DECKERS OUTDOOR CORP, 10-Q, 1999-08-13

DECKERS OUTDOOR CORP
10-Q, 1999-08-13
RUBBER & PLASTICS FOOTWEAR

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<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 June 30, 1999
OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File Number 0-22446

DECKERS OUTDOOR CORPORATION
(Exact name of registrant as specified in its charter)

Delaware 95-3015862
(State or other jurisdiction of incorporation or IRS Employer Identification
organization)

495-A South Fairview Avenue, Goleta, California 93117
(Address of principal executive offices) (zip code)

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.

Outstanding at
CLASS August 4, 1999

Common stock, $.01 par value 9,019,612

<PAGE> 2

DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Table of Contents

<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
Part I. Financial Information

Item 1. Condensed Consolidated Financial Statements

Condensed Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998 1

Condensed Consolidated Statements of Operations for the Three-Month Period
Ended June 30, 1999 and 1998 2

Condensed Consolidated Statements of Operations for the Six-Month Period Ended
June 30, 1999 and 1998 3

Condensed Consolidated Statements of Cash Flows for the Six-Month
Period Ended June 30, 1999 and 1998 4-5

Notes to Condensed Consolidated Financial Statements 6-11

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12-19

Part II. Other Information

Item 1. Legal Proceedings 20

Item 2. Changes in Securities 20

Item 3. Defaults upon Senior Securities 20

Item 4. Submission of Matters to a Vote of Security Holders 20

Item 5. Other Information 20

Item 6. Exhibits and Reports on Form 8-K 20

Signature 21

</TABLE>

<PAGE> 3

DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)

<TABLE>
<CAPTION>
ASSETS JUNE 30, DECEMBER 31,
1999 1998
---- ----
<S> <C> <C> <C>
Current assets:
Cash ................................................................. $ 4,819,000 263,000
Trade accounts receivable, less allowance for
doubtful accounts of $1,656,000 and
$1,204,000 as of June 30, 1999 and December 31, 1998, ............. 27,689,000 27,180,000
respectively
Inventories, net ..................................................... 16,426,000 23,665,000
Prepaid expenses and other current assets ............................ 1,384,000 2,178,000
Refundable and deferred tax assets ................................... 1,357,000 6,023,000
---------- ----------
Total current assets ........................................ 51,675,000 59,309,000

Property and equipment, at cost, net .......................................... 2,849,000 2,994,000
Intangible assets, less applicable amortization ............................... 22,698,000 20,702,000
Note receivable from supplier, net ............................................ 922,000 782,000
Other assets, net ............................................................. 468,000 586,000
---------- ----------
$78,612,000 84,373,000
=========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Current installments of long-term debt ............................... $ 121,000 6,236,000
Trade accounts payable ............................................... 5,399,000 7,947,000
Accrued expenses ..................................................... 2,862,000 2,991,000
Income taxes payable ................................................. 223,000 --
---------- ----------
Total current liabilities ................................... 8,605,000 17,174,000
---------- ----------

Long-term debt, less current installments ..................................... 12,379,000 15,199,000

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
9,985,064 shares and outstanding 9,012,112 shares at June 30, 1999;
issued 9,495,631 shares and outstanding
8,522,679 shares at December 31, 1998 ............................. 90,000 85,000
Additional paid-in capital ........................................... 24,523,000 22,813,000
Retained earnings .................................................... 33,639,000 29,726,000
---------- ----------
58,252,000 52,624,000
Less note receivable from stockholder/former director ................ 624,000 624,000
---------- ----------
Total stockholders' equity .................................. 57,628,000 52,000,000
---------- ----------
$78,612,000 84,373,000
=========== ==========

</TABLE>

See accompanying notes to condensed consolidated financial statements.
<PAGE> 4

DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>

THREE-MONTH PERIOD ENDED
JUNE 30,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net sales ......................................... $31,360,000 31,142,000
Cost of sales ..................................... 17,604,000 18,220,000
---------- ----------
Gross profit .................... 13,756,000 12,922,000

Selling, general and administrative expenses ...... 10,015,000 10,058,000
---------- ----------
Earnings from operations ........ 3,741,000 2,864,000

Other expense (income):
Interest expense, net ....................... 499,000 392,000
Miscellaneous expense (income) .............. 18,000 (4,000)
---------- ----------
Earnings before income taxes .... 3,224,000 2,476,000

Income taxes ...................................... 1,556,000 1,070,000
---------- ----------

Net earnings .................... $1,668,000 1,406,000
========== =========
Net earnings per share:
Basic ....................................... $0.19 0.16
Diluted ..................................... 0.19 0.16
========== =========

Weighted average shares:
Basic ....................................... 8,723,000 8,704,000
Diluted ..................................... 9,004,000 8,727,000
========== =========
</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>

SIX-MONTH PERIOD ENDED
JUNE 30,
----------------------
1999 1998
----------- ----------
<S> <C> <C>
Net sales ....................................... $69,400,000 63,319,000
Cost of sales ................................... 38,421,000 36,860,000
---------- ----------
Gross profit .................. 30,979,000 26,459,000

Selling, general and administrative expenses .... 22,684,000 20,206,000
---------- ----------
Earnings from operations ...... 8,295,000 6,253,000

Other expense (income):
Interest expense, net ..................... 1,130,000 686,000
Miscellaneous expense (income) ............ (13,000) 3,000
---------- ----------
Earnings before income taxes .. 7,178,000 5,564,000

Income taxes .................................... 3,265,000 2,405,000
---------- ----------

Net earnings .................. $ 3,913,000 3,159,000
========== =========

Net earnings per share:
Basic ..................................... $ 0.45 0.36
Diluted ................................... 0.44 0.36
========== =========

Weighted average shares:
Basic ..................................... 8,629,000 8,756,000
Diluted ................................... 8,866,000 8,780,000
========== =========
</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>
SIX-MONTH PERIOD ENDED
JUNE 30,
----------------------
1999 1998
---------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings .......................................................... $ 3,913,000 3,159,000
------------ ----------
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization .................................... 1,527,000 1,308,000
Provision for doubtful accounts .................................. 780,000 333,000
Loss on disposal of assets ....................................... 38,000 24,000
Stock compensation ............................................... 34,000 84,000
Changes in assets and liabilities:
(Increase) decrease in:
Trade accounts receivable .................................. (1,289,000) (1,635,000)
Inventories ................................................ 7,239,000 2,434,000
Prepaid expenses and other current assets .................. 794,000 (641,000)
Refundable and deferred tax assets ......................... 4,666,000 (1,286,000)
Note receivable from supplier .............................. (140,000) 302,000
Other assets ............................................... 68,000 (21,000)
Increase (decrease) in:
Accounts payable ........................................... (3,549,000) 756,000
Accrued expenses ........................................... (128,000) (1,192,000)
Income taxes payable ....................................... 223,000 (22,000)
------------ ----------

Total adjustments ....................................... 10,263,000 444,000
------------ ----------

Net cash provided by operating activities ............... 14,176,000 3,603,000
------------ ----------

Cash flows from investing activities:
Proceeds from sale of property and equipment .......................... -- 5,000
Purchase of property and equipment .................................... (758,000) (926,000)
Cash paid in connection with Ugg acquisition .......................... -- (2,000,000)
------------ ----------

Net cash used in investing activities ................... (758,000) (2,921,000)
------------ ----------
</TABLE>

(Continued)

4
<PAGE> 7

DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows, Continued
(Unaudited)

<TABLE>
<CAPTION>
SIX-MONTH PERIOD ENDED
JUNE 30,
----------------------
1999 1998
---------- ---------
<S> <C> <C> <C>

Cash flows from financing activities:
Net proceeds from (repayments of) long-term debt ...................... (8,935,000) 3,947,000
Cash paid for repurchases of common stock ............................. -- (2,159,000)
Cash received from issuances of common stock .......................... 73,000 104,000
------------ ----------

Net cash provided by (used in) financing activities .......... (8,862,000) 1,892,000
------------ ----------

Net increase in cash ......................................... 4,556,000 2,574,000

Cash at beginning of period .................................................... 263,000 3,238,000
------------ ----------

Cash at end of period .......................................................... $ 4,819,000 5,812,000
============ ==========

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest .............................................................. $ 1,125,000 675,000
Income taxes .......................................................... 1,073,000 3,729,000
============ ==========
Supplemental disclosure of noncash investing and financing activities:

In connection with the Teva License Agreement, dated June 7, 1999, the
Company recorded an increase in intangible assets of $2,608,000 for the
value of the Teva license paid for with indebtedness of $1,000,000 and
issuance of 428,743 shares of common stock valued at approximately
$1,608,000
</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 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, 1998 included in the Company's
Annual Report on Form 10-K.

(2) Earnings per Share

Basic earnings per share represents net earnings divided by the weighted
average number of common shares outstanding for the period. Diluted
earnings per share represents net earnings divided by the weighted
average number of shares outstanding, inclusive of the dilutive impact of
common stock equivalents. During the three and six-month periods ended
June 30, 1999 and 1998, the difference between the weighted average
number of shares used in the basic computation compared to that used in
the diluted computation was due to the dilutive impact of options to
purchase common stock.

The reconciliations of basic to diluted weighted average shares are as
follows:
<TABLE>
<CAPTION>

THREE-MONTH PERIOD ENDED
JUNE 30,
------------------------
1999 1998
---------- ----------
<S> <C> <C> <C>

Net earnings ............................................ $1,668,000 1,406,000
========= =========
Weighted average shares used in basic computation ....... 8,723,000 8,704,000
Dilutive stock options .................................. 281,000 23,000
---------- ---------
Weighted average shares used for diluted computation 9,004,000 8,727,000
========= =========
</TABLE>

6
<PAGE> 9

DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)

(2) Earnings per Share (Continued)

Options to purchase 317,000 shares of common stock at prices ranging
from $5.50 to $13.75 were outstanding during the three-month period
ended June 30, 1999 and options to purchase 582,000 shares of common
stock at prices ranging from $7.50 to $15.00 were outstanding during
the three-month period ended June 30, 1998, 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 and, therefore, the options were
anti-dilutive.

<TABLE>
<CAPTION>
SIX-MONTH PERIOD ENDED
JUNE 30,
-----------------------
1999 1998
--------- ---------
<S> <C>

Net earnings ......................................................... $3,913,000 3,159,000
========== =========
Weighted average shares used in basic computation .................... 8,629,000 8,756,000
Dilutive stock options ............................................... 237,000 24,000
---------- ---------
Weighted average shares used for diluted computation
8,866,000 8,780,000
========== =========
</TABLE>

Options to purchase 322,000 shares of common stock at prices ranging
from $3.03 to $13.75 were outstanding during the six-month period ended
June 30, 1999 and options to purchase 582,000 shares of common stock at
prices ranging from $7.50 to $15.00 were outstanding during the
six-month period ended June 30, 1998, 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 and, therefore, the options were anti-dilutive.

(3) Inventories

Inventories are summarized as follows:
<TABLE>
<CAPTION>

JUNE 30, DECEMBER 31,
1999 1998
----------- -----------
<S> <C> <C>
Finished goods .. $15,906,000 22,396,000
Work in process . 24,000 35,000
Raw materials ... 496,000 1,234,000
----------- -----------
Total inventories $16,426,000 23,665,000
=========== ==========
</TABLE>

7
<PAGE> 10

DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)

(4) Income Taxes

Income taxes for the interim periods were computed using the effective
tax rate estimated to be applicable for the full fiscal year, which is
subject to ongoing review and evaluation by management. For the three
months ended June 30, 1999, the Company had income tax expense of
$1,556,000, representing an effective income tax rate of 48.3%. For the
three months ended June 30, 1998, the Company had income tax expense of
$1,070,000, representing an effective income tax rate of 43.2%. For the
six months ended June 30, 1999, the Company had income tax expense of
$3,265,000, representing an effective income tax rate of 45.5%. For the
six months ended June 30, 1998, the Company had income tax expense of
$2,405,000, representing an effective income tax rate of 43.2%.

(5) Computer Software Costs

In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1 ("SOP 98-1"), "Accounting
for the Costs of Computer Software Developed or Obtained for Internal
Use." The adoption of SOP 98-1 requires the Company to modify its
method of accounting for software. The Company adopted SOP 98-1
effective January 1, 1999. The adoption of SOP 98-1 did not have a
significant impact on the Company's financial position or results of
operations.

(6) Comprehensive Income

The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 130, "Reporting Comprehensive Income" on January 1, 1998. SFAS No.
130 establishes standards to measure all changes in equity that result
from transactions and other economic events other than transactions
with owners. Comprehensive income is the total of net earnings and all
other non-owner changes in equity. Except for net earnings and foreign
currency translation adjustments, the Company does not have any
transactions and other economic events that qualify as comprehensive
income as defined under SFAS No. 130. As foreign currency translation
adjustments were immaterial to the Company's consolidated financial
statements, net earnings approximated comprehensive income for each of
the three and six-month periods ended June 30, 1999 and 1998.

(7) Start-Up Activities

The AICPA Accounting Standards Executive Committee issued Statement of
Position 98-5 (SOP 98-5), "Reporting on the Costs of Start-Up
Activities." SOP 98-5 requires that costs of start-up activities,
including organization costs and retail store openings, be expensed as
incurred. The Company adopted SOP 98-5 on January 1, 1999. The adoption
of this statement did not have a material impact on the Company's
financial position or results of operations.

(8) Recently Issued Pronouncements

The Financial Accounting Standards Board has issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 modifies the accounting for derivative and hedging activities
and is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. Since the Company does not presently invest in
derivatives or engage in hedging activities, SFAS No. 133 is not
expected to impact the Company's financial position or results of
operations.

8
<PAGE> 11

DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)

(9) Business Segments

The Company's accounting policies of the segments and the basis for
segmentation are the same as those at December 31, 1998. The Company
evaluates performance based on net revenues and profit or loss from
operations. The Company's reportable segments are strategic business
units that offer geographic brand images. They are managed separately
because each business unit requires different marketing, research and
development, design, sourcing and sales strategies.

The Teva-domestic operating segment includes shared costs of the
consolidated group, including domestic payroll costs, facilities costs,
warehouse costs and other administrative costs. The Company has
allocated costs to the Simple-domestic, Ugg-domestic and other segments
based on a percentage of revenues for each of these segments. Because
each segment's sales volume and the resulting allocation of shared
costs continually change, the allocations to individual segments may or
may not be reflective of the actual costs directly attributable to each
segment.

In addition, virtually all shared assets, capital expenditures and the
related depreciation of these assets are generally included in the
Teva-domestic segment. As a result, this segment has a
disproportionately high amount of these items, while the other segments
have a disproportionately low amount.

Business segment information for the six months ended June 30, 1999 and
1998 is summarized as follows:

<TABLE>
<CAPTION>
1999 1998
------------ -------------
<S> <C> <C>
Sales to external customers:
Teva, domestic ........................... $ 45,080,000 40,242,000
Simple, domestic ......................... 5,471,000 7,379,000
Ugg, domestic ............................ 424,000 239,000
Other .................................... 18,425,000 15,459,000
------------ ------------
$ 69,400,000 63,319,000
============ ============

Intersegment sales:
Teva, domestic ........................... $ 677,000 1,009,000
Simple, domestic ......................... -- 146,000
Other .................................... 123,000 4,198,000
------------ ------------
$ 800,000 5,353,000
============ ============

Earnings (loss) from operations:
Teva, domestic ........................... $ 5,221,000 4,977,000
Simple, domestic ......................... 988,000 47,000
Ugg, domestic ............................ (1,352,000) (1,306,000)
Other .................................... 3,335,000 2,454,000
------------ ------------
$ 8,192,000 6,172,000
============ ============
</TABLE>

9
<PAGE> 12

DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)

(9) Business Segments (Continued)

Total assets:
Teva, domestic ... $ 64,979,000 56,161,000
Simple, domestic.. 8,469,000 12,456,000
Ugg, domestic .... 20,913,000 18,548,000
Other ............ 10,869,000 14,653,000
------------ -------------
$105,230,000 101,818,000
============ ============
</TABLE>

The reconciliation of segment earnings from operations to consolidated
earnings before income taxes is as follows:

<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Total earnings from operations
for reportable segments ......... $ 8,192,000 6,172,000
Intersegment profit change in
beginning and ending inventory... 103,000 81,000
----------- -----------
Consolidated earnings from
operations ...................... 8,295,000 6,253,000
Interest expense, net ............... 1,130,000 686,000
Other expense (income) .............. (13,000) 3,000
----------- -----------
Consolidated earnings before
income taxes .................... $ 7,178,000 5,564,000
=========== ===========
</TABLE>

(10) Contingencies

A judgment aggregating $1,785,000 was entered against the Company in
May 1999 in an action brought against the Company in 1995 in the United
States District Court, District of Montana (Missoula Division). The
judgment was for breach of a non-disclosure contract, among other
things. The Company is appealing the judgment and continues to believe
such claims are without merit. The plaintiffs have filed a motion to
increase their damage award, which the Company has opposed. The Company
intends to continue contesting this claim vigorously. The Company,
based on advice from legal counsel, does not anticipate that the
ultimate outcome will have a material adverse effect upon its financial
condition, results of operations or cash flows.

10
<PAGE> 13

DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)

(10) 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
certain popular Teva styles 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 of up to approximately $500,000. 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. As a precautionary measure, the Company has obtained
alternative sourcing for the potentially impacted products from sources
outside of China in an effort to reduce the potential risk in the
future. The Company is unable to predict the outcome of this matter and
the effect, if any, on the Company's results of operations, financial
condition and cash flows.

(11) License Agreement

On June 7, 1999, the Company signed a new license agreement (the
"License Agreement") for Teva, which becomes effective January 1, 2000.
Under the License Agreement, the Company receives the exclusive
worldwide rights for the manufacture and distribution of Teva footwear
through 2004. The License Agreement is automatically renewed through
2008 and through 2011 under two renewal options, provided that minimum
required sales levels are achieved. As with the previous arrangement,
the new license agreement provides for a sliding scale of royalty
rates, depending on sales levels. Additionally, the Company has agreed
to increase the contractual marketing expenditure, depending on sales
levels and varying by territory, effective June 7, 1999. As additional
consideration, the Company has agreed to pay the licensor a licensing
fee of $1,000,000 and has issued the licensor 428,743 shares of its
previously unissued common stock at $3.75 per share, the market value
on the date of the License Agreement. These shares are subject to
various contractual and other holding period requirements. In addition,
the Company has agreed to grant the licensor not less than 50,000 stock
options on the Company's common stock annually, at the fair market
value on the date of grant.

The Company also received an option to buy Teva and all of its assets,
including all worldwide rights to all Teva products. The option price
is based on formulas tied to net sales and varies depending on when the
option is exercised. The Company's option is exercisable during the
period from January 1, 2000 to December 31, 2001 or during the period
from January 1, 2006 to December 31, 2008. If the Company does not
exercise its option to acquire Teva, the licensor has the option to
acquire the Teva distribution rights from the Company for the remainder
of the license term. The licensor's option is exercisable during the
period from January 1, 2010 to December 31, 2011 and the option price
is based on a formula tied to the Company's earnings before interest,
taxes, depreciation and amortization.

Apparel and other non-footwear products are not covered by the License
Agreement. However, the Company intends to continue to deliver its
Spring 2000 Teva apparel line under the previous apparel license
agreement. Following the Spring 2000 season, the Company intends to
transition out of Teva apparel and is working with the licensor in this
regard.

11
<PAGE> 14

DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations

The following discussion should be read in conjunction with the
condensed consolidated financial statements and notes thereto, as well
as our Annual Report on Form 10-K for the year ended December 31, 1998.
This Quarterly Report on Form 10-Q includes forward looking statements
within the meaning of Section 21E of the Securities Exchange Act of
1934 that involve risk and uncertainty, such as forward-looking
statements relating to sales and operating expense expectations, the
potential imposition of certain customs duties, the potential impact of
certain litigation, the potential impact of the Year 2000 on the
Company and the impact of seasonality on the Company's operations.
Actual results may vary. Some of the factors that could cause actual
results to differ materially from those in the forward looking
statements are identified in the accompanying "Outlook" section of this
Quarterly Report on Form 10-Q.

Three-months Ended June 30, 1999 Compared to Three-months Ended
June 30, 1998

For the three months ended June 30, 1999, net sales increased by
$218,000, or 0.7%, from the comparable three months ended June 30,
1998. Aggregate net sales of Teva increased to $26,756,000 for the
three months ended June 30, 1999 from $25,706,000 for the three months
ended June 30, 1998, a 4.1% increase. This increase was a result of
overall strength in the sandal market and increased demand for Teva
products. Aggregate net sales of Teva represented 85.3% and 82.5% of
net sales in the three months ended June 30, 1999 and 1998,
respectively. Aggregate net sales of footwear under the Simple product
line decreased 18.7% to $3,640,000 from $4,479,000 from the comparable
three months ended June 30, 1998. The decrease in Simple sales occurred
due to a decline in demand for the Simple 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. Due to
the highly seasonal nature of Ugg's business, sales of Ugg are
insignificant in the second quarter of the year. Overall, international
sales for all of the Company's products increased 12.6% to $8,035,000
from $7,133,000, representing 25.6% of net sales in 1999 and 22.9% in
1998. The volume of footwear sold increased 6.9% to 1,250,000 pairs
during the three months ended June 30, 1999 from 1,169,000 pairs during
the three months ended June 30, 1998, for the reasons discussed above.

The weighted average wholesale price per pair sold during the three
months ended June 30, 1999 decreased 6.9% to $23.95 from $25.72 for the
three months ended June 30, 1998. The decrease was primarily due to a
reduction in European selling prices for several styles, a slight shift
in sales mix toward several lower priced styles and the reduction of
the standard wholesale price of a leading women's style in 1999 versus
1998.

Cost of sales decreased by $616,000, or 3.4%, to $17,604,000 for the
three months ended June 30, 1999, compared with $18,220,000 for the
three months ended June 30, 1998. Gross profit increased by $834,000,
or 6.5%, to $13,756,000 for the three months ended June 30, 1999 from
$12,922,000 for the three months ended June 30, 1998 and increased as a
percentage of net sales to 43.9% from 41.5%. The increase in gross
margin during the quarter was due to several factors including improved
product sourcing, a reduction in airfreight costs, a reduction in
materials write-downs and the exiting of the components business which
typically carried a lower gross margin.

Selling, general and administrative expenses decreased slightly by
$43,000, or 0.4%, for the three months ended June 30, 1999, compared
with the three months ended June 30, 1998, and decreased as a
percentage of net sales to 31.9% in 1999 from 32.3% in 1998. The
decrease in selling, general and administrative expenses as a
percentage of net sales was primarily due to decreased marketing costs
during the quarter, as certain marketing costs were incurred earlier in
the year in 1999 than in 1998. As a result, while the year-to-date
marketing costs increased versus the same period in 1998, the marketing
costs incurred in the second quarter of 1999 were lower than those
incurred in the second quarter of 1998. In addition, the

12
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DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES

Company experienced a reduction in payroll costs, partially offset by
increases in bad debt expense, legal fees and warehouse costs. Also,
selling, general and administrative costs as a percentage of sales
decreased as certain selling, general and administrative expenses are
fixed and did not fluctuate in proportion to the sales increase during
the quarter.

Net interest expense was $499,000 for the three months ended June 30,
1999 compared with $392,000 for the three months ended June 30, 1998,
primarily due to increased borrowings on the Company's credit facility
in the current year.

For the three months ended June 30, 1999, the Company recorded income
tax expense of $1,556,000, representing an effective income tax rate of
48.3%. For the three months ended June 30, 1998, the Company recorded
income tax expense of $1,070,000, representing an effective income tax
rate of 43.2%. Income taxes for interim periods are computed using the
effective tax rate estimated to be applicable for the full fiscal year,
which is subject to ongoing review and evaluation by the Company.
During the three-month period ended June 30, 1999, the Company
estimated that certain non-deductible expenses, including goodwill
amortization associated with the acquisitions of Simple Shoes, Inc. and
Ugg Holdings, Inc., would be a greater proportion of earnings before
income taxes for 1999 than the estimates for such items made in the
three-month period ended June 30, 1998, which was the principal cause
for the increase in the tax rate.

Net earnings increased 18.6% to $1,668,000 for the three months ended
June 30, 1999 versus net earnings of $1,406,000 for the three months
ended June 30, 1998, for the reasons discussed above.

Six Months Ended June 30, 1999 Compared to Six Months Ended
June 30, 1998

For the six months ended June 30, 1999, net sales increased by
$6,081,000, or 9.6%, from the comparable six months ended June 30,
1998. Aggregate net sales of Teva increased to $59,700,000 for the six
months ended June 30, 1999 from $48,927,000 for the six months ended
June 30, 1998, a 22.0% increase. This increase was a result of overall
strength in the sandal market and increased demand for the Teva
products. Aggregate net sales of Teva represented 86.0% and 77.3% of
net sales in the six months ended June 30, 1999 and 1998, respectively.
Aggregate net sales of footwear under the Simple product line decreased
31.6% to $7,582,000 from $11,091,000 from the comparable six months
ended June 30, 1998. The decrease in Simple sales occurred due to a
decline in demand for the Simple 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.
Aggregate net sales of Ugg footwear were $424,000 for the six months
ended June 30, 1999 and $239,000 for the six months ended June 30,
1998. Due to the highly seasonal nature of Ugg's business, the first
half of the year is generally a low volume period for Ugg sales.
Overall, international sales for all of the Company's products
increased 18.9% to $18,624,000 from $15,665,000, representing 26.8% of
net sales in 1999 and 24.7% in 1998. The volume of footwear sold
increased 12.5% to 2,653,000 pairs during the six months ended June 30,
1999 from 2,358,000 pairs during the six months ended June 30, 1998,
for the reasons discussed above.

The weighted average wholesale price per pair sold during the six
months ended June 30, 1999 decreased 2.0% to $25.05 from $25.57 for the
six months ended June 30, 1998. The decrease was primarily due to a
reduction in European selling prices for several styles, a slight shift
in sales mix toward several lower priced styles and the reduction of
the standard wholesale price of a leading women's style in 1999 versus
1998.

Cost of sales increased by $1,561,000, or 4.2%, to $38,421,000 for the
six months ended June 30, 1999, compared with $36,860,000 for the six
months ended June 30, 1998. Gross profit increased by $4,520,000, or
17.1%, to $30,979,000 for the six months ended June 30, 1999 from
$26,459,000 for the six months ended June 30, 1998 and increased as a
percentage of net sales to 44.6% from 41.8%. The increase in gross
margin was due to several factors, including improved product sourcing,
the exiting of the components

13
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DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES

business which typically carried a lower gross margin and a reduction
in the impact of closeouts versus the same period last year. In
addition, the Company experienced a reduction in airfreight costs and
materials write-downs versus the same period last year.

Selling, general and administrative expenses increased by $2,478,000,
or 12.3%, for the six months ended June 30, 1999, compared with the six
months ended June 30, 1998, and increased as a percentage of net sales
to 32.7% in 1999 from 31.9% in 1998. The increase in selling, general
and administrative expenses as a percentage of net sales was primarily
due to nearly $1,000,000 of special charges incurred during the six
months ended June 30, 1999. These costs include legal and other
expenses associated with a lawsuit brought against the Company in 1995
in Montana, as well as severance costs in connection with a corporate
restructuring. See discussion under "Legal Proceedings." In addition,
the Company experienced increased bad debt expenses, warehouse costs,
marketing costs and apparel-related expenses, partially offset by a
reduction in payroll costs which resulted from the Company's
restructuring.

Net interest expense was $1,130,000 for the six months ended June 30,
1999 compared with $686,000 for the six months ended June 30, 1998,
primarily due to increased borrowings on the Company's credit facility
in the current year.

For the six months ended June 30, 1999, the Company recorded income tax
expense of $3,265,000, representing an effective income tax rate of
45.5%. For the six months ended June 30, 1998, the Company recorded
income tax expense of $2,405,000, representing an effective income tax
rate of 43.2%. Income taxes for interim periods are computed using the
effective tax rate estimated to be applicable for the full fiscal year,
which is subject to ongoing review and evaluation by the Company.
During the six-month period ended June 30, 1999, the Company estimated
that certain non-deductible expenses, including goodwill amortization
associated with the acquisitions of Simple Shoes, Inc. and Ugg
Holdings, Inc., would be a greater proportion of earnings before income
taxes for 1999 than the estimates for such items made in the six-month
period ended June 30, 1998, which was the principal cause for the
increase in the tax rate.

Net earnings increased 23.9% to $3,913,000 for the six months ended
June 30, 1999 versus net earnings of $3,159,000 for the six months
ended June 30, 1998, for the reasons discussed above.

Outlook

This "Outlook" section, the last paragraph under "Liquidity and Capital
Resources," the discussion under "Seasonality" and other statements in
this Form 10-Q contain a number of forward-looking statements including
forward-looking statements relating to sales and operating expense
expectations, the potential imposition of certain customs duties, the
potential impact of certain litigation, 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 for a variety of
reasons, including the reasons discussed below.

Sales and Operating Expense Expectations. For the year ending December
31, 1999, the Company expects that net sales for Teva will be greater
than net sales for the previous year, but the Company expects that
increase to be significantly less than that experienced for the
six-month period ended June 30, 1999. The Company expects net sales
under the Ugg product line to increase for the year ending December 31,
1999 compared to last year and expects net sales of the Simple product
line to decrease in 1999 compared to 1998.

Selling, general and administrative expenses for the year ended
December 31, 1998 were 38.5% of net sales. The Company expects selling,
general and administrative expenses, excluding the special charges for
$1,000,000 incurred in the first quarter of 1999, to decrease as a
percentage of sales for the year ended

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DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES

December 31, 1999 compared to 1998 as a result of the Company's
restructuring as well as continued efforts to control operating
expenses.

The foregoing forward-looking statements 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 and the necessity of selling
products at significantly reduced selling prices, all 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 sales occurring
in the first and second quarter of each year and the highest percentage
of Ugg sales occurring in the fourth quarter, while the quarter with
the highest percentage of annual sales for Simple has varied from year
to year. Consequently, the results during these specified periods are
highly dependent on results for these product lines.

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 collect its accounts
receivables; the Company's ability to secure and maintain adequate
financing; the Company's ability to forecast and subsequently achieve
those forecasts; the Company's 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 and
Ugg 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 line. Likewise, unseasonably warm
weather during the fall and winter months could adversely impact demand
for the Company's Ugg product line.

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 certain popular Teva styles are covered by this
anti-dumping legislation. The Company does not believe that these
styles are covered by the legislation and is working with Dutch Customs
to resolve the situation. In the event that Dutch 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 for 1997 of up to approximately $500,000. In
addition, if Dutch 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 could have to cease shipping such styles from China into Europe
in the future or could have to begin to source these styles from
countries not covered by the legislation. As a precautionary measure,
the Company has obtained alternative sourcing for the potentially
impacted products from sources outside of China in an effort to reduce
the potential risk in the future. The Company is unable to predict the
outcome of this matter and the effect, if any, on the Company's results
of operations, financial condition and cash flows.

Year 2000 Issue. The Year 2000 issue results primarily 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

15
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DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES

or at the year 2000. Two other related issues could also lead to
incorrect calculations or failures: i) some systems' programming
assigns special meaning to certain dates, such as 9/9/99, and ii) the
fact that the year 2000 is a leap year. Any of these failures could
cause 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 supply chain and key third party relationships (including
customers, suppliers, transport systems 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 determined that
the version of the software that operated the Company's enterprise
business systems prior to 1999 was not Year 2000 compliant. These
enterprise business systems include the Company's systems for order
entry and processing, allocations, inventory, accounts receivable,
accounts payable and financial reporting. In late 1998, the Company
received the current version of the underlying software, which the
software vendor has stated is Year 2000 compliant. The Company has
completed the Implementation phase of its Year 2000 strategy with
respect to its enterprise business systems. While the Company has
performed successful testing and implementation of this enterprise
business system, the Company expects to continue to perform additional
testing, including integration testing between its IT systems, through
September 30, 1999.

With respect to the various components of the Company's remaining IT
systems, including desktops, networks and several departmental hardware
and software systems, and its non-IT systems, the Company is in varying
stages of the Conversion and Testing phases. The Company currently
expects completion of the Conversion, Testing and Implementation phases
for the majority of the Company's remaining IT systems and non-IT
systems by September 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 Company has requested compliance information from key business
partners and has begun to receive responses. The Company may continue
to add additional business partners to its Year 2000 program as the
Company's Year 2000 readiness plan progresses. The various phases for
this segment 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 $350,000. This estimate is
for outside goods and service providers only. The estimate does not
include the time and costs associated with its in-

16
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DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES

house employees, the amount of which is not currently determinable. 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 the Company's bank facility. 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 June 30, 1999, the Company had incurred Year
2000 compliance costs of approximately $225,000.

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. In addition, the Company is dependent on various parties
which are involved in the transportation and delivery of the Company's
products to its worldwide distribution centers. The failure of one or
more of these suppliers or other parties 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 and
subsequent collections with respect 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; and the breakdown of local and global
infrastructures resulting from the non-compliance of utilities, banking
systems, transportation, government and communications systems.

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 has been completed for certain
areas while the contingency plans for most areas are still in process.
The Company expects to more fully address such contingencies by the end
of the third 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.

Liquidity and Capital Resources

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DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES

The Company's liquidity consists of cash, trade accounts receivable,
inventories and a revolving credit facility. At June 30, 1999, working
capital was $43,070,000, including $4,819,000 of cash. Cash provided by
operating activities aggregated $14,176,000 for the six months ended
June 30, 1999. Trade accounts receivable increased 1.9% from December
31, 1998 as a result of normal seasonality, the high volume of net
sales during the quarter and an increase in the average collection
periods. Inventories decreased 30.6% since December 31, 1998 primarily
as a result of normal seasonality.

On January 21, 1999, the Company replaced the existing credit facility
with a new revolving credit facility (the "Facility") with a new
lender. The Facility provides a maximum availability of $50,000,000,
subject to a borrowing base of up to 85% of eligible accounts
receivables, as defined, and 65% of eligible inventory, as defined. Up
to $15,000,000 of borrowings may be in the form of letters of credit.
The Facility bears interest at the lender's prime rate (7.75% at June
30, 1999), or at the Company's election at an adjusted Eurodollar rate
plus 2%. The Facility is secured by substantially all assets of the
Company. The agreement underlying the Facility includes a tangible net
worth covenant. The Company was in compliance with the covenant at June
30, 1999. As a result of the Company's signing of the new Teva license
agreement the expiration of the Facility has been extended through
January 21, 2002. On June 30, 1999, the Company had outstanding
borrowings under the Facility of $11,874,000, outstanding letters of
credit aggregating $4,535,000 and borrowing availability of $3,812,000.

Under the terms of the Facility, if the Company terminates the
arrangement prior to the expiration date of the Facility, the Company
may be required to pay the lender an early termination fee ranging
between 1% and 3% of the Facility's commitment amount, depending upon
when such termination occurs.

The Company has an agreement with a supplier, Prosperous Dragon, to
provide financing for the supplier's operations, of which $2,422,000
was outstanding at June 30, 1999 ($922,000 net of allowance). The note
is secured by all assets of the supplier and bears interest at the
prime rate (7.75% at June 30, 1999) plus 1%.

Capital expenditures totaled $758,000 for the six months ended June 30,
1999. The Company's capital expenditures related primarily to molds
purchased for use in the production process as well as various computer
hardware and software purchases. The Company currently has no material
future commitments for capital expenditures.

The Company's Board of Directors has authorized the repurchase of up to
2,200,000 shares of common stock under a stock repurchase program. 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 as well as the Company's cash availability. 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 1998 for cash
consideration of $2,528,000. No shares were repurchased during the
six-month period ended June 30, 1999. At June 30, 1999, approximately
1,227,000 shares remained available for repurchase under the program.

On June 7, 1999, the Company signed a new license agreement for Teva.
Under the new license agreement, the Company receives the exclusive
worldwide rights for the manufacture and distribution of Teva Footwear
through 2004. The license agreement is automatically renewed through
2008 and through 2011 under two renewal options, provided that minimum
annual sales levels are achieved. Apparel and other non-footwear
products are not covered by the new license agreement. However, the
Company intends to continue to deliver its Spring 2000 Teva apparel
line under the previous apparel license agreement. Following the Spring
2000 season, the Company intends to transition out of Teva apparel and
is working with the licensor in this regard. In connection with this
license agreement, the Company has agreed to pay the licensor a
licensing fee of $1,000,000 and issue the licensor 428,743 shares of
previously unissued common stock, subject to various contractual and
other holding period requirements. In addition, the Company entered
into an agreement with the licensor which provides the Company with an
option to buy Teva, including all worldwide rights. The option is
exercisable during the period from January 1, 2000 to December 31, 2001
or during the period from January 1, 2006 to December 31, 2008. The
option prices are based on a formula tied to sales of Teva products.
The exercise of either option will require a significant amount of
additional financing. There are no assurances that the additional
financing will be available.

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DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES

The Company believes that internally generated funds, the available
borrowings under its existing credit facility, and the cash on hand
will provide sufficient liquidity to enable it to meet its current and
foreseeable working capital requirements. However, 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.

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 sales occurring in the first and second quarter of
each year and the highest percentage of Ugg sales occurring in the
fourth quarter, while the quarter with the highest percentage of annual
sales for Simple has varied from year to year.

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 its various
product lines, among other risks and uncertainties. See also the
discussion regarding forward-looking statements under "Outlook".

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 8 to the Condensed
Consolidated Financial Statements.

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DECKERS OUTDOOR CORPORATION
AND SUBSIDIARIES

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

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.

On May 17, 1999, the Company held its Annual Meeting of Stockholders.
At the meeting, Douglas B. Otto and Gene E. Burleson were each
re-elected as Class III directors until the Annual Meeting of
Stockholders to be held in 2002, until such director's successor has
been duly elected and qualified or until such director has otherwise
ceased to serve as a director. For Douglas B. Otto, 7,904,911 votes
were cast in favor and 141,127 votes were withheld. For Gene E.
Burleson, 7,908,686 votes were cast in favor and 137,352 votes were
withheld. There were no broker non-votes.

The stockholders also ratified the selection of KPMG LLP as the
Company's independent auditors. 8,022,726 votes were cast in favor of
the ratification; 13,522 were voted against; and 9,790 abstained.
There were no broker non-votes.

Item 5. Other Information. Not applicable

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits

10.41* Teva License Agreement, By and Between Mark Thatcher
and Deckers Outdoor Corporation, dated June 7, 1999.

10.42* Intellectual Property Option Agreement, By and
Between Mark Thatcher, an Individual, and Deckers
Outdoor Corporation, a Delaware Corporation, dated
June 7, 1999.

(b) Reports on Form 8-K. None

* Certain information in this Exhibit was omitted and filed
separately with the Securities and Exchange Commission
pursuant to a confidential treatment request as to the omitted
portions of the Exhibit.

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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: August 12, 1999 /s/ M. Scott Ash
----------------
M. Scott Ash, Chief Financial Officer

(Duly Authorized Officer and Principal
Financial and Accounting Officer)

<PAGE> 1
EXHIBIT 10.41

TEVA
LICENSE AGREEMENT

BY AND BETWEEN

MARK THATCHER

AND

DECKERS OUTDOOR CORPORATION

Information contained in sections 4.3A, 4.6, 4.7B, 4.8, 5.2, 5.3, 5.4 and 5.5 of
this Agreement has been omitted pursuant to a request for confidential treatment
and has been filed separately with the Securities and Exchange Commission.

<PAGE> 2

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 1: DEFINITIONS...................................................................6
1.1. "Advertising".................................................................6
1.2. "Affiliates of Licensee"......................................................6
1.3. "Agreement"...................................................................6
1.4. "Annual Period"...............................................................6
1.5. "Archival Collection".........................................................7
1.6. "Change of Control"...........................................................7
1.7. "Close Outs" .................................................................7
1.8. "Collection"..................................................................7
1.9. "Competitive Activity"........................................................7
1.10. "Competitor"..................................................................8
1.11. "Concept Store"...............................................................8
1.12. "Copyrights"..................................................................8
1.13. "Costs".......................................................................8
1.14. "Distribution Channels".......................................................8
1.15. "Effective Date"..............................................................8
1.16. "Force Majeure Event".........................................................8
1.17. "Gross Sales".................................................................8
1.18. "Guaranteed Minimum Royalty"..................................................9
1.19. "Intellectual Property".......................................................9
1.20. "Inventory"...................................................................9
1.21. "Know-how"....................................................................9
1.23. "Licensed Marks"..............................................................9
1.24. "Licensed Patents"............................................................9
1.25. "Licensed Products"...........................................................9
1.26. "Licensee"....................................................................9
1.27. "Licensee Confidential Information"...........................................9
1.28. "Licensor"...................................................................10
1.29. "Licensor Approval"..........................................................10
1.30. "Licensor Confidential Information"..........................................10
1.31. "Licensor's Trade Dress".....................................................10
1.32. "Licensor's Trademark".......................................................10
1.33. "Line".......................................................................11
1.34. "Marketing Program"..........................................................11
1.35. "Marketing Tech Rep".........................................................11
1.36. "Minimum Net Sales"..........................................................11
1.37. "Model"......................................................................11
</TABLE>

<PAGE> 3

<TABLE>
<S> <C> <C>
1.38. "Net Sales"..................................................................11
1.39. "Packaging"..................................................................11
1.40. "Resultant Intellectual Property"............................................11
1.41. "Royalty"....................................................................11
1.42. "Sandal".....................................................................11
1.43. "Seconds"....................................................................12
1.44. "Specifications".............................................................12
1.45. "Technology".................................................................12
1.46. "Term".......................................................................12
1.47. "Territory"..................................................................12
1.48. "Transfer"...................................................................12
1.49. "Unit".......................................................................12
1.50. "Work".......................................................................12

ARTICLE 2: LICENSE GRANTS..................................................................12
2.1. Grant of Patent License......................................................12
2.2. Grant of Trademark License...................................................13
2.3. Grant of Trade Dress License.................................................13
2.4. Grant of Technology and Intellectual Property License........................13
2.5. License Term.................................................................13
2.6. Licensor's Ownership.........................................................13
2.7. Retained Rights..............................................................14
2.8. Newly Developed Products by Licensor.........................................14
2.9. Newly Developed Products by Licensee.........................................14
2.10. Best Efforts.................................................................14
2.11. Licensor's Mail Order Business, Concept Stores, and Internet Business........14
2.12. Licensee's Duty to Not Authorize Third Party Use of Licensor's Trademark or
Licensor's Intellectual Property.............................................15
2.13. Licensee to Mark All Licensed Products with Licensor's Trademark.............15
2.14. Licensee to Mark Patented Licensed Products with Patent Numbers..............15
2.15. Sublicensing.................................................................15
2.16. Non-Footwear Consultation....................................................15

ARTICLE 3: QUALITY AND STANDARDS...........................................................16
3.1. Goodwill Associated With Licensor's Trademark and Trade Dress................16
3.2. Licensor's Control Over Quality..............................................16
3.3. High Standards of the Licensed Products......................................16
3.4. Licensee's Required QA/QC Submissions........................................17
3.5. Approval and Control over Products, Quality, and Manufacturing...............17
3.6. Licensor's Right to Remove Approval for Previously Approved Product..........18
3.7. Changes......................................................................18
</TABLE>

<PAGE> 4

<TABLE>
<S> <C> <C>
3.8. Licensor's Control over Product Components and Licensee's Duty to Notify
Licensor of Any Changes to Components........................................19
3.9. Inspection of Licensed Product Records and Licensee's Duty to Provide
Monthly Samples of Product...................................................19
3.10. Right of Inspections of Factory and Offices..................................19
3.11. Monthly Reports Showing Number of Units Returned.............................20
3.12. Distribution.................................................................20
3.13. Disposal of Seconds and Close Outs..........................................21
3.14. Unauthorized Resale..........................................................21
3.15. Identification Number on Licensed Products...................................21
3.16. Limitation on Selling Competing Products.....................................22
3.17. Licensee to Adequately Finance Operations....................................22
3.18. Licensee to Maintain Adequate Inventory......................................22
3.19. Pricing......................................................................22
3.20. Sales and Deliveries.........................................................22
3.21. Purpose of Quality Control...................................................23

ARTICLE 4: SALES AND MARKETING.............................................................23
4.1. Sales/Marketing and Production Plans.........................................23
4.2. Sales Reports................................................................23
4.3. Licensor's Right to Purchase Licensed Products...............................24
4.4. Reporting Retail Sell-through Information....................................24
4.5. Resale of Components.........................................................24
4.6. Research and Development.....................................................25
4.7. Advertising..................................................................25
4.8. Advertising Expenditure and Budget...........................................25
4.9. Approval of Packaging, Labeling..............................................26
4.10. Showroom.....................................................................26

ARTICLE 5: LICENSE FEES AND ACCOUNTING.....................................................27
5.1. Initial Payment..............................................................27
5.2. Amount of Royalty............................................................27
5.3. Guaranteed Minimum Royalties.................................................28
5.4. Minimum Net Sales of Licensed Product........................................28
5.5. Renewal Minimum Net Sales....................................................29
5.6. Mulligan Provision for Minimum Guaranteed Sales..............................29
5.7. Method of Paying Royalties to Licensor.......................................29
5.8. Penalty on Delinquent Payments...............................................29
5.9. Accounting...................................................................29
5.10. Licensor's Authority to Audit Licensee.......................................30
5.11. Financial Statements.........................................................30
</TABLE>

<PAGE> 5

<TABLE>
<S> <C> <C>
ARTICLE 6: REPRESENTATIONS AND WARRANTIES..................................................31
6.1. Express Warranties...........................................................31
6.2. Licensee's Obligations upon Breach of Warranty...............................31

ARTICLE 7: TERM............................................................................32
7.1. Term.........................................................................32

ARTICLE 8: INSOLVENCY......................................................................32
8.1. Effect of Proceeding in Bankruptcy, Etc......................................32
8.2. Rights Granted Are Personal to Licensee......................................32
8.3. Financing Consent............................................................32
8.4. Trustee in Bankruptcy........................................................33

ARTICLE 9: TERMINATION.....................................................................33
9.1. Termination With Notice and 10 Day Opportunity to Cure.......................33
9.2. Termination with Notice and 30-Day Opportunity to Cure.......................34
9.3. Effect of Termination........................................................34
9.4. Mistaken Termination for Cause...............................................36
9.5. Force Majeure................................................................37
9.6. Inventory Upon Termination...................................................37
9.7. Post-Termination Transition and Freedom to License...........................37
9.8. Equitable Relief.............................................................38
9.9. Termination Without Prejudice................................................38
9.10. Waiver.......................................................................38
9.11. Noncompetition by Licensee...................................................38

ARTICLE 10: INDEMNIFICATION................................................................38
10.1. Licensee.....................................................................38
10.2. Indemnity Against Liens......................................................39
10.3. Third Party Rights to Technology.............................................39
10.4. Independent Covenants........................................................39

ARTICLE 11: INSURANCE......................................................................40
11.1. Insurance to Be Obtained by Licensee.........................................40

ARTICLE 12: OWNERSHIP OF INTELLECTUAL PROPERTY AND TECHNOLOGY..............................41
12.1. Ownership of Copyright.......................................................41
12.2. Rights to the Trademark and Other Intellectual Property......................41
12.3. Licensee's Use of Trademarks and Copyrights Inures to Licensor's Benefit.....41
12.4. Licensee to Perform a Clearance Search of All Trademarks Used in
Connection with Licensed Products...........................................41
12.5. Licensee Shall Not Attack Licensor's Title in Intellectual Property..........42
12.6. Molds and Designs Used Only on Licensed Products.............................42
</TABLE>

<PAGE> 6

<TABLE>
<S> <C> <C>
12.7. Assignment of Rights to Resultant Intellectual Property......................42
12.8. Licensee's Duty to Preserve Resultant Intellectual Property..................42
12.9. Licensor's Rights in Licensee's Technology...................................43

ARTICLE 13: INFRINGEMENT OR DILUTION.......................................................43
13.1. Notice of Infringement.......................................................43
13.2. Licensor Control Over Litigation.............................................43

ARTICLE 14: CONFIDENTIALITY................................................................43
14.1. Non-disclosure and Use by Licensee...........................................43
14.2. Delivery by Licensee of Confidential Information.............................44
14.3. Secrecy......................................................................44

ARTICLE 15: OTHER PROVISIONS...............................................................44
15.1. Severability.................................................................44
15.2. Non-waiver...................................................................44
15.3. Permission Needed to Assign or Sublicense....................................44
15.4. Form of Notice to Parties....................................................44
15.5. Notice of Actions Being Brought..............................................45
15.6. Precedence...................................................................46
15.7. Survival of Obligations......................................................46
15.8. Integration..................................................................46
15.9. Arbitration..................................................................46
15.10. Jurisdiction.................................................................46
15.11. Applicable Law...............................................................46
15.12. Responsibility for Taxes.....................................................47
15.13. Headings.....................................................................47
15.14. Remedies Cumulative..........................................................47
15.15. Independent Contractor Status................................................47
15.16. Rights of Licensor's Successors in Interest..................................47
15.17. Construction.................................................................47
15.18. Limitation on Rights of Others...............................................47
15.19. Limitations on Special Damages...............................................47
15.20. Counterparts.................................................................48

Schedule 1.9.
Schedule 1.10.
Schedule 1.12.
Schedule 1.23.
Schedule 2.4.
Schedule 3.4.
</TABLE>

<PAGE> 7

TEVA LICENSE AGREEMENT

This License Agreement (the "Agreement") is made this 7th day of June,
1999, by and between MARK THATCHER, an individual, residing at 1245 Cochran
Avenue in Flagstaff, Arizona, 86001 (the "Licensor"), and Deckers Outdoor
Corporation, a Delaware corporation, having its main place of business at 495-A
South Fairview Avenue, Goleta, California 93117 (the "Licensee").

WHEREAS, the Licensor and Licensee intend to enter in a License
Agreement, such Licensee is granted certain rights in the manufacture,
distribution, sale, and advertising of Licensed Products (as hereinafter
defined) under the Teva(R) brand name.

WHEREAS, Licensor and Licensee desire to manufacture, distribute and
sell the Licensed Products bearing the Teva(R) brand name in a manner consistent
with Teva core values: authenticity, utility and promoting an outdoor lifestyle.

NOW, THEREFORE, to effectuate the foregoing objectives of the parties,
the Licensee and Licensor agree to the following satisfactory terms and
conditions.

ARTICLE 1: DEFINITIONS

The following definition of terms applies in this Agreement:

1.1. "Advertising" shall mean all mediums of promoting Licensed Products
to consumers and the trade including without limitation, cooperative
advertising, catalogs, point of purchase items, web sites, event sponsorship,
product giveaways and promotions, graphics, marketing tech reps and their
expenses, agency and other similar advertising and promotional costs.
Advertising shall not include activities relating to sales, which activities
include trade shows, sales meetings, sales personnel, and the like and similar
non-advertising costs.

1.2. "Affiliates of Licensee" shall mean all persons and business
entities, whether corporations, partnerships, joint ventures or otherwise, which
now or hereafter control, or are owned or controlled, directly or indirectly by
Licensee, are under common control by Licensee, or work in association with
Licensee.

1.3. "Agreement" shall mean this Agreement.

1.4. "Annual Period" shall mean one of the following: (1) the period
commencing January 1, 2000 and ending December 31, 2000 referred to as the
"First Annual Period," or (2) each subsequent twelve (12) month period during
the term, said twelve month period beginning on January 1 and ending on December
31.

<PAGE> 8

1.5. "Archival Collection" shall mean the collection of products which
Licensee shall assemble, collect and ship to Licensor, which collection shall
include at least two (2) samples of every model (men's size 9; woman's size 7)
and at least one sample of every color of products sold hereunder.

1.6. "Change of Control"shall be deemed to have taken place at the time
after the date hereof:

(a) when any "person" or "group" of persons (as such terms are
used in Section 13 and 14 of the Securities Exchange Act of 1934, as amended
from time to time (the "Exchange Act")), other than Douglas Otto, the Licensee
or any employee benefit plan sponsored by the Corporation, becomes the
"beneficial owner" (as such term is used in Section 13 of the Exchange Act) of
32.5% or more of the total number of the Licensee's common shares at the time
outstanding; or

(b) of the approval by the vote of the Licensee's stockholders
holding at least 50% (or such greater percentage as may be required by the
Certificate of Incorporation or By-Laws of the Corporation or by law) of the
voting stock of the Corporation of any merger, consolidation, sale of assets,
liquidation or reorganization involving the Licensee.

1.7. "Close Outs" shall mean Units of a particular Model of Licensed
Products in existence or in the manufacturing process at the time such Model is
discontinued, or any product sold at a price Twenty Percent (20%) less than the
original wholesale price, provided that in no event shall the aggregate
close-outs in any year exceed Fifteen Percent (15%) of gross sales without
Licensor's prior written consent.

1.8. "Collection" shall mean Models that are grouped together for sale,
display, advertisement or the like.

1.9. "Competitive Activity" means engaging in any of the following
activities in the Territory, whether directly or indirectly (including, without
limitation, through licensing agreements or arrangements), (i) manufacturing,
marketing, selling or distributing any Sandal, (ii) having any employee,
director or designee serving as a director of any Competitor; (iii) either
Controlling any Competitor or owning any equity or debt interests in any
Competitor (other than equity or debt interests which are publicly traded and do
not exceed 5% of any class of securities of such Competitor then outstanding on
a fully diluted basis) (it being understood that, if any such interests in any
Competitor are owned by an entity in which a person owns an equity interest, a
portion of the interests in such Competitor owned by such entity shall be
attributed to the person, determined by applying the percentage of the equity
interest in such entity owned by the person to the interests in such Competitor
owned by such entity); (iv) providing services

<PAGE> 9

relating to Sandals to any Competitor, or entering into technology or trademark
license agreements relating to such products with any Competitor; or (v)
developing any Sandal except under this Agreement. Notwithstanding the
foregoing, Competitive Activity shall not include those activities of Licensee
identified in Schedule 1.9.

1.10. "Competitor" shall mean any person that, directly or indirectly
through any equity interest in an entity, manufactures, markets, sells or
distributes any Sandal in the Territory. Notwithstanding the foregoing, for the
purposes of this Agreement, Competitor shall not include the relationships
identified in Schedule 1.10.

1.11. "Concept Store" shall mean retail outlet used to display the
entire line of Licensed Products in a fashion to celebrate the history and
lifestyle of outdoor enthusiasts and the Teva brand.

1.12. "Copyrights" shall mean any common law copyright, or any copyright
that has been applied for or registered or will be applied for or registered in
connection with the Licensed Products or other products manufactured by Licensee
for Licensor in the past, including without limitation certain registered
copyrights provided in Schedule 1.12.

1.13. "Costs" shall mean out-of-pocket costs and expenses, including
without limitation, attorneys' fees and disbursements, related litigation
expenses, and court costs incurred in pursuing legal rights or enforcing legal
obligations.

1.14. "Distribution Channels" shall mean the customers and the channels
of trade in the Territory in which the Licensee shall sell or distribute for
sale each Licensed Product, all of which shall be approved by Licensor as
described herein.

1.15. "Effective Date" shall mean the date on which the Agreement goes
into force.

1.16. "Force Majeure Event" shall mean any natural disaster, decrees of
governmental bodies and actions such as storms, floods, other acts of God,
fires, explosions, riots, war or civil disturbances, strikes or other labor
unrest, embargoes and other governmental actions or regulations which prevent or
prohibit either party from performing the obligations under this Agreement.

1.17. "Gross Sales" shall mean the invoiced amount of the Licensed
Products shipped by the Licensee before any deductions for discounts, returns,
insurance and freight.

1.18. "Guaranteed Minimum Royalty" shall mean the minimum Royalty payment
in each Annual Period as set forth in Section 5.3 of this Agreement.

<PAGE> 10

1.19. "Intellectual Property" shall mean all other patents, Copyrights,
trademarks, trade secrets, Know-how and other proprietary rights relating to the
Teva(R) brand but not including the Licensed Marks, Licensed Patents and/or
Licensor's Trade Dress.

1.20. "Inventory" shall mean Licensee's inventory of finished Licensed
Products and Licensed Products that are in production.

1.21. "Know-how" shall mean information that Licensor has provided or
shall provide to Licensee to enable Licensee to manufacture Licensed Products.
Know-how shall also mean all information relating to the design, production,
distribution, marketing or sale of Licensed Products that Licensee has obtained
in the past or shall obtain after entering into the Agreement, regardless of
whether Licensor provided such information.

1.22. "Licensed Intellectual Property" shall mean collectively, all
Copyrights, Licensed Marks, Intellectual Property, Know-how, Licensed Patents,
Licensor's Trade Dress, Licensor's Trademark, Resultant Intellectual Property
and Technology.

1.23. "Licensed Marks" shall mean any common law trademark, or any
trademark for which registration has been applied for or will be applied for or
registered trademarks that are used in connection with the sale of Licensed
Products, including without limitation Licensor's Trademark and certain marks
listed in Schedule 1.23. Such trademarks are Licensor's property and constitute
the trademarks for which Licensee is granted certain rights under this License.

1.24. "Licensed Patents" shall mean U.S. Patent Nos. 4,584,782 and
4,793,075 and their foreign counterparts.

1.25. "Licensed Products" shall mean any footwear item that is covered
by or incorporates any feature of the Licensed Intellectual Property and sold by
the Licensee pursuant to this Agreement or otherwise.

1.26. "Licensee" shall mean Deckers Outdoor Corporation or a subsidiary
of Deckers Outdoor Corporation.

1.27. "Licensee Confidential Information" shall mean any and all
information which concerns or relates to the business of the Licensee and is,
for any reason, identified or otherwise treated as confidential by the Licensee,
except such information and Technology which the Licensor can prove was: (a) in
the public domain prior to the date of this Agreement; (b) became publicly known
after date of this Agreement through no fault of Licensor; (c) was known and
documented by Licensor prior to the start date of this Agreement, and with
respect to which Licensor was not and is not under any obligation of
confidentiality; (d) was disclosed to Licensor, without restriction on
disclosure or use, by a third party which is not under any obligation of
confidentiality; or (e) constitutes Licensed Intellectual Property.

<PAGE> 11

1.28. "Licensor" shall mean Mark Thatcher.

1.29. "Licensor Approval" shall mean the written approval, which
approval shall not be unreasonably withheld, of Licensor prior to the
commencement of the requested action. The time permitted for Licensor to submit
its reasonable approval will be governed by the applicable provision of this
Agreement.

1.30. "Licensor Confidential Information" shall mean any and all
information including the Licensed Intellectual Property which concerns or
relates to any aspect of the Licensed Products or the business of the Licensor
and is, for any reason, identified or otherwise treated as confidential by
Licensor, except such information and Technology which Licensee can prove was:
(a) in the public domain prior to the date of this Agreement; (b) became
publicly known after date of this Agreement through no fault of Licensee; (c)
was known and documented by Licensee prior to the start date of this Agreement,
and with respect to which Licensee was not and is not under any obligation of
confidentiality; or (d) was disclosed to Licensee, without restriction on
disclosure or use, by a third party which is not under any obligation of
confidentiality.

1.31. "Licensor's Trade Dress" shall mean the inherently distinctive
features of any product sold hereunder, or any feature or combination of
features of any product sold hereunder which has acquired or acquires
distinctiveness during the term hereof. Without limiting the foregoing such
trade dress includes the distinctive appearance of certain sandals which
include, but are not necessarily limited to, a general strap configuration
including heel strap, instep strap, toe strap, and lateral strap components
(wherein the term "lateral strap" means a strap which in more than one place
along the outer side of the foot connects to or intersects one or more sandal
components), or a sandal with such a general strap configuration which includes
a rectangular label located proximate to the intersection of the ankle strap and
the lateral strap, or a sandal with such a general strap configuration which
includes a rectangular label located on the back of the heel strap, or a sandal
with such a general strap configuration which includes colored weaves located
proximate to the top surfaces of any of the sandal's straps, or any combination
thereof.

1.32. "Licensor's Trademark" shall mean "Teva" or the hand logo in any
style of presentation or as used in connection with any other formative or
design.

1.33. "Line" shall mean product line and includes groups of Collections
and other Licensed Products that are offered for sale at the same time.

1.34. "Marketing Program" shall mean the program established by Licensee
in connection with which Licensee sells products hereunder.

<PAGE> 12

1.35. "Marketing Tech Rep" shall mean personnel employed as regional
traveling marketing reps, whose job it is to elevate the prestige of the brand
by (a) promotional sponsorship and productive giveaways to opinion leaders, (b)
sponsoring or participating in promotional events, (c) promotion of new
technical products, and (d) store support for key technical dealers.

1.36. "Minimum Net Sales" shall mean the minimum Net Sales of Licensed
Products during each Annual Period as set forth in Section 5.4.

1.37. "Model" shall mean a particular style of Licensed Products
(regardless of year).

1.38. "Net Sales" shall mean the Gross Sales Price of Licensed Products
shipped to and paid by Licensee's direct customers less returns actually allowed
and actually received by Licensee, price allowances, mark downs and chargebacks,
customary and usual trade discounts granted by the Licensee, freight, and
insurance. The maximum bad debt allowance allowed pursuant to this Section 1.38
shall not exceed the lesser of actual bad debt allowance or 0.5% of Net Sales
per annum. Taxes of Net Sales such as value added taxes, sales taxes or their
equivalent shall be deducted and separately listed. No other deductions shall be
taken.

1.39. "Packaging" shall mean labels, tags, packaging material, business
supplies, advertising and promotional materials, utilized on containers and
displays or in connection with Licensed Products.

1.40. "Resultant Intellectual Property" shall mean any and all
Technology or Intellectual Property relating to the Licensed Products that is
conceived, created, or first made, used or reduced to practice (a) under this
Agreement, and (b) in connection with equipment, products or information
supplied and services for which Licensee has been engaged by Licensor, or which
are otherwise performed on behalf of Licensor by Licensee.

1.41. "Royalty" shall mean the percentage amount of Net Sales Licensee
shall pay to Licensor for all sales of Licensed Products.

1.42. "Sandal" shall mean a shoe consisting of a sole fastened to the
foot by thongs or straps. In addition, the term Sandal shall include any
Sandal-like product.

1.43. "Seconds" shall mean damaged, imperfect, non-first quality or
defective Licensed Products.

1.44. "Specifications" shall mean the specifications for Licensed
Products, as they may be from time to time modified, which Specifications shall
be subject to Licensor Approval.

<PAGE> 13

1.45. "Technology" shall mean conceptions, innovations, inventions,
processes, machines, manufactures, compositions of matter, improvements,
designs, data and information, whether or not patentable, copyrightable or
susceptible to any other form of protection relating to the Licensed Products.

1.46. "Term" shall mean the time period for which this License shall be
effective, as set forth in Article 7.

1.47. "Territory" shall mean the geographic area in which Licensee shall
have the right to export to or sell the Licensed Products, which shall be
worldwide.

1.48. "Transfer" shall mean to sell, assign and/or otherwise alienate
ownership or control.

1.49. "Unit" shall mean a single Licensed Product.

1.50. "Work" means all labor, equipment, materials, methods, engineering
and services required by or reasonably inferable from this Agreement, and the
carrying out of all obligations imposed by this Agreement.

1.51. "Domestic" shall mean North America.

1.52. "International" shall mean all parts of the world other than North
America.

ARTICLE 2: LICENSE GRANTS

2.1. Grant of Patent License. Subject to the terms and provisions
hereof, Licensor hereby grants to Licensee an exclusive, worldwide,
non-transferable, sublicensable, non-assignable license, right and privilege
under the Licensed Patents during the term thereof to make, have made, use,
sell, offer to sell and promote Licensed Products embodying the inventions
covered thereby in the Territory. Licensee acknowledges that the Licensed
Patents may expire during the term of this Agreement, and Licensee agrees that
royalties paid under this Agreement shall not be attributed to such expired
patent rights.

2.2. Grant of Trademark License. Subject to the terms and provisions
hereof, Licensor hereby grants to Licensee an exclusive, worldwide,
non-transferable, sublicensable, non-assignable license, right and privilege to
use the Licensed Marks to make, have made, use, sell, offer to sell and promote,
Licensed Products in the Territory.

2.3. Grant of Trade Dress License. Subject to the terms and provisions
hereof, Licensor hereby grants to Licensee an exclusive, worldwide,
non-transferable, sublicensable, non-assignable license, right and privilege to
use the Licensor's Trade Dress to make, have, made, use, sell, offer to sell and
promote, Licensed Products in the Territory.

<PAGE> 14

2.4. Grant of Technology and Intellectual Property License. All
Technology and Intellectual Property, including Resultant Intellectual Property,
which exists or is hereafter developed or acquired and is used or embodied in
any Licensed Product is and shall be the property of Licensor, except that which
is identified on Schedule 2.4. Licensee hereby assigns, or agrees to assign to
Licensor any interest Licensee has or may have therein, and Licensee agrees to
reasonably assist Licensor in perfecting any interest therein and to not take
any action inconsistent with or to impair Licensor's ownership thereof.
Notwithstanding the foregoing, subject to the terms and provisions hereof,
Licensor hereby grants to Licensee an exclusive, worldwide, non-transferrable,
sublicensable, non-assignable license, right and privilege to use the
Technology, Resultant Intellectual Property and Intellectual Property to make,
have made, use, sell, offer to sell and promote, Licensed Products in the
Territory.

2.5. License Term. All licenses granted in this Article 2 shall be for
the term of this Agreement, unless earlier terminated as set forth herein, or if
such rights cease to be in full force and effect. No license shall continue
beyond the duration of any such right.

2.6. Licensor's Ownership. The rights and licenses hereby granted to
Licensee under this Agreement shall in no way affect Licensor's exclusive
ownership in and to said Licensed Patents, Licensed Marks, Licensor's Trade
Dress, Technology, Intellectual Property, Copyrights and Resultant Intellectual
Property and Licensee acknowledges that Licensor is the sole owner of such
rights except those listed on Schedule 2.4. Upon termination of this Agreement,
the right of Licensee to use such rights shall terminate and Licensee shall
immediately cease using the same, except those listed on Schedule 2.4. Nothing
contained in this Agreement shall be construed as an assignment or grant to
Licensee of any right, title or interest in or to the Intellectual Property,
except that which is identified on Schedule 2.4. it being understood and
acknowledged by Licensee that all right relating thereto are reserved to the
Licensor except for the privileges specifically granted to Licensee in this
Agreement.

2.7. Retained Rights. Licensee understands and agrees that Licensor may
manufacture and sell, or authorize third parties to manufacture and sell,
non-Licensed Products of any and all types and descriptions in or outside the
Territory. In addition, no license is granted hereunder for the manufacture,
sale or distribution of the Licensed Products for publicity purposes, other than
publicity of the Licensed Products, in combination sales, premiums or giveaways,
or to disposition of under or in connection with similar methods of
merchandising, without Licensor Approval. Licensor reserves the right to sell
Licensed Products as set forth in Section 2.11.

2.8. Newly Developed Products by Licensor. The licenses herein granted
apply to any Models developed by the Licensor after the date of this Agreement
which are not now covered by the Licensed Patents, and any such new Models shall
become a

<PAGE> 15

Licensed Product, at the election of the Licensee, such election not to be
unreasonably withheld.

2.9. Newly Developed Products by Licensee. Licensed Products shall also
include any new Sandal or new product developed by Licensee bearing Licensor's
Trademark. As to newly developed products developed by Licensee, written notice
shall be provided by Licensee to Licensor within 60 days of development. In the
event Licensor determines that such new developed product does not enhance the
brand and shall therefore not become a Licensed Product, Licensor shall notify
Licensee of such rejection within 60 days after receipt of written notice. If
Licensor rejects Licensee's new developed product, Licensee shall refrain from
distribution of such product to any retailer selling Licensed Product.

2.10. Best Efforts. At all times while this Agreement is in effect,
Licensee shall use its reasonable best efforts to exploit the License granted
hereunder throughout the Territory, including but not limited to, selling a
sufficiently representative quantity of the Licensed Products; offering for sale
the Licensed Product in a fashion so that they shall be sold to the consumer on
a timely basis; maintaining a sales force sufficient in number and appropriate
training, skill or experience to provide effective distribution throughout all
areas of the Territory; and cooperating with Licensor's marketing,
merchandising, sales and anti-counterfeiting programs. Licensee and Licensor
shall jointly develop a marketing plan for each Annual Period relating to
various geographical areas and countries within the Territory to be targeted for
focused sales efforts during such Annual Period. If Licensee does not use its
reasonable best efforts to exploit the License granted hereunder in accordance
with such plan, then Licensor may, at its election, make the rights granted
hereunder with respect to such area or country become non-exclusive for the
remainder of the Term of this Agreement. In such event Licensee shall sell
Licensed Product to any new licensee in such area or country at Licensee's
current wholesale most favorable quantity price.

2.11. Licensor's Mail Order Business, Concept Stores, and Internet
Business. Licensor may sell Licensed Products as well as other products not
within the scope of this Agreement only directly to consumers through its mail
order business, Concept stores and Internet business. The Licensee will supply
Licensor with Licensed Products for sale in the mail order business, concept
stores, and Internet business as provided in this Agreement. Licensee shall
provide to Licensor, at no charge to Licensor, catalogue designs and mock-ups
and product images for Licensor's use. Licensor may, but need not, purchase
finished catalogues from Licensee at Licensee's cost.

2.12. Licensee's Duty to Not Authorize Third Party Use of Licensor's
Trademark or Licensor's Intellectual Property. Licensee shall not use or permit
or authorize another person or entity to use the word "Teva(R)" or any other
marks associated with "Teva(R)" as part of a corporate name or tradename or
otherwise in commerce without the prior written consent of Licensor. Licensee
shall not permit or authorize use of the Licensed Marks or Licensor's Trademark,
Licensed Patents, Licensor's Trade Dress or other Technology or Intellectual
Property hereby licensed in such a way as to

<PAGE> 16

give the impression that such, or any modifications thereof, are the property of
the Licensee.

2.13. Licensee to Mark All Licensed Products with Licensor's Trademark.
The Licensee shall mark, directly, by hang tag or identify as otherwise
indicated by Licensor, all Licensed Products and prototypes thereof with the
Licensor's Trademark, unless otherwise specified by the Licensor; no other
marks, except Licensed Marks, approved by Licensor shall be applied to the
Licensed Products without Licensor Approval. Licensee shall bear the burden of
costs of complying with this provision so long as such costs are reasonable
within the industry.

2.14. Licensee to Mark Patented Licensed Products with Patent Numbers.
Unless otherwise specified by Licensor, Licensee shall mark, directly and by
label or hang tag or as otherwise directed by Licensor, all patented Licensed
Products with the applicable patent number. Licensee shall bear the burden of
cost for complying with this provision so long as such costs are reasonable
within the industry.

2.15. Sublicensing. Licensee has the right, subject to Licensor Approval
to sublicense its rights covered by this Agreement. Any such license shall not
reduce or remove any obligation owed to the Licensor set forth in this
Agreement. The form of any such sublicense agreement shall receive Licensor
Approval which shall have appropriate provisions to protect Licensor's interests
in this Agreement and in the Licensed Intellectual Property.

2.16. Non-Footwear Consultation. Licensor agrees to consult with
Licensee on the selection of other entities that may be granted a license to
manufacture, distribute, and/or sell non-footwear products utilizing Licensed
Intellectual Property, including, but not limited to, Licensor's Trademark.

Additionally, Licensor agrees to consider utilization of Licensee's
non-domestic business operations as vehicles for potential manufacturing,
marketing or sales of non-footwear products utilizing the Licensed Intellectual
Property including, but not limited to, Licensor's Trademark.

ARTICLE 3: QUALITY AND STANDARDS

3.1. Goodwill Associated With Licensor's Trademark and Trade Dress.
Licensee acknowledges that Licensor has valuable goodwill and other rights in
the Licensed Marks and Licensor's Trade Dress. Licensee agrees that it shall not
at any time do or cause to be done directly or indirectly any act contesting, or
in any way impairing any part of the Licensor's right, title or interest in the
Licensed Marks and Licensor's Trade Dress. Without limiting the foregoing,
Licensee shall during the term of this Agreement use reasonable efforts to
ensure that use of the Licensed Marks and Licensor's Trade Dress is in
accordance with use which is to the best advantage and protection of Licensor's
goodwill in Licensed Marks and said Trade Dress.

<PAGE> 17

3.2. Licensor's Control Over Quality. Licensee agrees that Licensor has
the right to control the quality of Licensed Products, and that Licensor has
sole discretion (not to be unreasonably exercised) to determine in good faith
whether the Licensed Products meet the quality standards of this Article. If
Licensor determines the quality standards of this Article have not been met,
Licensor shall notify Licensee in writing of the details of such quality failure
and provide Licensee a reasonable time frame to correct the failure, but in no
event shall the time to correct the failure exceed sixty (60) days after notice
or thirty (30) days after any arbitration decision, whichever is later. In the
event the Licensee disagrees that the Licensor's determination of a quality
failure is reasonable, Licensee has a right within the first thirty (30) days
after receipt of Licensor's written notice of quality failure to notify Licensor
of such disagreement and submit the sole issue of whether or not Licensor has
reasonably determined there exists a quality failure to arbitration pursuant to
this Agreement. In the event the quality failure is not corrected, Licensor may
consider such a material default or breach, and this Agreement will be subject
to termination as provided in Article 9.

3.3. High Standards of the Licensed Products. The Licensee shall use its
reasonable efforts to maintain the high quality standards and distinctiveness of
Licensor's Trademark, Trade Dress and the Licensed Products, in all advertising,
packaging and promotion of the Licensed Products. licensee agrees that, with
respect to all Licensed Products manufactured or sold by it, the same will be of
high quality workmanship, fit, design and materials used therein, and shall be
at least equal in quality, workmanship, fit, design and materials to the samples
of Licensed Products submitted by Licensee and approved by Licensor pursuant to
this Agreement. All manufacturing and production shall be of a quality in
keeping with the prestige of the Licensed Marks.

3.4. Licensee's Required QA/QC Submissions. Licensee shall deliver to
Licensor a detailed description of the QA/QC program utilized by Licensee which
shall contain the minimum requirements or their equivalents as set forth in
Schedule 3.4. Said program may be reasonably modified by Licensee, and any such
modification shall be delivered to Licensor within 30 days of implementation.

3.5. Approval and Control over Products, Quality, and Manufacturing.
Before selling, distributing or promoting any Licensed Product, Licensee will
deliver for Licensor's inspection and correction, amendment or alteration a
prototype sample, of each such Licensed Product (a men's size 11 for men's
footwear and a women's size 7 for women's footwear) together with prototype
tags, labels and packaging intended for use in connection therewith.

A. Prototypes. Such prototypes shall be delivered within a
reasonable period of time sufficient to enable Licensor to evaluate and test
such prototype, together with Licensee's proposed development schedule.

<PAGE> 18

B. Initial Samples. Licensee will also deliver one initial sample
pair of each Licensed Product, together with the spec sheet report, the tags,
labels and packaging to be used in connection therewith, for Licensor Approval.

C. Ongoing Production. In addition, upon Licensor's request,
Licensee will deliver to Licensor, free of charge, up to six (6) pairs per
model, per annum, of current production samples of each Licensed Product
produced hereunder together with the tags, labels and packaging being used in
connection therewith so that Licensor may be assured of the maintenance of the
quality standards set forth herein. In the event Licensor determines that any
Licensed Product so submitted fails to meet the quality standards set forth
herein, Licensee will make any corrections reasonably determined by Licensor to
be necessary to meet the original quality standards.

D. Quality Committee. Licensor and Licensee shall establish a
quality committee comprised of two (2) representatives of Licensor and two (2)
representatives of Licensee (the "Quality Committee"). The Quality Committee
will endeavor to resolve all matters related to Article 3 and if there is a
deadlock the matter will be resolved by arbitration as provided in Section 15.9.

E. Equal Quality. All Licensed Products to be sold hereunder will
be at least equal in quality to the samples approved by Licensor. Licensor's
duly authorized representatives will have the right, upon reasonable advance
notice and during normal business hours, to examine Licensed Products in the
process of being manufactured and to inspect all facilities utilized or
controlled by Licensee or its Affiliates (including those of all its
contractors) in connection with the manufacture, distribution and sale of the
Licensed Products. Licensee's agreements with third party contractors related to
Licensed Products shall include a similar provision permitting Licensor to
inspect each of such contractors' facilities on a confidential basis.

F. Proof of Quality. If Licensor should in Licensor's reasonable
discretion in good faith determine that any element in any new product may
negatively impact the quality of the brand and/or the goodwill associated with
Licensed Marks and Licensor's Trade Dress, Licensor may reasonably require
Licensee to demonstrate the durability or quality of the element or product
through laboratory or other testing, such testing to be performed and the
results provided to Licensor, and the costs and expenses of such testing shall
be borne equally by Licensee and Licensor.

3.6. Licensor's Right to Remove Approval for Previously Approved
Product. If the style, appearance or quality of any Licensed Product ceases to
be reasonably acceptable to Licensor, Licensor shall have the right to withdraw
his prior approval of such Licensed Product upon not less than one hundred
eighty (180) days' written notice specifying in detail the requested withdrawal
and the reasons for such withdrawal. Upon receipt of written notice from
Licensor of his decision to withdraw such approval, Licensee shall take
reasonable steps to immediately cease the use of Licensor's Trademark and other
Licensed Intellectual Property in connection with the promotion, advertising,
sale, manufacture, distribution or use of such Licensed Products(s). Upon

<PAGE> 19

receipt of Licensor's notice of election to withdraw approval, Licensee may
complete work in process, utilize materials on hand and sell all existing
inventory provided that it submits to Licensor proof of such work in process,
materials on hand, and existing inventory. Notice of such election by Licensor
to withdraw approval shall not relieve Licensee from its obligation to pay
Royalties on sale of such disapproved Licensed Products(s) made by Licensee to
date or thereafter as permitted. Licensee shall, prior to sale of existing
inventory of previously approved Licensed Product, offer such product to
Licensor at Licensee's cost. If Licensor buys such existing inventory of
previously approved product, Licensor agrees such inventory shall be destroyed
or distributed at no charge. In the event the Licensee deems any withdrawal
requested by the Licensor to be inconsistent with any part of this Agreement,
the Licensee, within fifteen (15) calendar days of receipt of the withdrawal
notice may, in writing, object to the withdrawal. This written objection shall
include a detailed explanation of the basis for objection. The Licensor shall
consider the objection in good faith, and shall reply in writing, accepting or
rejecting the objection. If the parties continue to disagree, the matter will be
resolved by the Quality Committee within ninety (90) days after the date of
Licensee's written objection or by arbitration pursuant to Section 15.9 hereof.

3.7. Changes. Licensor shall have the right to make reasonable changes
in the technical specification of the Licensed Products upon not less than one
hundred eighty (180) days' written notice specifying in detail the requested
change and the reasons for such change. Licensee shall provide the Licensed
Products in conformance with such changes as soon as reasonably possible. In the
event that the Licensee deems any change requested by Licensor to cause an
increase in cost or time required for performance of any part of this Agreement,
Licensee, within fifteen (15) calendar days of receipt of the change order may,
in writing, object to the change. This written objection shall include a
detailed explanation of the basis for objection, and any proposed adjustment to
be made to the price, performance time, or both. Licensor shall consider the
objection in good faith, and shall reply in writing, accepting or rejecting the
objection. If Licensor in good faith rejects the objection, Licensee shall
provide the Licensed Products in conformance with such changes as soon as
reasonably possible. If the Licensee disagrees, the matter will be resolved by
the Quality Committee within ninety (90) days after the date of Licensee's
written objection or by arbitration pursuant to Section 15.9. If the change
cannot be made, Licensor approves the sale of such Licensed Products as a
close-out but not subject to the limitation on close-out sales as set forth in
Section 1.6.

3.8. Licensor's Control over Product Components and Licensee's Duty to
Notify Licensor of Any Changes to Components. The Licensee shall use its
reasonable efforts to maintain standards for Licensed Products set by the
Licensor and any proposed change involving any alterations in materials,
construction, structure, quality, or design of the Licensed Products shall be
submitted to the Licensor and which shall require Licensor Approval; provided,
however, the Licensee, in an emergency when the Licensor is unavailable, shall
have the right to temporarily substitute construction materials for up to thirty
(30) calendar days, but shall stop using said substitute construction materials
after thirty (30) calendar days, unless before the end of said thirty (30)
calendar days the Licensor approves thereof in writing; provided further
Licensee shall submit all changes

<PAGE> 20

through sample or technical specifications to the Licensor for reasonable
approval and Licensor shall approve or reject said changes in writing within
thirty (30) calendar days of receipt, if testing is required and within five (5)
calendar days if testing is not required, along with reasons for rejecting, if
applicable. Licensee shall provide confidential specification books to Licensor
to enable Licensor to determine the source and composition of all components
used in Licensed Products.

3.9. Inspection of Licensed Product Records and Licensee's Duty to
Provide Monthly Samples of Product. Licensee recognizes the right of the
Licensor to inspect product quality and hereby authorizes the Licensor to
inspect the manufacture and assembly of the Licensed Products made by Licensee
and agrees Licensor or his agent may, upon ten (10) calendar days' notice and
during normal business hours, check the accounting and material cost records,
which shall be maintained confidential, to verify the quality of materials used
in manufacture of the Licensed Products. Licensee shall send monthly one (1)
sample of each Model of Licensed Products to Licensor for inspection. Licensor
shall be entitled to request monthly, by means of a duly authorized
representative or himself, reasonable number of additional samples selected at
random from Licensee's production in order to monitor the quality of Licensed
Products.

3.10. Right of Inspections of Factory and Offices. The Licensee will
permit the Licensor or his agent, at the Licensor's own expense, on ten (10)
calendar days' notice to visit the Licensee's factory and offices and the
factory or office of any entity involved in the manufacture or sale of Licensed
Products for such periods as may be reasonable and during normal business hours
to inspect the Licensed Products being made by Licensee to ensure said Products
meet the quality standards of the Licensor on a confidential basis.

3.11. Monthly Reports Showing Number of Units Returned. Licensee shall
prepare and send to Licensor a monthly report showing the number of Units
returned and the reasons given for such return. The monthly report shall itemize
the number of Units of each Model returned, from whom such Models were returned,
and the reasons given for that return.

3.12. Distribution.

A. The Licensed Products shall be sold by Licensee only to those
Distribution Channels that deal in products similar in quality and prestige to
the Licensed Products, and whose representations and operations will enhance the
quality and prestige of the Licensed Marks. Within thirty (30) days from the
date of this Agreement, Licensee shall provide Licensor with a list of the
Distribution Channels for Licensor Approval. Each calendar quarter Licensee
shall submit to Licensor a list of all customers that were deleted from its
customer base during that quarter.

B. As to each new customer Licensee desires to sell to, Licensee
shall supply Licensor with a request to add such new customer to the existing
Distribution Channels before shipping any licensed product to such new customer.
The request shall include a description of the new customer on the form and
provide any data reasonably

<PAGE> 21

requested by Licensor. In the event Licensor does not object to the addition of
the new customer as a retail outlet for Licensed Product within ten (10) working
days after Licensor's receipt of the request, Licensee shall be free to sell
Licensed Product to such customer. Subject to the provisions of Section 3.12(C)
below, in the event Licensor notifies Licensee of an objection to the new
customer, Licensee shall not accept orders from such new customer.

C. If Licensor should reasonably determine that any actual or
proposed Distribution Channel is not consistent with the quality and prestige
associated with Licensor's Trademark, as set forth in paragraphs A and B above,
Licensor shall discuss such concern with Licensee through the Quality Committee,
and after such discussion Licensor shall have the right to object by notice to
Licensee to any Distribution Channel, and Licensee shall not thereafter accept
orders from such customer. If Licensee disagrees with Licensor's objection, and
concludes that Licensor's objection would negatively affect Licensee's sales of
Licensed Products, Licensee may, within thirty (30) days of receipt of the
objection, submit to arbitration the following specific questions, which
questions are to be decided by the arbitrator within ninety (90) days of
submission:

Is Licensor's objection to the specific customer unreasonable? If
the arbitrator determines that Licensor's objection to the specific customer is
unreasonable, then the arbitrator shall determine the negative effect in total
lost sales (if any) such objection to specific customer has on Licensee's sales
for the period of one year after the date of the objection.

If the arbitrator determines that the Licensor's objection was
unreasonable and such objection resulted in lost sales for Licensee within one
year after the date of Licensor's objection, the amount of such lost sales
incurred within such one year shall be deducted from the minimum net sales
requirements set forth in other parts of this Agreement solely for that one year
period following the objection. For purposes of judging the reasonableness of
Licensor's objection the arbitrator shall use as a standard the following
principle: "Was Licensor's objection reasonably calculated to maintain or
improve the Licensor's Trademark brand quality image?

3.13. Disposal of Seconds and Close Outs.

A. Licensee shall use reasonable efforts to dispose of Licensed
Products which are designated as Seconds in a way which shall maintain the value
of the Licensor's Trademark and Licensor's reputation, and Licensee shall obtain
Licensor's Approval with respect to the terms and method of such disposal. All
Seconds approved for sale by Licensor shall clearly be marked "Seconds" or
"Irregular" in a manner obvious to a casual consumer. The percentage of Seconds
of any of the Licensed Products which shall be disposed of pursuant to this
Section shall not exceed five percent (5%) of the total number of Units of
Licensed Products distributed, manufactured or sold by Licensee in each Annual
Period.

B. All Close Outs shall be sold only with Licensor's Approval,
through retail outlets and traditional accepted dealers in such merchandise and
upon such

<PAGE> 22

terms and conditions as Licensee determines appropriate. The percentage of Close
Outs sold pursuant to this Section shall not exceed fifteen percent (15%) of the
total number of Units of Licensed Products distributed, manufactured or sold by
Licensee in each Annual Period.

3.14. Unauthorized Resale. In the event Licensor reasonably determines
that the unauthorized resale of Licensed Products through unauthorized
Distribution Channels is causing a negative impact on the reputation and
desirability of Licensor's products, Licensee shall consult with Licensor in
good faith regarding implementation of a system, including, but not limited to,
an inventory marking system to remedy such negative impact.

3.15. Identification Number on Licensed Products. Licensed Products
shall have a Model number that is unique from Licensee's other products, and
such unique identification shall be used in Licensee's accounting system. If any
Model numbers of Licensee's other brands are the same as those used on
Licensor's products, Licensee bears all expense and responsibility for changing
the numbering system on Licensee's other brands to eliminate duplication.

3.16. Limitation on Selling Competing Products. At all times while this
Agreement is in effect, neither Licensee, nor any company affiliated with
Licensee, owned or controlled by Licensee, under common ownership with Licensee,
in which the owner of Licensee is a partner, or in which Licensee is a partner,
shall engage in Competitive Activity without Licensor Approval. If Licensor
consent is given for Licensee to engage in competitive activity, Licensee shall
provide Licensor with samples of each product Model that Licensee manufactures,
has manufactured or distributed for it which do not bear the Licensor's
Trademark. A breach of this clause shall constitute a violation of Licensee's
obligation to use its reasonable best efforts to exploit this license. The
design, merchandising, packaging, marketing, sales force, sales and display of
all of Licensee's products (if any are permitted) that are not Licensed Products
shall be separate and distinct from the Licensed Products. Licensee shall
contractually restrict its sales agents and sales force from manufacturing or
selling Sandals or any product that has the same or a similar image as any
Licensed Product. Licensor Approval of all manufacturers shall be required,
other than those manufacturers utilized for Licensed Products as of the date of
this Agreement.

3.17. Licensee to Adequately Finance Operations. Licensee shall at all
times, within reasonable industry standards, maintain its financial position
including maintaining such standards for payment of Licensee's account payables
and maintaining sufficient cash flow to finance all of the operations and
obligations specified in this Agreement. In this regard, Licensee shall
establish a division for purposes of promoting the Licensed Products, within
such Division, Licensee shall provide Licensor with access to the premises where
the Licensed Products are designed and provide to Licensor an opportunity to
review and participate in the activities of the Division.

<PAGE> 23

3.18. Licensee to Maintain Adequate Inventory. Licensee shall at all
times maintain an inventory of Licensed Products which shall be reasonably
sufficient to meet customers' and Licensor's reasonable and anticipated demands.
Without limiting the generality of the foregoing, Licensee shall use its
reasonable efforts to fill all preseason orders on time or within thirty (30)
days of the confirmed delivery date. If Licensee shall fail on two or more
occasions to fill pre-season orders within thirty (30) days of the requested
delivery date Licensor and Licensee shall together discuss how to remedy this
situation.

3.19. Pricing. Licensee shall use its reasonable efforts in order to
preserve the goodwill attached to Licensor's Trademark, to sell the Licensed
Products at prices and terms reflecting the consumers' perception of the high
quality and prestigious nature of the Licensed Products, it being understood,
however, that Licensor is not empowered to fix or regulate the prices for which
the Licensed Products are to be sold, either at the wholesale or retail level.
The Licensee shall use its reasonable efforts to charge prices fairly and to not
discriminate between similarly situated purchasers.

3.20. Sales and Deliveries.

A. Licensee acknowledges that the availability and selection of
styles, fabrications, colors and sizes are an integral part of the excellent
reputation for quality and value which the trade and consumers have come to
associate with the Licensed Products. Therefore, to reasonably protect that
reputation and value, Licensee agrees that its policies for sale, distribution,
or other exploitation of Licensed Products shall promote the consumers'
perception of the Licensed Products and that the same shall in no way adversely
reflect upon the good name of Licensor or any of its products.

B. The License shall use its reasonable efforts to provide the
Licensor all Licensed Product ordered by Licensor as stock and inventory for
Licensor's mail order business, Concept Stores, and Internet business on the
basis set forth in Section 4.3.

3.21. Purpose of Quality Control. Licensor's right to enforce the
standards for quality hereunder is for the sole purpose of protecting Licensor's
rights in and to the Licensed Marks, and except as otherwise set forth in this
Agreement:

A. Licensor shall have no duty or responsibility to the Licensee
or to any third party with respect thereto;

B. No third parties shall acquire any rights against Licensor in
connection with Licensor's acceptance or right to enforce standards; and,

C. Licensor's rights to enforce the standards shall in no way
diminish or abrogate the termination provisions of Article 9.

<PAGE> 24

ARTICLE 4: SALES AND MARKETING

4.1. Sales/Marketing and Production Plans. On November 1 and May 1 of
each Annual Period during the Term, Licensee will submit to Licensor, for
Licensor's comments, a schedule showing in reasonable detail the projected sales
and marketing plans for the Licensed Products for each of the next two quarterly
periods. In addition, Licensee will submit to Licensor at the start of the
Agreement a proposed production calendar for the Licensed Products. The Licensee
shall provide to Licensor, on a monthly basis, monthly wholesale bookings
reports and retail selling reports detailing model, color, and size.

4.2. Sales Reports. Within sixty (60) days after the close of each
quarter within an Annual Period, Licensee shall provide to Licensor a detailed
listing of all sales made by Licensee of Licensed Products, broken out by sales
region, by top twenty (20) accounts, and showing relationship of sales for such
quarter as compared to the same quarter for the preceding Period. In the event
sales for any quarter evidence a substantial decline in any sales region,
Licensor may request Licensee to submit, for Licensor Approval, a marketing plan
which addresses the decline.

4.3. Licensor's Right to Purchase Licensed Products.

A. It is understood and agreed that the Licensor shall have the
right to purchase from the Licensee as many Units of Licensed Products as
Licensor may reasonably require for retail sale or promotional use or for such
other uses as Licensor deems appropriate in non-exclusive Territories as
described in Section 2.10 of this Agreement, with 90% of any order to be
delivered timely (as described below) to the Licensor's offices, at prices to be
negotiated by the parties, but in no event higher than Licensee's current
wholesale at the most favorable quantity price less - * - , or in the
alternative a lower price under any other provision of this Agreement. Licensor
shall comply with Licensee's published order procedures.

The Licensee shall be obligated to make the royalty payments provided herein
with respect to any Licensed Products sold by the Licensee to the Licensor. All
payments for Licensed Products are due from the Licensor, net thirty (30)
calendar days, and in the event of non-payment, the Licensee shall set off any
sums due from the Licensor against any payments due the Licensor from the
Licensee. Licensee agrees that such products will be delivered timely, which
shall mean: for preseason orders, delivery shall be in accordance with a
schedule provided by Licensor to Licensee and approved by Licensee, which
approval shall not be unreasonably withheld; for season fill-in orders, delivery
shall be within seven (7) days with respect to any product then in
available-to-ship inventory. Licensor shall be entitled to return any Licensed
Products purchased from Licensee, shipping prepaid, on the same basis and
subject to the same credit on most favorable terms as Licensee provides to any
other customer.

* Pursuant to a request for confidential treatment, this information has been
omitted and filed separately with the Securities and Exchange Commission.
<PAGE> 25

B. The Licensee will use its reasonable efforts to negotiate with
the Licensee's contract factories so that the Licensor may buy at cost all
previously used molds and other devices necessary to make discontinued, but
previously manufactured Licensed Products. Licensor may order Licensed Products
from Licensee which have been discontinued at prices of two (2) times the
Licensee's cost, and at minimum quantities and deliveries, negotiated in good
faith with Licensee's contract factories These Models shall continue to be
marked with Licensor's Trademark.

4.4. Reporting Retail Sell-through Information. Licensee will deliver
within thirty (30) calendar days after each quarter, its sales results
reflecting goods actually shipped, by Model on a Unit basis, of Licensed
Products shown and sold; and, if available, within thirty (30) calendar days
following the close of each quarter a report setting forth the sell-through by
Licensee's customers of Licensed Products shipped to them for top five (5)
accounts by sales territory utilized by Licensee.

4.5. Resale of Components. Licensee shall not resell any left over,
unused, disassembled, or otherwise excess components including, but not limited
to, the soles, webbing, fasteners, labels, and the like to a third party without
Licensor Approval obtained at least fifteen (15) calendar days prior to the
sale. If Licensor does not approve the sale the components will be destroyed but
Licensee's cost for such destroyed components will be credited to royalty
payments due Licensor.

4.6. Research and Development. Licensee shall maintain for the duration
of this Agreement a separate Research and Development Department for the
Licensed Products with an annual budget of not less than - * - of Net Sales of
Licensed Products of the preceding Annual Period for personnel, development,
tooling, equipment, overhead and other direct costs.

4.7. Advertising.

A. All Advertising and promotion in connection with Licensed
Products, including cooperative advertising whereby Licensee provides its
customers with a contribution, whether in the form of monetary contribution,
credit or otherwise, shall be submitted by Licensee to Licensor for review, and
if placed with an agency, the agency shall receive Licensor Approval. Any
creative advertising product shall be submitted by Licensee to Licensor for
reasonable written approval prior to being used. Licensor shall have ten (10)
calendar days from submission by Licensee to disapprove any advertising. In the
event Licensor does not disapprove such advertising within that period, Licensor
will be deemed to have approved it. Licensee will pay advertising invoices
directly as

* Pursuant to a request for confidential treatment, this information has been
omitted and filed separately with the Securities and Exchange Commission.

<PAGE> 26

they become due. Licensee agrees to use its reasonable efforts to advertise and
promote the Licensed Products during each Annual Period in order to make the
Licensed Products well-known within the Territory to maintain awareness of the
Licensed Products and to maintain the high standards of quality that has come to
be associated with Licensor's Trademark.

B. In addition to any advertising expenditures required elsewhere
in this Agreement, Licensee and Licensor shall each contribute a sum equal to
- - * - of Net Sales to an account maintained by Licensor to be used by Licensor
exclusively to promote the Licensor's Trademark brand image with or without
reference to individual licensed products; provided, however, that Licensor's
obligation under this Section 4.7(B) shall not begin until January 1, 2001. Such
funds should be paid by the parties within thirty (30) days of the end of each
quarter.

4.8. Advertising Expenditure and Budget. During each year of this
Agreement by November 15 and May 15 of each year, Licensee shall expend for the
advertising of Licensed Products, which advertising may consist of cooperative
advertising, an amount that is not less than the "annual Advertising
Expenditure," as hereinafter defined, for such year. Licensor and Licensee shall
consult with each other regarding the creation, production and placement of all
advertising of Licensed Products.

With respect to Domestic Net Sales, Licensee shall spend the greater of - * - of
the Minimum Net Sales or - * - of the actual Net Sales for each Annual Period,
for Domestic Advertising of the Licensed Products. With respect to International
Net Sales, Licensee shall spend the greater of - * - of the Minimum Net Sales
(on an FOB basis) or - * - of the Actual Net Sales (on an FOB basis) for each
Annual Period, for International Advertising of Licensed Products. Licensee
shall deliver to Licensor within thirty (30) calendar days after the end of each
quarter hereof an accounting statement detailing the amounts expended by
Licensee on advertising for the prior quarter. Each such accounting statement
shall be signed, and certified as correct, by a duly authorized officer of
Licensee. Prior to each year hereof, Licensee shall submit to Licensor the
advertising budget for the upcoming year, based on the aggregate net sales of
Licensed Products during the year then ending and on sales projected for the
upcoming year. The Annual Advertising Expenditure for each upcoming year will be
calculated based upon such budget, and subsequently adjusted and expended every
quarter based upon actual sales. This Advertising Expenditure and budget shall
become effective immediately upon execution of this Agreement irrespective of
the commencement date of the initial term of this Agreement.

4.9. Approval of Packaging, Labeling. No packaging, labeling or
advertising, including cooperative advertising shall be used without the
Licensor Approval. Before

* Pursuant to a request for confidential treatment, this information has been
omitted and filed separately with the Securities and Exchange Commission.
<PAGE> 27

publication of any advertisement or promotion, Licensee shall submit every
element of the advertisement or promotion for Licensor Approval. Any approval
granted hereunder shall be limited in scope to the proposed use by the Licensee.
Any additional uses that Licensee desires to use that were not part of the
initial request to Licensor shall also require Licensor Approval. Samples of
initial packaging, labeling and advertising, and samples of any revisions,
changes, modifications or substitutions thereof, shall be submitted to Licensor
sufficiently far in advance (but in no case less than twenty (20) days) prior to
expected requests for the approval of packaging, labeling or advertising
pursuant to this Section shall be accompanied by at least two (2) samples of the
object for which approval is sought. Licensee shall use its reasonable best
efforts to ensure that all advertising and promotional plans used by Licensee in
connection with the Licensed Products, in any form and in any medium, shall be
consistent with the prestige associated with Licensor's Trademark and the
quality of the Licensed Products. All packaging, labeling and advertising of
Licensed Products shall use Licensor's Trademark, but no other trademark or
trade name shall be used except as shall be required by applicable law or with
Licensor Approval. Licensee shall not be permitted to use its name on the
Licensed Products, packaging and other materials displaying Licensor's Trademark
other than with Licensor Approval. Any advertising materials provided by
Licensor to Licensee shall be so provided at Licensee's cost and the price
therefor shall be Licensor's cost of producing and providing the materials.
Licensor agrees that if rejection nor approval is forthcoming from Licensor
within twenty (20) days of submission by Licensee, such material shall be
considered approved.

4.10. Showroom. The Licensee may, at its election, establish and staff a
separate showroom for the presentation and sale of the Licensed Products either
directly or through independent sales representatives. The Licensee will use its
reasonable efforts to maintain, operate, decorate and staff the showroom in a
manner consistent with the prestige and image associated with the Licensor's
Trademark. The Licensee and the Licensor shall mutually agree on the design,
layout and decoration of the showroom, all expenses incurred with respect to the
design, construction, operation and maintenance of such showroom shall be borne
by the Licensee or the Licensee's sales agents. The Licensee shall admit the
Licensor's employees to use its showroom and shall sell to such employees for
their personal use, but not for subsequent resale, such Licensed Products on the
same terms as the Licensee offers its own employees.

ARTICLE 5: LICENSE FEES AND ACCOUNTING

5.1. Initial Payment. Licensee agrees to pay to Licensor an initial
payment of One Million Dollars ($1,000,000). The Initial Payment shall be paid
within sixty (60) days after execution of this Agreement by Licensee and is
non-refundable. This initial payment shall not be credited against future
royalties or any other obligation owed to Licensor under the Terms of this
Agreement. In addition to the above described initial

<PAGE> 28

payment, Licensee shall also immediately issue to Licensor upon execution of
this Agreement Four Hundred Twenty Eight Thousand Seven Hundred Forty-Three
(428,743) shares of Licensee's common stock (the "Shares"). Certificates
evidencing the Shares shall be delivered to Licensor within sixty (60) days
after execution of this Agreement. Licensee represents and warrants that the
Shares, upon issuance, will be duly authorized, fully paid, non-assessable and
free and clear of all liens, charges and encumbrances.

Licensor agrees to sell not more than 12,500 shares of Licensee's common
stock held by Licensor during any calendar quarter from the date hereof through
and including March 31, 2002. In addition, Licensor agrees to, until March 31,
2002, execute a Lock-Up Agreement with regard to any shares of Licensee's common
stock now or hereafter owned by Licensor in a form identical to agreements
signed by all other Directors of Licensee.

5.2. Amount of Royalty. The Licensee shall pay the Licensor a royalty
rate of - * - on products which incorporate the Licensed Patents, - * - on
products which incorporate Licensor's Trade Dress, - * - on products which
incorporate Licensed Technology, Intellectual Property and Resultant
Intellectual Property, and - * - on products which bear any of the Licensed
Marks or Copyrights; provided however that the total royalty for all Licensed
Products shall not be less than nor exceed - * - of the Net Sales of all
Licensed Products sold under this Agreement.

Additionally, it is agreed that the following sliding scale of royalty
rates shall be applied to Net Sales above - * - in any single year:

For Net Sales between - * - and - * - the Royalty Rate shall be-
* - ;

For Net Sales between - * - , the Royalty Rate is - * - , and;

For Net Sales above - * - , the Royalty Rate is - * - .

Notwithstanding the foregoing, for the period beginning January 1, 2000
through December 31, 2000, the royalty rate on Net Sales above - * - shall be
- - * - .

Licensee shall not ship FOB the country of manufacture to any Domestic
third party.

Royalties are due in monthly installments within twenty (20) calendar
days of the end of the month on Licensed Products sold in that month. For
purposes of this Section, a Licensed Product shall be considered "sold" upon the
date of shipment. It is the intention of the parties that Royalties will be
based on bona fide sales in which Licensee

* Pursuant to a request for confidential treatment, this information has been
omitted and filed separately with the Securities and Exchange Commission.
<PAGE> 29

(or its sublicensees) sells Licensed Products to its direct customers in arms'
length transactions.

In addition to the royalty payments described above, Licensee shall
grant to Licensor on January 1 of each calendar year an option to purchase not
less than Fifty Thousand (50,000) shares of Licensee common stock at the fair
market value on the date of grant exercisable for a ten (10) year period. Upon
closing of the Licensee's purchase of the Licensed Intellectual Property, no
further options shall be granted to Licensor under this Agreement.

5.3. Guaranteed Minimum Royalties. For each Annual Period during the
Term of this Agreement there shall be a Minimum Guaranteed Royalty which shall
be paid by Licensee to Licensor as specified below, in millions of U.S. dollars.

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Calendar Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Guaranteed * * * * * * * * * * * *
Minimum
Royalty
- ------------------------------------------------------------------------------------------------------
</TABLE>

If the royalties actually paid by Licensee or Licensor in any Annual
Period are less than the amount described above, then Licensee shall pay to
Licensor the shortfall within ninety (90) days after the end of the calendar
year.

5.4 Minimum Net Sales of Licensed Product. The Licensee shall be
required to meet Minimum Net Sales in each Annual Period commencing January 1,
2005, as follows: Calendar 2005, 2006, 2007 and 2008, Net Sales must be in
excess of - * - of the prior calendar year Net Sales. Calendar 2009, 2010 and
2011 Net Sales must be in excess of - * - of the prior calendar year Net Sales.

If the Licensee shall fail to meet these obligations, then the Licensor
may terminate this Agreement as provided in Section 9.2 hereof.

5.5 Renewal Minimum Net Sales. The term of this License begins January
1, 2000 and the initial term of this License ends December 31, 2004. After
December 31, 2004, the License will, unless Licensee's notice of intent not to
renew is received by Licensor by July 1, 2004, renew for an additional four (4)
years if, but only if, the Licensee has generated the Net Sales in the calendar
year 2004 in excess of - * - divided between Domestic Net Sales and
International Net Sales in the same ratio as

* Pursuant to a request for confidential treatment, this information has been
omitted and filed separately with the Securities and Exchange Commission.
<PAGE> 30

actual Net Sales during calendar year 2002, or as shall otherwise be mutually
agreed by the parties. If the Licensee has met the minimum renewal Net Sales
addressed above, this Agreement shall be renewed until December 31, 2008. After
December 31, 2008, the License will, unless Licensee's notice of intent not to
renew is received by Licensor by July 1, 2008, renew for an additional three (3)
years if, but only if, the Licensee shall have generated Net Sales in the
calendar year 2008 in excess of - * - divided between Domestic Net Sales and
International Net Sales in the same ratio as Net Sales during calendar year 2006
or as mutually agreed. Should the Licensee elect to renew the License but fail
to meet the required minimum net sales for the years 2004 or 2008, this
Agreement shall remain in effect, in the sole discretion of the Licensor, for a
period not to exceed one calendar year after January 1, 2005, or January 1, 2009
respectively. If Licensee elects not to renew this Agreement, Licensee shall not
be required to pay any royalties to Licensor for any periods following the
termination of this Agreement.

In the event either of the renewal Net Sales minimums are not
obtained, Licensee shall have no right to renew this Agreement as of the
relevant dates.

5.6 Mulligan Provision for Minimum Guaranteed Sales. The actual Net
Sales may be less than minimum Net Sales set forth in Section 5.4 of this
Agreement for one Annual Period during each Renewal Term without causing a
default under this Agreement.

5.7. Method of Paying Royalties to Licensor. All Royalties due hereunder
shall be paid to the Licensor at P.O. Box. 968, Flagstaff, AZ 86002, in United
States dollars without any transfer charges. Licensor shall have the right to
require the Licensee to make payment to any bank designated by Licensor.
Licensor shall also have the right to require that payment be made by wire
transfer. If any payment is rejected by the Licensee's bank, the Licensor may
demand subsequent payments to be made by certified checks.

5.8. Penalty on Delinquent Payments. If the payment of any installment
of Royalties or any other fee due under this Agreement is delinquent, interest
shall accrue on the unpaid principal amount of such installment from and after
the date which is ten (10) calendar days after the date the same became due
pursuant to Article 5.1 at Ten Percent (10%) per annum.

5.9. Accounting. Licensee shall at all times keep an accurate account of
all operations within the scope of this Agreement and shall render a full
statement of such operations in writing to Licensor with each Royalty payment as
described in Section 5.2 hereof. Such statements shall include all aggregate
gross sales, trade discounts, merchandise returns, sales of miscuts, damaged
merchandise and net sales prices of all

* Pursuant to a request for confidential treatment, this information has
been omitted and filed separately with the Securities and Exchange Commission.
<PAGE> 31

sales for the previous month. Such statements shall be in sufficient detail to
be audited from the books of Licensee. Once annually, which may be in connection
with the regular annual audit of Licensee's books as set forth in Section 5.10,
Licensee shall furnish an annual statement of the aggregate gross sales, trade
discounts, merchandise returns and net sales price of all Licensed Products made
or sold by Licensee certified by Licensee's independent accountant. Each monthly
financial statement furnished by Licensee shall be certified by Licensee's chief
financial officer or controller.

5.10. Licensor's Authority to Audit Licensee. Licensor and its duly
authorized representatives, on reasonable notice, shall have the right for the
duration of the Agreement and for three (3) years thereafter, during regular
business hours, to examine the books of account and records and all other
documents, materials, and inventory in the possession or under the control of
Licensee with respect to all subject matters relevant to this Agreement. All
such books of account, records and documents shall be maintained and kept
available by Licensee for at least the duration of this Agreement and for at
least three (3) years thereafter. Licensor shall have free and full access
thereto and shall have the right to make copies therefrom. If as a result of any
examination of Licensee's books and records it is shown that Licensee's payments
to Licensor hereunder with respect to any twelve (12) month period were less
than the amount which should have been paid to Licensor by greater than Two and
Three Quarters Percent (2-3/4%) of the amount which would have been paid during
such twelve (12) month period, Licensee shall, in addition to reimbursement of
any underpayment with interest from the date on which each payment was due at
the rate set forth in Article 5.2 hereof, promptly reimburse Licensor for the
cost of such examination. Additionally, if the examination shows that any
expenditure required to be made by Licensee has not been fully made by an amount
within five percent (5%) of the required amount, the Licensee shall immediately
make the required expenditure and shall reimburse Licensor for the costs of
examination. Licensee shall also provide Licensor each year with a copy of its
annual report as soon as it is made available to Licensee's shareholders.

5.11. Financial Statements. Licensee shall provide Licensor (a) a
certified, audited financial statement by an independent certified public
accountant to be delivered to Licensor within thirty (30) days of filing such
statement with the Securities and Exchange Commission and (b) a six (6) month
interim unaudited financial statement to be delivered to Licensor within thirty
(30) days of filing such statement with the Securities and Exchange Commission.
In the event no such statements are filed with the Securities and Exchange
Commission, Licensee shall nonetheless provide Licensor with such statements
every six (6) months.

<PAGE> 32

ARTICLE 6: REPRESENTATIONS AND WARRANTIES

6.1. Express Warranties. Licensee hereby expressly warrants all of the
following:

A. That the Licensed Products shall be in material compliance
with the Specifications;

B. That the Licensed Products and the Work done comply with all
applicable laws in force on the date the Licensed Products are produced;

C. To the best of Licensee's knowledge, that no technology used
by Licensee except for any Licensed Intellectual Property infringe any patent,
copyright, trade secret, trademark, or other proprietary right of any third
party.

Licensee hereby expressly warrants, to the best of its knowledge, all of the
following:

D. It has the full right, power and authority to enter into this
Agreement and to perform all of its obligations hereunder;

E. It is financially capable of undertaking the business
operations which it conducts and of performing its obligations hereunder;

F. It is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its state of incorporation;

G. All necessary corporate acts have been effected by it to
render this Agreement valid and binding upon it.

6.2. Licensee's Obligations upon Breach of Warranty. Upon breach of the
warranty as defined in Section 6.1, Licensee shall use its best efforts to
remedy the problem or defect so as to bring the Licensed Product or Licensee's
operations into compliance with the warranty within a period of fifteen (15)
calendar days from the date Licensee is notified of or first becomes aware of
the breach. Such remedy by Licensee shall be without any additional charge to
the Licensor. After Licensee has submitted a proposed remedy under this Section,
Licensor shall then accept or reject the proposal. Should Licensor reject a
proposed remedy by Licensee under this Section, Licensor may at its option
require Licensee to make another proposal, or alternatively, Licensor may
terminate this Agreement and proceed as provided in Article 9. This Section
shall be deemed non-exclusive as to Licensor's rights upon breach of warranty by
Licensee, and upon any termination of this Agreement under this Section,
Licensor shall be free to pursue any legal remedies Licensor may have due to
breach of warranty.

<PAGE> 33

ARTICLE 7: TERM

7.1. Term. Subject to termination as provided in this Agreement, the
Term of this Agreement shall commence on January 1, 2000. The initial term of
this Agreement is from January 1, 2000 through and including December 31, 2004
and can be renewed, if at all, only in the event Licensee has met the renewal
minimum net sales requirements specified elsewhere in this Agreement. The second
term of this Agreement commences on January 1, 2005 and runs through December
31, 2008 and can only be renewed for another term in the event Licensee has met
the renewal minimum net sales requirements specified elsewhere in this
Agreement. The third term of this Agreement shall be from January 1, 2009 to
December 31, 2011. The second and third terms of this Agreement shall be
referred to herein as "Renewal Terms." The initial term and all Renewal Terms,
if any, shall be referred to herein as the "Term."

ARTICLE 8: INSOLVENCY

8.1. Effect of Proceeding in Bankruptcy, Etc. If either party institutes
for its protection or is made a defendant in any proceeding under bankruptcy,
insolvency, reorganization or receivership law, or if either party is placed in
receivership or makes an assignment for benefit of creditors or is unable to
meet its debts in the regular course of business, the other party may elect to
terminate this Agreement immediately by written notice to the other party
without prejudice to any right or remedy the terminating party may have,
including, but not limited to, damages for breach to the extent that the same
shall be recoverable.

8.2. Rights Granted Are Personal to Licensee. The Licenses and rights
granted hereunder are personal to Licensee. No assignee for the benefit of
creditors, receiver, trustee in bankruptcy, sheriff or any other officer or
court charged with taking over custody of Licensee's assets or business, shall
have any right to continue performance of this Agreement or to exploit or in any
way use of Licensor's Trademark or other rights hereby licensed if this
Agreement is terminated pursuant to Section 8.1, except as shall be required by
law.

8.3. Financing Consent. During the term of this License Agreement, the
Licensor agrees to the following blanket consent for any lender of the Licensee
enabling such lender to sell any of the Licensed Products, in the event that a
lender forecloses on all or a portion of the assets of the Licensee in
connection with any loan or loans made to the Licensee, whether secured or
unsecured.

In this regard, the Licensor irrevocably and unconditionally
grants and agrees to grant to any future lender or lenders of the Licensor
(including any trustee or agent for such lenders), the right to sell the
Licensed Products only upon foreclosure by the lender or lenders on the
Licensee's inventory if the Licensor has not purchased the inventory as
provided in Section 9.6 hereof, provided such lender or lenders pay royalties
due as specified in this Agreement and the advertising percentage specified in
this Agreement, less any credit for any unused prepaid royalties previously paid
by the

<PAGE> 34

Licensee. The right to sell the Licensed Products by the lender or lenders shall
exist for one hundred twenty (120) days after foreclosure commences (tolled for
any period during which any lender is prevented by law or court order from
exercising the right) subject to the terms of this Agreement. Such sales of the
Licensed Product shall be in a commercially reasonable manner as specified in
the Uniform Commercial Code. Nothing herein shall constitute an assumption, by
any foreclosing lender or lenders, of any obligation of the Licensee under this
Agreement beyond those payments specified in this Agreement. This blanket
consent shall terminate upon the termination for any reason of any lender's or
lenders' security interest in the Licensed Products. No further documentation
shall be required from the Licensor for the purposes of extending this Agreement
to a future lender or lenders of the Licensee.

8.4. Trustee in Bankruptcy. Notwithstanding the provisions of Section
8.2 above, in the event that, pursuant to the applicable bankruptcy law (the
"Code"), a trustee in bankruptcy, receiver or other comparable person, of
Licensee, or Licensee, as debtor, is permitted to assume this Agreement and does
so and, thereafter, desires to assign this Agreement to a third party, which
assignment satisfies the requirements of the Bankruptcy Code, the trustee or
Licensee, as the case may be, shall notify Licensor of same in writing. Said
notice shall set forth the name and address of the proposed assignee, the
proposed consideration for the assignment and all other relevant details
thereof. The giving of such notice shall be deemed to constitute an offer to
Licensor to have this Agreement assigned to Licensor or its designee for such
consideration, or its equivalent in money, and upon such terms as are specified
in the notice. The aforesaid offer may be accepted by Licensor only by written
notice given to the trustee or Licensee, as the case may be, to such party. If
Licensor fails to deliver such notice within the said fifteen (15) calendar
days, such party may complete the assignment referred to in its notice, but only
if such assignment is to the entity named in said notice and for the
consideration and upon the terms specified therein. Nothing contained herein
shall be deemed to preclude or impair any rights which Licensor may have as a
creditor in any bankruptcy proceeding.

ARTICLE 9: TERMINATION

9.1. Termination With Notice and 10 Day Opportunity to Cure.

A. If Licensee breaches any of the following obligations and does
not cure said breach within ten (10) days of notification of termination,
Licensor may terminate this Agreement:

(i) If Licensee shall engage in any Competitive Activity
described in Section 1.9(i);

<PAGE> 35

(ii) If Licensee institutes proceedings seeking relief
under a bankruptcy act or any similar law, or otherwise violates the provisions
of Article 8 thereof;

(iii) If Licensee transfers or agrees to transfer
substantially all of its property, its shares of stock, or this Agreement;

(iv) If Licensee shall sell unapproved merchandise in
violation of this Agreement; or

(v) If Licensee shall, without the prior written consent
of Licensor, use Licensor's Trademark, on any products in a manner which
violates the terms of this Agreement.

B. Termination will become effective automatically unless
Licensee completely cures, to the reasonable satisfaction of the Licensor, the
breach within ten (10) calendar days of the giving of such notice.

9.2. Termination with Notice and 30-Day Opportunity to Cure.

A. If Licensee breaches any of its obligations or warranties
under this Agreement other than those specified in Section 9.1 above, and does
not cure or commence to cure said breach and proceeds diligently thereafter,
within thirty (30) days of notification of termination to Licensee specifying
the breach, Licensor may terminate this Agreement.

B. Termination will become effective automatically unless
Licensee completely cures, to the reasonable satisfaction of the Licensor, the
breach within thirty (30) calendar days of the giving of such Notice, or if the
breach cannot be cured within said thirty (30) day period and the Licensee shall
have commenced to cure the breach and proceeds diligently thereafter.
Termination based upon Licensee's failure to comply with the Guaranteed Minimum
Royalty set forth in Section 5.3 or the Minimum Net Sales set forth in Section
5.4 shall become effective thirty (30) calendar days after the giving of the
notice should the breach fail to be cured.

C. If such notice relates to product quality, Licensee shall not
ship the Licensed Products for which notice has been given, except as provided
herein, while cure is pending as set forth in Section 9.2(B).

9.3. Effect of Termination.

A. Upon notice of any termination and Licensee's failure to cure
or commence to cure and to proceed diligently thereafter, Licensee agrees that
he shall have no claim for damages (including without limitation loss of
anticipated profits) on account thereof. The sole right and remedy of Licensee
shall be payment as described below.

<PAGE> 36

Upon receipt of any such notice of termination and Licensee's failure to cure or
commence to cure and to proceed diligently thereafter, Licensee shall take steps
to mitigate any losses and, unless the notice requires otherwise, work with
Licensor to fill outstanding orders and otherwise maintain the quality and
goodwill associated with, inter alia, Licensor's Trademark. Upon notice of
termination and Licensee's failure to cure or commence to cure and to proceed
diligently thereafter, Licensor, at its option, shall be permitted to actively
participate in, and, if Licensor deems reasonably necessary to protect such
quality and goodwill, direct the operations of Licensee solely with respect to
any further sale or disposition of Licensed Products. Without limiting the
generality of the foregoing, any notice by Licensor regarding termination of
this Agreement may require that Licensee:

(i) Immediately discontinue work on the Licensed
Products;

(ii) Provide Licensor with the right to conduct a
physical inventory of the Licensed Products in Licensee's possession or control;

(iii) Place no further orders or subcontract for
equipment, materials, services or facilities, other than as may be necessary or
required for completion of such portion of work under this Agreement that is in
process or that is not terminated;

(iv) Promptly make every reasonable effort to obtain
cancellation upon terms satisfactory to Licensor of all orders and subcontracts
to the extent they relate to the performance of work terminated, or assign to
Licensor those orders and subcontracts, and revoke agreements specified in such
notice;

(v) Assist Licensor, as specifically requested, in the
maintenance, protection and disposition of property acquired by Licensor under
this Agreement;

(vi) Submit to Licensor a final report describing in
detail all Work that has been completed, all Work in progress, the state of
development of the Licensed Products, and all Resultant Intellectual Property;
and

(vii) Deliver to Licensor, or dispose as Licensor shall
direct, all materials, supplies, or work in progress in respect of this
Agreement and all documents, media and things, relating, referring to or
comprising confidential information and/or Resultant Intellectual Property.

B. On the termination of this Agreement for any reason whatsoever
all of the rights granted to Licensee under this Agreement shall immediately
terminate and revert to Licensor; all Royalties on sales theretofore made shall
become immediately due and payable; Licensee shall immediately discontinue all
use of the Licensed Marks, Licensed Patents, Licensor's Trade Dress and all
other Technology and Intellectual Property rights hereby granted. Licensee shall
no longer use the Licensor's Trademark,

<PAGE> 37

any variation, imitation or simulation thereof, or any of the Licensed Marks or
Licensor's Trade Dress, used in connection with sale of Licensed Products;
Licensee will promptly transfer to Licensor, at a price equal to Licensee's
actual cost, any registrations or trademark applications and rights with regard
to any trademark used in connection with Licensed Products or other of
Licensor's Products which it may have possessed at any time; Licensee shall
deliver to Licensor, at a price equal to Licensee's actual cost, all sketches,
designs, and the like in its possession or control, designed or approved by
Licensor, and all Packaging and Advertising materials in Licensee's possession
or control; if Licensor does not want Licensee's Packaging and Advertising,
Licensee shall destroy those materials under the supervision of Licensor, and
Licensee shall supply to Licensor a certificate of full destruction of all such
materials signed by a duly authorized officer of Licensee. Licensee shall
further transfer title and deliver to Licensor in the manner, time, and extent
directed by Licensor, at a price equal to Licensee's actual cost, work in
progress, completed articles, spare parts, documentation, drawings, client
lists, and other property necessary or helpful to Licensor in completing work in
progress and distribution of finished and future Product.

C. Upon Licensee's complete performance of the obligations set
forth in this Article 9, Licensor will pay to Licensee an amount determined in
accordance with the following, without duplication of any item:

(i) All amounts due and not previously paid to Licensee
for work completed in accordance with this Agreement prior to notice of
termination, and for work thereafter completed as may be specified in such
notice;

(ii) The cost of settling and paying claims arising out
of the termination of work under sub-contracts or orders as provided above in
this section;

(iii) The reasonable costs arising out of assisting
Licensor in the maintenance, protection and disposition of property acquired
under this Agreement; and

(iv) Any other reasonable costs incidental to such
termination of work.

9.4. Mistaken Termination for Cause. If after notice of termination of
this Agreement under the provisions set forth in Sections 9.1 or 9.2, it is
determined for any reason that Licensee was not in default under that provision
or that default was excusable under the provisions of this Agreement, this
Agreement shall be reinstated and the Licensee's sole remedy shall be the same
as if the notice of termination had been issued pursuant to Section 9.3(c).

9.5. Force Majeure. In the event that either party is unable to perform
any of its obligations under this Agreement or to enjoy any of the benefits of
this Agreement because of a Force Majeure Event, the party who has been so
affected shall timely give notice to the other party and shall use its
reasonable efforts to do everything reasonably

<PAGE> 38

possible to resume performance. Upon receipt of such notice, all obligations
under this Agreement shall be temporarily and immediately suspended. If the
period of non-performance exceeds sixty (60) calendar days from the receipt of
notice of the Force Majeure Event, the party whose ability to perform has not
been so affected may, by giving written notice, contact another entity to
perform the affected obligations until such time as performance can be resumed.
If the period of non-performance exceeds six (6) months, the party whose ability
has not been so affected may, by written notice, terminate this Agreement in the
manner specified in Section 9.3. If during the term of this Agreement, there are
promulgated any amended or new laws, ordinances, codes or regulations not known
or foreseeable at the time of signing of this Agreement which affect the cost or
time for performance of this Agreement, Licensee shall timely notify Licensor in
writing and submit reasonably detailed documentation of such effect in terms of
both time and cost of performing the Agreement. Upon concurrence by Licensor as
to the effect of such amended or new laws, ordinances, codes or regulations, an
equitable adjustment in the compensation and time of performance will be made by
an appropriate Change.

9.6. Inventory Upon Termination. Upon the termination of this Agreement
for any reason whatsoever, Licensee shall immediately deliver to Licensor an
Inventory Schedule. The Inventory Schedule shall be prepared as of the close of
business on the date of such termination and shall reflect the landed, duty paid
cost of each such item, as accounted for in Licensee's books according to GAAP.
Notwithstanding the other provisions of this Article 9, Licensor thereupon shall
have the option exercisable by notice in writing delivered to Licensee within
thirty (30) calendar days after its receipt of the complete Inventory Schedule,
to purchase any or all of the Inventory for which the Licensee does not have
orders for an amount equal to the landed, duty paid cost. If Licensor sends such
notice to Licensee, Licensor may collect and pay for the Products within thirty
(30) calendar days. At the end of such period, any Licensed Products remaining
in Licensee's possession shall be destroyed or disposed of in a fashion approved
in writing by Licensee.

9.7. Post-Termination Transition and Freedom to License. In the event of
termination of this Agreement, Licensor shall be free to license to others the
rights herein licensed, and all such licenses with respect to the manufacture
and sale of Licensed Products in the Territory shall immediately become
non-exclusive. In order to maintain the continuity of Licensor's licensing and
marketing programs and the goodwill associated with the Licensed Marks, upon
termination, Licensor shall have the option to immediately replace Licensee by
executing new license agreements with third parties and take steps to commence
sales of Licensed Products before the termination of the License without any
liability to Licensor.

9.8. Equitable Relief. Notwithstanding the arbitration provisions of
Section 15.9, Licensor and Licensee shall be entitled to equitable relief by way
of temporary and permanent injunction and such other and further relief as any
court with jurisdiction shall deem just and proper.

<PAGE> 39

9.9. Termination Without Prejudice. Termination of this Agreement
pursuant to and conditions hereof shall be without prejudice to the terminating
party's other rights and remedies at law or in equity.

9.10. Waiver. It is expressly understood that under no circumstances
shall Licensee be entitled, directly or indirectly, to any form of compensation
or indemnity from Licensor as a consequence to the termination of this
Agreement, whether as a result of the passage of time, or as the result of any
other cause of termination referred to in this Agreement. Without limiting the
generality of the foregoing, by its execution of the present Agreement, Licensee
hereby waives any claim which it has or which it may have in the future against
Licensor arising from any alleged goodwill created by the Licensee for the
benefit of Licensor or from the alleged creation or increase of a market for
Licensed Products.

9.11. Noncompetition by Licensee. During the performance of this
Agreement and for two years thereafter, Licensee agrees not to engage in
Competitive Activity or to perform the same or similar services as rendered
hereunder for any person or entity other than Licensor, and not to take any
employment or engagement in which Licensee would reasonably be expected to call
upon, use or disclose any rights hereby licensed unless, prior to proposing to
perform such services or take such employment, Licensee shall: (a) provide
written notice to Licensor identifying all parties and locations involved; and
(b) respond in writing, with particularity, to any written inquiry by Licensor
mailed within ten (10) calendar days of receipt of said written notice regarding
the presence or absence of particular features or concepts in the proposed
services or employment; and (c) deliver to Licensor a written certification
signed by an authorized officer of Licensee that no Confidential Information
shall be disclosed or used, and that Licensee's activities shall not violate any
provision of this Agreement.

ARTICLE 10: INDEMNIFICATION

10.1. Licensee. Licensee shall indemnify and hold Licensor and its
officers, agents and employees harmless from and against any and all liability,
claims, causes of action, suits, damages and expenses, including reasonable
attorneys' fees and expenses in actions involving third parties or between the
parties hereto, which they, or any of them are or become liable for, or may
incur, or be compelled to pay by reason of any acts, whether of omission or
commission, that may be committed or suffered by Licensee or any of its
servants, agents or employees in connection with Licensee's performance of this
Agreement in connection with Licensed Products manufactured by or on behalf of
Licensee or otherwise in connection with Licensee's business. This
indemnification shall apply regardless of whether the claim asserted alleges the
active or passive negligence or participation of Licensor. If any action or
proceeding shall be brought or asserted against Licensor in respect to which
indemnity may be sought from Licensee under this Section, Licensor shall
promptly notify Licensee thereof in writing, and Licensee shall assume and

<PAGE> 40

direct the defense thereof, however, Licensor shall have the right to reasonably
approve the selection of legal counsel hired by Licensee to defend such claim,
and if Licensor does not reasonably approve of Licensee's selection, Licensor
has the right to hire separate legal counsel at Licensee's expense. If Licensor
approves of Licensee's selection of counsel, nonetheless, Licensor may
thereafter, at its own expense, be represented by its own counsel in such action
or proceeding.

10.2. Indemnity Against Liens. The Licensee shall pay for all labor,
materials, and services furnished in connection with the performance of the Work
covered by this Agreement, including all costs and expenses for which a lien
might be imposed on property of Licensor. The Licensee shall indemnify and hold
Licensor harmless from all liability, damage, cost, or expense, including, but
not limited to attorneys' fees, by reason of any lien filed against property of
Licensor incidental to the performance of the Work covered by this Agreement.
The Licensee shall furnish Licensor on written demand satisfactory evidence that
all such costs and expenses have been paid. In case such evidence is not
furnished, Licensor may retain, from money due the Licensee, such amount as in
Licensor's opinion may be necessary to pay such costs and expenses, until
satisfactory evidence is furnished that all such liabilities have been
discharged. The obligations imposed by this Section shall not be limited by any
other provision in this Agreement.

10.3. Third Party Rights to Technology. Licensee shall indemnify and
hold Licensor harmless from any loss, liability and/or costs, including
reasonable attorneys' fees, arising out of or existing because of the claim that
the use or sale of any technology used by Licensee (except for any Licensed
Intellectual Property registered in Licensor's name prior to the execution of
this Agreement), or product embodying the technology delivered by Licensee
constitutes an infringement or violation of any patent, trademark, copyright,
trade secret or other proprietary rights.

Licensor shall indemnify and hold Licensee harmless from any
loss, liability and/or costs, including reasonable attorneys' fees, arising out
of or existing because of the claim that the use or sale of any technology used
by Licensor, or product embodying the technology delivered by Licensor
constitutes an infringement or violation of any patent, trademark, copyright,
trade secret or other proprietary rights.

10.4. Independent Covenants. The foregoing indemnity provisions of
Sections 10.1, 10.2, and 10.3 hereof shall be deemed independent covenants, and
shall survive completion of o\r any termination or cancellation of this
Agreement, or any claimed breach thereof. The prevailing party shall be entitled
to be reimbursed by the other party for all expenses, including reasonable
attorneys' fees paid or otherwise incurred to enforce the provisions of this
Section.

<PAGE> 41

ARTICLE 11: INSURANCE

11.1. Insurance to Be Obtained by Licensee.

A. Licensee shall maintain in effect at all times during the term
of this Agreement insurance, including without limitation workers' compensation,
comprehensive general liability, product liability, property damage, advertising
liability, and automobile liability insurance against all losses, claims,
demands, proceedings, damages, costs, charges and expenses for injuries or
damages, costs, charges and expenses for injuries to any person or property
arising out of or in connection with this Agreement which are the result of the
fault or negligence of Licensee, its agents and sublicensees. Such insurance
shall be for coverage on an occurrence basis in the amount of not less than
Three Million Dollars ($3,000,000) for personal injury and One Million Dollars
($1,000,000) for property damage. Licensee shall also provide insurance covering
theft and destruction of Licensed Products.

B. The specification of liability coverages and limits herein
shall not relieve or limit the responsibilities of Licensee under this
Agreement.

C. Licensee is solely responsible for determining whether
additional coverage or greater limits are required to protect Licensee's
interests from hazards or claims in excess of the specified minimum insurance.
Where special or unusual hazards peculiar to the Work are foreseeable, Licensee
shall take such steps as are necessary to insure itself against such hazards and
be responsible for any damage which results from the occurrence of such hazards
in connection with this project prior to the start of Work by Licensee.

D. Each policy of insurance shall contain a clause which provides
in the event of cancellation or expiration of the policy or of any change in the
policy of any nature, thirty (30) calendar days advance written notice will be
sent to Licensor.

E. Licensee shall deposit with Licensor a complete package of
certificates of insurance signed by the insurer. None of the insurance required
hereunder shall be canceled, changed or allowed to lapse until the Agreement has
been completed

F. Licensor and Teva Sport Sandals, Inc. or its successor or
assign shall be named as additional insureds.

ARTICLE 12: OWNERSHIP OF INTELLECTUAL PROPERTY AND TECHNOLOGY

12.1. Ownership of Copyright. Licensee hereby agrees that any Copyright
which shall have arisen under this Agreement or has arisen in the past in any
sketch, design, print, package, label, tag or the like, or used with the
Licensor's Trademark or on Licensed Products are the property of Licensor.
Licensee shall use its reasonable efforts to not, at any time, do any act or
thing which shall adversely affect any rights of Licensor's rights in such
sketches, designs, prints, packages, labels, tags and the like, and

<PAGE> 42

shall, at Licensor's request, do all things reasonably required by Licensor to
preserve and protect said rights.

12.2. Rights to the Trademark and Other Intellectual Property. Licensee
acknowledges the great value of the goodwill associated with the Licensed
Intellectual Property hereby licensed and/or used in connection with Licensed
Products. Licensee will use its reasonable efforts to not, at any time, do, or
otherwise suffer to be done any act or thing which shall, in any way, adversely
affect any of Licensor's rights in any Licensed Marks or any registrations
thereof or other intellectual property which, directly or indirectly, shall
reduce the value of the Licensed Marks or detract from its reputation. Licensee
shall not file or prosecute a trademark or service mark application or
applications to register any trademark in respect of the Licensed Products. The
restrictions of this Section similarly apply to Copyrights, patents, and other
Intellectual Property. Licensee hereby agrees to promptly disclose each
application for registration of Intellectual Property related to the Licensed
Products and hereby assigns legal ownership in any and all such trademarks or
other Intellectual Property for which Licensee has filed applications or
received registrations and shall have ownership in these corrected immediately
by executing assignments to Licensor of such intellectual property.

12.3. Licensee's Use of Trademarks and Copyrights Inures to Licensor's
Benefit. All uses of the Licensed Intellectual Property by Licensee in
advertising, promotions, labels and packaging are used by Licensee for the
account and benefit of the Licensor. The use of any such rights pursuant to this
Agreement shall be for the benefit of Licensor and shall not vest in Licensee
any title to or right or presumptive right to continue such use.

12.4. Licensee to Perform a Clearance Search of All Trademarks Used in
Connection with Licensed Products. All trademarks that Licensee proposes to use
on Licensed Products shall receive Licensor Approval. Licensor shall not grant
approval unless Licensee provides evidence that the proposed trademarks do not
infringe upon the rights of third parties. This shall be evidenced by a
trademark search printout performed on a known trademark database, such as
Thomson & Thomson, and a clear explanation, through opinion of counsel, of how
Licensee concluded from the search that such a trademark would not infringe the
rights of third parties. Notwithstanding any search, if Licensee submits a
trademark to Licensor pursuant to Article 12.4 for use in connection with
manufacture or sale of the Licensed Products, Licensee shall hold Licensor free
from liability and shall indemnify Licensor for any and all damages, costs, and
the like, including reasonable attorneys' fees.

12.5. Licensee Shall Not Attack Licensor's Title in Intellectual
Property. Licensee shall not, during the term of this Agreement or thereafter,
(a) attack Licensor's title or rights in and to Licensed Intellectual Property
used in connection with Licensor's Products in any jurisdiction or attack the
validity of this License or (b) contest the fact that Licensee's rights under
this Agreement are solely those of a licensee, manufacturer

<PAGE> 43

and distributor and such rights shall cease upon termination of this Agreement.
The provisions of this Section shall survive the termination of this Agreement.

12.6. Molds and Designs Used Only on Licensed Products. Licensee
acknowledges and agrees that Licensor owns or shall own all rights in designs
relating to the Licensed Products, regardless of whether such designs were
created by Licensor or created on behalf of Licensor by the Licensee. Licensee
agrees to make, procure and execute all assignments necessary to vest ownership
of design rights in Licensor. Licensee shall place appropriate notices,
reflecting ownership by Licensor, on all the Licensed Products, packaging, tags,
labels and advertising and promotional materials. Licensee shall not do or allow
to be done anything which may adversely affect any of Licensor's design rights.
All designs used by Licensee for the Licensed Products shall be used exclusively
for the Licensed Products and may not be used under any other trademark or
private label without the prior written consent of Licensor. Licensee shall
disclose and freely make available to Licensor any and all developments or
improvements it shall make relating to the Licensed Products and to their
manufacture, promotion and sales, including, without limitation, developments
and improvements in any machine, process or product design that may be disclosed
or suggested by Licensor or regarding any patent or trademark which Licensee is
entitled to utilize.

12.7. Assignment of Rights to Resultant Intellectual Property. Licensee
hereby assigns, and agrees to assign to Licensor all right, title and interest
in the United States and all foreign countries in and to all Resultant
Intellectual Property, including any and all patents, patent applications,
copyright registrations, design registrations, trademarks, trade secrets, rights
under international treaties, or any other protection available for Resultant
Intellectual Property in any country. Licensee agrees to obtain valid and
enforceable agreements from its employees and any subcontractor obligating
assignment of ownership rights in Resultant Intellectual Property from such
employees or subcontractors to Licensee, which ownership shall then pass to
Licensor under this Section.

12.8. Licensee's Duty to Preserve Resultant Intellectual Property.
Licensee shall not at any time take, induce or permit any action or omission
inconsistent with or tending to impair or diminish Licensor's rights in and to
the Resultant Intellectual Property. Licensee shall not at any time use any
Resultant Intellectual Property for any purpose whatsoever other than in
connection with tasks or services performed on behalf of Licensor.

12.9. Licensor's Rights in Licensee's Technology. With respect to all
Technology delivered to Licensor or otherwise embodied in any Licensed Product
which does not embody or comprise Resultant Intellectual Property, Licensee
hereby grants Licensor a royalty-free, perpetual, non-exclusive license, with
rights of sublicense and assignment under any and all intellectual property
rights, including patents, copyrights, trademark and trade secret rights which
Licensee may own to make, use, duplicate and sell such Technology.

<PAGE> 44

ARTICLE 13: INFRINGEMENT OR DILUTION

13.1. Notice of Infringement. Licensee shall notify Licensor in writing
of any infringement, dilution or imitation of the Licensed Intellectual Property
by any third party promptly when the same shall come to the attention of the
Licensee. Licensor will thereupon take such action as it deems advisable, and
Licensee shall cooperate with and assist Licensor in the prosecution of any such
suit, as Licensor may reasonably request. In no event, however, will Licensor be
required to take any action if it deems it inadvisable to do so and Licensee
will have no right to take any action without the prior written consent of
Licensor.

13.2. Licensor Control Over Litigation. Licensor shall have full control
over any such action, including, without limitation, the right to select
counsel, to settle on any terms it deems advisable in its discretion, to appeal
any adverse decision rendered in any court, to discontinue any action taken by
it, and otherwise to make any decision in respect thereto as it deems advisable
in its discretion. Licensor shall bear all reasonable, out-of-pocket expenses
connected with the foregoing. Any recovery as a result of such action shall
belong solely to Licensor, and Licensee shall have no claim to any part of such
recovery. Licensee may, upon receiving the prior written consent of Licensor,
participate in any action taken by or proceeding instituted by Licensor through
separate counsel of Licensee's own choosing and at Licensee's sole expense,
provided that Licensor at all times shall retain full control over such action
in accordance with this Section.

ARTICLE 14: CONFIDENTIALITY

14.1. Non-disclosure and Use by Licensee. Licensee shall not, at any
time, disclose any Confidential Information or use any Licensor's Confidential
Information other than as required to perform the tasks for which Licensee is
engaged by Licensor without Licensor Approval. Similarly, Licensor shall respect
the confidentiality and not use or disclose, other than to carry out the terms
hereof, Licensee Confidential Information.

14.2. Delivery by Licensee of Confidential Information. Upon completion
of this Agreement or upon request by Licensor, which request shall be made no
more frequently than monthly, Licensee shall deliver to Licensor any of
Licensor's Confidential Information reasonably requested by Licensor, as well as
all documents, media, items and technology comprising, embodying or relating to
the Confidential Information, as well as any other documents or things belonging
to Licensor that shall be in Licensee's possession. Licensee shall deliver to
Licensor all copies of documents, data, and the like embodying such Confidential
Information, and shall not take or retain any copies thereof, except as
authorized and under conditions set forth by Licensor.

<PAGE> 45

14.3. Secrecy. Licensee shall not release any information concerning the
Work or any part thereof, including the price paid for the Work, in the form of
advertising or publication, including news releases or professional Articles,
without Licensor's prior written permission, except as is required by law.

ARTICLE 15: OTHER PROVISIONS

15.1. Severability. If any provision or any portion of this Agreement
shall be construed to be illegal, invalid or unenforceable, such provision shall
be deemed stricken and deleted from this Agreement to the same extent and effect
as if never incorporated herein. All other provisions of this Agreement and
remaining portion of any provision which is not found to be illegal, invalid or
unenforceable in part shall continue in force and effect.

15.2. Non-waiver. No waiver, modification or cancellation of any term or
condition of this Agreement shall be effective unless executed in writing by the
party charged therewith. No written waiver shall excuse the performance of any
acts other than those specifically referred to herein. The fact that the
Licensor has not previously insisted upon the Licensee expressly complying with
any provision of the Agreement shall not be deemed to be a waiver of the
Licensor's future right to require compliance in respect thereof. Licensee
specifically acknowledges and agrees that the prior forbearance in respect of
any act, term or condition shall not prevent Licensor from subsequently
requiring full and complete compliance thereafter.

15.3. Permission Needed to Assign or Sublicense. Licensee shall not
assign or sublicense this Agreement or any interest therein, or any part of this
Agreement without Licensor's prior written consent. However, Licensor may assign
its rights and obligations under this Agreement to any successor without the
consent of Licensee, so long as such successor agrees to be liable for any
obligations, financial or otherwise, arising from this Agreement.

15.4 Form of Notice to Parties. All notices hereunder shall be in
writing and given by registered mail, traceable overnight express mail such as
Federal Express, facsimile, cable or telex addressed to the parties at the
addresses recited in this Agreement or to such other address of which either
party shall advise the other in writing.
Notices will be deemed given on the date it is sent.

If to Licensor:
Mark Thatcher
P.O. Box 968
Flagstaff, AZ 86002
(Fax No.)

<PAGE> 46

With copies to:
Charles F. Hauff, Jr., Esq./George H. Lyons
Snell & Wilmer
One Arizona Center
Phoenix, AZ 85004

John Kalinich
Teva Sport Sandals, Inc.
P.O. Box 968
Flagstaff, Arizona 86002

If to Licensee:
Deckers Outdoor Corporation
495-A South Fairview Avenue
Goleta, CA 93117
Attn: Douglas B. Otto
Facsimile #805-967-7862

With copies to:
Joseph E. Nida, Esq.
Nida & Maloney, P.C.
800 Anacapa Street
Santa Barbara, CA 93101
Facsimile #805-568-1955

15.5. Notice of Actions Being Brought. Licensee agrees to notify
Licensor immediately upon the commencement of any actions brought against
Licensee whose outcome may affect the rights of Licensor herein granted, and
Licensor shall have the right at its own expense to appear and defend such
actions.

15.6. Precedence. In the event of conflict between the terms of this
Agreement and any other document, the terms of this Agreement shall govern,
unless such other document expressly purports to modify this Agreement, and is
signed by the parties to this Agreement.

15.7. Survival of Obligations. The provisions of this Agreement, which
by their very nature survive final acceptance under this Agreement shall remain
in full force and effect after such termination.

15.8. Integration. This Agreement, and the appendices hereto, represent
the entire agreement between the parties respecting the subject matter hereof
and supersede all prior discussions, agreements and understandings of every kind
and nature between them. No modification of this Agreement will be effective
unless in writing, expressly purporting to modify this Agreement and signed by
the party against whom enforcement is sought.

<PAGE> 47

15.9. Arbitration. All disputes, controversies and claims arising out of
or relating to this Agreement or concerning the respective rights or obligations
hereunder of the parties hereto except disputes, controversies and claims
relating to or affecting in any way Licensor's ownership of or the validity of
the Licensed Mark or any registration thereof, or any application for
registration thereof (hereinafter referred to as "Licensed Mark Disputes") shall
be settled and determined by arbitration in Phoenix, Arizona before the American
Arbitration Association in accordance with and pursuant to the then existing
Arbitration Rules. The arbitrators shall have the power to award fees and
expenses to any party in any such arbitration and the courts shall have similar
power with regard to injunctive relief sought by Licensor pursuant to Article
9.9 hereof. However, in any arbitration proceeding arising under this Agreement,
the arbitrators shall not have the power to change, modify or alter any express
condition, term or provision hereof in any respect, and to that extent the scope
of their authority is expressly limited. The arbitration award shall be final
and binding upon the parties and judgment thereon may be entered in any court
having jurisdiction thereof. The service of any notice, process or motion or
other document in connection with an arbitration under this Agreement or for the
enforcement of any arbitration award hereunder may be effectuated in the manner
in which notices are to be given to a party pursuant to this Agreement.
Notwithstanding the agreement to submit disputes to arbitration, a party shall
have the right of recourse to an appropriate court in a dispute where equitable
relief by way of an injunction may be available.

15.10. Jurisdiction. In the event that a court action becomes necessary,
the Licensor and Licensee consent to the jurisdiction of the courts of the State
of Arizona, including all Arizona State Courts and all Federal Courts of the
State of Arizona.

15.11. Applicable Law. This Agreement will be construed in accordance
with the laws of the State of Arizona.

15.12. Responsibility for Taxes. Licensee shall be responsible for the
payment of all taxes based on work performed or Products delivered pursuant to
this Agreement except for any tax based on Licensor's net income.

15.13. Headings. The headings of the Articles of this agreement are for
convenience only and shall in no way limit or affect the term or conditions of
this Agreement.

15.14. Remedies Cumulative. All remedies available under the law and/or
this Agreement for breach of this Agreement are cumulative and may be exercised
concurrently or separately, and the exercise of any remedy shall not be deemed
an election of such remedy to the exclusion of other remedies.

15.15. Independent Contractor Status. It is expressly understood that
Licensee and Licensor are contractors independent of one another, and that
neither has the authority to bind the other to any third person or otherwise to
act in any way as the

<PAGE> 48

representative of the other, unless otherwise expressly agreed to in a writing
signed by both parties hereto. Licensee shall maintain complete control over its
employees and all of its subcontractors and assume liability for such actions as
would occur under the terms of this Agreement.

15.16. Rights of Licensor's Successors in Interest. The rights of
Licensor and the obligations of Licensee under this Agreement shall inure to the
benefit of Licensor's nominees, successors and assigns.

15.17. Construction. This Agreement has been submitted to the scrutiny
of, and has been negotiated by, all parties hereto and their counsel, and shall
be given a fair and reasonable interpretation in accordance with the terms
hereof, without consideration or weight being given to its having been drafted
by any party hereto or its counsel.

15.18. Limitation on Rights of Others. This Agreement is entered into
between the parties for the exclusive benefit of the parties. This Agreement is
not intended for the benefit of any creditor of any party or any other person.
Except to the extent provided by applicable statute, and then only to that
extent, no third party shall have any rights under this Agreement.

15.19. Limitations on Special Damages. Except as provided herein, no
party shall be liable to any other party by reason of this Agreement or any
breach or termination of this Agreement, for any incidental, consequential,
indirect, punitive, exemplary or special damages whether arising out of tort
(including negligence), product liability, or otherwise, and whether or not such
party has been advised of the possibility of such damage for any loss of
prospective profits or incidental, consequential indirect, punitive, exemplary
or special damages.

15.20. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.

IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the 7th day of June, 1999.

Licensor:

/s/ Mark Thatcher
--------------------------------
MARK THATCHER
Licensee:

DECKERS OUTDOOR CORPORATION

By: /s/ Peter Benjamin
--------------------------------
Name: Peter Benjamin
Title: Chief Operating Officer

<PAGE> 1

EXHIBIT 10.42

INTELLECTUAL PROPERTY
OPTION AGREEMENT

BY AND BETWEEN

MARK THATCHER,

AN INDIVIDUAL

AND

DECKERS OUTDOOR CORPORATION,

A DELAWARE CORPORATION

Information contained in sections 2.6(a), 2.6(b) and 2.6(c) of this agreement
has been omitted pursuant to a request for confidential treatment and has been
filed separately with the Securities and Exchange Commission.

<PAGE> 2

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
RECITALS 1

ARTICLE 1 DEFINITIONS 1

ARTICLE 2
RIGHT TO PURCHASE 2
2.1 Licensee's Exclusive Right to Purchase 2
2.2 Licensee's Offer Notice 2
2.3 Failure of Licensee to Complete Purchase 2
2.4 Right of Licensor to Purchase 2
(a) Licensor's Purchase of Licensee's Interest 2
2.5 Licensee's Exclusive Right to "Lock-up"Negotiations with Licensor 2
2.6 Purchase Price and Terms 2
(a) Purchase Price of Licensed Intellectual Property During First
Exclusive Option Period 3
(b) Purchase Price of Licensed Intellectual Property During Second
Exclusive Option Period 3
(c) Purchase Price of Licensee's Interest 3
(d) Audit and Verification 3
(e) No Terms 3
2.7 Obligations of Licensor and Licensee 3
(a) Obligations of Licensor 3
(b) Obligations of Licensee 4
2.8 Closing 4
2.9 Termination 4
2.10 Noncompetition by Licensor 4
2.11 Existing Licensing Arrangements 5
2.12 Employment Agreements 5

ARTICLE 3
OTHER PROVISIONS 5
3.1 Severability 5
3.2 Non-waiver 5
3.3 Permission Needed to Assign or Sublicense 5
3.4 Form of Notice to Parties 5
3.5 Notice of Actions Being Brought 6
3.6 Precedence 6
3.7 Survival of Obligations 6
3.8 Integration 6
3.9 Arbitration 7
3.10 Jurisdiction 7
</TABLE>

i
<PAGE> 3

<TABLE>
<S> <C> <C>
3.11 Applicable Law 7
3.12 Headings 7
3.13 Remedies Cumulative 7
3.14 Independent Contractor Status 7
3.15 Rights of Licensor's Successors in Interest 7
3.16 Construction 8
3.17 Limitation on Rights of Others 8
3.18 Limitations on Special Damages 8
3.19 Counterparts 8

EXHIBIT A
ASSIGNMENT AND ASSUMPTION AGREEMENT

EXHIBIT B
EMPLOYMENT AGREEMENT WITH MARK THATCHER

EXHIBIT C
EMPLOYMENT AGREEMENT WITH JOHN KALINICH
</TABLE>

ii
<PAGE> 4

INTELLECTUAL PROPERTY OPTION AGREEMENT

This Intellectual Property Option Agreement (the "Agreement") is made
this 7th day of June, 1999, by and between Mark Thatcher, an individual,
residing at 1245 Cochran Avenue, Flagstaff, Arizona 86001 ("Licensor") and
Deckers Outdoor Corporation, a Delaware corporation with its principal place of
business located at 495-A South Fairview Ave., Goleta, California 93117
("Licensee") with reference to the following facts:

RECITALS

A. Concurrently with the entry into this Agreement, Licensor and
Licensee have entered into that certain Teva License Agreement (the "License
Agreement"), which provides Licensee with a license to use certain Licensed
Intellectual Property (as that term is defined in the License Agreement) owned
by Licensor in connection with the manufacture and sale of footwear under the
Teva(R) brand name.

B. Pursuant to the provisions of the License Agreement, Licensor has
retained all ownership rights in the Licensed Intellectual Property.

C. In connection with its entry into the License Agreement, Licensee
desires to obtain, and Licensor is willing to grant to Licensee on the terms
provided herein, an option to purchase the Licensed Intellectual Property.

NOW, THEREFORE, for and in consideration of the above set forth
recitals, and the mutual covenants hereinafter provided and other good and
valuable consideration, Licensor and Licensee agree as follows:

ARTICLE 1
DEFINITIONS

All capitalized terms not otherwise defined in this Agreement shall have
the meanings ascribed to them in the License Agreement.

1.1 "EBITDA" shall mean earnings before interest, taxes, depreciation
and amortization as determined in accordance with generally accepted accounting
practices applied on a consistent basis.

1.2 "Licensee's First Exclusive Option Period" shall mean the period
beginning on January 1, 2000 through and including December 31, 2001.

1.3 "Licensee's Second Exclusive Option Period" shall mean the period
beginning on January 1, 2006 through and including December 31, 2008.

1.4 "Licensee's Interest" shall mean Licensee's entire interest in and
to the License Agreement.

<PAGE> 5

1.5 "Licensor's Exclusive Option Period" shall mean the period beginning
January 1, 2010 through and including December 31, 2011.

1.6 "Lock-up Period" shall mean the period beginning January 1, 2009
through and including December 31, 2009.

ARTICLE 2
RIGHT TO PURCHASE

2.1 Licensee's Exclusive Right to Purchase. During either the Licensee's
First Exclusive Option Period or the Licensee's Second Exclusive Option Period
and provided that Licensee has remained in compliance with all provisions of the
License Agreement at all times during the Term of the License Agreement,
Licensee shall have the right to purchase from Licensor, and Licensor shall sell
to Licensee, all, but not less than all, of the Licensed Intellectual Property,
at the purchase price and on the terms provided in Section 2.6(a) of this
Agreement.

2.2 Licensee's Offer Notice. The Licensee must first give written notice
("Licensee Notice") to the Licensor of Licensee's exercise of its option to
purchase all of the Licensed Intellectual Property prior to the conclusion of
the Licensee's Exclusive Option Period.

2.3 Failure of Licensee to Complete Purchase. Should Licensee exercise
its purchase option pursuant to this Agreement and subsequently fail to complete
such purchase within the time allotted for Closing pursuant to Section 2.8 of
this Agreement, this Agreement, in its entirety, shall automatically become null
and void, and Licensee shall have no further opportunity to purchase the
Licensed Intellectual Property.

2.4 Right of Licensor to Purchase. If Licensee does not exercise the
purchase option given pursuant to Section 2.1 of this Agreement during
Licensee's Exclusive Option Period, then during the Licensor's Exclusive Option
Period, Licensor may elect to purchase the Licensee's Interest for the purchase
price and on the terms provided in Section 2.6(b) of this Agreement.

(a) Licensor's Purchase of Licensee's Interest. At any time
during the Licensor's Exclusive Option Period, Licensor may deliver to Licensee
a written notice (the "Licensor's Notice") stating the Licensor's intention to
purchase the Licensee's Interest for the purchase price and on the terms
provided in Section 2.6(b) of this Agreement. Licensee shall then be obligated
to sell the Licensee's Interest to Licensor in accordance with this Agreement.

2.5 Licensee's Exclusive Right to "Lock-up" Negotiations with Licensor.
During the Lock-up Period, Licensee has the exclusive right to negotiate with
Licensor to purchase all of Licensor's Licensed Intellectual Property. During
the Lock-up Period, Licensor is prohibited from negotiating with any third
parties or accepting any other purchase offer.

<PAGE> 6

2.6 Purchase Price and Terms.

(a) Purchase Price of Licensed Intellectual Property During First
Exclusive Option Period. If Licensee is to purchase the Licensed Intellectual
Property during the Licensee's First Exclusive Option Period pursuant to Section
2.1, the purchase price paid for the license on the Intellectual Property shall
be (i) a cash payment in an amount which is the greater of (x) - * - of Net
Sales for all Licensed Products and other Teva products made by Licensee,
Licensor, and any third party (excluding any such sales by Licensee to Licensor
to avoid "double counting") ("Aggregated Net Sales") of the calendar year since
January 1, 2000 (except in the event that Licensee exercises its option to
purchase the Licensor's Intellectual Property during calendar year 2000, in
which event the Aggregate Net Sales for year ending December 31, 1999 shall be
used) with the highest Aggregated Net Sales or (y) - * - ; (ii) - * - shares of
the Licensee's common stock (the "Option Execution Shares"); and (iii) options
to purchase - * - shares of the Licensee's common stock (the "Options") at an
exercise price equal to the average closing price of Licensee's common stock
over the 30 day period prior to Licensee's exercise of its option to purchase
the Licensed Intellectual Property. The Options shall expire on the tenth
anniversary of the purchase of the Licensed Intellectual Property.

(b) Purchase Price of Licensed Intellectual Property During
Second Exclusive Option Period. If Licensee is to purchase the Licensed
Intellectual Property during the Licensee's Second Exclusive Option Period
pursuant to Section 2.1, the purchase price to be paid for the Licensed
Intellectual Property shall be calculated by multiplying (i ) the average of the
Aggregated Net Sales for the two calendar years since January 1, 2000 with the
highest Aggregate Net Sales by (ii) - * -.

(c) Purchase Price of Licensee's Interest. If Licensor is to
purchase the Licensee's Interest pursuant to Section 2.4, the purchase price to
be paid for the Licensee's Interest shall be calculated by multiplying (i) the
average of the EBITDA earned by Licensee under the License Agreement for the two
calendar years since January 1, 2000 with the highest EBITDA by (ii) - * - .

(d) Audit and Verification. The amounts of Net Sales or EBITDA
used for purposes of any calculation pursuant to this Article 2 shall be subject
to audit and verification by an independent certified public accounting firm
selected jointly by Licensor and Licensee, whose determination shall be
conclusive. Licensor and Licensee shall bear equally the cost of any such audit
and verification.

(e) No Terms. Unless otherwise agreed by Licensor and Licensee,
payment of the purchase price for any transfer made pursuant to this Agreement
shall be

* Pursuant to a request for confidential treatment, this information has been
omitted and filed separately with the Securities and Exchange Commission.

<PAGE> 7

by wire transfer of immediately available funds within ninety (90) days of
notice of exercise of such right as directed by the selling party, and the
selling party shall have no obligation to provide terms or financing of the
purchase price.

2.7 Obligations of Licensor and Licensee.

(a) Obligations of Licensor. Should Licensee elect to exercise
any of its rights to purchase the Licensed Intellectual Property from Licensor
pursuant to Article 2 of this Agreement, then upon Licensee's payment of the
Purchase Price to Licensor in accordance with this Agreement, Licensor agrees
that he will execute, acknowledge and deliver any bills of sale, assignments,
conveyances and other assurances, documents and instruments of transfer,
reasonably requested by Licensee, including the Assignment and Assumption
Agreement attached hereto as Exhibit A, and will take any other action
consistent with the terms of this Agreement that may reasonably be requested by
Licensee, for the purpose of selling, conveying and confirming to Licensee, or
reducing to possession, the Licensed Intellectual Property to be sold and
conveyed pursuant to the option granted by this Agreement. If requested by
Licensee, Licensor further agrees to prosecute or otherwise enforce in its own
name for the benefit of Licensee, any claims, rights or benefits that require
prosecution or enforcement in such party's name. Any prosecution or enforcement
of claims, rights or benefits under this Section 2.7 shall be solely at
Licensee's expense, unless the prosecution or enforcement is made necessary by a
breach of this Agreement by Licensor. Upon Licensee's payment of the purchase
price, the License Agreement shall immediately terminate, and neither Licensor
nor Licensee shall have any further obligations under the License Agreement.

(b) Obligations of Licensee.

(i) Should the Licensee elect to exercise its right to
purchase the Licensed Intellectual Property from Licensor during the Licensee's
First Exclusive Option Period, Licensee shall nominate and effect the election
of Licensor. In addition, Licensor shall be entitled to have one additional
person attend meetings of the Board of Directors of Licensee in an ex officio,
advisory, non-voting capacity.

(ii) Should Licensor elect to exercise his right to
purchase the Licensed Intellectual Property from Licensor pursuant to Article 2
of this Agreement, then upon Licensor's payment of the Purchase Price to
Licensee in accordance with this Agreement, the License Agreement shall
immediately terminate, and neither Licensor nor Licensee shall have any further
obligations under the License Agreement.

2.8 Closing. The closing for the purchase of the Licensed Intellectual
Property or the Licensee's Interest shall take place at a mutually acceptable
time at the principal place of business of the Licensor within ninety (90) days
after the receipt of the purchasing party's notice by the selling party.

2.9 Termination. This Agreement shall automatically terminate and all
rights contained herein shall automatically terminate if the License Agreement
is terminated for

<PAGE> 8

any reason, or if the License Agreement is not renewed at the end of the initial
term, any Renewal Term, or any Annual Period.

2.10 Noncompetition by Licensor. Following a purchase of Licensed
Intellectual Property pursuant to this Agreement, during the time period during
which Licensor is an employee of Licensee and two years thereafter, Licensor
agrees not to engage in Competitive Activity or to perform the same or similar
services as rendered hereunder for any person or entity other than Licensee, and
not to take any employment or engagement in which Licensor would reasonably be
expected to call upon, use or disclose any rights hereby licensed unless, prior
to proposing to perform such services or take such employment, Licensor shall:
(a) provide written notice to Licensee identifying all parties and locations
involved; and (b) respond in writing, with particularity, to any written inquiry
by Licensee mailed within ten (10) calendar days of receipt of said written
notice regarding the presence or absence of particular features or concepts in
the proposed services or employment; and (c) deliver to Licensee a written
certification signed by Licensor that no Confidential Information shall be
disclosed or used, and that Licensor's activities shall not violate any
provision of this Agreement.

2.11 Existing Licensing Arrangements. Licensee acknowledges and agrees
that Licensor may enter into non-footwear license arrangements while this
Agreement is in effect and that the purchase of the Licensed Intellectual
Property pursuant to this Agreement shall be effected subject to licensing
arrangements Licensor has entered into as of the date of purchase pursuant to
this Agreement.

2.12 Employment Agreements. Upon purchase of the Licensed Intellectual
Property pursuant to this Agreement, Licensee shall execute five year employment
agreements with Mark Thatcher and John Kalinich in the form attached hereto as
Exhibit B and Exhibit C, respectively.

ARTICLE 3
OTHER PROVISIONS

3.1 Severability. If any provision or any portion of this Agreement
shall be construed to be illegal, invalid or unenforceable, such provision shall
be deemed stricken and deleted from this Agreement to the same extent and effect
as if never incorporated herein. All other provisions of this Agreement and
remaining portion of any provision which is not found to be illegal, invalid or
unenforceable in part shall continue in force and effect.

3.2 Non-waiver. No waiver, modification or cancellation of any term or
condition of this Agreement shall be effective unless executed in writing by the
party charged therewith. No written waiver shall excuse the performance of any
acts other than those specifically referred to herein. Licensee specifically
acknowledges and agrees that the prior forbearance in respect of any act, term
or condition shall not prevent Licensor from subsequently requiring full and
complete compliance thereafter.

3.3 Permission Needed to Assign or Sublicense. Licensee shall not assign
or

<PAGE> 9

sublicense this Agreement or any interest therein, or any part of this Agreement
without Licensor's prior written consent. However, Licensor may assign its
rights and obligations under this Agreement to any successor without the consent
of Licensee, so long as such successor agrees to be liable for any obligations,
financial or otherwise, arising from this Agreement.

3.4 Form of Notice to Parties. All notices hereunder shall be in writing
and given by registered mail, traceable overnight express mail such as Federal
Express, facsimile, cable or telex addressed to the parties at the addresses
recited in this Agreement or to such other address of which either party shall
advise the other in writing. Notices will be deemed given on the date it is
sent.

If to Licensor: Mark Thatcher
P.O. Box 968
Flagstaff, AZ 86002
Facsimile (520) 779-6004

With copies to: George H. Lyons, Esq.
Snell & Wilmer
One Arizona Center
Phoenix, AZ 85004
Facsimile (602) 382-6070

John Kalinich
Teva Sport Sandals, Inc.
P.O. Box 968
Flagstaff, Arizona 86002
Facsimile (520) 779-6004

If to Licensee: Douglas B. Otto
Decker Outdoor Corporation
495-A South Fairview Avenue
Goleta, California 93117
Facsimile (805) 967-7862

With copies to: Joseph E. Nida, Esq.
Nida & Maloney, P.C.
800 Anacapa Street
Santa Barbara, California 93101
Facsimile (805) 568-1955

3.5 Notice of Actions Being Brought. Each party agrees to notify the
other party immediately upon the commencement of any actions brought against a
party whose outcome may affect the rights of the other party granted herein or
under the License Agreements, and such other party shall have the right at its
own expense to appear and defend such actions.

<PAGE> 10

3.6 Precedence. In the event of conflict between the terms of this
Agreement and any other document, the terms of this Agreement shall govern,
unless such other document expressly purports to modify this Agreement, and is
signed by Licensor and Licensee.

3.7 Survival of Obligations. The provisions of this Agreement, which by
their very nature survive final acceptance under this Agreement shall remain in
full force and effect after such termination.

3.8 Integration. This Agreement represents the entire agreement between
the parties respecting the subject matter hereof and supersedes all prior
discussions, agreements and understandings of every kind and nature between
them. No modification of this Agreement will be effective unless in writing,
expressly purporting to modify this Agreement and signed by the party against
whom enforcement is sought.

3.9 Arbitration. All disputes, controversies and claims arising out of
or relating to this Agreement or concerning the respective rights or obligations
hereunder of the parties hereto except disputes, controversies and claims
relating to this Agreement shall be settled and determined by arbitration in
Phoenix, Arizona before the American Arbitration Association in accordance with
and pursuant to the then existing Arbitration Rules. The arbitrators shall have
the power to award fees and expenses to any party in any such arbitration and
the courts shall have similar power with regard to injunctive relief sought by
Licensor pursuant to Article 9 of the License Agreements. However, in any
arbitration proceeding arising under this Agreement, the arbitrators shall not
have the power to change, modify or alter any express condition, term or
provision hereof in any respect, and to that extent the scope of their authority
is expressly limited. The arbitration award shall be final and binding upon the
parties and judgment thereon may be entered in any court having jurisdiction
thereof. The service of any notice, process or motion or other document in
connection with an arbitration under this Agreement or for the enforcement of
any arbitration award hereunder may be effectuated in the manner in which
notices are to be given to a party pursuant to this Agreement.

3.10 Jurisdiction. In the event that a court action becomes necessary,
the Licensor and Licensee consent to the jurisdiction of the courts of the State
of Arizona, including all Arizona State Courts and all Federal Courts of the
State of Arizona.

3.11 Applicable Law. This Agreement will be construed in accordance with
the laws of the State of Arizona.

3.12 Headings. The headings of the Articles of this agreement are for
convenience only and shall in no way limit or affect the term or conditions of
this Agreement.

3.13 Remedies Cumulative. All remedies available under the law and/or
this Agreement for breach of this Agreement are cumulative and may be exercised
concurrently or separately, and the exercise of any remedy shall not be deemed
an election of such remedy to the exclusion of other remedies.

<PAGE> 11

3.14 Independent Contractor Status. It is expressly understood that
Licensee and Licensor are contractors independent of one another, and that
neither has the authority to bind the other to any third person or otherwise to
act in any way as the representative of the other, unless otherwise expressly
agreed to in a writing signed by both parties hereto. Licensor and Licensee
shall each maintain complete control over their respective employees and all of
their respective subcontractors and assume liability for such actions as would
occur under the terms of this Agreement.

3.15 Rights of Licensor's Successors in Interest. The rights of Licensor
and the obligations of Licensee under this Agreement shall inure to the benefit
of Licensor's nominees, successors and assigns.

3.16 Construction. This Agreement has been submitted to the scrutiny of,
and has been negotiated by, all parties hereto and their counsel, and shall be
given a fair and reasonable interpretation in accordance with the terms hereof,
without consideration or weight being given to its having been drafted by any
party hereto or its counsel.

3.17 Limitation on Rights of Others. This Agreement is entered into
between the parties for the exclusive benefit of the parties. This Agreement is
not intended for the benefit of any creditor of any party or any other person.
Except to the extent provided by applicable statute, and then only to that
extent, no third party shall have any rights under this Agreement.

3.18 Limitations on Special Damages. Except as provided herein, no party
shall be liable to any other party by reason of this Agreement or for any
damages arising out of any breach or termination of this Agreement, for any
incidental, consequential, indirect, punitive, exemplary or special damages
whether arising out of tort (including negligence), product liability, or
otherwise, and whether or not such party has been advised of the possibility of
such damage for any loss of prospective profits or incidental or special or
consequential damages.

3.19 Counterparts This Agreement may be executed in any number of
counterparts, each of which sall be deemed an original, but all of which shall
constitute one and the same instrument.

<PAGE> 12

IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the date first written above.

LICENSOR:

/s/ Mark Thatcher
--------------------------------
Mark Thatcher

LICENSEE:

DECKER OUTDOOR CORPORATION,
a Delaware corporation

/s/ Peter Benjamin
--------------------------------
By: Peter Benjamin
Its: Chief Operating Officer

<ARTICLE> 5

<S> <C>
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<PERIOD-START> JAN-01-1999
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<RECEIVABLES> 29,345,000
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