<PAGE> 1
[L.A. GEAR LOGO]
February 28, 1994
To our Shareholders:
On behalf of the Board of Directors, I cordially invite you to attend the
Annual Meeting of Shareholders of L.A. Gear, Inc., to be held Tuesday, April 19,
at 10:00 a.m. at the Loews Santa Monica Beach Hotel, 1700 Ocean Avenue, Santa
Monica, California. The formal notice and proxy statement for the Annual Meeting
are attached to this letter.
It is important that you sign, date and return your proxy card in the
enclosed envelope as soon as possible, even if you currently plan to attend the
Annual Meeting. By doing so, you will ensure that your shares are represented
and voted at the meeting. If you decide to attend, you can still vote your
shares in person, if you wish.
On behalf of the Board of Directors, I thank you for your cooperation and I
look forward to seeing you on April 19th.
Sincerely,
/s/ Stanley P. Gold
Stanley P. Gold
Chairman of the Board
and Chief Executive Officer
<PAGE> 2
L.A. GEAR, INC.
2850 OCEAN PARK BLVD.
SANTA MONICA, CALIFORNIA 90405
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 19, 1994
TO THE SHAREHOLDERS OF L.A. GEAR, INC.
Notice is hereby given that the annual meeting of shareholders of L.A.
Gear, Inc. (the "Company") will be held at the Loews Santa Monica Beach Hotel,
1700 Ocean Avenue, Santa Monica, California, on Tuesday, April 19, 1994, at
10:00 a.m., Los Angeles time, for the following purposes:
1. ELECTION OF DIRECTORS. To elect a total of ten persons to the Board of
Directors to serve until the next annual meeting of shareholders and
until their successors are elected and have qualified as follows:
a. To elect seven Directors by vote of the holders of Common Stock,
voting as a separate class. The Board of Directors' nominees are:
Walter C. Bladstrom Stephen A. Koffler
Allan E. Dalshaug Ann E. Meyers
Willie D. Davis Clifford A. Miller
Mark R. Goldston
b. To elect three Directors by vote of the holders of Series A
Cumulative Convertible Preferred Stock, voting as a separate class.
The Series A nominees are:
Stanley P. Gold
Robert G. Moskowitz
Vappalak A. Ravindran
2. RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS. To ratify
the Board of Directors' selection of Price Waterhouse as the Company's
independent accountants for the fiscal year ending November 30, 1994.
3. OTHER BUSINESS. To consider and act upon such other business as may
properly come before the meeting.
Section 2.11(b) of the Company's Bylaws provides for the nomination of
directors to be elected by holders of the Company's Common Stock in the
following manner:
Notice of intention to make any nomination, other than by the Board of
Directors, shall be made in writing and shall be received by the President of
the Company no more than 60 days prior to any meeting of shareholders called for
the election of directors, and no more than 10 days after the date the notice of
such meeting is sent to shareholders pursuant to Section 2.2 of these bylaws;
provided, however, that if only 10 days' notice of the meeting is given to
shareholders, such notice of intention to nominate shall be received by the
President of the Company not later than the time fixed in the notice of the
meeting for the opening of the meeting. Such notification shall contain the
following information to the extent known to the notifying shareholder: (a) the
name and address of each proposed nominee; (b) the principal occupation of each
proposed nominee; (c) the number of shares of voting stock of the Company owned
by each proposed nominee; (d) the name and residence address of the notifying
shareholder; and (e) the number of shares of voting stock of the Company owned
by the notifying shareholder. Nominations not made in accordance herewith shall
be disregarded by the then chairman of the meeting, and the inspectors of
election shall then disregard all votes cast for each such nominee.
<PAGE> 3
Only shareholders of record at the close of business on February 21, 1994
will be entitled to notice of the annual meeting and to vote at the annual
meeting and at any adjournments thereof.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Thomas F. Larkins
Thomas F. Larkins
Secretary
Dated: February 28, 1994
WHETHER OR NOT YOU CURRENTLY PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, PLEASE
SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE. YOU MAY
REVOKE YOUR PROXY IF YOU DECIDE TO ATTEND THE ANNUAL MEETING AND WISH TO VOTE
YOUR SHARES IN PERSON.
<PAGE> 4
L.A. GEAR, INC.
2850 OCEAN PARK BOULEVARD
SANTA MONICA, CALIFORNIA 90405
(310) 822-1995
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
APRIL 19, 1994
GENERAL
This Proxy Statement is furnished to the shareholders of L.A. Gear,
Inc. (the "Company") in connection with the solicitation by its Board of
Directors (the "Board") of proxies to be voted at the 1994 Annual Meeting of
Shareholders to be held at Loews Santa Monica Beach Hotel, 1700 Ocean Avenue,
Santa Monica, California on Tuesday, April 19, 1994 at 10:00 a.m. Los Angeles
time and at any adjournment thereof (the "Meeting"). The Company expects to
mail its proxy soliciting materials for the Meeting on or about February 28,
1994.
A separate form of Proxy applies to the Company's Common Stock and
Series A Preferred Stock. Enclosed is a Proxy for the shares of stock held by
you as of the close of business on February 21, 1994 (the "Record Date").
Unless otherwise indicated on the Proxy, shares represented by any Proxy will,
if the Proxy is properly executed and timely received by the Company, be voted
FOR the applicable nominees for director and FOR the ratification of the
Board's selection of Price Waterhouse as the Company's independent accountants
for the fiscal year ending November 30, 1994.
VOTING
Only shareholders of record as of the Record Date are entitled to vote
at the Meeting. The outstanding capital stock of the Company on that date
consisted of 22,936,433 shares of common stock, without par value ("Common
Stock"), and 1,000,000 shares of Series A Cumulative Convertible Preferred
Stock ("Series A Preferred Stock"). Trefoil Capital Investors, L.P. ("Trefoil")
is the holder of all of the issued and outstanding shares of Series A Preferred
Stock. A majority of the voting power of the outstanding shares of capital
stock of the Company, represented in person or by Proxy, shall constitute a
quorum for the transaction of business at the Meeting (the "Quorum").
Abstentions will be treated as shares that are present and entitled to vote for
purposes of determining the presence of a quorum but as unvoted for purposes of
determining the approval of any matter submitted to the shareholders for a
vote. If a broker indicates on the Proxy that it does not have discretionary
authority as to certain shares to vote on a particular matter, those shares
will not be considered as present and entitled to vote with respect to that
matter.
With respect to the election of directors, the Company's Restated
Articles of Incorporation, as amended (the "Restated Articles"), provide that
as long as shares of Series A Preferred Stock having an aggregate stated value
of at least $25 million are outstanding, and as long as Trefoil (or any
successor which is controlled, directly or indirectly, by the officers or
directors of Shamrock Capital Advisors, Inc. ("SCA"), a company which provides
management and consulting services to Trefoil and companies in which Trefoil
invests, including the Company) owns beneficially or of record more than a
majority of the outstanding shares of Series A Preferred Stock (collectively,
the "Requisite Conditions"), the holders of Series A Preferred Stock have the
right, voting separately as a series, to elect three directors of the Company
and the holders of Common Stock, voting separately as a single class, are
entitled to elect the remaining directors.
Except as set forth below, in the election of directors, the holders of
all classes of capital stock of the Company are entitled to one vote per share.
Each holder of Common Stock may cumulate his votes for directors, giving one
candidate a number of votes equal to the product of the number of directors to
be elected times the number of shares of Common Stock held by such holder, or
he may distribute his votes on the same principle among as many candidates as
he shall see fit. For a holder of Common Stock to exercise his cumulative
voting rights, he must give notice at the Meeting, prior to the commencement of
voting, of his intention to cumulate his votes. If any holder of Common Stock
gives such notice, then every holder of Common Stock entitled to vote may
cumulate his votes for candidates in nomination.
<PAGE> 5
The seven directors to be elected by the holders of Common Stock, voting as
a separate class, shall be the seven candidates receiving the highest number of
votes cast by holders of Common Stock. Discretionary authority to cumulate votes
is hereby solicited by the Board and return of the Proxy shall grant such
authority.
The three directors to be elected by the holders of Series A Preferred
Stock, voting as a separate class, shall be the three candidates receiving the
highest number of votes cast by holders of Series A Preferred Stock. Trefoil,
the holder of all of the outstanding shares of Series A Preferred Stock, has
advised the Company that it intends to vote all shares of Series A Preferred
Stock in favor of the individuals nominated by the holder of the Series A
Preferred Stock.
As to matters other than the election of directors, the Restated Articles
provide that the holders of Common Stock and Series A Preferred Stock vote
together as a single class. With respect to such matters, each share of Common
Stock entitles the holder thereof to one vote; each share of Series A Preferred
Stock entitles the holder thereof to ten votes (the number of votes which could
be cast in such vote by the holder of the number of whole shares of Common Stock
into which each share of Series A Preferred Stock is convertible on the Record
Date), with the Series A Preferred Stock having an aggregate of 10 million votes
on such matters. As to matters other than the election of directors, an
aggregate of 32,936,433 votes may be cast by the holders of Common Stock and
Series A Preferred Stock.
The proposal to ratify the appointment of Price Waterhouse as the Company's
independent accountants for the fiscal year ending November 30, 1994 requires
the affirmative vote of a majority of the Common Stock and Series A Preferred
Stock represented and voting together as a single class at the Meeting (provided
that such affirmative vote also represents a majority of the Quorum). Trefoil
has advised the Company that it intends to vote all shares of Series A Preferred
Stock in favor of the ratification of the appointment of Price Waterhouse as the
Company's independent accountants.
ELECTION OF DIRECTORS
The Company's Bylaws give the Board the power to set the number of
directors at no less than eight nor more than fifteen. The size of the Company's
Board is currently set at ten. The Restated Articles provide for the holders of
Series A Preferred Stock, voting separately as a series, to elect three of the
directors and for the holders of outstanding Common Stock to elect the balance.
Accordingly, the Series A Preferred shareholders will elect three of the ten
directors and the holders of Common Stock will elect seven directors. The
directors so elected will serve until the next annual meeting of shareholders
and until their successors are elected and have qualified.
If an amount equal to three full quarterly dividends with respect to the
Series A Preferred Stock is at any time in arrears (provided certain conditions
are satisfied), the number of directors will be increased from ten to fourteen
and the holders of the Series A Preferred Stock will be entitled to elect an
additional four directors. Such additional directors will continue in office and
the holders of Series A Preferred Stock will continue to have such additional
voting rights, until such time as all accrued and unpaid dividends on the Series
A Preferred Stock have been paid in full, at which time the terms of such
additional directors will expire.
The persons named as proxies in the enclosed form of Proxy were selected by
the Board, and have advised the Board that, unless authority is withheld, they
intend to vote the shares represented by them at the Meeting for the election of
Walter C. Bladstrom, Allan E. Dalshaug, Willie D. Davis, Mark R. Goldston,
Stephen A. Koffler, Ann E. Meyers and Clifford A. Miller, on behalf of the
holders of Common Stock, and for the election of Stanley P. Gold, Robert G.
Moskowitz, and Vappalak A. Ravindran, on behalf of the holders of Series A
Preferred Stock. All nominees are current members of the Board of the Company.
2
<PAGE> 6
The Board knows of no reason why any nominee for director would be unable
to serve as a director. If at the time of the Meeting any of the named nominees
are unable or unwilling to serve as directors of the Company, the persons named
in the Proxy intend to vote for such substitutes as may be nominated by the
Board or the holders of the outstanding shares of Series A Preferred Stock, as
applicable.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE BOARD OF DIRECTORS'
NOMINEES FOR DIRECTOR TO BE ELECTED BY THE HOLDERS OF COMMON STOCK.
NOMINEES FOR ELECTION BY HOLDERS OF COMMON STOCK
WALTER C. BLADSTROM was elected to the Board in April 1993. Mr. Bladstrom
has served as an advisor to Fulcrum International, Ltd. ("Fulcrum"), an
investment and financial advisory firm specializing in mergers and acquisitions,
since 1991. Prior to that time, Mr. Bladstrom served as the Chairman of the
Board and Chief Executive Officer of Fulcrum since 1987. Mr. Bladstrom has also
served as a member of the Advisory Board of the Snider Entrepreneurial Center at
The Wharton School since 1989. Mr. Bladstrom owns a 0.1 percent limited
partnership interest in Trefoil. Age: 61
ALLAN E. DALSHAUG has served as a Director of the Company since May 1986.
Mr. Dalshaug has been Chairman of the Board and Chief Executive Officer of
Sterling West Bancorp, a publicly held bank holding company, and its subsidiary,
Sterling Bank, since 1982. Age: 62
WILLIE D. DAVIS was elected to the Board in June 1992. Mr. Davis has served
as President and Chief Executive Officer of All Pro Broadcasting, Inc., a Los
Angeles broadcasting company, since 1976. Mr. Davis played professional football
for ten years with the Green Bay Packers and for two years with the Cleveland
Browns and was inducted into The Professional Football Hall of Fame in 1981. Mr.
Davis also serves as a director of Wicor, Inc.; Sara Lee Corporation; Alliance
Bank; MGM Grand Company; Kmart Corporation; Dow Chemical Company and Johnson
Controls Inc. Age: 59
MARK R. GOLDSTON joined the Company in October 1991 as President and Chief
Operating Officer, and was subsequently elected to the Board in October 1991 to
fill an existing vacancy on the Board. Prior to joining the Company, Mr.
Goldston was a principal of Odyssey Partners, L.P., a leveraged buyout and
investment firm, from September 1989 to October 1991. Mr. Goldston also served
as Senior Vice President and Chief Marketing Officer of Reebok International,
Ltd. from August 1988 to August 1989, and as President of Faberge USA, Inc. from
December 1987 to August 1988. Age: 39
STEPHEN A. KOFFLER has served as a Director of the Company since September
1991. Mr. Koffler has served as Executive Vice President and Director of
Investment Banking of Sutro & Co., a brokerage and investment banking firm since
October 1991. From May 1981 until September 1991, Mr. Koffler was employed by
Merrill Lynch & Co. ("Merrill Lynch") and predecessor companies, and, until
March 1991, was a Managing Director in the Investment Banking Division of
Merrill Lynch. Mr. Koffler resigned as an officer of Merrill Lynch in March 1991
and acted as an employee and consultant to Merrill Lynch through September 1991.
Age: 51
ANN E. MEYERS was elected to the Board in June 1992. Ms. Meyers has worked
for various network and cable television stations (including CBS, ESPN, WTBS,
Prime Network and Prime Ticket) as a broadcaster and sports commentator since
1983. Ms. Meyers played both amateur and professional women's basketball and
participated in the Pan Am Games in 1975 and 1979 and the 1976 Olympic Games.
Ms. Meyers was inducted into the Basketball Hall of Fame on May 10, 1993. Age:
38
CLIFFORD A. MILLER was first elected to the Board by Trefoil (as the holder
of all of the issued and outstanding shares of Series A Preferred Stock) in
September 1992, with a term of service which expired on February 26, 1993. On
February 17, 1993, Mr. Miller was re-appointed to the Board, effective February
26, 1993, to fill a vacancy on the Board. Mr. Miller has continued to serve as a
director of the Company since that date. Mr. Miller has served as Chairman of
The Clifford Group, Incorporated, a business consulting organization, since
January 1992. From December 1986 through December 1991, Mr. Miller was an
Executive Vice President and a Director of Great Western Financial Corporation
and Great Western Bank. Mr. Miller has also served as a Senior Consultant to
Shamrock Holdings, Inc. ("Shamrock") since 1978. Age: 65
3
<PAGE> 7
NOMINEES FOR ELECTION BY HOLDERS OF SERIES A PREFERRED STOCK
STANLEY P. GOLD has served as a Director since September 1991 and has held
the positions of Chairman of the Board and Chief Executive Officer of the
Company since January 1992. Mr. Gold has served since prior to 1987 as
President, Chief Executive Officer, and a director of Shamrock, a holding
company engaged primarily in radio and television broadcasting, real estate
development and the making of investments. Since January 1, 1990, Mr. Gold has
also served as President and Managing Director of Trefoil Investors, Inc.
("TII"), the general partner of Trefoil, as well as President and Managing
Director of SCA. Mr. Gold is also a director of The Walt Disney Company, an
international company engaged in family entertainment. Age: 51
ROBERT G. MOSKOWITZ has served as a Director since September 1991. Since
January 1990, Mr. Moskowitz has served as a Managing Director of TII and SCA.
Mr. Moskowitz has also served as Executive Vice President of Shamrock since
March 1989. Age: 41
VAPPALAK A. RAVINDRAN was first elected to the Board by Trefoil (as the
holder of all of the issued and outstanding shares of Series A Preferred Stock)
in September 1992, with a term of service which expired on February 26, 1993.
Effective February 26, 1993, Mr. Ravindran was appointed as one of the three
directors elected by Trefoil. Mr. Ravindran has continued to serve as a director
of the Company since that date. Mr. Ravindran has served as the Managing
Director and President of Paracor Finance Inc. ("Paracor Finance", formerly
Elders Finance, Inc.), a finance company, since July 1987. Mr. Ravindran has
also served as the Chief Executive Officer of Paracor Company, Inc. ("Paracor"),
an asset management company, since December 1991. Paracor Finance and Paracor
are indirect wholly-owned subsidiaries of Fosters Brewing Group Ltd. of
Australia. An affiliate of Paracor Finance is a limited partner in Trefoil. Mr.
Ravindran is a director of Northwest Airlines, Inc., a commercial airline. Age:
46
RATIFICATION OF THE SELECTION OF INDEPENDENT ACCOUNTANTS
The Board has selected the accounting firm of Price Waterhouse to audit the
Company's financial statements for, and otherwise act as the Company's
independent accountants with respect to, the fiscal year ending November 30,
1994. Price Waterhouse acted as independent accountants for the Company in
respect of its fiscal year ended November 30, 1993. In accordance with the
Board's resolution, its selection of Price Waterhouse as the Company's
independent accountants for the current fiscal year is being presented to
shareholders for ratification at the Meeting. The Company knows of no direct or
material indirect financial interest of Price Waterhouse in the Company or any
connection of that firm with the Company in the capacity of promoter,
underwriter, voting trustee, officer or employee.
Members of Price Waterhouse will be present at the Meeting, will have an
opportunity to make a statement if they so desire and will be available to
respond to appropriate questions.
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF PRICE WATERHOUSE AS THE INDEPENDENT ACCOUNTANTS OF THE COMPANY.
4
<PAGE> 8
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the shares of
Common Stock beneficially owned as of February 21, 1994 by each person or entity
who, insofar as the Company has been able to ascertain, beneficially owned more
than 5% of the Company's Common Stock as of such date. The table also reflects
the ownership of the issued and outstanding shares of Series A Preferred Stock.
<TABLE>
<CAPTION>
COMMON STOCK
CLASS BENEFICIALLY PERCENT
OF STOCK NAME AND ADDRESS OWNED(1) OF SHARES
- -------- ---------------- ------------ ---------
<S> <C> <C> <C>
Common Trefoil Capital Investors, L.P. 11,000,000(2) 33.40%
c/o Trefoil Investors, Inc.
4444 Lakeside Drive
Burbank, CA 91510
Common The Goldman Sachs Group, L.P. 1,949,840(3) 8.50%
85 Broad Street
New York, New York 10004
Common Pentland Ventures Ltd. 1,644,445(4) 7.05%
c/o Pentland Group plc.
The Pentland Centre
Lakeside, Squires Lane
Finchley N3 2Q1
England
Common Milberg Weiss Bershad Specthrie & 1,169,157(5) 5.10%
Lerach, as Escrow Agent
c/o 600 West Broadway, Suite 1800
San Diego, CA 92101
Preferred Trefoil Capital Investors, L.P. 1,000,000 100.00%
c/o Trefoil Investors, Inc.
4444 Lakeside Drive
Burbank, CA 91510
</TABLE>
- ---------------
(1) Unless otherwise indicated, each named entity has sole voting and investment
power over the shares beneficially owned by it.
(2) Includes 10,000,000 shares that represent the shares of the Company's Common
Stock issuable upon conversion of the shares of Series A Preferred Stock.
(3) In a joint filing on Schedule 13G, dated February 7, 1994, by The Goldman
Sachs Group, L.P. and Goldman Sachs & Co., The Goldman Sachs Group, L.P. and
Goldman Sachs & Co. reported shared voting power over 1,642,740 shares and
shared dispositive power with respect to all of the reported shares.
(4) Includes 400,000 shares which Pentland Ventures Ltd. presently has the right
to acquire by the exercise of options granted pursuant to the Stock Option
Agreement, dated as of April 28, 1992, between L.A. Gear, Inc. and Pentland
Ventures Ltd.
(5) Represents shares held by Milberg, Weiss, Bershad, Specthrie & Lerach as
escrow agent on behalf of plaintiffs, members of the plaintiff classes and
attorneys for the foregoing in connection with the Stipulations of Partial
Settlement entered into by the Company with respect to three separate
consolidated shareholder securities class action lawsuits, In Re L.A. Gear
Securities Litigation, United States District Court, Central District of
California, Master File CV-90-2832 KN(Bx); In Re L.A. Gear Securities
Litigation II, United States District Court, Central District of California;
Master File CV-91-0400 KN(Bx); and In Re L.A. Gear Securities
Litigation III, United States District Court, Central District of
California Master File CV-91-4039 MRP(JRx).
5
<PAGE> 9
OWNERSHIP OF COMMON STOCK BY DIRECTORS AND OFFICERS
The following table sets forth certain information regarding the shares of
Common Stock beneficially owned by (a) each of the directors of the Company (all
nominees for election as directors are current members of the Board), (b) the
Company's Chief Executive Officer and four other most highly compensated
executive officers of the Company for the fiscal year ended November 30, 1993
(the "Named Executive Officers") and (c) all directors and executive officers of
the Company as a group (15 persons). This information has been provided by each
of the directors, nominees and executive officers as of February 21, 1994 at the
request of the Company, and includes the number of shares which such persons
have the right to acquire within 60 days of such date by the exercise of stock
options vested pursuant to the Company's 1986 Stock Option Plan (the "1986 Stock
Option Plan"), 1992 Stock Option Plan for Eligible Nonemployee Directors (the
"1992 Stock Option Plan for Eligible Nonemployee Directors"), and 1993 Stock
Incentive Plan (the "1993 Stock Incentive Plan").
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY PERCENT
NAME OWNED(1) OF SHARES(2)
---- -------------- ------------
<S> <C> <C>
DIRECTORS ELECTED BY HOLDERS OF COMMON STOCK:
Mark R. Goldston................................................. 300,000(3) 1.29%
Stephen A. Koffler............................................... 35,000(3) *
Allan E. Dalshaug................................................ 29,600(4) *
Clifford A. Miller............................................... 14,000(5) *
Ann E. Meyers.................................................... 11,000(5) *
Walter C. Bladstrom.............................................. 10,000(5) *
Willie D. Davis.................................................. 10,000(5) *
SERIES A DIRECTORS
Stanley P. Gold.................................................. 692,500(6) 2.94%
Robert G. Moskowitz.............................................. 15,000(3) *
Vappalak A. Ravindran............................................ 12,000(7) *
NAMED EXECUTIVE OFFICERS**
William L. Benford............................................... 46,808(8) *
David F. Gatto................................................... 46,666(3) *
Christopher M. Walsh............................................. 26,666(3) *
All directors and executive officers as a group (15 persons)..... 1,283,071(9) 5.32%
</TABLE>
- ---------------
* Less than 1%.
** Messrs. Gold and Goldston are also Named Executive Officers.
(1) Unless otherwise indicated, each named individual has sole voting and
investment power over the shares beneficially owned by him or her.
(2) Shares which the person (or group) has the right to acquire within 60 days
after February 21, 1994 are deemed to be outstanding in calculating the
percentage ownership of the person (or group), but are not deemed to be
outstanding as to any other person (or group).
(3) Consists of shares which the individual has the right to acquire within 60
days after February 21, 1994 by the exercise of stock options vested
pursuant to the Company's 1986 Stock Option Plan.
(4) Includes 5,940 shares owned by Mr. Dalshaug and his wife as trustees for a
defined benefit pension plan of Personal Account Services, Inc., a
corporation of which Mr. Dalshaug is the sole shareholder, 1,332 shares
held by Sutro & Co. Incorporated as Trustee for the Individual Retirement
Account of Allan Dalshaug, 1,328 shares held by Sutro & Co. Incorporated as
Trustee for the Individual Retirement Account of Elva Dalshaug, Mr.
Dalshaug's wife, and 15,000 shares which Mr. Dalshaug has the right to
acquire within 60 days after February 21, 1994, by the exercise of stock
options vested pursuant to the Company's 1986 Stock Option Plan.
6
<PAGE> 10
(5) Includes 10,000 shares which the individual has the right to acquire within
60 days after February 21, 1994, by the exercise of stock options vested
pursuant to the Company's 1992 Stock Option Plan for Eligible Nonemployee
Directors.
(6) Includes 15,000 shares which Mr. Gold has the right to acquire within 60
days after February 21, 1994, by the exercise of stock options vested
pursuant to the Company's 1986 Stock Option Plan. Includes 577,500 shares
which Mr. Gold has the right to acquire within 60 days after February 21,
1994, by the exercise of stock options vested pursuant to the Company's
1993 Stock Incentive Plan.
(7) Includes 10,000 shares which Mr. Ravindran has the right to acquire within
60 days after February 21, 1994, by exercise of stock options vested
pursuant to the Company's 1986 Stock Option Plan.
(8) Includes 46,666 shares Mr. Benford has the right to acquire within 60 days
after February 21, 1994 by the exercise of stock options vested pursuant to
the Company's 1986 Stock Option Plan.
(9) Includes 1,161,212 shares which the members of the group have the right to
acquire within 60 days after February 21, 1994, by the exercise of stock
options vested pursuant to the Company's 1986 Stock Option Plan, 1992 Stock
Option Plan for Eligible Nonemployee Directors and 1993 Stock Incentive
Plan.
Relying solely on (i) its review of Forms 3, 4 and 5 (and any amendments
thereto) furnished to the Company pursuant to Section 16 of the Securities
Exchange Act of 1934 (the "Exchange Act") by individuals who served as an
executive officer or director of the Company, and persons who beneficially owned
more than ten percent of a registered class of stock of the Company, during
fiscal 1993 and (ii) written representations of the officers and directors of
the Company, the Company believes that all of such Forms required to be filed by
the foregoing reporting persons were filed on a timely basis.
MEETINGS AND COMMITTEES OF THE BOARD
The Board has various standing committees, including an Executive
Committee, an Audit Committee, a Compensation Committee, a Nominating Committee
and a Stock Option Committee.
The Executive Committee is chaired by Mr. Gold, and its members are Messrs.
Goldston and Moskowitz. The Executive Committee may exercise, with certain
exceptions, all of the authority of the Board in the management of the business
and affairs of the Company. The Executive Committee is intended to serve in the
event that action must be taken by the Board at a time when convening a meeting
of the entire Board is not feasible.
The Audit Committee is chaired by Mr. Dalshaug, and its members are Messrs.
Koffler and Miller. The primary purposes of the Audit Committee are (i) to
review the scope of the audit to be performed, (ii) to meet with the Company's
independent accountants to review the results of the audit, (iii) to review with
the Company's independent accountants the Company's internal accounting
procedures and control, and (iv) to make recommendations regarding the selection
of the Company's independent accountants.
The Compensation Committee is chaired by Mr. Koffler, and its members are
Messrs. Bladstrom, Dalshaug and Davis. The primary purposes of the Compensation
Committee are to review the recommendations of the Chief Executive Officer and
the President as to appropriate compensation for the Company's principal
executive officers and certain other members of senior management and to make
recommendations regarding compensation of such executive officers and members of
senior management to the Board.
The Nominating Committee is chaired by Mr. Miller, and its members are
Messrs. Bladstrom and Ravindran and Ms. Meyers. The procedures for nominating
directors, other than by the Board itself, are set forth in the Bylaws of the
Company and in the Notice of Annual Meeting of Shareholders which accompanies
this Proxy Statement. The Nominating Committee will consider any nominees
recommended by shareholders in accordance with Section 2.11(b) of the Company's
Bylaws which is set forth in full in the Notice of Annual Meeting of
Shareholders. Such nominations should be delivered to Mr. Miller in care of the
Company.
The Stock Option Committee is composed of Mr. Davis, who chairs the
Committee, and Ms. Meyers. The primary purposes of the Stock Option Committee
are to (i) determine individuals to whom stock options will be granted under the
Company's 1986 Stock Option Plan and the terms on which such options will be
7
<PAGE> 11
granted, (ii) determine individuals to whom options, stock appreciation rights,
restricted stock, performance units and performance shares (collectively,
"Awards") will be granted under the 1993 Stock Incentive Plan and the terms and
conditions on which such Awards will be made and (iii) make periodic reports to
the Board as to the status of the Company's 1986 Stock Option Plan and 1993
Stock Incentive Plan.
During the fiscal year ended November 30, 1993, the Board held six
meetings, the Audit Committee held four meetings, the Compensation Committee
held nine meetings, the Nominating Committee held one meeting and the Stock
Option Committee held three meetings. Each person who was a director of the
Company during the fiscal year ended November 30, 1993 attended at least 75% of
the aggregate of (i) the total number of meetings held by the Board during the
period in which he or she was a director and (ii) the total number of meetings
held by all committees of the Board on which he or she served during such year.
EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is certain information regarding each of the current
executive officers of the Company. Further information about Mr. Gold is
presented in "ELECTION OF DIRECTORS -- Nominees for Election by Holders of
Series A Preferred Stock." Further information about Mr. Goldston is presented
in "ELECTION OF DIRECTORS -- Nominees for Election by Holders of Common Stock."
Officers are appointed by and serve at the discretion of the Board.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Stanley P. Gold 51 Chairman of the Board and Chief Executive
Officer
Mark R. Goldston 39 President and Chief Operating Officer
William L. Benford 51 Executive Vice President and Chief Financial
Officer
David F. Gatto 32 Senior Vice President -- International
Christopher M. Walsh 44 Senior Vice President -- Operations
Robert H. Landes 38 Senior Vice President -- Sales
Robert S. Apatoff 35 Senior Vice President -- Marketing Services
Thomas F. Larkins 32 Senior Vice President, General Counsel and
Secretary
Tracey C. Doi 33 Vice President and Controller
Victor J. Trippetti, Jr. 45 Vice President and Treasurer
</TABLE>
Stanley P. Gold was appointed Chairman of the Board and Chief Executive
Officer of the Company in January 1992, and was elected to the Company's Board
in September 1991.
Mark R. Goldston joined the Company in October 1991 as President and Chief
Operating Officer, and was subsequently elected to the Board in October 1991.
William L. Benford was appointed Executive Vice President and Chief
Financial Officer in January 1993. He joined the Company in September 1991 as
Senior Vice President and Chief Financial Officer. Prior to joining the Company,
Mr. Benford served as a Vice President of Shamrock Holdings of California, Inc.
from January 1991 to September 1991. From September 1985 to December 1990, he
was Senior Vice President and Chief Financial Officer of Central Soya Company,
Inc., an international agri-business operation.
David F. Gatto was appointed Senior Vice President -- International in
January 1993. He joined the Company in September 1991 as Senior Vice
President -- Strategic Planning. Prior to joining the Company, he was a Manager
of the L/E/K Partnership, a Boston-based management consulting firm, since July
1988. Mr. Gatto attended the Sloan School of Management at the Massachusetts
Institute of Technology from September 1986 to May 1988.
Christopher M. Walsh joined the Company in December 1991 as Senior Vice
President -- Operations. From January 1989 to November 1991, Mr. Walsh was Vice
President of Production at Reebok International, Ltd.
8
<PAGE> 12
Robert H. Landes was appointed Senior Vice President -- Sales in January
1994. He joined the Company as Vice President Sales -- National Accounts in
March 1992, and from December 1992 to December 1993 was Vice President -- Sales.
Prior to joining the Company, from May 1990 to March 1992, Mr. Landes was
Regional Sales Manager and a member of the Design and Review Board of
Gorham/Dansk, a division of Brown-Forman Corporation, a manufacturer and
distributor of fine tabletop ware and gifts. From September 1987 to May 1990,
Mr. Landes was Director of Investment Properties of Raskin Matza Cohen Corp., a
real estate management and investment properties company.
Robert S. Apatoff was appointed Senior Vice President -- Marketing Services
in January 1994. He joined the Company in December 1991 as Vice
President -- Marketing Services. Prior to joining the Company, Mr. Apatoff was
Vice President -- National Promotions, Sports Marketing and Advertising of
Reebok International, Ltd. from May 1989 to December 1991. Prior to that, Mr.
Apatoff was Director of National Promotions of Anheuser-Busch, Inc., a beverage
company, from June 1983 to May 1989.
Thomas F. Larkins was appointed Senior Vice President, General Counsel and
Secretary of the Company on February 15, 1994. Prior to joining the Company, he
was associated with the law firm of Fried, Frank, Harris, Shriver and Jacobson
from June 1989 to January 1994. Prior to that, Mr. Larkins was an attorney with
the law firm of Pillsbury, Madison & Sutro from February 1987 to May 1989.
Tracey C. Doi was appointed Vice President and Controller of the Company in
January 1994. She joined the Company in April 1990 as General Accounting
Manager, and served as Assistant Controller from July 1990 to December 1993.
Prior to that, Ms. Doi was Director of Financial Reporting of Management Company
Entertainment Group, Inc., a diversified, international entertainment company,
from July 1988 to April 1990.
Victor J. Trippetti, Jr. was appointed Vice President and Treasurer of the
Company in January 1994. He joined the Company as Manager -- Budgets in October
1989, served as Director -- Financial Planning from April 1990 to May 1992 and
has served as Treasurer from June 1992. Prior to that, Mr. Trippetti was
Director -- Financial Planning of Host Marriott International (formerly Marriott
Corporation), an international hospitality corporation, from February 1989 to
October 1989.
9
<PAGE> 13
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth the
compensation (cash and non-cash, plan and non-plan) paid to each of the Named
Executive Officers for services rendered in all capacities to the Company during
the three fiscal years ended November 30, 1991, 1992 and 1993.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL ----------------------------------
COMPENSATION AWARDS PAYOUTS
------------------ --------- ----------
(A) (B) (C) (D) (E) (F) (G) (H) (I)
OTHER ANNUAL RESTRICTED SECURITIES ALL OTHER
NAME AND PRINCIPAL FISCAL COMPENSATION STOCK UNDERLYING LTIP COMPENSATION
POSITION YEAR SALARY($) BONUS($) ($)(4) AWARDS($) OPTIONS(#) PAYOUTS($) ($)
------------------ ------ --------- -------- ------------ --------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stanley P. Gold 1993 25,750(1) 0 0 0 750,000 0 0
Chairman of the 1992 32,000(2) 0 0 0 0 0 0
Board and Chief 1991 11,500(2) 0 0 0 20,000 0 0
Executive Officer
Mark R. Goldston 1993 750,000 0 4,617(5) 0 250,000 0 4,497(8)
President and Chief 1992 750,015 100,000(3) 179,690(6) 0 0 0 0
Operating Officer 1991 100,962 100,000(3) 0 0 400,000 0 0
William L. Benford 1993 325,000 0 0 0 0 0 4,497(8)
Executive Vice 1992 325,000 0 0 0 0 0 4,364
President and Chief 1991 62,500 0 0 0 70,000 0 0
Financial Officer
David F. Gatto 1993 275,000 0 0 0 0 0 4,125(8)
Senior Vice President 1992 244,981 0 0 0 0 0 0
International 1991 36,923 0 0 0 70,000 0 0
Christopher M. Walsh 1993 220,000 0 2,477(5) 0 0 0 0
Senior Vice President 1992 211,538 0 52,756(7) 0 40,000 0 0
Operations 1991 0 0 0 0 0 0 0
</TABLE>
- ---------------
(1) In fiscal 1993, Mr. Gold earned $25,750 for his service as a director of the
Company. The fees paid to Mr. Gold for his service as a director are the
customary fees paid to nonemployee directors. See "DIRECTOR COMPENSATION."
(2) In fiscal 1992, Mr. Gold earned $32,000 for his service as a director of the
Company. Such amount excludes $11,500 earned by Mr. Gold for service as a
director during fiscal 1991 and paid to Mr. Gold during fiscal 1992.
(3) Pursuant to his prior employment agreement with the Company, Mr. Goldston
received a $200,000 sign-on bonus, of which $100,000 was paid on each of
October 15, 1991 and April 15, 1992.
(4) Perquisites and other personal benefits paid to each Named Executive Officer
(other than Messrs. Gold, Goldston and Walsh, as disclosed in column (e)) in
each instance aggregated less than the lesser of $50,000 and ten percent
(10%) of the total of annual salary and bonus reported for such Named
Executive Officer in columns (c) and (d). Accordingly, such information is
omitted from the Summary Compensation Table as permitted by the rules and
regulations of the Securities and Exchange Commission.
(5) These amounts were reimbursed by the Company during fiscal 1993 for the
payment of taxes.
(6) Pursuant to his prior employment agreement with the Company, Mr. Goldston
was paid $125,000 in reimbursement for certain relocation expenses
(including $57,294 of tax liability reimbursed by the Company). During
fiscal 1992, the Company also approved the payment of $54,690 to Mr.
Goldston as reimbursement of additional relocation expenses.
(7) Pursuant to his employment agreement with the Company, Mr. Walsh was paid
$36,253 in reimbursement of certain relocation and temporary living
expenses. The amount set forth in column (e) for Mr. Walsh also includes
$16,503 of tax liability reimbursed by the Company.
(8) Each of Messrs. Goldston, Benford and Gatto deferred a portion of his annual
salary pursuant to the 401(k) portion of the Company's Employee Stock
Savings Plan. The amount shown represents a contribution, valued at $4,497,
10
<PAGE> 14
$4,497 and $4,125, respectively, made by the Company pursuant to the
employee stock ownership plan portion of its Employee Stock Savings Plan.
The Matching Contribution is held in shares of the Company's Common Stock.
Messrs. Goldston, Benford and Gatto will be fully vested under the
Employee Stock Savings Plan on November 30, 1997.
Stock Options Granted in Fiscal 1993. The following table sets forth
information concerning individual grants of stock options made by the Company
during the fiscal year ended November 30, 1993 to each of the Named Executive
Officers. The Company did not grant any stock appreciation rights during fiscal
1993.
OPTION GRANTS
IN THE FISCAL YEAR ENDED NOVEMBER 30, 1993
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(8)
---------------------------------------------------------------- ----------------------
(A) (B) (C) (D) (E) (F) (G)
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS GRANTED
OPTIONS TO EMPLOYEES IN EXERCISE PRICE
NAME GRANTED(#) FISCAL YEAR(3) ($/SHARE) EXPIRATION DATE 5%($) 10%($)
---- ---------- ---------------- -------------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Stanley P. Gold..... 750,000(1) 62.41% $ 11.55(4) 10/19/2003(6) 5,233,976 13,465,344
Mark R. Goldston.... 250,000(2) 20.80% $ 11.375(5) 10/19/2003(7) 1,788,409 4,532,198
William L. Benford.. 0 0 0 -- 0 0
David F. Gatto...... 0 0 0 -- 0 0
Christopher M. Walsh 0 0 0 -- 0 0
</TABLE>
- ---------------
(1) These options were granted pursuant to the Company's 1993 Stock Incentive
Plan on October 19, 1993. One-half of the total number of options granted
were exercisable on and after October 19, 1993, an additional 27% of the
options were exercisable on and after December 31, 1993, and an additional
23% of the options are exercisable on and after December 31, 1994. Vesting
may be accelerated in the event of a Change in Control (as defined in the
Company's 1993 Stock Incentive Plan) of the Company. Vesting of the options
shall cease immediately upon termination of Mr. Gold's services as Chief
Executive Officer of the Company.
(2) These options were granted pursuant to the Company's 1986 Stock Option Plan
on October 19, 1993. One-third of the total number of options granted are
exercisable on each of the first, second and third anniversaries of the
option grant. In the event that, prior to December 31, 1994, Trefoil,
together with its Affiliates (as defined in Rule 13b-2 under the Exchange
Act), shall no longer beneficially own (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, Common Stock or securities
convertible into or exchangeable for Common Stock representing at least 12%
of the then outstanding shares of Common Stock, Mr. Goldston shall be
entitled to purchase 100% of the total number of shares covered by the
options. Vesting may be accelerated in the event of (i) the liquidation or
dissolution of the Company, (ii) a merger or consolidation in which the
Company is not the surviving corporation, or (iii) a reverse merger in which
the Company is the surviving corporation but the shares of the Company's
Common Stock immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise.
(3) In fiscal 1993, the Company granted 1,201,666 options to employees.
(4) Equal to the fair market value (determined by the average, for each of the
five consecutive trading days immediately preceding October 19, 1993, of the
last sale price of a share regular way on the New York Stock Exchange (NYSE)
Composite Tape) of such stock on the date the options were granted. The
exercise price and tax withholding obligations related to exercise may be
paid by delivery of already owned shares or by offset of the underlying
shares, subject to certain conditions.
11
<PAGE> 15
(5) Equal to the closing price of the Company's Common Stock on the grant date
(October 19, 1993). The exercise price and tax withholding obligations
related to exercise may be paid by delivery of already owned shares or by
offset of the underlying shares, subject to certain conditions.
(6) The options granted to Mr. Gold under the Company's 1993 Stock Incentive
Plan shall remain exercisable for two years following termination of Mr.
Gold's service as a director, to the extent that such options were vested
and exercisable as of the date Mr. Gold's service as a director terminated.
If Mr. Gold's service as a director terminates due to death, the options
which were exercisable as of the date of death shall be exercisable for two
years. However, in no event will Mr. Gold's options be exercisable after
October 19, 2003.
(7) The options granted to Mr. Goldston under the Company's 1986 Stock Option
Plan shall terminate 270 days after the termination of Mr. Goldston's
employment unless (i) such termination was by reason of death or disability,
in which case the options shall be exercisable within eighteen months, as a
result of death, or one year as a result of disability, after the date of
such termination of employment or (ii) such termination was for cause, in
which case the option shall terminate within ten business days of the date
of such termination of employment. However, in no event, will Mr. Goldston's
options be exercisable after October 19, 2003.
(8) Based upon the $11.55 per share fair market value for Mr. Gold's options on
the date of grant and an annual appreciation of such fair market value
through the expiration date of such options at the stated rate. Based upon
the $11.375 per share market price for Mr. Goldston's options on the date of
grant and an annual appreciation of such market price through the expiration
date of such options at the stated rate. These amounts represent assumed
rates of appreciation only and may not necessarily be achieved. Actual
gains, if any, are dependent on the future performance of the Common Stock,
as well as, respectively, Messrs. Gold and Goldston's continued employment
through the vesting period. The potential realizable values indicated have
not taken into account amounts required to be paid as income tax under the
Internal Revenue Code of 1986, as amended, and any applicable state laws.
Aggregated Option Exercises. The following table sets forth information (on
an aggregated basis) concerning each exercise of stock options during the fiscal
year ended November 30, 1993 by each of the Named Executive Officers and the
fiscal year-end value of unexercised options. The Company has no outstanding
stock appreciation rights, either freestanding or in tandem with options.
AGGREGATED OPTION EXERCISES
IN THE FISCAL YEAR ENDED NOVEMBER 30, 1993 AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E)
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT "IN-THE-MONEY"
SHARES VALUE FISCAL YEAR-END(#) OPTIONS FISCAL YEAR-
ACQUIRED ON REALIZED EXERCISABLE ("E")/ END($)(1)
NAME EXERCISE(#) ($) UNEXERCISABLE ("U") EXERCISABLE/UNEXERCISABLE
---- ----------- -------- ------------------------------- -------------------------
<S> <C> <C> <C> <C>
Stanley P. Gold....... 0 0 390,000(E)/380,000(U) $0/$0
Mark R. Goldston...... 0 0 300,000(E)/350,000(U) $0/$0
William L. Benford.... 0 0 46,666(E)/23,334(U) $0/$0
David F. Gatto........ 0 0 46,666(E)/23,334(U) $0/$0
Christopher M. Walsh.. 0 0 13,333(E)/26,667(U) $13,333/$26,667
</TABLE>
- ---------------
(1) Options are "in-the-money" at the fiscal year-end if the fair market value
of the underlying securities on such date exceeds the exercise price of the
option. The amounts set forth in column (e) represent the difference between
the closing price of the Company's Common Stock on November 30, 1993 and the
exercise price of the options, multiplied by the applicable number of
options.
12
<PAGE> 16
DIRECTOR COMPENSATION
The Company pays to Mr. Gold and each nonemployee director $1,250 per
month, $1,000 for each Board meeting attended and $1,000 ($1,250 for the
committee chairperson) for each committee meeting attended and reimburses such
person for all expenses incurred by him or her in his or her capacity as a
director of the Company. In light of Mr. Gold not receiving any salary or other
cash compensation for services rendered as an officer of the Company, the Board
authorized the payment to Mr. Gold of directors' fees in the amount customarily
paid to the Company's nonemployee directors. During fiscal 1993, Mr. Gold earned
$25,750 in directors' fees. See "REPORT OF THE COMPENSATION AND STOCK OPTION
COMMITTEES ON EXECUTIVE COMPENSATION -- Chief Executive Officer."
Under the 1992 Stock Option Plan for Eligible Nonemployee Directors, each
eligible nonemployee director automatically receives a one-time grant of an
option to purchase 20,000 shares of Common Stock upon his or her (i) initial
election to the Board or (ii) appointment by the Board to fill a vacancy left by
the termination of the directorship (for any reason) of any director who had
previously been elected to the Board by vote of the holders of shares of Common
Stock of the Company. Pursuant to this plan, on April 13, 1993, Walter Bladstrom
and Clifford Miller were each granted stock options to acquire 20,000 shares of
Common Stock each, at an exercise price per share of $9.75, the closing price of
the Company's Common Stock as reported on the New York Stock Exchange Tape on
the date of grant.
Upon his election to the Board of Directors on April 13, 1993, Vappalak
Ravindran received a grant of an option to purchase 20,000 shares of Common
Stock under the Company's 1986 Stock Option Plan at an exercise price per share
of $9.75, the closing price of the Company's Common Stock as reported on the New
York Stock Exchange Tape on the date of grant.
The Board of Directors approved the engagement of Ann Meyers as a
consultant to establish a women's basketball promotion program for a period of
one year (with options to extend for two additional one-year periods) at an
annual compensation of $75,000, effective as of November 1, 1993.
Indemnification Agreements. The Company has entered into indemnification
agreements with each of its directors and executive officers pursuant to which
the Company has agreed to indemnify such persons against expenses, judgments,
fines, penalties or amounts paid in settlement actually and reasonably incurred
by such person in connection with legal proceedings in which the person was
involved by reason of being a director or officer of the Company. The
indemnification generally is available if such person acted in good faith and in
a manner he or she reasonably believed to be in the best interests of the
Company and, with respect to criminal proceedings, had no reasonable cause to
believe his or her conduct was unlawful. Such person is not indemnified in
respect of matters as to which he or she has been adjudged liable to the Company
unless a court determines that, under the circumstances, he or she is reasonably
entitled to such indemnification.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
AND CHANGE-IN-CONTROL ARRANGEMENTS
Pursuant to an employment agreement, dated as of October 19, 1993, Mark R.
Goldston serves as the President and Chief Operating Officer of the Company. The
agreement, which commenced October 19, 1993, continues until October 31, 1998.
Under the agreement, Mr. Goldston receives an annual base salary of $750,000 and
is eligible to participate in any employee benefit plans then in effect for
similarly situated employees, during Mr. Goldston's employment, including the
Company's management incentive plan based on excess return on capital, which the
Company anticipates will be adopted for fiscal years beginning after November
30, 1993. In addition, on October 19, 1993, Mr. Goldston was granted stock
options for 250,000 shares of Common Stock at an exercise price of $11.375 per
share, the closing price of the Common Stock on the commencement date of Mr.
Goldston's employment agreement.
The employment agreement, dated as of October 19, 1993, between Mr.
Goldston and the Company superseded an employment agreement, dated as of
September 25, 1991, pursuant to which Mr. Goldston served as the President and
Chief Operating Officer of the Company. The prior agreement, which commenced
October 7, 1991, had a three-year term with automatic one-year extensions unless
either the Company or Mr. Goldston provided notice to the other that the term
13
<PAGE> 17
would not be extended. The new employment agreement maintains Mr.
Goldston's annual base salary of $750,000. Under the prior employment
agreement, Mr. Goldston received a $200,000 sign-on bonus, of which $100,000
was paid on each of October 15, 1991 and April 15, 1992, and was reimbursed
$179,690 for relocation expenses and other expenses incurred by Mr. Goldston,
after adjustment for income taxes. In addition, under the prior agreement, Mr.
Goldston was granted stock options for 400,000 shares of Common Stock at an
exercise price of $12.625 per share, the closing price of the Common Stock on
the commencement date of Mr. Goldston's employment. Mr. Goldston did not
receive any discretionary cash bonus for the fiscal years ended November 30,
1991, 1992, and 1993 under either the prior agreement or the new agreement.
Pursuant to an employment agreement, dated as of September 16, 1991 (as
amended), William L. Benford serves as Executive Vice President and Chief
Financial Officer of the Company. The agreement (as amended) has a three-year
term. Under the agreement, Mr. Benford receives an annual base salary of
$325,000 and is eligible to receive a discretionary cash bonus at the end of
each of the Company's fiscal years during Mr. Benford's employment. No such
bonus was paid by the Company for the fiscal years ended November 30, 1991, 1992
and 1993. In addition, Mr. Benford was granted stock options for 70,000 shares
of Common Stock at an exercise price equal to $12.125 per share, the closing
price of the Common Stock on the commencement date of Mr. Benford's employment.
The employment agreements with each of Messrs. Goldston and Benford permit
the termination of such agreements by such individuals within one year of the
date on which Trefoil beneficially owns Common Stock, or securities convertible
into or exchangeable for Common Stock, representing less than 12% (prior to
December 31, 1994), in the case of Mr. Goldston, and 10%, in the case of Mr.
Benford, of the then outstanding shares of Common Stock of the Company. If any
such termination is for "Good Reason" (e.g., assignment of duties materially
inconsistent with the employee's position, material change in reporting
responsibilities or titles, etc.), these employment agreements provide that the
terminated employee shall receive his salary, at the then-current annual rate,
for the remainder of the term of such agreements.
Pursuant to an employment agreement, dated as of September 16, 1991 (as
amended), David F. Gatto served as Senior Vice President -- International of the
Company. The agreement had a two-year term, which commenced September 30, 1991,
and expired September 30, 1993. Under the agreement, Mr. Gatto received an
annual base salary of $240,000 during the first year of his employment term and
$275,000 during the second year of his employment term. Under this agreement,
Mr. Gatto was also eligible to receive a discretionary cash bonus at the end of
each of the Company's fiscal years during Mr. Gatto's employment. No such bonus
was paid by the Company for the fiscal years ended November 30, 1991, 1992 and
1993. In addition, Mr. Gatto was granted stock options for 70,000 shares of
Common Stock at an exercise price equal to $12.625 per share, the closing price
of the Common Stock on October 7, 1991. Mr. Gatto is currently employed on an
at-will basis as Senior Vice President -- International of the Company and at
the annual base salary of $275,000.
Pursuant to an employment agreement, dated as of November 22, 1991,
Christopher M. Walsh serves as Senior Vice President -- Operations of the
Company. The agreement has a three-year term, which commenced December 9, 1991
and which is subject to automatic one-year extensions unless either the Company
or Mr. Walsh provides written notice to the other, at least 180 days prior to
the end of the term (or any extension thereof), that the term will not be
extended. Under the agreement, Mr. Walsh receives an annual base salary of
$220,000 and is eligible to receive a discretionary cash bonus at the end of
each of the Company's fiscal years during the term of Mr. Walsh's employment. No
such bonus was paid by the Company for the fiscal years ended November 30, 1991,
1992 and 1993. Pursuant to the agreement, the Company has reimbursed Mr. Walsh
approximately $58,598 (including $52,756 for certain relocation and temporary
living expenses and the repayment of taxes in fiscal 1992, $2,477 for
reimbursement for the payment of taxes in fiscal 1993, and $3,365 for the
reimbursement of certain relocation expenses in fiscal 1993) for certain
relocation and temporary living expenses. In addition, Mr. Walsh was granted
stock options for 40,000 shares of Common Stock at an exercise price equal to
$10.375 per share, the closing price of the Common Stock on the commencement
date of Mr. Walsh's employment.
14
<PAGE> 18
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The Compensation Committee of the Board consists of Stephen A. Koffler
(chair), Walter C. Bladstrom, Allan E. Dalshaug and Willie P. Davis. Stanley P.
Gold, Chairman of the Board and Chief Executive Officer of the Company, served
as chair of the Compensation Committee until April 13, 1993, when the Board
appointed Mr. Bladstrom to the Compensation Committee and Mr. Gold ceased to be
a member of the Compensation Committee.
Mr. Koffler is an Executive Vice-President of Sutro & Co. Incorporated. On
December 24, 1992, the Company completed a private sale of $50 million aggregate
principal amount of 7 3/4% Convertible Subordinated Debentures due 2002 (the
"Debentures"). The Debentures are convertible into shares of Common Stock at a
conversion rate of $12.30 per share and are redeemable by the Company at any
time on or after November 30, 1995, initially at a specified premium to par,
declining to par for redemptions on or after November 30, 2000. The issue was
sold through Kidder, Peabody & Co. Incorporated and Sutro & Co. Incorporated.
Sutro & Co. Incorporated purchased its Debentures at a discount of $375,000.
Mr. Gold serves as President and Managing Director of SCA. Pursuant to a
three year management agreement, dated May 27, 1991, between the Company and SCA
(the "Services Agreement"), SCA consults with, and provides advice to, the
officers and employees of the Company concerning matters (i) relating to the
Company's financial policies and the development and implementation of the
Company's business plans and (ii) generally arising out of the business affairs
of the Company. SCA renders such services to the Company on a non-exclusive
basis. SCA's compensation for such management and consulting services was
$500,000 in the first year of SCA's engagement to provide services under the
Services Agreement (a "Service Year") and $600,000 in the second Service Year,
and will be $700,000 in the third Service Year. The Company also (i) reimburses
SCA for all of its reasonable out-of-pocket costs and expenses (including,
without limitation, the fees and disbursements of its counsel) incurred in
connection with the performance of its services under the Services Agreement and
(ii) pays customary directors' fees to the officers and directors of SCA serving
as directors of the Company. See "DIRECTOR COMPENSATION."
The Services Agreement may be terminated at any time, with or without
cause, by SCA or the Company. Except in the circumstances described below, any
such termination of the Services Agreement by the Company shall not relieve the
Company from its obligations to pay to SCA any unpaid portion of the total
amount of fees due to SCA thereunder and to reimburse SCA for any and all
expenses incurred by SCA in connection with, the performance of its services
thereunder. If (i) Trefoil's investment in the Company, at any time during the
term of the Services Agreement, is less than $25 million or (ii) during the
three-year period ending on September 12, 1994, SCA provides services to, or
invests in, any entity (other than the Company or any of its affiliates) engaged
solely in the athletic footwear business or in a competitive business, then the
independent directors of the Company may elect to terminate the Services
Agreement and, upon such termination, the Company shall be obligated to pay to
SCA all amounts due thereunder, other than compensation not yet due and payable
to SCA for any remaining Service Year. The Company has also agreed to indemnify
SCA against all claims, liabilities, expenses, losses or damages (including,
without limitation, the reasonable fees and disbursements of its counsel)
related to or arising out of actions taken by SCA pursuant to the terms of the
Services Agreement; provided that such liabilities do not result primarily from
actions taken, or omitted to be taken, by SCA in bad faith or due to SCA's gross
negligence or willful misconduct. The Company's obligations to indemnify SCA
shall survive any termination of the Services Agreement by the Company or SCA.
Mr. Gold also serves as President and Managing Director of TII, the general
partner of Trefoil. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS --
Transactions in Connection with the Sale of Series A Preferred Stock" for a
description of certain transactions between Trefoil and the Company.
Stanley P. Gold, Chairman of the Board and Chief Executive Officer of
the Company, is a member of the Board of Directors of SCA, TII, Shamrock and
various direct and indirect subsidiaries of Shamrock. Robert G. Moskowitz, a
member of the Company's Board, is an executive officer of SCA, TII, Shamrock
15
<PAGE> 19
and various direct and indirect subsidiaries of Shamrock. R. Rudolph
Reinfrank, who was a member of the Company's Board until his resignation on
February 26, 1993, was an executive officer of SCA, TII and Shamrock until
February 1993.
The Board of Directors approved the engagement of Ann Meyers as a
consultant to establish a women's basketball promotion program for a period of
one year (with options to extend for two additional one-year periods) at an
annual compensation of $75,000, effective as of November 1, 1993.
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEES
ON EXECUTIVE COMPENSATION
GENERAL
The Compensation Committee (the "Committee") is currently composed of
Stephen A. Koffler (chair), Walter C. Bladstrom, Allan E. Dalshaug and Willie P.
Davis, four non-employee directors. During fiscal 1993 until April 13, 1993,
Stanley P. Gold served as chair and a member of the Compensation Committee. Mr.
Gold was not a member of the Committee at the time his compensation was
considered or approved by the Committee. The Stock Option Committee consists of
Mr. Davis (chair) and Ann E. Meyers.
The primary duties of the Committee include (i) reviewing the compensation
levels of the Company's principal executive officers and certain other members
of senior management, (ii) administering the Company's incentive bonus plans,
(iii) consulting with and making recommendations to the Company's Stock Option
Committee regarding the Company's overall stock option grant policy and/or
awards to be granted under the Company's 1986 Stock Option Plan and 1993 Stock
Incentive Plan and (iv) related matters. During fiscal 1993, decisions regarding
the employment of any person with annual compensation of $125,000 or greater (or
raises to a new annual compensation rate of $125,000 or greater) required
approval by the Committee and decisions regarding annual compensation levels of
$150,000 or greater, or employment terms in excess of two years, were required
to be reviewed with the Board and were subject to Board approval.
Recently enacted Section 162(m) of the Internal Revenue Code generally
places restrictions on the deductibility of compensation paid to specified
executive officers in excess of $1 million per year (on a per person basis),
with certain exceptions. This limit on deductibility is applicable only with
respect to taxable years beginning on or after January 1, 1994. The Company's
fiscal year begins on December 1st of each calendar year. Accordingly, Section
162(m) does not apply to compensation paid by the Company during fiscal 1993 or
fiscal 1994. However, during fiscal 1994 the Committee expects to consider
adoption of a policy with respect to qualifying compensation paid to its
executive officers for deductibility under Section 162(m) beginning in fiscal
1995.
COMPENSATION PHILOSOPHY
The key objectives of the Company's executive compensation programs are to:
- Attract and retain qualified management.
- Provide substantial incentives for management to maximize the value
of the Company.
- Limit the shareholder cost of management incentive compensation to a
reasonable percentage of incremental shareholder value.
During fiscal 1993, the Company retained an independent compensation
consulting firm (the "Consultant") to assist the Committee in reviewing the
Company's executive compensation programs and in accomplishing any modifications
of existing programs, or the establishment of new programs, which would better
enable the Company to achieve the overall objectives of its executive
compensation philosophy.
The Company's executive compensation program consists of three basic
elements -- base salaries, cash and deferred incentive bonuses and stock
options.
BASE SALARIES. Base salaries for management employees reflect
competitive salary levels for positions of similar responsibility, individual
experience and the riskiness of the Company's total compensation program. The
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<PAGE> 20
Committee believes that its incentive bonus plan and fixed share stock
option grant guidelines allow for substantially greater compensation risk than
typical competitive bonus and stock option plans and that it is therefore
appropriate to provide base salaries that exceed median competitive levels. The
level of base salaries paid by the Company to its management employees (other
than Mr. Gold) during fiscal 1993 was approximately 18% above the median level
relative to the Compensation Peer Group (as defined below). The Company uses the
compensation levels of consumer products companies, apparel companies and
footwear companies, adjusted for differences in company size and position
responsibility, to determine competitive compensation levels (the "Compensation
Peer Group"). Most of the companies in the Compensation Peer Group are in the
S&P 500 and some are in the S&P Shoes Index, each of which indices has been used
for purposes of comparison in the Stock Performance Graph at page 21.
Executive salaries are reviewed by the Compensation Committee on an annual
basis and may be increased at that time. Salary increases, if any, are based
primarily on the overall performance of the Company during the preceding fiscal
year, as measured in terms of roughly equally-weighted criteria such as (i)
annual long-term sales and earnings growth, (ii) market share gains, (iii)
progress toward achieving the Company's turnaround objectives (principally a
return to profitability on an annual basis) and (iv) return to shareholders. The
Committee also considers the individual performance of the executive, measured
in terms of (i) the executive's business results (i.e., divisional or
departmental results as appropriate), (ii) the achievement of various managerial
objectives and personal development goals, and (iii) the assumption of increased
responsibilities by the executive (whether by reason of promotion, the Company's
long-term restructuring program or otherwise). Pursuant to the terms of his
employment agreement with the Company, Mr. Gatto's base salary increased from
$240,000 to $275,000 for the second year of his employment term (October 1,
1992-September 30, 1993). No other salary increases were granted to the Chief
Executive Officer or any of the Company's next four highest paid senior
executive officers (the "Named Executive Officers") for fiscal 1993 and 1994. No
discretionary salary increases were granted to executive officers during fiscal
1993 as a result of the Company's failure to meet the foregoing criteria.
Base salaries provided for Messrs. Gatto, Goldston, Benford and Walsh
pursuant to their respective employment agreements were set at levels designed
to attract those individuals believed to be the most qualified to develop and
implement the Company's long-term restructuring program. As such agreements
expire or are extended, in setting base salaries the Committee considers all of
the criteria used to determine salary increases as discussed above. However, as
a consequence of its desire to retain the services of those individuals
spearheading the implementation of the Company's restructuring program, the
Committee determined not to reduce base salaries for any Named Executive
Officers whose contracts expired or were extended in fiscal 1993 based on any
failure to meet those criteria.
CASH AND DEFERRED INCENTIVE BONUSES. During fiscal 1993, management
employees (other than the Chief Executive Officer) participated in a management
incentive program (the "MIP") administered by the Committee. Bonuses payable
under the MIP were conditioned upon the Company's attainment of pre-determined
minimum earnings for the year. This minimum was established following Board
approval of the Company's 1993 budget and was set at 75% of budgeted earnings
before interest and taxes. Awards were based on the achievement of the Company's
earnings performance objectives set by the Committee based on the achievement of
budgeted earnings before interest and taxes above the minimum earnings
threshold. In addition, if the earnings performance objectives were met,
discretionary awards could be granted under the MIP which would take into
account the achievement of individual performance objectives such as achievement
of sales and marketing plans, achievement of cost control and containment plans,
new product development and managerial leadership. Bonuses payable under the MIP
were limited to a maximum 50% of base salary in the case of senior management,
decreasing to an amount equal to 20% of base salary for lower management-level
employees. Awards under the MIP, if any, are determined annually, after the
close of each fiscal year. The Company did not meet the targeted financial goals
for fiscal 1993 and, thus, no awards were made under the MIP for fiscal 1993.
Beginning with fiscal 1994, the Committee, based in part upon the
recommendations of the Consultant and the Company's Chief Executive Officer,
President and Chief Financial Officer, has recommended to the Board that the
MIP be modified to provide generally for awards based on improvements in
17
<PAGE> 21
economic value added ("EVA"). EVA is a measure of economic profit after
all costs including the cost of the Company's equity and equity-related
capital. The EVA bonus plan is based on three key concepts: a target bonus; a
fixed share of EVA improvement in excess of expected EVA improvement ("excess
EVA improvement"); and a bonus bank. The EVA bonus earned is equal to the sum
of the target bonus plus the fixed share of excess EVA improvement (which may
be negative). The bonus earned is credited to the bonus bank, and the bonus
paid is equal to the amount of the bonus bank balance, up to the amount of the
target bonus, plus 1/3 of the bonus bank balance in excess of the target bonus.
No bonus is paid when the bonus bank balance is negative (or when the Company
has a net operating loss after tax), and negative bonus bank balances are
carried forward to offset future bonuses earned. There is no cap on the bonus
awards that can be achieved for superior levels of excess EVA improvement.
The Committee believes that excess EVA improvement provides the best
operating performance measure of shareholder returns in excess of the cost of
equity and equity-related capital. The plan is designated to provide strong
performance incentives for the Company's management by aligning management
compensation with increases in shareholder value represented by excess EVA
improvement. It is the Committee's intention that management's share of excess
EVA improvement will not be increased to offset the effects of poor performance
nor reduced to offset the effects of superior performance. The expected EVA
improvements required to earn a target bonus will calibrate on the basis of the
Company's stock price at the time the plan is adopted and are intended to be
consistent with investor expectations at that time.
Target bonuses for plan participants reflect a premium above median
competitive bonus opportunities. The Committee believes that the premium is
appropriate in light of the risk of the EVA bonus plan. The Committee believes
that the EVA bonus plan provides very strong performance incentives as well as a
reasonable balance between the Company's retention objectives and acceptable
shareholder cost.
In addition, if the operating performance objectives are met, the EVA bonus
plan also provides that a portion of an individual's target bonus may be
excluded from the bonus calculation based on EVA improvement and be allocated to
bonus awards based on individual performance objectives to be determined by the
Committee in consultation with senior management. Bonus awards based on
individual performance objectives would be subject to caps.
STOCK OPTIONS
The Company uses stock option grants to attract and retain qualified
managers and to provide incentives for management to increase shareholder value.
During the past two and a half years, the Company's stock option grant policy
with respect to senior management had been aimed at inducing qualified
candidates to accept offers of employment or promotion (including any required
relocations). With the process of assembling a new management team to effectuate
the Company's restructuring efforts begun in 1991 now substantially completed,
the Committee believes that a regular stock option grant policy should be
adopted to help ensure equity between recently hired and longer tenured
employees and to continue to provide strong performance incentives to increase
shareholder value.
Upon the recommendation of the Consultant, the Committee proposed to the
Board and Stock Option Committee that the Company adopt a Triennial Stock Option
Grant Program with grant guidelines for each level of the Company's management
employees. Pursuant to that Program, a fixed number of stock options would be
granted to senior management once every three years. The options would be
granted at an exercise price equal to the fair market value of the Company's
Common Stock on the grant date, and would vest annually in one-third increments
on December 1, 1994, December 1, 1995 and December 1, 1996. Although the
Consultant recommended that the first round of grants under the Triennial Stock
Option Grant Program be made in fiscal 1995, the Committee believes that the
Program should be accelerated to fiscal 1994 in light of the absence of any
bonus payments or discretionary salary increases for senior management during
the past two fiscal years.
It is the Committee's intention to maintain the proposed stock option
grant guidelines on a fixed share basis and not make adjustments to maintain
the expected value of the triennial grant at a targeted competitive level. It
is the Committee's belief that competitive adjustments substantially weaken
management's performance incentive because they offset poor performance by
increasing the number of shares granted and penalize superior performance by
18
<PAGE> 22
reducing the number of shares granted. The recommended grant guidelines
were established at share levels that initially provided options with an
expected value in excess of the median long-term incentive values of the
Compensation Peer Group. However, the expected value of the proposed grant
guidelines relative to competitive long-term incentive values has, and will
continue to, fluctuate based on the performance of the Company's stock.
The 250,000 stock options granted to Mr. Goldston in October 1993 were made
based on the grant guidelines recommended by the Compensation Committee relating
to the Triennial Stock Option Grant Program.
Based upon the recommendations of the Company's Chief Executive Officer,
President and Chief Financial Officer, on February 15, 1994 the Committee
proposed to the Board and the Stock Option Committee that the Company's current
employees (other than Mr. Gold) who were eligible to participate in the
Company's 1993 MIP be awarded a special one-time grant of stock options (the
"Special Grant"). The number of options to be granted pursuant to the Special
Grant was set by first assuming that each participant earned a theoretical
payout at 100% of their bonus opportunity under the 1993 MIP. This amount was
then divided by the closing price of the Common Stock on the NYSE Composite Tape
on January 14, 1994, the date on which senior management developed the Special
Giant proposal. As a result, approximately 200,000 stock options would be
granted under the Special Grant. These options would be issued at the fair
market value of the Company's Common Stock on the grant date and would not be
vested until December 1, 1994, the first day of the Company's 1995 fiscal
year.
The Committee believes that the Special Grant is an appropriate recognition
of the contributions made by the Company's new management team during the past
two years, a period in which no cash bonuses were paid to senior management.
Furthermore, the Committee believes that the Special Grant also provides
significant short term performance incentives to increase shareholder value,
with a minimal potential dilutive effect on earnings per share of common stock
outstanding. The Committee also concluded that the Special Grant would serve to
assist the Company in achieving its retention objectives regarding the Company's
management personnel at a reasonable cost and without requiring the Company to
make any additional cash payout.
All stock option grants recommended by the Committee were approved by the
Stock Option Committee. The recommendations of the Committee were the
predominant factors influencing the decision of the Stock Option Committee
regarding the granting of stock options. Pursuant to the 1986 Stock Option Plan
and the 1993 Stock Incentive Plan, the Stock Option Committee has sole
discretion regarding the granting of options.
CHIEF EXECUTIVE OFFICER
At Mr. Gold's request, he did not receive any salary or other cash
compensation during fiscal 1993 for his services as Chief Executive Officer of
the Company. In light of the foregoing, the Board authorized the payment to Mr.
Gold of directors' fees in the amount customarily paid only to non-employee
directors of the Company. During fiscal 1993, Mr. Gold earned $25,750 in
directors' fees.
During fiscal 1993, the Committee sought to create a compensation
arrangement for Mr. Gold which (i) is equitable in relation to the fair (i.e.,
risk adjusted expected) value of compensation packages offered to chief
executive officers in other turnaround situations and (ii) provides the entire
fair value in the form of stock options without any guaranteed compensation
(thereby honoring Mr. Gold's request that he not receive any cash compensation
(other than directors' fees) from the Company). In order to analyze the
competitive market, the Consultant identified seventeen "turnaround" companies,
each of which met two or more of the following criteria: (i) chief executive
officer hired from outside the company, (ii) deteriorating performance prior to
the hiring of a new chief executive officer, (iii) consumer products industries,
and (iv) similar size to the Company.
In reaching its recommendations, the Committee also reviewed Mr. Gold's
performance since his appointment to the post of Chief Executive Officer in
January 1992 and the progress the Company is making in achieving its turnaround
objectives. The Committee also evaluated whether Mr. Gold's compensation should
19
<PAGE> 23
be adjusted in view of the Services Agreement between the Company and
SCA. Mr. Gold is a director, shareholder and president of SCA. The Committee
reviewed with members of senior management the services provided by SCA under
the Services Agreement and the payments made to SCA by the Company with respect
thereto and concluded that Mr. Gold's services as Chief Executive Officer was
unrelated to, and not duplicative of, the management services provided under
the Services Agreement. The Committee also noted that the Services Agreement
was entered into simultaneously with Trefoil's $100 million investment in
September 1991 and at a time when Mr. Gold was not an employee of the Company.
Accordingly, the Committee concluded that the compensation to be awarded to Mr.
Gold as Chief Executive Officer should not be reduced by virtue of the Services
Agreement. However, the Committee did conclude that an adjustment to the
indicated compensation based on peer group analysis should be made in light of
Mr. Gold's outside business commitments which would preclude him from devoting
his exclusive business energies on behalf of the Company. The Committee also
concluded that an adjustment to Mr. Gold's compensation should not be made to
account for the September 1991 grant to Mr. Gold of 20,000 stock options (with
an exercise price equal to the fair market value of a share of the Company's
Common Stock on the grant date) upon Mr. Gold's appointment to the Board. The
Committee believes that such grant is unrelated to the services Mr. Gold is now
performing as the Company's Chief Executive Officer and that similar grants are
made to non-employee directors upon their first election or appointment to the
Board.
In arriving at the number of options to be granted to Mr. Gold, the
Committee relied on the Consultant's estimate of a competitive four-year total
compensation package for a newly hired chief executive officer of a turnaround
company of similar size. The Consultant's estimate was based on a regression
analysis which related the hire date expected value of such chief executive
officer's four-year total compensation package to the market value of the
turnaround company at the hire date. The competitive compensation value,
adjusted for Mr. Gold's partial time commitment to L.A. Gear as described above,
was converted into a one-time stock option grant based on a Black-Scholes ratio
value of .625, and a vesting discount factor of .940.
The 750,000 options were granted to Mr. Gold pursuant to the Company's 1993
Stock Incentive Plan on October 19, 1993. One-half of the total number of
options granted were exercisable on and after October 19, 1993, and additional
27% of the options were exercisable on and after December 31, 1993, and an
additional 23% of the options are exercisable on and after December 31, 1994
(provided that Mr. Gold continues to serve as the Company's Chief Executive
Officer on such date). Vesting may be accelerated in the event of a Change in
Control of the Company. The options remain exercisable for two years following
termination of Mr. Gold's service as a director of the Company to the extent the
options were vested and exercisable as of the date Mr. Gold's services as a
director terminated. The exercise price of the options is $11.55 per share, the
average fair market value of the Company's Common Stock for the five trading
days immediately preceding the date of grant. The Company believes that Mr.
Gold's compensation arrangement reflects the above-described executive
compensation philosophy of the Company designed to align closely management
compensation with improved financial performance and increased shareholder
value.
COMPENSATION COMMITTEE
Stephen A. Koffler, Chairman
Walter C. Bladstrom
Allan E. Dalshaug
Willie D. Davis
Stanley P. Gold
STOCK OPTION COMMITTEE
Willie D. Davis, Chairman
Ann E. Meyers
February 23, 1994
The Report of the Compensation and Stock Option Committees on Executive
Compensation shall not be deemed incorporated by reference by any general
statement incorporating by reference this Proxy Statement into any filing under
the Securities Act of 1933, as amended (the "Securities Act") or under the
Exchange Act and shall not otherwise be deemed filed under such Acts.
20
<PAGE> 24
PERFORMANCE GRAPH FOR L.A. GEAR COMMON STOCK
("PERFORMANCE GRAPH")
The Performance Graph compares the cumulative total return (assuming
reinvestment of dividends) on the Company's Common Stock () with (i) the
Standard & Poor's 500 Stock Index (/ /) and (ii) the Standard & Poor's Shoes
Index which is composed of Reebok, Nike, Stride Rite Corporation, Genesco, Inc.
and Brown Group, Inc. (), and assumes an investment of $100 on December 1, 1988
in each of the Common Stock, the stocks comprising the Standard & Poor's 500
Stock Index and the Standard & Poor's Shoes Index.
The historical stock price performance of the Common Stock shown on the
Performance Graph set forth below is not necessarily indicative of future price
performance.
The Performance Graph which is set forth below shall not be deemed
incorporated by reference by any general statement incorporating by reference
this Proxy Statement into any filing under the Securities Act or under the
Exchange Act and shall not otherwise be deemed filed under such Acts.
PERFORMANCE GRAPH
FOR L.A. GEAR COMMON STOCK
SHAREHOLDER RETURNS
(DIVIDENDS REINVESTED)
<TABLE>
<CAPTION>
Measurement Period S&P SHOES
(Fiscal Year Covered) L.A. GEAR INC S&P 500 INDEX
<S> <C> <C> <C>
1988 100 100 100
1989 357.78 130.84 166.09
1990 115.53 126.30 150.80
1991 105.60 151.99 287.70
1992 121.75 180.07 373.06
1993 113.05 198.26 270.73
</TABLE>
21
<PAGE> 25
SHAREHOLDER RETURNS (DIVIDENDS REINVESTED)
<TABLE>
<CAPTION>
NOVEMBER
INDEXED/CUMULATIVE RETURNS($)
-------------------------------------------------
COMPANY/INDEX 1988 1989 1990 1991 1992 1993
-------------- ---- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
L.A. GEAR, INC. ................ 100 357.78 115.53 105.60 121.75 113.05
S&P 500 INDEX................... 100 130.84 126.30 151.99 180.07 198.26
S&P SHOES INDEX................. 100 166.09 150.80 287.70 373.06 270.73
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS IN CONNECTION WITH THE SALE OF SERIES A PREFERRED STOCK
The Series A Stock was sold to Trefoil pursuant to the Stock Purchase
Agreement, dated as of May 27, 1991 and amended as of July 25, 1991 (the "Stock
Purchase Agreement"). Pursuant to the Stock Purchase Agreement, Trefoil has
agreed (i) that it will not sell any shares of Series A Preferred Stock until
September 12, 1994 if the effect of such sale would be to reduce Trefoil's
percentage ownership to less than a majority of the issued and outstanding
shares of Series A Preferred Stock and (ii) that Trefoil will not sell shares of
Series A Preferred Stock during such period in block transactions of more than
$25 million in aggregate stated value (each share of Series A Preferred Stock
has a stated value of $100 per share (the "Stated Value")).
Pursuant to the Stock Purchase Agreement, Trefoil has agreed that prior to
September 12, 1994, it and its affiliates will not engage in (other than through
its investment in the Company) (i) the athletic footwear business or (ii) any
other line of business conducted by the Company which accounts for at least 15%
of the consolidated net sales of the Company and its subsidiaries, during any
fiscal year ending after September 12, 1991, the date on which the Series A
Preferred Stock was first issued (a "Competitive Business"). Notwithstanding the
foregoing, Trefoil may invest in, purchase or acquire a business or person if
(i) such business does not consist solely of, or such person is not engaged
solely, in the athletic footwear business and (ii) the business or person does
not derive more than the greater of $50 million or 25% of its net sales from the
athletic footwear business or any Competitive Business. Trefoil also may acquire
up to 5% of any class of securities of a company whose securities are registered
under Section 12 of the Exchange Act.
Pursuant to the Stock Purchase Agreement, Trefoil has agreed to deliver to
the Company or its nominee an irrevocable proxy to vote all of the then
outstanding shares of Series A Preferred Stock owned by Trefoil in favor of any
merger of the Company with or into another corporation if all of the following
conditions are satisfied: (i) a definitive agreement of merger has been signed,
(ii) the market price of the Common Stock for the twenty consecutive trading
days immediately prior to execution of a definitive agreement of merger is at
least 175% of the conversion price (which is $10.00, subject to certain
antidilution provisions (the "Conversion Price")), (iii) the per share merger
consideration to be received by the holders of Common Stock is at least 175% of
the Conversion Price, and (iv) the per share merger consideration to be received
by the holders of Series A Preferred Stock is at least equal to the per share
consideration payable to the holders of Common Stock multiplied by the
conversion ratio which is the Stated Value divided by the Conversion Price.
The Company has entered into a Registration Rights Agreement, dated as of
May 27, 1991, with Trefoil (the "Trefoil Registration Rights Agreement"),
pursuant to which the Company has agreed that upon the request of one or more
holders of shares of Common Stock issued or issuable upon conversion of the
Series A Preferred Stock or shares of Common Stock acquired by Trefoil after
September 12, 1991, (collectively, the "Registrable Securities"), the Company
will effect registration under the Securities Act of all or part of such
holders' Registrable Securities. The Company is only obligated to effect three
such registrations. The Company may not include in any such registration shares
issued for its own account. Whenever the Company shall effect a registration
pursuant to the Trefoil Registration Rights Agreement, the Company will be
required to pay the costs of any such registration of securities, other than
underwriting discounts or commissions. In addition, if the Company is
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<PAGE> 26
registering securities for sale of its own account, at the request of
holders of Registrable Securities, the Company must, subject to certain
limitations, include such securities in any such registration.
SERVICES AGREEMENT
See "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" for a
discussion of the Services Agreement.
TRANSACTIONS IN CONNECTION WITH THE SALE OF COMMON STOCK
The Company sold 1,244,445 newly issued shares of Common Stock for an
aggregate purchase price of approximately $14 million to Pentland Ventures, Ltd.
("Ventures"), an affiliate of Pentland Group plc, pursuant to a Stock Purchase
Agreement, dated as of April 28, 1992, between the Company and Ventures (the
"Pentland Stock Purchase Agreement"). Under the Pentland Stock Purchase
Agreement, until the earlier of (i) April 28, 1997 and (ii) the date 60 days
after Trefoil or any Affiliate (as defined in the Stock Purchase Agreement) or
Associate (as defined in the Stock Purchase Agreement) of Trefoil or any
successor to Trefoil that is directly or indirectly controlled by the directors
or executive officers of SCA (collectively, the "Trefoil Group"), collectively
cease to own at least 10% of the outstanding Common Stock of the Company on a
fully diluted basis, Ventures and its Affiliates and Associates shall not,
directly or indirectly, alone or in concert with others:
(1) effect or seek, offer or propose to effect, or cause or
participate in, (V) any acquisition of any securities (or beneficial
ownership thereof) or assets of the Company or any of its subsidiaries
(except by way of distribution made available to holders of Common Stock
generally and except for acquisitions of Common Stock if, after giving
effect to such acquisition, Ventures together with its Affiliates and
Associates beneficially own no more than 9.9% of the outstanding Common
Stock at the time of such acquisition); (W) any tender or exchange offer,
merger or other business combination involving the Company or any of its
subsidiaries; (X) any recapitalization, restructuring, liquidation,
dissolution or other extraordinary transaction with respect to the Company
or any of its subsidiaries; (Y) any "solicitation" of "proxies" (as such
terms are used in the proxy rules of the Securities and Exchange Commission
(the "SEC")) or consents to vote any voting securities of the Company; or
(Z) any sale, transfer, pledge, or disposal of any shares of Common Stock
to a person who, after giving effect to such transaction, would, together
with its Affiliates and Associates, to the knowledge of Ventures after
reasonable inquiry, beneficially own 10% or more of the outstanding shares
of Common Stock (subject to certain exceptions); (2) take any other action
to seek to control the management, Board of Directors or policies of the
Company; (3) take any action which might force the Company to make a public
announcement regarding any of the types of matters set forth in clause 1
above; (4) solicit the Company to repurchase any of the shares of Common
Stock that are subject to the Pentland Stock Purchase Agreement or shares
of Common Stock that are the subject of the Stock Option Agreement (defined
below); or (5) enter into any discussions or arrangements with any third
party with respect to any of the foregoing.
In the event of a breach of the Pentland Stock Purchase Agreement by
Ventures, in addition to its remedies at law or in equity, the Company shall be
entitled to terminate the Sourcing Agreement (defined below) without liability
thereunder. The Pentland Stock Purchase Agreement also provides that for a
period of four years from April 28, 1992, neither Pentland nor any of its
Subsidiaries (as defined in the Pentland Stock Purchase Agreement) shall solicit
to employ any executive, senior management or other key employee of the Company
or any of its Affiliates.
Pursuant to a Stock Option Agreement, dated as of April 28, 1992 (as
amended to date), between the Company and Ventures (the "Stock Option
Agreement"), the Company has granted to Ventures an irrevocable option (the
"Option") to purchase up to 400,000 additional shares of Common Stock at
exercise prices of $13.50 (for 200,000 of such shares) and $16.125 (for the
remaining 200,000 shares of Common Stock subject to the Option). The number of
shares subject to the Option and the exercise price therefore are subject to
23
<PAGE> 27
adjustment in certain circumstances. The Options became exercisable by
Ventures on October 28, 1992, and may be exercised from time to time until
April 28, 1996.
Pursuant to a Registration Rights Agreement, dated as of April 28, 1992 (as
amended to date), between the Company and Ventures (the "Pentland Registration
Rights Agreement"), Ventures has been granted the right (i) to require, subject
to certain limitations, the Company to register the shares of Common Stock
issued to Ventures under the Securities Act ("Demand Registration") and (ii) to
include, subject to certain limitations, such shares of Common Stock in certain
other registrations of the Company's shares of Common Stock under the Securities
Act ("Incidental Registration"). Ventures is entitled to one Demand Registration
which must be made in respect of no more than 400,000 and no less than 300,000
shares of Common Stock. The Company is not required to effect any Demand
Registration prior to the earlier of October 28, 1994 and the date the Trefoil
Group ceases to own 10% of the Common Stock then outstanding on a fully-diluted
basis (the "Sale Date") and after April 28, 1996. The Company is not required to
effect the Incidental Registration of more than 200,000 shares of Common Stock
in any twelve-month period. The Company is not required to effect any Incidental
Registration prior to the earlier of April 28, 1993 and the Sale Date or after
April 28, 1996. The Company is obligated to pay certain registration expenses in
connection with a Demand Registration. The Company and Ventures have agreed to
indemnify each other against certain liabilities and claims arising from or
based upon certain violations of applicable securities laws or regulations. The
Company may terminate the Pentland Registration Rights Agreement without
liability if Ventures has breached the Pentland Stock Purchase Agreement, the
Stock Option Agreement or the Sourcing Agreement (defined below).
SOURCING AGREEMENT
Pursuant to the Sourcing Agreement, dated as of April 28, 1992 (the
"Sourcing Agreement"), a Pentland affiliate was appointed the exclusive sourcing
representative of the Company with respect to certain footwear manufacturers
located in various countries in the Far East. In consideration of its services
under the Sourcing Agreement, the Pentland affiliate will receive a sourcing fee
based on the aggregate U.S. dollar price of certain products manufactured for
the Company by manufacturers sourced by the Pentland affiliate. Unless otherwise
terminated in accordance with its terms, the Sourcing Agreement shall remain in
force until December 31, 1995 and shall continue in force thereafter unless
terminated by either the Company or the Pentland affiliate on six months' prior
written notice. The Sourcing Agreement may be terminated by the Company (i) if
defective products exceed certain agreed percentages, (ii) upon certain
bankruptcy events with respect to the Pentland affiliate or an affiliate
thereof, or (iii) upon the breach of the Stock Option agreement and the Pentland
Registration Rights Agreement. The Sourcing Agreement also may be terminated by
the Pentland affiliate (i) upon certain bankruptcy events with respect to the
Company, (ii) upon the sale or transfer of all or substantially all of the
Company's assets, or (iii) upon certain consolidations or mergers involving the
Company.
PRIVATE PLACEMENT OF CONVERTIBLE SUBORDINATED DEBENTURES
See "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" for a
discussion of the Debentures.
ANNUAL REPORT
The Company's Annual Report for the fiscal year ended November 30, 1993
(the "1993 Annual Report") was mailed to shareholders on or about February 28,
1994 and preceded or accompanies this Proxy Statement. The 1993 Annual Report
contains consolidated financial statements of the Company and its subsidiaries
and the report thereon of Price Waterhouse, independent accountants.
24
<PAGE> 28
REVOCATION OF PROXY
The accompanying Proxy may be revoked by a shareholder at any time before
it is voted, either by delivering a subsequent proxy or other written notice of
revocation to the Company at its above address or by attending the Meeting and
voting in person. All shares represented by each properly signed and returned
proxy card in the accompanying form, unless revoked, will be voted at the
Meeting in accordance with the shareholder's instructions indicated on the proxy
card. If no instructions are marked on the proxy card, the shares will be voted
in favor of the proposals described in this Proxy Statement.
PROXY SOLICITATION
The cost of soliciting proxies will be paid by the Company. Georgeson &
Company Inc., Wall Street Plaza, New York, New York 10005 has been retained to
solicit proxies by mail, telephone or personal solicitation for a fee of $4,500
plus expenses. The Company has also arranged for reimbursement, at the rate
suggested by the New York Stock Exchange, of brokerage houses, nominees,
custodians and fiduciaries for the forwarding of proxy materials to the
beneficial owners of shares held of record. Proxies may also be solicited by
directors, officers and employees of the Company, but such persons will not be
specially compensated for such services.
PROPOSALS OF SHAREHOLDERS
Under certain circumstances, shareholders are entitled to present proposals
at shareholder meetings. Any such proposal to be included in the Proxy Statement
for the Company's 1995 Annual Meeting of Shareholders must be submitted by a
shareholder prior to November 1, 1994, in a form that complies with applicable
regulations.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports, proxy statements and other
information with the SEC. Reports, proxy statements and other information filed
by the Company may be inspected and copied at the public reference facilities
maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the SEC's Regional Offices located at 7 World
Trade Center (13th Floor), New York, New York 10048 and Suite 1400, Northwest
Atrium Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of such
materials can be obtained by mail from the Public Reference Section of the SEC
at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In
addition, such material may also be inspected and copied at the offices of the
New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005 and at
the offices of the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington, D.C. 20006-1506.
25
<PAGE> 29
OTHER MATTERS
The Board knows of no matters other than those listed in the attached
Notice of Annual Meeting which are likely to be brought before the Meeting.
However, if any other matter properly comes before the Meeting, the persons
named on the enclosed proxy card will vote the proxy in accordance with their
best judgment on such matter.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Thomas F. Larkins
Thomas F. Larkins
Secretary
February 28, 1994
26
<PAGE> 30
L.A. GEAR, INC.
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 19, 1994
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned holder(s) of Common Stock of L.A. Gear, Inc. (the "Company")
hereby nominate(s), constitute(s) and appoint(s) Stanley P. Gold, Mark R.
Goldston and Allan R. Dalshaug and each of them, the attorneys, agents and
proxies of the undersigned, with full powers of substitution to each, to attend
and act as proxy or proxies of the undersigned at the annual meeting of
shareholders (the "Meeting") of the Company to be held at Loews Santa Monica
Beach Hotel, 1700 Ocean Avenue, Santa Monica, California on April 19, 1994 at
10:00 a.m., local time, or at any and all adjournments and postponements
thereof, and to vote as specified herein the number of shares which the
undersigned, if personally present, would be entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS
NOMINATED BY THE BOARD OF DIRECTORS AND "FOR" PROPOSAL 2. THE PROXY WHEN
PROPERLY EXECUTED SHALL BE VOTED IN ACCORDANCE AS DIRECTED. IF NO DIRECTION IS
MADE FOR A GIVEN PROPOSAL, THE PROXY WILL BE VOTED "FOR" THE ELECTION OF
DIRECTORS NOMINATED BY THE BOARD OF DIRECTORS AND "FOR" PROPOSAL 2.
(Continued and to be signed on the other side)
<TABLE>
<S> <C>
---------------
Common ----- Please mark
X your votes
----- as this
</TABLE>
1. ELECTION OF DIRECTORS
Nominees: Walter C. Bladstrom, Allan E. Dalshaug, Willie D. Davis, Mark
R. Goldston, Stephen A. Koffler, Ann E. Meyers and Clifford A.
Miller.
(INSTRUCTION: to withhold authority to vote for any individual
nominee, or nominees, write the name of the nominee
or nominees in the space below.)
<TABLE>
<S> <C> <C> <C>
WITHHOLD
all nominees listed FOR AUTHORITY
(except as indicated ----- ----- to vote for
to the contrary). all nominees
Discretionary authority ----- ----- listed.
to cumulate votes is granted.
</TABLE>
- ----------------------------------------------------------------------
2. RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS.
<TABLE>
<S> <C> <C> <C>
FOR AGAINST ABSTAIN
----- ----- -----
----- ----- -----
</TABLE>
3. OTHER BUSINESS. In their discretion, the Proxy Holders are authorized
to vote upon such other business as properly may come before the
Meeting and at any and all adjournments and postponements thereof. The
Board of Directors at present knows of no other business to be
presented by or on behalf of the Company or the Board of Directors at
the Meeting.
<TABLE>
<S> <C>
I WILL WILL NOT
attend this meeting in person
----- -----
----- -----
</TABLE>
The Undersigned hereby ratifies and confirms all that the Proxy Holders, or
any of them, or their substitutes, shall lawfully do or cause to be done by
virtue hereof, and hereby revokes any and all proxies heretofore given by the
undersigned to vote at the Meeting. The undersigned acknowledges receipt of the
Notice of Annual Meeting of Shareholders, the Proxy Statement accompanying said
Notice and the 1993 Annual Report delivered with or prior to said Notice.
Dated: ____________________________, 1994
_________________________________________
(Please Print Name)
_________________________________________
(Signature of Holder of Common Stock)
(Please date this Proxy and sign above as your name(s) appear(s) on this card.
Joint owners each should sign personally. Corporate proxies should be signed by
an authorized officer. Executors, administrators, trustees, etc. should give
their full titles).
