EXHIBIT 10
K2 Inc.
0000 Xxxxx XxxxxxxXxx
Xxxxx 000
Xxx Xxxxxxx, XX 00000
July 22, 1999
Xxxxxx Xxxxxxxxxx
President and Chief Executive Officer
Ride, Inc.
0000 000xx Xxxxxx Xxxxxxxxx
Xxxxxxx, Xxxxxxxxxx 00000
Re: Purchase of Products
Reference is made to the Agreement and Plan of Merger (the "Merger
Agreement") dated as of July 22, 1999, among K2 Inc. ("Parent"), Ride, Inc.
(the "Company") and KT Acquisition, Inc. ("Acquisition"), pursuant to which
the parties have agreed upon the acquisition of the Company through the
merger of Acquisition with and into the Company. Among other things,
pursuant to the Merger Agreement, Parent has provided $2 million of interim
financing to the Company, pending completion of the merger.
This letter is to set forth our agreement in respect of orders currently
held by the Company for certain product categories, as described below.
In consideration of the execution and delivery of the Merger Agreement
by Parent and Acquisition, the interim financing provided therein, and the
mutual agreements set forth herein, Parent and the Company have agreed upon
the transfer from the Company to Parent of all outstanding orders (the
"Transferred Orders") from customers in North America for the purchase of
bindings and apparel calling for shipments to the customers on or prior to
November 30, 1999. The products covered by the Transferred Orders are
referred to herein as the "Products." In connection with such orders, the
Company will transfer to Parent all outstanding purchase orders, agreements
and understandings (the "Supplier Arrangements") existing between the Company
and its suppliers for the Products (the "Product Suppliers"). Parent will
purchase finished goods inventory from the Company and the additional
Products required for satisfaction of the Transferred Orders from the Product
Suppliers. Parent will be responsible for providing all letters of credit,
and making payment, to Product Suppliers of the purchase price for the
Products in accordance with the Supplier Arrangements; provided that:
(i) Parent shall not be responsible for any outstanding amounts owing to the
Product Suppliers or for any obligations pursuant to the Supplier
Arrangements, other than purchase and payment for Products to be purchased by
it hereunder; and (ii) Parent may agree with the Product Suppliers on such
changes as it may, in its sole discretion deem appropriate, in the Supplier
Arrangements in respect of Products to be purchased by it.
Parent will purchase from the Company all of its finished goods
inventory of Products (the "Finished Goods"), at cost, and will pay all
freight charges for shipment of such goods from their present location. The
Company and Parent shall cooperate in making arrangements for the prompt
delivery of Finished Goods to Parent and payment therefor, not later than
July 30, 1999.
The Company will furnish to Parent, to the extent it has not already
done so, complete and accurate information pertaining to the Transferred
Orders, the Products and the Supplier Arrangements, and copies of all
documents pertaining thereto. From time to time, as Parent may request, the
Company will make available, without cost, its personnel for the purpose of
responding to any questions that may arise concerning any of the foregoing.
In addition, the Company will provide such notification as Parent may
request, to all purchasers of Products pursuant to the Transferred Orders and
to all Product Suppliers concerning the arrangements described herein; and
will assist in accomplishing an orderly transition.
The Company represents and warrants to Parent that the information
heretofore provided by it in writing to Parent concerning the Transferred
Orders, the Products and the Supplier Arrangements is complete and accurate
in all material respects, and that there are no material obligations or
agreements pertaining thereto which have not been so disclosed. Without
limiting the generality of the foregoing, except as heretofore disclosed by
the Company to Parent in writing, (i) all of the Transferred Orders are bona
fide, in full force and effect, and are not the subject of any disputes or
disagreements; (ii) to the best of the Company's knowledge, the customers
under the Transferred Orders are creditworthy and capable of making full
payment for the Products covered thereby; (iii) the Supplier Arrangements are
bona fide, in full force and effect, and are not the subject of any disputes
or disagreements; (iv) each of the Suppliers is, to the best of the Company's
knowledge, capable of performing its obligations under each applicable
Supplier Arrangement, and is in compliance with its obligations thereunder;
and (v) except as disclosed in Annex 1 attached hereto, the Company is not in
breach or default, in any material respect, of any of the Supplier
Arrangements. The Company further represents and warrants to Parent that the
Finished Goods are of good quality, free of defects, and saleable in the
ordinary course of business pursuant to the Transferred Orders.
The Company hereby grants to Parent a non-exclusive, fully paid, license
to make or have made and to sell all Products acquired by it for delivery
pursuant to the Transferred Orders, utilizing all applicable trademarks,
patents, trade secrets and copyrights of the Company. In the event of
cancellation or reduction of any of the Transferred Orders, or rejection of
any Products shipped to customers pursuant thereto, Parent may sell or
dispose of the applicable Products in such manner as it deems appropriate.
It is understood that pursuant to the Supplier Arrangements, all Products
will bear the trademarks of the Company, will be packaged in bags, boxes or
other containers carrying the names and trademarks of the Company and will be
shipped with standard product warranties of the Company. Parent will bear
all costs of freight and shipping pursuant to the Supplier Arrangements.
Parent will be responsible for all product returns pursuant to the
Transferred Orders. The Company shall be responsible for all warranty
claims, and any product liability claims in respect of Products, and will
maintain insurance therefore in amounts not less than the limits applicable
to its other products.
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Parent shall be responsible for shipping of Products pursuant to the
Transferred Orders, shall invoice customers therefor and shall be entitled to
retain the full proceeds from such sales, except as provided herein. If the
Company at any time receives any payments for the Products, the Company shall
hold and receive such payments in trust for Parent and shall immediately
forward such amounts to Parent. If Parent at any time receives any payments
for sales by the Company, which payments do not pertain to Products, Parent
shall hold and receive such payments in trust for the Company and shall
immediately forward such amounts to the Company.
The Company agrees to pay, and to indemnify and hold harmless Parent
from and against, any amounts that may be payable to third parties as sales
commissions in connection with any sales of products that are the subject of
this letter.
The Company hereby represents and warrants that it is the owner of the
Transferred Orders, Supplier Arrangements and all trademarks, patents, trade
secrets and copyrights applicable thereto, and that, subject to the release
of security interests held in property of the Company by the persons named
below, upon acquisition and sale of the Products by Parent as contemplated
hereby, Parent will receive good title to the Products and to all accounts
receivable and proceeds arising from their sale, free and clear of any liens,
claims or encumbrances created by the Company or arising under any agreement
or legal obligation to which the Company is a partyor by which it is bound.
The security interests referred to above are held by:
CIT Group/Credit Finance, Inc.
U.S. Bank National Association
Advantage Fund II Ltd.
The Company agrees to indemnify, defend and hold harmless Parent from
and against any and all claims, liabilities, damages, losses, costs and
expenses arising from (i) any negligent act or negligent omission by the
Company relating to or affecting the condition, quality or character of a
Product, (ii) the design of a Product violating any trademark, patent, trade
secret or other proprietary right of any third party, (iii) any obligations
arising under the Company's contractual warranties applicable to the
Products, or (iv) any products liability claim for personal injury which may
be asserted by any consumer of a Product. Parent agrees to indemnify, defend
and hold harmless the Company for any and all claims, liabilities, damages,
losses, costs and expenses arising from (i) any negligent act or negligent
omission by Parent relating to or affecting the condition, quality or
character of a Product, (ii) any obligations arising under any of Parent's
contractual warranties applicable to the Products, or (iii) any obligations
and liabilities relating to returns or exchanges of any of the Products other
than pursuant to the Company's contractual warranties.
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If the foregoing accurately reflects our agreement, please sign in the
space provided below and return a copy of this letter, whereupon this letter
shall constitute our binding agreement as set forth herein
Sincerely yours,
K2 Inc.
By /s/ Xxxx X. Xxxxxx
----------------------
Agreed as set forth above:
Ride, Inc.
By /s/ Xxxxxx X. Xxxxxxxxxx
-------------------------------
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ANNEX 1
The following lists the Company's breach or default conditions under
Supplier Agreements:
1. BINDINGS. The Company's original understanding with its
Chinese binding manufacturer, the Snowboard Factory ("SFI"), was that it
would open an on-sight letter of credit for SFI's benefit in the amount of
$1,200,000 by April 8, 1999, and a stand-by letter of credit for SFI's
benefit in the amount of $800,000 by April 19, 1999. The Company was not in
a position to open such LC's on the promised dates. However, the Company has
successfully negotiated extension of payment with SFI, and SFI has continued
to manufacture product.
2. APPAREL. The Company is under an obligation to open an
on-sight letter of credit prior to shipment of production-version products.
The Company is not in default of this obligation yet. However, the apparel
manufacturer, IGD Matahari Enterprises Co., Ltd., has demanded that such
letter of credit be opened immediately.
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