<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 9, 1998
REGISTRATION NO. 333__
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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
NORTH READING, MA 01864
(978) 664-1100
JACK A. GREEN
SENIOR VICE PRESIDENT ADMINISTRATION, GENERAL COUNSEL AND SECRETARY
CONVERSE INC.
ONE FORDHAM ROAD
NORTH READING, MA 01864
(978) 664-1100
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [ X ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
--------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================================
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) FEE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, without par value............. 360,000 shares $2.34 $842,400 $249
===================================================================================================================
</TABLE>
(1) REPRESENTS THE MAXIMUM NUMBER OF SHARES INITIALLY ISSUABLE UPON EXERCISE OF
OUTSTANDING WARRANTS AND, PURSUANT TO RULE 416 OF THE SECURITIES ACT, AN
INDETERMINATE NUMBER OF ADDITIONAL SHARES OF COMMON STOCK AS MAY BE ISSUED
OR BECOME ISSUABLE UPON EXERCISE OF SUCH WARRANTS PURSUANT TO THE ANTI-
DILUTION PROVISIONS OF THE WARRANTS.
(2) ESTIMATED SOLELY FOR THE PURPOSE OF CALCULATING THE REGISTRATION FEE
PURSUANT TO RULE 457(C) BASED UPON THE AVERAGE OF THE HIGH AND LOW PRICES OF
THE REGISTRANT'S COMMON STOCK AS REPORTED ON THE NEW YORK STOCK EXCHANGE ON
DECEMBER 7, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
SUBJECT TO COMPLETION, DATED DECEMBER 9, 1998
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+ THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. +
+ THE SELLING STOCKHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE +
+ REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE +
+ COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE +
+ SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN +
+ ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. +
+ +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS
360,000 SHARES
CONVERSE INC.
COMMON STOCK
(NO PAR VALUE)
This Prospectus relates to the resale of up to 360,000 shares of Common
Stock, no par value, of Converse Inc. These shares are issuable upon the
exercise of warrants that we issued to certain purchasers of our senior secured
notes.
We will not receive any proceeds from the Selling Stockholders' sale of
Common Stock, but will receive the exercise prices payable upon the exercise of
the warrants.
The Common Stock trades on the New York Stock Exchange under the symbol
"CVE." The closing price of the Common Stock as reported on the New York Stock
Exchange on December 7, 1998 was $2.25 per share.
INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
PURCHASE SHARES ONLY IF YOU CAN AFFORD A COMPLETE LOSS. SEE "RISK FACTORS"
BEGINNING ON PAGE 3 FOR A DISCUSSION OF CERTAIN FACTORS THAT YOU SHOULD
CONSIDER.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Our principal executive offices are located at One Fordham Road, North
Reading, Massachusetts 01864, and our telephone number is (978) 664-1100.
Prospectus dated December 9, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Where You Can Find More Information.......................................... 2
Special Note Regarding Forward-Looking Statements............................ 3
Risk Factors................................................................. 3
The Company................................................................. 5
Use of Proceeds.............................................................. 5
Selling Stockholders......................................................... 5
Plan of Distribution......................................................... 6
Legal Matters................................................................ 7
Experts...................................................................... 7
Material Changes............................................................. 7
</TABLE>
Unless the context indicates otherwise, the terms the "Company" and
"Converse" and references to "we," "us" and "our" in this Prospectus refer to
Converse Inc. and its subsidiaries.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are also available
to the public from our web site at http://www.converse.com or at the SEC's web
site at http://www.sec.gov.
This Prospectus is part of a registration statement on Form S-3 that we have
filed with the SEC. The SEC allows us to "incorporate by reference" the
information we file with them, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this Prospectus, and later
information that we file with the SEC will automatically update and may
supersede this information. We incorporate by reference the documents listed
below and any future filings we make with the SEC under Sections 13(a), 13(c),
14 or 15(d) of the Securities Exchange Act of 1934 until the Selling
Stockholders have sold all of their shares of Common Stock issuable upon
exercise of their warrants.
. Our Annual Report on Form 10-K for the year ended January 3, 1998.
. Our Quarterly Reports on Form 10-Q for the quarters ended April 4, 1998,
July 4, 1998 and October 3, 1998.
. The description of the Common Stock set forth in our Form 10/A Amendment
No. 2 to our Registration Statement on Form 10, filed with the SEC on
November 23, 1994.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
Jack A. Green, Secretary
Converse Inc.
One Fordham Road
North Reading, Massachusetts 01864
(978) 664-1100
You should rely only on the information incorporated by reference or provided
in this Prospectus or any supplement. We have not authorized anyone else to
provide you with different information. We are not making an offer of the shares
of
2
<PAGE>
Common Stock in any state where the offer is not permitted. You should not
assume that the information in this Prospectus or any supplement is accurate as
of any date other than the date on the front of those documents.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus under the captions "Risk Factors" or
incorporated by reference herein constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"). Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, performance
or activities, or industry results, to be materially different from any future
results, performance or activities that such forward-looking statements discuss
or imply. Such factors include: general economic and business conditions, the
financial condition of the Company, competition, and other factors discussed in
this Prospectus. See "Risk Factors."
RISK FACTORS
You should carefully consider the following factors, together with other
information contained and incorporated by reference in this Prospectus, before
you decide to purchase shares of our Common Stock.
RECENT OPERATING RESULTS; INDUSTRY CONDITIONS
We sustained net losses of $71.7 million and $18.4 million in 1995 and 1996,
respectively, and had net income of $5.0 million in 1997. For the nine months
ended October 3, 1998, we had a net loss pf $7.0 million. We also had an
accumulated stockholders' deficit of $52.7 million at October 3, 1998. Since
1997, there has been a significant slowdown in the branded athletic footwear
industry, led by the diminishing importance of basketball shoes worn casually
all over the world. The slowdown has been magnified by the economic problems
being experienced in the Southeast Asian and Latin America regions. Our net
sales for the nine months ended October 3, 1998 decreased 30.3% to $251.9
million from $361.2 million for the same period in 1997. The sales decline in
1998 is indicative of the continued industry-wide softening of demand for
athletic footwear that has negatively impacted the Company. This weakening
demand has led to an excessive amount of retail inventory levels of athletic
footwear. We can provide no assurance that we can obtain consistent
profitability or that we can maintain any profitability that we might achieve.
COMPETITION; CHANGES IN CONSUMER PREFERENCES
The branded athletic footwear industry is highly competitive. Our success
depends on our ability to anticipate and respond to changing merchandise trends
and consumer preferences and demands in a timely manner. If we fail to
anticipate and respond to changing trends and consumer preferences and demands,
consumer acceptance of our brand name and product line could be materially
adversely affected.
FOREIGN PRODUCTION
We utilize independent producers located in the Far East, particularly China,
Taiwan, Macau, Vietnam and the Philippines, to manufacture approximately 64% of
our footwear. We also operate a facility in Mexico for the stitching of canvas
uppers for certain athletic originals category footwear. Our operations are
subject to the customary risks of doing business abroad, including fluctuations
in the value of currencies, import and export duties and trade barriers
(including quotas), restrictions on the transfer of funds, work stoppage and, in
certain parts of the world, political instability.
ECONOMIC CONDITIONS AND SEASONALITY
Converse and the footwear industry are dependent on the economic environment
and levels of consumer spending which effect not only the ultimate consumer, but
also retailers, Converse's primary direct customers. Downward trends in the
economy or events that adversely affect the economy in general, may adversely
affect our results. Sales of Converse's footwear products are somewhat seasonal
in nature with the strongest sales generally occurring in the first and third
quarters. Any prolonged economic downturn or changes in consumer spending
patterns could have a material adverse effect on us.
3
<PAGE>
INTERNATIONAL SALES AND CURRENCY EXCHANGE
International sales represent a significant portion of our Net Sales. A
significant portion of our international sales are made through international
distributors. Our future operating results will depend, in part, on the
relationships with these companies. Additionally, changes in demand resulting
from fluctuations in currency exchange rates may affect our international sales.
Foreign distributor agreements are generally denominated in U.S. dollars. All
international sales are denominated in U.S. dollars and an increase in the value
of the U.S. dollar relative to foreign currencies could make Converse products
less competitive in those markets. During 1998, we used foreign exchange
forward contracts and put options to protect the Company from the effect of
changes in foreign exchange rates on our statement of operations. International
sales and operations may also be subject to risks such as the imposition of
governmental controls, export license requirements, political instability, trade
restrictions, changes in tariffs and difficulties in staffing and managing
international operations and managing accounts receivable. In addition, the
laws of certain countries do not protect Converse's products and intellectual
property rights to the same extent as the laws of the United States. Any of
these factors could have a material adverse effect on us.
RISKS ASSOCIATED WITH THE YEAR 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. In other words, date-
sensitive software may recognize a date using "00" as the year 1900 rather than
the year 2000. This could result in systems failures or miscalculations causing
disruptions of operations, including, among others, a temporary inability to
process transactions, send invoices or engage in similar normal business
activities.
While we are in the process of conducting an evaluation of the Year 2000
issue on our business, we do not believe that we have a material exposure to the
Year 2000 issue with respect to our own information systems. We are also
conducting an analysis to determine the extent to which our major suppliers and
customers' systems (insofar as they relate to Converse business) are not Year
2000 compliant or otherwise at risk with respect to the Year 2000 issue. We are
currently unable to predict the extent to which the Year 2000 issue will affect
our suppliers and customers, or the extent to which we would be vulnerable to
our suppliers and customers' failure to remediate any Year 2000 issue on a
timely basis. The failure of a major supplier or customer to convert its systems
on a timely basis or a conversion that is incompatible with our systems could
have a material adverse effect on us.
CONTROLLING STOCKHOLDERS
Apollo Investment Fund, L.P. ("Apollo") and its affiliate Lion Advisors,
L.P., on behalf of an investment account under management ("Lion"; Apollo and
Lion together being referred to herein as the "Apollo Stockholders"), together
beneficially owned approximately 65% of the outstanding Common Stock at October
3, 1998. By reason of their ownership of shares of Common Stock, the Apollo
Stockholders have the power effectively to control or influence control of
Converse, including in elections of the Board of Directors and other matters
submitted to a vote of our stockholders, including extraordinary corporate
transactions such as mergers. The Apollo Stockholders may exercise such control
from time to time. A majority of the Board of Directors consists of individuals
associated with affiliates of Apollo and Lion.
SHARES ELIGIBLE FOR FUTURE SALE
The Apollo Stockholders have the right to cause Converse to register the
shares of Common Stock that they own pursuant to a registration rights
agreement. Future sales of such shares, or the availability of such shares for
future sale, could adversely affect the market prices for the Common Stock.
ANTI-TAKEOVER PROVISIONS
Our Restated Certificate of Incorporation (i) provides that our Board of
Directors may issue preferred stock without stockholder approval, (ii) prohibits
stockholder action by written consent and (iii) requires 75% ("supermajority")
stockholder vote to alter, amend, repeal or adopt certain provisions of the
Restated Certificate of Incorporation. In addition, our Restated Certificate of
Incorporation limits the ability of any person who is the beneficial owner of
more than 10% of our outstanding voting stock to effect certain transactions
involving Converse unless a majority of the Disinterested Directors (as defined
in the Restated Certificate of Incorporation of the Company) approves them.
These provisions could make it more difficult for a third-party to acquire us.
4
<PAGE>
THE COMPANY
Converse is a leading global designer, manufacturer and marketer of high
quality athletic footwear for men, women and children. The Company is also a
global licensor of sports apparel, accessories and selected footwear. The
Company, founded in 1908, began establishing its authentic footwear heritage
with the introduction of its original canvas Chuck Taylor(R) basketball shoe in
1923. Throughout its 90-year history, Converse has achieved a high level of
brand name recognition due to its reputation for high performance products,
quality, value and style. Through its well-known Converse(R) All Star(R) brand,
the Company has consistently maintained its position as the American performance
brand with authentic sports heritage.
USE OF PROCEEDS
Converse will not receive any proceeds from the Selling Stockholders' sale of
Common Stock.
SELLING STOCKHOLDERS
None of the Selling Stockholders is an affiliate of Converse or, except as
indicated in the footnotes to the following tables, has had any position, office
or other material relationship with Converse or any of its affiliates within the
past three years except as a stockholder or debt holder of the Company. The
following table sets forth information with respect to the Selling Stockholders,
based upon information supplied by them.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY OWNED
OWNED PRIOR TO THE SHARES AFTER
NAME OF SELLING STOCKHOLDER OFFERING (1) BEING OFFERED (2) THE OFFERING (2)
- --------------------------- -------------------- ----------------- -------------------------
<S> <C> <C> <C>
B III Capital Partners, L.P. 91,412 91,412 0
DDJ Canadian High Yield Fund 58,588 58,588 0
Foothill Partners III, L.P. 150,000 150,000 0
Libra Investments, Inc. (3) 60,000 60,000 0
</TABLE>
(1) Represents maximum number of shares that may be issued upon exercise of the
Warrants (without adjustment pursuant to anti-dilution provisions thereof).
(2) Assumes the sale of all shares offered hereby. The Selling Stockholders may
offer all, some or none of their shares.
(3) Libra Investments, Inc. served as placement agent for, and received an
underwriting fee of approximately $1.0 million in connection with, the
Private Placement.
PLAN OF DISTRIBUTION
The 360,000 shares offered hereby (the "Shares") may be sold from time to
time by the Selling Stockholders in one or more transactions in the over-the-
counter market, in negotiated transactions or a combination of such methods of
sale, at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
The Shares may be sold from time to time directly to purchasers by the
Selling Stockholders and/or by their assignees, transferees, pledgees, donees or
other successors for their own accounts and not for the account of the Company.
Alternatively, the Selling Stockholders may from time to time offer the Shares
through brokers, dealers or agents, who may receive compensation in the form of
underwriting discounts, commissions or concessions from the Selling Stockholders
and the purchasers of the Shares for whom they may act as agent. Each Selling
Stockholder will be responsible for payment of commissions, concessions and
discounts of brokers, dealers or agents. The aggregate proceeds to the Selling
Stockholders
5
<PAGE>
from the sale of the Shares offered by them hereby will be the purchase price of
such Shares less discounts and commissions, if any. Each of the Selling
Stockholders reserves the right to accept and, together with their agents from
time to time to reject, in whole or in part, any proposed purchase of Shares to
be made directly or through agents. The Company will not receive any of the
proceeds from this offering.
Sales of Shares may be effected by the Selling Stockholders from time to time
in one or more types of transactions: (i) on the New York Stock Exchange; (ii)
in the over-the-counter market; (iii) in negotiated transactions or pledges;
(iv) through ordinary broker's transactions and transactions in which the broker
solicits purchasers; (iv) through one or more broker-dealers for resale of such
shares for their own account as principals pursuant to this Prospectus; (v) in a
block trade (which may involve crosses) in which the broker or dealer so engaged
will attempt to sell the securities as agent, but may position and resell a
portion of the block as principal to facilitate the transaction; or (vi) in
exchange distributions and/or secondary distributions, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. Selling Stockholders also may resell all or a
portion of the Shares in open market transactions in reliance upon Section 4(1)
of the Securities Act of 1933 or Rule 144 promulgated thereunder, provided they
meet the criteria and conform to the requirements thereof.
In connection with distributions of the Shares or otherwise, the Selling
Stockholders may enter into hedging transactions with broker-dealers. In
connection with such transactions, broker-dealers may engaged in short sales of
the Shares in the course of hedging the positions they assume with Selling
Stockholders. The Selling Stockholders also may sell Shares short and deliver
the Shares to close out such short positions. The Selling Stockholders also may
enter into option or other transactions with broker-dealers which require the
delivery to the broker-dealer of the Shares, which the broker-dealer may resell
pursuant to this Prospectus. The Selling Stockholders also may pledge the
Shares to a broker or dealer, and, upon a default, the broker or dealer may
effect sales of the pledged Shares pursuant to this Prospectus.
The Selling Stockholders and/or their assignees, transferees, donees,
pledgees or other successors in interest through whom the Shares are sold may be
deemed "underwriters" within the meaning of Section 2(11) of the Securities Act,
with respect to the Shares offered, and any profits realized or commissions
received may be deemed to be underwriting compensation. Any broker-dealers that
participate in the distribution of the Shares also may be deemed to be
"underwriters," as defined in the Securities Act, and any commissions,
discounts, concessions or other payments made to them, or any profits realized
by them upon the resale of any Shares purchased by them as principals, may be
deemed to be underwriting commissions or discounts under the Securities Act. The
Selling Stockholders have advised the Company that they have not entered into
any agreements, understandings or arrangements with any underwriters or broker-
dealers regarding the sale of their Shares, nor is there an underwriter or
coordinating broker acting in connection with the proposed sale of Shares by the
Selling Stockholders.
Because the Selling Stockholders may be deemed to be "underwriters' within
the meaning of Section 2(11) of the Securities Act, the Selling Stockholders
will be subject to the prospectus delivery requirements of the Securities Act,
which may include delivery through the facilities of the New York Stock Exchange
pursuant to Rule 153 under the Securities Act. The Company has informed the
Selling Stockholders that the anti-manipulative provisions of Regulation M under
the Securities Exchange Act of 1934 may apply to their sales in the market.
Upon the Company being notified by a Selling Stockholder that any material
arrangement has been entered into with a broker-dealer for the sale of Shares
through a block trade, special offering, exchange distribution or secondary
distribution or a purchase by a broker or dealer, a supplement to this
Prospectus will be filed, if required, pursuant to Rule 424(c) under the
Securities Act, disclosing (i) the name of each such Selling Stockholder and of
the participating broker-dealer(s), (ii) the number of shares involved, (iii)
the price at which such shares were sold, (iv) the commissions paid or discounts
or concessions allowed to such broker-dealer(s), where applicable, (v) that such
broker-dealers(s) did not conduct any investigation to verify the information
set out or incorporated by reference in this Prospectus and (vi) other facts
material to the transaction. In addition, upon the Company being notified by a
Selling Stockholder that a donee or pledgee intends to sell more than 500
shares, a supplement to this Prospectus will be filed.
Registration of the Shares is being made pursuant to the individual Warrant
agreements between the Company and each of the Selling Stockholders. Pursuant to
the terms of such agreements, the Company will bear all costs, expenses and fees
in connection with the registration of the Shares offered hereby. The Selling
Stockholders will pay all commissions, discounts or other fees payable to a
broker, dealer, underwriter, agent or market maker in connection with the sale
of any of the Shares. The Company also has agreed to indemnify the Selling
Stockholders, any person who controls a Selling Stockholder and, under certain
circumstances, any underwriters (and their controlling persons) for the Selling
Stockholders
6
<PAGE>
against certain liabilities and expenses arising out of or based upon the
information set forth or incorporated by reference in this Prospectus and the
Registration Statement of which this Prospectus is a part, including liabilities
under the Securities Act.
There can be no assurance that any of the Selling Stockholders will sell any
or all of the Shares offered by them hereunder.
LEGAL MATTERS
The validity of the shares offered hereby will be passed upon for the Company
by Jack A. Green, it's General Counsel.
EXPERTS
The Consolidated Financial Statements of Converse Inc. and subsidiaries as of
January 3, 1998 and December 28, 1997 and for the years ended January 3, 1998,
December 28, 1996 and December 30, 1995 incorporated herein and in the
Registration Statement by reference to the Annual Report on Form 10-K for the
year ended January 3, 1998 have been so incorporated in reliance upon the report
of PricewaterhouseCoopers LLP, independent accountants, given on the authority
of said firm as experts in accounting and auditing.
MATERIAL CHANGES
In September 1998, the Company issued $28.6 million aggregate principal
amount of 15% Senior Secured Notes due September 16, 2000 (the "Secured Notes").
Interest on the Secured Notes is payable quarterly in arrears. The initial
maturity date may be extended an additional 12 months at the Company's option
upon written notification of it's election to extend and payment of a fee equal
to 3% of the then outstanding principal amount of the Secured Notes. The first
extended maturity date may be further extended to May 21, 2002 at the Company's
option upon written notification of it's election to extend and payment of an
additional fee equal to 3% of the then outstanding principal amount of the
Secured Notes. The Secured Notes were issued in two series: Series A in the
aggregate principal amount of approximately $24.8 million and Series B in the
aggregate principal amount of approximately $3.8 million. The Secured Notes are
redeemable at any time at face amount plus accrued interest. The Secured Notes
require compliance with customary affirmative and negative covenants, including
certain financial covenants, substantially the same as the requirements
contained in the Company's revolving credit facility.
Upon issuance of the Series A Secured Notes the Company received gross
proceeds of $24.0 million after discount from the face amount. In connection
with the issuance of the Series A Secured Notes, the Company issued warrants to
purchase 360,000 shares of the Company's common stock to the purchasers and paid
funding fees to certain purchasers amounting to $350,000. The warrants were
valued at $1.22 per share. The warrants may be exercised at any time after March
16, 1999 and expire on March 16, 2003. The exercise price for the warrants is
the lower of (a) $2.9375 or (b) 120% of the closing market price of Converse
common stock on September 17, 1999. The Company paid an underwriting fee of 4%
of the gross proceeds, or $960,000, with respect to the Series A Secured Notes.
The Series A Secured Notes carry a second priority perfected lien on all real
and personal, tangible and intangible assets of the Company.
The Series B Secured Notes were issued in exchange for the surrender of
$5,735,000 face amount of the Company's outstanding 7% Convertible Subordinated
Notes, which were subsequently cancelled by the Company. In connection with the
issuance of the Series B Secured Notes, the Company paid an underwriting fee of
2% of the face amount, or $76,000. The Series B Secured Notes carry a third
priority perfected lien on all real and personal, tangible and intangible assets
of the Company.
In connection with this placement, the Company's revolving credit facility
was amended to permit this private placement, decrease the commitment under the
credit facility from $150 million to $120 million and reset a financial covenant
contained in the facility.
The pro forma information set forth below gives effect to the issuance of the
Secured Notes. Gross cash proceeds received by the Company from this financing
include $24 million in cash as well as the surrender of approximately $5.7
million of the Company's outstanding convertible subordinated notes, which have
been cancelled, and the amendment of the Credit Facility as if they occurred on
the first day of the period presented.
7
<PAGE>
CONVERSE INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
---------------------------------------------- ------------------------------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA
OCTOBER 3, PRO FORMA OCTOBER 3, JANUARY 3, PRO FORMA JANUARY 3,
1998 ADJUSTMENTS 1998 1998 ADJUSTMENTS 1998
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales......................... $ 251,877 -- $251,877 $450,199 -- $450,199
Cost of sales..................... 188,281 -- 188,281 329,258 -- 329,258
--------- -------- -------- -------- ------- --------
Gross profit...................... 63,596 -- 3,596 120,941 -- 120,941
Selling, general and
administrative expenses......... 71,601 -- 1,601 127,261 -- 127,261
Royalty income.................... 14,014 -- 4,014 22,569 -- 22,569
Restructuring expense............. -- -- -- 1,537 -- 1,537
--------- -------- -------- -------- ------- --------
Earnings from operations.......... 6,009 -- 6,009 14,712 -- 14,712
Loss (credit) on investment in (12,537) -- (12,537)
unconsolidated subsidiary....... -- -- --
Interest expense, net............. 12,582 2,352(1) 14,934 15,374 3,486(3) 18,860
Other (income) expense, net....... 97 -- 97 3,026 -- 3,026
--------- -------- -------- -------- ------- --------
Earnings (loss) before income
tax............................. (6,670) (2,352) (9,002) 8,849 (3,486) 5,363
Income tax expense................ 987 -- 987 13,154 -- 13,154
--------- -------- -------- -------- ------- --------
Earnings (loss) from continuing
operations...................... $ (7,657) $ (2,352) $(10,009) $ (4,305) $(3,486) $ (7,791)
========= ======== ======== ======== ======= ========
Net basic and diluted earnings
(loss) per share:
Continuing Operations............. $ (0.44) (0.14)(2) $ (0.58) $ (0.25) (0.20)(4) $ (0.45)
========= ======== ======== ======== ======= ========
Basic and diluted weighted average
number of common shares......... 17,319 -- 17,319 17,272 -- 17,272
========= ======== ======== ======== ======= ========
</TABLE>
PRO FORMA ADJUSTMENTS
The unaudited pro forma financial statements are based on certain assumptions
and estimates which may be subject to change. The follow pro forma adjustments
were recorded:
(1) The increase in pro forma interest expense of $2,352 represents
(i) addition of interest expense of $3,016 related to the Secured Notes at
a interest rate of 15.0%, (ii) addition of amortization of fees, discounts,
and warrants of $1,012 related to the Secured Notes, (iii) addition of $46
representing amortization of bank fees relating to the latest amendment of
the Credit Facility, (iv) elimination of actual interest expense of $1,278
based upon the net pay down of the Credit Facility, (v) net reduction of
the unused line fee of $27 from the Credit Facility, (vi) elimination of
actual interest expense of $282 based upon the cancellation of Convertible
Notes, (vii) elimination of actual amortization of Credit Facility fees of
$85 relating to the reduction of the bank commitments, (viii) elimination
of actual amortization of bond issue fees of $19 relating to the
cancellation of notes, (ix) elimination of actual amortization of Credit
Facility amendment fees of $31 dated November 26, 1997 and May 11, 1998 no
longer applicable due to the latest amendment of the Credit Facility dated
September 16, 1998.
(2) Reflects additional pro forma net loss from continuing operations of $2,352
or $0.14 per share.
8
<PAGE>
(3) The increase in pro forma interest expense of $3,486 represents
(i) addition of interest expense of $4,296 related to the Secured Notes at
an interest rate of 15.0%, (ii) addition of amortization of fees,
discounts, and warrants of $1,442 related to the Secured Notes,
(iii) addition of $66 representing amortization of bank fees relating to
the latest amendment of the Credit Facility, (iv) elimination of actual
interest expenses of $1,936 based upon the net pay down of the Credit
Facility dated September 6, 1998, (v) net reduction of the unused line fee
of $38 from the Credit Facility, (vi) elimination of actual interest
expense of $252 based upon the cancellation of Convertible Notes,
(vii) elimination of actual amortization of Credit Facility fees of $73
relating to the reduction of the bank commitments, (viii) elimination of
actual amortization of bond issue fees of $16 relating to the cancellation
of Convertible Notes, (ix) elimination of actual amortization of Credit
Facility amendment fees of $3 dated November 26, 1997 no longer applicable
due to the latest amendment of the Credit Facility dated September 16,
1998.
(4) Reflects additional pro forma net loss from continuing operations of $3,486
or $0.20 per share.
9
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses to be incurred by
Converse Inc. (the "Company") in connection with the offering of shares of the
Company's Common Stock pursuant to this Registration Statement.
<TABLE>
<CAPTION>
PAYABLE BY
THE COMPANY
-----------
<S> <C>
Securities and Exchange Commission registration fee.......... $ 249
Accounting fees and expenses................................. * 3,000
Legal fees and expenses...................................... * 5,000
Miscellaneous................................................ * 3,000
Total..................................................... $*11,249
========
</TABLE>
* The Securities and Exchange Commission filing is exact. All other amounts are
estimates.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law ("Section 145") permits
indemnification of directors, officers, agents and controlling persons of a
corporation under certain conditions against liabilities they may incur in such
capacities, including liabilities under the Securities Act of 1933, as amended.
Subject to certain limitations, the Company's By-Laws provides for the
indemnification of directors, officers and other authorized representatives of
the Company to the maximum extent permitted by the Delaware General Corporation
Law. Section 145 empowers a corporation to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceedings, whether civil, criminal, administrative
or investigative, by reason of the fact that he is or was a director, officer or
agent of the corporation or another enterprise if serving at the request of the
corporation. Depending on the character of the proceeding, a corporation may
indemnify against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred in connection with
such action, suit or proceeding if the person indemnified acted in good faith
and in a manner he reasonably believed to be in or not opposed to, the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. In the
case of an action by or in the right of the corporation, no indemnification may
be made with respect to any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the extent
that the Court of Chancery or the court in which such action or suit was brought
shall determine that despite the adjudication of liability such person is fairly
and reasonably entitled to indemnity for such expenses which the court shall
deem proper. Section 145 further provides that to the extent a director or
officer of a corporation has been successful in the defense of any action, suit
or proceeding referred to above or in the defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
The Company's By-Laws permit it to purchase insurance on behalf of any such
person against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the Company
would have the power to indemnify him against such liability under the foregoing
provision of the By-Laws.
ITEM 16. EXHIBITS
See Exhibit Index.
II-1
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the Registration Statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Securities and Exchange Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table in the effective Registration Statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement, provided, however, that paragraphs (1)(i) and (1)(ii) do
not apply if the information required to be included in a post-
effective amendment by those paragraphs is contained in periodic
reports filed with or furnished to the Commission by the registrant
pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the Registration
Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of North Reading, Commonwealth of Massachusetts, on
December 9, 1998.
Converse Inc.
By: /S/ Glenn N. Rupp
-----------------------------
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE Title Date
--------- ----- ----
<S> <C> <C>
Chairman of the Board and Chief
Executive Officer (Principal
/s/ Glenn N. Rupp Executive Officer) December 9, 1998
- --------------------------------------------
Glenn N. Rupp
Senior Vice President and Chief
Financial Officer (Principal
/s/ Donald J. Camacho Financial and Accounting Officer) December 9, 1998
- --------------------------------------------
Donald J. Camacho
* Director December 9, 1998
- --------------------------------------------
Donald J. Barr
* Director December 9, 1998
- --------------------------------------------
Leon D. Black
*
- -------------------------------------------- Director December 9, 1998
Julius W. Erving
*
- -------------------------------------------- Director December 9, 1998
Robert H. Falk
*
- -------------------------------------------- Director December 9, 1998
Gilbert Ford
*
- -------------------------------------------- Director December 9, 1998
Michael S. Gross
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C> <C>
* Director December 9, 1998
- -------------------------------------
John J. Hannan
*
- ------------------------------------- Director December 9, 1998
Joshua J. Harris
* Director December 9, 1998
- -------------------------------------
John H. Kissick
* Director December 9, 1998
- -------------------------------------
Richard B. Loynd
* Director December 9, 1998
- -------------------------------------
John J. Ryan
*
- ------------------------------------- Director December 9, 1998
Michael D. Weiner
* By: /s/ Donald J. Camacho
------------------------------
Attorney-in-fact
</TABLE>
II-4
<PAGE>
CONVERSE INC.
EXHIBIT INDEX
DESCRIPTION OF EXHIBITS
-----------------------
4 Warrant Agreement dated September 16, 1998 between the Company and
Foothill Partners III, L.P. for the purchase of 150,000 Shares of
Common Stock.*
5 Opinion of Jack A. Green, General Counsel of Converse Inc.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Jack A. Green, General Counsel of Converse Inc. (included
in Exhibit 5).
24 Power of Attorney.
* Incorporated by reference to Exhibit 10.4 to the Company's Form 10-Q
for the quarter ended October 3, 1998.
<PAGE>
EXHIBIT 5
December 9, 1998
Converse Inc.
One Fordham Road
North Reading, Massachusetts 01864
RE: CONVERSE INC. REGISTRATION STATEMENT ON FORM S-3
Ladies and Gentlemen:
I am employed as General Counsel of Converse Inc., a Delaware corporation
("Converse" or the "Company"), and as such I, and attorneys working for me,
have acted on behalf of Converse as counsel in connection with the
preparation of the Registration Statement on Form S-3 (the "Registration
Statement"), which Converse proposes to file with the Securities and
Exchange Commission. The Registration Statement relates to the registration
under the Securities Act of 1933, as amended (the "Securities Act"), of
360,000 shares of the Company's common stock, without par value (the
"Shares") issuable upon exercise of warrants issued by the Company to
certain investors in September 1998 (the "Warrants").
This opinion is rendered in accordance with the requirements of Item
601(b) (5) of Regulation S-K of the Securities and Exchange Commission.
I, or such attorneys working for me, have examined or considered such
matters of law and fact and such corporate records, certificates and other
documents as I, or they, have deemed necessary. In the course of such
examination, I, and such attorneys working for me, have assumed the
genuineness of all signatures, the authenticity of all documents submitted
as originals and the conformity to the originals of all documents submitted
as certified, photostatic or conformed copies. I have relied, as to certain
legal matters, on the advice of such attorneys working for me who are more
familiar with such matters.
Based on and subject to the foregoing and the qualifications set forth
below, I am of the opinion that the Shares issuable upon exercise of the
Warrants have been duly authorized and reserved for issuance, and when
issued upon exercise of the Warrants in accordance with the terms of the
Warrants, will be validly issued, fully paid and nonassessable.
I am admitted to the Bar of the Commonwealth of Massachusetts, and I
express no opinion as to the laws of any other jurisdiction other than the
Delaware General Corporation Law. In that connection, you should be aware
that I am not admitted to the Bar of the State of Delaware and am not an
expert in the law of such jurisdiction. Accordingly, such opinions
concerning the Delaware General Corporation Law are based upon my review of
the Delaware General Corporation Law and my reasonable (although not
necessarily complete) familiarity with the Delaware General Corporation Law
as a result of my prior involvement in transactions involving such Law.
I hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an Exhibit to the Registration Statement on Form S-3
being filed by the Company. In giving such consent, I do not thereby admit
that I am acting within the category of persons whose consent is required
under Section 7 of the Securities Act or the regulations of the Securities
and Exchange Commission thereunder.
Very truly yours,
/s/ Jack A. Green
----------------------------
Jack A. Green
General Counsel
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Prospectus
constituting part of the Registration Statement on Form S-3 of Converse Inc.
of our report dated February 18, 1998, appearing on page F-2 of Converse
Inc.'s Annual Report on Form 10-K for the year ended January 3, 1998. We
also consent to the application of such report to the Financial Statement
Schedule for the three years ended January 3, 1998 listed under Item 14(a)
of Converse Inc.'s Annual Report on Form 10-K for the year ended January 3,
1998 when such schedule is read in conjunction with the financial statements
referred to in our report. The audits referred to in such report also
included this Financial Statement Schedule. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
/s/ PricewaterhouseCoopers LLP
-------------------------------
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 8, 1998
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL ME BY THESE PRESENTS that each of the undersigned does hereby
nominate, constitute and appoint Glenn N. Rupp, Jack A. Green or Donald J.
Camacho, or any of them, as his agent and attorney-in-fact, in his name to
execute on behalf of the undersigned a Registration Statement on Form S-3 to
be filed with the Securities and Exchange Commission under the Securities
Act of 1933, as amended, in connection with the registration under said Act
of shares of Common Stock of Converse, Inc. (the "Company"), the authority
herein given to include execution of amendments of any part of such
Registration Statement and generally to do and perform all things necessary
to be done in the premises as fully and effectively in all respects as the
undersigned could do if personally present.
IN WITNESS WHEREOF this Power of Attorney has been executed in counterparts
by individuals listed below as of the 30th day of November, 1998.
/s/ Donald J. Barr /s/ John J. Hannan
-------------------------- -------------------------
Donald J. Barr John J. Hannan
/s/ Leon D. Black /s/ Joshua J. Harris
-------------------------- -------------------------
Leon D. Black Joshua J. Harris
/s/ Julius W. Erving /s/ John H. Kissick
-------------------------- -------------------------
Julius W. Erving John H. Kissick
/s/ Robert H. Falk /s/ Richard B. Loynd
-------------------------- -------------------------
Robert H. Falk Richard B. Loynd
/s/ Gilbert Ford /s/ Glenn N. Rupp
-------------------------- -------------------------
Gilbert Ford Glenn N. Rupp
/s/ Michael S. Gross /s/ John J. Ryan
-------------------------- -------------------------
Michael S. Gross John J. Ryan
/s/ Michael D. Weiner
-------------------------
Michael D. Weiner
