<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 September 30, 1998
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 IRS Employer Identification
of incorporation
or organization)
495-A South Fairview Avenue,
Goleta, California 93117
- --------------------------------------------------------------------------------
(Address of principal (zip code)
executive offices)
Registrant's telephone number, including area code (805) 967-7611
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 [ ]
Indicate the number of shares outstanding of the issuer's class of common stock,
as of the latest practicable date.
<TABLE>
<CAPTION>
Outstanding at
CLASS November 19, 1998
---------------------------- --------------
<S> <C>
Common stock, $.01 par value 8,505,770
</TABLE>
<PAGE> 2
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1998
and December 31, 1997 1
Condensed Consolidated Statements of Operations for the
Three-Month Period Ended September 30, 1998 and 1997 2
Condensed Consolidated Statements of Operations for the
Nine-Month Period Ended September 30, 1998 and 1997 3
Condensed Consolidated Statements of Cash Flows for the
Nine-Month Period Ended September 30, 1998 and 1997 4-5
Notes to Condensed Consolidated Financial Statements 6-11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12-20
Part II. Other Information
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 3. Defaults upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
Signature 22
</TABLE>
<PAGE> 3
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 3,830,000 3,238,000
Trade accounts receivable, less allowance for
doubtful accounts of $1,191,000 and $1,092,000 as of
September 30, 1998 and December 31, 1997, respectively 14,832,000 23,037,000
Inventories 16,471,000 18,979,000
Prepaid expenses and other current assets 1,881,000 2,190,000
Refundable income taxes 4,482,000 --
Deferred tax assets 1,357,000 1,357,000
------------ ------------
Total current assets 42,853,000 48,801,000
Property and equipment, at cost, net 2,959,000 2,509,000
Intangible assets, less applicable amortization 20,853,000 21,866,000
Note receivable from supplier, net 597,000 966,000
Other assets, net 583,000 551,000
------------ ------------
$ 67,845,000 74,693,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank credit facility $ 8,470,000 --
Notes payable -- 2,000,000
Current installments of long-term debt 112,000 107,000
Trade accounts payable 3,805,000 3,629,000
Accrued expenses 2,031,000 3,821,000
Income taxes payable -- 22,000
------------ ------------
Total current liabilities 14,418,000 9,579,000
------------ ------------
Long-term debt, less current installments 599,000 7,983,000
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 9,478,722 shares and outstanding
8,505,770 shares at September 30, 1998; issued
9,419,431 shares and outstanding 8,789,431 shares
at December 31, 1997 85,000 88,000
Additional paid-in capital 22,708,000 25,034,000
Retained earnings 30,659,000 32,633,000
------------ ------------
53,452,000 57,755,000
Less note receivable from stockholder/officer 624,000 624,000
------------ ------------
Total stockholders' equity 52,828,000 57,131,000
------------ ------------
$ 67,845,000 74,693,000
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
1
<PAGE> 4
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED
SEPTEMBER 30,
---------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Net sales $ 13,558,000 20,783,000
Cost of sales 12,251,000 13,453,000
------------ ------------
Gross profit 1,307,000 7,330,000
Selling, general and administrative expenses 9,374,000 6,454,000
------------ ------------
Earnings (loss) from operations (8,067,000) 876,000
Other expense (income):
Interest expense (income), net 150,000 (57,000)
Minority interest in net income of unconsolidated
subsidiary -- 98,000
Miscellaneous expense 70,000 10,000
------------ ------------
Earnings (loss) before income taxes
(benefit) (8,287,000) 825,000
Income taxes (benefit) (3,154,000) 357,000
------------ ------------
Net earnings (loss) $ (5,133,000) 468,000
============ ============
Net earnings (loss) per share:
Basic $ (0.60) 0.05
Diluted (0.60) 0.05
============ ============
Weighted average shares:
Basic 8,506,000 8,997,000
Diluted 8,506,000 9,069,000
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 5
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
NINE-MONTH PERIOD ENDED
SEPTEMBER 30,
-------------------------------
1998 1997
------------ ----------
<S> <C> <C>
Net sales $ 76,877,000 83,327,000
Cost of sales 49,111,000 48,515,000
------------ ----------
Gross profit 27,766,000 34,812,000
Selling, general and administrative expenses 29,580,000 26,838,000
Loss on factory closure -- 500,000
------------ ----------
Earnings (loss) from operations (1,814,000) 7,474,000
Other expense:
Interest expense, net 836,000 324,000
Minority interest in net income of unconsolidated
subsidiary -- 17,000
Miscellaneous expense 73,000 4,000
------------ ----------
Earnings (loss) before income taxes (benefit) (2,723,000) 7,129,000
Income taxes (benefit) (749,000) 3,082,000
------------ ----------
Net earnings (loss) $ (1,974,000) 4,047,000
============ ==========
Net earnings (loss) per share:
Basic $ (0.23) 0.45
Diluted (0.23) 0.45
============ ==========
Weighted average shares:
Basic 8,673,000 8,996,000
Diluted 8,673,000 9,062,000
============ ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 6
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
NINE-MONTH PERIOD ENDED
SEPTEMBER 30,
---------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (1,974,000) 4,047,000
------------ ------------
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization 1,998,000 1,861,000
Provision for doubtful accounts 550,000 300,000
Loss on factory closure -- 500,000
Non-cash stock compensation 84,000 --
Minority interest in net income of unconsolidated
subsidiary -- 17,000
Changes in assets and liabilities:
(Increase) decrease in:
Trade accounts receivable 7,655,000 498,000
Inventories 2,508,000 10,627,000
Prepaid expenses and other current assets 309,000 1,275,000
Refundable income taxes (4,482,000) --
Note receivable from supplier 369,000 258,000
Other assets (32,000) (302,000)
Increase (decrease) in:
Accounts payable 176,000 (843,000)
Accrued expenses (1,790,000) 305,000
Income taxes payable (22,000) 99,000
------------ ------------
Total adjustments 7,323,000 14,595,000
------------ ------------
Net cash provided by operating activities 5,349,000 18,642,000
------------ ------------
Cash flows from investing activities:
Proceeds from sale of property and equipment 147,000 13,000
Purchase of property and equipment (1,582,000) (1,218,000)
Cash paid in connection with Ugg acquisition (2,000,000) (351,000)
Purchase of intangible assets -- (200,000)
Cash paid to stockholder/officer for loan -- (624,000)
------------ ------------
Net cash used in investing activities (3,435,000) (2,380,000)
------------ ------------
</TABLE>
(Continued)
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 7
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows, Continued
(Unaudited)
<TABLE>
<CAPTION>
NINE-MONTH PERIOD ENDED
SEPTEMBER 30,
---------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from financing activities:
Gross proceeds from notes payable and long-term
debt 22,054,000 --
Repayments of notes payable and long-term debt (20,963,000) (9,048,000)
Cash paid for repurchases of common stock (2,529,000) (728,000)
Cash received from issuances of common stock 116,000 676,000
------------ ------------
Net cash used in financing activities (1,322,000) (9,100,000)
------------ ------------
Net increase in cash 592,000 7,162,000
Cash at beginning of period 3,238,000 1,287,000
------------ ------------
Cash at end of period $ 3,830,000 8,449,000
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 834,000 449,000
Income taxes 3,780,000 2,263,000
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 8
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 condensed 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 condensed 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, 1997 included in the Company's
Annual Report on Form 10-K.
(2) Earnings (loss) per Share
Basic earnings (loss) per share represents net earnings (loss) divided by
the weighted-average number of common shares outstanding for the period.
Diluted earnings (loss) per share represents net earnings (loss) divided
by the weighted-average number of shares outstanding, inclusive of the
dilutive impact of common stock equivalents. During the three-month and
nine-month periods ended September 30, 1997, 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. For the three and nine month periods
ended September 30, 1998, the Company had a net loss and, accordingly,
inclusion of the stock options would be anti-dilutive. As a result, the
impact of stock options was not included in the computations for these
periods and the resulting weighted average number of shares used in the
basic computation and the diluted computation are the same.
The reconciliations of basic to diluted weighted average shares are as
follows:
<TABLE>
<CAPTION>
THREE-MONTH PERIOD ENDED
SEPTEMBER 30,
-------------------------------
1998 1997
------------ ----------
<S> <C> <C>
Net earnings (loss) $ (5,133,000) 468,000
------------ ----------
Weighted average shares used in basic 8,506,000 8,997,000
computation
Dilutive stock options -- 72,000
------------ ----------
Weighted average shares used for diluted
computation 8,506,000 9,069,000
------------ ----------
</TABLE>
6
<PAGE> 9
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(2) Earnings (loss) per Share (Continued)
Options to purchase 743,000 shares of common stock at prices ranging from
$5.50 to $15.00 were outstanding during the three months ended September
30, 1998, but were not included in the computation of diluted earnings per
share because the options were anti-dilutive, as the Company incurred a
net loss. Options to purchase 419,000 shares of common stock at prices
ranging from $8.13 to $15.00 were outstanding during the three months
ended September 30, 1997, but were not included in the computation of
diluted earnings per share because the options' exercise prices were
greater than the average market price of the common shares during the
period.
<TABLE>
<CAPTION>
NINE-MONTH PERIOD ENDED
SEPTEMBER 30,
-------------------------------
1998 1997
------------ ----------
<S> <C> <C>
Net earnings (loss) $ (1,974,000) 4,047,000
------------ ----------
Weighted average shares used in basic 8,673,000 8,996,000
computation
Dilutive stock options -- 66,000
------------ ----------
Weighted average shares used for diluted
computation 8,673,000 9,062,000
------------ ----------
</TABLE>
Options to purchase 691,000 shares of common stock at prices ranging from
$5.50 to $15.00 were outstanding during the nine months ended September
30, 1998, but were not included in the computation of diluted earnings per
share because the options were anti-dilutive, as the Company incurred a
net loss. Options to purchase 443,000 shares of common stock at prices
ranging from $7.50 to $15.00 were outstanding during the nine months ended
September 30, 1997, but were not included in the computation of diluted
earnings per share because the options' exercise prices were greater than
the average market price of the common shares during the period.
(3) Inventories
Inventories are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
Finished goods $15,347,000 14,081,000
Work in process 44,000 1,189,000
Raw materials 1,080,000 3,709,000
----------- ----------
Total inventories $16,471,000 18,979,000
=========== ==========
</TABLE>
7
<PAGE> 10
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(4) Credit Facility
The Company has a revolving credit facility with a bank (the
"Facility"), to be used for working capital and general corporate
purposes, secured by substantially all assets of the Company. Up to
$12,000,000 of borrowings may be in the form of letters of credit. The
Facility requires the Company to pay down the outstanding balance to
less than $2,500,000 for at least thirty consecutive days during the
thirteen-month period ending July 31, 1999.
As a result of the third quarter loss, the Company was not in compliance
with certain covenants in the Facility at September 30, 1998, including
the tangible net worth requirement and the EBITDA coverage ratio. The
Company has subsequently obtained waivers of the non-compliance from the
bank with respect to these covenants.
At September 30, 1998, the Facility provided for a maximum borrowing
availability of $25,000,000, under which the Company had borrowed
$8,470,000 and had outstanding letters of credit of $9,889,000 as of
such date. On November 20, 1998, the Company and the bank increased the
maximum borrowing availability to $40,000,000 through May 31, 1999, and
$25,000,000 from June 1, 1999 to July 1, 1999, all subject to a
borrowing base of eligible assets, as defined. The expiration date was
changed to July 1, 1999 from August 1, 2000.
At September 30, 1998, the Facility provided for interest at the bank's
prime rate (8.25% at September 30, 1998) plus up to 0.25%, depending on
whether the Company satisfies certain financial ratios. Alternatively,
the Company had the ability to elect borrowings to bear interest at
LIBOR plus 1.5% to 1.75%, depending on whether the Company satisfies
such financial ratios. In conjunction with the increase in the maximum
borrowing availability, the Facility, as amended, provides for interest
at prime (8.25% at September 30, 1998) plus 1.5%.
(5) Income Taxes
Income taxes (benefit) 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. For the
three months ended September 30, 1998 the Company experienced an income
tax benefit of $3,154,000, as a result of the Company's third quarter
loss. This represents an effective income tax rate of 38.1%. For the
three months ended September 30, 1997, the Company had income tax
expense of $357,000, representing an effective income tax rate of 43.3%.
For the nine months ended September 30, 1998 the Company experienced an
income tax benefit of $749,000, as a result of the Company's loss for
the period. This represents an effective income tax rate of 27.5%. For
the nine months ended September 30, 1997, the Company had income tax
expense of $3,082,000, representing an effective income tax rate of
43.2%.
(6) Recently Issued Pronouncements
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards (FAS) No. 130, "Reporting Comprehensive
Income" and FAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information." FAS No. 130 establishes standards for reporting
and display of comprehensive income and its components. FAS No. 131
supersedes previous reporting requirements for reporting on segments of
a business enterprise. FAS No. 130 and FAS No. 131 are effective for
periods beginning after December 15, 1997.
8
<PAGE> 11
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(6) Recently Issued Pronouncements (Continued)
The Company adopted FAS No. 130 "Reporting Comprehensive Income" on
January 1, 1998. The only difference between "net earnings (loss)" and
"comprehensive income (loss)" for the Company is the impact from foreign
currency translation adjustments. Foreign currency translation
adjustments were immaterial to the Company's condensed consolidated
financial statements. Accordingly, net earnings (loss) approximated
comprehensive income (loss) for the three and nine-month periods ended
September 30, 1998 and September 30, 1997.
Since FAS No. 131 is not required for interim reporting in the year of
adoption, the Company plans to adopt this standard in the preparation of
its annual financial statements to be included in the December 31, 1998
Form 10-K. As FAS No. 131 only requires additional disclosures, the
Company expects there will be no impact on its financial position or
results of operations from the implementation.
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 all fiscal
quarters of fiscal years beginning after June 15, 1999. Since the
Company does not presently invest in derivatives or engage in hedging
activities, SFAS No. 133 will not impact the Company's financial
position or results of operations.
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 will adopt SOP 98-1 effective in 1999. The adoption of SOP 98-1
will require the Company to modify its method of accounting for
software. Based on information currently available, the Company does not
expect the adoption of SOP 98-1 to have a significant impact on its
financial position or results of operations.
(7) Contingencies
An action was brought against the Company in 1995 whereby the plaintiff
alleges, among other things, that the Company violated certain
non-disclosure agreements and infringed purported trade secrets
regarding certain footwear products and capitalized on the information
by developing a competing product and incorporating certain concepts or
technologies into other product lines. The complaint seeks specified
damages of $15 million and other unspecified damages. The Company
believes such claims are without merit. The Company anticipates that
this matter will proceed to trial in 1999. The Company has contested,
and intends to continue contesting this claim vigorously. A motion for
summary judgment seeking dismissal of this matter is pending. The
Company does not anticipate that the ultimate outcome of the complaint
will have a material adverse effect upon the Company's financial
position, results of operations or cash flows.
9
<PAGE> 12
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(7) Contingencies (Continued)
The European Commission has enacted anti-dumping duties of 49.2% on
certain types of footwear imported into Europe from China and Indonesia.
Dutch Customs has issued an opinion to the Company that two of the most
popular Teva(R) styles, the Valkyrie and the Storm, are covered by this
anti-dumping duty legislation. The Company does not believe that these
styles are covered by the legislation and is working with Customs to
resolve the situation. In the event that Customs makes a final
determination that such styles are covered by the anti-dumping
provisions, the Company expects that it would have an exposure to prior
anti-dumping duties from 1997. In addition, if Customs determines that
these styles are covered by the legislation, the duty amounts could
cause such products to be too costly to import into Europe from China in
the future. As a result, the Company may have to cease shipping such
styles from China into Europe in the future or may have to begin to
source these styles from countries not covered by the legislation. The
Company is unable to predict the outcome of this matter and the effect,
if any, on the Company's condensed consolidated financial statements.
The Company has commenced a recall of its Spring 1998 Teva(R) universal
nylon infant sandals as the Company has determined that the sandals do
not meet the Company's standards of quality and performance. The sandals
covered by the proposed recall were shipped between September 1997 and
August 1998. The Company believes that approximately 65,000 pairs of
these sandals were shipped during this period, resulting in net sales of
approximately $800,000. The Company intends to seek recovery of loss, if
any, from the independent factory which produced the sandals. The
Company has recorded an estimated loss of $460,000 as of September 30,
1998, related to this matter.
In October 1998, the Company was served in an action brought by a
Plaintiff claiming, among other things, breach of contract and
misrepresentation related to the Company's sale of its interest in
Trukke Winter Sports Products, Inc. ("Trukke") to the founder of Trukke,
rather than to the Plaintiff. The Plaintiff contends, among other
things, that a letter of intent between the Company and the Plaintiff
was a binding agreement. The Company vigorously denies such assertions.
The Company does not anticipate that the ultimate outcome of the
Complaint will have a material adverse effect upon the Company's
financial position, results of operations or cash flows. This action
will be heard in the federal district court in Pocatello, Idaho.
10
<PAGE> 13
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(8) Subsequent Event
On October 9, 1998, the Company adopted a shareholder rights plan. The
Company adopted the plan to protect shareholders against unsolicited
attempts to acquire control of the Company that do not offer what the
Company believes to be an adequate price to all shareholders. As part of
the plan, the Board of Directors of the Company declared a dividend of
one preferred share purchase right (a "Right") for each outstanding
share of common stock, par value $0.01 per share (the "Common Shares"),
of the Company. The dividend is payable to stockholders of record on
December 1, 1998 (the "Record Date"). In addition, one Right shall be
issued with each Common Share that becomes outstanding (i) between the
Record Date and the earliest of the Distribution Date, the Redemption
Date and the Final Expiration Date (as such terms are defined in the
Rights Agreement) or (ii) following the Distribution Date and prior to
the Redemption Date or Final Expiration Date, pursuant to the exercise
of stock options or under any employee plan or arrangement or upon the
exercise, conversion or exchange of other securities of the Company,
which options or securities were outstanding prior to the Distribution
Date, in each case upon the issuance of the Company's common stock in
connection with any of the foregoing. Each Right entitles the registered
holder to purchase from the Company one one-hundredth of a share of
Series B Junior Participating Preferred Stock, par value $0.01 per share
(the "Preferred Shares"), of the Company, at a price of $50.00, subject
to adjustment.
11
<PAGE> 14
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Three Months Ended September 30, 1998 Compared to Three Months Ended
September 30, 1997
Net sales decreased by $7,225,000, or 34.8%, between the three months
ended September 30, 1998 and 1997. Sales of Teva(R) footwear decreased
to $4,219,000 for the three months ended September 30, 1998 from
$4,365,000 for the three months ended September 30, 1997, a 3.4%
decrease. This decrease was a result of the product recall announced
during the quarter, which reduced net sales by the amount of expected
returns. Sales of Teva(R) footwear represented 31.1% and 21.0% of net
sales in the three months ended September 30, 1998 and 1997,
respectively. Net sales of footwear under the Simple(R) product line
decreased 44.5% to $5,849,000 from $10,542,000 between the three months
ended September 30, 1998 and 1997. The decrease in Simple(R) sales
occurred due to a decline in demand for the Simple(R) products caused by
a variety of factors including competition, an abundance of similar
products at retail, and a general decrease in the popularity of the
products. Sales of Ugg(R) footwear decreased 24.1% to $2,576,000 from
$3,396,000, representing 19.0% of sales in 1998 and 16.3% in 1997. The
decrease in sales of Ugg(R) is due primarily to timing issues, as
certain styles did not arrive from factories in time for them to ship
out prior to September 30, 1998. Overall, international sales for all of
the Company's products decreased 37.4% to $3,320,000 from $5,301,000,
representing 24.5% of net sales in 1998 and 25.5% in 1997. This decrease
was primarily due to a decrease in Simple(R) sales in the international
markets. The volume of footwear sold decreased 23.4% to 534,000 pairs
during the three months ended September 30, 1998 from 697,000 pairs
during the three months ended September 30, 1997, for the reasons
discussed above.
The weighted average wholesale price per pair sold during the three
months ended September 30, 1998 decreased 12.6% to $23.80 from $27.23
for the three months ended September 30, 1997. The decrease was
primarily due to higher volumes of Teva(R) and Simple(R) close-outs.
Cost of sales decreased by $1,202,000, or 8.9%, to $12,251,000 for the
three months ended September 30, 1998, compared with $13,453,000 for the
three months ended September 30, 1997. Gross profit decreased by
$6,023,000, or 82.2%, to $1,307,000 for the three months ended September
30, 1998 from $7,330,000 for the three months ended September 30, 1997
and decreased as a percentage of net sales to 9.6% from 35.2%. The
decrease in gross margin during the quarter was due to several factors.
As a result of the Simple(R) sales decline, the Company experienced
approximately $1,600,000 of inventory write-downs on excess Simple(R)
inventory. In addition, the Company experienced write-downs of Teva(R)
raw materials inventory at the end of the 1998 Teva(R) season and also
as a result of the Company's third quarter closure of its Mexican
factory, the last remaining Company-owned manufacturing facility. The
Teva(R) materials write-downs, resulting primarily from these items,
aggregated approximately $900,000. Also, discounted sales accounted for
a greater proportion of total sales in 1998 than in 1997. Lastly, the
Company announced a product recall on the Teva(R) nylon infant sandals,
as discussed in Note 7 to the Condensed Consolidated Financial
Statements, during the third quarter of 1998. The Company recorded a
loss of approximately $460,000 related to this recall, of which
approximately $360,000 was included as a reduction of gross profit and
approximately $100,000 was included in selling, general, and
administrative expenses.
Selling, general and administrative expenses increased by $2,920,000, or
45.2%, for the three months ended September 30, 1998, compared with the
three months ended September 30, 1997, and increased as a percentage of
net sales to 69.1% in 1998 from 31.1% in 1997. In its continuing efforts
to improve sales growth, the Company continued to increase advertising
and marketing costs and continued to increase its research and
development efforts to improve design as well as to improve the
transition from design to production. Accordingly, the Company incurred
approximately $720,000 more
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DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
in advertising and marketing costs and approximately $390,000 more in
research and development costs in the third quarter of 1998 than in the
third quarter of 1997. The Company also experienced an increase in bad
debt expense of approximately $450,000, an increase in warehouse costs
of approximately $175,000, increased sample expenses of approximately
$230,000, product recall costs of approximately $100,000 and incurred
severance costs of approximately $200,000 in conjunction with the
closure of the Mexican manufacturing facility in the third quarter of
1998. In addition to the above, the increase in selling, general and
administrative expenses as a percentage of net sales was a consequence
of certain costs being fixed and not decreasing proportionately with the
reduction in sales.
Net interest expense was $150,000 for the three months ended September
30, 1998 compared with net interest income of $57,000 for the three
months ended September 30, 1997, primarily due to increased borrowings
on the Company's credit facility in the current year.
For the three months ended September 30, 1998 the Company experienced an
income tax benefit of $3,154,000, as a result of the Company's third
quarter loss, reflecting the Company's ability to recover income taxes
previously paid. This represents an effective income tax rate of 38.1%.
For the three months ended September 30, 1997, the Company had income
tax expense of $357,000, representing an effective income tax rate of
43.3%. The decrease in the effective income tax rate is due to certain
non-deductible expenses, primarily goodwill amortization, which were a
greater proportion of earnings (loss) before income taxes in the three
months ended September 30, 1998 than in the three months ended September
30, 1997. In addition, for California state income tax purposes, net
operating losses cannot be carried back to offset income taxes
previously paid in prior years and, therefore, the income tax benefit is
reduced accordingly.
The Company had a net loss of $5,133,000 for the three months ended
September 30, 1998 as compared with net earnings of $468,000 for the
three months ended September 30, 1997 due to the reasons discussed
above.
Nine Months Ended September 30, 1998 Compared to Nine Months Ended
September 30, 1997
Net sales decreased by $6,450,000, or 7.7%, between the nine months
ended September 30, 1998 and 1997. Sales of Teva(R) footwear
increased to $53,146,000 for the nine months ended September 30, 1998
from $49,370,000 for the nine months ended September 30, 1997, a 7.6%
increase. Sales of Teva(R) footwear represented 69.1% and 59.3% of net
sales in the nine months ended September 30, 1998 and 1997,
respectively. Net sales of footwear under the Simple(R) product line
decreased 34.3% to $16,940,000 from $25,766,000 between the nine months
ended September 30, 1998 and 1997. The decrease in Simple(R) sales
occurred due to a decline in demand for the Simple(R) products caused by
a variety of factors including competition, an abundance of similar
products at retail, and a general decrease in the popularity of the
products. Sales of Ugg(R) footwear decreased 8.3% to $2,815,000 from
$3,069,000, representing 3.7% of sales in the nine months ended
September 30, 1998 and 1997. Overall, international sales for all of the
Company's products decreased 2.8% to $18,986,000 from $19,541,000,
representing 24.7% of net sales in 1998 and 23.5% in 1997. The volume of
footwear sold decreased 6.4% to 2,893,000 pairs during the nine months
ended September 30, 1998 from 3,090,000 pairs during the nine months
ended September 30, 1997, for the reasons discussed above.
The weighted average wholesale price per pair sold during the nine
months ended September 30, 1998 decreased slightly by 1.0% to $25.24
from $25.50 for the nine months ended September 30, 1997. The decrease
occurred as a result of an increase in the proportion of footwear sold
at closeout prices in 1998 compared to 1997. This decrease was partially
offset by the impact of price increases in the Spring 1998 Teva(R)
product line as well as increased selling prices for Teva(R) and
Simple(R) in certain European markets, as the Company began selling
directly to retailers at higher prices than those previously charged to
distributors in those markets in 1997.
Cost of sales increased by $596,000, or 1.2%, to $49,111,000 for the
nine months ended September 30, 1998, compared with $48,515,000 for the
nine months ended September 30, 1997. Gross profit decreased by
$7,046,000, or 20.2%, to $27,766,000 for the nine months ended September
30, 1998 from $34,812,000 for the nine months ended September 30, 1997
and decreased as a percentage of net sales to 36.1% from 41.8%. The
decrease in gross margin during the period was due to several factors.
As a result of the Simple(R) sales decline, the Company experienced
inventory write-downs on excess Simple(R) inventory. In addition, the
Company experienced write-downs of Teva(R) raw materials inventory
throughout the nine month period ended September 30, 1998, partially as
a result of the Company's third quarter closure of its Mexican factory,
the last remaining Company-owned manufacturing facility. Also, the
Company experienced increased air freight costs during the nine months
ended September 30, 1998 compared to the nine months ended September 30,
1997. In addition, discounted sales accounted for a greater proportion
of total sales in 1998 than in 1997. Lastly, the Company announced a
product recall on the Teva(R) nylon infant sandals during the third
quarter of 1998. The Company recorded a loss of approximately $460,000
related to this recall, of which approximately $360,000 was included as
a reduction of gross profit and approximately $100,000 was included in
selling, general, and administrative expenses.
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AND SUBSIDIARIES
Selling, general and administrative expenses increased by $2,742,000, or
10.2%, for the nine months ended September 30, 1998, compared with the
nine months ended September 30, 1997, and increased as a percentage of
net sales to 38.5% in 1998 from 32.2% in 1997. In its continuing efforts
to improve sales growth, the Company continued to increase advertising
and marketing and continued to increase its research and development
efforts to improve design as well as to improve the transition from
design to production. Accordingly, the Company incurred approximately
$530,000 more in advertising and marketing costs and approximately
$800,000 more in research and development costs in the nine month
period ended September 30, 1998 than in the nine month period ended
September 30, 1997. The Company also experienced an increase in
warehouse costs of approximately $410,000, an increase in sample
expenses of approximately $250,000, increased European office expenses
of approximately $220,000, product recall costs of approximately
$100,000 and incurred severance costs of approximately $200,000 in
conjunction with the closure of the Mexican manufacturing facility in
the third quarter of 1998. This increase was partially offset by the
non-recurrence of the costs associated with the 1997 litigation with the
former shareholders of Ugg. In addition to the above, the increase in
selling, general and administrative expenses as a percentage of net
sales was a consequence of certain costs being fixed and not decreasing
proportionately with the reduction in sales.
Net interest expense was $836,000 for the nine months ended September
30, 1998 compared with net interest expense of $324,000 for the nine
months ended September 30, 1997, primarily due to increased borrowings
on the Company's credit facility in the current year.
For the nine months ended September 30, 1998 the Company experienced an
income tax benefit of $749,000, as a result of the Company's loss for
the period, reflecting the Company's ability to recover income taxes
previously paid. This represents an effective income tax rate of 27.5%.
For the nine months ended September 30, 1997, the Company had income tax
expense of $3,082,000, representing an effective income tax rate of
43.2%. The decrease in the effective income tax rate is due to certain
non-deductible expenses, primarily goodwill amortization, which were a
greater proportion of earnings (loss) before income taxes in the nine
months ended September 30, 1998 than in the nine months ended September
30, 1997. In addition, for California state income tax purposes, net
operating losses cannot be carried back to offset income taxes
previously paid in prior years and, therefore, the income tax benefit is
reduced accordingly.
The Company had a net loss of $1,974,000 for the nine months ended
September 30, 1998 as compared with net earnings of $4,047,000 for the
nine months ended September 30, 1997 due to the reasons discussed above.
Outlook
This "Outlook" section, the last paragraph under "Liquidity and Capital
Resources" and the discussion under "Seasonality" contain a number of
forward-looking statements including forward-looking statements relating
to sales expectations, the potential impact of certain litigation, the
potential imposition of certain customs duties, the potential impact of
the Teva(R) license expiration, the potential impact of the Year 2000 on
the Company and the impact of seasonality on the Company's operations.
All of the forward-looking statements are based on current expectations.
Actual results may differ materially.
Sales Expectations. The Company has offered an early delivery program
for Teva(R) for the fourth quarter of 1998, which encourages retailers
to receive shipments of product in the fourth quarter of 1998, which
shipments the Company believes would ordinarily ship in the first
quarter of 1999. The Company offered a similar program in the fourth
quarter of 1997. Based on sales orders through November 13, 1998, the
Company believes that sales of Teva(R) product in the fourth quarter of
1998 will exceed the corresponding sales in the fourth quarter of 1997
and believes that Ugg(R) sales in the fourth quarter of 1998 will exceed
sales of Ugg(R) in the fourth quarter of 1997. Simple(R) sales were down
by 34.3% for the nine months ended September 30, 1998 as compared to the
same period last year. The Company expects sales of Simple(R) to
continue to be lower for the fourth quarter of 1998, compared to the
fourth quarter of 1997.
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DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
The foregoing forward-looking statements regarding sales expectations
represent the Company's current analysis of trends and information.
Actual results could vary as a result of numerous factors. For example,
the Company's results are directly dependent on consumer preferences,
which are difficult to assess and can shift rapidly. Any shift in
consumer preferences away from one or more of the Company's product
lines could result in lower sales as well as obsolete inventory, both of
which would adversely affect the Company's results of operations,
financial condition and cash flows. The Company is also dependent on its
customers continuing to carry and promote its various lines. The
Company's sales can be adversely impacted by the ability of the
Company's suppliers to manufacture and deliver products in time for the
Company to meet its customers' orders. In addition, sales of each of the
Company's different lines have historically been higher in different
seasons, with the highest percentage of Teva(R) sales occurring in the
first and second quarter of each year, the highest percentage of
Simple(R) sales occurring in the third quarter and the highest
percentage of Ugg(R) sales occurring in the fourth quarter.
Consequently, the results for these product lines are highly dependent
on results during these specified periods.
In addition, the Company's results of operations, financial condition
and cash flows are subject to risks and uncertainties with respect to
the following: overall economic and market conditions; competition;
demographic changes; the loss of significant customers or suppliers; the
performance and reliability of the Company's products; customer service;
the Company's ability to secure and maintain intellectual property
rights; the Company's ability to secure and maintain adequate financing;
its ability to attract and retain key employees; and the general risks
associated with doing international business including foreign exchange
risks, duties, quotas and political instability.
Sales of the Company's products, particularly those under the Teva(R)
and Ugg(R) lines, are very sensitive to weather conditions. Extended
periods of unusually cold weather during the spring and summer could
adversely impact demand for the Company's Teva(R) line. Likewise,
unseasonably warm weather during the fall and winter months could
adversely impact demand for the Company's Ugg(R) product line.
Potential Impact of Certain Litigation. An action was brought against
the Company in 1995 whereby the plaintiff alleges, among other things,
that the Company violated certain non-disclosure agreements and
infringed purported trade secrets regarding certain footwear products
and capitalized on the information by developing a competing product and
incorporating certain concepts or technologies into other product lines.
The complaint seeks specified damages of $15 million and other
unspecified damages. The Company believes such claims are without merit.
The Company anticipates that this matter will proceed to trial in 1999.
The Company has contested, and intends to continue contesting this claim
vigorously. A motion for summary judgment seeking dismissal of this
matter is pending. The Company does not anticipate that the ultimate
outcome of the complaint will have a material adverse effect upon the
Company's financial position, results of operations or cash flows.
In October 1998, the Company was served in an action brought by a
Plaintiff claiming, among other things, breach of contract and
misrepresentation related to the Company's sale of its interest in
Trukke Winter Sports Products, Inc. ("Trukke") to the founder of Trukke,
rather than to the Plaintiff. The Plaintiff contends, among other
things, that a letter of intent between the Company and the Plaintiff
was a binding agreement. The Company vigorously denies such assertions.
The Company does not anticipate that the ultimate outcome of the
Complaint will have a material adverse effect upon the Company's
financial position, results of operations or cash flows. This action
will be heard in the federal district court in Pocatello, Idaho.
Potential Imposition of Duties. The European Commission has enacted
anti-dumping duties of 49.2% on certain types of footwear imported into
Europe from China and Indonesia. Dutch Customs has issued an opinion to
the Company that two of the most popular Teva(R) styles, the Valkyrie
and the Storm, are covered by this anti-dumping duty legislation. The
Company does not believe that these styles are covered by the
legislation and is working with Customs to resolve the situation. In the
event that Customs makes a final
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DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
determination that such styles are covered by the anti-dumping
provisions, the Company expects that it would have an exposure to prior
anti-dumping duties from 1997. In addition, if Customs determines that
these styles are covered by the legislation, the duty amounts could
cause such products to be too costly to import into Europe from China in
the future. As a result, the Company may have to cease shipping such
styles from China into Europe in the future or may have to begin to
source these styles from countries not covered by the legislation. The
Company is unable to predict the outcome of this matter and the effect,
if any, on the Company.
Potential Impact of Teva License Expiration. Mark Thatcher, owner of
Teva Sport Sandals, Inc., has engaged a financial advisor to explore
various strategic options for the Teva(R) brand. The Company is in
continuing negotiations with Thatcher, pursuing various options
including a renewal of the existing license. The Company is hopeful that
it will be able to successfully negotiate a favorable arrangement with
Thatcher. In the event that the Company does not come to a favorable
arrangement with Thatcher, the Company will not be able to sell Teva(R)
products beyond August 31, 2001, which would result in a material
adverse impact on the Company's results of operations, financial
condition and cash flows.
Year 2000 Issue. The Year 2000 issue results from computer hardware or
software programs written using two digits to identify the year. These
computer programs and hardware were designed and developed without
consideration of the impact of the upcoming change in the century. As a
result, such systems may not be able to properly distinguish between
years that begin with a "20" and years that begin with a "19". If not
corrected, such hardware and software programs could create erroneous
information by or at the year 2000, causing the Company, or its
customers or suppliers, to become unable to process normal business
transactions accurately or at all.
State of Readiness. The Company's Year 2000 compliance strategy includes
several overlapping phases, which the Company has defined as follows:
Identification -- This phase involves the identification of the hardware
and software systems used by the Company which could be adversely
impacted by the Year 2000 issue. It includes identification of
information technology ("IT") systems and non-IT systems (including
telecommunications systems and systems associated with facilities --
such as utilities and security, among others), as well as identification
of the impact that Year 2000 issues may have on the Company's key third
party relationships (including customers, suppliers and financing
sources, among others).
Analysis -- This phase involves the determination of the likelihood,
impact and magnitude of potential Year 2000 non-compliance for each of
the items in the areas previously identified in the Identification
phase.
Conversion -- This phase involves the development and execution of a
plan to bring the previously identified items into Year 2000 compliance.
Testing -- This phase involves the testing of the various systems to
ascertain that the conversion procedures were successful at bringing the
systems into compliance.
Implementation -- This phase involves putting the various Year 2000
compliant systems into use in the Company's operations.
The Company is continuing to assess the readiness of its various systems
for handling the Year 2000 issue. The Company is currently in the
Conversion phase of its Year 2000 strategy with respect to its
enterprise business systems. These include the Company's systems for
order entry and processing, allocations, inventory, receivables,
payables and financial reporting. The Company has determined that its
existing enterprise business systems are not currently Year 2000
compliant. The Company is working
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DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
simultaneously on two alternative courses of action to remedy this
situation. First, the Company is working on making the necessary
revisions and alterations to its existing system in order to bring it
into compliance. At the same time, the Company is upgrading the system
with the current version of the underlying software, which the software
vendor has stated is Year 2000 compliant. The Company currently
anticipates completion of the conversion phases by March 31, 1999.
With respect to the Company's remaining IT systems, including desktops,
networks and several departmental hardware and software systems, its
non-IT systems, as well as the readiness of its external business
partners, the Company is in the Identification phase. The Company
expects completion of the Identification and Analysis phases for the
remaining IT and non-IT systems by December 31, 1998 and currently
anticipates completion of the conversion and testing phases by June 30,
1999. The Company's plan for addressing the readiness of its key
external business partners includes requesting information from these
partners regarding their own readiness to address their Year 2000
issues, and an assessment of the potential impact that any
non-compliance might have on the Company's operations. The various
phases for this segment have commenced and are expected to continue
throughout 1999.
Estimated Costs. The Company currently estimates that total costs
related to all phases of the Year 2000 strategy with respect to its
enterprise business systems will aggregate $300,000. This estimate is
for outside goods and service providers only, and does not include the
time and costs associated with its in-house employees. In addition, the
estimated costs to bring the remaining IT and non-IT systems into
compliance and to address and remedy any non-compliance issues at its
key business partners are not yet determinable, but will likely exceed
$200,000. These costs are expected to be funded through operating cash
flows and bank facilities. The Company does not currently anticipate
using any independent verification or validation processes. The Company
anticipates that the Year 2000 compliance efforts will ultimately result
in the deferral of other IT projects. However, the deferral of such
projects is not expected to have a material adverse impact on the
Company's results of operations, financial condition or cash flows. The
estimated Year 2000 compliance costs are based on the Company's current
assessment of its Year 2000 situation and could change significantly as
the Year 2000 compliance strategy progresses. As of September 30, 1998,
the Company has incurred Year 2000 compliance costs of less than
approximately $100,000.
Risks and Contingency Plan. Although the Company is not aware of any
material operational issues associated with preparing its internal
systems for the year 2000, there can be no assurance that there will not
be a delay in, or increased costs associated with, the implementation of
the necessary systems and changes to address the Year 2000 issues, and
the Company's inability to implement such systems and changes in a
timely manner could have a material adverse effect on future results of
operations, financial condition and cash flows.
The potential inability of the Company's business partners to address
their own Year 2000 issues sufficiently and timely remains a risk which
is difficult to assess. Among other things, the Company is currently
highly dependent on the combination of approximately 12 key suppliers,
primarily located in the Far East, for the production of its footwear
products. The failure of one or more of these suppliers to adequately
address their own Year 2000 issues could cause them to be unable to
manufacture or deliver product to the Company on a timely basis,
materially adversely impacting the Company's results of operations,
financial condition and cash flows. In addition, the inability of one or
more of the Company's significant customers to become compliant could
adversely impact the customers' operations, thus impacting the Company's
sales to those customers.
The Company's Year 2000 compliance efforts are subject to many
additional risks including the following, among others: the Company's
failure to adequately identify and analyze issues, convert to compliant
systems, fully test converted systems, and implement compliant systems;
unanticipated issues or delays in any of the phases of the Company's
strategy; the inability of customers, suppliers and other business
partners to become compliant; breakdown of local and global
infrastructures resulting from the non-compliance of utilities, banking
systems, transportation, government and communications systems.
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DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
As the Company has not yet completed various phases of its internal
readiness and has not yet determined the readiness of its key business
partners, the Company cannot yet fully and accurately identify and
quantify the most reasonably likely worst case Year 2000 scenario at
this time. However, the Company is currently assessing scenarios and
will take steps to mitigate the impact of these scenarios if they were
to occur. This contingency planning will continue and the Company
expects to more fully address such contingencies by the end of the first
quarter of 1999.
The Company's above assessment of the risks associated with Year 2000
issues is forward-looking. Actual results may vary for a variety of
reasons including those described above.
This "Outlook" section, the last paragraph under "Liquidity and Capital
Resources" and the discussion under "Seasonality" contain a number of
forward-looking statements including forward-looking statements relating
to sales expectations, the potential impact of certain litigation, the
potential imposition of certain customs duties, the potential impact of
the Teva(R) license expiration, the potential impact of the Year 2000 on
the Company and the impact of seasonality on the Company's operations.
All of the forward-looking statements are based on current expectations.
Actual results may differ materially. The Company cautions the reader
not to rely on these forward-looking statements. The Company disclaims
any intent or obligation to update these forward-looking statements.
Liquidity and Capital Resources
The Company's liquidity consists of cash, trade accounts receivable,
inventories and a revolving credit facility. At September 30, 1998,
working capital was $28,435,000, including $3,830,000 of cash. Cash
provided by operating activities aggregated $5,349,000 for the nine
months ended September 30, 1998. Trade accounts receivable decreased
35.6% from December 31, 1997 to September 30, 1998 as a result of the
third quarter 1998 sales decline and the normal seasonality of the
business. Inventories decreased 13.2% from December 31, 1997 to
September 30, 1998, reflecting a decrease in raw materials and work in
process inventories between December 31, 1997 and September 30, 1998.
The decrease in these inventories was largely due to the Company's
closure of its Mexican manufacturing facility in the third quarter of
1998, and the Company's overall exit from the footwear manufacturing
business. Whereas a portion of the Company's footwear products have
historically been manufactured directly by the Company, requiring the
Company to purchase and warehouse raw materials inventories, the Company
is currently shifting toward the purchase of 100% of its footwear
products as finished goods from unrelated suppliers. As a result of this
shift, the raw materials and work in process inventories have decreased.
The overall decrease in inventories since December 31, 1997 was also due
to the normal seasonality of the business.
The Company has a revolving credit facility with a bank (the
"Facility"), to be used for working capital and general corporate
purposes, secured by substantially all assets of the Company. Up to
$12,000,000 of borrowings may be in the form of letters of credit. The
Facility requires the Company to pay down the outstanding balance to
less than $2,500,000 for at least thirty consecutive days during the
thirteen-month period ending July 31, 1999.
As a result of the third quarter loss, the Company was not in compliance
with certain covenants in the Facility at September 30, 1998, including
the tangible net worth requirement and the EBITDA coverage ratio. The
Company has subsequently obtained waivers of the non-compliance from the
bank with respect to these covenants.
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AND SUBSIDIARIES
At September 30, 1998, the Facility provided for a maximum borrowing
availability of $25,000,000, under which the Company had borrowed
$8,470,000 and had outstanding letters of credit of $9,889,000 as of
such date. On November 20, 1998, the Company agreed to increase the
maximum borrowing availability to $40,000,000 through May 31, 1999, and
$25,000,000 from June 1, 1999 to July 1, 1999, all subject to a
borrowing base of eligible assets, as defined. In addition, as part of
the amendment, (1) the expiration date was changed to July 1, 1999 from
August 1, 2000, (2) the tangible net worth requirement, as defined, was
adjusted to equal $31,500,000 plus 75% of net earnings subsequent to
September 30, 1998 (based on such formula the tangible net worth
calculation was $31,562,000 at September 30, 1998) and (3) the interest
rate was increased to the bank's prime rate (8.25% at September 30,
1998) plus 1.5% from the bank's prime rate plus up to 0.25%, while the
LIBOR pricing option was eliminated.
At November 19, 1998, the Company had outstanding borrowings of
$15,742,000 and outstanding letters of credit of $8,681,000,
resulting in an overadvance of $1,531,000 compared to the formula for
calculating availability under the amended Facility.
With respect to the EBITDA coverage ratio, the Company and the bank have
had verbal discussions and have orally agreed that certain one-time
charges incurred by the Company, including the inventory write-downs,
the closure of the Mexican manufacturing facility and the product
recall, should be excluded from the calculation going forward.
The bank's agreement to amend the Facility is subject to satisfaction of
certain conditions, including (1) execution of definitive documentation
acceptable to the bank and (2) no material adverse change subsequent to
September 30, 1998 in the financial condition or business of the Company
nor any material decline in the underlying collateral or a substantial
or material portion of the assets of the Company.
The Company has an agreement with a supplier, Prosperous Dragon, to
provide financing to the supplier. At September 30, 1998, $2,097,000 was
outstanding ($597,000 net of allowance). The note is secured by all
assets of the supplier and bears interest at the prime rate (8.25% at
September 30, 1998) plus 1%.
Capital expenditures totaled $1,582,000 for the nine months ended
September 30, 1998. The Company's capital expenditures related primarily
to a new warehouse management system at the Company's Ventura County,
California distribution center, molds purchased for production, upgrades
to corporate computer systems and a new booth for European tradeshows.
The Company currently has no material future commitments for capital
expenditures.
In February 1998, the Company's Board of Directors approved an increase
in the number of shares of common stock authorized for repurchase under
its existing stock repurchase program from 900,000 shares to 1,200,000
shares. Such repurchases are authorized to be made from time to time in
open market or in privately negotiated transactions, subject to price
and market conditions. Under this program, the Company repurchased
300,000 shares in 1996 for cash consideration of $2,390,000, 330,000
shares in 1997 for cash consideration of $2,581,000 and 343,000 shares
in the first nine months of 1998 for cash consideration of $2,529,000.
In connection with the bank's commitment to increase the Company's
maximum borrowing availability, the amended facility does not provide
for the ability to repurchase additional shares.
Even assuming resolution of the existing situation with the bank, the
Company may not have sufficient funds from internally generated funds,
available borrowings under such credit facilities and cash on hand to
provide sufficient liquidity to enable it to purchase all inventory
under its current plan for the 1999 season, in which case the Company
may be required to scale back such plan. Risks and uncertainties which
could impact the Company's ability to maintain its cash position include
the Company's growth rate, its ability to collect its receivables in a
timely manner, the Company's ability to effectively manage its
inventory, and the volume of letters of credit used to purchase product,
among others. See also the discussion regarding forward-looking
statements in the preceding "Outlook" section.
Seasonality
Financial results for the outdoor and footwear industries are generally
seasonal. Sales of each of the Company's different product lines have
historically been higher in different seasons, with the highest
percentage of Teva(R) sales occurring in the first and second quarter of
each year, the highest percentage of Simple(R) sales occurring in the
third quarter and the highest percentage of Ugg(R) sales occurring in
the fourth quarter.
Based on the Company's historical experience, the Company would expect
greater sales in the first and second quarters than in the third and
fourth quarters. The actual results could differ materially depending
upon consumer preferences, availability of product, competition, and the
Company's customers continuing to carry and promote it's various product
lines, among other risks and uncertainties. See also the discussion
regarding forward-looking statements under "Outlook".
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AND SUBSIDIARIES
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.
Recently Issued Pronouncements
For recently issued pronouncements, see Note 6 to the Condensed
Consolidated Financial Statements.
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<PAGE> 23
DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. An action was brought against the Company in 1995
whereby the plaintiff alleges, among other things, that the Company violated
certain non-disclosure agreements and infringed purported trade secrets
regarding certain footwear products and capitalized on the information by
developing a competing product and incorporating certain concepts or
technologies into other product lines. The complaint seeks specified damages of
$15 million and other unspecified damages. The Company believes such claims are
without merit. The Company anticipates that this matter will proceed to trial in
1999. The Company has contested, and intends to continue contesting this claim
vigorously. A motion for summary judgment seeking dismissal of this matter is
pending. The Company does not anticipate that the ultimate outcome of the
complaint will have a material adverse effect upon the Company's financial
position, results of operations or cash flows.
In October 1998, the Company was served in an action brought by a Plaintiff
claiming, among other things, breach of contract and misrepresentation related
to the Company's sale of its interest in Trukke Winter Sports Products, Inc.
("Trukke") to the founder of Trukke, rather than to the Plaintiff. The Plaintiff
contends, among other things, that a letter of intent between the Company and
the Plaintiff was a binding agreement. The Company vigorously denies such
assertions. The Company does not anticipate that the ultimate outcome of the
Complaint will have a material adverse effect upon the Company's financial
position, results of operations or cash flows. This action will be heard in the
federal district court in Pocatello, Idaho.
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
10.39 Shareholder Rights Agreement, dated as of November 12,
1998.
10.40 Letter agreement between Deckers Outdoor Corporation and
Wells Fargo Bank, dated November 20, 1998.
(b) Reports on Form 8-K. The Company filed the following Current
Reports on Form 8-K:
(1) Form 8-K filed on November 6, 1998 (Item 5 - On November 2,
1998, the Company issued a press release announcing that Mark
Thatcher, owner of Teva Sports Sandals, Inc., has engaged an
investment firm for purposes of exploring various strategic
options for the Teva(R) brand. See Exhibit 99.1).
21
<PAGE> 24
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.
Deckers Outdoor Corporation
Date: November 23, 1998 /s/ M. SCOTT ASH
-----------------------------------------
M. Scott Ash, Chief Financial Officer
(Duly Authorized Officer and
Principal Financial and
Accounting Officer)
22
<PAGE> 1
EXHIBIT 10.39
DECKERS OUTDOOR CORPORATION
and
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
Rights Agent
RIGHTS AGREEMENT
Dated as of November 12, 1998
<PAGE> 2
RIGHTS AGREEMENT
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Section 1. Certain Definitions .................................................. 1
Section 2. Appointment of Rights Agent .......................................... 3
Section 3. Issue of Right Certificates .......................................... 3
Section 4. Form of Right Certificates ........................................... 5
Section 5. Countersignature and Registration .................................... 5
Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates;
Mutilated, Destroyed, Lost or Stolen Right Certificates ............. 5
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights ........ 6
Section 8. Cancellation and Destruction of Right Certificates ................... 7
Section 9. Availability of Preferred Shares ..................................... 7
Section 10. Preferred Shares Record Date ......................................... 8
Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights ... 8
Section 12. Certificate of Adjusted Purchase Price or Number of Shares ........... 14
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power.. 14
Section 14. Fractional Rights and Fractional Shares .............................. 15
Section 15. Rights of Action ..................................................... 16
Section 16. Agreement of Right Holders ........................................... 16
Section 17. Right Certificate Holder Not Deemed a Stockholder .................... 16
Section 18. Concerning the Rights Agent .......................................... 17
Section 19. Merger or Consolidation or Change of Name of Rights Agent ............ 17
Section 20. Duties of Rights Agent ............................................... 18
Section 21. Change of Rights Agent ............................................... 19
Section 22. Issuance of New Right Certificates ................................... 20
Section 23. Redemption ........................................................... 20
Section 24. Exchange ............................................................. 21
Section 25. Notice of Certain Events ............................................. 22
Section 26. Notices .............................................................. 22
Section 27. Supplements and Amendments ........................................... 23
Section 28. Successors ........................................................... 23
Section 29. Determinations and Actions by the Board of Directors, etc ............ 23
Section 30. Benefits of this Agreement ........................................... 24
Section 31. Severability ......................................................... 24
Section 32. Governing Law ........................................................ 24
Section 33. Counterparts ......................................................... 24
Section 34. Descriptive Headings ................................................. 24
</TABLE>
Exhibits
Exhibit A - Form of Certificate of Designation
Exhibit B - Form of Right Certificate
Exhibit C - Summary of Rights to Purchase Preferred Shares
RIGHTS AGREEMENT
This RIGHTS AGREEMENT (this "Agreement"), dated as of November 12,
1998, is entered into
<PAGE> 3
by and between Deckers Outdoor Corporation, a Delaware corporation (the
"Company"), and ChaseMellon Shareholder Services, L.L.C., a New Jersey limited
liability company (the "Rights Agent").
The Board of Directors of the Company (the "Board") has authorized and
declared a dividend of one preferred share purchase right (a "Right") for each
Common Share (as hereinafter defined) of the Company outstanding on December 1,
1998 (the "Record Date"), each Right representing the right to purchase one
one-hundredth of a Preferred Share (as hereinafter defined), upon the terms and
subject to the conditions herein set forth, and has further authorized and
directed the issuance of one Right with respect to each Common Share that shall
become outstanding between the Record Date and the earliest of the Distribution
Date, the Redemption Date and the Final Expiration Date (as such terms are
hereinafter defined).
Accordingly, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which, together with all Affiliates and Associates
(as such terms are hereinafter defined) of such Person, shall be the Beneficial
Owner (as such term is hereinafter defined) of 20 percent or more of the Common
Shares of the Company then outstanding, but shall not include the Company, any
Subsidiary (as such term is hereinafter defined) of the Company, any employee
benefit plan of the Company or any Subsidiary of the Company, or any entity
holding Common Shares for or pursuant to the terms of any such plan.
Notwithstanding the foregoing, no Person shall become an "Acquiring Person" as
the result of an acquisition of Common Shares by the Company which, by reducing
the number of shares outstanding, increases the proportionate number of shares
beneficially owned by such Person to 20 percent or more of the Common Shares of
the Company then outstanding; provided, however, that if a Person shall become
the Beneficial Owner of 20 percent or more of the Common Shares of the Company
then outstanding by reason of share purchases by the Company and shall, after
such share purchases by the Company, become the Beneficial Owner of any
additional Common Shares of the Company, then such Person shall be deemed to be
an "Acquiring Person." Notwithstanding the foregoing, if the Board determines in
good faith that a Person who would otherwise be an "Acquiring Person," as
defined pursuant to the foregoing provisions of this paragraph (a), has become
such inadvertently, and such Person divests as promptly as practicable a
sufficient number of Common Shares so that such Person would no longer be an
"Acquiring Person," as defined pursuant to the foregoing provisions of this
paragraph (a), then such Person shall not be deemed to be an "Acquiring Person"
for any purposes of this Agreement.
(b) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as in effect on the date of this Agreement.
(c) A Person shall be deemed the "Beneficial Owner" of and
shall be deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly;
<PAGE> 4
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide public
offering of securities), or upon the exercise of conversion rights, exchange
rights, rights (other than these Rights), warrants or options, or otherwise;
provided, however, that a Person shall not be deemed the Beneficial Owner of, or
to beneficially own, securities tendered pursuant to a tender or exchange offer
made by or on behalf of such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for purchase or exchange;
or (B) the right to vote pursuant to any agreement, arrangement or
understanding; provided, however, that a Person shall not be deemed the
Beneficial Owner of, or to beneficially own, any security if the agreement,
arrangement or understanding to vote such security (1) arises solely from a
revocable proxy or consent given to such Person in response to a public proxy or
consent solicitation made pursuant to, and in accordance with, the applicable
rules and regulations promulgated under the Exchange Act and (2) is not also
then reportable on Schedule 13D under the Exchange Act (or any comparable or
successor report); or
(iii) which are beneficially owned, directly or indirectly, by
any other Person with which such Person or any of such Person's Affiliates or
Associates has any agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group members with respect
to a bona fide public offering of securities) for the purpose of acquiring,
holding, voting (except to the extent contemplated by the proviso to Section
1(c)(ii)(B)) or disposing of any securities of the Company.
Notwithstanding anything in this definition of "Beneficial Owner" to
the contrary, the phrase "then outstanding," when used with reference to a
Person's beneficial ownership of securities of the Company, shall mean the
number of such securities then issued and outstanding together with the number
of such securities not then actually issued and outstanding which such Person
would be deemed to own beneficially hereunder.
(d) "Business Day" shall mean any day other than a Saturday, a
Sunday or a day on which banking institutions in the States of California,
Delaware or New York are authorized or obligated by law or executive order to
close.
(e) "Close of Business" on any given date shall mean 5:00
p.m., New York, New York time, on such date; provided, however, that if such
date is not a Business Day, it shall mean 5:00 p.m. New York, New York time, on
the next succeeding Business Day.
(f) "Common Shares" when used with reference to the Company
shall mean the shares of Common Stock, par value $.01 per share, of the Company.
"Common Shares" when used with reference to any Person other than the Company
shall mean the capital stock (or equity interest) with the greatest voting power
of such other Person or, if such other Person is a Subsidiary of another Person,
the Person or Persons which ultimately control such first-mentioned Person.
(g) "Distribution Date" shall have the meaning set forth in
Section 3 hereof.
(h) "Final Expiration Date" shall have the meaning set forth
in Section 7 hereof.
(i) "Person" shall mean any individual, firm, partnership,
limited liability company, corporation or other entity, and shall include any
successor (by merger or otherwise) of such entity.
3
<PAGE> 5
(j) "Preferred Shares" shall mean shares of Series B Junior
Participating Preferred Stock, par value $.01 per share, of the Company having
the rights and preferences set forth in the Form of Certificate of Designations
attached to this Agreement as Exhibit A.
(k) "Purchase Price" shall have the meaning set forth in
Section 4 hereof, as the same may be adjusted from time to time in accordance
with the terms of this Agreement.
(l) "Redemption Date" shall have the meaning set forth in
Section 7 hereof.
(m) "Shares Acquisition Date" shall mean the first date of
public announcement by the Company or an Acquiring Person that an Acquiring
Person has become such.
(n) "Subsidiary" of any Person shall mean any corporation or
other entity of which a majority of the voting power of the voting equity
securities or equity interest is owned, directly or indirectly, by such Person.
(o) "Trading Day" shall have the meaning set forth in Section
11 hereof.
Certain additional terms used wholly within a subsequent
Section of this Agreement shall have the meaning given to them in the relevant
Section of this Agreement for purposes of such Section.
Section 2. Appointment of Rights Agent. The Company hereby appoints
the Rights Agent to act as agent for the Company in accordance with the terms
and conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may, from time to time, appoint such co-Rights Agents as it may deem
necessary or desirable. The Rights Agent shall have no duty to supervise, and in
no event shall be liable for, the acts or omissions of any such co-Rights Agent.
Section 3. Issue of Right Certificates.
(a) Until the earlier of (i) the tenth day after the Shares
Acquisition Date or (ii) the tenth Business Day (or such later date as may be
determined by action of the Board prior to such time as any Person becomes an
Acquiring Person) after the date of the commencement by any Person (other than
the Company, any Subsidiary of the Company, any employee benefit plan of the
Company or of any Subsidiary of the Company or any entity holding Common Shares
for or pursuant to the terms of any such plan) of, or of the first public
announcement of the intention of any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or of any
Subsidiary of the Company or any entity holding Common Shares for or pursuant to
the terms of any such plan) to commence, a tender or exchange offer the
consummation of which would result in any Person becoming the Beneficial Owner
of Common Shares aggregating 20 percent or more of the then outstanding Common
Shares (including any such date which is after the date of this Agreement and
prior to the issuance of the Rights; the earlier of such dates being herein
referred to as the "Distribution Date"), (x) the Rights will be evidenced
(subject to the provisions of Section 3(b) hereof) by the certificates of Common
Shares registered in the names of the holders thereof (which certificates shall
also be deemed to be Right Certificates (as hereinafter defined)) and not by
separate Right Certificates, and (y) the right to receive Right Certificates
will be transferable only in connection with the transfer of Common Shares. As
soon as practicable after the Distribution Date, the Company will prepare and
execute, the Rights Agent will countersign and the Company will send or cause to
be sent (and the Rights Agent will, if requested and provided with all necessary
information, send) by first-class, insured, postage-
4
<PAGE> 6
prepaid mail, to each record holder of Common Shares as of the Close of Business
on the Distribution Date, at the address of such holder shown on the records of
the Company, a Right Certificate, in substantially the form of Exhibit B hereto
(a "Right Certificate"), evidencing one Right for each Common Share so held. As
of the Distribution Date, the Rights will be evidenced solely by such Right
Certificates.
(b) On the Record Date, or as soon as practicable thereafter, the
Company will send a copy of a summary of Rights to Purchase Preferred Shares, in
substantially the form of Exhibit C hereto (the "Summary of Rights"), by
first-class, postage-prepaid mail, to each record holder of Common Shares as of
the Close of Business on the Record Date, at the address of such holder shown on
the records of the Company. With respect to Rights Certificates for Common
Shares outstanding as of the Record Date, until the Distribution Date, the
Rights will be evidenced by such Right Certificates registered in the names of
the holders thereof together with a copy of the Summary of Rights attached
thereto. Until the Distribution Date (or the earlier of the Redemption Date or
the Final Expiration Date), the surrender for transfer of any certificate for
Common Shares outstanding on the Record Date, with or without a copy of the
Summary of Rights attached thereto, shall also constitute the transfer of the
Rights associated with the Common Shares represented thereby.
(c) Certificates for Common Shares which become outstanding
(including, without limitation, reacquired Common Shares referred to in the last
sentence of this paragraph (c)) after the Record Date but prior to the earliest
of the Distribution Date, the Redemption Date or the Final Expiration Date shall
have impressed on, printed on, written on or otherwise affixed to them the
following legend:
This certificate also evidences and entitles the holder to certain
rights as set forth in a Rights Agreement between Deckers Outdoor
Corporation and ChaseMellon Shareholder Services, L.L.C. dated as of
November 12, 1998 (the "Rights Agreement"), the terms of which are
hereby incorporated herein by reference and a copy of which is on file
at the principal executive offices of Deckers Outdoor Corporation.
Under certain circumstances, as set forth in the Rights Agreement, such
Rights will be evidenced by separate certificates and will no longer be
evidenced by this certificate. Deckers Outdoor Corporation will mail to
the holder of this certificate a copy of the Rights Agreement without
charge after receipt of a written request therefor. Under certain
circumstances, as set forth in the Rights Agreement, Rights issued to
any Person who becomes an Acquiring Person (as defined in the Rights
Agreement) may become null and void.
With respect to such Right Certificates containing the foregoing legend, until
the Distribution Date, the Rights associated with the Common Shares represented
by such Right Certificates shall be evidenced by such Right Certificates alone,
and the surrender for transfer of any such Right Certificate shall also
constitute the transfer of the Rights associated with the Common Shares
represented thereby. In the event that the Company purchases or acquires any
Common Shares after the Record Date but prior to the Distribution Date, any
Rights associated with such Common Shares shall be deemed canceled and retired
so that the Company shall not be entitled to exercise any Rights associated with
the Common Shares which are no longer outstanding.
Section 4. Form of Right Certificates. (and the forms of election to
purchase Preferred Shares and of assignment to be printed on the reverse
thereof) shall be substantially the same as Exhibit B hereto and may have such
marks of identification or designation and such legends,
5
<PAGE> 7
summaries or endorsements printed thereon as the Company may deem appropriate
(but which do not affect the duties and responsibilities of the Rights Agent)
and as are not inconsistent with the provisions of this Agreement, or as may be
required to comply with any applicable law or with any rule or regulation made
pursuant thereto or with any rule or regulation of any stock exchange on which
the Rights may from time to time be listed, or to conform to usage. Subject to
the provisions of Section 22 hereof, the Right Certificates shall entitle the
holders thereof to purchase such number of one one-hundredths of a Preferred
Share as shall be set forth therein at the price per one one-hundredth of a
Preferred Share set forth therein (the "Purchase Price"), but the number of such
one one-hundredths of a Preferred Share and the Purchase Price shall be subject
to adjustment as provided herein.
Section 5. Countersignature and Registration. The Right Certificates
shall be executed on behalf of the Company by its Chairman of the Board, its
Chief Executive Officer, its President, any of its Vice Presidents, or its
Treasurer, either manually or by facsimile signature, shall have affixed thereto
the Company's seal or a facsimile thereof, and shall be attested by the
Secretary or an Assistant Secretary of the Company, either manually or by
facsimile signature. The Right Certificates shall be manually countersigned by
the Rights Agent and shall not be valid for any purpose unless countersigned. In
case any officer of the Company who shall have signed any of the Right
Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the person who signed such Right Certificates had not ceased to be such officer
of the Company; and any Right Certificate may be signed on behalf of the Company
by any person who, at the actual date of the execution of such Right
Certificate, shall be a proper officer of the Company to sign such Right
Certificate, although at the date of the execution of this Rights Agreement any
such person was not such an officer.
Following the Distribution Date and receipt by the Rights Agent of any
relevant information, the Rights Agent will keep or cause to be kept, at its
office designated for such purpose, books for registration and transfer of the
Right Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Right Certificates, the number of
Rights evidenced on its face by each of the Right Certificates and the date of
each of the Right Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates. Subject
to the provisions of Section 14 hereof, at any time after the Close of Business
on the Distribution Date, and at or prior to the Close of Business on the
earlier of the Redemption Date or the Final Expiration Date, any Right
Certificate or Right Certificates (other than Right Certificates representing
Rights that have become null and void pursuant to Section 11(a)(ii) hereof or
that have been exchanged pursuant to Section 24 hereof) may be transferred,
split up, combined or exchanged for another Right Certificate or Right
Certificates, entitling the registered holder to purchase a like number of one
one-hundredths of a Preferred Share as the Right Certificate or Right
Certificates surrendered then entitled such holder to purchase. Any registered
holder desiring to transfer, split up, combine or exchange any Right Certificate
or Right Certificates shall make such request in writing delivered to the Rights
Agent, and shall surrender the Right Certificate or Right Certificates to be
transferred, split up, combined or exchanged at the office of the Rights Agent
designated for such purpose. Thereupon the Rights Agent shall countersign and
deliver to the Person entitled thereto a Right Certificate or Right
Certificates, as the case may be, as so requested. The Company may require
payment of a sum sufficient to cover any tax or charge that may be imposed in
connection with any transfer, split up, combination or exchange of Right
Certificates. The Rights Agent shall have no duty or obligation under this
Section unless and until it is satisfied that all such taxes and/or charges have
been paid.
6
<PAGE> 8
Upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a Right
Certificate, and, in case of loss, theft or destruction, of indemnity or
security satisfactory to them, and, at the Company's request, reimbursement to
the Company and the Rights Agent of all reasonable expenses incidental thereto,
and upon surrender to the Rights Agent and cancellation of the Right Certificate
if mutilated, the Company will make and deliver a new Right Certificate of like
tenor to the Rights Agent for delivery to the registered holder in lieu of the
Right Certificate so lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights.
(a) The registered holder of any Right Certificate may
exercise the Rights evidenced thereby (except as otherwise provided herein) in
whole or in part at any time after the Distribution Date upon surrender of the
Right Certificate, with the form of election to purchase on the reverse side
thereof duly and properly executed, to the Rights Agent at the office of the
Rights Agent designated for such purpose, together with payment of the Purchase
Price for each one one-hundredth of a Preferred Share as to which the Rights are
exercised, at or prior to the earliest of (i) the close of business on November
11, 2008 (the "Final Expiration Date"), (ii) the time at which the Rights are
redeemed as provided in Section 23 hereof (the "Redemption Date") or (iii) the
time at which such Rights are exchanged as provided in Section 24 hereof.
(b) The Purchase Price for each one one-hundredth of a
Preferred Share purchasable pursuant to the exercise of a Right shall initially
be $50.00, and shall be subject to adjustment from time to time as provided in
Section 11 or 13 hereof and shall be payable in lawful money of the United
States of America in accordance with paragraph (c) below.
(c) Upon receipt of a Right Certificate representing
exercisable Rights, with the form of election to purchase duly and properly
executed, accompanied by payment of the Purchase Price for the shares to be
purchased and an amount equal to any applicable tax or charge required to be
paid by the holder of such Right Certificate in accordance with Section 9 hereof
by certified check, cashier's check or money order payable to the order of the
Company, the Rights Agent shall thereupon promptly (i) (A) requisition from any
transfer agent of the Preferred Shares certificates for the number of Preferred
Shares to be purchased and the Company hereby irrevocably authorizes its
transfer agent to comply with all such requests, or (B) requisition from the
depositary agent depositary receipts representing such number of one
one-hundredths of a Preferred Share as are to be purchased (in which case
certificates for the Preferred Shares represented by such receipts shall be
deposited by the transfer agent with the depositary agent) and the Company
hereby directs the depositary agent to comply with such request, (ii) when
appropriate, requisition from the Company the amount of cash to be paid in lieu
of issuance of fractional shares in accordance with Section 14 hereof, (iii)
after receipt of such certificates or depositary receipts, cause the same to be
delivered to or upon the order of the registered holder of such Right
Certificate, registered in such name or names as may be designated by such
holder and (iv) when appropriate, after receipt, deliver such cash to or upon
the order of the registered holder of such Right Certificate.
(d) In case the registered holder of any Right Certificate
shall exercise less than all the Rights evidenced thereby, a new Right
Certificate evidencing Rights equivalent to the Rights remaining unexercised
shall be issued by the Rights Agent to the registered holder of such Right
Certificate or to his duly authorized assigns, subject to the provisions of
Section 14 hereof.
Section 8. Cancellation and Destruction of Right Certificates. All
Right Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered
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<PAGE> 9
to the Rights Agent, shall be canceled by it, and no Right Certificates shall be
issued in lieu thereof except as expressly permitted by any of the provisions of
this Rights Agreement. The Company shall deliver to the Rights Agent for
cancellation and retirement, and the Rights Agent shall so cancel and retire,
any other Right Certificate purchased or acquired by the Company otherwise than
upon the exercise thereof. The Rights Agent shall deliver all canceled Right
Certificates to the Company, or shall, at the written request of the Company,
destroy such canceled Right Certificates, and in such case shall deliver a
certificate of destruction thereof to the Company.
Section 9. Availability of Preferred Shares. The Company covenants
and agrees that it will cause to be reserved and kept available out of its
authorized and unissued Preferred Shares or any Preferred Shares held in its
treasury, the number of Preferred Shares that will be sufficient to permit the
exercise in full of all outstanding Rights in accordance with Section 7. The
Company covenants and agrees that it will take all such action as may be
necessary to ensure that all Preferred Shares delivered upon exercise of Rights
shall, at the time of delivery of the certificates for such Preferred Shares
(subject to payment of the Purchase Price), be duly and validly authorized and
issued and fully paid and nonassessable shares.
The Company further covenants and agrees that it will pay when due and
payable any and all taxes and charges which may be payable in respect of the
issuance or delivery of the Right Certificates or of any Preferred Shares upon
the exercise of Rights. The Company shall not, however, be required to pay any
tax or charge which may be payable in respect of any transfer or delivery of
Right Certificates to a person other than, or the issuance or delivery of
certificates or depositary receipts for the Preferred Shares in a name other
than that of, the registered holder of the Right Certificate evidencing Rights
surrendered for exercise or to issue or to deliver any certificates or
depositary receipts for Preferred Shares upon the exercise of any Rights until
any such tax or charge shall have been paid (any such tax or charge being
payable by the holder of such Right Certificate at the time of surrender) or
until it has been established to the Company's reasonable satisfaction that no
such tax or charge is due.
The Company covenants and agrees to, so long as Common Shares issuable
and deliverable upon the exercise of Rights may be listed on any national
securities exchange or quotation system, the Company shall use its best efforts
to cause, from and after such time as the Rights become exercisable, all Shares
reserved for issuance to be listed on such exchange upon official notice of
issuance upon such exercise.
The Company shall (i) prepare and file, as soon as possible following
the Distribution Date, a registration statement under the Securities Act of 1933
(the "Act") with respect to the securities purchasable upon exercise of the
Rights on an appropriate form, (ii) cause such registration statement to become
effective as soon as possible after such filing, and (iii) cause such
registration statement to remain effective (with a prospectus at all times
meeting the requirements of the Act) until no longer required to do so under the
Act with respect to securities purchasable upon exercise of the Rights. The
Company will also take all such action as may be required as is appropriate
under the securities or blue sky laws of such jurisdictions as may be necessary
or appropriate with respect to the securities purchasable upon the exercise of
the Rights. The Company may temporarily suspend for a period not to exceed 90
days following the Distribution Date, the exercisability of the Rights in order
to prepare and file such registration statement and permit it to become
effective. Upon any such suspension of exercisability of Rights referred to in
this paragraph, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect. The Company
shall notify the Rights agent whenever it makes a public announcement pursuant
to this Section 9, and give the Rights Agent a copy of such announcement.
Notwithstanding any provision in this Agreement to the contrary, the
Rights shall not be exercisable
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<PAGE> 10
by a holder in any jurisdiction where the requisite qualification to the
issuance to such holder, or the exercise by such holder of the Rights in such
jurisdiction, shall not have been obtained or be obtainable, or the exercise
thereof shall not be permitted under applicable law or a registration statement
shall not have been declared effective.
Section 10. Preferred Shares Record Date. Each person in whose name
any certificate for Preferred Shares is issued upon the exercise of Rights shall
for all purposes be deemed to have become the holder of record of the Preferred
Shares represented thereby on, and such certificate shall be dated, the date
upon which the Right Certificate evidencing such Rights was duly surrendered and
payment of the Purchase Price (and any applicable taxes or charges) was made;
provided, however, that if the date of such surrender and payment is a date upon
which the Preferred Shares transfer books of the Company are closed, such Person
shall be deemed to have become the record holder of such shares on, and such
certificate shall be dated, the next succeeding Business Day on which the
Preferred Shares transfer books of the Company are open. Prior to the exercise
of the Rights evidenced thereby, the holder of a Right Certificate shall not be
entitled to any rights of a holder of Preferred Shares for which the Rights
shall be exercisable, including, without. limitation, the right to vote, to
receive dividends or other distributions or to exercise any preemptive rights,
and shall not be entitled to receive any notice of any proceedings of the
Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares or Number
of Rights. The Purchase Price, the number of Preferred Shares covered by each
Right and the number of Rights outstanding are subject to adjustment from time
to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the
date of this Agreement (A) declare a dividend on the Preferred Shares payable in
Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C) combine
the outstanding Preferred Shares into a smaller number of Preferred Shares or
(D) issue any shares of its capital stock in a reclassification of the Preferred
Shares (including any such reclassification in connection with a consolidation
or merger in which the Company is the continuing or surviving corporation),
except as otherwise provided in this Section 11(a), the Purchase Price in effect
at the time of the record date for such dividend or of the effective date of
such subdivision, combination or reclassification, and the number and kind of
shares of capital stock issuable on such date, shall be proportionately adjusted
so that the holder of any Right exercised after such time shall be entitled to
receive the aggregate number and kind of shares of capital stock which, if such
Right had been exercised immediately prior to such date and at a time when the
Preferred Shares transfer books of the Company were open, he would have owned
upon such exercise and been entitled to receive by virtue of such dividend,
subdivision, combination or reclassification; provided, however, that in no
event shall the consideration to be paid upon the exercise of one Right be less
than the aggregate par value of the shares of capital stock of the Company
issuable upon exercise of one Right.
If an event occurs which would require an adjustment under
both this Section 11(a)(i) and Section 11(a)(ii) hereof, the adjustment provided
for in this Section 11(a)(i) shall be adjusted in addition to, and shall be made
prior to, any adjustment required pursuant to Section 11(a)(ii) hereof.
(ii) Subject to Sections 23 and 24 of this Agreement, in the
event any Person becomes an Acquiring Person, each holder of a Right shall
thereafter have a right to receive, upon exercise thereof at a price equal to
the then current Purchase Price multiplied by the number of one one-hundredths
of a Preferred Share for which a Right is then exercisable, in accordance with
the terms of this Agreement and in lieu of Preferred Shares, such number of
Common Shares of the Company as shall equal the result obtained by (x)
multiplying the then current Purchase Price by the number of one one-hundredths
of a Preferred Share for which a Right is then exercisable and dividing that
product by (y) 50 percent of the then current per share
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<PAGE> 11
market price of the Company's Common Shares (determined pursuant to Section
11(d) hereof) on the date such Person became an Acquiring Person (such resulting
number of shares, the "Adjustment Shares"). In the event that any Person shall
become an Acquiring Person and the Rights shall then be outstanding, the Company
shall not take any action which would eliminate or diminish the benefits
intended to be afforded by the Rights.
Notwithstanding the foregoing or anything in this Agreement to
the contrary, from and after the occurrence of such event, any Rights that are
or were acquired or beneficially owned by any Acquiring Person (or any Associate
or Affiliate of such Acquiring Person) shall be null and void and any holder of
such Rights shall thereafter have no right to exercise such Rights under any
provision of this Agreement or otherwise. No Right Certificate shall be issued
pursuant to Section 3 that represents Rights beneficially owned by an Acquiring
Person whose Rights would be null and void pursuant to the preceding sentence or
any Associate or Affiliate thereof; no Right Certificate shall be issued at any
time upon the transfer of any Rights to an Acquiring Person whose Rights would
be null and void pursuant to the preceding sentence or any Associate or
Affiliate thereof or to any nominee of such Acquiring Person, Associate or
Affiliate; and any Right Certificate delivered to the Rights Agent for transfer
to an Acquiring Person whose Rights would be null and void pursuant to the
preceding sentence shall be canceled.
(iii) In the event that there shall not be sufficient Common
Shares issued but not outstanding or authorized but unissued to permit the
exercise in full of the Rights in accordance with the foregoing subparagraph
(ii), the Company shall take all such action as may be necessary to authorize
additional Common Shares for issuance upon exercise of the Rights. In the event
the Company shall, after good faith effort, be unable to take all such action as
may be necessary to authorize such additional Common Shares, the Board shall, to
the extent permitted by applicable law and any material agreements then in
effect to which the Company is a party (A) determine the excess of (1) the value
of the Adjustment Shares issuable upon the exercise of a Right in accordance
with the foregoing subparagraph (ii) the ("Current Value") over, (2) the then
current Purchase Price multiplied by the number of Common Shares for which a
Right was exercisable immediately prior to the time that the Acquiring Person
became such (such excess is hereinafter referred to as the "Spread"), and (B)
with respect to each Right (other than Rights which have been null and void
pursuant to Section 11(a)(ii)), make adequate provision to substitute for the
Adjustment Shares issuable in accordance with subparagraph (ii) upon exercise of
the Right and payment of the applicable Purchase Price, (1) cash, (2) a
reduction in the Purchase Price, (3) other equity securities of the Company
(including, without limitation, shares or fractions of shares of Preferred Stock
which, by virtue of having dividend, voting and liquidation rights substantially
comparable to those of the Common Shares, are deemed in good faith by the Board
to have substantially the same value as the Common Shares, (4) debt securities
of the Company, (5) other assets, or (6) any combination of the foregoing,
having a value which, when added to the value of the Common Shares actually
issued upon exercise of such Right, shall have an aggregate value equal to the
Current Value, where such aggregate value has been determined by the Board upon
the advice of an investment banking firm selected by the Board; provided,
however, if the Company shall not make adequate provision to deliver value
pursuant to clause (B) above within thirty (30) days following the date that any
Person shall have become an Acquiring Person than the Company shall be obliged
to deliver, to the extent permitted by applicable law and any material
agreements then in effect to which the Company is a party, upon the surrender
for exercise of a Right and without requiring payment of the Purchase Price,
Common Shares (to the extent available), and then, if necessary, cash which
shares and/or cash have an aggregate value equal to the Spread. If, upon the
date any Person becomes an Acquiring Person, the Board shall determine in good
faith that it is likely that sufficient additional Common Shares could be
authorized for issuance upon exercise in full of the Rights, then, if the Board
so elects, the thirty (30) day period set forth above may be extended to the
extent necessary, but not more than ninety (90) days after any Person becomes an
Acquiring Person, in order that the Company may seek shareholder approval for
the
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<PAGE> 12
authorization of such additional shares (such thirty (30) day period, as it may
be extended, is hereinafter referred to as the "Substitution Period"). To the
extent that the Company determines that some action is required pursuant to the
second and/or third sentence of this Section 11(a)(iii), the Company (x) shall
provide, subject to Section 11(a)(ii) hereof and the last sentence of this
Section 11(a)(iii) hereof, that such action shall apply uniformly to all
outstanding Rights and (y) may suspend the exercisability of the Rights until
the expiration of the Substitution Period in order to seek any authorization of
additional shares and/or to decide the appropriate form of distribution to be
made pursuant to such first sentence and to determine the value thereof. In the
event of any such suspension, the Company shall issue a public announcement
stating that the exercisability of the Rights has been temporarily suspended, as
well as a public announcement at such time as the suspension is no longer in
effect (in each case, with prompt notice thereof to the Rights Agent). For
purposes of this Section 11(a)(iii), the value of the Common Shares shall be the
current per share market price (as determined pursuant to Section 11(d) hereof)
on the date the Company's right of redemption pursuant to Section 23(a) hereof
expires and the per share or fractional value of any other equity security of
the Company with substantially the same value as the Common Shares shall be
deemed to equal the current per share market price of the Common Shares. The
Board may, but shall not be required to, establish procedures to allocate the
right to receive Common Shares upon the exercise of the Rights among holders of
Rights pursuant to this Section 11(a)(iii), would otherwise be issuable upon
exercise of a Right, a number of Preferred Shares or fraction thereof such that
the current per share market price of one Preferred Share multiplied by such
number or fraction is equal to the current per share market price of one Common
Share as of the date of issuance of such Preferred Shares or fraction thereof.
(b) In case the Company shall fix a record date for the
issuance of rights, options or warrants to all holders of Preferred Shares
entitling them (for a period expiring within 45 calendar days after such record
date) to subscribe for or purchase Preferred Shares (or shares having the same
rights, privileges and preferences as the Preferred Shares ("equivalent
preferred shares")) or securities convertible into Preferred Shares or
equivalent preferred shares at a price per Preferred Share or equivalent
preferred share (or having a conversion price per share, if a security
convertible into Preferred Shares or equivalent preferred shares) less than the
then current per share market price (as defined in Section 11(d)) of the
Preferred Shares on such record date, the Purchase Price to be in effect after
such record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the number of Preferred Shares outstanding on such record date plus the
number of Preferred Shares which the aggregate offering price of the total
number of Preferred Shares and/or equivalent preferred shares so to be offered
(and/or the aggregate initial conversion price of the convertible securities so
to be offered) would purchase at such current market price and the denominator
of which shall be the number of Preferred Shares outstanding on such record date
plus the number of additional Preferred Shares and/or equivalent preferred
shares to be offered for subscription or purchase (or into which the convertible
securities so to be offered are initially convertible); provided, however, that
in no event shall the consideration to be paid upon the exercise of one Right be
less than the aggregate par value of the shares of capital stock of the Company
issuable upon exercise of one Right. In case such subscription price may be paid
in a consideration part or all of which shall be in a form other than cash, the
value of such consideration shall be as determined in good faith by the Board,
whose determination shall be described in a statement filed with the Rights
Agent and shall be conclusive for all purposes. Preferred Shares owned by or
held for the account of the Company shall not be deemed outstanding for the
purpose of any such computation. Such adjustment shall be made successively
whenever such a record date is fixed; and in the event that such rights, options
or warrants are not so issued, the Purchase Price shall be adjusted to be the
Purchase Price which would then be in effect if such record date had not been
fixed.
(c) In case the Company shall fix a record date for the making
of a distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or
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<PAGE> 13
merger in which the Company is the continuing or surviving corporation) of
evidences of indebtedness or assets (other than a regular quarterly cash
dividend or a dividend payable in Preferred Shares) or subscription rights or
warrants (excluding those referred to in Section 11(b) hereof), the Purchase
Price to be in effect after such record date shall be determined by multiplying
the Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the then current per share market
price of the Preferred Shares on such record date, less the fair market value
(as determined in good faith by the Board, whose determination shall be
described in a statement filed with the Rights Agent) of the portion of the
assets or evidences of indebtedness so to be distributed or of such subscription
rights or warrants applicable to one Preferred Share and the denominator of
which shall be such current per share market price of the Preferred Shares;
provided, however, that in no event shall the consideration to be paid upon the
exercise of one Right be less than the aggregate par value of the shares of
capital stock of the Company to be issued upon exercise of one Right. Such
adjustments shall be made successively whenever such a record date is fixed; and
in the event that such distribution is not so made, the Purchase Price shall
again be adjusted to be the Purchase Price that would then be in effect if such
record date had not been fixed.
(d) (i) For the purpose of any computation hereunder, the
"current per share market price" of any security (a "Security" for the purpose
of this Section 11(d)(i)) on any date shall be deemed to be the average of the
daily closing prices per share of such Security for the 30 consecutive Trading
Days (as such term is hereinafter defined) immediately prior to (but not
including) such date; provided, however, that in the event that the current per
share market price of the Security is determined during a period following the
announcement by the issuer of such Security of (A) a dividend or distribution on
such Security payable in shares of such Security or securities convertible into
such shares, or (B) any subdivision, combination or reclassification of such
Security and prior to the expiration of 30 Trading Days after (but not
including) the ex-dividend date for such dividend or distribution, or the record
date for such subdivision, combination or reclassification, then, and in each
such case, the current per share market price shall be appropriately adjusted to
reflect the current market price per share equivalent of such Security. The
closing price for each day shall be the last sale price, regular way, or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if the Security is not
listed or admitted to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which the Security is
listed or admitted to trading or, if the Security is not listed or admitted to
trading on any national securities exchange, the last quoted price or, if not so
quoted, the average of the high bid and low asked prices in the over-the-counter
market, as reported by the National Association of Securities Dealers, Inc.
Automated Quotations System ("Nasdaq") or such other system then in use, or, if
on any such date the Security is not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Security selected by the Board. The term
"Trading Day" shall mean a day on which the principal national securities
exchange on which the Security is listed or admitted to trading is open for the
transaction of business or, if the Security is not listed or admitted to trading
on any national securities exchange, a Business Day.
(ii) For the purpose of any computation hereunder,
the "current per share market price" of the Preferred Shares shall be determined
in accordance with the method set forth in Section 11(d)(i). If the Preferred
Shares are not publicly traded, the "current per share market price" of the
Preferred Shares shall be conclusively deemed to be the current per share market
price of the Common Shares as determined pursuant to Section 11(d)(i)
(appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof), multiplied by one hundred. If
neither the Common Shares nor the Preferred Shares are publicly held or so
listed or traded, "current per share market price" shall mean the fair value per
share as determined in good faith by the Board, whose determination shall be
described in a
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<PAGE> 14
statement filed with the Rights Agent and shall be conclusive for all purposes.
(e) No adjustment in the Purchase Price shall be required
unless such adjustment would require an increase or decrease of at least 1
percent in the Purchase Price; provided, however, that any adjustments which by
reason of this Section 11(e) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Section 11 shall be made to the nearest cent or to the nearest one
one-millionth of a Preferred Share or one ten-thousandth of any other share or
security as the case may be. Notwithstanding the first sentence of this Section
11(e), any adjustment required by this Section 11 shall be made no later than
the earlier of (i) three years from the date of the transaction which requires
such adjustment or (ii) the date of the expiration of the right to exercise any
Rights.
(f) If as a result of an adjustment made pursuant to Section
11(a) or Section 13 hereof, the holder of any Right thereafter exercised shall
become entitled to receive any shares of capital stock of the Company other than
Preferred Shares, thereafter the number of such other shares so receivable upon
exercise of any Right shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Preferred Shares contained in Sections 11, 12, 13 and 14 and the
provisions of Sections 7, 9, 10, 13 and 14 with respect to the Preferred Shares
shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to
any adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-hundredths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as
provided in Section 11(i), upon each adjustment of the Purchase Price as a
result of the calculations made in Sections 11(b) and (c), each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of
one one-hundredths of a Preferred Share (calculated to the nearest one
one-millionth of a Preferred Share) obtained by (i) multiplying (x) the number
of one one-hundredths of a share covered by a Right immediately prior to this
adjustment by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price and (ii) dividing the product so obtained by
the Purchase Price in effect immediately after such adjustment of the Purchase
Price.
(i) The Company may elect on or after the date of any
adjustment of the Purchase Price to adjust the number of Rights, in substitution
for any adjustment in the number of one one-hundredths of a Preferred Share
purchasable upon the exercise of a Right. Each of the Rights outstanding after
such adjustment of the number of Rights shall be exercisable for the number of
one one-hundredths of a Preferred Share for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to such
adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one ten-thousandth) obtained by dividing the Purchase
Price in effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase Price. The
Company shall make a public announcement (with prompt notice thereof to the
Rights Agent) of its election to adjust the number of Rights, indicating the
record date for the adjustment, and, if known at the time, the amount of the
adjustment to be made. This record date may be the date on which the Purchase
Price is adjusted or any day thereafter, but, if the Right Certificates have
been issued, shall be at least 10 days later than the date of the public
announcement. If Right Certificates have been issued, upon each adjustment of
the number of Rights pursuant to this Section 11(i), the Company shall, as
promptly as practicable, cause to be distributed to holders of record of Right
Certificates on such record date Right Certificates evidencing, subject to
Section 14 hereof, the additional Rights to which such holders shall be entitled
as a result of such adjustment, or, at the option of the Company, shall cause to
be distributed to such holders of record in
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<PAGE> 15
substitution and replacement for the Right Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Right Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Right Certificates so to be distributed
shall be issued, executed and countersigned in the manner provided for herein
and shall be registered in the names of the holders of record of Right
Certificates on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase
Price or the number of one one-hundredths of a Preferred Share issuable upon the
exercise of the Rights, the Right Certificates theretofore and thereafter issued
may continue to express the Purchase Price and the number of one one-hundredths
of a Preferred share which were expressed in the initial Right Certificates
issued hereunder.
(k) Before taking any action that would cause an adjustment
reducing the Purchase Price below one one-hundredth of the then par value, if
any, of the Preferred Shares issuable upon exercise of the Rights, the Company
shall take any corporate action which may, in the opinion of its counsel, be
necessary in order that the Company may validly and legally issue fully paid and
nonassessable Preferred Shares at such adjusted Purchase Price.
(1) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date of
the Preferred Shares and other capital stock or securities of the Company, if
any, issuable upon such exercise over and above the Preferred Shares and other
capital stock or securities of the Company, if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
Purchase Price, in addition to those adjustments expressly required by this
Section 11, as and to the extent that it in its sole discretion shall determine
to be advisable in order that any consolidation or subdivision of the Preferred
Shares, issuance wholly for cash of any Preferred Shares at less than the
current market price, issuance wholly for cash of Preferred Shares or securities
which by their terms are convertible into or exchangeable for Preferred Shares,
dividends on Preferred Shares payable in Preferred Shares or issuance of rights,
options or warrants referred to herein above in Section 11(b) hereafter made by
the Company to holders of its Preferred Shares shall not be taxable to such
stockholders.
(n) In the event that at any time after the date of this
Agreement and prior to the Distribution Date, the Company shall (i) declare or
pay any dividend on the Common Shares payable in Common Shares or (ii) effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares)
into a greater or lesser number of Common Shares, then in any such case (A) the
number of one one-hundredths of a Preferred Share purchasable after such event
upon proper exercise of each Right shall be determined by multiplying the number
of one one-hundredths of a Preferred Share so purchasable immediately prior to
such event by a fraction, the numerator of which is the number of Common Shares
outstanding immediately before such event and the denominator of which is the
number of Common Shares outstanding immediately after such event, and (B) each
Common Share outstanding immediately after such event shall have issued with
respect to it that number of Rights which each Common Share outstanding
immediately prior to such event had issued with respect to it. The adjustments
provided for in this Section 11(n) shall be made successively whenever such a
dividend is declared or paid or such a subdivision, combination or consolidation
is effected.
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Section 12. Certificate of Adjusted Purchase Price or Number of
Shares. Whenever an adjustment is made as provided in Section 11 or 13 hereof,
the Company shall promptly (a) prepare a certificate setting forth such
adjustment, and a brief, reasonably detailed statement of the facts and
methodology accounting for such adjustment, (b) file with the Rights Agent and
with each transfer agent for the Common Shares or the Preferred Shares a copy of
such certificate and (c) mail a brief summary thereof to each holder of a Right
Certificate in accordance with Section 25 hereof. The Rights Agent shall be
fully protected in relying on any such certificate and on any adjustment therein
contained and shall have no duty with respect to and shall not be deemed to have
knowledge of any adjustment unless and until it shall have received such a
certificate.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power. In the event, directly or indirectly, at any time after a Person
has become an Acquiring Person, (a) the Company shall consolidate with, or merge
with and into, any other Person, (b) any Person shall consolidate with the
Company, or merge with and into the Company and the Company shall be the
continuing or surviving corporation of such merger and, in connection with such
merger, all or part of the Common Shares shall be changed into or exchanged for
stock or other securities of any other Person (or the Company) or cash or any
other property, or (c) the Company shall sell or otherwise transfer (or one or
more of its Subsidiaries shall sell or otherwise transfer), in one or more
transactions, assets or earning power aggregating 50 percent or more of the
assets or earning power of the Company and its Subsidiaries (taken as a whole)
to any other Person other than the Company or one or more of its wholly-owned
Subsidiaries, then, and in each such case, proper provision shall be made so
that (i) each holder of a Right (except as otherwise provided herein) shall
thereafter have the right to receive, upon the exercise thereof at a price equal
to the then current Purchase Price multiplied by the number of one
one-hundredths of a Preferred Share for which a Right is then exercisable, in
accordance with the terms of this Agreement and in lieu of Preferred Shares,
such number of Common Shares of such other Person (including the Company as
successor thereto or as the surviving corporation) as shall equal the result
obtained by (A) multiplying the then current Purchase Price by the number of one
one-hundredths of a Preferred Share for which a Right is then exercisable and
dividing that product by (B) 50 percent of the then current per share market
price of the Common Shares of such other Person (determined pursuant to Section
11(d) hereof) on the date of consummation of such consolidation, merger, sale or
transfer; (ii) the issuer of such Common Shares shall thereafter be liable for,
and shall assume, by virtue of such consolidation, merger, sale or transfer, all
the obligations and duties of the Company pursuant to this Agreement; (iii) the
term "Company" shall thereafter be deemed to refer to such issuer; and (iv) such
issuer shall take such steps (including, but not limited to, the reservation of
a sufficient number of its Common Shares in accordance with Section 9 hereof) in
connection with such consummation as may be necessary to assure that the
provisions hereof shall thereafter be applicable, as nearly as reasonably may
be, in relation to the Common Shares thereafter deliverable upon the exercise of
the Rights. The Company shall not consummate any such consolidation, merger,
sale or transfer unless prior thereto the Company and such issuer shall have
executed and delivered to the Rights Agent a supplemental agreement so
providing. The Company shall not enter into any transaction of the kind referred
to in this Section 13 if at the time of such transaction there are any rights,
warrants, instruments or securities outstanding or any agreements or
arrangements which, as a result of the consummation of such transaction, would
eliminate or substantially diminish the benefits intended to be afforded by the
Rights. The provisions of this Section 13 shall similarly apply to successive
mergers or consolidations or sales or other transfers.
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractions of
Rights or to distribute Right Certificates which evidence fractional Rights. In
lieu of such fractional Rights, there shall be paid to the registered holders of
the Right Certificates with regard to which such fractional Rights would
otherwise be issuable, an amount in cash equal to the same fraction of the
current market value of a whole Right. For the
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<PAGE> 17
purposes of this Section 14(a), the current market value of a whole Right shall
be the closing price of the Rights for the Trading Day immediately prior to the
date on which such fractional Rights would have been otherwise issuable. The
closing price for any day shall be the last sale price, regular way, or, in case
no such sale takes place on such day, the average of the closing bid and asked
prices, regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Rights are not listed or
admitted to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Rights are listed or
admitted to trading or, if the Rights are not listed or admitted to trading on
any national securities exchange, the last quoted price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market,
as reported by Nasdaq or such other system then in use or, if on any such date
the Rights are not quoted by any such organization, the average of the closing
bid and asked prices as furnished by a professional market maker making a market
in the Rights selected by the Board. If on any such date no such market maker is
making a market in the Rights, the fair value of the Rights on such date as
determined in good faith by the Board shall be used.
(b) The Company shall not be required to issue fractions of
Preferred Shares (other than fractions which are integral multiples of one
one-hundredth of a Preferred Share) upon exercise of the Rights or to distribute
certificates which evidence fractional Preferred Shares (other than fractions
which are integral multiples of one one-hundredth of a Preferred Share).
Fractions of Preferred Shares in integral multiples of one one-hundredth of a
Preferred Share may, at the election of the Company, be evidenced by depositary
receipts, pursuant to an appropriate agreement between the Company and a
depositary selected by it; provided that such agreement shall provide that the
holders of such depositary receipts shall have all the rights, privileges and
preferences to which they are entitled as beneficial owners of the Preferred
Shares represented by such depositary receipts. In lieu of fractional Preferred
Shares that are not integral multiples of one one-hundredth of a Preferred
Share, the Company shall pay to the registered holders of Right Certificates at
the time such Rights are exercised as herein provided an amount in cash equal to
the same fraction of the current market value of one Preferred Share. For the
purposes of this Section 14(b), the current market value of a Preferred Share
shall be the closing price of a Preferred Share (as determined pursuant to the
second sentence of Section 11(d)(i) hereof) for the Trading Day immediately
prior to the date of such exercise.
(c) The holder of a Right by the acceptance of the Right
expressly waives his right to receive any fractional Rights or any fractional
shares upon exercise of a Right (except as provided above).
Section 15. Rights of Action. All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent under
Sections 18 or 20 hereof, are vested in the respective registered holders of the
Right Certificates (and, prior to the Distribution Date, the registered holders
of the Common Shares); and any registered holder of any Right Certificate (or,
prior to the Distribution Date, of the Common Shares), without the consent of
the Rights Agent or of the holder of any other Right Certificate (or, prior to
the Distribution Date, of the Common Shares), may, in his own behalf and for his
own benefit, enforce, and may institute and maintain any suit, action or
proceeding against the Company to enforce, or otherwise act in respect of, his
right to exercise the Rights evidenced by such Right Certificate in the manner
provided in such Right Certificate and in this Agreement. Without limiting the
foregoing or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and will be entitled to specific performance of
the obligations under, and injunctive relief against actual or threatened
violations of the obligations of any Person subject to, this Agreement.
Section 16. Agreement of Right Holders. Every holder of a Right, by
accepting the same,
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consents and agrees with the Company and the Rights Agent and with every other
holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the office of the Rights Agent designated for such purpose, duly endorsed or
accompanied by a proper instrument of transfer; and
(c) the Company and the Rights Agent may deem and treat the
Person in whose name the Right Certificate (or, prior to the Distribution Date,
the associated Common Shares certificate) is registered as the absolute owner
thereof and of the Rights evidenced thereby (notwithstanding any notations of
ownership or writing on the Right Certificates or the associated Common Shares
certificate made by anyone other than the Company or the Rights Agent) for all
purposes whatsoever, and neither the Company nor the Rights Agent shall be
affected by any notice to the contrary.
Section 17. Right Certificate Holder Not Deemed a Stockholder. No
holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Preferred Shares or any
other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Right Certificate shall have been exercised in accordance with the
provisions hereof.
Section 18. Concerning the Rights Agent. The Company agrees to pay to
the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the preparation,
delivery, amendment, administration and execution of this Agreement and the
exercise and performance of its duties hereunder. The Company also agrees to
indemnify the Rights Agent for, and to hold it harmless against, any loss,
liability, damage, judgment, fine, penalty, claim, demand, settlement, cost or
expense, incurred without gross negligence, bad faith or willful misconduct on
the part of the Rights Agent (as determined by a court of competent
jurisdiction) for action taken, suffered or omitted by the Rights Agent in
connection with the acceptance and administration of this Agreement, including
the costs and expenses of defending against any claim of liability in the
premises. The indemnity provided herein shall survive the termination of this
Agreement and the termination and the expiration of the Rights. The costs and
expenses incurred in enforcing this right of indemnification shall be paid by
the Company. Anything to the contrary notwithstanding, in no event shall the
Rights Agent be liable for special, punitive, indirect, consequential or
incidental loss or damage of any kind whatsoever (including but not limited to
lost profits), even if the Rights Agent has been advised of the likelihood of
such loss or damage. Any liability of the Rights Agent under this Rights
Agreement will be limited to the amount of fees paid by the Company to the
Rights Agent.
The Rights Agent shall be authorized and protected and shall incur no
liability for, or in respect of any action taken, suffered or omitted by it in
connection with, its acceptance and administration of this Agreement in reliance
upon any Right Certificate or certificate for the Preferred Shares or Common
Shares
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<PAGE> 19
or for other securities of the Company, instrument of assignment or transfer,
power of attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or acknowledged, by
the proper Person or Persons, or otherwise upon the advice of counsel as set
forth in Section 20 hereof.
Section 19. Merger or Consolidation or Change of Name of Rights Agent.
Any Person into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any Person resulting from any
merger or consolidation to which the Rights Agent or any successor Rights Agent
shall be a party, or any Person succeeding to the shareholder services powers of
the Rights Agent or any successor Rights Agent, shall be the successor to the
Rights Agent under this Agreement without the execution or filing of any paper
or any further act on the part of any of the parties hereto; provided that such
Person would be eligible for appointment as a successor Rights Agent under the
provisions of Section 21 hereof. In case at the time such successor Rights Agent
shall succeed to the agency created by this Agreement, any of the Right
Certificates shall have been countersigned but not delivered, any such successor
Rights Agent may adopt the countersignature of the predecessor Rights Agent and
deliver such Right Certificates so countersigned; and in case at that time any
of the Right Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Right Certificates either in the name of the
predecessor Rights Agent or in the name of the successor Rights Agent; and in
all such cases such Right Certificates shall have the full force provided in the
Right Certificates and in this Agreement.
In case at any time the name of the Rights Agent shall be changed and
at such time any of the Right Certificates shall have been countersigned but not
delivered, the Rights Agent may adopt the countersignature under its prior name
and deliver Right Certificates so countersigned; and in case at that time any of
the Right Certificates shall not have been countersigned, the Rights Agent may
countersign such Right Certificates either in its prior name or in its changed
name; and in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes only
the duties and obligations expressly imposed by this Agreement upon the
following terms and conditions, by all of which the Company and the holders of
Right Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may
be legal counsel for the Company), and the advice or opinion of such counsel
shall be full and complete authorization and protection to the Rights Agent and
the Rights Agent shall incur no liability for or in respect of any action taken,
suffered or omitted by it in good faith and in accordance with such advice or
opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter (including, without limitation, the identity of any Acquiring Person and
the determination of current per share market price) be proved or established by
the Company prior to taking, suffering or omitting of any action hereunder, such
fact or matter (unless other evidence in respect thereof be herein specifically
prescribed) may be deemed to be conclusively proved and established by a
certificate signed by any one of the Chairman of the Board, the Chief Executive
Officer, the President, any Vice President, the Treasurer or the Secretary of
the Company and delivered to the Rights Agent; and such certificate shall be
full authorization and protection to the Rights Agent and the Rights Agent shall
incur no liability for or in respect of any action taken, suffered or omitted in
good faith by it under the provisions of this Agreement in reliance upon such
certificate.
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<PAGE> 20
(c) The Rights Agent shall be liable hereunder to the Company
and any other Person only for its own gross negligence, bad faith or willful
misconduct.
(d) The Rights Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement or in the
Right Certificates (except its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and shall be deemed to
have been made by the Company only.
(e) The Rights Agent shall not be under any liability or
responsibility in respect of the validity of this Agreement or the execution and
delivery hereof (except the due execution hereof by the Rights Agent) or in
respect of the validity or execution of any Right Certificate (except its
countersignature thereof); nor shall it be responsible for any breach by the
Company of any covenant or condition contained in this Agreement or in any Right
Certificate; nor shall it be responsible for any change in the exercisability of
the Rights (including the Rights becoming null and void pursuant to Section
11(a)(ii) hereof) or any adjustment in the terms of the Rights (including the
manner, method or amount thereof) provided for in Section 3, 11, 13, 23 or 24,
or the ascertaining of the existence of facts that would require any such change
or adjustment (except with respect to the exercise of Rights evidenced by Right
Certificates after actual notice that such change or adjustment is required);
nor shall it by any act hereunder be deemed to make any representation or
warranty as to the authorization or reservation of any Preferred Shares to be
issued pursuant to this Agreement or any Right Certificate or as to whether any
Preferred Shares will, when issued, be validly authorized and issued, fully paid
and nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or performing by
the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder from
any one of the Chairman of the Board, the Chief Executive Officer, the
President, any vice President, the Secretary or the Treasurer of the Company,
and to apply to such officers for advice or instructions in connection with its
duties, and it shall not be liable for any action taken, suffered or omitted by
it in good faith in accordance with instructions of any such officer or for any
delay in acting while waiting for those instructions.
(h) The Rights Agent and any stockholder, director, affiliate,
officer or employee of the Rights Agent may buy, sell or deal in any of the
Rights or other securities of the Company or become pecuniarily interested in
any transaction in which the Company may be interested, or contract with or lend
money to the Company or otherwise act as fully and freely as though it were not
Rights Agent under this Agreement. Nothing herein shall preclude the Rights
Agent from acting in any other capacity for the Company or for any other Person.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder either itself
or by or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of any
such attorneys or agents or for any loss to the Company resulting from any such
act, default, neglect or misconduct, absent gross negligence, bad faith or
willful misconduct in the selection and continued employment thereof.
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<PAGE> 21
(j) No provision of this Agreement shall require the Rights
Agent to expend or risk its own funds or otherwise incur any financial liability
in the performance of any of its duties hereunder or in the exercise of its
rights if it believes that repayment of such funds or adequate indemnification
against such risk or liability is not reasonably assured to it.
Section 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in writing mailed to the Company and to each transfer agent
of the Common Shares or Preferred Shares by registered or certified mail, and to
the holders of the Right Certificates by first-class mail. The Company may
remove the Rights Agent or any successor Rights Agent upon 30 days' notice in
writing, mailed to the Rights Agent or successor Rights Agent, as the case may
be, and to each transfer agent of the Common Shares or Preferred Shares by
registered or certified mail, and to the holders of the Right Certificates by
first-class mail. If the Rights Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company shall appoint a successor to
the Rights Agent. If the Company shall fail to make such appointment within a
period of 30 days after giving notice of such removal or after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the holder of a Right Certificate (who shall,
with such notice, submit his Right Certificate for inspection by the Company),
then the registered holder of any Right Certificate may apply to any court of
competent jurisdiction for the appointment of a new Rights Agent. Any successor
Rights Agent, whether appointed by the Company or by such a court, shall be a
Person organized and doing business under the laws of the United States or of
the States of California, Delaware or New York (or of any other state of the
United States so long as such corporation is authorized to do business in the
States of California, Delaware or New York), in good standing, having an office
in the States of California, Delaware or New York, which is subject to
supervision or examination by federal or state authority and which has at the
time of its appointment as Rights Agent a combined capital and surplus of at
least $50 million. After appointment, the successor Rights Agent shall be vested
with the same powers, rights, duties and responsibilities as if it had been
originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Shares or Preferred Shares, and mail a notice thereof in writing to
the registered holders of the Right Certificates. Failure to give any notice
provided for in this Section 21, however, or any defect therein, shall not
affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
Section 22. Issuance of New Right Certificates. Notwithstanding any
of the provisions of this Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Right Certificates evidencing Rights in
such form as may be approved by its Board to reflect any adjustment or change in
the Purchase Price and the number or kind or class of shares or other securities
or property purchasable under the Right Certificates made in accordance with the
provisions of this Agreement. In addition, in connection with the issuance or
sale of Common Shares following the Distribution Date and prior to the earlier
of the Redemption Date and Final Expiration Date, subject to the other terms of
this Agreement, the Company may with respect to Common Shares issued or sold
pursuant to (i) the exercise of stock options, (ii) under any employee plan or
arrangement, (iii) upon the exercise, conversion or exchange of securities,
notes or debentures issued by the Company or (iv) a contractual obligation of
the Company, in each case existing prior to the Distribution Date, issue Right
Certificates representing the appropriate number of Rights in
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<PAGE> 22
connection with such issuance or sale.
Section 23. Redemption.
(a) The Board may, at its option, at any time prior to the
Close of Business on the tenth Business Day after the Shares Acquisition Date
redeem all but not less than all the then outstanding Rights at a redemption
price of $.01 per Right, appropriately adjusted to reflect any stock split,
stock dividend or similar transaction occurring after the date hereof (such
redemption price being hereinafter referred to as the "Redemption Price"). The
redemption of the Rights by the Board may be made effective at such time, on
such basis and with such conditions as the Board in its sole discretion may
establish.
(b) Immediately upon the action of the Board ordering the
redemption of the Rights pursuant to paragraph (a) of this Section 23, and
without any further action and without any notice, the right to exercise the
Rights will terminate and the only right thereafter of the holders of Rights
shall be to receive the Redemption Price. The Company shall promptly give public
notice of any such redemption (with prompt notice thereof to the Rights Agent);
provided, however, that the failure to give, or any defect in, any such notice
shall not affect the validity of such redemption. Within 10 days after such
action of the Board ordering the redemption of the Rights, the Company shall
mail a notice of redemption to the Rights Agent and to all the holders of the
then outstanding Rights at their last addresses as they appear upon the registry
books of the Rights Agent or, prior to the Distribution Date, on the registry
books of the transfer agent for the Common Shares. Any notice which is mailed in
the manner herein provided shall be deemed given, whether or not the holder
receives the notice. Each such notice of redemption will state the method by
which the payment of the Redemption Price will be made. Neither the Company nor
any of its Affiliates or Associates may redeem, acquire or purchase for value
any Rights at any time in any manner other than that specifically set forth in
this Section 23 or in Section 24 hereof, and other than in connection with the
purchase of Common Shares prior to the Distribution Date.
Section 24. Exchange.
(a) The Board may, at its option, at any time after any Person
becomes an Acquiring Person, exchange all or part of the then outstanding and
exercisable Rights (which shall not include Rights that have become null and
void pursuant to the provisions of Section 11(a)(ii) hereof) for Common Shares
at an exchange ratio of one Common Share per Right, appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring after
the date hereof (such exchange ratio being hereinafter referred to as the
"Exchange Ratio"). Notwithstanding the foregoing, the Board shall not be
empowered to effect such exchange at any time after any Person (other than the
Company, any Subsidiary of the Company, any employee benefit plan of the Company
or any such Subsidiary, or any entity holding Common Shares for or pursuant to
the terms of any such plan), together with all Affiliates and Associates of such
Person, becomes the Beneficial Owner of 50 percent or more of the Common Shares
then outstanding.
(b) Immediately upon the action of the Board ordering the
exchange of any Rights pursuant to paragraph (a) of this Section 24 and without
any further action and without any notice, the right to exercise such Rights
shall terminate and the only rights thereafter of the holders of such Rights
shall be to receive that number of Common Shares equal to the number of such
Rights held by such holder multiplied by the Exchange Ratio. The Company shall
promptly give public notice of any such
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<PAGE> 23
exchange (with prompt notice thereof to the Rights Agent); provided, however,
that the failure to give, or any defect in, such notice shall not affect the
validity of such exchange. The Company promptly shall mail a notice of any such
exchange to all of the holders of such Rights at their last addresses as they
appear upon the registry books of the Rights Agent. Any notice which is mailed
in the manner herein provided shall be deemed given, whether or not the holder
receives the notice. Each such notice of exchange will state the method by which
the exchange of the Common Shares for Rights will be effected and, in the event
of any partial exchange, the number of Rights which will be exchanged. Any
partial exchange shall be effected pro rata based on the number of Rights (other
than Rights which have become void pursuant to the provisions of Section
11(a)(ii) hereof) held by each holder of Rights.
(c) In the event that there shall not be sufficient Common
Shares issued but not outstanding or authorized but unissued to permit any
exchange of Rights as contemplated in accordance with this Section 24, the
Company shall take all such action as may be necessary to authorize additional
Common Shares for issuance upon exchange of the Rights. In the event the Company
shall, after good faith effort, be unable to take all such action as may be
necessary to authorize such additional Common Shares, the Company shall
substitute, for each Common Share that would otherwise be issuable upon exchange
of a Right, a number of Preferred Shares or fraction thereof such that the
current per share market price of one Preferred Share multiplied by such number
or fraction is equal to the current per share market price of one Common Share
as of the date of issuance of such Preferred Shares or fraction thereof.
(d) The Company shall not be required to issue
fractions of Common Shares or to distribute certificates which evidence
fractional Common Shares. In lieu of such fractional Common Shares, the Company
shall pay to the registered holders of the Right Certificates with regard to
which such fractional Common Shares would otherwise be issuable an amount in
cash equal to the same fraction of the current market value of a whole Common
Share. For the purposes of this paragraph (d), the current market value of a
whole Common Share shall be the closing price of a Common Share (as determined
pursuant to the second sentence of Section 11(d)(i) hereof) for the Trading Day
immediately prior to the date of exchange pursuant to this Section 24.
Section 25. Notice of Certain Events.
(a) In case the Company shall propose (i) to pay any dividend
payable in stock of any class to the holders of its Preferred Shares or to make
any other distribution to the holders of its Preferred Shares (other than a
regular quarterly cash dividend), (ii) to offer to the holders of its Preferred
Shares rights or warrants to subscribe for or to purchase any additional
Preferred Shares or shares of stock of any class or any other securities, rights
or options, (iii) to effect any reclassification of its Preferred Shares (other
than a reclassification involving only the subdivision of outstanding Preferred
Shares), (iv) to effect any consolidation or merger into or with, or to effect
any sale or other transfer (or to permit one or more of its Subsidiaries to
effect any sale or other transfer), in one or more transactions, of 50 percent
or more of the assets or earning power of the Company and its Subsidiaries
(taken as a whole) to, any other Person, (v) to effect the liquidation,
dissolution or winding up of the Company, or (vi) to declare or pay any dividend
on the Common Shares payable in Common Shares or to effect a subdivision,
combination or consolidation of the Common Shares (by reclassification or
otherwise than by payment of dividends in Common Shares), then, in each such
case, the Company shall give to each holder of a Right Certificate and the
Rights Agent, in accordance with Section 26 hereof, a notice of such proposed
action, which shall specify the record date for the purposes of such stock
dividend, or distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding up is to take place and the date of participation
therein by the holders of the Common Shares and/or Preferred Shares, if any such
date is to be fixed, and such notice shall be so given in the case of any action
covered by clause (i) or (ii) above
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<PAGE> 24
at least 10 days prior to the record date for determining holders of the
Preferred Shares for purposes of such action, and in the case of any such other
action, at least 10 days prior to the date of the taking of such proposed action
or the date of participation therein by the holders of the Common Shares and/or
Preferred Shares, whichever shall be the earlier.
(b) In case the event set forth in Section 11(a)(ii) hereof
shall occur, then the Company shall as soon as practicable thereafter give to
each holder of a Right Certificate, in accordance with Section 26 hereof, a
notice of the occurrence of such event, which notice shall describe such event
and the consequences of such event to holders of Rights under Section 11(a)(ii)
hereof.
Section 26. Notices. Notices or demands authorized by this Agreement
to be given or made by the Rights Agent or by the holder of any Right
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
Deckers Outdoor Corporation
495-A Fairview Avenue
Goleta, California 93117
Attention: Secretary
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:
ChaseMellon Shareholder Services, L.L.C.
400 South Hope Street, 4th Floor
Los Angeles, CA 90071
Attention: Secretary
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. Supplements and Amendments. The Company may from time to
time supplement or amend this Agreement without the approval of any holders of
Right Certificates in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any other
provisions herein, or to make any other provisions with respect to the Rights
which the Company may deem necessary or desirable, any such supplement or
amendment to be evidenced by a writing signed by the Company and the Rights
Agent; provided, however, that from and after such time as any
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<PAGE> 25
Person becomes an Acquiring Person, this Agreement shall not be amended in any
manner which would adversely affect the interests of the holders of Rights
(other than an Acquiring Person or an Affiliate or Associate of an Acquiring
Person). Without limiting the foregoing, the Company may at any time prior to
such time as any Person becomes an Acquiring Person amend this Agreement to
lower the thresholds set forth in Sections 1(a) and 3(a) to not less than the
greater of (i) the sum of .001 percent and the largest percentage of the
outstanding Common Shares then known by the Company to be beneficially owned by
any Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or any Subsidiary of the Company, or any entity
holding Common Shares for or pursuant to the terms of any such plan) and (ii) 10
percent. Upon delivery of a certificate from an appropriate officer of the
Company which states that the proposed supplement or amendment is in compliance
with the terms of this Section 27, and such supplement or amendment does not
change or increase the Rights Agent's duties, liabilities or obligations, the
Rights Agent shall execute such supplement or amendment. Prior to the
Distribution Date, the interests of the holders of Rights shall be deemed
coincident with the interest of the holders of the Company's Common Stock.
Section 28. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. Determinations and Actions by the Board of Directors, Etc.
For all purposes of this Agreement, any calculation of the number of Common
Shares or any other class of capital stock outstanding at any particular time,
including for purposes of determining the particular percentage of such
outstanding Common Shares of which any Person is the Beneficial Owner, shall be
made in accordance with the last sentence of Rule 13d-3d(1)(i) of the General
Rules and Regulations under the Exchange Act. The Board shall have the exclusive
power and authority to administer this Agreement and to exercise all rights and
powers specifically granted to the Board or to the Company, or as may be
necessary or advisable in the administration of this Agreement, including,
without limitation, the right and power to (i) interpret the provisions of this
Agreement, and (ii) make all determinations deemed necessary or advisable for
the administration of this Agreement (including a determination to redeem or not
redeem the Rights or to amend the Agreement). All such actions, calculations,
interpretations and determinations (including, for purpose of clause (y) below,
all omissions with respect to the foregoing) which are done or made by the Board
in good faith, shall (x) be final, conclusive and binding on the Company, the
Rights Agent, the holders of the Rights and all other Persons, and (y) not
subject the Board to any liability to the holders of the Rights. The Rights
Agent is entitled to always assume the Company's Board of Directors acted in
good faith and shall be fully protected and incur no liability in reliance
thereon.
Section 30. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any Person, other than the Company, the Rights
Agent and the registered holders of the Right Certificates (and, prior to the
Distribution Date, the Common Shares) any legal or equitable right, remedy or
claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of
the Right Certificates (and, prior to the Distribution Date, the Common Shares).
Section 31. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated;
provided, however, that notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board determines
in its good faith judgment that severing the invalid language from this
Agreement would adversely affect the purpose or effect of this
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<PAGE> 26
Agreement, the right of redemption set forth in Section 23 hereof shall be
reinstated with prompt notice thereof to the Rights Agent and shall not expire
until the Close of Business on the tenth day following the date of such
determination by the Board.
Section 32. Governing Law. This Agreement and each Right Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of Delaware and for all purposes shall be governed by and construed in
accordance with the laws of such State applicable to contracts to be made and
performed entirely within such State; provided, however, that all provisions
regarding the rights, duties and obligations of the Rights Agent shall be
governed by and construed in accordance with the laws of the State of New York
applicable to contracts made and to be performed entirely within such State.
Section 33. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
Section 34. Descriptive Headings. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
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<PAGE> 27
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and attested, all as of the day and year first above written.
DECKERS OUTDOOR CORPORATION
Attest: By: /s/ Scott Ash
---------------------------------
Name: Scott Ash
By:__________________________ Title: Chief Financial Officer
Title:_______________________
CHASEMELLON SHAREHOLDER SERVICES,
L.L.C.
Attest: By:_________________________________
Name:
By:__________________________ Title:
Title:_______________________
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<PAGE> 28
Exhibit A
FORM
OF
CERTIFICATE OF DESIGNATIONS
OF
SERIES B JUNIOR PARTICIPATING PREFERRED STOCK
OF
DECKERS OUTDOOR CORPORATION
(Pursuant to Section 151 of the Delaware General Corporation Law)
Deckers Outdoor Corporation, a corporation organized and
existing under the General Corporation Law of the State of Delaware (hereinafter
called the "Corporation"), hereby certifies that the following resolution was
adopted by the Board of Directors of the Corporation as required by Section 151
of the General Corporation Law at a meeting duly called and held and held on
October 9, 1998.
RESOLVED, that pursuant to the authority granted to and vested
in the Board of Directors of this Corporation (hereinafter called the "Board")
in accordance with the provisions of the Certificate of Incorporation, the Board
hereby creates a series of Preferred Stock, par value $.01 per share (the
"Preferred Stock"), of the Corporation and hereby states the designation and
number of shares, and fixes the relative rights, preferences, and limitations
thereof as follows:
Series B Junior Participating Preferred Stock:
Section 1. Designation and Amount. The shares of such series
shall be designated as "Series B Junior Participating Preferred Stock" (the
"Series B Preferred Stock") and the number of shares constituting the Series B
Preferred Stock shall be 100,000. Such number of shares may be increased or
decreased by resolution of the Board; provided, that no decrease shall reduce
the number of shares of Series B Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Corporation
convertible into Series B Preferred Stock.
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any
series of Preferred Stock (or any similar stock) ranking prior and superior to
the Series B Preferred Stock with respect to dividends, the holders of shares of
Series B Preferred Stock, in preference to the holders of Common Stock, par
value $.01 per share (the "Common Stock"), of the Corporation, and of any other
junior stock, shall be entitled to receive,
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<PAGE> 29
when, as and if declared by the Board out of funds legally available for the
purpose, quarterly dividends payable in cash on the first day of March, June,
September and December in each year (each such date being referred to herein as
a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Series B Preferred Stock, in an amount per share (rounded to the nearest cent)
equal to the greater of (a) $1 or (b) subject to the provision for adjustment
hereinafter set forth, 100 times the aggregate per share amount of all cash
dividends, and 100 times the aggregate per share amount (payable in kind) of all
non-cash dividends or other distributions, other than a dividend payable in
shares of Common Stock or a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Series B Preferred Stock. In the event the Corporation
shall at any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or consolidation
of the outstanding shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the amount to which
holders of shares of Series B Preferred Stock were entitled immediately prior to
such event under clause (b) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution
on the Series B Preferred Stock as provided in paragraph (A) of this Section
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided that, in the
event no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $1 per share on the
Series B Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series B Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares, unless the date of
issue of such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares shall begin to
accrue from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series B Preferred Stock entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series B Preferred Stock in
an amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board may fix a record date
for the determination of holders of shares of Series B Preferred Stock entitled
to receive payment of a dividend or distribution declared thereon, which record
date shall be not more than 60 days prior to the date fixed for the payment
thereof.
Section 3. Voting Rights. The holders of shares of Series B
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series B Preferred Stock shall entitle the holder thereof
to 100 votes on all matters submitted to a vote of the stockholders of the
Corporation. In the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or
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<PAGE> 30
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
number of votes per share to which holders of shares of Series B Preferred Stock
were entitled immediately prior to such event shall be adjusted by multiplying
such number by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.
(B) Except as otherwise provided herein, in any other
Certificate of Designations creating a series of Preferred Stock or any similar
stock, or by law, the holders of shares of Series B Preferred Stock and the
holders of shares of Common Stock and any other capital stock of the Corporation
having general voting rights shall vote together as one class on all matters
submitted to a vote of stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by
law, holders of Series B Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled to
vote with holders of Common Stock as set forth herein) for taking any corporate
action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series B Preferred Stock as provided in Section 2
are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series B Preferred Stock
outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series B Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series B
Preferred Stock, except dividends paid ratably on the Series B Preferred Stock
and all such parity stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all such shares are then
entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series B Preferred Stock,
provided that the Corporation may at any time redeem, purchase or otherwise
acquire shares of any such junior stock in exchange for shares of any stock of
the Corporation ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Series B Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series B Preferred Stock, or any shares of stock
ranking on a parity with the Series B Preferred Stock, except in accordance with
a purchase offer made in writing or by publication (as determined by the Board)
to all holders of such shares upon such terms as the Board, after consideration
of the respective annual dividend rates and other relative rights and
preferences of the respective series and classes, shall determine in good faith
will result in fair and equitable treatment among the respective series or
classes.
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<PAGE> 31
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Reacquired Shares. Any shares of Series B Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof.
All such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock and may be reissued as part of a new series of
Preferred Stock subject to the conditions and restrictions on issuance set forth
herein, in the Certificate of Incorporation, or in any other Certificate of
Designations creating a series of Preferred Stock or any similar stock or as
otherwise required by law.
Section 6. Liquidation, Dissolution or Winding. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series B
Preferred Stock unless, prior thereto, the holders of shares of Series B
Preferred Stock shall have received $100 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, provided that the holders of shares of Series B
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of shares of
Common Stock, or (2) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Series B Preferred Stock, except distributions made ratably on the Series B
Preferred Stock and all such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the aggregate amount to which
holders of shares of Series B Preferred Stock were entitled immediately prior to
such event under the proviso in clause (1) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation
shall enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case each share
of Series B Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series B Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding
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<PAGE> 32
immediately prior to such event.
Section 8. No Redemption. The shares of Series B Preferred
Stock shall not be redeemable.
Section 9. Rank. The Series B Preferred Stock shall rank,
with respect to the payment of dividends and the distribution of assets, junior
to all series of any other class of the Corporation's Preferred Stock.
Section 10. Amendment. The Certificate of Incorporation of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series B Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Series B Preferred Stock, voting
together as a single class.
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<PAGE> 33
IN WITNESS WHEREOF, this Certificate of Designations is
executed on behalf of the Corporation by its Chairman of the Board and attested
by its Secretary this day of November 12, 1998
----------------------------------
Chairman of the Board
Attest:
- --------------------------------
Secretary
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<PAGE> 34
Exhibit B
FORM OF RIGHT CERTIFICATE
Certificate No. R- __________ Rights
NOT EXERCISABLE AFTER _____________, 2008 OR EARLIER OF
REDEMPTION OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO
REDEMPTION AT $.01 PER RIGHT AND TO EXCHANGE ON THE TERMS SET
FORTH IN THE RIGHTS AGREEMENT.
Right Certificate
DECKERS OUTDOOR CORPORATION
This certifies that _______________________ or registered assigns, is
the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof subject to the terms, provisions and conditions of
the Rights Agreement, dated as of November 12, 1998 (the "Rights Agreement"),
between Deckers Outdoor Corporation, a Delaware corporation (the "Company") and
ChaseMellon Shareholder Services, L.L.C., a New Jersey limited liability company
(the "Rights Agent"), to purchase from the Company at any time after the
Distribution Date (as such term is defined in the Rights Amendment) and prior to
5:00 p.m. New York, New York time, November 11, 2008 at the office of the Rights
Agent designated for such purpose, or at the office of its successor as Rights
Agent, one one-hundredth of a fully paid non-assessable share of Series B Junior
Participating Preferred Stock, par value $.01 per share (the "Preferred
Shares"), of the Company, at a purchase price of $______ per one one-hundredth
of a Preferred Share (the "Purchase Price"), upon presentation and surrender of
this Right Certificate with the Form of Election to Purchase duly executed. The
number of Rights evidenced by this Right Certificate (and the number of one
one-hundredths of a Preferred Share which may be purchased upon exercise hereof)
set forth above, and the Purchase Price set forth above, are the number and
Purchase Price as of ____________, 1998, based on the Preferred Shares as
constituted at such date. As provided in the Rights Agreement, the Purchase
Price and the number of one one-hundredths of a Preferred Share which may be
purchased upon the exercise of the Rights evidenced by this Right Certificate
are subject to modification and adjustment upon the happening of certain events.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates. Copies of
the Rights Agreement are on file at the principal executive offices of the
Company and the above-mentioned offices of the Rights Agent.
This Right Certificate, with or without other Right Certificates, upon
surrender at the office of the Rights Agent designated for such purpose, may be
exchanged for another Right Certificate or Right
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<PAGE> 35
Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number of Preferred Shares as the Rights evidenced by
the Right Certificate or Right Certificates surrendered shall have entitled such
holder to purchase. If this Right Certificate shall be exercised in part, the
holder shall be entitled to receive upon surrender hereof another Right
Certificate or Right Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate (i) may be redeemed by the Company at a redemption
price of $.01 per Right or (ii) may be exchanged in whole or in part for
Preferred Shares or shares of the Company's Common Stock, par value per share.
No fractional Preferred Shares will be issued upon the exercise of any
Right or Rights evidenced hereby (other than fractions which are integral
multiples of one one-hundredth of a Preferred Share, which may, at the election
of the Company, be evidenced by depositary receipts), but in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of the Preferred
Shares or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Right
Certificate shall have been exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal. Dated as of ________________, ______.
ATTEST: DECKERS OUTDOOR CORPORATION
_____________________________ By:_________________________________
Name:
Title:
Countersigned:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
By:________________________________
Authorized Signature
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<PAGE> 36
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to
transfer the Right Certificate)
FOR VALUE RECEIVED, _______________________ hereby sells, assigns and
transfers unto
________________________________________________________________________________
________________________________________________________________________________
(Please print name and address of transferee)
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint ______________________ attorney,
to transfer the within Right Certificate on the books of the within-named
Company, with full power of substitution.
Date: _______________, ________
____________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by an eligible guarantor institution (a
bank, stockbroker, savings and loan association or credit union with membership
in an approved signature guarantee medallion program) pursuant to Rule 17Ad-15
of the Securities Exchange Act of 1934, a member of the National Association of
Securities Dealers, Inc., or a commercial bank or trust company having an office
or correspondent in the United States.
_____________________________________
The undersigned hereby certifies that the Rights evidenced by this
Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
____________________________________
Signature
_____________________________________
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<PAGE> 37
Form of Reverse Side of Right Certificate -- continued
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise Rights represented by
the Right Certificate)
To: DECKERS OUTDOOR CORPORATION
The undersigned hereby irrevocably elects to exercise _______________
Rights represented by this Right Certificate to purchase the Preferred Shares
issuable upon the exercise of such Rights and requests that certificates for
such Preferred Shares be issued in the name of:
___________________________________________________
Please insert social security or other identifying number
___________________________________________________
___________________________________________________
(Please print name and address)
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
___________________________________________________
Please insert social security or other identifying number
___________________________________________________
___________________________________________________
(Please print name and address)
Dated: _____________, _____
____________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by an eligible guarantor
institution (a bank, stockbroker, savings and loan association or credit union
with membership in an approved signature guarantee medallion program) pursuant
to Rule 17Ad-15 of the Securities Exchange Act of 1934.
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<PAGE> 38
Form of Reverse Side of Right Certificate -- continued
___________________________________________________
The undersigned hereby certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement).
____________________________________
Signature
___________________________________________________
NOTICE
The signature in the Form of Assignment or Form of Election to
Purchase, as the case may be, must conform to the name as written upon the face
of this Right Certificate in every particular, without alteration or enlargement
or any change whatsoever.
In the event the certification set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is not
completed, the Company and the Rights Agent will deem the beneficial owner of
the Rights evidenced by this Right Certificate to be an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement) and such
Assignment or Election to Purchase will not be honored.
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<PAGE> 39
Exhibit C
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED STOCK
On October 9, 1998, the Board of Directors of Deckers Outdoor
Corporation (the "Company") declared a dividend of one preferred share purchase
right (a "Right") for each outstanding share of common stock, par value $.01 per
share (the "Common Shares"), of the Company. The dividend is payable on December
1, 1998 (the "Record Date") to the stockholders of record on that date. Each
Right entitles the registered holder to purchase from the Company one
one-hundredth of a share of Series B Junior Participating Preferred Stock, par
value $.01 per share (the "Preferred Shares"), of the Company at a price of
$50.00 per one one-hundredth of a Preferred Share (the "Purchase Price"),
subject to adjustment. The description and terms of the Rights are set forth in
a Rights Agreement (the "Rights Agreement") between the Company and ChaseMellon
Shareholder Services, L.L.C., as Rights Agent (the "Rights Agent").
Until the earlier to occur of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") have acquired beneficial ownership of 20 percent or more of
the outstanding Common Shares or (ii) 10 Business Days (or such later date as
may be determined by action of the Board of Directors prior to such time as any
person or group of affiliated persons becomes an Acquiring Person) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 20 percent or more of the outstanding Common
Shares (the earlier of such dates being called the "Distribution Date"), the
Rights will be evidenced, with respect to any of the Common Share certificates
outstanding as of the Record Date, by such Common Share certificate with a copy
of this Summary of Rights attached thereto.
The Rights Agreement provides that, until the Distribution Date (or
earlier redemption or expiration of the Rights), the Rights will be transferred
with and only with the Common Shares. Until the Distribution Date (or earlier
redemption or expiration of the Rights), new Common Share certificates issued
after the Record Date upon transfer or new issuance of Common shares will
contain a notation incorporating the Rights Agreement by reference. Until the
Distribution Date (or earlier redemption or expiration of the Rights), the
surrender for transfer of any certificates for Common Shares outstanding as of
the Record Date, even without such notation or a copy of this Summary of Rights
being attached thereto, will also constitute the transfer of the Rights
associated with the Common Shares represented by such certificate. As soon as
practicable following the Distribution Date, separate certificates evidencing
the Rights ("Right Certificates") will be mailed to holders of record of the
Common Shares as of the close of business on the Distribution Date and such
separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights
will expire on November 11, 2008 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by the Company, in each case, as described below.
The Purchase Price payable, and the number of Preferred Shares or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Preferred
Shares, (ii) upon the grant to holders of the Preferred Shares of certain rights
or warrants to subscribe for or purchase Preferred Shares at a price, or
securities convertible into Preferred Shares with a conversion price, less than
the then-current market price of the Preferred Shares or (iii) upon the
distribution to holders of the
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<PAGE> 40
Preferred Shares of evidences of indebtedness or assets (excluding regular
periodic cash dividends paid out of earnings or retained earnings or dividends
payable in Preferred Shares) or of subscription rights or warrants (other than
those referred to above).
The number of outstanding Rights and the number of one one-hundredths
of a Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Shares or a stock
dividend on the Common Shares payable in Common Shares or subdivisions,
consolidations or combinations of the Common Shares occurring, in any such case,
prior to the Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $1 per share but will be entitled to an aggregate
dividend of 100 times the dividend declared per Common Share. In the event of
liquidation, the holders of the Preferred Shares will be entitled to a minimum
preferential liquidation payment of $100 per share but will be entitled to an
aggregate payment of 100 times the payment made per Common Share. Each Preferred
Share will have 100 votes, voting together with the Common Shares. Finally, in
the event of any merger, consolidation or other transaction in which Common
Shares are exchanged, each Preferred Share will be entitled to receive 100 times
the amount received per Common Share. These rights are protected by customary
anti-dilution provisions.
Because of the nature of the Preferred Shares' dividend, liquidation
and voting rights, the value of the one one-hundredth interest in a Preferred
Share purchasable upon exercise of each Right should approximate the value of
one Common Share.
In the event that the Company is acquired in a merger or other
business combination transaction or 50 percent or more of its consolidated
assets or earning power are sold after a person or group has become an Acquiring
Person, proper provision will be made so that each holder of a Right will
thereafter have the right to receive, upon the exercise thereof at the then
current exercise price of the Right, that number of shares of common stock of
the acquiring company which at the time of such transaction will have a market
value of two times the exercise price of the Right. In the event that any person
or group of affiliated or associated persons becomes an Acquiring Person, proper
provision shall be made so that each holder of a Right, other than Rights
beneficially owned by the Acquiring Person (which will thereafter be void), will
thereafter have the right to receive upon exercise that number of Common Shares
having a market value of two times the exercise price of the Right. Under some
circumstances, in lieu of Common Shares, other equity and debt securities,
property, cash or combinations thereof, including combinations with Common
Shares may be issued upon payment of the exercise price if of equal value to the
number of Common Shares for which the Right is exercisable.
At any time after any person or group becomes an Acquiring Person and
prior to the acquisition by such person or group of 50 percent or more of the
outstanding Common Shares, the Board may exchange the Rights (other than Rights
owned by such person or group which will have become void), in whole or in part,
at an exchange ratio of one Common Share, or one one-hundredth of a Preferred
Share (or of a share of a class or series of the Company's preferred stock
having equivalent rights, preferences and privileges), per Right (subject to
adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least one
percent in such Purchase Price. No fractional Preferred Shares will be issued
(other than fractions which are integral multiples of one one-hundredth of a
Preferred Share, which may, at the election of the Company, be evidenced by
depositary receipts) and in lieu thereof, an adjustment in cash will be made
based on the market price of the Preferred Shares on the last
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<PAGE> 41
trading day prior to the date of exercise.
At any time prior to close of business on the tenth Business Day after
the acquisition by a person or group of affiliated or associated persons of
beneficial ownership of 20% or more of the outstanding Common Shares, the Board
may redeem the Rights in whole, but not in part, at a price of $.01 per Right
(the "Redemption Price"). The redemption of the Rights may be made effective at
such time on such basis with such conditions as the Board in its sole discretion
may establish. Immediately upon any redemption of the Rights, the right to
exercise the Rights will terminate and the only right of the holders of Rights
will be to receive the Redemption Price.
The terms of the Rights may be amended by the Board without the
consent of the holders of the Rights, including an amendment to lower certain
thresholds described above to not less than the greater of (i) the sum of .001
percent and the largest percentage of the outstanding Common Shares then known
to the Company to be beneficially owned by any person or group of affiliated or
associated persons and (ii) 10 percent, except that from and after such time as
any person or group of affiliated or associated persons becomes an Acquiring
Person no such amendment may adversely affect the interests of the holders of
the Rights (excluding the interest of any Acquiring Person in whose hands Rights
are void).
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends.
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to its Form 10-Q for the quarter ended
September 30, 1998. A copy of the Rights Agreement is available free of charge
from the Company. This summary description of the Rights does not purport to be
complete and is qualified in its entirety by reference to the Rights Agreement,
which is hereby incorporated herein by reference.
3
<PAGE> 1
EXHIBIT 10.40
[WELLS FARGO LETTERHEAD]
November 20, 1998
Scott Ash
Chief Financial Officer
Deckers Outdoor Corporation
495A South Fairview Road
Santa Barbara, CA 93117
Dear Scott:
This letter is to confirm that Wells Fargo Bank, National Association
("Bank"), subject to all terms and conditions contained (a) in the Loan
Agreement between Deckers Outdoor Corporation ("Borrower") and Bank dated July
27, 1995 (as heretofore amended from time to time, the "Loan Agreement") and
(b) herein, has agreed to amend the Loan Agreement (the "Proposed Amendment")
and continue to make available to Borrower's revolving line of credit (the
"Line of Credit"). Pursuant to the Loan Agreement as amended by the Proposed
Amendment, Bank will make advances to Borrower from time to time up to and
including July 1, 1999, not to (i) at any time from the closing date of the
Proposed Amendment to (but excluding) June 1, 1999, the maximum principal
amount of Forty Million Dollars ($40,000,000.00) and (ii) at any time from June
1, 1999 through and including July 1, 1999, the maximum principal amount of
Twenty-Five Million Dollars ($25,000,000.00). The proceeds of the Line of
Credit shall be used for working capital purposes. All capitalized terms used
in this letter and not otherwise defined shall have the meanings specified for
such terms in the Loan Agreement. All terms and conditions set forth in the
Loan Agreement shall continue to be in full force and effect, other than as set
forth herein and any final executed amendment.
<PAGE> 2
November 20, 1998
Page 2
LINE OF CREDIT:
Limitation on Borrowings. Outstanding borrowings under the Line of
Credit, to a maximum of the applicable principal sum set forth above, shall not
at any time exceed an aggregate of seventy five percent (75%) of Borrower's
eligible accounts receivable, plus fifty percent (50%) of the value of
Borrower's eligible inventory. The advance rate on eligible inventory shall
decrease to forty percent (40%), effective June 1, 1999 and remain in effect
through the Maturity Date. A fifty percent (50%) advance rate will also apply
to inventory in transit through December 31, 1998, and the inventory in transit
will have a maximum eligible sublimit amount to be determined. All of the
foregoing advance rates are subject to change by Bank upon receipt and review
of all collateral reports and other documents as Bank may from time to time
require, including a books and records examination and the inventory appraisal
to be completed during the next sixty days. Definitions of the above items will
also be included in the final documentation executed by and between Borrower
and Bank.
Letter of Credit Subfeature. As a subfeature under the Line of Credit,
Bank agrees from time to time during the term thereof to issue commercial and
standby letters of credit for the account of Borrower, (each, a "Letter of
Credit" and collectively, "Letters of Credit"); provided however, that the form
and substance of each Letter of Credit shall be subject to approval by Bank, in
it sole discretion; and provided further, that the aggregate undrawn amount of
all outstanding Letters of Credit shall not at any time exceed Twelve Million
Dollars ($12,000,000.00). The undrawn amount of all Letters of Credit shall be
reserved under the Line of Credit and shall not be available for borrowings
thereunder.
Borrowing and Repayment. Borrower may from time to time during the term
of the Line of Credit borrow, partially or wholly repay its outstanding
borrowings, and reborrow; provided however, that the total outstanding
borrowings under the Line of Credit shall not at any time exceed the maximum
principal amount available thereunder, as set forth above.
Borrower shall reimburse Bank immediately upon demand for all costs and
expenses reasonably incurred by Bank in connection with the Proposed Amendment,
including without limitation, attorneys' fees (including outside counsel fees
and expenses and the allocated costs of Bank's in-house counsel), filing and
recording fees and costs of appraisals and audits.
<PAGE> 3
November 20, 1998
Page 3
Interest. The initial interest rate for the Line of Credit shall be the
Bank Prime Rate plus one and one half of percent (1.50%), floating. A fifty
basis point (0.50%) fee on the unused balance of the Line of Credit will be
charged, payable quarterly in arrears. A pricing matrix will be established by
Bank and included in the Proposed Amendment setting forth "grid pricing"
commencing on a mutually agreed upon date.
CONDITIONS PRECEDENT:
Prior to Bank's execution of the Proposed Amendment and the effectiveness
thereof, all of the following shall have occurred:
Loan Documents. Borrower shall have executed, or caused to be executed by
any guarantor or other party required hereby, and delivered to Bank, any and
all promissory notes, contracts, instruments and other documents, (including
without limitation the Proposed Amendment) required by Bank to evidence Bank's
extension of credit pursuant to the terms and conditions of this letter and the
Loan Agreements, all of which shall be in form and substance satisfactory to
Bank and shall include, in addition to the terms and conditions of this letter,
such representations, warranties, conditions, covenants, events of default and
other provisions as Bank deems appropriate.
Financial Condition. There shall have been no material adverse change
subsequent to September 30, 1998, as determined by Bank, in the financial
condition or business of, nor any material decline, as determined by Bank, in
the market value of any collateral required hereunder or a substantial or
material portion of the assets of Borrower.
COVENANTS:
Covenants shall remain in effect as Bank currently requires under the Loan
Agreement, with the only change being that Tangible Net Worth shall not be
permitted at any time to be less than $31,500,000.
Dividends, Distributions. Borrower shall not declare or pay any dividend
or distribution either in cash, stock or any other property on Borrower's stock
now or hereafter outstanding; nor shall Borrower be permitted to redeem,
retire, repurchase or otherwise acquire any shares of any class of Borrower's
stock now or hereafter outstanding.
<PAGE> 4
November 20, 1998
Page 4
Appraisals. Bank may obtain, at Borrower's cost, an appraisal of
inventory collateral required hereby, issued by an appraiser acceptable to Bank
and in form, substance and reflecting values satisfactory to Bank, in its
discretion. Without in any way limiting Bank's right to obtain such appraisal
at any time, Bank intends to obtain such appraisal within 60 days of the
closing date of the Proposed Amendment.
Bank reserves the right to terminate this commitment at any time prior to
receipt by Bank of a copy of this letter executed below by Borrower.
Your acknowledgment of this letter shall constitute acceptance of the
foregoing terms and conditions. Unless accepted or terminated, this commitment
shall expire on November 23, 1998. If the loan documentation required by Bank
hereunder is not completed and the credit contemplated hereby has not been
extended by Bank to Borrower for any reason by December 1, 1998, then this
commitment shall expire on said date.
Sincerely,
WELLS FARGO BANK,
NATIONAL ASSOCIATION
By: /s/ Anna Mercer
-----------------------------------
Title: Vice President
Acknowledged and accepted as of November 20, 1998:
By: /s/ Scott Ash
---------------------------------
Title: CFO
By:
---------------------------------
Title:
------------------------------
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