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SECURITIES AND EXCHANGE COMMISSIONSECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 4, 1998
COMMISSION FILE NUMBER 1-13430
CONVERSE INC.
(Exact name of registrant as specified in its charter)
DELAWARE 43-1419731
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE FORDHAM ROAD 01864
NORTH READING, MASSACHUSETTS (Zip Code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (978) 664-1100
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 Act of 1934 during
the preceding 12 months (or for such shorter period that registrant was required
to file such reports); and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date.
AS OF JULY 4, 1998, 17,319,556 SHARES OF COMMON STOCK WERE OUTSTANDING.
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TABLE OF CONTENTS
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PAGE
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PART I: FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
A. Consolidated Balance Sheet 1
B. Consolidated Statement of Operations 2
C. Consolidated Statement of Cash Flows 3
D. Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Defaults Upon Senior Securities 19
Item 4 Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURE 22
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONVERSE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
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JANUARY 3, 1998 JULY 4, 1998
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Assets
Current assets:
Cash and cash equivalents................................................... $ 5,738 $ 2,669
Receivables, less allowances of $2,066 and $2,071, respectively............ 72,083 71,444
Inventories (Note 3)........................................................ 94,681 90,517
Prepaid expenses and other current assets................................... 9,713 8,566
---------------- -------------
Total current assets..................................................... 182,215 173,196
Net property, plant and equipment.............................................. 20,086 19,640
Other assets................................................................... 32,393 30,267
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$234,694 $223,103
================ =============
Liabilities and Stockholders' Equity (Deficiency)
Current liabilities:
Short-term debt............................................................. $ 9,036 $ 7,351
Credit facility (Note 4).................................................... 96,844 93,929
Accounts payable............................................................ 41,318 47,000
Accrued expenses............................................................ 14,279 9,325
Income taxes payable........................................................ 478 ---
---------------- -------------
Total current liabilities................................................ 161,955 157,605
Long-term debt (Note 4)........................................................ 80,000 80,000
Current assets in excess of reorganization value............................... 30,299 29,260
Accrued post-retirement benefits other than pensions........................... 10,422 6,889
Stockholders' equity (deficiency):
Common stock, $1.00 stated value, 50,000,000 shares
authorized, 17,317,956 and 17,319,556 shares issued and
outstanding at January 3, 1998 and July 4, 1998, respectively............ $ 17,318 $ 17,320
Preferred stock, no par value, 10,000,000 shares authorized
none issued and outstanding.............................................. ---- ----
Additional paid-in capital.................................................. 2,271 3,254
Unearned compensation....................................................... ---- (920)
Retained deficit............................................................ (65,314) (67,993)
Foreign currency translation adjustment..................................... (2,257) (2,312)
---------------- -------------
Total stockholders' equity (deficiency)................................. (47,982) (50,651)
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$234,694 $223,103
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
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CONVERSE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
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THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 28, 1997 JULY 4, 1998 JUNE 28, 1997 JULY 4, 1998
--------------- -------------- --------------- --------------
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Net sales........................................ $103,325 $78,351 $239,293 $173,591
Cost of sales.................................... 72,439 58,614 166,248 126,039
--------------- -------------- --------------- --------------
Gross profit..................................... 30,886 19,737 73,045 47,552
Selling, general and administrative expenses..... 30,489 21,964 67,252 51,680
Royalty income................................... 5,009 4,459 11,386 9,487
Restructuring expense (credit) (Note 5).......... ---- ---- (563) ----
--------------- -------------- --------------- --------------
Earnings from operations......................... 5,406 2,232 17,742 5,359
Loss (credit) on investment in unconsolidated
subsidiary................................... ---- ---- (13,051) ----
Interest expense, net............................ 3,875 3,994 6,554 8,187
Other (income) expense, net...................... 204 (545) 2,294 (677)
--------------- -------------- --------------- --------------
Earnings (loss) before income tax................ 1,327 (1,217) 21,945 (2,151)
Income tax expense............................... 511 299 8,449 528
--------------- -------------- --------------- --------------
Earnings (loss) from continuing operations....... 816 (1,516) 13,496 (2,679)
Extraordinary loss net of tax of $508
- write-off of deferred financing fees....... 812 ---- 812 ----
--------------- -------------- --------------- --------------
Net earnings (loss).............................. $ 4 $(1,516) $ 12,684 $ (2,679)
=============== ============== =============== ==============
Net basic earnings (loss) per share:
Continuing operations....................... $ 0.05 $ (0.09) $ 0.78 $ (0.15)
Extraordinary loss.......................... (0.05) 0.00 (0.04) 0.00
--------------- -------------- --------------- --------------
Net earnings (loss)......................... $ 0.00 $ (0.09) $ 0.74 $ (0.15)
=============== ============== =============== ==============
Basic weighted average number of common shares
outstanding (Note 2)......................... 17,256 17,320 17,244 17,319
=============== ============== =============== ==============
Net diluted earnings (loss) per share:
Continuing operations........................ $ 0.05 $ (0.09) $ 0.74 $ (0.15)
Extraordinary loss........................... (0.05) 0.00 (0.04) 0.00
--------------- -------------- --------------- --------------
Net earnings (loss).......................... $ 0.00 $ (0.09) $ 0.70 $ (0.15)
=============== ============== =============== ==============
Diluted weighted average number of common shares
outstanding (Note 2)......................... 17,851 17,320 18,621 17,319
=============== ============== =============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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CONVERSE INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
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SIX MONTHS ENDED
--------------------------------
JUNE 28, 1997 JULY 4, 1998
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Cash flows from operating activities:
Net earnings (loss).......................................................... $ 12,684 $ (2,679)
Adjustments to reconcile net earnings (loss) to net cash (required for)
provided by operating activities:
Credit on investment in unconsolidated subsidiary
less cash payments of $7,582.......................................... (20,633) ----
Provision for restructuring actions..................................... (563) ----
Extraordinary loss from write-off of deferred financing fees............ 1,320 ----
Depreciation of property, plant and equipment........................... 1,652 1,834
Amortization of intangible assets....................................... 234 234
Amortization of current assets in excess of reorganization
value................................................................. (1,039) (1,039)
Gain on sale of property, plant and equipment........................... ---- (1,037)
Amortization of deferred compensation................................... ---- 54
Deferred income taxes................................................... 5,973 ----
Changes in assets and liabilities:
Receivables............................................................. (33,899) 639
Inventories............................................................. (11,607) 4,164
Prepaid expenses and other current assets............................... (383) 1,240
Accounts payable and accrued expenses................................... 6,927 728
Income taxes payable.................................................... 633 (478)
Other long-term assets and liabilities.................................. (2,206) (1,789)
---------- ---------
Net cash (required for) provided by operating activities.............. (40,907) 1,871
---------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment................................... (2,805) (1,520)
Proceeds from sale of property, plant and equipment.......................... ---- 1,169
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Net cash used by investing activities................................. (2,805) (351)
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Cash flows from financing activities:
Net proceeds from exercise of stock options.................................. 347 11
Net proceeds from (payment of) short-term debt............................... 534 (1,685)
Repayment of old credit facility............................................. (117,765) ----
Net borrowing under new credit facility...................................... 82,424 (2,915)
Net proceeds from bond issue................................................. 76,400 ----
---------- ---------
Net cash provided (used) by financing activities...................... 41,940 (4,589)
Net decrease in cash and cash equivalents...................................... (1,772) (3,069)
Cash and cash equivalents at beginning of period............................... 5,908 5,738
---------- ---------
Cash and cash equivalents at end of period..................................... $ 4,136 $ 2,669
========== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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CONVERSE INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation:
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments, consisting of normal
recurring accruals, considered necessary for a fair presentation. This interim
financial information and notes thereto should be read in conjunction with the
Company's annual report on Form 10-K for the year ended January 3, 1998. The
Company's consolidated results of operations for the three and six months ended
July 4, 1998 are not necessarily indicative of the results to be expected for
any other interim period or the entire fiscal year.
2. NET EARNINGS (LOSS) PER COMMON SHARE
Net earnings (loss) per common share is computed based on the weighted average
number of common shares and common equivalent shares, if dilutive, assumed
outstanding for the applicable period.
3. INVENTORIES
Inventories are summarized as
follows:
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JANUARY 3, 1998 JULY 4, 1998
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Retail merchandise............ $ 5,245 $ 5,887
Finished products............. 81,311 76,034
Work in process............... 4,560 5,082
Raw materials................. 3,565 3,514
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$94,681 $90,517
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4. DEBT
As more fully described in Note 8 to the Consolidated Financial Statements for
the year ended January 3, 1998 included within the Company's annual report on
Form 10-K, in May 1997 the Company issued $80,000 of 7% Convertible Subordinated
Notes due June 1, 2004 (the "Convertible Notes"). The Convertible Notes are
convertible at any time prior to maturity, unless previously redeemed into
common stock of the Company, at the option of the holder, at a price of $21.83
per share, subject to adjustment in certain events. In addition, the
Convertible Notes may be redeemed, in whole or in part, at the option of the
Company, at any time on or after June 5, 2000 at redemption prices set forth
therein plus accrued interest to the date of redemption.
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Interest is payable semi-annually on June 1 and December 1. Proceeds from the
Convertible Notes were used to repay indebtedness under the Company's then
existing credit facility (the "Old Credit Facility").
Simultaneously with the issuance of the Convertible Notes in May 1997, the
Company entered into a new $150,000 secured credit agreement (the "Credit
Facility") with BT Commercial Corporation ("BTCC") for revolving loans, letters
of credit, foreign exchange contracts and banker acceptances and repaid the Old
Credit Facility. In July 1997 BTCC, as agent, syndicated the Credit Facility
to a group of participating lenders (the "Banks"). The amount of credit
available to the Company at any time is limited by a borrowing base formula, as
defined in the Credit Facility, consisting primarily of U.S. and Canadian
accounts receivable and inventory. The aggregate letters of credit, foreign
exchange contracts and banker acceptances may not exceed $80,000 at any time;
revolving loans are limited only by the Credit Facility's maximum availability
less any amounts outstanding for letters of credit, foreign exchange contracts
or banker acceptances.
The Credit Facility is for a five-year term and, accordingly, has an
expiration date of May 21, 2002. However, the total revolving loans and banker
acceptances outstanding under the Credit Facility of $93,929 are classified as
current due to the Company's lockbox arrangement (whereby payments made by the
Company's customers are deposited in a lockbox controlled by the Banks) and
certain clauses contained in the Credit Facility regarding mandatory repayment
that involve subjective judgments by the Banks. This classification is required
by Emerging Issues Task Force 95-22, "Balance Sheet Classification of Borrowings
Outstanding under a Revolving Credit Agreement that Includes both a Subjective
Acceleration Clause and a Lockbox Arrangement".
As of July 4, 1998 the Company's borrowing base was $104,792. Utilization
under the Credit Facility amounted to $96,731 consisting of revolving loans of
$86,515, banker acceptances of $7,414 and outstanding letters of credit of
$2,802. Accordingly, $8,061 of the maximum available borrowing base remained
unutilized as of July 4, 1998.
Revolving loans under the Credit Facility bear interest either at the Prime
Lending Rate (as defined therein) plus one percent (1.00%) per annum or at the
Adjusted LIBOR Rate (as defined therein) plus a margin of two and one-half
percent (2.50%) per annum. The foregoing LIBOR margin is subject to reduction
based upon the Company achieving certain interest coverage ratios specified in
the Credit Facility. At July 4, 1998, revolving loans outstanding under the
Credit Facility bore interest of 8.26% based upon the weighted average of the
Prime Lending Rate and Adjusted LIBOR Rate, as defined. Obligations outstanding
under the Credit Facility are secured by first priority liens on substantially
all of the Company's U.S. and Canadian assets. The Credit Facility requires
compliance with customary affirmative and negative covenants, including certain
financial covenants. At July 4, 1998, the Company was not in compliance with one
financial covenant contained in the Credit Facility. Subsequent to July 4,
1998, the Banks waived compliance with this financial covenant for the quarter
ended July 4, 1998.
Subsidiaries of the Company maintain asset-based financing arrangements in
certain European countries with various lenders. In general, these financing
arrangements allow for borrowings
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based upon eligible accounts receivable and inventory at varying advance rates
and varying interest rates. As of July 4, 1998, total short-term borrowings
outstanding under these financing arrangements totaled $7,351. These obligations
are secured by first priority liens on the respective foreign assets being
financed. In addition, Converse Inc. provided guarantees with respect to the
outstanding borrowings for certain of the financing arrangements.
5. RESTRUCTURING
As more fully described in Note 4 to the Consolidated Financial Statements for
the year ended January 3, 1998 included within the Company's annual report on
Form 10-K, during 1995 the Company recorded restructuring charges relating
primarily to initiatives aimed at reducing future operating costs. During 1997,
the Company recorded additional restructuring charges in order to reduce the
Company's expenses as a result of the uncertainty caused by the recent industry
downturn and the related oversupply of inventory in the marketplace.
At April 4, 1998, the remaining restructuring reserve was $908, comprised
primarily of retail store closing and contract termination costs. During the
second quarter, the Company charged $721 of costs against the reserve. The
remaining retail store closing and contract termination costs are expected to be
incurred in the third quarter.
6. GAIN ON SALE OF PROPERTY, PLANT AND EQUIPMENT
In May 1998, the Company sold its Reynosa, Mexico manufacturing facility and
recorded a gain of $1,000. During August 1998, the Company will be transferring
its operation to a larger leased facility in Reynosa, which will allow for a
substantial increase in production capacity. Until the transfer, the Company
will continue to utilize its old facility. The Company will be operating the new
facility under a ten-year lease agreement at an annual cost of $550.
7. EMPLOYEE BENEFITS
The Company realized a gain of $3,900 resulting from cost reduction efforts
undertaken in the first half of 1998. Of the total gain, $3,300 resulted from
the termination of the active employee's post-retirement medical benefit plan
and $600 resulted from pension curtailment related to workforce reductions.
These gains were partially offset by a $1,000 severance charge related to the
workforce reductions which occurred in April 1998. The retiree post-retirement
medical benefit plan will be terminated and substantially settled in the third
quarter of 1998, with the Company recording a large gain offset by an immaterial
amount in cash settlement payments.
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8. COMMITMENTS AND CONTINGENCIES
Converse is or may become a defendant in a number of pending or threatened
legal proceedings in the ordinary course of its business. Converse believes
that the ultimate outcome of any such proceedings will not have a material
adverse effect on its financial position or results of operations.
9. STOCK OPTION PLANS
On February 25, 1998, Converse repriced certain stock options granted under
the 1994 Plan. Options to purchase 278,000 shares of common stock were repriced
to an exercise price of $7.50 per share, which price exceeded the closing price
of Converse's common stock on February 25, 1998. No executive officers of the
Company had their options repriced. The original vesting schedules and
expiration dates associated with these stock options were not amended. None of
the foregoing stock option grants had vested prior to the repricing date.
In May 1998, the Executive Compensation and Stock Option Committee of the
Board of Directors ("the Committee") granted 200,000 shares of restricted stock
under the 1994 Plan, free of cash consideration, to 21 employees. The stock
vests 100% three years after the grant date. To account for the restricted
stock, the Company recorded unearned compensation in stockholders' equity and
will amortize it over the vesting period.
In May 1998, the stockholders approved the Employee Stock Purchase Plan (the
"Plan"). Under the provisions of the Plan, all employees normally working over
20 hours per week and employed by the Company at least 12 months are eligible to
purchase stock at a discount under certain restrictions. The amount of the
discount is determined by the Committee but may not exceed Internal Revenue
Service limitations. The Plan is not subject to ERISA and therefore not subject
to ERISA's reporting requirements.
10. RECENTLY ISSUED ACCOUNTING STANDARDS
In the first quarter of 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This statement
requires disclosure of comprehensive income and its components in interim and
annual reports. Total comprehensive income components included in stockholders'
equity include any changes in equity during a period that are not the result of
transactions with owners, including cumulative translation adjustments,
unrealized gains and losses on available-for-sale securities and minimum pension
liabilities. For the three months ended June 28, 1997 and July 4, 1998,
comprehensive income items included in stockholders' equity consisted of
translation adjustments of $(262) and $233, respectively. For the six months
ended June 28, 1997 and July 4, 1998, comprehensive income items included in
stockholders' equity consisted of translation adjustments of $(54) and $(55),
respectively.
In June 1997, the FASB issued Statement No. 131, "Disclosures about Segments
of an Enterprise and Related Information" (FAS 131). This statement established
standards for reporting information on operating segments in interim and annual
financial statements. FAS 131
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is effective for the Company for the year ending January 2, 1999 and management
is currently reviewing the impact on its consolidated financial statements.
In February 1998, the FASB issued Statement No. 132, "Employers' Disclosures
about Pensions and Other Post-retirement Benefits". The statement revises
employer's disclosures about pensions and other post-retirement plans. The
statement does not change the measurement or recognition of those types of plans
and, accordingly, will not have a material impact on the Company's consolidated
financial position or results of operations.
On June 15, 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133). FAS 133 is effective for all
fiscal years beginning after June 15, 1999 (January 1, 2000 for the Company).
FAS 133 requires that all derivative instruments be recorded on the balance
sheet at their fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, the type of hedge transaction. Management of the Company
anticipates that, due to its limited use of derivative instruments, the adoption
of FAS 133 will not have a significant effect on the Company's results of
operations or its financial position.
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED JUNE 28, 1997 TO THREE MONTHS ENDED JULY 4,
1998
The following table sets forth certain items relating to the Company's
operating results as a percentage of net sales for the three months ended June
28, 1997 ("Second Quarter 1997") and for the three months ended July 4, 1998
("Second Quarter 1998").
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------
JUNE 28, 1997 % JULY 4, 1998 %
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<S> <C> <C> <C> <C>
Net sales.................................. $103,325 100.0 $78,351 100.0
Gross profit............................... 30,886 29.9 19,737 25.2
Selling, general and administrative
expenses................................. 30,489 29.5 21,964 28.0
Royalty income............................. 5,009 4.8 4,459 5.7
Earnings from operations................... 5,406 5.2 2,232 2.9
Interest expense, net...................... 3,875 3.7 3,994 5.1
Other (income) expense..................... 204 0.2 (545) (0.7)
Earnings (loss) from continuing
operations before income tax ............ 1,327 1.3 (1,217) (1.5)
Earnings (loss) from
continuing operations.................... $ 816 0.8 $(1,516) (1.9)
Basic earnings (loss) per share
from continuing operations............... $ 0.05 --- $ (0.09) ---
Diluted earnings (loss) per
share from continuing operations......... $ 0.05 --- $ (0.09) ---
Extraordinary loss, net of tax............. $ 812 0.8 ---- ---
Net earnings (loss)........................ $ 4 0.0 $(1,516) (1.9)
Basic net earnings (loss) per share........ $ 0.00 --- $ (0.09) ---
Diluted net earnings (loss)
per share................................ $ 0.00 --- $ (0.09) ---
</TABLE>
NET SALES
Net sales for the Second Quarter 1998 decreased to $78.4 million from $103.3
million for the Second Quarter 1997, a 24.1% decrease. The $24.9 million
reduction in net sales was attributable to decreases of 50.2%, 49.9%, and 11.5%
for the Second Quarter 1998 in the categories of basketball, children's and
cross training, respectively, as compared to the Second Quarter 1997. The
reduction in net sales was partially offset by an 11.4% increase in the athletic
originals category.
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Net sales in the United States decreased 32.8% to $45.7 million in the Second
Quarter 1998 from $68.0 million for the Second Quarter 1997. Net sales
decreased 7.4% internationally to $32.7 million for the Second Quarter 1998 from
$35.3 million for the Second Quarter 1997. Second Quarter 1998 net sales
decreased 21.6% and 13.2% in the Europe, Middle East and Africa ("E.M.E.A.") and
Latin America regions, respectively. Second Quarter 1998 Pacific region
net sales increased from $13.7 million to $16.0 million, or 16.8%.
The athletic industry continues to struggle through the slowdown in branded
athletic footwear sales that negatively impacted the Company and its
competitors. The industry slowdown can be attributed, in part, to the shift in
consumer preference away from athletic footwear for streetwear use. This change
in preference has produced a saturated retail athletic footwear market and has
resulted in reduced sales for the Company's basketball, children's and, to a
lesser extent, cross training categories. This industry environment has been
exacerbated by the strong U.S. dollar and the recent Pacific economic crisis
which has negatively impacted consumer spending. Excessive levels of footwear
inventory remain in the marketplace and, although the inventory position of the
Company's competitors has improved over the prior quarter, the Company believes
that the distribution channels will not return to more normalized levels until
after 1998.
GROSS PROFIT
Gross profit decreased to $19.7 million for the Second Quarter 1998 from $30.9
million for the Second Quarter 1997, a 36.2% reduction. The industry slowdown
and related volume decreases accounted for the majority of the gross profit
reduction over the period. The Company's gross profit margin fell to 25.2% of
net sales for Second Quarter 1998 compared to 29.9% of net sales for Second
Quarter 1997. The decline was caused by the highly promotional and over-
inventoried environment that has led to reduced demand in the Company's
performance categories and resulted in price reductions for basketball,
children's and cross training products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased 27.9% to $22.0 million
for Second Quarter 1998 from $30.5 million for Second Quarter 1997. The
decrease in selling, general and administrative expenses of $8.5 million was
partly attributable to: (i) a 35.8% reduction in worldwide advertising; (ii) a
27.5% reduction in sports marketing spending; and (iii) a 63.6% reduction in
sales commissions resulting from the decreased sales volume. Also contributing
to the reduction in selling, general and administrative charges in Second
Quarter 1998 was a gain of $3.3 million resulting from the curtailment of the
active employees from the post-retirement medical benefit plan and a gain of
$0.6 million resulting from pension curtailment related to workforce reductions.
These gains were partially offset by a $1.0 million severance charge related to
the April 1998 workforce reduction. The Company anticipates an additional gain
in the third quarter of 1998 relating to the curtailment of retirees from the
post-retirement medical benefit plan and has estimated this gain at $5.7
million. As a percentage of net sales, selling, general and administrative
expenses decreased to 28.0% for Second Quarter 1998 from 29.5% for the prior
year period.
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ROYALTY INCOME
Royalty income decreased by 10.0% to $4.5 million in Second Quarter 1998 from
$5.0 million in Second Quarter 1997. International royalty income, which
currently represents approximately 84% of the Company's total royalty income,
decreased 7.7%. The reduction was primarily attributable to decreases of 10.6%
and 47.6% in the Pacific and E.M.E.A. regions, respectively. Domestic royalty
income decreased by 30.0% to $0.7 million for Second Quarter 1998 from $1.0
million for Second Quarter 1997. The decreases are representative of the
slowdown in the athletic footwear business and the decline is made more severe
internationally by the Pacific economic crisis and the strength of the U.S.
dollar worldwide. These declines were partially offset by a 113.2% improvement
in the Latin America region. As a percentage of net sales, royalty income was
5.7% in the Second Quarter 1998 compared to 4.8% in the Second Quarter 1997.
EARNINGS FROM OPERATIONS
Primarily as a result of the factors discussed above, the Company recorded
earnings from operations of $2.2 million for Second Quarter 1998 as compared to
$5.4 million for Second Quarter 1997. As a percentage of net sales, earnings
from operations were 2.9% and 5.2% for Second Quarter 1998 and Second Quarter
1997, respectively.
INTEREST EXPENSE
Interest Expense for Second Quarter 1998 increased to $4.0 million from $3.9
million for Second Quarter 1997, a 2.6% increase. The increase reflects the
higher borrowing levels in Second Quarter 1998 compared to Second Quarter 1997.
OTHER (INCOME) EXPENSE
The Second Quarter 1998 income of $0.5 million was primarily attributable to
the May 1998 sale of the Company's Reynosa, Mexico manufacturing facility. The
gain of $1.0 million on the sale was partially offset by foreign exchange losses
attributable to the appreciation of the U.S. dollar.
EARNINGS (LOSS) FROM CONTINUING OPERATIONS
Primarily as a result of the factors discussed above, the Company recorded a
loss from continuing operations for Second Quarter 1998 of $1.5 million compared
to earnings of $0.8 million for Second Quarter 1997. The loss in Second Quarter
1998 included a charge of $0.6 million to increase the deferred tax valuation
reserve. Excluding this charge, the loss for Second Quarter 1998 was $0.9
million.
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EARNINGS (LOSS) PER SHARE FROM CONTINUING OPERATIONS
Basic and diluted loss per share from continuing operations for Second Quarter
1998 was $0.09 as compared to basic and diluted earnings per share from
continuing operations of $0.05 for Second Quarter 1997.
EXTRAORDINARY LOSS, NET OF TAX
The Company entered into a new Credit Facility during Second Quarter 1997. In
connection with repayment of the Old Credit Facility, the Company wrote off
deferred financing fees of $1.3 million relating to the Old Credit Facility
which resulted in an extraordinary loss, net of taxes, of $0.8 million.
NET EARNINGS (LOSS)
The Company recorded a net loss for Second Quarter 1998 of $1.5 million
compared to break-even earnings for Second Quarter 1997. The net loss for
Second Quarter 1998 includes a charge of $0.6 million to increase the deferred
tax valuation reserve. Excluding this charge, the net loss for Second Quarter
1998 was $0.9 million. As a result of the current market conditions within the
athletic footwear market and the Company's near term business outlook, the
Company continued to take action to reduce operating expenses. In Second
Quarter 1998, the Company reduced its worldwide workforce by reducing non-
manufacturing personnel and eliminating certain other costs. In addition, the
Company closed unprofitable retail outlet stores and took aggressive steps to
reduce inventories in Second Quarter 1998.
NET EARNINGS (LOSS) PER SHARE
The Company recorded basic and diluted losses per share of $0.09 for Second
Quarter 1998 compared to break-even basic and diluted earnings per share for
Second Quarter 1997. The net loss for the Second Quarter 1998 includes a charge
of $0.04 per share to increase the deferred tax valuation reserve. Excluding
this charge, the net loss for Second Quarter 1998 was $0.05 per share.
- 12 -
<PAGE>
COMPARISON OF SIX MONTHS ENDED JUNE 28, 1997 TO SIX MONTHS ENDED JULY 4, 1998
The following table sets forth certain items relating to the Company's
operating results as a percentage of net sales for the six months ended June 28,
1997 ("First Half 1997") and for the six months ended July 4, 1998 ("First Half
1998").
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------------------------------
JUNE 28, 1997 % JULY 4, 1998 %
-------------- ------ ------------- ------
<S> <C> <C> <C> <C>
Net sales...................................... $239,293 100.0 $173,591 100.0
Gross profit................................... 73,045 30.5 47,552 27.4
Selling, general and administrative
expenses..................................... 67,252 28.1 51,680 29.8
Royalty income................................. 11,386 4.8 9,487 5.5
Earnings from operations....................... 17,742 7.4 5,359 3.1
Credit on investment in
Unconsolidated subsidiary.................... (13,051) (5.5) --- ---
Interest expense, net.......................... 6,554 2.7 8,187 4.7
Other (income) expense......................... 2,294 1.0 (677) (0.4)
Earnings (loss) from continuing
Operations before income tax................. 21,945 9.2 (2,151) (1.2)
Earnings (loss) from
continuing operations........................ $ 13,496 5.6 $ (2,679) (1.5)
Basic earnings (loss) per share
from continuing operations................... $ 0.78 --- $ (0.15) ---
Diluted earnings (loss) per share
from continuing operations................... $ 0.74 --- $ (0.15) ---
Extraordinary loss, net of tax................. $ 812 0.3 --- ---
Net earnings (loss)............................ $ 12,684 5.3 $ (2,679) (1.5)
Basic net earnings (loss) per share............ $ 0.74 --- $ (0.15) ---
Diluted net earnings (loss)
per share.................................... $ 0.70 --- $ (0.15) ---
</TABLE>
NET SALES
Net Sales for the First Half 1998 decreased 27.5% to $173.6 million from
$239.3 million for First Half 1997. Compared to the prior year period, the
$65.7 million reduction in net sales was attributable to decreases of 50.3%,
50.9% and 27.0% in the categories of basketball, children's and cross training,
respectively. The reduction in net sales was partially offset by an 8.5%
increase in the athletic originals category.
Net sales in the United States for First Half 1998 decreased 37.0% to $99.3
million from $157.5 million for First Half 1997. International net sales
decreased 9.2% to $74.3 million from $81.8 million in the prior year period.
Net sales in the E.M.E.A., Pacific and Latin America regions decreased
2.4%, 12.8% and 34.6%, respectively.
- 13 -
<PAGE>
Over the past several months the industry has experience some shift in
consumer preference away from branded athletic footwear to "brown shoe" or
"casual" product offerings. This shift in consumer preference has adversely
affected the Company's business, as well as that of many of its competitors and
has resulted in increased competition from alternative brands. In addition to
the recent slowdown of branded athletic footwear, the industry is suffering from
an oversupply of branded athletic footwear in the market. This high level of
inventory came about after the change in consumer demand away from performance
athletic models, particularly basketball, to more alternative non-athletic
styles. Products with selling prices of more than $100 per pair were
particularly impacted, however, the oversupply of inventory, and the related
promotional pricing, has also impacted footwear products sold at lower price
points. The Company believes that the oversupply of inventory held within the
distribution channels will not return to more normalized levels until after
1998.
GROSS PROFIT
Gross profit decreased to $47.6 million for the First Half 1998 from $73.0
million for the First Half 1997, a 34.8% reduction. The industry slowdown and
related volume decreases accounted for the majority of the gross profit
reduction over the period. The Company's gross profit margin fell to 27.4% of
net sales for First Half 1998 compared to 30.5% of net sales for First Half
1997. The decline was caused by the highly promotional and over-inventoried
environment that has led to reduced demand in the Company's performance
categories and has resulted in price reductions for basketball, children's and
cross training products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased 23.2% to $51.7 million
for First Half 1998 from $67.3 million for First Half 1997. The decrease in
selling, general and administrative expenses of $15.6 million was partly
attributable to: (i) a 41.7% reduction in worldwide advertising; (ii) a 26.4%
reduction in sports marketing spending; and (iii) a 36.9% reduction in sales
commissions resulting from the decreased sales volume. A decrease of $3.9
million resulting from pension curtailment related to workforce reductions and
the curtailment of the active employees from the post-retirement medical benefit
plan also contributed to the reduced selling, general and administrative
expenses. This decrease was partially offset by a $1.0 million severance charge
related to the April 1998 workforce reduction. The Company anticipates an
additional gain in the third quarter of 1998 relating to the curtailment of
retirees from the post-retirement medical benefit plan and has estimated this
gain at $5.7 million. As a percentage of net sales, selling, general and
administrative expenses increased to 29.8% for First Half 1998 from 28.1% for
the prior year period.
ROYALTY INCOME
Royalty income decreased by 16.7% to $9.5 million in First Half 1998 from
$11.4 million in First Half 1997. International royalty income, which currently
represents approximately 84% of the Company's total royalty income, decreased
14.2%. The reduction was primarily attributable
- 14 -
<PAGE>
to decreases of 17.8% and 35.1% in the Pacific and E.M.E.A. regions,
respectively. Domestic royalty income decreased by 25.0% to $1.5 million for
First Half 1998 from $2.0 million for First Half 1997. The decreases are
representative of the slowdown in the athletic footwear business and is
exacerbated internationally by the Pacific economic crisis and the strength of
the U.S. dollar worldwide. These declines were partially offset by a 40.2%
improvement in the Latin America region. As a percentage of net sales, royalty
income was 5.5% in the First Half 1998 compared to 4.8% in the First Half 1997.
EARNINGS FROM OPERATIONS
Primarily as a result of the factors discussed above, the Company recorded
earnings from operations of $5.4 million for First Half 1998 as compared to
$17.7 million for First Half 1997. As a percentage of net sales, earnings from
operations were 3.1% and 7.4% for First Half 1998 and First Half 1997,
respectively.
CREDIT ON INVESTMENT IN UNCONSOLIDATED SUBSIDIARY
In First Half 1997, the Company recorded a pre-tax gain totaling $13.1 million
relating to the settlement of certain claims by the Company related to the
Company's 1995 acquisition of Apex One, Inc. ("Apex").
INTEREST EXPENSE
Interest expense for First Half 1998 increased to $8.2 million from $6.6
million for First Half 1997, a 24.2% increase. The increase reflects the higher
borrowing levels in First Half 1998 compared to First Half 1997 and the First
Half 1997 reversal of $1.4 million of interest payments previously paid into
escrow on the subordinated notes issued to former owners of Apex and
subsequently surrendered to the Company upon settlement of the Company's claims
against them.
OTHER (INCOME) EXPENSE
The First Half 1998 income was primarily attributable to the May 1998 sale of
the Company's Reynosa, Mexico manufacturing facility. The First Half 1997
expense of $2.3 million was primarily related to foreign exchange losses
attributable to the appreciation of the U.S. dollar. Since the third quarter of
1997, the Company has entered into foreign exchange contracts and currency
options as part of a hedging strategy to reduce its exposure to foreign currency
fluctuations.
EARNINGS (LOSS) FROM CONTINUING OPERATIONS
Primarily as a result of the factors discussed above, the Company recorded a
loss from continuing operations for First Half 1998 of $2.7 million compared to
earnings of $13.5 million for First Half 1997. The loss for First Half 1998
includes a charge of $1.1 million to increase the deferred tax valuation
reserve. Earnings from continuing operations for First Half 1997 included a non-
recurring gain of $8.0 million related to the settlement of outstanding claims
related to
- 15 -
<PAGE>
Apex and a restructuring credit of $0.4 million related to the reversal of
reserves associated with re-opening the Mission, Texas facility. Excluding these
non-recurring charges and credits, the loss for First Half 1998 was $1.6 million
compared to earnings of $5.1 million for First Half 1997.
EARNINGS (LOSS) PER SHARE FROM CONTINUING OPERATIONS
Basic and diluted loss from continuing operations for First Half 1998 was
$0.15 per share as compared to basic and diluted earnings per share from
continuing operations of $0.78 and $0.74, respectively, for First Half 1997. The
loss for First Half 1998 includes a charge of $0.06 per share to increase the
deferred tax valuation reserve. Earnings from continuing operations for First
Half 1997 included a non-recurring gain of $0.43 per diluted share related to
the settlement of outstanding claims related to Apex and a restructuring credit
of $0.02 per diluted share related to the reversal of reserves associated with
re-opening the Mission, Texas facility. Excluding these non-recurring charges
and credits, the loss per share in First Half 1998 was $0.09 compared to net
diluted earnings per share of $0.29 for First Half 1997.
EXTRAORDINARY LOSS, NET OF TAX
The Company entered into a new Credit Facility during First Half 1997. In
connection with repayment of the Old Credit Facility, the Company wrote off
deferred financing fees of $1.3 million relating to the Old Credit Facility
which resulted in an extraordinary loss, net of taxes, of $0.8 million.
NET EARNINGS (LOSS)
The Company recorded a net loss for First Half 1998 of $2.7 million compared
to earnings of $12.7 million for First Half 1997. The net loss for the First
Half 1998 includes a charge of $1.1 million to increase the deferred tax
valuation reserve. Net earnings for First Half 1997 included a non-recurring
gain of $8.0 million related to the settlement of outstanding claims related to
Apex and a restructuring credit of $0.4 million related to the reversal of
reserves associated with re-opening the Mission, Texas facility. Excluding
these non-recurring charges and credits the net loss for the First Half 1998 was
$1.6 million compared to net earnings of $4.3 million in First Half 1997.
As a result of the current market conditions within the athletic footwear
market and the Company's near term business outlook, the Company continued to
take action to reduce operating expenses. In First Half 1998, the Company
reduced its personnel by 108 corporate positions, or 24% of its headquarters'
staff, and eliminated certain other expenses. In addition, the Company closed
unprofitable retail outlet stores and took aggressive steps to reduce
inventories in First Half 1998.
- 16 -
<PAGE>
NET EARNINGS (LOSS) PER SHARE
Basic and diluted loss for the First Half 1998 was $0.15 per share as compared
to basic and diluted earnings per share of $0.74 and $0.70, respectively, for
the First Half 1997. Net loss for the First Half 1998 includes a charge of
$0.06 per share to increase the deferred tax valuation reserve. Net earnings
for First Half 1997 included a nonrecurring gain of $0.43 per diluted share
related to the settlement of outstanding claims related to Apex and a
restructuring credit of $0.02 per diluted share related to the reversal of
reserves associated with re-opening the Mission, Texas facility. Excluding
these nonrecurring charges and credits the net loss for the First Half 1998 was
$0.09 per share compared to net diluted earnings of $0.25 per share in First
Half 1997.
LIQUIDITY AND CAPITAL RESOURCES
As of July 4, 1998 the Company's working capital (net of cash) position
decreased to $12.9 million from $14.5 million at January 3, 1998. Inventory
decreased by $4.2 million as a result of the Company's aggressive efforts to
sell overstocked, cancelled and returned inventory as well as efforts made to
lower inventory purchase levels to better align with the current market
conditions. Accounts receivable and prepaid expenses decreased $1.9 million
due to decreased sales levels and the Company's efforts to reduce operating
costs. Through the decreases in current assets and a $0.2 million net increase
in accounts payable and accrued expenses, the Company was able to reduce
seasonal borrowings by $4.6 million.
Total borrowings under the Company's Credit Facility and asset based financing
arrangements decreased to $101.3 million at July 4, 1998 from $105.9 million at
January 3, 1998, reflecting the working capital changes reflected above (see
Note 4 of Notes to Condensed Consolidated Financial Statements contained
herein).
For First Half 1998 and First Half 1997, net cash provided by (required for)
operating activities was $1.9 million and ($40.9) million, respectively. Cash
provided by operating activities in First Half 1998 was primarily derived as a
result of management's efforts to reduce inventories and to lower operating
costs. During First Half 1997, cash was primarily used to fund the Company's
working capital requirements. Net cash used by investing activities was $0.4
million and $2.8 million for First Half 1998 and First Half 1997, respectively.
Cash invested was for additions to property, plant and equipment offset by cash
received from the sale of the Reynosa facility. Net cash (used for) provided by
financing activities was ($4.6) million and $41.9 million for First Half 1998
and First Half 1997, respectively. Cash used for financing activities in First
Half 1998 was for payment against short term borrowings and the Credit Facility.
Cash provided by financing activities for First Half 1997 was generated
primarily by the issuance of $80.0 million of Convertible Notes and $82.4
million of net borrowings on the Credit Facility offset by the repayment of
$117.8 million on the Old Credit Facility (see Note 4 of Notes to Condensed
Consolidated Financial Statements contained herein).
The Company anticipates the need for additional working capital in 1998. The
Company is currently investigating various alternatives for additional
financing to supplement its working capital and believes that such financing
will be available in the near-term although the terms of such financing have not
been established.
- 17 -
<PAGE>
BACKLOG
At the end of First Half 1998, the Company's global backlog was $97.2 million,
compared to $190.9 million at the end of the First Half 1997, a decrease of
49.1%. The Company's four major categories of basketball, children's, cross
training and athletic originals recorded declines of 65.6%, 62.3%, 54.1% and
37.1%, respectively. The United States order backlog decreased 62.0% while the
international backlog decreased 28.8%. The decline was primarily the result of
the continued industry-wide softening of demand for athletic footwear. The
amount of backlog at any particular time is affected by a number of factors,
including the scheduling of the introduction of new products and the timing of
the manufacture and shipment of the Company's products. Accordingly a
comparison of backlog as of two different dates is not necessarily meaningful.
In addition, the backlog position is not necessarily indicative of future sales
because the ratio of future orders to "at once" shipments and sales by Company
owned retail stores may vary from year to year.
FORWARD-LOOKING STATEMENTS
Any statements set forth above which are not historical facts, including the
statements concerning the outlook for sales, earnings and anticipated cost
savings in 1998, and the product and industry developments for 1999 are forward
looking statements that involve certain risks and uncertainties that could cause
actual results to differ materially from those in the forward looking
statements. Potential risks and uncertainties include such factors as the
financial strength of the Company, the competitive pricing environment and
inventory levels within the footwear and apparel industries, consumer demand for
athletic footwear, market acceptance of the Company's products, the strength of
the U.S. dollar and the success of planned advertising, marketing and
promotional campaigns and other risks identified in documents filed by the
Company with the Securities and Exchange Commission.
- 18 -
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
There have been no material changes from the information previously
reported under Item 3 of the Company's annual report on Form 10-K for
the fiscal year ended January 3, 1998.
Item 2. Changes in Securities.
Not Applicable
Item 3. Defaults Upon Senior Securities.
Not Applicable
Item 4. Submission of Matters to a Vote of Security-Holders.
On May 11, 1998, the Company conducted its annual meeting of
stockholders pursuant to due notice. A Quorum being present either in
person or by proxy, the stockholders voted on the following matters:
1. To elect twelve directors to hold office until the next annual
meeting and until their successors are elected and qualified
2. To ratify the appointment of Price Waterhouse L.L.P. as the
Company's independent auditors for the next fiscal year.
3. To consider approval of the Converse Inc. 1994 Stock Option Plan,
as amended and restated.
4. To consider approval of the Converse Inc. Employee Stock Purchase
Plan.
No other matters were voted upon. The votes cast were as follows:
- 19 -
<PAGE>
1. Election of directors. The following directors were elected to the
Company's Board:
<TABLE>
<CAPTION>
NUMBER OF VOTES CAST
--------------------
FOR WITHHELD
----------- --------------------
<S> <C> <C>
Donald J. Barr 16,408,584 491,949
Leon D. Black 16,018,570 881,963
Julius W. Erving 16,413,181 487,352
Robert H. Falk 16,407,449 493,084
Gilbert Ford 16,411,511 489,022
Michael S. Gross 16,408,371 492,162
John J. Hannan 16,408,084 492,449
Joshua J. Harris 16,407,890 492,643
John H. Kissick 16,013,861 886,672
Richard B. Loynd 16,407,116 493,417
Glenn N. Rupp 16,412,871 487,662
Michael D. Weiner 16,412,849 487,684
</TABLE>
2. Ratification of the selection of Price Waterhouse L.L.P. as the
Company's independent auditors.
For 16,807,999
Against 40,872
Abstain 51,662
3. Approval of Converse Inc. 1994 Stock Option Plan, as amended and
restated.
For 12,283,209
Against 1,312,530
Abstain 86,063
Broker Non-vote 3,218,731
4. Approval of Converse Inc. Employee Stock Purchase Plan.
For 13,390,050
Against 220,546
Abstain 71,206
Broker Non-vote 3,218,731
Item 5. Other Information.
Not Applicable
- 20 -
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are contained in this report:
10.1 Converse Inc. Employee Stock Purchase Plan
10.2 Converse Inc. 1994 Stock Option Plan, as Amended and Restated
10.3 Waiver Number Two dated July 31, 1998 to Credit Agreement
dated May 21, 1997
10.4 Lease Agreement - Reynosa, Mexico
11 Statement Regarding Computation of Per Share Earnings
27 Financial Data Statement
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed during the quarter ended
July 4, 1998.
- 21 -
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 14, 1998 Converse Inc.
By: /s/ Donald J. Camacho
-------------------------------
Donald J. Camacho
Senior Vice President and
Chief Financial Officer
- 22 -
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10.1 Converse Inc. Employee Stock Purchase Plan
10.2 Converse Inc. 1994 Stock Option Plan, as Amended and Restated
10.3 Waiver Number Two dated July 31, 1998 to Credit Agreement
dated May 21, 1997
10.4 Lease Agreement - Reynosa, Mexico
11 Statement Regarding Computation of Per Share Earnings
27 Financial Data Statement
<PAGE>
EXHIBIT 10.1
CONVERSE INC.
EMPLOYEE STOCK PURCHASE PLAN
<PAGE>
CONVERSE INC.
EMPLOYEE STOCK PURCHASE PLAN
----------------------------
ARTICLE I. Introduction.
1.01 Statement of Purpose. The purpose of the Converse Inc.
--------------------
Employee Stock Purchase Plan is to provide eligible employees of Converse Inc.
(the "Company") and its Subsidiaries, who wish to become shareholders, an
opportunity to purchase common stock of the Company. The Board of Directors of
the Company believes that employee participation in stock ownership will be to
the mutual benefit of both the employees and the Company.
1.02 Internal Revenue Code Considerations. The Plan is intended to
------------------------------------
constitute an "employee stock purchase plan" within the meaning of section 423
of the Internal Revenue Code of 1986, as amended.
1.03 ERISA Considerations. The Plan is not intended and shall not
--------------------
be construed as constituting an "employee benefit plan," within the meaning of
section 3(3) of the Employee Retirement Income Security Act of 1974, as amended.
ARTICLE II. Definitions.
2.01 "Board of Directors" means the board of directors of the
Company or a committee of the board of directors authorized to act on its
behalf.
2.02 "Code" means the Internal Revenue Code of 1986, as amended.
2.03 "Committee" means the Company's Executive Compensation and
Stock Option Committee.
2.04 "Company" means Converse Inc., a Delaware corporation.
2.05 "Effective Date" shall mean September 1, 1998.
2.06 "Election Date" means September 1 and March 1 within a Plan
Year or such other dates as the Committee shall specify.
2.07 "Eligible Employee" means each Employee who (a) is classified
by the Company as an employee (and not as an independent contractor no matter
how characterized by a court or administrative agency), (b) is regularly
scheduled to work more than 20 hours per week for the Employer, (c) has been an
Employee for at least a 12-consecutive month period; and (d) is not deemed, for
purposes of section 423(b)(3) of the Code, to own stock possessing five percent
(5%) or more of the total combined voting power or value of all classes of stock
of the Company or any Subsidiary. The term "Employee" shall not include any
person employed by an Employer on a
<PAGE>
temporary basis nor shall it include any member of the Board who is not also
employed by the Employer.
2.08 "Employee" means each person employed by an Employer.
2.09 "Employer" means the Company and each Subsidiary.
2.10 "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and as the same may hereafter be amended.
2.11 "Market Value" means the closing price of the Stock as
reported in the Wall Street Journal as composite transactions for the relevant
date (or the latest date for which such price was reported if such date is not a
business day), or if not available, the last reported sale price thereof on the
relevant date or (if there were no trades on that date) the latest preceding
date upon which a sale was reported.
2.12 "Participant" means each Eligible Employee who elects to
participate in the Plan.
2.13 "Plan" means the Converse Inc. Employee Stock Purchase Plan,
as amended from time to time.
2.14 "Plan Year" means each 12-month period beginning each
September 1 and ending on the next following August 31 during which the Plan is
in effect.
2.15 "Purchase Agreement" means the instrument prescribed by the
Committee pursuant to which an Eligible Employee may enroll as a Participant and
subscribe for the purchase of shares of Stock on the terms and conditions
offered by the Company. The Purchase Agreement is intended to evidence the
Company's offer of an option to the Eligible Employee to purchase Stock on the
terms and conditions set forth therein and herein.
2.16 "Purchase Date" means the last day of each Purchase Period.
2.17 "Purchase Period" means each period that begins on each
Election Date coinciding with or following the Effective Date and ending on the
day before the next Election Date or other period specified by the Committee
during which the Participant's Stock purchase is funded through payroll
deduction accumulations.
2.18 "Purchase Price" means the purchase price for shares of Stock
purchased under the Plan, determined as set forth in Section 4.03.
2.19 "Stock" means the common stock of the Company.
2.20 "Subsidiary" means any present or future corporation (a)
which constitutes a "subsidiary corporation" of the Company as that term is
defined in section 424 of the Code, and (b) is designated as a participating
entity in the Plan by the Committee.
-2-
<PAGE>
ARTICLE III. Admission to Participation.
3.01 Initial Participation. An Eligible Employee may elect to
---------------------
participate in the Plan and may become a Participant effective as of any
Election Date, by executing and filing with the Committee a Purchase Agreement
at such time in advance of such Election Date as the Committee shall prescribe.
The Purchase Agreement shall remain in effect until modified or canceled in
accordance with the terms of this Plan.
3.02 Discontinuance of Participation. A Participant may
-------------------------------
voluntarily cease his or her participation in the Plan and stop payroll
deductions at any time by filing a notice of cessation of participation on such
form and at such time in advance of the effective date as the Committee shall
prescribe. Notwithstanding anything in the Plan to the contrary, if a
Participant ceases to be an Eligible Employee, his or her participation
automatically shall cease and no further purchase of Stock shall be made for the
Participant. Any amounts withheld from a Participant's compensation that were
not applied to the purchase of Stock prior to such cessation shall be returned
to the Participant as soon as possible, without interest.
3.03 Readmission to Participation. Any Eligible Employee who has
----------------------------
previously been a Participant, who has discontinued participation (whether by
cessation of eligibility or otherwise), and who wishes to be reinstated as a
Participant may again become a Participant by executing and filing with the
Committee a new Purchase Agreement. Reinstatement to Participant status shall be
effective as of any Election Date, provided the Participant files a new Purchase
Agreement with the Committee at such time in advance of the Election Date as the
Committee shall prescribe.
ARTICLE IV. Stock Purchase and Resale.
4.01 Reservation of Shares. There shall be 500,000 shares of Stock
---------------------
reserved for issuance or transfer under the Plan, subject to adjustment in
accordance with the antidilution provisions hereinafter set forth. Except as
provided in Section 5.02, the aggregate number of shares of Stock that may be
purchased under the Plan shall not exceed the number of shares of Stock reserved
under the Plan.
4.02 Limitation on Shares Available. Stock must be purchased in
------------------------------
whole shares only and the maximum number of shares of Stock that may be
purchased for each Participant on a Purchase Date is the lesser of (a) the
number of shares of Stock that can be purchased by applying the full balance of
the Participant's withheld funds to the purchase of shares of Stock at the
Purchase Price, or (b) the Participant's proportionate part of the maximum
number of shares of Stock available under the Plan, as stated in Section 4.01.
Notwithstanding the foregoing, if any person entitled to purchase shares
pursuant to any offering under the Plan would be deemed for purposes of section
423(b)(3) of the Code to own stock (including any number of shares of Stock that
such person would be entitled to purchase under the Plan) possessing five
percent (5%) or more of the total combined voting power or value of all classes
of stock of Company, the maximum number of shares of Stock
-3-
<PAGE>
that such person shall be entitled to purchase pursuant to the Plan shall be
reduced to that number which, when added to the number of shares of stock that
such person is deemed to own (excluding any number of shares of Stock that such
person would be entitled to purchase under the Plan), is one less than such five
percent (5%). Any amounts withheld from a Participant's compensation that cannot
be applied to the purchase of Stock by reason of the foregoing limitation shall
be returned to the Participant as soon as practicable, without interest.
Notwithstanding the foregoing, however, any amounts withheld from a
Participant's compensation that cannot be applied to the purchase of Stock
solely by reason of the requirement that Stock be purchased in whole shares
shall remain in the Plan and applied to the Participant's purchase of Stock
during the subsequent Purchase Period, unless otherwise distributable under the
terms of the Plan.
4.03 Purchase Price of Shares. Before the first day of each
------------------------
Purchase Period the Committee shall set the Purchase Price for such Purchase
Period; provided, however, that in no event shall the Purchase Price per share
of Stock sold to Participants pursuant to any offering under the Plan for any
Purchase Period be less than the lesser of (a) 85% of the Market Value of such
share on the first day of the Purchase Period, or (b) 85% of the Market Value of
such share on the Purchase Date.
4.04 Exercise of Purchase Privilege.
------------------------------
(a) Each Participant shall be granted an option to purchase
shares of Stock as of the first day of each Purchase Period at the Purchase
Price specified in Section 4.03. The option shall continue in effect through the
Purchase Date for the Purchase Period. Subject to the provisions of Section 4.02
above and of paragraph (c) of this Section 4.04, on each Purchase Date, the
Participant shall automatically be deemed to have exercised his or her option to
purchase shares of Stock.
(b) There shall be purchased for the Participant on each
Purchase Date, at the Purchase Price for the Purchase Period, the largest number
of whole shares of Stock as can be purchased with the amounts withheld from the
Participant's compensation during the Purchase Period. Each such purchase shall
be deemed to have occurred on the Purchase Date occurring at the close of the
Purchase Period for which the purchase was made.
(c) In addition to the dollar limit prescribed under Section
4.02, a Participant may not purchase shares of Stock having an aggregate Market
Value of more than $25,000, determined at the beginning of each Purchase Period,
for any calendar year in which one or more offerings under this Plan are
outstanding at any time, and a Participant may not purchase a share of Stock
under any offering after the expiration of the Purchase Period for the offering.
4.05 Payroll Deductions. Each Participant shall authorize payroll
------------------
deductions from his or her compensation for the purpose of funding the purchase
of Stock pursuant to his or her Purchase Agreement. In the Purchase Agreement,
each Participant shall authorize an after-tax payroll deduction from each
payment of compensation during a Purchase Period of an amount not less than $10
per paycheck (in multiples of $10). Notwithstanding the foregoing, in no event
shall a Participant authorize payroll deductions in excess of $10,000 for any
Plan year. A Participant may change the deduction to any permissible level
effective as of any Election Date. A change shall be
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<PAGE>
made by the Participant's filing with the Committee a notice in such form and at
such time in advance of the date on which the change is to be effective as the
Committee shall prescribe.
4.06 Payment for Stock. The Purchase Price for all shares of Stock
-----------------
purchased by a Participant under the Plan shall be paid out of the Participant's
authorized payroll deductions. All funds received or held by the Company under
the Plan are general assets of the Company, shall be held free of any trust or
other restriction, and may be used for any corporate purpose.
4.07 Share Ownership; Issuance of Certificates.
-----------------------------------------
(a) The shares of Stock purchased by a Participant on a
Purchase Date shall, for all purposes, be deemed to have been issued or sold at
the close of business on the Purchase Date. Prior to that time, none of the
rights or privileges of a shareholder of the Company shall inure to the
Participant with respect to such shares of Stock. All the shares of Stock
purchased under the Plan shall be delivered by the Company in a manner as
determined by the Committee and credited to a bookkeeping account maintained on
behalf of such Participant and delivered in accordance with subsection (b).
(b) The Committee, in its sole discretion, may determine
that shares of Stock shall be delivered by the Company by (i) issuing and
delivering to the Participant a certificate for the number of shares of Stock
purchased by the Participant on a Purchase Date or during a calendar year or
other period determined by the Committee, (ii) issuing and delivering a
certificate or certificates for the number of shares of Stock purchased by all
Participants on a Purchase Date or during a calendar year or other period
determined by the Committee to a firm which is a member of the National
Association of Securities Dealers, as selected by the Committee from time to
time, which shares shall be maintained by such firm in a separate brokerage
account for each Participant, or (iii) issuing and delivering a certificate or
certificates for the number of shares of Stock purchased by all Participants on
a Purchase Date or during the calendar year or other period determined by the
Committee to a bank or trust company or affiliate thereof, as selected by the
Committee from time to time, which shares may be held by such bank or trust
company or affiliate in street name, but with a separate account maintained by
such entity for each Participant reflecting such Participant's share interests
in the Stock. Each certificate or account, as the case may be, may be in the
name of the Participant or, if he or she designates on the Participant's
Purchase Agreement, in the Participant's name jointly with the Participant's
spouse, with right of survivorship. A Participant who is a resident of a
jurisdiction that does not recognize such joint tenancy may have a certificate
or account in the Participant's name as tenant in common with the Participant's
spouse, with or without right of survivorship. No fractional shares may be
purchased under the Plan and the balance of any amounts withheld from a
Participant's compensation which are not applied to the purchase of Stock shall
be returned to the Participant, without interest.
(c) In addition to any restrictions or limitations on the
resale of Stock purchased under the Plan set as forth in Section 4.08 or
otherwise under the Plan, the Committee, in its sole discretion, may impose such
restrictions or limitations as it shall determine on the resale of Stock, the
issuance of individual stock certificates or the withdrawal from any shareholder
accounts established for a Participant.
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<PAGE>
(d) Any dividends payable with respect to shares of Stock
credited to a shareholder account of a Participant established pursuant to
Section 4.07(a) will be reinvested in shares of Stock and credited to the
Participant's account.
4.08 Withdrawal of Shares or Resale of Stock.
---------------------------------------
(a) A Participant may request a withdrawal of shares of
Stock purchased under the Plan or order the sale of those shares at any time by
making a request in such form and at such time as the Committee shall prescribe.
(b) Notwithstanding the foregoing, in the event a
Participant terminates his or her employment with all Employers or otherwise
ceases to be an Eligible Employee, the Participant shall receive a distribution
of his or her shares of Stock held in any shareholder account established
pursuant to Section 4.07(a), unless the Participant elects to have the shares of
Stock sold in accordance with such procedures as the Committee shall prescribe.
(c) If a Participant is to receive a withdrawal or
distribution of shares of Stock, or if shares are to be sold, the withdrawal,
distribution or sale shall be made in whole shares of Stock.
ARTICLE V. Special Adjustments.
5.01 Shares Unavailable. If, on any Purchase Date, the aggregate
------------------
funds available for the purchase of Stock would purchase a number of shares in
excess of the number of shares of Stock then available for purchase under the
Plan, the number of shares of Stock that would otherwise be purchased by each
Participant for that Plan Year shall be proportionately reduced on the Purchase
Date in order to eliminate such excess. The balance of any amounts withheld
from a Participant's compensation which had not by such time been applied to the
purchase of Company Stock shall be returned to the Participant, without
interest.
5.02 Anti-Dilution Provisions. The aggregate number of shares of
------------------------
Stock reserved for purchase under the Plan, as provided in Section 4.01, and the
calculation of the Purchase Price per share may be appropriately adjusted to
reflect any increase or decrease in the number of issued shares of Stock
resulting from a subdivision or consolidation of shares or other capital
adjustment, or the payment of a stock dividend, or other increase or decrease in
such shares, if effected without receipt of consideration by the Company. Any
such adjustment shall be made by the Committee acting with the consent of, and
subject to the approval of, the Board of Directors.
5.03 Effect of Certain Transactions. Subject to any required
------------------------------
action by the shareholders, if the Company shall be the surviving corporation in
any merger or consolidation, any offering under the Plan shall pertain to and
apply to the shares of stock of the Company. However, in the event of (a) a
dissolution or liquidation of the Company, (b) a merger or consolidation in
which the Company is not the surviving corporation, (c) any transaction that
results in the Stock ceasing to be publicly traded, the Plan and any offering
under the Plan shall terminate upon the effective date of such dissolution,
liquidation, merger consolidation or transaction, and the balance
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<PAGE>
of any amounts withheld from a Participant's compensation which had not by such
time been applied to the purchase of Stock shall be returned to the Participant,
without interest.
ARTICLE VI. Miscellaneous.
6.01 Non-Alienation. The right to purchase shares of Stock under
--------------
the Plan is personal to the Participant, is exercisable only by the Participant
during the Participant's lifetime except as hereinafter set forth, and may not
be assigned or otherwise transferred by the Participant. If a Participant dies,
there shall be delivered to the executor, administrator or other personal
representative of the deceased Participant such shares of Stock and such
residual amounts as may remain to the Participant's credit from amounts withheld
from the Participant's compensation as of the Purchase Date occurring at the
close of the Purchase Period in which the Participant's death occurs, including
shares of Stock purchased as of that date or prior thereto with moneys withheld
from the Participant's compensation.
6.02 Administrative Costs. The Company shall pay all
--------------------
administrative expenses associated with the operation of the Plan including
expenses of issuance and sale of shares but excluding brokerage commissions on
the sale of shares of Stock pursuant to Section 4.08.
6.03 The Committee. The Committee, shall have the authority and
-------------
power to administer the Plan and to make, adopt, construe, and enforce rules and
regulations not inconsistent with the provisions of the Plan and to make all
required determinations including factual determinations. The Committee shall
adopt and prescribe the contents of all forms required in connection with the
administration of the Plan, including, but not limited to, the Purchase
Agreement, payroll withholding authorizations, withdrawal documents, and all
other notices required under the Plan. The Committee shall have the fullest
discretion permissible under law in the discharge of its duties. The
Committee's interpretations and decisions with respect to the Plan, shall be
final, binding and conclusive. The Committee may, at its discretion, delegate
or assign any or all of its day to day responsibilities, other than fiduciary
and fiscal responsibilities, to the Company's Benefits Committee.
6.04 Amendment of the Plan. The Board of Directors may, at any
---------------------
time and from time to time, amend the Plan in any respect, except that the
shareholders of the Company must approve any amendment that increases the number
of shares reserved for purposes of the Plan, any amendment that allows any
person who is not an Eligible Employee to become a Participant, or any other
amendment for which shareholder approval is required under Section 423 of the
Code.
6.05 Expiration and Termination of the Plan. The Plan shall
--------------------------
continue in effect for ten years from the Effective Date, unless terminated
prior to that date pursuant to the provisions of the Plan or pursuant to action
by the Board of Directors. The Board of Directors shall have the right to
terminate the Plan at any time without prior notice to any Participant and
without liability to any Participant. Upon the expiration or termination of the
Plan, the balance, if any, then standing to the credit of each Participant from
amounts withheld from the Participant's compensation which has not, by such
time, been applied to the purchase of Stock shall be refunded to the
Participant, without interest.
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<PAGE>
6.06 Repurchase of Stock. The Company shall not be required to
-------------------
purchase or repurchase from any Participant any of the shares of Stock that the
Participant acquires under the Plan.
6.07 Notice. A Purchase Agreement and any notice that a
------
Participant files pursuant to the Plan shall be on the form prescribed by the
Committee and shall be effective only when received by the Committee. Delivery
of such forms may he made by hand or by certified mail, sent postage prepaid, to
Corporate Secretary, Converse Inc., Fordham Road, North Reading, MA 01864-2680.
Delivery by any other mechanism shall be deemed effective at the option and
discretion of the Committee.
6.08 Government Regulation. The Company's obligation to sell and
---------------------
to deliver the Stock under the Plan is at all times subject to all approvals of
any governmental authority required in connection with the authorization,
issuance, sale or delivery of such Stock.
6.09 Headings, Captions, Gender. The headings and captions herein
--------------------------
are for convenience of reference only and shall not be considered as part of the
text. The masculine shall include the feminine, and vice versa.
6.10 Severability of Provisions, Prevailing Law. The provisions of
--------------------------
the Plan shall be deemed severable. In the event any such provision is
determined to be unlawful or unenforceable by a court of competent jurisdiction
or by reason of a change in an applicable statute, the Plan shall continue to
exist as though such provision had never been included therein (or, in the case
of a change in an applicable statute, had been deleted as of the date of such
change). The Plan shall be governed by the laws of the State of Delaware to the
extent such laws are not in conflict with, or superseded by, federal law.
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<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I. Introduction.................................. 1
1.01 Statement of Purpose......................... 1
1.02 Internal Revenue Code Considerations......... 1
1.03 ERISA Considerations......................... 1
ARTICLE II. Definitions.................................. 1
2.01 Board of Directors........................... 1
2.02 Code......................................... 1
2.03 Committee.................................... 1
2.04 Company...................................... 1
2.05 Effective Date............................... 1
2.06 Election Date................................ 1
2.07 Eligible Employee............................ 1
2.08 Employee..................................... 2
2.09 Employer..................................... 2
2.10 Exchange Act................................. 2
2.11 Market Value................................. 2
2.12 Participant.................................. 2
2.13 Plan......................................... 2
2.15 Purchase Agreement........................... 2
2.16 Purchase Date................................ 2
2.17 Purchase Period.............................. 2
2.18 Purchase Price............................... 2
2.19 Stock........................................ 2
2.20 Subsidiary................................... 3
ARTICLE III. Admission to Participation.................. 3
3.01 Initial Participation........................ 3
3.02 Discontinuance of Participation.............. 3
3.03 Readmission to Participation................. 3
ARTICLE IV. Stock Purchase and Resale.................... 3
4.01 Reservation of Shares........................ 3
4.02 Limitation on Shares Available............... 3
4.03 Purchase Price of Shares..................... 4
4.04 Exercise of Purchase Privilege............... 4
4.05 Payroll Deductions........................... 5
4.06 Payment for Stock............................ 5
4.07 Share Ownership; Issuance of Certificates.... 5
4.08 Withdrawal of Shares or Resale of Stock...... 6
ARTICLE V. Special Adjustments........................... 7
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<PAGE>
5.01 Shares Unavailable........................... 7
5.02 Anti-Dilution Provisions..................... 7
5.03 Effect of Certain Transactions............... 7
ARTICLE VI. Miscellaneous................................ 7
6.01 Non-Alienation............................... 7
6.02 Administrative Costs......................... 7
6.03 The Committee................................ 8
6.04 Amendment of the Plan........................ 8
6.05 Expiration and Termination of the Plan....... 8
6.06 Repurchase of Stock.......................... 8
6.07 Notice....................................... 8
6.08 Government Regulation........................ 8
6.09 Headings, Captions, Gender................... 9
6.10 Severability of Provisions, Prevailing Law... 9
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<PAGE>
EXHIBIT 10.2
CONVERSE INC.
1994 STOCK OPTION PLAN
(As Amended and Restated as of February 25, 1998)
1. Objectives of the Plan.
The Converse Inc. 1994 Stock Option Plan (the "Plan") of Converse Inc.
(the "Corporation") is intended to encourage and provide opportunities for
ownership of the Corporation's Common Stock by such key employees (including
officers) of the Corporation and any subsidiaries of the Corporation, and
persons providing bona fide consulting or advisory services to the Corporation
and any subsidiaries (other than in connection with the offer or sale of
securities of the Corporation in a capital raising transaction) ("consultants")
as the Board of Directors of the Corporation (the "Board") or a committee
thereof constituted for this purpose may from time to time determine. The Plan
is also intended to provide incentives for such employees and consultants to put
forth maximum efforts for the successful operation of the Corporation and its
subsidiaries. By extending to such key employees and consultants the
opportunity to acquire proprietary interests in the Corporation and to
participate in its success, the Plan may be expected to benefit the Corporation
and its shareholders by making its possible for the Corporation and its
subsidiaries to attract and retain the best available talent and by providing
such key employees and consultants with added incentives to increase the value
of the Corporation's stock.
2. Grants and Stock Subject to the Plan.
Awards under the Plan may consist of grants of nonqualified stock
options as described in Section 6, incentive stock options as described in
Section 7, and restricted stock as described in Section 8. All grants shall be
subject to the terms and conditions set forth herein and to such other terms and
conditions consistent with this Plan as the Committee deems appropriate and as
are specified in writing by the Committee to the individual in a grant
instrument or an amendment to the grant instrument. The Committee shall approve
the form and provisions of each grant instrument. Grants under a particular
section of the Plan need not be uniform as among the grantees.
There are reserved for issue under the Plan 3,300,000 shares of the
Common Stock, without nominal or per value, of the Corporation (the "Shares").
Such Shares may be, in whole or in part, as the Board shall from time to time
determine, authorized but unissued Shares, or issued Shares which shall have
been reacquired by the Corporation. The maximum number of Shares with respect
to which options may be granted to any individual during any calendar year is
500,000 and the maximum number of Shares with respect to which options may be
granted to any individual during the term of the Plan is 750,000. Similarly,
the maximum number of shares of restricted stock that may be granted to any
individual during any calendar year is 500,00 and the maximum number of Shares
with respect to which options may be granted to any individual during the term
of the Plan is 750,000.
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<PAGE>
3. Administration.
Subject to the express provisions of the Plan, the Plan shall be
administered by the Executive Compensation and Stock Option Committee of the
Board (the "Committee"), and the Committee shall have plenary authority, in its
discretion, to determine the individuals to whom, and the time or times at
which, options, if any, shall be granted, the type of option to be granted
(e.g., incentive or nonqualified) and the number of Shares to be subject to an
option. Subject to the express provisions of the Plan, the Committee shall also
have the plenary authority to interpret the Plan, to prescribe, amend and
rescind rules and regulations regarding it, and to take whatever action is
necessary to carry out the purposes of the Plan. The Committee's determinations
or matters referred to in this Section 3 shall be conclusive.
4. The Committee.
The Committee shall consist of three or more members of the Board.
The Committee shall be appointed by the Board, which may from time to time
designate the number to serve on the Committee, appoint members of the Committee
in substitution for members previously appointed and fill vacancies, however
caused, in the Committee. No member of the Board while a member of the
Committee shall be eligible to receive an option under the Plan. The Committee
shall elect one of is members as its Chairman and shall hold its meetings at
such times and places as it may determine. A majority of the members shall
constitute a quorum. Any determination reduced to writing and signed by all the
members of the Committee shall be fully as effective as if it had been made by a
majority vote at a meeting duly called and held. The Committee may appoint a
secretary, shall keep minutes of its meetings and shall make such rules and
regulations for the conduct of its business as it shall deem advisable.
5. Eligibility.
Options may be granted only to key employees (which term as used
herein includes officers) of, and consultants to, the Corporation and of its
subsidiary corporations (the "Subsidiaries") as the term "subsidiary
corporation" is define in Section 424(f) of the Internal Revenue Code of 1986,
as amended, (the "Code"). For the purposes of the Plan the term "employee"
shall be an individual with an "employment relationship" as defined in Section
421 (Treasury Regulation Section 1.421-7(h)) of the Code. A member of the Board
or of the board of directors of a subsidiary who is not also an employee of an
consultant to the Corporation or of one of its subsidiaries shall not be
eligible to receive an option. Nothing contained in the Plan shall be construed
to limit the right of the Corporation to grant options otherwise than under the
Plan in connection with (i) the employment of any person, (ii) the acquisition,
by purchase, lease, merger, consolidation or otherwise, of the business or
assets of another corporation, firm or association, including grants to
employees thereof who become employees of the Corporation or a subsidiary, or
(iii) other proper corporate purposes.
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<PAGE>
6. Nonqualified Stock Options.
Unless it is designated an incentive stock option by the Committee,
any option granted under the Plan shall be nonqualified and shall be in such
form as the Committee may from time to time approve. Any such nonqualified
stock option shall be subject to the following terms and conditions and shall
contain such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall deem desirable:
(a) Option Price. The option price of Shares purchasable under
------------
an option shall be determined by the Committee in accordance with procedures
established by the Committee.
(b) Option Period. The term of an option shall be fixed by the
-------------
Committee, but no option shall be exercisable after the expiration of ten years
from the date the option is granted.
(c) Exercisability. Option shall be exercisable at such time or
--------------
times as determined by the Committee at or subsequent to grant; provided,
however, that except as provided in Subsections (f), (g) and (h) of this Section
6, no option may be exercised at any time unless the holder is then regular
employee of, or consultant to, the Corporation or a subsidiary and has
continuously remained and employee or consultant at all times since the date of
granting of the option. If any option granted under the Plan shall expire or
terminate for any reason without ever having been exercised in full, the
unissued shares subject thereto shall again be available for the purposes of the
Plan. The proceeds of the sale of Shares subject to options are to be added to
the general funds of the Corporation.
(d) Method of Exercise. Options which are exercisable may be
------------------
exercised in whole or in part at any time during the option period, by
completing and delivering to the Corporation an option exercise from provided by
the Corporation specifying the number of Shares to be purchased. Such form shall
be accompanied by payment in full of the purchase price in cash. No shares shall
be issued until full payment therefor has been made.
(e) Transferability of Options. No option shall be transferable
--------------------------
by the optionee otherwise that as set forth below or by will or by the laws of
descent and distribution, and such options shall be exercisable, during the
optionee's lifetime, only by the optionee. Notwithstanding the foregoing, if the
Committees in its sole discretion so permits, an optionee may transfer a
nonqualified stock option to the optionee's spouse, parents or lineal
descendants or to a trust for the benefit of such family members or to a
partnership in which such family members are the only partners; provided that
the option shall continue to be subject to the same terms and conditions as were
applicable thereto immediately prior to the transfer.
(f) Termination by Reason of Death. If an optionee's employment,
------------------------------
or engagement as a consultant, by the Corporation or any subsidiary terminates
by reason of death, as to those Shares with respect to which the option had
become exercisable (under the provisions of the
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<PAGE>
particular option) on the date of death, the stock option may thereafter be
exercised by the legal representative of the estate or by the legatee of the
optionee under the will of the optionee, during a period of one year (six month
in the case of options granted before July 30, 1997) from the date of such death
or until the expiration of the stated period of the option, whichever period is
shorter.
(g) Terminating by Reason of Retirement or Permanent Disability.
-----------------------------------------------------------
If an optionee's employment, or engagement as a consultant, by the Corporation
or any subsidiary terminates by reason of retirement or permanent disability, as
to those Shares with respect to which the option had become exercisable (under
provisions of the particular option) on the date of termination of employment or
such engagement, any stock option held by such optionee may thereafter be
exercised for a period of one year following such date (or until three months
following such date in the case of options granted before July 30, 1997);
provided, however, that if the optionee dies within such period, any unexercised
stock options held by such optionee shall thereafter be exercisable, to the
extent it was exercisable at the time of death, for a period of one year (six
months in the case of options granted before July 30, 1997) from the date of
such death or for the stated term of the option, whichever period is shorter.
(h) Other Termination. If an optionee's employment, or engagement
-----------------
as a consultant, terminates for any reason other than death, permanent
disability, or retirement, as to those Shares with respect to which the option
had become exercisable (under the provisions of the particular option) on the
date of termination of employment or engagement as a consultant, any option held
by such optionee may thereafter be exercised during the period of one month from
the date of such termination of employment or the expiration of the stated
period of the option, whichever period is shorter; provided, however, that if
the optionee dies within such one-month period, any unexercised option held by
such optionee shall thereafter be exercisable, to the extent to which it was
exercisable at the time of death, for a period of six months from the date of
such death or for the stated period of the option, whichever period is shorter.
(i) Option Buy out. The Committee may at any time offer to
--------------
repurchase an option, other than an option which has been held for less than six
months by an optionee who is subject to Section 16(b) of the Securities Exchange
Act of 1934, the ("1934 Act"), based on such terms and conditions as the
Committee shall establish and Communicate to the optionee at the time that such
offer is made.
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<PAGE>
7. Incentive Stock Option.
Any option granted under the Plan shall, at the discretion of the
Committee, qualify as an incentive stock option as defined in Section 422(b) of
the Code and shall be in such form as the Committee may from time to time
approve. Any such incentive sock option shall be subject to the following terms
and conditions in addition to those set forth in Section 6 and shall contain
such additional terms and conditions, not inconsistent with the provisions of
the Plan, as the Committee shall deem desirable.
(a) Eligibility. Incentive stock options shall not be granted to any
-----------
individual who, at the time the option is granted, owns stock possessing more
than ten percent of the total combined voting power of all classes of stock of
the Corporation or its parent corporation (as the term "parent corporation" is
defined in Section 424(e) of the Code) or its subsidiaries (a "Ten Percent
Shareholder") unless: 1) the option price is at least 110% of the fair market
value of the Shares subject to the option, and 2) the option states that it is
not exercisable after the expiration of five years from the date the option is
granted. Incentive stock options shall not be granted to a person who is not a
Ten Percent Shareholder unless the option price is at least 100% of the faire
market value of the Shares subject to the option on the date the option is
granted.
(b) Limitation on Exercise of Options. The maximum aggregate fair
---------------------------------
market value (determined at the time an option is granted) of the Shares with
respect to which incentive stock options are exercisable for the first time by
any optionee during any calendar year (under all plans of the Company and its
parent corporation and subsidiaries) shall not exceed $100,000. If the
foregoing $100,000 limit is exceeded with respect to an incentive stock option
on account of the acceleration of the exercise of the option pursuant to Section
9 of the Plan, the portion of the incentive stock option in excess of the
$100,000 limit shall be treated as a nonqualified stock option. If the
provisions of this Section limit the exercisability of certain incentive stock
options which would otherwise become exercisable on account of termination of
employment, the Committee, in its sole discretion, shall determine the times at
which such incentive stock options become exercisable so that the provisions of
this Section 7(b) are not violated; provided, that in no event shall any
incentive stock option be exercisable more than ten years from the date it is
granted (five years in the case of incentive stock options granted to Ten
Percent Shareholders (described in Section 7(a)).
8. Restricted Stock Grants.
The Committee may issue or transfer shares of Corporation stock to an
employee under a grant of restricted stock, upon such terms as the Committee
deems appropriate. The following provisions are applicable to restricted stock:
(a) General Requirements. Shares of Corporation stock issued or
--------------------
transferred pursuant to restricted stock grants may be issued or transferred for
consideration or for no consideration, as determined by the Committee. The
Committee may establish conditions under
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<PAGE>
which restrictions on shares of restricted stock shall lapse over a period of
time or according to such other criteria as the Committee deems appropriate. The
period of time during which the restricted stock will remain subject to
restrictions will be designated in the grant instrument as the "Restriction
Period."
(b) Number of Shares. The Committee shall determine the number of
----------------
shares of Corporation stock to be issued or transferred pursuant to a restricted
stock grant and the restrictions applicable to such shares.
(c) Requirement of Employment or Service. If the grantee ceases to be
------------------------------------
employed by, or provide service to, the Corporation during a period designated
in the grant instrument as the Restriction Period, or if other specified
conditions are not met, the restricted stock grant shall terminate as to all
shares covered by the grant as to which the restrictions have not lapsed, and
those shares of Corporation stock must be immediately returned to the
Corporation. The Committee may, however, provide for complete or partial
exceptions to this requirement as it deems appropriate.
(d) Restrictions on Transfer and Legend on Stock Certificate. During
--------------------------------------------------------
the Restriction Period, a grantee may not sell, assign, transfer, pledge or
otherwise dispose of the shares of restricted stock except to a successor
grantee under subsection (g). Each certificate for a share of restricted stock
shall contain a legend giving appropriate notice of the restrictions in the
grant. The grantee shall be entitled to have the legend removed from the stock
certificate covering the shares subject to restrictions when all restrictions on
such shares have lapsed. The Committee may determine that the Corporation will
not issue certificates for shares of restricted stock until all restrictions on
such shares have lapsed, or that the Corporation will retain possession of
certificates for shares of restricted stock until all restrictions on such
shares have lapsed.
(e) Right to Vote and to Receive Dividends. Unless the Committee
--------------------------------------
determines otherwise, during the Restriction Period, the grantee shall have the
right to vote shares of restricted stock and to receive any dividends or other
distributions paid on such shares, subject to any restrictions deemed
appropriate by the Committee.
(f) Lapse of Restrictions. All restrictions imposed on restricted
---------------------
stock shall lapse upon the expiration of the applicable Restriction Period and
the satisfaction of all conditions imposed by the Committee. The Committee may
determine, as to any or all restricted stock grants, that the restrictions shall
lapse without regard to any Restriction Period. Further, all restrictions on
restricted stock grants shall automatically lapse upon the occurrence of Change
of Control (as defined under Section 9).
(g) Nontransferability of Restricted Stock Grants. Except as provided
---------------------------------------------
below, only the grantee may exercise rights under a restricted stock grant
during the grantee's lifetime. A grantee may not transfer those rights except
by will or by the laws of descent and distribution. When a grantee dies, the
personal representative or other person entitled to succeed to the rights of the
grantee may exercise such rights. A successor grantee must furnish proof
satisfactory to the
-6-
<PAGE>
Corporation of his or her right to receive the grant under the grantee's will or
under the applicable laws of descent and distribution.
9. Adjustment Upon Changes in Capitalization, Etc.
The aggregate number and class of share reserved under the Plan and
with respect to which options may be granted to any individual, the number and
class of shares subject to each option granted pursuant to the Plan and the
option price per Share payable under each such option shall be appropriately and
equitably adjusted in the event of any reclassification or increase or decrease
in the number of the issued Shares of the Corporation by reason of a split-up or
consolidation of Shares; the payment of a stock dividend; a recapitalization; a
combination or exchange of Shares; a spin-off; or any like capital adjustment.
Subject to the next paragraph, if the Corporation shall be reorganized
or shall be merged with or into or consolidated with any other corporation, or
shall set all or substantially all of its assets or effect a complete
liquidation, each option, if any, then outstanding under the Plan, shall
thereafter apply to such number and kind of securities, cash or other property
as would have been issuable by reason of such reorganization, merger,
consolidation, sale or liquidation to a holder of the number of Shares which
were subject to the option, if any, immediately prior to such transaction.
If the event of a proposed transaction of the type set forth in the
preceding paragraph, the Committee may determine that each option then
outstanding under the Plan, shall terminate as of a date to be fixed by the
Committee and approved by the Board upon not less than thirty days' written
notice to the optionee; and may further determine when and to the extent that,
any option granted at least six months prior to such event to any optionee who
has been an employee or consultant for one year or more prior to the date of
such notice, shall be accelerated and such optionee shall be entitled to
exercise such option without regard to any installment provision of the option
prior to the termination date fixed in said notice; provided, however, that in
no event shall the Committee have the right to make any determination provided
for in this paragraph, if doing so would make any transaction ineligible for
pooling of interest accounting treatment under APB No. 16 or any successor
provision that but for such determination would be eligible for such treatment.
All adjustments under this Section 9 shall be made by the Committee,
subject to the approval of the Board, which action shall be final and
conclusive.
Anything to the contrary notwithstanding, upon a Change of Control (as
hereinafter defined) and, in the case of options granted on or after April 1,
1996, subsequent termination of an optionee's employment by the Corporation or
by the optionee as a result of a material breach by the Corporation of any
employment agreement between the optionee and the Corporation, each option
granted prior to such Change of Control shall become immediately exercisable in
full. As used herein, "Change of Control" shall mean any of the following
events:
-7-
<PAGE>
(a) The acquisition (other than (i) from the Corporation of
INTERCO INCORPORATED or (ii) by Apollo (as hereinafter defined)) by any person,
entity or "group", within the meaning of Section 13(d)(3) or 14(d)(2) of the
1934 Act, excluding, for this purpose, the Corporation of its subsidiaries, or
any employee benefit plan of the Corporation or its subsidiaries, of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of
20% or more of either the then outstanding Shares or the combined voting power
of the Corporation's then outstanding voting securities entitled to vote
generally in the election of directors if the beneficial ownership of such
person, entity or "group" exceeds the beneficial ownership of Shares and the
combined voting power of the Corporation's then outstanding securities entitled
to vote generally in the election of directors held by any person or entity that
acquired such Shares or securities having such voting power from the Corporation
and by Apollo; or
(b) Individuals who, as of the Effective Date (as defined in
Section 13), constitute the Board (as of such date, the "Incumbent Board"),
cease for any reason to constitute at least a majority of the Board; provided,
that any person becoming a director subsequent to the first anniversary of the
Effective Date whose election, or nomination for election by the Corporation's
stockholders, was approved by a vote of at least majority of the directors then
compromising the Incumbent Board (other than an election or nomination of an
individual whose initial assumption of office is in connection with an actual or
threatened election contest relating to the election of the directors of the
Corporation, as such terms are sued in Rule 14a-11 of Regulation 14A promulgated
under the 1934 Act) shall be considered as though such person were a member of
the Incumbent Board; or
(c) Approval by the stockholders of the Corporation of a
reorganization, merger or consolidation, in each case, with respect to which
persons who were the stockholders of the Corporation immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter, own,
directly or indirectly, more than 50% of the combined voting power entitled to
vote generally in the election of directors of the reorganized, merged or
consolidated company's then outstanding voting securities, or a liquidation or
dissolution of the Corporation or the sale of all or substantially all of the
assets of the Corporation, in each case, unless the transaction was approved by
a majority of the directors then comprising the Incumbent Board.
For purposes of the definition of "Change of Control", the term
"Apollo" shall mean Apollo Advisors, L.P. and Lion Advisors, L.P. and any entity
that controls, is controlled by or is under common control with Apollo Advisors,
L.P. and Lion Advisors, L.P., including accounts under common management.
-8-
<PAGE>
10. Amendments and Termination.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made which would impair the rights of an
optionee under an option without the optionee's consent, or which without the
approval of the stockholders would, except as is provided in Section 9, increase
the total number of Shares reserved for the purpose of the Plan, change the
employees or class of employees and consultants eligible to participant in the
Plan, or extend the maximum option period under Section 6(b).
The Committee may amend the terms of any option theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights of
any optionee without the consent of the optionee. The Committee may also
substitute new options for previously granted options, including substitution
for previously granted options having higher option prices.
11. General Provisions.
(a) The Committee may require each person purchasing Shares
pursuant to an option under the Plan to represent to and agree with the
Corporation in writing that the optionee is acquiring the Shares without a view
to distribution thereof. The certificates for such Shares may include any legend
which the Committee deems appropriate to reflect any restrictions on transfer.
(b) All certificates for Shares delivered under the Plan shall be
subject to such stock-transfer orders and other restrictions as the Committee
may deem advisable under the rules, regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Shares are
then listed, and any applicable federal or state securities law, and the
Committee may cause a legend or legends to be put on any such certificates to
make appropriate reference to such restrictions.
(c) Nothing contained in the Plan shall prevent the Board from
adopting other or additional compensation arrangements, subject to stockholder
approval if such approval is required; and such arrangements may be either
generally applicable or applicable only in specific cases.
12. Withholding of Taxes.
(a) Required Withholding. All grants under the Plan shall be
--------------------
subject to applicable federal (including FICA), state and local tax withholding
requirements. The Corporation shall have the right to deduct from all grants
paid in cash, or from other wages paid to the grantee, any federal, state or
local taxes required by law to be withheld with respect to such Grants. In the
case of options and other grants paid in Corporation stock, the Corporation may
require the grantee or other person receiving such shares to pay to the
Corporation the amount of any such taxes that the Corporation is required to
withhold with respect to such grants, or the Corporation may deduct from
-9-
<PAGE>
other wages paid by the Corporation the amount of any withholding taxes due with
respect to such grants.
(b) Election to Withhold Shares. If the Committee so permits, a
---------------------------
grantee may elect to satisfy the Corporation's income tax withholding obligation
with respect to an option, or restricted stock paid in Corporation stock by
having Shares withheld up to an amount that does not exceed the grantee's
minimum applicable withholding tax rate for federal (including FICA), state and
local tax liabilities. The election must be in a form and manner prescribed by
the Committee and shall be subject to the prior approval of the Committee.
13. Effective Date of Plan.
The Plan became effective on October 19, 1994 the date it was adopted
by the Board and by the Company's then sole stockholder (the "Effective Date").
The Plan as amended and restated became be effective as of April 1, 1996. The
Plan as further amended and restated herein shall be effective May 11, 1998,
subject to stockholder approval.
14. Term of Plan.
No option shall be granted pursuant to the Plan more than 10 years
after the Effective Date, but options theretofore granted may extend beyond and
be exercised after that date.
-10-
<PAGE>
EXHIBIT 10.3
WAIVER #2 TO CREDIT AGREEMENT
AMONG CONVERSE INC.,
BT COMMERCIAL CORPORATION, AS AGENT, AND
CERTAIN LENDERS NAMED THEREIN
Dated July 31, 1998
This Waiver #2 to that certain Credit Agreement, dated as of May 21, 1997,
as amended from time to time (collectively, "Credit Agreement"), by and among BT
Commercial Corporation ("Agent"), the Lenders party thereto, and Converse Inc.
("Borrower") is entered into as of the date stated above by the Borrower, the
Agent and the Lenders. Capitalized terms used herein without definition shall
have the respective meanings assigned thereto in the Credit Agreement.
W I T N E S S E T H:
WHEREAS, the Agent, the Lenders and the Borrower are parties to the Credit
Agreement; and
WHEREAS, the Credit Agreement imposes certain financial covenants and
restrictions on the Borrower; and
WHEREAS, the Borrower has advised Agent that Borrower has failed to comply
with one of the financial covenants of the Credit Agreement, and has requested,
and the Agent and the Lenders have agreed, subject to the terms and conditions
contained herein, to waive such non-compliance.
NOW, THEREFORE, in consideration of good and valuable consideration, the
receipt, adequacy and sufficiency of which are hereby acknowledged, the Agent,
the Lenders and the Borrower hereby agree as follows:
1. WAIVER REGARDING INTEREST COVERAGE RATIO. The Agent and the Lenders
----------------------------------------
hereby waive Borrower's failure to comply with the provisions of Section 7.7 of
the Credit Agreement for the fiscal quarter ended June, 1998. Such waiver is
limited to Borrower's non-compliance with Section 7.7 for the fiscal quarter
ended June, 1998 and is not a waiver with respect to any other fiscal quarter or
any other provision of the Credit Agreement generally.
2. REAFFIRMATION. The Borrower hereby reaffirms to the Agent and each of
-------------
the Lenders that, except as modified hereby, the Credit Agreement and all of the
Credit Documents remain in full force and effect and have not been otherwise
waived, modified or amended.
<PAGE>
3. GOVERNING LAW AND INTERPRETATION. This Waiver has been delivered in
--------------------------------
Chicago, Illinois, and shall be governed by and construed in accordance with the
provisions of the Credit Agreement and the laws and decisions of the State of
Illinois without giving effect to the conflict of law principles thereunder.
4. COUNTERPARTS. This Waiver may be executed in one or more counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. One or more counterparts of this Waiver
may be delivered by telecopier, with the intention that they shall have the same
effect as an original counterpart thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this Waiver to be
duly executed and delivered as of the day and year first above written.
AGENT:
-----
BT COMMERCIALCORPORATION
By: /s/ Frank Fazio
-----------------
Name: Frank Fazio
Title: Vice President
BORROWER:
--------
CONVERSE INC.
By: /s/ Donald Camacho
--------------------
Name: Donald J. Camacho
Title: Senior Vice President and
Chief Financial Officer
<PAGE>
LENDERS:
--------
BT COMMERCIAL CORPORATION
By: /s/ Frank Fazio
-----------------
Name: Frank Fazio
Title: Vice President
LASALLE NATIONAL BANK
By: /s/ Christopher G. Clifford
-----------------------------
Name: Christopher G. Clifford
Title: Senior Vice President
HELLER FINANCIAL, INC.
By: /s/ Linda G. Peddle
---------------------
Name: Linda G. Peddle
Title: Vice President
SANWA BUSINESS CREDIT
CORPORATION
By: /s/ Lawrence J. Placek
------------------------
Name: Lawrence J. Placek
Title: Vice President
NATIONSBANK OF TEXAS, N.A.
By:
-----------------------
Name:
Title:
<PAGE>
FLEET CAPITAL CORPORATION
By: /s/ Jennifer S. Mellitt
-------------------------
Name: Jennifer S. Mellitt
Title: Vice President
BNY FINANCIAL CORPORATION
By: /s/ Daniel J. Murray
----------------------
Name: Daniel J. Murray
Title: Vice President
BANKBOSTON, N.A.
By: /s/ Frank A. Gianino
----------------------
Name: Frank A. Gianino
Title: Vice President
FINOVA FINANCIAL CORPORATION
By: /s/ Brian Rujawitz
--------------------
Name: Brian Rujawitz
Title: Assistant Vice President
<PAGE>
EXHIBIT 10.4
[Net Lease]
LEASE AGREEMENT
THIS LEASE AGREEMENT ("Agreement") entered into by and between Bancomer,
S.A., Institucion de Banca Multiple Grupo Financiero ("Bancomer") represented by
SCI Mexico Industrial Trust, represented herein by its Senior Vice President,
Mr. Steven K. Meyer (hereinafter referred to as the "Landlord") and by Calzado
Deportivo de Reynosa, S.A. de C.V., represented herein by its President, Mr.
Glenn Rupp (hereinafter referred to as the "Tenant"), in accordance with the
following Recitals and Clauses:
RECITALS
I. The Landlord hereby states that:
(A) Bancomer is a credit institution organized in conformance with the laws
of the United States of Mexico.
(B) Bancomer has granted a power of attorney in favor of SCI Mexico
Industrial Trust to negotiate and to execute this Agreement in accordance with
that certain Power of Attorney Public Deed No. 2994, Volume XI, Book 4
Monterrey, Nuevo Leon granted before Lic. Jose Javier Leal Gonzalez, Notario
Publico, Titular de la Notaria Publica No. 111, dated October 31, 1997.
(C) SCI Mexico Industrial Trust is a real estate investment trust duly
formed and existing pursuant to the laws of Maryland, United States of America,
and SCI Mexico Industrial Trust has established a Trust in Mexico to hold its
interest in real estate located within Mexico.
(D) SCI Mexico Industrial Trust is the beneficial owner of the Property and
Premises hereafter described (the "Premises")
Reynosa Industrial Center, Building 3, Reynosa, Mexico
and shall include, without limitation, all improvements constructed or to be
constructed thereon, together with all of Landlord's rights, interests and
appurtenances thereto belonging in any way incident or appertaining to the
Premises.
(E) Landlord desires to lease the Premises to the Tenant under the terms
and conditions hereinafter set forth.
II. The Tenant hereby states that:
(A) It is a corporation duly incorporated and existing pursuant to the laws
of the Mexican United States, as per Deed Number ____________ of Volume _____,
granted on the ____ day of the month of __________ of 19__ before
________________________________, appointed notary public number _______ in the
________ Judicial District, State of ____________, Mexico.
(B) Tenant wishes to lease the Premises under the terms and provisions of
this Agreement.
III. Both parties declare that in the execution hereof there has been no error,
violence, bad faith, nor duress amongst them and that their respective
representatives have sufficient authority to execute this Agreement, same
authority which has not been revoked, diminished or limited in any way.
HAVING STATED THE ABOVE, THE PARTIES AGREE ON THE FOLLOWING:
CLAUSES
Premises: The portion of the Building, containing approximately 100,948
rentable square feet, as determined by Landlord, as shown on
Exhibit A.
PROJECT: Reynosa Industrial Center
BUILDING: Reynosa Industrial Center Building 3
<PAGE>
TENANT'S PROPORTIONATE TENANT'S PROPORTIONATE
SHARE OF PROJECT: 23.9% SHARE OF BUILDING: 100%
LEASE TERM: Beginning on the Commencement Date and ending on
the last day of the 120th full calendar month
thereafter.
COMMENCEMENT DATE: The later of July 1, 1998 or six (6) months
following the approval of plans and specifications
by Landlord and Tenant.
<TABLE>
<S> <C> <C>
INITIAL MONTHLY BASE RENT
(IN ADDITION TO VALUE ADDED TAX): $41,052.19
INITIAL ESTIMATED MONTHLY
OPERATING EXPENSE PAYMENTS: 1. Utilities: $ 0
(estimates only and subject
to adjustment to actual costs 2. Common Area Charges: $ 2,523.70
and expenses according to the
provisions of this Lease) 3. Insurance: $ 841.23
(net of value added tax)
4. Property Taxes: $ 336.49
5. Others: $ 1,345.97
TOTAL INITIAL ESTIMATED
MONTHLY OPERATING EXPENSE PAYMENTS
(IN ADDITION TO VALUE ADDED TAX): $ 5,047.39
INITIAL MONTHLY BASE RENT AND
OPERATING EXPENSE PAYMENTS
(IN ADDITION TO VALUE ADDED TAX): $46,099.58
SECURITY DEPOSIT: $41,052.19
BROKER: None
Addenda: Addendum One (Base Rent Adjustments), Addendum Two
(Construction Allowance), Exhibit A (Site Plan) and
Guaranty
</TABLE>
1. GRANTING CLAUSE. In consideration of the obligation of Tenant to pay rent
as herein provided and in consideration of the other terms, covenants, and
conditions hereof, Landlord leases to Tenant, and Tenant takes from Landlord,
the Premises, subject to the terms, covenants and conditions of this Lease.
2. ACCEPTANCE OF PREMISES. Tenant shall accept the Premises in its condition
as of the Commencement Date, subject to all applicable laws, ordinances,
regulations, covenants and restrictions. Landlord has made no representation or
warranty as to the suitability of the Premises for the conduct of Tenant's
business, and Tenant waives any implied warranty that the Premises are suitable
for Tenant's intended purposes. Except as provided in Paragraph 10, in no event
shall Landlord have any obligation for any defects in the Premises or any
limitation on its use. The taking of possession of the Premises shall be
conclusive evidence that Tenant accepts the Premises and that the Premises were
in good condition at the time possession was taken except for items that are
Landlord's responsibility under Paragraph 10 and any punchlist items agreed to
in writing by Landlord and Tenant.
3. USE. The Premises shall be used only for the purposes of receiving,
storing, shipping and selling (but limited to wholesale sales) products,
materials and merchandise made and/or distributed by Tenant, for light
manufacturing and assembly, and for such other lawful purposes as may be
incidental thereto; provided, however, with Landlord's
<PAGE>
prior written consent, Tenant may also use the Premises for light manufacturing.
Tenant will use the Premises in a careful, safe and proper manner and will not
commit waste, overload the floor or structure of the Premises or subject the
Premises to use that would damage the Premises. Tenant shall not permit any
objectionable or unpleasant odors, smoke, dust, gas, noise or vibrations to
emanate from the Premises, or take any other action that would constitute a
nuisance or would disturb, unreasonably interfere with, or endanger Landlord or
any other tenants of the Project. Outside storage, including without limitation,
storage of trucks and other vehicles, is prohibited without Landlord's prior
written consent. Tenant, at its sole expense, shall use and occupy the Premises
in compliance with all laws, orders, judgments, ordinances, regulations, codes,
directives, permits, licenses, covenants and restrictions now or hereafter
applicable to the Premises (collectively, "Legal Requirements"). Tenant shall,
at its expense, make any alterations or modifications, within or without the
Premises, that are required by Legal Requirements related to Tenant's use or
occupation of the Premises. Tenant will not use or permit the Premises to be
used for any purpose or in any manner that would void Tenant's or Landlord's
insurance, increase the insurance risk, or cause the disallowance of any
sprinkler credits. If any increase in the cost of any insurance on the Premises
or the Project is caused by Tenant's use or occupation of the Premises, or
because Tenant vacates the Premises, then Tenant shall pay the amount of such
increase to Landlord. Any occupation of the Premises by Tenant prior to the
Commencement Date shall be subject to all obligations of Tenant under this
Lease.
4. BASE RENT. Tenant shall pay Base Rent in the amount set forth above, plus
the corresponding value added tax that may be due pursuant to Mexican or other
applicable law. The first month's Base Rent, the Security Deposit, and the
first monthly installment of estimated Operating Expenses (as hereafter defined)
shall be due and payable on the date hereof, and Tenant promises to pay to
Landlord in advance, without demand, deduction or set-off, monthly installments
of Base Rent and estimated Operating Expenses on or before the first day of each
calendar month succeeding the Commencement Date. Payments of Base Rent and
estimated Operating Expenses for any fractional calendar month shall be
prorated. All payments required to be made by Tenant to Landlord hereunder
shall be payable at such address and in such manner (including, without
limitation, bank wire transfer) as Landlord may specify from time to time by
written notice delivered in accordance herewith. The obligation of Tenant to
pay Base Rent and other sums to Landlord and the obligations of Landlord under
this Lease are independent obligations. Tenant shall have no right at any time
to abate, reduce, or set-off any rent due hereunder except as may be expressly
provided in this Lease. If Tenant is delinquent in any monthly installment of
Base Rent or of estimated Operating Expenses for more than 5 days, Tenant shall
pay to Landlord on demand a late charge equal to 5 percent of such delinquent
sum. The provisions for such late charge shall be in addition to all of
Landlord's other rights and remedies hereunder or at law and shall not be
construed as a penalty. All payments required to be made by Tenant to Landlord
hereunder shall carry the corresponding value added tax, as applicable, which
shall be Tenant's obligation.
The Base Rent and any other amounts payable by Tenant to Landlord hereunder
may be paid in Dollars, currency of the United States of America or its
equivalent in Mexican currency, on the date payment is received by Landlord, at
the sell rate of exchange for debts denominated in foreign exchange and payable
in Mexico, published by the Banco de Mexico in the Official Daily of the
---------------
Federation on the date of payment. Should the amounts received by Landlord in
Mexican currency be less than the required United States of America equivalency
on the date of receipt, Tenant will, upon demand, pay the difference to
Landlord.
5. SECURITY DEPOSIT. The Security Deposit shall be held by Landlord, without
interest, as security for the performance of Tenant's obligations under this
Lease. The Security Deposit is not an advance rental deposit or a measure of
Landlord's damages in case of Tenant's default. Upon each occurrence of an
Event of Default (as hereinafter defined), Landlord may use all or part of the
Security Deposit to pay delinquent payments due under this Lease, and the cost
of any damage, injury, expense or liability caused by such
<PAGE>
Event of Default, without prejudice to any other remedy provided herein or
provided by law. Tenant shall pay Landlord on demand the amount that will
restore the Security Deposit to its original amount. Landlord's obligation
respecting the Security Deposit is that of a debtor, not a trustee; no interest
shall accrue thereon. The Security Deposit shall be returned to Tenant when
Tenant's obligations under this Lease have been completely fulfilled. Landlord
shall be released from any obligation with respect to the Security Deposit upon
transfer of this Lease and the Premises to a person or entity assuming
Landlord's obligations under this Paragraph 5.
6. OPERATING EXPENSE PAYMENTS. During each month of the Lease Term, on the
same date that Base Rent is due, Tenant shall pay Landlord an amount equal to
1/12 of the annual cost, as estimated by Landlord from time to time, of Tenant's
Proportionate Share (as hereinafter defined) of Operating Expenses for the
Project, plus the corresponding value added tax that may be due pursuant to
Mexican or other applicable law. Payments thereof for any fractional calendar
month shall be prorated. The term "Operating Expenses" means all costs and
expenses incurred by Landlord with respect to the ownership, maintenance, and
operation of the Project including, but not limited to costs of: Taxes (as
hereinafter defined) and fees payable to tax consultants and attorneys for
consultation and contesting taxes; insurance; utilities; maintenance, repair and
replacement of all portions of the Project, including without limitation, paving
and parking areas, roads, roofs, alleys, and driveways, mowing, landscaping,
exterior painting, utility lines, heating, ventilation and air conditioning
systems, lighting, electrical systems and other mechanical and building systems;
amounts paid to contractors and subcontractors for work or services performed in
connection with any of the foregoing; charges or assessments of any association
to which the Project is subject; property management fees payable to a property
manager, including any affiliate of Landlord, or if there is no property
manager, an administration fee of 15 percent of Operating Expenses payable to
Landlord; security services, if any; trash collection, sweeping and removal; and
additions or alterations made by Landlord to the Project or the Building in
order to comply with Legal Requirements (other than those expressly required
herein to be made by Tenant) or that are appropriate to the continued operation
of the Project or the Building, provided that the cost of additions or
alterations that are required to be capitalized for income tax purposes shall be
amortized on a straight line basis over a period equal to the lesser of the
useful life thereof for income tax purposes or 10 years. Operating Expenses do
not include costs, expenses, depreciation or amortization for capital repairs
and capital replacements required to be made by Landlord under Paragraph 10 of
this Lease, debt service under mortgages or ground rent under ground leases,
costs of restoration to the extent of net insurance proceeds received by
Landlord with respect thereto, leasing commissions, or the costs of renovating
space for tenants.
If Tenant's total payments of Operating Expenses for any year are less than
Tenant's Proportionate Share of actual Operating Expenses for such year, then
Tenant shall pay the difference to Landlord within 30 days after demand, and if
more, then Landlord shall retain such excess and credit it against Tenant's next
payments. For purposes of calculating Tenant's Proportionate Share of Operating
Expenses, a year shall mean a calendar year except the first year, which shall
begin on the Commencement Date, and the last year, which shall end on the
expiration of this Lease. With respect to Operating Expenses which Landlord
allocates to the entire Project, Tenant's "Proportionate Share" shall be the
percentage set forth on the first page of this Lease as Tenant's Proportionate
Share of the Project as reasonably adjusted by Landlord in the future for
changes in the physical size of the Premises or the Project; and, with respect
to Operating Expenses which Landlord allocates only to the Building, Tenant's
"Proportionate Share" shall be the percentage set forth on the first page of
this Lease as Tenant's Proportionate Share of the Building as reasonably
adjusted by Landlord in the future for changes in the physical size of the
Premises or the Building. Landlord may equitably increase Tenant's
Proportionate Share for any item of expense or cost reimbursable by Tenant that
relates to a repair, replacement, or service that benefits only the Premises or
only a portion of the Project or Building that includes the Premises or that
varies with occupancy or use. The estimated Operating Expenses for the Premises
set
<PAGE>
forth on the first page of this Lease are only estimates, and Landlord makes no
guaranty or warranty that such estimates will be accurate.
7. UTILITIES. Tenant shall pay for all water, gas, electricity, heat, light,
power, telephone, sewer, sprinkler services, refuse and trash collection, and
other utilities and services used on the Premises, all maintenance charges for
utilities, and any storm sewer charges or other similar charges for utilities
imposed by any governmental entity or utility provider together with any Taxes,
penalties, surcharges or the like pertaining to Tenant's use of the Premises.
Landlord may cause at Tenant's expense any utilities to be separately metered or
charged directly to Tenant by the provider. Tenant shall pay its share of all
charges for jointly metered utilities based upon consumption, as reasonably
determined by Landlord. No interruption or failure of utilities shall result in
the termination of this Lease or the abatement of rent. Tenant agrees to limit
use of water and sewer for normal restroom use.
8. TAXES. Landlord shall pay all taxes, assessments and governmental charges
(collectively referred to as "Taxes") that accrue against the Project during the
Lease Term, which shall be included as part of the Operating Expenses charged to
Tenant. Landlord may contest by appropriate legal proceedings the amount,
validity, or application of any Taxes or liens thereof. All capital levies or
other taxes assessed or imposed on Landlord upon the rents payable to Landlord
under this Lease and any value added, franchise tax, any excise, transaction,
sales or privilege tax, assessment, levy or charge measured by or based, in
whole or in part, upon such rents from the Premises and/or the Project or any
portion thereof shall be paid by Tenant to Landlord monthly in full or in
estimated installments or upon demand, at the option of Landlord, as additional
rent; provided, however, in no event shall Tenant be liable for any net income
taxes imposed on Landlord unless such net income taxes are in substitution for
any Taxes payable hereunder. If any such Taxes are levied or assessed directly
against Tenant, then Tenant shall be responsible for and shall pay the same at
such times and in such manner as the taxing authority shall require. Tenant
shall be liable for all taxes levied or assessed against any personal property
or fixtures placed in the Premises, whether levied or assessed against Landlord
or Tenant.
9. INSURANCE. Landlord shall maintain all risk property insurance covering
the full replacement cost of the Building. Landlord may, but is not obligated
to, maintain such other insurance and additional coverages as it may deem
necessary, including, but not limited to, commercial liability insurance and
rent loss insurance. All such insurance shall be included as part of the
Operating Expenses charged to Tenant. The Project or Building may be included
in a blanket policy (in which case the cost of such insurance allocable to the
Project or Building will be determined by Landlord based upon the insurer's cost
calculations). Tenant shall also reimburse Landlord for any increased premiums
or additional insurance which Landlord reasonably deems necessary as a result of
Tenant's use of the Premises.
Tenant, at its expense, shall maintain during the Lease Term: all risk
property insurance included in the so-called "Extended Coverage" rider in Mexico
covering the full replacement cost of all property and improvements installed or
placed in the Premises by Tenant at Tenant's expense; and commercial liability
insurance, with a minimum limit of US$1,000,000 per occurrence and a minimum
umbrella limit of US$1,000,000, for a total minimum combined general liability
and umbrella limit of US$2,000,000 (together with such additional umbrella
coverage as Landlord may reasonably require) for property damage, personal
injuries, or deaths of persons occurring in or about the Premises. Landlord may
from time to time require reasonable increases in any such limits. The
commercial liability policies shall name Landlord as an additional insured,
insure on an occurrence and not a claims-made basis, be issued by insurance
companies which are reasonably acceptable to Landlord, not be cancelable unless
30 days prior written notice shall have been given to Landlord, contain a
hostile fire endorsement and a contractual liability endorsement and provide
primary coverage to Landlord (any policy issued to Landlord providing duplicate
or similar coverage shall be deemed excess over Tenant's
<PAGE>
policies). Such policies or certificates thereof shall be delivered to Landlord
by Tenant upon commencement of the Lease Term and upon each renewal of said
insurance.
The all risk property insurance obtained by Landlord and Tenant shall
include a waiver of subrogation by the insurers and all rights based upon an
assignment from its insured, against Landlord or Tenant, their officers,
directors, employees, managers, agents, invitees and contractors, in connection
with any loss or damage thereby insured against. Neither party nor its
officers, directors, employees, managers, agents, invitees or contractors shall
be liable to the other for loss or damage caused by any risk coverable by all
risk property insurance, and each party waives any claims against the other
party, and its officers, directors, employees, managers, agents, invitees and
contractors for such loss or damage. The failure of a party to insure its
property shall not void this waiver. Landlord and its agents, employees and
contractors shall not be liable for, and Tenant hereby waives all claims against
such parties for, business interruption and losses occasioned thereby sustained
by Tenant or any person claiming through Tenant resulting from any accident or
occurrence in or upon the Premises or the Project from any cause whatsoever,
including without limitation, damage caused in whole or in part, directly or
indirectly, by the negligence of Landlord or its agents, employees or
contractors.
10. LANDLORD'S REPAIRS. Landlord shall maintain, at its expense, the
structural soundness of the roof, foundation, and exterior walls of the Building
in good repair, reasonable wear and tear and uninsured losses and damages caused
by Tenant, its agents, contractors and customers excluded. The term "walls" as
used in this Paragraph 10 shall not include windows, glass or plate glass, doors
or overhead doors, special store fronts, dock bumpers, dock plates or levelers,
or office entries. Tenant shall promptly give Landlord written notice of any
repair required by Landlord pursuant to this Paragraph 10, after which Landlord
shall, within thirty (30) days of receipt of such notice, commence such repairs.
11. TENANT'S REPAIRS. Landlord, at Tenant's expense as provided in Paragraph
6, shall maintain in good repair and condition the parking areas and other
common areas of the Building, including, but not limited to driveways, alleys,
landscape and grounds surrounding the Premises. Subject to Landlord's
obligation in Paragraph 10 and subject to Paragraphs 9 and 15, Tenant, at its
expense, shall repair, replace and maintain in good condition all portions of
the Premises and all areas, improvements and systems exclusively serving the
Premises including, without limitation, dock and loading areas, truck doors,
plumbing, water and sewer lines up to points of common connection, fire
sprinklers and fire protection systems, entries, doors, ceilings and roof
membrane, windows, interior walls, and the interior side of demising walls, and
heating, ventilation and air conditioning systems. Such heating, ventilation
and air conditioning systems and other mechanical and building systems serving
the Premises shall be maintained at Tenant's expense pursuant to maintenance
service contracts entered into by Tenant or, at Landlord's election, by
Landlord. The scope of services and contractors under such maintenance
contracts shall be reasonably approved by Landlord. At Landlord's request,
Tenant shall enter into a joint maintenance agreement with any railroad that
services the Premises. If Tenant fails to perform any repair or replacement for
which it is responsible, Landlord may perform such work and be reimbursed by
Tenant within 10 days after demand therefor. Subject to Paragraphs 9 and 15,
Tenant shall bear the full cost of any repair or replacement to any part of the
Building or Project that results from damage caused by Tenant, its agents,
contractors, or invitees and any repair that benefits only the Premises.
<PAGE>
12. TENANT-MADE ALTERATIONS AND TRADE FIXTURES. Any alterations, additions, or
improvements made by or on behalf of Tenant to the Premises ("Tenant-Made
Alterations") shall be subject to Landlord's prior written consent, which
consent may include conditions. Tenant shall cause, at its expense, all Tenant-
Made Alterations to comply with insurance requirements and with Legal
Requirements and shall construct at its expense any alteration or modification
required by Legal Requirements as a result of any Tenant-Made Alterations. All
Tenant-Made Alterations shall be constructed in a good and workmanlike manner by
contractors reasonably acceptable to Landlord and only good grades of materials
shall be used. All plans and specifications for any Tenant-Made Alterations
shall be submitted to Landlord for its approval. Landlord may monitor
construction of the Tenant-Made Alterations at Tenant's expense. Tenant shall
reimburse Landlord for its costs in reviewing plans and specifications and in
monitoring construction. Landlord's right to review plans and specifications
and to monitor construction shall be solely for its own benefit, and Landlord
shall have no duty to see that such plans and specifications or construction
comply with applicable Legal Requirements and all laws, codes, rules and
regulations. Tenant shall provide Landlord with the identities and mailing
addresses of all persons performing work or supplying materials, prior to
beginning such construction, and Landlord may post on and about the Premises
notices of non-responsibility pursuant to applicable law. Tenant shall furnish
security or make other arrangements satisfactory to Landlord to assure payment
for the completion of all work free and clear of liens and shall provide
certificates of insurance for worker's compensation and other coverage in
amounts and from an insurance company satisfactory to Landlord protecting
Landlord against liability for personal injury or property damage during
construction. Upon completion of any Tenant-Made Alterations, Tenant shall
deliver to Landlord sworn statements setting forth the names of all contractors
and subcontractors. Upon surrender of the Premises, all Tenant-Made Alterations
and any leasehold improvements constructed by Landlord or Tenant shall remain on
the Premises as Landlord's property, except to the extent Landlord requires
removal at Tenant's expense of any such items or Landlord and Tenant have
otherwise agreed in writing in connection with Landlord's consent to any Tenant-
Made Alterations. Tenant shall repair any damage caused by such removal.
Tenant, at its own cost and expense and without Landlord's prior approval,
may erect such shelves, bins, machinery and trade fixtures (collectively "Trade
Fixtures") in the ordinary course of its business, provided that such items do
not alter the basic character of the Premises, do not overload or damage the
Premises, and may be removed without injury to the Premises, and the
construction, erection, and installation thereof complies with all Legal
Requirements and with Landlord's requirements set forth above. Tenant shall
remove its Trade Fixtures and shall repair any damage caused by such removal.
13. SIGNS. Tenant shall not make any changes to the exterior of the Premises,
install any exterior lights, decorations, balloons, flags, pennants, banners, or
painting, or erect or install any signs, windows or door lettering, placards,
decorations, or advertising media of any type which can be viewed from the
exterior of the Premises, without Landlord's prior written consent. Upon
surrender or vacation of the Premises, Tenant shall have removed all signs and
repair, paint, and/or replace the Building facia surface to which its signs are
attached. Tenant shall obtain all applicable governmental permits and approvals
for sign and exterior treatments. All signs, decorations, advertising media,
blinds, draperies and other window treatment or bars or other security
installations visible from outside the Premises shall be subject to Landlord's
prior written approval and conform in all respects to Landlord's requirements
and to Legal Requirements.
14. PARKING. Tenant shall be entitled to park in common with other tenants of
the Project in those areas designated for nonreserved parking as set forth on
Exhibit A hereto. Landlord may allocate parking spaces among Tenant and other
tenants in the Project if Landlord determines that such parking facilities are
becoming crowded. Landlord shall not be responsible for enforcing Tenant's
parking rights against any third parties.
<PAGE>
15. RESTORATION. If at any time during the Lease Term the Premises are damaged
by a fire or other casualty, Landlord shall notify Tenant within 60 days after
such damage as to the amount of time Landlord reasonably estimates it will take
to restore the Premises. If the restoration time is estimated to exceed 6
months, either Landlord or Tenant may elect to terminate this Lease upon notice
to the other party given no later than 30 days after Landlord's notice. If
neither party elects to terminate this Lease or if Landlord estimates that
restoration will take 6 months or less, then, subject to receipt of sufficient
insurance proceeds, Landlord shall promptly restore the Premises excluding the
improvements installed by Tenant or by Landlord and paid by Tenant, subject to
delays arising from the collection of insurance proceeds or from Force Majeure
events. Tenant at Tenant's expense shall promptly perform, subject to delays
arising from the collection of insurance proceeds, or from Force Majeure events,
all repairs or restoration not required to be done by Landlord and shall
promptly re-enter the Premises and commence doing business in accordance with
this Lease. Notwithstanding the foregoing, either party may terminate this
Lease if the Premises are damaged during the last year of the Lease Term and
Landlord reasonably estimates that it will take more than one month to repair
such damage. Tenant shall pay to Landlord with respect to any damage to the
Premises the amount of the commercially reasonably deductible under Landlord's
insurance policy (currently US$10,000) within 10 days after presentment of
Landlord's invoice. If the damage involves the premises of other tenants,
Tenant shall pay the portion of the deductible that the cost of the restoration
of the Premises bears to the total cost of restoration, as determined by
Landlord. Base Rent and Operating Expenses shall be abated in the proportion
which the area of the Premises, if any, which is not usable by Tenant bears to
the total area of the Premises from the date of the casualty through the period
of repair and restoration until the Premises are repaired. Such abatement shall
be the sole remedy of Tenant, and except as provided herein, Tenant waives any
right to terminate the Lease by reason of damage or casualty loss.
16. CONDEMNATION. If any part of the Premises or the Project should be taken
for any public or quasi-public use under governmental law, ordinance, or
regulation, or by right of eminent domain, or by private purchase in lieu
thereof (a "Taking" or "Taken"), and the Taking would prevent or materially
interfere with Tenant's use of the Premises or in Landlord's judgment would
materially interfere with or impair its ownership or operation of the Project,
then upon written notice by Landlord this Lease shall terminate and Base Rent
shall be apportioned as of said date. If part of the Premises shall be Taken,
and this Lease is not terminated as provided above, the Base Rent payable
hereunder during the unexpired Lease Term shall be reduced to such extent as may
be fair and reasonable under the circumstances. In the event of any such
Taking, Landlord shall be entitled to receive the entire price or award from any
such Taking without any payment to Tenant, and Tenant hereby assigns to Landlord
Tenant's interest, if any, in such award. Tenant shall have the right, to the
extent that same shall not diminish Landlord's award, to make a separate claim
against the condemning authority (but not Landlord) for such compensation as may
be separately awarded or recoverable by Tenant for moving expenses and damage to
Tenant's Trade Fixtures, if a separate award for such items is made to Tenant.
17. ASSIGNMENT AND SUBLETTING. Without Landlord's prior written consent,
Tenant shall not assign this Lease or sublease the Premises or any part thereof
or mortgage, pledge, or hypothecate its leasehold interest or grant any
concession or license within the Premises and any attempt to do any of the
foregoing shall be void and of no effect. For purposes of this paragraph, a
transfer of the ownership interests controlling Tenant shall be deemed an
assignment of this Lease unless such ownership interests are publicly traded.
Notwithstanding the above, Tenant may assign or sublet the Premises, or any part
thereof, to any entity controlling Tenant, controlled by Tenant or under common
control with Tenant (a "Tenant Affiliate"), without the prior written consent of
Landlord. Tenant shall reimburse Landlord for all of Landlord's reasonable out-
of-pocket expenses in connection with any assignment or sublease. Upon
Landlord's receipt of Tenant's written notice of a desire to assign or sublet
the Premises, or any part thereof (other than to a Tenant Affiliate), Landlord
may, by giving written notice to Tenant within 30 days after receipt
<PAGE>
of Tenant's notice, terminate this Lease with respect to the space described in
Tenant's notice, as of the date specified in Tenant's notice for the
commencement of the proposed assignment or sublease.
Notwithstanding any assignment or subletting, Tenant and any guarantor or
surety of Tenant's obligations under this Lease shall at all times remain fully
responsible and liable for the payment of the rent and for compliance with all
of Tenant's other obligations under this Lease. In the event that the rent due
and payable by a sublessee or assignee (or a combination of the rental payable
under such sublease or assignment plus any bonus or other consideration therefor
or incident thereto) exceeds the rental payable under this Lease, then Tenant
shall be bound and obligated to pay Landlord as additional rent hereunder all
such excess rental and other excess consideration within 10 days following
receipt thereof by Tenant.
If this Lease be assigned or if the Premises be subleased (whether in whole
or in part) or in the event of the mortgage, pledge, or hypothecation of
Tenant's leasehold interest or grant of any concession or license within the
Premises or if the Premises be occupied in whole or in part by anyone other than
Tenant, then upon a default by Tenant hereunder Landlord may collect rent from
the assignee, sublessee, mortgagee, pledgee, party to whom the leasehold
interest was hypothecated, concessionee or licensee or other occupant and,
except to the extent set forth in the preceding paragraph, apply the amount
collected to the next rent payable hereunder; and all such rentals collected by
Tenant shall be held in deposit for Landlord and immediately forwarded to
Landlord. No such transaction or collection of rent or application thereof by
Landlord, however, shall be deemed a waiver of these provisions or a release of
Tenant from the further performance by Tenant of its covenants, duties, or
obligations hereunder.
18. INDEMNIFICATION. Except for the negligence and willful misconduct of
Landlord, its agents, employees or contractors, and to the extent permitted by
law, Tenant agrees to indemnify, defend and hold harmless Landlord, and
Landlord's agents, employees and contractors, from and against any and all
losses, liabilities, damages, costs and expenses (including attorney's fees)
resulting from claims by third parties for injuries to any person and damage to
or theft or misappropriation or loss of property occurring in or about the
Project and arising from the use and occupancy of the Premises or from any
activity, work, or thing done, permitted or suffered by Tenant in or about the
Premises or due to any other act or omission of Tenant, its subtenants,
assignees, invitees, employees, contractors and agents. The furnishing of
insurance required hereunder shall not be deemed to limit Tenant's obligations
under this Paragraph 18.
19. INSPECTION AND ACCESS. Landlord and its agents, representatives, and
contractors may enter the Premises at any reasonable time to inspect the
Premises and to make such repairs as may be required or permitted pursuant to
this Lease and for any other business purpose. Landlord and Landlord's
representatives may enter the Premises during business hours for the purpose of
showing the Premises to prospective purchasers and, during the last year of the
Lease Term, to prospective tenants. Landlord may erect a suitable sign on the
Premises stating the Premises are available to rent or that the Project is
available for sale. Landlord may grant easements, make public dedications,
designate common areas and create restrictions on or about the Premises,
provided that no such easement, dedication, designation or restriction
materially interferes with Tenant's use or occupancy of the Premises. At
Landlord's request, Tenant shall execute such instruments as may be necessary
for such easements, dedications or restrictions.
20. QUIET ENJOYMENT. If Tenant shall perform all of the covenants and
agreements herein required to be performed by Tenant, Tenant shall, subject to
the terms of this Lease, at all times during the Lease Term, have peaceful and
quiet enjoyment of the Premises against any person claiming by, through or under
Landlord.
21. SURRENDER. Upon termination of the Lease Term or earlier termination of
Tenant's right of possession, Tenant shall surrender the Premises to Landlord in
the same condition as received, broom clean, ordinary wear and tear and casualty
loss and
<PAGE>
condemnation covered by Paragraphs 15 and 16 excepted. Any Trade Fixtures,
Tenant-Made Alterations and property not so removed by Tenant as permitted or
required herein shall be deemed abandoned and may be stored, removed, and
disposed of by Landlord at Tenant's expense, and Tenant waives all claims
against Landlord for any damages resulting from Landlord's retention and
disposition of such property. All obligations of Tenant hereunder not fully
performed as of the termination of the Lease Term shall survive the termination
of the Lease Term, including without limitation, indemnity obligations, payment
obligations with respect to Operating Expenses and obligations concerning the
condition and repair of the Premises.
22. HOLDING OVER. If Tenant retains possession of the Premises after the
termination of the Lease Term, unless otherwise agreed in writing, such
possession shall be subject to immediate termination by Landlord at any time,
and all of the other terms and provisions of this Lease (excluding any expansion
or renewal option or other similar right or option) shall be applicable during
such holdover period, except that Tenant shall, in addition to all other
payments required hereunder, pay Landlord from time to time, upon demand, as
Base Rent for the holdover period, an amount equal to double the Base Rent in
effect on the termination date, computed on a monthly basis for each month or
part thereof during such holding over. In addition, Tenant shall be liable for
all damages incurred by Landlord as a result of such holding over. No holding
over by Tenant, whether with or without consent of Landlord, shall operate to
extend this Lease except as otherwise expressly provided, and this Paragraph 22
shall not be construed as consent for Tenant to retain possession of the
Premises.
23. EVENTS OF DEFAULT. Each of the following events shall be an event of
default ("Event of Default") by Tenant under this Lease:
i. Tenant shall fail to pay any installment of Base Rent or any other
payment required herein when due, and such failure shall continue for a
period of 5 days from the date of Tenant's receipt of written notice from
Landlord of such failure; provided, however, that Landlord shall not be
obligated to provide more than two (2) such written notices in any twelve
(12) month consecutive period, and Tenant's failure to pay any third or
subsequent installment of Base Rent payable within such twelve (12) month
period within five (5) days after the due date thereof shall constitute an
Event of Default by Tenant.
ii. Tenant or any guarantor or surety of Tenant's obligations hereunder
shall (A) make a general assignment for the benefit of creditors; (B)
commence any case, proceeding or other action seeking to have an order for
relief entered on its behalf as a debtor or to adjudicate it bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, liquidation,
dissolution or composition of it or its debts or seeking appointment of a
receiver, trustee, custodian or other similar official for it or for all or
of any substantial part of its property (collectively a "proceeding for
relief"); (C) become the subject of any proceeding for relief which is not
dismissed within 60 days of its filing or entry; or (D) be dissolved or
otherwise fail to maintain its legal existence (if Tenant, guarantor or
surety is a corporation, partnership or other entity).
iii. Any insurance required to be maintained by Tenant pursuant to this
Lease is not obtained or shall be canceled or terminated or shall expire,
except, in each case, as permitted in this Lease and such failure shall
continue for a period of 5 days from the date of Tenant's receipt of
written notice from Landlord of such failure.
iv. Tenant shall not occupy or shall vacate the Premises or shall fail to
continuously operate its business at the Premises for the permitted use set
forth herein, whether or not Tenant is in monetary or other default under
this Lease and such failure shall continue for a period of 5 days from the
date of Tenant's receipt of written notice from Landlord of such failure.
<PAGE>
v. Tenant shall attempt or there shall occur any assignment, subleasing
or other transfer of Tenant's interest in or with respect to this Lease
except as otherwise permitted in this Lease.
vi. Tenant shall fail to discharge any lien placed upon the Premises in
violation of this Lease within 30 days after any such lien or encumbrance
is filed against the Premises and such failure shall continue for a period
of 5 days from the date of Tenant's receipt of written notice from Landlord
of such failure.
vii. Tenant shall fail to comply with any provision of this Lease other
than those specifically referred to in this Paragraph 23, and such default
shall continue for more than 30 days after Landlord shall have given Tenant
written notice of such default.
24. LANDLORD'S REMEDIES. Upon the occurrence of an Event of Default Landlord
shall have all of the remedies against Tenant permitted by law including,
without limitation, the right to (i) terminate this Lease and recover possession
of the Property or (ii) seek specific performance of this Lease. In either
event, Landlord shall also be entitled to recover from Tenant, as liquidated
damages, the balance of the Base Rent and all other amounts accrued or to accrue
hereunder for the remainder of the unexpired portion of the Term discounted to
present value at the rate of eight percent (8%) per annum, all of which amount
shall be due and payable upon demand.
25. TENANT'S REMEDIES/LIMITATION OF LIABILITY. Landlord shall not be in
default hereunder unless Landlord fails to perform any of its obligations
hereunder within 30 days after written notice from Tenant specifying such
failure (unless such performance will, due to the nature of the obligation,
require a period of time in excess of 30 days, then after such period of time as
is reasonably necessary). All obligations of Landlord hereunder shall be
construed as covenants, not conditions; and, except as may be otherwise
expressly provided in this Lease, Tenant may not terminate this Lease for breach
of Landlord's obligations hereunder. All obligations of Landlord under this
Lease will be binding upon Landlord only during the period of its ownership of
the Premises and not thereafter. The term "Landlord" in this Lease shall mean
only the owner, for the time being of the Premises, and in the event of the
transfer by such owner of its interest in the Premises, such owner shall
thereupon be released and discharged from all obligations of Landlord thereafter
accruing, but such obligations shall be binding during the Lease Term upon each
new owner for the duration of such owner's ownership. Any liability of Landlord
under this Lease shall be limited solely to its interest in the Project, and in
no event shall any personal liability be asserted against Landlord in connection
with this Lease nor shall any recourse be had to any other property or assets of
Landlord.
26. TRANSLATION. This Agreement, in its original form, is prepared in English.
If, for purposes of enforcement of this Agreement, it becomes necessary to
arrange for a Spanish translation by a court approved expert, the party seeking
enforcement of this Agreement will arrange for and pay expenses relating to
translation of this Agreement into Spanish, with the understanding that both
parties must agree on the terms of such translation.
27. ESTOPPEL CERTIFICATES. Tenant agrees, from time to time, within 10 days
after request of Landlord, to execute and deliver to Landlord, or Landlord's
designee, any estoppel certificate requested by Landlord, stating that this
Lease is in full force and effect, the date to which rent has been paid, that
Landlord is not in default hereunder (or specifying in detail the nature of
Landlord's default), the termination date of this Lease and such other matters
pertaining to this Lease as may be requested by Landlord. Tenant's obligation
to furnish each estoppel certificate in a timely fashion is a material
inducement for Landlord's execution of this Lease. No cure or grace period
provided in this Lease shall apply to Tenant's obligations to timely deliver an
estoppel certificate.
28. ENVIRONMENTAL REQUIREMENTS. Except for Hazardous Material contained in
products used by Tenant in de minimis quantities for ordinary cleaning and
office
<PAGE>
purposes, Tenant shall not permit or cause any party to bring any Hazardous
Material upon the Premises or transport, store, use, generate, manufacture or
release any Hazardous Material in or about the Premises without Landlord's prior
written consent. Tenant, at its sole cost and expense, shall operate its
business in the Premises in strict compliance with all Environmental
Requirements and shall remediate in a manner satisfactory to Landlord any
Hazardous Materials released on or from the Project by Tenant, its agents,
employees, contractors, subtenants or invitees. Tenant shall complete and
certify to disclosure statements as requested by Landlord from time to time
relating to Tenant's transportation, storage, use, generation, manufacture or
release of Hazardous Materials on the Premises. The term "Environmental
Requirements" means all applicable present and future statutes, laws,
regulations, ordinances, rules, codes, judgments, orders or other similar
enactments of any governmental authority or agency regulating or relating to
health, safety, or environmental conditions on, under, or about the Premises or
the environment, including without limitation, the General Law of Ecological
Balance and Environmental Protection, Regulations of the General Law of
Ecological Balance and Environmental Protection Regarding Environmental Impact,
Prevention and Control of Air Pollution and of Hazardous Waste, Official Mexican
Standards, International Treaties and the Guidelines issued by the National
Institute of Ecology of Mexico and all state and local counterparts thereto, and
any regulations or policies promulgated or issued thereunder. The term
"Hazardous Materials" means and includes any substance, material, waste,
pollutant, or contaminant listed or defined as hazardous or toxic, under any
Environmental Requirements, asbestos and petroleum, including crude oil or any
fraction thereof, natural gas liquids, liquified natural gas, or synthetic gas
usable for fuel (or mixtures of natural gas and such synthetic gas). As defined
in Environmental Requirements, Tenant is and shall be deemed to be the
"operator" of Tenant's "facility" and the "owner" of all Hazardous Materials
brought on the Premises by Tenant, its agents, employees, contractors or
invitees, and the wastes, by-products, or residues generated, resulting, or
produced therefrom.
Tenant shall indemnify, defend, and hold Landlord harmless from and against
any and all losses (including, without limitation, diminution in value of the
Premises or the Project and loss of rental income from the Project), claims,
demands, actions, suits, damages (including, without limitation, punitive
damages), expenses (including, without limitation, remediation, removal, repair,
corrective action, or cleanup expenses), and costs (including, without
limitation, actual attorneys' fees, consultant fees or expert fees and
including, without limitation, removal or management of any asbestos brought
into the property or disturbed in breach of the requirements of this Paragraph
28, regardless of whether such removal or management is required by law) which
are brought or recoverable against, or suffered or incurred by Landlord,
directly or indirectly, as a result of any release of Hazardous Materials for
which Tenant is obligated to remediate as provided above or any other breach of
the requirements under this Paragraph 28 by Tenant, its agents, employees,
contractors, subtenants, assignees or invitees, regardless of whether Tenant had
knowledge of such noncompliance. The obligations of Tenant under this Paragraph
28 shall survive any termination of this Lease.
Landlord shall have access to, and a right to perform inspections and tests
of, the Premises to determine Tenant's compliance with Environmental
Requirements, its obligations under this Paragraph 28, or the environmental
condition of the Premises. Access shall be granted to Landlord upon Landlord's
prior notice to Tenant and at such times so as to minimize, so far as may be
reasonable under the circumstances, any disturbance to Tenant's operations.
Such inspections and tests shall be conducted at Landlord's expense, unless such
inspections or tests reveal that Tenant has not complied with any Environmental
Requirement, in which case Tenant shall reimburse Landlord for the reasonable
cost of such inspection and tests. Landlord's receipt of or satisfaction with
any environmental assessment in no way waives any rights that Landlord holds
against Tenant.
29. RULES AND REGULATIONS. Tenant shall, at all times during the Lease Term
and any extension thereof, comply with all reasonable rules and regulations at
any time or from time to time established by Landlord covering use of the
Premises and the Project. The
<PAGE>
current rules and regulations are attached hereto. In the event of any conflict
between said rules and regulations and other provisions of this Lease, the other
terms and provisions of this Lease shall control. Landlord shall not have any
liability or obligation for the breach of any rules or regulations by other
tenants in the Project.
30. SECURITY SERVICE. Tenant acknowledges and agrees that, while Landlord may
patrol the Project, Landlord is not providing any security services with respect
to the Premises and that Landlord shall not be liable to Tenant for, and Tenant
waives any claim against Landlord with respect to, any loss by theft or any
other damage suffered or incurred by Tenant in connection with any unauthorized
entry into the Premises or any other breach of security with respect to the
Premises.
31. FORCE MAJEURE. Landlord shall not be held responsible for delays in the
performance of their obligations hereunder when caused by strikes, lockouts,
labor disputes, acts of God, inability to obtain labor or materials or
reasonable substitutes therefor, governmental restrictions, governmental
regulations, governmental controls, delay in issuance of permits, enemy or
hostile governmental action, civil commotion, fire or other casualty, and other
causes beyond the reasonable control of Landlord or Tenant ("Force Majeure");
provided, however, lack of payment or financial problems shall not be considered
as an event of Force Majeure.
32. ENTIRE AGREEMENT. This Lease constitutes the complete agreement of
Landlord and Tenant with respect to the subject matter hereof. No
representations, inducements, promises or agreements, oral or written, have been
made by Landlord or Tenant, or anyone acting on behalf of Landlord or Tenant,
which are not contained herein, and any prior agreements, promises,
negotiations, or representations are superseded by this Lease. This Lease may
not be amended except by an instrument in writing signed by both parties hereto.
33. SEVERABILITY. If any clause or provision of this Lease is illegal, invalid
or unenforceable under present or future laws, then and in that event, it is the
intention of the parties hereto that the remainder of this Lease shall not be
affected thereby. It is also the intention of the parties to this Lease that in
lieu of each clause or provision of this Lease that is illegal, invalid or
unenforceable, there be added, as a part of this Lease, a clause or provision as
similar in terms to such illegal, invalid or unenforceable clause or provision
as may be possible and be legal, valid and enforceable.
34. BROKERS. Tenant represents and warrants that it has dealt with no broker,
agent or other person in connection with this transaction and that no broker,
agent or other person brought about this transaction, other than the broker, if
any, set forth on the first page of this Lease, and Tenant agrees to indemnify
and hold Landlord harmless from and against any claims by any other broker,
agent or other person claiming a commission or other form of compensation by
virtue of having dealt with Tenant with regard to this leasing transaction.
a. LIMITATION OF LIABILITY OF TRUSTEES, SHAREHOLDERS AND OFFICERS OF
LANDLORD: Any obligation or liability whatsoever of Landlord, of any of its
parents, subsidiaries or affiliates (collectively "Landlord"), which may
arise at any time under this Lease or any obligation or liability which may
be insured by it pursuant to any other instrument, transaction, or
undertaking contemplated hereby shall not be personally binding upon, nor
shall resort for the enforcement thereof be had to the property of, its
trustees, directors, shareholders, officers, employees or agents,
regardless of whether such obligation or liability is in the nature of
contract, tort, or otherwise, and any liabilities shall be limited solely
to Landlord's interest in the Project, and no recourse shall be had to any
other property or assets of Landlord.
35. MISCELLANEOUS. a. Any payments or charges due from Tenant to Landlord
hereunder shall be considered rent for all purposes of this Lease.
<PAGE>
b. If and when included within the term "Tenant," as used in this
instrument, there is more than one person, firm or corporation, each shall be
jointly and severally liable for the obligations of Tenant.
c. All notices required or permitted to be given under this Lease shall be
in writing and shall be sent by a reputable national overnight courier service,
postage prepaid, or by hand delivery addressed to the parties at their addresses
below, and with a copy sent to Landlord at 14100 East 35th Place, Aurora,
-----------------------------
Colorado 80011. Either party may by notice given as aforesaid change its address
- --------------
for all subsequent notices. Except where otherwise expressly provided to the
contrary, notice shall be deemed given upon delivery.
d. Except as otherwise expressly provided in this Lease or as otherwise
required by law, Landlord retains the absolute right to withhold any consent or
approval.
e. At Landlord's request from time to time Tenant shall furnish Landlord
with true and complete copies of its most recent annual and quarterly financial
statements prepared by Tenant or Tenant's accountants and any other financial
information or summaries that Tenant typically provides to its lenders or
shareholders.
f. Neither this Lease nor a memorandum of lease shall be filed by or on
behalf of Tenant in any public record. Landlord may prepare and file, and upon
request by Landlord Tenant will execute, a memorandum of lease.
g. Words of any gender used in this Lease shall be held and construed to
include any other gender, and words in the singular number shall be held to
include the plural, unless the context otherwise requires. The captions inserted
in this Lease are for convenience only and in no way define, limit or otherwise
describe the scope or intent of this Lease, or any provision hereof, or in any
way affect the interpretation of this Lease.
h. Any amount not paid by Tenant within 10 days after its due date in
accordance with the terms of this Lease shall bear interest from such due date
until paid in full at the lesser of the highest rate permitted by applicable law
or 15 percent per year. It is expressly the intent of Landlord and Tenant at all
times to comply with applicable law governing the maximum rate or amount of any
interest payable on or in connection with this Lease. If applicable law is ever
judicially interpreted so as to render usurious any interest called for under
this Lease, or contracted for, charged, taken , reserved, or received with
respect to this Lease, then it is Landlord's and Tenant's express intent that
all excess amounts theretofore collected by Landlord be credited on the
applicable obligation (or, if the obligation has been or would thereby be paid
in full, refunded to Tenant), and the provisions of this Lease immediately shall
be deemed reformed and the amounts thereafter collectible hereunder reduced,
without the necessity of the execution of any new document, so as to comply with
the applicable law, but so as to permit the recovery of the fullest amount
otherwise called for hereunder.
i. Construction, interpretation and enforcement of this Lease shall be
governed by the laws of the state in which the Project is located, excluding any
principles of conflicts of laws and the parties submit to the jurisdiction of
the competent courts of the corresponding state, waiving hereby the jurisdiction
of any other court to which they may be subject by virtue of their present or
future domiciles or otherwise.
j. Time is of the essence as to the performance of Tenant's obligations
under this Lease.
k. All exhibits and addenda attached hereto are hereby incorporated into
this Lease and made a part hereof. In the event of any conflict between such
exhibits or addenda and the terms of this Lease, such exhibits or addenda shall
control.
<PAGE>
36. CONTINGENCY Notwithstanding anything in the Lease to the contrary,
Tenant's obligations under this Lease are conditioned and contingent upon
Landlord or its nominee or assignee acquiring fee simple title to Tenant's
current property located at Carr. A Matamoros Km. 84 Parque Industrial Reynosa
Cd. Reynosa, Tamps, Mexico. If the condition set forth in the immediately
preceding sentence has not been fulfilled or waived by Tenant within 120
calendar days following the execution of this Lease ("Acquisition Date"), then
either Tenant or Landlord may terminate this Lease by providing written notice
of such termination to the other party within twenty (20) days of the
Acquisition Date. If neither Landlord nor Tenant terminates this Lease within
twenty (20) days following the Acquisition Date, then both Landlord and Tenant
shall waive their right to terminate this Lease under this Paragraph 36 and the
Lease shall continue in full force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the
day and year first above written.
<TABLE>
<S> <C>
TENANT: LANDLORD:
CALZADO DEPORTIVO DE REYNOSA, S.A. DE C.V. BANCOMER, S.A., INSTITUCION DE
BANCAMULTIPLE GRUPO FINANCIERO, REPRESENTED
BY SCI MEXICO INDUSTRIAL TRUST
By: /s/ Glenn N. Rupp
Name: Glenn N. Rupp
Title: President By: /s/ Steven K. Meyer
Name: Steven K. Meyer
Title: Sr. Vice President
</TABLE>
Address: Address:
___________________________________________
___________________________________________
___________________________________________
<PAGE>
EXHIBIT 11
CONVERSE INC. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------ -----------------------------
JUNE 28, 1997 JULY 4, 1998 JUNE 28, 1997 JULY 4, 1998
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Basic:
- -----
Weighted average number of shares
outstanding.............................. 17,256 17,320 17,244 17,319
Income (loss) available to stockholders.... $ 4 $(1,516) $12,684 $(2,679)
Basic earnings (loss) per share............ $ 0.00 $ (0.09) $ 0.74 $ (0.15)
Diluted:
- --------
Weighted average number of common shares
outstanding.............................. 17,256 17,320 17,244 17,319
Weighted average incremental shares from
assumed conversion of common stock
equivalents.............................. 595 ---- 612 ----
Weighted average incremental shares from
assumed conversion of convertible debt
securities............................... ---- ---- 765 ----
------- ------- ------- -------
17,851 17,320 18,621 17,319
Income (loss) available to common
stockholders............................ $ 4 $(1,516) $12,684 $(2,679)
Add interest (net of taxes) on bonds
assumed to be converted into common
stock................................... ---- ---- 363 ----
------- ------- ------- -------
$ 4 $(1,516) $13,047 $(2,679)
Diluted earnings (loss) per share.......... $ 0.00 $ (0.09) $ 0.70 $ (0.15)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM _____________
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> JAN-04-1998
<PERIOD-END> JUL-04-1998
<CASH> 2,669
<SECURITIES> 0
<RECEIVABLES> 73,515
<ALLOWANCES> 2,071
<INVENTORY> 90,517
<CURRENT-ASSETS> 173,196
<PP&E> 32,362
<DEPRECIATION> 12,722
<TOTAL-ASSETS> 223,103
<CURRENT-LIABILITIES> 157,605
<BONDS> 80,000
0
0
<COMMON> 17,320
<OTHER-SE> (65,637)
<TOTAL-LIABILITY-AND-EQUITY> 223,103
<SALES> 173,591
<TOTAL-REVENUES> 183,078
<CGS> 126,039
<TOTAL-COSTS> 177,719
<OTHER-EXPENSES> (677)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,187
<INCOME-PRETAX> (2,151)
<INCOME-TAX> 528
<INCOME-CONTINUING> (2,679)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,679)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
