-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E+zbUNTqfMpQVPAJ9L5fp6yCwyUtVenTGlWsXHFmTXqnHwerAFdxYk6A6JUP2pO+ lZ4kJDmFYjAtqDPW8u8hEw== 0000910521-96-000007.txt : 19960629 0000910521-96-000007.hdr.sgml : 19960629 ACCESSION NUMBER: 0000910521-96-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DECKERS OUTDOOR CORP CENTRAL INDEX KEY: 0000910521 STANDARD INDUSTRIAL CLASSIFICATION: 3021 IRS NUMBER: 770346633 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22446 FILM NUMBER: 96564315 BUSINESS ADDRESS: STREET 1: P O BOX 5022 CITY: CARPINTERIA STATE: CA ZIP: 93013 BUSINESS PHONE: 8056847722 FORMER COMPANY: FORMER CONFORMED NAME: DECKERS FOOTWEAR CORP DATE OF NAME CHANGE: 19930811 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark one) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ Commission File Number 0-22446 DECKERS OUTDOOR CORPORATION (Exact name of registrant as specified in its charter) Delaware 95-3015862 (State or other jurisdiction of IRS Employer Identification incorporation or organization) 1140 Mark Avenue, Carpinteria, California 93013 (Address of principal executive offices) (zip code) Registrant's telephone number, including area code (805) 684-7722 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---------- ---------- The number of shares outstanding of Registrant's Common Stock, par value $.01 on April 30, 1996 was 9,242,375. DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Table of Contents Page Part I. Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets as of March 31, 1996 and December 31, 1995 1 Condensed Consolidated Statements of Earnings for the Three-Month Period Ended March 31, 1996 and 1995 2 Condensed Consolidated Statements of Cash Flows for the Three-Month Period Ended March 31, 1996 and 1995 3-4 Notes to Condensed Consolidated Financial Statements 5-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-10 Part II. Other Information Item 1. Legal Proceedings 11 Item 2. Changes in Securities 11 Item 3. Defaults upon Senior Securities 11 Item 4. Submission of Matters to a Vote of Security Holders 11 Item 5. Other Information 11 Item 6. Exhibits and Reports on Form 8-K 11 Signature 12 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited)
ASSETS MARCH 31, DECEMBER 31, 1996 1995 Current assets: Cash and cash equivalents $ 3,596,000 3,222,000 Trade accounts receivable, less allowance for doubtful accounts of $3,595,000 and $2,625,000 as of March 31, 1996 and December 31, 1995, respectively 24,808,000 19,716,000 Inventories 17,565,000 19,556,000 Prepaid expenses and other current assets 1,195,000 2,542,000 Refundable income taxes 551,000 2,969,000 Deferred tax assets 2,026,000 2,026,000 ---------- ---------- Total current assets 49,741,000 50,031,000 Property and equipment, at cost, net 3,234,000 3,273,000 Intangible assets, less applicable amortization 18,817,000 16,907,000 Note receivable from supplier 2,785,000 2,839,000 Other assets, net 1,135,000 1,867,000 ---------- ---------- $ 75,712,000 74,917,000 ---------- ---------- ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes Payable $ 1,736,000 ----- Current maturities of long-term debt 113,000 111,000 Trade accounts payable 2,962,000 3,020,000 Accrued expenses 4,548,000 3,131,000 ---------- ---------- Total current liabilities 9,359,000 6,262,000 Long-term debt, less current maturities 11,389,000 15,170,000 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value. Authorized 5,000,000 shares; none issued ----- ----- Common stock, $.01 par value. Authorized 20,000,000 shares; issued and outstanding 9,242,375 shares 92,000 92,000 Additional paid-in capital 28,940,000 28,940,000 Retained earnings 25,932,000 24,453,000 ---------- ---------- Total stockholders' equity 54,964,000 53,485,000 ---------- ---------- $ 75,712,000 74,917,000 ---------- ---------- ---------- ----------
See accompanying notes to condensed consolidated financial statements. DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Earnings (Unaudited)
THREE MONTH PERIOD ENDED MARCH 31 1996 1995 Net sales $ 28,772,000 36,083,000 Cost of sales 16,182,000 18,621,000 ---------- ---------- Gross profit 12,590,000 17,462,000 Selling, general and administrative expenses 9,849,000 9,372,000 ---------- ---------- Earnings from operations 2,741,000 8,090,000 Other expense (income): Interest expense (income) 282,000 (53,000) Minority interest in net loss of subsidiary (63,000) ----- Miscellaneous expense (income) (148,000) 87,000 ---------- ---------- Earnings before income taxes 2,670,000 8,056,000 Income taxes 1,191,000 3,343,000 ---------- ---------- Net earnings $ 1,479,000 4,713,000 ---------- ---------- ---------- ---------- Net earnings per common and common equivalent shares $ 0.16 0.49 ---------- ---------- ---------- ---------- Weighted average common and common equivalent shares outstanding 9,304,000 9,644,000 ---------- ---------- ---------- ----------
See accompanying notes to condensed consolidated financial statements. DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited)
THREE-MONTH PERIOD ENDED MARCH 31 1996 1995 Cash flows from operating activities: Net earnings $ 1,479,000 4,713,000 ---------- ---------- Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 460,000 391,000 Provision for doubtful accounts 985,000 300,000 Minority interest in net loss of subsidiary (63,000) ----- Changes in assets and liabilities: Increase in trade accounts receivable (6,077,000) (19,052,000) Decrease in inventory 1,991,000 6,884,000 Decrease (increase) in prepaid expenses and other current assets 1,347,000 (718,000) Decrease in refundable income taxes 2,418,000 ----- Decrease in note receivable from supplier 54,000 186,000 Decrease in other assets 357,000 5,000 Increase (decrease) in accounts payable (58,000) 142,000 Increase in accrued expenses 1,480,000 2,242,000 Increase in income taxes payable ----- 1,813,000 ---------- ---------- Total adjustments 2,894,000 (7,807,000) ---------- ----------- Net cash provided (used) by operating activities 4,373,000 (3,094,000) ---------- ----------- Cash flows from investing activities: Purchase of property and equipment (220,000) (679,000) Net proceeds from the sale of short-term investments ----- 3,350,000 Other ----- (10,000) ---------- ---------- Net cash provided (used) by investing activities (220,000) 2,661,000 ----------- ----------
(Continued) DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows, Continued (Unaudited)
THREE-MONTH PERIOD ENDED MARCH 31 1996 1995 Cash flows from financing activities: Cash received from borrowings under credit facility $ 750,000 5,000,000 Repayments of notes payable and long-term debt (4,550,000) (50,000) Proceeds from issuances of common stock ----- 12,000 Repurchase of common stock ----- (4,900,000) Other 21,000 ----- ---------- ---------- Net cash provided (used) by financing activities (3,779,000) 62,000 ---------- ---------- Net increase (decrease) in cash and cash equivalents 374,000 (371,000) Cash and cash equivalents at beginning of period 3,222,000 2,872,000 ---------- ---------- Cash and cash equivalents at end of period $ 3,596,000 2,501,000 ---------- ---------- ---------- ---------- Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 269,000 ---- Income taxes 141,000 1,531,000 ---------- ---------- ---------- ----------
Supplemental disclosure of noncash investing and financing activities: In connection with the repurchase of outstanding stock options of a subsidiary from the Founder of the subsidiary during the three month period ended March 31, 1996, the Company gave consideration of $2,111,000, consisting of notes payable to the Founder of $1,736,000 and the forgiveness of a $375,000 note receivable from the Founder. The Company allocated the entire purchase price to goodwill. In connection with the acquisition of substantially all of the assets of Alp Sport Sandals during the three month period ended March 31, 1995, the Company acquired net assets aggregating $1,258,000 for cash consideration and $1,066,000 of indebtedness. See accompanying notes to condensed consolidated financial statements. DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) (1) General The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation for each of the periods presented. The results of operations for interim periods are not necessarily indicative of results to be achieved for full fiscal years. As contemplated by the Securities and Exchange Commission (SEC) under Rule 10-01 of Regulation S-X, the accompanying consolidated financial statements and related footnotes have been condensed and do not contain certain information that will be included in the Company's annual consolidated financial statements and footnotes thereto. For further information, refer to the consolidated financial statements and related footnotes for the year ended December 31, 1995 included in the Company's Annual Report on Form 10-K. (2) Earnings per Share Net earnings per share is based on the weighted average number of common and common equivalent shares outstanding. Common stock equivalents represent the number of shares which would be issued assuming the exercise of common stock options and reduced by the number of shares which could be purchased with the proceeds from the exercise of those options. Fully diluted net earnings per share are not presented since the amounts do not differ significantly from the primary net earnings per share presented. (3) Inventory Inventory at March 31, 1996 and December 31, 1995 is summarized as follows:
MARCH 31, DECEMBER 31, 1996 1995 Raw materials $ 1,606,000 1,892,000 Work in process 2,036,000 1,379,000 Finished goods 13,923,000 16,285,000 ---------- ---------- Total inventory $ 17,565,000 19,556,000 ---------- ---------- ---------- ----------
DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements, Continued (Unaudited) (4) Income Taxes Income taxes for the interim periods were computed using the effective tax rate estimated to be applicable for the full fiscal year, which is subject to ongoing review and evaluation by management. (5) Repurchase of Stock Options In connection with the acquisition of Simple Shoes, Inc. ("Simple") in 1993, the founder and President of Simple (the "Founder") retained an option to acquire up to a 10% interest in Simple. On April 4, 1996, the Company entered into an agreement, effective January 1, 1996, to reacquire such option from the Founder for $2,500,000, less the $300,000 exercise price of the option. The Company made the first installment payment in April 1996 and the remaining non-interest bearing installment of $1,100,000 is due January 1, 1997. The Company allocated the entire purchase price to goodwill, which is being amortized over the remaining 18 year life of the goodwill. (6) Credit Facility Pursuant to an amendment, the availability under the Company's $45,000,000 revolving credit facility ("the Facility") was reduced to $25,000,000 based on certain eligible assets, as defined, effective as of February 29, 1996. The Facility can be used for working capital and general corporate purposes and expires August 1, 2000. Borrowings bear interest at the bank's prime rate (8.25% at March 31, 1996) plus up to 0.25%, depending on whether the Company satisfies certain financial ratios. Alternatively, the Company may elect to have borrowings bear interest at LIBOR plus 1.5% to 1.75%, depending on whether the Company satisfies such financial ratios. Up to $7,000,000 of borrowings may be in the form of letters of credit. The Facility is secured by substantially all assets of the Company. As of March 31, 1996, the Company had borrowed $10,000,000 under the Facility and $14,268,000 was available for borrowing. The agreement underlying the Facility includes certain restrictive covenants which, among other things, require the Company to maintain certain financial tests. The Company was in compliance with all requirements as of March 31, 1996. (7) Stock-Based Compensation Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123), which was issued in October 1995. This statement encourages, but does not require, a fair value based method of accounting for employee stock options or similar equity instruments. FAS 123 allows an entity to elect to continue to measure compensation cost under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APBO No. 25), but requires pro forma disclosures of net earnings and earnings per share as if the fair value based method of accounting had been applied. The Company has elected to continue to measure compensation cost under APBO No. 25, "Accounting for Stock Issued to Employees," and will comply with the pro forma disclosure requirements in its December 31, 1996 Annual Report on Form 10-K. The adoption of FAS 123 had no impact on the Company's financial position or results of operations. DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements, Continued (Unaudited) (8) Impairment of Long-Lived Assets Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 121 (FAS 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which was issued in March 1995. This statement establishes accounting standards for the recognition and measurement of impairment of long-lived assets, certain identifiable intangibles and goodwill either to be held or disposed of. The adoption of FAS 121 did not have a material impact on the Company's financial position or results of operations. DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1995 Net sales decreased by $7,311,000 or 20.3% between the three months ended March 31, 1996 and 1995. Whereas the first quarter of 1995 was the best quarter ever for sales of the Company's Teva registered trademark line, in the first quarter of 1996 the Company continued to be impacted by the poor overall retail markets and the abundance of sport sandals in the marketplace which began in the second quarter of 1995. As a result, sales of the Teva registered trademark line decreased from $30,203,000 for the three months ended March 31, 1995 to $18,600,000 for the three months ended March 31, 1996, a 38.4% decrease. Sales of Teva registered trademark products represented 83.7% and 64.6% of net sales in the three months ended March 31, 1995 and 1996, respectively. While Teva registered trademark sales declined in comparison to the prior year period, the Company experienced a continued increase in the net sales of footwear under the Simple registered trademark product line, which increased 67.4%, from $4,768,000 to $7,983,000 between the three months ended March 31, 1995 and 1996. Overall, international sales for all of the Company's products increased 57.6% from $5,734,000 to $9,035,000, representing 15.9% of net sales in 1995 and 31.4% in 1996. The combination of these factors lead to a net decrease in the volume of footwear sold, which decreased from 1,263,000 pairs during the three months ended March 31, 1995 to 1,107,000 pairs during the three months ended March 31, 1996, a 12.4% decrease. The weighted average wholesale price per pair sold during these respective periods decreased from $29.32 to $24.88, or by 15.1%. The decrease in the average wholesale price reflects the continued sale of the remaining 1995 Teva registered trademark sport sandals at discounted prices, which selling prices approximated the carrying value of the inventory. In addition, the Company reduced the prices of certain Teva registered trademark styles since the first quarter of 1995 in order to promote a more even distribution of price points between the high and low points. The Company believes that having such an even price point distribution will place one or more styles at each desired price level. Cost of sales decreased by $2,439,000 to $16,182,000 for the three months ended March 31, 1996, compared with $18,621,000 for the three months ended March 31, 1995, a decrease of 13.1%. Gross profit decreased by $4,872,000, or 27.9%, to $12,590,000 for the three months ended March 31, 1996 from $17,462,000 for the three months ended March 31, 1995 and decreased as a percentage of net sales to 43.8% from 48.4%. The decrease in gross profit margin as a percentage of net sales was primarily due to the sale of 1995 closeout inventory at discounted prices as well as the reduction in prices on certain Teva registered trademark styles for the 1996 season, as discussed above. Selling, general and administrative expenses increased by $477,000, or 5.1%, between the three months ended March 31, 1995 and March 31, 1996 and increased as a percentage of net sales from 26.0% in 1995 to 34.2% in 1996. The increase was primarily due to an increase in the reserve for potential uncollectable receivables; the addition of the operations of Ugg Holdings, Inc.; increased marketing efforts for the Simple registered trademark product line; and increased payroll costs related to newly created positions. Such increases were partially offset by the decrease in royalty expense and sales commission expense resulting from the decrease in sales volume. The increase as a percentage of net sales also occurred as certain selling, general and administrative expenses include certain fixed costs and, therefore, total selling, general and administrative expenses do not fluctuate proportionately with changes in sales volume. DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Income taxes were $1,191,000 for the three months ended March 31, 1996, representing an effective income tax rate of 44.6%, compared with income taxes of $3,343,000 for the three months ended March 31, 1995, representing an effective income tax rate of 41.5%. The increase in the effective income tax rate from 1995 to 1996 is largely a result of the goodwill associated with the acquisition of Ugg Holdings, Inc. which is not deductible for income tax reporting purposes. In addition, the Company experienced non-deductible losses at certain subsidiaries which are consolidated for financial reporting purposes but which are not consolidated for income tax reporting purposes. The Company had net earnings of $1,479,000 for the three months ended March 31, 1996 as compared with net earnings of $4,713,000 for the three months ended March 31, 1995, a decrease of 68.6%, for the reasons discussed above. Liquidity and Capital Resources At March 31, 1996, working capital was $40,382,000 including $3,596,000 of cash and cash equivalents. Cash provided by operating activities aggregated $4,373,000 for the three months ended March 31, 1996. Pursuant to an amendment, the availability under the Company's $45,000,000 revolving credit facility (the "Facility") was reduced to $25,000,000 based on certain eligible assets, as defined, effective as of February 29, 1996. The Facility can be used for working capital and general corporate purposes and expires August 1, 2000. Borrowings bear interest at the bank's prime rate (8.25% at March 31, 1996) plus up to 0.25%, depending on whether the Company satisfies certain financial ratios. Alternatively, the Company may elect to have borrowings bear interest at LIBOR plus 1.5% to 1.75%, depending on whether the Company satisfies such financial ratios. Up to $7,000,000 of borrowings may be in the form of letters of credit. The Facility is secured by substantially all assets of the Company. As of March 31, 1996, the Company had $10,000,000 in borrowings outstanding under the Facility and $14,268,000 was available for borrowings. The agreement underlying the Facility includes certain restrictive covenants which, among other things, require the Company to maintain certain financial tests. The Company was in compliance with all requirements as of March 31, 1996. The Company has an agreement with a supplier to provide financing for the start-up and the expansion of the supplier's operations, of which $2,785,000 was outstanding at March 31, 1996. The note is secured by all assets of the supplier and bears interest at the prime rate (8.25% at March 31, 1996) plus 1%. Capital expenditures totaled $220,000 for the three months ended March 31, 1996. The Company's capital expenditures related primarily to the purchase of machinery and equipment, the continued expansion of the Company's facilities and upgrades to the Company's computer systems. The Company currently has no material future commitments for capital expenditures. In connection with the acquisition of Ugg Holdings, Inc. in 1995, the Company is required to make future payments to the former shareholders equal to 2 1/2% of net sales of Ugg Holdings, Inc. for the years ending March 31, 1996 through March 31, 2000, an amount equal to earnings before income taxes of Ugg Holdings, Inc., as adjusted for certain items, for the year ended March 31, 1996 and an additional $500,000 payment in March 2000. The Company believes that internally generated funds, the available borrowings under its existing credit facilities and the cash on hand will provide sufficient liquidity to enable it to meet its current and foreseeable working capital requirements. DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Seasonality Financial results for the outdoor and footwear industries are generally seasonal. Based on the Company's historical product mix, the Company would expect greater sales in the first and second quarters than in the third and fourth quarters. However, the Company anticipates that the recent acquisition of Ugg Holdings, Inc., which is counterseasonal to the Company's sport sandal line, will help reduce the impact of seasonality. Other The Company believes that the relatively moderate rates of inflation in recent years have not had a significant impact on its net sales or profitability. New Accounting Standards Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123), which was issued in October 1995. This statement encourages, but does not require, a fair value based method of accounting for employee stock options or similar equity instruments. FAS 123 allows an entity to elect to continue to measure compensation cost under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APBO No. 25), but requires pro forma disclosures of net earnings and earnings per share as if the fair value based method of accounting had been applied. The Company has elected to continue to measure compensation cost under APBO No. 25, "Accounting for Stock Issued to Employees," and will comply with the pro forma disclosure requirements in its December 31, 1996 Annual Report on Form 10-K. The adoption of FAS 123 had no impact on the Company's financial position or results of operations. Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 121 (FAS 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which was issued in March 1995. This statement establishes accounting standards for the recognition and measurement of impairment of long-lived assets, certain identifiable intangibles and goodwill either to be held or disposed of. The adoption of FAS 121 did not have a material impact on the Company's financial position or results of operations. DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Part II. OTHER INFORMATION Item 1. Legal Proceedings. Not applicable Item 2. Changes in Securities. Not applicable Item 3. Defaults upon Senior Securities. Not applicable Item 4. Submission of Matters to a Vote of Security Holders. Not applicable Item 5. Other Information. Not applicable Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits Exhibit 10.41 Option Purchase Agreement, dated April 4, 1996, by and between Eric Meyer, Deckers Outdoor Corporation, Simple Shoes, Inc. and Phillipsburg, Ltd. Exhibit 11.1 Statement of Computation of Earnings per Share. (b) Reports on Form 8-K. None DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. (REGISTRANT) Deckers Outdoor Corporation BY (SIGNATURE) /s/ Diana M. Wilson (NAME AND TITLE) Diana M. Wilson, Chief Operating and Financial Officer, Vice President and Secretary (Duly Authorized Officer and Principal Financial and Accounting Officer) (DATE) May 14, 1996 EX-10 2 OPTION PURCHASE AGREEMENT EXHIBIT 10.41 By and Between ERIC MEYER DECKERS OUTDOOR CORPORATION SIMPLE SHOES, INC. and PHILLIPSBURG, LTD. Table of Contents Page 1. Purchase of Meyer Option 1 2. Effective Date 1 3. Purchase Price 1 4. Payment of Purchase Price 1 5. Meyer's Representations and Warranties 2 6. Companies' Representations and Warranties 3 7. Resignation by Meyer 3 8. Consulting Agreement 3 9. Repayment of Meyer Loan 4 10. Covenant Not to Compete 4 11. Conditions of Closing 4 12. Use of Meyer's Name and Endorsements 4 13. Complete and Full General Release of All Claims 4 14. Arbitration and Attorneys' Fees 5 15. Successors 5 16. Injunctive Relief 5 17. Entire Agreement 5 18. Notices 5 19. No Third Party Beneficiaries 5 20. Captions 6 21. Severability 6 22. Counterparts 6 23. Advice of Counsel 6 24. Simple Footwear 6 Exhibits Exhibit A - Non-Competition Provisions Exhibit B - License Agreement OPTION PURCHASE AGREEMENT THIS OPTION PURCHASE AGREEMENT (the "Agreement") is made and entered into on the date hereinafter set forth by and between ERIC MEYER ("Meyer"), DECKERS OUTDOOR CORPORATION ("Deckers") and SIMPLE SHOES, INC. ("Simple") and PHILLIPSBURG, LTD. ("Phillipsburg") (Deckers, Simple and Phillipsburg are collectively, the "Companies"). WHEREAS: A. The parties hereto are parties to that certain agreement dated December 14, 1992 entitled "Investment and Shareholders Agreement" (the "Original Agreement"), which was amended by a First Amendment to Investment and Shareholders Agreement dated June 30, 1993 (the "First Amendment"), and was subsequently amended by a Second Amendment to Investment and Shareholders Agreement dated January 1, 1994 (the "Second Amendment"). The Second Amendment contains a stock option in favor of Meyer to acquire up to ten percent (10%) of the shares of Simple (the "Meyer Option"). The Original Agreement and the First Amendment and the Second Amendment will hereinafter be collectively referred to as the "Meyer Agreement"; B. Deckers wishes to purchase from Meyer, and Meyer wishes to sell to Deckers, the Meyer Option; C. Phillipsburg is a wholly-owned Hong Kong based subsidiary of Simple which is used to source Simple products; and D. The parties hereto also wish to terminate and cancel the Meyer Agreement upon the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the premises and promises, warranties and representations herein contained, it is agreed as follows: 1. Purchase of Meyer Option. The Meyer Option is hereby purchased from Meyer by Deckers as provided below (the "Purchase"), and the Meyer Agreement is hereby cancelled and superseded by the terms of this Agreement. 2. Effective Date. The effective date of the Purchase will be as of January 1, 1996 (the "Effective Date"). 3. Purchase Price. The purchase price (the "Purchase Price") will be TWO MILLION FIVE HUNDRED THOUSAND DOLLARS ($2,500,000), less the sum of THREE HUNDRED THOUSAND DOLLARS ($300,000), which is the Meyer Option exercise price (the "Exercise Price"). 4. Payment of Purchase Price. The Purchase Price will be paid in two (2) installments, without interest, as follows: (a) ONE MILLION TWO HUNDRED FIFTY THOUSAND DOLLARS ($1,250,000) upon the completion of all of the conditions set forth below and subject to the reduction and set-off for the loan described in Paragraph 9. hereof, less ONE HUNDRED FIFTY THOUSAND DOLLARS ($150,000) for one-half (1/2) of the Exercise Price; and (b) ONE MILLION TWO HUNDRED FIFTY THOUSAND DOLLARS ($1,250,000), less ONE HUNDRED FIFTY THOUSAND DOLLARS ($150,000) for one-half (1/2) of the Exercise Price on January 1, 1997. Should any portion of the Purchase Price be unpaid when due, and remain unpaid for a period of five (5) business days, then the entire balance will be immediately due and payable, and interest will accrue from the date of the default until payment thereof at the highest rate permitted by law not exceeding ten percent (10%) per annum. Until the Purchase Price is paid in full, Deckers grants to Meyer a security interest in the Meyer Option to secure the payment of the Purchase Price (the "Meyer Security Interest"), which will be automatically subordinated to any security interest of any financial institution which has provided financing to Deckers. Meyer will execute any subordination agreements required by Deckers' lender(s) within ten (10) days of a written request by Deckers, and should he fail to do so, he irrevocably appoints Deckers as his attorney-in-fact to execute such subordination agreement(s). Meyer will be responsible for the payment of all income taxes which will be due by him related to these payments, plus the consulting payments in Paragraph 7. below, and Meyer will indemnify and hold harmless the Companies from and against any and all liabilities, losses, claims, causes of actions, penalties, interest and attorneys' fees and costs incurred in connection with any income tax penalties or interest due by Meyer. The Companies will be responsible for the payment of their own income taxes and will indemnify and hold harmless Meyer from and against any and all liabilities, losses, claims, causes of action, penalties, interest and attorneys' fees and costs incurred in connection with any income tax penalties or interest due by the Companies. 5. Meyer's Representations and Warranties. Meyer hereby represents and warrants that: (a) He owns the entire interest in the Meyer Option and he may convey the Meyer Option to Deckers, free and clear of any liens or encumbrances; (b) He is not restrained by any contracts or agreements, or any other restrictions, from performing his obligations hereunder, except to the extent of his agreements with the Companies. (c) He has made his own determination, independent of Deckers or Simple, to enter into this Agreement, and he acknowledges that neither Deckers nor Simple have made any warranties or representations regarding the fairness of the Purchase Price or the future performance of Simple or Phillipsburg, and he has entered into this Agreement with full knowledge of all facts relating to Simple and Phillipsburg. Meyer will indemnify and hold harmless Deckers and Simple from and against any and all liabilities, losses, claims, causes of actions, penalties, interest and attorneys' fees and costs incurred in connection with the breach of these warranties. 6. Companies' Representations and Warranties. The Companies hereby represent and warrant that: (a) They are not restrained by any contracts or agreements, or any other restrictions, from performing their obligations hereunder, except to the extent of their agreements with Meyer. (b) They have made their own determination, independent of Meyer, to enter into this Agreement, and they acknowledge that Meyer has not made any warranties or representations regarding the fairness of the Purchase Price or the future performance of the Companies, and they have entered into this Agreement with full knowledge of all facts relating to the Companies. The Companies will indemnify and hold harmless Meyer from and against any and all liabilities, losses, claims, causes of actions, penalties, interest and attorneys' fees and costs incurred in connection with the breach of these warranties. 7. Resignation by Meyer. Effective January 1, 1996, as part of this transaction, Meyer resigns as President and a Director of Simple, and as President and a Director of Phillipsburg. Meyer will be paid his accrued and unpaid bonus and vacation time and expense reimbursement for 1995. 8. Consulting Agreement. Meyer agrees to a three (3) year Consulting Agreement as an independent contractor with Simple, at a fee of TWO HUNDRED TWENTY FIVE THOUSAND DOLLARS ($225,000) per year commencing January 1, 1996, payable in equal monthly installments. These payments will be in addition to the Purchase Price. Meyer will provide consulting services for advertising, marketing, brand image, strategic planning, pricing and product line design, development and extension. Meyer will be available from time to time, to the executive staff of the Companies, whether in person, by telephone or by telefax, and upon reasonable notice of a request. Any required international travel will only occur upon mutual agreement. Meyer is expected to render meaningful services for these payments and the Consulting Agreement may be modified by either party after December 31, 1996 upon thirty (30) days' written notice to cover only consulting services for advertising, marketing and brand image in return for a modified fee of ONE HUNDRED FIFTY THOUSAND DOLLARS ($150,000) per year payable in equal monthly installments. Meyer may have other business ventures, including, but not limited to, his auto parts business which do not conflict with his obligations in this paragraph and paragraph 10. hereof. There will be no other fringe benefits payable to Meyer as a consultant, but Meyer will be entitled to reimbursement of the Companies' approved expenses incurred by him for travel, his home telefax, home/business telephone and business cellular telephone. Notwithstanding the foregoing, the Consulting Agreement may be terminated, with "cause," by either party hereto by giving the other party thirty (30) days' prior written notice. As used herein, "cause" shall mean the continued failure to perform the duties and obligations of this Paragraph 8 and of Paragraph 10. after written notice from the other party, a breach of a material term of this Paragraph 8 or Paragraph 10 which is not cured within thirty (30) days of written notice by the other party, or Meyer's death or permanent disability. If there is any termination of the Consulting Agreement by either party, it shall not affect the purchase by Deckers of the Meyer Option or the royalties paid under the License Agreement described in Paragraph 12. 9. Repayment of Meyer Loan. Meyer agrees that Deckers may reduce and set-off against the first installment of the Purchase Price the loan to Meyer in the principal amount of THREE HUNDRED SEVENTY-FIVE THOUSAND DOLLARS ($375,000) which is currently due from Meyer to Deckers, and, upon the payment thereof, Deckers agrees to surrender any notes in its possession reflecting said loan. 10. Covenant Not to Compete. In consideration of the foregoing, Meyer hereby agrees and does hereby ratify and confirm his existing non-competition agreement, through December 31, 1998, which is attached hereto as Exhibit A. 11. Conditions of Closing. The parties hereto agree that this Agreement is conditioned upon receipt and execution of any further documents required to implement the foregoing, but which do not negate the parties' agreements hereunder. 12. Use of Meyer's Name and Endorsements. Meyer hereby agrees that Simple may continue to use his name until December 31, 1998 pursuant to the License Agreement attached hereto as Exhibit B. 13. Complete and Full General Release of All Claims. Each of the parties hereby unconditionally releases and forever discharges the other party, their officers, directors, employees, agents and insurers of and from any and all claims, actions, causes of action, rights, demands, attorney's fees, wages, debts or damages of every kind or nature whatsoever, whether known or unknown, arising out of, resulting from or relating in any way to any acts or events occurring on or before the date of execution of this Agreement. This release shall not apply to the obligations set forth in this Agreement or the attachments hereto. EACH PARTY HERETO ALSO KNOWINGLY WAIVES THE PROVISIONS OF SECTION 1542 OF THE CIVIL CODE OF THE STATE OF CALIFORNIA, WHICH READS: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." Notwithstanding the above stated provisions of Section 1542 and for the purpose of implementing a full and complete release, each party hereto expressly acknowledges that this Agreement is specifically intended to include in its effect, without limitation, all claims which either party hereto does not know or suspect to exist in their favor at the time of execution hereof, and contemplates the extinguishment of any such claims. 14. Arbitration and Attorneys' Fees. In the event of any dispute arising out of the enforcement, terms, breach or interpretation of this Agreement, the parties agree that, except for the breach by Meyer of the covenant not to compete and/or the violation by the Companies of any of the terms of the License concerning or relating to the Licensor's Name, in which case Paragraph 16 hereof may also apply, their sole recourse is to pursue final and binding arbitration pursuant to the rules of the American Arbitration Association for contract disputes before one arbitrator. The prevailing party will be entitled to full reimbursement for expenses and attorneys fees' incurred in connection therewith. The arbitration is to be held in Santa Barbara, California. Both parties waive the right to trial by jury. 15. Successors. This Agreement shall be binding upon each party and their heirs, representatives, successors, and assigns, and shall be for the benefit of the other party and their stockholders, predecessors, successors, assigns, agents, directors, officers, employees, affiliated and all persons acting by, through, under or in concert with any of them, and each of them, and to their heirs, representatives, successors, and assigns. 16. Injunctive Relief. Each of the parties hereto acknowledges that the remedy at law for any breach of the provisions of this Agreement will be inadequate and, accordingly, each of them covenants and agrees that, with respect to any such breach, the non- breaching party, in addition to any other rights or remedies that it may have and regardless of whether such other rights or remedies have been previously exercised, will be entitled to such injunctive relief as may be available. 17. Entire Agreement. This Agreement constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior and simultaneous agreements, representations, warranties, statements and understandings, whether oral or written, with respect to the subject matter hereof. 18. Notices. All notices, demands, elections, or requests provided for or permitted to be given pursuant to this Agreement must be in writing. All notices, demands, elections and requests shall be deemed to have been duly given on the date delivered personally or on the date of receipt if sent by overnight delivery services, facsimile transmission, or registered or certified U.S. Mail with return receipt requested, to the addresses set forth on the signature page hereof, or such other addresses as may be subsequently designated in writing and delivered to the other parties hereto. 19. No Third Party Beneficiaries. Nothing contained in this Agreement is intended to and nothing contained herein shall be interpreted to confer on any party not a party hereto or a successor or assign thereof the rights of a third party beneficiary. Provided, however, that in the event of Meyer's death, any unpaid portions of the Purchase Price and the License will be made to his wife, Cynthia, or if she is not then alive, to his heirs. 20. Captions. All section titles or captions contained in this Agreement or in any schedule or exhibit annexed hereto or referred to herein are for convenience only, shall not be deemed part of this Agreement and shall not afflict the meaning or interpretation of this Agreement. All references herein to sections shall be deemed references to such parts of this Agreement, unless the context shall otherwise require. 21. Severability. If any provision of this Agreement or the application thereof to any person or circumstances shall be held to be invalid or unenforceable to any extent, the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law. 22. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 23. Advice of Counsel. Meyer represents that he has sought the advice of his independent counsel, Charles Ogle, prior to executing this Agreement, and Meyer acknowledges that Nida & Maloney has acted as counsel to Deckers, Simple and Phillipsburg in the preparation of this Agreement. 24. Simple Footwear. During the term of the Consulting Agreement and twenty (20) years thereafter, Meyer will be entitled, without charge, to SEVEN HUNDRED DOLLARS ($700) worth of Simple merchandise each year at wholesale if Simple products are being produced by the Companies. IN WITNESS WHEREOF, the parties hereto have executed this Agreement this fourth day of April, 1996. MEYER: /s/ ERIC MEYER Address: 1560 Oramas Road Santa Barbara, CA DECKERS: DECKERS OUTDOOR CORPORATION By: /s/ Diana M. Wilson Title: Chief Operating and Financial Officer Address: 1140 Mark Avenue Carpinteria, CA 93013 SIMPLE: SIMPLE SHOES, INC. By: /s/ Diana M. Wilson Title: Chief Operating and Financial Officer Address: 1140 Mark Avenue Carpinteria, CA 93013 (Signatures continued on next page) PHILLIPSBURG: PHILLIPSBURG, LTD. By: /s/ Diana M. Wilson Title: Chief Operating and Financial Officer Address: c/o Deckers Outdoor Corporation 1140 Mark Avenue Carpinteria, CA 93013 Consent of Joinder of Spouse I hereby consent to and join in the terms of Sections 1 through 4 and 13 through 23 of this Agreement. Date: April 4, 1996 /s/ CYNTHIA MEYER EX-11 3 Exhibit 11.1 DECKERS OUTDOOR CORPORATION AND SUBSIDIARIES Statement of Computation of Earnings per Share (Unaudited) THREE-MONTH PERIOD ENDED MARCH 31, 1996 1995 Net earnings $ 1,479,000 4,713,000 Less: earnings attributed to holders of stock options in a subsidiary of the Company (assuming exercise) ----- 24,000 ---------- ---------- Net earnings available to common stockholders $ 1,479,000 4,689,000 ---------- ---------- ---------- ---------- Weighted average common stock outstanding 9,242,000 9,569,000 Common stock equivalents - stock options 62,000 75,000 ---------- ---------- 9,304,000 9,644,000 ---------- ---------- ---------- ---------- Net earnings per share $ 0.16 0.49 ---------- ---------- ---------- ---------- EX-27 4
5 This schedule contains summary financial information extracted from the company's unaudited financial statements for the quarter ended March 31, 1996 and is qualified in its entirety by reference to such financial statements. 3-MOS DEC-31-1996 MAR-31-1996 3596000 0 28403000 3595000 17565000 49741000 5085000 1851000 75712000 9359000 11389000 0 0 92000 54872000 75712000 28772000 28772000 16182000 16182000 0 985000 282000 2670000 1191000 1479000 0 0 0 1479000 .16 .16
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