<PAGE>
[CONVERSE LOGO APPEARS HERE]
CONVERSE INC.
ONE FORDHAM ROAD
NORTH READING, MASSACHUSETTS 01864
Telephone: (978) 664-1100
March 31, 1998
Dear Stockholder:
On behalf of the Board of Directors, I cordially invite you to attend
the 1998 Annual Meeting of Stockholders of Converse Inc. ("Converse" or the
"Company"). The Annual Meeting will be held at the Company's headquarters, One
Fordham Road, North Reading, Massachusetts at 10:00 a.m., local time, on Monday,
May 11, 1998.
The accompanying Notice of Annual Meeting and Proxy Statement describe
the formal matters to be acted on at the meeting. During the Annual Meeting we
will also report on the operations of the Company.
If you plan to attend the meeting, please mark the appropriate box on
your proxy card. Whether or not you plan to attend the Annual Meeting in person,
it is important that your shares be represented and voted at the meeting.
Accordingly, please sign, date and return the enclosed proxy card promptly.
I look forward to seeing you at the meeting; and on behalf of the
Board of Directors and management of the Company, I would like to express my
appreciation for your interest in Converse.
Sincerely,
/s/ Glenn N. Rupp
Glenn N. Rupp
Chairman of the Board and
Chief Executive Officer
<PAGE>
CONVERSE INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The 1998 Annual Meeting of stockholders of Converse Inc. (the "Company") will
be held at 10:00 a.m., local time, on Monday, May 11, 1998, at the Company's
headquarters, One Fordham Road, North Reading, Massachusetts, for the following
purposes:
I. To elect twelve directors;
II. To ratify the appointment by the Board of Directors of Price
Waterhouse LLP as the Company's independent auditors for the
fiscal year ending January 2, 1999;
III. To consider approval of the Converse Inc. 1994 Stock Option
Plan, as amended and restated;
IV. To consider approval of the Converse Inc. Employee Stock
Purchase Plan; and
V. To transact such other business as may properly come before the
meeting and at any adjournments thereof.
The Board of Directors has fixed March 17, 1998 as the record date for the
Meeting. Accordingly, only stockholders of record at the close of business on
such date will be entitled to notice of and to vote during the 1998 Annual
Meeting and during any adjournment or adjournments thereof.
By order of the Board of Directors,
/s/ Jack A. Green
Jack A. Green,
Senior Vice President, General
Counsel and Secretary
North Reading, Massachusetts
March 31, 1998
IMPORTANT
---------
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE
AND SIGN THE ENCLOSED PROXY CARD, AND RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
CONVERSE INC.
ONE FORDHAM ROAD
NORTH READING, MASSACHUSETTS 01864
______________________________________________________
PROXY STATEMENT
1998 ANNUAL MEETING OF STOCKHOLDERS
______________________________________________________
This Proxy Statement is furnished to the stockholders of Converse Inc., a
Delaware corporation ("Converse" or the "Company"), in connection with the
solicitation of proxies on behalf of the Board of Directors (the "Board") of
Converse for use during the 1998 Annual Meeting of stockholders to be held at
10:00 a.m., local time, on Monday, May 11, 1998 at the Company's headquarters;
One Fordham Road, North Reading, Massachusetts and at any adjournments thereof,
for the purposes set forth in the accompanying Notice of Annual Meeting of
Stockholders.
The cost of the solicitation of proxies will be borne by Converse and will
consist primarily of printing, postage and handling, including the expenses of
brokers, nominees and other fiduciaries in forwarding proxy materials to
beneficial owners. Directors, officers and other employees of Converse may also
solicit proxies personally or by telephone or telecopy. In addition, Converse
has engaged Morrow & Co. to assist in the solicitation from brokers, bank
nominees and institutional holders for a fee of $5,000 plus out-of-pocket
expenses. The notice of meeting, this proxy statement and the form of proxy are
expected to be mailed to stockholders on or about March 31, 1998. A copy of the
Company's 1997 Annual Report containing financial statements for the year ended
January 3, 1998, accompanies this Proxy Statement, but does not form a part of
the proxy solicitation materials.
VOTING PROCEDURE
Stockholders of record at the close of business on March 17, 1998 (the "Record
Date") are entitled to vote during the 1998 Annual Meeting and may cast one vote
for each share of the Company's common stock ("Common Stock") held on the Record
Date on each matter that may properly come before the meeting. On the Record
Date there were 17,319,556 shares of Common Stock outstanding.
<PAGE>
The holders of a majority of the shares entitled to vote, present in person or
represented by proxy, constitute a quorum. Directors are to be elected by a
plurality of the votes cast at the meeting. The affirmative vote of the holders
of majority of the shares, present in person or represented by proxy, entitled
to vote at the meeting is required to ratify the engagement of independent
auditors, to adopt the Converse Inc. 1994 Stock Option Plan, as amended and
restated (the "1994 Plan"), to adopt the Converse Inc. Employee Stock Purchase
Plan (the "Employee Stock Purchase Plan") or to take action with respect to any
other matter that may properly be brought before the meeting. Shares cannot be
voted at the meeting unless the holder of record is present in person or by
proxy. The enclosed proxy is a means by which a stockholder may authorize the
voting of his or her shares at the Meeting. The shares of Common Stock
represented by each properly executed proxy card will be voted at the meeting in
accordance with each stockholder's direction. Stockholders are urged to specify
their choices by marking the appropriate boxes on the enclosed proxy card; if no
choice has been specified, the shares will be voted as recommended by the board
of directors. If any other matters are properly presented to the meeting for
action, the proxy holders will vote the proxies (which confer discretionary
authority to vote on such matters) in accordance with their best judgment.
With regard to the election of directors, votes may be cast in favor or
withheld; votes that are withheld will be excluded entirely from the vote and
will have no effect, other than for purposes of determining the presence of a
quorum. Abstentions may be specified on the proposal to ratify the engagement
of independent auditors, to approve the adoption of the 1994 Plan and to approve
the adoption of the Employee Stock Purchase Plan (but not for the election of
directors). Abstentions will be considered present and entitled to vote at the
meeting, but will not be counted as votes cast in the affirmative. Abstentions
on the proposal to approve the adoption of the 1994 Plan and to approve the
adoption of the Employee Stock Purchase Plan will have the effect of a negative
vote because these proposals require the affirmative vote of a majority of the
shares present in person or represented by proxy at the meeting and entitled to
vote. Brokers that are member firms of the New York Stock Exchange ("NYSE") and
who hold shares in street name for customers, but have not received instructions
from a beneficial owner, have the authority under the rules of the NYSE to vote
those shares with respect to the election of directors and the ratification of
the engagement of independent auditors but not with respect to the proposal to
approve the 1994 Plan and the Employee Stock Purchase Plan. A failure by
brokers to vote those shares will have no effect on the outcome of the proposal
to approve the adoption of the 1994 Plan and the Employee Stock Purchase Plan
because such shares will not be considered shares present and entitled to vote
with respect to such matters.
Proxies may be revoked at any time prior to the time that the vote is taken at
the meeting. Proxies may be revoked by filing with the Secretary of the Company
a written revocation or another form of proxy bearing a date later than the date
of the proxy previously furnished. A proxy may also be revoked by attending the
meeting and voting in person. Attendance at the meeting will not in and of
itself constitute revocation of a proxy.
Your vote is important. Accordingly, you are asked to complete, sign and
return the accompanying proxy whether or not you plan to attend the meeting.
2
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information (as of March 17, 1998,
except as otherwise noted) regarding the beneficial ownership of shares of
Common Stock by (i) each person known by Converse to beneficially own more than
5% of the outstanding shares of Converse Common Stock, (ii) each executive
officer named in the Summary Compensation Table below, (iii) each director of
Converse and (iv) the directors and executive officers of Converse as a group.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
--------- -----------
SHARES COMMON STOCK
------ ------------
BENEFICIALLY BENEFICIALLY
------------ ------------
GREATER THAN 5% STOCKHOLDERS OWNED OWNED
- ---------------------------- ----- -----
<S> <C> <C>
Apollo Investment Fund, L.P., c/o Apollo Advisors, L.P.
and
Lion Advisors, L.P.
Two Manhattanville Road
Purchase, New York 10577 (1).................................... 11,230,365 64.8%
Directors and Executive Officers
- --------------------------------
Glenn N. Rupp (2)............................................... 215,000 1.2
James E. Solomon (2)............................................ 42,000 *
Thomas L. Nelson (2)............................................ 21,000 *
Alistair Thorburn (2)........................................... 42,250 *
Donald J. Camacho (2)........................................... 47,000 *
Donald J. Barr (2).............................................. 10,000 *
Leon D. Black (1)(3)............................................ 11,230,365 64.8
Julius W. Erving (2)............................................ 7,500 *
Robert H. Falk (1)(3)........................................... 11,230,365 64.8
Gilbert Ford (2)................................................ 10,000 *
Michael S. Gross (1)(3)......................................... 11,230,365 64.8
John J. Hannan (1)(3)........................................... 11,230,365 64.8
Joshua J. Harris (1)(3)......................................... 11,230,365 64.8
John H. Kissick (1)(3).......................................... 11,230,365 64.8
Richard B. Loynd (2)............................................ 44,660 *
Michael D. Weiner (1)(3)........................................ 11,230,365 64.8
Directors and executive officers of the
Company as a group (20 persons)................................ 11,754,031 67.9
- ----------------------------------------------------------------
</TABLE>
* Less than 1%.
(1) Includes (i) 5,616,306 shares beneficially owned by Apollo Investment Fund,
L.P. ("AIF") and (ii) 5,614,059 shares beneficially owned by Lion Advisors,
L.P. ("Lion Advisors") for the benefit of an investment account under
management over which Lion Advisors has sole investment, voting and
dispositive power. The managing general partner of AIF is Apollo Advisors,
L.P. ("Apollo Advisors") whose general partner is Apollo Capital
Management, Inc. ("Apollo Capital"). The general partner of Lion Advisors
is Lion Capital Management, Inc. ("Lion Capital"), which is affiliated with
Apollo Capital.
(2) Shares beneficially owned represent options to purchase Converse Common
Stock that are exercisable within 60 days, except for shares held of record
by the following: Mr. Rupp 15,000 shares, Mr. Solomon 2,000 shares, Mr.
Camacho 5,000 shares, Mr. Frederick 1,000 shares, Mr. Ford 10,000 shares,
Mr. Barr 2,500 shares and Mr. Loynd 37,166 shares.
(3) Messrs. Black and Hannan are directors and officers of Apollo Capital and
Lion Capital. Messrs. Falk, Gross, Harris and Weiner are officers of Apollo
Capital and Lion Capital. Mr. Kissick is an officer of Lion Capital and a
consultant to Apollo Capital. Each such director disclaims beneficial
ownership of, and a personal pecuniary interest in, the shares beneficially
owned by AIF and Lion Advisors.
3
<PAGE>
PROPOSAL ONE - ELECTION OF DIRECTORS
GENERAL
The Company's Board has one class of directors and, subject to their
earlier resignation or removal, all directors serve until the next Annual
Meeting and until their successors are elected and qualified. Twelve persons
are to be elected directors during the 1998 Annual Meeting. Directors are to be
elected by a plurality of the votes cast at the meeting. The names of the
nominees and certain information with respect to them are presented below. All
of the nominees were elected at the 1997 Annual Meeting.
Should any of the director nominees become unable or unwilling to continue
to serve, an event that is not expected to occur, proxies (except proxies marked
to the contrary) will be voted for another person designated by the Board unless
the Board shall have reduced the number of directors to be elected.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF THE NOMINEES FOR
DIRECTOR.
<TABLE>
<CAPTION>
CONVERSE
NAME, AGE, PRINCIPAL OCCUPATION DIRECTOR
OR POSITION, OTHER DIRECTORSHIPS SINCE
- ---------------------------------------------------------------------------------------------
<S> <C>
Donald J. Barr, 63 1994
Retired; Formerly Executive Vice President of Time Inc.
Mr. Barr was an Executive Vice President of Time Inc. from October 1990
until his retirement in 1996. Prior to 1990, Mr. Barr was the publisher of
Sports Illustrated (1985-1990) and Vice President of Time Inc. (1987-1990).
Mr. Barr has been an employee of Time Inc. for 39 years.
Leon D. Black, 46 1994
Officer and Director of Apollo Capital Management, Inc.,
Lion Capital Management, Inc. and Apollo Real Estate Management, Inc.
Mr. Black is one of the founding principals of Apollo Advisors, which acts
as general partner of AIF, AIF II, L.P. and Apollo Investment Fund, III,
private securities investment funds, of Lion Advisors, which acts as
financial advisor to and representative for certain institutional investors
with respect to securities investments, and of Apollo Real Estate Advisors,
L.P. ("Apollo Real Estate Advisors"), which acts as general partner of the
Apollo Real Estate Investment Funds, private real estate oriented
investment funds. Mr. Black has been a director and officer of Apollo
Capital and Lion Capital since 1990 and of Apollo Real Estate Management,
Inc. ("Apollo Real Estate") since 1993. Apollo Capital is the general
partner of Apollo Advisors; Lion Capital is the general partner of Lion
Advisors; and Apollo Real Estate is the managing general
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
partner of Apollo Real Estate Advisors. Mr. Black also serves as a director
of Culligan Water Technologies, Inc., Sequa Industries, Inc., Samsonite
Corporation, Telemundo Group, Inc. and Vail Resorts, Inc.
Julius W. Erving, 48 1994
President, The Erving Group and Vice President of RDV Sports and
Executive Vice President of the Orlando Magic.
Mr. Erving has been the President of The Erving Group since 1979 and Vice
President of RDV Sports and Executive Vice President of the Orlando Magic
since 1997. Mr. Erving is also a part owner of Philadelphia Coca-Cola
Bottling Company. He was a member of the Philadelphia 76'ers basketball
team until April 1987 and has been an endorser of Converse's products since
1975. Mr. Erving is also a director of Philadelphia Coca-Cola Bottling
Company, The Sports Authority, Inc., Proffitt's Inc. and L.C.I.
International.
Robert H. Falk, 59 1994
Officer of Apollo Capital Management, Inc. and
Lion Capital Management, Inc.
Mr. Falk has been an officer of Apollo Capital and Lion Capital since 1992.
Mr. Falk is also a director of Alliance Imaging, Inc., Culligan Water
Technologies, Inc., Florsheim Group Inc., Salant Corporation and Samsonite
Corporation.
Gilbert Ford, 66 1987
Consultant; Formerly the Chairman of the Board and Chief Executive
Officer of Converse Inc.
Mr. Ford served as Vice Chairman of the Board of Converse from April 11,
1996 to December 1, 1996, at which time Mr. Ford retired from Converse. Mr.
Ford served as Chairman of the Board of Converse from September 1994 to
April 1996 and as Chief Executive Officer of Converse from October 1986 to
April 1996. Previously, Mr. Ford held various positions within Converse,
including President (October 1986 to September 1994), and was an employee
of Converse for over 34 years.
Michael S. Gross, 36 1992
Officer of Apollo Capital Management, Inc. and
Lion Capital Management, Inc.
Mr. Gross is one of the founding principals of Apollo Advisors and Lion
Advisors and has served as an officer of Apollo Capital and Lion Capital
since 1990. Mr. Gross is also a director of Allied Waste Industries, Inc.,
Alliance Imaging, Inc., Imagyn Medical Technology, Inc., Florsheim Group
Inc., Furniture Brands International, Inc. and Proffitt's, Inc.
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
John J. Hannan, 45 1994
Officer and Director of Apollo Capital Management, Inc. and
Lion Capital Management, Inc.
Mr. Hannan is one of the founding principals of Apollo Advisors, Lion
Advisors and Apollo Real Estate Advisors and has served as an officer and
director of Apollo Capital and Lion Capital since 1990 and of Apollo Real
Estate since 1993. Mr. Hannan is also a director of Aris Industries, Inc.,
Florsheim Group Inc. and United Auto Group, Inc.
Joshua J. Harris, 33 1992
Officer of Apollo Capital Management, Inc. and
Lion Capital Management, Inc.
Mr. Harris is an officer of Apollo Capital and Lion Capital, having been
associated with them since 1990. Mr. Harris is also a director of Alliance
Imaging, Inc., Florsheim Group Inc. and NRT, Inc.
John H. Kissick, 56 1994
Officer of Lion Capital Management, Inc. and advisor to Apollo Capital
Management, Inc.
Mr. Kissick is one of the founding principals of Apollo Advisors and Lion
Advisors and has served as an officer of Lion Capital and consultant to
Apollo Capital since 1991. Mr. Kissick is also a director of Continental
Graphics Holdings, Inc., Florsheim Group Inc. and Paragon Health Network,
Inc.
Richard B. Loynd, 70 1982
Chairman of the Board of Furniture Brands International, Inc.
Mr. Loynd has served as Chairman of the Board of Furniture Brands
International, Inc. since June 1990. Mr. Loynd was also Chief Executive
Officer of Furniture Brands International Inc. from 1989 through October
1996. Mr. Loynd was Chairman of the Board of Converse from 1982 to August
1994. Mr. Loynd is also a director of Emerson Electric Co.
Glenn N. Rupp, 53 1996
Chairman of the Board and Chief Executive Officer of Converse
Mr. Rupp was elected Chairman of the Board and Chief Executive Officer by
Converse's Board of Directors on April 11, 1996. From August 1994 to April
1996, Mr. Rupp was the Acting Chairman of McKenzie Sports Products, Inc.
and a Strategic Planning Advisor for CRC Industries, Inc. Mr. Rupp was
President and Chief Executive Officer of Simmons Upholstered Furniture Inc.
("Simmons") from August 1991 until May 1994. Prior to 1991, Mr. Rupp held
various positions with Wilson Sporting Goods Co.,
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
including President and Chief Executive Officer from 1987 to 1991. Mr. Rupp
is also a director of Consolidated Papers, Inc. and Johnson Worldwide
Associates, Inc. In July 1994, a voluntary petition for reorganization
under Chapter 11 of the U.S. Bankruptcy Code was filed on behalf of
Simmons.
Michael D. Weiner, 45 1996
Officer of Apollo Capital Management, Inc. and Lion Capital
Management, Inc.
Mr. Weiner has been an officer of Apollo Capital and of Lion Capital since
1992 and of Apollo Real Estate since 1993. Prior to 1992, Mr. Weiner was a
partner in the law firm of Morgan, Lewis & Bockius LLP. Mr. Weiner is also
a director of Alliance Imaging, Inc., Continental Graphics Holdings, Inc.,
Florsheim Group Inc., NRT, Inc. and WMC Finance Co., Inc.
</TABLE>
ORGANIZATION AND COMPENSATION OF CONVERSE BOARD OF DIRECTORS
There were six meetings of the Board during 1997, and, with the exception of
Messrs. Black and Kissick, each incumbent director who served during 1997
attended at least 75% of the Board meetings and the meetings held by committees
on which he served.
The Board has a number of standing committees, including an Executive
Committee, an Audit Committee and an Executive Compensation and Stock Option
Committee. The Board does not currently have a nominating committee.
The Executive Committee, which currently consists of Mr. Loynd, Chairman, and
Messrs. Rupp, Gross and Harris, has the full power of the Converse Board between
Board meetings, with certain limitations relating to major corporate matters.
This Committee met one time in 1997. In addition, this Committee took actions
from time to time pursuant to resolutions adopted by unanimous written consent
in lieu of meeting.
The Audit Committee, which currently consists of Mr. Loynd, Chairman, and
Messrs. Barr and Erving, recommends the selection and retention of independent
accountants; reviews auditing and financial accounting and reporting matters,
the adequacy of internal accounting controls and asset security, audit fees and
expenses, and compliance with the code of corporate conduct; and counsels
regarding auditing and financial accounting and reporting matters. This
Committee met four times in 1997.
The Executive Compensation and Stock Option Committee, which currently
consists of Mr. Gross, Chairman, and Messrs. Harris and Loynd, reviews and
recommends compensation of officers and directors; administers supplementary
retirement, performance incentive and stock option plans; and counsels regarding
compensation of other key employees, management development and succession, and
major personnel matters. This Committee met four times in 1997.
7
<PAGE>
Each Converse director who is not an employee of Converse or any Converse
subsidiary is paid a monthly fee of $1,000 and a fee of $1,500 plus expenses for
each meeting of the Board attended. In addition, for attending a meeting of a
committee of the Board, each director who is not an employee of Converse or any
Converse subsidiary is paid a fee of $800 plus expenses if such director is a
member of the committee or $900 plus expenses if such director is the Chairman
of the committee.
In March 1995, the Executive Committee of the Company's Board of Directors
adopted a Non-Employee Director Stock Option Plan (the "1995 Plan"), which
pursuant to its terms provides for a grant of options to each director who is
not employed by Converse or employed by, or affiliated with, Lion Advisors or
AIF (a "Non-Employee Director"), to purchase 7,500 shares of the Company's
common stock at its fair market value on the date the options are granted. The
Company's stockholders approved the 1995 Plan at the 1995 Annual Meeting of
Stockholders. These options become exercisable in one-third increments on each
of the first three anniversaries of the grant date. The Company's current Non-
Employee Directors are Messrs. Loynd, Erving and Barr.
EXECUTIVE OFFICERS
The executive officers of Converse are as follows:
<TABLE>
<CAPTION>
NAME Age Position
- ---- --- --------
<S> <C> <C>
Glenn N. Rupp........................................... 53 Chairman of the Board and
Chief Executive Officer
Donald J. Camacho....................................... 47 Senior Vice President and
Chief Financial Officer
Edward C. Frederick..................................... 51 Senior Vice President, Research,
Design and Development
Jack A. Green........................................... 52 Senior Vice President, General
Counsel and Secretary
Thomas L. Nelson........................................ 43 Senior Vice President, Sales/North
America
Herbert R. Rothstein.................................... 56 Senior Vice President, Production
James E. Solomon........................................ 42 Senior Vice President, Marketing
Alistair Thorburn....................................... 40 Senior Vice President, International
James E. Lawlor......................................... 44 Vice President, Finance and
Treasurer
</TABLE>
MR. RUPP'S biography appears previously under "Election of Directors".
MR. CAMACHO has served as Senior Vice President and Chief Financial Officer
since September 1994. Previously, Mr. Camacho held the positions of Vice
President and Controller from 1992 to 1994, Controller from 1984 to 1992,
Assistant Controller from 1980 to 1984, and several other positions of
increasing responsibility since 1974.
8
<PAGE>
DR. FREDERICK has served as Senior Vice President, Research, Design and
Development since April 1997. From February 1996 to April 1997, Dr. Frederick
was a consultant to Converse through his wholly-owned consulting company, Exeter
Research, Inc. ("Exeter") and held the title of Chief Product Executive of
Converse. Dr. Frederick served as the President of Exeter from 1987 until June
1997. Since 1995, Dr. Frederick has also served as an Adjunct Professor in the
Department of Exercise Sciences, School of Public Health and Health Sciences,
University of Massachusetts. Dr. Frederick worked as a consultant for adidas, AG
in the fields of development, design and technology from 1991 to 1996.
Previously, Dr. Frederick worked as the Director of Research for Nike, Inc.
("Nike") from 1980 to 1986 and as a design consultant for Nike from 1978 to 1980
and from 1986 to 1990.
MR. GREEN has served as Senior Vice President, General Counsel and
Secretary since August 1985, having joined the Company as Vice President Legal
in 1983.
MR. NELSON joined Converse as Senior Vice President, Sales/North America on
March 13, 1995. Before joining Converse, Mr. Nelson worked for The Rockport
Company, a subsidiary of Reebok International Ltd., where he served as Senior
Vice President of Sales/Operations from 1992 to 1995. Prior to that, Mr. Nelson
worked for G.H. Bass & Company from 1983 to 1992 where he held several sales-
related positions before being promoted to Senior Vice President of Sales in
1990.
MR. ROTHSTEIN has served as Senior Vice President, Production since January
1996. Previously, Mr. Rothstein was Senior Vice President Sourcing from 1992 to
1996, Senior Vice President of Materials Management and Manufacturing from 1991
to 1992 and Vice President of Materials Management from 1988 to 1991. Before
joining Converse, Mr. Rothstein held several senior management positions with
Reebok International Ltd. from 1985 to 1988, Morse Shoe Inc. from 1973 to 1985,
BGS Shoe Corporation from 1969 to 1972 and Signet from 1964 to 1969.
MR. SOLOMON has served as Senior Vice President, Marketing since October
1996. Previously, Mr. Solomon worked for Lenox Inc. from August 1990 to
September 1996 in a number of senior positions, including President and Chief
Operating Officer of the Dansk International Design division from May 1994 to
September 1996 and Gorham, Kirk-Stieff, Dansk division from July 1991 to May
1994. He also has experience in the athletic footwear industry, having served as
Executive Vice President of Kangaroos USA from 1989 to 1990, Vice President,
Marketing of Avia Athletic Footwear from 1985 to 1988, and Group Product
Manager, New Balance Athletic Shoes from 1981 to 1983.
MR. THORBURN has served as Senior Vice President, International since
December 1993. Prior to joining the Company, Mr. Thorburn was Vice President
Europe/Asia Pacific for the Wilson Sporting Goods Co., Ltd. from 1987 to 1993.
MR. LAWLOR has served as Vice President, Finance of Converse since June
1995. Previously, Mr. Lawlor held the positions of Vice President and Treasurer
from September 1994 to June 1995, Treasurer from 1984 to 1994 and other
positions of increasing responsibility since 1975.
9
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information for each period presented
with respect to compensation awarded to, earned by or paid to Converse's Chief
Executive Officer during 1997 and to the four most highly compensated executive
officers of Converse other than Converse's Chief Executive Officer who were
serving at January 3, 1998 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------- ----------------------
AWARDS
------
BONUS ($) OTHER ANNUAL SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) (1) COMPENSATION ($) OPTIONS (#) COMPENSATION ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Glenn N. Rupp 1997 476,538 0 129,965 (2) 30,000 2,375 (3)
Chairman and Chief 1996 311,539 130,136 26,997 500,000 0
Executive Officer 1995 0 0 0 0 0
James E. Solomon 1997 285,577 0 54,181 (2) 20,000 93,000 (4)
Senior Vice President 1996 53,173 0 21,269 200,000 93,000
1995 0 0 0 0 0
Thomas L. Nelson 1997 240,577 0 0 40,000 2,375 (3)
Senior Vice President 1996 220,000 11,000 0 35,000 508
1995 162,308 31,096 5,012 35,000 0
Alistair Thorburn 1997 230,792 0 83,181 (2) 10,000 23,731 (5)
Senior Vice President 1996 222,266 11,019 0 50,000 21,657
1995 202,205 36,361 0 15,000 21,585
Donald J. Camacho 1997 192,837 0 0 0 2,614 (3)
Senior Vice President 1996 175,000 8,750 0 0 10,022
1995 164,269 43,313 5,255 80,000 19,560
- ----------------------------
</TABLE>
(1) The Company did not pay discretionary bonuses to its executives for 1997 as
the Company's financial results for the year did not reach its budgeted
objectives. The Company generally pays bonuses to its executives in the
first quarter of each fiscal year based on the Company's results in the
prior year. The bonuses for each year contained in the table reflect the
amount of bonus earned in such year although such bonuses were generally
paid in the following year.
(2) Amounts shown represent relocation and temporary housing expenses incurred
by Mr. Rupp, Mr. Solomon and Mr. Thorburn in connection with their moves to
Massachusetts and amounts reimbursed for the payment of taxes respectively,
as follows: Mr. Rupp $68,616 and $61,349, Mr. Solomon $42,368 and $11,813,
and Mr. Thorburn $75,572 and $7,609.
(3) Amounts represent payments by the Company relating to the Company's
matching contribution under the Converse Inc. Thrift Savings Plan and the
payment of "split dollar" life insurance premiums on behalf of certain
Named Executive Officers respectively, as follows: Mr. Rupp $2,375 and $0,
Mr. Nelson $2,375 and $0 and Mr. Camacho $2,375 and $239.
(4) Amount represents an allowance payment to Mr. Solomon which was paid
pursuant to his employment agreement for the purpose of compensating Mr.
Solomon for certain guaranteed payments that he would have received from
his former employer had he not agreed to accept employment with Converse.
(5) Amount represents payment to the Converse U.K. Retirement Benefit Plan in
lieu of Mr. Thorburn's participation in the Converse Inc. Retirement Plan
(see "Retirement Plans" below).
10
<PAGE>
RETIREMENT PLANS
Messrs. Rupp, Solomon, Nelson and Camacho are participants in the Converse
Inc. Retirement Plan (the "Retirement Plan"), a noncontributory, defined benefit
pension plan designed to provide retirement benefits upon normal retirement at
age 65. Covered remuneration is base salary and, based on a straight life
annuity, annual benefits at normal retirement are equal to the greater of (a)
2.25% of average final compensation (the highest 60 consecutive calendar months
of the last 120 months) multiplied by years of credited service up to a maximum
of 15 years, plus 1.75% of average final compensation multiplied by service in
excess of 15 years up to a maximum of 15 years, less 1.67% of the Social
Security benefit multiplied by credited service up to a maximum of 30 years, or
(b) $10 multiplied by years of credited service. Benefits payable under the
Retirement Plan are limited by certain provisions of the Internal Revenue Code
of 1986, as amended (the "Code"). A supplemental executive retirement plan
("SERP") has been adopted by Converse to provide for payments from general funds
to Messrs. Rupp, Solomon and Nelson of any retirement income that would
otherwise be payable pursuant to the Retirement Plan in absence of any such
limitations. Set forth below is the credited service under the Retirement Plan
as of January 3, 1998 and estimated annual benefits payable upon the normal
retirement of each of the Named Executive Officers, assuming continuation of
current covered remuneration. In the cases of Messrs. Rupp, Solomon and Nelson
such amount includes amounts payable under the SERP.
<TABLE>
<CAPTION>
YEARS OF
CREDITED ANNUAL
SERVICE BENEFITS
AT JANUARY 3, PAYABLE
NAME 1998
----------------------------------------
<S> <C> <C>
Glenn N. Rupp................................................... 1.75 143,337
James E. Solomon................................................ 1.25 125,983
Thomas L. Nelson................................................ 2.80 110,378
Donald J. Camacho............................................... 23.30 87,174
</TABLE>
Mr. Thorburn is not eligible to participate in the Retirement Plan because
he is not a citizen of the United States. In lieu of Mr. Thorburn's
participation in the Retirement Plan, Converse contributes an amount equal to
approximately 10% of Mr. Thorburn's annual salary directly to the Converse U.K.
Retirement Benefit Plan. See "Executive Compensation."
11
<PAGE>
STOCK OPTIONS
The following table contains information concerning stock option grants
made during the fiscal year ended January 3, 1998, pursuant to the 1994 Plan.
The Company granted no stock appreciation rights in 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
NAME NUMBER OF % OF TOTAL EXPIRATION RATES OF
SECURITIES OPTIONS EXERCISE DATE STOCK PRICE
UNDERLYING GRANTED OR APPRECIATION FOR
OPTIONS TO EMPLOYEES BASE PRICE OPTION TERM (1)
GRANTED IN FISCAL YEAR ($ PER SHARE) ------------------
(#) 5%($) 10%($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Glenn N. Rupp 30,000 (2) 6.8 10.9375 8/7/06 180,900 445,600
James E. Solomon 20,000 (2) 4.5 10.9375 8/7/06 120,600 297,000
Thomas L. Nelson 40,000 (2) 9.0 10.9375 8/7/06 241,200 594,000
Alistair Thorburn 10,000 (2) 2.3 10.9375 8/7/06 60,300 148,500
Donald J. Camacho 0 0 ----- ----- ----- -----
- ---------------------
</TABLE>
(1) The value, if any, one may realize upon exercise of a stock option depends
on the excess of the then current market value per share over the exercise
price per share. There is no assurance that the values to be realized upon
exercise of the stock options listed above will be at or near the amounts
shown.
(2) Represents new options granted under the 1994 Plan. Such options vest in
20% increments on each of the first five anniversaries of August 7, 1997.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at FY-End at FY-End (1)
Shares -----------------------------------------------------------
NAME Acquired
on Exercise Value Realized Exercisable Unexercisable Exercisable Unexercisable
(#) ($) (#) (#) ($) ($)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Glenn N. Rupp 0 0 100,000 430,000 125,000 500,000
James E. Solomon 0 0 40,000 180,000 0 0
Thomas L. Nelson 0 0 21,000 89,000 0 0
Alistair Thorburn 0 0 42,250 67,750 0 0
Donald J. Camacho 5,000 43,675 42,000 53,000 37,060 21,030
- --------------------
</TABLE>
(1) Based on the $6.25 per share closing price of the Common Stock on the New
York Stock Exchange ("NYSE") on January 3, 1998.
12
<PAGE>
EMPLOYMENT CONTRACTS
Mr. Rupp entered into an employment agreement with the Company in April
1996. The agreement expires on April 15, 1999. Under the agreement, Mr. Rupp
is entitled to a base salary of no less than $450,000 plus a bonus of up to 70%
of Mr. Rupp's salary as determined pursuant to the Company's Executive Incentive
Plan. The agreement provides that Mr. Rupp's bonus for 1996 shall be at an
annual rate of not less than $160,000. The agreement provides that Mr. Rupp be
granted options to purchase 500,000 shares of Common Stock at a price of $5.00
per share. These options vest in 20% increments on each of the first five
anniversaries of the grant, except that if on or before April 15, 1999 the
Company does not offer to extend the term of this agreement for at least one
more year, all remaining unvested options become exercisable on April 15, 1999,
and if on or before April 15, 2000 the Company does not offer to extend the term
of this agreement at least one additional year, all remaining unvested options
become exercisable on April 15, 2000. At all times during the term of his
agreement, Mr. Rupp shall be entitled to participate in Converse's medical,
dental, 401(k), insurance, retirement and other employee benefit plans. If Mr.
Rupp's employment is terminated by Converse during the term of the agreement
other than for cause (as defined), or if Mr. Rupp chooses to terminate his
employment after being required to relocate his principal office without his
consent, Mr. Rupp shall continue to receive his annual salary for the longer of
(i) the remaining balance of the term of the agreement, or (ii) two years from
the date of termination.
Mr. Solomon entered into an employment agreement with the Company in
September 1996. Under the agreement, Mr. Solomon is entitled to a base salary
of $275,000 annually plus a bonus at a target amount of 55% of Mr. Solomon's
salary. In addition, Mr. Solomon is entitled to allowance payments in the
amount of $93,000 on October 1, 1996, October 1, 1997 and October 1, 1998, which
is intended to compensate Mr. Solomon for certain guaranteed payments that he
would have received from his former employer had he not accepted employment with
Converse. The agreement provides that Mr. Solomon be granted options to
purchase 200,000 shares of Common Stock at a price equal to the closing price of
such stock on the date of grant. Such options were granted to Mr. Solomon on
September 16, 1996 at an exercise price of $6.50 per share. These options vest
in 20% increments on each of the first five anniversaries of the grant, except
that in the event Mr. Solomon's employment is terminated, other than by
resignation or for cause, 50% of the then unvested options shall vest. Mr.
Solomon is entitled to participate in Converse's medical, dental, 401(k),
insurance, retirement and other employee benefit plans. The agreement provides
that if Mr. Solomon's employment is involuntarily terminated by the Company
within the first year of his employment at the Company, Mr. Solomon is entitled
to 24 months' base salary, if such termination occurs during the second year of
his employment, Mr. Solomon would be entitled to 18 months' base salary; if such
termination occurs after the end of Mr. Solomon's second year of employment he
would be entitled to 12 months' base salary.
Mr. Camacho entered into an employment agreement with the Company in
January 1996. If Mr. Camacho's employment is terminated by Converse other than
for cause (as defined), or if Mr. Camacho's salary, benefits or bonus potential
is involuntarily reduced and he elects to terminate his employment, or if Mr.
Camacho ceases to hold the position and responsibilities of Chief Financial
Officer of Converse and he elects to terminate his employment, or in the event
Mr. Camacho's employment is terminated by his death or disability, the Company
will pay to Mr. Camacho for a period of one year: (i) his base salary and
annual bonus; (ii) an amount equal to the actuarial present
13
<PAGE>
value of the additional benefits Mr. Camacho would have received under the
Retirement Plan and any supplemental defined benefit plan in which Mr. Camacho
participates, as if his employment had continued uninterrupted for an additional
period of one year at his base salary in effect at the date of termination; and
(iii) an amount equal to Converse's share of the cost of Mr. Camacho's medical
and dental insurance plus an amount equal to the maximum combined Federal and
Massachusetts income tax rate multiplied times such payment.
Mr. Thorburn and Mr. Nelson each entered into employment agreements with
the Company in October 1995. Under the terms of these agreements, the Company
will pay to such employees amounts equal to their respective annual salaries in
the event that their employment with Converse is involuntarily terminated.
EXECUTIVE COMPENSATION AND STOCK OPTION COMMITTEE REPORT
The Executive Compensation and Stock Option Committee (the "Committee") of
the Board is responsible for reviewing the compensation levels of the Company's
principal executive officers and determining stock option awards to be granted
under the 1994 Plan and making recommendations to the Board relating to these
matters. In making compensation determinations the Committee is guided by
certain fundamental considerations, including:
* the need to attract and retain talented management;
* the need to set and maintain compensation levels that are competitive
with those in similar businesses; and
* the need to provide substantial short-term as well as long-term
incentives for management to maximize the value of the Company.
The Company's executive compensation for 1998 consisted of three basic
elements: (i) base salaries; (ii) incentive bonuses; and (iii) stock options.
Base Compensation. Base compensation is intended to be competitive as
compared to salary levels for equivalent positions at other comparable
companies. In April 1996, the Company hired Mr. Rupp as Chief Executive Officer
and Chairman of the Board. The Company entered into an employment agreement
with Mr. Rupp providing for an annual salary of $450,000 which the Committee
determined to be a competitive salary after taking into account Mr. Rupp's
business experience in the sporting goods industry and his past success in
turning around troubled companies. In October 1997, Mr. Rupp's annual salary
was increased to $500,000. In January 1998, the Company instituted a six month
freeze of all salaries of Company employees such that each executive officer of
the Company must wait a period of 18 months from his or her last salary
adjustment date before being eligible for an increase in salary.
Annual Incentive Bonus. Each executive is eligible to receive an annual
cash bonus under the Company's Executive Incentive Plan. The Company's annual
incentive bonuses are based in part on the Company's performance for the year
with respect to operating earnings compared to the
14
<PAGE>
Company's budgeted plan and in part on achievement of pre-established individual
performance goals. Under the Company's Executive Incentive Plan, the Company's
key personnel (including the CEO) are eligible to earn a "target" bonus equal to
a percentage of his or her base salary (the target percentage of the CEO being
70% and those of the other Named Executive Officers ranging from 55% to 70%).
Approximately 75% of the bonus is based on Converse's degree of achievement
against budgeted objectives (operating earnings) and 25% on achievement of
individual performance goals. These target levels are intended to motivate the
Company's executives by providing substantial bonus payments for the achievement
of financial goals within the Company's business plan. In addition, the
Committee may grant discretionary bonuses under the Executive Incentive Plan.
The Company did not achieve its budgeted objectives for 1997, therefore the
Executive Incentive Plan did not provide for bonuses based on 1997 results. The
Committee decided not to grant a discretionary bonus for 1997, therefore, no
bonuses were paid to executive officers for 1997.
Stock Options. The Company uses stock option grants to attract and retain
qualified managers and to provide incentives for management to increase
stockholder value by creating a direct link between the executive's compensation
and stockholder return. During 1997, pursuant to the 1994 Plan, options to
purchase 30,000 shares of the Company's Common Stock were granted to Mr. Rupp.
In addition, options to purchase an aggregate of 70,000 shares were granted to
the Named Executive Officers during 1997. For each grant of stock options in
1997, the option exercise prices equaled or exceeded the market price per share
of stock on the date of grant. The grant of the foregoing options were intended
to give to officers a significant incentive to increase the value of the stock
of the Company.
Section 162 (m). Section 162 (m) of the Code limits the deduction that may
be claimed by a public company for total compensation in excess of $1 million
paid to its chief executive officer or to any of the other four most highly
compensated officers except to the extent that any compensation in excess of $1
million qualifies as performance-based compensation. Grants of options under
the 1994 Plan prior to the 1998 Annual Meeting of stockholders were designed to
be performance-based compensation.
Members of the Executive Compensation and Stock Option Committee
Michael S. Gross, Chairman
Joshua J. Harris
Richard B. Loynd
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Gross and Harris, directors and members of the Executive
Compensation and Stock Option Committee of the Board, are associated with Apollo
Advisors, Lion Advisors and AIF. In November 1994, Converse entered into a
Consulting Agreement with Apollo Advisors pursuant to which Apollo Advisors
provides corporate advisory, financial and other consulting services to the
Company. Fees under the agreement are payable at an annual rate of $500,000 plus
out-of-pocket expenses for a one-year term and the Consulting Agreement is
automatically renewable for
15
<PAGE>
successive one-year terms unless terminated by the Converse Board. During 1997
this Agreement was amended to decrease the annual rate for 1997 from $500,000 to
$375,000. The annual rate for subsequent years reverts to $500,000. Converse has
granted registration rights to Lion Advisors and AIF, with respect to their
shares of Common Stock. Lion Advisors and AIF can require Converse to file
registration statements and to include their shares in registration statements
otherwise filed by Converse. Costs and expenses of preparing such registration
statements are required to be paid by Converse.
Until May of 1997, Converse maintained a secured credit facility (the
"Old Credit Facility") with BT Commercial Corporation, as agent, and certain
other lenders. In May 1997, the Old Credit Facility was replaced with a new
$150,000,000 secured credit facility with BT Commercial Corporation, as agent,
and certain other lenders (the "New Credit Facility"). In November 1995, Apollo
Investment Fund, L.P. ("AIF") entered into an accommodation letter with Converse
whereby AIF committed to purchase, upon the occurrence of certain events and
subject to certain conditions, a participation in certain loans provided to
Converse by the financial institutions that were party to the Old Credit
Facility. In support of this obligation, AIF caused a standby letter of credit
to be furnished to the Agent under the Old Credit Facility. AIF's commitment to
purchase, supported by this standby letter of credit, enabled Converse to borrow
an additional $25,000,000 above its borrowing base under the Old Credit
Facility. In February 1996, and again in September 1996, and March 1997, AIF
agreed to extend its commitment to purchase. As consideration for providing the
standby letter of credit initially, AIF received a fee equal to three percent of
the face amount of the standby letter of credit in November 1995. In February
1996, it subsequently received a $100,000 fee for its agreement to extend the
purchase commitment and the standby letter of credit. Converse also agreed to
pay the reasonable expenses of AIF incurred in connection with the foregoing
matters. This standby letter of credit terminated in May 1997 in connection
with the Company entering into the New Credit Facility.
CERTAIN TRANSACTIONS
Mr. Erving has a contract with Converse whereby he has agreed to perform
certain services. The agreement provides for Mr. Erving's endorsement of the
Company's footwear and activewear, the right to use his name and likeness to
advertise the Company's products, promotional appearances, and advertising
production and product development consultation. The agreement provides for an
annual fee of $200,000 and expires on September 30, 2000. Mr. Erving is also
entitled to receive a royalty of (i) 1% of the net sales for the first 500,000
pairs of the Dr. J 2000 shoe sold and 1.5% of the net sales for all pairs of the
Dr. J 2000 shoe sold in excess of 500,000, (ii) 1.5% of the net sales of apparel
items which bear Mr. Erving's name or are designed to coordinate with shoes
bearing Mr. Erving's name, and (iii) 1% of the net sales of any shoes other than
the Dr. J 2000 which bear Mr. Erving's name or for which Mr. Erving is the
Company's primary designated endorser. Mr. Erving earned a total of $584,867
under this agreement during 1997.
Converse entered into a consulting agreement in February 1996 with Exeter
Research Inc. ("Exeter") whereby Exeter and Edward C. Frederick provided certain
services to Converse in the fields of research and development and product
design. Converse entered into an additional
16
<PAGE>
consulting agreement with Exeter in May 1996 whereby Exeter agreed to provide
certain additional product development services. Exeter is owned by Dr.
Frederick, who was hired as the Company's Senior Vice President, Research,
Design and Development in April 1997. The consulting agreements with Exeter
provided for an aggregate fee of $290,000 per year plus expenses. The consulting
agreement, which was entered into in February 1996 was terminated in April 1997
when Dr. Frederick was hired as an officer of the Company. On June 1, 1997,
Converse and Exeter entered into an Asset Purchase Agreement whereby Converse
purchased all of the assets of Exeter for a purchase price of $152,187. Exeter's
assets consisted of various equipment used for biomechanical testing of footwear
as well as miscellaneous office equipment. The purchase price for the assets was
determined by appraisals provided by a third party independent appraisal firm.
The consulting agreement which was entered into in May 1996 was terminated on
June 1, 1997 when the Company acquired all of the assets of Exeter. Pursuant to
this acquisition, Converse hired three individuals who were formerly employed by
Exeter. Prior to their termination, Exeter was paid a total of $132,034 under
the two consulting agreements during 1997.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 (the "1934 Act")
requires the Company's directors and executive officers, and certain other
officers and persons who own more than ten percent of a registered class of the
Company's equity securities, to file with the Securities and Exchange Commission
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Officers, directors and greater
than ten-percent stockholders are required by SEC regulation to furnish the
Company with copies of forms they file. To the Company's knowledge, based
solely on review of the copies of such reports furnished to the Company and
written representations that no reports were required, all Section 16(a) filing
requirements applicable to its officers, directors and greater than ten-percent
beneficial owners were complied with during 1997.
PERFORMANCE GRAPH
The following graph compares the total return on Common Stock from November
14, 1994, the date on which the Common Stock began trading on the NYSE with a
"when-issued" designation, through January 3, 1998 to that of (i) the Standard &
Poor's 500 Stock Index and (ii) the Standard & Poor's Shoe Index (the "Shoe
Index") which at January 3, 1998 was composed of Reebok International Ltd. and
Nike, Inc. The cumulative total return represents the change in stock price and
the amount of dividends received during the indicated period, assuming
reinvestment of dividends. The graph assumes an investment of $100 on November
14, 1994.
The historical stock price performance of the Common Stock shown on the
Performance Graph set below is not necessarily indicative of future price
performance.
17
<PAGE>
The Performance Graph set below shall not be deemed to be incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act or under the 1934 Act and
shall not otherwise be deemed filed under such Acts.
<TABLE>
<CAPTION>
---------------------------------------------------------------------
NOV. 14, DEC. 31, DEC. 30, DEC. 28, JAN. 3,
1994 1994 1995 1996 1998
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CVE 100 104.40 36.26 132.97 54.95
S&P 500 Index 100 98.55 132.16 162.38 209.21
S&P Shoe Index 100 109.75 146.86 242.34 162.12
</TABLE>
PROPOSAL TWO - RATIFICATION OF THE SELECTION OF INDEPENDENT
AUDITORS
Upon recommendation of its Audit Committee, the Board continued the
engagement of Price Waterhouse LLP, certified public accountants ("Price
Waterhouse"), as independent auditors for the fiscal year ending January 2,
1999. A formal statement by representatives of Price Waterhouse is not planned
for the annual stockholders meeting; however, representatives of Price
Waterhouse are expected to be present during the Annual Meeting and available to
respond to appropriate questions.
To be approved, the proposal to ratify the engagement of independent
auditors must receive the vote of a majority of the shares present, or
represented by proxy, and entitled to vote at the meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF
RATIFICATION OF PRICE WATERHOUSE LLP AS THE COMPANY'S AUDITORS FOR THE NEXT
FISCAL YEAR.
18
<PAGE>
PROPOSAL THREE - APPROVAL OF THE CONVERSE INC. 1994 STOCK OPTION
PLAN, AS AMENDED AND RESTATED
The Board previously adopted, and the stockholders previously approved, the
1994 Plan to encourage ownership of Common Stock of the Company by key
employees, including executive officers, and consultants of the Company and its
subsidiaries, by providing incentives for these employees and consultants
directly linked to operating performance of the Company and enable the Company
to attract and retain the services of outstanding employees in competition with
other employers. In furtherance of these objectives, on February 25, 1998, the
board adopted an amendment and restatement of the 1994 Plan which added the
availability of restricted stock under the 1994 Plan, subject to stockholder
approval. The board has also approved an increase in the number of shares of
the Company Common Stock reserved for the 1994 Plan to 3,300,000, subject to
adjustment in the event of stock splits, stock dividends, recapitalization, or
other changes in the outstanding Common Stock.
At the meeting, there will be presented to the stockholders a proposal to
adopt and approve the Board of the amended and restated 1994 Plan. The 1994
Plan, as amended and restated, will not be effective unless stockholder approval
is obtained.
ELIGIBLE PARTICIPANTS
Key employees (including officers) of the Company and consultants to the
Company are eligible to participate in the 1994 Plan, on a purely voluntary
basis, if they meet certain conditions. Approximately 100 key employees have
been designated as eligible to participate by the Committee.
MATERIAL FEATURES OF THE 1994 PLAN
The 1994 Plan authorizes grants to key employees and consultants of the
Company and its subsidiaries, of nonqualified and incentive options to purchase
shares of Common Stock of the Company. In addition, the 1994 Plan provides for
the grants of restricted stock.
The maximum number of shares with respect to which options may be granted
to any individual during any calendar year and during the term of the 1994 Plan
is 500,000 and 750,000, respectively. The maximum number of shares with respect
to which restricted stock may be granted to any individual in any calendar year
and during the term of the 1994 Plan is 500,000 and 750,000, respectively.
Options. Options granted under the 1994 Plan may consist of options
intended to qualify as incentive stock options within the meaning of section 422
of the Code or nonqualified stock options that are not intended to so qualify,
as determined by the Committee. The exercise price to purchase common stock
subject to an option under the 1994 plan is determined by the committee.
Notwithstanding the foregoing, however, the exercise price of an incentive stock
option granted to an employee who owns more than 10% of the total combined
voting power of all classes of the shares of the Company may not be less than
110% of the fair market value of the underlying
19
<PAGE>
Common Stock on the date of grant. Moreover, the maximum aggregate fair market
value of the shares of Common Stock 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) may not exceed $100,000. If the $100,000 limit is exceeded, the
portion of the incentive stock option in excess of the $100,000 limit shall be
treated as a nonqualified stock option. If this dollar limit limits the
exercisability of certain incentive stock options which would otherwise become
exercisable on account of termination of employment, the Committee, in its sole
discretion, will determine the times at which such incentive stock options
become exercisable. Generally, the Committee will determine the term of each
option; provided, however, that the exercise period may not exceed ten years
from the date of grant, and the exercise period of an incentive stock option
granted to an employee who owns more than 10% of the total voting power of all
outstanding stock of the Company may not exceed five years from the date of
grant.
Options are generally not transferable by the participant, except in the
event of death. However, the Committee may, in its sole discretion, allow a
participant to transfer a nonqualified stock option to his or her 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, however, that such transferred options continue to be subject to the
same terms and conditions applicable to the options immediately prior to the
transfer.
Restricted Stock. The Committee may issue Common Stock to participants
pursuant to the 1994 Plan. Shares may be issued for cash consideration or for
no cash consideration, as the Committee determines. The number of shares
granted to each participant will be determined by the Committee. Grants of
restricted stock will be made subject to such performance requirements, vesting
provisions, transfer restrictions or other restrictions and conditions as the
Committee may determine. The period of time during which restricted stocks will
remain subject to restrictions will be designated by the Committee in the grant
instrument.
CHANGE OF CONTROL
All options will become fully exercisable and all restrictions on
restricted stock will lapse upon a change of control. A "change of control" is
deemed to occur upon the occurrence of any of the following events:
(a) the acquisition (other than (i) from Furniture Brands International,
Inc. (formerly know as 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 Company
or its subsidiaries, or any employee benefit plan of the Company 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 Company'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 Company'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 Company and by Apollo; or
20
<PAGE>
(b) individuals who, as of the October 19, 1994 (the "Effective Date"),
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 Company'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 Company, as
such terms are used in Rule 14a-11 of Regulation 14a promulgated under the 1934
Act) will be considered as though such person were a member of the Incumbent
Board; or
(c) approval by the stockholders of the Company of a reorganization, merger
or consolidation, in each case, with respect to which persons who were the
stockholders of the Company 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 Company or
the sale of all or substantially all of the assets of the Company, 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"
includes 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.
TAX TREATMENT
The following generally describes the current federal income tax treatment
of grants under the 1994 Plan. Local and state tax authorities may also tax
incentive compensation awarded under the 1994 Plan, and tax laws are subject to
change.
There are no federal income tax consequences to a participant or to the
Company upon the grant of a nonqualified stock option under the 1994 Plan. Upon
the exercise of a nonqualified stock option, a participant will recognize
ordinary compensation income in an amount equal to the excess of the fair market
value of the shares at the time of exercise over the exercise price of the
nonqualified stock option, and the Company generally will be entitled to a
corresponding federal income tax deduction. Upon the sale of shares acquired by
the exercise of a nonqualified stock option, a participant will have a capital
gain or loss (long-term or short-term depending upon the length of time the
shares were held) in an amount equal to the difference between the amount
realized upon the sale and the participant's adjusted tax basis in the shares
(the exercise price plus the amount of ordinary income recognized by the
participant at the time of exercise of the nonqualified stock option).
A participant who is granted an incentive stock option will not recognize
taxable income for purposes of the regular income tax, upon either the grant or
exercise of the incentive stock option.
21
<PAGE>
However, for purposes of the alternative minimum tax imposed under the Code, in
the year in which an incentive stock option is exercised, the amount by which
the fair market value of the shares acquired upon exercise exceeds the exercise
price will be treated as an item of adjustment and be included in the
computation of the recipient's alternative minimum taxable income. A participant
who disposes of the shares acquired upon exercise of an incentive stock option
after two years from the date the incentive stock option was granted and after
one year from the date such shares were transferred to him or her upon exercise
of the incentive stock option will recognize capital gain or loss in the amount
of the difference between the amount realized on the sale and the exercise price
(or the participant's other tax basis in the shares), and the Company will not
be entitled to any tax deduction by reason of the grant or exercise of the
incentive stock option. Generally, if a participant disposes of the shares
acquired upon exercise of an incentive stock option before satisfying both
holding period requirements (a "disqualifying disposition"), his or her gain
recognized on such a disposition will be taxed as ordinary income to the extent
of the difference between the fair market value of such shares on the date of
exercise and the exercise price, and the Company will be entitled to a deduction
in that amount. The gain, if any, in excess of the amount recognized as ordinary
income on such a disqualifying disposition will be long-term or short-term
capital gain, depending upon the length of time the participant held his or her
shares before the disposition.
A participant normally will not recognize taxable income upon receiving
restricted stock, and the Company will not be entitled to a deduction, until
such stock is transferable by the participant or not subject to a substantial
risk of forfeiture for federal tax purposes. When the stock is either
transferable or no longer subject to a substantial risk of forfeiture, the
participant will recognize ordinary compensation income in an amount equal to
the fair market value of the shares (less any amounts paid for such shares) at
that time, and the Company generally will be entitled to a deduction in the same
amount. A participant may, however, elect to recognize ordinary compensation
income in the year the restricted stock is awarded in an amount equal to the
fair market value of the shares subject to the restricted stock grant (less any
amounts paid for such shares) at that time, determined without regard to the
restrictions. In such event, the Company generally will be entitled to a
corresponding deduction in the same year. Any gain or loss recognized by the
participant upon subsequent disposition of the shares will be long-term or
short-term capital gain or loss, depending upon the length of time the
participant held his or her shares before the disposition.
Under section 162(m) of the Code, the Company may be precluded from
claiming a federal income tax deduction for total remuneration in excess of $1.0
million paid to the chief executive officer or to any of the other four most
highly compensated officers in any one year. Total remuneration includes
amounts received upon the exercise of stock options granted under the 1994 plan
and the value of shares received when the shares of restricted stock became
transferable (or such other time when income is recognized). An exception
exists, however, for "qualified performance-based compensation." the 1994 Plan
is intended to allow grants of options to meet the requirements of "qualified
performance-based compensation." Grants of restricted stock, however, will not
meet this requirement.
22
<PAGE>
1994 PLAN ADMINISTRATION AND TERMINATION
The 1994 Plan provides for administration of the 1994 Plan by the
Committee. The Board may terminate or amend the 1994 Plan in any respect at any
time, except that the approval of the Company's stockholders is required for any
amendment to increase the number of shares available for purchase under the 1994
Plan, to change the class of individuals eligible to participate in the 1994
Plan, or to extend the maximum option period under the Plan. Unless earlier
terminated, the 1994 Plan will continue in effect until October 2004.
GRANTS UNDER 1994 PLAN
Information regarding the number of stock options granted to the Named
Executive Officers is included in the chart illustrating option grants in the
last fiscal year set forth herein above.
It has not yet been determined how many eligible employees and consultants
will receive grants of restricted stock under the Stock Option Plan.
VOTE REQUIRED FOR APPROVAL
To be approved, the proposal to adopt and to approve and ratify the 1994
Plan must receive the vote of a majority of the shares present, or represented
by proxy, and entitled to vote at the meeting.
THE DIRECTORS RECOMMEND THAT STOCKHOLDERS VOTE FOR THE APPROVAL OF THE AMENDMENT
AND RESTATEMENT OF THE 1994 PLAN.
PROPOSAL FOUR - APPROVAL OF CONVERSE INC. EMPLOYEE STOCK PURCHASE PLAN
In order to encourage employee ownership of the Company, on February 25,
1998, the Board adopted the Employee Stock Purchase Plan, subject to stockholder
approval. The Board reserved 500,000 shares of the Company Common Stock for the
Employee Stock Purchase Plan, subject to adjustment in the event of stock
splits, stock dividends, recapitalization, or other changes in the outstanding
Common Stock. The Employee Stock Purchase Plan provides eligible employees of
the Company with a means to purchase, through payroll deductions, shares of
Common Stock at a discount, consistent with the provisions of the Code.
At the meeting, there will be presented to the stockholders a proposal to
adopt and approve the adoption by the Board of the Employee Stock Purchase Plan.
The Employee Stock Purchase Plan will not be effective unless stockholder
approval is obtained.
23
<PAGE>
ELIGIBLE PARTICIPANTS
Regular employees of the Company are eligible to participate in the
Employee Stock Purchase Plan, on a purely voluntary basis, if they meet certain
conditions. To be eligible, an employee's customary employment must be greater
than both 20 hours per week and the employee must also have completed twelve
consecutive months of service with the Company. An employee who owns five
percent (5%) or more of the total combined voting power or value of all classes
of stock of the Company will not be eligible to participate in the Employee
Stock Purchase Plan. Temporary employees will not be eligible to participate in
the Employee Stock Purchase Plan. Approximately 2,000 employees would have
been eligible to participate as of January 31, 1998.
MATERIAL FEATURES OF THE EMPLOYEE STOCK PURCHASE PLAN
Eligible employees participate in the Employee Stock Purchase Plan through
exercising options to purchase Common Stock. Purchase periods shall consist of
the six month periods from September 1 through February 28 (February 29 in the
case of a leap year) and from March 1 through August 31, unless otherwise
established by the Committee. Common Stock will be purchased through a
participant's payroll deductions at a stated dollar amount of not less than $10
per pay period (in multiples of $10) and not more than $10,000 in any plan year,
as determined by the participant. Common Stock will be purchased in whole
shares at a price which shall be determined by the Committee before the first
day of each purchase period. Such price shall not be less than the lower of 85%
of the fair market value of the Common Stock as of the first or the last trading
day of each purchase period. The fair market value of the Common Stock will be
determined by reference to the Common Stock Price on the NYSE on each relevant
date.
Each eligible employee who elects to participate in the Employee Stock
Purchase Plan will, without any action on his or her part, automatically be
deemed to have exercised his or her option on the last day of each purchase
period if he or she is then employed, to the extent that the amount withheld
through payroll deduction throughout the purchase period is sufficient to
purchase, at the option price, one or more whole shares of Common Stock. All
funds received or held by the Company under the Employee Stock Purchase Plan are
general assets of the Company, free of any trust or other restriction, and may
be used for any corporate purpose. No interest on such funds will be credited
to or paid to any participant under the Employee Stock Purchase Plan.
An option granted under the Employee Stock Purchase Plan shall not be
transferable by an employee, other than by will or by the laws of descent and
distribution, and is exercisable during his or her lifetime only by the
employee.
A participant may voluntarily suspend his or her payroll deductions at any
time, but will not be permitted to resume the payroll deductions again until the
next September 1 or March 1, as applicable. A participant may change the rate
of his or her payroll deductions on any September 1 or March 1. If a
participant terminates his or her employment with the Company, his or her
participation in the Employee Stock Purchase Plan will be automatically
terminated as of the date of termination of employment, and the shares held in
his or her stockholder account will either be sold as directed by the terminated
participant, or distributed to the terminated participant, in which case, the
Common Stock purchased through the Employee Stock Purchase Plan as of the date
of
24
<PAGE>
termination will be distributed to the participant, together with amounts
withheld through payroll deduction that had not been applied to purchase Common
Stock under the Employee Stock Purchase Plan, without interest.
EMPLOYEE STOCK PURCHASE PLAN RESTRICTIONS CONCERNING RESALES OF SHARES AND
DISTRIBUTION OF SHARE CERTIFICATES
A participant may sell his or her shares or obtain a stock certificate
evidencing shares acquired under the Employee Stock Purchase Plan at anytime by
making a request in the time and form prescribed by the Committee.
NEW EMPLOYEE STOCK PURCHASE PLAN BENEFITS
It is not possible to determine how many eligible employees will
participate in the Employee Stock Purchase Plan in the future or the level of
such participation.
TAX TREATMENT
The Employee Stock Purchase Plan is intended to qualify as an employee
stock purchase plan within the meaning of Section 423 of the Code. Under the
Code, an employee who elects to participate in the Employee Stock Purchase Plan
will not realize income at the time the offering commences or when the shares
are actually purchased under the Employee Stock Purchase Plan. If an employee
disposes of such shares after two years from the date the offering of such
shares commences under the Employee Stock Purchase Plan and after one year from
the actual date of purchase of such shares under the Employee Stock Purchase
plan (collectively the "Holding Period"), the employee will be required to
include in income, as capital gain for the year in which such disposition
occurs, an amount equal to the lesser of (i) the excess of the fair market value
of such shares at the time of disposition over the purchase price and (ii) the
excess of the fair market value of such shares at the time the offering
commenced over the purchase price. If any employee disposes of the shares
purchased under the Employee Stock Purchase Plan during the Holding Period, the
employee will be required to include in income, as compensation for the year in
which such disposition occurs, an amount equal to the excess, if any, of the
fair market value of such shares on the date of purchase over the purchase
price. The employee's basis in such shares disposed of will be increased by an
amount equal to the amount includable in his or her income as compensation, and
any gain or loss computed with reference to such adjusted basis which is
recognized at the time of disposition will be capital gain or loss, either
short-term or long-term, depending on the length of the holding period for such
shares. In the event of a disposition during the Holding Period, the Company
(or the subsidiary by which the employee is employed) will be entitled to a
deduction from income equal to the amount the employee is required to include in
income as a result of such disposition.
An employee who is a nonresident of the United States will generally not be
subject to the U.S. federal income tax with respect to the shares of Common
Stock purchased under the Employee Stock Purchase Plan.
25
<PAGE>
EMPLOYEE STOCK PURCHASE PLAN ADMINISTRATION AND TERMINATION
The Employee Stock Purchase Plan provides for administration of the
Employee Stock Purchase Plan by the Committee. The Committee, however, may, at
its discretion, delegate any or all of its day to day responsibilities, other
than fiduciary or fiscal responsibilities, to the Company's Benefits Committee.
The Board may terminate, suspend or amend the Employee Stock Purchase Plan in
any respect at any time, except that the approval of the Company's stockholders
is required for any amendment to increase the number of shares available for
purchase under the Employee Stock Purchase Plan. Moreover, the Employee Stock
Purchase Plan will automatically terminate upon the (i) the dissolution or
liquidation of the Company, (ii) a merger or consolidation in which the Company
is not the surviving corporation, or (iii) any transaction that results in the
Common Stock of the Company ceasing to be publicly traded. Unless earlier
terminated, the Employee Stock Purchase Plan will continue in effect until
August 31, 2008, except that if at the end of any purchase period the aggregate
funds available for purchase of Common Stock would purchase a greater number of
shares than is available for purchase, the number of shares that would otherwise
be purchased by each participant at the end of the purchase period will be
proportionately reduced in order to eliminate the excess. The Employee Stock
Purchase Plan would then automatically terminate after such purchase period.
VOTE REQUIRED FOR APPROVAL
To be approved, the proposal to adopt and to approve and ratify the
Employee Stock Purchase Plan must receive the vote of a majority of the shares
present, or represented by proxy, and entitled to vote at the meeting.
THE DIRECTORS RECOMMEND THAT STOCKHOLDERS VOTE FOR THE APPROVAL OF THE CONVERSE
INC. EMPLOYEE STOCK PURCHASE PLAN.
STOCKHOLDER PROPOSALS
Stockholder proposals submitted for inclusion in the Company's proxy
materials for the 1999 Annual Meeting should be addressed to the Secretary of
Converse and must be received at Converse's executive offices not later than
December 1, 1998. Upon receipt of any such proposal, the Company will determine
whether or not to include such proposal in the proxy statement and proxy form in
accordance with SEC regulations governing the solicitation of proxies.
OTHER BUSINESS
Neither the Board nor management knows of any matters other than those
items set forth above that will be presented for consideration during the 1998
Annual Meeting. However, if other matters should properly come before the
meeting, it is intended that the persons named in the proxies will vote, act
and consent in accordance with their best judgment with respect to any such
matters.
26
<PAGE>
FORM 10-K
FURTHER INFORMATION REGARDING THE COMPANY IS SET FORTH IN THE COMPANY'S
ANNUAL REPORT ON FORM 10-K WHICH HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. THE FORM 10-K (INCLUDING FINANCIAL STATEMENTS AND SCHEDULES, BUT
EXCLUDING EXHIBITS) IS AVAILABLE WITHOUT CHARGE BY WRITING TO THE SECRETARY OF
CONVERSE INC. AT ONE FORDHAM ROAD, NORTH READING, MASSACHUSETTS 01864. COPIES
OF EXHIBITS TO THE FORM 10-K WILL BE FURNISHED UPON REQUEST AND THE PAYMENT OF A
REASONABLE DUPLICATION FEE.
By order of the Board of Directors,
/s/ Jack A. Green
Jack A. Green,
Senior Vice President, General Counsel and Secretary
March 31, 1998
North Reading, Massachusetts
27
<PAGE>
[X] Please mark votes as in this example.
1. Election of Directors (see reverse) FOR WITHHELD
[_] [_]
For, except vote withheld from the following nominee(s)
______________________________________
2. Ratification of selection of independent auditors. FOR AGAINST ABSTAIN
[_] [_] [_]
3. Approval of Converse Inc. 1994
Stock Option Plan, as amended and
restated. [_] [_] [_]
4. Approval of Converse Inc.
Employee Stock Purchase Plan. [_] [_] [_]
5. Other business; I authorize the
aforementioned Proxies in their
discretion to vote upon such other
business as may properly come
before the Annual Meeting and any
adjournments thereof. [_] [_] [_]
MARK HERE MARK HERE
FOR ADDRESS IF YOU PLAN
CHANGE AND TO ATTEND
NOTE AT LEFT [_] THE MEETING [_]
Please sign exactly as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
Signature:___________ Date:____________ Signature:___________ Date_____________
<PAGE>
PROXY
CONVERSE INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
FOR THE 1998 ANNUAL MEETING OF STOCKHOLDERS, MAY 11, 1998
The undersigned herby appoints Glenn N. Rupp and Jack A. Green, and each of
them, with power of substitution, proxy or proxies, to represent the undersigned
and vote all shares of Common Stock the undersigned would be entitled to vote at
the annual meeting of stockholders of Converse Inc. to be held at the Company's
headquarters, One Fordham Road, North Reading, Massachusetts, at 10:00 a.m.
local time, on Monday, May 11, 1998, and at any adjournments thereof, on all
matters coming before said meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
1. Election of Twelve Directors, Nominees:
Donald J. Barr, Leon D. Black, Julius W. Erving, Robert H. Falk, Gilbert
Ford, Michael S. Gross, John J. Hannan, Joshua J. Harris, John H. Kissick,
Richard B. Loynd, Glenn N. Rupp, Michael D. Weiner
2. Ratification of the selection of independent auditors.
3. Approval of Converse Inc. 1994 Stock Option Plan, as amended and restated.
4. Approval of Converse Inc. Employee Stock Purchase Plan.
5. In their discretion, upon such other matters as may properly come before the
meeting.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES, SEE
REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE
WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS.
- ----------- -----------
SEE REVERSE PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD SEE REVERSE
SIDE PROMPTLY SIDE
- ----------- -----------
<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, tat 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
-4-
<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.
-5-
<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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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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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
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<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:
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<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.
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<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
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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
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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.
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