<PAGE> 1
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 QUARTERLY PERIOD ENDED JUNE 30, 1999 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: 001-14429
SKECHERS U.S.A., INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4376145
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
228 MANHATTAN BEACH BLVD.
MANHATTAN BEACH, CALIFORNIA 90266
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 318-3100
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange on
Title of each class which registered
Class A Common Stock $0.001 par value New York Stock Exchange
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 [ ] No [X]
THE NUMBER OF SHARES OF CLASS A COMMON STOCK OUTSTANDING AS OF AUGUST 11, 1999:
7,000,000
THE NUMBER OF SHARES OF CLASS B COMMON STOCK OUTSTANDING AS OF AUGUST 11, 1999:
27,814,155
<PAGE> 2
SKECHERS U.S.A., INC.
1999 FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - SKECHERS U.S.A., INC. PAGE #
<S> <C>
Condensed Consolidated Balance Sheets -- December 31, 1998 and June 30, 1
1999
Condensed Consolidated Statements of Earnings -- Three-month periods ended
June 30, 1998 and 1999 2
Condensed Consolidated Statements of Earnings -- Six-months periods ended
June 30, 1998 and 1999 3
Condensed Consolidated Statement of Stockholders' Equity -- Six month
period ended June 30, 1999 4
Condensed Consolidated Statement of Cash Flows -- Six-months periods ended
June 30, 1998 and 1999 5
Selected Notes to Condensed Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
19
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 19
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 19
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 19
ITEM 5. OTHER INFORMATION 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 19
SIGNATURES 20
</TABLE>
<PAGE> 3
SKECHERS U.S.A., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
ASSETS
<TABLE>
<CAPTION>
June 30
December 31 1999
1998 (Unaudited)
----------- -----------
<S> <C> <C>
Current assets:
Cash $ 10,942 221
Trade accounts receivable, less allowances for bad debts
and returns of $3,413 in 1998 and $2,843 in 1999 46,771 74,668
Due from officers and employees 116 503
Other receivables 2,329 2,033
-------- --------
Total receivables 49,216 77,204
-------- --------
Inventories 65,390 58,733
Deferred tax assets -- 2,195
Prepaid expenses and other current assets 2,616 2,392
-------- --------
Total current assets 128,164 140,745
Property and equipment, at cost, less accumulated
depreciation and amortization 15,196 16,895
Intangible assets, at cost, less applicable amortization 1,003 716
Other assets, at cost 1,921 1,889
-------- --------
$146,284 160,245
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 54,323 14,800
Current installments of long-term borrowings 816 622
Current installments of notes payable to stockholder 2,244 --
Accounts payable 38,145 56,010
Accrued expenses 8,897 8,292
Distributions payable 633 2,699
-------- --------
Total current liabilities 105,058 82,423
-------- --------
Long-term borrowings, excluding current installments 3,550 3,418
Notes payable to stockholder, excluding current installments 10,000 --
Commitments and contingencies Stockholders' equity:
Preferred Stock, $.001 par value; 10,000 shares authorized;
none issued and outstanding -- --
Class A Common Stock, $.001 par value; 100,000 shares
authorized; 7,000 issued and outstanding at June 30, 1999 -- 28
Class B Common Stock, $.001 par value; 60,000 shares
authorized; 27,814 issued and outstanding 2 7
Additional paid-in capital -- 69,687
Retained earnings 27,674 4,682
-------- --------
Total stockholders' equity 27,676 74,404
-------- --------
$146,284 $160,245
======== ========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
1
<PAGE> 4
SKECHERS U.S.A., INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Three-month periods ended June 30, 1998 and 1999
(unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Net sales $ 87,684 104,582
Cost of sales 51,687 61,850
-------- --------
Gross profit 35,997 42,732
Royalty income, net 87 158
-------- --------
36,084 42,890
-------- --------
Operating expenses:
Selling 9,307 11,587
General and administrative 15,943 18,795
-------- --------
25,250 30,382
-------- --------
Earnings from operations 10,834 12,508
-------- --------
Other income (expense):
Interest (2,856) (2,115)
Other, net (46) 21
-------- --------
(2,902) (2,094)
-------- --------
Earnings before income taxes 7,932 10,414
Income taxes 151 1,121
-------- --------
Net earnings $ 7,781 9,293
======== ========
Pro forma operations data:
Earnings before income taxes $ 7,932 10,414
Income taxes 3,173 4,166
-------- --------
Net earnings $ 4,759 6,248
======== ========
Net earnings per share:
Basic $ 0.17 0.21
======== ========
Diluted $ 0.16 0.20
======== ========
Weighted average shares:
Basic 27,814 29,506
======== ========
Diluted 30,692 31,462
======== ========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
2
<PAGE> 5
SKECHERS U.S.A., INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Six-month periods ended June 30, 1998 and 1999
(unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
Net sales $ 147,557 200,318
Cost of sales 89,077 120,888
--------- ---------
Gross profit 58,480 79,430
Royalty income, net 219 207
--------- ---------
58,699 79,637
--------- ---------
Operating expenses:
Selling 16,323 27,158
General and administrative 29,037 35,192
--------- ---------
45,360 62,350
--------- ---------
Earnings from operations 13,339 17,287
--------- ---------
Other income (expense):
Interest (4,340) (3,869)
Other, net 17 504
--------- ---------
(4,323) (3,365)
--------- ---------
Earnings before income taxes 9,016 13,922
Income taxes 184 1,200
--------- ---------
Net earnings $ 8,832 12,722
========= =========
Pro forma operations data:
Earnings before income taxes $ 9,016 13,922
Income taxes 3,606 5,569
--------- ---------
Net earnings $ 5,410 8,353
========= =========
Net earnings per share:
Basic $ 0.19 0.29
========= =========
Diluted $ 0.18 0.27
========= =========
Weighted average shares:
Basic 27,814 28,665
========= =========
Diluted 30,606 30,777
========= =========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
3
<PAGE> 6
SKECHERS U.S.A., INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Six-month period ended June 30, 1999
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Common Stock
------------------------ Additional Total
Paid in Retained Stockholders'
Shares Amount Capital Earnings Equity
-------- -------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998 27,814 $ 2 $ -- $ 27,674 $ 27,676
Net earnings -- -- -- 12,722 12,722
Proceeds from initial public offering 7,000 33 69,687 -- 69,720
Distributions:
Cash -- -- -- (35,364) (35,364)
Cross Colours trademark -- -- -- (350) (350)
-------- -------- -------- -------- --------
Balance at June 30, 1999 34,814 $ 35 $ 69,687 $ 4,682 $ 74,404
======== ======== ======== ======== ========
</TABLE>
4
<PAGE> 7
SKECHERS U.S.A., INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six-month periods ended June 30, 1998 and 1999
(unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 8,832 12,722
Adjustments to reconcile net earnings to net cash
used in operating activities:
Depreciation and amortization of property and equipment 1,240 2,031
Amortization of intangible assets 73 55
Provision for bad debts and returns 440 (570)
Gain on distribution of intangibles -- (118)
Increase in assets:
Receivables (23,558) (27,418)
Inventories (15,212) 6,657
Deferred tax assets -- (2,195)
Prepaid expenses and other current assets (1,043) 224
Other assets (173) 32
Increase (decrease) in liabilities:
Accounts payable 16,231 17,865
Accrued expenses 377 (591)
-------- --------
Net cash provided by (used in) operating activities (12,793) 8,694
-------- --------
Cash flows used in investing activities:
Capital expenditures (3,523) (3,730)
Intangible assets (67) --
-------- --------
Net cash used in investing activities (3,590) (3,730)
-------- --------
Cash flows from financing activities:
Net proceeds from initial public offering of common stock -- 69,720
Net proceeds (payments) related to short-term borrowings 17,676 (39,717)
Payments related to long-term debt (150) (132)
Payments on notes payable to stockholder -- (12,244)
Distributions paid to stockholders (2,712) (33,312)
Recovery of distributions from stockholders 453 --
-------- --------
Net cash provided by (used in) financing activities 15,267 (15,685)
-------- --------
Net decrease in cash (1,116) (10,721)
Cash at beginning of period 1,462 10,942
-------- --------
Cash at end of period $ 346 221
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 4,197 3,951
Income taxes 184 79
======== ========
During the six-month period ended June 30, 1999, the Company declared cash
distributions of $35,364 of which $33,312 were paid during the six
months ended June 30, 1999. The Company also declared a non-cash
distribution of intangibles of $350 during the six-month period ended
June 30, 1999.
In January 1998, the Company declared distributions to stockholders amounting to
$608.
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
5
<PAGE> 8
SKECHERS U.S.A., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
(1) GENERAL
The unaudited operating results have been prepared on the same basis as the
audited consolidated financial statements and, in the opinion of management,
include all adjustments (consisting only of normal recurring accruals) necessary
for a fair presentation for the periods. The accompanying interim condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto, together with management's
discussion and analysis of financial condition and results of operations,
contained in the Company's Registration Statement on Form S-1 (File No.
333-60065). The results of operations for interim periods are not necessarily
indicative of results to be achieved for full fiscal years.
(2) PRO FORMA INFORMATION
Income Taxes
Effective June 7, 1999, the Company terminated its S Corporation election,
becoming a C Corporation subject to Federal and state income taxes. The tax
provisions include historical income taxes and pro forma income tax adjustments
which represent taxes which would have been reported had the Company been
subject to Federal and state income taxes as a C Corporation. The Company's
conversion to a C Corporation on June 7, 1999 resulted in a one-time noncash
credit to earnings equal to the amount of establishing the deferred tax asset on
June 7, 1999 of $1.8 million. This amount is reflected as deferred taxes and
reduces the provision for historical income taxes in the accompanying condensed
consolidated statement of earnings.
The pro forma unaudited income tax adjustments presented represent taxes which
would have been reported had the Company been subject to Federal and state
income taxes as a C Corporation, assuming a 40.0% rate. The historical and pro
forma provisions for income tax expense were as follows (in thousands):
<TABLE>
<CAPTION>
Three-Months Six-Months Ended
Ended June 30 June 30
-------------------- --------------------
1998 1999 1998 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Historical income taxes $ 151 1,121 184 1,200
------ ------ ------ ------
Pro forma adjustments:
Federal 2,418 2,436 2,738 3,495
State 604 609 684 874
------ ------ ------ ------
Total pro forma adjustments 3,022 3,045 3,422 4,369
------ ------ ------ ------
Total pro forma income taxes $3,173 4,166 3,606 5,569
====== ====== ====== ======
</TABLE>
6
<PAGE> 9
SKECHERS U.S.A., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(UNAUDITED)
Pro forma income taxes differs from the statutory tax rate as applied to
earnings before income taxes as follows:
<TABLE>
<CAPTION>
Three-Months Six-Months Ended
Ended June 30 June 30
-------------------- ---------------------
1998 1999 1998 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Expected income tax expense $2,776 3,645 3,156 4,873
State income tax, net of Federal benefit 397 521 450 696
------ ------ ------ ------
Total provision for pro forma
income taxes $3,173 4,166 3,606 5,569
====== ====== ====== ======
</TABLE>
Earnings Per Share
The Company reports pro-forma earnings per share under Statement of Financial
Accounting Standards No. 128 ("SFAS No. 128"), "Earnings Per Share". Under SFAS
No. 128, basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share reflects the
potential dilution that could occur if securities to issue common stock were
exercised or converted into common stock. The weighted average diluted shares
outstanding gives effect to the sale by the Company of those shares of common
stock necessary to fund the payment of the excess of (i) the sum of stockholder
distributions paid or declared from January 1, 1998 to June 7, 1999, the S
Corporation termination date, in excess of (ii) the S Corporation earnings from
January 1, 1998 to December 31, 1998 for 1998 and January 1, 1998 to June 7,
1999 for 1999 based on an initial public offering price of $11 per share, net of
underwriting discounts.
The reconciliation of basic to diluted weighted average shares is as follows (in
thousands):
<TABLE>
<CAPTION>
Three-Months Ended Six-Months Ended
June 30 June 30
-------------------- --------------------
1998 1999 1998 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Weighted average shares used in
basic computation 27,814 29,506 27,814 28,665
Shares to fund stockholders
distributions described above 1,839 920 1,839 1,074
Dilutive stock options 1,039 1,036 953 1,038
------ ------ ------ ------
Weighted average shares used in
diluted computation 30,692 31,462 30,606 30,777
====== ====== ====== ======
</TABLE>
The Company granted options to purchase 1,209,636 shares of Class A common stock
on June 9, 1999 at $11 per share. These options were excluded from the
computation of diluted weighted average shares as they were anti-dilutive.
7
<PAGE> 10
SKECHERS U.S.A., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(UNAUDITED)
(3) COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No.
130 establishes standards to measure all changes in equity that result from
transactions and other economic events other than transactions with owners.
Comprehensive income is the total of net earnings and all other nonowner changes
in equity. Except for net earnings, the Company does not have any transactions
and other economic events that qualify as comprehensive income as defined under
SFAS No. 130. Accordingly, the adoption of SFAS No. 130 did not affect the
Company's financial reporting.
(4) COMPUTER SOFTWARE COSTS
The Company adopted Statement of Position 98-1 ("SOP 98-1"), "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" effective
January 1, 1999. The adoption of SOP 98-1 did not have a significant impact on
the Company's financial position or results of operations.
(5) START-UP COSTS
The Company adopted SOP 98-5, "Reporting on the Costs of Start-up Activities"
effective January 1, 1999. The adoption of SOP 98-5 did not have a significant
impact on the Company's financial position or results of operations.
(6) BANK BORROWINGS
The Company has available a secured line of credit, as amended in December 1998,
permitting borrowings up to $120.0 million based upon eligible accounts
receivable and inventories. The borrowings bear interest at the rate of prime
(8% at June 30, 1999) plus 0.25% or at LIBOR (5.37% at June 30, 1999) plus 2.75%
and the line of credit expires on December 31, 2002. The agreement provides for
the issuance of letters of credit up to a maximum of $18.0 million, which
decreases the amount available for borrowings under the agreement. The
outstanding letters of credit at June 30, 1999 are $3.8 million. The Company
paid a 1.0% per annum fee on the maximum letter of credit amount plus 0.50% of
the difference between the revolving loan commitment less the maximum letter of
credit amount. At June 30, 1999, the Company had available credit aggregating
approximately $66.9 million. The agreement contains certain restrictive
covenants, including tangible net worth and net working capital, as defined,
with which the Company was in compliance at June 30, 1999.
At June 30, 1999, the Company had $2.5 million outstanding under a secured note
payable with a financial institution, bearing interest at the rate of prime plus
1.0%, payable in monthly installments of $25,000 and due November 30, 2002.
(7) NOTES PAYABLE TO STOCKHOLDER
Stockholder loans aggregating $11.8 million were repaid with proceeds from the
Company's initial public offering during June 1999. The Company recorded
interest expense of approximately $474,000 and $433,000 related to these notes
during the six-month periods ended June 30, 1998 and 1999, respectively.
8
<PAGE> 11
SKECHERS U.S.A., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(UNAUDITED)
(8) STOCKHOLDERS' EQUITY
Effective as of May 28, 1999, the Company was reincorporated in Delaware,
whereby the existing California corporation was merged into a newly formed
Delaware corporation and pursuant to which each outstanding share of common
stock of the existing California corporation was exchanged for a share of $.001
par value Class B common stock of the new Delaware corporation. In addition,
pursuant to the reincorporation merger, an approximate 13,907 for 1 common stock
split was authorized. The amendment and stock split has been reflected
retroactively in the accompanying condensed consolidated financial statements.
The authorized capital stock of the Delaware corporation consists of 100,000,000
shares of Class A common stock, par value $.001 per share, and 60,000,000 shares
of Class B common stock, par value $.001 per share. The Company has also
authorized 10,000,000 shares of preferred stock, $.001 par value per share.
The Class A common stock and Class B common stock have identical rights other
than with respect to voting, conversion and transfer. The Class A common stock
is entitled to one vote per share, while the Class B common stock is entitled to
ten votes per share on all matters submitted to a vote of stockholders. The
shares of Class B common stock are convertible at any time at the option of the
holder into shares of Class A common stock on a share-for-share basis. In
addition, shares of Class B common stock will be automatically converted into a
like number of shares of Class A common stock upon any transfer to any person or
entity which is not a permitted transferee.
On June 9, 1999, the Company issued 7.0 million shares of Class A common stock
in an initial public offering and received net proceeds of $69.7 million. The
application of net proceeds were applied to (i) repayment of stockholder loans
of $11.8 million, (ii) dividend distributions of $31.8 million, and (iii)
partial repayment of the Company's revolving line of credit of $26.1 million. On
June 9, 1999, the Company also granted 1,209,636 options to acquire Class A
common stock at an exercise price of $11 per share which vest ratably in 20%
increments commencing one year from the grant date.
(9) LITIGATION
The Company is involved in litigation arising from the ordinary course of
business. Management does not believe that the disposition of these matters will
have a material adverse effect on the Company's financial position or results of
operations.
9
<PAGE> 12
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Condensed Consolidated Financial Statements and Notes thereto appearing
elsewhere herein. This section contains certain forward-looking statements that
involve risks and uncertainties including, but not limited to, information with
regard to anticipated marketing expenditures, the successful implementation of
the Company's strategies, future growth and growth rates, and future increases
in net sales, expenses, capital expenditures and net earnings. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects," "may,"
"will," "intends," "estimates" and similar expressions are intended to identify
forward-looking statements. These forward-looking statements involve risks and
uncertainties, and the Company's actual results may differ materially from the
results discussed in the forward-looking statements as a result of certain
factors including, an increase in marketing expenditures, changes to estimates
of capital expenditures for 1999, decrease in licensee sales, inability to
generate working capital, and increased costs and time for year 2000
expenditures.
OVERVIEW
The Company designs and markets branded contemporary casual, active, rugged and
lifestyle footwear for men, women and children. The Company sells its products
to department stores such as Nordstrom, Macy's, Dillards, Robinson's-May and JC
Penney, and specialty retailers such as Famous Footwear, Genesco's Journeys and
Jarman chains, The Venator Group's Foot Locker and Lady Foot Locker chains, and
Footaction U.S.A. The Company's marketing focus is to maintain and enhance
recognition of the Skechers brand name as a casual, active, youthful, lifestyle
brand that stands for quality, comfort and design innovation. The Company
typically endeavors to spend between 8.0% and 10.0% of annual net sales in the
marketing of Skechers footwear through an integrated effort of advertising,
promotions, public relations, trade shows and other marketing efforts.
On June 9, 1999, the Company issued 7.0 million shares of Class A common stock
in an initial public offering (the "Offering") and received net proceeds of
approximately $69.7 million (after deducting underwriting discounts and
commissions and Offering expenses). The application of net proceeds were applied
to (i) repayment of a $10 million subordinated note and a $1.8 million
unsubordinated note, each to the Greenberg Family Trust, (ii) dividend
distributions of $31.8 million, and (iii) partial repayment of the Company's
revolving line of credit of $26.1 million.
In May 1992, the Company elected to be treated for Federal and state income tax
purposes as an S Corporation under Subchapter S of the Internal Revenue Code of
1986, as amended, and comparable state laws. As a result, for the period from
inception through June 7, 1999, earnings of the Company were included in the
taxable income of the Company's stockholders for Federal and state income tax
purposes, and the Company was not subject to income tax on such earnings, other
than franchise and net worth taxes. The Company terminated its S Corporation
status on June 7, 1999 in connection with the Offering. Accordingly, the Company
is treated for Federal and state income tax purposes as a corporation under
Subchapter C of the Code and, as a result, is subject to state and Federal
income taxes. By reason of the Company's treatment as an S Corporation for
Federal and state income tax purposes, the Company, for the period from
inception through June 7, 1999 provided to its stockholders funds for the
payment of income taxes on the earnings of the Company. In April 1999, the
Company declared and paid a distribution consisting of the first installment of
Federal income taxes payable on S Corporation earnings for 1998 in the amount of
$3.5 million. Also, the Company used a portion of its proceeds of the Offering
to make a distribution consisting of the final installment of Federal income
taxes payable on S Corporation earnings for 1998 (the "Final 1998
Distribution"). The amount of the Final 1998 Distribution was $7.6 million. Upon
the termination of the Company's S Corporation status, the Company declared (i)
a distribution consisting of income taxes payable on S Corporation earnings from
January 1, 1999 through June 7, 1999 (the "Final Tax Distribution"), and (ii) a
distribution in an amount designed to constitute the Company's remaining and
undistributed accumulated S Corporation earnings through June 7, 1999 (the
"Final S Corporation Distribution"). The amount of the Final Tax Distribution
was $2.8 million and the amount of the Final S
10
<PAGE> 13
Corporation Distribution was $21.4 million and such amounts were funded with a
portion of the net proceeds of the Offering. Purchasers of shares of Class A
Common Stock in the Offering did not receive any portion of the Final 1998
Distribution, the Final Tax Distribution or the Final S Corporation
Distribution. After the date of such termination, the Company was no longer
treated as an S Corporation and, accordingly, it became subject to Federal and
state income taxes. All pro forma income taxes reflect adjustments for Federal
and state income taxes as if the Company had been taxed as a C Corporation
rather than an S Corporation.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, selected information
from the Company's results of operations as a percentage of net sales. Pro forma
reflects adjustments for Federal and state income taxes as if the Company had
been taxed as a C Corporation at an assumed 40% rate rather than an S
Corporation.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1998 1999 1998 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 58.9 59.1 60.4 60.3
------ ------ ------ ------
Gross profit 41.1 40.9 39.6 39.7
Royalty income, net 0.1 0.1 0.2 0.1
------ ------ ------ ------
41.2 41.0 39.8 39.8
------ ------ ------ ------
Operating expenses:
Selling 10.6 11.1 11.0 13.6
General and administrative 18.2 18.0 19.7 17.6
------ ------ ------ ------
28.8 29.1 30.8 31.2
------ ------ ------ ------
Earnings from operations 12.4 12.0 9.0 8.6
Interest expense, net (3.3) (2.0) (2.9) (1.9)
Other, net (0.1) 0.0 (0.0) 0.2
------ ------ ------ ------
Earnings before pro forma
Income taxes 9.0 10.0 6.1 6.9
Pro forma income taxes 3.6 4.0 2.4 2.8
------ ------ ------ ------
Pro forma net earnings 5.4% 6.0% 3.7% 4.2%
====== ====== ====== ======
</TABLE>
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Net Sales
Net sales increased $16.9 million, or 19.3%, to $104.6 million for the three
months ended June 30, 1999 as compared to $87.7 million for the three months
ended June 30, 1998. This increase was due to increased sales of branded
footwear primarily as a result of (i) greater brand awareness driven in part by
a significant expansion of the Company's national marketing efforts, (ii) a
broader breadth of men's, women's and children's product offerings, (iii) the
development of the Company's domestic sales force and international distributor
network, (iv) the increased volume of the Company's existing account base with
multiple stores and increased sales to such accounts, resulting in higher sales
per account, (v) operations of 38 Company stores during the second quarter of
1999 versus the operations of 24 Company stores during the second quarter of
1998, and (vi) the launch of the Company's direct mail business in August 1998.
Gross wholesale sales of men's footwear, including international, increased $2.2
million, or 6.9%, to $34.3 million for the
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<PAGE> 14
three months ended June 30, 1999, as compared to $32.1 million for the three
months ended June 30, 1998. Gross wholesale sales of women's footwear, including
international, increased $8.4 million, or 21.0%, to $48.3 million for the three
months ended June 30, 1999 as compared to $39.9 million for the three months
ended June 30 1998. Gross wholesale sales of children's footwear, including
international, decreased $1.0 million, or 7.3%, to $13.2 million for the three
months ended June 30, 1999 as compared to $14.2 million for the three months
ended June 30, 1998. The decrease was due to the timing of shipments between the
first and second quarter as first quarter sales were up 120.8 % over the
comparable period in 1998. Provisions for returns and allowances were $3.0
million for the three months ended June 30, 1999 as compared to $3.5 million for
the three months ended June 30, 1998. Net sales through the Company's retail
stores increased $3.9 million, or 66.8%, to $9.8 million for the three months
ended June 30, 1999 as compared to $5.8 million for the three months ended June
30, 1998. This increase is primarily due to new store openings. Net sales
generated from international operations increased $3.3 million, or 51.5%, to
$9.6 million for the three months ended June 30, 1999, as compared to $6.3
million for the three months ended June 30, 1998.
Gross Profit
The Company's gross profit increased $6.7 million, or 18.7%, to $42.7 million
for the three months ended June 30, 1999, compared to $36.0 million for the
three months ended June 30, 1998. The increase was attributable to higher sales.
Gross profit as a percentage of net sales ("Gross Margin") decreased to 40.9%
for the three months ended June 30, 1999 from 41.1% for the same period in 1998.
The decrease in Gross Margin was primarily due to higher ocean freight costs
resulting from rate increases by third party shipping companies on imported
products. The effect of the rate increases were partially offset by improved
retail sell-through at the Company's retail customer accounts, which typically
results in fewer markdowns, and the increase in the Company's retail sales,
including direct mail, since such retail Gross Margins are higher than wholesale
Gross Margins.
Royalty Income, Net
Royalty income, net of related expenses, increased $71,000, or 81.6%, to
$158,000 for the three months ended June 30, 1999 compared to $87,000 for the
three months ended June 30, 1998. The Company earns royalty income based upon a
percentage of sales of its licensees. The increase was due to increased sales by
licensees. Management expects that royalty income may increase in total dollars,
but not necessarily as a percentage of net sales, as the Company's licensing
efforts for Skechers products increase.
Selling Expenses
Selling expenses include sales salaries, commissions and incentives,
advertising, promotions and trade shows. Selling expenses increased $2.3
million, or 24.5%, to $11.6 million (11.1% of net sales) for the three months
ended June 30, 1999 from $9.3 million (10.6% of net sales) for the three months
ended June 30, 1998. The increase in total dollars was primarily due to
increased marketing (advertising and tradeshow) expenditures, sales compensation
due to the increase in footwear sales, and the hiring of additional sales
personnel. Advertising expenses as a percentage of net sales for the three
months ended June 30, 1999 and 1998 was 9.0% and 8.6%, respectively. The Company
endeavors to spend approximately 8.0% to 10.0% of annual net sales in the
marketing of Skechers footwear through advertising, promotions, public
relations, trade shows and other marketing efforts. Marketing expense as a
percentage of net sales may vary from quarter to quarter. The increase as a
percentage of sales was due primarily to the factors above.
General and Administrative Expenses
General and administrative expenses increased $2.9 million, or 17.9%, to $18.8
million (18.0% of net sales) for the three months ended June 30, 1999 from $15.9
million (18.2% of net sales) for the three months ended June 30, 1998. The
increase in total dollars is primarily due to (i) the hiring of additional
personnel, (ii) an increase in costs associated with the Company's distribution
facilities to support the Company's growth, (iii) increased product design and
development costs and (iv) the addition of 15 retail stores which
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<PAGE> 15
were not open in the second quarter of 1998. The decrease as a percentage of net
sales was primarily due to the increase in the volume of footwear sold. Also
included in general and administrative expenses for the three months ended June
30, 1998 is $1.0 million of compensation expense relating to the Company's 1996
Incentive Compensation Plan (the "1996 Incentive Compensation Plan") which
expired December 31, 1998. The Company has not introduced an incentive
compensation plan for 1999.
Interest Expense
Interest expense decreased $741,000, or 25.9%, to $2.1 million for the three
months ended June 30, 1999 as compared to $2.9 million for the three months
ended June 30, 1998 as a result of the application of net proceeds from the
Offering which were partially used to reduce debt.
Other Income (Expense), Net
Other income, net during the three months ended June 30, 1999 related to
miscellaneous income of $21,000. Other expense, net during the three months
ended June 30, 1998 related to miscellaneous expense of $46,000.
Pro Forma Income Taxes
Pro forma income taxes have been provided at the assumed rate of 40.0% for
Federal and state purposes.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Net Sales
Net sales increased $52.8 million, or 35.8%, to $200.3 million for the six
months ended June 30, 1999 as compared to $147.6 million for the six months
ended June 30, 1998. This increase was due to increased sales of branded
footwear primarily as a result of (i) greater brand awareness driven in part by
a significant expansion of the Company's national marketing efforts, (ii) a
broader breadth of men's, women's and children's product offerings, (iii) the
development of the Company's domestic sales force and international distributor
network, (iv) the increased volume of the Company's existing account base with
multiple stores and increased sales to such accounts, resulting in higher sales
per account, (v) the operation of 38 Company stores during the six months ended
June 30, 1999 versus the operation of 23 Company stores during the six months
ended June 30, 1998, and (vi) the launch of the Company's direct mail business
in August 1998. Gross wholesale sales of men's footwear, including
international, increased $10.0 million, or 17.1%, to $68.4 million for the six
months ended June 30, 1999, as compared to $58.4 million for the six months
ended June 30, 1998. The increase in sales of men's footwear was achieved
despite a decline in men's "Kani" footwear sales of $668,000. No Kani sales were
recorded for the six months ended June 30, 1999. The Company discontinued
actively marketing "Kani" footwear in 1997. Sales of "Kani" footwear for the six
months ended June 30, 1998 resulted from inventory close-outs, which were
substantially completed during this fiscal period. Gross wholesale sales of
women's footwear, including international, increased $25.1 million, or 39.5%, to
$88.9 million for the six months ended June 30, 1999 as compared to $63.7
million for the six months ended June 30 1998. Gross wholesale sales of
children's footwear, including international, increased $7.2 million, or 34.4%,
to $28.3 million for the six months ended June 30, 1999 as compared to $21.1
million for the six months ended June 30, 1998. Provisions for returns and
allowances were $6.9 million for the six months ended June 30, 1999 as compared
to $5.6 million for the six months ended June 30, 1998. Net sales through the
Company's retail stores increased $8.7 million, or 93.0%, to $18.0 million for
the six months ended June 30, 1999 as compared to $9.3 million for the six
months ended June 30, 1998. This increase is primarily due to new store
openings. Net sales generated from international operations increased $5.4
million, or 37.6%, to $19.9 million for the six months ended June 30, 1999, as
compared to $14.4 million for the six months ended June 30, 1998.
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<PAGE> 16
Gross Profit
The Company's gross profit increased $21.0 million, or 35.8%, to $79.4 million
for the six months ended June 30, 1999, compared to $58.5 million for the six
months ended June 30, 1998. The increase was attributable to higher sales. Gross
Margin increased to 39.7% for the six months ended June 30, 1999 from 39.6% for
the same period in 1998. The increase in Gross Margin was primarily due to (i)
improved retail sell-through at the Company's retail customer accounts, which
typically results in fewer markdowns, (ii) an increase in the proportions of
total sales derived from the women's footwear line, which had a higher margin
than the men's footwear line, and (iii) the increase in the Company's retail
sales, including direct mail. The increase in Gross Margin was partially offset
by higher ocean freight costs resulting from rate increases by third party
shipping companies on imported product beginning in the second quarter of 1999.
Royalty Income, Net
Royalty income, net of related expenses, decreased $12,000, or 5.5%, to $207,000
for the six months ended June 30, 1999 compared to $219,000 for the six months
ended June 30, 1998. The Company earns royalty income based upon a percentage of
sales of its licensees and sublicensees. The decrease was due to the termination
of the Company's license relating to "Kani" apparel.
Selling Expenses
Selling expenses increased $10.8 million, or 66.4%, to $27.2 million (13.6% of
net sales) for the six months ended June 30, 1999 from $16.3 million (11.1% of
net sales) for the six months ended June 30, 1998. The increase in total dollars
was primarily due to increased marketing (advertising and tradeshow)
expenditures, sales compensation due to the increase in footwear sales, and the
hiring of additional sales personnel. Marketing expenses as a percentage of net
sales for the six months ended June 30, 1999 and 1998 was 11.1% and 8.8%,
respectively.
General and Administrative Expenses
General and administrative expenses increased $6.2 million, or 21.2%, to $35.2
million (17.6% of net sales) for the six months ended June 30, 1999 from $29.0
million (19.7% of net sales) for the six months ended June 30, 1998. The
increase in total dollars is primarily due to (i) the hiring of additional
personnel, (ii) an increase in costs associated with the Company's distribution
facilities to support the Company's growth, (iii) increased product design and
development costs and (iv) the addition of 15 retail stores which were not open
in the six months ended June 30, 1998. The decrease as a percentage of net sales
was primarily due to the increase in the volume of footwear sold. Also included
in general and administrative expenses for the six months ended June 30, 1998 is
$1.7 million of compensation expense relating to the Company's 1996 Incentive
Compensation Plan which expired December 31, 1998.
Interest Expense
Interest expense decreased $471,000, or 10.9%, to $3.9 million for the six
months ended June 30, 1999 as compared to $4.3 million for the six months ended
June 30, 1998 as a result of the application of net proceeds from the Offering
which were partially used to reduce debt.
Other Income, Net
Other income, net during the six months ended June 30, 1999 related to legal
settlements of $358,000 and miscellaneous income of $146,000. The legal
settlements related to intellectual property matters. Other income, net during
the six months ended June 30, 1998 related to miscellaneous income of $17,000.
Pro Forma Income Taxes
Pro forma income taxes have been provided at the assumed rate of 40.0% for
Federal and state purposes.
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<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically relied upon internally generated funds, trade
credit, borrowings under credit facilities and loans from stockholders to
finance its operations and expansion. The Company's need for funds arises
primarily from its working capital requirements, including the need to finance
its inventory and receivables. The Company's working capital was $58.3 million
at June 30, 1999 and $23.1 million at December 31, 1998, respectively. The
increase in working capital at June 30, 1999 as compared to December 31, 1998
was primarily due to the Offering and application of net proceeds therefrom as
well as net earnings during the six months ended June 30, 1999.
As part of the Company's working capital management, the Company performs
substantially all customer credit functions internally, including extension of
credit and collections. The Company's bad debt write-offs were less than 1.0% of
net sales for six months ended June 30, 1998 and 1999. The Company carries bad
debt insurance to cover approximately the first 90.0% of bad debts on
substantially all of the Company's major retail accounts.
Net cash provided by (used in) operating activities totaled $8.7 million and
$(12.8) million for the six months ended June 30, 1999 and 1998, respectively.
The increase in cash provided by operating activities was due primarily to an
increase in net income and a decrease in inventory balances. The decrease in
inventory from December 31, 1998 to June 30, 1999 of $6.7 million was primarily
due to maintaining strict inventory controls during the six month period ending
June 30, 1999.
Net cash used in investing activities totaled $3.7 million and $3.6 million for
the six months ended June 30, 1999 and 1998, respectively, and primarily related
to capital expenditures. Capital expenditures in 1999 primarily included the
construction of additional Company retail stores and trade show booths, as well
as additional hardware and software for the Company's computer needs. Investing
activities in 1998 was primarily due to increased capital expenditures in
connection with the establishment of the Company's distribution facilities in
Ontario, California, the construction of additional Company retail stores, and
additional hardware and software for the Company's computer needs.
The Company estimates that its capital expenditures for the year ending December
31, 1999 will be approximately $10.0 million, of which approximately $5.5
million will be used for the installation of a new material handling system for
the Company's most recently opened distribution facility. Total expenditures for
the new material handling system are expected to be approximately $10.0 million,
the balance of which will be spent in 2000. The Company also anticipates
spending $400,000 for expenditures on equipment for the Company's distribution
facilities, and $4.1 million capital expenditures related to general corporate
purposes in 1999, including leasehold improvements and purchases of furniture
and equipment in connection with the opening of additional retail stores,
additions and advancements to the Company's management information systems,
costs associated with trade show booths and leasehold improvements to the
Company's facilities.
Net cash provided by (used in) financing activities totaled $(15.7) million and
$15.3 million for the six months ended June 30, 1999 and 1998, respectively. The
increase in cash used in financing activities was primarily due to payments on
debt and dividend distributions which were partially financed by the Offering.
The Company's credit facility provides for borrowings under a revolving line of
credit of up to $120.0 million and a term loan, with actual borrowings limited
to available collateral and certain limitations on total indebtedness
(approximately $66.9 million of availability as of June 30, 1999) with Heller
Financial, Inc., as agent for the lenders. As of June 30, 1999, there was
approximately $14.8 million outstanding under the revolving line of credit. The
revolving line of credit bears interest at the Company's option at either the
prime rate (8.0% at June 30, 1999) plus 25 basis points or at Libor (5.37% at
June 30, 1999) plus 2.75%. The revolving line of credit expires on December 31,
2002. Interest on the revolving line of credit is payable monthly. The revolving
line of credit provides a sub-limit for letters of credit of up to $18.0 million
to finance the Company's foreign purchases of merchandise inventory. As of June
30, 1999, the Company
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<PAGE> 18
had approximately $3.8 million of letters of credit under the revolving line of
credit. The term loan component of the credit facility, which has a principal
balance of approximately $2.5 million as of June 30, 1999, bears interest at the
prime rate plus 100 basis points and is due in monthly installments with a final
balloon payment December 2002. The proceeds from this note were used to purchase
equipment for the Company's distribution centers in Ontario, California and the
note is secured by such equipment. The credit facility contains certain
financial covenants that require the Company to maintain minimum tangible net
worth of at least $20.0 million, working capital of at least $14.0 million and
specified leverage ratios and limit the ability of the Company to pay dividends
if it is in default of any provisions of the credit facility. The Company was in
compliance with these covenants as of June 30, 1999. The credit facility is
collateralized by the Company's real and personal property, including, among
other things, accounts receivable, inventory, general intangibles and equipment
and is guaranteed by the Company's wholly-owned subsidiaries.
By reason of the Company's treatment as an S Corporation for Federal and state
income tax purposes, the Company from inception to June 7, 1999, the S
Corporation termination date, has provided to its stockholders funds for the
payment of income taxes on the earnings of the Company. In April 1999, the
Company declared the April Tax Distribution of $3.5 million, and connection with
the Offering declared the Final 1998 Distribution, of $7.6 million, the Final
Tax Distribution, of $2.8 million, and the Final S Corporation Distribution, of
$21.4 million. The Company's C Corporation earnings will be retained for the
foreseeable future in the operations of the business.
The Company believes that anticipated cash flows from operations, available
borrowings under the Company's revolving line of credit, cash on hand and its
financing arrangements will be sufficient to provide the Company with the
liquidity necessary to fund its anticipated working capital and capital
requirements through fiscal 2000. However, in connection with its growth
strategy, the Company will incur significant working capital requirements and
capital expenditures. The Company's future capital requirements will depend on
many factors, including, but not limited to, the levels at which the Company
maintains inventory, the market acceptance of the Company's footwear, the levels
of promotion and advertising required to promote its footwear, the extent to
which the Company invests in new product design and improvements to its existing
product design and the number and timing of new store openings. To the extent
that available funds are insufficient to fund the Company's future activities,
the Company may need to raise additional funds through public or private
financing. No assurance can be given that additional financing will be available
or that, if available, it can be obtained on terms favorable to the Company and
its stockholders. Failure to obtain such financing could delay or prevent the
Company's planned expansion, which could adversely affect the Company's
business, financial condition and results of operations. In addition, if
additional capital is raised through the sale of additional equity or
convertible securities, dilution to the Company's stockholders could occur.
QUARTERLY RESULTS AND SEASONALITY
Sales of footwear products are somewhat seasonal in nature with the strongest
sales generally occurring in the third and fourth quarters
The Company has experienced, and expects to continue to experience, variability
in its net sales, operating results and results of operations, on a quarterly
basis. The Company's domestic customers generally assume responsibility for
scheduling pickup and delivery of purchased products. Any delay in scheduling or
pickup which is beyond the Company's control could materially negatively impact
the Company's net sales and results of operations for any given quarter. The
Company believes the factors which influence this variability include (i) the
timing of the Company's introduction of new footwear products, (ii) the level of
consumer acceptance of new and existing products, (iii) general economic and
industry conditions that affect consumer spending and retail purchasing, (iv)
the timing of the placement, cancellation or pickup of customer orders, (v)
increases in the number of employees and overhead to support growth, (vi) the
timing of expenditures in anticipation of increased sales and customer delivery
requirements, (vii) the number and timing of new Company retail store openings
and (viii) actions by competitors. Due to these and other factors, the operating
results for any particular quarter are not necessarily indicative of the results
for the full year.
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<PAGE> 19
INFLATION
The Company does not believe that the relatively moderate rates of inflation
experienced in the United States over the last three years have had a
significant effect on its net sales or profitability. However, the Company
cannot accurately predict the effect of inflation on future operating results.
Although higher rates of inflation have been experienced in a number of foreign
countries in which the Company's products are manufactured, the Company does not
believe that inflation has had a material effect on the Company's net sales or
profitability. In the past, the Company has been able to offset its foreign
product cost increases by increasing prices or changing suppliers, although no
assurance can be given that the Company will be able to continue to make such
increases or changes in the future.
EXCHANGE RATES
The Company receives U.S. Dollars for substantially all of its product sales and
its royalty income. Inventory purchases from offshore contract manufacturers are
primarily denominated in U.S. Dollars; however, purchase prices for the
Company's products may be impacted by fluctuations in the exchange rate between
the U.S. Dollar and the local currencies of the contract manufacturers, which
may have the effect of increasing the Company's cost of goods in the future.
During 1997 and 1998, exchange rate fluctuations did not have a material impact
on the Company's inventory costs. The Company does not engage in hedging
activities with respect to such exchange rate risk.
MARKET RISK
The Company does not hold any derivative securities or other market rate
sensitive instruments.
YEAR 2000 COMPLIANCE
The Company relies on its internal computer systems to manage and conduct its
business. The Company also relies, directly and indirectly, on external systems
of business enterprises such as third party manufacturers and suppliers,
customers, creditors and financial organizations, and of governmental entities,
both domestic and internationally, for accurate exchange of data.
Many existing computer programs were designed and developed without regard for
the Year 2000 ("Y2K") and beyond. If the Company or its significant third party
business partners and intermediaries fail to make necessary modifications,
conversions, and contingency plans on a timely basis, the Y2K issue could have a
material adverse effect on the Company's business and financial condition.
Management believes that its competitors face a similar risk. In recognition of
this risk, the Company has established a project team to assess, remediate, test
and develop contingency plans.
State of Readiness
The Company has developed a Y2K plan with the objective of having all of its
information technology ("IT") systems compliant by September 1999. The Company's
significant IT systems include its order management and inventory system,
electronic data interchange ("EDI") system, distribution center processing
system, retail merchandise and point of sale system, financial applications
system, local area network and personal computers. The Company tested and
completed Y2K changes to its order management and inventory system in July 1999.
The Company tested and completed Y2K changes to its EDI system related to
inbound transactions from customers in July 1999. The Company plans to begin
contacting its EDI trading customers and discuss their Y2K readiness to receive
the Company's outbound transactions in August 1999. The Company has completed
substantially all Y2K changes to its distribution center processing system
except for upgrading the operating system to the Y2K version. Upgrade to the Y2K
version is part of the Company's on-going maintenance contract with its vendor.
The Company is upgrading the operating system with implementation targeted for
September 1999. The Company's retail merchandise and point of sale system is
expected to be Y2K compliant by September 1999. The Company's financial
applications system was upgraded with testing and implementation completed in
May 1999. The system upgrades for the Company's financial application systems
began in 1998 for the purpose of enhancing system functionality to accommodate
the Company's expanding business
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<PAGE> 20
and related information needs. The Company's local area network hardware and
software providers have advised the Company that such systems are Y2K compliant.
The Company has begun to assess its personal computers for necessary changes
which are anticipated to be completed by October 1999.
The Company's non-IT systems include security, fire prevention, environmental
control equipment and phone systems. Many of these systems are currently Y2K
compliant. Modification to the remaining systems are expected by September 1999.
The Company's Y2K project team has begun sending surveys and conducting formal
communications with its significant business partners to determine the extent to
which the Company is vulnerable to those third parties' failure to remediate
their own Y2K issues. This process is expected to continue throughout 1999.
Risks and Contingency Plans
The Company is not aware of any material operational issues associated with
preparing its internal systems for the Y2K, however, there is no assurance that
there will not be a delay in the implementation. The Company's inability to
implement such systems and changes in a timely manner could have a material
adverse effect on future results of operations, financial condition and cash
flows.
The potential inability of the Company's significant business partners and
intermediaries to address their own Y2K issues remains a risk which is difficult
to assess. The Company is dependent on four key manufacturers located in China
for the production of its footwear. The failure of one or more of these
manufacturers to adequately address their own Y2K issues could interrupt the
Company's supply chain. The inability of port authorities or shipping lines to
address their own Y2K issues could also interrupt the Company's supply chain.
Additionally, the inability of one or more of the Company's significant
customers to become Y2K compliant could adversely impact the Company's sales to
those customers.
The Company is developing contingency plans which may include finding
alternative suppliers, manual interventions and adding increased staffing. There
is no assurance that the Company will correctly anticipate the level, impact or
duration of noncompliance by its significant business partners that provide
inadequate information.
As the Company has not completed evaluations of its significant business
partners' Y2K readiness, the Company is currently unable to determine the most
reasonable likely worst case scenario. The Company will continue its efforts
towards contingency planning throughout 1999.
Costs
The Company estimates its costs associated with becoming Y2K compliant will be
less than $100,000, exclusive of system upgrades incurred in the normal course
of business. Efforts to modify the Company's IT systems have substantially been
performed internally, however, the Company does not separately track such costs.
These costs primarily relate to salaries and wages which are expensed as
incurred.
FUTURE ACCOUNTING CHANGES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS No. 133"). SFAS No. 133 modifies the
accounting for derivative and hedging activities and is effective for fiscal
years beginning after June 15, 2000. Since the Company does not presently hold
any derivatives or engage in hedging activities, accordingly SFAS No. 133 should
not impact the Company's financial position or results of operations.
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<PAGE> 21
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK -- Not
Applicable
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS -- Not Applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Pursuant to a Registration Statement on Form S-1 (File No. 333-60065) the
Company registered 8,050,000 shares of Class A Common Stock, which included
1,050,000 shares provided by a selling stockholder to cover over-allotments, if
any. Deutsche Bank Alex Brown and Prudential Securities Incorporated were
representatives of the several underwriters for the Offering. On June 9, 1999,
the Company's Registration Statement relating to the initial public offering of
7,000,000 shares of Class A Common Stock was declared effective. The offering
closed on June 14, 1999 with an aggregate offering amount of $77.0 million.
Total underwriting discounts and commission were approximately $5.4 million and
total offering expenses were $1.9 million. The Company received net proceeds
from the Offering of approximately $69.7 million. The application of the net
proceeds were applied to (i) repayment of a $10.0 million subordinated note and
a $1.8 million unsubordinated note, each to the Greenberg Family Trust, (ii)
dividend distributions of $31.8 million, and (iii) partial repayment of the
Company's revolving line of credit of $26.1 million.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES -- Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS -- Not Applicable
ITEM 5. OTHER INFORMATION-- Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K --
(a) Exhibits
10.1 Underwriting Agreement dated June 9, 1999 between the
Registrant and BT Alex. Brown Incorporated and
Prudential Securities Incorporated, as Representatives
of the Several Underwriters
10.2 Employment Agreement dated June 14, 1999 between the
Registrant and Robert Greenberg
10.3 Employment Agreement dated June 14, 1999 between the
Registrant and Michael Greenberg
10.4 Employment Agreement dated June 14, 1999 between the
Registrant and David Weinberg
10.5 Registration Rights Agreement dated June 9, 1999 between
the Registrant and the Greenberg Family Trust and
Michael Greenberg
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10.6 Tax Indemnification Agreement dated June 8, 1999 between
the Registrant and certain stockholders
21.1 Subsidiaries of the Registrant
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SKECHERS U.S.A, INC.
Dated: August 11, 1999 /s/ David Weinberg
-------------------------------------
David Weinberg
Executive Vice President and
Chief Financial Officer
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<PAGE> 1
EXHIBIT 10.1
7,000,000 Shares
SKECHERS U.S.A., INC.
Class A Common Stock
($0.001 Par Value)
UNDERWRITING AGREEMENT
June 9, 1999
BT Alex. Brown Incorporated
Prudential Securities Incorporated
As Representatives of the Several Underwriters
c/o BT Alex. Brown Incorporated
One South Street
Baltimore, Maryland 21202
Ladies and Gentlemen:
Skechers U.S.A., Inc., a Delaware corporation (the "COMPANY"), proposes
to sell to the several underwriters (the "UNDERWRITERS") named in Schedule I
hereto for whom you are acting as representatives (the "REPRESENTATIVES") an
aggregate of 7,000,000 shares (the "FIRM SHARES") of the Company's Class A
Common Stock, $0.001 par value (the "CLASS A COMMON STOCK"). The respective
amounts of the Firm Shares to be so purchased by the several Underwriters are
set forth opposite their names in Schedule I hereto. A certain selling
stockholder named in Schedule II hereto (the "SELLING STOCKHOLDER") also
proposes to sell at the Underwriters' option an aggregate of up to 1,050,000
additional shares of the Company's Class A Common Stock (the "OPTION SHARES") as
set forth below. The Company and the Selling Stockholder are sometimes referred
to herein collectively as the "SELLERS."
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As the Representatives, you have advised the Company and the Selling
Stockholder (a) that you are authorized to enter into this Agreement on behalf
of the several Underwriters, and (b) that the several Underwriters are willing,
acting severally and not jointly, to purchase the numbers of Firm Shares set
forth opposite their respective names in Schedule I, plus their pro rata portion
of the Option Shares if you elect to exercise the over-allotment option in whole
or in part for the accounts of the several Underwriters. The Firm Shares and the
Option Shares (to the extent the aforementioned option is exercised) are herein
collectively called the "SHARES." The shares of Class A Common Stock and Class B
Common Stock, $0.001 par value (the "CLASS B COMMON STOCK"), of the Company to
be outstanding after giving effect to the sales contemplated hereby are
hereinafter referred to as the "COMMON STOCK."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
STOCKHOLDER.
(a) The Company and the Selling Stockholder, jointly and
severally, represent and warrant to each of the Underwriters as follows:
(i) A registration statement on Form S-1 (File
No. 333-60065) with respect to the Shares has been prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as amended (the
"ACT"), and the Rules and Regulations (the "RULES AND REGULATIONS") of the
Securities and Exchange Commission (the "COMMISSION") thereunder and has been
filed with the Commission. Copies of such registration statement, including any
amendments thereto, the preliminary prospectuses (meeting the requirements of
the Rules and Regulations) contained therein and the exhibits, financial
statements and schedules, as finally amended and revised, have heretofore been
delivered by the Company to you. Such registration statement, together with any
registration statement filed by the Company pursuant to Rule 462(b) of the Act
and post-effective amendments no. 1 and no. 2 filed with the Commission on June
8, 1999 and June 9, 1999 (the "POST-EFFECTIVE AMENDMENTS"), herein referred to
as the "REGISTRATION STATEMENT," which shall be deemed to include all
information omitted therefrom in reliance upon Rule 430A and contained in the
Prospectus referred to below, has become effective under the Act and, except for
the Post-Effective Amendments, no other post-effective amendment to the
Registration Statement has been filed as of the date of this Agreement.
"PROSPECTUS" means the form of prospectus first filed with the Commission
pursuant to Rule 424(b). Each preliminary prospectus included in the
Registration Statement prior to the time it becomes effective is herein referred
to as a "PRELIMINARY PROSPECTUS." Any reference herein to the Registration
Statement, any Preliminary Prospectus or to the Prospectus shall be deemed to
refer to and include any supplements or amendments thereto, filed with the
Commission after the date of filing of the Prospectus under Rules 424(b) or
430A, and prior to the termination of the offering of the Shares by the
Underwriters.
(ii) The Company has been duly organized and is
validly existing as a corporation in good standing under the laws of the State
of Delaware, with corporate power and authority to own or lease its properties
and conduct its business as described in the Registration Statement. The
subsidiary of the
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<PAGE> 3
Company listed in Exhibit 21 to Item 16(a) of the Registration Statement (the
"SUBSIDIARY") has been duly organized and is validly existing as a corporation
in good standing under the laws of the jurisdiction of its incorporation, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement. The Company and the
Subsidiary are duly qualified to transact business in all jurisdictions in which
the conduct of their business requires such qualification, except where the
failure to be so qualified would not have a material adverse effect on the
earnings, business, management, properties, assets, rights, operations or
condition (financial or otherwise) of the Company and the Subsidiary taken as a
whole. The outstanding shares of capital stock of the Subsidiary have been duly
authorized and validly issued, are fully paid and non-assessable and are owned
by the Company free and clear of all liens, encumbrances and equities and
claims; and no options, warrants or other rights to purchase, agreements or
other obligations to issue or other rights to convert any obligations into
shares of capital stock or ownership interests in the Subsidiary are
outstanding.
(iii) Except for the Subsidiary, the Company does
not own or control, directly or indirectly, any corporation, association or
other entity.
(iv) The outstanding shares of Common Stock of
the Company, including all shares to be sold by the Selling Stockholder, have
been duly authorized and validly issued and are fully paid and non-assessable;
the Shares to be issued and sold by the Company have been duly authorized and
when issued and paid for as contemplated herein will be validly issued, fully
paid and non-assessable; and no preemptive rights of stockholders exist with
respect to any of the Shares or the issue and sale thereof. Neither the filing
of the Registration Statement nor the offering or sale of the Shares as
contemplated by this Agreement gives rise to any rights, other than those which
have been waived or satisfied, for or relating to the registration of any shares
of Common Stock.
(v) The information set forth under the caption
"Capitalization" in the Prospectus is true and correct. All of the Shares
conform to the description thereof contained in the Registration Statement. The
form of certificates for the Shares conforms to the corporate law of the
jurisdiction of the Company's incorporation.
(vi) The Commission has not issued an order
preventing or suspending the use of any Prospectus relating to the proposed
offering of the Shares nor instituted proceedings for that purpose. The
Registration Statement contains, and the Prospectus and any amendments or
supplements thereto will contain, all statements which are required to be stated
therein by, and will conform, to the requirements of the Act and the Rules and
Regulations. The Registration Statement and any amendment thereto do not
contain, and will not contain, any untrue statement of a material fact and do
not omit, and will not omit, to state any material fact required to be stated
therein or necessary to make the statements therein not misleading. The
Prospectus and any amendments and supplements thereto do not contain, and will
not contain, any untrue statement of material fact; and do not omit, and will
not omit, to state any material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that the Company makes no
representations or warranties as to information contained in or omitted from the
Registration Statement or
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<PAGE> 4
the Prospectus, or any such amendment or supplement, in reliance upon, and in
conformity with, written information furnished to the Company by or on behalf of
any Underwriter through the Representatives, specifically for use in the
preparation thereof.
(vii) The financial statements of the Company and
the Subsidiary, together with related notes and schedules as set forth in the
Registration Statement, present fairly the financial position and the results of
operations and cash flows of the Company and the Subsidiary, at the indicated
dates and for the indicated periods. Such financial statements and related
schedules have been prepared in accordance with generally accepted principles of
accounting, consistently applied throughout the periods involved, except as
disclosed therein, and all adjustments necessary for a fair presentation of
results for such periods have been made. The financial data set forth in the
Prospectus under the captions "Prospectus Summary - Summary Financial Data",
"Selected Financial Data" and "Capitalization" presents fairly the information
shown therein and such data has been compiled on a basis consistent with the
financial statements presented therein and the books and records of the Company.
(viii) KPMG LLP, who have certified certain of the
financial statements filed with the Commission as part of the Registration
Statement, are independent public accountants as required by the Act and the
Rules and Regulations.
(ix) There is no action, suit, claim or
proceeding pending or, to the knowledge of the Company, threatened against the
Company or the Subsidiary before any court or administrative agency or otherwise
which if determined adversely to the Company or the Subsidiary might result in
any material adverse change in the earnings, business, management, properties,
assets, rights, operations or condition (financial or otherwise) of the Company
and of the Subsidiary, taken as a whole, or to prevent the consummation of the
transactions contemplated hereby, except as set forth in the Registration
Statement.
(x) The Company and the Subsidiary have good and
marketable title to all of the properties and assets reflected in the financial
statements (or as described in the Registration Statement) hereinabove
described, subject to no lien, mortgage, pledge, charge or encumbrance of any
kind except those reflected in such financial statements (or as described in the
Registration Statement) or which do not materially and adversely affect the
value of such property and do not materially interfere with the use made or
proposed to be made of such property by the Company and the Subsidiary. The
Company and the Subsidiary occupy their leased properties under valid and
binding leases with such exceptions as are not material and do not materially
interfere with the use made or proposed to be made of such real property,
conforming in all material respects to the description thereof set forth in the
Registration Statement.
(xi) The Company and the Subsidiary have filed
all Federal, State, local and foreign tax returns which have been required to be
filed and have paid all taxes indicated by said returns and all assessments
received by them or either of them to the extent that such taxes have become due
and are not being contested in good faith and for which an adequate reserve for
accrual has been established in accordance with generally accepted accounting
principles. All tax liabilities have been adequately provided
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<PAGE> 5
for in the financial statements of the Company, and the Company has not received
any notification of taxes due and owing from the Internal Revenue Service or
California taxation authorities.
(xii) Since the respective dates as of which
information is given in the Registration Statement, as it may be amended or
supplemented, there has not been any material adverse change or any development
known to the Company that is likely to result in the future in a material
adverse change in or affecting the earnings, business, management, properties,
assets, rights, operations or condition (financial or otherwise), of the Company
and the Subsidiary taken as a whole, whether or not occurring in the ordinary
course of business, there has not been any material transaction entered into by
the Company or the Subsidiary, other than transactions in the ordinary course of
business and changes and transactions described in the Registration Statement,
as it may be amended or supplemented, and the Company and the Subsidiary have
not incurred any material contingent obligations.
(xiii) Neither the Company nor the Subsidiary is
or, with the giving of notice or lapse of time or both, will be in violation of
or in default under its Certificate of Incorporation or Bylaws, as applicable,
or under any agreement, lease, contract, indenture or other instrument or
obligation to which it is a party or by which it, or any of its properties, is
bound and which default would have a material adverse effect on the earnings,
business, management, properties, assets, rights, operations or condition
(financial or otherwise) of the Company and the Subsidiary taken as a whole. The
execution and delivery of this Agreement and the consummation of the
transactions herein contemplated and the fulfillment of the terms hereof will
not conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust or other
agreement or instrument that is material to the Company and the Subsidiary taken
as a whole, or of the Certificate of Incorporation or Bylaws of the Company or
any order, rule or regulation applicable to the Company or the Subsidiary of any
court or of any regulatory body or administrative agency or other governmental
body having jurisdiction.
(xiv) Each approval, consent, order,
authorization, designation, declaration or filing by or with any regulatory,
administrative or other governmental body necessary in connection with the
execution and delivery by the Company of this Agreement and the consummation of
the transactions herein contemplated (except such additional steps as may be
required by the Commission, the National Association of Securities Dealers, Inc.
(the "NASD") or such additional steps as may be necessary to qualify the Shares
for public offering by the Underwriters under state securities or Blue Sky laws)
has been obtained or made and is in full force and effect.
(xv) The Company and the Subsidiary own or
possess adequate licenses or other rights to use all patents, patent rights
inventions, trade secrets, copyrights, trademarks, service marks, trade names,
technology and know-how currently employed or proposed to be employed by it in
connection with their business as described in the Prospectus. Neither the
Company nor the Subsidiary is obligated to pay a royalty, grant a license, or
provide other consideration to any third party in connection with its patents,
copyrights, trademarks, service marks, trade names, or technology other than
royalties, licenses or other consideration that would not be material to the
business of the Company and the Subsidiary taken as a whole or as disclosed in
the Prospectus, and except as disclosed in the Prospectus, neither the Company
nor
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<PAGE> 6
the Subsidiary has received any notice of infringement or conflict with (and
neither the Company nor the Subsidiary knows of any infringement or conflict
with) asserted rights of others with respect to any patents, patent rights,
inventions, trade secrets, copyrights, trademarks, service marks, trade names,
technology or know-how which infringement or conflict, if the subject of an
unfavorable decision, would be material to the business of the Company and the
Subsidiary taken as a whole. Except as disclosed in the Prospectus, the
discoveries, inventions, products or processes of the Company and the Subsidiary
referred to in the Prospectus do not, to the knowledge of the Company or the
Subsidiary, infringe or conflict with any right or patent of any third party, or
any discovery, invention, product or process which is the subject of a patent
application filed by any third party, known to the Company or the Subsidiary,
which infringement or conflict is material to the business of the Company and
the Subsidiary taken as a whole.
(xvi) Neither the Company nor, to the Company's
knowledge, any of its affiliates has taken or may take, directly or indirectly,
any action designed to cause or result in, or which has constituted or which
might reasonably be expected to constitute, the stabilization or manipulation of
the price of the shares of Common Stock to facilitate the sale or resale of the
Shares.
(xvii) Neither the Company nor the Subsidiary is,
and after giving effect to the offering and sale of the Shares and the
application of the proceeds thereof as described in the Prospectus neither the
Company nor the Subsidiary will be, an "investment company" or an "affiliated
person" of or "promoter" or "principal underwriter" for an "investment company,"
within the meaning of such terms under the Investment Company Act of 1940, (as
amended, the "1940 ACT") and the rules and regulations of the Commission
thereunder.
(xviii) The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; (iii) access to assets is
permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(xix) The Company and the Subsidiary carry, or is
covered by, insurance in such amounts and covering such risks as is adequate for
the conduct of their respective businesses and the value of their respective
properties and as is customary for companies engaged in similar industries.
(xx) The Company is in compliance in all material
respects with all presently applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"), the violation of which would have a
material adverse effect on the earnings, business, management, properties,
assets, rights, operations or condition (financial or otherwise) of the Company;
no "reportable event" (as defined in ERISA) has occurred with respect to any
"pension plan" (as defined in ERISA) for which the Company would have any
material liability; the Company has not incurred and does not expect to incur
liability under (i) Title IV of
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<PAGE> 7
ERISA with respect to termination of, or withdrawal from, any "pension plan" or
(ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations thereunder (the "CODE");
and each "pension plan" for which the Company would have any material liability
that is intended to be qualified under Section 401(a) of the Code is so
qualified in all material respects and nothing has occurred, whether by action
or by failure to act, which would cause the loss of such qualification.
(xxi) To the Company's knowledge, there are no
affiliations or associations between any member of the NASD and any of the
Company's officers, directors or 5% or greater securityholders, except as set
forth in the Registration Statement.
(xxii) The Company has full corporate power and
authority to enter into this Agreement and perform the transactions contemplated
hereby. This Agreement has been duly authorized, executed and delivered by the
Company and constitutes a valid and binding obligation the Company enforceable
in accordance with its terms except as rights to indemnity and contribution
hereunder may be limited as a matter of applicable public policy or by
applicable laws and except as the enforcement hereof may be limited by
applicable bankruptcy, insolvency, reorganization or other similar laws
affecting creditors' rights generally, or by general equitable principles.
(xxiii) The execution and delivery of the Agreement
and Plan of Merger dated as of May 7, 1999 (the "MERGER AGREEMENT") between
Skechers U.S.A., Inc., a California corporation (the "CALIFORNIA CORPORATION"),
and the Company, effecting the reincorporation of the California Corporation
under the laws of the State of Delaware, was duly authorized by all necessary
corporate action on the part of each of the California Corporation and the
Company. Each of the California Corporation and the Company had all corporate
power and authority to execute and deliver the Merger Agreement, to file the
Merger Agreement with the Secretary of State of California and the Secretary of
State of Delaware and to consummate the reincorporation contemplated by the
Merger Agreement, and the Merger Agreement at the time of execution and filing
constituted a valid and binding obligation of each of the California Corporation
and the Company, enforceable in accordance with its terms and except as the
enforcement hereof may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws affecting creditors' rights generally, or
by general equitable principles.
(xxiv) No material labor dispute with the employees
of the Company or the Subsidiary exists, except as described in the Prospectus,
or, to the knowledge of the Company and the Subsidiary, is imminent.
(xxv) No business relationship, or related party
transactions, exists between or among the Company or the Subsidiary, on the one
hand, and the directors officers, stockholders, customers or suppliers of the
Company or the Subsidiary, on the one hand, which is required to be described in
the Prospectus that is not so described.
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<PAGE> 8
(xxvi) Neither the Company nor the Subsidiary, nor
any director, officer, agent, employee or other person associated with or acting
on behalf of the Company or the Subsidiary, has used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expense relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provisions of the Foreign Corrupt Practices Act of 1972; or
made any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment.
(xxvii) Neither the Company nor the Subsidiary is a
"passive foreign investment company" within the meaning of Section 1296 of the
Code for its taxable year which includes the date hereof and to the knowledge of
the Company and the Subsidiary, neither the Company nor the Subsidiary will be a
"passive foreign investment company" for the subsequent taxable year.
(xxviii) Except as disclosed in the Prospectus, there
is no (i) administrative or judicial proceeding pending or, to the Company's
knowledge, threatened to which the Company or the Subsidiary is a party or to
which any of the properties of the Company or the Subsidiary is subject arising
under any Federal, state or local provisions that have been enacted or adopted
regulating the discharge of materials into the environment or primarily for the
purpose of protecting the environment; or (ii) material adverse effect upon the
Company or the Subsidiary arising from compliance with Federal, state and local
provisions which have been enacted or adopted regulating the discharge of
materials into the environment or otherwise relating to the protection of the
environment.
(xxix) For all periods from its election under
Subchapter S of the Code until June 8, 1999 (the "TERMINATION DATE"), the
California Corporation was qualified as an S Corporation pursuant to an election
validly made under Subchapter S of the Code and any applicable state statute
(which election has not been and will not be revoked or terminated for any such
period) and the California Corporation has not been and will not be subject to
Federal corporate taxes for such periods. The Subchapter S election of the
California Corporation will be terminated on the Termination Date, and the
Company will be subject to federal corporate income taxes from and after the
date of such termination but not for any prior period. In connection with the
termination, income and loss of the California Corporation for the S termination
year will not be allocated pro rata under Section 1362(e) of the Code.
(xxx) The Final 1998 Distribution and the Final
Tax Distribution (as such terms are defined in the Prospectus) are legal and
valid under Section 170 of the Delaware General Corporation Law and, to the
extent applicable, Section 500 of the California General Corporation Law.
(b) The Selling Stockholder represents and warrants as
follows:
(i) Such Selling Stockholder now has and at the
Option Closing Date (as such date is hereinafter defined) will have good and
marketable title to the Option Shares to be sold by such Selling Stockholder,
free and clear of any liens, encumbrances, equities and claims, and full right,
power and authority to effect the sale and delivery of such Option Shares; and
upon the delivery of, against
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<PAGE> 9
payment for, such Option Shares pursuant to this Agreement, the Underwriters
will acquire good and marketable title thereto, free and clear of any liens,
encumbrances, equities and claims.
(ii) This Agreement has been duly authorized,
executed and delivered by such Selling Stockholder and constitutes a valid and
binding obligation of such Selling Stockholder enforceable in accordance with
its terms except as rights to indemnity and contribution hereunder may be
limited as a matter of applicable public policy or by applicable laws and except
as the enforcement hereof may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws affecting creditors' rights generally, or
by general equitable principles. Such Selling Stockholder has full right, power
and authority to execute and deliver this Agreement, the Power of Attorney and
the Custody Agreement referred to below and to perform its obligations under
such Agreements. The execution and delivery of this Agreement and the
consummation by such Selling Stockholder of the transactions herein contemplated
and the fulfillment by such Selling Stockholder of the terms hereof will not
require any consent, approval, authorization, or other order of any court,
regulatory body, administrative agency or other governmental body (except as may
be required under the Act, state securities laws or Blue Sky laws) and will not
result in a breach of any of the terms and provisions of, or constitute a
default under, any indenture, mortgage, deed of trust or other agreement or
instrument to which such Selling Stockholder is a party, or of any order, rule
or regulation applicable to such Selling Stockholder of any court or of any
regulatory body or administrative agency or other governmental body having
jurisdiction the effect of which would prevent consummation of the transactions
contemplated hereby.
(iii) Such Selling Stockholder has not taken and
will not take, directly or indirectly, any action designed to, or which has
constituted, or which might reasonably be expected to cause or result in the
stabilization or manipulation of the price of the Common Stock of the Company
and, other than as permitted by the Act, such Selling Stockholder will not
distribute any prospectus or other offering material in connection with the
offering of the Shares.
(iv) Such Selling Stockholder is familiar with
the Registration Statement and has no knowledge of any material fact, condition
or information not disclosed in the Registration Statement which has materially
adversely affected or may materially adversely affect the business of the
Company or the Subsidiary; and the sale of the Option Shares by such Selling
Stockholder pursuant hereto is not prompted by any information concerning the
Company or the Subsidiary which is not set forth in the Registration Statement.
The information pertaining to such Selling Stockholder under the caption
"Principal Stockholders" in the Prospectus is complete and accurate in all
material respects.
2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES.
(a) On the basis of the representations, warranties and
covenants herein contained, and subject to the conditions herein set forth, the
Company agrees to sell to the Underwriters and each Underwriter agrees,
severally and not jointly, to purchase, at a price of $10.23 per share, the
number of Firm Shares set forth opposite the name of each Underwriter in
Schedule I hereof, subject to adjustments in accordance with Section 9 hereof.
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<PAGE> 10
(b) Payment for the Firm Shares to be sold hereunder is
to be made in Federal (same day) funds to an account designated by the Company
against delivery of certificates therefor to the Representatives for the several
accounts of the Underwriters. Such payment and delivery are to be made through
the facilities of the Depository Trust Company at 10:00 a.m., New York time, on
the third business day after the date of this Agreement or at such other time
and date not later than five business days thereafter as you and the Company
shall agree upon, such time and date being herein referred to as the "CLOSING
DATE." (As used herein, "BUSINESS DAY" means a day on which the New York Stock
Exchange is open for trading and on which banks in New York are open for
business and not permitted by law or executive order to be closed.) The
certificates for the Firm Shares will be delivered in such denominations and in
such registrations as the Representatives request in writing not later than the
second full business day prior to the Closing Date, and will be made available
for inspection by the Representatives at least one business day prior to the
Closing Date.
(c) In addition, on the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Selling Stockholder hereby grants an option to the several
Underwriters to purchase the Option Shares at the price per share as set forth
in the first paragraph of this Section 2. The option granted hereby may be
exercised in whole or in part by giving written notice (i) at any time before
the Closing Date and (ii) only once thereafter within 30 days after the date of
this Agreement, by you, as Representatives of the several Underwriters, to the
Attorney-in-Fact and the Custodian setting forth the number of Option Shares as
to which the several Underwriters are exercising the option, the names and
denominations in which the Option Shares are to be registered and the time and
date at which such certificates are to be delivered. The time and date at which
certificates for Option Shares are to be delivered shall be determined by the
Representatives but shall not be earlier than three nor later than 10 full
business days after the exercise of such option, nor in any event prior to the
Closing Date (such time and date being herein referred to as the "OPTION CLOSING
DATE"). If the date of exercise of the option is three or more days before the
Closing Date, the notice of exercise shall set the Closing Date as the Option
Closing Date. The number of Option Shares to be purchased by each Underwriter
shall be in the same proportion to the total number of Option Shares being
purchased as the number of Firm Shares being purchased by such Underwriter bears
to the total number of Firm Shares, adjusted by you in such manner as to avoid
fractional shares. The option with respect to the Option Shares granted
hereunder may be exercised only to cover over-allotments in the sale of the Firm
Shares by the Underwriters. You, as Representatives of the several Underwriters,
may cancel such option at any time prior to its expiration by giving written
notice of such cancellation to either of the Attorneys-in-Fact. To the extent,
if any, that the option is exercised, payment for the Option Shares shall be
made on the Option Closing Date in Federal (same day) funds drawn to the order
of "Robert M. Greenberg and M. Susan Greenberg as Trustees of the Greenberg
Family Trust" against delivery of certificates therefor through the facilities
of the Depository Trust Company, New York, New York.
(d) Certificates in negotiable form for the total number
of the Shares to be sold hereunder by the Selling Stockholder have been placed
in custody with American Stock Transfer and Trust Company as custodian (the
"CUSTODIAN") pursuant to the Custody Agreement executed by the Selling
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<PAGE> 11
Stockholder for delivery of all Option Shares to be sold hereunder by the
Selling Stockholder. The Selling Stockholder specifically agrees that the Option
Shares represented by the certificates held in custody for the Selling
Stockholder under the Custody Agreement are subject to the interests of the
Underwriters hereunder, that the arrangements made by the Selling Stockholder
for such custody are to that extent irrevocable, and that the obligations of the
Selling Stockholder hereunder shall not be terminable by any act or deed of the
Selling Stockholder (or by any other person, firm or corporation including the
Company, the Custodian or the Underwriters) or by operation of law (including
the dissolution or other termination of the Selling Stockholder) or by the
occurrence of any other event or events, except as set forth in the Custody
Agreement. If any such event should occur prior to the delivery to the
Underwriters of the Option Shares hereunder, certificates for the Option Shares
shall be delivered by the Custodian in accordance with the terms and conditions
of this Agreement as if such event has not occurred.
(e) If on the Option Closing Date the Selling Stockholder
fails to sell the Option Shares, the Company agrees that it will sell or arrange
for the sale of that number of shares of Class A Common Stock to the
Underwriters which represents the Option Shares which such Selling Stockholder
has failed to so sell, as set forth in Schedule II hereto, or such lesser number
as may be requested by the Representatives.
3. OFFERING BY THE UNDERWRITERS.
It is understood that the several Underwriters are to make a
public offering of the Firm Shares as soon as the Representatives deem it
advisable to do so. The Firm Shares are to be initially offered to the public at
the initial public offering price set forth in the Prospectus. The
Representatives may from time to time thereafter change the public offering
price and other selling terms. To the extent, if at all, that any Option Shares
are purchased pursuant to Section 2 hereof, the Underwriters will offer them to
the public on the foregoing terms.
It is further understood that you will act as the
Representatives for the Underwriters in the offering and sale of the Shares in
accordance with a Master Agreement Among Underwriters entered into by you and
the several other Underwriters.
4. COVENANTS OF THE COMPANY AND THE SELLING STOCKHOLDER.
(a) The Company covenants and agrees with the several
Underwriters that:
(i) The Company will (A) use its best efforts to
cause the Registration Statement to become effective or, if the procedure in
Rule 430A of the Rules and Regulations is followed, to prepare and timely file
with the Commission under Rule 424(b) of the Rules and Regulations a Prospectus
in a form approved by the Representatives containing information previously
omitted at the time of effectiveness of the Registration Statement in reliance
on Rule 430A of the Rules and Regulations and (B) not file any amendment to the
Registration Statement or supplement to the Prospectus of which the
Representatives shall not previously have been advised and furnished with a copy
or to which the
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<PAGE> 12
Representatives shall have reasonably objected in writing or which is not in
compliance with the Rules and Regulations and (C) file on a timely basis all
reports and any definitive proxy or information statements required to be filed
by the Company with the Commission subsequent to the date of the Prospectus and
prior to the termination of the offering of the Shares by the Underwriters.
(ii) The Company will advise the Representatives
promptly (A) when the Registration Statement or any post-effective amendment
thereto shall have become effective, (B) of receipt of any comments from the
Commission, (C) of any request of the Commission for amendment of the
Registration Statement or for supplement to the Prospectus or for any additional
information, and (D) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the use of the
Prospectus or of the institution of any proceedings for that purpose. The
Company will use its best efforts to prevent the issuance of any such stop order
preventing or suspending the use of the Prospectus and to obtain as soon as
possible the lifting thereof, if issued.
(iii) The Company will cooperate with the
Representatives in endeavoring to qualify the Shares for sale under the
securities laws of such jurisdictions as the Representatives may reasonably have
designated in writing and will make such applications, file such documents, and
furnish such information as may be reasonably required for that purpose,
provided the Company shall not be required to qualify as a foreign corporation
or to file a general consent to service of process in any jurisdiction where it
is not now so qualified or required to file such a consent. The Company will,
from time to time, prepare and file such statements, reports, and other
documents, as are or may be required to continue such qualifications in effect
for so long a period as the Representatives may reasonably request for
distribution of the Shares.
(iv) The Company will deliver to, or upon the
order of, the Representatives, from time to time, as many copies of any
Preliminary Prospectus as the Representatives may reasonably request. The
Company will deliver to, or upon the order of, the Representatives during the
period when delivery of a Prospectus is required under the Act, as many copies
of the Prospectus in final form, or as thereafter amended or supplemented, as
the Representatives may reasonably request. The Company will deliver to the
Representatives at or before the Closing Date, four signed copies of the
Registration Statement and all amendments thereto including all exhibits filed
therewith, and will deliver to the Representatives such number of copies of the
Registration Statement (including such number of copies of the exhibits filed
therewith that may reasonably be requested), and of all amendments thereto, as
the Representatives may reasonably request.
(v) The Company will comply with the Act and the
Rules and Regulations, and the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"), and the rules and regulations of the Commission thereunder, so
as to permit the completion of the distribution of the Shares as contemplated in
this Agreement and the Prospectus. If during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer, any event shall
occur as a result of which, in the judgment of the Company or in the reasonable
opinion of the Underwriters, it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances existing at the time
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<PAGE> 13
the Prospectus is delivered to a purchaser, not misleading, or, if it is
necessary at any time to amend or supplement the Prospectus to comply with any
law, the Company promptly will prepare and file with the Commission an
appropriate amendment to the Registration Statement or supplement to the
Prospectus so that the Prospectus as so amended or supplemented will not, in the
light of the circumstances when it is so delivered, be misleading, or so that
the Prospectus will comply with the law. (vi) The Company will make generally
available to its security holders, as soon as it is practicable to do so, but in
any event not later than 15 months after the effective date of the Registration
Statement, an earning statement (which need not be audited) in reasonable
detail, covering a period of at least 12 consecutive months beginning after the
effective date of the Registration Statement, which earning statement shall
satisfy the requirements of Section 11(a) of the Act and Rule 158 of the Rules
and Regulations and will advise you in writing when such statement has been so
made available.
(vii) Prior to the Closing Date, the Company will
furnish to the Underwriters, as soon as they have been prepared by or are
available to the Company, a copy of any unaudited interim financial statements
of the Company for any period subsequent to the period covered by the most
recent financial statements appearing in the Registration Statement and the
Prospectus.
(viii) No offering, sale, short sale or other
disposition of any shares of Common Stock of the Company or other securities
convertible into or exchangeable or exercisable for shares of Common Stock or
derivative of Common Stock (or agreement for such) will be made for a period of
180 days after the date of this Agreement, directly or indirectly, by the
Company otherwise than hereunder or with the prior written consent of BT Alex.
Brown Incorporated on behalf of the Underwriters, except for the grant of
options to purchase shares of Common Stock pursuant to the 1998 Stock Option,
Deferred Stock and Restricted Stock Plan and shares of Common Stock issued
pursuant to the exercise of options granted under such plan and the grant of
purchase rights and issuance of shares under the 1998 Employee Stock Purchase
Plan, provided that such options and grants shall not vest, or the Company shall
obtain the written consent of the holder thereof not to transfer such shares,
until the end of such 180-day period.
(ix) The Company will list, subject to notice of
issuance, the Shares on the New York Stock Exchange.
(x) The Company has caused each officer,
director, stockholder and optionholder of the Company to furnish to you, on or
prior to the date of this agreement, a letter or letters, in form and substance
satisfactory to the Underwriters, pursuant to which each such person agrees,
subject to certain limited exceptions set forth therein, not to offer, pledge,
sell, contract to sell, sell any option or contract to purchase, sell short,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock, or enter into any swap or similar agreement that
transfers, in whole or in part, any of the economic consequences of ownership of
the Common Stock, for a period commencing on the date of the Prospectus and
continuing to a date 180 days after such date, except with the prior written
consent of BT Alex. Brown Incorporated on behalf of the Underwriters ("LOCKUP
AGREEMENTS").
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<PAGE> 14
(xi) The Company has caused each stockholder of
the Company to enter into, on or prior to the date of this agreement, an S
Corporation Termination, Tax Allocation and Indemnification Agreement
substantially in the form filed as an exhibit to the Registration Statement (the
"S CORPORATION AGREEMENT").
(xii) The Company shall apply the net proceeds of
its sale of the Shares as set forth in the Prospectus and shall include such
disclosure in reports with the Commission with respect to the sale of the Shares
and the application of the proceeds therefrom as may be required in accordance
with Rule 463 under the Act.
(xiii) The Company shall not invest, or otherwise
use the proceeds received by the Company from its sale of the Shares in such a
manner as would require the Company or the Subsidiary to register as an
investment company under the 1940 Act.
(xiv) The Company will maintain a transfer agent
and, if necessary under the jurisdiction of incorporation of the Company, a
registrar for the Class A Common Stock.
(xv) The Company will not take, directly or
indirectly, any action designed to cause or result in, or that has constituted
or might reasonably be expected to constitute, the stabilization or manipulation
of the price of any securities of the Company.
(b) The Selling Stockholder covenants and agrees with the
several Underwriters that:
(i) The Selling Stockholder will not offer,
pledge, sell, contract to sell, sell any option or contract to purchase, sell
short, purchase any option or contract to sell, grant any option, right or
warrant to purchase, lend or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, or enter into any swap or similar
agreement that transfers, in whole or in part, any of the economic consequences
of ownership of the Common Stock, for a period commencing on the date of the
Prospectus and continuing to a date 180 days after such date, otherwise than
hereunder or with the prior written consent of alex. Brown & Sons Incorporated
on behalf of the Underwriters; provided, however, that such restrictions shall
not apply to the Shares; and, provided, further, that such restrictions shall
not apply to shares of Class A Common Stock purchased by the Selling Stockholder
in the open market following the offering of the Shares.
(ii) In order to document the Underwriters'
compliance with the reporting and withholding provisions of the Tax Equity and
Fiscal Responsibility Act of 1982 and the Interest and Dividend Tax Compliance
Act of 1983 with respect to the transactions herein contemplated, the Selling
Stockholder agrees to deliver to you prior to or at the Closing Date a properly
completed and executed United States Treasury Department Form W-8 or W-9 (or
other applicable form or statement specified by Treasury Department regulations
in lieu thereof).
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<PAGE> 15
(iii) The Selling Stockholder will not take,
directly or indirectly, any action designed to cause or result in, or that has
constituted or might reasonably be expected to constitute, the stabilization or
manipulation of the price of any securities of the Company.
5. COSTS AND EXPENSES.
The Company will pay all costs, expenses and fees incident to
the performance of the obligations of the Sellers under this Agreement,
including, without limiting the generality of the foregoing, the following:
accounting fees of the Company; the fees and disbursements of counsel for the
Company and the Selling Stockholder; the cost of printing and delivering to, or
as requested by, the Underwriters copies of the Registration Statement,
Preliminary Prospectuses, the Prospectus, this Agreement, the Underwriters'
Selling Memorandum, the Underwriters' Invitation Letter, the Listing
Application, the Blue Sky Survey and any supplements or amendments thereto; the
filing fees of the Commission; the filing fees and expenses (including legal
fees and disbursements) incident to securing any required review by the NASD of
the terms of the sale of the Shares; the Listing Fee of the New York Stock
Exchange; and the expenses, including the fees and disbursements of counsel for
the Underwriters, incurred in connection with the qualification of the Shares
under state securities or Blue Sky laws. To the extent, if at all, that the
Selling Stockholder engages special legal counsel to represent it in connection
with this offering, the fees and expenses of such counsel shall be borne by such
Selling Stockholder. Any transfer taxes imposed on the sale of the Shares to the
several Underwriters will be paid by the Sellers pro rata. The Company agrees to
pay all costs and expenses of the Underwriters, including the fees and
disbursements of counsel for the Underwriters, incident to the offer and sale of
directed shares of the Class A Common Stock by the Underwriters to employees and
persons having business relationships with the Company and the Subsidiary. The
Sellers shall not, however, be required to pay for any of the Underwriters
expenses (other than those related to qualification under NASD regulation and
state securities or Blue Sky laws) except that, if this Agreement shall not be
consummated because the conditions in Section 6 hereof are not satisfied, or
because this Agreement is terminated by the Representatives pursuant to Section
11 hereof, or by reason of any failure, refusal or inability on the part of the
Company or the Selling Stockholder to perform any undertaking or satisfy any
condition of this Agreement or to comply with any of the terms hereof on their
part to be performed, unless such failure to satisfy said condition or to comply
with said terms is due to the default or omission of any Underwriter, then the
Company shall reimburse the several Underwriters for reasonable out-of-pocket
expenses, including fees and disbursements of counsel, reasonably incurred in
connection with investigating, marketing and proposing to market the Shares or
in contemplation of performing their obligations hereunder; but the Company and
the Selling Stockholder shall not in any event be liable to any of the several
Underwriters for damages on account of loss of anticipated profits from the sale
by them of the Shares.
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<PAGE> 16
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
The several obligations of the Underwriters to purchase the
Firm Shares on the Closing Date and the Option Shares, if any, on the Option
Closing Date are subject to the accuracy, as of the Closing Date or the Option
Closing Date, as the case may be, of the representations and warranties of the
Company and the Selling Stockholder contained herein, and to the performance by
the Company and the Selling Stockholder of their covenants and obligations
hereunder and to the following additional conditions:
(a) The Registration Statement and all post-effective
amendments thereto shall have become effective and any and all filings required
by Rule 424 and Rule 430A of the Rules and Regulations shall have been made, and
any request of the Commission for additional information (to be included in the
Registration Statement or otherwise) shall have been disclosed to the
Representatives and complied with to their reasonable satisfaction. No stop
order suspending the effectiveness of the Registration Statement, as amended
from time to time, shall have been issued and no proceedings for that purpose
shall have been taken or, to the knowledge of the Company or the Selling
Stockholder, shall be contemplated by the Commission and no injunction,
restraining order, or order of any nature by a Federal or state court of
competent jurisdiction shall have been issued as of the Closing Date which would
prevent the issuance of the Shares.
(b) The Representatives shall have received on the
Closing Date or the Option Closing Date, as the case may be, the opinion of
Freshman, Marantz, Orlanski, Cooper & Klein ("FMOCK"), counsel for the Company
and the Selling Stockholder, dated the Closing Date or the Option Closing Date,
as the case may be, addressed to the Underwriters (and stating that it may be
relied upon by counsel to the Underwriters) to the effect that:
(i) The Company has been duly organized and is
validly existing as a corporation in good standing under the laws of the State
of Delaware, with corporate power and authority to own or lease its properties
and conduct its business as described in the Registration Statement; the
Subsidiary has been duly organized and is validly existing as a corporation in
good standing under the laws of the jurisdiction of its incorporation, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement; the Company and the
Subsidiary are duly qualified to transact business in all jurisdictions in which
the conduct of their business requires such qualification, except where the
failure to be so qualified would not have a materially adverse effect upon the
business of the Company and the Subsidiary taken as a whole; and the outstanding
shares of capital stock of the Subsidiary have been duly authorized and validly
issued and are fully paid and non-assessable and are owned by the Company; and,
to the best of such counsel's knowledge, the outstanding shares of capital stock
of the Subsidiary are owned free and clear of all liens, encumbrances and
equities and claims, and no options, warrants or other rights to purchase,
agreements or other obligations to issue or other rights to convert any
obligations into any shares of capital stock or of ownership interests in the
Subsidiary are outstanding.
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<PAGE> 17
(ii) To such counsel's knowledge, except for the
Subsidiary, the Company does not own or control, directly or indirectly, any
corporation, association or other entity;
(iii) The Company has authorized and outstanding
capital stock as set forth under the caption "Capitalization" in the Prospectus;
the authorized shares of the Company's Common Stock have been duly authorized;
the outstanding shares of the Company's Common Stock, including the Shares to be
sold by the Selling Stockholder, have been duly authorized and validly issued
and are fully paid and non-assessable; all of the Shares conform to the
description thereof contained in the Prospectus; the certificates for the
Shares, assuming they are in the form filed with the Commission, are in due and
proper form; the shares of Common Stock, including the Option Shares, if any, to
be sold by the Company pursuant to this Agreement have been duly authorized and
will be validly issued, fully paid and non-assessable when issued and paid for
as contemplated by this Agreement; and no preemptive rights of stockholders
arising under the Company's Certificate of Incorporation or, to such counsel's
knowledge, otherwise exist with respect to any of the Shares or the issue or
sale thereof.
(iv) Except as described in or contemplated by
the Prospectus, to the knowledge of such counsel, there are no outstanding
securities of the Company convertible or exchangeable into or evidencing the
right to purchase or subscribe for any shares of capital stock of the Company
and there are no outstanding or authorized options, warrants or rights of any
character obligating the Company to issue any shares of its capital stock or any
securities convertible or exchangeable into or evidencing the right to purchase
or subscribe for any shares of such stock; and except as described in the
Prospectus, to the knowledge of such counsel, no holder of any securities of the
Company or any other person has the right, contractual or otherwise, which has
not been satisfied or effectively waived, to cause the Company to sell or
otherwise issue to them, or to permit them to underwrite the sale of, any of the
Shares or the right to have any Common Stock or other securities of the Company
included in the Registration Statement or the right, as a result of the filing
of the Registration Statement, to require registration under the Act of any
shares of Common Stock or other securities of the Company.
(v) The Registration Statement has become
effective under the Act and, to such counsel's knowledge, no stop order
proceedings with respect thereto have been instituted or are pending or
threatened under the Act.
(vi) The Registration Statement, the Prospectus
and each amendment or supplement thereto comply as to form in all material
respects with the requirements of the Act and the applicable rules and
regulations thereunder (except that such counsel need express no opinion as to
the financial statements and related schedules therein).
(vii) The statements (A) in the Prospectus under
the captions "Risk Factors -- Anti-Takeover Provisions, "Risk Factors -- Shares
Eligible for Future Sale," "Management," "Certain Transactions," "Description of
Capital Stock" and "Shares Eligible for Future Sale; Registration Rights" and
(B) in the Registration Statement in Items 14 and 15, in each case insofar as
such statements
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<PAGE> 18
constitute a summary of documents referred to therein or matters of law, fairly
summarize in all material respects the information called for with respect to
such documents and matters.
(viii) Such counsel does not know of any contracts
or documents required to be filed as exhibits to the Registration Statement or
described in the Registration Statement or the Prospectus which are not so filed
or described as required, and such contracts and documents as are summarized in
the Registration Statement or the Prospectus are fairly summarized in all
material respects.
(ix) Such counsel knows of no legal or
governmental proceedings pending or threatened against the Company or the
Subsidiary, except as set forth in the Prospectus, which, if determined
adversely to the Company would have a material adverse effect on the business of
the Company.
(x) The execution and delivery of this Agreement
and the consummation of the transactions herein contemplated do not and will not
conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under any agreement or instrument known to such counsel to
which the Company or the Subsidiary is a party or by which the Company or the
Subsidiary may be bound, which default would have a material adverse effect on
the business of the Company and the Subsidiary, taken as a whole, or affect the
ability of the Company to consummate the transactions contemplated hereby or
under the Certificate of Incorporation or Bylaws of the Company.
(xi) This Agreement has been duly authorized,
executed and delivered by the Company.
(xii) No approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory, administrative or
other governmental body is necessary in connection with the execution and
delivery of this Agreement and the consummation of the transactions herein
contemplated (other than as may be required by the NASD or as required by state
securities and Blue Sky laws as to which such counsel need express no opinion)
except such as have been obtained or made, specifying the same.
(xiii) The Company is not, and will not become, as
a result of the consummation of the transactions contemplated by this Agreement,
and application of the net proceeds therefrom as described in the Prospectus,
required to register as an investment company under the 1940 Act.
(xiv) Each of this Agreement, the Power of
Attorney and the Custody Agreement has been duly authorized, executed and
delivered on behalf of the Selling Stockholder.
(xv) The Selling Stockholder has full legal
right, power and authority, and any approval required by law (other than as
required by state securities and Blue Sky laws as to which such counsel need
express no opinion), to sell, assign, transfer and deliver the Shares to be sold
by such Selling Stockholder.
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<PAGE> 19
(xvi) The Custody Agreement and the Power of
Attorney executed and delivered by the Selling Stockholder is valid and binding.
(xvii) To our knowledge, the Underwriters (assuming
that they are bona fide purchasers within the meaning of the Uniform Commercial
Code) have acquired good and marketable title to the Shares being sold by the
Selling Stockholder on the Closing Date, and the Option Closing Date, as the
case may be, free and clear of all liens, encumbrances, equities and claims.
In rendering such opinion FMOCK may rely as to matters
governed by the laws of states other than Delaware or Federal laws on local
counsel in such jurisdictions, provided that in each case FMOCK shall state that
they believe that they and the Underwriters are justified in relying on such
other counsel. In addition to the matters set forth above, such opinion shall
also include a statement to the effect that nothing has come to the attention of
such counsel which leads them to believe that (i) the Registration Statement, at
the time it became effective under the Act (but after giving effect to any
modifications incorporated therein pursuant to Rule 430A under the Act) and as
of the Closing Date or the Option Closing Date, as the case may be, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and (ii) the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact necessary in order to make the
statements, in the light of the circumstances under which they are made, not
misleading (except that such counsel need express no view as to financial
statements, schedules and statistical information therein). With respect to such
statement, FMOCK may state that their belief is based upon the procedures set
forth therein, but is without independent check and verification.
(c) The Representatives shall have received on the
Closing Date or the Option Closing Date, as the case may be, the opinion of
Kleinberg & Lerner, special intellectual property counsel for the Company, dated
the Closing Date or the Option Closing Date, as the case may be, addressed to
the Underwriters (and stating that it may be relied upon by counsel to the
Underwriters) to the effect that:
(i) the Company is listed in the records of the
United States Patent and Trademark Office ("PTO") as the holder of record of the
registered trademarks "SKECHERS" and the "S in Shield design" (collectively, the
"TRADEMARKS"). To such counsel's knowledge, except as set forth in the
Prospectus or otherwise disclosed to the Underwriters in writing, there is no
claim of any party other than the Company to any ownership interest or lien with
respect to any of the Trademarks. As of March 31, 1999, to the best of such
counsel's knowledge based on information provided by local counsel, the Company
has a valid registered trademark or trademark application corresponding to the
Trademarks in each of the foreign jurisdictions listed on Exhibit A;
(ii) the statements in the Prospectus under the
captions "Risk Factors -- Ability to Protect Intellectual Property," and
"Business -- Intellectual Property Rights" (the "INTELLECTUAL PROPERTY
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<PAGE> 20
PORTIONS"), to our knowledge, insofar as such statements relate to trademarks,
patents, intellectual property or any legal matters, documents and proceedings
relating thereto fairly present the information called for with respect to such
legal matters, documents and proceedings and fairly summarize the matters
referred to therein.
(iii) to such counsel's knowledge, except as set
forth in the Prospectus or otherwise disclosed to the Underwriters in writing,
there is not pending or threatened in writing any action, suit, proceeding or
claim by others (A) challenging the validity or scope of the Trademarks or any
other material trademarks, trademark applications or domain names held by or
licensed to the Company, or (B) , asserting that any trademark is infringed by
the activities of the Company described in the Prospectus or by the manufacture,
use, sale, promotion or advertising of any of the Company's products or use of
its domain names.
(iv) to such counsel's knowledge, except as set
forth in the Prospectus or otherwise disclosed to the Underwriters in writing,
there is not pending or threatened in writing any action, suit, proceeding or
claim by the Company asserting infringement on the part of any third party of
the Trademarks or any other trademarks, domain names, trade names or advertising
slogans held by or licensed to the Company that are material to the business of
the Company.
(d) The Representatives shall have received from Wilson
Sonsini Goodrich & Rosati, Professional Corporation ("WSGR"), counsel for the
Underwriters, an opinion dated the Closing Date or the Option Closing Date, as
the case may be, substantially to the effect specified in subparagraphs (ii) (as
to matters relating to the shares only), (iv) and (ix) of Paragraph (b) of this
Section 6, and that the Company is a duly organized and validly existing
corporation under the laws of the State of Delaware. In rendering such opinion
WSGR may rely as to all matters governed other than by the laws of the State of
Delaware or Federal laws on the opinion of counsel referred to in Paragraph (b)
of this Section 6. In addition to the matters set forth above, such opinion
shall also include a statement to the effect that nothing has come to the
attention of such counsel which leads them to believe that (i) the Registration
Statement, or any amendment thereto, as of the time it became effective under
the Act (but after giving effect to any modifications incorporated therein
pursuant to Rule 430A under the Act) as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and (ii) the
Prospectus, or any supplement thereto, on the date it was filed pursuant to the
Rules and Regulations and as of the Closing Date or the Option Closing Date, as
the case may be, contained an untrue statement of a material fact or omitted to
state a material fact, necessary in order to make the statements, in the light
of the circumstances under which they are made, not misleading (except that such
counsel need express no view as to financial statements, schedules and
statistical information therein). With respect to such statement, WSGR may state
that their belief is based upon the procedures set forth therein, but is without
independent check and verification.
(e) You shall have received, on each of the dates hereof, the
Closing Date and the Option Closing Date, as the case may be, a letter dated the
date hereof, the Closing Date or the Option
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<PAGE> 21
Closing Date, as the case may be, in form and substance satisfactory to you, of
KPMG LLP confirming that they are independent public accountants within the
meaning of the Act and the applicable published Rules and Regulations thereunder
and stating that in their opinion the financial statements and schedules
examined by them and included in the Registration Statement comply in form in
all material respects with the applicable accounting requirements of the Act and
the related published Rules and Regulations; and containing such other
statements and information as is ordinarily included in accountants' "comfort
letters" to Underwriters with respect to the financial statements and certain
financial and statistical information contained in the Registration Statement
and Prospectus.
(f) The Representatives shall have received on the
Closing Date or the Option Closing Date, as the case may be, a certificate or
certificates of the Chief Executive Officer and the Chief Financial Officer of
the Company, signing on behalf of the Company, to the effect that, as of the
Closing Date or the Option Closing Date, as the case may be, each of them
severally represents as follows:
(i) The Registration Statement has become
effective under the Act and no stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for such purpose have
been taken or are, to the Company's knowledge, contemplated by the Commission;
(ii) The representations and warranties of the
Company contained in Section 1 hereof are true and correct as of the Closing
Date or the Option Closing Date, as the case may be;
(iii) All filings required to have been made
pursuant to Rules 424 or 430A under the Act have been made;
(iv) As of the effective date of the Registration
Statement, the statements contained in the Registration Statement were true and
correct, and such Registration Statement and Prospectus did not omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, and since the effective date of the
Registration Statement, no event has occurred which should have been set forth
in a supplement to or an amendment of the Prospectus which has not been so set
forth in such supplement or amendment; and
(v) Since the respective dates as of which
information is given in the Registration Statement and Prospectus, there has not
been any material adverse change or any development involving a prospective
material adverse change in or affecting the condition, financial or otherwise,
of the Company and the Subsidiary taken as a whole or the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the aeompany and the Subsidiary taken as a whole,
whether or not arising in the ordinary course of business.
(g) The Firm Shares and Option Shares, if any, shall have
been listed subject to notice of issuance on the New York Stock Exchange.
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<PAGE> 22
(h) The Underwriters shall have received on the Closing
Date a certificate, dated the Closing Date and signed by the Selling Stockholder
(or by their attorney-in-fact on their behalf), to the effect that the
representations and warranties of the Selling Stockholder contained in Section 1
of this Agreement are true and correct as of the Closing Date and that each
Selling Shareholder has complied with all of the agreements and satisfied all of
the conditions on its part to be performed or satisfied hereunder on or prior to
before the Closing Date
(i) The Lockup Agreements described in Section 4(x) shall
have been delivered to the Company and shall not have been amended.
(j) The S Corporation Agreement described in Section
4(xi) shall have been delivered to the Company and shall not have been amended.
The opinions and certificates mentioned in this Agreement
shall be deemed to be in compliance with the provisions hereof only if they are
in all material respects satisfactory to the Representatives and to WSGR,
counsel for the Underwriters.
If any of the conditions hereinabove provided for in this
Section 6 shall not have been fulfilled when and as required by this Agreement
to be fulfilled, the obligations of the Underwriters hereunder may be terminated
by the Representatives by notifying the Company and the Selling Stockholder of
such termination in writing or by telegram at or prior to the Closing Date or
the Option Closing Date, as the case may be.
In such event, the Selling Stockholder, the Company and the
Underwriters shall not be under any obligation to each other (except to the
extent provided in Sections 5 and 8 hereof).
7 CONDITIONS OF THE OBLIGATIONS OF THE SELLERS.
The obligations of the Sellers to sell and deliver the portion
of the Shares required to be delivered as and when specified in this Agreement
are subject to the conditions that at the Closing Date or the Option Closing
Date, as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
8 INDEMNIFICATION.
(a) The Company agrees:
(1) to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of the Act, against any losses, claims, damages or liabilities to which
such Underwriter or any such controlling person may become subject under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material
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<PAGE> 23
fact contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading any act or failure to
act, or (iii) any alleged act or failure to act by any Underwriter in connection
with, or relating in any manner to, the Shares or the offering contemplated
hereby, and which is included as part of or referred to in any loss, claim,
damage, liability or action arising out of or based upon matters covered by
clause (i) or (ii) above (provided, that the Company shall not be liable under
this clause (iii) to the extent that it is determined in a final judgment by a
court of competent jurisdiction that such loss, claim, damage, liability or
action resulted directly from any such acts or failures to act undertaken or
omitted to be taken by such Underwriter through its gross negligence or willful
misconduct); provided, however, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement, or omission or
alleged omission made in the Registration Statement, any Preliminary Prospectus,
the Prospectus, or such amendment or supplement, in reliance upon and in
conformity with written information furnished to the Company by or through the
Representatives specifically for use in the preparation thereof.
(2) to reimburse each Underwriter and each such
controlling person upon demand for any legal or other out-of-pocket expenses
reasonably incurred by such Underwriter or such controlling person in connection
with investigating or defending any such loss, claim, damage or liability,
action or proceeding or in responding to a subpoena or governmental inquiry
related to the offering of the Shares, whether or not such Underwriter or
controlling person is a party to any action or proceeding. In the event that it
is finally judicially determined that the Underwriters were not entitled to
receive payments for legal and other expenses pursuant to this subparagraph, the
Underwriters will promptly return all sums that had been advanced pursuant
hereto.
(b) The Selling Stockholder agrees to indemnify the
Underwriters and each person, if any, who controls any Underwriter within the
meaning of the Act, against any losses, claims, damages or liabilities to which
such Underwriter or controlling person may become subject under the Act or
otherwise to the same extent as indemnity is provided by the Company pursuant to
Section 8(a) above. In no event, however, shall the liability of the Selling
Stockholder for indemnification under this Section 8(a) exceed the sum of (i)
the proceeds received by the Selling Stockholder from the Underwriters in the
offering and (ii) the lesser of (A) the amount received by the Selling
Stockholder in repayment of promissory notes issued by the Company, which had an
aggregate of $12.2 million principal amount at December 31, 1998, and (B) $10.0
million. This indemnity obligation will be in addition to any liability which
the Company may otherwise have.
(c) Each Underwriter severally and not jointly will
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed the Registration Statement, the Selling Stockholder,
and each person, if any, who controls the Company or the Selling Stockholder
within the meaning of the Act, against any losses, claims, damages or
liabilities to which the Company or any such director, officer, Selling
Stockholder or controlling person may become subject under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out
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<PAGE> 24
of or are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto, or (ii) the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made; and will reimburse upon
demand any legal or other expenses reasonably incurred by the Company or any
such director, officer, Selling Stockholder or controlling person in connection
with investigating or defending any such loss, claim, damage, liability, action
or proceeding; provided, however, that each Underwriter will be liable in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission has been made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which such Underwriter may otherwise have.
(d) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to this Section 8, such person (the
"INDEMNIFIED PARTY") shall promptly notify the person against whom such
indemnity may be sought (the "INDEMNIFYING PARTY") in writing. No
indemnification provided for in Section 8(a), (b) or (c) shall be available to
any party who shall fail to give notice as provided in this Section 8(d) if the
party to whom notice was not given was unaware of the proceeding to which such
notice would have related and was materially prejudiced by the failure to give
such notice, but the failure to give such notice shall not relieve the
indemnifying party or parties from any liability which it or they may have to
the indemnified party for contribution or otherwise than on account of the
provisions of Section 8(a), (b) or (c). In case any such proceeding shall be
brought against any indemnified party and it shall notify the indemnifying party
of the commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party and shall pay as incurred the
fees and disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own counsel
at its own expense. Notwithstanding the foregoing, the indemnifying party shall
pay as incurred (or within 30 days of presentation) the fees and expenses of the
counsel retained by the indemnified party in the event (i) the indemnifying
party and the indemnified party shall have mutually agreed to the retention of
such counsel, (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them or (iii) the
indemnifying party shall have failed to assume the defense and employ counsel
acceptable to the indemnified party within a reasonable period of time after
notice of commencement of the action. It is understood that the indemnifying
party shall not, in connection with any proceeding or related proceedings in the
same jurisdiction, be liable for the reasonable fees and expenses of more than
one separate firm for all such indemnified parties. Such firm shall be
designated in writing by you in the case of parties indemnified pursuant to
Section 8(a) or (b) and by the Company and the Selling Stockholder in the case
of parties indemnified pursuant to Section 8(c). The indemnifying party shall
not be liable for any settlement of any proceeding effected without its written
consent but if settled with such
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<PAGE> 25
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. In addition, the
indemnifying party will not, without the prior written consent of the
indemnified party, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action or proceeding of which
indemnification may be sought hereunder (whether or not any indemnified party is
an actual or potential party to such claim, action or proceeding) unless such
settlement, compromise or consent includes an unconditional release of each
indemnified party from all liability arising out of such claim, action or
proceeding.
(e) If the indemnification provided for in this Section 8
is unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a), (b) or (c) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company and the
Selling Stockholder on the one hand and the Underwriters on the other from the
offering of the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law then each indemnifying
party shall contribute to such amount paid or payable by such indemnified party
in such proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of the Company and the Selling Stockholder on the
one hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities, (or
actions or proceedings in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Selling Stockholder on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company and the Selling Stockholder
bear to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Selling Stockholder on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company, the Selling Stockholder and the Underwriters
agree that it would not be just and equitable if contributions pursuant to this
Section 8(e) were determined by pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this Section 8(e). The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) referred to above in this Section 8(e) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this subsection (e), (i) no
Underwriter shall be required to contribute any amount in excess of the
underwriting discounts and commissions applicable to the Shares purchased by
such Underwriter, (ii) no person guilty of fraudulent misrepresentation (within
the
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<PAGE> 26
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation, and (iii) the
Selling Stockholder shall not be required to contribute any amount in excess of
the sum of (x) the proceeds received by the Selling Stockholder from the
Underwriters in the offering and (y) the lesser of (A) the amount received by
the Selling Stockholder in repayment of promissory notes issued by the Company,
which had an aggregate of $12.2 million principal amount at December 31, 1998,
and (B) $10.0 million. The Underwriters' obligations in this Section 8(e) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(f) In any proceeding relating to the Registration
Statement, any Preliminary Prospectus, the Prospectus or any supplement or
amendment thereto, each party against whom contribution may be sought under this
Section 8 hereby consents to the jurisdiction of any court having jurisdiction
over any other contributing party, agrees that process issuing from such court
may be served upon him or it by any other contributing party and consents to the
service of such process and agrees that any other contributing party may join
him or it as an additional defendant in any such proceeding in which such other
contributing party is a party.
(g) Any losses, claims, damages, liabilities or expenses
for which an indemnified party is entitled to indemnification or contribution
under this Section 8 shall be paid by the indemnifying party to the indemnified
party as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company and the Selling Stockholder set
forth in this Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any Underwriter or
any person controlling any Underwriter, the Company, its directors or officers
or any persons controlling the Company, (ii) acceptance of any Shares and
payment therefor hereunder, and (iii) any termination of this Agreement. A
successor to any Underwriter, or to the Company, its directors or officers, or
any person controlling the Company, shall be entitled to the benefits of the
indemnity, contribution and reimbursement agreements contained in this
Section 8.
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<PAGE> 27
9 DEFAULT BY UNDERWRITERS.
If on the Closing Date or the Option Closing Date, as the case
may be, any Underwriter shall fail to purchase and pay for the portion of the
Shares which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company or the
Selling Stockholder), you, as Representatives of the Underwriters, shall use
your reasonable efforts to procure within 36 hours thereafter one or more of the
other Underwriters, or any others, to purchase from the Company and the Selling
Stockholder such amounts as may be agreed upon and upon the terms set forth
herein, the Firm Shares or Option Shares, as the case may be, which the
defaulting Underwriter or Underwriters failed to purchase. If during such 36
hours you, as such Representatives, shall not have procured such other
Underwriters, or any others, to purchase the Firm Shares or Option Shares, as
the case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (a) if the aggregate number of shares with respect to which
such default shall occur does not exceed 10% of the Firm Shares or Option
Shares, as the case may be, covered hereby, the other Underwriters shall be
obligated, severally, in proportion to the respective numbers of Firm Shares or
Option Shares, as the case may be, which they are obligated to purchase
hereunder, to purchase the Firm Shares or Option Shares, as the case may be,
which such defaulting Underwriter or Underwriters failed to purchase, or (b) if
the aggregate number of shares of Firm Shares or Option Shares, as the case may
be, with respect to which such default shall occur exceeds 10% of the Firm
Shares or Option Shares, as the case may be, covered hereby, the Company and the
Selling Stockholder or you as the Representatives of the Underwriters will have
the right, by written notice given within the next 36-hour period to the parties
to this Agreement, to terminate this Agreement without liability on the part of
the non-defaulting Underwriters or of the Company or of the Selling Stockholder
except to the extent provided in Section 8 hereof. In the event of a default by
any Underwriter or Underwriters, as set forth in this Section 9, the Closing
Date or Option Closing Date, as the case may be, may be postponed for such
period, not exceeding seven days, as you, as Representatives, may determine in
order that the required changes in the Registration Statement or in the
Prospectus or in any other documents or arrangements may be effected. The term
"Underwriter" includes any person substituted for a defaulting Underwriter. Any
action taken under this Section 9 shall not relieve any defaulting Underwriter
from liability in respect of any default of such Underwriter under this
Agreement.
10 NOTICES.
All communications hereunder shall be in writing and, except
as otherwise provided herein, will be mailed, delivered, telecopied or
telegraphed and confirmed as follows: if to the Underwriters, to BT Alex. Brown
Incorporated, One South Street, Baltimore, Maryland 21202, Attention: Gregory J.
Shaia; with a copy to BT Alex. Brown Incorporated, One Bankers Trust Plaza, 130
Liberty Street, New York, New York 10006, Attention: General Counsel; if to the
Company or the Selling Stockholder, to 228 Manhattan Beach Boulevard, Manhattan
Beach, California 90266, Attention: Robert Greenberg.
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<PAGE> 28
11 TERMINATION.
(a) This Agreement may be terminated by you by notice to
the Sellers at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change or any
development involving a prospective material adverse change in or affecting the
condition, financial or otherwise, of the Company and the Subsidiary taken as a
whole or the earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of the Company and
the Subsidiary taken as a whole, whether or not arising in the ordinary course
of business, (ii) any outbreak or escalation of hostilities or declaration of
war or national emergency or other national or international calamity or crisis
or change in economic or political conditions if the effect of such outbreak,
escalation, declaration, emergency, calamity, crisis or change on the financial
markets of the United States would, in your reasonable judgment, make it
impracticable or inadvisable to market the Shares or to enforce contracts for
the sale of the Shares, or (iii) suspension of trading in securities generally
on the New York Stock Exchange or the American Stock Exchange or limitation on
prices (other than limitations on hours or numbers of days of trading) for
securities on either such Exchange, (iv) the enactment, publication, decree or
other promulgation of any statute, regulation, rule or order of any court or
other governmental authority which in your opinion materially and adversely
affects or may materially and adversely affect the business or operations of the
Company, (v) declaration of a banking moratorium by United States or New York
State authorities, (vi) any downgrading, or placement on any watch list for
possible downgrading, in the rating of the Company's debt securities by any
"nationally recognized statistical rating organization" (as defined for purposes
of Rule 436(g) under the Exchange Act); (vii) the suspension of trading of the
Company's Class A Common Stock by the New York Stock Exchange, the Commission,
or any other governmental authority or, (viii) the taking of any action by any
governmental or regulatory body or agency in respect of its monetary or fiscal
affairs which in your reasonable opinion has a material adverse effect on the
securities markets in the United States; or
(b) as provided in Sections 6 and 9 of this Agreement.
12 SUCCESSORS.
This Agreement has been and is made solely for the benefit of
the Underwriters, the Company and the Selling Stockholder and their respective
successors, executors, administrators, heirs and assigns, and the officers,
directors and controlling persons referred to herein, and no other person will
have any right or obligation hereunder. No purchaser of any of the Shares from
any Underwriter shall be deemed a successor or assign merely because of such
purchase.
13 INFORMATION PROVIDED BY UNDERWRITERS.
The Company, the Selling Stockholder and the Underwriters
acknowledge and agree that the only information furnished or to be furnished by
any Underwriter to the Company for inclusion in any Prospectus or the
Registration Statement consists of the information set forth in the last
paragraph on the
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<PAGE> 29
front cover page (insofar as such information relates to the Underwriters), the
legend set forth on the inside front cover of the Prospectus and the information
under the caption "Underwriting" in the Prospectus.
14 MISCELLANEOUS.
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants in
this Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company or
its directors or officers and (c) delivery of and payment for the Shares under
this Agreement.
This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Maryland.
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Selling Stockholder, the
Company and the several Underwriters in accordance with its terms.
Any person executing and delivering this Agreement as Attorney-in-Fact
for a Selling Stockholder represents by so doing that he has been duly appointed
as Attorney-in-Fact by such Selling Stockholder pursuant to a validly existing
and binding Power of Attorney which authorizes such Attorney-in-Fact to take
such action.
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<PAGE> 30
Very truly yours,
SKECHERS U.S.A., INC.
By: /s/ Robert Greenberg
--------------------------------------
Chief Executive Officer
SELLING STOCKHOLDER
Robert M. Greenberg and M. Susan Greenberg
as Trustees of The Greenberg Family Trust
/s/ Robert Greenberg
------------------------------------------
Robert M. Greenberg
/s/ M. Susan Greenberg
------------------------------------------
M. Susan Greenberg
The foregoing Underwriting Agreement is
hereby confirmed and accepted as of the
date first above written.
BT ALEX. BROWN INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
As Representatives of the several
Underwriters listed on Schedule I
By: BT Alex. Brown Incorporated
By: /s/ illegible
-----------------------------
Authorized Officer
<PAGE> 31
SCHEDULE I
SCHEDULE OF UNDERWRITERS
<TABLE>
<CAPTION>
NUMBER OF FIRM SHARES
UNDERWRITER TO BE PURCHASED
- -------------------------------------------------------------------------------------- ------------------------------
<S> <C>
BT Alex. Brown Incorporated........................................................ 1,715,000
Prudential Securities Incorporated................................................. 735,000
Bear Stearns & Co. Inc............................................................. 300,000
CIBC World Markets................................................................. 300,000
Donaldson, Lufkin & Jenrette Securities............................................ 300,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated................................. 300,000
Morgan Stanley & Co. Incorporated.................................................. 300,000
Salomon Smith Barney Inc........................................................... 300,000
Wasserstein Perella Securities, Inc................................................ 300,000
Blaylock & Partners, L.P........................................................... 175,000
J.C. Bradford & Co................................................................. 175,000
Dain Rauscher Wessels.............................................................. 175,000
EBI Securities Corporation......................................................... 175,000
Ferris, Baker Watts, Inc........................................................... 175,000
Gerard Klauer Mattison & Co., Inc.................................................. 175,000
Gruntal & Co., L.L.C............................................................... 175,000
Josephthal & Co. Inc............................................................... 175,000
McDonald Investments Inc., a Keycorp Company....................................... 175,000
Edgar M. Norris & Co. Inc.......................................................... 175,000
Suntrust Equitable Securities Corporation.......................................... 175,000
Tucker Anthony Incorporated........................................................ 175,000
First Security Van Kasper.......................................................... 175,000
Wedbush Morgan Securities Inc...................................................... 175,000
TOTAL.............................................................................. 7,000,000
---------
</TABLE>
<PAGE> 32
SCHEDULE II
SCHEDULE OF SELLING STOCKHOLDER
<TABLE>
<CAPTION>
NUMBER OF OPTION SHARES
SELLING STOCKHOLDER TO BE PURCHASED
- ------------------------------------------------------------------------------------ --------------------------------
<S> <C>
Robert M. Greenberg and M. Susan Greenberg as trustees of the Greenberg Family Trust 1,050,000
TOTAL 1,050,000
</TABLE>
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the 14th day of June,
1999 (the "Effective Date"), by and between Skechers U.S.A., Inc., a Delaware
corporation, hereinafter referred to as "Employer" and Robert Y.
Greenberg, hereinafter referred to as "Employee."
The parties contract with reference to the following facts:
A. Employer desires to employ Employee as its Chairman of the Board and
Chief Executive Officer and Employee desires to accept employment with Employer
in such capacity.
B. The parties are willing to enter into an Agreement providing for
such employment upon the terms and conditions hereinafter set forth.
THEREFORE, the parties agree as follows:
1. EMPLOYMENT. Employer hereby agrees to employ, and does hereby
employ, Employee and Employee agrees to accept and hereby accepts employment by
Employer, on the terms and subject to the conditions set forth in this
Agreement.
2. COMPENSATION.
2.1 Salary. Employer shall pay to Employee a gross annual
salary, as determined from time to time by the Board of Directors of Employer,
provided; however, that in no event shall Employee's salary hereunder be at an
annual rate less than Five Hundred Thousand Dollars ($500,000) ("Salary"). Said
Salary to be paid bi-weekly or in accordance with Employer's regular payroll
practices.
2.2 Performance-Based Annual Bonus. For each full year during
Employee's term as set forth in Section 5, commencing on the Effective Date,
Employee shall be eligible to receive a cash bonus based on Employer's
achievement of certain financial goals ("Performance-Based Annual Bonus"). For
calendar year 1999, and until changed by the Board's Compensation Committee, the
annual cash bonus award shall be determined on the basis of Employer's annual
return on average equity ("ROE").
(a) if ROE for the calendar year is between 20.0% and
24.9%, the cash bonus shall be equal to 50% of Employee's annual salary for the
subject calendar year pursuant to Section 2.1;
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<PAGE> 2
(b) if ROE for the calendar year is at least equal to
or greater than 25.0%, the cash bonus shall be equal to 100% of Employee's
annual salary for the subject calendar year pursuant to Section 2.1; and
(c) The Performance-Based Annual Bonus payable for
any calendar year shall be paid to Employee no later than the 15th day of April
of the following year. Nothing herein shall preclude Employee from participating
in any equity or equity-based compensation program of Employer and the bonus
program set forth in this Section 2.2 herein may be replaced with a different
program approved by the Board's Compensation Committee and agreed with
by Employee.
2.3 Tax Withholding. Employer shall provide for the
withholding of any taxes required to be withheld by Federal, state and local law
with respect to any payment in cash, shares of capital stock or other property
made by or on behalf of Employer to or for the benefit of Employee under this
Agreement or otherwise. Employer may, at its option: (i) withhold such taxes
from any cash payments owing from Employer to Employee, including any payments
owing under any other provision of the Agreement, (ii) require Employee to pay
to Employer in cash such amount as may be required to satisfy such withholding
or (iii) make other satisfactory arrangements with Employee to satisfy such
withholding obligations.
3. DUTIES, TIME AND EFFORTS. Employee shall serve as Chairman of the
Board and Chief Executive Officer of Employer, as such, shall report to the
Board of Directors or any Executive Committee of the Board of Directors of
Employer and his duties shall include generally, but without limitation,
authority and responsibility for the whole overall supervision of the operations
of Employer; and he shall also undertake such other reasonable duties of a
similar managerial nature as the Board of Directors or Executive Committee of
Employer may at any time, or from time to time, direct him to perform. It is
understood that Employee may be required to provide services to other
corporations owned by or, affiliated with Employer, without additional
compensation. Other than providing services to affiliates, Employee shall
devote his full productive time, energies,
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<PAGE> 3
and abilities to the proper and efficient performance of Employer's
business pursuant to the employment hereunder. Employee shall at all times
during the term hereof be furnished with such office, stenographic and other
necessary secretarial assistance, and such other facilities, amenities and
services as are suitable to Employee's position as Chief Executive Officer of
Employer and adequate for the performance of Employee's duties hereunder. Unless
otherwise agreed to by Employee, Employee's offices shall be maintained at the
premises of the principal office of the Employer in Manhattan Beach, California;
provided, however, that in connection with the performance of his duties and
responsibilities, Employee acknowledges that he may be required to undertake
significant business traveling. Employee may not, without the prior express
authorization of Employer's Board of Directors, directly or indirectly, during
the term of this Agreement engage in any activity competitive with Employer's
business or practice, whether acting alone, as a partner, or as an officer,
director or employee of any other corporation, whether professional or
otherwise; provided, however that nothing herein contained shall prevent
Employee from purchasing and/or holding less than five percent (5%) of the
issued and outstanding stock of a publicly-held corporation which competes with
Employer.
4. VACATION. Employee shall be entitled to a paid vacation of four (4)
weeks during each twelve (12) month period of the term of this Agreement. The
date or dates of said vacation shall be determined by Employee and the Board of
Directors of Employer. If for any reason Employee does not take his full four
(4) weeks of vacation as provided above, he may carry over a maximum of one (1)
week into the following year, but if he does not use the carried over vacation
week in that year it shall expire. Therefore, under no circumstances, regardless
of Employee's failure to take vacations, would he be entitled to more than five
(5) weeks vacation during any twelve (12) month period.
5. TERM. The term of employment shall commence upon the date of this
Agreement and terminate on the 13th day of June, 2002 unless sooner terminated
upon the happening of any of the following events:
5.1 Upon Mutual Agreement. Whenever Employer and
Employee shall otherwise mutually agree to termination.
5.2 Death. Death of Employee.
5.3 Disability. Disability of Employee, either physically or
mentally, not arising out of an injury sustained while on Employer's business
extending beyond One Hundred and Fifty (150) consecutive days, or totaling more
than one hundred eighty (180) days in any period of three hundred sixty-five
(365) days (not limited to any calendar or fiscal year). Such determination to
be based upon a certificate as to such physical or mental disability employed by
Employer.
5.4 Termination for Cause After Notice and Failure to Cure.
Employer may at any time during the term of this Agreement, terminate Employee's
employment with Employer for cause ("Cause"), by written notice to Employee by
complying with the notice
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requirements and restrictions in Section 5.8. Cause shall be limited to the
following reasons:
(a) Conviction of Employee for, or Employee
pleads guilty or nolo contendere on, any crime involving a dishonest act or
involving any behavior not expected of a Chief Executive Officer of a public
corporation, which would make the continuance of his employment by Employer
detrimental to Employer.
(b) Knowing and intentional commission of a
material dishonest act by Employee in the scope of his employment, including,
but not limited to theft, embezzlement, falsification of records,
misappropriation of funds or property, or fraud against, or with respect to the
business of, Employer or any affiliate, which would make the continuance of his
employment by Employer detrimental to Employer.
(c) Persistent malfeasance, misfeasance or
non-feasance in connection with the performance of his duties.
(d) Employee commits any act that causes, or
knowingly fails to take reasonable and appropriate action to prevent, any
material injury to the financial condition or business reputation of Employer
or any of its affiliates; however, this shall not apply to (i) any act of
Employer or its affiliates by any other employee thereof except to the extent
that such act is committed at the direction, or with the knowledge, of Employee
or (ii) any action in which Employee acted in good faith and in a manner
reasonably to be in or not opposed to the best interests of Employer, as
determined by Employer's Board of Directors.
(e) Breach of any material provision of this
Agreement.
5.5 Good Reason (by Employee). Employee's employment may be
terminated by Employee at any time for any of the following reasons (each of
which is referred to herein as "Good Reason") by giving the Employer effective
date of such termination (which effective date may be the date of such notice):
(a) Employer commits a breach of any material
term of this Agreement and, if such breach is capable of being cured, fails
to cure such breach within 15 days of receipt of written notice of such
breach; or
(b) Employer removes Employee from the position
of Chief Executive Officer of Employer other than for Cause, or Employer
effects any diminution of the powers, duties or authority of Employee, in each
case, without the prior written consent of the Employee.
5.6 Executive's Rights to Terminate. Employee may, at his
option, terminate his employment hereunder for any reason upon 60 days' prior
written notice to Employer.
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5.7 Without Cause. Employer may, at its option, terminate
Employee's employment without Cause at any time upon written notice to Employee.
5.8 Notice Requirements and Restrictions. Provided however,
and by restriction to the right of Employer set forth in Section 5.4, in the
event Employer contends that Employee is not performing the services required by
this Agreement or that it has Cause to terminate this Agreement pursuant to
Section 5.4 of this Agreement, Employer shall provide Employee with a written
notice specifying in reasonable detail the services or matters in which it
contends Employee has not been adequately performing and why Employer has Cause
to terminate this Agreement, and what Employee should do to adequately perform
his obligations hereunder. If Employee performs the required services within
fifteen (15) days of receipt of the notice or modified his performance to
correct the matters complained of, Employee's breach will be deemed cured and he
shall not be terminated; provided, however, if the nature of the service not
performed by Employee or the matters complained of are such that more than
fifteen (15) days are reasonably required to perform the required service or to
correct the matters complained of, then Employee's breach will be deemed cured
if Employee commences to perform such service or to correct such matters within
said fifteen (15) day period and thereafter diligently prosecutes such
performance or correction to completion. If Employee does not perform the
required services or modify his performance to correct the matters complained of
within said period Employer shall have the right to terminate this Agreement at
the end of said fifteen (15) day period. It is understood that Employee's
performance hereunder will not be deemed unsatisfactory solely on the basis of
any economic performance of Employer, though the Board of Directors of Employer
may consider economic performance as a factor. For purpose of this Agreement,
the "Date of Termination" shall mean the later of the date that any party gives
written notice that it intends to terminate this Agreement pursuant to the terms
hereof, or the date, if any, specified by the terminating party in such notice
as the effective date of termination.
6. OBLIGATIONS OF THE CORPORATION UPON TERMINATION.
6.1 Cause or Voluntary. If Employee's employment shall be
terminated under Sections 5.1, 5.2, 5.4 or 5.6, Employer's obligations to
Employee shall terminate, other than the obligation (i) to pay to Employee his
Salary through the Date of Termination at the rate in effect on the day
preceding the Date of Termination, (ii) any bonus due as of the Date of
Termination, and (iii) to continue to provide Employee with benefits of the type
described in Section 9 through the Date of Termination.
6.2 Without Cause or for Good Reason. If Employer shall
terminate Employee's employment without Cause pursuant to Section 5.7, or if
Employee shall terminate his employment for Good Reason pursuant to Section 5.5,
Employer shall (i) continue, in accordance with Employer's normal payroll
procedures, to pay the Employee his Salary through the Expiration Date of this
Agreement, (ii) continue to pay the Employee his Performance - Based Annual
Bonus pursuant to Section 2.2 through the Expiration Date of this Agreement at
the rate in effect on the day
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preceding the Date of Termination, and (iii) continue to provide the Executive
with benefits of the type described in Section 9 through the Expiration Date of
this Agreement.
6.3 Disability. During any period of total disability, Employee
shall be entitled to his full compensation as provided for hereunder for a
period of three (3) months. Thereafter during such period of total disability,
Employee shall be entitled to compensation for the balance of the term of this
Agreement equal to the Base Salary otherwise payable to the Employee under
Section 2.1 hereof, during such period of total disability, less amounts
received by the Employee under a policy provided pursuant to Section 9.6.
7. EMPLOYER'S AUTHORITY. To the extent that the following is not
inconsistent with the other provisions of this Agreement, Employee agrees to
observe and comply with the rules and regulations of Employer as adopted by
Employer's Board of Directors respecting performance of this duties and to carry
out and perform orders, directions and policies of Employer as they may be, from
time to time, stated to him either orally or in writing.
8. EFFECTIVE DATE. The effective date of this Agreement shall be the
date of execution as indicated above.
9. EXPENSES AND FRINGE BENEFITS.
9.1 Employer and Employee agree that proper discharge of the
duties imposed upon Employee shall require the frequent use of an automobile.
Employer hereby agrees that it shall provide to Employee an automobile, chosen
by the Employee and suitable for use by the Chief Executive Officer of a public
company such as Employer. Such automobile shall be purchased or leased by
Employer and provided to Employee for his exclusive use, or at the option of
Employee, Employee shall purchase or lease an automobile and the cost thereof
shall be reimbursed by Employer. In addition to providing the automobile,
Employer shall pay or reimburse all reasonable expenses incurred by Employee in
connection with the use and operation of the automobile. Further, should
Employee so desire, Employer shall provide a driver for Employee's automobile,
during such hours and at such times as may be reasonable for the proper
performance of Employee's duties as Chief Executive Officer of a public company.
9.2 Employer and Employee agree that it is necessary and
proper for Employee to maintain membership in certain private clubs, civic and
fraternal organizations and other associations and that such membership shall be
in the best interests of Employer and in furtherance of Employee's obligations
hereunder. Employer agrees to pay or reimburse the costs of any such membership
in any such clubs, groups or organizations which Employee shall, in his
discretion, determine to be in the best interests of the Employee. In the event
the cost of any such membership shall exceed One Thousand Dollars ($1,000.00)
per month or shall represent the purchase of an equity interest in such club,
group or organization (an "equity membership"), the payment of the cost of such
membership shall be subject to the approval of the Board of Directors. Any
equity
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membership so approved shall be held in the name of Employee during the
term of this Agreement and, upon the termination hereof, Employee shall have the
right to retain such equity membership for a payment to Employer in an amount
equal to the initial cost thereof.
9.3 Without limiting the generality of the obligations of
Employer pursuant to Sections 9.1 and 9.2 Employer shall also pay or reimburse
all expenses reasonably incurred by Employee in discharge or Employee's duties
hereunder. Such expenses shall include, without limitation, the following:
(a) Education expenses incurred for the purpose of
maintaining or improving Employee's skills;
(b) Expenses for travel, lodging, and related
expenses in connection with conventions or meetings,
attendance at which is necessary or appropriate in connection
with the performance by Employee of his duties required
hereunder;
(c) Expenses for meals, entertainment and similar
items reasonably incurred by Employee in connection with the
business of Employer; and
(d) Such other expenses incurred by Employee
reasonably related to the discharge by Employee of his duties
as set forth herein.
9.4 Employer reserves the right to require, as a condition of
payment or reimbursement for any item pursuant to Section 9.3, Employee to
furnish Employer with reasonable documentation evidencing that the expense has
been incurred and the relationship of such item to the business of Employer or
the duties of Employee.
9.5 Employer shall provide, for the benefit of Employee and
his spouse, standard coverage medical insurance, with additional coverage for
dental expenses.
9.6 Notwithstanding any provision herein to the contrary,
Employer shall provide the Employee all other Employee fringe benefits which are
generally provided for or made available to the employees of Employer.
10. CONFIDENTIAL DISCLOSURE. Except to the extent that the proper
performance of Employee's duties pursuant to this Agreement may require
disclosure, Employee agrees that he will not for any reason or at any time
during the term of this Agreement disclose, communicate or divulge to, or use
for the direct or indirect benefit of any person, firm or association or company
other than Employer, any secret or confidential information relating to the
customer lists, policies, processes, prospects, products, operations or services
of Employer or any other secret or confidential information relating to Employer
or its affiliates or the products or services and the accounting, marketing,
selling, financing and other business methods and techniques of Employer.
However,
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confidential information shall not include (A) at the time of disclosure to
Employee such information that was in the public domain or later entered the
public domain other than as a result of a breach of an obligation herein; or (B)
subsequent to disclosure to Employee, Employee received such information from a
third party under no obligation to maintain such information in confidence, and
the third party came into possession of such information other than as a result
of a breach of an obligation herein. All documents, materials or articles of
information of any kind furnished to Employee by Employer or developed by
Employee in the course of his employment hereunder are and shall remain the sole
property of Employer; and if Employer requests the return of such information at
any time during, upon or after the termination of Employee's employment
hereunder, Employee shall immediately deliver the same to Employer. Employee
agrees that the remedy at law for any breach of the foregoing may be inadequate,
and that Employer shall be entitled to any type of injunctive relief for any
such breach in addition to any other rights or remedies in law or equity to
which Employer may be entitled.
11. MISCELLANEOUS.
11.1 Assignability of Agreement. The provisions of this
Agreement shall inure to the benefit of the parties hereto, and their respective
permitted heirs, legal representatives, successors and assigns. Employer shall
require any successor (whether direct or indirect, by purchase, merger,
reorganization, consolidation, acquisition of property or stock, liquidation or
otherwise) to all or a significant portion of its assets, by agreement in form
and substance satisfactory to Employee, expressly to assume and agree to perform
this Agreement in the same manner and to the same extent that Employer would be
required to perform this Agreement if no such succession had taken place. The
obligations of Employee under this Agreement shall be personal and not delegable
by him in any manner whatsoever.
11.2 Notices. Any notice, request, instruction or other
document to be given hereunder by either party hereto to the other shall be in
writing and delivered personally or sent by certified or registered mail,
postage prepaid, and if mailed to any addressed in a state other than the state
of mailing, by air mail, addressed as follows:
(a) If to Employee, to:
Robert Y. Greenberg
228 Manhattan Beach Boulevard
Manhattan Beach, California 90266
(b) If to Employer, to:
Skechers U.S.A., Inc.
228 Manhattan Beach Boulevard
Manhattan Beach, California 90266
Attn: David Weinberg, Chief Financial Officer
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Any notice so given shall be deemed received when delivered personally, or (if
mailed) when dispatched. Any party may change the address to which notices are
to be sent by giving written notice of such change of address to the other party
in the manner herein provided for giving notice.
11.3 Waiver. No waiver of any breach of any warranty,
representation, covenant or other term or provision of this Agreement shall be
deemed to be a waiver of any preceding or succeeding breach of the same or any
other warranty, representation, covenant, term or provision. No extension of the
time for performance of any obligation or other act shall be deemed to be an
extension of the time for the performance of any other obligation of any other
act.
11.4 Amendment to Agreement. This Agreement contains the
entire agreement between the parties hereto with respect to the transactions
contemplated herein, and may not be amended, supplemented or discharged except
by an instrument in writing signed by both parties hereto. This Agreement
supersedes any and all previous Employment Agreements between the parties which
are hereby revoked.
11.5 Disputes/Attorneys Fees. Should any dispute arise
concerning the terms or the interpretations of this Agreement, and such dispute
results in arbitration and/or litigation then, unless otherwise directed by the
court, the prevailing party shall be entitled to and be awarded reasonable
attorneys' fees and costs in addition to any other relief to which it may be
entitled.
11.6 Time of the Essence. Time is of the essence of each
provision of this Agreement in which time is an element.
11.7 Arbitration. The parties agree if any controversy or
claim shall arise out of this Agreement or the breach hereof and either party
shall request that the matter be settled by arbitration the matter shall be
settled exclusively by arbitration in accordance with the rules then in effect
of the American Arbitration Association in the City of Los Angeles, California,
as the same may be modified by the statutes of California then in effect, by a
single arbitrator, if the parties shall agree upon one, or by one arbitrator
appointee by each party and a third arbitrator appointed by the other
arbitrators. In case of any failure of a party to make an appointment referred
to above within two (2) weeks after written notice of controversy, such
appointment shall be made by the Association. All arbitration proceedings shall
be held in the City of Los Angeles, California, and each party agrees to comply
in all respects with any award made in such proceeding and to the entry of a
judgment in any jurisdiction upon any award rendered in such proceeding. All
costs and expenses of arbitration (including costs of preparation therefor and
reasonable attorneys' fees incurred in connection therewith) of the party
prevailing in such arbitration shall be borne by the losing party to such
arbitration, unless otherwise directed by the arbitrators. Notwithstanding any
provision of this section herein set forth, no party may make a request for
arbitration hereunder with respect to any matter at any time following
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the expiration of thirty days after notice of the filing of a legal action with
respect to such matters in a court of competent jurisdiction.
11.8 Indemnification. Employer agrees to indemnify Employee
for any and all liabilities to which he may be subject as a result of his
service as an officer, director or other corporate agent of Employer, or of any
other enterprise at the request of the Employer, or otherwise as a result of his
employment hereunder, as well as the expense (including, without limitation,
reasonable counsel fees) of any proceeding brought or threatened against
Employee as a result of such service or employment, to the fullest extent
permitted by law. Such counsel fees shall, to the fullest extent permitted by
law, be paid by Employer in advance of the final disposition of the proceeding
upon receipt of an undertaking of Employee satisfactory to counsel for Employer
to repay such fees unless it shall ultimately be determined that he is not
entitled to be indemnified with respect thereto.
11.9 Execution in Counterparts. This Agreement may be executed
by the parties hereto in two counterparts, each of which shall be deemed to be
an original, but all such counterparts shall constitute one and the same
instrument, and all signatures need not appear on any one counterpart
11.10 Severability. If any provision of this Agreement shall
be adjudged by any court of competent jurisdiction to be invalid or
unenforceable for any reason, such judgment shall not affect, impair or
invalidate the remainder of this Agreement
11.11 Headings Descriptive. The headings of the several
paragraphs of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any of this Agreement.
11.12 Governing Law. This Agreement shall be construed in
accordance with and be governed by the laws of the State of California.
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IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the Effective Date.
"EMPLOYER"
Skechers, U.S.A., Inc.
By: /s/ MICHAEL GREENBERG
--------------------------------
Name: Michael Greenberg
Title: President
"EMPLOYEE"
/s/ ROBERT Y. GREENBERG
---------------------------------
Robert Y. Greenberg
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EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the 14th day of June,
1999 (the "Effective Date"), by and between Skechers U.S.A., Inc., a Delaware
corporation, hereinafter referred to as "Employer" and Michael Greenberg
hereinafter referred to as "Employee."
The parties contract with reference to the following facts:
A. Employer desires to employ Employee as its President and Employee
desires to accept employment with Employer in such capacity.
B. The parties are willing to enter into an Agreement providing for
such employment upon the terms and conditions hereinafter set forth.
THEREFORE, the parties agree as follows:
1. EMPLOYMENT. Employer hereby agrees to employ, and does hereby
employ, Employee and Employee agrees to accept and hereby accepts employment by
Employer, on the terms and subject to the conditions set forth in this
Agreement.
2. COMPENSATION.
2.1 Salary. Employer shall pay to Employee a gross annual
salary, as determined from time to time by the Board of Directors of Employer,
provided; however, that in no event shall Employee's salary hereunder be at an
annual rate less than Three Hundred Fifty Thousand Dollars ($350,000)
("Salary"). Said Salary to be paid bi-weekly or in accordance with Employer's
regular payroll practices.
2.2 Performance-Based Annual Bonus. For each full year during
Employee's term as set forth in Section 5, commencing on the Effective Date,
Employee shall be eligible to receive a cash bonus based on Employer's
achievement of certain financial goals ("Performance-Based Annual Bonus"). For
calendar year 1999, and until changed by the Board's Compensation Committee, the
annual cash bonus award shall be determined on the basis of Employer's annual
return on average equity ("ROE").
(a) if ROE for the calendar year is between
20.0% and 24.9%, the cash bonus shall be equal to 50% of Employee's annual
salary for the subject calendar year pursuant to Section 2.1;
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(b) if ROE for the calendar year is at least
equal to or greater than 25.0%, the cash bonus shall be equal to 100% of
Employee's annual salary for the subject calendar year pursuant to Section 2.1;
and
(c) The Performance-Based Annual Bonus payable
for any calendar year shall be paid to Employee no later than the 15th day of
April of the following year. Nothing herein shall preclude Employee from
participating in any equity or equity-based compensation program of Employer and
the bonus program set forth in this Section 2.2 herein may be replaced with a
different program approved by the Board's Compensation Committee and agreed with
by Employee.
2.3 Tax Withholding. Employer shall provide for the
withholding of any taxes required to be withheld by Federal, state and local law
with respect to any payment in cash, shares of capital stock or other property
made by or on behalf of Employer to or for the benefit of Employee under this
Agreement or otherwise. Employer may, at its option: (i) withhold such taxes
from any cash payments owing from Employer to Employee, including any payments
owing under any other provision of the Agreement, (ii) require Employee to pay
to Employer in cash such amount as may be required to satisfy such withholding
or (iii) make other satisfactory arrangements with Employee to satisfy such
withholding obligations.
3. DUTIES, TIME AND EFFORTS. Employee shall serve as President of
Employer, as such, shall report to the Board of Directors or any Executive
Committee of
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the Board of Directors of Employer and his duties shall include generally, but
without limitation, all powers and duties consistent with such position subject
to the direction of the Board of Directors or any Executive Committee; and he
shall also undertake such other reasonable duties of a similar managerial nature
as the Board of Directors or Executive Committee of Employer may at any time, or
from time to time, direct him to perform. It is understood that Employee may be
required to provide services to other corporations owned by or, affiliated with
Employer, without additional compensation. Other than providing services to
affiliates, Employee shall devote his full productive time, energies, and
abilities to the proper and efficient performance of Employer's business
pursuant to the employment hereunder. Employee shall at all times during the
term hereof be furnished with such office, stenographic and other necessary
secretarial assistance, and such other facilities, amenities and services as are
suitable to Employee's position as President of Employer and adequate for the
performance of Employee's duties hereunder. Unless otherwise agreed to by
Employee, Employee's offices shall be maintained at the premises of the
principal office of the Employer in Manhattan Beach, California; provided,
however, that in connection with the performance of his duties and
responsibilities, Employee acknowledges that he may be required to undertake
significant business traveling. Employee may not, without the prior express
authorization of Employer's Board of Directors, directly or indirectly, during
the term of this Agreement engage in any activity competitive with Employer's
business or practice, whether acting alone, as a partner, or as an officer,
director or employee of any other corporation, whether professional or
otherwise; provided, however that nothing herein contained shall prevent
Employee from purchasing and/or holding less than five percent (5%) of the
issued and outstanding stock of a publicly-held corporation which competes with
Employer.
4. VACATION. Employee shall be entitled to a paid vacation of four (4)
weeks during each twelve (12) month period of the term of this Agreement. The
date or dates of said vacation shall be determined by Employee and the Board of
Directors of Employer. If for any reason Employee does not take his full four
(4) weeks of vacation as provided above, he may carry over a maximum of one (1)
week into the following year, but if he does not use the carried over vacation
week in that year it shall expire. Therefore, under no circumstances, regardless
of Employee's failure to take vacations, would he be entitled to more than five
(5) weeks vacation during any twelve (12) month period.
5. TERM. The term of employment shall commence upon the date of this
Agreement and terminate on the 13th day of June 2002 unless sooner terminated
upon the happening of any of the following events:
5.1 Upon Mutual Agreement. Whenever Employer and
Employee shall otherwise mutually agree to termination.
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5.2 Death. Death of Employee.
5.3 Disability. Disability of Employee, either physically or
mentally, not arising out of an injury sustained while on Employer's business
extending beyond One Hundred and Fifty (150) consecutive days, or totaling more
than one hundred eighty (180) days in any period of three hundred sixty-five
(365) days (not limited to any calendar or fiscal year). Such determination to
be based upon a certificate as to such physical or mental disability employed by
Employer.
5.4 Termination for Cause After Notice and Failure to Cure.
Employer may at any time during the term of this Agreement, terminate Employee's
employment with Employer for cause ("Cause"), by written notice to Employee by
complying with the notice requirements and restrictions in Section 5.8. Cause
shall be limited to the following reasons:
(a) Conviction of Employee for, or Employee
pleads guilty or nolo contendere on, any crime involving a dishonest act or
involving any behavior not expected of a President of a public corporation,
which would make the continuance of his employment by Employer detrimental to
Employer.
(b) Knowing and intentional commission of a
material dishonest act by Employee in the scope of his employment, including,
but not limited to theft, embezzlement, falsification of records,
misappropriation of funds or property, or fraud against, or with respect to the
business of, Employer or any affiliate, which would make the continuance of his
employment by Employer detrimental to Employer.
(c) Persistent malfeasance, misfeasance or
non-feasance in connection with the performance of his duties.
(d) Employee commits any act that causes, or
knowingly fails to take reasonable and appropriate action to prevent, any
material injury to the financial condition or business reputation of Employer or
any of its affiliates; however, this shall not apply to (i) any act of Employer
or its affiliates by any other employee thereof except to the extent that such
act is committed at the direction, or with the knowledge, of Employee or (ii)
any action in which Employee acted in good faith and in a manner reasonably to
be in or not opposed to the best interests of Employer, as determined by
Employer's Board of Directors.
(e) Breach of any material provision of this
Agreement.
5.5 Good Reason (by Employee). Employee's employment
may be
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terminated by Employee at any time for any of the following reasons (each of
which is referred to herein as "Good Reason") by giving the Employer effective
date of such termination (which effective date may be the date of such notice):
(a) Employer commits a breach of any material
term of this Agreement and, if such breach is capable of being cured, fails to
cure such breach within 15 days of receipt of written notice of such breach; or
(b) Employer removes Employee from the position
of President of Employer other than for Cause, or Employer effects any
diminution of the powers, duties or authority of Employee, in each case, without
the prior written consent of the Employee.
5.6 Executive's Rights to Terminate. Employee may, at his
option, terminate his employment hereunder for any reason upon 60 days' prior
written notice to Employer.
5.7 Without Cause. Employer may, at its option, terminate
Employee's employment without Cause at any time upon written notice to Employee.
5.8 Notice Requirements and Restrictions. Provided however,
and by restriction to the right of Employer set forth in Section 5.4, in the
event Employer contends that Employee is not performing the services required by
this Agreement or that it has Cause to terminate this Agreement pursuant to
Section 5.4 of this Agreement, Employer shall provide Employee with a written
notice specifying in reasonable detail the services or matters in which it
contends Employee has not been adequately performing and why Employer has Cause
to terminate this Agreement, and what Employee should do to adequately perform
his obligations hereunder. If Employee performs the required services within
fifteen (15) days of receipt of the notice or modified his performance to
correct the matters complained of, Employee's breach will be deemed cured and he
shall not be terminated; provided, however, if the nature of the service not
performed by Employee or the matters complained of are such that more than
fifteen (15) days are reasonably required to perform the required service or to
correct the matters complained of, then Employee's breach will be deemed cured
if Employee commences to perform such service or to correct such matters within
said fifteen (15) day period and thereafter diligently prosecutes such
performance or correction to completion. If Employee does not perform the
required services or modify his performance to correct the matters complained of
within said period Employer shall have the right to terminate this Agreement at
the end of said fifteen (15) day period. It is understood that Employee's
performance hereunder will not be deemed unsatisfactory solely on the basis of
any economic performance of Employer, though the Board of Directors of Employer
may consider economic performance as a factor. For purpose of this Agreement,
the "Date of Termination" shall mean the later of
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the date that any party gives written notice that it intends to terminate this
Agreement pursuant to the terms hereof, or the date, if any, specified by the
terminating party in such notice as the effective date of termination.
6. OBLIGATIONS OF THE CORPORATION UPON TERMINATION.
6.1 Cause or Voluntary. If Employee's employment shall be
terminated under Sections 5.1, 5.2, 5.4, or 5.6, Employer's obligations to
Employee shall terminate, other than the obligation (i) to pay to Employee his
Salary through the Date of Termination at the rate in effect on the day
preceding the Date of Termination, (ii) any bonus due as of the Date of
Termination, and (iii) to continue to provide Employee with benefits of the type
described in Section 9 through the Date of Termination.
6.2 Without Cause or for Good Reason. If Employer shall
terminate Employee's employment without Cause pursuant to Section 5.7, or if
Employee shall terminate his employment for Good Reason pursuant to Section 5.5,
Employer shall (i) continue, in accordance with Employer's normal payroll
procedures, to pay the Employee his Salary through the Expiration Date of this
Agreement, (ii) continue to pay the Employee his Performance - Based Annual
Bonus pursuant to Section 2.2 through the Expiration Date of this Agreement at
the rate in effect on the day preceding the Date of Termination, and (iii)
continue to provide the Executive with benefits of the type described in Section
9 through the Expiration Date of this Agreement.
6.3 Disability. During any period of total disability,
Employee shall be entitled to his full compensation as provided for hereunder
for a period of three (3) months. Thereafter during such period of total
disability, Employee shall be entitled to compensation for the balance of the
term of this Agreement equal to the Base Salary otherwise payable to the
Employee under Section 2.1 hereof, during such period of total disability, less
amounts received by the Employee under a policy provided pursuant to Section
9.4.
7. EMPLOYER'S AUTHORITY. To the extent that the following is not
inconsistent with the other provisions of this Agreement, Employee agrees to
observe and comply with the rules and regulations of Employer as adopted by
Employer's Board of Directors respecting performance of this duties and to carry
out and perform orders, directions and policies of Employer as they may be, from
time to time, stated to him either orally or in writing.
8. EFFECTIVE DATE. The effective date of this Agreement shall be the
date of execution as indicated above.
9. EXPENSES AND FRINGE BENEFITS.
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9.1 Employer shall also pay or reimburse all expenses
reasonably incurred by Employee in discharge or Employee's duties hereunder.
Such expenses shall include, without limitation, the following:
(a) Automobile lease expenses of Employee;
(b) Education expenses incurred for the purpose
of maintaining or improving Employee's skills;
(c) Expenses for travel, lodging, and related
expenses in connection with conventions or meetings, attendance at which is
necessary or appropriate in connection with the performance by Employee of his
duties required hereunder;
(d) Expenses for meals, entertainment and similar
items reasonably incurred by Employee in connection with the business of
Employer; and
(e) Such other expenses incurred by the Employee
reasonably related to the discharge by Employee of his duties as set forth
herein.
9.2 Employer reserves the right to require, as a condition of
payment or reimbursement for any item pursuant to Section 9.1, Employee to
furnish Employer with reasonable documentation evidencing that the expense has
been incurred and the relationship of such item to the business of Employer or
the duties of Employee.
9.3 Employer shall provide, for the benefit of Employee and
his spouse, standard coverage medical insurance, with additional coverage for
dental expenses.
9.4 Notwithstanding any provision herein to the contrary,
Employer shall provide the Employee all other Employee fringe benefits which are
generally provided for or made available to the employees of Employer.
10. CONFIDENTIAL DISCLOSURE. Except to the extent that the proper
performance of Employee's duties pursuant to this Agreement may require
disclosure, Employee agrees that he will not for any reason or at any time
during the term of this Agreement disclose, communicate or divulge to, or use
for the direct or indirect benefit of any person, firm or association or company
other than Employer, any secret or confidential information relating to the
customer lists, policies, processes, prospects, products, operations or services
of Employer or any other secret or confidential information relating to Employer
or its affiliates or the products or services and the accounting, marketing,
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selling, financing and other business methods and techniques of Employer.
However, confidential information shall not include (A) at the time of
disclosure to Employee such information that was in the public domain or later
entered the public domain other than as a result of a breach of an obligation
herein; or (B) subsequent to disclosure to Employee, Employee received such
information from a third party under no obligation to maintain such information
in confidence, and the third party came into possession of such information
other than as a result of a breach of an obligation herein. All documents,
materials or articles of information of any kind furnished to Employee by
Employer or developed by Employee in the course of his employment hereunder are
and shall remain the sole property of Employer; and if Employer requests the
return of such information at any time during, upon or after the termination of
Employee's employment hereunder, Employee shall immediately deliver the same to
Employer. Employee agrees that the remedy at law for any breach of the foregoing
may be inadequate, and that Employer shall be entitled to any type of injunctive
relief for any such breach in addition to any other rights or remedies in law or
equity to which Employer may be entitled.
11. MISCELLANEOUS.
11.1 Assignability of Agreement. The provisions of this
Agreement shall inure to the benefit of the parties hereto, and their respective
permitted heirs, legal representatives, successors and assigns. Employer shall
require any successor (whether direct or indirect, by purchase, merger,
reorganization, consolidation, acquisition of property or stock, liquidation or
otherwise) to all or a significant portion of its assets, by agreement in form
and substance satisfactory to Employee, expressly to assume and agree to perform
this Agreement in the same manner and to the same extent that Employer would be
required to perform this Agreement if no such succession had taken place. The
obligations of Employee under this Agreement shall be personal and not delegable
by him in any manner whatsoever.
11.2 Notices. Any notice, request, instruction or other
document to be given hereunder by either party hereto to the other shall be in
writing and delivered personally or sent by certified or registered mail,
postage prepaid, and if mailed to any addressed in a state other than the state
of mailing, by air mail, addressed as follows:
(a) If to Employee, to:
Michael Greenberg
228 Manhattan Beach Boulevard
Manhattan Beach, California 90266
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(b) If to Employer, to:
Skechers U.S.A., Inc.
228 Manhattan Beach Boulevard
Manhattan Beach, California 90266
Attn: David Weinberg, Chief
Financial Officer
Any notice so given shall be deemed received when delivered personally, or (if
mailed) when dispatched. Any party may change the address to which notices are
to be sent by giving written notice of such change of address to the other party
in the manner herein provided for giving notice.
11.3 Waiver. No waiver of any breach of any warranty,
representation, covenant or other term or provision of this Agreement shall be
deemed to be a waiver of any preceding or succeeding breach of the same or any
other warranty, representation, covenant, term or provision. No extension of the
time for performance of any obligation or other act shall be deemed to be an
extension of the time for the performance of any other obligation of any other
act.
11.4 Amendment to Agreement. This Agreement contains the
entire agreement between the parties hereto with respect to the transactions
contemplated herein, and may not be amended, supplemented or discharged except
by an instrument in writing signed by both parties hereto. This Agreement
supersedes any and all previous Employment Agreements between the parties which
are hereby revoked.
11.5 Disputes/Attorneys Fees. Should any dispute arise
concerning the terms or the interpretations of this Agreement, and such dispute
results in arbitration and/or litigation then, unless otherwise directed by the
court, the prevailing party shall be entitled to and be awarded reasonable
attorneys' fees and costs in addition to any other relief to which it may be
entitled.
11.6 Time of the Essence. Time is of the essence of each
provision of this Agreement in which time is an element.
11.7 Arbitration. The parties agree if any controversy or
claim shall arise out of this Agreement or the breach hereof and either party
shall request that the matter be settled by arbitration the matter shall be
settled exclusively by arbitration in accordance with the rules then in effect
of the American Arbitration Association in the City of Los Angeles, California,
as the same may be modified by the statutes of California then in effect, by a
single arbitrator, if the parties shall agree upon one, or by one arbitrator
appointee by each party and a third arbitrator appointed by the other
arbitrators. In case of any failure of a party to make an appointment referred
to above within two (2) weeks
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after written notice of controversy, such appointment shall be made by the
Association. All arbitration proceedings shall be held in the City of Los
Angeles, California, and each party agrees to comply in all respects with any
award made in such proceeding and to the entry of a judgment in any jurisdiction
upon any award rendered in such proceeding. All costs and expenses of
arbitration (including costs of preparation therefor and reasonable attorneys'
fees incurred in connection therewith) of the party prevailing in such
arbitration shall be borne by the losing party to such arbitration, unless
otherwise directed by the arbitrators. Notwithstanding any provision of this
section herein set forth, no party may make a request for arbitration hereunder
with respect to any matter at any time following the expiration of thirty days
after notice of the filing of a legal action with respect to such matters in a
court of competent jurisdiction.
11.8 Indemnification. Employer agrees to indemnify Employee
for any and all liabilities to which he may be subject as a result of his
service as an officer, director or other corporate agent of Employer, or of any
other enterprise at the request of the Employer, or otherwise as a result of his
employment hereunder, as well as the expense (including, without limitation,
reasonable counsel fees) of any proceeding brought or threatened against
Employee as a result of such service or employment, to the fullest extent
permitted by law. Such counsel fees shall, to the fullest extent permitted by
law, be paid by Employer in advance of the final disposition of the proceeding
upon receipt of an undertaking of Employee satisfactory to counsel for Employer
to repay such fees unless it shall ultimately be determined that he is not
entitled to be indemnified with respect thereto.
11.9 Execution in Counterparts. This Agreement may be executed
by the parties hereto in two counterparts, each of which shall be deemed to be
an original, but all such counterparts shall constitute one and the same
instrument, and all signatures need not appear on any one counterpart
11.10 Severability. If any provision of this Agreement shall
be adjudged by any court of competent jurisdiction to be invalid or
unenforceable for any reason, such judgment shall not affect, impair or
invalidate the remainder of this Agreement
11.11 Headings Descriptive. The headings of the several
paragraphs of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any of this Agreement.
11.12 Governing Law. This Agreement shall be construed in
accordance with and be governed by the laws of the State of California.
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IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the Effective Date.
"EMPLOYER"
Skechers, U.S.A., Inc.
By:/s/ DAVID WEINBERG
------------------------------------------
Name: David Weinberg
Title: Executive Vice President and Chief
Financial Officer
"EMPLOYEE"
/s/ MICHAEL GREENBERG
---------------------------------------------
Michael Greenberg
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<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the 14th day of June,
1999 (the "Effective Date") by and between Skechers U.S.A., Inc., a Delaware
corporation, hereinafter referred to as "Employer" and David Weinberg
hereinafter referred to as "Employee."
The parties contract with reference to the following facts:
A. Employer desires to employ Employee as its Executive Vice President
and Chief Financial Officer and Employee desires to accept employment with
Employer in such capacity.
B. The parties are willing to enter into an Agreement providing for
such employment upon the terms and conditions hereinafter set forth.
THEREFORE, the parties agree as follows:
1. EMPLOYMENT. Employer hereby agrees to employ, and does hereby
employ, Employee and Employee agrees to accept and hereby accepts employment by
Employer, on the terms and subject to the conditions set forth in this
Agreement.
2. COMPENSATION.
2.1 Salary. Employer shall pay to Employee a gross annual
salary, as determined from time to time by the Board of Directors of Employer,
provided; however, that in no event shall Employee's salary hereunder be at an
annual rate less than Two Hundred Fifty Thousand Dollars ($250,000) ("Salary").
Said Salary to be paid bi-weekly or in accordance with Employer's regular
payroll practices.
2.2 Performance-Based Annual Bonus. For each full year during
Employee's term as set forth in Section 5, commencing on the Effective Date,
Employee shall be eligible to receive a cash bonus based on Employer's
achievement of certain financial goals ("Performance-Based Annual Bonus"). For
calendar year 1999, and until changed by the Board's Compensation Committee, the
annual cash bonus award shall be determined on the basis of Employer's annual
return on average equity ("ROE").
(a) if ROE for the calendar year is between
20.0% and 24.9%, the cash bonus shall be equal to 50% of Employee's annual
salary for the subject calendar year pursuant to Section 2.1;
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<PAGE> 2
(b) if ROE for the calendar year is at least
equal to or greater than 25.0%, the cash bonus shall be equal to 100% of
Employee's annual salary for the subject calendar year pursuant to
Section 2.1; and
(c) The Performance-Based Annual Bonus payable
for any calendar year shall be paid to Employee no later than the 15th day of
April of the following year. Nothing herein shall preclude Employee from
participating in any equity or equity-based compensation program of Employer and
the bonus program set forth in this Section 2.2 herein may be replaced with a
different program approved by the Board's Compensation Committee and agreed with
by Employee.
2.3 Tax Withholding. Employer shall provide for the
withholding of any taxes required to be withheld by Federal, state and local law
with respect to any payment in cash, shares of capital stock or other property
made by or on behalf of Employer to or for the benefit of Employee under this
Agreement or otherwise. Employer may, at its option: (i) withhold such taxes
from any cash payments owing from Employer to Employee, including any payments
owing under any other provision of the Agreement, (ii) require Employee to pay
to Employer in cash such amount as may be required to satisfy such withholding
or (iii) make other satisfactory arrangements with Employee to satisfy such
withholding obligations.
3. DUTIES, TIME AND EFFORTS. Employee shall serve as Executive Vice
President and Chief Financial Officer of Employer, as such, shall report to
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<PAGE> 3
the Board of Directors or any Executive Committee of the Board of Directors of
Employer and his duties shall include generally, but without limitation, all
powers and duties consistent with such positions subject to the direction of the
Board of Directors or any Executive Committee; and he shall also undertake such
other reasonable duties of a similar managerial nature as the Board of Directors
or Executive Committee of Employer may at any time, or from time to time, direct
him to perform. It is understood that Employee may be required to provide
services to other corporations owned by or, affiliated with Employer, without
additional compensation. Other than providing services to affiliates, Employee
shall devote his full productive time, energies, and abilities to the proper and
efficient performance of Employer's business pursuant to the employment
hereunder. Employee shall at all times during the term hereof be furnished with
such office, stenographic and other necessary secretarial assistance, and such
other facilities, amenities and services as are suitable to Employee's position
as Executive Vice President and Chief Financial Officer of Employer and adequate
for the performance of Employee's duties hereunder. Unless otherwise agreed to
by Employee, Employee's offices shall be maintained at the premises of the
principal office of the Employer in Manhattan Beach, California; provided,
however, that in connection with the performance of his duties and
responsibilities, Employee acknowledges that he may be required to undertake
significant business traveling. Employee may not, without the prior express
authorization of Employer's Board of Directors, directly or indirectly, during
the term of this Agreement engage in any activity competitive with Employer's
business or practice, whether acting alone, as a partner, or as an officer,
director or employee of any other corporation, whether professional or
otherwise; provided, however that nothing herein contained shall prevent
Employee from purchasing and/or holding less than five percent (5%) of the
issued and outstanding stock of a publicly-held corporation which competes with
Employer.
4. VACATION. Employee shall be entitled to a paid vacation of four (4)
weeks during each twelve (12) month period of the term of this Agreement. The
date or dates of said vacation shall be determined by Employee and the Board of
Directors of Employer. If for any reason Employee does not take his full four
(4) weeks of vacation as provided above, he may carry over a maximum of one (1)
week into the following year, but if he does not use the carried over vacation
week in that year it shall expire. Therefore, under no circumstances, regardless
of Employee's failure to take vacations, would he be entitled to more than five
(5) weeks vacation during any twelve (12) month period.
5. TERM. The term of employment shall commence upon the date of this
Agreement and terminate on the 13th day of June, 2002 unless sooner terminated
upon the happening of any of the following events:
5.1 Upon Mutual Agreement. Whenever Employer and Employee
shall otherwise mutually agree to termination.
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<PAGE> 4
5.2 Death. Death of Employee.
5.3 Disability. Disability of Employee, either physically or
mentally, not arising out of an injury sustained while on Employer's business
extending beyond One Hundred and Fifty (150) consecutive days, or totaling more
than one hundred eighty (180) days in any period of three hundred sixty-five
(365) days (not limited to any calendar or fiscal year). Such determination to
be based upon a certificate as to such physical or mental disability employed by
Employer.
5.4 Termination for Cause After Notice and Failure to Cure.
Employer may at any time during the term of this Agreement, terminate Employee's
employment with Employer for cause ("Cause"), by written notice to Employee by
complying with the notice requirements and restrictions in Section 5.8. Cause
shall be limited to the following reasons:
(a) Conviction of Employee for, or Employee
pleads guilty or nolo contendere on, any crime involving a dishonest act or
involving any behavior not expected of an Executive Vice President and Chief
Financial Officer of a public corporation, which would make the continuance of
his employment by Employer detrimental to Employer.
(b) Knowing and intentional commission of a
material dishonest act by Employee in the scope of his employment, including,
but not limited to theft, embezzlement, falsification of records,
misappropriation of funds or property, or fraud against, or with respect to the
business of, Employer or any affiliate, which would make the continuance of his
employment by Employer detrimental to Employer.
(c) Persistent malfeasance, misfeasance or
non-feasance in connection with the performance of his duties.
(d) Employee commits any act that causes, or
knowingly fails to take reasonable and appropriate action to prevent, any
material injury to the financial condition or business reputation of Employer or
any of its affiliates; however, this shall not apply to (i) any act of Employer
or its affiliates by any other employee thereof except to the extent that such
act is committed at the direction, or with the knowledge, of Employee or (ii)
any action in which Employee acted in good faith and in a manner reasonably to
be in or not opposed to the best interests of Employer, as determined by
Employer's Board of Directors.
(e) Breach of any material provision of this
Agreement.
5.5 Good Reason (by Employee). Employee's employment may be
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<PAGE> 5
terminated by Employee at any time for any of the following reasons (each of
which is referred to herein as "Good Reason") by giving the Employer effective
date of such termination (which effective date may be the date of such notice):
(a) Employer commits a breach of any material
term of this Agreement and, if such breach is capable of being cured, fails to
cure such breach within 15 days of receipt of written notice of such breach; or
(b) Employer removes Employee from the position
of Executive Vice President and Chief Financial Officer of Employer other than
for Cause, or Employer effects any diminution of the powers, duties or authority
of Employee, in each case, without the prior written consent of the Employee.
5.6 Executive's Rights to Terminate. Employee may, at his
option, terminate his employment hereunder for any reason upon 60 days' prior
written notice to Employer.
5.7 Without Cause. Employer may, at its option, terminate
Employee's employment without Cause at any time upon written notice to Employee.
5.8 Notice Requirements and Restrictions. Provided however,
and by restriction to the right of Employer set forth in Section 5.4, in the
event Employer contends that Employee is not performing the services required by
this Agreement or that it has Cause to terminate this Agreement pursuant to
Section 5.4 of this Agreement, Employer shall provide Employee with a written
notice specifying in reasonable detail the services or matters in which it
contends Employee has not been adequately performing and why Employer has Cause
to terminate this Agreement, and what Employee should do to adequately perform
his obligations hereunder. If Employee performs the required services within
fifteen (15) days of receipt of the notice or modified his performance to
correct the matters complained of, Employee's breach will be deemed cured and he
shall not be terminated; provided, however, if the nature of the service not
performed by Employee or the matters complained of are such that more than
fifteen (15) days are reasonably required to perform the required service or to
correct the matters complained of, then Employee's breach will be deemed cured
if Employee commences to perform such service or to correct such matters within
said fifteen (15) day period and thereafter diligently prosecutes such
performance or correction to completion. If Employee does not perform the
required services or modify his performance to correct the matters complained of
within said period Employer shall have the right to terminate this Agreement at
the end of said fifteen (15) day period. It is understood that Employee's
performance hereunder will not be deemed unsatisfactory solely on the basis of
any economic performance of Employer, though the Board of Directors of Employer
may consider economic performance as a
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factor. For purpose of this Agreement, the "Date of Termination" shall mean the
later of the date that any party gives written notice that it intends to
terminate this Agreement pursuant to the terms hereof, or the date, if any,
specified by the terminating party in such notice as the effective date of
termination.
6. OBLIGATIONS OF THE CORPORATION UPON TERMINATION.
6.1 Cause or Voluntary. If Employee's employment shall be
terminated under Sections 5.1, 5.2, 5.4 or 5.6, Employer's obligations to
Employee shall terminate, other than the obligation (i) to pay to Employee his
Salary through the Date of Termination at the rate in effect on the day
preceding the Date of Termination, (ii) any bonus due as of the Date of
Termination, and (iii) to continue to provide Employee with benefits of the type
described in Section 9 through the Date of Termination.
6.2 Without Cause or for Good Reason. If Employer shall
terminate Employee's employment without Cause pursuant to Section 5.7, or if
Employee shall terminate his employment for Good Reason pursuant to Section 5.5,
Employer shall (i) continue, in accordance with Employer's normal payroll
procedures, to pay the Employee his Salary through the Expiration Date of this
Agreement, (ii) continue to pay the Employee his Performance - Based Annual
Bonus pursuant to Section 2.2 through the Expiration Date of this Agreement at
the rate in effect on the day preceding the Date of Termination, and (iii)
continue to provide the Executive with benefits of the type described in Section
9 through the Expiration Date of this Agreement.
6.3 Disability. During any period of total disability,
Employee shall be entitled to his full compensation as provided for hereunder
for a period of three (3) months. Thereafter during such period of total
disability, Employee shall be entitled to compensation for the balance of the
term of this Agreement equal to the Base Salary otherwise payable to the
Employee under Section 2.1 hereof, during such period of total disability, less
amounts received by the Employee under a policy provided pursuant to Section
9.4.
7. EMPLOYER'S AUTHORITY. To the extent that the following is not
inconsistent with the other provisions of this Agreement, Employee agrees to
observe and comply with the rules and regulations of Employer as adopted by
Employer's Board of Directors respecting performance of this duties and to carry
out and perform orders, directions and policies of Employer as they may be, from
time to time, stated to him either orally or in writing.
8. EFFECTIVE DATE. The effective date of this Agreement shall be the
date of execution as indicated above.
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9. EXPENSES AND FRINGE BENEFITS.
9.1 Employer shall also pay or reimburse all expenses
reasonably incurred by Employee in discharge or Employee's duties hereunder.
Such expenses shall include, without limitation, the following:
(a) Automobile lease expenses of Employee;
(b) Education expenses incurred for the purpose
of maintaining or improving Employee's skills;
(c) Expenses for travel, lodging, and related
expenses in connection with conventions or meetings, attendance at which is
necessary or appropriate in connection with the performance by Employee of his
duties required hereunder;
(d) Expenses for meals, entertainment and
similar items reasonably incurred by Employee in connection with the business of
Employer; and
(e) Such other expenses incurred by the Employee
reasonably related to the discharge by Employee of his duties as set forth
herein.
9.2 Employer reserves the right to require, as a condition of
payment or reimbursement for any item pursuant to Section 9.1, Employee to
furnish Employer with reasonable documentation evidencing that the expense has
been incurred and the relationship of such item to the business of Employer or
the duties of Employee.
9.3 Employer shall provide, for the benefit of Employee and
his spouse, standard coverage medical insurance, with additional coverage for
dental expenses.
9.4 Notwithstanding any provision herein to the contrary,
Employer shall provide the Employee all other Employee fringe benefits which are
generally provided for or made available to the employees of Employer.
10. CONFIDENTIAL DISCLOSURE. Except to the extent that the proper
performance of Employee's duties pursuant to this Agreement may require
disclosure, Employee agrees that he will not for any reason or at any time
during the term of this Agreement disclose, communicate or divulge to, or use
for the direct or indirect benefit of any person, firm or association or company
other than Employer, any secret or confidential information relating to the
customer lists, policies, processes, prospects, products,
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<PAGE> 8
operations or services of Employer or any other secret or confidential
information relating to Employer or its affiliates or the products or services
and the accounting, marketing, selling, financing and other business methods and
techniques of Employer. However, confidential information shall not include (A)
at the time of disclosure to Employee such information that was in the public
domain or later entered the public domain other than as a result of a breach of
an obligation herein; or (B) subsequent to disclosure to Employee, Employee
received such information from a third party under no obligation to maintain
such information in confidence, and the third party came into possession of such
information other than as a result of a breach of an obligation herein. All
documents, materials or articles of information of any kind furnished to
Employee by Employer or developed by Employee in the course of his employment
hereunder are and shall remain the sole property of Employer; and if Employer
requests the return of such information at any time during, upon or after the
termination of Employee's employment hereunder, Employee shall immediately
deliver the same to Employer. Employee agrees that the remedy at law for any
breach of the foregoing may be inadequate, and that Employer shall be entitled
to any type of injunctive relief for any such breach in addition to any other
rights or remedies in law or equity to which Employer may be entitled.
11. MISCELLANEOUS.
11.1 Assignability of Agreement. The provisions of this
Agreement shall inure to the benefit of the parties hereto, and their respective
permitted heirs, legal representatives, successors and assigns. Employer shall
require any successor (whether direct or indirect, by purchase, merger,
reorganization, consolidation, acquisition of property or stock, liquidation or
otherwise) to all or a significant portion of its assets, by agreement in form
and substance satisfactory to Employee, expressly to assume and agree to perform
this Agreement in the same manner and to the same extent that Employer would be
required to perform this Agreement if no such succession had taken place. The
obligations of Employee under this Agreement shall be personal and not delegable
by him in any manner whatsoever.
11.2 Notices. Any notice, request, instruction or other
document to be given hereunder by either party hereto to the other shall be in
writing and delivered personally or sent by certified or registered mail,
postage prepaid, and if mailed to any addressed in a state other than the state
of mailing, by air mail, addressed as follows:
(a) If to Employee, to:
David Weinberg
228 Manhattan Beach Boulevard
Manhattan Beach, California 90266
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(b) If to Employer, to:
Skechers U.S.A., Inc.
228 Manhattan Beach Boulevard
Manhattan Beach, California 90266
Attn: Michael Greenberg, President
Any notice so given shall be deemed received when delivered personally, or (if
mailed) when dispatched. Any party may change the address to which notices are
to be sent by giving written notice of such change of address to the other party
in the manner herein provided for giving notice.
11.3 Waiver. No waiver of any breach of any warranty,
representation, covenant or other term or provision of this Agreement shall be
deemed to be a waiver of any preceding or succeeding breach of the same or any
other warranty, representation, covenant, term or provision. No extension of the
time for performance of any obligation or other act shall be deemed to be an
extension of the time for the performance of any other obligation of any other
act.
11.4 Amendment to Agreement. This Agreement contains the
entire agreement between the parties hereto with respect to the transactions
contemplated herein, and may not be amended, supplemented or discharged except
by an instrument in writing signed by both parties hereto. This Agreement
supersedes any and all previous Employment Agreements between the parties which
are hereby revoked.
11.5 Disputes/Attorneys Fees. Should any dispute arise
concerning the terms or the interpretations of this Agreement, and such dispute
results in arbitration and/or litigation then, unless otherwise directed by the
court, the prevailing party shall be entitled to and be awarded reasonable
attorneys' fees and costs in addition to any other relief to which it may be
entitled.
11.6 Time of the Essence. Time is of the essence of each
provision of this Agreement in which time is an element.
11.7 Arbitration. The parties agree if any controversy or
claim shall arise out of this Agreement or the breach hereof and either party
shall request that the matter be settled by arbitration the matter shall be
settled exclusively by arbitration in accordance with the rules then in effect
of the American Arbitration Association in the City of Los Angeles, California,
as the same may be modified by the statutes of California then in effect, by a
single arbitrator, if the parties shall agree upon one, or by one arbitrator
appointee by each party and a third arbitrator appointed by the other
arbitrators. In case of any failure of a party to make an appointment referred
to above within two (2) weeks
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after written notice of controversy, such appointment shall be made by the
Association. All arbitration proceedings shall be held in the City of Los
Angeles, California, and each party agrees to comply in all respects with any
award made in such proceeding and to the entry of a judgment in any jurisdiction
upon any award rendered in such proceeding. All costs and expenses of
arbitration (including costs of preparation therefor and reasonable attorneys'
fees incurred in connection therewith) of the party prevailing in such
arbitration shall be borne by the losing party to such arbitration, unless
otherwise directed by the arbitrators. Notwithstanding any provision of this
section herein set forth, no party may make a request for arbitration hereunder
with respect to any matter at any time following the expiration of thirty days
after notice of the filing of a legal action with respect to such matters in a
court of competent jurisdiction.
11.8 Indemnification. Employer agrees to indemnify Employee
for any and all liabilities to which he may be subject as a result of his
service as an officer, director or other corporate agent of Employer, or of any
other enterprise at the request of the Employer, or otherwise as a result of his
employment hereunder, as well as the expense (including, without limitation,
reasonable counsel fees) of any proceeding brought or threatened against
Employee as a result of such service or employment, to the fullest extent
permitted by law. Such counsel fees shall, to the fullest extent permitted by
law, be paid by Employer in advance of the final disposition of the proceeding
upon receipt of an undertaking of Employee satisfactory to counsel for Employer
to repay such fees unless it shall ultimately be determined that he is not
entitled to be indemnified with respect thereto.
11.9 Execution in Counterparts. This Agreement may be executed
by the parties hereto in two counterparts, each of which shall be deemed to be
an original, but all such counterparts shall constitute one and the same
instrument, and all signatures need not appear on any one counterpart
11.10 Severability. If any provision of this Agreement shall
be adjudged by any court of competent jurisdiction to be invalid or
unenforceable for any reason, such judgment shall not affect, impair or
invalidate the remainder of this Agreement
11.11 Headings Descriptive. The headings of the several
paragraphs of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any of this Agreement.
11.12 Governing Law. This Agreement shall be construed in
accordance with and be governed by the laws of the State of California.
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IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the Effective Date.
"EMPLOYER"
Skechers, U.S.A., Inc.
By: /s/ MICHAEL GREENBERG
------------------------------
Name: Michael Greenberg
Title: President
"EMPLOYEE"
/s/ DAVID WEINBERG
----------------------------------
David Weinberg
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<PAGE> 1
EXHIBIT 10.5
SKECHERS U.S.A., INC.
REGISTRATION RIGHTS AGREEMENT
June 9, 1999
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of the 9th day of June,
1999 by and among Skechers U.S.A., Inc., a Delaware corporation (the "Company"),
the Greenberg Family Trust and Michael Greenberg, each of which is herein
referred to as an "Investor."
WHEREAS, the Holders (as defined below) hold shares of the Company's
Class B Common Stock, $0.001 par value (the "Class B Common Stock") which is
convertible at any time at the Holder's option into shares of the Company's
Class A Common Stock, $0.001 par value (the "Class A Common Stock" and together
with the Class B Common Stock, the "Common Stock") on a share-for-share basis;
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the parties hereto agree as follows:
1. Registration Rights. The Company covenants and agrees as
follows:
1.1 Definitions. For purposes of this Section 1:
(a) The term "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended (the
"Act"), and the declaration or ordering of effectiveness of such registration
statement or document.
(b) The term "Registrable Securities" means the Class A Common Stock
issuable upon conversion of the shares of Class B Common Stock owned by each of
the Holders as of the effective date of the Company's initial public offering
and any Common Stock of the Company issued as (or issuable upon the conversion
or exercise of any warrant, right or other security which is issued as) a
dividend or other distribution with respect to, or in exchange for or in
replacement of, such Common Stock, excluding in all cases, however, any
Registrable Securities sold by a person in a transaction in which his rights
under this Section 1 are not assigned.
(c) The number of shares of "Registrable Securities then outstanding"
shall be determined by the number of shares of Common Stock outstanding which
are, and the number of shares of Common Stock issuable pursuant to then
exercisable or convertible securities which are, Registrable Securities.
(d) The term "Holders" means any holder or holders of the Registrable
Securities.
1.2 Request for Registration.
(a) If the Company shall receive at any time after the expiration of
180 days from the effective date of the registration statement for the initial
public offering of securities of the Company, a written request from the Holders
of at least 10% of the Registrable Securities then outstanding that the Company
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<PAGE> 3
file a registration statement under the Act covering the registration of the
Holders' Registrable Securities as limited in amount pursuant to Section 1.1(b)
and Section 1.2(d), then the Company shall, subject to the limitations of
subsection 1.2(b), effect as soon as practicable, and in any event shall use its
best efforts to effect within 90 days of the receipt of such request, the
registration under the Act of all Registrable Securities which the Holders
request to be registered.
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to this Section 1.2 and the Company
shall include such information in the written notice referred to in subsection
1.2(a). The underwriter will be selected by a majority in interest of the
Initiating Holders and shall be reasonably acceptable to the Company. In such
event, the right of any Holder to include his Registrable Securities in such
registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company as provided in subsection 1.4(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by a majority in interest of the Initiating
Holders. Notwithstanding any other provision of this Section 1.2, if the
underwriter advises the Initiating Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Initiating Holders shall so advise all Holders of Registrable Securities which
would otherwise be underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the underwriting shall be
allocated among all Holders thereof, including the Initiating Holders, in
proportion (as nearly as practicable) to the amount of Registrable Securities of
the Company owned by each Holder; provided, however, that the number of shares
of Registrable Securities to be included in such underwriting shall not be
reduced unless all other securities are first entirely excluded from the
underwriting.
(c) The Company is obligated to effect pursuant to this Section 1.2.
only two (2) such registrations per year, per Holder.
(d) (1) The maximum amount of Registrable Securities which may be
registered by any Holder pursuant to this Section 1.2 in any twelve-month period
is an amount equal to one third of the shares of Common Stock held by each of
the Investors, respectively, on the effective date of the Company's initial
public offering of its Class A Common Stock (i.e. if the Greenberg Family Trust
owns 3,000,000 shares on the effective date and Michael Greenberg owns 1,500,000
shares on the effective date, then the Greenberg Family Trust, or transferees of
the Greenberg Family Trust would be entitled to register up to a maximum of
1,000,000 shares in any twelve-month period, as adjusted pursuant to Section
1.1(b), Section 1.3 and this Section 1.2, and Michael Greenberg or his
transferees would be able to register up to a maximum of 500,000 shares in any
twelve-month period as adjusted pursuant to Section 1.1(b), Section 1.3 and this
Section 1.2), such amounts may be reduced by any sales made by an Investor
during the subject twelve-month period pursuant to (i) Rule 144, (ii) any
private transactions, or (iii) an effective registration statement; excluded
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<PAGE> 4
from such amounts are any sales of securities made pursuant to a registration
statement which was filed in any previous twelve-month period.
(2) The twelve-month period immediately following the Company's initial
public offering will exclude any shares sold by an Investor pursuant to the
Company's initial public offering.
(3) During the first twelve-month period commencing upon the transfer
of shares from an Investor to a transferee, any transferees of the Investors are
entitled to register a maximum amount of shares equal to the lesser of (i) the
amount the respective Investor is entitled to register for the twelve-month
period immediately preceding the transfer or (ii) the number of Registrable
Securities that are actually transferred to the transferee.
(e) Notwithstanding the foregoing, if the Company shall furnish to each
Holder requesting a registration statement pursuant to this Section 1.2, a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its stockholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer taking action
with respect to such filing for a period of not more than 90 days after receipt
of the request of the Initiating Holders; provided, however, that the Company
shall only be permitted to exercise its right of deferral once in any
twelve-month period.
1.3 Company Registration.
(a) If (but without any obligation to do so) the Company proposes to
register any of its stock or other securities, including for this purpose a
registration effected by the Company for stockholders other than the Holders,
under the Act in connection with the public offering of such securities solely
for cash (other than a registration relating solely to the sale of securities to
participants in a Company stock plan, or a registration on any form which does
not include substantially the same information as would be required to be
included in a registration statement covering the sale of the Registrable
Securities), the Company shall, at such time, promptly give each Holder written
notice of such registration. Upon the written request of a Holder given within
twenty (20) days after mailing of such notice by the Company in accordance with
Section 3.5, the Company shall, subject to the provisions of Section 1.8, cause
to be registered under the Act all of the Registrable Securities that each such
Holder has requested to be registered.
(b) (1) The maximum amount of Registrable Securities which may be
registered by any Holder pursuant to this Section 1.3 in any twelve-month period
is an amount equal to one third of the shares of Common Stock held by each of
the respective Investors, respectively, on the effective date of the Company's
initial public offering of its Common Stock (i.e. if the Greenberg Family Trust
owns 3,000,000 shares on the effective date and Michael Greenberg owns 1,500,000
shares on the effective date, then the Greenberg Family Trust, or transferees of
the Greenberg Family Trust would be entitled to register up to a maximum of
1,000,000 shares in any twelve-month period, as adjusted pursuant to Section
1.1(b), Section 1.2 and this Section 1.3, and Michael Greenberg or his
transferees would be able to register up to a maximum of 500,000 shares in any
twelve-month period as adjusted pursuant to Section 1.1(b), Section 1.2 and this
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<PAGE> 5
Section 1.3, such amounts may be reduced by any sales made by an Investor during
the subject twelve-month period pursuant to (i) Rule 144, (ii) any private
transactions, or (iii) an effective registration statement; excluded from such
amounts are any sales of securities made pursuant to a registration statement
which was filed in any previous twelve-month period.
(2) The maximum amount of Registrable Securities which may be sold
during the twelve-month period immediately following the Company's initial
public offering will exclude any shares sold by the Investors pursuant to the
Company's initial public offering.
(3) Any Holder requesting to register shares pursuant to this Section
1.3 that owns outstanding shares which are the subject of a registration
statement filed pursuant to Section 1.2, that is requested by an underwriter
engaged by the Company in connection with the registration statement filed
pursuant to this Section 1.3 in which such Holder intends to participate, to
withdraw the registration statement filed pursuant to Section 1.2 as a condition
precedent to such Holder's participation in any registration statement filed
pursuant to this Section 1.3 shall not be deemed to have made such demand if
such Holder requests the Company to withdraw such registration statement.
(4) During the first twelve-month period commencing upon the transfer
of shares from an Investor to a transferee, any transferees of the Investors are
entitled to register a maximum amount of shares equal to the lesser of (i) the
amount the respective Investor is entitled to register for the twelve-month
period immediately preceding the transfer or (ii) the number of Registrable
Securities that are actually transferred to the transferee.
1.4 Obligations of the Company. Whenever required under this Section 1
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the Securities and Exchange Commission (the
"SEC") a registration statement with respect to such Registrable Securities and
use its best efforts to cause such registration statement to become effective,
and, upon the request of the Holders of a majority of the Registrable Securities
registered thereunder, keep such registration statement effective for up to one
hundred twenty (120) days.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
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<PAGE> 6
(d) Use its best efforts to register and qualify the securities covered
by such registration statement under such other securities or Blue Sky laws of
such jurisdictions as shall be reasonably requested by the Holders, provided
that the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(f) Notify each Holder covered by such registration statement at any
time when a prospectus relating thereto is required to be delivered under the
Act of the happening of any event as a result of which the prospectus included
in such registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances then existing.
(g) Use its best efforts to furnish, at the request of any Holder
requesting registration of Registrable Securities pursuant to this Section 1, on
the date that such Registrable Securities are delivered to the underwriters for
sale in connection with a registration pursuant to this Section 1, if such
securities are being sold through underwriters, or, if such securities are not
being sold through underwriters, on the date that the registration statement
with respect to such securities becomes effective, (i) an opinion, dated such
date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities and (ii) a letter
dated such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the Holders requesting registration of
Registrable Securities.
1.5 Furnish Information.
(a) It shall be a condition precedent to the obligations of the Company
to take any action pursuant to this Section 1 with respect to the Registrable
Securities of any Holder that such Holder shall furnish to the Company such
information regarding itself, the Registrable Securities held by it, and the
intended method of disposition of such securities as shall be required to effect
the registration of such Holder's Registrable Securities.
1.6 Expenses of Demand Registration. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements of one counsel for the Holders shall be borne
by the Company; provided, however, that the Company shall not be required to pay
for any expenses of any registration proceeding begun pursuant to Section 1.2 if
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<PAGE> 7
the registration request is subsequently withdrawn at the request of the Holders
of a majority of the Registrable Securities to be registered ( in which case all
Participating Holders shall bear such expenses), unless the Holders of a
majority of the Registrable Securities agree to forfeit their right to one
demand registration pursuant to Section 1.2; provided further, however, that if
at the time of such withdrawal, the Holders have learned of a material adverse
change in the condition, business, or prospects of the Company from that known
to the Holders at the time of their request and have withdrawn the request with
reasonable promptness following disclosure by the Company of such material
adverse change, then the Holders shall not be required to pay any of such
expenses and shall retain their rights pursuant to Section 1.2.
1.7 Expenses of Company Registration. The Company shall bear and pay
all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.3 for each Holder (which right may be assigned as provided
in Section 1.13), including (without limitation) all registration, filing, and
qualification fees, printers and accounting fees relating or apportionable
thereto and the fees and disbursements of one counsel for the Holder selected by
them, but excluding underwriting discounts and commissions relating to
Registrable Securities.
1.8 Underwriting Requirements. In connection with any offering
involving an underwriting of shares of the Company's capital stock the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters), and then only in such
quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by stockholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the Holders according to the total
amount of securities entitled to be included therein owned by each Holder or in
such other proportions as shall mutually be agreed to by the Holders) but in no
event shall (i) the amount of securities of the Holders included in the offering
be reduced below twenty-five percent (25%) of the total amount of securities
included in such offering.
1.9 Delay of Registration. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.10 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Holder, any underwriter (as defined in the Act) for such Holder
and each person, if any, who controls such Holder or underwriter within the
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meaning of the Act or the Securities Exchange Act of 1934, as amended (the "1934
Act"), against any losses, claims, damages, or liabilities (joint or several) to
which they may become subject under the Act, the 1934 Act, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"): (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Act, or the 1934 Act, or any rule or regulation
promulgated under the Act, or the 1934 Act; and the Company will pay to each
Holder, underwriter or controlling person, as incurred, any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this subsection 1.10(a) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability,
or action if such settlement is effected without the consent of the Company
(which consent shall no be unreasonably withheld), nor shall the Company be
liable in any such case for any such loss, claim, damage, liability, or action
to the extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by any such Holder, underwriter or
controlling person.
(b) To the extent permitted by law, each Holder will indemnify and hold
harmless the Company, each of its directors, each of its officers who has signed
the registration statement, each person, if any, who controls the Company within
the meaning of the Act, any underwriter, any other Holder selling securities in
such registration statement and any controlling person of any such underwriter
or other Holder, against any losses, claims, damages, or liabilities (joint or
several) to which any of the foregoing persons may become subject, under the
Act, or the 1934 Act insofar as such losses, claims, damages, or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each such
Holder will pay, as incurred, any legal or other expenses reasonably incurred by
any person intended to be indemnified pursuant to this subsection 1.10(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 1.10(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; provided, that, in no event shall any indemnity under this subsection
1.10(b) exceed the gross proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
1.10 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 1.10, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
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<PAGE> 9
satisfactory to the parties; provided, however, that an indemnified party
(together with other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.10, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.10.
(d) If the indemnification provided for in this Section 1.10 is held by
a court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, liability, claim, damage, or expense referred to therein,
then the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such loss, liability, claim, damage, or expense in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions that resulted in such loss, liability, claim,
damage, or expense as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in the underwriting agreement entered
into in connection with the underwritten public offering are in conflict with
the foregoing provisions, the provisions in the underwriting agreement shall
control.
(f) The obligations of the Company and Holders under this Section 1.10
shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.11 Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
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<PAGE> 10
(b) take such action, including the voluntary registration of its Class
A Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken when the first registration statement filed by the Company
for the offering of its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company that
it has complied with the reporting requirements of SEC Rule 144 (at any time
after ninety (90) days after the effective date of the first registration
statement filed by the Company), the Act and the 1934 Act (at any time after it
has become subject to such reporting requirements), or that it qualifies as a
registrant whose securities may be resold pursuant to Form S-3 (at any time
after it so qualifies), (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
1.12 Assignment of Registration Rights. The rights to cause the Company
to register Registrable Securities pursuant to this Section 1 may be assigned
(but only with all related obligations) by a Holder, provided the Company is,
within a reasonable time after such transfer, furnished with written notice of
the name and address of such transferee or assignee and the securities with
respect to which such registration rights are being assigned; and provided,
further, that such assignment shall be effective only if immediately following
such transfer the further disposition of such securities by the transferee or
assignee is restricted under the Act. For the purposes of determining the number
of shares of Registrable Securities held by a transferee or assignee, the
holdings of transferees and assignees of a partnership who are partners or
retired partners of such partnership (including spouses and ancestors, lineal
descendants and siblings of such partners or spouses who acquire Registrable
Securities by gift, will or intestate succession) shall be aggregated together
and with the partnership; provided that all assignees and transferees who would
not qualify individually for assignment of registration rights shall have a
single attorney-in-fact for the purpose of exercising any rights, receiving
notices or taking any action under this Section 1.
1.14 Limitations on Subsequent Registration Rights. From and after the
date of this Agreement, the Company shall not, without the prior written consent
of the Holders, so long as they own any outstanding Registrable Securities,
enter into any agreement with any holder or prospective holder of any securities
of the Company which would allow such holder or prospective holder (a) to
include such securities in any registration filed under Section 1.2 hereof,
unless under the terms of such agreement, such holder or prospective holder may
include such securities in any such registration only to the extent that the
inclusion of his securities will not reduce the amount of the Registrable
Securities of the Holders which is included or (b) to make a demand registration
which could result in such registration statement being declared effective prior
to the date set forth in subsection 1.2(a) or within one hundred twenty (120)
days of the effective date of any registration effected pursuant to Section 1.2.
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1.15 "Market Stand-Off" Agreement. Each Holder hereby agrees that,
during the period of duration, not to exceed 180 days, specified by the Company
and an underwriter of the Common Stock or other securities of the Company,
following the effective date of a registration statement of the Company filed
under the Act, it shall not, to the extent requested by the Company and such
underwriter, directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound) any securities of the Company held by it at any time during such period
except Class A Common Stock included in such registration; provided, however,
that:
(a) such agreement shall be applicable only to the first such
registration statement of the Company which covers Class A Common Stock (or
other securities) to be sold on its behalf to the public in an underwritten
offering; and
(b) all officers and directors of the Company and all other persons
with registration rights (whether or not pursuant to this Agreement) enter into
similar agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
2. Covenants of the Company.
2.1 Delivery of Financial Statements. The Company shall deliver to each
Holder, as soon as practicable, but in any event within ninety (90) days after
the end of each fiscal year of the Company, an income statement for such fiscal
year, a balance sheet of the Company and statement of stockholders' equity as of
the end of such year, and a statement of cash flows for such year, such year-end
financial reports to be in reasonable detail, prepared in accordance with
generally accepted accounting principles ("GAAP"), and audited and certified by
independent public accountants of nationally recognized standing selected by the
Company.
3. Miscellaneous.
3.1 Successors and Assigns. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties. Nothing in
this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
3.2 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of Delaware.
3.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
-11-
<PAGE> 12
3.4 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.5 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or three
(3) days after deposit with the United States Post Office, by registered or
certified mail, postage prepaid and addressed to the party to be notified at the
address indicated for such party on the signature page hereof, or at such other
address as such party may designate by ten (10) days' advance written notice to
the other parties.
3.6 Expenses. If any action at law or in equity is necessary to enforce
or interpret the terms of this Agreement, the prevailing party shall be entitled
to reasonable attorneys' fees, costs and necessary disbursements in addition to
any other relief to which such party may be entitled.
3.7 Amendments and Waivers. Except as otherwise provided herein, any
term of this Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and the holders of a majority of the Registrable Securities then outstanding.
Any amendment or waiver effected in accordance with this paragraph shall be
binding upon each holder of any Registrable Securities then outstanding, each
future holder of all such Registrable Securities, and the Company.
3.8 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
-12-
<PAGE> 13
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first above written.
SKECHERS U.S.A., INC.
By: /s/ DAVID WEINBERG
-------------------------------
Name: David Weinberg
Title: Executive Vice President and
Chief Financial Officer
THE GREENBERG FAMILY TRUST
By: /s/ ROBERT Y. GREENBERG
-------------------------------
Name: Robert Y. Greenberg
Title: Trustee
By: /s/ M. SUSAN GREENBERG
------------------------------
Name: M. Susan Greenberg
Title: Trustee
MICHAEL GREENBERG
By: /s/ MICHAEL GREENBERG
------------------------------
Michael Greenberg
-13-
<PAGE> 1
EXHIBIT 10.6
TAX INDEMNIFICATION AGREEMENT
This Tax Indemnification Agreement ("Agreement") is made this 8th day
of June, 1999, by and among Skechers U.S.A., Inc., a Delaware Corporation
("Skechers" or the "Corporation"), Michael Greenberg, Jeffrey Greenberg, Jason
Greenberg, Joshua Greenberg, Jennifer Greenberg, Robert and Susan Greenberg,
Trustees of the Greenberg Family Trust u/d/t May 3, 1998, David Schwartzberg,
Julie Schwartzberg, Gil Schwartzberg, and Debbie Schwartzberg (each such
individual a "Shareholder," and all such individuals collectively the
"Shareholders"), such Shareholders owning all of the capital stock of the
Corporation. Skechers and the Shareholders are hereinafter referred to
individually as a "party" and collectively as the "parties".
WHEREAS, the Corporation is and has been an "S corporation" (within the
meaning of section 1361 of the Internal Revenue Code of 1986, as amended (the
"Code")) since May 29, 1992;
WHEREAS, Corporation contemplates a public offering (the "Offering") of
its stock;
WHEREAS, it is anticipated that Corporation's election to be an S
corporation will terminate as a result of revocation of such status in
accordance with Section 1361(d)(1) of the Code, upon the effective date of the
Offering; and
WHEREAS, in connection with the Offering, Corporation and Shareholders
wish to provide for certain indemnifications with respect to Corporation's prior
status as an S corporation.
NOW, THEREFORE, the parties agree as follows:
1. Tax Returns and Reporting.
(a) Consistent Reporting by Corporation. For all taxable years
ended on or before the day before Corporation's S corporation election
terminates, Corporation shall not (except as required by law), without the
unanimous consent of Shareholders (which consent shall not be unreasonably
withheld), file any amended income tax return or change any election or
accounting method with respect to Corporation, if such filing or change would
increase any federal, state, local (including but not limited to city or county)
or foreign income tax liability (including interest and penalties, if any)
(collectively "Tax Liability") of any Shareholder for any period. The limitation
of liability contained in section 2(a)(v) hereinbelow does not apply in the
event Corporation breaches the prohibition contained in this section 1(a).
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<PAGE> 2
(b) Responsibility for Tax Returns. Corporation shall file all
tax returns required to be filed by it with respect to all periods for which
returns shall become due after the closing of Corporation's initial public
offering, including all returns for the short taxable year which concludes upon
the termination of Corporation's S election.
(c) Responsibility for Taxes. Each Shareholder shall file all
required tax returns reporting his/her allocable share of Corporation's taxable
income for all years prior to the termination of the S election, subject only to
the indemnities set forth in paragraph 2 hereinbelow.
(d) Allocation Election. Corporation shall terminate its S
corporation status by a revocation of such status pursuant to section 1361(d)(1)
of the Code by filing the form attached hereto and marked "Exhibit A." The
Shareholders shall consent to the revocation of the S corporation election by
filing the form, attached hereto and marked "Exhibit B"no later than one day
before the closing of the Offering (the "Termination Date"). Further,
Corporation shall elect to allocate items between its two taxable years ending
and beginning, respectively, on the date of termination and the date after the
termination of the S election, "under normal tax accounting rules," that is, the
"closing of the books method," as provided in section 1362(e)(3)(A) of the Code
by filing the form attached hereto as "Exhibit C." The Shareholders shall each
consent to the "closing of the books method" election, by filing the forms
attached hereto and marked "Exhibit D" pursuant to section 1362(e)(3)(B)of the
Code.
2. Indemnification.
(a) Indemnification of Shareholders.
(i) Indemnification for Tax Liability. Corporation
hereby agrees to indemnify and hold Shareholders harmless from, against and in
respect of any Tax Liability incurred by them resulting from a final judicial or
administrative adjustment (by reason of an amended return, claim for refund,
audit or otherwise) to Corporation's taxable income which is the result of an
increase or change in character of Corporation's income during the period it was
treated as an S corporation.
(ii) Tax Adjustment. In the event that an
indemnification payment pursuant to section 2(a)(i) exceeds the amount of the
increase in the Corporation's accumulated adjustments account (as defined in IRC
section 1368(e)(1)) resulting from the adjustment (or to the extent such payment
to Shareholders does not qualify as a distribution during the post-termination
transition period as defined in IRC section 1377(b)) such amount shall be
increased by an amount calculated pursuant to section 2(a)(iv) hereinbelow.
(iii) Fees and Costs. Corporation hereby agrees to
reimburse Shareholders for such professional fees or other costs as are
reasonably necessary to defend Shareholders in the event of an audit or review
of a Shareholder's income tax return during a
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<PAGE> 3
year in which the Shareholders were reporting corporate income by virtue of the
S corporation election.
(iv) Gross Up for Additional Tax. In all events,
and to the extent not otherwise reimbursed, Corporation hereby agrees that if
any payment pursuant to this section 2(a) is deemed to be taxable income to a
Shareholder, the amount of such payment to the Shareholder shall be increased by
an amount necessary to equal the Shareholder's additional Tax Liability related
to such amount (including, without limitation any taxes on such additional
amounts) so that the net amount received and retained by a Shareholder after
payment by the Shareholder of all taxes associated with the payment is equal to
the payment otherwise required to be made.
(v) Indemnification Limited to Tax Benefit.
Notwithstanding anything to the contrary in this Agreement, the Company's
obligation to indemnify pursuant to section 2(a) of this Agreement shall be
limited to the amount of the Company's actual tax savings, if any, attributable
to the circumstances giving rise to the increase in the Tax Liability of a
Shareholder.
(b) Indemnification of Corporation.
(i) Indemnification for Failure to Qualify as an S
Corporation. Each of the shareholders, severally and jointly agrees (according
to the percentage of the outstanding shares of Skechers' common stock owned by
such shareholder for the year in question), to indemnify and hold Corporation
harmless from, against, and in respect for any U.S. federal or state income tax
liability (including interest and penalties), if any, resulting from Corporation
failing to qualify as an S corporation under Section 1361(a)(1) of the IRC (as
enacted and in effect prior to the date of termination), pursuant to a final
determination by an applicable taxing authority, for any taxable year on or
before the Termination Date as to which Corporation filed or files tax returns
claiming status as an S corporation.
(ii) Indemnification for Tax Liability. In addition
to the indemnification obligation provided in section 2(b)(i) Shareholders
hereby agree to indemnify and hold harmless Corporation against any increase in
Corporation's Tax Liability, and costs relating thereto, with respect to any tax
year to the extent such increase results in a related decrease in the Tax
Liability of Shareholders for any period prior to the termination of the
Corporation's S status.
(c) Payment. Any payment required to be made pursuant to this
Agreement shall be paid within seven days after receipt of written notice from
the indemnified person that a payment is due hereunder.
3. Waiver of Invalid Election or Termination of S Status. If the
Internal Revenue Service determines that Corporation failed validly to elect to
be an S corporation or that Corporation's status as an S corporation was
terminated inadvertently, and if Corporation wishes to obtain a ruling pursuant
to section 1362(f) of the Code, each Shareholder agrees to make any adjustments
-3-
<PAGE> 4
required pursuant to section 1362(f)(4) of the Code and approved by
Corporation's board of directors. Any such adjustments shall be subject to the
indemnification provisions of section 2(a).
4. Miscellaneous. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
counterparts collectively shall constitute an instrument representing the
Agreement between the parties hereto. This Agreement shall be governed by
California law, without regard to choice of law rules applied by California
courts. This Agreement shall be binding on and shall inure to the benefit of
successors and assigns of the parties, including all persons to whom any
Shareholder transfers stock of Corporation. Section headings shall not affect
the interpretation of this Agreement. This Agreement embodies the entire
agreement of the parties with respect to the subject matter contained herein.
The parties hereto agree to take all further actions necessary to effect the
agreements contained herein.
WHEREFORE this Agreement was executed on the date first aforesaid.
CORPORATION: Skechers U.S.A., Inc., a Delaware Corporation
By: /s/ DAVID WIENBERG
-----------------------------------------
Name: David Weinberg
Title: Executive Vice President
and Chief Financial Officer
SHAREHOLDERS:
/s/ MICHAEL GREENBERG /s/ ROBERT AND SUSAN GREENBERG
- ---------------------------------- --------------------------------------
Michael Greenberg Robert and Susan Greenberg,
Trustees of the Greenberg Family Trust
u/d/t May 3, 1988
/s/ JEFFREY GREENBERG /s/ DAVID SCHWARTZBERG
- ---------------------------------- --------------------------------------
Jeffrey Greenberg David Schwartzberg
/s/ JASON GREENBERG /s/ JULIE SCHWARTZBERG
- ---------------------------------- --------------------------------------
Jason Greenberg Julie Schwartzberg
/s/ JOSHUA GREENBERG /s/ GIL SCHWARTZBERG
- ---------------------------------- --------------------------------------
Joshua Greenberg Gil Schwartzberg
/s/ JENNIFER GREENBERG /s/ DEBBIE SCHWARTZBERG
- ---------------------------------- --------------------------------------
Jennifer Greenberg Debbie Schwartzberg
-4-
<PAGE> 5
EXHIBIT A
STATEMENT OF REVOCATION OF ELECTION
Internal Revenue Service Center
Fresno, California 93888
RE: Skechers U.S.A., Inc., a Delaware corporation
EIN 95-4376145
Revocation of S Corporation Election
The S corporation election under section 1362(a) of the Internal
Revenue Code of Skechers U.S.A., Inc., a Delaware corporation, with its
principal office located at 228 Manhattan Beach Boulevard, Manhattan Beach, CA
90266, is hereby revoked as of ______________, 1999. At the time of revocation,
the number of shareholders (issued and outstanding) of Skechers U.S.A., Inc.
stock, including nonvoting stock, is 27,814,155.
Attached are the consents to the revocation by shareholders owning more
than one-half of the issued and outstanding shares.
Skechers U.S.A., Inc., a Delaware corporation
By:____________________________
Title:_________________________
Date:__________________________
Attachment
{All revocations and consents should be mailed to the IRS certified mail return
receipt requested.}
-5-
<PAGE> 6
EXHIBIT B
SHAREHOLDERS' STATEMENT OF CONSENT TO REVOCATION OF ELECTION
We, the undersigned, being shareholders of Skechers, U.S.A., Inc., a
Delaware corporation ("Skechers"), holding all of Skechers' issued and
outstanding shares (including nonvoting stock), do hereby consent to the
revocation by Skechers of its S corporation election under section 1362(a) of
the Internal Revenue Code. The revocation is to be effective as of
______________ 1999.
Under penalties of perjury, the undersigned declare that the facts
presented in the accompanying statement are, to the best of our knowledge and
belief, true, correct, and complete.
<TABLE>
<CAPTION>
Social Security
or Employer Date Acquired
Name and Identification Number of Per Regs. Tax Year End
Address Number Shares Owned 1.1362-6(b)(1) (Month & Day)
<S> <C> <C> <C> <C>
Michael Greenberg 2,781,415
Jeffrey Greenberg 1,390,708
Jason Greenberg 1,390,708
Joshua Greenberg 1,390,708
Jennifer Greenberg 1,390,708
Robert and Susan Greenberg,
Trustees of the Greenberg Family
Trust, u/d/t 5/3/88 18,079,198
David Schwartzberg 278,142
Julie Schwartzberg 278,142
Gil Schwartzberg 417,213
Debbie Schwartzberg 417,213
</TABLE>
__________________________________ ______________________________________
Michael Greenberg Robert and Susan Greenberg,
Trustees of the Greenberg Family Trust
u/d/t May 3, 1998
__________________________________ ______________________________________
Jeffrey Greenberg David Schwartzberg
__________________________________ ______________________________________
Jason Greenberg Julie Schwartzberg
__________________________________ ______________________________________
Joshua Greenberg Gil Schwartzberg
__________________________________ ______________________________________
Jennifer Greenberg Debbie Schwartzberg
Dated:_________________, 1999
{All election and consents should be mailed to the IRS certified mail return
receipt requested.}
-6-
<PAGE> 7
EXHIBIT C
ELECTION TO CLOSE BOOKS UPON S CORPORATION TERMINATION
(Attach to Form 1120)
Skechers U.S.A., Inc., a Delaware corporation ("Skechers"), EIN
95-4376145, with the consent of all the shareholders of the short S year and all
the shareholders on the first day of the short C year (attached), elects under
section 1362(e)(3) of the Internal Revenue Code not to have the pro rata
allocation of S corporation items under section 1362(e)(2) of the Internal
Revenue Code apply to the S termination year ending _________________, 1999. The
date of Skechers' termination was _________, 1999 and the cause of termination
was an election to revoke its status as an S corporation.
Skechers U.S.A., Inc. a Delaware corporation
By:________________________________
Name:
Title:
Date:______________________________
Attachment
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<PAGE> 8
EXHIBIT D
SHAREHOLDER CONSENT
RE: Skechers U.S.A., Inc., a Delaware corporation
EIN 95-4376145
SHAREHOLDER NAME: ___________________________________________
SHAREHOLDER ADDRESS: ___________________________________________
TAXPAYER IDENTIFICATION NUMBER: _________________________________
NUMBER OF SHARES: ___________________________________________
DATE OR DATES SHARES ACQUIRED: _________________________________
_________________________________
DATE SHAREHOLDER'S TAX YEAR ENDS: _________________________________
THE UNDERSIGNED HEREBY CONSENTS TO THE ELECTION OF SKECHERS U.S.A., INC., A
CALIFORNIA CORPORATION TO ALLOCATE THE TAXABLE INCOME OF THE CORPORATION FOR THE
S TERMINATION YEAR AS PROVIDED BY SECTION 1362(e)(3) OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED.
This consent is executed by the undersigned under penalties of perjury.
Date:______________________ Signature:__________________________
Date:______________________ Signature:__________________________
Note: Each person owning a community property, tenancy in common, joint tenancy,
or tenancy by the entirety interest must sign. Consent of minor must be by legal
representative or parent if no legal representative. Consent of qualifying trust
must be the person treated as shareholder under Section 1361(b)(1) of the Code.
-8-
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Name of Subsidiary State of Incorporation
------------------ -----------------------
Skechers By Mail, Inc. Delaware
Skechers U.S.A., Inc. II Delaware
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 221
<SECURITIES> 0
<RECEIVABLES> 80,047
<ALLOWANCES> 2,843
<INVENTORY> 58,733
<CURRENT-ASSETS> 140,745
<PP&E> 24,310
<DEPRECIATION> 7,415
<TOTAL-ASSETS> 160,245
<CURRENT-LIABILITIES> 82,423
<BONDS> 3,418
0
0
<COMMON> 69,722
<OTHER-SE> 4,682
<TOTAL-LIABILITY-AND-EQUITY> 160,245
<SALES> 200,318
<TOTAL-REVENUES> 200,525
<CGS> 120,888
<TOTAL-COSTS> 62,350
<OTHER-EXPENSES> (504)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,869
<INCOME-PRETAX> 13,922
<INCOME-TAX> 1,200
<INCOME-CONTINUING> 12,722
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,722
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
