<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 AUGUST 31, 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) 452-4327
(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 October 7, 1994 was 22,936,433 shares.
THIS FORM 10-Q CONTAINS 58 PAGES.
THE EXHIBIT INDEX APPEARS ON PAGE 17
<PAGE> 2
L.A. GEAR, INC.
TABLE OF CONTENTS
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 1994
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
- - ------ --------------------- ----
<S> <C> <C>
Item 1. Financial Statements
Consolidated Condensed Balance Sheets at
August 31, 1994 and November 30, 1993 3
Consolidated Condensed Statements of Operations and Accumulated Deficit
for the three months ended August 31, 1994 and August 31, 1993 4
Consolidated Condensed Statements of Operations and Accumulated Deficit
for the nine months ended August 31, 1994 and August 31, 1993 5
Consolidated Condensed Statements of Cash Flows for the
nine months ended August 31, 1994 and August 31, 1993 6
Notes to Consolidated Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
PART II. OTHER INFORMATION
- - ------- -----------------
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
Exhibit Index 17
</TABLE>
2
<PAGE> 3
L.A. GEAR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
August 31, November 30,
1994 1993
-------------- --------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 42,770 $ 27,790
Accounts receivable, net 92,250 73,217
Inventories 69,453 109,797
Prepaid expenses and other current assets 10,196 8,960
-------- --------
Total current assets 214,669 219,764
Property and equipment and other assets, net 20,171 23,848
Goodwill, net 12,489 11,001
-------- --------
$247,329 $254,613
======== ========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED
STOCK AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 55,756 $ 54,079
Borrowings under international credit facilities 3,016 3,737
-------- --------
Total current liabilities 58,772 57,816
7 3/4% convertible subordinated debentures due 2002 50,000 50,000
Minority interest 2,523 --
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 August 31,
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 1,275 (836)
Accumulated deficit (93,334) (80,443)
-------- --------
Total shareholders' equity 36,034 46,797
-------- --------
$247,329 $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 August 31, 1994
----------------------------------
1994 1993
-------- --------
<S> <C> <C>
Net sales $126,550 $142,967
Cost of sales 84,370 95,763
-------- --------
Gross profit 42,180 47,204
Selling, general and administrative expenses 37,909 41,959
Litigation settlement income, net (2,900) (2,700)
Interest expense, net 516 723
-------- --------
Income before income taxes and minority interest 6,655 7,222
Income taxes -- --
Minority interest (129) --
-------- --------
Net income 6,526 7,222
Dividends on mandatorily
redeemable preferred stock (1,875) (1,875)
-------- --------
Income applicable to common stock 4,651 5,347
Accumulated deficit, beginning of period (97,985) (68,901)
-------- --------
Accumulated deficit, end of period $(93,334) $(63,554)
======== ========
Income per common share:
Primary $ 0.20 $ 0.23
======== ========
Fully Diluted $ 0.20 $ 0.22
======== ========
Weighted average common shares outstanding:
Primary 22,936 22,925
======== ========
Fully Diluted 32,936 32,925
======== ========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
4
<PAGE> 5
L.A. GEAR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended August 31,
------------------------------------
1994 1993
-------- --------
<S> <C> <C>
Net sales $331,234 $303,866
Cost of sales 230,488 211,828
-------- --------
Gross profit 100,746 92,038
Selling, general and administrative expenses 109,050 111,062
Litigation settlement income, net (3,200) (2,700)
Interest expense, net 2,489 1,175
-------- --------
Loss before income taxes and minority interest (7,593) (17,499)
Income taxes -- --
Minority interest 327 --
-------- --------
Net loss (7,266) (17,499)
Dividends on mandatorily
redeemable preferred stock (5,625) (5,792)
-------- --------
Loss applicable to common stock (12,891) (23,291)
Accumulated deficit, beginning of period (80,443) (40,263)
-------- --------
Accumulated deficit, end of period $(93,334) $(63,554)
======== ========
Loss per common share $ (0.56) $ (1.02)
======== ========
Weighted average common shares outstanding 22,936 22,916
======== ========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
5
<PAGE> 6
L.A. GEAR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended August 31,
------------------------------------
1994 1993
------ --------
<S> <C> <C>
Net cash provided by (used in) operating activities $19,358 $(68,166)
------- --------
Investing activities:
Capital expenditures (2,839) (3,352)
Cash paid for acquisition of subsidiaries
net of cash acquired -- (15,919)
------- --------
Net cash used in investing activities (2,839) (19,271)
------- --------
Financing activities:
Payment of dividends on mandatorily redeemable
preferred stock (5,625) (13,538)
Proceeds from minority's investment in joint venture 4,850 --
Net repayments under international credit facilities (913) --
Proceeds from the exercise of stock options 17 43
Net proceeds from issuance of convertible
subordinated debentures 47,748
Net repayments under credit facilities -- (77)
------- --------
Net cash provided by (used in) financing activities (1,671) 34,176
------- --------
Effect of exchange rate changes on cash and
cash equivalents 132 31
------- --------
Net increase (decrease) in cash and cash
equivalents, including collateralized cash 14,980 (53,230)
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 $42,770 $ 30,752
======= ========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
6
<PAGE> 7
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 August 31, 1994, the results of operations for
the three months and nine months ended August 31, 1994 and 1993, and the cash
flows for the nine months ended August 31, 1994 and 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 Pacific
Limited, a wholly owned subsidiary of 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.
Earnings (Loss) Per Common Share
Primary income (loss) per share has been computed based on income (loss)
applicable to common stock divided by the weighted average common shares
outstanding. When applicable, fully diluted income per common share has been
computed based on net income divided by the weighted average common shares
outstanding that would have been outstanding had the mandatorily redeemable
preferred stock been converted into 10 million common shares as of the
beginning of the applicable period. The 7- 3/4% Convertible Subordinated
Debentures Due 2002 have not been considered in the computation of the fully
diluted income per common share as the conversion of such Debentures would be
anti-dilutive.
NOTE 2. BUSINESS ACQUISITION
Effective May 20, 1994, the Company acquired for $2.0 million certain
assets of the Company's exclusive distributor (and one of its affiliates) in
Mexico. The excess of the purchase price over the estimated fair value of net
assets acquired in such transaction, amounting to $1.0 million, has been
recorded as goodwill. The purchase price for the acquisition was settled by
reducing the balance on outstanding amounts owed by the distributor to the
Company. The acquisition was accounted for under the purchase method and,
accordingly, the acquired assets have been recorded on a preliminary basis at
their estimated fair value at the effective date of the acquisition. The
preliminary allocation of the estimated fair value of such assets acquired is
subject to change based upon final determination of such fair value. If the
acquisition had taken place at December 1, 1993, the pro forma results of
operations for the nine months ended August 31, 1994 would not be materially
different than the Company's historical amounts reported.
NOTE 3. LITIGATION SETTLEMENTS
In the second and third quarters of 1994, the Company entered into
various settlement agreements primarily in connection with trademark and patent
infringement actions pursuant to which it recorded during the nine months ended
August 31, 1994 net litigation settlement income of $3.2 million (including
$2.9 million recorded in the third quarter of 1994). In the third quarter of
1993, the Company received $2.7 million as a recovery of part of the cost of
the settlement by the Company of three separate shareholder class action
lawsuits and the related derivative suits.
7
<PAGE> 8
L.A. GEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
NINE MONTHS ENDED AUGUST 31,
----------------------------------
1994 1993
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
CASH PAID (RECEIVED) DURING THE PERIOD FOR:
INTEREST, NET $3,205 $ 101
====== ========
INCOME TAXES, NET $1,244 $(23,969)
====== ========
NONCASH INVESTING ACTIVITY:
ACQUISITION OF MEXICAN DISTRIBUTOR'S ASSETS $1,953 $ --
====== ========
</TABLE>
NOTE 5. ACCOUNTS RECEIVABLE, NET
Accounts receivable, net of allowance for doubtful accounts and merchandise
returns, consist of the following:
<TABLE>
<CAPTION>
AUGUST 31, NOVEMBER 30,
1994 1993
-------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
TRADE RECEIVABLES
DOMESTIC $71,362 $54,434
INTERNATIONAL 23,747 16,854
------- -------
TOTAL TRADE RECEIVABLES 95,109 71,288
OTHER RECEIVABLES 4,467 7,846
------- -------
99,576 79,134
LESS ALLOWANCE FOR DOUBTFUL ACCOUNTS
AND MERCHANDISE RETURNS (7,326) (5,917)
------- -------
$92,250 $73,217
======= =======
</TABLE>
NOTE 6. 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.
8
<PAGE> 9
L.A. GEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6. INCOME TAXES (CONTINUED)
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 August 31, 1994 deferred tax assets totaled approximately $41.2
million. A valuation allowance has been established against the entire
deferred tax asset balance.
For the period ended August 31, 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 as
evaluated under the provisions of SFAS No. 109.
NOTE 7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
AUGUST 31, 1994 NOVEMBER 30, 1993
--------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
ACCOUNTS PAYABLE AND OTHER ACCRUED LIABILITIES $36,543 $34,179
ACCRUED INVENTORY PURCHASES 16,650 16,900
ACCRUED UNUSUAL CHARGES 2,563 3,000
------- -------
$55,756 $54,079
======= =======
</TABLE>
Accounts payable include issued but uncleared checks of $0.7 million and
$2.5 million at August 31, 1994 and November 30, 1993, respectively.
9
<PAGE> 10
L.A. GEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8. BANK BORROWINGS
The Company has a three-year, $75.0 million revolving line of credit with
BankAmerica Business Credit, Inc. for loans and letters of credit which is
scheduled to expire in November 1996 (the "Revolving Facility"). The Revolving
Facility is secured primarily by the Company's domestic assets and is subject
to certain financial covenants. Under the terms of the Revolving Facility (as
amended to date), the Company is required to maintain, as of the last day of
any fiscal quarter, Adjusted Tangible Net Worth (as defined in the Revolving
Facility) of at least $165.0 million, which for this purpose excludes the
Debentures from the Company's liabilities.
At August 31, 1994 the Company's Adjusted Tangible Net Worth was $173.9
million. There were no cash borrowings under the Revolving Facility at August
31, 1994. During the quarter ended August 31, 1994, the Company had no
borrowings under the Revolving Facility and for the nine months ended August
31, 1994, the Company had average borrowings of $0.3 million under the
Revolving Facility. At August 31, 1994, approximately $32.5 million of letters
of credit were outstanding under this facility.
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 AUGUST 31, 1994
-------------------------- -----------------------
TOTAL LETTERS LETTERS
COUNTRY AVAILABLE BORROWINGS OF CREDIT BORROWINGS OF CREDIT
------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
GERMANY $8.0 $4.0 $4.0 $1.7 $1.3
NETHERLANDS $4.5 -- -- $1.3 $0.7
</TABLE>
The weighted average interest rates, as defined in the respective credit
facility agreements and adjusted for current market conditions for Germany were
8.5% and 8.8% for the quarter and nine months ended August 31, 1994,
respectively, and for the Netherlands were 6.8% for both the quarter and nine
months ended August 31, 1994.
NOTE 9. COMMITMENTS AND CONTINGENCIES
Upon expiration of a three year management agreement with Shamrock
Capital Advisors, Inc. ("SCA") in September 1994, the Company entered into a
new one year management agreement with SCA pursuant to which SCA agreed to
provide certain management and consulting services to the Company for a fee of
$0.5 million. This agreement shall be automatically renewed for an additional
one year period if not terminated by either party prior to July 14, 1995. SCA
is an affiliate of Trefoil Capital Investors, L.P., which beneficially owns
approximately 33% of the Company's Common Stock and all of its Series A
cumulative convertible preferred stock.
10
<PAGE> 11
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 third quarter of 1994, the Company's net sales decreased 11.5% to
$126.6 million as compared to $143.0 million in the third quarter of 1993. For
the nine months ended August 31, 1994, the Company's net sales increased 9.0%
to $331.2 million as compared to $303.9 million in the year earlier period.
The decline in net sales for the 1994 third quarter from the comparable prior
year period was principally due to lower average selling prices attributable to
a greater percentage of net sales comprised of children's product (which
experienced a 25.7% increase in the number of pairs sold worldwide) and sales
of selected styles of excess inventory. The average selling price per pair
decreased $2.32 to $18.98 for the third quarter of 1994 compared to the prior
year period.
The nine month increase in net sales was primarily attributable to the
continued strong sales of the children's product line (which experienced a
51.6% increase in the number of pairs sold worldwide) and sales of $18.7
million (1.2 million pairs) of selected excess inventory to Wal-Mart Stores,
Inc. ("Wal-Mart") during the first quarter of 1994, offset by a decline in
average selling prices. For the nine months ended August 31, 1994, the average
selling price per pair decreased $0.81 to $17.94 from the comparable prior year
period.
Net international sales, which accounted for approximately 27.0% of the
Company's total net sales for the quarter and nine months ended August 31,
1994, decreased 5.5% and increased 2.7% from the comparable 1993 periods,
respectively. The decrease for the third quarter was the result of a $2.20
decline in the average selling price per pair. The nine month increase in
international net sales was primarily attributable to a 5% increase in the
number of pairs sold partially offset by a decline in the average selling
price.
The following tables set forth certain information regarding the
Company's net sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED AUGUST 31, NET SALES
-----------------------------------------------
1994 1993
------------------ ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
DOMESTIC FOOTWEAR
WOMEN'S $ 15,649 12% $ 26,689 18%
MEN'S 17,927 14 28,646 20
CHILDREN'S 58,286 46 50,758 35
OTHER 304 1 470 1
-------- --- -------- ---
TOTAL DOMESTIC SALES 92,166 73 106,563 74
INTERNATIONAL FOOTWEAR AND OTHER 34,384 27 36,404 26
-------- --- -------- ---
TOTAL NET SALES $126,550 100% $142,967 100%
======== === ======== ===
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED AUGUST 31,
----------------------------
NET SALES
-----------------------------------------------
1994 1993
------------------ ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
DOMESTIC FOOTWEAR
WOMEN'S $ 49,358 15% $ 66,755 22%
MEN'S 52,327 15 55,844 18
CHILDREN'S 138,089 42 91,969 30
OTHER 1,277 1 1,458 1
-------- --- -------- ---
TOTAL DOMESTIC SALES 241,051 73 216,026 71
INTERNATIONAL FOOTWEAR AND OTHER 90,183 27 87,840 29
-------- --- -------- ---
TOTAL NET SALES $331,234 100% $303,866 100%
======== === ======== ===
</TABLE>
11
<PAGE> 12
The following tables set 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 AUGUST 31, VOLUME OF FOOTWEAR SOLD
----------------------------- -----------------------
INCREASE/(DECREASE) BETWEEN 1994 AND 1993
--------------------------------------------------
DOMESTIC INTERNATIONAL TOTAL
-------- ------------- -----
<S> <C> <C> <C>
WOMEN'S (35.1%) (24.6%) (31.9%)
MEN'S (23.6%) 13.2% (9.5%)
CHILDREN'S 23.9% 35.9% 25.7%
TOTAL VOLUME INCREASE/(DECREASE) (2.7%) 5.0% (0.8%)
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED AUGUST 31, VOLUME OF FOOTWEAR SOLD
---------------------------- -----------------------
INCREASE/(DECREASE) BETWEEN 1994 AND 1993
--------------------------------------------------
DOMESTIC INTERNATIONAL TOTAL
-------- ------------- -----
<S> <C> <C> <C>
WOMEN'S (20.7%) (24.9%) (22.1%)
MEN'S 10.9% 5.1% 8.5%
CHILDREN'S 51.4% 52.2% 51.6%
TOTAL VOLUME INCREASE 18.1% 5.0% 14.2%
</TABLE>
Although total pairage declined for the third quarter comparative periods
as opposed to an increase for the nine month comparative periods, sales of the
Company's children's shoes remained strong primarily as a result of continuing
customer demand for the Company's L.A. LIGHTS(TM) and Light GEAR(TM) for
children. The Company sold 2.8 million and 6.5 million pairs of children's
lighted shoes during the third quarter and first nine months of 1994,
respectively, compared to 2.5 million and 3.8 million pairs for the comparable
prior year periods. Sales of the expanded line of children's lighted shoes
accounted for 75.7% of total children's net sales and 39.9% of total net sales
for the first nine months of 1994.
The overall decline in sales of the women's product line was principally
due to a drop in the number of pairs sold worldwide resulting from sluggish
customer demand, and, to a lesser extent, to a decrease in the average selling
price per pair. For the nine months ended August 31, 1994, the number of pairs
of men's shoes sold increased 8.5% primarily due to sales of selected excess
inventory.
GROSS MARGIN
The gross margin increased to 33.3% for the third quarter of 1994 from
33.0% in the 1993 third quarter and to 30.4% for the nine months ended August
31, 1994 from 30.3% in the comparable prior year period. Improved margins from
the prior year resulted from the combination of (i) a lower average cost per
pair of footwear sold primarily attributable to a greater percentage of net
sales comprised of children's product, (ii) increased refunds of import duties
paid on products ultimately sold internationally primarily due to improved
filing procedures with U.S. Customs, and (iii) lower air freight charges due to
more efficient production scheduling.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Total selling, general and administrative expenses decreased 9.7% to
$37.9 million in the third quarter of 1994 from $42.0 million for the third
quarter of 1993, primarily as a result of lower bad debt expense, media and
advertising expenses, and other worldwide cost control and containment efforts.
Exclusive of a one-time charge of $2.3 million incurred in May 1994 for costs
associated with the restructuring of the Company's senior management, total
selling, general and administrative expenses decreased 3.9% to $106.7 million
for the nine months ended August 31, 1994 compared to $111.1 million for the
year earlier period. Domestically, the Company continued to pursue cost
containment programs which helped lower selling, general and administrative
expenses by $10.6 million in the first nine months of 1994 (excluding the $2.3
million restructuring charge). These savings were partially offset by the
increased operating expenses associated with the Company's expansion of foreign
operations. The Company formed or acquired four European subsidiaries in the
second and third quarters of 1993 and formed a Far East joint venture and
Mexican subsidiary in the first half of 1994.
12
<PAGE> 13
As a percentage of net sales, selling, general and administrative
expenses increased to 30.0% in the third quarter of 1994 from 29.3% in the
comparable 1993 period primarily due to the lower sales base. Exclusive of the
restructuring charge, selling, general and administrative expenses as a
percentage of net sales decreased to 32.2% for the nine months ended August 31,
1994 compared to 36.5% in 1993. 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 $1.0 million and $3.4 million for the three months
and nine months ended August 31, 1994, respectively, 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 and nine months ended August 31, 1993, the Company incurred interest
expense of $1.0 million and $2.9 million, respectively, on the Debentures and
short-term borrowings of a wholly-owned subsidiary.
Interest income increased to $0.5 million and decreased to $0.9 million
during the three months and nine months ended August 31, 1994, respectively,
compared to $0.3 million and $1.7 million in the comparable year earlier
periods primarily as a result of changes in the average daily cash balances.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth certain information regarding the
Company's liquidity and capital resources:
<TABLE>
<CAPTION>
AUGUST 31, NOVEMBER 30,
1994 1993
---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 42,770 $ 27,790
WORKING CAPITAL 155,897 161,948
OUTSTANDING LETTERS OF CREDIT 36,299 33,553
CONVERTIBLE SUBORDINATED DEBENTURES 50,000 50,000
MANDATORILY REDEEMABLE PREFERRED STOCK 100,000 100,000
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
AUGUST 31, AUGUST 31,
------------------- -------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
AVERAGE DAILY SHORT-TERM BORROWINGS $2,278 $1,643 $4,756 $1,458
WEIGHTED AVERAGE INTEREST RATES 7.9% 9.1% 8.4% 10.0%
</TABLE>
Cash and cash equivalent balances increased by approximately $15.0
million from November 30, 1993 to a balance of $42.8 million at August 31,
1994, primarily due to better inventory management and net litigation
settlement income. Through sales of selected excess inventory during the first
nine months of 1994, the Company reduced inventory from $109.8 million (9.3
million pairs) at November 30, 1993 to $69.5 million (5.9 million pairs) at
August 31, 1994. Net accounts receivable at August 31, 1994 increased $19.0
million from November 30, 1993 primarily due to a 27.8% increase in net sales
in the last two months of the 1994 third quarter compared to the last two
months of the 1993 fourth quarter.
The Company has a three-year, $75.0 million revolving line of credit with
BankAmerica Business Credit, Inc. for loans and letters of credit which is
scheduled to expire in November 1996 (the "Revolving Facility"). The Revolving
Facility is secured primarily by the Company's domestic assets and is subject
to certain financial covenants. Under the terms of the Revolving Facility (as
amended to date), the Company is required to maintain, as of the last day of
any fiscal quarter, Adjusted Tangible Net Worth (as defined in the Revolving
Facility) of at least $165.0 million, which for this purpose excludes the
Debentures from the Company's liabilities. At August 31, 1994 the Company's
Adjusted Tangible Net Worth was $173.9 million. There were no borrowings under
the Revolving Facility at August 31, 1994.
13
<PAGE> 14
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
--------------------------------------------- AUGUST 31, 1994
(IN MILLIONS) SUBLIMITS -----------------------
--------------------------
TOTAL LETTERS CASH LETTERS
COUNTRY AVAILABLE BORROWINGS OF CREDIT BORROWINGS OF CREDIT
------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
GERMANY $8.0 $4.0 $4.0 $1.7 $1.3
NETHERLANDS $4.5 -- -- $1.3 $0.7
</TABLE>
The weighted average interest rate, as defined in the respective credit
facility agreements and adjusted for current market conditions for Germany were
8.5% and 8.8% for the quarter and nine months ended August 31, 1994,
respectively, and for the Netherlands were 6.8% for both the quarter and nine
months ended August 31, 1994, respectively.
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
Entering the Holiday 1994 and Spring 1995 seasons, the Company had a
combined domestic and international order backlog of $105.9 million at August
31, 1994, approximately $77.1 million of which is scheduled to ship during the
September through November 1994 period. In addition, as part of the previously
announced multi-year agreement, Wal-Mart will purchase a minimum of $80.0
million of footwear in fiscal 1995. The agreement does not provide for the
sale of L.A. Tech(R), FLAK(TM), or any L.A. Gear lighted footwear products to
Wal-Mart. The Company also intends to make available to mass market
retailers, through its licensees, new product lines of affordable apparel and
accessories. The Company's efforts to expand the market for its value-priced
products are designed to help generate significant sales volume without unduly
affecting the Company's ability to develop a stronger presence in traditional
athletic footwear distribution channels.
Approximately 59% of the order backlog at August 31, 1994 is for
children's shoes, approximately 64% of which is for shoes containing lighted
technology. The combined domestic and international backlog at August 31,
1993 was $108.1 million, $78.5 million of which was scheduled to ship during
the 1993 fourth quarter. Shipments and sales for future periods depend on,
among other things, the combination of "future" and "at once" orders.
Accordingly, the comparison of backlog from period to period may not be
indicative of eventual actual shipments. As part of the Company's strategy to
strengthen its adult market share, the Company plans to refocus and expand its
women's product line in fiscal 1995. The Company will support this expansion,
along with the introduction of new children's lighted product and updates of
the FLAK(TM) product line, through extensive promotional campaigns, including
national television, print, radio and outdoor advertising.
14
<PAGE> 15
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
- In May 1994, the Company entered into a settlement agreement pursuant
to which all claims against the Company in two separate, but
related, previously reported actions, entitled Russell R. Fesmire, et
al. (abbreviated) v. L.A. Gear, Inc.,et.al., United States District
Court, Central District of California, Case No. 9375890JSL and Larry
Pat Dunn, et.al. (abbreviated) v. L.A. Gear, Inc. et.al., United
States District Court, Central District of California, Case No.
937358JSL, were dismissed. All terms of the settlement agreement are
confidential. The settlement did not have a material impact on the
Company's financial condition or results of operations.
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) Exhibits:
10.1 Management Services Letter Agreement, dated September 12,
1994, by and between the Company and Shamrock Capital
Advisors, Inc.
10.2 Employment Agreement, dated as of August 1, 1994, by and
between Tracey C. Doi and the Company.
10.3 Employment Agreement, dated as of August 1, 1994, by and
between Victor J. Trippetti, Jr. and the Company.
10.4 Employment Agreement, dated as of August 1, 1994, by and
between Christopher M. Walsh and the Company.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
The Company filed a current report on Form 8-K on September 2,
1994, under Item 5. - Other Events, with respect to the Second Amendment to
Loan and Security Agreement entered into between the Company and BankAmerica
Business Credit, Inc. which amends the terms of the existing revolving line of
credit facility.
15
<PAGE> 16
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: October 13, 1994 L.A. GEAR, INC.
By: /s/ W. Randall Boggan
--------------------------
W. Randall Boggan
Chief Financial Officer
16
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Document Page No.
- - ----------- -------- --------
<S> <C> <C>
10.1 Management Services Letter Agreement dated September 19
12, 1994, by and between the Company and Shamrock Capital
Advisors, Inc.
10.2 Employment Agreement, dated as of August 1, 1994, by and
between Tracey C. Doi and the Company. 26
10.3 Employment Agreement, dated as of August 1, 1994, by and
between Victor J. Trippetti, Jr. and the Company. 36
10.4 Employment Agreement dated August 1, 1994, by and between
Christopher M. Walsh and the Company. 47
27.1 Financial Data Schedule. 58
</TABLE>
17
<PAGE> 1
EXHIBIT 10.1
September 12, 1994
Shamrock Capital Advisors, Inc.
4444 Lakeside Drive
2nd Floor
P.O. Box 7774
Burbank, California 91510-7774
Attention: Robert G. Moskowitz
Gentlemen:
This letter will confirm our engagement of Shamrock Capital Advisors,
Inc. ("SCA") to provide management and consulting services to L.A. Gear, Inc.
and its subsidiaries (the "Company") for a period of one year from the date
hereof; provided, however, that this letter agreement shall automatically renew
for an additional one-year period unless written notice of termination is
delivered by one party to the other by no later than July 14,1995.
SCA will consult with, and provide advice to, the officers and employees
of the Company concerning matters (i) relating to the Company's financial
policies and the development and implementation of the Company's business plans
and (ii) generally arising out of the business affairs of the Company. SCA
shall devote such time as it deems is necessary to perform the services to be
rendered by it hereunder, and SCA shall not be required to devote any minimum
amount of time to the performance of such services. SCA may also be retained
to provide additional special services to the Company as approved from time to
time by the independent directors of the Company (directors of the Company
neither affiliated nor associated with SCA), upon terms and conditions mutually
acceptable to SCA and the Company.
<PAGE> 2
SCA's compensation for such management and consulting services will be
$500,000, payable quarterly in arrears in equal installments. The Company
shall also reimburse SCA (or cause SCA to be reimbursed) for all of its
reasonable out-of-pocket costs and expenses in connection with the performance
of its services hereunder, which shall include the fees and disbursements of
its counsel, upon documentation thereof. In addition to the foregoing
compensation, the officers and directors of SCA serving as directors of the
Company will also be paid customary director fees paid to non-employee
directors of the Company and will be reimbursed for all of their reasonable
out-of-pocket costs and expenses in connection therewith.
The Company has been advised that SCA (and its officers and directors)
provides consulting, management and other services to Trefoil Capital
Investors, L.P. ("Trefoil"), entities in which Trefoil invests, Shamrock
Holdings, Inc. ("Shamrock"), entities in which Shamrock invests and others.
Accordingly, the Company acknowledges and agrees that SCA shall not be
prevented or restricted, in any manner whatsoever, by this Agreement, from
providing services (pursuant to a written agreement or otherwise) to any other
person or entity and will be supplying services to the Company on a
non-exclusive basis.
The Company agrees to indemnify SCA and its affiliates in accordance with
Schedule A, as attached hereto.
This letter agreement may be terminated at any time, with or without
cause, by SCA or the Company. Except as otherwise provided in the following
sentence, any such termination of this letter agreement by the Company shall
not relieve the Company from its obligations to pay to SCA any unpaid portion
of the total amount of fees due to SCA under this letter agreement (including
any fees not yet due and payable to SCA hereunder for the remaining term of
this letter agreement as provided in the third paragraph hereof). If (i)
Trefoil's investment in the Company, at any time during the term hereof, is
less than $25,000,000, then the independent directors of the Company (directors
not affiliated or associated with Trefoil or SCA) may elect to terminate this
letter agreement without cause and, upon such termination, the Company shall be
obligated to pay to SCA all amounts due pursuant to this letter agreement,
other than compensation not yet due and payable to SCA hereunder pursuant to
the third paragraph hereof. For purposes of the preceding sentence, each share
of Common Stock of the Company issued or issuable upon conversion of the shares
of Series A Cumulative Convertible Preferred Stock held by Trefoil shall be
valued at the Conversion Price (as such
<PAGE> 3
term is defined in the Company's Restated Articles of Incorporation). The
Company's obligations (i) to reimburse SCA for any and all expenses incurred by
SCA (but not yet reimbursed by the Company) in connection with the performance
of services hereunder, and (ii) to indemnify SCA in accordance with the
provisions of Schedule A hereto, shall survive any termination of this letter
agreement by the Company or SCA pursuant to this paragraph.
<PAGE> 4
If this letter accurately sets forth our understanding with respect to
the subject matter hereof, please indicate that SCA will be bound hereby by
executing the enclosed copy of this letter in the space provided and return it
to us.
Very truly yours,
L.A. GEAR, INC.
By: /s/ William L. Benford
------------------------------
Name: William L. Benford
Title: President and
Chief Operating Officer
Agreed to and accepted
this 12th day of September, 1994
SHAMROCK CAPITAL ADVISORS, INC.
By: /s/ Robert G. Moskowitz
-------------------------
Name: Robert G. Moskowitz
Title: Managing Director
<PAGE> 5
Schedule A
Indemnification Agreement
As part of the consideration for the agreement of SHAMROCK CAPITAL
ADVISORS, INC., a Delaware corporation ("SCA"), to furnish its services, L.A.
GEAR, INC., a California corporation (the "Company"), agrees to indemnify and
hold harmless SCA and its affiliates and the respective partners, officers,
directors, employees and agents of, and persons controlling, SCA or any of its
affiliates within the meaning of either Section 15 of the Securities Act of
1933, as amended, or Section 20 of the Securities Exchange act of 1934, as
amended, and each of their respective successors and assigns (collectively, the
"indemnified persons") from and against all claims, liabilities, expenses,
losses or damages (or actions in respect thereof) related to or arising out of
actions taken (or omitted to be taken) by SCA pursuant to the terms of the
letter, dated September 12, 1994, between SCA on the one hand and the Company
on the other (the "Letter of Agreement"), or SCA's role in connection
therewith; provided, however, that the Company shall not be responsible for any
claims, liabilities, expenses, losses and damages to the extent that it is
finally judicially determined that they result primarily from actions taken or
omitted to be taken by SCA in bad faith or due to SCA's gross negligence or
willful misconduct. If for any reason (other than the bad faith, gross
negligence or willful misconduct of SCA as provided above) the foregoing
indemnity is unavailable to SCA or insufficient to hold SCA harmless, then the
Company shall contribute to the amount paid or payable by SCA as a result of
such claim, liability, expense, loss or damage in such proportion as is
appropriate to reflect not only the relative benefits received by the Company
on the one hand and SCA on the other but also the relative fault of the Company
and SCA, as well as any relevant equitable considerations, subject to the
limitations that in any event SCA's aggregate contribution to all losses,
claims, expenses, liabilities and damages shall not exceed the amount of fees
actually received by SCA pursuant to the Letter of Agreement. Promptly after
receipt by SCA of notice of any complaint or the commencement of any action or
proceeding with respect to which indemnification may be sought against the
Company, SCA will notify the Company in writing of the receipt or commencement
thereof, but failure to notify the Company will relieve the Company from any
liability which it may have hereunder only if, and to the extent that, such
failure results in the forfeiture of substantial rights and defenses, and will
not in any event relieve the Company from any other obligation
<PAGE> 6
to any indemnified person other than under this indemnification agreement. The
Company shall assume the defense of such action (including payment of fees and
disbursements of counsel) insofar as such action shall relate to any alleged
liability in respect of which indemnity may be sought against the Company. SCA
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and disbursements of such
counsel shall be at the expense of SCA unless employment of such counsel has
been specifically authorized by the Company in writing. The Company shall
authorize one separate counsel for SCA and any other indemnified persons if the
named parties to any such action (including any impleaded parties) include the
Company (or any of the directors of the Company) and SCA and (i) in the good
faith judgment of SCA the use of joint counsel would present such counsel with
an actual or potential conflict of interest, or (ii) SCA shall have been
advised by counsel that there may be one or more legal defenses available to it
which are different from or additional to those available to the Company (or
the director(s)). The Company shall not be liable to indemnify any person for
any settlement of any claim or action effected without the Company's written
consent, which consent shall not be unreasonably withheld. In addition, the
Company agrees to reimburse SCA and each other indemnified person for all
expenses (including reasonable fees and disbursements of counsel if the Company
does not assume the defense of such action) as they are incurred by SCA, or any
indemnified person in connection with investigating, preparing or defending any
such action or claim, whether or not in connection with pending or threatened
litigation in which SCA or any such indemnified person is a party. SCA shall
have no liability to the Company or any other person in connection with the
services which they render pursuant to the Letter of Agreement, except for
SCA's bad faith, gross negligence or willful misconduct judicially determined
as aforesaid. The indemnification, contribution and expense reimbursement
obligation the Company has under this paragraph shall be in addition to any
liability the Company may otherwise have.
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
AGREEMENT made as of this 1st day of August, 1994, by and
between L.A. GEAR, INC., a California corporation (the "Company"), and Tracey
Chikahisa Doi (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 Vice President and
Controller 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 Financial 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 her full business time, attention and skill to the performance of such
duties, services and responsibilities, and will use her 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 her 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, 1995, 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 $140,000.
<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 her 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
Notwithstanding anything to the contrary set forth herein,
during the Employment Term, Employee shall be entitled to take an aggregate of
thirteen (13) consecutive weeks of pregnancy disability and childcare leave at
full compensation; provided; however, that (i) any such pregnancy disability
and childcare leave taken by Employee shall not be counted as days absent from
work for purposes of determining Disability hereunder and (ii) any and all
compensation payments made to Employee for any pregnancy disability and
childcare leave period shall be reduced by any amount Employee is entitled to
receive as a result of such pregnancy disability under state or federal law.
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 her 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 her 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.
3
<PAGE> 4
(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.
(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.
4
<PAGE> 5
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 her 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 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 her 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 she 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
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<PAGE> 6
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.
(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
6
<PAGE> 7
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:
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:
Tracey Chikahisa Doi
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 October 1, 1992 (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
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<PAGE> 8
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.
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.
8
<PAGE> 9
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 her hand, as of the day and year first above written.
L.A. GEAR, INC.
By: /S/ WILLIAM BENFORD
-------------------------
Title:
/S/ TRACEY CHIKAHISA DOI
--------------------------
Tracey Chikahisa Doi
(Employee)
9
<PAGE> 10
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
A-1
<PAGE> 11
written notification to the employee that the agreement does not apply to an
invention which qualifies 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 1st day of August, 1994, by and
between L.A. GEAR, INC., a California corporation (the "Company"), and Victor
Trippetti (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 Vice President-
Treasurer 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 Financial 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, 1995, 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 $135,000.
<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 90 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 90
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 90 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),
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<PAGE> 5
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. 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:
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:
Victor Trippetti
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. 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.
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.
7
<PAGE> 8
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.
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 BENFORD
---------------------
Title:
/S/ VICTOR TRIPPETTI
--------------------
Victor Trippetti
(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 1st day of August, 1994, by and
between L.A. GEAR, INC., a California corporation (the "Company"), and
Christopher M. Walsh (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
- - - Operations 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 $220,000.
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 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 Company will reimburse the Employee for reasonable
out-of-pocket moving costs and expenses, in accordance with the Company's
relocation policy, incurred by the Employee incident to moving the personal
property of the Employee and his immediate family from their present home to a
new residence located in the Los Angeles, California greater metropolitan area
(the "Relocation") and for reasonable and customary real estate brokerage
commissions incurred by Employee upon the sale of Employee's current primary
residence in Boston, Massachusetts, in an amount not to exceed $18,686.85
($15,000.00 of which Employee acknowledges has been advanced to Employee by the
Company), upon receipt of appropriate accounting therefor, in accordance with
the usual practices of the Company.
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
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
4
<PAGE> 5
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 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 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:
If to the Company:
L.A. Gear, Inc.
2850 Ocean Park Boulevard
Santa Monica, California 90405
Attention: President
6
<PAGE> 7
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:
Christopher M. Walsh
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 22, 1991 (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.
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.
7
<PAGE> 8
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/ William L. Benford
----------------------
Title: President and Chief
Operating Officer
/s/ Christopher M. Walsh
------------------------
Christopher M. Walsh
(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
A-1
<PAGE> 10
written notification to the employee that the agreement does not apply to an
invention which qualifies 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
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100,000
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