<PAGE>
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 period ended March 31, 1998
----------------------------------------------------
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 0-18490
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K-SWISS INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-4265988
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20664 Bahama Street, Chatsworth, CA 91311
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
818-998-3388
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
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
----- ----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Shares of common stock outstanding at April 23, 1998:
Class A 3,100,371
Class B 2,342,072
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------
K-SWISS INC.
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 28,982 $ 36,123
Investment securities 6,128 5,995
Accounts receivable, less allowance for doubtful
accounts of $687 and $477 as of March 31,
1998 and December 31, 1997, respectively 31,313 15,657
Inventories 26,604 27,214
Prepaid expenses and other 1,190 4,299
Deferred taxes 2,377 2,256
------- -------
Total current assets 96,594 91,544
PROPERTY, PLANT AND EQUIPMENT, net 4,261 4,885
OTHER ASSETS
Intangible assets 4,647 4,712
Other 521 545
------- -------
5,168 5,257
------- -------
$106,023 $101,686
======= =======
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CURRENT LIABILITIES
<S> <C> <C>
Bank lines of credit $ 1,065 $ 642
Current maturities of subordinated debentures 400 400
Trade accounts payable 5,297 4,379
Accrued liabilities 12,255 10,530
------- -------
Total current liabilities 19,017 15,951
SUBORDINATED DEBENTURES 100 100
DEFERRED TAXES 9,823 9,770
STOCKHOLDERS' EQUITY
Preferred Stock-authorized 2,000,000 shares of
$.01 par value; none issued and outstanding - -
Common Stock:
Class A-authorized 18,000,000 shares of $.01 par value;
4,254,836 shares issued, 3,127,136 shares outstanding
and 1,127,700 shares held in treasury at March 31,
1998 and 4,110,586 shares issued, 3,107,886 shares
outstanding and 1,002,700 shares held in treasury at
December 31, 1997 43 41
Class B-authorized 10,000,000 shares of $.01 par value;
issued and outstanding 2,342,072 shares at March 31,
1998 and 2,485,572 at December 31, 1997 23 25
Additional paid-in capital 25,294 25,271
Treasury stock (14,600) (12,389)
Retained earnings 66,823 63,387
Accumulated other Comprehensive Income -
Foreign currency translation (500) (470)
------- -------
77,083 75,865
------- -------
$106,023 $101,686
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
K-SWISS INC.
CONSOLIDATED STATEMENTS OF EARNINGS
AND COMPREHENSIVE EARNINGS
(Amounts in thousands, except per share amounts)
(Unaudited)
THREE MONTHS
ENDED MARCH 31,
-----------------
1998 1997
---- ----
<TABLE>
<CAPTION>
<S> <C> <C>
Revenues $42,274 $31,199
Cost of goods sold 25,128 19,477
------ ------
Gross profit 17,146 11,722
Selling, general and administrative expenses 11,613 9,554
------ ------
Operating profit 5,533 2,168
Interest income, net 433 379
------ ------
Earnings before income taxes 5,966 2,547
Income tax expense 2,421 1,008
------ ------
NET EARNINGS $ 3,545 $ 1,539
====== ======
Earnings per common share (Note 3)
Basic $.64 $.25
====== ======
Diluted $.62 $.25
====== ======
Net Earnings $ 3,545 $ 1,539
Other comprehensive income, net of tax -
Foreign currency translation adjustments (30) (92)
------ ------
Comprehensive net earnings $ 3,515 $ 1,447
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
K-SWISS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-----------------
1998 1997
---- ----
<S> <C> <C>
Net cash used in operating activities $(6,096) $ (33)
Cash flows from investing activities:
Purchase of property, plant and equipment (1,370) (145)
Proceeds from sale of property 2,250 -
------ ------
Net cash provided by (used in) investing activities 880 (145)
Cash flows from financing activities:
Net borrowings under bank lines of credit 429 1,229
Purchase of treasury stock (2,211) (591)
Payment of dividends (109) (121)
Income tax benefit of options exercised 5 -
------ ------
Net cash (used in) provided by financing activities (1,886) 517
Effect of exchange rate changes on cash ( 39) ( 99)
------ ------
Net (decrease) increase in cash and cash equivalents (7,141) 240
Cash and cash equivalents at beginning of period 36,123 34,314
------ ------
Cash and cash equivalents at end of period $28,982 $34,554
====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
K-SWISS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the consolidated
financial position of K-Swiss Inc. (the "Company") as of March 31, 1998 and
the results of its operations and its cash flows for the three months ended
March 31, 1998 and 1997. The results of operations and cash flows for the
three months ended March 31, 1998 are not necessarily indicative of the
results to be expected for any other interim period or the full year.
These consolidated financial statements should be read in combination with
the audited consolidated financial statements and notes thereto for the
year ended December 31, 1997.
2. The federal income tax returns of the Company for the years ended 1990,
1991 and 1992 are under examination by the Internal Revenue Service
("IRS"). In December 1995, the IRS issued its report proposing additional
taxes of approximately $3,850,000 plus penalties and interest. The Company
protested the IRS proposed assessment. Also, the federal income tax returns
of the Company for the years ended 1993 through 1996 are currently under
examination by the IRS. In addition, the IRS Appeals Division returned the
earlier cycle to the Examination Division to reopen its examination of the
1991 and 1992 fiscal years. The IRS has issued a preliminary revised
examination report covering the 1991 through 1994 fiscal years proposing
additional taxes of approximately $4,760,000 plus penalties and interest
for these years combined. Although no assurance can be given regarding the
outcome of such examinations, the Company believes that any taxes which
might become payable as a result of these examinations would not result in
additional expense recognized in the financial statements other than
interest and penalties, if any, as the Company has recorded deferred income
taxes on the untaxed portion of unremitted earnings of a foreign
subsidiary. Therefore, management believes that resolution of the IRS
examinations should not have a material adverse impact on the Company's
financial position and results of operations.
3. The following is a reconciliation of the number of shares (denominator)
used in the basic and diluted earnings per share computations (shares in
thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------------------
1998 1997
-------------------- -------------------
Per Share Per Share
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Basic EPS 5,524 $ .64 6,069 $ .25
Effect of Dilutive Stock Options 195 (.02) 54 -
----- --------- ----- -------
Diluted EPS 5,719 $ .62 6,123 $ .25
===== ======== ===== ======
The following options were not included in the computation of diluted EPS
because the options' exercise price was greater than the average market
price of the common shares:
1998 1997
--------------- ---------------
<S> <C> <C>
Options to purchase shares of common stock
(in thousands) 109 389
Exercise prices $18.00 - $23.00 $11.25 - $23.00
Expiration dates January 2000 - January 2000 -
February 2008 August 2005
</TABLE>
5
<PAGE>
ITEM 2.
- ------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following table sets forth, for the periods indicated, the percentage of
certain items in the consolidated statements of earnings relative to revenues.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31
--------------
<S> <C> <C>
1998 1997
----- -----
Revenues 100.0% 100.0%
Cost of goods sold 59.4 62.4
Gross profit 40.6 37.6
Selling, general and administrative expenses 27.5 30.6
Interest income, net 1.0 1.2
Earnings before income taxes 14.1 8.2
Income tax expense 5.7 3.3
Net earnings 8.4 4.9
</TABLE>
Revenues increased to $42,274,000 for the quarter ended March 31, 1998 from
$31,199,000 for the quarter ended March 31, 1997, an increase of $11,075,000 or
35.5%. This increase resulted primarily from an increase in the volume of
footwear sold to approximately 1,669,000 pair for the quarter ended March 31,
1998 from approximately 1,336,000 pair for the quarter ended March 31, 1997.
Also, the average wholesale price per pair increased to $24.56 for the quarter
ended March 31, 1998 from $21.94 for the quarter ended March 31, 1997. The
increase in the volume of footwear sold was primarily the result of increased
sales of the Classic and children's category of shoes of 47.8% and 12.4%,
respectively, partially offset by a 4.6% decrease in the tennis/court category
of shoes. The average wholesale price per pair increased due to an increase in
the average wholesale price per pair for all footwear categories, primarily in
the Classic category of shoes.
Domestic revenues increased 60.1% to $38,032,000 for the quarter ended March 31,
1998 from $23,760,000 for the quarter ended March 31, 1997. International
revenues decreased 43.0% to $4,242,000 for the quarter ended March 31, 1998 from
$7,439,000 for the quarter ended March 31, 1997. The decrease in international
revenues was primarily the result of lower sales in the Company's Asian markets
due to the Asian currency crisis. International revenues, as a percentage of
total revenues, decreased to 10.0% for the quarter ended March 31, 1998 from
23.8% for the quarter ended March 31, 1997.
Gross profit margins, as a percentage of revenues, increased to 40.6% for the
quarter ended March 31, 1998, from 37.6% for the quarter ended March 31, 1997.
Gross profit margins increased primarily due to changes in the geographic and
product mix of sales.
Selling, general and administrative expenses increased to $11,613,000 (27.5% of
revenues) for the quarter ended March 31, 1998 from $9,554,000 (30.6% of
revenues) for the quarter ended March 31, 1997, an increase of $2,059,000 or
21.6%. The increase in the amount was primarily the result of an increase in the
bonus accrual for an employee incentive program as well as an increase in
advertising expenses.
Net interest income was $433,000 (1.0% of revenues) for the quarter ended March
31, 1998 compared to $379,000 (1.2% of revenues) for the quarter ended March 31,
1997, a change of $54,000 or 14.2%. This increase in net interest income was the
result of higher average balances.
The Company's effective tax rate increased to 40.6% of earnings before income
tax from 39.6% for the quarters ended March 31, 1998 and 1997, respectively.
Net earnings increased 130.3% to $3,545,000 for the quarter ended March 31, 1998
from $1,539,000 for the quarter ended March 31, 1997. The net earnings were net
of losses incurred by the Company's European operations of $23,000 and $261,000
for the quarters ended March 31, 1998 and March 31, 1997, respectively.
6
<PAGE>
At March 31, 1998 and 1997, domestic futures orders with start ship dates from
April through September 1998 and 1997 were approximately $58,748,000 and
$34,427,000, respectively, an increase of 70.6%. At March 31, 1998 and 1997,
international futures orders with start ship dates from April through September
1998 and 1997 were approximately $6,187,000 and $9,244,000, respectively, a
decrease of 33.1%. "Backlog", as of any date, represents orders scheduled to be
shipped within the next six months. Backlog does not include orders scheduled
to be shipped on or prior to the date of determination of backlog. These orders
are not necessarily indicative of revenues for subsequent periods because: (1)
the mix of "futures" and "at-once" orders can vary significantly from quarter
to quarter and year to year and (2) the rate of customer order cancellations can
also vary from quarter to quarter and year to year.
Liquidity and Capital Resources
The Company experienced a net cash outflow of approximately $6,096,000 and
$33,000 from its operating activities for the quarters ended March 31, 1998 and
1997, respectively. Cash used in operations for the quarter ended March 31,
1998 increased from the quarter ended March 31, 1997 primarily due to changes in
accounts receivable, inventories, net earnings and accounts payable and accrued
liabilities.
The Company had a net inflow of cash from its investing activities for the
quarter ended March 31, 1998 primarily due to the sale of property, plant and
equipment offset by the purchase of property, plant and equipment. The Company
had a net outflow of cash from its investing activities for the quarter ended
March 31, 1997 due to the purchase of property, plant and equipment.
The Company had a net outflow of cash from its financing activities for the
quarter ended March 31, 1998 primarily due to the purchase of treasury stock
partially offset by an increase in borrowings under bank lines of credit.
On April 23, 1998, the Company announced a new share repurchase program. The
Board of Directors has authorized the Company to purchase up to $20 million of
its Class A Common Stock on the open market through April 2002. Such open
market purchases, if any, will occur from time to time as market conditions
warrant. The Company adopted this program because it believes repurchasing its
shares can be good use of excess cash depending on the Company's array of
alternatives. The Company has made purchases under previous stock repurchase
programs during the period from August 14, 1996 through April 15, 1998 (the date
of the final purchase under previously completed stock repurchase programs) of
an aggregate of 1,157,700 shares at an aggregate purchase price totaling
approximately $15,221,000.
The Company is heavily dependent upon complex computer systems for all phases of
its operations, which include production, sales and distribution. The Company's
computer software programs recognize only the last two digits of the year in any
date (e.g., "98" for "1998"), and therefore some software may inaccurately
process data in 1999 or 2000 if the software is not reprogrammed, upgraded or
replaced (the "Year 2000 issue"). The Company has initiated a program intended
to timely mitigate and/or prevent the adverse effects of the Year 2000 Issue,
and to pursue compliance by suppliers. The Company believes that many of its
suppliers and customers may also have Year 2000 Issues which could affect the
Company. At this time, while the Company cannot state with certainty the precise
amount of expenditures necessary to resolve the Year 2000 Issue, it appears such
expenditures could amount to $200,000 to $300,000 for the Company. However, in
any event the Company presently believes that the cost of fixing the Year 2000
Issue will not have a material adverse impact on the Company's financial
position and results of operations.
During 1998, the Company will expend approximately $2,500,000 for the
construction of its new headquarters facility. No other material capital
commitments exist at March 31, 1998. Depending on the Company's future growth
rate, funds may be required by operating activities. With continued use of its
revolving credit facility and internally generated funds, the Company believes
its present and currently anticipated sources of capital are sufficient to
sustain its anticipated capital needs for the remainder of 1998.
The Company owned a 56,000 square foot facility in Pacoima, California, which
was used as the Company's principal executive offices through December 1992.
This facility was sold in January 1998.
The Company's working capital increased $1,984,000 to $77,577,000 at March
31,1998 from $75,593,000 at December 31, 1997.
7
<PAGE>
PART II - OTHER INFORMATION
ITEM 1: Legal Proceedings.
-----------------
None.
ITEM 2: Changes in Securities.
---------------------
None.
ITEM 3: Defaults Upon Senior Securities.
-------------------------------
None.
ITEM 4: Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
None.
ITEM 5: Other Information.
-----------------
None.
ITEM 6: Exhibits and Reports on Form 8-K:
--------------------------------
(a) Exhibits
10.1 - K-Swiss Inc. Deferred Compensation Plan, Master Plan
Document.
10.2 - K-Swiss Inc. Deferred Compensation Plan, Master Trust
Agreement.
27 - Financial Data Schedule.
99 - Press Release dated April 23, 1998.
(b) Reports on Form 8-K
Form 8-K was filed on January 15, 1998. The Company issued a press
release relating to the purchase of up to $2,832,000 of its Class
A Common Stock on the open market through December 1998.
8
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
K-Swiss Inc.
Date: April 23, 1998 By: /S/ GEORGE POWLICK
------------------------------
George Powlick,
Vice President Finance and
Chief Financial Officer
9
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Page
- ------- ----
10.1 K-Swiss Inc. Deferred Compensation Plan, Master Plan Document
10.2 K-Swiss Inc. Deferred Compensation Plan, Master Trust Agreement
27 Financial Data Schedule
99 Press Release dated April 23, 1998
10
<PAGE>
K-Swiss, Inc. EXHIBIT 10.1
DEFERRED COMPENSATION PLAN
Master Plan Document
================================================================================
EFFECTIVE JANUARY 1, 1998
Copyright(C) 1997
By Compensation resource Group, Inc.
All Rights Reserved
<PAGE>
K-Swiss, Inc.
DEFERRED COMPENSATION PLAN
Master Plan Document
================================================================================
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Purpose........................................................................................ 1
ARTICLE 1 Definitions......................................................................... 1
ARTICLE 2 Selection, Enrollment, Eligibility.................................................. 7
2.1 Selection by Committee......................................................... 7
2.2 Enrollment Requirements........................................................ 8
2.3 Eligibility; Commencement of Participation..................................... 8
2.4 Termination of Participation and/or Deferrals.................................. 8
ARTICLE 3 Deferral Commitments/Company Contributions/Interest Crediting/Taxes................. 8
3.1 Minimum Deferral............................................................... 8
3.2 Maximum Deferral............................................................... 9
3.3 Election to Defer; Effect of Election Form..................................... 10
3.4 Annual Deferral Amounts........................................................ 10
3.5 Annual Company Contribution Amount............................................. 10
3.6 Stock Option Deferral Amount................................................... 11
3.7 Investment of Trust Assets..................................................... 11
3.8 Sources of Stock............................................................... 11
3.9 Interest Crediting Prior to Distribution....................................... 11
3.10 Interest Crediting for Installment Distributions............................... 12
3.11 FICA and Other Taxes........................................................... 12
3.12 Vesting........................................................................ 13
ARTICLE 4 Short-Term Payout; Unforeseeable Financial Emergencies; Withdrawal Election........ 14
4.1 Short-Term Payout.............................................................. 14
4.2 Other Benefits Take Precedence Over Short-Term Payout.......................... 14
4.3 Withdrawal Payout/Suspensions for Unforeseeable Financial Emergencies.......... 14
4.4 Withdrawal Election............................................................ 14
ARTICLE 5 Retirement Benefit.................................................................. 15
5.1 Retirement Benefit............................................................. 15
5.2 Payment of Retirement Benefit.................................................. 15
5.3 Death Prior to Completion of Retirement Benefit................................ 15
</TABLE>
- --------------------------------------------------------------------------------
i
<PAGE>
K-Swiss, Inc.
DEFERRED COMPENSATION PLAN
Master Plan Document
================================================================================
<TABLE>
<S> <C>
ARTICLE 6 Pre-Retirement Survivor Benefit..................................................... 16
6.1 Pre-Retirement Survivor Benefit................................................ 16
6.2 Payment of Pre-Retirement Survivor Benefit..................................... 16
ARTICLE 7 Termination Benefit..........................................,,,,,.................. 16
7.1 Termination Benefit............................................................ 16
7.2 Payment of Termination Benefit................................................. 17
ARTICLE 8 Disability Waiver and Benefit....................................................... 17
8.1 Disability Waiver.............................................................. 17
8.2 Continued Eligibility; Disability Benefit...................................... 18
ARTICLE 9 Beneficiary Designation............................................................. 18
9.1 Beneficiary.................................................................... 18
9.2 Beneficiary Designation; Change; Spousal Consent............................... 18
9.3 Acceptance..................................................................... 18
9.4 No Beneficiary Designation..................................................... 18
9.5 Doubt as to Beneficiary........................................................ 19
9.6 Discharge of Obligations....................................................... 19
ARTICLE 10 Leave of Absence.................................................................... 19
10.1 Paid Leave of Absence.......................................................... 19
10.1 Unpaid Leave of Absence........................................................ 19
ARTICLE 11 Termination, Amendment or Modification.............................................. 19
11.1 Termination.................................................................... 19
11.2 Amendment...................................................................... 20
11.3 Plan Agreement................................................................. 20
11.4 Interest Rate in the Event of a Change in Control.............................. 21
11.5 Effect of Payment.............................................................. 21
ARTICLE 12 Administration...................................................................... 21
12.1 Committee Duties............................................................... 21
12.2 Administration Upon Change In Control.......................................... 22
12.3 Agents......................................................................... 22
12.4 Binding Effect of Decisions.................................................... 22
</TABLE>
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ii
<PAGE>
K-Swiss, Inc.
DEFERRED COMPENSATION PLAN
Master Plan Document
================================================================================
<TABLE>
<S> <C>
12.5 Indemnity of Committee....................................................... 22
12.6 Employer Information......................................................... 23
ARTICLE 13 Other Benefits and Agreements....................................................... 23
13.1 Coordination with Other Benefits............................................. 23
ARTICLE 14 Claims Procedures................................................................... 23
14.1 Presentation of Claim........................................................ 23
14.2 Notification of Decision..................................................... 23
14.3 Review of a Denied Claim..................................................... 24
14.4 Decision on Review........................................................... 24
14.5 Legal Action................................................................. 24
ARTICLE 15 Trust............................................................................... 24
15.1 Establishment of the Trust................................................... 24
15.2 Interrelationship of the Plan and the Trust.................................. 25
15.3 Distributions From the Trust................................................. 25
ARTICLE 16 Miscellaneous....................................................................... 25
16.1 Status of Plan............................................................... 25
16.2 Unsecured General Creditor................................................... 25
16.3 Employer's Liability......................................................... 25
16.4 Nonassignability............................................................. 25
16.5 Not a Contract of Employment................................................. 26
16.6 Furnishing Information....................................................... 26
16.7 Terms........................................................................ 26
16.8 Captions..................................................................... 26
16.9 Governing Law................................................................ 26
16.10 Notice....................................................................... 27
16.11 Successors................................................................... 27
16.12 Spouse's Interest............................................................ 27
16.13 Validity..................................................................... 27
16.14 Incompetent.................................................................. 27
16.15 Court Order.................................................................. 27
16.16 Distribution in the Event of Taxation........................................ 28
16.17 Insurance.................................................................... 28
16.18 Legal Fees To Enforce Rights After Change in Control......................... 28
</TABLE>
- --------------------------------------------------------------------------------
iii
<PAGE>
K-Swiss, Inc.
DEFERRED COMPENSATION PLAN
Master Plan Document
================================================================================
K-SWISS, INC.
DEFERRED COMPENSATION PLAN
Effective January 1, 1998
PURPOSE
The purpose of this Plan is to provide specified benefits to a select
group of management or highly compensated Employees who contribute materially to
the continued growth, development and future business success of K-Swiss, Inc.,
a Delaware corporation, and its subsidiaries, if any, that sponsor this Plan.
This Plan shall be unfunded for tax purposes and for purposes of Title I of
ERISA.
ARTICLE 1
DEFINITIONS
-----------
For purposes of this Plan, unless otherwise clearly apparent from the
context, the following phrases or terms shall have the following indicated
meanings:
1.1 "Account Balance" shall mean, with respect to a Participant, a credit on
the records of the Employer equal to the sum of (i) the Deferral Account
balance, (ii) the Company Contribution Account balance and (iii) the Stock
Option Deferral Account balance. The Account Balance, and each other
specified account balance, shall be a bookkeeping entry only and shall be
utilized solely as a device for the measurement and determination of the
amounts to be paid to a Participant, or his or her designated Beneficiary,
pursuant to this Plan.
1.2 "Annual Bonus" shall mean any compensation, in addition to Base Annual
Salary, relating to services performed during any calendar year payable to
a Participant as an Employee under any Employer's annual bonus and cash
incentive plans, excluding stock options.
1.3 "Annual Company Contribution Amount" shall mean, for any one Plan Year, the
amount determined in accordance with Section 3.5.
1.4 "Annual Deferral Amount" shall mean that portion of a Participant's Base
Annual Salary and/or Annual Bonus that a Participant elects to have, and is
deferred, in accordance with Article 3, for any one Plan Year. In the
event of a Participant's Retirement, Disability (if deferrals cease in
accordance with Section 8.1), death or a Termination of Employment prior to
the end of a Plan Year, such year's Annual Deferral Amount shall be the
actual amount withheld prior to such event.
- --------------------------------------------------------------------------------
1
<PAGE>
K-Swiss, Inc.
DEFERRED COMPENSATION PLAN
Master Plan Document
================================================================================
1.5 "Annual Stock Option Deferral Amount" shall mean, with respect to a
Participant for any one Plan Year, the amount of Qualifying Gains deferred
on Eligible Stock Option exercise in accordance with Section 3.7 of this
Plan, calculated using the closing price of Stock as of the end of the
business day closest to the date of such Eligible Stock Option exercise.
1.6 "Base Annual Salary" shall mean the annual cash compensation relating to
services performed during any year, excluding bonuses, commissions,
overtime, fringe benefits (including amounts contributed by any Employer to
any retirement or deferred compensation plan), stock options, relocation
expenses, incentive payments, non-monetary awards, directors fees and other
fees, automobile and other allowances, paid to a Participant for employment
services rendered (whether or not such allowances are included in the
Employee's gross income). Base Annual Salary shall be calculated before
reduction for compensation voluntarily deferred or contributed by the
Participant pursuant to all qualified or non-qualified plans of any
Employer and shall be calculated to include amounts not otherwise included
in the Participant's gross income under Code Sections 125, 402(e)(3),
402(h) or 403(b) pursuant to plans established by any Employer; provided,
however, that all such amounts will be included in compensation only to the
extent that, had there been no such plan, the amount would have been
payable in cash to the Employee.
1.7 "Beneficiary" shall mean one or more persons, trusts, estates or other
entities, designated in accordance with Article 9, that are entitled to
receive benefits under this Plan upon the death of a Participant.
1.8 "Beneficiary Designation Form" shall mean the form established from time to
time by the Committee that a Participant completes, signs and returns to
the Committee to designate one or more Beneficiaries.
1.9 "Board" shall mean the board of directors of the Company.
1.10 "Bonus Rate" shall mean, for a Plan Year, an interest rate, if any,
determined by the Committee, in its sole discretion, which rate shall be
determined and announced before the commencement of the Plan Year for which
the rate applies. This rate may be zero for any Plan Year.
1.11 "Change in Control" shall mean the first to occur of any of the following
events:
(a) Any "person" (as that term is used in Section 13 and 14(d)(2) of the
Securities Exchange Act of 1934 ("Exchange Act")) becomes the
beneficial owner (as that term is used in Section 13(d) of the
Exchange Act), directly or indirectly, of the Company's capital stock
having at least 50 percent of the voting power for the election of
directors;
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DEFERRED COMPENSATION PLAN
Master Plan Document
================================================================================
(b) During any period of not more than two consecutive years, not
including any period prior to the adoption of this Plan, individuals
who, at the beginning of such period constitute the board of directors
of the Company, and any new director (other than a director designated
by a person who has entered into an agreement with the Company to
effect a transaction described in clause (a), (c), (d) or (e) of this
Section 1.11) whose election by the board of directors or nomination
for election by the Company's stockholders was approved by a vote of
at least three-fourths (3/4ths) of the directors then still in office,
who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved, cease
for any reason to constitute at least a majority thereof;
(c) The shareholders of the Company approve any consolidation or merger of
the Company, other than a consolidation or merger of the Company in
which the holders of the common stock of the Company immediately prior
to the consolidation or merger hold more than 50% of the common stock
of the surviving corporation immediately after the consolidation or
merger;
(d) The shareholders of the Company approve any plan or proposal for the
liquidation or dissolution of the Company; or
(e) The shareholders of the Company approve the sale or transfer of all or
substantially all of the assets of the Company to parties that are not
within a "controlled group of corporations" (as defined in Code
Section 1563) in which the Company is a member.
1.12 "Claimant" shall have the meaning set forth in Section 14.1.
1.13 "Code" shall mean the Internal Revenue Code of 1986, as it may be amended
from time to time.
1.14 "Committee" shall mean the committee described in Article 12.
1.15 "Company" shall mean K-Swiss, Inc., a Delaware corporation, and any
successor to all or substantially all of the Company's assets or business.
1.16 "Company Contribution Account" shall mean (i) the sum of the Participant's
Annual Company Contribution Amounts, plus (ii) interest credited in
accordance with all the applicable interest crediting provisions of this
Plan that relate to the Participant's Company Contribution Account, less
(iii) all distributions made to the Participant or his or her Beneficiary
pursuant to this Plan that relate to the Participant's Company Contribution
Account.
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DEFERRED COMPENSATION PLAN
Master Plan Document
================================================================================
1.17 "Crediting Rate" shall mean, with respect to a Participant's Deferral
Account balance, Company Contribution Account balance and Stock Option
Deferral Account balance for each Plan Year, an interest rate, stated as an
annual rate, determined and announced by the Committee before the Plan Year
for which it is to be used, that is equal to 125% of the applicable federal
long term rate (as described in Code Section 1274). The applicable federal
long term rate for a Plan Year shall be the one declared in the September
preceding the Plan Year.
1.18 "Deduction Limitation" shall mean the following described limitation on a
benefit that may otherwise be distributable pursuant to the provisions of
this Plan. Except as otherwise provided, this limitation shall be applied
to all distributions that are "subject to the Deduction Limitation" under
this Plan. If an Employer determines in good faith prior to a Change in
Control that there is a reasonable likelihood that any compensation paid to
a Participant for a taxable year of the Employer would not be deductible by
the Employer solely by reason of the limitation under Code Section 162(m),
then to the extent deemed necessary by the Employer to ensure that the
entire amount of any distribution to the Participant pursuant to this Plan
prior to the Change in Control is deductible, the Employer may defer all or
any portion of a distribution under this Plan. Any amounts deferred
pursuant to this limitation shall continue to be credited with interest in
accordance with Section 3.10 below, even if such amount is being paid out
in installments. The amounts so deferred and interest thereon shall be
distributed to the Participant or his or her Beneficiary (in the event of
the Participant's death) at the earliest possible date, as determined by
the Employer in good faith, on which the deductibility of compensation paid
or payable to the Participant for the taxable year of the Employer during
which the distribution is made will not be limited by Section 162(m), or if
earlier, the effective date of a Change in Control. Notwithstanding
anything to the contrary in this Plan, the Deduction Limitation shall not
apply to any distributions made after a Change in Control.
1.19 "Deferral Account" shall mean (i) the sum of all of a Participant's Annual
Deferral Amounts, plus (ii) interest credited in accordance with all the
applicable interest crediting provisions of this Plan that relate to the
Participant's Deferral Account, less (iii) all distributions made to the
Participant or his or her Beneficiary pursuant to this Plan that relate to
the Participant's Deferral Account.
1.20 "Disability" shall mean a period of disability during which a Participant
is unable to perform the material duties of his or her regular employment
with an Employer.
1.21 "Disability Benefit" shall mean the benefit set forth in Article 8.
1.22 "Election Form" shall mean the form established from time to time by the
Committee that a Participant completes, signs and returns to the Committee
to make an election under the Plan.
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1.23 "Eligible Stock Option" shall mean one or more non-qualified stock
option(s) selected by the Committee in its sole discretion and exercisable
under a plan or arrangement of any Employer permitting a Participant under
this Plan to defer gain with respect to such option.
1.24 "Employee" shall mean a person who is an employee of any Employer.
1.25 "Employer(s)" shall mean the Company and/or any of its subsidiaries (now
in existence or hereafter formed or acquired) that have been selected by
the Board to participate in the Plan and have adopted the Plan as a
sponsor.
1.26 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
it may be amended from time to time.
1.27 "Participant" shall mean any Employee (i) who is selected to participate
in the Plan, (ii) who elects to participate in the Plan, (iii) who signs a
Plan Agreement, an Election Form and a Beneficiary Designation Form, (iv)
whose signed Plan Agreement, Election Form and Beneficiary Designation Form
are accepted by the Committee, (v) who commences participation in the Plan,
and (vi) whose Plan Agreement has not terminated. A spouse or former
spouse of a Participant shall not be treated as a Participant in the Plan
or have an account balance under the Plan, even if he or she has an
interest in the Participant's benefits under the Plan as a result of
applicable law or property settlements resulting from legal separation or
divorce.
1.28 "Plan" shall mean the Company's Deferred Compensation Plan, which shall be
evidenced by this instrument and by each Plan Agreement, as they may be
amended from time to time.
1.29 "Plan Agreement" shall mean a written agreement, as may be amended from
time to time, which is entered into by and between an Employer and a
Participant. Each Plan Agreement executed by a Participant and the
Participant's Employer shall provide for the entire benefit to which such
Participant is entitled under the Plan; should there be more than one Plan
Agreement, the Plan Agreement bearing the latest date of acceptance by the
Committee shall supersede all previous Plan Agreements in their entirety
and shall govern such entitlement. The terms of any Plan Agreement may be
different for any Participant, and any Plan Agreement may provide
additional benefits not set forth in the Plan or limit the benefits
otherwise provided under the Plan; provided, however, that any such
additional benefits or benefit limitations must be agreed to by both the
Employer and the Participant.
1.30 "Plan Year" shall mean a period beginning on January 1 of each calendar
year and continuing through December 31 of such calendar year.
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DEFERRED COMPENSATION PLAN
Master Plan Document
================================================================================
1.31 "Preferred Rate" shall mean, for each Plan Year, an interest rate that is
the sum of the Crediting Rate and the Bonus Rate for that Plan Year.
1.32 "Qualifying Gain" shall mean the value accrued upon exercise of an
Eligible Stock Option (i) using a Stock-for-Stock payment method and (ii)
having an aggregate fair market value in excess of the total Stock purchase
price necessary to exercise the option. In other words, the Qualifying
Gain upon exercise of an Eligible Stock Option equals the total market
value of the shares (or share equivalent units) acquired minus the total
stock purchase price. For example, assume a Participant elects to defer
the Qualifying Gain accrued upon exercise of an Eligible Stock Option to
purchase 1000 shares of Stock at an exercise price of $20 per share, when
Stock has a current fair market value of $25 per share. Using the Stock-
for-Stock payment method, the Participant would deliver 800 shares of Stock
(worth $20,000) to exercise the Eligible Stock Option and receive, in
return, 800 shares of Stock plus a Qualifying Gain (in this case, in the
form of an unfunded and unsecured promise to pay money or property in the
future) equal to $5,000 (i.e., the current value of the remaining 200
shares of Stock).
1.33 "Pre-Retirement Survivor Benefit" shall mean the benefit set forth in
Article 6.
1.34 "Retirement", "Retires" or "Retired" shall mean, with respect to an
Employee, severance from employment from all Employers for any reason other
than a leave of absence, death or Disability on or after the earlier of the
attainment of (a) age sixty-five (65) or (b) age fifty-five (55) with ten
(10) Years of Service.
1.35 "Retirement Benefit" shall mean the benefit set forth in Article 5.
1.36 "Short-Term Payout" shall mean the payout set forth in Section 4.1.
1.37 "Stock" shall mean K-Swiss, Inc. common stock, or any other equity
securities of the Company designated by the Committee.
1.38 "Stock Option Deferral Account" shall mean the sum of (i) the
Participant's Annual Stock Option Deferral Amounts, plus (ii) interest
credited in accordance with all the applicable interest crediting
provisions of this Plan that relate to the Participant's Stock Option
Deferral Account, less (iii) all distributions made to the Participant or
his or her Beneficiary pursuant to this Plan that relate to the
Participant's Stock Option Deferral Account.
1.39 "Stock Option Deferral Amount" shall mean, for any Eligible Stock Option,
the amount of Qualifying Gains deferred in accordance with Section 3.7 of
this Plan, calculated using the closing price of Stock as of the end of the
business day closest to the date of exercise of such Eligible Stock Option.
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DEFERRED COMPENSATION PLAN
Master Plan Document
================================================================================
1.40 "Termination Benefit" shall mean the benefit set forth in Article 7.
1.41 "Termination of Employment" shall mean the severing of employment with all
Employers, voluntarily or involuntarily, for any reason other than
Retirement, Disability, death or an authorized leave of absence.
1.42 "Trust" shall mean the trust established pursuant to that certain Master
Trust Agreement, dated as of January 1, 1998, between the Company and the
trustee named therein, as amended from time to time.
1.43 "Unforeseeable Financial Emergency" shall mean an unanticipated emergency
that is caused by an event beyond the control of the Participant that would
result in severe financial hardship to the Participant resulting from (i) a
sudden and unexpected illness or accident of the Participant or a dependent
of the Participant, (ii) a loss of the Participant's property due to
casualty, or (iii) such other extraordinary and unforeseeable circumstances
arising as a result of events beyond the control of the Participant, all as
determined in the sole discretion of the Committee.
1.44 "Years of Plan Participation" shall mean the total number of full Plan
Years a Participant has been a Participant in the Plan prior to his or her
Termination of Employment (determined without regard to whether deferral
elections have been made by the Participant for any Plan Year). Any
partial year shall not be counted. Notwithstanding the previous sentence,
a Participant's first Plan Year of participation shall be treated as a full
Plan Year for purposes of this definition, even if it is only a partial
Plan Year of participation.
1.45 "Years of Service" shall mean the total number of full years in which a
Participant has been employed by one or more Employers. For purposes of
this definition, a year of employment shall be a 365 day period (or 366 day
period in the case of a leap year) that, for the first year of employment,
commences on the Employee's date of hiring and that, for any subsequent
year, commences on an anniversary of that hiring date. Any partial year of
employment shall not be counted.
ARTICLE 2
SELECTION, ENROLLMENT, ELIGIBILITY
----------------------------------
2.1 SELECTION BY COMMITTEE. Participation in the Plan shall be
----------------------
limited to a select group of management or highly compensated Employees of
the Employers, as determined by the Committee, in its sole discretion.
From that group, the Committee shall select, in its sole discretion,
Employees to participate in the Plan.
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DEFERRED COMPENSATION PLAN
Master Plan Document
================================================================================
2.2 ENROLLMENT REQUIREMENTS. As a condition to participation, each selected
-----------------------
Employee shall complete, execute and return to the Committee a Plan
Agreement, an Election Form and a Beneficiary Designation Form, all within
30 days after he or she is selected to participate in the Plan. In
addition, the Committee shall establish from time to time such other
enrollment requirements as it determines, in its sole discretion, are
necessary.
2.3 ELIGIBILITY; COMMENCEMENT OF PARTICIPATION. Provided an Employee
------------------------------------------
selected to participate in the Plan has met all enrollment requirements set
forth in this Plan and required by the Committee, including returning all
required documents to the Committee within the specified time period, that
Employee shall commence participation in the Plan on the first day of the
month following the month in which the Employee completes all enrollment
requirements. If an Employee fails to meet all such requirements within the
period required, in accordance with Section 2.2, that Employee shall not be
eligible to participate in the Plan until the first day of the Plan Year
following the delivery to and acceptance by the Committee of the required
documents.
2.4 TERMINATION OF PARTICIPATION AND/OR DEFERRALS. If the Committee
---------------------------------------------
determines in good faith that a Participant no longer qualifies as a member
of a select group of management or highly compensated employees, as
membership in such group is determined in accordance with Sections 201(2),
301(a)(3) and 401(a)(1) of ERISA, the Committee shall have the right, in
its sole discretion, to (i) terminate any deferral election the Participant
has made for the remainder of the Plan Year in which the Participant's
membership status changes, (ii) prevent the Participant from making future
deferral elections and/or (iii) immediately distribute the Participant's
then Account Balance as a Termination Benefit and terminate the
Participant's participation in the Plan.
ARTICLE 3
DEFERRAL COMMITMENTS/COMPANY CONTRIBUTIONS/INTEREST CREDITING/TAXES
-------------------------------------------------------------------
3.1 MINIMUM DEFERRAL.
----------------
(a) ANNUAL DEFERRAL AMOUNT. For each Plan Year, a Participant may elect
----------------------
to defer, as his or her Annual Deferral Amount, Base Annual Salary
and/or Annual Bonus in the following minimum amounts for each deferral
elected:
DEFERRAL MINIMUM AMOUNT
------------------------------- -------------------------
Base Annual Salary $2,000
Annual Bonus $2,000
If an election is made for less than a stated minimum, or if
no election is made, the amount deferred shall be zero.
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DEFERRED COMPENSATION PLAN
Master Plan Document
================================================================================
(b) SHORT PLAN YEAR. Notwithstanding the foregoing, if a Participant
---------------
first becomes a Participant after the first day of a Plan Year, or in
the case of the first Plan Year of the Plan itself, the minimum Base
Annual Salary deferral shall be an amount equal to the minimum set
forth above, multiplied by a fraction, the numerator of which is the
number of complete months remaining in the Plan Year and the
denominator of which is 12.
(c) STOCK OPTION DEFERRAL AMOUNT. For each Eligible Stock Option, a
----------------------------
Participant may elect to defer, as his or her Stock Option Deferral
Amount, the following minimum percentage of Qualifying Gain with
respect to exercise of the Eligible Stock Option:
DEFERRAL MINIMUM PERCENTAGE
------------------------------ --------------------------
Qualifying Gain 10%
provided, however, that the Annual Stock Option Deferral
Amount shall be no less than the lesser of $20,000 or 100% of the
Qualifying Gain.
3.2 MAXIMUM DEFERRAL.
----------------
(a) For each Plan Year, a Participant may elect to defer, as his or her
Annual Deferral Amount, Base Annual Salary and/or Annual Bonus up to
the following maximum percentages for each deferral elected:
DEFERRAL MAXIMUM AMOUNT
------------------------------ --------------------------
Base Annual Salary 90%
Annual Bonus 100%
Notwithstanding the foregoing, if a Participant first becomes a
Participant after the first day of a Plan Year, or in the case of the
first Plan Year of the Plan itself, the maximum Annual Deferral Amount
with respect to Base Annual Salary and/or Annual Bonus shall be the
lesser of the foregoing amounts or the amount of compensation not yet
earned by the Participant as of the date the Participant submits a
Plan Agreement and Election Form to the Committee for acceptance.
(b) For each Eligible Stock Option, a Participant may elect to defer, as
his or her Stock Option Deferral Amount, Qualifying Gain up to the
following maximum percentage with respect to exercise of the Eligible
Stock Option:
DEFERRAL MAXIMUM PERCENTAGE
------------------------------ --------------------------
Qualifying Gain 100%
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DEFERRED COMPENSATION PLAN
Master Plan Document
================================================================================
(c) Stock Option Deferral Amounts may also be limited by other terms or
conditions set forth in the stock option plan or agreement under which
such options are granted.
3.3 ELECTION TO DEFER; EFFECT OF ELECTION FORM.
------------------------------------------
(a) FIRST PLAN YEAR. In connection with a Participant's commencement of
---------------
participation in the Plan, the Participant shall make an irrevocable
deferral election for the Plan Year in which the Participant commences
participation in the Plan, along with such other elections as the
Committee deems necessary or desirable under the Plan. For these
elections to be valid, the Election Form must be completed and signed
by the Participant, timely delivered to the Committee (in accordance
with Section 2.2 above) and accepted by the Committee.
(b) SUBSEQUENT PLAN YEARS. For each succeeding Plan Year, an irrevocable
---------------------
deferral election for that Plan Year, and such other elections as the
Committee deems necessary or desirable under the Plan, shall be made
by timely delivering to the Committee, in accordance with its rules
and procedures before the end of the Plan Year preceding the Plan Year
for which the election is made, a new Election Form. If no such
Election Form is timely delivered for a Plan Year, the Annual Deferral
Amount shall be zero for that Plan Year.
(c) STOCK OPTION DEFERRAL. For an election to defer gain upon an Eligible
---------------------
Stock Option exercise to be valid: (i) a separate Election Form must
be completed and signed by the Participant with respect to the
Eligible Stock Option; (ii) the Election Form must be timely delivered
to the Committee and accepted by the Committee at least six (6) months
prior to the date the Participant elects to exercise the Eligible
Stock Option; (iii) the Eligible Stock Option must be exercised using
an actual or phantom Stock-for-Stock payment method; and (iv) the
Stock actually or constructively delivered by the Participant to
exercise the Eligible Stock Option must have been owned by the
Participant during the entire six (6) month period prior to its
delivery.
3.4 ANNUAL DEFERRAL AMOUNTS. For each Plan Year, the Base Annual Salary of the
-----------------------
portion Annual Deferral Amount shall be withheld from each regularly
scheduled Base Annual Salary payroll in equal amounts, as adjusted from
time to time for increases and decreases in Base Annual Salary. The Annual
Bonus portions of the Annual Deferral Amount shall be withheld at the time
the Annual Bonus is or otherwise would be paid to the Participant, whether
or not this occurs during the Plan Year itself.
3.5 ANNUAL COMPANY CONTRIBUTION AMOUNT. For each Plan Year, an Employer, in
----------------------------------
its sole discretion, may, but is not required to, credit any amount it
desires to any Participant's Company Contribution Account under this Plan,
which amount shall be for that Participant
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K-Swiss, Inc.
DEFERRED COMPENSATION PLAN
Master Plan Document
================================================================================
the Annual Company Contribution Amount for that Plan Year. The amount so
credited to a Participant may be smaller or larger than the amount credited
to any other Participant, and the amount credited to any Participant for a
Plan Year may be zero, even though one or more other Participants receive
an Annual Company Contribution Amount for that Plan Year. The Annual
Company Contribution Amount, if any, shall be credited as of the last day
of the Plan Year. If a Participant is not employed by an Employer as of the
last day of a Plan Year other than by reason of his or her Retirement or
death, the Annual Company Contribution Amount for that Plan Year shall be
zero.
3.6 STOCK OPTION DEFERRAL AMOUNT. Subject to any terms and
----------------------------
conditions imposed by the Committee, Participants may elect to defer, under
the Plan, Qualifying Gains attributable to an Eligible Stock Option
exercise. Stock Option Deferral Amounts shall be credited to the
Participant on the books of the Employer at the time Stock would otherwise
have been delivered to the Participant pursuant to the Eligible Stock
Option exercise, but for the election to defer.
3.7 INVESTMENT OF TRUST ASSETS. The Trustee of the Trust shall
--------------------------
be authorized, upon written instructions received from the Committee or
investment manager appointed by the Committee, to invest and reinvest the
assets of the Trust in accordance with the applicable Trust Agreement,
including the disposition of Stock and reinvestment of the proceeds in one
or more investment vehicles designated by the Committee.
3.8 SOURCES OF STOCK. If Stock is credited under the Plan in
----------------
the Trust pursuant to Section 3.7 in connection with an Eligible Stock
Option exercise, the shares so credited shall be deemed to have originated,
and shall be counted against the number of shares reserved, under such
other plan, program or arrangement.
3.9 INTEREST CREDITING PRIOR TO DISTRIBUTION. Except as provided below, prior
----------------------------------------
to any distribution of benefits under Articles 4, 5, 6, 7 or 8, interest
shall be credited and compounded annually on the last day of the Plan Year
on (i) a Participant's Deferral Account as though the Base Annual Salary
and Annual Bonus portions of the Annual Deferral Amount for that Plan Year
were withheld on the first day of the year in which the amount deferred is
actually withheld and deferred, (ii) on a Participant's Company
Contribution Account as though the Annual Company Contribution Amount, if
any, was credited at the end of the Plan Year to which it relates and (iii)
on a Participant's Stock Option Deferral Account as though the Stock Option
Deferral Amount was credited on the day on which the Eligible Stock Option
was exercised or otherwise disposed of. If a Participant's commencement of
participation in the Plan is other than the first day of the Plan Year,
then interest crediting for the Base Annual Salary and Bonus portions of
the Annual Deferral Amount shall commence as of the date that the
Participant commences participation in the Plan. If the Participant
Retires, dies, or experiences a Termination of Employment prior to the end
of the Plan Year, the Annual Company Contribution, if any, for the Plan
Year in which such event occurs shall be treated as having been credited as
of the
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K-Swiss, Inc.
DEFERRED COMPENSATION PLAN
Master Plan Document
================================================================================
date of such event. The rate of interest for crediting for any Plan Year
shall be the Crediting Rate, but shall be the Preferred Rate if the
Participant has completed five or more Years of Plan Participation (in
which case the Preferred Rate shall be used for all Plan Years including
Plan Years prior to the completion of five years of Plan Participation). In
the event of Retirement, Disability, death or Termination of Employment
prior to the end of a Plan Year, the basis for that year's interest
crediting will be a fraction of the full year's interest, based on the
number of full months that the Participant was employed with the Employer
during the Plan Year prior to the occurrence of such event. If a
distribution is made under this Plan, for purposes of crediting interest up
to the time of the distribution, the Participant's Account Balance shall be
reduced as of the first day of the month in which the distribution is made.
3.10 INTEREST CREDITING FOR INSTALLMENT DISTRIBUTIONS. If a Participant's
------------------------------------------------
benefits under this Plan are to be paid in substantially equal monthly
installments, such payments shall be determined by amortizing the
Participant's specified benefit over the number of months elected, using
the interest rate specified below and treating the first installment
payment as all principal and each subsequent installment payment, first as
interest accrued for the applicable installment period on the unpaid
Account Balance and second as a reduction in the Account Balance. The
interest rate to be used to calculate installment payment amounts shall be
a fixed interest rate that is determined by averaging the Crediting or
Preferred Rates, whichever is applicable, for the Plan Year in which
installment payments commence and the four (4) preceding Plan Years. This
rate shall be treated as the nominal rate for making such calculations. If
a Participant has completed fewer than five (5) Years of Plan
Participation, this average shall be determined using the Crediting Rates
for the Plan Years during which the Participant participated in the Plan.
3.11 FICA AND OTHER TAXES.
--------------------
(a) ANNUAL DEFERRAL AMOUNTS. For each Plan Year in which an Annual
-----------------------
Deferral Amount is being first withheld from a Participant, the
Participant's Employer(s) shall withhold from that portion of the
Participant's Base Annual Salary and Bonus that is not being deferred,
in a manner determined by the Employer(s), the Participant's share of
FICA and other employment taxes on such Annual Deferral Amount. If
necessary, the Committee may reduce the Annual Deferral Amount in
order to comply with this Section 3.11.
(b) COMPANY CONTRIBUTION AMOUNTS. When a participant becomes vested in a
----------------------------
portion of his or her Company Contribution Account, the Participant's
Employer(s) shall withhold from the Participant's Base Annual Salary
and/or Bonus that is not deferred, in a manner determined by the
Employer(s), the Participant's share of FICA and other employment
taxes. If necessary, the Committee may reduce the vested portion of
the Participant's Company Contribution Account in order to comply with
this Section 3.11.
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DEFERRED COMPENSATION PLAN
Master Plan Document
================================================================================
(c) ANNUAL STOCK OPTION AMOUNTS. For each Plan Year in which an Annual
---------------------------
Stock Option Amount is being first withheld from a Participant, the
Participant's Employer(s) shall withhold from that portion of the
Participant's Base Annual Salary, Bonus and Qualifying Gains that are
not being deferred, in a manner determined by the Employer(s), the
Participant's share of FICA and other employment taxes on such Annual
Stock Option Amount. If necessary, the Committee may reduce the
Annual Stock Option Amount in order to comply with this Section 3.11.
(d) DISTRIBUTIONS. The Participant's Employer(s), or the trustee of the
-------------
Trust, shall withhold from any payments made to a Participant under
this Plan all federal, state and local income, employment and other
taxes required to be withheld by the Employer(s), or the trustee of
the Trust, in connection with such payments, in amounts and in a
manner to be determined in the sole discretion of the Employer(s) and
the trustee of the Trust.
3.12 VESTING.
-------
(a) Except as provided in Section 7.1 below, a Participant shall at all
times be 100% vested in his or her Deferral Account and Stock Option
Deferral Account.
(b) A Participant shall be vested in his or her Company Contribution
Account in accordance with the terms of such Participant's Plan
Agreement, based on his or her Years of Plan Participation.
(c) Notwithstanding anything to the contrary contained in this Section
3.12 or the Participant's Plan Agreement, in the event of a Change in
Control, a Participant's Company Contribution Account shall
immediately become 100% vested (if it is not already vested in
accordance with the above vesting schedules).
(d) Notwithstanding subsection (c), the vesting schedule for a
Participant's Company Contribution Account shall not be accelerated to
the extent that the Committee determines that such acceleration would
cause the deduction limitations of Section 280G of the Code to become
effective. In the event that all of a Participant's Company
Contribution Account is not vested pursuant to such a determination,
the Participant may request independent verification of the
Committee's calculations with respect to the application of Section
280G. In such case, the Committee must provide to the Participant
within 15 business days of such a request an opinion from a nationally
recognized accounting firm selected by the Participant (the
"Accounting Firm"). The opinion shall state the Accounting Firm's
opinion that any limitation in the vested percentage hereunder is
necessary to avoid the limits of Section 280G and contain supporting
calculations. The cost of such opinion shall be borne by the Company.
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K-Swiss, Inc.
DEFERRED COMPENSATION PLAN
Master Plan Document
================================================================================
ARTICLE 4
SHORT-TERM PAYOUT; UNFORESEEABLE FINANCIAL EMERGENCIES;
--------------------------------------------------------
WITHDRAWAL ELECTION
-------------------
4.1 SHORT-TERM PAYOUT. In connection with each election to defer an Annual
-----------------
Deferral Amount, a Participant may irrevocably elect to receive a future
"Short-Term Payout" from the Plan with respect to such Annual Deferral
Amount. Subject to the Deduction Limitation, the Short-Term Payout shall be
a lump sum payment in an amount that is equal to the Annual Deferral Amount
plus interest credited in the manner provided in Section 3.10 above on that
amount, but using the applicable interest rate set forth in Section 7.1
below, determined at the time that the Short-Term Payout becomes payable
(rather than the date of a Termination of Employment). Subject to the
Deduction Limitation and the other terms and conditions of this Plan, each
Short-Term Payout elected shall be paid during a period beginning 1 day and
ending 60 days after the last day of any Plan Year designated by the
Participant that is at least five Plan Years after the Plan Year in which
the Annual Deferral Amount is actually deferred. By way of example, if a
five year Short-Term Payout is elected for Annual Deferral Amounts that are
deferred in the Plan Year commencing January 1, 1997, the five year Short-
Term Payout would become payable during a 60 day period commencing January
1, 2003.
4.2 OTHER BENEFITS TAKE PRECEDENCE OVER SHORT-TERM PAYOUT.
-----------------------------------------------------
Should an event occur that triggers a benefit under Article 5, 6, 7 or 8,
any Annual Deferral Amount, plus interest thereon, that is subject to a
Short-Term Payout election under Section 4.1 shall not be paid in
accordance with Section 4.1, but shall be paid in accordance with the other
applicable Article.
4.3 WITHDRAWAL PAYOUT/SUSPENSIONS FOR UNFORESEEABLE FINANCIAL EMERGENCIES.
---------------------------------------------------------------------
If the Participant experiences an Unforeseeable Financial Emergency, the
Participant may petition the Committee to (i) suspend any deferrals
required to be made by a Participant and/or (ii) receive a partial or full
payout from the Plan. The payout shall not exceed the lesser of the
Participant's Account Balance, calculated as if such Participant were
receiving a Termination Benefit, or the amount reasonably needed to satisfy
the Unforeseeable Financial Emergency. If, subject to the sole discretion
of the Committee, the petition for a suspension and/or payout is approved,
suspension shall take effect upon the date of approval and any payout shall
be made within 60 days of the date of approval. The payment of any amount
under this Section 4.3 shall not be subject to the Deduction Limitation.
4.4 WITHDRAWAL ELECTION. A Participant (or, after the Participant's death,
-------------------
his or her Beneficiary) may elect, at any time, to withdraw all of his or
her Account Balance, calculated as if there had occurred a Termination of
Employment as of the day of the
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================================================================================
election, less a withdrawal penalty equal to 10% of such amount (the net
amount shall be referred to as the "Withdrawal Amount"). This election can
be made at any time before or after Retirement, Disability, death or
Termination of Employment, and whether or not the Participant (or
Beneficiary) is in the process of being paid pursuant to an installment
payment schedule. If made before Retirement, Disability or death, a
Participant's Withdrawal Amount shall be his or her Account Balance
calculated as if there had occurred a Termination of Employment as of the
day of the election. No partial withdrawals of the Withdrawal Amount shall
be allowed. The Participant (or his or her Beneficiary) shall make this
election by giving the Committee advance written notice of the election in
a form determined from time to time by the Committee. The Participant (or
his or her Beneficiary) shall be paid the Withdrawal Amount within 60 days
of his or her election. Once the Withdrawal Amount is paid, the
Participant's participation in the Plan shall terminate and the Participant
shall not be eligible to participate in the Plan in the future. The payment
of this Withdrawal Amount shall not be subject to the Deduction Limitation.
ARTICLE 5
RETIREMENT BENEFIT
------------------
5.1 RETIREMENT BENEFIT. Subject to the Deduction Limitation, a Participant
------------------
who Retires shall receive, as a Retirement Benefit, his or her Account
Balance.
5.2 PAYMENT OF RETIREMENT BENEFIT. A Participant, in connection with his or
-----------------------------
her commencement of participation in the Plan, shall elect on an Election
Form to receive the Retirement Benefit in a lump sum or in substantially
equal monthly installments (the latter determined in accordance with
Section 3.10 above) over a period of 60, 120 or 180 months. The Participant
may annually change his or her election to an allowable alternative payout
period by submitting a new Election Form to the Committee, provided that
any such Election Form is submitted at least 2 years prior to the
Participant's Retirement and is accepted by the Committee in its sole
discretion. The Election Form most recently accepted by the Committee shall
govern the payout of the Retirement Benefit. If a Participant does not make
any election with respect to the payment of the Retirement Benefit, then
such benefit shall be payable in a lump sum. The lump sum payment shall be
made, or installment payments shall commence, no later than 60 days after
the date the Participant Retires. Any payment made shall be subject to the
Deduction Limitation.
5.3 DEATH PRIOR TO COMPLETION OF RETIREMENT BENEFIT. If a Participant dies
-----------------------------------------------
after Retirement but before the Retirement Benefit is paid in full, the
Participant's unpaid Retirement Benefit payments shall continue and shall
be paid to the Participant's Beneficiary (a) over the remaining number of
months and in the same amounts as that benefit would have been paid to the
Participant had the Participant survived, or (b) in a
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================================================================================
lump sum, if requested by the Beneficiary and allowed in the sole
discretion of the Committee, that is equal to the Participant's unpaid
remaining Account Balance.
ARTICLE 6
PRE-RETIREMENT SURVIVOR BENEFIT
-------------------------------
6.1 PRE-RETIREMENT SURVIVOR BENEFIT. Subject to the Deduction Limitation,
-------------------------------
the Participant's Beneficiary shall receive a Pre-Retirement Survivor
Benefit equal to the Participant's Account Balance, if the Participant dies
before he or she Retires, experiences a Termination of Employment or
suffers a Disability.
6.2 PAYMENT OF PRE-RETIREMENT SURVIVOR BENEFIT. A Participant, in connection
------------------------------------------
with his or her commencement of participation in the Plan, shall elect on
an Election Form whether the Pre-Retirement Survivor Benefit shall be
received by his or her Beneficiary in a lump sum or in substantially equal
monthly payments (the latter determined in accordance with Section 3.10
above) over a period of 60, 120 or 180 months. The Participant may annually
change this election to an allowable alternative payout period by
submitting a new Election Form to the Committee, which form must be
accepted by the Committee in its sole discretion. The Election Form most
recently accepted by the Committee prior to the Participant's death shall
govern the payout of the Participant's Pre-Retirement Survivor Benefit. If
a Participant does not make any election with respect to the payment of the
Pre-Retirement Survivor Benefit, then such benefit shall be paid in a lump
sum. Despite the foregoing, if the Participant's Account Balance at the
time of his or her death is less than $25,000, payment of the Pre-
Retirement Survivor Benefit may be made, in the sole discretion of the
Committee, in a lump sum or monthly installment payments that do not exceed
five years in duration. The lump sum payment shall be made, or installment
payments shall commence, no later than 60 days after the date the Committee
is provided with proof that is satisfactory to the Committee of the
Participant's death. Any payment made shall be subject to the Deduction
Limitation.
ARTICLE 7
TERMINATION BENEFIT
-------------------
7.1 TERMINATION BENEFIT. Subject to the Deduction Limitation, the Participant
-------------------
shall receive a Termination Benefit, which shall be equal to the
Participant's Account Balance, with interest credited in the manner
provided in Section 3.10 above, if a Participant experiences a Termination
of Employment prior to his or her Retirement, death or Disability, using
the Crediting Rate if the Participant has fewer than 5 completed Year of
Plan Participation and the Preferred Rate if the Participant has completed
5 or more Years of Plan Participation (in which case the Preferred Rate
shall be used for all Plan Years including Plan Years prior to the
completion of five years of Plan Participation). Notwithstanding
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================================================================================
the foregoing, the Board in its sole and absolute discretion may determine
that the applicable rate for any Participant shall be the Preferred Rate
without regard to his or her completed Years of Plan Participation.
7.2 PAYMENT OF TERMINATION BENEFIT. If the Participant's Account Balance at
------------------------------
the time of his or her Termination of Employment is less than $200,000,
payment of his or her Termination Benefit shall be paid in a lump sum. If
his or her Account Balance at such time is equal to or greater than that
amount, the Participant may elect at the time of his or her commencement of
participation in the Plan to have the Termination Benefit to be paid in a
lump sum or in substantially equal monthly installment payments over a
period of time that does not exceed five years in duration (the latter
determined in accordance with Section 3.10 above). The lump sum payment
shall be made, or installment payments shall commence, no later than 60
days after the date of the Participant's Termination of Employment. Any
payment made shall be subject to the Deduction Limitation. The Participant
may annually change his or her election to an alternative payout period
allowable under this Section 7.2 by submitting a new election to the
Committee; provided that, in order to be valid, any change must be
submitted at least two years prior to the Participant's Termination of
Employment and is accepted by the Committee in its sole discretion.
ARTICLE 8
DISABILITY WAIVER AND BENEFIT
-----------------------------
8.1 Disability Waiver.
-----------------
(a) WAIVER OF DEFERRAL. A Participant who is determined by the Committee
------------------
to be suffering from a Disability shall be (i) excused from fulfilling
that portion of the Annual Deferral Amount commitment that would
otherwise have been withheld from a Participant's Base Annual Salary
and/or Annual Bonus for the Plan Year during which the Participant
first suffers a Disability and (ii) excused from fulfilling any
unexercised Stock Option Deferral Amount commitments. During the
period of Disability, the Participant shall not be allowed to make any
additional deferral elections, but will continue to be considered a
Participant for all other purposes of this Plan.
(b) RETURN TO WORK. If a Participant returns to employment with an
--------------
Employer after a Disability ceases, the Participant may elect to defer
an Annual Deferral Amount and Stock Option Deferral Amount for the
Plan Year following his or her return to employment or service and for
every Plan Year thereafter while a Participant in the Plan; provided
such deferral elections are otherwise allowed and an Election Form is
delivered to and accepted by the Committee for each such election in
accordance with Section 3.3 above.
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================================================================================
8.2 CONTINUED ELIGIBILITY; DISABILITY BENEFIT. A Participant suffering a
-----------------------------------------
Disability shall, for benefit purposes under this Plan, continue to be
considered to be employed and shall be eligible for the benefits provided
for in Articles 4, 5, 6 or 7 in accordance with the provisions of those
Articles. Notwithstanding the above, the Committee shall, in the case of a
Participant whose Disability has lasted at least 24 months or who is
otherwise eligible to Retire, deem the Participant to have experienced a
Termination of Employment, or in the case of a Participant who is eligible
to Retire, to have Retired, in which case the Participant shall receive a
Disability Benefit equal to his or her Account Balance at the time of the
Committee's determination; provided, however, that should the Participant
otherwise have been eligible to Retire, he or she shall be paid in
accordance with Article 5; otherwise the Disability Benefit shall be paid
in a lump sum within 60 days of the Committee's exercise of such right,
unless the Committee determines to pay such amount in installments over a
period not to exceed 180 months. Any payment made shall be subject to the
Deduction Limitation.
ARTICLE 9
BENEFICIARY DESIGNATION
-----------------------
9.1 BENEFICIARY. Each Participant shall have the right, at any time, to
-----------
designate his or her Beneficiary(ies) (both primary as well as contingent)
to receive any benefits payable under the Plan to a beneficiary upon the
death of a Participant. The Beneficiary designated under this Plan may be
the same as or different from the Beneficiary designation under any other
plan of an Employer in which the Participant participates.
9.2 BENEFICIARY DESIGNATION; CHANGE; SPOUSAL CONSENT. A Participant shall
------------------------------------------------
designate his or her Beneficiary by completing and signing the Beneficiary
Designation Form, and returning it to the Committee or its designated
agent. A Participant shall have the right to change a Beneficiary by
completing, signing and otherwise complying with the terms of the
Beneficiary Designation Form and the Committee's rules and procedures, as
in effect from time to time. If the Participant names someone other than
his or her spouse as a Beneficiary, a spousal consent, in the form
designated by the Committee, must be signed by that Participant's spouse
and returned to the Committee. Upon the acceptance by the Committee of a
new Beneficiary Designation Form, all Beneficiary designations previously
filed shall be canceled. The Committee shall be entitled to rely on the
last Beneficiary Designation Form filed by the Participant and accepted by
the Committee prior to his or her death.
9.3 ACCEPTANCE. No designation or change in designation of a Beneficiary
----------
shall be effective until received and acknowledged in writing by the
Committee or its designated agent.
9.4 NO BENEFICIARY DESIGNATION. If a Participant fails to designate a
--------------------------
Beneficiary as provided in Sections 9.1, 9.2 and 9.3 above or, if all
designated Beneficiaries predecease the
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Master Plan Document
================================================================================
Participant or die prior to complete distribution of the Participant's
benefits, then the Participant's designated Beneficiary shall be deemed to
be his or her surviving spouse. If the Participant has no surviving spouse,
the benefits remaining under the Plan to be paid to a Beneficiary shall be
payable to the executor or personal representative of the Participant's
estate.
9.5 DOUBT AS TO BENEFICIARY. If the Committee has any doubt as to the proper
-----------------------
Beneficiary to receive payments pursuant to this Plan, the Committee shall
have the right, exercisable in its discretion, to cause the Participant's
Employer to withhold such payments until this matter is resolved to the
Committee's satisfaction.
9.6 DISCHARGE OF OBLIGATIONS. The payment of benefits under the Plan to a
------------------------
Beneficiary shall fully and completely discharge all Employers and the
Committee from all further obligations under this Plan with respect to the
Participant, and that Participant's Plan Agreement shall terminate upon
such full payment of benefits.
ARTICLE 10
LEAVE OF ABSENCE
----------------
10.1 PAID LEAVE OF ABSENCE. If a Participant is authorized by the
---------------------
Participant's Employer for any reason to take a paid leave of absence
from the employment of the Employer, the Participant shall continue to be
considered employed by the Employer and the Annual Deferral Amount shall
continue to be withheld during such paid leave of absence in accordance
with Section 3.3.
10.2 UNPAID LEAVE OF ABSENCE. If a Participant is authorized by the
-----------------------
Participant's Employer for any reason to take an unpaid leave of absence
from the employment of the Employer, the Participant shall continue to be
considered employed by the Employer and the Participant shall be excused
from making deferrals until the earlier of the date the leave of absence
expires or the Participant returns to a paid employment status. Upon such
expiration or return, deferrals shall resume for the remaining portion of
the Plan Year in which the expiration or return occurs, based on the
deferral election, if any, made for that Plan Year. If no election was made
for that Plan Year, no deferral shall be withheld.
ARTICLE 11
TERMINATION, AMENDMENT OR MODIFICATION
--------------------------------------
11.1 TERMINATION. Although each Employer anticipates that it will continue the
-----------
Plan for an indefinite period of time, there is no guarantee that any
Employer will continue the Plan or will not terminate the Plan at any time
in the future. Accordingly, each Employer reserves the right to discontinue
its sponsorship of the Plan and/or to terminate the Plan, at any
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DEFERRED COMPENSATION PLAN
Master Plan Document
================================================================================
time, with respect to its participating Employees, by the action of its
board of directors. Upon the termination of the Plan with respect to any
Employer, the Plan Agreements of the affected Participants who are employed
by that Employer shall terminate and their Account Balances, determined as
if they had experienced a Termination of Employment on the date of Plan
termination or, if Plan termination occurs after the date upon which a
Participant was eligible to Retire, then with respect to that Participant
as if he or she had Retired on the date of Plan termination, shall be paid
to the Participants as follows. Prior to a Change in Control, if the Plan
is terminated with respect to all its Participants, an Employer shall have
the right, in its sole discretion, and notwithstanding any elections made
by the Participant, to pay such benefits in a lump sum or monthly
installments for up to 15 years, with interest credited during the
installment period as provided in Section 3.10. If the Plan is terminated
with respect to less than all of its Participants, an Employer shall be
required to pay such benefits in a lump sum. After a Change in Control, the
Employer shall be required to pay such benefits in a lump sum. The
termination of the Plan shall not adversely affect any Participant or
Beneficiary who has become entitled to the payment of any benefits under
the Plan as of the date of termination; provided however, that the Employer
shall have the right to accelerate installment payments without a premium
or prepayment penalty by paying the Account Balance in a lump sum or in
installments using fewer months (provided that the present value of all
payments that will have been received by a Participant at any given point
of time under the different payment schedule shall equal or exceed the
present value of all payments that would have been received at that point
in time under the original payment schedule).
11.2 AMENDMENT. Any Employer may, at any time, amend or modify the Plan in
---------
whole or in part with respect to that Employer by the action of its board
of directors; provided, however, that no amendment or modification shall be
effective to decrease or restrict the value of a Participant's Account
Balance in existence at the time the amendment or modification is made,
calculated as if the Participant had experienced a Termination of
Employment as of the effective date of the amendment or modification, or,
if the amendment or modification occurs after the date upon which the
Participant was eligible to Retire, the Participant had Retired as of the
effective date of the amendment or modification. The amendment or
modification of the Plan shall not affect any Participant or Beneficiary
who has become entitled to the payment of benefits under the Plan as of the
date of the amendment or modification; provided, however, that the Employer
shall have the right to accelerate installment payments by paying the
Account Balance in a lump sum or in installments using fewer months
(provided that, the present value of all payments that will have been
received by a Participant at any given point in time under the different
payment schedule shall equal or exceed the present value of all payments
that would have been received at that point in time under the original
payment schedule).
11.3 PLAN AGREEMENT. Despite the provisions of Sections 11.1 and 11.2 above,
--------------
if a Participant's Plan Agreement contains benefits or limitations that are
not in this Plan
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================================================================================
document, the Employer may only amend or terminate such provisions with the
consent of the Participant.
11.4 INTEREST RATE IN THE EVENT OF A CHANGE IN CONTROL. If a Change in
-------------------------------------------------
Control occurs, notwithstanding any other provision hereof, the applicable
interest rate to be used in determining a Participant's benefit in
connection with a Termination of Employment after the Change in Control, or
a Plan termination, amendment or modification under Sections 11.1 and 11.2,
shall be the Preferred Rate without regard to the Participant's Years of
Plan Participation. However, the Crediting Rate for the applicable Plan
Year, and not the Preferred Rate, shall continue to be used as the discount
rate for determining present value.
11.5 EFFECT OF PAYMENT. The full payment of the applicable benefit under
-----------------
Section 4.4 or Articles 5, 6, 7 or 8 of the Plan shall completely discharge
all obligations to a Participant and his or her designated Beneficiaries
under this Plan and the Participant's Plan Agreement shall terminate.
ARTICLE 12
ADMINISTRATION
--------------
12.1 COMMITTEE DUTIES. Except as otherwise provided in this Section 12,
----------------
this Plan shall be administered by a Committee which shall consist of the
Board, or such committee as the Board shall appoint. Members of the
Committee may be Participants under this Plan. The Committee shall also
have the discretion and authority to (i) make, amend, interpret, and
enforce all appropriate rules and regulations for the administration of
this Plan and (ii) decide or resolve any and all questions including
interpretations of this Plan, as may arise in connection with the Plan. Any
individual serving on the Committee who is a Participant shall not vote or
act on any matter relating solely to himself or herself. When making a
determination or calculation, the Committee shall be entitled to rely on
information furnished by a Participant or the Company.
12.2 ADMINISTRATION UPON CHANGE IN CONTROL. For purposes of this Plan, the
-------------------------------------
Committee shall be the "Administrator" at all times prior to the occurrence
of a Change in Control. Upon and after the occurrence of a Change in
Control, the "Administrator" shall be an independent third party selected
within 60 days by the Trustee (and such party may be the Trustee) and
approved by the individual who, immediately prior to such event, was the
Company's Chief Executive Officer or, if not so identified, the Company's
highest ranking officer (the "Ex-CEO") whose approval will not be
unreasonably withheld. The Administrator shall have the discretionary power
to determine all questions arising in connection with the administration
and interpretation of the Plan including but not limited to benefit
entitlement determinations; provided, however, upon and after the
occurrence of a Change in Control, the Administrator (if a party other than
the Trustee) shall have no
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Master Plan Document
================================================================================
power to direct the investment of Plan or Trust assets or select any
investment manager or custodial firm for the Plan or Trust. Upon and after
the occurrence of a Change in Control, the Company must: (1) pay all
reasonable administrative expenses and fees of the Administrator; (2)
indemnify the Administrator against any costs, expenses and liabilities
including, without limitation, attorney's fees and expenses arising in
connection with the performance of the Administrator hereunder, except with
respect to matters resulting from the gross negligence or willful
misconduct of the Administrator or its employees or agents; and (3) supply
full and timely information to the Administrator on all matters relating to
the Plan, the Trust, the Participants and their Beneficiaries, the Account
Balances of the Participants, the date of circumstances of the Retirement,
Disability, death or Termination of Employment of the Participants, and
such other pertinent information as the Administrator may reasonably
require. Upon and after a Change in Control, the Administrator may only be
terminated (and a replacement appointed) by the Trustee with the approval
of the Ex-CEO, and may in no event be terminated by the Company.
12.3 AGENTS. In the administration of this Plan, the Committee may, from time
------
to time, employ agents and delegate to them such administrative duties as
it sees fit (including acting through a duly appointed representative) and
may from time to time consult with counsel who may be counsel to any
Employer.
12.4 BINDING EFFECT OF DECISIONS. The decision or action of the Administrator
---------------------------
with respect to any question arising out of or in connection with the
administration, interpretation and application of the Plan and the rules
and regulations promulgated hereunder shall be final and conclusive and
binding upon all persons having any interest in the Plan.
12.5 INDEMNITY OF COMMITTEE. All Employers shall indemnify and hold harmless
----------------------
the members of the Committee, and any Employee to whom duties of the
Committee may be delegated, and the Administrator against any and all
claims, losses, damages, expenses or liabilities arising from any action or
failure to act with respect to this Plan, except in the case of willful
misconduct by the Committee, any of its members, any such Employee or the
Administrator.
12.6 EMPLOYER INFORMATION. To enable the Committee and/or Administrator to
--------------------
perform its functions, the Company and each Employer shall supply full and
timely information to the Committee and/or Administrator, as the case may
be, on all matters relating to the compensation of its Participants, the
date and circumstances of the Retirement, Disability, death or Termination
of Employment of its Participants, and such other pertinent information as
the Committee or Administrator may reasonably require.
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Master Plan Document
================================================================================
ARTICLE 13
OTHER BENEFITS AND AGREEMENTS
-----------------------------
13.1 COORDINATION WITH OTHER BENEFITS. The benefits provided for a
--------------------------------
and Participant's Beneficiary under the Plan are in addition to any other
benefits available to such Participant under any other plan or program for
employees of the Participant's Employer. The Plan shall supplement and
shall not supersede, modify or amend any other such plan or program except
as may otherwise be expressly provided.
ARTICLE 14
CLAIMS PROCEDURES
-----------------
14.1 PRESENTATION OF CLAIM. Any Participant or Beneficiary of a deceased
---------------------
Participant (such Participant or Beneficiary being referred to below as a
"Claimant") may deliver to the Committee a written claim for a
determination with respect to the amounts distributable to such Claimant
from the Plan. If such a claim relates to the contents of a notice
received by the Claimant, the claim must be made within 60 days after such
notice was received by the Claimant. The claim must state with
particularity the determination desired by the Claimant. All other claims
must be made within 180 days of the date on which the event that caused
the claim to arise occurred. The claim must state with particularity the
determination desired by the Claimant.
14.2 NOTIFICATION OF DECISION. The Committee shall consider a Claimant's
------------------------
claim within a reasonable time, and shall notify the Claimant in
writing:
(a) that the Claimant's requested determination has been made, and that
the claim has been allowed in full; or
(b) that the Committee has reached a conclusion contrary, in whole or in
part, to the Claimant's requested determination, and such notice must
set forth in a manner calculated to be understood by the Claimant:
(i) the specific reason(s) for the denial of the claim, or any part
of it;
(ii) specific reference(s) to pertinent provisions of the Plan upon
which such denial was based;
(iii) a description of any additional material or information
necessary for the Claimant to perfect the claim, and an
explanation of why such material or information is necessary;
and
(iv) an explanation of the claim review procedure set forth in
Section 14.3 below.
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14.3 REVIEW OF A DENIED CLAIM. Within 60 days after receiving a notice from
------------------------
the Committee that a claim has been denied, in whole or in part, a Claimant
(or the Claimant's duly authorized representative) may file with the
Committee a written request for a review of the denial of the claim.
Thereafter, but not later than 30 days after the review procedure began,
the Claimant (or the Claimant's duly authorized representative):
(a) may review pertinent documents;
(b) may submit written comments or other documents; and/or
(c) may request a hearing, which the Committee, in its sole discretion,
may grant.
14.4 DECISION ON REVIEW. The Committee shall render its decision on review
------------------
promptly, and not later than 60 days after the filing of a written request
for review of the denial, unless a hearing is held or other special
circumstances require additional time, in which case the Committee's
decision must be rendered within 120 days after such date. Such decision
must be written in a manner calculated to be understood by the Claimant,
and it must contain:
(a) specific reasons for the decision;
(b) specific reference(s) to the pertinent Plan provisions upon which the
decision was based; and
(c) such other matters as the Committee deems relevant.
14.5 LEGAL ACTION. A Claimant's compliance with the foregoing provisions of
------------
this Article 14 is a mandatory prerequisite to a Claimant's right to
commence any legal action with respect to any claim for benefits under this
Plan.
ARTICLE 15
TRUST
-----
15.1 ESTABLISHMENT OF THE TRUST. The Company shall establish the Trust, and
--------------------------
each Employer shall at least annually transfer over to the Trust such
assets as the Employer determines, in its sole discretion, are necessary to
provide, on a present value basis, for its respective future liabilities
created with respect to the Annual Deferral Amounts, Annual Company
Contribution Amounts, Annual Stock Option Deferral Amounts and interest
and/or dividend credits for those amounts for all periods prior to the
transfer, as well as any debits and credits to the Participants' Account
Balances for all periods prior to the transfer, taking into consideration
the value of the assets in the trust at the time of the transfer.
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15.2 INTERRELATIONSHIP OF THE PLAN AND THE TRUST. The provisions of the
-------------------------------------------
Plan and the Plan Agreement shall govern the rights of a Participant to
receive distributions pursuant to the Plan. The provisions of the Trust
shall govern the rights of the Employers, Participants and the creditors
of the Employers to the assets transferred to the Trust. Each Employer
shall at all times remain liable to carry out its obligations under the
Plan.
15.3 DISTRIBUTIONS FROM THE TRUST. Each Employer's obligations under the
----------------------------
Plan may be satisfied with Trust assets distributed pursuant
to the terms of the Trust, and any such distribution shall reduce the
Employer's obligations under this Agreement.
ARTICLE 16
MISCELLANEOUS
-------------
16.1 STATUS OF PLAN. The Plan is intended to be a plan that is not qualified
--------------
within the meaning of Code Section 401(a) and that "is unfunded and is
maintained by an employer primarily for the purpose of providing
deferred compensation for a select group of management or highly
compensated employee" within the meaning of ERISA Sections 201(2),
301(a)(3) and 401(a)(1). The Plan shall be administered and interpreted
to the extent possible in a manner consistent with that intent.
16.2 UNSECURED GENERAL CREDITOR. Participants and their Beneficiaries, heirs,
--------------------------
successors and assigns shall have no legal or equitable rights,
interests or claims in any property or assets of an Employer. For
purposes of the payment of benefits under this Plan, any and all of an
Employer's assets shall be, and remain, the general, unpledged
unrestricted assets of the Employer. An Employer's obligation under the
Plan shall be merely that of an unfunded and unsecured promise to pay
money in the future.
16.3 EMPLOYER'S LIABILITY. An Employer's liability for the payment of
--------------------
benefits shall be defined only by the Plan and the Plan Agreement, as
entered into between the Employer and a Participant. An Employer shall
have no obligation to a Participant under the Plan except as expressly
provided in the Plan and his or her Plan Agreement.
16.4 NONASSIGNABILITY. Neither a Participant nor any other person shall have
----------------
any right to commute, sell, assign, transfer, pledge, anticipate,
mortgage or otherwise encumber, transfer, hypothecate, alienate or
convey in advance of actual receipt, the amounts, if any, payable
hereunder, or any part thereof, which are, and all rights to which are
expressly declared to be, unassignable and non-transferable. No part of
the amounts payable shall, prior to actual payment, be subject to
seizure, attachment, garnishment or sequestration for the payment of any
debts, judgments, alimony or separate maintenance owed by a Participant
or any other person, be transferable by operation of law in the event of
a Participant's or any other person's bankruptcy or insolvency or be
transferable to a spouse as a result of a property settlement or
otherwise.
- --------------------------------------------------------------------------------
25
<PAGE>
K-Swiss, Inc.
DEFERRED COMPENSATION PLAN
Master Plan Document
================================================================================
16.5 NOT A CONTRACT OF EMPLOYMENT. The terms and conditions of this Plan
----------------------------
shall not be deemed to constitute a contract of employment between any
Employer and the Participant. Such employment is hereby acknowledged to be
an "at will" employment relationship that can be terminated at any time
for any reason, or no reason, with or without cause, and with or without
notice, unless expressly provided in a written employment agreement.
Nothing in this Plan shall be deemed to give a Participant the right to be
retained in the service of any Employer or to interfere with the right of
any Employer to discipline or discharge the Participant at any time.
16.6 FURNISHING INFORMATION. A Participant or his or her Beneficiary will
----------------------
cooperate with the Committee by furnishing any and all information
requested by the Committee and take such other actions as may be requested
in order to facilitate the administration of the Plan and the payments of
benefits hereunder, including but not limited to taking such physical
examinations as the Committee may deem necessary.
16.7 TERMS. Whenever any words are used herein in the masculine, they shall
-----
be construed as though they were in the feminine in all cases where they
would so apply; and whenever any words are used herein in the singular or
in the plural, they shall be construed as though they were used in the
plural or the singular, as the case may be, in all cases where they would
so apply.
16.8 CAPTIONS. The captions of the articles, sections and paragraphs of
--------
this Plan are for convenience only and shall not control or affect the
meaning or construction of any of its provisions .
16.9 GOVERNING LAW. Subject to ERISA, the provisions of this Plan shall be
-------------
construed and interpreted according to the internal laws of the State of
California without regard to its conflicts of laws principles.
16.10 NOTICE. Any notice or filing required or permitted to be given to the
------
Committee under this Plan shall be sufficient if in writing and hand-
delivered, or sent by registered or certified mail, to the address below:
Deferred Compensation Plan Committee
c/o K-Swiss, Inc.
20664 Bahama Street
Chatsworth, CA 91311
Such notice shall be deemed given as of the date of delivery or, if
delivery is made by mail, as of the date shown on the postmark on the
receipt for registration or certification.
- --------------------------------------------------------------------------------
26
<PAGE>
K-Swiss, Inc.
DEFERRED COMPENSATION PLAN
Master Plan Document
================================================================================
Any notice or filing required or permitted to be given to a Participant
under this Plan shall be sufficient if in writing and hand-delivered, or
sent by mail, to the last known address of the Participant.
16.11 SUCCESSORS. The provisions of this Plan shall bind and inure to the
----------
benefit of the Participant's Employer and its successors and assigns and
the Participant and the Participant's designated Beneficiaries.
16.12 SPOUSE'S INTEREST. The interest in the benefits hereunder of a spouse
-----------------
of a Participant who has predeceased the Participant shall automatically
pass to the Participant and shall not be transferable by such spouse in
any manner, including but not limited to such spouse's will, nor shall
such interest pass under the laws of intestate succession.
16.13 VALIDITY. In case any provision of this Plan shall be illegal or
--------
invalid for any reason, said illegality or invalidity shall not affect
the remaining parts hereof, but this Plan shall be construed and enforced
as if such illegal or invalid provision had never been inserted herein.
16.14 INCOMPETENT. If the Committee determines in its discretion that a
-----------
benefit under this Plan is to be paid to a minor, a person declared
incompetent or to a person incapable of handling the disposition of that
person's property, the Committee may direct payment of such benefit to
the guardian, legal representative or person having the care and custody
of such minor, incompetent or incapable person. The Committee may require
proof of minority, incompetence, incapacity or guardianship, as it may
deem appropriate prior to distribution of the benefit. Any payment of a
benefit shall be a payment for the account of the Participant and the
Participant's Beneficiary, as the case may be, and shall be a complete
discharge of any liability under the Plan for such payment amount.
16.15 COURT ORDER. The Committee is authorized to make any payments directed
-----------
by court order in any action in which the Plan or the Committee has been
named as a party. In addition, if a court determines that a spouse or
former spouse of a Participant has an interest in the Participant's
benefits under the Plan in connection with a property settlement or
otherwise, the Committee, in its sole discretion, shall have the right,
notwithstanding any election made by a Participant, to immediately
distribute the spouse's or former spouse's interest in the Participant's
benefits under the Plan to that spouse or former spouse.
16.16 DISTRIBUTION IN THE EVENT OF TAXATION.
-------------------------------------
(a) GENERAL. If, for any reason, all or any portion of a Participant's
-------
benefit under this Plan becomes taxable to the Participant prior to
receipt, a Participant may petition the Committee before a Change in
Control, or the trustee of the Trust after a Change in Control, for
a distribution of that portion of his or her benefit that has
- --------------------------------------------------------------------------------
27
<PAGE>
K-Swiss, Inc.
DEFERRED COMPENSATION PLAN
Master Plan Document
================================================================================
become taxable. Upon the grant of such a petition, which grant shall
not be unreasonably withheld (and, after a Change in Control, shall be
granted), a Participant's Employer shall distribute to the Participant
immediately available funds in an amount equal to the taxable portion
of his or her benefit (which amount shall not exceed a Participant's
unpaid Account Balance under the Plan). If the petition is granted,
the tax liability distribution shall be made within 90 days of the
date when the Participant's petition is granted. Such a distribution
shall affect and reduce the benefits to be paid under this Plan.
(b) TRUST. If the Trust terminates in accordance with Section 3.6(e) of
-----
the Trust and benefits are distributed from the Trust to a Participant
in accordance with that Section, the Participant's benefits under this
Plan shall be reduced to the extent of such distributions.
16.17 INSURANCE. The Employers, on their own behalf or on behalf of the
---------
trustee of the Trust, and, in their sole discretion, may apply for and
procure insurance on the life of the Participant, in such amounts and in
such forms as the Trust may choose. The Employers or the trustee of the
Trust, as the case may be, shall be the sole owner and beneficiary of any
such insurance. The Participant shall have no interest whatsoever in any
such policy or policies, and at the request of the Employers shall submit
to medical examinations and supply such information and execute such
documents as may be required by the insurance company or companies to
whom the Employers have applied for insurance.
16.18 LEGAL FEES TO ENFORCE RIGHTS AFTER CHANGE IN CONTROL. The Company
----------------------------------------------------
and each Employer is aware that upon the occurrence of a Change in
Control, the Board or the board of directors of the Participant's
Employer (which might then be composed of new members) or a shareholder
of the Company or the Participant's Employer, or of any successor
corporation might then cause or attempt to cause the Company or the
Participant's Employer or such successor to refuse to comply with its
obligations under the Plan and might cause or attempt to cause the
Company or the Participant's Employer to institute, or may institute,
litigation seeking to deny Participants the benefits intended under the
Plan. In these circumstances, the purpose of the Plan could be
frustrated. Accordingly, if, following a Change in Control, it should
appear to any Participant that the Company, the Participant's Employer or
any successor corporation has failed to comply with any of its
obligations under the Plan or any agreement thereunder or, if the
Company, such Employer or any other person takes any action to declare
the Plan void or unenforceable or institutes any litigation or other
legal action designed to deny, diminish or to recover from any
Participant the benefits intended to be provided, then the Company and
the Participant's Employer irrevocably authorize such Participant to
retain counsel of his or her choice at the expense of the Company and the
Employer (who shall be jointly and severally liable) to represent such
Participant in connection with the initiation or defense of any
litigation or other legal action, whether by or against the Company, the
- --------------------------------------------------------------------------------
28
<PAGE>
K-Swiss, Inc.
DEFERRED COMPENSATION PLAN
Master Plan Document
================================================================================
Participant's Employer or any director, officer, shareholder or other
person affiliated with the Company, the Participant's Employer or any
successor thereto in any jurisdiction.
IN WITNESS WHEREOF, the Company has signed this Plan document as of 12/22, 1997.
K-Swiss, Inc.
a Delaware corporation
By: /s/ George Powlick
---------------------------------
Title: Vice President
-------------------------------
- --------------------------------------------------------------------------------
29
<PAGE>
K-SWISS, INC. EXHIBIT 10.2
Deferred Compensation Plan
Master Trust Agreement
================================================================================
COPYRIGHT(C) 1997
BY COMPENSATION RESOURCE GROUP, INC.
ALL RIGHTS RESERVED
<PAGE>
K-SWISS, INC.
Deferred Compensation Plan
Master Trust Agreement
================================================================================
MASTER TRUST AGREEMENT
----------------------
Table of Contents
-----------------
ARTICLE PAGE
- ------- ----
ARTICLE 1 NAME, INTENTIONS, IRREVOCABILITY, DEPOSIT AND DEFINITIONS.........1
---------------------------------------------------------
1.1 Name...............................................................1
1.2 Intentions.........................................................1
1.3 Irrevocability; Creditor Claims....................................1
1.4 Initial Deposit....................................................2
1.5 Additional Definitions.............................................2
1.6 Grantor Trust......................................................3
ARTICLE 2 GENERAL ADMINISTRATION............................................4
----------------------
2.1 Committee Directions and Administration Before Change in Control...4
2.2 Administration Upon Change in Control..............................4
2.3 Contributions......................................................5
2.4 Trust Fund.........................................................5
2.5 Distribution of Excess Trust Fund to Employers.....................5
ARTICLE 3 POWERS AND DUTIES OF TRUSTEE......................................5
----------------------------
3.1 Investment Directions..............................................5
3.2 Investment Upon Change in Control..................................6
3.3 Management of Investments..........................................6
3.4 Securities.........................................................8
3.5 Substitution.......................................................8
3.6 Distributions......................................................9
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-i-
<PAGE>
K-SWISS, INC.
Deferred Compensation Plan
Master Trust Agreement
================================================================================
3.7 Trustee Responsibility Regarding Payments on Insolvency...........11
3.8 Costs of Administration...........................................13
3.9 Trustee Compensation and Expenses.................................13
3.10 Professional Advice..............................................13
3.11 Payment on Court Order...........................................13
3.12 Protective Provisions............................................14
3.13 Indemnifications.................................................14
ARTICLE 4 INSURANCE CONTRACTS..............................................14
-------------------
4.1 Types of Contracts................................................14
4.2 Ownership.........................................................15
4.3 Restrictions on Trustee's Rights..................................15
ARTICLE 5 TRUSTEE'S ACCOUNTS...............................................15
------------------
5.1 Records...........................................................15
5.2 Annual Accounting; Final Accounting...............................15
5.3 Valuation.........................................................16
5.4 Delegation of Duties..............................................16
ARTICLE 6 RESIGNATION OR REMOVAL OF TRUSTEE................................17
---------------------------------
6.1 Resignation; Removal..............................................17
6.2 Successor Trustee.................................................17
6.3 Settlement of Accounts............................................17
ARTICLE 7 CONTROVERSIES, LEGAL ACTIONS AND COUNSEL.........................17
----------------------------------------
7.1 Controversy.......................................................17
7.2 Joinder of Parties................................................18
- --------------------------------------------------------------------------------
-ii-
<PAGE>
K-SWISS, INC.
Deferred Compensation Plan
Master Trust Agreement
================================================================================
7.3 Employment of Counsel.............................................18
ARTICLE 8 INSURERS.........................................................18
--------
8.1 Insurer Not a Party...............................................18
8.2 Authority of Trustee..............................................18
8.3 Contract Ownership................................................18
8.4 Limitation of Liability...........................................18
8.5 Change of Trustee.................................................18
ARTICLE 9 AMENDMENT AND TERMINATION........................................19
-------------------------
9.1 Amendment.........................................................19
9.2 Final Termination.................................................20
ARTICLE 10 MISCELLANEOUS...................................................21
-------------
10.1 Directions Following Change in Control...........................21
10.2 Taxes............................................................21
10.3 Third Persons....................................................21
10.4 Nonassignability; Nonalienation..................................21
10.5 The Plans........................................................21
10.6 Applicable Law...................................................22
10.7 Notices and Directions...........................................22
10.8 Successors and Assigns...........................................22
10.9 Gender and Number................................................22
10.10 Headings........................................................22
10.11 Counterparts....................................................22
10.12 Beneficial Interest.............................................22
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-iii-
<PAGE>
K-SWISS, INC.
Deferred Compensation Plan
Master Trust Agreement
================================================================================
10.13 The Trust and Plans............................................22
10.14 Effective Date.................................................22
- --------------------------------------------------------------------------------
-iv-
<PAGE>
K-SWISS, INC.
Deferred Compensation Plan
Master Trust Agreement
================================================================================
MASTER TRUST AGREEMENT
FOR
K-SWISS, INC.
DEFERRED COMPENSATION PLAN
THIS MASTER TRUST AGREEMENT ("Master Trust Agreement") is made and
entered into as of January 1, 1998, between K-Swiss, Inc., a Delaware
corporation (the "Company"), and Wachovia Bank, N.A., a national banking
association (the "Trustee"), to evidence the master trust (the "Trust") to be
established, pursuant to those executive deferral plans of the Company now or
hereafter existing that require the establishment of a trust, for the benefit of
a select group of management, highly compensated employees and/or Directors who
contribute materially to the continued growth, development and business success
of the Company and those subsidiaries of the Company, if any, that participate
in the Plans (collectively, "Subsidiaries," or singularly, "Subsidiary").
ARTICLE 1
NAME, INTENTIONS, IRREVOCABILITY, DEPOSIT AND DEFINITIONS
---------------------------------------------------------
1.1 NAME. The name of the Trust created by this Agreement (the "Trust") shall
----
be:
MASTER TRUST AGREEMENT FOR
K-SWISS, INC. DEFERRED COMPENSATION PLAN
1.2 INTENTIONS. The Company wishes to establish the Trust and to contribute to
----------
the Trust assets that shall be held therein, subject to the claims of the
Company's and the Subsidiaries' creditors in the event of their Insolvency
(as defined below) until paid to Participants and their Beneficiaries in
such manner and at such times as specified in the Plans. It is the
intention of the parties that this Trust shall constitute an unfunded
arrangement and shall not affect the status of the Plans as unfunded plans
maintained for the purpose of providing supplemental compensation for a
select group of management, highly compensated employees and/or Directors
for purposes of Title I of ERISA (as defined below). In addition, it is the
intention of the Company and the Subsidiaries to make contributions to the
Trust to provide themselves with a source of funds to assist them in the
meeting of their liabilities under the Plans.
1.3 IRREVOCABILITY; CREDITOR CLAIMS. The Trust hereby established shall be
-------------------------------
irrevocable. Except as otherwise provided in Sections 2.5 and 9.2, the
principal of the Trust, and any earnings thereon, shall be held separate
and apart from other funds of the Company and the Subsidiaries and shall be
used exclusively for the uses and purposes of the Participants and the
general creditors of the Company and the Subsidiaries as herein set forth.
The Participants and their Beneficiaries shall have no preferred claim on,
or any beneficial
- --------------------------------------------------------------------------------
-1-
<PAGE>
K-SWISS, INC.
Deferred Compensation Plan
Master Trust Agreement
================================================================================
ownership interest in, any assets of the Trust. Any rights created under
the Plans and this Master Trust Agreement shall be mere unsecured
contractual rights of the Participants and their Beneficiaries against the
Company and the Subsidiaries. Any assets held by the Trust will be subject
to the claims of the Company's and the Subsidiaries' general creditors
under federal and state law in the event of Insolvency.
1.4 INITIAL DEPOSIT. The Company hereby deposits with the Trustee in trust
---------------
$100, which shall become the principal of the Trust to be held,
administered and disposed of by the Trustee as provided in this Master
Trust Agreement.
1.5 ADDITIONAL DEFINITIONS. In addition to the definitions set forth above,
----------------------
for purposes hereof, unless otherwise clearly apparent from the context,
the following terms have the following indicated meanings:
(a) "Beneficiary" shall mean one or more persons, trusts, estates or other
entities, designated in accordance with a Plan, that are entitled to
receive benefits under a Plan upon the death of a Participant.
(b) "Board" shall mean the board of directors of the Company.
(c) "Change in Control" shall mean the first to occur of any of the
following events:
(i) Any "person" (as that term is used in Section 13 and 14(d)(2) of
the Securities Exchange Act of 1934 ("Exchange Act")) becomes
the beneficial owner (as that term is used in Section 13(d) of
the Exchange Act), directly or indirectly, of the Company's
capital stock with at least 50 percent of the voting power for
the election of directors;
(ii) During any period of not more than two consecutive years, not
including any period prior to the adoption of this Trust,
individuals who, at the beginning of such period constitute the
board of directors of the Company, and any new director (other
than a director designated by a person who has entered into an
agreement with the Company to effect a transaction described in
clause (i), (iii), (iv) or (v) of this Section 1.5(c)) whose
election by the board of directors or nomination for election by
the Company's stockholders was approved by a vote of at least
three-fourths (3/4ths) of the directors then still in office,
either were directors at the beginning of the period or whose
election or nomination for election was previously so approved,
cease for any reason to constitute at least a majority thereof;
(iii) The shareholders of the Company approve any consolidation or
merger of the Company, other than a consolidation or merger of
the Company in
- --------------------------------------------------------------------------------
-2-
<PAGE>
K-SWISS, INC.
Deferred Compensation Plan
Master Trust Agreement
================================================================================
which the holders of the common stock of the Company immediately
prior to the consolidation or merger hold more than 50% of the
common stock of the surviving corporation immediately after the
consolidation or merger;
(iv) The shareholders of the Company approve any plan or proposal for
the liquidation or dissolution of the Company; or
(v) The shareholders of the Company approve the sale or transfer of
substantially all of the Company's assets to parties that are not
within a "controlled group of corporations" (as defined in Code
Section 1563) in which the Company is a member.
(d) "Committee" shall mean the administrative committee appointed by the
Board to administer this Trust.
(e) "Director" shall mean any member of the board of directors of the
Company or any subsidiary.
(f) "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as it may be amended from time to time.
(g) "Insolvent" shall have the meaning set forth in Section 3.7(a) below.
(h) "Insolvent Entity" shall have the meaning set forth in Section 3.7(a)
below.
(i) "IRS" shall mean the Internal Revenue Service.
(j) "Participant" shall mean a person who is a participant in one or more
of the Plans in accordance with their terms and conditions.
(k) "Payment Schedule" shall have the meaning set forth in Section 3.6(b)
below.
(l) "Plan(s)" shall mean the K-SWISS, Inc. Deferred Compensation Plan and
any other executive deferral plans established now or in the future by
the Company that requires the establishment of a trust.
(m) "Plan Year" shall mean the calendar year starting with 1998.
(n) "Trust Fund" shall mean the assets held by the Trustee pursuant to the
terms of this Master Trust Agreement and for the purposes of the
Plans.
1.6 GRANTOR TRUST. The Trust is intended to be a "grantor trust," of which
-------------
the Company and the Subsidiaries are the grantors, within the meaning of
subpart E, part I, subchapter J,
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-3-
<PAGE>
K-SWISS, INC.
Deferred Compensation Plan
Master Trust Agreement
================================================================================
chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and
the Trust shall be construed accordingly.
ARTICLE 2
GENERAL ADMINISTRATION
----------------------
2.1 COMMITTEE DIRECTIONS AND ADMINISTRATION BEFORE CHANGE IN CONTROL. Until a
----------------------------------------------------------------
Change in Control has occurred, this Section 2.1 shall be effective and the
Committee shall direct the Trustee as to the administration of the Trust in
accordance with the following provisions:
(a) The Committee shall be identified to the Trustee by a copy of the
resolution of the Board appointing the Committee. In the absence
thereof, the Board shall be the Committee. Persons authorized to give
directions to the Trustee on behalf of the Committee shall be
identified to the Trustee by written notice from the Committee, and
such notice shall contain specimens of the authorized signatures. The
Trustee shall be entitled to rely on such written notice as evidence
of the identity and authority of the persons appointed until a written
cancellation of the appointment, or the written appointment of a
successor, is received by the Trustee.
(b) Directions by the Committee, or its delegate, to the Trustee shall be
in writing and signed by the Committee or persons authorized by the
Committee, or may be made by such other method as is acceptable to the
Trustee.
(c) The Trustee may conclusively rely upon directions from the Committee
in taking any action with respect to this Master Trust Agreement,
including the making of payments from the Trust Fund and the
investment of the Trust Fund pursuant to this Master Trust Agreement.
The Trustee shall have no liability for actions taken, or for failure
to act, on the direction of the Committee. The Trustee shall have no
liability for failure to act in the absence of proper written
directions.
(d) The Trustee may request instructions from the Committee and shall have
no duty to act or liability for failure to act if such instructions
are not forthcoming from the Committee. If requested instructions are
not received within a reasonable time, the Trustee may, but is under
no duty to, act on its own discretion to carry out the provisions of
this Master Trust Agreement in accordance with this Master Trust
Agreement and the Plans.
2.2 ADMINISTRATION UPON CHANGE IN CONTROL. In the event of a Change in
-------------------------------------
Control, the authority of the Committee to administer the Trust and direct
the Trustee, as set forth in Section 2.1 above, shall cease, and the
Trustee shall have complete authority to administer
- --------------------------------------------------------------------------------
-4-
<PAGE>
K-SWISS, INC.
Deferred Compensation Plan
Master Trust Agreement
================================================================================
the Trust in addition to any duties or responsibilities it may have under
the terms of the Plan.
2.3 CONTRIBUTIONS. Except as provided in any Plan, the Company and the
-------------
Subsidiaries, in their sole discretion, may at any time, or from time to
time, make additional deposits of cash or other property in trust with the
Trustee to augment the principal to be held, administered and disposed of
by the Trustee as provided in this Master Trust Agreement. Neither the
Trustee nor any Participant or Beneficiary shall have any right to compel
such additional deposits. The Trustee shall have no duty to collect or
enforce payment to it of any contributions or to require that any
contributions be made, and shall have no duty to compute any amount to be
paid to it nor to determine whether amounts paid comply with the terms of
the Plans.
2.4 TRUST FUND. The contributions received by the Trustee from the Company and
----------
the Subsidiaries shall be held and administered pursuant to the terms of
this Master Trust Agreement as a single fund without distinction between
income and principal and without liability for the payment of interest
thereon except as expressly provided in this Master Trust Agreement. During
the term of this Trust, all income received by the Trust, net of expenses
and taxes, shall be accumulated and reinvested.
2.5 DISTRIBUTION OF EXCESS TRUST FUND TO EMPLOYERS. In the event that the
----------------------------------------------
Committee, prior to a Change in Control, or the Trustee in its sole and
absolute discretion, after a Change in Control, determines that the Trust
Fund exceeds 125 percent of the anticipated benefit obligations and
administrative expenses that are to be paid under the Plans, the Trustee,
at the direction of the Committee prior to a Change in Control, or in its
sole and absolute discretion after a Change in Control, shall distribute to
the Company and the Subsidiaries such excess portion of the Trust Fund.
ARTICLE 3
POWERS AND DUTIES OF TRUSTEE
----------------------------
3.1 INVESTMENT DIRECTIONS. Except as provided in this Section and Section 3.2
---------------------
below, the Committee shall provide the Trustee with all investment
instructions. The Trustee shall neither affect nor change investments of
the Trust Fund, except as directed in writing by the Committee, and shall
have no right, duty or responsibility to recommend investments or
investment changes; provided, that the Trustee may (i) deposit cash on hand
from time to time in any bank savings account, certificate of deposit, or
other instrument creating a deposit liability for a bank, including the
Trustee's own banking department, if the Trustee is a bank, without such
prior direction, or (ii) invest in government securities, bonds with
specific ratings, or stock of "Fortune 500" companies, or companies of
comparable investment grade, or mutual funds composed of such investments,
all within broad investment guidelines established by the Committee from
time to time.
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<PAGE>
K-SWISS, INC.
Deferred Compensation Plan
Master Trust Agreement
================================================================================
3.2 INVESTMENT UPON CHANGE IN CONTROL. In the event of a Change in Control,
---------------------------------
the authority of the Committee to direct investments of the Trust Fund
shall cease and the Trustee shall have complete authority to direct
investments of the Trust Fund. The president of the Company shall notify
the Trustee in writing when a Change in Control has occurred. The Trustee
has no duty to inquire whether a Change in Control has occurred and may
rely on notification by the president of the Company of a Change in
Control; provided, however, that if any officer, former officer, director
or former director of the Company or any Subsidiary (other than the
president of the Company), or any Participant notifies the Trustee that
there has been or there may be a Change in Control, the Trustee shall have
the duty to satisfy itself as to whether a Change in Control has in fact
occurred. The Company and the Subsidiaries shall indemnify and hold
harmless the Trustee for any damages or costs (including attorneys' fees)
that may be incurred because of reliance on the president's notice or lack
thereof.
3.3 MANAGEMENT OF INVESTMENTS. Subject to Section 3.1 above, the Trustee shall
-------------------------
have, without exclusion, all powers conferred on the Trustee by applicable
law, unless expressly provided otherwise herein, and all rights associated
with assets of the Trust shall be exercised by the Trustee or the person
designated by the Trustee, and shall in no event be exercisable by or rest
with Participants or their Beneficiaries. The Trustee shall have full power
and authority to invest and reinvest the Trust Fund in any investment
permitted by law, exercising the judgment and care that persons of
prudence, discretion and intelligence would exercise under the
circumstances then prevailing, considering the probable income and safety
of their capital, including, without limiting the generality of the
foregoing, the power:
(a) To invest and reinvest the Trust Fund, together with the income
therefrom, in common stock, preferred stock, convertible preferred
stock, mutual funds, bonds, debentures, convertible debentures and
bonds, mortgages, notes, time certificates of deposit, commercial
paper and other evidences of indebtedness (including those issued by
the Trustee or any of its affiliates), other securities, policies of
life insurance, annuity contracts, options to buy or sell securities
or other assets, and other property of any kind (personal, real, or
mixed, and tangible or intangible); provided, however, that in no
event may the Trustee invest in securities (including stock or rights
to acquire stock) or obligations issued by the Company or the
Subsidiaries, other than a de minimis amount held in common investment
vehicles in which the Trustee invests;
(b) To deposit or invest all or any part of the assets of the Trust Fund
in savings accounts or certificates of deposit or other deposits which
bear a reasonable interest rate in a bank, including the commercial
department of the Trustee, if such bank is supervised by the United
States or any State;
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<PAGE>
K-SWISS, INC.
Deferred Compensation Plan
Master Trust Agreement
================================================================================
(c) To hold, manage, improve, repair and control all property, real or
personal, forming part of the Trust Fund and to sell, convey,
transfer, exchange, partition, lease for any term, even extending
beyond the duration of this Trust, and otherwise dispose of the same
from time to time in such manner, for such consideration, and upon
such terms and conditions as the Trustee shall determine;
(d) To have, respecting securities, all the rights, powers and privileges
of an owner, including the power to give proxies, pay assessments and
other sums deemed by the Trustee to be necessary for the protection of
the Trust Fund, to vote any corporate stock either in person or by
proxy, with or without power of substitution, for any purpose; to
participate in voting trusts, pooling agreements, foreclosures,
reorganizations, consolidations, mergers and liquidations, and in
connection therewith to deposit securities with and transfer title to
any protective or other committee under such terms as the Trustee may
deem advisable; to exercise or sell stock subscriptions or conversion
rights; and, regardless of any limitation elsewhere in this instrument
relative to investment by the Trustee, to accept and retain as an
investment any securities or other property received through the
exercise of any of the foregoing powers;
(e) To hold in cash, without liability for interest, such portion of the
Trust Fund which, in its discretion, shall be reasonable under the
circumstances, pending investments, or payment of expenses, or the
distribution of benefits;
(f) To take such actions as may be necessary or desirable to protect the
Trust Fund from loss due to the default on mortgages held in the Trust
including the appointment of agents or trustees in such other
jurisdictions as may seem desirable, to transfer property to such
agents or trustees, to grant such powers as are necessary or desirable
to protect the Trust or its assets, to direct such agents or trustees,
or to delegate such power to direct, and to remove such agents or
trustees;
(g) To employ such agents including custodians and counsel as may be
reasonably necessary and to pay them reasonable compensation; to
settle, compromise or abandon all claims and demands in favor of or
against the Trust assets;
(h) To cause title to property of the Trust to be issued, held or
registered in the individual name of the Trustee, or in the name of
its nominee(s) or agents, or in such form that title will pass by
delivery;
(i) To exercise all of the further rights, powers, options and privileges
granted, provided for, or vested in trustees generally under the laws
of the State whose laws are applicable to this Master Trust Agreement,
as provided in Section 10.6 below, so that the powers conferred upon
the Trustee herein shall not be in limitation of any authority
conferred by law, but shall be in addition thereto;
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(j) To borrow money from any source (including the Trustee) and to execute
promissory notes, mortgages or other obligations and to pledge or
mortgage any Trust assets as security;
(k) To lend certificates representing stocks, bonds, or other securities
to any brokerage or other firm selected by the Trustee;
(l) To institute, compromise and defend actions and proceedings; to pay or
contest any claim; to settle a claim by or against the Trustee by
compromise, arbitration, or otherwise; to release, in whole or in
part, any claim belonging to the Trust to the extent that the claim is
uncollectible;
(m) To use securities depositories or custodians and to allow such
securities as may be held by a depository or custodian to be
registered in the name of such depository or its nominee or in the
name of such custodian or its nominee;
(n) To invest the Trust Fund from time to time in one or more investment
funds, which funds shall be registered under the Investment Company
Act of 1940; and
(o) To do all other acts necessary or desirable for the proper
administration of the Trust Fund, as if the Trustee were the absolute
owner thereof.
However, nothing in this section shall be construed to mean the Trustee
assumes any responsibility for the performance of any investment made by
the Trustee in its capacity as trustee under the operations of this Master
Trust Agreement. Notwithstanding any powers granted to the Trustee
pursuant to this Master Trust Agreement or to applicable law, the Trustee
shall not have any power that could give this Trust the objective of
carrying on a business and dividing the gains therefrom, within the meaning
of section 301.7701-2 of the Procedure and Administrative Regulations
promulgated pursuant to the Internal Revenue Code of 1986, as amended.
3.4 SECURITIES. Voting or other rights in securities shall be exercised by the
----------
person or entity responsible for directing such investments, and the
Trustee shall have no duty to exercise voting or proxy or other rights
relating to any investment managed or directed by the Committee. If any
foreign securities are purchased pursuant to the direction of the
Committee, it shall be the responsibility of the person or entity
responsible for directing such investments to advise the Trustee in writing
of any laws or regulations, either foreign or domestic, that apply to such
foreign securities or to the receipt of dividends or interest on such
securities.
3.5 SUBSTITUTION. Notwithstanding any provision of any Plan or the Trust to
------------
the contrary, the Company and/or any Subsidiary shall at all times have the
power to reacquire the Trust Fund by substituting readily marketable
securities (other than stock, a debt obligation or
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other security issued by the Company or any Subsidiary) and/or cash of an
equivalent value and such other property shall, following such
substitution, constitute the Trust Fund.
3.6 DISTRIBUTIONS.
-------------
(a) The establishment of the Trust and the payment or delivery to the
Trustee of money or other property shall not vest in any Participant
or Beneficiary any right, title, or interest in and to any assets of
the Trust. To the extent that any Participant or Beneficiary acquires
the right to receive payments under any of the Plans, such right shall
be no greater than the right of an unsecured general creditor of the
Company and the Subsidiaries and such Participant or Beneficiary shall
have only the unsecured promise of the Company and the Subsidiaries
that such payments shall be made.
(b) Concurrent with the establishment of this Trust, the Company shall
deliver to the Trustee a schedule (the "Payment Schedule") that
indicates the amounts payable in respect of each Participant (and his
or her Beneficiaries) on a Plan by Plan basis, provides a formula or
formulas or other instructions acceptable to the Trustee for
determining the amounts so payable, specifies the form in which such
amount is to be paid (as provided for or available under the
applicable Plans), and the time of commencement for payment of such
amounts. The Payment Schedule shall be updated annually and from time
to time as is necessary, and a copy of each update shall be delivered
to the Trustee. Except as otherwise provided herein, prior to a
Change in Control, the Trustee shall make payments to the Participants
and their Beneficiaries in accordance with such Payment Schedule.
Despite the foregoing, after a Change in Control, the Trustee shall
make payments in accordance with the terms and provisions of each of
the Plans and related plan agreements. The Trustee, at the direction
of the Committee or, after a Change in Control, on its own volition,
may make any distribution required to be made by it hereunder by
delivering:
(i) Its check payable to the person to whom such distribution is to
be made, to the person, or, if prior to a Change in Control, to
the Company for redelivery to such person; provided that before a
Change in Control, the Committee may direct the Trustee to
deliver one or more lump sum checks payable to the Company, and
the Company shall prepare and deliver individual checks for each
Participant or Beneficiary; or
(ii) Its check payable to an insurer for the benefit of such person,
to the insurer, or, if prior to a Change in Control, to the
Company for redelivery to the insurer; or
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(iii) Contracts held on the life of the Participant to whom or with
respect to whom the distribution is being made, to the
Participant or Beneficiary, or, if prior to a Change in Control,
to the Company for redelivery to the person to whom such
distribution is to be made; or
(iv) If a distribution is being made, in whole or in part, of other
assets, assignments or other appropriate documents or
certificates necessary to effect a transfer of title, to the
Participant or Beneficiary, or, if prior to a Change in Control,
to the Company for redelivery to such person.
(c) If the principal of the Trust, and any earnings thereon, are not
sufficient, determined on a Plan by Plan basis, to make payments of
benefits in accordance with the terms of the Plans, then the corpus of
the Trust shall be allocated equitably among Plan participants, and
the Company and the Subsidiaries shall make the balance of each such
payment as it falls due. The Trustee shall notify the Company and the
Subsidiaries when principal and earnings are not sufficient.
(d) The Company and the Subsidiaries may make payment of benefits directly
to Participants or their Beneficiaries as they become due under the
terms of the Plans. The Company and the Subsidiaries shall notify the
Trustee of their decisions to make payment of benefits directly prior
to the time amounts are payable to Participants or their
Beneficiaries.
(e) Notwithstanding anything contained in this Master Trust Agreement to
the contrary, if at any time the Trust is finally determined by the
IRS not to be a "grantor trust" with the result that the income of the
Trust Fund is not treated as income of the Company or the Subsidiaries
pursuant to Sections 671 through 679 of the Internal Revenue Code of
1986, as amended, or if a tax is finally determined by the IRS to be
payable by one or more Participants or Beneficiaries with respect to
any interest in the Plans or the Trust Fund prior to payment of such
interest to any such Participant or Beneficiary, the Trustee shall
immediately determine each Participant's share of the Trust Fund in
accordance with the Plans, and the Trustee shall immediately
distribute such share in a lump sum to each Participant or Beneficiary
entitled thereto, regardless of whether such Participant's employment
has terminated (provided such Participant has a vested interest in his
or her accrued benefits under the Plans) and regardless of form and
time of payments specified in or pursuant to the Plans. Any remaining
assets (less any expenses or costs due under Sections 3.8 and 3.9 of
this Master Trust Agreement) shall then be paid by the Trustee to the
Company and the Subsidiaries in such amounts, and in the manner
instructed by the Committee. If the value of the Trust Fund is less
than the benefit obligations under the Plans, the foregoing described
distributions will be limited to a Participant's share of the Trust
Fund, determined by allocating assets to the Participant based on the
ratio of the Participant's benefit obligations
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under the Plans to the total benefit obligations under the Plans.
Prior to a Change in Control, the Trustee shall rely solely on the
directions of the Committee with respect to the occurrence of the
foregoing events and the resulting distributions to be made, and the
Trustee shall not be responsible for any failure to act in the absence
of such direction.
(f) The Trustee shall make provision for the reporting and withholding of
any federal, state or local taxes that may be required to be withheld
with respect to the payment of benefits pursuant to the terms of the
Plans and shall pay amounts withheld to the appropriate taxing
authorities or determine that such amounts have been reported,
withheld and paid by the Company and the Subsidiaries.
(g) Prior to a Change in Control, payments by the Trustee shall be
delivered or mailed to addresses supplied by the Committee and the
Trustee's obligation to make such payments shall be satisfied upon
such delivery or mailing. Prior to a Change in Control, the Trustee
shall have no obligation to determine the identity of persons entitled
to benefits or their mailing addresses. After a Change in Control,
the Trustee shall have such obligations.
(h) Prior to a Change in Control, the entitlement of a Participant or his
or her Beneficiaries to benefits under the Plans shall be determined
by the Company and the Subsidiaries or such party as they shall
designate under the Plans, and any claim for such benefits shall be
considered and reviewed under the procedures set out in the Plans.
3.7 TRUSTEE RESPONSIBILITY REGARDING PAYMENTS ON INSOLVENCY.
-------------------------------------------------------
(a) The Trustee shall cease payment of benefits to Participants and their
Beneficiaries if the Company, or any Subsidiary, is Insolvent (the
"Insolvent Entity"). The Insolvent Entity shall be considered
"Insolvent" for purposes of this Master Trust Agreement if:
(i) the Insolvent Entity is unable to pay its debts as they become
due, or
(ii) the Insolvent Entity is subject to a pending proceeding as a
debtor under the United States Bankruptcy Code.
For purposes of this Section 3.7, if an entity is determined to be
Insolvent, each Subsidiary in which such entity has an equity interest
shall also be deemed to be an Insolvent Entity. However, the
insolvency of a Subsidiary will not cause a parent corporation or any
other Subsidiary to be deemed Insolvent.
(b) At all times during the continuance of this Trust, as provided in
Section 1.3 above, the principal and income of the Trust shall be
subject to claims of the general
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creditors of the Company and its Subsidiaries under federal and state
law as set forth below:
(i) The Board and the president of the Company shall have the duty
to inform the Trustee in writing of the Company's or any
Subsidiary's Insolvency. If a person claiming to be a creditor
of the Company or any Subsidiary alleges in writing to the
Trustee that the Company or any Subsidiary has become Insolvent,
the Trustee shall determine whether the Company or any
Subsidiary is Insolvent and, pending such determination, the
Trustee shall discontinue payment of benefits to the Insolvent
Entity's Participants or their Beneficiaries. Prior to a Change
in Control, the Trustee may conclusively rely on any
determination it receives from the Board or the president of the
Company with respect to the Insolvency of the Company or any
Subsidiary.
(ii) Unless the Trustee has actual knowledge of the Company's or a
Subsidiary's Insolvency, or has received notice from the
Company, a Subsidiary, or a person claiming to be a creditor
alleging that the Company or a Subsidiary is Insolvent, the
Trustee shall have no duty to inquire whether the Company or any
Subsidiary is Insolvent. The Trustee may in all events rely on
such evidence concerning the Company's or any Subsidiary's
solvency as may be furnished to the Trustee and that provides
the Trustee with a reasonable basis for making a determination
concerning the Company's or any Subsidiary's solvency. In this
regard, the Trustee may rely upon a letter from the Company's or
a Subsidiary's auditors as to the Company's or any Subsidiary's
financial status.
(iii) If at any time the Trustee has determined that the Company or
any Subsidiary is Insolvent, the Trustee shall discontinue
payments to the Insolvent Entity's Participants or their
Beneficiaries, and shall hold the portion of the assets of the
Trust allocable to the Insolvent Entity for the benefit of the
Insolvent Entity's general creditors. Nothing in this Master
Trust Agreement shall in any way diminish any rights of
Participants or their Beneficiaries to pursue their rights as
general creditors of the Insolvent Entity with respect to
benefits due under the Plans or otherwise.
(iv) The Trustee shall resume the payment of benefits to Participants
or their Beneficiaries in accordance with this Article 3 of this
Master Trust Agreement only after the Trustee has determined
that the alleged Insolvent Entity is not Insolvent (or is no
longer Insolvent).
(c) Provided that there are sufficient assets, if the Trustee discontinues
the payment of benefits from the Trust pursuant to Section 3.7(b)
hereof and subsequently
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resumes such payments, the first payment following such discontinuance
shall include the aggregate amount of all payments due to Participants
or their Beneficiaries under the terms of the Plans for the period of
such discontinuance plus earnings thereon at the applicable federal
long term rate or rates (as described in Code Section 1274(d) in
effect during such period, less the aggregate amount of any payments
made to Participants or their Beneficiaries by the Company or any
Subsidiary in lieu of the payments provided for hereunder during any
such period of discontinuance. Prior to a Change in Control, the
Committee shall instruct the Trustee as to such amounts, and after a
Change in Control, the Trustee shall determine such amounts in
accordance with the terms and provisions of the Plans.
3.8 COSTS OF ADMINISTRATION. The Trustee is authorized to incur reasonable
-----------------------
obligations in connection with the administration of the Trust, including
attorneys' fees, administrative fees and appraisal fees. Such obligations
shall be paid by the Company and the Subsidiaries. The Trustee is
authorized to pay such amounts from the Trust Fund if the Company or the
Subsidiaries fail to pay them within 60 days of presentation of a statement
of the amounts due.
3.9 TRUSTEE COMPENSATION AND EXPENSES. The Trustee shall be entitled to
---------------------------------
reasonable compensation for its services as from time to time agreed upon
between the Trustee and the Company. If the Trustee and the Company fail to
agree upon a compensation, or following a Change in Control, the Trustee
shall be entitled to compensation at a rate equal to the rate charged by
the Trustee for similar services rendered by it during the current fiscal
year for other trusts similar to this Trust. The Trustee shall be entitled
to reimbursement for expenses incurred by it in the performance of its
duties as the Trustee, including reasonable fees for legal counsel. The
Trustee's compensation and expenses shall be paid by the Company and the
Subsidiaries. The Trustee is authorized to withdraw such amounts from the
Trust Fund if the Company or the Subsidiaries fail to pay them within 60
days of presentation of a statement of the amounts due.
3.10 PROFESSIONAL ADVICE. The Company and the Subsidiaries specifically
-------------------
acknowledge that the Trustee may find it desirable or expedient to retain
legal counsel (who may also be legal counsel for the Company generally) or
other professional advisors to advise it in connection with the exercise of
any duty under this Master Trust Agreement, including, but not limited to,
any matter relating to or following a Change in Control or the Insolvency
of the Company or any Subsidiary. The Trustee shall be fully protected in
acting upon the advice of such legal counsel or advisors.
3.11 PAYMENT ON COURT ORDER. To the extent permitted by law, the Trustee is
----------------------
authorized to make any payments directed by court order in any action in
which the Trustee has been named as a party. The Trustee is not obligated
to defend actions in which the Trustee is named, but shall notify the
Company or Committee of any such action and may tender defense of the
action to the Company, Committee, Participant or Beneficiary whose
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Master Trust Agreement
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interest is affected. The Trustee may in its discretion defend any action
in which the Trustee is named, and any expenses incurred by the Trustee
shall be paid by the Company and the Subsidiaries. The Trustee is
authorized to pay such amounts from the Trust Fund if the Company or the
Subsidiaries fail to pay them within sixty (60) days of presentation of a
statement of the amounts due.
3.12 PROTECTIVE PROVISIONS. Notwithstanding any other provision contained in
---------------------
this Master Trust Agreement to the contrary, the Trustee shall have no
obligation to (i) determine the existence of any conversion, redemption,
exchange, subscription or other right relating to any securities purchased
of which notice was given prior to the purchase of such securities and
shall have no obligation to exercise any such right unless the Trustee is
advised in writing by the Committee both of the existence of the right and
the desired exercise thereof within a reasonable time prior to the
expiration of the right to exercise, or (ii) advance any funds to the
Trust. Furthermore, the Trustee is not a party to the Plans.
3.13 INDEMNIFICATIONS.
----------------
(a) The Company and the Subsidiaries shall indemnify and hold the Trustee
harmless from and against all loss or liability (including expenses
and reasonable attorneys' fees) to which it may be subject by reason
of its execution of its duties under this Trust, or by reason of any
acts taken in good faith in accordance with any directions, or acts
omitted in good faith due to absence of directions, from the Company,
the Committee or a Participant, unless such loss or liability is due
to the Trustee's gross negligence or willful misconduct. The
indemnity described herein shall be provided by the Company and the
Subsidiaries.
(b) In the event that the Trustee is named as a defendant in a lawsuit or
proceeding involving one or more of the Plans or the Trust Fund, the
Trustee shall be entitled to receive on a current basis the indemnity
payments provided for in this Section, provided however that if the
final judgment entered in the lawsuit or proceeding holds that the
Trustee is guilty of gross negligence or willful misconduct with
respect to the Trust Fund, the Trustee shall be required to refund the
indemnity payments that it has received.
(c) All releases and indemnities provided in this Master Trust Agreement
shall survive the termination of this Master Trust Agreement.
ARTICLE 4
INSURANCE CONTRACTS
-------------------
4.1 TYPES OF CONTRACTS. To the extent that the Trustee is directed by the
------------------
Committee prior to a Change in Control to invest part or all of the Trust
Fund in insurance contracts, the type
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and amount thereof shall be specified by the Committee. The Trustee shall
be under no duty to make inquiry as to the propriety of the type or amount
so specified.
4.2 OWNERSHIP. Each insurance contract issued shall provide that the Trustee
---------
shall be the owner thereof with the power to exercise all rights,
privileges, options and elections granted by or permitted under such
contract or under the rules of the insurer. The exercise by the Trustee of
any incidents of ownership under any contract shall, prior to a Change in
Control, be subject to the direction of the Committee.
4.3 RESTRICTIONS ON TRUSTEE'S RIGHTS. The Trustee shall have no power to name
--------------------------------
a beneficiary of the policy other than the Trust, to assign the policy (as
distinct from conversion of the policy to a different form) other than to a
successor Trustee, or to loan to any person the proceeds of any borrowing
against such policy. Despite the foregoing, the Trustee may (i) loan to the
Company or any Subsidiary the proceeds of any borrowing against an
insurance policy held in the Trust Fund or (ii) assign all, or any portion,
of a policy to the Company or any Subsidiary if under other provisions of
this Master Trust Agreement the Company or any Subsidiary is entitled to
receive assets from the Trust.
ARTICLE 5
TRUSTEE'S ACCOUNTS
------------------
5.1 RECORDS. The Trustee shall maintain accurate records and detailed accounts
-------
of all investments, receipts, disbursements and other transactions
hereunder. Such records shall be available at all reasonable times for
inspection by the Company and Subsidiaries or their authorized
representative. The Trustee, at the direction of the Committee, shall
submit to the Committee and to any insurer such valuations, reports or
other information as the Committee may reasonably require and, in the
absence of fraud or bad faith, the valuation of the Trust Fund by the
Trustee shall be conclusive.
5.2 ANNUAL ACCOUNTING; FINAL ACCOUNTING.
-----------------------------------
(a) Within 60 days following the end of each Plan Year and within 60 days
after the removal or resignation of the Trustee or the termination of
the Trust, the Trustee shall file with the Committee a written account
setting forth a description of all properties purchased and sold, all
receipts, disbursements and other transactions effected by it during
the Plan Year or, in the case of removal, resignation or termination,
since the close of the previous Plan Year, and listing the properties
held in the Trust Fund as of the last day of the Plan Year or other
period and indicating their values. Such values shall be either cost
or market as directed by the Committee in accordance with the terms of
the Plans.
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Master Trust Agreement
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(b) The Committee may approve such account either by written notice of
approval delivered to the Trustee or by its failure to express written
objection to such account delivered to the Trustee within 60 days
after the date of which such account was delivered to the Committee.
(c) The approval by the Committee of an accounting shall be binding as to
all matters embraced in such accounting on all parties to this Master
Trust Agreement and on all Participants and Beneficiaries, to the same
extent as if such accounting had been settled by a judgment or decree
of a court of competent jurisdiction in which the Trustee, the
Committee, the Company, the Subsidiaries and all persons having or
claiming any interest in any Plan or the Trust Fund were made parties.
(d) Despite the foregoing, nothing contained in this Master Trust
Agreement shall deprive the Trustee of the right to have an accounting
judicially settled, if the Trustee, in the Trustee's sole discretion,
desires such a settlement.
5.3 VALUATION. The assets of the Trust Fund shall be valued at their
---------
respective fair market values on the date of valuation, as determined by
the Trustee based upon such sources of information as it may deem reliable,
including, but not limited to, stock market quotations, statistical
valuation services, newspapers of general circulation, financial
publications, advice from investment counselors, brokerage firms or
insurance companies, or any combination of sources. Prior to a Change in
Control, the Committee shall instruct the Trustee as to the value of assets
for which market values are not readily obtainable by the Trustee. If the
Committee fails to provide such values, the Trustee may take whatever
action it deems reasonable, including employment of attorneys, appraisers,
life insurance companies or other professionals, the expense of which shall
be an expense of administration of the Trust Fund and payable by the
Company and the Subsidiaries. The Trustee may rely upon information from
the Company and the Subsidiaries, the Committee, appraisers or other
sources and shall not incur any liability for an inaccurate valuation based
in good faith upon such information.
5.4 DELEGATION OF DUTIES. The Company or the Committee, or both, may at any
--------------------
time employ the Trustee as their agent to perform any act, keep any records
or accounts and make any computations that are required of the Company, any
Subsidiary or the Committee by this Master Trust Agreement or the Plans.
The Trustee may be compensated for such employment and such employment
shall not be deemed to be contrary to the Trust. Nothing done by the
Trustee as such agent shall change or increase its responsibility or
liability as Trustee hereunder.
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Master Trust Agreement
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ARTICLE 6
RESIGNATION OR REMOVAL OF TRUSTEE
---------------------------------
6.1 RESIGNATION; REMOVAL. The Trustee may resign at any time by written notice
--------------------
to the Company, which shall be effective 60 days after receipt of such
notice unless the Company and the Trustee agree otherwise. Prior to a
Change in Control, the Trustee may be removed by the Company on 60 days
notice or upon shorter notice accepted by the Trustee. After a Change in
Control, the Trustee may be removed by a majority vote of the Participants,
and if a Participant is dead, his or her Beneficiaries (who collectively
shall have one vote among them and shall vote in place of such deceased
Participant), on 60 days notice or upon shorter notice accepted by the
Trustee.
6.2 SUCCESSOR TRUSTEE. If the Trustee resigns or is removed, a successor shall
-----------------
be appointed by the Company, in accordance with this Section, by the
effective date of the resignation or removal under Section 6.1 above. The
successor shall be a bank, trust company, or similar independent third
party that is granted corporate trustee powers under state law. After the
occurrence of a Change in Control, a successor Trustee may not be appointed
without the consent of a majority of the Participants. If no such
appointment has been made, the Trustee may apply to a court of competent
jurisdiction for appointment of a successor or for instructions. All
expenses of the Trustee in connection with the proceeding shall be allowed
as administrative expenses of the Trust.
6.3 SETTLEMENT OF ACCOUNTS. Upon resignation or removal of the Trustee and
----------------------
appointment of a successor Trustee, all assets shall subsequently be
transferred to the successor Trustee. The transfer shall be completed
within 90 days after receipt of notice of resignation, removal or transfer,
unless the Company extends the time limit. Upon the transfer of the assets,
the successor Trustee shall succeed to all of the powers and duties given
to the Trustee in this Master Trust Agreement. The resigning or removed
Trustee shall render to the Committee an account in the form and manner and
at the time prescribed in Section 5.2. The approval of such accounting and
discharge of the Trustee shall be as provided in such Section.
ARTICLE 7
CONTROVERSIES, LEGAL ACTIONS AND COUNSEL
----------------------------------------
7.1 CONTROVERSY. If any controversy arises with respect to the Trust, the
-----------
Trustee shall take action as directed by the Committee or, in the absence
of such direction or after a Change in Control, as it deems advisable,
whether by legal proceedings, compromise or otherwise. The Trustee may
retain the funds or property involved without liability pending settlement
of the controversy. The Trustee shall be under no obligation to take any
legal action of
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Master Trust Agreement
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whatever nature unless there shall be sufficient property in the Trust to
indemnify the Trustee with respect to any expenses or losses to which it
may be subjected.
7.2 JOINDER OF PARTIES. In any action or other judicial proceedings affecting
------------------
the Trust, it shall be necessary to join as parties the Trustee, the
Committee, the Company and the Subsidiaries. No Participant or other person
shall be entitled to any notice or service of process. Any judgment entered
in such a proceeding or action shall be binding on all persons claiming
under the Trust. Nothing in this Master Trust Agreement shall be construed
as to deprive a Participant or Beneficiary of his or her right to seek
adjudication of his or her rights by administrative process or by a court
of competent jurisdiction.
7.3 EMPLOYMENT OF COUNSEL. The Trustee may consult with legal counsel (who may
---------------------
be counsel for the Company or any Subsidiary) and shall be fully protected
with respect to any action taken or omitted by it in good faith pursuant to
the advice of counsel.
ARTICLE 8
INSURERS
--------
8.1 INSURER NOT A PARTY. No insurer shall be deemed to be a party to the Trust
-------------------
and an insurer's obligations shall be measured and determined solely by the
terms of contracts and other agreements executed by it.
8.2 AUTHORITY OF TRUSTEE. An insurer shall accept the signature of the Trustee
--------------------
to any documents or papers executed in connection with such contracts. The
signature of the Trustee shall be conclusive proof to the insurer that the
person on whose life an application is being made is eligible to have a
contract issued on his or her life and is eligible for a contract of the
type and amount requested.
8.3 CONTRACT OWNERSHIP. An insurer shall deal with the Trustee as the sole and
------------------
absolute owner of any insurance contracts and shall have no obligation to
inquire whether any action or failure to act on the part of the Trustee is
in accordance with or authorized by the terms of the Plans or this Master
Trust Agreement.
8.4 LIMITATION OF LIABILITY. An insurer shall be fully discharged from any
-----------------------
and all liability for any action taken or any amount paid in accordance
with the direction of the Trustee and shall have no obligation to see to
the proper application of the amounts so paid. An insurer shall have no
liability for the operation of the Trust or the Plans, whether or not in
accordance with their terms and provisions.
8.5 CHANGE OF TRUSTEE. An insurer shall be fully discharged from any and all
-----------------
liability for dealing with a party or parties indicated on its records to
be the Trustee until such time as
- --------------------------------------------------------------------------------
-18-
<PAGE>
K-SWISS, INC.
Deferred Compensation Plan
Master Trust Agreement
================================================================================
it shall receive at its home office written notice of the appointment and
qualification of a successor Trustee.
ARTICLE 9
AMENDMENT AND TERMINATION
-------------------------
9.1 AMENDMENT. Subject to the limitations set forth in this Section 9.1, this
---------
Master Trust Agreement may be amended by a written instrument executed by
the Trustee and the Company. Notwithstanding the foregoing, no such
amendment shall conflict with the terms of the Plans or shall make the
Trust revocable after it has become irrevocable in accordance with Section
1.3 above. Any amendment, change or modification shall be subject to the
following rules:
(a) General Rule. Subject to Sections 9.1(b), (c) and (d) below, this
------------
Master Trust Agreement may be amended:
(i) By the Company and the Trustee, provided, however, that if an
amendment would in any way adversely affect the rights accrued
under the Plans in the Trust Fund by any Participant or
Beneficiary, each and every Participant and Beneficiary whose
rights in the Trust Fund would be adversely affected must consent
to the amendment before this Master Trust Agreement may be so
amended; and
(ii) By the Company and the Trustee as may be necessary to comply with
laws which would otherwise render the Trust void, voidable or
invalid in whole or in part.
(b) Limitation. Notwithstanding that an amendment may be permissible
----------
under Section 9.1(a) above, this Master Trust Agreement shall not be
amended by an amendment that would:
(i) Cause any of the assets of the Trust to be used for or diverted
to purposes other than for the exclusive benefit of Participants
and Beneficiaries as set forth in the Plans, except as is
required to satisfy the claims of the Company's or a Subsidiary's
general creditors; or
(ii) Be inconsistent with the terms of any Plan, including the terms
of any Plan regarding termination, amendment or modification of
the Plan.
(c) Writing and Consent. Any amendment to this Master Trust Agreement
-------------------
shall be set forth in writing and signed by the Company and the
Trustee and, if consent of any Participant or Beneficiary is required
under Section 9.1(a), the Participant or
- --------------------------------------------------------------------------------
-19-
<PAGE>
K-SWISS, INC.
Deferred Compensation Plan
Master Trust Agreement
================================================================================
Beneficiary whose consent is required. Any amendment may be current,
retroactive or prospective, in each case as provided therein.
(d) The Company and Trustee. In connection with the exercise of the
-----------------------
rights under this Section 9.1:
(i) prior to a Change in Control, the Trustee shall have no
responsibility to determine whether any proposed amendment
complies with the terms and conditions set forth in Sections
9.1(a) and (b) above and may conclusively rely on the directions
of the Committee with respect thereto, unless the Trustee has
knowledge of a proposed transaction or transactions that would
result in a Change in Control; and
(ii) after a Change in Control, the power of the Company to amend this
Master Trust Agreement shall cease, and the power to amend that
was previously held by the Company shall, instead, be exercised
by either a majority of the Participants and, if a Participant is
dead, his or her Beneficiaries (who collectively shall have one
vote among them and shall vote in place of such deceased
Participant) or by the Company with the consent of such majority,
in either case with the consent of the Trustee, provided that
such amendment otherwise complies with the requirements of
Sections 9.1(a), (b) and (c) above.
(e) Taxation. This Master Trust Agreement shall not be amended, altered,
--------
changed or modified in a manner that would cause the Participants
and/or Beneficiaries under any Plan to be taxed on the benefits under
any Plan in a year other than the year of actual receipt of benefits.
9.2 FINAL TERMINATION. The Trust shall not terminate until the date on which
-----------------
Participants and their Beneficiaries are no longer entitled to benefits
pursuant to the terms of the Plans and all expenses of the Trust have been
paid, and on such date the Trust shall terminate. Upon termination of the
Trust, any assets remaining in the Trust shall be returned to the Company
and the Subsidiaries. Such remaining assets shall be paid by the Trustee to
the Company and the Subsidiaries in such amounts and in the manner
instructed by the Company, whereupon the Trustee shall be released and
discharged from all obligations hereunder. From and after the date of
termination and until final distribution of the Trust Fund, the Trustee
shall continue to have all of the powers provided herein as are necessary
or expedient for the orderly liquidation and distribution of the Trust
Fund.
- --------------------------------------------------------------------------------
-20-
<PAGE>
K-SWISS, INC.
Deferred Compensation Plan
Master Trust Agreement
================================================================================
ARTICLE 10
MISCELLANEOUS
-------------
10.1 DIRECTIONS FOLLOWING CHANGE IN CONTROL. Despite any other provision of this
--------------------------------------
Master Trust Agreement that may be construed to the contrary, following a
Change in Control, all powers of the Committee, the Company and the Board
to direct the Trustee under this Master Trust Agreement shall terminate,
and the Trustee shall act on its own discretion to carry out the terms of
this Master Trust Agreement in accordance with the Plans and this Master
Trust Agreement.
10.2 TAXES. The Company and the Subsidiaries shall from time to time pay taxes
-----
of any and all kinds whatsoever that at any time are lawfully levied or
assessed upon or become payable in respect of the Trust Fund, the income or
any property forming a part thereof, or any security transaction pertaining
thereto. To the extent that any taxes lawfully levied or assessed upon the
Trust Fund are not paid by the Company and the Subsidiaries, the Trustee
shall have the power to pay such taxes out of the Trust Fund and shall seek
reimbursement from the Company and the Subsidiaries. Prior to making any
payment, the Trustee may require such releases or other documents from any
lawful taxing authority as it shall deem necessary. The Trustee shall
contest the validity of taxes in any manner deemed appropriate by the
Company or its counsel, but at the Company's and the Subsidiaries' expense,
and only if it has received an indemnity bond or other security
satisfactory to it to pay any such expenses. Prior to a Change in Control,
the Trustee (i) shall not be liable for any nonpayment of tax when it
distributes an interest hereunder on directions from the Committee, and
(ii) shall have no obligation to prepare or file any tax return on behalf
of the Trust Fund, any such return being the sole responsibility of the
Committee. The Trustee shall cooperate with the Committee in connection
with the preparation and filing of any such return. After a Change in
Control, the Trustee shall have such duties and obligations.
10.3 THIRD PERSONS. All persons dealing with the Trustee are released from
-------------
inquiring into the decisions or authority of the Trustee and from seeing to
the application of any moneys, securities or other property paid or
delivered to the Trustee.
10.4 NONASSIGNABILITY; NONALIENATION. Benefits payable to Participants and
-------------------------------
their Beneficiaries under this Master Trust Agreement may not be
anticipated, assigned (either at law or in equity), alienated, pledged,
encumbered or subjected to attachment, garnishment, levy, execution or
other legal or equitable process.
10.5 THE PLANS. The Trust and the Plans are parts of a single,
---------
integrated employee benefit plan system and shall be construed together.
In the event of any conflict between the terms of this Master Trust
Agreement and the agreements that constitute the Plans, such conflict shall
be resolved in favor of this Master Trust Agreement.
- --------------------------------------------------------------------------------
-21-
<PAGE>
K-SWISS, INC.
Deferred Compensation Plan
Master Trust Agreement
================================================================================
10.6 APPLICABLE LAW. Except to the extent, if any, preempted by ERISA, this
--------------
Master Trust Agreement shall be governed by and construed in accordance
with the internal laws of the State of California. Any provision of this
Master Trust Agreement prohibited by law shall be ineffective to the
extent of any such prohibition, without invalidating the remaining
provisions hereof.
10.7 NOTICES AND DIRECTIONS. Whenever a notice or direction is given by the
----------------------
Committee to the Trustee, it shall be in the form required by Section 2.1.
Actions by the Company shall be by the Board or a duly authorized officer,
with such actions certified to the Trustee by an appropriately certified
copy of the action taken. The Trustee shall be protected in acting upon
any such notice, resolution, order, certificate or other communication
believed by it to be genuine and to have been signed by the proper party
or parties.
10.8 SUCCESSORS AND ASSIGNS. This Master Trust Agreement shall be binding upon
----------------------
and inure to the benefit of the Company, the Subsidiaries and the Trustee
and their respective successors and assigns.
10.9 GENDER AND NUMBER. Words used in the masculine shall apply to the
-----------------
feminine where applicable, and when the context requires, the plural shall
be read as the singular and the singular as the plural.
10.10 HEADINGS. Headings in this Master Trust Agreement are inserted for
--------
convenience of reference only and any conflict between such headings and
the text shall be resolved in favor of the text.
10.11 COUNTERPARTS. This Master Trust Agreement may be executed in an original
------------
and any number of counterparts, each of which shall be deemed to be an
original of one and the same instrument.
10.12 BENEFICIAL INTEREST. The Company and the Subsidiaries are the true
-------------------
beneficiaries hereunder in that the payment of benefits, directly or
indirectly to or for a Participant or Beneficiary by the Trustee, is in
satisfaction of the Company's and the Subsidiaries' liability therefor
under the Plans. Nothing in this Master Trust Agreement shall establish
any beneficial interest in any person other than the Company and the
Subsidiaries.
10.13 THE TRUST AND PLANS. This Trust, the Plans and each Participant's Plan
-------------------
Agreement are part of and constitute a single, integrated employee benefit
plan and trust, shall be construed together as the entire agreement
between the Company, the Trustee, the Participants and the Beneficiaries
with regard to the subject matter thereof, and shall supersede all
previous negotiations, agreements and commitments with respect thereto.
10.14 EFFECTIVE DATE. The effective date of this Master Trust Agreement shall
--------------
be January 1, 1998.
- --------------------------------------------------------------------------------
-22-
<PAGE>
K-SWISS, INC.
Deferred Compensation Plan
Master Trust Agreement
================================================================================
IN WITNESS WHEREOF the Company and the Trustee have signed this Master
Trust Agreement as of the date first written above.
TRUSTEE: THE COMPANY:
- ------- -----------
Wachovia Bank, N.A. K-Swiss, Inc.
a Delaware corporation,
By: By: /s/ George Powlick
_________________________ _________________________
Title: Title: Vice President
____________________ ___________________
- --------------------------------------------------------------------------------
-23-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF EARNINGS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 28,982
<SECURITIES> 6,128
<RECEIVABLES> 32,000
<ALLOWANCES> (687)
<INVENTORY> 26,604
<CURRENT-ASSETS> 96,594
<PP&E> 4,261
<DEPRECIATION> 0
<TOTAL-ASSETS> 106,023
<CURRENT-LIABILITIES> 19,017
<BONDS> 0
0
0
<COMMON> 66
<OTHER-SE> 77,017
<TOTAL-LIABILITY-AND-EQUITY> 106,023
<SALES> 42,274
<TOTAL-REVENUES> 42,274
<CGS> 25,128
<TOTAL-COSTS> 11,613
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 433<F1>
<INCOME-PRETAX> 5,966
<INCOME-TAX> 2,421
<INCOME-CONTINUING> 3,545
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,545
<EPS-PRIMARY> 0.640
<EPS-DILUTED> 0.620
<FN>
<F1> Interest Income net of Interest Expense
</FN>
</TABLE>
<PAGE>
EXHIBIT 99
FOR IMMEDIATE RELEASE
CONTACT: GEORGE POWLICK
CHIEF FINANCIAL OFFICER
(818) 998-3388
K-SWISS REPORTS FIRST QUARTER RESULTS AND
-----------------------------------------
ANNOUNCES STOCK BUY BACK AUTHORIZATION
--------------------------------------
CHATSWORTH, CA., THURSDAY, APRIL 23, 1998 - Steven Nichols, Chairman of the
Board and President of K-Swiss Inc., (NASDAQ - KSWS), announced first quarter
net earnings for the quarter ended March 31, 1998 of $3,545,000, an increase of
130.3% from the quarter ended March 31, 1997. Diluted earnings per share for the
quarter ended March 31, 1998 of $.62, increased 148.0% from the quarter ended
March 31, 1997. Revenues for the quarter ended March 31, 1998 increased 35.5%
to $42,274,000 from the quarter ended March 31, 1997.
Revenues were as follows (in thousands, except percents):
Three Months Ended March 31,
(Unaudited)
<TABLE>
<CAPTION>
Increase (Decrease)
---------------------
1998 1997 Amount Percent
---- ---- ------ -------
<S> <C> <C> <C> <C>
Domestic $38,032 $23,760 $14,272 60.1%
International 4,242 7,439 (3,197) (43.0)%
------ ------ ------
Total revenues $42,274 $31,199 $11,075 35.5%
====== ====== ======
</TABLE>
At March 31, 1998 and 1997, domestic futures orders with start ship dates from
April through September 1998 and 1997 were approximately $58,748,000 and
$34,427,000, respectively, an increase of 70.6%. At March 31, 1998 and 1997,
international futures orders with start ship dates from April through September
1998 and 1997 were approximately $6,187,000 and $9,244,000, respectively, a
decrease of 33.1%. "Backlog", as of any date, represents orders scheduled to be
shipped within the next six months. Backlog does not include orders scheduled to
be shipped on or prior to the date of determination of backlog. These orders are
not necessarily indicative of revenues for subsequent periods because: (1) the
mix of "futures" and "at-once" orders can vary significantly from quarter to
quarter and year to year and (2) the rate of customer order cancellations can
also vary from quarter to quarter and year to year.
The Company also announced a new share repurchase program. The Board of
Directors has authorized the Company to purchase up to $20 million of its Class
A Common Stock on the open market through April 2002. Such purchases, if any,
will occur from time to time as market conditions warrant. The Company announced
that adoption of the repurchase program can be a good use of excess cash
depending on the Company's array of alternatives. The Company has made purchases
under previous stock repurchase programs during the period from August 14, 1996
through April 15, 1998 (the date of the final purchase under previously
completed stock repurchase programs) of an aggregate of 1,157,700 shares of
Class A Common Stock, at an aggregate purchase price totaling approximately
$15,221,000.
The Company's Board of Directors has established May 20, 1998 as the annual
stockholders' meeting date and April 13, 1998 as the record date for such
meeting.
K-Swiss Inc. designs, develops and markets athletic footwear for high
performance sports use and fitness activities. The Company presently offers
footwear for court, nautical, casual and children's categories.
FINANCIAL SUMMARY
-----------------
(In Thousands, Except Per Share Amounts)
(Unaudited)
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1998 1997
------- -------
<S> <C> <C>
Revenues.......................................... $42,274 $31,199
Cost of goods sold................................ 25,128 19,477
------ ------
Gross profit..................................... 17,146 11,722
Selling, general and administrative expenses...... 11,613 9,554
------ ------
Operating profit................................. 5,533 2,168
Interest income, net.............................. 433 379
------ ------
Earnings before income taxes..................... 5,966 2,547
Income tax expense................................ 2,421 1,008
------ ------
Net earnings..................................... $ 3,545 $ 1,539
====== ======
Basic earnings per share.......................... $ .64 $ .25
====== ======
Diluted earnings per share........................ $ .62 $ .25
====== ======
Weighted average number of
shares outstanding
Basic............................................ 5,524 6,069
Diluted.......................................... 5,719 6,123
</TABLE>
