10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended September 30, 2011

or

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

For the transition period from            to           

Commission File Number: 0-22446

DECKERS OUTDOOR CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	95-3015862
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
495-A South Fairview Avenue, Goleta, California	93117
(Address of principal executive offices)	(zip code)

(805) 967-7611

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x	Accelerated filer o
Non-accelerated filer o	Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at October 27, 2011
Common Stock, $0.01 par value	38,608,023

DECKERS OUTDOOR CORPORATION

AND SUBSIDIARIES

Table of Contents

			Page
Part I.	Financial Information
Item 1.		Financial Statements (Unaudited):
		Condensed Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010	1
		Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2011 and 2010	2
		Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2010	3
		Notes to Condensed Consolidated Financial Statements	4
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.		Quantitative and Qualitative Disclosures about Market Risk	33
Item 4.		Controls and Procedures	34
Part II.	Other Information
Item 1.		Legal Proceedings	34
Item 1A.		Risk Factors	35
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 3.		Defaults Upon Senior Securities	35
Item 4.		(Removed and Reserved)	35
Item 5.		Other Information	35
Item 6.		Exhibits	35
Signatures			36

DECKERS OUTDOOR CORPORATION

AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)

(amounts in thousands, except par value)

	September 30,			December 31,
	2011			2010
Assets
Current assets:
Cash and cash equivalents	$	90,425		$	445,226
Trade accounts receivable, net of allowances of $15,502 and $13,772 as of September 30, 2011 and December 31, 2010, respectively	227,675			116,663
Inventories	356,873			124,995
Prepaid expenses and other current assets	62,391			16,846
Deferred tax assets	12,002			12,002
Total current assets	749,366			715,732
Property and equipment, at cost, net	59,066			47,737
Goodwill	115,271			6,507
Other intangible assets, net	96,650			18,411
Deferred tax assets	16,356			15,121
Other assets	8,970			5,486
Total assets	$	1,045,679		$	808,994
Liabilities and Stockholders’ Equity
Current liabilities:
Short-term borrowings	$	45,000		$	—
Trade accounts payable	132,193			67,073
Accrued payroll	21,808			35,109
Other accrued expenses	55,944			17,515
Income taxes payable	5,819			25,166
Total current liabilities	260,764			144,863
Long-term liabilities	66,600			8,456
Commitments and contingencies (notes 9 and 10)
Stockholders’ equity:
Deckers Outdoor Corporation stockholders’ equity:
Common stock, $0.01 par value; authorized 125,000 shares; issued and outstanding 38,606 and 38,581 shares as of September 30, 2011 and December 31, 2010, respectively	386			386
Additional paid-in capital	147,601			137,989
Retained earnings	567,866			513,459
Accumulated other comprehensive (loss) income	(553		)	1,153
Total Deckers Outdoor Corporation stockholders’ equity	715,300			652,987
Noncontrolling interest	3,015			2,688
Total equity	718,315			655,675
Total liabilities and equity	$	1,045,679		$	808,994

See accompanying notes to condensed consolidated financial statements.

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DECKERS OUTDOOR CORPORATION

AND SUBSIDIARIES

Condensed Consolidated Statements of Income

(Unaudited)

(amounts in thousands, except per share data)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Net sales	$	414,358		$	277,879		$	773,431		$	570,865
Cost of sales	211,505			146,926			402,188			301,262
Gross profit	202,853			130,953			371,243			269,603
Selling, general and administrative expenses	112,192			64,639			263,185			161,252
Income from operations	90,661			66,314			108,058			108,351
Other (income) expense, net:
Interest income	(34		)	(95		)	(121		)	(167		)
Interest expense	148			216			103			340
Other, net	(64		)	(334		)	(113		)	(948		)
	50			(213		)	(131		)	(775		)
Income before income taxes	90,611			66,527			108,189			109,126
Income tax expense	28,266			24,555			33,539			40,104
Net income	62,345			41,972			74,650			69,022
Net loss (income) attributable to noncontrolling interest	139			171			(327		)	(18		)
Net income attributable to Deckers Outdoor Corporation	$	62,484		$	42,143		$	74,323		$	69,004
Net income per share attributable to Deckers Outdoor Corporation common stockholders:
Basic	$	1.62		$	1.09		$	1.93		$	1.79
Diluted	$	1.59		$	1.07		$	1.89		$	1.76
Weighted-average common shares outstanding:
Basic	38,603			38,615			38,595			38,638
Diluted	39,190			39,228			39,276			39,258

See accompanying notes to condensed consolidated financial statements.

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Condensed Consolidated Statements of Cash Flows

(Unaudited)

(amounts in thousands)

	Nine Months Ended
	September 30,
	2011			2010
Cash flows from operating activities:
Net income	$	74,650		$	69,022
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation, amortization and accretion	19,895			8,836
Recovery of doubtful accounts, net	(825		)	(719		)
Write-down of inventory	5,831			1,627
Stock compensation	10,894			10,212
Other	1,232			(741		)
Changes in operating assets and liabilities, net of assets and liabilities acquired in the acquisition of businesses:
Trade accounts receivable	(97,378		)	(65,086		)
Inventories	(230,164		)	(112,587		)
Prepaid expenses and other current assets	(42,068		)	(611		)
Other assets	(3,888		)	(444		)
Trade accounts payable	59,530			25,872
Accrued expenses	(8,743		)	(3,952		)
Income taxes payable	(13,581		)	4,822
Long-term liabilities	2,357			1,823
Net cash used in operating activities	(222,258		)	(61,926		)
Cash flows from investing activities:
Proceeds from sales of short-term investments	—			26,080
Purchases of property and equipment	(21,483		)	(14,496		)
Acquisition of businesses and equity method investment	(126,615		)	(5,191		)
Purchases of intangible assets	(4,224		)	—
Net cash (used in) provided by investing activities	(152,322		)	6,393
Cash flows from financing activities:
Cash paid for shares withheld for taxes	(17,043		)	(1,972		)
Excess tax benefits from stock compensation	10,995			2,066
Cash received from issuances of common stock	19			86
Cash paid for repurchases of common stock	(19,918		)	(10,082		)
Short-term borrowings	45,000			—
Net cash provided by (used in) financing activities	19,053			(9,902		)
Effect of exchange rates on cash	726			109
Net change in cash and cash equivalents	(354,801		)	(65,326		)
Cash and cash equivalents at beginning of period	445,226			315,862
Cash and cash equivalents at end of period	$	90,425		$	250,536
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes	$	36,096		$	33,380
Interest	$	14		$	25
Non-cash investing activity:
Accruals for purchases of property and equipment	$	995		$	461
Contingent consideration arrangement for acquisition of business	$	84,300		$	—
Accruals for asset retirement obligations	$	63		$	—
Non-cash financing activity:
Accruals for shares withheld for taxes	$	2,613		$	593

See accompanying notes to condensed consolidated financial statements.

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AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(amounts in thousands, except share quantity and per share data)

(1)General

(a)Basis of Presentation

The unaudited condensed consolidated financial statements have been prepared on the same basis as the annual audited consolidated financial statements and, in the opinion of management, reflect all 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.  Deckers Outdoor Corporation strives to be a premier lifestyle marketer that builds niche brands into global market leaders by designing and marketing innovative, functional and fashion-oriented footwear and accessories, developed for both high performance outdoor activities and everyday casual lifestyle use.  The Company’s business is seasonal, with the highest percentage of UGG® brand net sales occurring in the third and fourth quarters and the highest percentage of Teva® and Sanuk® brand net sales occurring in the first and second quarters of each year. The other brands do not have a significant seasonal impact on the Company.  The Company owns 51% of a joint venture with an affiliate of Stella International Holdings Limited (Stella International) for the primary purpose of opening and operating retail stores for the UGG brand in China.  Stella International is also one of the Company’s major manufacturers in China.

In January 2010, the Company acquired certain assets and liabilities, including reacquisition of its distribution rights, from its Teva brand distributor that sold to retailers in Belgium, the Netherlands, and Luxemburg (Benelux) as well as France.  In September 2010, the Company purchased a portion of a privately held footwear company as an equity method investment.  In January 2011, the Company acquired certain assets from its UGG, Teva, and Simple® brands distributor that sold to retailers in the United Kingdom (UK) and from its UGG and Simple brands distributor that sold to retailers in Benelux and France.  The distribution rights in these regions reverted back to the Company on December 31, 2010 upon the expiration of the distribution agreements.  On May 19, 2011, the Company entered into an asset purchase agreement with Sanuk USA LLC, C&C Partners, Ltd., and the equity holders of both entities (collectively referred to as “Sanuk” or the “Sanuk brand”).  On July 1, 2011, the Company completed the acquisition of the purchased assets and the assumption of the assumed liabilities of the Sanuk brand.  Deckers Outdoor Corporation’s condensed consolidated financial statements include the operations of Sanuk beginning July 1, 2011.

As contemplated by the Securities and Exchange Commission (SEC) under Rule 10-01 of Regulation S-X, the accompanying condensed consolidated financial statements and related footnotes have been condensed and do not contain certain information that will be included in the Company’s annual consolidated financial statements and footnotes thereto.  For further information, refer to the consolidated financial statements and related footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

b)Use of Estimates

The preparation of the Company’s condensed consolidated financial statements in accordance with US generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in these condensed consolidated financial statements and accompanying notes.  Significant areas requiring the use of management estimates relate to inventory reserves, accounts receivable reserves, returns liabilities, stock compensation, impairment assessments, depreciation and amortization, income tax liabilities and uncertain tax positions, fair value of financial instruments, and fair values of acquired intangibles, assets and liabilities, including estimated contingent consideration payments.  Actual results could differ materially from these estimates.

(2)Stockholders’ Equity

In June 2009, the Company approved a stock repurchase program to repurchase up to $50,000 of the Company’s common stock in the open market or in privately negotiated transactions, subject to market conditions, applicable legal requirements and other factors.  The program did not obligate the Company to acquire any particular amount of common stock.  The purchases were funded from available working capital.  As of June 30, 2011, the Company had repurchased the full amount authorized under this program.  During the nine months ended September 30, 2011, the Company repurchased approximately 245,000 shares for approximately $20,000, or an average price of $81.22 per share.

On June 22, 2011, the Board of Directors of the Company adopted a new long-term incentive award under its 2006 Equity Incentive Plan (the “Level III Awards”).  These awards will be available for issuance to current and future members of the

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AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(amounts in thousands, except share quantity and per share data)

Company’s management team, including the Company’s named executive officers.  Each recipient will receive a specified maximum number of restricted stock units (RSUs), each of which will represent the right to receive one share of the Company’s common stock.  These awards vest subject to certain long-term performance objectives and certain long-term service conditions.  The awards will vest on December 31, 2014 only if the Company meets certain revenue targets ranging between $1,850,000 and $2,500,000 and certain diluted earnings per share targets ranging between $7.00 and $9.60 for the year ended December 31, 2014.  No vesting of any Level III Award will occur if either of the threshold performance criteria is not met for the year ending December 31, 2014.  To the extent financial performance is achieved above the threshold levels, the number of RSUs that will vest will increase up to the maximum number of units granted under the award.  Under this new program, the Company granted zero and a maximum amount of 275,000 RSUs during the three and nine months ended September 30, 2011, respectively.  The grant date fair value of these RSUs was $82.09 per share.  As of September 30, 2011, the Company did not believe that the achievement of the performance objectives for the Level III Awards was probable, and therefore the Company did not recognize compensation expense for these awards.  If the performance objectives become probable, the Company will then begin recording an expense for the Level III Awards and would recognize a cumulative catch-up adjustment in the period they become probable.

During the three months ended September 30, 2011, 110,000 stock appreciation rights (SARs) were exercised at a weighted-average exercise price of $26.73, for an aggregate intrinsic value of $8,611.  During the nine months ended September 30, 2011, 290,000 SARs were exercised at a weighted-average exercise price of $26.73, for an aggregate intrinsic value of $19,535.

The following is a reconciliation of the Company’s retained earnings:

	Retained Earnings
Balance at December 31, 2010	$	513,459
Net income attributable to Deckers Outdoor Corporation	74,323
Repurchase of common stock	(19,916		)
Balance at September 30, 2011	$	567,866

(3)Comprehensive Income and Accumulated Other Comprehensive (Loss) Income

Comprehensive income is the total of net income and all other non-owner changes in equity.  Comprehensive income was determined as follows:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2011			2010		2011			2010
Net income	$	62,345		$	41,972	$	74,650		$	69,022
Other comprehensive income (loss):
Unrealized gain (loss) on foreign currency hedging	689			—		(753		)	—
Unrealized gain on short-term investments	—			3		—			1
Cumulative foreign currency translation adjustments	(274		)	734		(953		)	(321		)
Total other comprehensive income (loss)	415			737		(1,706		)	(320		)
Comprehensive income	62,760			42,709		72,944			68,702
Comprehensive loss (income) attributable to noncontrolling interest	139			171		(327		)	(18		)
Comprehensive income attributable to Deckers Outdoor Corporation	$	62,899		$	42,880	$	72,617		$	68,684

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DECKERS OUTDOOR CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(amounts in thousands, except share quantity and per share data)

Accumulated balances of the components within accumulated other comprehensive (loss) income were as follows:

	September 30,			December 31,
	2011			2010
Unrealized gain on foreign currency hedging, net of tax	$	811		$	1,564
Cumulative foreign currency translation adjustment	(1,364		)	(413		)
Unrealized gain on short-term investments	—			2
Accumulated other comprehensive (loss) income	$	(553	)	$	1,153

(4)Net Income per Share Attributable to Deckers Outdoor Corporation Common Stockholders

Basic net income per share represents net income attributable to Deckers Outdoor Corporation divided by the weighted-average number of common shares outstanding for the period.  Diluted net income per share represents net income attributable to Deckers Outdoor Corporation divided by the weighted-average number of shares outstanding, including the dilutive impact of potential issuances of common stock.  For the three and nine months ended September 30, 2011 and 2010, the difference between the weighted-average number of basic and diluted common shares resulted from the dilutive impact of nonvested stock units (NSUs), RSUs, SARs, and options to purchase common stock.  The reconciliations of basic to diluted weighted-average common shares outstanding were as follows:

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2011	2010	2011	2010
Weighted-average shares used in basic computation	38,603,000	38,615,000	38,595,000	38,638,000
Dilutive effect of share-based awards*	587,000	613,000	681,000	620,000
Weighted-average shares used in diluted computation	39,190,000	39,228,000	39,276,000	39,258,000

*Excluded NSUs and RSUs as of September 30, 2011 and 2010	402,000	409,000	402,000	409,000
*Excluded SARs as of September 30, 2011 and 2010	525,000	720,000	525,000	720,000

The share-based awards that were excluded from the dilutive effect were excluded because the necessary conditions had not been satisfied for the shares to be issuable based on the Company’s performance through September 30, 2011 and 2010, respectively.

(5)Fair Value Measurements

The fair values of the Company’s cash and cash equivalents, trade accounts receivable, prepaid expenses and other current assets, income taxes receivable, short-term borrowings, trade accounts payable, accrued expenses, and income taxes payable approximate the carrying values due to the relatively short maturities of these instruments.  The fair values of the Company’s long-term liabilities, if recalculated based on current interest rates, would not significantly differ from the recorded amounts.  The fair value of the contingent consideration related to our acquisitions and of the Company’s derivatives are measured and recorded at fair value on a recurring basis.  The Company records the assets or liabilities associated with derivative instruments and hedging activities in other current assets or other current liabilities, respectively, in the condensed consolidated balance sheets.  The Level 2 inputs described below consist of forward spot rates at the end of the reporting period.  (See footnote 6, “Foreign Currency Exchange Contracts and Hedging,” for further information.)

The Company established a nonqualified deferred compensation program effective February 1, 2010 (referred to as “the Plan”).  The Plan permits a select group of management employees, designated by the Plan Committee, to defer earnings to a future date on a nonqualified basis.  For each plan year, the Board may, but is not required to, contribute any amount it desires to any participant under the Plan.  The Company’s contribution will be determined by the Board annually in the fourth quarter.  No such contribution has been approved as of September 30, 2011.  All amounts deferred under this plan are presented in long-term liabilities in the condensed consolidated balance sheet.  The value of the deferred compensation is recognized based on the fair value of the participants’ accounts.  The Company has established a trust as a reserve for the benefits payable under the Plan.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

(amounts in thousands, except share quantity and per share data)

The inputs used in measuring fair value are prioritized into the following hierarchy:

·Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.

·Level 2: Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable.

·Level 3: Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing.

The table below summarizes the Company’s financial liabilities and assets that are measured on a recurring basis at fair value:

	Fair Value at September 30,			Fair Value Measurement Using
	2011			Level 1			Level 2			Level 3
(Liabilities) assets at fair value
Nonqualified deferred compensation	$	(1,834	)	$	(1,834	)	$	—		$	—
Designated derivatives	$	463		$	—		$	463		$	—
Non-designated derivatives	$	(686	)	$	—		$	(686	)	$	—
Contingent consideration for acquistion of business	$	(84,300	)	$	—		$	—		$	(84,300	)

(6)Foreign Currency Exchange Contracts and Hedging

The Company transacts business in various foreign currencies and has international sales and expenses denominated in foreign currencies, subjecting the Company to foreign currency risk.  The Company may enter into foreign currency forward or option contracts, generally with maturities of 12 months or less, to reduce the volatility of cash flows primarily related to forecasted revenue denominated in certain foreign currencies.  In addition, the Company utilizes foreign exchange forward and option contracts to mitigate foreign currency exchange rate risk associated with foreign currency-denominated assets and liabilities, primarily intercompany balances.  The Company does not use foreign currency contracts for speculative or trading purposes.

Certain of the Company’s foreign currency forward contracts are designated cash flow hedges of forecasted intercompany sales and are subject to foreign currency exposures.  These contracts allow the Company to sell Euros and British Pounds in exchange for US dollars at specified contract rates.  At September 30, 2011, the outstanding contracts were expected to mature over the next three months.  Forward contracts are used to hedge forecasted intercompany sales over specific quarters.  Changes in the fair value of these forward contracts designated as cash flow hedges are recorded as a component of accumulated other comprehensive (loss) income (OCI) within stockholders’ equity, and are recognized in the condensed consolidated statements of income during the period which approximates the time the corresponding third-party sales occur.  The Company may also enter into foreign exchange contracts that are not designated as hedging instruments for financial accounting purposes.  Accordingly, any gains or losses resulting from changes in the fair value of the non-designated contracts are reported in income.  These contracts are generally entered into to offset the gains and losses on certain intercompany balances until the expected time of repayment.  As of September 30, 2011, the Company’s total hedging contracts had notional amounts totaling approximately $37,000, held by two counterparties.

The Company has factored into the fair value measurements of its derivatives the nonperformance risk of the Company and the counterparty, and it did not have a material impact on the fair value of the derivatives.  The Company assesses hedge effectiveness and measures hedge ineffectiveness at least quarterly.  During the three and nine months ended September 30, 2011, the ineffective portion relating to these hedges was immaterial and the hedges remained effective as of September 30, 2011.  As of September 30, 2011, the total amount in accumulated other comprehensive (loss) income (see note 3) is expected to be reclassified into income within the next six months.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

(amounts in thousands, except share quantity and per share data)

The following tables summarize the effect of derivative instruments on the condensed consolidated financial statements for the nine months ended September 30, 2011:

					Amount of Gain (Loss)
	Amount of Gain (Loss)			Location of Gain (Loss)	Reclassified from
Derivatives in Designated	Recognized in OCI			Reclassified from	Accumulated OCI into			Location of Amount	Gain (Loss) from
Cash Flow Hedging	on Derivative			Accumulated OCI into Income	Income (Effective			Excluded from	Amount Excluded from
Relationships	(Effective Portion)			(Effective Portion)	Portion)			Effectiveness Testing	Effectiveness Testing
Foreign Exchange Contracts	$	(1,985	)	Net Sales	$	(220	)	Selling, general and administrative expenses (SG&A)	$	(94	)

Derivatives Not	Location of Gain (Loss)	Amount of Gain (Loss)
Designated as Hedging	Recognized in Income on	Recognized in Income on
Instruments	Derivatives	Derivatives
Foreign Exchange Contracts	SG&A	$	(591	)

Subsequent to September 30, 2011, the Company entered into several new hedging contracts with notional amounts totaling approximately $66,000.

(7)Credit Agreement

On August 10, 2011, the Company and its subsidiary Tsubo, LLC entered into Amendment Number Two to Second Amended and Restated Credit Agreement (“Amendment Number Two”) with Comerica Bank (“Comerica”).  Amendment Number Two amended the terms of that certain Second Amended and Restated Credit Agreement, entered into on May 27, 2010, by and among the Company; Tsubo, LLC; and Comerica (the “Previous Credit Agreement”).  Amendment Number Two amended the Previous Credit Agreement by increasing the maximum availability from $20,000 to $60,000 during the period commencing on August 10, 2011 and ending on November 30, 2011 (the “Increased Commitment Period”).  During the Increased Commitment Period, amounts borrowed under the Credit Agreement would bear interest at Comerica’s prime rate, plus 0.25% or, at the Company’s option, at the London Interbank Offered Rate (LIBOR), plus 1.25%.  Amendment Number Two also increased the percentage fee payable for certain letters of credit during the Increased Commitment Period from 0.75% to 1.25%.  The Company did not borrow under Amendment Number Two.

On August 30, 2011, the Company entered into a Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, National Association as the administrative agent, Comerica Bank and HSBC Bank USA, National Association, as syndication agents, and the lenders party thereto.  The Credit Agreement is a five-year, $200,000 secured revolving credit facility which contains a $50,000 sublimit for the issuance of letters of credit and a $5,000 sublimit for swingline loans and replaces the Previous Credit Agreement and matures on August 30, 2016.  Subject to customary conditions and the approval of any lender whose commitment would be increased, the Company has the option to increase the maximum principal amount available under the Credit Agreement by up to an additional $100,000, resulting in a maximum available principal amount of $300,000.  None of the lenders under the Credit Agreement has committed at this time or is obligated to provide any such increase in the commitments.  At the Company’s option, revolving loans issued under the Credit Agreement will bear interest at either adjusted LIBOR for 30 days (0.24% at September 30, 2011) plus 1.25% per annum, in the case of LIBOR borrowings, or at the alternate base rate plus 0.25% per annum, and thereafter the interest rate will fluctuate between adjusted LIBOR plus 1.25% per annum and adjusted LIBOR plus 1.50% per annum (or between the alternate base rate plus 0.25% per annum and the alternate base rate plus 0.50% per annum), based upon the Company’s total adjusted leverage ratio at such time.  In addition, the Company will initially be required to pay fees of 0.20% per annum on the daily unused amount of the revolving credit facility, and thereafter the fee rate will fluctuate between 0.20% and 0.30% per annum, based upon the Company’s total adjusted leverage ratio.

The Company’s obligations under the Credit Agreement are guaranteed by the Company’s existing and future domestic subsidiaries other than certain immaterial subsidiaries and foreign subsidiaries (the “Guarantors”), and is secured by a first-priority security interest in substantially all of the assets of the Company and the Guarantors’, including all or a portion of the equity interests of certain of the Company’s domestic and foreign subsidiaries.

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DECKERS OUTDOOR CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(amounts in thousands, except share quantity and per share data)

The Credit Agreement contains financial covenants which include: the asset coverage ratio must be greater than 1.10 to 1.00; and the sum of the consolidated annual earnings before interest, taxes, depreciation, and amortization (EBITDA) and annual rental expense, divided by the sum of the annual interest expense and the annual rental expense must be greater than 2.25 to 1.00; and other customary limitations.  The Credit Agreement contains certain other covenants which include: a maximum additional secured debt related to a capital asset not to exceed $20,000, maximum additional unsecured debt not to exceed $200,000; maximum secured debt not related to a capital asset not to exceed $5,000, maximum judgment of $10,000; maximum ERISA event of $10,000 in one year, $20,000 in all years; the Company may not have a change of control; there is no limit on acquisitions, if the total adjusted leverage ratio does not exceed 2.75 and 1.00 and the Company must have a minimum amount of cash and unused credit of $75,000; and there is no restriction on dividends or share repurchases, if the minimum amount of cash and unused credit is $75,000.  As of September 30, 2011, the Company was in compliance with all covenants.

At September 30, 2011, the Company had outstanding borrowings of $45,000 under the Credit Agreement and outstanding letters of credit of $189.  As a result, $154,811 was available under the Credit Agreement at September 30, 2011.  Subsequent to September 30, 2011, the Company repaid $20,000 of the outstanding borrowings.

(8)Business Segments, Concentration of Business, and Credit Risk and Significant Customers

The Company’s accounting policies of the segments below are the same as those described in the summary of significant accounting policies in the Company’s Annual Report, except that the Company does not allocate corporate overhead costs or non-operating income and expenses to segments.  The Company evaluates segment performance primarily based on net sales and income or loss from operations.  The Company’s reportable segments include the strategic business units for the worldwide wholesale operations of the UGG brand, Teva brand, Sanuk brand, and its other brands, its eCommerce business and its retail store business.  The wholesale operations of each brand are managed separately because each requires different marketing, research and development, design, sourcing and sales strategies.  The eCommerce and retail store segments are managed separately because they are direct to consumer sales, while the brand segments are wholesale sales.  The income or loss from operations for each of the segments includes only those costs which are specifically related to each segment, which consist primarily of cost of sales, costs for research and development, design, selling and marketing, depreciation, amortization and the costs of employees and their respective expenses that are directly related to each business segment.  The unallocated corporate overhead costs are the shared costs of the organization and include the following: costs of the distribution centers, certain executive and stock compensation, accounting and finance, legal, information technology, human resources and facilities costs, among others.  The gross profit derived from the sales to third parties of the eCommerce and retail stores segments is separated into two components: (i) the wholesale profit is included in the related operating income or loss of each wholesale segment, and (ii) the retail profit is included in the operating income of the eCommerce and retail stores segments.  In prior periods, the gross profit of the international portion of the eCommerce and retail stores segments included both the wholesale and retail profit.  This change in segment reporting only changed the presentation within the below table and did not impact the Company’s condensed consolidated financial statements for any periods.  The segment information for the three and nine months ended September 30, 2010 has been adjusted retrospectively to conform to the current period presentation.

The Company’s other brands include Simple®, TSUBO®, Ahnu®, and MOZO®.  The wholesale operations of the Company’s other brands are included as one reportable segment, other wholesale, presented in the figures below.  The Sanuk brand operations are included in the Company’s segment reporting effective upon the acquisition date of July 1, 2011.  Business segment information is summarized as follows:

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DECKERS OUTDOOR CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(amounts in thousands, except share quantity and per share data)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Net sales to external customers:
UGG wholesale	$	334,308		$	229,128		$	510,739		$	381,728
Teva wholesale	12,879			12,226			100,445			83,549
Sanuk wholesale	15,350			—			15,350			—
Other wholesale	6,866			7,696			17,281			20,064
eCommerce	10,254			8,665			39,423			32,264
Retail stores	34,701			20,164			90,193			53,260
	$	414,358		$	277,879		$	773,431		$	570,865
Income (loss) from operations:
UGG wholesale	$	143,998		$	96,568		$	206,208		$	163,371
Teva wholesale	(1,389		)	230			20,576			18,969
Sanuk wholesale	1,459			—			1,459			—
Other wholesale	(2,965		)	(229		)	(7,573		)	(2,537		)
eCommerce	483			787			5,767			5,420
Retail stores	(544		)	991			1,631			3,349
Unallocated overhead costs	(50,381		)	(32,033		)	(120,010		)	(80,221		)
	$	90,661		$	66,314		$	108,058		$	108,351

Business segment asset information is summarized as follows:

	September 30,		December 31,
	2011		2010
Total assets for reportable segments:
UGG wholesale	$	515,199	$	194,028
Teva wholesale	48,633		49,849
Sanuk wholesale	206,695		—
Other wholesale	11,182		12,031
eCommerce	3,876		4,053
Retail stores	59,597		39,377
	$	845,182	$	299,338

The assets allocable to each segment generally include accounts receivable, inventory, fixed assets, intangible assets and certain other assets that are specifically identifiable with one of the Company’s segments.  Unallocated assets are the assets not specifically related to the segments and generally include cash and cash equivalents, deferred tax assets, and various other assets shared by the Company’s segments. Reconciliations of total assets from reportable segments to the condensed consolidated balance sheets are as follows:

	September 30,		December 31,
	2011		2010
Total assets for reportable segments	$	845,182	$	299,338
Unallocated cash and cash equivalents	90,425		445,226
Unallocated deferred tax assets	28,358		27,123
Other unallocated corporate assets	81,714		37,307
Consolidated total assets	$	1,045,679	$	808,994

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DECKERS OUTDOOR CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(amounts in thousands, except share quantity and per share data)

A portion of the Company’s cash and cash equivalents are held as cash in operating accounts that are with third party financial institutions.  These balances, at times, exceed the Federal Deposit Insurance Corporation (FDIC) insurance limits.  While the Company regularly monitors the cash balances in its operating accounts and adjusts the balances as appropriate, these cash balances could be impacted if the underlying financial institutions fail or are subject to other adverse conditions in the financial markets.  As of September 30, 2011, the Company had experienced no loss or lack of access to cash in its operating accounts.

The remainder of the Company’s cash equivalents is invested in interest bearing funds managed by third party investment management institutions.  These investments can include US treasuries and government agencies, money market funds, and municipal bonds, among other investments.  Certain of these investments are subject to general credit, liquidity, market, and interest rate risks.  Investment risk has been and may further be exacerbated by US mortgage defaults and credit and liquidity issues and the European debt crisis, which have affected various sectors of the financial markets.  As of September 30, 2011, the Company had experienced no loss or lack of access to its cash and cash equivalents.

The Company sells its products to customers throughout the US and to foreign customers located in Europe, Canada, Australia, Asia, and Latin America, among other regions.  International sales were 37.8% and 26.3% of the Company’s total net sales for the three months ended September 30, 2011 and 2010, respectively.  International sales were 36.8% and 32.2% of the Company’s total net sales for the nine months ended September 30, 2011 and 2010, respectively.  For the nine months ended September 30, 2011, no single foreign country comprised more than 10% of total sales.  The Company does not consider international operations a separate segment, as management reviews such operations in the aggregate with the aforementioned segments.

As of September 30, 2011, no single country outside the US held more than 10% of the Company’s total long-lived assets.  Property and equipment, by major country were as follows:

	September 30,		December 31,
	2011		2010
US	$	42,079	$	36,591
UK	6,066		6,753
All other countries*	10,921		4,393
Total	$	59,066	$	47,737

*  No other country’s property and equipment comprised more than 10% of total property and equipment as of September 30, 2011 or December 31, 2010.

Management performs regular evaluations concerning the ability of its customers to satisfy their obligations and records a provision for doubtful accounts based upon these evaluations.  No single customer accounted for more than 10.0% of the Company’s net sales for the nine months ended September 30, 2011 and 2010.  As of September 30, 2011, no single customer represented more than 10.0% of net trade accounts receivable.  As of December 31, 2010, the Company had one customer representing 33.2% and another customer representing 10.1% of net trade accounts receivable.

The Company’s production is concentrated at a limited number of independent contractor factories in China.  The Company’s sourcing is concentrated in Australia and China and include a limited number of key sources for the principal raw material for certain UGG products, sheepskin.  The Company’s operations are subject to the customary risks of doing business abroad, including, but not limited to, currency fluctuations, customs duties and related fees, various import controls and other nontariff barriers, restrictions on the transfer of funds, labor unrest and strikes and, in certain parts of the world, political instability.  The supply of sheepskin can be adversely impacted by weather conditions, disease, and harvesting decisions that are completely outside the Company’s control.  Further, the price of sheepskin is impacted by demand, industry, and competitors.

(9)Commitments and Contingencies

The Company is currently involved in various legal claims arising from the ordinary course of business.  Management does not believe that the disposition of these matters will have a material effect on the Company’s financial position or results of operations.  In addition, the Company has agreed to indemnify certain of its licensees, distributors and promotional partners in connection with claims related to the use of the Company’s intellectual property.  The terms of such agreements range up to

11

DECKERS OUTDOOR CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(amounts in thousands, except share quantity and per share data)

five years initially and generally do not provide for a limitation on the maximum potential future payments.  Management believes the likelihood of any payments is remote and would be immaterial.  The Company determined the risk was low based on a prior history of insignificant claims.  The Company is not currently involved in any indemnification matters in regards to its intellectual property.

The Company’s federal income tax returns for the years ended December 31, 2006 through December 31, 2009 are under examination by the Internal Revenue Service (IRS).  In connection with the examination, the Company has received notices of proposed adjustments (NOPAs), which the Company agreed with and recorded in its financial statements.  In addition, in March 2011, the Company received a NOPA related to transfer pricing arrangements with the Company’s subsidiaries in which adjustments were asserted totaling approximately $55,000 of additional taxable income, representing additional federal taxes and penalties of approximately $27,000, excluding interest.  The Company responded to this NOPA indicating that it disagrees with the proposed adjustments and will appeal the NOPA if the Company is unable to reach a resolution at the exam level.  The Company does not know the timing of completion of the examination or if the examination will result in a material effect to the Company’s condensed consolidated financial statements.  It is reasonably possible that the Company’s unrecognized tax benefit could change; however, the Company believes its unrecognized tax benefits are adequate.

Although the Company believes its tax estimates are reasonable and prepares its tax filings in accordance with all applicable tax laws, the final determination with respect to any tax audits, and any related litigation, could be materially different from the Company’s estimates or from its historical income tax provisions and accruals.  The results of an audit or litigation could have a material effect on operating results or cash flows in the periods for which that determination is made.  In addition, future period earnings may be adversely impacted by litigation costs, settlements, penalties, or interest assessments.

The Company has on-going income tax examinations under various state tax jurisdictions.  It is the opinion of management that these audits and inquiries will not have a material impact on the Company’s condensed consolidated financial statements.

In September 2011, the Company entered into an agreement with Santa Barbara Realty Development, L.L.C. to purchase approximately fourteen acres of land for its new headquarters facility in Goleta, California.  As consideration for the land, the Company will pay an aggregate purchase price of $20,428.  The purchase price is subject to a $500 credit if the close of the escrow period occurs before December 31, 2011.

In March 2011, the Company entered into contracts requiring minimum purchase commitments of sheepskin that Deckers’ affiliates, manufacturers, factories and other agents (each or collectively, a “Buyer”) must make on or before July 31, 2011. As of September 30, 2011, the remaining commitment was approximately $6,000.  In the event that a Buyer does not purchase such minimum commitments on or before July 31, 2011, the Company was required to make a deposit for the remaining amounts.  Such deposit shall be refundable upon receipt of payment by Buyers for such amounts. The Company made a deposit for the remaining commitment, and as of September 30, 2011, the deposit balance was approximately $10,000.  In July 2011, the Company entered into a contract requiring minimum purchase commitments of sheepskin that a Buyer is targeted to make between July 1, 2011 and January 31, 2012.  As of September 30, 2011, the remaining commitment was approximately $30,000.  The Company made an advance deposit of $20,000 under this contract, all of which was remaining as of September 30, 2011.  Subsequent to September 30, 2011, the Company entered into another sheepskin agreement for a total minimum commitment of $158,000 that a Buyer is targeted to make between February 1, 2012 and July 31, 2012.  Under this contract, the Company will pay an advance deposit of $50,000 in two payments of $25,000, which the Company expects to pay in November and December 2011, respectively.  These advance deposits shall be repaid to the Company as Buyers purchase goods under the terms of these agreements.  All of these agreements may result in unconditional purchase obligations if a Buyer does not meet the minimum purchase requirements.  In the event that a Buyer does not purchase such minimum commitments, the Company shall be responsible for compliance with any and all minimum purchase commitments under these contracts.  The contracts do not permit net settlement.  The Company expects sheepskin purchases by third party factories will eventually exceed the contract levels.  Therefore, management believes the likelihood of any non-performance payments under these contractual arrangements is remote and would have an immaterial effect on the condensed consolidated statements of income.  The Company determined this based upon its projected sales and inventory purchases.

(10)Business Combination

On May 19, 2011, the Company entered into an asset purchase agreement whereby it would acquire substantially all of the assets and assume the related liabilities of Sanuk, an action sport footwear brand rooted in the surf community, known for its original sandals and shoes.  On July 1, 2011, the Company completed the acquisition of the purchased assets and the

12

DECKERS OUTDOOR CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(amounts in thousands, except share quantity and per share data)

assumption of the assumed liabilities.  The total purchase price for the assets related to the Sanuk brand was an initial cash payment of approximately $119,800 subject to certain working capital adjustments, which were preliminarily determined to be approximately $6,800 that were paid at closing.  The Company and the sellers of the assets related to the Sanuk brand are in the process of finalizing the balance sheet and working capital as of the closing, which may result in a further adjustment to the preliminary working capital adjustment which was paid at closing.  The purchase price also includes additional participation payments (contingent consideration) over the next five years as follows:

·2011 EBITDA of the Sanuk brand multiplied by ten, less the closing payment, up to maximum of $30,000;

·51.8% of the gross profit of the Sanuk brand in 2012, defined as total sales less the cost of sales for the business of the sellers;

·36.0% of gross profit of the Sanuk brand in 2013;

·8.0% of the product of gross profit of the Sanuk brand in 2015 multiplied by five.

There is no maximum to the contingent consideration payments for 2012, 2013, and 2015.

The Company acquired the Sanuk brand based upon the belief that Sanuk is a profitable, well-run business with a similar corporate culture, and provides substantial growth opportunities, particularly within the action sports market where it has a large and loyal customer base of active outdoor enthusiasts.  The Sanuk brand complements the Company’s existing brand portfolio with its unique market position through the combination of original and innovative product designs, as well as authentic and irreverent marketing campaigns.  The brand assists in balancing the Company’s existing seasonality, with its largest revenues being generated in the first half of the year.  The Sanuk brand also brings additional distribution channels to the Company, as it sells to hundreds of independent specialty surf and skate shops throughout the US that were not significantly in the Company’s existing customer portfolio.  The acquisition was accounted for as a business combination, and the Sanuk brand is reported as a new reportable segment.

The Company has included the operating results of the Sanuk brand in its condensed consolidated financial statements since the date of acquisition, including worldwide revenue of $15,578 and operating loss of $307 for all distribution channels.  This operating loss includes overhead costs that are excluded from worldwide wholesale segment operating income of $1,459 (see note 8).  The operating loss also included $2,990 of amortization expense on the acquired Sanuk intangibles and $1,389 of expense related to the change in fair value of the Sanuk contingent consideration due to accretion.  For the nine months ended September 30, 2011, the Company incurred approximately $4,000 of transaction costs for the Sanuk acquisition which was included in SG&A expense.

The fair value of the acquired intangible assets and contingent consideration is provisional pending the Company’s final determination of fair value, including the valuation report for those assets and liabilities from a third party valuation expert assisting the Company.  Also, the fair value of the purchase price is provisional pending agreement on the final working capital adjustment.  The fair value of the contingent consideration is based on Level 3 inputs, and further changes in the fair value of the contingent consideration will be recorded through operating income (see note 5).  The Company allocated the excess of the purchase price over the identifiable intangible and net tangible assets to goodwill.  The goodwill arising from the acquisition of the Sanuk brand relates to the projected earnings power over the future.  The goodwill is included in the Sanuk wholesale reportable segment and all of it is expected to be deductible for tax purposes.

The Company used the income approach to value the contingent consideration and identifiable intangible assets.  The contingent consideration used a discounted cash flow method with a discount rate of 5.0% in 2011 and 7.0% thereafter.  The following table summarizes the methods used under the income approach for the identifiable intangible assets and their corresponding discount rates and royalty rates, where applicable:

13

DECKERS OUTDOOR CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(amounts in thousands, except share quantity and per share data)

Identifiable intangible asset	Method	Discount Rate		Royalty Rate
US tradenames	Relief from royalty	15.0	%	5.0	%
International tradenames	Relief from royalty	17.0	%	5.0	%
Customer relationships	Excess earnings	15.5	%
International distributor relationships	Lost profits	17.5	%
US non-compete agreements	Lost profits	15.5	%
International non-compete agreements	Lost profits	17.5	%
Patents	Relief from royalty	16.5	%	3.0	%
US backlog	Excess earnings	14.0	%
International backlog	Excess earnings	16.0	%

The amortizable intangible assets are being amortized straight-line over their estimated useful lives, with the exception of the customer relationships, which are being amortized on an accelerated basis based on their aggregate projected after tax undiscounted cash flows.  The following table summarizes the consideration paid and the amounts of estimated fair value of the assets acquired and the liabilities assumed at the acquisition date:

				Estimated
	Estimated			Useful
	Fair Value			Life (Years)
Consideration
Cash paid	$	126,615
Estimated working capital adjustment	(4,091		)
Contingent consideration arrangement	84,300
Total consideration transferred	$	206,824
Recognized amounts of identifiable assets acquired and liabilities assumed:
Trade accounts receivable, net of allowances of $1,130	$	12,809
Inventories	7,545
Other current assets	367
Trade accounts payable	(5,590		)
Other liabilities	(507		)
Net tangible assets acquired	$	14,624
Identifiable intangible assets:
Tradenames	$	47,200		20
Customer relationships	21,300			10
International distributor relationships	800			2
Non-compete agreements	5,300			5
Patents	6,600			14
Backlog	1,830			1
Goodwill	109,170			Non-amortizable
Total purchase price	$	206,824

The following table presents the unaudited pro forma results of the Company for the three and nine months ended September 30, 2011 and September 30, 2010 as if the acquisition of the Sanuk brand had occurred on January 1, 2010.  These results are not intended to reflect the actual operations of the Company had the acquisition occurred on January 1, 2010.  Acquisition transaction costs that were incurred in the three months ended September 30, 2011 are included in the pro forma operating

14

DECKERS OUTDOOR CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(amounts in thousands, except share quantity and per share data)

income for the nine months ended September 30, 2010 in the table below.  Transaction costs that were incurred prior to July 1, 2011 have been excluded from the pro forma operating income.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
Revenue	$	414,358	$	288,644	$	815,706	$	609,005
Operating income	$	95,021	$	65,994	$	120,066	$	106,882

The Company entered into a deferred purchase factoring agreement with CIT Commercial Services (CIT) whereby CIT collects the Sanuk accounts receivable at the gross amount of such receivables, less any discounts and allowances.  CIT is responsible for the servicing and administration of accounts receivables collected on behalf of the Company and, to the extent that an eligible account is in default, CIT is required to purchase the account from the Company.  CIT collects amounts due and remits collected funds, less factoring and various administrative fees.  Open receivables collected by CIT totaled approximately $6,100 at September 30, 2011 and are included in accounts receivable in the condensed consolidated balance sheets.  Collection fees for the three and nine months ended September 30, 2011 were $69.

(11)Goodwill and Other Intangible Assets

The Company’s goodwill and other intangible assets are summarized as follows:

	Goodwill, Gross		Accumulated Impairment			Goodwill, Net
Balance at December 31, 2010	$	21,932	$	(15,425	)	$	6,507
Additions through acquisitions	109,170		—			109,170
Impairment	—		(406		)	(406		)
Balance at September 30, 2011	$	131,102	$	(15,831	)	$	115,271

Other intangible assets, net:
Balance at December 31, 2010	$	18,411
Purchases of intangible assets	87,255
Amortization expense	(7,596		)
Impairment	(1,420		)
Balance at September 30, 2011	$	96,650

(12)Recent Accounting Pronouncements

In December 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU), Disclosure of Supplementary Pro Forma Information for Business Combinations, an amendment to Accounting Standards Codification (ASC) 805, Business Combinations.  The amendment specifies that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination had occurred as of the beginning of the comparable prior reporting period only.  The amendment also expands the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings.  The amendments are effective prospectively for business combinations for which the acquisition date is on or after January 1, 2011.  The Company adopted this standard in connection with its Sanuk acquisition and included the required disclosures in its condensed consolidated financial statements.

In June 2011, the FASB issued ASU, Presentation of Comprehensive Income, an amendment to ASC 220, Comprehensive Income, that brings US Generally Accepted Accounting Principles (GAAP) into alignment with International Financial Reporting Standards for the presentation of OCI.  Effective for the Company beginning January 1, 2012, the option in current GAAP that permits the presentation of OCI in the statement of changes in equity has been eliminated.  The provisions of the

15

DECKERS OUTDOOR CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(amounts in thousands, except share quantity and per share data)

update provide that an entity that reports items of OCI has two options:  (1) a single statement must present the components of net income, total net income, the components of OCI, total OCI, and total comprehensive income; or (2) a two-statement approach whereby an entity must present the components of net income and total net income in the first statement.  That statement must be immediately followed by a financial statement that presents the components of OCI, a total for OCI, and a total for comprehensive income.  The adoption of this ASU will only change the presentation of OCI on the Company’s consolidated financial statements beginning January 1, 2012.

In September 2011, the FASB issued ASU, Intangibles - Goodwill and Other, which allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test.  Under this amendment, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount.  This ASU will be effective for the Company January 1, 2012, with early adoption permitted.  The Company is considering early adoption of this update.  The Company does not expect that the adoption of this update will have a material effect on its financial statements.

16

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

SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

This report and the information incorporated by reference in this report contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  We sometimes use words such as “anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “may,” “project,” “will” and similar expressions, as they relate to us, our management and our industry, to identify forward-looking statements.  Forward-looking statements relate to our expectations, beliefs, plans, strategies, prospects, future performance, anticipated trends and other future events.  Specifically, this report and the information incorporated by reference in this report contain forward-looking statements relating to, among other things:

·our global business, growth, operating and financing strategies;

·our product and geographic mix;

·the success of new products, new brands, and other growth initiatives;

·the impact of seasonality on our operations;

·expectations regarding our net sales and earnings growth and other financial metrics;

·our development of worldwide distribution channels;

·trends affecting our financial condition, results of operations, or cash flows;

·overall global economic trends; and

·reliability of overseas factory production and storage and availability of raw materials.

We have based our forward-looking statements largely on our current expectations and projections about future events and financial trends affecting our business.  Actual results may differ materially.  Some of the risks, uncertainties and assumptions that may cause actual results to differ from these forward-looking statements are described in Part II, Item 1A, “Risk Factors.”  In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report and the information incorporated by reference in this report might not happen.  You should read this report in its entirety, together with the documents that we file as exhibits to this report and the documents that we incorporate by reference in this report with the understanding that our future results may be materially different from what we expect.  We qualify all of our forward-looking statements by these cautionary statements and we assume no obligation to update such forward-looking statements publicly for any reason.

References to “Deckers,” “we,” “us,” “our,” or similar terms refer to Deckers Outdoor Corporation together with its consolidated subsidiaries.  Unless otherwise specifically indicated, all amounts herein are expressed in thousands, except for share quantity, per share data, and selling prices.  The following discussion of our financial condition and results of operations should be read together with our condensed consolidated financial statements and the accompanying notes to those statements included elsewhere in this document.

Overview

We are a leading designer, producer, marketer, and brand manager of innovative, high-quality footwear and accessories.  We market our products primarily under three proprietary brands:

·UGG®: Premier brand in luxury and comfort footwear and accessories;

·Teva®: High performance multi-sport shoes, rugged outdoor footwear, and sport sandals; and

·Sanuk®: Innovative action sport footwear brand rooted in the surf community.

Our financial condition and results of operations include the operations of Sanuk beginning July 1, 2011, our acquisition date.  In addition to our primary brands, our other brands include TSUBO®, a line of high-end casual footwear that incorporates style, function and maximum comfort; Ahnu®, a line of outdoor performance and lifestyle footwear; MOZO®, a line of footwear that combines running shoe technology with work shoe toughness for individuals that spend long hours working on their feet; and Simple®, a line which we plan to cease distribution effective December 31, 2011.

We sell our brands through our quality domestic retailers and international distributors and retailers, as well as directly to our end-user consumers through our eCommerce business and our retail stores.  Independent third parties manufacture all of our products.  In 2010, we converted our Teva business in Belgium, the Netherlands, and Luxemburg (Benelux) and France from a distributor model to a wholesale model.  In January 2011, we converted from a distributor model to a wholesale model for the UGG, Teva, and Simple brands in the United Kingdom (UK) and Ireland and the UGG and Simple brands in Benelux and France.

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Our business has been impacted by several important trends affecting our end markets:

·The prolonged US and global economic conditions have adversely impacted businesses worldwide in general.  Some of our customers have been, and more may be, adversely affected, which in turn has, and may continue to, adversely impact our financial results.

·The top grade sheepskin used in certain UGG products is in high demand and limited supply and there have been significant increases in the prices of top grade sheepskin as the demand from competitors for this material has increased.

·The markets for casual, outdoor and athletic footwear have grown significantly during the last decade. We believe this growth is a result of the trend toward casual dress in the workplace, increasingly active outdoor lifestyles and a growing emphasis on comfort.

·Consumers are more often seeking footwear designed to address a broader array of activities with the same quality, comfort and high performance attributes they have come to expect from traditional athletic footwear.

·Our customers have narrowed their footwear product breadth, focusing on brands with a rich heritage and authenticity as market category creators and leaders.

·Consumers have become increasingly focused on luxury and comfort, seeking out products and brands that are fashionable while still comfortable.

·There is an emerging sustainable lifestyle movement happening all around the world.  Consumers are demanding that brands and companies become more environmentally responsible.

By emphasizing our brands’ images and our focus on comfort, performance and authenticity, we believe we can continue to maintain a loyal consumer following that is less susceptible to fluctuations caused by changing fashions and changes in consumer preferences.

Below is an overview of the various components of our business, including some key factors that affect each business and some of our strategies for growing each business.

UGG Brand Overview

The UGG brand has become well-known throughout the US as well as internationally.  Over the past several years, our UGG brand has received increased global media exposure including increased print media in ads and cooperative advertising with our customers, which has contributed to broader public awareness of the brand and significantly increased demand for the collection.  We believe that the increased global media focus and demand for UGG products were driven by the following:

·consumer brand loyalty, due to the luxury and comfort of UGG footwear;

·continued innovation of new product categories and styles;

·increased marketing in high-end magazines and outdoor advertising;

·targeted marketing at prospective consumers in new catalogs and direct mail pieces;

·successful targeting of high-end distribution;

·expanded product assortment purchases from existing accounts;

·adoption by high-profile celebrities as a favored footwear brand;

·increased media attention that has enabled us to introduce the brand to consumers much faster than we would have otherwise been able to;

·increased exposure to the brand driven by our concept stores which showcase all of our product offerings;

·continued expansion of worldwide retail through new UGG Australia stores;

·continued geographic expansion across the US and internationally; and

·expansion of our shop-in-shop program worldwide.

We believe the luxury and comfort features of UGG products will continue to drive long-term consumer demand.  Recognizing that there is a significant fashion element to UGG footwear and that footwear fashions fluctuate, our strategy seeks to prolong the longevity of the brand by offering a broader product line suitable for wear in a variety of climates and occasions and by limiting distribution to selected higher-end retailers.  As part of this strategy we have increased our product offering, including a growing spring line, an expanded men’s line, and a fall line that consists of a range of luxurious collections for both genders, an expanded kids’ line, as well as handbags, cold weather accessories, and outerwear.  We believe that the evolution of the UGG brand and our strategy

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of product diversification also will help decrease our reliance on prime twinface sheepskin, which is in high demand and subject to price volatility.

Teva Brand Overview

Our Teva brand is positioned to be the leading innovative, global, action-outdoor brand, with over 25 years worth of contributions to the outdoor adventure experience.  The Teva brand pioneered the water sport sandal category in 1984, and to this day, our brand mission is to inspire spontaneity, camaraderie and adventure on, around, or in water.  Leveraging our core performance competencies of traction, hydro and comfort, we are focused on driving growth through innovation in the emerging action-outdoor space through multi-sport, light hiking, freestyle mountain bike riding, action water sports, and other action-outdoor lifestyle products.

Our efforts to expand the Teva brand beyond sandals, while embracing our core water-based competencies, contributed to significant revenue growth in 2010.  Throughout 2010 and year-to-date 2011, our broader range of products demonstrated strong retail sell-through across all channels, and we believe that our retail partners have viewed both our product and marketing innovations as relevant and compelling.

We see an opportunity to grow the Teva brand significantly outside of the US.  In January 2010, we converted from a distributor model to a wholesale model in the Benelux region and France, enhancing our marketing and distribution capabilities in the outdoor active Benelux market.  In January 2011, we converted our Teva brand international business from an independent distributor to a wholesale model in the UK, including Scotland and Ireland, which now affords us the opportunity to better drive our brand building and growth initiatives in this important influential market.  Within the US, we see strong growth opportunities within our current core channels of distribution, outdoor specialty and sporting goods, as our product assortment evolves and expands.  Also, through effective product and distribution segmentation, we see significant expansion opportunities within the family value, department store, better footwear, and action sports channels.  However, we cannot assure investors that these efforts will be successful.

Sanuk Brand Overview

On July 1, 2011 we acquired the Sanuk brand, a dynamic action sport footwear brand rooted in surf, known for its original sandals and shoes and irreverent marketing.  The brand has a history of innovation, product invention, foot-friendly comfort and clever branding.  Sanuk is currently available in more than 1,700 retailers in 40 countries and at Sanuk.com.  The brand enjoys diverse acceptance across multiple channels driven by key action sports retailers as well as outdoor retailers such as REI, EMS, and Bass Pro, specialty retailers including Fred Segal and Nordstrom, and larger national chains including Journeys, Dillards, and The Buckle.

Sanuk products have been twice recognized at the Surf Industry Manufacturers Association (SIMA) Image Awards as the 2007 and 2010 Footwear Product of the Year.  The brand is best known for its Sidewalk Surfers®, “These are not shoes, they’re sandals®”, often referred to as “Not-A-Shoe,” for the patented sandal construction, which allows the consumers feet to bend and flex in natural comfort.  The Sanuk brand uses innovative materials in its footwear such as yoga mats and indoor-outdoor carpet.

We believe that the Sanuk brand is an ideal addition to the Deckers family of brands and all can leverage off each others’ distribution channels.  The Sanuk business is a profitable, well-run business that we believe provides for substantial growth opportunities within the action sports market, as well as other markets and channels in which Deckers is already established.  In the 14 years since its inception, the founder and the team have consistently brought creativity, fun, and comfort to the line of sandals and shoes for men, women, and children.  The Sanuk brand’s offerings now include the patented Sidewalk Surfer shoe which effectively introduced the deconstructed footwear movement, the Fraid Not sandal collection, and the Yoga Mat sandal made from yoga mat material, which was cited as the 2010 Product of the Year by SIMA.  The Sanuk brand continues to build on its authentic position in the surf and outdoor markets through its relationships with prominent professional athletes, including surfers, bouldering athletes, and rock climbers, known as much for their unique personal styles and charisma as for their specialized talents.

Other Brands Overview

Our other brands consist of TSUBO, Ahnu, MOZO, and Simple.  Our other brands are all sold through most of our distribution channels, with the majority through wholesale channels.  We plan to cease distribution of the Simple brand effective December 31, 2011.

TSUBO, meaning pressure point in Japanese, is marketed as high-end casual footwear for men and women.  The brand is the synthesis of ergonomics and style, with a full line of sport and dress casuals, boots, sandals and heels constructed to provide consumers with contemporary footwear that incorporates style, function, and maximum comfort.  We are positioning the TSUBO

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brand as the premium footwear solution for people in the city.  We are continuing to create products to address consumers’ unique needs of all-day comfort, innovative style, and superior quality.

The Ahnu brand is an outdoor performance and lifestyle footwear brand for men and women.  The name Ahnu is derived from the Celtic goddess representing the balance of well-being and prosperity.  The brand focuses primarily on women consumers offering style and comfort for active women on both trails and pavement.  The product goal is to achieve uncompromising footwear performance by developing footwear that will provide the appropriate balance of traction, grip, flexibility, cushioning, and durability for a variety of outdoor activities — whether on trails, beaches, or sidewalks.

The MOZO brand strives to deliver revolutionary footwear for creative, passionate, and talented professionals that spend long hours working on their feet.  Our high-performance footwear is designed to the specifications of these professionals, not just their workplace.  In 2011, MOZO introduced The Chef Signature Collection:  footwear designed by Marcus Samuelsson, Aaron Sanchez, and Chris Cosentino.  This collection has put the MOZO brand in the press for the first time and allowed the brand to open up new distribution opportunities.  We have recently expanded our distribution to include large on-line retailers and into the health care worker market.

We expect to leverage our design, marketing and distribution capabilities to grow these brands over the next several years, consistent with our mission to build niche brands into global market leaders.  Nevertheless, we cannot assure investors that our efforts will be successful.

eCommerce Overview

Our eCommerce business, which sells all of our brands, allows us to reinforce our relationship with the consumer.  eCommerce enables us to meet the growing demand for our products, sell the products at retail prices and provide significant incremental operating income.  The eCommerce business provides us an opportunity to communicate to the consumer with a consistent brand message that is in line with our brands’ promises, drives awareness of key brand initiatives, and offers targeted information to specific consumer segments.  In recent years, our eCommerce business has had significant revenue growth, much of which occurred as the UGG brand gained popularity and as consumers continued to increase internet usage for footwear and other purchases.

Managing our eCommerce business requires us to focus on the latest trends and techniques for web design and marketing, to generate internet traffic to our websites, to effectively convert website visits into orders, and to maximize average order sizes.  We plan to continue to grow our eCommerce business through improved website features and performance, increased marketing, more international websites, and utilization of mobile and tablet technology.  Nevertheless, we cannot assure investors that revenue from our eCommerce business will continue to grow.

Retail Stores Overview

Our retail stores are predominantly UGG Australia concept stores and UGG Australia outlet stores.  Our retail stores enable us to directly impact our customers’ experience, meet the growing demand for these products, sell the products at retail prices and provide us with incremental operating income.  In addition, our UGG Australia concept stores allow us to showcase our entire line; whereas, a retailer may not carry the whole line.  Through our outlet stores, we sell some of our discontinued styles from prior seasons, plus products made specifically for the outlet stores.  We sell Teva products as well as some of our other brands through our UGG Australia outlet stores.

As of September 30, 2011, we had a total of 37 retail stores worldwide.  These stores are company-owned and operated and include our China stores, which are owned and operated with our joint venture partner.  During the fourth quarter of 2011, we opened or plan to open additional retail stores in Canada, the UK, and Asia.  We intend to continue opening more retail stores worldwide beyond 2011.

Seasonality

Our business is seasonal, with the highest percentage of UGG brand net sales occurring in the third and fourth quarters and the highest percentage of Teva and Sanuk brand net sales occurring in the first and second quarters of each year.  Our financial results include the Sanuk brand beginning July 1, 2011.  Our other brands do not have a significant seasonal impact.

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	2011
	First Quarter		Second Quarter			Third Quarter		Fourth Quarter
Net sales	$	204,851	$	154,222		$	414,358
Income (loss) from operations	$	28,195	$	(10,798	)	$	90,661

	2010
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
Net sales	$	155,927	$	137,059	$	277,879	$	430,124
Income from operations	$	28,821	$	13,216	$	66,314	$	140,737

With the large growth in the UGG brand over the past several years, net sales in the last half of the year have exceeded that for the first half of the year.  Given our expectations for our brands, we currently expect this trend to continue.  Nonetheless, actual results could differ materially depending upon consumer preferences, availability of product, competition and our customers continuing to carry and promote our various product lines, among other risks and uncertainties.  See Part II, Item 1A, “Risk Factors.”

Results of Operations

Three Months Ended September 30, 2011 Compared to Three Months Ended September 30, 2010

The following table summarizes the Company’s results of operations:

	Three Months Ended September 30,
	2011				2010					Change
	Amount		%		Amount			%		Amount			%
Net sales	$	414,358	100.0	%	$	277,879		100.0	%	$	136,479		49.1	%
Cost of sales	211,505		51.0		146,926			52.9		64,579			44.0
Gross profit	202,853		49.0		130,953			47.1		71,900			54.9
Selling, general and administrative expenses	112,192		27.1		64,639			23.3		47,553			73.6
Income from operations	90,661		21.9		66,314			23.9		24,347			36.7
Other expense (income), net	50		—		(213		)	(0.1	)	263			123.5
Income before income taxes	90,611		21.9		66,527			23.9		24,084			36.2
Income taxes	28,266		6.8		24,555			8.8		3,711			15.1
Net income	62,345		15.1		41,972			15.1		20,373			48.5
Net loss attributable to the noncontrolling interest	139		—		171			0.1		(32		)	(18.7	)
Net income attributable to Deckers Outdoor Corporation	$	62,484	15.1	%	$	42,143		15.2	%	$	20,341		48.3	%

Overview.  The Sanuk brand operations are included in our results of operations effective upon our acquisition date of July 1, 2011.  The increase in net sales was primarily due to an increase in UGG product sales as well as the addition of Sanuk product sales.  The increase in income from operations resulted primarily from higher net sales and increased gross margin, partially offset by higher selling, general and administrative expenses.

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Net Sales.  The following tables summarize net sales by location, brand and distribution channel:

	Three Months Ended September 30,
					Change
	2011		2010		Amount			%
Net sales by location:
US	$	257,934	$	204,728	$	53,206		26.0	%
International	156,424		73,151		83,273			113.8
Total	$	414,358	$	277,879	$	136,479		49.1	%
Net sales by brand and distribution channel:
UGG:
Wholesale	$	334,308	$	229,128	$	105,180		45.9	%
eCommerce	7,844		6,827		1,017			14.9
Retail stores	34,523		19,835		14,688			74.1
Total	376,675		255,790		120,885			47.3
Teva:
Wholesale	12,879		12,226		653			5.3
eCommerce	1,674		1,295		379			29.3
Retail stores	140		171		(31		)	(18.1	)
Total	14,693		13,692		1,001			7.3
Sanuk:
Wholesale	15,350		—		15,350			*
eCommerce	228		—		228			*
Retail stores	—		—		—			*
Total	15,578		—		15,578			*
Other:
Wholesale	6,866		7,696		(830		)	(10.8	)
eCommerce	508		543		(35		)	(6.4	)
Retail stores	38		158		(120		)	(75.9	)
Total	7,412		8,397		(985		)	(11.7	)
Total	$	414,358	$	277,879	$	136,479		49.1	%
Total eCommerce	$	10,254	$	8,665	$	1,589		18.3	%
Total Retail stores	$	34,701	$	20,164	$	14,537		72.1	%

* Calculation of percentage change is not meaningful.

The increase in net sales was primarily driven by strong sales for the UGG brand and the addition of the Sanuk brand.  We experienced an increase in the number of pairs sold primarily through our UGG wholesale segment plus the addition of our Sanuk wholesale segment, partially offset by a decrease in pairs sold in our other brands wholesale segment.  This resulted in an increase in the overall volume of footwear sold for all brands of 37.8% to approximately 6.2 million pairs sold for the three months ended September 30, 2011 from 4.5 million pairs for the three months ended September 30, 2010.  Our weighted-average wholesale selling price per pair increased to $63.99 for the three months ended September 30, 2011 from $58.61 for the three months ended September 30, 2010.  The increased average selling price was partially due to higher selling prices resulting from our conversion from a distributor model to a direct wholesale model for our UGG brand in the UK and Benelux and for our Teva brand in the UK.  The increased selling prices over the prior year period from this conversion will not recur; however, we expect to maintain the wholesale selling prices in these regions in the future.

Wholesale net sales of our UGG brand increased primarily due to an increase in the overall volume of pairs sold as well as an increase in the average selling price largely related to our conversion to a direct wholesale model in the UK and Benelux.  We cannot assure investors that UGG brand sales will continue to grow at their past pace.

Wholesale net sales of our Teva brand increased primarily due to an increase in the average selling price, largely related to our conversion to a direct wholesale model in the UK.

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Wholesale net sales of our Sanuk brand, which we acquired in July 2011, was $15,350.

Wholesale net sales of our other brands decreased due to a decrease in pairs sold, partially offset by an increase in the average selling price.

Net sales of our eCommerce business increased due to an increase in the number of pairs sold, partially offset by a decrease in the average selling price.

Net sales of our retail store business, which are primarily UGG brand sales, increased largely due to the addition of 13 new stores opened since September 30, 2010.  New stores that were not open during the full three months ended September 30, 2010 contributed approximately $13,000 of retail sales for three months ended September 30, 2011.  We do not expect this growth rate to continue because as we increase the number of our stores, each new store will have less proportional impact on our growth rate.  For those stores that were open during the full third quarter of 2011 and 2010, same store sales grew by 15.4%.  Nevertheless, we cannot assure investors that retail store sales will continue to grow at their recent pace or that revenue from our retail store business will not at some point decline.

International sales, which are included in the segment sales above, for all of our products combined represented 37.8% and 26.3% of worldwide net sales for the three months ended September 30, 2011 and 2010, respectively.  The increase in international sales was largely due to increased sales for our UGG wholesale channel, primarily in the European region, related to our conversion to a direct wholesale model.

Gross Profit.  As a percentage of net sales, gross margin increased primarily due to the conversion in the UK and Benelux from distributor to wholesale direct models, the addition of the Sanuk brand, and an increased mix of retail sales, which generally carry higher margins.  The increase was partially offset by increased cost of goods, including sheepskin and other material costs as well as increased factory costs.

Selling, General and Administrative Expenses (SG&A).  As a percentage of net sales, SG&A increased primarily from:

·increased retail costs of approximately $10,000, largely related to 13 new retail stores that were not open as of September 30, 2010;

·increased marketing expenses of approximately $8,000, largely related to our new UGG men’s and women’s campaigns;

·increased international division expenses of approximately $7,000 in support of our continued international expansion and our distributor conversions to the wholesale model;

·increased divisional brand expenses of approximately $5,000 in support of our continued growth;

·increased depreciation and amortization expenses of approximately $5,000, primarily related to the purchase of Sanuk brand intangible assets.

Income from Operations.  The gross profit derived from the sales to third parties of the eCommerce and retail store segments is separated into two components:  (i) the wholesale profit is included in the related operating income or loss of each wholesale segment, and (ii) the remaining profit is included in the eCommerce and retail stores segments.  The following table summarizes operating income (loss) by segment:

	Three Months Ended September 30,
							Change
	2011			2010			Amount			%
UGG wholesale	$	143,998		$	96,568		$	47,430		49.1	%
Teva wholesale	(1,389		)	230			(1,619		)	(703.9	)
Sanuk wholesale	1,459			—			1,459				*
Other wholesale	(2,965		)	(229		)	(2,736		)	(1,194.8	)
eCommerce	483			787			(304		)	(38.6	)
Retail stores	(544		)	991			(1,535		)	(154.9	)
Unallocated overhead costs	(50,381		)	(32,033		)	(18,348		)	(57.3	)
Total	$	90,661		$	66,314		$	24,347		36.7	%

* Calculation of percentage change is not meaningful.

Income from operations increased due to the increase in net sales and gross margin, partially offset by the higher SG&A expenses.

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The increase in income from operations of UGG brand wholesale was primarily the result of increased sales and a 1.7 percentage point increase in gross margin, partially attributable to our distributor conversions in Europe.  The gross margin increase was partially offset by sheepskin and other material and factory cost increases.  The increase in income was partially offset by higher marketing and promotional expenses of approximately $6,000, related to our new men’s and women’s campaigns.

The loss from operations of Teva brand wholesale, compared to income from operations in the prior year period, was primarily due to increased selling, marketing and promotional, and other divisional expenses totaling approximately $1,500, partially offset by the increase in sales.

The income from operations from our Sanuk brand, which we acquired in July 2011, was $1,459.

The loss from operations of our other brands wholesale increased primarily due to a 26.9 percentage point decrease in gross margin largely due to the increased impact of closeout sales.  As we are ceasing distribution of the Simple brand, we experienced negative margins on Simple brand closeout sales and also recorded additional inventory write-downs.

The decrease in income from operations of our eCommerce business was primarily due to an increase in marketing and promotional expenses and UK expenses, primarily related to the start-up of our European eCommerce business, totaling approximately $1,000, partially offset by the increase in sales.

The loss from operations of our retail store business, compared to income from operations in the prior year period, was primarily due to approximately $10,000 of higher operating expenses largely related to our new store openings.  These results were partially offset by increased sales and a 2.3 percentage point increase in gross margin, primarily due to an increase in international sales which generally carry higher margins.

The increase in unallocated overhead costs resulted most significantly from an increase of approximately $7,000 related to international infrastructure costs primarily to support our conversions from distributor models to direct wholesale models, as well as transaction costs related to our Sanuk acquisition of approximately $3,000 and increased legal expenses of approximately $2,000 primarily related to the protection of our intellectual property including our trademarks.

Other (Income) Expense, Net.  Other income, net decreased primarily due to a one-time foreign sales tax exemption in the prior year period.

Income Taxes.  Income taxes for the interim periods are computed using the effective tax rate estimated to be applicable for the full fiscal year, which is subject to ongoing review and evaluation by management and can vary from quarter to quarter.  Income tax expense and effective income tax rates were as follows:

	Three Months Ended
	September 30,
	2011			2010
Income tax expense	$	28,266		$	24,555
Effective income tax rate	31.2		%	36.9		%

The decrease in the effective tax rate was primarily due to the increase in our projected annual foreign pre-tax income as a percentage of worldwide pre-tax income, as income generated in the US is taxed at significantly higher rates than most of our foreign jurisdictions.  For the full year 2011, we expect to generate approximately 23% of our pre-tax earnings from a country which does not impose a corporate income tax.  Unremitted earnings of non-US subsidiaries are expected to be reinvested outside of the US indefinitely.  Such earnings would become taxable upon the sale or liquidation of these subsidiaries or upon the remittance of dividends.  As of September 30, 2011, we had an immaterial amount of cash and cash equivalents outside the US that would be subject to additional income taxes if it were to be repatriated.  We have no plans to repatriate any of our foreign cash.  We anticipate our effective tax rate for the full year 2011 to be significantly lower than the full year rate of 35.9% in 2010.

Net Loss Attributable to the Noncontrolling Interest.  Net loss attributable to the noncontrolling interest in our joint venture with Stella International was $139 and $171 for the three months ended September 30, 2011 and 2010, respectively.

Net Income Attributable to Deckers Outdoor Corporation.   Our net income increased as a result of the items discussed above.  Our diluted earnings per share increased primarily as a result of the increase in net income.

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Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010

The following table summarizes the Company’s results of operations:

	Nine Months Ended September 30,
	2011					2010					Change
	Amount			%		Amount			%		Amount			%
Net sales	$	773,431		100.0	%	$	570,865		100.0	%	$	202,566		35.5	%
Cost of sales	402,188			52.0		301,262			52.8		100,926			33.5
Gross profit	371,243			48.0		269,603			47.2		101,640			37.7
Selling, general and administrative expenses	263,185			34.0		161,252			28.2		101,933			63.2
Income from operations	108,058			14.0		108,351			19.0		(293		)	(0.3	)
Other income, net	(131		)	—		(775		)	(0.1	)	644			(83.1	)
Income before income taxes	108,189			14.0		109,126			19.1		(937		)	(0.9	)
Income taxes	33,539			4.3		40,104			7.0		(6,565		)	(16.4	)
Net income	74,650			9.7		69,022			12.1		5,628			8.2
Net income attributable to the noncontrolling interest	(327		)	—		(18		)	—		(309		)		*
Net income attributable to Deckers Outdoor Corporation	$	74,323		9.6	%	$	69,004		12.1	%	$	5,319		7.7	%

* Calculation of percentage change is not meaningful.

Overview.  The Sanuk brand operations are included in our results of operations effective upon our acquisition date of July 1, 2011.  The increase in net sales was primarily due to an increase in UGG product sales.  The increase in income from operations resulted from higher sales and higher gross margin, partially offset by higher SG&A expenses.

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Net Sales.  The following table summarizes net sales by location and net sales by brand and distribution channel:

	Nine Months Ended September 30,
					Change
	2011		2010		Amount			%
Net sales by location:
US	$	488,828	$	386,963	$	101,865		26.3	%
International	284,603		183,902		100,701			54.8
Total	$	773,431	$	570,865	$	202,566		35.5	%
Net sales by brand and distribution channel:
UGG:
Wholesale	$	510,739	$	381,728	$	129,011		33.8	%
eCommerce	32,901		26,223		6,678			25.5
Retail stores	89,728		52,417		37,311			71.2
Total	633,368		460,368		173,000			37.6
Teva:
Wholesale	100,445		83,549		16,896			20.2
eCommerce	4,615		4,264		351			8.2
Retail stores	333		260		73			28.1
Total	105,393		88,073		17,320			19.7
Sanuk:
Wholesale	15,350		—		15,350				*
eCommerce	228		—		228				*
Retail stores	—		—		—				*
Total	15,578		—		15,578				*
Other:
Wholesale	17,281		20,064		(2,783		)	(13.9	)
eCommerce	1,679		1,777		(98		)	(5.5	)
Retail stores	132		583		(451		)	(77.4	)
Total	19,092		22,424		(3,332		)	(14.9	)
Total	$	773,431	$	570,865	$	202,566		35.5	%
Total eCommerce	$	39,423	$	32,264	$	7,159		22.2	%
Total Retail stores	$	90,193	$	53,260	$	36,933		69.3	%

* Calculation of percentage change is not meaningful.

The increase in net sales was primarily driven by strong sales for the UGG brand.  We experienced an increase in the number of pairs sold primarily through our UGG and Teva wholesale channels, as well as the addition of the Sanuk brand, partially offset by a decrease in pairs sold in our other brands.  This resulted in a 18.9% overall increase in the volume of footwear sold for all brands to approximately 14.5 million pairs for the nine months ended September 30, 2011 compared to approximately 12.2 million pairs for the nine months ended September 30, 2010.  Our weighted-average wholesale selling price per pair increased to $48.08 for the nine months ended September 30, 2011 from $42.51 for the nine months ended September 30, 2010.  The increased average selling price was partially due to higher selling prices resulting from our conversion from a distributor model to a direct wholesale model for our UGG brand in the UK and Benelux and for our Teva brand in the UK.  The increased selling prices over the prior year period from this conversion will not recur; however, we expect to maintain the wholesale selling prices in these regions in the future.

Wholesale net sales of our UGG brand increased primarily due to an increase in the average selling price, which was largely related to our conversion to a direct wholesale model in the UK and Benelux, as well as a result of decreased closeout sales.  We also experienced an increase in the volume of pairs sold.  We cannot assure investors that UGG brand sales will continue to grow at their past pace.

Wholesale net sales of our Teva brand increased due to both an increase in the volume of pairs sold, as well as an increase in the average selling price largely related to our conversion to a direct wholesale model in the UK.

Wholesale net sales of our Sanuk brand, which we acquired in July 2011, were $15,350.

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Wholesale net sales of our other brands decreased due to a decrease in pairs sold, partially offset by an increase in the average selling price.

Net sales of our eCommerce business increased due to both an increase in the volume of pairs sold and an increase in the average selling price.

Net sales of our retail store business, which are primarily UGG brand sales, increased largely due to the addition of 13 new stores opened since September 30, 2010.  New stores that were not open during the full nine months ended September 30, 2010 contributed approximately $33,000 of retail sales for nine months ended September 30, 2011.  We do not expect this growth rate to continue because as we increase the number of our stores, each new store will have less proportional impact on our growth rate.  For those stores that were open during the full nine months ended September 30, 2011 and 2010, same store sales grew by 11.5%.  Nevertheless, we cannot assure investors that retail store sales will continue to grow at their recent pace or that revenue from our retail store business will not at some point decline.

International sales, which are included in the segment sales above, for all of our products combined represented 36.8% and 32.2% of worldwide net sales for the nine months ended September 30, 2011 and 2010, respectively.  The international sales growth was led by the UGG and Teva brands in the European region largely due to our conversion to a direct wholesale model.

Gross Profit.  As a percentage of net sales, gross margin increased primarily due to a higher percentage mix of retail sales as well as higher margins led by our UGG wholesale and retail stores segments.  We began realizing the benefit of the direct wholesale model, versus distributor margins, in the UK for our UGG and Teva brands and in Benelux for our UGG brand starting in January 2011.  The increase was partially offset by increased cost of goods, including sheepskin and other material costs as well as increased factory costs.

Selling, General and Administrative Expenses (SG&A).  As a percentage of net sales, SG&A increased primarily due to:

·increased retail costs of approximately $21,000 largely related to 13 new retail stores that were not open as of September 30, 2010;

·increased international division expenses of approximately $20,000 in support of our international expansion and our distributor conversions to the wholesale model;

·increased marketing expenses of approximately $13,000 primarily related to our UGG brand;

·increased legal costs primarily related to the protection of our intellectual property of approximately $7,000; and

·increased depreciation and amortization expenses of approximately $7,000, primarily related to our Sanuk acquisition and other purchases of intangible assets.

Income from Operations.  The gross profit derived from the sales to third parties of the eCommerce and retail store segments is separated into two components:  (i) the wholesale profit is included in the related operating income or loss of each wholesale segment, and (ii) the remaining profit is included in the eCommerce and retail stores segments.  The following table summarizes operating income (loss) by segment:

	Nine Months Ended September 30,
							Change
	2011			2010			Amount			%
UGG wholesale	$	206,208		$	163,371		$	42,837		26.2	%
Teva wholesale	20,576			18,969			1,607			8.5
Sanuk wholesale	1,459			—			1,459				*
Other wholesale	(7,573		)	(2,537		)	(5,036		)	(198.5	)
eCommerce	5,767			5,420			347			6.4
Retail stores	1,631			3,349			(1,718		)	(51.3	)
Unallocated overhead costs	(120,010		)	(80,221		)	(39,789		)	(49.6	)
Total	$	108,058		$	108,351		$	(293	)	(0.3	)%

* Calculation of percentage change is not meaningful.

Income from operations as a percentage of sales decreased due to increased SG&A expenses, partially offset by increased sales and gross margins.

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The increase in income from operations of UGG brand wholesale was primarily the result of higher sales and a 1.0 percentage point increase in gross margin, partially attributable to our distributor conversions in Europe.  The gross margin increase was partially offset by sheepskin and other material and factory cost increases.  The increase to income was partially offset by increases in marketing and promotional expenses; increased sales commissions; and higher amortization expenses, primarily related to order books we acquired from our distributor conversions in Europe, totaling approximately $19,000.

The increase in income from operations of Teva brand wholesale was largely due to increased sales and decreased amortization of approximately $2,000, partially offset by a 1.0 percentage point decrease in gross margin, primarily due to higher inventory write-downs and an increased impact of closeout sales.  In addition, we recognized increased divisional sales expenses and increased marketing and promotional expenses totaling approximately $4,000.

The income from operations of our Sanuk brand, which we acquired in July 2011, was $1,459.

The loss from operations of our other brands wholesale increased primarily due to a 19.1 percentage point decrease in gross margin as well as the decreased sales.  As we are ceasing distribution of the Simple brand, we experienced negative margins on Simple brand closeout sales.

Income from operations of our eCommerce business increased slightly.

The decrease in income from operations of our retail store business was primarily due to approximately $21,000 of higher operating expenses primarily related to our new store openings.   The decrease was partially offset by increased sales as well as a 1.2 percentage point increase in gross margin.

The increase in unallocated overhead costs resulted most significantly from an increase of approximately $14,000 related to international infrastructure costs primarily to support our conversions from distributor models to direct wholesale models, as well as increased legal expenses of approximately $7,000 primarily related to the protection of our intellectual property including our trademarks.  We also incurred approximately $4,000 related to Sanuk acquisition costs.

Other (Income) Expense, Net.  Other income, net decreased primarily due to a one-time foreign sales tax exemption recognized in the prior year, partially offset by a credit to interest expense in the current year resulting from a reversal of a prior year income tax related accrual.

Income Taxes.  Income taxes for the interim periods are computed using the effective tax rate estimated to be applicable for the full fiscal year, which is subject to ongoing review and evaluation by management and can vary from quarter to quarter.  Income tax expense and effective income tax rates were as follows:

	Nine Months Ended
	September 30,
	2011			2010
Income tax expense	$	33,539		$	40,104
Effective income tax rate	31.0		%	36.8		%

The decrease in the effective tax rate was primarily due to the increase in our projected annual foreign pre-tax income as a percentage of worldwide pre-tax income, as income generated in the US is taxed at significantly higher rates than most of our foreign jurisdictions.  For the full year 2011, we expect to generate approximately 23% of our pre-tax earnings from a country which does not impose a corporate income tax.  Unremitted earnings of non-US subsidiaries are expected to be reinvested outside of the US indefinitely.  Such earnings would become taxable upon the sale or liquidation of these subsidiaries or upon the remittance of dividends.  As of September 30, 2011, we had an immaterial amount of cash and cash equivalents outside the US that would be subject to additional income taxes if it were to be repatriated.  We have no plans to repatriate any of our foreign cash.  We anticipate our effective tax rate for the full year 2011 to be significantly lower than the full year rate of 35.9% in 2010.

Net Income Attributable to the Noncontrolling Interest.  Net income attributable to the noncontrolling interest in our joint venture with Stella International was $327 and $18 for the nine months ended September 30, 2011 and 2010, respectively.

Net Income Attributable to Deckers Outdoor Corporation.  Our net income increased as a result of the items discussed above.  Our diluted earnings per share increased by 7.4% to $1.89 for the nine months ended September 30, 2011 compared to $1.76 in the same period of 2010, primarily as a result of the increase in net income.

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Off-Balance Sheet Arrangements

We have off-balance sheet arrangements consisting of guarantee contracts.  See “Contractual Obligations” below.

Liquidity and Capital Resources

We finance our working capital and operating needs using a combination of our cash and cash equivalents balances, cash generated from operations and, as needed, the credit available under our credit agreement.  In an economic recession or under other adverse economic conditions, we may be unable to realize a return on our cash and cash equivalents, secure additional credit on favorable terms, or renew or access our existing credit.  Such failures may impact our working capital reserves and have a material adverse effect on our business.

Our cash flow cycle includes the purchase of inventories, the subsequent sale of the inventories, and the eventual collection of the resulting accounts receivables.  As a result, our working capital requirements begin when we purchase the inventories and continue until we ultimately collect the resulting receivables.  The seasonality of our UGG brand business requires us to build fall and winter inventories in the second and third quarters to support sales for the UGG brand’s major selling seasons, which historically occur during the third and fourth quarters; whereas, the Teva and Sanuk brands generally begin to build inventory levels beginning in the fourth and first quarters in anticipation of the spring selling season that occurs in the first and second quarters.  Given the seasonality of our UGG, Teva, and Sanuk brands, our working capital requirements fluctuate significantly throughout the year.  The cash required to fund these working capital fluctuations has been provided using our internal cash flows and short-term borrowings.  As needed, we borrow funds under our credit agreement.

The following table summarizes the Company’s cash flows and working capital:

	Nine Months Ended September 30,
							Change
	2011			2010			Amount			%
Net cash used in operating activities	$	(222,258	)	$	(61,926	)	$	(160,332	)	(258.9	)%
Net cash (used in) provided by investing activities	$	(152,322	)	$	6,393		$	(158,715	)	(248.3	)%
Net cash provided by (used in) financing activities	$	19,053		$	(9,902	)	$	28,955		292.4	%

	September 30,		December 31,		Change
	2011		2010		Amount			%
Cash and cash equivalents	$	90,425	$	445,226	$	(354,801	)	(79.7	)%
Trade accounts receivable	227,675		116,663		111,012			95.2
Inventories	356,873		124,995		231,878			185.5
Other current assets	74,393		28,848		45,545			157.9
Total current assets	$	749,366	$	715,732	$	33,634		4.7	%
Short-term borrowings	$	45,000	$	—	$	45,000			*
Trade accounts payable		132,193		67,073		65,120		97.1	%
Other current liabilities	83,571		77,790		5,781			7.4
Total current liabilities	$	260,764	$	144,863	$	115,901		80.0	%
Net working capital	$	488,602	$	570,869	$	(82,267	)	(14.4	)%

* Calculation of percentage change is not meaningful.

Cash from Operating Activities.  We used significantly more net cash in operating activities in the nine months ended September 30, 2011 versus 2010.  The increased cash used in operating activities was primarily due to significant increases in inventories, prepaid expenses, and accounts receivable, which all increased more in the nine months ended September 30, 2011 versus 2010.  The larger increase in inventories was primarily due to higher projected UGG brand sales in the fourth quarter of 2011 versus 2010, increased international inventory primarily related to our new wholesale European business, the increase in retail stores, and increased costs of materials and factories.  The larger increase in prepaid expenses was primarily due to increased prepaid rents and prepaid fees on our new credit agreement, and the larger increase in accounts receivable was primarily due to increased sales and our new wholesale

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European business.  These decreases in operating cash flows were partially offset by a significant increase in accounts payable, which increased more in the nine months ended September 30, 2011 versus 2010.  Accounts payable increased primarily due to our increased inventory purchases.  Net working capital decreased as of September 30, 2011 from December 31, 2010, primarily as a result of lower cash and cash equivalents primarily due to our Sanuk acquisition, the higher trade accounts payable, and our short-term borrowings. These decreases to working capital were partially offset by the increased inventory and accounts receivable.  Changes in working capital are due to the items discussed above, as well as our normal seasonality and timing of cash receipts and cash payments.

Wholesale accounts receivable turnover decreased to 7.0 times in the twelve months ended September 30, 2011 from 7.9 times for the twelve months ended September 30, 2010, primarily due to higher average accounts receivable balances, partially offset by increased cash collections for the twelve months ended September 30, 2011 compared to the twelve months ended September 30, 2010.  The higher accounts receivable balances were primarily attributed to increased sales, including the conversion to our European wholesale operations, which provides us higher selling prices.

Inventory turnover decreased to 3.0 times for the twelve months ended September 30, 2011 compared to 3.6 times for the twelve months ended September 30, 2010, primarily due to higher average inventory levels during the twelve months ended September 30, 2011 compared to the twelve months ended September 30, 2010, partially offset by increased sales.  The higher inventory balances were primarily attributed to our projected increased sales, increased international inventory, new retail locations, and increased costs of materials and factories.

Cash from Investing Activities.  Net cash used in investing activities for the nine months ended September 30, 2011 resulted primarily from our acquisition of the Sanuk brand (see note 10, to the condensed consolidated financial statements) and purchases of property and equipment.  Our larger capital expenditures included the build out of new retail stores and computer hardware and software.  For the nine months ended September 30, 2010, net cash provided by investing activities resulted primarily from sales of short-term investments, partially offset by purchases of property and equipment and acquisitions of businesses.  In addition, we did not purchase short-term investments in the nine months ended September 30, 2010 or subsequently, as we shifted our investments to cash and cash equivalents.

In September 2011, we entered into an agreement to purchase approximately fourteen acres of land for our new headquarters facility for an aggregate purchase price of $20,428, subject to a $500 credit if escrow closes before December 31, 2011.  As of September 30, 2011, we had no other material commitments for future capital expenditures but estimate that the remaining capital expenditures for 2011, including the land, will range from approximately $35,000 to $40,000.  We anticipate these expenditures will primarily include the land, the initial construction costs of our new headquarters, and new retail stores.  The actual amount of capital expenditures for the remainder of the year may differ from this estimate, largely depending on the timing of new store openings or any unforeseen needs to replace existing assets and the timing of other expenditures.

Cash from Financing Activities.  For the nine months ended September 30, 2011, net cash provided by financing activities was comprised primarily of short-term borrowings, as well as excess tax benefits from stock compensation, partially offset by cash used for repurchases of our common stock and for shares withheld for taxes from employee stock unit vestings.  The excess tax benefits from stock compensation changes were larger than the prior period primarily due to the issuance of stock in relation to our long-term incentive program.  For the nine months ended September 30, 2010, net cash used in financing activities was comprised primarily of cash used for repurchases of our common stock and for shares withheld for taxes from employee stock unit vestings, partially offset by excess tax benefits from stock compensation.

In June 2009, our Board of Directors approved a stock repurchase program to repurchase up to $50,000 of our common stock in the open market or in privately negotiated transactions, subject to market conditions, applicable legal requirements and other factors.  The program does not obligate us to acquire any particular amount of common stock and the program may be suspended at any time at our discretion.  As of June 30, 2011, we had repurchased the full amount authorized under this program.  During the nine months ended September 30, 2011, the Company repurchased approximately 245,000 shares for approximately $20,000, or an average price of $81.22 per share.

On August 10, 2011, we entered into Amendment Number Two to Second Amended and Restated Credit Agreement (“Amendment Number Two”) with Comerica Bank (“Comerica”).  Amendment Number Two amended the terms of that certain Second Amended and Restated Credit Agreement, entered into on May 27, 2010, by and among Deckers Outdoor Corporation; Tsubo, LLC; and Comerica (the “Previous Credit Agreement”).  Amendment Number Two amended the Previous Credit Agreement by increasing the maximum availability from $20,000 to $60,000 during the period commencing on August 10, 2011 and ending on November 30, 2011 (the “Increased Commitment Period”).  During the Increased Commitment Period, amounts borrowed under the Credit Agreement would bear interest at Comerica’s prime rate, plus 0.25% or, at the Company’s option, at the London Interbank Offered Rate (LIBOR), plus 1.25%.  Amendment Number Two also increased the

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percentage fee payable for certain letters of credit during the Increased Commitment Period from 0.75% to 1.25%.  We did not borrow under Amendment Number Two.

On August 30, 2011, we entered into a Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, National Association as the administrative agent, Comerica Bank and HSBC Bank USA, National Association, as syndication agents, and the lenders party thereto.  The Credit Agreement is a five-year, $200,000 secured revolving credit facility which contains a $50,000 sublimit for the issuance of letters of credit and a $5,000 sublimit for swingline loans and replaces the Previous Credit Agreement.  Subject to customary conditions and the approval of any lender whose commitment would be increased, we have the option to increase the maximum principal amount available under the Credit Agreement by up to an additional $100,000, resulting in a maximum available principal amount of $300,000.  None of the lenders under the Credit Agreement has committed at this time or is obligated to provide any such increase in the commitments.  At our option, revolving loans issued under the Credit Agreement will bear interest at either adjusted LIBOR for 30 days (0.24% at September 30, 2011) plus 1.25% per annum, in the case of LIBOR borrowings, or at the alternate base rate plus 0.25% per annum, and thereafter the interest rate will fluctuate between adjusted LIBOR plus 1.25% per annum and adjusted LIBOR plus 1.50% per annum (or between the alternate base rate plus 0.25% per annum and the alternate base rate plus 0.50% per annum), based upon our total adjusted leverage ratio at such time.  In addition, we will initially be required to pay fees of 0.20% per annum on the daily unused amount of the revolving credit facility, and thereafter the fee rate will fluctuate between 0.20% and 0.30% per annum, based upon our total adjusted leverage ratio.  At September 30, 2011, we had outstanding borrowings of $45,000 under the Credit Agreement and outstanding letters of credit of $189.  As a result, $154,811 was available under the Credit Agreement at September 30, 2011.  Subsequent to September 30, 2011, we repaid $20,000, reducing the outstanding borrowings under the Credit Agreement to $25,000.

Our obligations under the Credit Agreement are guaranteed by our existing and future domestic subsidiaries other than certain immaterial subsidiaries and foreign subsidiaries (the “Guarantors”), and is secured by a first-priority security interest in substantially all of our assets and the Guarantors’, including all or a portion of the equity interests of certain of our domestic and foreign subsidiaries.

The Credit Agreement contains financial covenants which include: our asset coverage ratio must be greater than 1.10 to 1.00; and the sum of the consolidated annual earnings before interest, taxes, depreciation, and amortization (EBITDA) and annual rental expense, divided by the sum of the annual interest expense and the annual rental expense must be greater than 2.25 to 1.00; and other customary limitations.  The Credit Agreement contains certain other covenants which include: a maximum additional secured debt related to a capital asset not to exceed $20,000, maximum additional unsecured debt not to exceed $200,000; maximum secured debt not related to a capital asset not to exceed $5,000, maximum judgment of $10,000; maximum ERISA event of $10,000 in one year, $20,000 in all years; we may not have a change of control; there is no limit on acquisitions, if the total adjusted leverage ratio does not exceed 2.75 and 1.00 and we must have a minimum amount of cash and unused credit of $75,000; and there is no restriction on dividends or share repurchases, if the minimum amount of cash and unused credit is $75,000.  As of September 30, 2011, we were in compliance with all covenants and remain so as of the date of this report.

Contractual Obligations.  The following table summarizes our contractual obligations at September 30, 2011, and the effects such obligations are expected to have on liquidity and cash flow in future periods.

	Payments Due by Period
			Less than						More than
	Total		1 Year		1-3 Years		3-5 Years		5 Years
Operating lease obligations(1)	$	153,100	$	25,540	$	44,469	$	37,047	$	46,044
Purchase obligations(2)	244,951		241,482		3,066		403		—
Unrecognized tax benefits(3)	3,271		—		3,271		—		—
Total	$	401,322	$	267,022	$	50,806	$	37,450	$	46,044

(1)Our operating lease obligations consist primarily of building leases for our retail locations, distribution centers, and corporate and regional offices.  The majority of other long-term liabilities on our condensed consolidated balance sheets, with the exception of our Sanuk contingent consideration liability discussed below, are related to deferred rents, of which the cash lease payments are included in operating lease obligations in this table.

(2)Our purchase obligations consist largely of open purchase orders.  They also include promotional expenses and service contracts.  Outstanding purchase orders are primarily with our third party manufacturers and are expected to be paid within one year.  These are outstanding open orders and not minimum purchase obligations.  Our promotional expenditures and service contracts are due periodically through 2015.  In March 2011, we entered into contracts requiring minimum purchase

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commitments of sheepskin that Deckers’ affiliates, manufacturers, factories and other agents (each or collectively, a “Buyer”) must make on or before July 31, 2011. As of September 30, 2011, the remaining commitment was approximately $6,000.  In the event that a Buyer does not purchase such minimum commitments on or before July 31, 2011, we were required to make a deposit for the remaining amounts.  Such deposit shall be refundable upon receipt of payment by Buyers for such amounts. We made a deposit for the remaining commitment, and as of September 30, 2011, the deposit balance was approximately $10,000.  In July 2011, we entered into a contract requiring minimum purchase commitments of sheepskin that a Buyer is targeted to make between July 1, 2011 and January 31, 2012, with a remaining commitment of approximately $30,000 as of September 30, 2011.  We made an advance deposit of $20,000 under this contract, all of which was remaining as of September 30, 2011.  We have included the net remaining cash payments as of September 30, 2011 in this table.  Subsequent to September 30, 2011, we entered into another sheepskin agreement for a total minimum commitment of $158,000 that a Buyer is targeted to make between February 1, 2012 and July 31, 2012.  Under this contract, we will pay an advance deposit of $50,000 in two payments of $25,000, which we expect to pay in November and December 2011, respectively.  These advance deposits shall be repaid to us as Buyers purchase goods under the terms of these agreements.  All of these contracts may result in unconditional purchase obligations if a Buyer does not meet the minimum purchase requirements.  In the event that a Buyer does not purchase such minimum commitments, we shall be responsible for compliance with any and all minimum purchase commitments under these contracts.  These contracts do not permit net settlement.  We expect our sheepskin purchases by third party factories supplying UGG product to us will eventually exceed these levels; therefore we believe the deposits will become fully refundable, and thus, we believe this will not materially affect our results of operations, as it is in the normal course of our business.

In September 2011, we entered into an agreement to purchase approximately fourteen acres of land for our new headquarters facility.  As consideration for the property, we will pay an aggregate purchase price of $20,428.  The purchase price is subject to a $500 credit if the close of the escrow period occurs before December 31, 2011.

(3)The unrecognized tax benefits are related to uncertain tax positions taken in our income tax return that would impact the effective tax rate or additional paid-in capital, if recognized.  See note 9 to our accompanying condensed consolidated financial statements.

The purchase price for the Sanuk brand also includes contingent consideration over the next five years as follows:

·2011 EBITDA of the Sanuk brand multiplied by ten, less the closing payment, up to maximum of $30,000;

·51.8% of the gross profit of the Sanuk brand in 2012, defined as total sales less the cost of sales for the business of the sellers;

·36.0% of gross profit of the Sanuk brand in 2013;

·8.0% of the product of gross profit of the Sanuk brand in 2015 multiplied by five.

There is no maximum to the contingent consideration payments for 2012, 2013, and 2015.  These payments were excluded from the table above as all conditions for the payments have not been met.  Contingent consideration payments of $84,300 were included as purchase consideration and are included within other accrued expenses and long-term liabilities in the condensed consolidated balance sheet as of September 30, 2011.

We are currently involved in various legal claims arising from the ordinary course of business.  Management does not believe that the disposition of these matters will have a material effect on our financial position or results of operations.  In addition, we have agreed to indemnify certain licensees, distributors and promotional partners in connection with claims related to the use of our intellectual property.  The terms of such agreements range up to five years initially and generally do not provide for a limitation on the maximum potential future payments.  Management believes the likelihood of any payments is remote and would be immaterial.  We determined the risk was low based on a prior history of insignificant claims.  We are not currently involved in any indemnification matters in regards to our intellectual property.

We believe that internally generated funds, the available borrowings under our existing Credit Agreement, and our cash and cash equivalents will provide sufficient liquidity to enable us to meet our working capital requirements for at least the next 12 months.  However, risks and uncertainties that could impact our ability to maintain our cash position include our growth rate, the continued strength of our brands, our ability to respond to changes in consumer preferences, our ability to collect our receivables in a timely manner, our ability to effectively manage our inventories, our ability to generate returns on our acquisitions of businesses, and market volatility, among others.  See Part II, Item 1A, “Risk Factors” for a discussion of additional factors that may affect our working capital position.  Furthermore, we may require additional cash resources due to changed business conditions or other future developments, including any investments or acquisitions we may decide to pursue.  If these sources are insufficient to satisfy our cash requirements, we may seek to sell debt securities or additional equity securities or to obtain a new credit agreement or draw on our existing Credit Agreement.  The sale of convertible debt securities or additional equity securities could result in additional dilution to our stockholders.  The incurrence of indebtedness would result in incurring debt service obligations and could result in operating and financial covenants that would restrict our operations.  In addition, there can be no assurance that any additional financing will be available on acceptable terms, if at all.  Although there are no other material present understandings, commitments or agreements with respect to the acquisition of any other businesses, we may evaluate acquisitions of other businesses or brands.

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Critical Accounting Policies and Estimates

For a discussion of accounting policies that we consider critical to our business operations and understanding of our results of operations, and that affect the more significant judgments and estimates used in the preparation of our condensed consolidated financial statements, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates” contained in our annual report on Form 10-K for the year ended December 31, 2010.

Recent Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU), Presentation of Comprehensive Income, an amendment to ASC 220, Comprehensive Income, that brings US Generally Accepted Accounting Principles (GAAP) into alignment with International Financial Reporting Standards for the presentation of other comprehensive income (OCI).  Effective for us beginning January 1, 2012, the option in current GAAP that permits the presentation of OCI in the statement of changes in equity has been eliminated.  The provisions of the update provide that an entity that reports items of OCI has two options:  (1) a single statement must present the components of net income, total net income, the components of OCI, total OCI, and total comprehensive income; or (2) a two-statement approach whereby an entity must present the components of net income and total net income in the first statement.  That statement must be immediately followed by a financial statement that presents the components of OCI, a total for OCI, and a total for comprehensive income.  The adoption of this ASU will only change the presentation of OCI on our consolidated financial statements beginning January 1, 2012.

In September 2011, the FASB issued ASU, Intangibles - Goodwill and Other, which allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test.  Under this amendment, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount.  This ASU will be effective for us beginning January 1, 2012, with early adoption permitted.  We are considering early adoption of this update, and we do not expect the adoption will have a material effect on our financial statements.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk.  Our market risk exposure with respect to financial instruments is tied to changes in the prime rate in the US and changes in LIBOR.  Our credit agreement provides for interest on outstanding borrowings at rates tied to the prime rate or, at our election, tied to LIBOR.  At September 30, 2011, we had $45,000 of short-term borrowings under the credit agreement.  A 1.0% increase in interest rates on our current borrowings would have an immaterial impact on income before income taxes.

Foreign Currency Exchange Rate Risk.  We face market risk to the extent that changes in foreign currency exchange rates affect our foreign assets, liabilities, revenues and expenses.  We hedge certain foreign currency forecasted transactions and exposures from existing assets and liabilities.  Other than an increasing amount of sales, expenses, and financial positions denominated in foreign currencies, as discussed above, we do not believe that there has been a material change in the nature of our primary market risk exposures, including the categories of market risk to which we are exposed and the particular markets that present the primary risk of loss.  As of the date of this Quarterly Report on Form 10-Q, we do not know of or expect there to be any material change in the general nature of our primary market risk exposure in the near term.

We currently utilize forward contracts and other derivative instruments to mitigate exposure to fluctuations in the foreign currency exchange rate, for a portion of the amounts we expect to purchase and sell in foreign currencies.  As our international operations grow and we increase purchases and sales in foreign currencies, we will evaluate and may utilize additional derivative instruments, as needed, to hedge our foreign currency exposures.  We do not use foreign currency contracts for trading purposes.

Although the majority of our sales and inventory purchases are denominated in US currency, our sales and inventory purchases may be impacted by fluctuations in the exchange rates between the US dollar and the local currencies in the international markets where our products are sold and manufactured.  Our foreign currency exposure is generated primarily from our Asian and European operations.  Approximately $165,000, or 21.3%, of our total net sales during the nine months ended September 30, 2011 were denominated in foreign currencies.  As we begin to hold more cash and other monetary assets and liabilities in foreign currencies, we are exposed to financial statement translation gains and losses as a result of translating the operating results and financial positions held in foreign currencies into US dollars.  We translate monetary assets and liabilities denominated in foreign currencies into US dollars using the exchange rate as of the end of the reporting period.  In addition, certain of our foreign subsidiaries’ local currency is their designated functional currency.  Accordingly, we translate those monetary assets and liabilities denominated in US dollars into their local currencies using the exchange rate as of the end of the reporting period, which also results in financial statement translation gains and losses.  Changes in foreign exchange rates affect our reported profits and can distort comparisons from year to year.  In addition, if the US dollar strengthens, it may result in increased pricing pressure on our foreign distributors, which may have a

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negative impact on our net sales and gross margins.  As of September 30, 2011, our hedging contracts had notional amounts totaling approximately $37,000.  Based upon sensitivity analysis as of September 30, 2011, a 10.0% change in foreign exchange rates would cause the fair value of our financial instruments to increase or decrease by approximately $3,700.

Commodity Price Risk. We purchase certain materials that are affected by commodity prices, the most significant of which is sheepskin.  The supply of top grade sheepskin used in certain UGG products is in high demand and there are a limited number of suppliers able to meet our expectations for the quantity and quality of sheepskin required.  There have been significant increases in the price of top grade sheepskin in recent years as the demand from our competitors for this commodity has increased.  We expect a significant increase again in 2012 for this commodity.  Other significant factors affecting the price of sheepskin include weather patterns, harvesting decisions, global economic conditions, and other factors which are not considered predictable or within our control.  We use purchasing contracts, pricing arrangements, and refundable deposits to attempt to reduce the impact of price volatility as an alternative to hedging commodity prices.  The purchasing contracts and pricing arrangements we use may result in unconditional purchase obligations, which are not reflected in our condensed consolidated balance sheets.  In the event of significant commodity cost increases, we will likely not be able to adjust our selling prices sufficiently to mitigate the impact on our margins.

Item 4.    Controls and Procedures

Disclosure Controls and Procedures

The Company maintains a system of disclosure controls and procedures which are designed to provide reasonable assurance that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. These disclosure controls and procedures include, among other processes, controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

The Company carried out an evaluation, under the supervision and with the participation of management, including the principal executive officer and the principal financial officer of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2011 pursuant to Exchange Act Rule 13a-15.  Based upon that evaluation, the principal executive officer and the principal financial officer concluded that the Company’s disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e) and 15d-15(e), were effective as of the end of the period covered by this report.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the quarter ended September 30, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II.   OTHER INFORMATION

Item 1.      Legal Proceedings

We are involved in various routine legal proceedings as both plaintiff and defendant incident to the ordinary course of our business, including proceedings to protect our intellectual property rights.

As part of our policing program for our intellectual property rights, from time to time, we file lawsuits in the US and abroad alleging acts of trademark counterfeiting, trademark infringement, patent infringement, trade dress infringement, trademark dilution, and state or foreign law claims.  At any given point in time, we may have a number of such actions pending.  These actions often result in seizure of counterfeit merchandise or out of court settlements with defendants or both.  From time to time, we are subject to claims where plaintiffs will raise, or defendants will raise, either as affirmative defenses or as counterclaims, the invalidity or unenforceability of certain of our intellectual properties, including our trademark registration for UGG Australia.  We also are aware of many instances throughout the world in which a third party is using our UGG trademarks within its internet domain name, and we have discovered and are investigating several manufacturers and distributors of counterfeit Teva and UGG products.

We believe that the outcome of all pending legal proceedings in the aggregate will not have a material adverse effect on our business or condensed consolidated financial statements.

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Item 1A.   Risk Factors

There have been no material changes from the risk factors disclosed in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2010, filed on March 1, 2011.

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
	Purchases of Equity Securities by the Issuer and Affiliated Purchasers The Company approved a stock repurchase program in June 2009 which authorized management to repurchase up to $50,000 of the Company’s common stock in the open market or in privately negotiated transactions, subject to market conditions, applicable legal requirements and other factors.  The program had no expiration date and did not obligate the Company to acquire any particular amount of common stock.  The purchases were funded from available working capital.  As of June 30, 2011, the Company had repurchased the full amount authorized under this program.
Item 3.	Defaults upon Senior Securities
	Not applicable
Item 4.	(Removed and Reserved)
Item 5.	Other Information
	Not applicable
Item 6.	Exhibits

Exhibit Number	Description of Exhibit
3.1	Amended and Restated Certificate of Incorporation of Deckers Outdoor Corporation as amended through May 27, 2010. (Exhibit 3.1 to the Registrant’s Form 10-Q for the quarterly period ended June 30, 2010 and incorporated by reference herein)
*3.2	Restated Bylaws of Deckers Outdoor Corporation, as amended by the Board of Directors through September 12, 2011
10.1	Amendment Number Two to Second Amended and Restated Credit Agreement and Amendment Number One to LIBOR/Prime Rate Addendum, dated August 10, 2011, by and among Deckers Outdoor Corporation, TSUBO, LLC and Comerica Bank. (Exhibit 10.1 to the Registrant’s Form 8-K filed on August 15, 2011 and incorporated by reference herein)
10.2	Credit Agreement, dated as of August 30, 2011, by and among Deckers Outdoor Corporation, as Borrower, JPMorgan Chase Bank, National Association, as Administrative Agent, Comerica Bank and HSBC Bank USA, National Association, as Syndication Agents, and the lenders from time to time party thereto. (Exhibit 10.1 to the Registrant’s Form 8-K filed on September 6, 2011 and incorporated by reference herein)
*10.3	Purchase and Sale Agreement, dated as of September 2, 2011, by and among Deckers Outdoor Corporation and Santa Barbara Realty Development, L.L.C.
*31.1	Certification of the Chief Executive Officer pursuant to Rule 13A-14(a) under the Exchange Act, adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*31.2	Certification of the Chief Financial Officer pursuant to Rule 13A-14(a) under the Exchange Act, adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*32	Certification pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
**101.1	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010; (ii) Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2011 and 2010; (iii) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010, and (iv) Notes to Condensed Consolidated Financial Statements.

* Filed herewith.

** Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of registration statement prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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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.

	Deckers Outdoor Corporation
Date: November 9, 2011	/s/ Thomas A. George
	Thomas A. George
	Chief Financial Officer
	(Duly Authorized Officer on Behalf of the Registrant and Principal Financial and Accounting Officer)

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EX-3.2

Exhibit 3.2

RESTATED

BYLAWS

OF

DECKERS OUTDOOR CORPORATION

a Delaware corporation

ARTICLE I

OFFICES

SECTION 1.1Registered Office.  The registered office of Deckers Outdoor Corporation (the “Corporation”) shall be at 1013 Centre Road, City of Wilmington, County of New Castle, State of Delaware, and the name of the registered agent in charge thereof shall be Corporation Service Company.

SECTION 1.2Principal Office.  The principal office for the transaction of the business of the Corporation shall be at such place as the Board of Directors of the Corporation (the “Board”) may determine.  The Board is hereby granted full power and authority to change said principal office from one location to another.

SECTION 1.3Other Offices.  The Corporation may also have an office or offices at such other place or places, either within or without the State of Delaware, as the Board may from time to time determine or as the business of the Corporation may require.

ARTICLE II

MEETINGS OF STOCKHOLDERS

SECTION 2.1Place of Meetings.  All annual meetings of stockholders and all other meetings of stockholders shall be held either at the principal office of the Corporation or at any other place within or without the State of Delaware that may be designated by the Board pursuant to authority hereinafter granted to the Board.

SECTION 2.2Annual Meetings.  Annual meetings of stockholders of the Corporation for the purpose of electing directors and for the transaction of such other proper business as may come before such meetings may be held at such time and place and on such date as the Board shall determine by resolution.

SECTION 2.3Special Meetings.  Special meetings of stockholders of the Corporation for any purpose or purposes may only be called in accordance with the provisions of the Certificate of Incorporation.

SECTION 2.4Notice of Meetings.  Except as otherwise required by law, notice of each meeting of stockholders, whether annual or special, shall be given not less than 10 days nor more than 60 days before the date of the meeting to each stockholder of record entitled to vote at such

meeting by delivering a typewritten or printed notice thereof to such stockholder personally, or by depositing such notice in the United States mail, in a postage prepaid envelope, directed to such stockholder at such stockholder’s post office address furnished by such stockholder to the Secretary of the Corporation for such purpose, or, if such stockholder shall not have furnished an address to the Secretary for such purpose, then at such stockholder’s post office address last known to the Secretary, or by sending such notice through an overnight delivery service, in circumstances to which such overnight delivery service guarantees next day delivery, directed to such stockholder at such post office address, or by transmitting a notice thereof to such stockholder at such address by telegraph, cable, wireless or facsimile.  Except as otherwise expressly required by law, no publication of any notice of a meeting of stockholders shall be required.  Every notice of a meeting of stockholders shall state the place, date and hour of the meeting and, in the case of a special meeting, shall also state the purpose for which the meeting is called.  Notice of any meeting of stockholders shall not be required to be given to any stockholder to whom notice may be omitted pursuant to applicable Delaware law or who shall have waived such notice, and such notice shall be deemed waived by any stockholder who shall attend such meeting in person or by proxy, except a stockholder who shall attend such meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.  Except as otherwise expressly required by law, notice of any adjourned meeting of stockholders need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken.

SECTION 2.5Quorum.  Except as otherwise required by law, the holders of record of a majority in voting interest of the shares of stock of the Corporation entitled to be voted thereat, present in person or by proxy, shall constitute a quorum for the transaction of business at any meeting of stockholders of the Corporation or any adjournment thereof.  Subject to the requirement of a larger percentage vote, if any, contained in the Certificate of Incorporation, these Bylaws or by statute, the stockholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding any withdrawal of stockholders that may leave less than a quorum remaining, if any action taken (other than adjournment) is approved by the vote of at least a majority in voting interest of the shares required to constitute a quorum.  In the absence of a quorum at any meeting or any adjournment thereof, a majority in voting interest of the stockholders present in person or by proxy and entitled to vote thereat or, in the absence therefrom of all the stockholders, any officer entitled to preside at, or to act as secretary of, such meeting may adjourn such meeting from time to time.  At any such adjourned meeting at which a quorum is present, any business may be transacted that might have been transacted at the meeting as originally called.

SECTION 2.6Voting.

(A)Each stockholder shall, at each meeting of stockholders, be entitled to vote in person or by proxy each share of the stock of the Corporation that has voting rights on the matter in question and that shall have been held by such stockholder and registered in such stockholder’s name on the books of the Corporation:

(i)on the date fixed pursuant to Section 6.5 of these Bylaws as the record date for the determination of stockholders entitled to notice of and to vote at such meeting; or

(ii)if no such record date shall have been so fixed, then (a) at the close of business on the day next preceding the day upon which notice of the meeting shall be given or (b) if

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notice of the meeting shall be waived, at the close of business on the day next preceding the day upon which the meeting shall be held.

(B)Shares of its own stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors in such other corporation is held, directly or indirectly, by the Corporation, shall neither be entitled to vote nor be counted for quorum purposes.  Persons holding stock of the Corporation in a fiduciary capacity shall be entitled to vote such stock.  Persons whose stock is pledged shall be entitled to vote, unless in the transfer by the pledgor on the books of the Corporation the pledgor shall have expressly empowered the pledgee to vote thereon, in which case only the pledgee, or the pledgee’s proxy, may represent such stock and vote thereon.  Stock having voting power standing of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety or otherwise, or with respect to which two or more persons have the same fiduciary relationship, shall be voted in accordance with the provisions of the Delaware General Corporation Law.

(C)Any such voting rights may be exercised by the stockholder entitled thereto in person or by such stockholder’s proxy appointed by an instrument in writing, subscribed by such stockholder or by such stockholder’s attorney thereunto authorized and delivered to the secretary of the meeting.  The attendance at any meeting of a stockholder who may theretofore have given a proxy shall not have the effect of revoking the same unless such stockholder shall in writing so notify the secretary of the meeting prior to the voting of the proxy.  At any meeting of stockholders at which a quorum is present, all matters, except as otherwise provided in the Certificate of Incorporation, in these Bylaws or by law, shall be decided by the vote of a majority in voting interest of the stockholders present in person or by proxy and entitled to vote thereat and thereon.  The vote at any meeting of stockholders on any question need not be by ballot, unless so directed by the chairman of the meeting.  On a vote by ballot, each ballot shall be signed by the stockholder voting, or by such stockholder’s proxy, if there by such proxy, and it shall state the number of shares voted.

SECTION 2.7Judges.  Prior to each meeting of stockholders, the Chairman of such meeting shall appoint a judge or judges to act with respect to such vote.  Each judge so appointed shall first subscribe an oath faithfully to execute the duties of a judge at such meeting with strict impartiality and according to the best of such judge’s ability.  Such judges shall decide upon the qualification of the voters and shall certify and report the number of shares represented at the meeting and entitled to vote on such question, determine the number of votes entitled to be cast by each share, shall conduct and accept the votes, when the voting is completed, shall ascertain and report the number of shares voted respectively for and against the question, and shall determine, and retain for a reasonable period a record of the disposition of, any challenge made to any determination made by such judges.  Reports of judges shall be in writing and subscribed and delivered by them to the Secretary of the Corporation.  The judges need not be stockholders of the Corporation, and any officer of the Corporation may be a judge on any question other than a vote for or against a proposal in which such officer shall have a material interest.  The judges may appoint or retain other persons or entities to assist the judges in the performance of the duties of the judges.

SECTION 2.8Advance Notice of Stockholder Proposals and Stockholder Nominations.

(A)At any meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting (i) by or at the direction of the Board or (ii) by any stockholder of the Corporation who complies with the notice procedures set forth in this Section

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2.8.  For business to be properly brought before any meeting of the stockholders by a stockholder (other than the nomination of a person for election as a director, which is governed by Section 2.8(B) below), the stockholder must have given notice thereof, and in compliance with this Section 2.8(A), in writing to the Secretary of the Corporation not less than 90 days in advance of such meeting or, if later, the seventh day following the first public announcement of the date of such meeting and such business must otherwise be a proper matter for stockholder action.  In no event shall any adjournment of an annual meeting or the announcement thereof commence a new time period for giving timely notice as described above.  In addition, the stockholder providing such notice must be a stockholder of record both at the time the notice is given and at the time of the annual meeting at which the business referenced in the notice will be considered.  A stockholder’s notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the meeting (i) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (ii) the name and address of the stockholder proposing such business and any Stockholder Affiliate, (iii) (A) the class and number of shares of the Corporation that are, directly or indirectly, beneficially owned by the stockholder and by any Stockholder Affiliate and (B) any derivative positions held or beneficially held by the stockholder and any Stockholder Affiliate and whether and the extent to which any hedging or other transaction or series of transactions has been entered into by or on behalf of, or any other agreement, arrangement or understanding (including, but not limited to, any derivative position, short position, or any borrowing or lending of shares) has been made, the effect or intent of which is to mitigate loss to or manage risk or benefit of share price changes for, or to increase or decrease the voting power of, such stockholder or any Stockholder Affiliate with respect to the Corporation’s securities; (iv) a description of all agreements, arrangements and understandings between such stockholder or any Stockholder Affiliate and any other person or persons (including their names) in connection with the proposal of such business by such stockholder, (v) any material interest of the stockholder or any Stockholder Affiliate in such business, and (vi) whether the stockholder or any Stockholder Affiliate intends to conduct a proxy solicitation.  Furthermore, a stockholder providing such notice shall promptly provide any other information reasonably requested by the Corporation.  Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at any meeting of the stockholders except in accordance with the procedures set forth in this Section 2.8.  The Chairman of any such meeting shall direct that any business not properly brought before the meeting shall not be considered.

For purposes of this Section 2.8, “public announcement” shall be deemed to include an announcement made in a press release reported by the Dow Jones News Services, Associated Press or a comparable national news service or in a document filed by the Corporation with the Securities and Exchange Commission, and “Stockholder Affiliate” means (i) any person controlling, directly or indirectly, or acting in concert with, any stockholder providing the notice pursuant to this Section 2.8, (ii) any beneficial owner of shares of stock of the Corporation owned of record or beneficially by such stockholder and (iii) any person controlling, controlled by or under common control with the Stockholder Affiliate.

(B)Nominations for the election of directors may be made by the Board or by any stockholder entitled to vote in the election of directors; provided, however, that a stockholder may nominate a person for election as a director at a meeting only if written notice of such stockholder’s intent to make such nomination has been given to the Secretary of the Corporation not later than 90 days in advance of such meeting or, if later, the seventh day following the first public announcement of the date of such meeting.  In no event shall any adjournment of an annual meeting or the announcement thereof commence a new time period for giving timely notice as described above.  In addition, the stockholder providing such notice must be a stockholder of record both at the

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time the notice is given and at the time of the annual meeting at which the directors nominated in the notice will be considered.  Each such notice shall set forth:  (i) the name and address of the stockholder who intends to make the nomination and of any Stockholder Affiliate; (ii) (A) the class and number of shares of the Corporation that are, directly or indirectly, beneficially owned by the stockholder and by any Stockholder Affiliate and (B) any derivative positions held or beneficially held by the stockholder and any Stockholder Affiliate and whether and the extent to which any hedging or other transaction or series of transactions has been entered into by or on behalf of, or any other agreement, arrangement or understanding (including, but not limited to, any derivative position, short position, or any borrowing or lending of shares) has been made, the effect or intent of which is to mitigate loss to or manage risk or benefit of share price changes for, or to increase or decrease the voting power of, such stockholder or any Stockholder Affiliate with respect to the Corporation’s securities; (iii) the name and address of the person or persons to be nominated; (iv) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting and nominate the person or persons specified in the notice; (v) a description of all arrangements or understandings between the stockholder or any Stockholder Affiliate on the one hand, and any nominee for election as a director on the other hand, pursuant to which the nomination or nominations are to be made by the stockholder; (vi) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the United States Securities and Exchange Commission had the nominee been nominated, or intended to be nominated, by the Board; (vii) the consent and commitment of each nominee to serve as a director of the Corporation; (viii) with respect to each nominee, include a completed and signed questionnaire, representation and agreement required by Section 2.8(D) of these Bylaws; (ix) a description of all agreements, arrangements and understandings between such stockholder and Stockholder Affiliate and any other person or persons (including their names) in connection with the director nominee; and (x) whether the stockholder or any Stockholder Affiliate intends to conduct a proxy solicitation.  In addition, the stockholder making such nomination shall promptly provide any other information reasonably requested by the Corporation.  No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 2.8(B).  The Chairman of any meeting of stockholders shall direct that any nomination not made in accordance with these procedures be disregarded.

(C)Only such business shall be conducted at a special meeting of stockholders as shall have been properly brought before the meeting pursuant to the Corporation’s notice of meeting.  Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporation’s notice of meeting (i) by or at the direction of the Board of Directors or (ii) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any stockholder of the Corporation who (i) is a stockholder of record at the time of giving of notice provided for in this Bylaw and at the time of the special meeting, (ii) is entitled to vote at the meeting, and (iii) complies with the notice procedures set forth in Section 2.8(B) as to such nomination.  In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder may nominate a person or persons for election to such position(s) as specified in the Corporation’s notice of meeting, if the stockholder’s notice required by Section 2.8(B) of this Bylaw with respect to any nomination shall be delivered to the Secretary of the Corporation not later than 90 days in advance of such meeting, or, if later, the seventh day following the first public announcement of the date of such meeting and of the nominees proposed by the Board of Directors to be elected at such meeting.  In no event shall the public announcement of an

5

adjournment of a special meeting commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above.

(D)To be eligible to be a nominee for election or reelection as a director of the Corporation, a person must deliver (in accordance with the time periods prescribed for delivery of notice under Section 2.8(B) and (C)) to the Secretary of the Corporation a written questionnaire with respect to the background and qualification of such person and the background of any other person or entity on whose behalf the nomination is being made (which questionnaire shall be provided by the Secretary upon written request) and a written representation and agreement (in the form provided by the Secretary upon written request) that such person (A) is not and will not become a party to (1) any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how such person, if elected as a director of the Corporation, will act or vote on any issue or question (a “Voting Commitment”) that has not been disclosed to the Corporation or (2) any Voting Commitment that could limit or interfere with such person’s ability to comply, if elected as a director of the Corporation, with such person’s fiduciary duties under applicable law, (B) is not and will not become a party to any agreement, arrangement or understanding with any person or entity other than the Corporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director that has not been disclosed therein, and (C) in such person’s individual capacity and on behalf of any person or entity on whose behalf the nomination is being made, would be in compliance, if elected as a director of the Corporation, and will comply with all applicable publicly disclosed corporate governance, conflict of interest, confidentiality and stock ownership and trading policies and guidelines of the Corporation.

Notwithstanding the foregoing provisions of this Section 2.8, a stockholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, and the rules and regulations thereunder with respect to matters set forth in this Section 2.8.

ARTICLE III

BOARD OF DIRECTORS

SECTION 3.1General Powers.  Subject to any requirements in the Certificate of Incorporation, these Bylaws, and of the Delaware General Corporation Law as to action which must be authorized or approved by the stockholders, any and all corporate powers shall be exercised by or under the authority of, and the business and affairs of the Corporation shall be under the direction of, the Board to the fullest extent permitted by law.  Without limiting the generality of the foregoing, it is hereby expressly declared that the Board shall have the following powers:

(A)to select and remove all the officers, agents and employees of the Corporation, to prescribe such powers and duties for them as may not be inconsistent with law, the Certificate of Incorporation or these Bylaws and to fix their compensation;

(B)to conduct, manage and control the affairs and business of the Corporation, and to make such rules and regulations therefor not inconsistent with law, the Certificate of Incorporation or these Bylaws, as it may deem best;

(C)to change the location of the registered office of the Corporation in Section 1.1 hereof; to change the principal office and the principal office for the transaction of the business of the Corporation from one location to another as provided in Section 1.2 hereof; to fix and

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locate from time to time one or more subsidiary offices of the Corporation within or without the State of Delaware as provided in Section 1.3 hereof; to designate any place within or without the State of Delaware for the holding of any meeting or meetings of stockholders; and to adopt, make and use a corporate seal, and to prescribe the forms of certificates of stock, and to alter the form of such seal and of such certificates from time to time, and in its judgment as it may deem best, provided such seal and such certificate shall at all times comply with the provisions of law;

(D)to authorize the issuance of shares of stock of the Corporation from time to time, upon such terms and for such consideration as may be lawful;

(E)to borrow money and incur indebtedness for the purposes of the Corporation, and to cause to be executed and delivered therefor, in the corporate name, promissory notes, bonds, debentures, deeds of trust and securities therefor; and

(F)by resolution adopted by a majority of the whole Board to designate an executive and other committees of the Board, each consisting of one or more directors, to serve at the pleasure of the Board, and to prescribe the manner in which proceedings of such committee or committees shall be conducted.

SECTION 3.2Number and Term of Office.  The authorized number of directors of the Corporation shall be no less than one (1) and no more than ten (10), as fixed from time to time by resolution of the Board, until this Section 3.2 is amended by a resolution duly adopted by the Board or by the stockholders of the Corporation, in either case in accordance with the provisions of Article XI of the Certificate of Incorporation.  Directors need not be stockholders.  Each of the directors of the Corporation shall hold office until the annual meeting of stockholders at which such director’s term expires as provided in the Certificate of Incorporation.  Notwithstanding the foregoing, each director shall serve until such director’s successor shall have been duly elected and shall qualify or until such director shall resign or shall have been removed in the manner provided in these Bylaws and in accordance with law.

SECTION 3.3Election of Directors.  The directors shall be elected by the stockholders of the Corporation in the manner specified in the Certificate of Incorporation, and at each election, the persons receiving the greater number of votes, up to the number of directors then to be elected, shall be the persons then elected.  The election of directors is subject to any provision contained in the Certificate of Incorporation relating thereto, including any provision regarding the rights of holders of preferred stock to elect directors.

SECTION 3.4Resignations.  Any director of the Corporation may resign at any time by giving written notice to the Board or to the Secretary of the Corporation.  Any such resignation shall take effect at the time specified therein, or, if the time is not specified, it shall take effect immediately upon receipt; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

SECTION 3.5Vacancies.  Except as otherwise provided in the Certificate of Incorporation, any vacancy in the Board, whether because of death, resignation, disqualification, an increase in the number of directors, removal, or any other cause, may be filled by vote of the majority of the remaining directors, although less than a quorum.  Each director chosen to fill a vacancy shall hold office until such director’s successor shall have been elected and shall qualify or until such

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director shall resign or shall have been removed.  No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director’s term of office.

SECTION 3.6Place of Meeting.  The Board or any committee thereof may hold any of its meetings at such place or places within or without the State of Delaware as the Board or such committee may from time to time by resolution designate or as shall be designated by the person or persons calling the meeting or in the notice or a waiver of notice of any such meeting.  Directors may participate in any regular or special meeting of the Board or any committee thereof by means of conference telephone or similar communications equipment pursuant to which all persons participating in the meeting of the Board or such committee can hear each other, and such participation shall constitute presence in person at such meeting.

SECTION 3.7Regular Meetings.  Regular meetings of the Board may be held at such times as the Board shall from time to time by resolution determine.  If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting shall be held at the same hour and place on the next succeeding business day not a legal holiday.  Except as provided by law, notice of regular meetings need not be given.

SECTION 3.8Special Meetings.  Special meetings of the Board for any purpose or purposes shall be called at any time by the Chairman of the Board or, if the Chairman of the Board is absent or unable or refuses to act, by the Chief Executive Officer and President, and may also be called by any two members of the Board.  Except as otherwise provided by law or by these Bylaws, written notice of the time and place of special meetings shall be delivered personally or by facsimile to each director, or sent to each director by mail or by other form of written communication, charges prepaid, addressed to such director at such director’s address as it is shown upon the records of the Corporation, or, if it is not so shown on such records and is not readily ascertainable, at the place in which the meetings of the directors are regularly held.  In case such notice is mailed or telegraphed, it shall be deposited in the United States mail or delivered to the telegraph company in the County in which the principal office for the transaction of the business of the Corporation is located at least 48 hours prior to the time of the holding of the meeting.  In case such notice is delivered personally or by facsimile as above provided, it shall be delivered at least 24 hours prior to the time of the holding of the meeting.  In case such notice is sent in writing through an overnight delivery service in circumstances to which such service guarantees next day delivery, it shall be sent such that such next day delivery is guaranteed for delivery at least 24 hours prior to the time of the holding of the meeting.  Such mailing, telegraphing, delivery or facsimile transmission as above provided shall be due, legal and personal notice to such director.  Except where otherwise required by law or by these Bylaws, notice of the purpose of a special meeting need not be given.  Notice of any meeting of the Board shall not be required to be given to any director who is present at such meeting, except a director who shall attend such meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.

SECTION 3.9Quorum and Manner of Acting.  Except as otherwise provided in these Bylaws, the Certificate of Incorporation or by applicable law, the presence of a majority of the authorized number of directors shall be required to constitute a quorum for the transaction of business at any meeting of the Board, and all matters shall be decided at any such meeting, a quorum being present, by the affirmative votes of a majority of the directors present.  A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, provided any action taken is approved by at least a majority of the required quorum for such meeting.  In the absence of a quorum, a majority of directors present at any meeting may

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adjourn the same from time to time until a quorum shall be present.  Notice of any adjourned meeting need not be given.  The directors shall act only as a Board, and the individual directors shall have no power as such.

SECTION 3.10Action by Consent.  Any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting if consent in writing is given thereto by all members of the Board or of such committee, as the case may be, and such consent is filed with the minutes of proceedings of the Board or of such committee.

SECTION 3.11Compensation.  Directors, whether or not employees of the Corporation or any of its subsidiaries, may receive an annual fee for their services as directors in an amount fixed by resolution of the Board, and, in addition, a fixed fee, with or without expenses of attendance, may be allowed by resolution of the Board for attendance at each meeting, including each meeting of a committee of the Board.  Such fees may be in the form of cash or other lawful consideration.  Nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity as an officer, agent, employee, or otherwise, and receiving compensation therefor.

SECTION 3.12Committees.  The Board may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation.  Each such committee shall consist of two or more of the members of the Board and shall serve at the pleasure of the Board.  Each such committee shall be governed by a charter adopted by a majority of the whole Board.  Any such committee, to the extent provided in the resolution of the Board and subject to any restrictions or limitations on the delegation of power and authority imposed by applicable law, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it.  Any such committee shall keep written minutes of its meetings and report the same to the Board at the next regular meeting of the Board.  Unless the Board or these Bylaws shall otherwise prescribe the manner of proceedings of any such committee, meetings of such committee may be regularly scheduled in advance and may be called at any time by the chairman of the committee or by any two members thereof; otherwise, the provisions of these Bylaws with respect to notice and conduct of meetings of the Board shall govern committees of the Board and their actions.

ARTICLE IV

OFFICERS

SECTION 4.1Officers.  The officers of the Corporation shall be a Chairman, a Chief Executive Officer and President, a Chief Financial Officer, one or more Vice Presidents (the number thereof and their respective titles to be determined by the Board), a Secretary, and such other officers as may be appointed at the discretion of the Board in accordance with the provisions of Section 4.3 hereof.

SECTION 4.2Election.  The officers of the Corporation, except such officers as may be appointed or elected in accordance with the provisions of Sections 4.3 or 4.5 hereof, shall be chosen annually by the Board at the first meeting thereof, and each officer shall hold office until such officer shall resign or shall be removed or otherwise disqualified to serve, or until such officer’s successor shall be elected and qualified.

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SECTION 4.3Other Officers.  In addition to the officers chosen annually by the Board at its first meeting, the Board also may appoint or elect such other officers as the business of the Corporation may require, each of whom shall have such authority and perform such duties as are provided in these Bylaws or as the Board may from time to time specify, and shall hold office until such officer shall resign or shall be removed or otherwise disqualified to serve, or until such officer’s successor shall be elected and qualified.

SECTION 4.4Removal.  Any officer may be removed, either with or without cause, by resolution of the Board, at any regular or special meeting of the Board, or except in case of an officer chosen by the Board, by any officer upon whom such power of removal may be conferred by the Board.

SECTION 4.5Vacancies.  A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these Bylaws for regular appointments to such office.

SECTION 4.6Chairman of the Board.  The Chairman of the Board shall preside at all meetings of stockholders and at all meetings of the Board.  The Chairman shall exercise and perform such powers and duties with respect to the business and affairs of the Corporation as may be assigned to the Chairman by the Board or such other powers and duties as may be prescribed by the Board or these Bylaws.

SECTION 4.7Chief Executive Officer and President.  The Chief Executive Officer and President shall exercise and perform such powers and duties with respect to the administration of the business and affairs of the Corporation as may from time to time be assigned to the Chief Executive Officer and President or by the Board, or as may be prescribed by these Bylaws.  In the absence or disability of the Chairman of the Board, or in the event and during the period of a vacancy in that office, the Chief Executive Officer and President shall perform all the duties of the Chairman of the Board, and when so acting shall have all of the powers of, and be subject to all the restrictions upon, the Chairman of the Board.

SECTION 4.8Chief Financial Officer.  The Chief Financial Officer shall have the general responsibility for maintaining the financial records of the Corporation and such other powers and duties with respect to the administration of the business and affairs of the Corporation as may from time to time be assigned to the Chief Financial Officer by the Board or the Chief Executive Officer and President or as may be prescribed by these Bylaws.

SECTION 4.9Vice President.  Each Vice President shall have such powers and perform such duties with respect to the administration of the business and affairs of the Corporation as may from time to time be assigned to such Vice President by the Board, or the Chief Executive Officer and President or as may be prescribed by these Bylaws.  In the absence or disability of the Chairman of the Board and the Chief Executive Officer and President, the Vice Presidents in order of their rank as fixed by the Board, or if not ranked, the Vice President designated by the Board, shall perform all of the duties of the Chairman of the Board, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the Chairman of the Board.

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SECTION 4.10Secretary.

(A)The Secretary shall keep, or cause to be kept, at the principal office of the Corporation or such other place as the Board may order, a book of minutes of all meetings of directors and stockholders, with the time and place of holding, whether regular or special, and if special, how authorized and the notice thereof given, the names of those present at meetings of directors, the number of shares present or represented at meetings of stockholders, and the proceedings thereof.

(B)The Secretary shall keep, or cause to be kept, at the principal office of the Corporation’s transfer agent, a share register, or a duplicate share register, showing the name of each stockholder, the number of shares of each class held by such stockholder, the number and date of certificates issued for such shares, and the number and date of cancellation of every certificate surrendered for cancellation.

ARTICLE V

CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.

SECTION 5.1Execution of Contracts.  The Board, except as otherwise provided in these Bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances; and unless so authorized by the Board or by these Bylaws, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or in any amount.

SECTION 5.2Checks, Drafts, Etc.  All checks, drafts or other orders for payment of money, notes or other evidence of indebtedness, issued in the name of or payable to the Corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the Board.  Each such officer, assistant, agent or attorney shall give such bond, if any, as the Board may require.

SECTION 5.3Deposits.  All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board may select, or as may be selected by any officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation to whom such power shall have been delegated by the Board.  For the purpose of deposit and for the purpose of collection for the account of the Corporation, the Chairman of the Board, the Chief Executive Officer and President, the Chief Financial Officer, any Vice President (or any other officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation who shall from time to time be determined by the Board) may endorse, assign and deliver checks, drafts and other orders for the payment of money which are payable to the order of the Corporation.

SECTION 5.4General and Special Bank Accounts.  The Board may from time to time authorize the opening and keeping of general and special bank accounts with such banks, trust companies or other depositories as the Board may select or as may be selected by any officer or officers, assistant or assistants, agent or agents, or attorney or attorneys of the Corporation to whom such power shall have been delegated by the Board.  The Board may make such special rules and

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regulations with respect to such bank accounts, not inconsistent with the provisions of these Bylaws, as it may deem expedient.

ARTICLE VI

SHARES AND THEIR TRANSFER

SECTION 6.1Certificates for Stock.  Every owner of stock of the Corporation shall be entitled to have a certificate or certificates, to be in such form as the Board shall prescribe, certifying the number and class or series of shares of the stock of the Corporation owned by such owner.  The certificates representing shares of such stock shall be numbered in the order in which they shall be issued and shall be signed in the name of the Corporation by the Chairman of the Board, the Chief Executive Officer and President, the Chief Financial Officer or any Vice President, and by the Secretary.  Any or all of the signatures on the certificates may be a facsimile.  In case any officer, transfer agent or registrar who has signed, or whose facsimile signature has been placed upon, any such certificate, shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may nevertheless be issued by the Corporation with the same effect as though the person who signed such certificate, or whose facsimile signature shall have been placed thereupon, were such an officer, transfer agent or registrar at the date of issue.  A record shall be kept of the respective names of the persons, firms or corporations owning the stock represented by such certificates, the number and class or series of shares represented by such certificates, respectively, and the respective dates thereof, and in case of cancellation, the respective dates of cancellation.  Every certificate surrendered to the Corporation for exchange or transfer shall be canceled, and no new certificate or certificates shall be issued in exchange for any existing certificate until such existing certificate shall have been so canceled, except in cases provided for in Section 6.4 hereof.

SECTION 6.2Transfers of Stock.  Transfers of shares of stock of the Corporation shall be made only on the books of the Corporation by the registered holder thereof, or by such holder’s attorney thereunto authorized by power of attorney duly executed and filed with the Secretary, or with a transfer clerk or a transfer agent appointed as provided in Section 6.3 hereof, and upon surrender of the certificate or certificates for such shares properly endorsed and the payment of all taxes thereon.  The person in whose name shares of stock stand on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation.  Whenever any transfer of shares shall be made for collateral security, and not absolutely, such fact shall be so expressed in the entry of transfer if, when the certificate or certificates shall be presented to the Corporation for transfer, both the transferor and the transferee request the Corporation to do so.

SECTION 6.3Regulations.  The Board may make such rules and regulations as it may deem expedient, not inconsistent with these Bylaws, concerning the issue, transfer and registration of certificates for shares of the stock of the Corporation.  It may appoint, or authorize any officer or officers to appoint, one or more transfer clerks or one or more transfer agents and one or more registrars, and may require all certificates for stock to bear the signature or signatures of any of them.

SECTION 6.4Lost, Stolen, Destroyed, and Mutilated Certificates.  In any case of loss, theft, destruction, or mutilation of any certificate of stock, another may be issued in its place upon proof of such loss, theft, destruction, or mutilation and upon the giving of a bond of indemnity to the Corporation in such form and in such sum as the Board may direct; provided, however, that a new certificate may be issued without requiring any bond when, in the judgment of the Board, it is proper so to do.

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SECTION 6.5Fixing Date for Determination of Stockholders of Record.  In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any other change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any such other action.  If in any case involving the determination of stockholders for any purpose other than notice of or voting at a meeting of stockholders the Board shall not fix such a record date, then the record date for determining stockholders for such purpose shall be the close of business on the day on which the Board shall adopt the resolution relating thereto.  A determination of stockholders entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of such meeting; provided, however, that the Board may fix a new record date for the adjourned meeting.

ARTICLE VII

INDEMNIFICATION

SECTION 7.1Indemnification of Directors and Officers.  The Corporation shall indemnify, in the manner and to the fullest extent permitted by the Delaware General Corporation Law, as the same exists or may hereafter be amended (the “Delaware Law”), and by the Certificate of Incorporation, any person (or the estate of any person) who is or was a party to, or is threatened to be made a party to, any threatened, pending or completed action, suit or proceeding, whether or not by or in the right of the Corporation, and whether civil, criminal, administrative, investigative or otherwise, by reason of the fact that such person is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise.  The Corporation may, to the fullest extent permitted by the Delaware Law, purchase and maintain insurance on behalf of any such person against any liability which may be asserted against such person.  The Corporation may create a trust fund, grant a security interest or use other means (including without limitation a letter of credit) to ensure the payment of such sums as may become necessary to effect the indemnification as provided herein.  The indemnification provided herein shall not be deemed to limit the right of the Corporation to indemnify any other person for any such expenses to the fullest extent permitted by the Delaware Law, nor shall it be deemed exclusive of any other rights to which any person seeking indemnification from the Corporation may be entitled under any agreement, the Corporation’s Certificate of Incorporation, vote of stockholders or disinterested directors, or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office.

SECTION 7.2Indemnification of Employees and Agents.  The Corporation may, but only to the extent that the Board of Directors may (but shall not be obligated to) authorize from time to time, grant rights to indemnification and to the advancement of expenses to any employee or agent of the Corporation to the fullest extent of the provisions of this Article VII as they apply to the indemnification and advancement of expenses of directors and officers of the Corporation.

SECTION 7.3Indemnification Agreement.  The Corporation may enter into indemnification agreements with any one or more directors, officers, employees and agents upon resolution duly adopted by the Board.  Such agreements may indemnify such persons to the fullest extent permitted by the Delaware law, the Certificate of Incorporation and this Article VII.

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ARTICLE VIII

MISCELLANEOUS

SECTION 8.1Seal.  The Board shall adopt a corporate seal, which shall be in the form of a circle and shall bear the name of the Corporation and words showing that the Corporation was incorporated in the State of Delaware.

SECTION 8.2Waiver of Notices.  Whenever notice is required to be given by these Bylaws or the Certificate of Incorporation or by law, the person entitled to said notice may waive such notice in writing, either before or after the time stated therein, and such waiver shall be deemed equivalent to notice.

SECTION 8.3Amendments.  Except as otherwise provided herein or in the Certificate of Incorporation, these Bylaws or any of them may be altered, amended, repealed or rescinded and new Bylaws may be adopted by the Board or by the stockholders at any annual or special meeting of stockholders, provided that notice of such proposed alteration, amendment, repeal, recision or adoption is given in the notice of such meeting.

SECTION 8.4Representation of Other Corporations.  The Chairman of the Board, the Chief Executive Officer and President, the Chief Financial Officer, the Secretary or any Vice President of the Corporation is authorized to vote, represent and exercise on behalf of the Corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of the Corporation, other than a corporation of which the Corporation owns twenty percent (20%) or more of its capital stock, in which case such officers shall not be so authorized under these Bylaws without the authorization of the Board of Directors.  The authority herein granted to said officers to vote or represent on behalf of the Corporation any and all shares held by the Corporation in any other corporation or corporations may be exercised either by such officers in person or by any person authorized so to do by proxy or power of attorney duly executed by such officers.

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EX-10.3

Exhibit 10.3

PURCHASE AND SALE AGREEMENT
AND JOINT ESCROW INSTRUCTIONS

This PURCHASE AND SALE AGREEMENT AND JOINT ESCROW INSTRUCTIONS (this “Agreement”) is made and entered into as of September 2, 2011 (the “Effective Date”), by and between DECKERS OUTDOOR CORPORATION, a Delaware corporation (“Purchaser”), and SANTA BARBARA REALTY DEVELOPMENT, L.L.C., a Delaware limited liability company (“Seller”).

R E C I T A L S :

A.Seller is the owner of that certain unimproved real property located at 6601 and 6699 Hollister Avenue, 201 S. Los Carneros and 250 Coromar Drive in the City of Goleta, County of Santa Barbara, State of California, consisting of approximately 13.816 acres of land (the “Land”) described as Lots 1, 2 and 3 of Final Map No. 32,035 (“Final Map No. 32,035”) recorded in the Official Records of Santa Barbara County, California (“Official Records”) and more particularly described on Exhibit “A” attached hereto.  The Land and any easements, appurtenances, mineral rights, development rights, air and water rights and privileges appurtenant to the Land are collectively referred to hereinafter as the “Real Property”.  The Real Property is located in the project commonly known as “Cabrillo Business Park” (the “Project”).

B.Seller desires to sell to Purchaser and Purchaser desires to purchase from Seller, upon the terms and conditions hereinafter set forth, the Real Property and all of Seller’s right, title and interest (if any) in and to the following (but specifically excluding the Excluded Property (as defined in Section 1.2 below)):  all assignable intangible personal property, if any, owned by Seller at the Close of Escrow (as defined in Section 5.2.1 below) and arising out of Seller’s ownership of the Real Property, including (to the extent any such items exist):  (A) any rights and benefits under that certain Declaration of Covenants, Conditions and Restrictions and Grant and Reservation of Easements for Cabrillo Business Park, made by Seller, as Declarant, and recorded April 27, 2009 as Document No. 2009-232212 in the Official Records (the “Cabrillo CC&Rs”) which are appurtenant and run with title to the Real Property; (B) any transferable licenses and permits issued by governmental authorities relating solely to the use, maintenance, occupancy and/or operation of the Real Property, including any rights and privileges under that certain Development Agreement, dated May 7, 2007, between Seller and the City of Goleta and recorded June 25, 2007 as Instrument No. 2007-0046722 of Official Records (the “Development Agreement”), pertaining to the Land (it being understood nothing contained in this Agreement shall be deemed to sell, convey, transfer or assign to Purchaser any rights or privileges under the Development Agreement pertaining to any real property other than the Land); and (C) all architectural, engineering, construction, landscaping and other building design plans, including the right to use same (collectively, the “Other Intangible Property”).

The Real Property and the Other Intangible Property are hereinafter collectively referred to as the “Property.”

C.Initially capitalized terms used in the Recitals and elsewhere in this Agreement shall have the meanings ascribed to them in this Agreement, whether or not such terms are used

before or after the definitions set forth herein.  An initially capitalized defined term may be used in this Agreement prior to defining such term.  An index of defined terms used in this Agreement is included with the Table of Contents of this Agreement.

A G R E E M E N T :

NOW THEREFORE, in consideration of the mutual covenants and agreements herein contained, the Nonrefundable Consideration, the Purchaser Independent Consideration and the Seller Independent Consideration (as each such terms are defined below), and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Purchaser hereby agree that the terms and conditions of this Agreement and the instructions to Fidelity National Title Company, 4050 Calle Real, Suite 100, Santa Barbara, California 93140, Attention:  Susan Lowe (“Escrow Holder”) with regard to the escrow created pursuant hereto (the “Escrow”) are as follows:

ARTICLE I

PURCHASE AND SALE

1.1Agreement to Purchase and Sell.  Seller agrees to sell the Property to Purchaser, and Purchaser agrees to purchase the Property from Seller, for the Purchase Price and upon the terms and conditions hereinafter set forth in this Agreement.

1.2Excluded Property.  Notwithstanding anything to the contrary contained in this Agreement, the term “Property” shall not include any of the following items, all of which are excluded from the sale by Seller to Purchaser hereunder:  (a) all cash on hand, checks, money orders and accounts receivable, (b) any operating accounts, replacement or reserve accounts or other accounts maintained by or on behalf of Seller or Seller’s affiliates with respect to the Property; (c) the refundable cash or other security deposits or bonds posted for the benefit of the Project (and not exclusively for the Land) by or on behalf of Seller with any governmental authorities or other parties (including the deposit with Goleta Water District for construction of a new water main); (d) any refunds of Property Taxes, personal property taxes and similar payments attributable to the period prior to the Close of Escrow, provided, however, any refunds for the Current Tax Period in which the Close of Escrow occurs shall be prorated in accordance with Section 5.9.2 below; (e) any claims under Seller’s insurance policies (except as contemplated in, and subject to the provisions set forth in, Section 9.2 below); and (f) the Excluded Documents (defined in Section 3.3 below).

1.3Indivisible Economic Package.  Purchaser has no right to purchase and Seller has no obligation to sell, less than all of the Property, it being the express agreement and understanding of Purchaser and Seller that, as a material inducement to Purchaser and Seller to enter into this Agreement, Purchaser has agreed to purchase, and Seller has agreed to sell, all of the Property, subject to and in accordance with the terms and conditions hereof.

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ARTICLE II

PURCHASE PRICE; PURCHASE PRICE ADJUSTMENTS

2.1Purchase Price.  The purchase price (the “Purchase Price”) for the Property shall be Twenty Million Four Hundred Twenty-Eight Thousand Seventeen Dollars ($20,428,017.00); provided, however, in the event the Close of Escrow occurs on or before December 30, 2011, Purchaser shall receive a credit towards the Purchase Price equal to Five Hundred Thousand and No/100s Dollars ($500,000.00) (the “2011 Closing Credit”).

2.2Payment of Purchase Price.  The Purchase Price shall be paid by Purchaser as follows:

2.2.1Deposit.

(a)Initial Deposit.  Within three (3) Business Days after the execution and delivery to Escrow Holder by both Seller and Purchaser of this Agreement, the “Memorandum of Agreement” and the “Quitclaim” (as such terms are defined in Section 10.10 below) (time being of the essence), Purchaser shall deposit, or cause to be deposited with Escrow Holder, in cash, by a confirmed wire transfer of immediately available funds or by certified bank check (hereinafter referred to as “Immediately Available Funds”), the amount of Four Hundred Fifty Thousand Dollars ($450,000.00) (the “Initial Deposit”), and the Penfield Deposit (as defined in Section 11.1 below) in the amount of Sixteen Thousand Dollars ($16,000.00), for an aggregate amount of Four Hundred Sixty-Six Thousand and No/100s Dollars ($466,000.00).  If Purchaser fails to deliver the Initial Deposit and the Penfield Deposit into Escrow strictly as and when contemplated herein, then such failure shall constitute a material breach by Purchaser under this Agreement, and this Agreement shall automatically terminate and thereafter neither party shall have any further rights or obligations except for the Surviving Obligations (as hereinafter defined).  Escrow Holder shall place the Initial Deposit, upon receipt, in one or more federally insured interest bearing accounts, which shall be consistent with the timing requirements of this transaction and reasonably satisfactory to Purchaser and Seller (the “Escrow Account”), pending disbursement in accordance with the terms of this Agreement.  The Penfield Deposit shall be held and disbursed as provided in Section 11.1 below.  All interest which accrues on the “Deposit” (as defined below) while held by Escrow Holder in the Escrow Account shall be added to and increase the Deposit.  Following Escrow Holder’s receipt of the Initial Deposit and the Penfield Deposit and confirmation that such funds have cleared with the bank, Escrow Holder shall promptly record the Memorandum of Agreement in the Official Records and provide a conformed copy of such recorded document to Seller and Purchaser.

(b)Additional Deposit.  Within three (3) Business Days following the expiration of the Due Diligence Deadline (time being of the essence), provided that Purchaser has not previously elected to terminate the Agreement in accordance with its rights set forth herein, Purchaser shall deposit or cause to be deposited, with Escrow Holder, in Immediately Available Funds, the additional amount of Two Hundred Fifty Thousand Dollars ($250,000.00) (the “Additional Deposit”).  The Initial Deposit and the Additional Deposit (or so much thereof that is required to be deposited with Escrow Holder from time to time), together with all interest accrued thereon while in the Escrow Account, shall be collectively referred to herein as the

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“Deposit”.  In no event shall the “Deposit” be deemed to include the Stockpiling Deposit (as defined in Section 11.1 below) and/or the Penfield Deposit, except where expressly set forth below in this Agreement.

(c)BRM Deposit.  Purchaser and Seller hereby acknowledge and agree that a portion of the Initial Deposit equal to Two Hundred Thousand Dollars ($200,000.00) (the “BRM Deposit”) shall be immediately released by Escrow Holder to Seller upon delivery of the Initial Deposit to Escrow Holder without any further instructions required by either Purchaser or Seller hereunder, to pay for Seller’s actual documented out-of-pocket costs incurred in connection with obtaining any and all required entitlements and approvals for the “Parcel 2 Building,” the “Parcel 3 Building,” the “Outdoor Area Improvements” and the “Exterior Modifications” (as such terms are defined hereinafter below) (collectively, the Parcel 2 Building, the Parcel 3 Building, the Outdoor Area Improvements and the Exterior Modifications shall be referred to herein as the “Purchaser’s Required Modifications”).

(i)Purchaser and Seller further acknowledge and agree that, prior to the Effective Date, Seller has incurred the full amount of the BRM Deposit, and Purchaser has previously received and approved copies of appropriate invoices evidencing the costs incurred.

(ii)All of the BRM Deposit (i.e., $200,000.00) disbursed to Seller as set forth above shall also be referred to herein as the “Nonrefundable Consideration”.  The Nonrefundable Consideration shall be deemed option consideration for Seller’s agreement to enter into this Agreement and seek the approvals for Purchaser’s Required Modifications and shall be non-refundable to Purchaser under all circumstances except as otherwise expressly set forth in this Agreement.

(d)Disposition of Deposit.  The Initial Deposit (excluding the Nonrefundable Consideration) shall be refundable to Purchaser if Purchaser terminates this Agreement in accordance with the provisions set forth in this Agreement prior to the expiration of the “Due Diligence Deadline” (as such term is defined below).  Following the expiration of the Due Diligence Deadline, the Deposit shall be non-refundable to Purchaser in all circumstances except in the following circumstances:  (1) the “Additional Due Diligence Conditions” (as such term is defined below) are not satisfied prior to the expiration of the Due Diligence Deadline; or (2) a condition to the close of escrow for Purchaser’s benefit fails to occur (each, a “Deposit Refund Condition”); or (3) the transaction fails to close due to Seller’s default (a “Seller Default Condition”).

(i)If a Deposit Refund Condition occurs following the expiration of the Due Diligence Deadline, then (A) the Initial Deposit (including the BRM Deposit, but excluding the Nonrefundable Consideration), and the Additional Deposit, if applicable, shall be refunded to Purchaser, (B) fifty percent (50%) of the Nonrefundable Consideration shall be refunded to Purchaser, and (iii) fifty percent (50%) of the Nonrefundable Consideration shall be retained by Seller as option consideration as provided above.  (For example, with the entire BRM Deposit of $200,000.00 disbursed to Seller as Nonrefundable Consideration, then the amount of the Nonrefundable Consideration to be refunded to Purchaser

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if a Deposit Refund Condition occurs shall equal to $100,000.00 and the remaining $100,000.00 shall be retained by Seller as option consideration as provided above).

(ii)If a Seller Default Condition occurs following the expiration of the Due Diligence Deadline, then the entire Deposit (including the Nonrefundable Consideration) shall be refunded to Purchaser.

(iii)Notwithstanding anything to the contrary set forth above, if Purchaser terminates the Agreement after the expiration of the Due Diligence Deadline, for any reason or no reason other than the occurrence of a Deposit Refund Condition or a Seller Default Condition, then the Initial Deposit (including the Nonrefundable Consideration) shall be disbursed by Escrow Holder to, and retained by, Seller as liquidated damages, as provided herein.

2.2.2Escrow Holder Custody and Disbursement of Deposit.  Following the expiration of the Due Diligence Deadline, Escrow Holder shall disburse the Deposit as follows:  (a) if the Close of Escrow occurs, the Deposit shall be applied to the payment of the Purchase Price pursuant to Section 2.2.3 below upon the Close of Escrow; (b) if any Deposit Refund Condition occurs, then the Deposit (excluding fifty percent (50%) of the Nonrefundable Consideration) shall be returned by Escrow Holder to Purchaser (and fifty percent (50%) of the Nonrefundable Consideration shall be retained by Seller as option consideration as provided above); (c) if the Close of Escrow fails to occur due to a Seller Default Condition, the entire Deposit (including the BRM Deposit and the Nonrefundable Consideration) shall be refunded to Purchaser, and (d) if the provisions of Section 8.1 below apply, the portion of the Deposit then previously delivered to Escrow Holder (including any portion of the BRM Deposit that has not been released as Nonrefundable Consideration) shall be disbursed by Escrow Holder to Seller, without the necessity of any further instructions, consent or approval of Purchaser or any third party, and retained by Seller as the liquidated damages pursuant to Section 8.1.

2.2.3Closing Funds.  At least one (1) Business Day prior to the Close of Escrow, Purchaser shall deposit or cause to be deposited with Escrow Holder, in Immediately Available Funds, the sum of (a) the remaining balance of the Purchase Price, less the “Stockpiling Credit” (as defined in Section 11.1 below) and the 2011 Closing Credit, if applicable (the “Purchase Price Balance”), plus (b) any amounts in addition to the Deposit and the Purchase Price Balance as are necessary to pay Purchaser’s share of closing costs, prorations and charges payable pursuant to this Agreement.

ARTICLE III

PURCHASER’S DUE DILIGENCE CONDITIONS

As used herein, (a) the “Due Diligence Deadline” means 5:00 p.m. (Pacific Time) on the earlier of (i) November 30, 2011, or (ii) the date that is ninety (90) days following the Effective Date, (b) the “Purchaser Initial Due Diligence Conditions” means, collectively, the matters described in Section 3.1 through Section 3.7 below, and (c) the “Additional Due Diligence Conditions” shall mean, collectively, the matters described in Section 3.10 below.  Purchaser’s obligations under this Agreement shall be subject to the satisfaction of, or waiver by Purchaser

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of, all of the Purchaser Initial Due Diligence Conditions (except to the extent specifically provided in Section 3.1.3 with respect to any New Title Exception which arises prior to the Close of Escrow) and all of the Additional Due Diligence Conditions no later than the Due Diligence Deadline.  The obligations of the parties with respect to the Purchaser Initial Due Diligence Conditions and Additional Due Diligence Conditions are as set forth below in this Article III.

3.1Title.

3.1.1Purchaser’s Review of Title.  Concurrently with the execution and delivery of this Agreement, Seller has delivered, or caused to be delivered, to Purchaser (and Purchaser acknowledges receipt of same):  (a) that certain Preliminary Title Report No.  11-77501954-KJ issued as of May 16, 2011, for the Property (the “Title Report”) by Fidelity National Title Company (the “Title Company”), (b) all underlying documents evidencing exceptions to title referred to in the Title Report, (c) a plotting of all easements referenced in the Title Report, and (d) a copy of the current vesting deed for the Property.  The Title Report, such underlying documents evidencing title exceptions therein, such plotting of easements and the vesting deed are referred to herein collectively as the “Title Documents”.  Purchaser shall have until 5:00 p.m. Pacific Time on the date that is five (5) Business Days prior to the Due Diligence Deadline (the “Title Notice Deadline”) to either approve of the exceptions to title and other matters contained in the Title Documents or to deliver written notice to Seller and Escrow Holder (the “Title Objection Notice”) specifying any title objections or other matters in the Title Documents to which Purchaser objects or conditionally approves (collectively, “Title Objections”).  Purchaser’s failure to timely deliver either an unconditional approval of the condition of title and the Title Documents or a Title Objection Notice shall be deemed to be a disapproval of the Title Report and Title Documents by Purchaser and this Agreement shall automatically terminate and thereafter neither party shall have any further rights or obligations under this Agreement except for the Surviving Obligations (as hereinafter defined), and the Initial Deposit (excluding the Nonrefundable Consideration) shall be returned to Purchaser as set forth in this Agreement, as if Purchaser had terminated this Agreement prior to the expiration of the Due Diligence Deadline.  If Purchaser delivers a Title Objection Notice as provided above, Seller shall have until 5:00 p.m. Pacific Time on the date that is two (2) Business Days prior to the expiration of the Due Diligence Deadline, in Seller’s sole discretion, by written notice to Purchaser (the “Title Response Notice”) to either (i) notify Purchaser in writing that Seller shall remove or cure some or all of the Title Objections set forth in the delivered Title Objection Notice (or to satisfy the conditions of Purchaser’s approval thereof) prior to the Close of Escrow, or (ii) to advise Purchaser that Seller is unable or unwilling to remove or cure any or all of the Title Objections (or satisfy the conditions to Purchaser’s approval thereof).  Seller may remove or cure any Title Objection (or satisfy the conditions to Purchaser’s approval thereof) by causing the Title Company to insure over such Title Objection in a manner acceptable to Purchaser in Purchaser’s sole and absolute discretion.  Seller’s election pursuant to any Title Response Notice shall be at Seller’s sole option and discretion; it being understood Seller has no obligation to remove or cure any Title Objections (or to satisfy the conditions of Purchaser’s approval thereof) other than as provided below in this Section 3.1.1 as to Seller Monetary Liens.  If Seller fails to timely deliver to Purchaser the Title Response Notice, it shall be conclusively deemed that Seller has informed Purchaser that Seller is unable or unwilling to remove or cure any of the Title Objections (or that Seller will not satisfy the conditions to Purchaser’s approval thereof).  If Seller advises Purchaser in Seller’s Title Response Notice (or is deemed to have advised

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Purchaser) that Seller is unable or unwilling to remove or cure any or all of the Title Objections (or that Seller will not satisfy the conditions to Purchaser’s approval thereof), then Purchaser shall have until the expiration of the Due Diligence Deadline to either confirm its prior termination of this Agreement (or elect to terminate the Agreement in the event that Purchaser has delivered a Title Objection Notice) or to waive such Title Objections by delivering written notice to Seller.  If Purchaser fails to deliver a written waiver notice, Purchaser shall be deemed to have disapproved the Seller’s Title Response Notice and this Agreement shall automatically terminate (or the prior deemed termination shall be ratified) and thereafter neither party shall have any further rights or obligations under this Agreement except for the Surviving Obligations (as hereinafter defined), and the Initial Deposit (excluding the Nonrefundable Consideration) shall be returned to Purchaser as set forth in this Agreement, as if Purchaser had terminated this Agreement prior to the expiration of the Due Diligence Deadline.  If Seller advises Purchaser in Seller’s Title Response Notice that Seller shall remove or cure any or all of the Title Objections (or that Seller shall satisfy the conditions to Purchaser’s approval thereof) and Purchaser approves Seller’s Title Response Notice and elects in writing to proceed with the acquisition of the Project as provided above, then Seller’s failure to remove or cure prior to the Close of Escrow those specified Title Objections (or to satisfy the conditions to Purchaser’s approval thereof) in the manner set forth in the Title Response Notice delivered by Seller shall be deemed a failure of a condition to the Closing for Purchaser’s benefit.  As used herein, “Seller Monetary Liens” means any encumbrance which by its terms secures payment of money in installments or at a fixed time but only to the extent that such encumbrance was either voluntarily created by Seller or caused by Seller’s failure to pay a monetary obligation created by Seller; but specifically excluding (1) any of the foregoing caused or created by Purchaser or those for which Purchaser is responsible, (2) liens for non-delinquent taxes and assessments for the Current Tax Year or subsequent years following the Close of Escrow, (3) non-delinquent assessments under the Cabrillo CC&Rs, and (4) matters caused by the Association or those for which the Association is responsible pursuant to the Cabrillo CC&Rs.  Seller shall satisfy and remove all Seller Monetary Liens as title exceptions from the Title Report on or before the Close of Escrow, without the need for Purchaser to include such Seller Monetary Liens in the Title Objection Notice; provided, however, any Seller Monetary Liens may be contested by Seller so long as Seller causes the Title Company to insure over such Seller Monetary Liens by issuance of a title endorsement reasonably satisfactory to Purchaser, or Seller causes such Seller Monetary Liens to be removed as exceptions to coverage in the Title Policy.

3.1.2Title Commitment.  Purchaser shall, at Purchaser’s sole cost and expense, obtain from the Title Company a Commitment for Title Insurance issued for the Property as of the Due Diligence Deadline showing only those exceptions which have been approved by Purchaser pursuant to Section 3.1.1 above, but also including such endorsements as may be agreed to be provided by Title Company and otherwise in a form approved by Purchaser in Purchaser’s sole and absolute discretion (“Title Commitment”), which Title Commitment shall be for the benefit of both Seller and Purchaser.  Purchaser may elect to obtain a title proforma policy in lieu of a Title Commitment as provided above.

3.1.3New Title Exceptions.  Purchaser shall have the right to approve, disapprove or conditionally approve any new exceptions to record title to the Real Property (other than Permitted Exceptions, as such term is defined in Section 6.1.1 below) which are first raised by the Title Company in any modification, update, amendment or supplement to the Title

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Report or Title Commitment which is issued after the effective date of the prior version of such Title Report or Title Commitment, as applicable, or which are first recorded against title to the Real Property after the effective date of the Title Report or the Title Commitment, as applicable (each, a “New Title Exception”).  Purchaser shall have ten (10) Business Days following Purchaser’s receipt of such modification, update, amendment or supplement to the Title Report or Title Commitment, as applicable, that includes such New Title Exception (whether by Purchaser’s receipt of an update to the Title Report or the Title Commitment from Escrow Holder or the Title Company) (the “New Title Objection Date”) within which to approve, disapprove or conditionally approve, in Purchaser’s sole discretion, any New Title Exception by written notice to Seller and Escrow Holder (a “New Exception Objection Notice”).  Purchaser shall not be entitled to disapprove or conditionally approve any new exceptions to record title to the Property which constitute Permitted Exceptions, and any such new exceptions to record title to the Property which come within the definition of “Permitted Exceptions” shall not be deemed to be a “New Title Exception.”  Purchaser’s failure to timely deliver a New Exception Objection Notice to Seller prior to the later of the Title Notice Deadline or the applicable New Title Objection Date shall be deemed Purchaser’s disapproval of the New Title Exception, in which event this Agreement shall be deemed automatically terminated and thereafter neither party shall have any further rights or obligations under this Agreement, except for the Surviving Obligations, and the Initial Deposit (excluding the Nonrefundable Consideration) and the Additional Deposit (if same has been delivered to Escrow Holder) shall be returned to Purchaser as set forth in this Agreement.  If Purchaser disapproves, is deemed to have disapproved, or conditionally approves any such New Title Exception, Seller shall have the right to elect to remove from the Title Policy or cure such New Title Exception (or to satisfy the conditions to Purchaser’s approval thereof) by delivering notice (the “New Exception Cure Notice”) to Purchaser of Seller’s election to do so within five (5) Business Days of the date Seller received such written New Exception Objection Notice (the “Title Cure Election Date”).  Seller may remove or cure any New Title Exception (or satisfy the conditions to Purchaser’s approval thereof) by causing the Title Company to insure over such New Title Exception in a manner satisfactory to Purchaser in Purchaser’s sole and absolute discretion.  Seller shall have no obligation to remove or cure any New Title Exception (or to satisfy any conditions to Purchaser’s approval thereof), but if Seller timely notifies Purchaser pursuant to a New Exception Cure Notice that Seller shall remove or cure any New Title Exception (or satisfy any conditions to Purchaser’s approval thereof), then Seller’s failure to remove or cure any New Title Exception (or satisfy the conditions to Purchaser’s approval thereof) in the manner set forth in such New Exception Cure Notice shall be deemed a failure of a condition to Closing for Purchaser’s benefit.  If necessary, the scheduled Closing Date shall be extended by the number of days necessary to provide Purchaser with the full ten (10) Business Day period for the New Title Objection Date and to provide Seller with the full five (5) Business Day period for the Title Cure Election Date.  Furthermore, if Seller elects to attempt to remove or cure such New Title Exception (or to satisfy the conditions to Purchaser’s approval thereof), Seller shall be entitled for a period of thirty (30) days from Seller’s delivery of the corresponding New Exception Cure Notice to complete the removal or cure (or to satisfy the conditions of Purchaser’s approval thereof) and, if necessary, the scheduled Closing Date shall be extended by the number of days necessary to provide Seller this full thirty (30)-day period.  If Seller does not timely deliver a New Exception Cure Notice with respect to the New Title Exception on or before the Title Cure Election Date, or if Seller notifies Purchaser that Seller has elected not to cure such New Title Exception (or not to satisfy the conditions to Purchaser’s approval thereof),

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then Purchaser may elect either to (i) waive the New Title Exception and proceed with the transaction contemplated herein, or (ii) confirm the termination previously made or terminate this Agreement within five (5) Business Days following the Title Cure Election Date or the expiration of such thirty (30) day period, as the case may be.  If Purchaser delivers timely written notice of such election to terminate this Agreement (or is deemed to have confirmed the termination) in accordance with the immediately preceding sentence, or if Purchaser fails to deliver any written notice of such waiver or election to terminate this Agreement, then Purchaser shall be deemed to have delivered its election to terminate, and this Agreement shall terminate in accordance with the last sentence of Section 6.3 below.  If Purchaser delivers timely written notice approving such New Title Exception, Purchaser shall be deemed to have waived any objection Purchaser may have to the New Title Exception in question, the removal or cure of such New Title Exception shall not be a condition to Purchaser’s obligations under this Agreement or the Close of Escrow, and the Close of Escrow shall take place as provided herein.

3.2Physical Inspections.

3.2.1Inspections, Tests and Studies.  After Purchaser has provided to Seller a certificate of insurance evidencing procurement of a commercial general liability insurance policy covering the activities of Purchaser and Purchaser’s agents, consultants and/or contractors (as the case may be) as required in Section 3.9.1 below, Seller shall permit Purchaser and Purchaser’s authorized agents, consultants and contractors to enter upon the Real Property during reasonable business hours to make and perform such reasonable non-invasive environmental evaluations, and other non-invasive inspections, investigations, tests and studies of the physical condition of the Real Property as Purchaser may elect to make or obtain; provided, however, that any soil vapor or air sampling shall be deemed “invasive” testing for purposes of this Agreement.  Notwithstanding anything to the contrary contained in this Agreement, Purchaser shall not be permitted to undertake any invasive, intrusive or destructive investigation, testing or study of the Property, including a “Phase II” environmental assessment and/or soil vapor or air sampling, without in each instance first obtaining Seller’s written consent thereto, which consent Seller may give, withhold or condition in Seller’s sole and absolute discretion.  If Purchaser desires access to the Real Property, Purchaser shall give at least one (1) Business Day’s prior written notice to Seller of Purchaser’s intention to enter the Real Property.  Unless Seller expressly agrees otherwise, a representative of Seller must be present for any such inspection, test or study conducted on the Real Property.  Purchaser shall not interfere with the operation, use and maintenance of the Real Property or any construction work being performed on the Real Property or any other portions of the Project.  Purchaser shall abide by all reasonable conditions and safety rules and regulations imposed by Seller as to any inspections, tests and studies to be conducted by Purchaser or Purchaser’s authorized agents, consultants and contractors.  Prior to Purchaser conducting any inspections, investigations, tests or studies of the Property, Seller shall have the right to reasonably approve the company or party(s) who will perform such inspections, investigations, tests or studies and the proposed scope of the inspections, investigations, tests or studies.  Purchaser shall bear the cost of all inspections, evaluations, investigations, tests and studies conducted by or on behalf of Purchaser.  Purchaser shall have until the Due Diligence Deadline to approve in Purchaser’s sole and absolute discretion the results of any evaluations, inspections, investigations, tests and studies of the Property as Purchaser desires to have made or performed by delivering the Approval Notice (as defined in Section 3.8 below) to Seller.  Purchaser’s failure to deliver the Approval Notice to Seller prior to the Due Diligence Deadline

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shall be deemed to be Purchaser’s election to terminate this Agreement, and a failure of this Purchaser Initial Due Diligence Condition set forth in this Section 3.2, in which case this Agreement shall terminate pursuant to Section 3.8.1 below.

3.2.2Purchaser’s Delivery of Information to Seller.  Upon Seller’s request, Purchaser agrees to deliver to Seller, promptly following the receipt thereof by Purchaser and at no cost to Seller, copies of any and all reports, tests, studies and test results obtained by Purchaser from independent third parties by or on behalf of Purchaser with respect to the physical condition or environmental investigation of the Property before or after the execution and delivery of this Agreement, including any ALTA Survey obtained by Purchaser and those reports, tests, studies and test results involving the geologic, environmental or other condition of the Property (collectively, “Purchaser’s Information”).  Purchaser’s Information shall not include any appraisals or other internal financial projections of Purchaser.  In addition, Seller hereby acknowledges that (a) the Purchaser’s Information shall not include materials provided to Purchaser by Seller or any of Seller’s consultants, nor materials provided concurrently to Seller by such independent third party that prepared the same, and (b) Purchaser has not made and does not make any warranty or representation regarding the truth or accuracy of any Purchaser’s Information, nor Purchaser’s right or ability to assign any of Purchaser’s Information for the benefit of Seller or any other party.

3.3Plans, Permits, Reports and Related Information.  Prior to the execution and delivery of this Agreement, Seller has delivered or shall following the mutual execution of this Agreement, deliver to Purchaser or made or will make available to Purchaser at the offices of Seller, copies of all of the following items to the extent same are in Seller’s possession and relate to the Project:  (a) property tax bills for the 2010-2011 tax fiscal year and any prior years in which the Property had a separate tax bill; (b) the Cabrillo CC&Rs; (c) the Development Agreement; (d) any soils reports, Americans with Disabilities Act reports, and property condition, structural or engineering studies or reports, including the Existing Environmental Reports referred to in Section 3.4 below; (e) any subdivision maps, licenses, permits, approvals and authorizations from governmental agencies, departments and authorities with respect to zoning, planning, and building and safety; (f) the current plans, specifications and drawings, if any, for the Seller Site Work Improvements (as defined in Section 3.7(c)); (g) the portions of the Hughes Agreement pertaining to access to the Project, the Raytheon Access Agreement and the Renco Access Agreement; and (h) all other contracts, agreements, studies, reports and other documents with respect to the Property which are in the possession of Seller (other than the excluded documents referred to in the third to last sentence of this Section 3.3 below).  A list of the items previously delivered or made available to Purchaser is attached hereto as Exhibit “B”.  All such documents, materials and other items delivered or made available to Purchaser or Purchaser’s agents, consultants or contractors by Seller are referred to herein collectively as “Seller’s Documents”.  Following the execution and delivery of this Agreement and until the Close of Escrow, Seller shall continue to make the Seller’s Documents available to Purchaser at Seller’s offices at reasonable times and upon reasonable prior notice.  Purchaser acknowledges that many of the Seller’s Documents which Seller shall deliver or make available to Purchaser in connection with Purchaser’s evaluation of the Property were prepared by third parties other than Seller and, in some instances, may have been prepared prior to Seller’s ownership of the Property.  Purchaser expressly acknowledges that, except for Seller’s express representations and warranties set forth in Section 7.1 below, any materials, data or other information of any type

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which Purchaser has received or may receive from Seller, Broker or any of Seller’s respective agents, employees, contractors or representatives is furnished on the express condition that Purchaser shall not rely thereon, that Purchaser shall make an independent verification of the accuracy of such Seller’s Documents and that all such Seller’s Documents are being furnished without any representation or warranty whatsoever.  Without limiting the foregoing, (1) except for Seller’s express representations and warranties set forth in Section 7.1 below, Seller makes no representation or warranty, and hereby expressly disclaims any representation or warranty, that any of the Seller’s Documents previously or hereafter delivered or made available to Purchaser are true or accurate (but Seller does hereby represent and warrant to Purchaser that to Seller’s actual knowledge, copies of original documents delivered by Seller to Purchaser are complete copies of the originals of such documents in Seller’s possession), and (2) Seller has informed Purchaser that it is Purchaser’s responsibility to satisfy itself as to whether such materials, data or other information are sufficient for Purchaser to determine if Purchaser should purchase the Property.  Any representation and warranty made by Seller in Section 7.1 below regarding the Seller’s Documents delivered or made available to Purchaser is made by Seller with the understanding of the parties that Purchaser shall conduct or cause to be conducted, such due diligence reviews, investigations and inquiries of Seller’s Documents and the Property as are customarily made by purchasers in real property transactions similar to the transaction contemplated by this Agreement.  In no event shall Seller be obligated to deliver or make available to Purchaser or Purchaser’s agents, consultants or contractors any of the following:  (i) any purchase and escrow agreements and correspondence pertaining to Seller’s acquisition of the Property; (ii) any third party purchase inquiries, correspondence and documents pertaining to the potential acquisition of the Property or other portions of the Project by any past or prospective purchasers (other than documents relating to title or the physical or environmental condition of Real Property); (iii) Seller’s organizational documents (except that certain of Seller’s organizational documents shall be provided to Escrow Holder and/or Title Company to the extent necessary to consummate the transaction contemplated herein); (iv) any appraisals and any economic evaluations of the Property, any records, internal budgets, financial projections, reports or correspondence prepared by Seller or any advisor exclusively for Seller or any of Seller’s constituent owners and any other internal documents; and (v) any documents or materials which are subject to the attorney/client privilege or which are the subject of a confidentiality obligation (collectively, the “Excluded Documents”).  Subject to the provisions of Section 3.3.1 below, Purchaser shall have until the Due Diligence Deadline to approve in Purchaser’s sole and absolute discretion all of the Seller’s Documents by delivering the Approval Notice to Seller.  Purchaser’s failure to deliver the Approval Notice to Seller prior to the Due Diligence Deadline shall be deemed to be Purchaser’s election to terminate this Agreement, and a failure of this Purchaser Initial Due Diligence Condition set forth in this Section 3.3, in which case this Agreement shall terminate pursuant to Section 3.8.1 below.

3.3.1Notwithstanding anything to the contrary in this Agreement, on or before the date that is fifteen (15) days following the mutual execution of this Agreement, Purchaser shall notify Seller in writing of any changes to the Cabrillo CC&Rs required by Purchaser (“Purchaser’s Proposed CC&Rs Modifications”).  Purchaser and Seller anticipate that Purchaser’s Proposed CC&Rs Modifications will include, but not be limited to, (i) a clarification that all parking areas on the Property shall be for the exclusive use of Purchaser, (ii) Purchaser shall be allowed to install parking gates with card-key access in certain parking areas on the Property as reasonably approved by Seller, and (iii) there shall be no obligation requiring non-

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exclusive or any shared use, ingress, egress or access to by the Property by other parcels in the Project (it being agreed that in no event shall Purchaser be permitted to use other parcels encumbered by the Cabrillo CC&Rs).

(a)Within ten (10) Business Days after Seller’s receipt of Purchaser’s Proposed CC&Rs Modifications, Seller shall notify Purchaser in writing of any such Purchaser’s Proposed CC&Rs Modification that Seller does not believe can be achieved (each referred to as a “Problematic Proposed Modification”), which shall be addressed as set forth in subsection (c) below.  The mutually approved Purchaser’s Proposed CC&Rs Modifications, as modified by the resolution of the Problematic Proposed Modifications as provided in subsection (c) below), shall be referred to herein as the “CC&Rs Modifications”.

(b)Within five (5) days following the determination of the CC&Rs Modifications (following any mutually acceptable resolution to any Problematic Proposed Modification as provided in subsection (c) below), Seller shall promptly commence the process of obtaining all necessary approvals for the same, and it shall be a condition to the Close of Escrow that Seller cause to be recorded at the Close of Escrow a modification to the CC&Rs to enact the CC&Rs Modifications.

(c)In the event Seller timely notifies Purchaser of any Problematic Proposed Modifications, such written notice from Seller shall be accompanied by a counterproposal for Purchaser to consider to address the underlying issue in the Problematic Proposed Modification.  Purchaser shall have ten (10) Business Days to consider Seller’s counterproposal, and thereafter Purchaser may either (a) agree to Seller’s counterproposal, (b) abandon the Problematic Proposed Modification, (c) endeavor to negotiate a mutually acceptable compromise with Seller, for which Seller and Purchaser agree to negotiate in good faith, or (d) reject the Problematic Proposed Modification and/or any Seller’s counter proposal thereof, in which case, Purchaser, at Purchaser’s sole option, shall have the right to terminate this Agreement by failing to deliver the Approval Notice to Seller prior to the Due Diligence Deadline, in which case this Agreement shall terminate pursuant to Section 3.8.1.  Any Problematic Proposed Modification that is ultimately modified and mutually acceptable to Purchaser and Seller shall be deemed to be part of the CC&Rs Modifications.  In no event shall the final determination of specific items to be deemed CC&Rs Modifications be determined later than the expiration of the Due Diligence Deadline.  Upon either party’s written request, Seller and Purchaser shall enter into an amendment to this Agreement to reflect their mutual approval of the CC&Rs Modifications.

3.4Section 25359.7 of Health and Safety Code.  Section 25359.7 of the California Health and Safety Code requires owners of non-residential real property who know, or have reasonable cause to believe, that any release of hazardous substance has come to be located on or beneath the real property to provide written notice of such to a Purchaser of the real property.  Seller represents that the sole inquiry and investigation Seller has conducted in connection with the environmental condition of the Property is to obtain and/or review the environmental assessments and studies of the Property which are listed on Exhibit “B-1” hereto (collectively, the “Existing Environmental Reports”).  In furtherance of the foregoing, (a) Purchaser acknowledges Purchaser’s receipt of the foregoing notice given pursuant to Section 25359.7 of the California Health and Safety Code; and (b) Purchaser is, or will be prior to the expiration of

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the Due Diligence Deadline, fully aware of the matters described in the Existing Environmental Reports, including the environmental matters described in Section 7.7 below.

3.5Governmental Authority and Other Inquiries.  From and after the execution and delivery of this Agreement, Purchaser and Purchaser’s authorized agents, consultants and contractors shall have the right, as part of Purchaser’s due diligence investigation, to contact the City of Goleta, the County of Santa Barbara and other governmental authorities about various aspects of the Property, subject to the provisions of this Agreement.  Purchaser shall provide Seller with not less than two (2) Business Days prior written notice of any such inquiry, contact, interview and meeting by Purchaser and Purchaser’s authorized agents, consultants and contractors with any governmental authority.  Unless Seller expressly agrees otherwise, a representative of Seller must be present and otherwise participate in all such inquiries, contacts, interviews and meetings; provided, however, such requirement that a representative of Seller be present and participate shall not apply to meetings with any governmental authority for the purpose of routine records review and investigation.  Purchaser shall have until the Due Diligence Deadline to approve in Purchaser’s sole and absolute discretion the results of any inquiries which Purchaser desires to make of any governmental authorities by delivering the Approval Notice to Seller.  Purchaser’s failure to deliver the Approval Notice to Seller prior to the Due Diligence Deadline shall be deemed to be Purchaser’s election to terminate this Agreement, and a failure of this Purchaser Initial Due Diligence Condition set forth in this Section 3.5, in which case this Agreement shall terminate pursuant to Section 3.8.1 below.

3.6Natural Hazard Disclosure.  Purchaser and Seller acknowledge that Seller may be required under California law to disclose if the Property lies within the following natural hazard areas or zones:  (a) a special flood hazard area designated by the Federal Emergency Management Agency (California Civil Code Section 1102.17); (b) an area of potential flooding (California Government Code Section 8589.4); (c) a very high fire hazard severity zone (California Government Code Section 51183.5); (d) a wild land area that may contain substantial forest fire risks and hazards (Public Resources Code Section 4136); (e) an earthquake fault zone (Public Resources Code Section 2621.9); or (f) a seismic hazard zone (Public Resources Code Section 2694).  The Title Company or another qualified expert as described in California Civil Code Section 1102.4(c) (the “Natural Hazard Expert”) has been engaged, at Seller’s cost, to examine the maps and other information specifically made available to the public by government agencies for the purposes of enabling Seller to fulfill Seller’s disclosure obligations, if and to the extent such obligations exist, with respect to the natural hazards referred to in California Civil Code Section 1103.2 and the written results of the Natural Hazard Expert’s examination shall be delivered to Purchaser concurrently with the execution and delivery of this Agreement.  The written report(s) prepared by the Natural Hazard Expert regarding the results of the Natural Hazard Expert’s full examination (the “Natural Hazard Report”) fully and completely discharges Seller from Seller’s disclosure obligations referred to herein, if and to the extent any such obligations exist, and, for the purpose of this Agreement, the provisions of Civil Code Section 1103.4 regarding non-liability of Seller for errors or omissions not within Seller’s personal knowledge shall be deemed to apply and the Natural Hazard Expert shall be deemed to be an expert, dealing with matters within the scope of the Natural Hazard Expert’s expertise with respect to the examination and written report regarding the natural hazards referred to above.

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3.7Seller Site Work Construction and Agreements Relating to Construction.

(a)On-Site Improvements.  Purchaser and Seller acknowledge and agree that they have mutually approved (i) the conceptual site plan (“Property Plan”) showing all outdoor area improvements for the Real Property (collectively, the “Outdoor Area Improvements”), together with the buildings layout, landscaping, parking and hardscape locations (it being agreed, however, that the Outdoor Area Improvements shall specifically exclude Purchaser’s buildings and related parking, hardscape and landscaping improvements that are not part of the Outdoor Area Improvements), as depicted on that certain “Preliminary Landscape Plan — Northeast Corner” dated June 28, 2011, prepared by Arcadia Studio Landscape Architects, as described in the approved “Cabrillo Business Park Project Development Plan Amendment #2, and as described in the approved Overall Sign Plan Amendment Findings and Minor Conditional Use Permit Findings, all of which are attached hereto as Exhibit “A-1”, and (ii) the grading plans showing the scope of work to be completed by Seller following the Close of Escrow in accordance with the terms and conditions of Article XI below, in order for Seller to bring the Property to the condition of a “finished and graded lot with stubbed-out utilities” ready for the construction of the Parcel 1 Buildings, the Parcel 2 Building and the Parcel 3 Building, as depicted on that certain “Cabrillo Business Park Northeast Phase Construction Limits Exhibit” dated August 19, 2011, and that certain “Cabrillo Business Park Northeast Phase Utility Exhibit” dated August 22, 2011, each prepared by Penfield & Smith (collectively, the “Finished Parcel Plan”) and both of which are attached hereto as Exhibit “A-2”.  Purchaser acknowledges and agrees that Seller shall only be stubbing the utilities to points depicted on the Cabrillo Business Park Northeast Phase Utility Exhibit and labeled thereon as, “utilities to be built by Seller”.  Purchaser further acknowledges and agrees that Seller shall only be completing such work identified on the plans as “to be performed by Seller”.  The Property Plan and Finished Parcel Plan have been previously submitted to the City of Goleta (“City”) for approval.  No material changes shall be permitted to the Property Plan unless such changes have been mutually approved by Seller and Purchaser or are required by any governmental agency with jurisdiction.  Prior to or after the expiration of the Due Diligence Deadline (but prior to Seller’s receipt of the applicable governmental approval therefor), Purchaser may request non-material changes to the Property Plan so long as such changes do not delay Seller’s ability to obtain the required approvals for the Property Plan from the City and other governmental agencies with jurisdiction.  No changes may be made to the Finished Parcel Plan unless required by a governmental agency with jurisdiction or as mutually agreed between Seller and Purchaser in writing.  Any such changes required by a governmental agency shall be made at the sole cost of Seller, and shall be subject to Purchaser’s approval, which approval shall not be unreasonably withheld so long as such changes will not have a material adverse effect on Purchaser’s Required Modifications or Purchaser’s use of and access to the Property, or materially increase Purchaser’s cost of developing the Property.

(b)Off-Site Improvements.  On or before the expiration of the Due Diligence Deadline, Seller and Purchaser shall have mutually approved a detailed site plan (“Offsite Plan”) outlining the scope of off-site work to be completed by Seller, with such plans and work to be completed at Seller’s sole cost and expense, following the Close of Escrow, including, but not limited to common areas, street widening, street construction (including signalized intersections), wetlands, parks, Project monument signs and all other Project improvements required by the City and any other applicable governmental agencies with

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jurisdiction to issue conditions of approval for the construction of the Parcel 1 Buildings, the Parcel 2 Building and the Parcel 3 Building (collectively, the “Offsite Work”).  Purchaser’s approval rights with respect to the Offsite Plan shall be limited solely to the work required to be performed on or adjacent to the Property.  Purchaser shall not unreasonably withhold its approval so long as such changes will not have a material adverse effect on Purchaser’s Required Modifications or Purchaser’s use of and access to the Property, or materially increase Purchaser’s cost of developing the Property.

(c)Seller Site Work Improvements and Temporary Access and Construction Easement Agreement.  On or before the Due Diligence Deadline, Purchaser and Seller shall have mutually agreed upon the form and content of an agreement to be executed and delivered by Purchaser and Seller upon the Close of Escrow (the “Temporary Access Agreement”) pursuant to which Purchaser grants to Seller access on, in, under and over certain described portions of the Real Property for the installation, construction, development and completion, at Seller’s sole cost and expense, following the Close of Escrow of the onsite improvements required to be made to the Property in accordance with the Finished Parcel Plan following the Close of Escrow (collectively, the “Seller Site Work Improvements”), which Seller Site Work Improvements shall be installed, constructed, developed and completed substantially in accordance with the Finished Parcel Plan and the Offsite Plan, as applicable, and the terms and conditions of Section 11.1 below.

(d)Construction Management Agreement.  On or before the Due Diligence Deadline, Purchaser and Sares·Regis Group (“Sares”), an affiliate of Seller, shall have negotiated and executed a construction management agreement relating to the improvements the Purchaser shall construct on the Property following the Close of Escrow (the “Construction Management Agreement”).  Purchaser acknowledges and agrees that such Construction Management Agreement shall be solely between Purchaser and Sares, and Seller shall have no responsibilities or liabilities thereunder and/or related to, the negotiation of such agreement.  Notwithstanding anything to the contrary herein, if Purchaser fails to approve this condition in writing on or before the expiration of the Due Diligence Deadline, such failure shall be deemed Purchaser’s election to terminate this Agreement, and a failure of this Purchaser Initial Due Diligence Condition set forth in this Section 3.7, in which case this Agreement shall terminate pursuant to Section 3.8.1 below.

(e)Construction Approvals.  On or before the expiration of the Due Diligence Deadline (or such earlier dates as set forth below), Purchaser, at Purchaser’s sole option, cost and expense (except as set forth below), shall complete the following plans and specifications, and/or satisfy itself regarding the conditions set forth below:  (i) within thirty (30) days following the mutual execution of this Agreement, Purchaser shall approve a preliminary set of construction plans, pursuant to Purchaser’s specifications and requirements, completed by an architect mutually selected by Purchaser and Seller, which include, without limitation, the following:  (A) Purchaser’s Required Modifications, including any plans or drawings which may have been completed by Seller in connection with the same, and for which Seller may have been reimbursed from a portion of the BRM Deposit, (B) detailed information for the shell & core of the Parcel 1 Buildings, the Parcel 2 Building, and the Parcel 3 Building, including mechanical systems such as HVAC, electrical, plumbing, elevator, and other utilities in order to obtain a commercially reasonable construction price estimate from the general contractor, and

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(C) detailed information regarding the exterior modifications on the Property such as common areas, parking areas, exterior lighting and other on-site improvements (collectively the “Approved Building Plans”); (ii) within fifteen (15) days following the mutual execution of this Agreement (but in no event later than the expiration of the Due Diligence Deadline), Purchaser and Sares shall mutually select the general contractor for the construction of the core and shell of the Parcel 1 Building 1, the Parcel 2 Building and the Parcel 3 Building (the “Construction Work”); and (iii) within forty-five (45) days following the mutual execution of this Agreement (but in no event later than the expiration of the Due Diligence Deadline), (A) Purchaser, with the assistance of Seller, shall obtain a detailed construction price estimate from the general contractor based on the Approved Building Plans and all applicable soft costs (the “Construction Estimate”), (B) Purchaser, with the assistance of Sares pursuant to the Construction Management Agreement, shall agree upon the Construction Estimate with the approved general contractor, and (C) Purchaser, with the assistance of Sares pursuant to the Construction Management Agreement, shall agree upon and cause the general contractor to agree upon the form of G-MAX fixed price construction agreement (including general conditions and fees) for the Construction Work.  Notwithstanding anything to the contrary herein, if Purchaser fails to approve this condition in writing on or before the expiration of the Due Diligence Deadline, such failure shall be deemed Purchaser’s election to terminate this Agreement, and a failure of this Purchaser Initial Due Diligence Condition set forth in this Section 3.7, in which case this Agreement shall terminate pursuant to Section 3.8.1 below.

(f)Cabrillo CC&Rs Approval.  On or before the expiration of the Due Diligence Deadline, Seller shall have provided Purchaser with written evidence of all necessary approvals under the Cabrillo CC&Rs required for the development of the Property as contemplated under this Agreement, including, but not limited to, written approval from the Architectural and Development Review Committee (as defined in the Cabrillo CC&Rs).

(g)Acknowledgements of Proposed Assignment of Access Agreements.  As contemplated in Sections 7.7.2 and 7.7.3 below, on or before the expiration of the Due Diligence Deadline, Seller shall have provided Purchaser with a copy of the acknowledgement pages from (i) the Raytheon Assignment, executed by Raytheon, and (ii) the Renco Assignment, executed by LFR and Renco.

(h)Termination.  Except as otherwise provided in Section 3.1 through Section 3.7 above, Purchaser’s failure to deliver the Approval Notice to Seller prior to the Due Diligence Deadline shall be deemed a disapproval of the Purchaser Initial Due Diligence Conditions set forth in Section 3.1 through Section 3.7 above.

3.8Failure of Purchaser Initial Due Diligence Conditions.  If, for any reason or no reason whatsoever, any of the Purchaser Initial Due Diligence Conditions set forth in Section 3.1 through Section 3.7 above are not satisfied or if Purchaser, in Purchaser’s sole and absolute discretion, is not satisfied with any aspect of the Property, including the physical inspections, the Existing Environmental Reports or any other Seller’s Documents, new environmental reports, disclosures, or the condition and suitability of the Property for Purchaser’s contemplated ownership and use thereof, and/or Purchaser’s ability to obtain financing and approval to consummate the transaction from its Board of Directors, then Purchaser may, at Purchaser’s sole option, elect to terminate this Agreement by delivering written notice to Seller and Escrow

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Holder at any time prior to the Due Diligence Deadline.  Except as otherwise expressly provided in Section 3.1 through Section 3.7 above, the Purchaser Initial Due Diligence Conditions set forth in Section 3.1 through Section 3.7 above shall be deemed to have failed and be disapproved by Purchaser unless prior to the Due Diligence Deadline Purchaser delivers to Seller and Escrow Holder a written notice that such Purchaser Initial Due Diligence Conditions have been satisfied or waived by Purchaser and that Purchaser elects to proceed with the purchase of the Property in accordance with this Agreement (the “Approval Notice”).  If Purchaser delivers the Approval Notice to Seller and Escrow Holder on or before the Due Diligence Deadline, then all of the Purchaser Initial Due Diligence Conditions shall be deemed satisfied or waived.  Except for a Title Objection Notice, Purchaser shall not be entitled to include a conditional approval or a conditional waiver of any of the Purchaser Initial Due Diligence Conditions (or any aspect thereof) in the Approval Notice.  If the Approval Notice contains anything other than the unconditional approval or unconditional waiver of all of the Purchaser Initial Due Diligence Conditions, it shall be deemed to be Purchaser’s disapproval by such Purchaser Initial Due Diligence Conditions.  Purchaser shall be entitled to waive any of the Purchaser Initial Due Diligence Conditions at any time prior to the Due Diligence Deadline.  Any such waiver by Purchaser of the Purchaser Initial Due Diligence Conditions shall be made in writing by Purchaser, including by Purchaser’s delivery of the Approval Notice to Seller and Escrow Holder.

3.8.1Termination of Agreement.  If Purchaser fails to timely provide any of (a) an unconditional approval of the condition of title and the Title Documents or a Title Objection Notice with respect to Purchaser’s review of the Title Documents, or (b) the Approval Notice with respect to all of the Purchaser Initial Due Diligence Conditions, then this Agreement shall automatically terminate, Escrow Holder shall return the Initial Deposit to Purchaser (less the Purchaser Independent Consideration and less one-half (1/2) of any escrow and title cancellation fees and charges, if any, which Purchaser hereby agrees to pay; the other one-half (1/2) of which escrow and title cancellation fees and charges, if any, shall be paid by Seller and less fifty percent (50%) of the Nonrefundable Consideration) in Immediately Available Funds, without the necessity of any escrow cancellation or other instructions, consent or approval of Seller or any third party, and neither Purchaser nor Seller shall have any further rights or obligations under this Agreement except for any obligations under Section 3.2, this Section 3.8, Section 3.9, Section 5.7, Section 6.3 and Section 10.10 (collectively, the “Surviving Obligations”), which Surviving Obligations shall survive any such termination.

3.8.2Purchaser Independent Consideration.  If Purchaser elects (or is deemed to have elected) to terminate this Agreement for any reason pursuant to this Section 3.8 and is entitled to receive a return of the Initial Deposit pursuant to the terms hereof (less fifty percent (50%) of the Nonrefundable Consideration), Escrow Holder shall first disburse to Seller One Hundred Dollars ($100) as independent consideration for Seller’s performance under this Agreement (“Purchaser Independent Consideration”), which shall be retained by Seller in all such instances, and shall disburse fifty percent (50%) of the Nonrefundable Consideration to Seller as option consideration as provided herein.

3.8.3Failure Due to Material Breach.  Nothing contained herein shall be deemed or construed to relieve Seller or Purchaser of any liability or waive any of Purchaser’s or

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Seller’s remedies if any Purchaser Initial Due Diligence Condition is not satisfied due to a material breach by Seller or Purchaser under this Agreement.

3.9Investigations, Obligations and Indemnity.

3.9.1Inspection Obligations.  Purchaser agrees that when entering the Property and conducting any investigations, inspections, tests and studies of the Property, Purchaser and Purchaser’s agents, consultants, contractors and representatives shall be obligated to:  (a) comply in all material respects with all terms of all applicable laws and regulations regarding entry to the Property; (b) comply with all terms of the Cabrillo CC&Rs and any service, maintenance, repair, improvement, management, easement, access, environmental and other agreements regarding entry on to the Property, including the Hughes Agreement, the Raytheon Access Agreement and the Renco Access Agreement; (c) not unreasonably interfere with the operation, use and maintenance of the Property or any of the construction work being performed on any other portions of the Project or any adjacent property; (d) not damage any part of the Property or any adjacent property; (e) not injure or otherwise cause bodily harm to Seller; (f) promptly pay when due the costs of all inspections, tests, investigations, studies and examinations done with regard to the Property; (g) not permit any labor or materials liens to attach to the Property or any other portions of the Project or any adjacent property by reason of the inspections, tests, investigations, studies and examinations performed by Purchaser and Purchaser’s agents, consultants, contractors and representatives and promptly remove or cause to be removed (by bonding or otherwise) any such liens which attach to the Property or any adjacent property; (h) maintain commercial general liability (occurrence) insurance with a combined single liability limit per occurrence in the amount of Two Million Dollars ($2,000,000) covering any accident arising in connection with the presence of Purchaser and Purchaser’s agents, consultants, contractors and representatives on the Real Property and deliver a certificate of insurance verifying such coverage to Seller prior to any entry upon the Real Property (such insurance policy maintained by or on behalf of Purchaser shall insure the contractual liability of Purchaser covering the indemnities herein and shall (1) name the Seller (and Seller’s successors, assigns and affiliates) as additional insureds, and (2) contain a cross-liability provision); (i) fully restore the Property to substantially the same condition in which the Property was found before any such inspections, tests or studies were undertaken; (j) comply with the confidentiality standards set forth in Section 3.9.3; and (k) comply with the terms and provisions of Section 3.2.1 above.

3.9.2Purchaser’s Indemnity.  Purchaser shall keep the Property free from all liens arising out of any studies, evaluations, inspections, investigations or tests made by Purchaser or Purchaser’s agents, consultants, contractors and representatives in connection with the Property or any entries by Purchaser or Purchaser’s agents, consultants, contractors and representatives in, on or about the Property (collectively, “Purchaser’s Property Investigations”) and shall indemnify, defend (with counsel reasonably satisfactory to Seller), protect, and hold Seller, Seller’s member(s) and each of their members, officers, trustees, beneficiaries, employees, representatives, agents, lenders, related and affiliated entities, successors and assigns (collectively, the “Seller Parties”) harmless from and against any and all claims, demands, liabilities, judgments, penalties, losses, costs, damages, and expenses (including reasonable attorneys’ and experts’ fees and costs) arising in any manner whatsoever from any Purchaser’s Property Investigations made by Purchaser or Purchaser’s agents, consultants, contractors and representatives (exclusive of the financial effects of the discovery of

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presently existing Hazardous Materials on the Property, except to the extent Purchaser or Purchaser’s agents, consultants, contractors or representatives exacerbated such condition following its discovery of same or breached this Agreement in conducting such work).  Notwithstanding any provision to the contrary in this Agreement, the indemnity obligations of Purchaser under this Agreement shall survive any termination of this Agreement and shall not merge into the Grant Deed and any other documents or instruments delivered at the Close of Escrow.  In addition to the foregoing indemnity, if there is any damage to the Property (that is more than a de minimis change) caused by Purchaser’s and/or Purchaser’s agents’, consultants’, contractors’ or representatives’ entry in or on the Property, Purchaser shall promptly restore the Property (or, at Seller’s option, pay to Seller upon demand the cost to restore the Property with interest thereon at the rate of ten percent (10%) per annum from the date of demand until paid) to substantially the same condition existing prior to Purchaser’s and Purchaser’s agents’, consultants’, contractors’ or representatives’ entry in, on or about the Property.

3.9.3Proprietary Information.  Purchaser acknowledges and agrees that the Seller Documents are proprietary and confidential in nature and have been or will be made available to Purchaser solely to assist Purchaser in determining the feasibility of purchasing the Property.  Purchaser agrees, prior to the Closing, not to disclose the Seller Documents, any of the Purchaser’s Information, or any analyses, compilations, studies or other documents or records prepared by or on behalf of Purchaser from any of the Seller Documents or the Purchaser’s Information (collectively, the “Proprietary Information”) to any party outside of Purchaser’s organization except (a) as necessary to Purchaser’s attorneys, consultants, brokers, accountants, lenders, prospective lenders, investors and/or prospective investors (collectively, the “Permitted Outside Parties”), or (b) as may be required by any law applicable to Purchaser, including, but not limited to, such laws or regulations requiring certain disclosures by publicly-traded corporations such as Purchaser.  Purchaser further agrees to instruct all Permitted Outside Parties that, prior to the Close of Escrow, the Proprietary Information is to be kept confidential and not disclosed to third parties.  In permitting Purchaser and the Permitted Outside Parties to review the Seller Documents to assist Purchaser, Seller has not waived any privilege or claim of confidentiality with respect thereto, and no third party benefits or relationships of any kind, either expressed or implied, have been offered, intended or created by Seller and any such claims are expressly rejected by Seller and waived by Purchaser.

3.9.4Return of Seller Documents.  Promptly following written request by Seller on or about the time that this Agreement may be terminated for any reason, Purchaser shall return to Seller the copies of all of the Seller Documents delivered to Purchaser by or on behalf of Seller, and Purchaser shall destroy, and instruct all Permitted Outside Parties in writing to destroy, any and all copies Purchaser or the Permitted Outside Parties have made of the Seller Documents.

3.9.5Remedies.  In addition to any other remedies available to Seller, Seller shall have the right to seek equitable relief (including specific performance and injunctive relief) against Purchaser and Purchaser’s agents, consultants, contractors and representatives to enforce the provisions of this Section 3.9.

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3.10Additional Due Diligence Conditions.  Purchaser shall have until the Due Diligence Deadline to become satisfied in Purchaser’s sole and absolute discretion, with the following:

3.10.1Entitlements.  Seller has obtained, at Seller’s sole cost and expense, all entitlements and planning related land use approvals from the City and from any other applicable governmental agencies with jurisdiction over the Property, with conditions that are reasonably acceptable to Purchaser, to build (i) two (2) two-story office buildings on Parcel 1, consisting of approximately 75,000 rentable square feet for Building 1 (the “Parcel 1 Building 1”), and approximately 40,000 rentable square feet for Building 2 (the “Parcel 1 Building 2”), totaling approximately 115,000 rentable square feet (collectively the “Parcel 1 Buildings”); (ii) a two (2) story office building on Parcel 2 containing approximately 45,000 square feet or such square footage as mutually approved by Purchaser and Seller (the “Parcel 2 Building”); and (iii) a one (1)-story warehouse building on Parcel 3 containing approximately 30,000 square feet or such square footage as mutually approved by Purchaser and Seller (the “Parcel 3 Building”).  Purchaser and Seller acknowledge and agree that, as of the Effective Date, not all statutes of limitations for possible challenges have run with regard to the entitlements and approvals, and Purchaser and Seller further acknowledge and agree that the foregoing condition shall not be deemed satisfied until such time as all applicable appeals periods for such entitlements and approvals have expired, all statutes of limitations for possible challenges have run, and there are no pending actions, complaints or challenges against such entitlements and approvals (collectively, the “Entitlement Appeal Actions”).

3.10.2Design Review Board Approval.  Seller has received “Preliminary Approval” from the City Design Review Board and from any other applicable governmental agencies of (i) the proposed exterior modifications to the Parcel 1 Buildings pursuant to the Approved Building Plans (the “Exterior Modifications”), (ii) the other Purchaser’s Required Modifications, (iii) the CC&Rs Modifications; (iv) the Property Plan (with such modifications) as may be required and approved as provided above, and (v) the approvals required pursuant to Section 3.10.1 above.  For clarification purposes, obtaining a “Preliminary Approval” from the City should provide the Purchaser with a reasonable comfort level that the City has accepted the proposed Purchaser’s Required Modifications, subject to final construction documents, and the CC&Rs Modifications, but Preliminary Approval shall also mean that all applicable appeals periods for the City’s acceptance of the Purchaser’s Required Modifications shall have expired, all statutes of limitations for possible challenges have run, and there are no pending actions, complaints or challenges against such entitlements and approvals.  The plans for the Exterior Modifications and the Outdoor Area Improvements (which are part of the Purchaser’s Required Modifications and which shall be part the Approved Building Plans) required by City shall be paid from BRM Deposit, and Seller shall pay for all processing of said plans with the City with said funds.

3.10.3Failure of Additional Due Diligence Conditions.  If any of the Additional Due Diligence Conditions set forth in Section 3.10 above are not satisfied, then Purchaser may, at Purchaser’s sole option, elect to terminate this Agreement by delivering written notice to Seller and Escrow Holder at any time prior to the Due Diligence Deadline.  The Additional Due Diligence Conditions set forth in Section 3.10 above shall be deemed satisfied upon the date that they are satisfied (including the expiration of all applicable appeals periods, the running of all

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statutes of limitations for possible challenges, and there being no pending actions, complaints or challenges such Additional Due Diligence Conditions), and Purchaser shall have no further right to terminate the Agreement for the failure of a particular condition after same have been satisfied.  However, if Purchaser terminates the Agreement after the Due Diligence Deadline and delivery of the Additional Deposit to Escrow Holder, then Seller shall be entitled to the Initial Deposit and the Additional Deposit as liquidated damages (including all of the BRM Deposit and Nonrefundable Consideration).  If the Additional Due Diligence Conditions have been satisfied, then Purchaser shall be required to deliver the Approval Notice as to such satisfied Additional Due Diligence Conditions on or prior to the Due Diligence Deadline, and the failure to do so shall constitute Purchaser’s election to terminate this Agreement.  If Purchaser elects to proceed with the purchase of the Property in accordance with this Agreement, Purchaser shall deliver the Approval Notice to Seller, and the upon the delivery of the Approval Notice, all of the Additional Due Diligence Conditions shall be deemed satisfied or waived.  Purchaser shall not be entitled to include a conditional approval or a conditional waiver of any of the Additional Due Diligence Conditions (or any aspect thereof) in the Approval Notice.  Purchaser shall be entitled to waive any of the Additional Due Diligence Conditions at any time prior to the Due Diligence Deadline.  Any such waiver by Purchaser of the Additional Due Diligence Conditions shall be made in writing by Purchaser, including by Purchaser’s delivery of the Approval Notice to Seller and Escrow Holder.

3.10.4Termination of Agreement.  If Purchaser terminates the Agreement because the Additional Due Diligence Conditions have not been satisfied for reasons other than Purchaser’s failure to comply with the timeframe requirements set forth in this Agreement, then this Agreement shall terminate, Escrow Holder shall return the Initial Deposit to Purchaser (less the Purchaser Independent Consideration and less one-half (1/2) of any escrow and title cancellation fees and charges, which Purchaser hereby agrees to pay; the other one-half (1/2) of which escrow and title cancellation fees and charges shall be paid by Seller and less fifty percent (50%) of the Nonrefundable Consideration) in Immediately Available Funds, without the necessity of any escrow cancellation or other instructions, consent or approval of Seller or any third party Additionally, the Stockpiling Deposit (if delivered by Purchaser) and the Penfield Deposit shall be refunded to Purchaser if an Entitlement Appeal Action exists (and same has not been resolved to the satisfaction of Purchaser) upon the expiration of the Due Diligence Period (but in no event if the Agreement is terminated prior to the expiration of the Due Diligence Period).  Upon the termination of the Agreement as provided, neither Purchaser nor Seller shall have any further rights or obligations under this Agreement except for the Surviving Obligations, which Surviving Obligations shall survive any such termination.

3.10.5Purchaser Independent Consideration.  If Purchaser elects to terminate this Agreement for any reason pursuant to this Section 3.10 and is entitled to receive a return of the Initial Deposit pursuant to the terms hereof (less fifty percent (50%) of the Nonrefundable Consideration), Escrow Holder shall first disburse to the Purchaser Independent Consideration, which shall be retained by Seller in all such instances.

3.10.6Failure Due to Material Breach.  Nothing contained herein shall be deemed or construed to relieve Seller or Purchaser of any liability or waive any of Purchaser’s or Seller’s remedies if any Purchaser Secondary Due Diligence Condition is not satisfied due to a material breach by Seller or Purchaser under this Agreement.

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ARTICLE IV

SELLER CONTINGENCY CONDITIONS

Seller’s obligations under this Agreement shall be subject to the satisfaction of or waiver by Seller of the following matters described below in this Article IV (the “Seller Contingency Conditions”) on or before the respective dates provided below.  The obligations of the parties with respect to the Seller Contingency Conditions are set forth below in this Article IV.

4.1Temporary Access Agreement.  Prior to the Due Diligence Deadline, Seller and Purchaser shall have mutually agreed upon the form and content of the Temporary Access Agreement to be executed and delivered by Purchaser and Seller upon the Close of Escrow.  Seller’s failure to deliver written notice to Purchaser and Escrow Holder that this Seller Contingency Condition has been satisfied or waived (the “Seller Contingency Approval Notice”) prior to the Due Diligence Deadline shall be deemed to be a failure of the Seller Contingency Condition set forth in this Section 4.1 and Seller’s election to terminate this Agreement pursuant to Section 4.3 below.

4.2Approval Notice.  Prior to the Due Diligence Deadline, Purchaser shall have delivered the Approval Notice to Seller and Escrow Holder.  For clarity, any failure by Purchaser to deliver the Approval Notice to Seller and Escrow Holder shall be deemed to be a disapproval by Purchaser of the Purchaser Initial Due Diligence Conditions and the Additional Due Diligence Conditions, as applicable.

4.3Failure of Seller Contingency Conditions.

4.3.1Seller Contingency Approval Notice.  If Seller and Purchaser fail to timely agree upon the form and content of the Temporary Access Agreement upon terms and conditions satisfactory to Seller as set forth in Section 4.1 above, then Seller may, at Seller’s sole option, elect to terminate this Agreement by delivering written notice to Escrow Holder and Purchaser.  The Seller Contingency Condition set forth in Section 4.1 above shall be deemed to have failed and be disapproved by Seller unless prior to the Due Diligence Deadline Seller delivers to Purchaser a Seller Contingency Approval Notice.  The Seller Contingency Condition in Section 4.2 above shall be deemed to have failed unless Purchaser timely delivers the Approval Notice to Seller and Escrow Holder in accordance with Section 4.2 above.  If Seller delivers the Seller Contingency Approval Notice to Purchaser and Escrow Holder, then the Seller Contingency Conditions set forth in Section 4.1 above shall be deemed satisfied or waived, and if Purchaser timely delivers the Approval Notice to Seller and Escrow Holder, the Seller Contingency Condition in Section 4.2 above shall be deemed satisfied.  Seller shall be entitled to waive the Seller Contingency Condition set forth in Section 4.1 above at any time prior to the Due Diligence Deadline.  Any such waiver by Seller of the Seller Contingency Condition set forth in Section 4.1 above shall be made in writing by Seller, including by Seller’s delivery of the Seller Contingency Approval Notice to Purchaser and Escrow Holder.

4.3.2Termination of Agreement.  If Seller fails, for any reason or no reason, to provide a Seller Contingency Approval Notice with respect to the Seller Contingency Condition set forth in Section 4.1 above or if Purchaser fails to deliver the Approval Notice as provided in

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Section 4.2 above, then this Agreement shall automatically terminate, Escrow Holder shall return the Initial Deposit and any interest earned thereon while held by Escrow Holder to Purchaser (less one-half (1/2) of any escrow and title cancellation fees and charges, which Purchaser hereby agrees to pay; the other one-half (1/2) of which escrow and title cancellation fees and charges shall be paid by Seller, and less fifty percent (50%) of the Nonrefundable Consideration) in Immediately Available Funds, without the necessity of any escrow cancellation or other instructions, consent or approval of Seller or any third party, and neither party shall have any further rights or obligations under this Agreement except for the Surviving Obligations, which shall survive any such termination.

4.3.3Seller Independent Consideration.  If Seller elects (or is deemed to have elected) to terminate this Agreement or this Agreement is terminated for any other reason pursuant to this Section 4.3, Seller shall pay to Purchaser One Hundred Dollars ($100) as independent consideration for Purchaser’s performance under this Agreement (“Seller Independent Consideration”), which shall be retained by Purchaser in all such instances.

4.3.4Failure Due to Material Breach.  Nothing contained herein shall be deemed or construed to relieve Purchaser or Seller of any liability or waive any of Seller’s or Purchaser’s remedies if any of the Seller Contingency Conditions are not satisfied due to a material breach by Purchaser or Seller under this Agreement.

ARTICLE V

ESCROW AND CLOSE OF ESCROW

5.1Escrow Instructions.  Upon execution of this Agreement by both Purchaser and Seller, the parties hereto shall deposit one or more fully-executed counterpart originals of this Agreement with Escrow Holder and this Agreement shall serve as the instructions to Escrow Holder for consummation of the purchase and sale contemplated by this Agreement.  For purposes of this Agreement, the Escrow shall be deemed opened (the “Opening of Escrow”) on the date Escrow Holder shall have received both a fully executed original or originally executed counterparts of this Agreement from both Seller and Purchaser.  Purchaser and Seller shall use their commercially reasonable efforts to cause the Opening of Escrow to occur no later than one (1) Business Day following the Effective Date.  Escrow Holder shall promptly notify Purchaser and Seller in writing of the date of the Opening of Escrow.  Seller and Purchaser agree to execute such reasonable additional and supplementary escrow instructions as may be appropriate to enable the Escrow Holder to comply with the terms of this Agreement; provided, however, that in the event of any conflict between the provisions of this Agreement and any such additional or supplementary escrow instructions, the terms of this Agreement shall control.

5.2Close of Escrow and Closing Date.

5.2.1Close of Escrow.  As used in this Agreement, the “Close of Escrow” shall mean the consummation of the purchase and sale transaction contemplated by this Agreement, as evidenced by Escrow Holder causing the Grant Deed to be recorded in the applicable Official Records, and disbursement of the entire amount of the Purchase Price as directed by Seller.  The Close of Escrow shall occur on the Closing Date in the Escrow through the offices of Escrow

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Holder.  Each party shall timely deposit with Escrow Holder the funds, documents and supplementary written escrow instructions required by this Agreement in order to consummate the Close of Escrow for the sale and transfer of the Property in accordance with this Agreement, and in no event later than one (1) Business Day prior to the Closing Date.

5.2.2Closing Date.  Unless otherwise agreed to in writing by both Purchaser and Seller, the Close of Escrow shall occur on or before the date that is thirty (30) days after all conditions to closing have been satisfied (the “Closing Date”); provided that in no event shall the Closing Date be later than the date that is thirty (30) days after the expiration to the Due Diligence Deadline.  Time is of the essence with respect to such Closing Date, and such Closing Date may not be extended without the prior written approval of both Seller and Purchaser, except as otherwise expressly provided in this Agreement.  Notwithstanding the foregoing, Purchaser shall have the right to exercise “Purchaser’s Extension Right” as provided below:

(a)Provided that all of Purchaser’s conditions and Seller’s conditions have been satisfied on or before the expiration of the Due Diligence Deadline, Purchaser may elect to extend the Closing Date for successive one (1) month periods for up to an aggregate of four (4) months, provided that in no event shall the Closing Date be later than April 30, 2012, provided that the last two (2) extensions shall not be available if Purchaser’s building permit to commence construction is available upon payment of applicable fees.  Purchaser may exercise Purchaser’s Extension Right by providing written notice to Seller and Escrow Holder of such election (“Initial Extension Notice”), with such Initial Extension Notice to be delivered no less than ten (10) Business Days prior to the then-scheduled Closing Date.

(b)Concurrent with Purchaser’s delivery of the Initial Extension Notice, (i) Purchaser shall deliver to Escrow Holder, for immediate release to Seller, an amount equal to Two Hundred Thousand Dollars ($200,000.00) for each one (1) month period by which Purchaser elects to extend the Closing Date (the “Initial Extension Deposit”), and (ii) Escrow Holder shall release to Seller such Initial Extension Deposit, as well as the Deposit and any remaining portion of the BRM Funds that have not previously been released to Seller as the Nonrefundable Consideration.

(c)In the event the Initial Extension Notice extends the Closing Date for less than four (4) months, Purchaser may provide subsequent written notices (“Additional Extension Notices”) to Seller and Escrow Holder to extend the Closing Date for additional one (1) month periods, so long as the length of the aggregate extension of the Closing Date is no more than a total of four (4) months, and that in no event shall the Closing Date occur after April 30, 2012.  Each Additional Extension Notice shall be delivered no less than ten (10) Business Days prior to the then-scheduled Closing Date.

(d)Concurrent with Purchaser’s delivery of each Additional Extension Notice, Purchaser shall deliver to Escrow Holder, for immediate release to Seller, an amount equal to Two Hundred Thousand Dollars ($200,000.00) for each one (1) month period by which Purchaser elects to extend the Closing Date pursuant to such Additional Extension Notice (each, an “Additional Extension Deposit”).

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(e)The Initial Extension Deposit and each Additional Extension Deposit, if any, shall be non-refundable and shall become part of the Deposit upon delivery by Purchaser to Escrow Holder, and shall be applied against the Purchase Price at the Close of Escrow.

5.2.3Possession.  At the Close of Escrow, Seller shall deliver possession of the Property to Purchaser subject to the Permitted Exceptions.

5.3Seller’s Closing Deliveries.

5.3.1Seller’s Closing Documents.  Upon the Close of Escrow, Seller shall deliver to Escrow Holder for delivery to Purchaser, as applicable, all of the following documents:  (a) a grant deed in substantially the form attached as Exhibit “C” hereto (the “Grant Deed”) (which Grant Deed shall reflect that the Documentary Transfer Tax shall be set forth on a separate document filed with the Office of the County Recorder of Santa Barbara County), executed and acknowledged by Seller; (b) two (2) counterpart originals of an assignment and assumption of the Other Intangible Property in substantially the form attached as Exhibit “D” hereto, executed by Seller (the “General Assignment”); (c) a certificate of non-foreign status in accordance with the requirements of Internal Revenue Code Section 1445, as amended (the “FIRPTA Certificate”), in substantially the form attached as Exhibit “E” hereto, executed by Seller; (d) a California Form 593-C with respect to the Property (the “California 593-C Form”), in substantially the form attached as Exhibit “F” hereto, executed by Seller; (e) the memorandum of ROFO in substantially the form attached hereto as Exhibit “G” (“Memorandum of ROFO”), executed and acknowledged by Seller; (f) two (2) counterpart originals of the Temporary Access Agreement in the form agreed upon by Purchaser and Seller pursuant to Section 3.7 and Section 4.1 above, executed by Seller; (g) the CC&R Modifications, executed and notarized by the Declarant under the CC&Rs; (h) three (3) counterpart originals of the Raytheon Assignment (as defined in Section 7.7.2 below), executed by Seller, and by Raytheon if the acknowledgement from Raytheon is obtained by Seller pursuant to Section 7.7.2; (i) three (3) counterpart originals of the Renco Assignment (as defined in Section 7.7.3 below), executed by Seller, and by LFR and Renco if the acknowledgement from such parties is obtained by Seller pursuant to Section 7.7.3; and (j) such other documents as may be reasonably required by Escrow Holder or the Title Company (provided, however, no such additional document shall expand any obligation, covenant, representation or warranty of Seller or result in any new or additional obligation, covenant, representation or warranty of Seller under this Agreement beyond those expressly set forth in this Agreement).

5.4Purchaser’s Closing Payments and Documents.  At the Close of Escrow, in addition to the Deposit, the Purchase Price Balance and Purchaser’s delivery of any additional funds necessary to pay Purchaser’s share of prorations and closing costs hereunder, Purchaser shall deliver the following to Escrow Holder for delivery to Seller upon the Close of Escrow:  (a) two (2) counterpart originals of the General Assignment in substantially the form attached as Exhibit “D” hereto, executed by Purchaser; (b) two (2) counterpart originals of the Temporary Access Agreement in the form agreed upon by Purchaser and Seller pursuant to Section 3.7 and Section 4.1 above, executed by Purchaser; (c) evidence of the authority of Purchaser and of the authority of the person(s) executing documents on behalf of Purchaser reasonably satisfactory to the Title Company; (d) the Memorandum of ROFO, executed and acknowledged by Purchaser;

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(e) three (3) counterpart originals of the Raytheon Assignment, executed by Purchaser; (f) three (3) counterpart originals of the Renco Assignment, executed by Purchaser; and (g) such other documents as may be reasonably required by Escrow Holder or the Title Company (provided, however, no such additional document shall expand any obligation, covenant, representation or warranty of Purchaser or result in any new or additional obligation, covenant, representation or warranty of Purchaser under this Agreement beyond those expressly set forth in this Agreement).

5.5Actions of Escrow Holder.  On the Closing Date, Escrow Holder shall promptly undertake and follow the procedures below with respect to the Close of Escrow (all of which shall be considered as having taken place simultaneously, and no delivery or transaction below shall be considered as having been made until all deliveries and transactions have been accomplished):

5.5.1Disbursement of Funds.  Escrow Holder shall disburse all funds deposited with Escrow Holder by Purchaser as follows:

(i)Pay all closing costs which are to be paid through Escrow (including recording fees, brokerage commissions, Title Policy charges and Escrow fees) and any payments due in connection with the release or reconveyance of any Seller Monetary Liens as provided in Section 3.1.1 above, all in accordance with the Closing Statement.

(ii)After (i) deducting in accordance with the Closing Statement executed by Seller all closing costs which are chargeable to the account of Seller, and (ii) either deducting or adding (as appropriate) in accordance with the Closing Statement executed by Seller the net amount of the prorations and adjustments made pursuant to this Agreement, disburse the balance of the Purchase Price (as adjusted pursuant to clause (i) and clause (ii) above) to Seller in accordance with separate wiring instructions to be delivered to Escrow Holder by Seller.

(iii)Disburse any remaining funds to Purchaser in accordance with separate wiring instructions to be delivered to Escrow Holder by Purchaser.

5.5.2Recordation.  Escrow Holder shall cause to be recorded in the Official Records, in the following order, (a) the Grant Deed, (b) the Memorandum of ROFO, and (c) any other documents which the parties hereto may mutually direct to be recorded, and Escrow Holder shall obtain conformed copies thereof for distribution to Purchaser and Seller.

5.5.3Delivery of Documents.  Escrow Holder shall:  (a) direct the Title Company to issue the Title Policy to Purchaser; (b) deliver to Purchaser and Seller a conformed copy of the Grant Deed with the recording data shown thereon; (c) combine the two (2) original counterparts of the General Assignment delivered into Escrow by Seller and Purchaser into two (2) fully executed originals of the General Assignment, and deliver to Seller one (1) fully executed original of the General Assignment; (d) combine the two (2) original counterparts of the Temporary Access Agreement delivered into Escrow by Seller and Purchaser into two (2) fully executed originals of the Temporary Access Agreement, and deliver to Seller one (1) fully executed original of the Temporary Access Agreement; and (e) deliver to Purchaser the executed

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originals of the FIRPTA Certificate, the California Form 593-C and one (1) fully executed original of the General Assignment and the Temporary Access Agreement.

5.6Closing Costs.

5.6.1Seller’s Closing Costs.  Seller shall pay (a) the basic premium for a CLTA policy of title insurance with respect to the Title Policy and the cost of any endorsements that Seller affirmatively elects to provide for curative purposes as provided in this Agreement, (b) all legal and professional fees and fees of other consultants incurred by Seller, (c) all Documentary Transfer Taxes and recording fees payable in connection with the recordation of the Grant Deed, (d) one-half (½) of all Escrow fees and Escrow costs related to the purchase and sale of the Property, (e) the payment to Broker as provided in Section 5.7 below, and (f) all fees of the Title Company (or other qualified expert) for acting as the Natural Hazard Expert and preparing the Natural Hazard Report.

5.6.2Purchaser’s Closing Costs.  Purchaser shall pay (a) the cost of the Title Policy in excess of the basic premium for a CLTA policy of title insurance, (b) the cost of any endorsements to the Title Policy that are not paid for by Seller as expressly provided in Section 5.6.1 above, (c) the cost of the Updated ALTA Survey, if any, and any modification, update or recertification thereof, (d) all legal and professional fees and fees of other consultants incurred by Purchaser, (e) any and all Escrow fees and costs and any other costs and expenses whatsoever related to any financing obtained by Purchaser, and (f) one-half (½) of all Escrow fees and Escrow costs related to the purchase and sale of the Property.

5.6.3General Allocation.  Any other closing costs and expenses which are not addressed in Section 5.6.1 and Section 5.6.2 above shall be allocated between Purchaser and Seller in accordance with the customary practice for commercial real estate transactions of similar size in Santa Barbara County, California.

5.7Real Estate Commissions.  Seller shall be responsible for payment of a commission to Pacifica Commercial Realty and Cresa Partners (collectively, “Brokers”) pursuant to a separate agreement between Seller and Brokers.  Such commission payable by Seller to Broker shall be divided between Brokers pursuant to a separate agreement between the Brokers and is a matter of no concern to Seller and Purchaser.  Except for such commission payable to Brokers as set forth above, each party hereto hereby represents and warrants to the other party that no real estate brokerage commission is payable to any person or entity in connection with the transaction contemplated herein based upon any dealings or actions by the party making such representation.  Each party further agrees to and shall indemnify, protect, defend and hold the other party harmless from and against any liability for payment of any commission to any person or entity claiming by, through or under the indemnifying party.  This indemnification shall extend to any and all claims, liabilities, costs, losses, damages, causes of action and expenses (including reasonable attorneys’ fees and court costs) arising as a result of such claims and shall survive any termination of this Agreement and shall survive the Close of Escrow and shall not merge into the Grant Deed or any other document or instrument delivered at the Close of Escrow.

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5.8Real Estate Reporting Person.  Escrow Holder is hereby designated the “real estate reporting person” for purposes of Section 6045 of Title 26 of the United States Code and Treasury Regulation 1.6045-4 and the Closing Statement or any other any settlement statement prepared by Escrow Holder or the Title Company shall so provide.  Upon the Close of Escrow, Purchaser and Seller shall cause Escrow Holder to file a Form 1099 information return and send the statement to Seller as required under the aforementioned statute and regulation.

5.9Prorations.

5.9.1General.  The following items set forth below in this Section 5.9 are to be adjusted and prorated between Seller and Purchaser as of 11:59 p.m. Pacific Time on the day immediately preceding the day upon which the Close of Escrow occurs (the “Adjustment Time”) (such that Purchaser shall be deemed to own the Property, and therefore entitled to any revenues and responsible for any expenses, for the entire day upon which the Close of Escrow occurs).  Such adjustments and prorations shall be calculated on the actual days of the applicable month in which the Close of Escrow occurs and all annual prorations shall be based upon a three hundred sixty-five (365)-day year.  The net amount resulting from the prorations and adjustments provided for in this Section 5.9 (along with the allocation of closing costs in accordance with Section 5.6 above) shall be added to (if such net amount is in Seller’s favor) or deducted from (if such net amount is in Purchaser’s favor) the funds to be delivered at Close of Escrow by Purchaser in payment of the Purchase Price.  Any other closing prorations and adjustments which are customarily made in similar real property sales transactions and are not addressed in this Section 5.9 shall be made between Purchaser and Seller in accordance with the customary practice for commercial real estate transactions of similar size in Santa Barbara County, California.  All provisions of this Section 5.9 shall survive the Close of Escrow and the recordation of the Grant Deed for a period of nine (9) months after the Close of Escrow and shall not merge into the Grant Deed and the other documents and instruments delivered at Close of Escrow.

5.9.2Real Estate Taxes and Assessments.  Real estate or ad valorem real property taxes, assessments (including installments of business improvement district charges and principal and interest installments due on any community facilities district or local improvement district liens, if any) and personal property taxes with respect to the Property (collectively, “Property Taxes”) shall be prorated based upon the latest available tax bill.  Seller shall be responsible for (a) all Property Taxes relating to any period prior to the Current Tax Period and (b) that portion of the Property Taxes for the Current Tax Period determined on the basis of the number of days which have elapsed from the first day of the Current Tax Period to the Adjustment Time, inclusive, whether or not the same shall be payable prior to or following the Adjustment Time.  Purchaser shall be responsible for (i) all Property Taxes relating to any period after the Current Tax Period, and (ii) that portion of the Property Taxes for the Current Tax Period, determined on the basis of the number of days following the Adjustment Time through the last day of the Current Tax Period, whether or not the same shall be payable prior to or following the Adjustment Time.  The term “Current Tax Period” shall mean the fiscal year of the applicable taxing or charging authority in which the Close of Escrow occurs.  If the latest available tax bill is not the bill for the current tax year, then Property Taxes shall be prorated based upon the latest tax information then available (including previous tax bills, current assessments and other information available from the taxing authorities) and Purchaser and

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Seller shall re-prorate the Property Taxes following the Close of Escrow as soon as the current tax bill or other current information becomes available, but in all events no later than the Final Proration Adjustment as provided in Section 5.9.4 below.  Any increase in Property Taxes which is assessed following the Close of Escrow arising out of the sale of the Real Property to Purchaser or a subsequent sale or change in ownership thereafter, and/or arising out of any construction or improvements to the Real Property following the Close of Escrow, shall be paid by Purchaser when assessed.  Refunds of Property Taxes for the Current Tax Period, net of the costs of pursuing any tax contest or protest proceedings and collecting such refunds, shall be prorated in proportion to the respective shares of such Property Taxes borne by Seller and Purchaser hereunder.

5.9.3Operating Expenses.  As used herein, “Operating Expenses” means, collectively, all fees and charges for sewer, water, electricity, and other utilities (if any); assessments payable under the Cabrillo CC&Rs; insurance premiums; personal property taxes, business occupational taxes and municipal taxes other than Property Taxes; periodic fees payable under transferable licenses and permits for the operation and maintenance of any of the Property; and other costs and expenses with respect to the operation and maintenance of the Property.  Operating Expenses shall be prorated as of the Adjustment Time such that Seller shall be responsible for all Operating Expenses attributable on an accrual basis to the period prior to the Adjustment Time and Purchaser shall be responsible for all Operating Expenses attributable on an accrual basis to the period from and after the Adjustment Time.  If invoices or bills for any of such costs and expenses (other than utilities) are unavailable on or before the Closing Date, such costs and expenses shall be estimated and prorated at Close of Escrow based upon the latest information available (including prior bills and operating history) and a final and conclusive readjustment of any cost and expense item shall be made upon receipt of the actual invoice or bill, but in all events no later than the Final Proration Adjustment as provided in Section 5.9.4 below.  Purchaser shall take commercially reasonable steps to effectuate the transfer to Purchaser’s name as of the date of Close of Escrow of all utilities which are in Seller’s name, and where necessary, open a new account in Purchaser’s name and post deposits with the utility companies.

5.9.4Closing Statement; Final Proration Adjustment.  No less than five (5) Business Days prior to the Closing Date, Seller shall deliver to Escrow Holder all information necessary for Escrow Holder to prepare pro forma closing statements for review by Purchaser and Seller, and Escrow Holder shall promptly prepare and circulate such pro forma closing statements to Purchaser and Seller.  At least two (2) full Business Days prior to the Closing Date, Seller and Purchaser shall agree upon the allocation of costs and expenses to be made in accordance with Section 5.6 above and the prorations to be made in accordance with this Section 5.9 and submit to Escrow Holder executed pro forma closing statements prepared by Escrow Holder for Purchaser and Seller (collectively, the “Closing Statements”).  The Closing Statements shall be utilized for purposes of making the adjustments to the Purchase Price upon the Close of Escrow for closing costs and prorations.  As soon as practicable following the Close of Escrow (but in no event later than nine (9) months after the Close of Escrow), Seller and Purchaser shall reprorate the income and expenses set forth in this Section 5.9 based upon actual bills or invoices received after the Close of Escrow (if original prorations were based upon estimates) and any other items necessary to effectuate the intent of the parties that all income and expense items be prorated as provided above in this Section 5.9 (the “Final Proration

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Adjustment”).  Any reprorated items shall be promptly paid to the party entitled thereto.  Any errors or omissions in computing adjustments at the Close of Escrow shall be promptly corrected, but only so long as the party seeking to correct such error or omission has notified the other party of such error or omission no later than the Final Proration Adjustment.  The proration of income and expense at the Final Proration Adjustment shall be final and conclusive; there shall be no further proration or adjustment following the Final Proration Adjustment.

ARTICLE VI

CLOSING CONDITIONS

6.1Purchaser’s Closing Conditions.  Following the Due Diligence Deadline, Purchaser’s obligation to proceed with the Close of Escrow and consummate the purchase of the Property shall be subject only to the satisfaction or waiver by Purchaser of the conditions set forth in this Section 6.1 below (collectively, the “Purchaser Closing Conditions”) on or before the earlier of (a) the time periods specified in each subsection below, or (b) the Closing Date.  The obligations of the parties with respect to the Purchaser Closing Conditions are as set forth below in this Section 6.1.

6.1.1Delivery of Title Policy.  At the Close of Escrow, if Purchaser has timely delivered to the Title Company such update, revision or recertification of the Existing ALTA Survey in insurable form, if any, required by the Title Company to issue the ALTA Extended Coverage Title Policy (as defined below) to Purchaser (the “Updated ALTA Survey”), the Title Company shall be irrevocably committed to issue to Purchaser an ALTA Extended Coverage Owner’s Policy of Title Insurance in the amount of the Purchase Price insuring fee title to the Land is vested in Purchaser subject only to the Permitted Exceptions (the “ALTA Extended Coverage Title Policy”).  Alternatively, if Purchaser has not timely delivered to the Title Company an Updated ALTA Survey, the Title Company shall be irrevocably committed to issue to Purchaser an CLTA Policy of Title Insurance, including such standard exceptions as the Title Company may be unwilling to remove without the receipt of the Updated ALTA Survey, in the amount of the Purchase Price insuring fee title to the Land is vested in Purchaser subject only to the Permitted Exceptions (the “CLTA Title Policy”).  As used herein, the term “Title Policy” shall mean and refer to either the CLTA Title Policy or the ALTA Extended Coverage Title Policy, as the case may be.  Any Updated ALTA Survey required by the Title Company for the issuance of the ALTA Extended Coverage Title Policy shall be prepared and delivered at Purchaser’s sole cost and expense and, notwithstanding anything to the contrary contained herein, the scheduled Closing Date shall not be extended to allow Purchaser to obtain an Updated ALTA Survey or any updated title report(s) based thereon (except pursuant to the exercise of Purchaser’s Extension Right, subject to, and in accordance with, the requirements to exercise such Purchaser’s Extension Right).  As used in this Agreement, the term “Permitted Exceptions” shall mean (a) all matters set forth in the Title Documents and any updated title report(s) (including New Title Exceptions) which Purchaser approves pursuant to Section 3.1 above (other than any Seller Monetary Liens which Seller is obligated to remove or cause to be removed pursuant to Section 3.1.1 above); (b) non-delinquent Property Taxes (including non-delinquent community facilities district, business improvement district or local improvement district assessments); (c) the lien of supplemental taxes assessed pursuant to Chapter 3.5 commencing with Section 75 of the California Revenue and Taxation Code relating to the period

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from and after the Close of Escrow, if any, including supplemental assessments resulting from the transfer of the Property to Purchaser; (d) all zoning restrictions, regulations and requirements, all building codes and all other applicable laws, ordinances and governmental regulations affecting the Property, provided Purchaser shall be entitled to review and approve the same pursuant to Section 3.3 above; (e) the Cabrillo CC&Rs; (f) the Hughes Agreement; (g) the Raytheon Access Agreement; (h) the Renco Access Agreement, (i) all matters which would be revealed or disclosed in an accurate survey or by an inspection of the Property; (j) all matters directly caused by or arising through Purchaser or Purchaser’s agents, consultants or contractors; (k) all exceptions and exclusions to coverage which are a part of the promulgated title insurance form; and (l) all matters existing with the written consent of Purchaser.

6.1.2Material Adverse Change.  At or prior to the Close of Escrow, there shall have been no material adverse change in the physical condition or legal status of the Property, including any event of Condemnation or Casualty (as such terms of are defined in Article IX below), or pending notice or action by any federal, state or local agency concerning any violation of any law, statute, ordinance or regulation applicable to the Property or any pending notice or action concerning a change in the zoning and/or permitted use of the Property.

6.1.3Seller’s Obligations.  Seller shall have performed all of Seller’s material obligations under this Agreement required to be performed by Seller prior to or at the Close of Escrow, including delivery to Escrow Holder of all of the documents referred to in Section 5.3.1 above.

6.1.4Seller’s Representations.  Seller’s representations contained in Section 7.1 below of this Agreement shall have been true and correct in all material respects when made and, except as otherwise disclosed to Purchaser in writing as a Qualified Representation and Warranty pursuant to Section 7.2 prior to the Closing Date, shall be true and correct in all material respects as of the Closing Date.

6.1.5Leases.  There shall be no leases or any agreements encumbering the Property, except for the Permitted Exceptions and those agreements approved by Purchaser, if any, at Purchaser’s sole discretion.

6.1.6Map Act Compliance.  The conveyance of the Property pursuant to this Agreement will not violate the California Subdivision Map Act, codified at in the California Government Code at §66410 et seq. (the “Map Act”).  This condition shall be deemed satisfied as long as the Title Company will issue a subdivision map act endorsement (upon payment of any applicable fees by Purchaser).

6.2Seller Closing Conditions.  Following the Second Due Diligence Deadline, Seller’s obligation to consummate the sale of the Property is conditioned upon the satisfaction or Seller’s written waiver on or prior to the Closing Date of the conditions set forth in this Section 6.2 below (collectively, the “Seller Closing Conditions”).  The obligations of the parties with respect to the Seller Closing Conditions are as set forth below in this Section 6.2.

6.2.1Delivery of Purchase Price.  Purchaser shall have deposited into Escrow Immediately Available Funds, in the amount of the Purchase Price Balance plus any amounts in

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addition to the Purchase Price Balance as are necessary to pay Purchaser’s share of the costs, expenses and prorations required to be borne by Purchaser hereunder.  The Close of Escrow shall occur early enough on the Closing Date so that there is sufficient time for Escrow Holder to disburse the proceeds of the Purchase Price to Seller in Immediately Available Funds no later than 1:00 p.m. (California time) on the Closing Date.

6.2.2Purchaser’s Delivery of Closing Documents.  Each of the documents required to be delivered by Purchaser pursuant to Section 5.4 above shall have been timely delivered as provided therein.

6.2.3Purchaser’s Obligations.  Purchaser shall have performed all of Purchaser’s material obligations under this Agreement which are required to be performed by Purchaser prior to or at Close of Escrow.

6.2.4Purchaser’s Representations.  All of Purchaser’s representations and warranties contained herein shall be true and correct in all material respects when made and shall be true and correct in all material respects as of the Closing Date.

6.2.5Map Act Compliance.  The conveyance of the Property pursuant to this Agreement will not violate the Map Act.

6.3Failure of Closing Conditions.

6.3.1If any or all of the Purchaser Closing Conditions are not satisfied or expressly waived in writing by Purchaser on or before the Closing Date, Purchaser may elect, in Purchaser’s sole and absolute discretion, to terminate this Agreement; provided, however, nothing contained herein shall be deemed or construed to relieve Seller or Purchaser of any liability or waive any of Purchaser’s or Seller’s remedies if any Purchaser Closing Condition is not satisfied due to a material breach by Seller or Purchaser under this Agreement.

6.3.2If any or all of the Seller Closing Conditions are not satisfied or expressly waived in writing by Seller on or before the Closing Date, Seller may elect, in Seller’s sole and absolute discretion, to terminate this Agreement; provided, however, nothing contained herein shall be deemed or construed to relieve Purchaser or Seller of any liability or waive any of Seller’s or Purchaser’s remedies if any Seller Closing Condition is not satisfied due to a material breach by Purchaser or Seller under this Agreement.

6.3.3In the event this Agreement is terminated due to the failure of any Purchaser Closing Condition or any Seller Closing Condition, then the Purchase Price Balance and any other funds deposited into Escrow by Purchaser shall be returned to Purchaser in Immediately Available Funds (less the Purchaser Independent Consideration, one-half (1/2) of any escrow and title cancellation fees and charges, which Purchaser hereby agrees to pay; the other one-half (1/2) of such escrow and title cancellation fees and charges shall be paid by Seller and less any portion of the Deposit that Seller is entitled to retain as provided above).

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ARTICLE VII

REPRESENTATIONS, WARRANTIES AND COVENANTS.

7.1Seller’s Representations and Warranties.  Seller represents and warrants to Purchaser that the following matters are true and correct as of the Effective Date and, subject to Section 7.2 below, will also be true and correct as of the Close of Escrow in all material respects:

7.1.1Authority.  Seller has the legal right, power and authority to enter into this Agreement and the documents required to be delivered by Seller pursuant to the terms of Section 5.3.1 above (the “Seller Closing Documents”) and to consummate the transactions contemplated hereby, and the execution, delivery and performance of this Agreement and the Seller Closing Documents have been, or as the Close of Escrow will be, duly authorized and no other action by Seller is or will be requisite to the valid and binding execution, delivery and performance of this Agreement and the Seller Closing Documents.  This Agreement has been, and the Seller Closing Documents have been or as of the Close of Escrow will be, duly executed by Seller and this Agreement is, and the Seller Closing Documents when executed and delivered by Seller will be, legal, valid and binding obligations of Seller, enforceable against Seller in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization and other similar laws affecting the rights of creditors generally and general principles of equity.

7.1.2Foreign Person Affidavit.  Seller is not a foreign person as defined in Section 1445 of the Internal Revenue Code.

7.1.3Bankruptcy Matters.  Seller has not made a general assignment for the benefit of creditors, filed any voluntary petition in bankruptcy or suffered the filing of an involuntary petition by Seller’s creditors, suffered the appointment of a receiver to take possession of any of Seller’s assets, suffered the attachment or other judicial seizure of any of Seller’s assets, admitted Seller’s inability to pay Seller’s debts as they come due, or made an offer of settlement, extension or composition to Seller’s creditors generally.

7.1.4Specially Designated Nationals and Blocked Persons.  Neither Seller nor any beneficial owner of Seller (a) is listed on the Specially Designated Nationals and Blocked Persons List maintained by the Office of Foreign Assets Control, Department of the Treasury (“OFAC”) pursuant to Executive Order No. 133224, 66 Fed. Reg. 49079 (the “Order”) or on any other list of terrorists or terrorist organizations maintained pursuant to any of the rules and regulations of OFAC or any other similar agency (such lists are collectively referred to as the “Lists”); (b) is a person or entity who has been determined to be subject to the prohibitions contained in the Order; or (c) is owned or controlled by, or acts for or on behalf of, any person or entity on the Lists or any other person or entity who has been determined to be subject to the prohibitions contained in the Order.

7.1.5Actions.  Except as set forth in the Seller’s Documents and except for the Environmental Matters described in Section 7.7 below, Seller has no actual knowledge of and has received no written notice of any pending, threatened or contemplated actions, suits, claims or proceedings affecting or relating to the Property or Seller (to the extent it relates to the

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Property), including any judicial proceedings in eminent domain of the Property or the Common Areas (as defined in the Cabrillo CC&Rs) of the Project serving the Property, nor any matters before a third party dispute resolution body or judicial, administrative or other governmental body.

7.1.6Hazardous Materials.  To Seller’s actual knowledge, neither Seller nor its employees have released any Hazardous Materials at the Property.

7.1.7Conflict With Existing Laws or Contracts.  To Seller’s actual knowledge as of the Effective Date of this Agreement, and as of the Closing, the execution and delivery of this Agreement does not, and the performance by Seller of its obligations hereunder will not conflict with any provision of any law or regulation to which Seller is subject or conflict with or result in a material breach of or constitute a material default under any of the terms, conditions or provisions of any enforceable agreement or instrument to which Seller is a party and by which it is bound, or result in the creation or imposition of any lien on any of its assets or property which could materially and adversely affect the ability of Seller to discharge its obligations under and complete the transactions contemplated by this Agreement.

7.1.8Governmental Action.  To Seller’s actual knowledge, subject to the provisions set forth in Section 7.7 below, as of the date of this Agreement, Seller has received no written notice from any governmental body or agency of any material violation or alleged material violation of any zoning ordinance, land use law or building code with respect to the Property, which material violation or alleged material violation has not been corrected.

7.1.9Seller’s Documents.  The Seller’s Documents provided to, or otherwise made available to, Purchaser pursuant to the terms of this Agreement are complete copies of such documents in Seller’s possession.

7.2Qualification of Representations.  Purchaser agrees that Seller shall have no liability, obligation or responsibility to Purchaser if, at any time prior to the Close of Escrow, Purchaser has knowledge of any information from any source (including the Seller’s Documents, the Purchaser’s Information and the Purchaser’s Property Investigations) which contradicts or would require the qualification of any of the above representations and warranties and Purchaser elects to proceed with the Close of Escrow.  In addition to the foregoing, prior to the Close of Escrow, Seller shall have the right to qualify the representations and warranties made by Seller in Section 7.1 above by delivering written notification to Purchaser within two (2) Business Days following Seller’s first receipt of such information that does or may render such representations and warranties untrue or inaccurate in any way (each, a “Qualified Representation and Warranty”).  In no event shall Seller be liable to Purchaser for, or be deemed to be in default pursuant to this Agreement by reason of any inaccuracy of a representation or warranty which results from any change that occurs between the Effective Date and the Close of Escrow, so long as such change is expressly permitted under the terms of this Agreement or is beyond the control of Seller to prevent; provided, however, if any inaccuracy of a representation or warranty results from any change that occurs due to Seller’s intentional and knowing acts or omissions, such change in circumstance shall be deemed a “Willful Change”.  If Seller notifies Purchaser in writing of a Qualified Representation and Warranty prior to the Close of Escrow, then within ten (10) Business Days after Purchaser’s receipt of such written notification from Seller,

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Purchaser may elect, in Purchaser’s sole and absolute discretion, to terminate this Agreement by notice in writing to Seller, the Initial Deposit, including the BRM Deposit, but excluding fifty percent (50%) of Nonrefundable Consideration, shall be refunded to Purchaser, except that, if such Qualified Representation and Warranty is the result of a Willful Change, in which case, the Initial Deposit, including the BRM Deposit and all of the Nonrefundable Consideration, shall be refunded to Purchaser.  Purchaser must elect, by a writing received by Seller within such ten (10) Business Day period (and the Closing Date shall be adjourned, if necessary, for the period of time necessary for Purchaser’s ten (10)-Business Day election period), to either (a) terminate this Agreement and the Escrow, in which event Purchaser shall be entitled to the return of the applicable portion of the Deposit as provided in the provisions set forth above and in Section 2.2.2 above, and Seller and Purchaser shall be relieved of all further obligations and liabilities under this Agreement (except for the Surviving Obligations, which shall survive any such termination), or (b) proceed with the transaction contemplated by this Agreement, in which event the Qualified Representation and Warranty made by Seller shall be deemed to have modified the applicable representation and warranty set forth originally in Section 7.1 above.  In the event that Seller does not receive such written notice from Purchaser within such ten (10)-Business Day period indicating which election Purchaser has decided to make, then Purchaser shall be deemed to have elected to terminate this Agreement.

7.3Definition of Sellers’ Knowledge.  For purposes of this Agreement, whenever the phrases “to Seller’s knowledge,” “to Seller’s actual knowledge” or words of similar import are used, they shall be deemed to refer to the present actual (as opposed to constructive or imputed) knowledge of Steven K. Fedde and Russ Goodman, without any investigation or inquiry whatsoever by such individuals.  Purchaser acknowledges that the foregoing individuals are named solely for the purpose of defining and narrowing the scope of Seller’s knowledge and not for the purpose of imposing any liability on or creating any duties running from such individuals to Purchaser.  Purchaser covenants that Purchaser will bring no action of any kind against such individual or any officer, director, member, partner, shareholder, agent, representative, or advisor of Seller arising out of the representations and warranties made by Seller in this Agreement.

7.4Purchaser’s Representations, Warranties and Waivers.  Purchaser represents and warrants to Seller that the following matters are true and correct as of the Effective Date and will also be true and correct as of the Close of Escrow:

7.4.1Authority.  Purchaser has the legal right, power and authority to enter into this Agreement, the documents required to be delivered by Purchaser pursuant to Section 5.4 above (the “Purchaser Closing Documents”) and to consummate the transactions contemplated hereby, and the execution, delivery and performance of this Agreement and the Purchaser Closing Documents have been duly authorized and no other action by Purchaser is requisite to the valid and binding execution, delivery and performance of this Agreement and the Purchaser Closing Documents.

7.4.2Binding Obligations.  This Agreement has been, and the Purchaser Closing Documents have been or as of the Close of Escrow will be, duly executed by Purchaser and this Agreement is, and the Purchaser Closing Documents when executed and delivered by Purchaser will be, legal, valid and binding obligations of Purchaser, enforceable against Purchaser in accordance with their respective terms, subject to applicable bankruptcy,

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insolvency, reorganization and other similar laws affecting the rights of creditors generally and general principles of equity.

7.4.3Bankruptcy Matters.  Purchaser has not made a general assignment for the benefit of creditors, filed any voluntary petition in bankruptcy or suffered the filing of an involuntary petition by Purchaser’s creditors, suffered the appointment of a receiver to take possession of any of Purchaser’s assets, suffered the attachment or other judicial seizure of any of Purchaser’s assets, admitted Purchaser’s inability to pay Purchaser’s debts as they come due, or made an offer of settlement, extension or composition to Purchaser’s creditors generally.

7.4.4Specially Designated Nationals and Blocked Persons.  Neither Purchaser nor any beneficial owner of Purchaser (a) is listed on any of the Lists; (b) is a person or entity who has been determined by competent authority to be subject to the prohibitions contained in the Orders; or (c) is owned or controlled by, or acts for or on behalf of, any person or entity on the Lists or any other person or entity who has been determined by competent authority to be subject to the prohibitions contained in the Orders.

7.5Survival.  The representations and warranties of Seller set forth in Section 7.1.1, Section 7.1.2, Section 7.1.3 and Section 7.1.4 of this Agreement and the representations and warranties of Purchaser set forth in Section 7.4 of this Agreement shall survive the Close of Escrow without expiration.  The representations and warranties of Seller set forth in Sections 7.1.5 through 7.1.9 of this Agreement, inclusive, shall survive the Close of Escrow for a period of one (1) year (“Representation and Warranty Period”).  Seller shall be obligated under this Agreement only with respect to breaches of the representations and warranties made by Seller in Sections 7.1.5 through 7.1.9, inclusive, with respect to which Purchaser has notified Seller in writing within the Representation and Warranty Period.  The representations and warranties made by Seller in Sections 7.1.5 through 7.1.9, inclusive, of this Agreement shall expire (and Seller shall have no obligation to cure or any liability) for any breach thereof that Purchaser fails to file an action or make a specific written claim to Seller relative to such breach on or before the expiration of the Representation and Warranty Period.

7.6Seller’s Operating Covenants.  Seller hereby covenants and agrees with Purchaser that, from and after the Effective Date and until the Close of Escrow:

7.6.1Contracts.  Seller shall not enter into any service, maintenance or other contracts affecting the Property which would continue for a period subsequent to the Close of Escrow without the prior written approval of Purchaser, which shall not be unreasonably withheld or delayed so long as such contracts may be terminated without penalty or cause on not more than thirty (30) days’ notice.  Nothing contained in this Agreement shall be deemed or construed to prohibit Seller from amending or modifying the Hughes Agreement, the Raytheon Access Agreement or the Renco Access Agreement so long as any such amendment or modification does not materially and adversely affect the Property or to prohibit Seller from amending or modifying other agreement which affects other portions of the Project and not the Real Property.

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7.6.2Additional Encumbrances.  Seller shall not create any new encumbrance, charge or lien to be placed or claimed upon the Property other than the Cabrillo CC&Rs and other than matters affecting title to the Property which are permitted by this Agreement.

7.6.3Insurance.  Seller will maintain in full force and effect fire and extended coverage insurance upon the Property and commercial general liability insurance with respect to damage or injury to persons or property occurring on the Property in such amounts and with such coverage as are currently maintained by Seller as of the Effective Date, to the extent such amounts and coverages are available on commercially reasonable terms.

7.7Environmental Matters.  In an effort to assist Purchaser in evaluating the Existing Environmental Reports, Seller is providing a summary of certain environmental conditions as described below.  This summary is not intended to be, nor shall it be deemed or construed as, a representation or warranty of any kind by Seller, and Purchaser shall rely entirely on Purchaser’s own evaluation and review of the Existing Environmental Reports in determining whether to acquire the Property.

7.7.1Hughes.  As disclosed in the Existing Environmental Reports, the real property comprising the Project was formerly owned by Hughes Electronics Corporation (“Hughes”).  Seller acquired the Project from Hughes pursuant to a certain Real Property Purchase and Sale Agreement and Escrow Instructions (“Hughes Agreement”).  Certain releases of Hazardous Materials occurred on the Project as a result of the former operations conducted on the Project by Hughes and/or Hughes’ predecessors.  Hughes contracted with Hargis & Associates, Inc. (“Hargis”) to conduct both soil and groundwater investigations at the Project.  The California Department of Toxic Substances Control (the “DTSC”) oversaw the investigations and remediations conducted by Hughes.  Groundwater remediation related to an area referred to in the Existing Environmental Reports as SWMU-2 is ongoing and consists of groundwater extraction through wells accessed from time to time for measurement and sampling and treatment by charcoal adsorption.  The DTSC is continuing to oversee this matter.  SWMU-2 and the groundwater wells and remediation and treatment system are located outside of the Real Property at the locations shown on Exhibit “J” attached hereto (the “Hughes Wells”).  Pursuant to the Hughes Agreement, Hughes retains the right to access the Project, to conduct the SWMU-2 groundwater monitoring and remediation and to conduct such other environmental investigation and undertake and complete such other cleanup, remediation or other actions as may be necessary under any action plans Hughes develops for the Project.  Hughes’ entry rights to the Project are conditioned on Hughes providing to Seller (a) reasonable advance notice of the entry, (b) reasonable evidence of the existence of reasonable and customary commercial general liability insurance covering Hughes and Hughes’ contractor’s operations in connection with such entry (or, in the alternative, reasonable evidence that Hughes is providing equivalent self insurance coverage), and (c) a reasonably detailed written scope of work covering the intended activities.  Hughes is also obliged to exercise Hughes’ reasonable best efforts to avoid unreasonably interfering with the activities and operations on the Project.  At the Closing, Purchaser shall acquire the Real Property subject to the Hughes Agreement, including, but not limited to, the access provisions of the Hughes Agreement described above; provided, however, Seller hereby represents and warrants to Purchaser that to Seller’s actual knowledge, as of the Effective Date, Hughes is not currently performing any activities on the Property pursuant to the Hughes Agreement.  Seller hereby agrees not to enter into any amendment to the Hughes

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Agreement that adversely impacts the Property or Purchaser’s rights under this Agreement without the prior written consent of Purchaser, not to be unreasonably withheld, conditioned or delayed.

7.7.2Raytheon.  As disclosed in the Existing Environmental Reports, a former Raytheon Company (“Raytheon”) facility is situated north of the Real Property (the “Raytheon Facility”).  Certain releases of Hazardous Materials occurred on the Raytheon Facility that impacted groundwater underlying the Raytheon Facility.  The California Regional Water Quality Control Board (the “Water Board”) is overseeing the investigation and remediation of the Raytheon Facility.  Raytheon and Seller entered into that certain Access Agreement dated December 27, 2004 and that certain First Amendment to Access Agreement dated November 8, 2007 (collectively, the “Raytheon Access Agreement”), pursuant to which Seller provided Raytheon access to the Project and Raytheon caused certain groundwater sampling to be conducted and certain groundwater monitoring wells to be installed on the Project at the locations shown on Exhibit “J” attached hereto (the “Raytheon Wells”).  Raytheon is continuing to sample the groundwater through and from the Raytheon Wells installed on the Project and to report said results to the Water Board.  At the Closing, Purchaser shall receive a specific non-exclusive assignment of Seller’s right, title and interest in and to the Raytheon Access Agreement with respect to the Property, which shall be subject to Seller retaining all rights pertaining to the portion of the Project not included in the Land, and in all events pertaining to the period of time prior to the Closing, in substantially the form attached as Exhibit “L” hereto (the “Raytheon Assignment”).  Seller shall use good faith efforts to have Raytheon sign the acknowledgement page of the Raytheon Assignment in the form attached to Exhibit “L” and deliver a copy of same to Purchaser and Escrow Holder prior to the expiration of the Due Diligence Period, with the originals to be delivered at the Closing; provided that the failure to obtain the Raytheon acknowledgment shall constitute a failure of a condition to the Closing for Purchaser’s benefit and shall not constitute a default by Seller. In connection therewith, Purchaser shall acquire the Real Property subject to the Raytheon Access Agreement, including, but not limited to, the access provisions of the Raytheon Access Agreement described above.

7.7.3Renco Encoders.  As disclosed in the Existing Environmental Reports, the Renco Encoders (“Renco”) facility is situated northeast of the Real Property (the “Renco Facility”).  Certain releases of Hazardous Materials occurred on the Renco Facility that impacted groundwater underlying the Renco Facility.  The Water Board is overseeing the investigation and remediation of the Renco Facility.  LFR Inc. (“LFR”), the environmental consultant for Renco, requested access to certain portions of the Project to conduct certain investigation and in-situ remediation activities on the Project, which have now been completed with the exception of the monitoring of groundwater monitoring wells installed on the Project by LFR at the locations shown on Exhibit “J” attached hereto (the “Renco Wells”) and Renco, on the one hand, and Seller, on the other hand, entered into that certain Access Agreement, dated June 12, 2009, as amended by that certain First Amendment to Access Agreement dated October 27, 2009 among Seller, LFR and Renco, which provides LFR and Renco access to certain portions of the Project to conduct such work (collectively, “Renco Access Agreement”).  Purchaser shall acquire the Property subject to the terms of the Renco Access Agreement.  At the Closing, Purchaser shall acquire the Real Property subject to the Renco Access Agreement, including, but not limited to, the access provisions of the Renco Access Agreement described above.  At the Closing,

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Purchaser shall receive a specific non-exclusive assignment of Seller’s right, title and interest in and to the Renco Access Agreement with respect to the Property, which shall be subject to Seller retaining all rights pertaining to the portion of the Project not included in the Land, and in all events pertaining to the period of time prior to the Closing, in substantially the form attached as Exhibit “M” hereto (the “Renco Assignment”).  Seller shall use good faith efforts to have Renco and LFR each sign the acknowledgement page to the Renco Assignment in the form attached to Exhibit “M” and deliver a copy of same to Purchaser and Escrow Holder prior to the expiration of the Due Diligence Period, with the originals to be delivered at the Closing; provided that the failure to obtain the LFR and Renco acknowledgment shall constitute a failure of a condition to the Closing for Purchaser’s benefit and shall not constitute a default by Seller.  In connection therewith, Purchaser shall acquire the Real Property subject to the Renco Access Agreement, including, but not limited to, the access provisions of the Renco Access Agreement described above.

7.8Project Construction Activities.  Purchaser acknowledges that Seller, the Association under the Cabrillo CC&Rs and/or other owners of portions of the Project, at their sole cost and expense, will be undertaking the performance of the installation, construction, development and completion of certain work and improvements within the Project following the Close of Escrow, including, but not limited to, the Seller Site Work Improvements set forth in Section 3.7 of this Agreement and the work contemplated in Section 11.1 of this Agreement, and also including the following:  (a) construction of Coromar Drive, including the widening of the existing drive and the installation of curbs, gutters, street lights, hydrants, sidewalks, landscaping and other street improvements, (b) construction of Navigator Way, including the installation of curbs, gutters, landscaping and other street improvements; (c) the modification of curbs, parking space striping and other parking areas on the Land and adjoining property, (d) the installation of sidewalks, landscaping and other street frontage improvements along Hollister Avenue, (e) the refilling and recompaction of the so-called “borrow” pit excavated on the portion of the Project to the south of the Real Property, (f) the relocation of the electrical power transformer and the modification and relocation of the enclosed trash area currently located in the southerly portion of Lot 20 of the Project proximate to the northerly boundary of the Land, (g) the resurfacing, restriping and reconfiguring the parking areas located on the east side of Lot 21 of the Project, (h) the relocation and installation of the above ground power poles and power lines along the westerly boundary of the Land and the Project, (i) the relocation and installation of an existing private fire line along the westerly boundary of Lot 13 of the Project, and (j) the maintenance, repair, reconstruction and replacement of the Common Areas, including Common Utility Lines (as those terms are defined in the Cabrillo CC&Rs) by the Association (collectively, the “Project Construction Activities”).  Subject to the provisions of Section 11.2 below, Purchaser acknowledges such Project Construction Activities may cause noise and other disturbance to the Real Property, including temporary disruption of access and parking for the Real Property.

7.9Condition of Property.  Except as expressly set forth in Section 7.1 of this Agreement and the Seller Closing Documents, Purchaser acknowledges and agrees that Purchaser is purchasing the Property based solely upon Purchaser’s inspection and investigation of the Property and all documents related thereto, or Purchaser’s opportunity to do so, and Purchaser is purchasing the Property in an “AS IS, WHERE IS” condition, without relying upon any representations or warranties from Seller, implied, express, implied or statutory, of any kind, except as specifically set forth in Section 7.1 of this Agreement and the Seller Closing

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Documents.  Without limiting the above, Purchaser acknowledges that neither Seller, except as expressly set forth in Section 7.1 of this Agreement and the Seller Closing Documents, nor any other Seller Party has made any representations or warranties, express or implied, on which Purchaser is relying as to any matters, directly or indirectly, concerning the Property, including the Land, the square footage of the Property, improvements and infrastructure, if any, development rights and exactions, expenses associated with the Property, taxes, assessments, bonds, permissible uses, title exceptions, water or water rights, topography, utilities, zoning of the Property, soil, subsoil, the purposes for which the Property is to be used, drainage, environmental or building laws, rules or regulations, toxic waste or Hazardous Materials or any other matters affecting or relating to the Property.

Without limiting the generality of the foregoing Purchaser hereby expressly waives, releases and relinquishes any and all claims, causes of action, rights and remedies Purchaser may now or hereafter have against Seller, and the Seller Parties, whether known or unknown, with respect to the condition, valuation, salability or utility of the Property or its suitability for any purpose whatsoever, and for any past, present or future presence or existence of Hazardous Materials on, under or about the Property or with respect to any past, present or future violations of any rules, regulations or laws, now or hereafter enacted, regulating or governing the use, handling, storage, release or disposal of Hazardous Materials, including (a) any and all rights Purchaser may now or hereafter have to seek contribution from Seller under Section 113(f)(i) of the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”), as amended by the Superfund Amendments and Reauthorization Act of 1986 (42 U.S.C.A. § 9613), as the same may be further amended or replaced by any similar law, rule or regulation, (b) any and all rights Purchaser may now or hereafter have against Seller under the Carpenter-Presley-Tanner Hazardous Substances Account Act (California Health and Safety Code, Section 25300 et seq.), as the same may be further amended or replaced by any similar law, rule or regulation, (c) any and all claims, whether known or unknown, now or hereafter existing, with respect to the Property under Section 107 of CERCLA (42 U.S.C.A. §9607), and (d) any and all claims, whether known or unknown, based on nuisance, trespass or any other common law or statutory provisions.  As used herein, the term “Hazardous Material(s)” includes any hazardous or toxic material, substance, irritant, chemical, or waste, including (A) any material defined, classified, designated, listed or otherwise considered under any Environmental Law as a “hazardous waste,” “hazardous substance,” “hazardous material,” “extremely hazardous waste,” “acutely hazardous waste,” “radioactive waste,” “biohazardous waste,” “pollutant,” “toxic pollutant,” “contaminant,” “restricted hazardous waste,” “infectious waste,” “toxic substance,” or any other term or expression intended to define, list, regulate or classify substances by reason of properties harmful to health, safety or the indoor or outdoor environment, (B) any material, substance or waste which is toxic, ignitable, corrosive, reactive, explosive, flammable, infectious, radioactive, carcinogenic or mutagenic, and which is or becomes regulated by any local governmental authority, any agency of the state of California or any agency of the United States Government, (C) asbestos, (D) oil, petroleum, petroleum based products and petroleum additives and derived substances, (E) urea formaldehyde foam insulation, (F) polychlorinated biphenyls (PCBs), (G) freon and other chlorofluorocarbons, (H) any drilling fluids, produced waters and other wastes associated with the exploration, development or production of crude oil, natural gas or geothermal resources, and (I) lead-based paint.  For the purposes of this Agreement, the term “Environmental Laws” means any and all federal, state and local, statutes, ordinances, orders, rules, regulations, guidance documents,

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judgments, governmental authorizations, or any other requirements of governmental authorities, as may presently exist, or as may be amended or supplemented, or hereafter enacted, relating to the presence, release, generation, use, handling, treatment, storage, transportation or disposal of Hazardous Materials, or the protection of the environment or human, plant or animal health, including CERCLA, as amended by the Superfund Amendments and Reauthorization Act of 1986 (42 U.S.C.A. § 9601), the Hazardous Materials Transportation Act (49 U.S.C. § 1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. § 6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. § 1251 et seq.), the Clean Air Act (42 U.S.C. § 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. § 2601 et seq.), the Oil Pollution Act (33 U.S.C. § 2701 et seq.), the Emergency Planning and Community Right-to-Know Act (42 U.S.C. § 11001 et seq.), the Porter-Cologne Water Quality Control Act (Cal. Wat. Code § 13020 et seq.), the Safe Drinking Water and Toxic Enforcement Act of 1986 (Cal. Health & Safety Code § 25249.5 et seq.), the Hazardous Waste Control Act (Cal. Health & Safe Code § 25100 et seq.), the Hazardous Materials Release Response Plans & Inventory Act (Cal. Health & Safety Code § 25500 et seq.), and the Carpenter-Presley-Tanner Hazardous Substances Account Act (California Health and Safety Code, Section 25300 et seq.).

THE ABOVE RELEASE IS INTENDED TO BE A FULL RELEASE OF ALL CLAIMS KNOWN AND UNKNOWN.  PURCHASER HEREBY ACKNOWLEDGES THAT PURCHASER HAS READ AND IS FAMILIAR WITH THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542 (“SECTION 1542”), WHICH IS SET FORTH BELOW:

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.”

PURCHASER HEREBY WAIVES THE PROVISIONS OF SECTION 1542 IN CONNECTION WITH THE MATTERS WHICH ARE THE SUBJECT OF THE FOREGOING WAIVERS AND RELEASES.

Notwithstanding anything in this Section 7.10 to the contrary, the releases contained in this Section 7.10 are not intended to and do not include any of the following:  (a) any claims arising from fraud on the part of Seller; or (b) any claims arising from a breach of Seller’s express representations or warranties in Section 7.1 above and any obligation or other covenant of Seller under this Agreement which by its express terms survives the Close of Escrow (subject to the limitations, disclaimers and other provisions of this Agreement).

The disclaimers by Seller and the waivers and releases by Purchaser contained in Section 7.9 and this Section 7.10 shall survive the Close of Escrow and the recordation of the Grant Deed indefinitely and shall not be deemed merged into the Grant Deed upon its recordation.

7.10Purchaser Acknowledgments.  Purchaser acknowledges and agrees that (a) to the extent required to be operative, the disclaimers of warranties contained in Section 7.9 and Section 7.10 above are “conspicuous” disclaimers for purposes of all applicable laws and other legal requirements, and (b) the disclaimers by Seller and the waivers and releases by Purchaser

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set forth in Section 7.9 and Section 7.10 above are an integral part of this Agreement, that the Purchase Price has been adjusted to reflect the same and that Seller would not have agreed to sell the Property to Purchaser for the Purchase Price without the disclaimers by Seller and the waivers and releases by Purchaser set forth in Section 7.9 and Section 7.10 above.

TG ZZ

Purchaser’s Initials

7.11Purchaser Represented by Counsel.  Purchaser hereby represents and warrants to Seller that:  (a) Purchaser is not in a significantly disparate bargaining position in relation to Seller; (b) Purchaser is represented by legal counsel in connection with the transaction contemplated by this Agreement; and (c) Purchaser is purchasing the Property for business, commercial, investment or other similar purposes.

ARTICLE VIII

TERMINATION AND REMEDIES.

8.1SELLER’S REMEDIES.  IF THE CLOSE OF ESCROW FAILS TO OCCUR AS A RESULT OF A DEFAULT BY PURCHASER HEREUNDER, THEN SELLER SHALL BE RELEASED FROM SELLER’S OBLIGATION TO SELL THE PROPERTY TO PURCHASER AND SELLER SHALL BE ENTITLED TO RETAIN THE ENTIRE DEPOSIT AS LIQUIDATED DAMAGES.  PURCHASER AND SELLER HEREBY ACKNOWLEDGE AND AGREE THAT IT WOULD BE IMPRACTICAL AND/OR EXTREMELY DIFFICULT TO FIX OR ESTABLISH THE ACTUAL DAMAGE SUSTAINED BY SELLER AS A RESULT OF SUCH DEFAULT BY PURCHASER, AND AGREE THAT THE DEPOSIT AND THE PAYMENT BY PURCHASER OF ALL ESCROW AND TITLE CANCELLATION CHARGES AND FEES IS A REASONABLE APPROXIMATION THEREOF.  ACCORDINGLY, IN THE EVENT THAT PURCHASER BREACHES THIS AGREEMENT BY DEFAULTING IN THE COMPLETION OF THE PURCHASE OF THE PROPERTY, THE DEPOSIT AND THE PAYMENT BY PURCHASER OF ALL ESCROW AND TITLE CANCELLATION CHARGES AND FEES SHALL CONSTITUTE AND BE DEEMED TO BE THE AGREED AND LIQUIDATED DAMAGES OF SELLER, AND SHALL BE PAID BY PURCHASER TO SELLER AS SELLER’S SOLE AND EXCLUSIVE REMEDY.  SELLER AGREES TO WAIVE ALL OTHER REMEDIES AGAINST PURCHASER WHICH SELLER MIGHT OTHERWISE HAVE AT LAW OR IN EQUITY BY REASON OF SUCH DEFAULT BY PURCHASER; PROVIDED, HOWEVER, THE FOREGOING SHALL NOT APPLY TO OR LIMIT SELLER’S RIGHTS OR REMEDIES, AND SHALL NOT LIQUIDATE PURCHASER’S LIABILITY FOR, (A) ANY BREACH BY PURCHASER UNDER THIS AGREEMENT OTHER THAN A BREACH BY PURCHASER WHICH CAUSES THE CLOSE OF ESCROW TO FAIL TO OCCUR, (B) PURCHASER’S OBLIGATIONS TO PAY TO SELLER ALL ATTORNEYS’ FEES AND COSTS OF SELLER TO ENFORCE THE PROVISIONS OF THIS SECTION 8.1 AND/OR THE SURVIVING OBLIGATIONS, AND (C) THE ABILITY AND RIGHT OF SELLER TO ENFORCE THE SURVIVING OBLIGATIONS, INCLUDING INDEMNITY OBLIGATIONS.  THE PAYMENT OF THE DEPOSIT AND THE

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PAYMENT BY PURCHASER OF ALL ESCROW AND TITLE CANCELLATION CHARGES AND FEES AS LIQUIDATED DAMAGES IS NOT INTENDED TO BE A FORFEITURE OR PENALTY, BUT IS INTENDED TO CONSTITUTE LIQUIDATED DAMAGES TO SELLER PURSUANT TO CALIFORNIA CIVIL CODE SECTIONS 1671, 1676 AND 1677.

TG ZZ	JH
Purchaser’s Initials	Seller’s Initials

8.2PURCHASER’S REMEDIES.  IF THE CLOSE OF ESCROW FAILS TO OCCUR AS A RESULT OF A DEFAULT BY SELLER HEREUNDER, THEN PURCHASER SHALL BE ENTITLED TO ELECT, AS PURCHASER’S SOLE REMEDY, EITHER TO:  (A) TERMINATE THIS AGREEMENT BY GIVING SELLER TIMELY WRITTEN NOTICE AT OR PRIOR TO THE CLOSE OF ESCROW, AND UPON SUCH TERMINATION, THE ENTIRE DEPOSIT, STOCKPILING DEPOSIT (IF DELIVERED BY PURCHASER) AND PENFIELD DEPOSIT SHALL BE RETURNED TO PURCHASER AND SELLER SHALL REIMBURSE PURCHASER FOR THE OUT-OF-POCKET COSTS ACTUALLY INCURRED BY PURCHASER IN CONNECTION WITH THIS TRANSACTION IN AN AMOUNT NOT TO EXCEED ONE HUNDRED SEVENTY-FIVE THOUSAND DOLLARS ($175,000), OR (B) PURSUE THE SPECIFIC PERFORMANCE OF THIS AGREEMENT BUT ONLY IF PURCHASER HAS TENDERED FULL PERFORMANCE OF PURCHASER’S OBLIGATIONS UNDER THIS AGREEMENT INCLUDING BEING READY, WILLING AND ABLE TO DEPOSIT THE PURCHASE PRICE.  NOTWITHSTANDING THE FOREGOING, IF SELLER INTENTIONALLY TRANSFERS THE PROPERTY AND SUCH ACTION PREVENTS PURCHASER FROM OBTAINING SPECIFIC PERFORMANCE, THEN IN SUCH EVENT PURCHASER SHALL BE ENTITLED TO BRING AN ACTION FOR PURCHASER’S ACTUAL DAMAGES.  SELLER AND PURCHASER ACKNOWLEDGE THAT THEY HAVE READ AND UNDERSTAND THE PROVISIONS OF THIS SECTION 8.2 AND BY THEIR INITIALS IMMEDIATELY BELOW AGREE TO BE BOUND BY ITS TERMS.

TG ZZ	JH
Purchaser’s Initials	Seller’s Initials

8.3Seller’s Maximum Post-Closing Liability for Representations and Warranties.  Notwithstanding any provision to the contrary contained in this Agreement or any documents executed by Seller pursuant hereto or in connection herewith, the maximum aggregate liability of Seller, and the maximum aggregate amount which may be awarded to and collected by Purchaser, pursuant to any action following the Close of Escrow for the breach by Seller of any representations and warranties contained in this Agreement, including, but not limited to, those representations and warranties set forth in Section 7.1 above, shall not exceed Five Hundred Thousand Dollars ($500,000.00); provided that such cap on liability shall not be applicable to the Seller Site-Work Improvements, nor Seller’s fraud or willful misconduct.  Except in the event of Seller’s fraud or willful misconduct, Purchaser shall not under any circumstances be entitled to

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special, consequential or punitive damages.  Notwithstanding the foregoing, Purchaser hereby expressly waives, relinquishes and releases any right or remedy available to Purchaser at law, in equity or under this Agreement to make a claim against Seller for damages that Purchaser may incur, or to rescind this Agreement and the transaction, as the result of any of Seller’s representations or warranties being untrue, inaccurate or incorrect if Purchaser’s damages as a result of such representations or warranties being untrue, inaccurate or incorrect are reasonably estimated to aggregate less than Twenty-Five Thousand Dollars ($25,000).  If Purchaser is awarded damages which in the aggregate exceed Twenty-Five Thousand Dollars ($25,000), Purchaser shall be entitled to the entire amount of such damages.  If Purchaser is awarded damages which in the aggregate are less than Twenty-Five Thousand Dollars ($25,000), Purchaser shall not be entitled to any amount of the damages.  The provisions of this Section 8.3 shall survive the Close of Escrow and the recordation of the Grant Deed, and shall not merge into the Grant Deed and the other documents and instruments delivered at the Close of Escrow.  The foregoing limitations on damages set forth in this Section 8.3 shall in no way apply with respect to any and all adjustments which may be made to the prorations under Section 5.9 of this Agreement from and after the Close of Escrow and prior to the Final Proration Adjustment.

8.4Limited Liability.  Purchaser on Purchaser’s own behalf and on behalf of Purchaser’s agents, members, partners, shareholders, employees, representatives, related and affiliated entities, successors and assigns (collectively, the “Purchaser Parties”) hereby agrees that in no event or circumstance shall any of the Seller Parties other than Seller have any personal liability under this Agreement, or to Purchaser’s Lender in connection with the Property.  The provisions of this Section 8.4 shall survive the Close of Escrow and the recordation of the Grant Deed, and shall not be deemed merged into the Grant Deed or other documents or instruments delivered at the Close of Escrow.

ARTICLE IX

CONDEMNATION AND CASUALTY

9.1Condemnation.  If, prior to the Close of Escrow, any portion of the Property is taken by eminent domain, or is the subject of a pending or a contemplated taking which has not been consummated (collectively, “Condemnation”), then Purchaser shall have the right to terminate this Agreement by written notice to Seller and Escrow Holder within ten (10) Business Days following notification to Purchaser of such Condemnation.  If this Agreement is terminated pursuant to this Section 9.1, neither party shall have any further rights or obligations hereunder except for the Surviving Obligations, and the Initial Deposit and Additional Deposit, as applicable, shall be promptly returned to Purchaser (less the Purchaser Independent Consideration, fifty percent (50%) of the Nonrefundable Consideration and less one-half (1/2) of any escrow and title cancellation fees and charges; the other one-half (1/2) of which escrow and title cancellation fees and charges shall be paid by Seller).  If this Agreement is not terminated by reason of such Condemnation, then Seller shall not compromise, settle or adjust any claims with respect to such Condemnation without Purchaser’s prior written consent, which consent shall not be unreasonably withheld, condition or delayed.

9.2Casualty.  If, prior to the Close of Escrow, any portion of the Property is damaged by earthquake, fire, liquefaction or other event of casualty (collectively, “Casualty”), and the

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cost to restore the Property to the condition that existed immediately prior to such Casualty is less than Two Hundred Fifty Thousand Dollars ($250,000), in Seller’s reasonable estimate (and verified by a third party contractor not affiliated with Seller), then Purchaser shall be required to purchase the Property, and shall receive from Seller a credit against the Purchase Price at the Close of Escrow in the amount of such restoration estimate, except that, in the event insurance proceeds for such Casualty have not actually been collected by Seller prior to the Close of Escrow, Purchaser shall receive an assignment of such insurance proceeds at the Close of Escrow in lieu of receiving a credit against the Purchase Price.  Alternatively, in the event the cost to restore the Property to the condition that existed immediately prior to such Casualty is or exceeds Two Hundred Fifty Thousand Dollars ($250,000), in Seller’s reasonable estimate (and verified by a third party contractor not affiliated with Seller), then Purchaser shall have the right to terminate this Agreement by written notice to Seller and Escrow Holder within ten (10) Business Days following the determination of the cost to restore the Property.  If this Agreement is terminated pursuant to this Section 9.2, neither party shall have any further rights or obligations hereunder except for the Surviving Obligations, and the Initial Deposit and Additional Deposit, as applicable, shall be promptly returned to Purchaser (less the Purchaser Independent Consideration, fifty percent (50%) of the Nonrefundable Consideration and less one-half (1/2) of any escrow and title cancellation fees and charges; the other one-half (1/2) of which escrow and title cancellation fees and charges shall be paid by Seller).  If this Agreement is not terminated by reason of such Casualty, then Seller shall not compromise, settle or adjust any claims with respect to such Casualty without Purchaser’s prior written consent, which consent shall not be unreasonably withheld, condition or delayed, and Purchaser shall receive from Seller a credit against the Purchase Price at the Close of Escrow in the amount of such restoration estimate for the Casualty, except that, in the event insurance proceeds for such Casualty have not actually been collected by Seller prior to the Close of Escrow, Purchaser shall receive an assignment of such proceeds at the Close of Escrow in lieu of receiving a credit against the Purchase Price.

ARTICLE X

MISCELLANEOUS

10.1Notices.  Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been given when sent via facsimile (with confirmation of same), delivered by U.S. mail, registered or certified, return receipt requested, postage prepaid, or by overnight delivery service showing receipt of delivery, or by personal delivery.  Such notices shall be sent to the parties at the following addresses, or such other address as may otherwise be indicated by any such party in writing.  Any notice sent by facsimile shall also be sent using one of the foregoing methods.

If to Seller:	Santa Barbara Realty Development, L.L.C.
	300 Esplanade Drive, Suite 1110
	Oxnard, California 93036
	Attention: Stephen K. Fedde
	Tel: (805) 604-7103
	Fax: (805) 983-6974
	E-mail: sfedde@Sares-Regis.com

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with a copy to:	JPMorgan Asset Management, Inc.
	1999 Avenue of the Stars, Suite 2600
	Los Angeles, California 90067
	Attention: Steven M. Zaun
	Tel: (310) 860-7126
	Fax: (310) 860-7040
	E-mail: steve.zaun@jpmorgan.com
with a copy to:	Allen Matkins Leck Gamble Mallory & Natsis LLP
	1900 Main Street, 5th Floor
	Irvine, California 92614-7321
	Attention: Sandra A. Jacobson
	Tel: (949) 851-5461
	Fax: (949) 553-8354
	E-mail: sjacobson@allenmatkins.com
If to Purchaser:	Deckers Outdoor Corporation
	495-A South Fairview Avenue
	Goleta, California 93117
	Attention: Tom Garcia
	Tel: (805) 967-7611 x1337
	Fax: (805) 456-0683
	E-mail: tom.garcia@deckers.com
with a copy to:	Stradling Yocca Carlson & Rauth
	660 Newport Center Drive Suite 1600
	Newport Beach, California 92660
	Attention: Josh C. Grushkin, Esq.
	Tel: (949) 725-4108
	Fax: (949) 823-5108
	E-mail: jgrushkin@sycr.com
with a copy to:	CresaPartners
	20950 Warner Center Lane, Suite B
	Woodland Hills, California 91367
	Attention: Carlo Brignardello
	Tel: (805) 338-6032
	Fax: (310) 207-0930
	E-mail: cbrignardello@cresapartners.com
If to Escrow Holder	Fidelity National Title Insurance Company
	4050 Calle Real, Suite 100
	Santa Barbara, California 93140
	Attention: Susan Lowe
	Tel: (805) 879-9401
	Fax: (805) 879-9450
	E-mail: Susan.Lowe@fnf.com

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Notices as aforesaid shall be effective upon actual receipt, or when receipt is refused.

10.2Entire Agreement; Participation in Drafting.  This Agreement constitutes the entire understanding of the parties and all prior agreements, representations, and understandings between the parties, whether oral or written, are deemed null and void, all of the foregoing having been merged into this Agreement.  The parties acknowledge that each party and such party’s counsel have reviewed and revised this Agreement and that no rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall be employed in the interpretation or enforcement of this Agreement or any amendments or exhibits to this Agreement or any document executed and delivered by either party in connection with this Agreement.

10.3Agreement Binding on Parties.

10.3.1Successors and Assigns.  Subject to Section 10.3.2 and Section 10.3.3 below, this Agreement, and the terms, covenants, and conditions contained herein, shall inure to the benefit of and be binding upon the heirs, personal representatives, successors, and permitted assigns of each of the parties hereto.

10.3.2Assignment by Purchaser.  Purchaser may assign Purchaser’s rights under this Agreement without Seller’s consent only so long as all of the following conditions are satisfied:  (a) the assignee must be an Affiliate (as defined below) of Purchaser or a Financing Partner (as defined below); (b) the Deposit has been deposited into Escrow by Purchaser; (c) Purchaser shall remain primarily liable for the performance of Purchaser’s obligations under this Agreement; and (d) the assignee must expressly assume in writing all of Purchaser’s obligations under this Agreement and Purchaser shall deliver to Seller a copy of the fully executed written assignment agreement between Purchaser and such assignee at or before the Closing.  Any assignment of Purchaser’s rights under this Agreement without the prior written consent of Seller which does not satisfy the requirements in the foregoing clauses (a) through (d) of this Section 10.3.2 shall be void.  For the purposes of this Section 10.3.2, Section 10.3.3 and Article XII below, an “Affiliate” shall mean an entity which is controlled by, controls, or is under common control with the applicable party to this Agreement.  For the purposes of this Section 10.3.2, a “Financing Partner” shall mean an assignee of Purchaser that is assuming all or a portion of Purchaser’s obligations under this Agreement in connection with (a) a sale-leaseback transaction, in which Purchaser, or an Affiliate of Purchaser, is concurrently entering into a lease agreement for the Property with such Financing Partner, or (b) any other transaction in which the involvement of such Financing Partner is to assist with the financial obligations of Purchaser at the Close of Escrow, but where in all such circumstances, Purchaser, or an Affiliate of Purchaser, will be the ultimate occupant and user of the entire Property following construction of the improvements to be build on the Property following the Close of Escrow.  Notwithstanding any assignment to a Financing Partner as provided above, in no event shall Purchaser (1) be permitted to assign or transfer the obligations of the Construction Management Agreement (it being agreed that the obligation to enter such agreement as a condition to the Close of Escrow shall remain Purchaser’s (or its Affiliate’s) sole obligation; and (2) be permitted to assign or transfer the rights and obligations with respect to the Right of First Offer set forth in Article XII (it being agreed that such rights and benefits shall remain solely between Seller and Purchaser or its Affiliates).

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10.3.3Assignment by Seller.  Seller may assign Seller’s rights under this Agreement without Purchaser’s consent only so long as all of the following conditions are satisfied:  (a) the assignee of Seller must be an entity which is an Affiliate of Seller; (b) Seller shall remain primarily liable for the performance of Seller’s obligations under this Agreement, including all post-closing obligations of Seller expressly set forth in this Agreement; and (c) the assignee must expressly assume in writing all of Seller’s obligations under this Agreement and Seller shall deliver to Purchaser a copy of the fully executed written assignment and assumption agreement between Seller and such assignee at or before the Closing.  Any assignment of Seller’s rights under this Agreement without the prior written consent of Purchaser which does not satisfy the requirements in the foregoing clauses (a) through (c) of this Section 10.3.3 shall be void.

10.4Severability.  If for any reason, any provision of this Agreement shall be held to be unenforceable, it shall not affect the validity or enforceability of any other provision of this Agreement and to the extent any provision of this Agreement is not determined to be unenforceable, such provision, or portion thereof, shall be, and remain, in full force and effect.

10.5California Law.  This Agreement shall be governed by, and construed in accordance with, the laws of the State of California.

10.6Modifications/Survival.  Exhibits A through M attached hereto shall be deemed a part hereof.  This Agreement, including exhibits, expresses the entire agreement of the parties and supersedes any and all previous agreements between the parties with regard to the Real Property, including that certain letter of intent, dated April 15, 2011.  There are no other understandings, oral or written, which in any way alter or enlarge the terms of this Agreement, and there are no warranties or representations of any nature whatsoever, either expressed or implied, except as may expressly be set forth herein.  Any and all future modifications of this Agreement will be effective only if it is in writing and signed by both Purchaser and Seller.  The terms and conditions of such future modifications of this Agreement shall supersede and replace any inconsistent provisions in this Agreement.

10.7Dispute Costs.  In the event any dispute between the parties with respect to this Agreement results in litigation, arbitration or other proceeding, the prevailing party shall be reimbursed by the party not prevailing in such proceeding for all reasonable costs and expenses, including reasonable attorneys’ and experts’ fees and costs, court reporter transcription fees, filing and case service fees and arbitration fees incurred by the prevailing party in connection with such litigation, arbitration or other proceeding and any appeal thereof.  Such costs, expenses and fees shall be included in and made a part of the judgment recovered by the prevailing party, if any.  The provisions of this Section 10.7 shall survive any termination of this Agreement or the Closing and shall not be deemed merged into the Grant Deed or any other document or instrument delivered at Close of Escrow.

10.8Time of the Essence; Business Days.  Time is of the essence in the performance of each of the parties’ respective obligations contained in this Agreement.  Unless the context otherwise requires, all periods terminating on a given day, period of days, or date shall terminate at 5:00 p.m. (Pacific Time) on such date or dates.  References to “days” shall refer to calendar days except if such references are to Business Days.  The term “Business Days” shall mean and refer to days which are not a Saturday, Sunday or a legal holiday under the laws of the State of

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California.  Notwithstanding the foregoing, if any period terminates on a Saturday, a Sunday, or a legal holiday under the laws of the State of California, the termination of such period shall be on the next succeeding Business Day.  The time in which any act provided under this Agreement is to be done shall be computed by excluding the first day and including the last day, unless the last day is a Saturday, a Sunday, or a legal holiday under the laws of the State of California, and then it is also so excluded.

10.9Required Actions of Purchaser and Seller.  Purchaser and Seller agree to execute such instruments and documents and to diligently undertake such actions as may be reasonably required in order to consummate the purchase and sale herein contemplated and shall use good faith efforts to accomplish the Close of Escrow in accordance with the provisions of this Agreement.

10.10Memorandum of Agreement.  Concurrent with the execution of this Agreement, Seller and Purchaser shall execute and deliver to Escrow Holder, for recording against the Property in accordance with the provisions set forth in Section 2.2.1(a) above, a Memorandum of Agreement in substantially the form attached hereto as Exhibit “H” (the “Memorandum of Agreement”).  Concurrent with the execution of this Agreement, Purchaser shall also execute, notarize and deliver a quitclaim deed (“Quitclaim”) in the form attached hereto as Exhibit “I”, which Purchaser hereby authorizes Escrow Holder to immediately record in the event this Agreement is terminated for any reason other than Seller’s default.  The obligations in this provision shall survive the termination of this Agreement.

10.11Drafts not an Offer to Enter into a Legally Binding Contract.  The parties hereto agree that the submission of a draft of this Agreement by one party to another is not intended by either party to be an offer to enter into a legally binding contract with respect to the purchase and sale of the Property.  The parties shall be legally bound with respect to the purchase and sale of the Property pursuant to the terms of this Agreement only if and when Seller and Purchaser have fully executed and delivered (or caused the delivery) to each other a counterpart of this Agreement with all exhibits attached hereto.

10.12Multiple Counterparts.  This Agreement may be executed in multiple counterparts (each of which is to be deemed original for all purposes).  The signature page of any counterpart may be detached therefrom without impairing the legal effect of the signature(s) thereon so long as such signature page is attached to any other counterpart of this Agreement identical thereto except having additional signature pages executed by the other parties to this Agreement attached thereto.

10.13Electronic Signatures.  Seller and Purchaser each (a) has agreed to permit the use from time to time, where appropriate, of telecopy or other electronic signatures in order to expedite the transaction contemplated by this Agreement, (b) intends to be bound by its respective telecopy or other electronic signature, (c) is aware that the other will rely on the telecopied or other electronically transmitted signature, and (d) acknowledges such reliance and waives any defenses to the enforcement of this Agreement and the documents affecting the transaction contemplated by this Agreement based on the fact that a signature was sent by telecopy or electronic transmission only.

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10.14Limitations on Benefits.  It is the explicit intention of Purchaser and Seller that, except for the Seller Parties referred to above in this Agreement, no person or entity other than Purchaser and Seller and their permitted successors and assigns is or shall be entitled to bring any action to enforce any provision of this Agreement against either of the parties hereto, and the covenants, undertakings and agreements set forth in this Agreement shall be solely for the benefit of, and shall be enforceable only by, Purchaser and Seller or their respective successors and assigns as permitted hereunder.  Nothing contained in this Agreement shall under any circumstances whatsoever be deemed or construed, or be interpreted, as making any third party (including Broker or Purchaser’s Lender) a beneficiary of any term or provision of this Agreement or any instrument or document delivered pursuant hereto, and Purchaser and Seller expressly reject any such intent, construction or interpretation of this Agreement.

10.15Interpretation.  For purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires:  (a) all exhibits attached hereto are incorporated herein by reference; (b) the section and subsection headings contained in this Agreement are for convenience only and in no way enlarge or limit the scope or meaning of the various sections or subsections hereof; (c) all dollar amounts are expressed in United States currency; (d) all defined terms in this Agreement include the plural as well as the singular, and the use of any gender herein shall be deemed to include the other genders; (e) references herein to “Sections,” subsections, paragraphs and other subdivisions without reference to a document are to designated Sections, subsections, paragraphs and other subdivisions of this Agreement; (f) a reference to a subsection without further reference to a Section is a reference to such subsection as contained in the same Section in which the reference appears, and this rule shall also apply to paragraphs and other subdivisions; (g) the words “hereof,” “herein,” “thereof,” “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular provision; (h) the word “including” or “includes” means “including, but not limited to” or “includes without limitation”; (i) the words “approval,” “consent” and “notice” shall be deemed to be preceded by the word “written”; (j) any reference to this Agreement or any Exhibits hereto and any other instruments, documents and agreements shall include this Agreement, Exhibits and other instruments, documents and agreements as originally executed or existing and as the same may from time to time be supplemented, modified or amended; and (k) unless otherwise specifically provided, all references in this Agreement to a number of days shall mean calendar days rather than Business Days.

10.16No Partnership/Fiduciary Relationship.  The parties acknowledge and agree that the relationship created by this Agreement between Seller, on the one hand, and Purchaser, on the other hand, is one of contract only, and that no partnership, joint venture or other fiduciary or quasi-fiduciary relationship is intended or in any way created hereby between Seller and Purchaser.

10.17Survival of Covenants.  Except as expressly set forth in this Agreement, the covenants, indemnities, representations and warranties of Purchaser and Seller set forth in this Agreement shall not survive the recordation of the Grant Deed and the Close of Escrow and shall be deemed merged into the Grant Deed upon its recordation.

10.181031 Exchange.  Purchaser agrees to reasonably cooperate with Seller, in any like kind exchange pursuant to the terms of Internal Revenue Code § 1031, provided (a) such

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cooperation is at no additional cost, expense or liability to Purchaser, including attorneys’ fees and costs, and does not delay the Close of Escrow, (b) Purchaser shall have no obligation to take title to any other property in connection with the exchange, (c) such exchange shall not delay the Close of Escrow, and (d) all of the representations, warranties, covenants and indemnification obligations of Seller set forth in this Agreement shall not be affected or limited by Seller’s use of an exchange accommodator and shall survive the exchange and shall continue to inure directly from Seller for the benefit of Purchaser.

ARTICLE XI

STOCKPILING WORK, SELLER’S SITE WORK AND PROJECT CONSTRUCTION

11.1Stockpiling Work.

11.1.1Purchaser may desire that Seller cause certain soil stockpiling and building pad work for the Parcel 2 Building (also known as “Building 12”) (the “Stockpiling Work”) to be performed as soon as possible following the Effective Date.  As inducement for Seller to perform the Stockpiling Work prior to Purchaser’s waiver of contingencies and the Close of Escrow, Purchaser shall (a) deposit with Escrow Holder, in Immediately Available Funds, the sum of Sixteen Thousand Dollars (“Penfield Deposit”) within three (3) Business Days after the mutual execution and delivery to Escrow Holder of this Agreement (time being of the essence); and (b) provide cooperation to Seller so that Seller may seek all necessary governmental permits to enable Seller to perform the Stockpiling Work as contemplated herein (the “Stockpiling Permits”).  Additionally, at any time following the Effective Date (but in no event later than September 30, 2011), Purchaser may deliver written notice to Seller requesting that Seller commence the Stockpiling Work (the “Start Notice”).  Seller hereby agrees to promptly commence performance of the Stockpiling Work following Purchaser’s delivery of the Start Notice so long as concurrently with the delivery of the Start Notice Purchaser also deposits with Escrow Holder, in Immediately Available Funds, the sum of Five Hundred Seventy Eight Thousand and No/100s Dollars ($578,000.00) (the “Stockpiling Deposit”).

11.1.2Purchaser and Seller acknowledge and agree that the timely completion of the Stockpiling Work is essential for Purchaser’s intended development of the Property, and time is of the essence for Seller’s performance of the Stockpiling Work following Purchaser’s delivery of the Start Notice and the Stockpiling Deposit, subject to the provisions expressly set forth in this Agreement.  Therefore, following the opening of escrow, Seller shall use the Penfield Deposit to engage Penfield & Smith (“Penfield”) to prepare a revision of the previously prepared stockpile and erosion control plans, topo survey, engineering processing support and technical plan check for the Parcel 2 Building (the “Penfield Stockpiling Contract”) and diligently pursue to completion the Penfield Stockpiling Contract.  Following Purchaser’s delivery of the Start Notice and the Stockpiling Deposit, (i) Seller covenants and agrees to diligently pursue issuance of the Stockpiling Permits, and (ii) upon issuance of the Stockpiling Permits, Seller shall promptly commence the Stockpiling Work.  Seller shall use commercially reasonable efforts to have the stockpile in place within sixty (60) days after the “Trigger Date”, which shall be the later to occur of (a) the date of Purchaser’s delivery of the Start Notice and the Stockpiling Deposit, or (b) the date permits for the Stockpiling Work are available and to have the Stockpiling Work completed on or before the date that is six (6) months following the Trigger

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Date (subject to Force Majeure Delays and delays caused by Purchaser).  To further induce Seller’s timely completion of the Stockpiling Work, Purchaser and Seller hereby instruct Escrow Holder to immediately disburse the Penfield Deposit to Seller without any further instructions required by Seller or Purchaser hereunder.  Additionally, Escrow Holder shall immediately disburse the Stockpiling Deposit to Seller without any further instructions required by Seller or Purchaser hereunder if the Stockpiling Permits are available on the date the Stockpiling Deposit is delivered by Purchaser, or within three (3) days after the Stockpiling Permits are available if the Stockpiling Deposit is delivered by Purchaser prior to the date the Stockpiling Permits are available.  The Penfield Deposit (and the Stockpiling Deposit, once delivered by Purchaser) shall be non-refundable under all circumstances, except for Seller’s default.  In addition, the Penfield Deposit (and the Stockpiling Deposit, once delivered by Purchaser) shall be refunded to Purchaser if an Entitlement Appeal Action exists (and same has not been resolved to the satisfaction of Purchaser) upon the expiration of the Due Diligence Period (but in no event if the Agreement is terminated prior to the expiration of the Due Diligence Period), as contemplated in Section 3.10.4 above.

In the event the Close of Escrow occurs, Purchaser shall receive a credit towards the Purchase Price in the amount of both (i) the Stockpiling Deposit (if delivered by Purchaser), and (ii) the Penfield Deposit (collectively, the “Stockpiling Credit”).

11.1.3Notwithstanding anything to the contrary herein, if the Start Notice and the Stockpiling Deposit have not been delivered on or before 5:00 pm Pacific Time September 30, 2011 as provided above (the “Early Stockpile Deadline”), then (i) Seller shall have no obligation to seek the Stockpiling Permits prior to the Closing, (ii) Purchaser shall have no obligation to deliver the Stockpiling Deposit (and thus the Trigger Date shall in no event occur), and (iii) Seller shall have no obligation to complete the Stockpiling Work prior to the Closing as provided above, and Seller shall instead complete the Stockpiling Work in conjunction with the Seller Site Work Improvements subsequent to the Close of Escrow pursuant to Section 11.2 below.  In the event Seller is to complete the Stockpiling Work subsequent to the Close of Escrow in conjunction with the Seller Site Work Improvements, the Holdback Funds (as defined in Section 11.2.3 below) shall be increased by Four Hundred Thirty Four Thousand Five Hundred Dollars ($434,500.00) (the “Stockpile Holdback Amount”), subject to mutually agreed upon adjustment based upon the amount of the actual final bids obtained by Seller as contemplated in Section 11.2.3.

11.2Seller Site Work.

11.2.1Seller Site Work.  As a condition for the benefit of Purchaser that survives the Close of Escrow and the recordation of the Grant Deed, Seller shall complete the Seller Site Work Improvements (as defined in Section 3.7(c) above) in accordance with the Finished Parcel Plan and the Offsite Plan (including the Stockpiling Work if the Start Notice and the Stockpiling Deposit have not been delivered by the Early Stockpile Deadline), at Seller’s sole cost and expense (collectively, the “Seller Site Work Construction”).  No later than thirty (30) days after the Effective Date, Seller shall provide Purchaser with copies of the qualified estimates obtained from a third party contractor for the performance of the Seller Site Work Construction (the “Estimates”), in addition to copies of all plans and specifications prepared in connection with the Estimates, and the pricing breakdown for each component of the Seller Site Work

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Construction.  Each component of the Seller Site Work Construction referenced in the Estimates shall be completed no later than the dates specified for completion of the particular component in the schedule of performance to be negotiated and mutually approved by Purchaser and Seller in writing prior to the expiration of the Due Diligence Period, and thereafter attached hereto as Exhibit “K” and incorporated herein by this reference (the deadline for completion of each item being the applicable “Post-Closing Deadline”), it being understood that time is of the essence for Seller’s completion of the Seller Site Work Construction; provided that such date may be extended for force majeure delays and delays caused by Purchaser.  The Seller Site Work Construction shall be deemed complete upon written confirmation from the City or other applicable agency that the Seller Site Work Construction is substantially complete in accordance with the Finished Parcel Plan and the Offsite Plan, and Seller has obtained and delivered to Purchaser unconditional lien waivers from all parties that may have lien rights against the Property in connection with the Seller Site Work Construction.  As used herein, “Force Majeure Delays” shall mean strikes, lock-outs, labor troubles, inability to procure materials, failure of power, governmental moratorium or other governmental action or inaction (including failure, refusal or delay in issuing permits, approvals and/or authorizations), injunction or court order, riots, insurrection, war, terrorism, bioterrorism, fire, earthquake, flood or other natural disaster or other reason of a like nature not the fault of the party delaying in performing work or doing acts required under the terms of this Agreement (but excluding delays due to financial inability).

11.2.2Purchaser’s Self-Help Rights.  In the event Seller fails to complete the any portion of the Seller Site Work Construction on or before the applicable Site Work Deadline (as such date may be extended to force majeure delays and delays caused by Purchaser), then following ten (10) Business Days notice to Seller and Seller’s failure to complete or to be diligently pursuing the completion of the Seller Site Work Construction within such timeframe, Purchaser may complete all or a portion of the incomplete components of the Seller Site Work Construction (“Purchaser’s Self-Help Rights”).

(a)Purchaser shall be reimbursed for all reasonable costs and expenses incurred by Purchaser in connection with the exercise of Purchaser’s Self-Help Rights with such reimbursement and interest payments to be paid to Purchaser within ten (10) Business Days after Purchaser’s delivery to Escrow Holder and Seller, from time to time (but no more often than once per month), of reasonable evidence of such costs and expenses incurred by Purchaser (a “Purchaser Reimbursement Request”).  Within ten (10) Business Days after receipt of each Purchaser Reimbursement Request, provided Seller has not reasonably objected to said costs, Escrow Holder shall pay to Purchaser from the Holdback Funds (as defined below) the amount set forth in such Purchaser Reimbursement Request.

(b)Notwithstanding the foregoing, in the event the costs and expenses incurred by Purchaser exceed the amount of the Holdback Funds and Purchaser has completed the Seller Site Work Construction in accordance with the Finished Parcel Plan and the Offsite Plan upon which the bids were prepared, Seller shall be obligated to pay the excess amounts directly to Purchaser outside of escrow within fifteen (15) Business Days after Purchaser’s delivery of each such Purchaser Reimbursement Request.

(c)To facilitate the exercise of Purchaser’s Self-Help Rights, Seller shall cause all contracts for the Seller Site Work Construction based upon the bids to be

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expressly assignable to Purchaser at no cost to Purchaser in the event Purchaser’s Self-Help Rights are exercised.  Seller hereby agrees to deliver to Purchaser copies of the executed contracts for the Seller Site Work Construction promptly upon execution of the same by Seller and the third party contractor, it being understood that such contracts may not be executed prior to the Closing.

11.2.3Holdback for Seller Site Work Construction.  Purchaser and Seller acknowledge and agree that the timely completion of the Seller Site Work Construction is essential for Purchaser’s intended development of the Property, and time is of the essence for Seller’s performance of the Seller Site Work Construction, subject to the provisions expressly set forth in this Agreement.  To secure Seller’s obligation to timely complete the Seller Site Work Construction, Seller hereby instructs Escrow Holder to hold back from Seller’s proceeds at the Close of Escrow an amount equal to One Million Nine Hundred Thousand Dollars ($1,900,000.00) [one hundred twenty-five percent (125%) of the total amount of the budget for the Seller Site Work Construction, based upon the bids obtained by Seller and mutually approved by Purchaser prior to the expiration of the Due Diligence Period, but excluding the amounts associated for any Offsite Work for which Seller has already posted a performance bond with the City and/or County] (the “Holdback Funds”); provided, however, the amount of the Holdback Funds shall be subject to increase by the Stockpile Holdback Amount if the Start Notice and the Stockpiling Deposit have not been delivered by the Early Stockpile Deadline, in addition to upward adjustment to be mutually agreed upon by Purchaser and Seller prior to the Closing expiration of the Due Diligence Period based upon the amount of the actual final bids obtained by Seller for the Seller Site Work Constriction.  The Holdback Funds shall may be disbursed from time to time to Seller as provided below or to Purchaser as provided herein:

(a)Seller shall be reimbursed from the Holdback Funds for all reasonable costs and expenses incurred by Seller in connection with completing the Seller Site Work Improvements, within ten (10) Business Days after Seller’s delivery to Escrow Holder and Purchaser, from time to time (but no more often than once per month), of reasonable evidence of such costs and expenses incurred by Seller (a “Seller Reimbursement Request”).  Within ten (10) Business Days after receipt of each Seller Reimbursement Request, provided Purchaser has not reasonably objected to said costs, Escrow Holder shall pay to Seller from the Holdback Funds the amount set forth in such Seller Reimbursement Request.

(b)In the event Purchaser exercises Purchaser’s Self-Help Rights, Escrow Holder shall release all or portion of the Holdback Funds to Purchaser in the amount of each Purchaser Reimbursement Request.  Purchaser and Seller hereby instruct Escrow Holder to release such payment to Purchaser within ten (10) Business Days after Purchaser’s delivery of a Purchaser Reimbursement Request to Escrow Holder and Seller.

(c)Any Holdback Funds not disbursed pursuant to a Seller Reimbursement Request or a Purchaser Reimbursement Request shall remain in Escrow until such time as Purchaser confirms in writing to Escrow Holder and Seller that the Seller Site Work Construction has been completed (which notice Purchaser shall be obligated to promptly provide when the conditions in Section 11.2.1 have been satisfied), at which time all remaining Holdback Funds, if any, shall be released to Seller.

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(d)Purchaser and Seller hereby instruct Escrow Holder to release such payment to Purchaser and/or Seller, as applicable, within ten (10) Business Days after the delivery of a Seller Reimbursement Request or Purchaser Reimbursement Request, as applicable, to Escrow Holder and the other party.  Any funds not disbursed as provided in this Article XI shall remain in Escrow until such time as Purchaser confirms in writing to Escrow Holder and Seller that the Seller Site Work Construction has been completed (which notice Purchaser shall be obligated to immediately provide when the conditions in Section 11.1.1 have been satisfied), at which time all remaining Holdback Funds, if any, shall be released to Seller.

11.3Project Construction Activities.  As contemplated in Section 7.8 above, following the Close of Escrow, Seller will be performing the Project Construction Activities.  In connection with Purchaser’s acknowledgement in Section 7.8 that such Project Construction Activities may cause noise and other disturbance to the Real Property, including temporary disruption of access and parking for the Real Property, Seller hereby agrees that it shall use commercially reasonable efforts to insure that the Project Construction Activities (i) shall not delay the development of and construction of the Real Property by Purchaser following the Close of Escrow, and (ii) shall not materially interfere with or adversely affect Purchaser’s access to and use of the Property during business hours.

ARTICLE XII

RIGHT OF FIRST OFFER

12.1Right of First Offer.  During Escrow and following the Close of Escrow, so long as Purchaser or an Affiliate of Purchaser is in “Possession of the Property” (defined as Purchaser or an Affiliate of Purchaser (a) being the owner of the Property, or (b) occupying any portion of the Property pursuant to a lease agreement), Seller shall provide Purchaser with a Right of First Offer to lease or purchase (the “Right of First Offer”) the land commonly known as Parcel 4, which consists of approximately 3.72 acres and is currently designated to be improved with an office building known as Building 4 (the “First Right Property”).  The term for the Right of First Offer shall expire sixty (60) months following the Close of Escrow (the “ROFO Period”).  For the purposes of the Right of First Offer, the land (and any portion thereof) and, if applicable, any improvements (and any portion thereof), including, but not limited to, Building 4 (and any portion thereof), are included within the definition of the First Right Property.  If Seller receives an offer to purchase or lease the First Right Property (including the land or any to be built improvements [i.e., a build to suit for lease or sale], or any portion of the improvements [i.e. a lease for a portion of the space within Building 4]) during the ROFO Period that Seller intends to accept, then Seller shall deliver written notice of same to Purchaser (an “Offer Notice”).

12.1.1Purchaser shall have until 5:00 pm Pacific Time on the date that is fourteen (14) days after Purchaser’s receipt of such Offer Notice (the “Acceptance Deadline”) to deliver to Seller a written notice that Purchaser elects to purchase or lease, as applicable, the First Right Property (or such portion of the First Right Property specified in such Offer Notice) in accordance with the terms of the Offer Notice.  Purchaser’s failure to timely accept the Right of First Offer in writing before the Acceptance Deadline shall be deemed Purchaser’s waiver of its Right of First Offer for such Offer Notice.

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12.1.2In the event Purchaser does not accept the Offer Notice or does not respond to Seller prior to the expiration of the Acceptance Deadline, Seller shall be free to sell or lease, as applicable, the First Right Property upon substantially the same terms contained in such Offer Notice (a “Third Party Transaction”).  However, if any Third Party Transaction is not consummated (which in the case of a build to suit lease or purchase, shall mean the purchase agreement or lease has been executed) within one hundred eighty (180) days after the Acceptance Deadline, or the financial terms of such transaction are reduced by more than ten percent (10%) of the amount set forth in the Offer Notice, the Right of First Offer shall again be made to Purchaser.

12.1.3Notwithstanding Purchaser’s waiver of an Offer Notice that results in a Third Party Transaction, all subsequent offers to purchase or lease the First Right Property (or any portion thereof) shall continue to be subject to the Right of First Offer if (a) any Third Party Transaction for the sale of the First Right Property is terminated prior to closing escrow, or (b) any Third Party Transaction lease expires or is terminated prior to the expiration of the ROFO Period.

12.2Acceptance.  If Purchaser timely accepts the Right of First Offer by delivering written notice to Seller on or before the Acceptance Deadline, then Purchaser and Seller shall enter into a purchase agreement or lease, as applicable, pursuant to the terms contained in the Offer Notice.  In the event of a purchase transaction in connection with the Right of First Offer, such purchase agreement shall be substantially in the form of this Agreement (subject to the economic terms, due diligence timeframes and development provisions of the Offer Notice).  Notwithstanding the foregoing, if Seller delivers an Offer Notice to sell the First Right Property to Purchaser during the first twelve (12) months following the Close of Escrow, or if Purchaser elects to purchase the First Right Property without Seller delivering an Offer Notice during the first twelve (12) months following the Close of Escrow, the purchase price for the First Right Property shall be equal to Thirty Five and 18/100 Dollars ($35.18) per square foot (for an aggregate of approximately $5,723,680.40, based upon 162,697 square feet of land) (the “Twelve Month Price”), provided, however, Purchaser and Seller acknowledge and agree that the Twelve Month Price does not include any improvements on the First Right Property, but does expressly include Seller’s architecture and engineering plans for a 60,000 square foot +/- building known as Building 4 (the “Existing Plans”), which Seller has previously completed at an approximate cost of One and 54/100 ($1.54) per square foot.

12.3Speculative Building on First Right Property.  In the event Seller desires to construct speculative improvements on the First Right Property during the ROFO Period, including, but not limited to, the construction of Building 4, Seller shall deliver written notice to Purchaser of its intention to do so, and include details of the contemplated speculative improvements if such development will not be consistent with the Existing Plans (a “Speculative Build Notice”).  Purchaser shall then have thirty (30) days after receipt of such Speculative Build Notice to either (i) purchase the First Right Property without the contemplated improvements at the Twelve Month Price (if Seller’s notice is delivered during the first twelve (12) months following the Close of Escrow), (ii) negotiate a purchase price with Seller for the First Right Property with or without the contemplated improvements (if Seller’s notice is delivered after the first twelve (12) months following the Close of Escrow, but prior to the

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expiration of the ROFO Period; provided that in no event shall the purchase price be less than the Twelve Month Price), or (iii) decline to purchase the First Right Property at such time.

12.3.1If Purchaser declines to purchase the First Right Property pursuant to the Speculative Build Notice, Seller may complete the improvements in its discretion; provided, however, Purchaser shall again have the Right of First Offer with respect to the First Right Property as improved, for the balance of the ROFO Period.  Notwithstanding the foregoing, after Purchaser declines to purchase the First Right Property pursuant to the Speculative Build Notice, if Seller then fails to commence construction of improvements on the First Right Property within six (6) months after the date of Seller’s Speculative Build Notice, Seller shall then be obligated to provide a new Speculative Build Notice to Purchaser in the event Seller thereafter elects to pursue construction of speculative improvements during ROFO Period.

12.3.2If any Speculative Build Notice is delivered by Seller after the first twelve (12) months after the Close of Escrow, but prior to the expiration of the ROFO Period, and Purchaser elects to purchase the First Right Property as provided above, Purchase and Seller shall negotiate the purchase price for the First Right Property in good faith.  In the event Purchaser and Seller fail to mutually agree in writing on a purchase price for the First Right Property within thirty (30) days following Purchaser’s receipt of Seller’s Speculative Build Notice (the “Expiration of the Negotiation Period”), then the purchase price for the First Right Property shall be the higher of the Twelve Month Price or the Fair Market Price.  The “Fair Market Price” for the First Right Property shall be determined as follows:

(a)Within five (5) Business Days after the Expiration of the Negotiation Period, Purchaser and Seller shall exchange in writing their respective last, best and final proposed amounts for the First Right Property purchase price (each a “Final Proposal”).

(b)Within fifteen (15) days after the Expiration of the Negotiation Period, Seller and Purchaser shall each appoint one (1) independent appraiser who shall by profession be an M.A.I. certified real estate appraiser who shall have been active over the five (5)-year period ending on the date of such appointment in the sale of commercial (including office) properties in the Goleta, California area.  Each appraiser shall have no prior or current business or affiliated relationship with, nor shall have previously acted in any capacity for, Seller or Purchaser.  The determination of the appraisers shall be limited solely to the issue of whether Seller’s or Purchaser’s Final Proposal is the closest to the actual fair market price for the First Right Property, as determined by the appraisers.

(c)The two (2) appraisers so appointed shall within fifteen (15) days of the date of the appointment of the last appointed appraiser agree upon and appoint a third appraiser who shall be qualified under the same criteria set forth hereinabove for qualification of the initial two (2) appraisers.

(d)The three (3) appraisers shall within thirty (30) days of the appointment of the third appraiser reach a decision as to whether the Seller’s or Purchaser’s Final Proposal is the Fair Market Price, and shall notify Seller and Purchaser thereof.  During such thirty (30)-day period, Seller and Purchaser may submit to the appraisers such information and documentation to support their respective positions as they shall deem reasonably relevant and

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Seller and Purchaser may each appear before the appraisers jointly to question and respond to questions from the appraisers.

(e)The decision of the majority of the three (3) appraisers shall be binding upon Seller and Purchaser and neither party shall have the right to reject the decision.

(f)If either Seller or Purchaser fails to appoint an appraiser within the time period specified above, the appraiser appointed by one of them shall within thirty (30) days following the date on which the party failing to appoint an appraiser could have last appointed such appraiser reach a decision based upon the same procedures as set forth above (i.e., by selecting either Seller’s or Purchaser’s Final Proposal), and shall notify Seller and Purchaser thereof, and such appraiser’s decision shall be binding upon Seller and Purchaser.

(g)If the two (2) appraisers fail to agree upon and appoint a third appraiser, either party, upon ten (10) days written notice to the other party, can apply to the Presiding Judge of the Superior Court of Santa Barbara County to appoint a third appraiser meeting the qualifications set forth herein.  The third appraiser, however selected, shall be a person who shall have no prior or current business or affiliated relationship with, nor shall have previously acted in any capacity for, either Seller or Purchaser.

(h)The cost of each party’s appraiser shall be the responsibility of the party selecting such appraiser, and the cost of the third appraiser (or arbitration, if necessary) shall be borne entirely by Purchaser; provided that if Purchaser does not elect to proceed, all of the appraisal costs shall become the responsibility of Purchaser and Purchaser shall immediately reimburse Seller for any costs incurred by Seller for same.

12.3.3Subsequent to the final determination of the by the Fair Market Price for the First Right Property, in the event the Fair Market Price is greater than (a) Purchaser’s Final Proposal, and (b) the Twelve Month Price, then Purchaser shall have ten (10) days to revoke its election to purchase the First Right Property, in which case Purchaser shall then be deemed to have waived the right to acquire the Property pursuant to such Speculative Build Notice, but the provisions in Section 12.3.1 above shall still apply.

12.4Continuing Right.  Regardless of whether or not Seller constructs improvements on the First Right Property during the ROFO Period, the Right of First Refusal shall continue in effect for the duration of the ROFO Period so long as Purchaser or an Affiliate continues to be in Possession of the Property, unless Seller has entered into a Third Party Transaction that results in the conveyance of fee title to the entirety of the First Right Property prior to the expiration of the ROFO Period, in which case the Right of First Refusal shall be deemed of no further force and effect upon the recordation in the applicable Official Records of the grant deed for such Third Party Transaction.  For example, if after Purchaser declines to purchase the First Right Property pursuant to a Speculative Build Notice, Seller constructs the contemplated improvements, and then, during the ROFO Period, Seller receives an offer to lease a portion of the improved First Right Property that Seller intends to accept, Seller shall still be obligated to deliver an Offer Notice to Purchaser as contemplated above.  If Purchaser waives the right to lease such portion of the improved First Right Property, Seller shall continue to be obligated to deliver subsequent Offer Notices, including, but not limited to, an Offer Notice to lease the remaining vacant portion

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of the improvements, or an Offer Notice for the sale of the First Right Property as improved and occupied by one or more tenants.  Also by way of example, if Purchaser declines to purchase the First Right Property pursuant to an Offer Notice, and the resulting Third Party Transaction is terminated prior to the close of escrow for such transaction, Seller is obligated to provide a new Offer Notice if Seller receives a new offer for the purchase of the First Right Property.  Similarly, if Purchaser declines to lease a portion of the improved First Right Property pursuant to an Offer Notice, and the resulting Third Party Transaction lease expires by its terms or is terminated prior to the expiration of the ROFO Period, Seller is obligated to provide a new Offer Notice if Seller receives a new offer for the lease of such portion of the First Right Property.  Additionally, the Right of First Refusal shall automatically terminate and be of no further force and effect if neither Purchaser or an Affiliate of Purchaser are in Possession of the Property.

12.5Terms of Sale.  If Purchaser purchases the First Right Property from Seller pursuant to the Right of First Offer, prior to Seller constructing Building 4 or similar improvements on the land, Seller’s obligation, at Seller’ sole cost and expense, with regard to the condition and delivery of the First Right Property upon the close of escrow of Purchaser’s purchase shall include the following:

(a)A final parcel map for the Property approved by City including approximately 3.72 acres (with no material decrease in the size set forth herein) shall be completed, recorded in Santa Barbara County and delivered to Purchaser.

(b)All entitlements and approvals from the City and from any other applicable governmental agencies to build a two-story office building consisting of approximately 60,000 rentable square feet for Building 4 (or other improvements as may be mutually agreed upon in writing by Purchaser and Seller) shall be completed and issued with conditions of approval satisfactory to Purchaser.

(c)All of Seller’s right, title and interest in all architectural, engineering, construction, landscaping and other building design plans, including all rights to use the same, shall be transferred to Purchaser at the closing as part of the property at no additional cost.  Seller shall deliver to Purchaser assignments of all such materials, each including a consent thereto executed by the applicable architect, engineer, contractor, landscape architect or other consultant who performed or provided any designs or services in connection with the Property.

(d)There shall be no leases or any agreements encumbering the First Right Property, except those approved by Purchaser, if any, at Purchaser’s sole discretion.

(e)On-Site Improvements (not including any Purchaser’s buildings and related parking, hardscape and landscape improvements):  A detailed site plan and specifications, which shall be mutually agreed by Seller and Purchaser during Purchaser’s applicable contingency period, outlining the scope of work to be completed by Seller, as part of the agreement in connection with the First Right Property, in order to deliver the First Right Property in a condition of a “finished and graded lot with stubbed-out utilities on the site” ready for the construction of the 60,000 rentable square foot building.

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(f)Off-Site Improvements:  A detailed site plan and specifications, which shall be mutually agreed by Seller and Purchaser during Purchaser’s applicable contingency period, outlining the scope of work to be completed by Seller, at Seller’s sole cost, as part of the agreement for the First Right Property, in connection with all the off-site work, including but not limited to the common areas; street widening; streets construction, including any signalized intersections; wetlands and park; etc., required by the City of Goleta and any other applicable governmental agencies as conditions of approval, or otherwise, for the construction of the 60,000 rentable square foot building.  Purchaser’s approval of said off-site plans shall be limited solely to work that is required to be performed on or adjacent to the First Right Property.  Purchaser shall not unreasonably withhold its consent so long as same will not have a material adverse effect on the Purchaser’s Required Modifications or Purchaser’s use of and access to the First Right Property.

12.6Quitclaim.  Upon the Close of Escrow, Seller and Purchaser shall execute and record the Memorandum of ROFO against the First Right Property in substantially the form attached hereto as Exhibit “G”.  Said Memorandum of ROFO shall automatically terminate at the expiration of the ROFO Period; provided that Purchaser shall deliver to Seller a quitclaim deed in recordable form within ten (10) days after Seller’s request after the expiration of the ROFO Period.  Such obligation shall survive the Close of Escrow.

[END OF TEXT; SIGNATURES FOLLOW ON
IMMEDIATELY SUCCEEDING PAGES]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date.

PURCHASER:	DECKERS OUTDOOR CORPORATION,
	a Delaware corporation
	By:	/s/ Zohar Ziv
		Print Name:	Zohar Ziv
		Print Title:	COO
	By:	/s/ Thomas George
		Print Name:	Thomas A. George
		Print Title:	CFO

[SIGNATURE PAGE TO PURCHASE AND SALE AGREEMENT AND
JOINT ESCROW INSTRUCTIONS]

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SELLER:	SANTA BARBARA REALTY DEVELOPMENT, L.L.C., a Delaware limited liability company
	By:	SRG Santa Barbara,
		a Delaware limited liability company,
		Management Member
		By:	Hagestad Enterprises,
			a California general partnership,
			its Operating member
			By:	Hagestad Management Company,
				a California corporation,
				its Managing General Partner
				By:	/s/ John Hagestad
					John S. Hagestad
					Its: President

[SIGNATURE PAGE TO PURCHASE AND SALE AGREEMENT AND
JOINT ESCROW INSTRUCTIONS]

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ACCEPTANCE BY ESCROW HOLDER

FIDELITY NATIONAL TITLE INSURANCE COMPANY hereby acknowledges that it has received originally executed counterparts or a fully executed original of the foregoing Purchase and Sale Agreement and Joint Escrow Instructions and agrees to act as Escrow Holder thereunder and to be bound by and perform the terms thereof as such terms apply to Escrow Holder.

Dated: September 6, 2011	FIDELITY NATIONAL TITLE INSURANCE COMPANY
	By:	/s/ Susan Lowe
		Name:	Susan Lowe
		Title:	Escrow Officer

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EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Angel R. Martinez, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Deckers Outdoor Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  November 9, 2011	/s/ Angel R. Martinez
	Angel R. Martinez
	Chief Executive Officer
	Deckers Outdoor Corporation
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Thomas A. George, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Deckers Outdoor Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9, 2011	/s/ Thomas A. George
	Thomas A. George
	Chief Financial Officer
	Deckers Outdoor Corporation
	(Principal Financial and Accounting Officer)

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to their knowledge, the Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 of Deckers Outdoor Corporation (the “Company”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in such periodic report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in such report.

Very truly yours,

Angel R. Martinez

/s/ Angel R. Martinez

Chief Executive Officer (Principal Executive Officer)

Thomas A. George

/s/ Thomas A. George

Chief Financial Officer (Principal Financial and Accounting Officer)

Dated: November 9, 2011

This certification accompanies the Report pursuant to Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liability of that section. This certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates it by reference.

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Condensed Consolidated Statements of Income (USD $) In Thousands, except Per Share data	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Net sales	$ 414,358	$ 277,879	$ 773,431	$ 570,865
Cost of sales	211,505	146,926	402,188	301,262
Gross profit	202,853	130,953	371,243	269,603
Selling, general and administrative expenses	112,192	64,639	263,185	161,252
Income from operations	90,661	66,314	108,058	108,351
Other (income) expense, net:
Interest income	(34)	(95)	(121)	(167)
Interest expense	148	216	103	340
Other, net	(64)	(334)	(113)	(948)
Total other (income) expense, net	50	(213)	(131)	(775)
Income before income taxes	90,611	66,527	108,189	109,126
Income tax expense	28,266	24,555	33,539	40,104
Net income	62,345	41,972	74,650	69,022
Net loss (income) attributable to noncontrolling interest	139	171	(327)	(18)
Net income attributable to Deckers Outdoor Corporation	$ 62,484	$ 42,143	$ 74,323	$ 69,004
Net income per share attributable to Deckers Outdoor Corporation common stockholders:
Basic (in dollars per share)	$ 1.62	$ 1.09	$ 1.93	$ 1.79
Diluted (in dollars per share)	$ 1.59	$ 1.07	$ 1.89	$ 1.76
Weighted-average common shares outstanding:
Basic (in shares)	38,603	38,615	38,595	38,638
Diluted (in shares)	39,190	39,228	39,276	39,258

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Condensed Consolidated Statements of Cash Flows (USD $) In Thousands	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
Cash flows from operating activities:
Net income	$ 74,650	$ 69,022
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation, amortization and accretion	19,895	8,836
Recovery of doubtful accounts, net	(825)	(719)
Write-down of inventory	5,831	1,627
Stock compensation	10,894	10,212
Other	1,232	(741)
Changes in operating assets and liabilities, net of assets and liabilities acquired in the acquisition of businesses:
Trade accounts receivable	(97,378)	(65,086)
Inventories	(230,164)	(112,587)
Prepaid expenses and other current assets	(42,068)	(611)
Other assets	(3,888)	(444)
Trade accounts payable	59,530	25,872
Accrued expenses	(8,743)	(3,952)
Income taxes payable	(13,581)	4,822
Long-term liabilities	2,357	1,823
Net cash used in operating activities	(222,258)	(61,926)
Cash flows from investing activities:
Proceeds from sales of short-term investments		26,080
Purchases of property and equipment	(21,483)	(14,496)
Acquisition of businesses and equity method investment	(126,615)	(5,191)
Purchases of intangible assets	(4,224)
Net cash (used in) provided by investing activities	(152,322)	6,393
Cash flows from financing activities:
Cash paid for shares withheld for taxes	(17,043)	(1,972)
Excess tax benefits from stock compensation	10,995	2,066
Cash received from issuances of common stock	19	86
Cash paid for repurchases of common stock	(19,918)	(10,082)
Short-term borrowings	45,000
Net cash provided by (used in) financing activities	19,053	(9,902)
Effect of exchange rates on cash	726	109
Net change in cash and cash equivalents	(354,801)	(65,326)
Cash and cash equivalents at beginning of period	445,226	315,862
Cash and cash equivalents at end of period	90,425	250,536
Cash paid during the period for:
Income taxes	36,096	33,380
Interest	14	25
Non-cash investing activity:
Accruals for purchases of property and equipment	995	461
Contingent consideration arrangement for acquisition of business	84,300
Accruals for asset retirement obligations	63
Non-cash financing activity:
Accruals for shares withheld for taxes	$ 2,613	$ 593

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Business Segments, Concentration of Business, and Credit Risk and Significant Customers (Tables)

9 Months Ended

Sep. 30, 2011

Business Segments, Concentration of Business, and Credit Risk and Significant Customers

Schedule of business segments information

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Net sales to external customers:
UGG wholesale	$	334,308		$	229,128		$	510,739		$	381,728
Teva wholesale	12,879			12,226			100,445			83,549
Sanuk wholesale	15,350			—			15,350			—
Other wholesale	6,866			7,696			17,281			20,064
eCommerce	10,254			8,665			39,423			32,264
Retail stores	34,701			20,164			90,193			53,260
	$	414,358		$	277,879		$	773,431		$	570,865
Income (loss) from operations:
UGG wholesale	$	143,998		$	96,568		$	206,208		$	163,371
Teva wholesale	(1,389		)	230			20,576			18,969
Sanuk wholesale	1,459			—			1,459			—
Other wholesale	(2,965		)	(229		)	(7,573		)	(2,537		)
eCommerce	483			787			5,767			5,420
Retail stores	(544		)	991			1,631			3,349
Unallocated overhead costs	(50,381		)	(32,033		)	(120,010		)	(80,221		)
	$	90,661		$	66,314		$	108,058		$	108,351

Schedule of reconciliations of total assets from reportable segments to the condensed consolidated balance sheets

	September 30,		December 31,
	2011		2010
Total assets for reportable segments:
UGG wholesale	$	515,199	$	194,028
Teva wholesale	48,633		49,849
Sanuk wholesale	206,695		—
Other wholesale	11,182		12,031
eCommerce	3,876		4,053
Retail stores	59,597		39,377
	$	845,182	$	299,338

	September 30,		December 31,
	2011		2010
Total assets for reportable segments	$	845,182	$	299,338
Unallocated cash and cash equivalents	90,425		445,226
Unallocated deferred tax assets	28,358		27,123
Other unallocated corporate assets	81,714		37,307
Consolidated total assets	$	1,045,679	$	808,994

Schedule of long-lived assets, which consist of property and equipment, by major country

	September 30,		December 31,
	2011		2010
US	$	42,079	$	36,591
UK	6,066		6,753
All other countries*	10,921		4,393
Total	$	59,066	$	47,737

*  No other country’s property and equipment comprised more than 10% of total property and equipment as of September 30, 2011 or December 31, 2010.

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Condensed Consolidated Balance Sheets (USD $) In Thousands	Sep. 30, 2011	Dec. 31, 2010
Current assets:
Cash and cash equivalents	$ 90,425	$ 445,226
Trade accounts receivable, net of allowances of $15,502 and $13,772 as of September 30, 2011 and December 31, 2010, respectively	227,675	116,663
Inventories	356,873	124,995
Prepaid expenses and other current assets	62,391	16,846
Deferred tax assets	12,002	12,002
Total current assets	749,366	715,732
Property and equipment, at cost, net	59,066	47,737
Goodwill	115,271	6,507
Other intangible assets, net	96,650	18,411
Deferred tax assets	16,356	15,121
Other assets	8,970	5,486
Total assets	1,045,679	808,994
Current liabilities:
Short-term borrowings	45,000
Trade accounts payable	132,193	67,073
Accrued payroll	21,808	35,109
Other accrued expenses	55,944	17,515
Income taxes payable	5,819	25,166
Total current liabilities	260,764	144,863
Long-term liabilities	66,600	8,456
Commitments and contingencies (notes 9 and 10)
Deckers Outdoor Corporation stockholders' equity:
Common stock, $0.01 par value; authorized 125,000 shares; issued and outstanding 38,606 and 38,581 shares as of September 30, 2011 and December 31, 2010, respectively	386	386
Additional paid-in capital	147,601	137,989
Retained earnings	567,866	513,459
Accumulated other comprehensive (loss) income	(553)	1,153
Total Deckers Outdoor Corporation stockholders' equity	715,300	652,987
Noncontrolling interest	3,015	2,688
Total equity	718,315	655,675
Total liabilities and equity	$ 1,045,679	$ 808,994

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General (Details) (Stella International Holdings Limited.)	Sep. 30, 2011
Stella International Holdings Limited.
Ownership interest acquired
Ownership interest acquired in joint venture (as a percent)	51.00%

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Business Segments, Concentration of Business, and Credit Risk and Significant Customers

9 Months Ended

Sep. 30, 2011

Business Segments, Concentration of Business, and Credit Risk and Significant Customers

Business Segments, Concentration of Business, and Credit Risk and Significant Customers

(8) Business Segments, Concentration of Business, and Credit Risk and Significant Customers

The Company’s accounting policies of the segments below are the same as those described in the summary of significant accounting policies in the Company’s Annual Report, except that the Company does not allocate corporate overhead costs or non-operating income and expenses to segments.  The Company evaluates segment performance primarily based on net sales and income or loss from operations.  The Company’s reportable segments include the strategic business units for the worldwide wholesale operations of the UGG brand, Teva brand, Sanuk brand, and its other brands, its eCommerce business and its retail store business.  The wholesale operations of each brand are managed separately because each requires different marketing, research and development, design, sourcing and sales strategies.  The eCommerce and retail store segments are managed separately because they are direct to consumer sales, while the brand segments are wholesale sales.  The income or loss from operations for each of the segments includes only those costs which are specifically related to each segment, which consist primarily of cost of sales, costs for research and development, design, selling and marketing, depreciation, amortization and the costs of employees and their respective expenses that are directly related to each business segment.  The unallocated corporate overhead costs are the shared costs of the organization and include the following: costs of the distribution centers, certain executive and stock compensation, accounting and finance, legal, information technology, human resources and facilities costs, among others.  The gross profit derived from the sales to third parties of the eCommerce and retail stores segments is separated into two components: (i) the wholesale profit is included in the related operating income or loss of each wholesale segment, and (ii) the retail profit is included in the operating income of the eCommerce and retail stores segments.  In prior periods, the gross profit of the international portion of the eCommerce and retail stores segments included both the wholesale and retail profit.  This change in segment reporting only changed the presentation within the below table and did not impact the Company’s condensed consolidated financial statements for any periods.  The segment information for the three and nine months ended September 30, 2010 has been adjusted retrospectively to conform to the current period presentation.

The Company’s other brands include Simple®, TSUBO®, Ahnu®, and MOZO®.  The wholesale operations of the Company’s other brands are included as one reportable segment, other wholesale, presented in the figures below.  The Sanuk brand operations are included in the Company’s segment reporting effective upon the acquisition date of July 1, 2011.  Business segment information is summarized as follows:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Net sales to external customers:
UGG wholesale	$	334,308		$	229,128		$	510,739		$	381,728
Teva wholesale	12,879			12,226			100,445			83,549
Sanuk wholesale	15,350			—			15,350			—
Other wholesale	6,866			7,696			17,281			20,064
eCommerce	10,254			8,665			39,423			32,264
Retail stores	34,701			20,164			90,193			53,260
	$	414,358		$	277,879		$	773,431		$	570,865
Income (loss) from operations:
UGG wholesale	$	143,998		$	96,568		$	206,208		$	163,371
Teva wholesale	(1,389		)	230			20,576			18,969
Sanuk wholesale	1,459			—			1,459			—
Other wholesale	(2,965		)	(229		)	(7,573		)	(2,537		)
eCommerce	483			787			5,767			5,420
Retail stores	(544		)	991			1,631			3,349
Unallocated overhead costs	(50,381		)	(32,033		)	(120,010		)	(80,221		)
	$	90,661		$	66,314		$	108,058		$	108,351

Business segment asset information is summarized as follows:

	September 30,		December 31,
	2011		2010
Total assets for reportable segments:
UGG wholesale	$	515,199	$	194,028
Teva wholesale	48,633		49,849
Sanuk wholesale	206,695		—
Other wholesale	11,182		12,031
eCommerce	3,876		4,053
Retail stores	59,597		39,377
	$	845,182	$	299,338

The assets allocable to each segment generally include accounts receivable, inventory, fixed assets, intangible assets and certain other assets that are specifically identifiable with one of the Company’s segments.  Unallocated assets are the assets not specifically related to the segments and generally include cash and cash equivalents, deferred tax assets, and various other assets shared by the Company’s segments. Reconciliations of total assets from reportable segments to the condensed consolidated balance sheets are as follows:

	September 30,		December 31,
	2011		2010
Total assets for reportable segments	$	845,182	$	299,338
Unallocated cash and cash equivalents	90,425		445,226
Unallocated deferred tax assets	28,358		27,123
Other unallocated corporate assets	81,714		37,307
Consolidated total assets	$	1,045,679	$	808,994

A portion of the Company’s cash and cash equivalents are held as cash in operating accounts that are with third party financial institutions.  These balances, at times, exceed the Federal Deposit Insurance Corporation (FDIC) insurance limits.  While the Company regularly monitors the cash balances in its operating accounts and adjusts the balances as appropriate, these cash balances could be impacted if the underlying financial institutions fail or are subject to other adverse conditions in the financial markets.  As of September 30, 2011, the Company had experienced no loss or lack of access to cash in its operating accounts.

The remainder of the Company’s cash equivalents is invested in interest bearing funds managed by third party investment management institutions.  These investments can include US treasuries and government agencies, money market funds, and municipal bonds, among other investments.  Certain of these investments are subject to general credit, liquidity, market, and interest rate risks.  Investment risk has been and may further be exacerbated by US mortgage defaults and credit and liquidity issues and the European debt crisis, which have affected various sectors of the financial markets.  As of September 30, 2011, the Company had experienced no loss or lack of access to its cash and cash equivalents.

The Company sells its products to customers throughout the US and to foreign customers located in Europe, Canada, Australia, Asia, and Latin America, among other regions.  International sales were 37.8% and 26.3% of the Company’s total net sales for the three months ended September 30, 2011 and 2010, respectively.  International sales were 36.8% and 32.2% of the Company’s total net sales for the nine months ended September 30, 2011 and 2010, respectively.  For the nine months ended September 30, 2011, no single foreign country comprised more than 10% of total sales.  The Company does not consider international operations a separate segment, as management reviews such operations in the aggregate with the aforementioned segments.

As of September 30, 2011, no single country outside the US held more than 10% of the Company’s total long-lived assets.  Property and equipment, by major country were as follows:

	September 30,		December 31,
	2011		2010
US	$	42,079	$	36,591
UK	6,066		6,753
All other countries*	10,921		4,393
Total	$	59,066	$	47,737

*  No other country’s property and equipment comprised more than 10% of total property and equipment as of September 30, 2011 or December 31, 2010.

Management performs regular evaluations concerning the ability of its customers to satisfy their obligations and records a provision for doubtful accounts based upon these evaluations.  No single customer accounted for more than 10.0% of the Company’s net sales for the nine months ended September 30, 2011 and 2010.  As of September 30, 2011, no single customer represented more than 10.0% of net trade accounts receivable.  As of December 31, 2010, the Company had one customer representing 33.2% and another customer representing 10.1% of net trade accounts receivable.

The Company’s production is concentrated at a limited number of independent contractor factories in China.  The Company’s sourcing is concentrated in Australia and China and include a limited number of key sources for the principal raw material for certain UGG products, sheepskin.  The Company’s operations are subject to the customary risks of doing business abroad, including, but not limited to, currency fluctuations, customs duties and related fees, various import controls and other nontariff barriers, restrictions on the transfer of funds, labor unrest and strikes and, in certain parts of the world, political instability.  The supply of sheepskin can be adversely impacted by weather conditions, disease, and harvesting decisions that are completely outside the Company’s control.  Further, the price of sheepskin is impacted by demand, industry, and competitors.

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Stockholders' Equity (Details) (USD $) In Thousands, except Share data	1 Months Ended	3 Months Ended		9 Months Ended		12 Months Ended
	Jun. 30, 2009	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010	Dec. 31, 2010
Stockholders' equity
Maximum stock repurchase amount approved by Board of Directors	$ 50,000
Number of shares repurchased (in shares)				245,000
Repurchase of common stock, payments				19,918	10,082
Average stock price of shares repurchased (in dollars per share)				$ 81.22
Number of shares receivable as right under stock-based awards (in shares)				1
Revenue targets to be met for awards to be vested, low end of range				1,850
Revenue targets to be met for awards to be vested, high end of range				2,500
Diluted earnings per share targets to be met for awards to be vested, low end of range (in dollars per share)				$ 7.00
Diluted earnings per share targets to be met for awards to be vested, high end of range (in dollars per share)				$ 9.60
Reconciliation of retained earnings
Balance at the beginning of the period				513,459
Net income attributable to Deckers Outdoor Corporation		62,484	42,143	74,323	69,004
Repurchase of common stock				(19,916)		(10,080)
Balance at the end of the period		567,866		567,866		513,459
Restricted Stock Units (RSUs)
Stockholders' equity
Restricted stock units granted during period (in shares)		0		275,000
Weighted-average grant date fair value of RSU (in dollars per share)		$ 82.09
Stock Appreciation Rights (SARs)
Stockholders' equity
Stock appreciation rights exercised during period (in shares)		110,000		290,000
Exercise price of stock appreciation rights (in dollars per share)		$ 26.73		$ 26.73
Aggregate intrinsic value of stock appreciation rights exercised		$ 8,611		$ 19,535

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Goodwill and Other Intangible Assets, (Details) (USD $) In Thousands	9 Months Ended
	Sep. 30, 2011
Changes in goodwill
Goodwill Gross, balance at beginning of the period	$ 21,932
Accumulated Impairment, balance at beginning of the period	(15,425)
Goodwill Net, balance at beginning of the period	6,507
Additions through acquisitions	109,170
Impairment	(406)
Goodwill Gross, balance at end of the period	131,102
Accumulated Impairment, balance at end of the period	(15,831)
Goodwill Net, balance at end of the period	115,271
Changes in intangible assets, net
Balance at the beginning of the period	18,411
Purchases of intangible assets	87,255
Amortization expense	(7,596)
Impairment	(1,420)
Balance at the end of the period	$ 96,650

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Goodwill and Other Intangible Assets, (Tables)

9 Months Ended

Sep. 30, 2011

Goodwill and Other Intangible Assets

Schedule of other intangible assets, net

	Goodwill, Gross		Accumulated Impairment			Goodwill, Net
Balance at December 31, 2010	$	21,932	$	(15,425	)	$	6,507
Additions through acquisitions	109,170		—			109,170
Impairment	—		(406		)	(406		)
Balance at September 30, 2011	$	131,102	$	(15,831	)	$	115,271

Other intangible assets, net:
Balance at December 31, 2010	$	18,411
Purchases of intangible assets	87,255
Amortization expense	(7,596		)
Impairment	(1,420		)
Balance at September 30, 2011	$	96,650

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General (Policies)

9 Months Ended

Sep. 30, 2011

General

Use of Estimates

The preparation of the Company’s condensed consolidated financial statements in accordance with US generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in these condensed consolidated financial statements and accompanying notes.  Significant areas requiring the use of management estimates relate to inventory reserves, accounts receivable reserves, returns liabilities, stock compensation, impairment assessments, depreciation and amortization, income tax liabilities and uncertain tax positions, fair value of financial instruments, and fair values of acquired intangibles, assets and liabilities, including estimated contingent consideration payments.  Actual results could differ materially from these estimates.

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Net Income per Share Attributable to Deckers Outdoor Corporation Common Stockholders

9 Months Ended

Sep. 30, 2011

Net Income per Share Attributable to Deckers Outdoor Corporation Common Stockholders

Net Income per Share Attributable to Deckers Outdoor Corporation Common Stockholders

(4) Net Income per Share Attributable to Deckers Outdoor Corporation Common Stockholders

Basic net income per share represents net income attributable to Deckers Outdoor Corporation divided by the weighted-average number of common shares outstanding for the period.  Diluted net income per share represents net income attributable to Deckers Outdoor Corporation divided by the weighted-average number of shares outstanding, including the dilutive impact of potential issuances of common stock.  For the three and nine months ended September 30, 2011 and 2010, the difference between the weighted-average number of basic and diluted common shares resulted from the dilutive impact of nonvested stock units (NSUs), RSUs, SARs, and options to purchase common stock.  The reconciliations of basic to diluted weighted-average common shares outstanding were as follows:

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2011	2010	2011	2010
Weighted-average shares used in basic computation	38,603,000	38,615,000	38,595,000	38,638,000
Dilutive effect of share-based awards*	587,000	613,000	681,000	620,000
Weighted-average shares used in diluted computation	39,190,000	39,228,000	39,276,000	39,258,000

*Excluded NSUs and RSUs as of September 30, 2011 and 2010	402,000	409,000	402,000	409,000
*Excluded SARs as of September 30, 2011 and 2010	525,000	720,000	525,000	720,000

The share-based awards that were excluded from the dilutive effect were excluded because the necessary conditions had not been satisfied for the shares to be issuable based on the Company’s performance through September 30, 2011 and 2010, respectively.

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Business Segments, Concentration of Business, and Credit Risk and Significant Customers (Details 3) (USD $) In Thousands, unless otherwise specified										3 Months Ended		9 Months Ended
	Sep. 30, 2011	Dec. 31, 2010	Sep. 30, 2010	Sep. 30, 2011 US	Dec. 31, 2010 US	Sep. 30, 2011 UK	Dec. 31, 2010 UK	Sep. 30, 2011 All other countries	Dec. 31, 2010 All other countries	Sep. 30, 2011 International Net Sales	Sep. 30, 2010 International Net Sales	Sep. 30, 2011 International Net Sales	Sep. 30, 2010 International Net Sales	Sep. 30, 2011 Net Trade Accounts Receivable	Dec. 31, 2010 Net Trade Accounts Receivable entity	Dec. 31, 2010 Net Trade Accounts Receivable Customer Two	Sep. 30, 2011 Long-lived assets	Dec. 31, 2010 Long-lived assets
Long-lived assets, which consist of property and equipment, by major country
Property and equipment, by major country	$ 59,066	$ 47,737		$ 42,079	$ 36,591	$ 6,066	$ 6,753	$ 10,921	$ 4,393
Concentration risks
Concentration risk, minimum (greater than, as a percent)	10.00%		10.00%							10.00%		10.00%		10.00%			10.00%	10.00%
Number of customers considered concentration risk (in entities)															1
Concentration risk (as a percent)															33.20%	10.10%
Concentration risk benchmark (as a percent)										37.80%	26.30%	36.80%	32.20%

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Business Combination

9 Months Ended

Sep. 30, 2011

Business Combination

Business Combination

(10) Business Combination

On May 19, 2011, the Company entered into an asset purchase agreement whereby it would acquire substantially all of the assets and assume the related liabilities of Sanuk, an action sport footwear brand rooted in the surf community, known for its original sandals and shoes.  On July 1, 2011, the Company completed the acquisition of the purchased assets and the assumption of the assumed liabilities.  The total purchase price for the assets related to the Sanuk brand was an initial cash payment of approximately $119,800 subject to certain working capital adjustments, which were preliminarily determined to be approximately $6,800 that were paid at closing.  The Company and the sellers of the assets related to the Sanuk brand are in the process of finalizing the balance sheet and working capital as of the closing, which may result in a further adjustment to the preliminary working capital adjustment which was paid at closing.  The purchase price also includes additional participation payments (contingent consideration) over the next five years as follows:

· 2011 EBITDA of the Sanuk brand multiplied by ten, less the closing payment, up to maximum of $30,000;

· 51.8% of the gross profit of the Sanuk brand in 2012, defined as total sales less the cost of sales for the business of the sellers;

· 36.0% of gross profit of the Sanuk brand in 2013;

· 8.0% of the product of gross profit of the Sanuk brand in 2015 multiplied by five.

There is no maximum to the contingent consideration payments for 2012, 2013, and 2015.

The Company acquired the Sanuk brand based upon the belief that Sanuk is a profitable, well-run business with a similar corporate culture, and provides substantial growth opportunities, particularly within the action sports market where it has a large and loyal customer base of active outdoor enthusiasts.  The Sanuk brand complements the Company’s existing brand portfolio with its unique market position through the combination of original and innovative product designs, as well as authentic and irreverent marketing campaigns.  The brand assists in balancing the Company’s existing seasonality, with its largest revenues being generated in the first half of the year.  The Sanuk brand also brings additional distribution channels to the Company, as it sells to hundreds of independent specialty surf and skate shops throughout the US that were not significantly in the Company’s existing customer portfolio.  The acquisition was accounted for as a business combination, and the Sanuk brand is reported as a new reportable segment.

The Company has included the operating results of the Sanuk brand in its condensed consolidated financial statements since the date of acquisition, including worldwide revenue of $15,578 and operating loss of $307 for all distribution channels.  This operating loss includes overhead costs that are excluded from worldwide wholesale segment operating income of $1,459 (see note 8).  The operating loss also included $2,990 of amortization expense on the acquired Sanuk intangibles and $1,389 of expense related to the change in fair value of the Sanuk contingent consideration due to accretion.  For the nine months ended September 30, 2011, the Company incurred approximately $4,000 of transaction costs for the Sanuk acquisition which was included in SG&A expense.

The fair value of the acquired intangible assets and contingent consideration is provisional pending the Company’s final determination of fair value, including the valuation report for those assets and liabilities from a third party valuation expert assisting the Company.  Also, the fair value of the purchase price is provisional pending agreement on the final working capital adjustment.  The fair value of the contingent consideration is based on Level 3 inputs, and further changes in the fair value of the contingent consideration will be recorded through operating income (see note 5).  The Company allocated the excess of the purchase price over the identifiable intangible and net tangible assets to goodwill.  The goodwill arising from the acquisition of the Sanuk brand relates to the projected earnings power over the future.  The goodwill is included in the Sanuk wholesale reportable segment and all of it is expected to be deductible for tax purposes.

The Company used the income approach to value the contingent consideration and identifiable intangible assets.  The contingent consideration used a discounted cash flow method with a discount rate of 5.0% in 2011 and 7.0% thereafter.  The following table summarizes the methods used under the income approach for the identifiable intangible assets and their corresponding discount rates and royalty rates, where applicable:

Identifiable intangible asset	Method	Discount Rate		Royalty Rate
US tradenames	Relief from royalty	15.0	%	5.0	%
International tradenames	Relief from royalty	17.0	%	5.0	%
Customer relationships	Excess earnings	15.5	%
International distributor relationships	Lost profits	17.5	%
US non-compete agreements	Lost profits	15.5	%
International non-compete agreements	Lost profits	17.5	%
Patents	Relief from royalty	16.5	%	3.0	%
US backlog	Excess earnings	14.0	%
International backlog	Excess earnings	16.0	%

The amortizable intangible assets are being amortized straight-line over their estimated useful lives, with the exception of the customer relationships, which are being amortized on an accelerated basis based on their aggregate projected after tax undiscounted cash flows.  The following table summarizes the consideration paid and the amounts of estimated fair value of the assets acquired and the liabilities assumed at the acquisition date:

				Estimated
	Estimated			Useful
	Fair Value			Life (Years)
Consideration
Cash paid	$	126,615
Estimated working capital adjustment	(4,091		)
Contingent consideration arrangement	84,300
Total consideration transferred	$	206,824
Recognized amounts of identifiable assets acquired and liabilities assumed:
Trade accounts receivable, net of allowances of $1,130	$	12,809
Inventories	7,545
Other current assets	367
Trade accounts payable	(5,590		)
Other liabilities	(507		)
Net tangible assets acquired	$	14,624
Identifiable intangible assets:
Tradenames	$	47,200		20
Customer relationships	21,300			10
International distributor relationships	800			2
Non-compete agreements	5,300			5
Patents	6,600			14
Backlog	1,830			1
Goodwill	109,170			Non-amortizable
Total purchase price	$	206,824

The following table presents the unaudited pro forma results of the Company for the three and nine months ended September 30, 2011 and September 30, 2010 as if the acquisition of the Sanuk brand had occurred on January 1, 2010.  These results are not intended to reflect the actual operations of the Company had the acquisition occurred on January 1, 2010.  Acquisition transaction costs that were incurred in the three months ended September 30, 2011 are included in the pro forma operating income for the nine months ended September 30, 2010 in the table below.  Transaction costs that were incurred prior to July 1, 2011 have been excluded from the pro forma operating income.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
Revenue	$	414,358	$	288,644	$	815,706	$	609,005
Operating income	$	95,021	$	65,994	$	120,066	$	106,882

The Company entered into a deferred purchase factoring agreement with CIT Commercial Services (CIT) whereby CIT collects the Sanuk accounts receivable at the gross amount of such receivables, less any discounts and allowances.  CIT is responsible for the servicing and administration of accounts receivables collected on behalf of the Company and, to the extent that an eligible account is in default, CIT is required to purchase the account from the Company.  CIT collects amounts due and remits collected funds, less factoring and various administrative fees.  Open receivables collected by CIT totaled approximately $6,100 at September 30, 2011 and are included in accounts receivable in the condensed consolidated balance sheets.  Collection fees for the three and nine months ended September 30, 2011 were $69.

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Comprehensive Income and Accumulated Other Comprehensive (Loss) Income (Tables)

9 Months Ended

Sep. 30, 2011

Comprehensive Income and Accumulated Other Comprehensive (Loss) Income

Schedule of comprehensive income

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2011			2010		2011			2010
Net income	$	62,345		$	41,972	$	74,650		$	69,022
Other comprehensive income (loss):
Unrealized gain (loss) on foreign currency hedging	689			—		(753		)	—
Unrealized gain on short-term investments	—			3		—			1
Cumulative foreign currency translation adjustments	(274		)	734		(953		)	(321		)
Total other comprehensive income (loss)	415			737		(1,706		)	(320		)
Comprehensive income	62,760			42,709		72,944			68,702
Comprehensive loss (income) attributable to noncontrolling interest	139			171		(327		)	(18		)
Comprehensive income attributable to Deckers Outdoor Corporation	$	62,899		$	42,880	$	72,617		$	68,684

Components of accumulated other comprehensive income

	September 30,			December 31,
	2011			2010
Unrealized gain on foreign currency hedging, net of tax	$	811		$	1,564
Cumulative foreign currency translation adjustment	(1,364		)	(413		)
Unrealized gain on short-term investments	—			2
Accumulated other comprehensive (loss) income	$	(553	)	$	1,153

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Goodwill and Other Intangible Assets

9 Months Ended

Sep. 30, 2011

Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets

(11) Goodwill and Other Intangible Assets

The Company’s goodwill and other intangible assets are summarized as follows:

	Goodwill, Gross		Accumulated Impairment			Goodwill, Net
Balance at December 31, 2010	$	21,932	$	(15,425	)	$	6,507
Additions through acquisitions	109,170		—			109,170
Impairment	—		(406		)	(406		)
Balance at September 30, 2011	$	131,102	$	(15,831	)	$	115,271

Other intangible assets, net:
Balance at December 31, 2010	$	18,411
Purchases of intangible assets	87,255
Amortization expense	(7,596		)
Impairment	(1,420		)
Balance at September 30, 2011	$	96,650

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Credit Agreement (Details) (USD $) In Thousands, unless otherwise specified		1 Months Ended				1 Months Ended	9 Months Ended						9 Months Ended
	Aug. 10, 2011 Previous Credit Agreement	Aug. 31, 2011 Amendment Number Two	Aug. 10, 2011 Amendment Number Two	Sep. 30, 2011 Amendment Number Two LIBOR based interest rates	Sep. 30, 2011 Amendment Number Two Prime Rate based interest rates	Aug. 31, 2011 Credit Agreement. D Y	Sep. 30, 2011 Credit Agreement.	Aug. 30, 2011 Credit Agreement.	Sep. 30, 2011 Credit Agreement. Adjusted LIBOR based interest rates Maximum	Sep. 30, 2011 Credit Agreement. Adjusted LIBOR based interest rates Minimum	Sep. 30, 2011 Credit Agreement. Alternate Base Rate based interest rates Maximum	Sep. 30, 2011 Credit Agreement. Alternate Base Rate based interest rates Minimum	Sep. 30, 2011 Credit Agreement. Maximum	Sep. 30, 2011 Credit Agreement. Minimum
Credit Agreement
Spread on variable interest rate (as a percent)				1.25%	0.25%				1.50%	1.25%	0.50%	0.25%
Current borrowing capacity	$ 20,000		$ 60,000					$ 200,000
Maximum available for the issuance of letters of credit								50,000
Maximum available with contingent increase								300,000
Additional available credit								100,000
Maximum available for swingline loans								5,000
Fees on the daily unused amount (as a percent)													0.30%	0.20%
Term of agreement (in years)						5
Period of variable interest rate basis (in days)						30
Adjusted LIBOR rate at period end (as a percent)							0.24%
Outstanding letters of credit							189
Amount available under the Credit Agreement							154,811
Outstanding borrowings							45,000
Outstanding borrowings repaid subsequent to the end of the reporting period							20,000
Additional Financial Covenants Required
Percentage fee payable for certain letters of credit before amendment (as a percent)		0.75%
Percentage fee payable for certain letters of credit after amendment (as a percent)		1.25%
Asset coverage ratio, numerator, to be maintained under Credit Agreement covenants														1.10
Asset coverage ratio, denominator, to be maintained under Credit Agreement covenants														1.00
Ratio of consolidated EBITDA plus annual rental expense to annual interest expense plus annual rental expense, numerator, to be maintained under Credit Agreement covenants														2.25
Ratio of consolidated EBITDA plus annual rental expense to annual interest expense plus annual rental expense, denominator, to be maintained under Credit Agreement covenants														1.00
Additional secured debt related to a capital asset allowed under Credit Agreement covenants													20,000
Additional unsecured debt allowed under Credit Agreement covenants													200,000
Secured debt not related to a capital asset allowed under Credit Agreement covenants													5,000
Amount of judgment allowed under Credit Agreement covenants													10,000
Amount of ERISA event in one year allowed under Credit Agreement covenants													10,000
Amount of ERISA event in all years allowed under Credit Agreement covenants													20,000
Total adjusted leverage ratio, numerator, to allow for no limit on acquisitions under terms of the Credit Agreement covenants													2.75
Total adjusted leverage ratio, denominator, to allow for no limit on acquisitions under terms of the Credit Agreement covenants													1.00
Amount of cash and unused credit to allow for no limit on acquisitions														75,000
Amount of cash and unused credit to allow for no restrictions on dividends or share repurchases														$ 75,000

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2011

Commitments and Contingencies

Commitments and Contingencies

(9) Commitments and Contingencies

The Company is currently involved in various legal claims arising from the ordinary course of business.  Management does not believe that the disposition of these matters will have a material effect on the Company’s financial position or results of operations.  In addition, the Company has agreed to indemnify certain of its licensees, distributors and promotional partners in connection with claims related to the use of the Company’s intellectual property.  The terms of such agreements range up to five years initially and generally do not provide for a limitation on the maximum potential future payments.  Management believes the likelihood of any payments is remote and would be immaterial.  The Company determined the risk was low based on a prior history of insignificant claims.  The Company is not currently involved in any indemnification matters in regards to its intellectual property.

The Company’s federal income tax returns for the years ended December 31, 2006 through December 31, 2009 are under examination by the Internal Revenue Service (IRS).  In connection with the examination, the Company has received notices of proposed adjustments (NOPAs), which the Company agreed with and recorded in its financial statements.  In addition, in March 2011, the Company received a NOPA related to transfer pricing arrangements with the Company’s subsidiaries in which adjustments were asserted totaling approximately $55,000 of additional taxable income, representing additional federal taxes and penalties of approximately $27,000, excluding interest.  The Company responded to this NOPA indicating that it disagrees with the proposed adjustments and will appeal the NOPA if the Company is unable to reach a resolution at the exam level.  The Company does not know the timing of completion of the examination or if the examination will result in a material effect to the Company’s condensed consolidated financial statements.  It is reasonably possible that the Company’s unrecognized tax benefit could change; however, the Company believes its unrecognized tax benefits are adequate.

Although the Company believes its tax estimates are reasonable and prepares its tax filings in accordance with all applicable tax laws, the final determination with respect to any tax audits, and any related litigation, could be materially different from the Company’s estimates or from its historical income tax provisions and accruals.  The results of an audit or litigation could have a material effect on operating results or cash flows in the periods for which that determination is made.  In addition, future period earnings may be adversely impacted by litigation costs, settlements, penalties, or interest assessments.

The Company has on-going income tax examinations under various state tax jurisdictions.  It is the opinion of management that these audits and inquiries will not have a material impact on the Company’s condensed consolidated financial statements.

In September 2011, the Company entered into an agreement with Santa Barbara Realty Development, L.L.C. to purchase approximately fourteen acres of land for its new headquarters facility in Goleta, California.  As consideration for the land, the Company will pay an aggregate purchase price of $20,428.  The purchase price is subject to a $500 credit if the close of the escrow period occurs before December 31, 2011.

In March 2011, the Company entered into contracts requiring minimum purchase commitments of sheepskin that Deckers’ affiliates, manufacturers, factories and other agents (each or collectively, a “Buyer”) must make on or before July 31, 2011. As of September 30, 2011, the remaining commitment was approximately $6,000.  In the event that a Buyer does not purchase such minimum commitments on or before July 31, 2011, the Company was required to make a deposit for the remaining amounts.  Such deposit shall be refundable upon receipt of payment by Buyers for such amounts. The Company made a deposit for the remaining commitment, and as of September 30, 2011, the deposit balance was approximately $10,000.  In July 2011, the Company entered into a contract requiring minimum purchase commitments of sheepskin that a Buyer is targeted to make between July 1, 2011 and January 31, 2012.  As of September 30, 2011, the remaining commitment was approximately $30,000.  The Company made an advance deposit of $20,000 under this contract, all of which was remaining as of September 30, 2011.  Subsequent to September 30, 2011, the Company entered into another sheepskin agreement for a total minimum commitment of $158,000 that a Buyer is targeted to make between February 1, 2012 and July 31, 2012.  Under this contract, the Company will pay an advance deposit of $50,000 in two payments of $25,000, which the Company expects to pay in November and December 2011, respectively.  These advance deposits shall be repaid to the Company as Buyers purchase goods under the terms of these agreements.  All of these agreements may result in unconditional purchase obligations if a Buyer does not meet the minimum purchase requirements.  In the event that a Buyer does not purchase such minimum commitments, the Company shall be responsible for compliance with any and all minimum purchase commitments under these contracts.  The contracts do not permit net settlement.  The Company expects sheepskin purchases by third party factories will eventually exceed the contract levels.  Therefore, management believes the likelihood of any non-performance payments under these contractual arrangements is remote and would have an immaterial effect on the condensed consolidated statements of income.  The Company determined this based upon its projected sales and inventory purchases.

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Stockholders' Equity

9 Months Ended

Sep. 30, 2011

Stockholders' Equity

Stockholders' Equity

(2) Stockholders’ Equity

In June 2009, the Company approved a stock repurchase program to repurchase up to $50,000 of the Company’s common stock in the open market or in privately negotiated transactions, subject to market conditions, applicable legal requirements and other factors.  The program did not obligate the Company to acquire any particular amount of common stock.  The purchases were funded from available working capital.  As of June 30, 2011, the Company had repurchased the full amount authorized under this program.  During the nine months ended September 30, 2011, the Company repurchased approximately 245,000 shares for approximately $20,000, or an average price of $81.22 per share.

On June 22, 2011, the Board of Directors of the Company adopted a new long-term incentive award under its 2006 Equity Incentive Plan (the “Level III Awards”).  These awards will be available for issuance to current and future members of the Company’s management team, including the Company’s named executive officers.  Each recipient will receive a specified maximum number of restricted stock units (RSUs), each of which will represent the right to receive one share of the Company’s common stock.  These awards vest subject to certain long-term performance objectives and certain long-term service conditions.  The awards will vest on December 31, 2014 only if the Company meets certain revenue targets ranging between $1,850,000 and $2,500,000 and certain diluted earnings per share targets ranging between $7.00 and $9.60 for the year ended December 31, 2014.  No vesting of any Level III Award will occur if either of the threshold performance criteria is not met for the year ending December 31, 2014.  To the extent financial performance is achieved above the threshold levels, the number of RSUs that will vest will increase up to the maximum number of units granted under the award.  Under this new program, the Company granted zero and a maximum amount of 275,000 RSUs during the three and nine months ended September 30, 2011, respectively.  The grant date fair value of these RSUs was $82.09 per share.  As of September 30, 2011, the Company did not believe that the achievement of the performance objectives for the Level III Awards was probable, and therefore the Company did not recognize compensation expense for these awards.  If the performance objectives become probable, the Company will then begin recording an expense for the Level III Awards and would recognize a cumulative catch-up adjustment in the period they become probable.

During the three months ended September 30, 2011, 110,000 stock appreciation rights (SARs) were exercised at a weighted-average exercise price of $26.73, for an aggregate intrinsic value of $8,611.  During the nine months ended September 30, 2011, 290,000 SARs were exercised at a weighted-average exercise price of $26.73, for an aggregate intrinsic value of $19,535.

The following is a reconciliation of the Company’s retained earnings:

	Retained Earnings
Balance at December 31, 2010	$	513,459
Net income attributable to Deckers Outdoor Corporation	74,323
Repurchase of common stock	(19,916		)
Balance at September 30, 2011	$	567,866

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Fair Value Measurements

9 Months Ended

Sep. 30, 2011

Fair Value Measurements

Fair Value Measurements

(5) Fair Value Measurements

The fair values of the Company’s cash and cash equivalents, trade accounts receivable, prepaid expenses and other current assets, income taxes receivable, short-term borrowings, trade accounts payable, accrued expenses, and income taxes payable approximate the carrying values due to the relatively short maturities of these instruments.  The fair values of the Company’s long-term liabilities, if recalculated based on current interest rates, would not significantly differ from the recorded amounts.  The fair value of the contingent consideration related to our acquisitions and of the Company’s derivatives are measured and recorded at fair value on a recurring basis.  The Company records the assets or liabilities associated with derivative instruments and hedging activities in other current assets or other current liabilities, respectively, in the condensed consolidated balance sheets.  The Level 2 inputs described below consist of forward spot rates at the end of the reporting period.  (See footnote 6, “Foreign Currency Exchange Contracts and Hedging,” for further information.)

The Company established a nonqualified deferred compensation program effective February 1, 2010 (referred to as “the Plan”).  The Plan permits a select group of management employees, designated by the Plan Committee, to defer earnings to a future date on a nonqualified basis.  For each plan year, the Board may, but is not required to, contribute any amount it desires to any participant under the Plan.  The Company’s contribution will be determined by the Board annually in the fourth quarter.  No such contribution has been approved as of September 30, 2011.  All amounts deferred under this plan are presented in long-term liabilities in the condensed consolidated balance sheet.  The value of the deferred compensation is recognized based on the fair value of the participants’ accounts.  The Company has established a trust as a reserve for the benefits payable under the Plan.

The inputs used in measuring fair value are prioritized into the following hierarchy:

· Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.

· Level 2: Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable.

· Level 3: Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing.

The table below summarizes the Company’s financial liabilities and assets that are measured on a recurring basis at fair value:

	Fair Value at September 30,			Fair Value Measurement Using
	2011			Level 1			Level 2			Level 3
(Liabilities) assets at fair value
Nonqualified deferred compensation	$	(1,834	)	$	(1,834	)	$	—		$	—
Designated derivatives	$	463		$	—		$	463		$	—
Non-designated derivatives	$	(686	)	$	—		$	(686	)	$	—
Contingent consideration for acquistion of business	$	(84,300	)	$	—		$	—		$	(84,300	)

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Document and Entity Information	9 Months Ended
	Sep. 30, 2011	Oct. 27, 2011
Document and Entity Information
Entity Registrant Name	DECKERS OUTDOOR CORP
Entity Central Index Key	0000910521
Document Type	10-Q
Document Period End Date	Sep. 30, 2011
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		38,608,023
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q3

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Foreign Currency Exchange Contracts and Hedging (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2011
Foreign currency exchange contracts and hedging
Reclassification period of total accumulated other comprehensive income expected to be transferred into income, maximum (in months)	6M
Designated derivatives | Foreign currency exchange contracts
Summary of the effect of derivative instruments on the condensed consolidated statement of income
Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion)	$ (1,985)
Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	(220)
Gain (Loss) from Amount Excluded from Effectiveness Testing	(94)
Designated derivatives | Foreign currency exchange contracts | Additional Sheepskin purchase agreement
Summary of the effect of derivative instruments on the condensed consolidated statement of income
Notional amount	66,000
Non-designated derivatives | Foreign currency exchange contracts
Summary of the effect of derivative instruments on the condensed consolidated statement of income
Amount of Gain (Loss) Recognized in Income on Derivatives	(591)
Foreign currency exchange contracts
Foreign currency exchange contracts and hedging
Maturity of foreign currency forward or option contracts, maximum (in months)	12 months
Maximum remaining maturity period of outstanding foreign currency derivative hedging contracts (in months)	3M
Notional amount of foreign currency hedging contract	$ 37
Number of counterparties in derivative contracts	2

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Foreign Currency Exchange Contracts and Hedging

9 Months Ended

Sep. 30, 2011

Foreign Currency Exchange Contracts and Hedging

Foreign Currency Exchange Contracts and Hedging

(6) Foreign Currency Exchange Contracts and Hedging

The Company transacts business in various foreign currencies and has international sales and expenses denominated in foreign currencies, subjecting the Company to foreign currency risk.  The Company may enter into foreign currency forward or option contracts, generally with maturities of 12 months or less, to reduce the volatility of cash flows primarily related to forecasted revenue denominated in certain foreign currencies.  In addition, the Company utilizes foreign exchange forward and option contracts to mitigate foreign currency exchange rate risk associated with foreign currency-denominated assets and liabilities, primarily intercompany balances.  The Company does not use foreign currency contracts for speculative or trading purposes.

Certain of the Company’s foreign currency forward contracts are designated cash flow hedges of forecasted intercompany sales and are subject to foreign currency exposures.  These contracts allow the Company to sell Euros and British Pounds in exchange for US dollars at specified contract rates.  At September 30, 2011, the outstanding contracts were expected to mature over the next three months.  Forward contracts are used to hedge forecasted intercompany sales over specific quarters.  Changes in the fair value of these forward contracts designated as cash flow hedges are recorded as a component of accumulated other comprehensive (loss) income (OCI) within stockholders’ equity, and are recognized in the condensed consolidated statements of income during the period which approximates the time the corresponding third-party sales occur.  The Company may also enter into foreign exchange contracts that are not designated as hedging instruments for financial accounting purposes.  Accordingly, any gains or losses resulting from changes in the fair value of the non-designated contracts are reported in income.  These contracts are generally entered into to offset the gains and losses on certain intercompany balances until the expected time of repayment.  As of September 30, 2011, the Company’s total hedging contracts had notional amounts totaling approximately $37,000, held by two counterparties.

The Company has factored into the fair value measurements of its derivatives the nonperformance risk of the Company and the counterparty, and it did not have a material impact on the fair value of the derivatives.  The Company assesses hedge effectiveness and measures hedge ineffectiveness at least quarterly.  During the three and nine months ended September 30, 2011, the ineffective portion relating to these hedges was immaterial and the hedges remained effective as of September 30, 2011.  As of September 30, 2011, the total amount in accumulated other comprehensive (loss) income (see note 3) is expected to be reclassified into income within the next six months.

The following tables summarize the effect of derivative instruments on the condensed consolidated financial statements for the nine months ended September 30, 2011:

					Amount of Gain (Loss)
	Amount of Gain (Loss)			Location of Gain (Loss)	Reclassified from
Derivatives in Designated	Recognized in OCI			Reclassified from	Accumulated OCI into			Location of Amount	Gain (Loss) from
Cash Flow Hedging	on Derivative			Accumulated OCI into Income	Income (Effective			Excluded from	Amount Excluded from
Relationships	(Effective Portion)			(Effective Portion)	Portion)			Effectiveness Testing	Effectiveness Testing
Foreign Exchange Contracts	$	(1,985	)	Net Sales	$	(220	)	Selling, general and administrative expenses (SG&A)	$	(94	)

Derivatives Not	Location of Gain (Loss)	Amount of Gain (Loss)
Designated as Hedging	Recognized in Income on	Recognized in Income on
Instruments	Derivatives	Derivatives
Foreign Exchange Contracts	SG&A	$	(591	)

Subsequent to September 30, 2011, the Company entered into several new hedging contracts with notional amounts totaling approximately $66,000.

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Comprehensive Income and Accumulated Other Comprehensive (Loss) Income (Details) (USD $) In Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010	Dec. 31, 2010
Comprehensive (Loss) income:
Net income (loss)	$ 62,345	$ 41,972	$ 74,650	$ 69,022
Other comprehensive income (loss):
Unrealized gain (loss) on foreign currency hedging	689		(753)
Unrealized gain on short-term investments		3		1
Cumulative foreign currency translation adjustments	(274)	734	(953)	(321)
Total other comprehensive income (loss)	415	737	(1,706)	(320)
Comprehensive income	62,760	42,709	72,944	68,702
Comprehensive loss (income) attributable to noncontrolling interest	139	171	(327)	(18)
Comprehensive income attributable to Deckers Outdoor Corporation	62,899	42,880	72,617	68,684
Accumulated other comprehensive income
Unrealized gain on foreign currency hedging, net of tax	811		811		1,564
Cumulative foreign currency translation adjustments	(1,364)		(1,364)		(413)
Unrealized gain on short-term investments					2
Accumulated other comprehensive (loss) income	$ (553)		$ (553)		$ 1,153

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Business Segments, Concentration of Business, and Credit Risk and Significant Customers (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011 Y count segment component step	Sep. 30, 2010	Dec. 31, 2010
Business Segments, Concentration of Business, and Credit Risk and Significant Customers
Number of components of gross profit derived from sale to third parties			2
Number of reportable segments in which other brands are included			1
Business segment information
Net sales to external customers	$ 414,358	$ 277,879	$ 773,431	$ 570,865
Income (loss) from operations	90,661	66,314	108,058	108,351
Total assets	1,045,679		1,045,679		808,994
Reportable segments
Business segment information
Total assets	845,182		845,182		299,338
UGG wholesale
Business segment information
Net sales to external customers	334,308	229,128	510,739	381,728
Income (loss) from operations	143,998	96,568	206,208	163,371
Total assets	515,199		515,199		194,028
Teva wholesale
Business segment information
Net sales to external customers	12,879	12,226	100,445	83,549
Income (loss) from operations	(1,389)	230	20,576	18,969
Total assets	48,633		48,633		49,849
Sanuk wholesale
Business segment information
Net sales to external customers	15,350		15,350
Income (loss) from operations	1,459		1,459
Total assets	206,695		206,695
Other wholesale
Business segment information
Net sales to external customers	6,866	7,696	17,281	20,064
Income (loss) from operations	(2,965)	(229)	(7,573)	(2,537)
Total assets	11,182		11,182		12,031
eCommerce
Business segment information
Net sales to external customers	10,254	8,665	39,423	32,264
Income (loss) from operations	483	787	5,767	5,420
Total assets	3,876		3,876		4,053
Retail stores
Business segment information
Net sales to external customers	34,701	20,164	90,193	53,260
Income (loss) from operations	(544)	991	1,631	3,349
Total assets	59,597		59,597		39,377
Unallocated to Segments
Business segment information
Income (loss) from operations	$ (50,381)	$ (32,033)	$ (120,010)	$ (80,221)

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Fair Value Measurements (Details) (Recurring basis, USD $) In Thousands	Sep. 30, 2011
Fair Value
(Liabilities) assets at fair value
Nonqualified deferred compensation	$ (1,834)
Designated derivatives	463
Non-designated derivatives	(686)
Contingent consideration for acquisition of business	(84,300)
Level 1
(Liabilities) assets at fair value
Nonqualified deferred compensation	(1,834)
Level 2
(Liabilities) assets at fair value
Designated derivatives	463
Non-designated derivatives	(686)
Level 3
(Liabilities) assets at fair value
Contingent consideration for acquisition of business	$ (84,300)

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Stockholders' Equity (Tables)

9 Months Ended

Sep. 30, 2011

Stockholders' Equity

Schedule of reconciliation of the retained earnings

	Retained Earnings
Balance at December 31, 2010	$	513,459
Net income attributable to Deckers Outdoor Corporation	74,323
Repurchase of common stock	(19,916		)
Balance at September 30, 2011	$	567,866

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Credit Agreement

9 Months Ended

Sep. 30, 2011

Credit Agreement

Credit Agreement

(7) Credit Agreement

On August 10, 2011, the Company and its subsidiary Tsubo, LLC entered into Amendment Number Two to Second Amended and Restated Credit Agreement (“Amendment Number Two”) with Comerica Bank (“Comerica”).  Amendment Number Two amended the terms of that certain Second Amended and Restated Credit Agreement, entered into on May 27, 2010, by and among the Company; Tsubo, LLC; and Comerica (the “Previous Credit Agreement”).  Amendment Number Two amended the Previous Credit Agreement by increasing the maximum availability from $20,000 to $60,000 during the period commencing on August 10, 2011 and ending on November 30, 2011 (the “Increased Commitment Period”).  During the Increased Commitment Period, amounts borrowed under the Credit Agreement would bear interest at Comerica’s prime rate, plus 0.25% or, at the Company’s option, at the London Interbank Offered Rate (LIBOR), plus 1.25%.  Amendment Number Two also increased the percentage fee payable for certain letters of credit during the Increased Commitment Period from 0.75% to 1.25%.  The Company did not borrow under Amendment Number Two.

On August 30, 2011, the Company entered into a Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, National Association as the administrative agent, Comerica Bank and HSBC Bank USA, National Association, as syndication agents, and the lenders party thereto.  The Credit Agreement is a five-year, $200,000 secured revolving credit facility which contains a $50,000 sublimit for the issuance of letters of credit and a $5,000 sublimit for swingline loans and replaces the Previous Credit Agreement and matures on August 30, 2016.  Subject to customary conditions and the approval of any lender whose commitment would be increased, the Company has the option to increase the maximum principal amount available under the Credit Agreement by up to an additional $100,000, resulting in a maximum available principal amount of $300,000.  None of the lenders under the Credit Agreement has committed at this time or is obligated to provide any such increase in the commitments.  At the Company’s option, revolving loans issued under the Credit Agreement will bear interest at either adjusted LIBOR for 30 days (0.24% at September 30, 2011) plus 1.25% per annum, in the case of LIBOR borrowings, or at the alternate base rate plus 0.25% per annum, and thereafter the interest rate will fluctuate between adjusted LIBOR plus 1.25% per annum and adjusted LIBOR plus 1.50% per annum (or between the alternate base rate plus 0.25% per annum and the alternate base rate plus 0.50% per annum), based upon the Company’s total adjusted leverage ratio at such time.  In addition, the Company will initially be required to pay fees of 0.20% per annum on the daily unused amount of the revolving credit facility, and thereafter the fee rate will fluctuate between 0.20% and 0.30% per annum, based upon the Company’s total adjusted leverage ratio.

The Company’s obligations under the Credit Agreement are guaranteed by the Company’s existing and future domestic subsidiaries other than certain immaterial subsidiaries and foreign subsidiaries (the “Guarantors”), and is secured by a first-priority security interest in substantially all of the assets of the Company and the Guarantors’, including all or a portion of the equity interests of certain of the Company’s domestic and foreign subsidiaries.

The Credit Agreement contains financial covenants which include: the asset coverage ratio must be greater than 1.10 to 1.00; and the sum of the consolidated annual earnings before interest, taxes, depreciation, and amortization (EBITDA) and annual rental expense, divided by the sum of the annual interest expense and the annual rental expense must be greater than 2.25 to 1.00; and other customary limitations.  The Credit Agreement contains certain other covenants which include: a maximum additional secured debt related to a capital asset not to exceed $20,000, maximum additional unsecured debt not to exceed $200,000; maximum secured debt not related to a capital asset not to exceed $5,000, maximum judgment of $10,000; maximum ERISA event of $10,000 in one year, $20,000 in all years; the Company may not have a change of control; there is no limit on acquisitions, if the total adjusted leverage ratio does not exceed 2.75 and 1.00 and the Company must have a minimum amount of cash and unused credit of $75,000; and there is no restriction on dividends or share repurchases, if the minimum amount of cash and unused credit is $75,000.  As of September 30, 2011, the Company was in compliance with all covenants.

At September 30, 2011, the Company had outstanding borrowings of $45,000 under the Credit Agreement and outstanding letters of credit of $189.  As a result, $154,811 was available under the Credit Agreement at September 30, 2011.  Subsequent to September 30, 2011, the Company repaid $20,000 of the outstanding borrowings.

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2011

Fair Value Measurements

Schedule of Company's financial liabilities and assets that are measured on a recurring basis at fair value:

	Fair Value at September 30,			Fair Value Measurement Using
	2011			Level 1			Level 2			Level 3
(Liabilities) assets at fair value
Nonqualified deferred compensation	$	(1,834	)	$	(1,834	)	$	—		$	—
Designated derivatives	$	463		$	—		$	463		$	—
Non-designated derivatives	$	(686	)	$	—		$	(686	)	$	—
Contingent consideration for acquistion of business	$	(84,300	)	$	—		$	—		$	(84,300	)

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Recent Accounting Pronouncements (Details)	9 Months Ended
	Sep. 30, 2011 Y count segment component step
Recent Accounting Pronouncements
Number of separate statements in which the entity is required to present comprehensive income (in counts)	2
Number of steps involved in process of impairment test	2

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Net Income per Share Attributable to Deckers Outdoor Corporation Common Stockholders (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Reconciliations of basic to diluted weighted-average common shares outstanding
Weighted-average shares used in basic computation (in shares)	38,603,000	38,615,000	38,595,000	38,638,000
Dilutive effect of NSUs and stock options (in shares)	587,000	613,000	681,000	620,000
Weighted-average shares used in diluted computation (in shares)	39,190,000	39,228,000	39,276,000	39,258,000
NSUs and RSUs
Antidilutive securities excluded from computation of earnings per share
Excluded nonvested stock units (in shares)	402,000	409,000	402,000	409,000
Stock Appreciation Rights (SARs)
Antidilutive securities excluded from computation of earnings per share
Excluded nonvested stock units (in shares)	525,000	720,000	525,000	720,000

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General

9 Months Ended

Sep. 30, 2011

General

General

(1) General

(a) Basis of Presentation

The unaudited condensed consolidated financial statements have been prepared on the same basis as the annual audited consolidated financial statements and, in the opinion of management, reflect all 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.  Deckers Outdoor Corporation strives to be a premier lifestyle marketer that builds niche brands into global market leaders by designing and marketing innovative, functional and fashion-oriented footwear and accessories, developed for both high performance outdoor activities and everyday casual lifestyle use.  The Company’s business is seasonal, with the highest percentage of UGG® brand net sales occurring in the third and fourth quarters and the highest percentage of Teva® and Sanuk® brand net sales occurring in the first and second quarters of each year. The other brands do not have a significant seasonal impact on the Company.  The Company owns 51% of a joint venture with an affiliate of Stella International Holdings Limited (Stella International) for the primary purpose of opening and operating retail stores for the UGG brand in China.  Stella International is also one of the Company’s major manufacturers in China.

In January 2010, the Company acquired certain assets and liabilities, including reacquisition of its distribution rights, from its Teva brand distributor that sold to retailers in Belgium, the Netherlands, and Luxemburg (Benelux) as well as France.  In September 2010, the Company purchased a portion of a privately held footwear company as an equity method investment.  In January 2011, the Company acquired certain assets from its UGG, Teva, and Simple® brands distributor that sold to retailers in the United Kingdom (UK) and from its UGG and Simple brands distributor that sold to retailers in Benelux and France.  The distribution rights in these regions reverted back to the Company on December 31, 2010 upon the expiration of the distribution agreements.  On May 19, 2011, the Company entered into an asset purchase agreement with Sanuk USA LLC, C&C Partners, Ltd., and the equity holders of both entities (collectively referred to as “Sanuk” or the “Sanuk brand”).  On July 1, 2011, the Company completed the acquisition of the purchased assets and the assumption of the assumed liabilities of the Sanuk brand.  Deckers Outdoor Corporation’s condensed consolidated financial statements include the operations of Sanuk beginning July 1, 2011.

As contemplated by the Securities and Exchange Commission (SEC) under Rule 10-01 of Regulation S-X, the accompanying condensed consolidated financial statements and related footnotes have been condensed and do not contain certain information that will be included in the Company’s annual consolidated financial statements and footnotes thereto.  For further information, refer to the consolidated financial statements and related footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

b) Use of Estimates

The preparation of the Company’s condensed consolidated financial statements in accordance with US generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in these condensed consolidated financial statements and accompanying notes.  Significant areas requiring the use of management estimates relate to inventory reserves, accounts receivable reserves, returns liabilities, stock compensation, impairment assessments, depreciation and amortization, income tax liabilities and uncertain tax positions, fair value of financial instruments, and fair values of acquired intangibles, assets and liabilities, including estimated contingent consideration payments.  Actual results could differ materially from these estimates.

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Foreign Currency Exchange Contracts and Hedging (Tables)

9 Months Ended

Sep. 30, 2011

Foreign Currency Exchange Contracts and Hedging

Schedule of location and amount of gains and losses related to derivatives designated as hedging instruments reported in income statement

					Amount of Gain (Loss)
	Amount of Gain (Loss)			Location of Gain (Loss)	Reclassified from
Derivatives in Designated	Recognized in OCI			Reclassified from	Accumulated OCI into			Location of Amount	Gain (Loss) from
Cash Flow Hedging	on Derivative			Accumulated OCI into Income	Income (Effective			Excluded from	Amount Excluded from
Relationships	(Effective Portion)			(Effective Portion)	Portion)			Effectiveness Testing	Effectiveness Testing
Foreign Exchange Contracts	$	(1,985	)	Net Sales	$	(220	)	Selling, general and administrative expenses (SG&A)	$	(94	)

Schedule of location and amount of gains and losses related to derivatives not designated as hedging instruments reported in income statement

Derivatives Not	Location of Gain (Loss)	Amount of Gain (Loss)
Designated as Hedging	Recognized in Income on	Recognized in Income on
Instruments	Derivatives	Derivatives
Foreign Exchange Contracts	SG&A	$	(591	)

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Business Combinations (Tables)

9 Months Ended

Sep. 30, 2011

Business Combination

Purchase price allocation based on the estimated fair value of the assets and liabilities

Identifiable intangible asset	Method	Discount Rate		Royalty Rate
US tradenames	Relief from royalty	15.0	%	5.0	%
International tradenames	Relief from royalty	17.0	%	5.0	%
Customer relationships	Excess earnings	15.5	%
International distributor relationships	Lost profits	17.5	%
US non-compete agreements	Lost profits	15.5	%
International non-compete agreements	Lost profits	17.5	%
Patents	Relief from royalty	16.5	%	3.0	%
US backlog	Excess earnings	14.0	%
International backlog	Excess earnings	16.0	%

Schedule of estimates of fair value of intangible assets acquired and goodwill resulting from acquisition

				Estimated
	Estimated			Useful
	Fair Value			Life (Years)
Consideration
Cash paid	$	126,615
Estimated working capital adjustment	(4,091		)
Contingent consideration arrangement	84,300
Total consideration transferred	$	206,824
Recognized amounts of identifiable assets acquired and liabilities assumed:
Trade accounts receivable, net of allowances of $1,130	$	12,809
Inventories	7,545
Other current assets	367
Trade accounts payable	(5,590		)
Other liabilities	(507		)
Net tangible assets acquired	$	14,624
Identifiable intangible assets:
Tradenames	$	47,200		20
Customer relationships	21,300			10
International distributor relationships	800			2
Non-compete agreements	5,300			5
Patents	6,600			14
Backlog	1,830			1
Goodwill	109,170			Non-amortizable
Total purchase price	$	206,824

Schedule of pro forma information

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
Revenue	$	414,358	$	288,644	$	815,706	$	609,005
Operating income	$	95,021	$	65,994	$	120,066	$	106,882

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Comprehensive Income and Accumulated Other Comprehensive (Loss) Income

9 Months Ended

Sep. 30, 2011

Comprehensive Income and Accumulated Other Comprehensive (Loss) Income

Comprehensive Income and Accumulated Other Comprehensive (Loss) Income

(3) Comprehensive Income and Accumulated Other Comprehensive (Loss) Income

Comprehensive income is the total of net income and all other non-owner changes in equity.  Comprehensive income was determined as follows:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2011			2010		2011			2010
Net income	$	62,345		$	41,972	$	74,650		$	69,022
Other comprehensive income (loss):
Unrealized gain (loss) on foreign currency hedging	689			—		(753		)	—
Unrealized gain on short-term investments	—			3		—			1
Cumulative foreign currency translation adjustments	(274		)	734		(953		)	(321		)
Total other comprehensive income (loss)	415			737		(1,706		)	(320		)
Comprehensive income	62,760			42,709		72,944			68,702
Comprehensive loss (income) attributable to noncontrolling interest	139			171		(327		)	(18		)
Comprehensive income attributable to Deckers Outdoor Corporation	$	62,899		$	42,880	$	72,617		$	68,684

Accumulated balances of the components within accumulated other comprehensive (loss) income were as follows:

	September 30,			December 31,
	2011			2010
Unrealized gain on foreign currency hedging, net of tax	$	811		$	1,564
Cumulative foreign currency translation adjustment	(1,364		)	(413		)
Unrealized gain on short-term investments	—			2
Accumulated other comprehensive (loss) income	$	(553	)	$	1,153

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Recent Accounting Pronouncements

9 Months Ended

Sep. 30, 2011

Recent Accounting Pronouncements

Recent Accounting Pronouncements

(12) Recent Accounting Pronouncements

In December 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU), Disclosure of Supplementary Pro Forma Information for Business Combinations, an amendment to Accounting Standards Codification (ASC) 805, Business Combinations.  The amendment specifies that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination had occurred as of the beginning of the comparable prior reporting period only.  The amendment also expands the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings.  The amendments are effective prospectively for business combinations for which the acquisition date is on or after January 1, 2011.  The Company adopted this standard in connection with its Sanuk acquisition and included the required disclosures in its condensed consolidated financial statements.

In June 2011, the FASB issued ASU, Presentation of Comprehensive Income, an amendment to ASC 220, Comprehensive Income, that brings US Generally Accepted Accounting Principles (GAAP) into alignment with International Financial Reporting Standards for the presentation of OCI.  Effective for the Company beginning January 1, 2012, the option in current GAAP that permits the presentation of OCI in the statement of changes in equity has been eliminated.  The provisions of the update provide that an entity that reports items of OCI has two options:  (1) a single statement must present the components of net income, total net income, the components of OCI, total OCI, and total comprehensive income; or (2) a two-statement approach whereby an entity must present the components of net income and total net income in the first statement.  That statement must be immediately followed by a financial statement that presents the components of OCI, a total for OCI, and a total for comprehensive income.  The adoption of this ASU will only change the presentation of OCI on the Company’s consolidated financial statements beginning January 1, 2012.

In September 2011, the FASB issued ASU, Intangibles - Goodwill and Other, which allows an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test.  Under this amendment, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount.  This ASU will be effective for the Company January 1, 2012, with early adoption permitted.  The Company is considering early adoption of this update.  The Company does not expect that the adoption of this update will have a material effect on its financial statements.

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Business Segments, Concentration of Business, and Credit Risk and Significant Customers (Details 2) (USD $) In Thousands	Sep. 30, 2011	Dec. 31, 2010	Sep. 30, 2010	Dec. 31, 2009
Reconciliations of total assets from reportable segments to the condensed consolidated balance sheets
Cash and cash equivalents	$ 90,425	$ 445,226	$ 250,536	$ 315,862
Consolidated total assets	1,045,679	808,994
Reportable segments
Reconciliations of total assets from reportable segments to the condensed consolidated balance sheets
Consolidated total assets	845,182	299,338
Unallocated to Segments
Reconciliations of total assets from reportable segments to the condensed consolidated balance sheets
Cash and cash equivalents	90,425	445,226
Unallocated deferred tax assets	28,358	27,123
Other unallocated corporate assets	$ 81,714	$ 37,307

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Net Income per Share Attributable to Deckers Outdoor Corporation Common Stockholders (Tables)

9 Months Ended

Sep. 30, 2011

Net Income per Share Attributable to Deckers Outdoor Corporation Common Stockholders

Schedule of reconciliations of basic to diluted weighted-average common shares outstanding

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2011	2010	2011	2010
Weighted-average shares used in basic computation	38,603,000	38,615,000	38,595,000	38,638,000
Dilutive effect of share-based awards*	587,000	613,000	681,000	620,000
Weighted-average shares used in diluted computation	39,190,000	39,228,000	39,276,000	39,258,000

*Excluded NSUs and RSUs as of September 30, 2011 and 2010	402,000	409,000	402,000	409,000
*Excluded SARs as of September 30, 2011 and 2010	525,000	720,000	525,000	720,000

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Condensed Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Per Share data	Sep. 30, 2011	Dec. 31, 2010
Condensed Consolidated Balance Sheets
Trade accounts receivable, allowances (in dollars)	$ 15,502	$ 13,772
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, authorized shares	125,000	125,000
Common stock, issued shares	38,606	38,581
Common stock, outstanding shares	38,606	38,581

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Commitments and Contingencies (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended	1 Months Ended		9 Months Ended	1 Months Ended		9 Months Ended
	Sep. 30, 2011 Y count segment component step	Mar. 31, 2011 Notices of proposed adjustments (NOPA)	Sep. 30, 2011 Purchase commitments entered in March 2011	Sep. 30, 2011 Purchase commitments enterd in July 2011	Dec. 31, 2011 Additional Sheepskin purchase agreement	Nov. 30, 2011 Additional Sheepskin purchase agreement	Sep. 30, 2011 Additional Sheepskin purchase agreement advance	Sep. 30, 2011 Purchase commitment acre
Commitments and Contingencies
Maximum indemnity period of claims for intellectual property (in years)	5
Commitments and Contingencies
Aggregate additional taxable income related to transfer pricing arrangements		$ 55,000
Additional federal taxes and penalties, excluding interest and penalties		27,000
Purchase of land for new headquarters facility in Goleta, California (in acres)								14
Aggregate purchase price as consideration of land								20,428
Purchase price subject to credit amount, if the close of the escrow period occurs before December 31, 2011								500
Remaining purchase commitments			6,000	30,000
Deposit under contractual agreement			10,000
Advance deposit made under contractual agreement				20,000			50,000
Total minimum commitment							158,000
Advance deposit per payment to be made under contractual agreement					$ 25,000	$ 25,000
Number of advance deposit payments							2

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Business Combination (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended			3 Months Ended		9 Months Ended			1 Months Ended			9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010	Dec. 31, 2010	Sep. 30, 2011 Sanuk.	Sep. 30, 2010 Sanuk.	Sep. 30, 2011 Sanuk. Y	Sep. 30, 2010 Sanuk.	Jul. 02, 2011 Sanuk.	Jul. 31, 2011 Sanuk. Contingent consideration performance criteria Y	Jul. 31, 2011 Sanuk. EBITDA performance criteria multiplier	Jul. 31, 2011 Sanuk. Gross profit performance criteria multiplier	Sep. 30, 2011 Sanuk. US tradenames	Sep. 30, 2011 Sanuk. International tradenames	Sep. 30, 2011 Sanuk. Customer relationships Y	Sep. 30, 2011 Sanuk. International distributor relationships Y	Sep. 30, 2011 Sanuk. US non-compete agreements	Sep. 30, 2011 Sanuk. International non-compete agreements	Sep. 30, 2011 Sanuk. Patents Y	Sep. 30, 2011 Sanuk. US backlog	Sep. 30, 2011 Sanuk. International backlog	Sep. 30, 2011 Sanuk. Backlog Y	Sep. 30, 2011 Sanuk. Tradenames Y	Sep. 30, 2011 Sanuk. Non-compete agreements Y
Business combinations
Initial cash paid										$ 119,800
Working capital adjustments paid at closing										6,800
Contingent consideration disclosures
Performance evaluation period (in years)											5
Multiplier applied to performance criteria in 2011 (EBITDA) or 2015 (Gross profit)												10	5
Maximum additional participation payment, 2011												30,000
Contingent consideration performance percentage applied to gross profit in 2012 (as a percent)													51.80%
Contingent consideration performance percentage applied to gross profit in 2013 (as a percent)													36.00%
Contingent consideration performance percentage applied to gross profit in 2015 (as a percent)													8.00%
Revenue since acquisition date								15,578
Operating income (loss) since acquisition date								(307)
Income (loss) from operations	90,661	66,314	108,058	108,351				1,459
Amortization expense								2,990
Accretion expense								1,389
Transaction costs						4,000		4,000
Contingent consideration, discount rate to determine fair value (as a percent)								5.00%
Contingent consideration, discount rate to be used after 2011 to determine fair value (as a percent)								7.00%
Discount rate														15.00%	17.00%	15.50%	17.50%	15.50%	17.50%	16.50%	14.00%	16.00%
Royalty rate														5.00%	5.00%					3.00%
Estimated fair value of assets aquired and liabilities assumed
Cash paid						126,615		126,615
Estimated working capital adjustments						(4,091)		(4,091)
Contingent consideration arrangement						84,300		84,300
Recognized amounts of identifiable assets acquired and liabilities assumed:
Trade accounts receivable, net of allowances						12,809		12,809
Allowances						1,130		1,130
Inventories						7,545		7,545
Other current assets						367		367
Trade accounts payable						(5,590)		(5,590)
Other liabilities						(507)		(507)
Net tangible assets acquired						14,624		14,624
Maximum measurement period of contingent consideration payments included in the purchase price (in years)								5
Identifiable intangible assets:
Identifiable intangible assets:																21,300	800			6,600			1,830	47,200	5,300
Goodwill	115,271		115,271		6,507	109,170		109,170
Total purchase price						206,824		206,824
Estimated Useful Life (Years)																10	2			14			1	20	5
Pro forma results
Revenue						414,358	288,644	815,706	609,005
Operating income						95,021	65,994	120,066	106,882
Deferred Purchase Factoring Agreement
Open accounts receivable sold held by CIT Commercial Services						6,100		6,100
Collection fees						$ 69		$ 69