<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 1, 1997 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ____ to
Commission File Number 0-19402
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 No.)
15700 Shoemaker Avenue
Santa Fe Springs, California 90670-5515
(Address of Principal Executive Offices) (Zip Code)
(562) 565-8267
(Registrant's Telephone Number, Including Area Code)
2095 Batavia Street
Orange, California 92865-3101
(Former Name, Former Address and Formal Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report(s), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
----- -----
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: 13,163,946 shares of
Common Stock, $.001 par value, as of April 14, 1997.
<PAGE> 2
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
VANS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 1, 1997 and May 31, 1996
<TABLE>
<CAPTION>
MARCH 1, MAY 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 16,714,842 $ 14,233,352
Accounts receivable, net of allowance for doubtful accounts and sales returns and
allowances of $1,562,199 and $1,147,344 at March 1, 1997 and May 31, 1996, respectively 21,597,893 20,842,989
Inventories 23,328,929 19,400,644
Deferred income taxes 364,000 364,000
Prepaid expenses 1,599,582 2,457,301
------------ ------------
Total current assets 63,605,246 57,298,286
Property, plant and equipment, net 11,950,822 10,801,763
Property held for sale - 4,687,106
Property held for lease 4,750,106 -
Excess of cost over the fair value of net assets acquired, net of accumulated
amortization of $33,352,774 and $32,744,117 at March 1, 1997 and May 31,
1996, respectively 18,089,753 16,495,283
Other assets 1,587,372 1,178,331
------------ ------------
Total Assets $ 99,983,299 $ 90,460,769
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 1,214,786 $ 6,431,349
Accounts payable 4,175,852 4,328,821
Accrued payroll and related expenses 1,332,341 1,611,906
Restructuring costs 1,421,269 1,750,782
Accrued workers' compensation 405,577 803,964
Income taxes payable 3,390,796 967,659
------------ ------------
Total current liabilities 11,940,621 15,894,481
------------ ------------
Deferred income taxes 1,495,000 1,495,000
Capital lease obligation 323,741 343,742
------------ ------------
Total Liabilities 13,759,362 17,733,223
------------ ------------
Minority interest 821,641 -
Stockholders' equity:
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, 13,152,279
and 12,628,085 shares issued and outstanding at March 1, 1997 and
May 31, 1996, respectively 13,152 12,628
Additional paid-in capital 101,032,116 96,201,083
Stock subscriptions - (85,000)
Accumulated deficit (15,709,289) (23,401,165)
Cumulative foreign currency translation adjustment 66,317 -
------------ ------------
Total Stockholders' Equity 85,402,296 72,727,546
------------ ------------
Total Liabilities & Stockholders' Equity $ 99,983,299 $ 90,460,769
============ ============
</TABLE>
2
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VANS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Thirteen weeks ended March 1, 1997 and February 24, 1996
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
MARCH 1, FEBRUARY 24,
1997 1996
----------- -----------
<S> <C> <C>
Net sales $39,101,657 $27,931,868
Cost of sales 22,979,932 16,752,503
----------- -----------
Gross profit 16,121,725 11,179,365
Operating expenses:
Selling and distribution 7,238,997 5,180,464
Marketing, advertising and promotion 3,557,091 2,744,056
General and administrative 1,741,348 1,053,953
Provision for doubtful accounts 163,179 65,830
Amortization of intangibles 227,366 190,645
----------- -----------
Total operating expenses 12,927,981 9,234,948
----------- -----------
Earnings from operations 3,193,744 1,944,417
Interest income 128,516 59,478
Interest and debt expense (66,247) (939,567)
Other income 598,151 436,565
----------- -----------
Earnings before income taxes 3,854,164 1,500,893
Income tax expense 1,487,969 600,357
Minority interest 173,037 -
Net earnings 2,193,158 900,536
=========== ===========
Net earnings per share $ 0.16 $ 0.09
=========== ===========
Weighted average common and common equivalent shares
(note 3) 13,848,896 10,454,371
=========== ===========
</TABLE>
3
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VANS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Thirty-nine weeks ended March 1, 1997 and February 24, 1996
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
MARCH 1, FEBRUARY 24,
1997 1996
------------ ------------
<S> <C> <C>
Net sales $120,162,650 $ 85,433,783
Cost of sales 72,525,442 52,289,897
------------ ------------
Gross profit 47,637,208 33,143,886
Operating expenses:
Selling and distribution 20,720,644 17,518,527
Marketing, advertising and promotion 10,037,864 5,816,744
General and administrative 4,765,531 3,645,049
Provision for doubtful accounts 569,687 245,086
Amortization of intangibles 608,656 571,935
------------ ------------
Total operating expenses 36,702,382 27,797,341
------------ ------------
Earnings from operations 10,934,826 5,346,545
Interest income 347,391 59,478
Interest and debt expense (365,238) (2,452,216)
Other income 1,925,663 1,436,462
------------ ------------
Earnings before income taxes 12,842,642 4,390,269
Income tax expense 4,977,729 1,756,109
Minority interest 173,037 -
Net earnings 7,691,876 2,634,160
============ ============
Net earnings per share $ 0.56 $ 0.26
============ ============
Weighted average common and common equivalent shares
(note 3) 13,725,980 10,199,937
============ ============
</TABLE>
4
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VANS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Thirty-nine weeks ended March 1, 1997 and February 24, 1996
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
MARCH 1, FEBRUARY 24,
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 7,691,876 $ 2,634,160
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,545,302 2,378,234
Amortization of deferred financing costs - 54,093
Provision for losses on accounts receivable and sales returns 569,687 245,086
Changes in assets and liabilities:
Accounts receivable (504,904) (6,106,235)
Income taxes receivable - 3,530,128
Inventories (3,928,285) (531,305)
Prepaid expenses 857,719 (471,036)
Other assets 90,959 (264,926)
Accounts payable (152,969) (2,226,596)
Accrued payroll and related expenses (279,565) (174,492)
Accrued workers' compensation (398,387) (527,144)
Restructuring costs (329,513) (3,719,754)
Accrued interest - (738,831)
Income taxes payable 2,423,137 1,756,109
----------- -----------
Net cash provided by (used in) operating activities 8,585,057 (4,162,509)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (2,585,660) (1,913,251)
Proceeds from property held for sale - 717,143
Investments in unconsolidated entities (500,000) -
----------- -----------
Net cash used in investing activities (3,085,660) (1,196,108)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (payments) on short term borrowings (5,216,563) 3,345,235
Payments on capital lease obligations (20,001) (107,484)
Proceeds from long term credit facility - 4,647,745
Principal payments on senior notes - (5,800,000)
Proceeds from issuance of common stock, net 2,218,657 554,073
----------- -----------
Net cash provided by (used in) financing activities (3,017,907) 2,639,569
----------- -----------
Net increase (decrease) in cash and cash equivalents 2,481,490 (2,719,048)
Cash and cash equivalents, beginning of period 14,233,352 3,279,843
----------- -----------
Cash and cash equivalents, end of period $16,714,842 $ 560,795
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION - AMOUNTS PAID FOR:
Interest $ 338,104 $ 2,912,619
Income taxes $ 2,587,801 $ 41,265
</TABLE>
5
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VANS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Vans, Inc., a Delaware corporation (the "Company"), is the successor to Van
Doren Rubber Company, Inc., a California corporation that was founded in
1966 ("VDRC"). VDRC was merged with and into the Company in connection
with the Company's initial public offering of common stock in August 1991.
The condensed consolidated financial statements included herein are
unaudited and reflect all adjustments which are, in the opinion of
management, necessary for a fair presentation of the results of the interim
periods presented. The results of operations for the current interim
periods are not necessarily indicative of results to be expected for the
current year.
Certain amounts in the prior period financial statements have been
reclassified to conform to the current period presentation.
2. Inventories are comprised of the following:
<TABLE>
<CAPTION>
March 1, 1997 May 31, 1996
------------- ------------
<S> <C> <C>
Raw materials $ 1,690,405 $ 1,616,486
Work-in-process 53,174 20,680
Finished goods 22,185,350 18,363,478
----------- -----------
23,928,929 20,000,644
Less: Valuation allowance (600,000) (600,000)
----------- -----------
$23,328,929 $19,400,644
=========== ===========
</TABLE>
3. Primary earnings per share approximate fully diluted earnings per share for
the thirteen weeks and thirty-nine weeks ended March 1, 1997 and February
24, 1996.
4. During Q2 Fiscal 1997, the Company acquired a 51% interest in Global
Accessories Limited, an international distributor based in the United
Kingdom ("Global Accessories"). The purchase price of $2,811,000 consisted
of the issuance of 170,000 shares of the Company's common stock and related
acquisition costs in exchange for 51% of the common shares of Global
Accessories. The excess of cost over the fair value of $2,203,000 of the net
assets acquired (based on the Company's preliminary purchase price
allocation) is reflected as excess of cost over the fair value of net assets
acquired in the March 1, 1997 condensed consolidated balance sheet.
6
<PAGE> 7
ITEM 2. 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 stylish-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, under the brand
name "VANS"*. 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 the Company's 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").
As reported in the Company's Form 10-Q for the first quarter of Fiscal
1997, the Company has leased the Orange Facility to two companies. In
connection with these agreements, the Company has leased 180,000 square feet of
space in Santa Fe Springs, California, which now houses the Company's corporate
* VANS is a registered trademark of the Company.
7
<PAGE> 8
headquarters. Such facility will also house the Company's warehouse operations
commencing in June 1997. See "Liquidity and Capital Resources - Capital
Expenditures."
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
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 fixed assets as of the date of the Acquisition were primarily
deployed to manufacture footwear, and the Company's chain of retail store
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 the 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.
RESULTS OF OPERATIONS
THIRTEEN-WEEK PERIOD ENDED MARCH 1, 1997 ("Q3 FISCAL 1997") VERSUS THE
THIRTEEN-WEEK PERIOD ENDED FEBRUARY 24, 1996 ("Q3 FISCAL 1996")
NET SALES
Net sales for Q3 Fiscal 1997 increased 39.9% to $39,102,000, compared
to $27,932,000 for the same period in Fiscal 1996. The sales increase was
primarily driven by increases in all of the Company's sales channels, as
discussed below.
Sales to national accounts increased 44.2% during Q3 Fiscal 1997 to
$17,046,000, compared to $11,819,000 for the comparable period of Fiscal 1996,
primarily as a result of the Company's increased marketing efforts. See
"--Marketing, Advertising and Promotion."
Sales through the Company's 85-store retail chain increased 27.8% to
$9,347,000 in Q3 Fiscal 1997 from $7,311,000 for Q3 Fiscal 1996. Comparable
store sales (sales at stores open one year or more) were up 18.5% for the
quarter. All store-types showed comparable store sales increases except the
Company's five clearance stores which represent less than 5.0% of the Company's
retail sales.
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Sales for export increased 44.4% to $12,708,000 for Q3 Fiscal 1997,
compared to $8,802,000 for the same period a year ago. Increased sales to
Japan, Germany, the United Kingdom and France was the principal reason for the
increase.
GROSS PROFIT
Gross profit increased 44.2% to $16,122,000 in Q3 Fiscal 1997 from
$11,179,000 in the same period of Fiscal 1996. As a percentage of net sales,
gross profit increased to 41.2% for Q3 Fiscal 1997 from 40.0% for the same
period of Fiscal 1996. The increase in gross profit as a percentage of net
sales was primarily due to: (i) a higher percentage of sales through
Company-owned retail stores; and (ii) increased sales to independent retailers.
EARNINGS FROM OPERATIONS
Earnings from operations increased 63.4% to $3,194,000 in Q3 Fiscal
1997 from $1,944,000 in the same period of Fiscal 1996. Operating expenses in
Q3 Fiscal 1997 increased to $12,928,000 from $9,235,000 in Q3 Fiscal 1996,
primarily due to a $2,059,000 increase in selling and distribution expense and
an $813,000 increase in marketing, advertising and promotion expenses, each as
discussed below. As a percentage of net sales, operating expenses remained
unchanged at 33.1%, on a period-to-period basis.
SELLING AND DISTRIBUTION
Selling and distribution expenses increased 39.7% to $7,239,000 in Q3
Fiscal 1997 from $5,180,000 in Q3 Fiscal 1996, primarily due to: (i) higher
labor costs for the Company's retail division due to higher sales; (ii)
increased building and equipment rents related to new store openings and the
addition of new cash registers in the Company's retail stores; (iii) the
addition of apparel operations and a sales force for the new apparel division;
(iv) higher commissions on increased national sales; and (v) the cost of
establishing an office in Hong Kong.
MARKETING, ADVERTISING AND PROMOTION
Marketing, advertising and promotion expenses increased 29.6% to
$3,557,000 in Q3 Fiscal 1997 from $2,744,000 in Q3 Fiscal 1996, primarily due
to: (i) increased television and print advertising; (ii) an increase in
athletes representing the Company's products; and (iii) sponsorship of the Vans
World Championship of Snowboarding.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased 65.2% from $1,054,000 in
Q3 Fiscal 1996 to $1,741,000 in Q3 Fiscal 1997, primarily due to: (i)
increased legal fees to prosecute claims of infringement of the Company's
trademarks; (ii) recognition of business insurance expenses due to a change in
the policy coverage period; (iii) an increase in employee recruiting costs; and
(iv) the higher cost of employee incentive programs.
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<PAGE> 10
PROVISION FOR DOUBTFUL ACCOUNTS
Provision for doubtful accounts increased from $66,000 in Q3 Fiscal
1996 to $163,000 in Q3 Fiscal 1997, primarily due to an increase in the general
allowance for doubtful accounts to correspond with the increase in accounts
receivable resulting from higher sales.
INTEREST INCOME
Interest income increased from $59,000 in Q3 Fiscal 1996 to $129,000
in Q3 Fiscal 1997 primarily due to the investment of the net proceeds of the
Company's May 1996 public offering of Common Stock (the "Offering").
INTEREST AND DEBT EXPENSE
Interest and debt expense decreased from $940,000 in Q3 Fiscal 1996 to
$66,000 in Q3 Fiscal 1997 due to the repayment of the Company's 9.6% Senior
Notes and secured bank line of credit with a portion of the net proceeds of
the Offering. See "- Liquidity and Capital Resources."
OTHER INCOME
Other income, primarily income from the licensing of the Company's
trademarks, increased 37.0% to $598,000 in Q3 Fiscal 1997 from $437,000 in the
same period of Fiscal 1996.
INCOME TAX EXPENSE
Income tax expense increased to $1,488,000 in Q3 Fiscal 1997 from
$600,000 for Q3 Fiscal 1996 as a result of the higher earnings discussed above.
THIRTY-NINE WEEK PERIOD ENDED MARCH 1, 1997 ("FISCAL 1997 NINE MONTHS") VERSUS
THIRTY-NINE WEEK PERIOD ENDED FEBRUARY 24, 1996
NET SALES
Net sales for the Fiscal 1997 Nine Months increased 40.7% to
$120,163,000, compared to $85,434,000 for the same period in Fiscal 1996. The
sales increase was primarily driven by increased sales in all channels of
distribution and a 66.7% increase in sales of snowboard boots to $11,856,000 for
the Fiscal 1997 Nine Months, compared to $7,110,000 during the same period of
Fiscal 1996.
Sales to national accounts increased 30.1% during the Fiscal 1997 Nine
Months to $59,802,000, compared to $45,962,000 for the same period of Fiscal
1996, primarily due to a 57.7% increase in sales of the International Collection
and increased snowboard boot sales and sales to independent retailers.
10
<PAGE> 11
Sales through the Company's 85-store retail chain increased 28.3% to
$27,305,000 from $21,278,000 for the same period a year ago. Comparable store
sales (sales at stores open one year or more) were up 16.7% for the period.
Comparable store sales increased for all but one Company store type. All
store-types showed comparable store sales increases except the Company's five
clearance stores which represent less than 5.0% of the Company's retail sales.
Sales for export increased 81.7% to $33,055,000 for the Fiscal 1997
Nine Months, compared to $18,194,000 for the same period a year ago. Increased
sales to Japan, Germany, the United Kingdom and France was the principal reason
for the increase.
GROSS PROFIT
Gross profit increased 43.7% to $47,637,000 in the Fiscal 1997 Nine
Months from $33,144,000 in the same period of Fiscal 1996. As a percentage of
net sales, gross profit increased to 39.6% for the Fiscal 1997 Nine Months from
38.8% for the same period of Fiscal 1996. The increase in gross profit was
primarily due to: (i) increased sales of the International Collection through
the national sales channel, which carries a higher gross margin; (ii) increased
sales of the International Collection through the Company's retail stores which
more than doubled for the Fiscal 1997 Nine Months, compared to the same period a
year ago; and (iii) greater efficiencies achieved at the Vista Facility.
EARNINGS FROM OPERATIONS
Earnings from operations increased to $10,935,000 in the Fiscal 1997
Nine Months from $5,347,000 in the same period of Fiscal 1996. Operating
expenses in the Fiscal 1997 Nine Months increased to $36,702,000 from
$27,797,000 in the same period a year ago, primarily due to a $3,202,000
increase in selling and distribution expense and a $4,221,000 increase in
marketing, advertising and promotion expenses, each as discussed below.
However, as a percentage of sales, operating expenses decreased from 32.5% to
30.5%, on a period-to-period basis.
SELLING AND DISTRIBUTION
Selling and distribution expenses increased 18.3% to $20,721,000 in
the Fiscal 1997 Nine Months from $17,519,000 in the same period a year ago,
primarily due to the reasons discussed under the caption "Results of Operations
- - Selling and distribution" for Q3 Fiscal 1997. However, as a percentage of
sales, selling expenses decreased to 17.2% for the Fiscal 1997 Nine Months from
20.5% for the same period in Fiscal 1996.
MARKETING, ADVERTISING AND PROMOTION
Marketing, advertising and promotion expenses increased 72.6% to
$10,038,000 in the Fiscal 1997 Nine Months from $5,817,000 in the same period a
year ago, primarily due the reasons discussed under the caption "Results of
Operations - Marketing, advertising and promotion" for Q3 Fiscal 1997.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased 30.7% to $4,766,000 in
the Fiscal 1997 Nine Months from $3,645,000 in the same period a year ago,
primarily due to the reasons discussed under the caption "Results of Operations
- - General and administrative" for Q3 Fiscal 1997. As a percentage of sales,
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<PAGE> 12
general and administrative expenses decreased to 4.0% for the Fiscal 1997 Nine
Months from 4.3% for the same period in Fiscal 1996.
PROVISION FOR DOUBTFUL ACCOUNTS
Provision for doubtful accounts increased 132.4% to $570,000 in the
Fiscal 1997 Nine Months from $245,000 in the same period a year ago, primarily
due to the reasons discussed under the caption "Results of Operations -
Provision for doubtful accounts" for Q3 Fiscal 1997.
INTEREST INCOME
Interest income was derived primarily from the investment of a portion
of the net proceeds of the Offering. See " - Liquidity and Capital Resources."
INTEREST AND DEBT EXPENSE
Interest and debt expense decreased to $365,000 in the Fiscal 1997
Nine Months from $2,452,000 in the same period a year ago, due to the repayment
of the Company's 9.6% Senior Notes and secured bank line of credit with a
portion of the net proceeds of the Offering. See " - Liquidity and Capital
Resources."
OTHER INCOME
Other income increased 34.1% to $1,926,000 for the Fiscal 1997 Nine
Months from $1,436,000 for the same period a year ago, primarily due to
increased royalties from the licensing of the Company's trademarks.
INCOME TAX EXPENSE
Income tax expense increased to $4,978,000 during the Fiscal 1997 Nine
Months from $1,756,000 for the same period in Fiscal 1996 as a result of the
higher earnings discussed above.
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 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 bank line of credit. See " - Borrowings." The
balance of the net proceeds was utilized for general corporate purposes.
The Company experienced a cash inflow from operations of $8,585,000
for the Fiscal 1997 Nine Months, compared to a cash outflow of $4,163,000 for
the same period in Fiscal 1996. The cash provided from operations for the
Fiscal 1997 Nine Months resulted primarily from earnings, depreciation and
amortization, decreases in prepaid expenses and other assets along with an
increase in income taxes payable resulting from increased earnings, partially
offset by increases in accounts receivables and inventories. Cash used in
operations for the same period a year ago was due to increases in accounts
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<PAGE> 13
receivable and inventories combined with decreases in accounts payables,
accrued workers compensation and restructuring costs accrual.
The Company incurred a net cash outflow from investing activities of
$3,086,000 for the Fiscal 1997 Nine Months, compared to a net cash outflow of
$1,196,000 for the same period in Fiscal 1996. These outflows represented
capital expenditures related to new retail store openings, tenant improvements
made to the Orange Facility, investments in the entity which owns the Vans
Warped Tour musical event, and costs related to upgrading the Company's
distribution and shipping computer software system. See " - Capital
Expenditures."
The Company incurred a net cash outflow from financing activities of
$3,018,000 for the Fiscal 1997 Nine Months, compared to a net cash inflow of
$2,640,000 for the same period in Fiscal 1996, primarily due to the repayment
of $5,217,000 in short-term borrowings.
Accounts receivable, net of allowance, increased 3.6% to $21,598,000
at March 1, 1997 from $20,843,000 at May 31, 1996. This increase was primarily
due to the addition of accounts receivable for Global Accessories in the
condensed consolidated financial statements. Inventories increased 20.2% from
$19,401,000 to $23,329,000 during the same period due to increased inventory
levels to support sales growth in all distribution channels and the addition of
inventory of Global Accessories.
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
permits the Company to borrow up to $20.0 million, and is secured by the
Company's accounts receivables and inventory, other than snowboard boot
accounts receivables and inventory. 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, plus a percentage which varies depending on the
Company's ratio of debt to earnings before interest, taxes, depreciation, and
amortization (the "Debt to EBITDA Ratio"). The Company has the option to pay
interest at the LIBOR rate plus a percentage which varies with the Company's
Debt to EBITDA Ratio. Under the agreement establishing the Secured Line of
Credit, 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
November 1, 1997. At March 1, 1997, the Company had no funds drawn down under
the Secured Line of Credit.
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. At March 1, 1997, 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. financed the Company's purchases of snowboard boots (the
"Snowboard Boot Facility"). Under the Snowboard Boot Facility, which expired
on March 28, 1997, Ssangyong U.S.A. purchased, transported, warehoused, shipped
and collected payment
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for the snowboard boots, and was reimbursed by the Company 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 was 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
March 1, 1997, there were no amounts due and owing under the Snowboard Boot
Facility.
CURRENT CASH POSITION
The Company's cash position was $16,715,000 as of March 1, 1997,
compared to $14,233,000 at May 31, 1996. The Company's cash position was, in
the past two years, 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. 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 industry is 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.
Notwithstanding the foregoing, for the next 24 months, the Company
believes that cash from operations, together with borrowings from the Secured
Line of Credit, should be sufficient to meet its working capital needs. NOTE:
THE PREVIOUS SENTENCE IS A FORWARD-LOOKING STATEMENT. 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, SNOWBOARD BOOTS AND
DOMESTICALLY-PRODUCED FOOTWEAR; (III) THE COMPANY'S ABILITY TO EFFECTIVELY
MANAGE ITS INVENTORY LEVELS; (IV) TIMING DIFFERENCES IN PAYMENT FOR THE
COMPANY'S FOREIGN-SOURCED PRODUCT, WHICH ARE DISCUSSED IN THE FOREGOING
PARAGRAPH; (V) THE INCREASED UTILIZATION OF LETTERS OF CREDIT FOR PURCHASES OF
FOREIGN-SOURCED PRODUCT; AND (VI) TIMING DIFFERENCES IN PAYMENT FOR PRODUCT
WHICH IS SOURCED FROM COUNTRIES WHICH HAVE LONGER SHIPPING LEAD TIMES, SUCH AS
CHINA.
CAPITAL EXPENDITURES
In the remainder of Fiscal 1997, the Company plans to open two to
three new retail stores at an estimated aggregate cost of $250,000 -
$410,000, and remodel one existing retail store at an estimated aggregate
cost of $80,000 - $160,000. The new stores will primarily be factory
outlet stores. At the same time, the Company will continue to identify and
close underperforming stores.
The Company has entered into a lease for a new 180,000 square foot
facility in Santa Fe Springs, California to house its corporate headquarters
and distribution center. The move of the Company's corporate headquarters was
completed on April 14, 1997. It is estimated that the move of the distribution
center will be completed in June 1997. The Company currently estimates that it
will incur aggregate net capital expenditures of approximately $3,000,000 -
$3,500,000 for the new facility primarily related to tenant improvements and
new furniture and equipment.
As disclosed previously, the Company has entered into agreements to
lease the Orange Facility to two companies. It is currently estimated that the
Company will incur an aggregate of approximately $293,000 in capital
expenditures to improve the Orange Facility for the new tenants. In connection
with
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the leasing of this property the balance under the balance sheet caption
"property held for sale" has been reclassified to "property held for lease."
The Company has implemented a hardware upgrade for its primary
computer system. The upgrade is intended to support the growth the Company is
currently experiencing, as well as position the Company for future growth. The
cost of this system improvement, including software, was approximately
$700,000.
All capital expenditures discussed herein will be funded with a
combination of cash from operations and borrowings from the Secured Line of
Credit.
RECENT ACCOUNTING PRONOUNCEMENTS
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. The adoption of
SFAS No. 123 is not expected to have a material impact on the Company's
financial position or results of operations.
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings Per Share." SFAS No. 128 specifies new standards designed
to improve the earnings per share ("EPS") information provided in financial
statements by simplifying the existing computational guidelines, revising the
disclosure requirements and increasing the comparability of EPS data on an
international basis. Some of the changes made to simplify the EPS computations
include: (a) eliminating the presentation of primary EPS and replacing it with
basic EPS, with the principal difference being that the common stock
equivalents are not considered in computing basic EPS, (b) eliminating the
modified treasury stock method and the three percent materiality provision, and
(c) revising the contingent share provisions and the supplemental EPS data
requirements. SFAS No. 128 also makes a number of changes to existing
disclosure requirements. SFAS No. 128 is effective for financial statements
issued for periods ending after December 15, 1997, including interim periods.
The Company has not yet determined the impact of the implementation of SFAS No.
128.
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 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
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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.
PART II
OTHER INFORMATION
ITEM 5. OTHER MATTERS
Executive Officer Changes. During Q3 Fiscal 1997, Gary H. Schoenfeld
was appointed Chief Executive Officer of the Company. Walter E. Schoenfeld
remained as Chairman of the Board.
Transfer of Workers' Compensation Liability. Effective April 4, 1997,
the Company transferred its remaining workers' compensation liability for
losses incurred since the commencement of the Company's self-insurance program
in July 1992, through April 4, 1997 (the "Liability Tail"), to Lumbermens
Mutual Casualty Company ("Lumbermens"), subject to a per accident loss limit of
$250,000 and an aggregate maximum of $3,500,000. Losses in excess of the per
accident limit will be borne by the Company's excess coverage carrier. Losses
in excess of the aggregate limit will be borne by the Company. In connection
with the transfer, the Company discontinued its workers' compensation self-
insurance program. The Company's workers' compensation claims now will be
handled by Kemper Insurance Companies ("Kemper"). The letter of credit
maintained by the Company in connection with its self-insurance plan was
replaced with a bond obtained by Kemper. The Company paid Lumbermens and
Kemper an aggregate of approximately $1.86 million in premiums relating to the
Liability Tail and the first 12 months of the handling of future claims by
Kemper.
Investment in Vans Warped Tour. Effective January 1, 1997, the
Company purchased a 15% interest in the California limited liability company
which operates the Vans Warped Tour musical event, for $500,000. The Company
will be the title sponsor of the 1997 event, and aggregate sponsorship fees for
the event will be approximately $1,000,000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<S> <C>
10.1 Tour Title Sponsorship Agreement, dated January 1, 1997, by and between the Company and
C.C.R.L., LLC, a California limited liability company
10.2 Amended and Restated Operating Agreement, dated January 1, 1997, by and among the
Company, Gendler, Codikow & Carroll, Kevin Lyman Production Services, and Creative Artists
Agency (the "Operating Agreement")
10.3 Side Letter, dated January 1, 1997, to the Operating Agreement
10.4 Employment Agreement, dated February 1, 1997, by and between the Company and John Walker
10.5 Amendment No. 1 to the Employment Agreement of Walter E. Schoenfeld
27 Financial Data Schedule
</TABLE>
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(b) Reports on 8-K.
The Company filed the following Reports on Form 8-K during the
three-month period ended March 1, 1997: (i) a Report, dated December
2, 1996, regarding the acquisition of a majority interest in Global
Accessories Limited; and (ii) a Report, dated December 20, 1996,
regarding the amendment and extension of the Company's Stockholder
Rights Plan.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VANS, INC.
(Registrant)
Date: April 15, 1997 By: /s/ Gary H. Schoenfeld
-------------------------------------
GARY H. SCHOENFELD
President and Chief Executive Officer
Date: April 15, 1997 By: /s/ Kyle B. Wescoat
-------------------------------------
KYLE B. WESCOAT
Vice President and
Chief Financial Officer (Principal
Financial and Accounting Officer)
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Page
Document Number
-------- ------
<S> <C> <C>
10.1 Tour Title Sponsorship, dated January 1, 1997, by and between the Company and
C.C.R.L., LLC., a California limited liability company
10.2 Amended and Restated Operating Agreement, dated January 1, 1997 by and among
the Company, Gendler, Codikow & Carroll, Kevin Lyman Production Services, and
Creative Artists Agency (the "Operating Agreement")
10.3 Side Letter, dated January 1, 1997, to the Operating Agreement
10.4 Employment Agreement, dated February 1, 1997, by and between the Company and
John Walker
10.5 Amendment No. 1 to the Employment Agreement of Walter E. Schoenfeld
27 Financial Data Schedule
</TABLE>
E-1
<PAGE> 1
EXHIBIT 10.1
TOUR TITLE SPONSORSHIP AGREEMENT
THIS AGREEMENT is entered into as of the first day of January, 1997
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 Vans Warped Tour" for the calendar years 1997 and 1998
(collectively, the "Tours," or individually, a "Tour," or the "1997 Tour" and
the "1998 Tour," respectively), produced by Company and comprised of, among
other things, performances by popular musical artists, exhibitions by
miscellaneous athletic performers (collectively, "Performers") and
skateboarding contests involving amateur athletes and to further utilize the
name, logo and identification of Company and the Tours 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 Tours for the purposes described above and
desires to obtain the right to use the name,
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logo and identification of Sponsor in connection with the advertising,
promotion and publicity of the Tours;
NOW, THEREFORE, in consideration of the terms and conditions set forth
herein, it is agreed:
1. TERRITORY:
The territory covered by this Agreement shall be the world
("Territory"). The Tours shall be conducted in the continental United States,
Canada, Europe, Asia and Australia. The specific itinerary and number of
events for each Tour outside North America shall be determined by mutual
approval of Company and Sponsor.
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 Tours. It is presently contemplated the
"summer-leg" of each Tour shall commence no earlier than June 1 and shall be
routed throughout the United States and Canada through the end of August, and
throughout foreign territories thereafter through the fall of each year.
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 1998 Tour (the "Term"). At such time,
unless earlier terminated pursuant to the terms
2
<PAGE> 3
hereof, this Agreement shall terminate. Within thirty (30) days after the end
of each year's 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" (as hereinafter defined), 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 the foregoing information may be
confidential, and 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 Tours 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 Tours and that Company shall be entitled
to permit other persons or entities to act as sponsors of the Tours, or to
refrain therefrom, provided that (i) Sponsor shall at all times during the Term
be the official and exclusive
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<PAGE> 4
title Sponsor of the Tours and (ii) no other manufacturer or distributor of
footwear or snowboard boots shall be a sponsor of the Tours 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 Tours and shall instruct other sponsors or persons or
entities affiliated with the Tours 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 Tours 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 Tours 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 are present
at the applicable venue and are available for consultation, Company shall
consult with Sponsor, in advance, as to
4
<PAGE> 5
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 Competitions and all other aspects of
the Tour. Sponsor agrees that authorized representatives of Sponsor may, but
are not obligated to, attend and actively participate in Company meetings
concerning the Tours. Company agrees to exercise reasonable efforts in making
whatever arrangements are necessary to protect the creative aspects of the
Tours 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 each 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 such
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
with respect to each Tour:
(a) A full schedule of concert dates, locations and
main-stage Performers for each Tour, no later than forty-five (45) days prior
to the scheduled commencement of such Tour;
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<PAGE> 6
(b) The names, addresses and phone numbers of each local
promoter for each concert, no later than thirty (30) days prior to the
scheduled commencement of the Tour;
(c) The capacity at each concert location, no later than
thirty (30) days prior to the scheduled 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 Tours (including but
not limited to in congratulatory advertisements), (b) any phonorecords and
audiovisual works relating to or which include performances or footage from the
Tours and, (c) any news items, press releases or other information in any media
relating to the Tours. In that connection, Company agrees to refer to the
Tours in all press releases, advertising and promotions as "The Vans Warped
Tour '97" and "The Vans Warped Tour '98," as appropriate, including but not
limited to in all television and radio advertisements, posters, flyers and
newspaper and magazine advertisements. Company and its designees and licensees
shall include the Name on all items of event merchandise
6
<PAGE> 7
(i.e., merchandise relating primarily to the Tours in general as opposed to
merchandise relating primarily to any Performer). The parties acknowledge that
all monies to be derived from the sale, distribution and exploitation of such
merchandise shall be solely the property of Company and its designees and
licensees. Except as expressly set forth herein, 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 Tours 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 each Tour, 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.
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<PAGE> 8
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.
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 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 each Tour in certain materials,
including but not limited to national, regional and local advertising,
corporate reports to shareholders or otherwise, 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 each Tour.
8
<PAGE> 9
(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
each 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 given Tour as to placement of signage, and shall
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
Tours shall be borne solely by Company. All signage shall be delivered no
later than 10 days prior to the commencement of each Tour to the locations
designated by Company.
(d) Company shall provide to Sponsor a 20' x 20' booth at
each site of the Tours at which Sponsor may conduct sampling, take surveys and
display product. Company shall, at no charge to Sponsor, arrange for
transportation and lodging of four (4) people to man Sponsor's booth at each
venue of the Tour, which
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<PAGE> 10
transportation and lodging shall be of the type furnished to the musical
performers.
(e) If Company publishes a program in connection with any
of the Tours which is distributed at each concert of such Tour to concert
patrons, Sponsor shall receive, at no charge, full 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 Tours, 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.
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(g) If Sponsor decides to sponsor any so-called "VIP
receptions" during any Tour(s), 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 desires to sponsor street and vertical ramp
amateur skating competitions (the "Competitions") at a minimum of twenty (20)
selected venues in the United States and Canada, and a minimum of four (4)
venues in Europe and Asia during each of the respective Tours. Company shall
handle all aspects of the formation, coordination and operation of such
Competitions at the applicable Tour sites and at designated preliminary contest
sites, including but not limited to, providing appropriate personnel,
organizing preliminary competitions to obtain 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) Subject to Company's approval, Sponsor shall be
permitted to use the name and logo of the Tours on the packaging of
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compact discs to be created, distributed and sold by Sponsor and a distributor
engaged by Sponsor in connection with each of the respective Tours (the "Tour
CDs"), provided that (A) such use does not conflict with any of Company's
existing or contemplated contractual obligations to third parties, (B)
Sponsor, at its sole expense, shall be 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 (C) 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 CDs.
8. CONCERT TICKETS:
(a) Sponsor shall receive eighty (80) tickets per
concert, twenty-five (25) of which will be accompanied by backstage or VIP
passes.
(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.
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9. CONSIDERATION:
In consideration for the rights granted by Company to Sponsor herein,
Sponsor shall pay to Company a "Sponsorship Fee" for each of the respective
Tours.
(a) The Sponsorship Fee for the North American Summer Leg
(the "Summer Sponsorship Fee") of the 1997 Tour shall be Seven Hundred Fifty
Thousand Dollars ($750,000.00), payable as follows: (i) $100,000.00 on or
before March 1, 1997, (ii) $100,000.00 on or before April 1, 1997, (iii)
$100,000.00 on or before May 1, 1997, (iv) $150,000.00 on or before June 1,
1997, (v) $150,000.00 on or before July 1, 1997 and (vi) $150,000.00 on or
before August 1, 1997.
(b) The Summer Sponsorship Fee for the 1998 Tour and the
1999 Tour shall be subject to good faith negotiations between Sponsor and
Company in light of the needs of each such Tour, but will in no event be less
than $750,000.00 for each Tour, payable in the same time and manner as the
Summer Sponsorship Fee for the 1997 Tour.
(c) The Sponsorship Fees for the 1997, 1998 and 1999
Tours outside North America (the "Foreign Sponsorship Fees"), and the payment
terms thereof, shall be subject to good faith negotiations between Sponsor and
Company in light of the needs of each such Tour.
(d) Company is presently planning to add a "Winter Leg"
to the Tours, (i.e., additional concert dates and locations during the winter
months) commencing in 1997 or 1998. Sponsor shall be
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the official exclusive title sponsor of each Winter Leg, on the same terms and
conditions set forth herein, except that the Sponsorship Fee for each year's
Winter Leg (the "Winter Sponsorship Fee"), and the payment terms thereof, shall
be subject to good faith negotiations between Sponsor and Company in light of
the nature and scope of the Winter Leg of each Tour.
10. 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 Tours (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.
11. CANCELLATION OF TOUR:
If for any reason, any of the Tours are canceled after such
Tour has begun to the effect that less than ninety percent (90%) of the
scheduled concerts for such Tour(s) are performed, Sponsor's sole remedies
shall be to:
(a) Terminate this Agreement immediately without further
responsibility for the payment of any yet unpaid 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
applicable Tour(s), if any, at the time of cancellation
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<PAGE> 15
bears to ninety percent (90%) of the total number of concerts contained within
the applicable Tour(s).
12. 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 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.
13. 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 Tours, the
Competitions (if
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<PAGE> 16
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.
14. 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 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 14(b)
below) any personal injury or property damage arising out of or in connection
with an individual's attendance at a concert on the Tours; (iii) any liability
for any expenses associated with the Tours 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 each Tour, general
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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 Tours are
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 consideration previously paid to Company in connection
with the cancelled Tour leg pursuant to paragraph 9, 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 each 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
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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 Competitions, 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 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.
15. 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
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Attn: Craig E. Gosselin, Vice President and
General Counsel
FOR COMPANY: Gendler, Codikow & Carroll
9113 Sunset Boulevard
Los Angeles, California 90069
Attn: Kelly Ann Coleman, Esq.
16. 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.
17. 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.
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<PAGE> 20
18. 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 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.
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19. 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.
20. SUBSEQUENT TOURS; NON-COMPETITION:
(a) If Company determines to produce a "Warped Tour"
subsequent to the 1998 Tour (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 the 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 Tour, Company shall have no further obligation on any
succeeding Next Tour to negotiate with Sponsor with respect to title
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sponsorship and/or exclusive footwear sponsorship, as the case may be. Sponsor
may, however, make an offer to sponsor a succeeding Next Tour, and if Company
so desires, Company may negotiate with Sponsor concerning the title and/or
exclusive footwear sponsorship of any such succeeding Next Tour.
(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 Tour, Company shall have no further
obligation on any succeeding Next Tour to negotiate with Sponsor with respect
to exclusive wearing apparel sponsorship. Sponsor may, however, make an offer
to sponsor a succeeding Next Tour, and if Company so desires, Company may
negotiate with Sponsor concerning an exclusive wearing apparel sponsorship of
any such succeeding Next Tour.
(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 Tours (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 (i.e., Lollapalooza and H.O.R.D.E.) ("Existing
Tour"). Notwithstanding the foregoing, if pursuant to
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paragraph 20(a) above, Sponsor is the title sponsor of the next two (2)
succeeding Next Tours, Sponsor shall not be the title sponsor of any New
Competing Tour or any Existing Tour for the lesser of: i) two years after it
has ceased to be the title sponsor of a Next Tour, or ii) such period of time
as Company or its successors continue to produce such Next Tours.
Additionally, Sponsor shall not be the title sponsor of any New Competing Tour
or any Existing Tour, at any time (i) it is the title sponsor of the Tours 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 20.
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 10.2
AMENDED AND RESTATED OPERATING AGREEMENT
FOR
C.C.R.L., LLC
A CALIFORNIA LIMITED LIABILITY COMPANY
This Amended and Restated Operating Agreement (the "AGREEMENT"), is
effective as of January 1, 1997, by and among the parties listed on the
signature pages hereof (collectively referred to as the "MEMBERS" or
individually as a "MEMBER"), with reference to the following facts:
A. The Articles of Organization (the "ARTICLES") for C.C.R.L.,
LLC (the "COMPANY"), a limited liability company organized under the laws of
the State of California, were filed with the California Secretary of State on
July 17, 1995 and the original Operating Agreement for the Company was executed
as of July 17, 1995 by Creative Artists Agency, Inc., Codikow & Carroll, a
P.C., and Kevin Lyman Production Services, predecessor in interest to Kevin
Lyman Productions (the "FOUNDING MEMBERS").
B. The Founding Members have agreed to admit Vans, Inc. ("VANS")
as a member of the Company upon the terms and subject to the conditions of this
Agreement.
C. In connection with the admission of Vans, the Members desire
to amend and restate the Operating Agreement for the Company under the
Beverly-Killea Limited Liability Company Act as herein provided (the "ACT").
NOW, THEREFORE, the Members by this Agreement set forth the Amended
and Restated Operating Agreement of the Company upon the terms and subject to
the conditions of this Agreement.
ARTICLE I.
ORGANIZATIONAL MATTERS
1.1. Name. The name of the Company shall be "C.C.R.L., LLC". The
Company may conduct business under that name or any other name approved by the
Members.
1.2. Term. The term of the Company commenced as of the date of
filing of the Articles and, unless sooner terminated under Section 9.1, shall
terminate on December 31, 2030.
1.3. Office and Agent. The Company shall continuously maintain an
office and registered agent in the State of California as required by the Act.
The principal office of the Company shall be at 9113 Sunset Blvd., Los Angeles,
California 90069-3106, or such other location, either within or outside the
State of California, as the Members may determine from time to time. The
registered agent shall be as stated in the Articles or as otherwise determined
by the Members.
<PAGE> 2
1.4. Business of the Company. The Company shall not engage in any
business other than the following without the approval of the Members:
(a) the business of organization and promotion of the
Vans Warped Tour, as such tour is presently constituted and as such
tour may be modified from time to time as provided in this Agreement
(the "TOUR"); and
(b) such other activities related to the Tour as may be
necessary or advisable to further exploit the Tour, including
merchandising, records and other ancillary activities.
ARTICLE II.
CAPITAL CONTRIBUTIONS
2.1. Capital Contributions. Vans shall make a capital contribution
to the Company in the amount shown opposite its name on Exhibit A, attached
hereto, of which $250,000 shall be payable upon execution of this Agreement,
and $250,000 shall be payable on or before January 31, 1997. After adjusting
the capital accounts of the Members to reflect the fair market value of the
Company's assets, the Capital Account for each Member shall be as reflected on
Exhibit A. Exhibit A shall be amended from time to time to reflect additional
capital contributions. Except as provided in this Agreement, no Member shall
be required to make any additional contributions to the capital of the Company.
Except as provided in this Agreement, no Member may withdraw such Member's
capital contribution. Of Vans' capital contribution, (i) up to $100,000 shall
be utilized to the extent necessary to re-acquire all rights to Tour
merchandise from Sony Merchandising, (ii) $150,000 shall be distributed to the
Founding Members in accordance with Section 5.2 hereof and (iii) the balance
shall be used for general working capital purposes.
2.2. No Return of Capital Contributions or Interest Thereon.
Except as may be otherwise specifically provided herein, a Member shall not be
entitled to the return of any part of such Member's capital contributions or to
be paid any interest on capital contributions.
ARTICLE III.
MEMBERS; MEMBERSHIP INTERESTS
3.1. Membership Interests. In consideration of the capital
contributions of the Members, the Members shall have the percentage interest in
the Company (singularly, a "MEMBERSHIP INTEREST" and collectively, the
"MEMBERSHIP INTERESTS") shown opposite each Member's name on Exhibit A attached
hereto. Notwithstanding any other provision of this Agreement to the contrary,
the Membership Interests shall be automatically reallocated among the Members,
as of the date of delivery (the "1997 FINANCIAL STATEMENT DELIVERY DATE") of
the Company's audited financial statements for the year ended December 31,
1997 (the "1997
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FINANCIAL STATEMENTS") and without further action by the Members or the
Company, upon the following terms and conditions:
If net profits of Company as set forth in the 1997 Financial
Statements ("1997 NET PROFIT") is:
(i) $350,000 or more but less than $450,000, the Membership
Interest of Vans shall, for no additional capital contribution by
Vans, be increased by one percent (1%) and the Membership Interest of
the Founding Members shall be ratably reduced;
(ii) $250,000 or more but less than $350,000, the Membership
Interest of Vans shall, for no additional capital contribution by
Vans, be increased by two percent (2%) and the Membership Interest of
the Founding Members shall be ratably reduced;
(iii) $150,000 or more but less than $250,000, the Membership
Interest of Vans shall, for no additional capital contribution by
Vans, be increased by three percent (3%) and the Membership Interest
of the Founding Members shall be ratably reduced;
(iv) $50,000 or more but less than $150,000, the Membership
Interest of Vans shall, for no additional capital contribution by
Vans, be increased by four percent (4%) and the Membership Interest of
the Founding Members shall be ratably reduced; and
(v) less than $50,000, the Membership Interest of Vans shall,
for no additional capital contribution by Vans, be increased by five
percent (5%) and the Membership Interest of the Founding Members shall
be ratably reduced.
3.2. Admission of Additional Members. Additional Members may be
admitted with the approval of holders of Membership Interests representing
seventy five percent (75%) or more of the Membership Interests of the Members;
provided, however, that no additional Member may be admitted without the
approval of holders of Membership Interests representing one hundred percent
(100%) of the Membership Interests of the Members if the proposed additional
Member's Membership Interest would exceed that of any Founding Member.
Additional Members will participate in the management, "NET PROFITS", "NET
LOSSES" (as such terms are defined in Section 5.1), and distributions of the
Company on such terms as are determined by the Members. Exhibit A shall be
amended upon the admission of an additional Member to set forth such Member's
name, capital contribution and Membership Interest and to reflect the
proportionate change in the existing Members' Membership Interest. The Company
shall file a Section 754 election for each Member who is admitted to the
Company for the tax year in which the Member is admitted. In Vans' case, the
Section 754 election shall be made for the tax year ending December 31, 1997.
3.3. Withdrawals or Resignations. Any Member may withdraw or
resign as a Member at any time upon 90 days prior written notice to the
Company, without prejudice to the rights, if any, of the Company or the other
Members under any contract to which the withdrawing Member is a party. In the
event of such withdrawal, such Member's Membership Interest shall be
terminated, such Member shall thereafter only have the rights of a transferee
as described in
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Section 6.6 and such Membership Interest shall be subject to purchase and sale
as provided in Section 7.2.
3.4. Payments to Members. Except as specified in this Agreement or
pursuant to a transaction permitted by Section 4.6, no Member or person or
entity controlled by, controlling or under common control with the Member (each
such person or entity is defined as an "AFFILIATE"), is entitled to
remuneration for services rendered or goods provided to the Company. However,
the Company shall reimburse the Members and their Affiliates for organizational
expenses (including, without limitation, reasonable legal and accounting fees
and costs) incurred to form the Company, prepare the Articles and this
Agreement, including amendments to the same, and, as approved by the Members,
for the actual cost of goods and materials used by the Company.
ARTICLE IV.
MANAGEMENT AND CONTROL OF THE COMPANY
4.1. Management and Powers.
(a) In entering into this Agreement, the intent of each
Member is to actively engage in the management of the Company. Accordingly,
unless otherwise limited by the Articles or this Agreement, each Member shall
have full and complete authority, power, and discretion to manage and control
the business, property and affairs of the Company and the operation and
organization of the Tour, to make all decisions regarding those matters and to
perform any and all other acts or activities customary or incident to the
management of the Company's business, property and affairs and the operation
and organization of the Tour.
(b) The management, control and conduct of the business
of the Company shall be conducted in accordance with an annual business plan
and the budget contained therein which shall be adopted annually by approval of
the holders of one hundred percent (100%) of the Membership Interests of the
Members (the "Annual Business Plan"). In the event that the Members cannot
agree on an Annual Business Plan for any year, the holders of seventy five
percent (75%) of the Membership Interests of the Members may adopt a temporary
plan for such year, provided that such temporary plan provides for expenditures
by the Company which do not exceed those contemplated by the Annual Business
Plan for the immediately preceding year.
4.2. Limitations on Power of Members.
(a) Subject to the provisions of this Section 4.2 or
except as otherwise provided herein, each of the Members shall have the right
and responsibility for the management, conduct and operation of the business of
the Company in all matters, including the power to do all acts necessary and
convenient to or for the furtherance of the purposes described herein;
provided, however, that the signature of two or more Members shall be required
for contracts not entered into in the ordinary course of business.
Notwithstanding the foregoing, unless contemplated by any Annual Business Plan
or otherwise contemplated by this Agreement, no
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Member shall have the authority to cause the Company to engage in the following
transactions without obtaining the approval of holders of Membership Interests
representing one hundred percent (100%) or more of the Membership Interests of
the Members:
(i) any merger, consolidation or other business
combination of the Company with another entity, or the acquisition by
the Company of another person or entity or its business, whether by
means of an acquisition of assets or of capital stock, partnership or
other equity interests, in each case in a single transaction or series
of related transactions; provided, however, that in the event the
consideration to be received by Vans pursuant to such merger,
consolidation or other business combination equals or exceeds the
capital contributions made by Vans to the Company, the approval of
holders of Membership Interests representing seventy-five percent
(75%) or more of the Membership Interests shall be required to approve
such transaction;
(ii) the sale of all or substantially all of the Company's
assets in a single transaction or series of related transactions;
provided, however, that in the event the Company provides for a
distribution from the proceeds of such sale to Vans in an amount equal
to or in excess of the capital contributions made by Vans to the
Company, the approval of holders of Membership Interests representing
seventy-five percent (75%) or more of the Membership Interests of the
Members shall be required to approve such transaction;
(iii) any liquidation, dissolution or winding up of the
Company (other than in accordance with the terms of this Agreement);
provided, however, that in the event the proceeds of such liquidation,
dissolution or winding up will be sufficient to provide a distribution
to Vans in an amount equal to or in excess of the capital
contributions made by Vans to the Company, the approval of holders of
Membership Interests representing seventy-five percent (75%) or more
of the Membership Interests of the Members shall be required to
approve such action;
(iv) the loan of moneys to any person or entity (other
than advancement of travel and moving expenses for employees of the
Company or the advancement against future royalties) unless such loans
are contemplated by the Annual Business Plan and the aggregate unpaid
balance of such loans does not exceed $250,000 at any time;
(v) the occurrence of indebtedness for borrowed money of
the Company, in a single transaction or series of related
transactions, or the creation of any mortgage, lien, pledge, security
interest or other encumbrance on the assets of the Company or any
refinancing or material modification of the terms of such indebtedness
or any such encumbrance;
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(vi) the granting of guarantees of third-party
indebtedness for borrowed money or the consent to any refinancing or
material modification of the terms of such indebtedness or such
guarantees of the Company;
(vii) entering into any leasehold property commitment
involving consideration or the creation of a liability, contingent or
otherwise, unless such commitments are contemplated by the Annual
Business Plan and the liabilities under such commitments at any time
do not exceed $50,000 in any one case or $250,000 in the aggregate;
(viii) entering into any agreement or transaction or any
amendments or modifications to such agreements or transactions, in
each case with any Affiliate of the Company or any Member or any
family member of any such Affiliate or Member or any other party
hereto, whether or not in the ordinary course of business, unless such
agreement or transaction is in accordance with the Company's Annual
Business Plan;
(ix) materially deviating from the Annual Business Plan,
unless such deviation is in accordance with the Company's historical
practices instituted after January 1, 1997;
(x) changing the Company's independent auditors and
establishing or modifying the Company's accounting policies, practices
or procedures; provided, however, that in the event the Company's
independent auditors are changed to Gelfand Rennert & Feldman, Gudvi,
Chapnick & Oppenheim, Inc. or Grant & Tani, Inc. or any other
accounting firm with which any of Todd Gelfand, Michael Oppenheim or
Warren Grant becomes associated, the approval of holders of Membership
Interests representing seventy-five percent (75%) or more of the
Membership Interests of the Members shall be required to approve such
change;
(xi) directly or indirectly entering any line of business
or activities other than as contemplated in Section 1.4;
(xii) organizing, creating or establishing any subsidiary
or conducting the Tour or any activities ancillary thereto out of or
through any entity other than the Company;
(xiii) the repurchase of Membership Interests,
recapitalization, or the issuance of additional Membership Interests,
rights to acquire additional Membership Interests or the admission of
new Members except as provided herein;
(xiv) amending or otherwise changing this Agreement or the
Company's Articles or any other certificate or instrument which may be
required to be filed with respect to the Company under the laws of the
State of California;
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(xv) the making of an assignment for the benefit of
creditors, consenting to the appointment of a trustee, receiver,
conservator or similar official for the Company or any material
portion of its assets, or the filing of any petition seeking
reorganization, liquidation or winding-up or otherwise seeking relief
under federal bankruptcy laws or any state insolvency law;
(xvi) the initiation of any lawsuit, administrative
proceeding or other legal claim where the amount at issue exceeds
$100,000, or the settlement of any lawsuit, administrative proceeding,
or other legal claim, where the amount of the settlement exceeds
$100,000;
(xvii) the waiver, release or abandonment of any legitimate
right or claim against any person or entity potentially liable to the
Company for more than $100,000;
(xviii) the grant of any general power of attorney or other
unlimited authority to act on behalf or in the name of the Company;
(xix) any material change in the structure, organization or
marketing direction of the Tour; or
(xx) the taking of any other action required to be taken
by the Members pursuant to any other provision of this Agreement.
4.3. Member Approval. No annual or regular meetings of the Members
are required to be held. However, if such meetings are held, such meetings
shall be noticed, held and conducted pursuant to the Act. In any instance in
which the approval of the Members is required under this Agreement, such
approval may be obtained in any manner permitted by the Act. Unless otherwise
provided in this Agreement, approval of the Members shall mean the approval of
Members who hold a majority of the Membership Interests.
4.4. Devotion of Time. Each Member shall devote whatever time or
effort as such Member deems appropriate, in their reasonable, sole discretion,
for the furtherance of the Company's business.
4.5. Competing Activities. No Member shall be obligated to present
any investment opportunity to the Company, even if the opportunity is of the
character that, if presented to the Company, could be taken by the Company.
Each Member shall have the right to hold any investment opportunity for such
Member's own account or to recommend such opportunity to persons other than the
Company. The Members acknowledge that the Members and their Affiliates own
and/or manage other businesses, including businesses that may compete with the
Company and for such Member's time. Each Member hereby waives any and all
rights and claims which such Member may otherwise have against the other
Members and their Affiliates as a result of any of such
activities.Notwithstanding the foregoing, no Member shall have a direct or
indirect interest in any entity which is engaged in the organization, promotion
or operation of
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a concert tour similar to the Tour, which tour is scheduled to occur during the
same time period as the Tour.
4.6. Transactions between the Company and the Members.
Notwithstanding that it may constitute a conflict of interest, the Members and
their Affiliates may engage in any transaction with the Company so long as such
transaction is not expressly prohibited by this Agreement and so long as the
terms and conditions of such transaction, on an overall basis, are fair and
reasonable to the Company and are at least as favorable to the Company as those
that are generally available from persons capable of similarly performing them
or if Members holding a majority of the Membership Interests held by the
Members having no interest in such transaction (other than their interests as
Members) approve the transaction in writing.
ARTICLE V.
ALLOCATIONS OF NET PROFITS AND
NET LOSSES AND DISTRIBUTIONS
5.1. Tax Matters.
(a) Definitions. For the purposes of this Agreement,
unless the context otherwise requires:
(i) "CODE" means the Internal Revenue Code of
1986, as amended.
(ii) "NET INCOME" or "NET LOSS" means, for any
period, the taxable income or tax loss of the Company for such period
for Federal income tax purposes, as determined by the Company's
independent public accountants, taking into account any separately
stated items, increased by the amount of any tax-exempt income of the
Company during such period and decreased by the amount of any Code
Section 705(a)(2)(B) expenditures (within the meaning of Treasury
Regulation Section 1.704-1 (b)(2)(iv)(i)) of the Company; provided,
however, that Net Income or Net Loss of the Company shall be computed
without regard to the amount of any items of gross income, gain, loss
or deduction that are specially allocated pursuant to Section 5.1(d).
In the event that the Capital Accounts are adjusted pursuant to
Section 5.1(b)(ii), the Net Income or Net Loss of the Company (and the
constituent items of income, gain, loss and deduction) realized
thereafter shall be computed in accordance with the principles of
Treasury Regulation Section 1.704-1(b)(2)(iv)(g).
(b) Capital Accounts.
(i) There shall be established for each Member on the
books of the Company a capital account (a "CAPITAL ACCOUNT"), which
shall be maintained and adjusted as required in Section 704(b) and the
Treasury Regulations promulgated thereunder. The Capital Account of a
Member shall be credited with (i) the amount of all
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<PAGE> 9
cash capital contributions by such Member to the Company and (ii) the
fair market value of any property contributed by such Member to the
Company (net of any liabilities secured by such property that the
Company is considered to assume or take subject to under Section 752
of the Code). The Capital Account of a Member shall be increased by
the amount of any Net Income (or items of gross income) allocated to
such Member pursuant to Sections 5.1(c) and 5.1(d), and decreased by
(i) the amount of any Net Loss (or items of loss or deduction)
allocated to such Member pursuant to Sections 5.1(c) and 5.1(d), (ii)
the amount of any cash distributed to such Member pursuant to Section
5.2 and (iii) the fair market value of any asset distributed in kind
to such Member (net of any liabilities secured by such asset that such
Member is considered to assume or take subject to under Section 752 of
the Code). The Capital Account of the Member also shall be adjusted
appropriately to reflect any other adjustment required pursuant to
Treasury Regulation Section 1.704-1 or 1.704-2.
(ii) Upon the occurrence of any event specified in
Treasury Regulation Section 1.704-1(b)(2)(iv)(f) or as otherwise
permitted in such Section, the Members may cause the Capital Accounts
of the Members to be adjusted to reflect the fair market value of the
Company's assets at such time in accordance with such Regulation.
(c) Allocations of Net Income and Net Loss. Except as
otherwise provided in Section 5.1(d), all Net Income and Net Loss for each
fiscal year (or portion thereof) shall be allocated to the Members in
accordance with their respective Membership Interests.
(d) Special Allocations.
(i) Section 704(b) Allocation Limitations.
Notwithstanding Section 5.1(c), special allocations of Net Income, Net
Loss or specific items of income, gain, loss or deduction may be
required for any fiscal year (or other period) as follows:
A. Minimum Gain Chargeback. The
Company shall allocate items of income and gain among the
Members at such times and in such amounts as necessary to
satisfy the minimum gain chargeback requirements of Treasury
Regulation Sections 1.704-2(f) and 1.704-2(i)(4).
B. Qualified Income Offset. The
Company shall specially allocate losses and items of income
and gain when and to the extent required to satisfy the
"QUALIFIED INCOME OFFSET" requirement within the meaning of
Treasury Regulation Section 1.704l(b)(2)(ii)(d).
(ii) Limitation on Net Loss Allocations. Net Loss
(or items thereof) shall not be allocated to a Member if such
allocation would result in such Member having a negative Capital
Account balance which exceeds the sum of such Member's share of
"PARTNERSHIP MINIMUM GAIN" (as defined in Treasury Regulations Section
1.704-2(d)) and "PARTNER NONRECOURSE DEBT MINIMUM GAIN" (as defined in
Treasury Regulations Section 1.704-2(i)(2)) and the amount such
Member is obligated (or deemed obligated) to
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<PAGE> 10
contribute to the Company upon liquidation of the Company. If this
clause (ii) limits the allocation of Net Loss (or items thereof) to
any Member, such Net Loss (or items thereof) otherwise allocable to
any such Member shall be reallocated among the other Members
proportionately in accordance with their respective Percentage
Interests.
(e) Allocation of Income and Loss for Tax Purposes. The
Company's ordinary income and losses, capital gains and losses and other items
as determined for Federal income tax purposes (and each item of income, gain,
loss or deduction entering into the computation thereof) shall be allocated to
the Members in the same proportions as the corresponding "book" items are
allocated pursuant to Sections 5.1(c) and 5.1(d). Notwithstanding the
foregoing sentence, Federal income tax items shall be allocated among the
Members in accordance with Section 704(c) of the Code and Treasury Regulation
Section 1.704-1(b)(2)(iv)(g). Items described in this Section 5.1(e) shall
neither be credited nor charged to the Members' Capital Accounts.
(f) Adjustments to Take Account of Interim Year Events.
In the event that a Member shall be admitted to, or shall withdraw from, the
Company other than at the end of the Company's fiscal year, or the Membership
Interests of the Members change during the year, allocations among the Members
and accounting procedures shall be equitably adjusted to take into account such
events.
(g) Adjustment of Allocation. In the event that the
Managing Member reasonably determines that the allocations otherwise required
pursuant to this Section 5.1 would not properly reflect the economic
arrangement of the Members or would otherwise cause any inequitable or onerous
result for any Member, then, notwithstanding any provision in this Agreement to
the contrary, the Managing Member may adjust such allocations in such manner as
the Managing Member reasonably determines to be required to prevent such
result.
(h) Filing of Tax Returns. The Members, at the Company's
expense, shall prepare and file, or cause the accountants of the Company to
prepare and file, a Federal information tax return in compliance with Section
6031 of the Code and any required state and local income tax and information
returns for each tax year of the Company.
(i) Reports to Current and Former Members. Within 90
days after the end of each fiscal year, the Company shall prepare and mail, or
cause its accountants to prepare and mail, to each Member and, to the extent
necessary, to each former Member (or his or her legal representative), a report
setting forth in sufficient detail that information which will enable such
Member or former Member to prepare his or her federal, state and local tax
returns in accordance with the laws, rules and regulations then prevailing.
5.2 Distribution of Available Cash by the Company.
Subject to applicable law and any limitations contained elsewhere in this
Agreement, Members holding a majority of the Membership Interests may elect
from time to time to cause the Company to make distributions of available cash.
Distributions shall be made to the Members in proportion to their
Membership Interests; provided, however, that simultaneously with the
execution of this Agreement, the
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Company shall distribute to each of the Founding Members $50,000, or $150,000
to the Founding Members in the aggregate.
ARTICLE VI.
TRANSFER AND ASSIGNMENT OF INTERESTS
6.1. Transfer and Assignment of Interests. Except for transfers
pursuant to this Article VI and Article VII, no Member shall be entitled to
transfer, assign, convey, sell, encumber or in any way alienate all or any part
of such Member's Membership Interest (collectively, "TRANSFER") except with the
prior approval of all Members, which approval may be given or withheld in the
sole discretion of the Members. Any transfer or attempted transfer in
violation of this Agreement shall be void ab initio.
6.2. Substitution of Members. A transferee of a Membership
Interest shall have the right to become a substitute Member only if (i) consent
of the Members is given in accordance with Section 6.1, (ii) such transferee
executes an instrument satisfactory to the Members accepting and adopting the
terms and provisions of this Agreement, and (iii) such transferee pays any
reasonable expenses in connection with such transferee's admission as a new
Member. The admission of a substitute Member shall not release the Member who
assigned the Membership Interest from any liability that such Member may have
to the Company.
6.3. Call Option.
(a) In the event that the 1997 Net Profits exceed
$500,000, for a period of thirty (30) days after the 1997 Financial Statement
Delivery Date (the "CALL PERIOD"), Vans shall have the right, but not the
obligation, to purchase (the "CALL RIGHT"), and each of the Founding Members
shall sell, their Proportionate Share of Membership Interests representing up
to an aggregate of five percent (5%) of the Founding Members' Membership
Interests. At any time during the Call Period, Vans shall send notice of its
intention to exercise the Call Right (the "CALL NOTICE") to the Founding
Members, together with the Membership Interest that it intends to acquire. The
failure to deliver the Call Notice within such thirty (30) day period shall be
deemed a waiver of the Call Right.
(b) The purchase price for the Membership Interests
purchased upon exercise of the Call Right shall be $100,000 for each one
percent (1%) of the Membership Interest purchased.
(c) In the event that Vans shall exercise its Call Right,
such purchase shall occur within thirty (30) days of the exercise of the Call
Right and it shall deliver the purchase price for the Membership Interests being
acquired by wire transfer of immediately available funds to a bank account or
accounts designated by the Founding Members. Upon consummation of such
purchaser, Exhibit A shall be amended to reflect the new Membership Interests
of the Members.
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<PAGE> 12
6.4. Rights of First Offer; Rights of Inclusion.
(a) Notwithstanding any other provision of this Agreement
except Sections 6.2 and 6.5, if any Member (a "SELLING MEMBER") desires to sell
any or all of its Membership Interests (the "OFFERED INTERESTS") to any other
person or entity, the Selling Member shall first send notice of its intention
to sell such Offered Interests (the "OFFER NOTICE") to the other Members. Each
Offer Notice shall offer to sell the Offered Interests to the other Members and
shall set forth (i) the amount of Offered Interests, (ii) the price at which
such Offered Interests are offered (the "OFFER PRICE") and (iii) the material
terms and conditions of purchase offered by the Selling Member (the "TERMS").
Any purchase by the other Members pursuant to this Right of First Offer shall
be upon the Terms and at the Offer Price.
(b) Within thirty (30) days after the Offer Notice is
given, the Members (other than a Member that is the Selling Member), by written
notice to the Selling Member, may elect to purchase all or any portion of such
Member's Proportionate Share of the Offered Interests. In the event that any
of the Members does not accept the Offer Notice with respect to all of their
Proportionate Share (such non-accepted Interests, "REMAINING OFFERED
INTERESTS") then each of the purchasing Members shall have the right to
purchase their Proportionate Share of the Remaining Offered Interests.
(c) Any Member electing to purchase any Offered Interests
pursuant to Section 6.4 shall consummate such purchase within sixty (60) days
of the last notice given pursuant to this Section 6.4. The failure of the
Members to so notify the Selling Member of a desire to purchase all of the
Offered Interests within the periods referred to in Section 6.4 shall result in
the termination of this Right of First Offer with respect to those Offered
Interests which the other Members have not accepted for purchase, and the
Selling Member shall, subject to the provisions of Section 6.5, be entitled to
consummate the sale of such Membership Interests to any non-Member within sixty
(60) days after the latest Offer Notice is given pursuant to Section 6.4. But,
if the Selling Member does not sell its Membership Interest within ninety (90)
days after the Offer Notice is given, or if the Selling Member shall offer such
Offered Interests on terms that are less favorable to the Selling Member than
the Terms in any material respect or at a price below the Offer Price, such
right shall terminate and the terms and conditions of this Right of First Offer
set forth in this Section 6.4 shall again be in effect.
6.5 Rights of Inclusion.
(a) Notwithstanding anything in Section 6.4 to the
contrary, no Selling Member shall, in any one transaction or any series of
similar transactions, directly or indirectly sell to any third party or
otherwise dispose of any Offered Interests unless the terms and conditions of
such sale or other disposition to such third party shall include an offer to
the other Members to include, at each such other Member's option, in the sale
or disposition to such third party, such Member's Proportionate Share of the
Offered Interests covered by such disposition. If the Selling Member receives
a bona fide offer from a third party to purchase or otherwise acquire the
Offered Interests, the Selling Member shall then cause the third party's
offer to be reduced to writing (which writing shall include an offer to
purchase or otherwise acquire
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<PAGE> 13
Membership Interests from the other Members according to the terms and
conditions of Section 6.5(b) below) and shall send written notice of the third
party's offer (the "Inclusion Notice") to the other Members. The Inclusion
Notice shall be accompanied by a true and correct copy of the third party's
offer. At any time within thirty (30) days after receipt of the Inclusion
Notice, each of the other Members may accept the offer included in the
Inclusion Notice for up to such Member's Proportionate Share by furnishing
written notice of such acceptance to the Selling Member.
(b) The purchase from the other Members pursuant to this
Section 6.5 shall be on the same terms and conditions, including the per
percentage Membership Interest price and the date of sale or other disposition,
as are received by the Selling Member and stated in the Inclusion Notice
provided to each of the other Members by the Selling Member.
(c) If within thirty (30) days after the receipt of the
Inclusion Notice, any of the other Members have not accepted the offer
contained in the Inclusion Notice, subject to such Member's rights under
Section 6.4, such non-accepting Member shall be deemed to have waived any and
all rights with respect to the sale or other disposition of the Membership
Interests described in the Inclusion Notice and the Selling Member and the
other Members who have accepted the offer shall have sixty (60) days or such
lesser period as permitted by Section 6.4(c) (the "Sale Period") after receipt
of the Inclusion Notice in which to sell or otherwise dispose of not more than
the Offered Interests on terms not more favorable to the Selling Member than
were set forth in the Inclusion Notice. If the sale or disposition is not
consummated during the Sale Period, the Selling Member shall comply with the
provisions of this Section 6 for all proposed future sales or dispositions that
are described in Sections 6.4 and 6.5. If, at the end of the Sale Period, the
Selling Member has not completed the sale or other disposition of its Offered
Interests and those of the other selling Members in accordance with the terms
of the third party's offer, all the restrictions on sale or other disposition
contained in this Agreement with respect to Membership Interests owned by the
Members shall again be in effect.
6.5. Proportionate Shares. For purposes of this Agreement, the
term "PROPORTIONATE SHARE" shall mean the percentage of the total number of
Membership Interests that a Member is entitled to purchase or a Member is
required to sell pursuant to an option or right set forth in this Agreement
equal to the Membership Interest owned by a Member divided by the aggregate
number of Membership Interests then owned by such Member and the other Members
entitled to participate or required to participate in such option or right.
ARTICLE VII.
CONSEQUENCES OF DISSOLUTION EVENTS AND
TERMINATION OF MEMBERSHIP INTEREST
7.1. Dissolution Event. Upon the occurrence of the death,
withdrawal, resignation, retirement, insanity, bankruptcy or dissolution of any
Member ("DISSOLUTION EVENT"), the Company shall dissolve unless all of the
remaining Members ("REMAINING MEMBERS") consent
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<PAGE> 14
within ninety (90) days of the Dissolution Event to the continuation of the
business of the Company. If the Remaining Members so consent, the Company
and/or the Remaining Members shall have the right, but not the obligation, to
purchase, and if such right is exercised, the Member (or such Member's legal
representative) whose actions or conduct resulted in the Dissolution Event
("FORMER MEMBER") shall have the obligation to sell, the Former Member's
Membership Interest ("FORMER MEMBER'S INTEREST") as provided in this Article
VII.
7.2. Withdrawal. Notwithstanding anything in Section 7.1 to the
contrary, upon the withdrawal by a Member in accordance with Section 3.2, such
Member shall be treated as a Former Member, and, unless the Company dissolves
as a result of such withdrawal, the Company and/or the Remaining Members shall
have the right, but not the obligation, to purchase, and if such right is
exercised, the Former Member shall sell, the Former Member's Interest as
provided in this Article VII. If the Remaining Members of the Company do not
exercise their right to purchase, such Former Member shall have no right to
participate in the management of the Company or to exercise any rights of a
Member. The Former Member shall only be entitled to receive the share of the
Company's Net Profits, Net Losses and distributions of the Company's assets to
which the Former Member would otherwise be entitled.
7.3. Purchase Price. The purchase price for the Former Member's
Interest shall be the fair market value of the Former Member's Interest as
determined by an independent appraiser jointly selected by the Former Member
and by the Remaining Members. The Company and the Former Member shall each pay
one-half of the cost of the appraisal unless such appraisal is a result of a
Member's withdrawal, in which case the withdrawing Member shall pay the entire
cost of the appraisal. Notwithstanding the foregoing, if the Dissolution Event
results from a breach of this Agreement by the Former Member, the purchase
price shall be reduced by an amount equal to the damages suffered by the
Company or the Remaining Members as a result of such breach.
7.4. Notice of Intent to Purchase. Within thirty (30) days after
the fair market value of the Former Member's Interest has been determined in
accordance with Section 7.3, each Remaining Member shall notify the Members in
writing of such Member's desire to purchase a portion of the Former Member's
Interest. The failure of any Remaining Member to submit a notice within the
applicable period shall constitute an election on the part of the Remaining
Member not to purchase any of the Former Member's Interest. Each Remaining
Member so electing to purchase shall be entitled to purchase such Remaining
Member's Proportionate Share of the Former Member's Interest.
7.5. Election to Purchase Less Than All of the Former Member's
Interest. If any Remaining Member elects to purchase none or less than all of
such Member's Proportionate Share of the Former Member's Interest, then the
Remaining Members can elect to purchase the Proportionate Share of the
remaining Membership Interest to be purchased. If the Remaining Members fail
to purchase the entire interest of the Former Member, the Company shall
purchase any remaining share of the Former Member's Interest.
7.6. Payment of Purchase Price. The Company or the Remaining
Members, as the case may be, shall pay at the closing one-third (1/3) of the
purchase price and the balance of the
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<PAGE> 15
purchase price shall be paid in two equal annual principal installments, plus
accrued interest, and be payable each year on the anniversary date of the
closing. The unpaid principal balance shall accrue interest at the current
applicable federal mid-term rate as provided in the Code for the month in which
the initial payment is made, but the Company and the Remaining Members shall
have the right to prepay such obligation in full or in part at any time without
penalty. The obligation of each purchasing Remaining Member, and the Company,
as applicable, to pay its portion of the balance due shall be evidenced by a
separate promissory note executed by the respective purchasing Remaining Member
or the Company, as applicable. Each such promissory note shall be in an
original principal amount equal to the portion owed by the respective
purchasing Remaining Member or the Company, as applicable. The promissory note
executed by each purchasing Remaining Member shall be secured by a pledge of
that portion of the Former Member's Interest purchased by such Remaining
Member.
7.7. Closing of Purchase of Former Member's Interest. The closing
for the sale of a Former Member's Interest pursuant to this Article VII shall
be held at 10:00 a.m. at the principal office of Company no later than sixty
(60) days after the determination of the purchase price, except that if the
closing date falls on a Saturday, Sunday, or California legal holiday, then the
closing shall be held on the next succeeding business day. At the closing, the
Former Member shall deliver to the Company or the Remaining Members an
instrument of transfer (containing warranties of title and no encumbrances)
conveying the Former Member's Interest. The Former Member, the Company and the
Remaining Members shall do all things and execute and deliver all papers as may
be reasonably necessary fully to consummate such sale and purchase in
accordance with the terms and provisions of this Agreement.
ARTICLE VIII.
ACCOUNTING, RECORDS, REPORTING BY MEMBERS
8.1. Books and Records. The books and records of the Company shall
be kept in accordance with the accounting methods followed for federal income
tax purposes. The Company shall maintain at its principal office in California
all of the following:
(i) A current list of the full name and last known
business or residence address of each Member set forth in alphabetical order,
together with the capital contributions, capital account and Membership
Interest of each Member;
(ii) A copy of the Articles and any and all amendments
thereto together with executed copies of any powers of attorney pursuant to
which the Articles or any amendments thereto have been executed;
(iii) Copies of the Company's federal, state, and local
income tax or information returns and reports, if any, for the six (6) most
recent taxable years;
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<PAGE> 16
(iv) A copy of this Agreement and any and all amendments
thereto together with executed copies of any powers of attorney pursuant to
which this Agreement or any amendments thereto have been executed;
(v) Copies of the financial statements of the Company, if
any, for the six (6) most recent fiscal years; and
(vi) The Company's books and records as they relate to the
internal affairs of the Company for at least the current and past four (4)
fiscal years.
8.2. Reports. The Company shall cause to be filed, in accordance
with the Act, all reports and documents required to be filed with any
governmental agency. The Company shall cause to be prepared at least annually
information concerning the Company's operations necessary for the completion of
the Members, federal and state income tax returns. The Company shall send or
cause to be sent to each Member within ninety (90) days after the end of each
taxable year (i) such information as is necessary to complete the Members'
federal and state income tax or information returns and (ii) a copy of the
Company's federal, state, and local income tax or information returns for the
year.
8.3. Bank Accounts. The Members shall maintain the funds of the
Company in one or more separate bank accounts in the name of the Company, and
shall not permit the funds of the Company to be commingled in any fashion with
the funds of any other person. Any Member, acting alone, is authorized to
endorse checks, drafts, and other evidences of indebtedness made payable to the
order of the Company, but only for the purpose of deposit into the Company's
accounts. All checks, drafts, and other instruments obligating the Company to
pay money in an amount of less than $2,500 may be signed by any one Member,
acting alone. All checks, drafts, and other instruments obligating the Company
to pay money in an amount of $2,500 or more must be signed on behalf of the
Company by any two Members acting together.
8.4. Tax Matters for the Company. David Codikow, Esq. is
designated as "TAX MATTERS PARTNER" (as defined in Code Section 6231), to
represent the Company (at the Company's expense) in connection with all
examination of the Company's affairs by tax authorities and to expend Company
funds for professional services and costs associated therewith.
ARTICLE IX
DISSOLUTION AND WINDING UP
9.1. Conditions of Dissolution. The Company shall dissolve upon
the occurrence of any of the following events:
(i) Upon the happening of any event of dissolution
specified in the Articles;
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(ii) Upon the entry of a decree of judicial dissolution
pursuant to Section 17351 of the Corporations Code; or
(iii) The occurrence of a Dissolution Event and the failure
of the Remaining Members to consent in accordance with Section 7.1 to continue
the business of the Company within ninety (90) days after the occurrence of
such event.
9.2. Winding Up. Upon the dissolution of the Company, the
Company's assets shall be disposed of and its affairs wound up. The Company
shall give written notice of the commencement of the dissolution to all of its
known creditors.
9.3. Order of Payment of Liabilities Upon Dissolution. After
determining that all the known debts and liabilities of the Company have been
paid or adequately provided for, the remaining assets shall be distributed to
the Members in accordance with their positive capital account balances, after
taking into account income and loss allocations for the Company's taxable year
during which liquidation occurs.
9.4. Limitations on Payments Made in Dissolution. Except as
otherwise specifically provided in this Agreement, each Member shall be
entitled to look only to the assets of the Company for the return of such
Member's positive Capital Account balance and shall have no recourse for such
Member's Capital Contribution and/or share of Net Profits against any other
Member except as provided in Article X.
9.5. Certificates. The Company shall file with the California
Secretary of State a Certificate of Dissolution upon the dissolution of the
Company and a Certificate of Cancellation upon the completion of the winding up
of the Company's affairs.
ARTICLE X.
LIABILITY; INDEMNIFICATION
10.1. No Liability. No Member shall be liable, responsible or
accountable in damages or otherwise to the Company or to any other Member for
(i) any act performed within the scope of the authority conferred on the
Members by this Agreement except for the gross negligence or willful misconduct
of such Member in carrying out the obligations of such Member hereunder, (ii)
such Member's failure or refusal to perform any act, except those expressly
required by or pursuant to the terms of this Agreement, (iii) such Member's
performance of, or failure to perform, any act on the reasonable reliance on
advice of legal counsel or (iv) the negligence, dishonesty or bad faith of any
agent, consultant or broker of the Company selected, engaged or retained in
good faith.
10.2. Indemnification of Members. The Company, to the maximum extent
permitted by law, shall indemnify and hold harmless each Member, its Affiliates
and each of its and their respective officers, directors, management committee
members, trustees, partners or members, as
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the case may be (the "INDEMNITEES"), from and against any and all judgments,
interest on such judgments, fines, penalties, charges, costs, amounts paid in
settlement, expenses and reasonable attorneys' fees incurred in connection with
any action, claim, suit, inquiry, proceeding, investigation or appeal taken
from the foregoing by or before any court or governmental, administrative or
other regulatory agency, body or commission, whether pending or threatened, and
whether or not an Indemnitee is or may be a party thereto, which arise out of
the business or affairs of the Company or their activities with respect thereto
("INDEMNIFIED DAMAGES"), except for any such Indemnified Damages (i) that are
taxes imposed on or against any Member and any Affiliate thereof, (ii) that
have resulted primarily from gross negligence, fraud, bad faith or willful
misconduct of or knowing violation of law by the person (or any of its
Affiliates) seeking indemnification, (iii) that have resulted primarily from
activities in breach of this Agreement or from ultra vires acts, (iv) in
connection with any proceeding by or in right of the Company in which such
person was adjudged liable to the Company or (v) in connection with any
proceeding charging improper personal benefit to such person (whether or not
involving action in an official capacity) in which such person was adjudged
liable on the basis that personal benefit was improperly received. The Company
shall pay for or reimburse the reasonable expenses incurred by any Indemnitee
in any such proceeding in advance of the final disposition of the proceeding if
the person sets forth in writing (i) an affirmation of the person's good faith
belief that the person is entitled to indemnification under this provision and
(ii) the person's agreement to repay all advances if it is ultimately
determined that the person is not entitled to indemnification under this
Section 10.2. Any repeal or modification of any portion of the foregoing
provisions of this Section 10.2 or the adoption of any provision of this
Agreement inconsistent with any portion of the foregoing provisions of this
Section 10.2 shall not adversely affect any right or protection of any person
indemnified under this Section 10.2 for any act or omission occurring, or any
cause of action, suit, claim or other matter arising or accruing, prior to the
effective date of such repeal, modification or adoption. This Section 10.2
shall not be deemed exclusive of any other provisions for indemnification or
advancement of expenses of any Indemnitee that may be included in any statute,
any agreement or any vote of the Members or other document or arrangement.
ARTICLE XI.
REPRESENTATIONS
Each Member hereby represents and warrants to, and agrees with, the
Members and the Company as follows:
11.1. Preexisting Relationship or Experience. Such Member has a
preexisting personal or business relationship with the Company or one or more
of its Members, officers or controlling persons, or by reason of such Member's
business or financial experience, or by reason of the business or financial
experience of such Member's financial advisor who is unaffiliated with and who
is not compensated, directly or indirectly, by the Company or any affiliate or
selling agent of the Company, and such Member is capable of evaluating the
risks and merits of an investment
- 18 -
<PAGE> 19
in the Company and of protecting such Member's own interests in connection with
this investment.
11.2. No Advertising. Such Member has not seen, received, been
presented with, or been solicited by any leaflet, public promotional meeting,
article or any other form of advertising or general solicitation with respect
to the sale of such Member's Membership Interest.
11.3. Investment Intent. Such Member is acquiring the Membership
Interest for investment purposes for such Member's own account only and not
with a view to or for sale in connection with any distribution of all or any
part of the Membership Interest. No other person will have any direct or
indirect beneficial interest in or right to the Membership Interest.
11.4 Certain Duties and Obligations of the Members. No Member
shall take any action so as to cause the Company to be classified for federal
income tax purposes as an association taxable as a corporation and not as a
partnership. No Member shall take, or cause to be taken, any action that would
result in any Member having any personal liability for the Obligations of the
Company.
ARTICLE XII.
MISCELLANEOUS
12.1. Appointments.
(a) Counsel to the Company may also be counsel to any
Member or any Affiliate of a Member. The Members may execute on behalf of the
Company and the Members any consent to the representation of the Company that
counsel may request pursuant to the California Rules of Professional Conduct or
similar rules in any other jurisdiction ("RULES"). The Company has initially
selected Piper & Marbury L.L.P. ("COMPANY COUNSEL") as legal counsel to the
Company. Each Member acknowledges that Company Counsel does not represent any
Member in the absence of a clear and explicit agreement to such effect between
the Member and Company Counsel, and that in the absence of any such written
agreement Company Counsel shall owe no duties directly to a Member.
Notwithstanding any adversity that may develop, in the event any dispute or
controversy arises between or among any Members and the Company, then each
Member agrees that Company Counsel may represent the Company in any such
dispute or controversy to the extent permitted by the Rules, and each Member
hereby consents to such representation.
(b) The Company has selected Provident Financial
Management, as the business manager for the Company, and such firm shall
maintain the financial books and records of the Company and shall manage the
disbursement of funds in accordance with the direction of the Members.
- 19 -
<PAGE> 20
12.2 Complete Agreement. This Agreement, the Articles and the
related letter agreement dated the date hereof by and among the Members
constitute the complete and exclusive statement of agreement among the Members
with respect to the subject matter herein and therein and replace and supersede
all prior written and oral agreements among the Members including without
limitation, the original Operating Agreement relating to the subject matter
hereof. To the extent that any provision of the Articles conflict with any
provision of this Agreement, the Articles shall control.
12.3. Binding Effect. Subject to the provisions of this Agreement
relating to transferability, this Agreement will be binding upon and inure to
the benefit of the Members, and their respective successors and assigns.
12.4. Interpretation. All pronouns shall be deemed to refer to the
masculine, feminine, or neuter, singular or plural, as the context in which
they are used may require. All headings herein are inserted only for
convenience and ease of reference and are not to be considered in the
interpretation of any provision of this Agreement. Numbered or lettered
articles, sections and subsections herein contained refer to articles, sections
and subsections of this Agreement unless otherwise expressly stated. In the
event any claim is made by any Member relating to any conflict, omission or
ambiguity in this Agreement, no presumption or burden of proof or persuasion
shall be implied by virtue of the fact that this Agreement was prepared by or
at the request of a particular Member or such Member's counsel.
12.5. Jurisdiction. Each Member hereby consents to the exclusive
jurisdiction of the state and federal courts sitting in Los Angeles, California
in any action on a claim arising out of, under or in connection with this
Agreement or the transactions contemplated by this Agreement. Each Member
further agrees that personal jurisdiction over such Member may be effected by
service of process by registered or certified mail addressed as provided in
Section 12.8 of this Agreement, and that when so made shall be as if served
upon him or her personally within the State of California, effective upon
receipt.
12.6. Arbitration. Except as otherwise provided in this Agreement,
any controversy between the parties arising out of this Agreement shall be
submitted to the American Arbitration Association for arbitration in Los
Angeles, California. The costs of the arbitration, including any American
Arbitration Association administration fee, the arbitrator's fee, and costs for
the use of facilities during the hearings, shall be borne equally by the
parties to the arbitration. The provisions of Sections 1282.6, 1283, and
1283.05 of the California Code of Civil Procedure apply to the arbitration.
The arbitrator shall not have any power to alter, amend, modify or change any
of the terms of this Agreement nor to grant any remedy which is either
prohibited by the terms of this Agreement, or not available in a court of law.
12.7. Severability. If any provision of this Agreement or the
application of such provision to any person or circumstance shall be held
invalid, the remainder of this Agreement or the application of such provision
to persons or circumstances other than those to which it is held invalid shall
not be affected thereby.
- 20 -
<PAGE> 21
12.8. Notices. Any notice to be given or to be served upon the
Company or any party hereto in connection with this Agreement must be in
writing (which may include facsimile) and will be deemed to have been given and
received to the address specified by the party to receive the notice. Such
notices will be given to a Member at the address specified in Exhibit A hereto.
Any party may, at any time by giving five (5) business days' prior written
notice to the other Members, designate any other address in substitution of the
foregoing address to which such notice will be given.
12.9. Amendments. Except for adjustments in the Members' Membership
Interests according to the provisions herein, all amendments to this Agreement
will be in writing and signed by all of the Members.
12.10. Multiple Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument.
12.11. Attorney Fees. In the event that any dispute between the
Company and the Members or among the Members should result in litigation or
arbitration, the prevailing party in such dispute shall be entitled to recover
from the other party all reasonable fees, costs and expenses of enforcing any
right of the prevailing party, including without limitation, reasonable
attorneys' fees and expenses, all of which shall be deemed to have accrued upon
the commencement of such action and shall be paid whether or not such action is
prosecuted to judgment. Any judgment or order entered in such action shall
contain a specific provision providing for the recovery of attorney fees and
costs incurred in enforcing such judgment and an award of prejudgment interest
from the date of the breach at the maximum rate allowed by law. For the
purposes of this Section 12.11: (a) attorney fees shall include, without
limitation, fees incurred in the following: (1) postjudgment motions; (2)
contempt proceedings; (3) garnishment, levy, and debtor and third party
examinations; (4) discovery; and (5) bankruptcy litigation; and (b) prevailing
party shall mean the party who is determined in the proceeding to have
prevailed or who prevails by dismissal, default or otherwise.
12.12. Remedies Cumulative. The remedies under this Agreement are
cumulative and shall not exclude any other remedies to which any person may be
lawfully entitled.
12.13 Creditors. None of the provisions of this Agreement shall be
for the benefit of or enforceable by any creditors of the Company.
12.14 Waiver. No failure by any party to insist upon the strict
performance of any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon breach thereof shall constitute
waiver of any such breach or any other covenant, duty, agreement or condition.
[signatures are on the following page]
- 21 -
<PAGE> 22
IN WITNESS WHEREOF, all of the Members of C.C.R.L., LLC, a California
Limited Liability Company, have executed this Agreement. effective as of the
date written above.
CREATIVE ARTISTS AGENCY, LLC
By: [SIG.]
-------------------------------
Name:
Title:
CODIKOW & CARROLL, A P.C.
By: /s/ David Codikow
-------------------------------
David Codikow
KEVIN LYMAN PRODUCTION SERVICES
By: /s/ Kevin Lyman
-------------------------------
Kevin Lyman
VANS, INC.
By: /s/ Gary H. Schoenfeld
-------------------------------
Gary H. Schoenfeld
President and Chief Operating
Officer
- 22 -
<PAGE> 23
EXHIBIT A
CAPITAL CONTRIBUTION AND ADDRESSES OF MEMBERS
<TABLE>
<CAPTION>
MEMBER'S MEMBER'S CAPITAL MEMBER'S
ADDRESS ACCOUNT MEMBERSHIP INTEREST
------- ------- -------------------
<S> <C> <C>
Creative Artists Agency, Inc. $944,333.33 28.33%
9830 Wilshire Blvd.
Beverly Hills, CA 90212
Codikow & Carroll, a P.C. 944,333.34 28.34%
9113 Sunset Blvd.
Los Angeles, CA 90069
Kevin Lyman Production 944,333.33 28.33%
Services
112 N. Harvard
Suite 244
Claremont, CA 91711
Vans, Inc. 500,000.00 15.00%
2095 Batavia
Orange, CA 92865
Attention: Craig E. Gosselin,
Esq.
Vice President and General
Counsel
TOTAL $3,333,000.00 100.00%
</TABLE>
- 23 -
<PAGE> 1
EXHIBIT 10.3
January 1, 1997
Vans, Inc.
2095 Batavia
Orange, CA 92865
Re: C.C.R.L., LLC
Gentlemen:
Pursuant to the terms of an Amended and Restated Operating Agreement
(the "Agreement") for C.C.R.L., LLC (the "Company"), the undersigned, Creative
Artists Agency, Inc. ("CAA"), Codikow & Carroll, a P.C. ("C&C") and Kevin Lyman
Production Services ("KLP," and together with CAA and C&C, the "Founding
Members"), have agreed to admit Vans, Inc. ("Vans," and together with the
Founding Members, the "Members") as a member in the Company. In connection
with the admission of Vans, the following sets forth our understanding
regarding compensation currently due and payable to each of the Founding
Members and the compensation for certain services to be rendered during the
Company's fiscal year ending December 31, 1997 (the "1997 Year").
1. As of the date hereof, the Company is indebted to Kevin Lyman
("Lyman") for production service fees and other compensation for services
rendered and related disbursements of $_________, to C&C for legal services
rendered and related disbursements of $_________ and to Vans for marketing and
promotional fees paid in connection with performances of the Vans Warped Tour
in the United Kingdom of $10,092.39. Upon the execution and delivery of the
Agreement, the Company shall pay the amounts due and owing to Lyman, C&C and
Vans.
2. During the 1997 Year, unless otherwise authorized in
accordance with the Agreement, CAA shall perform all reasonably and necessary
booking and scheduling services required by the Company, C&C shall perform
legal services for the Company in accordance with its historical practices and
KLP and its principal, Lyman shall devote not less than ninety percent (90%) of
their respective business time in the performance of promotional services and
activities for the Company. During the 1997 Year, neither Lyman nor KLP shall
perform services and activities similar to those performed for the Company for
(i) any tour or event which competes with the Vans Warped Tour, and (ii)
<PAGE> 2
Vans, Inc.
January 1, 1997
Page 2
for any competitor of Vans. The Members agree that, during the 1997 Year,
agency, legal and promotional services, as the case may be, rendered in
connection with the portion of the Vans Warped Tour scheduled for the summer of
1997 shall be rendered to the Company for a fixed fee of $60,000 ($180,000 in
the aggregate), exclusive of reasonable and necessary disbursements.
3. In the case of KLP or Lyman, the Company shall pay the
promotional fees to KLP or Lyman in equal monthly or bi-monthly installments
(as requested by Lyman or KLP) commencing on January 1, 1997. In the case of
CAA and C&C, the Company shall pay all fees within five (5) business days after
the final performance of The Vans Warped Tour scheduled for the summer of 1997.
4. Prior to the end of the portion of the Vans Warped Tour
scheduled for the summer of 1997, the parties shall negotiate in good faith
with respect to compensation for services rendered subsequent to the summer of
1997 based upon, among other factors, the financial results of the Company
during such summer performances, the efforts of the Members on behalf of the
Company and other market standards.
5. The Company intends to reacquire the merchandising rights to
the Vans Warped Tour from Sony Merchandising. The parties agree that
subsequent to the reacquisition of such rights, notwithstanding anything in the
Agreement to the contrary, net income received by the Company from
merchandising activities shall be shared 50% by the Founding Members and 50% by
Vans.
This letter agreement and the Agreement constitute the complete and
exclusive agreement among the Members with respect to the subject matter hereof
and thereof. This Agreement shall be governed by and construed in accordance
with the laws of the State of California. The Agreement shall be binding on
the Members and their respective successors and assigns. This Agreement may be
executed in counterparts.
- 2 -
<PAGE> 3
Vans, Inc.
January 1, 1997
Page 3
Please acknowledge your acceptance of the foregoing by signing where
indicated below.
Sincerely,
CREATIVE ARTISTS AGENCY, LLC
By: /s/ TOM ROSS
--------------------------------
Tom Ross
CODIKOW & CARROLL, a PC
By: /s/ DAVID CODIKOW
--------------------------------
David Codikow
KEVIN LYMAN PRODUCTION
SERVICES
By: /s/ KEVIN LYMAN
--------------------------------
Kevin Lyman
ACCEPTED AND AGREED TO:
VANS, INC.
By: /s/ GARY SCHOENFELD
--------------------------------
Gary H. Schoenfeld
President and Chief Operating
Officer
/s/ KEVIN LYMAN
-------------------------------
Kevin Lyman
- 3 -
<PAGE> 1
EXHIBIT 10.4
VANS, INC.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement" herein) is entered into as of
February 1, 1997 by and between VANS, INC., a Delaware corporation (the
"Company"), and JOHN WALKER ("Employee").
1. Employment and Duties. The Company hereby employs Employee as
Vice President - Merchandising of the Company on the terms and subject to the
conditions contained in this Agreement. Employee shall be responsible for
managing all merchandising operations of the Company's United States wholesale
business. 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 of the
Company. 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 January 31, 2000, 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 [INIT] Initial [INIT]
--------- ---------
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 no less than
$160,000.00 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,
2
<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 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
3
<PAGE> 4
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.
4
<PAGE> 5
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. Notwithstanding anything to the
contrary contained herein, the Company shall use its best efforts to cause the
Compensation Committee of the Board of Directors to grant Employee an incentive
stock option for 5,000 shares of the Company's Common Stock on each anniversary
of his first date of employment with the Company, commencing on the
5
<PAGE> 6
second anniversary of such date. Such options shall contain three-year vesting
schedules.
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-Merchandising 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
6
<PAGE> 7
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. Other Benefits.
15.1 Expense Reimbursement for Relocation of Residence.
The Company shall, upon receipt of appropriate documentation from Employee,
reimburse Employee for all reasonable expenses incurred by Employee in
relocating his residence from Tennessee to Southern California, including but
not limited to reimbursing Employee for realtor fees and other reasonable fees
incurred by him in the sale of his Tennessee residence; provided however, the
Company has no obligation to
8
<PAGE> 9
purchase a new residence for Employee or contribute to, or reimburse him for,
the purchase price, fees or other costs associated with purchasing a new
residence.
15.2 Housing Accommodations. The Company shall, for a
reasonable period of time after Employee relocates to Southern California,
provide reasonable housing accommodations for Employee and his family at the
Residence Inn in Fullerton, California while Employee obtains permanent
housing.
15.3 Loan. The Company shall, upon the request of
Employee, provide Employee with a loan of $75,000 which shall not bear interest
and which shall be repaid by Employee in five equal annual installments (the
"Loan"). In the event the aggregate amount of all bonuses paid to Employee for
the Company's fiscal years ending May 31, 1998 and 1999 is less than $75,000
(the "Aggregate Bonuses"), then the Loan shall be reduced, dollar for dollar,
by the difference between $75,000 and the Aggregate Bonuses.
15.4 Country Club Membership. The Company shall pay a
one-time initial membership fee for a Country Club selected by Employee, in an
amount not to exceed $20,000.
16. 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:
To the Company: VANS, INC.
2095 Batavia Street
Orange, California 92865-3101
Attn: General Counsel
(714) 974-4481 - facsimile
To Employee: John Walker
(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.
9
<PAGE> 10
17. 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.
18. 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.
19. 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.
20. 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.
21. Entire Agreement; No Representations by the Company. 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. Employee
specifically acknowledges and agrees that the Company has not made on any
promises, assurances or guarantees regarding his employment or the Company's
business or future prospects, and he has not relied on any such promises,
assurances or guarantees in making his decision to become employed by the
Company and relocate his residence to Southern California.
22. Counterparts. This Agreement may be executed in counterparts.
23. 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 the American Arbitration
Association or the Judicial Arbitration and Mediation Service
("JAMS")/Endispute, and judgment upon the award rendered by the
10
<PAGE> 11
arbitrator may be entered in any court having jurisdiction thereof. The cost
of arbitration (including reasonable attorneys' fees) shall be borne by the
losing party. The arbitration shall occur in Los Angeles, 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.
24. 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
/s/ JOHN P. WALKER By: /s/ [SIG]
- ---------------------------------- -------------------------------
John P. Walker
2815 APACHE MOON TER.
MURFREESBORO, TN 37127 Vice Pres. & Gen. Counsel
- ----------------------------- ----------------------------
Address Title
11
<PAGE> 1
EXHIBIT 10.5
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT
THIS AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT ("Amendment" herein) is
entered into as of February 13, 1997, by and between Walter E. Schoenfeld
("Mr. Schoenfeld") and Vans, Inc., a Delaware corporation ("Vans"), with
respect to the following facts:
A. Vans and Mr. Schoenfeld previously entered into an Employment
Agreement dated December 1, 1995 (the "Employment Agreement"), which revised
and replaced a Consulting Agreement between the parties; and
B. The parties wish to make certain amendments to the Employment
Agreement which have been approved by the Compensation Committee of the
Company.
NOW, THEREFORE, the parties hereto agree as follows:
1. Section 2 of the Employment Agreement. The second
line of Section 2 of the Employment Agreement is hereby amended to delete the
words "President and Chief Executive Officer" and replace them with the words
"Chairman of the Board." The third line of such Section is deleted in its
entirety and replaced with the following sentence: "Employee shall be
responsible for the coordination of the duties of the Company's President and
Chief Executive Officer and the duties of the Board of Directors, and will
participate with the President and Chief Executive Officer in the formulation
of the Company's overall strategic direction, with an emphasis on international
sales." The first clause of the ninth and tenth lines of such Section is
hereby deleted in its entirety and replaced with the following clause:
"Employee shall, during the term hereof, devote such time and energy as are
necessary to the performance of his duties hereunder;". Finally, the fifth
sentence of such Section is hereby deleted in its entirety.
2. Section 3 of the Employment Agreement. The term of
the Employment Agreement is hereby extended to May 31, 1999.
3. Section 4 of the Employment Agreement. The first two
sentences of Section 4 of the Employment Agreement are hereby deleted in their
entirety and replaced with the following sentence: "The annual salary
compensation for Employee's services hereunder shall be $288,000.00 per year."
4. Other Provisions of the Employment Agreement. Except
as specifically modified or amended herein, all remaining provisions of the
Employment Agreement shall remain in full force and effect.
5. Miscellaneous. This Amendment shall be governed by
California law and may be executed in counterparts.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
<TABLE>
<S> <C>
MR. SCHOENFELD: VANS:
Vans, Inc., a Delaware corporation
/s/ WALTER E. SCHOENFELD By: [SIG]
- ---------------------------- -------------------------------
Walter E. Schoenfeld
Title: Vice President & Gen. Counsel
--------------------------------
</TABLE>
2
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> MAR-01-1997
<CASH> 16,714,842
<SECURITIES> 0
<RECEIVABLES> 23,160,092
<ALLOWANCES> 1,562,199
<INVENTORY> 23,328,929
<CURRENT-ASSETS> 63,605,246
<PP&E> 16,700,928
<DEPRECIATION> 0
<TOTAL-ASSETS> 99,983,299
<CURRENT-LIABILITIES> 11,940,621
<BONDS> 0
0
0
<COMMON> 13,152
<OTHER-SE> 85,389,144
<TOTAL-LIABILITY-AND-EQUITY> 99,983,299
<SALES> 39,101,657
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<CGS> 22,979,932
<TOTAL-COSTS> 22,979,932
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<LOSS-PROVISION> 163,179
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<INCOME-PRETAX> 3,854,164
<INCOME-TAX> 1,487,969
<INCOME-CONTINUING> 2,193,158
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