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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER: 1-13848
OAKLEY, INC.
(Exact name of registrant as specified in its charter)
WASHINGTON 95-3194947
(State or other jurisdiction of (IRS Employer ID
incorporation or organization) No.)
ONE ICON 92610
FOOTHILL RANCH, CALIFORNIA (Zip Code)
(Address of principal executive
offices)
(949) 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 [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
<TABLE>
<S> <C>
COMMON STOCK, PAR VALUE $.01 PER SHARE 70,678,057 SHARES
(Class) (Outstanding on August 11, 1999)
</TABLE>
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OAKLEY, INC.
INDEX TO FORM 10-Q
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1 - Financial Statements
Consolidated Balance Sheets as of June 30, 1999
and December 31, 1998............................................ 3
Consolidated Statements of Income for the three- and six-month
periods ended June 30, 1999 and 1998............................. 4
Consolidated Statements of Comprehensive Income for the three-
and six-month periods ended June 30, 1999 and 1998............... 4
Consolidated Statements of Cash Flows for the six-month periods
ended June 30, 1999 and 1998..................................... 5
Notes to Consolidated Financial Statements....................... 6-8
ITEM 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 9-14
ITEM 3 - Quantitative and Qualitative Disclosures About Market Risk.......14-15
PART II. OTHER INFORMATION
ITEM 1 - Legal Proceedings................................................16-19
ITEM 2 - Changes in Securities and Use of Proceeds........................ 19
ITEM 3 - Defaults Upon Senior Securities.................................. 19
ITEM 4 - Submission of Matters to a Vote of Security Holders.............. 19
ITEM 5 - Other Information................................................ 19
ITEM 6 - Exhibits and Reports on Form 8-K................................. 20
Signatures................................................................ 21
Exhibits.................................................................. 22
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PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
OAKLEY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 7,791 $ 4,553
Accounts receivable, less allowance for
doubtful accounts of $615 (1999), $621 (1998) 41,726 33,867
Inventories, net (Note 2) 32,609 35,548
Other receivables 2,357 2,372
Deferred income taxes 6,087 6,074
Prepaid expenses and other 6,735 4,246
--------- ---------
Total current assets 97,305 86,660
Property and equipment, net 116,092 118,215
Deposits 3,393 2,513
Other assets 17,600 18,427
--------- ---------
TOTAL ASSETS $ 234,390 $ 225,815
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit (Note 3) $ -- $ 13,300
Accounts payable 17,874 12,606
Accrued expenses and other current liabilities 6,423 6,646
Accrued warranty 4,387 4,420
Income taxes payable 7,033 2,567
Current portion of long-term debt (Note 3) 1,519 1,519
--------- ---------
Total current liabilities 37,236 41,058
Deferred income taxes 3,402 3,418
Long-term debt, net of current maturities (Note 3) 18,604 19,363
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; 70,678,000 shares issued and outstanding in
1999 and 1998 707 707
Additional paid-in capital 55,727 55,610
Retained earnings 118,409 106,383
Accumulated other comprehensive income (loss) 305 (724)
--------- ---------
Total shareholders' equity 175,148 161,976
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 234,390 $ 225,815
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
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OAKLEY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share data)
<TABLE>
<CAPTION>
Three Months ended Six Months ended
June 30, June 30,
--------------------------- ---------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 72,071 $ 70,030 $ 120,797 $ 111,030
Cost of goods sold 25,287 24,569 45,340 40,751
----------- ----------- ----------- -----------
Gross profit 46,784 45,461 75,457 70,279
Operating expenses:
Research and development 1,491 1,313 2,945 2,512
Selling 19,267 17,257 34,941 30,756
Shipping and warehousing 1,553 1,846 2,797 3,246
General and administrative 7,585 6,423 15,121 12,637
----------- ----------- ----------- -----------
Total operating expenses 29,896 26,839 55,804 49,151
----------- ----------- ----------- -----------
Operating income 16,888 18,622 19,653 21,128
Interest expense, net 554 499 1,151 877
----------- ----------- ----------- -----------
Income before provision for income taxes 16,334 18,123 18,502 20,251
Provision for income taxes 5,717 6,959 6,476 7,776
----------- ----------- ----------- -----------
Net income $ 10,617 $ 11,164 $ 12,026 $ 12,475
=========== =========== =========== ===========
Basic net income per common share $ 0.15 $ 0.16 $ 0.17 $ 0.18
=========== =========== =========== ===========
Basic weighted average common shares 70,678,000 70,671,000 70,678,000 70,671,000
=========== =========== =========== ===========
Diluted net income per common share $ 0.15 $ 0.16 $ 0.17 $ 0.18
=========== =========== =========== ===========
Diluted weighted average common shares 70,692,000 71,161,000 70,687,000 70,916,000
=========== =========== =========== ===========
</TABLE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
<TABLE>
<CAPTION>
Three Months ended Six Months ended
June 30, June 30,
---------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 10,617 $ 11,164 $ 12,026 $ 12,475
Other comprehensive income, before tax:
Transition adjustment related to the
adoption of SFAS 133 -- -- (103) --
Net unrealized gain on derivative instruments 1,425 -- 2,179 --
Foreign currency translation adjustment (249) 919 (1,047) 715
-------- -------- -------- --------
Other comprehensive income, before tax 1,176 919 1,029 715
Income tax related to items of
other comprehensive income (412) (353) (360) (275)
-------- -------- -------- --------
Other comprehensive income, net of tax 764 566 669 440
-------- -------- -------- --------
Comprehensive income $ 11,381 $ 11,730 $ 12,695 $ 12,915
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
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OAKLEY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six Months ended
June 30,
----------------------
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 12,026 $ 12,475
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 9,276 7,514
Compensatory stock options 117 75
Gain on disposition of equipment (16) (610)
Deferred income taxes (29) --
Changes in assets and liabilities, net of effects
of business acquisitions:
Accounts receivable (8,755) (11,970)
Inventories 2,175 (6,185)
Other receivables 27 (443)
Prepaid expenses and other (474) 602
Accounts payable 5,643 9,651
Accrued expenses, other current liabilities and
accrued warranty 135 2,046
Income taxes payable 4,510 6,834
-------- --------
Net cash provided by operating activities 24,635 19,989
CASH FLOWS FROM INVESTING ACTIVITIES:
Deposits (898) 696
Acquisitions of property and equipment (7,053) (15,575)
Proceeds from sale of property and equipment 494 809
Other assets (86) (7,566)
-------- --------
Net cash used in investing activities (7,543) (21,636)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank borrowings 29,000 --
Repayments of bank borrowings (43,059) (1,660)
Net proceeds from issuance of common shares -- 133
-------- --------
Net cash used in financing activities (14,059) (1,527)
Effect of exchange rate changes on cash 205 1,147
Net increase (decrease) in cash and cash equivalents 3,238 (2,027)
Cash and cash equivalents, beginning of period 4,553 2,657
-------- --------
Cash and cash equivalents, end of period $ 7,791 $ 630
======== ========
</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 consolidated balance sheets as of June 30,
1999 and December 31, 1998, the consolidated statements of income and
comprehensive income for the three- and six-month periods ended June 30, 1999
and 1998 and the statements of cash flows for the six-month periods ended June
30, 1999 and 1998. The results of operations for the three- and six-month
periods ended June 30, 1999 are not necessarily indicative of the results of
operations for the entire year ending December 31, 1999.
NOTE 2 - INVENTORIES
Inventories consist of the following:
June 30, 1999 December 31, 1998
------------- -----------------
Raw Materials $14,426,000 $15,316,000
Finished Goods 18,183,000 20,232,000
----------- -----------
$32,609,000 $35,548,000
=========== ===========
NOTE 3 - FINANCING ARRANGEMENTS
Line of credit - The Company has a $50.0 million unsecured line of credit with a
bank syndicate which bears interest at either the bank's prime lending rate
(7.75% at June 30, 1999) or LIBOR plus 0.75% (6.12% at June 30, 1999), as
defined in the credit agreement, and matures August 2001. At June 30, 1999, the
Company did not have any borrowings under this credit agreement. The credit
agreement contains various restrictive covenants including the maintenance of
certain financial ratios. At June 30, 1999, the Company was in compliance with
all restrictive covenants and financial ratios.
Long-term debt - The Company has a real estate term loan which is due September
2007. The term loan, which is collateralized by the Company's corporate
headquarters, requires quarterly principal payments of approximately $380,000
($1,519,000 annually), plus interest based upon LIBOR plus 1.00% (6.05% at June
30, 1999) for ten years. In January 1999, the Company entered into an interest
rate swap agreement that results in fixing the interest rate over the term of
the note at 6.31%. At June 30, 1999, the outstanding balance under the term loan
was $20.1 million.
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 (the "Superior Court") 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 of 1933, as amended. On July 26, 1999, the Superior Court
entered a dismissal without prejudice of the California Securities Actions. In
March
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1997, the Company was named as a nominal defendant in a putative derivative
action (the "California Derivative Action") filed in the Superior Court 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. On
February 4, 1998, the court entered a final order of dismissal of the putative
derivative action. On April 8, 1998, the derivative plaintiff filed a notice of
appeal in the Superior Court. In March 1999, the parties to the California
Derivative Action entered into a stipulation of settlement regarding the
derivative claims. On June 24, 1999, the California Court of Appeal, Fourth
Appellate District, approved the settlement and entered a final judgment
dismissing with prejudice the California Derivative Action and approving the
Company's release of claims against defendants James Jannard and Mike Parnell.
The settlement is not expected to have a material adverse effect on the Company.
During October, November and December 1997, five putative class action lawsuits
(the "Federal Securities Actions") were filed in the United States District
Court for the Central District of California, Southern Division (the "District
Court") against the Company, three of its officers and directors and firms that
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. On July 10, 1998, the Company and the other defendants filed motions to
dismiss the Federal Securities Actions. On January 14, 1999, the District Court
denied the motions to dismiss. On March 3, 1999, the defendants filed answers in
the Federal Securities Actions. On June 29, 1999, the District Court approved
stipulations for class certification that the parties had submitted and entered
orders for class certification in the Federal Securities Actions. Although it is
too soon to predict the outcome of the Federal Securities Actions 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 consolidated financial statements.
NOTE 5 - CHANGES IN ACCOUNTING PRINCIPLES
The Company adopted Statement of Financial Accounting Standards No. 133 (SFAS
133), Accounting for Derivative Instruments and Hedging Activities, on January
1, 1999. The adoption of SFAS 133 resulted in a transition adjustment recorded
by the Company as a cumulative-effect type adjustment of a $103,000 charge to
accumulated other comprehensive income to recognize the fair value of all
derivatives that are designated as cash-flow hedges.
The Company is exposed to gains and losses resulting from fluctuations in
foreign currency exchange rates relating to transactions of its international
subsidiaries as well as fluctuations in its variable rate debt. As part of its
overall strategy to manage the level of exposure to the risk of fluctuations in
foreign currency exchange rates, the Company uses foreign exchange contracts in
the form of forward contracts and option contracts. In addition, as part of its
overall strategy to manage the level of exposure to the risk of fluctuations in
interest rates, the Company has entered into an interest rate swap agreement. At
June 30, 1999, all of the Company's derivatives were designated and qualified as
cash flow hedges. For all qualifying and highly effective cash flow hedges, the
changes in the fair value of the derivative are recorded in other comprehensive
income. The Company is currently hedging forecasted foreign currency
transactions that, assuming exchange rates at June 30, 1999 remain constant, are
expected to result in reclassifications of $1.9 million of gains to earnings
over the next six months. The Company hedges forecasted transactions that are
determined probable to occur within 18 months or less.
7
<PAGE> 8
On the date the Company enters into a derivative contract, management designates
the derivative as a hedge of the identified exposure. The Company does not enter
into derivative instruments that do not qualify as cash flow hedges.
The Company formally documents all relationships between hedging instruments and
hedged items, as well as its risk-management objective and strategy for
undertaking various hedge transactions. In this documentation, the Company
specifically identifies the asset, liability, firm commitment, or forecasted
transaction that has been designated as a hedged item and states how the hedging
instrument is expected to hedge the risks related to the hedged item. The
Company formally measures effectiveness of its hedging relationships both at the
hedge inception and on an ongoing basis in accordance with its risk management
policy.
The Company would discontinue hedge accounting prospectively (i) if it is
determined that the derivative is no longer effective in offsetting changes in
the cash flows of a hedged item, (ii) when the derivative expires or is sold,
terminated, or exercised, (iii) when the derivative is designated as a hedge
instrument, because it is probable that the forecasted transaction will not
occur, (iv) because a hedged firm commitment no longer meets the definition of a
firm commitment or (v) if management determines that designation of the
derivative as a hedge instrument is no longer appropriate. During the three- and
six-months ended June 30, 1999, the Company reclassified into earnings a net
gain of $479,000 and $691,000, respectively, resulting from the expiration,
sale, termination or exercise of foreign exchange contracts.
NOTE 6 - EARNINGS PER SHARE
Basic earnings per share is computed using the weighted average number of common
shares outstanding during the reporting period. Earnings per share assuming
dilution is computed using the weighted average number of common shares
outstanding and the dilutive effect of potential common shares outstanding. For
the three months ended June 30, 1999 and 1998, the diluted weighted average
common shares outstanding includes 14,000 and 490,000, respectively, of dilutive
stock options. For the six months ended June 30, 1999 and 1998, the diluted
weighted average common shares outstanding includes 9,000 and 245,000,
respectively, of dilutive stock options.
8
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion includes the operations of Oakley, Inc. and its
subsidiaries for each of the periods discussed.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1999 and 1998
Net sales
Net sales increased to $72.1 million for the three months ended June 30, 1999
from $70.0 million for the three months ended June 30, 1998, an increase of $2.1
million, or 2.9%. This increase was primarily the result of slightly increased
sunglass sales, including sales of a Wires(TM), Minutes(TM) and Pro M-Frames(R)
and sales from new sunglass products introduced during 1999 offsetting the
natural decline in sales of more mature products. New sunglasses launched during
the three months ended June 30, 1999 were the new M-Frame(R) and Zeros(R)
introduced in late May 1999 and the OO(TM) ("Double O") introduced in June 1999.
Increased sales in the Company's expanded prescription program and sales of the
Company's polarized versions of selected sunglass lines also contributed to
increased revenue. The Company's domestic sales decreased 2.6% to $44.0 million
for the three months ended June 30, 1999 from $45.2 million in the comparable
1998 period principally as a result of a 9.8% decrease in net sales to the
Company's largest customer, Sunglass Hut, whose strong first quarter purchases
from the Company impacted the Company's sales during the quarter ended June 30,
1999. The Company's international sales increased 13.0% to $28.1 million for the
three months ended June 30, 1999 from $24.9 million for the comparable period in
1998, principally as a result of increased sales in all direct operations,
particularly Canada, United Kingdom, Japan, Europe and South Africa. Southeast
Asia and Latin America sales represented 2.0% and 2.2%, respectively, of total
net sales for the three months ended June 30, 1999. Footwear net sales were $0.4
million, or 0.5% of net sales, for the quarter ended June 30, 1999. Sales of
other product categories and sunglass accessories as a group increased 4.0%
during the quarter ended June 30, 1999 over the quarter ended June 30, 1998
primarily due to increased sales in the Company's expanded apparel line and
sales from the Company's new watch line, which more than offset reduced sales of
sunglass accessories.
Gross profit
Gross profit increased to $46.8 million for the three months ended June 30, 1999
from $45.5 million for the three months ended June 30, 1998, an increase of $1.3
million, or 2.9%. As a percentage of net sales, gross profit remained at 64.9%
for the three months ended June 30, 1999 and 1998, as increased footwear costs
in the 1999 period were offset by increased gross margin for all remaining
product categories as a group.
Operating expenses
Operating expenses increased to $29.9 million for the three months ended June
30, 1999 from $26.8 million for the three months ended June 30, 1998, an
increase of $3.1 million, or 11.4%. Research and development expenses were $1.5
million, or 2.1% of net sales, for the three months ended June 30, 1999 as
compared to $1.3 million, or 1.9% of net sales, for the three months ended June
30, 1998, an increase of $0.2 million. Selling expenses increased $2.0 million
to $19.3 million, or 26.7% of net sales, for the three months ended June 30,
1999 from $17.3 million, or 24.6% of net sales, for the three months ended June
30, 1998 as a result of increases in variable expenses such as commissions and
warranty, higher advertising expenses and increased footwear selling expenses.
Shipping and warehousing expenses decreased to $1.6 million, or 2.2% of net
sales for the three months ended June 30, 1999 from $1.8 million,
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or 2.6% of net sales for the comparable 1998 period due to positive results from
various initiatives to reduce shipping costs. General and administrative
expenses for the three months ended June 30, 1999 were $7.6 million, or 10.5% of
net sales, compared to $6.4 million, or 9.2% of net sales, in the same period in
1998. For the three months ended June 30, 1998, general and administrative
expenses included a $0.6 million non-recurring gain on the sale of certain
assets.
Operating income
The Company's operating income decreased to $16.9 million for the three months
ended June 30, 1999 from $18.6 million for the three months ended June 30, 1998,
a decrease of $1.7 million, or 9.3%, over the same period in the previous year.
As a percentage of net sales, operating income decreased to 23.4% for the three
months ended June 30, 1999 from 26.6% for the three months ended June 30, 1998.
This decrease in operating income as a percentage of net sales was primarily due
to greater operating expenses associated with the Company's footwear line.
Excluding the Company's footwear line, operating income would have been 26.2% as
a percentage of net sales for the quarter ended June 30, 1999 compared to 27.8%
for the comparable 1998 period.
Interest expense, net
The Company had net interest expense of $0.6 million for the three months ended
June 30, 1999 as compared with net interest expense of $0.5 million in the
comparable 1998 period.
Net income
The Company's net income decreased to $10.6 million for the three months ended
June 30, 1999 from $11.2 million for the three months ended June 30, 1998, a
decrease of $0.5 million, or 4.9%, over the comparable 1998 quarter. Net income
reflects a reduction in the Company's tax rate to 35.0% in 1999 from 38.4% in
1998 resulting from the Company's international expansion and related tax
planning initiatives.
Six Months Ended June 30, 1999 and 1998
Net sales
Net sales increased to $120.8 million for the six months ended June 30, 1999
from $111.0 million for the six months ended June 30, 1998, an increase of $9.8
million, or 8.8%. This increase was primarily the result of increased sales of
Fives, a Wires, Minutes, Tens and Pro M-Frames and sales of new sunglass
products introduced during 1999 offsetting the natural decline in sales of more
mature products. New sunglasses launched during the six months ended June 30,
1999 were the X Metal(R) Juliet(TM) introduced in February 1999, new M-Frames
and Zeros introduced in late May 1999 and the Double O introduced in June 1999.
Increased sales in the Company's expanded prescription program and sales of the
Company's polarized versions of selected sunglass lines also contributed to
increased revenue. The Company's domestic sales increased 4.7% to $72.5 million
from $69.3 million in the comparable 1998 period. Net sales to the Company's
largest customer, Sunglass Hut, increased 2.2% during the six months ended June
30, 1999 over the comparable 1998 period. The Company's international sales
increased 15.7% to $48.3 million for the six months ended June 30, 1999 from
$41.7 million for the comparable period in 1998, principally as a result of
increased sales in all direct operations, particularly Canada, Europe, United
Kingdom, South Africa and Japan. Southeast Asia and Latin America sales
represented 1.9% and 2.4%, respectively, of total net sales for the six months
ended June 30, 1999. Footwear net sales were $0.7 million, or 0.6% of net sales,
for the six months ended June 30, 1999. Sales of other product categories and
sunglass accessories as a group increased 13.1% during the six months ended June
30, 1999 over the six months ended June 30, 1998 primarily due to increased
sales in the Company's expanded apparel line and sales from the Company's new
watch line, which more than offset reduced sales of sunglass accessories.
10
<PAGE> 11
Gross profit
Gross profit increased to $75.5 million for the six months ended June 30, 1999
from $70.3 million for the six months ended June 30, 1998, an increase of $5.2
million, or 7.4%. As a percentage of net sales, gross profit decreased to 62.5%
for the six months ended June 30, 1999 from 63.3% for the six months ended June
30, 1998. The decline in gross profit as a percentage of net sales is primarily
attributable to the Company's continued footwear start-up costs.
Operating expenses
Operating expenses increased to $55.8 million for the six months ended June 30,
1999 from $49.2 million for the six months ended June 30, 1998, an increase of
$6.6 million, or 13.5%. Increased variable expenses, higher footwear operating
expenses, increased advertising expenses and incremental expenses due to the
shift to direct operations in Canada contributed to the increase in operating
expenses. Research and development expenses were $2.9 million, or 2.4% of net
sales, for the six months ended June 30, 1999 as compared to $2.5 million, or
2.3% of net sales, for the six months ended June 30, 1998, an increase of $0.4
million. Selling expenses increased $4.1 million to $34.9 million, or 28.9% of
net sales, for the six months ended June 30, 1999 from $30.8 million, or 27.7%
of net sales, for the six months ended June 30, 1998 as a result of increases in
variable expenses such as commissions and warranty, higher advertising expenses
and increased footwear selling expenses. Shipping and warehousing expenses
decreased to $2.8 million, or 2.3% of net sales for the six months ended June
30, 1999 from $3.2 million, or 2.9% of net sales for the comparable 1998 period
due to positive results from various initiatives to reduce shipping costs.
General and administrative expenses for the six months ended June 30, 1999 were
$15.1 million, or 12.5% of net sales, compared to $12.6 million, or 11.4% of net
sales, in the same period in 1998. This increase in general and administrative
expenses was a result of increased personnel related costs and professional
fees. For the six months ended June 30, 1999, general and administrative expense
included a $0.6 million non-recurring gain from the sale of certain assets.
Operating income
The Company's operating income decreased to $19.7 million for the six months
ended June 30, 1999 from $21.1 million for the six months ended June 30, 1998, a
decrease of $1.4 million, or 7.0%, from the same period in the previous year. As
a percentage of net sales, operating income decreased to 16.3% for the six
months ended June 30, 1999 from 19.0% for the six months ended June 30, 1998.
This decrease in operating income as a percentage of net sales was primarily due
to greater operating expenses associated with the Company's footwear line.
Excluding the Company's footwear line, the Company's operating income would have
been 19.3% as a percentage of net sales for the six months ended June 30, 1999
compared to 20.0% for the comparable 1998 period.
Interest expense, net
The Company had net interest expense of $1.2 million for the six months ended
June 30, 1999 as compared with net interest expense of $0.9 million in the
comparable 1998 period.
Net income
The Company's net income decreased to $12.0 million for the six months ended
June 30, 1999 from $12.5 million for the six months ended June 30, 1998, a
decrease of $0.5 million, or 3.6%, over the comparable 1998 six month period.
Net income reflects a reduction in the Company's tax rate to 35.0% in 1999 from
38.4% in 1998 resulting from the Company's international expansion and related
tax planning initiatives.
11
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has financed its operations almost entirely with cash
flow generated from operations and borrowings from its credit facilities. Cash
provided by operating activities totaled $24.6 million for the six months ended
June 30, 1999 and $20.0 million for the comparable period of 1998. At June 30,
1999, working capital was $60.1 million. Working capital may vary from time to
time as a result of seasonality, new product introductions and changes in
inventory levels. Accounts receivable increased to $41.7 million at June 30,
1999 from $33.9 million at December 31, 1998 and $35.8 million at June 30, 1998
primarily as a result of the extended terms associated with the Company's
increased international business and the timing of new product introductions.
Inventories were $32.6 million at June 30, 1999 compared to $35.5 million at
December 31, 1998 and $32.4 million at June 30, 1998. Additionally, the Company
has an unsecured line of credit of $50.0 million which matures August 2001. At
June 30, 1999, the Company did not have any borrowings under such facility. The
Company has a real estate term loan which matures September 2007. The term loan
is collateralized by the Company's corporate headquarters and requires quarterly
principal payments of approximately $380,000 plus interest base on LIBOR plus
1.00% (6.05% at June 30, 1999) for ten years. In January 1999, the Company
entered into an interest rate swap agreement that results in fixing the interest
rate over the term of the note at 6.31%. At June 30, 1999, the outstanding
balance on the term loan was $20.1 million.
Capital expenditures, net of retirements, for the six months ended June 30, 1999
totaled $6.6 million. These expenditures were primarily attributable to the
expansion of the Company's information technology capabilities, new in-store
product displays and building improvements. At June 30, 1999, the Company had
commitments of approximately $3.1 million for future capital purchases.
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.
SEASONALITY
Historically, the Company's sales, in the aggregate, have been the highest 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 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. In addition, the Company's shipments of goggles, which
generate gross margins at significantly lower levels than sunglasses, are lowest
in the second quarter. This seasonal trend contributes to the Company's gross
margin in the second quarter, which historically has been the highest of the
year. Although the Company's business generally follows this seasonal trend, new
product introductions and the Company's international expansion have partially
mitigated the impact of seasonality.
BACKLOG
Historically, the Company has generally shipped domestic orders (other than
preseason orders for ski goggles and apparel and orders from certain sunglass
specialty chains) within one day of receipt and international orders within two
weeks of receipt. At June 30, 1999, the Company had a backlog of $22.7 million,
including backorders (merchandise remaining unshipped beyond its scheduled
shipping date) of $5.9 million as of such date.
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.
12
<PAGE> 13
YEAR 2000
The Company has established a Year 2000 Project Team that has completed the
review of the readiness of its computer systems and business practices for
handling Year 2000 issues. These issues involve systems that are date sensitive
and may not be able to properly process the transition from year 1999 to year
2000 and beyond, resulting in miscalculations and software failures. The
Company's Year 2000 compliance strategy involves several phases: Inventory,
Assessment, Remediation, and Testing.
STATE OF READINESS
The Company has completed its internal inventory and assessment and is currently
in the remediation and testing phase. Critical information technology ("IT")
systems, which include the Company's enterprisewide information system, time
clocks, e-mail and phone systems, are stated Year 2000 compliant with testing of
systems currently underway. The Company is currently implementing Year 2000
compliant solutions on its non-IT systems, such as manufacturing equipment and
those systems involved with facility management (security systems, air/heating
systems, fire suppression systems). All phases for IT and non-IT systems are
targeted to be completed by August 1999.
The Company's Year 2000 Project Team is coordinating the global effort and
monitoring progress of the Year 2000 readiness with respect to its subsidiaries.
Assessment of each subsidiary's internal systems is in progress with key
personnel at each subsidiary identified to locally manage the compliance project
and collect local business partner compliance statements.
The Company has initiated communications with all of its key business partners
to determine their extent and plans for Year 2000 compliance. As part of this
process, the Company has requested written assurances from its key external
business partners as to their Year 2000 readiness status and their plans to
become Year 2000 compliant when necessary. As of June 30, 1999, the Company had
received responses from a majority of its key business partners acknowledging
their compliance or intent to comply with Year 2000 issues. This process is
ongoing and is expected to continue throughout 1999.
COSTS TO ADDRESS YEAR 2000 ISSUES
Based on analysis completed to date, management believes its current staff will
be sufficient to address the Year 2000 issues and that the staff time required
to address these issues should not have a material adverse effect on other
projects. The costs associated with the Year 2000 project have not been budgeted
and tracked as separate projects, but have been occurring in conjunction with
normal operating activities. These costs are being funded through operating cash
flows and are not expected to materially impact the Company's operating results.
Risks and Contingency Plans of Year 2000 Issues
The timing of a Year 2000 related disruption, if it were to occur, would
coincide with a seasonal low in the Company's business cycle, therefore having
less impact on the business. The most reasonably likely worst case Year 2000
scenario and the associated contingency plan would be:
1. A portion of non-core IT systems experience disruption. Such
disruption is not expected to have a material impact on the
Company's ability to function. A contingency plan would be
developed if the perceived risk increases, which management is
reviewing on a monthly basis.
2. A portion of manufacturing operations experience temporary
disruption. Such disruption is not expected to have a material
impact on the Company's ability to function, as normal stock
levels would cover anticipated shortages. The Company will
determine the appropriate level based on business conditions
and perceived risk, which management is reviewing on a monthly
basis.
13
<PAGE> 14
3. A portion of the supplier base experiences disruption. The
Company has access to alternate suppliers for most of its raw
materials in the event of disruption of the supply of material
or resource. It is expected that the Company would source from
alternates until the normal supplier comes back on line.
4. A minor portion of the customer base experiences disruption.
Such disruption could result in a temporary reduction in
sales. However, this reduction is not readily quantifiable. A
contingency plan would be developed if the perceived risk
increases, which management is reviewing on a monthly basis.
There can be no assurance that there will not be a delay in, or increased costs
associated with, the implementation of the necessary systems and changes to
address the Year 2000 issues, and the Company's inability to implement such
systems and changes in a timely manner could have a material adverse effect on
future results of operations. In addition, the failure of certain of the
Company's significant customers or vendors to appropriately address the Year
2000 issue in a timely manner could have a material adverse effect on the
Company.
FORWARD-LOOKING STATEMENTS
When used in this document, the words "believes," "anticipates," "expects,"
"estimates," "intends," "may," "plans," "predicts," "will" or the negative
thereof 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; the ability
to develop and introduce innovative products; 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.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risks
The Company is exposed to a variety of risks, including foreign currency
fluctuations and changes in interest rates affecting the cost of its debt.
Foreign Currency - The Company has direct operations in Europe, Japan, Canada,
Mexico and South Africa which collect at future dates in the customers' local
currencies and purchase finished goods in U.S. dollars. Accordingly, the Company
is exposed to transaction gains and losses that could result from changes in
foreign currency exchange rates.
As more fully described in Note 5 to the Company's consolidated financial
statements, the Company is exposed to gains and losses resulting from
fluctuations in foreign currency exchange rates relating to foreign currency
transactions. As part of its overall strategy to manage the level of exposure to
the risk of fluctuations in foreign currency exchange rates, the Company uses
foreign exchange contracts in the form of forward contracts and option
contracts. All of the Company's derivatives were designated and qualified as
cash flow hedges at June 30, 1999.
On the date the Company enters into a derivative contract, management designates
the derivative as a hedge of the identified exposure. The Company does not enter
into derivative instruments that do not qualify in hedging relationships. For
all instruments qualifying and highly effective cash flow hedges, the changes in
the fair value of the derivative are recorded in other comprehensive income. The
following is a summary of the outstanding foreign currency contracts outstanding
at June 30, 1999:
14
<PAGE> 15
<TABLE>
<CAPTION>
June 30, 1999
----------------------------------------------
U.S. Dollar Fair
Equivalent Maturity Value
------------ --------- -----------
<S> <C> <C> <C>
Forward Contracts:
British pounds $ 756,341 Aug. 1999 $ 800,000
British pounds 449,185 Nov. 1999 475,000
British pounds 2,490,400 Dec. 1999 2,603,700
Canadian dollars 2,030,732 Sep. 1999 1,936,983
Canadian dollars 1,624,585 Dec. 1999 1,550,287
Japanese yen 627,684 Sep. 1999 662,309
Japanese yen 1,783,944 Dec. 1999 1,882,353
French francs 4,289,274 Sep. 1999 4,832,119
French francs 3,784,653 Dec. 1999 4,268,564
Option Contracts:
British pounds 1,531,469 Sep. 1999 1,591,440
Japanese yen 1,684,836 Sep. 1999 1,420,217
Japanese yen 1,742,649 Dec. 1999 1,468,950
French francs 539,313 Sep. 1999 600,000
French francs 471,899 Dec. 1999 525,000
----------- -----------
$23,806,964 $24,616,922
=========== ===========
</TABLE>
The Company is exposed to credit losses in the event of nonperformance by
counterparties to its forward exchange contracts but has no off-balance sheet
credit risk of accounting loss. The Company anticipates, however, that the
counterparties will be able to fully satisfy their obligations under the
contracts. The Company does not obtain collateral or other security to support
the forward exchange contracts subject to credit risk but monitors the credit
standing of the counterparties.
The Company sells direct and through its subsidiaries to various customers in
the European Union which have adopted the Euro as a legal currency effective
January 1, 1999. The Euro is expected to begin circulation after a three-year
transition period on January 1, 2002. The Company has analyzed whether the
conversion to the Euro will materially affect its business operations. The
Company's information systems are capable of processing transactions in Euros.
Additionally, the Company is planning to upgrade certain of its information
systems through December 31, 2001 to enhance its capability to process
transactions and keep records in Euros. While the Company is uncertain as to the
ultimate impact of the conversion, the Company does not expect costs in
connection with the Euro conversion to be material.
Interest Rates - The Company's line of credit and long-term debt, with a total
balance of $20.1 million outstanding at June 30, 1999, bear interest based on
the bank's lending rate or LIBOR. In January 1999, the Company entered into an
interest rate swap agreement, effective March 1, 1999, that eliminates the
Company's risk of fluctuations in the variable rate of the long-term debt. Based
on the weighted average interest rate on the line of credit during the three
months ended June 30, 1999 of 6.33%, if interest rates on the line of credit
were to increase by 10% and to the extent that borrowings were outstanding, for
every $1.0 million outstanding on the Company's line of credit, net income would
be reduced by approximately $4,000 per year.
15
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
THE CALIFORNIA SECURITIES ACTIONS
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 Actions. 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 that they were
asserting a claim for indemnification under such provisions 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
Actions. Counsel for Merrill Lynch and Alex. Brown subsequently indicated that
this claim for indemnification also applies to attorneys' fees and expenses
incurred in defending the Federal Securities Actions (described below).
On July 7, 1999, the parties submitted to the Superior Court a stipulated
request for dismissal without prejudice of the California Securities Actions. On
July 26, 1999, the Superior Court entered a dismissal without prejudice of the
California Securities Actions.
16
<PAGE> 17
THE FEDERAL SECURITIES ACTIONS
The Company and certain of its officers and directors have been named as
defendants in five putative class action lawsuits (the "Federal Securities
Actions") filed in October, November and December 1997 in the United States
District Court for the Central District of California, Southern Division (the
"District Court"). 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 GLT (EEx) (filed October 10, 1997) (the "Lister Action");
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 GLT (EEx) (filed October 20, 1997) (the "Chait Action");
Val Fichera v. Oakley, Inc., Mike Parnell, Link Newcomb, Jim Jannard, Merrill
Lynch & Co. and Alex. Brown and Sons Incorporated, No. SACV 97-928 GLT (EEx)
(filed November 17, 1997 (the "Fichera Action"); and
Yosef J. Rosenshein and Hershel Harman v. Oakley, Inc., Mike Parnell, Link
Newcomb, Jim Jannard, Merrill Lynch & Co. and Alex. Brown & Sons Incorporated,
No. SACV 97-993 GLT (EEx) (filed December 5, 1997 (the "Rosenshein Federal
Action").
The plaintiffs in the Kensington Capital Management and the Fichera Actions seek
to represent a class of persons who purchased the Company's common stock in the
Secondary Offering and allege claims for violations of sections 11, 12(a)(2) and
15 of the Securities Act of 1933. The plaintiffs' 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 plaintiffs seek unspecified damages and
other relief against the Company and the other defendants. Plaintiffs in the
Kensington Capital Management Action filed a motion to consolidate that action
with the Fichera Action, and plaintiffs in the Kensington Capital Management and
the Fichera Actions filed competing motions to be appointed lead plaintiffs for
the purported plaintiff class and for the selection of lead counsel to the
purported plaintiff class. Plaintiff's motion in the Fichera Action was later
withdrawn.
The plaintiffs in the Lister and Chait Actions and the Rosenshein Federal Action
seek to represent a class of persons who purchased the Company's common stock
between March 22, 1996 and December 5, 1996, including in the Secondary
Offering, and 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. Plaintiffs in the
Lister and Chait Actions filed a motion to consolidate the Lister and Chait
Actions and the Rosenshein Federal Action, to appoint certain persons as lead
plaintiffs for the purported plaintiff class and for the selection of lead
counsel to the purported plaintiff class.
17
<PAGE> 18
On January 26, 1998, the District Court granted the plaintiffs' motions for
appointment of lead plaintiffs and for the selection of lead counsel to the
purported plaintiff classes. The District Court further ordered that all of the
Federal Securities Actions be consolidated for pretrial purposes. On April 3,
1998, plaintiffs filed consolidated amended complaints in the Federal Securities
Actions.
On July 10, 1998, the Company and defendants Mike Parnell, Link Newcomb and Jim
Jannard filed motions to dismiss the Federal Securities Actions. Merrill Lynch
and Alex. Brown also filed motions to dismiss the Federal Securities Actions. On
January 14, 1999, the District Court denied the motions to dismiss filed by the
Company and the other defendants. On March 3, 1999, the defendants filed answers
to the consolidated amended complaints in the Federal Securities Actions. On
April 2, 1999, plaintiffs filed motions for class certification in the Federal
Securities Actions. On June 24, 1999, the parties submitted to the District
Court stipulations and proposed orders for class certification in the Federal
Securities Actions. On June 29, 1999, the District Court approved the
stipulations and entered orders for class certification in the Federal
Securities Actions.
Discovery in the Federal Securities Actions has commenced.
Although it is too soon to predict the outcome of the Federal Securities Actions
with any certainty, based on its current knowledge of the facts, the Company
believes that the plaintiffs' claims are without merit and intends to defend the
Federal Securities Actions vigorously.
THE CALIFORNIA DERIVATIVE ACTION
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 prospects. After sustaining the
defendants' demurrer to the plaintiff's second amended complaint, on February 4,
1998, the Superior Court entered a final order of dismissal of the California
Derivative Action. On April 8, 1998, the plaintiff in the California Derivative
Action filed a notice of appeal in the Superior Court. In March 1999, the
parties to the California Derivative Action entered into a stipulation of
settlement regarding derivative claims that is subject to approval by the
California Court of Appeal, Fourth Appellate District (the "Court of Appeal").
Pursuant to the proposed settlement, a committee of independent members of
Oakley's board of directors (the "Independent Committee"), comprised of
non-employee directors Irene Miller and Orin Smith, investigated the allegations
of insider trading asserted in the California Derivative Action against
defendants James Jannard and Mike Parnell. The Independent Committee was
assisted by counsel, Norman Blears, Esq. of the law firm of Heller, Ehrman,
White & McAuliffe. The Independent Committee determined that the insider trading
claims lacked merit and recommended to Oakley's board of directors that the
action be dismissed and the claims against Messrs. Jannard and Parnell released
in accordance with the terms of the proposed settlement. The Independent
Committee also reported its findings and recommendations respecting the
allegations of insider trading to plaintiff's counsel and a copy of its report
was filed with the Court of Appeal.
On June 24, 1999, the Court of Appeal approved the settlement and entered a
final judgment dismissing with prejudice the California Derivative Action and
approving the Company's release of claims against Messrs. Jannard and Parnell.
The settlement is not expected to have a material adverse effect on the Company.
18
<PAGE> 19
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 and Use of Proceeds
None
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security-Holders
(a) The Registrant's Annual Meeting of Shareholders was held on June 11,
1999.
(b) Proxies for the Annual Meeting were solicited pursuant to Regulation 14
under the Securities Exchange Act of 1934. There was no solicitation in
opposition to the management's nominees as listed in the proxy statement
to elect seven Directors. All such nominees were elected.
(c) The matters voted at the meeting and the results were as follows:
(1) To elect seven directors to serve as such until the next Annual
Meeting of Shareholders and until their successors are elected
and qualified.
<TABLE>
<CAPTION>
For Withheld
---------- --------
<S> <C> <C>
Director #1 - Jim Jannard 66,116,087 200,366
Director #2 - Mike Parnell 66,116,087 200,366
Director #3 - William Schmidt 66,116,343 200,110
Director #4 - Link Newcomb 66,116,343 200,110
Director #5 - Irene Miller 66,115,243 201,210
Director #6 - Orin Smith 66,115,243 201,210
Director #7 - Michael Jordan 66,115,043 201,410
</TABLE>
(2) To consider and vote to approve amendments to the Oakley, Inc.
1995 Stock Incentive Plan, as amended, to (i) increase the number
of shares reserved for issuance thereunder by 1,000,000 shares and
(ii) qualify the 1995 Stock Incentive Plan for purposes of
Sections 162(m) and 422 of the Internal Revenue Code of 1986, as
amended.
For Against Abstain
--- ------- -------
59,656,912 6,566,560 92,981
(3) To consider and vote to approve the Oakley, Inc. Executive
Officers Performance Bonus Plan, as amended, for purposes of
Section 162(m) of the Internal Revenue Code of 1986, as amended.
For Against Abstain
--- ------- -------
65,616,785 593,354 106,314
(4) To ratify the selection of Deloitte & Touche LLP to serve as
independent auditors of the Company for the fiscal year ending
December 31, 1999.
For Against Abstain
--- ------- -------
64,282,922 1,987,872 45,658
ITEM 5. Other Information
None
19
<PAGE> 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are included herein:
3.1(1) Articles of Incorporation of the Company
3.2(3) Amended and Restated Bylaws of the Company
3.3(2) Amendment No. 1 to the Articles of Incorporation as
filed with the Secretary of State of the State of Washington
on September 26, 1996
3.4(3) Amendment No. 1 to Sections 1 and Sections 3a through 3f of
Article IV of the Amended and Restated Bylaws of Oakley, Inc.
10.67(4) Employment Agreement, dated May 1, 1999, between William
Schmidt and Oakley, Inc.
10.68(4) Amended and Restated Employment Agreement, dated May 1, 1999,
between Link Newcomb and Oakley, Inc.
10.69(4) Oakley, Inc. Amended and Restated 1995 Stock Incentive Plan
10.70(4) Oakley, Inc. Amended and Restated Executive Officers
Performance Bonus Plan
27.1(4) Financial Data Schedule
- -------------
(1) Previously filed with the Registration Statement on Form S-1 of Oakley,
Inc. (Registration No. 33-93080)
(2) Previously filed with the Form 10-K of Oakley, Inc. for the year ended
December 31, 1996.
(3) Previously filed as Exhibit 10.66 to the Form 10-K of Oakley, Inc. for the
year ended December 31, 1998.
(4) Filed herewith.
The Company did not file any reports on Form 8-K during the three months ended
June 30, 1999.
20
<PAGE> 21
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/ William Schmidt August 11, 1999
- ----------------------------------
William Schmidt
Chief Executive Officer
/s/ Thomas George August 11, 1999
- ----------------------------------
Thomas George
Chief Financial Officer
21
<PAGE> 22
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1(1) Articles of Incorporation of the Company
3.2(3) Amended and Restated Bylaws of the Company
3.3(2) Amendment No. 1 to the Articles of Incorporation as
filed with the Secretary of State of the State of Washington
on September 26, 1996
3.4(3) Amendment No. 1 to Sections 1 and Sections 3a through 3f of
Article IV of the Amended and Restated Bylaws of Oakley, Inc.
10.67(4) Employment Agreement, dated May 1, 1999, between William
Schmidt and Oakley, Inc.
10.68(4) Amended and Restated Employment Agreement, dated May 1, 1999,
between Link Newcomb and Oakley, Inc.
10.69(4) Oakley, Inc. Amended and Restated 1995 Stock Incentive Plan
10.70(4) Oakley, Inc. Amended and Restated Executive Officers
Performance Bonus Plan
27.1(4) Financial Data Schedule
- -------------
(1) Previously filed with the Registration Statement on Form S-1 of Oakley,
Inc. (Registration No. 33-93080)
(2) Previously filed with the Form 10-K of Oakley, Inc. for the year ended
December 31, 1996.
(3) Previously filed as Exhibit 10.66 to the Form 10-K of Oakley, Inc. for the
year ended December 31, 1998.
(4) Filed herewith.
<PAGE> 1
EXHIBIT 10.67
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement"), effective this 1st day of
May, 1999 (the "Effective Date"), is entered into by and between William Schmidt
("Executive") and Oakley, Inc., a Washington corporation ("Company").
WHEREAS, Executive is currently serving as a member of the Board of
Directors of the Company (the "Board");
WHEREAS, the Company wishes to employ Executive;
WHEREAS, Executive is willing to commit himself to serve the Company on
the terms and conditions herein provided; and
WHEREAS, in order to effect the foregoing, the Company and Executive
wish to enter into this Agreement on the terms and conditions herein provided.
NOW, THEREFORE, in consideration of the premises and the respective
covenants and agreements of the parties herein contained, and intending to be
legally bound hereby, the parties hereto agree as follows:
1. Employment. The Company does hereby employ, engage and hire
Executive as Chief Executive Officer of the Company, and Executive does hereby
accept and agree to such hiring, engagement and employment. In such capacity,
Executive shall have such executive and managerial powers and duties with
respect to the Company as may be from time to time reasonably assigned to him by
the Board. Except for sick leave, reasonable vacations and excused leaves of
absence, Executive shall, throughout his period of employment, devote
substantially all his working time, attention, knowledge and skills, diligently
and to the best of his ability, to the performance of such duties in furtherance
of the business of the Company.
2. Term of Agreement. The term ("Term") of this Agreement shall
commence on the Effective Date and shall continue for a period of three (3)
years; provided, however, that on each anniversary of the Effective Date, at
which time the remaining term of the Agreement is two years, the Term of the
Agreement shall automatically be extended for one additional year unless, not
later than sixty (60) days prior to any such anniversary, either party shall
have given written notice to the other that it does not wish to extend the Term
of the Agreement. Notwithstanding anything to the contrary, the Company and
Executive agree that Executive's first day of employment with the Company shall
be Monday, May 3, 1999.
<PAGE> 2
3. Compensation.
(a) Signing Bonus. The Company shall pay to Executive a signing
bonus in the amount of $250,000, payable on the first business day following the
Effective Date, in accordance with the Company's normal payroll practices and
procedures.
(b) Base Salary. During the Term of the Agreement, Executive shall
be paid an annual base salary (the "Base Salary") in the amounts set forth
below, which amounts shall be paid in accordance with the Company's normal
payroll practices and procedures:
(i) First Year Base Salary. With respect to the period
commencing on the Effective Date and ending on the day prior to the first
anniversary of the Effective Date, Executive shall be paid an annual Base Salary
at the rate of $350,000 (the "First Year Base Salary").
(ii) Second Year Base Salary. With respect to the period
commencing on the first anniversary of the Effective Date and ending on the day
prior to the second anniversary of the Effective Date, Executive shall be paid
an annual Base Salary at the rate of (i) if the Company meets the 1999
Performance Bonus Target (as defined in Section 3(c)(i)), the First Year Base
Salary plus $25,000, and (ii) if the Company does not meet the 1999 Performance
Bonus Target, his First Year Base Salary (the "Second Year Base Salary").
(iii) Third Year Base Salary. With respect to the period
commencing on the second anniversary of the Effective Date and ending on the day
prior to the third anniversary of the Effective Date, Executive shall be paid an
annual Base Salary at the rate of (i) if the Company meets the 2000 Performance
Bonus Target (as defined in Section 3(c)(ii)), the Second Year Base Salary plus
$25,000, and (ii) if the Company does not meet the 2000 Performance Bonus
Target, his Second Year Base Salary minus $25,000, but in no event shall
Executive's Base Salary for such period be at a rate less than the First Year
Base Salary (the "Third Year Base Salary").
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(iv) Future Years' Base Salary. With respect to each additional
twelve-month period commencing on an anniversary of the Effective Date occurring
during the Term, Executive shall be paid an annual Base Salary at the rate of
(i) if the Company meets the Performance Bonus target for the calendar year
immediately preceding the commencement of each such additional twelve-month
period, his Base Salary as in effect immediately prior to the commencement of
such twelve-month period plus $25,000, or (ii) if the Company does not meet the
Performance Bonus target for the calendar year immediately preceding the
commencement of each such additional twelve-month period, his Base Salary as in
effect immediately prior to the commencement of such twelve-month period minus
$25,000, but in no event shall Executive's Base Salary be at a rate less than
the First Year Base Salary. By way of example only, if the Company meets the
Performance Bonus target determined by the Board in its sole discretion for the
calendar year ended December 31, 2001, Executive shall be paid an annual Base
Salary, for the period May 1, 2002 through April 30, 2003, at the rate of his
Third Year Base Salary plus $25,000.
(c) Performance Bonus. During the Term of the Agreement, Executive
shall be eligible to receive performance bonuses pursuant to the terms and
conditions of the Company's Executive Officer Performance Bonus Plan (the "Bonus
Plan") and otherwise on the terms and conditions of subparagraphs (i) through
(iv) of this Section 3(c) (each, a "Performance Bonus"). With the exception of
the 1999 Performance Bonus (as defined below), which shall be measured with
respect to the period commencing on the Effective Date and ending on December
31, 1999, each Performance Bonus shall be measured with respect to a calendar
year (each, a "Performance Period"). Any Performance Bonus earned shall be
payable as soon as reasonably practicable following the determination of the
amount thereof and in accordance with the Company's normal payroll practices and
procedures. Any Performance Bonus payable under this Agreement shall be deemed
not to accrue until the last day of the period with respect to which such
Performance Bonus would otherwise be scheduled to be paid. All computations of
EPS (as defined below) shall be as if any stock dividend or stock split
occurring after the Effective Date had not occurred.
(i) 1999 Performance Bonus. With respect to the period
commencing on the Effective Date and ending on December 31, 1999, if the
Company's diluted net income per common share ("EPS"), as determined by the
Company's independent accountants in accordance with generally accepted
accounting principles ("GAAP"), for the calendar year ended December 31, 1999,
equals or exceeds $0.45 per share (without giving effect to any rounding to the
nearest whole cent) ("1999 Performance Bonus Target"), Executive shall be
entitled to receive a Performance Bonus equal to sixty percent (60%) of his
First Year Base Salary (the "1999 Performance Bonus"). If the Company's EPS, as
determined in the preceding sentence, is less than $0.45 per share, Executive
shall be entitled to receive a 1999 Performance Bonus equal to $100,000.
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(ii) 2000 Performance Bonus. With respect to the period
commencing on January 1, 2000, and ending on December 31, 2000, if the Company's
EPS, as determined by the Company's independent accountants in accordance with
GAAP, for such period equals or exceeds $0.60 per share (without giving effect
to any rounding to the nearest whole cent) (the "Second Year Performance Bonus
Target"), Executive shall be entitled to receive a Performance Bonus equal to
sixty percent (60%) of his Second Year Base Salary (the "2000 Performance
Bonus").
(iii) 2001 Performance Bonus. With respect to the period
commencing on January 1, 2001 and ending on December 31, 2001, if the Company's
EPS, as determined by the Company's independent accountants in accordance with
GAAP, for such period equals or exceeds $0.81 per share (without giving effect
to any rounding to the nearest whole cent) (the "Third Year Performance Bonus
Target"), Executive shall be entitled to receive a Performance Bonus equal to
sixty percent (60%) of his Third Year Base Salary (the "2001 Performance
Bonus").
(iv) Future Performance Bonus. With respect to any additional
Performance Periods occurring during the Term, Executive's Performance Bonus and
Performance Bonus targets, if any, shall be determined by the Board in its sole
discretion.
(d) Stock Options and Restricted Stock. Subject to approval by the
Board, Executive shall be granted options (the "Options") and restricted stock
("Restricted Stock") pursuant to the Company's 1995 Stock Incentive Plan (the
"Stock Plan") to acquire shares of common stock, par value $0.01 per share
("Common Stock"), of the Company upon the terms and conditions set forth in
subparagraphs (i) through (iii) of this Section 3(d). The Options are intended
to qualify as incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), to the fullest extent
permitted by such Section of the Code. To the extent any such Options do not
qualify as incentive stock options, such Options shall be deemed non-qualified
stock options. The term of the Options shall be ten years from the date of
grant.
(i) Initial Options. Executive hereby acknowledges that he has
been granted Options to purchase 500,000 shares of Common Stock at a per share
exercise price equal to $7 5/8 (the "Initial Options"). The Initial Options vest
in four equal, annual installments.
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(ii) First Milestone Options. If, at any time during the Term,
the aggregate market value of the Company's Common Stock first exceeds one
billion dollars for a period of 30 consecutive trading days, Executive shall be
granted Options to purchase an additional 200,000 shares of the Company's Common
Stock, at a per share exercise price equal to the Fair Market Value (as defined
in the Stock Plan) of the Company's Common Stock as of the last day of such
period (the "First Milestone Options"). The First Milestone Options shall vest
and become exercisable in three equal, annual installments.
(iii) Second Milestone Options and Restricted Stock Award. If,
at any time during the Term, the aggregate market value of the Company's Common
Stock first exceeds two billion dollars for a period of 30 consecutive trading
days, Executive shall be granted (i) Options to purchase an additional 100,000
shares of the Company's Common Stock, at a per share exercise price equal to the
Fair Market Value (as defined in the Stock Plan) of the Company's Common Stock
as of the last day of such period (the "Second Milestone Options") and (ii) an
award of Restricted Stock consisting of 100,000 shares of the Company's Common
Stock (the "Restricted Stock Award"). The Second Milestone Options and
Restricted Stock Award shall vest and become exercisable in three equal, annual
installments.
4. Fringe Benefits.
(a) Welfare and Other Fringe Benefits. Executive shall be entitled
to participate in any fringe and other benefit programs adopted from time to
time by the Company for the benefit of its senior executives.
(b) Relocation Reimbursement. The Company shall reimburse Executive
for expenses incurred in connection with his relocation from Chicago, Illinois
to Southern California. The Company's reimbursement obligation shall include (i)
the reasonable cost of moving Executive's personal items from Chicago, Illinois
to Southern California, (ii) reasonable closing costs on the sale of Executive's
condominium unit located in Chicago, Illinois and reasonable closing costs on
Executive's purchase of a residence in Southern California, (iii) a reasonable
allowance for the rental of temporary housing and meals for a period of three
(3) months commencing on the Effective Date and, (iv) thereafter, a reasonable
allowance for the rental of temporary housing only until the earlier of (A) the
date of closing of escrow on Executive's purchase of a residence in Southern
California and (B) the date twelve months following the Effective Date.
(c) Car Allowance. Executive shall be provided with a leased
automobile suitable to Executive's status with the Company, provided that the
payments for such leased automobile are reasonable, as determined by the Board
in its sole discretion.
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(d) Business Expenses. Executive shall be entitled to reimbursement
for necessary and reasonable business expenses incurred in the performance of
his duties.
(e) Vacation. Executive shall accrue vacation at the rate of
twenty-five days per year. Executive may not accrue vacation benefits in excess
of twenty-five days at any time (the "Maximum Accrual"). Once the Maximum
Accrual has been reached, Executive shall cease to accrue vacation until the
accrued vacation balance has been reduced.
5. Termination of Employment.
(a) Death. If Executive dies while employed by the Company, his
employment shall immediately terminate and the Company's obligation to pay
Executive's Base Salary and Performance Bonus shall cease as of the date of
death; provided, however, that Executive's estate shall be entitled to receive
Executive's (i) accrued Base Salary through the date of termination, (ii) a pro
rata Performance Bonus for the portion of the year elapsed prior to Executive's
death, but only if the Performance Bonus target for the Performance Period in
which Executive's death occurs is met, as and when determined by the Board in
accordance with the terms of the Bonus Plan and Section 3(c) above and (iii) any
benefits payable under applicable welfare benefit plans. Notwithstanding
anything to the contrary contained in this Section 5(a), if Executive's death
occurs on or before December 31, 1999 and the 1999 Performance Bonus Target is
not met, Executive's estate will be entitled to a pro rata portion of the
$100,000 1999 Performance Bonus for the portion of the calendar year elapsed
prior to Executive's death.
(b) Disability. If as a result of Executive's incapacity due to
physical or mental illness ("Disability"), Executive shall have been absent from
the full-time performance of his duties with the Company for six consecutive
months, the Company may, upon 30 days' notice to Executive, terminate
Executive's employment. Upon termination for Disability, Executive shall be
entitled to receive his full Base Salary during any period of Disability prior
to termination for Disability. In addition, Executive shall be entitled to
receive the following benefits, which benefits shall be payable in accordance
with the Company's normal payroll practices and procedures: (i) his Base Salary
for twelve months payable at the rate in effect at the time of termination, (ii)
a pro rata Performance Bonus for the portion of the year elapsed prior to
termination on account of Executive's Disability, but only if the Performance
Bonus target for the Performance Period in which such termination occurs is met,
as and when determined by the Board in accordance with the terms of the Bonus
Plan
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<PAGE> 7
and Section 3(c) above, and (iii) any benefits payable under applicable welfare
benefit plans. Notwithstanding anything to the contrary contained in this
Section 5(b), if Executive's termination of employment for Disability occurs on
or before December 31, 1999 and the 1999 Performance Bonus Target is not met,
Executive will be entitled to a pro rata portion of the $100,000 1999
Performance Bonus for the portion of the calendar year elapsed prior to such
termination. Such payment shall not affect Executive's rights under any Company
disability plan in which Executive may then be a participant.
(c) Termination for Cause. The Company shall have the right to
terminate Executive's employment for Cause by giving Executive written notice of
the effective date of such termination. For purposes of this Agreement, "Cause"
shall mean (i) Executive's conviction of or guilty plea to the commission of an
act or acts constituting a felony under the laws of the United States or any
state thereof, (ii) action by Executive involving personal dishonesty, theft or
fraud in connection with Executive's duties as an officer of the Company, (iii)
a breach of any one or more material terms of this Agreement (including, but not
limited to, the Confidentiality, Non-Competition and Non-Solicitation provisions
contained in Section 8 hereof)), and (iv) Executive's willful failure to abide
by or follow lawful directions of the Board. No purported termination of
Executive's employment for Cause pursuant to (iv) above shall be effective
unless Executive shall have 30 days to cure any acts or omissions purported to
constitute Cause by reason of (iv) above. If the Company terminates Executive's
employment for Cause, the Company shall have no further obligation under this
Agreement from and after the date of termination; provided, however, that
Executive shall be entitled to receive his accrued Base Salary through the date
of termination and any benefits payable under applicable welfare benefit plans.
(d) Voluntary Termination by Executive. In the event that
Executive's employment with the Company is voluntarily terminated by Executive
other than for Good Reason, the Company shall have no further obligation under
this Agreement from and after the date of termination; provided, however, that
Executive shall be entitled to receive his accrued Base Salary through the date
of termination and any benefits payable under applicable welfare benefit plans.
For purposes of this Agreement, "Good Reason" shall mean a material breach by
the Company of any provision of this Agreement.
(e) Other Termination. If Executive's employment is terminated prior
to the expiration of the Term (i) by the Company for any reason other than as a
result of Executive's death or Disability or for Cause, or (ii) by Executive for
Good Reason, then Executive shall be entitled to receive his accrued Base Salary
through the date of termination and any benefits payable under applicable
welfare benefit
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<PAGE> 8
plans. In addition, Executive shall also be entitled to receive the following
benefits, which benefits shall be payable in accordance with the Company's
normal payroll practices and procedures: (i) if such termination occurs prior to
the first anniversary of the Effective Date, an amount equal to (A) his Base
Salary for the period commencing with his date of termination and ending on the
second anniversary of the Effective Date payable at the rate in effect at the
time of termination, plus (B) a Performance Bonus for the Performance Period in
which such termination occurs and the succeeding Performance Period; provided,
however, that the Performance Bonus target for each such period is met, as and
when determined by the Board in accordance with the terms of the Bonus Plan and
Section 3(c) above, or (ii) if such termination occurs after the first
anniversary of the Effective Date, an amount equal to (A) his Base Salary for
twelve months at the rate in effect on the date of termination, plus (B) a
Performance Bonus, if the Performance Bonus Target for the Performance Period in
which such termination occurs is met, as and when determined by the Board in
accordance with the terms of the Bonus Plan and Section 3(c) above.
Notwithstanding anything to the contrary contained in this Section 8(c), if
Executive's employment is terminated on or before December 31, 1999 (i) by the
Company for any reason other than Executive's death, Disability or for Cause or
(ii) by Executive for Good Reason and the First Year Performance Target is not
met, Executive will be entitled to a pro rata portion of the $100,000 1999
Performance Bonus for the portion of the calendar year elapsed prior to such
termination.
6. Assignment of Intellectual Property Rights.
(a) Definition of "Inventions". As used herein, the term
"Inventions" shall mean all 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 Executive, either alone or jointly with others, during
the period of employment with the Company (including, without limitation, all
periods of employment with the Company prior to the Effective Date) which (A)
relate to the actual or anticipated business, activities, research, or
investigations of the Company or (B) result from or is suggested by work
performed by Executive for the Company (whether or not made or conceived during
normal working hours or on the premises of the Company), or (C) which result, to
any extent, from use of the Company's premises or property, unless, in the case
of clause (C) only, (i) Executive has reimbursed the Company in an amount equal
to the value of the use of such premises or property (as determined by the
Company based upon the Company's all in cost, which shall include without
limitation compensation and overhead expense) and (ii) the Company approved the
use of its premises or property prior to the use thereof by Executive.
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(b) Work for Hire. Executive expressly acknowledges that all
copyrightable aspects of the Inventions are to be considered "works made for
hire" within the meaning of the Copyright Act of 1976, as amended (the "Act"),
and that the Company 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 the Company
as of its creation, and Executive 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. Executive acknowledges and agrees that all
Inventions constitute trade secrets of the Company and shall be the sole
property of the Company or any other entity designated by the Company. 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 the Company, or such Inventions
may be found as a matter of law not to be "works made for hire" within the
meaning of the Act, Executive hereby conveys and irrevocably assigns to the
Company, 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 Executive'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. Executive understands
that Inventions do not include, and the obligations set forth above in this
Section 5(c) do not apply to, subject matter that qualifies fully under the
provisions of Section 2870 of the California Labor Code.
(d) Proprietary Notices; No Filings; Waiver of Moral Rights.
Executive acknowledges that all Inventions shall, at the sole option of the
Company, bear the Company's patent, copyright, trademark, trade secret, and mask
work notices.
Executive agrees not to file any patent, copyright, or trademark
applications relating to any Invention, except with prior written consent of an
authorized representative of the Company (other than Executive).
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Executive 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. Executive agrees to assist the Company, or
any party designated by the Company, promptly on the Company's request, whether
before or after the termination of employment, however such termination may
occur, in perfecting, registering, maintaining, and enforcing, in any
jurisdiction, the Company's rights in the Inventions by performing all acts and
executing all documents and instruments deemed necessary or convenient by the
Company, 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 the Company of all
right, title, and interest in the Inventions or otherwise establishing
the Company's exclusive ownership rights therein.
(ii) Cooperating in the prosecution of patent, copyright,
trademark and mask work applications, as well as in the enforcement of
the Company'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.
Executive shall be reimbursed for all out-of-pocket costs incurred
in connection with the foregoing, if such assistance is requested by the Company
after the termination of Executive's employment. In addition, to the extent
that, after the termination of employment for whatever reason, Executive's
technical expertise shall be required in connection with the fulfillment of the
aforementioned obligations, the Company shall compensate Executive at a
reasonable rate for the time actually spent by Executive at the Company's
request rendering such assistance.
(f) Power of Attorney. Executive hereby irrevocably appoints the
Company 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 the Company the full benefit of the assignment provisions
set forth above.
(g) Disclosure of Inventions. Executive shall make full and prompt
disclosure to the Company of all Inventions subject to assignment to the
Company, and all information relating thereto in Executive's possession or under
his control as to possible applications and use thereof.
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7. No Violation of Third-Party Rights. Executive represents, warrants,
and covenants that he:
(a) shall not, in the course of employment, 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 shall 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 shall not disclose to the
Company, use, or induce the Company to use, any confidential or proprietary
information or documents of others; and
(d) agrees 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.
Executive has supplied or shall promptly supply to the Company a
copy of each written agreement to which Executive is subject (other than any
agreement to which the Company is a party) which includes any obligation of
confidentiality, assignment of Inventions, or non-competition.
Executive agrees to indemnify and save harmless the Company from
any loss, claim, damage, cost or expense of any kind (including without
limitation, reasonable attorney fees) to which the Company may be subjected by
virtue of a breach by Executive of the foregoing representations, warranties,
and covenants.
8. Confidential Information; Non-Competition and Non-Solicitation.
(a) Confidentiality. Executive acknowledges that in his employment
hereunder he shall occupy a position of trust and confidence. Executive shall
not, except as may be required in the normal course of business to perform his
duties
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hereunder or as required by applicable law, without limitation in time or until
such information shall have become public other than by Executive's unauthorized
disclosure, disclose to others, whether directly or indirectly, any Confidential
Information regarding the Company, its subsidiaries and affiliates.
"Confidential Information" shall mean information about the Company, its
subsidiaries and affiliates, and their respective clients and customers that is
not disclosed by the Company for financial reporting purposes and that was
learned by Executive in the course of his employment by the Company, its
subsidiaries and affiliates, 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. Executive acknowledges that
such Confidential Information is specialized, unique in nature and of great
value to the Company, its subsidiaries and affiliates, and that such information
gives the Company a competitive advantage. The Executive agrees to (i) deliver
or return to the Company, at the Company'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 the
Company, its subsidiaries and affiliates, or prepared by the Executive during
the term of his employment by the Company, its subsidiaries and affiliates, and
(B) all notebooks and other data relating to research or experiments or other
work conducted by Executive in the scope of employment or any Inventions made,
created, authored, conceived, or reduced to practice by Executive, either alone
or jointly with others, and (ii) make full disclosure relating to any
Inventions.
If Executive would like to keep certain property, such as material
relating to professional societies or other non-confidential material, upon the
termination of employment with the Company, he agrees to discuss such issues
with the Company. Where such a request does not put Confidential Information of
the Company at risk, the Company shall customarily grant the request.
(b) Non-Competition. During the Term of this Agreement and for a
period of two (2) years thereafter, Executive shall not, directly or indirectly,
without the prior written consent of the Company, 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 the Company, its subsidiaries and affiliates, including without
limitation any entity engaged in the design, manufacture and/or distribution of
eyewear (each such competitor a "Competitor of the Company"); provided, however,
that the "beneficial ownership" by Executive, either individually or as a member
of a "group," as such terms are used in Rule 13d of the
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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; provided, however, that if Executive's employment is terminated
(i) by the Company without Cause, (ii) by Executive for Good Reason or (iii) by
reason of the expiration of the Term of this Agreement, the non-competition
agreement provided for in this subparagraph (b) shall terminate as of the date
of such termination of employment. Executive and the Company acknowledge and
agree that the business of the Company is global in nature, and that the terms
of the non-competition agreement set forth herein shall apply on a worldwide
basis.
(c) Non-Solicitation of Customers and Suppliers. During the Term of
this Agreement and for a period of two (2) years thereafter, Executive shall
not, directly or indirectly, influence or attempt to influence customers or
suppliers of the Company or any of its subsidiaries or affiliates, to divert
their business to any Competitor of the Company; provided, however, that if
Executive's employment is terminated (i) by the Company without Cause, (ii) by
Executive for Good Reason or (iii) by reason of the expiration of the Term of
this Agreement, the non-solicitation agreement provided for in this subparagraph
(c) shall terminate as of the date of such termination of employment.
(d) Non-Solicitation of Employees. Executive recognizes that he
possesses and shall possess Confidential Information about other employees of
the Company, its subsidiaries and affiliates, relating to their education,
experience, skills, abilities, compensation and benefits, and inter-personal
relationships with customers of the Company, its subsidiaries and affiliates.
Executive recognizes that the information he possesses and shall possess about
these other employees is not generally known, is of substantial value to the
Company, its subsidiaries and affiliates in developing their business and in
securing and retaining customers, and has been and shall be acquired by him
because of his business position with the Company, its subsidiaries and
affiliates. Executive agrees that, during the Term of this Agreement and for a
period of two (2) years thereafter, he shall not, directly or indirectly,
solicit or recruit any employee of the Company, its subsidiaries and affiliates
(i) for the purpose of being employed by him or by any Competitor of the Company
on whose behalf he is acting as an agent, representative or employee and that he
shall not convey any such confidential information or trade secrets about other
employees of the Company, its subsidiaries and affiliates to any other person or
(ii) for any other purpose or no purpose.
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(e) Injunctive Relief. It is expressly agreed that the Company shall
or would suffer irreparable injury if Executive were to compete with the Company
or any subsidiary or affiliate of the Company in violation of any of the
provisions of this Section 8 and that the Company would by reason of such
competition be entitled to injunctive relief in a court of appropriate
jurisdiction, and Executive further consents and stipulates to the entry of such
injunctive relief in such a court prohibiting Executive from so competing with
the Company or any subsidiary or affiliate of the Company in violation of this
Agreement.
(f) Survival of Provisions. Except as otherwise provided herein, the
obligations contained in this Section 8 shall survive the termination or
expiration of Executive's employment with the Company 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 8 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.
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 Company: Oakley, Inc.
One Icon
Foothill Ranch, California 92610
Attention: Chairman of the Board
If to Executive: William Schmidt
c/o Oakley, Inc.
One Icon
Foothill Ranch, California 92610
Either party may change such party's address for notices by notice duly given
pursuant hereto.
10. Attorneys' Fees. In the event judicial determination is necessary
of any dispute arising as to the parties' rights and obligations hereunder, each
party shall have the right, in addition to any other available relief, to
attorneys' fees based on a determination by the court of the extent to which
each party has prevailed as to the material issues raised in determination of
the dispute.
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11. Indemnification. The Company shall indemnify and hold Executive
harmless to the maximum extent permitted under applicable law during the Term,
and following the Term the Executive shall remain covered under any Director and
Officer liability insurance policies for matters arising during the Term.
12. Withholding. Any payments provided for hereunder shall be paid net
of any applicable withholding required under Federal, state or local law and any
additional withholding to which Executive has agreed.
13. No Mitigation; No Offset. Executive shall not be required in any
way to mitigate the amount of any payment provided for in this Agreement, and
such payments shall not be subject to offset against compensation earned as the
result of employment with another employer.
14. Assignment; Successors. This Agreement is personal in 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 the Company with or to any other individual
or entity, this Agreement shall be binding upon and inure to the benefit of such
successor, and such successor shall discharge and perform all the promises,
covenants, duties and obligations of the Company hereunder.
15. 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.
16. 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.
17. 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.
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18. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer, and Executive has hereunto signed this
Agreement, as of the date referred to above.
OAKLEY, INC.
/s/ James Jannard
-----------------------------------
By: JAMES JANNARD
Its: CHAIRMAN
/s/ William Schmidt
-----------------------------------
WILLIAM SCHMIDT
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<PAGE> 1
EXHIBIT 10.68
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement"),
effective this 1st day of May, 1999 (the "Amendment Date"), is entered into by
and between R. Link Newcomb ("Employee") and Oakley, Inc., a Washington
corporation ("Company").
WHEREAS, Employee and the Company have previously entered into that
certain employment agreement dated January 31, 1997 (the "Effective Date"), as
amended effective February 1, 1997, as further amended effective April 13, 1998,
and as further amended May 12, 1998 (the "Old Employment Agreement"); and
WHEREAS, Employee and the Company desire to amend and restate in its
entirety the Old Employment Agreement.
NOW, THEREFORE, in consideration of the mutual agreements hereinafter
set forth, Employee and the Company have agreed and do hereby agree as follows:
1. Employment. The Company does hereby employ, engage and hire Employee
as the Chief Operating Officer of the Company, and Employee does hereby accept
and agree to such hiring, engagement and employment. In such capacity, Employee
shall have such executive and managerial powers and duties with respect to the
Company as may be from time to time reasonably assigned to him by the Board of
Directors and/or the Chief Executive Officer of the Company. Except for sick
leave, reasonable vacations and excused leaves of absence, Employee shall,
throughout his period of employment, devote substantially all his working time,
attention, knowledge and skills, diligently and to the best of his ability, to
the performance of such duties in furtherance of the business of the Company.
2. Term of Agreement. The term ("Term") of this Agreement shall
continue through January 31, 2002; provided, however, that on each anniversary
of the Effective Date at which time the remaining term of the Agreement is one
year, the Term of the Agreement shall automatically be extended for one
additional year unless, not later than three months prior to any such
anniversary, either party shall have given written notice to the other that it
does not wish to extend the Term of the Agreement.
<PAGE> 2
3. Compensation.
(a) Base Salary. The Company shall pay Employee an annual base
salary no less than at the rate of $350,000 per year, payable in equal biweekly
installments or at such other times as Employee and the Company shall agree.
Employee's base salary may be increased as determined by the Board of Directors
of the Company in its sole discretion.
(b) Bonus. Subject to subsection (c) below, Employee shall be
eligible to participate in the Company's Performance Bonus Plan. Employee's
annual target bonus under the Performance Bonus Plan shall not be less than
$200,000.
(c) Stock Options. Employee acknowledges and agrees that, in lieu of
payment of the bonus, if any, Employee may otherwise be entitled to under the
Company's Performance Bonus Plan for the Company's fiscal 1999, Employee was
granted in April 1999 a stock option (the "Option"), pursuant to the Company's
1995 Stock Incentive Plan (the "Stock Plan") and form of option agreement
previously approved by the Board of Directors (as modified herein), to purchase
110,000 shares of common stock, par value $0.01 per share ("Common Stock"), of
the Company at a per share exercise price equal to $ 7 5/8. The Option shall
vest and become exercisable in equal 25% installments on each of the first four
anniversaries of the date of grant. The term of the Option shall be ten years
from the date of grant. The Option is intended to qualify as an incentive stock
option within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), to the fullest extent permitted by such Section of the
Code. To the extent any portion of such Option does not qualify as an incentive
stock option, such portion of the Option shall be deemed a non-qualified stock
option.
(d) Fringe Benefits. Employee shall be entitled to participate in
any fringe and other benefit programs adopted from time to time by the Company
for the benefit of its senior executives.
4. Termination of Employment
(a) Early Termination. If Employee's employment with the Company is
terminated by the Employee or by the Company in each case for any reason on or
before January 31, 2000, (i) the Company shall pay to Employee (or, in the case
of Employee's death, to Employee's beneficiaries or his estate) the sum of
$500,000 (the "Early Termination Payment") in full on the date of termination of
employment in accordance with the Company's normal payroll practices and
procedures. Any termination pursuant to this paragraph shall relieve each party
hereto from any obligation pursuant to Section 1 hereof. The Early Termination
Payment shall be in lieu of any benefits provided for in subsection (b) below
other than Employee's rights under any Company disability plan in which Employee
may then be a participant.
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(b) Termination Generally. If Employee's employment with the Company
is terminated after January 31, 2000 Employee will be entitled to benefits as
follows:
(i) Death. If Employee dies while employed by the Company, his
employment shall immediately terminate and the Company's obligation to
pay Employee's base salary and bonus shall cease as of the date of
death. Employee's beneficiaries or his estate shall receive benefits in
accordance with any Company plans then in effect.
(ii) Disability. If as a result of Employee's incapacity due to
physical or mental illness ("Disability"), Employee shall have been
absent from the full-time performance of his duties with the Company
for six consecutive months, the Company may, upon 30 days' notice to
Employee, terminate Employee's employment. Within ten days following
such termination for Disability, the Company shall pay Employee an
amount equal to one year's base salary. Such payment shall not affect
Employee's rights under any Company disability plan in which Employee
may then be a participant.
(iii) Termination for Cause. The Company shall have the right to
terminate Employee's employment for Cause by giving Employee written
notice of the effective date of such termination. For purposes of this
Agreement, "Cause" shall mean fraud, misappropriation, embezzlement or
other act of material misconduct against the Company, or substantial or
willful failure to perform specific and lawful directives of the
Company's Board of Directors consistent with Employee's employment. If
the Company terminates Employee's employment for Cause, the Company
shall have no further obligation under this Agreement from and after
the date of termination.
(iv) Voluntary Termination by Employee. In the event that
Employee's employment with the Company is voluntarily terminated by
Employee other than for Good Reason, the Company shall have no further
obligation under this Agreement from and after the date of termination.
For purposes of this Agreement, "Good Reason" shall mean a material
breach by the Company of any provision of this Agreement.
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<PAGE> 4
(v) Other Termination. If Employee's employment is terminated
(i) by the Company for any reason other than Employee's death or
disability or for Cause or (ii) by Employee for Good Reason, the
Company shall pay Employee the balance due under the Term of this
Agreement as if Employee had remained in the Company's employ at an
annual rate of compensation equal to his then base salary and, at the
end of each remaining fiscal year ending during the Term of this
Agreement, a bonus equal to the amount of Employee's annual target
bonus under the Performance Bonus Plan as in effect at the time of such
termination. In addition, the Company shall pay Employee his base
salary accrued through the date of termination and, with respect to any
fiscal year ended prior to the date of termination as to which no
annual bonus under the Performance Bonus Plan had yet been paid, an
annual bonus determined on the basis of the performance goals and
objectives applicable to Employee for such year.
(c) Acceleration of Stock Options. If Employee's employment is
terminated by the Company for any reason other than Employee's death or
disability or for Cause, the vesting of that portion of Employee's stock options
that are outstanding as of the date of Employee's termination, if any, which
would have vested within one year after the date of Employee's termination shall
be accelerated and such stock options shall be immediately exercisable and shall
remain exercisable pursuant to subsection (d) below.
(d) Extension of Exercise Period of Stock Options. Notwithstanding
anything to the contrary contained herein or in Employee's existing or future
stock option agreements, if Employee's employment is terminated by the Employee
or by the Company for any reason during the Term of this Agreement, Employee
shall be entitled to exercise his stock options to the extent vested on the date
of his termination (including any stock options accelerated pursuant to
subsection (c) above) for a period of two years from such date of termination.
If Employee does not exercise his incentive stock options on or before the date
three months following his termination of employment with the Company, his
incentive stock options will thereafter be treated as non-qualified stock
options in accordance with Section 422 of the Code.
(e) Consulting Services. Upon termination of Employee's employment
with the Company for any reason other than by reason of Employee's death or
Disability, the Employee shall, at the election of the Company, which election
must be exercised in writing and received by Employee within fifteen (15) days
of the effective date of such termination, provide consulting services to the
Company on such projects or matters within the expertise of Employee and/or in
which he was involved or of which he had knowledge during his employment with
the Company that
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<PAGE> 5
the Board of Directors or the Chairman of the Board of the Company may
reasonably request of him from time to time. The term of the consulting period
under this Agreement shall begin on the date of exercise (the "Exercise Date")
of the option by the Company and shall continue for a period of two (2) years
from the Exercise Date. In return for said consulting services, the Employee
shall be compensated at the rate of $50,000 per year, payable in equal bi-weekly
installments or such other time or times as the Company and Employee shall
agree. The Company understands and agrees that Employee's engagement to provide
consulting services pursuant to this subsection (e) shall be nonexclusive and
limited in time so as to permit Employee to perform duties on a full-time basis
for one or more employers.
5. Assignment of Intellectual Property Rights.
(a) Definition of "Inventions". As used herein, the term
"Inventions" shall mean all 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 Employee, either alone or jointly with others, during the
period of employment with the Company (including, without limitation, all
periods of employment with the Company prior to the Effective Date) which (A)
relate to the actual or anticipated business, activities, research, or
investigations of the Company or (B) result from or is suggested by work
performed by Employee for the Company (whether or not made or conceived during
normal working hours or on the premises of the Company), or (C) which result, to
any extent, from use of the Company's premises or property, unless, in the case
of clause (C) only, (i) Employee has reimbursed the Company in an amount equal
to the value of the use of such premises or property (as determined by the
Company based upon the Company's all in cost, which shall include without
limitation compensation and overhead expense) and (ii) the Company approved the
use of its premises or property prior to the use thereof by Employee.
(b) Work for Hire. Employee expressly acknowledges that all
copyrightable aspects of the Inventions are to be considered "works made for
hire" within the meaning of the Copyright Act of 1976, as amended (the "Act"),
and that the Company 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 the Company
as of its creation, and Employee hereby expressly disclaims any and all interest
in any of such copyrightable works and waives any right of droit morale or
similar rights.
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<PAGE> 6
(c) Assignment. Employee acknowledges and agrees that all Inventions
constitute trade secrets of the Company and shall be the sole property of the
Company or any other entity designated by the Company. 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 the Company, or such Inventions may be found as a
matter of law not to be "works made for hire" within the meaning of the Act,
Employee hereby conveys and irrevocably assigns to the Company, 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 Employee'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. Employee understands that Inventions do not include, and the
obligations set forth above in this Section 5(c) do not apply to, subject matter
that qualifies fully under the provisions of Section 2870 of the California
Labor Code.
(d) Proprietary Notices; No Filings; Waiver of Moral Rights.
Employee acknowledges that all Inventions shall, at the sole option of the
Company, bear the Company's patent, copyright, trademark, trade secret, and mask
work notices.
Employee agrees not to file any patent, copyright, or trademark
applications relating to any Invention, except with prior written consent of an
authorized representative of the Company (other than Employee).
Employee 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. Employee agrees to assist the Company, or
any party designated by the Company, promptly on the Company's request, whether
before or after the termination of employment, however such termination may
occur, in perfecting, registering, maintaining, and enforcing, in any
jurisdiction, the Company's rights in the Inventions by performing all acts and
executing all documents and instruments deemed necessary or convenient by the
Company, 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 the Company of all
right, title, and interest in the Inventions or otherwise establishing
the Company's exclusive ownership rights therein.
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<PAGE> 7
(ii) Cooperating in the prosecution of patent, copyright,
trademark and mask work applications, as well as in the enforcement of
the Company'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.
Employee shall be reimbursed for all out-of-pocket costs incurred in
connection with the foregoing, if such assistance is requested by the Company
after the termination of Employee's employment. In addition, to the extent that,
after the termination of employment for whatever reason, Employee's technical
expertise shall be required in connection with the fulfillment of the
aforementioned obligations, the Company shall compensate Employee at a
reasonable rate for the time actually spent by Employee at the Company's request
rendering such assistance.
(f) Power of Attorney. Employee hereby irrevocably appoints the
Company 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 the Company the full benefit of the assignment provisions
set forth above.
(g) Disclosure of Inventions. Employee shall make full and prompt
disclosure to the Company of all Inventions subject to assignment to the
Company, and all information relating thereto in Employee's possession or under
his control as to possible applications and use thereof.
6. No Violation of Third-Party Rights. Employee represents, warrants,
and covenants that he:
(a) will not, in the course of employment, 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;
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<PAGE> 8
(c) does not have in his possession any confidential or proprietary
information or documents belonging to others and will not disclose to the
Company, use, or induce the Company to use, any confidential or proprietary
information or documents of others; and
(d) agrees 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.
Employee has supplied or shall promptly supply to the Company a copy
of each written agreement to which Employee is subject (other than any agreement
to which the Company is a party) which includes any obligation of
confidentiality, assignment of Inventions, or non-competition.
Employee agrees to indemnify and save harmless the Company from any
loss, claim, damage, cost or expense of any kind (including without limitation,
reasonable attorney fees) to which the Company may be subjected by virtue of a
breach by Employee of the foregoing representations, warranties, and covenants.
7. Confidential Information and Non-Competition.
(a) Confidentiality. Employee acknowledges that in his employment
hereunder he will occupy a position of trust and confidence. Employee shall not,
except as may be required in the normal course of business 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 Employee's unauthorized
disclosure, disclose to others or use, whether directly or indirectly, any
Confidential Information regarding the Company, its subsidiaries and affiliates.
"Confidential Information" shall mean information about the Company, its
subsidiaries and affiliates, and their respective clients and customers that is
not disclosed by the Company for financial reporting purposes and that was
learned by Employee in the course of his employment by the Company, its
subsidiaries and affiliates, 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. Employee acknowledges that
such Confidential Information is specialized, unique in nature and of great
value to the Company, its subsidiaries and affiliates, and that such information
gives the Company a competitive advantage. The Employee agrees to (i) deliver or
return to the Company, at the Company'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
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disks, records, lists, data, drawings, prints, notes and written information
(and all copies thereof) furnished by the Company, its subsidiaries and
affiliates, or prepared by the Employee during the term of his employment by the
Company, its subsidiaries and affiliates, and (B) all notebooks and other data
relating to research or experiments or other work conducted by Employee in the
scope of employment or any Inventions made, created, authored, conceived, or
reduced to practice by Employee, either alone or jointly with others, and (ii)
make full disclosure relating to any Inventions.
If Employee would like to keep certain property, such as material
relating to professional societies or other non-confidential material, upon the
termination of employment with the Company, he agrees to discuss such issues
with the Company. Where such a request does not put Confidential Information of
the Company at risk, the Company will customarily grant the request.
(b) Non-Competition. During the Term of this Agreement and for a
period of two (2) years thereafter, Employee shall not, directly or indirectly,
without the prior written consent of the Company, 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 the Company, its subsidiaries and affiliates, including without
limitation any entity engaged in the design, manufacture and/or distribution of
eyewear (each such competitor a "Competitor of the Company"); provided, however,
that the "beneficial ownership" by Employee, 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;
provided, however, that if Employee's employment is terminated (i) by the
Company without Cause, (ii) by Employee for Good Reason or (iii) by reason of
the expiration of the Term of this Agreement, the non-competition agreement
provided for in this subparagraph (b) shall terminate as of the date of such
termination of employment. Employee and the Company acknowledge and agree that
the business of the Company is global in nature, and that the terms of the
non-competition agreement set forth herein shall apply on a worldwide basis.
(c) Non-Solicitation of Customers and Suppliers. During the Term of
this Agreement and for a period of two (2) years thereafter, Employee shall not,
directly or indirectly, influence or attempt to influence customers or suppliers
of the Company or any of its subsidiaries or affiliates, to divert their
business to any Competitor of the Company; provided, however, that if Employee's
employment is
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terminated (i) by the Company without Cause, (ii) by Employee for Good Reason or
(iii) by reason of the expiration of the Term of this Agreement, the
non-solicitation agreement provided for in this subparagraph (c) shall terminate
as of the date of such termination of employment.
(d) Non-Solicitation of Employees. Employee recognizes that he
possesses and will possess confidential information about other employees of the
Company, its subsidiaries and affiliates, relating to their education,
experience, skills, abilities, compensation and benefits, and inter-personal
relationships with customers of the Company, its subsidiaries and affiliates.
Employee recognizes that the information he possesses and will possess about
these other employees is not generally known, is of substantial value to the
Company, its subsidiaries and affiliates in developing their business and in
securing and retaining customers, and has been and will be acquired by him
because of his business position with the Company, its subsidiaries and
affiliates. Employee agrees that, during the Term of this Agreement and for a
period of two (2) years thereafter, he will not, directly or indirectly, solicit
or recruit any employee of the Company, its subsidiaries and affiliates (i) for
the purpose of being employed by him or by any Competitor of the Company on
whose behalf he is acting as an agent, representative or employee and that he
shall not convey any such confidential information or trade secrets about other
employees of the Company, its subsidiaries and affiliates to any other person or
(ii) for any other purpose or no purpose.
(e) Injunctive Relief. It is expressly agreed that the Company will
or would suffer irreparable injury if Employee were to compete with the Company
or any subsidiary or affiliate of the Company in violation of any of the
provisions of this Section 7 and that the Company would by reason of such
competition be entitled to injunctive relief in a court of appropriate
jurisdiction, and Employee further consents and stipulates to the entry of such
injunctive relief in such a court prohibiting Employee from so competing with
the Company or any subsidiary or affiliate of the Company in violation of this
Agreement.
(f) Survival of Provisions. The obligations contained in this
Section 7 shall survive the termination or expiration of Employee's employment
with the Company 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 7 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.
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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 Company: Oakley, Inc.
One Icon
Foothill Ranch, California 92610
Attention: Chairman of the Board
If to Employee: R. Link Newcomb
1247 Skyline Drive
Laguna Beach, California 92651
Either party may change such party's address for notices by notice duly given
pursuant hereto.
9. Indemnification. The Company shall indemnify and hold Employee
harmless to the maximum extent permitted under applicable law.
10. No Mitigation; No Offset. Employee shall not be required in any way
to mitigate the amount of any payment provided for in this Agreement, and such
payments shall not be subject to offset against compensation earned as the
result of employment with another employer. In addition, nothing contained
herein shall be construed to limit in any way Employee's rights or interests in
or to accrued vacation, qualified or nonqualified compensatory arrangements in
accordance with the terms thereof (including the Company's 401(k) plan and
deferred compensation plan) or any other employee benefit vested on Employee's
date of termination.
11. Attorneys' Fees. In the event judicial determination is necessary
of any dispute arising as to the parties' rights and obligations hereunder, each
party shall have the right, in addition to any other available relief, to
attorneys' fees based on a determination by the court of the extent to which
each party has prevailed as to the material issues raised in determination of
the dispute.
12. Assignment; Successors. This Agreement is personal in 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 the Company with or to any other individual
or entity, this Agreement shall be binding upon and inure to the benefit of such
successor, and such successor shall discharge and perform all the promises,
covenants, duties and obligations of the Company hereunder.
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13. 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.
14. 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.
15. 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.
16. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
17. Termination of Old Employment Agreement. The Old Employment
Agreement is hereby amended, restated and superseded in its entirety as of the
date hereof. Employee acknowledges and agrees that no rights or benefits that
Employee may have accrued in connection with a termination for Good Reason (as
such term was defined in the Old Employment Agreement) prior to the Amendment
Date shall have any force or effect following the Amendment Date.
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IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed by its duly authorized officer, and Employee has hereunto signed
this Agreement, as of the date referred to above.
OAKLEY, INC.
/s/ James Jannard
-------------------------------------
By: JAMES JANNARD
Its: CHAIRMAN OF THE BOARD
/s/ Link Newcomb
-------------------------------------
R. LINK NEWCOMB
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EXHIBIT 10.69
OAKLEY, INC.
1995 STOCK INCENTIVE PLAN
AS AMENDED THROUGH APRIL 17, 1999
SECTION 1. GENERAL PURPOSE OF PLAN; DEFINITIONS.
The name of this plan is the Oakley, Inc. 1995 Stock Incentive Plan
(the "Plan"). The Plan was adopted by the Board on August 8, 1995, subject to
the approval of the stockholders of the Company, which approval was obtained on
the same date. An amendment to certain administrative procedures under the Plan
was adopted by the Board on November 2, 1995. The Plan was subsequently amended
by the Board on April 17, 1999 (i) to increase the number of shares reserved for
issuance under the Plan by 1,000,000 shares and (ii) to include provisions to
comply with the requirements for "performance-based compensation" within the
meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended. The
purpose of the Plan is to enable the Company to attract and retain highly
qualified personnel who will contribute to the Company's success by their
ability, ingenuity and industry and to provide incentives to the participating
officers, employees, directors, consultants (including selected professional
athletes and other individuals who endorse the Company's products and/or consult
with the Company concerning the Company's products) and advisors that are linked
directly to increases in stockholder value and will therefore inure to the
benefit of all stockholders of the Company.
For purposes of the Plan, the following terms shall be defined as set
forth below:
(1) "Administrator" means the Board, or if the Board does not
administer the Plan, the Committee in accordance with Section 2.
(2) "Board" means the Board of Directors of the Company.
(3) "Code" means the Internal Revenue Code of 1986, as amended from
time to time, or any successor thereto.
(4) "Committee" means the Compensation Committee of the Board or any
committee the Board may subsequently appoint to administer the Plan. To the
extent necessary and desirable, the Committee shall be composed entirely of
individuals who meet the qualifications referred to in Section 162(m) of the
Code and Rule 16b-3 under the Securities Exchange Act of 1934, as amended. If at
any time or to any extent the Board shall not administer the Plan, then the
functions of the Board specified in the Plan shall be exercised by the
Committee.
(5) "Company" means Oakley, Inc., a Washington corporation (or any
successor corporation).
(6) "Deferred Stock" means an award made pursuant to Section 7 below
of the right to receive Stock at the end of a specified deferral period.
(7) "Disability" means the inability of a Participant to perform
substantially his duties and responsibilities to the Company by reason of a
physical or mental disability or infirmity (i) for a continuous period of six
months, or (ii) at such earlier time as the Participant submits medical evidence
satisfactory to the Company that he has a physical or mental disability or
infirmity which will likely prevent him from returning to the performance of his
work duties for six months or longer. The date of such Disability shall be on
the last day of such six-month period or the day on which the Participant
submits such satisfactory medical evidence, as the case may be.
(8) "Effective Date" shall mean the date provided pursuant to Section
11.
<PAGE> 2
(9) "Eligible Employee" means an employee of the Company eligible to
participate in the Plan pursuant to Section 4.
(10) "Fair Market Value" means, as of any given date, with respect to
any awards granted hereunder, at the discretion of the Administrator and subject
to such limitations as the Administrator may impose, (A) if the Stock is
publicly traded, the closing sale price of the Stock on such date as reported in
the Wall Street Journal, or the average of the closing price of the Stock on
each day on which the Stock was traded over a period of up to twenty trading
days immediately prior to such date, (B) the fair market value of the Stock as
determined in accordance with a method prescribed in the agreement evidencing
any award hereunder, or (C) the fair market value of the Stock as otherwise
determined by the Administrator in the good faith exercise of its discretion.
(11) "Incentive Stock Option" means any Stock Option intended to be
designated as an "incentive stock option" within the meaning of Section 422 of
the Code.
(12) "Limited Stock Appreciation Right" means a Stock Appreciation
Right that can be exercised only in the event of a "Change of Control" (as
defined in the award evidencing such Limited Stock Appreciation Right).
(13) "Non-Qualified Stock Option" means any Stock Option that is not
an Incentive Stock Option, including any Stock Option that provides (as of the
time such option is granted) that it will not be treated as an Incentive Stock
Option.
(14) "Parent Corporation" means any corporation (other the Company)
in an unbroken chain of corporations ending with the Company, if each of the
corporations in the chain (other than the Company) owns stock possessing 50% or
more of the combined voting power of all classes of stock in one of the other
corporations in the chain.
(15) "Participant" means any Eligible Employee, consultant (including
selected professional athletes and other individuals who endorse the Company's
products and/or consult with the Company concerning the Company's products) or
advisor to the Company selected by the Administrator, pursuant to the
Administrator's authority in Section 2 below, to receive grants of Stock
Options, Stock Appreciation Rights, Limited Stock Appreciation Rights,
Restricted Stock awards, Deferred Stock awards, Performance Shares or any
combination of the foregoing.
(16) "Performance Share" means an award of shares of Stock pursuant
to Section 7 that is subject to restrictions based upon the attainment of
specified performance objectives.
(17) "Restricted Stock" means an award granted pursuant to Section 7
of shares of Stock subject to certain restrictions.
(18) "Stock" means the common stock, $0.01 par value, of the Company.
(19) "Stock Appreciation Right" means the right pursuant to an award
granted under Section 6 to receive an amount equal to the difference between (A)
the Fair Market Value, as of the date such Stock Appreciation Right or portion
thereof is surrendered, of the shares of Stock covered by such right or such
portion thereof, and (B) the aggregate exercise price of such right or such
portion thereof.
(20) "Stock Option" means any option to purchase shares of Stock
granted pursuant to Section 5 or 5A.
(21) "Subsidiary" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company, if each of the
corporations (other than the last corporation) in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain.
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SECTION 2. ADMINISTRATION.
The Plan shall be administered in accordance with the requirements of
Section 162(m) of the Code (but only to the extent necessary and desirable to
maintain qualification of awards under the Plan under Section 162(m) of the
Code) and, to the extent applicable, Rule 16b-3 under the Securities Exchange
Act of 1934, as amended ("Rule 16b-3"), by the Board or, at the Board's sole
discretion, by the Committee, which shall be appointed by the Board, and which
shall serve at the pleasure of the Board.
The Administrator shall have the power and authority to grant to
Eligible Employees, consultants and advisors to the Company, pursuant to the
terms of the Plan: (a) Stock Options, (b) Stock Appreciation Rights or Limited
Stock Appreciation Rights, (c) Restricted Stock, (d) Performance Shares, (e)
Deferred Stock or (f) any combination of the foregoing.
In particular, the Administrator shall have the authority:
(a) to select those employees of the Company who shall be
Eligible Employees;
(b) to determine whether and to what extent Stock Options, Stock
Appreciation Rights, Limited Stock Appreciation Rights, Restricted Stock,
Deferred Stock, Performance Shares or a combination of the foregoing, are to be
granted hereunder to Eligible Employees, consultants and advisors to the
Company;
(c) to determine the number of shares to be covered by each such
award granted hereunder;
(d) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder (including, but not
limited to, (x) the restrictions applicable to Restricted or Deferred Stock
awards and the conditions under which restrictions applicable to such Restricted
or Deferred Stock shall lapse, and (y) the performance goals and periods
applicable to the award of Performance Shares); and
(e) to determine the terms and conditions, not inconsistent with
the terms of the Plan, which shall govern all written instruments evidencing the
Stock Options, Stock Appreciation Rights, Limited Stock Appreciation Rights,
Restricted Stock, Deferred Stock, Performance Shares or any combination of the
foregoing.
The Administrator shall have the authority, in its discretion, to
adopt, alter and repeal such administrative rules, guidelines and practices
governing the Plan as it shall from time to time deem advisable; to interpret
the terms and provisions of the Plan and any award issued under the Plan (and
any agreements relating thereto); and to otherwise supervise the administration
of the Plan.
All decisions made by the Administrator pursuant to the provisions of
the Plan shall be final and binding on all persons, including the Company and
the Participants.
SECTION 3. STOCK SUBJECT TO PLAN.
The total number of shares of Stock reserved and available for
issuance under the Plan shall be 6,712,000. Such shares may consist, in whole or
in part, of authorized and unissued shares or treasury shares. The aggregate
number of shares of Stock as to which Stock Options, Stock Appreciation Rights,
Restricted Stock and Performance Shares may be granted to any individual during
any calendar year may not, subject to adjustment as provided in this Section 3,
exceed 80% of the shares of Stock reserved for the purposes of the Plan in
accordance with the provisions of this Section 3.
To the extent that (i) a Stock Option expires or is otherwise
terminated without being exercised, or (ii) any shares of Stock subject to any
Restricted Stock, Deferred Stock or Performance Share award granted hereunder
are forfeited, such shares shall again be available for issuance in connection
with
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future awards under the Plan; provided, however, that, to the extent that such
future awards are intended to comply with Section 162(m) of the Code, such
shares shall be available for issuance only to the extent permitted under
Section 162(m). If any shares of Stock have been pledged as collateral for
indebtedness incurred by a Participant in connection with the exercise of a
Stock Option and such shares are returned to the Company in satisfaction of such
indebtedness, such shares shall again be available for issuance in connection
with future awards under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend or other change in corporate structure
affecting the Stock, a substitution or adjustment shall be made in (i) the
aggregate number of shares reserved for issuance under the Plan, (ii) the kind,
number and option price of shares subject to outstanding Stock Options granted
under the Plan, and (iii) the kind, number and purchase price of shares issuable
pursuant to awards of Restricted Stock, Deferred Stock and Performance Shares,
as may be determined by the Administrator, in its sole discretion. Such other
substitutions or adjustments shall be made as may be determined by the
Administrator, in its sole discretion. An adjusted option price shall also be
used to determine the amount payable by the Company upon the exercise of any
Stock Appreciation Right or Limited Stock Appreciation Right associated with any
Stock Option. In connection with any event described in this paragraph, the
Administrator may provide, in its discretion, for the cancellation of any
outstanding awards and payment in cash or other property therefor.
SECTION 4. ELIGIBILITY.
Officers (including officers who are directors of the Company),
employees of the Company, and consultants and advisors to the Company who are
responsible for or contribute to the management, growth and/or profitability of
the business of the Company shall be eligible to be granted Stock Options, Stock
Appreciation Rights, Limited Stock Appreciation Rights, Restricted Stock awards,
Deferred Stock awards or Performance Shares hereunder. The Participants under
the Plan shall be selected from time to time by the Administrator, in its sole
discretion, from among the Eligible Employees, consultants and advisors to the
Company recommended by the senior management of the Company, and the
Administrator shall determine, in its sole discretion, the number of shares
covered by each award.
SECTION 5. STOCK OPTIONS.
Stock Options may be granted alone or in addition to other awards
granted under the Plan. Any Stock Option granted under the Plan shall be in such
form as the Administrator may from time to time approve, and the provisions of
Stock Option awards need not be the same with respect to each optionee.
Recipients of Stock Options shall enter into a subscription and/or award
agreement with the Company, in such form as the Administrator shall determine,
which agreement shall set forth, among other things, the exercise price of the
option, the term of the option and provisions regarding exercisability of the
option granted thereunder.
The Stock Options granted under the Plan may be of two types: (i)
Incentive Stock Options and (ii) Non-Qualified Stock Options.
The Administrator shall have the authority to grant any Eligible
Employee Incentive Stock Options, Non-Qualified Stock Options, or both types of
Stock Options (in each case with or without Stock Appreciation Rights or Limited
Stock Appreciation Rights). Consultants and advisors may only be granted
Non-Qualified Stock Options (with or without Stock Appreciation Rights or
Limited Stock Appreciation Rights). To the extent that any Stock Option does not
qualify as an Incentive Stock Option, it shall constitute a separate
Non-Qualified Stock Option. More than one option may be granted to the same
optionee and be outstanding concurrently hereunder.
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Stock Options granted under the Plan shall be subject to the
following terms and conditions and shall contain such additional terms and
conditions, not inconsistent with the terms of the Plan, as the Administrator
shall deem desirable:
(1) Option Price. The option price per share of Stock
purchasable under a Stock Option shall be determined by the Administrator in its
sole discretion at the time of grant but shall not, (i) in the case of Incentive
Stock Options, be less than 100% of the Fair Market Value of the Stock on such
date, (ii) in the case of Non-Qualified Stock Options intended to qualify as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, be less than 100% of the Fair Market Value of the Stock on such date and
(iii) shall not, in any event, be less than the par value of the Stock. If an
employee owns or is deemed to own (by reason of the attribution rules applicable
under Section 425(d) of the Code) more than 10% of the combined voting power of
all classes of stock of the Company or any Parent Corporation and an Incentive
Stock Option is granted to such employee, the option price of such Incentive
Stock Option (to the extent required by the Code at the time of grant) shall be
no less than 110% of the Fair Market Value of the Stock on the date such
Incentive Stock Option is granted.
(2) Option Term. The term of each Stock Option shall be fixed by
the Administrator, but no Stock Option shall be exercisable more than ten years
after the date such Stock Option is granted; provided, however, that if an
employee owns or is deemed to own (by reason of the attribution rules of Section
425(d) of the Code) more than 10% of the combined voting power of all classes of
stock of the Company or any Parent Corporation and an Incentive Stock Option is
granted to such employee, the term of such Incentive Stock Option (to the extent
required by the Code at the time of grant) shall be no more than five years from
the date of grant.
(3) Exercisability. Stock Options shall be exercisable at such
time or times and subject to such terms and conditions as shall be determined by
the Administrator at or after grant. The Administrator may provide, in its
discretion, that any Stock Option shall be exercisable only in installments, and
the Administrator may waive such installment exercise provisions at any time in
whole or in part based on such factors as the Administrator may determine, in
its sole discretion.
(4) Method of Exercise. Subject to Section 5(3) above, Stock
Options may be exercised in whole or in part at any time during the option
period, by giving written notice of exercise to the Company specifying the
number of shares to be purchased, accompanied by payment in full of the purchase
price in cash or its equivalent as determined by the Administrator. As
determined by the Administrator, in its sole discretion, payment in whole or in
part may also be made in the form of unrestricted Stock already owned by the
optionee, or, in the case of the exercise of a Non-Qualified Stock Option,
Restricted Stock or Performance Shares subject to an award hereunder (based, in
each case, on the Fair Market Value of the Stock on the date the option is
exercised); provided, however, that in the case of an Incentive Stock Option,
the right to make payment in the form of already owned shares may be authorized
only at the time of grant. If payment of the option exercise price of a
Non-Qualified Stock Option is made in whole or in part in the form of Restricted
Stock or Performance Shares, the shares received upon the exercise of such Stock
Option (to the extent of the number of shares of Restricted Stock or Performance
Shares surrendered upon exercise of such Stock Option) shall be restricted in
accordance with the original terms of the Restricted Stock or Performance Share
award in question, except that the Administrator may direct that such
restrictions shall apply only to that number of shares equal to the number of
shares surrendered upon the exercise of such option. An optionee shall generally
have the rights to dividends and any other rights of a stockholder with respect
to the Stock subject to the option only after the optionee has given written
notice of exercise, has paid in full for such shares, and, if requested, has
given the representation described in paragraph (1) of Section 10.
The Administrator may require the voluntary surrender of all or
a portion of any Stock Option granted under the Plan as a condition precedent to
the grant of a new Stock Option. Subject to the provisions of the Plan, such new
Stock Option shall be exercisable at the price, during such period and on such
other terms and conditions as are specified by the Administrator at the time the
new Stock Option is granted; provided, however, should the Administrator so
require, the number of shares subject to such new Stock Option shall not be
greater than the number of shares subject to the surrendered Stock Option. Upon
their surrender, Stock Options shall be canceled and the shares previously
subject to such canceled Stock Options shall again be available for grants of
Stock Options and other awards hereunder; provided, however, that, to the extent
that such future awards are intended to comply with Section 162(m) of the Code,
such shares shall be available for issuance only to the extent permitted under
Section 162(m).
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(5) Loans. The Company may make loans available to Stock Option
holders in connection with the exercise of outstanding options granted under the
Plan, as the Administrator, in its discretion, may determine. Such loans shall
(i) be evidenced by promissory notes entered into by the Stock Option holders in
favor of the Company, (ii) be subject to the terms and conditions set forth in
this Section 5(5) and such other terms and conditions, not inconsistent with the
Plan, as the Administrator shall determine, (iii) bear interest, if any, at such
rate as the Administrator shall determine, and (iv) be subject to Board approval
(or to approval by the Administrator to the extent the Board may delegate such
authority). In no event may the principal amount of any such loan exceed the sum
of (x) the exercise price less the par value of the shares of Stock covered by
the option, or portion thereof, exercised by the holder, and (y) any federal,
state, and local income tax attributable to such exercise. The initial term of
the loan, the schedule of payments of principal and interest under the loan, the
extent to which the loan is to be with or without recourse against the holder
with respect to principal or interest and the conditions upon which the loan
will become payable in the event of the holder's termination of employment shall
be determined by the Administrator. Unless the Administrator determines
otherwise, when a loan is made, shares of Stock having a Fair Market Value at
least equal to the principal amount of the loan shall be pledged by the holder
to the Company as security for payment of the unpaid balance of the loan, and
such pledge shall be evidenced by a pledge agreement, the terms of which shall
be determined by the Administrator, in its discretion; provided, however, that
each loan shall comply with all applicable laws, regulations and rules of the
Board of Governors of the Federal Reserve System and any other governmental
agency having jurisdiction.
(6) Non-transferability of Options. Unless otherwise determined
by the Administrator, no Stock Option shall be transferable by the optionee, and
all Stock Options shall be exercisable, during the optionee's lifetime, only by
the optionee.
(7) Termination of Employment or Service. If an optionee's
employment with or service as a director of or consultant or advisor to the
Company terminates by reason of death, Disability or for any other reason, the
Stock Option may thereafter be exercised to the extent provided in the
applicable subscription, award or other agreement, or as otherwise determined by
the Administrator.
(8) Annual Limit on Incentive Stock Options. To the extent that
the aggregate Fair Market Value (determined as of the date the Incentive Stock
Option is granted) of shares of Stock with respect to which Incentive Stock
Options granted to an Optionee under this Plan and all other option plans of the
Company or its Parent Corporation become exercisable for the first time by the
Optionee during any calendar year exceeds $100,000, such Stock Options shall be
treated as Non-Qualified Stock Options.
SECTION 5A. DIRECTOR STOCK OPTION GRANTS IN LIEU OF RETAINER AND/OR MEETING
FEES.
The Board may, in its sole discretion, provide that each director of
the Company shall have the right to elect to waive the receipt of any part or
all of his or her annual retainer and/or meeting fees (if any) for the year
commencing on the date immediately following each annual meeting of the
Company's stockholders, and to receive a number of Non-Qualified Stock Options
("Director Fee Options") in lieu thereof. Such election shall be made on or
before such annual meeting and, once made, shall be irrevocable. Director Fee
Options shall be deemed to be granted annually (in advance with respect to any
waived retainer fees and in arrears with respect to any waived meeting fees).
(1) Number of Shares of Stock Subject to Options. The number of
shares of Stock subject to Director Fee Options shall be fixed by the Board of
Directors in advance of such annual meeting based upon the amount of fees so
waived and an independent appraisal of the intrinsic value of the Director Fee
Options.
(2) Option Price. The option price per share of Stock purchasable
under the Director Fee Options shall be equal to 100% of the fair market value
of the Stock on the date of grant.
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(3) Option Term. The Director Fee Options shall be exercisable for a
term of ten (10) years from the date of grant.
(4) Vesting and Exercisability. The Director Fee Options shall be
100% vested and exercisable on the later of (i) March 1 following the date of
grant and (ii) the date that is 270 days following the date of grant (the
"Vesting Date"). In the event a director's service terminates prior to the
Vesting Date for a specific grant of Director Fee Options, such director shall
be deemed to vest in such options pro rata through the date of such termination
of service, and such pro rata portion of such Director Fee Options shall become
exercisable on the applicable Vesting Date.
(5) Method of Exercise. Director Fee Options may be exercised in
whole or in part at any time during the option period, by giving written notice
of exercise to the Company specifying the number of shares to be purchased,
accompanied by payment in full of the purchase price in cash or its equivalent
as determined by the Administrator.
(6) Non-transferability of Options. The Director Fee Options shall be
subject to the provisions of Section 5(6).
(7) Stub Period; Unanticipated Circumstances. The Board of Directors
shall have the authority to make appropriate arrangements consistent with the
provisions of this Section 5A with respect to retainer and/or meeting fees
otherwise payable with respect to any incomplete year during the term of the
Plan, and with respect to circumstances that may arise that are not contemplated
under the Plan.
SECTION 6. STOCK APPRECIATION RIGHTS AND LIMITED STOCK APPRECIATION RIGHTS.
(1) Grant and Exercise. Stock Appreciation Rights and Limited Stock
Appreciation Rights may be granted either alone ("Free Standing Rights") or in
conjunction with all or part of any Stock Option granted under the Plan
("Related Rights"). In the case of a Non-Qualified Stock Option, Related Rights
may be granted either at or after the time of the grant of such Stock Option. In
the case of an Incentive Stock Option, Related Rights may be granted only at the
time of the grant of the Incentive Stock Option.
A Related Right or applicable portion thereof granted in conjunction
with a given Stock Option shall terminate and no longer be exercisable upon the
termination or exercise of the related Stock Option, except that, unless
otherwise provided by the Administrator at the time of grant, a Related Right
granted with respect to less than the full number of shares covered by a related
Stock Option shall only be reduced if and to the extent that the number of
shares covered by the exercise or termination of the related Stock Option
exceeds the number of shares not covered by the Related Right.
A Related Right may be exercised by an optionee, in accordance with
paragraph (2) of this Section 6, by surrendering the applicable portion of the
related Stock Option. Upon such exercise and surrender, the optionee shall be
entitled to receive an amount determined in the manner prescribed in paragraph
(2) of this Section 6. Stock Options which have been so surrendered, in whole or
in part, shall no longer be exercisable to the extent the Related Rights have
been so exercised.
(2) Terms and Conditions. Stock Appreciation Rights shall be subject
to such terms and conditions, not inconsistent with the provisions of the Plan,
as shall be determined from time to time by the Administrator, including the
following:
(a) Stock Appreciation Rights that are Related Rights ("Related
Stock Appreciation Rights") shall be exercisable only at such time or times and
to the extent that the Stock Options to which they relate shall be exercisable
in accordance with the provisions of Section 5 and this Section 6 of the Plan;
provided, however, that no Related Stock Appreciation Right shall be exercisable
during the first six months of its term, except that this additional limitation
shall not apply in the event of death or Disability of the optionee prior to the
expiration of such six-month period.
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(b) Upon the exercise of a Related Stock Appreciation Right, an
optionee shall be entitled to receive up to, but not more than, an amount in
cash or that number of shares of Stock (or in some combination of cash and
shares of Stock) equal in value to the excess of the Fair Market Value of one
share of Stock as of the date of exercise over the option price per share
specified in the related Stock Option multiplied by the number of shares of
Stock in respect of which the Related Stock Appreciation Right is being
exercised, with the Administrator having the right to determine the form of
payment.
(c) Related Stock Appreciation Rights shall be transferable or
exercisable only when and to the extent that the underlying Stock Option would
be transferable or exercisable under paragraph (6) of Section 5 of the Plan.
(d) Upon the exercise of a Related Stock Appreciation Right, the
Stock Option or part thereof to which such Related Stock Appreciation Right is
related shall be deemed to have been exercised for the purpose of the limitation
set forth in Section 3 of the Plan on the number of shares of Stock to be issued
under the Plan, but only to the extent of the number of shares issued under the
Related Stock Appreciation Right.
(e) A Related Stock Appreciation Right granted in connection
with an Incentive Stock Option may be exercised only if and when the Fair Market
Value of the Stock subject to the Incentive Stock Option exceeds the exercise
price of such Stock Option.
(f) Stock Appreciation Rights that are Free Standing Rights
("Free Standing Stock Appreciation Rights") shall be exercisable at such time or
times and subject to such terms and conditions as shall be determined by the
Administrator at or after grant; provided, however, that no Free Standing Stock
Appreciation Right shall be exercisable during the first six months of its term,
except that this limitation shall not apply in the event of death or Disability
of the recipient of the Free Standing Stock Appreciation Right prior to the
expiration of such six-month period.
(g) The term of each Free Standing Stock Appreciation Right
shall be fixed by the Administrator, but no Free Standing Stock Appreciation
Right shall be exercisable more than ten years after the date such right is
granted.
(h) Upon the exercise of a Free Standing Stock Appreciation
Right, a recipient shall be entitled to receive up to, but not more than, an
amount in cash or that number of shares of Stock (or any combination of cash or
shares of Stock) equal in value to the excess of the Fair Market Value of one
share of Stock as of the date of exercise over the price per share specified in
the Free Standing Stock Appreciation Right (which price shall be no less than
100% of the Fair Market Value of the Stock on the date of grant) multiplied by
the number of shares of Stock in respect to which the right is being exercised,
with the Administrator having the right to determine the form of payment.
(i) Free Standing Stock Appreciation Rights shall be
transferable or exercisable only when and to the extent that a Stock Option
would be transferable or exercisable under paragraph (6) of Section 5 of the
Plan.
(j) In the event of the termination of employment or service of
a Participant who has been granted one or more Free Standing Stock Appreciation
Rights, such rights shall be exercisable at such time or times and subject to
such terms and conditions as shall be determined by the Administrator at or
after grant.
(k) Limited Stock Appreciation Rights may only be exercised
within the 30-day period following a "Change of Control" (as defined by the
Administrator in the agreement evidencing such Limited Stock Appreciation Right)
and, with respect to Limited Stock Appreciation Rights that are Related Rights
("Related Limited Stock Appreciation Rights"), only to the extent that the Stock
Options to which they relate shall be exercisable in accordance with the
provisions of Section 5 and this Section 6 of the Plan; provided, however, that
no Related Limited Stock Appreciation Right shall be exercisable during the
first six months of its term, except that this additional limitation shall not
apply in the event of death or Disability of the optionee prior to the
expiration of such six-month period.
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(l) Upon the exercise of a Limited Stock Appreciation Right, the
recipient shall be entitled to receive an amount in cash equal in value to the
excess of the "Change of Control Price" (as defined in the agreement evidencing
such Limited Stock Appreciation Right) of one share of Stock as of the date of
exercise over (A) the option price per share specified in the related Stock
Option, or (B) in the case of a Limited Stock Appreciation Right which is a Free
Standing Stock Appreciation Right, the price per share specified in the Free
Standing Stock Appreciation Right, such excess to be multiplied by the number of
shares in respect of which the Limited Stock Appreciation Right shall have been
exercised.
SECTION 7. RESTRICTED STOCK, DEFERRED STOCK AND PERFORMANCE SHARES.
(1) General. Restricted Stock, Deferred Stock or Performance Share
awards may be issued either alone or in addition to other awards granted under
the Plan. The Administrator shall determine the Eligible Employees, consultants
and advisors to whom, and the time or times at which, grants of Restricted
Stock, Deferred Stock or Performance Share awards shall be made; the number of
shares to be awarded; the price, if any, to be paid by the recipient of
Restricted Stock, Deferred Stock or Performance Share awards; the Restricted
Period (as defined in paragraph (3) hereof) applicable to Restricted Stock or
Deferred Stock awards; the performance objectives applicable to Performance
Share or Deferred Stock awards; the date or dates on which restrictions
applicable to such Restricted Stock or Deferred Stock awards shall lapse during
such Restricted Period; and all other conditions of the Restricted Stock,
Deferred Stock and Performance Share awards. The Administrator may also
condition the grant of Restricted Stock, Deferred Stock awards or Performance
Shares upon the exercise of Stock Options, or upon such other criteria as the
Administrator may determine, in its sole discretion. The provisions of
Restricted Stock, Deferred Stock or Performance Share awards need not be the
same with respect to each recipient. In the discretion of the Administrator,
loans may be made to Participants in connection with the purchase of Restricted
Stock under substantially the same terms and conditions as provided in Section
5(5) with respect to the exercise of stock options.
(2) Awards and Certificates. The prospective recipient of a
Restricted Stock, Deferred Stock or Performance Share award shall not have any
rights with respect to such award, unless and until such recipient has executed
an agreement evidencing the award (a "Restricted Stock Award Agreement,"
"Deferred Stock Award Agreement" or "Performance Share Award Agreement," as
appropriate) and delivered a fully executed copy thereof to the Company, within
a period of sixty days (or such other period as the Administrator may specify)
after the award date. Except as otherwise provided below in this Section 7(2),
(i) each Participant who is awarded Restricted Stock or Performance Shares shall
be issued a stock certificate in respect of such shares of Restricted Stock or
Performance Shares; and (ii) such certificate shall be registered in the name of
the Participant, and shall bear an appropriate legend referring to the terms,
conditions, and restrictions applicable to such award.
The Company may require that the stock certificates evidencing
Restricted Stock or Performance Share awards hereunder be held in the custody of
the Company until the restrictions thereon shall have lapsed, and that, as a
condition of any Restricted Stock award or Performance Share award, the
Participant shall have delivered a stock power, endorsed in blank, relating to
the Stock covered by such award.
With respect to Deferred Stock awards, at the expiration of the
Restricted Period, stock certificates in respect of such shares of Deferred
Stock shall be delivered to the participant, or his legal representative, in a
number equal to the number of shares of Stock covered by the Deferred Stock
award.
(3) Restrictions and Conditions. The Restricted Stock, Deferred Stock
and Performance Share awards granted pursuant to this Section 7 shall be subject
to the following restrictions and conditions:
(a) Subject to the provisions of the Plan and the Restricted
Stock Award Agreement, Deferred Stock Award Agreement or Performance Share Award
Agreement, as appropriate,
9
<PAGE> 10
governing such award, during such period as may be set by the Administrator
commencing on the grant date (the "Restricted Period"), the Participant shall
not be permitted to sell, transfer, pledge or assign shares of Restricted Stock,
Performance Shares or Deferred Stock awarded under the Plan; provided, however,
that the Administrator may, in its sole discretion, provide for the lapse of
such restrictions in installments and may accelerate or waive such restrictions
in whole or in part based on such factors and such circumstances as the
Administrator may determine, in its sole discretion, including, but not limited
to, the attainment of certain performance related goals, the Participant's
termination of employment or service, death or Disability or the occurrence of a
"Change of Control" as defined in the agreement evidencing such award.
(b) Except as provided in paragraph (3)(a) of this Section 7,
the Participant shall generally have, with respect to the shares of Restricted
Stock or Performance Shares, all of the rights of a stockholder with respect to
such stock during the Restricted Period. The Participant shall generally not
have the rights of a stockholder with respect to stock subject to Deferred Stock
awards during the Restricted Period; provided, however, that dividends declared
during the Restricted Period with respect to the number of shares covered by a
Deferred Stock award shall be paid to the Participant. Certificates for shares
of unrestricted Stock shall be delivered to the Participant promptly after, and
only after, the Restricted Period shall expire without forfeiture in respect of
such shares of Restricted Stock, Performance Shares or Deferred Stock, except as
the Administrator, in its sole discretion, shall otherwise determine.
(c) The rights of holders of Restricted Stock, Deferred Stock
and Performance Share awards upon termination of employment or service for any
reason during the Restricted Period shall be set forth in the Restricted Stock
Award Agreement, Deferred Stock Award Agreement or Performance Share Award
Agreement, as appropriate, governing such awards.
SECTION 8. AMENDMENT AND TERMINATION.
The Board may amend, alter or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made that would impair the rights of a
Participant under any award theretofore granted without such Participant's
consent, or that without the approval of the stockholders (as described below)
would:
(1) except as provided in Section 3, increase the total number of
shares of Stock reserved for the purpose of the Plan;
(2) change the class of employees, directors, consultants and
advisors eligible to participate in the Plan; or
(3) extend the maximum option period under paragraph (2) of Section 5
or Section 5A of the Plan.
Notwithstanding the foregoing, stockholder approval under this
Section 8 shall only be required at such time and under such circumstances as
stockholder approval would be required under Section 162(m) of the Code or other
applicable law, rule or regulation with respect to any material amendment to any
employee benefit plan of the Company.
The Administrator may amend the terms of any award theretofore
granted, prospectively or retroactively, but, subject to Section 3 above, no
such amendment shall impair the rights of any holder without his or her consent.
SECTION 9. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for incentive
compensation. With respect to any payments not yet made to a Participant by the
Company, nothing contained herein shall give any such Participant any rights
that are greater than those of a general creditor of the Company.
10
<PAGE> 11
SECTION 10. GENERAL PROVISIONS.
(1) The Administrator may require each person purchasing shares
pursuant to a Stock Option to represent to and agree with the Company in writing
that such person is acquiring the shares without a view to distribution thereof.
The certificates for such shares may include any legend which the Administrator
deems appropriate to reflect any restrictions on transfer.
All certificates for shares of Stock delivered under the Plan shall
be subject to such stock-transfer orders and other restrictions as the
Administrator may deem advisable under the rules, regulations, and other
requirements of the Commission, any stock exchange upon which the Stock is then
listed, and any applicable federal or state securities law, and the
Administrator may cause a legend or legends to be placed on any such
certificates to make appropriate reference to such restrictions.
(2) Nothing contained in the Plan shall prevent the Board from
adopting other or additional compensation arrangements, subject to stockholder
approval if such approval is required; and such arrangements may be either
generally applicable or applicable only in specific cases. The adoption of the
Plan shall not confer upon any employee, director, consultant or advisor of the
Company any right to continued employment or service with the Company, as the
case may be, nor shall it interfere in any way with the right of the Company to
terminate the employment or service of any of its employees, directors,
consultants or advisors at any time.
(3) Each Participant shall, no later than the date as of which the
value of an award first becomes includible in the gross income of the
Participant for federal income tax purposes, pay to the Company, or make
arrangements satisfactory to the Administrator regarding payment of, any
federal, state, or local taxes of any kind required by law to be withheld with
respect to the award. The obligations of the Company under the Plan shall be
conditional on the making of such payments or arrangements, and the Company
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the Participant.
(4) No member of the Board or the Administrator, nor any officer or
employee of the Company acting on behalf of the Board or the Administrator,
shall be personally liable for any action, determination, or interpretation
taken or made in good faith with respect to the Plan, and all members of the
Board or the Administrator and each and any officer or employee of the Company
acting on their behalf shall, to the extent permitted by law, be fully
indemnified and protected by the Company in respect of any such action,
determination or interpretation.
SECTION 11. EFFECTIVE DATE OF PLAN.
The Plan became effective (the "Effective Date") on August 8, 1995,
the date the Company's stockholders formally approved the Plan.
SECTION 12. TERM OF PLAN.
No Stock Option, Stock Appreciation Right, Limited Stock
Appreciation Right, Restricted Stock, Deferred Stock or Performance Share award
shall be granted pursuant to the Plan on or after the tenth anniversary of the
Effective Date, but awards theretofore granted may extend beyond that date.
11
<PAGE> 1
EXHIBIT 10.70
OAKLEY, INC.
EXECUTIVE OFFICER PERFORMANCE BONUS PLAN
AS AMENDED AND RESTATED THROUGH APRIL 17, 1999
This Executive Officer Performance Bonus Plan (the "Plan") was adopted
by the Board of Directors of Oakley, Inc. (the "Company") on August 8, 1995. The
Board of Directors of the Company subsequently amended the Plan on April 17,
1999 to include provisions to comply with the requirements for
"performance-based compensation" within the meaning Section 162(m) of the
Internal Revenue Code of 1986, as amended.
PURPOSE
This Plan is designed to reward executive officers of the Company for
achieving corporate performance objectives. The Plan is intended to provide an
incentive for superior work and to motivate participating officers toward even
higher achievement and business results, to link their goals and interests more
closely with those of the Company and its shareholders, and to enable the
Company to attract and retain highly qualified executive officers.
ARTICLE I
ELIGIBILITY AND PARTICIPATION
I.1 All executive officers of the Company shall be eligible to
participate in the Plan. Prior to or at the time performance objectives are
established for a "Performance Period," as defined below, the Committee of the
Company's Board of Directors (the "Board") designated under Section 6.1 (the
"Committee") will identify those executive officers who shall in fact be
participants for such Performance Period.
ARTICLE II
PLAN YEAR, PERFORMANCE PERIODS AND PERFORMANCE OBJECTIVES
II.1 The fiscal year of the Plan (the "Plan Year") shall be the
calendar year; provided, however, that the first Plan Year shall be the short
year that commences on the date that the Board approves the adoption of the Plan
and ends on the following December 31. The performance period (the "Performance
Period") with respect to which bonuses may be payable under the Plan shall
generally be the Plan Year; provided however, that the Committee shall have the
authority to designate different Performance Periods under the Plan.
II.2 The Committee shall establish in writing, with respect to each
Performance Period, one or more performance goals, a specific target objective
or objectives with respect to such performance goals and an objective formula or
method for computing the amount of bonus compensation payable to each
participant under the Plan if and to the extent that the performance goals are
attained.
II.3 Performance goals shall be based upon one or more of the following
business criteria for the Company as a whole or any of its subsidiaries,
operating divisions or other operating units: Stock price, market share, gross
revenue, pretax income, operating income, cash flow, earnings per share, return
on equity, return on invested capital or assets, sales, cost reductions and
savings, return on revenues or productivity. In addition, performance goals may
be based upon a participant's attainment of specific objectives set for that
participant's performance by the Company with respect to any of the foregoing
performance goals or implementing policies and plans, negotiating transactions
and sales, developing long-term business goals or exercising managerial
responsibility. Measurements of the Company's or a participant's performance
against the performance goals established by the Committee shall be objectively
determinable and shall be determined according to generally accepted accounting
principles as in existence on the date on which the performance goals are
established and without regard to any changes in such principles after such
date.
<PAGE> 2
ARTICLE III
DETERMINATION OF BONUS AWARDS
III.1 As soon as practicable after the end of each Performance Period,
the Committee shall certify in writing to what extent the Company and the
participants have achieved the performance goal or goals for such Performance
Period, including the specific target objective or objectives and the
satisfaction of any other material terms of the bonus award, and the Committee
shall calculate the amount of each participant's bonus for such Performance
Period based upon the performance goals, objectives and computation formulae or
methods for such Performance Period. The Committee shall have no discretion to
increase the amount of any participant's bonus as so determined, but may reduce
the amount of or totally eliminate such bonus, if it determines, in its absolute
and sole discretion, that such a reduction or elimination is appropriate in
order to reflect the participant's performance or unanticipated factors.
III.2 No participant's bonus shall exceed $3,000,000 for any Plan Year.
ARTICLE IV
PAYMENT OF AWARDS
IV.1 Approved bonus awards shall be payable by the Company in cash to
each participant, or to his estate in the event of his death, as soon as
practicable after the end of each Performance Period and after the Committee has
certified in writing pursuant to Section 3.l that the relevant performance goals
were achieved; provided, that the Committee may, in its discretion, make
reasonable advances to any Participant based upon relevant Company or individual
performance during a portion of a Performance Period as measured against the
performance goals or goals established for such Participant with respect to the
entire Performance Period. Notwithstanding anything to the contrary, no bonus
awards shall be payable for any Plan Year commencing on or after January 1, 1999
unless and until the shareholders of the Company approve the amendments to the
Plan adopted by the Board on April 17, 1999.
IV.2 Except as otherwise provided in any employment agreement between
the Company and a participant or as otherwise determined by the Committee, a
bonus award that would otherwise be payable to a participant who is not employed
by the Company or one of its subsidiaries on the last day of a Performance
Period (or who is employed on the last day of a Performance Period but is absent
from the performance of the participant's duties for a significant portion of
the Plan Year) shall be prorated, or not paid, as follows:
<TABLE>
<S> <C>
(1) Terminated due to disability Prorated based on active service
during Performance Period
(2) Retirement in accordance with the Prorated based on active service
Company's retirement policies during Performance Period
(3) Resignation prior to retirement No award
without mutual written agreement
(4) Resignation pursuant to mutual Prorated based on active service
written agreement during Performance Period
(5) Leave of absence Prorated based on active service during
Performance Period
(6) Death of participant Prorated based on active service during
Performance Period
</TABLE>
2
<PAGE> 3
ARTICLE V
OTHER TERMS AND CONDITIONS
V.1 No person shall have any legal claim to be granted an award under
the Plan, and the Committee shall have no obligation to treat participants
uniformly. Except as may be otherwise required by law, bonus awards under the
Plan shall not be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or
levy of any kind, either voluntary or involuntary. Bonuses awarded under the
Plan shall be payable from the general assets of the Company, and no participant
shall have any claim with respect to any specific assets of the Company.
V.2 Neither the Plan nor any action taken under the Plan shall be
construed as giving any employee the right to be retained in the employment of
the Company or any subsidiary or to maintain any participant's compensation at
any level.
V.3 The Company or any of its subsidiaries may deduct from any award
any applicable withholding taxes or any amounts owed by the employee to the
Company or any of its subsidiaries.
ARTICLE VI
ADMINISTRATION
VI.1 Upon establishment by the Board, the Compensation Committee of the
Board shall constitute the Committee hereunder. Prior to such time, the Board
shall constitute the Committee hereunder.
VI.2 The Committee shall have full power, authority and discretion to
administer and interpret the provisions of the Plan and to adopt such rules,
regulations, agreements, guidelines and instruments for the administration of
the Plan and for the conduct of its business as the Committee deems necessary or
advisable.
VI.3 The Committee shall have full power to delegate to any officer or
employee of the Company the authority to administer and interpret the procedural
aspects of the Plan, subject to the Plan's terms, including adopting and
enforcing rules to decide procedural and administrative issues.
VI.4 The Committee may rely on opinions, reports or statements of
officers or employees of the Company or any subsidiary thereof and of Company
counsel (inside or retained counsel), public accountants and other professional
or expert persons.
VI.5 The Board reserves the right to amend or terminate the Plan in
whole or in part at any time.
VI.6 To the extent permitted by applicable law, (a) no member of the
Committee shall be liable for any action taken or omitted to be taken or for any
determination made by him or her in good faith with respect to the Plan, and (b)
the Company shall indemnify and hold harmless each member of the Committee
against any reasonable cost or expense (including reasonable counsel fees) or
liability (including any sum paid in settlement of a claim with the approval of
the Committee) arising out of any act or omission in connection with the
administration or interpretation of the Plan, unless arising out of such
person's own fraud or bad faith.
VI.7 The place of administration of the Plan shall be in the State of
California, and the validity, construction, interpretation, administration and
effect of the Plan and of its rules and regulations, and rights relating to the
Plan, shall be determined solely in accordance with the laws of the State of
California.
3
<TABLE> <S> <C>
<ARTICLE> 5
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 7,791
<SECURITIES> 0
<RECEIVABLES> 41,726
<ALLOWANCES> 615
<INVENTORY> 32,609
<CURRENT-ASSETS> 97,305
<PP&E> 116,092
<DEPRECIATION> 0
<TOTAL-ASSETS> 234,390
<CURRENT-LIABILITIES> 37,236
<BONDS> 0
0
0
<COMMON> 707
<OTHER-SE> 174,441
<TOTAL-LIABILITY-AND-EQUITY> 234,390
<SALES> 72,071
<TOTAL-REVENUES> 72,071
<CGS> 25,287
<TOTAL-COSTS> 25,287
<OTHER-EXPENSES> 29,896
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<INTEREST-EXPENSE> 554
<INCOME-PRETAX> 16,334
<INCOME-TAX> 5,717
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