FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994 or
-------------
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number I-91
----
INTERCO INCORPORATED
-----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 43-0337683
--------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 South Hanley Road, St. Louis, Missouri 63105
------------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (314) 863-1100
Former name, former address and former fiscal year, if changed
since last report
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
requirement for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the close of the period covered by
this report.
50,027,788 Shares
PART I FINANCIAL INFORMATION
----------------------------
Item 1. Financial Statements
Consolidated Financial Statements for the quarter ended June 30,
1994.
Consolidated Balance Sheet
Consolidated Statement of Operations:
Three Months Ended June 30, 1994
Three Months Ended June 30, 1993
Six Months Ended June 30, 1994
Six Months Ended June 30, 1993
Consolidated Statement of Cash Flows:
Six Months Ended June 30, 1994
Six Months Ended June 30, 1993
Notes to Consolidated Financial Statements
Separate financial statements and other disclosures with respect
to the Company's subsidiaries are omitted as such separate
financial statements and other disclosures are not deemed
material to investors.
The financial statements are unaudited, but include all
adjustments (consisting of normal recurring adjustments) which
the management of the Company considers necessary for a fair
presentation of the results of the period. The results for the
three months and six months ended June 30, 1994 are not
necessarily indicative of the results to be expected for the full
year.
<TABLE>
INTERCO INCORPORATED
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
(Unaudited)
<CAPTION>
June 30, December 31,
1994 1993
ASSETS ----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents....................... $ 32,665 $ 45,286
Receivables, less allowances of $9,720
($7,208 at December 31, 1993)................. 325,951 277,691
Inventories...........................(Note 1).. 381,606 341,808
Prepaid expenses and other current assets....... 36,041 36,159
----------- -----------
Total current assets.......................... 776,263 700,944
----------- -----------
Property, plant and equipment..................... 272,687 254,998
Less accumulated depreciation................... 55,583 38,697
----------- -----------
Net property, plant and equipment............. 217,104 216,301
----------- -----------
Reorganization value in excess of amounts
allocable to identifiable assets, net........... 94,494 97,107
Trademarks and trade names, net................... 151,261 153,248
Other assets...................................... 42,467 38,079
----------- -----------
$ 1,281,589 $ 1,205,679
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes and loans payable......................... $ 51,200 $ -
Current maturities of long-term debt............ 10,563 9,305
Accrued interest expense........................ 4,930 4,731
Accounts payable and other accrued expenses..... 150,427 139,910
Income taxes payable............................ 6,111 13,083
----------- -----------
Total current liabilities..................... 223,231 167,029
=========== ===========
Long-term debt, less current maturities.(Note 2)..
Other long-term liabilities....................... 568,597 576,804
122,885 123,289
Shareholders' Equity:
Preferred stock, authorized 10,000,000
shares, no par value - issued none............
Common stock, authorized 100,000,000 shares, - -
$1.00 stated value - issued 50,027,788
shares at June 30, 1994 and 50,004,282
shares at December 31, 1993...................
Paid-in capital................................. 50,028 50,004
Retained earnings............................... 226,598 226,391
Total shareholders' equity.................... 90,250 62,162
----------- -----------
366,876 338,557
----------- -----------
$ 1,281,589 $ 1,205,679
=========== ===========
</TABLE>
<TABLE>
3<PAGE>
INTERCO INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands except per share data)
(Unaudited)
<CAPTION>
Three Months Three Months
Ended Ended
June 30, June 30,
1994 1993
------------ ------------
<S> <C> <C>
Net sales..................................... $ 451,300 $ 404,352
Cost of sales................................. 303,545 272,920
------------ ------------
Gross profit.................................. 147,755 131,432
Selling, general and administrative expenses.. 117,492 106,315
Royalty income................................ 3,025 3,014
------------ ------------
Earnings from operations...................... 33,288 28,131
Interest expense.............................. 13,922 13,844
Other income, net............................. 115 90
------------ ------------
Earnings before income tax expense............ 19,481 14,377
Income tax expense............................ 8,138 5,476
------------ ------------
Net earnings.................................. $ 11,343 $ 8,901
============ ============
Net earnings per common share:
Primary..................................... $ 0.22 $ 0.17
====== ======
Fully diluted............................... $ 0.22 $ 0.17
====== ======
Weighted average common and common equivalent
shares outstanding:
Primary..................................... 51,576,218 51,486,285
========== ==========
Fully diluted............................... 51,910,818 51,700,630
========== ==========
</TABLE>
<TABLE>
INTERCO INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands except per share data)
(Unaudited)
<CAPTION>
Six Months Six Months
Ended Ended
June 30, June 30,
1994 1993
---------- ----------
<S> <C> <C>
Net sales..................................... $ 914,043 $ 821,215
Cost of sales................................. 613,835 552,189
---------- ----------
Gross profit.................................. 300,208 269,026
Selling, general and administrative expenses.. 232,538 209,762
Royalty income................................ 5,873 5,748
---------- ----------
Earnings from operations...................... 73,543 65,012
Interest expense.............................. 27,516 27,773
Other income, net............................. 118 435
---------- ----------
Earnings before income tax expense............ 46,145 37,674
Income tax expense............................ 19,125 14,375
---------- ----------
Net earnings.................................. $ 27,020 $ 23,299
========== ==========
Net earnings per common share:
Primary..................................... $ 0.52 $ 0.45
====== ======
Fully diluted............................... $ 0.52 $ 0.45
====== ======
Weighted average common and common equivalent
shares outstanding:
Primary..................................... 51,576,218 51,486,285
========== ==========
Fully diluted............................... 51,910,818 51,700,630
========== ==========
</TABLE>
<TABLE>
INTERCO INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<CAPTION>
Six Months Six Months
Ended Ended
June 30, June 30,
1994 1993
---------- ----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net earnings......................................... $ 27,020 $ 23,299
Adjustments to reconcile net earnings to net
cash used by operating activities:
Depreciation of property, plant and equipment.... 17,335 15,215
Amortization of intangible assets................ 3,517 3,517
Increase in receivables.......................... (48,260) (30,060)
Increase in inventories.......................... (39,798) (37,413)
(Increase) decrease in prepaid expenses and
other assets................................... (1,833) 921
Increase (decrease) in accounts payable, accrued
interest expense and other accrued expenses.... 10,716 (1,948)
Decrease in income taxes payable................. (6,972) (1,108)
Decrease in net deferred tax liabilities......... (552) (355)
Increase (decrease) in other long-term
liabilities.................................... (236) 995
----------- -----------
Net cash used by operating activities................ (39,063) (26,937)
----------- -----------
Cash Flows from Investing Activities:
Proceeds from the disposal of assets................. 404 103
Additions to property, plant and equipment........... (18,444) (14,124)
----------- -----------
Net cash used by investing activities................ (18,040) (14,021)
----------- -----------
Cash Flows from Financing Activities:
Net change in notes and loans payable................ 51,200 35,000
Addition to long-term debt........................... 8,000 -
Payments of long-term debt........................... (14,949) (27,458)
Proceeds from the issuance of common stock........... 231 1
----------- -----------
Net cash provided by financing activities............ 44,482 7,543
----------- -----------
Net decrease in cash and cash equivalents.............. (12,621) (33,415)
Cash and cash equivalents at beginning of period....... 45,286 68,055
----------- -----------
Cash and cash equivalents at end of period............. $ 32,665 $ 34,640
=========== ===========
Supplemental Disclosure:
Cash payments for income taxes, net.................. $ 25,933 $ 15,064
=========== ===========
Cash payments for interest expense................... $ 27,317 $ 27,634
=========== ===========
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Inventories are summarized as follows, in thousands:
June 30, December 31,
1994 1993
----------- -----------
Retail merchandise $ 68,301 $ 67,690
Finished products 196,120 164,958
Work-in-process 42,650 41,419
Raw materials 74,535 67,741
----------- -----------
$ 381,606 $ 341,808
=========== ===========
(2) On January 21, 1994, the Company entered into a secured
obligation with the Mississippi Business Finance Corporation
to finance the construction of a new furniture manufacturing
facility in Tupelo, Mississippi. The industrial revenue
bonds totaled $8.0 million and bear interest at 8.82% per
annum. The bonds mature in annual installments of $0.8
million beginning January 15, 1995 and are secured by the
facility and equipment included therein.
On February 11, 1994 and March 11, 1994, the Company made
optional prepayments on the Secured Term Loan and 8.5%
Secured Notes totaling $10.0 million. The optional
prepayments were made on a pro rata basis among these debt
instruments and were applied to the forward order of
maturity of each such instrument in accordance with the
provisions of the credit agreement and indenture.
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
RESULTS OF OPERATIONS
INTERCO INCORPORATED (the "Company") is a major manufacturer of
residential furniture and one of the leading manufacturers and
retailers of footwear through two operating segments. The
furniture segment consists of Broyhill Furniture Industries, Inc.
and The Lane Company, Incorporated and the footwear segment
consists of The Florsheim Shoe Company and Converse Inc.
Comparison of Three Months and Six Months Ended June 30, 1994 and
-----------------------------------------------------------------
1993
----
Net sales of the operating companies, by segment, were as
follows, in millions:
Three Months Ended June 30, Six Months Ended June 30,
1994 1993 1994 1993
------------ ------------ ----------- -----------
Furniture segment $ 272.3 $ 242.2 $ 541.0 $ 488.5
Footwear segment 179.0 162.1 373.0 332.7
------------ ------------ ----------- -----------
$ 451.3 $ 404.3 $ 914.0 $ 821.2
============ ============ =========== ===========
For the three months ended June 30, 1994, sales by the furniture
segment increased $30.1 million, or 12.4%, compared to an
increase for the three months ended June 30, 1993 of 15.8%. For
the six months ended June 30, 1994, sales by the furniture
segment increased $52.5 million, or 10.8%, compared to an
increase of 14.6% for the six months ended June 30, 1993. The
improved sales performance occurred at both Broyhill and Lane and
reflects continued favorable industry conditions and customer
acceptance of new products and marketing programs.
In the footwear segment, sales for the three months and six
months ended June 30, 1994 were up $16.9 million, or 10.4%, and
$40.3 million, or 12.1%, respectively, from the same periods in
the prior year which realized an increase of 10.9% and 4.0% for
the three months and six months ended June 30, 1993,
respectively. The sales increase for both periods occurred
primarily at Converse and is attributable to higher shipments of
performance basketball, athleisure (canvas), sports training and
children's footwear to domestic accounts. Converse's
international business, although generally weak during the first
half of 1994, is improving. Florsheim's sales were up moderately
for the three months ended June 30, 1994 and generally flat for
the first half of 1994 versus the prior year.
Earnings from operations were as follows, in millions:
Three Months Ended June 30, Six Months Ended June 30,
1994 1993 1994 1993
------------ ------------ ----------- -----------
Earnings before
interest expense,
income taxes,
depreciation and
amortization, and
other income and
expense (EBITDA):
Furniture segment $ 33.0 $ 29.1 $ 65.3 $ 59.6
Footwear segment 14.2 11.8 35.9 30.4
------------ ------------ ----------- -----------
47.2 40.9 101.2 90.0
Corporate administration (2.5) (2.3) (5.0) (4.7)
Miscellaneous expenses (1.2) (1.1) (1.8) (1.6)
------------ ------------ ----------- -----------
43.5 37.5 94.4 83.7
Depreciation and
amortization (10.3) (9.4) (20.9) (18.7)
------------ ------------ ----------- -----------
Earnings from
operations $ 33.2 $ 28.1 $ 73.5 $ 65.0
============ ============ =========== ===========
EBITDA of the combined operating segments for the three months
and six months ended June 30, 1994 was 10.5% and 11.1%,
respectively, of net sales, compared to 10.1% and 11.0%,
respectively, for the three months and six months ended June 30,
1993. Furniture segment EBITDA for the three months ended June
30, 1994 was 12.1% of net sales, compared to 12.0% for the same
period last year. For the six months ended June 30, 1994,
furniture segment EBITDA was 12.1% of net sales, versus 12.2% for
the comparable prior year period. The EBITDA performance of the
furniture segment reflects sales of higher margin products,
primarily at Broyhill, offset by start-up costs attributable to
Lane's new Tupelo, Mississippi furniture factory and Altavista,
Virginia finishing facility.
As a percent of net sales, footwear segment EBITDA for the three
months and six months ended June 30, 1994 was 7.9% and 9.6%,
respectively, compared to 7.3% and 9.1% for the same periods in
the prior year. The improved EBITDA performance of the footwear
segment occurred at Converse due primarily to sales volume
increases coupled with improved gross margins.
Interest expense totaled $13.9 million and $27.5 million for the
three months and six months ended June 30, 1994, respectively,
compared to $13.9 million and $27.8 million in the prior year
comparable periods. The decrease in interest expense for the six
months ended June 30, 1994 resulted from a reduction of long-term
debt outstanding versus the prior year, partially offset by an
increase in loans attributable to seasonal borrowings from the
Company's working capital facility. Interest rates on
substantially all of the long-term debt are fixed and, therefore,
do not materially impact year-to-year comparisons of interest
expense.
For the three months and six months ended June 30, 1994, the
effective income tax rate was 41.8% and 41.4%, respectively,
compared to the effective income tax rate in the prior year
periods of 38.1% and 38.2%, respectively. The effective tax
rates for each period were adversely impacted by certain
nondeductible expenses incurred and provisions for state, local
and foreign taxes.
Net earnings per common share on both a primary and fully diluted
basis were $0.22 and $0.52, respectively, for the three months
and six months ended June 30, 1994, compared to $0.17 and $0.45
for the same periods last year, respectively. Average common and
common equivalent shares outstanding used in the calculation of
net earnings per common share on a primary and fully diluted
basis were 51,576,218 and 51,910,818, respectively, for the three
months and six months ended June 30, 1994 and 51,486,285 and
51,700,630, respectively, for the three months and six months
ended June 30, 1993.
FINANCIAL CONDITION
Working Capital
---------------
Cash and cash equivalents at June 30, 1994 amounted to $32.7
million, compared to $45.3 million at December 31, 1993. During
the six months ended June 30, 1994, net cash used by operating
activities totaled $39.1 million, net cash used by investing
activities totaled $18.0 million and net cash provided by
financing activities totaled $44.5 million.
Working capital was $553.0 million at June 30, 1994, compared to
$533.9 million at December 31, 1993. The current ratio was 3.5
to 1 at June 30, 1994, compared to 4.2 to 1 at December 31, 1993.
Financing Arrangements
----------------------
As of June 30, 1994, long-term debt, including current
maturities, consisted of the following, in millions:
Principal
Amount
---------
10.0% Secured Notes Due 2001 $ 104.7
9.0% Secured Notes Due 2004 149.2
8.5% Secured Notes Due 1997 7.3
Secured Term Loan 279.9
ILGWU Fund Note 13.9
Industrial Revenue Bonds 20.6
Federal Tax Obligation 3.6
$ 579.2
On January 21, 1994, the Company entered into a secured
obligation with the Mississippi Business Finance Corporation to
finance the construction of a new furniture manufacturing
facility in Tupelo, Mississippi. The industrial revenue bonds
totaled $8.0 million and bear interest at 8.82% per annum. The
bonds mature in annual installments of $0.8 million beginning on
January 15, 1995 and are secured by the facility and equipment
included therein.
On February 11, 1994 and March 11, 1994, the Company made
optional prepayments on the Secured Term Loan and 8.5% Secured
Notes totaling $10.0 million. The optional prepayments were made
on a pro rata basis among these debt instruments and were applied
to the forward order of maturity of each such instrument in
accordance with the provisions of the credit agreement and
indenture.
To meet short-term working capital and other financial
requirements, the Company maintains a $148 million working
capital facility with a group of banks. The working capital
facility, which was increased during the six months ended June
30, 1994 from its previous level of $135 million, allows for both
issuance of letters of credit and cash borrowings. Letter of
credit issuances are limited to no more than $100 million; cash
borrowings are limited only by the facility's maximum
availability less letters of credit outstanding. Maximum
availability under the facility is determined by the amount of
eligible accounts receivable and inventory at each month end
(referred to in aggregate as a "borrowing base"). As of June 30,
1994, the Company's borrowing base pertaining to the facility
totaled $318.2 million.
At June 30, 1994, $50.0 million in cash borrowings and $69.1
million in letters of credit were outstanding under the working
capital facility.
The Company believes its working capital facility, together with
cash generated from operations, will be adequate to meet
liquidity requirements for the foreseeable future.
PART II OTHER INFORMATION
Item 5. Other Information
On August 9, 1994, the Company announced that,
with a view toward improving shareholder value, it is
evaluating a number of capital structure alternatives
including, among others, an initial public offering
and/or spin off to shareholders involving all or a
portion of the common stock of one or both of its
footwear operating companies which would also involve a
refinancing of the Company's existing debt. Smith
Barney Inc. has been acting as a financial advisor to
assist the Company in this evaluation which is expected
to be completed by the end of August.
Item 6. Exhibits and Reports on Form 8-K
(a) 4(a). Third Amendment, dated as of June 10, 1994, to
the Secured Term Loan Agreement, dated as of
July 16, 1992, among the Company, certain
Subsidiary Obligors, Morgan Guaranty Trust
Company of New York, as Agent, and as
Administrative Agent, and the banks named
therein.
11. Statement re Computation of Net Earnings Per
Common Share.
(b) A form 8-K was not required to be filed during the
quarter ended June 30, 1994.
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
INTERCO INCORPORATED
(Registrant)
By Steven W. Alstadt
---------------------------
Steven W. Alstadt
Controller and Chief
Accounting Officer
Date: August 12, 1994
<TABLE>
EXHIBIT 11
INTERCO INCORPORATED
STATEMENT RE COMPUTATION OF NET EARNINGS PER COMMON SHARE
---------------------------------------------------------
<CAPTION>
Six Months Six Months
Ended Ended
June 30, June 30,
1994 1993
---------- ----------
<S> <C> <C>
Primary:
Weighted average common shares outstanding during the period......... 50,021,904 50,000,055
Common shares issuable on exercise of stock options (1).............. 861,414 880,706
Common shares issuable on exercise of warrants (2)................... 692,900 605,524
---------- ----------
Weighted average common and common equivalent shares outstanding for
primary calculation................................................ 51,576,218 51,486,285
========== ==========
Fully diluted:
Weighted average common and common equivalent shares outstanding for
primary calculation................................................ 51,576,218 51,486,285
Common shares issuable on exercise of stock options (3).............. 61,338 48,779
Common shares issuable on exercise of warrants (4)................... 273,262 165,566
---------- ----------
Weighted average common and common equivalent shares outstanding for
fully diluted calculation......................................... 51,910,818 51,700,630
========== ==========
</TABLE>
EXHIBIT 11 (CONTINUED)
INTERCO INCORPORATED
NOTES TO STATEMENT RE COMPUTATION OF NET EARNINGS PER COMMON
SHARE
(1) Includes common stock options, the exercise of which would
result in dilution of net earnings per common share. Such
common stock options have been considered as exercised and
the proceeds therefrom were used to purchase common stock at
the average common stock market price, if the average common
stock market price was higher than the common stock option
exercise price during the period.
(2) Includes common stock warrants, the exercise of which would
result in dilution of net earnings per common share. Such
common stock warrants have been considered as exercised and
the proceeds therefrom were used to purchase common stock at
the average common stock market price, if the average common
stock market price was higher than the common stock warrant
exercise price during the period.
(3) Additional common shares issuable resulting from the
application of the same principles described in Note (1),
except that the proceeds from assumed common stock options
exercised were used to purchase common stock at the month
end common stock market price, if the month end common stock
market price was higher than the average common stock market
price during the period.
(4) Additional common shares issuable resulting from the
application of the same principles described in Note (2),
except that the proceeds from assumed common stock warrants
exercised were used to purchase common stock at the month
end common stock market price, if the month end common stock
market price was higher than the average common stock market
price during the period.
Exhibit 4(a)
THIRD AMENDMENT TO SECURED TERM LOAN AGREEMENT
----------------------------------------------
THIRD AMENDMENT dated as of June 15, 1994, among
INTERCO INCORPORATED, a Delaware corporation, the SUBSIDIARY
OBLIGORS listed on the signature pages hereof, the BANKS
listed on the signature pages hereof, MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as Agent, in its capacity as Agent for
the Banks, and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as
Administrative Agent, in its capacity as Administrative
Agent for the Banks.
WITNESSETH:
WHEREAS, the parties hereto (other than Converse
Europe, Inc., Converse Germany, Inc. and Action Transport,
Inc. (together, the "New Subsidiary Obligors")) have entered
into a Secured Term Loan Agreement dated as of July 16,
1992, relating to the issuance of evidence of indebtedness
to the Banks in the amount of $315,526,233 in connection
with the Borrowers' Plan of Reorganization, a First
Amendment to Secured Term Loan Agreement dated as of October
15, 1992 and a Second Amendment to Secured Term Loan
Agreement dated as of April 20, 1994 (together, the "Loan
Agreement"); and
WHEREAS, Converse Inc., a Subsidiary Obligor under
the Loan Agreement, has formed Converse Europe, Inc., a
Delaware corporation as its wholly-owned Subsidiary, and
Converse Europe, Inc. has formed Converse Germany, Inc., a
Delaware corporation as its wholly-owned Subsidiary; and
WHEREAS, Action Industries, Inc., a Subsidiary
Obligor under the Loan Agreement, has formed Action
Transport, Inc., a Delaware corporation as its wholly-owned
Subsidiary; and
WHEREAS, the parties hereto desire to enter into
this Third Amendment to provide for the New Subsidiary
Obligors to become Subsidiary Obligors as required by
Section 5.08(d) of the Loan Agreement, and to amend certain
provisions of the Loan Agreement as hereinafter set forth;
NOW THEREFORE, in consideration of the premises
and the mutual agreements set forth herein, the parties
hereto agree as follows:
1. Definitions. Unless otherwise specifically
defined herein, each term used herein which is defined in
the Loan Agreement shall have the meaning assigned to such
term in the Loan Agreement.
2. New Subsidiary Obligors. Each of the New
Subsidiary Obligors agrees that, on and after the date
hereof, it (i) is a co-obligor of the Loan and a Subsidiary
Obligor under the Loan Agreement, (ii) will perform all of
the obligations of a Subsidiary Obligor under the Loan
Agreement and (iii) is bound in all respects by the terms of
the Loan Agreement as if it were an original Subsidiary
Obligor thereunder and signatory party thereto; provided
that the obligations of each New Subsidiary Obligor under
the Loan Agreement and the Bank Term Notes are limited to an
aggregate amount that would not render its obligations
hereunder and thereunder subject to avoidance under Section
548 of the United States Bankruptcy Code or any comparable
provisions of any applicable state law.
3. Amendment of Schedule II. Schedule II to the
Loan Agreement is amended by adding to the list of domestic
Subsidiaries the following:
Name of Domestic Jurisdiction of
Subsidiary Incorporation
*Converse Europe, Inc. Delaware
*Converse Germany, Inc. Delaware
*Action Transport, Inc. Delaware
Converse Benelux Holding Delaware
Company, Inc.
Converse France, Inc. Delaware
Converse Benelux, Inc. Delaware
------------
* Subsidiary Obligor
4. Amendment of Section 5.08(d). Section
5.08(d) of the Loan Agreement is amended by inserting at the
end thereof the following proviso: "provided that
notwithstanding the foregoing, (i) Converse Germany, Inc.
shall not be required to pledge its assets under the Shared
Collateral Security Documents until the Borrowers' aggregate
Investments in Converse Germany, Inc. exceed $10,000,000,
(ii) Action Transport, Inc. shall not be required to pledge
its assets under the Shared Collateral Security Documents
until the Borrowers' aggregate Investments in Action
Transport, Inc. exceed $3,000,000 and (iii) the Borrowers'
aggregate Investments in Converse Benelux Holding Company,
Inc. and its Subsidiaries shall not exceed $10,000,000;"
5. Authorization of Collateral Trustees. Each
of the Banks authorizes the Collateral Trustees to execute a
First Amendment to Junior Pledge Agreement substantially in
the form of Exhibit A hereto (the "Pledge Agreement
Amendment"), a First Amendment to Junior Security Agreement
substantially in the form of Exhibit B hereto (the "Security
Agreement Amendment") and a First Amendment to Shared
Collateral Trust Agreement substantially in the form of
Exhibit C hereto (the "Trust Agreement Amendment").
6. Representations and Warranties. Each of the
Borrowers, including without limitation the New Subsidiary
Obligors, jointly and severally represents and warrants that
the representations and warranties set forth in Article IV
of the Loan Agreement as amended by this Third Amendment are
true and correct as of the date hereof.
7. No Other Waivers or Amendments. Except as
expressly provided herein, this Third Amendment shall not
operate as a waiver or amendment of any right, power or
privilege of the Banks under the Loan Agreement. Except as
expressly modified hereby, all of the terms and conditions
of the Loan Agreement shall remain unaltered and in full
force and effect.
8. Counterparts; Effectiveness. This Third
Amendment may be signed in any number of counterparts, each
of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same
instrument. This Third Amendment shall become effective as
of the date hereof when the Agent shall have received:
(i) executed counterparts hereof signed by the
Borrowers and the Required Banks or, in the case of any
Bank, receipt by the Agent of facsimile or other
written confirmation from such Bank that it has
executed a counterpart hereof;
(ii) a Bank Term Note for the account of each
Bank, duly executed by each of the Borrowers, including
without limitation the New Subsidiary Obligors;
(iii) a Pledge Agreement Amendment, duly executed
by INTERCO, the Subsidiaries listed on the signature
pages thereof and the Collateral Trustees;
(iv) a Security Agreement Amendment duly executed
by INTERCO, the Subsidiaries listed on the signature
pages thereof and the Collateral Trustees;
(v) a Trust Agreement Amendment, duly executed by
INTERCO, the Subsidiaries listed on the signature pages
thereof and the Collateral Trustees;
(vi) an opinion of Lynn Chipperfield, counsel for
the Borrowers, substantially in the form of Exhibit D
hereto; and
(vii) a written confirmation from the Working
Capital Agent that its consent is not required or has
been given to the First Amendment, the Second Amendment
and the Third Amendment pursuant to paragraph 3 of the
Intercreditor Agreement dated as of July 16, 1992 among
the Agent, the Administrative Agent, The Connecticut
National Bank, as trustee, Security Pacific National
Trust Company (New York), as trustee, the Collateral
Trustees, ILGWU National Retirement Fund, BT Commercial
Corporation, as agent under the Secured Working Capital
Agreement and the lenders under the Secured Working
Capital Agreement.
9. Governing Law. This Third Amendment shall be
governed by and construed in accordance with the laws of the
State of New York.
IN WITNESS WHEREOF, the parties hereto have
executed this Third Amendment as of the day and year first
above written.
BORROWERS
Attest: INTERCO INCORPORATED
Duane A. Patterson By: Eugene F. Smith
----------------------- ------------------------
Name: Duane A. Patterson Name: Eugene F. Smith
Title: Vice President Title: Executive Vice President
and Secretary
SUBSIDIARY OBLIGORS
BROYHILL FURNITURE INDUSTRIES, INC.
BROYHILL TRANSPORT, INC.
CONVERSE INC.
CONVERSE EMEA, LTD.
CONVERSE STAR I, INC.
CONVERSE STAR II, INC.
THE FLORSHEIM SHOE STORE COMPANY -
MIDWEST
THE FLORSHEIM SHOE STORE COMPANY -
NORTHEAST
THE FLORSHEIM SHOE STORE COMPANY -
WEST
HY-TEST, INC.
THE LANE COMPANY, INCORPORATED
LANE ADVERTISING, INC.
ACTION INDUSTRIES, INC.
L. J. O'NEILL SHOE COMPANY
CONVERSE EUROPE, INC.
CONVERSE GERMANY, INC.
ACTION TRANSPORT, INC.
Attest:
Robert L. Kaintz By: Duane A. Patterson
----------------------- ---------------------
Name: Robert L. Kaintz Name: Duane A. Patterson
Title: Assistant Secretary Title: Vice President
AGENT
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
By: Kevin J. O'Brien
------------------------
Name: Kevin J. O'Brien
Title: Vice President
ADMINISTRATIVE AGENT
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
By: Kevin J. O'Brien
------------------------
Name: Kevin J. O'Brien
Title: Vice President
BANKS
THE ASAHI BANK, LTD.,
CHICAGO BRANCH
By: Junichi Yamada
------------------------
Name: Junichi Yamada
Title: Senior Deputy General
Manager
THE BANK OF NEW YORK
By: Richard P. Hebner
------------------------
Name: Richard P. Hebner
Title: Vice President
BANQUE NATIONALE DE PARIS
By: Arnaud Collin du Bocage
------------------------
Name: Arnaud Collin du Bocage
Title: Executive Vice President
and General Manager
BANQUE WORMS CAPITAL CORP.
By: Dominique Picon
------------------------
Name: Dominique Picon
Title: Chief Executive
Officer
CHUO TRUST & BANKING COMPANY
LIMITED, NEW YORK AGENCY
By: ________________________
Name:
Title:
COMMERZBANK, A. G. GRAND CAYMAN BRANCH
By: Kalyan Basu
------------------------
Name: Kalyan Basu
Title: First Vice President
By: Paul Karlin
------------------------
Name: Paul Karlin
Title: Assistant Cashier
CRESCENT CAPITAL CORPORATION
as Portfolio Manager and
as Attorney-in-Fact for
Crescent/Mach I, L.P.
By: Mark Gold
------------------------
Name: Mark Gold
Title: Managing Director
THE DAI-ICHI KANGYO BANK LIMITED
By: ________________________
Name:
Title:
THE DAIWA BANK, LTD.
By: ________________________
Name:
Title:
THE FUJI BANK LIMITED
By: Hidekazu Seo
------------------------
Name: Hidekazu Seo
Title: Joint General Manager
THE HOKKAIDO TAKUSHOKU BANK, LIMITED
By: ________________________
Name:
Title:
THE INDUSTRIAL BANK OF JAPAN, LIMITED
By: Hiroaki Nakamura
------------------------
Name: Hiroaki Nakamura
Title: Joint General Manager
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED
By: Armund J. Schoen, Jr.
------------------------
Name: Armund J. Schoen, Jr.
Title: Vice President and
Deputy General Manager
MERCANTILE BANK OF ST. LOUIS, N.A.
By: Arnold J. Conrad
------------------------
Name: Arnold J. Conrad
Title: Vice President
THE MITSUI TRUST AND BANKING
CO., LIMITED
By: Kiichiro Kondo
------------------------
Name: Kiichiro Kondo
Title: Senior Vice President
and Manager
J.P. MORGAN DELAWARE
By: Robert J. Henchey
------------------------
Name: Robert J. Henchey
Title: Vice President
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: Kevin O'Brien
------------------------
Name: Kevin O'Brien
Title: Vice President
NATIONAL CITY BANK
By: Jeffrey J. Tengel
------------------------
Name: Jeffrey J. Tengel
Title: Vice President
THE NIPPON CREDIT BANK, LTD.
By: Ronald A. Fisher
------------------------
Name: Ronald A. Fisher
Title: Vice President
PEARL STREET L.P.
By: Robert J. O'Shea
------------------------
Name: Robert J. O'Shea
Title: Authorized Signatory
PROTECTIVE LIFE INSURANCE COMPANY
By: Mark K. Okada
------------------------
Name: Mark K. Okada
Title: Principal
RYOSHIN LEASING (USA) INC.
By: ________________________
Name:
Title:
THE SAKURA BANK, LIMITED
By: Hajime Miyagi
------------------------
Name: Hajime Miyagi
Title: Deputy General Manager
SALOMON BROTHERS INC.
By: Mark A. Brostowski
------------------------
Name: Mark A. Brostowski
Title: Director
SANWA BANK LIMITED, CHICAGO BRANCH
By: ________________________
Name:
Title:
THE SUMITOMO BANK LIMITED
By: ________________________
Name:
Title:
THE TOKAI BANK LIMITED
By: Tatsuo Ito
------------------------
Name: Tatsuo Ito
Title: Joint General Manager
TOYO TRUST & BANKING COMPANY
LIMITED, NEW YORK AGENCY
By: ________________________
Name:
Title:
