<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 November 30,
1996 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.)
2095 North Batavia Street
Orange, California 92865-3101
(Address of Principal Executive Offices) (Zip Code)
(714) 974-7414
(Registrant's Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Formal Fiscal Year,
if Change 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: 13,081,522 shares
of Common Stock, $.001 par value, as of January 13, 1997.
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
VANS, INC.
Condensed Consolidated Balance Sheets
November 30, 1996 and May 31, 1996
<TABLE>
<CAPTION>
November 30, May 31,
1996 1996
------------- -------------
ASSETS
<S> <C> <C>
Current assets:
Cash $ 12,939,002 $ 14,233,352
Accounts receivable, net of allowance for doubtful accounts of $1,741,376
and $1,147,344 at November 30, 1996 and May 31, 1996, respectively 24,085,797 20,842,989
Inventories (note 2) 24,682,053 19,400,644
Deferred income taxes 364,000 364,000
Prepaid expenses 1,486,000 2,457,301
------------- -------------
Total current assets 63,556,852 57,298,286
Property, plant and equipment, net 15,588,310 10,801,763
Property held for sale 4,687,106
Excess of cost over the fair value of net assets acquired, net of
accumulated amortization of $33,125,409 and $32,744,117 at November 30,
1996 and May 31, 1996, respectively 18,317,117 16,495,283
Other assets 981,870 1,178,331
------------- -------------
Total assets $ 98,444,149 $ 90,460,769
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 2,899,322 $ 6,431,349
Accounts payable 4,492,351 4,328,821
Accrued payroll and related expenses 1,194,512 1,611,906
Restructuring costs 1,452,251 1,750,782
Accrued workers' compensation 400,578 803,964
Accrued interest 75,165 --
Income taxes payable 2,753,947 967,659
------------- -------------
Total current liabilities 13,268,126 15,894,481
Deferred income taxes 1,495,000 1,495,000
Capital lease obligation 332,419 343,742
------------- -------------
Total liabilities 15,095,545 17,733,223
Minority interest 583,927 --
Stockholders' equity:
Common stock, $.001 par value, 20,000,000 shares authorized, 13,080,439
and 12,628,085 shares issued and outstanding at November 30, 1996 and
May 31, 1996, respectively 13,080 12,628
Additional paid-in capital 100,654,044 96,201,083
Stock subscriptions -- (85,000)
Accumulated deficit (17,902,447) (23,401,165)
------------- -------------
Total Shareholders' Equity 82,764,674 72,727,546
------------- -------------
Total liabilities & shareholders' equity $ 98,444,149 $ 90,460,769
============= =============
</TABLE>
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VANS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Thirteen weeks ended November 30, 1996 and November 25, 1995
<TABLE>
<CAPTION>
Thirteen weeks ended
November 30, November 25,
1996 1995
------------ ------------
<S> <C> <C>
Net sales $ 37,104,812 $ 29,098,068
Cost of sales 23,140,725 17,247,502
------------ ------------
Gross profit 13,964,087 11,850,566
Operating expenses:
Selling and distribution 6,543,320 6,223,009
Marketing, advertising and promotion 2,535,030 1,672,912
General and administrative 1,489,928 1,282,178
Provision for doubtful accounts 167,623 103,950
Amortization of intangibles 190,645 190,645
------------ ------------
Total operating expenses 10,926,546 9,472,694
------------ ------------
Earnings from operations 3,037,541 2,377,872
Interest income 117,039 --
Interest and debt expense (106,982) (763,989)
Other income 889,007 513,222
------------ ------------
Earnings before income taxes 3,936,605 2,127,105
Income tax expense 1,519,530 850,843
------------ ------------
Net earnings 2,417,075 1,276,262
============ ============
Net earnings per share $ 0.18 $ 0.13
============ ============
Weighted average common and common equivalent shares
(note 3) 13,682,071 10,114,665
============ ============
</TABLE>
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VANS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Twenty-six weeks ended November 30, 1996 and November 25, 1995
<TABLE>
<CAPTION>
Twenty-six weeks ended
November 30, November 25,
1996 1995
------------ ------------
<S> <C> <C>
Net sales $ 81,060,993 $ 57,501,915
Cost of sales 49,545,510 35,537,394
------------ ------------
Gross profit 31,515,483 21,964,521
Operating expenses:
Selling and distribution 13,481,647 12,338,063
Marketing, advertising and promotion 6,480,773 3,072,688
General and administrative 3,024,183 2,531,618
Provision for doubtful accounts 406,508 179,256
Amortization of intangibles 381,290 381,290
------------ ------------
Total operating expenses 23,774,401 18,502,915
------------ ------------
Earnings from operations 7,741,082 3,461,606
Interest income 218,875 --
Interest and debt expense (298,991) (1,512,649)
Other income 1,327,512 940,419
------------ ------------
Earnings before income taxes 8,988,478 2,889,376
Income tax expense 3,489,760 1,155,751
------------ ------------
Net earnings 5,498,718 1,733,625
============ ============
Net earnings per share $ 0.40 $ 0.17
============ ============
Weighted average common and common equivalent shares
(note 3) 13,664,040 10,072,720
============ ============
</TABLE>
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VANS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Twenty-six weeks ended November 30, 1996 and November 25, 1995
<TABLE>
<CAPTION>
Twenty-six weeks ended
November 30, November 25,
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 5,498,718 $ 1,733,625
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,657,742 1,591,338
Amortization of deferred financing costs -- 36,062
Provision for losses on accounts receivable and sales returns 658,259 334,203
Changes in assets and liabilities:
Accounts receivable (3,242,808) (5,199,370)
Income taxes receivable -- 3,530,128
Inventories (5,281,409) (1,809,105)
Prepaid expenses 971,301 (657,627)
Other assets 196,461 359,297
Accounts payable 163,533 (1,916,940)
Accrued payroll and related expenses (417,394) (59,842)
Accrued workers' compensation (403,386) (413,357)
Restructuring costs (298,531) (2,550,374)
Accrued interest 75,165 (121,934)
Income taxes payable 1,786,288 1,155,750
------------ ------------
Net cash provided by (used in) operating activities 1,363,939 (3,988,146)
------------ ------------
Cash flows from investing activities:
Purchases of property, plant and equipment (955,452) (1,273,502)
------------ ------------
Net cash used in investing activities (955,452) (1,273,502)
------------ ------------
Cash flows from financing activities:
Proceeds (payments) on short term borrowings (3,532,027) 4,433,105
Payments on capital lease obligations (11,323) (73,252)
Proceeds from long term credit facility -- 6,894,448
Principal payments on senior notes -- (5,800,000)
Proceeds from issuance of common stock, net 1,840,513 34,003
------------ ------------
Net cash provided by (used in) financing activities (1,702,837) 5,488,304
------------ ------------
Net increase (decrease) in cash and cash equivalents (1,294,350) 226,656
Cash and cash equivalents, beginning of period 14,233,352 3,279,843
------------ ------------
Cash and cash equivalents, end of period $ 12,939,002 $ 3,506,499
============ ============
Supplemental cash flow information - amounts paid for:
Interest $ 204,187 $ 1,476,587
Income taxes $ 2,463,090 $ 41,265
</TABLE>
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VANS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Vans, Inc. (the "Company") manufactures and markets high-quality casual
shoes for men, women and children 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 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>
11/30/96 05/31/96
-------- --------
<S> <C> <C>
Raw materials $ 1,553,212 $ 1,616,486
Work-in-process 152,185 20,680
Finished goods 23,724,592 18,363,478
------------ ------------
25,429,989 20,000,644
Less: Valuation allowance (747,936) (600,000)
------------ ------------
$ 24,682,053 $ 19,400,644
============ ============
</TABLE>
3. Primary earnings per share approximate fully diluted earnings per share for
the thirteen weeks and twenty-six weeks ended November 30, 1996 and
November 25, 1995.
4. During Q2 Fiscal 1997, the Company acquired a 51% interest in Global
Accessories Ltd., an international distributor based in the United Kingdom
("Global"). 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 Global's common shares. 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
November 30, 1996 condensed consolidated financial statements.
* Vans is a registered trademark of Vans, Inc.
6
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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. The Company is the
successor to Van Doren Rubber Company, Inc., a California corporation that was
founded in 1966 ("VDRC"). VDRC was acquired by the Company in February 1988 in a
series of related transactions for a total cost (including assumed liabilities)
of $74.4 million (the "Acquisition"). The Acquisition resulted in the
recognition of approximately $48.0 million of goodwill by the Company (the
"Acquisition Goodwill"). VDRC was merged with and into the Company in August
1991 at the time of the Company's initial public offering.
Prior to fiscal 1995, the Company manufactured all of its footwear at
two domestic manufacturing facilities located in Southern California. As part of
the Company's strategic redirection, in the first quarter of fiscal 1995 the
Company began to source from South Korea its line of casual and performance
footwear known as the International Collection. The success of the International
Collection created a domestic manufacturing overcapacity problem for the Company
which contributed to an overstock in domestic inventories. In the second quarter
of fiscal 1995, the Company increased the inventory valuation allowance from
$324,772 to approximately $600,000 in order to help mitigate the risks
associated with increased inventory balances. In the third quarter of fiscal
1995, the Company took steps to adjust its U.S. production; however, customer
demand for the International Collection continued to grow. In the fourth quarter
of fiscal 1995, it first became apparent that domestic manufacturing workforce
reductions would not be sufficient to address the increase in orders for the
International Collection and the decrease in demand for domestically produced
footwear, and the Company determined that a plant closure would be required.
Therefore, on May 30, 1995 the Board of Directors voted to close its Orange,
California manufacturing facility (the "Orange Facility") and in July 1995, the
Company closed the Orange Facility. Accordingly, the Company recognized
restructuring costs of $30.0 million in the fourth quarter of fiscal 1995. Of
that amount: (i) $20.0 million represented a write-off of the goodwill allocated
to the manufacturing know-how associated with the Orange Facility (the "Orange
Facility Goodwill"); and (ii) $10.0 million represented restructuring costs to
close the Orange Facility. All remaining U.S. production of the Company was
shifted to the Company's smaller Vista, California manufacturing facility (the
"Vista Facility").
As reported in the Company's Form 10-Q for the first quarter of Fiscal
1997, the Company has entered into agreements to lease the Orange Facility to
two companies. In connection with these agreements, the Company has also entered
into a lease for 180,000 square feet of space in Santa Fe Springs, California
which will house the Company's corporate headquarters and warehouse operations.
See "Liquidity and Capital Resources - Capital Expenditures."
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In the fourth quarter of fiscal 1995, the Company wrote-down $6.3
million of inventory. The write-down on 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 such Acquisition Goodwill should have been
allocated to the manufacturing know-how associated with the Orange Facility at
the date of the Acquisition. The unamortized portion of the Orange Facility
Goodwill at May 31, 1995 was $20.0 million, and was written-off in connection
with the closure of the Orange Facility.
RESULTS OF OPERATIONS
Thirteen-week period ended November 30, 1996 ("Q2 Fiscal 1997") versus the
thirteen-week period ended November 25, 1995 ("Q2 Fiscal 1996")
NET SALES
Net Sales for Q2 Fiscal 1997 increased 27.5% to $37,105,000, compared
to $29,098,000 for the same period in Fiscal 1996. The sales increase was
primarily driven by sales of the International Collection, which increased from
approximately $16,500,000, or 56.7% of net sales for Q2 Fiscal 1996, to
approximately $23,152,000, or 62.4% of net sales for Q2 Fiscal 1997. Also
contributing to this increase was a 54.2% increase in snowboard boot sales to
$5,804,000 for Q2 Fiscal 1997, compared to $3,763,000 for the same period a year
ago.
Sales to national accounts increased 16.6% during Q2 Fiscal 1997 to
$19,685,000, compared to $16,880,000 for the comparable period of Fiscal 1996.
This increase featured a 4.2% increase in sales to the Company's top 10
accounts, primarily resulting from sales of the International Collection which
accounted for 73.0% of the national sales for Q2 Fiscal 1997, compared to 68.0%
for the same period a year ago.
Sales through the Company's 83-store retail chain increased 16.2% to
$8,034,000 from $6,913,000 for Q2 Fiscal 1996. Comparable store sales (sales at
stores open one year or more) were up 17.9% for the quarter. Comparable store
sales increased for all but one Company store type. Freestanding store
comparable sales led the way with a 24.9% increase, while comparable store sales
for clearance stores decreased 3.0%. Comparable store sales increases exceeded
the overall sales increase because the back-to-school period was later in 1996,
thereby adversely impacting overall retail sales.
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Sales for export increased 76.9% to $9,386,000 for Q2 Fiscal 1997,
compared to $5,305,000 for the same period a year ago. Increased sales to Japan,
France, Spain, Australia and the Benelux countries were the principal reasons
for the increase.
GROSS PROFIT
Gross profit increased 17.8% to $13,964,000 in Q2 Fiscal 1997 from
$11,851,000 in the same period of Fiscal 1996. As a percentage of net sales,
gross profit decreased to 37.6% for Q2 Fiscal 1997 from 40.7% for the same
period of Fiscal 1996. The decrease in gross profit as a percentage of net sales
was primarily due to (i) increased international sales, which have lower gross
margins than either national or retail sales, and (ii) a change in overall sales
mix.
EARNINGS FROM OPERATIONS
Earnings from operations increased to $3,038,000 in Q2 Fiscal 1997
from $2,378,000 in the same period of Fiscal 1996. Operating expenses in Q2
Fiscal 1997 increased to $10,927,000 from $9,473,000 in Q2 Fiscal 1996,
primarily due to an $862,000 increase in marketing, advertising and promotion
expenses, as discussed below, but as a percentage of net sales, operating
expenses decreased from 32.6% to 29.4%, on a period-to-period basis.
SELLING AND DISTRIBUTION
Selling and distribution expenses increased 5.2% to $6,543,000 in Q2
Fiscal 1997 from $6,223,000 in Q2 Fiscal 1996, primarily due to (i) increases in
personnel costs in the Company's retail operations as a result of higher retail
sales; (ii) increased rents related to new retail store openings; (iii)
increased rent expenses due to the installation of new cash registers in the
retail stores; and (iv) increased distribution expenses related to increased
product volume at the Company's City of Industry distribution center.
MARKETING, ADVERTISING AND PROMOTION
Marketing, advertising and promotion expenses increased 51.5% to
$2,535,000 in Q2 Fiscal 1997 from $1,673,000 in Q2 Fiscal 1996, primarily due to
(i) the Company's continued support of sales growth through increases in
television and print media spending, and (ii) sponsorship of the Vans Warped
Tour '96, expenses of which were incurred in Q2 Fiscal 1997.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased 16.2% from $1,282,000 in
Q2 Fiscal 1996 to $1,490,000 in Q2 Fiscal 1997, primarily due to increased
personnel costs to meet staffing requirements to support the Company's growth.
PROVISION FOR DOUBTFUL ACCOUNTS
Provision for doubtful accounts increased 61.3% from $104,000 in Q2
Fiscal 1996 to $168,000 in Q2 Fiscal 1997 due to an increase in the general
allowance for doubtful accounts to correspond to the increase in accounts
receivable resulting from increased sales.
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INTEREST INCOME
Interest income was derived primarily from the investment of a portion
of the net proceeds of the Company's May 1996 public offering of common stock
(the "Offering"). See " - Liquidity and Capital Resources."
INTEREST AND DEBT EXPENSE
Interest and debt expense decreased from $764,000 in Q2 Fiscal 1996 to
$107,000 in Q2 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 increased to $889,000 in Q2 Fiscal 1997 from $513,000 for
the same period a year ago due primarily to higher income from the licensing of
the Company's trademarks.
INCOME TAX EXPENSE
Income tax expense increased to $1,520,000 in Q2 Fiscal 1997 from
$851,000 for Q2 Fiscal 1996 as a result of the higher earnings discussed above.
Twenty-six week period ended November 30, 1996 ("Fiscal 1997 Six Months") versus
twenty-six week period ended November 25, 1995
NET SALES
Net Sales for the Fiscal 1997 Six Months increased 41.0% to
$81,061,000, compared to $57,502,000 for the same period in Fiscal 1996. The
sales increase was primarily driven by sales of the International Collection,
which increased from approximately $29,142,000, or 50.7% of net sales for the
six-month period ended November 25, 1995, to approximately $54,049,000, or
66.7% of net sales for the Fiscal 1997 Six Months. Included in the overall
increase was a 67.3% increase of sales of snowboard boots to $10,974,000 for
the Fiscal 1997 Six Months, compared to $6,556,000 during the same period of
Fiscal 1996.
Sales to national accounts increased 25.2% during the Fiscal 1997 Six
Months to $42,735,000, compared to $34,143,000 for the comparable period of
Fiscal 1996. This increase featured a 37.9% increase in sales to the Company's
top 10 accounts. An increase in sales of the International Collection
to $34,905,000 during the Fiscal 1997 Six Months, compared with $21,397,000 for
the same period in Fiscal 1996, was the leading factor in the overall increase
of national sales.
Sales through the Company's 83-store retail chain increased 28.6% to
$17,958,000 from $13,967,000 for the same period a year ago. Comparable store
sales (sales at stores open one year or more) were up 15.8% for the period.
Comparable store sales increased for all but one Company store type.
Freestanding store comparable sales led the way with a 24.7% increase, while
comparable store sales for clearance stores decreased 8.3%.
Sales for export increased 116.9% to $20,368,000 for the Fiscal 1997
Six Months, compared to $9,392,000 for the same period a year ago. Increased
sales to Japan, France, Spain, Australia and the Benelux countries were the
principal reasons for the increase.
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GROSS PROFIT
Gross profit increased 43.5% to $31,515,000 in the Fiscal 1997 Six
Months from $21,965,000 in the same period of Fiscal 1996. As a percentage of
net sales, gross profit increased to 38.9% for the Fiscal 1997 Six Months from
38.2% for the same period of Fiscal 1996. The increase in gross profit was
primarily due to increased sales of the International Collection through the
national sales channel, which carries a higher gross margin.
EARNINGS FROM OPERATIONS
Earnings from operations increased to $7,741,000 in the Fiscal 1997
Six Months from $3,462,000 in the same period of Fiscal 1996. Operating expenses
in the Fiscal 1997 Six Months increased to $23,774,000 from $18,503,000 in the
same period a year ago, primarily due to a $1,144,000 increase in selling and
distribution expense and a $3,408,000 increase in marketing, advertising and
promotion expenses, each as discussed below, but as a percentage of sales,
operating expenses decreased from 32.2% to 29.3%, on a period-to-period basis.
SELLING AND DISTRIBUTION
Selling and distribution expenses increased 9.3% to $13,482,000 in
the Fiscal 1997 Six Months from $12,338,000 in the same period a year ago,
primarily due to the reasons discussed under the caption "Results of Operations
- - Selling and distribution" for Q2 Fiscal 1997.
MARKETING, ADVERTISING AND PROMOTION
Marketing, advertising and promotion expenses increased 110.9% to
$6,481,000 in the Fiscal 1997 Six Months from $3,073,000 in the same period a
year ago, primarily due the reasons discussed under the caption "Results of
Operations - Marketing, advertising and promotion" for Q2 Fiscal 1997.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased 19.5% to $3,024,000 in
the Fiscal 1997 Six Months from $2,532,000 in the same period a year ago,
primarily due to the reasons discussed under the caption "Results of Operations
- - General and administrative" for Q2 Fiscal 1997.
PROVISION FOR DOUBTFUL ACCOUNTS
Provision for doubtful accounts increased 126.8% to $407,000 in the
Fiscal 1997 Six Months from $179,000 in the same period a year ago, primarily
due to the reasons discussed under the caption "Results of Operations -
Provision for doubtful accounts" for Q2 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."
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INTEREST AND DEBT EXPENSE
Interest and debt expense decreased to $299,000 in the Fiscal 1997 Six
Months from $1,513,000 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 41.2% to $1,328,000 for the Fiscal 1997 Six
Months from $940,000 for the same period a year ago, primarily due to the
reasons discussed under the caption "Results of Operations - Other income" for
Q2 Fiscal 1997.
INCOME TAX EXPENSE
Income tax expense increased to $3,490,000 during the Fiscal 1997 Six
Months from $1,156,000 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 $1,364,000
for the Fiscal 1997 Six Months, compared to a cash outflow of $3,988,000 for the
same period in Fiscal 1996. The cash provided from operations for the Fiscal
1997 Six Months resulted primarily from earnings, 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
receivable and inventories. Cash used in operations for the same period a year
ago was due to increases in accounts receivable and inventories combined with
decreases in accrued payroll related expenses, accrued workers compensation
and restructuring costs accrual.
The Company incurred a net cash outflow from investing activities of
$955,000 for the Fiscal 1997 Six Months, compared to a net cash outflow of
$1,274,000 for the same period in Fiscal 1996. These outflows represented
capital expenditures related to new retail store openings, improvements made to
the Orange Facility, and costs related to upgrading the Company's distribution
and shipping computer software system.
The Company incurred a net cash outflow from financing activities of
$1,703,000 for the Fiscal 1997 Six Months, compared to a net cash inflow of
$5,488,000 for the same period in Fiscal 1996, primarily due to the repayment of
$3,532,000 in short-term borrowings.
Accounts receivable, net of allowance, increased to $24,086,000 at
November 30, 1996 from $20,843,000 at May 31, 1996. This increase was primarily
due to increased sales and the timing of such
12
<PAGE> 13
sales during the Fiscal 1997 Six Months. Inventories increased 27.2% from
$19,401,000 to $24,682,000 due to increased inventory levels to support sales
growth in all distribution channels.
BORROWINGS
The Company has a secured line of credit (the "Secured Line of
Credit") with Bank of the West (the "Bank"). The Secured Line of Credit was
amended on December 2, 1996, and, as amended, 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 November 30, 1996, 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 November 30, 1996, there were no amounts due and
owing under the Unsecured Credit Facility.
On March 29, 1996, the Company obtained an additional secured credit
facility from Ssangyong (U.S.A.), Inc. ("Ssangyong U.S.A.") under which
Ssangyong U.S.A. finances the Company's purchases of snowboard boots (the
"Snowboard Boot Facility"). Under the Snowboard Boot Facility, Ssangyong U.S.A.
purchases, transports, warehouses, ships and collects payment for the snowboard
boots, and is reimbursed for the sum of: (i) its out-of-pocket costs incurred in
connection with the foregoing (the "Ssangyong Costs"); (ii) interest on the
Ssangyong Costs at the prime rate established by Citibank N.A. from time to
time; and (iii) a handling fee equal to 3.5% of the F.O.B. price of the boots
purchased. The Snowboard Boot Facility is secured by a first priority security
interest in the boot inventory and the accounts receivable resulting from sales
thereof, and a first priority security interest in the Company's general
intangibles. At no time may the sum of: (i) the outstanding balance of the
Ssangyong Costs, plus (ii) aggregate outstanding letters of credit under the
Snowboard Boot Facility, minus letters of credit opened by the Company's foreign
distributors, exceed $7 million. The Snowboard Boot Facility expires on March
28, 1997. At November 30, 1996 there was $1,416,000 due and owing under the
Snowboard Boot Facility included in short-term borrowings on the accompanying
balance sheet.
CURRENT CASH POSITION
The Company's cash position was $12,939,000 as of November 30, 1996,
exclusive of approximately $71,000 invested in long-term marketable securities
included in other assets in the condensed consolidated balance sheets which
secured a bond maintained by the Company in connection with its self-insured
workers' compensation plan. The Company's cash position has, in the past two
years, been
13
<PAGE> 14
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 industries are longer than the Company's traditional
distribution channels, there are even greater timing differences between payment
for the Company's new line of snowboard boots and the receipt of cash from sales
of such boots.
Notwithstanding the foregoing, for the next 24 months, the Company
believes that cash from operations, together with borrowings from the amended
Secured Line of Credit and its other credit facilities, 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 and
domestically-produced footwear; (iii) the Company's ability to effectively
manage its inventory levels; and (iv) timing differences in payment for the
Company's foreign-sourced product, which are discussed in the foregoing
paragraph.
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 $320,000 - $400,000,
and remodel three to four existing retail stores at an estimated aggregate cost
of $250,000 - $500,000. 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 where the Company plans to move its
offices and distribution center in 1997. The Company currently estimates that it
will incur net capital expenditures of approximately $2,500,000 - $3,200,000 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. The Company will incur an aggregate
of approximately $200,000 in capital expenditures to improve the Orange Facility
for the new tenants. In connection with the leasing of this property the balance
under the balance sheet caption "property held for sale" has been reclassified
to "property, plant and equipment".
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.
RECENT ACCOUNTING PRONOUNCEMENT
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 123 establishes financial accounting and
reporting standards for stock-based employee compensation plans. The Company
plans to continue to measure compensation cost of employee stock option plans
using the
14
<PAGE> 15
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.
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
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
On October 17, 1996, the Company held its Annual Meeting of
Stockholders. The following matters were voted on at the meeting: (i) the
election of directors; (ii) an amendment to the Company's 1991 Long-Term
Incentive Plan; and (iii) the ratification and approval of KPMG Peat Marwick LLP
as the Company's independent auditors for Fiscal 1997.
The results of the voting on these matters (including the names of all
persons elected as directors) are set forth below:
<TABLE>
<CAPTION>
VOTES AGAINST/ BROKER-
PROPOSAL VOTES FOR WITHHELD ABSTENTIONS NON VOTES
-------- --------- -------- ----------- ---------
Proposal No. 1 - Election of Directors
Nominees
--------
<S> <C> <C> <C> <C>
Walter E. Schoenfeld 10,282,767 428,250 0 0
Gary H. Schoenfeld 10,277,707 433,310 0 0
George E. McCown 10,281,807 429,210 0 0
David E. De Leeuw 10,281,807 429,210 0 0
Philip H. Schaff, Jr 10,281,807 429,210 0 0
Wilbur J. Fix 10,282,907 428,110 0 0
James R. Sulat 10,282,807 428,210 0 0
Kathleen M. Gardarian 10,281,807 429,210 0 0
Lisa M. Douglas 10,282,907 428,110 0 0
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
VOTES AGAINST/ BROKER-
PROPOSAL VOTES FOR WITHHELD ABSTENTIONS NON VOTES
-------- --------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Proposal No. 2 - Approval of
Amendment No. 6 to the 1991
Long-Term Incentive Plan 7,339,115 3,303,199 13,160 55,443
Proposal No. 3 - Ratification
of KPMG Peat Marwick LLP as
Independent Auditors for
Fiscal 1997 10,706,031 1,930 2,956 0
</TABLE>
ITEM 5. OTHER MATTERS
The Company has accepted the resignations of Gordon C. Lee, Jr.,
William C. Mann and Brentton B. Ji as officers of the Company, and the Board of
Directors has appointed Jay E. Wilson as Vice President - Marketing, John Walker
as Vice President - Merchandising, and Casey G. Waid as Vice President -
Apparel.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Amended and Restated Loan and Security Agreement, dated December 2,
1996, by and between the Company and Bank of the West
10.2 First Amendment to Vans, Inc. Deferred Compensation Agreement for
Walter Schoenfeld
10.3 Amendment to Trust under Vans, Inc. Deferred Compensation Plan
10.4 Employment Agreement, dated December 4, 1996, by and between the
Company and Jay E. Wilson
10.5 Employment Agreement, dated December 17, 1996, by and between the
Company and Casey G. Waid
10.6 Amendment No. 6 to Vans, Inc. 1991 Long-Term Incentive Plan
27 Financial Data Schedule
(b) Reports on 8-K.
The Company filed no Reports on Form 8-K during the three-month period
ended November 30, 1996.
16
<PAGE> 17
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: January 14, 1997 By: /S/ Walter E. Schoenfeld
------------------------
WALTER E. SCHOENFELD
Chairman and Chief Executive Officer
Date: January 14, 1997 By: /s/ Kyle B. Wescoat
-------------------
KYLE B. WESCOAT
Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
17
<PAGE> 18
EXHIBIT INDEX
-------------
Document Page Number
- -------- -----------
10.1 Amended and Restated Loan and Security
Agreement, dated December 2, 1996, by and
between the Company and Bank of the West
10.2 First Amendment to Vans, Inc. Deferred
Compensation Agreement for Walter Schoenfeld
10.3 Amendment to Trust under Vans, Inc. Deferred
Compensation Plan
10.4 Employment Agreement, dated December 4, 1996,
by and between the Company and Jay E. Wilson
10.5 Employment Agreement, dated December 17, 1996,
by and between the Company and Casey G. Waid
10.6 Amendment No. 6 to Vans, Inc. 1991 Long-Term
Incentive Plan
27 Financial Data Schedule
18
<PAGE> 1
EXHIBIT 10.1
===============================================================================
VANS, INC.
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
===============================================================================
<PAGE> 2
TABLE OF CONTENTS
Page
----
1. DEFINITIONS AND CONSTRUCTION . . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . 1
1.2 Accounting Terms . . . . . . . . . . . . . . . . . 14
2. LOAN, LETTERS OF CREDIT AND TERMS OF PAYMENT . . . . . . . 14
2.1 Advances . . . . . . . . . . . . . . . . . . . . . 14
2.2 Letters of Credit . . . . . . . . . . . . . . . . 15
2.3 Repayment of Overadvance . . . . . . . . . . . . . 16
2.4 Interest Rates, Payments, and Calculations . . . . 16
2.5 LIBOR Advance Termination . . . . . . . . . . . . 17
2.6 Crediting Payments . . . . . . . . . . . . . . . . 18
2.7 Depository Account . . . . . . . . . . . . . . . . 18
2.8 Application of Principal Payments . . . . . . . . 18
2.9 Fees . . . . . . . . . . . . . . . . . . . . . . . 18
2.10 Additional Costs . . . . . . . . . . . . . . . . . 19
2.11 LIBOR Indemnity . . . . . . . . . . . . . . . . . 20
2.12 Term . . . . . . . . . . . . . . . . . . . . . . . 20
2.13 Termination . . . . . . . . . . . . . . . . . . . 20
3. CONDITIONS OF LOANS . . . . . . . . . . . . . . . . . . . 21
4. CREATION OF SECURITY INTEREST . . . . . . . . . . . . . . 21
4.1 Grant of Security Interest . . . . . . . . . . . . 21
4.2 Delivery of Additional Documentation Required . . 21
4.3 Right to Inspect . . . . . . . . . . . . . . . . . 21
4.4 Negative Pledge . . . . . . . . . . . . . . . . . 21
5. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . 22
5.1 Due Organization and Qualification . . . . . . . . 22
5.2 Due Authorization; No Conflict . . . . . . . . . . 22
5.3 No Prior Encumbrances . . . . . . . . . . . . . . 22
5.4 Bona Fide Eligible Accounts . . . . . . . . . . . 22
5.5 Merchantable Inventory . . . . . . . . . . . . . . 22
5.6 Name; Location of Chief Executive Office . . . . . 22
5.7 Litigation . . . . . . . . . . . . . . . . . . . . 23
5.8 No Material Adverse Change in Financial Statements 23
5.9 Solvency . . . . . . . . . . . . . . . . . . . . . 23
5.10 Regulatory Compliance . . . . . . . . . . . . . . 23
5.11 Environmental Condition . . . . . . . . . . . . . 23
5.12 Taxes . . . . . . . . . . . . . . . . . . . . . . 24
5.13 Permitted Investments . . . . . . . . . . . . . . 24
5.14 Government Consents . . . . . . . . . . . . . . . 24
5.15 Full Disclosure . . . . . . . . . . . . . . . . . 24
6. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . 24
6.1 Good Standing . . . . . . . . . . . . . . . . . . 24
6.2 Government Compliance . . . . . . . . . . . . . . 24
6.3 Financial Statements, Reports, Certificates . . . 25
6.4 Inventory . . . . . . . . . . . . . . . . . . . . 26
6.6 Insurance . . . . . . . . . . . . . . . . . . . . 26
6.7 Further Assurances . . . . . . . . . . . . . . . . 26
i
<PAGE> 3
7. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . 26
7.1 Change in Business . . . . . . . . . . . . . . . . 27
7.2 Mergers or Acquisitions . . . . . . . . . . . . . 27
7.3 Indebtedness . . . . . . . . . . . . . . . . . . . 27
7.4 Encumbrances . . . . . . . . . . . . . . . . . . . 27
7.5 Distributions . . . . . . . . . . . . . . . . . . 27
7.6 Current Ratio . . . . . . . . . . . . . . . . . . 27
7.7 Quick Ratio . . . . . . . . . . . . . . . . . . . 27
7.8 Interest Coverage Ratio . . . . . . . . . . . . . 27
7.9 Adjusted Consolidated Tangible Net Worth . . . . . 27
7.10 Working Capital . . . . . . . . . . . . . . . . . 28
7.11 Leverage Ratio . . . . . . . . . . . . . . . . . . 28
7.12 Quarterly Losses . . . . . . . . . . . . . . . . . 28
7.13 Investments . . . . . . . . . . . . . . . . . . . 28
7.14 Transactions with Affiliates . . . . . . . . . . . 28
7.15 Inventory . . . . . . . . . . . . . . . . . . . . 28
7.16 Subordinated Debt . . . . . . . . . . . . . . . . 28
7.17 Compliance . . . . . . . . . . . . . . . . . . . . 29
8. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . 29
8.1 Payment Default . . . . . . . . . . . . . . . . . 29
8.2 Covenant Default . . . . . . . . . . . . . . . . . 29
8.3 Material Adverse Effect . . . . . . . . . . . . . 29
8.4 Attachment . . . . . . . . . . . . . . . . . . . . 29
8.5 Insolvency . . . . . . . . . . . . . . . . . . . . 30
8.6 Other Agreements . . . . . . . . . . . . . . . . . 30
8.7 Judgments . . . . . . . . . . . . . . . . . . . . 30
8.8 Misrepresentations . . . . . . . . . . . . . . . . 30
9. BANK'S RIGHTS AND REMEDIES . . . . . . . . . . . . . . . . 30
9.1 Rights and Remedies . . . . . . . . . . . . . . . 30
9.2 Power of Attorney . . . . . . . . . . . . . . . . 31
9.3 Accounts Collection. . . . . . . . . . . . . . . . 32
9.4 Bank Expenses . . . . . . . . . . . . . . . . . . 32
9.5 Bank's Liability for Collateral . . . . . . . . . 32
9.6 Remedies Cumulative . . . . . . . . . . . . . . . 33
9.7 Demand; Protest; Application . . . . . . . . . . . 33
10. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . 33
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER . . . . . . . . 34
12. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . 34
12.1 Successors and Assigns . . . . . . . . . . . . . . 34
12.2 Indemnification . . . . . . . . . . . . . . . . . 34
12.3 Time of Essence . . . . . . . . . . . . . . . . . 34
12.4 Severability of Provisions; Headings . . . . . . . 34
12.5 Amendments; Integration . . . . . . . . . . . . . 35
12.6 Counterparts . . . . . . . . . . . . . . . . . . . 35
12.7 Survival . . . . . . . . . . . . . . . . . . . . . 35
12.8 Confidentiality . . . . . . . . . . . . . . . . . 35
12.9 No Novation . . . . . . . . . . . . . . . . . . . 35
12.10 Amendments Upon Termination of Snowboard Boot
Financing . . . . . . . . . . . . . . . . . . . . 35
12.11 Power of Attorney . . . . . . . . . . . . . . . . 36
ii
<PAGE> 4
THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (the
"Agreement") is entered into as of December 2, 1996, by and between BANK OF
THE WEST ("Bank") and VANS, INC. ("Borrower"), and amends and restates the
Existing Loan Agreement (hereinafter defined).
RECITALS
WHEREAS, Bank and Borrower wish to amend and restate the Loan and
Security Agreement, dated as of July 1, 1995, by and between Borrower and Bank,
as amended by the First Amendment to Loan and Security Agreement, dated as of
August 25, 1995, by and between Borrower and Bank, by the Second Amendment to
Loan and Security Agreement, dated as of November 9, 1995, by and between
Borrower and Bank, by the Third Amendment to Loan and Security Agreement, dated
as of March 29, 1996, by and between Borrower and Bank, by the Fourth Amendment
to Loan and Security Agreement, dated as of April 11, 1996, by and between
Borrower and Bank, and by the Fifth Amendment to Loan and Security Agreement,
dated as of July 16, 1996, by and between Borrower and Bank (the "Existing Loan
Agreement"); and
WHEREAS, Borrower has requested certain changes to the credit facility
extended under the Existing Loan Agreement and Bank has agreed to such
requests, to the extent and manner set forth herein;
NOW, THEREFORE, IT IS AGREED THAT:
1. DEFINITIONS AND CONSTRUCTION
1.1 Definitions. As used herein, the following terms
shall have the following definitions:
"Account Debtor" means the Person who is obligated on
or under an Account.
"Accounts" means all presently existing and hereafter
arising accounts, contract rights, and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods or the rendering of services
by Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor.
"Adjusted Committed Line" means, at any date, the
Committed Line, less (i) the sum of the aggregate undrawn face amount of the
Letters of Credit outstanding and the aggregate drawn but unreimbursed Letters
of Credit on such date and (ii) the sum of the Reserves on such date.
"Adjusted Consolidated Tangible Net Worth" means at
any date as of which the amount thereof shall be determined, the consolidated
total assets of
1
<PAGE> 5
Borrower and the Subsidiaries minus, without duplication, (i) the sum of any
amounts attributable to (a) goodwill, (b) intangible items such as unamortized
debt discount and expense, patents, trade and service marks and names,
copyrights and research and development expenses except prepaid expenses, and
(c) all reserves not already deducted from assets, and (ii) Total Liabilities.
"Advance" or "Advances" means an advance under the
Revolving Facility.
"Affiliate" means, with respect to any Person, any
Person that owns or controls directly or indirectly such Person, any Person
that controls or is controlled by or is under common control with such Person,
and each of such Person's senior executive officers, directors, and partners.
"Bank Expenses" means all: reasonable costs or
expenses (including reasonable attorneys' fees and expenses) incurred in
connection with the preparation, negotiation, administration, and enforcement
of the Loan Documents; and Bank's reasonable attorneys' fees and expenses
incurred in amending, enforcing or defending the Loan Documents, whether or not
suit is brought.
"Borrower's Books" means all of Borrower's books and
records regarding Accounts, including: ledgers and records concerning the
Collateral (other than Borrower's Books) and all computer programs, or tape
files, and the related equipment containing such information and, in any event,
related solely to the Collateral.
"Borrowing Base" means as of any date the sum of (i)
eighty percent (80%) of the aggregate face amount of Eligible Accounts as of
such date; provided that if Dilution equals or exceeds seven and one-half
percent (7.5%) at any time, Bank may, in its discretion, implement appropriate
Reserves to reflect such increased Dilution, and (ii) the lesser of (A) forty
percent (40%) of the value of Eligible Inventory at such time (valued at the
lower of cost or fair market value, on a FIFO basis, in accordance with GAAP),
and (B) Seven Million Dollars ($7,000,000).
"Business Day" means any day that is not a Saturday,
Sunday, or other day on which banks in the State of California are authorized
or required to close.
"Cash Equivalents" means as of any date the net
current cash value of obligations issued or guaranteed by the United States of
America then held by Borrower.
"Closing Date" means July 1, 1995.
"Code" means the California Uniform Commercial Code.
2
<PAGE> 6
"Collateral" means (i) the Accounts, other than the
Snowboard Boot Accounts, (ii) the Depository Account, as defined in Section 2.7
hereof, (iii) the Negotiable Collateral, (iv) the Inventory, other than the
Snowboard Boots, (v) Borrower's Books, and (vi) all claims, rights and
interests in any of the foregoing and all proceeds thereof.
"Committed Line" means Twenty Million Dollars
($20,000,000).
"Consolidated Current Assets" means, as of any
applicable date, all amounts that should, in accordance with GAAP, be included
as current assets on the consolidated balance sheet of Borrower and the
Subsidiaries as at such date.
"Consolidated Current Liabilities" means, as of any
applicable date, all amounts that should, in accordance with GAAP, be included
as current liabilities on the consolidated balance sheet of Borrower and the
Subsidiaries, as at such date, plus, to the extent not already included
therein, all outstanding Advances made under this Agreement, including all
Indebtedness that is payable upon demand or within one year from the date of
determination thereof unless such Indebtedness is renewable or extendable at
the option of Borrower or any Subsidiary to a date more than one year from the
date of determination.
"Consolidated Interest Charges" means, for any
period, the aggregate amount accrued (determined in accordance with GAAP on a
consolidated basis after eliminating inter-company items) of all interest
(whether or not actually paid) during such period in respect of Indebtedness of
Borrower and the Subsidiaries, including, without limitation, (a) all fees paid
during such period for the purchase of interest rate protection products,
amortized appropriately over the terms of the applicable Indebtedness, (b)
amortized discount in respect of Indebtedness issued at a discount, and (c)
imputed interest on capital lease obligations.
"Consolidated Net Income" means, for any period, the
net income (or deficit) of Borrower and the Subsidiaries for such period (taken
as a cumulative whole) after deducting, without duplication, operating
expenses, provisions for all taxes and reserves (including reserves for
deferred income taxes) and all other proper deductions, all determined in
accordance with GAAP on a consolidated basis, after eliminating all
inter-company items in accordance with GAAP and after deducting portions of
income properly attributable to outside minority interests, if any, in the
stock and surplus of any Subsidiary; provided, however, that there shall be
excluded from Consolidated Net Income: (i) the income (or deficit) of any
Person, other than a Subsidiary, in which Borrower or any Subsidiary has an
ownership interest, except to the extent that any such income has been actually
received by Borrower or such Subsidiary in the form of cash dividends or
similar distributions, (ii) any aggregate net gain or losses during such period
arising from the sale, exchange or other disposition of capital assets (such
term to include all fixed assets, whether tangible or intangible, and all
securities), (iii) any portion of the net income of a Subsidiary
3
<PAGE> 7
which is unavailable (whether by law, agreement or otherwise) for the payment
of dividends to Borrower or another Subsidiary, (iv) the income (or deficit) of
any other Person accrued prior to the date it becomes a Subsidiary or is merged
or consolidated with a Subsidiary, (v) any write up (less any non-cash write
down) of any asset, other than Inventory adjustments made in accordance with
GAAP, (vi) any net gain from the collection of the proceeds of life insurance
policies, (vii) any gain or loss, or the extinguishment under GAAP of any
Indebtedness of Borrower or any Subsidiary arising from the acquisition of any
securities of Borrower or any Subsidiary, (viii) any deferred credit
representing the excess of equity in any Subsidiary at the date of acquisition
over the cost of the Investment in such Subsidiary, (ix) in the case of any
merger or consolidation of Borrower into another Person, other than a
Subsidiary, any earnings of such Person prior to the consummation of such
merger or consolidation, (x) any portion of the net earnings of Borrower or any
Subsidiary which cannot be freely converted into United States dollars, and
(xi) any portion of net earnings (or loss) of Borrower or any Subsidiary which
results from foreign currency translation as determined in accordance with
GAAP.
"Consolidated Quick Assets" means as of any date the
sum of (i) Borrower's cash as of such date, (ii) Cash Equivalents as of such
date, and (iii) Borrower's accounts receivable as of such date, all as
determined in accordance with GAAP.
"Contingent Obligation" means, as applied to any
Person, any direct or indirect liability, contingent or otherwise, of that
Person with respect to (i) any indebtedness, lease, dividend, letter of credit
or other obligation of another, including, without limitation, any such
obligation directly or indirectly guaranteed, endorsed, co-made or discounted
or sold with recourse by that Person, or in respect of which that Person is
otherwise directly or indirectly liable; (ii) any obligations with respect to
undrawn letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or
other agreement or arrangement designated to protect a Person against
fluctuation in interest rates, currency exchange rates or commodity prices;
provided, however, that the term "Contingent Obligation" shall not include
endorsements for collection or deposit in the ordinary course of business. The
amount of any Contingent Obligation shall be deemed to be an amount equal to
the stated or determined amount of the primary obligation in respect of which
such Contingent Obligation is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof as determined by
such Person in good faith; provided, however, that such amount shall not in any
event exceed the maximum amount of the obligations under the guarantee or other
support arrangement.
"Daily Balance" means the amount of the Obligations
owed at the end of a given day.
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"Debt/EBITDA Ratio" means with respect to the last
day of any fiscal quarter of Borrower the ratio of (i) all Obligations
outstanding as of such day, to (ii) aggregate EBITDA for the four (4) fiscal
quarters ending as of such day.
"Dilution" means, with respect to any period, the
percentage obtained by dividing (a) the sum of non-cash credits against
Accounts, other than Snowboard Boot Accounts, for such period, plus pending or
probable, but not yet applied, non-cash credits against Accounts, other than
Snowboard Boot Accounts, for such period, as reasonably determined by Bank, by
(b) gross invoiced sales of Borrower, other than sales which gave rise to
Snowboard Boot Accounts, for such period.
"EBIT" means, with respect to any fiscal quarter of
Borrower, Consolidated Net Income for such fiscal quarter plus taxes and
interest expense deducted in determining Consolidated Net Income for such
fiscal quarter, plus the pre-tax increase in LIFO reserves or minus the pre-tax
decrease in LIFO reserves, and minus dividends paid or accrued and withdrawals
paid or accrued to shareholders or other Affiliates not deducted in determining
Consolidated Net Income for such fiscal quarter.
"EBITDA" means, with respect to any fiscal quarter of
Borrower, Consolidated Net Income for such fiscal quarter plus interest
expense, taxes, depreciation and amortization deducted in determining
Consolidated Net Income for such fiscal quarter, plus the pre- tax increase in
LIFO reserves or minus the pre-tax decrease in LIFO reserves, and minus
dividends paid or accrued and withdrawals paid or accrued to shareholders or
other Affiliates not deducted in determining Consolidated Net Income for such
fiscal quarter.
"Eligible Accounts" means those Accounts (i) which
are due and payable within ninety (90) days from the original date of invoice,
(ii) which are not Snowboard Boot Accounts, and (iii) have been validly
assigned to Bank and comply in all material respects with all of the terms,
conditions, warranties and representations made to Bank hereunder and the other
Loan Documents; but Eligible Accounts shall not include the following:
(a) Accounts with respect to which the Account Debtor
is an officer, director, employee, or agent of Borrower or an
Affiliate of Borrower;
(b) Accounts with respect to which goods are placed
on consignment, guaranteed sale, bill-and-hold, repurchase or
return, or other terms by reason of which the payment of the
Account Debtor may be conditional;
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<PAGE> 9
(c) Accounts arising from progress billings, invoices
for deposits, and rebills of amounts previously credited to
the extent of credits issued more than fifteen (15) days prior
to such rebill;
(d) Accounts with respect to which the Account Debtor
is not domiciled in the United States of America or Canada
(unless such Account is fully secured by an irrevocable letter
of credit acceptable to Bank and assigned to Bank or fully
insured for commercial and political risks under insurance
policies acceptable to Bank and for which Bank has been
designated loss payee);
(e) Accounts with respect to which the sale is on an
installment sale, lease or other extended payment basis,
except for Accounts for which Sports Odyssee, Famous Footwear,
Genesco, Track n' Trail and Gadzooks are] the Account Debtors,
which may be due and payable within one hundred twenty (120)
days from the original date of invoice;
(f) Accounts with respect to which the Account Debtor
is a governmental agency or authority unless such agency or
authority is the United States of America or any department,
agency or instrumentality of the United States, and Borrower
complies with the Assignment of Claims Act of 1940, as amended
(31 U.S.C. Section 203 et seq.);
(g) All Accounts owing by any Account Debtor if fifty
percent (50%) or more of the Accounts due from such Account
Debtor are deemed not to be Eligible Accounts hereunder;
(h) Accounts with respect to which the Account Debtor
is an Affiliate of, or has common officers or directors with,
Borrower;
(i) Accounts with respect to which Bank does not for
any reason have a perfected first priority Lien;
(j) Accounts with respect to which Borrower is or may
become liable to the Account Debtor for goods sold or services
rendered by the Account Debtor to Borrower, to the extent of
Borrower's existing or potential liability to such Account
Debtor;
(k) Accounts with respect to which the Account Debtor
has disputed any liability, or the Account Debtor has made any
claim with respect to any other Account due, or the Account is
otherwise subject to any right of setoff, deduction, breach of
warranty or other defense, dispute or counterclaim by the
Account Debtor;
(l) that portion of the Accounts owed by any single
Account Debtor which exceeds ten percent (10%) of all of the
Accounts
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(excluding for purposes of this clause, the Snowboard Boot
Accounts), except that with respect to Famous Footwear, J.C.
Penney Co., Inc. or Kinney Shoe Corp., the ineligible portion
of the Accounts of either such Account Debtor shall be that
portion which exceeds fifteen percent (15%) of all the
Accounts (excluding for purposes of this clause, the Snowboard
Boot Accounts);
(m) that portion of any Accounts representing late
fees, service charges or interest, but only to the extent of
such portion;
(n) Accounts of an Account Debtor where the Account
Debtor is located in New Jersey or Minnesota unless Borrower
(1) with respect to such state, has received a Certificate of
Authority to do business and is in good standing in such
state, or (2) has filed a Notice of Business Activities Report
with the New Jersey Division of Taxation or the Minnesota
Department of Revenue, as applicable, for the then current
year;
(o) Accounts owed by any Account Debtor which is
insolvent or is the subject of an Insolvency Proceeding;
(q) that portion of any Accounts represented by
contract rights, documents, instruments, chattel paper or
general intangibles; and
(r) all Accounts of an Account Debtor whose
creditworthiness is not satisfactory to Bank in its reasonable
credit judgment due to Bank's reasonable belief of jeopardy of
insolvency of such Account Debtor or impairment of such
Account Debtor's ability to timely pay its Accounts, based on
information available to Bank. References to percentages of
all Accounts are based on dollar amount of Accounts and not
number of Accounts.
"Eligible Inventory" means that portion of Inventory,
other than Snowboard Boots, consisting of raw materials normally and currently
used in Borrower's business, and finished goods held for sale by Borrower,
normally and currently saleable in the ordinary course of Borrower's business,
and which at all times pertinent hereto is of good and merchantable quality,
free from material defects, as to which Bank has a perfected first priority
Lien, and which is located at the locations described in Section 7.15 hereof.
"ERISA" means the Employment Retirement Income
Security Act of 1974, as amended, and the regulations thereunder.
"Eurodollar Banking Day" means any Business Day on
which commercial banks are open for international business (including dealing
in dollar deposits) in London, England and New York, New York.
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<PAGE> 11
"GAAP" means generally accepted accounting principles
as from time to time set forth in the opinions of the Accounting Principles
Board of the American Institute of Certified Public Accountants and in
statements by the Financial Accounting Standards Board or in such opinions and
statements of such other entities as shall be approved by a significant segment
of the accounting profession in the United States.
"Indebtedness" means (a) all indebtedness for
borrowed money or the deferred purchase price of property or services,
including without limitation reimbursement and other obligations with respect
to surety bonds and letters of credit, (b) all obligations evidenced by notes,
bonds, debentures or similar instruments, (c) all capital lease obligations and
(d) all Contingent Obligations.
"Insolvency Proceeding" means any proceeding
commenced by or against any person or entity under any provision of the United
States Bankruptcy Code, as amended, or under any other bankruptcy or insolvency
law, including assignments for the benefit of creditors, formal or informal
moratoria, compositions, extension generally with its creditors, or proceedings
seeking reorganization, arrangement, or other relief.
"Intercreditor Agreement" means the Intercreditor
Agreement, dated as of March 29, 1996, by and among Bank, Teachers Insurance
and Annuity Association of America, Connecticut General Life Insurance Company,
for itself and on behalf of one or more separate accounts, Life Insurance
Company of North America, Ssangyong (U.S.A.), Inc. and Borrower.
"Inventory" means all present and future inventory in
which Borrower has any interest, including any returns upon any accounts or
other proceeds, including insurance proceeds, resulting from the sale or
disposition of any of the foregoing and any documents of title representing any
of the above, and Borrower's Books relating to any of the foregoing.
"Investment" means any beneficial ownership of
(including stock, partnership interest or other securities) any Person, or any
loan, advance or capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as
amended, and the regulations thereunder.
"Letter of Credit" has the meaning specified in
Section 2.2(a) hereof.
"LIBOR Advance" has the meaning specified in Section
2.4(a)(ii) hereof.
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"LIBOR Interbank Offered Rate" means with respect to
any LIBOR Period the rate per annum (rounded upward, if necessary, to the next
higher 1/100th of 1%) at which the Bank's New York branch, which for purposes
hereof shall be deemed the New York branch of Banque Nationale de Paris, would
offer a deposit in Dollars to major banks in the New York interbank Eurodollar
market at approximately 11:00 a.m., New York time, two (2) Eurodollar Banking
Days prior to the commencement of such LIBOR Period and in an amount
substantially equal to the aggregate amount of the LIBOR Advance scheduled to
be outstanding during such LIBOR Period.
"LIBOR Margin" means as of any date (i) if the
Debt/EBITDA Ratio as of the last day of fiscal quarter ended immediately prior
to such date was equal to or less than 1.00 to 1.00, 1.875%, (ii) if the
Debt/EBITDA Ratio as of the last day of fiscal quarter ended immediately prior
to such date was greater than 1.00 to 1.00 but equal to or less than 1.50 to
2.00, 2.00%, (iii) if the Debt/EBITDA Ratio as of the last day of fiscal
quarter ended immediately prior to such date was greater than 2.00 to 1.00 but
equal to or less than 2.50 to 1.00, 2.25%, (iv) if the Debt/EBITDA Ratio as of
the last day of fiscal quarter ended immediately prior to such date was greater
than 2.50 to 1.00 but equal to or less than 3.00 to 1.00, 2.50%, or (v) if the
Debt/EBITDA Ratio as of the last day of fiscal quarter ended immediately prior
to such date was greater than 3.00 to 1.00, 2.75%.
"LIBOR Period" has the meaning specified in Section
2.4(a)(ii) hereof.
"LIBOR Rate" means with respect to any LIBOR Advance
the rate per annum (rounded upwards, if necessary, to the next higher 1/100th
of 1%) determined by Bank to be equal to (A) the quotient of (1) the London
Interbank Offered Rate for such LIBOR Advance for the LIBOR Period with respect
thereto divided by (2) one minus the Reserve Requirement for such LIBOR Period,
plus (B) the LIBOR Margin as of the first day of the LIBOR Period for such
LIBOR Advance.
"Lien" means any mortgage, lien, deed of trust,
security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement,
any note or notes executed by Borrower, and any other agreement entered into
between Borrower and Bank in connection with this Agreement, all as amended or
extended from time to time.
"Material Adverse Effect" means a material adverse
effect on (i) the business operations or condition of Borrower and the
Subsidiaries taken as a whole, (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents,
(iii) the validity or enforceability of the Loan Documents, or (iv) the rights
and remedies of Bank under the Loan Documents.
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<PAGE> 13
"Maturity Date" means November 1, 1997.
"Negotiable Collateral" means all of Borrower's
present and future letters of credit of which it is a beneficiary, notes,
drafts, instruments, securities, documents of title, and chattel paper, which
relate to any of the Accounts described in clause (i) of the definition of
Collateral.
"Obligations" means all debt, principal, interest,
Bank Expenses and other amounts owed to the Bank by Borrower pursuant to this
Agreement or any other agreement, whether absolute or contingent, due or to
become due, now existing or hereafter arising (including all interest accruing
after the commencement of an Insolvency Proceeding).
"Periodic Payments" means all installments or similar
recurring payments that Borrower may now or hereafter become obligated to pay
to Bank pursuant to the terms and provisions of any instrument, or agreement
now or hereafter in existence between Borrower and Bank.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank
arising hereunder or any other Loan Document;
(b) Subordinated Debt;
(c) Indebtedness of Borrower in favor of
Ssangyong (U.S.A.), Inc. under the Snowboard Boot Financing Agreement providing
financing for the Snowboard Boots, and secured by the Ssangyong Collateral, as
defined in the Intercreditor Agreement, to the extent that the principal amount
of such Indebtedness does not exceed Seven Million Dollars ($7,000,000);
(d) unsecured Indebtedness of Borrower in favor
of Ssangyong Corporation, a South Korean corporation, to the extent that the
principal amount of such Indebtedness does not exceed Six Million Dollars
($6,000,000);
(e) Indebtedness of Borrower incurred after the
date hereof, to the extent that such Indebtedness is not described in any other
clause of this definition and to the extent that the aggregate principal amount
of such Indebtedness does not exceed Two Million Dollars ($2,000,000);
(f) Indebtedness of Borrower to trade creditors
incurred in the ordinary course of business; and
(g) Indebtedness that is secured by Liens
described in clause (c) of the definition of Permitted Liens.
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"Permitted Investments" means investments satisfying
the investment objectives and investment criteria set forth in Borrower's
Investment Policy, as in effect on the date hereof and attached hereto as
Exhibit B.
"Permitted Liens" means the following:
(a) Any Liens arising hereunder or the other Loan
Documents;
(b) Liens for taxes, fees, assessments or other
governmental charges or levies, either not delinquent or being contested in
good faith by appropriate proceedings, provided the same have no priority over
any of Bank's security interests;
(c) Liens (i) upon or in any equipment acquired
or held by Borrower or any of the Subsidiaries to secure the purchase price of
such equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such equipment, or (ii) existing on such equipment at the time
of its acquisition, provided that the Lien is confined solely to the property
so acquired and improvements thereon, and the proceeds of such equipment;
(d) Liens consisting of leases or subleases and
licenses and sublicenses granted to others in the ordinary course of Borrower's
or a Subsidiary's business not interfering in any material respect with the
business of Borrower or such Subsidiary and any interest or title of a lessor
or licensor under any lease or license, as applicable;
(e) Liens securing claims or demands of
materialmen, mechanics, carriers, warehousemen, landlords and other like
Persons imposed without action of such parties, provided that the payment
thereof is not yet required;
(f) Liens incurred or deposits made in the
ordinary course of Borrower's or a Subsidiary's business in connection with
worker's compensation, unemployment insurance, social security and other like
laws;
(g) Liens arising from judgments, decrees or
attachments in circumstances not constituting an Event of Default;
(h) Easements, reservations, rights-of-way,
restrictions, minor defects or irregularities in title and other similar
charges or encumbrances affecting real property not interfering in any material
respect with the ordinary conduct of Borrower's or a Subsidiary's business;
(i) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payment of customs duties in
connection with the importation of goods;
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<PAGE> 15
(j) Liens that are not prior to Bank's security
interest which constitute rights of set-off of a customary nature;
(k) Liens in favor of Ssangyong (U.S.A.), Inc.
described in the Intercreditor Agreement;
(l) Liens securing Indebtedness of Borrower
described in clause (e) of the definition of Permitted Indebtedness, to the
extent that such Liens are not against any of the Collateral; and
(m) Liens incurred in connection with the
extension, renewal or refinancing of the indebtedness secured by Liens of the
type described in clauses (a) through (l) above, provided that any extension,
renewal or replacement Lien shall be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness being extended,
renewed or refinanced does not increase.
"Person" means any individual, sole proprietorship,
limited liability company, partnership, joint venture, trust, unincorporated
organization, association, corporation, institution, public benefit
corporation, firm, joint stock company, estate, entity or governmental agency.
"Potential Default" means any event which through the
passage of time, service of notice or both, would mature into an Event of
Default.
"Prime Interest Rate" means as of any date the sum of
(i) the Prime Rate as of such date and (ii) the Prime Rate Margin as of such
date.
"Prime Rate" means the variable rate of interest, per
annum, most recently announced by Bank, as its "prime rate," whether or not
such announced rate is the lowest rate available from Bank.
"Prime Rate Margin" means as of any date (i) if the
Debt/EBITDA Ratio as of the last day of fiscal quarter ended immediately prior
to such date was equal to or less than 2.00 to 1.00, 0%, (ii) if the
Debt/EBITDA Ratio as of the last day of fiscal quarter ended immediately prior
to such date was greater than 2.00 to 1.00 but equal to or less than 2.50 to
1.00, .25%, (iii) if the Debt/EBITDA Ratio as of the last day of fiscal quarter
ended immediately prior to such date was greater than 2.50 to 1.00 but equal to
or less than 3.00 to 1.00, .50%, or (iv) if the Debt/EBITDA Ratio as of the
last day of fiscal quarter ended immediately prior to such date was greater
than 3.00 to 1.00, .75%.
"Reserve Requirement" means for any LIBOR Advance and
any related LIBOR Period the rate on the day of pricing at which reserves
(including any marginal, supplemental or emergency reserves) are required to be
maintained during such LIBOR Period under Regulation D by Bank against
"Eurocurrency Liabilities" (as such term is used in Regulation D), but without
the benefit or credit of proration,
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<PAGE> 16
exemptions, or offsets that might otherwise be available to Bank from time to
time under Regulation D. Without limiting the effect of the foregoing, the
Reserve Requirement shall reflect any other reserves required to be maintained
by Bank by reason of any Regulatory Change against (a) any category of
liabilities which includes deposits by reference to which the LIBOR Rate is to
be determined hereunder or (b) any category of extensions of credit or other
assets that include any LIBOR Advance.
"Reserves" means the reserves consistent with the
definition of Eligible Accounts and the definition of Eligible Inventory, the
Currency Reserve, as defined in Section 2.2(d) hereof, and such other reserves,
deductions or adjustments Bank, in its reasonable credit judgment, deems
necessary to reflect items reimbursable to Bank hereunder which have been
incurred or are anticipated but not yet paid, any breaches of the warranties,
representations or covenants of Borrower hereunder, or any Events of Default or
Potential Defaults; provided that Bank shall retain all of its other rights and
remedies hereunder, the other Loan Documents and by law.
"Regulation D" means Regulation D of the Board of
Governors of the Federal Reserve System, as the same may be amended or
supplemented from time to time.
"Regulatory Change" means, as to Bank, any change
after the Closing Date in United States federal, state or foreign laws or
regulations (including Regulation D) or the adoption or making after such date
of any interpretations, directives or requests applying to a class of banks
including Bank of or under any United States federal, state, or foreign laws or
regulations (whether or not having the force of law) by any court or
governmental or monetary authority charged with the interpretation or
administration thereof.
"Responsible Officer" means any of the Chief
Executive Officer, the Chief Financial Officer or the Corporate Controller of
Borrower.
"Revolving Facility" means the facility under which
Borrower may request Bank to issue cash advances, as specified in Section 2.1
hereof.
"Snowboard Boot Accounts" has the meaning given that
term in the Intercreditor Agreement.
"Snowboard Boot Financing Agreement" means the
Financing Agreement, as defined in the Intercreditor Agreement.
"Snowboard Boots" has the meaning given that term in
the Intercreditor Agreement.
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"Subordinated Debt" means any debt incurred by
Borrower that is subordinated to the Obligations on terms reasonably acceptable
to Bank.
"Subsidiary" means any corporation or partnership in
which (i) any general partnership interest or (ii) more than fifty percent
(50%) of the stock of which by the terms thereof ordinary voting power to elect
the Board of Directors, managers or trustees of the entity shall, at the time
as of which any determination is being made, be owned by Borrower, either
directly or through an Affiliate.
"Total Liabilities" means at any date as of which the
amount thereof shall be determined, all obligations that should, in accordance
with GAAP be classified as liabilities on the consolidated balance sheet of
Borrower, including in any event all Indebtedness.
"Working Capital" means as of any date Consolidated
Current Assets as of such date less Consolidated Current Liabilities as of such
date.
1.2 Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP and all
calculations made hereunder shall be made in accordance with GAAP. When used
herein, the terms "financial statements" shall include the notes and schedules
thereto.
2. LOAN, LETTERS OF CREDIT AND TERMS OF PAYMENT
2.1 Advances. Subject to the terms and provisions
hereof, including, without limitation, that no Event of Default or Potential
Default has occurred and is continuing, upon Borrower's request, made at any
time and from time to time during the term hereof, Bank shall make Advances up
to the Adjusted Committed Line, so long as the Borrowing Base formula is not in
effect. While the Borrowing Base formula is in effect, Bank shall make
Advances up to (A) the lesser of (i) the Borrowing Base and (ii) the Committed
Line, minus (B) the sum of (i) the sum of the aggregate undrawn face amount of
the Letters of Credit outstanding and the aggregate drawn but unreimbursed
Letters of Credit and (ii) the sum of the Reserves; provided, however, that in
no event shall Advances based on Eligible Inventory exceed fifty percent (50%)
of the aggregate dollar amount of the Advances outstanding. Availability under
the immediately preceding sentence during a calendar month shall be determined
based on Eligible Accounts and Eligible Inventory as of the last day of the
immediately preceding calendar month.
The Borrowing Base formula shall be in effect commencing on
each and every date on which Borrower delivers to Bank financial statements
that show that as of the last day of the most recently completed fiscal quarter
of Borrower the Debt/EBITDA Ratio exceeded 2.00 to 1.00 and shall cease to be
in effect on the first date thereafter that Borrower delivers to Bank financial
statements that show that as of the last day of the most recently completed
fiscal quarter of Borrower the Debt/EBITDA Ratio did not exceed 2.00 to 1.00.
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<PAGE> 18
Whenever Borrower desires an Advance, it shall notify Bank by
facsimile transmission or telephone no later than 3:00 p.m. California time,
on the Business Day that the Advance is to be made. Each such notification
shall be promptly confirmed by a Payment/Advance Form in substantially the form
of Exhibit A hereto. Bank is authorized to make Advances hereunder, based upon
instructions received from a Responsible Officer, or without instructions if in
Bank's discretion such Advances are necessary to meet Obligations which have
become due and remain unpaid. Bank shall be entitled to rely on any telephonic
notice given by a person who Bank reasonably believes to be a Responsible
Officer, and Borrower shall indemnify and hold Bank harmless for any damages or
loss suffered by Bank as a result of such reliance. Bank shall credit the
amount of Advances made under this Section 2.1 to Borrower's deposit account.
The Revolving Facility shall terminate on the Maturity Date, at which
time all Advances under this Section 2.1 and other amounts due hereunder shall
be immediately due and payable.
2.2 Letters of Credit.
(a) Issuance. Subject to the terms and
conditions hereof, Bank agrees to issue or cause to be issued for Borrower's
account (A) sight documentary letters of credit, (B) usance documentary letters
of credit with a final maturity or payment date of not more than one hundred
twenty (120) days from acceptance date and (C) standby letters of credit (the
"Letters of Credit") in an aggregate face amount not to exceed (i) the Adjusted
Committed Line minus (ii) the then outstanding principal balance of the
Advances provided that (x) the face amount of outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit) shall not in any case
exceed Twenty Million Dollars ($20,000,000), and (y) the face amount of
outstanding standby letters of credit (including drawn but unreimbursed standby
letters of credit) shall not in any case exceed Five Million Dollars
($5,000,000), unless the Borrowing Base formula is in effect, in which case the
aggregate face amount of the Letters of Credit may not exceed (i) the lesser of
the Committed Line or the Borrowing Base, minus (ii) the then outstanding
principal balance of the Advances and the Reserves. Each such sight Letter of
Credit shall have an expiry date no later than one hundred twenty (120) days
after the Maturity Date. Each such usance Letter of Credit shall have a final
maturity or payment date no later than one hundred twenty (120) days after the
Maturity Date. All such Letters of Credit shall be, in form and substance,
acceptable to Bank in its sole discretion and shall be subject to the terms and
conditions of Bank's form of application and letter of credit agreement.
(b) Expenses. Borrower shall pay Bank for all of
Bank's handling fees, as set forth in Exhibit C hereto, for each Letter of
Credit issued, including, but not limited to, issuance, negotiation and
amendment fees.
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(c) Indemnity. Borrower shall indemnify, defend
and hold Bank harmless from any loss, cost, expense or liability, including,
without limitation, reasonable attorneys' fees, arising out of or in connection
with any Letters of Credit.
(d) Reimbursement; Currency Reserve.
(i) Borrower may request that Bank issue
a Letter of Credit payable in a currency other than United States Dollars. If
demand for payment is made under any such Letter of Credit, Bank shall treat
such demand as an Advance of the equivalent of the amount thereof (plus cable
charges) in United States currency at the then prevailing rate of exchange in
San Francisco, California, for sales of such other currency for cable transfer
to the country of which it is the currency.
(ii) Upon the issuance of any Letter of
Credit payable in a currency other than United States Dollars, Bank shall
create a reserve against fluctuations in currency exchange rates (the "Currency
Reserve"), in an amount equal to ten percent (10%) of the face amount of such
Letter of Credit. The amount of the Currency Reserve may be amended by Bank
from time to time to account for fluctuations in the exchange rate. The
Currency Reserve for a Letter of Credit shall remain in effect so long as such
Letter of Credit remains outstanding or reimbursement due with respect thereto.
2.3 Repayment of Overadvance. If, at any time while the
Borrowing Base formula is in effect and for any reason, the outstanding
Advances plus (i) the sum of the aggregate undrawn face amount of the Letters
of Credit and (ii) the drawn but unreimbursed Letters of Credit exceed the
Borrowing Base, less the sum of the Reserves, Borrower shall, upon telephonic
or other notice from Bank, pay to Bank, in cash, the amount of such excess
(such amount the "Overadvance"), and prior to such repayment such Overadvance
shall bear interest at the per annum rate of the Prime Interest Rate plus two
percent (2%); provided, however, that if the Overadvance exists as of the date
that the Borrowing Base formula is imposed as a result of the Debt/EBITDA Ratio
exceeding 2.00 to 1.00, Borrower shall have thirty (30) days from the date that
the Borrowing Base formula is imposed to pay the full amount of such
Overadvance.
2.4 Interest Rates, Payments, and Calculations.
(a) Interest Rate.
(i) Prime Interest Rate. Except as set
forth in Section 2.4(a)(ii) and Section 2.4(b), all Advances shall bear
interest, on the average Daily Balance, at a rate equal to the Prime Interest
Rate.
(ii) LIBOR Rate. At any time during the
term hereof, and from time to time during the term hereof, Borrower may elect
to have all or a
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portion of the Advances (such portion of the Advances a "LIBOR Advance") bear
interest, on the average Daily Balances owing, at a rate per annum equal to the
LIBOR Rate. The LIBOR Rate may take effect only on the first Eurodollar
Banking Day of a calendar month and shall end on the numerically corresponding
day in the first, third, sixth, or twelfth calendar month thereafter (the
"LIBOR Period"). The election shall be effected by Borrower giving Bank
irrevocable written notice not less than three (3) Business Days prior to the
first day of the calendar month for which the election is made and shall be
with respect to the portion of the Advances principal outstanding equal to an
integral multiple of One Hundred Thousand Dollars ($100,000) and shall not be
less than Five Hundred Thousand Dollars ($500,000). In the notice, Borrower
shall indicate whether the LIBOR Period is to be one (1) month, three (3)
months, six (6) months, or twelve (12) months. Borrower may not elect a LIBOR
Period that would expire after the Maturity Date.
(b) Default Rate. All Obligations shall bear
interest, from and after the occurrence of an Event of Default, at a rate equal
to two (2) percentage points above the interest rate applicable thereto
immediately prior to the occurrence of the Event of Default.
(c) Payments. Interest hereunder shall be due
and payable in arrears on the last calendar day of each month during the term
hereof. Bank may, at its option, charge such interest, all Bank Expenses, and
all Periodic Payments against any of Borrower's deposit accounts or against the
Committed Line, in which case those amounts shall thereafter accrue interest at
the Prime Interest Rate then applicable hereunder. Any interest not paid when
due shall be compounded by becoming a part of the Obligations, and such
interest shall thereafter accrue interest at the Prime Interest Rate then
applicable hereunder.
(d) Computation. If the Prime Rate or the Prime
Rate Margin is changed from time to time hereafter, the Prime Interest Rate
hereunder with respect to Advances outstanding which do not constitute LIBOR
Advances shall be increased or decreased effective as of 12:01 a.m. on the day
the Prime Rate or the Prime Rate Margin, as applicable, is changed, by an
amount equal to such change in the Prime Rate or the Prime Rate Margin, as
applicable. All interest chargeable under the Loan Documents shall be computed
on the basis of a three hundred sixty (360) day year for the actual number of
days elapsed.
2.5 LIBOR Advance Termination. If any Regulatory Change
or other circumstances relating to the interbank Eurodollar markets shall, at
any time, in Bank's reasonable determination (which determination shall be
conclusive), make it unlawful or impractical for Bank to fund or maintain,
during any LIBOR Period, the portion of the Advances which have been designated
a LIBOR Advance for that LIBOR Period, or to continue such funding or to
determine or charge interest rates based upon LIBOR, Bank shall give Borrower
notice of such circumstances and:
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(i) In the case of a LIBOR Period in progress, Borrower shall, if
requested by Bank, promptly pay any interest which had accrued
prior to such request and the date of such request shall be
deemed to be the last day of the term of the LIBOR Period; and
(ii) No LIBOR Period may be designated thereafter until Bank
determines that such would be practical.
2.6 Crediting Payments. Bank's receipt of any wire
transfer of funds, check, or other item of payment shall be immediately applied
to conditionally reduce Obligations, but shall not be considered a payment on
account until (A) the date that such payment constitutes immediately available
federal funds and is made to the appropriate deposit account of Bank or (B) the
date that such check or other item of payment is honored when presented for
payment. Notwithstanding anything to the contrary contained herein, any wire
transfer or payment received by Bank after 2:00 p.m. California time shall be
deemed to have been received by Bank as of the opening of business on the
immediately following Business Day. Whenever any payment to Bank under the
Loan Documents would otherwise be due (except by reason of acceleration) on a
date that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.
2.7 Depository Account. If the Debt/EBITDA Ratio as of
the last day of any fiscal quarter was greater than 2.00 to 1.00, then, during
the period commencing thirty (30) days after such date and terminating as of
the date that the Debt/EBITDA Ratio as of the last day of a subsequent fiscal
quarter was less than 2.00 to 1.00, Borrower shall maintain a depository
account ("Depository Account") with Bank. If Borrower receives any payments
from any Account Debtor, other than an Account Debtor with respect to a
Snowboard Boot Account, while the Depository Account requirement is in effect
under this section, it agrees that all such payments shall be the Bank's sole
and exclusive property and that it shall hold such payments in trust as Bank's
trustee and immediately deliver them to the Depository Account.
2.8 Application of Principal Payments. If on the date a
principal payment is made with respect to the Advances, interest is calculated
both on the basis of the Prime Interest Rate and the LIBOR Rate, then such
payment shall be applied first to the Advances principal for which interest is
calculated on the basis of the Prime Interest Rate (the "Prime Interest Rate
Principal"). Only when the Prime Interest Rate Principal is fully paid shall
the principal payment be applied to the LIBOR Advance(s) principal. If more
than one LIBOR Advance is outstanding, the principal amount shall be applied to
the LIBOR Advances in the order of maturity, with the LIBOR Advances with the
shortest time to maturity paid first.
2.9 Fees. Borrower shall pay to Bank the following:
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(a) Unused Facility Fee. An unused facility fee
(the "Unused Facility Fee") on the first day of each calendar month equal to
the quotient of the Unused Facility Fee Percentage and the amount by which the
Committed Line exceeds the sum of (i) the average daily balance of the Advances
for the immediately preceding calendar month and (ii) the aggregate average
daily undrawn face amount of the Letters of Credit outstanding and the
aggregate average daily unreimbursed amount of the Letters of Credit for the
immediately preceding calendar month. The Unused Facility Fee Percentage on an
Unused Facility Fee payment date shall be (i) one-eighth of one percent (.125%)
per annum (computed on the basis of a year of three hundred sixty (360) days
for the actual number of days elapsed) if the Debt/EBITDA Ratio as shown on the
most recent financial statements delivered by Borrower to Bank was equal to or
less than 1.50 to 1.00, (ii) one-quarter of one percent (.25%) per annum
(computed on the basis of a year of three hundred sixty (360) days for the
actual number of days elapsed) if the Debt/EBITDA Ratio as shown on the most
recent financial statements delivered by Borrower to Bank was greater than 1.50
to 1.00 but equal to less than 2.50 to 1.00, and (iii) three-eighths of one
percent (.375%) per annum (computed on the basis of a year of three hundred
sixty (360) days for the actual number of days elapsed) if the Debt/EBITDA
Ratio as shown on the most recent financial statements delivered by Borrower to
Bank was greater than 2.50 to 1.00;
(b) Financial Examination and Appraisal Fees.
Bank's customary fees and reasonable out-of-pocket expenses for Bank's audits
of Accounts, and for each appraisal of Collateral and financial analysis and
examination of Borrower performed from time to time by Bank or its agents; and
(c) Bank Expenses. Upon the date hereof, all
Bank Expenses incurred through the date hereof, including reasonable attorneys'
fees and expenses.
2.10 Additional Costs. If any law, regulation, treaty or
official directive or the interpretation or application thereof by any court or
any governmental authority charged with the administration thereof or the
compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law):
(a) subjects Bank to any tax with respect to
payments of principal or interest or any other amounts payable hereunder by
Borrower or otherwise with respect to the transactions contemplated hereby
(except for taxes on Bank's overall net income imposed by the United States of
America or any political subdivision thereof);
(b) imposes, modifies or deems applicable any
deposit insurance, reserve, special deposit or similar requirement against
assets held by, or deposits in or for the account of, or loans by, Bank; or
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(c) imposes upon Bank any other condition with
respect to its performance hereunder,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans hereunder, Bank shall notify Borrower thereof. Borrower agrees to
pay to Bank the amount of such increase in cost, reduction in income or
additional expense as and when such cost, reduction or expense is incurred or
determined, upon Bank's presentation of a statement of the amount and setting
forth Bank's calculation thereof, all in reasonable detail, which statement
shall be deemed true and correct absent manifest error.
2.11 LIBOR Indemnity. Borrower shall indemnify Bank and
hold Bank harmless from, and reimburse Bank on demand for, all losses and
expenses which Bank sustains or incurs as a result of (i) any payment of a
LIBOR Advance prior to the last day of the LIBOR Period therefor for any
reason, including termination hereof, whether pursuant to Section 2.13 hereof
or the occurrence of an Event of Default for any reason, (ii) any termination
of a LIBOR Period in accordance with Section 2.5 hereof, or (iii) any failure
by Borrower, for any reason, to borrow any portion of a LIBOR Advance. This
indemnification and hold harmless requirement shall include, without
limitation, all losses and expenses arising from interest and fees that Bank
pays to lenders of funds it obtained in order to fund the Advances on the basis
of the LIBOR Rate(s) and all losses incurred in liquidating or re-deploying
deposits from which such funds were obtained and loss of profit for the period
after termination. A written statement by Bank to Borrower of such losses and
expenses shall be conclusive and binding, absent manifest error, for all
purposes. This covenant shall survive the expiration or termination hereof.
2.12 Term. This Agreement shall become effective upon the
Closing Date and shall continue in full force and effect for a term ending on
the date that all Obligations have been satisfied. Notwithstanding the
foregoing, Bank shall have the right to terminate its obligation to make
Advances and to issue Letters of Credit hereunder immediately and without
notice upon the occurrence and during the continuance of an Event of Default.
On the date of termination, all Obligations shall become immediately due and
payable in cash or by wire transfer. Notwithstanding termination, until all
Obligations have been satisfied, Bank shall retain its Lien on the Collateral
to secure satisfaction of such Obligations.
2.13 Termination. Subject to the terms of this section,
Borrower may, at any time, on ten (10) days' written notice prior to the end of
any month, and without payment of any premium or penalty, prepay in full the
Advances and terminate this Agreement by paying to Bank, in cash or by a wire
transfer of immediately available funds, the Obligations. If any Letters of
Credit are outstanding on the effective date of termination, Borrower shall
deliver to Bank cash collateral in an amount equal to the aggregate undrawn
face amount of such Letters of Credit plus the projected amount of all fees
associated therewith.
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3. CONDITIONS OF LOANS Bank's obligation to make each Advance
and to issue each Letter of Credit is subject to the following conditions:
(a) timely receipt by Bank of the Borrowing
Certificate as provided in Section 2.1; and
(b) the representations and warranties contained
in Section 5 shall be true and correct in all material respects on and as of
the date of such Borrowing Certificate and on the effective date of each
Advance or Letter of Credit issuance, as applicable, as though made at and as
of each such date, Bank shall have timely received the statements, reports and
certificates specified in Section 6.3, and no Event of Default or Potential
Default shall have occurred and be continuing, or would exist immediately after
giving effect to such Advance or Letter of Credit issuance, as applicable. The
making of each Advance and the issuance of each Letter of Credit shall be
deemed to be a representation and warranty by Borrower on the date of such
Advance or Letter of Credit issuance as to the accuracy of the facts referred
to in this Section 3(b).
4. CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest. Borrower grants to Bank
a continuing security interest in all presently existing and hereafter acquired
or arising Collateral in order to secure prompt repayment of any and all
Obligations and in order to secure prompt performance by Borrower of each of
its covenants and duties under the Loan Documents. Such security interest
constitutes a valid, first priority security interest in the presently existing
Collateral, and will constitute a valid, first priority security interest in
Collateral acquired after the Closing Date.
4.2 Delivery of Additional Documentation Required.
Borrower shall from time to time execute and deliver to Bank, at Bank's
request, all Negotiable Collateral, all financing statements and other
documents that Bank may reasonably request, in form satisfactory to Bank, to
perfect and continue perfected Bank's Liens in the Collateral and in order to
fully consummate all of the transactions contemplated under the Loan Documents.
4.3 Right to Inspect. Bank (through any of its officers,
employees, or agents) shall have the right from time to time to inspect
Borrower's Books and to make copies thereof and to check, test, and appraise
the Collateral in order to verify Borrower's financial condition or the amount,
condition of, or any other matter relating to, the Collateral.
4.4 Negative Pledge. Borrower acknowledges that under
Section 7.4 hereof it is prohibited from granting, or suffering to exist, any
Lien, other than Permitted Lien, against any of its general intangibles,
including its intellectual property rights. In furtherance of such
prohibition, Borrower hereby agrees that it will not grant, or suffer to exist,
any Lien with respect to any of its general
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intangibles without obtaining the Bank's prior written consent, given in its
sole discretion, to such Lien, and that the Bank may take, and the Borrower
will cooperate in, such actions as the Bank deems necessary to give notice to
other Persons of this Lien prohibition with respect to Borrower's general
intangibles.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Each of Borrower
and each Subsidiary is a corporation duly existing and in good standing under
the laws of its state of incorporation and qualified and licensed to do
business in, and is in good standing in, any state in which the conduct of its
business or its ownership of property requires that it be so qualified.
5.2 Due Authorization; No Conflict. The execution,
delivery, and performance of the Loan Documents are within Borrower's powers,
have been duly authorized, and are not in conflict with nor constitute a breach
of any provision contained in Borrower's Restated Certificate of Incorporation
or Restated Bylaws, nor, to the best of Borrower's knowledge, will they
constitute an event of default under any material agreement to which Borrower
is a party or by which Borrower is bound. Borrower is not in default under any
agreement to which it is a party or by which it is bound, which default could
have a Material Adverse Effect.
5.3 No Prior Encumbrances. Borrower has good and
indefeasible title to the Collateral, free and clear of Liens, except for
Permitted Liens.
5.4 Bona Fide Eligible Accounts. The Accounts are bona
fide existing obligations of Borrower's Account Debtors, created by the sale or
lease of goods, the licensing of rights, or the rendition of services to
Account Debtors in the ordinary course of Borrower's business, and
unconditionally owed to Borrower. The property giving rise to such Accounts
has been delivered to the Account Debtor or to the Account Debtor's agent for
immediate shipment to and unconditional acceptance by the Account Debtor.
5.5 Merchantable Inventory. Substantially all Inventory
is in all material respects of good quality, free from all material defects,
and salable, either as current merchandise or close-out items.
5.6 Name; Location of Chief Executive Office. During the
five (5) year period ending on the Closing Date, Borrower has not done business
under any name other than that specified on the signature page hereof and the
names MDV Holdings, Inc. and Van Doren Rubber Company, Inc. As of the date
hereof, Borrower's chief executive office is located at the address indicated
in Section 10 hereof.
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5.7 Litigation. There are no actions or proceedings
pending by or against Borrower or any Subsidiary before any court or
administrative agency in which an adverse decision could have a Material
Adverse Effect or a material adverse effect on Borrower's interest or Bank's
Lien in the Collateral. Borrower does not have knowledge of any such pending
or threatened actions or proceedings.
5.8 No Material Adverse Change in Financial Statements.
All consolidated financial statements related to Borrower that Borrower has
delivered to Bank fairly present in all material respects Borrower's
consolidated financial condition as of the date thereof and Borrower's
consolidated results of operations for the period then ended. There has not
been a material adverse change in the consolidated financial condition of
Borrower since the date of the most recent of such financial statements
submitted to Bank.
5.9 Solvency. Borrower is solvent and able to pay its
debts (including trade debts) as they mature.
5.10 Regulatory Compliance. Borrower and each Subsidiary
has met ERISA's minimum funding requirements with respect to any employee
benefit plans subject to ERISA. No event has occurred resulting from
Borrower's failure to comply with ERISA that is reasonably likely to result in
Borrower's incurring any liability that could have a Material Adverse Effect.
Neither Borrower nor any Subsidiary has withdrawn from, and no termination or
partial termination has occurred with respect to, any deferred compensation
plan, and neither Borrower nor any Subsidiary has withdrawn from any
multi-employer plan under ERISA. Borrower is not an "investment company" or a
company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940. Borrower is not engaged principally, or as one
of the important activities, in the business of extending credit for the
purpose of purchasing or carrying margin stock (within the meaning of
Regulations G, T and U of the Board of Governors of the Federal Reserve
System). Borrower has complied with all the provisions of the Federal Fair
Labor Standards Act to the extent that non-compliance with such provisions
could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of the Bank's Lien on the Collateral. Borrower has
complied with all statutes, laws, ordinances, and government rules and
regulations to which it is subject, non-compliance with which could have a
Material Adverse Effect or a material adverse effect on the Collateral or the
priority of Bank's Lien on the Collateral.
5.11 Environmental Condition. None of Borrower's or any
Subsidiary's properties or assets has ever been used by Borrower or any
Subsidiary or, to the best of Borrower's knowledge, by previous owners or
operators, in the disposal of, or to produce, store, handle, treat, release, or
transport, any hazardous waste or hazardous substance other than in accordance
with applicable law; to the best of Borrower's knowledge, none of Borrower's
properties or assets has ever been designated or identified in any manner
pursuant to any environmental protection statute as a hazardous waste or
hazardous substance disposal site, or a candidate for
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closure pursuant to any environmental protection statute; no Lien arising under
any environmental protection statute has attached to any revenues or to any
real or personal property owned by Borrower or any Subsidiary; and neither
Borrower nor any Subsidiary has received a summons, citation, notice, or
directive from the Environmental Protection Agency or any other federal or
state governmental agency concerning any action or omission by Borrower or any
Subsidiary relating to the release or disposal of hazardous waste or hazardous
substances.
5.12 Taxes. Borrower and each Subsidiary has filed or
caused to be filed all tax returns required to be filed, and has paid, or has
made adequate provision for the payment of, all taxes reflected therein.
5.13 Permitted Investments. Borrower does not have any
Investment other than (i) Permitted Investments and (ii) stock, partnership
interest and other equity securities of each Subsidiary disclosed to and
approved by Bank as of the date hereof.
5.14 Government Consents. Borrower and each Subsidiary
has obtained all consents, approvals and authorizations of, made all
declarations or filings with, and given all notices to, all governmental
authorities that are necessary for the continued operation of Borrower's
business as currently conducted.
5.15 Full Disclosure. No representation, warranty or
other statement made by Borrower in any certificate or written statement
furnished to Bank contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained in
such certificates or statements not misleading.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of
all Obligations, and for so long as Bank is committed to make an Advance or
issue a Letter of Credit hereunder, Borrower shall do all of the following:
6.1 Good Standing. Borrower shall maintain its and each
of the Subsidiaries' corporate existence and good standing in its jurisdiction
of incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of the Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2 Government Compliance. Borrower shall meet, and
shall cause each Subsidiary to meet, ERISA's minimum funding requirements with
respect to any employee benefit plans subject to ERISA. Borrower shall comply,
and shall cause each Subsidiary to comply, with all statutes, laws, ordinances
and government rules
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and regulations to which it is subject, noncompliance with which could have a
Material Adverse Effect or a material adverse effect on the Collateral or the
priority of Bank's Lien on the Collateral.
6.3 Financial Statements, Reports, Certificates.
Borrower shall maintain a standard system of accounting in accordance with
GAAP. Borrower shall deliver to Bank: (a) within five (5) days upon becoming
available, but in any event within fifty (50) days after the end of Borrower's
fiscal quarter, the report on Form 10-Q filed or required to be filed with the
Securities and Exchange Commission and a Compliance Certificate signed by a
Responsible Officer in form and substance acceptable to Bank; (b) within five
(5) days upon becoming available, but in any event within ninety-five (95) days
after the end of Borrower's fiscal year, the report on Form 10-K filed or
required to be filed with the Securities and Exchange Commission; (c) promptly
upon receipt of notice thereof, a report of any legal actions pending or
threatened against Borrower or any Subsidiary that could result in damages or
costs to Borrower or any Subsidiary of Five Hundred Thousand Dollars ($500,000)
or more; (d) promptly upon their becoming available (and in any event within
five (5) Business Days thereafter), copies of (i) all financial statements,
reports, notices, proxy statements and other information that Borrower sends or
generally makes available to any class of its security holders or that any
Subsidiary sends or generally makes available to any class of its security
holders, (ii) all regular and periodic reports and all registration statements,
forms and prospectuses that Borrower or any Subsidiary files with any
securities exchange or with the Securities and Exchange Commission, to the
extent that such documents are not already required to be delivered under
clauses (a) and (b) of this Section 6.3, and (iii) all press releases and other
statements that Borrower or any Subsidiary makes generally available to the
public concerning material developments in the business of Borrower or any
Subsidiary; (e) within fifteen (15) days after the end of each calendar month
after the Closing Date during which the Borrowing Base formula is in effect,
(i) a detailed aged trial balance of the Accounts, in form and substance
satisfactory to Bank, in its sole discretion, including, without limitation,
the names and addresses of all Account Debtors, (ii) a detailed accounts
payable aging, in form and substance satisfactory to Bank, in its sole
discretion, (iii) an inventory report, in form and substance satisfactory to
Bank, in its sole discretion, and (iv) a backlog report, in form and substance
satisfactory to Bank, in its sole discretion; and (f) such budgets, sales
projections, operating plans or other financial information as Bank may
reasonably request from time to time.
Bank shall have a right from time to time hereafter to conduct a field
exam and to audit Accounts and Inventory at Borrower's expense, provided that
such audits will be conducted no more often than once every six (6) months,
unless an Event of Default has occurred and is continuing, in which case Bank
may conduct such audits, at Borrower's expense, as frequently as Bank deems
appropriate.
Bank may destroy or otherwise dispose of any documents delivered to
Bank six (6) months after Bank's receipt thereof.
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6.4 Inventory. Borrower shall keep all Inventory in good
and marketable condition, free from all material defects. Returns and
allowances, if any, as between Borrower and its Account Debtors, other than
Account Debtors with respect to Snowboard Boot Accounts, shall be on the same
basis and in accordance with the usual customary practices of Borrower, as they
exist at the time of the Closing Date. Borrower shall promptly notify Bank of
all returns and recoveries and of all disputes and claims, except those
relating to Snowboard Boot Accounts, where the return, recovery, dispute or
claim involves more than One Hundred Thousand Dollars ($100,000).
6.5 Taxes. Borrower shall make, and shall cause each
Subsidiary to make, due and timely payment or deposit of all material federal,
state, and local taxes, assessments, or contributions required of it by law,
and shall execute and deliver to Bank, on demand, appropriate certificates
attesting to the payment or deposit thereof; and Borrower shall make, and shall
cause each Subsidiary to make, timely payment or deposit of all material tax
payments and withholding taxes required of it by applicable laws, including,
but not limited to, those laws concerning F.I.C.A., F.U.T.A., state disability,
and local, state, and federal income taxes, and will, upon request, furnish
Bank with proof satisfactory to Bank indicating that Borrower or a Subsidiary
has made such payments or deposits; provided that Borrower or a Subsidiary need
not make any payment if the amount or validity of such payment is contested in
good faith by appropriate proceedings and is reserved against (to the extent
required by GAAP).
6.6 Insurance. Borrower, at its expense and with such
companies as are reasonably acceptable to Bank, shall maintain business
interruption and liability insurance and fire, theft and other hazard insurance
which covers the Collateral, which insurance shall be in such amounts as are
ordinarily carried by other owners in similar businesses conducted in the
locations where Borrower's business is conducted on the date hereof. All such
liability insurance policies shall show Bank as an additional insured or loss
payee, as applicable, and shall specify that the insurer must give at least
twenty (20) days' notice to Bank before canceling its policy for any reason.
Borrower shall deliver to Bank certified copies of such policies of insurance
and evidence of the payments of all premiums therefor.
6.7 Further Assurances. At any time and from time to
time Borrower shall execute and deliver such further instruments and take such
further action as may reasonably be requested by Bank to effect the purposes
hereof.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of
all Obligations, and for so long as Bank is committed to make an Advance or
issue a Letter of Credit hereunder, Borrower will not do any of the following:
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7.1 Change in Business. Suspend or go out of business,
engage in any business, or permit any of the Subsidiaries to engage in any
business, other than the businesses currently engaged in by Borrower and any
business substantially similar or related thereto (or incidental thereto).
Borrower will not, without thirty (30) days' prior written notification to
Bank, relocate its chief executive office.
7.2 Mergers or Acquisitions. Merge or consolidate, or
permit any of the Subsidiaries to merge or consolidate, with or into any other
business organization, or acquire, or permit any of the Subsidiaries to
acquire, all or a substantial portion of the capital stock or property of
another Person or sell or otherwise dispose of all or substantially all of its
assets; provided, however, that Borrower may, upon prior notice to Bank, but
without obtaining Bank's consent, merge or consolidate with or into another
business organization if no Event of Default then exists and no Event of
Default would exist upon the closing of merger or consolidation.
7.3 Indebtedness. Create, incur, assume or be or remain
liable with respect to any Indebtedness, or permit any Subsidiary so to do,
other than Permitted Indebtedness.
7.4 Encumbrances. Create, incur, assume or suffer to
exist any Lien with respect to any of its property, or assign or otherwise
convey any right to receive income, including the sale of any Accounts, or
permit any of the Subsidiaries so to do, except for Permitted Liens.
7.5 Distributions. Pay any dividends or make any other
distribution or payment on account of or in redemption, retirement or purchase
of any capital stock other than the purchase of Borrower's stock from former
employees, consultants or agents of Borrower.
7.6 Current Ratio. Permit the ratio of Consolidated
Current Assets to Consolidated Current Liabilities to be less than 2.50 to 1.00
as of the last day of any fiscal quarter of Borrower.
7.7 Quick Ratio. Permit the ratio of Consolidated Quick
Assets to Consolidated Current Liabilities to be less than 1.50 to 1.00 on the
last day of any fiscal quarter of Borrower.
7.8 Interest Coverage Ratio. Permit the ratio of EBIT to
Consolidated Interest Charges to be less than 3.00 to 1.00, on the last day of
any fiscal quarter, with the ratio for each such date determined for the period
of the four (4) fiscal quarters of Borrower ended on such date.
7.9 Adjusted Consolidated Tangible Net Worth. Permit, on
the last day of any fiscal quarter of Borrower, Adjusted Consolidated Tangible
Net Worth to be less than the Minimum Amount for such fiscal quarter. For
purposes of this
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<PAGE> 31
Section 7.9, the "Minimum Amount" shall be (i) for the fiscal quarter ending
December 31, 1996, Fifty Million Dollars ($50,000,000), and (ii) for each
fiscal quarter thereafter, the sum of the Minimum Amount for the immediately
preceding fiscal quarter plus seventy-five percent (75%) (zero percent (0%), in
the case of a deficit) of Consolidated Net Income for such immediately
preceding fiscal quarter.
7.10 Working Capital. Permit, on the last day of any
fiscal quarter of Borrower, Working Capital to be less than Thirty Million
Dollars ($30,000,000).
7.11 Leverage Ratio. Permit, on the last day of any
fiscal quarter of Borrower, the ratio of Total Liabilities to Adjusted
Consolidated Tangible Net Worth to be more than .50 to 1.00.
7.12 Quarterly Losses. Permit Consolidated Net Income in
any fiscal quarter of Borrower to be less than zero.
7.13 Investments. Directly or indirectly acquire or own,
or make any Investment in or to any Person, or permit any of the Subsidiaries
so to do, other than Permitted Investments.
7.14 Transactions with Affiliates. Directly or indirectly
enter into or permit to exist any material transaction with any Affiliate of
Borrower except for (i) transactions that are in the ordinary course of
Borrower's business, upon fair and reasonable terms that are no less favorable
to Borrower than would be obtained in an arm's length transaction with a
nonaffiliated Person, and (ii) payment to MDC Management Company of
compensation in connection with the rendering by MDC Management Company to
Borrower of consulting and financial services, provided that the compensation
paid by Borrower to MDC Management Company in respect thereof does not exceed
Three Hundred Fifty Thousand Dollars ($350,000) for any fiscal year of
Borrower.
7.15 Inventory. Store the Inventory, other than Snowboard
Boots, with a bailee, warehouseman, or similar party unless Bank has received a
pledge of the warehouse receipt covering such Inventory. Except for Inventory
sold in the ordinary course of business and except for such other locations as
Bank may approve in writing, which approval shall not be unreasonably withheld,
conditioned or delayed, Borrower shall keep the Inventory, other than Snowboard
Boots, only at the location set forth in Section 10 hereof, Borrower's City of
Industry distribution center and Borrower's Vista plant, and such other
locations of which Borrower gives Bank prior written notice and as to which
Borrower signs and files a financing statement where needed to perfect Bank's
security interest.
7.16 Subordinated Debt. Make any payment in respect of
any Subordinated Debt, or permit any of the Subsidiaries to make any such
payment, except in compliance with any applicable subordination agreement or
with the terms of such Subordinated Debt, or amend any provision contained in
any documentation
28
<PAGE> 32
relating to the Subordinated Debt without Bank's prior written consent, which
approval shall not be unreasonably withheld, conditioned or delayed.
7.17 Compliance. Become an "investment company" or
controlled by an "investment company," within the meaning of the Investment
Company Act of 1940, or become principally engaged in, or undertake as one of
its important activities, the business of extending credit for the purpose of
purchasing or carrying margin stock, or use the proceeds of any Advance for
such purpose. Fail to meet ERISA's minimum funding requirements, permit a
Reportable Event or Prohibited Transaction, as such terms are defined in ERISA,
to occur, permit any condition to exist that would entitle any Person to obtain
a decree adjudicating that any plan under ERISA must be terminated, fail to
comply with the Federal Fair Labor Standards Act in any way which could have a
Material Adverse Effect or violate any law or regulation, which violation could
have a Material Adverse Effect or a material adverse effect on the Collateral
or the priority of Bank's Lien on the Collateral, or permit any of the
Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an
Event of Default hereunder:
8.1 Payment Default. If Borrower fails to pay (i) any
interest or principal Obligations when due and payable or (ii) any Obligations,
other than interest and principal Obligations, within five (5) days of the date
due and payable;
8.2 Covenant Default. If Borrower fails or neglects to
perform, keep, or observe any other term, provision, condition, covenant, or
agreement contained herein, in any of the Loan Documents, or in any other
present or future agreement between Borrower and Bank;
8.3 Material Adverse Effect. If there occurs an event
that has a Material Adverse Effect or a material impairment of the value or
priority of Bank's Lien against the Collateral;
8.4 Attachment. If all or any portion of Borrower's
assets is attached, seized, subjected to a writ or distress warrant, or is
levied upon, or comes into the possession of any trustee, receiver or person
acting in a similar capacity and such attachment, seizure, writ or distress
warrant or levy has not been removed, discharged or rescinded within thirty
(30) days, or if Borrower is enjoined, restrained, or in any way prevented by
court order from continuing to conduct all or any part of its business affairs,
or if a judgment or other claim becomes a Lien upon any portion of Borrower's
assets, or if a notice of Lien, levy, or assessment is filed of record with
respect to any of Borrower's assets by the United States Government, or any
department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10)
days
29
<PAGE> 33
after Borrower receives notice thereof; provided that Bank shall not be
required to make any Advances or issue any Letters of Credit during such cure
period;
8.5 Insolvency. If an Insolvency Proceeding is commenced
by Borrower, or if an Insolvency Proceeding is commenced against Borrower and
is not dismissed or stayed within sixty (60) days; provided that Bank shall not
be required to make any Advances or issue any Letters of Credit prior to the
dismissal of such Insolvency Proceeding;
8.6 Other Agreements. If there is a default in any
agreement to which Borrower is a party with a third party or parties resulting
in a right by such third party or parties, whether or not exercised, to
accelerate the maturity of any Indebtedness if such default could have a
Material Adverse Effect;
8.7 Judgments. If a judgment or judgments for the
payment of money in an amount, individually or in the aggregate, which could
have a Material Adverse Effect shall be rendered against Borrower and shall
remain unsatisfied and unstayed for a period of thirty (30) days (provided that
no Advances will be made prior to the satisfaction or stay of such judgment);
or
8.8 Misrepresentations. If a material misrepresentation
or misstatement exists now or hereafter in any warranty or representation set
forth herein or in any certificate delivered to Bank by any Responsible Officer
pursuant to this Agreement or to induce Bank to enter into this Agreement or
any other Loan Document.
9. BANK'S RIGHTS AND REMEDIES
9.1 Rights and Remedies. Upon the occurrence and during
the continuance of an Event of Default, Bank may, at its election, without
notice of its election and without demand, do any one or more of the following,
all of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by
this Agreement, by any of the other Loan Documents, or otherwise, immediately
due and payable (provided that upon the occurrence of an Event of Default
described in Section 8.5 all Obligations shall become immediately due and
payable without any action by Bank);
(b) Cease making Advances, issuing Letters of
Credit or otherwise extending credit to or for the benefit of Borrower
hereunder or under any other agreement between Borrower and Bank;
(c) Settle or adjust disputes and claims directly
with Account Debtors, other than Account Debtors with respect to Snowboard Boot
Accounts, for
30
<PAGE> 34
amounts, upon terms and in whatever order that Bank reasonably considers
advisable;
(d) Make such payments and do such acts as Bank
considers necessary or reasonable to protect its Lien on the Collateral.
Borrower agrees to make the Collateral available to Bank as Bank designates.
Borrower authorizes Bank to enter the premises where the Collateral is located,
to take and maintain possession of the Collateral, or any part of it, and to
pay, purchase, contest, or compromise any Lien which in Bank's determination
appears to be prior or superior to its Lien and to pay all expenses incurred in
connection therewith. With respect to any of Borrower's owned premises,
Borrower hereby grants Bank a license to enter into possession of such premises
and to occupy the same, without charge, for up to one hundred twenty (120) days
in order to exercise any of Bank's rights or remedies provided herein, at law,
in equity, or otherwise;
(e) Without notice to Borrower set off and apply
to the Obligations any and all (i) balances and deposits of Borrower held by
Bank, or (ii) indebtedness at any time owing to or for the credit or the
account of Borrower held by Bank;
(f) Ship, reclaim, recover, store, finish,
maintain, repair, prepare for sale, advertise for sale, and sell (in the manner
provided for herein) the Collateral. Bank is hereby granted a license or other
right, solely pursuant to the provisions of this Section 9.1, to use, without
charge, Borrower's labels, patents, copyrights, rights of use of any name,
trade secrets, trade names, trademarks, service marks, and advertising matter,
or any property of a similar nature, as it pertains to the Collateral, in
completing production of, advertising for sale, and selling any Collateral and,
in connection with Bank's exercise of its rights under this Section 9.1,
Borrower's rights under all licenses and all franchise agreements shall inure
to Bank's benefit, and Bank shall not be obligated to pay any compensation to
Borrower or any other Person in connection with the exercise of such rights;
(g) Sell the Collateral at either a public or
private sale, or both, by way of one or more contracts or transactions, for
cash or on terms, in such manner and at such places (including, without
limitation, Bank's or Borrower's premises) as Bank determines is reasonable;
(h) Bank may credit bid and purchase at any
public sale; and
(i) Any deficiency that exists after disposition
of the Collateral as provided above shall be paid immediately by Borrower.
9.2 Power of Attorney. Borrower hereby irrevocably
appoints Bank (and any of Bank's designated officers, employees or agents) as
Borrower's true and lawful attorney to: (a) send requests for verification of
Accounts, other than Snowboard Boot Accounts, or notify Account Debtors, other
than with respect to
31
<PAGE> 35
Snowboard Boot Accounts, of Bank's Lien against the Accounts, provided that at
the time of the verification request or notification an Event of Default has
occurred and is continuing; (b) endorse Borrower's name on any checks or other
forms of payment or security that may come into Bank's possession which
constitute proceeds of any of the Collateral; (c) sign Borrower's name on any
invoice or bill of lading relating to any Account, other than a Snowboard Boot
Account, drafts against Account Debtors, other than Account Debtors with
respect to Snowboard Boot Accounts, schedules and assignments of Accounts,
other than Snowboard Boot Accounts, verifications of Accounts, other than
Snowboard Boot Accounts, and notices to Account Debtors, other than Account
Debtors with respect to Snowboard Boot Accounts; and (d) during the continuance
of an Event of Default, settle and adjust disputes and claims respecting the
accounts directly with Account Debtors, other than with respect to Snowboard
Boot Accounts, for amounts and upon terms which Bank determines to be
reasonable; provided Bank may exercise such power of attorney to sign the name
of Borrower on any of the documents described in Section 4.2 regardless of
whether an Event of Default is continuing. The Bank's appointment as
Borrower's attorney in fact, and each and every one of Bank's rights and
powers, being coupled with an interest, is irrevocable until all of the
Obligations are fully satisfied and Bank's obligation to make Advances and
issue Letters of Credit hereunder is terminated or expires.
9.3 Accounts Collection. At any time during the
continuance of an Event of Default, Bank may notify any Person owing funds to
Borrower which constitute part of the Collateral of Bank's Lien against such
funds. Borrower shall collect all amounts owing to Borrower which constitute
part of the Collateral for Bank, receive in trust all payments as Bank's
trustee, and immediately deliver such payments to Bank in their original form
as received from the Account Debtor, with proper endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts
or furnish any required proof of payment due to third persons or entities, as
required under the terms hereof, then Bank may do any or all of the following:
(a) make payment of the same or any part thereof; (b) set up such Reserves as
Bank deems necessary to protect it from the exposure created by such failure;
or (c) obtain and maintain insurance policies of the type described in Section
6.6 hereof, and take any action with respect to such policies as Bank deems
prudent. Any amounts so paid or deposited by Bank shall constitute Bank
Expenses, shall be immediately due and payable, and shall bear interest at the
Prime Interest Rate then in effect. Any payments made by Bank shall not
constitute an agreement by Bank to make similar payments in the future or a
waiver by Bank of any Event of Default.
9.5 Bank's Liability for Collateral. So long as Bank
complies with reasonable banking practices, Bank shall not in any way or manner
be liable or responsible for any diminution in the value of any Collateral.
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<PAGE> 36
9.6 Remedies Cumulative. Bank's rights and remedies
hereunder, the other Loan Documents, and by law shall be cumulative. Bank
shall have all other rights and remedies not inconsistent herewith as provided
under the Code, by law, or in equity. No exercise by Bank of one right or
remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by
Bank shall constitute a waiver, election, or acquiescence by it. No waiver by
Bank shall be effective unless in writing.
9.7 Demand; Protest; Application. Borrower waives
demand, protest, notice of protest, notice of default or dishonor, notice of
payment and nonpayment, notice of any default, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees at any time held by Bank on which
Borrower may in any way be liable. Borrower waives any right to direct the
application of any amount received by Bank.
10. NOTICES
Unless otherwise provided herein, all notices or demands by
any party relating to this Agreement or any other Loan Document shall be in
writing and (except for financial statements and other informational documents,
which may be sent by first-class mail, postage prepaid) shall be personally
delivered or sent by a recognized, overnight delivery service or by certified
mail, postage prepaid, return receipt requested, or by facsimile to Borrower or
Bank, as the case may be, at its address set forth below:
If to Borrower: Prior to March 1, 1997:
Vans, Inc.
2095 Batavia Street
Orange, CA 92665-3101
Attn: Craig E. Gosselin, Esq.,
Vice President and General Counsel
FAX: (714) 974-4481
On or after March 1, 1997
Vans, Inc.
15700 "A" Shoemaker Avenue
Sante Fe Springs, CA _________
Attn: Craig E. Gosselin, Esq.,
Vice President and General Counsel
FAX: N/A
If to Bank: Bank of the West
1450 Treat Blvd.
Walnut Creek, CA 94596
Attn: Mr. Dale J. Kobsar
FAX: (510) 930-5635
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<PAGE> 37
Either party may change its address for notices by written notice given in the
foregoing manner to the other.
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of California, without regard
to conflicts of law principles. Each of Borrower and Bank hereby submits to
the exclusive jurisdiction of the state and Federal courts located in the
County of San Francisco, State of California. BORROWER AND BANK EACH HEREBY
WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH
PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL
INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND
WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
12.1 Successors and Assigns. This Agreement shall bind
and inure to the benefit of the respective successors and permitted assigns of
each of the parties; provided, however, that neither this Agreement nor any
rights hereunder may be assigned by Borrower without Bank's prior written
consent, which may be granted or withheld in Bank's sole discretion. Bank
shall have the right without the consent of or notice to Borrower to sell,
transfer, negotiate, or grant participations in all or any part of, or any
interest in, Bank's obligations, rights and benefits hereunder.
12.2 Indemnification. Borrower shall defend, indemnify
and hold harmless Bank and its officers, employees, and agents against: (a)
all obligations, demands, claims, and liabilities claimed or asserted by any
other party in connection with the transactions contemplated by this Agreement;
and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by
Bank as a result of or in any way arising out of, following, or consequential
to transactions between Bank and Borrower whether hereunder, or otherwise
(including without limitation reasonable attorneys fees and expenses), except
for losses caused by Bank's gross negligence or willful misconduct.
12.3 Time of Essence. Time is of the essence for the
performance of all obligations set forth herein.
12.4 Severability of Provisions; Headings. Each provision
of this Agreement shall be severable from every other provision of this
Agreement for the
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<PAGE> 38
purpose of determining the legal enforceability of any specific provision.
Headings are set forth herein for convenience only.
12.5 Amendments; Integration. This Agreement cannot be
changed or terminated orally. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with
respect to the subject matter hereof, if any, are merged into this Agreement
and the Loan Documents.
12.6 Counterparts. This Agreement may be executed in any
number of counterparts and by different parties on separate counterparts, each
of which, when executed and delivered, shall be deemed to be an original, and
all of which, when taken together, shall constitute but one and the same
Agreement.
12.7 Survival. All covenants, representations and
warranties made herein shall continue in full force and effect so long as any
Obligations remain outstanding. Borrower's obligations to indemnify Bank with
respect to the expenses, damages, losses, costs and liabilities described in
Section 12.2 shall survive until all applicable statute of limitations periods
with respect to actions that may be brought against Bank have run.
12.8 Confidentiality. Bank shall not disclose to any
third party any Confidential Information disclosed to Bank pursuant to the Loan
Documents, except that (i) the Bank may disclose Confidential Information to a
third party to the extent compelled by law, subpoena, civil investigative
demand, interrogatories or similar legal process, and (ii) Bank may disclose
Confidential Information to a potential transferee of or participant in the
Loan Documents, provided that the potential transferee or participant agrees to
be bound by the same confidentiality obligations as Bank under this section.
For purposes hereof, Confidential Information is information disclosed by
Borrower to Bank pursuant to the Loan Documents that is not information which
(i) becomes generally available to the public, other than as a result of
disclosure by Bank, (ii) was available on a non-confidential basis prior to its
disclosure to Bank by Borrower, or (iii) becomes available to Bank on a
non-confidential basis from a source other than Borrower.
12.9 No Novation. This Amended and Restated Loan and
Security Agreement is not intended to be, and shall not be construed to create,
a novation or accord and satisfaction, and, except as otherwise provided
herein, the Loan and Security Agreement, as executed and delivered on July 1,
1995, and amended prior to the execution hereof, shall remain in full force and
effect.
12.10 Amendments Upon Termination of Snowboard Boot
Financing. Upon (i) the expiration or termination, for any reason, of the
Snowboard Boot Financing Agreement, and (ii) the filing of all UCC Financing
Statement Amendments and other appropriate documents to enable the Bank to have
a perfected first priority Lien against the Snowboard Boot located in the
United States and the Snowboard Boot Accounts, and the Bank's reasonable
determination that it
35
<PAGE> 39
holds such Lien against such assets, this Agreement shall be automatically
amended as follows, without any further action by the parties hereto:
(a) the phrases "other than the Snowboard Boot
Accounts" and "other than the Snowboard Boots" shall be deleted from the
definition of "Collateral";
(b) the phrases "other than the Snowboard Boot
Accounts" and "other than the Snowboard Boot Accounts" shall be deleted from
the definition of "Dilution";
(c) clause (ii) of the definition of "Eligible
Accounts" shall be deleted and clause (iii) shall be redesignated as clause
(ii);
(d) the phrases "(excluding for purposes of this
clause, the Snowboard Boot Accounts)" and "(excluding for purposes of this
clause, the Snowboard Boot Accounts)" shall be deleted from clause (l) of the
definition of "Eligible Accounts";
(e) the phrase "other than Snowboard Boots" shall
be deleted from the definition of "Eligible Inventory";
(f) the definitions of "Snowboard Boot Accounts"
and "Snowboard Boots" shall be deleted;
(g) the phrase "other than an Account Debtor with
respect to a Snowboard Boot Account" shall be deleted from the second sentence
of Section 2.7;
(h) the phrase "other than Account Debtors with
respect to a Snowboard Boot Accounts" shall be deleted from the first sentence
of Section 6.4;
(i) the phrase "except those relating to
Snowboard Boot Accounts" shall be deleted from the second sentence of Section
6.4;
(j) the phrase ", other than Snowboard Boots,"
shall be deleted from the first sentence of Section 7.15;
(k) the phrase ", other than Snowboard Boots,"
shall be deleted from the second sentence of Section 7.15;
(l) the phrase ", other than Account Debtors with
respect to Snowboard Boot Accounts," shall be deleted from Section 9.1(c);
(m) Section 9.2 shall be amended to read as
follows:
12.11 Power of Attorney. Borrower hereby irrevocably
appoints Bank (and any of Bank's designated officers, employees or agents) as
Borrower's true and
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<PAGE> 40
lawful attorney to: (a) send requests for verification of Accounts or notify
Account Debtors of Bank's Lien against the Accounts, provided that at the time
of the verification request or notification an Event of Default has occurred
and is continuing; (b) endorse Borrower's name on any checks or other forms of
payment or security that may come into Bank's possession which constitute
proceeds of any of the Collateral; (c) sign Borrower's name on any invoice or
bill of lading relating to any Account, drafts against Account Debtors,
schedules and assignments of Accounts, verifications of Accounts and notices to
Account Debtors; and (d) during the continuance of an Event of Default, settle
and adjust disputes and claims respecting the accounts directly with Account
Debtors for amounts and upon terms which Bank determines to be reasonable;
provided Bank may exercise such power of attorney to sign the name of Borrower
on any of the documents described in Section 4.2 regardless of whether an Event
of Default is continuing. The Bank's appointment as Borrower's attorney in
fact, and each and every one of Bank's rights and powers, being coupled with an
interest, is irrevocable until all of the Obligations are fully satisfied and
Bank's obligation to make Advances and issue Letters of Credit hereunder is
terminated or expires.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
VANS, INC.
By:___________________________
Title:________________________
By:___________________________
Title:________________________
BANK OF THE WEST
By:___________________________
Dale J. Kobsar
Regional Vice President
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<PAGE> 41
EXHIBIT A
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., CALIFORNIA TIME
TO: CENTRAL CLIENT SERVICE DIVISION DATE:
-------------------
FAX #: TIME:
-------------------- -------------------
- ------------------------------------------------------------------------------
FROM:
--------------------------------------------------------------------
CLIENT NAME (BORROWER)
REQUESTED BY:
------------------------------------------------------------
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:
----------------------------------------------------
PHONE NUMBER:
------------------------------------------------------------
FROM ACCOUNT # TO ACCOUNT #
------------------------- --------------------
REQUESTED TRANSACTION TYPE REQUESTED DOLLAR AMOUNT
- -------------------------- -----------------------
PRINCIPAL INCREASE (ADVANCE) $
--------------------------------------
PRINCIPAL PAYMENT (ONLY) $
----------------------------------
INTEREST PAYMENT (ONLY) $
----------------------------------
PRINCIPAL AND INTEREST (PAYMENT) $
--------------------------------------
OTHER INSTRUCTIONS:
------------------------------------------------------
- -------------------------------------------------------------------------
All representations and warranties of Borrower stated in the Loan
Agreement are true, correct and complete as of the date of the telephone
request for an Advance confirmed by this Borrowing Certificate; provided,
however, that those representations and warranties expressly referring to
another date shall be true, correct and complete in all material respects
as of such date.
- ------------------------------------------------------------------------------
<PAGE> 42
- ------------------------------------------------------------------------------
BANK USE ONLY
TELEPHONE REQUEST:
- -----------------
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
- ---------------------------------- ----------------------------------
Authorized Officer Phone #
- ---------------------------------- ----------------------------------
Received By (Bank) Phone #
-------------------------------
Authorized Signature (Bank)
- ------------------------------------------------------------------------------
<PAGE> 43
EXHIBIT B
VANS INVESTMENT POLICY
I. Purpose
To specify guidelines, responsibility, and authority for the short-term
investment of cash reserves by the Company and its subsidiaries.
II. Investment Objectives
The primary objectives of Vans' investments are liquidity and minimum
risk. Consistent with these primary objectives, investments will be made
to achieve a reasonable rate of return to the Company.
III. Investment Criteria
Investments will be made in accordance with the following criteria:
A. Eligible Investments
1. United States Government Obligations and its Agencies.
2. Money Market Instruments, including - Bankers
Acceptances, Commercial Paper, Certificates of Deposit,
Repurchase Agreements, and Money Market Mutual Funds,
all with such institutions which meet the Investment
Quality Standards noted in III-B.
3. Short-term tax-exempt securities including highest
quality Municipal Notes and Municipal Bonds as noted in
III-B-3, as well as prerefunded Municipal Bonds escrowed
to maturity and backed by U.S. Treasury Securities.
B. Investment Quality
1. Issuer or guarantor must have no less than "A" rating by
Standard & Poors or Moody's Investor Services on its
long-term debt.
2. Issuer or guarantor must have no less than "A-1"
(Standard & Poors) or "P-1" (Moody's Investor Services
on its commercial paper).
3. Municipal Bonds whose issuer must have no less than a
"AAA" rating by Standard & Poors, or "Aaa" by Moody's
Investor Services on its long-term debt.
<PAGE> 44
C. Term or Maturity
1. Appropriate to Company cash management and expansion
requirements with no more than 25% with maturities over
6 months. Portfolio emphasis will focus on short-term
maturities of 6 months or less.
D. Portfolio Diversification
1. Holdings of the securities of any one issuer are limited
to the higher of $1 million or 10% of the market value
of the portfolio so long as the portfolio exceeds $5
million. If portfolio is less than $5 million, holdings
may be no more than 20% in any one issuer's securities.
2. There is no limit on the holding of securities of the
U.S. Government or its agencies and instruments which
have the full faith and credit guarantees of the U.S.
Government.
E. Liquidity
1. There must be an active secondary market in the
instrument or confidence that a market maker would
make such a market.
IV. Investment Management
A. The Company shall appoint an Investment Policy Committee, which
shall be the Audit Committee of the Board of Directors. Such
committee shall propose the investment policy of the Company,
and such policy shall be approved by the Board of Directors.
This policy will be reviewed by the Committee periodically to
ensure it meets the needs and objectives of the Company.
B. The Company shall appoint an Investment Committee comprised of
the President, Chief Operating Officer, General Counsel, Chief
Financial Officer, and Controller.
C. The Chief Financial Officer has the authority and responsibility
for implementing this policy and for overseeing the management
of the investment portfolio and the preparation and issuance of
reports and the decisions as to allocation of investment funds.
<PAGE> 45
D. The resolution of the Board of Directors covering investments
and marketable securities states that any two of the President,
Chief Operating Officer, General Counsel, Chief Financial
Officer, or Controller are authorized to purchase, transfer,
negotiate, pledge, sell or otherwise dispose of securities on
behalf of the Company in such manner, at such times, and upon
such terms as they may deem wise and advantageous to the
Company, subject to all of the above.
V. Restrictions
In addition to the restrictions inherent in the above guidelines, the
Company and the Investment Committee may not:
A. Invest in the marketable securities and other short-term assets
as defined above of any issuers which have less than three years
of continuous operation.
B. Purchase securities on margin, sell securities short, or invest
in real estate unrelated to the operations of the Company.
C. Invest in commodities of any kind in any form.
D. Invest in pooled investments, the portfolios of which consist of
assets not listed above.
E. Invest or purchase derivatives, puts, calls, or other such
synthetic financial instruments.
<PAGE> 46
EXHIBIT C
LETTER OF CREDIT CHARGES
================================================================================
Import Letters of Credit Export Letters of Credit
- --------------------------------------------------------------------------------
Issuance 1/20 of 1.0% Advice $25.00/Each
- --------------------------------------------------------------------------------
Amendment 1/20 of 1.0% Amendment $25.00/Each
- --------------------------------------------------------------------------------
Negotiation $25.00/Set Negotiation $45.00/Each
- --------------------------------------------------------------------------------
Discrepancy $10.00/Set Discrepancy $10.00/Set
- --------------------------------------------------------------------------------
Courier Actual Cost Courier Actual Cost
================================================================================
<PAGE> 1
EXHIBIT 10.2
FIRST AMENDMENT TO VANS, INC. DEFERRED COMPENSATION AGREEMENT
FOR WALTER SCHOENFELD
This First Amendment to Vans, Inc. Deferred Compensation
Agreement is made and entered into, and is effective, as of this 1st day of
June, 1996, by and between VANS, INC., a Delaware corporation (the "Company"),
and WALTER SCHOENFELD (the "Executive"), with reference to the following facts:
A. As of June 1, 1996, the Company and the Executive
entered into that certain "Vans, Inc. Deferred Compensation Agreement for
Walter Schoenfeld" (the "Agreement"); and
B. The Executive and the Company hereby desire to amend
the Agreement, in the following particulars only:
NOW, THEREFORE, in consideration of the foregoing recitals,
and the agreements hereinafter set forth, the parties hereto agree as follows:
1. Section 2(b) of the Agreement shall be amended by adding to the end
thereof the following:
"Notwithstanding the foregoing provisions of this Section 2,
the Executive shall have one irrevocable option to receive a
single lump sum payment equal to the then remaining
<PAGE> 2
balance of the Trust as of January 31, 2001. This option
shall be exercisable only by written instrument delivered to
the Company on or after November 1, 2000, and on or before
December 15, 2000. If such option shall be exercised
effectively, the then remaining balance of the Trust as of
January 31, 2001, shall be paid to the Executive on or after
February 28, 2001, but in no event later than March 31, 2001,
and the Company shall have no further obligation to make any
other payments otherwise due under the Agreement or the Trust,
including without limitation any payments otherwise required
pursuant to Section 2(a). If such option shall not be
exercised effectively, then it shall lapse, and all payments
due hereunder shall only be made as provided in Section 2(a)
hereof."
-2-
<PAGE> 3
2. Except as expressly amended hereby, the Agreement is hereby ratified,
affirmed and approved in all respects.
"Company"
VANS, INC., A Delaware Corporation
By:______________________________
"Executive"
By:______________________________
WALTER SCHOENFELD
-3-
<PAGE> 1
EXHIBIT 10.3
AMENDMENT TO APPENDIX B, PAYMENT SCHEDULE,
TRUST UNDER VANS, INC. DEFERRED COMPENSATION PLAN
This instrument shall constitute the First Amendment to the
Payment Schedule set forth in Appendix B of the Trust Under Vans, Inc. Deferred
Compensation Plan, made and entered into as of the 1st day of June, 1996, by
and between Vans, Inc., A Delaware Corporation, and Chemical Trust Company of
California, A California Corporation.
Payment Schedule (Revised)
"Subject to the terms of the Plan, Eight Thousand Three
Hundred Thirty-Three Dollars ($8,333.00) to WALTER SCHOENFELD, and then to
ESTHER SCHOENFELD if she shall survive him, payable on the first calendar day
of each month, commencing July 1, 2001, and continuing uninterrupted until the
month next preceding the death of the survivor of WALTER and ESTHER SCHOENFELD;
provided, however, that amounts payable to ESTHER SCHOENFELD following the
death of WALTER SCHOENFELD shall be made only if she was married to him at the
time of his death.
Notwithstanding the foregoing provisions hereof, if WALTER
SCHOENFELD shall exercise the option set forth in Section 2(b) of the Plan, the
then remaining balance of the Trust as of January 31, 2001, shall be paid to
him on or after February 28, 2001, but on or March 31, 2001. The Trustee shall
have no
-1-
<PAGE> 2
obligation to make such lump sum distribution unless notified in writing by the
Company that WALTER SCHOENFELD has exercised effectively the option referred to
in the preceding sentence."
VANS, INC., A Delaware Corp.
By:_________________________
CHEMICAL TRUST COMPANY OF
CALIFORNIA, A California
Corporation
By:_________________________
-2-
<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ( "Agreement" herein) is entered
into as of December 4, 1996 by and between VANS, INC., a Delaware corporation
(the "Company"), and JAY WILSON ("Employee").
1. Employment and Duties. The Company hereby employs
Employee as Vice President - Marketing of the Company on the terms and subject
to the conditions contained in this Agreement. Employee shall be responsible
for managing the Company's marketing division. 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 December 3, 1999, unless
sooner terminated as provided herein. This Agreement does not give Employee
any enforceable right to employment beyond this term, and Employee agrees that
he shall have no rights hereunder thereafter. AS PROVIDED FURTHER IN PARAGRAPH
11.1 BELOW, THIS AGREEMENT CONSTITUTES AN EMPLOYMENT AT-WILL THAT MAY BE
TERMINATED AT ANY TIME BY COMPANY OR EMPLOYEE, WITH OR WITHOUT CAUSE,
NOTWITHSTANDING THE THREE - YEAR TERM OF THIS AGREEMENT. IF EMPLOYEE IS
TERMINATED WITHOUT CAUSE DURING THE TERM HEREOF, OR AFTER A "CHANGE IN
MANAGEMENT OR CONTROL," AS DEFINED IN PARAGRAPH 11.5 BELOW, OR TERMINATES THIS
AGREEMENT FOR "GOOD REASON," AS DEFINED IN PARAGRAPH 11.3 BELOW, EMPLOYEE'S
SOLE REMEDY SHALL BE THE COMPENSATION SET FORTH IN PARAGRAPH 11.4 BELOW.
Initial _________ Initial__________
Representative Employee
of the Company
<PAGE> 2
3. Salary Compensation. As salary compensation for
Employee's services hereunder and all the rights granted hereunder by Employee
to the Company, the Company shall pay Employee a gross salary of $140,000 per
annum. Employee's salary shall be payable in bi-weekly increments in accordance
with the Company's payroll practices for salaried employees, upon the condition
that Employee fully and faithfully performs Employee's services hereunder in
accordance with the terms and conditions of this Agreement. The Company shall
deduct and withhold from the compensation payable to Employee hereunder any and
all amounts required to be deducted or withheld by the Company under the
provisions of any statute, regulation, ordinance, or order and any and all
amendments hereinafter enacted requiring the withholding or deducting from
compensation payable to employees.
4. Expense Reimbursement. Employee shall be reimbursed by
the Company for all traveling, hotel, entertainment and other expenses that are
properly and necessarily incurred by Employee, pursuant to the Company's
policies on the same.
5. Death or Disability of Employee.
5.1 General. In the event of Employee's death or
"disability" (as such term is defined in Paragraph 5.2 hereof) while in the
employ of the Company, this Agreement, and the compensation due to Employee
pursuant to Paragraph 3 hereof, shall terminate upon the date of death or
disability and the Company shall thereafter be required to make payments only
to Employee, as provided in Paragraph 11.2 hereof. If Employee shall recover
from such disability prior to the expiration date of the Agreement, this
Agreement and Employee's employment hereunder shall be reinstated for the
balance of the term of this Agreement.
5.2 Definition of Disability. Employee shall be
deemed disabled if, in the sole opinion of the Company, Employee is unable to
substantially perform the services required of Employee hereunder for a period
in excess of 60 consecutive work days or 60 work days during any 90 work day
period. In such event, Employee shall be deemed disabled as of such 60th work
day.
6. Restrictive Covenant. During the term of this Agreement,
Employee shall (i) devote his full time and energy solely and exclusively to
the performance of his duties described herein; (ii) not directly or
indirectly provide services to or through any company or firm except the
Company unless otherwise instructed by the Company; (iii) not directly or
indirectly own, manage, operate, join, control, contribute to, or participate
in the ownership, management, operation or control of or be employed by or
connected in any manner with any enterprise which is engaged in any business
competitive with or similar to that of the Company; and (iv) not render any
services of any kind or character for Employee's own account of for any other
person, firm or corporation without first obtaining the Company's consent in
writing; provided, however, Employee shall have the right to perform such
incidental services as are
2
<PAGE> 3
necessary in connection with Employee's (a) private passive investments where
he is not obligated or required to, and shall not in fact, devote any
managerial efforts, as long as such investments are not in companies which are
in competition in any way with the Company; or (b) charitable or community
activities, or in trade or professional organizations, provided that such
incidental services do not interfere with the performance of Employee's
services hereunder.
7. Non-Solicitation. Employee shall not, during the
full term of this Agreement and for a period of one (1) year thereafter, for
himself or on behalf of any other person, partnership, corporation or entity,
directly or indirectly, or by action in concert with others, solicit, induce,
suggest or encourage any person known to him to be an employee of the Company
or any affiliate of the Company to terminate his or her employment or other
contractual relationship with the Company or any of its affiliates.
8. Trade Secrets and Related Matters
8.1 Definitions. For purpose of this Section 8:
(a) "Records" means files, accounts,
records, log books, documents, drawings, sketches, designs, diagrams,
models, plans, blueprints, specifications, manuals, books, forms, notes,
reports, memoranda, studies, surveys, software, flow charts, data, computer
programs, listing of source code, calculations, recordings, catalogues,
compilations of information, correspondence, confidential data of customers and
all copies, abstracts or summaries of the foregoing in any storage medium, as
well as instruments, tools, storage devices, disks, equipment and all other
physical items related to the business of the Company (other than merely
personal items of a general professional nature), whether of a public nature or
not, and whether prepared by Employee or not.
(b) "Trade Secrets" means confidential
business or technical information or trade secrets of the Company which
Employee acquires while employed by the Company, whether or not conceived of,
developed or prepared by Employee or at his direction and includes:
(i) Any information or compilation
of information concerning the Company's financial position, financing,
purchasing, accounting, marketing, merchandising, sales, salaries, pricing,
investments, costs, profits, plans for future development, employees,
prospective employees, research, development, formulae, patterns, inventions,
plans, specifications, devices, products, procedures, processes, operations,
techniques, software, computer programs or data;
(ii) Any information or compilation
of information concerning the identity, plans, requirements, preferences,
practices and methods of doing business on specific customers, suppliers,
prospective customers and prospective suppliers of the Company;
3
<PAGE> 4
(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.
8.4 Records.
(a) Ownership. All Records are and
shall remain the exclusive property of the Company.
4
<PAGE> 5
(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. With respect to the Company's Fiscal
1997 Bonus Plan, Employee shall have an opportunity to earn a bonus up to 30%
of his base compensation, with a guaranteed bonus of $15,000; provided,
Employee complies with the terms of the Fiscal 1997 Bonus Plan.
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
5
<PAGE> 6
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 -
Marketing without Cause during the term of this Agreement; or (ii) without
Employee's consent, a majority of the duties defined in Section 1 hereof are
removed from Employee's responsibilities. The term Good Reason does not include
a situation where certain of the duties defined in Section 1 hereof are removed
from Employee's responsibilities and are replaced with duties which have
greater responsibility and/or authority than the duties which are removed.
Unless Employee terminates this Agreement within thirty (30) days of learning
from any source that the Company has acted so as to provide Good Reason for
Employee to terminate this Agreement, and gives thirty (30) days' written
notice of such termination, Employee's right to receive severance compensation
pursuant to Paragraph 11.4 for such event shall be forever lost.
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
6
<PAGE> 7
period of the lesser of (i) the remaining portion of the term of this
Agreement, or (ii) six (6) months from the date of termination; provided,
however, if Employee is employed by a new employer, or as a consultant during
such period, the severance compensation payable to Employee hereunder shall be
reduced by the amount of compensation that Employee actually receives from the
new employer, or as a consultant. However, Employee shall have a duty to inform
the Company that he has obtained such new employment, and the failure to do so
is a material breach of this Agreement. In such event, the Company shall be
entitled to (i) cease all payments to Employee under this Paragraph 11.4; and
(ii) recover any unauthorized payments to Employee in an action for breach of
contract. Notwithstanding anything else in this Agreement to the contrary,
solely in the event of a termination upon or following a Change in Management
or Control, the amount of severance compensation paid to Employee hereunder
shall not include any amount that the Company is prohibited from deducting for
federal income tax purposes by virtue of Section 280G of the Internal Revenue
Code of 1986, as amended, or any successor provision. In addition to the
foregoing severance compensation, the Company shall pay Employee (i) all
compensation for services rendered hereunder and not previously paid; (ii)
accrued vacation pay; and (iii) any appropriate business expenses incurred by
Employee in connection with his duties hereunder and approved pursuant to
Section 4 hereof, all through the date of termination. Employee shall not be
entitled to any bonus compensation, whether vested or unvested; or any other
compensation, benefits or reimbursement of any kind.
11.5 Definition of "Change in Management or
Control." The term "Change in Management or Control" means (i) the time that
the Company first determines that any person and all other persons who
constitute a group (within the meaning of Section 13(d)(3) of the Securities
Exchange Act of 1934 ("Exchange Act")) have acquired direct or indirect
beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act)
of twenty percent (20%) or more of the Company's outstanding securities,
unless a majority of the "Continuing Directors" (as such term is hereinafter
defined) approves the acquisition not later than ten (10) business days after
the Company makes that determination, or (ii) the first day on which a majority
of the members of the Company's Board of Directors are not "Continuing
Directors." The term "Continuing Directors" means, as of any date of
determination, any member of the Board of Directors of the Company who (i) was
a member of that Board of Directors on the date of this Agreement, (iii) has
been a member of that Board of Directors for the two years immediately
preceding such date of determination, or (iv) was nominated for election or
elected to the Board of Directors with the affirmative vote of the greater of
(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
7
<PAGE> 8
in accordance with its provisions, the Company may, in its sole discretion,
relieve Employee of his duties under this Agreement or assign Employee other
duties and responsibilities to be performed until the termination becomes
effective.
12. Services Unique. It is agreed that the services to be
rendered by Employee hereunder are of a special, unique, unusual,
extraordinary and intellectual character which gives them a peculiar value, the
loss of which cannot be reasonably or adequately compensated in damages in an
action at law and that a breach by Employee of any of the provisions contained
herein will cause the Company irreparable injury and damage. Employee
expressly agrees that the Company shall be entitled to injunctive or other
equitable relief to prevent a breach hereof. Resort to any such equitable
relief shall not be construed as a waiver of any of the rights or remedies
which the Company may have against Employee for damages or otherwise.
13. Key Man Life Insurance. During the term of this
Agreement, the Company may at any time effect insurance on Employee's life
and/or health in such amounts and in such form as the Company may in its sole
discretion decide. Employee shall not have any interest in such insurance, but
shall, if the Company requests, submit to such medical examinations, supply
such information and execute such documents as may be required in connection
with, or so as to enable the Company to effect, such insurance.
14. Vacation. Employee shall have the right during each one
year period of the term of this Agreement to take an aggregate of three weeks
of vacation, with pay, at such times as are mutually convenient to Employee and
to the Company.
15. Notices. Any and all notices, demands or other
communications required or desired to be given hereunder by any party shall be
in writing and shall be validly given or made to another party if given by
personal delivery, telex, facsimile, telegram or if deposited in the United
States mail, certified or registered, postage prepaid, return receipt
requested. If such notice, demand or other communication is given by personal
delivery, telex, facsimile or telegram, service shall be conclusively deemed
made at the time of such personal service. If such notice, demand or other
communication is given by mail, such notice shall be conclusively deemed given
forty-eight (48) hours after the deposit thereof in the United States mail
addressed to the party to whom such notice, demand or other communication is to
be given as hereinafter set forth:
To the Company: VANS, INC.
2095 Batavia Street
Orange, California 92665-3101
Attn: General Counsel
(714) 974-4481 - facsimile
8
<PAGE> 9
To Employee: Jay Wilson
(at the address set forth below his signature)
Any party hereto may change his or its address for the purpose of receiving
notices, demands and other communications as herein provided by a written
notice given in the manner aforesaid to the other party or parties hereto.
16. Applicable Law and Severability. This Agreement shall,
in all respects, be governed by the laws of the State of California applicable
to agreements executed and to be wholly performed within the State of
California. Nothing contained herein shall be construed so as to require the
commission of any act contrary to law, and wherever there is any conflict
between any provision contained herein and any present or future statute, law,
ordinance or regulation contrary to which the parties have no legal right to
contract, the latter shall prevail but the provision of this Agreement which is
affected shall be curtailed and limited only to the extent necessary to bring
it within the requirements of the law.
17. Attorneys' Fees. In the event any action is instituted
by a party to enforce any of the terms and provisions contained herein, the
prevailing party in such action shall be entitled to such reasonable attorneys'
fees, costs and expenses as may be fixed by the Court.
18. Modifications or Amendments. No amendment, change or
modification of this Agreement shall be valid unless in writing and signed by
all of the parties hereto. Further, any amendment, change or modification of
this Agreement (including but not limited to the at-will nature of this
Agreement as set forth in Section 2 and Paragraph 11.1 hereof) must be approved
in advance by the Board of Directors of Company and reflected in the minutes of
such Board's meetings or in an action by unanimous written consent.
19. Successors and Assigns. All of the terms and provisions
contained herein shall inure to the benefit of and shall be binding upon the
parties hereto and their respective heirs, personal representatives, successors
and assigns.
20. Entire Agreement. This Agreement constitutes the entire
understanding and agreement of the parties with respect to the subject matter
of this Agreement, and any and all prior agreements, understandings or
representations are hereby terminated and canceled in their entirety and are of
no further force or effect.
21. Counterparts. This Agreement may be executed in
counterparts.
22. Arbitration of Employment Disputes. Any dispute or
controversy arising out of this Agreement or the employment relationship
between Employee and the Company shall, at any time following the termination
of Employee's employment, be submitted to final and binding arbitration that
shall comply with the applicable
9
<PAGE> 10
arbitration rules of Judicial Arbitration and Mediation Service
("JAMS")/Endispute, and judgment upon the award rendered by the arbitrator may
be entered in any court having jurisdiction thereof. Provided, however, that
this agreement to arbitrate does not effect any action by the Company to
enforce its rights to protect trade secrets or confidential information through
an action for injunctive relief. The cost of arbitration (including reasonable
attorneys' fees) shall be borne by the losing party. The arbitration shall
occur in Orange, California and the parties hereby consent to the jurisdiction
of the arbitrator and to service of process. EMPLOYEE HEREBY UNDERSTANDS THAT,
BY SIGNING THIS AGREEMENT, HE IS AGREEING TO HAVE ANY CLAIM HEREUNDER DECIDED
BY NEUTRAL ARBITRATION AND IS GIVING UP THE RIGHT TO A JURY OR COURT TRIAL.
23. Survival of Certain Provisions. Sections 7,8,9, and
22 of this Agreement shall survive the termination hereof.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
EMPLOYEE: THE COMPANY:
VANS, INC.,
a Delaware corporation
/s/ JAY WILSON By: /s/ CRAIG E. GOSSELIN
- --------------------------- ------------------------
Jay Wilson
Vice President and
854 ONEONTA DR. General Counsel
S. PASADENA ------------------------
CA 91030 Title
- ---------------------------
Address
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<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ( "Agreement" herein) is entered
into as of December 17, 1996 by and between VANS, INC., a Delaware corporation
(the "Company"), and CASEY G. WAID ("Employee").
1. Employment and Duties. The Company hereby employs
Employee as Vice President - Apparel of the Company on the terms and subject to
the conditions contained in this Agreement. Employee shall be responsible for
managing and directing the operation of the Company's apparel division.
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 her, 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 her hereunder, and she hereby represents that she
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 her 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 her duties hereunder.
2. Term of Employment. The term of this Agreement shall
commence as of the date hereof and shall terminate on December 16, 1999, unless
sooner terminated as provided herein. This Agreement does not give Employee
any enforceable right to employment beyond this term, and Employee agrees that
she shall have no rights hereunder thereafter. AS PROVIDED FURTHER IN
PARAGRAPH 11.1 BELOW, THIS AGREEMENT CONSTITUTES AN EMPLOYMENT AT-WILL THAT MAY
BE TERMINATED AT ANY TIME BY COMPANY OR EMPLOYEE, WITH OR WITHOUT CAUSE,
NOTWITHSTANDING THE THREE-YEAR TERM OF THIS AGREEMENT. IF EMPLOYEE IS
TERMINATED WITHOUT CAUSE DURING THE TERM HEREOF, OR AFTER A "CHANGE IN
MANAGEMENT OR CONTROL," AS DEFINED IN PARAGRAPH 11.5 BELOW, OR TERMINATES THIS
AGREEMENT FOR "GOOD REASON," AS DEFINED IN PARAGRAPH 11.3 BELOW, EMPLOYEE'S
SOLE REMEDY SHALL BE THE COMPENSATION SET FORTH IN PARAGRAPH 11.4 BELOW.
Initial Initial
--------- ---------
Representative Employee
of the Company
1
<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 $95,000 per
annum. Employee's salary shall be payable in bi-weekly increments in accordance
with the Company's payroll practices for salaried employees, upon the condition
that Employee fully and faithfully performs Employee's services hereunder in
accordance with the terms and conditions of this Agreement. The Company shall
deduct and withhold from the compensation payable to Employee hereunder any and
all amounts required to be deducted or withheld by the Company under the
provisions of any statute, regulation, ordinance, or order and any and all
amendments hereinafter enacted requiring the withholding or deducting from
compensation payable to employees.
4. Expense Reimbursement. Employee shall be reimbursed by
the Company for all traveling, hotel, entertainment and other expenses that are
properly and necessarily incurred by Employee, pursuant to the Company's
policies on the same.
5. Death or Disability of Employee.
5.1 General. In the event of Employee's death or
"disability" (as such term is defined in Paragraph 5.2 hereof) while in the
employ of the Company, this Agreement, and the compensation due to Employee
pursuant to Paragraph 3 hereof, shall terminate upon the date of death or
disability and the Company shall thereafter be required to make payments only
to Employee, as provided in Paragraph 11.2 hereof. If Employee shall recover
from such disability prior to the expiration date of the Agreement, this
Agreement and Employee's employment hereunder shall be reinstated for the
balance of the term of this Agreement.
5.2 Definition of Disability. Employee shall be
deemed disabled if, in the sole opinion of the Company, Employee is unable to
substantially perform the services required of Employee hereunder for a period
in excess of 60 consecutive work days or 60 work days during any 90 work day
period. In such event, Employee shall be deemed disabled as of such 60th work
day.
6. Restrictive Covenant. During the term of this Agreement,
Employee shall (i) devote her full time and energy solely and exclusively to
the performance of her duties described herein; (ii) not directly or
indirectly provide services to or through any company or firm except the
Company unless otherwise instructed by the Company; (iii) not directly or
indirectly own, manage, operate, join, control, contribute to, or participate
in the ownership, management, operation or control of or be employed by or
connected in any manner with any enterprise which is engaged in any business
competitive with or similar to that of the Company; and (iv) not render any
services of any kind or character for Employee's own account of for any other
person, firm or corporation without first obtaining the Company's consent in
writing; provided, however, Employee shall have the right to perform such
incidental services as are
2
<PAGE> 3
necessary in connection with Employee's (a) private passive investments where
she 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
herself 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 her to be an employee of the Company
or any affiliate of the Company to terminate his or her employment or other
contractual relationship with the Company or any of its affiliates.
8. Trade Secrets and Related Matters
8.1 Definitions. For purpose of this Section 8:
(a) "Records" means files, accounts, records,
log books, documents, drawings, sketches, designs, diagrams, models, plans,
blueprints, specifications, manuals, books, forms, notes, reports, memoranda,
studies, surveys, software, flow charts, data, computer programs, listing of
source code, calculations, recordings, catalogues, compilations of information,
correspondence, confidential data of customers and all copies, abstracts or
summaries of the foregoing in any storage medium, as well as instruments,
tools, storage devices, disks, equipment and all other physical items related
to the business of the Company (other than merely personal items of a general
professional nature), whether of a public nature or not, and whether prepared
by Employee or not.
(b) "Trade Secrets" means confidential
business or technical information or trade secrets of the Company which
Employee acquires while employed by the Company, whether or not conceived of,
developed or prepared by Employee or at his direction and includes:
(i) Any information or compilation
of information concerning the Company's financial position, financing,
purchasing, accounting, marketing, merchandising, sales, salaries, pricing,
investments, costs, profits, plans for future development, employees,
prospective employees, research, development, formulae, patterns, inventions,
plans, specifications, devices, products, procedures, processes, operations,
techniques, software, computer programs or data;
(ii) Any information or compilation
of information concerning the identity, plans, requirements, preferences,
practices and methods of doing business on specific customers, suppliers,
prospective customers and prospective suppliers of the Company;
3
<PAGE> 4
(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 her duties to the Company.
8.4 Records.
(a) Ownership. All Records are and shall
remain the exclusive property of the Company.
4
<PAGE> 5
(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 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 she 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 she 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.
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)
5
<PAGE> 6
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 her obligations
under this Agreement or follow the instructions of her 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 her 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 her 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 -
Apparel without Cause during the term of this Agreement; or (ii) without
Employee's consent, a majority of the duties defined in Section 1 hereof are
removed from Employee's responsibilities. The term Good Reason does not include
a situation where certain of the duties defined in Section 1 hereof are removed
from Employee's responsibilities and are replaced with duties which have
greater responsibility and/or authority than the duties which are removed.
Unless Employee terminates this Agreement within thirty (30) days of learning
from any source that the Company has acted so as to provide Good Reason for
Employee to terminate this Agreement, and gives thirty (30) days' written
notice of such termination, Employee's right to receive severance compensation
pursuant to Paragraph 11.4 for such event shall be forever lost.
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 her 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
6
<PAGE> 7
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 she 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
her duties hereunder and approved pursuant to Section 4 hereof, all through the
date of termination. Employee shall not be entitled to any bonus compensation,
whether vested or unvested; or any other compensation, benefits or
reimbursement of any kind.
11.5 Definition of "Change in Management or
Control." The term "Change in Management or Control" means (i) the time that
the Company first determines that any person and all other persons who
constitute a group (within the meaning of Section 13(d)(3) of the Securities
Exchange Act of 1934 ("Exchange Act")) have acquired direct or indirect
beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act)
of twenty percent (20%) or more of the Company's outstanding securities,
unless a majority of the "Continuing Directors" (as such term is hereinafter
defined) approves the acquisition not later than ten (10) business days after
the Company makes that determination, or (ii) the first day on which a majority
of the members of the Company's Board of Directors are not "Continuing
Directors." The term "Continuing Directors" means, as of any date of
determination, any member of the Board of Directors of the Company who (i) was
a member of that Board of Directors on the date of this Agreement, (iii) has
been a member of that Board of Directors for the two years immediately
preceding such date of determination, or (iv) was nominated for election or
elected to the Board of Directors with the affirmative vote of the greater of
(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 her 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 her duties under this
Agreement or assign Employee other duties and responsibilities to be performed
until the termination becomes effective.
7
<PAGE> 8
12. Services Unique. It is agreed that the services to be
rendered by Employee hereunder are of a special, unique, unusual,
extraordinary and intellectual character which gives them a peculiar value, the
loss of which cannot be reasonably or adequately compensated in damages in an
action at law and that a breach by Employee of any of the provisions contained
herein will cause the Company irreparable injury and damage. Employee
expressly agrees that the Company shall be entitled to injunctive or other
equitable relief to prevent a breach hereof. Resort to any such equitable
relief shall not be construed as a waiver of any of the rights or remedies
which the Company may have against Employee for damages or otherwise.
13. Key Man Life Insurance. During the term of this
Agreement, the Company may at any time effect insurance on Employee's life
and/or health in such amounts and in such form as the Company may in its sole
discretion decide. Employee shall not have any interest in such insurance, but
shall, if the Company requests, submit to such medical examinations, supply
such information and execute such documents as may be required in connection
with, or so as to enable the Company to effect, such insurance.
14. Vacation. Employee shall have the right during each one
year period of the term of this Agreement to take an aggregate of three weeks
of vacation, with pay, at such times as are mutually convenient to Employee and
to the Company.
15. Notices. Any and all notices, demands or other
communications required or desired to be given hereunder by any party shall be
in writing and shall be validly given or made to another party if given by
personal delivery, telex, facsimile, telegram or if deposited in the United
States mail, certified or registered, postage prepaid, return receipt
requested. If such notice, demand or other communication is given by personal
delivery, telex, facsimile or telegram, service shall be conclusively deemed
made at the time of such personal service. If such notice, demand or other
communication is given by mail, such notice shall be conclusively deemed given
forty-eight (48) hours after the deposit thereof in the United States mail
addressed to the party to whom such notice, demand or other communication is to
be given as hereinafter set forth:
To the Company: VANS, INC.
2095 Batavia Street
Orange, California 92865
Attn: General Counsel
(714) 974-4481 - facsimile
To Employee: Casey G. Waid
(at the address set forth below her signature)
8
<PAGE> 9
Any party hereto may change her or its address for the purpose of receiving
notices, demands and other communications as herein provided by a written
notice given in the manner aforesaid to the other party or parties hereto.
16. Applicable Law and Severability. This Agreement shall,
in all respects, be governed by the laws of the State of California applicable
to agreements executed and to be wholly performed within the State of
California. Nothing contained herein shall be construed so as to require the
commission of any act contrary to law, and wherever there is any conflict
between any provision contained herein and any present or future statute, law,
ordinance or regulation contrary to which the parties have no legal right to
contract, the latter shall prevail but the provision of this Agreement which is
affected shall be curtailed and limited only to the extent necessary to bring
it within the requirements of the law.
17. Attorneys' Fees. In the event any action is instituted
by a party to enforce any of the terms and provisions contained herein, the
prevailing party in such action shall be entitled to such reasonable attorneys'
fees, costs and expenses as may be fixed by the Court.
18. Modifications or Amendments. No amendment, change or
modification of this Agreement shall be valid unless in writing and signed by
all of the parties hereto. Further, any amendment, change or modification of
this Agreement (including but not limited to the at- will nature of this
Agreement as set forth in Section 2 and Paragraph 11.1 hereof) must be approved
in advance by the Board of Directors of Company and reflected in the minutes of
such Board's meetings or in an action by unanimous written consent.
19. Successors and Assigns. All of the terms and provisions
contained herein shall inure to the benefit of and shall be binding upon the
parties hereto and their respective heirs, personal representatives, successors
and assigns.
20. Entire Agreement. This Agreement constitutes the entire
understanding and agreement of the parties with respect to the subject matter
of this Agreement, and any and all prior agreements, understandings or
representations are hereby terminated and canceled in their entirety and are of
no further force or effect.
21. Counterparts. This Agreement may be executed in
counterparts.
22. Arbitration of Employment Disputes. Any dispute or
controversy arising out of this Agreement or the employment relationship
between Employee and the Company shall, at any time following the termination
of Employee's employment, be submitted to final and binding arbitration that
shall comply with the applicable arbitration rules of Judicial Arbitration and
Mediation Service ("JAMS")/Endispute, and judgment upon the award rendered by
the arbitrator may be entered in any court having jurisdiction thereof.
Provided, however, that this agreement to arbitrate does not affect
9
<PAGE> 10
any action by the Company to enforce its rights to protect trade secrets or
confidential information through an action for injunctive relief. The cost of
arbitration (including reasonable attorneys' fees) shall be borne by the losing
party. The arbitration shall occur in Orange, California and the parties
hereby consent to the jurisdiction of the arbitrator and to service of process.
EMPLOYEE HEREBY UNDERSTANDS THAT, BY SIGNING THIS AGREEMENT, SHE IS AGREEING TO
HAVE ANY CLAIM HEREUNDER DECIDED BY NEUTRAL ARBITRATION AND IS GIVING UP THE
RIGHT TO A JURY OR COURT TRIAL.
23. Survival of Certain Provisions. Sections 7,8,9, and
22 of this Agreement shall survive the termination hereof.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
EMPLOYEE: THE COMPANY:
VANS, INC.,
a Delaware corporation
By:
- --------------------------- ------------------------
Casey G. Waid
- --------------------------- ------------------------
Address Title
10
<PAGE> 1
EXHIBIT 10.6
AMENDMENT NO. 6
TO
VANS, INC.
1991 LONG-TERM INCENTIVE PLAN
The purpose of this Amendment is to increase the maximum number of
shares of the Company's Common Stock, par value $.001 per share ("Common
Stock"), that may be issued upon the exercise of options granted under the
Plan. The Plan is hereby amended as follows:
1. Section 3 (a) of the Plan is hereby deleted in its entirety
and the following is substituted in lieu thereof:
"(a) Subject to the provisions of paragraph 9 relating to
adjustments upon changes in stock, the stock that may be sold pursuant to
options granted under the Plan shall not exceed in the aggregate Two
Million (2,000,000) shares of the Company's Common Stock, $.001 par value
per share ("Common Stock"), plus any and all shares of Common Stock
available for grants of options under the Company's 1988 Incentive Stock
Option Plan (the "1988 Plan"). If any option granted under the Plan or
the 1988 Plan shall for any reason expire or otherwise terminate without
having been exercised in full, the Common Stock not purchased under such
option shall again become available for issuance under the Plan."
2. Except as provided herein, the Plan shall be unmodified and
remain in full force and effect.
Dated: August 21, 1996
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<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> SEP-01-1996
<PERIOD-END> NOV-30-1996
<CASH> 12,939,002
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<RECEIVABLES> 25,827,173
<ALLOWANCES> 1,741,376
<INVENTORY> 24,682,053
<CURRENT-ASSETS> 63,556,852
<PP&E> 15,588,310
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<CURRENT-LIABILITIES> 13,268,129
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0
0
<COMMON> 13,080
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<TOTAL-LIABILITY-AND-EQUITY> 98,444,149
<SALES> 37,104,812
<TOTAL-REVENUES> 37,104,812
<CGS> 23,140,725
<TOTAL-COSTS> 23,140,725
<OTHER-EXPENSES> 10,758,923
<LOSS-PROVISION> 167,623
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<INCOME-PRETAX> 3,936,605
<INCOME-TAX> 1,519,530
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