<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 1994
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________________ TO ___________________
Commission file number 1-10157
L.A. GEAR, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3375118
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2850 OCEAN PARK BOULEVARD, SANTA MONICA, CALIFORNIA 90405
(Address of principal executive offices) (Zip code)
(310) 822-1995
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
__________ __________
The number of shares outstanding of the registrant's Common Stock, no par
value, at April 11, 1994 was 22,936,433 shares.
THIS FORM 10-Q CONTAINS 63 PAGES.
THE EXHIBIT INDEX APPEARS ON PAGE 15.
<PAGE> 2
L.A. GEAR, INC.
TABLE OF CONTENTS
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 1994
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
- ------ --------------------- --------
<S> <C> <C>
Item 1. Financial Statements
Consolidated Condensed Balance Sheets at
February 28, 1994 and November 30, 1993 3
Consolidated Condensed Statements of Operations and Accumulated Deficit
for the three months ended February 28, 1994 and February 28, 1993 4
Consolidated Condensed Statements of Cash Flows for the
three months ended February 28, 1994 and February 28, 1993 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II. OTHER INFORMATION
- ------- -----------------
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
Exhibit Index 15
</TABLE>
2
<PAGE> 3
L.A. GEAR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
February 28, November 30,
1994 1993
-------------- --------------
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,906 $ 27,790
Accounts receivable, net 96,313 73,217
Inventories 100,751 109,797
Prepaid expenses and other current assets 9,613 8,960
-------- --------
Total current assets 213,583 219,764
Property and equipment and other assets, net 22,954 23,848
Goodwill, net 11,175 11,001
-------- --------
$247,712 $254,613
======== ========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED
STOCK AND SHAREHOLDERS' EQUITY
Current liabilities:
Borrowings under international credit facilities $ 3,096 $ 3,737
Accounts payable and accrued liabilities 48,870 54,079
-------- --------
Total current liabilities 51,966 57,816
7- 3/4% convertible subordinated debentures due 2002 50,000 50,000
Minority interest 2,679 --
Mandatorily redeemable preferred stock:
7.5% Series A cumulative convertible preferred stock,
$100 stated value; 1,000,000 shares authorized, issued
and outstanding; redemption value of $100 per share 100,000 100,000
Shareholders' equity:
Common stock, no par value; 80,000,000 shares authorized;
22,936,433 shares issued and outstanding at February 28,
1994 (22,934,623 shares issued and outstanding at
November 30, 1993) 128,093 128,076
Preferred stock, no stated value; 9,000,000 shares
authorized; no shares issued -- --
Cumulative currency translation adjustment (681) (836)
Accumulated deficit (84,345) (80,443)
-------- --------
Total shareholders' equity 43,067 46,797
-------- --------
$247,712 $254,613
======== ========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
3
<PAGE> 4
L.A. GEAR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended February 28,
-------------------------------------
1994 1993
-------- --------
<S> <C> <C>
Net sales $120,436 $ 76,327
Cost of sales 85,527 55,951
-------- --------
Gross profit 34,909 20,376
Selling, general and administrative expenses 36,018 31,978
Interest expense (income), net 1,089 (40)
-------- --------
Loss before income taxes and minority interest (2,198) (11,562)
Income taxes -- --
Minority interest (171) --
-------- --------
Net loss (2,027) (11,562)
Dividends on mandatorily
redeemable preferred stock (1,875) (2,042)
-------- --------
Loss applicable to common stock (3,902) (13,604)
Accumulated deficit, beginning of period (80,443) (40,263)
-------- --------
Accumulated deficit, end of period $(84,345) $(53,867)
======== ========
Loss per common share $ (0.17) $ (0.59)
======== ========
Weighted average common shares outstanding 22,936 22,902
======== ========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
4
<PAGE> 5
L.A. GEAR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended February 28,
-------------------------------------
1994 1993
-------- --------
<S> <C> <C>
Net cash used in operating activities $(22,512) $(26,685)
-------- --------
Investing activities - capital expenditures (675) (920)
-------- --------
Financing activities:
Net borrowings under international credit facilities (658) --
Proceeds from minority's investment in joint venture 4,850 --
Proceeds from the exercise of stock options 17 --
Net proceeds from issuance of convertible
subordinated debentures -- 47,800
Payment of dividends on mandatorily redeemable
preferred stock (1,875) (9,788)
--------- --------
Net cash provided by financing activities 2,334 38,012
--------- --------
Effect of exchange rate changes on cash and
cash equivalents (31) --
--------- --------
Net increase (decrease) in cash and cash
equivalents, including collateralized cash (20,884) 10,407
Cash and cash equivalents at beginning of the period,
including collateralized cash 27,790 83,982
--------- --------
Cash and cash equivalents at end of period,
including collateralized cash $ 6,906 $ 94,389
========= ========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
5
<PAGE> 6
L.A. GEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments, which consist only of
normal recurring adjustments necessary to present fairly the consolidated
financial position of L.A. Gear, Inc. and its subsidiaries (collectively
referred to as the "Company") at February 28, 1994, the results of operations
and cash flows for the three months ended February 28, 1994 and February 28,
1993. This interim financial information and notes thereto should be read in
conjunction with the Company's Annual Report on Form 10-K for the fiscal year
ended November 30, 1993. The Company's results of operations and cash flows
for interim periods are not necessarily indicative of the results to be
expected for any other interim period or the full year.
Minority Interest
In December 1993 a joint venture was formed with Inchcape plc
("Inchcape") to engage in marketing, distribution and sales of L.A. Gear(R)
branded footwear, apparel and accessories in selected Far Eastern markets. The
Company contributed the rights to distribute L.A. Gear branded products for a
50% share in the joint venture. Profits and losses are allocated based on
specific terms of the joint venture agreement. The Company has a unilateral
purchase option to acquire a majority interest in the joint venture and,
accordingly, the Company has consolidated the accounts of the joint venture.
Minority interest represents Inchcape's interest in the equity of the joint
venture.
NOTE 2. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED FEBRUARY 28,
-------------------------------
1994 1993
---- ----
(IN THOUSANDS)
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID (RECEIVED) DURING THE PERIOD FOR:
INTEREST, NET $ 16 $(704)
==== =====
INCOME TAXES, NET $(12) $ (59)
==== =====
</TABLE>
NOTE 3. ACCOUNTS RECEIVABLE, NET
Accounts receivable, net of allowance for doubtful accounts and
merchandise returns, consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, NOVEMBER 30,
1994 1993
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
TRADE RECEIVABLES
DOMESTIC $ 77,570 $54,434
INTERNATIONAL 19,909 16,854
-------- -------
TOTAL TRADE RECEIVABLES 97,479 71,288
OTHER RECEIVABLES 8,166 7,846
-------- -------
105,645 79,134
LESS ALLOWANCE FOR DOUBTFUL ACCOUNTS
AND MERCHANDISE RETURNS (9,332) (5,917)
-------- -------
$ 96,313 $73,217
======== =======
</TABLE>
6
<PAGE> 7
L.A. GEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4. INCOME TAXES
In December 1993, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes," which mandates the
liability method of accounting for income taxes. Under the new standard,
deferred tax liabilities are recognized for taxable temporary differences and
deferred tax assets are recognized for deductible temporary differences and tax
loss and credit carryforwards. A valuation allowance is established to reduce
deferred tax assets if some, or all, of such deferred tax assets are not likely
to be realized. The adoption of SFAS No. 109 did not have a material impact on
the Company's consolidated financial statements.
Deferred tax assets, net of valuation allowance, consist of the following:
<TABLE>
<CAPTION>
NOVEMBER 30, 1993
-----------------
(IN THOUSANDS)
<S> <C>
LOSS CARRYFORWARDS $ 20,665
TAX CREDIT CARRYFORWARDS 3,226
RESERVES AND ACCRUED EXPENSES 10,896
OTHER 2,145
--------
GROSS DEFERRED TAX ASSETS 36,932
LESS VALUATION ALLOWANCE (36,932)
--------
$ --
========
</TABLE>
At February 28, 1994 deferred tax assets totaled approximately $37.2
million. A valuation allowance has been established against the entire
deferred tax asset balance.
For the period ended February 28, 1994, the difference between the tax
benefit computed based on applying the U.S. statutory income tax rate to the
loss from continuing operations before income taxes and the recorded benefit
was primarily due to the nonrecognition of tax benefits for operating losses
which are not likely to be realized under the standards of SFAS No. 109.
NOTE 5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, 1994 NOVEMBER 30, 1993
----------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
ACCOUNTS PAYABLE AND OTHER ACCRUED LIABILITIES $32,478 $33,170
ACCRUED INVENTORY PURCHASES 14,213 16,900
COSTS RELATED TO DISCONTINUED OPERATIONS 731 1,009
ACCRUED UNUSUAL CHARGES 1,448 3,000
------- -------
$48,870 $54,079
======= =======
</TABLE>
Accounts payable include issued but uncleared checks of $2.5 million at
November 30, 1993, none at February 28, 1994.
7
<PAGE> 8
L.A. GEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6. BANK BORROWINGS
On November 22, 1993, the Company obtained a three-year, $75 million
revolving line of credit with BankAmerica Business Credit, Inc. for loans and
letters of credit. This facility is secured primarily by the Company's
domestic assets and is subject to certain financial covenants. During the
quarter ended February 28, 1994, the Company had average borrowings of $0.9
million under this credit facility. There were no borrowings at February 28,
1994. At February 28, 1994, approximately $17.1 million letters of credit were
outstanding.
The Company's foreign subsidiaries have the following credit facilities,
denominated in their respective local currency and converted to U.S. dollars at
the end-of-period exchange rates, which are secured by certain assets of the
respective subsidiary and guaranteed by the Company:
<TABLE>
<CAPTION>
AMOUNT OF FACILITY
--------------------------------------------- OUTSTANDING AT
(IN MILLIONS) SUBLIMITS FEBRUARY 28, 1994
-------------------------- -----------------------
TOTAL LETTERS LETTERS
COUNTRY AVAILABLE BORROWINGS OF CREDIT BORROWINGS OF CREDIT
------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
GERMANY $7.3 $4.4 $7.3 $3.1 $0.4
NETHERLANDS $2.6 $1.0 $2.6 -- $0.2
</TABLE>
The weighted average interest rate, as defined in the respective credit
facility agreements and adjusted for current market conditions, for Germany and
the Netherlands was 9% and 7.25%, respectively, as of February 28, 1994. With
respect to the Company's foreign subsidiaries, the Company continues to explore
the possibility of renewing existing facilities and/or obtaining new secured
revolving credit facilities for cash borrowings and letters of credit.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
All references to years are to fiscal years ending November 30, 1994
and 1993, as applicable.
NET SALES
In the first quarter of 1994, the Company's net sales increased 57.8%
to $120.4 million compared to $76.3 million in the first quarter of 1993. The
increase in net sales was principally due to (1) a 41.4% increase in the number
of pairs sold worldwide, which was primarily attributable to the continued
success of the children's lighted product line and sales of $19.2 million (1.2
million pairs) of selected excess inventory to a large domestic mass market
retailer, (2) a greater percentage of first quarter 1994 sales, compared to the
comparable prior year period, consisting of in-line product which resulted in
an increase in the average selling price per pair of $2.08 to $18.39 per pair,
and (3) recognition of incremental international sales to wholesale customers
by the Company's foreign subsidiaries acquired or formed during the second and
third quarters of 1993. For the quarter ended February 28, 1994, net domestic
sales increased 77.0% from the prior year. Net international sales, which
accounted for approximately 23.6% of the Company's total net sales in the first
quarter of 1994, increased by 16.7% from the comparable 1993 period.
The following table sets forth certain information regarding the
Company's net sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED FEBRUARY 28, NET SALES
------------------------------- -----------------------------------------------
1994 1993
------------------ -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
DOMESTIC FOOTWEAR
WOMEN'S $ 20,148 17% $20,171 26%
MEN'S 26,506 22 12,657 17
CHILDREN'S 44,776 37 18,363 24
OTHER 357 -- 550 1
-------- --- ------- ---
TOTAL DOMESTIC SALES 91,787 76 51,741 68
INTERNATIONAL FOOTWEAR AND OTHER 28,649 24 24,586 32
-------- --- ------- ---
TOTAL NET SALES $120,436 100% $76,327 100%
======== === ======= ===
</TABLE>
The following table sets forth the percentage changes, by Women's, Men's
and Children's categories, in the number of pairs sold during the 1994 period
as compared to the same period of 1993:
<TABLE>
<CAPTION>
THREE MONTHS ENDED FEBRUARY 28, VOLUME OF FOOTWEAR SOLD
------------------------------- -----------------------
CHANGES BETWEEN 1994 AND 1993
---------------------------------------------------------
DOMESTIC INTERNATIONAL TOTAL
--------------- ---------------- -----------
<S> <C> <C> <C>
WOMEN'S (1.1%) (26.4%) (10.0%)
MEN'S 103.1% (2.9%) 58.2%
CHILDREN'S 122.6% 33.6% 94.1%
TOTAL VOLUME INCREASE (DECREASE) 65.0% (1.3%) 41.4%
</TABLE>
Sales of the Company's children's shoes increased during the three month
period ended February 28, 1994 from the prior year comparable period primarily
as a result of customer demand for the Company's L.A. LIGHTS(TM) and Light
GEAR(TM) for children, as well as the sale of children's non-lighted shoes to a
large domestic mass market retailer. The Company sold 1.9 million pairs of
children's lighted shoes during the first quarter of 1994 compared to 0.7
million pairs for the comparable prior year period. The Company has sold 7.3
million pairs of children's lighted shoes since their introduction in the
second half of 1992, establishing the line as one of the most successful shoe
collections in the Company's history. Sales of the expanded line of children's
lighted shoes accounted for 68.6% of total children's net sales and 31.6% of
total net sales for the first quarter of 1994. The number of pairs of men's
shoes sold increased due to the sale to a large domestic mass market retailer,
and to a lesser extent, higher sales of new in-line men's athletic shoes.
9
<PAGE> 10
GROSS MARGIN
The gross margin for the first quarter of 1994 improved to 29.0% from
26.7% for the same period in the prior year. Improved margins primarily
resulted from the combination of (1) higher gross margins realized on
international sales made directly to wholesalers by the Company's recently
acquired or formed foreign subsidiaries and (2) a larger portion of 1994 sales
of in-line product with higher average selling prices per pair. These
improvements were partially offset by sales of selected styles of excess
inventory to a large domestic mass market retailer at less than full margin.
The Company's gross profit margin on international sales for the first
quarter of 1994 increased to 33.3% from 19.1% in the prior year primarily due
to the inclusion of sales of the Company's foreign subsidiaries acquired or
formed during the 1993 second and third quarters. By selling through these new
subsidiaries, the Company realizes a wholesale margin on the sale to the
retailer that is greater than that on the sales to independent distributors.
In the prior year, products were sold primarily to distributors at a stated
margin over the Company's factory purchase price.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 12.6% to $36.0
million in the first quarter of 1994 compared to $32.0 million for the
comparable prior year period. The increase in selling, general and
administrative expenses was entirely attributable to the recent acquisition or
formation of the Company's foreign subsidiaries. Domestically, the Company
continued its overhead reduction program and recorded a decrease in selling,
general and administrative expense of $0.6 million in the first quarter of
1994.
Selling, general and administrative expenses as a percentage of net sales
decreased to 29.9% in the first quarter of 1994 from 41.9% in the comparable
1993 period, primarily due to the 57.8% increase in net sales. Changes in the
Company's selling, general and administrative expenses cannot be directly
related to fluctuations in sales volumes as a substantial portion of such
expenses are (i) fixed in nature, such as compensation and benefits for
management and administrative personnel, rent, insurance, depreciation and
other overhead charges or (ii) incurred to benefit future periods, such as
media, trade show and advertising expenses.
INTEREST EXPENSE (INCOME), NET
Interest expense of $1.2 million for the three months ended February 28,
1994, primarily related to (i) interest costs on the $50 million, 7- 3/4%
convertible subordinated debentures due 2002 (the "Debentures") issued in
December 1992 and (ii) short-term borrowings of the Company's wholly-owned
foreign subsidiaries. During the quarter ended February 28, 1993 the Company
incurred interest expense of $0.7 million related to interest on the
Debentures.
Interest income decreased to $0.1 million during the three months ended
February 28, 1994 compared to $0.8 million in the year earlier period as a
result of decreased average daily cash balances.
10
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth certain information regarding the
Company's liquidity and capital resources:
<TABLE>
<CAPTION>
FEBRUARY 28, NOVEMBER 30,
1994 1993
---------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 6,906 $ 27,790
WORKING CAPITAL 161,617 161,948
OUTSTANDING LETTERS OF CREDIT 16,367 33,553
CONVERTIBLE SUBORDINATED DEBENTURES 50,000 50,000
MANDATORILY REDEEMABLE PREFERRED STOCK 100,000 100,000
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------
FEBRUARY 28, FEBRUARY 28,
1994 1993
-------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
AVERAGE DAILY SHORT-TERM BORROWINGS $ 4,728 $ --
WEIGHTED AVERAGE INTEREST RATES 7.5% --
</TABLE>
Cash and cash equivalent balances declined by $20.9 million from November
30, 1993 to a balance of $6.9 million at February 28, 1994. The majority of
this decline is the result of higher domestic trade receivable balances and
funding of the 1994 first quarter operating losses. Net accounts receivable at
February 28, 1994 increased $23.1 million from November 30, 1993 due to a 38.6%
increase in net sales in the last two months of the 1994 first quarter compared
to the last two months of the 1993 fourth quarter.
During the first quarter of 1994, the Company reduced inventory from
$109.8 million (9.3 million pairs) at November 30, 1993 to $100.8 million (9.0
million pairs) at February 28, 1994 primarily due to the sale of selected
excess inventory to one large domestic mass market retailer. The reduction was
partially offset by Spring 1994 product purchased in anticipation of sales
during the second fiscal quarter.
The Company's foreign subsidiaries have the following credit facilities,
denominated in their respective local currencies and converted to U.S. dollars
at the end-of-period exchange rates, which are secured by certain assets of the
respective subsidiary and guaranteed by the Company:
<TABLE>
<CAPTION>
AMOUNT OF FACILITY
--------------------------------------------- OUTSTANDING AT
(IN MILLIONS) SUBLIMITS FEBRUARY 28, 1994
--------------------------- -----------------------
TOTAL LETTERS CASH LETTERS
COUNTRY AVAILABLE BORROWINGS OF CREDIT BORROWINGS OF CREDIT
------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
GERMANY $7.3 $4.4 $7.3 $3.1 $0.4
NETHERLANDS $2.6 $1.0 $2.6 -- $0.2
</TABLE>
The weighted average interest rate, as defined in the respective credit
facility agreements and adjusted for current market conditions, for Germany and
the Netherlands was 9% and 7.25%, respectively, as of February 28, 1994. With
respect to the Company's foreign subsidiaries, the Company continues to explore
the possibility of renewing existing facilities and/or obtaining new secured
revolving credit facilities for cash borrowings and letters of credit.
On November 22, 1993, the Company obtained a three-year, $75 million
revolving line of credit with BankAmerica Business Credit, Inc. ("BABC") for
loans and letters of credit. This facility is secured primarily by the
Company's domestic assets and is subject to certain financial covenants
including a requirement that the Company maintain as of the last day of any
fiscal quarter Adjusted Tangible Net Worth of at least $175 million, which for
this purpose excludes the Debentures from the Company's liabilities. At
February 28, 1994 the
11
<PAGE> 12
Company's Adjusted Tangible Net Worth was $183 million. There were no loans
under this facility at February 28, 1994.
The short-term and long-term liquidity of the Company principally is
contingent on the Company's future operating results and certain other factors.
The Company believes that its present funding sources are sufficient to sustain
the Company's anticipated short-term and long- term liquidity needs. These
needs are based on a number of factors including the size of the business and
related working capital needs, the extent of the international subsidiaries'
funding requirements and the level of domestic operating costs. In the event
that the Company's future operating results fall below management's
expectations, additional sources of working capital funding may be necessary
and difficult to obtain.
FUTURE OUTLOOK
Although encouraged by strong sales during the first quarter of 1994, the
second quarter performance will largely depend on "at once" sales. The Company
anticipates that sales in the second quarter of 1994 will be lower than sales
in the first quarter of 1994 and that the operating loss for the second quarter
of 1994 will be greater than the loss reported during the first quarter of
1994. The Company expects that efforts to further reduce excess inventory will
continue during the second quarter and, as necessary, during the remainder of
1994 and are expected to reduce gross profit margins on selected styles.
Management believes that changing consumer footwear preferences, increased
competition at lower price points and the worldwide economic recession may also
create increased pricing pressure in the market place which could result in
reductions to the selling prices. Demand from retailers for the Company's 1994
Back-To-School ("BTS") products, which will ship primarily in the third fiscal
quarter, will be critical to the Company's financial performance during the
balance of the year. Based on historical shipping trends, the highest level of
sales generally occur in the third quarter of the Company's fiscal year.
At March 31, 1994, the combined domestic and international backlog of
orders for shipments scheduled primarily during the April through August 1994
period was $156.7 million, $101.1 million of which represents "future orders"
for the new BTS product scheduled to ship during the Company's 1994 third
fiscal quarter. The backlog at March 31, 1993 for the comparable prior year
shipping period was $148.4 million, $97.2 million of which represented orders
scheduled for shipment during the 1993 third fiscal quarter. Fifty-nine
percent of the orders in the March 31, 1994 backlog are for children's shoes,
75.6% of which are for shoes containing lighted technology. Shipments and
sales for future periods depend on, among other things, the combination of
"futures" and "at once" orders. Accordingly, the comparison of backlog from
period to period may not be indicative of eventual actual shipments.
12
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
- In April 1994, the Company entered into a settlement agreement with
entertainer Michael Jackson and related parties regarding the
previously reported action entitled L.A. Gear, Inc. v. Triumph
International, Inc., Los Angeles Superior Court, Case No. BC-64024,
pursuant to which the parties dismissed all claims against each other.
All terms of the settlement agreement are confidential.
ITEM 2 - CHANGES IN SECURITIES
- Not applicable.
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) 10.1 Employment Agreement, dated as of December 7, 1993, by and
between William L. Benford and the Company.
10.2 Employment Agreement, dated as of December 7, 1993, by and
between David F. Gatto and the Company.
10.3 Employment Agreement, dated as of December 7, 1993, by and
between Robert S. Apatoff and the Company.
10.4 Employment Agreement, dated as of December 7, 1993, by and
between Robert H. Landes and the Company.
10.5 Employment Agreement, dated as of February 15, 1994, by and
between Thomas F. Larkins and the Company.
- (b) Not applicable.
13
<PAGE> 14
SIGNATURE
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.
Dated: April 14, 1994 L.A. GEAR, INC.
---------------------------
By: /s/ William L. Benford
-------------------------------
William L. Benford
Executive Vice President and
Chief Financial Officer
14
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Document Page No.
- ----------- -------- --------
<S> <C> <C>
10.1 Employment Agreement, dated
as of December 7, 1993, by and
between William L. Benford and
the Company. 16
10.2 Employment Agreement, dated
as of December 7, 1993, by and
between David F. Gatto and
the Company. 26
10.3 Employment Agreement, dated
as of December 7, 1993, by and
between Robert S. Apatoff and
the Company. 36
10.4 Employment Agreement, dated
as of December 7, 1993, by and
between Robert H. Landes and
the Company. 46
10.5 Employment Agreement, dated
as of February 15, 1994, by and
between Thomas F. Larkins and
the Company. 56
</TABLE>
15
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
AGREEMENT made as of this 7th day of December, 1993, by and between
L.A. GEAR, INC., a California corporation (the "Company"), and William L.
Benford (the "Employee").
WHEREAS, the Company desires to retain the exclusive services of
Employee and Employee desires to be employed by the Company for the term of
this Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained herein, the parties hereto agree as follows:
1. Duties.
(a) The Employee shall serve as Executive Vice President
and Chief Financial Officer of the Company or such other position as may be
agreed between the Employee and the Company, and shall perform such duties,
services and responsibilities as are consistent with such positions. The
Employee's duties, services and responsibilities will be performed under the
overall supervision of the Chief Executive Officer of the Company and
consistent with the policies of the Board of Directors of the Company (the
"Board of Directors")
(b) During the Employment Term, the Employee shall devote
his full business time, attention and skill to the performance of such duties,
services and responsibilities, and will use his best efforts to promote the
interests of the Company. The Employee will not, without the prior written
approval of the Board of Directors, engage in any other business activity which
would interfere with the performance of his duties, services and
responsibilities hereunder or which is in violation of policies established
from time to time by the Company.
2. Term. The term of employment of the Employee hereunder shall
commence as of the date hereof and shall continue in full force and effect
until November 30, 1996, unless earlier terminated as provided herein (the
"Employment Term"). The term of this Agreement shall be coincident with the
Employment Term.
3. Compensation. In consideration of the performance by the
Employee of the Employee's obligations during the Employment Term (including
any services as an officer, director, employee, member of any committee of the
Company or any of its subsidiaries, or otherwise), the Company will during the
Employment Term pay the Employee a salary (the "Salary") at an annual rate of
not less than $325,000.
<PAGE> 2
It is anticipated that the Company will adopt for fiscal years
beginning after November 30, 1993 a management bonus plan based on excess
return on capital ("EVA Bonus Plan"). During the Term, Employee will be
eligible to participate in the EVA Bonus Plan adopted by the Company. To the
extent Employee was employed by the Company hereunder for not less than six
months during a fiscal year and Employee's employment is terminated during such
fiscal year, the Company, in its sole discretion, may pay the Employee a cash
bonus in an amount to be determined by the Board of Directors.
The Salary shall be payable in accordance with the normal payroll
practices of the Company then in effect. The Salary, and all bonuses or other
forms of compensation paid to the Employee hereunder, shall be subject to all
applicable taxes required to be withheld by the Company pursuant to federal,
state or local law. The Employee shall be solely responsible for income taxes
imposed on the Employee by reasons of any cash or non-cash compensation and
benefits provided hereunder.
In addition to the payment of Salary, the Employee shall be entitled
to participate in any employee benefit plans then in effect for similarly
situated employees to the extent the Employee meets the eligibility
requirements for any such plan; provided, however, that nothing in this
paragraph shall require the Company to provide health or medical insurance
benefits to the Employee or any dependent of the Employee with respect to any
condition existing prior to the commencement of the Employee's employment by
the Company pursuant to the Prior Employment Agreement (as defined below),
except as covered by the Company's health and medical insurance plans sponsored
for employees in general.
The Employee shall be entitled to three weeks vacation (in addition to
the usual national holidays) per year, which vacation shall be accrued ratably
during each year during which the Employee serves hereunder, subject to the
limitations set forth in this paragraph. Any accrued but unused vacation may
be carried forward into subsequent years; provided, however that accrued but
unused vacation available to the Employee may not, at any time, exceed a total
of six weeks. Vacation shall not be earned at any time that accrued but
unused vacation totals six weeks and shall not resume to be earned until
accrued but unused vacation again declines below six weeks. Such vacation
shall be taken at such time or times as may be agreed between the Employee and
the Company.
If (i) the Employee is absent from work for 180 calendar days in any
twelve-month period by reason of illness or incapacity (whether physical or
otherwise) or (ii) the Company reasonably determines that the Employee is
unable to perform his duties, services and responsibilities hereunder by reason
of illness or incapacity (whether physical or otherwise) for a total of 180
calendar days in any twelve- month period during the Employment Term
("Disability"), the Company shall not be obligated to pay the Employee any
compensation (Salary or bonus) for any period in excess of such days;
furthermore, any such payments shall be reduced by any amount the Employee is
entitled to receive as a result of such disability under any plan provided
through the Company or under state or federal law.
2
<PAGE> 3
4. Termination.
(a) Except as otherwise provided in this Agreement, the
employment of Employee hereunder and the Employment Term shall terminate upon
the earliest to occur of the dates specified below:
(i) the close of business on the date of expiration of the
Employment Term;
(ii) the close of business on the date of the Employee's
death;
(iii) the close of business on the day on which the Company
shall have delivered to the Employee a written notice of the Company's election
to terminate his employment for "Cause" (as defined in Section 4(c) hereof);
(iv) the close of business on the day on which the Company
shall have delivered to the Employee a written notice of the Company's election
to terminate his employment because of Disability;
(v) the close of business on the day following the date on
which the Board of Directors shall have adopted a resolution terminating the
employment of the Employee hereunder and such termination is not for death,
Cause or Disability; or
(vi) the close of business on an early termination
date mutually agreed to in writing by the Company and the Employee.
(b) Any purported termination by the Company or by the
Employee pursuant to Section 4(a) hereof shall be communicated by written
"Notice of Termination" to the other. For purposes of this Agreement, a
"Notice of Termination" shall mean a written notice which indicates the
specific termination provision in this Agreement relied upon and which sets
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Employee's employment under the provision so
indicated. For purposes of this Agreement, no such purported termination shall
be effective without delivery of such Notice of Termination.
(c) For purposes of this Agreement, termination of
employment for "Cause" shall mean termination based on (i) the Employee's
breach of this Agreement, (ii) conviction of the Employee for (x) any crime
constituting a felony in the jurisdiction in which committed, (y) any crime
involving moral turpitude (whether or not a felony), or (z) any other criminal
act against the Company involving dishonesty or willful misconduct intended to
injure the Company (whether or not a felony), (iii) substance abuse by the
Employee, (iv) the failure or refusal of the Employee to follow the lawful and
proper directives of the Board of Directors (or of any superior officer of the
Company having direct supervisory authority over the Employee), or (v) willful
malfeasance or gross misconduct by the Employee which discredits or damages the
Company.
3
<PAGE> 4
(d) In the event of termination of this Agreement, for
whatever reason, the Employee agrees to cooperate with the Company and to be
reasonably available to the Company with respect to continuing and/or future
matters arising out of the Employee's employment or any other relationship with
the Company, whether such matters are business-related, legal or otherwise.
The Company agrees to reimburse the Employee for the Employee's reasonable
travel expenses incurred in complying with the terms of this paragraph upon
delivery by the Employee to the Company of valid receipts for such expenses.
The provisions of this paragraph shall survive termination of this Agreement.
5. Termination Payments. If the Employee's employment with the
Company terminates for whatever reason, the Company will pay the Employee any
portion of the Salary accrued hereunder on or prior to the date of termination
but not paid. Subject to the last sentence of the following paragraph, if the
Employee's employment with the Company terminates pursuant to Section 4(a)(v),
the Company will continue to pay the Employee an amount equal to the Employee's
Salary (at the salary rate in effect on the date of termination of the
Employee's employment hereunder) for the remainder of the term of this
Agreement.
Except as otherwise provided in any stock option agreement between the
Company and the Employee in effect at the time of the termination of the
Employee's employment, the foregoing payments upon termination shall constitute
the exclusive payments due the Employee upon termination under this Agreement,
but shall have no effect on any benefits which may be due the Employee under
any plan of the Company which provides benefits after termination of
employment. The Employee shall not be required to mitigate the foregoing
amounts payable upon termination of this Agreement by seeking other employment
or otherwise; provided, however, that the foregoing payments shall be reduced
or mitigated by virtue of any cash compensation (including any deferred portion
thereof) received or earned by the Employee from any other employer, or from
personal services rendered by the Employee to a third party as an independent
contractor, during the period commencing on the date of termination of this
Agreement and ending on the date on which the Employment Term had been
scheduled to expire.
6. Employee Covenants.
(a) Unauthorized Disclosure. The Employee agrees and
understands that in the Employee's position with the Company, the Employee will
be exposed to and receive information relating to the confidential affairs of
the Company, including but not limited to technical information, business and
marketing plans, strategies, customer information, other information concerning
the Company's products, promotions, development, financing, expansion plans,
business policies and practices, and other forms of information considered by
the Company to be confidential and in the nature of trade secrets. Except to
the extent that the proper performance of the Employee's duties, services and
responsibilities hereunder may require disclosure, and except as such
information (i) was known to the Employee prior to his employment by the
Company or (ii) was or becomes generally available to the public other than as
a result of a disclosure by the Employee in violation of the provisions of this
Section 6(a), the
4
<PAGE> 5
Employee agrees that during the Employment Term and thereafter the Employee
will keep such information confidential and not disclose such information,
either directly or indirectly, to any third person or entity without the prior
written consent of the Company. This confidentiality covenant has no temporal,
geographical or territorial restriction. Upon termination of this Agreement,
the Employee will promptly supply to the Company all property, keys, notes,
memoranda, writings, lists, files, reports, customer lists, correspondence,
tapes, disks, cards, surveys, maps, logs, machines, technical data or any other
tangible product or document which has been produced by, received by or
otherwise submitted to the Employee during or prior to the Employment Term.
Any material breach of the terms of this paragraph shall be considered Cause.
(b) Inventions. (i) The Employee agrees that any and all
inventions, discoveries, improvements, processes, business application
software, patents, copyrights and trademarks made, developed, discovered or
acquired by him during the Employment Term, solely or jointly with others or
otherwise and which relate to the business of the Company and all knowledge
possessed by the Employee relating thereto (collectively, the "Inventions"),
shall be fully and promptly disclosed to the Board of Directors and to such
person or persons as the Board of Directors shall direct and shall be the sole
and absolute property of the Company and the Company shall be the sole and
absolute owner thereof. The Employee agrees that he will at all times keep all
of the same secret from everyone except the Company and such persons as the
Board of Directors may from time to time direct. The Employee shall, as
requested by the Company at any time and from time to time, whether prior to or
after the expiration of the Employment Term, execute and deliver to the Company
any instruments deemed necessary by the Company to effect disclosure and
assignment of the Inventions to the Company or its designees and any patent
applications (United States or foreign) and renewals with respect thereto,
including any other instruments deemed necessary by the Company for the
prosecution of patent applications or the acquisition of letters patent.
(ii) Reference is hereby made to Appendix A to this
Agreement reprinting the text of Sections 2870 through 2872 of the California
Labor Code. Execution of this Agreement by the Employee shall confirm that the
Employee has received and read such Appendix A. The provisions of this Section
6(b) shall not apply to any invention which qualifies fully under the
provisions of Section 2870 of the California Labor Code.
(c) Non-competition. By and in consideration of the
Company's entering into this Agreement and the Salary and benefits to be
provided by the Company hereunder, and further in consideration of the
Employee's exposure to the proprietary information of the Company, the Employee
agrees that the Employee will not, during the Employment Term, directly or
indirectly own, manage, operate, join, control, be employed by, or participate
in the ownership, management, operation or control of or be connected in any
manner, including but not limited to holding the positions of shareholder,
director, officer, consultant, independent contractor, employee, partner, or
investor, with any Competing Enterprise. For purposes of this paragraph, the
term "Competing Enterprise" shall mean any person, corporation, partnership or
other entity engaged in the design and marketing of athletic and casual
footwear and/or related apparel products and accessories. The prohibition of
this
5
<PAGE> 6
clause (c) shall not be deemed to prevent Employee from owning 2% or less of
any class of equity securities of an entity that has a class of equity
securities registered under Section 12 of the Securities Exchange Act of 1934,
as amended.
(d) Non-solicitation. During the Employment Term and for
a period of one year thereafter, the Employee shall not interfere with the
Company's relationship with, or endeavor to entice away from the Company, any
person who at any time during the Employment Term was an employee or customer
of the Company or otherwise had a material business relationship with the
Company.
(e) Remedies. The Employee agrees that any breach of the
terms of this Section 6 would result in irreparable injury and damage to the
Company for which the Company would have no adequate remedy at law; the
Employee therefore also agrees that in the event of said breach or any threat
of breach, the Company shall be entitled to an immediate injunction and
restraining order to prevent such breach and/or threatened breach and/or
continued breach by the Employee and/or any and all persons and/or entities
acting for and/or with the Employee, without having to prove damages, in
addition to any other remedies to which the Company may be entitled at law or
in equity. The terms of this paragraph shall not prevent the Company from
pursuing any other available remedies for any breach or threatened breach
hereof, including but not limited to the recovery of damages from the Employee.
The provisions of subsections (a), (b), (d) and (e) of this Section 6
shall survive any termination of this Agreement and the Employment Term. The
existence of any claim or cause of action by the Employee against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of the covenants and agreements of
this Section 6.
(f) "Company". For the purposes of this Section 6 only,
the term "Company" shall mean, collectively, L.A. Gear, Inc., a California
corporation, and its successors, assigns and nominees, and all individuals,
corporations and other entities that directly, or indirectly through one or
more intermediaries, control or are controlled by or are under common control
with any of the foregoing.
7. Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been given
(i) if personally delivered, when so delivered, or (ii) if mailed, three (3)
business days after having been placed in the
6
<PAGE> 7
United States mail, registered or certified, postage prepaid, addressed to the
party to whom it is directed at the address set forth below:
If to the Company:
L.A. Gear, Inc.
2850 Ocean Park Boulevard
Santa Monica, California 90405
Attention: President
With a copy to:
L.A. Gear, Inc.
2850 Ocean Park Boulevard
Santa Monica, California 90405
Attention: Legal Dept. - Office of General Counsel
If to the Employee:
William L. Benford
c/o L.A. Gear, Inc.
2850 Ocean Park Boulevard
Santa Monica, California 90405
by registered or certified mail, postage prepaid, return receipt requested.
8. Binding Effect/Assignment. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective heirs,
executors, personal representatives, estates, successors (including, without
limitation, by way of merger) and assigns. Notwithstanding the provisions of
the immediately preceding sentence, the Employee shall not assign all or any
portion of this Agreement without the prior written consent of the Company.
9. Prior Employment Agreement. Upon the execution of this
Agreement by each of the Employee and the Company, except as provided below the
Employment Agreement, dated as of September 16, 1991 (as amended to date, the
"Prior Employment Agreement"), by and between the Company and the Employee, are
hereby terminated, effective as of the date hereof, and of no further force and
effect. Notwithstanding anything to the contrary in the foregoing, Section 6
of the Prior Employment Agreement shall remain in full force and effect and
shall survive the termination of the other provisions of the Prior Employment
Agreement pursuant to this Section 9.
10. Entire Agreement. This Agreement sets forth the entire
understanding of the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements, written or oral, between them as to such
subject matter. This Agreement may not be amended,
7
<PAGE> 8
nor may any provision hereof be modified or waived, except by an instrument in
writing duly signed by the party to be charged.
11. Severability. If any provision of this Agreement, or any
application thereof to any circumstances, is invalid, in whole or in part, such
provision or application shall to that extent be severable and shall not affect
other provisions or applications of this Agreement.
12. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of California,
without reference to the principles of conflict of laws.
13. Modifications and Waivers. No provisions of this Agreement
may be modified, altered or amended except by an instrument in writing executed
by the parties hereto. No waiver by either party hereto of any breach by the
other party hereto of any provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions at the
time or at any prior or subsequent time.
14. Headings. The headings contained herein are solely for the
purposes of reference, are not part of this Agreement and shall not in any way
affect the meaning or interpretation of this Agreement.
15. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by authority of its Board of Directors, and the Employee has hereunto
set his hand, as of the day and year first above written.
L.A. GEAR, INC.
By: /s/Stanley P. Gold
---------------------------------
Title: Chairman of the Board and
Chief Executive Officer
/s/William L. Benford
---------------------------------
William L. Benford
(Employee)
8
<PAGE> 9
Appendix A
NOTIFICATION TO EMPLOYEE
Set forth below is the text of Sections 2870, 2871 and 2872 of the
California Labor Code, as published in West's Ann. Cal.Labor Code (1989) and
West's Ann. Cal.Labor Code (1994 Supp.):
Section 2870. EMPLOYMENT AGREEMENTS; ASSIGNMENT OF RIGHTS
(a) Any provision in an employment agreement which provides that
an employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
inventions that either:
(1) Relate at the time of conception or reduction to
practice of the invention to the employer's business, or actual or demonstrably
anticipated research or development of the employer; or
(2) Result from any work performed by the employee for
the employer.
(b) To the extent a provision in an employment agreement purports
to require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable.
Section 2871. CONDITIONS OF EMPLOYMENT OR CONTINUED EMPLOYMENT; DISCLOSURE
IF INVENTIONS
No employer shall require a provision made void and unenforceable by
Section 2870 as a condition of employment or continued employment. Nothing in
this article shall be construed to forbid or restrict the right of an employer
to provide in contracts of employment for disclosure, provided that any such
disclosures be received in confidence, of all of the employee's inventions made
solely or jointly with others during the term of his or her employment, a
review process by the employer to determine such issues as may arise, and for
full title to certain patents and inventions to be in the United States, as
required by contracts between the employer and the United States or any of its
agencies.
Section 2872. NOTICE TO EMPLOYEE; BURDEN OF PROOF
If an employee agreement entered into after January 1, 1980, contains
a provision requiring the employee to assign or offer to assign any of his or
her rights in any invention to his or her employer, the employer must also, at
the time the agreement is made, provide a written notification to the employee
that the agreement does not apply to an invention which qualifies
A-1
<PAGE> 10
fully under the provisions of Section 2870. In any suit or action arising
thereunder, the burden of proof shall be on the employee claiming the benefits
of its provisions.
A-2
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
AGREEMENT made as of this 7th day of December, 1993, by and between
L.A. GEAR, INC., a California corporation (the "Company"), and David F. Gatto
(the "Employee").
WHEREAS, the Company desires to retain the exclusive services of
Employee and Employee desires to be employed by the Company for the term of
this Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained herein, the parties hereto agree as follows:
1. Duties.
(a) The Employee shall serve as Senior Vice President -
International of the Company or such other position as may be agreed between
the Employee and the Company, and shall perform such duties, services and
responsibilities as are consistent with such positions. The Employee's duties,
services and responsibilities will be performed under the overall supervision
of the Chief Executive Officer of the Company and consistent with the policies
of the Board of Directors of the Company (the "Board of Directors").
(b) During the Employment Term, the Employee shall devote
his full business time, attention and skill to the performance of such duties,
services and responsibilities, and will use his best efforts to promote the
interests of the Company. The Employee will not, without the prior written
approval of the Board of Directors, engage in any other business activity which
would interfere with the performance of his duties, services and
responsibilities hereunder or which is in violation of policies established
from time to time by the Company.
2. Term. The term of employment of the Employee hereunder shall
commence as of the date hereof and shall continue in full force and effect
until November 30, 1996, unless earlier terminated as provided herein (the
"Employment Term"). The term of this Agreement shall be coincident with the
Employment Term.
3. Compensation. In consideration of the performance by the
Employee of the Employee's obligations during the Employment Term (including
any services as an officer, director, employee, member of any committee of the
Company or any of its subsidiaries, or otherwise), the Company will during the
Employment Term pay the Employee a salary (the "Salary") at an annual rate of
not less than $275,000.
It is anticipated that the Company will adopt for fiscal years
beginning after November 30, 1993 a management bonus plan based on excess
return on capital ("EVA Bonus Plan"). During the Term, Employee will be
eligible to participate in the EVA Bonus Plan
<PAGE> 2
adopted by the Company. To the extent Employee was employed by the Company
hereunder for not less than six months during a fiscal year and Employee's
employment is terminated during such fiscal year, the Company, in its sole
discretion, may pay the Employee a cash bonus in an amount to be determined by
the Board of Directors.
The Salary shall be payable in accordance with the normal payroll
practices of the Company then in effect. The Salary, and all bonuses or other
forms of compensation paid to the Employee hereunder, shall be subject to all
applicable taxes required to be withheld by the Company pursuant to federal,
state or local law. The Employee shall be solely responsible for income taxes
imposed on the Employee by reasons of any cash or non-cash compensation and
benefits provided hereunder.
In addition to the payment of Salary, the Employee shall be entitled
to participate in any employee benefit plans then in effect for similarly
situated employees to the extent the Employee meets the eligibility
requirements for any such plan; provided, however, that nothing in this
paragraph shall require the Company to provide health or medical insurance
benefits to the Employee or any dependent of the Employee with respect to any
condition existing prior to the commencement of the Employee's employment by
the Company pursuant to the Prior Employment Agreement (as defined below),
except as covered by the Company's health and medical insurance plans sponsored
for employees in general.
The Employee shall be entitled to three weeks vacation (in addition to
the usual national holidays) per year, which vacation shall be accrued ratably
during each year during which the Employee serves hereunder, subject to the
limitations set forth in this paragraph. Any accrued but unused vacation may
be carried forward into subsequent years; provided, however that accrued but
unused vacation available to the Employee may not, at any time, exceed a total
of six weeks. Vacation shall not be earned at any time that accrued but
unused vacation totals six weeks and shall not resume to be earned until
accrued but unused vacation again declines below six weeks. Such vacation
shall be taken at such time or times as may be agreed between the Employee and
the Company.
If (i) the Employee is absent from work for 180 calendar days in any
twelve-month period by reason of illness or incapacity (whether physical or
otherwise) or (ii) the Company reasonably determines that the Employee is
unable to perform his duties, services and responsibilities hereunder by reason
of illness or incapacity (whether physical or otherwise) for a total of 180
calendar days in any twelve-month period during the Employment Term
("Disability"), the Company shall not be obligated to pay the Employee any
compensation (Salary or bonus) for any period in excess of such 180 days;
furthermore, any such payments shall be reduced by any amount the Employee is
entitled to receive as a result of such disability under any plan provided
through the Company or under state or federal law.
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<PAGE> 3
4. Termination.
(a) Except as otherwise provided in this Agreement, the
employment of Employee hereunder and the Employment Term shall terminate upon
the earliest to occur of the dates specified below:
(i) the close of business on the date of expiration
of the Employment Term;
(ii) the close of business on the date of the
Employee's death;
(iii) the close of business on the day on which the
Company shall have delivered to the Employee a written notice of the Company's
election to terminate his employment for "Cause" (as defined in Section 4(c)
hereof);
(iv) the close of business on the day on which the
Company shall have delivered to the Employee a written notice of the Company's
election to terminate his employment because of Disability;
(v) the close of business on the day following the
date on which the Board of Directors shall have adopted a resolution
terminating the employment of the Employee hereunder and such termination is
not for death, Cause or Disability; or
(vi) the close of business on an early termination
date mutually agreed to in writing by the Company and the Employee.
(b) Any purported termination by the Company or by the
Employee pursuant to Section 4(a) hereof shall be communicated by written
"Notice of Termination" to the other. For purposes of this Agreement, a
"Notice of Termination" shall mean a written notice which indicates the
specific termination provision in this Agreement relied upon and which sets
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Employee's employment under the provision so
indicated. For purposes of this Agreement, no such purported termination shall
be effective without delivery of such Notice of Termination.
(c) For purposes of this Agreement, termination of
employment for "Cause" shall mean termination based on (i) the Employee's
breach of this Agreement, (ii) conviction of the Employee for (x) any crime
constituting a felony in the jurisdiction in which committed, (y) any crime
involving moral turpitude (whether or not a felony), or (z) any other criminal
act against the Company involving dishonesty or willful misconduct intended to
injure the Company (whether or not a felony), (iii) substance abuse by the
Employee, (iv) the failure or refusal of the Employee to follow the lawful and
proper directives of the Board of Directors (or of any superior officer of the
Company having direct supervisory authority over the Employee), or (v) willful
malfeasance or gross misconduct by the Employee which discredits or damages the
Company.
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<PAGE> 4
(d) In the event of termination of this Agreement, for
whatever reason, the Employee agrees to cooperate with the Company and to be
reasonably available to the Company with respect to continuing and/or future
matters arising out of the Employee's employment or any other relationship with
the Company, whether such matters are business-related, legal or otherwise.
The Company agrees to reimburse the Employee for the Employee's reasonable
travel expenses incurred in complying with the terms of this paragraph upon
delivery by the Employee to the Company of valid receipts for such expenses.
The provisions of this paragraph shall survive termination of this Agreement.
5. Termination Payments. If the Employee's employment with the
Company terminates for whatever reason, the Company will pay the Employee any
portion of the Salary accrued hereunder on or prior to the date of termination
but not paid. Subject to the last sentence of the following paragraph, if the
Employee's employment with the Company terminates pursuant to Section 4(a)(v),
the Company will continue to pay the Employee an amount equal to the Employee's
Salary (at the salary rate in effect on the date of termination of the
Employee's employment hereunder) for the remainder of the term of this
Agreement.
Except as otherwise provided in any stock option agreement between the
Company and the Employee in effect at the time of the termination of the
Employee's employment, the foregoing payments upon termination shall constitute
the exclusive payments due the Employee upon termination under this Agreement,
but shall have no effect on any benefits which may be due the Employee under
any plan of the Company which provides benefits after termination of
employment. The Employee shall not be required to mitigate the foregoing
amounts payable upon termination of this Agreement by seeking other employment
or otherwise; provided, however, that the foregoing payments shall be reduced
or mitigated by virtue of any cash compensation (including any deferred portion
thereof) received or earned by the Employee from any other employer, or from
personal services rendered by the Employee to a third party as an independent
contractor, during the period commencing on the date of termination of this
Agreement and ending on the date on which the Employment Term had been
scheduled to expire.
6. Employee Covenants.
(a) Unauthorized Disclosure. The Employee agrees and
understands that in the Employee's position with the Company, the Employee will
be exposed to and receive information relating to the confidential affairs of
the Company, including but not limited to technical information, business and
marketing plans, strategies, customer information, other information concerning
the Company's products, promotions, development, financing, expansion plans,
business policies and practices, and other forms of information considered by
the Company to be confidential and in the nature of trade secrets. Except to
the extent that the proper performance of the Employee's duties, services and
responsibilities hereunder may require disclosure, and except as such
information (i) was known to the Employee prior to his employment by the
Company or (ii) was or becomes generally available to the public other than as
a result of a disclosure by the Employee in violation of the provisions of this
Section 6(a), the
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<PAGE> 5
Employee agrees that during the Employment Term and thereafter the Employee
will keep such information confidential and not disclose such information,
either directly or indirectly, to any third person or entity without the prior
written consent of the Company. This confidentiality covenant has no temporal,
geographical or territorial restriction. Upon termination of this Agreement,
the Employee will promptly supply to the Company all property, keys, notes,
memoranda, writings, lists, files, reports, customer lists, correspondence,
tapes, disks, cards, surveys, maps, logs, machines, technical data or any other
tangible product or document which has been produced by, received by or
otherwise submitted to the Employee during or prior to the Employment Term.
Any material breach of the terms of this paragraph shall be considered Cause.
(b) Inventions. (i) The Employee agrees that any and all
inventions, discoveries, improvements, processes, business application
software, patents, copyrights and trademarks made, developed, discovered or
acquired by him during the Employment Term, solely or jointly with others or
otherwise and which relate to the business of the Company and all knowledge
possessed by the Employee relating thereto (collectively, the "Inventions"),
shall be fully and promptly disclosed to the Board of Directors and to such
person or persons as the Board of Directors shall direct and shall be the sole
and absolute property of the Company and the Company shall be the sole and
absolute owner thereof. The Employee agrees that he will at all times keep all
of the same secret from everyone except the Company and such persons as the
Board of Directors may from time to time direct. The Employee shall, as
requested by the Company at any time and from time to time, whether prior to or
after the expiration of the Employment Term, execute and deliver to the Company
any instruments deemed necessary by the Company to effect disclosure and
assignment of the Inventions to the Company or its designees and any patent
applications (United States or foreign) and renewals with respect thereto,
including any other instruments deemed necessary by the Company for the
prosecution of patent applications or the acquisition of letters patent.
(ii) Reference is hereby made to Appendix A to this
Agreement reprinting the text of Sections 2870 through 2872 of the California
Labor Code. Execution of this Agreement by the Employee shall confirm that the
Employee has received and read such Appendix A. The provisions of this Section
6(b) shall not apply to any invention which qualifies fully under the
provisions of Section 2870 of the California Labor Code.
(c) Non-competition. By and in consideration of the
Company's entering into this Agreement and the Salary and benefits to be
provided by the Company hereunder, and further in consideration of the
Employee's exposure to the proprietary information of the Company, the Employee
agrees that the Employee will not, during the Employment Term, directly or
indirectly own, manage, operate, join, control, be employed by, or participate
in the ownership, management, operation or control of or be connected in any
manner, including but not limited to holding the positions of shareholder,
director, officer, consultant, independent contractor, employee, partner, or
investor, with any Competing Enterprise. For purposes of this paragraph, the
term "Competing Enterprise" shall mean any person, corporation, partnership or
other entity engaged in the design and marketing of athletic and casual
footwear and/or related apparel products and accessories. The prohibition of
this
5
<PAGE> 6
clause (c) shall not be deemed to prevent Employee from owning 2% or less of
any class of equity securities of an entity that has a class of equity
securities registered under Section 12 of the Securities Exchange Act of 1934,
as amended.
(d) Non-solicitation. During the Employment Term and for
a period of one year thereafter, the Employee shall not interfere with the
Company's relationship with, or endeavor to entice away from the Company, any
person who at any time during the Employment Term was an employee or customer
of the Company or otherwise had a material business relationship with the
Company.
(e) Remedies. The Employee agrees that any breach of the
terms of this Section 6 would result in irreparable injury and damage to the
Company for which the Company would have no adequate remedy at law; the
Employee therefore also agrees that in the event of said breach or any threat
of breach, the Company shall be entitled to an immediate injunction and
restraining order to prevent such breach and/or threatened breach and/or
continued breach by the Employee and/or any and all persons and/or entities
acting for and/or with the Employee, without having to prove damages, in
addition to any other remedies to which the Company may be entitled at law or
in equity. The terms of this paragraph shall not prevent the Company from
pursuing any other available remedies for any breach or threatened breach
hereof, including but not limited to the recovery of damages from the Employee.
The provisions of subsections (a), (b), (d) and (e) of this Section 6
shall survive any termination of this Agreement and the Employment Term. The
existence of any claim or cause of action by the Employee against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of the covenants and agreements of
this Section 6.
(f) "Company". For the purposes of this Section 6 only,
the term "Company" shall mean, collectively, L.A. Gear, Inc., a California
corporation, and its successors, assigns and nominees, and all individuals,
corporations and other entities that directly, or indirectly through one or
more intermediaries, control or are controlled by or are under common control
with any of the foregoing.
7. Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been given
(i) if personally delivered, when so delivered, or (ii) if mailed, three (3)
business days after having been placed in the United States mail, registered or
certified, postage prepaid, addressed to the party to whom it is directed at
the address set forth below:
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<PAGE> 7
If to the Company:
L.A. Gear, Inc.
2850 Ocean Park Boulevard
Santa Monica, California 90405
Attention: President
With a copy to:
L.A. Gear, Inc.
2850 Ocean Park Boulevard
Santa Monica, California 90405
Attention: Legal Dept. - Office of General Counsel
If to the Employee:
David F. Gatto
c/o L.A. Gear, Inc.
2850 Ocean Park Boulevard
Santa Monica, California 90405
by registered or certified mail, postage prepaid, return receipt requested.
8. Binding Effect/Assignment. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective heirs,
executors, personal representatives, estates, successors (including, without
limitation, by way of merger) and assigns. Notwithstanding the provisions of
the immediately preceding sentence, the Employee shall not assign all or any
portion of this Agreement without the prior written consent of the Company.
9. Prior Employment Agreement. Upon the execution of this
Agreement by each of the Employee and the Company, except as provided below the
Employment Agreement, dated as of September 16, 1991 (as amended to date, the
"Prior Employment Agreement"), by and between the Company and the Employee, are
hereby terminated, effective as of the date hereof, and of no further force and
effect. Notwithstanding anything to the contrary in the foregoing, Section 6
of the Prior Employment Agreement shall remain in full force and effect and
shall survive the termination of the other provisions of the Prior Employment
Agreement pursuant to this Section 9.
10. Entire Agreement. This Agreement sets forth the entire
understanding of the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements, written or oral, between them as to such
subject matter. This Agreement may not be amended, nor may any provision
hereof be modified or waived, except by an instrument in writing duly signed by
the party to be charged.
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<PAGE> 8
11. Severability. If any provision of this Agreement, or any
application thereof to any circumstances, is invalid, in whole or in part, such
provision or application shall to that extent be severable and shall not affect
other provisions or applications of this Agreement.
12. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of California,
without reference to the principles of conflict of laws.
13. Modifications and Waivers. No provisions of this Agreement
may be modified, altered or amended except by an instrument in writing executed
by the parties hereto. No waiver by either party hereto of any breach by the
other party hereto of any provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions at the
time or at any prior or subsequent time.
14. Headings. The headings contained herein are solely for the
purposes of reference, are not part of this Agreement and shall not in any way
affect the meaning or interpretation of this Agreement.
15. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by authority of its Board of Directors, and the Employee has hereunto
set his hand, as of the day and year first above written.
L.A. GEAR, INC.
By: /s/ Stanley P. Gold
--------------------------------
Title: Chairman of the Board and
Chief Executive Officer
/s/David F. Gatto
--------------------------------
David F. Gatto
(Employee)
8
<PAGE> 9
Appendix A
NOTIFICATION TO EMPLOYEE
Set forth below is the text of Sections 2870, 2871 and 2872 of the
California Labor Code, as published in West's Ann. Cal.Labor Code (1989) and
West's Ann. Cal.Labor Code (1994 Supp.):
Section 2870. EMPLOYMENT AGREEMENTS; ASSIGNMENT OF RIGHTS
(a) Any provision in an employment agreement which provides that
an employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
inventions that either:
(1) Relate at the time of conception or reduction to
practice of the invention to the employer's business, or actual or demonstrably
anticipated research or development of the employer; or
(2) Result from any work performed by the employee for
the employer.
(b) To the extent a provision in an employment agreement purports
to require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable.
Section 2871. CONDITIONS OF EMPLOYMENT OR CONTINUED EMPLOYMENT; DISCLOSURE
IF INVENTIONS
No employer shall require a provision made void and unenforceable by
Section 2870 as a condition of employment or continued employment. Nothing in
this article shall be construed to forbid or restrict the right of an employer
to provide in contracts of employment for disclosure, provided that any such
disclosures be received in confidence, of all of the employee's inventions made
solely or jointly with others during the term of his or her employment, a
review process by the employer to determine such issues as may arise, and for
full title to certain patents and inventions to be in the United States, as
required by contracts between the employer and the United States or any of its
agencies.
Section 2872. NOTICE TO EMPLOYEE; BURDEN OF PROOF
If an employee agreement entered into after January 1, 1980, contains
a provision requiring the employee to assign or offer to assign any of his or
her rights in any invention to his or her employer, the employer must also, at
the time the agreement is made, provide a written notification to the employee
that the agreement does not apply to an invention which qualifies
A-1
<PAGE> 10
fully under the provisions of Section 2870. In any suit or action arising
thereunder, the burden of proof shall be on the employee claiming the benefits
of its provisions.
A-2
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
AGREEMENT made as of this 7th day of December, 1993, by and between
L.A. GEAR, INC., a California corporation (the "Company"), and Robert Apatoff
(the "Employee").
WHEREAS, the Company desires to retain the exclusive services of
Employee and Employee desires to be employed by the Company for the term of
this Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained herein, the parties hereto agree as follows:
1. Duties.
(a) The Employee shall serve as Senior Vice President -
Marketing Services of the Company or such other position as may be agreed
between the Employee and the Company, and shall perform such duties, services
and responsibilities as are consistent with such positions. The Employee's
duties, services and responsibilities will be performed under the overall
supervision of the President of the Company and consistent with the policies of
the Board of Directors of the Company (the "Board of Directors").
(b) During the Employment Term, the Employee shall devote
his full business time, attention and skill to the performance of such duties,
services and responsibilities, and will use his best efforts to promote the
interests of the Company. The Employee will not, without the prior written
approval of the Board of Directors, engage in any other business activity which
would interfere with the performance of his duties, services and
responsibilities hereunder or which is in violation of policies established
from time to time by the Company.
2. Term. The term of employment of the Employee hereunder shall
commence as of the date hereof and shall continue in full force and effect
until November 30, 1996, unless earlier terminated as provided herein (the
"Employment Term"). The term of this Agreement shall be coincident with the
Employment Term.
3. Compensation. In consideration of the performance by the
Employee of the Employee's obligations during the Employment Term (including
any services as an officer, director, employee, member of any committee of the
Company or any of its subsidiaries, or otherwise), the Company will during the
Employment Term pay the Employee a salary (the "Salary") at an annual rate of
not less than $205,000.
It is anticipated that the Company will adopt for fiscal years
beginning after November 30, 1993 a management bonus plan based on excess
return on capital ("EVA Bonus Plan"). During the Term, Employee will be
eligible to participate in the EVA Bonus Plan
<PAGE> 2
adopted by the Company. To the extent Employee was employed by the Company
hereunder for not less than six months during a fiscal year and Employee's
employment is terminated during such fiscal year, the Company, in its sole
discretion, may pay the Employee a cash bonus in an amount to be determined by
the Board of Directors.
The Salary shall be payable in accordance with the normal payroll
practices of the Company then in effect. The Salary, and all bonuses or other
forms of compensation paid to the Employee hereunder, shall be subject to all
applicable taxes required to be withheld by the Company pursuant to federal,
state or local law. The Employee shall be solely responsible for income taxes
imposed on the Employee by reasons of any cash or non-cash compensation and
benefits provided hereunder.
In addition to the payment of Salary, the Employee shall be entitled
to participate in any employee benefit plans then in effect for similarly
situated employees to the extent the Employee meets the eligibility
requirements for any such plan; provided, however, that nothing in this
paragraph shall require the Company to provide health or medical insurance
benefits to the Employee or any dependent of the Employee with respect to any
condition existing prior to the commencement of the Employee's employment by
the Company pursuant to the Prior Employment Agreement (as defined below),
except as covered by the Company's health and medical insurance plans sponsored
for employees in general.
The Employee shall be entitled to three weeks vacation (in addition to
the usual national holidays) per year, which vacation shall be accrued ratably
during each year during which the Employee serves hereunder, subject to the
limitations set forth in this paragraph. Any accrued but unused vacation may
be carried forward into subsequent years; provided, however that accrued but
unused vacation available to the Employee may not, at any time, exceed a total
of six weeks. Vacation shall not be earned at any time that accrued but
unused vacation totals six weeks and shall not resume to be earned until
accrued but unused vacation again declines below six weeks. Such vacation
shall be taken at such time or times as may be agreed between the Employee and
the Company.
If (i) the Employee is absent from work for 180 calendar days in any
twelve-month period by reason of illness or incapacity (whether physical or
otherwise) or (ii) the Company reasonably determines that the Employee is
unable to perform his duties, services and responsibilities hereunder by reason
of illness or incapacity (whether physical or otherwise) for a total of 180
calendar days in any twelve-month period during the Employment Term
("Disability"), the Company shall not be obligated to pay the Employee any
compensation (Salary or bonus) for any period in excess of such 180 days;
furthermore, any such payments shall be reduced by any amount the Employee is
entitled to receive as a result of such disability under any plan provided
through the Company or under state or federal law.
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<PAGE> 3
4. Termination.
(a) Except as otherwise provided in this Agreement, the
employment of Employee hereunder and the Employment Term shall terminate upon
the earliest to occur of the dates specified below:
(i) the close of business on the date of expiration of the
Employment Term;
(ii) the close of business on the date of the Employee's
death;
(iii) the close of business on the day on which the Company
shall have delivered to the Employee a written notice of the Company's election
to terminate his employment for "Cause" (as defined in Section 4(c) hereof);
(iv) the close of business on the day on which the Company
shall have delivered to the Employee a written notice of the Company's election
to terminate his employment because of Disability;
(v) the close of business on the day following the date on
which the Board of Directors shall have adopted a resolution terminating the
employment of the Employee hereunder and such termination is not for death,
Cause or Disability; or
(vi) the close of business on an early termination date
mutually agreed to in writing by the Company and the Employee.
(b) Any purported termination by the Company or by the
Employee pursuant to Section 4(a) hereof shall be communicated by written
"Notice of Termination" to the other. For purposes of this Agreement, a
"Notice of Termination" shall mean a written notice which indicates the
specific termination provision in this Agreement relied upon and which sets
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Employee's employment under the provision so
indicated. For purposes of this Agreement, no such purported termination shall
be effective without delivery of such Notice of Termination.
(c) For purposes of this Agreement, termination of
employment for "Cause" shall mean termination based on (i) the Employee's
material breach of this Agreement, (ii) conviction of the Employee for (x) any
crime constituting a felony in the jurisdiction in which committed, (y) any
crime involving moral turpitude (whether or not a felony), or (z) any other
criminal act against the Company involving dishonesty or willful misconduct
intended to injure the Company (whether or not a felony), (iii) substance abuse
by the Employee, (iv) the failure or refusal of the Employee to follow the
lawful and proper directives of the Board of Directors (or of any superior
officer of the Company having direct supervisory authority over the Employee),
or (v) willful malfeasance or gross misconduct by the Employee which discredits
or damages the Company.
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<PAGE> 4
(d) In the event of termination of this Agreement, for
whatever reason, the Employee agrees to cooperate with the Company and to be
reasonably available to the Company with respect to continuing and/or future
matters arising out of the Employee's employment or any other relationship with
the Company, whether such matters are business-related, legal or otherwise.
The Company agrees to reimburse the Employee for the Employee's reasonable
travel expenses incurred in complying with the terms of this paragraph upon
delivery by the Employee to the Company of valid receipts for such expenses.
The provisions of this paragraph shall survive termination of this Agreement.
5. Termination Payments. If the Employee's employment with the
Company terminates for whatever reason, the Company will pay the Employee any
portion of the Salary accrued hereunder on or prior to the date of termination
but not paid. Subject to the last sentence of the following paragraph, if the
Employee's employment with the Company terminates pursuant to Section 4(a)(v),
the Company will continue to pay the Employee an amount equal to the Employee's
Salary (at the salary rate in effect on the date of termination of the
Employee's employment hereunder) for the remainder of the term of this
Agreement.
Except as otherwise provided in any stock option agreement between the
Company and the Employee in effect at the time of the termination of the
Employee's employment, the foregoing payments upon termination shall constitute
the exclusive payments due the Employee upon termination under this Agreement,
but shall have no effect on any benefits which may be due the Employee under
any plan of the Company which provides benefits after termination of
employment. The Employee shall not be required to mitigate the foregoing
amounts payable upon termination of this Agreement by seeking other employment
or otherwise; provided, however, that the foregoing payments shall be reduced
or mitigated by virtue of any cash compensation (including any deferred portion
thereof) received or earned by the Employee from any other employer, or from
personal services rendered by the Employee to a third party as an independent
contractor, during the period commencing on the date of termination of this
Agreement and ending on the date on which the Employment Term had been
scheduled to expire.
6. Employee Covenants.
(a) Unauthorized Disclosure. The Employee agrees and
understands that in the Employee's position with the Company, the Employee will
be exposed to and receive information relating to the confidential affairs of
the Company, including but not limited to technical information, business and
marketing plans, strategies, customer information, other information concerning
the Company's products, promotions, development, financing, expansion plans,
business policies and practices, and other forms of information considered by
the Company to be confidential and in the nature of trade secrets. Except to
the extent that the proper performance of the Employee's duties, services and
responsibilities hereunder may require disclosure, and except as such
information (i) was known to the Employee prior to his employment by the
Company or (ii) was or becomes generally available to the public other than as
a result of a disclosure by the Employee in violation of the provisions of this
Section 6(a), the Employee agrees that during the Employment Term and
thereafter the Employee will keep such information confidential and not
disclose such information, either directly or indirectly, to any
4
<PAGE> 5
third person or entity without the prior written consent of the Company. This
confidentiality covenant has no temporal, geographical or territorial
restriction. Upon termination of this Agreement, the Employee will promptly
supply to the Company all property, keys, notes, memoranda, writings, lists,
files, reports, customer lists, correspondence, tapes, disks, cards, surveys,
maps, logs, machines, technical data or any other tangible product or document
which has been produced by, received by or otherwise submitted to the Employee
during or prior to the Employment Term. Any material breach of the terms of
this paragraph shall be considered Cause.
(b) Inventions. (i) The Employee agrees that any and all
inventions, discoveries, improvements, processes, business application
software, patents, copyrights and trademarks made, developed, discovered or
acquired by him during the Employment Term, solely or jointly with others or
otherwise and which relate to the business of the Company and all knowledge
possessed by the Employee relating thereto (collectively, the "Inventions"),
shall be fully and promptly disclosed to the Board of Directors and to such
person or persons as the Board of Directors shall direct and shall be the sole
and absolute property of the Company and the Company shall be the sole and
absolute owner thereof. The Employee agrees that he will at all times keep all
of the same secret from everyone except the Company and such persons as the
Board of Directors may from time to time direct. The Employee shall, as
requested by the Company at any time and from time to time, whether prior to or
after the expiration of the Employment Term, execute and deliver to the Company
any instruments deemed necessary by the Company to effect disclosure and
assignment of the Inventions to the Company or its designees and any patent
applications (United States or foreign) and renewals with respect thereto,
including any other instruments deemed necessary by the Company for the
prosecution of patent applications or the acquisition of letters patent.
(ii) Reference is hereby made to Appendix A to this
Agreement reprinting the text of Sections 2870 through 2872 of the California
Labor Code. Execution of this Agreement by the Employee shall confirm that the
Employee has received and read such Appendix A. The provisions of this Section
6(b) shall not apply to any invention which qualifies fully under the
provisions of Section 2870 of the California Labor Code.
(c) Non-competition. By and in consideration of the
Company's entering into this Agreement and the Salary and benefits to be
provided by the Company hereunder, and further in consideration of the
Employee's exposure to the proprietary information of the Company, the Employee
agrees that the Employee will not, during the Employment Term, directly or
indirectly own, manage, operate, join, control, be employed by, or participate
in the ownership, management, operation or control of or be connected in any
manner, including but not limited to holding the positions of shareholder,
director, officer, consultant, independent contractor, employee, partner, or
investor, with any Competing Enterprise. For purposes of this paragraph, the
term "Competing Enterprise" shall mean any person, corporation, partnership or
other entity engaged in the design and marketing of athletic and casual
footwear and/or related apparel products and accessories. The prohibition of
this clause (c) shall not be deemed to prevent Employee from owning 2% or less
of any class of equity securities of an entity that has a class of equity
securities registered under Section 12 of the Securities Exchange Act of 1934,
as amended.
5
<PAGE> 6
(d) Non-solicitation. During the Employment Term and for
a period of one year thereafter, the Employee shall not interfere with the
Company's relationship with, or endeavor to entice away from the Company, any
person who at any time during the Employment Term was an employee of the
Company or otherwise had a material business relationship with the Company.
(e) Remedies. The Employee agrees that any breach of the
terms of this Section 6 would result in irreparable injury and damage to the
Company for which the Company would have no adequate remedy at law; the
Employee therefore also agrees that in the event of said breach or any threat
of breach, the Company shall be entitled to an immediate injunction and
restraining order to prevent such breach and/or threatened breach and/or
continued breach by the Employee and/or any and all persons and/or entities
acting for and/or with the Employee, without having to prove damages, in
addition to any other remedies to which the Company may be entitled at law or
in equity. The terms of this paragraph shall not prevent the Company from
pursuing any other available remedies for any breach or threatened breach
hereof, including but not limited to the recovery of damages from the Employee.
The provisions of subsections (a), (b), (d) and (e) of this Section 6
shall survive any termination of this Agreement and the Employment Term. The
existence of any claim or cause of action by the Employee against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of the covenants and agreements of
this Section 6.
(f) "Company". For the purposes of this Section 6 only,
the term "Company" shall mean, collectively, L.A. Gear, Inc., a California
corporation, and its successors, assigns and nominees, and all individuals,
corporations and other entities that directly, or indirectly through one or
more intermediaries, control or are controlled by or are under common control
with any of the foregoing.
7. Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been given
(i) if personally delivered, when so delivered, or (ii) if mailed, three (3)
business days after having been placed in the United States mail, registered or
certified, postage prepaid, addressed to the party to whom it is directed at
the address set forth below:
6
<PAGE> 7
If to the Company:
L.A. Gear, Inc.
2850 Ocean Park Boulevard
Santa Monica, California 90405
Attention: President
With a copy to:
L.A. Gear, Inc.
2850 Ocean Park Boulevard
Santa Monica, California 90405
Attention: Legal Dept. - Office of General Counsel
If to the Employee:
Robert Apatoff
c/o L.A. Gear, Inc.
2850 Ocean Park Boulevard
Santa Monica, California 90405
by registered or certified mail, postage prepaid, return receipt requested.
8. Binding Effect/Assignment. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective heirs,
executors, personal representatives, estates, successors (including, without
limitation, by way of merger) and assigns. Notwithstanding the provisions of
the immediately preceding sentence, the Employee shall not assign all or any
portion of this Agreement without the prior written consent of the Company.
9. Prior Employment Agreement. Upon the execution of this
Agreement by each of the Employee and the Company, except as provided below the
Employment Agreement, dated as of November 25, 1991 (as amended to date, the
"Prior Employment Agreement"), by and between the Company and the Employee, are
hereby terminated, effective as of the date hereof, and of no further force and
effect. Notwithstanding anything to the contrary in the foregoing, Section 6
of the Prior Employment Agreement shall remain in full force and effect and
shall survive the termination of the other provisions of the Prior Employment
Agreement pursuant to this Section 9.
10. Entire Agreement. This Agreement sets forth the entire
understanding of the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements, written or oral, between them as to such
subject matter. This Agreement may not be amended, nor may any provision
hereof be modified or waived, except by an instrument in writing duly signed by
the party to be charged.
7
<PAGE> 8
11. Severability. If any provision of this Agreement, or any
application thereof to any circumstances, is invalid, in whole or in part, such
provision or application shall to that extent be severable and shall not affect
other provisions or applications of this Agreement.
12. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of California,
without reference to the principles of conflict of laws.
13. Modifications and Waivers. No provisions of this Agreement
may be modified, altered or amended except by an instrument in writing executed
by the parties hereto. No waiver by either party hereto of any breach by the
other party hereto of any provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions at the
time or at any prior or subsequent time.
14. Headings. The headings contained herein are solely for the
purposes of reference, are not part of this Agreement and shall not in any way
affect the meaning or interpretation of this Agreement.
15. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by authority of its Board of Directors, and the Employee has hereunto
set his hand, as of the day and year first above written.
L.A. GEAR, INC.
By: /s/Stanley P. Gold
-------------------------------
Title: Chairman of the Board and
Chief Executive Officer
/s/Robert S. Apatoff
-------------------------------
Robert Apatoff
(Employee)
8
<PAGE> 9
Appendix A
NOTIFICATION TO EMPLOYEE
Set forth below is the text of Sections 2870, 2871 and 2872 of the
California Labor Code, as published in West's Ann. Cal.Labor Code (1989) and
West's Ann. Cal.Labor Code (1994 Supp.):
Section 2870. EMPLOYMENT AGREEMENTS; ASSIGNMENT OF RIGHTS
(a) Any provision in an employment agreement which provides that
an employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
inventions that either:
(1) Relate at the time of conception or reduction to
practice of the invention to the employer's business, or actual or demonstrably
anticipated research or development of the employer; or
(2) Result from any work performed by the employee for
the employer.
(b) To the extent a provision in an employment agreement purports
to require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable.
Section 2871. CONDITIONS OF EMPLOYMENT OR CONTINUED EMPLOYMENT; DISCLOSURE
IF INVENTIONS
No employer shall require a provision made void and unenforceable by
Section 2870 as a condition of employment or continued employment. Nothing in
this article shall be construed to forbid or restrict the right of an employer
to provide in contracts of employment for disclosure, provided that any such
disclosures be received in confidence, of all of the employee's inventions made
solely or jointly with others during the term of his or her employment, a
review process by the employer to determine such issues as may arise, and for
full title to certain patents and inventions to be in the United States, as
required by contracts between the employer and the United States or any of its
agencies.
Section 2872. NOTICE TO EMPLOYEE; BURDEN OF PROOF
If an employee agreement entered into after January 1, 1980, contains
a provision requiring the employee to assign or offer to assign any of his or
her rights in any invention to his or her employer, the employer must also, at
the time the agreement is made, provide a written notification to the employee
that the agreement does not apply to an invention which qualifies
A-1
<PAGE> 10
fully under the provisions of Section 2870. In any suit or action arising
thereunder, the burden of proof shall be on the employee claiming the benefits
of its provisions.
A-2
<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
AGREEMENT made as of this 7th day of December, 1993, by and between
L.A. GEAR, INC., a California corporation (the "Company"), and Robert H. Landes
(the "Employee").
WHEREAS, the Company desires to retain the exclusive services of
Employee and Employee desires to be employed by the Company for the term of
this Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained herein, the parties hereto agree as follows:
1. Duties.
(a) The Employee shall serve as Senior Vice President -
Sales of the Company or such other position as may be agreed between the
Employee and the Company, and shall perform such duties, services and
responsibilities as are consistent with such positions. The Employee's duties,
services and responsibilities will be performed under the overall supervision
of the President of the Company and consistent with the policies of the Board
of Directors of the Company (the "Board of Directors"). The Employee shall not
be required to relocate to any place outside of the United States.
(b) During the Employment Term, the Employee shall devote
his full business time, attention and skill to the performance of such duties,
services and responsibilities, and will use his best efforts to promote the
interests of the Company. The Employee will not, without the prior written
approval of the Board of Directors, engage in any other business activity which
would interfere with the performance of his duties, services and
responsibilities hereunder or which is in violation of policies established
from time to time by the Company.
2. Term. The term of employment of the Employee hereunder shall
commence as of the date hereof and shall continue in full force and effect
until November 30, 1996, unless earlier terminated as provided herein (the
"Employment Term"). The term of this Agreement shall be coincident with the
Employment Term.
3. Compensation. In consideration of the performance by the
Employee of the Employee's obligations during the Employment Term (including
any services as an officer, director, employee, member of any committee of the
Company or any of its subsidiaries, or otherwise), the Company will during the
Employment Term pay the Employee a salary (the "Salary") at an annual rate of
not less than $225,000.
It is anticipated that the Company will adopt for fiscal years
beginning after November 30, 1993 a management bonus plan based on excess
return on capital ("EVA Bonus
<PAGE> 2
Plan"). During the Term, Employee will be eligible to participate in the EVA
Bonus Plan adopted by the Company. To the extent Employee was employed by the
Company hereunder for not less than six months during a fiscal year and
Employee's employment is terminated during such fiscal year, the Company, in
its sole discretion, may pay the Employee a cash bonus in an amount to be
determined by the Board of Directors.
The Salary shall be payable in accordance with the normal payroll
practices of the Company then in effect. The Salary, and all bonuses or other
forms of compensation paid to the Employee hereunder, shall be subject to all
applicable taxes required to be withheld by the Company pursuant to federal,
state or local law. The Employee shall be solely responsible for income taxes
imposed on the Employee by reasons of any cash or non-cash compensation and
benefits provided hereunder.
In addition to the payment of Salary, the Employee shall be entitled
to participate in any employee benefit plans then in effect for similarly
situated employees to the extent the Employee meets the eligibility
requirements for any such plan; provided, however, that nothing in this
paragraph shall require the Company to provide health or medical insurance
benefits to the Employee or any dependent of the Employee with respect to any
condition existing prior to the commencement of the Employee's employment by
the Company pursuant to the Prior Employment Agreement (as defined below),
except as covered by the Company's health and medical insurance plans sponsored
for employees in general.
The Employee shall be entitled to three weeks vacation (in addition to
the usual national holidays) per year, which vacation shall be accrued ratably
during each year during which the Employee serves hereunder, subject to the
limitations set forth in this paragraph. Any accrued but unused vacation may
be carried forward into subsequent years; provided, however that accrued but
unused vacation available to the Employee may not, at any time, exceed a total
of six weeks. Vacation shall not be earned at any time that accrued but
unused vacation totals six weeks and shall not resume to be earned until
accrued but unused vacation again declines below six weeks. Such vacation
shall be taken at such time or times as may be agreed between the Employee and
the Company.
If (i) the Employee is absent from work for 180 calendar days in any
twelve-month period by reason of illness or incapacity (whether physical or
otherwise) or (ii) the Company reasonably determines that the Employee is
unable to perform his duties, services and responsibilities hereunder by reason
of illness or incapacity (whether physical or otherwise) for a total of 180
calendar days in any twelve-month period during the Employment Term
("Disability"), the Company shall not be obligated to pay the Employee any
compensation (Salary or bonus) for any period in excess of such 180 days;
furthermore, any such payments shall be reduced by any amount the Employee is
entitled to receive as a result of such disability under any plan provided
through the Company or under state or federal law.
2
<PAGE> 3
4. Termination.
(a) Except as otherwise provided in this Agreement, the
employment of Employee hereunder and the Employment Term shall terminate upon
the earliest to occur of the dates specified below:
(i) the close of business on the date of expiration of the
Employment Term;
(ii) the close of business on the date of the Employee's
death;
(iii) the close of business on the day on which the Company
shall have delivered to the Employee a written notice of the Company's election
to terminate his employment for "Cause" (as defined in Section 4(c) hereof);
(iv) the close of business on the day on which the Company
shall have delivered to the Employee a written notice of the Company's election
to terminate his employment because of Disability;
(v) the close of business on the day following the date on
which the Board of Directors shall have adopted a resolution terminating the
employment of the Employee hereunder and such termination is not for death,
Cause or Disability; or
(vi) the close of business on an early termination date
mutually agreed to in writing by the Company and the Employee.
(b) Any purported termination by the Company or by the
Employee pursuant to Section 4(a) hereof shall be communicated by written
"Notice of Termination" to the other. For purposes of this Agreement, a
"Notice of Termination" shall mean a written notice which indicates the
specific termination provision in this Agreement relied upon and which sets
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Employee's employment under the provision so
indicated. For purposes of this Agreement, no such purported termination shall
be effective without delivery of such Notice of Termination.
(c) For purposes of this Agreement, termination of
employment for "Cause" shall mean termination based on (i) the Employee's
material breach of this Agreement, (ii) conviction of the Employee for (x) any
crime constituting a felony in the jurisdiction in which committed, (y) any
crime involving moral turpitude (whether or not a felony), or (z) any other
criminal act against the Company involving dishonesty or willful misconduct
intended to injure the Company (whether or not a felony), (iii) substance abuse
by the Employee, (iv) the failure or refusal of the Employee to follow the
lawful and proper directives of the Board of Directors (or of any superior
officer of the Company having direct supervisory authority over the Employee),
or (v) willful malfeasance or gross misconduct by the Employee which discredits
or damages the Company.
3
<PAGE> 4
(d) In the event of termination of this Agreement, for
whatever reason, the Employee agrees to cooperate with the Company and to be
reasonably available to the Company with respect to continuing and/or future
matters arising out of the Employee's employment or any other relationship with
the Company, whether such matters are business-related, legal or otherwise.
The Company agrees to reimburse the Employee for the Employee's reasonable
travel expenses incurred in complying with the terms of this paragraph upon
delivery by the Employee to the Company of valid receipts for such expenses.
The provisions of this paragraph shall survive termination of this Agreement.
5. Termination Payments. If the Employee's employment with the
Company terminates for whatever reason, the Company will pay the Employee any
portion of the Salary accrued hereunder on or prior to the date of termination
but not paid. Subject to the last sentence of the following paragraph, if the
Employee's employment with the Company terminates pursuant to Section 4(a)(v),
the Company will continue to pay the Employee an amount equal to the Employee's
Salary (at the salary rate in effect on the date of termination of the
Employee's employment hereunder) for the remainder of the term of this
Agreement.
Except as otherwise provided in any stock option agreement between the
Company and the Employee in effect at the time of the termination of the
Employee's employment, the foregoing payments upon termination shall constitute
the exclusive payments due the Employee upon termination under this Agreement,
but shall have no effect on any benefits which may be due the Employee under
any plan of the Company which provides benefits after termination of
employment. The Employee shall not be required to mitigate the foregoing
amounts payable upon termination of this Agreement by seeking other employment
or otherwise; provided, however, that the foregoing payments shall be reduced
or mitigated by virtue of any cash compensation (including any deferred portion
thereof) received or earned by the Employee from any other employer, or from
personal services rendered by the Employee to a third party as an independent
contractor, during the period commencing on the date of termination of this
Agreement and ending on the date on which the Employment Term had been
scheduled to expire.
6. Employee Covenants.
(a) Unauthorized Disclosure. The Employee agrees and
understands that in the Employee's position with the Company, the Employee will
be exposed to and receive information relating to the confidential affairs of
the Company, including but not limited to technical information, business and
marketing plans, strategies, customer information, other information concerning
the Company's products, promotions, development, financing, expansion plans,
business policies and practices, and other forms of information considered by
the Company to be confidential and in the nature of trade secrets. Except to
the extent that the proper performance of the Employee's duties, services and
responsibilities hereunder may require disclosure, and except as such
information (i) was known to the Employee prior to his employment by the
Company or (ii) was or becomes generally available to the public other than as
a result of a disclosure by the Employee in violation of the provisions of this
Section 6(a), the Employee agrees that during the Employment Term and
thereafter the Employee will keep such information confidential and not
disclose such information, either directly or indirectly, to any
4
<PAGE> 5
third person or entity without the prior written consent of the Company. This
confidentiality covenant has no temporal, geographical or territorial
restriction. Upon termination of this Agreement, the Employee will promptly
supply to the Company all property, keys, notes, memoranda, writings, lists,
files, reports, customer lists, correspondence, tapes, disks, cards, surveys,
maps, logs, machines, technical data or any other tangible product or document
which has been produced by, received by or otherwise submitted to the Employee
during or prior to the Employment Term. Any material breach of the terms of
this paragraph shall be considered Cause.
(b) Inventions. (i) The Employee agrees that any and all
inventions, discoveries, improvements, processes, business application
software, patents, copyrights and trademarks made, developed, discovered or
acquired by him during the Employment Term, solely or jointly with others or
otherwise and which relate to the business of the Company and all knowledge
possessed by the Employee relating thereto (collectively, the "Inventions"),
shall be fully and promptly disclosed to the Board of Directors and to such
person or persons as the Board of Directors shall direct and shall be the sole
and absolute property of the Company and the Company shall be the sole and
absolute owner thereof. The Employee agrees that he will at all times keep all
of the same secret from everyone except the Company and such persons as the
Board of Directors may from time to time direct. The Employee shall, as
requested by the Company at any time and from time to time, whether prior to or
after the expiration of the Employment Term, execute and deliver to the Company
any instruments deemed necessary by the Company to effect disclosure and
assignment of the Inventions to the Company or its designees and any patent
applications (United States or foreign) and renewals with respect thereto,
including any other instruments deemed necessary by the Company for the
prosecution of patent applications or the acquisition of letters patent.
(ii) Reference is hereby made to Appendix A to this
Agreement reprinting the text of Sections 2870 through 2872 of the California
Labor Code. Execution of this Agreement by the Employee shall confirm that the
Employee has received and read such Appendix A. The provisions of this Section
6(b) shall not apply to any invention which qualifies fully under the
provisions of Section 2870 of the California Labor Code.
(c) Non-competition. By and in consideration of the
Company's entering into this Agreement and the Salary and benefits to be
provided by the Company hereunder, and further in consideration of the
Employee's exposure to the proprietary information of the Company, the Employee
agrees that the Employee will not, during the Employment Term, directly or
indirectly own, manage, operate, join, control, be employed by, or participate
in the ownership, management, operation or control of or be connected in any
manner, including but not limited to holding the positions of shareholder,
director, officer, consultant, independent contractor, employee, partner, or
investor, with any Competing Enterprise. For purposes of this paragraph, the
term "Competing Enterprise" shall mean any person, corporation, partnership or
other entity engaged in the design and marketing of athletic and casual
footwear and/or related apparel products and accessories. The prohibition of
this clause (c) shall not be deemed to prevent Employee from owning 2% or less
of any class of equity securities of an entity that has a class of equity
securities registered under Section 12 of the Securities Exchange Act of 1934,
as amended.
5
<PAGE> 6
(d) Non-solicitation. During the Employment Term and for
a period of one year thereafter, the Employee shall not interfere with the
Company's relationship with, or endeavor to entice away from the Company, any
person who at any time during the Employment Term was an employee of the
Company or otherwise had a material business relationship with the Company.
(e) Remedies. The Employee agrees that any breach of the
terms of this Section 6 would result in irreparable injury and damage to the
Company for which the Company would have no adequate remedy at law; the
Employee therefore also agrees that in the event of said breach or any threat
of breach, the Company shall be entitled to an immediate injunction and
restraining order to prevent such breach and/or threatened breach and/or
continued breach by the Employee and/or any and all persons and/or entities
acting for and/or with the Employee, without having to prove damages, in
addition to any other remedies to which the Company may be entitled at law or
in equity. The terms of this paragraph shall not prevent the Company from
pursuing any other available remedies for any breach or threatened breach
hereof, including but not limited to the recovery of damages from the Employee.
The provisions of subsections (a), (b), (d) and (e) of this Section 6
shall survive any termination of this Agreement and the Employment Term. The
existence of any claim or cause of action by the Employee against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of the covenants and agreements of
this Section 6.
(f) "Company". For the purposes of this Section 6 only,
the term "Company" shall mean, collectively, L.A. Gear, Inc., a California
corporation, and its successors, assigns and nominees, and all individuals,
corporations and other entities that directly, or indirectly through one or
more intermediaries, control or are controlled by or are under common control
with any of the foregoing.
7. Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been given
(i) if personally delivered, when so delivered, or (ii) if mailed, three (3)
business days after having been placed in the United States mail, registered or
certified, postage prepaid, addressed to the party to whom it is directed at
the address set forth below:
6
<PAGE> 7
If to the Company:
L.A. Gear, Inc.
2850 Ocean Park Boulevard
Santa Monica, California 90405
Attention: President
With a copy to:
L.A. Gear, Inc.
2850 Ocean Park Boulevard
Santa Monica, California 90405
Attention: Legal Dept. - Office of General Counsel
If to the Employee:
Robert H. Landes
c/o L.A. Gear, Inc.
2850 Ocean Park Boulevard
Santa Monica, California 90405
by registered or certified mail, postage prepaid, return receipt requested.
8. Binding Effect/Assignment. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective heirs,
executors, personal representatives, estates, successors (including, without
limitation, by way of merger) and assigns. Notwithstanding the provisions of
the immediately preceding sentence, the Employee shall not assign all or any
portion of this Agreement without the prior written consent of the Company.
9. Prior Employment Agreement. Upon the execution of this
Agreement by each of the Employee and the Company, except as provided below the
Employment Agreement, effective as of March 9, 1992 (as amended to date, the
"Prior Employment Agreement"), by and between the Company and the Employee, are
hereby terminated, effective as of the date hereof, and of no further force and
effect. Notwithstanding anything to the contrary in the foregoing, Section 6
of the Prior Employment Agreement shall remain in full force and effect and
shall survive the termination of the other provisions of the Prior Employment
Agreement pursuant to this Section 9.
10. Entire Agreement. This Agreement sets forth the entire
understanding of the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements, written or oral, between them as to such
subject matter. This Agreement may not be amended, nor may any provision
hereof be modified or waived, except by an instrument in writing duly signed by
the party to be charged.
7
<PAGE> 8
11. Severability. If any provision of this Agreement, or any
application thereof to any circumstances, is invalid, in whole or in part, such
provision or application shall to that extent be severable and shall not affect
other provisions or applications of this Agreement.
12. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of California,
without reference to the principles of conflict of laws.
13. Modifications and Waivers. No provisions of this Agreement
may be modified, altered or amended except by an instrument in writing executed
by the parties hereto. No waiver by either party hereto of any breach by the
other party hereto of any provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions at the
time or at any prior or subsequent time.
14. Headings. The headings contained herein are solely for the
purposes of reference, are not part of this Agreement and shall not in any way
affect the meaning or interpretation of this Agreement.
15. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by authority of its Board of Directors, and the Employee has hereunto
set his hand, as of the day and year first above written.
L.A. GEAR, INC.
By: /s/Stanley P. Gold
-------------------------------
Title: Chairman of the Board and
Chief Executive Officer
/s/Robert H. Landes
-------------------------------
Robert H. Landes
(Employee)
8
<PAGE> 9
Appendix A
NOTIFICATION TO EMPLOYEE
Set forth below is the text of Sections 2870, 2871 and 2872 of the
California Labor Code, as published in West's Ann. Cal.Labor Code (1989) and
West's Ann. Cal.Labor Code (1994 Supp.):
Section 2870. EMPLOYMENT AGREEMENTS; ASSIGNMENT OF RIGHTS
(a) Any provision in an employment agreement which provides that
an employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
inventions that either:
(1) Relate at the time of conception or reduction to
practice of the invention to the employer's business, or actual or demonstrably
anticipated research or development of the employer; or
(2) Result from any work performed by the employee for
the employer.
(b) To the extent a provision in an employment agreement purports
to require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable.
Section 2871. CONDITIONS OF EMPLOYMENT OR CONTINUED EMPLOYMENT; DISCLOSURE
IF INVENTIONS
No employer shall require a provision made void and unenforceable by
Section 2870 as a condition of employment or continued employment. Nothing in
this article shall be construed to forbid or restrict the right of an employer
to provide in contracts of employment for disclosure, provided that any such
disclosures be received in confidence, of all of the employee's inventions made
solely or jointly with others during the term of his or her employment, a
review process by the employer to determine such issues as may arise, and for
full title to certain patents and inventions to be in the United States, as
required by contracts between the employer and the United States or any of its
agencies.
Section 2872. NOTICE TO EMPLOYEE; BURDEN OF PROOF
If an employee agreement entered into after January 1, 1980, contains
a provision requiring the employee to assign or offer to assign any of his or
her rights in any invention to his or her employer, the employer must also, at
the time the agreement is made, provide a written notification to the employee
that the agreement does not apply to an invention which qualifies
A-1
<PAGE> 10
fully under the provisions of Section 2870. In any suit or action arising
thereunder, the burden of proof shall be on the employee claiming the benefits
of its provisions.
A-2
<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
AGREEMENT made as of this 15th day of February, 1994, by and between
L.A. GEAR, INC., a California corporation (the "Company"), and Thomas F.
Larkins (the "Employee").
WHEREAS, the Company desires to retain the exclusive services of
Employee and Employee desires to be employed by the Company for the term of
this Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained herein, the parties hereto agree as follows:
1. Duties. The Employee shall serve as Senior Vice President and
General Counsel of the Company or such other position as may be agreed between
the Employee and the Company, and shall perform such duties, services and
responsibilities as are consistent with such positions. The Employee's duties,
services and responsibilities will be performed under the overall supervision
of and consistent with the policies of the Board of Directors of the Company
(the "Board of Directors"). During the Employment Term, the Employee shall
devote his full business time, attention and skill to the performance of such
duties, services and responsibilities, and will use his best efforts to promote
the interests of the Company. The Employee will not, without the prior written
approval of the Board of Directors, engage in any other business activity which
would interfere with the performance of his duties, services and
responsibilities hereunder or which is in violation of policies established
from time to time by the Company.
2. Term. The term of employment of the Employee hereunder shall
commence as of the date hereof and shall continue in full force and effect
until February 28, 1997, unless earlier terminated as provided herein (the
"Employment Term"). The term of this Agreement shall be coincident with the
Employment Term.
3. Compensation. In consideration of the performance by the
Employee of the Employee's obligations during the Employment Term (including
any services as an officer, director, employee, member of any committee of the
Company or any of its subsidiaries, or otherwise), the Company will during the
Employment Term pay the Employee a salary (the "Salary") at an annual rate of
not less than (i) $200,000 during the first year of his employment hereunder,
(ii) $210,000 during the second year of his employment hereunder, and (iii)
$220,000 during the third year of his employment hereunder.
It is anticipated that the Company will adopt for fiscal years
beginning after November 30, 1993 a management bonus plan based on excess
return on capital ("EVA Bonus Plan"). During the Term, Employee will be
eligible to participate in the EVA Bonus Plan adopted by the Company. To the
extent Employee was employed by the Company hereunder for not less than six
months during a fiscal year and Employee's employment is terminated during such
fiscal year, the Company, in its sole discretion, may pay the Employee a cash
bonus in an amount to be determined by the Board of Directors.
<PAGE> 2
The Salary shall be payable in accordance with the normal payroll
practices of the Company then in effect. The Salary, and all bonuses or other
forms of compensation paid to the Employee hereunder, shall be subject to all
applicable taxes required to be withheld by the Company pursuant to federal,
state or local law. The Employee shall be solely responsible for income taxes
imposed on the Employee by reasons of any cash or non-cash compensation and
benefits provided hereunder.
In addition to the payment of Salary, (a) the Company hereby grants to
the Employee non-qualified stock options to purchase 30,000 shares of the
Company's Common Stock, no par value per share ("Common Stock"), at an exercise
price equal to the average closing price of the Common Stock on the New York
Stock Exchange Composite Tape for each of the five consecutive trading days
immediately preceding the date hereof and upon the terms and conditions set
forth in the Nonqualified Stock Option Agreement attached hereto as Exhibit A
(the "Option Agreement"), and (b) the Employee shall be entitled to participate
in any employee benefit plans then in effect for similarly situated employees
to the extent the Employee meets the eligibility requirements for any such
plan; provided, however, that nothing in this paragraph shall require the
Company to provide health or medical insurance benefits to the Employee or any
dependent of the Employee with respect to any condition existing prior to the
commencement of the Employee's employment by the Company, except as covered by
the Company's health and medical insurance plans sponsored for employees in
general.
The Employee shall be entitled to three weeks vacation (in addition to
the usual national holidays) per year, which vacation shall be accrued ratably
during each year during which the Employee serves hereunder, subject to the
limitations set forth in this paragraph. Any accrued but unused vacation may
be carried forward into subsequent years; provided, however that accrued but
unused vacation available to the Employee may not, at any time, exceed a total
of six weeks. Vacation shall not be earned at any time that accrued but
unused vacation totals six weeks and shall not resume to be earned until
accrued but unused vacation again declines below six weeks. Such vacation
shall be taken at such time or times as may be agreed between the Employee and
the Company.
If (i) the Employee is absent from work for 180 calendar days in any
twelve-month period by reason of illness or incapacity (whether physical or
otherwise) or (ii) the Company reasonably determines that the Employee is
unable to perform his duties, services and responsibilities hereunder by reason
of illness or incapacity (whether physical or otherwise) for a total of 180
calendar days in any twelve-month period during the Employment Term
("Disability"), the Company shall not be obligated to pay the Employee any
compensation (Salary or bonus) for any period in excess of such 180 days;
furthermore, any such payments shall be reduced by any amount the Employee is
entitled to receive as a result of such disability under any plan provided
through the Company or under state or federal law.
2
<PAGE> 3
4. Termination.
(a) Except as otherwise provided in this Agreement, the
employment of Employee hereunder and the Employment Term shall terminate upon
the earliest to occur of the dates specified below:
(i) the close of business on the date of expiration
of the Employment Term;
(ii) the close of business on the date of the
Employee's death;
(iii) the close of business on the day on which the
Company shall have delivered to the Employee a written notice of the Company's
election to terminate his employment for "Cause" (as defined in Section 4(c)
hereof);
(iv) the close of business on the day on which the
Company shall have delivered to the Employee a written notice of the Company's
election to terminate his employment because of Disability;
(v) the close of business on the day following the
date on which the Board of Directors shall have adopted a resolution
terminating the employment of the Employee hereunder and such termination is
not for death, Cause or Disability; or
(vi) the close of business on an early termination
date mutually agreed to in writing by the Company and the Employee.
(b) Any purported termination by the Company or by the
Employee pursuant to Section 4(a) hereof shall be communicated by written
"Notice of Termination" to the other. For purposes of this Agreement, a
"Notice of Termination" shall mean a written notice which indicates the
specific termination provision in this Agreement relied upon and which sets
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Employee's employment under the provision so
indicated. For purposes of this Agreement, no such purported termination shall
be effective without delivery of such Notice of Termination.
(c) For purposes of this Agreement, termination of
employment for "Cause" shall mean termination based on (i) the Employee's
material breach of this Agreement, (ii) conviction of the Employee for (x) any
crime constituting a felony in the jurisdiction in which committed, (y) any
crime involving moral turpitude (whether or not a felony), or (z) any other
criminal act against the Company involving dishonesty or willful misconduct
intended to injure the Company (whether or not a felony), (iii) substance abuse
by the Employee, (iv) the failure or refusal of the Employee to follow the
lawful and proper directives of the Board of Directors, or (v) willful
malfeasance or gross misconduct by the Employee which damages the Company.
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(d) In the event of termination of this Agreement, for
whatever reason, the Employee agrees to cooperate with the Company and to be
reasonably available to the Company with respect to continuing and/or future
matters arising out of the Employee's employment or any other relationship with
the Company, whether such matters are business-related, legal or otherwise.
The Company agrees to reimburse the Employee for the Employee's reasonable
travel expenses incurred in complying with the terms of this paragraph upon
delivery by the Employee to the Company of valid receipts for such expenses.
The provisions of this paragraph shall survive termination of this Agreement.
5. Termination Payments. If the Employee's employment with the
Company terminates for whatever reason, the Company will pay the Employee any
portion of the Salary accrued hereunder on or prior to the date of termination
but not paid. Subject to the last sentence of the following paragraph, if the
Employee's employment with the Company terminates pursuant to Section 4(a)(v)
hereof, the Company will continue to pay the Employee an amount equal to the
Employee's Salary (at the salary rate in effect on the date of termination of
the Employee's employment hereunder) for the remainder of the term of this
Agreement.
Except as otherwise provided in the Option Agreement or in the Plan
(as defined in the Option Agreement), the foregoing payments upon termination
shall constitute the exclusive payments due the Employee upon termination under
this Agreement, but shall have no effect on any benefits which may be due the
Employee under any plan of the Company which provides benefits after
termination of employment. The Employee shall not be required to mitigate the
foregoing amounts payable upon termination of this Agreement by seeking other
employment or otherwise; provided, however, that the foregoing payments shall
be reduced or mitigated by virtue of any cash compensation (including any
deferred portion thereof) received or earned by the Employee from any other
employer, or from personal services rendered by the Employee to a third party
as an independent contractor, during the period commencing on the date of
termination of this Agreement and ending on the date on which the Employment
Term had been scheduled to expire.
6. Employee Covenants.
(a) Unauthorized Disclosure. The Employee agrees and
understands that in the Employee's position with the Company, the Employee will
be exposed to and receive information relating to the confidential affairs of
the Company, including but not limited to technical information, business and
marketing plans, strategies, customer information, other information concerning
the Company's products, promotions, development, financing, expansion plans,
business policies and practices, and other forms of information considered by
the Company to be confidential and in the nature of trade secrets. Except to
the extent that the proper performance of the Employee's duties, services and
responsibilities hereunder may require disclosure, and except as such
information was or becomes generally available to the public other than as a
result of a disclosure by the Employee in violation of the provisions of this
Section 6(a), the Employee agrees that during the Employment Term and
thereafter the Employee will keep such information confidential and not
disclose such information, either directly or indirectly, to any third person
or entity without the prior written consent of the Company. This
confidentiality covenant has no temporal, geographical or territorial
restriction.
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Upon termination of this Agreement, the Employee will promptly supply to the
Company all property, keys, notes, memoranda, writings, lists, files, reports,
customer lists, correspondence, tapes, disks, cards, surveys, maps, logs,
machines, technical data or any other tangible product or document which has
been produced by, received by or otherwise submitted to the Employee during or
prior to the Employment Term. Any material breach of the terms of this
paragraph shall be considered Cause.
(b) Non-competition. By and in consideration of the
Company's entering into this Agreement and the Salary and benefits to be
provided by the Company hereunder, and further in consideration of the
Employee's exposure to the proprietary information of the Company, the Employee
agrees that, subject to the provisions of the last sentence of Section 1(b),
the Employee will not, during the Employment Term, directly or indirectly own,
manage, operate, join, control, be employed by, or participate in the
ownership, management, operation or control of or be connected in any manner,
including but not limited to holding the positions of shareholder, director,
officer, consultant, independent contractor, employee, partner, or investor,
with any Competing Enterprise. For purposes of this paragraph, the term
"Competing Enterprise" shall mean any person, corporation, partnership or other
entity engaged in a business in the United States which is in competition with
any of the businesses of the Company or any of its subsidiaries (i) as of the
date of commencement of this Agreement, (ii) during the Employment Term, or
(iii) as of the date of termination of this Agreement. The prohibition of this
clause (b) shall not be deemed to prevent Employee from owning 5% or less of
any class of equity securities of an entity that has a class of equity
securities registered under Section 12 of the Securities Exchange Act of 1934,
as amended.
(c) Non-solicitation. During the Employment Term and for
a period of one year thereafter, the Employee shall not interfere with the
Company's relationship with, or endeavor to entice away from the Company, any
person who at any time during the Employment Term was an employee or customer
of the Company or otherwise had a material business relationship with the
Company.
(d) Remedies. The Employee agrees that any breach of the
terms of this Section 6 would result in irreparable injury and damage to the
Company for which the Company would have no adequate remedy at law; the
Employee therefore also agrees that in the event of said breach or any threat
of breach, the Company shall be entitled to an immediate injunction and
restraining order to prevent such breach and/or threatened breach and/or
continued breach by the Employee and/or any and all persons and/or entities
acting for and/or with the Employee, without having to prove damages, in
addition to any other remedies to which the Company may be entitled at law or
in equity. The terms of this paragraph shall not prevent the Company from
pursuing any other available remedies for any breach or threatened breach
hereof, including but not limited to the recovery of damages from the Employee.
The provisions of subsections (a), (c) and (d) of this Section 6 shall
survive any termination of this Agreement and the Employment Term. The
existence of any claim or cause of action by the Employee against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of the covenants and agreements of
this Section 6.
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7. Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been given
(i) if personally delivered, when so delivered, or (ii) if mailed, three (3)
business days after having been placed in the United States mail, registered or
certified, postage prepaid, addressed to the party to whom it is directed at
the address set forth below:
If to the Company:
L.A. Gear, Inc.
2850 Ocean Park Boulevard
Santa Monica, California 90405
Attention: Chairman of the Board
If to the Employee:
Thomas F. Larkins
c/o L.A. Gear, Inc.
2850 Ocean Park Boulevard
Santa Monica, California 90405
by registered or certified mail, postage prepaid, return receipt requested.
8. Binding Effect/Assignment. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective heirs,
executors, personal representatives, estates, successors (including, without
limitation, by way of merger) and assigns. Notwithstanding the provisions or
the immediately preceding sentence, the Employee shall not assign all or any
portion of this Agreement without the prior written consent of the Company.
9 Entire Agreement. This Agreement and the Option Agreement set
forth the entire understanding of the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements, written or oral,
between them as to such subject matter. This Agreement may not be amended, nor
may any provision hereof be modified or waived, except by an instrument in
writing duly signed by the party to be charged.
10. Severability. If any provision of this Agreement, or any
application thereof to any circumstances, is invalid, in whole or in part, such
provision or application shall to that extent be severable and shall not affect
other provisions or applications of this Agreement.
11. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of California,
without reference to the principles of conflict of laws.
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12. Modifications and Waivers. No provisions of this Agreement
may be modified, altered or amended except by an instrument in writing executed
by the parties hereto. No waiver by either party hereto of any breach by the
other party hereto of any provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions at the
time or at any prior or subsequent time.
13. Headings. The headings contained herein are solely for the
purposes of reference, are not part of this Agreement and shall not in any way
affect the meaning or interpretation of this Agreement.
14. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by authority of its Board of Directors, and the Employee has hereunto
set his hand, as of the day and year first above written.
L.A. GEAR, INC.
By: /s/ William L. Benford
--------------------------------
Title: Executive Vice President
and Chief Financial Officer
/s/ Thomas F. Larkins
--------------------------------
Thomas F. Larkins
(Employee)
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