<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE SECOND QUARTER ENDED MAY 4, 1996
Commission File Number 0-934
B.B. WALKER COMPANY
------------------------------------------------------
(Exact name of registrant as specified in its charter)
North Carolina 56-0581797
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
414 East Dixie Drive, Asheboro, NC 27203
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (910) 625-1380
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
On June 3, 1996, 1,726,534 shares of the Registrant's voting common stock
with a par value of $1.00 per share were outstanding.
<PAGE>
B.B. WALKER COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
May 4, October 28,
Assets 1996 1995
------ ----------- -----------
Cash $ 1 $ 1
Accounts receivable, less allowance
for doubtful accounts of $691 in
1996 and $521 in 1995 11,482 13,467
Inventories 12,937 15,828
Prepaid expenses 242 311
Income tax recovery receivable 361 613
Deferred income tax benefit, current 678 678
------- -------
Total current assets 25,701 30,898
Property, plant and equipment, net of
accumulated depreciation and amortization
of $5,718 in 1996 and $5,412 in 1995 2,657 2,968
Deferred income tax benefit, long-term 92 92
Other assets 368 419
------- -------
$ 28,818 $ 34,377
======= =======
(Continued)
1
<PAGE>
B.B. WALKER COMPANY
CONSOLIDATED BALANCE SHEETS, Continued
(In thousands)
(Unaudited)
May 4, October 28,
Liabilities and Shareholders' Equity 1996 1995
------------------------------------ ----------- -----------
Borrowings under finance agreement $ 11,146 $ 14,012
Current portion of long-term obligations 1,156 1,088
Accounts payable, trade 3,493 5,210
Accrued salaries, wages and bonuses 572 591
Other accounts payable and accrued liabilities 1,165 632
------- -------
Total current liabilities 17,532 21,533
------- -------
Long-term obligations 3,779 4,257
Minority interests in consolidated subsidiary 34 34
Shareholders' equity:
7% cumulative preferred stock, $100 par value,
1,150 shares authorized, 828 shares issued
and outstanding in 1996 and 1995 83 83
Common stock, $1 par value, 6,000,000 shares
authorized, 1,726,535 shares issued and
outstanding in 1996 and 1995 1,727 1,727
Capital in excess of par value 2,724 2,724
Retained earnings 3,070 4,158
Shareholders' loans (131) (139)
------- -------
Total shareholders' equity 7,473 8,553
------- -------
Commitments and contingencies
$ 28,818 $ 34,377
======= =======
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
2
<PAGE>
<TABLE>
B.B. WALKER COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF LOSS
(In Thousands, Except Per Share Data)
<CAPTION>
(Unaudited) (Unaudited)
Second Quarter Ended Six Months Ended
-------------------------- --------------------------
May 4, April 29, May 4, April 29,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 9,046 $ 10,717 $ 19,066 $ 21,163
Interest and other income 21 22 27 44
----------- ----------- ----------- -----------
Total revenues 9,067 10,739 19,093 21,207
----------- ----------- ----------- -----------
Cost of products sold 7,040 8,364 14,618 16,083
Selling and administrative expenses 2,480 2,896 4,993 5,691
Depreciation and amortization 164 168 326 333
Interest expense 354 393 794 765
----------- ----------- ----------- -----------
Total costs and expenses 10,038 11,821 20,731 22,872
----------- ----------- ----------- -----------
Loss before income taxes and
minority interest (971) (1,082) (1,638) (1,665)
Benefit from income taxes (335) (394) (554) (609)
Minority interest - - 1 1
----------- ----------- ----------- -----------
Net loss (636) (688) (1,085) (1,057)
Retained earnings at beginning of period 3,708 5,038 4,158 5,408
Dividends on common stock - - - -
Dividends on preferred stock (2) (2) (3) (3)
----------- ----------- ----------- -----------
Retained earnings at end of period $ 3,070 $ 4,348 $ 3,070 $ 4,348
=========== =========== =========== ===========
Net loss per share:
Primary $ (.37) $ (.40) $ (.63) $ (.61)
=========== =========== =========== ===========
Fully diluted $ (.37) $ (.40) $ (.63) $ (.61)
=========== =========== =========== ===========
Weighted average common shares outstanding:
Primary 1,728 1,730 1,728 1,739
=========== =========== =========== ===========
Fully diluted 1,728 1,730 1,728 1,739
=========== =========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
3
<PAGE>
B.B. WALKER COMPANY
CONSOLIDATED CASH FLOWS STATEMENTS
(In thousands)
(Unaudited)
Six Months
Ended
------------------------
May 4, April 29,
1996 1995
----------- -----------
Cash Flows From Operating Activities:
Net loss $ (1,085) $ (1,057)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 326 333
Gain on sale of property, plant and equipment (2) (1)
Deferred income taxes - 1
(Increase) decrease in:
Accounts receivable, net 1,985 2,375
Inventories 2,891 (2,028)
Prepaid expenses 69 119
Other assets 51 (15)
Increase (decrease) in:
Accounts payable, trade (1,717) 1,254
Accrued salaries, wages and bonuses (19) (212)
Other accounts payable and accrued liabilities 533 174
Income taxes payable 252 (613)
------- -------
Net cash provided by operating activities 3,284 330
------- -------
Cash Flows From Investing Activities:
Capital expenditures (15) (14)
Proceeds from disposal of property,
plant and equipment 2 - 1
------- -------
Net cash used for investing activities (13) (13)
------- -------
Cash Flows From Financing Activities:
Net borrowing under finance agreement (2,866) (458)
Proceeds from issuance of long-term obligations 32 941
Payment on long-term obligations (442) (812)
Repurchase of common stock - (135)
Loans to shareholders, net of repayments 8 150
Dividends paid on 7% cumulative preferred stock (3) (3)
------- -------
Net cash used for financing activities (3,271) (317)
------- -------
Net change in cash - -
Cash at beginning of year 1 1
------- -------
Cash at end of second quarter $ 1 $ 1
======= =======
The accompanying notes to consolidated financial statements are an integral
part of these financial statements.
4
<PAGE>
B.B. WALKER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1
- ------
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary for a fair presentation
of the financial results of B.B. Walker Company and Subsidiary (the "Company")
for the interim periods included. All such adjustments are of a normal
recurring nature. The results of operations for the interim periods shown in
this report are not necessarily indicative of the results to be expected for
the fiscal year.
The Company's operations are reported on a fifty-two, fifty-three week fiscal
year that ends on the Saturday closest to October 31. The fiscal year that
ends on November 2, 1996 will include fifty-three weeks of operations as
compared to fifty-two weeks in 1995. The Company elected to include the one
extra week in the first accounting period of the fiscal year. Therefore, the
results for the six months ended May 4, 1996 include twenty-seven weeks of
operations for the Company. The comparative six month results for the
period ended April 29, 1995 reflect twenty-six weeks of operations for the
Company. The results for the comparative second quarters of 1996 and 1995
each include thirteen weeks of operations.
Note 2
- ------
Earnings per common share is computed by deducting preferred dividends from
net income to determine net income attributable to common shareholders. This
amount is divided by the weighted average number of common shares outstanding
during the quarter plus the common stock equivalents arising from stock
options. For primary earnings per share, the common stock equivalents are
calculated using the average of the high and low asked price for the period.
For fully diluted earnings per share, the common stock equivalents are
calculated using the asked price at the end of the period if greater than the
average asked price for the period.
Note 3
- ------
Long-term obligations consist of the following amounts (in thousands):
(Unaudited)
May 4, October 28,
1996 1995
----------- -----------
Notes payable to banks $ 2,910 $ 3,165
Notes payable to governmental authorities 679 704
Promissory notes payable to shareholders 1,181 1,233
Capital lease obligations 165 243
------- -------
4,935 5,345
Less portion payable within one year 1,156 1,088
------- -------
$ 3,779 $ 4,257
======= =======
5
<PAGE>
B.B. WALKER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Note 4
- ------
Inventories are composed of the following amounts (in thousands):
(Unaudited)
May 4, October 28,
1996 1995
----------- -----------
Finished goods $ 8,288 $ 9,574
Work in process 624 807
Raw materials and supplies 4,025 5,447
------- -------
$ 12,937 $ 15,828
======= =======
6
<PAGE>
B.B. WALKER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
- ---------------------
The following summarizes the results of operations for the Company for the
second quarters and six months ended May 4, 1996 and April 29, 1995:
Second Six
Quarter Ended Months Ended
May 4, April 29, May 4, April 29,
1996 1995 1996 1995
-------- -------- -------- --------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 77.8% 78.0% 76.7% 76.0%
------ ------ ------ ------
Gross margin 22.2% 22.0% 23.3% 24.0%
Selling and administrative
expenses 27.4% 27.0% 26.2% 26.9%
Depreciation and amortization 1.8% 1.6% 1.7% 1.6%
Interest expense 3.9% 3.7% 4.2% 3.6%
Interest and other income (.2%) (.2%) (.2%) (.2%)
------ ------ ------ ------
Income before income taxes
and minority interest (10.7%) (10.1%) (8.6%) (7.9%)
Provision for income taxes (3.7%) (3.7%) (2.9%) (2.9%)
Minority interest - - - -
------ ------ ------ ------
Net income (7.0%) (6.4%) (5.7%) (5.0%)
====== ====== ====== ======
NET SALES
- ---------
Net sales for the second quarter were $9,046,000 which was 15.6% lower than
net sales of $10,717,000 in the second quarter of 1995. For the six months
ended May 4, 1996, net sales were $19,066,000, or 9.9% lower, as compared to
$21,163,000 for the same period in 1995.
Sales of branded footwear in the Work/Outdoor Division were down 16.2% and
11.1% for the six months and the second quarter, respectively. Demand for
footwear produced by this division was much stronger during the first six
months of 1995 compared to the first six months of 1996. A soft retail sector
is slowing inventory turns for the Company's customers and is resulting in
reduced orders compared to the prior year. Also, strong winter weather
disrupted retailers operations by forcing store closings and delaying
shipments. For the six months ended May 4, 1996, domestic sales were down
11.7% compared to the prior year. In the second quarter, domestic sales were
down 8.7% from 1995's second quarter. Pair shipments in the second quarter
were off 15.2% from 1995. For the six month period, pair shipments were down
12.9%. Export sales in this division fell 24.2% in the second quarter
compared to 1995. For the six months, export sales were off 35.9% from 1995.
7
<PAGE>
B.B. WALKER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION, Continued
Private label sales in the Work/Outdoor Division for the six months and second
quarter were down 9.2% and 35.5%, respectively. The decrease came primarily
from a decrease in pairs shipped to existing private label accounts.
Other sales in this division, which consists primarily of sales from the
Company's retail outlets and sales to institutional customers remained
relatively flat when compared to the prior year.
Branded footwear sales in the Western Boot Division fell during the second
quarter and the six month period ended May 4, 1996. Orders from customers
were down in the second quarter due to slow sales at the retail level. Sales
in this division were lower than 1995 by 9.9% for the six months and 18.9% for
the second quarter. Pair shipments were down 15.3% in the second quarter of
1996 over the second quarter of 1995. For the six month period, pair
shipments decreased 3.8% over 1995. Competition for market share led to
competitive pricing and lower average price per unit shipped.
Sales to private label customers in the Western Division increased 241.4% and
224.9% in the six months and second quarter ended May 4, 1996, respectively,
when compared to the same periods for 1995. Larger shipments to existing
customers made up the largest part of this growth as the Company has expanded
its offerings. However, since this division only comprises 5% of the
Company's net sales, its impact on operations has been minimal.
GROSS MARGIN
- ------------
The Company's gross margin fell to 23.3% for the first six months of 1996 from
24.0% for the first six months of 1995. For the second quarter of 1996 and
1995, the gross margin was 22.2% and 22.0%, respectively. The gross margin
was impacted by discounting programs in the branded divisions. Significant
competition has led to aggressive pricing and dating terms in order to induce
orders and increase market share. In addition, manufacturing variances,
primarily from fixed expenses, have had an unfavorable impact on the gross
margin. For 1996, pairs produced in the Company's plants has been 18.7% lower
than 1995. Because of reduced demand for footwear, the Company has reduced
operating schedules in its plants in order to avoid a large buildup of
finished goods inventory.
8
<PAGE>
B.B. WALKER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION, Continued
SELLING AND ADMINISTRATIVE EXPENSES
- -----------------------------------
Selling and administrative expenses were $2,480,000 for the second quarter of
1996 as compared to $2,896,000 for the second quarter of 1995, a decrease of
$416,000 or 14.4%. For the six months ended May 4, 1996 and April 29, 1995,
selling and administrative expenses were $4,993,000 and $5,691,000,
respectively, or $698,000 (12.3%) lower. The Company continues to analyze its
expenses and identify reductions of operating expenses in order to match its
cost structure with the current level of operations. Salary and benefits were
down approximately $215,000 and $307,000 for the second quarter and six
months, respectively. Several personnel positions, which are vacant, have not
been replaced and their work has been redistributed. Travel and showroom
expenses have fallen $123,000 for the second quarter and $163,000 for the six
months from 1995 levels. The Company is carefully evaluating expenses in this
area to determine opportunities for cost savings. Finally, freight expenses
are down $79,000 in the second quarter and $131,000 for the six months. The
prior year had higher than normal freight expenses because of reduced freight
promotions offered to customers.
INTEREST EXPENSE
- ----------------
Interest expense for the six months ended May 4, 1996 was $794,000, or $29,000
higher than interest expense of $765,000 for the six months ended April 29,
1995. For the second quarter, 1996 expense was $39,000 lower than 1995
expense. For the six month period, the increase is primarily attributable to
the higher average balance outstanding on long-term debt. The Company
refinanced the mortgage on its Asheboro facilities in August 1995 which
increased the outstanding amount by approximately $1,000,000. The interest
rate on this debt was 1.5% higher than the mortgage note payable that was
replaced. In addition, the Company completed the financing on its Somerset
facilities in July 1995 which added an additional $240,000 to long-term debt.
The average daily outstanding amount on the revolving finance agreement was
approximately the same for each period. For the second quarter, the impact of
increased long-term debt was offset by a lower average daily outstanding
amount on the revolving finance agreement and lower interest rates. The
average daily outstanding amount on the revolving finance agreement was
approximately $1,200,000 lower in 1996 than in 1995. In addition, during the
second quarter of 1996, interest rates on the revolving finance agreement
ranged from 8.75% to 9.25%. During the same period of 1995, interest rates
were 9.5%.
DEPRECIATION AND AMORTIZATION
- -----------------------------
Depreciation and amortization was $326,000 in 1996 as compared to $333,000 in
1995 for the first six months of the year. For the second quarter,
depreciation expense was $164,000 in 1996 compared to $168,000 in 1995. The
Company has made few capital expenditures in 1996 and in 1995, resulting in
small changes in depreciation expense.
9
<PAGE>
B.B. WALKER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION, Continued
PROVISION FOR INCOME TAXES
- --------------------------
The Company has an income tax recovery of $335,000 for the second quarter
ended May 4, 1996 compared to an income tax recovery of $394,000 for the
second quarter of 1995. For the six months, the Company had an income tax
recovery of $554,000 in 1996 and income tax recovery of $609,000 in 1995.
Income tax rates have been consistent between 1996 and 1995.
NET INCOME
- ----------
The Company reported a net loss of $636,000 for the second quarter and a net
loss of $1,085,000 for the six months ended May 4, 1996. For the comparable
periods of 1995, the Company had a net loss of $688,000 for the second quarter
and a net loss of $1,057,000 for the six months. Net sales for the Company
were significantly lower for the six months and the second quarter compared to
the prior year. Lower sales have been partially offset by reduced selling and
administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company continues to rely on the revolving finance agreement with a bank
to provide its daily working capital requirements. On August 15, 1995, the
Company entered into a new revolving financing agreement which replaced its
existing revolving credit facility. The amount available to be drawn is
determined by a formula based on certain percentages of eligible accounts
receivable and inventories. By agreement of the Company's bank, certain
restrictive covenants under the revolving finance agreement have been amended
for the period ended October 28, 1995 and thereafter. As part of the
amendment, the line of credit based on eligible accounts receivable and
inventories was reduced from $20,000,000 to $16,000,000. Advances up to the
limit of the line of credit continue to be available against eligible accounts
receivable. The seasonal adjustment for inventories was amended from a range
of $6,500,000 to $9,000,000 to a range of $7,000,000 to $8,000,000. The
interest rate under the revolving finance agreement was raised from prime plus
.5% to prime plus 1.0% (9.25% at May 4, 1996).
In addition, the new agreement provided a $3,000,000 term loan that was used
to repay the existing mortgage note payable to a bank. Per the terms of the
note, the Company will pay 84 monthly installments of principal and interest
ranging from $36,000 to $59,000.
As a condition to providing the financing, the bank requires that the Company
meet various restrictive covenants. These covenants include, among other
things, maintenance of certain financial ratios, limits on capital
expenditures, minimum net worth and net income requirements and restrictions
on the amount of borrowings from stockholders.
10
<PAGE>
B.B. WALKER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION, Continued
All borrowings under the agreement are secured by all accounts receivable,
inventories, machinery and equipment of the Company. In addition, the bank
has a first lien on the Asheboro land and facilities and a subordinated lien
on the Somerset facilities.
The Company had approximately $80,000 of unused availability under the
agreement at May 4, 1996. The Company believes that its revolving finance
agreement, as amended, will provide the necessary liquidity to fund its
current level of operations.
The level of capital expenditures in 1996 has been comparable to the prior
year. Capital expenditures for the first six months of 1996 were $15,000
compared to $14,000 in the first six months of 1995. The Company is making
capital expenditures only to maintain current levels of operation. Funding
for capital expenditures has primarily come from the available balance on the
finance agreement.
FINANCIAL CONDITION
ACCOUNTS RECEIVABLE
- -------------------
Accounts receivable were $11,482,000 at May 4, 1996 compared to $13,467,000 at
October 28, 1995, a decrease of $1,985,000. The balance is lower for two
reasons. Trade receivables have historically been at their highest point at
the end of the fourth quarter because of the heavy sales volume related to
Christmas buying by retailers. Second, certain dating programs offered by the
Company ended in the first quarter of 1995, resulting in significant
collection of receivables.
INVENTORIES
- -----------
Inventories were $12,937,000 at May 4, 1996, a decrease of $2,891,000 from the
inventory on hand at October 28, 1995 of $15,828,000. Of the decrease,
approximately $1,286,000 is finished goods, $183,000 is work in process, and
$1,422,000 is raw materials. The decrease is a result of the reduced
production schedules in the Company's plants and greater emphasis on managing
inventories. Sales are historically at their highest point in the fourth
quarter of each year.
BORROWINGS UNDER FINANCE AGREEMENT
- ----------------------------------
The balance outstanding under the finance agreement was $11,146,000 at May 4,
1996 compared to $14,012,000 at October 28, 1995. The decrease can be
attributed to the cash applied against the outstanding balance from
collections of accounts receivable and better management of inventories.
11
<PAGE>
PART II. OTHER INFORMATION
- ---------------------------
Item 2. Changes in Securities
Effective April 15, 1996, the Company executed an amendment to its
financing agreement which established new financial covenants for the
agreement, as well as modifying key provisions of the agreement.
Item 4. Submission of Matters to a Vote of Security Holders
The Forty-Fifth Annual Meeting of the Shareholders of the Company was
held on Monday, March 18, 1996, as set forth in the Notice of Annual
Meeting of Shareholders dated and mailed on February 26, 1996. Of
the 1,726,535 shares of common stock issued and outstanding on the
record date, 1,444,178 shares or 83.65% of the common stock
outstanding were represented in person or by proxy at the meeting.
For the issues presented to the shareholders for their consideration,
the results were as follows:
1 - The Board of Directors, in accord with the By-laws, established
the number of Directors at six. The shareholders elected the six
persons nominated by them in the proxy statement mailed February
26, 1996. All director nominees had served as directors during
the prior year and all were elected by the shareholders. There
were no other nominations for director presented at the meeting.
The six nominees were elected with results as follows:
Shares Shares Shares Marked
Director For Against Withhold Authority
-------------------- ---------- --------- ------------------
Kent Anderson 1,434,259 3,032 6,887
George M. Ball 1,436,536 504 7,138
Robert L. Donnell, Jr. 1,436,278 762 7,138
James P. McDermott 1,437,096 144 6,938
Michael C. Miller 1,436,896 144 7,138
Edna A. Walker 1,437,240 - 6,938
2 - Ratification by the Shareholders of the action by the Board of
Directors to appoint Price Waterhouse LLP as the Company's
independent certified public accounting firm for the 1996 fiscal
year. The action was ratified with 1,436,310 shares voting for,
51 shares voting against, and 7,817 abstaining from the vote.
12
<PAGE>
PART II. OTHER INFORMATION, Continued
- --------------------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits Filed:
(4)(c)(5) First Amendment to the Credit Agreement between B.B.
Walker Company and Mellon Bank, N.A.
(b) Reports on Form 8-K:
NONE
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
B.B. Walker Company
Date June 17, 1996 KENT T. ANDERSON
------------- -------------------------------
Kent T. Anderson
Chairman of the Board, Chief
Executive Officer and President
Date June 17, 1996 WILLIAM C. MASSIE
------------- -------------------------------
William C. Massie
Executive Vice President
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of
April 15, 1996, by and between B.B. WALKER COMPANY, a North Carolina
corporation (the "Borrower"), and MELLON BANK, N.A., a national banking
association (the "Lender").
RECITALS
A. The Borrower and the Lender are parties to a certain Credit Agreement
dated as of August 15, 1995 (the "Credit Agreement") pursuant to which
the Lender established certain credit facilities for the Borrower in
order to provide working capital financing and to refinance certain
existing indebtedness. Except as otherwise defined herein, capitalized
terms used in this Amendment shall have the same meaning as in the
Credit Agreement.
B. Certain Events of Default, as defined in the Credit Agreement, have
occurred, as more fully described in Exhibit A attached hereto.
C. As a consequence of these Events of Default, the Borrower and the
Lender have agreed to reduce the amount of the Revolving Credit
Commitment, revise certain financial covenants and amend other terms and
provisions of the Credit Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained and intending to be legally bound hereby, the
parties hereto agree as follows:
AMENDMENTS
1. The following definitions set forth in Article 1 of the Credit Agreement
shall be deleted and restated in their entirety as follows:
"Consolidated Leverage Ratio" at any time shall mean the ratio of (a)
aggregate indebtedness of the Borrower and its consolidated
subsidiaries, determined on a consolidated basis in accordance with
GAAP, less $1,100,000, to (b) Consolidated Adjusted Net Worth
"LIBOR Rate" shall have the meaning set forth in Section 2.06(b)(ii)
hereof.
"LIBOR Rate Option" shall have the meaning set forth in Section
2.06(b)(ii) hereof.
"LIBOR Rate Reserve Percentage" shall have the meaning set forth in
Section 2.06(b)(ii) hereof.
"Overadvance Amount" shall mean Five Hundred Thousand Dollars
($500,000).
"Overadvance Period" shall mean the period from October 1 through March
31 of any year prior to the Revolving Credit Maturity Date.
"Prime Rate Option" shall mean a rate per annum (computed on the basis
of a year of 360 days and actual days elapsed) for each day equal to
the Prime Rate for such day plus one percent (1%).
"Revolving Credit Committed Amount" shall mean Sixteen Million Dollars
($16,000,000).
2. The following additions shall be made to Article 1, Definitions, in
alphabetical order:
"First Amendment" shall mean the First Amendment to Credit Agreement,
dated as of April 15, 1996, by and between the Borrower and the
Lender.
"First Amendment Closing Date" shall mean April 15, 1996.
3. The definition of "Consolidated Tangible Net Worth" set forth in Article
1 of the Credit Agreement shall be replaced wherever it shall appear in
the Credit Agreement by the following definition of "Consolidated
Adjusted Net Worth:
"Consolidated Adjusted Net Worth" at any time shall mean (a) the total
amount of stockholders' equity of the Borrower and its consolidated
subsidiaries at such time determined in accordance with GAAP plus (b)
$1,100,000 less (c) the book value of all intangible assets of the
Borrower and its consolidated Subsidiaries at such time determined on
a consolidated basis in accordance with GAAP.
4. Subsection (b) of Section 2.02, Seasonal Reduction of the Borrowing
Base, shall be deleted and restated in its entirety as follows:
(b) Seasonal Reduction of the Borrowing Base. Notwithstanding the
foregoing Section 2.02(a), the aggregate amount of all Revolving
Credit Loans made based upon the Net Value of all Eligible
Inventory (the "Inventory Based Loans") shall not exceed the
following amounts during the following periods of time, at any
time prior to the Revolving Credit Maturity Date (the "Seasonal
Reduction Formula"):
Applicable Time Period
Amount of Inventory Based Loans Each Year
------------------------------- ------------------------------
$8,000,000 January 1 through March 31 and
August 1 through October 31
$7,000,000 April 1 through July 31 and
November 1 through December 31
5. Subsections (a) and (b) of Section 2.06, Interest Rates, shall be
deleted and restated in their entirety as follows:
2.06. Interest Rates.
(a) Rate of Interest. The unpaid principal amount of the
Revolving Credit Loans and the Term Loan shall bear
interest for each day until due at the Prime Rate Option.
(b) Interest Rate Reductions. If, upon receipt by the Lender
of the Quarterly Compliance Certificate accompanying the
Borrower's audited financial statements for any fiscal
year, (a) no Event of Default or Potential Default shall
have occurred and is continuing under this Agreement, (b)
the Borrower's Consolidated Adjusted Net Worth is greater
than or equal to $9,900,000, (c) the Borrower's
year-to-date Consolidated Net Income is greater than or
equal to $500,000, (d) the Borrower's Consolidated
Leverage Ratio is less than or equal to 2.45 to 1.00, and
(d) all accounts payable of the Borrower (and any
consolidated Subsidiary) shall be substantially current
(except for those accounts payable disputed in good faith
by the Borrower), the unpaid principal amount of the
Revolving Credit Loans and the Term Loan shall bear
interest for each day until due on one or more bases
selected by the Borrower from among the interest rate
options set forth below. Subject to the provisions of
this Agreement, the Borrower may select different Options
to apply simultaneously to different Portions of the
Revolving Credit Loans and the Term Loan and may select
different Funding Segments to apply simultaneously to
different parts of the LIBOR Rate Portion of such Loans.
Each selection of a rate Option shall apply separately and
without overlap to the Revolving Credit Loans as a class
and the Term Loans as a class. The aggregate number of
Funding Segments applicable to the LIBOR Rate Portion of
the Revolving Credit Loans at any time shall not exceed
two and the aggregate number of Funding Segments
applicable to the LIBOR Rate Portion of the Term Loan at
any time shall not exceed one.
(i) Prime Rate Option: the Prime Rate Option less
one-half of one percent (0.50%).
(ii) LIBOR Rate Option: A rate per annum (based on a
year of 360 days and actual days elapsed) for each
day equal to the LIBOR Rate for such day plus two
and one-half percent (2.50%). "LIBOR Rate" for any
day, as used herein, shall mean for each Funding
Segment of the LIBOR Rate Portion corresponding to
a proposed or existing LIBOR Rate Funding Period,
the rate per annum determined by the Lender by
dividing (the resulting quotient to be rounded
upward to the nearest 1/100 of 1%) (A) the rate of
interest (which shall be the same for each day in
such LIBOR Rate Funding Period) determined in good
faith by the Lender in accordance with its usual
procedures (which determination shall be
conclusive) to be the average of the rates per
annum for deposits in Dollars offered to major
money center banks in the London interbank market
at approximately 11:00 a.m., London time, two
London Business Days prior to the first day of such
LIBOR Rate Funding Period for delivery on the first
day of such LIBOR Rate Funding Period in amounts
comparable to such Funding Segment and having
maturities comparable to such Funding Period by (B)
a number equal to 1.00 minus the LIBOR Rate Reserve
Percentage.
"LIBOR Rate Reserve Percentage" for any day shall mean the percentage
(expressed as a decimal, rounded upward to the nearest 1/100 of 1%),
as determined in good faith by the Lender (which determination shall
be conclusive), which is in effect on such day as prescribed by the
Board of Governors of the Federal Reserve System (or any successor)
representing the maximum reserve requirement (including, without
limitation, supplemental, marginal and emergency reserve requirements)
with respect to eurocurrency funding (currently referred to as
"Eurocurrency liabilities") of a member bank in such System. The
LIBOR Rate shall be adjusted automatically as of the effective date of
each change in the LIBOR Rate Reserve Percentage. The LIBOR Rate
Option shall be calculated in accordance with the foregoing whether or
not the Lender is actually required to hold reserves in connection
with its eurocurrency funding or, if required to hold such reserves,
is required to hold reserves at the "LIBOR Rate Reserve Percentage" as
herein defined.
The Lender shall give prompt notice to the Borrower of the LIBOR Rate
determined or adjusted in accordance with the definition of the LIBOR Rate,
which determination or adjustment shall be conclusive if made in good faith.
6. Subsections (c) and (d) of Section 2.12, Fees, shall be deleted and
restated in their entirety as follows:
(c) Collateral Management Fee. So long as Revolving Credit Loans are
outstanding, or the Obligations with respect to the Revolving
Credit Loans have not been satisfied in full, the Borrower shall
unconditionally pay to the Lender a non-refundable quarterly
collateral management fee (the "Collateral Management Fee")
payable in advance in the amount of $9,000, the first of which
shall be payable on the First Amendment Closing Date.
Thereafter, the Collateral Management Fee shall be payable in
advance in equal quarterly installments beginning with the end of
the third full month after the First Amendment Closing Date.
(d) Overadvance Fee. So long as Revolving Credit Loans are
outstanding, or the Obligations with respect to the Revolving
Credit Loans have not been satisfied in full, the Borrower shall
unconditionally pay to the Lender a non-refundable annual fee for
the availability of the Overadvance Amount (the "Overadvance
Fee") in the amount of $10,000, payable on each anniversary of
the Closing Date until the Revolving Credit Maturity Date.
REPRESENTATIONS AND WARRANTIES
7. Other Representations and Warranties. Each of the representations and
warranties (as amended hereby) made by the Borrower in Article 3 of the
Credit Agreement are true and correct on and as of the First Amendment
Closing Date and are incorporated herein as though fully set forth.
CONDITIONS PRECEDENT
8. Conditions to Effectiveness of this Amendment. The obligation of the
Lender to enter into this Amendment is subject to the satisfaction,
immediately prior to or concurrently with the execution of the
Amendment, of the following conditions precedent:
(a) First Amendment to Security Agreement. The Lender shall have
received the First Amendment to Security Agreement, dated as of
an even dated herewith, duly executed on behalf of the Borrower.
(b) Trademark Collateral Security and Pledge Agreement. The Lender
shall have received the Trademark Collateral Security and Pledge
Agreement, dated as of an even dated herewith, duly executed on
behalf of the Borrower.
(c) Patent Collateral Assignment and Security Agreement. The Lender
shall have received the Patent Collateral Assignment and Security
Agreement, dated as of an even dated herewith, duly executed on
behalf of the Borrower.
(d) Memorandum of Grant of Security Interest in Copyrights. The
Lender shall have received the Memorandum of Grant of Security
Interest in Copyrights, dated as of an even dated herewith, duly
executed on behalf of the Borrower.
(e) Restructuring Fee. The Lender shall have received from the
Borrower a one-time fee of $25,000 in connection with the
preparation and execution of the First Amendment.
(f) Collateral Management Fee. The Lender shall have received a
Collateral Management Fee of $9,000 for the three month period
immediately following the First Amendment Closing Date.
(g) Corporate Proceedings. The Lender shall have received
certificates by the Secretary or Assistant Secretary of the
Borrower dated as of the First Amendment Closing Date as to (i)
true copies of the articles of incorporation and by-laws (or
other constituent documents) of the Borrower in effect on such
date (which, in the case of articles of incorporation or other
constituent documents filed or required to be filed with the
Secretary of State or other Governmental Authority in its
jurisdiction of incorporation, shall be certified to be true,
correct and complete by such Secretary of State or other
Governmental Authority not more than thirty (30) days before the
date of this Amendment), (ii) true copies of all corporate action
taken by the Borrower relative to this Amendment and the other
Amendment Documents and (iii) the incumbency and signature of the
respective officers of the Borrower executing this Amendment and
the other Amendment Documents, together with satisfactory
evidence of the incumbency of such Secretary or Assistant
Secretary. The Lender shall have received certificates from the
appropriate Secretaries of State or other applicable Governmental
Authorities dated February 21, 1996 showing the good standing of
the Borrower in its state of incorporation and each state in
which the Borrower does business, if applicable in such state.
(h) Legal Opinion of Counsel to the Borrower. The Lender shall have
received an opinion addressed to the Lender, dated as of the
First Amendment Closing Date, of Smith Helms Mulliss & Moore,
L.L.P., counsel to the Borrower, in substantially the form
attached hereto as Exhibit B.
(i) Officers' Certificates. The Lender shall have received
certificates from such officers of the Borrower in the form of
Exhibit C attached hereto.
(j) Fees, Expenses, Etc. All fees and other compensation (including,
without limitation, attorneys' fees) required to be paid to the
Lender pursuant hereto or pursuant to any other written agreement
on or prior to the First Amendment Closing Date shall have been
paid or received.
(k) Other Conditions Precedent. Each of the conditions precedent set
forth in Section 4.02 of the Credit Agreement shall have been
met.
NEGATIVE COVENANTS
9. The following amendments shall be made to Article 6 of the Credit
Agreement:
(a) Subsections (b) through (g) of Section 6.01, Financial Covenants,
shall be deleted and restated in their entirety as follows:
(b) Consolidated Leverage Ratio. The Consolidated Leverage Ratio
shall not at any time exceed 3.06 to 1.00 as of and from July 31,
1995 and at all times through January 30, 1996; 2.50 to 1.00 as
of and from January 31, 1996 and at all times through April 29,
1996; 2.25 to 1.00 as of and from April 30, 1996 and at all times
through October 30, 1997; and 2.50 to 1.00 as of and from October
31, 1997 and at all times thereafter.
(c) Consolidated Adjusted Net Worth. Consolidated Adjusted Net Worth
shall not at any time be less than $8,900,000 as of and from
January 31, 1996 and at all times through April 29, 1996;
$9,000,000 as of and from April 30, 1996 and at all times through
July 30, 1996; $9,250,000 as of and from July 31, 1996 and at all
times through October 30, 1997; and $10,175,000 as of and from
October 31, 1997 and at all times thereafter.
(d) Consolidated Working Capital. Consolidated Working Capital shall
not at any time be less than $8,600,000 as of and from January
31, 1996 and at all times through April 29, 1996; $9,000,000 as
of and from April 30, 1996 and at all times through October 30,
1997; and $9,500,000 as of and from October 31, 1997 and at all
times thereafter.
(e) Consolidated Net Income. Consolidated Net Income for the fiscal
year ending October 31, 1995 shall not exceed a loss of
($1,245,000). Consolidated Net Income for the fiscal year ending
October 31, 1996 shall not be less than $12,000. Consolidated
Net Income for the fiscal year ended October 31, 1997 shall not
be less than $900,000.
(f) Capital Expenditures. The Borrower shall not make any Capital
Expenditures which exceed, in the aggregate, (a) $75,000 for the
nine month period ending July 31, 1995; (b) $150,000 for the
fiscal year ending October 31, 1995; (c) $75,000 for the first
fiscal quarter ending January 31, 1996; (d) $150,000 for the six
month period ending April 30, 1996; (e) $225,000 for the nine
month period ending July 31, 1996; (f) $300,000 for the fiscal
year ending October 31, 1996; and (g) $300,000 for the fiscal
year ending October 31, 1997 and for all periods thereafter;
provided, however, that for the fiscal year ending October 31,
1996 and for all periods thereafter, fifty percent (50%) of the
funding for permitted Capital Expenditures shall come from
sources other than Lender. As a one time only exception to the
foregoing Capital Expenditure limitation, the Borrower or the
Guarantor may make Capital Expenditures of $265,000 in order to
obtain the PDCME Loan.
(g) Inventory Turnover. The Borrower shall not have Inventory
Turnover, determined quarterly and annually, of greater than 200
days as of and from July 31, 1995 and at all times through
October 30, 1995; 162 days as of and from October 31, 1995 and at
all times through January 30, 1996; 162 days as of and from
January 31, 1996 and at all times through April 29, 1996; 170
days as of and from April 30, 1996 and at all times through July
30, 1996; 160 days as of and from July 31, 1996 and at all times
through October 30, 1996; 165 days as of and from October 31,
1996 and at all times through October 30, 1997; and 150 days as
of and from October 31, 1997 and for all fiscal year-ends
thereafter.
(b) Subsection (g) of Section 6.03, Indebtedness, shall be deleted and
restated in its entirety as follows:
(g) Indebtedness of the Borrower arising from the issuance of
unsecured promissory notes issued to the Borrower's shareholders,
provided, however, (i) the aggregate principal amount of all such
notes, including all existing stockholder notes, shall not exceed
$1,500,000 at any time, (ii) the aggregate principal amount of
any stockholder notes presented for payment in any fiscal quarter
shall not exceed $250,000 per quarter, and (iii) the aggregate
principal amount of any stockholder notes shall not fall below
$1,100,000 at any time. Notwithstanding the foregoing, if the
aggregate principal amount of any stockholder notes falls below
$1,200,000 at any time, the Overadvances provided for in Section
2.02(c) will not be available to Borrower.
MISCELLANEOUS
10. Reaffirmation; No Waiver. Except as expressly modified herein, the
terms of the Credit Agreement, the Security Documents and all of the
Loan Documents executed in connection therewith, remain in full force
and effect in accordance with their respective terms and conditions,
are in no manner impaired hereby and, are hereby reaffirmed by all of
the parties. In the event of any conflict between this Amendment and
any other Loan Document, the provisions of this Amendment shall
prevail.
11. Fees, Expenses, Etc. Within ten (10) days of receipt of invoice, the
Borrower shall pay all fees and other compensation (including, without
limitation, attorneys' fees, costs of searches, field examination
expenses, filing and recording fees) required to be paid to the Lender
pursuant hereto, pursuant to any Amendment Document or pursuant to any
other written agreement.
12. Severability. The provisions of this Amendment are intended to be
severable. If any provision of this Amendment shall be held invalid or
unenforceable in whole or in part in any jurisdiction such provision
shall, as to such jurisdiction, be ineffective to the extent of such
invalidity or unenforceability without in any manner affecting the
validity or enforceability thereof in any other jurisdiction or the
remaining provisions hereof in any jurisdiction.
13. Prior Understandings. This Amendment and the other Amendment Documents
supersede all prior and contemporaneous understandings and agreements,
whether written or oral, among the parties hereto relating to the
transactions provided for herein and therein.
14. Counterparts. This Amendment may be executed in any number of
counterparts and by the different parties hereto on separate
counterparts each of which, when so executed, shall be deemed an
original, but all such counterparts shall constitute but one and the
same instrument.
15. Successors and Assigns. This Amendment shall be binding upon and inure
to the benefit of the Borrower, the Lender, all future holders of the
Notes, and their respective successors and assigns, except that the
Borrower may not assign or transfer any of its rights hereunder or
interests herein without the prior written consent of the Lender, and
any purported assignment without such consent shall be void.
16. Governing Law. THIS AMENDMENT AND ALL OTHER AMENDMENT DOCUMENTS
(EXCEPT TO THE EXTENT, IF ANY, OTHERWISE EXPRESSLY STATED IN SUCH OTHER
AMENDMENT DOCUMENTS) SHALL BE GOVERNED BY, CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF PENNSYLVANIA, WITHOUT REGARD
TO CHOICE OF LAW PRINCIPLES.
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly
authorized, have executed and delivered this Amendment as of the date first
above written.
ATTEST: B.B. WALKER COMPANY
By: By: KENT T. ANDERSON
---------------- ----------------------------
[Corporate Seal] Kent T. Anderson, President
MELLON BANK, N.A.
By: ROGER D. ATTIX
-------------------------------
Roger D. Attix, Vice President
EXHIBIT A
EVENTS OF DEFAULT
B.B. Walker Company's violation of each of the following covenants, measured
pursuant to its financial statements dated October 28, 1995, constituted a
separate Event of Default under the Credit Agreement dated August 15, 1995 by
and between B.B. Walker Company and Mellon Bank, N.A. (the "Credit
Agreement"):
1) Section 6.01(b) of the Credit Agreement -
Consolidated Leverage Ratio;
2) Section 6.01(c) of the Credit Agreement -
Consolidated Tangible Net Worth; and
3) Section 6.01(e) of the Credit Agreement -
Consolidated Net Income.
Pursuant to a letter dated February 6, 1996 from Mellon Bank, N.A. to B.B.
Walker Company, Mellon Bank, N.A. agreed in principle to address the above-
specified Events of Default in an amendment to the Credit Agreement.
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