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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to section 13 or 15(d)
of the Securities Exchange Act of 1934 (Fee Required)
For the fiscal year ended May 31, 1996, or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from ___________ to ___________
Commission file number: 0-19402
VANS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 33-0272893
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
2095 Batavia Street, Orange, California 92865
(Address of principal executive offices) (Zip Code)
(714) 974 - 7414
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, $.001 par value per share
(Title of Class)
Indicate by check mark whether 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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X].
The approximate aggregate market value of the Common Stock held by
non-affiliates of registrant (computed based on the average bid and asked prices
of the Common Stock, as reported on the NASDAQ National Market System on August
6, 1996), is $152,416,057.
The number of shares of registrant's Common Stock outstanding at August 20, 1996
is 12,682,944.
Documents Incorporated By Reference:
Portions of registrant's Annual Report to Stockholders for the Fiscal Year Ended
May 31, 1996 are incorporated by reference into Part II of this report; portions
of registrant's definitive Proxy Statement for its 1996 Annual Meeting of
Stockholders are incorporated by reference into Part III of this report; and
certain exhibits are incorporated by reference into Part IV of this report.
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VANS, INC.
FORM 10-K
For the Fiscal Year Ended May 31, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I PAGE NO.
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<S> <C> <C>
Item 1. Business......................................................... 3
Item 2. Properties....................................................... 15
Item 3. Legal Proceedings................................................ 15
Item 4. Submission of Matters to a Vote of Security Holders.............. 16
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters........................................... 17
Item 6. Selected Financial Data.......................................... 17
Item 7. Management's Discussion and Analysis of Financial ...
Condition and Results of Operations........................... 17
Item 8. Financial Statements and Supplementary Data...................... 17
Item 9. Changes in and Disagreements With Accountants on ...
Accounting and Financial Disclosure........................... 17
Part III
Item 10. Directors and Executive Officers of the Registrant............... 18
Item 11. Executive Compensation........................................... 18
Item 12. Security Ownership of Certain Beneficial
Owners and Management........................................... 18
Item 13. Certain Relationships and Related Transactions................... 18
Part IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K........................................... 19
</TABLE>
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THE DISCUSSION IN THIS FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE
TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED UNDER THE
CAPTION "RISK FACTORS" ON PAGES 6 TO 12 OF THE COMPANY'S PROSPECTUS, DATED MAY
21, 1996, WHICH IS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
ITEM 1. BUSINESS
OVERVIEW
Vans, Inc. (the "Company") is a leading designer, manufacturer and
distributor of a collection of high quality casual and active-casual footwear
for men, women and children, as well as performance footwear for enthusiasts
sports such as skateboarding, snowboarding and BMX bicycling. The Company was
founded in 1966 in Southern California as a domestic manufacturer of vulcanized
deck shoes (such as the Authentic(TM)). Today the Company markets its broad
footwear line worldwide to a target customer base of 12 to 24 year old young men
and women. The Company is incorporated in Delaware.
The Company has earned a reputation over its 30 year history for
quality, performance and value, particularly among participants in alternative
sports such as skateboarding and BMX bicycling. As a result of this reputation,
the Company has developed a strong brand image which the Company believes
represents the individualistic and enthusiast lifestyle of its target customer
base. The VANS brand image coincides with what the Company believes is a
fundamental shift in the attitudes and lifestyles of young people worldwide,
characterized by the rapid growth and acceptance of alternative, enthusiasts
sports and the desire to lead an individualistic, contemporary lifestyle. The
Company believes that underlying factors influencing young people include: (i)
programs broadcast worldwide on networks such as MTV, ESPN and ESPN2; (ii) the
growing international distribution and popularity of magazines such as Rolling
Stone, TransWorld SKATEboarding, Spin and Details; and (iii) the increased
independence and purchasing power of young people worldwide.
To capitalize on the strength of the VANS brand with young men and
women worldwide, the Company repositioned itself during fiscal 1996 from a
domestic manufacturer to a marketing-driven company. With a focus on
understanding the attitudes, lifestyle and product desires of its target
customer base, and by marketing and designing its product line accordingly, the
Company believes it is well-positioned to further the growth of the VANS brand
in this market.
Led by a new management team including Walter E. Schoenfeld, the
Company's Chairman and Chief Executive Officer and the founder of Britannia
Sportswear Company, and Gary H. Schoenfeld, the Company's President and Chief
Operating Officer, the Company has implemented a number of strategic and
operational initiatives. In particular, the Company: (i) began sourcing new
products from overseas; (ii) leveraged its brand equity with young people into
products centered around increasingly popular alternative sports, such as the
Company's snowboard boot line, and into products that have a lifestyle
orientation, such as the Company's successful International Collection of casual
and active-casual shoes; (iii) designed a marketing strategy to promote the VANS
brand and stay close to the product desires of its target customers; (iv)
restructured its operations which culminated with the July 1995 closing of its
underutilized Orange, California manufacturing facility (the "Orange Facility")
and the consolidation of the production of its traditional vulcanized shoes at
its smaller Vista, California manufacturing facility (the "Vista Facility"); and
(v) enhanced its management information and inventory control systems to better
control costs and increase operational efficiencies. Each of these initiatives
has been an important ingredient of the Company's heightened commitment to its
customers.
BUSINESS STRATEGY
The Company's long-term objective is to become a leading lifestyle
company offering a complementary array of footwear, apparel and accessory
products worldwide by capitalizing on the strength of the VANS brand name. The
Company's operating and growth strategies are aimed at achieving this long-term
objective while maintaining the authenticity and credibility of the VANS brand
image.
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OPERATING STRATEGY
The Company seeks to be the brand of choice for lifestyle and
alternative sport footwear by continually listening and responding to the
product desires of its target customers. The Company's core customers are 12 to
24 year old young men and women who are active enthusiasts of alternative sports
and/or on the forefront of fashion and contemporary lifestyle trends. The
breadth of the Company's product line is intended to appeal both to these core
trend setters as well as to mainstream customers who similarly identify with the
lifestyle image of the VANS brand. The Company's operations are directly tied to
this strategy and are intended to provide the necessary framework for staying
close to these customers. Key elements of the Company's operating strategy
include:
- Promote the VANS Brand Image through Grassroots Marketing Efforts.
The Company promotes its brand image through a grassroots marketing
effort that includes the sponsorship of alternative sporting and
entertainment events, sports teams and individual athletes. An
example of one of the Company's event sponsorships is the "VANS
Warped Tour '96," a festival combining concerts with a
skateboarding contest in approximately 40 cities throughout the
United States, Canada, Europe and Japan. In addition, the Company
sponsors over 100 of the world's top athletes in skateboarding,
snowboarding and BMX bicycling. The Company believes its event
sponsorships and athletic endorsements reinforce the Company's
authenticity and credibility with its core customer base and can
generate valuable media exposure on networks such as MTV and ESPN2,
as well as in alternative sport and lifestyle magazines. The
Company believes this media coverage increases the overall
awareness of the VANS brand image among its broader target market
worldwide. The VANS image is further enhanced through print and
advertising campaigns which depict youthful, active lifestyles and
attitudes and have been carried on networks such as MTV and Prime
Sports, on outdoor billboards and in magazines such as Rolling
Stone, TransWorld SKATEboarding, TransWorld SNOWboarding, Spin and
Details. The Company's grassroots marketing approach enables it to
stay close to its core target customers, while promoting the VANS
brand globally as the choice for alternative sport and active
lifestyle footwear.
- Provide Authentic and Design-Distinctive Products. The Company
designs and develops high quality products that embody the VANS
image. The Company's performance and casual footwear products
incorporate distinctive fabrics, cutting-edge styles and colors and
dependable construction designed to appeal to alternative sports
enthusiasts seeking performance footwear and to other more
mainstream consumers seeking footwear that represents youth,
individuality and independence. The Company believes the technical
features of its skate performance shoes and snowboard boots as well
as the Company's Signature Skate Shoe Series, a line endorsed by
top alternative sport athletes worldwide, reinforce the
authenticity and credibility of the VANS brand name.
- Distribute through Selected National Retailers and Independent
Accounts. The Company sells its products through carefully selected
national retailers, including Kinney Shoe Corporation (which
includes Foot Locker, Lady Foot Locker, Kids Foot Locker, Kinney
Shoe Stores and Champs Sporting Goods), Nordstrom, Inc., Gadzooks,
Inc., and Mervyn's. Recently, the Company has significantly
expanded its business with new and existing accounts, including
J.C. Penney Company, Inc., R.H. Macy & Co., The Bon Marche,
Journey's and Foot Action, Inc. The Company also sells its products
through independent retailers such as skateboard and surf shops to
maintain its authenticity and stay close to its core customer base.
The Company believes that it is strengthening its relationships
with these national and independent retailers through: (i) the
introduction and expansion of the International Collection; (ii)
more frequent availability of new stock keeping units to keep
inventory fresh; (iii) maintenance of the quality image of its
retail account base; and (iv) the quality of its products and
timeliness of deliveries.
- Select International Distributors that Build the VANS Brand Name.
Recognizing significant opportunities internationally, the Company
in fiscal 1996 upgraded and expanded its international distributor
base and focused on selecting and maintaining relationships with
distributors who understand both how to build the VANS brand as
well as the tastes and preferences of their local markets. The
Company now focuses its international efforts through a Hong Kong
subsidiary that was recently formed. See "Sales and Distribution-
-International Sales."
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- Execute a Retail Strategy that Complements the Company's Overall
Brand Strategy. The Company operated 83 retail stores as of August
22, 1996 (comprised of 54 conventional mall and free standing
stores, 24 factory outlet stores and 5 clearance stores). Such
stores enhance the Company's presence in Southern California in
addition to providing it with an important outlet for slower moving
inventory and a forum to test new products and obtain feedback from
customers.
- Maintain Flexibility in Manufacturing to Enhance Market
Responsiveness. Central to the success of the Company's operating
strategy is the ability to respond quickly to changing trends
within its target market. The Company believes it minimizes lead
times and capital expenditures and maximizes quality and product
variety by utilizing a combination of third-party foreign
manufacturers and its own domestically located facility. With
relatively short lead times (8-12 weeks) and the ability to
manufacture in small lots in South Korea, the Company believes that
it can generally keep its inventory fresh by adding the latest
designs to its offering mix while eliminating slower moving styles.
- Execute Well-Conceived Product Testing Process. The Company has
developed a product testing process to stay close to its customers
and gauge product acceptance in the marketplace. In addition to
placing new products and samples in its own retail stores, the
product testing process includes: (i) previewing product prototypes
with independent and key retailers prior to the introduction of
such product; (ii) testing products and new concepts with selected
national accounts; and (iii) conducting its "first edition" test
program in which the Company chooses and introduces one new style
roughly every six to eight weeks for distribution on a preview
basis to a group of key independent retailers and several of the
Company's retail stores.
- Utilize Selective Licensing. The Company believes that selective
licensing of the VANS name and trademarks for use on non-footwear
product lines, such as apparel and accessories, has provided an
opportunity to promote the VANS brand while significantly reducing
capital outlays and operating expenses. The Company has the right
to approve the design, manufacturing specifications, advertising
and distribution of its licensed products and maintains a practice
of evaluating its licensing arrangements to ensure consistent
presentation of the VANS brand.
GROWTH STRATEGY
The Company has developed a growth strategy that it believes will
maximize its long-term opportunities while simultaneously enhancing and
protecting its valuable brand image. The Company's growth strategy is focused
on: (i) expanding its product-line beyond the Company's core men's footwear
styles to include more women's styles, as well as related products, such as
apparel and other accessories; (ii) capitalizing on the growing snowboarding
market; (iii) increasing the penetration of its existing domestic account base;
and (iv) pursuing a global marketing initiative to increase sales in existing
and new international markets.
- Expand the VANS Product Line
- Women's and Youth's Footwear. The Company's traditional
footwear products have expanded from a line of basic,
vulcanized style shoes to a collection of lifestyle fashions,
including a line of women's contemporary lifestyle footwear. In
the second quarter of fiscal 1996, the Company expanded its
International Collection to include a line of women's fashion
styles through the introduction of casual-athletic shoes in
innovative materials such as hologram, vinyl, satin and patent
leather. The Company intends to continue to broaden its
customer base and believes that one of its next logical
extensions is to provide more products in youth's sizes
targeted at 8 to 12 year olds whose families are already
purchasing VANS products.
- Apparel and Accessories. Leveraging off the Company's growing
reputation for fashion-forward designs and high-quality
products, the Company intends to increase its production and
distribution of brand-name apparel and accessories. These
products may include T-shirts, sweatshirts, shorts, caps,
backpacks and other accessories to be distributed in geographic
locations where the Company does not have existing licensing
agreements. In addition, the
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Company may produce and distribute alternative sports apparel,
such as snowboarding outerwear. The Company currently has all
of the international rights outside of Japan and Italy to
produce and distribute its own apparel, and all of the domestic
and international rights to develop and distribute alternative
sports apparel, such as snowboarding outerwear.
- Capitalize on the Growing Snowboarding Market. The Company entered
the snowboard boot market approximately two years ago and believes
that today it is among the top four market share leaders worldwide
based on the number of snowboard boots sold. The Company believes
that a substantial growth opportunity exists in the snowboarding
market and believes it is well-positioned to increase its market
share of the snowboard boot market. In fiscal 1996, the Company
entered into a licensing agreement with Switch Manufacturing to
utilize Switch's innovative and convenient step-in boot binding
system. Switch is a leading manufacturer of snowboard boot bindings
and the Company believes its affiliation with Switch reinforces the
Company's credibility among snowboard boot customers, further
establishing the Company's position in the snowboard boot market.
Switch is involved in certain litigation regarding the patent for
its system. See Item 3. "Legal Proceedings." The Company has
increased the number of snowboard boots offered from five styles in
the 1995/1996 season to 11 styles in the 1996/1997 season. The
Company believes further opportunities exist to leverage its brand
into snowboarding apparel and accessories.
- Increase Penetration of Existing National Retail and Independent
Accounts. Building upon the Company's operating strategy described
above, the Company believes significant growth opportunities exist
within its current national account base. The Company intends to
grow its account base through its broadened product line which it
believes will enable it to increase: (i) the number of stores for
which its existing national and regional chains purchase products;
and (ii) the number of stock-keeping units sold through each store.
- Expand Internationally by Increasing Penetration of Existing
Markets and Entering New Markets. International markets represent a
substantial area of growth for the Company since the Company
believes that many of its target customers of 12 to 24 year olds
around the world similarly identify with the lifestyles of their
counterparts in the United States. The Company, through its Hong
Kong subsidiary, intends to continue its international expansion
through a global marketing initiative designed to increase VANS
brand awareness worldwide. This marketing strategy includes: (i)
increasing the number of international alternative sport and
entertainment event sponsorships; (ii) more extensive touring
abroad by internationally recognized athletes and alternative
sports teams which endorse the VANS brand; (iii) generating media
coverage in international markets through increased participation
in promotional activities; (iv) previewing products at
international trade shows; and (v) working with international
distributors who understand their local markets and providing them
with sales tools and promotional materials to enable them to
effectively market the VANS brand.
MARKETING AND PROMOTION
The Company's global marketing strategy is to further enhance the image
and awareness of the VANS brand by associating its products with the sports,
music, fashion and contemporary lifestyle trends established by young people in
the U.S. and abroad. The Company's core customers are 12 to 24 year olds in the
forefront of trends in alternative sports and contemporary lifestyles, while
much of the Company's sales volume is driven by its broader target market of
mainstream customers who desire to live a lifestyle consistent with the VANS
brand.
The Company markets its brand through the sponsorship of alternative
sport and entertainment events, print and television advertising and alternative
sport athletic endorsements. In addition, point-of-purchase merchandising used
by the Company's customers, as well as the design of the Company's retail stores
and factory outlets, further promote the VANS brand.
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ALTERNATIVE SPORTS AND ENTERTAINMENT EVENT SPONSORSHIPS
The Company's marketing and promotion strategy includes the sponsorship
of alternative sporting and entertainment events. The Company believes these
events and sponsorships reinforce the Company's authenticity and credibility
with its core customer base and create significant brand loyalty among
participants in these sports. Through these sponsorships, the Company has
received media coverage on networks such as MTV, ESPN2 and Fox, and in
alternative sport and contemporary lifestyle magazines. The Company believes
this media coverage is seen or read by its broader target market throughout the
world and increases overall awareness of the VANS brand name.
Among the events and activities the Company has sponsored are the 1995
World Championships of Skateboarding (with The Hard Rock Cafe), skateboard
contests such as the Venice Street Grind, Battle of the Bay and Slam City Pro,
the Brooklyn Bridge Skate Ramp, the Wild Women's Snowboarding Camp, the National
Bike League and the American Bike League. The Company also sponsors snow, skate
and surf videos and "demo days" at ski and snowboard resorts around the country
and in Japan, and participates in college campus tours organized by magazines
such as Spin and Details.
The Company is the exclusive title sponsor of the "VANS Warped Tour
'96." This event visits approximately 40 top young adult markets throughout the
U.S., Canada, Europe and Japan. The tour is an affordable daytime lifestyle,
music and sports festival for teenagers and young adults, with skateboarding,
biking and climbing events, retailer booths, video games, prize giveaways and
performances by emerging alternative bands. It also features an amateur
skateboarding competition in selected locations, with the winners being invited
to participate in the 1996 World Championships of Skateboarding, which will
again be sponsored by the Company and The Hard Rock Cafe. The tour is being
promoted through local radio, print, poster and flyer distribution, supplemented
by national promotion via television, print and the Internet. The Company has
compiled a "VANS Warped Tour '96" CD, featuring certain bands performing on the
tour, to be used as a gift with a VANS product purchase. The tour and the CD
promotion are designed to coincide with the "Back to School" season.
ATHLETIC ENDORSEMENTS
As with event sponsorship, the Company believes the endorsement of
alternative sports teams and individual athletes reinforces the Company's
authenticity and credibility with its core customers and creates significant
brand loyalty among participants. The Company's sponsored athletes aid in the
design of the Company's shoes, make promotional appearances, wear the Company's
products exclusively and increase overall consumer awareness of the VANS brand.
The Company supports its sports marketing with print and television advertising
featuring its sponsored athletes.
The Company sponsors over 100 of the world's top male and female
athletes through the VANS Skateboarding Team, the VANS Snowboarding Team and the
VANS BMX Team. Selected members of the VANS teams include:
Skateboarding
Steve Caballero--Big Air World Title Holder, Signature Pro Model
Mike Carroll--Skater of the Year, Thrasher, 1994, Signature Pro Model
Salman Agah--Skater of the Year, Thrasher, 1993, Signature Pro Model
Simon Woodstock--2nd Place Street Champion Holder, Munster Competition/
1995
Snowboarding
Jamie Lynn--World Champion, 2nd Place Big Air, Innsbruck, Austria/1996,
Signature Pro Model
Shaun Palmer--World Champion 1988-89, 15 year competitor, Signature
Pro Model
Circe Wallace--Recognized Top Five Female Snowboarder: TransWorld
SNOWboarding
Rachel Furiel--#1 Place Senior Women's Pipe USASA Nationals, 1996
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BMX Bicycling
Pete Loncarevich--Top BMX rider
John Purse--National Bike League, #1 Pro BMX, #2 American Bike League,
1996
Kiyomi Waller--#1 ABA Pro 24 Cruiser, 1996
PRINT AND TELEVISION ADVERTISEMENTS
The VANS alternative sports image is enhanced by print and advertising
campaigns which depict youthful, contemporary lifestyles and attitudes and are
carried on networks such as MTV, Prime Sports and ESPN2, on billboards and in
magazines such as TransWorld SKATEboarding, Thrasher and TransWorld
SNOWboarding. The Company promotes its lifestyle image through advertisements in
a number of magazines that appeal to its target customer group, including
Rolling Stone, BMX Plus, BAM, Spin, Vibe, Option, Bikini, and Details. In
addition, the Company selectively advertises in widely circulated fashion and
lifestyle magazines, such as Seventeen and YM. The Company develops much of its
advertising in-house, which the Company believes allows it to respond more
quickly and with a greater degree of creative and cost control.
WORLD WIDE WEB SITE
Since September 1995, the Company has marketed its products and image
through its interactive home page on the World Wide Web to customers who
directly access the Internet. The Web site includes a product catalog, photos,
interviews, sound and video clips of bands who wear VANS products, profiles and
interviews with members of the Company's sports teams, information on
Company-sponsored events, celebrities who wear VANS products and the Company's
history.
PRODUCT DESIGN AND DEVELOPMENT
The Company's product design and development efforts are centered
around leading edge trends in the youth culture, including such areas as
alternative music and enthusiasts sports, television, movies and clothing. The
Company's products are then designed and refined based on consumer and retailer
feedback through multiple product reviews. The Company's designers work to
monitor subtle changes in the music, sports, media and fashions which appeal to
the Company's core customers.
The Company traditionally designs and merchandises three lines of
footwear products per year for the annual Spring, "Back to School" and Holiday
seasons. The standard product development cycle takes approximately one year
from design concept through production and rollout. However, in response to
changes in trends or consumer demand, the Company will develop new products for
immediate introduction (in as little as 1-2 months) or accelerate the planned
release of new designs. The product design cycle begins by understanding the
consumer, which is accomplished through a study of current trends in fashion,
magazines and markets both by the design staff and through the use of market
forecasting services. The design team then typically develops three or four
themes based on this marketing analysis and produces product concept boards for
the review of management and the sales and marketing staff. The design team then
refines the designs, prepares specification sheets and orders samples. The
Company's design staff works with sales and marketing personnel as well as with
the Company's alternative sports teams and athletes in all aspects of this
design process. One or more cycles of prototype products are reviewed by the
design team and focus groups composed of the target consumers, and the design
team may eliminate some designs based on the feedback received. Key retailers,
sales representatives and customers typically will also review the line prior to
the final preparation of specifications and samples. The product is then
typically reviewed again by key retailers and additional changes may be made
prior to the presentation of the products at trade shows to a broader range of
retailers. Product previews have proven critical to the manufacturing process by
providing indications as to whether a new design will be successful and
therefore produced. Product lines are released in multiple deliveries over the
course of a season and product life cycles vary from as short as one season (3-6
months) to 2-3 years or more.
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PRODUCTS
The Company produces a wide variety of casual, active-casual and
performance footwear products and snowboard boots, all of which are designed to
appeal to alternative sport enthusiasts seeking performance footwear and
mainstream consumers seeking footwear that represents youth, individuality and
independence. The average retail prices for the Company's footwear products
range from $35 to $70 for casual and performance footwear, and from $140 to $250
for snowboard boots. The Company also offers a variety of apparel and
accessories bearing the VANS brand name through its own retail stores as well as
through licensing arrangements with third parties.
The Company's shoes and snowboard boots can generally be categorized by
the manufacturing process used. The Company's International Collection line
primarily consists of foreign-sourced shoes manufactured through a cold-cured
process in which the upper and sole are sewn and cemented together. This
manufacturing process allows for the combination of a number of different
outsoles, fabrics and styles. The Company's domestically produced shoes,
including the traditional VANS deck shoes, are vulcanized, a manufacturing
process utilizing heat and pressure that binds the sole and upper together.
MEN'S FOOTWEAR
Classics, Casual and Casual Skate. The Company's classics, casual and
casual skate line include many styles within the International Collection, a
wide variety of cold-cured suede, leather and canvas shoes, as well as
traditional slip-on and laced canvas vulcanized footwear. The styles are offered
in a wide variety of colors, fabrics, designs and outsoles. Some of the
Company's casual and skate-influenced styles are the Razor(TM), Fracture(TM),
Wally(TM), Rail(TM), Blunt(TM), Blur(TM), Old Skool(TM), and Mel(TM). Some of
the classics styles are the Era(TM), Classic Slip-on and the Authentic(TM).
Performance Skate. Throughout its 30-year history, the VANS brand name
has long been associated with skateboarding. The Company's performance skate
line of footwear is designed to provide skaters with the style and technical
features they demand. The Company offers performance skate shoes in a variety of
colors and styles with many of the same features described above as well as a
double layer of suede or leather on the ollie area for extra durability, double
and triple stitching for durability, padded tongues and collars and grippy gum
rubber bottoms. The Company also offers Signature Skate Shoe Series, and works
with top skaters, such as Steve Caballero and Salman Agah, to develop high
performance skate footwear. The Company believes the identification of its shoes
with top skaters helps to increase sales of its performance footwear. Some of
the Company's performance skate shoes are the Fairlane(TM), Ratz(TM) and
Pudge(TM), as well as the Lo Cab(TM), Half Cab(R), Mike Carroll(TM) and Salman
Agah(TM) signature shoes.
WOMEN'S FOOTWEAR
The Company's footwear products for women include casual,
fashion-oriented products within the International Collection (introduced in the
second quarter of fiscal 1996), and classic deck shoes. Many of the products in
the women's line incorporate fundamental features of the Company's skate shoes
with fashion-conscious detailing, colors and fabrics. The core line of women's
footwear includes active-casual suede, leather, nylon, canvas, vinyl and patent
leather sport and casual shoes in a wide variety of colors. The line includes
vulcanized shoes, as well as cemented, skate-oriented, cup-soled shoes. Some of
the Company's women's shoes include the Lucy(TM), Ethel(TM), Trounce(TM),
Blunt(TM), Croodle(TM) and Old Skool.
SNOWBOARD BOOTS
For the 1996/1997 season, the Company has expanded its snowboard boot
line to include 11 styles offering unique combinations of a number of technical
innovations at various price points. Featured in this season's line are: (i)
five styles of lighter weight linerless boots; (ii) four styles which are
compatible with the Switch Autolock(TM) system, an innovative and convenient
step-in boot binding system; and (iii) three styles designed specifically for
women.
In the 1995/1996 season, the Company offered five styles of snowboard
boots, including the Lemming(TM), a lightweight linerless boot, and the
Voltaire(TM), its first Switch-compatible boot. In the 1995/1996 season, the
Company sold approximately 95,000 pairs of boots. In the 1994/1995 season, the
first season in which the Company sold snowboard boots, the Company offered two
boot styles and sold approximately 4,000 pairs of boots.
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The Company believes that the Switch step-in binding system is
currently the most proven and accepted version of the new step-in binding
systems, and believes that its licensing arrangement with Switch further
enhances the Company's credibility and reputation in the snowboard boot market.
Step-in bindings provide added convenience by reducing the amount of time
required to mount and dismount the board before and after each run.
SANDALS
In the last quarter of fiscal 1995, the Company began offering a
limited number of stylish leather and nubuck sandals. The Company believes
sandals represent a logical product line extension and are consistent with the
VANS image. Current sandals offered by the Company include the Monk(TM), Caesar
Sport(TM) and Mahatma(TM).
APPAREL AND ACCESSORIES
The Company offers certain apparel and accessories at its Company-owned
retail stores, including T-shirts, hats, backpacks, shorts, sweatshirts, socks
and wallets. Most products carry the VANS brand logo and are designed to appeal
to the styles and trends of the Company's target consumer group. Products sold
in the Company's stores are designed by the Company and manufactured by third
parties. In addition, the Company has selectively licensed its trademarks to
certain distributors. See "--Licensing."
SALES AND DISTRIBUTION
The Company has three primary distribution channels for its products:
(i) national sales through national and regional retailers, as well as
independent specialty stores, including skate and surf shops; (ii) international
sales through its wholly-owned foreign subsidiary; and (iii) sales through
Company-operated retail and factory outlet stores.
NATIONAL SALES
The Company sells its products through approximately 3,500 active
accounts, including Kinney Shoe Corporation (which includes Foot Locker, Lady
Foot Locker, Kids Foot Locker, Kinney Shoe Stores and Champs Sporting Goods),
Nordstrom, Gadzooks, Inc. and Mervyn's. Recently, the Company has significantly
expanded its business with certain new and existing accounts, including J.C.
Penney Company, Inc., R.H. Macy & Co., Inc., The Bon Marche, Journey's and Foot
Action, Inc. The Company also sells its products through independent retailers
such as skateboard and surf shops to maintain its authenticity and to stay close
to its core customers. The Company intends to execute its growth strategy
through marketing and product development in order to further increase sales
through its existing accounts.
The Company strives to maintain the integrity of the VANS image by
controlling the distribution channels for its products based on criteria which
include the retailer's image and ability to effectively promote the Company's
products. The Company works with its retailers to display, stock and sell a
greater volume of the Company's products.
The Company's distribution strategy is to differentiate the product
offerings of independent specialty stores and larger national accounts through
the breadth of its product lines and the staggered release of certain products.
The expansion of the Company's product line has also enhanced the Company's
ability to distribute its products through a larger number of major accounts
while maintaining variety across these accounts. In addition, the Company
staggers the release of certain products to select independent retailers or
national accounts to test product acceptance, as well as to increase the variety
of products offered. As an example, the Company generally releases its new
performance skate shoes to independent accounts 60 days before making them more
broadly available.
The Company sells products to its national accounts primarily through
independent sales representatives. Several of the Company's larger accounts are
managed by Company officers and sales executives. The Company typically engages
its independent sales representatives pursuant to agreements with terms ranging
from one to three years in length. Compensation of independent sales
representatives is generally limited to commissions on sales.
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<PAGE> 11
INTERNATIONAL SALES
The Company believes that a significant opportunity exists for
increased sales of its products to existing international markets, and, to a
more limited extent, expansion into new international markets. The Company
believes that because of the global reach of music, fashion, media and
alternative sports, the styles and trends among the Company's target customer
group internationally are similar in many ways to those in the United States.
The Company licenses the right to sell VANS products internationally to its Hong
Kong subsidiary, Vans Far East Limited ("VFEL"), which in turn sells VANS
products to distributors for resale in 65 foreign countries.
International distributors of VANS products receive a discount on the
wholesale price of footwear products and are granted the right to resell such
products in defined territories, usually a country or group of countries.
Distribution agreements generally are exclusive, restrict the distributor's
ability to sell competing products, have a term of one to three years, provide a
minimum sales threshold which increases annually, and generally require the
distributor to spend up to 5% of its revenues on marketing. VFEL receives
payment from all its distributors in United States dollars.
Financial information about the Company's export sales is included in
Note 13 to the Company's Financial Statements, which are included in the
Company's 1996 Annual Report to Stockholders, filed as Exhibit 13 hereto.
RETAIL SALES
The Company currently operates 83 retail stores, 72 of which are
located in California. The Company's retail stores are divided into three store
groups, including conventional mall and freestanding stores, factory outlet
stores and clearance stores. Currently, the number of stores in each store group
is 54, 24 and 5, respectively. The Company's retail stores carry a wide variety
of the Company's footwear products, along with apparel and accessory items, most
of which bear the VANS brand name and logo.
The standard Company retail store is between approximately 1,400 to
2,000 square feet. A typical Company store is open seven days a week, for an
average of eleven hours per day, and has two or three employees in the store
during business hours. The Company sells factory seconds and discontinued shoes
at discounted prices through factory outlets and clearance stores. The Company
opened eight factory outlets during the fiscal 1996. The Company continually
works to upgrade the design and layout of its retail stores as part of its
overall marketing plan and remodels older stores as its resources permit to
further promote the VANS brand image. The Company intends to open new factory
outlet stores only in the leading outlet centers throughout the country. The
Company does not intend to significantly increase the number of its other retail
stores.
DISTRIBUTION FACILITIES
Domestic distribution of products is currently centralized in the
Company's approximately 127,000 square foot distribution center in the City of
Industry, California. See Item 2. "Properties - City of Industry Distribution
Center." Upon receipt from overseas manufacturers, the Company's products are
inspected, sorted, packaged and shipped to retail accounts in the United States
and abroad. While foreign-sourced footwear for domestic accounts is generally
shipped to the City of Industry facility, such footwear for international sales
is typically shipped directly from the overseas manufacturers to VFEL's
international distributors. In addition, pursuant to a snowboard boot financing
arrangement with Ssangyong (U.S.A.) Inc. ("Ssangyong U.S.A"), Ssangyong U.S.A.
administers the warehousing and shipping of the Company's snowboard boots
through March 1997.
11
<PAGE> 12
MANAGEMENT INFORMATION SYSTEMS
During fiscal 1996, the Company significantly upgraded its management
information capabilities. This included the redesign of its order entry system
and implementation of an enhanced order processing and a warehouse management
system. The Company is currently implementing a Distribution Requirements
Planning program (DRP) and is in the process of selecting an automated shipping
program. Additionally, the Company is in the process of upgrading its
Company-wide payroll system as well as investing in updated point-of-sale
technology at its retail stores. All of these improvements are designed to
improve operational efficiencies and allow the Company to better track its
sourcing, distribution and customer service processes.
SOURCING AND MANUFACTURING
Historically, the Company manufactured its products at two
Company-operated domestic manufacturing facilities. In fiscal 1995, in
connection with the Company's strategic redirection, the Company shifted a
significant portion of its manufacturing to independent manufacturers located in
South Korea to produce the International Collection, which can only be
manufactured in significant commercial quantities abroad.
The Company sources the International Collection and snowboard boots
from VFEL, which in turn contracts with contractors in South Korea. During
fiscal 1996, approximately 76% of the Company's shoes and 100% of the Company's
snowboard boots were manufactured offshore by third party manufacturers. VFEL
utilizes one sourcing agent for footwear and one sourcing agent for snowboard
boots in South Korea who assist the Company in selecting and overseeing third
party contractors, ensuring quality, sourcing fabrics and monitoring quotas and
other trade regulations. The Company's and VFEL's production staff and
independent sourcing agents together oversee all aspects of manufacturing and
production. As is common in the industry, there are no agreements between VFEL
and any of its contractors or suppliers, however, the Company is advised that
VFEL believes that its relationships with its contractors and suppliers are
good. The Company is advised that VFEL is now sourcing sandals through
manufacturers outside of South Korea.
The Company manufactures vulcanized footwear at its 90,400 square foot
Vista Facility. The Vista Facility allows the Company to produce a broader line
of its vulcanized footwear products for its retail stores as well as its
domestic and international accounts. The Vista Facility was established in 1992
to apply integrated cellular manufacturing techniques to the traditional method
of shoemaking. These new techniques have led to the reduction of manufacturing
cycle times at the Vista Facility from nine days to three, with cycle times for
some of the Company's most popular styles reduced to one day. The Company
currently operates two shifts a day at the Vista Facility. Manufacturing
generally operates on a five-day week, although Saturday shifts are common
during periods of peak production, primarily in the Spring and "Back To School"
seasons. The Company has recently implemented an incentive bonus plan for
employees at its Vista Facility which provides for a monthly bonus payment based
on achieving certain production quality and quantity standards.
The Company's quality control program is designed to ensure that all
goods bearing its trademarks meet the Company's standards. With respect to
products manufactured by independent contractors, the Company ensures that VFEL
develops and inspects prototypes of each product prior to manufacture by such
contractors, establishes fittings based on the prototype, inspects samples and,
through its employees or sourcing agents, inspects materials prior to
production. VFEL or its sourcing agents inspect the final product prior to
shipment to the Company's City of Industry distribution center. With respect to
licensed products, the Company oversees the quality control programs of its
licensees and regularly inspects samples of their products.
A wide range of materials are used in the domestic and offshore
production of the Company's footwear. The Company has not experienced a
significant manufacturing delay caused by the unavailability of raw materials,
however, there can be no assurance that difficulties in obtaining raw materials,
particularly specialized materials used in certain women's shoes, will not arise
in the future or that any such difficulties would not have a material adverse
effect on the Company's business. To date, the Company has not experienced any
significant safety or health problems from the use or handling of these raw
materials.
12
<PAGE> 13
Dependence on international manufacturers subjects the Company to the
general conditions and risks of doing business internationally, including
reduction in the availability of production capacity, errors in complying with
product specifications, inability to obtain sufficient raw materials,
insufficient quality control, failure to meet production deadlines or increases
in manufacturing costs. The Company cannot predict whether the conditions under
which it currently does business abroad will remain favorable or whether any
events will occur which could adversely affect the availability of independent
offshore manufacturing on terms satisfactory to the Company. Although the
Company is advised that VFEL believes that it could develop alternative sources
of supply for the products obtained from its present suppliers outside the
United States, there can be no assurance that such alternative sources would be
available on terms satisfactory to the Company, or at all.
LICENSING
The Company has licensed certain of its trademarks for apparel and
accessory products where the Company believed such arrangements would promote
the VANS brand name and image consistent with the Company's overall marketing
and promotion plan.
Currently, the Company has license agreements with five third party
licensees. The licensees have the exclusive right to manufacture and sell
certain products under the Company's trademarks in specified territories. The
licenses provide for a royalty payment to the Company and typically establish
minimum annual royalty amounts. In Japan, the Company's license agreements cover
footwear, caps, sports bags, snowboards, apparel, watches and sunglasses. In
Germany, the license agreement covers a variety of bags and, in Italy, the
Company's license agreement covers apparel. The Company is generally permitted
to sell its licensed products through its retail stores and its distributors.
The Company's licenses have varying expiration dates, and are generally
extendable at the option of the licensee, provided certain conditions have been
met.
The Company believes additional opportunities exist to increase sales
of apparel and accessories bearing the VANS brand name and intends to expand the
product line in the future. The Company believes its licensing arrangements to
date have allowed it to best use its current resources while promoting a
consistent image for the VANS name worldwide. By moving to bring the apparel and
accessory business in-house, as appropriate, the Company believes it will be
able to enhance the designs of its casual apparel and accessories, as well as to
develop a line of functional apparel appropriate for use in alternative sports,
such as snowboarding. In connection with this strategy, in July 1996, the
Company terminated a license agreement with Oneita Industries, Inc. which
covered the manufacture and sale of caps, wovens (shorts), shirts and socks in
the United States, and established an in-house apparel group.
COMPETITION
The athletic and casual footwear industry is highly competitive. The
Company competes with a number of domestic and foreign manufacturers of
footwear. Many of the Company's competitors, such as Nike, Inc., Reebok
International Ltd., adidas AG and Fila Holding SpA, have significantly greater
financial resources than the Company, have full lines of product offerings,
compete with the Company and VFEL in the Far East for manufacturing sources and
spend substantially more on product advertising than the Company. The general
availability of offshore shoe manufacturing capacity allows for rapid expansion
by competitors and new entrants in the footwear market. In the casual footwear
market, the Company competes with a number of companies, such as Airwalk,
Converse Inc. and Stride Rite Corporation (Keds), many of which may have
significantly greater financial and other resources than the Company.
The Company is a relatively new entrant in the snowboard boot business.
Although the Company has experienced strong initial sales of its line of
snowboard boots, it faces strong competition from well-established competitors,
most notably Airwalk and Burton Snowboards, Inc., the domestic industry leaders.
Snowboarding is a relatively new sport and there can be no assurance that it
will continue to grow at the rate experienced in recent years, or that its
popularity will not decline. Moreover, the market for snowboards is
characterized by image-conscious consumers. The failure by the Company to
accurately predict and target future trends or to maintain its progressive image
could have a material adverse effect on its snowboard boot sales. The Company
believes that its future success in the snowboard boot market will depend, in
part, on its ability to introduce innovative, well-received products, and there
can be no assurance of its ability to do so.
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<PAGE> 14
The Company competes primarily on the basis of brand image, design,
price, performance, quality, style and color selection and manufacturing and
delivery performance. While the Company believes that it generally competes
favorably with respect to such factors, any failure to do so could have a
material adverse impact on the Company's business, financial condition and
results of operations.
BACKLOG
As of August 20, 1996, the Company's backlog of orders for delivery in
the second quarter of fiscal 1997 was approximately $13.0 million, as compared
to approximately $8.8 million as of August 20, 1995. The Company's backlog
amounts exclude orders from the Company's retail stores. The Company has
recently expanded its futures program which offers the Company's national
accounts a discount for placing orders early. In addition, increased
international sales have contributed to backlog as such sales typically have
longer lead times. The Company's backlog also depends upon a number of other
factors, including the timing of trade shows, during which a significant
percentage of the Company's orders are received, the timing of shipments,
product mix of customer orders and the amount of in-season orders. As a result
of these and other factors, period-to-period comparisons of backlog may not
necessarily be meaningful.
In addition, the Company has historically shipped less than all orders
in its backlog and a large portion of its products late in the quarter. As a
result, the Company may not learn of sales shortfalls until late in any
particular fiscal quarter, which could result in an immediate and adverse effect
on the Company's business, financial condition and results of operations.
INTELLECTUAL PROPERTY
The Company holds trademarks, copyrights and patents on its products,
brand names and designs which the Company believes are material to its business.
The Company has made federal, state and international filings with respect to
its material intellectual property, and intends to keep these filings current.
The Company believes that its rubber "Off the Wall" sole design, the VANS
trademark, and the logo incorporating the VANS trademark are significant to its
business as they have been in use for many years and have gained acceptance
among consumers and in the footwear industry. The Company is aware of
potentially conflicting trademark claims in the United States, as well as
certain countries in Europe, South America and the Far East, and is currently
engaged in, or contemplating trademark opposition or other legal proceedings,
with respect to these claims. There can be no assurance that the Company will be
able to use all of its trademarks in any of the jurisdictions where conflicts
exist. The Company regards its trademarks and other proprietary rights as
valuable assets and believes that they have significant value in the marketing
of its products. The Company vigorously protects its trademarks against
infringement both in the United States and internationally, including through
the use of cease and desist letters, administrative proceedings and lawsuits.
ENVIRONMENTAL MATTERS
In the ordinary course of business, the Vista Facility generates a
small amount of hazardous waste which is stored on-site and transported off-site
by registered waste haulers for disposal at permitted disposal facilities. The
Company holds permits from local jurisdictions for discharging waste water,
storing hazardous materials, emitting air pollutants, and operating an air
pollution control system and certain other machinery. The Company believes that
it is in substantial compliance with all applicable rules and regulations of
federal, state and local environmental regulatory agencies.
EMPLOYEES
As of August 17, 1996, the Company had 1,092 employees. Of the
Company's 1,092 employees, 896 are full-time employees and 196 are part-time
employees (most of whom work at the Company's retail stores). The Company
considers its employee relations to be satisfactory. The Company has never
suffered a material interruption of business caused by labor disputes.
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<PAGE> 15
ITEM 2. PROPERTIES
Vista, California Manufacturing Facility. The Company leases
the 90,400 square foot Vista Facility. The term of the lease is eleven years and
six months, with two consecutive five-year extension options. The rental
structure under the lease is triple net. The current monthly base rent under the
lease is $39,107. Every 24 months a cost of living increase occurs with a
minimum of six percent (three percent per year) and a maximum of twelve percent
(six percent per year) increase. The monthly rent for each new period of two
years is adjusted by the percentage increase in the C.P.I. Index (LA/Long Beach)
for the two-year period immediately preceding.
City of Industry Distribution Center. The Company leases
approximately 127,000 square feet in the City of Industry, California which
house its warehouse operations. The lease has an initial term of five years and
the Company has one option to extend the lease an additional three years. The
rental structure under the lease is triple net. The current monthly base rent is
$31,680, which will increase to $34,848 in the thirty-third month of the lease.
If the option to extend the lease is exercised, the monthly base rent will be
adjusted by the percentage increase in the C.P.I. Index (Long Beach, Anaheim,
Riverside), capped at 112.5% of the rent payable for the month immediately
preceding the date for rent adjustment. The Company intends to sublease the City
of Industry facility and relocate its warehouse operations to the Company's new
Santa Fe Springs facility in June 1997. See "Corporate Headquarters," below.
Retail Stores. Of the Company's 83 retail stores, two are
owned by the Company. Of the Company's 83 stores, 81 are leased (with an average
remaining term of 41 months), and 15 are on a month-to-month basis. The leases
have an annual rent of approximately $25 per square foot, with a majority of
these leases containing annual cost of living increases. Of the Company's 81
retail leases, 74 have terms that include renewal options, and 60 provide for
the payment of percentage rent in addition to a fixed monthly charge. The
Company leases two of its retail stores from the Company's founders. The Company
does not have any franchised stores.
Corporate Headquarters. The Company has entered into
agreements to lease its Orange, California facility to two companies. In
connection with these agreements, the Company is negotiating a lease for
approximately 180,000 square feet of space in Santa Fe Springs, California which
will house the Company's corporate headquarters and warehouse operations. The
proposed lease would commence as of March 1, 1997 with respect to the office
space, and June 1, 1997 with respect to the warehouse space. The term of the
proposed lease would be 10 years. The rental structure under the proposed lease
would be triple net. The initial monthly rent would be $66,600 per month. Such
rent would be adjusted according to the C.P.I. Index throughout the term of the
lease.
The Company believes that its operating facilities and retail
space are adequate for its current needs.
ITEM 3. LEGAL PROCEEDINGS
SECURITIES LITIGATION. In June 1995, a class action lawsuit
was filed in the Federal District Court for the Central District of California
alleging violations of the Federal securities laws by the Company and certain of
its present and former officers and directors and seeking unspecified damages.
On February 6, 1996, the Company reached an agreement-in- principle to settle
this lawsuit. The settlement provides for the Company's insurance carrier to pay
$1,000,000, which comprises the entire settlement amount. The Company paid no
portion of the settlement amount and admitted no liability in connection
therewith. On July 22, 1996, the Court entered an order approving the settlement
and dismissing this case with prejudice.
SWITCH PATENT LITIGATION. The Company has been advised that
Switch has been sued for patent infringement by Mark Raines, Gregory Deeney and
Preston Binding Company ("Preston"), a division of Ride, Inc. ("Ride"). The suit
alleges that the Switch binding system infringes the patent of a binding system
developed by Messrs. Raines and Deeney which was subsequently assigned to
Preston. Switch has responded to the suit by filing an answer denying such
allegations and a complaint against Preston and Ride seeking a declaratory
judgment of patent non-infringement and damages for alleged bad faith
allegations of patent infringement.
Additionally, the Company has been advised by Switch that K2
Corporation ("K2") has notified Switch that, in its opinion, Switch's binding
system infringes certain allowed claims in a U.S. patent application filed by
K2. To the Company's knowledge, no litigation has commenced in this matter.
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<PAGE> 16
The Company has not been named as a defendant in the Preston
suit or threatened with litigation in either of the foregoing matters; however,
there can be no assurance that the Company will not be named in the Preston suit
or any potential litigation which might arise between Switch and K2, and there
can be no assurance as to the outcome of the litigation between Switch and
Preston and Ride or any potential litigation between Switch and K2. In the event
Switch is found liable in the Preston suit or in any suit that may be filed by
K2, the Company may be unable to use the Switch step-in boot binding system,
which could adversely impact the Company's competitive position in the snowboard
boot market.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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<PAGE> 17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this Item is incorporated by
reference to the disclosure under the caption "Stock Data" on page 36 of the
Company's 1996 Annual Report to Stockholders, which Report is attached hereto as
Exhibit 13 and will be furnished to the Securities and Exchange Commission (the
"Commission") and the Company's stockholders.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated herein
by reference to the disclosure under the caption "Selected Financial Data" on
page 35 of the Company's 1996 Annual Report to Stockholders, which Report is
attached hereto as Exhibit 13 and will be furnished to the Commission and the
Company's stockholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this Item is incorporated herein
by reference to the disclosure under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on page 8 of the
Company's 1996 Annual Report to Stockholders, which Report is attached hereto as
Exhibit 13 and will be furnished to the Commission and the Company's
stockholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Financial Statements and the Notes
thereto, listed in the Index set forth at page F-1 hereof, are incorporated
herein by reference to pages 17-32 of the Company's 1996 Annual Report to
Stockholders, which Report is attached hereto as Exhibit 13 and will be
furnished to the Commission and the Company's stockholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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<PAGE> 18
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated herein
by reference to the captions "Proposal 1 Election of Directors," Information
Relating to Executive Officers" and "Section 16(a) Beneficial Ownership
Reporting Compliance" on pages 3, 7, and 15 of the Proxy Statement for the
Company's 1996 Annual Meeting of Stockholders, which will be filed with the
Commission within 120 days after the end of the fiscal year covered by this
report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein
by reference to the caption "Executive Compensation and Other Information" on
page 9 of the Proxy Statement for the Company's 1996 Annual Meeting of
Stockholders, which will be filed with the Commission within 120 days after the
end of the fiscal year covered by this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein
by reference to the caption "Security Ownership of Management and Certain
Beneficial Owners" on page 2 of the Proxy Statement for the Company's 1996
Annual Meeting of Stockholders, which will be filed with the Commission within
120 days after the end of the fiscal year covered by this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein
by reference to the disclosure under the caption "Certain Transactions" on page
15 of the Proxy Statement for the Company's 1996 Annual Meeting of Stockholders,
which will be filed with the Commission within 120 days after the end of the
fiscal year covered by this Report.
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<PAGE> 19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS
The Company's Financial Statements and the Notes thereto,
listed in the Index to Financial Information located at page
F-1 of this report, are incorporated into Item 8 of this
report by reference to pages 17-32 of the Company's 1996
Annual Report to Stockholders, which is attached hereto as
Exhibit 13 and will be furnished to the Commission and to the
Company's stockholders.
(2) FINANCIAL STATEMENT SCHEDULES
The Financial Statement Schedule and the report of independent
auditors thereon are set forth at pages F-2 and F-3 of this
report.
(3) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION
<S> <C>
(8) 2.1 Agreement of Merger between the Registrant and Van Doren Rubber, dated July 31,
1991
(2) 2.1 Certificate of Ownership and Merger (Delaware) of Van Doren Rubber into the
Registrant, dated August 19, 1991
(2) 2.2 Certificate of Ownership (California) of the Registrant and Van Doren Rubber, dated
August 19, 1991
(2) 3.1 Restated Certificate of Incorporation of the Registrant, dated August 30, 1991
(2) 3.1.1 Certificate of Retirement of Class A and Class B Preferred Stock
of the Registrant, dated August 29, 1991
(2) 3.2 Restated By-laws of the Registrant
(6) 3.2.1 Amendment No. 1 of Restated By-laws of the Registrant
(6) 3.2.2 Amendment No. 2 of Restated By-laws of the Registrant
(8) 3.3 Certificate of Designation of Preferences and Rights of Series A Junior
Participating Preferred Stock of the Registrant
4.1 Reference is made to Exhibits 3.1 and 3.2
(8) 4.2 Specimen Stock Certificate
(2) 4.12 Note Purchase Agreement, dated as of August 21, 1991, between the Registrant and
holders of the Registrant's Senior Notes due August 1, 1999 (executed composite)
(6) 4.12.1 Amendment No. 1 to the Note Purchase Agreement, dated as of August 5, 1993,
by and between the Registrant and Teachers Insurance and Annuity Association
(the "Teachers Note Agreement") re: Fixed Charge Coverage Ratio
</TABLE>
19
<PAGE> 20
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION
<S> <C>
(6) 4.12.2 Amendment No. 2 to Note Purchase Agreement, dated as of August 9, 1993,
by and among the Registrant and Connecticut General Life Insurance
Company, Connecticut General Life Insurance Company, on behalf of
one or more separate accounts, and Life Insurance Company of North America
(the "CIGNA Note Agreement") re: Fixed Charge Coverate Ratio
(4) 4.12.3 Amendment No. 2 to the Teachers Note Agreement, dated as of December 15,
1993, re: Fixed Charge Coverage Ratio
(4) 4.12.4 Amendment No. 2 to the CIGNA Note Agreement, dated as of December 20,
1993, re: Fixed Charge Coverage Ratio
(9) 4.12.5 Amendment No. 3 to the Teachers Note Agreement, dated as of May 13,
1994, re: Fixed Charge Coverage Ratio
(9) 4.12.6 Amendment No. 3 to the CIGNA Note Agreement, dated as of May 23, 1994,
re: Fixed Charge Coverage Ratio
(10) 4.12.7 Modification Letter, dated as of July 1, 1995, by and among the Registrant,
Teachers and Cigna, regarding amending the Teachers and Cigna Note Agreements.
(14) 4.12.8 Modification Letter No.2 , dated as of August 25, 1995, by and among the Registrant,
Teachers and Cigna
(15) 4.12.9 Modification Letter No.3, dated as of March 29, 1996, by and among the Registrant,
Teachers and Cigna
(7) 4.13 Form of Preferred Stock Purchase Rights Certificate
(7) 4.14 Rights Agreement, dated as of February 22, 1994, by and between the Registrant and
Chemical Trust Company of California, as Rights Agent
(6) 10.1 Management Services Agreement, dated as of February 16, 1988, by and between Van
Doren Rubber Company, Inc., the Registrant's predecessor ("Van Doren Rubber"), and
McCown De Leeuw & Co.
(6) 10.1.1 Amendment to Management Services Agreement, dated as of July 11, 1991, by and between
Van Doren Rubber and MDC Management Company ("MDC Management Agreement")
(11) 10.1.2 Amendment No. 2 to the MDC Management Agreement
(6) 10.2 MDV Holdings, Inc. (now known as Vans, Inc.) Incentive Stock Option Plan
(6) 10.2.1 Amendment No. 1 to MDV Holdings, Inc. Incentive Stock Option Plan
dated June 28, 1991
(2) 10.3 Standard Industrial Lease-Net, dated as of May 27, 1992, by and between the Registrant
and Golden West Vista Associates (the "Vista Lease")
(9) 10.3.1 Amendment No. 1 to the Vista Lease
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION
<S> <C>
(9) 10.3.2 Letter Agreement modifying Amendment No. 1 to the Vista Lease
(3) 10.4 Employment Agreement, dated as of July 1, 1992, by and between the Registrant
and Craig E. Gosselin
(6) 10.5 1991 Long-Term Incentive Plan
(2) 10.5.1 Amendment No. 1 to 1991 Long-Term Incentive Plan
(2) 10.5.2 Amendment No. 2 to 1991 Long-Term Incentive Plan
(9) 10.5.3 Amendment No. 3 to the 1991 Long-Term Incentive Plan
(11) 10.5.4 Amendment No. 4 to the 1991 Long-Term Incentive Plan
(11) 10.5.5 Amendment No. 5 to the 1991 Long-Term Incentive Plan
(6) 10.6 International Distributor Agreement, dated as of December 7, 1992, by and between W.
P. Lavori In Corso s.r.l. and the Registrant
(6) 10.7 Trademark License Agreement, dated as of December 7, 1992, by and between W. P.
Lavori In Corso s.r.l. and the Registrant (the "Lavori Trademark Agreement")
(1) 10.7.1 Letter of Agreement, dated December 3, 1995, amending the Lavori Trademark
Agreement
(6) 10.8 Software License Agreement, dated March 31, 1993, by and between the Registrant and
J.D. Edwards Software, Inc., and Addenda thereto
(6) 10.9 License Agreement for Software Products, dated July 29, 1993, by and between the
Island Pacific Systems Corporation and the Registrant
(6) 10.10 Software License Agreement, dated as of May 27, 1993, by and between the Registrant
and STR, Inc.
(9) 10.11 Incentive Stock Option Agreement, dated as of September 22, 1993, by and between the
Registrant and Walter E. Schoenfeld, covering 30,000 shares
(9) 10.12 Incentive Stock Option Agreement, dated as of September 22, 1993, by and between the
Registrant and Walter E. Schoenfeld, covering 100,000 shares
(10) 10.13 Agency Agreement, dated as of June 15, 1994, by and between the Registrant and Sung
Won International
(10) 10.14 Employment Agreement, dated as of June 15, 1994, by and between the Registrant and
William C. Mann
(9) 10.15 Employment Agreement, dated as of June 15, 1994, by and between the Registrant and
Sari K. Ratsula
(10) 10.16 Employment Agreement, dated as of June 15, 1994, by and between the Registrant and
Steven J. Van Doren
</TABLE>
21
<PAGE> 22
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION
<S> <C>
(11) 10.17 Separation Agreement, dated as of May 31, 1995, by and between the Registrant and
Karen J. Ratcliff
(9) 10.18 Employment Agreement, dated as of July 12, 1993, by and between the Registrant and
Marc Gold
(9) 10.18.1 Letter Agreement, dated as of April 13, 1994, modifying the Employment Agreement by
and between the Registrant and Marc Gold
(9) 10.19 Employment Agreement, dated as of June 15, 1994, by and between the Registrant and
Gordon C. Lee, Jr.
(9) 10.20 Employment Agreement, dated as of June 15, 1994, by and between the Registrant and
Robert E. Diamond
(11) 10.21 Separation Agreement, dated as of May 11, 1995, by and between Christopher G. Staff
and the Registrant
(11) 10.22 Loan and Security Agreement, dated as of July 1, 1995, by and between the Registrant
and Bank of the West
(14) 10.22.1 First Amendment to Loan and Security Agreement, dated as of August 25, 1995, by and
between the Registrant and Bank of the West
(1) 10.22.2 Second Amendment to Loan and Security Agreement, dated as of November 8, 1995, by
and between the Registrant and Bank of the West
(13) 10.22.3 Third Amendment to Loan and Security Agreement, dated as of March 29, 1996, by and
between the Company and Bank of the West
(15) 10.22.4 Fourth Amendment to Loan and Security Agreement, dated as of April 11, 1996, by and
between the Company and Bank of the West
(1) 10.22.5 Fifth Amendment to Loan and Security Agreement, dated as of July 16, 1996, by and
between the Company and Bank of the West
(11) 10.23 Intercreditor Agreement, dated as of July 1, 1995, by and among the Registrant,
Bank of the West and Teachers and Cigna
(11) 10.24 Agreement, dated as of April 19, 1995, by and between International Trading
Corporation and the Registrant
(11) 10.25 Agreement, dated as of April 26, 1995, by and between Ssanyong Corporation and the
Registrant
(11) 10.26 Employment Agreement, dated as of May 25, 1995, by and between the Registrant
and Gary L. Dunlap
(11) 10.27 Letter, dated August 16, 1995, from First Interstate Bank of California to the Registrant
re non-compliance with covenants under Credit Agreement
</TABLE>
22
<PAGE> 23
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION
<S> <C>
(1) 10.28 Tour Title Sponsorship Agreement, dated as of May 8, 1996, by and between the
Registrant and C.C.R.L., LLC
(12) 10.29 License Agreement dated as of August 10, 1995, by and between the Registrant and
Switch Manufacturing
(12) 10.30 Amendment, dated as of January 5, 1995, by and between the Registrant and Switch
Manufacturing
(12) 10.31 Trademark License Agreement, dated as of November 15, 1995, by and between the
Registrant and Oneita Industries
(12) 10.32 Employment Agreement, dated as of September 1, 1995, by and between the Registrant
and Gary H. Schoenfeld
(12) 10.33 Incentive Stock Option, dated as of September 1, 1995, by and between the Registrant
and Gary H. Schoenfeld
(13) 10.34 Employment Agreement dated as of December 1, 1995, by and between Walter E.
Schoenfeld and the Registrant
(13) 10.35 Incentive Stock Option Agreement, dated as of May 11, 1995, by and between Walter E.
Schoenfeld and the Registrant
(13) 10.36 Amendment to Incentive Stock Option of Walter E. Schoenfeld, dated as of January 8,
1996
(13) 10.37 Financing Agreement, dated as of March 29, 1996, by and between the Registrant and
Ssangyong (U.S.A.), Inc.
(13) 10.38 Letter, dated March 7, 1996, from Gary H. Schoenfeld to Ssangyong Corporation re the
Financing Agreement
(13) 10.39 Intercreditor Agreement, dated as of March 29, 1996, by and among the Registrant,
Ssangyong (U.S.A.), Inc., Bank of the West, Cigna and Teachers
(13) 10.40 Security Agreement, dated as of March 29, 1996, by and between the Registrant, and
Ssangyong (U.S.A.), Inc.
(13) 10.41 Security Agreement, dated as of March 29, 1996, by and between Vans Footwear
International, Inc. and Ssangyong (U.S.A.), Inc.
(13) 10.42 Trademark Security Agreement and Collateral Assignment of Trademarks, dated as of
March 29, 1996, by and among the Registrant, Cigna and Teachers
(11) 10.43 Security Agreement, dated as of March 29, 1996, by and among the Registrant, Cigna
and Teachers
(1) 10.44 Employment Agreement, dated as of February 14, 1996, by and between Kyle B.
Wescoat and the Registrant
(1) 10.45 Employment Agreement, dated as of January 22, 1996, by and between Robert H.
Camarena and the Registrant
</TABLE>
23
<PAGE> 24
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION
<S> <C>
(1) 10.46 Separation and Consulting Agreement, dated as of January 2, 1996, by and between
Joseph C. Gaspers and the Registrant
(1) 10.47 UCC-2 Termination Statement terminating the security interest of Cigna and Teachers
in certain assets of the Registrant
(1) 10.48 Release of Grant of Security Interest in the Registrant's Trademarks executed by Cigna
and Teachers
(1) 10.49 Employment Agreement, dated July 1, 1996, by and between the Registrant and John T.
Dickinson
(1) 10.50 Employment Agreement, dated July 1, 1996, by and between the Registrant and
Brentton Ji
(1) 10.51 Employment Agreement, dated July 1, 1996, by and between the Registrant and Charles
C. Kupfer
(1) 10.52 Standard Industrial/Commercial Single Tenant Lease - Gross, dated August 15, 1996,
by and between the Registrant and CAPCO, Inc.
(1) 10.53 Standard Industrial/Commercial Single Tenant Lease - Net, dated July 22, 1996, by and
between the Registrant and Orange Engineering & Machine, Inc.
(1) 10.54 Trust Under Vans, Inc. Deferred Compensation Plan, dated as of June 1, 1996
(1) 10.55 Deferred Compensation Agreement for Walter Schoenfeld, dated as of June 1, 1996
(1) 13 1996 Annual Report to Stockholders
(1) 22 List of Subsidiaries
23.1 Consent of Independent Auditors re: Form S-8 Registration Statements is included in
their opinion set forth at page F-2 of this report
(1) 27 Financial Data Schedule
</TABLE>
- -------------------------------------------------
(1) Filed herewith.
(2) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the
year ended May 31, 1992, and incorporated herein by this reference
(3) Filed as an exhibit to Amendment No. 1 to the Registrant's Annual Report on
Form 10-K for the year ended May 31, 1992, and incorporated herein by this
reference
(4) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
the period ended November 28,1993, and incorporated herein by this
reference
(5) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
the period ended February 27, 1994, and incorporated herein by this
reference
(6) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the
year ended May 31, 1993, and incorporated herein by this reference
24
<PAGE> 25
(7) Filed as an exhibit to the Registrant's Form 8-A Registration Statement
(SEC File No. 0-19402), and incorporated herein by this reference
(8) Filed as an exhibit to the Registrant's Form 8-K, dated February 15, 1994,
and incorporated herein by this reference
(9) Filed as an exhibit to the Registrant's Form 10-K for the year ended May
31, 1994, and incorporated herein by this reference
(10) Filed as an exhibit to Amendment No.1 to the Registrant's Annual Report on
Form 10-K for the year ended May 31, 1994, and incorporated herein by this
reference
(11) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the
year ended May 31, 1995
(12) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
the period ended November 25, 1995, and incorporated herein by this
reference
(13) File as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
the period ended February 24, 1996, and incorporated herein by this
reference
(14) Filed as an exhibit to the Registrant's Form 8-K, dated October 17, 1995,
and incorporated herein by this reference
(15) Filed as an exhibit to the Registrant's Form S-3 Registrant Statement,
filed with the Securities and Exchange Commission on April 5, 1996 (File
No. 333-3272), and incorporated herein by this reference
25
<PAGE> 26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
VANS, INC.
(Registrant)
BY: /s/ Walter E. Schoenfeld Date: August 22, 1996
------------------------
Walter E. Schoenfeld
Chairman of the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Walter E. Schoenfeld Date: August 22, 1996
- ------------------------
Walter E. Schoenfeld
Chairman of the Board, Chief Executive Officer
and Director (Principal Executive Officer)
/s/ Kyle B. Wescoat Date: August 22, 1996
- -------------------
Kyle B. Wescoat
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ George E. McCown Date: August 22, 1996
- --------------------
George E. McCown
Director
/s/ David E. De Leeuw Date: August 22, 1996
- ---------------------
David E. De Leeuw
Director
/s/ Gary H. Schoenfeld Date: August 22, 1996
- ----------------------
Gary H. Schoenfeld
Director
/s/ Philip H. Schaff, Jr. Date: August 22, 1996
- -------------------------
Philip H. Schaff, Jr.
Director
/s/ Wilbur J. Fix Date: August 22, 1996
- ------------------------------------
Wilbur J. Fix
Director
/s/ James R. Sulat Date: August 22, 1996
- ------------------
James R. Sulat
Director
/s/ Kathleen M. Gardarian Date: August 22, 1996
- -------------------------
Kathleen M. Gardarian
Director
</TABLE>
26
<PAGE> 27
<TABLE>
<S> <C> <C>
/s/ Lisa M. Douglas Date: August 22, 1996
- -------------------
Lisa M. Douglas
Director
</TABLE>
27
<PAGE> 28
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION PAGE NO.
<S> <C> <C>
(8) 2.1 Agreement of Merger between the Registrant and Van Doren Rubber, dated July 31,
1991
(2) 2.1 Certificate of Ownership and Merger (Delaware) of Van Doren Rubber into the
Registrant, dated August 19, 1991
(2) 2.2 Certificate of Ownership (California) of the Registrant and Van Doren Rubber, dated
August 19, 1991
(2) 3.1 Restated Certificate of Incorporation of the Registrant, dated August 30, 1991
(2) 3.1.1 Certificate of Retirement of Class A and Class B Preferred Stock
of the Registrant, dated August 29, 1991
(2) 3.2 Restated By-laws of the Registrant
(6) 3.2.1 Amendment No. 1 of Restated By-laws of the Registrant
(6) 3.2.2 Amendment No. 2 of Restated By-laws of the Registrant
(8) 3.3 Certificate of Designation of Preferences and Rights of Series A Junior
Participating Preferred Stock of the Registrant
4.1 Reference is made to Exhibits 3.1 and 3.2
(8) 4.2 Specimen Stock Certificate
(2) 4.12 Note Purchase Agreement, dated as of August 21, 1991, between the Registrant and
holders of the Registrant's Senior Notes due August 1, 1999 (executed composite)
(6) 4.12.1 Amendment No. 1 to the Note Purchase Agreement, dated as of August 5, 1993,
by and between the Registrant and Teachers Insurance and Annuity Association
(the "Teachers Note Agreement") re: Fixed Charge Coverage Ratio
(6) 4.12.2 Amendment No. 2 to Note Purchase Agreement, dated as of August 9, 1993,
by and among the Registrant and Connecticut General Life Insurance
Company, Connecticut General Life Insurance Company, on behalf of
one or more separate accounts, and Life Insurance Company of North America
(the "CIGNA Note Agreement") re: Fixed Charge Coverate Ratio
(4) 4.12.3 Amendment No. 2 to the Teachers Note Agreement, dated as of December 15,
1993, re: Fixed Charge Coverage Ratio
(4) 4.12.4 Amendment No. 2 to the CIGNA Note Agreement, dated as of December 20,
1993, re: Fixed Charge Coverage Ratio
(9) 4.12.5 Amendment No. 3 to the Teachers Note Agreement, dated as of May 13,
1994, re: Fixed Charge Coverage Ratio
</TABLE>
28
<PAGE> 29
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION PAGE NO.
<S> <C> <C>
(9) 4.12.6 Amendment No. 3 to the CIGNA Note Agreement, dated as of May 23, 1994,
re: Fixed Charge Coverage Ratio
(10) 4.12.7 Modification Letter, dated as of July 1, 1995, by and among the Registrant,
Teachers and Cigna, regarding amending the Teachers and Cigna Note Agreements.
(14) 4.12.8 Modification Letter No.2 , dated as of August 25, 1995, by and among the Registrant,
Teachers and Cigna
(15) 4.12.9 Modification Letter No.3, dated as of March 29, 1996, by and among the Registrant,
Teachers and Cigna
(7) 4.13 Form of Preferred Stock Purchase Rights Certificate
(7) 4.14 Rights Agreement, dated as of February 22, 1994, by and between the
Registrant and Chemical Trust Company of California, as Rights Agent
(6) 10.1 Management Services Agreement, dated as of February 16, 1988, by and between Van
Doren Rubber Company, Inc., the Registrant's predecessor ("Van Doren Rubber"), and
McCown De Leeuw & Co.
(6) 10.1.1 Amendment to Management Services Agreement, dated as of
July 11, 1991, by and between Van Doren Rubber and
MDC Management Company ("MDC Management Agreement")
(11) 10.1.2 Amendment No. 2 to the MDC Management Agreement
(6) 10.2 MDV Holdings, Inc. (now known as Vans, Inc.) Incentive Stock Option Plan
(6) 10.2.1 Amendment No. 1 to MDV Holdings, Inc. Incentive Stock Option Plan
dated June 28, 1991
(2) 10.3 Standard Industrial Lease-Net, dated as of May 27, 1992, by and between the Registrant
and Golden West Vista Associates (the "Vista Lease")
(9) 10.3.1 Amendment No. 1 to the Vista Lease
(9) 10.3.2 Letter Agreement modifying Amendment No. 1 to the Vista Lease
(3) 10.4 Employment Agreement, dated as of July 1, 1992, by and between the Registrant
and Craig E. Gosselin
(6) 10.5 1991 Long-Term Incentive Plan
(2) 10.5.1 Amendment No. 1 to 1991 Long-Term Incentive Plan
(2) 10.5.2 Amendment No. 2 to 1991 Long-Term Incentive Plan
(9) 10.5.3 Amendment No. 3 to the 1991 Long-Term Incentive Plan
</TABLE>
29
<PAGE> 30
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION PAGE NO.
<S> <C> <C>
(11) 10.5.4 Amendment No. 4 to the 1991 Long-Term Incentive Plan
(11) 10.5.5 Amendment No. 5 to the 1991 Long-Term Incentive Plan
(6) 10.6 International Distributor Agreement, dated as of December 7, 1992, by and between W.
P. Lavori In Corso s.r.l. and the Registrant
(6) 10.7 Trademark License Agreement, dated as of December 7, 1992, by and between W. P.
Lavori In Corso s.r.l. and the Registrant (the "Lavori Trademark Agreement")
(1) 10.7.1 Letter of Agreement, dated December 3, 1995, amending the Lavori Trademark
Agreement
(6) 10.8 Software License Agreement, dated March 31, 1993, by and between the Registrant and
J.D. Edwards Software, Inc., and Addenda thereto
(6) 10.9 License Agreement for Software Products, dated July 29, 1993, by and between the
Island Pacific Systems Corporation and the Registrant
(6) 10.10 Software License Agreement, dated as of May 27, 1993, by and between the Registrant
and STR, Inc.
(9) 10.11 Incentive Stock Option Agreement, dated as of September 22, 1993, by and between the
Registrant and Walter E. Schoenfeld, covering 30,000 shares
(9) 10.12 Incentive Stock Option Agreement, dated as of September 22, 1993, by and between the
Registrant and Walter E. Schoenfeld, covering 100,000 shares
(10) 10.13 Agency Agreement, dated as of June 15, 1994, by and between the Registrant and Sung
Won International
(10) 10.14 Employment Agreement, dated as of June 15, 1994, by and between the Registrant and
William C. Mann
(9) 10.15 Employment Agreement, dated as of June 15, 1994, by and between the Registrant and
Sari K. Ratsula
(10) 10.16 Employment Agreement, dated as of June 15, 1994, by and between the Registrant and
Steven J. Van Doren
(11) 10.17 Separation Agreement, dated as of May 31, 1995, by and between the Registrant and
Karen J. Ratcliff
(9) 10.18 Employment Agreement, dated as of July 12, 1993, by and between the Registrant and
Marc Gold
(9) 10.18.1 Letter Agreement, dated as of April 13, 1994, modifying the Employment Agreement by
and between the Registrant and Marc Gold
(9) 10.19 Employment Agreement, dated as of June 15, 1994, by and between the Registrant and
Gordon C. Lee, Jr.
</TABLE>
30
<PAGE> 31
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION PAGE NO.
<S> <C> <C>
(9) 10.20 Employment Agreement, dated as of June 15, 1994, by and between the Registrant and
Robert E. Diamond
(11) 10.21 Separation Agreement, dated as of May 11, 1995, by and between Christopher G. Staff
and the Registrant
(11) 10.22 Loan and Security Agreement, dated as of July 1, 1995, by and between the Registrant
and Bank of the West
(14) 10.22.1 First Amendment to Loan and Security Agreement, dated as of August 25, 1995, by and
between the Registrant and Bank of the West
(1) 10.22.2 Second Amendment to Loan and Security Agreement, dated as of November 8, 1995, by
and between the Registrant and Bank of the West
(13) 10.22.3 Third Amendment to Loan and Security Agreement, dated as of March 29, 1996, by and
between the Company and Bank of the West
(15) 10.22.4 Fourth Amendment to Loan and Security Agreement, dated as of April 11, 1996, by and
between the Company and Bank of the West
(1) 10.22.5 Fifth Amendment to Loan and Security Agreement, dated as of July 16, 1996, by and
between the Company and Bank of the West
(11) 10.23 Intercreditor Agreement, dated as of July 1, 1995, by and among the Registrant,
Bank of the West and Teachers and Cigna
(11) 10.24 Agreement, dated as of April 19, 1995, by and between International Trading
Corporation and the Registrant
(11) 10.25 Agreement, dated as of April 26, 1995, by and between Ssanyong Corporation and the
Registrant
(11) 10.26 Employment Agreement, dated as of May 25, 1995, by and between the Registrant
and Gary L. Dunlap
(11) 10.27 Letter, dated August 16, 1995, from First Interstate Bank of California to the Registrant
re non-compliance with covenants under Credit Agreement
(1) 10.28 Tour Title Sponsorship Agreement, dated as of May 8, 1996, by and between the
Registrant and C.C.R.L., LLC
(12) 10.29 License Agreement dated as of August 10, 1995, by and between the Registrant and
Switch Manufacturing
(12) 10.30 Amendment, dated as of January 5, 1995, by and between the Registrant and Switch
Manufacturing
(12) 10.31 Trademark License Agreement, dated as of November 15, 1995, by and between the
Registrant and Oneita Industries
</TABLE>
31
<PAGE> 32
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION PAGE NO.
<S> <C> <C>
(12) 10.32 Employment Agreement, dated as of September 1, 1995, by and between the Registrant
and Gary H. Schoenfeld
(12) 10.33 Incentive Stock Option, dated as of September 1, 1995, by and between the Registrant
and Gary H. Schoenfeld
(13) 10.34 Employment Agreement dated as of December 1, 1995, by and between Walter E.
Schoenfeld and the Registrant
(13) 10.35 Incentive Stock Option Agreement, dated as of May 11, 1995, by and between Walter E.
Schoenfeld and the Registrant
(13) 10.36 Amendment to Incentive Stock Option of Walter E. Schoenfeld, dated as of January 8,
1996
(13) 10.37 Financing Agreement, dated as of March 29, 1996, by and between the Registrant and
Ssangyong (U.S.A.), Inc.
(13) 10.38 Letter, dated March 7, 1996, from Gary H. Schoenfeld to Ssangyong Corporation re the
Financing Agreement
(13) 10.39 Intercreditor Agreement, dated as of March 29, 1996, by and among the Registrant,
Ssangyong (U.S.A.), Inc., Bank of the West, Cigna and Teachers
(13) 10.40 Security Agreement, dated as of March 29, 1996, by and between the Registrant, and
Ssangyong (U.S.A.), Inc.
(13) 10.41 Security Agreement, dated as of March 29, 1996, by and between Vans Footwear
International, Inc. and Ssangyong (U.S.A.), Inc.
(13) 10.42 Trademark Security Agreement and Collateral Assignment of Trademarks, dated as of
March 29, 1996, by and among the Registrant, Cigna and Teachers
(13) 10.43 Security Agreement, dated as of March 29, 1996, by and among the Registrant, Cigna
and Teachers
(1) 10.44 Employment Agreement, dated as of February 14, 1996, by and between Kyle B.
Wescoat and the Registrant
(1) 10.45 Employment Agreement, dated as of January 22, 1996, by and between Robert H.
Camarena and the Registrant
(1) 10.46 Separation and Consulting Agreement, dated as of January 2, 1996, by and between
Joseph C. Gaspers and the Registrant
(1) 10.47 UCC-2 Termination Statement terminating the security interest of Cigna and Teachers
in certain assets of the Registrant
(1) 10.48 Release of Grant of Security Interest in the Registrant's Trademarks executed by Cigna
and Teachers
(1) 10.49 Employment Agreement, dated July 1, 1996, by and between the Registrant and John T.
Dickinson
</TABLE>
32
<PAGE> 33
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION PAGE NO.
<S> <C> <C>
(1) 10.50 Employment Agreement, dated July 1, 1996, by and between the Registrant and
Brentton Ji
(1) 10.51 Employment Agreement, dated July 1, 1996, by and between the Registrant and Charles
C. Kupfer
(1) 10.52 Standard Industrial/Commercial Single Tenant Lease - Gross, dated August 15, 1996,
by and between the Registrant and CAPCO, Inc.
(1) 10.53 Standard Industrial/Commercial Single Tenant Lease - Net, dated July 22, 1996, by and
between the Registrant and Orange Engineering & Machine, Inc.
(1) 10.54 Trust Under Vans, Inc. Deferred Compensation Plan, dated as of June 1, 1996
(1) 10.55 Deferred Compensation Agreement for Walter Schoenfeld, dated as of June 1, 1996
(1) 13 1995 Annual Report to Stockholders
(1) 22 List of Subsidiaries
23.1 Consent of Independent Auditors re: Form S-8 Registration Statements is included in
their opinion set forth at page F-2 of this report
(1) 27 Financial Data Schedule
</TABLE>
- -------------------------------------------------
(1) Filed herewith.
(2) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the
year ended May 31, 1992, and incorporated herein by this reference
(3) Filed as an exhibit to Amendment No. 1 to the Registrant's Annual Report on
Form 10-K for the year ended May 31, 1992, and incorporated herein by this
reference
(4) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
the period ended November 28,1993, and incorporated herein by this
reference
(5) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
the period ended February 27, 1994, and incorporated herein by this
reference
(6) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the
year ended May 31, 1993, and incorporated herein by this reference
(7) Filed as an exhibit to the Registrant's Form 8-A Registration Statement
(SEC File No. 0-19402), and incorporated herein by this reference
(8) Filed as an exhibit to the Registrant's Form 8-K, dated February 15, 1994,
and incorporated herein by this reference
(9) Filed as an exhibit to the Registrant's Form 10-K for the year ended May
31, 1994, and incorporated herein by this reference
33
<PAGE> 34
(10) Filed as an exhibit to Amendment No.1 to the Registrant's Annual Report on
Form 10-K for the year ended May 31, 1994, and incorporated herein by this
reference
(11) Filed as an exhibit to the Registrant's Annual Report on Form 10-K for the
year ended May 31, 1995
(12) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
the period ended November 25, 1995, and incorporated herein by this
reference
(13) File as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
the period ended February 24, 1996, and incorporated herein by this
reference
(14) Filed as an exhibit to the Registrant's Form 8-K, dated October 17, 1995,
and incorporated herein by this reference
(15) Filed as an exhibit to the Registrant's Form S-3 Registrant Statement,
filed with the Securities and Exchange Commission on April 5, 1996 (File
No. 333-3272), and incorporated herein by this reference
34
<PAGE> 35
INDEX TO FINANCIAL INFORMATION
Data (i) attached hereto, and (ii) incorporated by reference from the Company's
1996 Annual Report to Stockholders:
<TABLE>
<CAPTION>
ANNUAL REPORT TO
FORM 10-K STOCKHOLDERS
<S> <C> <C>
Consolidated Financial Statements:
Consolidated Balance Sheets as of May 31, 1996 and 1995 18
Consolidated Statements of Operations
for the Years Ended May 31, 1996, 1995 and 1994 19
Consolidated Statements of Stockholders' Equity
for the Years Ended May 31, 1996, 1995 and 1994 20
Consolidated Statements of Cash Flows
for the Years Ended May 31, 1996, 1995 and 1994 21
Notes to Consolidated Financial Statements 22
Independent Auditors' Report on Financial Statements 34
Report and Consent of Independent Auditors F-2
Schedule II - Valuation and Qualifying Accounts and F-3
Reserves
</TABLE>
All other schedules are omitted because they are not required, are not
applicable, or the information is included in the Consolidated Financial
Statements or notes thereto.
F-1
<PAGE> 36
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Vans, Inc.:
The audits referred to in our report dated July 19, 1996, included the
related financial statement schedule as of May 31, 1996, and for each of the
years in the three-year period ended May 31, 1996, incorporated by reference in
the registration statements on Form S-8 of Vans, Inc. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We consent to incorporation by reference in the registration statements
on Form S-8 of Vans, Inc. of our report dated July 19, 1996, relating to the
consolidated balance sheets of Vans, Inc. and subsidiaries as of May 31, 1996
and 1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the years in the three-year period ended May
31, 1996, and the related schedule, which report appears in the May 31, 1996
annual report on Form 10-K of Vans, Inc.
KPMG Peat Marwick LLP
Orange County, California
August 22, 1996
F-2
<PAGE> 37
SCHEDULE II
Valuation and Qualifying Accounts and Reserves
<TABLE>
<CAPTION>
Balance at
Beginning of Charged to Cost Deductions - Balance at
Period and Expenses Describe End of Period
------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
Year end May 31, 1994:
Allowance for
doubtful accounts $601,404 $ 518,593 $ 448,895(a) $ 671,102
Lower of cost or market
valuation allowance $825,772 $ $ 501,000(b) $ 324,772
Year end May 31, 1995:
Allowance for
doubtful accounts $671,102 $1,359,846 $1,218,317(a) $ 812,631
Lower of cost or market
valuation allowance $324,772 $ 275,228 $ $ 600,000
Year end May 31, 1996:
Allowance for
doubtful accounts $812,631 $ 762,295 $ 427,582(a) $1,147,344
Lower of cost or market
valuation allowance $600,000 $ $ $ 600,000
</TABLE>
- ---------------------------------
(a) Charge-off of uncollectible accounts receivable.
(b) Reduction of specific reserves due to sale of related inventories.
F-3
<PAGE> 1
EXHIBIT
10.7.1
(W.P. LAVORI IN CORSO LOGO)
LETTER OF AGREEMENT
This agreement is made and entered into effect between Vans and W.P. Lavori in
Corso does not modify all the conditions of the distribution's and licence's
agreement already valid and effective between the parties and shall be
considered integrative part of the above mentioned agreements.
1. The term of the licence agreement in Europe shall expire the 7 november
1995, whereas the termination for the license in Italy shall be regulated by
art.3.1. of the licence agreement dated dec.7 1992.
2. Vans recognises, and W.P. accepts, that for the period beginning from 7
November 1995 to 7 January 1997 no royalties shall be paied by Licensee in
force of the license agreement, except for what is stated at the following
point 4.
3. Beginning from the 7 January 1997 the Licensee shall pay for the license an
annual minimum guaranteed royalty equal to 25.000 $ and a royalty equal to 5%
of the net sales (as defined at point 7.3. in the license agreement dated Dec.
7, 1992).
4. W.P. Lavori in Corso shall pay the amount of 160.416 $, less 10%
withholding tax due for royalties at the date of the undersign of the present
agreement according to the following terms:
the 50% shall be paied till the 25 February 1996 and the 50% till the 31 May.
5. W.P. Lavori in Corso shall have the right to license or sub-license only in
the territory of Italy, any of the trademarks or all of any part or all or any
of its rights or obligations under the license agreement dated
Bologna, the
The Licensor The Licensee
VANS INC. W.P. LAVORI IN CORSO
[SIG] [SIG]
- ----------------------------- -------------------------------
Dec. 3, 1995
[LETTERHEAD ADDRESSES AND PHONE NUMBERS]
<PAGE> 1
EXHIBIT 10.22.2
SECOND AMENDMENT TO LOAN
AND SECURITY AGREEMENT
THIS SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT (the
"Amendment"), is made as of November __, 1995, by and between VANS, INC.
("Borrower"), and BANK OF THE WEST ("Bank"), and is entered into with respect
to the Loan and Security Agreement, dated as of July 1, 1995, by and between
Borrower and Bank, as amended by First Amendment to Loan and Security
Agreement, dated as of August 25, 1995, by and between Borrower and Bank (the
"Agreement").
RECITALS
WHEREAS, Borrower has requested that the Agreement be amended to
increase to Six Million Dollars ($6,000,000) the maximum indebtedness that
Borrower may owe to Korean government agencies;
WHEREAS, Bank is willing to agree to the requested amendment, on the
terms set forth herein, provided that Borrower waives all causes of action that
it may have against Bank, as provided herein; and
WHEREAS, Borrower is willing to waive the causes of actions described
herein, in return for the amendment;
NOW, THEREFORE, IT IS AGREED THAT:
1. Definitions. Unless otherwise indicated, words and terms
which are defined in the Agreement shall have the same meaning where used
herein.
2. Amendment. Clause (d) of the definition "Permitted
Indebtedness" in Section 1.1 of the Agreement is amended to read as follows:
(d) Indebtedness of Borrower in favor of any Korean
government agency providing financial support to Borrower's
operations, to the extent that the principal amount of such
Indebtedness does not exceed Six Million Dollars ($6,000,000); and
3. Conditions Precedent. This Amendment shall not take effect
unless and until all of the following conditions precedent are satisfied:
(a) Execution and Delivery. It is executed by Borrower
and accepted and executed by Bank; and
(b) No Event of Default. No Event of Default shall exist
and no event shall have occurred or condition exist which, with the passage of
time, the giving of
<PAGE> 2
notice, or both, would constitute an Event of Default and the execution,
delivery and performance of this Amendment by the parties hereto shall not
cause an Event of Default to occur or an event to occur or a condition to exist
which, with the passage of time, the giving of notice, or both, would
constitute an Event of Default.
4. Continued Validity of Agreement. Except as amended by this
Amendment, the Agreement shall continue in full force and effect as originally
constituted and is ratified and affirmed by the parties hereto.
5. Authorization. Each party represents to the other that the
individual executing this Amendment on its behalf is the duly appointed
signatory of such party to this Amendment and that such individual is
authorized to execute this Amendment by or on behalf of such party and to take
all action required by the terms of this Amendment.
6. Amendment Expenses. All expenses, including, but not limited
to, reasonable attorneys' fees, incurred by Bank in the preparation and
implementation of this Amendment constitute Bank Expenses and as such are
payable by Borrower.
7. Waiver of Claims.
(a) Borrower hereby releases and forever discharges Bank and
Bank's directors, officers, employees and agents, from all actions, and causes
of action, judgments, executions, suits, debts, claims, demands, liabilities,
counterclaims and offsets of every character, known or unknown, direct and/or
indirect, at law or in equity, of whatever kind or nature which have arisen or
accrued through the date of this Amendment and in any way directly or
indirectly arising out of or in any way connected with the Loan Documents and
the Revolving Facility through such date.
(b) Borrower hereby waives all rights which it may have
under the provisions of California Civil Code Section 1542, which reads as
follows:
A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have
materially affected his settlement with the debtor.
8. Captions. Section headings and numbers have been set forth
herein for convenience only. Unless the contrary is compelled by the context,
everything contained in each section applies equally to this entire Amendment.
9. No Novation. This Amendment is not intended to be, and shall
not be construed to create, a novation or accord and satisfaction, and, except
as otherwise provided herein, the Agreement shall remain in full force and
effect.
2
<PAGE> 3
10. Construction of Amendment. Neither this Amendment nor any
uncertainty or ambiguity herein shall be construed or resolved against Bank on
the basis that this Amendment was drafted by Bank. On the contrary, this
Amendment has been negotiated and reviewed by both parties and shall be
construed and interpreted according to the ordinary meaning of the words used
so as to fairly accomplish the purposes and intentions of the parties hereto.
11. Severability. Each provision of this Amendment shall be
severable from every other provision of this Amendment for the purpose of
determining the legal enforceability of any specific provision.
12. Entire Agreement. This Amendment constitutes the entire
agreement between Borrower and Bank with respect to the subject matter hereof
and supersedes all prior and contemporaneous negotiations, communications,
discussions and agreements concerning such subject matter. Borrower
acknowledges and agrees that Bank has not made any representation, warranty or
covenant in connection with this Amendment.
13. Counterparts. This Amendment may be executed in any number of
counterparts, and by Bank and Borrower in separate counterparts, each of which
shall be an original, but all of which shall together constitute one and the
same agreement.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Amendment as of the date first set forth above.
"BORROWER"
VANS, INC.
By: __________________________
Title: _______________________
"BANK"
BANK OF THE WEST
By: __________________________
Dale J. Kobsar
Regional Vice President
3
<PAGE> 1
EXHIBIT 10.22.5
FIFTH AMENDMENT TO LOAN
AND SECURITY AGREEMENT
THIS FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "Amendment"),
is made as of July 16, 1996, by and between VANS, INC. ("Borrower"), and BANK
OF THE WEST ("Bank"), and is entered into with respect to the Loan and Security
Agreement, dated as of July 1, 1995, by and between Borrower and Bank, as
amended by the First Amendment to Loan and Security Agreement, dated as of
August 25, 1995, by and between Borrower and Bank, by the Second Amendment to
Loan and Security Agreement, dated as of November 9, 1995, by and between
Borrower and Bank, by the Third Amendment to Loan and Security Agreement, dated
as of March 29, 1996, by and between Borrower and Bank and by the Fourth
Amendment to Loan and Security Agreement, dated as of April 11, 1996, by and
between Borrower and Bank (the "Agreement").
RECITALS
WHEREAS, Borrower has requested that Bank increase the maximum letter
of credit facility to Ten Million Dollars ($10,000,000);
WHEREAS, Bank is willing to agree to the request, on the terms set
forth herein, provided that Borrower waives all causes of action that it may
have against Bank, as provided herein; and
WHEREAS, Borrower is willing to waive the causes of actions described
herein, in return for Bank's agreement to the request;
NOW, THEREFORE, IT IS AGREED THAT:
1. Definitions. Unless otherwise indicated, words and terms
which are defined in the Agreement shall have the same meaning where used
herein.
2. Amendment. Section 2.2(a) of the Agreement is hereby amended
to read as follows:
(a) Issuance. Subject to the terms and
conditions hereof, Bank agrees to issue or cause to be issued for Borrower's
account (A) sight documentary letters of credit and (B) usance documentary
letters of credit with a final maturity or payment date of not more than ninety
(90) days from acceptance date (the "Letters of Credit") in an aggregate face
amount not to exceed (i) the lesser of the Committed Line or the Borrowing Base
minus (ii) the then outstanding principal balance of the Advances provided that
the face amount of outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit) shall not in any case exceed Ten Million
Dollars ($10,000,000). Each such sight Letter of Credit shall have an expiry
date no later than
<PAGE> 2
ninety (90) days after the Maturity Date. Each such usance Letter of Credit
shall have a final maturity or payment date no later than ninety (90) days
after the Maturity Date. All such Letters of Credit shall be, in form and
substance, acceptable to Bank in its sole discretion and shall be subject to
the terms and conditions of Bank's form of application and letter of credit
agreement.
3. Conditions Precedent. This Amendment shall not take effect
unless and until all of the following conditions precedent are satisfied:
(a) Execution and Delivery. It is executed by Borrower
and accepted and executed by Bank; and
(b) No Event of Default. No Event of Default shall exist
and no event shall have occurred or condition exist which, with the passage of
time, the giving of notice, or both, would constitute an Event of Default and
the execution, delivery and performance of this Amendment by the parties hereto
shall not cause an Event of Default to occur or an event to occur or a
condition to exist which, with the passage of time, the giving of notice, or
both, would constitute an Event of Default.
4. Continued Validity of Agreement. Except as amended by this
Amendment, the Agreement shall continue in full force and effect as originally
constituted and is ratified and affirmed by the parties hereto.
5. Authorization. Each party represents to the other that the
individual executing this Amendment on its behalf is the duly appointed
signatory of such party to this Amendment and that such individual is
authorized to execute this Amendment by or on behalf of such party and to take
all action required by the terms of this Amendment.
6. Amendment Expenses. All expenses, including, but not limited
to, reasonable attorneys' fees, incurred by Bank in the preparation and
implementation of this Amendment constitute Bank Expenses and as such are
payable by Borrower.
7. Waiver of Claims.
(a) Borrower hereby releases and forever discharges Bank and
Bank's directors, officers, employees and agents, from all actions, and causes
of action, judgments, executions, suits, debts, claims, demands, liabilities,
counterclaims and offsets of every character, known or unknown, direct and/or
indirect, at law or in equity, of whatever kind or nature which have arisen or
accrued through the date of this Amendment and in any way directly or
indirectly arising out of or in any way connected with the Loan Documents and
the Revolving Facility through such date.
2
<PAGE> 3
(b) Borrower hereby waives all rights which it may have
under the provisions of California Civil Code Section 1542, which reads as
follows:
A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have
materially affected his settlement with the debtor.
8. Captions. Section headings and numbers have been set forth
herein for convenience only. Unless the contrary is compelled by the context,
everything contained in each section applies equally to this entire Amendment.
9. No Novation. This Amendment is not intended to be, and shall
not be construed to create, a novation or accord and satisfaction, and, except
as otherwise provided herein, the Agreement shall remain in full force and
effect.
10. Construction of Amendment. Neither this Amendment nor any
uncertainty or ambiguity herein shall be construed or resolved against Bank on
the basis that this Amendment was drafted by Bank. On the contrary, this
Amendment has been negotiated and reviewed by both parties and shall be
construed and interpreted according to the ordinary meaning of the words used
so as to fairly accomplish the purposes and intentions of the parties hereto.
11. Severability. Each provision of this Amendment shall be
severable from every other provision of this Amendment for the purpose of
determining the legal enforceability of any specific provision.
12. Entire Agreement. This Amendment constitutes the entire
agreement between Borrower and Bank with respect to the subject matter hereof
and supersedes all prior and contemporaneous negotiations, communications,
discussions and agreements concerning such subject matter. Borrower
acknowledges and agrees that Bank has not made any representation, warranty or
covenant in connection with this Amendment.
3
<PAGE> 4
13. Counterparts. This Amendment may be executed in any number of
counterparts, and by Bank and Borrower in separate counterparts, each of which
shall be an original, but all of which shall together constitute one and the
same agreement.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Amendment as of the date first set forth above.
"BORROWER"
VANS, INC.
By: [sig]
-------------------------------------
Title: Vice President and General Counsel
-----------------------------------
"BANK"
BANK OF THE WEST
By: DALE J. KOBSAR
-----------------------------------
Dale J. Kobsar
Regional Vice President
4
<PAGE> 1
EXHIBIT 10.28
TOUR TITLE SPONSORSHIP AGREEMENT
THIS AGREEMENT is entered into as of the 8th day of May, 1996 between
Vans, Inc., a Delaware corporation, 2095 Batavia Street, Orange, California
92665 ("Sponsor") and C.C.R.L., LLC, c/o Gendler, Codikow & Carroll,
9113 Sunset Boulevard, Los Angeles, California 90069 ("Company"). In
consideration of the covenants set forth herein and for other good and
valuable consideration, the parties agree as follows:
RECITALS
WHEREAS, Sponsor desires to be the official exclusive title sponsor of
a tour known as the "The Vans Warped Tour '96" (the "Tour") produced by Company
and comprised of, among other things, performances by popular musical artists,
exhibitions by miscellaneous athletic performers (herein collectively,
"Performers") and skateboarding contests involving amateur athletes and to
further utilize the name, logo and identification of Company and the Tour in
television, print, radio, posters, tickets and other like advertising and
promotional media; and
WHEREAS, Company is willing to provide to Sponsor the name, logo and
identification of Company and the Tour for the purposes described above and
desires to obtain the right to use the name, logo and identification of Sponsor
in connection with the advertising, promotion and publicity of the Tour;
1
<PAGE> 2
NOW, THEREFORE, in consideration of the terms and conditions set forth
herein, it is agreed:
1. TERRITORY:
The territory in which the Tour shall be conducted shall be the
continental United States, Canada, Europe and Asia ("Territory") provided that
in Europe and Asia the Tour shall consist of no more than four (4)
"Competitions" (as hereinafter defined) in the aggregate accompanied by musical
groups other than those who perform on the Tour in the United States. In that
connection, it is presently contemplated that such groups (with respect to
Europe) shall be provided by Roadrunner Records and (with respect to Asia)
shall be provided by Techikov Records.
2. DURATION OF AGREEMENT:
The parties hereto acknowledge, understand and agree that the
sponsorship and marketing programs contemplated herein are designed to occur
and run in coordination with the Tour in the Territory, currently scheduled to
begin July 3, 1996 and continue until August 18, 1996. The nature of tour
booking is such that the precise start and finish dates of the Tour have not
yet been ascertained. Accordingly, the parties agree that this Agreement shall
commence and be effective upon execution of this Agreement by all the parties
and shall continue until the completion of the Tour. Notwithstanding the
foregoing, in no event shall the Tour
2
<PAGE> 3
continue after September 15, 1996. At such time, unless earlier terminated
pursuant to the terms hereof, this Agreement shall terminate. Within thirty
(30) days after the end of the Tour, Company shall provide Sponsor with all
information and materials relating to the Tour then available to Company
including but not limited to any press materials, information regarding
demographics of audiences and participants in the Competitions, attendance and
participation numbers for concerts and the Competitions and photographs and any
videos taken at the various venues. Company's failure to timely provide such
information shall not be deemed a breach of this Agreement provided that
Company provides such information promptly after Sponsor's written request
therefor. Sponsor acknowledges that it shall not have the right without first
obtaining consent from all necessary parties to use or otherwise exploit any of
the foregoing information or material in whole or in part relating to the Tour
in any manner whatsoever, with the sole exception to use the information and
material for Sponsor's internal use and for Sponsor's use in non-public sales
presentations to retailers.
3. NONEXCLUSIVITY:
(a) Sponsor acknowledges and agrees that Sponsor is not
the sole or exclusive sponsor of the Tour and that Company shall be entitled to
permit other persons or entities to act as sponsors of the Tour, or to refrain
therefrom, provided that (i) Sponsor shall
3
<PAGE> 4
at all times during the Term be the official and exclusive title Sponsor of the
Tour and (ii) no other manufacturer or distributor of footwear or snowboard
boots shall be a sponsor of the Tour without Sponsor's approval, which may be
given or withheld in Sponsor's sole discretion.
(b) From and after the date hereof, Company shall not
issue advertising or other materials that are misleading as to Sponsor's title
sponsorship of the Tour and shall instruct other sponsors or persons or
entities affiliated with the Tour not to issue such misleading advertisements
or materials.
4. CONTROL OF TOUR:
Each of the parties hereto acknowledges that there exists certain
difficulties in determining when the creative and production elements of the
Tour should take precedence over Sponsor's promotional and marketing activities
as set forth herein. Accordingly, the parties acknowledge that Company's
decisions and actions as to the creative and production elements of the Tour
shall take precedence over any promotional or other activities of Sponsor
hereunder so long as (i) those decisions and actions are in good faith and
primarily for the purpose of enhancing and protecting the opportunities for the
audience to enjoy the performances and exhibitions, (ii) such decisions and
actions do not have a material adverse impact on Sponsor or Sponsor's rights
hereunder and (iii) provided authorized representatives of Sponsor
4
<PAGE> 5
are present at the applicable venue and are available for consultation, Company
shall consult with Sponsor, in advance, as to such decisions and actions.
Subject to the foregoing, Sponsor and its representatives agree to comply fully
with Company's reasonable instructions and Company shall have sole and
exclusive control over the concert performances, athletic exhibitions, the
Competition and all other aspects of the Tour. Company agrees to exercise
reasonable efforts in making whatever arrangements are necessary to protect
the creative aspects of the Tour while fulfilling the spirit and the goals of
this Agreement with respect to Sponsor. In that connection, Sponsor shall no
later than two (2) weeks before commencement of the Tour consult with Company
with respect to the number, size, placement and other aspects of any signs,
posters, banners or other visual items in order to minimize any conflict which
may arise and coordinate the use of Sponsor's materials with those of other
sponsors of the Tour. Sponsor agrees that in the event of any disagreement,
Company's reasonable, good faith decision shall control.
5. TOUR INFORMATION:
Company shall notify Sponsor, in writing, of the following:
5
<PAGE> 6
(a) A full schedule of concert dates, locations and
Performers for the Tour on or before May 1, 1996;
(b) The names, addresses and phone numbers of each local
promoter for each concert, no later than thirty (30) days prior to the
commencement of the Tour; and
(c) The capacity at each concert location, no later than
thirty (30) days prior to the commencement of the Tour; and
(d) Evidence of insurance, permits and licenses for each
concert location, as available provided that Company shall use reasonable
efforts to obtain the foregoing no later than ten (10) business days prior to
the date of the applicable event.
6. COMPANY'S USE OF SPONSOR'S MATERIALS:
Sponsor hereby grants to Company a limited, non-exclusive license to
use the "Vans" name and logo (collectively, the "Name") in and in connection
with (a) the advertising and promotion of the Tour (including but not limited
to in congratulatory advertisements), (b) any phonorecords and audiovisual
works relating to or which include performances or footage from the Tour and,
(c) any news items, press releases or other information in any media relating
to the Tour. In that connection, Company agrees to refer to the Tour in all
press releases, advertising and promotions as "The Vans Warped Tour '96",
including but not limited to in all television and radio advertisements,
posters, flyers and newspaper and magazine advertisements. Except as expressly
set forth herein,
6
<PAGE> 7
Company has no rights whatsoever in and to the use of the Name. Company
acknowledges that the Name is a registered trademark of Sponsor and that
Sponsor is retaining all rights in the Name except as set forth in this
Agreement. Company shall execute and deliver all documents requested by
Sponsor which evidence Sponsor's rights in and to the Name, and hereby assigns
to Sponsor all rights it may acquire in and to the Name except those
specifically granted herein. Company will cause to appear on all materials
associated with the Tour on which the Name appears such legends, markings and
notices as Sponsor may reasonably request in writing in order to preserve and
protect Sponsor's rights in and to the Name. The license granted hereunder
shall expire upon the termination of this Agreement. In connection with the
foregoing, Company shall (i) use reasonable efforts to obtain the advertising
exposure described in subparagraphs A., C. and D. below and (ii) shall obtain
the advertising exposure described in subparagraphs B. and E. below:
A. Television coverage by MTV News, ESPN, Much Music, PBS and
local television news affiliates in all markets where the Tour is conducted.
B. Full page ads in TransWorld SKATEboarding, TransWorld
SNOWboarding and Warp.
C. Cause promoters in each city in the United States in which the
Tour is conducted to purchase up to $10,000 worth of radio airtime from
alternative stations in their respective markets.
7
<PAGE> 8
D. Cause promoters in each city in the United States in which the
Tour is conducted to purchase up to $4,000.00 worth of print advertising in
each market on which the Name will be appear.
E. Distribute posters regarding the Tour to skate and snowboard
shops, skate parks, action sport retailers and record stores in each city in
the United States in which the Tour is conducted.
7. SPONSOR'S ACTIVITIES:
Sponsor shall have the right to engage in and conduct the following
activities:
(a) Sponsorship media Tie-In: Sponsor shall have the
right to identify its sponsorship of the Tour in Sponsor's national, regional
and local advertising, the Prospectus for its proposed public offering, and in
reports it files under the Securities Exchange Act of 1934.
(b) Media Support: Sponsor shall have the right to create
and tag its on-air television and/or radio commercial advertising with its
sponsorship identification of the Tour.
(c) Signage: Subject to local restrictions, if any, at
each concert location, signage containing a mutually approved design, but at
the very least indicating Sponsor's official, exclusive title sponsorship of
the Tour, shall be displayed throughout the venue at each concert, it being
understood that Sponsor shall be entitled to receive more favorable treatment
than any other sponsor of the Tour as to placement of signage, and shall
8
<PAGE> 9
receive approximately 80% of all signage space available to Company at each
venue for signage bearing solely Sponsor's Name. Any signage placed "on
stage", with the mutual approval of Company and Sponsor, shall be placed in a
way that such signage shall not interfere with the artistic concepts of the
performances nor in any way which will interfere with the sight lines of the
audience. All costs incurred in connection with the creation of any signage
bearing solely Sponsor's Name shall be borne solely by Sponsor, it being
acknowledged and agreed that all costs incurred in connection with the creation
of any signage bearing Sponsor's Name along with the name and/or logo of the
Tour shall be borne solely by Company. All signage shall be delivered no later
than 10 days prior to the commencement of the Tour to the locations designated
by Company.
(d) Company shall provide to Sponsor a 20' x 20' booth at
each site of the Tour at which Sponsor may conduct sampling, take surveys and
display product. Company shall, at no charge to Sponsor, arrange for
transportation and lodging of two (2) persons to man Sponsor's booth at each
venue of the Tour, which transportation and lodging shall be of the type
furnished to the musical Performers. Sponsor shall not have the right to
distribute any wearing apparel or product on which appears the name of Company
and/or the name or the logo of the Tour or any artwork, trademarks or service
marks associated therewith.
(e) If Company publishes a program in connection with the
Tour which is distributed at each concert of the Tour to those who attend such
concert, Sponsor shall receive, at no charge, full
9
<PAGE> 10
color advertisements on both the front and back cover of such program. The
size and content of such advertisement shall be subject to Sponsor's approval,
which approval shall not be unreasonably withheld or delayed. All costs in
connection with the creation and design of such advertisements shall be borne
by Company.
(f) Company shall provide to no more than two retail
stores at each venue on the Tour, space for a 10' x 10' booth at such venue at
no charge to such retail stores. Such stores shall be designated by Sponsor.
Further, Company shall provide to such retail stores ten (10) tickets to the
applicable concert and five (5) backstage passes for such concert. The
applicable retail stores at each such venue shall be solely responsible for
creating, transporting and setting up such booths and/or providing personnel
for the operation thereof. No such retail store shall have the right to sell
or otherwise distribute any wearing apparel or product on which appears the
name of Company and/or the name or logo of the Tour or any artwork, trademarks
or service marks associated therewith or any other merchandise or materials
which might conflict with Company's commitments to other sponsors of the Tour.
10
<PAGE> 11
(g) If Sponsor decides to sponsor any so-called "VIP
receptions" during the Tour, i.e. a party or other function attended by persons
invited by Sponsor and Performers, Company shall use reasonable efforts to
invite a reasonable number of Performers designated by Sponsor to attend such
receptions. In connection with the foregoing, (i) all costs in connection with
any such reception shall be borne solely by Sponsor and (ii) in no event shall
the failure or refusal by any Performer to attend any such reception(s) be
deemed a breach hereof by Company. In connection with the foregoing, Company
shall use reasonable efforts to provide to Sponsor an appropriate location at
which such reception(s) may take place.
(h) Sponsor has advised Company that Sponsor desires to
sponsor amateur skating competition (the "Competitions") at twenty (20)
selected venues in the United States and Canada during the Tour and four (4)
venues in Europe and Asia. Company shall handle all aspects of the formation,
coordination and operation of such Competitions at the applicable Tour sites,
including but not limited to, providing appropriate personnel, obtaining
skaters, operating each competition, obtaining all required permits, licenses
and releases, and providing all skate courses and other material as necessary
for the completion of each Competition.
(i) Sponsor shall be permitted to use the name and logo
of the Tour on the packaging of a compact disc to be created, distributed and
sold by Sponsor and Uni Distribution (the "Tour CD"), provided that (A)
Sponsor, at its sole expense, shall be
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responsible for obtaining all necessary rights from all third parties with
respect thereto (including but not limited to all musical performers, record
companies and copyright proprietors of musical compositions) and shall
indemnify, defend and hold Company harmless with respect thereto and (B) such
use is otherwise not misleading, improper or violative of the rights of any
third party. Company shall not be entitled to any royalties or other
compensation resulting from the creation, sale or distribution of the Tour CD.
8. TOUR MERCHANDISE:
Company and its designees and licensees shall include the Name on all
items of event merchandise (as opposed to merchandise relating primarily to any
Performer). The parties acknowledge that all monies to be derived from the
sale and distribution of such merchandise shall be solely the property of
Company and its designees and licensees. Notwithstanding the foregoing,
Company shall, at Sponsor's request, assist Sponsor in obtaining a limited
sublicense from Sony Signatures to resell event merchandise relating to the
Tour in Sponsor's stores and shall consent to the granting of any such
sublicense. As between Sponsor and Company, Sponsor may retain all monies
derived from the sale of such merchandise and Company shall receive monies
therefrom, if at all, solely from Sony Signatures.
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9. CONCERT TICKETS:
(a) Sponsor shall receive fifty-five (55) tickets without
backstage or VIP passes and twenty-five (25) tickets with backstage or VIP
passes per concert.
(b) Sponsor shall have the right to utilize all or part
of the aforementioned tickets in connection with its sponsorship activities,
including give-aways, contests, tie-ins, retailer give-aways and employee
give-aways.
10. CONSIDERATION:
In consideration for the rights granted by Company to Sponsor herein,
Sponsor shall pay to Company the sum of $600,000.00 payable as follows: (i)
$100,000.00 upon execution hereof, (ii) $100,000.00 on or before May 15, 1996,
(iii) $100,000.00 on or before June 1, 1996, (iv) $100,000.00 on or before July
1, 1996 and (v) $100,000.00 on or before August 1, 1996 and (v) $100,000.00
on or before September 1, 1996.
11. COMPANY'S NAME AND LOGO:
Except as expressly provided herein, it is acknowledged and agreed
that all rights in and to Company's name and logo and the name and logo of the
Tour (excluding the Name) and all artwork, trademarks, service marks and
goodwill associated therewith shall be owned and controlled exclusively by
Company and Sponsor shall have no right, title or interest therein and thereto.
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12. CANCELLATION OF TOUR:
If for any reason the Tour is canceled to the effect that less than
ninety percent (90%) of the scheduled concerts are performed Sponsor's sole
remedies shall be to:
(a) Terminate this Agreement immediately without further
responsibility for the payment of any fees or payments hereunder; and
(b) Receive a refund of that percentage of any fees
received by Company hereunder as the number of concerts remaining in the Tour,
if any, at the time of cancellation bears to ninety percent (90%) of the total
number of concerts contained within the Tour.
13. REPRESENTATIONS AND WARRANTIES:
Each party represents and warrants that each has the right, power and
authority to enter into this Agreement, to grant the rights granted herein and
to perform the duties and obligations described herein. Each party further
warrants and represents that each shall not take any action which might prevent
the exercise by the other party hereto of the rights granted to such other
party nor shall either take any steps which may encumber the rights granted to
the other. Each party further represents and warrants that there are no
actions, suits, proceedings or investigations pending or to the best of their
knowledge threatened against or affecting such party before any tribunal or
investigative body
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which could adversely impact such Party's performance under this Agreement and
that each has been duly formed and is adequately capitalized to perform its
obligations hereunder.
14. PERMITS AND LICENSES:
Company acknowledges and agrees that Company shall be fully
responsible for and shall acquire or cause local concert promoters to so
acquire, at their sole cost and expense, all licenses, permits, authorizations
and insurance which may be required under federal, state or local law or
regulations in order to legally conduct each concert of the Tour, the
Competition (if applicable), and the activities contemplated hereunder,
including but not limited to licenses from performing rights organizations and
any payments or royalties required to be made; provided, however, that Sponsor
shall be responsible for any royalties due and owing any performing rights
organization as a result of Sponsor's television and radio commercials and
in-store presentations, if any shall be so required by a performing rights
society.
15. INDEMNITY AND INSURANCE:
(a) Company hereby agrees to indemnify, defend and hold
Sponsor, its officers, directors, agents, representatives, shareholders and
employees harmless from and against any and all claims, suits, expenses,
damages or other liabilities, including
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reasonable attorney's fees and court costs, arising out of (i) the breach by
Company of any of the representations and warranties made by Company in this
Agreement or the failure by Company to fulfill any of its covenants set forth
herein; (ii) (subject to paragraph 15(b) below) any personal injury or property
damage arising out of or in connection with an individual's attendance at a
concert on the Tour; (iii) any liability for any expenses associated with the
Tour except as provided herein; (iv) any misuse of the Name; and (v) any
liability of any kind related to merchandise, products or services offered or
supplied by Company. Company, at all times during the Term of this Agreement
shall obtain and maintain at its sole expense, commencing upon commencement of
the Tour, general and public liability insurance naming Sponsor as an
additional insured party from a qualified insurance carrier in the amount of at
least Five Million Dollars ($5,000,000.00) for personal injury, Five Million
Dollars ($5,000,000.00) for property damage and Five Million Dollars
($5,000,000.00) for infringement claims relating to Company's acts relating to
intellectual property rights. Company shall also at all times maintain
adequate worker's compensation insurance as required in each state in which the
Tour is performed. Such insurance shall be non-cancelable during the term
hereof. Company shall also at all times maintain (or cause the applicable
promoters to maintain) adequate Tour Cancellation Insurance naming Sponsor as
an additional insured in form reasonably acceptable to Sponsor and in an amount
appropriate to repay to Sponsor the
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consideration paid to Company pursuant to paragraph 10 above, subject to
paragraph 12 above. Company shall provide Sponsor with a copy of each such
policy described above. Such policies may not be modified without the consent
of Sponsor, which may be withheld in its sole and absolute discretion.
(b) Sponsor hereby agrees to indemnify, defend and hold
Company, all Performers, all promoter(s) and all other sponsors of the Tour and
their respective officers, directors, members, agents, partners,
representatives, shareholders and employees harmless from and against any and
all claims, suits, expenses, damages or other liabilities, including reasonable
attorney's fees and court costs, arising out of (i) the breach by Sponsor of
any of the covenants, representations or warranties made by Sponsor in this
Agreement, (ii) the use by Company of any materials supplied or created by
Sponsor (including but not limited to any signage, names, trademarks, trade
names or logos), (iii) any action of any kind (including but not limited to any
action for personal injury or property damage) in respect of any material,
product or service offered or supplied by Sponsor, except the Competition, and
(iv) any action of any kind (including but not limited to any action for
personal injury or property damage) in respect of the activities described in
paragraphs 7(f) and 7(g) above. Company, its members, and all Performers shall
be named as additional insureds on Sponsor's E & O insurance policy relating to
advertisements and
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other material created, produced or supplied by Sponsor under this Agreement
and on any insurance policies relating to any injuries to persons or property,
including but not limited to product liability insurance and general and public
liability insurance. Each policy shall not be cancelled or modified during the
term hereof and Sponsor shall provide to Company promptly following execution
hereof a copy of each such policy described above.
16. NOTICES:
Notices by either party to the other shall be given by registered or
certified mail, return receipt requested. All notices hereunder shall be given
as follows:
FOR SPONSOR: VANS, Inc.
2095 Batavia Street
Orange, California 92665-3101
Attn: Craig E. Gosselin, Vice President
and General Counsel
FOR COMPANY: Gendler, Codikow & Carroll
9113 Sunset Boulevard
Los Angeles, California 90069
Attn: Seth Lichtenstein, Esq.
17. CONSTRUCTION:
This Agreement shall be construed under the laws of the State of
California. Each party hereto acknowledges that this Agreement is entered into
within the jurisdiction of California and that the courts of the State of
California shall have jurisdiction over any and all claims, controversies,
disputes and disagreements arising out of this Agreement or the breach thereof.
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<PAGE> 19
18. FORCE MAJEURE:
Neither party shall be liable for any failure of or delay in the
performance of their respective obligations under this Agreement to the extent
such failure or delay is due to circumstances beyond its reasonable control,
including without limitation, acts of God, fires, floods, wars, civil
disturbances, sabotage, accidents, insurrections, blockades, embargoes, storms,
explosions, labor disputes and/or acts of any governmental body (unless
directed specifically at or occasioned by the acts or omissions of Company),
nor shall any such failure or delay give the party the right to terminate this
Agreement. Each party shall use its best efforts to minimize the duration and
consequences of any failure of or delay in performance resulting from force
majeure.
19. ENTIRE AGREEMENT:
This Agreement constitutes the complete Agreement between the parties
on the subject matter hereof, and all prior or contemporaneous agreements of
the parties, whether oral or written, shall be deemed merged herein. This
Agreement may not be modified or amended except by an instrument in writing
duly executed by an authorized officer or member of the party to be charged.
The failure of either party to enforce any of said party's rights under this
agreement shall not be deemed a continuing waiver and said party may, within
such time as provided by applicable law, enforce any and all such rights. This
Agreement shall be binding upon and
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<PAGE> 20
inure to the benefit of the parties hereto and their successors and assigns.
This Agreement may be executed in counterparts with the same effect as if the
parties executing such counterparts all have executed one counterpart as of the
day and year first written above. This agreement shall not be deemed to create
any joint venture, partnership or agency between the parties. It is understood
that each party to this agreement shall be independent of the other and that
neither party shall have the right or authority to bind the other party.
Nothing contained in this agreement shall be construed to be for the benefit of
or enforceable by any third party, including but not limited to any creditor of
either party.
21. SEVERABILITY:
If any term, provision, covenant or condition of this Agreement is
held by a court of competent jurisdiction to be invalid, void or unenforceable,
the remainder hereof shall remain in full force and effect.
22. SUBSEQUENT TOURS; NON-COMPETITION:
(a) If Company determines to produce the Tour during any
subsequent year (the "Next Tour"), Company shall for a reasonable time (not to
exceed thirty (30) days from the date the Next Tour is publicly announced)
negotiate in good faith solely with Sponsor with respect to the terms and
conditions by which Sponsor may be
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<PAGE> 21
title sponsor and/or exclusive footwear sponsor for the Next Tour. If Company
and Sponsor are unable to reach agreement on such terms and conditions after
such good faith negotiations and thereafter Company desires to enter into an
agreement with a third party for title sponsorship or exclusive footwear
sponsorship, as the case may be, for the Next Tour, Company shall notify
Sponsor of all material terms and conditions offered by such third party, and
Sponsor shall have five (5) business days after receipt thereof to notify
Company of its election to enter into an agreement on those terms and
conditions offered by such third party. If Sponsor is not the title sponsor
and/or exclusive footwear sponsor, as the case may be, of the next succeeding
Next Tour or any Next Tour thereafter, Company shall have no further obligation
on any succeeding Next Tour to negotiate with Sponsor with respect to title
sponsorship and/or exclusive footwear sponsorship, as the case may be.
(b) If Company determines to produce the Next Tour,
Company shall for a reasonable time (not to exceed thirty (30) days from the
date the Next Tour is publicly announced) negotiate solely with Sponsor with
respect to the terms and conditions under which Sponsor may be the exclusive
wearing apparel sponsor for the Next Tour. If Sponsor is not the exclusive
wearing apparel sponsor of the next succeeding Next Tour or any Next Tour
thereafter, Company shall have no further obligation on any succeeding Next
Tour to negotiate with Sponsor with respect to exclusive wearing apparel
sponsorship.
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(c) Sponsor shall not at any time, so long as Company or
its successors produce the Next Tour, operate, underwrite or produce, in whole
or in substantial part, directly or indirectly, any newly organized musical
tour substantially similar to the Tour (a "New Competing Tour") provided,
however, that the foregoing shall not prevent Sponsor from (i) sponsoring a New
Competing Tour, or (ii) sponsoring, underwriting or producing a musical tour
existing as of the date hereof (e.g. Lollapalooza and H.O.R.D.E.) ("Existing
Tour"). Notwithstanding the foregoing, if pursuant to paragraph 22(a) above,
Sponsor is the title sponsor of the next two (2) succeeding Next Tours, Sponsor
shall not at any time, so long as Company or its successors produce the Next
Tour, be the title sponsor of any New Competing Tour or any Existing Tour.
Additionally, Sponsor shall not be title sponsor, of any New Competing Tour or
any Existing Tour, at any time (i) it is title sponsor of the Tour or any Next
Tour and/or (ii) subject to the immediately preceding sentence, prior to the
date on which Sponsor notifies Company of its election not to match the terms
of any third party offer pursuant to subparagraph (a) of this Section 22.
C.C.R.L., LLC VANS, Inc., a Delaware
corporation
By: [SIG] By: [SIG]
---------------------------------- ---------------------------
An Authorized Signatory An Authorized Signatory
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<PAGE> 1
EXHIBIT 10.44
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ( "Agreement" herein) is entered
into as of February 14, 1996 by and between VANS, INC., a Delaware corporation
(the "Company"), and Kyle B. Wescoat ("Employee").
1. Employment and Duties. The Company hereby employs
Employee as Vice President and Chief Financial Officer of the Company on the
terms and subject to the conditions contained in this Agreement. Employee
shall be responsible for managing and supervising all accounting and finance
departments of the Company. Employee hereby accepts such employment and agrees
to perform in good faith and to the best of Employee's ability all services
which may be required of Employee hereunder, to do what is asked of him, and to
be available to render services at all times and places in accordance with such
directions, requests, rules and regulations made by the Company in connection
with Employee's employment. Employee hereby acknowledges and understands the
duties and services that are expected of him hereunder, and he hereby
represents that he has the experience and knowledge to perform such duties and
services. Employee shall, during the term hereof, devote Employee's full time
and energy to performing his duties. Employee shall report to the Executive
Vice President and Chief Operating Officer, or such other officer of the
Company having similar authority as shall be designated from time to time.
Employee shall be based at the Company's corporate offices. Employee
understands, however, that Employee may be required to travel within and out of
the State of California to discharge his duties hereunder.
2. Term of Employment. The term of this Agreement shall
commence as of the date hereof and shall terminate on February 13, 1999, unless
sooner terminated as provided herein. This Agreement does not give Employee
any enforceable right to employment beyond this term, and Employee agrees that
he shall have no rights hereunder thereafter. AS PROVIDED FURTHER IN PARAGRAPH
11.1 BELOW, THIS AGREEMENT CONSTITUTES AN EMPLOYMENT AT-WILL THAT MAY BE
TERMINATED AT ANY TIME BY COMPANY OR EMPLOYEE, WITH OR WITHOUT CAUSE,
NOTWITHSTANDING THE THREE - YEAR TERM OF THIS AGREEMENT. IF EMPLOYEE IS
TERMINATED WITHOUT CAUSE DURING THE TERM HEREOF, OR AFTER A "CHANGE IN
MANAGEMENT OR CONTROL," AS DEFINED IN PARAGRAPH 11.5 BELOW, OR TERMINATES THIS
AGREEMENT FOR "GOOD REASON," AS DEFINED IN PARAGRAPH 11.3 BELOW, EMPLOYEE'S
SOLE REMEDY SHALL BE THE COMPENSATION SET FORTH IN PARAGRAPH 11.4 BELOW.
Initial _________ Initial__________
Representative Employee
of the Company
<PAGE> 2
3. Salary Compensation. As salary compensation for
Employee's services hereunder and all the rights granted hereunder by Employee
to the Company, the Company shall pay Employee a gross salary of $160,000 per
annum. Employee's salary shall be payable in bi-weekly increments in accordance
with the Company's payroll practices for salaried employees, upon the condition
that Employee fully and faithfully performs Employee's services hereunder in
accordance with the terms and conditions of this Agreement. The Company shall
deduct and withhold from the compensation payable to Employee hereunder any and
all amounts required to be deducted or withheld by the Company under the
provisions of any statute, regulation, ordinance, or order and any and all
amendments hereinafter enacted requiring the withholding or deducting from
compensation payable to employees.
4. Expense Reimbursement. Employee shall be reimbursed
by the Company for all traveling, hotel, entertainment and other expenses that
are properly and necessarily incurred by Employee, pursuant to the Company's
policies on the same.
5. Death or Disability of Employee.
5.1 General. In the event of Employee's death or
"disability" (as such term is defined in Paragraph 5.2 hereof) while in the
employ of the Company, this Agreement, and the compensation due to Employee
pursuant to Paragraph 3 hereof, shall terminate upon the date of death or
disability and the Company shall thereafter be required to make payments only
to Employee, as provided in Paragraph 11.2 hereof. If Employee shall recover
from such disability prior to the expiration date of the Agreement, this
Agreement and Employee's employment hereunder shall be reinstated for the
balance of the term of this Agreement.
5.2 Definition of Disability. Employee shall be
deemed disabled if, in the sole opinion of the Company, Employee is unable to
substantially perform the services required of Employee hereunder for a period
in excess of 60 consecutive work days or 60 work days during any 90 work day
period. In such event, Employee shall be deemed disabled as of such 60th work
day.
6. Restrictive Covenant. During the term of this
Agreement, Employee shall (i) devote his full time and energy solely and
exclusively to the performance of his duties described herein; (ii) not
directly or indirectly provide services to or through any company or firm except
the Company unless otherwise instructed by the Company; (iii) not directly or
indirectly own, manage, operate, join, control, contribute to, or participate in
the ownership, management, operation or control of or be employed by or
connected in any manner with any enterprise which is engaged in any business
competitive with or similar to that of the Company; and (iv) not render any
services of any kind or character for Employee's own account of for any other
person, firm or corporation without first obtaining the Company's consent in
writing; provided,
<PAGE> 3
however, Employee shall have the right to perform such incidental services as
are necessary in connection with Employee's (a) private passive investments
where he is not obligated or required to, and shall not in fact, devote any
managerial efforts, as long as such investments are not in excess of one
percent (1%) of the outstanding voting securities of any companies which are in
competition in any way with the Company; or (b) charitable or community
activities, or in trade or professional organizations, provided that such
incidental services do not interfere with the performance of Employee's
services hereunder.
7. Non-Solicitation. Employee shall not, during the
full term of this Agreement and for a period of one (1) year thereafter, for
himself or on behalf of any other person, partnership, corporation or entity,
directly or indirectly, or by action in concert with others, solicit, induce,
suggest or encourage any person known to him to be an employee of the Company
or any affiliate of the Company to terminate his or her employment or other
contractual relationship with the Company or any of its affiliates.
8. Trade Secrets and Related Matters
8.1 Definitions. For purpose of this
Section 8:
(a) "Records" means files,
accounts, records, log books, documents, drawings, sketches, designs, diagrams,
models, plans, blueprints, specifications, manuals, books, forms, notes,
reports, memoranda, studies, surveys, software, flow charts, data, computer
programs, listing of source code, calculations, recordings, catalogues,
compilations of information, correspondence, confidential data of customers and
all copies, abstracts or summaries of the foregoing in any storage medium, as
well as instruments, tools, storage devices, disks, equipment and all other
physical items related to the business of the Company (other than merely
personal items of a general professional nature), whether of a public nature or
not, and whether prepared by Employee or not.
(b) "Trade Secrets" means
confidential business or technical information or trade secrets of the Company
which Employee acquires while employed by the Company, whether or not
conceived of, developed or prepared by Employee or at his direction and
includes:
(i) Any information or
compilation of information concerning the Company's financial position,
financing, purchasing, accounting, marketing, merchandising, sales, salaries,
pricing, investments, costs, profits, plans for future development, employees,
prospective employees, research, development, formulae, patterns, inventions,
plans, specifications, devices, products, procedures, processes, operations,
techniques, software, computer programs or data;
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<PAGE> 4
(ii) Any information or
compilation of information concerning the identity, plans, requirements,
preferences, practices and methods of doing business on specific customers,
suppliers, prospective customers and prospective suppliers of the Company;
(iii) Any other information or
"know how" which is related to any product, process, service, business or
research of the Company; and
(iv) Any information which the
Company acquires from another party and treats as its proprietary information
or designates as "Confidential," whether or not owned or developed by the
Company.
Notwithstanding the foregoing, "Trade Secrets" do not include any of
the following:
(i) Information which is
publicly known or which is generally employed by the trade, whether on or
after the date that Employee first acquires the information;
(ii) General information or
knowledge which Employee would have learned in the course of similar work
elsewhere in the trade; or
(iii) Information which
Employee can prove was known by Employee before the commencement of Employee's
engagement by the Company;
8.2 Acknowledgments. Employee acknowledges
that:
(a) Employee's relationship with the
Company will be a confidential relationship in which Employee will have access
to and may create Trade Secrets.
(b) The Company uses the Trade Secrets
in its business to obtain a competitive advantage over its competitors who do
not know or use that information.
(c) The protection of the Trade Secrets
against unauthorized disclosure or use is of critical importance in maintaining
the competitive position of the Company.
8.3 Protection of Trade Secrets. Employee shall
not at any time, without the prior written consent of the Company, which may be
withheld by it in its sole and absolute discretion, disclose any Trade Secret
in any way except to employees of the Company, and shall not use any Trade
Secret in any way except in connection with his or her duties to the Company.
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8.4 Records.
(a) Ownership. All Records are and
shall remain the exclusive property of the Company.
(b) Return of Records. At the
termination of this Agreement, Employee shall promptly return to the Company
all records in Employee's possession or over which Employee has control.
8.5 Prohibited Use of Trade Secrets. During the
term of this Agreement and for 12 months following termination of this
Agreement, Employee shall not undertake any employment or consulting
relationship (the "New Activity") if the loyal and complete fulfillment of his
or her duties in the New Activity would inherently call upon Employee to reveal
any Trade Secret.
9. Ownership of Material and Ideas. Employee agrees that
all material, ideas, and inventions pertaining to the business of the Company
or of any client of the Company, including but not limited to, all patents and
copyrights thereon and renewals and extensions thereof, trademarks and trade
names, and the names, addresses and telephone numbers of customers,
distributors and sales representatives of the Company, belong solely to the
Company. Employee hereby assigns any rights he may have to any such property
to the Company, and agrees to execute and deliver any documents which evidence
such assignment.
10. Employee Plans, etc.; Bonus Opportunity. Employee
shall be entitled to participate, to the same extent as most other officers of
the Company, in any bonus compensation plan, stock purchase or stock option
plan, group life insurance plan, group medical insurance plan and other
compensation or employee benefit plans (collectively, "Plans") which are
generally available to a majority of the other officers of the Company during
the term hereof and for which Employee shall qualify. Employee further
understands, however, that the Board of Directors, or such committee or person
or persons designated by the Board of Directors, shall determine in its sole
discretion (i) whether any Plans are made available to a majority of the
officers of the Company; (ii) whether one or more Plans are adopted solely
for the Chief Executive Officer and/or one or more (but not a majority) of the
officers of the Company; (iii) whether one or more Plans are made available to
a majority of the officers; and (iv) the amounts payable or the benefits
provided thereunder to each participant in whole or in part. Employee agrees
and acknowledges that he has no vested interest in the continuance of any Plan,
and that no Plan in existence on the date of the Agreement has acted as a
material inducement to Employee in entering into this Agreement. Employee shall
be entitled to earn a bonus of up to thirty percent (30%) of his base
compensation for the fiscal year ending May 31, 1997 pursuant to any Plan
adopted by the Compensation Committee. Of such bonus, (a) fifty percent (50%)
shall be guaranteed (the "Guaranteed Bonus") and payable as follows: (i)
twenty-five percent (25%) after the end of the fiscal year ending May 31, 1996,
and (ii) seventy-five (75%)
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<PAGE> 6
after the end of the fiscal year ending May 31, 1997; and (b) the remaining
fifty percent (50%) shall be paid in accordance with any Plan adopted by the
Compensation Committee for fiscal 1997.
11. Termination.
11.1 "At Will" Employment. This Agreement, and
Employee's employment, is at will, and the Company may, with or without notice,
terminate this Agreement and all of the Company's obligations hereunder with or
without "Cause." Employee may also terminate this Agreement at any time, for
any reason, upon the giving of thirty (30) days' written notice to the Company;
provided, however, the Company may waive all or any portion of such notice
period in its sole and absolute discretion. Termination by the Company for
"Cause" means termination due to (i) Employee's conviction of a felony (
which, through the lapse of time or otherwise is not subject to appeal); (ii)
Employee's material refusal, failure or neglect without proper cause to perform
adequately his obligations under this Agreement or follow the instructions of
his supervisor(s); (iii) any negligence or willful misconduct by Employee in
the performance of Employee's duties; (iv) Employee's material breach of any
of his fiduciary obligations as an executive officer of the Company; (v)
Employee's material failure to adhere to the code of conduct and rules set
forth in the Company's Employee Handbook, as amended or in existence from time
to time; (vi) the death or disability of Employee; or (vii) the voluntary
termination by Employee of his employment, except for "Good Reason" (as defined
in Paragraph 11.3 hereof).
11.2 Termination for Cause. Upon termination for
Cause, the Company shall only be required to pay Employee (i) accrued salary
compensation due to Employee as compensation for services rendered hereunder
and not previously paid; (ii) accrued vacation pay; (iii) any appropriate
business expenses incurred by Employee in connection with his duties hereunder
and approved pursuant to Section 4 hereof, and (iv) the remaining portion, if
any, of the Guaranteed Bonus all through the date of termination. Employee
shall not be entitled to any severance compensation; bonus compensation,
whether "vested" or unvested; or any other compensation, benefits or
reimbursement of any kind.
11.3 Termination for "Good Reason." Employee may
terminate this Agreement for "Good Reason" (as hereinafter defined) upon thirty
(30) days written notice to the Company. The term "Good Reason" means (i)
Employee is not appointed or is removed from the position of Vice President and
Chief Financial Officer without Cause during the term of this Agreement; or
(ii) without Employee's consent, a majority of the duties defined in Section 1
hereof are removed from Employee's responsibilities. The term Good Reason does
not include a situation where certain of the duties defined in Section 1 hereof
are removed from Employee's responsibilities and are replaced with duties which
have greater responsibility and/or authority than the duties which are removed.
Unless Employee terminates this Agreement within thirty (30) days of learning
from any source that the Company has acted so as to provide Good Reason
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<PAGE> 7
for Employee to terminate this Agreement, and gives thirty (30) days' written
notice of such termination, Employee's right to receive severance compensation
pursuant to Paragraph 11.4 for such event shall be forever lost.
11.4 Severance Compensation. In the event (i)
Employee terminates this Agreement for Good Reason in accordance with Paragraph
11.3 hereof; (ii) Employee is terminated for any reason (except death or
disability) upon, or within six months following, a "Change in Management or
Control (as such term is defined in Paragraph 11.5 hereof);" or (iii)
Employee is terminated without Cause, the Company shall be obligated to pay
severance compensation to Employee in an amount equal to his salary
compensation (at the rate payable at the time of such termination) for a period
of six (6) months from the date of termination, plus the remaining portion, if
any, of the Guaranteed Bonus; provided, however, if Employee is employed by a
new employer, or as a consultant during such period, the severance compensation
payable to Employee hereunder shall be reduced by the amount of compensation
that Employee actually receives from the new employer, or as a consultant.
However, Employee shall have a duty to inform the Company that he has obtained
such new employment, within five (5) days of the date thereof, and the failure
to do so is a material breach of this Agreement. In such event, the Company
shall be entitled to (i) cease all payments to Employee under this Paragraph
11.4; and (ii) recover any unauthorized payments to Employee in an action for
breach of contract. Notwithstanding anything else in this Agreement to the
contrary, solely in the event of a termination upon or following a Change in
Management or Control, the amount of severance compensation paid to Employee
hereunder shall not include any amount that the Company is prohibited from
deducting for federal income tax purposes by virtue of Section 280G of the
Internal Revenue Code of 1986, as amended, or any successor provision. In
addition to the foregoing severance compensation, the Company shall pay
Employee (i) all compensation for services rendered hereunder and not
previously paid; (ii) accrued vacation pay; and (iii) any appropriate business
expenses incurred by Employee in connection with his duties hereunder and
approved pursuant to Section 4 hereof, all through the date of termination.
Employee shall not be entitled to any bonus compensation, whether vested or
unvested; or any other compensation, benefits or reimbursement of any kind.
11.5 Definition of "Change in Management or
Control." The term "Change in Management or Control" means (i) the time that
the Company first determines that any person and all other persons who
constitute a group (within the meaning of Section 13(d)(3) of the Securities
Exchange Act of 1934 ("Exchange Act")) have acquired direct or indirect
beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act)
of twenty percent (20%) or more of the Company's outstanding securities,
unless a majority of the "Continuing Directors" (as such term is hereinafter
defined) approves the acquisition not later than ten (10) business days after
the Company makes that determination, or (ii) the first day on which a majority
of the members of the Company's Board of Directors are not "Continuing
Directors." The term "Continuing Directors" means, as of any date of
determination, any member of the
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Board of Directors of the Company who (i) was a member of that Board of
Directors on the date of this Agreement, (iii) has been a member of that Board
of Directors for the two years immediately preceding such date of
determination, or (iv) was nominated for election or elected to the Board of
Directors with the affirmative vote of the greater of (x) a majority of the
Continuing Directors who were members of the Board at the time of such
nomination or election, or (y) at least four Continuing Directors.
11.6 Exclusive Remedy. The payments referred to
in this Section 11 shall be exclusive and shall be the only remedy available to
Employee for termination of his employment with the Company, regardless of the
circumstances, reasons or motivation for any such termination. If Employee
gives notice of termination of this Agreement, or if it becomes known that this
Agreement will otherwise terminate in accordance with its provisions, the
Company may, in its sole discretion, relieve Employee of his duties under this
Agreement or assign Employee other duties and responsibilities to be performed
until the termination becomes effective.
12. Services Unique. It is agreed that the services to be
rendered by Employee hereunder are of a special, unique, unusual,
extraordinary and intellectual character which gives them a peculiar value, the
loss of which cannot be reasonably or adequately compensated in damages in an
action at law and that a breach by Employee of any of the provisions contained
herein will cause the Company irreparable injury and damage. Employee
expressly agrees that the Company shall be entitled to injunctive or other
equitable relief to prevent a breach hereof. Resort to any such equitable
relief shall not be construed as a waiver of any of the rights or remedies
which the Company may have against Employee for damages or otherwise.
13. Key Man Life Insurance. During the term of this
Agreement, the Company may at any time effect insurance on Employee's life
and/or health in such amounts and in such form as the Company may in its sole
discretion decide. Employee shall not have any interest in such insurance, but
shall, if the Company requests, submit to such medical examinations, supply
such information and execute such documents as may be required in connection
with, or so as to enable the Company to effect, such insurance.
14. Vacation. Employee shall have the right during each
one year period of the term of this Agreement to take an aggregate of three
weeks of vacation, with pay, at such times as are mutually convenient to
Employee and to the Company.
15. Notices. Any and all notices, demands or other
communications required or desired to be given hereunder by any party shall be
in writing and shall be validly given or made to another party if given by
personal delivery, telex, facsimile, telegram or if deposited in the United
States mail, certified or registered, postage prepaid, return receipt
requested. If such notice, demand or other communication is given by personal
delivery, telex, facsimile or telegram, service shall be conclusively deemed
made at the time of such personal service. If such notice, demand or other
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<PAGE> 9
communication is given by mail, such notice shall be conclusively deemed given
forty-eight (48) hours after the deposit thereof in the United States mail
addressed to the party to whom such notice, demand or other communication is to
be given as hereinafter set forth:
To the Company: VANS, INC.
2095 Batavia Street
Orange, California 92665-3101
Attn: General Counsel
(714) 974-4481 - facsimile
To Employee: Kyle B. Wescoat
(at the address set forth below his signature)
Any party hereto may change his or its address for the purpose of receiving
notices, demands and other communications as herein provided by a written
notice given in the manner aforesaid to the other party or parties hereto.
16. Applicable Law and Severability. This Agreement
shall, in all respects, be governed by the laws of the State of California
applicable to agreements executed and to be wholly performed within the State
of California. Nothing contained herein shall be construed so as to require
the commission of any act contrary to law, and wherever there is any conflict
between any provision contained herein and any present or future statute, law,
ordinance or regulation contrary to which the parties have no legal right to
contract, the latter shall prevail but the provision of this Agreement which is
affected shall be curtailed and limited only to the extent necessary to bring
it within the requirements of the law.
17. Attorneys' Fees. In the event any action is
instituted by a party to enforce any of the terms and provisions contained
herein, the prevailing party in such action shall be entitled to such
reasonable attorneys' fees, costs and expenses as may be fixed by the Court.
18. Modifications or Amendments. No amendment, change or
modification of this Agreement shall be valid unless in writing and signed by
all of the parties hereto. Further, any amendment, change or modification of
this Agreement (including but not limited to the at-will nature of this
Agreement as set forth in Section 2 and Paragraph 11.1 hereof) must be approved
in advance by the Board of Directors of Company and reflected in the minutes of
such Board's meetings or in an action by unanimous written consent, copies of
which shall be furnished to Employee.
19. Successors and Assigns. All of the terms and
provisions contained herein shall inure to the benefit of and shall be binding
upon the parties hereto and their respective heirs, personal representatives,
successors and assigns.
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20. Entire Agreement. This Agreement constitutes the
entire understanding and agreement of the parties with respect to the subject
matter of this Agreement, and any and all prior agreements, understandings or
representations are hereby terminated and canceled in their entirety and are of
no further force or effect.
21. Counterparts. This Agreement may be executed in
counterparts.
22. Arbitration of Employment Disputes. Any dispute or
controversy arising out of this Agreement or the employment relationship
between Employee and the Company shall, at any time following the termination
of Employee's employment, be submitted to final and binding arbitration that
shall comply with the applicable arbitration rules of Judicial Arbitration and
Mediation Service ("JAMS")/Endispute, and judgment upon the award rendered by
the arbitrator may be entered in any court having jurisdiction thereof.
Provided, however, that this agreement to arbitrate does not effect any action
by the Company to enforce its rights to protect trade secrets or confidential
information through an action for injunctive relief. The cost of arbitration
(including reasonable attorneys' fees) shall be borne by the losing party. The
arbitration shall occur in Orange, California and the parties hereby consent to
the jurisdiction of the arbitrator and to service of process. EMPLOYEE HEREBY
UNDERSTANDS THAT, BY SIGNING THIS AGREEMENT, HE IS AGREEING TO HAVE ANY CLAIM
HEREUNDER DECIDED BY NEUTRAL ARBITRATION AND IS GIVING UP THE RIGHT TO A JURY
OR COURT TRIAL.
23. Survival of Certain Provisions. Sections 7,8,9, and
22 of this Agreement shall survive the termination hereof.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
EMPLOYEE: THE COMPANY:
VANS, INC.,
a Delaware corporation
By:
- ------------------------------ ------------------------
Kyle B. Wescoat
- ------------------------------ -----------------------
Address Title
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<PAGE> 1
EXHIBIT 10.45
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ( "Agreement" herein) is entered
into as of January 22, 1996 by and between VANS, INC., a Delaware corporation
(the "Company"), and Robert Camarena ("Employee").
1. Employment and Duties. The Company hereby employs
Employee as Vice President-Distribution of the Company on the terms and subject
to the conditions contained in this Agreement. Employee shall be responsible
for managing and supervising the Company's warehouse and distribution
facilities. Employee hereby accepts such employment and agrees to perform in
good faith and to the best of Employee's ability all services which may be
required of Employee hereunder, to do what is asked of him, and to be available
to render services at all times and places in accordance with such directions,
requests, rules and regulations made by the Company in connection with
Employee's employment. Employee hereby acknowledges and understands the duties
and services that are expected of him hereunder, and he hereby represents that
he has the experience and knowledge to perform such duties and services.
Employee shall, during the term hereof, devote Employee's full time and energy
to performing his duties. Employee shall report to the Executive Vice President
and Chief Operating Officer of the Company. Employee shall be based at the
Company's primary distribution facility. Employee understands, however, that
Employee may be required to travel within and out of the State of California to
discharge his duties hereunder.
2. Term of Employment. The term of this Agreement shall
commence as of the date hereof and shall terminate on January 21, 1999, unless
sooner terminated as provided herein. This Agreement does not give Employee
any enforceable right to employment beyond this term, and Employee agrees that
he shall have no rights hereunder thereafter. AS PROVIDED FURTHER IN PARAGRAPH
11.1 BELOW, THIS AGREEMENT CONSTITUTES AN EMPLOYMENT AT-WILL THAT MAY BE
TERMINATED AT ANY TIME BY COMPANY OR EMPLOYEE, WITH OR WITHOUT CAUSE,
NOTWITHSTANDING THE THREE - YEAR TERM OF THIS AGREEMENT. IF EMPLOYEE IS
TERMINATED WITHOUT CAUSE DURING THE TERM HEREOF, OR AFTER A "CHANGE IN
MANAGEMENT OR CONTROL," AS DEFINED IN PARAGRAPH 11.5 BELOW, OR TERMINATES THIS
AGREEMENT FOR "GOOD REASON," AS DEFINED IN PARAGRAPH 11.3 BELOW, EMPLOYEE'S
SOLE REMEDY SHALL BE THE COMPENSATION SET FORTH IN PARAGRAPH 11.4 BELOW.
Initial _________ Initial__________
Representative Employee
of the Company
<PAGE> 2
3. Salary Compensation. As salary compensation for
Employee's services hereunder and all the rights granted hereunder by Employee
to the Company, the Company shall pay Employee a gross salary of $93,000.00 per
annum. Employee's salary shall be payable in bi-weekly increments in accordance
with the Company's payroll practices for salaried employees, upon the condition
that Employee fully and faithfully performs Employee's services hereunder in
accordance with the terms and conditions of this Agreement. The Company shall
deduct and withhold from the compensation payable to Employee hereunder any and
all amounts required to be deducted or withheld by the Company under the
provisions of any statute, regulation, ordinance, or order and any and all
amendments hereinafter enacted requiring the withholding or deducting from
compensation payable to employees.
4. Expense Reimbursement. Employee shall be reimbursed
by the Company for all traveling, hotel, entertainment and other expenses that
are properly and necessarily incurred by Employee, pursuant to the Company's
policies on the same.
5. Death or Disability of Employee.
5.1 General. In the event of Employee's death or
"disability" (as such term is defined in Paragraph 5.2 hereof) while in the
employ of the Company, this Agreement, and the compensation due to Employee
pursuant to Paragraph 3 hereof, shall terminate upon the date of death or
disability and the Company shall thereafter be required to make payments only
to Employee, as provided in Paragraph 11.2 hereof. If Employee shall recover
from such disability prior to the expiration date of the Agreement, this
Agreement and Employee's employment hereunder shall be reinstated for the
balance of the term of this Agreement.
5.2 Definition of Disability. Employee shall be
deemed disabled if, in the sole opinion of the Company, Employee is unable to
substantially perform the services required of Employee hereunder for a period
in excess of 60 consecutive work days or 60 work days during any 90 work day
period. In such event, Employee shall be deemed disabled as of such 60th work
day.
6. Restrictive Covenant. During the term of this
Agreement, Employee shall (i) devote his full time and energy solely and
exclusively to the performance of his duties described herein; (ii) not
directly or indirectly provide services to or through any company or firm
except the Company unless otherwise instructed by the Company; (iii) not
directly or indirectly own, manage, operate, join, control, contribute to, or
participate in the ownership, management, operation or control of or be
employed by or connected in any manner with any enterprise which is engaged in
any business competitive with or similar to that of the Company; and (iv)
not render any services of any kind or character for Employee's own account of
for any other person, firm or corporation without first obtaining the Company's
consent in writing; provided,
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however, Employee shall have the right to perform such incidental services as
are necessary in connection with Employee's (a) wife's cosmetics business,
Beauty Control; (b) private passive investments where he is not obligated or
required to, and shall not in fact, devote any managerial efforts, as long as
such investments are not in companies which are in competition in any way with
the Company; or (c) charitable or community activities, or in trade or
professional organizations, provided that such incidental services do not
interfere with the performance of Employee's services hereunder.
7. Non-Solicitation. Employee shall not, during the
full term of this Agreement and for a period of one (1) year thereafter, for
himself or on behalf of any other person, partnership, corporation or entity,
directly or indirectly, or by action in concert with others, solicit, induce,
suggest or encourage any person known to him to be an employee of the Company
or any affiliate of the Company to terminate his or her employment or other
contractual relationship with the Company or any of its affiliates.
8. Trade Secrets and Related Matters
8.1 Definitions. For purpose of this
Section 8:
(a) "Records" means files,
accounts, records, log books, documents, drawings, sketches, designs, diagrams,
models, plans, blueprints, specifications, manuals, books, forms, notes,
reports, memoranda, studies, surveys, software, flow charts, data, computer
programs, listing of source code, calculations, recordings, catalogues,
compilations of information, correspondence, confidential data of customers and
all copies, abstracts or summaries of the foregoing in any storage medium, as
well as instruments, tools, storage devices, disks, equipment and all other
physical items related to the business of the Company (other than merely
personal items of a general professional nature), whether of a public nature or
not, and whether prepared by Employee or not.
(b) "Trade Secrets" means confidential
business or technical information or trade secrets of the Company which
Employee acquires while employed by the Company, whether or not conceived of,
developed or prepared by Employee or at his direction and includes:
(i) Any information or compilation
of information concerning the Company's financial position, financing,
purchasing, accounting, marketing, merchandising, sales, salaries, pricing,
investments, costs, profits, plans for future development, employees,
prospective employees, research, development, formulae, patterns, inventions,
plans, specifications, devices, products, procedures, processes, operations,
techniques, software, computer programs or data;
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<PAGE> 4
(ii) Any information or compilation
of information concerning the identity, plans, requirements, preferences,
practices and methods of doing business on specific customers, suppliers,
prospective customers and prospective suppliers of the Company;
(iii) Any other information or "know
how" which is related to any product, process, service, business or research of
the Company; and
(iv) Any information which the
Company acquires from another party and treats as its proprietary information
or designates as "Confidential," whether or not owned or developed by the
Company.
Notwithstanding the foregoing, "Trade Secrets" do not include any of
the following:
(i) Information which is publicly
known or which is generally employed by the trade, whether on or after the date
that Employee first acquires the information;
(ii) General information or
knowledge which Employee would have learned in the course of similar work
elsewhere in the trade; or
(iii) Information which Employee can
prove was known by Employee before the commencement of Employee's engagement by
the Company;
8.2 Acknowledgments. Employee acknowledges
that:
(a) Employee's relationship with the
Company will be a confidential relationship in which Employee will have access
to and may create Trade Secrets.
(b) The Company uses the Trade Secrets
in its business to obtain a competitive advantage over its competitors who do
not know or use that information.
(c) The protection of the Trade Secrets
against unauthorized disclosure or use is of critical importance in maintaining
the competitive position of the Company.
8.3 Protection of Trade Secrets. Employee shall
not at any time, without the prior written consent of the Company, which may be
withheld by it in its sole and absolute discretion, disclose any Trade Secret
in any way except to employees of the Company, and shall not use any Trade
Secret in any way except in connection with his or her duties to the Company.
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8.4 Records.
(a) Ownership. All Records are and
shall remain the exclusive property of the Company.
(b) Return of Records. At the
termination of this Agreement, Employee shall promptly return to the Company
all records in Employee's possession or over which Employee has control.
8.5 Prohibited Use of Trade Secrets. During the
term of this Agreement and for 12 months following termination of this
Agreement, Employee shall not undertake any employment or consulting
relationship (the "New Activity") if the loyal and complete fulfillment of his
or her duties in the New Activity would inherently call upon Employee to reveal
any Trade Secret.
9. Ownership of Material and Ideas. Employee agrees
that all material, ideas, and inventions pertaining to the business of the
Company or of any client of the Company, including but not limited to, all
patents and copyrights thereon and renewals and extensions thereof, trademarks
and trade names, and the names, addresses and telephone numbers of customers,
distributors and sales representatives of the Company, belong solely to the
Company. Employee hereby assigns any rights he may have to any such property
to the Company, and agrees to execute and deliver any documents which evidence
such assignment.
10. Employee Plans, etc. Employee shall be entitled to
participate, to the same extent as most other officers of the Company, in any
bonus compensation plan, stock purchase or stock option plan, group life
insurance plan, group medical insurance plan and other compensation or employee
benefit plans (collectively, "Plans") which are generally available to a
majority of the other officers of the Company during the term hereof and for
which Employee shall qualify. Employee further understands, however, that the
Board of Directors, or such committee or person or persons designated by the
Board of Directors, shall determine in its sole discretion (i) whether any
Plans are made available to a majority of the officers of the Company; (ii)
whether one or more Plans are adopted solely for the Chief Executive Officer
and/or one or more (but not a majority) of the officers of the Company; (iii)
whether one or more Plans are made available to a majority of the officers; and
(iv) the amounts payable or the benefits provided thereunder to each
participant in whole or in part. Employee agrees and acknowledges that he has
no vested interest in the continuance of any Plan, and that no Plan in
existence on the date of the Agreement has acted as a material inducement to
Employee in entering into this Agreement.
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<PAGE> 6
11. Termination.
11.1 "At Will" Employment. This Agreement, and
Employee's employment, is at will, and the Company may, with or without notice,
terminate this Agreement and all of the Company's obligations hereunder with or
without "Cause." Termination by the Company for "Cause" means termination due
to (i) Employee's conviction of a felony ( which, through the lapse of time
or otherwise is not subject to appeal); (ii) Employee's material refusal,
failure or neglect without proper cause to perform adequately his obligations
under this Agreement or follow the instructions of his supervisor(s); (iii) any
negligence or willful misconduct by Employee; (iv) Employee's material breach
of any of his fiduciary obligations as an executive officer of the Company; (v)
Employee's material failure to adhere to the code of conduct and rules set
forth in the Company's Employee Handbook, as amended or in existence from time
to time; (vi) the death or disability of Employee; or (vii) the voluntary
termination by Employee of his employment, except for "Good Reason" (as defined
in Paragraph 11.3 hereof).
11.2 Termination for Cause. Upon termination for
Cause, the Company shall only be required to pay Employee (i) accrued salary
compensation due to Employee as compensation for services rendered hereunder
and not previously paid; (ii) accrued vacation pay; and (iii) any appropriate
business expenses incurred by Employee in connection with his duties hereunder
and approved pursuant to Section 4 hereof, all through the date of termination.
Employee shall not be entitled to any severance compensation; bonus
compensation, whether "vested" or unvested; or any other compensation, benefits
or reimbursement of any kind.
11.3 Termination for "Good Reason." Employee may
terminate this Agreement for "Good Reason" (as hereinafter defined) upon thirty
(30) days written notice to the Company. The term "Good Reason" means (i)
Employee is not appointed or is removed from the position of Vice
President-Distribution without Cause during the term of this Agreement; or
(ii) without Employee's consent, a majority of the duties defined in Section 1
hereof are removed from Employee's responsibilities. The term Good Reason does
not include a situation where certain of the duties defined in Section 1 hereof
are removed from Employee's responsibilities and are replaced with duties which
have greater responsibility and/or authority than the duties which are removed.
Unless Employee terminates this Agreement within thirty (30) days of learning
from any source that the Company has acted so as to provide Good Reason for
Employee to terminate this Agreement, and gives thirty (30) days' written
notice of such termination, Employee's right to receive severance compensation
pursuant to Paragraph 11.4 for such event shall be forever lost.
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<PAGE> 7
11.4 Severance Compensation. In the event (i)
Employee terminates this Agreement for Good Reason in accordance with Paragraph
11.3 hereof; (ii) Employee is terminated for any reason (except death or
disability) upon, or within six months following, a "Change in Management or
Control (as such term is defined in Paragraph 11.5 hereof);" or (iii)
Employee is terminated without Cause, the Company shall be obligated to pay
severance compensation to Employee in an amount equal to his salary
compensation (at the rate payable at the time of such termination) for a period
of the lesser of (i) the remaining portion of the term of this Agreement, or
(ii) six (6) months from the date of termination; provided, however, if
Employee is employed by a new employer, or as a consultant during such period,
the severance compensation payable to Employee hereunder shall be reduced by
the amount of compensation that Employee actually receives from the new
employer, or as a consultant. However, Employee shall have a duty to inform the
Company that he has obtained such new employment, and the failure to do so is a
material breach of this Agreement. In such event, the Company shall be
entitled to (i) cease all payments to Employee under this Paragraph 11.4; and
(ii) recover any unauthorized payments to Employee in an action for breach of
contract. Notwithstanding anything else in this Agreement to the contrary,
solely in the event of a termination upon or following a Change in Management
or Control, the amount of severance compensation paid to Employee hereunder
shall not include any amount that the Company is prohibited from deducting for
federal income tax purposes by virtue of Section 280G of the Internal Revenue
Code of 1986, as amended, or any successor provision. In addition to the
foregoing severance compensation, the Company shall pay Employee (i) all
compensation for services rendered hereunder and not previously paid; (ii)
accrued vacation pay; and (iii) any appropriate business expenses incurred by
Employee in connection with his duties hereunder and approved pursuant to
Section 4 hereof, all through the date of termination. Employee shall not be
entitled to any bonus compensation, whether vested or unvested; or any other
compensation, benefits or reimbursement of any kind.
11.5 Definition of "Change in Management or
Control." The term "Change in Management or Control" means (i) the time that
the Company first determines that any person and all other persons who
constitute a group (within the meaning of Section 13(d)(3) of the Securities
Exchange Act of 1934 ("Exchange Act")) have acquired direct or indirect
beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act)
of twenty percent (20%) or more of the Company's outstanding securities,
unless a majority of the "Continuing Directors" (as such term is hereinafter
defined) approves the acquisition not later than ten (10) business days after
the Company makes that determination, or (ii) the first day on which a majority
of the members of the Company's Board of Directors are not "Continuing
Directors." The term "Continuing Directors" means, as of any date of
determination, any member of the Board of Directors of the Company who (i) was
a member of that Board of Directors on the date of this Agreement, (iii) has
been a member of that Board of Directors for the two years immediately
preceding such date of determination, or (iv) was nominated for election or
elected to the Board of Directors with the affirmative vote of the greater of
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(x) a majority of the Continuing Directors who were members of the Board at the
time of such nomination or election, or (y) at least four Continuing Directors.
11.6 Exclusive Remedy. The payments referred to
in this Section 11 shall be exclusive and shall be the only remedy available to
Employee for termination of his employment with the Company, regardless of the
circumstances, reasons or motivation for any such termination. If Employee
gives notice of termination of this Agreement, or if it becomes known that this
Agreement will otherwise terminate in accordance with its provisions, the
Company may, in its sole discretion, relieve Employee of his duties under this
Agreement or assign Employee other duties and responsibilities to be performed
until the termination becomes effective.
12. Services Unique. It is agreed that the services to
be rendered by Employee hereunder are of a special, unique, unusual,
extraordinary and intellectual character which gives them a peculiar value, the
loss of which cannot be reasonably or adequately compensated in damages in an
action at law and that a breach by Employee of any of the provisions contained
herein will cause the Company irreparable injury and damage. Employee
expressly agrees that the Company shall be entitled to injunctive or other
equitable relief to prevent a breach hereof. Resort to any such equitable
relief shall not be construed as a waiver of any of the rights or remedies
which the Company may have against Employee for damages or otherwise.
13. Key Man Life Insurance. During the term of this
Agreement, the Company may at any time effect insurance on Employee's life
and/or health in such amounts and in such form as the Company may in its sole
discretion decide. Employee shall not have any interest in such insurance, but
shall, if the Company requests, submit to such medical examinations, supply
such information and execute such documents as may be required in connection
with, or so as to enable the Company to effect, such insurance.
14. Vacation. Employee shall have the right during each
one year period of the term of this Agreement to take an aggregate of three
weeks of vacation, with pay, at such times as are mutually convenient to
Employee and to the Company.
15. Notices. Any and all notices, demands or other
communications required or desired to be given hereunder by any party shall be
in writing and shall be validly given or made to another party if given by
personal delivery, telex, facsimile, telegram or if deposited in the United
States mail, certified or registered, postage prepaid, return receipt
requested. If such notice, demand or other communication is given by personal
delivery, telex, facsimile or telegram, service shall be conclusively deemed
made at the time of such personal service. If such notice, demand or other
communication is given by mail, such notice shall be conclusively deemed given
forty-eight (48) hours after the deposit thereof in the United States mail
addressed to the party to whom such notice, demand or other communication is to
be given as hereinafter set forth:
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To the Company: VANS, INC.
2095 Batavia Street
Orange, California 92665-3101
Attn: General Counsel
(714) 974-4481 - facsimile
To Employee: ROBERT CAMARENA
(at the address set forth below his signature)
Any party hereto may change his or its address for the purpose of receiving
notices, demands and other communications as herein provided by a written
notice given in the manner aforesaid to the other party or parties hereto.
16. Applicable Law and Severability. This Agreement
shall, in all respects, be governed by the laws of the State of California
applicable to agreements executed and to be wholly performed within the State
of California. Nothing contained herein shall be construed so as to require
the commission of any act contrary to law, and wherever there is any conflict
between any provision contained herein and any present or future statute, law,
ordinance or regulation contrary to which the parties have no legal right to
contract, the latter shall prevail but the provision of this Agreement which is
affected shall be curtailed and limited only to the extent necessary to bring
it within the requirements of the law.
17. Attorneys' Fees. In the event any action is
instituted by a party to enforce any of the terms and provisions contained
herein, the prevailing party in such action shall be entitled to such
reasonable attorneys' fees, costs and expenses as may be fixed by the Court.
18. Modifications or Amendments. No amendment, change or
modification of this Agreement shall be valid unless in writing and signed by
all of the parties hereto. Further, any amendment, change or modification of
this Agreement (including but not limited to the at-will nature of this
Agreement as set forth in Section 2 and Paragraph 11.1 hereof) must be approved
in advance by the Board of Directors of Company and reflected in the minutes of
such Board's meetings or in an action by unanimous written consent.
19. Successors and Assigns. All of the terms and
provisions contained herein shall inure to the benefit of and shall be binding
upon the parties hereto and their respective heirs, personal representatives,
successors and assigns.
9
<PAGE> 10
20. Entire Agreement. This Agreement constitutes the
entire understanding and agreement of the parties with respect to the subject
matter of this Agreement, and any and all prior agreements, understandings or
representations are hereby terminated and canceled in their entirety and are of
no further force or effect.
21. Counterparts. This Agreement may be executed in
counterparts.
22. Arbitration of Employment Disputes. Any dispute or
controversy arising out of this Agreement or the employment relationship
between Employee and the Company shall, at any time following the termination
of Employee's employment, be submitted to final and binding arbitration that
shall comply with the applicable arbitration rules of Judicial Arbitration and
Mediation Service ("JAMS")/Endispute, and judgment upon the award rendered by
the arbitrator may be entered in any court having jurisdiction thereof.
Provided, however, that this agreement to arbitrate does not effect any action
by the Company to enforce its rights to protect trade secrets or confidential
information through an action for injunctive relief. The cost of arbitration
(including reasonable attorneys' fees) shall be borne by the losing party. The
arbitration shall occur in Orange, California and the parties hereby consent to
the jurisdiction of the arbitrator and to service of process. EMPLOYEE HEREBY
UNDERSTANDS THAT, BY SIGNING THIS AGREEMENT, HE IS AGREEING TO HAVE ANY CLAIM
HEREUNDER DECIDED BY NEUTRAL ARBITRATION AND IS GIVING UP THE RIGHT TO A JURY
OR COURT TRIAL.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
EMPLOYEE: THE COMPANY:
VANS, INC.,
a Delaware corporation
By:
- ---------------------- -----------------------
Robert Camarena
- ---------------------- -----------------------
Address Title
10
<PAGE> 1
EXHIBIT 10.46
VANS, INC.
SEPARATION AND CONSULTING AGREEMENT
THIS SEPARATION AND CONSULTING AGREEMENT (the "Agreement") is made and
entered into as of January 2, 1996 by and between Joseph C. Gaspers
("Employee") and Vans, Inc., a Delaware corporation (the "Company"), with
reference to the following facts:
1. Employee is employed as the Company's President-Sales; and
2. Employee will resign from the Company effective as of the date
of this Agreement (the "Separation Date"), but will perform consulting services
for the Company until March 31, 1996.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, it is hereby agreed by and between the parties hereto as
follows:
1. Accrued Salary and Vacation. As of the Separation Date, the
Company shall have paid Employee the following amounts, subject to standard
withholdings for tax and social security purposes: (i) all accrued salary
through the Separation Date; and (ii) all unused and accrued vacation pay
Employee earned prior to the Separation Date. Employee acknowledges and agrees
that such amounts are all that he is entitled to receive as salary and vacation
pay.
2. Consulting Agreement; Leasing of Automobile. Employee shall,
until March 31, 1996 (the "Consulting Period"), provide consulting services to
the Company in any area of his expertise upon request by the President and
Chief Executive Officer; provided, however, Employee shall not be required to
provide services in excess of five (5) days during any month of the Consulting
Period. As compensation for his services during the Consulting Period,
Employee shall receive the sum of $16,667 per month. The Company shall also
continue to pay its portion of Employee's medical, eye and dental insurance
premiums under the Company's current plan during the Consulting Period. The
Company shall continue to lease Employee an automobile until June 30, 1996. As
of July 1, 1996, Employee shall be entitled to assume the lease for his
automobile. Employee acknowledges that he will be entirely responsible for
payment of any taxes due on his consulting fees, and he hereby indemnifies the
Company with respect to any liability for taxes, penalties, or interest which
may be assessed by any taxing authority for his failure to pay any such taxes
as required by law.
3. Separation Payments. Upon expiration of the Consulting Period,
the Company shall pay Employee three equal separation payments of $16,667 (less
applicable taxes), on May 1, 1996, June 1, 1996, and July 1, 1996, respectively
(the "Separation Payments"). Additionally, on each such date, Employee shall
receive a payment of $25,690 (less applicable taxes), representing one-third of
the aggregate "Performance Bonus" earned by Employee for the period ended
November 25, 1995 (as such term is defined in Employee's Employment Agreement,
dated March
<PAGE> 2
21, 1994, as amended). Employee further agrees that the Separation Payments
and the Performance Bonus are the only payments to which he is entitled from
the Company, and he waives and forever discharges the Company from any
liability to pay any additional salary, separation pay, commission, bonus or
other benefit, it being the intention of the parties to convert and merge all
such rights into this Agreement.
4. Options. The Compensation Committee of the Board of Directors
has, effective as of the Separation Date, (i) vested in full Employee's March
21, 1994 Incentive Stock Option for 100,000 shares of the Company's Common
Stock, and (ii) extended the exercise date of such option until March 31, 1997.
The Company hereby represents that the foregoing action taken by the
Compensation Committee was permitted and authorized under the terms and
conditions of the Company's 1991 Long-Term Incentive Plan, as amended.
5. Moving Allowance. The Company shall provide Employee $6,000
for the cost of relocating his residence from Newport Beach, California, upon
Employee's request.
6. Termination of Employment Agreement. Upon execution of this
Agreement, Employee's Employment Agreement with the Company shall be terminated
and of no further force or effect.
7. Non-solicitation of Employees. Employee shall not, during the
full term of this Agreement, and for a period of one (1) year thereafter, for
himself or on behalf of any other person, partnership, corporation or entity,
directly or indirectly, or by action in concert with others, solicit, induce,
suggest or encourage any person known to him to be an employee of the Company
or any affiliate of the Company to terminate his or her employment or other
contractual relationship with the Company or any of its affiliates.
8. Non-disparagement. Each party agrees that he or it shall not,
directly or indirectly, by any manner or means, in public or in private,
disparage, demean, insult, or defame the other party, or any of his or its
officers, employees, agents or any other person associated with the other party
at any time.
9. Company Property; Reimbursement for Business Expenses.
Employee shall, as of the Separation Date, return to the Company all Company
property which he had in his possession at any time, including, but not limited
to: computer recorded information, tangible property and credit cards.
Additionally, Employee shall, as of the Separation Date, submit all vouchers
for reasonable business expenses incurred by Employee in the course of his
employment. Such expenses shall be reimbursed in accordance with the Company's
policies therefor. Subsequent to the Separation Date, Employee shall no longer
be authorized to incur any expenses on behalf of the Company.
<PAGE> 3
10. Trade Secrets and Related Matters
10.1 Definitions. For purposes of this Section 10:
(a) "Records" means files, accounts,
records, log books, documents, drawings, sketches, designs, diagrams, models,
plans, blueprints, specifications, manuals, books, forms, notes, reports,
memoranda, studies, surveys, software, flow charts, data, computer programs,
listing of source code, calculations, recordings, catalogues, compilations of
information, correspondence, confidential data of customers and all copies,
abstracts or summaries of the foregoing in any storage medium, as well as
instruments, tools, storage devices, disks, equipment and all other physical
items related to the business of the Company (other than merely personal items
of a general professional nature), whether of a public nature or not, and
whether prepared by Employee or not.
(b) "Trade Secrets" means confidential
business or technical information or trade secrets of the Company which
Employee acquired while employed by the Company, whether or not conceived of,
developed or prepared by Employee or at his direction and includes:
(i) Any information or compilation
of information concerning the Company's financial position, financing,
purchasing, accounting, marketing, merchandising, sales, salaries, pricing,
investments, costs, profits, plans for future development, employees,
prospective employees, research, development, formulae, patterns, inventions,
plans, specifications, devices, products, procedures, processes, operations,
techniques, software, computer programs or data;
(ii) Any information or compilation
of information concerning the identity, plans, requirements, preferences,
practices and methods of doing business on specific customers, suppliers,
prospective customers and prospective suppliers of the Company;
(iii) Any other information or "know
how" which is related to any product, process, service, business or research of
the Company; and
(iv) Any information which the
Company acquires from another party and treats as its proprietary information
or designates as "Confidential," whether or not owned or developed by the
Company.
3
<PAGE> 4
Notwithstanding the foregoing, "Trade Secrets" do not include any of
the following:
(i) Information which is publicly
known or which is generally employed by the trade, whether on or after the date
that Employee first acquired the information;
(ii) General information or
knowledge which Employee would have learned in the course of similar work
elsewhere in the trade; or
(iii) Information which Employee can
prove was known by Employee before the commencement of Employee's employment by
the Company;
10.2 Acknowledgments. Employee acknowledges that:
(a) Employee's relationship with the
Company was a confidential relationship in which Employee had access to may
have created Trade Secrets.
(b) The Company uses the Trade Secrets
in its business to obtain a competitive advantage over its competitors who do
not know or use that information.
(c) The protection of the Trade Secrets
against unauthorized disclosure or use is of critical importance in maintaining
the competitive position of the Company.
10.3 Protection of Trade Secrets. Employee
shall not at any time, without the prior written consent of the Company, which
may be withheld by it in its sole and absolute discretion, disclose any Trade
Secret in any way and shall not use any Trade Secret in any way.
10.4 Records.
(a) Ownership. All Records are and
shall remain the exclusive property of the Company.
(b) Return of Records. As of the
Separation Date, Employee shall return to the Company all Records in Employee's
possession or over which Employee has control.
10.5 Prohibited Use of Trade Secrets. For 12
months following the Separation Date, Employee shall not undertake any
employment or consulting relationship (the "New Activity") if the loyal and
complete fulfillment of his duties in the New Activity would inherently call
upon Employee to reveal any Trade Secret.
4
<PAGE> 5
11. Release of Claims. Each party, for himself or itself,
his or its successors-in-interest, heirs, executors, agents, trustees,
affiliates, servants, representatives, transferees, successors and assigns,
hereby releases and forever discharges the other party, his or its
predecessors, successors, agents, officers, directors, employees, former and
present subsidiaries, attorneys and representatives, from and against any and
all claims, demands, obligations, liabilities, costs, expenses, fees (including
without limitation attorneys' fees), actions, causes of actions, rights,
promises, judgments, losses, liens and damages of every kind, combination or
description, in law or at equity, whether known or unknown, anticipated or
unanticipated, liquidated or unliquidated, fixed, conditional or contingent,
existing on or prior to the date hereof, including but not limited to any
claims relating to wrongful discharge; race discrimination; religious
discrimination; physical handicap discrimination; sexual preference
discrimination; sexual harassment; sex discrimination; intentional infliction
of emotional distress; loss of consortium; breach of any implied covenant of
good faith and fair dealing; injury to personal reputation; damages to personal
and family rights; negligent infliction of emotional distress; interference
with prospective economic advantage; employment discrimination and/or terms of
employment arising under the common law; the Civil Rights Act of 1964, as
amended; the Worker Adjustment and Retraining Notification Act; the Americans
with Disabilities Act of 1990; 42 U.S.C., Sections 1981-88; California
Government Code, Section 12940, et. seq; California Labor Code, Section 132a;
or any other federal, state or municipal statute, regulation or order relating
to wrongful discharge, employment discrimination, and/or terms of employment.
Each party represents and warrants that (i) he or it has not assigned any such
claims or authorized any other person or entity to assert such claims on his or
its behalf, and (ii) that he or it, or any other person or entity, has not
asserted, and does not intend to assert, with any federal, state or local
judicial or administrative agency or body any claim, charge, complaint or
petition of any kind or character based on or arising out of or alleged to be
suffered in, or as a consequence of, Employee's employment with, or termination
by, the Company. In the event any such claim is asserted in the future by
either party, or any other person or entity authorized by such party to do so,
such party agrees that this Agreement, and the releases contained herein, shall
act as a total and complete bar to his recovery of any sum or amount whatsoever
from the other party, or, in the case of Employee, to his re-employment by the
Company. Further, Employee agrees that under this Agreement he waives any and
all claims for damages incurred at any time after the date of this Agreement
because of any alleged continuing effect of any alleged acts or omissions
involving Employee which occurred on or before the date of this Agreement and
any right to sue for injunctive relief against the alleged continuing effects
of wrongful discharge or discrimination based on alleged acts or omissions
occurring prior to the date of this Agreement. The parties intend that the
claims released herein be construed as broadly as possible.
12. Section 1542 Waiver. Each party acknowledges that he or
it has read and understands Section 1542 of the Civil Code of the State of
California ("Section 1542") which reads as follows:
5
<PAGE> 6
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR.
Each party hereby expressly waives and relinquishes all rights and
benefits under Section 1542 and any law or legal principle of similar effect in
any jurisdiction with respect to the release granted in this Agreement,
including, but not limited to, any jurisdiction in the United States. The
parties acknowledge that they have separately bargained for the waiver of
Section 1542.
13. Waiver of Potential Federal Age Discrimination Claim.
Employee understands that, with respect to the waiver of any potential federal
age discrimination claim under the Age Discrimination in Employment Act, as
amended ("ADEA"), he is receiving the additional consideration of $500.00,
which he acknowledges he has received in connection with the execution of this
Agreement. Employee agrees that this is consideration to which he is not
otherwise entitled. Employee further acknowledges that he has had twenty-one
(21) days from his receipt of this Agreement (January 3, 1996) to consider
whether he would waive any potential ADEA claim.
14. Certain Remedies on Revocation or Breach. In the
event that Employee breaches this Agreement, or subsequently takes the position
that this Agreement is invalid or unenforceable, or revokes this Agreement for
any reason, then the amounts received by Employee pursuant to this Agreement
shall be returned to the Company, and Employee shall pay the costs and
attorneys' fees of the Company in any action in which the Company must defend
itself, its employees or agents as a result of Employee's actions. Nothing
herein shall limit the rights or remedies otherwise available to the Company
upon a breach hereof by Employee and nothing herein is intended to limit
Employee from instituting legal action for the sole purpose of enforcing the
terms of this Agreement.
15. Dispute Resolution. Disputes arising from the
interpretation, breach, or enforcement of this Agreement, which cannot first be
resolved by negotiations between the parties, shall be settled exclusively by
final and binding arbitration in accordance with the applicable rules and
procedures of the Judicial Arbitration and Mediation Service ("JAMS")/Endispute
then in effect. The arbitration shall be conducted before a single arbitrator
at a location determined by the arbitrator in Los Angeles, California, and the
parties hereby consent to the jurisdiction of the arbitrator and to the
acceptance of service of process. Both parties acknowledge that there may not
be an adequate remedy at law if one party breaches this Agreement. Therefore,
the arbitrators shall be empowered to award any appropriate equitable relief;
and, if necessary to avoid irreparable harm pending arbitration, such equitable
relief may be sought in a court of law. The prevailing party shall be entitled
to reasonable attorneys' fees, costs, and necessary disbursements in addition
to any other relief to which it may be entitled.
6
<PAGE> 7
16. Costs and Fees. Other than as set forth specifically
herein, the parties will bear their own costs, expenses, and attorneys' fees,
whether taxable or otherwise, incurred in or arising out of or in any way
related to the matters released herein.
17. Entire Agreement. This Agreement contains the entire
agreement between the parties and constitutes the complete, final, and
exclusive embodiment of their agreement with respect to the subject matter
hereof. This Agreement is executed without reliance upon any promise, warranty
or representation, written or oral, by any party or any representative of any
party other than those expressly contained herein, and it supersedes any other
such promises, warranties, representations, agreements or documents containing
the same. Each party has carefully read this Agreement, has been advised in
writing to consult with an attorney regarding its meaning and consequences, and
signed the same of his or its own free will. This Agreement may not be amended
or modified except in a writing signed by both Employee and the President of
the Company.
18. Applicable Law. This Agreement shall be deemed to
have been entered into and shall be construed and enforced in accordance with
the laws of the State of California.
19. Successors and Assigns. This Agreement shall bind the heirs,
personal representatives, successors, assigns, executors, and administrators of
each party, and inure to the benefit of each party, and his or its heirs,
successors and assigns.
20. No Admission. It is understood and agreed by the parties
that this Agreement represents a compromise settlement of various matters, and
shall not be construed to be an admission of any liability or obligation by
either party to the other party or to any other person.
21. Section Headings. The section and paragraph headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement.
22. Severability. If any provision of this Agreement is
determined to be invalid or unenforceable, in whole or in part, this
determination will not affect any other provision of this Agreement.
23. Counterparts. This Agreement may be executed in two
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
7
<PAGE> 8
24. Notices. All notices, requests, consents and other
communications required or permitted hereunder shall be in writing and shall be
hand delivered or mailed by registered or certified mail, return receipt
requested, addressed to the Company at 2095 Batavia Street, Orange, California
92665-3101, attention: General Counsel, and to Employee at the address set
forth below his signature.
25. Re-Employment. Employee hereby agrees that he will not seek
re-employment by the Company.
26. Breach by the Company. Employee agrees that in the event
the Company breaches any of the provisions of this Agreement, Employee's sole
remedy for such breach shall be enforcement of the terms of this Agreement.
IN WITNESS WHEREOF, the parties have duly authorized and caused this
Agreement to be executed as follows:
EMPLOYEE: THE COMPANY:
VANS, INC.
By:
- ---------------------------------- ---------------------------
Joseph C. Gaspers (Title)
- ----------------------------------
Address
WAIVER OF POTENTIAL ADEA CLAIM
(Do not sign before twenty-one (21) days have passed from receipt of original
Agreement)
I have waived my potential federal ADEA claim in return for the
consideration of receiving $500.00 on this 24th day of January, 1996. I
acknowledge and recognize that I have seven (7) days following the execution of
this waiver to revoke such waiver, and that such waiver is neither effective
nor enforceable until the expiration of such period.
__________________________________
Joseph C. Gaspers
8
<PAGE> 1
Exhibit 10.47
This STATEMENT is presented for filing pursuant to the California Uniform
Commercial Code
- --------------------------------------------------------------------------------
1. FILE NO. OF ORIG. 1A. DATE OF FILING OF ORIG. 1B. DATE OF ORIG. FINANCING
FINANCING STATEMENT FINANCING STATEMENT STATEMENT
9609460195 April 2, 1996
- --------------------------------------------------------------------------------
1C. PLACE OF FILING ORIG.
FINANCING STATEMENT
Secretary of State - CA
- --------------------------------------------------------------------------------
2. DEBTOR (LAST NAME FIRST) 2A. SOCIAL SECURITY NO., FEDERAL TAX NO.
Vans, Inc.
- --------------------------------------------------------------------------------
2B. MAILING ADDRESS 2C. CITY, STATE 2D. ZIP CODE
2095 Batavia Street Orange, California 92665-3101
- --------------------------------------------------------------------------------
3. ADDITIONAL DEBTOR 3A. SOCIAL SECURITY OR FEDERAL TAX NO.
(IF ANY) (LAST NAME FIRST)
- --------------------------------------------------------------------------------
3B. MAILING ADDRESS 3C. CITY, STATE 3D. ZIP CODE
- --------------------------------------------------------------------------------
4. SECURED PARTY
NAME Teachers Insurance and Annuity Association of America***
MAILING ADDRESS 730 Third Avenue
CITY New York STATE New York ZIP CODE 10017
- --------------------------------------------------------------------------------
4A. SOCIAL SECURITY NO., FEDERAL TAX NO. OR BANK TRANSIT AND A.B.A. NO.
- --------------------------------------------------------------------------------
5. ASSIGNEE OF SECURED PARTY (IF ANY) 5A. SOCIAL SECURITY NO., FEDERAL TAX NO.
NAME OR BANK TRANSIT AND A.B.A. NO.
MAILING ADDRESS
CITY STATE ZIP CODE
- --------------------------------------------------------------------------------
6. A [ ] CONTINUATION - The original Financing Statement between the foregoing
Debtor and Secured Party bearing the file number and date shown above
is continued. If collateral is crops or timber, check here [ ] and
insert description of real property on which growing or to be grown in
Item 7 below.
---------------------------------------------------------------------------
B [ ] RELEASE - From the collateral described in the Financing Statement
bearing the file number shown above, the Secured Party releases the
collateral described in Item 7 below.
---------------------------------------------------------------------------
C [ ] ASSIGNMENT - The Secured Party certifies that the Secured Party has
assigned to the Assignee above named, all the Secured Party's rights
under the Financing Statement bearing the file number shown above in
the collateral described in Item 7 below.
---------------------------------------------------------------------------
D [X] TERMINATION - The Secured Party certifies that the Secured Party no
longer claims a security interest under the Financing Statement bearing
the file number shown above.
---------------------------------------------------------------------------
E [ ] AMENDMENT - The Financing Statement bearing the file number shown above
is amended as set forth in Item 7 below. (Signature of Debtor required
on all amendments.)
---------------------------------------------------------------------------
F [ ] OTHER
- --------------------------------------------------------------------------------
7. *** See Annex A for additional secured parties and signatures of additional
secured parties.
- --------------------------------------------------------------------------------
8. (Date) May 31, 1996 C 9. This Space for Use of
------------- O Filing Officer
D (Date, Time, Filing Office)
Vans, Inc. E
-------------------------------------- ---
By: not required 1
----------------------------------
SIGNATURE(S) OF DEBTOR(S) (TITLE) 2
Teachers Insurance and Annuity 3
Association of America
-------------------------------------- 4
By: /s/ RODERIC L. EATON
-------------------------------------- 5
SIGNATURE(S) OF SECURED PARTY(IES)
RODERIC L. EATON 6
Managing Director - Private Placements
- ----------------------------------------- 7
10. RETURN COPY TO
8
NAME Craig E. Gosselin
ADDRESS Vans, Inc. 9 CSC NETWORKS
CITY AND 2095 Batavia St. 375 HUDSON STREET, NY, NY 10014
STATE Orange, CA 92665-3101
(1) Filing Officer Copy
STANDARD FORM - FILING FEE UNIFORM COMMERCIAL CODE - FORM UCC-2
Approved by the Secretary of State
<PAGE> 2
ANNEX A
to
UCC-2 FINANCING STATEMENT
(This Annex consists of 1 pages)
Additional Secured Parties:
- ---------------------------
Connecticut General Life Insurance Company
c/o CIGNA Investments, Inc.
900 College Grove Road
Bloomfield, Connecticut 06002
Life Insurance Company of North America
c/o CIGNA Investments, Inc.
900 College Grove Road
Bloomfield, Connecticut 06002
Signatures of Additional Secured Parties:
- -----------------------------------------
CONNECTICUT GENERAL LIFE
INSURANCE COMPANY
By: CIGNA Investments, Inc.
By: /s/ EDWARD LEWIS
--------------------------------------
Title: Managing Director, Edward Lewis
LIFE INSURANCE COMPANY OF
NORTH AMERICA
By: CIGNA Investments, Inc.
By: /s/ EDWARD LEWIS
--------------------------------------
Title: Managing Director, Edward Lewis
Approved by the Secretary of State
CSC NETWORKS
375 HUDSON STREET, NY, NY 10014
<PAGE> 1
EXHIBIT 10.48
RELEASE OF GRANT OF SECURITY INTEREST
TRADEMARKS
WHEREAS, VANS, INC., a Delaware corporation (hereinafter
referred to as "Vans"), entered into a Grant of Security Interest (hereinafter
referred to as the "Grant of Security Interest") in favor of TEACHERS INSURANCE
AND ANNUITY ASSOCIATION OF AMERICA, CONNECTICUT GENERAL LIFE INSURANCE COMPANY
(on its own behalf and on behalf of one or more separate accounts) and LIFE
INSURANCE COMPANY OF NORTH AMERICA (hereinafter referred to, collectively, as
the "Secured Parties"), to secure payment of certain obligations of Vans to the
Secured Parties; and
WHEREAS, an executed copy of the Grant of Security Interest
was recorded by the Assignment Division of the United States Patent and
Trademark Office on Reel 1418, Frame 0429 on April 5, 1996; and
WHEREAS, Vans has requested that the Secured Parties release
their security interest in the trademark applications and registrations
described on Annex I attached hereto (hereinafter referred to, collectively, as
the "Trademarks"), granted to such Secured Parties pursuant to the Grant of
Security Interest;
NOW THEREFORE, for good and valuable consideration, receipt of
which is hereby acknowledged, the Secured Parties hereby:
1. release any and all liens, security interest, right, title and
interest in the Trademarks granted to such Secured Parties
pursuant to the Grant of Security Interest, without recourse
or representation or warranty, express or implied; and
2. authorize and request the Commissioner of Patents and
Trademarks of the United States of America to note and record
the existence of the release of the Trademarks hereby given by
this instrument.
<PAGE> 2
This instrument may be executed on separate counterparts each
of which shall be an original, but all of which together shall constitute one
and the same instrument.
IN WITNESS WHEREOF, the undersigned have caused this Release
of Grant of Security to be signed by a duly authorized officer as of May ___,
1996.
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By:________________________________
Name:
Title:
CONNECTICUT GENERAL LIFE
INSURANCE COMPANY
By: CIGNA INVESTMENTS
By:________________________________
Name:
Title:
CONNECTICUT GENERAL LIFE
INSURANCE COMPANY, on
behalf of one or more
separate accounts
By: CIGNA INVESTMENTS
By:________________________________
Name:
Title:
LIFE INSURANCE COMPANY OF
NORTH AMERICA
By: CIGNA INVESTMENTS
By:________________________________
Name:
Title:
- 2 -
<PAGE> 3
ANNEX I
-------
UNITED STATES TRADEMARK APPLICATIONS AND REGISTRATIONS
------------------------------------------------------
<TABLE>
<CAPTION>
==================================================================================================
JURISDICTION TRADEMARK REG. DATE/FILE DATE REG. NO./SER. NO.
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States LAMPIN' 11/21/95 Not yet known
- --------------------------------------------------------------------------------------------------
United States DRAGON DESIGN 9/27/94 74/579,120
- --------------------------------------------------------------------------------------------------
United States CIRCLE V 9/23/94 74/582,270
- --------------------------------------------------------------------------------------------------
United States SOLO FLYING V 9/23/94 74/582,271
- --------------------------------------------------------------------------------------------------
United States VANDALS 11/1/94 74/593,654
- --------------------------------------------------------------------------------------------------
United States VANS 1/4/95 74/617,692
- --------------------------------------------------------------------------------------------------
United States VANS LOGO 1/4/95 74/617,693
- --------------------------------------------------------------------------------------------------
United States SHOE SOLE 2/24/95 74/639,979
- --------------------------------------------------------------------------------------------------
United States SPICOLI 6/6/95 74/685,148
- --------------------------------------------------------------------------------------------------
United States THE MORE YOU 7/7/95 74/698,309
LIVE, THE LESS YOU
DIE.
- --------------------------------------------------------------------------------------------------
United States VANS 10/17/95 75/022,287
- --------------------------------------------------------------------------------------------------
United States VANS 10/17/95 75/022,286
- --------------------------------------------------------------------------------------------------
United States VANS Logo 10/17/95 75/022,284
- --------------------------------------------------------------------------------------------------
United States VANS Logo 10/17/95 75/022,285
- --------------------------------------------------------------------------------------------------
United States VANS 10/17/95 75/022,288
- --------------------------------------------------------------------------------------------------
United States VANS 3/6/84 1,269,202
- --------------------------------------------------------------------------------------------------
United States VANS 3/6/84 1,269,201
- --------------------------------------------------------------------------------------------------
United States VANS 2/14/84 1,267,262
- --------------------------------------------------------------------------------------------------
United States VANS 10/23/84 1,301,871
- --------------------------------------------------------------------------------------------------
United States VANS 2/14/84 1,267,100
- --------------------------------------------------------------------------------------------------
United States VANS Logo 8/13/85 1,353,939
- --------------------------------------------------------------------------------------------------
United States OFF THE WALL 1/14/86 1,378,174
- --------------------------------------------------------------------------------------------------
United States MAN, I NEED VANS & 9/11/84 1,294,543
DESIGN
- --------------------------------------------------------------------------------------------------
United States Shoe Sole 03/05/83 1,244,537
Design
- --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
==================================================================================================
JURISDICTION TRADEMARK REG. DATE/FILE DATE REG. NO./SER. NO.
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
United States DESIGN ONLY 02/20/90 1,583,727
Checkerboard Design
on top of shoe
- --------------------------------------------------------------------------------------------------
United States VANS 01/12/93 1,746,195
- --------------------------------------------------------------------------------------------------
United States CABALLERO 06/01/93 1,774,282
- --------------------------------------------------------------------------------------------------
United States HALF CAB 06/14/94 1,839,995
- --------------------------------------------------------------------------------------------------
United States SHOE SOLE DESIGN 05/18/93 1,771,540
- --------------------------------------------------------------------------------------------------
United States NATIVE AMERICAN 02/28/95 1,881,512
- --------------------------------------------------------------------------------------------------
United States TAKE A STAND 09/13/94 1,853,617
==================================================================================================
</TABLE>
2
<PAGE> 1
EXHIBIT 10.49
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement" herein) is entered
into as of July 1, 1996 by and between VANS, INC., a Delaware corporation (the
"Company"), and JOHN T. DICKINSON ("Employee").
1. Employment and Duties. The Company hereby employs
Employee as Vice President - International Sales and Licensing of the Company
on the terms and subject to the conditions contained in this Agreement.
Employee shall be responsible for managing and supervising the Company's
international sales and licensing operations. Employee hereby accepts such
employment and agrees to perform in good faith and to the best of Employee's
ability all services which may be required of Employee hereunder, to do what is
asked of him, and to be available to render services at all times and places in
accordance with such directions, requests, rules and regulations made by the
Company in connection with Employee's employment. Employee hereby acknowledges
and understands the duties and services that are expected of him hereunder, and
he hereby represents that he has the experience and knowledge to perform such
duties and services. Employee shall, during the term hereof, devote Employee's
full time and energy to performing his duties. Employee shall report to the
President and Chief Operating Officer. Employee shall be based at the
Company's corporate offices. Employee understands, however, that Employee may
be required to travel within and out of the State of California to discharge
his duties hereunder.
2. Term of Employment. The term of this Agreement shall
commence as of the date hereof and shall terminate on June 30, 1999, unless
sooner terminated as provided herein. This Agreement does not give Employee
any enforceable right to employment beyond this term, and Employee agrees that
he shall have no rights hereunder thereafter. AS PROVIDED FURTHER IN PARAGRAPH
11.1 BELOW, THIS AGREEMENT CONSTITUTES AN EMPLOYMENT AT-WILL THAT MAY BE
TERMINATED AT ANY TIME BY COMPANY OR EMPLOYEE, WITH OR WITHOUT CAUSE,
NOTWITHSTANDING THE THREE - YEAR TERM OF THIS AGREEMENT. IF EMPLOYEE IS
TERMINATED WITHOUT CAUSE DURING THE TERM HEREOF, OR AFTER A "CHANGE IN
MANAGEMENT OR CONTROL," AS DEFINED IN PARAGRAPH 11.5 BELOW, OR TERMINATES THIS
AGREEMENT FOR "GOOD REASON," AS DEFINED IN PARAGRAPH 11.3 BELOW, EMPLOYEE'S
SOLE REMEDY SHALL BE THE COMPENSATION SET FORTH IN PARAGRAPH 11.4 BELOW.
Initial _________ Initial__________
Representative Employee
of the Company
<PAGE> 2
3. Salary Compensation. As salary compensation for
Employee's services hereunder and all the rights granted hereunder by Employee
to the Company, the Company shall pay Employee a gross salary of $120,000.00
per annum. Employee's salary shall be payable in bi- weekly increments in
accordance with the Company's payroll practices for salaried employees, upon
the condition that Employee fully and faithfully performs Employee's services
hereunder in accordance with the terms and conditions of this Agreement. The
Company shall deduct and withhold from the compensation payable to Employee
hereunder any and all amounts required to be deducted or withheld by the
Company under the provisions of any statute, regulation, ordinance, or order
and any and all amendments hereinafter enacted requiring the withholding or
deducting from compensation payable to employees.
4. Expense Reimbursement; Travel; Computer. Employee
shall be reimbursed by the Company for all traveling, hotel, entertainment and
other expenses that are properly and necessarily incurred by Employee, pursuant
to the Company's policies on the same. Additionally, (i) on any flight in
excess of four hours, Employee shall be entitled to travel in business class,
and (ii) during the term of this Agreement the Company shall supply Employee
with a personal computer with capabilities equal to those outlined in his offer
letter dated April 28, 1995.
5. Death or Disability of Employee.
5.1 General. In the event of Employee's
death or "disability" (as such term is defined in Paragraph 5.2 hereof) while
in the employ of the Company, this Agreement, and the compensation due to
Employee pursuant to Paragraph 3 hereof, shall terminate upon the date of death
or disability and the Company shall thereafter be required to make payments
only to Employee, as provided in Paragraph 11.2 hereof. If Employee shall
recover from such disability prior to the expiration date of the Agreement,
this Agreement and Employee's employment hereunder shall be reinstated for the
balance of the term of this Agreement.
5.2 Definition of Disability.
Employee shall be deemed disabled if, in the sole opinion of the
Company, Employee is unable to substantially perform the services required of
Employee hereunder for a period in excess of 60 consecutive work days or 60
work days during any 90 work day period. In such event, Employee shall be
deemed disabled as of such 60th work day.
6. Restrictive Covenant. During the term of this
Agreement, Employee shall (i) devote his full time and energy solely and
exclusively to the performance of his duties described herein; (ii) not
directly or indirectly provide services to or through any company or firm
except the Company unless otherwise instructed by the Company; (iii) not
directly or indirectly own, manage, operate, join, control, contribute to, or
participate in the ownership, management, operation or control of or be
employed by or connected in any manner with any enterprise which is engaged in
any business
<PAGE> 3
competitive with or similar to that of the Company; and (iv) not render any
services of any kind or character for Employee's own account of for any other
person, firm or corporation without first obtaining the Company's consent in
writing; provided, however, Employee shall have the right to perform such
incidental services as are necessary in connection with Employee's (a) private
passive investments where he is not obligated or required to, and shall not in
fact, devote any managerial efforts, as long as such investments are not in
companies which are in competition in any way with the Company; or (b)
charitable or community activities, or in trade or professional organizations,
provided that such incidental services do not interfere with the performance of
Employee's services hereunder.
7. Non-Solicitation. Employee shall not, during
the full term of this Agreement and for a period of one (1) year thereafter,
for himself or on behalf of any other person, partnership, corporation or
entity, directly or indirectly, or by action in concert with others, solicit,
induce, suggest or encourage any person known to him to be an employee of the
Company or any affiliate of the Company to terminate his or her employment or
other contractual relationship with the Company or any of its affiliates.
8. Trade Secrets and Related Matters
8.1 Definitions. For purpose of this
Section 8:
(a) "Records" means files,
accounts, records, log books, documents, drawings, sketches, designs, diagrams,
models, plans, blueprints, specifications, manuals, books, forms, notes,
reports, memoranda, studies, surveys, software, flow charts, data, computer
programs, listing of source code, calculations, recordings, catalogues,
compilations of information, correspondence, confidential data of customers and
all copies, abstracts or summaries of the foregoing in any storage medium, as
well as instruments, tools, storage devices, disks, equipment and all other
physical items related to the business of the Company (other than merely
personal items of a general professional nature), whether of a public nature or
not, and whether prepared by Employee or not.
(b) "Trade Secrets" means confidential
business or technical information or trade secrets of the Company which
Employee acquires while employed by the Company, whether or not conceived of,
developed or prepared by Employee or at his direction and includes:
(i) Any information or compilation
of information concerning the Company's financial position, financing,
purchasing, accounting, marketing, merchandising, sales, salaries, pricing,
investments, costs, profits, plans for future development, employees,
prospective employees, research, development, formulae, patterns, inventions,
plans, specifications, devices, products, procedures, processes, operations,
techniques, software, computer programs or data;
3
<PAGE> 4
(ii) Any information or compilation
of information concerning the identity, plans, requirements, preferences,
practices and methods of doing business on specific customers, suppliers,
prospective customers and prospective suppliers of the Company;
(iii) Any other information or "know
how" which is related to any product, process, service, business or research of
the Company; and
(iv) Any information which the
Company acquires from another party and treats as its proprietary information
or designates as "Confidential," whether or not owned or developed by the
Company.
Notwithstanding the foregoing, "Trade Secrets" do not include any of
the following:
(i) Information which is publicly
known or which is generally employed by the trade, whether on or after the date
that Employee first acquires the information;
(ii) General information or
knowledge which Employee would have learned in the course of similar work
elsewhere in the trade; or
(iii) Information which Employee can
prove was known by Employee before the commencement of Employee's engagement by
the Company;
8.2 Acknowledgments. Employee
acknowledges that:
(a) Employee's relationship with the
Company will be a confidential relationship in which Employee will have access
to and may create Trade Secrets.
(b) The Company uses the Trade Secrets
in its business to obtain a competitive advantage over its competitors who do
not know or use that information.
(c) The protection of the Trade Secrets
against unauthorized disclosure or use is of critical importance in maintaining
the competitive position of the Company.
4
<PAGE> 5
8.3 Protection of Trade Secrets. Employee shall
not at any time, without the prior written consent of the Company, which may be
withheld by it in its sole and absolute discretion, disclose any Trade Secret
in any way except to employees of the Company, and shall not use any Trade
Secret in any way except in connection with his or her duties to the Company.
8.4 Records.
(a) Ownership. All Records are and
shall remain the exclusive property of the Company.
(b) Return of Records. At the
termination of this Agreement, Employee shall promptly return to the Company
all records in Employee's possession or over which Employee has control.
8.5 Prohibited Use of Trade Secrets. During the
term of this Agreement and for 12 months following termination of this
Agreement, Employee shall not undertake any employment or consulting
relationship (the "New Activity") if the loyal and complete fulfillment of his
or her duties in the New Activity would inherently call upon Employee to reveal
any Trade Secret.
9. Ownership of Material and Ideas. Employee agrees
that all material, ideas, and inventions pertaining to the business of the
Company or of any client of the Company, including but not limited to, all
patents and copyrights thereon and renewals and extensions thereof, trademarks
and trade names, and the names, addresses and telephone numbers of customers,
distributors and sales representatives of the Company, belong solely to the
Company. Employee hereby assigns any rights he may have to any such property
to the Company, and agrees to execute and deliver any documents which evidence
such assignment.
10. Employee Plans, etc. Employee shall be entitled to
participate, to the same extent as most other officers of the Company, in any
bonus compensation plan, stock purchase or stock option plan, group life
insurance plan, group medical insurance plan and other compensation or employee
benefit plans (collectively, "Plans") which are generally available to a
majority of the other officers of the Company during the term hereof and for
which Employee shall qualify. Employee further understands, however, that the
Board of Directors, or such committee or person or persons designated by the
Board of Directors, shall determine in its sole discretion (i) whether any
Plans are made available to a majority of the officers of the Company; (ii)
whether one or more Plans are adopted solely for the Chief Executive Officer
and/or one or more (but not a majority) of the officers of the Company; (iii)
whether one or more Plans are made available to a majority of the officers; and
(iv) the amounts payable or the benefits provided thereunder to each
participant in whole or in part. Employee agrees and acknowledges that he has
no vested interest in the continuance of any Plan, and that no Plan in
existence on the date of the Agreement has acted as a
5
<PAGE> 6
material inducement to Employee in entering into this Agreement. The parties
agree that the Company shall have the right to reduce any bonus to be received
by Employee pursuant to the Company's fiscal 1997 bonus plan by up to
$15,000.00.
11. Termination.
11.1 "At Will" Employment. This Agreement, and
Employee's employment, is at will, and the Company may, with or without notice,
terminate this Agreement and all of the Company's obligations hereunder with or
without "Cause." Employee may also terminate this Agreement at any time, for
any reason, upon the giving of thirty (30) days' written notice to the Company;
provided, however, the Company may waive all or any portion of such notice
period in its sole and absolute discretion. Termination by the Company for
"Cause" means termination due to (i) Employee's conviction of a felony
(which, through the lapse of time or otherwise is not subject to appeal); (ii)
Employee's material refusal, failure or neglect without proper cause to perform
adequately his obligations under this Agreement or follow the instructions of
his supervisor(s); (iii) any negligence or willful misconduct by Employee;
(iv) Employee's material breach of any of his fiduciary obligations as an
executive officer of the Company; (v) Employee's material failure to adhere to
the code of conduct and rules set forth in the Company's Employee Handbook, as
amended or in existence from time to time; (vi) the death or disability of
Employee; or (vii) the voluntary termination by Employee of his employment,
except for "Good Reason" (as defined in Paragraph 11.3 hereof).
11.2 Termination for Cause. Upon termination for
Cause, the Company shall only be required to pay Employee (i) accrued salary
compensation due to Employee as compensation for services rendered hereunder
and not previously paid; (ii) accrued vacation pay; and (iii) any appropriate
business expenses incurred by Employee in connection with his duties hereunder
and approved pursuant to Section 4 hereof, all through the date of termination.
Employee shall not be entitled to any severance compensation; bonus
compensation, whether "vested" or unvested; or any other compensation, benefits
or reimbursement of any kind.
11.3 Termination for "Good Reason." Employee may
terminate this Agreement for "Good Reason" (as hereinafter defined) upon thirty
(30) days written notice to the Company. The term "Good Reason" means (i)
Employee is not appointed or is removed from the position of Vice President -
International Sales and Licensing without Cause during the term of this
Agreement; or (ii) without Employee's consent, a majority of the duties
defined in Section 1 hereof are removed from Employee's responsibilities. The
term Good Reason does not include a situation where certain of the duties
defined in Section 1 hereof are removed from Employee's responsibilities and
are replaced with duties which have greater responsibility and/or authority
than the duties which are removed. Unless Employee terminates this Agreement
within thirty (30) days of learning from any source that the Company has acted
so as to provide Good Reason for Employee to terminate this Agreement, and
gives thirty (30) days'
6
<PAGE> 7
written notice of such termination, Employee's right to receive severance
compensation pursuant to Paragraph 11.4 for such event shall be forever lost.
11.4 Severance Compensation. In the event
(i) Employee terminates this Agreement for Good Reason in accordance with
Paragraph 11.3 hereof; (ii) Employee is terminated for any reason (except
death or disability) upon, or within six months following, a "Change in
Management or Control (as such term is defined in Paragraph 11.5 hereof);" or
(iii) Employee is terminated without Cause, the Company shall be obligated to
pay severance compensation to Employee in an amount equal to his salary
compensation (at the rate payable at the time of such termination) for a period
of the lesser of (i) the remaining portion of the term of this Agreement, or
(ii) six (6) months from the date of termination; provided, however, if
Employee is employed by a new employer, or as a consultant during such period,
the severance compensation payable to Employee hereunder shall be reduced by
the amount of compensation that Employee actually receives from the new
employer, or as a consultant. However, Employee shall have a duty to inform the
Company that he has obtained such new employment, and the failure to do so is a
material breach of this Agreement. In such event, the Company shall be
entitled to (i) cease all payments to Employee under this Paragraph 11.4; and
(ii) recover any unauthorized payments to Employee in an action for breach of
contract. Notwithstanding anything else in this Agreement to the contrary,
solely in the event of a termination upon or following a Change in Management
or Control, the amount of severance compensation paid to Employee hereunder
shall not include any amount that the Company is prohibited from deducting for
federal income tax purposes by virtue of Section 280G of the Internal Revenue
Code of 1986, as amended, or any successor provision. In addition to the
foregoing severance compensation, the Company shall pay Employee (i) all
compensation for services rendered hereunder and not previously paid; (ii)
accrued vacation pay; and (iii) any appropriate business expenses incurred by
Employee in connection with his duties hereunder and approved pursuant to
Section 4 hereof, all through the date of termination. Employee shall not be
entitled to any bonus compensation, whether vested or unvested; or any other
compensation, benefits or reimbursement of any kind.
11.5 Definition of "Change in Management or
Control." The term "Change in Management or Control" means (i) the
time that the Company first determines that any person and all other persons
who constitute a group (within the meaning of Section 13(d)(3) of the
Securities Exchange Act of 1934 ("Exchange Act")) have acquired direct or
indirect beneficial ownership (within the meaning of Rule 13d-3 under the
Exchange Act) of twenty percent (20%) or more of the Company's outstanding
securities, unless a majority of the "Continuing Directors" (as such term is
hereinafter defined) approves the acquisition not later than ten (10) business
days after the Company makes that determination, or (ii) the first day on which
a majority of the members of the Company's Board of Directors are not
"Continuing Directors." The term "Continuing Directors" means, as of any date
of determination, any member of the Board of Directors of the Company who (i)
was a member of that Board of Directors on the date of this Agreement, (iii)
has been a member of that Board of Directors for the
7
<PAGE> 8
two years immediately preceding such date of determination, or (iv) was
nominated for election or elected to the Board of Directors with the
affirmative vote of the greater of (x) a majority of the Continuing Directors
who were members of the Board at the time of such nomination or election, or
(y) at least four Continuing Directors.
11.6 Exclusive Remedy. The payments
referred to in this Section 11 shall be exclusive and shall be the only remedy
available to Employee for termination of his employment with the Company,
regardless of the circumstances, reasons or motivation for any such
termination. If Employee gives notice of termination of this Agreement, or if
it becomes known that this Agreement will otherwise terminate in accordance
with its provisions, the Company may, in its sole discretion, relieve Employee
of his duties under this Agreement or assign Employee other duties and
responsibilities to be performed until the termination becomes effective.
12. Services Unique. It is agreed that the
services to be rendered by Employee hereunder are of a special, unique,
unusual, extraordinary and intellectual character which gives them a peculiar
value, the loss of which cannot be reasonably or adequately compensated in
damages in an action at law and that a breach by Employee of any of the
provisions contained herein will cause the Company irreparable injury and
damage. Employee expressly agrees that the Company shall be entitled to
injunctive or other equitable relief to prevent a breach hereof. Resort to any
such equitable relief shall not be construed as a waiver of any of the rights
or remedies which the Company may have against Employee for damages or
otherwise.
13. Key Man Life Insurance. During the term of
this Agreement, the Company may at any time effect insurance on Employee's life
and/or health in such amounts and in such form as the Company may in its sole
discretion decide. Employee shall not have any interest in such insurance, but
shall, if the Company requests, submit to such medical examinations, supply
such information and execute such documents as may be required in connection
with, or so as to enable the Company to effect, such insurance.
14. Vacation. Employee shall have the right during
each one year period of the term of this Agreement to take an aggregate of
three weeks of vacation, with pay, at such times as are mutually convenient to
Employee and to the Company.
15. Notices. Any and all notices, demands or
other communications required or desired to be given hereunder by any party
shall be in writing and shall be validly given or made to another party if
given by personal delivery, telex, facsimile, telegram or if deposited in the
United States mail, certified or registered, postage prepaid, return receipt
requested. If such notice, demand or other communication is given by personal
delivery, telex, facsimile or telegram, service shall be conclusively deemed
made at the time of such personal service. If such notice, demand or other
communication is given by mail, such notice shall be conclusively deemed given
forty-eight (48) hours after the deposit thereof in the United States mail
addressed to the
8
<PAGE> 9
party to whom such notice, demand or other communication is to be given as
hereinafter set forth:
To the Company: VANS, INC.
2095 Batavia Street
Orange, California 92665-3101
Attn: General Counsel
(714) 974-4481 - facsimile
To Employee: John T. Dickinson
(at the address set forth below his signature)
Any party hereto may change his or its address for the purpose of receiving
notices, demands and other communications as herein provided by a written
notice given in the manner aforesaid to the other party or parties hereto.
16. Applicable Law and Severability. This
Agreement shall, in all respects, be governed by the laws of the State of
California applicable to agreements executed and to be wholly performed within
the State of California. Nothing contained herein shall be construed so as to
require the commission of any act contrary to law, and wherever there is any
conflict between any provision contained herein and any present or future
statute, law, ordinance or regulation contrary to which the parties have no
legal right to contract, the latter shall prevail but the provision of this
Agreement which is affected shall be curtailed and limited only to the extent
necessary to bring it within the requirements of the law.
17. Attorneys' Fees. In the event any action is
instituted by a party to enforce any of the terms and provisions contained
herein, the prevailing party in such action shall be entitled to such
reasonable attorneys' fees, costs and expenses as may be fixed by the Court.
18. Modifications or Amendments. No amendment,
change or modification of this Agreement shall be valid unless in writing and
signed by all of the parties hereto. Further, any amendment, change or
modification of this Agreement (including but not limited to the at-will nature
of this Agreement as set forth in Section 2 and Paragraph 11.1 hereof) must be
approved in advance by the Board of Directors of Company and reflected in the
minutes of such Board's meetings or in an action by unanimous written consent.
19. Successors and Assigns. All of the terms
and provisions contained herein shall inure to the benefit of and shall be
binding upon the parties hereto and their respective heirs, personal
representatives, successors and assigns.
9
<PAGE> 10
20. Entire Agreement. This Agreement constitutes
the entire understanding and agreement of the parties with respect to the
subject matter of this Agreement, and any and all prior agreements,
understandings or representations are hereby terminated and canceled in their
entirety and are of no further force or effect.
21. Counterparts. This Agreement may be executed in
counterparts.
22. Arbitration of Employment Disputes. Any dispute
or controversy arising out of this Agreement or the employment relationship
between Employee and the Company shall, at any time following the termination
of Employee's employment, be submitted to final and binding arbitration that
shall comply with the applicable arbitration rules of Judicial Arbitration and
Mediation Service ("JAMS")/Endispute, and judgment upon the award rendered by
the arbitrator may be entered in any court having jurisdiction thereof.
Provided, however, that this agreement to arbitrate does not effect any action
by the Company to enforce its rights to protect trade secrets or confidential
information through an action for injunctive relief. The cost of arbitration
(including reasonable attorneys' fees) shall be borne by the losing party. The
arbitration shall occur in Orange, California and the parties hereby consent to
the jurisdiction of the arbitrator and to service of process. EMPLOYEE HEREBY
UNDERSTANDS THAT, BY SIGNING THIS AGREEMENT, HE IS AGREEING TO HAVE ANY CLAIM
HEREUNDER DECIDED BY NEUTRAL ARBITRATION AND IS GIVING UP THE RIGHT TO A JURY
OR COURT TRIAL.
23. Survival of Certain Provisions. Sections 7,8,9, and
22 of this Agreement shall survive the termination hereof.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
EMPLOYEE: THE COMPANY:
VANS, INC.,
a Delaware corporation
By:
- -------------------------- ----------------------
John T. Dickinson
- -------------------------- ----------------------
Address Title
10
<PAGE> 1
EXHIBIT 10.50
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement" herein) is entered
into as of July 1, 1996 by and between VANS, INC., a Delaware corporation (the
"Company"), and BRENTTON JI ("Employee").
1. Employment and Duties. The Company hereby employs
Employee as Vice President - Foreign Sourcing and Purchasing of the Company on
the terms and subject to the conditions contained in this Agreement. Employee
shall be responsible for managing and supervising the Company's foreign
sourcing and purchasing operations. Employee hereby accepts such employment and
agrees to perform in good faith and to the best of Employee's ability all
services which may be required of Employee hereunder, to do what is asked of
him, and to be available to render services at all times and places in
accordance with such directions, requests, rules and regulations made by the
Company in connection with Employee's employment. Employee hereby acknowledges
and understands the duties and services that are expected of him hereunder, and
he hereby represents that he has the experience and knowledge to perform such
duties and services. Employee shall, during the term hereof, devote Employee's
full time and energy to performing his duties. Employee shall report to the
Chief Operating Officer. Employee shall be based at the Company's corporate
offices. Employee understands, however, that Employee may be required to
travel within and out of the State of California to discharge his duties
hereunder.
2. Term of Employment. The term of this Agreement
shall commence as of the date hereof and shall terminate on June 30, 1999,
unless sooner terminated as provided herein. This Agreement does not give
Employee any enforceable right to employment beyond this term, and Employee
agrees that he shall have no rights hereunder thereafter. AS PROVIDED FURTHER
IN PARAGRAPH 11.1 BELOW, THIS AGREEMENT CONSTITUTES AN EMPLOYMENT AT-WILL THAT
MAY BE TERMINATED AT ANY TIME BY COMPANY OR EMPLOYEE, WITH OR WITHOUT CAUSE,
NOTWITHSTANDING THE THREE - YEAR TERM OF THIS AGREEMENT. IF EMPLOYEE IS
TERMINATED WITHOUT CAUSE DURING THE TERM HEREOF, OR AFTER A "CHANGE IN
MANAGEMENT OR CONTROL," AS DEFINED IN PARAGRAPH 11.5 BELOW, OR TERMINATES THIS
AGREEMENT FOR "GOOD REASON," AS DEFINED IN PARAGRAPH 11.3 BELOW, EMPLOYEE'S
SOLE REMEDY SHALL BE THE COMPENSATION SET FORTH IN PARAGRAPH 11.4 BELOW.
Initial _________ Initial__________
Representative Employee
of the Company
<PAGE> 2
3. Salary Compensation. As salary compensation for
Employee's services hereunder and all the rights granted hereunder by Employee
to the Company, the Company shall pay Employee a gross salary of $92,500.00 per
annum. Employee's salary shall be payable in bi-weekly increments in accordance
with the Company's payroll practices for salaried employees, upon the condition
that Employee fully and faithfully performs Employee's services hereunder in
accordance with the terms and conditions of this Agreement. The Company shall
deduct and withhold from the compensation payable to Employee hereunder any and
all amounts required to be deducted or withheld by the Company under the
provisions of any statute, regulation, ordinance, or order and any and all
amendments hereinafter enacted requiring the withholding or deducting from
compensation payable to employees.
4. Expense Reimbursement. Employee shall be reimbursed
by the Company for all traveling, hotel, entertainment and other expenses that
are properly and necessarily incurred by Employee, pursuant to the Company's
policies on the same.
5. Death or Disability of Employee.
5.1 General. In the event of Employee's
death or "disability" (as such term is defined in Paragraph 5.2 hereof) while
in the employ of the Company, this Agreement, and the compensation due to
Employee pursuant to Paragraph 3 hereof, shall terminate upon the date of death
or disability and the Company shall thereafter be required to make payments
only to Employee, as provided in Paragraph 11.2 hereof. If Employee shall
recover from such disability prior to the expiration date of the Agreement,
this Agreement and Employee's employment hereunder shall be reinstated for the
balance of the term of this Agreement.
5.2 Definition of Disability. Employee
shall be deemed disabled if, in the sole opinion of the Company, Employee is
unable to substantially perform the services required of Employee hereunder for
a period in excess of 60 consecutive work days or 60 work days during any 90
work day period. In such event, Employee shall be deemed disabled as of such
60th work day.
6. Restrictive Covenant. During the term of this
Agreement, Employee shall (i) devote his full time and energy solely and
exclusively to the performance of his duties described herein; (ii) not
directly or indirectly provide services to or through any company or firm
except the Company unless otherwise instructed by the Company; (iii) not
directly or indirectly own, manage, operate, join, control, contribute to, or
participate in the ownership, management, operation or control of or be
employed by or connected in any manner with any enterprise which is engaged in
any business competitive with or similar to that of the Company; and (iv)
not render any services of any kind or character for Employee's own account of
for any other person, firm or corporation without first obtaining the Company's
consent in writing; provided, however, Employee shall have the right to
perform such incidental services as are
2
<PAGE> 3
necessary in connection with Employee's (a) private passive investments where
he is not obligated or required to, and shall not in fact, devote any
managerial efforts, as long as such investments are not in companies which are
in competition in any way with the Company; or (b) charitable or community
activities, or in trade or professional organizations, provided that such
incidental services do not interfere with the performance of Employee's
services hereunder.
7. Non-Solicitation. Employee shall not, during
the full term of this Agreement and for a period of one (1) year thereafter,
for himself or on behalf of any other person, partnership, corporation or
entity, directly or indirectly, or by action in concert with others, solicit,
induce, suggest or encourage any person known to him to be an employee of the
Company or any affiliate of the Company to terminate his or her employment or
other contractual relationship with the Company or any of its affiliates.
8. Trade Secrets and Related Matters
8.1 Definitions. For purpose of this
Section 8:
(a) "Records" means files, accounts,
records, log books, documents, drawings, sketches, designs, diagrams, models,
plans, blueprints, specifications, manuals, books, forms, notes, reports,
memoranda, studies, surveys, software, flow charts, data, computer programs,
listing of source code, calculations, recordings, catalogues, compilations of
information, correspondence, confidential data of customers and all copies,
abstracts or summaries of the foregoing in any storage medium, as well as
instruments, tools, storage devices, disks, equipment and all other physical
items related to the business of the Company (other than merely personal items
of a general professional nature), whether of a public nature or not, and
whether prepared by Employee or not.
(b) "Trade Secrets" means confidential
business or technical information or trade secrets of the Company which
Employee acquires while employed by the Company, whether or not conceived of,
developed or prepared by Employee or at his direction and includes:
(i) Any information or compilation
of information concerning the Company's financial position, financing,
purchasing, accounting, marketing, merchandising, sales, salaries, pricing,
investments, costs, profits, plans for future development, employees,
prospective employees, research, development, formulae, patterns, inventions,
plans, specifications, devices, products, procedures, processes, operations,
techniques, software, computer programs or data;
(ii) Any information or compilation
of information concerning the identity, plans, requirements, preferences,
practices and methods of doing business on specific customers, suppliers,
prospective customers and prospective suppliers of the Company;
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(iii) Any other information or "know
how" which is related to any product, process, service, business or research of
the Company; and
(iv) Any information which the
Company acquires from another party and treats as its proprietary information
or designates as "Confidential," whether or not owned or developed by the
Company.
Notwithstanding the foregoing, "Trade Secrets" do not include any of
the following:
(i) Information which is publicly
known or which is generally employed by the trade, whether on or after the date
that Employee first acquires the information;
(ii) General information or
knowledge which Employee would have learned in the course of similar work
elsewhere in the trade; or
(iii) Information which Employee can
prove was known by Employee before the commencement of Employee's engagement by
the Company;
8.2 Acknowledgments. Employee acknowledges
that:
(a) Employee's relationship with the
Company will be a confidential relationship in which Employee will have access
to and may create Trade Secrets.
(b) The Company uses the Trade Secrets
in its business to obtain a competitive advantage over its competitors who do
not know or use that information.
(c) The protection of the Trade Secrets
against unauthorized disclosure or use is of critical importance in maintaining
the competitive position of the Company.
8.3 Protection of Trade Secrets. Employee
shall not at any time, without the prior written consent of the Company, which
may be withheld by it in its sole and absolute discretion, disclose any Trade
Secret in any way except to employees of the Company, and shall not use any
Trade Secret in any way except in connection with his or her duties to the
Company.
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8.4 Records.
(a) Ownership. All Records are and
shall remain the exclusive property of the Company.
(b) Return of Records. At the
termination of this Agreement, Employee shall promptly return to the Company
all records in Employee's possession or over which Employee has control.
8.5 Prohibited Use of Trade Secrets. During the
term of this Agreement and for 12 months following termination of this
Agreement, Employee shall not undertake any employment or consulting
relationship (the "New Activity") if the loyal and complete fulfillment of his
or her duties in the New Activity would inherently call upon Employee to reveal
any Trade Secret.
9. Ownership of Material and Ideas. Employee
agrees that all material, ideas, and inventions pertaining to the business of
the Company or of any client of the Company, including but not limited to, all
patents and copyrights thereon and renewals and extensions thereof, trademarks
and trade names, and the names, addresses and telephone numbers of customers,
distributors and sales representatives of the Company, belong solely to the
Company. Employee hereby assigns any rights he may have to any such property
to the Company, and agrees to execute and deliver any documents which evidence
such assignment.
10. Employee Plans, etc. Employee shall be entitled
to participate, to the same extent as most other officers of the Company, in
any bonus compensation plan, stock purchase or stock option plan, group life
insurance plan, group medical insurance plan and other compensation or employee
benefit plans (collectively, "Plans") which are generally available to a
majority of the other officers of the Company during the term hereof and for
which Employee shall qualify. Employee further understands, however, that the
Board of Directors, or such committee or person or persons designated by the
Board of Directors, shall determine in its sole discretion (i) whether any
Plans are made available to a majority of the officers of the Company; (ii)
whether one or more Plans are adopted solely for the Chief Executive Officer
and/or one or more (but not a majority) of the officers of the Company; (iii)
whether one or more Plans are made available to a majority of the officers; and
(iv) the amounts payable or the benefits provided thereunder to each
participant in whole or in part. Employee agrees and acknowledges that he has
no vested interest in the continuance of any Plan, and that no Plan in
existence on the date of the Agreement has acted as a material inducement to
Employee in entering into this Agreement.
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11. Termination.
11.1 "At Will" Employment. This Agreement, and
Employee's employment, is at will, and the Company may, with or without notice,
terminate this Agreement and all of the Company's obligations hereunder with or
without "Cause." Employee may also terminate this Agreement at any time, for
any reason, upon the giving of thirty (30) days' written notice to the Company;
provided, however, the Company may waive all or any portion of such notice
period in its sole and absolute discretion. Termination by the Company for
"Cause" means termination due to (i) Employee's conviction of a felony (
which, through the lapse of time or otherwise is not subject to appeal); (ii)
Employee's material refusal, failure or neglect without proper cause to perform
adequately his obligations under this Agreement or follow the instructions of
his supervisor(s); (iii) any negligence or willful misconduct by Employee;
(iv) Employee's material breach of any of his fiduciary obligations as an
executive officer of the Company; (v) Employee's material failure to adhere to
the code of conduct and rules set forth in the Company's Employee Handbook, as
amended or in existence from time to time; (vi) the death or disability of
Employee; or (vii) the voluntary termination by Employee of his employment,
except for "Good Reason" (as defined in Paragraph 11.3 hereof).
11.2 Termination for Cause. Upon termination
for Cause, the Company shall only be required to pay Employee (i) accrued
salary compensation due to Employee as compensation for services rendered
hereunder and not previously paid; (ii) accrued vacation pay; and (iii) any
appropriate business expenses incurred by Employee in connection with his
duties hereunder and approved pursuant to Section 4 hereof, all through the
date of termination. Employee shall not be entitled to any severance
compensation; bonus compensation, whether "vested" or unvested; or any other
compensation, benefits or reimbursement of any kind.
11.3 Termination for "Good Reason." Employee
may terminate this Agreement for "Good Reason" (as hereinafter defined) upon
thirty (30) days written notice to the Company. The term "Good Reason" means
(i) Employee is not appointed or is removed from the position of Vice President
- - Foreign Sourcing and Purchasing without Cause during the term of this
Agreement; or (ii) without Employee's consent, a majority of the duties
defined in Section 1 hereof are removed from Employee's responsibilities. The
term Good Reason does not include a situation where certain of the duties
defined in Section 1 hereof are removed from Employee's responsibilities and
are replaced with duties which have greater responsibility and/or authority
than the duties which are removed. Unless Employee terminates this Agreement
within thirty (30) days of learning from any source that the Company has acted
so as to provide Good Reason for Employee to terminate this Agreement, and
gives thirty (30) days' written notice of such termination, Employee's right to
receive severance compensation pursuant to Paragraph 11.4 for such event shall
be forever lost.
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11.4 Severance Compensation. In the
event (i) Employee terminates this Agreement for Good Reason in accordance with
Paragraph 11.3 hereof; (ii) Employee is terminated for any reason (except
death or disability) upon, or within six months following, a "Change in
Management or Control (as such term is defined in Paragraph 11.5 hereof);" or
(iii) Employee is terminated without Cause, the Company shall be obligated to
pay severance compensation to Employee in an amount equal to his salary
compensation (at the rate payable at the time of such termination) for a period
of the lesser of (i) the remaining portion of the term of this Agreement, or
(ii) six (6) months from the date of termination; provided, however, if
Employee is employed by a new employer, or as a consultant during such period,
the severance compensation payable to Employee hereunder shall be reduced by
the amount of compensation that Employee actually receives from the new
employer, or as a consultant. However, Employee shall have a duty to inform the
Company that he has obtained such new employment, and the failure to do so is a
material breach of this Agreement. In such event, the Company shall be
entitled to (i) cease all payments to Employee under this Paragraph 11.4; and
(ii) recover any unauthorized payments to Employee in an action for breach of
contract. Notwithstanding anything else in this Agreement to the contrary,
solely in the event of a termination upon or following a Change in Management
or Control, the amount of severance compensation paid to Employee hereunder
shall not include any amount that the Company is prohibited from deducting for
federal income tax purposes by virtue of Section 280G of the Internal Revenue
Code of 1986, as amended, or any successor provision. In addition to the
foregoing severance compensation, the Company shall pay Employee (i) all
compensation for services rendered hereunder and not previously paid; (ii)
accrued vacation pay; and (iii) any appropriate business expenses incurred by
Employee in connection with his duties hereunder and approved pursuant to
Section 4 hereof, all through the date of termination. Employee shall not be
entitled to any bonus compensation, whether vested or unvested; or any other
compensation, benefits or reimbursement of any kind.
11.5 Definition of "Change in Management or
Control." The term "Change in Management or Control" means (i) the time that
the Company first determines that any person and all other persons who
constitute a group (within the meaning of Section 13(d)(3) of the Securities
Exchange Act of 1934 ("Exchange Act")) have acquired direct or indirect
beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act)
of twenty percent (20%) or more of the Company's outstanding securities,
unless a majority of the "Continuing Directors" (as such term is hereinafter
defined) approves the acquisition not later than ten (10) business days after
the Company makes that determination, or (ii) the first day on which a majority
of the members of the Company's Board of Directors are not "Continuing
Directors." The term "Continuing Directors" means, as of any date of
determination, any member of the Board of Directors of the Company who (i) was
a member of that Board of Directors on the date of this Agreement, (iii) has
been a member of that Board of Directors for the two years immediately
preceding such date of determination, or (iv) was nominated for
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<PAGE> 8
election or elected to the Board of Directors with the affirmative vote of the
greater of (x) a majority of the Continuing Directors who were members of the
Board at the time of such nomination or election, or (y) at least four
Continuing Directors.
11.6 Exclusive Remedy. The payments referred to
in this Section 11 shall be exclusive and shall be the only remedy available to
Employee for termination of his employment with the Company, regardless of the
circumstances, reasons or motivation for any such termination. If Employee
gives notice of termination of this Agreement, or if it becomes known that this
Agreement will otherwise terminate in accordance with its provisions, the
Company may, in its sole discretion, relieve Employee of his duties under this
Agreement or assign Employee other duties and responsibilities to be performed
until the termination becomes effective.
12. Services Unique. It is agreed that the
services to be rendered by Employee hereunder are of a special, unique,
unusual, extraordinary and intellectual character which gives them a peculiar
value, the loss of which cannot be reasonably or adequately compensated in
damages in an action at law and that a breach by Employee of any of the
provisions contained herein will cause the Company irreparable injury and
damage. Employee expressly agrees that the Company shall be entitled to
injunctive or other equitable relief to prevent a breach hereof. Resort to any
such equitable relief shall not be construed as a waiver of any of the rights
or remedies which the Company may have against Employee for damages or
otherwise.
13. Key Man Life Insurance. During the term of this
Agreement, the Company may at any time effect insurance on Employee's life
and/or health in such amounts and in such form as the Company may in its sole
discretion decide. Employee shall not have any interest in such insurance, but
shall, if the Company requests, submit to such medical examinations, supply
such information and execute such documents as may be required in connection
with, or so as to enable the Company to effect, such insurance.
14. Vacation. Employee shall have the right during
each one year period of the term of this Agreement to take an aggregate of
three weeks of vacation, with pay, at such times as are mutually convenient to
Employee and to the Company.
15. Notices. Any and all notices, demands or
other communications required or desired to be given hereunder by any party
shall be in writing and shall be validly given or made to another party if
given by personal delivery, telex, facsimile, telegram or if deposited in the
United States mail, certified or registered, postage prepaid, return receipt
requested. If such notice, demand or other communication is given by personal
delivery, telex, facsimile or telegram, service shall be conclusively deemed
made at the time of such personal service. If such notice, demand or other
communication is given by mail, such notice shall be conclusively deemed given
forty-eight (48) hours after the deposit thereof in the United States mail
addressed to the
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party to whom such notice, demand or other communication is to be given as
hereinafter set forth:
To the Company: VANS, INC.
2095 Batavia Street
Orange, California 92665-3101
Attn: General Counsel
(714) 974-4481 - facsimile
To Employee: Brentton Ji
(at the address set forth below his signature)
Any party hereto may change his or its address for the purpose of receiving
notices, demands and other communications as herein provided by a written
notice given in the manner aforesaid to the other party or parties hereto.
16. Applicable Law and Severability. This
Agreement shall, in all respects, be governed by the laws of the State of
California applicable to agreements executed and to be wholly performed within
the State of California. Nothing contained herein shall be construed so as to
require the commission of any act contrary to law, and wherever there is any
conflict between any provision contained herein and any present or future
statute, law, ordinance or regulation contrary to which the parties have no
legal right to contract, the latter shall prevail but the provision of this
Agreement which is affected shall be curtailed and limited only to the extent
necessary to bring it within the requirements of the law.
17. Attorneys' Fees. In the event any action is
instituted by a party to enforce any of the terms and provisions contained
herein, the prevailing party in such action shall be entitled to such
reasonable attorneys' fees, costs and expenses as may be fixed by the Court.
18. Modifications or Amendments. No amendment,
change or modification of this Agreement shall be valid unless in writing and
signed by all of the parties hereto. Further, any amendment, change or
modification of this Agreement (including but not limited to the at-will nature
of this Agreement as set forth in Section 2 and Paragraph 11.1 hereof) must be
approved in advance by the Board of Directors of Company and reflected in the
minutes of such Board's meetings or in an action by unanimous written consent.
19. Successors and Assigns. All of the terms
and provisions contained herein shall inure to the benefit of and shall be
binding upon the parties hereto and their respective heirs, personal
representatives, successors and assigns.
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20. Entire Agreement. This Agreement constitutes
the entire understanding and agreement of the parties with respect to the
subject matter of this Agreement, and any and all prior agreements,
understandings or representations are hereby terminated and canceled in their
entirety and are of no further force or effect.
21. Counterparts. This Agreement may be executed in
counterparts.
22. Arbitration of Employment Disputes. Any dispute
or controversy arising out of this Agreement or the employment relationship
between Employee and the Company shall, at any time following the termination
of Employee's employment, be submitted to final and binding arbitration that
shall comply with the applicable arbitration rules of Judicial Arbitration and
Mediation Service ("JAMS")/Endispute, and judgment upon the award rendered by
the arbitrator may be entered in any court having jurisdiction thereof.
Provided, however, that this agreement to arbitrate does not effect any action
by the Company to enforce its rights to protect trade secrets or confidential
information through an action for injunctive relief. The cost of arbitration
(including reasonable attorneys' fees) shall be borne by the losing party. The
arbitration shall occur in Orange, California and the parties hereby consent to
the jurisdiction of the arbitrator and to service of process. EMPLOYEE HEREBY
UNDERSTANDS THAT, BY SIGNING THIS AGREEMENT, HE IS AGREEING TO HAVE ANY CLAIM
HEREUNDER DECIDED BY NEUTRAL ARBITRATION AND IS GIVING UP THE RIGHT TO A JURY
OR COURT TRIAL.
23. Survival of Certain Provisions. Sections 7,8,9, and
22 of this Agreement shall survive the termination hereof.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
EMPLOYEE: THE COMPANY:
VANS, INC.,
a Delaware corporation
By:
- -------------------------- -----------------------
Brentton Ji
- -------------------------- -----------------------
Address Title
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<PAGE> 1
EXHIBIT 10.51
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ( "Agreement" herein) is entered
into as of July 1, 1996 by and between VANS, INC., a Delaware corporation (the
"Company"), and CHARLES C. KUPFER ("Employee").
1. Employment and Duties. The Company hereby employs
Employee as Vice President and Controller of the Company on the terms and
subject to the conditions contained in this Agreement. Employee shall be
responsible for supervising and managing the Company's day-to-day accounting
operations. Employee hereby accepts such employment and agrees to perform in
good faith and to the best of Employee's ability all services which may be
required of Employee hereunder, to do what is asked of him, and to be available
to render services at all times and places in accordance with such directions,
requests, rules and regulations made by the Company in connection with
Employee's employment. Employee hereby acknowledges and understands the duties
and services that are expected of him hereunder, and he hereby represents that
he has the experience and knowledge to perform such duties and services.
Employee shall, during the term hereof, devote Employee's full time and energy
to performing his duties. Employee shall report to the Chief Financial Officer.
Employee shall be based at the Company's corporate offices. Employee
understands, however, that Employee may be required to travel within and out of
the State of California to discharge his duties hereunder.
2. Term of Employment. The term of this Agreement
shall commence as of the date hereof and shall terminate on June 30, 1999,
unless sooner terminated as provided herein. This Agreement does not give
Employee any enforceable right to employment beyond this term, and Employee
agrees that he shall have no rights hereunder thereafter. AS PROVIDED FURTHER
IN PARAGRAPH 11.1 BELOW, THIS AGREEMENT CONSTITUTES AN EMPLOYMENT AT-WILL THAT
MAY BE TERMINATED AT ANY TIME BY COMPANY OR EMPLOYEE, WITH OR WITHOUT CAUSE,
NOTWITHSTANDING THE THREE - YEAR TERM OF THIS AGREEMENT. IF EMPLOYEE IS
TERMINATED WITHOUT CAUSE DURING THE TERM HEREOF, OR AFTER A "CHANGE IN
MANAGEMENT OR CONTROL," AS DEFINED IN PARAGRAPH 11.5 BELOW, OR TERMINATES THIS
AGREEMENT FOR "GOOD REASON," AS DEFINED IN PARAGRAPH 11.3 BELOW, EMPLOYEE'S
SOLE REMEDY SHALL BE THE COMPENSATION SET FORTH IN PARAGRAPH 11.4 BELOW.
Initial _________ Initial__________
Representative Employee
of the Company
<PAGE> 2
3. Salary Compensation. As salary compensation for
Employee's services hereunder and all the rights granted hereunder by Employee
to the Company, the Company shall pay Employee a gross salary of $100,000 per
annum. Employee's salary shall be payable in bi-weekly increments in accordance
with the Company's payroll practices for salaried employees, upon the condition
that Employee fully and faithfully performs Employee's services hereunder in
accordance with the terms and conditions of this Agreement. The Company shall
deduct and withhold from the compensation payable to Employee hereunder any and
all amounts required to be deducted or withheld by the Company under the
provisions of any statute, regulation, ordinance, or order and any and all
amendments hereinafter enacted requiring the withholding or deducting from
compensation payable to employees.
4. Expense Reimbursement. Employee shall be
reimbursed by the Company for all traveling, hotel, entertainment and other
expenses that are properly and necessarily incurred by Employee, pursuant to
the Company's policies on the same.
5. Death or Disability of Employee.
5.1 General. In the event of Employee's
death or "disability" (as such term is defined in Paragraph 5.2 hereof) while
in the employ of the Company, this Agreement, and the compensation due to
Employee pursuant to Paragraph 3 hereof, shall terminate upon the date of death
or disability and the Company shall thereafter be required to make payments
only to Employee, as provided in Paragraph 11.2 hereof. If Employee shall
recover from such disability prior to the expiration date of the Agreement,
this Agreement and Employee's employment hereunder shall be reinstated for the
balance of the term of this Agreement.
5.2 Definition of Disability. Employee
shall be deemed disabled if, in the sole opinion of the Company, Employee is
unable to substantially perform the services required of Employee hereunder for
a period in excess of 60 consecutive work days or 60 work days during any 90
work day period. In such event, Employee shall be deemed disabled as of such
60th work day.
6. Restrictive Covenant. During the term of this
Agreement, Employee shall (i) devote his full time and energy solely and
exclusively to the performance of his duties described herein; (ii) not
directly or indirectly provide services to or through any company or firm
except the Company unless otherwise instructed by the Company; (iii) not
directly or indirectly own, manage, operate, join, control, contribute to, or
participate in the ownership, management, operation or control of or be
employed by or connected in any manner with any enterprise which is engaged in
any business competitive with or similar to that of the Company; and (iv)
not render any services of any kind or character for Employee's own account of
for any other person, firm or corporation without first obtaining the Company's
consent in writing; provided, however, Employee shall have the right to
perform such incidental services as are
<PAGE> 3
necessary in connection with Employee's (a) private passive investments where
he is not obligated or required to, and shall not in fact, devote any
managerial efforts, as long as such investments are not in companies which are
in competition in any way with the Company; or (b) charitable or community
activities, or in trade or professional organizations, provided that such
incidental services do not interfere with the performance of Employee's
services hereunder.
7. Non-Solicitation. Employee shall not, during
the full term of this Agreement and for a period of one (1) year thereafter,
for himself or on behalf of any other person, partnership, corporation or
entity, directly or indirectly, or by action in concert with others, solicit,
induce, suggest or encourage any person known to him to be an employee of the
Company or any affiliate of the Company to terminate his or her employment or
other contractual relationship with the Company or any of its affiliates.
8. Trade Secrets and Related Matters
8.1 Definitions. For purpose of this
Section 8:
(a) "Records" means files, accounts,
records, log books, documents, drawings, sketches, designs, diagrams, models,
plans, blueprints, specifications, manuals, books, forms, notes, reports,
memoranda, studies, surveys, software, flow charts, data, computer programs,
listing of source code, calculations, recordings, catalogues, compilations of
information, correspondence, confidential data of customers and all copies,
abstracts or summaries of the foregoing in any storage medium, as well as
instruments, tools, storage devices, disks, equipment and all other physical
items related to the business of the Company (other than merely personal items
of a general professional nature), whether of a public nature or not, and
whether prepared by Employee or not.
(b) "Trade Secrets" means confidential
business or technical information or trade secrets of the Company which
Employee acquires while employed by the Company, whether or not conceived of,
developed or prepared by Employee or at his direction and includes:
(i) Any information or compilation
of information concerning the Company's financial position, financing,
purchasing, accounting, marketing, merchandising, sales, salaries, pricing,
investments, costs, profits, plans for future development, employees,
prospective employees, research, development, formulae, patterns, inventions,
plans, specifications, devices, products, procedures, processes, operations,
techniques, software, computer programs or data;
(ii) Any information or compilation
of information concerning the identity, plans, requirements, preferences,
practices and methods of doing business on specific customers, suppliers,
prospective customers and prospective suppliers of the Company;
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(iii) Any other information or "know
how" which is related to any product, process, service, business or research of
the Company; and
(iv) Any information which the
Company acquires from another party and treats as its proprietary information
or designates as "Confidential," whether or not owned or developed by the
Company.
Notwithstanding the foregoing, "Trade Secrets" do not include any of
the following:
(i) Information which is publicly
known or which is generally employed by the trade, whether on or after the date
that Employee first acquires the information;
(ii) General information or
knowledge which Employee would have learned in the course of similar work
elsewhere in the trade; or
(iii) Information which Employee can
prove was known by Employee before the commencement of Employee's engagement by
the Company;
8.2 Acknowledgments. Employee acknowledges that:
(a) Employee's relationship with the
Company will be a confidential relationship in which Employee will have access
to and may create Trade Secrets.
(b) The Company uses the Trade Secrets
in its business to obtain a competitive advantage over its competitors who do
not know or use that information.
(c) The protection of the Trade Secrets
against unauthorized disclosure or use is of critical importance in maintaining
the competitive position of the Company.
8.3 Protection of Trade Secrets. Employee shall
not at any time, without the prior written consent of the Company, which may be
withheld by it in its sole and absolute discretion, disclose any Trade Secret
in any way except to employees of the Company, and shall not use any Trade
Secret in any way except in connection with his or her duties to the Company.
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8.4 Records.
(a) Ownership. All Records are and
shall remain the exclusive property of the Company.
(b) Return of Records. At the
termination of this Agreement, Employee shall promptly return to the Company
all records in Employee's possession or over which Employee has control.
8.5 Prohibited Use of Trade Secrets. During the
term of this Agreement and for 12 months following termination of this
Agreement, Employee shall not undertake any employment or consulting
relationship (the "New Activity") if the loyal and complete fulfillment of his
or her duties in the New Activity would inherently call upon Employee to reveal
any Trade Secret.
9. Ownership of Material and Ideas. Employee agrees
that all material, ideas, and inventions pertaining to the business of the
Company or of any client of the Company, including but not limited to, all
patents and copyrights thereon and renewals and extensions thereof, trademarks
and trade names, and the names, addresses and telephone numbers of customers,
distributors and sales representatives of the Company, belong solely to the
Company. Employee hereby assigns any rights he may have to any such property
to the Company, and agrees to execute and deliver any documents which evidence
such assignment.
10. Employee Plans, etc. Employee shall be entitled
to participate, to the same extent as most other officers of the Company, in
any bonus compensation plan, stock purchase or stock option plan, group life
insurance plan, group medical insurance plan and other compensation or employee
benefit plans (collectively, "Plans") which are generally available to a
majority of the other officers of the Company during the term hereof and for
which Employee shall qualify. Employee further understands, however, that the
Board of Directors, or such committee or person or persons designated by the
Board of Directors, shall determine in its sole discretion (i) whether any
Plans are made available to a majority of the officers of the Company; (ii)
whether one or more Plans are adopted solely for the Chief Executive Officer
and/or one or more (but not a majority) of the officers of the Company; (iii)
whether one or more Plans are made available to a majority of the officers; and
(iv) the amounts payable or the benefits provided thereunder to each
participant in whole or in part. Employee agrees and acknowledges that he has
no vested interest in the continuance of any Plan, and that no Plan in
existence on the date of the Agreement has acted as a material inducement to
Employee in entering into this Agreement.
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11. Termination.
11.1 "At Will" Employment. This Agreement, and
Employee's employment, is at will, and the Company may, with or without notice,
terminate this Agreement and all of the Company's obligations hereunder with or
without "Cause." Employee may also terminate this Agreement at any time, for
any reason, upon the giving of thirty (30) days' written notice to the Company;
provided, however, the Company may waive all or any portion of such notice
period in its sole and absolute discretion. Termination by the Company for
"Cause" means termination due to (i) Employee's conviction of a felony
(which, through the lapse of time or otherwise is not subject to appeal); (ii)
Employee's material refusal, failure or neglect without proper cause to perform
adequately his obligations under this Agreement or follow the instructions of
his supervisor(s); (iii) any negligence or willful misconduct by Employee;
(iv) Employee's material breach of any of his fiduciary obligations as an
executive officer of the Company; (v) Employee's material failure to adhere to
the code of conduct and rules set forth in the Company's Employee Handbook, as
amended or in existence from time to time; (vi) the death or disability of
Employee; or (vii) the voluntary termination by Employee of his employment,
except for "Good Reason" (as defined in Paragraph 11.3 hereof).
11.2 Termination for Cause. Upon termination
for Cause, the Company shall only be required to pay Employee (i) accrued
salary compensation due to Employee as compensation for services rendered
hereunder and not previously paid; (ii) accrued vacation pay; and (iii) any
appropriate business expenses incurred by Employee in connection with his
duties hereunder and approved pursuant to Section 4 hereof, all through the
date of termination. Employee shall not be entitled to any severance
compensation; bonus compensation, whether "vested" or unvested; or any other
compensation, benefits or reimbursement of any kind.
11.3 Termination for "Good Reason." Employee
may terminate this Agreement for "Good Reason" (as hereinafter defined) upon
thirty (30) days written notice to the Company. The term "Good Reason" means
(i) Employee is not appointed or is removed from the position of Vice President
and Controller without Cause during the term of this Agreement; or (ii)
without Employee's consent, a majority of the duties defined in Section 1
hereof are removed from Employee's responsibilities. The term Good Reason does
not include a situation where certain of the duties defined in Section 1 hereof
are removed from Employee's responsibilities and are replaced with duties which
have greater responsibility and/or authority than the duties which are removed.
Unless Employee terminates this Agreement within thirty (30) days of learning
from any source that the Company has acted so as to provide Good Reason for
Employee to terminate this Agreement, and gives thirty (30) days' written
notice of such termination, Employee's right to receive severance compensation
pursuant to Paragraph 11.4 for such event shall be forever lost.
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11.4 Severance Compensation. In the event (i)
Employee terminates this Agreement for Good Reason in accordance with Paragraph
11.3 hereof; (ii) Employee is terminated for any reason (except death or
disability) upon, or within six months following, a "Change in Management or
Control (as such term is defined in Paragraph 11.5 hereof);" or (iii)
Employee is terminated without Cause, the Company shall be obligated to pay
severance compensation to Employee in an amount equal to his salary
compensation (at the rate payable at the time of such termination) for a period
of the lesser of (i) the remaining portion of the term of this Agreement, or
(ii) six (6) months from the date of termination; provided, however, if
Employee is employed by a new employer, or as a consultant during such period,
the severance compensation payable to Employee hereunder shall be reduced by
the amount of compensation that Employee actually receives from the new
employer, or as a consultant. However, Employee shall have a duty to inform the
Company that he has obtained such new employment, and the failure to do so is a
material breach of this Agreement. In such event, the Company shall be
entitled to (i) cease all payments to Employee under this Paragraph 11.4; and
(ii) recover any unauthorized payments to Employee in an action for breach of
contract. Notwithstanding anything else in this Agreement to the contrary,
solely in the event of a termination upon or following a Change in Management
or Control, the amount of severance compensation paid to Employee hereunder
shall not include any amount that the Company is prohibited from deducting for
federal income tax purposes by virtue of Section 280G of the Internal Revenue
Code of 1986, as amended, or any successor provision. In addition to the
foregoing severance compensation, the Company shall pay Employee (i) all
compensation for services rendered hereunder and not previously paid; (ii)
accrued vacation pay; and (iii) any appropriate business expenses incurred by
Employee in connection with his duties hereunder and approved pursuant to
Section 4 hereof, all through the date of termination. Employee shall not be
entitled to any bonus compensation, whether vested or unvested; or any other
compensation, benefits or reimbursement of any kind.
11.5 Definition of "Change in Management or
Control." The term "Change in Management or Control" means (i) the time that
the Company first determines that any person and all other persons who
constitute a group (within the meaning of Section 13(d)(3) of the Securities
Exchange Act of 1934 ("Exchange Act")) have acquired direct or indirect
beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act)
of twenty percent (20%) or more of the Company's outstanding securities,
unless a majority of the "Continuing Directors" (as such term is hereinafter
defined) approves the acquisition not later than ten (10) business days after
the Company makes that determination, or (ii) the first day on which a majority
of the members of the Company's Board of Directors are not "Continuing
Directors." The term "Continuing Directors" means, as of any date of
determination, any member of the Board of Directors of the Company who (i) was
a member of that Board of Directors on the date of this Agreement, (iii) has
been a member of that Board of Directors for the two years immediately
preceding such date of determination, or (iv) was nominated for
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<PAGE> 8
election or elected to the Board of Directors with the affirmative vote of the
greater of (x) a majority of the Continuing Directors who were members of the
Board at the time of such nomination or election, or (y) at least four
Continuing Directors.
11.6 Exclusive Remedy. The payments
referred to in this Section 11 shall be exclusive and shall be the only remedy
available to Employee for termination of his employment with the Company,
regardless of the circumstances, reasons or motivation for any such
termination. If Employee gives notice of termination of this Agreement, or if
it becomes known that this Agreement will otherwise terminate in accordance
with its provisions, the Company may, in its sole discretion, relieve Employee
of his duties under this Agreement or assign Employee other duties and
responsibilities to be performed until the termination becomes effective.
12. Services Unique. It is agreed that the
services to be rendered by Employee hereunder are of a special, unique,
unusual, extraordinary and intellectual character which gives them a peculiar
value, the loss of which cannot be reasonably or adequately compensated in
damages in an action at law and that a breach by Employee of any of the
provisions contained herein will cause the Company irreparable injury and
damage. Employee expressly agrees that the Company shall be entitled to
injunctive or other equitable relief to prevent a breach hereof. Resort to any
such equitable relief shall not be construed as a waiver of any of the rights
or remedies which the Company may have against Employee for damages or
otherwise.
13. Key Man Life Insurance. During the term of this
Agreement, the Company may at any time effect insurance on Employee's life
and/or health in such amounts and in such form as the Company may in its sole
discretion decide. Employee shall not have any interest in such insurance, but
shall, if the Company requests, submit to such medical examinations, supply
such information and execute such documents as may be required in connection
with, or so as to enable the Company to effect, such insurance.
14. Vacation. Employee shall have the right during
each one year period of the term of this Agreement to take an aggregate of
three weeks of vacation, with pay, at such times as are mutually convenient to
Employee and to the Company.
15. Notices. Any and all notices, demands or
other communications required or desired to be given hereunder by any party
shall be in writing and shall be validly given or made to another party if
given by personal delivery, telex, facsimile, telegram or if deposited in the
United States mail, certified or registered, postage prepaid, return receipt
requested. If such notice, demand or other communication is given by personal
delivery, telex, facsimile or telegram, service shall be conclusively deemed
made at the time of such personal service. If such notice, demand or other
communication is given by mail, such notice shall be conclusively deemed given
forty-eight (48) hours after the deposit thereof in the United States mail
addressed to the
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party to whom such notice, demand or other communication is to be given as
hereinafter set forth:
To the Company: VANS, INC.
2095 Batavia Street
Orange, California 92665-3101
Attn: General Counsel
(714) 974-4481 - facsimile
To Employee: Charles C. Kupfer
(at the address set forth below his signature)
Any party hereto may change his or its address for the purpose of receiving
notices, demands and other communications as herein provided by a written
notice given in the manner aforesaid to the other party or parties hereto.
16. Applicable Law and Severability. This Agreement
shall, in all respects, be governed by the laws of the State of California
applicable to agreements executed and to be wholly performed within the State
of California. Nothing contained herein shall be construed so as to require
the commission of any act contrary to law, and wherever there is any conflict
between any provision contained herein and any present or future statute, law,
ordinance or regulation contrary to which the parties have no legal right to
contract, the latter shall prevail but the provision of this Agreement which is
affected shall be curtailed and limited only to the extent necessary to bring
it within the requirements of the law.
17. Attorneys' Fees. In the event any action is
instituted by a party to enforce any of the terms and provisions contained
herein, the prevailing party in such action shall be entitled to such
reasonable attorneys' fees, costs and expenses as may be fixed by the Court.
18. Modifications or Amendments. No amendment,
change or modification of this Agreement shall be valid unless in writing and
signed by all of the parties hereto. Further, any amendment, change or
modification of this Agreement (including but not limited to the at-will nature
of this Agreement as set forth in Section 2 and Paragraph 11.1 hereof) must be
approved in advance by the Board of Directors of Company and reflected in the
minutes of such Board's meetings or in an action by unanimous written consent.
19. Successors and Assigns. All of the terms and
provisions contained herein shall inure to the benefit of and shall be binding
upon the parties hereto and their respective heirs, personal representatives,
successors and assigns.
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20. Entire Agreement. This Agreement constitutes
the entire understanding and agreement of the parties with respect to the
subject matter of this Agreement, and any and all prior agreements,
understandings or representations are hereby terminated and canceled in their
entirety and are of no further force or effect.
21. Counterparts. This Agreement may be executed in
counterparts.
22. Arbitration of Employment Disputes. Any dispute
or controversy arising out of this Agreement or the employment relationship
between Employee and the Company shall, at any time following the termination
of Employee's employment, be submitted to final and binding arbitration that
shall comply with the applicable arbitration rules of Judicial Arbitration and
Mediation Service ("JAMS")/Endispute, and judgment upon the award rendered by
the arbitrator may be entered in any court having jurisdiction thereof.
Provided, however, that this agreement to arbitrate does not effect any action
by the Company to enforce its rights to protect trade secrets or confidential
information through an action for injunctive relief. The cost of arbitration
(including reasonable attorneys' fees) shall be borne by the losing party. The
arbitration shall occur in Orange, California and the parties hereby consent to
the jurisdiction of the arbitrator and to service of process. EMPLOYEE HEREBY
UNDERSTANDS THAT, BY SIGNING THIS AGREEMENT, HE IS AGREEING TO HAVE ANY CLAIM
HEREUNDER DECIDED BY NEUTRAL ARBITRATION AND IS GIVING UP THE RIGHT TO A JURY
OR COURT TRIAL.
23. Survival of Certain Provisions. Sections 7,8,9, and
22 of this Agreement shall survive the termination hereof.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
EMPLOYEE: THE COMPANY:
VANS, INC.,
a Delaware corporation
By:
- -------------------------- -----------------------
Charles C. Kupfer
- -------------------------- -----------------------
Address Title
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<PAGE> 1
EXHIBIT 10.52
[LOGO]
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION FORM
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE--GROSS
(Do not use this form for Multi-Tenant Property)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes
only, August 15, 1996, is made by and between VANS, INC. ("LESSOR") and
CAPCO, INC. ("LESSEE"), (collectively the "PARTIES," or individually a "PARTY").
1.2 PREMISES: That certain real property, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
and commonly known by the street address of 2095 Batavia Street, located in the
County of Orange, State of California, and generally described as (describe
briefly the nature of the property) Approximately 71,400 square feet, as
outlined on Exhibit "A" attached hereto, including Buildings "D" and "C" as
shown on Exhibit "A". ("PREMISES"). (See Paragraph 2 for further provisions.)
1.3 TERM: Five (5) years and 0 months ("ORIGINAL TERM") commencing
November 1, 1996 ("COMMENCEMENT DATE") and ending October 31, 2001 ("EXPIRATION
DATE"). (See Paragraph 3 for further provisions.)
1.4 EARLY POSSESSION: See Addenda Paragraph 49 ("EARLY POSSESSION
DATE"). (See Paragraphs 3.2 and 3.3 for further provisions.)
1.5 BASE RENT: $ See Addenda Paragraph 50 per month ("BASE RENT"),
payable on the ______________ day of each month commencing ____________________
_______________________________________________________________________________
_____________________________________ (See paragraph 4 for further provisions.)
[X] If this box is checked, there are provisions in this Lease for the Base
rent to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $19,000 as Base Rent for the
period ________________________________________________________________________
______________________________________________________________________________.
1.7 SECURITY DEPOSIT: $21,000 ("SECURITY DEPOSIT"). (See Paragraph
5 for further provisions.)
1.8 PERMITTED USE: The Premises shall be used solely for
manufacturing and distribution of equipment/machinery and related uses* (See
Paragraph 6 for further provisions.)
1.9 INSURING PARTY: Lessor is the "INSURING PARTY." $____________
is the "BASE PREMIUM." (See Paragraph 8 for further provisions.)
1.10 REAL ESTATE BROKERS: The following real estate brokers
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
CB Commercial Real Estate Group - Walter A. Frome III represents
[X] Lessor exclusively ("LESSOR'S BROKER"); [ ] both Lessor and Lessee, and
____________________________________________________________________ represents
[ ] Lessee exclusively ("LESSEE'S BROKER"); [ ] both Lessee and Lessor. (See
Paragraph 15 for further provisions.)
1.11 GUARANTOR. The obligations of the Lessee under this Lease are
to be guaranteed by ___________________________________________________________
______________________("GUARANTOR"). (See Paragraph 37 for further provisions.)
1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting
of Paragraphs 49 through 61 and Exhibit A all of which constitute a part of
this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby
leases from Lessor, the Premises, for the term, at the rental, and upon all of
the terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental, is an approximation which Lessor
and Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee
broom-clean and free of debris on the Commencement Date **.
2.3
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that
it has been advised by the Brokers to satisfy itself with respect to the
condition of the Premises (including but not limited to the electrical and fire
sprinkler systems, security, environmental aspects, compliance with Applicable
Law, as defined in Paragraph 6.3) and the present and future suitability of the
Premises for Lessee's intended use, (b) that Lessee has made such investigation
as it deems necessary with reference to such matters and assumes all
responsibility therefor as the same relate to Lessee's occupancy of the Premises
and/or the term of this Lease, and (c) that neither Lessor, nor any of Lessor's
agents, has made any oral or written representations or warranties with respect
to the said matters other than as set forth in this Lease.
2.5 LESSEE PRIOR OWNER/OCCUPANT. The warranties made by Lessor in
this Paragraph 2 shall be of no force or effect if immediately prior to the
date set forth in Paragraph 1.1 Lessee was the owner or occupant of the
Premises. In such event, Lessee shall, at Lessee's sole cost and expense,
correct any non-compliance of the Premises with said warranties.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term
of this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent shall
be abated for the period of such early possession. All other terms of this
Lease, however, shall be in effect during such period. Any such early
possession shall not affect nor advance the Expiration Date of the Original
Term.
* See Addenda Paragraph 51
** See Addenda Paragraph 52
Initials
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PAGE 1
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3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee as agreed herein by the Early Possession
Date, if one is specified in Paragraph 1.4, or, if no Early Possession Date is
specified, by the Commencement Date, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease, or
the obligations of Lessee hereunder, or extend the term hereof, but in such
case, Lessee shall not, except as otherwise provided herein, be obligated to pay
rent or perform any other obligation of Lessee under the terms of this Lease
until Lessor delivers possession of the Premises to Lessee. If possession of
the Premises is not delivered to Lessee within sixty (60) days after the
Commencement Date, Lessee may, at its option, by notice in writing to Lessor
within ten (10) days thereafter, cancel this Lease, in which event the Parties
shall be discharged from all obligations hereunder; provided, however, that if
such written notice by Lessee is not received by Lessor within said ten (10) day
period, Lessee's right to cancel this Lease shall terminate and be of no further
force or effect. Except as may be otherwise provided, and regardless of when
the term actually commences, if possession is not tendered to Lessee when
required by this Lease and Lessee does not terminate this Lease, as aforesaid,
the period free of the obligation to pay Base Rent, if any, that Lessee would
otherwise have enjoyed shall run from the date of delivery of possession and
continue for a period equal to what Lessee would otherwise have enjoyed under
the terms hereof, but minus any days of delay caused by the acts, changes or
omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall cause payment of Base Rent and other
rent or charges, as the same may be adjusted from time to time, to be received
by Lessor in lawful money of the United States, without offset or deduction, on
or before the day on which it is due under the terms of this Lease. Base Rent
and all other rent and charges for any period during the term hereof which is
for less than one (1) full calendar month shall be prorated based upon the
actual number of days of the calendar month involved. Payment of Base Rent and
other charges shall be made to Lessor at its address stated herein or to such
other persons or at such other addresses as Lessor may from time to time
designate in writing to Lessee.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefor
deposit moneys with lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent increases during the
term of this Lease, Lessee shall; upon written request from Lessor, deposit
additional moneys with Lessor sufficient to maintain the same ratio between the
Security Deposit and the Base Rent as those amounts are specified in the Basic
Provisions. Lessor shall not be required to keep all or any part of the
Security Deposit separate from its general accounts. Lessor shall, at the
expiration or earlier termination of the term hereof and after Lessee has
vacated the Premises, return to Lessee (or, at Lessor's option, to the last
assignee, if any, of Lessee's interest herein), that portion of the Security
Deposit not used or applied by Lessor. Unless otherwise expressly agreed in
writing by Lessor, no part of the Security Deposit shall be considered to be
held in trust, to bear interest or other increment for its use, or to be
prepayment for any moneys to be paid by Lessee under this Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the
purposes set forth in Paragraph 1.8, or any other use which is comparable
thereto, and for no other purpose. Lessee shall not use or permit the use of
the Premises in a manner that creates waste or a nuisance, or that disturbs
owners and/or occupants of, or causes damage to, neighboring premises or
properties. Lessor hereby agrees to not unreasonably withhold or delay its
consent to any written request by Lessee, Lessees assignees or subtenants, and
by prospective assignees and subtenants of the Lessee, its assignees and
subtenants, for a modification of said permitted purpose for which the premises
may be used or occupied, so long as the same will not impair the structural
integrity of the improvements on the Premises, the mechanical or electrical
systems therein, or not significantly more burdensome to the Premises and the
improvements thereon, and is otherwise permissible pursuant to this Paragraph 6.
If Lessor elects to withhold such consent, Lessor shall within five (5) business
days give a written notification of same, which notice shall include an
explanation of Lessor's reasonable objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS
SUBSTANCE" as used in this Lease shall mean any product, substance, chemical,
material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or effect,
either by itself or in combination with other materials expected to be on the
Premises, is either: (i) potentially injurious to the public, health, safety or
welfare, the environment or the Premises, (ii) regulated or monitored by any
governmental authority, or (iii) a basis for liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substance shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, crude oil or any products, by-products or fractions
thereof. Lessee shall not engage in any activity in, on or about the Premises
which constitutes a Reportable Use (as hereinafter defined) of Hazardous
Substances without the express prior written consent of Lessor and compliance in
a timely manner (at Lessee's sole cost and expense) with all Applicable Law (as
defined in Paragraph 6.3). "REPORTABLE USE" shall mean (i) the installation or
use of any above or below ground storage tank, (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority.
Reportable Use shall also include Lessee's being responsible for the presence
in, on or about the Premises of a Hazardous Substance with respect to which any
Applicable Law requires that a notice be given to persons entering or occupying
the Premises or neighboring properties. Notwithstanding the foregoing, Lessee
may, without Lessor's prior consent, but in compliance with all Applicable Law,
use any ordinary and customary materials reasonably required to be used by
Lessee in the normal course of Lessee's business permitted on the Premises, so
long as such use is not a Reportable Use and does not expose the Premises or
neighboring properties to any meaningful risk of contamination or damage or
expose Lessor to any liability therefor. In addition, Lessor may (but without
any obligation to do so) condition its consent to the use or presence of any
Hazardous Substance, activity or storage tank by Lessee upon Lessee's giving
Lessor such additional assurances as Lessor, in its reasonable discretion, deems
necessary to protect itself, the public, the Premises and the environment
against damage, contamination or injury and/or liability therefrom or therefor,
including, but not limited to, the installation (and removal on or before Lease
expiration or earlier termination) of reasonably necessary protective
modifications to the Premises (such as concrete encasements) and/or the deposit
of an additional Security Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance, or a condition involving or
resulting from same, has come to be located in, on, under or about the Premises,
other than as previously consented to by Lessor, Lessee shall immediately give
written notice of such fact to Lessor. Lessee shall also immediately give
Lessor a copy of any statement, report, notice, registration, application,
permit, business plan, license, claim, action or proceeding given to, or
received from, any governmental authority or private party, or persons entering
or occupying the Premises, concerning the presence, spill, release, discharge
of, or exposure to, any Hazardous Substance or contamination in, on, or about
the Premises, including but not limited to all such documents as may be involved
in any Reportable Uses involving the Premises.
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend
and hold Lessor, its agents, employees, lenders and ground lessor, if any, and
the Premises, harmless from and against any and all loss of rents and/or
damages, liabilities, judgments, costs, claims, liens, expenses, penalties,
permits and attorney's and consultant's fees arising out of or involving any
Hazardous Substance or storage tank brought onto the Premises by or for Lessee
or under Lessee's control. Lessee's obligations under this Paragraph 6 shall
include, but not be limited to, the effects of any contamination or injury to
person, property or the environment created or suffered by Lessee, and the cost
of investigation (including consultant's and attorney's fees and testing),
removal, remediation, restoration and/or abatement thereof, or of any
contamination therein involved, and shall survive the expiration or earlier
termination of this Lease. No termination, cancellation or release agreement
entered into by Lessor and Lessee shall release Lessee from its obligations
under this Lease with respect to Hazardous Substances or storage tanks, unless
specifically so agreed by Lessor in writing at the time of such agreement. See
Addenda Paragraph 53.
6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in
this Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently
and in a timely manner, comply with all "APPLICABLE LAW," which term is used in
this Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy from any previously existing policy. Lessee
shall, within five (5) days after receipt of Lessor's written request, provide
Lessor with copies of all documents and information, including, but not limited
to, permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or the
Premises to comply with any Applicable Law.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) (as
defined in Paragraph 8.3(a)) shall have the right to enter the Premises at any
time, in the case of an emergency, and otherwise at reasonable times, for the
purpose of inspecting the condition of the Premises and for verifying compliance
by Lessee with this Lease and all Applicable Laws (as defined in Paragraph 6.3),
and to employ experts and/or consultants in connection therewith and/or to
advise Lessor with respect to Lessee's activities, including but not limited to
the installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law, or a
contamination, caused or materially contributed to by Lessee is found to exist
or be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In any such case, Lessee shall upon request reimburse Lessor
or Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs
Initials ______
GROSS PAGE 2
<PAGE> 3
7.2 (Lessor's obligations to repair), 9 (damage and destruction), and 14
(condemnation), Lessee shall, at Lessee's sole cost and expense and at all
times, keep the Premises and every part thereof in good order, condition and
repair, (whether or not such portion of the Premises requiring repair, or the
means of repairing the same, are reasonably or readily accessible to Lessee, and
whether or not the need for such repairs occurs as a result of Lessee's use, any
prior use, the elements or the age of such portion of the Premises), including,
without limiting the generality of the foregoing, all equipment or facilities
serving the Premises, such as plumbing, heating, air conditioning, ventilating,
electrical, lighting facilities, boilers, fired or unfired pressure vessels,
fire sprinkler and/or standpipe and hose or other automatic fire extinguishing
system, including fire alarm and/or smoke detection systems and equipment, fire
hydrants, fixtures, walls (interior and exterior), ceilings, floors, windows,
doors, plate glass, skylights, landscaping, driveways, parking lots, fences,
retaining walls, signs, sidewalks and parkways located in, on, about, or
adjacent to the Premises, but excluding foundations, the exterior roof and the
structural aspects of the Premises. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under or about the
Premises (including through the plumbing or sanitary sewer system) and shall
promptly, at Lessee's expense, take all investigatory and/or remedial action
reasonably recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security and/or
monitoring of the Premises, the elements surrounding same, or neighboring
properties, that was caused or materially contributed to by Lessee, or
pertaining to or involving any Hazardous Substance and/or storage tank brought
onto the Premises by or for Lessee or under its control. Lessee, in keeping the
Premises in good order, condition and repair, shall exercise and perform good
maintenance practices. Lessee's obligations shall include restorations,
replacements or renewals when necessary to keep the Premises and all
improvements thereon or a part thereof in good order, condition and state of
repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure
and maintain contracts, with copies to Lessor, in customary form and substance
for, and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any,
located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler
and/or standpipe and hose or other automatic fire extinguishing systems,
including fire alarm and/or smoke detection, (iv) landscaping and irrigation
systems, (v) roof covering and drain maintenance and (vi) asphalt and parking
lot maintenance.
7.2 LESSOR'S OBLIGATIONS. Upon receipt of written notice of the
need for such repairs and subject to Paragraph 13.5, Lessor shall, at Lessor's
expense, keep the foundations, roof and structural aspects of the Premises in
good order, condition and repair, Lessor shall not, however, be obligated to
paint the exterior surface of the exterior walls or to maintain the windows,
doors or plate glass or the interior surface of exterior walls. Lessor shall
not, in any event, have any obligation to make any repairs until Lessor
receives written notice of the need for such repairs. It is the intention of
the Parties that the terms of this Lease govern the respective obligations of
the Parties as to maintenance and repair of the Premises. Lessee and Lessor
expressly waive the benefit of any statute now or hereafter in effect to the
extent it is inconsistent with the terms of this Lease with respect to, or
which affords Lessee the right to make repairs at the expense of Lessor or to
terminate this Lease by reason of, any needed repairs.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY
INSTALLATIONS" is used in this Lease to refer to all carpeting, window
coverings, air lines, power panels, electrical distribution, security, fire
protection systems, communication systems, lighting fixtures, heating,
ventilating, and air conditioning equipment, plumbing, and fencing in, on or
about the Premises. The term "TRADE FIXTURES" shall mean Lessee's machinery
and equipment that can be removed without doing material damage to the
Premises. The term "ALTERATIONS" shall mean any modification of the
improvements on the Premises from that which are provided by Lessor under the
terms of this Lease, other than Utility Installations or Trade Fixtures,
whether by addition or deletion. "LESSEE OWNED ALTERATIONS AND/OR UTILITY
INSTALLATIONS" are defined as Alterations and/or Utility Installations made by
lessee that are not yet owned by Lessor as defined in Paragraph 7.4(a). Lessee
shall not make any Alterations or Utility Installations in, on, under or about
the Premises without Lessor's prior written consent. Lessee may, however, make
non-structural Utility Installations to the interior of the Premises (excluding
the roof), as long as they are not visible from the outside, do not involve
puncturing, relocating or removing the roof or any existing walls, and the
cumulative cost thereof during the term of this Lease as extended does not
exceed $25,000. See Addenda Paragraph 54.
(b) CONSENT. Any Alterations or Utility Installations that
Lessee shall desire to make and which require the consent of the Lessor shall
be presented to Lessor in written form with proposed detailed plans. All
consents given by Lessor, whether by virtue of Paragraph 7.3(a) or by
subsequent specific consent, shall be deemed conditioned upon: (i) Lessee's
acquiring all applicable permits required by governmental authorities, (ii) the
furnishing of copies of such permits together with a copy of the plans and
specifications for the Alteration or Utility Installation to Lessor prior to
commencement of the work thereon, and (iii) the compliance by Lessee with all
conditions of said permits in a prompt and expeditious manner. Any Alterations
or Utility Installations by Lessee during the term of this Lease shall be done
in a good and workmanlike manner, with good and sufficient materials, and in
compliance with all Applicable Law. Lessee shall promptly upon completion
thereof furnish Lessor with as-built plans and specifications therefor. Lessor
may (but without obligation to do so) condition its consent to any requested
Alteration or Utility Installation that costs $10,000 or more upon Lessee's
providing Lessor with a lien and completion bond in an amount equal to one and
one-half times the estimated cost of such Alteration or Utility Installation
and/or upon Lessee's posting an additional Security Deposit with Lessor under
Paragraph 36 hereof.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at or
for use on the Premises, which claims are or may be secured by any mechanics'
or materialmen's lien against the Premises or any interest therein. Lessee
shall give Lessor not less than ten (10) days' notice prior to the commencement
of any work in, on or about the Premises, and Lessor shall have the right to
post notices of non-responsibility in or on the Premises as provided by law.
If Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense defend and protect itself,
Lessor and the Premises against the same and shall pay and satisfy any such
adverse judgment that may be rendered thereon before the enforcement thereof
against the Lessor or the Premises. If Lessor shall require, Lessee shall
furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to
one and one-half times the amount of such contested lien claim or demand,
indemnifying Lessor against liability for the same, as required by law for the
holding of the Premises free from the effect of such lien or claim. In
addition, Lessor may require Lessee to pay Lessor's attorney's fees and costs
in participating in such action if Lessor shall decide it is to its best
interest to do so.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their
removal or become the owner thereof as hereinafter provided in this Paragraph
7.4, all Alterations and Utility Additions made to the Premises by Lessee shall
be the property of and owned by Lessee, but considered a part of the Premises.
Lessor may, at any time and at its option, elect in writing to Lessee to be the
owner of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
and be surrendered by Lessee with the Premises.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may
require that any or all Lessee Owned Alterations or Utility Installations be
removed by the expiration or earlier termination of this Lease, notwithstanding
their installation may have been consented to by Lessor. Lessor may require
the removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the
Premises by the end of the last day of the Lease term or any earlier termination
date, with all of the improvements, parts and surfaces thereof clean and free
of debris and in good operating order, condition and state of repair, ordinary
wear and tear excepted. "ORDINARY WEAR AND TEAR" shall not include any damage
or deterioration that would have been prevented by good maintenance practice or
by Lessee performing all of its obligations under this Lease. Except as
otherwise agreed or specified in writing by Lessor, the Premises, as
surrendered, shall include the Utility Installations. The obligation of Lessee
shall include the repair of any damage occasioned by the installation,
maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment, and
Alterations and/or Utility Installations, as well as the removal of any storage
tank installed by or for Lessee, and the removal, replacement, or remediation
of any soil, material or ground water contaminated by Lessee, all as may then
be required by Applicable Law and/or good service practice. Lessee's Trade
Fixtures shall remain the property of Lessee and shall be removed by Lessee
subject to its obligation to repair and restore the Premises per this Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUM INCREASES.
(a) Lessee shall pay to Lessor any insurance cost increase
("INSURANCE COST INCREASE") occurring during the term of this Lease.
"INSURANCE COST INCREASE" is defined as any increase in the actual cost of the
insurance required under Paragraphs 8.2(b), 8.3(a) and 8.3(b). ("REQUIRED
INSURANCE"), over and above the Base Premium, as hereinafter defined,
calculated on an annual basis. "INSURANCE COST INCREASE" shall include, but
not be limited to, increases resulting from the nature of Lessee's occupancy,
any act or omission of Lessee, requirements of the holder of a mortgage or deed
of trust covering the Premises, increased valuation of the Premises, and/or a
premium rate increase. If the parties insert a dollar amount in Paragraph 1.9,
such amount shall be considered the "BASE PREMIUM." In lieu thereof, if the
Premises have been previously occupied, the "BASE PREMIUM" shall be the annual
premium applicable to the most recent occupancy. If the Premises have never
been occupied, the "BASE PREMIUM" shall be the lowest annual premium reasonably
obtainable for the Required Insurance as of the commencement of the Original
Term, assuming the most nominal use possible of the Premises. In no event,
however, shall Lessee be responsible for any portion of the premium cost
attributable to liability insurance coverage in excess of $1,000,000 procured
under Paragraph 8.2(b) (Liability Insurance Carried By Lessor).
(b) Lessee shall pay any such Insurance Cost increase to
Lessor within thirty (30) days after receipt by Lessee of a copy of the premium
statement or other reasonable evidence of the amount due. If the insurance
policies maintained hereunder cover other property besides the Premises, Lessor
shall also deliver to Lessee a statement of the amount of such Insurance Cost
increase attributable only to the Premises showing in reasonable detail the
manner in which such amount was computed. Premiums for policy periods
commencing prior to, or extending beyond, the term of this Lease shall be
prorated to coincide with the corresponding Commencement or Expiration of the
Lease term.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force
during the term of this Lease a Commercial General Liability policy of
insurance protecting Lessee and Lessor (as an additional insured) against
claims for bodily injury, personal injury and property damage based upon,
involving or arising out of the ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto. Such insurance shall be on an
occurrence basis providing single limit coverage in an amount not less than
$1,000,000 per occurrence with an "Additional Insured-Managers or Lessors of
Premises"
Initials
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Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not contain
any intra-insured exclusions as between insured persons or organizations, but
shall include coverage for liability assumed under this Lease as an "insured
contract" for the performance of Lessee's indemnity obligations under this
Lease. The limits of said insurance required by this Lease or as carried by
Lessee shall not, however, limit the liability of Lessee nor relieve Lessee of
any obligation hereunder. All insurance to be carried by Lessee shall be primary
to and not contributory with any similar insurance carried by Lessor, whose
insurance shall be considered excess insurance only.
(b) CARRIED BY LESSOR. In the event Lessor is the Insuring
Party. Lessor shall also maintain liability insurance described in Paragraph
8.2(a), above, in addition to, and not in lieu of, the insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured
therein.
8.3 PROPERTY INSURANCE -- BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain
and keep in force during the term of this Lease a policy or policies in the name
of Lessor, with loss payable to Lessor and to the holders of any mortgages,
deeds of trust or ground leases on the Premises ("LENDER(S)"), insuring loss or
damage to the Premises. The amount of such insurance shall be equal to the full
replacement cost of the Premises, as the same shall exist from time to time, or
the amount required by Lenders, but in no event more than the commercially
reasonable and available insurable value thereof if, by reason of the unique
nature or age of the improvements involved, such latter amount is less than full
replacement cost. Lessee Owned Alterations and Utility Installations shall be
insured by Lessee under Paragraph 8.4. If the coverage is available and
commercially appropriate, such policy or policies shall insure against all risks
of direct physical loss or damage (except the perils of flood and/or earthquake
unless required by a Lender), including coverage for any additional costs
resulting from debris removal and reasonable amounts of coverage for the
enforcement of any ordinance or law regulating the reconstruction or replacement
of any undamaged sections of the Premises required to be demolished or removed
by reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered cause of loss, but not including plate glass insurance.
Said policy or policies shall also contain an agreed valuation provision in lieu
of any coinsurance clause, waiver of subrogation, and inflation guard protection
causing an increase in the annual property insurance coverage amount by a factor
of not less than the adjusted U.S. Department of Labor Consumer Price Index for
All Urban Consumors for the city nearest to where the Premises are located.
(b) RENTAL VALUE, Lessor shall, in addition, obtain and keep in
force during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and Lender(s), insuring the loss of the full rental
and other charges payable by Lessee to Lessor under this Lease for one (1) year
(including all real estate taxes, insurance costs, and any scheduled rental
increases). Said insurance shall provide that in the event the Lease is
terminated by reason of an insured loss, the period of indemnity for such
coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period.
(c) ADJACENT PREMISES. If the Premises are part of a larger
building, or if the Premises are part of a group of buildings owned by Lessor
which are adjacent to the Premises, the Lessee shall pay for any increase in the
premiums for the property insurance of such building or buildings if said
increase is caused by Lessee's acts, omissions, use or occupancy of the
Premises.
(d) TENANT'S IMPROVEMENTS. Since Lessor is the Insuring Party,
the Lessor shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property, Lessee Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to that
carried by the Insuring Party under Paragraph 8.3. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for the
replacement of personal property or the restoration of Lessee Owned Alterations
and Utility Installations. Lessee shall be the Insuring Party with respect to
the insurance required by this Paragraph 8.4 and shall provide Lessor with
written evidence that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises are
located, and maintaining during the policy term a "General Policyholders Rating"
of at least B+, V, or such other rating as may be required by a Lender having a
lien on the Premises, as set forth in the most current issue of "Best's
Insurance Guide." Lessee shall not do or permit to be done anything which shall
invalidate the insurance policies referred to in this Paragraph 8. Lessee shall
cause to be delivered to Lessor certified copies of, or certificates evidencing
the existence and amounts of, the insurance, and with the additional insureds,
required under Paragraph 8.2(a) and 8.4. No such policy shall be cancelable or
subject to modification except after thirty (30) days prior written notice to
Lessor. Lessee shall at least (30) days prior to the expiration of such
policies, furnish Lessor with evidence of renewals or "Insurance binders"
evidencing renewal thereof, or Lessor may order such insurance and charge the
cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon
demand.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor ("WAIVING PARTY") each hereby release and relieve
the other, and waive their entire right to recover damages (whether in contract
or in tort) against the other, for loss of or damage to the Waiving Party's
property arising out of or incident to the perils required to be insured against
under Paragraph 8. The effect of such releases and waivers of the right to
recover damages shall not be limited by the amount of insurance carried or
required, or by any deductibles applicable thereto.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of
express warranties, Lessee shall indemnify, protect, defend and hold harmless
the Premises, Lessor and its agents, Lessor's master or ground lessor, partners
and Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, permits, attorney's and consultant's fees,
expenses and/or liabilities arising out of, involving, or in dealing with, the
occupancy of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessee, its agents, contractors, employees or invitees,
and out of any Default or Breach by Lessee in the performance in a timely manner
of any obligation on Lessee's part to be performed under this Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not (in the
case of claims made against Lessor) litigated and/or reduced to judgment, and
whether well founded or not. In case any action or proceeding be brought against
Lessor by reason of any of the foregoing matters, Lessee upon notice from Lessor
shall defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not
have first paid any such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable
for injury or damage to the person or goods, wares, merchandise or other
property of Lessee, Lessee's employees, contractors, invitees, customers, or any
other person in or about the Premises, whether such damage or injury is caused
by or results from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures, or from any
other cause, whether the said injury or damage results from conditions arising
upon the Premises or upon other portions of the building of which the Premises
are a part, or from other sources or places, and regardless of whether the cause
of such damage or injury or the means of repairing the same is accessible or
not. Lessor shall not be liable for any damages arising from any act or neglect
of any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of
this Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction
to the improvements on the Premises, other than Lessee Owned Alterations and
Utility Installations, the repair cost of which damage or destruction is less
than 50% of the then Replacement Cost of the Premises immediately prior to such
damage or destruction, excluding from such calculation the value of the land and
Lessee Owned Alterations and Utility Installations.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or
destruction to the Premises, other than Lessee Owned Alterations and Utility
Installations the repair cost of which damage or destruction is 50% or more of
the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "INSURED LOSS" shall mean damage or destruction to
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a), irrespective of any deductible amounts
or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild
the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of applicable building codes,
ordinances or laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 8.2(a), in, on, or under the
Premises.
9.2 PARTIAL DAMAGE -- INSURED LOSS. If a Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect.
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Premises Partial Damage due to flood or earthquake shall be subject to
Paragraph 9.3 rather than Paragraph 9.2, notwithstanding that there may be some
insurance coverage, but the net proceeds of any such insurance shall be made
available for the repairs if made by either party. See Addenda Paragraph 55
9.3 PARTIAL DAMAGE -- UNINSURED LOSS. If a Premises Partial Damage
that is not an Insured Loss occurs, unless caused by a negligent or willful act
of Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option, either: (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such damage of Lessor's desire to terminate this Lease as of the
date sixty (60) days following the giving of such notice. In the event Lessor
elects to give such notice of Lessor's intention to terminate this Lease, Lessee
shall have the right within ten (10) days after the receipt of such notice to
give written notice to Lessor of Lessee's commitment to pay for the repair of
such damage totally at Lessee's expense and without reimbursement from Lessor.
Lessee shall provide Lessor with the required funds or satisfactory assurance
thereof within thirty (30) days following Lessee's said commitment. In such
event this Lease shall continue in full force and effect, and Lessor shall
proceed to make such repairs as soon as reasonably possible and the required
funds are available. If Lessee does not give such notice and provide the funds
or assurance thereof within the times specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof,
if a Premises Total Destruction occurs (including any destruction required by
any authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six
(6) months of the term of this Lease there is damage for which the cost to
repair exceeds one (1) month's Base Rent, whether or not an Insured Loss, Lessor
may, at Lessor's option, terminate this Lease effective sixty (60) days
following the date of occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within thirty (30) days after the date of
occurrence of such damage. Provided, however, if Lessee at that time has an
exercisable option to extend this Lease or to purchase the Premises, then Lessee
may preserve this Lease by, within twenty (20) days following the occurrence of
the damage, or before the expiration of the time provided in such option for its
exercise, whichever is earlier ("EXERCISE PERIOD"), (i) exercising such option
and (ii) providing Lessor with any shortage in insurance proceeds (or adequate
assurance thereof) needed to make the repairs. If Lessee duly exercises such
option during said Exercise Period and provides Lessor with funds (or adequate
assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at
Lessor's expense repair such damage as soon as reasonably possible and this
Lease shall continue in full force and effect. If Lessee fails to exercise such
option and provide such funds or assurance during said Exercise Period, then
Lessor may at Lessor's option terminate this Lease as of the expiration of said
sixty (60) day period following the occurrence of such damage by giving written
notice to Lessee of Lessor's election to do so within ten (10) days after the
expiration of the Exercise Period, notwithstanding any term or provision in the
grant of option to the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in Paragraph 9.2 (Partial
Damage -- Insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, payable by Lessee hereunder for the period during which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance is required under Paragraph 8.3(b), shall be abated
in proportion to the degree to which Lessee's use of the Premises is impaired.
Except for abatement of Base Rent, Real Property Taxes, insurance premiums, and
other charges, if any, as aforesaid, all other obligations of Lessee hereunder
shall be performed by Lessee, and Lessee shall have no claim against Lessor for
any damage suffered by reason of any such repair or restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises
within ninety (90) days after such obligation shall accrue, Lessee may, at any
time prior to the commencement of such repair or restoration, give written
notice to Lessor and to any Lenders of which Lessee has actual notice of
Lessee's election to terminate this Lease on a date not less than sixty (60)
days following the giving of such notice. If Lessee gives such notice to
Lessor and such Lenders and such repair or restoration is not commenced within
thirty (30) days after receipt of such notice, this Lease shall terminate as of
the date specified in said notice. If Lessor or a Lender commences the repair
or restoration of the Premises within thirty (30) days after receipt of such
notice, this Lease shall continue in full force and effect. "COMMENCE" as used
in this Paragraph shall mean either the unconditional authorization of the
preparation of the required plans, or the beginning of the actual work on the
Premises, whichever first occurs.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance
Condition occurs,unless Lessee is legally responsible therefor (in which case
Lessee shall make the investigation and remediation thereof required by
Applicable Law and this Lease shall continue in full force and effect, but
subject to Lessor's rights under Paragraph 13), Lessor may at Lessor's option
either (i) investigate and remediate such Hazardous Substance Condition, if
required, as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) if the estimated
cost to investigate and remediate such condition exceeds twelve (12) times the
then monthly Base Rent or $100,000, whichever is greater, give written notice
to Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the giving of
such notice. In the event Lessor elects to give such notice of Lessor's
intention to terminate this Lease, Lessee shall have the right within ten (10)
days after the receipt of such notice to give written notice to Lessor of
Lessee's commitment to pay for the investigation and remediation of such
Hazardous Substance Condition totally at Lessee's expense and without
reimbursement from Lessor except to the extent of an amount equal to twelve
(12) times the then monthly Base Rent or $100,000, whichever is greater.
Lessee shall provide Lessor with the funds required of Lessee or satisfactory
assurance thereof within thirty (30) days following Lessee's said commitment.
In such event this Lease shall continue in full force and effect, and Lessor
shall proceed to make such investigation and remediation as soon as reasonably
possible and the required funds are available. If Lessee does not give such
notice and provide the required funds or assurance thereof within the times
specified above, this Lease shall terminate as of the date specified in
Lessor's notice of termination. If a Hazardous Substance Condition occurs for
which Lessee is not legally responsible, there shall be abatement of Lessee's
obligations under this Lease to the same extent as provided in Paragraph 9.6(a)
for a period of not to exceed twelve (12) months.
9.8 TERMINATION -- ADVANCE PAYMENTS. Upon termination of this
Lease pursuant to this Paragraph 9, an equitable adjustment shall be made
concerning advance Base Rent and any other advance payments made by Lessee to
Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's
Security Deposit as has not been, or is not then required to be, used by Lessor
under the terms of this Lease.
9.9 WATER STATUTES. Lessor and Lessee agree that the terms of
this Lease shall govern the effect of any damage to or destruction of the
Premises with respect to the termination of this Lease and hereby waive the
provisions of any present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 (a) PAYMENT OF TAXES. Lessor shall pay the Real Property
Taxes, as defined in Paragraph 10.2, applicable to the Premises; provided,
however, that Lessee shall pay, in addition to rent, the amount, if any, by
which Real Property Taxes applicable to the Premises increases over the fiscal
tax year during which the Commencement Date occurs ("TAX INCREASE"). Subject
to Paragraph 10.1(b), payment of any such Tax Increase shall be made by Lessee
within thirty (30) days after receipt of Lessor's written statement setting
forth the amount due and the computation thereof. Lessee shall promptly furnish
Lessor with satisfactory evidence that such taxes have been paid. If any such
taxes to be paid by Lessee shall cover any period of time prior to or after the
expiration or earlier termination of the term hereof, Lessee's share of such
taxes shall be equitably prorated to cover only the period of time within the
tax fiscal year this Lease is in effect, and Lessor shall reimburse Lessee for
any overpayment after such proration. See Addenda Paragraph 56
(b) ADVANCE PAYMENT. In order to insure payment when due and
before delinquency of any or all Real Property Taxes, Lessor reserves the right,
at Lessor's option, to estimate the current Real Property Taxes applicable to
the Premises, and to require such current year's Tax Increase to be paid in
advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the
amount due, at least twenty (20) days prior to the applicable delinquency date,
or (ii) monthly in advance with the payment of the Base Rent. If Lessor elects
to require payment monthly in advance, the monthly payment shall be that equal
monthly amount which, over the number of months remaining before the month in
which the applicable tax installment would become delinquent (and without
interest thereon), would provide a fund large enough to fully discharge before
delinquency the estimated Tax Increase to be paid. When the actual amount of
the applicable Tax Increase is known, the amount of such equal monthly advance
payment shall be adjusted as required to provide the fund needed to pay the
applicable Tax Increase before delinquency. If the amounts paid to Lessor by
Lessee under the provisions of this Paragraph are insufficient to discharge the
obligations of Lessee to pay such Tax Increase as the same becomes due, Lessee
shall pay to Lessor, upon Lessor's demand, such additional sums as are necessary
to pay such obligation. All moneys paid to Lessor under this Paragraph may be
intermingled with other moneys of Lessor and shall not bear interest. In the
event of a Breach by Lessee in the performance of the obligations of Lessee
under this Lease, then any balance of funds paid to Lessor under the provisions
of this Paragraph may, subject to proration as provided in Paragraph 10.1(a), at
the option of Lessor, be treated as an additional Security Deposit under
Paragraph 5.
(c) ADDITIONAL IMPROVEMENTS. Notwithstanding Paragraph
10.1(a) hereof, Lessee shall pay to Lessor upon demand therefor the entirety of
any increase in Real Property Taxes assessed by reason of Alterations or
Utility installations placed upon the Premises by Lessee or at Lessee's request.
10.2 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term
"REAL PROPERTY TAXES" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or
federal government, or any school, agricultural, sanitary, fire, street,
drainage or other improvement district thereof, levied against any legal or
equitable interest of Lessor in the Premises or in the real property of which
the Premises are a part, Lessor's right to rent or other income therefrom,
and/or Lessor's business of leasing the Premises. The term "REAL PROPERTY
TAXES" shall also include any tax, fee, levy, assessment or charge, or any
increase therein, imposed by reason of events occurring, or changes in
applicable law taking effect, during the term of this Lease, including but not
limited to a change in the ownership of the Premises or in the improvements
thereon, the execution of this Lease, or any modification, amendment or
transfer thereof, and whether or not contemplated by the Parties.
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10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency
all taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all other personal property
to be assessed and billed separately from the real property of Lessor. If any
of Lessee's said personal property shall be assessed with Lessor's real
property, Lessee shall pay Lessor the taxes attributable to Lessee within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property or, at Lessor's option, as provided in Paragraph
10.1(b).
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"assignment") or sublet all or any part of Lessee's interest in this Lease or in
the Premises without Lessor's prior written consent given under and subject to
the terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an
assignment requiring Lessor's consent. The transfer, on a cumulative basis of
forty-five percent (45%) or more of the voting control of Lessee shall
constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction,
or series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as
hereinafter defined, by an amount equal to or greater than forty-five percent
(45%) of such Net Worth of Lessee as it was represented to Lessor at the time of
the execution by Lessor of this Lease or at the time of the most recent
assignment to which Lessor has consented, or as it exists immediately prior to
said transaction or transactions constituting such reduction, at whichever time
said Net Worth of Lessee was or is greater, shall be considered an assignment of
this Lease by Lessee to which Lessor may reasonably withhold its consent. "NET
WORTH OF LESSEE" for purposes of this Lease shall be the net worth of Lessee
(excluding any guarantors) established under generally accepted accounting
principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this
Lease without Lessor's specific prior written consent shall, at Lessor's option,
be a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a noncurable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days written notice ("Lessor's Notice"), increase the monthly Base Rent to
fair market rental value or one hundred ten percent (110%) of the Base Rent then
in effect, whichever is greater. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and market value
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
(without the Lease being considered an encumbrance or any deduction for
depreciation or obsolescence, and considering the Premises at its highest and
best use and in good condition), or one hundred ten percent (110%) of the price
previously in effect, whichever is greater, (ii) any index-oriented rental or
price adjustment formulas contained in this Lease shall be adjusted to require
that the base index be determined with reference to the index applicable to the
time of such adjustment, and (iii) any fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the market
value adjustment.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by
Lessor shall be limited to compensatory damages and injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, or (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such
assignment nor the acceptance of any rent or performance shall constitute a
waiver or estoppel of Lessor's right to exercise its remedies for the Default or
Breach by Lessee of any of the terms, covenants, or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall
not constitute a consent to any subsequent assignment or subletting by Lessee or
to any subsequent or successive assignment or subletting by the sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto without notifying Lessee or
anyone else liable on the Lease or sublease and without obtaining their consent,
and such action shall not relieve such persons from liability under this Lease
or sublease.
(d) In the event of any Default or Breach of Lessee's
obligations under this Lease, Lessor may proceed directly against Lessee, any
Guarantors or any one else responsible for the performance of the Lessee's
obligations under this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting
shall be in writing, accompanied by information relevant to Lessor's
determination as to the financial and operational responsibility and
appropriateness of the proposed assignee or sublessee, including but not limited
to the intended use and/or required modification of the Premises, if any,
together with a non-refundable deposit of $1,000 or ten percent (10%) of the
current monthly Base Rent, whichever is greater, as reasonable consideration for
Lessor's considering and processing the request for consent. Lessee agrees to
provide Lessor with such other or additional information and/or documentation as
may be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment, or entering into such sublease, be deemed,
for the benefit of Lessor, to have assumed and agreed to conform and comply with
each and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph
12.1(c) shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased to an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
amount required to establish such Security Deposit a condition to Lessor's
consent to such transaction.
(h) Lessor, as a condition to giving its consent to any
assignment or subletting, may require that the amount and adjustment structure
of the rent payable under this Lease be adjusted to what is then the market
value and/or adjustment structure for property similar to the Premises as then
constituted.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all rentals and income arising from any sublease of all or
a portion of the Premises heretofore or hereafter made by Lessee, and Lessor may
collect such rent and income and apply same toward Lessee's obligations under
this Lease; provided, however, that until a Breach (as defined in Paragraph
13.1) shall occur in the performance of Lessee's obligations under this Lease,
Lessee may, except as otherwise provided in this Lease, receive, collect and
enjoy the rents accruing under such sublease. Lessor shall not, by reason of
this or any other assignment of such sublease to Lessor, nor by reason of the
collection of the rents from a sublessee, be deemed liable to the sublessee for
any failure of Lessee to perform and comply with any of Lessee's obligations to
such sublessee under such sublease. Lessee hereby irrevocably authorizes and
directs any such sublessee, upon receipt of a written notice from Lessor stating
that a breach exists in the performance of Lessee's obligations under this
Lease, to pay to Lessor the rents and other charges due and to become due under
the sublease. Sublessee shall rely upon any such statement and request from
Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against said sublessee, or, until the Breach has
been cured, against Lessor, for any such rents and other charges so paid by said
sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior Defaults
or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor
under a sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part
of the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or
Breach by Lessee to the sublessee, who shall have the right to cure the Default
of Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against Lessee
for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an
attorney is consulted by Lessor in connection with a Lessee Default or Breach
(as hereinafter defined), $350.00 is a reasonable minimum sum per such
occurrence for legal services and costs in the preparation and service of a
notice of Default,
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and that Lessor may include the cost of such services and costs in said notice
as rent due and payable [copy illegible]re said Default. A "DEFAULT" is defined
as a failure by the Lessee to observe, comply with or perform any of the terms,
covenants, conditions or rules applicable to Lessee under this Lease. A "BREACH"
is defined as the occurrence of any one or more of the following Defaults, and,
where a grace period for cure after notice is specified herein, the failure by
Lessee to cure such Default prior to the expiration of the applicable grace
period, shall entitle Lessor to pursue the remedies set forth in Paragraphs
13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to
reoccupy same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent or any other monetary payment
required to be made by Lessee hereunder, whether to Lessor or to a third party,
as and when due, the failure by Lessee to provide Lessor with reasonable
evidence of insurance or surety bond required under this Lease, or the failure
of Lessee to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of three
(3) days following written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with applicable law per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the recission of an unauthorized assignment or
subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or
37, (v) the subordination or non-subordination of this Lease per Paragraph 30,
(vi) the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this Lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions
or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs (a), (b) or (c) above, where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf of
Lessor to Lessee; provided, however, that if the nature of Lessee's Default is
such that more than thirty (30) days are reasonably required for its cure, then
it shall not be deemed to be a Breach of this Lease by Lessee if Lessee
commences such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The
making by lessee of any general arrangement or assignment for the benefit of
creditors; (ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. section 101
or any successor statute thereto (unless, in the case of a petition filed
against Lessee, the same is dismissed within sixty (60) days); (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this subparagraph (e) is contrary to any applicable
law, such provision shall be of no force or effect, and not affect the validity
of the remaining provisions.
(f) The discovery by Lessor that any financial statement given
to Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was
materially false.
(g) If the performance of Lessee's obligations under this Lease
is guaranteed: (i) the death of a guarantor, (ii) the termination of a
guarantor's liability with respect to this Lease other than in accordance with
the terms of such guaranty, (iii) a guarantor's becoming insolvent or the
subject of a bankruptcy filing, (iv) a guarantor's refusal to honor the
guaranty, or (v) a guarantor's breach of its guaranty obligation on an
anticipatory breach basis, and Lessee's failure, within sixty (60) days
following written notice by or on behalf of Lessor to Lessee of any such event,
to provide Lessor with written alternative assurance or security, which, when
coupled with the then existing resources of Lessee, equals or exceeds the
combined financial resources of Lessee and the guarantors that existed at the
time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) business days after
written notice to Lessee (or in case of an emergency, without notice), Lessor
may at its option (but without obligation to do so), perform such duty or
obligation on Lessee's behalf, including but not limited to the obtaining of
reasonably required bonds, insurance policies, or governmental licenses, permits
or approvals. The costs and expenses of any such performance by Lessor shall be
due and payable by Lessee to Lessor upon invoice therefor. If any check given to
Lessor by Lessee shall not be honored by the bank upon which it is drawn,
Lessor, at its option, may require all future payments to be made under this
Lease by Lessee to be made only by cashier's check. In the event of a Breach of
this Lease by Lessee, as defined in Paragraph 13.1, with or without further
notice or demand, and without limiting Lessor in the exercise of any right or
remedy which Lessor may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease and the term hereof shall terminate
and Lessee shall immediately surrender possession of the Premises to Lessor. In
such event Lessor shall be entitled to recovery from Lessee: (i) the worth at
the time of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of the leasing commission paid by Lessor applicable to the unexpired
term of this Lease. The worth at the time of award of the amount referred to in
provision (iii) of the prior sentence shall be computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of award plus one percent (1%). Efforts by Lessor to mitigate damages
caused by Lessee's Default or Breach of this Lease shall not waive Lessor's
right to recover damages under this Paragraph. If termination of this Lease is
obtained through the provisional remedy of unlawful detainer, Lessor shall have
the right to recover in such proceeding the unpaid rent and damages as are
recoverable therein, or Lessor may reserve therein the right to recover all or
any part thereof in a separate suit for such rent and/or damages. If a notice
and grace period required under subparagraphs 13.1(b), (c) or (d) was not
previously given, a notice to pay rent or quit, or to perform or quit, as the
case may be, given to Lessee under any statute authorizing the forfeiture of
leases for unlawful detainer shall also constitute the applicable notice for
grace period purposes required by subparagraphs 13.1(b), (c) or (d). In such
case, the applicable grace period under subparagraphs 13.1(b), (c) or (d) and
under the unlawful detainer statute shall run concurrently after the one such
statutory notice, and the failure of Lessee to cure the Default within the
greater of the two such grace periods shall constitute both an unlawful detainer
and a Breach of this Lease entitling Lessor to the remedies provided for in this
Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in
effect (in California under California Civil Code Section 1951.4) after Lessee's
Breach and abandonment and recover the rent as it becomes due, provided Lessee
has the right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver to
protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor
for free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "INDUCEMENT PROVISIONS," shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such
inducement Provision shall automatically by deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph shall not be deemed a waiver by Lessor of the provisions of this
Paragraph unless specifically so stated in writing by Lessor at the time of such
acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or trust deed covering the
Premises. Accordingly, if any installment of rent or any other sum due from
Lessee shall not be received by Lessor or Lessor's designee within five (5)
business days after such amount shall be due, then, without any requirement for
notice to Lessee, Lessee shall pay to Lessor a late charge equal to six percent
(6%) of such overdue amount. The parties hereby agree that such late charge
represents a fair and reasonable estimate of the costs Lessor will incur by
reason of late payment by Lessee. Acceptance of such late charge by Lessor shall
in no event constitute a waiver of Lessee's Default or Breach with respect to
such overdue amount, nor prevent Lessor from exercising any of the other rights
and remedies granted hereunder. In the event that a late charge is payable
hereunder, whether or not collected, for three (3) consecutive installments of
Base Rent, then notwithstanding Paragraph 4.1 or any other provision of this
Lease to the contrary, Base Rent shall, at Lessor's option, become due and
payable quarterly in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable time shall in no event be less than thirty (30) days after receipt by
Lessor, and by the holders of any ground lease, mortgage or deed of trust
covering the Premises whose name and address shall have been furnished Lessee in
writing for such purpose, of written notice specifying wherein such obligation
of Lessor has not been performed; provided, however, that if the nature of
Lessor's obligation is such that more than thirty (30) days after such notice
are reasonably required for its performance, then Lessor shall not be in breach
of this Lease if performance is commenced within such thirty (30) day period and
thereafter diligently pursued to completion.
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14. CONDEMNATION. If the Premises or any portion thereof are taken under
the power of eminent domain or sold the threat of the exercise of said power
(all of which are herein called "CONDEMNATION"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the land area
not occupied by any building, is taken by condemnation, Lessee may, at Lessee's
option, to be exercised in writing within ten (10) days after Lessor shall have
given Lessee written notice of such taking (or in the absence of such notice,
within ten (10) days after the condemning authority shall have taken possession)
terminate this Lease as of the date the condemning authority takes such
possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in the same
proportion as the rentable floor area of the Premises taken bears to the total
rentable floor area of the building located on the Premises. No reduction of
Base Rent shall occur if the only portion of the Premises taken is land on which
there is no building. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any compensation separately awarded to Lessee for Lessee's
relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that
this Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of its net severance damages received, over and above the legal and other
expenses incurred by Lessor in the condemnation matter, repair any damage to the
Premises caused by such condemnation, except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee shall be responsible
for the payment of any amount in excess of such net severance damages required
to complete such repair.
15. BROKER'S FEE.
15.1 The Brokers named in Paragraph 1.10 are the procuring causes of
this Lease.
15.2 Upon execution of this Lease by both Parties, Lessor shall pay
to said Brokers jointly, or in such separate shares as they may mutually
designate in writing, a fee as set forth in a separate written agreement between
Lessor and said Brokers (or in the event there is no separate written agreement
between Lessor and said Brokers, the sum of $_____________) for brokerage
services rendered by said Brokers to Lessor in this transaction.
15.3 Unless Lessor and Brokers have otherwise agreed in writing,
Lessor further agrees that: (a) if Lessee exercises any Option (as defined in
Paragraph 39.1) or any Option subsequently granted which is substantially
similar to an Option granted to Lessee in this Lease, or (b) if Lessee acquires
any rights to the Premises or other premises described in this Lease which are
substantially similar to what Lessee would have acquired had an Option herein
granted to Lessee been exercised, or (c) if Lessee remains in possession of the
Premises, with the consent of Lessor, after the expiration of the term of this
Lease after having failed to exercise an Option, or (d) if said Brokers are the
procuring cause of any other lease or sale entered into between the Parties
pertaining to the Premises and/or any adjacent property in which Lessor has an
interest, or (e) if Base Rent is increased, whether by agreement or operation of
an escalation clause herein, then as to any of said transactions. Lessor shall
pay said Brokers a fee in accordance with the schedule of said Brokers in effect
at the time of the execution of this Lease.
15.4 Any buyer or transferee of Lessor's interest in this Lease,
whether such transfer is by agreement or by operation of law, shall be deemed to
have assumed Lessor's obligation under this Paragraph 15. Each Broker shall be
a third party beneficiary of the provisions of this Paragraph 15 to the extent
of its interest in any commission arising from this Lease and may enforce that
right directly against Lessor and its successors.
15.5 Lessee and Lessor each represent and warrant to the other that
it has had no dealings with any person, firm, broker or finder (other than the
Brokers, if any named in Paragraph 1.10) in connection with the negotiation of
this Lease and/or the consummation of the transaction contemplated hereby, and
that no broker or other person, firm or entity other than said named Brokers is
entitled to any commission or finder's fee in connection with said transaction.
Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold
the other harmless from and against liability for compensation or charges which
may be claimed by any such unnamed broker, finder or other similar party by
reason of any dealings or actions of the indemnifying Party, including any
costs, expenses, attorneys' fees reasonably incurred with respect thereto.
15.6 Lessor and Lessee hereby consent to and approve all agency
relationships, including any dual agencies, indicated in Paragraph 1.10.
16. TENANCY STATEMENT.
16.1 Each Party (as "RESPONDING PARTY") shall within ten (10) days
after written notice from the other Party (the "REQUESTING PARTY") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "TENANCY STATEMENT" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises,
any part thereof, or the building of which the Premises are a part, Lessee and
all Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee and
such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes herein
set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises, or if
this is a sublease, of the Lessee's interest in the prior lease. In the event
of a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject to
the foregoing, the obligations and/or covenants in this Lease to be performed by
the Lessor shall be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within thirty (30)
days following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance
of all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the
terms of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains
all agreements between the Parties with respect to any matter mentioned herein,
and no other prior or contemporaneous agreement or understanding shall be
effective. Lessor and Lessee each represents and warrants to the Brokers that
it has made, and is relying solely upon, its own investigation as to the nature,
quality, character and financial responsibility of the other Party to this Lease
and as to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party.
23. NOTICES.
23.1 All notices required or permitted by this Lease shall be in
writing and may be delivered in person (by hand or by messenger or courier
service) or may be sent by regular, certified mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph 23.
The addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may be
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If sent by regular
mail the notice shall be deemed given forty-eight (48) hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantees next day
delivery shall be deemed given twenty-four (24) hours after delivery or the same
to the United States Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone confirmation of receipt of the transmission thereof,
provided a copy is also delivered via delivery or mail. If notice is received on
a Sunday or legal holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any act shall not be deemed to render unnecessary
the obtaining of Lessor's consent to, or approval of, any subsequent or similar
act by Lessee, or be construed as the basis of an estoppel to enforce the
provision or provisions of this Lease requiring such consent. Regardless of
Lessor's knowledge of a Default or Breach at the time of accepting rent, the
acceptance of rent by Lessor shall not be a waiver of any preceding Default or
Breach by Lessee of any provision hereof, other than the failure of Lessee to
pay the particular rent so accepted. Any payment given Lessor by Lessee may be
accepted by lessor on account of moneys or damages due Lessor, notwithstanding
any qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
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26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed
or performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall
be subject and subordinate to any ground lease, mortgage, deed of trust, or
other hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof, Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Lessee may have by reason thereof.
If any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of
Paragraph 30.3, Lessee agrees to attorn to a Lendor or any other party who
acquires ownership of the Premises by reason of a foreclosure of a Security
Device, and that in the event of such foreclosure, such new owner shall not: (i)
be liable for any act or omission of any prior lessor or with respect to events
occurring prior to acquisition of ownership, (ii) be subject to any offsets or
defenses which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into
by Lessor after the execution of this Lease, Lessee's subordination of this
Lease shall be subject to receiving assurance (a "NON-DISTURBANCE AGREEMENT")
from the Lender that Lessee's possession and this Lease, including any options
to extend the term hereof, will not be disturbed so long as Lessee is not in
Breach hereof and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30
shall be effective without the execution of any further documents; provided,
however, that, upon written request from Lessor or a Lender in connection with a
sale, financing or refinancing of the Premises, Lessee and Lessor shall execute
such further writings as may be reasonably required to separately document any
such subordination or non-subordination, attornment and/or non-disturbance
agreement as is provided for herein.
31. ATTORNEY'S FEES. If any Party or Broker brings an action or proceeding
to enforce the terms hereof or declare rights hereunder, the Prevailing Party
(as hereafter defined) or Broker in any such proceeding, action, or appeal
thereon, shall be entitled to reasonable attorney's fees. Such fees may be
awarded in the same suit or recovered in a separate suit, whether or not such
action or proceeding is pursued to decision or judgment. The term, "PREVAILING
PARTY" shall include, without limitation, a Party or Broker who substantially
obtains or defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other Party or Broker of its
claim or defense. The attorney's fee award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorney's fees reasonably incurred. Lessor shall be entitled to attorney's
fees, costs and expenses incurred in the preparation and service of notices of
Default and consultations in connection therewith, whether or not a legal action
is subsequently commenced in connection with such Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the building of which
they are a part, as Lessor may reasonably deem necessary. Lessor may at any time
place on or about the Premises or building any ordinary "For Sale" signs and
Lessor may at any time during the last one hundred twenty (120) days of the term
hereof place on or about the Premises any ordinary "For Lease" signs. All such
activities of Lessor shall be without abatement of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises, except that
Lessee may, with Lessor's prior written consent, install (but not on the roof)
such signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and the right to install, and
all revenues from the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Lessee's business.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is required to an
act by or for the other Party, such consent shall not be unreasonably withheld
or delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor
upon receipt of an invoice and supporting documentation therefor. Subject to
Paragraph 12.2(e) (applicable to assignment or subletting), Lessor may, as a
condition to considering any such request by Lessee, require that Lessee deposit
with Lessor an amount of money (in addition to the Security Deposit held under
Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will
incur in considering and responding to Lessee's request. Except as otherwise
provided, any unused portion of said deposit shall be refunded to Lessee without
interest. Lessor's consent to any act, assignment of this Lease or subletting
of the Premises by Lessee shall not constitute an acknowledgement that no
Default or Breach by Lessee of this Lease exists, nor shall such consent be
deemed a waiver of any then existing Default or Breach, except as may be
otherwise specifically stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease
are acknowledged by Lessee as being reasonable. The failure to specify herein
any particular condition to Lessor's consent shall not preclude the imposition
by Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR.
37.1 If there are to be any Guarantors of this Lease per Paragraph
1.11, the form of the guaranty to be executed by each such Guarantor shall be in
the form most recently published by the American Industrial Real Estate
Association, and each said Guarantor shall have the same obligations as Lessee
under this Lease, including but not limited to the obligation to provide the
Tenancy Statement and information called for by Paragraph 16.
37.2 It shall constitute a Default of the Lessee under this Lease if
any such Guarantor fails or refuses, upon reasonable request by Lessor to give:
(a) evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including
in the case of a corporate Guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty, together with a
certificate of incumbency showing the signature of the persons authorized to
sign on its behalf, (b) current financial statements of Guarantor as may from
time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written
confirmation that the guaranty is still in effect.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises
and the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Paragraph 39 the word "OPTION" has
the following meaning: (a) the right to extend the term of this Lease or to
renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (b) the right of first refusal to lease the Premises or the
right of first offer to lease the Premises or the right of first refusal to
lease other property of Lessor or the right of first offer to lease other
property of Lessor; (c) the right to purchase the Premises, or the right of
first refusal to purchase the Premises, or the right of first offer to purchase
the Premises, or the right to purchase other property of Lessor, or the right of
first refusal to purchase other property of Lessor, or the right of first offer
to purchase other property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to
Lessee in this Lease is personal to the original Lessee named in Paragraph 1.1
hereof, and cannot be voluntarily or involuntarily assigned or exercised by any
person or entity other than said original Lessee while the original Lessee
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is in full and actual possession of the Premises and without the intention of
thereafter assigning or subletting [copy illegible] Options, if any, herein
granted to Lessee are not assignable, either as a part of an assignment of this
Lease or separately or apart therefrom, and no Option may be separated from this
Lease in any manner, by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any Multiple
Options to extend or renew this Lease, a later Option cannot be exercised unless
the prior Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i) during
the period commencing with the giving of any notice of Default under Paragraph
13.1 and continuing until the noticed Default is cured, or (ii) during the
period of time any monetary obligation due Lessor from Lessee is unpaid (without
regard to whether notice thereof is given Lessee), or (iii) during the time
Lessee is in Breach of this Lease, or (iv) in the event that Lessor has given to
Lessee three (3) or more notices of Default under Paragraph 13.1, whether or not
the Defaults are cured, during the twelve (12) month period immediately
preceding the exercise of the Option.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of any Option
shall terminate and be of no further force or effect, notwithstanding Lessee's
due and timely exercise of the Option, if, after such exercise and during the
term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of
Lessee for a period of thirty (30) days after such obligation becomes due
(without any necessity of Lessor to give notice thereof to Lessee), or (ii)
Lessor gives to Lessee three (3) or more notices of Default under Paragraph
13.1 during any twelve (12) month period, whether or not the Defaults are
cured, or (iii) if Lessee commits a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred in
connection therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment and there shall survive the right
on the part of said Party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said Party
to pay such sum or any part thereof, said Party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay under the
provisions of this Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to lease to Lessee.
This Lease is not intended to be binding until executed by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such Multiple Parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF
ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES
AS THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS
LEASE OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY
SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX
CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A
STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE
PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at _________________________ Executed at _________________________
on __________________________________ on __________________________________
by LESSOR: by LESSEE:
VANS, INC. CAPCO, INC.
- ------------------------------------- -------------------------------------
- ------------------------------------- -------------------------------------
By __________________________________ By __________________________________
Name Printed: _______________________ Name Printed: _______________________
Title: ______________________________ Title: ______________________________
By __________________________________ By __________________________________
Name Printed: _______________________ Name Printed: _______________________
Title: ______________________________ Title: ______________________________
Address: ____________________________ Address: ____________________________
_____________________________________ _____________________________________
Tel. No.(__)_______ Fax No.(__)______ Tel. No.(__)_______ Fax No.(__)______
GROSS PAGE 10
NOTICE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the
most current form: American Industrial Real Estate Association, 345
South Figueroa Street, Suite M-1, Los Angeles, CA 90071. (213) 687-8777.
Fax. No. (213) 687-8816.
(c) Copyright 1990 -- By American Industrial Real Estate Association.
All rights reserved. No part of these works may be reproduced
in any form without permission in writing.
FORM 105Q-R-12/91
<PAGE> 11
ADDENDUM TO THAT CERTAIN STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT
LEASE--GROSS, DATED August 15, 1996 BY AND BETWEEN VANS, INC., AS LESSOR,
AND CAPCO, INC., AS LESSEE
AS REFERENCED IN PARAGRAPH 1.12 ("ADDENDA") OF THE AFOREMENTIONED LEASE, THE
FOLLOWING ARE MODIFICATIONS TO SAID LEASE AS AGREED THIS DATE BETWEEN THE
PARTIES HERETO:
49. Paragraph 1.4 ("EARLY POSSESSION") shall be modified to contain the
following: "Lessee shall have the right to use and occupy Building "D" upon
full execution of this Lease and Building "C" from and after September 1,
1996."
50. Paragraph 1.5 ("BASE RENT") shall be modified to contain the
following: "Base Rent shall be payable monthly on the first (1st) day of every
month commencing on November 1, 1996, pursuant to the following schedule:
<TABLE>
<CAPTION>
Year: Monthly Base Rent:
- ---- -----------------
<S> <C>
1 (November 1, 1996-October 31, 1997): $19,000
2 (November 1, 1997-October 31, 1998): $20,000
3 (November 1, 1998-October 31, 1999): $21,000
4 (November 1, 1999-October 31, 2000): $22,000
5 (November 1, 2000-October 21, 2001): $23,000
</TABLE>
51. Paragraph 1.8 ("PERMITTED USE") shall be modified to add the
following: "In connection with the foregoing permitted use of the Premises,
Lessee shall obtain all necessary and proper business licenses and permits from
the City of Orange to operate its business at the Premises within sixty (60)
days of the full execution of this Lease."
52. Paragraph 2.2 ("CONDITION") shall be modified to add the following:
"LESSEE HEREBY ACKNOWLEDGES THAT LESSOR MAKES NO REPRESENTATIONS OR WARRANTIES
WITH RESPECT TO THE CONDITION OF THE PREMISES OR THE AVAILABILITY OR
UNAVAILABILITY OF ANY PERMITS OR GOVERNMENTAL APPROVALS WITH REGARD TO LESSEE'S
INTENDED USE OF THE PREMISES. EXCEPT AS SET FORTH IN THIS PARAGRAPH 2.2,
LESSEE ACCEPTS THE PREMISES IN AN "AS-IS" CONDITION.
Prior to delivery of the Premises to Lessee, Lessor shall perform the following
work:
(a) patch and slurry seal the asphalt area of the Premises;
<PAGE> 12
(b) create a new entrance to the Premises as set forth on Exhibit "A"
attached hereto, which work shall include re-landscaping the area surrounding
the new entrance; and
(c) install fencing on the Premises as indicated on Exhibit "A"
attached hereto."
53. Paragraph 6.2 ("HAZARDOUS SUBSTANCES") shall be modified to add the
following: "(d) WAIVER/PRESENCE OF HAZARDOUS SUBSTANCES. Lessee hereby waives
on its behalf all claims and demands against Lessor for any loss, damage,
injury or claim attributable to the presence of Hazardous Substances on, under,
or about the Premises. Notwithstanding the foregoing, nothing contained in
this Lease shall be construed so as to restrict Lessee's ability under
applicable law to recover from Lessor amounts paid by Lessee with respect to
the inspection, investigation, or remediation of the Premises in the event
either (i) a court of competent jurisdiction makes a final decision, or (ii) a
governmental agency having the appropriate authority determines, that a release
of Hazardous Substances has occurred on, under or about the Premises prior to
the date hereof. Lessee's right to recovery under this Paragraph 6.2 shall be
limited to actual damages, e.g., amounts paid out by Lessee in connection with
such inspection, investigation or remediation of the Premises, including
attorneys' fees reasonably incurred, and in no event shall include the right to
recover consequential damages, including, without limitation, loss of profits.
If, as a result of a notification or decree or similar communication by a
governmental agency having the appropriate authority, Lessor determines, in its
sole and absolute discretion, that it is necessary to destroy or remove all or
part of either of the buildings located on the Premises or to perform any other
act of remediation in order to comply with all applicable environmental laws
and regulations, Lessor shall have the right to either (a) perform such acts as
it deems necessary to comply with such laws and regulations, in which case Base
Rent payable hereunder shall be abated in proportion to the area of the
Premises rendered unsuitable for the operation of Tenant's business by Lessor's
actions hereunder, or (b) terminate this Lease by written notice thereof given
to Lessee, which notice shall be effective not less than sixty (60) days from
Lessee's receipt."
54. Paragraph 7.3(a) (UTILITY INSTALLATIONS; TRADE FIXTURES;
ALTERATIONS/DEFINITIONS; CONSENT REQUIRED) shall be modified to add the
following: "Lessor shall provide Lessee with One Hundred Twenty-Five Thousand
Dollars ($125,000) (the "Lessee Improvement Allowance") to be used to make
Alterations and/or Utility Installations in, on or under the Premises
(excluding Lessee-specific Alterations and/or Utility Installations). For
purposes of this Lease, the term "Alterations" shall include the construction
of additional offices on the Premises and the installation of an awning to
enclose a portion of the Premises. In addition to the actual costs of the
Alterations and Utility installations, the Lessee Improvement Allowance may be
used to
2
<PAGE> 13
pay for any and all architectural fees, engineering fees, and city permits
required to construct the Alterations. Any costs and expenses incurred by
Lessee in connection with Lessee's Alterations and Utility Installations in
excess of the Lessee Improvement Allowance shall be borne by Lessee. The
Lessee Improvement Allowance shall be paid to Lessee, its contractors,
architect, or engineers from time to time (so long as Lessee is not in default
under the provisions of this Lease) upon Lessee's presentation to Lessor of
invoices for labor, materials, fees, and other costs and expenses incurred by
Lessee in connection with the construction of the Alterations and/or Utility
Installations."
55. Paragraph 9.2 ("PARTIAL DAMAGE - INSURED LOSS") shall be modified to
add the following: "If a Premises Partial Damage occurs but the insurance
proceeds are not sufficient to provide sufficient cash to fund all such
repairs, Lessor and Lessee shall each have the right to terminate this Lease by
written notice to the other party within fifteen (15) days of the occurrence of
the damage, such termination to be effective sixty (60) days after such notice
shall have been received. In the event either party elects to give such
notice, the other party shall have the right, within ten (10) days after the
receipt of such notice, to give written notice to the other party of its
commitment to pay for the shortage in insurance proceeds and the Insuring Party
shall make such repairs as soon as reasonably possible and the required funds
are available."
56. Paragraph 10.1(a) ("REAL PROPERTY TAXES/PAYMENT OF TAXES") shall be
modified to add the following: "If the real property taxes payable with
respect to the Parcel (as defined in Paragraph 59 hereinbelow) are temporarily
reduced based upon the effect of a Proposition 8 reassessment or similar
temporary reduction in the real property taxes, the Tax Increase shall be
calculated using the real property taxes assessed against the Parcel for the
1996-1997 fiscal year without respect to any such reduction."
57. REMOVAL OF MEZZANINE. Lessee shall have the right to remove the
mezzanine area in Building "C" and replace it with warehouse racking; provided,
however, that Lessee must first submit proposed detailed plans for the
installation of such racking to Lessor and obtain Lessor's written consent
thereto, which consent shall not be unreasonably withheld. All such work of
removal and installation shall be at Lessee's sole cost and expense. Such
racking shall become the property of Lessor upon the expiration or earlier
termination of this Lease and Lessee shall execute such documentation (i.e.,
bill of sale) as is reasonably required by Lessor to effect such transfer.
58. OPTION TO EXTEND. Provided Lessee is not in default under this
Lease prior to the expiration date of the initial term of this Lease, Lessee
shall have the option to renew this Lease for one (1) additional period of five
(5) years, immediately commencing upon the expiration of the initial term of
this Lease
3
<PAGE> 14
(the "Extended Term"). Lessee shall notify Lessor of its intention to exercise
its option to renew not less than one hundred eighty (180) days prior to the
expiration of the initial term of this Lease. The Base Rent for the Extended
Term shall be the then prevailing (at the commencement of the Extended Term)
fair market value for similar industrial properties in the North Orange County
area for the first year of the Extended Term, and shall be increased each
consecutive year thereafter by four percent (4%) over the Base Rent for the
previous year of the Extended Term."
59. PRORATION OF EXPENSES. Lessor and Lessee acknowledge that the
property constituting the Premises comprised of 71,400 square feet as well as
that certain adjacent property comprised of 76,000 square feet (the "OEM
Property", as outlined on Exhibit "A" attached to the Lease) form a single tax
parcel commonly known as 2095 N. Batavia Street (the "Parcel") and Lessor may
incur certain expenses (e.g., insurance premiums) that may benefit the entire
Parcel. Accordingly, any payments or reimbursements to be made by Lessee
hereunder with respect to Real Property Taxes, insurance premiums and/or other
costs incurred by Lessor for the benefit of the entire Parcel hereunder shall
be pro-rated between the Premises and the OEM Property based upon the
percentage derived from dividing the number of square feet comprising the
building area on the Premises and the OEM Property, respectively, by the total
number of square feet of all the buildings on the Parcel, which percentage, as
of the date hereof, is with respect to the Premises, 48%, and with respect to
the OEM Property, 52%. If further improvements are constructed on either the
Premises or the OEM Property, the percentages set forth in this Paragraph 59
shall be recalculated accordingly.
60. ACCESS TO RAIL LINE. Lessor has no knowledge of any agreement
restricting Lessee from gaining access to the railroad line which runs adjacent
to the Premises; provided that Lessor has no rights or obligations to grant
Lessee any use of the railroad line. Provided that Lessee obtains the approval
of all appropriate parties and/or governmental authorities and all applicable
permits to use the rail line, Lessor has no objection to Lessee's accessing the
railroad line at Lessee's sole cost and expense.
61. AUTO SHOP. The parties hereby acknowledge and agree that Lessor shall
continue to occupy the auto shop located on the Premises until such time as
Lessor receives written notice from Lessee to vacate the shop. Such notice
shall provide Lessor with thirty (30) days within which to vacate the shop.
Lessor's occupancy of the auto shop under this Paragraph 61 shall not operate
to reduce Base Rent payable by Lessee under this Lease.
4
<PAGE> 1
EXHIBIT 10.53
[LOGO]
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE--NET
(Do not use this form for Multi-Tenant Property)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes
only, as of July 22, 1996, is made by and between VANS, INC., A DELAWARE
CORPORATION ("LESSOR") and ORANGE ENGINEERING AND MACHINE COMPANY, INC., A
CALIFORNIA CORPORATION ("LESSEE"), (collectively the "PARTIES," or individually
a "PARTY").
1.2 PREMISES: That certain real property, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
and commonly known by the street address of 2095 N. Batavia Street, located in
the County of Orange, State of California, and generally described as (describe
briefly the nature of the property) Approximately 76,000 square feet as
outlined on Exhibit "A" attached hereto, including Buildings "A", "B" and "E" as
shown on Exhibit "A". ("PREMISES"). (See Paragraph 2 for further provisions.)
1.3 TERM: Five (5) years and 1 months ("ORIGINAL TERM") commencing
March 1, 1997 ("COMMENCEMENT DATE") and ending March 30, 2002 ("EXPIRATION
DATE"). (See Paragraph 3 for further provisions.)
1.4 EARLY POSSESSION: See Addenda Paragraph 49 ("EARLY POSSESSION
DATE"). (See Paragraphs 3.2 and 3.3 for further provisions.)
1.5 BASE RENT: $24,000 per month ("BASE RENT"), payable on the
first (1st) day of each month commencing April 1, 1997, See Addenda Paragraph
50. (See Paragraph 4 for further provisions.)
[X] If this box is checked, there are provisions in this Lease for the Base
rent to be adjusted.
1.6 BASE RENT PAID: January 1, 1997: $24,000 as Base Rent for the
period April 1 - April 30, 1997.
1.7 SECURITY DEPOSIT: $24,000 ("SECURITY DEPOSIT"). (See Paragraph
5 for further provisions.)
1.8 PERMITTED USE: The Premises shall be used solely for
manufacturing and distribution of equipment/machinery and related uses. - See
Addenda Paragraph 51 (See Paragraph 6 for further provisions.)
1.9 INSURING PARTY: Lessor is the "INSURING PARTY" unless
otherwise stated herein. (See Paragraph 8 for further provisions.)
1.10 REAL ESTATE BROKERS: The following real estate brokers
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
CB Commercial Real Estate Group - Walter A. Frome III represents
[X] Lessor exclusively ("LESSOR'S BROKER"); [ ] both Lessor and Lessee, and
CB Commercial Real Estate Group - William Y. Milligan represents
[X] Lessee exclusively ("LESSEE'S BROKER"); [ ] both Lessee and Lessor. (See
Paragraph 15 for further provisions.)
1.11 GUARANTOR. The obligations of the Lessee under this Lease are
to be guaranteed by None ("GUARANTOR"). (See Paragraph 37 for further
provisions.)
1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting
of Paragraphs 49 through 58 and Exhibits A all of which constitute a part of
this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby
leases from Lessor, the Premises, for the term, at the rental, and upon all of
the terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental, is an approximation which Lessor
and Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee
broom-clean and free of debris on the Commencement Date and warrants to Lessee
that the existing plumbing, fire sprinkler system, lighting, air conditioning,
heating, and loading doors, if any, in the Premises, other than those
constructed by Lessee, shall be in good operating condition on the Commencement
Date. If a non-compliance with said warranty exists as of the Commencement
Date, Lessor shall, except as otherwise provided in this Lease, promptly after
receipt of written notice from Lessee setting forth with specificity the nature
and extent of such non-compliance, rectify same at Lessor's expense. If Lessee
does not give Lessor written notice of a non-compliance with this warranty
within thirty (30) days after the Commencement Date, correction of that
non-compliance shall be the obligation of Lessee at Lessee's sole cost and
expense. *
2.3
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that
it has been advised by the Brokers to satisfy itself with respect to the
condition of the Premises (including but not limited to the electrical and fire
sprinkler systems, security, environmental aspects, compliance with Applicable
Law, as defined in Paragraph 6.3) and the present and future suitability of the
Premises for Lessee's intended use, (b) that Lessee has made such investigation
as it deems necessary with reference to such matters and assumes all
responsibility therefor as the same relate to Lessee's occupancy of the Premises
and/or the term of this Lease, and (c) that neither Lessor, nor any of Lessor's
agents, has made any oral or written representations or warranties with respect
to the said matters other than as set forth in this Lease.
2.5 LESSEE PRIOR OWNER/OCCUPANT. The warranties made by Lessor in
this Paragraph 2 shall be of no force or effect if immediately prior to the
date set forth in Paragraph 1.1 Lessee was the owner or occupant of the
Premises. In such event, Lessee shall, at Lessee's sole cost and expense,
correct any non-compliance of the Premises with said warranties.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term
of this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent shall
be abated for the period of such early possession. All other terms of this
Lease, however, (including but not limited to the obligations to pay Real
Property Taxes and insurance premiums and to maintain the Premises) shall be in
effect during such period. Any such early possession shall not affect nor
advance the Expiration Date or the Original Term.
* See Addenda Paragraph 52
Initials
-------
NET PAGE 1 -------
<PAGE> 2
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee as agreed herein by the Early Possession
Date, if one is specified in Paragraph 1.4, or, if no Early Possession
Date is specified, by the Commencement Date, Lessor shall not be subject to
any liability therefor, nor shall such failure affect the validity of this
Lease, or the obligations of the Lessee hereunder, or extend the term hereof,
but in such case, Lessee shall not, except as otherwise provided herein, be
obligated to pay rent or perform any other obligation of Lessee under the terms
of this Lease until Lessor delivers possession of the Premises to Lessee. If
possession of the Premises is not delivered to Lessee within sixty (60) days
after the Commencement Date, Lessee may, at its option, by notice in writing to
Lessor within ten (10) days thereafter, cancel this Lease, in which event the
Parties shall be discharged from all obligations hereunder; provided, however,
that if such written notice by Lessee is not received by Lessor within said ten
(10) day period, Lessee's right to cancel this Lease shall terminate and be of
no further force or effect. Except as may be otherwise provided, and
regardless of when the term actually commences, if possession is not tendered
to Lessee when required by this Lease and Lessee does not terminate this Lease,
as aforesaid, the period free of the obligation to pay Base Rent, if any, that
Lessee would otherwise have enjoyed shall run from the date of delivery of
possession and continue for a period equal to what Lessee would otherwise have
enjoyed under the terms hereof, but minus any days of delay caused by the acts,
changes or omissions of the Lessee.* See Addenda Paragraph 53
4. RENT
4.1 BASE RENT. Lessee shall cause payment of Base Rent and other
rent or charges, as the same may be adjusted from time to time, to be received
by Lessor in lawful money of the United States, without offset or deduction, on
or before the day on which it is due under the terms of this Lease. Base Rent
and all other rent and charges for any period during the term hereof which is
for less than one (1) full calendar month shall be prorated based upon the
actual number of days of the calendar month involved. Payment of Base Rent and
other charges shall be made to Lessor at its address stated herein or to such
other persons or at such other addresses as Lessor may from time to time to
designate in writing to Lessee.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefor
deposit moneys with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent increases during the
term of this Lease, Lessee shall, upon written request from Lessor, deposit
additional moneys with Lessor sufficient to maintain the same ratio between the
Security Deposit and the Base Rent as those amounts are specified in the Basic
Provisions. Lessor shall not be required to keep all or any part of the
Security Deposit separate from its general accounts. Lessor shall, at the
expiration or earlier termination of the term hereof and after Lessee has
vacated the Premises, return to Lessee (or, at Lessor's option, to the last
assignee, in any, of Lessee's interest herein), that portion of the Security
Deposit not used or applied by Lessor. Unless otherwise expressly agreed in
writing by Lessor, no part of the Security Deposit shall be considered to be
held in trust, to bear interest or other increment for its use, or to be
prepayment for any moneys to be paid by Lessee under this Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the
purposes set forth in Paragraph 1.8, or any other use which is comparable
thereto, and for no other purpose. Lessee shall not use or permit the use of
the Premises in a manner that creates waste or a nuisance, or that disturbs
owners and/or occupants of, or causes damage to, neighboring premises or
properties. Lessor hereby agrees to not unreasonably withhold or delay its
consent to any written request by Lessee, Lessee's assignees or subtenants, and
by prospective assignees and subtenants of the Lessee, its assignees or
subtenants, for a modification of said permitted purpose for which the premises
may be used or occupied, so long as the same will not impair the structural
integrity of the improvements on the Premises, the mechanical or electrical
systems therein, is not significantly more burdensome to the Premises and the
improvements thereon, and is otherwise permissible pursuant to this Paragraph 6.
If Lessor elects to withhold such consent, Lessor shall within five (5) business
days give a written notification of same, which notice shall include an
explanation of Lessor's reasonable objections to the change in use.
6.2 HAZARDOUS SUBSTANCES
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS
SUBSTANCES" as used in this Lease shall mean any product, substance, chemical,
material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or effect,
either by itself or in combination with other materials expected to be on the
Premises, is either: (i) potentially injurious to the public health, safety, or
welfare, the environment or the Premises, (ii) regulated or monitored by any
governmental authority, or (iii) a basis for liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substance shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, crude oil or any products, by-products or fractions
thereof. Lessee shall not engage in any activity in, on or about the Premises
which constitutes a Reportable Use (as hereinafter defined) of Hazardous
Substance without the express prior written consent of Lessor and compliance in
a timely manner (at Lessee's sole cost and expense) with all Applicable Law (as
defined Paragraph 6.3). "REPORTABLE USE" shall mean (i) the installation or use
of any above or below ground storage tank, (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with any governmental authority.
Reportable use shall also include Lessee's being responsible for the presence
in, on or about the Premises of a Hazardous Substance with respect to which any
Applicable Law requires that a notice be given to persons entering or occupying
the Premises or neighboring properties. Notwithstanding the foregoing, Lessee
may, without Lessor's prior consent, but in compliance with all Applicable Law,
use any ordinary and customary materials reasonably required to be used by
Lessee in the normal course of Lessee's business permitted on the Premises, so
long as such use is not a Reportable Use and does not expose the Premises or
neighboring properties to any meaningful risk of contamination or damage or
expose Lessor to any liability therefor. In addition, Lessor may (but without
any obligation to do so) condition its consent to the use or presence of any
Hazardous Substance, activity or storage tank by Lessee upon Lessee's giving
Lessor such additional assurances as Lessor, in its reasonable discretion, deems
necessary to protect itself, the public, the Premises and the environment
against damage, contamination or injury and/or liability therefrom or therefor,
including, but not limited to, the installation (and removal on or before Lease
expiration or earlier termination) of reasonably necessary protective
modifications to the Premises (such as concrete encasements) and/or the deposit
of an additional Security Deposit under Paragraph 5 hereof.**
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has
reasonable cause to believe, that a Hazardous Substance, or a condition
involving or resulting from same, has come to be located in, on, under or about
the Premises, other than as previously consented to by Lessor, Lessee shall
immediately give written notice of such fact to Lessor. Lessee shall also
immediately give Lessor a copy of any statement, report, notice, registration,
application, permit, business plan, license, claim, action or proceeding given
to, or received from, any governmental authority or private party, or persons
entering or occupying the Premises, concerning the presence, spill, release,
discharge of, or exposure to, any Hazardous Substance or contamination in, on,
or about the Premises, including but not limited to all such documents as may be
involved in any Reportable Uses involving the Premises.
(c) INDEMNIFICATION. Lessee shall indemnify, protect,
defend and hold Lessor, it agents, employees, lenders and ground lessor, if any,
and the Premises, harmless from and against any and all loss of rents and/or
damages, liabilities, judgments, costs, claims, liens, expenses, penalties,
permits and attorney's and consultant's fees arising out of or involving any
Hazardous Substance or storage tank brought onto the Premises by or for Lessee
or under Lessee's control. Lessee's obligations under this Paragraph 6 shall
include, but not be limited to, the effects of any contamination or injury to
person, property or the environment created or suffered by Lessee, and the cost
of investigation (including consultant's and attorney's fees and testing),
removal, remediation, restoration and or/abatement thereof, or of any
contamination therein involved, and shall survive the expiration or earlier
termination of this Lease. No termination, cancellation or release agreement
entered into by Lessor and Lessee shall release Lessee from its obligations
under this Lease with respect to Hazardous Substances or storage tanks, unless
specifically so agreed to by Lessor in writing at the time of such agreement.
See Addenda Paragraph 54.
6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in
this Lease, Lessee shall, at Lessee's sole cost and expense, fully, diligently,
and in a timely manner, comply with all "APPLICABLE LAW," which term is used in
this Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the Premises (including, but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill, or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy from any previously existing policy. Lessee
shall, within five (5) days after receipt of Lessor's written request, provide
Lessor with copies of all documents and information, including, but not limited
to, permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or the
Premises to comply with any Applicable Law.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) (as
defined in Paragraph 8.3(a)) shall have the right to enter the Premises at any
time in the case of an emergency, and otherwise at reasonable times, for the
purpose of inspecting the condition of the Premises and for verifying compliance
by Lessee with this Lease and all Applicable Laws (as defined in Paragraph 6.3),
and to employ experts and/or consultants in connection therewith and/or to
advise Lessor with respect to Lessee's activities, including but not limited to
the installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tanks on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law, or a
contamination, caused or materially contributed to by Lessee is found to exist
or be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any existing or imminent violation or
contamination. In any such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case may be, for the costs and expenses or such
inspection.
7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS
(a) Subject to the provisions of Paragraphs 2.2
** Notwithstanding the foregoing, Lessee may operate a paint booth upon the
Premises so long as such operation complies with all Applicable Law.
NET PAGE 2 Initials ______
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<PAGE> 3
7.2 (Lessor's obligations to repair), 9 (damage and destruction), and 14
(condemnation), Lessee shall, at Lessee sole cost and expense and at all times,
keep the Premises and every part thereof in good order, condition and repair,
(whether or not such portion of the Premises requiring repairs, or the means of
repairing the same, are reasonably or readily accessible to Lessee, and whether
or not the need for such repairs occurs as a result of Lessee's use, any prior
use, the elements or the age of such portion of the Premises), including,
without limiting the generality of the foregoing, all equipment or facilities
serving the Premises, such as plumbing, heating, air conditioning, ventilating,
electrical, lighting facilities, boilers, fired or unfired pressure vessels,
fire sprinkler and/or standpipe and hose or other automatic fire extinguishing
system, including fire alarm and/or smoke detection systems and equipment, fire
hydrants, fixtures, walls (interior), ceilings, floors, windows, doors, plate
glass, skylights, landscaping, driveways, parking lots, fences, retaining walls,
signs, sidewalks and parkways located in, on, about, or adjacent to the
Premises. Lessee shall not cause or permit any Hazardous Substance to be
spilled or released in, on, or about the Premises (including through the
plumbing or sanitary sewer system) and shall promptly, at Lessee's expense, take
all investigatory and/or remedial action reasonably recommended, whether or not
formally ordered or required, for the cleanup of any contamination of, and for
the maintenance, security and/or monitoring of the Premises, the elements
surrounding same, or neighboring properties, that was caused or materially
contributed to by Lessee, or pertaining to or involving any Hazardous Substance
and/or storage tank brought onto the Premises by or for Lessee or under its
control. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair. If Lessee occupies the Premises for seven (7) years or
more, Lessor may require Lessee to repaint the exterior of the buildings on the
Premises as reasonably required, but not more frequently than once every seven
(7) years.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance for,
and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any,
located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler
and/or standpipe and hose or other automatic fire extinguishing systems,
including fire alarm and/or smoke detection, (iv) landscaping and irrigation
systems, (v) roof covering and drain maintenance and (vi) asphalt and parking
lot maintenance.*
7.2 LESSOR'S OBLIGATIONS. See Addenda Paragraph 55.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY
INSTALLATIONS" is used in this Lease to refer to all carpeting, window
coverings, air lines, power panels, electrical distribution, security, fire
protection systems, communication systems, lighting fixtures, heating,
ventilating, and air conditioning equipment, plumbing, and fencing in, on or
about the Premises. The term "TRADE FIXTURES" shall mean Lessee's machinery and
equipment that can be removed without doing damage to the Premises. The term
"ALTERATIONS" shall mean any modification of the improvements on the Premises
from that which are provided by Lessor under the terms of this Lease, other than
Utility installations or Trade Fixtures, whether by addition or deletion.
"LESSEE OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor as defined in Paragraph 7.4(a). Lessee shall not make any Alterations
or Utility Installations in, on, under or about the Premises without Lessor's
prior written consent. Lessee may, however, make non-structural Utility
Installations to the interior of the Premises (excluding the roof), as long as
they are not visible from the outside, do not involve puncturing, relocating or
removing the roof or any existing walls, and the cumulative cost thereof during
the term of this Lease as extended does not exceed $25,000.
(b) CONSENT. Any Alterations or Utility Installations that
Lessee shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with proposed detailed plans. All consents
given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific
consent, shall be deemed conditioned upon: (i) Lessee's acquiring all applicable
permits required by governmental authorities, (ii) the furnishing of copies of
such permits together with a copy of the plans and specifications for the
Alteration or Utility Installation to Lessor prior to commencement of the work
thereon, and (iii) the compliance by Lessee with all conditions of said permits
in a prompt and expeditious manner. Any Alterations or Utility Installations by
Lessee during the term of this Lease shall be done in a good and workmanlike
manner, with good and sufficient materials, and in compliance with all
Applicable Law. Lessee shall promptly upon completion thereof furnish Lessor
with as-built plans and specifications therefor. Lessor may (but without
obligation to do so) condition its consent to any requested Alteration or
Utility Installation that costs $10,000 or more upon Lessee's providing Lessor
with a lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation and/or upon Lessee's
posting an additional Security Deposit with Lessor under Paragraph 36 hereof.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanics' or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on or about the Premises, and Lessor shall have the
right to post notices of non-responsibility in or on the Premises as provided by
law. If Lessee shall, in good faith, contest the validity of any such lien,
claim or demand, then Lessee shall, at its sole expense defend and protect
itself, Lessor and the Premises against the same and shall pay and satisfy any
such adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises. If Lessor shall require, Lessee
shall furnish to Lessor a surety bond satisfactory to Lessor in an amount equal
to one and one-half times the amount of such contested lien claim or demand,
indemnifying Lessor against liability for the same, as required by law for the
holding of the Premises free from the effect of such lien or claim. In
addition, Lessor may require Lessee to pay Lessor's attorney's fees and costs in
participating in such action if Lessor shall decide it is to its best interest
to do so.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their
removal or become the owner thereof as hereinafter provided in this Paragraph
7.4, all Alterations and Utility Additions made to the Premises by Lessee shall
be the property of and owned by Lessee, but considered a part of the Premises.
Lessor may, at any time and at its option, elect in writing to Lessee to be the
owner of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain
upon and be surrendered by Lessee with the Premises.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may
require that any or all Lessee Owned Alterations or Utility Installations be
removed by the expiration or earlier termination of this Lease, notwithstanding
their installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the
Premises by the end of the last day of the Lease term or any earlier
termination date, with all of the improvements, parts and surfaces thereof
clean and free of debris and in good operating order, condition and state of
repair, ordinary wear and tear excepted. "ORDINARY WEAR AND TEAR" shall not
include any damage or deterioration that would have been prevented by good
maintenance practice or by Lessee performing all of its obligations under this
Lease. Except as otherwise agreed or specified in writing by Lessor, the
Premises, as surrendered, shall include the Utility Installations. The
obligation of Lessee shall include the repair of any damage occasioned by the
installation, maintenance or removal of Lessee's Trade Fixtures, furnishings,
equipment, and Alterations and/or Utility Installations, as well as the removal
of any storage tank installed by or for Lessee, and the removal, replacement,
or remediation of any soil, material or ground water contaminated by Lessee,
all as may then be required by Applicable Law and/or good service practice.
Lessee's Trade Fixtures shall remain the property of Lessee and shall be
removed by Lessee subject to its obligation to repair and restore the Premises
per this Lease.
8. INSURANCE INDEMNITY
8.1 PAYMENT FOR INSURANCE. Regardless of whether the Lessor or
Lessee is the Insuring Party, Lessee shall pay for all insurance required under
this Paragraph 8 except to the extent of the cost attributable to liability
insurance carried by Lessor in excess of $1,000,000 per occurrence. Premiums
for policy periods commencing prior to or extending beyond the Lease term shall
be prorated to correspond to the Lease term. Payment shall be made by Lessee
to Lessor within ten (10) days following receipt of an invoice for any amount
due.
8.2 LIABILITY INSURANCE
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force
during the term of this Lease a Commercial General Liability policy of
insurance protecting Lessee and Lessor (as an additional insured) against
claims for bodily injury, personal injury, personal injury and property damage
based upon, involving or arising out of the ownership, use, occupancy or
maintenance of the Premises and all areas appurtenant thereto. Such insurance
shall be on an occurrence basis providing single limit coverage in an amount
not less than $1,000,000 per occurrence with an "Additional Insured-Managers or
Lessors of Premises" Endorsement and contain the "Amendment of the Pollution
Exclusion" for damage cause by heat, smoke or fumes from a hostile fire. The
policy shall not contain any intra-insured exclusions as between insured
persons or organizations, but shall include coverage for liability assumed
under this Lease as an "insured contract" for the performance of Lessee's
indemnity obligations under this Lease. The limits of said insurance required
by this Lease or as carried by Lessee shall not, however, limit the liability
of Lessee nor relieve Lessee of any obligation hereunder. All insurance to be
carried by Lessee shall be primary to and not contributory with any similar
insurance carried by Lessor, whose insurance shall be considered excess
insurance only.
(b) CARRIED BY LESSOR. In the event Lessor is the Insuring
Party, Lessor shall also maintain liability insurance described in Paragraph
8.2(a), above, in addition to, and not in lieu of, the insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured
therein.
- ----------
* Lessee shall also contract directly, at Lessee's sole cost and expense, with
suppliers of any other necessary utility and janitorial services.
Notwithstanding anything to the contrary contained in this Lease, Lessee's
financial responsibility under this Paragraph 7.1 with regard to the HVAC at
the Premises shall not exceed the sum of $10,000 per year.
Initials _____
NET PAGE 3 _____
<PAGE> 4
8.3 PROPERTY INSURANCE--BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain
and keep in force during the term of this Lease a policy or policies in the name
of Lessor, with loss payable to Lessor and to the holders of any mortgages,
deeds of trust or ground leases on the Premises ("LENDER(S)"), insuring loss or
damage to the Premises. The amount of such insurance shall be equal to the full
replacement cost of the Premises, as the same shall exist from time to time, or
the amount required by Lenders, but in no event more than the commercially
reasonable and available insurable value thereof if, by reason of the unique
nature or age of the improvements involved, such latter amount is less than full
replacement cost. If Lessor is the Insuring Party, however, Lessee Owned
Alterations and Utility Installations shall be insured by Lessee under Paragraph
8.4 rather than by Lessor. If the coverage is available and commercially
appropriate, such policy or policies shall insure against all risks of direct
physical loss or damage (except the perils of flood and/or earthquake unless
required by a Lender), including coverage for any additional costs resulting
from debris removal and reasonable amounts of coverage for the enforcement of
any ordinance or law regulating the reconstruction or replacement of any
undamaged sections of the Premises required to be demolished or removed by
reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered cause of loss. Said policy or policies shall also
contain an agreed valuation provision in lieu of any coinsurance clause, waiver
of subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located. If such insurance coverage has
a deductible clause, the deductible amount shall not exceed $1,000 per
occurrence, and Lessee shall be liable for such deductible amount in the event
of an Insured Loss, as defined in Paragraph 9.1(c).
(b) RENTAL VALUE. The Insuring Party shall, in addition, obtain
and keep in force during the term of this Lease a policy or policies in the name
of Lessor, with loss payable to Lessor and Lender(s), insuring the loss of the
full rental and other charges payable by Lessee to Lessor under this Lease for
one (1) year (including all real estate taxes, insurance costs, and any
scheduled rental increases). Said insurance shall provide that in the event the
Lease is terminated by reason of an insured loss, the period of indemnity for
such coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period. Lessee shall be liable
for any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. If the Premises are part of a larger
building, or if the Premises are part of a group of buildings owned by Lessor
which are adjacent to the Premises, the Lessee shall pay for any increase in the
premiums for the property insurance of such building or buildings if said
increase is caused by Lessee's acts, omissions, use or occupancy of the
Premises.
(d) TENANT'S IMPROVEMENTS. If the Lessor is the Insuring Party,
the Lessor shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease. If Lessee is the Insuring Party, the policy
carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned Alterations
and Utility Installations.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property, Lessee Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to that
carried by the Insuring Party under Paragraph 8.3. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for
the replacement of personal property or the restoration of Lessee Owned
Alterations and Utility Installations. Lessee shall be the Insuring Party with
respect to the insurance required by this Paragraph 8.4 and shall provide Lessor
with written evidence that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises are
located, and maintaining during the policy term a "General Policyholders Rating"
of at least B+, V, or such other rating as may be required by a Lender having a
lien on the Premises, as set forth in the most current issue of "Best's
Insurance Guide." Lessee shall not do or permit to be done anything which shall
invalidate the insurance policies referred to in this Paragraph 8. If Lessee is
the Insuring Party, Lessee shall cause to be delivered to Lessor certified
copies of policies of such insurance or certificates evidencing the existence
and amounts of such insurance with the insureds and loss payable clauses as
required by this Lease. No such policy shall be cancellable or subject to
modification except after thirty (30) days prior written notice to Lessor.
Lessee shall at least thirty (30) days prior to the expiration of such policies,
furnish Lessor with evidence of renewals or "insurance binders" evidencing
renewal thereof, or Lessor may order such insurance and charge the cost thereof
to Lessee, which amount shall be payable by Lessee to Lessor upon demand. If
the Insuring Party shall fail to procure and maintain the insurance required to
be carried by the Insuring Party under this Paragraph 8, the other Party may,
but shall not be required to, procure and maintain the same, but at Lessee's
expense.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor ("WAIVING PARTY") each hereby release and relieve
the other, and waive their entire right to recover damages (whether in contract
or in tort) against the other, for loss of or damage to the Waiving Party's
property arising out of or incident to the perils required to be insured against
under Paragraph 8. The effect of such releases and waivers of the right to
recover damages shall not be limited by the amount of insurance carried or
required, or by any deductibles applicable thereto.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of
express warranties, Lessee shall indemnify, protect, defend and hold harmless
the Premises, Lessor and its agents, Lessor's master or ground lessor, partners
and Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, permits, attorney's and consultant's fees,
expenses and/or liabilities arising out of, involving, or in dealing with, the
occupancy of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessee, its agents, contractors, employees or invitees,
and out of any Default or Breach by Lessee in the performance in a timely manner
of any obligation on Lessee's part to be performed under this Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not (in the
case of claims made against Lessor) litigated and/or reduced to judgment, and
whether well founded or not. In case any action or proceeding be brought
against Lessor by reason of any of the foregoing matters, Lessee upon notice
from Lessor shall defend the same at Lessee's expense by counsel reasonably
satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense.
Lessor need not have first paid any such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable
for injury or damage to the person or goods, wares, merchandise or other
property of Lessee, Lessee's employees, contractors, invitees, customers, or any
other person in or about the Premises, whether such damage or injury is caused
by or results from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures, or from any
other cause, whether the said injury or damage results from conditions arising
upon the Premises or upon other portions of the building of which the Premises
are a part, or from other sources or places, and regardless of whether the cause
of such damage or injury or the means of repairing the same is accessible or
not. Lessor shall not be liable for any damages arising from any act or neglect
of any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of
this Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction
to the improvements on the Premises, other than Lessee Owned Alterations and
Utility Installations, the repair cost of which damage or destruction is less
than 50% of the then Replacement Cost of the Premises immediately prior to such
damage or destruction, excluding from such calculation the value of the land and
Lessee Owned Alterations and Utility Installations.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or
destruction to the Premises, other than Lessee Owned Alterations and Utility
Installations the repair cost of which damage or destruction is 50% or more of
the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "INSURED LOSS" shall mean damage or destruction to
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a), irrespective of any deductible amounts
or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild
the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of applicable building codes,
ordinances or laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PARTIAL DAMAGE--INSURED LOSS. If a Premises Partial Damage that
is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect; provided, however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $10,000 or less, and, in such event, Lessor shall make the insurance
proceeds available to Lessee on a reasonable basis for that purpose.
Notwithstanding the foregoing, if the required insurance was not in force or the
insurance proceeds are not sufficient to effect such repair, the Insuring Party
shall promptly contribute the shortage in proceeds (except as to the deductible
which is Lessee's responsibility) as and when required to complete said repairs.
In the event, however, the shortage in proceeds was due to the fact that, by
reason of the unique nature of the improvements, full replacement cost insurance
coverage was not commercially reasonable and available, Lessor shall have no
obligation to pay for the shortage in insurance proceeds or to fully restore the
unique aspects of the Premises unless Lessee provides Lessor with the funds to
cover same, or adequate assurance thereof, within ten (10) days following
receipt of written notice of such shortage and request therefor. If Lessor
receives said funds or adequate assurance thereof within said ten (10) day
period, the party responsible for making the repairs shall complete them as soon
as reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If in such case Lessor does not so elect, then this Lease
shall terminate sixty (60) days following the occurrence of the damage or
destruction. Unless otherwise agreed, Lessee shall in no event have any right
to reimbursement from Lessor for
Initials ______
NET PAGE 4
<PAGE> 5
any funds contributed by Lessee to repair any such damage or destruction.
Premises Partial Damage due to flood or earthquake shall be subject to Paragraph
9.3 rather than Paragraph 9.2, notwithstanding that there may be some insurance
coverage, but the net proceeds of any such insurance shall be made available for
the repairs if made by either Party.
9.3 PARTIAL DAMAGE -- UNINSURED LOSS. If a Premises Partial Damage
that is not an Insured Loss occurs, unless caused by a negligent or willful act
of Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option, either: (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such damage of Lessor's desire to terminate this Lease as of the
date sixty (60) days following the giving of such notice. In the event Lessor
elects to give such notice of Lessor's intention to terminate this Lease, Lessee
shall have the right within ten (10) days after the receipt of such notice to
give written notice to Lessor of Lessee's commitment to pay for the repair of
such damage totally at Lessee's expense and without reimbursement from Lessor.
Lessee shall provide Lessor with the required funds or satisfactory assurance
thereof within thirty (30) days following Lessee's said commitment. In such
event this Lease shall continue in full force and effect, and Lessor shall
proceed to make such repairs as soon as reasonably possible and the required
funds are available. If Lessee does not give such notice and provide the funds
or assurance thereof within the times specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof,
if a Premises Total Destruction occurs (including any destruction required by
any authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one (1) month's Base Rent, whether or not an Insured Loss, Lessor may,
at Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by, within twenty (20) days following the occurrence of the damage, or
before the expiration of the time provided in such option for its exercise,
whichever is earlier ("EXERCISE PERIOD"), (i) exercising such option and (ii)
providing Lessor with any shortage in insurance proceeds (or adequate assurance
thereof) needed to make the repairs. If Lessee duly exercises such option
during said Exercise Period and provides Lessor with funds (or adequate
assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at
Lessor's expense repair such damage as soon as reasonably possible and this
Lease shall continue in full force and effect. If Lessee fails to exercise such
option and provide such funds or assurance during said Exercise Period, then
Lessor may at Lessor's option terminate this Lease as of the expiration of said
sixty (60) day period following the occurrence of such damage by giving written
notice to Lessee of Lessor's election to do so within ten (10) days after the
expiration of the Exercise Period, notwithstanding any term or provision in the
grant of option to the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in Paragraph 9.2 (Partial
Damage -- Insured), whether or not Lessor or Lessee repairs or restores the
Premises, the first Base Rent, Real Property Taxes, insurance premiums, and
other charges, if any, payable by Lessee hereunder for the period during which
such damage, its repair or the restoration continues (not to exceed the period
for which rental value insurance is required under Paragraph 8.3(b)), shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of Base Rent, Real Property Taxes, insurance
premiums, and other charges, if any, as aforesaid, all other obligations of
Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim
against Lessor for any damage suffered by reason of any such repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after receipt of such notice, this Lease shall
continue in full force and effect. "COMMENCE" as used in this Paragraph shall
mean either the unconditional authorization of the preparation of the required
plans, or the beginning of the actual work on the Premises, whichever first
occurs.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance
Condition occurs,unless Lessee is legally responsible therefor (in which case
Lessee shall make the investigation and remediation thereof required by
Applicable Law and this Lease shall continue in full force and effect, but
subject to Lessor's rights under Paragraph 13), Lessor may at Lessor's option
either (i) investigate and remediate such Hazardous Substance Condition, if
required, as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) if the estimated
cost to investigate and remediate such condition exceeds twelve (12) times the
then monthly Base Rent or $100,000, whichever is greater, give written notice to
Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such Hazardous Substance Condition of Lessor's desire to terminate
this Lease as of the date sixty (60) days following the giving of such notice.
In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the investigation and remediation of such Hazardous Substance
Condition totally at Lessee's expense and without reimbursement from Lessor
except to the extent of an amount equal to twelve (12) times the then monthly
Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor with
the funds required of Lessee or satisfactory assurance thereof within thirty
(30) days following Lessee's said commitment. In such event this Lease shall
continue in full force and effect, and Lessor shall proceed to make such
investigation and remediation as soon as reasonably possible and the required
funds are available. If Lessee does not give such notice and provide the
required funds or assurance thereof within the times specified above, this Lease
shall terminate as of the date specified in Lessor's notice of termination. If
a Hazardous Substance Condition occurs for which Lessee is not legally
responsible, there shall be abatement of Lessee's obligations under this Lease
to the same extent as provided in Paragraph 9.6(a) for a period of not to exceed
twelve (12) months.
9.8 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, and equitable adjustment shall be made concerning
advance Base Rent and any other advance payments made by Lessee to Lessor.
Lessor shall, in addition, return to Lessee so much of Lessee Security Deposit
as has not been, or is not then required to be, used by Lessor under the terms
of this Lease.
9.9 WATER STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
with respect to the termination of this Lease and hereby waive the provisions of
any present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 (a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes,
as defined in Paragraph 10.2, applicable to the Premises during the term of this
Lease. Notwithstanding anything to the contrary contained in this Lease, the
Real Property Taxes payable by Lessee hereunder shall not exceed $28,000 per
year. Subject to Paragraph 10.1(b), all such payments shall be made at least ten
(10) days prior to the delinquency date of the applicable installment. Lessee
shall promptly furnish Lessor with satisfactory evidence that such taxes have
been paid. If any such taxes to be paid by Lessee shall cover any period of time
prior to or after the expiration or earlier termination of the term hereof,
Lessee's share of such taxes shall be equitably prorated to cover only the
period of time within the tax fiscal year this Lease is in effect, and Lessor
shall reimburse Lessee for any overpayment after such proration. If Lessee shall
fail to pay any Real Property Taxes required by this Lease to be paid by Lessee,
Lessor shall have the right to pay the same, and Lessee shall reimburse Lessor
therefor upon demand.
(b) ADVANCE PAYMENT. In order to insure payment when due and
before delinquency of any or all Real Property Taxes, Lessor reserves the right,
at Lessor's option, to estimate the current Real Property Taxes applicable to
the Premises, and to require such current year's Real Property Taxes to be paid
in advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the
installment due, at least twenty (20) days prior to the applicable delinquency
date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor
elects to require payment monthly in advance, the monthly payment shall be that
equal monthly amount which, over the number of months remaining before the month
in which the applicable tax installment would become delinquent (and without
interest thereon), would provide a fund large enough to fully discharge before
delinquency the estimated installment of taxes to be paid. When the actual
amount of the applicable tax bill is known, the amount of such equal monthly
advance payment shall be adjusted as required to provide the fund needed to pay
the applicable taxes before delinquency. If the amounts paid to Lessor by Lessee
under the provisions of this Paragraph are insufficient to discharge the
obligations of Lessee to pay such Real Property Taxes as the same become due,
Lessee shall pay to Lessor, upon Lessor's demand, such additional sums as are
necessary to pay such obligations. All moneys paid to Lessor under this
Paragraph may be intermingled with other moneys of Lessor and shall not bear
interest. In the event of a Breach by Lessee in the performance of the
obligations of Lessee under this Lease, then any balance of funds paid to Lessor
under the provisions of this Paragraph may, subject to proration as provided in
Paragraph 10.1(a), at the option of Lessor, be treated as an additional Security
Deposit under Paragraph 5.
10.2 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term
"REAL PROPERTY TAXES" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, Improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage or
other improvement district thereof, levied against any local or equitable
interest of Lessor in the Premises or in the real property of which the Premises
are a part, Lessor's right to rent or other income therefrom, and/or Lessor's
business of leasing the Premises. The term "REAL PROPERTY TAXES" shall also
include any tax, fee, levy, assessment or charge, or any increase therein,
imposed by reason of events occurring, or changes in applicable law taking
effect, during the term of this Lease, including but not limited to a change in
the ownership of the Premises or in the improvements thereon, the execution of
this Lease, or any modification, amendment, or transfer thereof, and whether or
not contemplated by the Parties.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
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assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency
all taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all other personal property
to be assessed and billed separately from the real property of Lessor. If any
of Lessee's said personal property shall be assessed with Lessor's real
property, Lessee shall pay Lessor the taxes attributable to Lessee within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property or, at Lessor's option, as provided in Paragraph
10.1(b).
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises. The
electricity for the Premises shall be separately metered to Lessee.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"ASSIGNMENT") or sublet all or any part of Lessee's interest in this Lease or in
the Premises without Lessor's prior written consent given under and subject to
the terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an
assignment requiring Lessor's consent. The transfer, on a cumulative basis, of
twenty-five percent (25%) or more of the voting control of Lessee shall
constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction,
or series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of the execution
by Lessor of this Lease or at the time of the most recent assignment to which
Lessor has consented, or as it exists immediately prior to said transaction or
transactions constituting such reduction, at whichever time said Net Worth of
Lessee was or is greater, shall be considered an assignment of this Lease by
Lessee to which Lessor may reasonably withhold its consent. "NET WORTH OF
LESSEE" for purposes of this Lease shall be the net worth of Lessee (excluding
any guarantors) established under generally accepted accounting principles
consistently applied.
(d) An assignment or subletting of Lessee's interest in this
Lease without Lessor's specific prior written consent shall, at Lessor's option,
be a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a noncurable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days written notice ("Lessor's Notice"), increase the monthly Base Rent to
fair market rental value or one hundred ten percent (110%) of the Base Rent then
in effect, whichever is greater. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and market value
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
(without the Lease being considered an encumbrance or any deduction for
depreciation or obsolescence, and considering the Premises at its highest and
best use and in good condition), or one hundred ten percent (110%) of the price
previously in effect, whichever is greater, (ii) any index-oriented rental or
price adjustment formulas contained in this Lease shall be adjusted to require
that the base index be determined with reference to the index applicable to the
time of such adjustment, and (iii) any fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the market
value adjustment.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by
Lessor shall be limited to compensatory damages and injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, or (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such
assignment nor the acceptance of any rent or performance shall constitute a
waiver or estoppel of Lessor's right to exercise its remedies for the Default or
Breach by Lessee of any of the terms, covenants, or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall
not constitute a consent to any subsequent assignment or subletting by Lessee or
to any subsequent or successive assignment or subletting by the sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto without notifying Lessee or
anyone else liable on the Lease or sublease and without obtaining their consent,
and such action shall not relieve such persons from liability under this Lease
or sublease.
(d) In the event of any Default or Breach of Lessee's
obligations under this Lease, Lessor may proceed directly against Lessee, any
Guarantors or any one else responsible for the performance of the Lessee's
obligations under this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting
shall be in writing, accompanied by information relevant to Lessor's
determination as to the financial and operational responsibility and
appropriateness of the proposed assignee or sublessee, including but not limited
to the intended use and/or required modification of the Premises, if any,
together with a non-refundable deposit of $1,000 or ten percent (10%) of the
current monthly Base Rent, whichever is greater, as reasonable consideration for
Lessor's considering and processing the request for consent. Lessee agrees to
provide Lessor with such other or additional information and/or documentation as
may be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment, or entering into such sublease, be deemed,
for the benefit of Lessor, to have assumed and agreed to conform and comply with
each and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph
12.1(c) shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased to an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
amount required to establish such Security Deposit a condition to Lessor's
consent to such transaction.
(h) Lessor, as a condition to giving its consent to any
assignment or subletting, may require that the amount and adjustment structure
of the rent payable under this Lease be adjusted to what is then the market
value and/or adjustment structure for property similar to the Premises as then
constituted.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all rentals and income arising from any sublease of all or
a portion of the Premises heretofore or hereafter made by Lessee, and Lessor may
collect such rent and income and apply same toward Lessee's obligations under
this Lease; provided, however, that until a Breach (as defined in Paragraph
13.1) shall occur in the performance of Lessee's obligations under this Lease,
Lessee may, except as otherwise provided in this Lease, receive, collect and
enjoy the rents accruing under such sublease. Lessor shall not, by reason of
this or any other assignment of such sublease to Lessor, nor by reason of the
collection of the rents from a sublessee, be deemed liable to the sublessee for
any failure of Lessee to perform and comply with any of Lessee's obligations to
such sublessee under such sublease. Lessee hereby irrevocably authorizes and
directs any such sublessee, upon receipt of a written notice from Lessor stating
that a breach exists in the performance of Lessee's obligations under this
Lease, to pay to Lessor the rents and other charges due and to become due under
the sublease. Sublessee shall rely upon any such statement and request from
Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against said sublessee, or, until the Breach has
been cured, against Lessor, for any such rents and other charges so paid by said
sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior Defaults
or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor
under a sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part
of the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or
Breach by Lessee to the sublessee, who shall have the right to cure the Default
of Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against Lessee
for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an
attorney is consulted by Lessor in connection with a Lessee Default or Breach
(as hereinafter defined), $350.00 is a reasonable minimum sum per such
occurrence for legal services and costs in the preparation and service of a
notice of Default, and that Lessor may include the cost of such services and
costs in said notice as rent due and payable to cure said Default. A "DEFAULT"
is defined as a failure by the Lessee to observe, comply with or perform any of
the terms, covenants, conditions or rules applicable to Lessee under this
Lease. A "BREACH
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is defined as the occurrence of any one or more of the following Defaults, and,
where a grace period for cure after notice is specified herein, the failure by
Lessee to cure such Default prior to the expiration of the applicable grace
period, shall entitle Lessor to pursue the remedies set forth in Paragraphs
13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to
reoccupy same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent or any other monetary payment
required to be made by Lessee hereunder, whether to Lessor or to a third party,
as and when due, the failure by Lessee to provide Lessor with reasonable
evidence of insurance or surety bond required under this Lease, or the failure
of Lessee to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of three
(3) days following written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with applicable law per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the recission of an unauthorized assignment or
subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or
37, (v) the subordination or non-subordination of this Lease per Paragraph 30,
(vi) the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this Lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions
or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs (a), (b) or (c) above, where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf of
Lessor to Lessee; provided, however, that if the nature of Lessee's Default is
such that more than thirty (30) days are reasonably required for its cure, then
it shall not be deemed to be a Breach of this Lease by Lessee if Lessee
commences such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The
making by lessee of any general arrangement or assignment for the benefit of
creditors; (ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. section 101
or any successor statute thereto (unless, in the case of a petition filed
against Lessee, the same is dismissed within sixty (60) days); (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this subparagraph (e) is contrary to any applicable
law, such provision shall be of no force or effect, and not affect the validity
of the remaining provisions.
(f) The discovery by Lessor that any financial statement given
to Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was
materially false.
(g) If the performance of Lessee's obligations under this Lease
is guaranteed: (i) the death of a guarantor, (ii) the termination of a
guarantor's liability with respect to this Lease other than in accordance with
the terms of such guaranty, (iii) a guarantor's becoming insolvent or the
subject of a bankruptcy filing, (iv) a guarantor's refusal to honor the
guaranty, or (v) a guarantor's breach of its guaranty obligation on an
anticipatory breach basis, and Lessee's failure, within sixty (60) days
following written notice by or on behalf of Lessor to Lessee of any such event,
to provide Lessor with written alternative assurance or security, which, when
coupled with the then existing resources of Lessee, equals or exceeds the
combined financial resources of Lessee and the guarantors that existed at the
time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) business days after
written notice to Lessee (or in case of an emergency, without notice), Lessor
may at its option (but without obligation to do so), perform such duty or
obligation on Lessee's behalf, including but not limited to the obtaining of
reasonably required bonds, insurance policies, or governmental licenses, permits
or approvals. The costs and expenses of any such performance by Lessor shall be
due and payable by Lessor to Lessor upon invoice therefor. If any check given to
Lessor by Lessee shall not be honored by the bank upon which it is drawn,
Lessor, at its option, may require all future payments to be made under this
Lease by Lessee to be made only by cashier's check. In the event of a Breach of
this Lease by Lessee, as defined in Paragraph 13.1, with or without further
notice or demand, and without limiting Lessor in the exercise of any right or
remedy which Lessor may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease and the term hereof shall terminate
and Lessee shall immediately surrender possession of the Premises to Lessor. In
such event Lessor shall be entitled to recover from Lessee: (i) the worth at
the time of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of the leasing commission paid by Lessor applicable to the unexpired
term of this Lease. The worth at the time of award of the amount referred to in
provision (iii) of the prior sentence shall be computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of award plus one percent (1%). Efforts by Lessor to mitigate damages
caused by Lessee's Default or Breach of this Lease shall not waive Lessor's
right to recover damages under this Paragraph. If termination of this Lease is
obtained through the provisional remedy of unlawful detainer, Lessor shall have
the right to recover in such proceeding the unpaid rent and damages as are
recoverable therein, or Lessor may reserve therein the right to recover all or
any part thereof in a separate suit for such rent and/or damages. If a notice
and grace period required under subparagraphs 13.1(b), (c) or (d) was not
previously given, a notice to pay rent or quit, or to perform or quit, as the
case may be, given to Lessee under any statute authorizing the forfeiture of
leases for unlawful detainer shall also constitute the applicable notice for
grace period purposes required by subparagraphs 13.1(b), (c) or (d). In such
case, the applicable grace period under subparagraphs 13.1(b), (c) or (d) and
under the unlawful detainer statute shall run concurrently after the one such
statutory notice, and the failure of Lessee to cure the Default within the
greater of the two such grace periods shall constitute both an unlawful detainer
and a Breach of this Lease entitling Lessor to the remedies provided for in this
Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in
effect (in California under California Civil Code Section 1951.4) after Lessee's
Breach and abandonment and recover the rent as it becomes due, provided Lessee
has the right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver to
protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor
for free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "INDUCEMENT PROVISIONS," shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such
inducement Provision shall automatically by deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph shall not be deemed a waiver by Lessor of the provisions of this
Paragraph unless specifically so stated in writing by Lessor at the time of such
acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or trust deed covering the
Premises. Accordingly, if any installment of rent or any other sum due from
Lessee shall not be received by Lessor or Lessor's designee within five (5) days
after such amount shall be due, then, without any requirement for notice to
Lessee, Lessee shall pay to Lessor a late charge equal to six percent (6%) of
such overdue amount. The parties hereby agree that such late charge represents a
fair and reasonable estimate of the costs Lessor will incur by reason of late
payment by Lessee. Acceptance of such late charge by Lessor shall in no event
constitute a waiver of Lessee's Default or Breach with respect to such overdue
amount, nor prevent Lessor from exercising any of the other rights and remedies
granted hereunder. In the event that a late charge is payable hereunder, whether
or not collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable time shall in no event be less than thirty (30) days after receipt by
Lessor, and by the holders of any ground lease, mortgage or deed of trust
covering the Premises whose name and address shall have been furnished Lessee in
writing for such purpose, of written notice specifying wherein such obligation
of Lessor has not been performed; provided, however, that if the nature of
Lessor's obligation is such that more than thirty (30) days after such notice
are reasonably required for its performance, then Lessor shall not be in breach
of this Lease if performance is commenced within such thirty (30) day period and
thereafter diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under
the power of eminent domain or sold under the threat of the exercise of said
power (all of which are herein called "CONDEMNATION"), this Lease shall
terminate as to the part so taken as of the date the condemning authority takes
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title or possession, whichever first occurs. If more than ten percent (10%) of
the floor area of the Premises, or more than twenty-five percent (25%) of the
land area not occupied by any building, is taken by condemnation, Lessee may,
at Lessee's option, to be exercised in writing within ten (10) days after
Lessor shall have given Lessee written notice of such taking (or in the absence
of such notice, within ten (10) days after the condemning authority shall have
taken possession) terminate this Lease as of the date the condemning authority
takes such possession. If Lessee does not terminate this Lease in accordance
with the foregoing, this Lease shall remain in full force and effect as to the
portion of the Premises remaining, except that the Base Rent shall be reduced
in the same proportion as the rentable floor area of the Premises taken bears
to the total rentable floor area of the building located on the Premises. No
reduction of Base rent shall occur if the only portion of the Premises taken is
land on which there is no building. Any award for the taking of all or any
part of the Premises under the power of eminent domain or any payment made
under threat of the exercise of such power shall be the property of Lessor,
whether such award shall be made as compensation for diminution in value of the
leasehold or for the taking of the fee, or as severance damages; provided,
however, that Lessee shall be entitled to any compensation separately awarded
to Lessee for Lessee's relocation expenses and/or loss of Lessee's Trade
Fixtures. In the event that this Lease is not terminated by reason of such
condemnation, Lessor shall to the extent of its net severance damages received,
over and above the legal and other expenses incurred by Lessor in the
condemnation matter, repair any damage to the Premises caused by such
condemnation, except to the extent that Lessee has been reimbursed therefor by
the condemning authority. Lessee shall be responsible for the payment of any
amount in excess of such net severance damages required to complete such repair.
16. TENANCY STATEMENT.
16.1 Each Party (as "RESPONDING PARTY") shall within ten (10) days
after written notice from the other Party (the "REQUESTING PARTY") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "TENANCY STATEMENT" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises,
any part thereof, or the building of which the Premises are a part, Lessee and
all Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee
and such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in coincidence and shall be used only for the purposes
herein set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises, or if
this is a sublease, of the Lessee's interest in the prior lease. In the event
of a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject
to the foregoing, the obligations and/or covenants in this Lease to be
performed by the Lessor shall be binding only upon the Lessor as hereinabove
defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within thirty (30)
days following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the
performance of all obligations to be performed or observed by the Parties under
this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the
terms of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains
all agreements between the Parties with respect to any matter mentioned herein,
and no other prior or contemporaneous agreement or understanding shall be
effective. Lessor and Lessee each represents and warrants to the Brokers that
it has made, and is relying solely upon, its own investigation as to the
nature, quality, character and financial responsibility of the other Party to
this Lease and as to the nature, quality and character of the Premises.
Brokers have no responsibility with respect thereto or with respect to any
default or breach hereof by either Party.
23. NOTICES.
23.1 All notices required or permitted by this Lease shall be in
writing and may be delivered in person (by hand or by messenger or courier
service) or may be sent by regular, certified mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph 23.
The addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may
by written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If sent by
regular mail the notice shall be deemed given forty-eight (48) hours after the
same is addressed as required herein and mailed with postage prepaid. Notices
delivered by United States Express Mail or overnight courier that guarantees
next day delivery shall be deemed given twenty-four (24) hours after delivery
or the same to the United States Postal Service or courier. If any notice is
transmitted by facsimile transmission or similar means, the same shall be
deemed served or delivered upon telephone confirmation of receipt of the
transmission thereof, provided a copy is also delivered via delivery or mail.
If notice is received on a Sunday or legal holiday, it shall be deemed received
on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof.
Lessor's consent to, or approval of, any act shall not be deemed to render
unnecessary the obtaining of Lessor's consent to, or approval of, any
subsequent or similar act by Lessee, or be construed as the basis of an
estoppel to enforce the provision or provisions of this Lease requiring such
consent. Regardless of Lessor's knowledge of a Default or Breach at the time
of accepting rent, the acceptance of rent by Lessor shall not be a waiver of
any preceding Default or Breach by Lessee of any provision hereof, other than
the failure of Lessee to pay the particular rent so accepted. Any payment
given Lessor by Lessee may be accepted by lessor on account of moneys or
damages due Lessor, notwithstanding any qualifying statements or conditions
made by Lessee in connection herewith, which such statements and/or conditions
shall be of no force or effect whatsoever unless specifically agreed to in
writing by Lessor at or before the time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
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27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed
or performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall
be subject and subordinate to any ground lease, mortgage, deed of trust, or
other hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof, Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Lessee may have by reason thereof.
If any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of
Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who
acquires ownership of the Premises by reason of a foreclosure of a Security
Device, and that in the event of such foreclosure, such new owner shall not: (i)
be liable for any act or omission of any prior lessor or with respect to events
occurring prior to acquisition of ownership, (ii) be subject to any offsets or
defenses which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into
by Lessor after the execution of this Lease, Lessee's subordination of this
Lease shall be subject to receiving assurance (a "NON-DISTURBANCE AGREEMENT")
from the Lender that Lessee's possession and this Lease, including any options
to extend the term hereof, will not be disturbed so long as Lessee is not in
Breach hereof and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30
shall be effective without the execution of any further documents; provided,
however, that, upon written request from Lessor or a Lender in connection with a
sale, financing or refinancing of the Premises, Lessee and Lessor shall execute
such further writings as may be reasonably required to separately document any
such subordination or non-subordination, attornment and/or non-disturbance
agreement as is provided for herein.
31. ATTORNEY'S FEES. If any Party or Broker brings an action or proceeding
to enforce the terms hereof or declare rights hereunder, the Prevailing Party
(as hereafter defined) or Broker in any such proceeding, action, or appeal
thereon, shall be entitled to reasonable attorney's fees. Such fees may be
awarded in the same suit or recovered in a separate suit, whether or not such
action or proceeding is pursued to decision or judgment. The term, "PREVAILING
PARTY" shall include, without limitation, a Party or Broker who substantially
obtains or defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other Party or Broker of its
claim or defense. The attorney's fee award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorney's fees reasonably incurred. Lessor shall be entitled to attorney's
fees, costs and expenses incurred in the preparation and service of notices of
Default and consultations in connection therewith, whether or not a legal action
is subsequently commenced in connection with such Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the building of which
they are a part, as Lessor may reasonably deem necessary. Lessor may at any time
place on or about the Premises or building any ordinary "For Sale" signs and
Lessor may at any time during the last one hundred twenty (120) days of the term
hereof place on or about the Premises any ordinary "For Lease" signs. All such
activities of Lessor shall be without abatement of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises, except that
Lessee may, with Lessor's prior written consent, install (but not on the roof)
such signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and the right to install, and
all revenues from the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Lessee's business.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is required to an
act by or for the other Party, such consent shall not be unreasonably withheld
or delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor
upon receipt of an invoice and supporting documentation therefor. Subject to
Paragraph 12.2(o) (applicable to assignment or subletting), Lessor may, as a
condition to considering any such request by Lessee, require that Lessee deposit
with Lessor an amount of money (in addition to the Security Deposit held under
Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will
incur in considering and responding to Lessee's request. Except as otherwise
provided, any unused portion of said deposit shall be refunded to Lessee without
interest. Lessor's consent to any act, assignment of this Lease or subletting
of the Premises by Lessee shall not constitute an acknowledgement that no
Default or Breach by Lessee of this Lease exists, nor shall such consent be
deemed a waiver of any then existing Default or Breach, except as may be
otherwise specifically stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease
are acknowledged by Lessee as being reasonable. The failure to specify herein
any particular condition to Lessor's consent shall not preclude the imposition
by Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR.
37.1 If there are to be any Guarantors of this Lease per Paragraph
1.11, the form of the guaranty to be executed by each such Guarantor shall be in
the form most recently published by the American Industrial Real Estate
Association, and each said Guarantor shall have the same obligations as Lessee
under this Lease, including but not limited to the obligation to provide the
Tenancy Statement and information called for by Paragraph 16.
37.2 It shall constitute a Default of the Lessee under this Lease if
any such Guarantor fails or refuses, upon reasonable request by Lessor to give:
(a) evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including
in the case of a corporate Guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty, together with a
certificate of incumbency showing the signature of the persons authorized to
sign on its behalf, (b) current financial statements of Guarantor as may from
time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written
confirmation that the guaranty is still in effect.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises
and the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Paragraph 39 the word "OPTION" has
the following meaning: (a) the right to extend the term of this Lease or to
renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (b) the right of first refusal to lease the Premises or the
right of first offer to lease the Premises or the right of first refusal to
lease other property of Lessor or the right of first offer to lease other
property of Lessor; (c) the right to purchase the Premises, or the right of
first refusal to purchase the Premises, or the right of first offer to purchase
the Premises, or the right to purchase other property of Lessor, or the right of
first refusal to purchase other property of Lessor, or the right of first offer
to purchase other property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to
Lessee in this Lease is personal to the original Lessee named in Paragraph 1.1
hereof, and cannot be voluntarily or involuntarily assigned or exercised by any
person or entity other than said original Lessee while the original Lessee is
in full and actual possession of the Premises and without the intention of
thereafter assigning or subletting. The Options, if any, herein granted to
Lessee are not assignable, either as a part of an assignment of this Lease or
separately or apart therefrom, and no Option may be separated from this Lease
in any manner, by reservation or otherwise.
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39.3 MULTIPLE OPTIONS. In the event that Lessee has any Multiple
Options to extend or renew this Lease, a later Option cannot be exorcised unless
the prior Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i) during
the period commencing with the giving of any notice of Default under Paragraph
13.1 and continuing until the noticed Default is cured, or (ii) during the
period of time any monetary obligation due Lessor from Lessee is unpaid (without
regard to whether notice thereof is given Lessee), or (iii) during the time
Lessee is in Breach of this Lease, or (iv) in the event that Lessor has given to
Lessee three (3) or more notices of Default under Paragraph 13.1, whether or not
the Defaults are cured, during the twelve (12) month period immediately
preceding the exercise of the Option.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option
shall terminate and be of no further force or effect, notwithstanding Lessee's
due and timely exercise of the Option, if, after such exercise and during the
term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of
Lessee for a period of thirty (30) days after such obligation becomes due
(without any necessity of Lessor to give notice thereof to Lessee), or (ii)
Lessor gives to Lessee three (3) or more notices of Default under Paragraph
13.1, during any twelve (12) month period, whether or not the Defaults are
cured, or (iii) if Lessee commits a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred in
connection therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment and there shall survive the right
on the part of said Party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said Party
to pay such sum or any part thereof, said Party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay under the
provisions of this Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to lease to Lessee.
This Lease is not intended to be binding until executed by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such Multiple Parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF
ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES
AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS
LEASE OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY
SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX
CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A
STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE
PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
<TABLE>
<CAPTION>
<S> <C>
Executed at _____________________________________ Executed at _____________________________________
on ______________________________________________ on ______________________________________________
by LESSOR: by LESSEE:
VANS, INC. ORANGE ENGINEERING AND MACHINE COMPANY, INC.
- ------------------------------------------------- -------------------------------------------------
A DELAWARE CORPORATION A CALIFORNIA CORPORATION
- ------------------------------------------------- -------------------------------------------------
By ______________________________________________ By ______________________________________________
Name Printed: ___________________________________ Name Printed: ___________________________________
Title: __________________________________________ Title: __________________________________________
By ______________________________________________ By ______________________________________________
Name Printed: ___________________________________ Name Printed: ___________________________________
Title: __________________________________________ Title: __________________________________________
Address: ________________________________________ Address: ________________________________________
_________________________________________________ _________________________________________________
Tel. No.(___)____________ Fax No.(___)___________ Tel. No.(___)____________ Fax No.(___)___________
</TABLE>
NET PAGE 10
NOTICE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the
most current form: American Industrial Real Estate Association, 345
South Figueroa Street, Suite M-1, Los Angeles, CA 90071. (213) 687-8777.
Fax. No. (213) 687-8616.
(c) Copyright 1990 -- By American Industrial Real Estate Association.
All rights reserved. No part of these works may be reproduced
in any form without permission in writing.
FORM 204N-R-12/91
<PAGE> 11
ADDENDUM TO THAT CERTAIN STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT
LEASE--NET, DATED FOR REFERENCE PURPOSES ONLY AS OF JULY 22, 1996 BY AND
BETWEEN VANS, INC., AS LESSOR, AND ORANGE ENGINEERING AND MACHINE COMPANY,
INC., AS LESSEE
AS REFERENCED IN PARAGRAPH 1.12 ("ADDENDA") OF THE AFOREMENTIONED LEASE, THE
FOLLOWING ARE MODIFICATIONS TO SAID LEASE AS AGREED THIS DATE BETWEEN THE
PARTIES HERETO:
49. Paragraph 1.4 ("EARLY POSSESSION") shall be modified to contain the
following: "Lessee shall have the right to access the factory area and yard
area of the Premises from and after September 1, 1996 solely for the purposes
of (a) distributing electrical and air lines, installation of breaker boxes and
step down transformers and performing other similar preparatory work necessary
for Lessee's intended use of the Premises and (b) conducting limited
manufacturing as necessary to allow Lessee to transition to the full use of the
Premises by April 1, 1997, so long as Lessee's existing manufacturing facility
remains fully operational until not earlier than February 15, 1997."
50. Paragraph 1.5 ("BASE RENT") shall be modified to contain the
following:
(a) "On October 1, 1999, the monthly Base Rent shall be adjusted
by the increase, if any, from the date this Lease commenced, in the Consumer
Price Index of the Bureau of Labor Statistics of the U.S. Department of Labor
for Urban Wage Earners and Clerical Workers (Revised Series), Los
Angeles-Anaheim-Riverside Average (1982-1984=100) "All Items", herein referred
to as "CPI".
(b) The monthly Base Rent payable in accordance with subparagraph
(a) of this Paragraph 50 shall be calculated as follows: the Base Rent payable
for the first month of the term of this Lease, as set forth in Paragraph 1.6 of
this Lease, shall be multiplied by a fraction, the numerator of which shall be
the CPI for the second month prior to the calendar month during which the
adjustment is to take effect, and the denominator of which shall be the CPI for
February 1997. The sum so calculated shall constitute the new monthly Base
Rent hereunder, but in no event shall such new Base Rent be less than the Base
Rent payable for the month immediately preceding the date for Base Rent
adjustment.
(c) If any adjustment provided for herein shall not have been made
at the point in time required, Lessee shall pay monthly Base Rent at the last
rate applicable until Lessee has received Lessor's written notice as to such
adjustment. Within ten (10) days after Lessee's receipt of Lessor's notice
Lessee shall pay
<PAGE> 12
to Lessor an amount equal to the new amount or rate less all prior payments on
account thereof.
(d) If at any adjustment date the CPI shall not exist in the same
format as recited in this Paragraph 50, Lessor shall substitute any official
index published by the Bureau of Labor Statistics, or successor or similar
governmental agency, as may then be in existence and shall be most nearly
equivalent thereto."
51. Paragraph 1.8 ("PERMITTED USE") shall be modified to add the
following: "In connection with the foregoing permitted use of the Premises,
Lessee shall obtain all necessary and proper business licenses and permits from
the City of Orange to operate its business at the Premises."
52. Paragraph 2.2 ("CONDITION") shall be modified to add the following:
"LESSEE HEREBY ACKNOWLEDGES THAT LESSOR MAKES NO REPRESENTATIONS OR WARRANTIES
WITH RESPECT TO THE AVAILABILITY OR UNAVAILABILITY OF ANY PERMITS OR
GOVERNMENTAL APPROVALS WITH REGARD TO LESSEE'S INTENDED USE OF THE PREMISES.
EXCEPT AS SET FORTH IN THIS PARAGRAPH 2.2, LESSEE ACCEPTS THE PREMISES IN AN
"AS-IS" CONDITION.
Prior to delivery of the Premises to Lessee, Lessor shall perform the following
work:
(a) paint the entire office area of the Premises by March 1, 1997;
(b) clean the flooring throughout the office areas of the Premises
by March 1, 1997;
(c) paint the bottom eight (8) feet of the warehouse walls
white/off white by October 1, 1996;
(d) vacuum and clean the inside ceiling rafters and beams to rid
buildings of all rubber sediment and dust by October 1, 1996;
(e) provide all requisite licenses for craneways from the City of
Orange, OSHA, and any other applicable governmental entity to Lessee to ensure
that such licenses are certified and current by September 30, 1996;
(f) acid wash the warehouse floor by October 1, 1996;
(g) ensure that the main power panel will be separately metered
(provided, however, that Lessor shall continue to receive the electrical bill
for the entire Parcel (as defined hereinbelow) but shall bill Lessee separately
according to the
2
<PAGE> 13
usage indicated on the meter) and in compliance with all applicable building
and City codes by October 31, 1996;
(h) patch and slurry seal the asphalt areas of the Premises by
October 31, 1996 (excluding the parking lot located at the rear of the
Premises);
(i) pour concrete to level the 7,000 square foot southerly
warehouse floor area and construct two (2) grade level ramps on the outside of
the building as shown on Exhibit "A" attached hereto by January 31, 1997;
(j) clean the restroom building and ensure that all light fixtures
and plumbing fixtures are in good operating condition by September 30, 1996;
(k) remove the overhead conveyor system which runs between the
warehouse and the factory at Lessor's sole cost and expense by September 30,
1996;
(l) cause all overhead doors in the factory to be in good working
order by January 31, 1997;
(m) cease retail operations at, and remove any remaining merchandise
from, the VANS retail store located on the Premises on or before March 1, 1997;
(n) install fencing as indicated on Exhibit "A" attached hereto to
enclose the parking lot located at the rear of the Premises by October 1, 1996;
and
(o) concrete over the steel ribs located on the warehouse floor
area crosshatched on Exhibit "A" attached hereto by October 1, 1996.
Notwithstanding the foregoing, the entry by Lessee onto the Premises
for preparatory work pursuant to Paragraph 49 hereof shall be deemed to be
Lessee's waiver and satisfaction of the obligations of Lessor under
subparagraphs (e), (g) and (h) above. In the event Lessor fails to complete
any of the items listed in subparagraphs (a) through (o) of this Paragraph 2.2
in a timely fashion, Lessee shall immediately notify Lessor. So long as Lessor
completes such item within thirty (30) days of receipt of Lessee's notice,
Lessor shall not be in breach of this Lease. If Lessor does not complete such
item in said thirty (30) day period, Lessee's sole remedy hereunder shall be
the right to perform such work and, upon presentation of paid invoices to
Lessor, deduct the reasonable cost of such work from rent coming due
hereunder."
53. Paragraph 3.3 ("DELAY IN POSSESSION") shall be modified to add the
following: "Notwithstanding anything the contrary contained in this Lease, in
the event Lessor does not deliver the
3
<PAGE> 14
Premises to Lessee by March 31, 1996, (a) Lessee shall receive a rent credit in
the amount of $2,000 for each day that elapses between March 31, 1996 and the
date the Premises are actually delivered to Lessee, and (b) payment of Base
Rent shall commence May 1, 1997."
54. Paragraph 6.2 ("HAZARDOUS SUBSTANCES") shall be modified to add the
following: "(d) WAIVER/PRESENCE OF HAZARDOUS SUBSTANCES. Lessee hereby waives
on its behalf all claims and demands against Lessor for any loss, damage,
injury or claim attributable to the presence of Hazardous Substances on, under,
or about the Premises. If, as a result of a notification or decree or similar
communication by a governmental agency having the appropriate authority, Lessor
determines, in its sole and absolute discretion, that it is necessary to
destroy or remove all or part of either of the buildings located on the
Premises or to perform any other act of remediation in order to comply with all
applicable environmental laws and regulations, Lessor shall have the right to
either (a) perform such acts as it deems necessary to comply with such laws and
regulations, in which case Base Rent payable hereunder shall be abated in
proportion to the area of the Premises rendered untenantable by Lessor's
actions hereunder, or (b) terminate this Lease by written notice thereof given
to Lessee, which notice shall be effective not less than sixty (60) days from
Lessee's receipt."
55. Paragraph 7.2 ("LESSOR'S OBLIGATIONS") is hereby deleted and replaced
with the following: "Upon receipt of the need for such repairs and subject
to Paragraph 13.5 of this Lease, Lessor shall, at Lessor's expense, repair the
foundations, exterior roof and structural aspects of the buildings located upon
the Premises to the same condition as existed on the Commencement Date. Lessor
shall not, however, be obligated to (a) improve the structural aspects of the
Premises to a condition superior to that which existed on the Commencement
Date, (b) paint the exterior surface of the exterior walls or to maintain the
windows, doors or plate glass or the interior surface of exterior walls, or (c)
make any repairs until Lessor receives written notice of the need for such
repairs. It is the intention of the Parties that the terms of this Lease
govern the respective obligations of the Parties as to maintenance and repair
of the Premises. Lessee and Lessor expressly waive the benefit of any statute
now or hereafter in effect to the extent it is inconsistent with the terms of
this Lease with respect to, or which affords Lessee the right to make repairs
at the expense of Lessor or to terminate this Lease by any reason of, any
needed repairs."
56. OPTION TO EXTEND. Provided Lessee is not in default under this
Lease prior to the expiration date of the initial term of this Lease, Lessee
shall have the option to renew this Lease for one (1) additional period of five
(5) years, immediately commencing upon the expiration of the initial term of
this Lease
4
<PAGE> 15
(the "Extended Term"). Lessee shall notify Lessor of its intention to exercise
its option to renew not less than one hundred eighty (180) days prior to the
expiration of the initial term of this Lease. The monthly Base Rent for the
Extended Term shall be adjusted on the first and thirty-first months of the
Extended Term according to the percentage change in the CPI as set forth in
Paragraph 50, substituting "January 1, 2002" and "July 1, 2004", respectively,
for "July 1, 1999" as the adjustment date.
57. RIGHT OF FIRST REFUSAL.
(a) Lessor shall not, at any time prior to the expiration of the
terms of this Lease, or any extension thereof, sell the Premises, or any
interest therein, without first giving written notice thereof to Lessee, which
notice is hereinafter referred to as "Notice of Sale".
(b) The Notice of Sale shall include the exact and complete terms
of the proposed sale and shall have attached thereto a copy of bona fide offer
and counteroffer, if any, duly executed by both Lessor and the prospective
purchaser.
(c) For a period of ten (10) business days after receipt by Lessee
of the Notice of Sale, Lessee shall have the right to give written notice to
Lessor of Lessee's right to purchase the Premises, or the interest proposed to
be sold, on the same terms, price and conditions as set forth in the Notice of
Sale. In the event that Lessor does not receive written notice of Lessee's
exercise of the right herein granted within said ten (10) day period, there
shall be a conclusive presumption that Lessee has elected not to exercise
Lessee's right hereunder, and Lessor may sell the Premises, or the interest
proposed to be sold, on the same terms set forth in the Notice of Sale.
(d) In the event that Lessee declines to exercise its right of
first refusal after receipt of the Notice of Sale, and, thereafter, Lessor and
the prospective purchaser reduce the sale price by more than five percent (5%),
then Lessee's right of first refusal shall reapply to said transaction as of
the occurrence of any of the aforementioned events.
58. PRORATION OF EXPENSES. Lessor and Lessee acknowledge that the
property constituting the Premises comprised of 76,000 square feet as well as
that certain adjacent property comprised of 71,400 square feet (the "CAPCO
Property", as outlined on Exhibit "A" attached to the Lease) form a single tax
parcel commonly known as 2095 N. Batavia Street (the "Parcel") and Lessor may
incur certain expenses (e.g. insurance premiums) that may benefit the entire
Parcel. Accordingly, any payments or reimbursements to be made by Lessee
hereunder with respect to Real Property Taxes, insurance premiums and/or other
costs incurred by Lessor for the benefit of the entire Parcel hereunder shall
be pro-rated
5
<PAGE> 16
between the Premises and the CAPCO Property based upon the percentage derived
from dividing the number of square feet comprising the building area on the
Premises and the CAPCO Property, respectively, by the total number of square
feet of all the buildings on the Parcel, which percentage, as of the date
hereof, is with respect to the Premises, 52%, and with respect to the CAPCO
Property, 48%. If further improvements are constructed on either the Premises
or the CAPCO Property, the percentages set forth in this Paragraph 58 shall be
recalculated accordingly.
6
<PAGE> 1
EXHIBIT 10.54
TRUST UNDER VANS, INC.
DEFERRED COMPENSATION PLAN
This Agreement ("Trust Agreement") is made and entered into as
of this 1st day of June, 1996, by and between VANS, INC., a Delaware
corporation (the "Company"), and CHEMICAL TRUST COMPANY OF CALIFORNIA, a
California corporation (the "Trustee"), with reference to the following facts:
WITNESSETH
WHEREAS, the Company has adopted a Nonqualified Deferred
Compensation Plan for the benefit of WALTER SCHOENFELD, attached hereto as
Appendix A (the "Plan");
WHEREAS, the Company has incurred and anticipates paying under
the terms of the Plan certain deferred compensation amounts to WALTER
SCHOENFELD and his spouse ESTHER SCHOENFELD (collectively, "Participants");
WHEREAS, to provide itself with a source of ready funds to
assist it in meeting its liabilities under the Plan, the Company desires to
establish a trust (the "Trust"), and to contribute to the Trust assets that
shall be held for the Company by the Trustee, subject to the claims of the
Company's creditors in the event of its Insolvency (as defined in
<PAGE> 2
Section 3(b) hereof), until paid to the Participants in such manner and at such
times as specified in the Plan; and
WHEREAS, it is the intention of the parties that this Trust
shall constitute an unfunded arrangement and shall not affect the status of the
Plan as an unfunded plan maintained for the purpose of providing deferred
compensation for an employee who is a member of a select group of management or
is a highly-compensated employee of the Company for purposes of Title I of the
Employee Retirement Income Security Act of 1974.
NOW, THEREFORE, the parties hereto hereby establish the Trust,
and agree that it shall be held, administered and distributed as follows:
AGREEMENTS
Section 1. Establishment of Trust.
(a) The Company hereby deposits with the Trustee, IN
TRUST, the sum of Two Hundred Thousand Dollars ($200,000), which amount,
together with any additional contributions made from time to time hereafter,
any investments made therewith, any reinvestment of proceeds thereof, and any
income thereon, and less any expenses, taxes, and distributions or other
payments made hereunder (if any), shall be held, administered and distributed
by the Trustee as herein provided.
2
<PAGE> 3
(b) This Trust shall be irrevocable.
(c) This Trust is intended to be a "grantor trust," of
which the Company is the grantor, within the meaning of Subpart E, Part I,
Subchapter J, Chapter 1, Subtitle A of the Internal Revenue Code of 1986, as
amended (the "Code"), and shall be construed accordingly.
(d) All Trust assets shall be held separate and apart
from any other funds of the Company, and shall be used exclusively for the
Participants and the general creditors of the Company, as herein set forth.
Participants shall have no preferred or other claim on, or any beneficial
ownership interest in, any assets of the Trust. Any rights created under the
Plan and this Trust Agreement shall be mere unsecured contractual rights of
Participants against the Company. Assets of the Trust shall be subject to the
claims of the Company's general creditors under federal and state law in the
event of the Company's Insolvency, as defined in Section 3(b) hereof.
(e) The Company, in its sole discretion, may at any time,
or from time to time, make additional deposits, of cash or other property
acceptable to the Trustee, to augment the principal of the Trust, which
deposits shall be merged with the then principal balance of the Trust, and
held, administered and distributed by the Trustee as herein provided.
3
<PAGE> 4
(f) The Trustee's responsibilities, obligations and
duties with respect to this Trust shall be solely those set forth herein. The
Trustee shall have no responsibility to (i) require any deposits to be made to
the Trust pursuant to the terms of the Plan, (ii) compute the amount of
deposits, if any, required to be made to the Trust pursuant to the terms of the
Plan, or (iii) determine whether amounts received by the Trustee comply with
the terms of the Plan. The provisions hereof shall control in the event of any
conflict between this Trust Agreement and any provision of the Plan relating to
any of the Trustee's responsibilities, obligations or duties.
(g) The Trustee accepts the Trust established hereunder
on the terms and conditions set forth herein, and agrees to perform the duties
imposed on it by this Trust Agreement.
Section 2. Payments to Plan Participants.
(a) The Trustee shall have no responsibility whatsoever
with regard to the administration of the Plan. The Participants' entitlement
to benefits under the Plan shall be determined as therein provided, and any
claims for benefits shall be considered and reviewed only under the claims
procedures therein set forth. The Trustee shall have no responsibility to
intervene in any such process, or to interpret the provisions of the Plan.
4
<PAGE> 5
(b) The Company shall deliver to the Trustee a schedule
(the "Payment Schedule"), to be attached hereto as Appendix B, that sets forth
the amounts to be paid to the Participants, the time of such payment, and the
address or depositary to which such payments shall be sent. Except as
otherwise provided herein, the Trustee shall make payments to the Participants
from the Trust only in the amounts and at the times set forth in the Payment
Schedule. The Company shall provide the Trustee on a timely basis with written
directions setting forth the amount of federal, state or local income taxes to
be withheld, paid over and reported to the appropriate taxing authorities in
respect of any such payments. The Trustee shall make provision for the
reporting and withholding of any such taxes that may be required to be
withheld, and the Trustee shall either pay amounts so directed to be withheld
to the appropriate taxing authorities, or to the Company to be forwarded to
such authorities. The Trustee shall be held harmless for complying with any
such written directions. Any change to the Payment Schedule shall be delivered
to Trustee not less than thirty (30) days prior to the date on which the first
payment is to be made in accordance with the revised Payment Schedule.
(c) The Company may make payment of benefits directly to
a Participant as they become due under the Plan. The Company shall notify the
Trustee of its direct payment of benefits prior to the time that amounts are
otherwise payable to Participants hereunder. Any such payments shall be
deducted from the amounts next payable under the Payment Schedule, and any
notice thereof actually received by the Trustee shall constitute an amendment
of the Payment Schedule. The Participants shall have the right to dispute
5
<PAGE> 6
whether the Company has actually so made any such payments directly and, if the
Company cannot provide conclusive proof of such payments, the Trustee shall
remain obligated to make such payments pursuant hereto, and shall be held
harmless therefor. If the Trust assets are insufficient to make payments of
benefits in accordance with the terms of the Plan, then the Company shall pay
the balance as each payment comes due. The Trustee shall notify the Company if
Trust assets may be or become insufficient to make any such payments.
(d) Notwithstanding any contrary provision hereof, the Company
shall remain obligated to pay benefits under the Plan. Nothing herein shall
relieve the Company of its primary obligation to pay benefits thereunder,
except that the Company shall be relieved of such liabilities to the extent
that they are actually satisfied by the application of Trust assets.
Section 3. Trustee Responsibility Regarding Payments to
Participants when Company is Insolvent.
(a) At all times during the continuance of the Trust, as
provided in Section 1(d) hereof, its principal and income shall be subject to
the claims of the general creditors of the Company under federal and state law,
as set forth below.
(b) The Trustee shall cease payment of benefits to
Participants if the Company is or becomes Insolvent. The Company shall be
considered "Insolvent" for these purposes if (i) the Company is unable to pay
its debts as they become due, or (ii) the
6
<PAGE> 7
Company is subject to a pending proceeding as a debtor under the United States
Bankruptcy Code, or any analogous legal proceedings for the protection of
debtors.
(c) The Company's Board of Directors and its Chief
Executive Officer (collectively, "Board") shall have the duty and
responsibility to inform the Trustee in writing if the Company is or shall
become Insolvent. If a person claiming to be a creditor of the Company alleges
in writing to the Trustee that the Company is or has become Insolvent, then the
Trustee shall determine whether such allegation is true. Pending such
determination, the Trustee shall discontinue payment of benefits to
Participants hereunder, and shall be held harmless therefor.
(d) Unless the Trustee has received actual notice or
confirmation of the Company's Insolvency as provided in Section 3(c), the
Trustee shall have no duty to inquire whether the Company is Insolvent, and
shall administer the Trust at all times as though the Company were solvent.
The Trustee may in all events rely on such evidence concerning the Company'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 solvency
or Insolvency.
(e) If at any time the Trustee has been actually informed
or has actually determined that the Company is Insolvent as hereinabove
provided, the Trustee shall hold the assets of the Trust for the benefit of the
Company's general creditors, and shall suspend
7
<PAGE> 8
payments to Participants, until it receives a court order directing the
disposition of the Trust's assets, or until the Company once again becomes
solvent without the entry of any such order, as certified in writing by the
Board. The Trustee shall thereupon resume the payment of benefits to
Participants only after the Trustee has received written notice or other
confirmation that the Company is no longer Insolvent. Nothing herein shall in
any way diminish any rights of Participants to pursue their rights as general
creditors of the Company with respect to benefits due under the Plan, or
otherwise.
(f) Provided that there are sufficient assets, if
payments are resumed pursuant to Section 3(e) hereof the first payment
following such discontinuance shall include the aggregate amount of all
payments then owing to Participants pursuant to the Payment Schedule for the
period of such discontinuance, less the aggregate amount of any payments made
to Participants by the Company during such period, as certified in writing to
the Trustee by the Board.
(g) Notwithstanding any contrary provision hereof, during
any period of the Company's Insolvency, the Trustee shall continue to be fully
authorized to deduct and pay all of its own fees and expenses, and all other
expenses incurred in the administration of the Trust, including any expenses
incurred in connection with the determination of the Company's actual or
alleged Insolvency.
8
<PAGE> 9
Section 4. Payments to Company.
(a) Except as expressly herein provided, the Company
shall have no right or power to direct the Trustee to return to the Company, or
to divert to persons other than the Participants or the general creditors of
the Company in the event of Insolvency, all or any portion of the Trust's
assets before all payments of benefits have been made to the Participants
pursuant to the terms of the Plan.
(b) Notwithstanding the foregoing provisions of Section
4(a) hereof, the Trustee shall deliver to the Company the entire then remaining
balance of the Trust within thirty (30) days following the Trustee's receipt of
certified copies of the Death Certificates of both of the Participants, or such
other satisfactory evidence as the Trustee may reasonably require that all
payments due under the Plan have been made.
Section 5. Investment Authority.
(a) The Company shall direct the Trustee with respect to
the investment of Trust assets, and the Trustee specifically shall be held
harmless with respect to both any action taken pursuant to such instructions,
and the performance of any investments acquired
9
<PAGE> 10
or held in connection therewith. Subject to the foregoing, the Trustee shall
have exclusive authority to hold, manage and invest Trust assets, and shall
have the power, in its discretion:
(i) To invest and reinvest in any property, real,
personal or mixed, wherever situated and whether or not productive of
income or consisting of wasting assets, including without limitation,
common and preferred stocks; bonds; notes; debentures (including
convertible stocks and securities); certificates of deposit; or demand
or time deposits (including any such deposits with the Trustee);
shares or units of investment companies (notwithstanding that the
Trustee or any affiliate acts as investment advisor, custodian,
transfer agent, registrar, sponsor, distributor or manager); interests
in partnerships and trusts; bank depositary contracts; insurance
policies and annuity contracts; puts, calls or other options, covered
or uncovered; oil, mineral or gas properties, royalties, interests or
rights; and without being limited to the classes of property in which
trustees are authorized to invest by any law or any rule of court of
any state, and without regard to the proportion any such property may
bear to the entire amount of the Trust assets;
(ii) To retain any property at any time received or held
in the Trust;
(iii) To sell or exchange any property of the Trust at
public or private sale, for cash or on credit, to grant and exercise
all conversion or subscription rights
10
<PAGE> 11
pertaining to any such property, and to enter into any covenant or
agreement to purchase any property in the future;
(iv) To participate in any plan of reorganization,
consolidation, merger, combination, liquidation or other similar plan
relating to property held by it and to consent to or oppose any such
plan or any action thereunder or any contract, lease, mortgage,
purchase, sale or other action by any person;
(v) To deposit any property held by it with any
protective, reorganization or similar committee, to delegate
discretionary power thereto, and to pay part of the expenses and
compensation thereof and any assessments levied with respect to any
such property so deposited;
(vi) To extend the time of payment of any obligation held
by it; and
(vii) To borrow money from others, to issue its promissory
note or notes therefor, and to secure the repayment thereof by
pledging any property held by it.
(b) In no event may the Trustee invest in securities
(including stock or rights to acquire stock) or obligations issued by the
Company, other than a de minimis amount held in common investment vehicles in
which the Trustee may from time to time invest.
11
<PAGE> 12
(c) 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.
(d) The Trustee shall have the power to register any
property of the Trust in its own name or in the name of one or more nominees,
with or without the addition of words indicating that such securities are held
in a fiduciary capacity, to hold any securities in bearer form, and to combine
certificates representing such securities with certificates of the same issue
held by the Trustee in other fiduciary or representative capacities or as agent
for customers, or to deposit or to arrange for the deposit of such securities
in any qualified central depository even though, when so deposited, such
securities may be merged and held in bulk in the name of the nominee of such
depository with other securities deposited therein by other depositors, or to
deposit or arrange for the deposit of any securities issued by the United
States government, or any agency or instrumentality thereof, but the books and
records of the Trustee shall at all times show that all such investments are
assets of the Trust.
(e) If, pursuant to the written direction of the Company,
a commercial annuity, retirement income or life insurance policy or contract is
held hereunder or is purchased with Trust assets, 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 a Participant in connection with a
12
<PAGE> 13
payment hereunder, or to loan to any person the proceeds of any borrowing
against such policy. The Trustee's sole responsibility with respect to any
commercial annuity, retirement income or life insurance policy or contract to
be held hereunder or purchased with Trust assets shall be as owner and
custodian thereof, and the Company shall be solely responsible for determining
the issuer and the terms of any such policy or contract.
(f) When the Trustee delivers property against payment,
delivery of the property and receipt of payment may not be simultaneous. To
the extent the Trustee is fulfilling its fiduciary responsibilities under
Section 7 hereof with respect to such delivery, the risk of non-receipt of
payment shall be that of the Trust, and the Trustee shall have no liability
therefor. All credits to the Trust of the anticipated proceeds of sales and
redemptions of property and of anticipated income from property shall be
conditional upon receipt by the Trustee of final payment and may be reversed to
the extent such final payment is not received. At the discretion of the
Trustee, and subject to Section 7 hereof, the Trust may make use of such
conditional credits. To the extent such credits do not become unconditional by
receipt of final payment, the Trust shall reimburse the Trustee upon demand for
the amount of such conditional credits so used. When the Trustee is to receive
property, it is authorized to accept documents in lieu of such property, as
long as such documents contain the agreement of the issuer thereof to hold such
property subject to the Trustee's sole order. The Trustee may, in its
discretion, advance funds to the Trust to facilitate the settlement of any
trade. In the event of such an advance, the Trust shall immediately reimburse
the Trustee for the amount thereof.
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<PAGE> 14
(g) During the terms hereof, all income received by the
Trust, net of expenses and taxes, shall be accumulated and reinvested.
Section 6. Accounting by Trustee.
(a) The Trustee shall keep accurate and detailed records
of all investments, receipts, disbursements, and all other transactions
required to be made, including such specific records as shall be agreed upon in
writing between the Company and the Trustee. Within sixty (60) days following
the close of each calendar year, and within sixty (60) days after the removal
or resignation of the Trustee, the Trustee shall deliver to the Company a
written account of its administration of the Trust during such year, or during
the period from the close of the last preceding year to the date of such
removal or resignation, setting forth all investments, receipts, disbursements
and other transactions of the Trust, including a description of all securities
and investments purchased and sold, with the cost or net proceeds of such
purchases or sales (accrued interest paid or receivable being shown
separately), and showing all cash, securities and other property held in the
Trust at the end of such year, or as of the date of such removal or
resignation, as the case may be.
(b) The Trustee shall have the right, at the expense of
the Trust, to apply at any time to a court of competent jurisdiction for
judicial settlement of any account of the Trustee not previously settled as
herein provided, or for the determination of any question of construction, or
for instructions. In any such action or proceeding it shall be necessary to
14
<PAGE> 15
join as parties solely the Trustee and the Company (although the Trustee may
also join such other parties as it may deem appropriate), and any judgment or
decree entered therein shall be conclusive and binding on all persons at any
time interested herein.
(c) Not less frequently than the last business day of
each calendar quarter, the Trustee shall provide the Company with a report of
the assets of the Trust, the income, gains and losses of the Trust's
investments, and any fees, compensation, and expenses of the Trust, since the
last business day of the prior calendar quarter or other relevant period.
Section 7. Responsibility of Trustee.
(a) The Trustee shall have, without exclusion, all powers
conferred on the Trustee by applicable law, unless expressly provided to the
contrary herein. The Trustee shall act with the care, skill, prudence and
diligence under the circumstances then prevailing that a prudent person acting
in like capacity and familiar with such matters would use in the conduct of an
enterprise of like character and with like aims. The Trustee shall incur no
liability to any person in discharging its duties hereunder for any action
taken or omitted in good faith and in conformity with the terms hereof, except
if such action or failure to act constitutes gross negligence or willful
misconduct, a breach of this Agreement, or a violation of applicable law. Each
direction, notice, request or approval, whether or not certified to the Trustee
in writing by the Secretary of the Company, shall constitute a certification by
the
15
<PAGE> 16
Company to the Trustee that such direction is in conformity with the terms of
the Plan and applicable law.
(b) The Trustee shall have no obligation to undertake,
defend or continue to maintain any action or proceeding arising in connection
herewith, unless and until the Company agrees in writing (i) to indemnify the
Trustee against the Trustee's costs, expenses and liabilities (including,
without limitation, reasonable attorneys' fees and expenses) relating thereto,
(ii) to be primarily liable for such payment, and (iii) to make periodic
payments in respect of such fees and expenses during the course of such
proceedings; if the Company so agrees then it shall have the exclusive right to
control, and to make all determinations with respect to, such action or
proceeding. If the Company thereafter does not pay such costs, expenses and
liabilities in a reasonably timely manner, the Trustee shall discontinue
participation in such action or proceeding, and shall charge the assets of the
Trust to the extent sufficient for any unpaid fees and expenses.
(c) The Company shall indemnify and hold harmless the
Trustee and the Trustee's agents, affiliates, employees and directors for any
liability or expense (including, without limitation, advances for or prompt
reimbursement of reasonable attorneys' fees and expenses of other agents)
imposed thereon or incurred thereby as a result of any action taken by the
Trustee or any failure to act by the Trustee in either case pursuant to the
terms hereof or pursuant to the directions of the Company, unless such
liability or expense is due to a breach of this Agreement, a violation of
applicable law by the Trustee or any of the
16
<PAGE> 17
Trustee's affiliates, employees or directors, to fraud, or to the negligence or
willful misconduct of the Trustee or any of the Trustee's affiliates, employees
or directors. This Section 7(c) shall survive the termination of this Trust
Agreement, and shall include any amounts due but unpaid under any other
provision of this Section 7 or of Section 8 hereof.
(d) Subject to the Company's prior written consent, the
Trustee may consult with legal counsel (who may also be counsel for the Company
generally) with respect to any of its duties or obligations hereunder. The
Trustee may compensate such counsel from assets of the Trust.
(e) Notwithstanding any powers granted to the Trustee
hereunder or under applicable law, the Trustee shall not have any power that
could give this Trust the objective of carrying on any trade or business and
dividing the gains therefrom, within the meaning of Section 301.7701-2 of the
Procedure and Administrative Regulations promulgated pursuant to the Code.
Section 8. Compensation and Expenses of Trustee.
All administrative expenses and the Trustee's fees and
expenses shall be paid by the Company. Any reasonable and necessary expenses
incurred by the Trustee in connection with its administration of the Trust,
including, but not limited to, fees for legal services rendered to the Trustee
(whether or not rendered in connection with a
17
<PAGE> 18
judicial or administrative proceeding), such compensation to the Trustee as
shall be agreed upon from time to time between the Trustee and the Company, and
all other proper charges and disbursements of the Trustee, shall be paid by the
Company, and until paid shall constitute a lien against the Trust assets.
Anything herein to the contrary notwithstanding, the Trustee shall give at
least twenty (20) days written notice to the Company prior to incurring any
expenses other than its ordinary fees, brokerage commissions or other necessary
expenses regarding investments hereunder. The Trustee's entitlement to
compensation or reimbursement hereunder shall not be affected by the
resignation or removal of the Trustee or by the termination of the Trust. If
the Trustee forwards an amended fee schedule to the Company requesting its
agreement thereto, and the Company does not object thereto in writing within
sixty (60) days of its receipt, the amended fee schedule shall be deemed to be
agreed upon by the Company and the Trustee.
Section 9. Resignation and Removal of Trustee.
(a) The Trustee may resign at any time by sixty (60) days
written notice to the Company, unless the Company and the Trustee agree in
writing to a different effective date for such resignation.
(b) The Trustee may be removed by the Company at any time
by thirty (30) days written notice to the Trustee, unless the Company and the
Trustee agree in writing to a different effective date for such removal.
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<PAGE> 19
(c) Upon resignation or removal of the Trustee and
appointment of a successor trustee, all Trust assets shall be transferred as
soon as practicable to the successor trustee. The transfer shall be completed
within thirty (30) days after receipt of notice of resignation, removal or
transfer, unless the Company extends such time.
(d) If the Trustee resigns or is removed, a successor
trustee shall be appointed, in accordance with Section 10 hereof, on or before
the effective date of resignation or removal. If no such appointment has been
made, the Trustee may apply to a court of competent jurisdiction for
appointment of a successor trustee or for instructions. All expenses of the
Trustee in connection with the proceeding shall be allowed as an administrative
expense of the Trust.
Section 10. Appointment of Successor.
(a) If the Trustee resigns or is removed, the Company may
appoint any third party having or exercising corporate trustee powers under
applicable state law as a successor trustee. The appointment shall be
effective when accepted in writing by the new trustee, who shall have all of
the rights and powers of the former trustee, including ownership rights in the
Trust's assets. The former trustee shall execute any instrument necessary or
reasonably requested by the Company or the successor trustee to evidence the
succession and transfer.
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<PAGE> 20
(b) The successor trustee need not examine the records
and acts of any prior trustee and may retain or dispose of existing Trust
assets, subject to Sections 6 and 7 hereof. The successor trustee shall not be
responsible for and the Company shall indemnify and defend the successor
trustee from, any claim or liability resulting from any action or inaction of
any prior trustee, or from any other past event, or any condition existing at
the time it becomes successor trustee.
Section 11. Amendment or Termination.
(a) This Trust Agreement may be amended by a written
instrument executed by the Trustee and the Company; provided, however, that no
such amendment shall conflict with the terms of the Plan, or make this Trust
revocable.
(b) The Trust shall not terminate until the date on which
there is no remaining Participant entitled to benefits under the Plan, as
certified to the Trustee in writing by the Company, or there are no further
assets in the Trust, whichever is the first to occur. The Trustee shall be
held harmless in relying on such certification. Upon termination of the Trust,
the remaining assets (if any) shall be returned to the Company.
(c) Upon written approval of all Participants entitled to
payment of benefits pursuant to the terms of the Plan, the Company may
terminate this Trust prior to the time
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<PAGE> 21
that all benefits have been paid under the Plan. In such event all assets in
the Trust at the time of termination shall be thereupon returned to the
Company.
Section 12. Miscellaneous.
(a) Any provision hereof prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to Participants 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.
(c) This Trust Agreement shall be governed by and
construed in accordance with the laws of the State of California.
Section 13. Effective Date.
The effective date of this Trust Agreement shall be as of June
1, 1996.
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<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have caused this Trust
Agreement to be executed by their respective officers thereunto duly authorized
and attested to as of the day and year first above-written.
THE COMPANY:
VANS, INC.,
A Delaware Corporation
By: /s/ [ILLEGIBLE]
----------------------------------
Vice President and General Counsel
THE TRUSTEE:
CHEMICAL TRUST COMPANY OF CALIFORNIA,
A California Corporation
By:
----------------------------------
22
<PAGE> 23
APPENDIX A
<PAGE> 1
EXHIBIT 10.55
VANS, INC.
DEFERRED COMPENSATION AGREEMENT
FOR WALTER SCHOENFELD
THIS AGREEMENT is made and entered into, and is effective, as
of this 1st day of June 1996, by and between VANS, INC., a Delaware corporation
(the "Company"), and WALTER SCHOENFELD (the "Executive"), with reference to the
following facts:
WITNESSETH
WHEREAS, the Executive is an executive officer and key
employee of the Company;
WHEREAS, the Company wishes to provide certain deferred
compensation for the Executive on the following terms and conditions; and
WHEREAS, effective as of the date hereof, the Company has
entered into that certain agreement (the "Trust Agreement") creating the TRUST
UNDER VANS, INC. DEFERRED COMPENSATION PLAN (the "Trust"), to provide itself
with a source of funds for benefits payable by the Company to the Executive
hereunder.
<PAGE> 2
NOW, THEREFORE, in consideration of the agreements hereinafter
contained, the parties hereto agree as follows:
AGREEMENT
1. Company Deposits with Trustee.
(a) Subject to Section 1(b) hereof, on June 1, 1996, and on each
June 1 thereafter through and including June 1, 2000, the Company shall deposit
with CHEMICAL TRUST COMPANY OF CALIFORNIA, a California corporation
("Trustee"), the sum of Two Hundred Thousand Dollars ($200,000). These amounts
shall be held, administered and distributed by the Trustee as provided in the
Trust Agreement, a copy of which is attached hereto as Exhibit A. The Company
may also contribute to the Trust such additional amounts, and at such
additional times, as it in its sole discretion may determine. Except as
expressly provided in this Section 1(a), the Company shall have no obligation
to make any deposits with the Trustee.
(b) The Company's annual deposits with the Trustee required
pursuant to Section 1(a) hereof shall continue notwithstanding the termination
of Executive's employment with the Company (or any subsidiary) on or prior to
June 1, 2000; provided, however, that no such deposits shall be made after the
date on which Executive's employment with the Company (or any subsidiary) shall
terminate for "cause" (as such term is defined in Section 1(c) hereof).
2
<PAGE> 3
(c) For purposes of Section 1(b) hereof, "cause" shall mean: (i)
Executive's conviction of a felony (which, through the lapse of time or
otherwise is not subject to appeal); (ii) Executive's material refusal, failure
or neglect for any reason (other than illness or incapacity) to perform his
obligations under his Employment Agreement with the Company, or any fraudulent,
negligent or willful misconduct by Executive; (iii) Executive's material breach
of any of his fiduciary obligations as an executive officer of the Company; or
(iv) Executive's material failure to adhere to the Code of Conduct Rules set
forth in the Company's Personal Policies and Procedures Manual, or Employee
Handbook, as in existence from time to time. No event specified in
subparagraphs (i), (ii) and (iii) above shall give rise to "cause", however,
unless Executive is given written notice thereof, and ten (10) days to cure or
correct any event otherwise giving rise to "cause".
(d) The Executive shall have no legal or equitable rights,
interest or claim in or to any amounts deposited with the Trustee, or any other
assets set aside, segregated or earmarked by the Company to pay deferred
compensation to the Executive as provided for herein. The Company's
obligations to pay deferred compensation hereunder shall be only unfunded and
unsecured promises of the Company to pay money to the Executive in the future.
Notwithstanding any contrary provision herein, the Executive's rights hereunder
shall be no greater than the rights
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<PAGE> 4
of any other general creditors of the Company to the assets of the Company.
(e) Any funds deposited with the Trustee shall be invested and
reinvested by the Trustee in accordance with the provisions of the Trust.
2. Payments.
The Company shall pay to the Executive deferred compensation in the
following amounts and at the following intervals:
(a) Subject to Section 2(b) hereof, the Company shall pay to the
Executive, and following the Executive's death, to ESTHER SCHOENFELD (the
"Spouse"), if both she shall survive the Executive, and is married to the
Executive on the date of his death, a monthly deferred compensation benefit of
Eight Thousand Three Hundred Thirty-Three Dollars ($8,333), on the first day of
each calendar month commencing July 1, 2001, and ending with the month
immediately prior to the month in which occurs the death of (i) the Executive,
or (ii) the death of the Spouse, if both she shall survive the Executive, and
she is married to the Executive on the date of his death. The monthly payments
required pursuant to this Section 2(a) shall be made solely to the Executive
for so long as he shall live and, upon his death, such payments shall
thereafter be made to the Spouse, if she is then living, for so
4
<PAGE> 5
long as she shall live, provided that she is married to the Executive on the
date of his death. If the Spouse shall survive the Executive, but not be
married to the Executive on the date of his death, then no benefits shall be
payable to her following his death, and all payments due hereunder shall cease
upon his death.
(b) Notwithstanding the foregoing provisions of this Section 2, if
the Executive's employment with the Company (or any subsidiary) shall terminate
for "cause" on or before June 1, 2000, then Company shall have no obligation to
make any payments otherwise required hereunder.
(c) After the payment of all amounts due hereunder any amounts
remaining in the Trust shall be repaid to the Company.
3. Claims.
(a) The Compensation Committee of the Company (the "Committee")
shall be responsible for determining all claims hereunder made by the
Executive, the Spouse, or Executive's legal representative (as applicable).
Within ninety (90) days after receiving written notice of a claim (or, if there
is any reason for delay, within up to one hundred eighty (180) days thereafter,
if the claimant is so notified, including notification of the reason therefor),
the Committee shall notify the Executive (or the Spouse or Executive's legal
representative, as applicable), in writing of its decision concerning any such
claim. If the
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<PAGE> 6
decision is adverse to the claimant, the Committee shall advise the claimant of
the reasons therefor, of any additional information which must be provided to
perfect the claim, why any such information is needed, and of the claimant's
right to a hearing with the Committee to review the decision.
(b) A claimant may request a review of any adverse decision by
written request to the Committee made within sixty (60) days after receipt of
the decision. The claimant, and the claimant's authorized representatives, may
review any pertinent documents and submit written statements of facts, issues,
and analyses in connection with such hearing.
(c) Within thirty (30) days after receiving a request for review,
the Committee shall notify the claimant of its decision, the reasons therefor,
and the provisions hereof upon which such decision is based.
(d) The Committee may at any time alter the claims procedure set
forth above, so long as the revised claims procedure complies with the Employee
Retirement Income Security Act of 1974, as amended, and the regulations issued
thereunder.
(e) The Board and the Committee shall have the full power and
authority to interpret, construe and administer this Agreement in their sole
discretion based on the provisions of this Agreement. Both the Committee's and
the Board's
6
<PAGE> 7
interpretations and construction thereof, and actions thereunder, shall be
final, binding and conclusive on all persons for all persons. No member of the
Board or Committee shall be liable to any person for any action taken or
omitted in connection with the interpretation and administration of this
Agreement.
4. No Funding.
This Agreement is wholly "unfunded" for United States federal income
tax purposes, and for purposes of Title I of the Employee Retirement Income
Security Act of 1974, as amended, and shall at all times remain wholly
unfunded. The obligations of the Company with respect to all amounts payable
hereunder shall be paid out of the Company's general assets, and shall not be
secured. The Company has established the Trust solely for the purpose of
providing a source for the future payment of such benefits. Such Trust shall
be irrevocable, but its assets shall remain subject to the claims of the
Company's creditors. To the extent that any benefits provided for hereunder
are actually paid from the Trust, the Company shall have no further obligation
with respect thereto, but to the extent that they are not so paid, such
benefits shall remain the obligation of, and shall be paid by, the Company.
The Company may in its sole discretion earmark, set aside or otherwise make
additional funding arrangements, solely for the purpose of providing itself
with one or more other sources of funds for making future payments due
hereunder, but any amounts so identified shall, until distributed, nonetheless
7
<PAGE> 8
belong solely to the Company. This Agreement constitutes a mere promise by the
Company to make payments to the Executive and/or the Spouse in the future. To
the extent that any person acquires rights to receive payments from the Company
hereunder, such rights shall be no greater than the rights of any unsecured
general creditor of the Company.
5. Fringe Benefits.
Any deferred compensation payable hereunder shall not be deemed
"salary" or other "compensation" to the Executive for purposes of computing any
benefits to which he may currently be entitled under any pension plan or other
arrangement of the Company for the benefit of its Executives.
6. Severability.
If any provision of this Agreement shall be adjudicated illegal or
invalid for any reason, such illegality or invalidity shall not affect the
remaining provisions hereof, and this Agreement shall be construed and enforced
as if such illegal and invalid provision was never a part hereof.
7. Withholding.
The Company shall have the right to make such provisions as it deems
necessary or appropriate to satisfy any obligations
8
<PAGE> 9
which it may have to withhold any domestic or foreign federal, state or local
income, employment, or other taxes incurred by reason of any payments made or
to be made pursuant hereto.
8. Successors and Assigns.
This Agreement shall be binding upon, and shall inure to the benefit
of, the Company, and its successors and assigns, and the Executive, and his
heirs, assigns, executors, administrators and legal representatives.
9. No Alienation.
Except as provided herein, amounts payable hereunder shall not be
subject to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, attachment, garnishment, execution or levy of any kind, by
creditors of the Executive, or any person claiming by or through the Executive.
10. Applicable Law.
This Agreement shall be construed in accordance with and governed by
the laws of the State of California.
11. Entire Agreement.
9
<PAGE> 10
This Agreement contains the entire agreement of the parties concerning
any unfunded deferred compensation payable by the Company to the Executive, and
it supersedes any prior agreement or agreements specifically concerning such
subject matter.
12. Attorneys' Fees.
If any action or proceeding is commenced to enforce or interpret any
of the provisions hereof, then the prevailing party in such action or
proceeding shall be entitled to recover his or its reasonable attorneys' fees
and costs incurred in connection therewith.
13. No Continued Employment.
Nothing contained herein shall be construed as conferring upon the
Executive the right to continue in the employ of the Company as an executive or
in any other capacity, or to interfere with the Company's right to discharge
the Executive pursuant to his Employment Agreement with the Company.
10
<PAGE> 11
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed by its duly authorized officer, and the Executive has hereunto set
his hand, as of the date and year first above-written.
VANS, INC.,
A Delaware Corporation
By: /s/ [ILLEGIBLE]
----------------------------------
Vice President and General Counsel
EXECUTIVE
By: /s/ WALTER SCHOENFELD
----------------------------------
WALTER SCHOENFELD
11
<PAGE> 12
APPENDIX B
Payment Schedule
Subject to the terms of the Plan, Eight Thousand Three Hundred Thirty
Three Dollars ($8,333) to WALTER SCHOENFELD, and then to ESTHER SCHOENFELD if
she shall survive him, payable on the first calendar day of each month,
commencing July 1, 2001, and continuing uninterrupted until the month next
preceding the death of the survivor of WALTER and ESTHER SCHOENFELD; provided,
however, that, amounts payable to ESTHER SCHOENFELD following the death of
WALTER SCHOENFELD shall be made only if she was married to him at the time of
his death.
24
<PAGE> 1
EXHIBIT 13
Thirty years of brand acceptance.
Since 1966, Vans, Inc. has built footwear for the lifestyles of individuals and
the performance of alternative sport athletes. In this time the Company created
a distribution system that includes a network of independent and national
retailers, international distributors in approximately 65 countries, and 83
Company-owned stores.
<TABLE>
<CAPTION>
For the Fiscal Year Ended May 31
1996 1995
(in millions)
<S> <C> <C>
Net Sales $117.4 $88.1
Gross Profit $ 46.3 $27.7
Operating Expenses $ 38.0 $66.1**
Earnings (Loss) before income
taxes and extraordinary item $ 6.9* ($39.6)**
Earnings (Loss) Per Share
before extraordinary item $ 0.40* ($3.86)**
Stockholders' Equity $ 72.7 $20.3
</TABLE>
- ---------------
* The Company took a charge against earnings in the fourth quarter of fiscal
1996 related to the early retirement of debt.
** Reflects restructuring costs and write-offs associated with closure of the
Company's Orange, California manufacturing facility and the Company's
restructuring efforts in fiscal 1995.
<PAGE> 2
August 22, 1995
Dear Stockholder:
In Fiscal 1996, Vans finally began to hit its stride.
We concentrated on the brand heritage of the VANS name and implemented several
strategic and operational initiatives. We closed our Orange facility in the
first quarter of the year and overcame the challenges that went along with it.
Also, in the first quarter, we received approval from our Noteholders to allow
us to borrow against our receivables so that we could establish a bank line to
purchase product. Shortly thereafter we were able to gear up our operations to
position ourselves for what turned out to be a record year. This culminated on
May 24th of this year when the Company raised approximately $48 million in a
secondary offering, and we became virtually debt free.
During the year we refocused our efforts from a manufacturing company to a
marketing company which is in sync with our brand heritage. The equity of the
VANS name has proved itself with the growth of our International Collection of
athleisure and performance footwear and with the successful introduction of
snowboard boots. We believe this will also hold true as we broaden our
offerings with apparel and accessories which can similarly be a part of the
lifestyle of our consumers. We are certainly a primary name in the alternative
sports arena and we intend to capitalize on this position.
Internationally, our business doubled over last year, and we are aggressively
pursuing opportunities to continue to expand in this area. Here in the U.S. we
continue to show progress with both major and independent accounts and our own
retail sales are growing on a comp-store and absolute basis. The outlet concept
continues to prove very sound both in terms of return on investment as well as
helping us to balance our inventory.
Last year's stockholders' letter ended with the comment, "We are committed to a
path which we believe will lead to increasing stockholder value in fiscal
1996." We feel that we accomplished this goal and have rededicated ourselves to
make sure that the same commitment is there for fiscal 1997 and beyond. Our
feeling is that Vans is now on a course that will lead it to be a prominent
contender in the worldwide shoe and apparel market. We know that the VANS brand
name has 30 years of authenticity and is gaining recognition on a worldwide
basis. It is both a challenge and an opportunity to make the Vans product a
more meaningful part of the world market. As a company, we think we have the
formula to achieve this and appreciate the support which we have received as
we all work to make it happen.
Respectfully,
Walter E. Schoenfeld Gary H. Schoenfeld
Chairman and Chief Executive President and Chief Operating
Officer Officer
<PAGE> 3
LIFESTYLE
Long before anyone ever thought to call them alternative, Vans has been
building shoes for those outside the mainstream. Whether at the beach or on a
BMX bike, skateboarding, snowboarding, or just hanging out, since 1966, Vans
has been a way of life.
The focus on our core customer can be seen in our commitment to innovative,
performance footwear for alternative sports, as well as timely, trendsetting
styles for the contemporary lifestyle. Both nationally and internationally,
this extends to a greater involvement with grassroots sports and lifestyle
events and the sponsorship of more than 100 top young male and female athletes.
TRENDS
Our design team is one of the best in the business. Working with international
trend houses, our designers have created the Street Collection which
incorporates the hottest trends, the freshest materials, and the newest styling
to stay one step ahead of an ever-changing marketplace. Trendsetting casual
footwear is as much a part of the Company's heritage as alternative sports, and
the wide VANS product line ensures they always come together into something new
for every season.
EVENTS
As our core customer influences the mainstream, grass roots promotional events
centered around them are one of the most effective tools in reaching our core.
Sponsorship of meaningful events gives the VANS brand an immediate boost by
creating a positive environment that delivers extended exposure to our message.
It is partially our association with these events that helps to create and
sustain excitement around the brand.
The "Vans Warped Tour '96" brings alternative music and sports together in a
way not previously done. Vendor booths and exhibits, multiple bands, and
alternative sport demonstrations playing throughout the day combine to form
what Time magazine called the, "youngest and edgiest of the major (music)
festivals." Touring over 30 major markets in America, Europe, and Japan, the
Vans Warped Tour embodies the VANS personality: extreme in both sport and play.
Just as the Company endorses the athletes who influence sport, it also works to
place product on the feet of others influential to youth culture, such as
actors and musicians. Bands like the Beastie Boys, Beck, Primus, Foo Fighters,
and the Presidents of the United States of America are some of the biggest
names in alternative music who have been seen and photographed wearing their
beloved VANS shoes.
A strength of the VANS brand is the ability to naturally cross over from casual
lifestyle to performance alternative sports. To our market, the line between
sport and lifestyle is often blurred, and each must be treated with the same
respect. That is why the Company continues to provide product for the unique
lifestyle of every individual VANS wearer. From a line of classic VANS styles
to shoes designed with every imaginable color and material, the Company has
always met the footwear needs of those who have their own unique outlook on the
world.
<PAGE> 4
ADVERTISING
For inspiration in our most ambitious advertising campaign to date, we returned
to our core customer and the soul of the brand. Working with Larry Clark
(shown above), director of the critically acclaimed motion picture "KIDS," and
a skater himself, we portrayed the moments in kids' lives where their lifestyle
meets their sport. Captured discussing topics relevant to kids today, the
campaign takes a real and honest approach to communicating who and what the
VANS wearer is all about. The campaign will run through the Fall and Winter on
Prime Sports, ESPN2, and MTV.
The print campaign will portray a synergistic interpretation of the television
spots and will run concurrently in numerous lifestyle and enthusiast
publications such as TransWorld SKATEboarding, Details, Rolling Stone and Spin.
PERFORMANCE
Marketing to alternative sport athletes in the 90's requires more than just the
right product or the right advertising, it requires a commitment to the sport.
Sponsorship of athletes and competitions not only provides credibility to the
VANS brand, but helps to ensure long-term participation in Vans sports.
SNOWBOARDING
The 30-member Vans Snowboarding Team has become an assembly of some of the most
formidable riders in the sport. Reigning World Champion Jamie Lynn (right),
two-time World Champion Shaun Palmer, and the International Snowboarding
Federation's number three ranked rider Daniel Franck are names that
consistently appear on the competition leader board. The women's team is lead
by Circe Wallace, a pioneer and dominant force in women's competitive
snowboarding, Michelle Yu, a top-ranked Halfpipe rider, and the versatile
athleticism of skateboarder/snowboarder Megan Pischke. The Company will also
continue its involvement with events like the Wild Woman's Snowboarding Camp,
Boarding for Breast Cancer, and in 1997, the Vans World Championships of
Snowboarding.
BMX & MOUNTAIN BIKING
The Company has a long history of involvement in BMX. Our 20-member team has
evolved to include not only professional BMX riders, but Mountain Bike riders
as well. Notable team members include 3-time NBL #1 rider, Terry Tennette, John
Purse, the NBL's current #1 ranked Pro, and the ABA's #1, Kiyomi Waller. In two
sports rapidly gaining exposure, Vans will be there. With an eye to our past,
we will continue our support of the National Bike League's BMX events like the
NBL Grand Nationals and Christmas Classic, and the ABA's worldwide Winter and
Fall nationals.
SURFING
The beach is a part of Vans' heritage, and the Company has recently signed
Kalani Robb (right), one of the pro tour's top surfers and 1995 Rookie of the
Year. To show our commitment to surf, the Company is sponsoring the U.S. Open
of Surfing which features an elite, invitational field and one of the biggest
purses in the sport. We will be sponsoring more and more events around surfing,
like this year's Toes to the Nose Longboard competition, to ensure that the
VANS brand reaches those who make it happen.
<PAGE> 5
INTERNATIONAL
As we position Vans to take advantage of its natural heritage, international
sales have dramatically improved, increasing 103.5% to $26.3 million last year,
with the bulk coming from strong showings in Germany, France, the United
Kingdom, Japan and Canada. With a presence in approximately 65 countries, the
Company is committed to achieving even deeper penetration in existing markets
through its wholly-owned Hong Kong subsidiary, Vans Far East Limited. Working
closely with foreign distributors to capture the opportunities in each of their
local markets will be a key element to our future growth. This "Think Globally,
Act Locally" strategy includes an international centralized advertising fund
that distributes money for local events and grass roots promotions, fully
produced corporate advertising packages via CD ROM, and participation in
national and regional trade shows important to each foreign market.
VANS wearers across the globe share an alternative point of view and the
Company works hard to incorporate U.S. events that have worldwide appeal, such
as the Vans Amateur World Skate Contest and the Vans Warped Tour '96, into its
international strategy. Consequently, the Vans Warped Tour '96 will take place
in four European countries and Japan.
After all, this is who we are and what we're all about.
NATIONAL
Over the past year sales to national accounts increased 22.3% to $61.7 million.
With a strategy to broaden the VANS presence in national specialty accounts, we
look to expand on this growth. Independent retailers are an important element
of the Company's national sales plan. Wall space in over 2,000 independent
shops adds a positive image, ambiance, and mystique to the brand. Independent
retailers further provide core customer-driven testing grounds for new VANS
products, which can be channeled to national accounts after proven sales
performance.
RETAIL
Retail sales were up 19.1% to $29.4 million. We are particularly pleased with
the 10.2% growth in same store sales, and all eight of the Vans factory
outlet stores which were opened in fiscal 1996 are profitable and achieving
significant sales volume.
Remodeling and updated concepts, with superior product and service, are the
focus of the Retail division's strategy. The Company will also continue to
focus on factory outlet stores as a means to showcase the entire VANS line, to
control inventory, to test new product and to expand brand visibility.
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion contains forward-looking statements that involve
risk and uncertainties. The Company's actual results could differ materially
from those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed hereunder, as well
as those discussed under the caption "Risk Factors" on pages 6 to 12 of the
Company's Prospectus, dated May 21, 1996, which is filed with the Securities and
Exchange Commission.
OVERVIEW
The Company is a leading designer, manufacturer and distributor of a
collection of high quality casual and active-casual footwear for men, women and
children, as well as performance footwear for enthusiasts of outdoor sports such
as skateboarding, snowboarding and BMX bicycling. The Company is the successor
to Van Doren Rubber Company, Inc., a California corporation that was founded in
1966 ("VDRC"). VDRC was acquired by the Company in February 1988 in a series of
related transactions for a total cost (including assumed liabilities) of $74.4
million (the "Acquisition"). The Acquisition resulted in the recognition of
approximately $48.0 million of goodwill by the Company (the "Acquisition
Goodwill"). VDRC was merged with and into the Company in August 1991 at the time
of the Company's initial public offering.
Prior to fiscal 1995, the Company manufactured all of its footwear at two
domestic manufacturing facilities located in Southern California. As part of the
Company's strategic redirection, in the first quarter of fiscal 1995 the Company
began to source from South Korea its line of casual and performance footwear
known as the International Collection. The success of the International
Collection created a domestic manufacturing overcapacity problem for the Company
which contributed to an overstock in domestic inventories. In the second quarter
of fiscal 1995, the Company increased the inventory valuation allowance from
$324,772 to approximately $600,000 in order to help mitigate the risks
associated with increased inventory balances. In the third quarter of fiscal
1995, the Company took steps to adjust its U.S. production; however, customer
demand for the International Collection continued to grow. In the fourth quarter
of fiscal 1995, it first became apparent that domestic manufacturing workforce
reductions would not be sufficient to address the increase in orders for the
International Collection and the decrease in demand for domestically-produced
footwear, and the Company determined that a plant closure would be required.
Therefore, on May 30, 1995 the Board of Directors voted to close its Orange,
California manufacturing facility (the "Orange Facility") and in July 1995, the
Company closed the Orange Facility. Accordingly, the Company recognized
restructuring costs of $30.0 million in the fourth quarter of fiscal 1995. Of
that amount: (i) $20.0 million represented a write-off of the goodwill allocated
to the manufacturing know-how associated with the Orange Facility (the "Orange
Facility Goodwill"); and (ii) $10.0 million represented restructuring costs to
close the Orange Facility. All remaining U.S. production of the Company was
shifted to the Company's smaller Vista, California manufacturing facility (the
"Vista Facility").
The Company has entered into agreements to lease the Orange Facility to two
companies. In connection with these agreements, the Company is negotiating a
lease for 180,000 square feet of space in Santa Fe Springs, California which
would house the Company's corporate headquarters and warehouse operations.
In the fourth quarter of fiscal 1995, the Company wrote-down $6.3 million
of inventory. The write-down of inventory consisted of $4.5 million of
domestically-produced finished goods and $1.8 million of raw material inventory.
Such inventory became impaired as a result of the following events which
occurred in the fourth quarter of fiscal 1995: (i) the expanding sales of the
International Collection; (ii) the slowing of sales of domestically-produced
footwear and related price erosion and discounting; (iii) the decrease in
domestic production as a result of the above factors and the
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subsequent closure of the Orange Facility; and (iv) the discontinuance of
certain domestically-produced product.
Management of the Company, with the assistance of outside valuation
consultants, calculated the amount of the Orange Facility Goodwill based on an
analysis of the Company's business at the date of the Acquisition. At that time,
the Company's strategy was one of manufacturing efficiency, and the Company's
reputation was based on fast-turn, made-to-order manufacturing. The Company's
fixed assets as of the date of the Acquisition were primarily deployed to
manufacture footwear, and the Company's chain of retail stores served as outlets
for the footwear manufactured at the Orange Facility.
Based on this analysis, and a similar analysis of the other components of
the Acquisition Goodwill (trademarks and dealer relationships), management
determined that approximately 53% of such Acquisition Goodwill should have been
allocated to the manufacturing know-how associated with the Orange Facility at
the date of the Acquisition. The unamortized portion of the Orange Facility
Goodwill at May 31, 1995 was $20.0 million, and was written-off in connection
with the closure of the Orange Facility. See Notes 2 and 3 of Notes to
Consolidated Financial Statements.
RESULTS OF OPERATIONS
FISCAL YEAR 1996 AS COMPARED TO FISCAL YEAR 1995
Net Sales
Net sales increased 33.3% to $117.4 million in fiscal 1996 from $88.1
million in fiscal 1995. The sales increase was primarily driven by the Company's
product line expansion through the introduction of the International Collection
and snowboard boots which represented new markets and product lines for the
Company, as well as increased sales through each of the Company's three
distribution channels.
Domestic and international sales of the International Collection increased
from approximately $18.6 million, or 21.1% of net sales, for fiscal 1995 to
approximately $68.8 million, or 58.6% of net sales, for fiscal 1996, and sales
of the Company's recently introduced line of snowboard boots increased from
approximately $269,000 for fiscal 1995, or 0.3% of net sales, to $7.2 million,
or 6.2% of net sales, for fiscal 1996.
Sales to national accounts for fiscal 1996 increased 22.3% to $61.7
million, compared to $50.5 million for fiscal 1995. An increased volume of sales
to existing accounts and increased average selling prices were primarily
responsible for the increase. Despite this increase, sales to national accounts
were relatively even in the second half of the year, compared to the same period
of the previous year due to: (i) working capital constraints, which forced the
Company to delay purchases of International Collection goods in the period (see
"--Liquidity and Capital Resources"); (ii) the generally soft national retail
environment that existed during the third fiscal quarter; and (iii) the
existence of a relatively large amount of close-out sales in the third quarter
of fiscal 1995, which resulted from the Company's inventory imbalance between
domestic and foreign-produced footwear. See "--Overview."
Sales to international distributors increased 103.5% to $26.3 million for
fiscal 1996 from $12.9 million for fiscal 1995. Increased sales to Germany,
France, Canada and the United Kingdom were the principal reasons for the
increase.
Sales through the Company's 82-store retail chain (as of May 31, 1996)
increased 19.1% to $29.4 million for fiscal 1996, as compared to $24.6 million
for fiscal 1995. Comparable store sales (sales at stores open one year or more)
increased 10.2% from the prior fiscal year. Comparable store sales increased for
each of the Company's three store types (conventional mall and freestanding
stores, factory outlet stores and clearance stores).
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<PAGE> 8
Gross Profit
Gross profit increased 67.1% to $46.3 million in fiscal 1996 from $27.7
million in fiscal 1995. As a percentage of net sales, gross profit increased to
39.4% for fiscal 1996 from 31.5% for fiscal 1995. The increase in gross profit
was primarily due to the unusually low margin in the fourth quarter of fiscal
1995 which resulted from the write-down of inventory. See "--Overview." Fiscal
1996 margins were adversely impacted by: (i) the operation of the Orange
Facility for the first two months of fiscal 1996, as required by the Federal
Worker Adjustment and Retraining Notification Act, after announcing the closure
of such Facility (see "--Overview"); (ii) the ramp-up of production at the Vista
Facility due to the transfer of production from the Orange Facility (see
"--Overview"); (iii) a significant shift in the sales mix of the Company's
distribution channels towards lower gross margin sales to international
distributors who absorbed certain operating expenses which would otherwise be
absorbed by the Company; (iv) a shift in product mix to lower gross margin
snowboard boots; and (v) increased discounts offered to customers who booked
orders either 120 days or 150 days in advance under the Company's new futures
program. Decreases in gross margins were partially offset by the higher gross
margins associated with sales of International Collection footwear throughout
all of the Company's distribution channels.
Earnings (Loss) from Operations
Earnings from operations increased to $8.3 million in fiscal 1996 from a
loss of $38.4 million in fiscal 1995. Operating expenses decreased to $38.0
million in fiscal 1996 from $66.1 million in fiscal 1995. Operating expenses for
fiscal 1995 included $30.0 million of charges associated with the fiscal 1995
restructuring. See "--Overview."
Selling and distribution. Selling and distribution expenses increased
21.1% to $23.4 million in fiscal 1996 from $19.4 million in fiscal 1995,
primarily due to: (i) increased distribution expenses related to the operation
of the Company's City of Industry distribution facility, which did not exist
until March 1995; (ii) increased commissions to independent sales
representatives due to increased sales to national accounts; and (iii) costs
associated with increased personnel in the Company's design and sourcing groups.
Marketing, advertising and promotion. Marketing, advertising and promotion
expenses increased 52.3% to $8.3 million in fiscal 1996 from $5.4 million in
fiscal 1995 due to increased expenditures to support the Company's sales growth
and the introduction of the Company's new snowboard boot line.
General and administrative. General and administrative expenses decreased
from $8.3 million in fiscal 1995 to $4.7 million in fiscal 1996 primarily due to
the following: (i) $850,000 in separation payments which occurred in the fourth
quarter of fiscal 1995; (ii) the departure of two senior executives in early
fiscal 1996 who were not replaced; (iii) large decreases in consulting and legal
expenses which were incurred in fiscal 1995 in connection with an attempt to
unionize the Orange Facility; and (iv) the absence of significant executive
search fees in fiscal 1996.
Restructuring costs. No additional restructuring costs were recorded in
fiscal 1996. See "--Overview."
Provision for doubtful accounts. Provision for doubtful accounts decreased
to $762,000 for fiscal 1996 from $1.4 million for fiscal 1995 primarily due to
the recording of a provision in fiscal 1995 related to the settlement of the
Company's account with its former distributor for Mexico. See "Fiscal Year 1995
as Compared to Fiscal Year 1994--Earnings (Loss) from Operations--Provision for
doubtful accounts."
Amortization of intangibles. Amortization of intangibles decreased from
$1.6 million for fiscal 1995 to $777,000 for fiscal 1996 due to the write-off of
the Orange Facility Goodwill on May 31, 1995. See "--Overview."
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Interest Income
Interest income was derived primarily from restricted cash used as
collateral for the Company's $2.3 million surety bond maintained for the
Company's self-insurance program for workers' compensation claims. See Note 6 of
Notes to Consolidated Financial Statements.
Interest and Debt Expense
Interest and debt expense increased to $3.4 million in fiscal 1996 from
$2.9 million in fiscal 1995, due to higher levels of secured and unsecured debt.
These increases were partially offset by the lower interest expense resulting
from the repayment of $5.8 million of principal of the Company's 9.6% Senior
Notes made on August 1, 1995. Such Notes were paid in full by the Company in May
1996. See "--Liquidity and Capital Resources--Cash Flows."
Other Income
Other income for fiscal 1996 was comprised primarily of royalty income and
sublease income. Other income increased to $1.9 million in fiscal 1996 from $1.6
million in fiscal 1995, due to increases in royalty income.
Income Tax Expense
Income tax expense increased to $2.8 million for fiscal 1996 from a benefit
of $2.5 million for fiscal 1995, as a result of increased earnings.
Extraordinary Item
The extraordinary loss on early extinguishment of debt relates to a payment
of a $1.5 million makewhole amount and the write-off of $241,000 in deferred
financing costs in connection with the prepayment of the Company's 9.6% Senior
Notes in May 1996. See "--Liquidity and Capital Resources -- Cash Flows." This
item is reported net of an income tax benefit of $677,000.
FISCAL YEAR 1995 AS COMPARED TO FISCAL YEAR 1994
Net Sales
Net sales increased 9.4% to $88.1 million in fiscal 1995 from $80.5 million
in fiscal 1994. In the first quarter of fiscal 1995, the Company began importing
the International Collection. The sales increase experienced in fiscal 1995 is
primarily attributed to sales of this new line of footwear. See "--Overview."
Sales to national accounts increased 15.4% from $43.7 million in fiscal
1994 to $50.5 million in fiscal 1995. Sales to large national chains, such as
Kinney, Foot Locker, and Mervyn's, continued to increase during the year. At the
same time, new national and regional customers were developed, further expanding
the VANS brand name and generating increased sales.
International sales decreased 6.9% in fiscal 1995 to $12.9 million from
$13.9 million in fiscal 1994. Increases in sales to Japan, Germany and England
were not sufficient to offset the continuing decline in sales to Mexico and
Canada, which fell from an aggregate of $6.1 million in fiscal 1994 to an
aggregate of $1.5 million in fiscal 1995.
Sales through the Company's 79 retail stores (as of May 31, 1995) increased
8.0% to $24.6 million in fiscal 1995 from $22.8 million in fiscal 1994.
Comparable store sales (stores open one year or more) increased approximately
1.0% for fiscal 1995, the first positive year-to-year comparison since fiscal
1992. Comparable store sales per square foot in fiscal 1995 increased to $224
from $221 in fiscal 1994. The Company opened four new mall and five new factory
outlet stores in fiscal 1995, while closing eight locations as part of its
ongoing program to eliminate underperforming stores. The increase in retail
sales in fiscal 1995 is primarily attributed to the Company's strategy of
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focusing on mall and factory outlet stores, which had comparable store increases
of 10.1% and 8.5%, respectively, for the year.
Gross Profit
Gross profit was $27.7 million in fiscal 1995 as compared to $31.7 million
in fiscal 1994. As a percentage of net sales, gross profit decreased to 31.5% in
fiscal 1995 from 39.4% in fiscal 1994. As previously discussed, the rapid growth
in demand for foreign-sourced products experienced in fiscal 1995 caused an
imbalance in inventories and domestic production overcapacity. Gross profit was
primarily impacted by: (i) an approximately $6.3 million write-down of domestic
inventory in the fourth quarter to realign inventories; and (ii)
under-absorption in the Company's domestic manufacturing plants in the fourth
quarter due to production overcapacity. These factors were partially offset by
increased margins on foreign-sourced products. Due to the impact of the fourth
quarter charges, a year-to-year comparison of gross profit contribution by sales
channel is not meaningful.
Earnings (Loss) from Operations
Losses from operations were $38.4 million in fiscal 1995 compared to
earnings of $4.0 million in fiscal 1994. Operating expenses increased 139.0% to
$66.1 million in fiscal 1995 from $27.7 million in fiscal 1994. Operating
expenses were primarily impacted by the restructuring costs of $30.0 million
recognized in the fourth quarter of fiscal 1995. See "--Overview."
Selling and distribution. Selling and distribution expenses increased
20.2% from $16.1 million in fiscal 1994 to $19.4 million in fiscal 1995
primarily due to: (i) the cost of opening the Company's City of Industry
distribution center in March 1995; and (ii) increased personnel, travel
expenditures and sales commissions associated with the sales increase described
above and the introduction of new product lines.
Marketing, advertising and promotion. Marketing, advertising and promotion
expenses increased 39.5% to $5.4 million in fiscal 1995 from $3.9 million in
fiscal 1994 due to increases in such expenses to support the sales growth
described above and the introduction of new product lines.
General and administrative. General and administrative expenses increased
50.5% to $8.3 million in fiscal 1995 from $5.5 million in fiscal 1994 primarily
due to: (i) $850,000 in separation payments in connection with the departure of
two senior executives; and (ii) increases in consulting, legal and executive
search fees.
Provision for doubtful accounts. Provision for doubtful accounts increased
from $519,000 in fiscal 1994 to $1.4 million in fiscal 1995. Of this increase,
$441,000 was attributable to the portion of accounts receivable deemed to be
uncollectible and $400,000 was to settle the Company's account with Marathon
Sports (U.S.A.), Inc. ("Marathon"), its distributor in Mexico. In the third
quarter of fiscal 1995 it became apparent to the Company that the full amount of
the Marathon receivable was not collectible. Economic conditions in Mexico were
in decline and the Mexican peso was losing value, making it more difficult for
Marathon to collect payment for shoes they were selling. As a result, the
Company entered into an agreement with Marathon whereby Marathon, in full
satisfaction of its obligations to the Company: (i) paid the Company $600,000
upon execution of a new distribution agreement; (ii) executed a promissory note
for $275,000, guaranteed by the owners of Marathon and secured by a deed of
trust on their personal residence; and (iii) returned 50,000 pairs of shoes to
the Company.
Other Income
Other income (comprised primarily of litigation recovery, royalty income
and sublease income) increased $910,000 to $1.6 million in fiscal 1995 from
$712,000 in fiscal 1994, primarily due to a one-time benefit of $572,000 of
litigation recovery received in the second quarter of fiscal 1995. Such
litigation related to the Company's claims against the bankruptcy estate of
Drexel Burnham Lambert
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Inc. The claims alleged that, in connection with the Acquisition, Drexel had
defrauded the Company into issuing shares of its Common Stock to a Drexel
affiliate.
Income Tax Expense (Benefit)
Income taxes decreased from an expense of $700,000 in fiscal 1994 to a
benefit of $2.5 million in fiscal 1995 primarily as a result of the fiscal 1995
loss. See "--Overview" and Note 9 of Notes to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
The Company finances its operations with a combination of cash flows from
operations and borrowings. On May 24, 1996, the Company completed a public
offering of its Common Stock (the "Offering"). The Company obtained net proceeds
of $47.7 million from the Offering. Of such amount, $25.4 million was utilized
to repay the Company's 9.6% Senior Notes due August 1, 1999 (including a $1.5
million makewhole amount resulting from the prepayment of such Notes), and $8.1
million was utilized to repay debt under a secured line of credit. See "--
Borrowings." The balance of the net proceeds was utilized for general corporate
purposes.
The Company experienced an outflow of cash from operating activities of
$11.3 million during fiscal 1996, compared to an outflow of cash of $4.2 million
for fiscal 1995. The cash used in operations was primarily the result of: (i) an
increase in net accounts receivable to $20.8 million at May 31, 1996 from $12.6
million at May 31, 1995, as described below; (ii) an increase in inventory to
$19.4 million at May 31, 1996 from $17.0 million at May 31, 1995, as described
below; (iii) an increase in prepaid expenses; and (iv) a decrease in the
restructuring cost accrual, a $4.3 million decrease in accounts payable, and
decreases in accrued interest and accrued workers' compensation. Cash used in
operations was partially offset by the decrease in income taxes receivable, the
decrease in deferred income taxes and an increase in income taxes payable.
The increase in accounts receivable was primarily due to the increase in
net sales the Company experienced during the fourth quarter of fiscal 1996 and
the timing of such sales, and increased sales to accounts in the Eastern United
States which receive payment terms of an additional 15 days.
The increase in inventories was primarily due to: (i) an increased average
cost of finished goods resulting from a product mix shift to include higher cost
International Collection shoes; and (ii) an increased number of finished goods
held for sale at the Company's retail stores in order to improve in-stock
selection and availability. These increases in inventory were partially offset
by a decrease in the Company's work-in-process inventory and a decrease in
domestically-produced footwear in connection with the closing of the Orange
Facility. See "--Overview."
The Company had a net outflow of cash from investing activities of $1.8
million during fiscal 1996, compared to a net outflow of cash of $2.5 million
for fiscal 1995, due to a decrease in capital expenditures and an increase in
proceeds from the sale of capital equipment. Capital expenditures for fiscal
1996 consisted primarily of: (i) the ramp-up of production at the Vista Facility
in connection with the Company's restructuring (see "--Overview"); (ii) the
opening of two new retail mall stores and eight new factory stores; and (iii)
the remodeling of four existing mall and freestanding retail stores.
The Company had a net inflow of cash from financing activities of $24.1
million during fiscal 1996, compared to a net inflow of cash of $2.8 million for
fiscal 1995. The cash provided by financing activities was primarily the result
of the net proceeds from the Offering and proceeds from short-term borrowings,
offset by the repayment of the 9.6% Senior Notes.
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The Company experienced an outflow of cash from operating activities of
$4.2 million in fiscal 1995, compared to an inflow of cash from operations of
$4.0 million in fiscal 1994. Cash used in operations in fiscal 1995 was the
result of the net loss incurred, net of non-cash items, primarily the goodwill
write-off, depreciation and amortization and restructuring costs; and increases
in inventories, income taxes receivable and deferred income taxes. Cash used in
operations in fiscal 1995 was partially offset by a decrease in other assets,
and an increase in accounts payable. Cash provided by operations in fiscal 1994
was primarily the result of net earnings and increases in accrued payroll and
related expenses and decreases in income taxes receivable and deferred taxes,
offset by increases in accounts receivable and inventories and a decrease in
accounts payable.
The Company had a net outflow of cash from investing activities for each of
the two years ended May 31, 1995 and 1994, principally due to capital
expenditures.
The Company had a net inflow of cash from financing activities in each of
the two years ended May 31, 1995 and 1994, primarily due to net proceeds from
the issuance of Common Stock in both years and, in fiscal 1995, proceeds from
short-term borrowings.
Borrowings
The Company has a secured line of credit (the "Secured Line of Credit")
with Bank of the West (the "Bank"). The Secured Line of Credit was established
in July 1995, and, as amended, permits the Company to borrow amounts up to the
lesser of 80% of eligible accounts receivable, or $10 million. The Company pays
interest on the debt incurred under the Secured Line of Credit at the prime rate
established by the Bank from time to time. The Company has the option to pay
interest at the LIBOR rate plus 3%. Under the agreement establishing the Secured
Line of Credit, as amended, the Company must maintain certain financial
covenants and is prohibited from paying dividends or making any other
distribution without the Bank's consent. Debt incurred under the Secured Line of
Credit is due and payable on July 1, 1997. The Company used a portion of the net
proceeds from the Offering to repay all amounts due under the Secured Line of
Credit, and, at May 31, 1996, the Company had no funds drawn down under such
Line of Credit. See "--Cash Flows."
The Company has a $6.0 million unsecured credit facility with Ssangyong
Corporation, a South Korean corporation (the "Unsecured Credit Facility"), which
is used to support the purchase of footwear. The interest rate on debt incurred
under the Unsecured Credit Facility increases based on the amount of debt
incurred. Assuming full utilization of the Unsecured Credit Facility, the
Company will pay an effective interest rate of 14.8% per annum. Balances under
the Unsecured Credit Facility are due within 60 days of the date of incurrence.
Interest on amounts outstanding under the Unsecured Credit Facility is
calculated on the full maturity period regardless of when payment is received
within the 60 day term of each loan. The Unsecured Credit Facility expires on
April 26, 1997. The Company utilized the improved liquidity that resulted from
payment of the outstanding balance due under the Secured Line of Credit with a
portion of the net proceeds of the Offering to repay balances outstanding under
the Unsecured Credit Facility as they became due. As of August 22, 1996, there
were no amounts due and owing under the Unsecured Credit Facility.
On March 29, 1996, the Company obtained an additional secured credit
facility from Ssangyong (U.S.A.), Inc. ("Ssangyong U.S.A.") under which
Ssangyong U.S.A. finances the Company's purchases of snowboard boots (the
"Snowboard Boot Facility"). Under the Snowboard Boot Facility, Ssangyong U.S.A.
purchases, transports, warehouses, ships and collects payment for the snowboard
boots, and is reimbursed for the sum of: (i) its out-of-pocket costs incurred in
connection with the foregoing (the "Ssangyong Costs"); (ii) interest on the
Ssangyong Costs at the prime rate established by Citibank N.A. from time to
time; and (iii) a handling fee equal to 3.5% of the F.O.B. price of the boots
purchased. The Snowboard Boot Facility is secured by a first priority security
interest in the boot inventory and the accounts receivable resulting from sales
thereof, and a second priority security interest in the Company's general
intangibles. At no time may the sum of: (i) the outstanding balance of the
Ssangyong Costs, plus (ii) aggregate outstanding letters of
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credit under the Snowboard Boot Facility, minus letters of credit opened by the
Company's foreign distributors, exceed $7 million. The Snowboard Boot Facility
expires on March 28, 1997.
Current Cash Position
The Company's cash position was $14.2 million as of May 31, 1996, exclusive
of approximately $680,000 invested in long-term marketable securities included
in other assets in the consolidated balance sheet which secures a bond
maintained by the Company in connection with its self-insured workers'
compensation plan. The Company's cash position has, in the past two years, been
adversely impacted by increased working capital requirements caused by the rapid
sales growth of the imported International Collection. These working capital
constraints, in turn, adversely impacted sales to the Company's national
accounts in the second half of fiscal 1996 because the Company had previously
committed a significant portion of its available funds to support increased
international sales which were placed earlier in the year than national sales.
See "--Results of Operation--Fiscal Year 1996 as Compared to Fiscal 1995--Net
Sales." Because the International Collection is imported, there are greater
timing differences between the payment for goods and the receipt of cash from
sales of such goods than if produced domestically. Additionally, because payment
terms in the ski and snow industries are longer than the Company's traditional
distribution channels, there are even greater timing differences between payment
for the Company's new line of snowboard boots and the receipt of cash from sales
of such boots.
The Company anticipates that the application of the net proceeds from the
Offering to repay debt should alleviate the Company's working capital
constraints to a large extent for the next 12 months. In addition, the Company
will attempt to increase the amount available under the Secured Line of Credit,
however, there can be no assurance that it will be successful in doing so. For
the next 24 months, the Company believes that cash from operations, together
with borrowings from its Secured Line of Credit and its other credit facilities,
should be sufficient to meet its working capital needs. NOTE: THE PREVIOUS THREE
SENTENCES CONTAIN FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL RESULTS COULD
DIFFER MATERIALLY. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES
INCLUDE: (I) THE COMPANY'S RATE OF GROWTH; (II) THE COMPANY'S PRODUCT MIX
BETWEEN THE INTERNATIONAL COLLECTION AND DOMESTICALLY-PRODUCED FOOTWEAR; (III)
THE COMPANY'S ABILITY TO EFFECTIVELY MANAGE ITS INVENTORY LEVELS; AND (IV)
TIMING DIFFERENCES IN PAYMENT FOR THE COMPANY'S FOREIGN-SOURCED PRODUCT.
Capital Expenditures
For fiscal 1996, the Company's capital expenditures were $2.6 million. The
Company does not anticipate a significant increase in the level of capital
expenditures in fiscal 1997.
RECENT ACCOUNTING PRONOUNCEMENT
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 establishes financial accounting and reporting
standards for stock-based employee compensation plans. The Company plans to
continue to measure compensation cost of employee stock option plans using the
intrinsic value based method prescribed by APB Opinion No. 25, "Accounting for
Stock Issued to Employees," and starting in fiscal 1997, to make pro forma
disclosures of net earnings and earnings per share as if the fair value method
prescribed by SFAS No. 123 had been applied.
SEASONALITY
The footwear industry is characterized by significant seasonality of net
sales and results of operations. Historically, the Company's business has been
moderately seasonal, with the largest percentage of sales realized in the first
and fourth fiscal quarters (March through August), the so-
15
<PAGE> 14
called "Spring and Summer" and "Back to School" months. In addition, because
snowboarding is a winter sport, sales of the Company's snowboard boots have
historically been strongest in the first and second fiscal quarters. As a result
of the Company's strategic redirection and the expansion of the Company's
product line and international distribution channels, the Company believes that
quarterly results in the future may vary from historical trends. Because of
these and other factors, the Company anticipates that a higher portion of its
overall fiscal year revenues will be recognized in the first fiscal quarter. In
addition to seasonal fluctuations, the Company's operating results fluctuate
quarter-to-quarter as a result of the timing of holidays, weather, timing of
shipments, product mix, cost of materials and the mix between wholesale and
retail channels. Because of such fluctuations, the results of operations of any
quarter are not necessarily indicative of the results that may be achieved for a
full fiscal year or any future quarter. In addition, there can be no assurance
that the Company's future results will be consistent with past results or the
projections of securities analysts.
16
<PAGE> 15
VANS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 31,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash................................................................. $ 14,233,352 $ 3,279,843
Accounts receivable, net of allowance for doubtful accounts and sales
returns and allowances of $1,147,344 and $812,631 at May 31, 1996
and 1995, respectively (notes 7 and 13)............................ 20,842,989 12,584,244
Inventories (notes 4 and 7).......................................... 19,400,644 16,997,738
Income taxes receivable (note 9)..................................... -- 3,530,128
Deferred income taxes (note 9)....................................... 364,000 1,615,000
Prepaid expenses..................................................... 2,457,301 498,555
------------ ------------
Total current assets.......................................... 57,298,286 38,505,508
Property, plant and equipment, net (notes 3, 5 and 10)................. 10,801,763 10,747,450
Excess of cost over the fair value of net assets acquired, net of
accumulated amortization of $32,744,117 and $31,966,872 at May 31,
1996 and 1995, respectively (notes 2 and 3).......................... 16,495,283 17,272,527
Deferred financing costs, net of accumulated amortization of $576,943
and $270,454 at May 31, 1996 and 1995, respectively.................. -- 306,489
Property held for sale (notes 3, 5 and 10)............................. 4,687,106 5,299,771
Other assets (note 6).................................................. 1,178,331 934,290
------------ ------------
$ 90,460,769 $ 73,066,035
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings (note 7)....................................... $ 6,431,349 $ 2,608,173
Current portion of senior notes (note 8)............................. -- 7,025,069
Accounts payable (note 10)........................................... 4,328,821 8,579,473
Accrued payroll and related expenses................................. 1,611,906 2,026,229
Restructuring costs (note 3)......................................... 1,750,782 6,083,934
Accrued workers' compensation (note 10).............................. 803,964 1,540,046
Accrued interest..................................................... -- 907,660
Income taxes payable................................................. 967,659 --
------------ ------------
Total current liabilities..................................... 15,894,481 28,770,584
Deferred income taxes (note 9)......................................... 1,495,000 1,615,000
Capital lease obligations (notes 8 and 10)............................. 343,742 441,384
Senior notes (note 8).................................................. -- 21,974,931
------------ ------------
17,733,223 52,801,899
------------ ------------
Stockholders' equity (notes 2, 11 and 12):
Preferred stock, $.001 par value, 5,000,000 shares authorized
(1,500,000 shares designated as Series A Junior Participating
Preferred Stock), none issued and outstanding...................... -- --
Common stock, $.001 par value, 20,000,000 shares authorized,
12,628,085 and 9,639,877 shares issued and outstanding at May 31,
1996 and 1995, respectively........................................ 12,628 9,640
Additional paid-in capital........................................... 96,201,083 46,803,649
Stock subscriptions.................................................. (85,000) --
Accumulated deficit.................................................. (23,401,165) (26,549,153)
------------ ------------
Net stockholders' equity...................................... 72,727,546 20,264,136
Commitments and contingencies (note 10)................................
Subsequent event (note 10).............................................
------------ ------------
$ 90,460,769 $ 73,066,035
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE> 16
VANS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
---------------------------------------------
1996 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
Net sales (note 13)........................... $117,407,543 $ 88,055,695 $80,475,645
Cost of sales................................. 71,095,123 60,339,890 48,777,229
------------ ------------ -----------
Gross profit................................ 46,312,420 27,715,805 31,698,416
Operating expenses:
Selling and distribution.................... 23,446,501 19,354,878 16,099,503
Marketing, advertising and promotion........ 8,281,129 5,439,077 3,898,583
General and administrative.................. 4,699,240 8,291,129 5,509,105
Restructuring costs (note 3)................ -- 30,047,500 --
Provision for doubtful accounts............. 762,295 1,359,846 518,593
Amortization of intangibles................. 777,245 1,641,328 1,641,328
------------ ------------ -----------
Total operating expenses............ 37,966,410 66,133,758 27,667,112
------------ ------------ -----------
Earnings (loss) from operations..... 8,346,010 (38,417,953) 4,031,304
Interest income............................... 79,302 81,634 173,892
Interest and debt expense..................... (3,418,559) (2,880,615) (2,856,199)
Other income (note 2)......................... 1,932,505 1,621,986 712,259
------------ ------------ -----------
Earnings (loss) before income taxes and
extraordinary item....................... 6,939,258 (39,594,948) 2,061,256
Income tax expense (benefit)(note 9).......... 2,775,822 (2,460,077) 700,226
------------ ------------ -----------
Earnings (loss) before income taxes and
extraordinary item.......................... 4,163,436 (37,134,871) 1,361,030
Extraordinary loss on early extinguishment of
debt, net of income tax benefit of $676,965
(note 8).................................... 1,015,448 -- --
------------ ------------ -----------
Net earnings (loss)........................... $ 3,147,988 $(37,134,871) $ 1,361,030
============ ============ ===========
Per share information (note 2):
Primary:
Earnings (loss) before extraordinary
item................................... $ .40 $ (3.86) $ 0.14
Extraordinary item....................... (.10) -- --
------------ ------------ -----------
Net earnings (loss)...................... $ .30 $ (3.86) $ .14
============ ============ ===========
Weighted average common and common
equivalent shares...................... 10,405,993 9,611,204 9,730,752
Fully diluted:
Earnings (loss) before extraordinary
item................................... $ .37 $ (3.86) $ 0.14
Extraordinary item....................... (.09) -- --
------------ ------------ -----------
Net earnings (loss)...................... $ .28 $ (3.86) $ .14
============ ============ ===========
Weighted average common and common
equivalent shares...................... 11,149,961 9,611,204 9,730,752
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE> 17
VANS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MAY 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED TOTAL
-------------------- PAID-IN STOCK EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL SUBSCRIPTIONS (ACCUMULATED DEFICIT) EQUITY
---------- ------- ----------- ------------- --------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT MAY 31, 1993.. 9,372,537 $ 9,373 $46,283,665 $ -- $ 9,224,688 $ 55,517,726
Issuance of common
stock for cash....... 199,560 200 164,582 -- -- 164,782
Income tax benefit
attributable to stock
option activity...... -- -- 111,059 -- -- 111,059
Net earnings........... -- -- -- -- 1,361,030 1,361,030
---------- ------- ----------- --------- ------------- ------------
BALANCE AT MAY 31, 1994.. 9,572,097 9,573 46,559,306 -- 10,585,718 57,154,597
Issuance of common
stock for cash....... 67,780 67 244,343 -- -- 244,410
Net loss............... -- -- -- -- (37,134,871) (37,134,871)
---------- ------- ----------- --------- ------------- ------------
BALANCE AT MAY 31, 1995.. 9,639,877 9,640 46,803,649 -- (26,549,153) 20,264,136
Issuance of common
stock for cash....... 2,988,208 2,988 49,397,434 (85,000) -- 49,315,422
Net earnings........... -- -- -- -- 3,147,988 3,147,988
---------- ------- ----------- --------- ------------ -----------
BALANCE AT MAY 31, 1996.. 12,628,085 $12,628 $96,201,083 $ (85,000) $ (23,401,165) $ 72,727,546
========== ======= =========== ========= ============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE> 18
VANS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
---------------------------------------------
1996 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)......................... $ 3,147,988 $(37,134,871) $ 1,361,030
Adjustments to reconcile net earnings (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization............ 3,175,973 28,390,226 3,917,647
Amortization of deferred financing
costs.................................. 306,489 72,124 72,124
Provision for losses on accounts
receivable and sales returns........... 762,295 1,359,846 518,593
Loss (gain) on the sale of property,
plant and equipment.................... -- (36,411) 42,620
Changes in assets and liabilities:
Accounts receivable.................... (9,021,040) (1,117,317) (1,007,126)
Income taxes receivable................ 3,530,128 (2,924,269) 905,200
Inventories............................ (2,402,906) (3,676,973) (1,565,755)
Deferred income taxes.................. 1,131,000 (489,000) 524,000
Prepaid expenses....................... (1,958,746) (122,052) 169,454
Other assets........................... (244,041) 1,881,021 (262,194)
Accounts payable....................... (4,250,652) 3,888,888 (1,229,098)
Accrued payroll and related expenses... (414,323) (405,302) 632,205
Accrued workers' compensation.......... (736,082) 28,887 (86,093)
Restructuring costs.................... (4,333,152) 6,083,934 --
Accrued interest....................... (907,660) (24,068) (4,004)
Income taxes........................... 967,659 -- --
------------ ------------ -----------
Net cash provided by (used in)
operating activities.............. (11,247,070) (4,225,337) 3,988,603
------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and
equipment................................ (2,557,520) (2,641,480) (3,478,237)
Proceeds from sale of property, plant and
equipment................................ 717,143 186,437 58,971
------------ ------------ -----------
Net cash used in investing
activities........................ (1,840,377) (2,455,043) (3,419,266)
------------ ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings......... 3,823,176 2,608,173 --
Payments on capital lease obligations....... (97,642) (21,532) --
Principal payments on senior notes.......... (29,000,000) -- --
Proceeds from issuance of common stock,
net...................................... 49,315,422 244,410 164,782
------------ ------------ -----------
Net cash provided by financing
activities........................ 24,040,956 2,831,051 164,782
------------ ------------ -----------
Net increase (decrease) in cash and
cash equivalents.................. 10,953,509 (3,849,329) 734,119
Cash and cash equivalents, beginning of
year..................................... 3,279,843 7,129,172 6,395,053
------------ ------------ -----------
Cash and cash equivalents, end of year...... $ 14,233,352 $ 3,279,843 $ 7,129,172
============ ============ ===========
SUPPLEMENTAL CASH FLOW INFORMATION -- AMOUNTS
PAID FOR:
Interest.................................... $ 3,353,372 $ 2,808,490 $ 2,788,000
Income taxes................................ $ 41,265 $ 1,007,533 $ 856,857
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Income tax benefit attributable to stock
option activity.......................... $ -- $ -- $ 111,059
Capital lease obligations incurred.......... $ -- $ 554,379 $ --
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE> 19
VANS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996, 1995 AND 1994
1. BUSINESS AND ORGANIZATION
Vans, Inc. (the "Company") is a leading designer, manufacturer and
distributor of a collection of high quality casual and active-casual footwear
for men, women and children, as well as performance footwear for enthusiasts of
outdoor sports such as skateboarding, snowboarding and BMX bicycling.
On August 29, 1991, the Company concurrently completed its initial public
stock offering (the "IPO") and issued $29,000,000 of Senior Notes due 1999 in a
private offering (the "Debt Offering")(see note 8).
The Company is the successor to Van Doren Rubber Company, Inc. ("VDRC"), a
California corporation that was founded in 1966. VDRC was acquired by the
Company in February 1988 in a series of related transactions (the "Acquisition")
and was accounted for using the purchase method of accounting. VDRC was merged
with and into the Company in connection with the IPO.
On May 24, 1996, the Company completed its secondary offering of common
stock (the "Offering"). In connection with the Offering, 2,700,000 shares of the
Company's common stock were sold by the Company for net proceeds of
approximately $47.7 million and 100,000 shares were sold by a stockholder of the
Company. Additionally, 420,000 shares were sold by another selling stockholder
to cover over-allotments. The Company did not receive any of the proceeds from
the sale of shares of common stock by the selling stockholders. The Company used
the net proceeds from the Offering to (i) repay $25.4 million of the outstanding
principal amount of the Company's 9.6% senior notes due August 1, 1999 (the
"Senior Notes"), including accrued interest and a makewhole amount resulting
from the prepayment of the Senior Notes (see note 8); (ii) repay $8.1 million
outstanding under a secured line of credit (the "Secured Line of Credit") with a
financial institution (see note 8); and (iii) increase working capital for the
financing of inventory and accounts receivable.
The Company's customers are located primarily in the United States.
However, there are customers located in a number of foreign countries (see note
13).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The consolidated financial statements include
the accounts of the Company and its subsidiaries, Vans International, Inc., a
foreign sales corporation ("FSC"), Vans Footwear International, Inc., Vans Far
East Limited, a wholly-owned Hong Kong subsidiary, and Vans Shoes Outlets, Ltd.,
a Texas Limited Partnership of which the Company is a general partner. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Basis of Financial Statement Presentation. The financial statements have
been prepared in conformity with generally accepted accounting principles. In
preparing the financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
dates of the balance sheets and revenues and expenses for the periods. Actual
results could differ from those estimates.
Cash Equivalents. For purposes of the consolidated statements of cash
flows, the Company considers all highly liquid debt investments purchased with
original maturities of three months or less to be cash equivalents.
Inventories. Inventories are valued at the lower of cost or market (net
realizable value). Cost is determined using the first-in, first-out (FIFO)
method.
21
<PAGE> 20
Goodwill. Goodwill is the cost in excess of fair value of the net assets
acquired in the Acquisition (see note 1). Goodwill represented trademarks,
manufacturing know-how and dealer relationships and was being amortized on a
straight-line basis over 30 years.
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Under the provisions of SFAS No. 121, if the sum of the expected
future cash flows (undiscounted and without interest charges) is less than the
carrying amount of the asset, an impairment loss is recognized. The amount of
impairment, if any, is measured based on projected discounted cash flows. The
Company adopted SFAS No. 121 in the fourth quarter of fiscal 1995. Prior to the
adoption of SFAS No. 121, the Company had used a similar approach for assessing
the recoverability of goodwill based on operating income.
At May 31, 1995, the Company wrote off $20,000,000, representing the
unamortized portion of goodwill relating to manufacturing know-how resulting
from the decision to close its Orange, California manufacturing facility (see
note 3). The Company has evaluated the recoverability of the remaining goodwill
by analyzing forecasted undiscounted cash flows and found no further impairment
existed at May 31, 1995 and 1996. Accordingly, remaining goodwill represents
trademarks and dealer relationships and is being amortized on a straight-line
basis over 30 years.
Financing Costs. Costs incurred to obtain financing have been capitalized
and are amortized using the straight-line method over the estimated life of the
related debt.
Revenue Recognition. Revenue is recognized at the point of sale.
Property, Plant and Equipment. Property, plant and equipment are stated at
cost, less depreciation and amortization and estimated loss on disposal. The
cost of additions and improvements are capitalized, while maintenance and
repairs are expensed as incurred. Depreciation is computed on the straight-line
method over the estimated useful lives of the related assets as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements........................................... 31.5
Machinery and equipment.............................................. 5-10
Store fixtures and equipment......................................... 7
Automobiles and trucks............................................... 5
Computer, office furniture and equipment............................. 3-5
</TABLE>
Leasehold improvements are amortized over the lesser of the estimated useful
lives of the assets or the related lease terms.
Income Taxes. Income taxes are provided based upon the provisions of SFAS
No. 109, "Accounting for Income Taxes." Under this method, deferred tax assets
and liabilities are determined based on the difference between the financial
statement and tax basis of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.
22
<PAGE> 21
Other Income. Other income is comprised of the following:
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
--------------------------------------
1996 1995 1994
---------- ---------- --------
<S> <C> <C> <C>
Royalty income............... $1,791,800 $ 907,549 $547,068
Rental income................ 72,718 117,437 119,705
Litigation recovery.......... -- 572,468 --
Other........................ 67,987 24,532 45,486
---------- ---------- --------
$1,932,505 $1,621,986 $712,259
========== ========== ========
</TABLE>
For the year ended May 31, 1995, the litigation recovery amount related to
the Company's claims against the bankruptcy estate of Drexel Burnham Lambert
Inc. The claims alleged that, in connection with the Acquisition, Drexel had
defrauded the Company into issuing shares of its common stock to a Drexel
affiliate.
Fair Value of Financial Instruments. In December 1991, the FASB issued
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments." SFAS No.
107 requires all entities to disclose the fair value of financial instruments,
both assets and liabilities recognized and not recognized on the balance sheet,
for which it is practicable to estimate fair value. SFAS No. 107 defines fair
value of a financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties. As of May 31, 1996,
the fair value of all financial instruments approximated carrying value.
Stock-Based Compensation. In October 1995, the FASB issued SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 123 establishes financial
accounting and reporting standards for stock-based employee compensation plans.
The Company plans to continue to measure compensation cost of employee stock
option plans using the intrinsic value based method prescribed by APB Opinion
No. 25, "Accounting for Stock Issued to Employees," and starting in fiscal 1997,
to make pro forma disclosures of net earnings and earnings per share as if the
fair value method prescribed by SFAS No. 123 had been applied.
Earnings (Loss) per Common Share. Primary earnings (loss) per share are
based on the weighted average number of shares outstanding during each year and
the assumed exercise of dilutive stock options less the number of treasury
shares assumed to be purchased from the proceeds using the average market price
of the Company's Common Stock during the year. Fully diluted earnings (loss) per
share are based on the weighted average number of shares outstanding during each
year and the assumed exercise of dilutive stock options less the number of
treasury shares assumed to be purchased from the proceeds using the higher of
the average or ending market price of the Company's Common Stock during the
year. The Company has granted certain options which have been treated as common
share equivalents, when appropriate (see note 11).
Reclassifications. Certain amounts in the 1994 and 1995 consolidated
financial statements have been reclassified to conform to the 1996 presentation.
3. RESTRUCTURING COSTS
Prior to fiscal 1995, the Company manufactured all of its footwear at two
domestic manufacturing facilities located in Southern California. As part of the
Company's strategic redirection, in the first quarter of fiscal 1995 the Company
began to source from South Korea its line of casual and performance footwear
known as the International Collection. The success of the International
Collection created a domestic manufacturing overcapacity problem for the Company
which contributed to an overstock in domestic inventories. In the second quarter
of fiscal 1995, the Company increased the inventory valuation allowance from
$324,772 to approximately $600,000 in order to help mitigate the risks
associated with increased inventory balances. In the third quarter of fiscal
1995, the Company took steps to adjust its U.S. production; however, customer
demand for the
23
<PAGE> 22
International Collection continued to grow. In the fourth quarter of fiscal
1995, it first became apparent that domestic manufacturing workforce reductions
would not be sufficient to address the increase in orders for the International
Collection and the decrease in demand for domestically-produced footwear, and
the Company determined that a plant closure would be required. Therefore, on May
30, 1995 the Board of Directors voted to close its Orange, California
manufacturing facility and in July 1995, the Company closed its Orange,
California manufacturing facility and recognized restructuring costs of $30.0
million in the fourth quarter of fiscal 1995.
At May 31, 1995, the restructuring cost liability of $6,084,000 included an
estimated provision of $3,405,000 for involuntary termination benefits for
approximately 1,000 employees and $2,679,000 for costs to close the plant and
prepare the site for sale. At May 31, 1996, the remaining restructuring cost
liability of $1,751,000 includes an estimated provision of $1,203,000 for
involuntary termination benefits and $548,000 for costs to prepare the site for
sale. The Company has paid approximately $4,333,000 and $79,500 in costs related
to the plant closure for the years ended May 31, 1996 and 1995, respectively.
In the fourth quarter of fiscal 1995, the Company provided $30,047,500
($28,685,700 after tax, or $2.98 per share) for restructuring related to the
closure of its Orange, California manufacturing facility. The estimated
provision includes the above mentioned costs, $3,884,000 for estimated loss on
sale of the plant site and equipment offset against property held for sale (see
note 5) and $20,000,000 of goodwill related to manufacturing know-how eliminated
with the plant closure included in the accumulated amortization of the excess of
cost over the fair value of net assets acquired (see note 2).
4. INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
MAY 31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
Raw materials.......................................... $ 1,616,486 $ 1,978,760
Work-in-process........................................ 20,680 695,995
Finished goods......................................... 17,763,478 14,322,983
----------- -----------
$19,400,644 $16,997,738
=========== ===========
</TABLE>
Inventories at May 31, 1996 and 1995 are reduced by $600,000, to reflect
lower of cost or market valuation allowances.
In the fourth quarter of fiscal 1995, the Company wrote-down $6.3 million
of inventory. The write-down of inventory consisted of $4.5 million of
domestically-produced finished goods and $1.8 million of raw material inventory.
Such inventory became impaired as a result of the following events which
occurred in the fourth quarter of fiscal 1995: (i) the expanding sales of the
International Collection; (ii) the slowing of sales of domestically-produced
footwear and related price erosion and discounting; (iii) the decrease in
domestic production as a result of the above and the subsequent closure of the
Orange, California manufacturing facility; and (iv) the discontinuance of
certain domestically-produced product.
24
<PAGE> 23
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is comprised of the following:
<TABLE>
<CAPTION>
MAY 31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
Buildings and improvements............................. $ -- $ 131,511
Machinery and equipment................................ 4,660,509 6,866,966
Store fixtures and equipment........................... 1,897,060 1,392,944
Automobiles and trucks................................. 722,025 507,836
Computers, office furniture and equipment.............. 5,889,225 5,076,750
Leasehold improvements................................. 5,000,081 3,924,933
----------- -----------
18,168,900 17,900,940
Less accumulated depreciation and amortization......... (7,367,137) (7,153,490)
----------- -----------
$10,801,763 $10,747,450
=========== ===========
</TABLE>
As of May 31, 1996 and 1995, respectively, land, building and equipment
with a net book value of $7,713,523 and $9,183,771 related to the Orange,
California manufacturing facility has been reclassified to property held for
sale net of a $3,026,417 and $3,884,000 lower of cost or market adjustment (see
notes 3 and 10).
Included in machinery and equipment and automobiles and trucks at May 31,
1996 and May 31, 1995 are $554,379 of assets held under capital leases.
Accumulated amortization of assets held under capital leases totaled $112,996
and $21,435, respectively. (see note 10).
Depreciation expense totaled $2,398,729, $2,977,573 and $2,453,813 for the
years ended May 31, 1996, 1995 and 1994, respectively.
6. WORKERS' COMPENSATION
Effective July 1, 1992, the Company self-insured for workers' compensation
claims. In February 1995, the Company posted a $2,304,000 surety bond, as
required by California law, to act as security in the event of a default by the
Company in the payment of substantiated claims. The surety bond is
collateralized by $680,000 of long-term marketable securities which are included
in other assets in the accompanying balance sheet as of May 31, 1996. The
investments are held in custody by the issuing insurance company, are restricted
as to withdrawal or use, and are currently invested in long-term marketable
securities bearing interest payable to the Company at 11.68% at May 31, 1996. At
May 31, 1996 and 1995, there were no outstanding claims and/or demands against
the surety bond or letter of credit, respectively (see note 10).
7. CREDIT FACILITIES AND SHORT-TERM BORROWINGS
At May 31, 1995, the Company had a $3,000,000 unsecured bank line of
credit, of which $2,608,173 was outstanding. The line is utilized to issue
letters of credit for product purchases. Fees paid equaled 1/8% of the face
amount of the underlying letters of credit (see note 10). Interest is payable at
prime plus 3% on letters of credit with extended terms. Certain financial ratios
are required under the credit agreement. At May 31, 1995, the Company was in
compliance with or had obtained waivers for all such covenants. The line expired
on July 15, 1995.
The Company has a $6,000,000 unsecured line of credit, as amended, with a
South Korean corporation, which is utilized to support product purchases.
Assuming full utilization of the line, the Company will pay an effective
interest rate of 14.8% per annum on the debt, comprised of (i) an annual fee of
10.36% payable at the time of the first draw thereunder, and (ii) annual
interest of 2.22% on the outstanding debt. Balances under the line are due
within 60 days from the date of incurrence. The line expires on April 26, 1997.
At May 31, 1996, the Company had a $4,656,000
25
<PAGE> 24
outstanding balance under the facility. The remaining short-term borrowings of
$1,775,000 represent the Company's liability for product in transit which has
not yet been paid for.
The Company has a secured bank line of credit that was established in July
1995, and, as amended, permits the Company to borrow amounts up to the lesser of
80% of eligible accounts receivable or $10.0 million. Interest is payable at the
bank's prime rate. Under the agreement establishing the Secured Line of Credit,
as amended, the Company must maintain certain financial covenants and is
prohibited from paying dividends or making any other distribution without the
bank's consent. At May 31, 1996, the Company was in compliance with all such
covenants. The line expires on July 1, 1997. There were no outstanding
borrowings under the Secured Line of Credit at May 31, 1996.
In March 1996, the Company obtained an additional secured credit facility
from Ssangyong U.S.A. whereby Ssangyong U.S.A. will finance the Company's
purchases of snowboard boots (the "Snowboard Boot Facility"). Under the
Snowboard Boot Facility, Ssangyong (U.S.A.) will purchase, transport, warehouse,
ship and collect payment for the snowboard boots, and will be reimbursed for the
sum of: (i) its out-of-pocket costs incurred in connection with the foregoing
(the "Ssangyong Costs"); (ii) interest on the Ssangyong Costs at the prime rate
established by Citibank N.A. from time to time; and (iii) a handling fee equal
to 3.5% of the F.O.B. price of the boots purchased. The Snowboard Boot Facility
is secured by a first priority security interest in the boot inventory and the
accounts receivable resulting from sales thereof, and a second priority security
interest in the Company's general intangibles. At no time may the sum of: (i)
the outstanding balance of the Ssangyong Costs, plus (ii) aggregate outstanding
letters of credit under the Snowboard Boot Facility, minus letters of credit
opened by the Company's foreign distributors, exceed $7 million. The Snowboard
Boot Facility expires on March 28, 1997.
8. DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MAY 31,
------------------------
1996 1995
-------- -----------
<S> <C> <C>
Senior notes.............................................. $ -- $29,000,000
Capitalized lease obligations (see note 10)............... 441,383 532,847
-------- -----------
441,383 29,532,847
Less current portion...................................... 97,641 7,116,532
-------- -----------
$343,742 $22,416,315
======== ===========
</TABLE>
The senior notes were redeemed in conjunction with the Offering (see note
1). A makewhole amount of approximately $1,451,000 was paid to redeem the notes
and approximately $241,000 of deferred financing costs related to the senior
notes were written-off resulting in an extraordinary loss on early
extinguishment of debt of approximately $1,015,000, net of a $677,000 income tax
benefit.
The senior notes were 9.6% interest only notes due August 1, 1999. Interest
was payable semiannually. On August 1, 1995, the Company paid the first
principal installment of $5,800,000, along with $1,392,000 of accrued interest.
On February 1, 1996, the Company paid $1,100,000 of accrued interest. Equal
additional installments of principal were due August 1, 1996, 1997 and 1998 with
the remaining principal and interest due August 1, 1999.
26
<PAGE> 25
9. INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
---------------------------------------
1996 1995 1994
---------- ----------- --------
<S> <C> <C> <C>
Current:
U.S. Federal.............................. $ 787,327 $(1,972,677) $ 89,267
State..................................... 180,332 1,600 75,959
---------- ----------- --------
967,659 (1,971,077) 165,226
---------- ----------- --------
Deferred:
U.S. Federal.............................. 878,624 (369,000) 433,000
State..................................... 252,574 (120,000) 102,000
---------- ----------- --------
1,131,198 (489,000) 535,000
---------- ----------- --------
$2,098,857 $(2,460,077) $700,226
========== =========== ========
</TABLE>
Total income tax expense (benefit) differed from amounts computed by
applying the U.S. Federal statutory tax rate of 34% to earnings (loss) before
income taxes, as a result of the following:
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
-------------------------------------
1996 1995 1994
---------- ------------ ---------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit)..... $1,783,927 $(13,462,282) $ 700,827
Write-off of goodwill......................... -- 6,800,000 --
Compensation under stock option plans......... (4,353) (30,049) (182,792)
Amortization of intangible assets............. 264,263 558,052 558,052
State franchise taxes, net of Federal
benefit..................................... 276,333 (78,144) 117,407
Benefit from nontaxable FSC income............ (31,960) (88,400) (227,389)
Research and development tax credit........... -- -- (301,616)
Increase (decrease) in valuation allowance.... (350,000) 3,499,000 --
Other......................................... 160,647 341,746 35,737
---------- ----------- --------
$2,098,857 $ (2,460,077) $ 700,226
========== =========== ========
</TABLE>
The components of net deferred taxes as of May 31, 1996 and 1995, follow:
<TABLE>
<CAPTION>
MAY 31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Accounts receivable.................................. $ 496,800 $ 351,869
Inventories.......................................... 566,261 720,707
Accrued workers' compensation........................ 348,116 666,840
Restructuring costs.................................. 2,068,527 3,824,256
Intangibles.......................................... 88,154 95,500
Accrued expenses..................................... 172,204 357,864
Compensation under stock option plans................ 176,310 176,309
Tax credits and other carryforwards.................. 142,047 --
----------- -----------
4,058,419 6,193,345
Valuation allowance.................................. (3,149,000) (3,499,000)
----------- -----------
Total deferred tax assets............................ 909,419 2,694,345
----------- -----------
</TABLE>
27
<PAGE> 26
<TABLE>
<CAPTION>
MAY 31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment........................ 1,774,344 2,144,147
State franchise taxes................................ 20,931 294,012
Intangibles.......................................... 245,342 256,186
----------- -----------
Total deferred tax liabilities....................... 2,040,617 2,694,345
----------- -----------
Net deferred tax liabilities......................... $ 1,131,198 $ --
=========== ===========
</TABLE>
During the year ended May 31, 1996, the Company decreased its valuation
allowance related to deferred tax assets by $350,000.
Based on the Company's current and historical pre-tax results of
operations, net of the effects of restructuring costs, management believes it is
more likely than not that the Company will realize the benefit of the existing
deferred tax assets, which are not offset by a valuation allowance, as of May
31, 1996. Management believes the existing net deductible temporary differences
will reverse during periods in which the Company generates net taxable income;
however, there can be no assurance that the Company will generate any earnings
or any specific level of continuing earnings in future years. Certain tax
planning or other strategies could be implemented, if necessary, to supplement
earnings from operations to fully realize recorded tax benefits.
10. COMMITMENTS AND CONTINGENCIES
Litigation. On June 6, 1995, a class action lawsuit was filed in the
Federal District Court for the Central District of California alleging
violations of the Federal Securities laws by the Company and certain of its
present and former officers and directors. On February 6, 1996, the Company
reached an agreement-in-principle to settle the class action lawsuit. The
proposed settlement provided for the Company's insurance carrier to pay
$1,000,000, which comprised the entire settlement amount. The Company paid no
portion of the settlement and admitted no liability in connection therewith. On
July 22, 1996, the Court entered an order approving the settlement and
dismissing the case with prejudice.
The Company is involved as both plaintiff and defendant in various other
claims and legal actions arising in the ordinary course of business. In the
opinion of management, the ultimate disposition of these matters should not have
a material adverse effect on the Company's consolidated financial position or
results of operations.
Capital Leases. The Company has capital leases for certain equipment at
its distribution center. These leases were discounted using interest rates
appropriate at the inception of each lease. Future minimum lease payments for
capitalized lease obligations at May 31, 1996 are as follows:
<TABLE>
<S> <C>
1997............................................................. $138,662
1998............................................................. 138,662
1999............................................................. 138,662
2000............................................................. 112,801
--------
Total minimum obligations........................................ $528,787
Less interest.................................................... (87,404)
--------
Present value of net minimum obligations......................... 441,383
Less current portion............................................. (97,641)
--------
Long-term obligations at May 31, 1996 (see note 8)............... $343,742
========
</TABLE>
The current portion of capital lease obligations is included in accounts
payable in the accompanying balance sheet at May 31, 1996.
28
<PAGE> 27
Operating Leases. Substantially all of the Company's retail stores, the
distribution facility and the Vista manufacturing facility are leased under
noncancelable operating leases having original terms in excess of one year.
Certain leases are renewable and contain clauses for rent escalation. The future
minimum rental payments under noncancelable operating leases are as follows at
May 31, 1996:
<TABLE>
<S> <C>
1997.................................................................. $ 3,175,000
1998.................................................................. 2,898,000
1999.................................................................. 2,579,000
2000.................................................................. 1,974,000
2001.................................................................. 1,291,000
Thereafter............................................................ 2,264,000
-----------
$14,181,000
===========
</TABLE>
The Company also leases certain other equipment on a month-to-month basis.
Total rent expense incurred for the years ended May 31, 1996, 1995 and 1994
under all operating leases was approximately $5,068,000, $4,279,000 and
$3,888,000, respectively.
Included in rent expense for each of the years ended May 31, 1996, 1995 and
1994 is $36,000 for the rent of a retail store from The Group, a California
general partnership whose partners are former shareholders of VDRC. The Company
also incurred rent expense of $17,900, $18,700 and $33,000 for the years ended
May 31, 1996, 1995 and 1994, respectively, for the lease of two retail stores
owned by members of the immediate family of one of the founders of the Company.
Employment, Management and Consulting Agreements. At May 31, 1996, the
Company had employment agreements with twelve officers that range from 1-5 years
in duration and provide for minimum compensation levels. The minimum salaries
payable subsequent to May 31, 1996, through the duration of these agreements, is
$2,128,000.
For the years ended May 31, 1996, 1995 and 1994, the Company incurred
approximately $1,555,000, $1,516,000 and $754,000, respectively, in employment
and management expense under the above agreements which is included in cost of
goods sold, selling and distribution, and general and administrative expenses in
the accompanying consolidated statements of operations. Included in the May 31,
1995 amount is an $850,000 accrual for separation payments in connection with
the departure of two senior executives.
The Company has entered into a management agreement, as amended, with a
company owned by a significant stockholder of the Company. The agreement
provides for a management fee aggregating $350,000 annually through May 31,
1998. Payments under this agreement are made monthly. Amounts paid under this
agreement totaled approximately $350,000 for each of the fiscal years ended May
31, 1995 and 1994. One half of the Company's obligation under this agreement for
the year ended May 31, 1996 was waived. The remaining $175,000 due under this
agreement at May 31, 1996 is included in accounts payable in the accompanying
balance sheets.
License Agreements. The Company has commitments for minimum guaranteed
payments under licensing agreements aggregating approximately $1,173,000,
$62,400 and $22,800 at May 31, 1996, 1995 and 1994, respectively. These
agreements range from 1-3 years in duration and are payable through July 31,
1997. Approximately $276,000, $214,000, and $110,000 were paid under license
agreements during the years ended May 31, 1996, 1995 and 1994, respectively.
Advertising Agreements. On July 1, 1993, the Company entered into an
agreement with an advertising agency to serve as the Company's advertising
agent. The agreement required that the Company guarantee the advertising agency
minimum annual billings of $180,000 within each 12-month cycle of the agreement.
This agreement was terminated effective June 30, 1995.
29
<PAGE> 28
On June 1, 1995, the Company entered into an agreement with an advertising
agency to provide advertising planning and support. The agreement requires that
the Company pay the agency a minimum of $180,000 annually. The agreement was
terminated in February 1996.
Workers' Compensation. The Company has self-insured for workers'
compensation claims since July 1, 1992. The Company is liable for claims up to
$250,000 per incident and maintains insurance for claims in excess of this
amount. Self-insurance costs are accrued based upon the aggregate of the
liability for reported claims and an actuarially determined estimated liability
for claims incurred but not reported. At May 31, 1996 and 1995, the Company had
accrued approximately $804,000 and $1,540,000, respectively, for these claims.
Letters of Credit. The Company utilizes letters of credit to back certain
purchases of product. These instruments are subject to fees competitively
determined in the marketplace. As of May 31, 1996, the Company had $1,360,000 in
open letters of credit which had not been drawn against.
Third Party Manufacturing. One manufacturer accounted for approximately
one-half of all third-party shoes manufactured during each of the years ended
May 31, 1996 and 1995.
Snowboard Boot Facility. As of May 31, 1996, the Company had open letters
of credit of approximately $1,753,000 under this facility, none of which were
due under the agreement.
Subsequent Event. In August 1996, the Company entered into two agreements
to lease the Orange Facility to two companies. The initial terms of each lease
are five years, and each lessee has an option to extend the lease for an
additional five years. The commencement date of one lease is November 1, 1996,
and the commencement date of the other lease is March 1, 1997. The Orange
Facility is classified as property held for sale in the accompanying balance
sheets.
11. STOCK OPTIONS
In April 1988, the Company adopted an incentive stock option plan under
which the Company may grant to key employees incentive stock options to purchase
up to 666,000 shares of the Company's stock (the "1988 Incentive Stock Option
Plan"). The incentive stock options allow the employee to purchase shares of
common stock equal to fair market value at the date of grant. All stock options
granted under the plan were exercisable over a period of 3 to 5 years from the
date of grant. These options expire 10 years from the date of grant.
Transactions involving the 1988 Incentive Stock Option Plan are summarized
as follows:
<TABLE>
<CAPTION>
EXERCISE NUMBER
PRICE OF
PER SHARE SHARES
------------ --------
<S> <C> <C>
Outstanding at May 31, 1993............................... $0.17 - 4.83 315,520
Options exercised......................................... 0.17 - 4.83 (194,700)
---------- --------
Outstanding at May 31, 1994............................... 4.83 120,820
Options canceled.......................................... 4.83 (10,000)
Options exercised......................................... 4.83 (49,830)
---------- --------
Outstanding at May 31, 1995............................... 4.83 60,990
Options exercised......................................... 4.83 (16,540)
---------- --------
Outstanding at May 31, 1996............................... 4.83 44,450
========== ========
</TABLE>
In November 1991, the Board of Directors of the Company adopted a long-term
incentive plan under which the Company may grant to key employees incentive
stock options, and to directors and consultants nonqualified stock options to
purchase up to 1,400,000 shares of the Company's common stock (plus any and all
of the remaining shares available for grants of options under the 1988 Incentive
Stock Option Plan) until November 2001 (the "1991 Long-Term Incentive Plan").
Stock options granted under the plan are exercisable in varying amounts over the
term of the
30
<PAGE> 29
options, and the vesting periods accelerate for certain options upon certain
events, but all such options become fully vested no later than 5 years after the
date of grant. The exercise price for each option is equivalent to no less than
the fair market value of the Company's common stock on the date the option was
granted.
Transactions involving the 1991 Long-Term Incentive Plan are summarized as
follows:
<TABLE>
<CAPTION>
EXERCISE
PRICE NUMBER
PER SHARE OF SHARES
------------- ---------
<S> <C> <C>
Outstanding at May 31, 1993............................. $6.00 - 20.50 435,546
Options canceled........................................ 6.00 - 9.50 (30,255)
Options granted......................................... 5.63 - 7.63 270,750
------------- ---------
Outstanding at May 31, 1994............................. 5.63 - 20.50 676,041
Options canceled........................................ 6.00 - 14.75 (102,850)
Options granted......................................... 4.50 - 6.38 771,000
------------- ---------
Outstanding at May 31, 1995............................. 4.50 - 20.50 1,344,191
Options canceled........................................ 4.50 - 20.50 (286,732)
Options exercised....................................... 4.50 - 7.00 (271,668)
Options granted......................................... 4.25 - 12.75 425,751
------------- ---------
Outstanding at May 31, 1996............................. $4.25 - 14.75 1,211,542
============= =========
</TABLE>
Under separate non-qualified stock option agreements, the Company has
granted options to purchase 256,140 shares of the Company's stock at an exercise
price ranging from $.17 to $17.75 per share. The excess, if any, of the fair
market value of the Company's stock at the date of grant over the exercise price
of the option was considered unearned compensation which was amortized and
charged to operations over the option's vesting period. As of May 31, 1995 and
1994, 21,950 and 4,860 options, respectively, had been exercised at $.17 per
share.
At May 31, 1996, 476,270 share options were exercisable under the Company's
stock option plans.
During the year ended May 31, 1993, the Board of Directors granted certain
officers of the Company restricted stock awards representing an aggregate of
21,773 shares of common stock. The shares underlying the stock grants are
outstanding at the date of grant. Generally, these shares become fully vested
five years from the grant date and remain restricted and non-transferable until
such date. During fiscal 1995, stock grants representing 4,000 shares were
canceled and 4,000 shares were vested as part of a separation agreement. At May
31, 1996, stock awards representing 13,773 shares remained outstanding.
12. STOCKHOLDER RIGHTS PLAN
On February 22, 1994, the Board of Directors of the Company unanimously
adopted a Stockholder Rights Plan, pursuant to which it declared a dividend
distribution of one preferred stock purchase right (a "Right") for each
outstanding share of the common stock.
The Rights dividend was payable on March 8, 1994 to the holders of record
of shares of common stock on that date. Each Right entitles the registered
holder to purchase from the Company 1/100th of a share on the Company's Series A
Junior Participating Preferred Stock, par value $.001 per share, 1,500,000
shares authorized and no shares issued or outstanding at May 31, 1995 (the
"Series A Preferred Stock"), at a price of $14.00 per 1/100th of a share,
subject to adjustment.
The Rights become exercisable (i) the 10th business day following the date
of a public announcement that a person or a group of affiliated or associated
persons (an "Acquiring Person") has acquired beneficial ownership of 15% or more
of the outstanding shares of common stock, or
31
<PAGE> 30
(ii) the 10th business day following the commencement of, or announcement of an
intention to make a tender offer or exchange offer the consummation of which
would result in the person or group making the offer becoming an Acquiring
Person (the earlier of the dates described in clauses (i) and (ii) being called
the "Distribution Date").
The Rights are not exercisable until the Distribution Date. The Rights will
expire on February 22, 1997 (the "Scheduled Expiration Date"), unless prior
thereto the Distribution Date occurs (in which event the Rights will expire on
February 22, 2004), or unless the Scheduled Expiration Date is extended.
Each share of Series A Preferred Stock purchasable upon exercise of the
Rights will be entitled to a minimum preferential quarterly dividend payment of
$1.00 per share, but will be entitled to an aggregate dividend of 100 times the
dividend declared per share of common stock. In the event the Company's assets
are liquidated, the holders of the shares of Series A Preferred Stock will be
entitled to an aggregate payment of 100 times the payment made per share of
common stock. Each share of Series A Preferred Stock will have 100 votes, voting
together with the shares of common stock. Finally, in the event of any merger,
consolidation or other transaction in which shares of common stock are
exchanged, each share of Series A Preferred Stock will be entitled to receive
100 times the amount received per share of common stock. The Rights Plan was
ratified and approved by the Company's stockholders at the 1994 annual meeting
of stockholders.
13. EXPORT SALES
Sales to foreign unaffiliated customers, by major country, were as follows:
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
-------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Germany......................... $ 6,706,000 $ 1,699,000 $ 827,000
Japan........................... 6,188,000 5,544,000 4,355,000
France.......................... 2,895,000 360,000 406,000
United Kingdom.................. 2,725,000 1,143,000 354,000
Canada.......................... 1,979,000 608,000 1,354,000
Panama.......................... 964,000 -- --
Mexico.......................... 394,000 915,000 4,754,000
Other........................... 4,494,000 2,314,000 1,509,000
----------- ----------- -----------
$26,345,000 $12,583,000 $13,559,000
=========== =========== ===========
</TABLE>
During fiscal years 1996, 1995 and 1994 the Company had net sales of
approximately $394,000, $915,000, and $4,543,000 (0.3%, 1% and 6% of total
revenues, respectively) from the sale of shoes for distribution to Mexico
through Marathon Sports U.S.A., Inc. ("Marathon"). Marathon's accounts
receivable balance at May 31, 1996, 1995 and 1994 totaled $63,000, or 0.3%;
$236,000, or 1.9%; and $2,544,000, or 19% of net accounts receivable,
respectively.
On March 20, 1995, the Company settled its account receivable with
Marathon. The agreement required Marathon to (i) pay the Company $600,000 in
cash, (ii) return 50,000 pairs of footwear with an estimated fair value of
approximately $750,000, and (iii) pay $275,000 pursuant to a six-month
promissory note, guaranteed by the owners of Marathon and secured by a Deed of
Trust on their personal residence. In connection with this agreement, the
Company recorded a $400,000 provision for doubtful accounts in the third quarter
of fiscal 1995. The Company continued to sell in Mexico through Marathon on a
cash basis pursuant to an agreement expiring July 31, 1996.
32
<PAGE> 31
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Vans, Inc.:
We have audited the accompanying consolidated balance sheets of Vans, Inc.
and subsidiaries as of May 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
years in the three-year period ended May 31, 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Vans, Inc.
and subsidiaries as of May 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended May 31, 1996, in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
- ---------------------------
KPMG Peat Marwick LLP
Orange County, California
July 19, 1996
33
<PAGE> 32
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
Management is responsible for the preparation, accuracy and integrity of
the financial statements and financial comments appearing in this Annual Report.
The financial statements were prepared in accordance with generally accepted
accounting principles and necessarily include amounts based on management's best
estimates and judgments. Other financial information presented in this Annual
Report is consistent with the financial statements.
The Company maintains a system of internal accounting controls, which it
believes is sufficient to provide reasonable, but not absolute, assurance that,
in all material respects, transactions are properly authorized and recorded,
financial reporting responsibilities are met, and accountability for assets is
maintained. The system includes written policies and procedures, appropriate
segregation of duties and the careful selection and training of employees. The
system's adequacy and effectiveness are monitored by the Company's accounting
staff. In establishing and maintaining any system of internal control, judgment
is required to assess and balance the relative costs and expected benefits.
KPMG Peat Marwick LLP, independent auditors, has performed a separate
independent audit of the financial statements. This audit was conducted in
accordance with generally accepted auditing standards, which includes
consideration of internal controls deemed necessary by them to issue their
opinion on financial statements prepared by management.
The Board of Directors has an Audit Committee comprised of three members,
two of whom are outside directors. KPMG Peat Marwick LLP has direct access to
the Audit Committee and they meet periodically with the Committee to discuss
accounting, auditing and financial reporting matters.
Executive Committee
Vans, Inc.
34
<PAGE> 33
SELECTED FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................ $117,407 $ 88,056 $80,476 $86,563 $91,246
Net earnings (loss).................. $ 3,148 $(37,135)(1) $ 1,361 $ 2,709 $ 6,463
Net earnings (loss) per share before
extraordinary item................ $ 0.40 $ (3.86)(1) $ 0.14 $ 0.28 $ 0.72
Weighted average common shares and
equivalents(2).................... 10,406 9,611 9,731 9,645 8,934
BALANCE SHEET DATA:
Total assets......................... $ 90,461 $ 73,066 $97,204 $96,252 $91,362
Long-term debt....................... $ 344 $ 22,416 $29,000 $29,000 $29,000
Stockholders' equity................. $ 72,728 $ 20,264 $57,155 $55,518 $51,867
</TABLE>
- ---------------
(1) Reflects: (i) a $20.0 million write-off of goodwill associated with the
closure of the Company's Orange, California manufacturing facility; (ii)
$10.0 million of restructuring costs associated with such facility closure;
and (iii) a $6.3 million write-down of inventory in the fourth quarter.
(2) See Note 2 of the Notes to Consolidated Financial Statements for an
explanation of the method used to determine the number of shares used in per
share computations.
35
<PAGE> 34
STOCK DATA
The Company's Common Stock is quoted on the Nasdaq National Market under
the symbol "VANS." The following table sets forth, for the periods indicated,
the high and low sales prices of the Common Stock as reported on the Nasdaq
National Market.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
(IN DOLLARS)
<S> <C> <C>
FISCAL YEAR ENDED MAY 31, 1996:
1st Quarter......................................................... 7 3/8 4 1/4
2nd Quarter......................................................... 8 3/8 5 5/8
3rd Quarter......................................................... 13 3/4 6 7/8
4th Quarter......................................................... 20 5/8 11 7/8
FISCAL YEAR ENDED MAY 31, 1995:
1st Quarter......................................................... 6 7/8 4 3/8
2nd Quarter......................................................... 8 1/4 5 7/8
3rd Quarter......................................................... 8 1/4 5 7/8
4th Quarter......................................................... 7 3 1/8
</TABLE>
On August 22, 1996, the last reported sales price on the Nasdaq National
Market for the Company's Common Stock was $13.25 per share. As of August 22,
1996, there were 142 holders of record of the Common Stock.
The Company has never declared or paid a cash dividend on its Common Stock.
The Company presently intends to retain its earnings to fund the development and
growth of its business and, therefore, does not anticipate paying any cash
dividends in the foreseeable future. In addition, the terms of the Secured Line
of Credit prohibit the payment of such dividends without the consent of the
Bank.
36
<PAGE> 35
CORPORATE AND STOCKHOLDER
INFORMATION
BOARD OF DIRECTORS
Walter E. Schoenfeld, Chairman of the Board;
Vice Chairman of the Executive Committee;
Chief Executive Officer; member of the Real
Estate Committee
Gary H. Schoenfeld, President and Chief Operating Officer; member of the
Executive Committee
George E. McCown, Vice Chairman of the Board; Managing General Partner of MDC
Management Company; Chairman of the Executive Committee
David E. De Leeuw, Vice Chairman of the Board; Managing General Partner of MDC
Management Company; member of the Executive Committee and Audit Committee
Philip H. Schaff, Jr., President of Phil Schaff Enterprises; former Chairman of
the Board and Chief Executive Officer of Leo Burnett Company; member of the
Audit Committee and Compensation Committee
Wilbur J. Fix, Chairman of Fix Management Group; former Chairman of the Board
and Chief Executive Officer of The Bon Marche; Vice Chairman of Access Long
Distance Telephone Company; member of the Real Estate Committee, Audit Committee
and Compensation Committee
James R. Sulat, Chief Financial Officer of Stanford Medical Services
Kathleen M. Gardarian, President, Qualis International, Inc.
Lisa M. Douglas, President of Nufitness Corporation
EXECUTIVE OFFICERS
Walter E. Schoenfeld
Chairman and Chief Executive Officer
Gary H. Schoenfeld
President and Chief Operating Officer
Kyle B. Wescoat
Vice President and Chief Financial Officer
Gordon C. (Butch) Lee, Jr.
Vice President-National Sales
Steven J. Van Doren
Vice President -- Private Label and Promotions
Sari K. Ratsula
Vice President -- Design and Product Development
Neal R. Lyons
Vice President -- Retail Stores
John T. Dickinson
Vice President-International Sales and Licensing
Craig E. Gosselin
Vice President, General Counsel, and
Corporate Secretary
Charles C. Kupfer
Vice President and Controller
William C. Mann
Vice President -- Foreign Sourcing
Gary L. Dunlap
Vice President-Management Information Systems
Robert H. Camarena
Vice President-Distribution and Corporate Logistics
Brentton Ji
Vice President-Production and Sourcing
CORPORATE OFFICES (until approximately March
1997)*
Vans, Inc.
2095 Batavia Street
Orange, California 92865
714/974-7414
DOMESTIC MANUFACTURING FACILITY
1205 Park Center Drive
Vista, California 92083
DISTRIBUTION CENTER (until approximately
June 1997)*
19545 East San Jose Avenue
City of Industry, California 91748
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
Center Tower
650 Town Center Drive, Ste. 1000
Costa Mesa, California 92626
TRANSFER AGENT
ChaseMellon Shareholder Services
15821 Ventura Boulevard, Ste. 670
Encino, California 91436
PUBLICATIONS AVAILABLE
The Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 1996 (excluding exhibits) and Quarterly
Reports on Form 10-Q (excluding exhibits) are available without charge, by
writing to:
Craig E. Gosselin
Vice President, General Counsel and
Corporate Secretary
Vans, Inc.
2095 Batavia Street
Orange, California 92865 (until approximately
March 1997)*
ANNUAL MEETING
Thursday, October 17, 1996, 10:00 a.m., at the
Crown Sterling Suites, 3100 East Frontera
Street, Anaheim, California
*It is anticipated both facilities will be moved to
15700 "A" Shoemaker Avenue, Santa Fe
Springs, California
Vans and the Vans logo are registered trademarks
of Vans, Inc.
This document contains or references the trademarks or service marks of other
companies.
(C) Vans, Inc. 1996. All Rights Reserved.
<PAGE> 1
EXHIBIT 22
LIST OF SUBSIDIARIES
1. Vans Footwear International, Inc., a California corporation
2. Vans International, Inc., a Virgin Islands corporation.
3. Vans Far East Limited, a Hong Kong company
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> MAY-31-1996
<CASH> 14,233,352
<SECURITIES> 0
<RECEIVABLES> 20,842,989
<ALLOWANCES> 1,147,344
<INVENTORY> 19,400,644
<CURRENT-ASSETS> 57,298,286
<PP&E> 10,801,763
<DEPRECIATION> 0
<TOTAL-ASSETS> 90,460,769
<CURRENT-LIABILITIES> 15,864,481
<BONDS> 0
0
0
<COMMON> 12,628
<OTHER-SE> 72,744,918
<TOTAL-LIABILITY-AND-EQUITY> 90,460,769
<SALES> 117,407,543
<TOTAL-REVENUES> 117,407,543
<CGS> 71,095,123
<TOTAL-COSTS> 71,095,123
<OTHER-EXPENSES> 37,966,410
<LOSS-PROVISION> 762,295
<INTEREST-EXPENSE> 3,418,559
<INCOME-PRETAX> 6,939,258
<INCOME-TAX> 2,775,822
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 1,015,448
<CHANGES> 0
<NET-INCOME> 3,147,988
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.28
</TABLE>
