<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 1997
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: 1-13848
OAKLEY, INC.
(Exact name of registrant as specified in its charter)
WASHINGTON 95-3194947
(State or other jurisdiction of (IRS Employer ID No.)
incorporation or organization)
ONE ICON
FOOTHILL RANCH, CALIFORNIA 92610
(Address of principal (Zip Code)
executive offices)
(714) 951-0991
(Registrant's telephone number, including area code)
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 _____ No __X__
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
COMMON STOCK, PAR VALUE $.01 PER SHARE 70,659,086 SHARES
(Class) (Outstanding on November 7, 1997)
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OAKLEY, INC.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
ITEM 1 - Financial Statements
Consolidated Balance Sheets as of December 31, 1996
and September 30, 1997 (unaudited)..................................... 3
Consolidated Statements of Income for the three- and nine-month periods
ended September 30, 1996 and 1997 (unaudited)........................... 4
Consolidated Statements of Cash Flows for the nine-month period
ended September 30, 1996 and 1997 (unaudited)........................... 5
Notes to Consolidated Financial Statements................................ 6-7
ITEM 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................... 8-12
PART II. OTHER INFORMATION
ITEM 1 - Legal Proceedings................................................ 13-15
ITEM 2 - Changes in Securities............................................ 15
ITEM 3 - Defaults Upon Senior Securities.................................. 15
ITEM 4 - Submission of Matters to a Vote of Security Holders.............. 15
ITEM 5 - Other Information................................................ 15
ITEM 6 - Exhibits and Reports on Form 8-K................................. 16-19
Signatures................................................................ 20
Exhibits.................................................................. 21
2
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OAKLEY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
December 31,1996 September 30, 1997
----------------------------------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 8,063 $ 8,664
Accounts receivable, less allowance for
doubtful accounts of $590 (1996), $516 (1997) 21,084 24,651
Inventories (Note 2) 29,553 25,118
Other receivables 1,465 2,043
Deferred income taxes 5,643 5,643
Prepaid expenses and other 5,822 4,149
------------ ------------
Total current assets 71,630 70,268
Property and equipment, net 72,942 100,381
Deposits 2,193 2,307
Other assets 11,480 11,605
------------ ------------
TOTAL ASSETS $ 158,245 $ 184,561
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit (Note 3) $ 18,000 $ -
Accounts payable 7,997 12,076
Accrued expenses and other current liabilities 9,526 8,450
Income taxes payable - 6,192
Current maturities of long-term debt (Note 3) - 1,519
------------ ------------
Total current liabilities 35,523 28,237
Deferred income taxes 1,285 1,285
Long-term debt, net of current maturities (Note 3) - 21,261
COMMITMENTS AND CONTINGENCIES (Note 4)
SHAREHOLDERS' EQUITY
Preferred stock, par value $.01 per share: 20,000,000
shares authorized; no shares issued - -
Common stock, par value $.01 per share: 200,000,000
shares authorized; 70,960,012 (1996) and
70,659,086 (1997) issued and outstanding 710 707
Additional paid-in capital 58,218 55,141
Retained earnings 62,634 78,847
Foreign currency translation adjustment (125) (917)
------------ ------------
Total shareholders' equity 121,437 133,778
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 158,245 $ 184,561
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
3
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OAKLEY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------------------------
1996 1997 1996 1997
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 67,785 $ 59,418 $ 179,255 $ 148,971
Cost of goods sold 20,080 23,370 52,831 57,212
----------- ----------- ------------ ------------
Gross profit 47,705 36,048 126,424 91,759
Operating expenses:
Research and development 1,374 1,111 3,335 2,654
Selling 14,482 15,485 37,039 40,730
Shipping and warehousing 1,820 1,629 4,780 4,308
General and administrative 4,908 6,352 12,947 16,898
----------- ----------- ------------ ------------
Total operating expenses 22,584 24,577 58,101 64,590
Operating income 25,121 11,471 68,323 27,169
Interest (income)/expense, net (290) 407 (592) 849
----------- ----------- ------------ ------------
Income before provision for income taxes 25,411 11,064 68,915 26,320
Provision for income taxes 9,758 4,249 26,551 10,107
----------- ----------- ------------ ------------
Net income $ 15,653 $ 6,815 $ 42,364 $ 16,213
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
Net income per common share $ 0.22 $ 0.10 $ 0.59 $ 0.23
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
Weighted average shares outstanding 71,946 70,816 71,925 70,703
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
4
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OAKLEY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS) (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1996 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 42,364 $ 16,213
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 5,932 9,288
Deferred compensation 25 85
(Gain) loss on disposition of equipment 18 234
Deferred income taxes, net 68 -
Changes in assets and liabilities, net of effects of
business acquisition:
Accounts receivable (4,840) (3,557)
Inventories (749) 4,808
Other receivables (1,753) (577)
Prepaid expenses and other (2,020) 1,673
Accounts payable 2,945 3,698
Accrued expenses and other current liabilities 1,130 (1,281)
Income taxes payable (524) 6,288
------------- -------------
Net cash provided by operating activities 42,596 36,872
CASH FLOWS FROM INVESTING ACTIVITIES:
Deposits 213 (114)
Acquisitions of property and equipment (29,126) (36,383)
Proceeds from sale of property and equipment 255 241
Acquisition of business - (2,600)
Other assets (355) 1,858
------------- -------------
Net cash used in investing activities (29,013) (36,998)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank borrowings - 40,000
Repayments of bank borrowings - (35,220)
Issuance of common stock - 36
Exercise of stock options 106 -
Dividends paid (263) -
Repurchase of common shares - (3,200)
------------- -------------
Net cash (used in) provided by financing activities (157) 1,616
EFFECT OF EXCHANGE RATE CHANGES ON CASH (190) (889)
NET INCREASE
IN CASH AND CASH EQUIVALENTS 13,236 601
CASH AND CASH EQUIVALENTS, beginning of period 9,760 8,063
------------- -------------
CASH AND CASH EQUIVALENTS, end of period $ 22,996 $ 8,664
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
5
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OAKLEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated financial statements of Oakley, Inc. and its
wholly-owned subsidiaries (the "Company") have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission ("SEC").
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles ("GAAP") for complete financial
statements.
In the opinion of management, the consolidated financial statements contain
all adjustments, consisting only of normal recurring adjustments, considered
necessary for a fair statement of the balance sheets as of December 31, 1996
and September 30, 1997, the statements of income for the three-and nine-month
periods ended September 30, 1996 and 1997 and the statements of cash flows for
the nine-month periods ended September 30, 1996 and 1997. The results of
operations for the three- and nine-month periods ended September 30, 1997 are
not necessarily indicative of the results of operations for the entire fiscal
year ending December 31, 1997.
NOTE 2 - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, 1996 September 30, 1997
------------------- --------------------
<S> <C> <C>
Raw Materials $ 16,039,000 $ 15,544,000
Finished Goods 13,514,000 9,574,000
------------------- --------------------
$ 29,553,000 $ 25,118,000
=================== ====================
</TABLE>
NOTE 3 - FINANCING ARRANGEMENTS
The Company has a $30.0 million line of credit with a bank syndicate. At
September 30, 1997, there were no borrowings outstanding under the agreement.
In March 1997, the Company entered into a $25.0 million bridge financing with
a commercial bank with an original maturity date of July 18, 1997, which was
subsequently extended. In August 1997, the Company converted the bridge loan
facility into a term loan secured by a first mortgage on the Company's new
headquarters. At September 30, 1997, the outstanding balance on the term loan
was $22.8 million. The term loan requires quarterly principal payments of
approximately $380,000 plus interest based on Libor plus 1.15% (6.84% at
September 30, 1997) for five years with the then outstanding balance payable
on September 1, 2002.
NOTE 4 - LITIGATION
During December 1996, three putative class action lawsuits ("the California
Securities Actions") were filed in the California Superior Court for the
County of Orange against the Company and three of its officers and directors
alleging material misstatements and omissions in certain of the Company's
public statements, SEC filings and reports of third-party analysts. The
plaintiffs seek unspecified damages and other relief. In addition, one of the
lawsuits also asserted claims against firms who served as underwriters of the
June 6, 1996 offering of the Company's common stock by certain of its
shareholders of (the "Secondary Offering"). Pursuant to certain provisions of
the underwriting agreement between the Company and the firms, the Company
agreed to indemnify the firms against certain liabilities, including
liabilities under the Securities Act. In March 1997, the Company was named as
a nominal defendant in a putative derivative action against two of the
Company's officers and directors based on substantially the same allegations
as those in the California Securities Actions. The derivative plaintiff seeks
to recover damages and other relief on behalf of the Company. During October
1997, three putative class action lawsuits (the "Federal
6
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Securities Actions") were filed in the United States District Court for the
Central District of California, Southern Division against the Company, three
of its officers and directors and firms who served as underwriters of the
Secondary Offering alleging material misstatements and omissions in certain of
the Company's public statements, the reports of third-party analysts and/or
certain of the Company's SEC filings. The plaintiffs in the Federal
Securities Actions seek unspecified damages and other relief. Although it is
too soon to predict the outcome of the cases with any certainty, based on its
current understanding of the facts, the Company believes that the plaintiffs'
claims are without merit and intends to vigorously defend the actions.
In addition, the Company is currently involved in litigation incidental to the
Company's business. In the opinion of management, the ultimate resolution of
such litigation, in the aggregate, will not have a material adverse effect on
the accompanying financial statements.
NOTE 5 - NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 128, "Earnings per Share" (FAS
128). FAS 128 requires the Company to disclose a basic and diluted earnings
per share (EPS) calculation. Basic EPS excludes common stock equivalents from
the EPS calculation, while diluted EPS is calculated consistent with the
Company's primary earnings per share calculation. The Company will adopt the
provisions of FAS 128 at December 31, 1997. Adopting FAS 128 for the three-
and nine-month periods ended September 30, 1997 would not have had a material
impact on the Company's reported net income per share.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
The new statement is effective for both interim and annual periods beginning
after December 15, 1997. The company has not yet determined the impact of
adopting this new standard on the consolidated financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The new statement is effective for
fiscal years beginning after December 15, 1997. The Company has not yet
determined the impact of adopting this new standard on the consolidated
financial statements.
7
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion includes the operations of Oakley, Inc. and
subsidiaries for each of the periods discussed.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
NET SALES
Net sales decreased to $59.4 million for the three months ended September 30,
1997 from $67.8 million for the three months ended September 30, 1996, a
decrease of $8.4 million, or 12.4%. This decrease was the result of
substantially lower sales of the Company's sunglasses, including WIRES, SQUARE
WIRES, EYE JACKETS, STRAIGHT JACKETS, M FRAMES, ZEROS, TRENCHCOATS and its
original line of FROGSKINS which was replaced by a new line of FROGSKINS in
December 1996. These decreases were partially offset by sales from the
introduction of new sunglasses, including PRO M FRAMES in October 1996, a new
line of FROGSKINS in December 1996, X METAL in February 1997, FIVES in April
1997 and TOP COAT in August 1997, and an increase in sales of clothing and
other accessories. The Company's domestic sales declined 22.2% to $36.9
million from $47.4 million in the comparable 1996 period, principally as a
result of a 44.8% decline in net sales to the Company's largest customer,
Sunglass Hut, partially offset by slightly higher net sales in the 1997 period
to other domestic accounts. The Company's domestic sales were impacted by
lower than expected production of its FIVES line and shipping disruptions and
related consequences caused by the United Parcel Service strike. The
Company's international sales increased 11.3% to $22.6 million in 1997 from
$20.3 million in 1996, principally as a result of increased sales in Europe,
Canada and Latin America. These increases were partially offset by decreased
sales in Japan and South Africa as the Company transitions to a direct
operation in both of these markets and a reduction in sales to the Company's
distributors in Australia and Southeast Asia. International net sales in the
1997 period were negatively affected by the strength of the dollar compared to
the functional currency of direct operations in continental Europe.
GROSS PROFIT
Gross profit decreased to $36.0 million for the three months ended September
30, 1997 from $47.7 million for the three months ended September 30, 1996, a
decrease of $11.7 million, or 24.5%. As a percentage of net sales, gross
profit decreased to 60.7% in 1997 from 70.4% in 1996. Gross profit as a
percentage of net sales was negatively affected by fixed manufacturing costs
spread over lower sales volumes and a corresponding reduction in production
levels, a lower percentage of sales in the Company's highest margin sports
shield sunglasses, a shift in product mix to lower-margin clothing and other
accessories, modestly higher raw material costs, a devaluation in the
functional currency of the Company's direct operation in continental Europe
and continued production inefficiencies associated with the start-up of the
X-METAL product line. The Company expects gross profit as a percentage of net
sales to continue to be affected by certain of the factors discussed above
through the balance of 1997 and for 1998.
OPERATING EXPENSES
Operating expenses increased to $24.6 million for the three months ended
September 30, 1997 from $22.6 million for the three months ended September 30,
1996, an increase of $2.0 million. Selling expenses increased $1.0 million to
$15.5 million in 1997, or 26.1% of net sales, from $14.5 million, or 21.4% of
net sales, in 1996. This increase resulted from slightly higher warranty and
sports marketing expenses and increased depreciation, partially offset by
lower commissions. General and administrative expenses increased $1.5 million
to $6.4 million, or 10.8% of net sales, in 1997 from $4.9 million, or 7.2% of
net sales, in 1996 primarily due to added personnel, increased amortization
8
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expense related to acquisitions completed since the third quarter of 1996,
higher operating expenses associated with the Company's new headquarters and
professional fees related to lawsuits filed by shareholders against the
Company and certain of its officers and directors (see Note 4 to the
consolidated financial statements). In addition, $1.4 million of the increase
in the Company's total operating expenses in the 1997 period was the result of
the expansion into three new direct international markets.
OPERATING INCOME
The Company's operating income declined to $11.5 million for the three months
ended September 30, 1997 from $25.1 million for the three months ended
September 30, 1996, a decrease of $13.6 million. This decrease was the result
of the Company's decrease in net sales and gross profit margin and an increase
in operating expenses as a percentage of net sales.
INTEREST EXPENSE, NET
The Company had net interest expense of $0.4 million in the 1997 period as
compared with net interest income of $0.3 million for the comparable 1996
period.
NET INCOME
The Company's net income decreased to $6.8 million for the three months ended
September 30, 1997 from $15.7 million for the three months ended September 30,
1996.
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
NET SALES
Net sales decreased to $149.0 million for the nine months ended September 30,
1997 from $179.3 million for the nine months ended September 30, 1996, a
decrease of $30.3 million, or 16.9%. This decrease was the result of
substantially lower sales of the Company's sunglasses, including WIRES, EYE
JACKETS, STRAIGHT JACKETS, M FRAMES, ZEROS, TRENCHCOATS and its original line
of FROGSKINS which was replaced by a new line of FROGSKINS in December 1996.
These decreases were partially offset by sales from the introduction of new
sunglasses, including SQUARE WIRES in June 1996, PRO M FRAMES in October 1996,
a new line of FROGSKINS in December 1996, X METAL in February 1997, FIVES in
April 1997 and TOP COAT in August 1997, and in increase in sales of clothing
and other accessories. The Company's domestic sales declined 25.3% to $89.5
million from $119.8 million in the comparable 1996 period, principally as a
result of a 49.7% decline in net sales to the Company's largest customer,
Sunglass Hut, and slightly lower net sales in the 1997 period to other
domestic accounts. The Company's international sales decreased $0.1 million
to $59.4 million in 1997 from $59.5 million in 1996, principally as a result
of decreased sales in Japan and South Africa as the Company transitions to a
direct operation in both of these markets and a reduction in sales to a
limited number of large distributors that significantly reduced purchases in
older product lines. These decreases were partially offset by higher net
sales in the Company's direct European operations. International net sales in
the 1997 period were negatively affected by the strength of the dollar
compared to the functional currency of direct operations in continental Europe.
GROSS PROFIT
Gross profit decreased to $91.8 million for the nine months ended September
30, 1997 from $126.4 million for the nine months ended September 30, 1996, a
decrease of $34.6 million, or 27.4%. As a percentage of net sales, gross
profit decreased to 61.6% in 1997 from 70.5% in 1996. Gross profit as a
percentage of net sales was negatively affected by fixed manufacturing costs
spread over lower sales volumes and a corresponding reduction in production
levels, a lower percentage of sales in the Company's highest margin sports
shield sunglasses, a shift in product mix to lower-margin clothing and other
accessories, a devaluation in the functional currency of the Company's direct
operation in continental Europe and continued production inefficiencies
associated with the start-up of the X-
9
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METAL product line. The Company expects gross profit as a percentage of net
sales to continue to be affected by certain of the factors discussed above
through the balance of 1997 and 1998.
OPERATING EXPENSES
Operating expenses increased to $64.6 million for the nine months ended
September 30, 1997 from $58.1 million for the nine months ended September 30,
1996, an increase of $6.5 million. Research and development expenses
decreased $0.6 million to $2.7 million in 1997. The 1997 period included a
$0.9 million reduction related to the forfeiture of the Chairman and
President's 1996 bonus which had been accrued as of December 31, 1996.
Excluding this non-recurring adjustment, research and development expenses
increased $0.3 million to $3.6 million in the 1997 period, or 2.4% of net
sales, from $3.3 million, or 1.8% of net sales, in the 1996 period due to
increased personnel and product design activities. Selling expenses increased
$3.7 million to $40.7 million in 1997, or 27.3% of net sales, from $37.0
million, or 20.6% of net sales, in 1996 as a result of substantially higher
warranty expenses, higher sports marketing expenses and increased
depreciation, partially offset by lower commissions. General and
administrative expenses increased $4.0 million to $16.9 million, or 11.3% of
net sales, in 1997 from $12.9 million, or 7.2% of net sales, in 1996 primarily
due to added personnel, increased amortization related to acquisitions
completed in late 1996 and 1997 and higher operating expenses associated with
the Company's new headquarters. For the nine months ended September 30, 1997,
general and administrative expenses included income of $0.8 million paid to
the Company by Arnet Optic to settle litigation, $0.7 million of relocation
costs associated with the new facility and professional fees of $0.5 million
related to lawsuits filed by shareholders against the Company and certain of
its officers and directors (see Note 4 to the consolidated financial
statements). In addition, $3.4 million of the Company's total operating
expenses in the 1997 period was the result of the expansion into three new
direct international markets.
OPERATING INCOME
The Company's operating income declined to $27.2 million for the nine months
ended September 30, 1997 from $68.3 million for the nine months ended
September 30, 1996, a decrease of $41.1 million. This decrease was the result
of the Company's decrease in net sales and gross profit margin and an increase
in operating expenses as a percentage of net sales.
INTEREST EXPENSE, NET
The Company had interest expense of $0.8 million in the 1997 period, excluding
$0.5 million of interest costs which were capitalized in the period as part of
the construction of its new facility, as compared with net interest income of
$0.6 million for the comparable 1996 period.
NET INCOME
The Company's net income decreased to $16.2 million for the nine months ended
September 30, 1997 from $42.4 million for the nine months ended September 30,
1996.
10
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LIQUIDITY AND CAPITAL RESOURCES The Company historically has financed its
operations almost entirely with cash flow generated from operations and
borrowings from its credit facility. Cash provided by operating activities
totaled $36.8 million for the nine months ended September 30, 1997 and $42.6
million for the comparable period of 1996. During the nine months ended
September 30, 1997, the Company repurchased 304,000 shares of its common
stock for $3.2 million. At September 30, 1997, working capital was $42.0
million. Working capital may vary from time to time as a result of
seasonality, new product introductions, capital expenditures, including
purchases of equipment and changes in inventory levels. In January 1997, the
Company amended its unsecured line of credit to increase its borrowing limits
from $18.0 million to $30.0 million. At September 30, 1997, there were no
borrowings outstanding under such facility. To supplement the Company's
current line of credit, in March 1997, the Company secured a $25.0 million
bridge loan with an original maturity date of July 18, 1997, which was
subsequently extended. In August 1997, the Company converted the bridge loan
facility into a term loan secured by a first mortgage on the Company's new
headquarters. At September 30, 1997, the outstanding balance on the term
loan was $22.8 million. The term loan requires quarterly principal payments
of approximately $380,000 plus interest based on Libor plus 1.15% (6.84% at
September 30, 1997) for five years with the then outstanding balance payable
on September 1, 2002. The Company believes that existing capital,
anticipated cash flow from operations and current and anticipated credit
facilities will be sufficient to meet operating needs and capital
expenditures for the foreseeable future.
Capital expenditures (other than those relating to the Company's new facility)
for the nine months ended September 30, 1997 totaled $17.1 million. In March
1997, the Company relocated to its new headquarters and manufacturing facility
in Foothill Ranch, California. The total cost to construct and equip such
facility was approximately $47.9 million, of which $28.6 million had been
expended through the end of 1996 and most of the remainder had been incurred
by June 30, 1997. The Company expects capital expenditures (excluding those
expenditures relating to the Company's new facility) for 1997 to total
approximately $25.5 million, including additional investments in an
integrated, enterprisewide information system and equipment for the
development of a performance footwear product line.
SEASONALITY
Historically, the Company's sales, in the aggregate, generally have been
higher in the period from March to September, the period during which sunglass
use is typically highest. As a result, operating margins are typically lower
in the first and fourth quarters as fixed operating costs are spread over
generally lower sales volume. In anticipation of seasonal increases in
demand, the Company typically builds inventories in the fourth quarter and
first quarter when net sales have historically been lower.
BACKLOG
Historically, the Company has generally shipped domestic orders (other than
preseason orders for ski goggles and orders from certain sunglass specialty
chains) within one day of receipt and international orders within two weeks of
receipt. At September 30, 1997, the Company had a backlog of $17.4 million,
including backorders (merchandise remaining unshipped beyond its scheduled
shipping date) of $3.6 million as of such date. In September 1997, the
Company implemented changes in its replenishment system with Sunglass Hut
which affected its reported backlog. Under the new system, in an effort to
more closely match inventory replenishment with Sunglass Hut's sales, certain
high-volume Oakley products will be shipped to Sunglass Hut weekly, based on
the previous week's retail sales. As a result, Sunglass Hut will no longer
place future shipment orders for these products except in anticipation of
major seasonal sales increases. These changes have reduced Oakley's reported
backlog at September 30, 1997 and will continue to do so for future periods.
These system enhancements are the result of the joint efforts of the two
companies to achieve the long-term benefits of lower overall inventory levels,
while increasing inventory turns and sales at retail.
11
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INFLATION
The Company does not believe inflation has had a material impact on the
Company in the past, although there can be no assurance that this will be the
case in the future.
FOREIGN CURRENCY
The Company's foreign subsidiaries sell in various countries and collect at
future dates in the customers' local currencies and purchase inventory in U.S.
Dollars. Accordingly, the Company is exposed to transaction gains and losses
that could result from changes in foreign currency exchange rates. When
considered appropriate, management may purchase financial instruments,
primarily forward exchange contracts, to reduce its exposure to these exchange
rate fluctuations. For the quarter ended September 30, 1997, the U.S. Dollar
strengthened significantly compared to the French franc, increasing the
average exchange rate from approximately 5.1 francs per U.S. Dollar for the
nine months ended September 30, 1996 to approximately 5.8 francs per U.S.
Dollar for the nine months ended September 30, 1997.
FORWARD-LOOKING STATEMENTS
When used in this document, the words "believes", "anticipates", "expects" and
similar expressions are intended to identify in certain circumstances
forward-looking statements. Such statements are subject to a number of risks
and uncertainties that could cause actual results to differ materially from
those projected, including risks related to the dependence on sales to
Sunglass Hut; the acceptance in the marketplace of new products; the ability
to source raw materials at prices favorable to the Company; currency
fluctuations; and other risks outlined in the Company's previously filed
public documents, copies of which may be obtained without cost from the
Company. Given these uncertainties, prospective investors are cautioned not
to place undue reliance on such statements. The Company also undertakes no
obligation to update these forward-looking statements.
12
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PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company and certain of its officers and directors have been named as
defendants in three putative class action lawsuits (the "California Securities
Actions") filed in December 1996 in the California Superior Court for the
County of Orange (the "Superior Court"). The cases are captioned:
YOSEF S. ROSENSHEIN V. OAKLEY, INC., MIKE PARNELL, LINK NEWCOMB AND JIM
JANNARD, Case No. 773051 (filed December 17, 1996);
HERSCHEL HARMAN V. OAKLEY, INC., MIKE PARNELL, LINK NEWCOMB AND JIM
JANNARD, Case No. 773053 (filed December 17, 1996); and
ERIC SHER, HAROLD BARON AND DAVID O. ECKERT V. OAKLEY, INC., MIKE PARNELL,
LINK NEWCOMB, JIM JANNARD, MERRILL LYNCH & CO. AND ALEX BROWN & SONS,
INC., Case No. 773366 (filed December 24, 1996).
By order dated January 30, 1997, the Superior Court ordered that the
California Securities Actions be assigned to the Superior Court's Complex
Litigation Panel, where they have since been consolidated. On April 18, 1997,
the plaintiffs filed a consolidated amended complaint in the California
Securities Action. The plaintiffs seek to represent a class of persons who
purchased the Company's common stock between March 22, 1996 and December 5,
1996.
The complaint in the California Securities Actions alleges claims for
violations of the antifraud provisions of the California Corporations Code,
unfair business practices and false advertising in violation of certain
provisions of the California Business and Professions Code, fraud and
negligent misrepresentation. The plaintiffs' claims are based on alleged
material misstatements and omissions in certain of the Company's public
statements, Securities and Exchange Commission filings and in the reports of
third-party analysts regarding the Company's retail distribution practices,
market conditions, new product developments and extensions of existing product
lines, business with Sunglass Hut and earnings prospects. The plaintiffs seek
unspecified damages and other relief against the Company and the other
defendants.
The plaintiffs in the California Securities Actions have also asserted claims
against Merrill Lynch & Co. ("Merrill Lynch") and Alex, Brown and Sons, Inc.
("Alex Brown"), which served as the U.S. Representatives of the U.S.
Underwriters of the June 6, 1996 offering of five million shares of common
stock of the Company by certain of its shareholders (the "Secondary
Offering"). By letter dated February 7, 1997, counsel for Merrill Lynch and
Alex Brown gave the Company notice pursuant to the indemnification provisions
of the U.S. Purchase Agreement dated June 6, 1996, for the Secondary Offering
and requested that the Company reimburse Merrill Lynch and Alex Brown on a
current basis for their attorneys' fees and expenses incurred in defending the
California Securities Action.
The Company and the other defendants have filed motions to dismiss the
California Securities Actions, which have not yet ruled upon by the Superior
Court. The Company and the other defendants have also filed a motion to stay
proceedings in the California Securities Action pending the resolution of the
Federal Securities Actions (described below). The motion to stay has not yet
been heard. The plaintiffs in the California Securities Actions have served
document requests on the Company and others.
13
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The Company and certain of its officers and directors have been named as
defendants in three putative class action lawsuits (the "Federal Securities
Actions") filed in October 1997 in the United States District Court for the
Central District of California, Southern Division. The cases are captioned:
KENSINGTON CAPITAL MANAGEMENT V. OAKLEY, INC., MIKE PARNELL, LINK NEWCOMB,
JIM JANNARD, MERRILL LYNCH & CO. AND ALEX BROWN & SONS INCORPORATED, No.
SACV 97-808 GLT (EEx) (filed October 10, 1997) (the "KENSINGTON CAPITAL
MANAGEMENT Action");
FRANK LISTER, JAMES J. SCOTELLA, RAYMOND E. NEVEAU, JAMES S. LEWINSKI,
JACK ROSENSON AND LEE SPERLING V. OAKLEY, INC., MIKE PARNELL, LINK
NEWCOMB, JIM JANNARD, MERRILL LYNCH & CO. AND ALEX BROWN & SONS
INCORPORATED, No. SACV 97-809 LHM (EEx) (filed October 10, 1997) (the
"LISTER Action"); and
STUART CHAIT AND MARILYN SCHWARTZ V. OAKLEY, INC., MIKE PARNELL, LINK
NEWCOMB, JIM JANNARD, MERRILL LYNCH & CO. AND ALEX BROWN & SONS,
INCORPORATED, No. SACV 97-829 AHS (EEx) (filed October 20, 1997) (the
"CHAIT Action").
The plaintiff in the KENSINGTON CAPITAL MANAGEMENT Action seeks to represent a
class of persons who purchased the Company's common stock in the Secondary
Offering. The complaint in the KENSINGTON CAPITAL MANAGEMENT Action alleges
claims for violations of sections 11, 12(a)(2) and 15 of the Securities Act of
1933. The plaintiff's claims are based on alleged material misstatements and
omissions in the prospectus issued and registration statement filed in
connection with the Secondary Offering regarding the Company's retail
distribution practices, market conditions, new product developments and
extensions of existing product lines, business with Sunglass Hut and quality
control standards. The plaintiff seeks unspecified damages and other relief
against the Company and the other defendants.
The plaintiffs in the LISTER and CHAIT Actions seek to represent a class of
persons who purchased the Company's common stock between March 22, 1996 and
December 5, 1996. The complaints in the LISTER and CHAIT Actions allege claims
for violations of sections 10(b) and 20(a) of the Securities Exchange Act of
1934 and Rule 10b-5 promulgated thereunder. The plaintiffs' claims are based
on alleged material misstatements and omissions in certain of the Company's
public statements, Securities and Exchange commission filings and in the
reports of third-party analysts regarding the Company's retail distribution
practices, market conditions, new product developments and extensions of
existing product lines, business with Sunglass Hut, earnings prospects and
quality control standards. The plaintiffs seek unspecified damages and other
relief against the Company and the other defendants.
The Company has not yet responded to any of the Federal Securities Actions.
To date, no discovery has been taken in the Federal Securities Actions.
The Company has been named as a nominal defendant in a putative derivative
lawsuit against certain of its directors and officers filed in March 1997 in
the Superior Court. The case is captioned BLACKMAN V. JAMES JANNARD, MIKE
PARNELL AND DOES 1 THROUGH 100, Case No. 777098 (filed March 27, 1997) (the
"California Derivative Action").
In the California Derivative Action, the plaintiff, purporting to sue on
behalf of the Company, alleges claims for breach of fiduciary duty,
constructive fraud, unjust enrichment and violations of the insider trading
provisions of the California Corporations Code. Like the California
Securities Actions, the plaintiff's claims in the California Derivative Action
are, among other things, based upon alleged material misstatements and
omissions in certain of the Company's public statements and Securities and
Exchange Commission filings regarding the Company, its operation and future
14
<PAGE>
prospects. The plaintiff seeks to recover damages and other relief on behalf
of the Company. The defendants filed a motion to dismiss the original
complaint in the California Derivative Action, and the plaintiff subsequently
filed an amended complaint. The defendants have filed a motion to dismiss the
amended complaint in the California Derivative Action and the Superior Court
granted that motion in September 1997. The plaintiff subsequently filed a
second amended complaint. The defendants have filed a motion to dismiss the
second amended complaint in the California Derivative Action, but that motion
has not yet been heard.
Although it is too soon to predict the outcome of the California Securities
Actions, the Federal Securities Actions and the California Derivative Action
with any certainty, based on its current knowledge of the facts, the Company
believes that the plaintiffs' claims are without merit and intends to
vigorously defend the actions.
In addition, the Company is a party to various claims, complaints and other
legal actions that have arisen in the normal course of business from time to
time. The Company believes the outcome of these pending legal proceedings, in
the aggregate, will not have a material adverse effect on the operations or
financial position of the Company.
ITEM 2. Changes in Securities
None
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security-Holders
None
ITEM 5. Other Information
None
15
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are included in this report:
3.1 (1) Articles of Incorporation of the Company
3.2 (1) Bylaws of the Company
3.3 (5) Amendment No. 1 to the Articles of Incorporation as filed with
the Secretary of State of the State of Washington on September
26, 1996
10.1 (1) Credit Agreement (the "Credit Agreement"), dated June 20, 1995,
between Oakley, Inc., Wells Fargo Bank, National Association,
and the Lenders named therein
10.2 (1) Collateral Account Agreement, dated June 20, 1995, between
Oakley, Inc. and Wells Fargo Bank, National Association, as
agent for the Lenders party to the Credit Agreement
10.3 (1) Security Agreement, dated June 20, 1995, between Oakley, Inc.
and Wells Fargo Bank, National Association, as agent for the
Lenders party to the Credit Agreement
10.4 (1) Security Agreement and Chattel Mortgage, dated June 20, 1995,
between Oakley, Inc. and Wells Fargo Bank, National
Association, as agent for the Lenders party to the Credit
Agreement
10.5 (1) Trademark Collateral Security Agreement, dated June 20, 1995,
between Oakley, Inc. and Wells Fargo Bank, National
Association, as agent for the Lenders party to the Credit
Agreement
10.6 (1) Patent Collateral Security Agreement, dated June 20, 1995,
between Oakley, Inc. and Wells Fargo Bank, National
Association, as agent for the Lenders party to the Credit
Agreement
10.7 (1) Subordination Agreement, dated June 20, 1995, between Oakley,
Inc., Buffalo Works, Inc., James H. Jannard and Mike D.
Parnell
10.8 (2) Credit Agreement (the "Amended and Restated Credit Agreement"),
dated August 15, 1995, between Oakley, Inc., Wells Fargo
Bank, National Association, as agent and the Lenders named
therein
10.9 (2) Collateral Account Agreement, dated August 15, 1995, between
Oakley, Inc. and Wells Fargo Bank, National Association, as
agent for the Lenders party to the Amended and Restated
Credit Agreement
10.10 (2) Guaranty, dated August 15, 1995, by the Guarantors named
therein and Wells Fargo Bank, National Association, as agent
for the Lenders party to the Amended and Restated Credit
Agreement
10.11 (2) Shareholder Pledge Agreement (original and English
translation), dated August 15, 1995 between Oakley, Inc. and
Wells Fargo Bank, National Association, as agent for the
Lenders party to the Amended and Restated Credit Agreement
10.12 (2) Subordination Agreement, dated August 15, 1995 between the
Initial Subordinated Creditors named therein and Wells Fargo
Bank, National Association, as agent for the Lenders party to
the Amended and Restated Credit Agreement
10.13 (2) Promissory Note, dated August 8, 1995 between Oakley, Inc. and
James H. Jannard
10.14 (2) Promissory Note, dated August 8, 1995 between Oakley, Inc. and
M. and M. Parnell Revocable Trust
10.15 (3) Termination and Release Agreement, dated as of August 15, 1995
between Oakley, Inc. and Wells Fargo Bank, National
Association, as agents for the Lenders party to the Credit
Agreement
10.17 (5) Second Amendment to Amended and Restated Credit Agreement dated
as of October 10, 1996 by and among Oakley, Inc. Wells Fargo
Bank, National Association, as agent and the Lenders named
therein
16
<PAGE>
10.18 (5) Third Amendment to Amended and Restated Credit Agreement dated
as of November 25, 1996 by and among Oakley, Inc., Wells
Fargo Bank, National Association, as agent and the Lenders
named therein
10.19 (5) Counterpart Subordination Agreement executed by Oakley (U.K.)
Ltd. to the Subordination Agreement, dated as of August 15,
1995 between the Initial Subordinated Creditors and Wells
Fargo Bank, National Association, as Agent under the Credit
Agreement
10.20 (3) First Amendment to Amended and Restated Credit Agreement dated
November 22, 1995 by and among Oakley, Inc., Wells Fargo
Bank, National Association, as agent and the Lenders named
therein
10.21 (2) Agreement, dated July 17, 1995, between Oakley, Inc. and
Michael Jordan
10.22 (1) Lease, dated September 15, 1988, between OO Partnership and
Oakley, Inc.
10.23 (3) First Amendment to Lease dated December 31, 1995, by and
between Oakley, Inc., and OO Partnership
10.24 (1) Agreement, dated July 31, 1995, between OO Partnership and
Oakley, Inc.
10.25 (1) Lease, dated March 5, 1990, between Weyerhauser Mortgage
Company and Oakley, Inc., as amended
10.26 (1) Sublease, dated August 17, 1992, between Western Digital
Corporation and Oakley, Inc., as amended
10.27 (1) Purchase Agreement and Escrow Instructions, dated December 9,
1994, between Oakley, Inc. and Foothill Ranch Development
Corporation
10.28 (3) Oakley, Inc. 1995 Stock Incentive Plan
10.29 (3) Oakley, Inc. Amended and Restated 1995 Stock Incentive Plan
10.30 (3) Oakley, Inc. Executive Officer Performance Bonus Plan
10.31 (1) Employment Agreement, dated as of August 1, 1995, between
Oakley, Inc. and Jim Jannard
10.32 (1) Employment Agreement, dated as of August 1, 1995, between
Oakley, Inc. and Mike Parnell
10.33 (5) Amendment No. 1 dated as of May 23, 1996 to Employment
Agreement dated as of August 1, 1995, between Oakley, Inc. and
Mike Parnell
10.34 (5) Amendment No. 1 dated as of July 22, 1996 to Employment
Agreement dated as of August 1, 1995, between Oakley, Inc. and
Jim Jannard
10.35 (1) Employment Agreement, dated as of April 1, 1995, between
Oakley, Inc. and Link Newcomb
10.36 (3) Indemnification Agreement, dated August 1, 1995, between
Oakley, Inc. and Jim Jannard
10.37 (1) Schedule of indemnification agreements between Oakley, Inc. and
each of its directors and executive officers
10.38 (1) Standard Form of Agreement between Owner and Project Manager,
dated December 30, 1994, between Oakley, Inc. and Snyder
Langston
10.39 (1) Lease Agreement, dated January 26, 1995, between Oakley Europe,
sarl and Investipierre 7 (In French with English translation)
10.40 (3) Aircraft Lease Agreement, dated August 10, 1995, between
Oakley, Inc. and X, Inc.
10.41 (3) Aircraft Lease Agreement, dated August 10, 1995, between
Oakley, Inc. and Time Tool Incorporated
10.42 (1) Registration Rights Agreement, dated August 1, 1995, between
Oakley, Inc., Jim Jannard and the M. and M. Parnell Revocable
Trust
10.43 (3) Indemnification Agreement, dated August 9, 1995, between
Oakley, Inc., Jim Jannard and the M. and M. Parnell Revocable
Trust
10.44 (4) Indemnification Agreement, dated June 6, 1996, between Oakley,
Inc., Jim Jannard and the M. and M. Parnell Revocable Trust
17
<PAGE>
10.45 (6) Fifth Amendment to Amended and Restated Credit Agreement dated
as of June 30, 1996 by and among Oakley, Inc., Wells Fargo
Bank, National Association, as agent and the Lenders named
therein
10.46 (6) Sixth Amendment to Amended and Restated Credit Agreement dated
as of June 30, 1996 by and among Oakley, Inc., Wells Fargo
Bank, National Association, as agent and the Lenders named
therein
10.47 (6) Employment Agreement, dated as of January 31, 1997, between
Oakley, Inc. and Link Newcomb
10.48 (6) Employment Agreement, dated as of January 16, 1997, between
Oakley, Inc. and Robert Bruning
10.49 (6) Pledge Agreement, dated as of January 1997, between Oakley,
Inc. and Wells Fargo Bank, National Association, as agent and
the Lenders named therein
10.50 (6) Reciprocal Exclusive Dealing Agreement dated March 11, 1997
among Oakley, Inc., Gentex Optics, Inc. and Essilor
International Compagnie Generale D'Optique, S.A. (portions of
this document have been omitted pursuant to a request for
confidential treatment)
10.51 (6) Promissory Note, dated March 20, 1997, between Oakley, Inc. and
Bank of America National Trust and Savings Association
10.52 (6) Amendment No. 2 to employment agreement, dated February 1,
1997, between Oakley, Inc. and Mike Parnell
10.53 (6) Amendment No. 1 to employment agreement, dated February 1,
1997, between Oakley, Inc. and Link Newcomb
10.54 (7) Seventh Amendment to Amended and Restated Credit Agreement
dated May 14, 1997 by and among Oakley, Inc., Wells Fargo
Bank, National Association, as agent and the Lenders named
therein
10.55 (7) Eighth Amendment to Amended and Restated Credit Agreement dated
June 27, 1997 by and among Oakley, Inc., Bank of America
National Trust and Savings Association and Union Bank of
California N.A.
10.56 Consultant Agreement, dated as of August 1, 1997, between
Oakley, Inc. and Mike Parnell
10.57 Consultant Agreement, dated as of August 1, 1997, between
Oakley, Inc. and Jim Jannard
10.58 Promissory Note, dated August 7, 1997, between Oakley, Inc. and
Bank of America National Trust and Savings Association
10.59 Deed of Trust with Assignment of Rents, Security Agreement and
Fixture Filing, dated August 7, 1997, between Oakley, Inc.
and Bank of America National Trust and Savings Association
10.60 Standing Loan Agreement , dated August 7, 1997 between Oakley,
Inc. and Bank of America National Trust and Savings
Association
10.61 Amendment No. 1 to Promissory Note, dated August 14, 1997,
between Oakley, Inc. and Bank of America National Trust and
Savings Association
10.62 Amendment No. 2 to Promissory Note, dated August 14, 1997,
between Oakley, Inc. and Bank of America National Trust and
Savings Association
10.63 Ninth Amendment to Amended and Restated Credit Agreement dated
September 30, 1997 by and among Oakley, Inc., Bank of America
National Trust and Savings Association and Union Bank of
California N.A.
11.1 Computation of Earnings per Common Share
27.1 Financial Data Schedule
(1) Previously filed with the Registration Statement on Form S-1 of Oakley,
Inc. (Registration No. 33-93080)
18
<PAGE>
(2) Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended
September 30, 1995.
(3) Previously filed with the Form 10-K of Oakley, Inc. for the year ended
December 31, 1995.
(4) Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended
September 30, 1996.
(5) Previously filed with the Form 10-K of Oakley, Inc. for the year ended
December 31, 1996.
(6) Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended
March 31, 1997.
(7) Previously filed with the Form 10-Q of Oakley, Inc. for the quarter ended
June 30, 1997.
The Company did not file any reports on Form 8-K during the nine months ended
September 30, 1997.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Oakley, Inc.
/s/ LINK NEWCOMB November 7, 1997
- --------------------------
Link Newcomb
Chief Executive Officer
/s/ TOM GEORGE November 7, 1997
- --------------------------
Tom George
Chief Financial Officer
20
<PAGE>
CONSULTANT AGREEMENT
This Consultant Agreement is entered into by and between Mike D. Parnell
("Parnell") and Oakley, Inc., a Washington corporation ("Oakley") on this 1st
day of August, 1997.
WHEREAS, Parnell owns Oakley stock of substantial value and has been
employed by Oakley for many years in the capacity of Chief Executive Officer
or Vice-president;
WHEREAS, the parties previously entered into an Employment Agreement that
expired on July 31, 1997;
WHEREAS, Parnell will continue to be an employee and act as Vice-Chairman
of Oakley pursuant to an agreement between Oakley and Parnell;
WHEREAS, the parties desire, however, to enter into a Consulting Agreement
and set forth their mutual obligations herein.
NOW, THEREFORE, in consideration of the mutual agreements hereinafter set
forth, Parnell and Oakley have agreed and do hereby agree as follows:
1. EMPLOYMENT WITH OAKLEY. The parties agree that Parnell will continue
as an employee and Vice-Chairman of Oakley on such terms and conditions as the
parties may mutually agree and that said employment will be terminable at
will.
2. CONSULTING AGREEMENT. Upon the termination of Parnell's employment
with Oakley for any reason other than death or disability, Oakley shall have
the option, which shall be exercisable by Oakley within 30 days of the
effective date of Parnell's termination with Oakley, to enter into an
amendment to this agreement, reasonably satisfactory to Oakley and Parnell,
that further defines the consulting services which Parnell shall render to
Oakley as mutually agreed upon by Parnell and Oakley. The term of the
consulting period under this Agreement, as so amended, shall begin on the date
of exercise (the "Exercise Date") of the option by Oakley and shall continue
until the later of August 1, 2002 and two years from the Exercise Date (such
later date, the "Expiration Date"). In return for said consulting services,
Parnell shall be compensated at the rate of $100,000.00 per year payable in
equal bi-weekly installments or at such other time or times as Parnell and
Oakley shall agree.
<PAGE>
It is expressly understood that Parnell's reporting obligations pursuant to
this Consulting Agreement shall be limited to the Chairman of the Board of
Directors of Oakley or such other person as Parnell and Oakley shall agree.
3. ASSIGNMENT OF INTELLECTUAL PROPERTY RIGHTS.
(a) DEFINITION OF "INVENTIONS". As used herein, the term
"Inventions" shall mean all designs, inventions, discoveries, improvements,
trade secrets, formulas, techniques, data, programs, systems, specifications,
documentation, algorithms, flow charts, logic diagrams, source codes,
processes, and other information, including works-in-progress, whether or not
subject to patent, trademark, copyright, trade secret, or mask work
protection, and whether or not reduced to practice, which are made, created,
authored, conceived, or reduced to practice by Parnell, either alone or
jointly with others, during the period of employment or consulting with Oakley
(including, without limitation, all periods of employment with Oakley prior to
the effective date) which (A) relate to the actual or anticipated business,
activities, research, or investigations of Oakley or (B) result directly or
indirectly from work performed by Parnell for Oakley (whether or not made or
conceived during normal working hours or on the premises of Oakley), or (C)
which result, to any extent, from use of Oakley's premises or property.
(b) WORK FOR HIRE. Parnell expressly acknowledges that all
copyrightable aspects of the Inventions (as defined below) are to be
considered "works made for hire" within the meaning of the Copyright Act of
1976, as amended (the "Act"), and that Oakley is to be the "author" within the
meaning of such Act for all purposes. All such copyrightable works, as well as
all copies of such works in whatever medium fixed or embodied, shall be owned
exclusively by Oakley as of its creation, and Parnell hereby expressly
disclaims any and all interest in any of such copyrightable works and waives
any right of DROIT MORALE or similar rights.
(c) ASSIGNMENT. Parnell acknowledges and agrees that all Inventions
constitute trade secrets of Oakley and shall be the sole property of Oakley or
any other entity designated by Oakley. In the event that title to any or all
of the Inventions, or any part or element thereof, may not, by operation of
law, vest in Oakley, or such Inventions may be found as a matter of law not to
be "works made for hire" within the meaning of the Act, Parnell hereby conveys
and irrevocably
<PAGE>
assigns to Oakley, without further consideration, all his right, title and
interest, throughout the universe and in perpetuity, in all Inventions and all
copies of them, in whatever medium fixed or embodied, and in all written
records, graphics, diagrams, notes, or reports relating thereto in Parnell's
possession or under his control, including, with respect to any of the
foregoing, all rights of copyright, patent, trademark, trade secret, mask
work, and any and all other proprietary rights therein, the right to modify
and create derivative works, the right to invoke the benefit of any priority
under any international convention, and all rights to register and renew same.
(d) PROPRIETARY NOTICES; NO FILINGS; WAIVER OF MORAL RIGHTS.
Parnell acknowledges that all Inventions shall, at the sole option of Oakley,
bear Oakley's patent, copyright, trademark, trade secret, and mask work
notices.
Parnell agrees not to file any patent, copyright, or trademark
applications relating to any Invention, except with prior written consent of
an authorized representative of Oakley (other than Parnell).
Parnell hereby expressly disclaims any and all interest in any Inventions
and waives any right of droit morale or similar rights, such as rights of
integrity or the right to be attributed as the creator of the Invention.
(e) FURTHER ASSURANCES. Parnell agrees to assist Oakley, or any
party designated by Oakley, promptly on Oakley's request, whether before or
after the termination of employment, however such termination may occur, in
perfecting, registering, maintaining, and enforcing, in any jurisdiction,
Oakley's rights in the Inventions by performing all acts and executing all
documents and instruments deemed necessary or convenient by Oakley, including,
by way of illustration and not limitation:
i) Executing assignments, applications, and other documents
and instruments in connection with (A) obtaining patents, copyrights,
trademarks, mask works, or other proprietary protections for the
Inventions and (B) confirming the assignment to Oakley of all right,
title, and interest in the Inventions or otherwise establishing Oakley's
exclusive ownership rights therein.
ii) Cooperating on the prosecution of patent, copyright,
trademark and mask work applications, as well as
<PAGE>
in the enforcement of Oakley's rights in the Inventions, including, but
not limited to, testifying in court or before any patent, copyright,
trademark or mask work registry office or any other administrative body.
Parnell will be reimbursed for all out-of-pocket costs incurred in
connection with the foregoing, if such assistance is requested by Oakley
after the termination of Parnell's employment. In addition, to the extent
that, after the termination of employment for whatever reason, Parnell's
technical expertise shall be required in connection with the fulfillment
of the aforementioned obligations, Oakley will compensate Parnell at a
reasonable rate for the time actually spent by Parnell at Oakley's request
rendering such assistance.
(f) POWER OF ATTORNEY. Parnell hereby irrevocably appoints Oakley
to be his Attorney-In-Fact to execute any document and to take any action in
his name and on his behalf and to generally use his name for the purpose of
giving to Oakley the full benefit of the assignment provisions set forth above.
(g) DISCLOSURE OF INVENTIONS. Parnell will make full and prompt
disclosure to Oakley of all Inventions subject to assignment to Oakley, and
all information relating thereto in Parnell's possession or under his control
as to possible applications and use thereof.
4. NO VIOLATION OF THIRD-PARTY RIGHTS.
Parnell represents, warrants, and covenants that he:
(a) will not, in connection with his activities hereunder, knowingly
infringe upon or violate any proprietary rights of any third party (including,
without limitation, any third party confidential relationships, patents,
copyrights, mask works, trade secrets, or other proprietary rights);
(b) is not a party to any conflicting agreements with third parties
which will prevent him from fulfilling the terms of employment and the
obligations of this Agreement;
(c) does not have in his possession any confidential or proprietary
information or documents belonging to others and will not disclose to Oakley,
use, or induce Oakley to use, any
<PAGE>
confidential or proprietary information or documents of others; and
(d) agrees, in connection with any of his activities hereunder to
respect any and all valid obligations which he may now have to prior employers
or to others relating to confidential information, inventions, or discoveries
which are the property of those prior employers or others, as the case may be.
Parnell agrees to indemnify and save harmless Oakley from any loss, claim,
damage, cost or expense of any kind (including without limitation, reasonable
attorney fees) to which Oakley may be subjected by virtue of a breach by
Parnell of the foregoing representations, warranties, and covenants.
5. CONFIDENTIAL INFORMATION AND NON-COMPETITION.
(a) CONFIDENTIALITY. Parnell acknowledges that in his employment as
a consultant hereunder, and during prior periods of employment with Oakley, he
has occupied and will continue to occupy a position of trust and confidence.
Parnell shall not, except as may be required to perform his duties hereunder
or as required by applicable law, without limitation in time or until such
information shall have become public other than by Parnell's unauthorized
disclosure, disclose to others or use, whether directly or indirectly, any
Confidential Information regarding Oakley. "Confidential Information" shall
mean information about Oakley, its subsidiaries and affiliates, and their
respective clients and customers that is not disclosed by Oakley for financial
reporting purposes and that was learned by Parnell in the course of his
employment by Oakley, including (without limitation) any proprietary
knowledge, trade secrets, data, formulae, information and client and customer
lists and all papers, resumes, and records (including computer records) of the
documents containing such Confidential Information. Parnell acknowledges that
such Confidential Information is specialized, unique in nature and of great
value to Oakley, and that such information gives Oakley a competitive
advantage. Oakley agrees to (i) deliver or return to Oakley, at Oakley's
request at any time or upon termination or expiration of his employment or as
soon thereafter as possible, (A) all documents, computer tapes and disks,
records, lists, data, drawings, prints, notes and written information (and all
copies thereof) furnished by Oakley or prepared by Parnell during the term of
his employment by Oakley and (B) all notebooks and other data relating to
research or experiments or other work conducted by Parnell in the scope
<PAGE>
of employment or any Inventions made, created, authored, conceived, or reduced
to practice by Parnell, either alone or jointly with others, and (ii) make
full disclosure relating to any Inventions.
If Parnell would like to keep certain property, such as material relating
to professional societies or other non-confidential material, upon the
termination of employment with Oakley, he agrees to discuss such issues with
Oakley. Where such a request does not put Confidential Information of Oakley
at risk, Oakley will grant the request. In this regard, Oakley hereby grants
Parnell the right to keep his personal copy of the black "bound books", which
chronicle the financial history of Oakley.
(b) NON-COMPETITION. During the term of his employment and, if
Oakley exercises the option contained in Section 2, through the Expiration
Date, Parnell shall not directly or indirectly, without the prior written
consent of Oakley, provide consultative services or otherwise provide services
to (whether as an employee or a consultant, with or without pay), own, manage,
operate, join, control, participate in, or be connected with (as a
stockholder, partner, or otherwise), any business, individual, partner, firm,
corporation, or other entity that is then a competitor of Oakley, including
any entity engaged in the design, manufacture and/or distribution of eyewear
(each such competitor a "Competitor of Oakley"); provided, however, that the
"beneficial ownership" by Parnell, either individually or as a member of a
"group," as such terms are used in Rule 13d of the General rules and
Regulations under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), of not more than five percent (5%) of the voting stock of any
publicly held corporation shall not alone constitute a violation of this
Agreement. It is further expressly agreed that Oakley will or would suffer
irreparable injury if Parnell were to compete with Oakley or any subsidiary or
affiliate of Oakley in violation of this Agreement and that Oakley would by
reason of such competition be entitled to injunctive relief in a court of
appropriate jurisdiction, and Parnell further consents and stipulates to the
entry of such injunctive relief in such a court prohibiting Parnell from
competing with Oakley or any subsidiary or affiliate of Oakley in violation of
this Agreement. Parnell and Oakley acknowledge and agree that the business of
Oakley is global in nature, and that the terms of the non-competitive
agreement set forth herein shall apply on a worldwide basis.
<PAGE>
(c) NON-SOLICITATION OF CUSTOMERS AND SUPPLIERS. During the term of
his employment and, if Oakley exercises the option contained in Section 2,
through the Expiration Date, Parnell shall not, directly or indirectly,
influence or attempt to influence customers or suppliers of Oakley or any of
its subsidiaries or affiliates, to divert their business to any Competitor of
Oakley.
(d) NON-SOLICITATION OF EMPLOYEES. Parnell recognizes that he
possesses and will possess confidential information about other employees of
Oakley relating to their education, experience, skills, abilities,
compensation and benefits, and inter-personal relationships with customers of
Oakley. Parnell recognizes that the information he possesses and will possess
about these other employees is not generally known, is of substantial value to
Oakley in developing its business and in securing and retaining customers, and
has been and will be acquired by him because of his business position with
Oakley. Parnell agrees that, during the term of his employment and, if Oakley
exercises the option contained in Section 2, through the Expiration Date, he
will not, directly or indirectly, solicit or recruit any employee of Oakley
for the purpose of being employed by him or by any Competitor of Oakley on
whose behalf he is acting as an agent, representative or employee and that he
will not convey any such confidential information or trade secrets about other
employees of Oakley to any other person.
(e) SURVIVAL OF PROVISIONS. The obligations contained in this
section shall survive the expiration of the consulting agreement hereunder and
shall be fully enforceable thereafter. If it is determined by a court of
competent jurisdiction in any state that any restriction in this section is
excessive in duration or scope or is unreasonable or unenforceable under the
laws of that state, it is the intention of the parties that such restriction
may be modified or amended by the court to render it enforceable to the
maximum extent permitted by the law of that state.
6. FRINGE BENEFITS. As provided in the parties' previous Employment
Agreement, from and after the date of Parnell's termination of employment with
Oakley (including the term of the Consulting Agreement), Parnell shall be
entitled during his lifetime, to full company paid medical and health
insurance for himself and his immediate family at a level no less favorable
than that in effect for the benefit of Oakley's senior executive officers.
<PAGE>
7. PRODUCTS. From and after the date of Parnell's termination of
employment with Oakley (including the term of the Consulting Agreement),
Parnell shall be entitled, during his lifetime, to purchase from Oakley, at
employee prices, any and all Oakley products in an annual amount of $25,000.00.
8. NOTICES. All notices and other communications under this Agreement
shall be in writing and shall be given by fax or first class mail, certified
or registered with return receipt requested, and shall be deemed to have been
duly given three (3) days after mailing or twenty-four (24) hours after
transmission of a fax to the respective persons named below:
If to Oakley: Oakley, Inc.
One Icon
Foothill Ranch, CA 92610
ATTENTION: Secretary
Phone: (714) 951-0991
Fax: (714) 951-8326
If to Parnell: Mike D. Parnell
c/o Oakley, Inc.
One Icon
Foothill Ranch, CA 92610
Phone: (714) 951-0991
Fax: (714) 951-8326
Either party may change such party's address for notices by notice duly given
pursuant hereto.
9. TERMINATION OF PRIOR AGREEMENTS. This Agreement terminates and
supersedes any and all prior agreements and understandings between the parties
with respect to Parnell's employment and compensation by Oakley.
10. ASSIGNMENT; SUCCESSORS. This Agreement is personal in its nature and
neither of the parties hereto shall, without the consent of the other, assign
or transfer this Agreement or any rights or obligations hereunder; provided
that, in the event of the merger, consolidation, transfer, or sale of all or
substantially all of the assets of Oakley with or to any other individual or
entity, this Agreement shall, subject to the provisions hereof, be binding
upon and inure to the benefit of such successor and such successor shall
discharge and perform all of the promises, covenants, duties and obligations
of Oakley hereunder.
<PAGE>
11. GOVERNING LAW. This Agreement and the legal relations thus created
between the parties hereto shall be governed by and construed under and in
accordance with the laws of the State of California.
12. WAIVER; MODIFICATION. Failure to insist upon strict compliance with
any of the terms, covenants, or conditions hereof shall not be deemed a waiver
of such term, covenant, or condition, nor shall any waiver or relinquishment
of, or failure to insist upon strict compliance with, any right or power
hereunder at any one or more times be deemed a waiver or relinquishment of
such right or power at any other time or times. This Agreement shall not be
modified in any respect except by a writing executed by each party hereto.
13. SEVERABILITY. In the event that a court of competent jurisdiction
determines that any portion of this Agreement is in violation of any statute
or public policy, only the portions of this Agreement that violate such
statute or public policy shall be stricken. All portions of this Agreement
that do not violate any statute or public policy shall continue in full force
and effect. Further, any court order striking any portion of this Agreement
shall modify the stricken terms as narrowly as possible to give as much effect
as possible to the intentions of the parties under this Agreement.
14. INDEMNIFICATION. Oakley shall indemnify and hold Parnell harmless for
acts and omissions in his capacity as an officer, director, employee or
consultant of Oakley as provided in the separate written indemnification
agreement between Oakley and Parnell.
IN WITNESS WHEREOF, Oakley has caused this Consulting Agreement to be
executed by its duly authorized officer and Parnell has hereunto signed this
Agreement as of the date first above written.
OAKLEY, INC. MIKE D. PARNELL
BY: _________________________
ITS: ________________________
<PAGE>
CONSULTANT AGREEMENT
This Consultant Agreement is entered into by and between James H. Jannard
("Jannard") and Oakley, Inc., a Washington corporation ("Oakley") on this 1st
day of August, 1997.
WHEREAS, Jannard is the founder of Oakley and owns Oakley stock of
substantial value and has been employed by Oakley for many years in the
capacity of President;
WHEREAS, the parties previously entered into an Employment Agreement that
expired on July 31, 1997;
WHEREAS, Jannard will continue to be an employee and act as President of
Oakley pursuant to an agreement between Oakley and Jannard;
WHEREAS, the parties desire, however, to enter into a Consulting Agreement
and set forth their mutual obligations herein.
NOW, THEREFORE, in consideration of the mutual agreements hereinafter set
forth, Jannard and Oakley have agreed and do hereby agree as follows:
1. EMPLOYMENT WITH OAKLEY. The parties agree that Jannard will continue
as an employee and President of Oakley on such terms and conditions as the
parties may mutually agree and that said employment will be terminable at
will.
2. CONSULTING AGREEMENT. Upon the termination of Jannard's employment
with Oakley for any reason other than death or disability, Oakley shall have
the option, which shall be exercisable by Oakley within 30 days of the
effective date of Jannard's termination with Oakley, to enter into an
amendment to this agreement, reasonably satisfactory to Oakley and Jannard,
that further defines the consulting services which Jannard shall render to
Oakley as mutually agreed upon by Jannard and Oakley. The term of the
consulting period under this Agreement, as so amended, shall begin on the date
of exercise (the "Exercise Date") of the option by Oakley and shall continue
until the later of August 1, 2002 and two years from the Exercise Date (such
later date, the "Expiration Date"). In return for said consulting services,
Jannard shall be compensated at the rate of $100,000.00 per year payable in
equal bi-weekly installments or at such other time or times as Jannard and
Oakley shall agree.
<PAGE>
It is expressly understood that Jannard's reporting obligations pursuant to
this Consulting Agreement shall be limited to the Chairman of the Board of
Directors of Oakley or such other person as Jannard and Oakley shall agree.
3. ASSIGNMENT OF INTELLECTUAL PROPERTY RIGHTS.
(a) DEFINITION OF "INVENTIONS". As used herein, the term
"Inventions" shall mean all designs, inventions, discoveries, improvements,
trade secrets, formulas, techniques, data, programs, systems, specifications,
documentation, algorithms, flow charts, logic diagrams, source codes,
processes, and other information, including works-in-progress, whether or not
subject to patent, trademark, copyright, trade secret, or mask work
protection, and whether or not reduced to practice, which are made, created,
authored, conceived, or reduced to practice by Jannard, either alone or
jointly with others, during the period of employment or consulting with Oakley
(including, without limitation, all periods of employment with Oakley prior to
the effective date) which (A) relate to the actual or anticipated business,
activities, research, or investigations of Oakley or (B) result directly or
indirectly from work performed by Jannard for Oakley (whether or not made or
conceived during normal working hours or on the premises of Oakley), or (C)
which result, to any extent, from use of Oakley's premises or property.
(b) WORK FOR HIRE. Jannard expressly acknowledges that all
copyright able aspects of the Inventions (as defined below) are to be
considered "works made for hire" within the meaning of the Copyright Act of
1976, as amended (the "Act"), and that Oakley is to be the "author" within the
meaning of such Act for all purposes. All such copyright able works, as well
as all copies of such works in whatever medium fixed or embodied, shall be
owned exclusively by Oakley as of its creation, and Jannard hereby expressly
disclaims any and all interest in any of such copyright able works and waives
any right of DROIT MORALE or similar rights.
(c) ASSIGNMENT. Jannard acknowledges and agrees that all Inventions
constitute trade secrets of Oakley and shall be the sole property of Oakley or
any other entity designated by Oakley. In the event that title to any or all
of the Inventions, or any part or element thereof, may not, by operation of
law, vest in Oakley, or such Inventions may be found as a matter of law not to
be "works made for hire" within the meaning of the Act, Jannard hereby conveys
and irrevocably
<PAGE>
assigns to Oakley, without further consideration, all his right, title and
interest, throughout the universe and in perpetuity, in all Inventions and all
copies of them, in whatever medium fixed or embodied, and in all written
records, graphics, diagrams, notes, or reports relating thereto in Jannard's
possession or under his control, including, with respect to any of the
foregoing, all rights of copyright, patent, trademark, trade secret, mask
work, and any and all other proprietary rights therein, the right to modify
and create derivative works, the right to invoke the benefit of any priority
under any international convention, and all rights to register and renew same.
(d) PROPRIETARY NOTICES; NO FILINGS; WAIVER OF MORAL RIGHTS.
Jannard acknowledges that all Inventions shall, at the sole option of Oakley,
bear Oakley's patent, copyright, trademark, trade secret, and mask work
notices.
Jannard agrees not to file any patent, copyright, or trademark
applications relating to any Invention, except with prior written consent of
an authorized representative of Oakley (other than Jannard).
Jannard hereby expressly disclaims any and all interest in any Inventions
and waives any right of droit morale or similar rights, such as rights of
integrity or the right to be attributed as the creator of the Invention.
(e) FURTHER ASSURANCES. Jannard agrees to assist Oakley, or any
party designated by Oakley, promptly on Oakley's request, whether before or
after the termination of employment, however such termination may occur, in
perfecting, registering, maintaining, and enforcing, in any jurisdiction,
Oakley's rights in the Inventions by performing all acts and executing all
documents and instruments deemed necessary or convenient by Oakley, including,
by way of illustration and not limitation:
i) Executing assignments, applications, and other documents
and instruments in connection with (A) obtaining patents, copyrights,
trademarks, mask works, or other proprietary protections for the
Inventions and (B) confirming the assignment to Oakley of all right,
title, and interest in the Inventions or otherwise establishing Oakley's
exclusive ownership rights therein.
ii) Cooperating on the prosecution of patent, copyright,
trademark and mask work applications, as well as
<PAGE>
in the enforcement of Oakley's rights in the Inventions, including, but
not limited to, testifying in court or before any patent, copyright,
trademark or mask work registry office or any other administrative body.
Jannard will be reimbursed for all out-of-pocket costs incurred in
connection with the foregoing, if such assistance is requested by Oakley
after the termination of Jannard's employment. In addition, to the extent
that, after the termination of employment for whatever reason, Jannard's
technical expertise shall be required in connection with the fulfillment
of the aforementioned obligations, Oakley will compensate Jannard at a
reasonable rate for the time actually spent by Jannard at Oakley's request
rendering such assistance.
(f) POWER OF ATTORNEY. Jannard hereby irrevocably appoints Oakley
to be his Attorney-In-Fact to execute any document and to take any action in
his name and on his behalf and to generally use his name for the purpose of
giving to Oakley the full benefit of the assignment provisions set forth above.
(g) DISCLOSURE OF INVENTIONS. Jannard will make full and prompt
disclosure to Oakley of all Inventions subject to assignment to Oakley, and
all information relating thereto in Jannard's possession or under his control
as to possible applications and use thereof.
4. NO VIOLATION OF THIRD-PARTY RIGHTS.
Jannard represents, warrants, and covenants that he:
(a) will not, in connection with his activities hereunder, knowingly
infringe upon or violate any proprietary rights of any third party (including,
without limitation, any third party confidential relationships, patents,
copyrights, mask works, trade secrets, or other proprietary rights);
(b) is not a party to any conflicting agreements with third parties
which will prevent him from fulfilling the terms of employment and the
obligations of this Agreement;
(c) does not have in his possession any confidential or proprietary
information or documents belonging to others and will not disclose to Oakley,
use, or induce Oakley to use, any
<PAGE>
confidential or proprietary information or documents of others; and
(d) agrees, in connection with any of his activities hereunder to
respect any and all valid obligations which he may now have to prior employers
or to others relating to confidential information, inventions, or discoveries
which are the property of those prior employers or others, as the case may be.
Jannard agrees to indemnify and save harmless Oakley from any loss, claim,
damage, cost or expense of any kind (including without limitation, reasonable
attorney fees) to which Oakley may be subjected by virtue of a breach by
Jannard of the foregoing representations, warranties, and covenants.
5. CONFIDENTIAL INFORMATION AND NON-COMPETITION.
(a) CONFIDENTIALITY. Jannard acknowledges that in his employment as
a consultant hereunder, and during prior periods of employment with Oakley, he
has occupied and will continue to occupy a position of trust and confidence.
Jannard shall not, except as may be required to perform his duties hereunder
or as required by applicable law, without limitation in time or until such
information shall have become public other than by Jannard's unauthorized
disclosure, disclose to others or use, whether directly or indirectly, any
Confidential Information regarding Oakley. "Confidential Information" shall
mean information about Oakley, its subsidiaries and affiliates, and their
respective clients and customers that is not disclosed by Oakley for financial
reporting purposes and that was learned by Jannard in the course of his
employment by Oakley, including (without limitation) any proprietary
knowledge, trade secrets, data, formulae, information and client and customer
lists and all papers, resumes, and records (including computer records) of the
documents containing such Confidential Information. Jannard acknowledges that
such Confidential Information is specialized, unique in nature and of great
value to Oakley, and that such information gives Oakley a competitive
advantage. Oakley agrees to (i) deliver or return to Oakley, at Oakley's
request at any time or upon termination or expiration of his employment or as
soon thereafter as possible, (A) all documents, computer tapes and disks,
records, lists, data, drawings, prints, notes and written information (and all
copies thereof) furnished by Oakley or prepared by Jannard during the term of
his employment by Oakley and (B) all notebooks and other data relating to
research or experiments or other work conducted by Jannard in the scope of
employment or any Inventions made, created, authored,
<PAGE>
conceived, or reduced to practice by Jannard, either alone or jointly with
others, and (ii) make full disclosure relating to any Inventions.
If Jannard would like to keep certain property, such as material relating
to professional societies or other non-confidential material, upon the
termination of employment with Oakley, he agrees to discuss such issues with
Oakley. Where such a request does not put Confidential Information of Oakley
at risk, Oakley will grant the request. In this regard, Oakley hereby grants
Jannard the right to keep his personal copy of the black "bound books", which
chronicle the financial history of Oakley.
(b) NON-COMPETITION. During the term of his employment and, if
Oakley exercises the option contained in Section 2, through the Expiration
Date, Jannard shall not directly or indirectly, without the prior written
consent of Oakley, provide consultative services or otherwise provide services
to (whether as an employee or a consultant, with or without pay), own, manage,
operate, join, control, participate in, or be connected with (as a
stockholder, partner, or otherwise), any business, individual, partner, firm,
corporation, or other entity that is then a competitor of Oakley, including
any entity engaged in the design, manufacture and/or distribution of eyewear
(each such competitor a "Competitor of Oakley"); provided, however, that the
"beneficial ownership" by Jannard, either individually or as a member of a
"group," as such terms are used in Rule 13d of the General rules and
Regulations under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), of not more than five percent (5%) of the voting stock of any
publicly held corporation shall not alone constitute a violation of this
Agreement. It is further expressly agreed that Oakley will or would suffer
irreparable injury if Jannard were to compete with Oakley or any subsidiary or
affiliate of Oakley in violation of this Agreement and that Oakley would by
reason of such competition be entitled to injunctive relief in a court of
appropriate jurisdiction, and Jannard further consents and stipulates to the
entry of such injunctive relief in such a court prohibiting Jannard from
competing with Oakley or any subsidiary or affiliate of Oakley in violation of
this Agreement. Jannard and Oakley acknowledge and agree that the business of
Oakley is global in nature, and that the terms of the non-competitive
agreement set forth herein shall apply on a worldwide basis.
<PAGE>
(c) NON-SOLICITATION OF CUSTOMERS AND SUPPLIERS. During the term of
his employment and, if Oakley exercises the option contained in Section 2,
through the Expiration Date, Jannard shall not, directly or indirectly,
influence or attempt to influence customers or suppliers of Oakley or any of
its subsidiaries or affiliates, to divert their business to any Competitor of
Oakley.
(d) NON-SOLICITATION OF EMPLOYEES. Jannard recognizes that he
possesses and will possess confidential information about other employees of
Oakley relating to their education, experience, skills, abilities,
compensation and benefits, and inter-personal relationships with customers of
Oakley. Jannard recognizes that the information he possesses and will possess
about these other employees is not generally known, is of substantial value to
Oakley in developing its business and in securing and retaining customers, and
has been and will be acquired by him because of his business position with
Oakley. Jannard agrees that, during the term of his employment and, if Oakley
exercises the option contained in Section 2, through the Expiration Date, he
will not, directly or indirectly, solicit or recruit any employee of Oakley
for the purpose of being employed by him or by any Competitor of Oakley on
whose behalf he is acting as an agent, representative or employee and that he
will not convey any such confidential information or trade secrets about other
employees of Oakley to any other person.
(e) SURVIVAL OF PROVISIONS. The obligations contained in this
section shall survive the expiration of the consulting agreement hereunder and
shall be fully enforceable thereafter. If it is determined by a court of
competent jurisdiction in any state that any restriction in this section is
excessive in duration or scope or is unreasonable or unenforceable under the
laws of that state, it is the intention of the parties that such restriction
may be modified or amended by the court to render it enforceable to the
maximum extent permitted by the law of that state.
6. FRINGE BENEFITS. As provided in the parties' previous Employment
Agreement, from and after the date of Jannard's termination of employment with
Oakley (including the term of the Consulting Agreement), Jannard shall be
entitled during his lifetime, to full company paid medical and health
insurance for himself and his immediate family at a level no less favorable
than that in effect for the benefit of Oakley's senior executive officers.
<PAGE>
7. PRODUCTS. From and after the date of Jannard's termination of
employment with Oakley (including the term of the Consulting Agreement),
Jannard shall be entitled, during his lifetime, to purchase from Oakley, at
employee prices, any and all Oakley products in an annual amount of $25,000.00.
8. HISTORICAL LIBRARY. Under Jannard's direction, Oakley has developed
a library which contains the history of Oakley as a business entity. Included
in this library are discontinued advertising and other marketing materials as
well as product samples from the inception of Oakley to the present. Samples
of current and future advertisements, other marketing materials and product
samples will be added to this library. Jannard, at his discretion, shall have
the right to retain any or all of this historical library. Jannard shall
exercise this right within a reasonable time following the termination of his
employment with Oakley, or through his agent in the event of his death or
disability if either event occurs during the period of his employment with
Oakley.
9. NOTICES. All notices and other communications under this Agreement
shall be in writing and shall be given by fax or first class mail, certified
or registered with return receipt requested, and shall be deemed to have been
duly given three (3) days after mailing or twenty-four (24) hours after
transmission of a fax to the respective persons named below:
If to Oakley: Oakley, Inc.
One Icon
Foothill Ranch, CA 92610
ATTENTION: Secretary
Phone: (714) 951-0991
Fax: (714) 951-8326
If to Jannard: James H. Jannard
c/o Oakley, Inc.
One Icon
Foothill Ranch, CA 92610
Phone: (714) 951-0991
Fax: (714) 951-8326
Either party may change such party's address for notices by notice duly given
pursuant hereto.
10. TERMINATION OF PRIOR AGREEMENTS. This Agreement terminates and
supersedes any and all prior agreements and
<PAGE>
understandings between the parties with respect to Jannard's employment and
compensation by Oakley.
11. ASSIGNMENT; SUCCESSORS. This Agreement is personal in its nature and
neither of the parties hereto shall, without the consent of the other, assign
or transfer this Agreement or any rights or obligations hereunder; provided
that, in the event of the merger, consolidation, transfer, or sale of all or
substantially all of the assets of Oakley with or to any other individual or
entity, this Agreement shall, subject to the provisions hereof, be binding
upon and inure to the benefit of such successor and such successor shall
discharge and perform all of the promises, covenants, duties and obligations
of Oakley hereunder.
12. GOVERNING LAW. This Agreement and the legal relations thus created
between the parties hereto shall be governed by and construed under and in
accordance with the laws of the State of California.
13. WAIVER; MODIFICATION. Failure to insist upon strict compliance with
any of the terms, covenants, or conditions hereof shall not be deemed a waiver
of such term, covenant, or condition, nor shall any waiver or relinquishment
of, or failure to insist upon strict compliance with, any right or power
hereunder at any one or more times be deemed a waiver or relinquishment of
such right or power at any other time or times. This Agreement shall not be
modified in any respect except by a writing executed by each party hereto.
14. SEVERABILITY. In the event that a court of competent jurisdiction
determines that any portion of this Agreement is in violation of any statute
or public policy, only the portions of this Agreement that violate such
statute or public policy shall be stricken. All portions of this Agreement
that do not violate any statute or public policy shall continue in full force
and effect. Further, any court order striking any portion of this Agreement
shall modify the stricken terms as narrowly as possible to give as much effect
as possible to the intentions of the parties under this Agreement.
15. INDEMNIFICATION. Oakley shall indemnify and hold Jannard harmless for
acts and omissions in his capacity as an officer, director, employee or
consultant of Oakley as provided
<PAGE>
in the separate written indemnification agreement between Oakley and Jannard.
IN WITNESS WHEREOF, Oakley has caused this Consulting Agreement to be
executed by its duly authorized officer and Jannard has hereunto signed this
Agreement as of the date first above written.
OAKLEY, INC. JAMES H. JANNARD
BY: _________________________
ITS: _________________________
<PAGE>
[LOGO]
BANK OF AMERICA
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROMISSORY NOTE - (LIBOR)
$22,780,000.00 Loan No. 3029857
August 7, 1997 Orange, California
1. BORROWER'S PROMISE TO PAY.
For value received, OAKLEY, INC., a Washington corporation ("Borrower")
promises to pay TWENTY TWO MILLION SEVEN HUNDRED EIGHTY THOUSAND AND NO/100
DOLLARS ($22,780,000.00), or so much of that sum as may be advanced under this
promissory note (the "Note") plus interest, to the order of Bank of America
National Trust and Savings Association ("Bank") at P.O. Box 7112, Pasadena,
California, or at such other place as the holder of this Note may from time to
time require.
This Note evidences a loan (the "Loan") from Bank to Borrower made pursuant
to a Standing Loan Agreement (the "Loan Agreement") between Bank and Borrower of
even date herewith. This Note is secured by a Deed of Trust With Assignment of
Rents, Security Agreement and Fixture Filing (the "Deed of Trust") covering
certain real property and other collateral as described therein.
2. INTEREST RATE AND PAYMENT TERMS.
A. THE INTEREST RATE. Interest on unpaid principal shall accrue at a
rate equal to the LIBOR Rate, as defined below, plus one and 15/100ths percent
(1.15%) (the "Spread") per year. The LIBOR Rate shall be adjusted every three
(3) months on each December 1, March 1, June 1, and September 1, or if such
date is not a Banking Day, the next succeeding Banking Day ("Reset Date"). The
"LIBOR Rate" means the interest rate determined by the following formula. (All
amounts in the calculation will be determined by Bank as of the Reset Date.)
LONDON INTER-BANK OFFERED RATE
LIBOR Rate = -------------------------------
(1.00 - Reserve Percentage)
Where,
(1) "London Inter-Bank Offered Rate" is the average per annum rate of
interest, at which United States dollar deposits in the amount of the Loan
would be offered for three (3) month periods by major banks in the London
U.S. dollar inter-bank market, as shown on Telerate Page 3750 (or such
other page as may replace it) as of 11:00 a.m. (London time) on the day
that is two (2) London Banking Days preceding the Reset Date. If such rate
does not appear on the Telerate Page 3750 (or such other page that may
replace it), the rate for that three (3) month period will be determined by
such alternate method as reasonably selected by Bank.
(2) "Reserve Percentage" means the total of the maximum reserve
percentages as prescribed by the Board of Governors of the Federal Reserve
System for determining the reserves to be maintained by member banks of the
Federal Reserve System for Eurocurrency Liabilities as defined in Federal
Reserve Board Regulation D, rounded upward to the nearest 1/100 of one
percent. The percentage will be expressed as a decimal, and will include,
but not be limited to, marginal, emergency, supplemental, special, and
other reserve percentages.
(3) "Banking Day" shall mean a day other than a Saturday or a Sunday
on which Bank is open for business in California, New York and London and
dealing in offshore dollars. "London Banking Day" shall mean a day on
which Bank's London Branch is open for business and dealing in offshore
dollars.
Initially, interest will accrue at the rate of six and eighty four one
hundredths percent (6.84%) per year (the "Note Rate"). This initial interest
rate is based on the LIBOR Rate as defined above, even if the number of days
between the date the Loan is advanced and the first Reset Date is greater than
or less than three (3) months. The interest rate will change every three (3)
months with changes in the LIBOR Rate.
B. MONTHLY INTEREST PAYMENTS. Interest shall be payable on the first day
of each month in arrears (the "Interest Payment").
C. PRINCIPAL PAYMENTS. Principal shall be due and payable in
installments of $379,667.00 on each Reset Date, commencing with December 1,
1997. Borrower shall make a final payment of all remaining unpaid principal,
accrued interest and other sums due under this Note, due and payable on
September 1, 2002 (the "Maturity Date").
D. INTEREST APPORTIONMENT AND PAYMENT ALLOCATION. The amount of each
year's interest on the Note will be calculated on the basis of a 360-day year
and actual days elapsed, which results in more interest than if a 365-day year
were used. The payments will be applied first to accrued but unpaid interest
and then to principal.
E. NO LIMIT ON AMOUNT OF INTEREST OR PAYMENT CHANGES. There is no limit
on the amount that the interest rate or interest payments on this Note may
increase or decrease on any single Reset Date, or in the aggregate on all Reset
Dates throughout the life of the Loan.
F. NOTICE OF CHANGES. Bank will deliver to Borrower notice of any
changes in the interest rate, but the effectiveness and date of such changes
shall not be affected by such notice or the lack thereof.
G. SPECIAL CIRCUMSTANCES. From time to time, Bank may determine that:
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(1) dollar deposits in the principal amount of the Loan, and for the
period between Reset Dates, are not available in the London inter-bank
market; or
(2) it is illegal for Bank to fund the Loan using dollar deposits in
the London inter-bank market; or
(3) the LIBOR Rate does not accurately reflect the cost of funding
the Loan.
If Bank determines in its sole discretion that any such event has occurred
("Special Circumstances"), then at Bank's option the following provisions shall
apply:
(4) if Bank in its sole discretion determines that a Special
Circumstance would not exist if the interest rate were determined based on
an inter-bank market for U.S. dollars located outside the United States
other than the London inter-bank market, then such alternative market,
selected by Bank, shall be used.
(5) If subparagraph (4) does not apply, then the Loan shall bear
interest at a rate per annum equal to Bank's Reference Rate plus one
quarter (.25%) percentage points. The Reference Rate is the rate of
interest publicly announced from time to time by Bank in San Francisco,
California, as its Reference Rate. The Reference Rate is set by Bank based
on various factors, including Bank's costs and desired return, general
economic conditions and other factors, and is used as a reference point for
pricing some loans. Bank may price loans to its customers at, above, or
below the Reference Rate. Any change in the Reference Rate shall take
effect at the opening of business on the day specified in the public
announcement of a change in Bank's Reference Rate
3. PRINCIPAL PREPAYMENTS.
A. Subject to the terms and conditions of this Section 3, Borrower has
the right to prepay principal in whole or in part on any Banking Day before the
Maturity Date in minimum amounts equal to or greater than twenty percent (20%)
of the face amount of this Note. All prepayments of principal on the Note shall
be applied to the most remote principal installment or installments then unpaid.
B. Borrower shall give Bank irrevocable written notice of Borrower's
intention to make the prepayment, which notice shall specify the date and amount
of the prepayment. The notice must be received by Bank at least five (5)
Banking Days in advance of the prepayment.
C. Each prepayment of the Loan, whether voluntary, by reason of
acceleration or otherwise, shall be accompanied by the amount of all accrued
interest on the amount prepaid; and, if the prepayment is on a date other than a
Reset Date, a prepayment fee ("Prepayment Fee") equal to the amount (if any) by
which
(1) the additional interest which would have been payable on the
amount prepaid had it not been paid until the next Reset Date, exceeds
(2) the interest which would have been recoverable by Bank by placing
the amount prepaid on deposit in the domestic certificate of deposit
market, the eurodollar deposit market, or other appropriate money market
selected by the Bank, for a period starting on the date on which it was
prepaid and ending on the next Reset Date.
4. BORROWER'S WAIVER OF PREPAYMENT RIGHT.
By its signature below, Borrower waives any right under California Civil
Code Section 2954.10 or otherwise to prepay the Loan, in whole or in part,
without a Prepayment Fee as described above. Borrower acknowledges that
prepayment of the Loan may result in Bank's incurring additional losses, costs,
expenses and liabilities, including, but not limited to, lost revenue and lost
profits. Borrower therefore agrees to pay the Prepayment Fee if any principal
amount is prepaid, whether voluntarily or by reason of acceleration, including,
but not limited to, acceleration upon any transfer or conveyance of any right,
title or interest in the Property giving Bank the right to accelerate the
maturity of this Note as provided in the Deed of Trust. Borrower agrees that
Bank's willingness to offer the interest rate described above to Borrower is
sufficient and independent consideration, given individual weight by Bank, for
this waiver. Borrower understands that Bank would not offer such an interest
rate to Borrower absent this waiver.
OAKLEY, INC.,
a Washington corporation
By:
----------------------------------
Name:
----------------------------------
Its:
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By:
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Name:
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Its:
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5. LATE PAYMENTS.
A. LATE CHARGE FOR OVERDUE PAYMENTS. If Bank has not received the full
amount of any monthly payment by the end of ten (10) calendar days after the
date it is due, Borrower will pay a late charge to Bank in the amount of three
percent (3%) of the overdue payment. Borrower will pay this late charge only
once on any late payment.
B. DEFAULT RATE. From and after the Maturity Date, or such earlier date
as all sums owing on this Note become due and payable by acceleration or
otherwise, all sums owing on this Note (including interest), at the option of
Bank, shall bear interest from the date the payment becomes due until Borrower
pays in full, at three percentage (3%) points above the rate at which interest
would otherwise accrue under this Note. This may result in compounding of
interest.
6. MISCELLANEOUS.
A. PAYMENTS. All amounts payable under this Note are payable in lawful
money of the United States. Checks constitute payment only when collected.
B. JOINT AND SEVERAL. If more than one person or entity are signing this
Note as Borrower, their obligations under this Note will be joint and several.
C. LOAN AGREEMENT. This Note is subject to the terms and conditions of
the Loan Agreement, which, among other things, contains provisions for
acceleration of the maturity of this Note.
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D. GOVERNING LAW. This Note is governed by the laws of the State of
California. This Note may be executed in one or more counterparts, each of
which is, for all purposes deemed an original and all such counterparts taken
together, constitute one and the same instrument.
E. WAIVERS. If Bank delays in exercising or fails to exercise any of its
rights under this Note, that delay or failure shall not constitute a waiver of
any of Bank's rights, or of any breach, default or failure of condition of or
under this Note. No waiver by Bank of any of its rights, or of any such breach,
default or failure of condition shall be effective, unless the waiver is
expressly stated in a writing signed by Bank.
F. ASSIGNMENT. This Note inures to and binds the heirs, legal
representatives, successors and assigns of Borrower and Bank; provided, however,
that Borrower may not assign this Note or any Loan funds, or assign or delegate
any of its rights or obligations, without the prior written consent of Bank in
each instance. Bank, in its sole discretion, may transfer this Note, and may
sell or assign participations or other interests in all or part of the Loan, on
the terms and subject to the conditions of the loan documents, all without
notice to or the consent of Borrower.
G. CUMULATIVE REMEDIES. All of Bank's remedies in connection with this
Note or under applicable law shall be cumulative, and Bank's exercise of any one
or more of those remedies shall not constitute an election of remedies.
IN WITNESS WHEREOF, Borrower has duly executed and delivered this Note to
Bank as of the date first above written.
Borrower:
OAKLEY, INC.,
a Washington corporation
By:
----------------------------------
Name:
----------------------------------
Its:
----------------------------------
By:
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Name:
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Its:
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RECORDING REQUESTED BY )
AND WHEN RECORDED MAIL TO: )
Bank of America National )
Trust and Savings Association )
California Real Estate )
Specialty Unit No. 16617 )
50 California Street, 12th Floor )
San Francisco, CA 94111 )
Attn: Kelly Dean )
Loan No: 3029857 )
) Space above for Recorder's Use
- --------------------------------------------------------------------------------
DEED OF TRUST WITH ASSIGNMENT OF RENTS, SECURITY AGREEMENT AND FIXTURE FILING
(CALIFORNIA)
/ / IF THIS BOX IS CHECKED, THIS DOCUMENT IS A CONSTRUCTION DEED OF TRUST
SECURING A CONSTRUCTION LOAN.
The parties to this Deed of Trust With Assignment of Rents, Security
Agreement and Fixture Filing (this "Deed of Trust"), made as of August 7,
1997, are OAKLEY, INC., a Washington corporation as trustor ("Trustor"),
EQUITABLE DEED COMPANY, a California corporation, as trustee ("Trustee"), and
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as beneficiary and
secured party ("Beneficiary"). Trustee is a subsidiary of Beneficiary.
Capitalized terms used in this Deed of Trust without definition have
the meanings given them in the Loan Agreement referred to in Section 1.2(c)
hereof.
I. GRANT IN TRUST AND SECURED OBLIGATIONS.
1.1 GRANT IN TRUST. For the purpose of securing payment and performance
of the Secured Obligations defined and described in Section 1.2, Trustor hereby
irrevocably and unconditionally grants, conveys, transfers and assigns to
Trustee, in trust for the benefit of Beneficiary, with power of sale and right
of entry and possession, all estate, right, title and interest which Trustor now
has or may later acquire in and to the following property (all or any part of
such property, or any interest in all or any part of it, together with the
Personalty (as hereinafter defined) being hereinafter collectively referred to
as the "Property"):
(a) the real property located in the County of Orange, State of
California, as described in EXHIBIT A attached hereto (the "Land"), together
with all existing and future easements and rights affording access to the
Land; and
(b) all buildings, structures and improvements now located or
later to be constructed on the Land (the "Improvements"); and
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(c) all existing and future appurtenances, privileges, rights,
easements, and tenements of the Land, including all minerals, oil, gas, other
hydrocarbons and any other commercially valuable substances which may be in,
under or produced from any part of the Land, all development rights and
credits, air rights, water, water rights (whether riparian, appropriative or
otherwise, and whether or not appurtenant), and any land lying in the streets,
roads or avenues, open or proposed, in front of or adjoining the Land and
Improvements; and
(d) all rents, income, revenues, issues and profits of or from
the Land or the Improvements; and
(e) all Fixtures (as that term is hereinafter defined); and
(f) all proceeds, including all claims to and demands for them,
of the voluntary or involuntary conversion of any of the Land, the Improvements
or the other property described above into cash or liquidated claims, including
proceeds of all present and future fire, hazard or casualty insurance policies
and all condemnation awards or payments now or later to be made by any public
body or decree by any court of competent jurisdiction for any taking or in
connection with any condemnation or eminent domain proceeding, and all causes of
action and their proceeds for any damage or injury to the Land, the Improvements
or the other property described above or any part of them, or breach of warranty
in connection with the construction of the Improvements, including causes of
action arising in tort, contract, fraud or concealment of a material fact; and
(g) all additions and accretions to, substitutions and
replacements for, and changes in, any of the property described above.
1.2 SECURED OBLIGATIONS. Trustor makes the grant, conveyance, transfer
and assignment set forth in Section 1.1, makes the irrevocable and absolute
assignment set forth in Article II, and grants the security interest set forth
in Article III, all for the purpose of securing the following obligations in any
order of priority that Beneficiary may choose (collectively, the "Secured
Obligations;" individually, a "Secured Obligation"):
(a) payment of all obligations at any time owing under a
promissory note (the "Note") dated as of even date herewith, payable by Trustor
as maker in the stated principal amount of TWENTY TWO MILLION SEVEN HUNDRED
EIGHTY THOUSAND AND NO/100 DOLLARS ($22,780,000.00) to the order of Beneficiary;
and
(b) payment and performance of all obligations of Trustor under
this Deed of Trust; and
(c) payment and performance of all obligations of Trustor under
a construction, standing, or other loan agreement executed as of even date
herewith, by Trustor as "Borrower" and Beneficiary as "Bank" (the "Loan
Agreement") and under any "Loan Documents" as defined in the Loan Agreement;
provided that this Deed of Trust does not secure any provision in any Loan
Document that is expressly stated to be unsecured; and
(d) payment and performance of all future advances and other
obligations that Trustor or any successor in ownership of all or part of the
Property may agree to pay and/or perform (whether as principal, surety or
guarantor) for the benefit of Beneficiary, when a writing evidences the parties'
agreement that the advance or obligation be secured by this Deed of Trust; and
(e) payment and performance of all modifications, amendments,
extensions, and renewals, however evidenced, of any of the Secured Obligations.
All persons who may have or acquire an interest in all or any part of
the Property will be considered to have notice of, and will be bound by, the
terms of the Secured Obligations and each other agreement or instrument made or
entered into in connection with each of the Secured Obligations. These terms
include any provisions in the Note or the Loan Agreement which permit borrowing,
repayment and reborrowing, or which provide that the interest rate on one or
more of the Secured Obligations may vary from time to time.
2. ASSIGNMENT OF LESSOR'S INTEREST IN LEASES AND ASSIGNMENT OF RENTS.
2.1 ABSOLUTE ASSIGNMENT. Trustor hereby irrevocably, absolutely,
presently and unconditionally assigns to Beneficiary:
(a) all of Trustor's right, title and interest in, to and under
any and all leases, licenses and other agreements of any kind relating to the
use or occupancy of all or any portion of the Property, whether now in effect or
entered into in the future (collectively, the "Leases," individually, a
"Lease"), including (i) all guarantees of and security for lessees' performance
under any and all Leases, and (ii) all amendments, extensions, renewals or
modifications to any Leases; and
(b) all rents (and payments in lieu of rents), income, profit,
payments and revenue at any time payable under any and all Leases, any and all
security deposits received or to be received by Trustor pursuant to any and all
Leases, and all rights and benefits accrued or to accrue to Trustor under any
and all Leases (collectively "Rents").
THIS IS AN ABSOLUTE ASSIGNMENT, NOT AN ASSIGNMENT FOR SECURITY ONLY.
2.2 GRANT OF LICENSE. Beneficiary hereby confers upon Trustor a license
(the "License") to collect and retain the Rents as they become due and payable,
so long as no Event of Default, as defined in Section 7.1, shall exist and be
continuing. If an Event of Default has occurred and is continuing,
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Beneficiary shall have the right, which it may choose to exercise in its sole
discretion, to terminate the License without notice to or demand upon Trustor,
and without regard to the adequacy of Beneficiary's security under this Deed of
Trust.
2.3 COLLECTION AND APPLICATION OF RENTS. Subject to the License granted
to Trustor under Section 2.2, Beneficiary has the right, power and authority
to collect any and all Rents. Trustor hereby appoints Beneficiary its
attorney-in-fact to perform any and all of the following acts, if and at the
times when Beneficiary in its sole discretion may so choose:
(a) demand, receive and enforce payment of any and all Rents; or
(b) give receipts, releases and satisfactions for any and all
Rents; or
(c) sue either in the name of Trustor or in the name of
Beneficiary for any and all Rents.
Beneficiary's right to the Rents does not depend on whether or not
Beneficiary takes possession of the Property as permitted under Section 7.2(c).
In Beneficiary's sole discretion, it may choose to collect Rents either with or
without taking possession of the Property. If an Event of Default occurs while
Beneficiary is in possession of all or part of the Property and is collecting
and applying Rents as permitted under this Deed of Trust, Beneficiary, Trustee
and any receiver shall nevertheless be entitled to exercise and invoke every
right and remedy afforded any of them under this Deed of Trust and at law or in
equity, including the right to exercise the power of sale granted under Section
1.1 and Section 7.2(g).
2.4 NOTICE. All lessees under any and all Leases are hereby irrevocably
authorized and notified by Trustor to rely upon and to comply with (and are
fully protected in so doing) any notice or demand by Beneficiary for the payment
to Beneficiary of any rental or other sums which may at any time become due
under the Leases, or for the performance of any of lessees' undertakings under
the Leases, and lessees shall have no right or duty to inquire as to whether any
Event of Default has actually occurred or is then existing hereunder.
2.5 PROCEEDS. Beneficiary has the right to apply all amounts received by
it pursuant to this assignment to pay any of the following in such amounts and
in such order as Beneficiary deems appropriate: (a) any and all Secured
Obligations, together with all costs and attorneys' fees; (b) all expenses of
leasing, operating, maintaining and managing the Property, including without
limitation, the salaries, fees, commissions and wages of a managing agent and
such other employees, agents or independent contractors as Beneficiary deems
necessary or desirable; (c) all taxes, charges, claims, assessments, any other
liens, and premiums for all insurance Beneficiary deems necessary or desirable;
(d) the cost of all alterations, renovations, repairs or replacements, and all
expenses incident to taking and retaining possession of the Property.
2.6 BENEFICIARY NOT RESPONSIBLE. Regardless of whether or not
Beneficiary, in person or by agent, takes actual possession of the Land and
Improvements, Beneficiary is not and will not be deemed to be:
(a) a "mortgagee in possession" for any purpose; or
(b) responsible for performing any of the obligations of Trustor
under any lease; or
(c) responsible for any waste committed by lessees or any other
parties, any dangerous or defective condition of the Property, or any negligence
in the management, upkeep, repair or control of the Property; or
(d) liable in any manner for the Property or the use, occupancy,
enjoyment or operation of all or any part of it.
3. GRANT OF SECURITY INTEREST.
3.1 GRANT OF SECURITY INTEREST. Trustor grants to Beneficiary a security
in, and pledges and assigns to Beneficiary, all of Trustor's right, title and
interest now or hereafter acquired in and to all of the following described
personal property (collectively, the "Personalty"):
(a) all tangible personal property of every kind and
description, whether now existing or later acquired, including, without
limitation, all goods, materials, supplies, tools, books, records, chattels,
furniture, fixtures, equipment and machinery, and, without limiting the
generality of any of the foregoing classifications, including any and all fire
sprinkler, alarm, trash compaction, security, heating ventilation and air
conditioning, electrical, plumbing and any other utility, operations or
maintenance system and any and all components or units thereof, and in all cases
whether attached to, placed in or on, or used in connection with the use,
enjoyment, occupancy or operation of all or any part of, the Land and the
Improvements, whether stored on the Land or elsewhere. Notwithstanding the
foregoing,(i) any goods, materials, supplies, chattels, furniture, fixtures,
equipment or machinery used in connection with Debtor's business and not affixed
in any manner on the Property, and (ii) any tools, books, or records used in
connection with Debtor's business and not related to the occupancy or operation
of all or any part of the Land and the Improvements, are not part of the
collateral described herein; and
(b) all rights to the payment of money, accounts, reserves,
deferred payments, refunds, savings, payments and deposits, whether now or later
to be received from third parties (including all earnest money sales deposits)
or deposited by Trustor with third parties (including all utility
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deposits) (provided, however, this Deed of Trust does not create a lien on
accounts receivable (other than accounts receivable constituting Rents) arising
in the ordinary course of the business conducted by Trustor on the Property),
contract rights, money, instruments, documents, chattel paper, architectural and
engineering plans, specifications and drawings, and as-built drawings in each
case which arise from or relate to the Land, or the Improvements; and
(c) all rents, income, revenues, issues and profits of or from
the Land or the Improvements (provided, however, this Deed of Trust does not
create a lien on income, revenue, or accounts receivable arising in the ordinary
course of the business conducted by Trustor at the Property); and
(d) all general intangibles and rights relating to the Property,
including, without limitation, all permits, licenses and claims to or demands
for the voluntary or involuntary conversion of any of the Land, the Improvements
or the other property described above into cash or liquidated claims, proceeds
of all present and future fire, hazard or casualty insurance policies and all
condemnation awards or payments now or later to be made by any public body or
decree by any court of competent jurisdiction for any taking or in connection
with any condemnation or eminent domain proceeding, and all causes of action and
their proceeds for any damage or injury to the Land, the Improvements or the
other property described above or any part of them, or breach of warranty in
connection with the construction of the Improvements, including causes of action
arising in tort, contract, fraud or concealment of a material fact; and
(e) all substitutions, replacements, additions, accessions and
proceeds for or to any of the foregoing, and all books, records and files
relating to any of the foregoing, including, without limitation, computer
readable memory and data and any computer software or hardware reasonably
necessary to access and process such memory and data.
3.2 FINANCING STATEMENTS. Trustor must execute one or more financing
statements and such other documents as Beneficiary may from time to time require
to perfect or continue the perfection of Beneficiary's security interest in any
Personalty. Trustor must pay all fees and costs that Beneficiary may incur in
filing such documents in public offices and in obtaining such record searches as
Beneficiary may reasonably require. In case Trustor fails to execute any
financing statements or other documents for the perfection or continuation of
any security interest, Trustor hereby appoints Beneficiary as its true and
lawful attorney-in-fact to execute any such documents on its behalf.
If any financing statement or other document is filed in the records
normally pertaining to personal property, that filing must never be construed as
in any way derogating from or impairing this Deed of Trust or the rights or
obligations of the parties under it.
3.3 POSSESSION AND USE OF COLLATERAL. Except as otherwise provided in
this Deed of Trust or the Loan Agreement, so long as no Event of Default exists
hereunder, Trustor may possess, use, transfer and dispose of any of the
Personalty in the ordinary course of Trustor's business.
3.4 SECURITY AGREEMENT. This Deed of Trust constitutes a security
agreement under the California Uniform Commercial Code covering all Personalty.
3.5 Notwithstanding anything to the contrary herein contained, this Deed
of Trust does not create a lien on income, revenue or accounts receivable
arising in the ordinary course of the business conducted by Trustor located at
the Land and Improvements, except to the extent Trustor's business relating to
the Land and the Improvements consist of leasing, renting, granting licenses,
concessions, or any right or agreements of any kind to use or occupy the Real
Property and Improvements, or any portion thereof, or any other activity of like
nature related to income generated by use or occupancy of the Land and
Improvements. As of the date of this Deed of Trust, Trustor is engaged in the
business of manufacture and distribution of sunglasses, optical protective
shields for sports headgear and related activities and occupies the Land and
Improvements for the conduct of such business.
4. FIXTURE FILING.
4.1 FIXTURE FILING; DESCRIPTION OF FIXTURES. This Deed of Trust
constitutes a fixture filing under Sections 9313 and 9402 of the California
Uniform Commercial Code, as amended or recodified from time to time, and covers
property which includes goods which are or are to become fixtures on the
Property. "Fixtures" include all articles of personal property now or hereafter
attached to, placed upon for an indefinite term or used in connection with said
real property, appurtenances and improvements, together with all goods and other
property which are or at any time become so related to the Property that an
interest in them arises under real estate law.
5. RIGHTS AND DUTIES OF THE PARTIES.
5.1 REPRESENTATIONS AND WARRANTIES. Trustor warrants that, except as
previously disclosed to Beneficiary in a writing making reference to this
warranty or in the title insurance policy referred to in Section 1.3 of the Loan
Agreement:
(a) Trustor lawfully possesses and holds fee simple title to all
of the Land and the Improvements;
(b) Trustor has or will have good title to all Property other
than the Land and Improvements;
(c) Trustor has the full and unlimited power, right and
authority to encumber the Property;
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(d) this Deed of Trust creates a first and prior lien on the
Property;
(e) the Property includes all property and rights which may be
reasonably necessary or desirable to enable Trustor to use, enjoy and operate
the Land and the Improvements for the present uses thereof;
(f) Trustor owns any Property which is personal property free
and clear of any security agreements, reservations of title or conditional sales
contracts, and there is no presently effective financing statement affecting
such personal property on file in any public office; and
(g) Trustor's place of business, or its chief executive office,
if it has more than one place of business, is located at the address specified
in section 8.12.
5.2 PERFORMANCE OF SECURED OBLIGATIONS. Trustor must promptly pay and
perform each Secured Obligation in accordance with its terms.
5.3 TAXES AND ASSESSMENTS. Trustor must pay prior to delinquency all
taxes, levies, charges and assessments (individually and collectively, an
"Imposition"), imposed by any public or quasi-public authority or utility
company which are (or if not paid, may become) a lien on all or part of the
Property or any interest in it, or which may cause any decrease in the value of
the Property or any part of it. If any such Imposition becomes delinquent,
Beneficiary may require Trustor to present evidence that they have been paid in
full, on ten (10) days' written notice by Beneficiary to Trustor.
Notwithstanding the foregoing provisions of this Section 5.3, Trustor may, at
its expense, contest the validity or application of any Imposition by
appropriate legal proceedings promptly initiated and conducted in good faith and
with due diligence, provided that (i) Beneficiary is reasonably satisfied that
neither the Property nor any part thereof or interest therein will be in danger
of being sold, forfeited, or lost as a result of such contest, and (ii) Trustor
shall have posted a bond or furnished such other security as may be reasonably
required from time to time by Beneficiary.
5.4 LIENS, CHARGES AND ENCUMBRANCES. Trustor must immediately discharge
any lien on the Property which Beneficiary has not consented to in writing or
which is not referenced in the title insurance policy referred to in Section 1.3
of the Loan Agreement. Trustor must pay when due each obligation secured by or
reducible to a lien, charge or encumbrance which now does or later may encumber
or appear to encumber all or part of the Property or any interest in it, whether
the lien, charge or encumbrance is or would be senior or subordinate to this
Deed of Trust. This Section 5.4 is subject to any right granted to Trustor in
Section 2.6 of the Loan Agreement to contest in good faith claims and liens for
labor done and materials and services furnished in connection with construction
of the Improvements.
5.5 DAMAGES AND INSURANCE AND CONDEMNATION PROCEEDS.
(a) Trustor hereby absolutely and irrevocably assigns to
Beneficiary, and authorizes the payor to pay to Beneficiary, the following
claims, causes of action, awards, payments and rights to payment:
(i) all awards of damages and all other compensation
payable directly or indirectly because of a condemnation, proposed condemnation
or taking for public or private use which affects all or part of the Property or
any interest in it; and
(ii) all other awards, claims and causes of action,
arising out of any warranty affecting all or any part of the Property, or for
damage or injury to or decrease in value of all or part of the Property or any
interest in it; and
(iii) all proceeds of any insurance policies payable
because of loss sustained to all or part of the Property; and
(iv) all interest which may accrue on any of the
foregoing.
(b) Trustor must immediately notify Beneficiary in writing if:
(i) any damage occurs or any injury or loss is
sustained in the amount of $100,000.00 or more to all or part of the Property,
or any action or proceeding relating to any such damage, injury or loss is
commenced; or
(ii) any offer is made, or any action or proceeding is
commenced, which relates to any actual or proposed condemnation or taking of all
or part of the Property.
If Beneficiary chooses to do so, it may in its own name appear in or
prosecute any action or proceeding to enforce any cause of action based on
warranty, or for damage, injury or loss to all or part of the Property, and it
may make any compromise or settlement of the action or proceeding. Beneficiary,
if it so chooses, may participate in any action or proceeding relating to
condemnation or taking of all or part of the Property, and may join Trustor in
adjusting any loss covered by insurance.
(c) All proceeds of these assigned claims, other property and
rights which Trustor may receive or be entitled to which exceeds the amount of
$100,000.00 or more must be paid to Beneficiary. In each instance, Beneficiary
must apply those proceeds first toward reimbursement of all of Beneficiary's
costs and expenses of recovering the proceeds, including attorneys' fees.
If, in any instance, each and all of the following conditions are
satisfied in Beneficiary's reasonable judgment, Beneficiary must permit Trustor
to use the balance of the proceeds ("Net Claims Proceeds") to pay costs of
repairing or reconstructing the Property in the manner described below:
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(i) the plans and specifications, cost breakdown,
construction contract, construction schedule, contractor and payment and
performance bond for the work of repair or reconstruction must all be acceptable
to Beneficiary; and
(ii) Beneficiary must receive evidence satisfactory to
it that after repair or reconstruction, the Property would be at least as
valuable as it was immediately before the damage or condemnation occurred; and
(iii) the Net Claims Proceeds must be sufficient in
Beneficiary's determination to pay for the total cost of repair or
reconstruction, including all associated development costs and interest
projected to be payable on the Secured Obligations until the repair or
reconstruction is complete; or Trustor must provide its own funds in an amount
equal to the difference between the Net Claims Proceeds and a reasonable
estimate, made by Trustor and found acceptable by Beneficiary, of the total cost
of repair or reconstruction; and
(iv) Beneficiary must receive evidence satisfactory to
it that all leases which it may find acceptable will continue after the repair
or reconstruction is complete; and
(v) no Event of Default shall have occurred and be
continuing.
(d) If Beneficiary finds that the foregoing conditions are met,
Beneficiary must hold the Net Claims Proceeds and any funds which Trustor is
required to provide in a noninterest-bearing account and must disburse them to
Trustor to pay costs of repair or reconstruction upon presentation of evidence
reasonably satisfactory to Beneficiary that repair or reconstruction has been
completed satisfactorily and lien-free. However, if Beneficiary finds that one
or more of the conditions are not satisfied, it may apply the Net Claims
Proceeds to pay or prepay (without premium) some or all of the Secured
Obligations in such order and proportions as it in its sole discretion may
choose.
(e) Trustor hereby specifically, unconditionally and irrevocably
waives all rights of a property owner granted under California Code of Civil
Procedure Section 1265.225(a), which provides for allocation of condemnation
proceeds between a property owner and a lienholder, and any other law or
successor statute of similar import.
5.6 MAINTENANCE AND PRESERVATION OF PROPERTY.
(a) Trustor must insure the Property as required by the Loan
Agreement and keep the Property in good condition and repair.
(b) Trustor must not remove or demolish the Improvements, or any
part thereof, or alter or add to the Improvements, or initiate or allow any
change in any zoning or other land use classification which affects the Property
or any part of it, except as permitted or required by the Loan Agreement or with
Beneficiary's express prior written consent in each instance.
(c) If all or part of the Property becomes damaged or destroyed,
Trustor must promptly and completely repair and/or restore the Property in a
good and workmanlike manner in accordance with sound building practices,
regardless of whether or not Beneficiary agrees to disburse insurance proceeds
or other sums to pay costs of the work of repair or reconstruction under Section
5.5.
(d) Trustor must not commit or allow any waste of the Property.
(e) Trustor must perform all other acts which from the
character or use of the Property may be reasonably necessary to maintain and
preserve its value and utility.
5.7 RELEASES, EXTENSIONS, MODIFICATIONS AND ADDITIONAL SECURITY.
(a) From time to time, Beneficiary may perform any of the
following acts without incurring any liability or giving notice to any person:
(i) release any person liable for payment of any
Secured Obligation;
(ii) extend the time for payment, or otherwise alter
the terms of payment, of any Secured Obligation;
(iii) accept additional real or personal property of any
kind as security for any Secured Obligation, whether evidenced by deeds of
trust, mortgages, security agreements or any other instruments of security; or
(iv) alter, substitute or release any property securing
the Secured Obligations.
(b) From time to time when requested to do so by Beneficiary in
writing, Trustee may perform any of the following acts without incurring any
liability or giving notice to any person:
(i) consent to the making of any plat or map of the
Property or any part of it;
(ii) join in granting any easement or creating any
restriction affecting the Property;
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(iii) join in any subordination or other agreement
affecting this Deed of Trust or the lien of it; or
(iv) reconvey the Property or any part of it without
any warranty.
5.8 RECONVEYANCE. When all of the Secured Obligations have been paid and
performed in full, Beneficiary shall request Trustee in writing to reconvey the
Property, and must surrender this Deed of Trust and all notes and instruments
evidencing the Secured Obligations to Trustee. When Trustee receives
Beneficiary's written request for reconveyance and all fees and other sums owing
to it by Trustor under Section 5.9, Trustee must reconvey the Property, or so
much of it as is then held under this Deed of Trust, without warranty to the
person or persons legally entitled to it. That person or those persons must pay
any costs of recordation. In the reconveyance, the grantee may be described as
"the person or persons legally entitled thereto," and the recitals of any
matters or facts are conclusive proof of their truthfulness. Neither
Beneficiary nor Trustee have any duty to determine the rights of persons
claiming to be rightful grantees of any reconveyance.
5.9 COMPENSATION, EXCULPATION, INDEMNIFICATION.
(a) Trustor agrees to pay fees in the maximum amounts legally
permitted, or reasonable fees as may be charged by Beneficiary and Trustee when
the law provides no maximum limit, for any services that Beneficiary or Trustee
may render in connection with this Deed of Trust, including Beneficiary's
providing a statement of the Secured Obligations or Trustee's rendering of
services in connection with a reconveyance. Trustor must also pay or reimburse
all of Beneficiary's and Trustee's costs and expenses which may be incurred in
rendering any such services. Trustor further agrees to pay or reimburse
Beneficiary for all costs, expenses and other advances which may be incurred or
made by Beneficiary or Trustee in any efforts to enforce any terms of this Deed
of Trust, including any rights or remedies afforded to Beneficiary or Trustee or
both of them under Section 7.2, whether any lawsuit is filed or not, or in
defending any action or proceeding arising under or relating to this Deed of
Trust, including attorneys' fees and other legal costs, costs of any Foreclosure
Sale (as defined in Section 7.2(h)) and any cost of evidence of title. If
Beneficiary chooses to dispose of Property through more than one Foreclosure
Sale, Trustor must pay all costs, expenses or other advances that may be
incurred or made by Trustee or Beneficiary in each of those Foreclosure Sales.
(b) Beneficiary is not directly or indirectly liable to Trustor
or any other person as a consequence of any of the following:
(i) Beneficiary's exercise of or failure to exercise
any rights, remedies or powers granted to it in this Deed of Trust;
(ii) Beneficiary's failure or refusal to perform or
discharge any obligation or liability of Trustor under any agreement related to
the Property or under this Deed of Trust; or
(iii) any loss sustained by Trustor or any third party
resulting from Beneficiary's failure to lease the Property, or from any other
act or omission of Beneficiary in managing the Property, after an Event of
Default, unless the loss is caused by the willful misconduct and bad faith of
Beneficiary.
Trustor hereby expressly waives and releases all liability
of the types described above, and agrees that no such liability be asserted
against or imposed upon Beneficiary.
(c) Trustor agrees to indemnify Trustee and Beneficiary against
and hold them harmless from all losses, damages, liabilities, claims, causes of
action, judgments, court costs, attorneys' fees and other legal expenses, cost
of evidence of title, cost of evidence of value, and other costs and expenses
which either may suffer or incur:
(i) in performing any act required or permitted by
this Deed of Trust or any of the other Loan Documents or by law;
(ii) because of any failure of Trustor to perform any
of the Secured Obligations; or
(iii) because of any alleged obligation of or
undertaking by Beneficiary to perform or discharge any of the representations,
warranties, conditions, covenants or other obligations in any document relating
to the Property other than the Loan Documents.
This agreement by Trustor to indemnify Trustee and
Beneficiary survives the release and cancellation of any or all of the Secured
Obligations and the full or partial release and/or reconveyance of this Deed of
Trust.
(d) Trustor must pay all obligations to pay money arising under
this Section 5.9 immediately upon demand by Trustee or Beneficiary. Each such
obligation must be added to, and considered to be part of, the principal of the
Note, and bears interest from the date the obligation arises at the rate then
being applied to the principal balance of the Note.
5.10 DEFENSE AND NOTICE OF CLAIMS AND ACTIONS. At Trustor's sole expense,
Trustor must protect, preserve and defend the Property and title to and right of
possession of the Property, and the security of this Deed of Trust and the
rights and powers of Beneficiary and Trustee created under it, against all
adverse claims. Trustor must give Beneficiary and Trustee prompt notice in
writing if any claim is asserted which does or could affect any of these
matters, or if any action or proceeding is commenced which alleges or relates to
any such claim.
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5.11 SUBSTITUTION OF TRUSTEE. From time to time, Beneficiary may
substitute a successor to any Trustee named in or acting under this Deed of
Trust in any manner now or later to be provided at law, or by a written
instrument executed and acknowledged by Beneficiary and recorded in the
office(s) of the recorder(s) of the county or counties where the Land and
Improvements are situated. Any such instrument is conclusive proof of the
proper substitution of the successor Trustee, who will automatically upon
recordation of the instrument succeed to all estate, title, rights, powers and
duties of the predecessor Trustee, without conveyance from it.
5.12 SUBROGATION. Beneficiary is subrogated to the liens of all
encumbrances, whether released of record or not, which are discharged in whole
or in part by Beneficiary in accordance with this Deed of Trust or with the
proceeds of any loan secured by this Deed of Trust.
5.13 SITE VISITS, OBSERVATION AND TESTING. Beneficiary and its agents and
representatives have the right to enter and visit the Property at any reasonable
time for the purposes of observing it, performing appraisals, taking and
removing soil or groundwater samples, and conducting tests on any part of it, as
provided in the Loan Agreement.
6. ACCELERATING TRANSFERS.
6.1 ACCELERATION UPON SALE OR ENCUMBRANCE. Trustor agrees that Trustor
shall not, without the prior written consent of Beneficiary (which consent may
be withheld in Beneficiary's sole discretion), make or permit, whether
voluntarily or involuntarily by operation of law or otherwise, any Accelerating
Transfer. Trustor acknowledges that Beneficiary is making one or more advances
under the Loan Agreement in reliance on the expertise, skill and experience of
Trustor; thus, the Secured Obligations include material elements similar in
nature to a personal service contract. Trustor acknowledges the materiality of
the provisions of this Section 6.1 as a covenant of Trustor, given individual
weight and consideration by Beneficiary in extending the Loan, and that any
Accelerating Transfer in violation of the permitted transfer provisions
hereinabove provided shall result in a material impairment of Beneficiary's
interest in the Property and be deemed a breach of the foregoing covenant.
6.2 ACCELERATING TRANSFERS. "Accelerating Transfer" means any sale,
contract to sell, conveyance, encumbrance, pledge, mortgage, lease not expressly
permitted under this Deed of Trust or the Loan Agreement, or other transfer of
all or any material part of the Property or any interest in it, including any
transfer or exercise of any right to drill for or to extract any water (other
than for Trustor's own use), oil, gas, or other hydrocarbon substances or any
mineral of any kind under the surface of the Property, whether voluntary,
involuntary, by operation of law or otherwise. If Trustor is a corporation,
"Accelerating Transfer" also means any transfer or transfers of shares
possessing, in the aggregate, more than fifty percent (50%) of the voting power
or more than fifty percent (50%) of the direct or indirect beneficial ownership
of Trustor. If Trustor is a partnership, "Accelerating Transfer" also means
withdrawal or removal of any general partner, dissolution of the partnership
under California law, or any transfer or transfers of, in the aggregate, more
than fifty percent (50%) of the partnership interests. If Trustor is a limited
liability company, "Accelerating Transfer" also means withdrawal or removal of
any managing member, termination of the limited liability company or any
transfer or transfers of, in the aggregate, more than fifty percent (50%) of the
voting power or in the aggregate more than fifty percent of the ownership of the
economic interest in the Trustor.
7. EVENTS OF DEFAULT; REMEDIES.
7.1 EVENTS OF DEFAULT. Upon the occurrence of any one or more of the
following events, Beneficiary may, by written notice delivered to Trustor,
declare Trustor to be in default, and thereupon the same shall constitute an
"Event of Default" under this Deed of Trust:
(a) An Event of Default is declared under the Loan Agreement or
any other Loan Document; or
(b) Trustor fails to perform any obligation to pay money which
arises under this Deed of Trust and does not cure that failure within ten (10)
days after written notice from Beneficiary or Trustee; or
(c) Trustor makes or permits the occurrence of an Accelerating
Transfer in violation of Section 6.1; or
(d) Any representation or warranty made or given by Trustor in
this Deed of Trust proves to be false or misleading in any material respect; or
(e) Trustor fails to perform any obligation arising under this
Deed of Trust other than as provided in clauses (b) through (d) of Section 7.1,
and does not cure that failure within thirty (30) days after written notice from
Beneficiary or Trustee, or, if the Default cannot be cured in thirty (30) days,
within a reasonable time but not to exceed ninety (90) days after written
notice.
7.2 REMEDIES. At any time after and during the continuance of an Event of
Default, Beneficiary and Trustee shall be entitled to invoke any and all of the
rights and remedies described below. All of such rights and remedies are
cumulative, and the exercise of any one or more of them does not constitute an
election of remedies.
(a) ACCELERATION
Beneficiary may declare any or all of the Secured Obligations to be
due and payable immediately.
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(b) RECEIVER
Beneficiary may apply to any court of competent jurisdiction for, and
obtain appointment of, a receiver for the Property.
(c) ENTRY
Beneficiary, in person, by agent or by court- appointed receiver, may
enter, take possession of, manage and operate all or any part of the Property,
and may also do any and all other things in connection with those actions that
Beneficiary may in its sole discretion consider necessary and appropriate to
protect the security of this Deed of Trust. Such other things may include:
taking and possessing all of Trustor's or the then owner's books and records;
entering into, enforcing, modifying, or cancelling leases on such terms and
conditions as Beneficiary may consider proper; obtaining and evicting tenants;
fixing or modifying rents; collecting and receiving any payment of money owing
to Trustor; completing any unfinished construction; and/or contracting for and
making repairs and alterations. If Beneficiary so requests, Trustor will
assemble all of the Property that has been removed from the Land and make all of
it available to Beneficiary at the site of the Land. Regardless of any
provision of this Deed of Trust or the Loan Agreement, Beneficiary shall not be
considered to have accepted any property other than cash or immediately
available funds in satisfaction of any obligation of Trustor to Beneficiary,
unless Beneficiary has given express written notice of its election of that
remedy in accordance with California Uniform Commercial Code Section 9505, as it
may be amended or recodified from time to time.
(d) CURE; PROTECTION OF SECURITY
Either Beneficiary or Trustee may cure any breach or default of
Trustor, and if it chooses to do so in connection with any such cure,
Beneficiary or Trustee may also enter the Property and/or do any and all other
things which it may in its sole discretion consider necessary and appropriate to
protect the security of this Deed of Trust. Such other things may include:
appearing in and/or defending any action or proceeding which purports to affect
the security of, or the rights or powers of Beneficiary or Trustee under, this
Deed of Trust; paying, purchasing, contesting or compromising any encumbrance,
charge, lien or claim of lien which in Beneficiary's or Trustee's sole judgment
is or may be senior in priority to this Deed of Trust, such judgment of
Beneficiary or Trustee to be conclusive as among the parties to this Deed of
Trust; obtaining insurance and/or paying any premiums or charges for insurance
required to be carried under the Loan Agreement; otherwise caring for and
protecting any and all of the Property; and/or employing counsel, accountants,
contractors and other appropriate persons to assist Beneficiary or Trustee.
Beneficiary and Trustee may take any of the actions permitted under this Section
7.2 either with or without giving notice to any person.
(e) UNIFORM COMMERCIAL CODE REMEDIES
Beneficiary may exercise any or all of the remedies granted to a
secured party under the California Uniform Commercial Code.
(f) JUDICIAL ACTION
Beneficiary may bring an action in any court of competent jurisdiction
to foreclose this instrument or to obtain specific enforcement of any of the
covenants or agreements of this Deed of Trust.
(g) POWER OF SALE
Under this power of sale, Beneficiary has the discretionary right to
cause some or all of the Property, including any Property which constitutes
personal property, to be sold or otherwise disposed of in any combination and in
any manner permitted by applicable law.
(i) Sales of Personal Property
For purposes of this power of sale, Beneficiary may
elect to treat as personal property any Property which is intangible or which
can be severed from the Land or Improvements without causing structural
damage. If it chooses to do so, Beneficiary may dispose of any personal
property separately from the sale of real property, in any manner permitted by
Division 9 of the California Uniform Commercial Code, including any public or
private sale, or in any manner permitted by any other applicable law. Any
proceeds of any such disposition shall not cure any Event of Default or
reinstate any Secured Obligation for purposes of Section 2924c of the
California Civil Code.
In connection with any sale or other disposition of
such Property, Trustor agrees that the following procedures constitute a
commercially reasonable sale:
Beneficiary must mail written notice of the sale to
Trustor not later than forty-five (45) days prior to such sale. Once per week
during the four weeks immediately preceding such sale, Beneficiary must
publish notice of the sale in a local daily newspaper of general circulation.
Upon receipt of any written request, Beneficiary must make the Property
available to any bona fide prospective purchaser for inspection during
reasonable business hours. Notwithstanding, Beneficiary is under no obligation
to consummate a sale if, in its judgment, none of the offers received by it
equals the fair value of the Property offered for sale. The foregoing
procedures do not constitute the only procedures that may be commercially
reasonable.
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(ii) Trustee's Sales of Real Property or Mixed Collateral
Beneficiary may choose to dispose of some or all of
the Property which consists solely of real property in any manner then
permitted by applicable law. In its discretion, Beneficiary may also or
alternatively choose to dispose of some or all of the Property, in any
combination consisting of both real and personal property, together in one
sale to be held in accordance with the law and procedures applicable to real
property, as permitted by Section 9501(4) of the California Uniform Commercial
Code. Trustor agrees that such a sale of personal property together with real
property constitutes a commercially reasonable sale of the personal property.
For purposes of this power of sale, either a sale of real property alone, or a
sale of both real and personal property together in accordance with California
Uniform Commercial Code Section 9501(4), will sometimes be referred to as a
"Trustee's Sale."
Before any Trustee's Sale, Beneficiary or Trustee
must give such notice of default and election to sell as may then be required
by law. When all time periods then legally mandated have expired, and after
such notice of sale as may then be legally required has been given, Trustee
must sell the property being sold at a public auction to be held at the time
and place specified in the notice of sale. Neither Trustee nor Beneficiary
have any obligation to make demand on Trustor before any Trustee's Sale. From
time to time in accordance with then applicable law, Trustee may, and in any
event at Beneficiary's request must, postpone any Trustee's Sale by public
announcement at the time and place noticed for that sale.
At any Trustee's Sale, Trustee must sell to the
highest bidder at public auction for cash in lawful money of the United
States. Trustee must execute and deliver to the purchaser(s) a deed or deeds
conveying the property being sold without any covenant or warranty whatsoever,
express or implied. The recitals in any such deed of any matters or facts,
including any facts bearing upon the regularity or validity of any Trustee's
Sale, are conclusive proof of their truthfulness. Any such deed shall be
conclusive against all persons as to the facts recited in it.
(h) Single or Multiple Foreclosure Sales
If the Property consists of more than one lot, parcel or
item of property, Beneficiary may:
(i) designate the order in which the lots, parcels
and/or items shall be sold or disposed of or offered for sale or disposition;
and
(ii) elect to dispose of the lots, parcels and/or items
through a single consolidated sale or disposition to be held or made under the
power of sale granted in Section 7.2(g), or in connection with judicial
proceedings, or by virtue of a judgment and decree of foreclosure and sale; or
through two or more such sales or dispositions; or in any other manner
Beneficiary may deem to be in its best interests (any such sale or
disposition, a "Foreclosure Sale;" any two or more, "Foreclosure Sales").
If it chooses to have more than one Foreclosure Sale,
Beneficiary at its option may cause the Foreclosure Sales to be held
simultaneously or successively, on the same day, or on such different days and
at such different times and in such order as it may deem to be in its best
interests. No Foreclosure Sale will terminate or affect the liens of this Deed
of Trust on any part of the Property which has not been sold, until all of the
Secured Obligations have been paid in full.
7.3 CREDIT BIDS. At any Foreclosure Sale, any person, including Trustor,
Trustee or Beneficiary, may bid for and acquire the Property or any part of it
to the extent permitted by then applicable law. Instead of paying cash for that
property, Beneficiary may settle for the purchase price by crediting the sales
price of the property against the following obligations:
(a) first, the portion of the Secured Obligations attributable
to the expenses of sale, costs of any action and any other sums for which
Trustor is obligated to pay or reimburse Beneficiary or Trustee under Section
5.9; and
(b) second, all other Secured Obligations in any order and
proportions as Beneficiary in its sole discretion may choose.
7.4 APPLICATION OF FORECLOSURE SALE PROCEEDS. Beneficiary and Trustee
shall apply the proceeds of any Foreclosure Sale in the following manner:
(a) first, to pay the portion of the Secured Obligations
attributable to the expenses of sale, costs of any action and any other sums for
which Trustor is obligated to reimburse Beneficiary or Trustee under Section
5.9;
(b) second, to pay the portion of the Secured Obligations
attributable to any sums expended or advanced by Beneficiary or Trustee under
the terms of this Deed of Trust which then remain unpaid;
(c) third, to pay all other Secured Obligations in any order and
proportions as Beneficiary in its sole discretion may choose; and
(d) fourth, to remit the remainder, if any, to the person or
persons entitled to it.
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7.5 APPLICATION OF RENTS AND OTHER SUMS. Beneficiary must apply any and
all Rents collected by it pursuant to the assignment provided in ARTICLE II of
this Deed of Trust, and any and all other sums, other than the proceeds of a
Foreclosure Sale, received or collected by Beneficiary, in the following manner:
(a) first, to pay the portion of the Secured Obligations
attributable to the costs and expenses of collection of such sums, including
reasonable attorneys' fees, that may be incurred by Beneficiary, Trustee and/or
any receiver appointed in accordance with this Deed of Trust;
(b) second, to pay any and all Secured Obligations other than
provided in clause (a) above, and any and all expenses of leasing, operating,
maintaining and managing the Property and all other costs and charges incident
to the Property as provided in Section 2.5 above, and in such order and
proportions as Beneficiary in its sole discretion may choose; and
(c) third, to remit the remainder, if any, to the person or
persons entitled thereto.
Beneficiary has no liability for any funds which it does not actually receive.
8. MISCELLANEOUS PROVISIONS.
8.1 ADDITIONAL PROVISIONS. The Loan Documents fully state all of the
terms and conditions of the parties' agreement regarding the matters mentioned
in or incidental to this Deed of Trust. The Loan Documents also grant further
rights to Beneficiary and contain further agreements and affirmative and
negative covenants by Trustor which apply to this Deed of Trust and to the
Property.
8.2 NO WAIVER OR CURE. Each waiver by Beneficiary or Trustee must be in
writing, and no waiver is to be construed as a continuing waiver. No waiver is
to be implied from any delay or failure by Beneficiary or Trustee to take action
on account of any default of Trustor. Consent by Beneficiary or Trustee to any
act or omission by Trustor must not be construed as a consent to any other or
subsequent act or omission or to waive the requirement for Beneficiary's or
Trustee's consent to be obtained in any future or other instance.
8.3 POWERS OF BENEFICIARY AND TRUSTEE.
(a) Trustee has no obligation to perform any act which it is
empowered to perform under this Deed of Trust unless it is requested to do so in
writing and is reasonably indemnified against loss, cost, liability and expense.
(b) If either Beneficiary or Trustee performs any act which it
is empowered or authorized to perform under this Deed of Trust, including any
act permitted by Section 5.7 or Section 7.2(d), that act alone does not release
or change the personal liability of any person for the payment and performance
of the Secured Obligations then outstanding, or the lien of this Deed of Trust
on all or the remainder of the Property for full payment and performance of all
outstanding Secured Obligations. The liability of the original Trustor does not
release or change if Beneficiary grants any successor in interest to Trustor any
extension of time for payment, or modification of the terms of payment, of any
Secured Obligation. Beneficiary is not required to comply with any demand by
the original Trustor that Beneficiary refuse to grant such an extension or
modification to, or commence proceedings against, any such successor in
interest.
(c) Beneficiary may take any of the actions permitted under
Sections 7.2(b) and/or 7.2(c) regardless of the adequacy of the security for the
Secured Obligations, or whether any or all of the Secured Obligations have been
declared to be immediately due and payable, or whether notice of default and
election to sell has been given under this Deed of Trust.
8.4 MERGER. No merger occurs as a result of Beneficiary's acquiring any
other estate in or any other lien on the Property unless Beneficiary consents to
a merger in writing.
8.5 JOINT AND SEVERAL LIABILITY. If Trustor consists of more than one
person, each is jointly and severally liable for the faithful performance of all
of Trustor's obligations under this Deed of Trust.
8.6 APPLICABLE LAW. This Deed of Trust is governed by California law.
This Deed of Trust may be executed in one or more counterparts, each of which
is, for all purposes deemed an original and all such counterparts taken
together, constitute one and the same instrument.
8.7 SUCCESSORS IN INTEREST. The terms, covenants and conditions of this
Deed of Trust are binding upon and inure to the benefit of the heirs, successors
and assigns of the parties. However, this Section 8.7 does not waive the
provisions of Section 6.1.
8.8 INTERPRETATION. Whenever the context requires, all words used in the
singular will be construed to have been used in the plural, and vice versa, and
each gender will include any other gender. The captions of the sections of this
Deed of Trust are for convenience only and do not define or limit any terms or
provisions. The word "include(s)" means "include(s), without limitation", and
the word "including" means "including, but not limited to". The word
"obligations" is used in its broadest and most comprehensive sense, and includes
all primary, secondary, direct, indirect, fixed and contingent obligations. It
further includes all principal, interest, prepayment charges, late charges, loan
fees and any other fees and charges accruing or assessed at any time, as well as
all obligations to perform acts or satisfy conditions. No listing of specific
instances, items or matters in any way limits the scope
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or generality of any language of this Deed of Trust. The Exhibits to this Deed
of Trust are hereby incorporated in this Deed of Trust. Any capitalized words
which are defined in the Loan Agreement are used in this Deed of Trust as so
defined.
8.9 IN-HOUSE COUNSEL FEES. Whenever Trustor is obligated to pay or
reimburse Beneficiary or Trustee for any attorneys' fees, those fees shall
include the allocated costs for services of in-house counsel.
8.10 WAIVER OF MARSHALLING. Trustor waives all rights, legal and
equitable, it may now or hereafter have to require marshalling of assets or to
require upon foreclosure sales of assets in a particular order, including any
rights provided by California Civil Code Sections 2899 and 3433, as such
Sections may be amended from time to time. Each successor and assign of
Trustor, including any holder of a lien subordinate to this Deed of Trust, by
acceptance of its interest or lien agrees that it shall be bound by the above
waiver, as if it had given the waiver itself.
8.11 SEVERABILITY. If any provision of this Deed of Trust should be held
unenforceable or void, that provision shall be deemed severable from the
remaining provisions and in no way affect the validity of this Deed of Trust
except that if such provision relates to the payment of any monetary sum, then
Beneficiary may, at its option, declare all Secured Obligations immediately due
and payable.
8.12 NOTICES. Any Trustor whose address is set forth below hereby requests
that a copy of notice of default and notice of sale be mailed to it at that
address. If any Trustor fails to insert an address, that failure shall
constitute a designation of Trustor's last known address as the address for such
notice.
Address Where Notices
to Trustor(s)
Are to be Sent:
27801 Icon
Foothill Ranch, CA 92610-3000
Address Where Address Where
Notices to Beneficiary Notices to Trustee
Are to be Sent: Are to be Sent:
Bank of America National Equitable Deed Company, #8699
Trust and Savings Association Commercial Division
P.O. Box 3609 333 S. Beaudry, 11th Floor
Los Angeles, California 90051 Los Angeles, California 90017 or
P. O. Box 2924, Terminal Annex
Los Angeles, California 90051
IN WITNESS WHEREOF, Trustor has executed this Deed of Trust as of the date first
above written.
TRUSTOR:
OAKLEY, INC.,
a Washington corporation
By:
------------------------------
Name:
------------------------------
Its:
------------------------------
By:
------------------------------
Name:
------------------------------
Its:
------------------------------
[ALL SIGNATURES MUST BE ACKNOWLEDGED]
12
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Exhibit A to DEED OF TRUST executed as May 28, 1997, by OAKLEY, INC.,
a Washington corporation as "Trustor" to Equitable Deed Company as "Trustee" for
the benefit of Bank of America National Trust and Savings Association, a
national banking association as "Beneficiary."
DESCRIPTION OF PROPERTY
THE FOLLOWING LAND SITUATED IN THE STATE OF CALIFORNIA, COUNTY OF
ORANGE, DESCRIBED AS FOLLOWS:
PARCEL 1:
LOT 1 AND LETTERED LOT B OF TRACT NO. 14951, AS SHOWN ON A MAP FILED IN BOOK
713, PAGES 33 TO 43 INCLUSIVE OF MISCELLANEOUS MAPS, RECORDS OF ORANGE COUNTY,
CALIFORNIA.
PARCEL 2:
EASEMENTS AND RIGHTS AS SET FORTH IN THE SECTIONS ENTITLED "EASEMENTS FOR
OWNERS", "UTILITIES AND CABLE TELEVISION", "TRAIL SYSTEM EASEMENTS" AND "SURFACE
DRAINAGE" OF THE ARTICLE ENTITLED "EASEMENTS AND RIGHTS" AND IN THE SECTION
ENTITLED "ENFORCEMENT" OF THE ARTICLE ENTITLED "GENERAL PROVISIONS" OF THE
COVENANTS, CONDITIONS AND RESTRICTIONS, RECORDED APRIL 30, 1992 AS INSTRUMENT
NO. 92-283832 OF OFFICIAL RECORDS.
EXCEPTING THEREFROM ALL OIL, OIL RIGHTS, MINERALS, MINERAL RIGHTS, NATURAL GAS,
NATURAL GAS RIGHTS, AND OTHER HYDROCARBONS BY WHATSOEVER NAME KNOWN, GEOTHERMAL
STEAM, AND ALL PRODUCTS DERIVED FROM ANY OF THE FOREGOING, THAT MAY BE WITHIN OR
UNDER THE PARCEL OF LAND HEREINABOVE DESCRIBED, TOGETHER WITH THE PERPETUAL
RIGHT OF DRILLING, MINING, EXPLORING, AND OPERATING THEREFOR, AND STORING IN AND
REMOVING THE SAME FROM SAID LAND OR ANY OTHER LAND, INCLUDING THE RIGHT TO
WHIPSTOCK OR DIRECTIONALLY DRILL AND MINE FROM LANDS OTHER THAN THOSE
HEREINABOVE DESCRIBED, OIL OR GAS WELLS, TUNNELS AND SHAFTS INTO, THROUGH OR
ACROSS THE SUBSURFACE OF THE LAND HEREINABOVE DESCRIBED, AND TO BOTTOM SUCH
WHIPSTOCKED OR DIRECTIONALLY DRILLED WELLS, TUNNELS AND SHAFTS UNDER AND BENEATH
OR BEYOND THE EXTERIOR LIMITS THEREOF, AND TO REDRILL, RETUNNEL, EQUIP,
MAINTAIN, REPAIR, DEEPEN AND OPERATE ANY SUCH WELLS OR MINES, WITHOUT, HOWEVER,
THE RIGHT TO DRILL, MINE, STORE, EXPLORE AND OPERATE THROUGH THE SURFACE OR THE
UPPER 500 FEET TO THE SUBSURFACE OF THE LAND HEREINABOVE DESCRIBED, AS RESERVED
IN THE DEED RECORDED APRIL 3, 1995 AS INSTRUMENT NO. 95-0140323 OF OFFICIAL
RECORDS.
A.P.N.: 104-142-99
STREET ADDRESS OF PROPERTY:
27801 Icon, Foothill Ranch, California
13
<PAGE>
State of California )
)
County of )
)
On _________________________, 19___ before me, a Notary Public in and
for said State, personally appeared__ ________________________________________,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
Signature (Seal)
----------------------------------------------
14
<PAGE>
[LOGO]
BANK OF AMERICA STANDING LOAN AGREEMENT
- --------------------------------------------------------------------------------
This Standing Loan Agreement (the "Agreement"), dated as of May
August 7, 1997, is between OAKLEY, INC., a Washington corporation ("Borrower")
and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION ("Bank").
AGREEMENT
1. LOAN TERMS.
1.1 AMOUNT AND PURPOSE.
Bank will make a loan to Borrower in the principal amount of TWENTY
TWO MILLION SEVEN HUNDRED EIGHTY THOUSAND AND NO/100 DOLLARS ($22,780,000.00)
(the "Loan") to be used to refinance the Property.
The Loan will be evidenced by a promissory note (the "Note") payable
to Bank in the original principal amount of the Loan and will be secured by a
Deed of Trust With Assignment of Rents, Security Agreement and Fixture Filing
(the "Deed of Trust") covering certain improved real property commonly known as
27801 Icon, Foothill Ranch, California and more particularly described on
Exhibit A attached to the Deed of Trust (the "Real Property") (the Real Property
together with all buildings, structures and other improvements now or hereafter
located thereon (the "Improvements"), and the personal property described in the
Deed of Trust and defined therein and herein as "Personalty", being hereinafter
collectively referred to as the "Property").
1.2 ADDITIONAL CREDIT SUPPORT.
(a) The Loan will not be guaranteed and all references to
"Guaranties" and "Guarantors" in this Agreement may be disregarded.
1.3 DOCUMENTATION. At or prior to the closing of this transaction,
Borrower must deliver the following documents and other items, executed and
acknowledged as appropriate, all in form and substance satisfactory to Bank: (a)
this Agreement; (b) the Note; (c) the Deed of Trust; (d) a UCC-1 Financing
Statement perfecting a first-position lien on all personal property collateral
that is perfected by filing; (e) the Guaranties, if any; (f) an ALTA title
insurance policy insuring Bank that the Deed of Trust constitutes a valid and
enforceable lien on the Property subject and subordinate only to such liens or
other matters as Bank has approved in writing; (g) if requested, an ALTA/ASCM
survey of the Real Property and the improvements thereon certified to Bank; (h)
if the Deed of Trust is to be junior to any other lien or deed of trust on the
Property, a Beneficiary's Statement from the holder of such prior lien or deed
of trust; (i) evidence of the casualty and other insurance coverage as required
under this Agreement or otherwise by Bank in writing; (j) if Borrower is
anything other than a natural person, evidence of Borrower's due formation and
good standing, as well as due authorization and execution of the Loan Documents;
(k) if applicable, subordination agreement and estoppel certificate from
tenants leasing space in the Property; (l) if the Property is to be leased to
third parties, Borrower's pro forma lease form; (m) an Environmental
Questionnaire and Disclosure Statement prepared and certified by Borrower, and,
if Bank requires, an environmental survey of the Property prepared by an
environmental consultant satisfactory to Bank; and (n) such other documents,
property information and other assurances as Bank may require.
1.4 LOAN DOCUMENTS. This Agreement, the Note, the Deed of Trust, the
Guaranties, if any, and all other documents evidencing, securing or otherwise
pertaining to the Loan are referred to as the "Loan Documents."
1.5 AUTOMATIC DEDUCTION.
Borrower agrees that monthly interest payments and quarterly
principal payments on the Note will be deducted automatically on the due date
from checking account number 14581-26311 maintained by Borrower at the Bank (the
"Checking Account").
Bank will debit the Checking Account on the dates the payments become
due. If a due date does not fall on a banking day, Bank will debit the Checking
Account on the first banking day following the due date.
Borrower will maintain the Checking Account in good standing with Bank
throughout the term of the Loan, and maintain sufficient funds in the Checking
Account on the dates Bank enters debits authorized by this Agreement. If there
are insufficient funds in the Checking Account on the date Bank enters any debit
authorized by this Agreement, without limiting Bank's other remedies in such an
event, the debit will be reversed.
Borrower hereby grants to Bank a security interest in the Checking
Account, and any other accounts from which Borrower may from time to time
authorize Bank to debit payments due on the Loan, for the purpose of securing
the payment of amounts Bank is authorized to deduct from the Checking Account or
such other accounts. The security interest is granted only to the extent of
such authorized deductions, and does not secure any other obligation owed by
Borrower to Bank, whether under this Agreement or otherwise.
1.6 DISBURSEMENT PROCEDURES. Bank will disburse the Loan Proceeds as
follows:
(a) First, to Bank, the sum of 17,460.96 which represents
disbursements for the following items:
Loan Fee $ 0.00
Documentation Fee $ 1,500.00
Environmental Review Fee $ 700.00
Appraisal Fee $ 8,130.00
UCC Filing Fee $ 30.00
Tax Service Contract Fee (s) $ 2,238.00
Legal Fee (est) $ 4,862.96
------------
TOTAL $ 17,460.96
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(b) Second, to Fidelity National Title Company, to disburse on
behalf of Borrower the funds to pay for title policy, endorsements and related
fees.
(c) Third, to Bank, the remaining Loan proceeds to pay off in
full existing Bank Loan No. 9675942213-349. In the event the proceeds are not
sufficient to pay the loan in full, Borrower shall pay from its own funds any
remaining amounts required to pay such loan in full.
2. COVENANTS OF THE BORROWER.
Borrower promises to keep each of the following covenants:
2.1 COMPLIANCE WITH LAW. Borrower will comply with all existing and
future laws, regulations, orders, building restrictions and requirements of, and
all permits and approvals from, and agreements with and commitments to, all
governmental, judicial or legal authorities having jurisdiction over the
Property or Borrower's business conducted thereon or therefrom, and with all
restrictive covenants and other title encumbrances encumbering the Property (all
collectively, the "Requirements"), noncompliance of which could reasonably be
expected to cause a material adverse effect upon the Property, business,
operations, assets, condition (financial or otherwise) of Borrower, it being
agreed and understood that an adverse change in general economic conditions
shall not constitute an adverse change in the prospects of Borrower.
2.2 CONDITIONAL SALES CONTRACTS; REMOVAL OF FIXTURES AND EQUIPMENT.
Without Bank's prior written consent, Borrower must not (i) purchase any
fixtures to be installed on the Property under any agreement where the seller
reserves a lien, security interest or title thereto, or the right of removal or
repossession after such items are installed on the Property; and (ii) remove or
permit to be removed from the Real Property or the Improvements any
fixtures used in connection with the management, maintenance, operation or
enjoyment thereof unless replaced by articles of equal suitability and value
owned by Borrower free and clear of any lien or security interest.
2.3 SITE VISITS. Borrower grants Bank, its agents and representatives the
right to enter and visit the Property at any reasonable time for the purposes of
observing, performing appraisals, inspecting the Property, taking soil or
groundwater samples, and conducting tests, among other things, to investigate
for the presence of Hazardous Substances, as defined in Article IV. Borrower
must also allow Bank to examine, copy and audit its books and records. Bank is
under no duty to visit or observe the Property, or to examine any books or
records. Any site visit, observation or examination by Bank is solely for the
purpose of protecting Bank's security and preserving Bank's rights under the
Loan Documents. Neither Borrower nor any other party is entitled to rely on any
site visit, observation or testing by Bank, its agents or representatives. Bank
owes no duty of care to protect Borrower or any other party against, or to
inform Borrower or any other party of, any adverse condition affecting the
Property, including any defects in the design or construction of any
improvements on the Property or the presence of any Hazardous Substances on the
Property. Bank is not obligated to disclose to Borrower or any other party any
report or findings made as a result of, or in connection with, any site visit,
observation or testing by Bank. Prior to entering the Property, Bank must give
Borrower reasonable notice of its intent to enter. Bank must exercise
reasonable efforts to avoid interfering with Borrower's use of the Property in
connection with the activities permitted under this Section.
2.4 INSURANCE. Borrower must maintain the following insurance:
(a) All risk property damage insurance in nonreporting form on
the Property, with a policy limit in an amount not less than the full insurable
value of the Property on a replacement cost basis, including tenant
improvements, if any. The policy shall include a business interruption (or rent
loss, if more appropriate) endorsement, a lender's loss payable endorsement (438
BFU) in favor of Bank, and any other endorsements required by Bank.
(b) Commercial General Liability coverage with such limits as
Bank may reasonably require. This policy must name Bank as an additional
insured. Coverage must be written on an occurrence basis, not claims made.
(c) Such other insurance as Bank may reasonably require, which
may include (i) earthquake insurance, if such insurance is expressly required as
a condition to disbursement of the Loan proceeds or if at any time the Property
is situated in a delineated earthquake fault zone as shown on an earthquake
fault zone map adopted under California's Alquist-Priolo Earthquake Fault Zoning
Act, or any successor thereto, and (ii) flood insurance, if the Property is
situated in an area designated as "flood prone," "within a flood plain" or
similar designation under federal or state law.
All policies of insurance required by Bank must be issued by companies approved
by Bank and otherwise be acceptable to Bank as to amounts, forms, risk coverages
and deductibles. In addition, each policy (except workers' compensation) must
provide Bank at least thirty (30) days' prior notice of cancellation,
non-renewal or modification. If Borrower fails to keep any such coverage in
effect while the Loan is outstanding, Bank may procure the coverage at
Borrower's expense. Borrower must reimburse Bank, on demand, for all premiums
advanced by Bank, which advances are considered to be additional loans to
Borrower secured by the Deed of Trust and bearing interest at the Default Rate
provided in the Note.
2.5 PRESERVATION OF RIGHTS. Borrower must obtain, preserve and maintain
in good standing, as applicable, all rights, privileges and franchises necessary
or desirable for the operation of the Property and the conduct of Borrower's
business thereon and therefrom.
2.6 MAINTENANCE AND REPAIR. Borrower must (i) maintain the Property,
including the parking and landscaping portions thereof, in good condition and
repair, (ii) promptly make, or cause tenants to make all necessary structural
and non-structural repairs to the Property, and (iii) not demolish, alter,
remove or add to any Improvements, excepting the installation or construction
of tenant improvements in connection with any leases approved in accordance
with this Agreement. Borrower shall pay when due all claims for labor performed
and materials furnished therefor in connection with any improvements or
construction activities commissioned by Borrower, provided that for any claim
not exceeding $100,000.00 or more, Borrower shall have the right to contest in
good faith any claim or lien, provided that Borrower does so promptly and
diligently.
2.7 PAYMENT OF EXPENSES. Borrower must pay all costs and expenses
incurred by Bank in connection with the making, disbursement and administration
of the Loan, as well as any revisions, extensions, renewals or "workouts" of the
Loan, and in the exercise of any of Bank's rights or remedies under this
Agreement. Such costs and expenses include title insurance, recording and
escrow charges, fees for appraisal, environmental services, legal fees and
expenses of Bank's counsel and any other reasonable fees and costs for services,
regardless of whether such services are furnished by Bank's employees or by
independent contractors. Borrower acknowledges that the Loan Fee does not
include amounts payable by Borrower under this section. All such sums incurred
by Bank and not immediately reimbursed by Borrower are considered additional
loans to Borrower secured by the Deed of Trust and bearing interest at the
Default Rate provided in the Note.
2.8 FINANCIAL AND OTHER INFORMATION.
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(a) Borrower must provide Bank, without prior request or demand,
within one hundred twenty (120) days of the close of Borrower's fiscal year-end,
its annual financial statements, including a year-end balance sheet and annual
profit and loss statement.
(b) On request, Borrower must promptly provide Bank with any
other financial or other information concerning its affairs and properties as
Bank may request.
2.9 NOTICES. Borrower must promptly notify Bank in writing of:
(a) any litigation affecting Borrower, or the Property, and, if
Borrower is other than a natural person or trust, any general partner or
controlling shareholder or managing member of Borrower where the amount claimed
is One Million and No/100 Dollars ($1,000,000.00) or more; and
(b) any notice that the Property or Borrower's business fails in
any material respect to comply with any applicable law, regulation or court
order; and
(c) any material adverse change in the physical condition of the
Property or Borrower's financial condition or operations or other circumstance
that materially adversely affects Borrower's intended use of the Property or
Borrower's ability to repay the Loan;
(d) any notice of an alleged default on Borrower's part under
that certain Second Completely Amended and Restated Declaration of Covenants,
Conditions and Restrictions ("CC&Rs") recorded in the Official Records of Orange
County, California (the "Official Records") on April 30, 1992, as Instrument No.
92-283832; and
(e) any notice of the following under that certain Declaration
of Special Land Use Restriction Agreement (the "Use Restriction") recorded in
the Official Records on April 3, 1995, as Instrument No. 95-0140325: (i) an
alleged default on Borrower's part under the Use Restriction; (ii) the intent of
Foothill Ranch Company, or its successors or assigns ("FRC"), to exercise its
exclusive option to purchase the Land (as defined in the Use Restriction)
pursuant to Section 3.5 of the Use Restriction; (iii) Borrower's notice to FRC
of Borrower's intent to sell all or any part of the Land or any interest therein
pursuant to Section 3.6 of the Use Restriction; and (iv) any agreement between
Borrower and FRC to amend, modify or revise the Use Restriction; and
(f) Borrower's compliance with Section 2.3(a) of the Use
Restriction.
2.10 INDEMNITY. Borrower agrees to indemnify, defend with counsel
acceptable to Bank, and hold Bank harmless from and against all liabilities,
claims, actions, damages, costs and expenses (including all legal fees and
expenses of Bank's counsel) arising out of or resulting from the ownership,
operation, or use of the Property, whether such claims are based on theories of
derivative liability, comparative negligence or otherwise. Notwithstanding
anything to the contrary in any other Loan Document, the provisions of this
Section 2.10 are not secured by the Deed of Trust, and shall survive the
termination of this Agreement, repayment of the Loan and foreclosure of the Deed
of Trust or similar proceedings.
2.11 PERFORMANCE OF ACTS. Upon request by Bank, Borrower must perform all
acts which may be necessary or advisable to perfect any lien or security
interest provided for in the Loan Documents or to carry out the intent of the
Loan Documents.
2.12 NOTICE OF CHANGE. Borrower must give Bank prior written notice of any
change in:
(a) the location of its place of business or its chief executive
office if it has more than one place of business; and
(b) Borrower's name or business structure. Unless otherwise
approved by Bank in writing, Borrower agrees that all Property that consists of
Personalty (as defined in Section 3.1 of the Deed of Trust), (other than the
books and records) will be located at the Real Property and that all books and
records will be located at Borrower's place of business or chief executive
office if Borrower has more than one place of business.
2.13 NEGATIVE COVENANTS. Without Bank's prior written consent, Borrower
must not:
(a) engage in any business activities substantially different
from Borrower's present business;
(b) liquidate or dissolve Borrower's business;
(c) lease or dispose of all or a substantial part of Borrower's
business or Borrower's assets;
(d) sell any assets for less than fair market price; or
(e) enter into any consolidation, merger, pool, joint venture,
syndicate or other combination, notwithstanding the foregoing, Borrower may
enter into any consolidation, merger, pool, joint venture, syndicate or other
combination permitted in Sections 7.3 (xi) and 7.7 of the Amended and Restated
Credit Agreement dated as of August 15, 1995 among Borrower, the Lenders listed
therein and Bank of America as Agent as amended through the date hereof.
2.14 KEEPING GUARANTOR INFORMED. Borrower must keep each Guarantor, and
any third party executing the Deed of Trust or any other security instrument
securing the Loan, informed of Borrower's financial condition and business
operations and all other circumstances which may affect Borrower's ability to
pay or perform its obligations under the Loan Documents. In addition, Borrower
must deliver to each such person all of the financial information required to be
furnished to Bank hereunder.
3. USE OR LEASING OF THE PROPERTY.
3.1 USE OF THE PROPERTY.
(a) Borrower must occupy the Property for the conduct of its
regular business. Borrower must not change its intended use of the Property
without Bank's prior written approval.
4. HAZARDOUS SUBSTANCES.
Notwithstanding any provision in the Deed of Trust or any other Loan
Document, the provisions of this Article IV are not to be secured by the Deed of
Trust and shall survive termination of this Agreement, repayment of the Loan,
and foreclosure of the Deed of Trust or similar proceedings.
4.1 DEFINITION OF HAZARDOUS SUBSTANCE. For purposes of this Agreement, a
"Hazardous Substance" is defined to mean any substance, material or waste,
including asbestos and petroleum (including crude oil or any fraction thereof),
which is or becomes designated, classified or regulated as "toxic," "hazardous,"
a "pollutant" or similar designation under any federal, state or local law,
regulation or ordinance.
4.2 INDEMNITY REGARDING HAZARDOUS SUBSTANCES. Borrower agrees to
indemnify and hold Bank harmless from and against all liabilities, claims,
actions, loss, damages, including, without limitation,
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foreseeable and unforeseeable consequential damages, costs and expenses
(including sums paid in settlement of claims and all consultant, expert and
legal fees and expenses of Bank's counsel) directly or indirectly arising out of
or resulting from any Hazardous Substance being present at any time in or around
any part of the Property, or in the soil, groundwater or soil vapor on or under
the Property, including those incurred in connection with any investigation of
site conditions or any clean-up, remedial, removal or restoration work, or any
resulting damages or injuries to the person or property of any third parties or
to any natural resources. In addition, Borrower must similarly indemnify,
defend and hold harmless any persons purchasing the Property through a
foreclosure sale or following a foreclosure sale, and any persons purchasing the
Loan or any portion of or interest in it. Upon demand by Bank, Borrower must
defend any investigation, action or proceeding alleging the presence of any
Hazardous Substance in any such location, which affects the Property or which is
brought or commenced against Bank, whether alone or together with Borrower or
any other person, all at Borrower's own cost and by counsel to be approved by
Bank in the exercise of its reasonable judgment. In the alternative, Bank may
elect to conduct its own defense at the expense of Borrower.
4.3 REPRESENTATION AND WARRANTY. Before signing this Agreement, Borrower
researched and inquired into the previous, current and contemplated uses and
ownership of the Property. Based on that due diligence, Borrower represents and
warrants that, to the best of its knowledge, no Hazardous Substance has been or
will be disposed of, released onto or otherwise exists in, on, or under the
Property, except as Borrower has disclosed to Bank in writing.
4.4 COMPLIANCE WITH LAW; NOTICES. Borrower has complied, and must comply
and cause all occupants of the Property to comply, with all laws, regulations
and ordinances governing or applicable to Hazardous Substances as well as the
recommendations of any qualified environmental engineer or other expert, to the
extent compliance with such experts' recommendations are necessary to comply
with Hazardous Substances laws, regulations and ordinances. Borrower must
promptly notify Bank if it knows or suspects there may be any Hazardous
Substance in or around the Property, or in the soil or groundwater under the
Property, or if any action or investigation by any governmental agency or third
party pertaining to Hazardous Substances is pending or threatened.
5. REPRESENTATIONS AND WARRANTIES.
Borrower promises that each representation and warranty set forth
below is true, accurate and correct.
5.1 FORMATION; AUTHORITY. If Borrower is anything other than a natural
person, it has complied with all laws and regulations concerning its
organization, existence and the transaction of its business, and is in good
standing in each state in which it conducts its business. Borrower is
authorized to execute, deliver and perform its obligations under each of the
Loan Documents.
5.2 COMPLIANCE WITH LAW. The Property and the actual use thereof by
Borrower complies in all material respects with all Requirements. Borrower has
received no material notices of violations of any Requirements. There are no
material claims, actions, proceedings or investigations pending or threatened
against Borrower or affecting the Property except for those previously disclosed
by Borrower to Bank in writing.
5.3 NO VIOLATION. The execution and delivery of this Agreement and the
other Loan Documents and the performance by Borrower of its obligations
hereunder and thereunder will not result in a default under any other material
agreement to which Borrower is a party, or violate any Requirements.
5.4 FINANCIAL INFORMATION. All financial information which has been and
will be delivered to Bank, including all information relating to the financial
condition of Borrower, any of its partners, shareholders, members, or other
principals, and the Property, does and will fairly and accurately represent the
financial condition being reported on. All such information was and will be
prepared in accordance with generally accepted accounting principles
consistently applied, unless otherwise noted. As of the date hereof, there has
been no material adverse change in any financial condition of Borrower except as
previously disclosed to Bank.
5.5 BORROWER NOT A "FOREIGN PERSON". Borrower is not a "foreign person"
within the meaning of Section 1445(f)(3) of the Internal Revenue Code of 1986,
as amended from time to time.
5.6 DISCLOSURE TO GUARANTOR AND/OR THIRD PARTIES. Before each Guarantor,
and, if applicable, each third party executing the Deed of Trust or other
instrument securing the Loan, became obligated in connection with the Loan,
Borrower made full disclosure to that person regarding Borrower's financial
condition and business operations and all other circumstances bearing upon
Borrower's ability to pay and perform its obligations under the Loan Documents.
5.7 OWNERSHIP OF PROPERTY. Borrower owns directly, and not through any
affiliated entity, all of the personal property and fixtures necessary for the
operation and management of the Property for the uses presently being conducted
thereon.
6. DEFAULT AND REMEDIES.
6.1 EVENTS OF DEFAULT. Borrower will be in default under this Agreement
upon the occurrence of any one or more of the following events ("Event of
Default"):
(a) Borrower fails to make any payment due under the Note,
within ten (10) days after the date due, or Borrower fails to make any payment
demanded by Bank under any other Loan Document, within ten (10) days after
written demand by Bank; or
(b) Borrower fails to timely observe, perform and comply with
any covenant contained in this Agreement other than those referred to in clause
(a), and does not either cure that failure within thirty (30) days after written
notice from Bank, or, if the default cannot be cured in thirty (30) days, within
a reasonable time but not to exceed ninety (90) days after written notice; or
(c) Borrower or Borrower's managing general partner, if it is a
partnership, or its majority shareholder if Borrower is a corporation, or its
managing member if Borrower is a limited liability company, becomes insolvent or
the subject of any bankruptcy or other voluntary or involuntary proceeding, in
or out of court, for the adjustment of debtor-creditor relationships; or
(d) Borrower dissolves, terminates, or liquidates, or any of
these events happens to Borrower's managing general partner if it is a
partnership or to its majority shareholder if it is a corporation, or its
managing member if Borrower is a limited liability company, or if Borrower is a
trust, the trust is revoked or materially modified or there is a change or
substitution of the trustee; or
(e) Any representation or warranty made or given by Borrower in
this Agreement or any other Loan Document proves to be false or misleading in
any material respect on the date as of which made, provided, with respect to any
representation or warranty which proved to be misleading, Borrower has not cured
or remedied the same within thirty (30) days after written notice from Bank; or
(f) An Event of Default is declared or occurs under any of the
other Loan Documents (and, if a cure period is provided with
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<PAGE>
respect to said default, said default is not fully cured within the period
provided in said Loan Document for cure of said default); or
(g) Bank fails to have an enforceable first lien on or security
interest in any property given as security for the Loan (except for prior liens
approved by Bank in writing); or
(h) Any money judgments, writs or warrants of attachment or
similar process involving, in the aggregate at any time, an amount in excess of
$1,000,000.00 (not adequately covered by insurance as to which a solvent and
unaffiliated insurance company has acknowledged coverage) shall be entered or
filed against Borrower or its assets and shall remain undischarged, unvacated,
unbonded or unstayed for a period of 60 days (or in any event later than ten
days prior to the date of any proposed sale thereunder); or any government
authority takes action that materially adversely affects Borrower's intended use
of the Property or Borrower's ability to repay the Loan; or
(i) Borrower, or any subsidiary of Borrower, defaults in
connection with any credit (with an aggregate principal amount of $1,000,000.00
or more) which Borrower has, or any subsidiary of Borrower, with any lender,
including the Bank or any affiliate of Bank, if the default consists of the
failure to make a payment when due or gives the other lender the right to
accelerate the obligation; or
(j) There is a material adverse change in Borrower's financial
condition, or event or condition that materially impairs Borrower's intended use
of the Property or Borrower's ability to repay the Loan;
(k) A default is declared under the CC&Rs or the Use Restriction
(and, if a cure period is provided with respect to the default, the default is
not cured fully within the period provided in the CC&Rs or the Use Restriction,
as the case may be).
6.2 REMEDIES. If an Event of Default occurs under this Agreement, Bank
may exercise any right or remedy which it has under any of the Loan Documents,
or which is otherwise available at law or in equity or by statute, and all of
Bank's rights and remedies shall be cumulative. Upon the occurrence of an Event
of Default all of Borrower's obligations under the Loan Documents shall become
immediately due and payable without notice of default, presentment or demand for
payment, protest or notice of nonpayment or dishonor, or other notices or
demands of any kind or character, all at Bank's option, exercisable in its sole
discretion.
7. WAIVER OF JURY TRIAL. Borrower hereby waives its rights to a trial by
jury of any claim or cause of action based upon or arising out of or related to
this Agreement, the other Loan Documents, or the transactions contemplated
hereby or thereby, in any action, proceeding or other litigation of any type
whether with respect to contract claims, tort claims, or otherwise. Borrower and
Bank agree that any such claim or cause of action shall be tried by a court
trial without a jury. This waiver shall apply to any subsequent amendments,
renewals, supplements or modifications to this Agreement and the other Loan
Documents.
8. MISCELLANEOUS PROVISIONS.
8.1 NO WAIVER; CONSENTS. No alleged waiver by Bank is effective unless in
writing, and no waiver may be construed as a continuing waiver. No waiver is
implied from any delay or failure by Bank to take action on account of any
default of Borrower. Consent by Bank to any act or omission by Borrower may not
be construed as a consent to any other or subsequent act or omission.
8.2 NO THIRD PARTIES BENEFITED. This Agreement is made and entered into
for the sole protection and benefit of Bank and Borrower and their successors
and assigns. No trust fund is created by this Agreement and no other persons or
entities have any right of action under this Agreement or any right to the Loan
funds.
8.3 NOTICES. All notices given under this Agreement must be in writing
and are effectively served upon delivery, or if mailed, upon the first to occur
of receipt or the expiration of forty-eight (48) hours after deposit in
first-class or certified United States mail, postage prepaid, sent to the party
at its address appearing below its signature. Those addresses may be changed by
either party by notice to the other party.
8.4 ATTORNEYS' FEES. If any lawsuit, reference or arbitration is
commenced which arises out of, or which relates to this Agreement, the Loan
Documents or the Loan, including any alleged tort action, regardless of which
party commences the action, the prevailing party is entitled to recover from
each other party such sums as the court, referee or arbitrator may adjudge to be
reasonable attorneys' fees in the action or proceeding, in addition to costs and
expenses otherwise allowed by law. Any such attorneys' fees incurred by either
party in enforcing a judgment in its favor under this Agreement are recoverable
separately from and in addition to any other amount included in such judgment,
and such attorneys' fees obligations are intended to be severable from the other
provisions of this Agreement and to survive and not be merged into any such
judgment. In all other situations, including any bankruptcy or other voluntary
or involuntary proceeding, in or out of court, for the adjustment of
debtor-creditor relationships, Borrower agrees to pay all of Bank's costs and
expenses, including attorneys' fees, which may be incurred in any effort to
collect or enforce the Loan or any part of it or any term of any Loan Document.
Attorneys' fees include the allocated costs for services of in-house counsel.
8.5 HEIRS, SUCCESSORS AND ASSIGNS. The terms of this Agreement shall bind
and benefit the heirs, legal representatives, successors and assigns of the
parties; provided, however, that Borrower may not assign this Agreement without
the prior written consent of Bank. Bank may transfer the Loan to any other
persons or entities with the consent of Borrower (which consent shall not be
unreasonably withheld). Bank may disclose to any prospective purchaser of any
securities issued by Bank, and to any prospective or actual purchaser of any
interest in the Loan or any other loans made by Bank to Borrower, any financial
or other information relating to Borrower, the Loan or the Property.
8.6 INTERPRETATION. The language of this Agreement must be construed as a
whole according to its fair meaning, and not strictly for or against any party.
The word "include(s)" means "include(s), without limitation," and the word
"including" means "including, but not limited to."
8.7 MISCELLANEOUS. This Agreement may not be modified or amended except
by a written agreement signed by the parties. The invalidity or
unenforceability of any one or more provisions of this Agreement in no way
affects any other provision. If Borrower consists of more than one person or
entity, each is jointly and severally liable to Bank for the faithful
performance of this Agreement and the other Loan Documents. Time is of the
essence in the performance of this Agreement and the other Loan Documents. This
Agreement is governed by California law. This Agreement may be executed in one
or more counterparts, each of which is, for all purposes deemed an original and
all such counterparts taken together, constitute one and the same instrument.
8.8 INTEGRATION AND RELATION TO LOAN COMMITMENT. The Loan Documents fully
state all of the terms and conditions of the parties' agreement regarding the
matters mentioned in or incidental to this Agreement. The Loan Documents
supersede all oral negotiations and
-5-
<PAGE>
prior writings concerning the subject matter of the Loan Documents, including
any loan commitment issued to Borrower.
8.9 ACTIONS. Bank has the right, but not the obligation, to commence,
appear in, and defend any action or proceeding which might affect its security
or its rights, duties or liabilities relating to the Loan, the Property, or any
of the Loan Documents. Borrower must pay promptly on demand all of Bank's
reasonable out-of-pocket costs, expenses, and legal fees and expenses of Bank's
counsel incurred in those actions or proceedings.
8.10 RELATIONSHIPS WITH OTHER BANK CUSTOMERS. From time to time, Bank may
have business relationships with Borrower's customers, suppliers, contractors,
tenants, partners, shareholders, officers or directors, with businesses offering
products or services similar to those of Borrower, or with persons seeking to
invest in, borrow from or lend to Borrower. Borrower agrees that in no event is
Bank obligated to disclose to Borrower any information concerning any other Bank
customer. Borrower further agrees that Bank may extend credit to those parties
and may take any action it may deem necessary to collect any such credit,
regardless of any effect the extension or collection of such credit may have on
Borrower's financial condition or operations.
8.11 LOAN COMMISSION. Bank is not obligated to pay any brokerage
commission or fee in connection with or arising out of the Loan. Borrower must
pay any and all brokerage commissions or fees arising out of or in connection
with the Loan.
IN WITNESS WHEREOF, Borrower and Bank have executed this Agreement as
of the date first above written.
Borrower:
OAKLEY, INC.,
a Washington corporation
By:
------------------------------------
Name:
------------------------------------
Its:
------------------------------------
By:
------------------------------------
Name:
------------------------------------
Its:
------------------------------------
Address:
27801 Icon
Foothill Ranch, CA 92610-3000
Bank:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
Address:
P.O. Box 3609
Los Angeles, CA 90051-3609
-6-
<PAGE>
AMENDMENT NO. ONE TO PROMISSORY NOTE
This Amendment No. One (the "Amendment") dated as of July 18, 1997, is
between Bank of America National Trust and Savings Association (the "Bank") and
Oakley, Inc. (the "Borrower").
RECITALS
A. The Bank has made a bridge loan ("Loan") to the Borrower
evidenced by a promissory note ("Note") executed by the Borrower, dated March
20, 1997, in the Maximum Loan Amount of $25,000,000.
B. The Bank and the Borrower desire to amend the Note to extend the
Maturity Date of the Loan.
AGREEMENT
1. DEFINITIONS. Capitalized terms used but not defined in this
Amendment shall have the meaning given to them in the Note.
2. AMENDMENT. The Note is hereby amended by substituting the date
"August 15, 1997" for the date "July 18, 1997", in each case where such date
appears.
3. EFFECT OF AMENDMENT. Except as provided in this Amendment, all
of the terms and conditions of the Note shall remain in full force and effect.
This Amendment is executed as of the date stated at the beginning of
this Amendment.
Bank of America National Trust and Savings
Association
By:___________________________
Title:________________________
Oakley, Inc.
By:___________________________
Title:________________________
By:___________________________
Title:________________________
<PAGE>
AMENDMENT NO. TWO TO PROMISSORY NOTE
This Amendment No. Two (the "Amendment") dated as of August 14, 1997,
is between Bank of America National Trust and Savings Association (the "Bank")
and Oakley, Inc. (the "Borrower").
RECITALS
A. The Bank has made a bridge loan ("Loan") to the Borrower
evidenced by a promissory note ("Note") executed by the Borrower, dated March
20, 1997, as amended, in the Maximum Loan Amount of $25,000,000.
B. The Bank and the Borrower desire to amend the Note to extend the
Maturity Date of the Loan.
AGREEMENT
1. Definitions. Capitalized terms used but not defined in this
Amendment shall have the meaning given to them in the Note.
2. Amendment. The Note is hereby amended by substituting the date
"September 2, 1997" for the date "August 15, 1997", in each case where such date
appears.
3. Effect of Amendment. Except as provided in this Amendment, all
of the terms and conditions of the Note shall remain in full force and effect.
This Amendment is executed as of the date stated at the beginning of
this Amendment.
Bank of America National Trust and Savings Association
By:___________________________
Title:________________________
Oakley, Inc.
By:___________________________
Title:________________________
By:___________________________
Title:________________________
<PAGE>
OAKLEY, INC.
NINTH AMENDMENT TO AMENDED AND RESTATED
CREDIT AGREEMENT
This NINTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this
"Amendment") is dated as of September 30, 1997 and entered into by and among
OAKLEY, INC., a Washington corporation ("Company"), THE FINANCIAL INSTITUTIONS
LISTED ON THE SIGNATURE PAGES HEREOF (each individually referred to herein as a
"Lender" and collectively as "Lenders") and BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as current agent for Lenders (in such capacity, "Agent")
and, for purposes of Section 4 hereof, the Consenting Parties (as defined
herein), and is made with reference to that certain Amended and Restated Credit
Agreement dated as of August 15, 1995, as amended by the First Amendment to
Amended and Restated Credit Agreement, dated as of November 22, 1995, the
Second Amendment to Amended and Restated Credit Agreement, dated as of October
10, 1996, the Third Amendment to Amended and Restated Credit Agreement, dated
as of November 25, 1996, the Fourth Amendment to Amended and Restated Credit
Agreement, dated as of January 29, 1997, the Fifth Amendment to Amended and
Restated Credit Agreement, dated as of March 31, 1997, the Sixth Amendment to
Amended and Restated Credit Agreement, dated as of March 31, 1997, the Seventh
Amendment to Amended and Restated Credit Agreement, dated as of May 14, 1997,
and the Eighth Amendment to Amended and Restated Credit Agreement, dated as of
June 27, 1997, each by and among Company, Lenders and Agent (as amended, the
"Credit Agreement"). Capitalized terms used herein without definition shall
have the same meanings herein as set forth in the Credit Agreement.
RECITALS
A. Company and Lenders desire to amend the Credit Agreement, as provided
herein.
B. Lenders have agreed to consent to certain activities of Company, as
provided herein.
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
<PAGE>
SECTION 1. MODIFICATIONS AND CONSENTS.
Section 1.1. AMENDMENTS TO CREDIT AGREEMENT.
(a) Section 7.3 of the Credit Agreement is hereby amended by (i) deleting
the word "and" appearing after clause (xi) thereof, (ii) deleting the period
(.) appearing at the end of clause (xii) thereof and (iii) inserting the
following after clause (xii) thereof:
"; and
(xiii) Company and its Subsidiaries may make Investments in Bazooka, Inc.
for the purpose of financing the development of business of the type described
in those certain resolutions of the Company's board of directors dated June 19,
1997, copies of which have previously been distributed to the Lenders; provided
that the aggregate amount of (a) such Investments described in this clause
(xiii) that may be made prior to March 31, 1998, (b) accounts receivable of
Company generated from Bazooka, Inc. prior to March 31, 1998 and (c) Contingent
Obligations of Company incurred with respect to obligations of Bazooka, Inc.
shall not exceed $13,000,000."
(b) Section 7.6A is hereby amended by inserting the following at the end
of such section:
"In calculating the ratio described in this Section 7.6A, all expenses and
activity related to Bazooka, Inc. which are described in Section 7.3 (xiii)
shall be excluded."
(c) Section 7.8 of the Credit Agreement is hereby amended by deleting the
entirety of such section and inserting the following in replacement therefor:
"Company shall not permit the aggregate amount of all Office Building
Capital Expenditures incurred by Company and its Subsidiaries prior to June 30,
1997 to exceed $47,000,000."
(d) Schedule 5.1 to the Credit Agreement is hereby supplemented by adding
the following to such schedule:
2
<PAGE>
<TABLE>
<CAPTION>
Ownership
Jurisdiction of Direct by (Each)
Entity Incorporation Parent(s) Direct Parent
- ------ --------------- --------- -------------
<S> <C> <C> <C>
Bazooka, Inc. Washington Oakley, Inc. 100%
</TABLE>
Section 1.2 CONSENT TO SECTION 7.13. Pursuant to Section 7.13(ii) of the
Credit Agreement, the Lenders hereby consent to the Company and its
Subsidiaries engaging in business of the type described in those certain
resolutions of the Company's board of directors dated June 19, 1997, copies of
which have previously been distributed to the Lenders.
SECTION 2. EFFECTIVENESS
Section 1 of this Amendment shall become effective as of September 30,
1997; provided that (a) Company shall deliver to Lenders (or to Agent for
Lenders with sufficient originally executed copies, where appropriate, for each
Lender) copies of this Amendment executed by Company and each Consenting Party
and (b) Agent, on behalf of Lenders shall have received a counterpart of this
Amendment duly executed by the Requisite Lenders. Notwithstanding the
foregoing, the effectiveness of Section 1 of this Amendment may be revoked by
the Lenders if the Lenders have not received, on or prior to December 17, 1997,
a resolution or other appropriate action by the Board of Directors of Company
ratifying the execution, delivery and performance of this Amendment by Company.
SECTION 3. COMPANY'S REPRESENTATIONS
AND WARRANTIES
In order to induce Lenders to enter into this Amendment and to amend the
Credit Agreement in the manner provided herein, Company represents and warrants
to each Lender, as of the date on which Company shall deliver to Lenders (or to
Agent for Lenders) copies of this Amendment executed by Company and each
Consenting Party, that the following statements are true, correct and complete:
A. CORPORATE POWER AND AUTHORITY. Company has all requisite corporate
power and authority to enter into this Amendment and to carry out the
transactions contemplated by, and perform its obligations under, the Credit
Agreement as amended by this Amendment (the "Amended Agreement").
3
<PAGE>
B. AUTHORIZATION OF AGREEMENTS. The execution and delivery of this
Amendment and the performance of the Amended Agreement have been duly
authorized by all necessary corporate action on the part of Company and each
Consenting Party.
C. NO CONFLICT. The execution, delivery and performance by Company and
each Consenting Party of this Amendment do not and will not (i) violate the
Certificate or Articles of Incorporation or Bylaws of Company or any of its
Subsidiaries, (ii) violate any provision of any law or any governmental rule or
regulation applicable to Company or any of its Subsidiaries or any order,
judgment or decree of any court or other agency of government binding on
Company or any of its Subsidiaries, which violation could reasonably be
expected to have a Material Adverse Effect, (iii) conflict with, result in a
breach of or constitute (with due notice or lapse of time or both) a default
under any Contractual Obligation of Company or any of its Subsidiaries in a
manner that could reasonably be expected to have a Material Adverse Effect,
(iv) result in or require the creation or imposition of any Lien upon any of
the properties or assets of Company or any of its Subsidiaries (other than any
Liens created under any of the Loan Documents in favor of Agent on behalf of
Lenders), or (v) require any approval of stockholders or any approval or
consent of any Person under any Contractual Obligation of Company or any of its
Subsidiaries.
D. GOVERNMENTAL CONSENTS. The execution, delivery and performance by
Company and each Consenting Party of this Amendment do not and will not require
any registration with, consent or approval of, or notice to, or other action
to, with or by, any federal, state or other governmental authority or
regulatory body.
E. BINDING OBLIGATION. This Amendment has been duly executed and
delivered by Company and each Consenting Party, as applicable, and is the
legally valid and binding obligation of Company and each Consenting Party,
enforceable against each such Person in accordance with its respective terms,
except as may be limited by bankruptcy, insolvency, reorganization, moratorium
or similar laws relating to or limiting creditors' rights generally or by
equitable principles relating to enforceability.
F. ABSENCE OF DEFAULT. Upon giving effect to this Amendment, no event
has occurred and is continuing or will result from the consummation of the
transactions con-
4
<PAGE>
templated by this Amendment that would constitute an Event of Default or a
Potential Event of Default.
SECTION 4. ACKNOWLEDGMENT AND CONSENT
Repeat Incorporated, an Arizona corporation ("Repeat"), and Barter
Optical, Inc., a Washington corporation ("Barter"), are parties to the
Guaranty, pursuant to which Repeat and Barter have guarantied the Obligations
of Company under the Credit Agreement. Repeat and Barter are collectively
referred to herein as the "Consenting Parties".
Each Consenting Party hereby acknowledges that it has reviewed the terms
and provisions of the Credit Agreement and this Amendment and consents to the
amendment of the Credit Agreement effected pursuant to this Amendment. Each
Consenting Party hereby confirms that the Guaranty will continue to guaranty to
the fullest extent possible the payment and performance of all "Guarantied
Obligations" (as such term is defined in the Guaranty), including without
limitation the payment and performance of all such Guarantied Obligations, in
respect of the Obligations of Company now or hereafter existing under or in
respect of the Amended Agreement and all Notes.
Each Consenting Party acknowledges and agrees that the Guaranty shall
continue in full force and effect and that all of its obligations thereunder
shall be valid and enforceable and shall not be impaired or limited by the
execution or effectiveness of this Amendment.
Each Consenting Party acknowledges and agrees that (i) notwithstanding the
conditions to effectiveness set forth in this Amendment, such Consenting Party
is not required by the terms of the Credit Agreement or any other Loan Document
to consent to the amendments to the Credit Agreement effected pursuant to this
Amendment and (ii) nothing in the Credit Agreement, this Amendment or any other
Loan Document shall be deemed to require the consent of such Consenting Party
to any future amendments to the Credit Agreement.
SECTION 5. MISCELLANEOUS
A. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER LOAN
DOCUMENTS.
5
<PAGE>
(i) On and after the date hereof, each reference in the Credit
Agreement to "this Agreement", "hereunder", "hereof", "herein" or words
of like import referring to the Credit Agreement, and each reference in
the other Loan Documents to the "Credit Agreement", "thereunder",
"thereof" or words of like import referring to the Credit Agreement
shall mean and be a reference to the Amended Agreement.
(ii) Except as specifically amended or waived by this Amendment, the
Credit Agreement and the other Loan Documents shall remain in full force
and effect and are hereby ratified and confirmed.
(iii) The execution, delivery and performance of this Amendment shall
not, except as expressly provided herein, constitute a waiver of any
provision of, or operate as a waiver of any right, power or remedy of
Agent or any Lender under, the Credit Agreement or any of the other Loan
Documents.
B. HEADINGS. Section and subsection headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive effect.
C. FEES AND EXPENSES. Company acknowledges that all costs, fees and
expenses as described in subsection 10.2 of the Credit Agreement incurred by
Agent and its internal counsel with respect to this Amendment and the documents
and transactions contemplated hereby shall be for the account of Company.
D. APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD
TO CONFLICTS OF LAWS PRINCIPLES.
E. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument; signature pages may be detached from multiple separate
counterparts and attached to a single
6
<PAGE>
counterpart so that all signature pages are physically attached to the same
document. This Amendment shall become effective upon the execution of a
counterpart hereof by Requisite Lenders and each of the other parties hereto
and receipt by Company and Agent of written or telephonic notification of such
execution and authorization of delivery thereof.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective officers hereunto duly
authorized as of the date first written above.
OAKLEY, INC., as the Borrower
By:__________________________
Title:_______________________
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Agent
By:__________________________
Title:_______________________
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as a
Lender
By:__________________________
Title:_______________________
UNION BANK OF CALIFORNIA
N.A., (formerly named Union
Bank) as a Lender
By:__________________________
Title:_______________________
ACKNOWLEDGMENT AND CONSENT
- --------------------------
BARTER OPTICAL, INC., as a
Consenting Party
By:__________________________
Title:_______________________
8
<PAGE>
REPEAT INCORPORATED, as a
Consenting Party
By:__________________________
Title:_______________________
9
<PAGE>
Exhibit 11.1
OAKLEY, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
Three Months Ended
September 30, 1997
------------------
Common Shares and common share equivalents:
Number of shares outstanding at beginning of period 70,658
Weighted average common shares issued
from the exercise of stock options 1
Weighted average shares issuable upon the exercise of
common stock options net of shares assumed to be
repurchased from proceeds obtained therefrom 157
------------------
Weighted average common and common equivalent
shares at end of period 70,816
------------------
------------------
Net income for primary net income per share $ 6,815
Net income per common and common equivalent shares $ 0.10
------------------
------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1997
<CASH> 8,664
<SECURITIES> 0
<RECEIVABLES> 24,651
<ALLOWANCES> 516
<INVENTORY> 25,118
<CURRENT-ASSETS> 70,268
<PP&E> 100,381
<DEPRECIATION> 0
<TOTAL-ASSETS> 184,561
<CURRENT-LIABILITIES> 28,237
<BONDS> 0
0
0
<COMMON> 707
<OTHER-SE> 133,071
<TOTAL-LIABILITY-AND-EQUITY> 184,561
<SALES> 148,971
<TOTAL-REVENUES> 148,971
<CGS> 57,212
<TOTAL-COSTS> 57,212
<OTHER-EXPENSES> 64,590
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 849
<INCOME-PRETAX> 26,320
<INCOME-TAX> 10,107
<INCOME-CONTINUING> 16,213
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,213
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0
</TABLE>
