<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number 0-22446
DECKERS OUTDOOR CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-3015862
(State or other jurisdiction of IRS Employer Identification
incorporation or organization)
1140 Mark Avenue, Carpinteria, California 93013
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (805) 684-7722
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---------- ----------
The number of shares outstanding of Registrant's Common Stock, par value $.01
on April 30, 1996 was 9,242,375.
<PAGE>
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Table of Contents
Page
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
March 31, 1996 and December 31, 1995 1
Condensed Consolidated Statements of Earnings for the
Three-Month Period Ended March 31, 1996 and 1995 2
Condensed Consolidated Statements of Cash Flows for
the Three-Month Period Ended March 31, 1996 and 1995 3-4
Notes to Condensed Consolidated Financial Statements 5-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-10
Part II. Other Information
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signature 12
<PAGE>
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
ASSETS MARCH 31, DECEMBER 31,
1996 1995
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,596,000 3,222,000
Trade accounts receivable, less allowance
for doubtful accounts of $3,595,000 and
$2,625,000 as of March 31, 1996 and
December 31, 1995, respectively 24,808,000 19,716,000
Inventories 17,565,000 19,556,000
Prepaid expenses and other current assets 1,195,000 2,542,000
Refundable income taxes 551,000 2,969,000
Deferred tax assets 2,026,000 2,026,000
---------- ----------
Total current assets 49,741,000 50,031,000
Property and equipment, at cost, net 3,234,000 3,273,000
Intangible assets, less applicable amortization 18,817,000 16,907,000
Note receivable from supplier 2,785,000 2,839,000
Other assets, net 1,135,000 1,867,000
---------- ----------
$ 75,712,000 74,917,000
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes Payable $ 1,736,000 -----
Current maturities of long-term debt 113,000 111,000
Trade accounts payable 2,962,000 3,020,000
Accrued expenses 4,548,000 3,131,000
---------- ----------
Total current liabilities 9,359,000 6,262,000
Long-term debt, less current maturities 11,389,000 15,170,000
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value.
Authorized 5,000,000 shares;
none issued ----- -----
Common stock, $.01 par value.
Authorized 20,000,000 shares;
issued and outstanding
9,242,375 shares 92,000 92,000
Additional paid-in capital 28,940,000 28,940,000
Retained earnings 25,932,000 24,453,000
---------- ----------
Total stockholders' equity 54,964,000 53,485,000
---------- ----------
$ 75,712,000 74,917,000
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED
MARCH 31
1996 1995
<S> <C> <C>
Net sales $ 28,772,000 36,083,000
Cost of sales 16,182,000 18,621,000
---------- ----------
Gross profit 12,590,000 17,462,000
Selling, general and administrative expenses 9,849,000 9,372,000
---------- ----------
Earnings from operations 2,741,000 8,090,000
Other expense (income):
Interest expense (income) 282,000 (53,000)
Minority interest in net loss of
subsidiary (63,000) -----
Miscellaneous expense (income) (148,000) 87,000
---------- ----------
Earnings before income taxes 2,670,000 8,056,000
Income taxes 1,191,000 3,343,000
---------- ----------
Net earnings $ 1,479,000 4,713,000
---------- ----------
---------- ----------
Net earnings per common and common
equivalent shares $ 0.16 0.49
---------- ----------
---------- ----------
Weighted average common and common
equivalent shares outstanding 9,304,000 9,644,000
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED
MARCH 31
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,479,000 4,713,000
---------- ----------
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 460,000 391,000
Provision for doubtful accounts 985,000 300,000
Minority interest in net loss of
subsidiary (63,000) -----
Changes in assets and liabilities:
Increase in trade accounts receivable (6,077,000) (19,052,000)
Decrease in inventory 1,991,000 6,884,000
Decrease (increase) in prepaid
expenses and other current assets 1,347,000 (718,000)
Decrease in refundable income taxes 2,418,000 -----
Decrease in note receivable from
supplier 54,000 186,000
Decrease in other assets 357,000 5,000
Increase (decrease) in accounts
payable (58,000) 142,000
Increase in accrued expenses 1,480,000 2,242,000
Increase in income taxes payable ----- 1,813,000
---------- ----------
Total adjustments 2,894,000 (7,807,000)
---------- -----------
Net cash provided (used) by
operating activities 4,373,000 (3,094,000)
---------- -----------
Cash flows from investing activities:
Purchase of property and equipment (220,000) (679,000)
Net proceeds from the sale of short-term
investments ----- 3,350,000
Other ----- (10,000)
---------- ----------
Net cash provided (used) by
investing activities (220,000) 2,661,000
----------- ----------
</TABLE>
(Continued)
<PAGE>
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows, Continued
(Unaudited)
<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED
MARCH 31
1996 1995
<S> <C> <C>
Cash flows from financing activities:
Cash received from borrowings under
credit facility $ 750,000 5,000,000
Repayments of notes payable and
long-term debt (4,550,000) (50,000)
Proceeds from issuances of common stock ----- 12,000
Repurchase of common stock ----- (4,900,000)
Other 21,000 -----
---------- ----------
Net cash provided (used) by
financing activities (3,779,000) 62,000
---------- ----------
Net increase (decrease) in cash
and cash equivalents 374,000 (371,000)
Cash and cash equivalents at beginning
of period 3,222,000 2,872,000
---------- ----------
Cash and cash equivalents at end of period $ 3,596,000 2,501,000
---------- ----------
---------- ----------
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest $ 269,000 ----
Income taxes 141,000 1,531,000
---------- ----------
---------- ----------
</TABLE>
Supplemental disclosure of noncash investing and financing activities:
In connection with the repurchase of outstanding stock options of a
subsidiary from the Founder of the subsidiary during the three month
period ended March 31, 1996, the Company gave consideration of
$2,111,000, consisting of notes payable to the Founder of $1,736,000
and the forgiveness of a $375,000 note receivable from the Founder. The
Company allocated the entire purchase price to goodwill.
In connection with the acquisition of substantially all of the assets
of Alp Sport Sandals during the three month period ended March 31, 1995,
the Company acquired net assets aggregating $1,258,000 for cash
consideration and $1,066,000 of indebtedness.
See accompanying notes to condensed consolidated financial statements.
<PAGE>
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) General
The unaudited condensed consolidated financial statements have been
prepared on the same basis as the audited consolidated financial
statements and, in the opinion of management, reflect all adjustments
(consisting of normal recurring adjustments) necessary for a fair
presentation for each of the periods presented. The results of operations
for interim periods are not necessarily indicative of results to be
achieved for full fiscal years.
As contemplated by the Securities and Exchange Commission (SEC) under Rule
10-01 of Regulation S-X, the accompanying consolidated financial
statements and related footnotes have been condensed and do not contain
certain information that will be included in the Company's annual
consolidated financial statements and footnotes thereto. For further
information, refer to the consolidated financial statements and related
footnotes for the year ended December 31, 1995 included in the Company's
Annual Report on Form 10-K.
(2) Earnings per Share
Net earnings per share is based on the weighted average number of common
and common equivalent shares outstanding. Common stock equivalents
represent the number of shares which would be issued assuming the exercise
of common stock options and reduced by the number of shares which could be
purchased with the proceeds from the exercise of those options.
Fully diluted net earnings per share are not presented since the amounts
do not differ significantly from the primary net earnings per share
presented.
(3) Inventory
Inventory at March 31, 1996 and December 31, 1995 is summarized as
follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
<S> <C> <C>
Raw materials $ 1,606,000 1,892,000
Work in process 2,036,000 1,379,000
Finished goods 13,923,000 16,285,000
---------- ----------
Total inventory $ 17,565,000 19,556,000
---------- ----------
---------- ----------
</TABLE>
<PAGE>
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)
(4) Income Taxes
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) Repurchase of Stock Options
In connection with the acquisition of Simple Shoes, Inc. ("Simple") in
1993, the founder and President of Simple (the "Founder") retained an
option to acquire up to a 10% interest in Simple. On April 4, 1996, the
Company entered into an agreement, effective January 1, 1996, to reacquire
such option from the Founder for $2,500,000, less the $300,000 exercise
price of the option. The Company made the first installment payment in
April 1996 and the remaining non-interest bearing installment of
$1,100,000 is due January 1, 1997.
The Company allocated the entire purchase price to goodwill, which is
being amortized over the remaining 18 year life of the goodwill.
(6) Credit Facility
Pursuant to an amendment, the availability under the Company's $45,000,000
revolving credit facility ("the Facility") was reduced to $25,000,000
based on certain eligible assets, as defined, effective as of February 29,
1996. The Facility can be used for working capital and general corporate
purposes and expires August 1, 2000. Borrowings bear interest at the
bank's prime rate (8.25% at March 31, 1996) plus up to 0.25%, depending on
whether the Company satisfies certain financial ratios. Alternatively,
the Company may elect to have borrowings bear interest at LIBOR plus 1.5%
to 1.75%, depending on whether the Company satisfies such financial
ratios. Up to $7,000,000 of borrowings may be in the form of letters of
credit. The Facility is secured by substantially all assets of the
Company. As of March 31, 1996, the Company had borrowed $10,000,000 under
the Facility and $14,268,000 was available for borrowing.
The agreement underlying the Facility includes certain restrictive
covenants which, among other things, require the Company to maintain
certain financial tests. The Company was in compliance with all
requirements as of March 31, 1996.
(7) Stock-Based Compensation
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
(FAS 123), which was issued in October 1995. This statement encourages,
but does not require, a fair value based method of accounting for employee
stock options or similar equity instruments. FAS 123 allows an entity to
elect to continue to measure compensation cost under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees"
(APBO No. 25), but requires pro forma disclosures of net earnings and
earnings per share as if the fair value based method of accounting had
been applied. The Company has elected to continue to measure compensation
cost under APBO No. 25, "Accounting for Stock Issued to Employees," and
will comply with the pro forma disclosure requirements in its December 31,
1996 Annual Report on Form 10-K. The adoption of FAS 123 had no impact
on the Company's financial position or results of operations.
<PAGE>
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, Continued
(Unaudited)
(8) Impairment of Long-Lived Assets
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121 (FAS 121), "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which
was issued in March 1995. This statement establishes accounting standards
for the recognition and measurement of impairment of long-lived assets,
certain identifiable intangibles and goodwill either to be held or
disposed of. The adoption of FAS 121 did not have a material impact on
the Company's financial position or results of operations.
<PAGE>
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 Compared to Three Months Ended March
31, 1995
Net sales decreased by $7,311,000 or 20.3% between the three months
ended March 31, 1996 and 1995. Whereas the first quarter of 1995 was
the best quarter ever for sales of the Company's Teva registered
trademark line, in the first quarter of 1996 the Company continued to
be impacted by the poor overall retail markets and the abundance of
sport sandals in the marketplace which began in the second quarter of
1995. As a result, sales of the Teva registered trademark line
decreased from $30,203,000 for the three months ended March 31, 1995
to $18,600,000 for the three months ended March 31, 1996, a 38.4%
decrease. Sales of Teva registered trademark products represented
83.7% and 64.6% of net sales in the three months ended March 31, 1995
and 1996, respectively. While Teva registered trademark sales
declined in comparison to the prior year period, the Company
experienced a continued increase in the net sales of footwear under
the Simple registered trademark product line, which increased 67.4%,
from $4,768,000 to $7,983,000 between the three months ended March 31,
1995 and 1996. Overall, international sales for all of the Company's
products increased 57.6% from $5,734,000 to $9,035,000, representing
15.9% of net sales in 1995 and 31.4% in 1996. The combination of these
factors lead to a net decrease in the volume of footwear sold, which
decreased from 1,263,000 pairs during the three months ended March 31,
1995 to 1,107,000 pairs during the three months ended March 31, 1996,
a 12.4% decrease.
The weighted average wholesale price per pair sold during these
respective periods decreased from $29.32 to $24.88, or by 15.1%. The
decrease in the average wholesale price reflects the continued sale of
the remaining 1995 Teva registered trademark sport sandals at
discounted prices, which selling prices approximated the carrying
value of the inventory. In addition, the Company reduced the prices
of certain Teva registered trademark styles since the first quarter of
1995 in order to promote a more even distribution of price points
between the high and low points. The Company believes that having
such an even price point distribution will place one or more styles at
each desired price level.
Cost of sales decreased by $2,439,000 to $16,182,000 for the three
months ended March 31, 1996, compared with $18,621,000 for the three
months ended March 31, 1995, a decrease of 13.1%. Gross profit
decreased by $4,872,000, or 27.9%, to $12,590,000 for the three months
ended March 31, 1996 from $17,462,000 for the three months ended March
31, 1995 and decreased as a percentage of net sales to 43.8% from
48.4%. The decrease in gross profit margin as a percentage of net
sales was primarily due to the sale of 1995 closeout inventory at
discounted prices as well as the reduction in prices on certain Teva
registered trademark styles for the 1996 season, as discussed above.
Selling, general and administrative expenses increased by $477,000, or
5.1%, between the three months ended March 31, 1995 and March 31, 1996
and increased as a percentage of net sales from 26.0% in 1995 to 34.2%
in 1996. The increase was primarily due to an increase in the reserve
for potential uncollectable receivables; the addition of the
operations of Ugg Holdings, Inc.; increased marketing efforts for the
Simple registered trademark product line; and increased payroll costs
related to newly created positions. Such increases were partially
offset by the decrease in royalty expense and sales commission expense
resulting from the decrease in sales volume. The increase as a
percentage of net sales also occurred as certain selling, general and
administrative expenses include certain fixed costs and, therefore,
total selling, general and administrative expenses do not fluctuate
proportionately with changes in sales volume.
<PAGE>
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Income taxes were $1,191,000 for the three months ended March 31,
1996, representing an effective income tax rate of 44.6%, compared
with income taxes of $3,343,000 for the three months ended March 31,
1995, representing an effective income tax rate of 41.5%. The
increase in the effective income tax rate from 1995 to 1996 is largely
a result of the goodwill associated with the acquisition of Ugg
Holdings, Inc. which is not deductible for income tax reporting
purposes. In addition, the Company experienced non-deductible losses
at certain subsidiaries which are consolidated for financial reporting
purposes but which are not consolidated for income tax reporting
purposes.
The Company had net earnings of $1,479,000 for the three months ended
March 31, 1996 as compared with net earnings of $4,713,000 for the
three months ended March 31, 1995, a decrease of 68.6%, for the
reasons discussed above.
Liquidity and Capital Resources
At March 31, 1996, working capital was $40,382,000 including
$3,596,000 of cash and cash equivalents. Cash provided by operating
activities aggregated $4,373,000 for the three months ended March 31,
1996.
Pursuant to an amendment, the availability under the Company's
$45,000,000 revolving credit facility (the "Facility") was reduced to
$25,000,000 based on certain eligible assets, as defined, effective as
of February 29, 1996. The Facility can be used for working capital
and general corporate purposes and expires August 1, 2000. Borrowings
bear interest at the bank's prime rate (8.25% at March 31, 1996) plus
up to 0.25%, depending on whether the Company satisfies certain
financial ratios. Alternatively, the Company may elect to have
borrowings bear interest at LIBOR plus 1.5% to 1.75%, depending on
whether the Company satisfies such financial ratios. Up to $7,000,000
of borrowings may be in the form of letters of credit. The Facility
is secured by substantially all assets of the Company. As of March 31,
1996, the Company had $10,000,000 in borrowings outstanding under the
Facility and $14,268,000 was available for borrowings.
The agreement underlying the Facility includes certain restrictive
covenants which, among other things, require the Company to maintain
certain financial tests. The Company was in compliance with all
requirements as of March 31, 1996.
The Company has an agreement with a supplier to provide financing for
the start-up and the expansion of the supplier's operations, of which
$2,785,000 was outstanding at March 31, 1996. The note is secured by
all assets of the supplier and bears interest at the prime rate (8.25%
at March 31, 1996) plus 1%.
Capital expenditures totaled $220,000 for the three months ended March
31, 1996. The Company's capital expenditures related primarily to the
purchase of machinery and equipment, the continued expansion of the
Company's facilities and upgrades to the Company's computer systems.
The Company currently has no material future commitments for capital
expenditures.
In connection with the acquisition of Ugg Holdings, Inc. in 1995, the
Company is required to make future payments to the former shareholders
equal to 2 1/2% of net sales of Ugg Holdings, Inc. for the years
ending March 31, 1996 through March 31, 2000, an amount equal to
earnings before income taxes of Ugg Holdings, Inc., as adjusted for
certain items, for the year ended March 31, 1996 and an additional
$500,000 payment in March 2000.
The Company believes that internally generated funds, the available
borrowings under its existing credit facilities and the cash on hand
will provide sufficient liquidity to enable it to meet its current and
foreseeable working capital requirements.
<PAGE>
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Seasonality
Financial results for the outdoor and footwear industries are
generally seasonal. Based on the Company's historical product mix,
the Company would expect greater sales in the first and second
quarters than in the third and fourth quarters. However, the Company
anticipates that the recent acquisition of Ugg Holdings, Inc., which
is counterseasonal to the Company's sport sandal line, will help
reduce the impact of seasonality.
Other
The Company believes that the relatively moderate rates of inflation
in recent years have not had a significant impact on its net sales or
profitability.
New Accounting Standards
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (FAS 123), which was issued in October 1995. This
statement encourages, but does not require, a fair value based method
of accounting for employee stock options or similar equity
instruments. FAS 123 allows an entity to elect to continue to measure
compensation cost under Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APBO No. 25), but requires
pro forma disclosures of net earnings and earnings per share as if the
fair value based method of accounting had been applied. The Company
has elected to continue to measure compensation cost under APBO No.
25, "Accounting for Stock Issued to Employees," and will comply with
the pro forma disclosure requirements in its December 31, 1996 Annual
Report on Form 10-K. The adoption of FAS 123 had no impact on the
Company's financial position or results of operations.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121 (FAS 121), "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
which was issued in March 1995. This statement establishes accounting
standards for the recognition and measurement of impairment of
long-lived assets, certain identifiable intangibles and goodwill
either to be held or disposed of. The adoption of FAS 121 did not
have a material impact on the Company's financial position or results
of operations.
<PAGE>
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Part II. OTHER INFORMATION
Item 1. Legal Proceedings. Not applicable
Item 2. Changes in Securities. Not applicable
Item 3. Defaults upon Senior Securities. Not applicable
Item 4. Submission of Matters to a Vote of Security
Holders. Not applicable
Item 5. Other Information. Not applicable
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 10.41 Option Purchase Agreement, dated April 4,
1996, by and between Eric Meyer, Deckers
Outdoor Corporation, Simple Shoes, Inc. and
Phillipsburg, Ltd.
Exhibit 11.1 Statement of Computation of Earnings per
Share.
(b) Reports on Form 8-K. None
<PAGE>
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
SIGNATURE
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.
(REGISTRANT) Deckers Outdoor Corporation
BY (SIGNATURE) /s/ Diana M. Wilson
(NAME AND TITLE) Diana M. Wilson, Chief Operating and Financial
Officer, Vice President and Secretary
(Duly Authorized Officer and Principal Financial
and Accounting Officer)
(DATE) May 14, 1996
<PAGE>
<PAGE>
OPTION PURCHASE AGREEMENT EXHIBIT 10.41
By and Between
ERIC MEYER
DECKERS OUTDOOR CORPORATION
SIMPLE SHOES, INC.
and
PHILLIPSBURG, LTD.
<PAGE>
Table of Contents
Page
1. Purchase of Meyer Option 1
2. Effective Date 1
3. Purchase Price 1
4. Payment of Purchase Price 1
5. Meyer's Representations and Warranties 2
6. Companies' Representations and Warranties 3
7. Resignation by Meyer 3
8. Consulting Agreement 3
9. Repayment of Meyer Loan 4
10. Covenant Not to Compete 4
11. Conditions of Closing 4
12. Use of Meyer's Name and Endorsements 4
13. Complete and Full General Release of All Claims 4
14. Arbitration and Attorneys' Fees 5
15. Successors 5
16. Injunctive Relief 5
17. Entire Agreement 5
18. Notices 5
19. No Third Party Beneficiaries 5
20. Captions 6
21. Severability 6
<PAGE>
22. Counterparts 6
23. Advice of Counsel 6
24. Simple Footwear 6
Exhibits
Exhibit A - Non-Competition Provisions
Exhibit B - License Agreement
<PAGE>
OPTION PURCHASE AGREEMENT
THIS OPTION PURCHASE AGREEMENT (the "Agreement") is made and
entered into on the date hereinafter set forth by and between ERIC MEYER
("Meyer"), DECKERS OUTDOOR CORPORATION ("Deckers") and SIMPLE SHOES,
INC. ("Simple") and PHILLIPSBURG, LTD. ("Phillipsburg") (Deckers, Simple
and Phillipsburg are collectively, the "Companies").
WHEREAS:
A. The parties hereto are parties to that certain agreement
dated December 14, 1992 entitled "Investment and Shareholders Agreement"
(the "Original Agreement"), which was amended by a First Amendment to
Investment and Shareholders Agreement dated June 30, 1993 (the "First
Amendment"), and was subsequently amended by a Second Amendment to
Investment and Shareholders Agreement dated January 1, 1994 (the "Second
Amendment"). The Second Amendment contains a stock option in favor of
Meyer to acquire up to ten percent (10%) of the shares of Simple (the
"Meyer Option"). The Original Agreement and the First Amendment and the
Second Amendment will hereinafter be collectively referred to as the
"Meyer Agreement";
B. Deckers wishes to purchase from Meyer, and Meyer wishes to
sell to Deckers, the Meyer Option;
C. Phillipsburg is a wholly-owned Hong Kong based subsidiary of
Simple which is used to source Simple products; and
D. The parties hereto also wish to terminate and cancel the
Meyer Agreement upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and promises,
warranties and representations herein contained, it is agreed as
follows:
1. Purchase of Meyer Option. The Meyer Option is hereby
purchased from Meyer by Deckers as provided below (the "Purchase"), and
the Meyer Agreement is hereby cancelled and superseded by the terms of
this Agreement.
2. Effective Date. The effective date of the Purchase
will be as of January 1, 1996 (the "Effective Date").
3. Purchase Price. The purchase price (the "Purchase
Price") will be TWO MILLION FIVE HUNDRED THOUSAND DOLLARS ($2,500,000),
less the sum of THREE HUNDRED THOUSAND DOLLARS ($300,000), which is the
Meyer Option exercise price (the "Exercise Price").
4. Payment of Purchase Price. The Purchase Price will be
paid in two (2) installments, without interest, as follows:
<PAGE>
(a) ONE MILLION TWO HUNDRED FIFTY THOUSAND
DOLLARS ($1,250,000) upon the completion of all of the conditions set
forth below and subject to the reduction and set-off for the loan
described in Paragraph 9. hereof, less ONE HUNDRED FIFTY THOUSAND
DOLLARS ($150,000) for one-half (1/2) of the Exercise Price; and
(b) ONE MILLION TWO HUNDRED FIFTY THOUSAND
DOLLARS ($1,250,000), less ONE HUNDRED FIFTY THOUSAND DOLLARS ($150,000)
for one-half (1/2) of the Exercise Price on January 1, 1997.
Should any portion of the Purchase Price be unpaid when due,
and remain unpaid for a period of five (5) business days, then the
entire balance will be immediately due and payable, and interest will
accrue from the date of the default until payment thereof at the highest
rate permitted by law not exceeding ten percent (10%) per annum. Until
the Purchase Price is paid in full, Deckers grants to Meyer a security
interest in the Meyer Option to secure the payment of the Purchase Price
(the "Meyer Security Interest"), which will be automatically
subordinated to any security interest of any financial institution
which has provided financing to Deckers. Meyer will execute any
subordination agreements required by Deckers' lender(s) within ten (10)
days of a written request by Deckers, and should he fail to do so, he
irrevocably appoints Deckers as his attorney-in-fact to execute such
subordination agreement(s).
Meyer will be responsible for the payment of all income
taxes which will be due by him related to these payments, plus the
consulting payments in Paragraph 7. below, and Meyer will indemnify and
hold harmless the Companies from and against any and all liabilities,
losses, claims, causes of actions, penalties, interest and attorneys'
fees and costs incurred in connection with any income tax penalties or
interest due by Meyer. The Companies will be responsible for the
payment of their own income taxes and will indemnify and hold harmless
Meyer from and against any and all liabilities, losses, claims, causes
of action, penalties, interest and attorneys' fees and costs incurred in
connection with any income tax penalties or interest due by the
Companies.
5. Meyer's Representations and Warranties. Meyer hereby
represents and warrants that:
(a) He owns the entire interest in the Meyer Option
and he may convey the Meyer Option to Deckers, free and clear of any
liens or encumbrances;
(b) He is not restrained by any contracts or
agreements, or any other restrictions, from performing his obligations
hereunder, except to the extent of his agreements with the Companies.
(c) He has made his own determination, independent
of Deckers or Simple, to enter into this Agreement, and he acknowledges
that neither Deckers nor Simple have made any warranties or
representations regarding the fairness of the Purchase Price
<PAGE>
or the future performance of Simple or Phillipsburg, and he has entered
into this Agreement with full knowledge of all facts relating to Simple
and Phillipsburg.
Meyer will indemnify and hold harmless Deckers and Simple from and
against any and all liabilities, losses, claims, causes of actions,
penalties, interest and attorneys' fees and costs incurred in connection
with the breach of these warranties.
6. Companies' Representations and Warranties. The
Companies hereby represent and warrant that:
(a) They are not restrained by any contracts or
agreements, or any other restrictions, from performing their obligations
hereunder, except to the extent of their agreements with Meyer.
(b) They have made their own determination,
independent of Meyer, to enter into this Agreement, and they acknowledge
that Meyer has not made any warranties or representations regarding the
fairness of the Purchase Price or the future performance of the
Companies, and they have entered into this Agreement with full knowledge
of all facts relating to the Companies.
The Companies will indemnify and hold harmless Meyer from and
against any and all liabilities, losses, claims, causes of actions,
penalties, interest and attorneys' fees and costs incurred in connection
with the breach of these warranties.
7. Resignation by Meyer. Effective January 1, 1996, as
part of this transaction, Meyer resigns as President and a Director of
Simple, and as President and a Director of Phillipsburg. Meyer will be
paid his accrued and unpaid bonus and vacation time and expense
reimbursement for 1995.
8. Consulting Agreement. Meyer agrees to a three (3)
year Consulting Agreement as an independent contractor with Simple, at a
fee of TWO HUNDRED TWENTY FIVE THOUSAND DOLLARS ($225,000) per year
commencing January 1, 1996, payable in equal monthly installments.
These payments will be in addition to the Purchase Price. Meyer will
provide consulting services for advertising, marketing, brand image,
strategic planning, pricing and product line design, development and
extension. Meyer will be available from time to time, to the
executive staff of the Companies, whether in person, by telephone or by
telefax, and upon reasonable notice of a request. Any required
international travel will only occur upon mutual agreement. Meyer is
expected to render meaningful services for these payments and the
Consulting Agreement may be modified by either party after December 31,
1996 upon thirty (30) days' written notice to cover only consulting
services for advertising, marketing and brand image in return for a
modified fee of ONE HUNDRED FIFTY THOUSAND DOLLARS ($150,000) per
year payable in equal monthly installments. Meyer may have other
business ventures, including, but not limited to, his auto parts
business which do not conflict with his obligations in this paragraph
and paragraph 10. hereof. There will be no other fringe benefits
<PAGE>
payable to Meyer as a consultant, but Meyer will be entitled to
reimbursement of the Companies' approved expenses incurred by him
for travel, his home telefax, home/business telephone and business
cellular telephone. Notwithstanding the foregoing, the Consulting
Agreement may be terminated, with "cause," by either party hereto by
giving the other party thirty (30) days' prior written notice. As used
herein, "cause" shall mean the continued failure to perform the duties
and obligations of this Paragraph 8 and of Paragraph 10. after written
notice from the other party, a breach of a material term of this
Paragraph 8 or Paragraph 10 which is not cured within thirty (30) days
of written notice by the other party, or Meyer's death or permanent
disability. If there is any termination of the Consulting Agreement by
either party, it shall not affect the purchase by Deckers of the Meyer
Option or the royalties paid under the License Agreement described in
Paragraph 12.
9. Repayment of Meyer Loan. Meyer agrees that Deckers
may reduce and set-off against the first installment of the Purchase
Price the loan to Meyer in the principal amount of THREE HUNDRED
SEVENTY-FIVE THOUSAND DOLLARS ($375,000) which is currently due from
Meyer to Deckers, and, upon the payment thereof, Deckers agrees to
surrender any notes in its possession reflecting said loan.
10. Covenant Not to Compete. In consideration of the
foregoing, Meyer hereby agrees and does hereby ratify and confirm his
existing non-competition agreement, through December 31, 1998, which is
attached hereto as Exhibit A.
11. Conditions of Closing. The parties hereto agree that
this Agreement is conditioned upon receipt and execution of any further
documents required to implement the foregoing, but which do not negate
the parties' agreements hereunder.
12. Use of Meyer's Name and Endorsements. Meyer hereby
agrees that Simple may continue to use his name until December 31, 1998
pursuant to the License Agreement attached hereto as Exhibit B.
13. Complete and Full General Release of All Claims. Each
of the parties hereby unconditionally releases and forever discharges
the other party, their officers, directors, employees, agents and
insurers of and from any and all claims, actions, causes of action,
rights, demands, attorney's fees, wages, debts or damages of every kind
or nature whatsoever, whether known or unknown, arising out of,
resulting from or relating in any way to any acts or events occurring on
or before the date of execution of this Agreement. This release shall
not apply to the obligations set forth in this Agreement or the
attachments hereto.
EACH PARTY HERETO ALSO KNOWINGLY WAIVES THE PROVISIONS OF
SECTION 1542 OF THE CIVIL CODE OF THE STATE OF CALIFORNIA, WHICH READS:
"A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at the
<PAGE>
time of executing the release, which if known by him must have
materially affected his settlement with the debtor."
Notwithstanding the above stated provisions of Section 1542
and for the purpose of implementing a full and complete release, each
party hereto expressly acknowledges that this Agreement is specifically
intended to include in its effect, without limitation, all claims which
either party hereto does not know or suspect to exist in their favor at
the time of execution hereof, and contemplates the extinguishment of any
such claims.
14. Arbitration and Attorneys' Fees. In the event of any
dispute arising out of the enforcement, terms, breach or interpretation
of this Agreement, the parties agree that, except for the breach by
Meyer of the covenant not to compete and/or the violation by the
Companies of any of the terms of the License concerning or relating to
the Licensor's Name, in which case Paragraph 16 hereof may also apply,
their sole recourse is to pursue final and binding arbitration pursuant
to the rules of the American Arbitration Association for contract
disputes before one arbitrator. The prevailing party will be entitled
to full reimbursement for expenses and attorneys fees' incurred in
connection therewith. The arbitration is to be held in Santa Barbara,
California. Both parties waive the right to trial by jury.
15. Successors. This Agreement shall be binding upon each
party and their heirs, representatives, successors, and assigns, and
shall be for the benefit of the other party and their stockholders,
predecessors, successors, assigns, agents, directors, officers,
employees, affiliated and all persons acting by, through, under or in
concert with any of them, and each of them, and to their heirs,
representatives, successors, and assigns.
16. Injunctive Relief. Each of the parties hereto
acknowledges that the remedy at law for any breach of the provisions of
this Agreement will be inadequate and, accordingly, each of them
covenants and agrees that, with respect to any such breach, the non-
breaching party, in addition to any other rights or remedies that it may
have and regardless of whether such other rights or remedies have been
previously exercised, will be entitled to such injunctive relief as may
be available.
17. Entire Agreement. This Agreement constitutes the
entire agreement among the parties with respect to the subject matter
hereof and supersedes all prior and simultaneous agreements,
representations, warranties, statements and understandings, whether oral
or written, with respect to the subject matter hereof.
18. Notices. All notices, demands, elections, or requests
provided for or permitted to be given pursuant to this Agreement must
be in writing. All notices, demands, elections and requests shall be
deemed to have been duly given on the date delivered personally or on
the date of receipt if sent by overnight delivery services, facsimile
transmission, or registered or certified U.S. Mail with return receipt
requested, to the addresses set forth on the signature page hereof, or
such other addresses as may be subsequently designated in writing and
delivered to the other parties hereto.
<PAGE>
19. No Third Party Beneficiaries. Nothing contained in
this Agreement is intended to and nothing contained herein shall be
interpreted to confer on any party not a party hereto or a successor or
assign thereof the rights of a third party beneficiary. Provided,
however, that in the event of Meyer's death, any unpaid portions of the
Purchase Price and the License will be made to his wife, Cynthia, or if
she is not then alive, to his heirs.
20. Captions. All section titles or captions contained in
this Agreement or in any schedule or exhibit annexed hereto or referred
to herein are for convenience only, shall not be deemed part of this
Agreement and shall not afflict the meaning or interpretation of this
Agreement. All references herein to sections shall be deemed references
to such parts of this Agreement, unless the context shall otherwise
require.
21. Severability. If any provision of this Agreement or
the application thereof to any person or circumstances shall be held to
be invalid or unenforceable to any extent, the remainder of this
Agreement and the application of such provision to other persons or
circumstances shall not be affected thereby and shall be enforced to the
greatest extent permitted by law.
22. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
23. Advice of Counsel. Meyer represents that he has
sought the advice of his independent counsel, Charles Ogle, prior to
executing this Agreement, and Meyer acknowledges that Nida & Maloney has
acted as counsel to Deckers, Simple and Phillipsburg in the preparation
of this Agreement.
24. Simple Footwear. During the term of the Consulting
Agreement and twenty (20) years thereafter, Meyer will be entitled,
without charge, to SEVEN HUNDRED DOLLARS ($700) worth of Simple
merchandise each year at wholesale if Simple products are being produced
by the Companies.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement this fourth day of April, 1996.
MEYER:
/s/ ERIC MEYER
Address:
1560 Oramas Road
Santa Barbara, CA
DECKERS:
DECKERS OUTDOOR CORPORATION
By: /s/ Diana M. Wilson
Title: Chief Operating and Financial Officer
Address:
1140 Mark Avenue
Carpinteria, CA 93013
SIMPLE:
SIMPLE SHOES, INC.
By: /s/ Diana M. Wilson
Title: Chief Operating and Financial Officer
Address:
1140 Mark Avenue
Carpinteria, CA 93013
(Signatures continued on next page)
<PAGE>
PHILLIPSBURG:
PHILLIPSBURG, LTD.
By: /s/ Diana M. Wilson
Title: Chief Operating and Financial Officer
Address:
c/o Deckers Outdoor Corporation
1140 Mark Avenue
Carpinteria, CA 93013
<PAGE>
Consent of Joinder
of Spouse
I hereby consent to and join in the terms of Sections 1 through 4
and 13 through 23 of this Agreement.
Date: April 4, 1996
/s/ CYNTHIA MEYER
<PAGE>
Exhibit 11.1
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Statement of Computation of Earnings per Share
(Unaudited)
THREE-MONTH PERIOD ENDED
MARCH 31,
1996 1995
Net earnings $ 1,479,000 4,713,000
Less: earnings attributed to holders of
stock options in a subsidiary of the
Company (assuming exercise) ----- 24,000
---------- ----------
Net earnings available to common
stockholders $ 1,479,000 4,689,000
---------- ----------
---------- ----------
Weighted average common stock outstanding 9,242,000 9,569,000
Common stock equivalents - stock options 62,000 75,000
---------- ----------
9,304,000 9,644,000
---------- ----------
---------- ----------
Net earnings per share $ 0.16 0.49
---------- ----------
---------- ----------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
company's unaudited financial statements for the quarter ended March 31, 1996
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 3596000
<SECURITIES> 0
<RECEIVABLES> 28403000
<ALLOWANCES> 3595000
<INVENTORY> 17565000
<CURRENT-ASSETS> 49741000
<PP&E> 5085000
<DEPRECIATION> 1851000
<TOTAL-ASSETS> 75712000
<CURRENT-LIABILITIES> 9359000
<BONDS> 11389000
0
0
<COMMON> 92000
<OTHER-SE> 54872000
<TOTAL-LIABILITY-AND-EQUITY> 75712000
<SALES> 28772000
<TOTAL-REVENUES> 28772000
<CGS> 16182000
<TOTAL-COSTS> 16182000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 985000
<INTEREST-EXPENSE> 282000
<INCOME-PRETAX> 2670000
<INCOME-TAX> 1191000
<INCOME-CONTINUING> 1479000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1479000
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
