repayment
of Borrower's Loan and Note, that would be prior or that may in any way be
superior to Lender's Security Interests and rights in and to such
Collateral.
Binding Effect. This Agreement, the Note, all Security Agreements directly
or indirectly securing repayment of Borrower's Loan and Note and all of
the Related Documents are binding upon Borrower as well as upon Borrower's
successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms.
Commercial Purposes. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
Employee Benefit Plans. Each employee benefit plan as to which Borrower
may have any liability complies in all material respects with all
applicable requirements of law and regulations, and (i) no Reportable
Event nor Prohibited Transaction (as defined in ERISA) has occurred with
respect to any such plan, (ii) Borrower has not withdrawn from any such
plan or initiated steps to do so, (iii) no steps have been taken to
terminate any such plan, and (iv) there are no unfunded liabilities other
than those previously disclosed to Lender in writing.
Location of Borrower's Offices and Records. Borrower's place of business,
or Borrower's Chief executive office, if Borrower has more than one place
of business, is located at 8160 304TH AVENUE SE, PRESTON, WA 98050. Unless
Borrower has designated otherwise in writing this location is also the
office or offices where Borrower keeps its records concerning the
Collateral.
<PAGE> 7
Information. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender will
be, true and accurate in every material respect on the date as of which
such information is dated or certified; and none of such information is or
will be incomplete by omitting to state any material fact necessary to
make such information not misleading.
Survival of Representations and Warranties. Borrower understands and
agrees that Lender, without independent investigation, is relying upon the
above representations and warranties in extending Loan Advances to
Borrower. Borrower further agrees that the foregoing representations and
warranties shall be continuing in nature and shall remain in full force
and effect until such time as Borrower's Indebtedness shall be paid in
full, or until this Agreement shall be terminated in the manner provided
above, whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
Litigation. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings
or similar actions affecting Borrower or any Guarantor which could
materially affect the financial condition of Borrower or the financial
condition of any Guarantor.
Financial Records. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine and audit Borrowers books and records at all
reasonable times.
Financial Statements. Furnish Lender with, as soon as available, but in no
event later than one hundred twenty (120) days after the end of each
fiscal year, Borrower's balance sheet and income statement for the year
ended, audited by a certified public accountant satisfactory to Lender,
and, as soon as available, but in no event later than forty five (45) days
after the end of each fiscal quarter, Borrower's balance sheet and profit
and loss statement for the period ended, prepared and certified as correct
to the best knowledge and belief by Borrower's chief financial officer or
other officer or person acceptable to Lender. All financial reports
required to be provided under this Agreement shall be prepared in
accordance with generally accepted accounting principles, applied on a
consistent basis, and certified by Borrower as being true and correct.
Additional Information. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables and
payables, inventory schedules, budgets, forecasts, tax returns, and other
reports with respect to Borrower's financial condition and business
operations as Lender may request from time to time.
Financial Covenants and Ratios. Comply with the following covenants and
ratios:
Net Worth Ratio. Maintain a ratio of Total Liabilities to Tangible
Net Worth of less than 1.00 to 1.00.
Working Capital. Maintain Working Capital in excess of
$14,000,000.00.
<PAGE> 8
The following provisions shall apply for purposes of determining
compliance with the foregoing financial covenants and ratios: BORROWER
UNDERSTANDS AND AGREES THAT MODIFIED QUICK RATIO WILL BE MONITORED MONTHLY
AND ALL OTHER COVENANTS AND RATIOS WILL BE MONITORED QUARTERLY. Except as
provided above, all computations made to determine compliance with the
requirements contained in this paragraph shall be made in accordance with
generally accepted accounting principles, applied on a consistent basis,
and certified by Borrower as being true and correct.
Insurance. Maintain fire and other risk insurance, public liability
insurance, as Lender may require with respect to Borrower's properties and
operations, in form, amounts, coverages and with insurance companies
reasonably acceptable to Lender. Borrower, upon request of Lender, will
deliver to Lender from time to time the policies or certificates of
insurance in form satisfactory to Lender, including stipulations that
coverages will not be canceled or diminished without at least ten (10)
days prior written notice to Lender. Each insurance policy also shall
include an endorsement providing that coverage in favor of Lender will not
be impaired in any way by any act, omission or default of Borrower or any
other person. In connection with all policies covering assets in which
Lender holds or is offered a security interest for the Loans, Borrower
will provide Lender with such loss payable or other endorsements as Lender
may require.
Insurance Reports. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (a) the
name of the insurer, (b) the risks insured; (c) the amount of the policy,
(d) the properties insured; (e) the then current property values on the
basis of which insurance has been obtained, and the manner of determining
those values; and (f) the expiration date of the policy. In addition, upon
request of Lender (however not more often than annually), Borrower will
have an independent appraiser satisfactory to Lender determine, as
applicable, the actual cash value or replacement cost of any Collateral.
The cost of such appraisal shall be paid by Borrower.
Guaranties. Prior to disbursement of any Loan proceeds, furnish executed
guaranties of the Loans in favor of Lender, executed by the guarantors
named below, on Lender's forms, and in the amounts and under the
conditions spelled out in those guaranties.
<TABLE>
<CAPTION>
Guarantors Amounts
---------- -------
<S> <C>
RIDE MANUFACTURING, INC. Unlimited
RIDE INTERNATIONAL, INC. Unlimited
PRESTON BINDING COMPANY Unlimited
SMP CLOTHING, INC. Unlimited
RIDE SNOWBOARD COMPANY Unlimited
</TABLE>
Other Agreements. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
<PAGE> 9
Loan Proceeds. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
Taxes, Charges and Liens. Pay and discharge when due all of its
Indebtedness and obligations, including without limitation all
assessments, taxes, governmental charges, levies and liens, of every kind
and nature, imposed upon Borrower or its properties, income, or profits,
prior to the date on which penalties would attach, and all lawful claims
that, if unpaid, might become a lien or charge upon any of Borrower's
properties, income, or profit. Provided however, Borrower will not be
required to pay and discharge any such assessment, tax, charge, levy, lien
or claim so long as (a) the legality of the same shall be contested in
good faith by appropriate proceedings, and (b) Borrower shall have
established on its books adequate reserves with respect to such contested
assessment, tax, charge, levy, lien, or claim in accordance with generally
accepted accounting practices. Borrower, upon demand of Lender, will
furnish to Lender evidence of payment of the assessments, taxes, charges,
levies, liens and claims and will authorize the appropriate governmental
official to deliver to Lender at any time a written statement of any
assessments, taxes, charges, levies, liens and claims against Borrower's
properties, income, or profits.
Performance. Perform and comply with all terms, conditions, and provisions
set forth in this Agreement and in the Related Documents in a timely
manner, and promptly notify Lender if Borrower learns of the occurrence of
any event which constitutes an Event of Default under this Agreement or
under any of the Related Documents.
Operations. Maintain executive and management personnel with substantially
the same qualifications and experience as the present executive and
management personnel; provide written notice to Lender of any change in
executive and management personnel; conduct its business affairs in a
reasonable and prudent manner and in compliance with all applicable
federal, state and municipal laws, ordinances, rules and regulations
respecting its properties, charters, businesses and operations, including
without limitations, compliance with the Americans With Disabilities Act
and with all minimum funding standards and other requirements of ERISA and
other laws applicable to Borrower's employee benefit plans.
Inspection. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records
and to make copies and memoranda of Borrower's books, accounts, and
records. If Borrower now or at any time hereafter maintains any records
(including without limitation computer generated records and computer
software programs for the generation of such records) in the possession of
a third party, Borrower, upon request of Lender, shall notify such party
to permit Lender free access to such records at all reasonable times and
to provide Lender with copies of any records it may request, all at
Borrower's expense.
<PAGE> 10
Compliance Certificate. Unless waived in writing by Lender, provide Lender
MODIFIED QUICK RATIO REQUIRES MONTHLY COMPLIANCE CERTIFICATES, ALL OTHER
COVENANTS REQUIRE QUARTERLY COMPLIANCE CERTIFICATES with a certificate
executed by Borrower's chief financial officer, or other officer or person
acceptable to Lender, certifying that the representations and warranties
set forth in this Agreement are true and correct as of the date of the
certificate and further certifying that, as of the date of the
certificate, no Event of Default exists under this Agreement.
Environmental Compliance and Reports. Borrower shall comply in all
respects with all environmental protection federal, state and local laws,
statutes, regulations and ordinances; not cause or permit to exist, as a
result of an intentional or unintentional action or omission on its part
or on the part of any third party, on property owned and/or occupied by
Borrower, any environmental activity where damage may result to the
environment unless such environmental activity is pursuant to and in
compliance with the conditions of a permit issued by the appropriate
federal, state or local governmental authorities; shall furnish to Lender
promptly and in any event within thirty (30) days after receipt thereof a
copy of any notice, summons, lien, citation, directive, letter or other
communication from any governmental agency or instrumentality concerning
any intentional or unintentional action or omission on Borrower's part in
connection with any environmental activity whether or not there is damage
to the environment and/or other natural resources.
Additional Assurances. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing
statements, instruments, documents and other agreements as Lender or its
attorneys may reasonably request to evidence and secure the Loans and to
perfect all Security Interests.
RECOVERY OF ADDITIONAL COSTS. If the imposition of or any change in any law,
rule, regulation or guideline, or in the interpretation or application of any
thereof by any court or administrative or governmental authority (including any
request or policy not having the force of law) shall impose, modify or make
applicable any taxes (except U.S. federal, state or local income or franchise
taxes imposed on Lender), reserve requirements , capital adequacy requirements
or other obligations which would (a) increase the cost to Lender for extending
or maintaining the credit facilities to which this Agreement relates, (b) reduce
the amounts payable to Lender under this Agreement or the Related Documents, or
(c) reduce the rate of return on Lender's capital as a consequence of Lender's
obligations with respect to the credit facilities to which this Agreement
relates, then Borrower agrees to pay Lender such additional amounts as will
compensate Lender therefor, within five (5) days after Lender's written demand
for such payment, which demand shall be accomplished by an explanation of such
imposition or charge and a calculation in reasonable detail of the additional
amounts payable by Borrower, which explanation and calculations shall be
conclusive in the absence of manifest error.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
<PAGE> 11
Capital Expenditures. Make or contract to make capital expenditures,
including leasehold improvements, in any fiscal year in excess of
$800,000.00 or incur liability for rentals of property (including both
real and personal property) in an amount which, together with capital
expenditures, shall in any fiscal year exceed such sum.
Indebtedness and Liens. (a) Except for trade debt incurred in the normal
course of business and Indebtedness to Lender contemplated by this
Agreement, create, incur or assume Indebtedness for borrowed money,
including capital leases, (b) except as allowed as a Permitted Lien, sell,
transfer, mortgage, assign, pledge, lease, grant a security interest in,
or encumber any of Borrower's assets, or (c) sell with recourse any of the
Borrower's accounts, except to Lender.
Continuity of Operations. (a) Engage in any business activities
substantially different than those in which Borrower is presently engaged,
(b) cease operations, liquidate, merge, transfer, acquire or consolidate
with any other entity, change ownership, change its name, dissolve or
transfer or sell Collateral out of the ordinary course of business, (c)
pay any dividends on Borrower's stock (other than dividends payable in its
stock)provided, however that notwithstanding the foregoing, but only so
long as no Event of Default has occurred and is continuing or would result
from the payment of dividends, if Borrower is a "Subchapter S Corporation"
(as defined in the Internal Revenue Code of 1986, as amended), Borrower
may pay cash dividends on its stock to its shareholders from time to time
in amounts necessary to enable the shareholders to pay income taxes and
make estimated income tax payments to satisfy their liabilities under
federal and state law which arise solely from their status as Shareholders
of a Subchapter S Corporation because of their ownership of shares of
stock of Borrower, or (d) purchase or retire any of Borrower's outstanding
shares or alter or amend Borrower's capital structure.
Loans, Acquisitions and Guaranties. (a) loan, invest in or advance money
or assets, (b) purchase, create or acquire any interest in any other enterprise
or entity, or (c) incur any obligation as surety or guarantor other than in the
ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender; or (e) Lender in good faith deems itself insecure, even
though no Event of Default shall have occurred.
STATUTE OF FRAUDS DISCLOSURE. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY,
EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT
ENFORCEABLE UNDER WASHINGTON LAW.
<PAGE> 12
OUT OF DEBT PERIOD. BORROWER AGREES TO REDUCE THE PRINCIPAL BALANCE ON THE LINE
OF CREDIT FACILITY TO $0.00 FOR A MINIMUM OF 30 CONSECUTIVE DAYS DURING THE TERM
OF THE LINE OF CREDIT.
(THIS DOES NOT APPLY TO OPEN L/C'S.)
TANGIBLE NET WORTH. BORROWER AGREES TO MAINTAIN A MINIMUM TANGIBLE NET WORTH OF
NOT LESS THAN $21,000,000.00 AT EACH QUARTER END AND $23,000,000.00 AT FISCAL
YEAR END.
QUICK RATIO. BORROWER AGREES TO MAINTAIN A RATION OF LIQUID ASSETS TO CURRENT
LIABILITIES IN EXCESS OF 1.25 TO 1.00 DEFINED AS: (CASH AND EQUIVALENTS PLUS
TRADE ACCOUNTS RECEIVABLE PLUS INVENTORY) DIVIDED BY (CURRENT LIABILITIES PLUS
ALL OPEN LETTERS OF CREDIT AND BANKERS ACCEPTANCES). FOR THE JUNE THROUGH
OCTOBER, 1997 MEASUREMENT PERIODS, WE WILL ALLOW THE COMPANY TO INCLUDE THEIR
1996 FEDERAL INCOME TAX REFUND RECEIVABLE IN THE NUMERATION OF THIS FORMULA.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on the Indebtedness against
any and all such accounts, and, at Lender's option, to administratively freeze
all such accounts to allow Lender to protect Lender's charge and setoff rights
provided on this paragraph.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Default on Indebtedness. Failure of Borrower to make any payment when due
on the Loans.
Other Defaults. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or failure
of Borrower to comply with or to perform any other term, obligation,
covenant or condition contained in any other agreement between Lender and
Borrower.
Default In Favor of Third Parties. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or
person that may materially affect any of Borrower's property or Borrower's
or any Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished, or becomes false or misleading at
any time thereafter.
Defective Collateralization. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of any
Security Agreement to create a valid and perfected Security Interest) at
any time and for any reason.
Insolvency. The dissolution or termination of Borrower's existence as a
<PAGE> 13
going business, the insolvency of Borrower, the appointment of a receiver
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any
creditor of any Grantor against any collateral securing the Indebtedness,
or by any governmental agency. This includes a garnishment, attachment, or
levy on or of any of Borrower's deposit accounts with Lender.
Events Affecting Guarantor. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or any Guarantor dies
or becomes incompetent, or revokes or disputes the validity of, or
liability under, any Guaranty of the Indebtedness.
Change in Ownership. The acquisition by any one person of a majority of
Borrower's outstanding Common Stock.
Adverse Change. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of
the Indebtedness is impaired.
Insecurity. Lender, in good faith, deems itself insecure.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement or the Related Documents or any
other agreement immediately will terminate (including any obligation to make
Loan Advances or disbursements), and, at Lender's option, all Indebtedness
immediately will become due and payable, all without notice of any kind to
Borrower, except that in the case of an Event of Default of the type described
in the "Insolvency" subsection above, such acceleration shall be automatic and
not optional. In addition, Lender shall have all the rights and remedies
provided in the Related Documents or available at law, in equity, or otherwise.
Except as may be prohibited by applicable law, all of Lenders rights and
remedies shall be cumulative and may be exercised singularly or concurrently.
Election by Lender to pursue any remedy shall not exclude pursuit of any other
remedy, and an election to make expenditures or to take action to perform an
obligation of Borrower or of any Grantor shall not affect Lender's right to
declare a default and to exercise is rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Agreement. No alteration of or amendment to
this Agreement shall be effective unless given in writing and signed by
the party or parties sought to be charged or bound by the alteration or
amendment.
Applicable Law. This Agreement has been delivered to Lender and accepted
by Lender in the State of Washington. If there is a lawsuit, Borrower
agrees upon Lender's request to submit to the jurisdiction of the courts
of King County, the State of Washington. Subject to the provisions on
arbitration, this Agreement shall be governed by and construed in
accordance with the laws of the State of Washington.
<PAGE> 14
Arbitration. Lender and Borrower agree that all disputes, claims and
controversies between them, whether individual, joint or class in nature,
arising from this Agreement or otherwise, including without limitation
contract and tort disputes, shall be arbitrated pursuant to the Rules of
the American Arbitration Association, upon request of either party. No act
to take or dispose of any Collateral shall constitute a waiver of this
arbitration agreement or be prohibited by this arbitration agreement. This
includes, without limitation, obtaining injunctive relief or a temporary
restraining order; invoking a power of sale under any deed of trust or
mortgage; obtaining a writ of attachment or imposition of a receiver; or
exercising any rights relating to personal property, including taking or
disposing of such property with or without judicial process pursuant to
Article 9 of the Uniform Commercial Code. Any disputes, claims, or
controversies concerning the lawfulness or reasonableness of any act, or
exercise of any right, concerning any Collateral, including any claim to
rescind, reform, or otherwise modify any agreement relating to the
Collateral, shall also be arbitrated, provided however that no arbitrator
shall have the right or the power to enjoin or restrain any act of any
party. Judgment upon any award rendered by any arbitrator may be entered
in any court having jurisdiction. Nothing in this Agreement shall preclude
any party from seeking equitable relief from a court of competent
jurisdiction. The statute of limitations, estoppel, waiver, laches, and
similar doctrines which would otherwise be applicable in an action brought
by a party shall be applicable in any arbitration proceeding, and the
commencement of an arbitration proceeding shall be deemed the commencement
of an action for these purposes. The Federal Arbitration Act shall apply
to the construction, interpretation, and enforcement of this arbitration
provision.
Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
Multiple Parties; Corporate Authority. All obligations of Borrower under
this Agreement shall be joint and several, and all references to Borrower
shall mean each and every Borrower. This means that each of the persons
signing below is responsible for all obligations in this Agreement.
Consent to Loan Participation. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests in the Loans to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation
whatsoever, to any one or more purchasers, or potential purchasers, any
information or knowledge Lender may have about Borrower or about any other
matter relating to the Loan, and Borrower hereby waives any rights to
privacy it may have with respect to such matters. Borrower additionally
waives any and all notices of sale of participation interests, as well as
all notices of any repurchase of such participation interests. Borrower
also agrees that the purchasers of any such participation interest will be
considered as the absolute owners of such interests in the Loans and will
have all the rights granted under the participation agreement or
agreements governing the sale of such participation interests. Borrower
further waives all rights of offset or counterclaim that it may have now
or later against Lender or against any purchaser of such a participation
interest and unconditionally agrees that either Lender or such purchaser
may enforce Borrower's obligation under the Loans irrespective of the
failure or insolvency of any holder of any interest in the Loans. Borrower
further agrees that the purchaser of any such participation interests may
enforce its interests irrespective of any personal claims or defenses that
<PAGE> 15
Borrower may have against Lender.
Costs and Expenses. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation attorneys' fees, incurred in
connection with the enforcement, modification and collection of this
Agreement or in connection with the Loans made pursuant to this Agreement.
Lender may pay someone else to help collect the Loans and to enforce this
Agreement, and Borrower will pay that amount. This includes, subject to
any limits under applicable law, Lender's attorneys' fees and Lender's
legal expenses, whether or not there is a lawsuit, including attorneys'
fees for bankruptcy proceedings (including efforts to modify or vacate any
automatic stay or injunction), appeals, and any anticipated post-judgment
collection services. Borrower also will pay any court costs, in addition
to all other sums provided by law.
Notices. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimilie, and shall be effective
when actually delivered or when deposited with a nationally recognized
overnight courier or deposited in the United States mail, first class,
postage prepaid, addressed to the party to whom the notice is to be given
at the address shown above. Any party may change its address for notices
under this Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's
address. To the extent permitted by applicable law, if there is more than
one Borrower, notice to any Borrower will constitute notice to all
Borrowers. For notice purposes, Borrower will keep Lender informed at all
times of Borrower's current address(es).
Severability. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
Subsidiaries and Affiliates of Borrower. To the extent the context of any
provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower"
as used herein shall include all subsidiaries and affiliates of Borrower.
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other
financial accommodation to any subsidiary or affiliate of Borrower.
Successors and Assigns. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure
to the benefit of Lender, its successors and assigns. Borrower shall not,
however, have the right to assign its rights under this Agreement or any
interest therein, without the prior written consent of Lender.
Survival. All warranties, representations, and covenants made by Borrower
in this Agreement or in any certificate or other instrument delivered by
Borrower to Lender under this Agreement shall be considered to have been
relied upon by Lender and will survive the making of the Loan and delivery
to Lender of the Related Documents, regardless of any investigation made
by Lender or on Lender's behalf.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
<PAGE> 16
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender
of a provision of this Agreement shall not prejudice or constitute a
waiver of Lender's right otherwise to demand strict compliance with that
provision or any other provision of this Agreement. No prior waiver by
Lender, nor any course of dealing between Lender and Borrower, or between
Lender and any Grantor, shall constitute a waiver of any of Lender's
rights or of any obligations of Borrower or of any Grantor as to any
future transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall
not constitute continuing consent in subsequent instances where such
consent is required, and in all cases such consent may be granted or
withheld in the sole discretion of Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF
JUNE 30, 1997.
BORROWER:
RIDE, INC.
/S/ G. Scott Stewart, Senior Vice President and Chief Financial Officer
- ------------------------------------------------------------------------
Authorized Officer
LENDER:
U.S. BANK
By: /S/ Tony W. Chalfant, Vice President
-------------------------------------
Authorized Officer
<PAGE> 1
ASSET PURCHASE AGREEMENT
BETWEEN
RIDE, INC,
AND
GALENA CREEK TRADING COMPANY, INC.
D/B/A
SMILEY HATS
DATED AS OF JULY 15, 1997
<PAGE> 2
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made as of the 15th
day of July 1997 by and among RIDE, INC., a Washington corporation
("Purchaser"), and GALENA CREEK TRADING COMPANY, INC. d/b/a SMILEY HATS, a
Nevada corporation ("Seller").
RECITALS
A. Purchaser is a designer, manufacturer and marketer of snowboards,
snowboard boots, snowboard bindings, apparel and related accessories.
B. Seller is a designer, manufacturer and marketer of hats and related
headwear designed for winter sports enthusiasts.
C. Purchaser's President and Chief Executive Officer is the majority
shareholder of Seller. Purchaser desires to more closely align such individual's
personal financial interests with those of Purchaser and Purchaser has concluded
the transactions and undertakings contemplated in this Agreement are a means to
achieve this goal in a manner beneficial to Purchaser.
D. Seller desires to sell to Purchaser, and Purchaser desires to
purchase from Seller, all of the assets of Seller on the terms and conditions
provided herein.
AGREEMENTS
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Purchaser and Seller hereby agree as follows:
1. DEFINITIONS. For the purposes of this Agreement:
"Assets" shall have the meaning given it in Section 2.1 hereof
"Balance Sheets" shall mean the unaudited balance sheets of Seller as of
December 31, 1995 and 1996 and June 30, 1997.
"Base Purchase Price" shall have the meaning given it in Section 2.4.
"Business" shall mean the business as a going concern of Seller as
conducted through the Closing Date and that portion of Purchaser's business
attributable to the Assets subsequent to the Closing Date.
"Closing" shall mean consummation of the transactions contemplated in
Section 3 hereof with respect to the purchase of the Purchased Assets.
2
<PAGE> 3
"Closing Date" shall mean the date on which Closing is to occur,
determined as provided in Section 3.1 hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Environmental Laws" shall have the meaning given it in Section 4.19
hereof
"Escrowed Shares" shall have the meaning given it in Section 2.5.1
hereof
"Excluded Assets" shall have the meaning given it in Section 2.2 hereof.
"Excluded Liabilities" shall have the meaning given it in Section 2.3
hereof.
"Fair Value Average" shall have the meaning given it in Section 2.5.2
hereof.
"Fair Value Opinion" shall have the meaning given it in Section 2.5.1
hereto.
"Financial Statements" shall mean the Balance Sheets, and the unaudited
income statements of Seller for the fiscal years ended December 31, 1995 and
1996 and for the six month period ended June 30, 1997.
"GAAP" shall mean generally accepted accounting principles, consistently
applied.
"Indemnitee" shall have the meaning given it in Section 9.1.3 hereof.
"Indemnitor" shall have the meaning given it in Section 9.1.3 hereof.
"Intellectual Properties" shall have the meaning given it in Section
4.13 hereof.
"Lease" shall have the meaning given it in Section 4.12 hereof.
"Person" shall mean any natural person, corporation, partnership, joint
venture, association, organization, other entity or governmental or regulatory
authority.
"Property" shall mean all property, of whatever kind or description,
owned by Seller or used in connection with its business, including, without
litigation, all patents, trademarks, service marks, copyrights and applications
for any of the foregoing; all trade secrets and other proprietary rights and
information; structures- trade fixtures; equipment; machinery; contract rights
and general intangibles; records, documents, inventory, flashed goods, raw
materials and good will.
"Purchase Price" shall have the meaning given it in Section 2.5.3
hereof.
3
<PAGE> 4
"Purchaser" shall mean Ride, Inc., a Washington corporation.
"Real Estate" shall mean that certain parcel of improved real property,
situate in Sparks, Nevada, subject to the Lease.
"Reports" shall have the meaning given it in Section 4.27.3 hereof.
"Restricted Period" shall have the meaning given it in Section 6.3
hereof.
"Second Opinion" shall have the meaning given it in Section 2.5.2
hereof.
"Seller" shall mean Galena Creek Trading Company, Inc., d/b/a Smiley
Hats, a Nevada corporation.
"Settlement Date" shall have the meaning given it in Section 2.5.3
hereof.
"Shares" shall have the meaning given it in Section 2.4 hereof.
"Taxes" shall mean all taxes, charges, fees, levies, or other
assessments, including without limitation, income, excise, gross receipts,
personal property, sales, use, ad valorem, transfer, franchise, profits,
license, withholding, payroll, employment, severance, stamp, occupation,
windfall profits, social security and unemployment or other taxes imposed by the
United States, or any agency or instrumentality thereof, any state, county,
local or foreign government, or any agency or instrumentality thereof, and any
interest or fines, and any and all penalties or additions relating to such
taxes, charges, fees, levies or other assessments.
2. THE ACQUISITION.
2.1 PURCHASE OF THE ASSETS. Subject to the terms and conditions of
this Agreement, Purchaser hereby agrees to purchase from Seller, and Seller
hereby agrees to sell to Purchaser, on the Closing Date, all Property other than
the Excluded Assets, including without limitation, the assets set forth on
Schedule 2.1 hereto (the "Assets").
2.2 EXCLUDED ASSETS. Seller shall not transfer to Purchaser and
Purchaser shall not acquire the following assets (the "Excluded Assets"), which
are specifically excluded from the Assets:
2.2.1 CASH AND CASH EQUIVALENTS. Seller's cash, bank deposits
or similar cash or cash equivalent items existing as of operation of Seller's
business as of July 15, 1997, whether or not arising from the operation of
Seller's business.
2.2.2 VEHICLE. The following vehicle owned by Seller: make -
Ford; model - Explorer; year - 1995; Nevada license plate number - 796 FKC;
vehicle identification number - 1FMDU34X1MUC18568
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2.3 NO ASSUMPTION OF LIABILITIES. Purchaser shall not assume any
liabilities, fixed, contingent or otherwise, of Seller including without
limitation, any of the following obligations or liabilities (all obligations or
liabilities are called the "Excluded Liabilities"):
2.3.1 TAXES. Any and all Taxes, either accruing on or relating
to periods prior to the Closing Date, or accruing to Seller as a result of the
transactions and undertakings contemplated by this Agreement, and any penalties
or interest thereon.
2.3.2 LITIGATION. Any claim, judgment, penalty, settlement
agreement or other obligation to pay damages, penalties or assessments,
including without limitation attorneys' fees and costs, in respect of any action
or proceeding that is pending or threatened prior to the Closing Date, including
without limitation, those listed on Schedule 4.17 hereto.
2.3.3 CLAIMS. Any claims and liabilities that relate to
actions, injuries, practices or events that occurred on or before the Closing
Date whether based on any act or omission of Seller or others, including without
limitation, claims based an accidents, workers' compensation, product liability,
negligence, strict liability or infringement.
2.3.4 HAZARDOUS MATERIALS. Any claims suits, liabilities,
fines, judgments or assessments arising under applicable Environmental Laws
arising from or in any way connected with Seller's operation of the Business.
2.3.5 EMPLOYMENT OBLIGATIONS, SEVERANCE. All claims,
liabilities and obligations (whether based on tort, contract, statute or
otherwise) from whatever source such obligations and costs arise, including
without limitation, contractual obligations, notice to employees, employment
manuals, course of dealings, past practices, obligations relating to applicable
tax code provisions, or otherwise, relating to the employment of any Person by
Seller, including matters pertaining to existing and past employment practices
of Seller and all severance obligations and other costs of termination on
employees of Seller wherever located resulting from the termination or cessation
of employment, for any period occurring on or prior to the Closing Date.
2.3.6 INDEBTEDNESS. Any loan, note, advance, credit, payable,
intracompany allocation or other form of indebtedness of any kind or nature
owing by Seller as of the Closing Date.
2.3.7 TRANSACTION COSTS. Any cost, fee, charge, Tax, or other
obligation of Seller incurred or arising as a result of the transactions and
undertakings contemplated by this Agreement, including without limitation,
attorneys' fees, brokers' fees and all related costs and charges.
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2.3.8 OPTION RIGHTS. Any obligations or liabilities owing to
holders of rights, options and warrants to purchase the securities of Seller
arising from or in any way connected with such options.
2.4 PURCHASE PRICE. Subject to the terms and conditions of this
Agreement, in full consideration for the Property, Purchaser shall pay to Seller
the "Base Purchase Price" in the form of (a) five hundred fifty thousand dollars
($550,000) in cash, and (b) three hundred twenty thousand (320,000) shares of
Purchaser's authorized but unissued common stock (the "Shares").
2.5 VALUE OPINIONS; PRICE ADJUSTMENT.
2.5.1 FAIR VALUE OPINION. At its sole election and cost,
Purchaser may engage the services of a professional advisor competent in such
matters to provide a written opinion ("Fair Value Opinion") that the Base
Purchase Price represents fair value for the Property on an integrated basis.
Purchaser shall obtain and copy Seller with the Fair Value Opinion no later than
three (3) weeks from the Closing Date, or waive its opportunity to do so.
Pending delivery of the Opinions and the making of adjustments, if any, set
forth in this Section 2.5, thirty-two thousand (32,000) Shares ("Escrowed
Shares") shall be registered in the name of Seller and held in escrow by
Purchaser.
2.5.2 SECOND OPINION. In the event the Fair Value Opinion
concludes the Base Purchase Price exceeds the fair market value of the Property
by five percent (5%) or more, Seller may, at its sole election and cost, engage
the services of a second professional advisor competent in such matters to
provide a written opinion ("Second Opinion") that the Base Purchase Price
represents fair value for the Property on an integrated basis. Seller shall
obtain and copy Purchaser with the Second Opinion no later than three (3) weeks
from the date it receives notice of the Fair Value Opinion, or waive its
opportunity to do so. The average of the Fair Value Opinion and the Second
Opinion shall be deemed the "Fair Value Average." The Fair Value Average, if
less than the Base Purchase Price, shall be subtracted from the Base Purchase
Price, the resulting sum shall be divided by 3.125 and the quotient thereof
shall be deemed the "Adjustment Amount." No adjustments as herein described or
otherwise shall be made in the event the Base Purchase Price exceeds the fair
market value of the Property by less than five percent (5%) as determined by the
Fair Value Opinion or the Fair Value Average is greater than the Base Purchase
Price.
2.5.3 PRICE ADJUSTMENT. On the earlier of eight (8) weeks
following the Closing Date or the next business day following the issuance of
the Second Opinion (the "Settlement Date"), that number of Shares equal to the
Adjustment Amount shall be deducted from the Escrowed Shares, and the Escrowed
Shares, as so adjusted, shall be delivered to Seller registered in such names as
Seller shall provide to Purchaser no later than two (2) business days prior to
the Settlement Date. The Base Purchase Price, adjusted in accordance with this
Section 2.5.3, shall be deemed the "Purchase Price."
3. CLOSING.
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3.1 TIME AND PLACE OF CLOSING. The Closing shall occur at the
offices of Purchaser, 8160 - 304th Avenue, SE, Preston, WA 98050, at 12:00 noon
local time no later than three (3) business days following the date all
third-party consents and related agreements to the transactions contemplated by
this Agreement have been obtained, or such other time and place as the parties
may otherwise agree in writing but in no event later than July 31,1997 (the
"Closing Date").
3.2 OBLIGATIONS TO BE PERFORMED AT CLOSING. At Closing:
3.2.1 BILL OF SALE. Seller shall deliver title to the Assets
and control thereof to Purchaser. Seller shall execute and deliver a Bill of
Sale substantially in the form attached hereto as Exhibit 3.2.1.
3.2.2 DELIVERY OF FUNDS AND SHARES. Purchaser shall deliver
the cash consideration set forth in Section 2.4 hereof by wire transfer in same
day funds to such account(s) as Seller may designate no later than two (2)
business days prior to the Closing Date. Purchaser shall deliver to Seller
certificate(s) representing two hundred eighty-eight thousand 288,000 Shares,
registered in such name(s) as Seller may designate to Purchaser no later than
two (2) business days prior to the Closing Date.
3.2.3 FURTHER ASSURANCES. Each of the parties shall execute
all other documents and take such other actions as are required by other
covenants contained in this Agreement or which are otherwise reasonably
necessary to carry out the terms of this Agreement and consummate the
transactions contemplated hereby.
4. REPRESENTATIONS AND WARRANTIES OF SELLER. To induce Purchaser to
enter into and perform this Agreement, Seller represents and warrants to
Purchaser as follows:
4.1 LEGAL STATUS OF SELLER. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada, and
it has all requisite power and authority to lease and operate its properties and
assets and carry on the business as it is now conducted. Seller is duly
qualified to transact business as a corporation and is in good standing in all
jurisdictions in which the failure to be so qualified would result in a material
liability to Seller or have a material adverse effect upon the business of
Seller. Seller has full power and authority to execute, deliver and perform this
Agreement.
4.2 DUE AUTHORIZATION AND EXECUTION. This Agreement has been duly
authorized, executed and delivered by Seller and is a legal, valid and binding
obligation of Seller, enforceable in accordance with its terms, except as
enforcement may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium or similar laws or equitable principles relating to or limiting
creditors' rights generally or (ii) general principles of equity (regardless of
whether such principles are considered in a proceeding in equity or at law).
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4.3 SUBSIDIARIES AND AFFILIATES. Seller does not own, directly or
indirectly, any capital stock or other equity securities of, or otherwise
control, any corporation, partnership, limited liability corporation or
partnership, joint venture or other business association.
4.4 NO APPROVALS OR NOTICES; NO CONFLICTS. The execution, delivery
and performance of this Agreement and the consummation of the transactions by
Seller contemplated hereby will not: (a) conflict with or constitute a default
or material violation (with or without the giving of notice, or the lapse of
time, or both) of any provision of law or any judgment, decree, order,
regulation or rule of any court or other governmental authority, or of any
permit, authorizatior4 status, concession, franchise, license, statute, law,
ordinance, rule or regulation applicable to Seller or the Assets; (b) require
any consent, approval or authorization of, or declaration, or registration with,
any Person as relates to Seller; (c) result in a default (with or without the
giving of notice, or the lapse of time, or both) under, acceleration or
termination of, or the creation in any party of the right to accelerate,
terminate, modify or cancel, or give rise to an acceleration of any obligation
or to loss of a material benefit under, any agreement, lease, note, bond,
mortgage, indenture or other restriction, encumbrance, obligation or liability
to which Seller is a party or by which Seller is bound or to which the Assets
are subject; (d) result in the creation of any lien or encumbrance upon any of
the Assets; or (e) conflict with or result in a breach of or constitute a
default under any provision of the articles of incorporation or bylaws of
Seller.
4.5 TITLE TO THE PURCHASED ASSETS. Seller has good and marketable
title to the Assets, free and clear of any liens, mortgages, pledges,
encumbrances, security interests, restrictions, covenants, adverse claims and
charges of any kind other than those set forth on Schedule 4.5 hereto.
4.6 FINANCIAL STATEMENTS. The Financial Statements delivered to
Purchaser by Seller have been prepared in accordance with GAAP, and they fairly
present the assets, liabilities and shareholders' equity of Seller (or any
predecessor entity) as of the dates thereof and the results of its operations
for the indicated periods, in each case in accordance with generally accepted
accounting principles consistently applied during the periods involved.
4.7 ABSENCE OF UNDISCLOSED LIABILITIES. Except for the Excluded
Liabilities, Seller has no material liabilities, obligations or commitments of
any nature (whether accrued, absolute or contingent, known or unknown and
whether matured or unmatured), including, without limitation, any indebtedness
for borrowed money and all tax liabilities due or to become due, except with
respect to the foregoing as otherwise specifically identified in the Financial
Statements.
4.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as specifically
provided in this Agreement, Seller has not, since the date of the most recent
Balance Sheet, and will not through and including the Closing Date:
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4.8.1 entered into or agreed to enter into any material
transaction, agreement or commitment other than in the ordinary course of
business;
4.8.2 forgiven or canceled any indebtedness or waived any
claims;
4.8.3 entered into any contract with or commitment to any
individual regarding such persons employment as an employee or engagement as an
independent contractor (including any salary, bonus, pension, profit-sharing,
severance, or other plan or commitment for compensation);
4.8.4 entered into any transaction, agreement or commitment
that, individually or in the aggregate, has or have interfered or reasonably
could be expected to interfere materially with the normal and usual operations
of the Business;
4.8.5 suffered any material adverse change in its working
capital, financial condition, assets, earnings, reserves or operations;
4.8.6 borrowed or agreed to borrow any funds, assumed or
become subject to, whether directly or by way of guarantee or otherwise, any
debt obligation, except debt obligations incurred in the ordinary course of the
Business;
4.8.7 paid, discharged or satisfied any material claims,
liabilities or obligations (absolute, accrued or contingent) other than the
payment, discharge, and satisfaction in the ordinary course of the Business of
liabilities and obligations reflected or reserved against in the Financial
Statements or incurred in the ordinary course of business;
4.8.8 permitted or allowed any of the Property to be subjected
or subordinate to any mortgage, pledge, lien, security interest or encumbrance
except statutory liens of vendors incurred in the ordinary course of business;
4.8.9 sold, transferred or otherwise disposed of any of the
Property other than in the ordinary course of business;
4.8.10 declared, paid or set aside for payment any dividend or
other distribution in respect of Seller's capital stock or redeemed, purchased
or otherwise acquired, directly or indirectly, any shares of capital stock or
other securities of Seller, or otherwise permitted the withdrawal by any Person
from Seller of any cash or other assets (real, personal or mixed, tangible or
intangible), in compensation, payment of indebtedness, or otherwise, other than
payments of compensation in the ordinary course of business;
4.8.11 paid, loaned or advanced any amount to, or sold,
transferred or leased any properties or assets (real, personal or mixed,
tangible or intangible) to, or entered into any agreement or arrangement with,
any Person, except for directors' fees and compensation to officers at rates not
exceeding the usual and customary rates therefor;
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4.8.12 entered into any power of attorney or any obligations
or liabilities (whether absolute, accrued, contingent or otherwise) of Seller as
guarantor, surety, cosigner, endorser, comaker or indemnitor in respect of the
obligation of any other Person; or
4.8.13 agreed, whether in writing or otherwise, to take any
action described in this Section 4.8.
4.9 LEASEHOLD INTEREST. Seller has a valid leasehold interest
(arising from the lease(s) described on Schedule 4.12) in certain real property
described on Schedule 4.9, including all improvements, fixtures and
appurtenances thereto. Seller does not own any interest in real property not
described on Schedule 4.9.
4.10 NATURE AND CONDITION OF ASSETS. The description of the Assets
set forth on Schedule 2.1 is an accurate and complete description of all
material Assets used in the conduct of the Business, except for the Excluded
Assets. The Assets are in good condition and repair, except for normal wear and
tear, and are adequate for the uses to which each is being put by Seller. All
inventories of finished goods, work in process, parts and supplies are of good
and merchantable quality, saleable or useable in accordance with customary
business practices within a reasonable period of time in the ordinary course of
business.
4.11 CONTRACTS. All material contracts, agreements, commitments and
instruments to which Seller is subject or by which it is bound are listed on
Schedule 4.11. True and complete copies of all contracts (and all amendments
thereto) have been delivered to Purchaser. Seller has performed all material
obligations imposed upon it under each contract to be performed prior to the
Closing Date. Neither Seller nor to the knowledge of Seller (including Seller's
actual knowledge and such knowledge as should have been obtained by Seller in
the reasonable conduct of the Business) any other party to any such contract has
entered into any course of dealing or course of performance contrary in any
material respect to the express terms of such contract. Neither Seller nor to
the knowledge of Seller (including Seller's actual knowledge and such knowledge
as should have been obtained by Seller in the reasonable conduct of the
Business) any other party to any such contract is in default thereunder, nor is
there any event which with notice or lapse of time, or both, would constitute a
default by Seller thereunder. Except as set forth on Schedule 4.11 , no consent
is required from any party under any such contract in connection with the
consummation of the transactions contemplated by this Agreement.
4.12 LEASES. The lease ("Lease") creating Seller's leasehold
interests in the Real Estate is described on Schedule 4.12. Other than the
Lease, there are no leases, subleases, tenancies or licenses of any portion of
the Real Estate. The Lease is valid, in full force and effect and there are no
existing defaults by Seller, or to Seller's knowledge the Landlord, and Seller
has not received notice of default with respect to the Lease, nor has there been
any event which with the giving of a notice, or the lapse of time, or both,
would constitute a default thereunder. Except as set forth on Schedule 4.12, no
consent is required from any party under the Lease in
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connection with the consummation of the transactions contemplated by this
Agreement, and Seller has not received notice nor has any knowledge that any
party to the Lease intends to cancel, terminate or refuse to renew same or to
exercise or decline to exercise any option or other right thereunder.
4.13 PROPRIETARY RIGHTS. Schedule 4.13 sets forth a true and
complete list of all patents, patent applications, trademark registrations,
applications for trademark registration, assignments, license agreements
(whether written or oral) and other registrations, applications, documents and
other instruments evidencing proprietary rights, domestic and foreign,
evidencing any patent, copyright, trademark, trade name, service mark, trade
dress or other intellectual property rights that are necessary in the conduct of
the Business (together, the "Intellectual Properties"). Except as set forth in
Schedule 4.13, Seller possesses full right and authority to use all know-how,
proprietary information, copyrights, trademarks, patent rights and other
proprietary and intellectual properties necessary to the conduct of the Business
as presently conducted without infringing the rights of others, including the
Intellectual Properties, all of which are transferred to Purchaser pursuant to
this Agreement, free and clear of all liens, claims, options, charges,
encumbrances, security interests or claims of ownership of any person or of any
obligation to pay royalties, license fees or other payments. Except for any
agreements with Purchaser, Seller has not entered into any agreement pursuant to
which it has agreed not to compete with any person. The operations of Seller as
currently conducted do not infringe any copyright, trademark, service mark,
trade name, patent rights or any other right of any person, whether registered
or unregistered, nor do they involve the misappropriation of any trade secret of
any Person. Seller has not received notice from any Person alleging that such
infringement or misappropriation has occurred or is continuing.
4.14 LICENSES, PERMITS, AUTHORIZATIONS, ETC. Seller has received and
currently holds all required governmental approvals, authorizations, consents,
licenses, orders, registrations and permits of all agencies, whether federal,
state or local, the failure to obtain which would have a material adverse effect
on the assets, liabilities or financial condition of Seller or the operation of
the Business. Without limiting the generality of the foregoing, Seller has
received and currently holds all permits, licenses and approvals necessary under
the Environmental Laws to operate the Property in a manner in which it is
currently operated.
4.15 CONDEMNATION AND SIMILAR PROCEEDINGS. Neither the whole, nor
any portion of the Assets or any other asset of Seller is subject to any
governmental decree or order to be sold or is being condemned, expropriated or
otherwise taken by any governmental or quasi-governmental entity, with or
without payments of compensation therefor, nor has any such condemnation,
expropriation or taking been proposed or threatened.
4.16 TAXES. Seller has duly and timely filed with the appropriate
governmental agencies (domestic and foreign), or obtained extensions for filing,
all tax returns, information returns and reports for all Taxes required to have
been filed by Seller. Seller has paid in full all taxes (domestic and foreign
and including, without limitation, withholding obligations), interest and other
governmental charges and penalties that have become due
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pursuant to such returns that have been filed or for which extensions have been
obtained, and all other Taxes, interest and other governmental charges and
penalties that have become due and payable. Seller has not filed nor entered
into any election, consent, extension agreement or waiver that extends any
applicable statute of limitations. Seller is not a party to any action or
proceeding, pending or threatened, by any governmental authority, domestic or
foreign, for assessment or collection of Taxes, no unresolved claim for
assessment or collection of such taxes has been asserted against Seller; and no
audit or investigation by foreign, federal, state or local governmental
authorities is under way with respect to Seller. There are no liens for current
taxes not yet due (other than personal property taxes relating to the Property)
with respect to Seller or the Property. Seller has not filed a consent to the
application of Section 341(f)(2) of the Code to any assets held, acquired or to
be acquired by it.
4.17 LEGAL PROCEEDINGS. Except as described on Schedule 4.17 hereto,
there are no claims, actions, suits, arbitrations, proceedings or investigations
pending or, to the best knowledge of Seller, threatened against Seller before or
by any court or governmental or nongovernmental department, commission, board,
bureau, agency, instrumentality, or any other Person. There are no outstanding
or unsatisfied judgments, orders, decrees or stipulations naming Seller which
would alone or in the aggregate have or would be expected to have any material
adverse effect upon the business, business prospects, assets or financial
condition of Seller.
4.18 COMPLIANCE WITH LAWS.
4.18.1 GENERALLY. Seller has complied, and is in compliance,
with all federal, state and local laws, rules, regulations, ordinances, decrees
and orders applicable to the operation of the business, or to its owned or
leased properties, the failure to comply with which would have a material
adverse effect on the business or the assets or operations of the Business.
4.18.2 BUILDING CODES; ZONING; ETC. Without limiting the
provisions of Section 4.18.1 hereof, Seller is not in violation of any
applicable building, zoning, fire or other similar law, ordinance or regulation
in respect of the Real Estate or any of its plants, structures or facilities or
its operations, the failure to comply with which would have a material adverse
effect on the Business. Seller has not received notification that Seller is in
violation of any such law, ordinance or regulation, and no proceeding or inquiry
has been initiated or threatened with respect to any alleged violation (against
Seller or in any way relating to the Property) of any such laws, ordinances or
regulations. No such law, ordinance or regulation currently restricts, or based
upon the Business as currently conducted, may reasonably be expected to
restrict, the use in the business of all or any portion of the Real Estate or
the conduct thereon of the Business.
4.19 ENVIRONMENTAL MATTERS. The Real Estate and the Property and
their existing uses by Seller comply and have at all times in the past complied
with, and Seller is in compliance with and has not violated, any applicable
federal, state, county or local statutes, laws, regulations, guidances, rules,
ordinances, codes, licenses, permits, judgments, writs, decrees, injunctions, or
orders of any governmental agency relating to environmental (including without
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limitation air, water, groundwater, soil, sediments, noise and odor) matters
(together, the "Environmental Laws"), including without limitation local, state
and federal clean air laws and regulations, including but not limited to the
federal Clean Air Act, 42 U.S.C. SectionSection 7401 et seq.; local, state and
federal water pollution control laws and regulations, including but not limited
to the federal Clean Water Act, 33 U.S.C. SectionSection 1251 et seq. and the
Porter-Cologne Act; the Resource Conservation and Recovery Act (as amended by
the Hazardous Waste and Solid Waste Amendments of 1984 and 1991), 42 U.S.C.
SectionSection 6901 et seq.; the Comprehensive Environmental Response,
Compensation and Liability Act (as amended by the Superfund Amendments and
Reauthorization Act of 1986)("CERCLA"), 42 U.S.C. 9601 et seq.; and all other
applicable federal, state, county, local and foreign environmental requirements.
Without limiting the generality of the foregoing:
4.19.1 Seller possesses valid and current permits, licenses,
authorizations and/or registrations for all activities that require a permit,
license, authorization and/or registration, including but not listed to water
discharges, air emissions, hazardous waste generation, storage and disposal, and
use of underground storage tanks.
4.19.2 during its use and occupancy of the Real Estate and
Property, there has not been any "release," "threatened release" or "disposal"
of "Hazardous Substances," "Pollutants" or "Contaminants" (as defined in CERCLA
or such applicable state and local laws that may exist), petroleum products or
hazardous or solid wastes on or from the Real Estate or the Property, or any
other asset owned, leased or used by Seller including, without limitation,
release of Hazardous Substances, Pollutants or Contaminants, petroleum products
or hazardous or solid wastes that could subject Seller, the Real Estate or the
Property to material liability under the Environmental Laws;
4.19.3 there is no work, repair, or construction in a material
amount, material capital expenditure, or materially increased operating cost
with respect to the Real Estate or the Property that is required in order for
Seller to obtain all the permits, licenses and authorizations necessary under
the Environmental Laws for Seller to carry on the Business as currently
conducted, or to attain or maintain compliance under the Environmental Laws; and
4.19.4 neither Seller nor any predecessor entity has ever
received notification of any violation of any Environmental Laws relating to the
Business or the Real Estate or the Property or their use; there are no writs,
injunctions, decrees, orders or judgments outstanding, and no actions, claims,
proceedings or investigations pending or threatened under the Environmental Laws
relating to the ownership, use, maintenance or operation of the business, the
Real Estate or the Property; and Seller has no knowledge of any basis for any
such actions, claims, proceedings or investigations being instituted or filed.
4.20 INVENTORIES. The values at which the inventory of Seller are
shown on the Financial Statements have been determined in accordance with the
normal valuation policy of Seller consistently applied and in accordance with
GAAP. Seller warrants that the present
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quantities of inventory of Seller are consistent with past quantities held by
Seller on a historical basis.
4.21 LABOR RELATIONS; EMPLOYMENT. Seller is not a party to any
collective bargaining contracts nor any other contracts or understandings with
any labor unions or any other representative of the Seller's employees and no
collective bargaining agreement is currently being negotiated by Seller. Except
as disclosed on Schedule 4.11 hereto, Seller is not a party to any written
employment agreement with any of its officers, directors, employees,
consultants, agents or other persons, and any such agreement is terminable by
Seller at will without penalty or cost to such Person, except as prohibited by
applicable law.
Seller is in compliance in all material respects with all federal and
state laws respecting employment and employment practices, terms and conditions
of employment and wages. No grievance which might have a material adverse effect
on Seller in the conduct of its business nor any arbitration proceeding arising
out of or under collective bargaining agreements is pending and no claim
therefor has been asserted. Except as described on Schedule 4.17, Seller has no
present or threatened labor disturbances or pending arbitration, unfair labor
practice, grievance or other proceedings nor litigation which materially and
adversely affects or may materially or adversely affect the financial condition
of Seller with respect to its employees and has had no such labor disturbance,
proceedings or litigation for the past eighteen (18) months and which remains
unresolved on the date hereof. Seller does not know of any present or threatened
walkout, strike or any similar occurrence which materially or adversely affects
or may materially or adversely affect the assets, properties, business,
condition or prospects of Seller.
4.22 RELATIONS WITH SUPPLIERS AND CUSTOMERS. To the best knowledge
of Seller, the relationships of Seller with its suppliers and customers taken as
a whole are good commercial working relationships and within the last twelve
(12) months no material supplier or customer of Seller has canceled or otherwise
terminated, or threatened in writing to cancel or otherwise terminate, its
relationship with Seller or has during the last twelve (12) months decreased
materially, or threatened to decrease or limit materially, its services,
supplies or materials to Seller or its usage of the services or products of
Seller. Seller has no knowledge: (i) of any material adverse condition affecting
the supply of materials available to Seller; or (ii) that any such supplier or
customer intends to cancel or otherwise modify its relationship with Seller or
to decrease materially or limit its services, supplies or materials to Seller or
its usage of the services or products of Seller.
4.23 WARRANTY CLAIMS. Seller has satisfied all known warranty
claims, as of July 15,1997, if any, for actions, operations and products of
Seller prior to the Closing Date.
4.24 EMPLOYEE BENEFIT PLANS. Seller maintains no "employee welfare
benefit plan" or "employee pension benefit plan" as such terms are defined under
the Employee Retirement Income Security Act of 1974, as amended.
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4.25 BROKERAGE. Neither Seller nor any director, officer, agent or
employee acting on behalf of Seller has retained any broker or finder in
connection with the transactions contemplated by this Agreement other than
Frederick Capital Corporation. Any brokerage or finder's fees due in violation
of the foregoing representation shall be paid by Seller.
4.26 INFORMATION FURNISHED. Neither this Agreement, the schedules to
this Agreement, nor the information and reports furnished by Seller to Purchaser
in connection with this Agreement, taken as a whole, contain any material
misstatement of fact or omit to state any material fact necessary to make such
statements, in the light of the circumstances under which they were made, not
misleading.
4.27 SECURITIES LAWS.
4.27.1 Seller and each of its shareholders has sufficient
experience in evaluating and investing in private placement transactions of
securities and companies similar to Purchaser so that it is capable of
evaluating the merits and risks of its investment in Purchaser and has the
capacity to protect its own interests.
4.27.2 Seller and each of its shareholders acknowledges that
the Shares will not be registered under the Securities Act of 1933, as amended
(the "Securities Act") or the securities laws of any state of the United States
and that Purchaser has offered and is issuing and selling the Shares to Seller
in reliance on the exemption from registration provided by Section 4(2) of the
Securities Act and similar exemptions under the securities laws of all
applicable jurisdictions. Seller and each of its shareholders are acquiring all
the Shares for investment for their own account and not with a view to the
resale or distribution of any of the Shares, in whole or in part and of record
or beneficially, to any other Person. Seller and each of its shareholders
acknowledge that the Shares are not being purchased as a result of any general
solicitation or general advertising.
4.27.3 Seller and each of its shareholders have received and
had an opportunity to review a copy of Purchaser's Annual Report on Form 10-K,
for the fiscal year ending December 3 1, 1996, and Purchaser's Quarterly Report
on Form 10-Q, for the quarter ending March 31, 1997 (together, the "Reports").
Seller and each shareholder has carefully reviewed such Reports and has made
inquiry concerning Purchaser, its business, its personnel and its prospects.
Seller and each shareholder will have an opportunity to discuss Purchaser's
business, management and financial affairs with its management. Seller and each
shareholder will also have an opportunity to ask questions of officers of
Purchaser concerning the business of Purchaser, which questions were answered to
its satisfaction.
4.27.4 Seller and each shareholder acknowledges that the
Shares must be held indefinitely unless subsequently registered under the
Securities Act and the securities laws of every jurisdiction applicable to such
resale or unless exemptions from such registration requirements are available.
Seller and each shareholder further acknowledges that Purchaser has no
obligation to register the Shares under the Securities Act or the securities
laws of any state of
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the United States, except to the limited extent provided in any Registration
Rights Agreement between Purchaser and Seller and/or any shareholder of Seller
in mutually agreeable form.
4.27.5 Seller and each shareholder consents to the placement
of the following legend on the certificates representing the Shares and the
placement of a stop-transfer order in the stock records of Purchaser to prohibit
the recording of a transfer of the Shares other than in compliance with such
legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER TBE UNITED
STATES SECURITIES ACT OF 1933 AS AMENDED (THE "SECURLTIES ACT") OR THE
SECURITIES LAWS OF ANY STATE OF TBE UNITED STATES, AND SUCH SECURITIES MAY NOT
BE OFFERED FOR RESALE, SOLD, ASSIGNED OR OTHERWISE HYPOTHECATED FOR VALUE
(INCLUDING BY ANY PLEDGEE) UNLESS (A) THE SECURITIES ARE REGISTERED UNDER THE
SECURITEES ACT AND TBE SECURITIES LAWS OF ALL APPLICABLE STATES OF THE UNITED
STATES, OR (B) THE SECURITEES ARE OFFERED AND SOLD IN COMPLIANCE WITH AN
EXEMPTION FROM SUCH REGISTRATION REQUIRENMNTS AND AT THE OPTION OF THE COMPANY,
THE HOLDER PROVIDES AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY TO SUCH
EFFECT.
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER. To induce Seller to
enter into this Agreement, Purchaser represents and warrants to Seller as
follows:
5.1 LEGAL STATUS OF PURCHASER. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Washington, has all requisite corporate power and authority to acquire the
Assets, and to carry on its business as it is now being conducted. Purchaser has
fall power and authority to execute, deliver and perform this Agreement.
5.2 DUE AUTHORIZATION AND EXECUTION. This Agreement has been duly
authorized, executed and delivered by Purchaser and is a legal, valid and
binding obligation of Purchaser, enforceable in accordance with its terms,
except as enforcement may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or similar laws or equitable principles is relating
to or limiting creditors' rights generally or (ii) general principles of equity
(regardless of whether such principles are considered in a proceeding in equity
or at law).
5.3 NO APPROVALS OR NOTICES, NO CONFLICTS. The execution, delivery
and performance of this Agreement by Purchaser and the consummation of the
transactions contemplated hereby will not (a) conflict with or constitute a
default or violation (with or without the giving of notice, or the lapse of
time, or both) of any provision of law or any judgment, decree, order,
regulation or rule of any court or other governmental authority, or of any
permit, authorization, status, concession, franchise, license, statute, law,
ordinance, rule or regulation applicable to Purchaser or to Purchaser's
properties or assets; (b) require any consent, approval or authorization of, or
declaration, filing or registration with, any Person as relates to Purchaser,
(c)
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result in a default (with or without the giving of notice, or the lapse of time,
or both) under, acceleration or termination of, or the creation in any party of
the right to accelerate, terminate, modify or cancel, or give rise to an
acceleration of any material obligation or to loss of a material benefit under,
any material agreement, lease, note, bond, mortgage, indenture or other
restriction, encumbrance, obligation or liability to which Purchaser is a party
or by which Purchaser is bound or to which Purchaser's assets are subject; (d)
result in the creation of any material lien or encumbrance upon any of the
assets of Purchaser; or (e) conflict with or result in a breach of or constitute
a default under any provision of the articles of incorporation or bylaws of
Purchaser.
5.4 THE SHARES. Upon delivery of stock certificates by Purchaser
representing the Shares and Retained Shares, receipt by Purchaser of the
Purchased Assets, and satisfaction of such conditions as may apply under this
Agreement, the Shares will be duly authorized, validly issued, fully paid and
nonassessable outstanding shares of common stock of Purchaser.
5.5 LEGAL PROCEEDINGS. There are no claims, actions, suits,
arbitrations, proceedings or investigations pending or, to the best knowledge of
Purchaser after due inquiry, threatened against Purchaser before or by any court
or governmental or non-governmental department, commission, board, bureau,
agency, instrumentality, or any other Person which if resolved adverse to
Purchaser would preclude Purchaser from satisfying any material obligation under
this Agreement. There are no outstanding or unsatisfied judgments, orders,
decrees or stipulations naming Purchaser which restrict or prohibit the
transactions contemplated herein. There is no material litigation required to be
reported by Purchaser to the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended, except as set forth in the Reports.
5.6 BROKERAGE. To the extent Purchaser has retained a broker or
other investment advisor to assist in the negotiation and consummation of this
Agreement, any brokerage or finder's fee due such Person shall be paid by
Purchaser.
5.7 NO ADVERSE CHANGE. Since the date of the most recent Report
filed by Purchaser with the Securities and Exchange Commission and the date of
such additional business information provided by Purchaser to Seller, there has
been no material adverse change in the business, prospects, assets, or results
of operations, or in the condition, financial or otherwise, of Purchaser and its
subsidiaries, taken as a whole.
6. COVENANTS OF THE PARTIES.
6.1 COVENANTS OF SELLER. Seller covenants and agrees with Purchaser
to perform and observe the following:
6.1.1 INSPECTION. From the date of this Agreement to and
including the Closing Date, Seller will grant to Purchaser, its representatives,
employees, accountants and attorneys full access to, and the opportunity to
examine, and make copies of, all books, records, documents, instruments and
papers of Seller, and the right during normal business hours to
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inspect all of Seller's properties, assets and operations- and Seller will cause
its agents, employees, managers, attorneys and accountants to furnish such
additional information as Purchaser shall from time to time reasonably request.
6.1.2 COOPERATION. Seller will fully cooperate with Purchaser
and with Purchaser's counsel and accountants in connection with any steps
required to be taken as part of Seller's obligations under this Agreement.
Seller will use its best efforts to cause all conditions to the parties'
obligations to effect the Closing under this Agreement to be satisfied as
promptly as reasonably possible and to obtain all consents and approvals
necessary for the due performance of this Agreement and for the satisfaction of
the conditions hereof.
6.1.3 ADVICE OF CLAIMS. From the date of this Agreement to and
including the Closing Date, Seller will promptly advise Purchaser in writing of
the commencement or notice of any claims, litigation or proceedings against or
affecting Seller.
6.1.4 CONDUCT PRIOR TO THE CLOSING. From the date of this
Agreement to and including the Closing Date, except as specifically provided in
this Agreement or otherwise specifically approved in each instance in writing by
Purchaser:
(a) Seller will not knowingly take any action or, insofar as
it is able to do so, suffer to be taken any action which will cause any
representation, warranty or schedule to this Agreement to be untrue at the
Closing Date;
(b) Seller will carry on the Business in the ordinary
course, and Seller shall not institute any materially new methods of
manufacturing, purchasing, selling, leasing, management, accounting or operation
or engage in any transaction or activity, enter into any agreement or make any
commitment, except in the ordinary course of business;
(c) Seller will not organize any new subsidiary or acquire
any capital stock or other equity or ownership interest in any business;
(d) Seller will preserve its existence and use its best
efforts to preserve its relationships with suppliers, customers and others
having business relations with it;
(e) Seller shall not do any act or omit to do any act, or,
insofar as it are able to do so, permit any act or omission to act, which will
cause a breach of any material contract or commitment of Seller; and
(f) Seller shall not make any payment or distribution to, or
otherwise engage in any transaction of any kind with, any shareholder or
creditor of Seller, except as otherwise provided herein.
6.1.5 ADDITIONAL INFORMATION. Seller will promptly furnish
Purchaser with copies of Seller's unaudited balance sheets and statements of
income or earnings prepared
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for any periods subsequent to the date of the Financial Statements and prior to
the Closing Date in the form customarily prepared by Seller.
6.1.6 DELIVERY OF PURCHASED ASSETS. Commencing on the Closing
Date and continuing thereafter, Seller shall cause to be delivered into the
possession or control of Purchaser all of the Assets, which shall include,
without limitation, the original copies of Contracts and the original copies of
all records, files, documents, correspondence and papers pertaining to the
Assets.
6.1.7 USE OF NAMES. As of the Closing, Seller will refrain
from using "Smiley," "Smiley Hats," "LeGuide," "Court Jesters" or any similar
names as a trade name, trademark or service mark in connection with any business
or activity, and within thirty (30) days of the Closing Date, Seller will change
its corporate name to a name the parties mutually agree upon.
6.1.8 FURTHER ACTIONS. Seller shall, at any time and upon the
request of Purchaser, do, execute, acknowledge and deliver or shall cause to be
done, executed, acknowledged and delivered all such further acts, assignments,
transfers, conveyances, assurances and other instruments as may be reasonably
required for the transferring, conveying, assigning, delivering, assuring and
assisting in collecting and reducing to the possession of Purchaser of any and
all of the Assets. Without limiting the generality of the foregoing, Seller will
use its best efforts to provide to Purchaser any financial statements or other
information that may be required by the Securities and Exchange Commission or
other regulatory authority. Seller further agrees to perform or cause to be
performed at and after the Closing Date hereof any and all further acts as may
be reasonably necessary to consummate the transactions contemplated hereby.
6.1.9 INCOME AND OTHER TAXES. Seller shall in a timely manner
file all income, sales, use, franchise and other tax returns and pay related
required taxes associated with the operations of Seller through and including
the Closing Date and those arising from the transactions contemplated hereby,
including capital gains tax, if any.
6.1.10 EMPLOYEES. At the request of Purchaser, Seller shall
assist Purchaser in transitioning employees and retaining any independent
contractors of Seller. Purchaser is under no obligation to hire any employee or
retain any independent contractor of Seller but is free to do so in its sole
discretion. Seller shall remain solely liable for all liabilities and
obligations of, including all benefits, severance, medical, dental and optical
claims, disability payments, insurance claims of any type or nature, and
retirement and vacation benefits relating to Sellers' past and present
employment of, all current and former employees arising or accruing through the
Closing Date. With respect to such employees, Seller shall have sole
responsibility for complying with, and shall retain all liabilities and
obligations resulting from any noncompliance with, the requirements of COBRA,
the WARN Act and any termination of employment caused by reduction in work
force, shutdown, plant closure, or other employment termination or practice in
connection with the transactions contemplated by this Agreement.
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6.2 COVENANTS OF PURCHASER.
6.2.1 COOPERATION; BEST EFFORTS. Purchaser covenants and
agrees with Seller to fully cooperate with Seller and with its counsel in
connection with any steps required to be taken as part of Purchaser's
obligations under this Agreement. Purchaser will use its best efforts to cause
all conditions to the parties' obligations to effect the Closing under this
Agreement to be satisfied as promptly as possible and to obtain all consents and
approvals necessary for the due and punctual performance of this Agreement and
for the satisfaction of the conditions hereof.
6.2.2 DELIVERY OF SHARES. Purchaser shall deliver the cash
consideration and Shares, other than the Escrowed Shares, in accordance with
Section 3.2.2 hereof.
6.3 NON-COMPETITION AND NON-SOLICITATION.
6.3.1 NON-COMPETITION. For a maximum period of three years
from the Closing Date (the "Restricted Period"), neither Seller nor such
employees and/or shareholders of Seller as Purchaser may designate to Seller in
writing prior to Closing shall, unless released from such prohibition in writing
by Purchaser (and consistent with such conditions as Purchaser may impose on any
such release), anywhere in the world, directly or indirectly, be employed by,
own, manage, operate, join, control or participate in the ownership, management,
operation or control of or be connected in any manner with any business engaged
in the manufacture, design, marketing or distribution (other than retail only)
of hats and related headwear. Seller and any Person subject to the restrictions
of this Section 6.3.1 shall be deemed to be connected with a business if such
business is carried on by a partnership in which Seller or such Person is a
general or limited partner, consultant or employee or by a corporation or
association of which Seller or such Person is a shareholder, officer, director,
employee, member, consultant or agent; provided that nothing contained in this
Section 6.3 shall prevent the purchase or ownership by Seller or any such Person
of one percent (1%) or less of the outstanding shares of any corporation.
6.3.2 NON-SOLICITATION. During the Restricted Period, neither
Seller nor any shareholder of Seller shall, directly or indirectly, solicit,
influence or entice any employee, consultant, or independent contractor of
Purchaser to cease his or her relationship with Purchaser or solicit, entice or
in any way divert any customer or supplier of Purchaser to do business with
Seller, or any entity in which a Person restricted by the provisions of Section
6.3.1 hereof is an employee, owner, officer, director, shareholder, partner,
joint venturer or agent.
6.3.3 REASONABLENESS AND EQUITABLE RELIEF. Seller and
Purchaser each agree that adequate consideration has been given for Seller to
enter into this Section 6.3 and assume the obligations contained in this Section
6.3. Seller recognizes that (i) the provisions of this Section 6.3 are
reasonable and necessary for the protection of Purchaser in light of the
consideration paid and payable by Purchaser to Seller under this Agreement, (ii)
Purchaser would
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not have entered into this Agreement or consummated the transactions
contemplated hereunder without Seller and the Persons subject to the provisions
hereof having agreed to be bound by the provisions of this Section 6.3, (iii)
damages that would be sustained by Purchaser as a result of a breach of this
Section 6.3 cannot be adequately remedied by money damages and (iv)
notwithstanding any other provision of this Agreement, in addition to any other
remedy Purchaser may have under this Agreement or at law, Purchaser shall be
entitled to injunctive and other equitable relief to prevent or curtail any
breach of any provision of this Section 6.3.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER. The obligations of
Purchaser to perform and observe the covenants, agreements and conditions hereof
to be performed and observed by it at the Closing shall be subject to the
satisfaction of the following conditions, any one or more of which may be waived
by Purchaser. If any one of the following conditions precedent is not fully
satisfied or waived by Purchaser, by the applicable dates set forth below,
Purchaser may elect to terminate this Agreement:
7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES; COMPLIANCE WITH
COVENANTS. The representations and warranties of Seller contained herein shall
have been true when made and shall be true on and as of the Closing Date with
the same force and effect as if again made on and as of such date, and Seller
and each Shareholder shall have performed all obligations and agreements and
complied with all covenants and conditions contained in this Agreement to be
performed and complied with by it on or prior to the Closing Date.
7.2 SELLER'S CERTIFICATE. Purchaser shall have received a
certificate from Seller, dated the Closing Date, substantially in the form of
Exhibit 7.2, certifying that all of the conditions set forth in Section 7 to be
fulfilled by Seller has been fulfilled and the representations and warranties of
Seller herein are true and correct on and as of the Closing Date as if again
made on and as of the Closing Date.
7.3 CONSENTS; GOVERNMENTAL FILINGS. There shall have been obtained,
in writing, (a) all consents and approvals which the Schedules to this Agreement
indicate are required to be obtained prior to or on the Closing Date, and (b)
estoppel certificates from the lessor(s) of the Real Estate, which consents,
approvals and estoppel certificates shall be in form and substance acceptable to
Purchaser. All expenses incurred in connection with the obtaining of such
consents, approvals and estoppel certificates shall be paid by Seller. All
filings and applications required by applicable law to be made with or to any
governmental entity in connection with the transactions contemplated by this
Agreement shall have been made, and all waiting periods specified by applicable
law shall have expired or been earlier terminated, without there being any
continuing objection to the transactions contemplated hereby.
7.4 OPINION OF COUNSEL FOR SELLER. Purchaser shall have received an
opinion of counsel for Seller, dated as of the Closing Date, addressed to
Purchaser, which shall be governed by and interpreted in accordance with the
Legal Opinion Accord of the ABA Section of Business Law (1991) and otherwise in
form and substance reasonably satisfactory to Purchaser and its counsel,
addressing the legal issues set forth in Sections 4.1 and 4.2.
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7.5 LEGAL PROCEEDINGS. No order of any court or administrative
agency shall be in effect which enjoins, restrains, conditions or prohibits
consummation of this Agreement, and no litigation, investigation or
administrative proceeding shall be pending or threatened which would enjoin,
restrain, condition or prevent consummation of the transactions contemplated by
this Agreement.
7.6 NO ADVERSE CHANGE. Between the date of this Agreement and the
Closing Date, there shall have been no material adverse change in the business,
prospects, assets or results of operation, or in the condition, financial or
otherwise, of Seller.
7.7 DUE DILIGENCE. Purchaser and its representatives, accountants
and legal counsel shall have been afforded full and free access to corporate
books, financial statements, records, contracts, documents, title reports and
other information concerning Seller, the Purchased Assets, the Real Estate and
the Property, and to the offices and facilities of Seller, shall have been
afforded an opportunity to ask such questions of and receive answers from
Seller's officers, managers, agents, independent accountants and representatives
concerning the business, Seller's operations, prospects, financial condition,
assets, liabilities, its status under applicable or potentially applicable
Environmental Laws, and other relevant matters as they may have deemed
reasonably necessary or desirable, and shall have determined to Purchaser's
satisfaction, in its reasonable discretion, that closing of the transactions
contemplated herein is in Purchaser's best interests.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER. The obligations of
Seller to perform and observe the covenants, agreements and conditions hereof to
be performed and observed by it at the Closing shall be subject to the
satisfaction of the following conditions, any one or more of which may be
expressly waived in writing by Seller. If any one of the following conditions
precedent is not fully satisfied, or waived by Seller, by the applicable dates
set forth below, Seller may elect to terminate this Agreement:
8.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES; COMPLIANCE WITH
COVENANTS. The representations and warranties of Purchaser contained herein
shall have been true when made and shall be true on and as of the Closing Date
with the same force and effect as if again made on and as of such date.
Purchaser shall have performed all obligations and agreements and complied with
all covenants and conditions contained in this Agreement to be performed and
complied with by it on or prior to the Closing Date.
8.2 PURCHASER'S CERTIFICATE. Seller shall have received a
certificate from Purchaser, dated as of the Closing Date, substantially in the
form of Exhibit 8.2 certifying that all of the conditions set forth in Section
8.1 to be fulfilled by Purchaser have been fulfilled and the representations and
warranties of Purchaser herein are true and correct on and as of the Closing
Date as if again made on and as of the Closing Date.
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8.3 GOVERNMENTAL FILINGS. All filings and applications required by
applicable law to be made with or to any governmental entity in connection with
the transactions contemplated by this Agreement shall have been made and all
waiting periods specified by applicable law shall have expired or been earlier
terminated without there being any continuing objection to the transactions
contemplated hereby.
8.4 LEGAL PROCEEDINGS. No order of any court or administrative
agency shall be in effect which enjoins, restrains, conditions or prohibits
consununation of this Agreement, and no litigation, investigation or
administrative proceeding shall be pending or threatened which would enjoin,
restrain, condition or prevent consummation of this Agreement.
8.5 REGISTRATION RIGHTS AGREEMENT. Purchaser and Seller, for itself
and on behalf of the shareholders of Seller in whose names the Shares are
registered, if any, shall have executed and delivered the Registration Rights
Agreement in form mutually agreeable to the parties.
8.6 APPROVAL OF SHAREHOLDERS OF SELLER. The shareholders of Seller
shall have approved this Agreement on or before the Closing Date.
9. INDEMNIFICATION AND SURVIVAL OF WARRANTIES.
9.1 INDEMNIFICATION.
9.1.1 BY SELLER. Seller agrees to indemnify Purchaser and to
hold Purchaser harmless against and in respect of any and all losses, damages,
costs and expenses, including reasonable attorneys' and accountants' fees
incurred by Purchaser by (i) reason of a breach of any of the representations,
warranties, covenants or agreements made by Seller in this Agreement, or in any
other instrument or agreement related hereto or executed in connection herewith,
or in any written statement or certificate delivered to Purchaser or any agent
of Purchaser in connection with this Agreement or the transactions contemplated
hereby or (ii) operation of Article 6 of the Uniform Commercial Code as codified
in Nevada. As used in this Section 9.1.1, the term "Purchaser" shall include
Purchaser and any affiliate company and each officer and director of Purchaser
or any affiliated company.
9.1.2 BY PURCHASER. Purchaser agrees to indemnify Seller and
each Shareholder, and to hold Seller and each Shareholder harmless against and
in respect of any and all losses, damages, costs and expenses, including
reasonable attorneys' and accountants' fees, incurred by Seller by reason of a
breach of any of the representations, warranties, covenants or agreements made
by Purchaser in this Agreement, or in any other instrument or agreement related
hereto or certificate delivered to Seller in connection with this Agreement or
the transactions contemplated hereby. As used in this Section 9.1.2, the term
"Seller" shall include each officer and director of Seller.
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9.1.3 NOTICE. The party entitled to indemnification hereunder
(the "Indemnitee") shall promptly notify in writing the party against whom
indemnification is sought hereunder (the "Indemnitor") of any matters which may
give rise to the right to indemnification hereunder.
9.1.4 CLAIMS. If the Indemnitee is threatened with any claim
or any claim is presented to, or any action or proceeding commenced against, the
Indemnitee which may give rise to the right of indemnification hereunder, the
Indemnitee will promptly give written notice thereof to the Indeninitor. The
Indemnitor, by delivery of written notice to the Indemnitee within twenty (20)
days of receipt of written notice for indemnity from the Indemnitee, may elect
to contest such claim, action or proceeding, in which event such contest shall
lie conducted in such manner as the Indemnitor deems necessary or advisable;
provided, however, that (a) such written notice shall be accompanied by a
written acknowledgment of the Indemnitor's liability for the indemnified
liabilities and any further loss, damage or expense that the Indemnitee might
suffer as a result of the election to contest such claim, action or proceeding,
(b) the counsel undertaking the defense of such claim, action or proceeding
shall be reasonably acceptable to the Indemnitee, and (c) if the Indemnitee
requests in writing that such claim, action or proceeding not be contested, then
it shall not be contested but shall also not be covered by the indemnities
provided herein. The Indemnitor shall not have the right to settle an
indemnifiable matter except with the consent of the Indemnitee which shall not
be unreasonably withheld, after delivering a written description of the proposed
settlement to, and receiving consent from, the Indemnitee and, if the Indemnitor
is able to achieve such settlement, the Indemnitor may satisfy its obligations
with respect to such indemnified liabilities by consummating such settlement. If
the Indemnitor does not elect to contest an indemnifiable matter, the Indemnitee
shall have the right to prosecute, defend, compromise, settle or pay any claim,
but the Indemnitee shall not be obligated to do so. The Indemnitee and the
Indemnitor shall cooperate with each other in connection with any matter or
claim for indemnification.
9.1.5 EFFECT OF FAILURE TO GIVE NOTICE. Failure to give any
notice shall not affect an Indemnitee's right to indemnity except to the extent
the Indemnitor has been prejudiced thereby.
9.2 SURVIVAL. Notwithstanding any investigation made by Seller or
Purchaser, the representations and warranties of Seller and of Purchaser
contained in this Agreement and all statements contained in any certificate or
other instrument delivered by Seller or Purchaser pursuant to this Agreement or
in connection with the transactions contemplated hereby (which shall be deemed
to be representations and warranties of such party hereunder) shall survive the
Closing only until the first anniversary of the Closing Date.
9.3 MINIMUM. Notwithstanding any other provision in this Section 9,
an Indemnitee shall be entitled to indemnification for losses, damages, costs
and expenses only if and to the extent the aggregate indemnifiable amount (but
not as to each occasion) exceeds Twenty Thousand Dollars (U.S. $20,000).
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9.5 NONEXCLUSIVE. The rights, powers and remedies of the parties
under this Agreement are cumulative and not exclusive of any other right, power
or remedy which such parties may have under any other agreement or law. No
single or partial assertion or exercise of any right, power or remedy of a party
hereunder shall preclude any other further assertion or exercise thereof.
9.6 DISPUTE RESOLUTION. In the event of a dispute between the
parties with respect to any claim for indemnification under Section 9 hereof,
such dispute shall be submitted to mediation for resolution before an impartial
mediator experienced in commercial matters generally, and who is mutually
agreeable to the parties. The mediation shall be held in Seattle pursuant to
Washington law, the decision thereof shall be binding and enforceable in a court
of competent jurisdiction, and the costs thereof shall be awarded to the
substantially prevailing party.
10. TERMINATION. This Agreement may be terminated at any time prior to
the Closing Date by the mutual written consent of Seller and Purchaser or by the
non-breaching party in the event of a breach of a representation, warranty or
covenant, and may be terminated at the election of either party if the Closing
has not occurred prior to August 31, 1997; provided, however, that the right to
terminate this Agreement under this clause shall not be available to the party
whose failure to fulfill any obligation under this Agreement has been the cause
or resulted in the failure of the Closing to occur on or before the date
specified in Section 3.1.
11. NOTICES. Any notice or demand desired or required to be given
hereunder shall be in writing and deemed given when personally delivered, or
deposited in the mail, postage prepaid, sent certified or registered, or
delivered to an overnight carrier or sent by facsimile and addressed as
respectively set forth below or to such other address as any party shall have
previously designated by such a notice. Any notice so delivered personally, by
U.S. Postal Service by overnight carrier or by facsimile shall be deemed to be
received on the date of delivery. Notices shall be sent as follows:
TO PURCHASER:
Ride, Inc.
8160 304th Avenue, SE
Preston, Washington 98050
Attention: David H. Davis
(tel) 425-222-8275
(fax) 425-222-6379
with a copy to:
Summit Law Group
1505 Westlake Avenue North
Suite 300
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Seattle, Washington 98109
Attention: Michael J. Erickson
(tel) 206-281-9881
(fax) 206-281-8892
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TO SELLER:
Robert E. Hall
Ride, Inc.
8160 - 304th Avenue SE
Preston, Washington 98050
(tel) 425-222-6015
(fax) 425-222-6379
with a copy to:
John Lewis
625 Plymouth Street
Reno, Nevada 89509
(tel) 702-329-6030
(fax) 702-323-5235
12. GENERAL.
12.1 AMENDMENT. The parties hereto may amend, modify or supplement
this Agreement at any time, but only in writing duly executed on behalf of all
parties hereto.
12.2 ENTIRE UNDERSTANDING. The terms set forth in this Agreement
supersede all previous discussions, understandings and agreements between them
with respect to the subject matter hereof, and are intended by the parties as a
final, complete and exclusive expression of the terms of their agreement and may
not be contradicted, explained or supplemented by evidence of any prior
agreement, any contemporaneous oral agreement or any additional terms. All
schedules are incorporated herein by this reference.
12.3 WAIVERS. Any terms, covenants, representations, warranties or
agreements of any party hereto may be waived at any time by an instrument in
writing executed by the party for whose benefit such terms exist. The failure of
any party at any time or times to require performance of any provisions hereof
shall in no manner affect its right at a later time to enforce the same. No
waiver by any party of any condition or of any breach of any terms, covenants,
representations, warranties or agreements contained in this Agreement shall be
effective unless in writing, and no waiver in any one or more instances shall be
deemed to be a further or continuing waiver of any such condition or breach in
other instances or a waiver of any other condition or any breach of any other
terms, covenants, representations, warranties or agreements.
12.4 HEADINGS. The headings preceding the text of the Sections of
this Agreement are for convenience only and shall not be deemed parts thereof.
12.5 APPLICABLE LAW. This Agreement, including all matters of
construction, validity and performance, shall be governed by and construed and
enforced in accordance with
27
<PAGE> 28
the laws of the State of Washington, as applied to contracts executed and to be
fully performed in such State by citizens of such State. The federal and state
courts situated in King County, Washington shall be the exclusive forum for the
litigation of any dispute relating to this Agreement. Each party hereto hereby
consents to the jurisdiction and venue of such courts and waives any defense of
inconvenient forum.
12.6 BULK SALES. Purchaser hereby waives compliance with the Bulk
Sales laws of the State of Nevada and Seller agrees to indemnify and hold
harmless Purchaser from, and reimburse Purchaser for, any and all claims,
liabilities or obligations that Purchaser may suffer or incur by virtue of such
noncompliance.
12.7 PARTIES IN INTEREST; ASSIGNMENT. All of the terms and
provisions of this Agreement shall be binding upon and inure to the benefit of
and be enforceable by the respective successors and permitted assigns of the
parties hereto, whether herein so expressed or not. Purchaser may without the
consent of Seller assign its rights hereunder to any corporation controlling,
controlled by or under common control with Purchaser or any general or limited
partnership in which Purchaser is a general partner, but no such assignment
shall relieve Purchaser from liability for breach of any of its obligations
hereunder, including without limitation, its indemnity obligations set forth in
Section 9 hereof. Neither this Agreement nor any of the rights, interests or
obligations hereunder of any party hereto shall otherwise be assigned without
the prior written consent of the other parties.
12.8 PUBLICITY. Prior to the closing of this Agreement, neither of
the parties hereto shall make or issue, or cause to be made or issued, any
announcement or written statement concerning this Agreement or the transactions
contemplated hereby for dissemination to the general public without the prior
consent of the other party, unless Purchaser determines on the advice of
securities counsel that disclosure is required by applicable securities laws in
which event Purchaser will give Seller reasonable advance notice of such
disclosure.
28
<PAGE> 29
12.9 ATTORNEYS' FEES. In the event of any action to enforce any
provision of this Agreement, or on account of any default under or breach of
this Agreement, the prevailing party in such action shall be entitled to
recover, in addition to all other relief, from the other party all reasonable
attorneys' fees and costs incurred by the prevailing party in connection with
such action (including, but not limited to, any appeal thereof).
IN WITNESS WHEREOF, the parties hereto have entered into and signed this
Agreement as of the date and year first above written.
PURCHASER:
RIDE, INC.
By:___________________________________________
G. Scott Stewart, Senior Vice President &
Chief Financial Officer
SELLER:
GALENA CREEK TRADING COMPANY, INC.
d/b/a SMILEY HATS
By:____________________________________________
Robert E. Hall, President
29
<PAGE> 30
Schedules and Exhibits
2.1 Nature and Condition of the Assets
3.2.1 Bill of Sale
4.5 Liens, Mortgages and Encumbrances
4.9 Description of Real Estate
4.11 Contracts
4.12 Real Property Lease
4.13 Proprietary Rights
4.17 Legal Proceedings
7.2 Form of Seller's Certificate
9.2 Form of Purchaser's Certificate
30
<PAGE> 31
SCHEDULE 2.1
NATURE AND CONDITION OF THE ASSETS
All Assets of Seller, except the Excluded Assets, wherever located and in
whatever form, whether or not specifically identified herein or in a subsequent
writing, including without limitation the Assets described below and such
additional Assets as may appear on schedules and other materials, if any,
provided by Seller to Purchaser prior to the Closing Date, including without
limitation the Financial Statements and Balance Sheets.
1. All Assets of Seller set forth in the Receivables aging of 11:19 a.m. on July
15, 1997 provided by Seller to Purchaser on July 15, 1997.
2. All Assets of Seller set forth in the inventory reports identified below (all
provided by Seller to Purchaser on July 15, 1997):
a. Yarn Inventory report of 11:28 a.m. on July 15, 1997;
b. Fleece Inventory report of 11:30 a.m. on July 15, 1997; and
c. Inventory report dated July 15, 1997.
3. All Asset of Seller set forth on the Depreciation Schedule by G/L Account No.
(Detail) for (a) Furniture, (b) Computer Equipment, (c) Sewing Equipment and (d)
Knitting Equipment, all provided by Seller to Purchaser on July 15, 1997.
31
<PAGE> 32
EXHIBIT 3.2.1
BILL OF SALE
Pursuant to the Closing of that certain Asset Purchase Agreement, dated
as of ____________, 1997 (the "Agreement"), by and among Galena Creek Trading
Company, Inc. d/b/a Smiley Hats ("Seller") and Ride, Inc. ("Purchaser"), Seller
does hereby sell, assign and transfer unto Purchaser all right, title and
interest in and to the Assets, as that term is defined in the Agreement.
Seller hereby constitutes and appoints Purchaser as Seller's true and
lawful attorney and attorneys, with full power of substitution in Seller's name,
place and stead, on behalf and for the benefit of Purchaser, its successors and
assigns, to demand and receive any and all of the Assets, and to give receipts
and releases for and in respect of the same, and any part thereof, and from to
time to institute and prosecute in Purchaser's name, or otherwise, for the
benefit of Purchaser, its successors and assigns, any and all proceedings at
law, in equity or otherwise, which Purchaser may deem proper in order to collect
or reduce to its possession any of the Assets, and to do all acts and things
relating to the Assets which Purchaser shall deem desirable, Seller hereby
declaring that the foregoing powers are coupled with an interest and are and
shall be irrevocable by Seller and shall not be affected by its dissolution or
in any manner or for any reason whatsoever.
IN WITNESS WHEREOF, Seller has caused this Bill of Sale to be executed
as of this ___ day of ____________, 1997.
GALENA CREEK TRADING COMPANY, INC.
d/b/a SMILEY HATS
By:___________________________
Robert E. Hall, President
32
<PAGE> 33
SCHEDULE 4.5
LIENS, MORTGAGES AND ENCUMBRANCES
1. UCC-1 financing statement dated May 4, 1993 in favor of First Interstate Bank
of Nevada, N.A. covering all accounts, general intangibles, inventory, interest
of the debtor in goods from the sale of which the account arose; machinery and
equipment; and furniture and fixtures, as amended by the statement filed May 30,
1995.
2. UCC-1 financing statement dated May 23, 1996 in favor of Comstock Bank
covering all inventory, accounts, equipment and general intangibles.
33
<PAGE> 34
SCHEDULE 4.9
DESCRIPTION OF REAL ESTATE
Those premises constituting approximately 21,400 rentable square feet
and commonly known as 423 Overmyer Road, Sparks, NV 89431.
34
<PAGE> 35
SCHEDULE 4.11
CONTRACTS
All contracts to which Seller is a party, including without limitation the
contracts described below and such additional contracts as may appear on
schedules and other materials, if any provided by Seller to Purchaser prior to
the Closing Date.
1. All purchase orders of Seller.
2. All sales orders of Seller
3. Leases identified in Schedule 4.12.
4. Business Loan Agreement dated May 23, 1996 between Seller and Comstock Bank.
5. Revolving Line of Credit with Wells Fargo Bank, f/k/a First Interestate Bank
of Nevada, N.A. ("FIB"), as evidenced by the letter from FIB to Seller dated
April 18, 1996.
6. Letter agreement dated July 14, 1995 among the Seller,
Madelline "Smiley" Adamson and Richard Adamson.
7. Employment Agreement dated _______, 1996 (undated) among Seller, Kathi Sander
and Robert E. Hall as guarantor.
8. Memorandum of Employment Agreement dated June 28, 1997 among
Seller, Jim Hulse and Robert E. Hall.
9. Memorandum of Employment Agreement dated November 8, 1996 between Seller and
Lou Fliszar.
10. Letter agreement dated April 19, 1996 between Seller and The Court Jesters
Hat Company.
11. Memorandum of agreement dated December 17, 1996 between the Seller and Jim
Sloan (Canadian Sales Manager).
12. Five (5) separate Sales Representative Agreements, all dated November 30,
1992 between the Seller and Donnelly/Strough.
35
<PAGE> 36
SCHEDULE 4.12
REAL PROPERTY LEASE
Lease, dated November 4, 1992, between Richard and Madeline Adamson as lessor
and Seller (f/k/a HIT Brands, Inc.) as lessee, as amended by the amendment
thereto dated November 4, 1992.
Lease dated June 30, 1993, between Seller (f/k/a HIT Brands, Inc.) as lessor and
The Mattress Factory Inc. as lessee.
Lease dated June 21, 1995, between Seller (f/k/a HIT Brands, Inc.) as lessor and
Kent Greminger d/b/a Waterbed Warehouse as lessee, including the addendum
thereto dated June 21, 1995.
36
<PAGE> 37
SCHEDULE 4.13
PROPRIETARY RIGHTS
All patents, trademarks, copyrights, service marks, trade dress, applications
for any of the foregoing and all similar registrations, rights and applications,
foreign and domestic, used in the Business, including without limitation, those
covered by the following registrations and registration applications:
1. Federal Trademark Registration no. 957,363 for "Smiley" for hats (U.S. class
39, intl. class 25), registered April 17, 1973, renewed April 17, 1993.
2. Federal Trademark Registration no. 1,148,450 for an "S"-shaped design for
"Smiley" for hats.
3. Federal Trademark Registration no. 1,886,169 for "LeGuide" for sweaters (U.S.
class 39, intl. class 25), registered March 28, 1995.
4. Trademark Registration in Canada no. TMA 463393 for "LeGuide" for sweaters,
registered September 13, 1996.
5. All rights under that certain letter agreement dated July 14, 1995 among
Seller, Madelline "Smiley" Adamson and Richard Adamson, and such agreements as
may amend, modify and supersede such letter agreement.
6. All rights under that certain letter agreement dated April 19, 1996 between
Seller and The Court Jesters Hat Company, and such agreements as may amend,
modify and supersede such letter agreement.
7. All other statutory, contractual, common law and equitable rights to
proprietary property and information, wherever located and in whatever form, and
any and all filings, applications, issuances, allowances, modifications,
continuations and assignments thereof, including all applications for any of the
foregoing.
37
<PAGE> 38
SCHEDULE 4.17
LEGAL PROCEEDINGS
1. McNamara/McCarthy v. HIT Brands, Inc. d/b/a Smiley Company, as summarized in
the letter of July 11, 1997 from the Public Interest Lawyer's Group to the
Seller.
2. Potential trademark claim of Spelcor against Seller, as summarized in the
July 3, 1997 letter from Spelcor to Seller.
38
<PAGE> 39
EXHIBIT 7.2
SELLER'S CERTIFICATE
The undersigned, Robert E. Hall, does hereby certify that:
1. I am the duly elected and acting President of Galena Creek Trading
Company, Inc. d/b/a Smiley Hats ("Smiley"), a party to that certain Asset
Purchase Agreement dated as of July 15, 1997, by and between Smiley and Ride,
Inc. (the "Agreement"), and I am authorized by Smiley to execute and deliver
this Certificate pursuant to Section 7.2 of the Agreement.
2. The representations and warranties of Smiley contained in the
Agreement are true and correct of the date hereof as though such representations
and warranties are made on the date hereof.
3. Smiley has performed and complied with all of the obligations,
agreements, covenants and conditions contained in the Agreement to be performed
or complied with by Smiley on or prior to the date hereof.
DATED: __________________, 1997.
GALENA CREEK TRADING COMPANY, INC.
d/b/a SMILEY HATS
---------------------------------
Robert E. Hall
President
39
<PAGE> 40
EXHIBIT 8.2
PURCHASER'S CERTIFICATE
The undersigned, G. Scott Stewart, does hereby certify that:
1. I am the duly elected and acting Senior Vice President & Chief
Financial Officer of Ride, Inc. ("Ride"), a party to that certain Asset Purchase
Agreement dated as of July 15, 1997, by and between Galena Creek Trading
Company, Inc. d/b/a Smiley Hats and Ride (the "Agreement"), and I am authorized
by Ride to execute and deliver this Certificate pursuant to Section 8.2 of the
Agreement.
2. The representations and warranties of Ride contained in the Agreement
are true and correct of the date hereof as though such representations and
warranties are made on the date hereof.
3. Ride has performed and complied with all of the obligations,
agreements, covenants and conditions contained in the Agreement to be performed
or complied with by Ride on or prior to the date hereof.
DATED: __________________, 1997.
RIDE, INC.
-----------------------------
G. Scott Stewart
Senior Vice President & Chief Financial Officer
<PAGE> 1
EXHIBIT 11.1
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------- --------------------
1997 1996 1997 1996
-------------------- --------------------
<S> <C> <C> <C> <C>
Primary:
Weighted average common shares 11,593 10,640 11,085 10,573
outstanding
Net effect of dilutive stock equivalents
based on the treasury stock method using
average market price 12 618 -- 761
-------------------- --------------------
Total weighted average shares outstanding 11,605 11,258 11,085 11,334
==================== ====================
Net income (loss) $ 661 $ 3,642 $(3,775) $ 3,070
Less dividends on preferred stock (9) (9) (26) (26)
-------------------- --------------------
Adjusted net income (loss) $ 652 $ 3,633 $(3,801) $ 3,044
==================== ====================
Net income (loss) per share $ 0.06 $ 0.32 $ (0.34) $ 0.27
==================== ====================
Fully diluted:
Weighted average common shares
outstanding 11,593 10,640 11,085 10,573
Net effect of dilutive stock equivalents
based on the treasury stock method
using the higher of average or ending
market price 20 645 -- 761
Assumed conversion of preferred stock 200 200 -- 200
-------------------- --------------------
Total weighted average shares outstanding 11,813 11,485 11,085 11,534
==================== ====================
Net income (loss) $ 661 $ 3,642 $(3,775) $ 3,070
Less dividends on preferred stock -- -- (26) --
-------------------- --------------------
Adjusted net income (loss) $ 652 $ 3,633 $(3,801) $ 3,070
-------------------- --------------------
Net income (loss) per share $ 0.06 $ 0.32 $ (0.34) $ 0.27
==================== ====================
</TABLE>
17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 121
<SECURITIES> 0
<RECEIVABLES> 17,300
<ALLOWANCES> 733
<INVENTORY> 11,065
<CURRENT-ASSETS> 34,729
<PP&E> 7,831
<DEPRECIATION> (1,960)
<TOTAL-ASSETS> 60,079
<CURRENT-LIABILITIES> 17,961
<BONDS> 0
0
500
<COMMON> 42,097
<OTHER-SE> (1,575)
<TOTAL-LIABILITY-AND-EQUITY> 60,079
<SALES> 25,774
<TOTAL-REVENUES> 25,774
<CGS> 17,957
<TOTAL-COSTS> 17,957
<OTHER-EXPENSES> 12,733
<LOSS-PROVISION> 244
<INTEREST-EXPENSE> (231)
<INCOME-PRETAX> (5,238)
<INCOME-TAX> (1,463)
<INCOME-CONTINUING> (3,775)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,775)
<EPS-PRIMARY> (0.34)
<EPS-DILUTED> (0.34)
</TABLE>
