<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 August 28, 1999 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _______ to _______
Commission File Number 0-19402
VANS, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 33-0272893
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
15700 Shoemaker Avenue
Santa Fe Springs, California 90670-5515
(Address of Principal Executive Offices) (Zip Code)
(562) 565-8267
(Registrant's Telephone Number, Including Area Code)
Not applicable
(Former Name, Former Address and Formal Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report(s), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
13,525,457 shares of Common Stock, $.001 par value, as of October 12, 1999.
<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
VANS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AUGUST 28, 1999 AND MAY 31, 1999
<TABLE>
<CAPTION>
AUGUST 28, MAY 31,
1999 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 12,397,150 $ 7,777,192
Accounts receivable, net of allowance for doubtful accounts of
$1,598,400 and $1,432,214 at August 28, 1999, and May 31, 1999,
respectively 49,452,837 30,056,150
Inventories 46,090,816 37,024,553
Deferred tax assets 1,378,456 1,378,456
Prepaid expenses 6,863,532 7,823,767
------------ ------------
Total current assets 116,182,791 84,060,118
Property, plant and equipment, net 19,560,618 15,809,950
Property held for lease 4,586,790 4,601,326
Excess of cost over the fair value of net assets
acquired, net of accumulated amortization of $36,007,524
and $35,695,857 at August 28, 1999,
and May 31, 1999, respectively 23,059,324 23,126,700
Other assets 2,824,247 2,939,623
------------ ------------
Total Assets $166,213,770 $130,537,717
============ ============
LABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 29,379,082 $ 9,184,836
Accounts payable 14,338,936 10,600,870
Accrued payroll and related expenses 3,733,388 2,132,446
Accrued interest 652,149 479,210
Restructure costs 730,141 730,141
Income taxes payable 3,176,055 343,698
------------ ------------
Total current liabilities 52,009,751 23,471,201
------------ ------------
Deferred tax liabilities 2,178,897 2,090,536
Capital lease obligation 37,034 90,893
Long term debt 10,005,602 8,712,129
------------ ------------
Total Liabilities 64,231,284 34,364,759
------------ ------------
Minority interest 1,332,967 1,021,754
Stockholders' equity:
Preferred stock, $.001 par value, 5,000,000 shares
authorized (1,500,000 shares designated as Series A
Participating Preferred Stock), none issued and outstanding -- --
Common stock, $.001 par value, 20,000,000 shares
authorized, 13,498,253 and 13,238,567 shares issued and
outstanding at August 28, 1999,
and May 31, 1999, respectively 13,471 13,235
Accumulated other comprehensive income (10,748) (37,774)
Additional paid-in capital 102,021,022 102,092,026
Accumulated deficit (1,374,226) (6,916,283)
------------ ------------
Total Shareholders' Equity 100,649,519 95,151,204
------------ ------------
Total Liabilities and Shareholders' Equity $166,213,770 $130,537,717
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 3
VANS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
THIRTEEN WEEKS ENDED AUGUST 28, 1999 AND AUGUST 29, 1998
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
AUGUST 28, AUGUST 29,
1999 1998
----------- -----------
<S> <C> <C>
Net sales $82,150,779 $65,503,519
Cost of sales 47,587,099 37,398,646
----------- -----------
Gross profit 34,563,681 28,104,872
Operating expenses:
Selling and distribution 14,893,782 10,631,144
Marketing, advertising and promotion 7,534,102 7,195,001
General and administrative 2,991,357 2,876,869
Provision for doubtful accounts 153,002 163,845
Amortization of intangibles 333,715 265,151
----------- -----------
Total operating expenses 25,905,958 21,132,010
----------- -----------
Earnings from operations 8,657,723 6,972,863
Interest income 33,362 80,159
Interest and debt expense (422,876) (157,918)
Other income 1,181,134 743,771
----------- -----------
Earnings before taxes 9,449,342 7,638,875
Income tax expense 3,212,777 2,749,995
Minority share of income 301,213 150,686
----------- -----------
Net earnings 5,935,352 4,738,194
Other comprehensive income, net of tax
Foreign currency translation adjustment 17,838 59,812
----------- -----------
Comprehensive net earnings $ 5,953,190 $ 4,798,005
=========== ===========
Earnings per share information:
Basic:
Net earnings per share $ 0.44 $ 0.36
=========== ===========
Weighted average common and common
equivalent shares (Note 3) 13,485,685 13,301,635
Diluted:
Net earnings per share $ 0.42 $ 0.35
=========== ===========
Weighted average common and common
equivalent shares (Note 3) 14,210,716 13,644,874
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
VANS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THIRTEEN WEEKS ENDED AUGUST 28, 1999 AND AUGUST 29, 1998
<TABLE>
<CAPTION>
AUGUST 28, AUGUST 29,
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 5,935,532 $ 4,738,194
Adjustments to reconcile net earnings to net cash
used in operating activities:
Depreciation and amortization 1,553,886 1,091,760
Minority Share of Income 301,213 150,686
Provision for losses on accounts receivable and sales returns 157,501 163,845
Changes in assets and liabilities, net of effects of business acquisition:
Accounts receivable (19,554,188) (17,656,996)
Inventories (9,054,494) (6,140,657)
Deferred income taxes 88,361 265,407
Prepaid expenses 1,173,864 1,187,998
Other assets (98,611) (481,586)
Accounts payable 3,545,385 1,008,548
Accrued payroll and related expenses 632,671 (386,436)
Restructuring costs -- (1,591,055)
Income taxes payable 2,832,357 2,134,433
------------ ------------
Net cash used in operating activities (12,486,523) (15,515,859)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (3,470,500) (1,393,542)
Net cash proceeds (payments) from investments in other companies 37,885 (248,516)
Cash received through business acquisition -- 91,231
Proceeds from sale of property, plant and equipment -- 761,733
------------ ------------
Net cash used in investing activities (3,432,615) (789,094)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short term borrowings 19,724,967 7,275,607
Payments on capital lease obligations (53,859) (40,712)
Proceeds from long term debt 831,144 1,257,819
Proceeds from issuance of common stock -- 109,426
Payment for repurchase of common stock -- (2,494,265)
------------ ------------
Net cash provided by financing activities 20,502,252 6,107,875
Effect of exchange rate changes 36,844 93,457
------------ ------------
Net increase (decrease) in cash and cash equivalents 4,619,958 (10,103,621)
Cash and cash equivalents, beginning of period 7,777,192 16,779,528
------------ ------------
Cash and cash equivalents, end of period $ 12,397,150 $ 6,675,907
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION - AMOUNTS PAID FOR:
Interest $ 115,664 $ 64,310
Income taxes $ -- $ 640,000
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Business acquisition
Common stock issued for business acquisition $ -- $ 1,999,380
Note payable issued for business acquisition $ -- $ 1,483,479
Fair value of net liabilities assumed, excluding cash received $ -- $ 988,665
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
VANS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. 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>
AUGUST 28, MAY 31,
1999 1999
----------- -----------
<S> <C> <C>
Work-in-process $ 446,014 $ 138,004
Finished goods 46,523,557 37,568,147
Less: valuation allowance (878,755) (681,598)
----------- -----------
$46,090,816 $37,024,553
=========== ===========
</TABLE>
3. Basic earnings per share represents net earnings divided by the
weighted-average number of common shares outstanding for the period. Diluted
earnings per share represents net earnings divided by the weighted-average
number of shares outstanding, inclusive of the dilutive impact of common
stock equivalents. During the thirteen-week periods ended August 28, 1999,
and August 29, 1998, the difference between the weighted average number of
shares used in the basic computation compared to that used in the diluted
computation was due to the dilutive impact of options to purchase common
stock.
The reconciliations of basic to diluted weighted average shares are as
follows:
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
AUGUST 28, AUGUST 29,
1999 1998
----------- -----------
<S> <C> <C>
Net earnings $ 5,935,352 $ 4,738,194
=========== ===========
Weighted average shares
used in basic computation 13,485,685 13,301,635
Dilutive stock options 725,031 343,239
----------- -----------
Weighted average shares
used for dilutive computation 14,210,716 13,644,874
=========== ===========
</TABLE>
4. Income taxes for the interim periods were computed using the effective tax
rate estimated to be applicable for the full fiscal year, which is subject to
ongoing review and evaluation by management.
5. During the fourth quarter of Fiscal 1998 ("Q4 Fiscal 1998"), the Company
restructured its U.S. operations and announced the closure of its last U.S.
manufacturing facility, located in Vista, California (the "Vista Facility").
The closure of the Vista Facility was primarily due to a significant
reduction in orders for footwear produced at such Facility. Additionally,
during Q4 Fiscal 1998, the Company commenced the restructuring of its
European operations by terminating certain distributor relationships and
replacing them with sales agents and a European-based operational structure
designed to directly support such agents.
The closure of the Vista Facility will result in the following benefits to
the Company: (i) decreased cost of goods for product produced at the Vista
Facility versus foreign-sourced product; (ii) the elimination of variances in
the manufacturing cost-per-unit which resulted from increases and decreases
in production levels at the Vista Facility; and (ii) increased management
focus on marketing and distribution rather than Facility management and cost
accounting. The replacement of distributors with sales agents will enable the
Company to recognize the sales and income previously recognized by the
distributors, and the establishment of a Company-owned European operational
structure should enable the Company to more efficiently coordinate its sales
and marketing efforts and control its distribution.
In Q4 Fiscal 1998, the Company provided $8,212,238 for restructuring related
to the closure of the Vista Facility and the restructuring of its European
operations. The estimated provision includes approximately $2,949,000 for
terminated international agreements and related costs, $2,184,000 for
estimated loss on sale of plant equipment, $1,433,000 in terminated raw
material contracts, $893,000 for involuntary termination benefits for
approximately 300 employees, and $753,000 for costs to close the plant
5
<PAGE> 6
and prepare the site for a new tenant.
The following table outlines the beginning balance of, and expenditures and
adjustments to, the restructuring accrual during the first quarter of Fiscal
2000 ("Q1 Fiscal 2000"):
<TABLE>
<CAPTION>
June 1, 1999 August 28, 1999
Balance Cash Non-Cash Balance
------------ ---- -------- ---------------
<S> <C> <C> <C> <C>
European Restructing:
Termination of international $730,000 $-- $-- $730,000
distributors
U.S. Restructuring:
Plant closure costs -- -- -- --
-------- --- --- --------
Total Restructuring Cost $730,000 $-- $-- $730,000
======== === === ========
</TABLE>
During Q1 Fiscal 2000, the Company did not incur any cash expenditures
related to the termination of two of the Company's international distributors
in Europe or the closure of the Vista Facility. The remaining restructuring
cost reserve will be incurred by the end of December 1999 in the form of cash
payments for one of the terminated international distributors. Such
expenditures will be funded out of operations.
6. The Company's accounting policies of the segments below are the same as those
described in its summary of accounting policies. The Company evaluates
performance based on segment revenues and consolidated operating income. The
Company's reportable segments have distinct sales channels. Each business
segment is summarized as follows:
<TABLE>
<CAPTION>
August 28, August 29,
1999 1998
----------- -----------
<S> <C> <C>
Retail $19,721,000 $16,438,000
Wholesale 35,126,000 34,048,000
International 27,304,000 15,018,000
----------- -----------
$82,151,000 $65,504,000
============ ============
</TABLE>
The Company does not have any individual customers representing more
than 10% of sales.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The following discussion contains forward-looking statements about the
Company's revenues, earnings, spending, margins, orders, products, plans,
strategies and objectives that involve risk and uncertainties. Forward-looking
statements include any statement that may predict, forecast or imply future
results, and may contain words like "believe," "anticipate," "expect,"
"estimate," "project," or words similar to those. 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
in footnotes accompanying certain forward-looking statements, as well as those
discussed under the caption "Certain Considerations" on page 9 of the Company's
Annual Report on Form 10-K for the year ended May 31, 1999, as amended.
The Company is a leading lifestyle, retail and entertainment-based
company which targets 10-24 year-old consumers through the sponsorship of Core
Sports,(TM) which consist of alternative and enthusiast sports such as
skateboarding, snowboarding, surfing and wakeboarding, and through major
entertainment events and venues, such as the VANS Triple Crown(TM) Series, the
VANS Warped Tour,(TM) the VANS World Amateur Skateboarding Championships, and
the world's largest skate parks. The Company was founded in 1966 in Southern
California as a domestic manufacturer of vulcanized canvas shoes. The Company is
incorporated in Delaware.
On November 20, 1996, the Company acquired 51% of the outstanding shares
of Global Accessories Limited, the Company's exclusive distributor for the
United Kingdom ("Global"), in a stock-for-stock transaction. During Fiscal 1998
and 1999, the Company acquired another 19% of the Global common shares in
exchange for Common Stock of the Company. The remaining 30% of the Global common
shares will be acquired by the Company in 1999, 2000 and 2001. The results of
Global are consolidated in the Company's financial statements.
On July 21, 1998, the Company acquired all of the outstanding capital
stock of Switch Manufacturing, a California corporation ("Switch"), through a
merger (the "Switch Merger") with and into a wholly-owned subsidiary of the
Company. The Switch Merger was accounted for under the purchase method of
accounting and, accordingly, the purchase price was allocated to the net assets
6
<PAGE> 7
acquired based on their fair values. Switch is the manufacturer of the
Autolock(R) step-in boot binding system (the "Switch Autolock System"), one of
the leading snowboard boot binding systems in the world. The Switch Merger
consideration paid by the Company consisted of: (i) 133,292 shares of the
Company's Common Stock; (ii) $2,000,000 principal amount of unsecured,
non-interest bearing promissory notes due and payable on July 20, 2001; and
(iii) $12,000,000 principal amount of unsecured, non-interest bearing promissory
notes which are subject to potential downward adjustment based on the financial
performance of Switch during the fiscal year ending May 31, 2001, and are also
due and payable on July 20, 2001. The operating results of Switch were
consolidated in the Company's financial statements from the date of acquisition.
On July 29, 1999, the Company acquired all of the outstanding capital
stock of High Cascade Snowboard Camp, Inc., an Oregon corporation ("High
Cascade"), and its sister company, Snozone Boarding and Video, Inc., an Oregon
corporation, through mergers of the two companies with and into a wholly-owned
subsidiary of the Company. High Cascade, located at the base of Mount Hood in
Oregon, is the leading summer snowboarding camp in the world. The consideration
exchanged by the Company primarily consisted of the issuance of 236,066 shares
of the Company's Common Stock. The results of the two companies are consolidated
in the Company's financial statements starting with the period beginning June 1,
1999.
The Company has also established a subsidiary in Mexico, Vans
Latinoamericana (Mexico), S.A. de C.V. ("Vans Latinoamericana"), a subsidiary in
Argentina, Vans Argentina S.A. ("Vans Argentina"), a subsidiary in Brazil, Vans
Brazil S.A., ("Vans Brazil"), a subsidiary in Uruguay, Vans Uruguay, S.A. ("Vans
Uruguay"), a subsidiary in Hong Kong, Vans Far East Limited ("VFEL"), and two
joint venture subsidiaries, Van Pac LLC and VASH, LLC. The results of these
subsidiaries are also consolidated in the Company's financial statements.
RECENT RESTRUCTURINGS
During the fourth quarter of Fiscal 1998 ("Q4 Fiscal 1998"), the Company
restructured its U.S. operations and announced the closure of its last U.S.
manufacturing facility, located in Vista, California (the "Vista Facility"). The
closure of the Vista Facility was primarily due to a significant reduction in
orders for footwear produced at such Facility. Additionally, during Q4 Fiscal
1998, the Company commenced the restructuring of its European operations by
terminating certain distributor relationships and replacing them with sales
agents and a European-based operational structure designed to directly support
such agents (the "European Conversion").
The closure of the Vista Facility has resulted in the following benefits
to the Company: (i) decreased cost of goods for product produced at the Vista
Facility versus foreign-sourced product; (ii) the elimination of variances in
the manufacturing cost-per-unit which resulted from increases and decreases in
production levels at the Vista Facility; and (iii) increased management focus on
marketing and distribution rather than Facility management and cost accounting.
The European Conversion will enable the Company to recognize the sales and
income previously recognized by the distributors, and the establishment of a
Company-owned European operational structure should enable the Company to more
efficiently coordinate its sales and marketing efforts and control its
distribution. The Company has experienced increased operating expenses in
connection with the European Conversion, as discussed below.
The Company incurred an infrequent restructuring charge of $8.2 million
(the "Restructuring Costs") and a write-down of domestic inventory of $9.4
million (the "Inventory Write-Down") in connection with these matters in Q4
Fiscal 1998. The majority of the costs for these restructurings were incurred in
Fiscal 1999, with the exception of final cash payments for one of the terminated
distributors which are payable in December 1999. Such cash expenditures will be
funded out of operations. See Note 5 to Notes to the Company's Condensed
Consolidated Financial Statements. The Vista Facility was closed on August 6,
1998.
RESULTS OF OPERATIONS
QUARTERLY PERIOD ENDED AUGUST 28, 1999 ("Q1 FISCAL 2000") AS COMPARED TO
QUARTERLY PERIOD ENDED AUGUST 29, 1998 ("Q1 FISCAL 1999")
Net Sales
Net sales for Q1 Fiscal 2000 increased 25.4% to $82,151,000 from
$65,504,000 for Q1 Fiscal 1999. The sales increase was driven by increased sales
through each of the Company's sales channels, as discussed below.
7
<PAGE> 8
Total U.S. sales, including sales through the Company's U.S. retail
stores, increased 8.6% to $54,847,000 for Q1 Fiscal 2000 from $50,486,000 for Q1
Fiscal 1999. Total international sales increased 81.8% to $27,304,000 for Q1
Fiscal 2000, as compared to $15,018,000 for Q1 Fiscal 1999.
The increase in total U.S. sales resulted from (i) a 20.0% increase in
sales through the Company's U.S. retail stores, and (ii) a 3.2% increase in
domestic wholesale sales which included approximately $1.8 million in revenue
from the Company's acquisition of High Cascade. The increase in U.S. retail
store sales was driven by sales from a net nine new stores versus a year ago,
and a 5.6% increase in comparable store sales. The increase in international
sales through VFEL was primarily due to a $7.0 million increase in sales in
Europe in connection with the European Conversion, a $3.5 million increase in
sales to Japan, and continued worldwide strengthening of the VANS brand.
Gross Profit
Gross profit increased 23.0% to $34,564,000 in Q1 Fiscal 2000 from
$28,105,000 in Q1 Fiscal 1999. As a percentage of net sales, gross profit
decreased slightly to 42.1% for Q1 Fiscal 2000 from 42.9% for Q1 Fiscal 1999.
The decrease in Q1 Fiscal 2000 gross profit was primarily due to higher air
freight costs associated with meeting increased product demand during the
quarter.
Earnings from Operations
Earnings from operations increased 24.2% to $8,658,000 in Q1 Fiscal 2000
versus $6,973,000 in Q1 Fiscal 1999. Operating expenses in Q1 Fiscal 2000
increased 22.6% to $25,906,000 from $21,132,000 in Q1 Fiscal 1999, primarily due
to the increase in selling and distribution expenses discussed below. As a
percentage of sales, operating expenses decreased from 32.3% to 31.5% on a
year-to-year basis.
Selling and distribution. Selling and distribution expenses increased
40.1% to $14,894,000 in Q1 Fiscal 2000 from $10,631,000 in Q1 Fiscal 1999,
primarily due to: (i) operating costs related to the European Conversion which
did not exist in Q1 Fiscal 1999 because such Conversion was not yet fully
implemented; and (ii) increased personnel costs, rent expense and other
operating costs associated with the expansion of the Company's retail division
by the net addition of 14 new stores.
Marketing, advertising and promotion. Marketing, advertising and
promotion expenses increased 4.7% to $7,534,000 in Q1 Fiscal 2000 from
$7,195,000 in Q1 Fiscal 1999, primarily due to: (i) increased direct advertising
and promotional expense in Europe resulting from the European Conversion; (ii)
higher print advertising expenditures related to the back-to-school selling
season; and (iii) increased costs associated with new events included in the
VANS Triple Crown(TM) Series.
General and administrative. General and administrative expenses
increased 4.0% to $2,991,000 in Q1 Fiscal 2000 from $2,877,000 in Q1 Fiscal
1999, primarily due to: (i) operating costs related to the European Conversion
which did not exist in Q1 Fiscal 1999 because such Conversion was not yet fully
implemented; (ii) increased labor, recruiting and other employee-related
expenses to support the Company's sales growth; (iii) the inclusion of operating
costs related to High Cascade which were not included in the Q1 Fiscal 1999
Condensed Consolidated Financial Statements because it was not yet owned by the
Company; and (iv) increased legal expenses related to the Company's ongoing
worldwide efforts to protect and preserve its intellectual property rights.
Provision for doubtful accounts. The amount that was provided for bad
debt expense in Q1 Fiscal 2000 decreased to $153,000 from $164,000 in Q1 Fiscal
1999 due to improvements in the management of past due accounts.
Amortization of intangibles. Amortization of intangibles increased 25.9%
to $334,000 in Q1 Fiscal 2000 from $265,000 in Q1 Fiscal 1999, primarily due to
the increase in goodwill associated with the Switch Merger. See "--General."
Interest Income
Interest income decreased to $33,000 in Q1 Fiscal 2000 versus $80,000 in
Q1 Fiscal 1999 because the Company utilized a portion of interest-bearing
investments to fund sales growth. As a result, the Company's investment accounts
decreased to zero at August 28, 1999.
8
<PAGE> 9
Interest and Debt Expense
Interest and debt expense increased to $423,000 for Q1 Fiscal 2000 from
$158,000 in Q1 Fiscal 1999, primarily due to increased borrowings to support
sales growth. See "--Liquidity and Capital Resources, Borrowings."
Other Income
Other income primarily consists of royalty payments from the licensing
of the Company's trademarks to its distributor for Japan. Other income increased
to $1,181,000 for Q1 Fiscal 2000 from $744,000 for Q1 Fiscal 1999, primarily due
to increases in royalties received from Japan.
Income Tax Expense
Income tax expense increased to $3,213,000 in Q1 Fiscal 2000 from
$2,750,000 in Q1 Fiscal 1999 as a result of the increase in earnings discussed
above.
Minority Share of Income
Minority share of income increased to $301,000 for Q1 Fiscal 2000 from
$151,000 for Q1 Fiscal 1999, primarily due to the increased earnings of Global
and Vans Latinoamericana. This increase was partially offset by the decrease in
the minority ownership of Global. See "--General."
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
The Company finances its operations with a combination of cash flows
from operations and borrowings under a credit facility. See "--Borrowings"
below.
The Company experienced an outflow of cash from operating activities of
$12,487,000 during Q1 Fiscal 2000, compared to an outflow of $15,516,000 for Q1
Fiscal 1999. Cash used by operations for Q1 Fiscal 2000 resulted primarily from:
(i) an increase in net accounts receivable to $49,453,000 at August 28, 1999,
from $30,056,000 at May 31, 1999, as described below; and (ii) an increase in
net inventory to $46,091,000 at August 28, 1999, from $37,025,000 at May 31,
1999, as described below. Cash outflows from operations for Q1 Fiscal 2000 were
partially offset by the Company's earnings, the add-back for depreciation and
amortization, the increase in accounts payable, and the increase in income taxes
payable. Cash outflows from operations in Q1 Fiscal 1999 resulted primarily from
increases in accounts receivable and inventories and a decrease in the
Restructuring Costs accrual.
The Company had a net cash outflow from investing activities of
$3,433,000 in Q1 Fiscal 2000, compared to a net cash outflow of $789,000 in Q1
Fiscal 1999. The Q1 Fiscal 2000 outflows were primarily due to capital
expenditures related to new retail store openings. Cash used in investing
activities for Q1 Fiscal 1999 was primarily related to new retail store
openings, tenant improvements at the Santa Fe Springs Facility, and investments
in other companies, offset by proceeds from the sale of assets in connection
with the closing of the Vista Facility.
The Company incurred a net cash inflow from financing activities of
$20,502,000 for Q1 Fiscal 2000, compared to a net cash inflow of $6,108,000 for
Q1 Fiscal 1999, primarily due to short-term borrowings under the Company's new
credit facility and long-term debt incurred by the Company's Latin America
subsidiaries. See "--Borrowings" below. Cash provided by financing activities in
Q1 Fiscal 1999 was related to proceeds from short-term borrowings under the
Company's former bank revolving line of credit, and proceeds from long-term debt
incurred by Vans Latinoamericana, partially offset by the repurchase of
$2,494,000 of Common Stock pursuant to the Company's stock repurchase program.
Accounts receivable, net of allowance for doubtful accounts, increased
from $30,056,000 at May 31, 1999, to $49,453,000 at August 28, 1999, primarily
due to: (i) the inclusion of accounts receivable for sales in Europe due to the
European Conversion which did not exist in Q1 Fiscal 1999 because such
Conversion was not yet fully implemented; and (ii) increased accounts receivable
for the Company's South American subsidiaries due to increased sales and the
timing of such sales. Inventories increased to $46,091,000 at August 28, 1999,
from $37,025,000 at May 31, 1999, primarily due to: (i) increased inventory held
at the Company's distribution
9
<PAGE> 10
center in Holland (established in connection with the European Conversion); and
(ii) an increased number of finished goods held for sale at the Company's retail
stores to support the net addition of 14 new stores and increased sales.
Borrowings
In July 1999, the Company obtained a $63.5 million credit facility (the
"New Credit Facility") pursuant to a credit agreement (the "Credit Agreement")
with several lenders (the "Lenders"). The New Credit Facility replaced the
Company's former $30.0 million revolving line of credit with Bank of the West
(the "Bank of the West Facility"). The New Credit Facility permits the Company
to utilize the funds thereof for general corporate purposes, capital
expenditures, acquisitions and stock repurchases.
Of the $63.5 million amount of the New Credit Facility, $53.0 million is
in the form of an unsecured revolving line of credit (the "Revolver"), and $10.5
million is in the form of an unsecured term loan (the "Term Loan"). The Revolver
expires on October 31, 2002. The Company has the option to pay interest on
Revolver advances at a rate equal to either (i) LIBOR, or (ii) a base rate plus
a margin which will be based on the Company's ratio of "Funded Debt" to
"EBITDA," each as defined in the Credit Agreement.
Of the $10.5 million Term Loan, approximately $5.0 million was disbursed
at the closing of the New Credit Facility to replace a portion of the Bank of
the West Facility used for the Company's stock repurchase program, and the
remaining portion must be disbursed on or before January 31, 2001, or it will
expire. The Term Loan expires May 31, 2004, and the principal thereof is payable
in 14 quarterly installments beginning February 28, 2001, and ending May 31,
2004. The Company has the option to pay interest on the Term Loan at LIBOR for
advances of one, two, three or six months, or a base rate for U.S. dollar
advances.
Under the Credit Agreement, the Company must maintain certain financial
covenants and is prohibited from engaging in certain transactions or taking
certain corporate actions, such as the payment of dividends, without the consent
of the Lenders. At August 28, 1999, the Company had drawn down $28,034,000 under
the New Credit Facility.
Vans Latinoamericana and Vans Argentina maintain notes payable to
Tavistock Holdings A.G., a 49.99% owner of such companies ("Tavistock"). The
loan by Tavistock was made pursuant to a shareholders' agreement requiring
Tavistock to provide operating capital, on an as-needed basis, in the form of
loans to Vans Latinoamericana and Vans Argentina. At August 28, 1999, the
aggregate outstanding balance under the notes was $3,213,000.
Current Cash Position
The Company's cash position was $12,397,000 as of August 28, 1999,
compared to $7,777,000 at May 31, 1999. The Company believes that cash generated
from operations, coupled with the New Credit Facility, should be sufficient to
meet its cash requirements for the next 12 months.*
Capital Resources
As of August 28, 1999, the Company's material commitments for capital
expenditures were primarily related to the opening of new retail stores and
skateparks. In the remainder of Fiscal 2000, the Company plans to open
approximately five new factory outlet retail stores, five full-price stores, and
three to five VANS Triple Crown(TM) stores. The Company estimates the aggregate
cost of all of these new stores to be between $3,000,000 and $3,500,000.
The Company currently intends to open up to three additional skateparks
in Fiscal 2000 and estimates the aggregate cost of its portion of these projects
to be approximately $750,000.
The Company intends to utilize cash generated from operations and funds
drawn down under the New Credit Facility to fulfill its capital expenditure
requirements for Fiscal 2000.
- ----------------------------
* Note: This is a forward-looking statement. The Company's actual cash
requirements could differ materially. Important factors that could cause the
Company's need for additional capital to change include: (i) the Company's rate
of growth; (ii) the number of new VANS Triple Crown(TM) stores the Company
decides to open; (iii) the number of new skateparks the Company decides to open
which must be financed in whole, or in part, by the Company; (iv) the Company's
product mix between footwear and snowboard boots; (v) the Company's ability to
effectively manage its inventory levels; (vi) timing differences in payment for
the Company's foreign-sourced product; (vii) the increased utilization of
letters of credit for purchases of foreign-sourced product; and (viii) timing
differences in payment for product which is sourced from countries which have
longer shipping lead times, such as China.
10
<PAGE> 11
Recent Accounting Pronouncements
In June 1998, the FASB issued FAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." FAS No. 133 modifies the accounting for
derivative and hedging activities and is effective for fiscal years beginning
after June 15, 2000. Since the Company and its subsidiaries do not presently
engage in significant hedging activities or invest in other derivatives, FAS No.
133 does not currently impact the Company's financial position or results of
operations.
In April 1998, The American Institute of Certified Professional
Accountants issued Statement of Position 98-5 ("SOP 98-5"), "Reporting on the
Costs of Start-Up Activities." SOP 98-5 provides guidance on the financial
reporting of start-up costs and organization costs. It requires costs of
start-up activities and organization costs to be expensed as incurred. Based on
information currently available, the Company does not expect the adoption of SOP
98-5 to have a significant impact on its financial position or results of
operations. The Company will adopt SOP 98-5 effective June 1, 2000.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." The Company adopted
SOP 98-1 effective June 1, 1999. The adoption of SOP 98-1 required the Company
to modify its method of accounting for software, however, it did not have a
significant impact on the Company's financial position or results of operations.
Seasonality
The Company's business is seasonal, with the largest percentage of net
income, U.S. sales, and all revenues generated from the High Cascade Snowboard
Camp(TM) realized in the first Fiscal quarter (June through August), the "back
to school" selling months. As the Company increases sales to Europe due to the
European Conversion, the Company may recognize more of such sales in the first
Fiscal quarter due to seasonal demand for product in Europe. In addition,
because snowboarding is a winter sport, sales of the Company's snowboard boots,
and the Switch Autolock(R) System, have historically been strongest in the first
and second Fiscal quarters. Such sales are now being recognized earlier in the
first Fiscal quarter since industry retailers are demanding earlier shipments of
product.
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.
Year 2000 Compliance
General. The Company is dependent upon complex information technology
("IT") systems for many phases of its operations, including production, sales,
distribution and delivery. Many existing IT programs use only two digits to
identify a year in the date field. These programs were designed and developed
without considering the impact of the upcoming change in the century. If not
corrected, many computer applications could fail or create erroneous results by
or at the Year 2000 (i.e., read the year 2000 as "1900") (the "Year 2000
Issue"). The Company has commenced a program intended to timely identify,
mitigate and/or prevent the adverse effects of the Year 2000 Issue through an
analysis of its own IT systems and non-IT systems, and pursue Year 2000
compliance by its vendors, customers, creditors and financial service
organizations.
State of Readiness. The Company has completed the analysis of its
internal IT systems and has received certifications of Year 2000 compliance from
its IT systems vendors. The Company is in the process of testing such systems to
ensure compliance and expects such testing to be completed by the end of October
1999. * The Company has experienced no material problems in such testing to
date.
- ---------------------------------------
* Note: These are forward-looking statements regarding the completion dates of
the various phases of the Company's Year 2000 compliance program. The actual
date of completion may be different depending on a number of important
factors, including but not limited to (i) the complexity of the analyses
needed to determine Year 2000 compliance for non-IT systems embedded in items
such as machinery and equipment, and (ii) the level of cooperation the Company
receives from third parties with respect to its compliance inquiries.
11
<PAGE> 12
The Company is still analyzing its non-IT systems for Year 2000
compliance and also expects to complete substantially all of such analyses by
the end of October 1999.* With respect to third party vendors, customers,
creditors and financial services organizations, the Company has identified over
200 such third parties who the Company believes are material to its business.
The Company has inquired as to the Year 2000 readiness of each of such parties
and has sought certifications of Year 2000 compliance from them. To date, the
Company has received responses from approximately 80% of such third parties
which indicate either Year 2000 compliance or that they have instituted programs
to assure such compliance. The Company is pursuing answers from all third
parties who have, to date, failed to respond to the Company's inquiries. The
Company hopes to receive substantially all of such answers by November 1999, and
has updated its list of such third parties to reflect any required additions
thereto.*
Costs; Contingency Plans. Since the Company has not completed the
analysis and data gathering phase of its Year 2000 compliance program, it cannot
yet quantify the aggregate costs that may be required to fix the Year 2000 Issue
or any losses to the Company which might result therefrom. The Company
determined that its Human Resources and Payroll systems were not Year 2000
compliant. The Company spent approximately $32,500 to fix those systems and they
are now Year 2000 compliant. The Company has not incurred any other material
costs to date in fixing Year 2000 Issues.
In the event the Company discovers that either internal IT or non-IT
systems or the systems of key third party vendors, customers, creditors or
financial service organizations will not be Year 2000 compliant, the Company
will either obtain alternative IT systems that are Year 2000 compliant or
systems that do not rely on computers, and, in the case of third party vendors,
switch to other vendors which have Year 2000 compliant systems. The Company
intends to develop a more specific contingency plan by the end of October 1999.*
Risks. The Company presently does not anticipate that a material
business disruption will occur as a result of the Year 2000 Issue. However, to
the extent the Company is unable to resolve the Year 2000 Issue, the Company's
business, financial position and results of operations could be materially
adversely affected.
The Company believes that the greatest potential risk is the failure of
its external business partners or federal, state or local governments to achieve
Year 2000 compliance in a timely manner. Among other things, the Company's
footwear manufacturers could be unable to manufacture or deliver materials and
products in a timely manner, transportation carriers may be unable to deliver
raw materials or product in a timely or cost-efficient manner, and customers may
lose the capability to order products via electronic data interchange ("EDI").
The Company will develop the contingency plan discussed above, but there can be
no assurance that any such contingency plan will be sufficient to mitigate the
impact of noncompliance by third parties, and some material adverse effect to
the Company may result from one or more third parties regardless of defensive
contingency plans.
The Company's Year 2000 compliance efforts are subject to additional
risks, including, among others: unexpected problems identified in testing
results; delays in system conversion or implementation; the Company's failure to
identify fully all Year 2000 dependencies in its machinery, equipment, systems
and in the systems of its external business partners; and the failure of parts
of the global infrastructure, including national banking systems, power,
transportation facilities, communications and governmental activities, to be
fully functional after 1999.
As the Company's testing and implementation of its business systems and
assessment of its technical systems and departmental applications are underway,
and as responses from many of its external business partners are pending, the
Company cannot fully and accurately quantify the impact of its most reasonably
likely worst case Year 2000 scenario at the present time.
- ---------------------------------------
* Note: These are forward-looking statements regarding the completion dates of
the various phases of the Company's Year 2000 compliance program. The actual
date of completion may be different depending on a number of important factors,
including but not limited to (i) the complexity of the analyses needed to
determine Year 2000 compliance for non-IT systems embedded in items such as
machinery and equipment, and (ii) the level of cooperation the Company receives
from third parties with respect to its compliance inquiries.
12
<PAGE> 13
The above Section is a Year 2000 Readiness Disclosure, as defined under
the Year 2000 Information and Readiness Disclosure Act of 1998.
Euro Conversion
On January 1, 1999, 11 of the 15 member countries of the European Union
established a fixed conversion rate between their existing sovereign currencies
and the Euro, and adopted the Euro as their common legal currency on that date
(the "Euro Conversion"). Existing currencies are scheduled to remain legal
tender in the participating countries until January 1, 2002. During the
transition period, parties may pay for goods and services using either the Euro
or the existing currency, but retailers are not required to accept the Euro as
payment. Since the Company primarily does business in U.S. dollars, it is
currently not anticipated that the Euro Conversion will have a material adverse
impact on its business or financial condition.* The Company is aware that the
information systems for its five European stores are not currently able to
recognize the Euro Conversion, however, since three of the Company's European
stores are located in the United Kingdom, which is not currently participating
in the Euro Conversion, and the Spain and Austria stores may continue to accept
local currencies until 2002, the Company does not expect its current overall
European store operations to be materially adversely impacted by the Euro
Conversion in the near future. The Company has confirmed that the information
systems utilized by its European sales agents will recognize the Euro
Conversion, but the Company is still analyzing whether the information systems
of its European distributors will do the same.
- -----------------------------------------
* Note: This is a forward-looking statement regarding the currencies in which
the Company does business. The Company's actual results regarding the Euro
Conversion could differ materially if the Company begins to accept currencies
other than the U.S. dollar.
13
<PAGE> 14
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During Q1 Fiscal 2000, the Company issued 236,066 shares (the "Shares")
of Common Stock to shareholders of High Cascade Snowboard Camp, Inc. and Snozone
Boarding and Video, Inc. in exchange for their shares of those two companies.
See "Part I - Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations - General." The Shares were issued without
registration under the Securities Act of 1933, as amended, pursuant to the
exemption therefrom provided by Rule 506 of Regulation D thereunder. Each
shareholder furnished the Company with representations that they were accredited
investors, as defined under Regulation D, and the aggregate number of purchasers
in this transaction was less than 35, excluding accredited investors. No
underwriters were involved in this transaction.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Exhibits
<S> <C>
10.1 Employment Agreement of Neal R. Lyons, dated as of April 1, 1999
10.2 Employment Agreement of Chris D. Strain, dated as of August 9, 1999
27 Financial Data Schedule
(b) Reports on 8-K.
</TABLE>
The Company did not file any reports on Form 8-K during the quarterly
period ended August 28, 1999.
14
<PAGE> 15
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: October 12, 1999 By: /s/ Gary H. Schoenfeld
-----------------------------------
GARY H. SCHOENFELD
President and Chief
Executive Officer
Date: October 12, 1999 By: /s/ Kyle B. Wescoat
-----------------------------------
KYLE B. WESCOAT
Vice President and
Chief Financial Officer (Principal
Financial and Accounting Officer)
15
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibits
<S> <C>
10.1 Employment Agreement of Neal R. Lyons, dated as of April 1, 1999.
10.2 Employment Agreement of Chris D. Strain, dated as of August 9, 1999.
27 Financial Data Schedule
</TABLE>
16
<PAGE> 1
EXHIBIT 10.1
VANS, INC.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement" herein) is entered into as of April
1, 1999, by and between VANS, INC., a Delaware corporation (the "Company"), and
NEAL R. LYONS ("Employee").
1. Employment and Duties. The Company hereby employs Employee as President
of the Retail Division of the Company on the terms and subject to the conditions
contained in this Agreement. Employee shall be responsible for managing all
aspects of the Company's Retail Division, including but not limited to the skate
parks. Employee hereby accepts such employment and agrees to perform in good
faith and to the best of Employee's ability all services which may be required
of Employee hereunder, to do what is asked of him, and to be available to render
services at all times and places in accordance with such directions, requests,
rules and regulations made by the Company in connection with Employee's
employment. Employee hereby acknowledges and understands the duties and services
that are expected of him hereunder, and he hereby represents that he has the
experience and knowledge to perform such duties and services. Employee shall,
during the term hereof, devote Employee's full time and energy to performing his
duties. Employee shall report to the President and Chief Executive Officer of
the Company, or such other executive officer as may be designated by 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 March 31, 2002, 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 /s/ CEG Initial /s/ NL______
Representative Employee
of the Company
<PAGE> 2
3. Salary Compensation. As salary compensation for Employee's services the
Company shall pay Employee a gross salary of $229,012.00 per annum for the
period April 1, 1999 to June 30, 1999. Thereafter, the Company shall pay
Employee $275,000.00 per annum for the fiscal year ending May 31, 2000;
$300,000.00 per annum for the fiscal year ending May 31, 2001; and $325,000.00
per annum for the fiscal year ending May 31, 2002. Employee's salary for each of
the foregoing years shall be no less than such amounts and may be increased for
any such year to reflect increases in the size of the Retail Division and/or
superior performance by Employee. 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 workday.
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
2
<PAGE> 3
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 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 term of this Agreement
and for a period of one (1) year after the termination of this Agreement for any
reason, 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,
3
<PAGE> 4
formulae, patterns, inventions, plans, specifications, devices, products,
procedures, processes, operations, techniques, software, computer programs or
data;
(ii) Any information or compilation of information
concerning the identity, plans, requirements, preferences, practices and methods
of doing business on specific customers, suppliers, prospective customers and
prospective suppliers of the Company;
(iii) Any other information or "know how" which is related
to any product, process, service, business or research of the Company; and
(iv) Any information which the Company acquires from another
party and treats as its proprietary information or designates as "Confidential,"
whether or not owned or developed by the Company.
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
4
<PAGE> 5
its sole and absolute discretion, disclose any Trade Secret in any way except to
employees of the Company, and shall not use any Trade Secret in any way except
in connection with his or her duties to the Company.
8.4 Records.
(a) Ownership. All Records are and shall remain the exclusive property
of the Company.
(b) Return of Records. At the termination of this Agreement, Employee
shall promptly return to the Company all records in Employee's possession or
over which Employee has control.
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, including specifically the Company's annual bonus plan for executive
officers pursuant to which Employee shall have the opportunity to earn an annual
bonus equal to fifty percent (50%) of his salary compensation, subject to the
terms and conditions of the plan. The Company shall guarantee twenty percent
(20%) of the aggregate potential bonus Employee could earn under the Company's
Fiscal 1999 Bonus Plan. Employee understands 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.
5
<PAGE> 6
11. Termination.
11.1 "At Will" Employment. This Agreement, and Employee's employment,
is at will, and the Company may, with or without notice, terminate this
Agreement and all of the Company's obligations hereunder with or without
"Cause." Employee may also terminate this Agreement at any time, for any reason,
upon the giving of thirty (30) days' written notice to the Company; provided,
however, the Company may waive all or any portion of such notice period in its
sole and absolute discretion. Termination by the Company for "Cause" means
termination due to (i) Employee's conviction of a felony ( which, through the
lapse of time or otherwise is not subject to appeal); (ii) Employee's material
refusal, failure or neglect without proper cause to perform adequately his
obligations under this Agreement or follow the instructions of his
supervisor(s); (iii) any negligence or willful misconduct by Employee; (iv)
Employee's material breach of any of his fiduciary obligations as an executive
officer of the Company; (v) Employee's material failure to adhere to the code of
conduct and rules set forth in the Company's Employee Handbook, as amended or in
existence from time to time; (vi) the death or disability of Employee; or (vii)
the voluntary termination by Employee of his employment, except for "Good
Reason" (as defined in Paragraph 11.3 hereof).
11.2 Termination for Cause. Upon termination for Cause, the Company
shall only be required to pay Employee (i) accrued salary compensation due to
Employee as compensation for services rendered hereunder and not previously
paid; (ii) accrued vacation pay; and (iii) any appropriate business expenses
incurred by Employee in connection with his duties hereunder and approved
pursuant to Section 4 hereof, all through the date of termination. Employee
shall not be entitled to any severance compensation; bonus compensation, whether
"vested" or unvested; or any other compensation, benefits or reimbursement of
any kind.
11.3 Termination for "Good Reason." Employee may terminate this
Agreement for "Good Reason" (as hereinafter defined) upon thirty (30) days
written notice to the Company. The term "Good Reason" means (i) Employee is not
appointed or is removed from the position of President of the Retail Division
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.
6
<PAGE> 7
11.4 Severance Compensation. In the event on or before June 14, 1999
(i) Employee terminates this Agreement for Good Reason in accordance with
Paragraph 11.3 hereof; (ii) Employee is terminated for any reason (except death
or disability) upon, or within six months following, a "Change in Management or
Control" (as such term is defined in Paragraph 11.5 hereof); or (iii) Employee
is terminated without Cause, the Company shall be obligated to pay severance
compensation to Employee in an amount equal to his salary compensation (at the
rate payable at the time of such termination) for a period of nine (9) months
from the date of termination. Notwithstanding the foregoing, if Employee is
employed by a new employer, or as a consultant after the termination of this
Agreement, 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. Employee shall have a duty to inform the
Company that he has obtained such new employment or consulting work, 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)
7
<PAGE> 8
a majority of the Continuing Directors who were members of the Board at the time
of such nomination or election, or (y) at least four Continuing Directors.
11.6 Exclusive Remedy. The payments referred to in this Section 11
shall be exclusive and shall be the only remedy available to Employee for
termination of his employment with the Company, regardless of the circumstances,
reasons or motivation for any such termination. If Employee gives notice of
termination of this Agreement, or if it becomes known that this Agreement will
otherwise terminate in accordance with its provisions, the Company may, in its
sole discretion, relieve Employee of his duties under this Agreement or assign
Employee other duties and responsibilities to be performed until the termination
becomes effective.
12. 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.
13. 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.
14. Other Benefits. The Company shall pay Employee a net monthly car
allowance of $600.00 and shall pay the reasonable cost, up to $10,000, of one
week of advanced education courses taken by Employee during each one-year period
of the term of this Agreement. The Company shall pay the reasonable, documented
costs of Employee attending such courses, such as travel, lodging and meal
expenses.
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:
8
<PAGE> 9
To the Company: VANS, INC.
15700 Shoemaker Avenue
Santa Fe Springs, California 90670
Attn: General Counsel
562/565-8413 - facsimile
To Employee: Neal R. Lyons
(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.
9
<PAGE> 10
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, including but not limited to, claims by Employee for wrongful
termination, race discrimination, sex discrimination, age discrimination,
discrimination based on nationality or religion, violation of Title VII of the
Civil Rights Act of 1964, as amended, the Americans with Disabilities Act of
1990, the Age Discrimination in Employment Act of 1967, as amended, and the
California Fair Housing and Employment Act, as amended, 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
either the American Arbitration Association or the 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. The cost
of arbitration (including reasonable attorneys' fees) shall be borne by the
losing party. The arbitration shall occur in Los Angeles, California and the
parties hereby consent to the jurisdiction of the arbitrator and to service of
process. EMPLOYEE HEREBY UNDERSTANDS THAT, BY SIGNING THIS AGREEMENT, HE IS
AGREEING TO HAVE ANY CLAIM HEREUNDER, OR UNDER HIS EMPLOYMENT RELATIONSHIP WITH
THE COMPANY, 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/ Neal R. Lyons By: /s/ Craig E. Gosselin
- -------------------------- ----------------------------
Neal R. Lyons
V.P. and General Counsel
- -------------------------- ----------------------------
Address Title
10
<PAGE> 1
EXHIBIT 10.2
VANS, INC.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement" herein) is entered into as of August
9, 1999, by and between VANS, INC., a Delaware corporation (the "Company"), and
CHRIS D. STRAIN ("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 and advertising efforts and exploring new media and
entertainment opportunities. 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 Vice President - World
Marketing of the Company, or such other executive officer as may be designated
by 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 August 8, 2002, 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 /s/ CEG Initial /s/ CS
------------------- ---------------
Representative Employee
of the Company
<PAGE> 2
3. Salary Compensation. As salary compensation for Employee's services
hereunder and all the rights granted hereunder by Employee to the Company, the
Company shall pay Employee a gross salary of $120,000 during the term of this
Agreement. 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; Relocation to Southern California. 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. The Company also shall reimburse Employee for
the reasonable expenses actually incurred by Employee in connection with the
relocation of his residence from New York to Southern California; provided that,
Employee shall furnish the Company with written receipts for such expenses and
the Company shall not be responsible for the costs associated with selling or
sub-leasing Employee's New York residence or purchasing or leasing a new
residence in Southern California.
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 workday.
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)
2
<PAGE> 3
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 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,
3
<PAGE> 4
formulae, patterns, inventions, plans, specifications, devices, products,
procedures, processes, operations, techniques, software, computer programs or
data;
(ii) Any information or compilation of information
concerning the identity, plans, requirements, preferences, practices and methods
of doing business on specific customers, suppliers, prospective customers and
prospective suppliers of the Company;
(iii) Any other information or "know how" which is related
to any product, process, service, business or research of the Company; and
(iv) Any information which the Company acquires from another
party and treats as its proprietary information or designates as "Confidential,"
whether or not owned or developed by the Company.
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
4
<PAGE> 5
its sole and absolute discretion, disclose any Trade Secret in any way except to
employees of the Company, and shall not use any Trade Secret in any way except
in connection with his or her duties to the Company.
8.4 Records.
(a) Ownership. All Records are and shall remain the exclusive
property of the Company.
(b) Return of Records. At the termination of this Agreement,
Employee shall promptly return to the Company all records in Employee's
possession or over which Employee has control.
8.5 Prohibited Use of Trade Secrets. During the term of this Agreement
and for 12 months following termination of this Agreement, Employee shall not
undertake any employment or consulting relationship (the "New Activity") if the
loyal and complete fulfillment of his or her duties in the New Activity would
inherently call upon Employee to reveal any Trade Secret.
9. Ownership of Material and Ideas. Employee agrees that all material,
ideas, and inventions pertaining to the business of the Company or of any client
of the Company, including but not limited to, all patents and copyrights thereon
and renewals and extensions thereof, trademarks and trade names, and the names,
addresses and telephone numbers of customers, distributors and sales
representatives of the Company, belong solely to the Company. Employee hereby
assigns any rights he may have to any such property to the Company, and agrees
to execute and deliver any documents which evidence such assignment.
10. Employee Plans, etc. Employee shall be entitled to participate, to the
same extent as most other officers of the Company, in any bonus compensation
plan, stock purchase or stock option plan, group life insurance plan, group
medical insurance plan and other compensation or employee benefit plans
(collectively, "Plans") which are generally available to a majority of the other
officers of the Company during the term hereof and for which Employee shall
qualify, including specifically the Company's annual bonus plan for executive
officers pursuant to which Employee shall have the opportunity to earn an annual
bonus equal to thirty percent (30%) of his salary compensation, subject to the
terms and conditions of the plan. 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
5
<PAGE> 6
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) 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,
6
<PAGE> 7
Employee's right to receive severance compensation pursuant to Paragraph 11.4
for such event shall be forever lost.
11.4 Severance Compensation. In the event (i) Employee terminates this
Agreement for Good Reason in accordance with Paragraph 11.3 hereof; (ii)
Employee is terminated for any reason (except death or disability) upon, or
within six months following, a "Change in Management or Control (as such term is
defined in Paragraph 11.5 hereof);" or (iii) Employee is terminated without
Cause, the Company shall be obligated to pay severance compensation to Employee
in an amount equal to his salary compensation (at the rate payable at the time
of such termination) for a period of six (6) months from the date of
termination. Notwithstanding the foregoing, if Employee is employed by a new
employer, or as a consultant after the termination of this Agreement, the
severance compensation payable to Employee hereunder shall be reduced by the
amount of compensation that Employee actually receives from the new employer, or
as a consultant. However, Employee shall have a duty to inform the Company that
he has obtained such new employment, and the failure to do so is a material
breach of this Agreement. In such event, the Company shall be entitled to (i)
cease all payments to Employee under this Paragraph 11.4; and (ii) recover any
unauthorized payments to Employee in an action for breach of contract.
Notwithstanding anything else in this Agreement to the contrary, solely in the
event of a termination upon or following a Change in Management or Control, the
amount of severance compensation paid to Employee hereunder shall not include
any amount that the Company is prohibited from deducting for federal income tax
purposes by virtue of Section 280G of the Internal Revenue Code of 1986, as
amended, or any successor provision. In addition to the foregoing severance
compensation, the Company shall pay Employee (i) all compensation for services
rendered hereunder and not previously paid; (ii) accrued vacation pay; and (iii)
any appropriate business expenses incurred by Employee in connection with his
duties hereunder and approved pursuant to Section 4 hereof, all through the date
of termination. Employee shall not be entitled to any bonus compensation,
whether vested or unvested; or any other compensation, benefits or reimbursement
of any kind.
11.5 Definition of "Change in Management or Control." The term "Change
in Management or Control" means (i) the time that the Company first determines
that any person and all other persons who constitute a group (within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934 ("Exchange Act"))
have acquired direct or indirect beneficial ownership (within the meaning of
Rule 13d-3 under the Exchange Act) of twenty percent (20%) or more of the
Company's outstanding securities, unless a majority of the "Continuing
Directors" (as such term is hereinafter defined) approves the acquisition not
later than ten (10) business days after the Company makes that determination, or
(ii) the first day on which a majority of the members of the Company's Board of
Directors are not "Continuing Directors." The term "Continuing Directors" means,
as of any date of determination, any member of the Board of Directors of the
Company who (i) was a member of that Board of Directors on the date of this
Agreement, (iii) has been a member of that Board of Directors for the
7
<PAGE> 8
two years immediately preceding such date of determination, or (iv) was
nominated for election or elected to the Board of Directors with the affirmative
vote of the greater of (x) a majority of the Continuing Directors who were
members of the Board at the time of such nomination or election, or (y) at least
four Continuing Directors.
11.6 Exclusive Remedy. The payments referred to in this Section 11
shall be exclusive and shall be the only remedy available to Employee for
termination of his employment with the Company, regardless of the circumstances,
reasons or motivation for any such termination. If Employee gives notice of
termination of this Agreement, or if it becomes known that this Agreement will
otherwise terminate in accordance with its provisions, the Company may, in its
sole discretion, relieve Employee of his duties under this Agreement or assign
Employee other duties and responsibilities to be performed until the termination
becomes effective.
12. Services Unique. It is agreed that the services to be rendered by
Employee hereunder are of a special, unique, unusual, extraordinary and
intellectual character which gives them a peculiar value, the loss of which
cannot be reasonably or adequately compensated in damages in an action at law
and that a breach by Employee of any of the provisions contained herein will
cause the Company irreparable injury and damage. Employee expressly agrees that
the Company shall be entitled to injunctive or other equitable relief to prevent
a breach hereof. Resort to any such equitable relief shall not be construed as a
waiver of any of the rights or remedies which the Company may have against
Employee for damages or otherwise.
13. Key Man Life Insurance. During the term of this Agreement, the Company
may at any time effect insurance on Employee's life and/or health in such
amounts and in such form as the Company may in its sole discretion decide.
Employee shall not have any interest in such insurance, but shall, if the
Company requests, submit to such medical examinations, supply such information
and execute such documents as may be required in connection with, or so as to
enable the Company to effect, such insurance.
14. Vacation. Employee shall have the right during each one year period of
the term of this Agreement to take an aggregate of three weeks of vacation, with
pay, at such times as are mutually convenient to Employee and to the Company.
15. Notices. Any and all notices, demands or other communications required
or desired to be given hereunder by any party shall be in writing and shall be
validly given or made to another party if given by personal delivery, telex,
facsimile, telegram or if deposited in the United States mail, certified or
registered, postage prepaid, return receipt requested. If such notice, demand or
other communication is given by personal delivery, telex, facsimile or telegram,
service shall be conclusively deemed made at the time of such personal service.
If such notice, demand or other communication is given by mail, such notice
shall be conclusively deemed given forty-eight (48) hours after the deposit
thereof in the United States mail addressed to the
8
<PAGE> 9
party to whom such notice, demand or other communication is to be given as
hereinafter set forth:
To the Company: VANS, INC.
15700 Shoemaker Avenue
Santa Fe Springs, California 90670
Attn: General Counsel
562/565-8413 - facsimile
To Employee: Chris D. Strain
(at the address set forth below his signature)
Any party hereto may change his or its address for the purpose of receiving
notices, demands and other communications as herein provided by a written notice
given in the manner aforesaid to the other party or parties hereto.
16. Applicable Law and Severability. This Agreement shall, in all respects,
be governed by the laws of the State of California applicable to agreements
executed and to be wholly performed within the State of California. Nothing
contained herein shall be construed so as to require the commission of any act
contrary to law, and wherever there is any conflict between any provision
contained herein and any present or future statute, law, ordinance or regulation
contrary to which the parties have no legal right to contract, the latter shall
prevail but the provision of this Agreement which is affected shall be curtailed
and limited only to the extent necessary to bring it within the requirements of
the law.
17. Attorneys' Fees. In the event any action is instituted by a party to
enforce any of the terms and provisions contained herein, the prevailing party
in such action shall be entitled to such reasonable attorneys' fees, costs and
expenses as may be fixed by the Court.
18. Modifications or Amendments. No amendment, change or modification of
this Agreement shall be valid unless in writing and signed by all of the parties
hereto. Further, any amendment, change or modification of this Agreement
(including but not limited to the at-will nature of this Agreement as set forth
in Section 2 and Paragraph 11.1 hereof) must be approved in advance by the Board
of Directors of Company and reflected in the minutes of such Board's meetings or
in an action by unanimous written consent.
19. Successors and Assigns. All of the terms and provisions contained
herein shall inure to the benefit of and shall be binding upon the parties
hereto and their respective heirs, personal representatives, successors and
assigns.
9
<PAGE> 10
20. Entire Agreement. This Agreement constitutes the entire understanding
and agreement of the parties with respect to the subject matter of this
Agreement, and any and all prior agreements, understandings or representations
are hereby terminated and canceled in their entirety and are of no further force
or effect. Employee specifically acknowledges and agrees that the Company has
not made any promises, assurances or guarantees regarding his employment or the
Company's business or future prospects, and he has not relied on any such
promises, assurances or guarantees in making his decision to become employed by
the Company and relocate his residence to Southern California.
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, including but not limited to, claims by Employee for wrongful
termination, race discrimination, sex discrimination, age discrimination,
discrimination based on nationality or religion, violation of Title VII of the
Civil Rights Act of 1964, as amended, the Americans with Disabilities Act of
1990, the Age Discrimination in Employment Act of 1967, as amended, and the
California Fair Housing and Employment Act, as amended, 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
either the American Arbitration Association or the 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. The cost
of arbitration (including reasonable attorneys' fees) shall be borne by the
losing party. The arbitration shall occur in Los Angeles, California and the
parties hereby consent to the jurisdiction of the arbitrator and to service of
process. EMPLOYEE HEREBY UNDERSTANDS THAT, BY SIGNING THIS AGREEMENT, HE IS
AGREEING TO HAVE ANY CLAIM HEREUNDER, OR UNDER HIS EMPLOYMENT RELATIONSHIP WITH
THE COMPANY, 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 23 of this
Agreement shall survive the termination hereof.
10
<PAGE> 11
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/ Chris D. Strain By: /s/ Craig E. Gosselin
- --------------------------- -------------------------
Chris D. Strain
V.P. and General Counsel
- --------------------------- ----------------------------
Address Title
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-START> JUN-01-1999
<PERIOD-END> AUG-28-1999
<CASH> 12,397,150
<SECURITIES> 0
<RECEIVABLES> 49,452,837
<ALLOWANCES> 1,598,400
<INVENTORY> 46,090,816
<CURRENT-ASSETS> 116,182,791
<PP&E> 19,560,618
<DEPRECIATION> 0
<TOTAL-ASSETS> 166,213,771
<CURRENT-LIABILITIES> 52,009,750
<BONDS> 0
0
0
<COMMON> 13,471
<OTHER-SE> 100,649,522
<TOTAL-LIABILITY-AND-EQUITY> 166,213,771
<SALES> 82,150,779
<TOTAL-REVENUES> 82,150,779
<CGS> 47,587,099
<TOTAL-COSTS> 47,587,099
<OTHER-EXPENSES> 25,905,958
<LOSS-PROVISION> 153,002
<INTEREST-EXPENSE> 422,876
<INCOME-PRETAX> 9,449,342
<INCOME-TAX> 3,212,777
<INCOME-CONTINUING> 5,935,352
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,935,352
<EPS-BASIC> .44
<EPS-DILUTED> .42
</TABLE>
