Recent Events
On September 26, 1996, Thomas P. Sims ("Sims") filed an action (the
"Action") in the Superior Court of California for the County of Santa Barbara
(the "Superior Court") against the Company and DNR relating to a license
agreement dated as of September 8, 1991 between Sims and DNR ( the "License").
Sims alleged, among other things, that the Company and DNR were promoting
products (including DNR's Soft Boot Binding Interface System, the "Interface
System") that unfairly competed with Sims' products and that DNR had breached
the License. In addition, by letter dated September 27, 1996, Sims notified DNR
of his intention to terminate the License and, pursuant to the terms of the
License, initiated arbitration proceedings against DNR by filing a demand for
arbitration (the "Arbitration"). Through these proceedings, Sims sought to
enjoin DNR from using the Sims name and trademark which were licensed to DNR
under the License, and from producing and marketing the Interface System. Sims
sought monetary damages from and equitable and declaratory relief against the
Company and DNR.
On November 27, 1996, the Superior Court granted Sims' request for a
preliminary injunction against the Company and DNR. The Superior Court's ruling
prevents DNR from manufacturing, shipping, selling or distributing snowboard
products with the Sims mark, pending the outcome of the Arbitration. The
Superior Court, however, refused to grant Sims' request that DNR be enjoined
from producing and marketing the Interface System under the "DNR" and other
brand names. Additionally, the preliminary injunction does not restrict the
right of DNR to produce and market snowboards and related products under brand
names other than Sims.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (continued)
The preliminary injunction is not a final judgment and factual findings
made by the Superior Court in the preliminary injunction proceeding are not
binding upon the arbitrator. In the Arbitration, Sims has filed a claim against
DNR for breach of the License and DNR has in the arbitration filed a
counterclaim against Sims for wrongful termination of the License. The
Arbitration hearing is scheduled to take place over a four week period beginning
June 16, 1997. Under the terms of the License, the arbitrator's award is binding
on the parties and is not subject to appeal or further court review except for
extraordinary circumstances. The Action has been stayed while the Arbitration is pending.
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