<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 1995
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 April 11, 1995 was 22,936,433 shares.
THIS FORM 10-Q CONTAINS 45 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 FEBRUARY 28, 1995
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
- ------ --------------------- --------
<S> <C> <C>
Item 1. Financial Statements
Consolidated Condensed Balance Sheets at
February 28, 1995 and November 30, 1994 3
Consolidated Condensed Statements of Operations and Accumulated Deficit
for the three months ended February 28, 1995 and February 28, 1994 4
Consolidated Condensed Statements of Cash Flows for the
three months ended February 28, 1995 and February 28, 1994 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II. OTHER INFORMATION
- ------- -----------------
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
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>
February 28, November 30,
1995 1994
-------------- --------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 37,918 $ 49,710
Accounts receivable, net 62,388 77,284
Inventories 72,143 57,597
Prepaid expenses and other current assets 9,569 9,827
--------- ---------
Total current assets 182,018 194,418
Property and equipment and other assets, net 17,097 17,728
Goodwill, net 12,776 12,317
--------- ---------
$ 211,891 $ 224,463
========= =========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED
STOCK AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 47,601 $ 46,013
Borrowings under international credit facilities 518 557
--------- ---------
Total current liabilities 48,119 46,570
7 3/4% convertible subordinated debentures due 2002 50,000 50,000
Minority interest 9,054 9,744
Mandatorily redeemable preferred stock:
7.5% Series A cumulative convertible preferred stock,
$100 stated value; 1,000,000 shares authorized, issued
and outstanding; redemption value of $100 per share 100,000 100,000
Shareholders' equity:
Common stock, no par value; 80,000,000 shares authorized;
22,936,433 shares issued and outstanding at February 28,
1995 and November 30, 1994 128,093 128,093
Preferred stock, no stated value; 9,000,000 shares
authorized; no shares issued -- --
Cumulative currency translation adjustment 280 194
Accumulated deficit (123,655) (110,138)
--------- ---------
Total shareholders' equity 4,718 18,149
--------- ---------
$ 211,891 $ 224,463
========= =========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
3
<PAGE> 4
L.A. GEAR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended February 28,
--------------------------------------
1995 1994
--------- --------
<S> <C> <C>
Net sales $ 69,392 $120,436
Cost of sales 48,652 85,527
--------- --------
Gross profit 20,740 34,909
Selling, general and administrative expenses 32,744 36,018
Interest expense, net 328 1,089
--------- --------
Loss before income taxes and minority interest (12,332) (2,198)
Income taxes -- --
Minority interest 690 171
--------- --------
Net loss (11,642) (2,027)
Dividends on mandatorily
redeemable preferred stock (1,875) (1,875)
--------- --------
Loss applicable to common stock (13,517) (3,902)
Accumulated deficit, beginning of period (110,138) (80,443)
--------- --------
Accumulated deficit, end of period $(123,655) $(84,345)
========= ========
Loss per common share $ (0.59) $ (0.17)
========= ========
Weighted average common shares outstanding 22,937 22,936
========= ========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
4
<PAGE> 5
L.A. GEAR, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended February 28,
-------------------------------
1995 1994
--------- ---------
<S> <C> <C>
Net cash used in operating activities $ (10,067) $ (22,512)
--------- ---------
Investing activities:
Capital expenditures (975) (675)
--------- ---------
Financing activities:
Net repayments under international credit facilities (76) (658)
Proceeds from minority's investment in joint venture -- 4,850
Proceeds from the exercise of stock options -- 17
Payment of dividends on mandatorily redeemable
preferred stock -- (1,875)
--------- ---------
Net cash (used in) provided by financing activities (76) 2,334
--------- ---------
Effect of exchange rate changes on cash and
cash equivalents (674) (31)
--------- ---------
Net decrease in cash and cash equivalents (11,792) (20,884)
Cash and cash equivalents, beginning of the period 49,710 27,790
--------- ---------
Cash and cash equivalents, end of period $ 37,918 $ 6,906
========= =========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
5
<PAGE> 6
L.A. GEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments, which consist only of
normal recurring adjustments necessary to present fairly the consolidated
financial position of L.A. Gear, Inc. and its subsidiaries (collectively
referred to as the "Company") at February 28, 1995 and the results of
operations and cash flows for the three months ended February 28, 1995 and
February 28, 1994. 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, 1994. 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.
NOTE 2. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED FEBRUARY 28,
-------------------------------
1995 1994
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
CASH (RECEIVED) PAID DURING THE PERIOD FOR:
INTEREST, NET $ (622) $ 16
======== ==========
INCOME TAXES, NET $ -- $ (12)
======== ==========
NONCASH FINANCING ACTIVITY:
DIVIDENDS ACCRUED ON MANDATORILY
REDEEMABLE PREFERRED STOCK $ 1,875 $ --
======== ===========
</TABLE>
NOTE 3. ACCOUNTS RECEIVABLE, NET
Accounts receivable, net of allowance for doubtful accounts and
merchandise returns, consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, NOVEMBER 30,
1995 1994
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
TRADE RECEIVABLES
DOMESTIC $35,056 $55,531
INTERNATIONAL 30,946 24,552
------- -------
TOTAL TRADE RECEIVABLES 66,002 80,083
OTHER RECEIVABLES 2,831 3,676
------- -------
68,833 83,759
LESS ALLOWANCE FOR DOUBTFUL ACCOUNTS
AND MERCHANDISE RETURNS (6,445) (6,475)
------- -------
$62,388 $77,284
======= =======
</TABLE>
6
<PAGE> 7
L.A. GEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4. INCOME TAXES
At February 28, 1995, deferred tax assets totaled approximately $51.4
million. A valuation allowance has been established against the entire
deferred tax asset balance.
For the period ended February 28, 1995, the difference between the tax
benefit computed based on applying the U.S. statutory income tax rate to the
loss from continuing operations before income taxes and the recorded benefit
was primarily due to the nonrecognition of tax benefits for operating losses
which are not likely to be realized under the standards of SFAS No. 109.
NOTE 5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, NOVEMBER 30,
1995 1994
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
ACCOUNTS PAYABLE AND OTHER ACCRUED LIABILITIES $31,462 $32,251
ACCRUED INVENTORY PURCHASES 14,058 11,327
ACCRUED NON-RECURRING CHARGES 2,081 2,435
------- -------
$47,601 $46,013
======= =======
</TABLE>
Accounts payable include issued but uncleared checks of $2.0 million and
$3.0 million at February 28, 1995 and November 30, 1994, respectively.
NOTE 6. 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 was required to maintain as of February 28, 1995
Adjusted Tangible Net Worth (as defined in the Revolving Facility) of at least
$150.0 million, which for this purpose excludes the $50 million, 7 3/4%
convertible subordinated debentures from the Company's liabilities. At
February 28, 1995, the Company's Adjusted Tangible Net Worth was $152.2
million.
There were no domestic cash borrowings under the Revolving Facility at any
time during the quarter ended February 28, 1995. At February 28, 1995,
approximately $23.4 million of letters of credit were outstanding and
approximately $34.2 million was available for borrowings under the Revolving
Facility.
7
<PAGE> 8
L.A. GEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The Company's foreign subsidiaries have the following credit facilities,
denominated in their respective local currency and converted to U.S. dollars at
the end-of-period exchange rates, which are secured by certain assets of the
respective subsidiary and guaranteed by the Company:
<TABLE>
<CAPTION>
AMOUNT OF FACILITY
--------------------------------------------- OUTSTANDING AT
(IN MILLIONS) SUBLIMITS FEBRUARY 28, 1995
-------------------------- -----------------------
TOTAL LETTERS LETTERS
COUNTRY AVAILABLE BORROWINGS OF CREDIT BORROWINGS OF CREDIT
------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
GERMANY $8.6 $4.3 $4.3 -- $0.1
NETHERLANDS $4.9 -- -- $0.5 --
</TABLE>
The weighted average interest rates for the quarter ended February 28,
1995, as defined in the respective credit facility agreements and adjusted for
current market conditions, for Germany and the Netherlands were 8.5% and 6.9%,
respectively.
NOTE 7. SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
As long as shares of Series A Cumulative Convertible Preferred Stock
("Series A Preferred Stock") remain outstanding, the holders of such shares are
entitled to receive, when, as and if declared by the Board of Directors out of
assets of the Company legally available therefor, cumulative cash dividends at
an annual rate of 7.5% (if in arrears, compounded quarterly at a rate of 8.625%
per annum with respect to dividends in arrears, through the date of payment of
such arrearages), payable quarterly in arrears on the last business day of
February, May, August and November.
The Company determined it was in its best interest not to, and it did
not, pay the $1.875 million dividend on the Series A Preferred Stock due on
February 28, 1995 to Trefoil Capital Investors, L.P. ("Trefoil"), the holder of
all of the issued and outstanding shares of Series A Preferred Stock. As of
April 14, 1995, such dividend arrearage amounted to $1.895 million.
If an amount equal to three full quarterly dividends with respect to the
Series A Preferred Stock is at any time in arrears (provided certain conditions
are satisfied), the number of directors will be increased by four and the
holders of the Series A Preferred Stock will be entitled to elect the
additional four directors. Such additional directors will continue in office
and the holders of Series A Preferred Stock will continue to have such
additional voting rights until such time as all accrued and unpaid dividends on
the Series A Preferred Stock have been paid in full, at which time the terms of
such additional directors will expire.
NOTE 8. COMMITMENTS AND CONTINGENCIES
Pursuant to a Sourcing Agreement, dated as of April 28, 1992 (the
"Sourcing Agreement"), an affiliate of Pentland Ventures, Ltd. ("Pentland")
was appointed as the sourcing representative of the Company with respect to
certain footwear manufacturers located in various countries in the Far East.
In consideration of its services under the Sourcing Agreement, the Pentland
affiliate receives a sourcing fee based on the aggregate U.S. dollar price of
products manufactured for the Company by manufacturers sourced by the Pentland
affiliate. Pursuant to a Supplemental to the Sourcing Agreement entered into
in March 1995, (i) the term of the Sourcing Agreement was extended from
December 31, 1995 to December 31, 1997, (ii) the minimum annual sourcing fee
was reduced effective as of January 1, 1995, and (iii) the Company is permitted
to use other sourcing representatives with respect to footwear manufacturers
located in the Far East.
8
<PAGE> 9
L.A. GEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 9. SUBSEQUENT EVENT
In January 1995, the Company announced an agreement to acquire Ryka, Inc.
("Ryka"). Ryka is a publicly held, Massachusetts based company which designs,
develops and markets high performance athletic footwear specifically for women.
On March 31, 1995, Ryka filed its Annual Report on Form 10-K for the year
ended December 31, 1994 (the Ryka "Form 10-K"), with the Securities and
Exchange Commission. The Ryka Form 10-K reported, among other things, (i) that
Ryka was in default under its letter of credit financing arrangement with
Pro-Specs America Corporation, (ii) that Ryka was experiencing a critical cash
shortage, (iii) that Ryka had net losses for the year ended December 31, 1994
of $0.5 million on revenues of $16.3 million, (iv) that Ryka expected to incur
substantial losses in both the first and second quarters of 1995, and (v) that
unless Ryka could obtain short term financing arrangements for the first and
second quarters of 1995, there was substantial doubt that Ryka could continue
in business until the acquisition was consummated.
On April 5, 1995, the Company's management met with management of Ryka to
discuss Ryka's financial situation and proposed operating plans. Thereafter,
the Company's management met with representatives of Ryka (including their
financial and legal advisors) to discuss renegotiating the terms of the Merger
Agreement and providing short-term financing to meet Ryka's anticipated
liquidity needs. On April 6, 1995, the Company sent to Ryka a letter
postponing the exercise of the Company's right to terminate its agreement with
Ryka in light of the continuing discussions between the parties.
9
<PAGE> 10
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, 1995 and 1994,
as applicable.
NET SALES
In the first quarter of 1995, the number of pairs sold worldwide
decreased by 39.6% to 3.9 million pairs from 6.5 million pairs in the first
quarter of 1994. Net sales decreased by 42.4% to $69.4 million from $120.4
million. Domestic net sales in the first quarter of 1995 decreased by 56.4%
compared to the same period in 1994. International net sales, which accounted
for approximately 42.4% of the Company's total net sales in the first quarter
of 1995, increased by 2.6% compared to the same period in 1994.
The following table sets forth certain information regarding the
Company's net sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED FEBRUARY 28, NET SALES
------------------------------- -------------------------------------------------
1995 1994
------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
DOMESTIC FOOTWEAR
CHILDREN'S $29,109 42% $ 44,776 37%
WOMEN'S 6,004 9% 20,148 17
MEN'S 4,533 7 26,506 22
OTHER 351 - 357 -
------- --- -------- ---
TOTAL DOMESTIC SALES 39,997 58 91,787 76
INTERNATIONAL FOOTWEAR AND OTHER 29,395 42 28,649 24
------- --- -------- ---
TOTAL NET SALES $69,392 100% $120,436 100%
======= === ======== ===
</TABLE>
The following table sets forth the percentage changes, by Children's,
Women's and Men's categories, in the number of pairs sold during the 1995
period as compared to the same period of 1994:
<TABLE>
<CAPTION>
THREE MONTHS ENDED FEBRUARY 28, VOLUME OF FOOTWEAR SOLD
------------------------------- -----------------------
CHANGES BETWEEN 1995 AND 1994
---------------------------------------------------
DOMESTIC INTERNATIONAL TOTAL
-------- ------------- ------
<S> <C> <C> <C>
CHILDREN'S (30.2%) 5.2% (22.4%)
WOMEN'S (68.5%) (15.3%) (53.3%)
MEN'S (75.3%) (10.3%) (58.3%)
TOTAL VOLUME DECREASE (50.9%) (5.2%) (39.6%)
</TABLE>
The decrease in domestic net sales was primarily attributable to (1) sales
of $18.7 million (1.2 million pairs) of selected excess inventory to Wal-Mart
in the first quarter of 1994, (2) sales of approximately $12.0 million of a
newly introduced men's product line in the first quarter of 1994 without a
comparable introduction in the first quarter of 1995, (3) lower domestic sales
of children's lighted product in the first quarter of 1995 compared to the
first quarter of 1994, (4) a decrease in the sales volume of women's and men's
shoes sold due to reduced customer demand, and (5) a decrease of $2.20 in the
average selling price per pair domestically, due primarily to reduced average
selling prices per pair for the children's and men's lines.
Sales of the Company's children's lighted shoes decreased by $5.6 million
to $32.5 million in the first quarter of 1995 from $38.1 million in the
comparable prior year period. A decrease in domestic sales of children's
lighted product of $10.0 million was partially offset by strong international
sales of children's lighted product, which increased by $4.4 million in the
first quarter of 1995 compared to the first quarter of 1994. The Company's
domestic sales of children's lighted product were negatively impacted by heavy
inventory levels at retailers, lower priced lighted shoes offered by
competitors and the possible effect of adverse publicity regarding selected
children's lighted shoes manufactured prior to May 1994 which utilized
motion-activated switches containing mercury. In addition, the Company's $80
million minimum 1995 purchase commitment from Wal-Mart is not spread evenly
over the Company's fiscal year. The Company shipped $4.5 million to Wal-Mart
during the first quarter of 1995.
10
<PAGE> 11
GROSS MARGIN
The gross margin for the first quarter of 1995 improved to 29.9% from
29.0% for the same period in the prior year. The improvement resulted from an
increase in domestic margins to 30.2% from 27.7% in the prior year quarter.
Although the average domestic selling price decreased by $2.20 per pair during
the first quarter of 1995 in comparison to the comparable prior year period,
the average domestic unit cost dropped proportionally by $2.12 per pair. The
Company realized strong margins in 1995 on its children's lighted product and
value priced shoes, and offset losses on any discontinued product against
previously established inventory reserves. The increase in the domestic gross
margin was partially offset by a decrease in international margins to 29.4% in
the first quarter of 1995 from 33.3% in the first quarter of 1994, primarily
attributable to approximately $1.4 million in air freight expense incurred to
meet customer delivery schedules due to production delays. The negative impact
of the air freight expense was partly reduced by the strong international sales
of children's lighted product in the first quarter of 1995 compared to the same
period in 1994.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Total selling, general and administrative expenses decreased by $3.3
million or 9.1% to $32.7 million in the first quarter of 1995 compared to $36.0
million for the comparable prior year period. Domestic selling, general and
administrative expenses decreased by $4.8 million or 16.4% to $24.2 million in
the first quarter of 1995 compared to $28.9 million for the comparable prior
year period. The decrease is primarily due to three factors: (1) a $1.9
million timing difference in advertising; the Company launched a national
women's television and print campaign at the beginning of the second quarter of
1995, (2) a reduction in product sourcing fees and (3) a $1.2 million
reduction in selling and distribution expenses as a result of the decrease in
domestic sales. These decreases were partially offset by increased
international operating expenses (versus the comparable prior year period) of
$1.5 million, primarily associated with the Company's acquisition of a Mexican
subsidiary in the second quarter of 1994 and the Far East joint venture, which
was in the start-up phase during the first quarter of 1994.
Despite the overall decrease in selling, general and administrative
expenses, as a percentage of net sales, such expenses increased to 47.2% in the
first quarter of 1995 from 29.9% in the comparable 1994 period primarily due to
the 42.4% decrease in net sales. Changes in the Company's selling, general and
administrative expenses cannot be directly related to fluctuations in sales
volume 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, advertising and trade show expenses.
INTEREST EXPENSE (INCOME), NET
Interest expense of $1.0 million and $1.2 million for the three months
ended February 28, 1995 and 1994 primarily related to (i) interest costs on the
$50 million, 7 3/4% convertible subordinated debentures due 2002 (the
"Debentures") issued in December 1992 and (ii) short-term borrowings of the
Company's wholly-owned foreign subsidiaries.
Interest income increased by $0.6 million to $0.7 million during the
first quarter of 1995 compared to $0.1 million in the first quarter of 1994
primarily as a result of earning higher interest rates on increased average
cash balances.
11
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth certain information regarding the
Company's liquidity and capital resources:
<TABLE>
<CAPTION>
FEBRUARY 28, NOVEMBER 30,
1995 1994
---------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 37,918 $ 49,710
WORKING CAPITAL 133,899 147,848
OUTSTANDING LETTERS OF CREDIT 23,569 36,699
CONVERTIBLE SUBORDINATED DEBENTURES 50,000 50,000
MANDATORILY REDEEMABLE PREFERRED STOCK 100,000 100,000
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------
FEBRUARY 28, FEBRUARY 28,
1995 1994
-------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
AVERAGE DAILY SHORT-TERM BORROWINGS $ 281 $ 4,728
WEIGHTED AVERAGE INTEREST RATES 8.2% 7.5%
</TABLE>
Cash and cash equivalent balances decreased by $11.8 million from
November 30, 1994 to a balance of $37.9 million at February 28, 1995 primarily
due to a seasonal increase in inventory levels and funding of the 1995 first
quarter operating loss partially offset by a net reduction in accounts
receivable. Inventory increased from $57.6 million (5.4 million pairs) at
November 30, 1994 to $72.1 million (6.4 million pairs) at February 28, 1995 due
to purchasing Spring 1995 products in anticipation of second quarter sales.
Accounts receivable decreased from $77.3 million at November 30, 1994 to $62.4
million at February 28, 1995 primarily as a result of reduced sales experienced
in the first quarter of 1995 versus the fourth quarter of 1994.
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 was required to maintain as of February 28, 1995
Adjusted Tangible Net Worth (as defined in the Revolving Facility) of at least
$150.0 million, which for this purpose excludes the $50 million, 7 3/4%
convertible subordinated debentures from the Company's liabilities. At
February 28, 1995, the Company's Adjusted Tangible Net Worth was $152.2
million.
There were no domestic cash borrowings under the Revolving Facility at
any time during the quarter ended February 28, 1995. At February 28, 1995,
approximately $23.4 million of letters of credit were outstanding and
approximately $34.2 million was available for borrowings under the Revolving
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 FEBRUARY 28, 1995
-------------------------- -----------------------
TOTAL LETTERS CASH LETTERS
COUNTRY AVAILABLE BORROWINGS OF CREDIT BORROWINGS OF CREDIT
------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
GERMANY $8.6 $4.3 $4.3 -- $0.1
NETHERLANDS $4.9 -- -- $0.5 --
</TABLE>
The weighted average interest rates for the quarter ended February 29,
1995, as defined in the respective credit facility agreements and adjusted for
current market conditions, for Germany and the Netherlands were 8.5% and 6.9%,
respectively.
12
<PAGE> 13
The short-term and long-term liquidity of the Company is contingent
primarily 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, the extent to which the Company seeks to acquire or
license other footwear brands 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. The Company may also need additional financing for
future acquisitions which may be hard to secure.
FUTURE OUTLOOK
The Company's marketing and promotional efforts in 1995 will be directed
towards re-establishing the women's brand and capitalizing on the strength of
the children's business. A national television and print campaign was launched
in March 1995 directed toward women. Children's television commercials will
air throughout the year.
The Company will try to increase sales velocity (1) through its
advertising and marketing campaigns, (2) delivering Back-To-School ("BTS")
"future" orders early to key customers to promote additional "at-once" orders
and (3) through promotional programs designed to stimulate sell through at the
retail level. Demand from retailers for the Company's 1995 Back-To-School
("BTS") products, which will ship primarily in the second and third fiscal
quarters, will be critical to the Company's financial performance during the
balance of the year. Management believes that increased competition at lower
price points may create increased pricing pressure in the market place which
could result in reductions in selling prices.
At March 31, 1995, the combined domestic and international backlog of
orders for shipments scheduled primarily during the April through August 1995
period was $166.2 million, $82.2 million of which represents "future orders"
for the new BTS product scheduled to ship during the Company's 1995 third
fiscal quarter. The backlog at March 31, 1994 for the comparable prior year
shipping period was $156.7 million, $101.1 million of which represented orders
scheduled to ship during the 1994 third fiscal quarter. In June 1994, the
Company entered into an agreement with Wal-Mart for the anticipated purchase of
a minimum of $80 million of L.A. Gear branded footwear for each of the 1995,
1996 and 1997 fiscal years (subject to reduction in 1996 and 1997 if
sell-through does not meet designated targets). The March 31, 1995 backlog
includes $73.5 million of the $80 million minimum 1995 Wal-Mart purchase
commitment. The Wal-Mart agreement does not provide for the sale of any L.A.
Gear lighted footwear products. Approximately 24.6% of total backlog orders at
March 31, 1995 were for children's shoes containing lighted technology compared
to 44.9% of the March 31, 1994 backlog. Children's lights as a percentage of
the total March 31, 1995 backlog, excluding Wal-Mart orders, were 44.0%. The
Company's backlog of non-lighted footwear products at March 31, 1995
represented a 45.2% increase from its non-lighted backlog at March 31, 1994.
Shipments and sales for future periods depend on, among other things, the
combination of "futures" and "at once" orders. Accordingly, the comparison of
backlog from period to period may not be indicative of eventual actual
shipments.
The Company believes that the industry is beginning a consolidation
phase. Accordingly, the Company seeks to implement its "L.A. Brands" strategy
aimed at recognizing and capitalizing on opportunities to expand its product
lines and distribution channels through the acquisition of other footwear
brands and the licensing of key trade names. In January 1995, the Company
announced an agreement to acquire Ryka Inc., the first step in the
implementation of the "L.A. Brands" strategy. In early April 1995, the
Company's management met with the management of Ryka to discuss Ryka's
financial situation and proposed operating plans, in light of Ryka's disclosure
on March 31, 1995, that, among other things, that unless Ryka could obtain
short term financing arrangements there was substantial doubt that Ryka could
continue in business until the acquisition was consummated. On April 6, 1995,
the Company sent a letter to Ryka postponing the exercise of the Company's
right to terminate its agreement with Ryka in light of the continuing
discussions between the parties.
13
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
- Not applicable
ITEM 2 - CHANGES IN SECURITIES
- Not applicable.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
- As long as shares of Series A Cumulative Convertible Preferred Stock
("Series A Preferred Stock") remain outstanding, the holders of such
shares are entitled to receive, when, as and if declared by the Board
of Directors out of assets of the Company legally available therefor,
cumulative cash dividends at an annual rate of 7.5% (if in arrears,
compounded quarterly at a rate of 8.625% per annum with respect to
dividends in arrears, through the date of payment of such arrearages),
payable quarterly in arrears on the last business day of February,
May, August and November.
The Company determined it was in its best interest not to, and it did
not, pay the $1.875 million dividend on the Series A Preferred Stock
due February 28, 1995 to Trefoil Capital Investors, L.P. ("Trefoil"),
the holder of all of the issued and outstanding shares of Series A
Preferred Stock. As of April 14, 1995, such dividend arrearage
amounted to $1.895 million.
If an amount equal to three full quarterly dividends with respect to
the Series A Preferred Stock is at any time in arrears (provided
certain conditions are satisfied), the number of directors will be
increased by four and the holders of the Series A Preferred Stock will
be entitled to elect the additional four directors. Such additional
directors will continue in office and the holders of Series A
Preferred Stock will continue to have such additional voting rights
until such time as all accrued and unpaid dividends on the Series A
Preferred Stock have been paid in full, at which time the terms of
such additional directors will expire.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- Not applicable.
ITEM 5 - OTHER INFORMATION
- Not applicable.
14
<PAGE> 15
PART II - OTHER INFORMATION (cont.)
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Agreement, dated March 14, 1995, between Mark R. Goldston
and the Company.
10.2 Supplemental, dated as of January 1, 1995, to Sourcing
Agreement, dated April 28, 1992, between the Company and
LASCO Sports Limited. Portions of this Supplemental and
the underlying agreement have been omitted and filed
separately with the Commission pursuant to request for
confidential treatment.
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
1. The Company filed a current report on Form 8-K on January 26,
1995, under Item 5. - Other Events, with respect to the Third
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.
2. The Company filed a current report on Form 8-K on January 31,
1995, under Item 5. - Other Events, with respect to the Company
and its wholly-owned subsidiary, Brands Acquisition Corporation,
entering into an Agreement and Plan of Merger with Ryka Inc.
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: April 14, 1995 L.A. GEAR, INC.
--------------
By: /s/ William L. Benford
-------------------------
William L. Benford
President and
Chief Operating Officer
16
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Document Page No.
- ----------- -------- --------
<S> <C> <C>
10.1 Agreement, dated March 14, 1995,
between Mark R. Goldston and the Company. 19
10.2 Supplemental, dated as of January 1, 1995,
to Sourcing Agreement, dated April 28, 1992,
between the Company and LASCO Sports Limited.
Portions of this Supplemental and the underlying
agreement have been omitted and filed separately
with the Commission pursuant to request for
confidential treatment. 41
27.1 Financial Data Schedule 45
</TABLE>
17
<PAGE> 1
EXHIBIT 10.1
AGREEMENT
This AGREEMENT made as of this 14th day of March, 1995, by and between
L.A. GEAR, INC., a California corporation (the "Company"), and Mark R. Goldston
("Goldston").
RECITALS
WHEREAS, the Company and Goldston are parties to a certain Employment
Agreement, dated as of October 19, 1993, attached hereto as Exhibit A, as
amended in connection with Goldston's resignation as a director and officer of
the Company by a certain letter agreement, dated June 14, 1994 (the
"Amendment"), attached hereto as Exhibit B, providing for the retention of
Goldston by the Company as an independent contractor, on a non-exclusive basis,
to provide consulting and advisory services to the Company through October 31,
1998 (as so amended, the "Employment Agreement");
WHEREAS, Goldston desires to terminate his relationship as an
independent consultant and advisor to the Company on the date hereof in
accordance with Section 4(a)(vi) of the Employment Agreement, and the Company
accepts such termination;
WHEREAS, Goldston currently holds stock options (the "Goldston
Options") to purchase 694,118 shares of the Company's Common Stock, no par
value per share (the "Common Stock");
WHEREAS, as a result of such termination, the parties agree that
one-half of the Goldston Options shall terminate on the date hereof and that
the remaining Goldston Options shall continue to vest and be exercisable,
subject to the terms thereof and the restrictions contained therein and in the
Company's Insider Trading Policy Statement, until October 31, 1998; and
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained herein, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Upon execution of this Agreement by each of the parties
hereto, the Employment Agreement and the Letter Agreement will terminate,
effective as of the date hereof, and each shall be of no further force and
effect (including, without limitation, those provisions which by their terms
survive termination).
2. On the date hereof and subject to adjustment in accordance
with the last sentence of this Section, Goldston shall receive a lump sum
payment of One Million Nine
<PAGE> 2
Hundred Thousand Dollars ($1,900,000) (the "Termination Payment"). Upon
payment of the Termination Payment, Goldston shall not be entitled to any
further payments from the Company under either the Employment Agreement or the
Letter Agreement (including, without limitation, any Salary (as defined in the
Employment Agreement)). Notwithstanding the foregoing, nothing contained
herein shall be deemed to impair Goldston's rights, under applicable law and
the terms of the respective plans, with respect to vested funds or property
held for Goldston's account in plans established by the Company pursuant to
Section 401(k) of the Internal Revenue Code of 1986, as amended. The
Termination Payment shall be subject to all applicable taxes required to be
withheld by the Company pursuant to federal, state or local law or regulation.
Goldston shall be solely responsible for income taxes imposed on Goldston by
reasons of any cash or non-cash payments and compensation and benefits provided
hereunder.
3. Goldston hereby agrees and acknowledges that due to
Goldston's prior positions with the Company, Goldston was exposed to and has
received 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 as
such information (i) was known to Goldston prior to his initial employment by
the Company or (ii) was or becomes generally available to the public other than
as a result of a disclosure by Goldston in violation of the provisions of this
Section, Goldston agrees that he 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. Goldston hereby confirms that prior to the date hereof he has
returned to the Company, without retaining copies, 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 had been produced by, received by or
otherwise submitted to Goldston during or prior to the Employment Term (as
defined in the Employment Agreement) or the Consultancy Term (as defined in the
Letter Agreement).
In addition, Goldston agrees that any breach of the terms of
this Section would result in irreparable injury and damage to the Company for
which the Company would have no adequate remedy at law; Goldston 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 Goldston and/or
any and all persons and/or entities acting for and/or with Goldston, 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 Section 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 Goldston.
2
<PAGE> 3
4. Nothing contained in this Agreement shall be deemed to
prohibit Goldston from writing non-fiction books and/or articles relating to
general business and/or product marketing, or engaging in promotional
activities (e.g., personal appearances, speaking engagements, lectures,
interviews, etc.) with respect thereto; provided, that such writing and/or
promotional activities do not (i) impair or damage the reputation of the
Company, any of its subsidiaries, or any of their respective businesses,
officers, directors, employees or affiliates or (ii) constitute an unauthorized
disclosure pursuant to Section 3 hereof.
5. Goldston agrees that, for a period of one year from the date
hereof, he shall not interfere with the Company's relationship with, or
endeavor to entice away from the Company, any person who at any time during
either the Employment Term or the Consultancy Term was an employee or customer
of the Company or otherwise had a material business relationship with the
Company.
6. Goldston hereby agrees to be available, from and after the
date hereof, upon request and at all reasonable times (and upon reasonable
notice), to provide information to, and to cooperate with the Company in
respect of, any legal proceedings, actions or claims with respect to, arising
out of or related to, in any manner whatsoever, events, occurrences or
activities which took place during either the Employment Term or the
Consultancy Term. The Company will reimburse Goldston for reasonable
out-of-pocket expenses incurred in connection with such cooperation, upon
presentation of supporting documentation thereof. The Company hereby confirms
that the Indemnification Agreement, dated as of October 7, 1991, between the
Company and Goldston (the "Indemnification Agreement") shall survive the
execution of this Agreement.
7. From the date hereof through October 31, 1998, the Company
shall, at its sole option, either (i) continue to allow Goldston (and any
dependent of Goldston who shall have been included in Goldston's coverage
during the Consultancy Term) to participate in the Company's health or medical
insurance plans, if permitted by the terms of the plans, or (ii)(A) pay any
premiums which otherwise would be required to be paid by Goldston in order to
continue to receive health or medical insurance coverage under the Company's
health or medical insurance plans as permitted under the Consolidated Omnibus
Budget Reconciliation Act of 1985 ("COBRA") during the period in which COBRA
applies and (B) thereafter, to pay an amount not to exceed the payments made
under clause (ii)(A) of this Section, towards the premiums for a policy
affording comparable coverage to individuals, which policy shall be selected by
Goldston subject to reasonable approval by the Company; provided, however,
that, the foregoing benefits or payments of premiums shall be terminated upon
the employment of Goldston (other than pursuant to a short-term consulting
arrangement) by any person or entity, if prior to October 31, 1998.
8. Prior to the execution of this Agreement, the Goldston Options
were as follows:
3
<PAGE> 4
<TABLE>
<CAPTION>
DATE GRANTED NUMBER OF SHARES EXERCISE PRICE
------------ ---------------- --------------
<S> <C> <C>
October 7, 1991 400,000 $12.625
October 19, 1993 250,000 11.375
February 15, 1994 44,118 7.775
</TABLE>
Upon the execution of this Agreement by each of the parties hereto, Goldston
Options to purchase 347,059 shares of Common Stock granted on October 7, 1991
shall terminate and shall no longer be exercisable. The remaining Goldston
Options to purchase 347,059 shares of Common Stock shall continue to vest and
become exercisable in accordance with their respective vesting schedules,
subject to the terms thereof and the restrictions contained therein and in the
Company's Insider Trading Policy, until October 31, 1998; provided, however,
that the provisions of Section 6.4 of each of the Option Agreement dated as of
October 7, 1991 and the Option Agreement dated as of October 19, 1993, in each
case between the Company and Goldston (collectively, the "Option Agreements")
shall hereby terminate and be of no further force and effect. All of such
remaining Goldston Options shall terminate on October 31, 1998 or, if such date
falls within a Blackout Period (as defined in the applicable option agreement),
the last day of the immediately succeeding period of time which is not a
Blackout Period.
9. Concurrently with the execution of this Agreement, Goldston
shall execute a General Release in favor of the Company substantially in the
form of Exhibit C attached hereto.
10. Any notice or other communication required or permitted
hereunder shall be in writing and shall be deemed to have been given (i) if by
facsimile transmission with written confirmation, upon such transmission, (ii)
if personally delivered, when so delivered, or (iii) if mailed, three (3)
business days after having been placed in the United States mail, registered or
certified, postage prepaid, return receipt requested, addressed to the party to
whom it is directed at the address set forth below:
If to the Company:
L.A. Gear, Inc.
2850 Ocean Park Boulevard
Santa Monica, California 90405
Attention: Chairman of the Board
Tel.: (310) 452-4327
Fax: (310) 581-7704
With a copy to:
L.A. Gear, Inc.
2850 Ocean Park Boulevard
4
<PAGE> 5
Santa Monica, California 90405
Attention: Legal Dept. - Office of General Counsel
Tel.: (310) 581-7307
Fax: (310) 581-7766
If to the Employee:
Mark R. Goldston
3347 Clerendon Road
Beverly Hills, California 90210
Tel.: (818) 784-4424
Fax: (818) 784-4454
With a copy to:
Louis L. Broudy, Esq.
Broudy & Jacobson
230 Park Avenue, Suite 2400
New York, New York 10169-0146
Tel.: (212) 953-0900
Fax: (212) 490-3434
11. Binding Effect. 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.
12. Entire Agreement. This Agreement, together with the Option
Agreements and the Indemnification Agreement, set forth the entire
understanding of the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements, written or oral, between them as to such
subject matter (including, without limitation, the Employment Agreement and the
Letter Agreement). 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.
13. 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.
14. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of California,
without reference to principles of conflict of laws.
15. Modifications and Waivers. No provision of this Agreement may
be modified, altered or amended except by an instrument in writing executed by
the parties hereto. No
5
<PAGE> 6
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.
16. 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.
17. 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 on its behalf by the undersigned, and Goldston has hereunto set his
hand, each as of the day and year first above written.
L.A. GEAR, INC.
By: /c/ Stanley P. Gold
----------------------------
Name: Stanley P. Gold
Title: Chairman
/c/ Mark R. Goldston
---------------------------
Mark R. Goldston
6
<PAGE> 7
Exhibit A
EMPLOYMENT AGREEMENT
AGREEMENT made as of this 19th day of October, 1993, by and
between L.A. GEAR, INC., a California corporation (the "Company"), and Mark R.
Goldston (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 President and Chief
Operating Officer of the Company or such other position as may be agreed
between the Employee and the Company, and shall perform such duties, services
and responsibilities as are consistent with such positions, including the
general management and supervision of the business and personnel of the Company
and its subsidiaries. The Employee's duties, services and responsibilities
will be performed under the overall supervision of and consistent with the
policies of the Board of Directors of the Company (the "Board of Directors").
(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. The foregoing shall not be construed to
prohibit (i) the Employee's service as a member of the board of directors or as
an officer of any non-profit trade association or civic, educational or
charitable organization, or (ii) subject to the following proviso and the
provisions of Section 6(b), the Employee from making personal investments of a
passive nature; provided that such service or investments by the Employee do
not materially interfere with the performance by the Employee of his duties,
services and responsibilities hereunder.
(c) Notwithstanding the provisions of Section 1(b),
the Employee shall be permitted during the Employment Term to write non-fiction
books and/or articles relating to general business and/or product marketing,
and to engage in promotional activities (e.g., personal appearances,
interviews, etc.) with respect thereto; provided, that such
7
<PAGE> 8
writing and/or promotional activities do not (i) materially interfere with the
performance of the Employee's duties, services and responsibilities hereunder,
(ii) impair or damage the reputation of the Company, any of its subsidiaries,
or any of their respective businesses, officers, directors, employees or
affiliates, (iii) constitute an unauthorized disclosure pursuant to Section
6(a) hereof, or (iv) otherwise violate any provision of this Agreement.
(d) During the Employment Term, the Employee shall
be based at the Company's principal executive offices (which are currently
located in the greater Los Angeles metropolitan area), except for reasonably
required travel in the performance of his duties, services and responsibilities
hereunder; provided, that during the Employment Term, the Employee shall not be
required to relocate to any place outside a 150-mile radius of any major U.S.
metropolitan area.
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 October 31, 1998, unless earlier terminated or extended 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 $750,000.
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 Emloyee 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, (a) the Company hereby
grants to the Employee additional non-qualified stock options to purchase
250,000 shares of the Company's Common Stock, no par value per share ("Common
Stock"), at an exercise price equal to the average closing price of the Common
Stock on the New York Stock Exchange Composite Tape on the date hereof and upon
the terms and conditions set forth in the
8
<PAGE> 9
Nonqualified Stock Option Agreement attached hereto as Exhibit A (the "New
Option Agreement"), and (b) the Employee shall be entitled to participate in
any employee benefit plans then in effect for similarly situated employees to
the extent the Employee meets the eligibility requirements for any such plan;
provided, however, that nothing in this paragraph shall require the Company to
provide health or medical insurance benefits to the Employee or any dependent
of the Employee with respect to any condition existing prior to the
commencement of the Employee's employment by the Company 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
options granted to Employee pursuant to the New Option Agreement are in
addition to, and not in lieu of, the option to purchase 400,000 shares of
Common Stock contained in the Nonqualified Stock Option Agreement, dated as of
October 7, 1991 (the "First Option Agreement"), between Employee and the
Company.
The Employee shall be entitled to three weeks vacation (in
addition to the usual national holidays) during each year during which the
Employee serves hereunder. Such vacation shall be taken at such time or times
as may be agreed between the Employee and the Company. Vacation not taken
during any year during the Employment Term will not be carried forward.
During the first 24 months of the Employment Term, the Company
will provide the Employee with up to $35,000 to be used as partial payment or
payment in full of the initiation fee of one private club of the Employee's
choosing. The Employee will provide appropriate accounting therefor, in
accordance with the usual practices of 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.
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;
9
<PAGE> 10
(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;
(vi) the close of business on an early termination date mutually agreed to in
writing by the Company and the Employee; or
(vii) the close of business on the date which is five business days after the
date on which the Employee delivers to the Company a written notice of
the Employee's election to terminate his employment hereunder within six
months following the occurrence of a "Change in Control" (as defined in
Section 4(d) hereof) (x) for "Good Reason" (as defined in Section 4(e)
hereof) or (y) for any other reason.
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.
For purposes of this Agreement, termination of employment for "Cause" shall
mean termination based on (i) the Employee's material breach of this Agreement,
(ii) conviction of the Employee for (x) any crime constituting a felony in the
jurisdiction in which committed, (y) any crime involving moral turpitude
(whether or not a felony), or (z) any other criminal act against the Company
involving dishonesty or willful misconduct intended to injure the Company
(whether or not a felony), (iii) substance abuse by the Employee, (iv) the
failure or refusal of the Employee to follow the lawful and proper directives
of the Board of Directors, or (v) willful malfeasance or gross misconduct by
the Employee which damages the Company.
(d) For purposes of this Agreement, the term "Change
in Control" shall mean and shall be deemed to have occurred at such time, prior
to December 31, 1994, as Trefoil Capital Investors, L.P., together with its
Affiliates (as defined in Rule 13b-2 under
10
<PAGE> 11
the Securities Exchange Act of 1934, as amended (the "Exchange Act")), shall no
longer beneficially own (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, Common Stock or securities convertible into or
exchangeable for Common Stock representing at least 12% of the then outstanding
shares of Common Stock.
(e) For purposes of this Agreement, the term "Good
Reason" shall mean the occurrence of any of the following events or conditions
without the Employee's express written consent:
(i) the assignment to the Employee by the Company of
duties materially inconsistent with the Employee's position, duties,
responsibilities, and status with the Company immediately prior to a Change in
Control, or a material change in the Employee's reporting responsibilities,
titles, or executive offices as in effect immediately prior to a Change in
Control, or any removal of the Employee from, or any failure to reelect the
Employee to, any of such positions, except for Cause or Disability; or
(ii) any material breach by the Company of this
Agreement.
(f) 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) or Section 4(a)(vii)(x) hereof, the Company will continue to
pay the Employee an amount equal to the Employee's Salary (at the salary rate
in effect on the date of termination of the Employee's employment hereunder)
for the remainder of the term of this Agreement.
Except as otherwise provided in the New Option Agreement or in
the Plan (as defined in the New Option Agreement), the foregoing payments upon
termination shall constitute the exclusive payments due the Employee upon
termination under this Agreement, but shall have no effect on any benefits
which may be due the Employee under any plan of the Company which provides
benefits after termination of employment. The Employee shall not be required
to mitigate the foregoing amounts payable upon termination of this Agreement by
seeking other employment or otherwise; provided, however, that the foregoing
payments shall be reduced or mitigated by virtue of any cash compensation
(including any
11
<PAGE> 12
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; provided further, that the foregoing
payments shall not be reduced or mitigated by virtue of any cash sums received
or earned arising out of the Employee's personal investment activities.
6. Employee Covenants.
(a) Unauthorized Disclosure. The Employee agrees
and understands that in the Employee's position with the Company, the Employee
will be exposed to and receive information relating to the confidential affairs
of the Company, including but not limited to technical information, business
and marketing plans, strategies, customer information, other information
concerning the Company's products, promotions, development, financing,
expansion plans, business policies and practices, and other forms of
information considered by the Company to be confidential and in the nature of
trade secrets. Except to the extent that the proper performance of the
Employee's duties, services and responsibilities hereunder may require
disclosure, and except as such information (i) was known to the Employee prior
to his employment by the Company or (ii) was or becomes generally available to
the public other than as a result of a disclosure by the Employee in violation
of the provisions of this Section 6(a), the Employee agrees that during the
Employment Term and thereafter the Employee will keep such information
confidential and not disclose such information, either directly or indirectly,
to any 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) Non-competition. By and in consideration of
the Company's entering into this Agreement and the Salary and benefits to be
provided by the Company hereunder, and further in consideration of the
Employee's exposure to the proprietary information of the Company, the Employee
agrees that, subject to the provisions of the last sentence of Section 1(b),
the Employee will not, during the Employment Term, directly or indirectly own,
manage, operate, join, control, be employed by, or participate in the
ownership, management, operation or control of or be connected in any manner,
including but not limited to holding the positions of shareholder, director,
officer, consultant, independent contractor, employee, partner, or investor,
with any Competing Enterprise. For purposes of this paragraph, the term
"Competing Enterprise" shall mean any person, corporation, partnership or other
entity engaged in the design and marketing of athletic and casual footwear
and/or related apparel products and accessories. The prohibition of this
12
<PAGE> 13
clause (b) 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.
(c) Non-solicitation. During the Employment Term
and for a period of one year thereafter, the Employee shall not interfere with
the Company's relationship with, or endeavor to entice away from the Company,
any person who at any time during the Employment Term was an employee or
customer of the Company or otherwise had a material business relationship with
the Company.
(d) Remedies. The Employee agrees that any breach
of the terms of this Section 6 would result in irreparable injury and damage to
the Company for which the Company would have no adequate remedy at law; the
Employee therefore also agrees that in the event of said breach or any threat
of breach, the Company shall be entitled to an immediate injunction and
restraining order to prevent such breach and/or threatened breach and/or
continued breach by the Employee and/or any and all persons and/or entities
acting for and/or with the Employee, without having to prove damages, in
addition to any other remedies to which the Company may be entitled at law or
in equity. The terms of this paragraph shall not prevent the Company from
pursuing any other available remedies for any breach or threatened breach
hereof, including but not limited to the recovery of damages from the Employee.
The provisions of subsections (a), (c) and (d) of this Section 6
shall survive any termination of this Agreement and the Employment Term. The
existence of any claim or cause of action by the Employee against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of the covenants and agreements of
this Section 6.
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:
13
<PAGE> 14
If to the Company:
L.A. Gear, Inc.
2850 Ocean Park Boulevard
Santa Monica, California 90405
Attention: Chairman of the Board
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:
Mark R. Goldston
c/o L.A. Gear, Inc.
2850 Ocean Park Boulevard
Santa Monica, California 90405
With a copy to:
Louis L. Broudy, Esq.
Broudy & Jacobson
230 Park, Suite 2400
New York, New York 10169-0146
by registered or certified mail, postage prepaid, return receipt requested.
8. Binding Effect/Assignment. This Agreement shall inure
to the benefit of and be binding upon the parties hereto and their respective
heirs, executors, personal representatives, estates, successors (including,
without limitation, by way of merger) and assigns. Notwithstanding the
provisions or the immediately preceding sentence, the Employee shall not assign
all or any portion of this Agreement without the prior written consent of the
Company.
9. Prior Employment Agreement. Upon the execution of this
Agreement by each of the Employee and The Company, except as provided below the
Employment Agreement, dated as of September 25, 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
14
<PAGE> 15
and shall survive the termination of the other provisions of the Prior
Employment Agreement pursuant to this Section 9.
10. Entire Agreement. This Agreement, the New Option
Agreement and the First Option Agreement set forth the entire understanding of
the parties hereto with respect to the subject matter hereof and supersedes all
prior agreements, written or oral, between them as to such subject matter.
This Agreement may not be amended, nor may any provision hereof be modified or
waived, except by an instrument in writing duly signed by the party to be
charged.
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.
15
<PAGE> 16
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by authority of its Board of Directors, and the Employee has hereunto
set his hand, as of the day and year first above written.
L.A. GEAR, INC.
By: /s/ Stanley M. Gold
------------------------------
Title: Chief Executive Officer
/s/ Mark R. Goldston
------------------------------
Mark R. Goldston
16
<PAGE> 17
Exhibit B
L.A. GEAR, INC.
2850 Ocean Park Boulevard
Santa Monica, CA 90405
June 14, 1994
Mr. Mark R. Goldston
2850 Ocean Park Boulevard
Santa Monica, CA 90405
Dear Mark,
In connection with your resignation as a director and officer of
the Company, this letter confirms our understanding regarding your retention as
an independent contractor, on a non-exclusive basis, to provide consulting and
advisory services to the Company through October 31, 1998, at the rate of
$750,000 per year. To evidence such change in status, and our agreement with
respect thereto, the terms of your October 19, 1993 Employment Agreement (the
"Employment Agreement") (a copy of which is attached hereto) will continue in
full force and effect except that:
1. All references in the Employment Agreement to "Employee" or
"Employment Term" and "Salary" shall hereafter be changed to
"Consultant" and "Consultancy Term"; and "Compensation", respectively;
2. Section 1 of the Employment Agreement shall be deleted in its
entirety. From and after the date hereof through the end of the
Consultancy Term, you shall serve as an independent contractor to the
Company providing consulting and advisory services, providing up to 25
hours per month of services, at such reasonable times and places as
requested by the Company;
3. The second, fifth, sixth and seventh paragraphs of Section 3
of the Employment Agreement are deleted in their entirety, provided
however, that you shall be entitled to participate in the EVA Bonus
Plan with respect to the Company's 1994 fiscal year on a pro rata
basis based on the number of months during fiscal 1994 that you served
as an officer of the Company; and
4. Clauses (iii), (iv), (v), and (vii) of Section 4(a), and
Sections 4(b), (c), (d) and (e), of the Employment Agreement are
deleted in their entirety.
17
<PAGE> 18
In addition, as an offset to any amounts to be paid to you as a
Consultant, you agree that any cash compensation (including any deferred
portion thereof) received or earned by you from any other employer, or from
personal services rendered by you to a third party as an independent contractor
during the period commencing on the date hereof and ending on October 31, 1998
shall reduce and mitigate the payments to be paid to you pursuant to the
Employment Agreement as modified hereby; except that no offset shall be made by
virtue of any cash sums received or earned arising out of (i) your personal
investment activities or (ii) your authorship of non-fiction books and/or
articles relating to general business and/or product marketing.
In addition, you hereby agree that all inventions, discoveries,
improvements, ideas, computer programs and related documentation, and other
works of authorship with respect to the Company or its business (hereinafter
each designated "Intellectual Property"), whether or not patentable,
copyrightable or subject to other forms of protection, made, created,
developed, written or conceived by you, either solely or jointly with others,
while engaged in providing consulting or advisory services to the Company shall
be the property of the Company. You agree that you will, without charge to the
Company but at the Company's expense, execute any assignments or other
documents and do anything else which in the Company's opinion is reasonably
necessary, to vest in the Company all right, title and interest in and to all
such Intellectual Property.
As a Consultant you will no longer have any authority to bind the
Company and you agree that you will not represent to any third party anything
to the contrary. During the period of your Consultancy, your Company Stock
Options will continue to vest and be exercisable subject to the restrictions
contained therein and the Company's Insider Trading Policy.
Should you desire to discuss other severance arrangements, we are
prepared to do so at your convenience.
If the foregoing accurately sets forth our understanding, kindly
execute and return to me a copy of this letter.
Very truly yours,
L.A. GEAR, INC.
By: /s/ Stanley M. Gold
------------------------
Acknowledged and Agreed
to this 14th day of June 1994
18
<PAGE> 19
/s/ Mark R. Goldston
- ------------------------
Mark R. Goldston
19
<PAGE> 20
EXHIBIT C
GENERAL RELEASE
I, Mark R. Goldston, an individual residing at 3347 Clerendon Road,
Beverly Hills, California 90210, in consideration of the mutual premises set
forth in the Agreement (the "Agreement"), dated as of March 14, 1995, between
the undersigned and L.A. Gear, Inc., a California corporation (the "Company"),
hereby voluntarily, knowingly and willingly release, acquit and forever
discharge the Company, and each of its former, current and future parents,
subsidiaries, divisions, affiliates, predecessors, successors, and assigns, and
each of their respective current, former and future employees, officers,
directors, shareholders, joint venturers, attorneys, representatives, agents,
owners, servants, counselors, consultants, and general and limited partners
from any and all claims, actions, causes of action, damages, liabilities,
promises, debts, compensation, losses, obligations, costs or expenses of any
kind or nature whatsoever, whether known or unknown, except for any claims
arising out of the breach by the Company of the Agreement or the
Indemnification Agreement dated as of October 7, 1991 between the Company and
the undersigned, which against any or all of them I ever had, now have or
hereinafter may have, up to and including the date of the Company's execution
of the Agreement, for any acts committed in connection with or during the
course of either my employment at the Company or during the period of my
retention as an independent consultant and advisor to the Company, including,
without limitation, those arising out of or in any way related to my
relationship with the Company or any of the foregoing mentioned persons, firms,
corporations or entities or the termination of that relationship. Without in
any way limiting any of the foregoing, I further agree that the payments and
benefits received by me in connection with the execution of the Agreement are
all that I am ever to receive from the Company or any person, firm, corporation
or entity referred to above for any and all claims, actions, causes of action,
damages, liabilities, promises, debts, compensation, losses, obligations, costs
or expenses of any nature whatsoever arising prior to and including through the
date of my execution of this General Release.
I also hereby agree that I will not make, assert, or maintain against
any person, firm, corporation or entity included in this General Release, any
claim, demand, action, suit or proceeding arising out of, related to or in any
manner whatsoever connected with, the claims and other matters herein released.
<PAGE> 21
It is my intention in the execution of this General Release that the
same shall be effective as a bar to each and every claim hereinabove specified;
and in furtherance of this intention, I hereby expressly waive any and all
rights and benefits conferred upon me by Section 1542 of the California Civil
Code, which provides:
1542. General Release: Extent.
A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
Release, which if known by him must have materially affected his
settlement with the debtor.
Dated: March 14, 1995 /c/ Mark R. Goldston_
Mark R. Goldston
C-2
<PAGE> 1
EXHIBIT 10.2
AGREEMENT made as of January 1, 1995
BETWEEN
(1) L.A. GEAR, INC. ("Gear")
(2) ASCO GENERAL SUPPLIES (FAR EAST) LIMITED
(registered in The Bahamas, No. 1,511,818) ("ASCOBAH")
SUPPLEMENTAL to a Sourcing Agreement, dated as of April 28, 1992 between Gear
and Lasco Sports Limited ("Sourcing Agreement") (the benefits of and
obligations upon Lasco Sports Limited now being vested in ASCOBAH).
In consideration of the mutual agreements contained herein and other good and
valuable consideration, the parties hereto agree as follows:
1. The parenthetical reference to Schedule 2 contained in the first sentence of
Clause 1 Appointment shall be, and hereby is, deleted. ASCOBAH agrees and
acknowledges that it shall serve, on a non-exclusive basis, as a sourcing
representative in the Territory in respect of the Products.
2. Clause 2. Sourcing Fee shall be amended and restated to read in its entirety
as follows:
(a) *** Material omitted and filed separately with SEC pursuant to a
request for confidential treatment***
(b) *** Material omitted and filed separately with SEC pursuant to a
request for confidential treatment***
(c) *** Material omitted and filed separately with SEC pursuant to a
request for confidential treatment***
(d) *** Material omitted and filed separately with SEC pursuant to a
request for confidential treatment***
(e) On or prior to January 31, 1996, 1997, and 1998, Gear shall pay to
ASCOBAH, if necessary, an amount equal to the Sourcing Fee for the
previous year calculated in accordance with subparagraphs (b) and (c) of
this Clause 2 in excess of the guaranteed sourcing fee calculated and
paid in accordance with subparagraph (d) of this Clause 2.
<PAGE> 2
(f) Within thirty (30) days following the end of each calendar month during
the term of this Agreement, ASCOBAH shall deliver to Gear a statement of
Throughput for the immediately preceding calendar month, such statement
identifying the manufacturers' or suppliers' invoices for such
Throughput.
(g) Within thirty (30) days following the end of each calendar month during
the term of this Agreement, ASCOBAH shall deliver to Gear a statement of
the operating costs in respect of ASCOBAH's activities for Gear during
the immediately preceding calendar month.
(h) Neither ASCOBAH nor any of its affiliates shall accept from any person
any remuneration for any services it provides toward the acquisition of
any Products purchased by Gear other than the Sourcing Fee.
Notwithstanding the foregoing, if ASCOBAH or any of its affiliates
receives remuneration in connection with its services hereunder from any
third party, ASCOBAH shall promptly pay such amount to Gear. Except as
expressly set forth in the Agreement, ASCOBAH shall be entitled to no
compensation or reimbursement by Gear for its services under this
Agreement."
3. The first sentence of Clause 5. Termination shall be amended and restated to
read in its entirety as follows:
"Except as specifically provided in this Agreement, this Agreement shall
remain in effect from the date hereof until December 31, 1997 and shall
continue in force thereafter unless terminated by either party as of the
end of any calendar month upon at least six months' prior written notice
given not earlier than March 30, 1997."
4. ASCOBAH and Gear each hereby acknowledge that is Gear's intention to become
more pro-active in the management and administration of ASCOBAH's activities
for Gear, provided, however, that unless specifically set forth in writing
as an amendment to the Sourcing Agreement, the duties and obligations of
ASCOBAH under the Sourcing Agreement (as above amended) shall not be varied
or deleted as a result of such intention. The organizational chart for
ASCOBAH and details of appropriate cost authorization thresholds and
operational controls in respect of ASCOBAH's activities for Gear are
attached hereto as Schedule A. On or prior to October 1 of each calendar
year during the term of this Agreement, ASCOBAH shall deliver to Gear an
statement of the budgeted fixed costs for the following calendar year, which
budgeted fixed costs shall include an annual contribution of USD 150,000 to
group corporate overhead.
<PAGE> 3
5. The Sourcing Agreement as above amended is hereby confirmed.
IN WITNESS WHEREOF, Gear and ASCOBAH have caused this Agreement to be duly
executed and delivered as of the day and year first above written.
L.A. GEAR, INC.
BY: /c/ W.L. Benford
Name:
Title:
ASCO GENERAL SUPPLIES (FAR EAST) LIMITED
BY: /c/ Patrick K.K. Tang
Name:
Title:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED BALANCE SHEETS, THE CONSOLIDATED CONDENSED STATEMENTS OF
OPERATIONS AND ACCUMULATED DEFICIT, AND CONSOLIDATED CONDENSED STATEMENTS OF
CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> FEB-28-1995
<EXCHANGE-RATE> 1
<CASH> 37,918
<SECURITIES> 0
<RECEIVABLES> 68,833
<ALLOWANCES> 6,445
<INVENTORY> 72,143
<CURRENT-ASSETS> 182,018
<PP&E> 41,047
<DEPRECIATION> 29,708
<TOTAL-ASSETS> 211,891
<CURRENT-LIABILITIES> 48,119
<BONDS> 50,000
<COMMON> 128,093
100,000
0
<OTHER-SE> (123,375)
<TOTAL-LIABILITY-AND-EQUITY> 211,891
<SALES> 69,392
<TOTAL-REVENUES> 69,392
<CGS> 48,652
<TOTAL-COSTS> 48,652
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,981
<INTEREST-EXPENSE> 1,037
<INCOME-PRETAX> (12,332)
<INCOME-TAX> 0
<INCOME-CONTINUING> (11,642)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,642)
<EPS-PRIMARY> (0.59)
<EPS-DILUTED> 0
</TABLE>
