SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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, 1996
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 1-11812
STARTER CORPORATION
(exact name of registrant as specified in its charter)
Delaware 06-0872266
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification
No.)
incorporation or organization)
370 James Street, New Haven, Connecticut 06513
-----------------------------------------------
(Address of principal executive offices, including zip code)
(203) 781-4000
--------------
(Registrant's telephone number, including area code)
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
---------- ------------
26,844,513 shares of common stock, $.01 par value, were outstanding as of
August 2, 1996.
1
<PAGE>
INDEX
STARTER CORPORATION
Page Number
PART 1 Financial Information
ITEM 1 Consolidated Financial Statements (unaudited)
Consolidated balance sheets - June 30, 1996,
December 31, 1995 and June 30, 1995 3
Consolidated statements of operations - Three and six month
periods ended June 30, 1996 and June 30, 1995 5
Consolidated statements of cash flows - Six months
ended June 30, 1996 and June 30, 1995 6
Notes to consolidated financial statements -
June 30, 1996 7
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II Other Information
ITEM 4 Submission of Matters to a Vote of Security Holders 13
ITEM 6 Exhibits and Reports on Form 8-K 14
Signature 15
2
<PAGE>
STARTER CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE><CAPTION>
June 30, 1996 December 31, 1995 June 30, 1995
------------- ----------------- -------------
(unaudited) (note) (unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,008 $ 4,506 $ 1,542
Accounts receivable - trade, less allowance for
doubtful accounts of $3,000 at June 30,
1996, $3,800 at December 31, 1995 and
$3,700 at June 30, 1995 43,794 44,564 53,553
Inventories 103,673 61,460 73,325
Prepaid expenses and other assets 10,635 16,682 17,870
Deferred income taxes 10,081 9,629 15,073
-------- -------- -------
Total current assets 170,191 136,841 161,363
Property, plant and equipment:
Land and building 12,846 12,835 12,835
Machinery and equipment 16,401 16,268 15,912
Leasehold improvements 3,453 3,376 3,187
-------- -------- -------
32,700 32,479 31,934
Less accumulated depreciation
and amortization 7,315 6,159 4,981
-------- -------- -------
25,385 26,320 26,953
Other assets:
Other assets (primarily trademarks) 2,526 2,640 2,868
Deferred income taxes 523 523 1,121
Other investments 1,362 1,362 1,362
-------- -------- -------
Total other assets 4,411 4,525 5,351
-------- -------- -------
Total assets $199,987 $167,686 $193,667
-------- -------- -------
-------- -------- -------
</TABLE>
3
<PAGE>
STARTER CORPORATION
CONSOLIDATED BALANCE SHEETS (Continued)
(in thousands, except share data)
<TABLE><CAPTION>
June 30, 1996 December 31, 1995 June 30, 1995
------------- ----------------- -------------
(unaudited) (note) (unaudited)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $62,792 $21,729 $66,741
Accounts payable 11,452 8,585 5,632
Accrued commissions 2,249 2,980 2,066
Accrued licensing fees 7,615 7,517 7,543
Accrued expenses 12,092 14,763 8,963
Accrued advertising 5,274 7,692 4,869
Current portion of long-term debt 1,749 1,749 1,844
------ ------ ------
Total current liabilities 103,223 65,015 97,658
Long-term debt, less current portion 7,056 7,828 8,807
Stockholders' equity:
Convertible Preferred stock ($.01 par value)
5,000,000 authorized shares, 408,164 shares issued
at December 31, 1995 and June 30, 1995 4 4
Common Stock ($.01 par value)
50,000,000 shares authorized; issued
26,843,249 at June 30, 1996,
26,425,643 at December 31, 1995 and
26,417,264 at June 30, 1995 268 264 264
Additional paid in capital 75,197 75,133 75,076
Retained earnings 14,243 19,442 11,858
------ ------ ------
Total stockholders' equity 89,708 94,843 87,202
------ ------ ------
Total liabilities and stockholders' equity $199,987 $167,686 $193,667
------ ------ ------
------ ------ ------
</TABLE>
Note: The consolidated balance sheet at December 31, 1995 has been
derived from the audited financial statements at that date,
but does not include all of the information and footnotes
required by generally accepted accounting principles for
complete financial statements.
See accompanying notes.
4
<PAGE>
STARTER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
<TABLE><CAPTION>
Three Months Ended Six Months Ended
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $62,765 $53,242 $122,060 $119,952
Cost of sales 42,916 39,112 84,025 86,758
------- ------- ------- -------
19,849 14,130 38,035 33,194
Royalty income 568 574 1,190 1,030
Selling, general & administrative expenses
24,816 20,410 46,287 42,914
------- ------- ------- -------
Loss from operations (4,399) (5,706) (7,062) (8,690)
Other income 110 117 208 130
----- ----- ------ -----
(4,289) (5,589) (6,854) (8,560)
Interest expense 1,083 1,252 1,762 2,001
------ ------ ------ ------
Loss before income taxes (5,372) (6,841) (8,616) (10,561)
Income tax benefit (2,148) (2,712) (3,417) (4,200)
------- ------- ------- -------
Net loss ($3,224) ($4,129) ($5,199) ($6,361)
======== ======== ======== ========
Loss per share ($.12) ($.15) ($.19) ($.24)
====== ====== ====== ======
Average common and common
equivalent shares 26,840,977 26,823,620 26,838,528 26,822,722
========== ========== ========== ==========
</TABLE>
See accompanying notes.
5
<PAGE>
STARTER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six Months Ended
June 30, 1996 June 30, 1995
------------- -------------
Cash flows from operating activities
Net loss ($5,199) ($6,361)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization 1,461 1,330
Provision for bad debts 590 393
Deferred income taxes (452) 815
Changes in operating assets and liabilities:
Accounts receivable 180 (1,388)
Inventories (42,213) 3,878
Prepaid expenses and other assets 6,047 (4,854)
Accounts payable and accrued expenses (2,855) (21,854)
-------- ---------
Net cash used by operating activities (42,441) (28,041)
Cash flows from investing activities
Purchase of property, plant and equipment (221) (1,600)
Purchase of other assets (191) (87)
------- -------
Net cash used by investing activities (412) (1,687)
Cash flows from financing activities
Repayment of long-term borrowings (772) (775)
Net borrowings on credit arrangements 41,063 27,083
Net proceeds from sale of common stock 64 53
Other (570)
---- --------
Net cash provided by financing activities 40,355 25,791
------ -------
Net decrease in cash and cash equivalents (2,498) (3,937)
Cash and cash equivalents - beginning of period 4,506 5,479
------- -------
Cash and cash equivalents - end of period $2,008 $1,542
======== ========
See accompanying notes.
6
<PAGE>
STARTER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1996
1) Basis of Presentation
The accompanying unaudited consolidated financial statements of
STARTER Corporation ("the Company") have been prepared in
accordance with generally accepted accounting principles for
interim financial information and with instructions to Form 10-Q
and Article 10 of Regulation S-X of the Securities and Exchange
Commission. Accordingly, they do not include all the information
and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included.
The Company has experienced, and expects to continue to
experience, variability in net sales and net income (loss) from
quarter to quarter. Therefore, the results of the interim
periods presented herein are not necessarily indicative of the
results to be expected for any other interim period or the full
year.
These consolidated financial statements should be read in
conjunction with the consolidated financial statements and
footnotes thereto for the year ended December 31, 1995 included
in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
2) Inventories
In the second quarter of 1996, the Company changed to the first-
in, first-out (FIFO) method of accounting for inventories from
the last-in, first-out (LIFO) method primarily because the
carrying costs of inventories have declined below the LIFO values
and are not expected to increase above LIFO values in the
foreseeable future. The change did not have any impact on
results of operations in the second quarter and it is anticipated
that the change will not have a material effect on results of
operations for fiscal year 1996. Inventory costs did not differ
significantly under the LIFO method when compared to the FIFO
method for the periods presented in the accompanying financial
statements.
Inventories were as follows (in thousands):
June 30 December 31 June 30
1996 1995 1995
---- ---- ----
Raw materials $13,160 $11,226 $6,874
Work in process 769 847 450
Finished goods 89,744 49,387 66,001
-------- -------- --------
$103,673 $61,460 $73,325
======== ======= =======
7
<PAGE>
3) Credit Arrangement
On May 17, 1996 the Company's $125,000,000 secured credit
facility ("the Credit Facility"), which provides for seasonal
overadvances up to an additional $25 million from April 15
through October 15, was extended through May 31, 1998.
Additionally, on July 24, 1996 the Credit Facility's borrowing
limitations for eligible inventory, as defined, and direct loan
sublimits were amended. The Credit Facility continues to contain
provisions regarding the maintenance of working capital, net
worth and interest coverage, among others, and to place
restrictions on the payment of dividends, distributions, capital
expenditures, capital lease and other financing obligations and
acquisitions of other entities.
4) Commitments and Contingencies
In September 1994, a consolidated and amended class action
lawsuit was filed against the Company and certain directors and
officers, alleging, among other things, that they failed to make
certain disclosures. On July 19, 1996 the court granted the
Company's motion to dismiss the lawsuit without granting the
plaintiffs a right to restate their complaint. The plaintiffs
have until August 19, 1996 to appeal the Court's decision. In
addition, the Company is a party to various lawsuits incidental
to its business. Management believes that the class action
lawsuit, if appealed, and the other various lawsuits will not
have a material adverse effect on the Company's financial
position, results of operations or cash flows.
5) Reclassification
Certain prior year amounts have been reclassified to conform with
the current year presentation.
6) Subsequent Event
On July 31, 1996 the Company entered into an agreement to
purchase substantially all of the assets of Galt Sand Company and
its subsidiaries for approximately $8,000,000, which will be
financed through the issuance of common stock, and the assumption
of all recorded liabilities on the acquisition date. The
anticipated purchase has been approved by the Company's lenders.
8
<PAGE>
ITEM 2
STARTER CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company's business is seasonal with higher sales reported in the second
half of the year due to the higher price points of a significant portion of
the Company's products which are sold during the fall and holiday seasons.
The seasonality of the Company's business also affects borrowings under the
Company's revolving credit agreement. The amount outstanding under the
revolving credit agreement fluctuates as a result of seasonal demands for the
Company's products. Traditional quarterly fluctuations in the Company's
business may vary in the future depending upon, among other things, changes
in order cycles and product mix.
The Company's business is vulnerable to a number of factors beyond its
control. These include (1) player strikes, (2) owner lockouts, (3) work
stoppages, (4) the granting of additional licenses to competitors, some of
which have greater financial resources and manufacturing capabilities than
the Company, and (5) changes in consumer tastes and enthusiasm for spectator
sports. The Company's business can also be affected by other matters which
impact the retail marketplace, including increased credit and inventory
exposure, consolidation and resulting decline in the number of retailers and
other cyclical economic factors. The Company seeks to minimize inventory
exposure by encouraging retailers to place orders five to six months in
advance of the date products are scheduled to be delivered.
A substantial portion of the Company's products are manufactured through
arrangements with independent contractors located in Korea and, to a lesser
extent, other foreign countries. In addition, the Company's import
operations are subject to constraints imposed by bilateral textile agreements
between the United States and a number of foreign countries. The agreements
impose quotas on the amount and type of goods which can be imported into the
United States from these countries. The Company's operations may be
adversely affected by political instability resulting in the disruption of
trade from foreign countries in which the Company's contractors and suppliers
are located, the imposition of additional regulations relating to imports, or
duties and taxes and other charges on imports. The Company is unable to
predict whether any additional regulations, duties, taxes, quotas or other
charges may be imposed on the importation of its products. The assessment of
any of these items could result in increases in the cost of such imports and
affect the sales or profitability of the Company. In addition, the failure
of one or more manufacturers to ship some or all of the Company's orders
could impact the Company's ability to deliver products to its customers on
time. Delays in delivery could result in missing certain retailing seasons
with respect to some or all of the Company's products or could otherwise
adversely affect the Company.
9
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, the percentage
relationship to net sales of certain items in the Company's consolidated
statements of operations.
Comparison of
Three Months Ended Six Months Ended
6/30/96 to 6/30/95 6/30/96 to 6/30/95
------------------ ------------------
Increase (Decrease)
(Dollars in Thousands)
Net Sales $9,523 17.9% $2,108 1.8%
Gross Margin 5,719 40.5% 4,841 14.6%
Royalty income (6) (1%) 160 15.5%
Selling, general &
administrative expenses 4,416 21.6% 3,373 7.9%
Other income 3 2.8% 78 60.0%
Interest expense (169) (13.4%) (239) (11.9%)
Net Loss (904) (21.9%) (1,162) (18.3%)
Net sales for the three and six months ended June 30, 1996 increased by
approximately 17.9% and 1.8%, respectively, as compared to the three and six
months ended June 30, 1995. The increase in the second quarter is primarily
attributable to Olympic licensed product sales.
The gross profit margin as a percent of sales increased to 31.6% and 31.2%
for the three and six months ended June 30, 1996, respectively as compared to
26.5% and 27.7% for the three and six months ended June 30, 1995,
respectively. The increases are primarily attributable to the disposition of
certain written down inventory at depressed margins during the three and six
months ended June 30, 1995 (5.5% and 4.3%, respectively), partially offset by
increased distribution costs and variances during 1996.
Royalty income for the three months ended June 30, 1996 was essentially flat
as compared to the three months ended June 30, 1995. For the six months
ended June 30, 1996 royalty income increased approximately 15.5% primarily as
a result of the addition of new domestic licensees, offset by reduced
royalties from distributors, primarily in Australia and Canada.
10
<PAGE>
Selling, general and administrative expenses increased to 39.5% and 37.9% of
net sales for the three and six months ended June 30, 1996, respectively, as
compared to 38.3% and 35.8% for the three and six months ended June 30, 1995,
respectively. Contributing to the increases for the three and six months
ended June 30, 1996 were higher royalties, commissions, and employee
compensation. Royalties and commission increases are primarily related to
the 1995 amounts having been reduced by the utilization of reserves
established in 1994 to fully reflect the costs of written down inventory in
1994 and sold below cost in 1995. Increased employee compensation was
primarily related to the addition of senior and middle management throughout
1995. Offsetting these increases were decreased advertising and promotional
expenses as a result of a shift in the timing of expenditures compared to
1995.
Interest expense decreases for the three and six months ended June 30, 1996
are primarily attributable to a reduction in overall borrowings in relation
to the comparable periods in 1995.
Liquidity and Capital Resources
The Company's working capital at June 30, 1996 decreased to $67,000,000 from
$72,000,000 at December 31, 1995 primarily as a result of the $5,199,000 net
loss for the six months ended June 30, 1996. Increased inventory levels of
$42,213,000 at June 30, 1996 were funded primarily by increased borrowings
under the revolving line of credit.
The increased inventory levels are primarily due to the receipt of inventory
for shipment of anticipated third quarter orders. Cash used by operations
for the first six months of 1996 was $42,441,000 compared to $28,041,000 for
the comparable 1995 period. The use of cash for the first six months of 1996
was primarily the result of the $5,199,000 loss coupled with the increased
inventory levels.
On May 17, 1996 the Company's $125,000,000 secured credit facility ("the
Credit Facility"), which provides for seasonal overadvances up to an
additional $25 million from April 15 through October 15, was extended through
May 31, 1998. Additionally, on July 24, 1996 the Credit Facility's borrowing
limitations for eligible inventory, as defined, and direct loan sublimits
were amended. The Credit Facility continues to contain provisions regarding
the maintenance of working capital, net worth and interest coverage, among
others, and to place restrictions on the payment of dividends, distributions,
capital expenditures, capital lease and other financing obligations and
acquisitions of other entities.
On July 31, 1996 the Company entered into an agreement to purchase
substantially all of the assets of Galt Sand Company and its subsidiaries for
approximately $8,000,000, which will be financed through the issuance of
common stock, and the assumption of all recorded liabilities on the
acquisition date. The anticipated purchase has been approved by the
Company's lenders.
11
<PAGE>
Under current conditions cash generated by operations, together with funds
available under the Credit Facility, is expected to be able to finance the
Company's planned operations in 1996.
Impact of Inflation
The Company has not experienced significant price increases from product
suppliers in the recent past, nor has it experienced any significant impact
from inflationary factors.
Impact of Recently Issued Accounting Pronouncements
The Company does not expect that any recently issued accounting standards
will have a material impact on the Company's operating results, financial
position or liquidity.
12
<PAGE>
Part II - Other Information
Item 4: Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on May 21, 1996. At the
Annual Meeting the following matters were voted upon:
* The election of Carmen L. Cozza, Mark G. Sklarz and John M. Tucker as
Class III directors.
Carmen L. Cozza
For Withheld
--- --------
26,077,063 172,356
Mark G. Sklarz
For Withheld
--- --------
26,083,346 166,073
John M. Tucker
For Withheld
--- --------
26,080,835 168,584
* The approval of the 1996 Quality Based-Performance Goals relating to
compensation to be paid to certain executive officers.
For Against Abstain No Vote
--- ------- ------- -------
20,929,005 409,315 87,055 4,824,044
* The ratification of Ernst & Young LLP as independent accountants for the
Company for the fiscal year ending December 31, 1996.
For Against Abstain No Vote
--- ------- ------- -------
26,128,547 62,379 58,493 -0-
13
<PAGE>
Item 6: Exhibits and reports on Form 8-K
(a) Exhibits
10.30 Third Amendment to Commercial Revolving Loan and Security
Agreement dated May 17, 1996
10.31 Letter dated July 24, 1996 regarding Amendment of STARTER
Corporation's Commercial Revolving Loan and Security
Agreement dated March 30, 1995, as amended by a First
Amendment dated June 14, 1995, a Second Amendment dated
January 31, 1996, and a Third Amendment dated May 17,
1996
11 Computation of net loss per share for the three and six
months period ended June 30, 1996 and 1995 and for the
six months ended June 30, 1995
18 Letter regarding change in accounting principles
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no Reports on Form 8-K filed during the quarter
ended
June 30, 1996.
14
<PAGE>
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.
STARTER CORPORATION
DATE: AUGUST 8, 1996 /s/ Lawrence C. Longo, Jr.
-----------------------------------------------
Lawrence C. Longo, Jr.
Chief Financial Officer and Chief Accounting Officer
<PAGE>
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.
STARTER CORPORATION
DATE: AUGUST 8, 1996 __________________________________
Lawrence C. Longo, Jr.
Chief Financial Officer and Chief Accounting Officer
EXHIBIT 10.30
THIRD AMENDMENT TO
COMMERCIAL REVOLVING LOAN AND SECURITY AGREEMENT
------------------------------------------------
THIS THIRD AMENDMENT TO COMMERCIAL REVOLVING LOAN AND SECURITY AGREEMENT
is entered into as of the 17th day of May, 1996 by and among BANK OF BOSTON
CONNECTICUT, a savings bank existing under the laws of the State of
Connecticut with a place of business at 127 Church Street, New Haven,
Connecticut 06510, as agent for Fleet Bank, National Association (successor
by merger to NatWest Bank N.A.), The Chase Manhattan Bank, N.A., People's
Bank, BHF-Bank Aktiengelleschaft, CoreStates Bank, N.A., National Bank of
Canada, The Sanwa Bank Limited and Bank of Boston Connecticut ("Agent") and
FLEET BANK, NATIONAL ASSOCIATION, a national banking association having its
principal place of business in Jersey City, New Jersey and having an office
at 1133 Avenue of the Americas, 39th Floor, New York, New York 10036-6710,
successor by merger to NatWest Bank N.A. ("Fleet/New Jersey"), THE CHASE
MANHATTAN BANK, N.A., a national banking association with a place of business
at 1 Chase Manhattan Plaza, New York, New York 10081, ("Chase"), PEOPLE'S
BANK with a place of business at 2 Whitney Avenue, New Haven, Connecticut
06510 ("People's"), BHF-BANK AKTIENGELLESCHAFT (formerly known as BHF-Bank)
with a place of business at 590 Madison Avenue, New York, New York 10022-
2540 ("BHF"), CORESTATES BANK, N.A., with a place of business at
1339 Chestnut Street, Philadelphia, Pennsylvania 19101-7618 ("CoreStates"),
NATIONAL BANK OF CANADA, having a place of business at 125 West 55th Street,
New York, 10019-5366 ("National Bank of Canada"), THE
<PAGE>
SANWA BANK LIMITED, having a place of business at 55 East 52nd Street,
New York, New York 10055 ("Sanwa") and BANK OF BOSTON CONNECTICUT, a savings
bank existing under the laws of the State of Connecticut with a place of
business at 127 Church Street, New Haven, Connecticut 06510, ("Bank of
Boston") (each of Fleet/New Jersey, Chase, People's, BHF, CoreStates,
National Bank of Canada, Sanwa and Bank of Boston, together with any other
financial institution that becomes a party hereto, is sometimes hereafter
individually referred to as a "Bank" and collectively as the "Banks"), FLEET
NATIONAL BANK (formerly known as Fleet National Bank of Connecticut and
successor by merger to Fleet Bank, National Association), a national banking
association with its principal place of business at in Springfield,
Massachusetts ("Fleet/Connecticut"); and STARTER CORPORATION, a Delaware
corporation having a place of business at 370 James Street, New Haven,
Connecticut 06513, ("Borrower").
W I T N E S S E T H:
-------------------
WHEREAS, the Borrower, the Agent, Bank of Boston, Fleet/Connecticut,
NatWest Bank N.A., Chase and People's entered into a Commercial Revolving
Loan and Security Agreement dated March 30, 1995 (the "Original Agreement");
and
WHEREAS, by First Amendment to Commercial Revolving Loan and Security
Agreement dated as of June 14, 1995 (the "First Amendment"), BHF, CoreStates,
National Bank of Canada and Sanwa
2.
<PAGE>
joined the lenders and certain changes were made to the Original Agreement as
set forth in said First Amendment; and
WHEREAS, by Second Amendment to Commercial Revolving Loan and Security
Agreement dated as of January 31, 1996 (the "Second Amendment") certain
further changes were made to the Original Agreement as amended by the First
Amendment as set forth in said Second Amendment (the Original Agreement as
amended by the First Amendment and the Second Amendment is hereinafter
referred to as the "Loan Agreement"); and
WHEREAS, Fleet/New Jersey has become the successor by merger to NatWest
Bank N.A.; and
WHEREAS, Fleet/Connecticut now wishes to withdraw from the Loan
Agreement and to assign its rights and liabilities in connection with the
Fleet Standby L/C (as hereinafter defined) to Fleet/New Jersey, and the
Borrower and the other Banks are willing to agree to such withdrawal and
assignment; and
WHEREAS, the Borrower, the Agent and the Banks now wish to make further
amendments to the Loan Agreement as more fully set forth herein;
NOW, THEREFORE, the Borrower, the Agent, Fleet/Connecticut and the Banks
agree as follows:
1. Revolving Credit Facility. Section 1.1 of the Loan Agreement is
-------------------------
amended and restated to read, in full, as follows:
(A) Revolving Credit Facility.
-------------------------
(i) Amount of Revolving Credit Facility. So long as
-----------------------------------
there exists no Event of Default nor any event which, with
3.
<PAGE>
the passage of time or giving of notice, or both, would become an Event of
Default, but subject to the limitations hereinafter set forth and until the
Termination Date, the Banks will provide to Borrower the Revolving Credit
Facility in the aggregate amount of up to $125,000,000, plus a $25,000,000
seasonal increase to $150,000,000 from April 15 through October 15 of each
year. Each Bank severally agrees that it will extend credit to the Borrower
through the Agent under the Revolving Credit Facility from time to time
during the period from the date hereof up to but not including the
Termination Date in an aggregate principal amount not to exceed at any time
outstanding the lesser of (a) such Bank's Regular Commitment (the "Regular
Commitment")or Seasonal Commitment (the "Seasonal Commitment"), as
applicable, or (b) its Pro Rata Share as set forth below opposite such Bank's
name:
Regular Seasonal Pro Rata
Bank Commitment Commitment Share (%)
---- ---------- ---------- ---------
Bank of Boston $ 29,167,500 $ 35,000,000 23.334%
Chase 20,833,750 25,000,000 16.667
Fleet/New Jersey 20,833,750 25,000,000 16.667
People's 16,665,000 20,000,000 13.332
CoreStates 12,500,000 15,000,000 10.00
BHF 10,000,000 12,000,000 8.00
National Bank of Canada 10,000,000 12,000,000 8.00
Sanwa 5,000,000 6,000,000 4.00
------------ ------------ -----
$125,000,000 $150,000,000 100%
Subject to the limitations contained herein, extensions of credit under
the Revolving Credit Facility may, at the option of the Borrower, take the
form of Advances, Acceptances, Commercial
4.
<PAGE>
L/C's or, upon the approval of all of the Banks, standby letters of credit.
The existing Fleet Standby L/C shall remain outstanding as part of the
Revolving Credit Facility in accordance with its terms until the earlier of
(i) its expiration date, or (ii) the Borrower's reimbursement of Fleet/New
Jersey (as assignee of Fleet/Connecticut) pursuant to the terms of any
reimbursement agreement pertaining to the Fleet Standby L/C upon a draw
thereunder.
(ii) Use of Proceeds of Revolving Credit Facility.
--------------------------------------------
The Revolving Credit Facility shall be used by Borrower as follows: (a) the
proceeds of Advances and Acceptances shall be used for the Borrower's working
capital purposes in the operation of its business; (b) the issuance of
Commercial L/Cs which shall be used for the benefit of Borrower's designated
foreign suppliers for a term not to exceed 120 days, in connection with the
Borrower's importing of materials and finished goods from such foreign
suppliers for the account of Borrower; and (c) the Fleet Standby L/C which
shall remain outstanding in accordance with its terms. The maximum
aggregate amount of outstanding Advances and Acceptances under the Revolving
Credit Facility shall at no time exceed the Direct Loan Sublimit as
hereinafter set forth in section 1.1(E).
(iii) Revolving Credit Note. To evidence Borrower's
---------------------
obligations under the Revolving Credit Facility, Borrower is
contemporaneously herewith executing and delivering to
5.
<PAGE>
the Agent the Revolving Credit Note dated of even date with the Third
Amendment to Commercial Revolving Loan and Security Agreement in the face
principal amount of $150,000,000 in the form and substance set forth on
Schedule A attached to the Third Amendment to Commercial Revolving Loan and
Security Agreement. This Revolving Credit Note in the face amount of
$150,000,000 is issued in replacement of and substitution for the Revolving
Credit Note in the face principal amount of $150,000,000 dated June 14, 1995
executed by the Borrower in favor of the Agent as agent for the Banks (the
"June 14, 1995 Note"). The June 14, 1995 Note is hereby cancelled.
(iv) Termination Date. On the Termination Date, the entire
----------------
unpaid principal balance of the Revolving Note together with all accrued and
unpaid interest thereon and all other sums owing hereunder shall become due
and payable in full without notice or demand.
(B) Advances. All Advances under the Revolving Credit Facility shall
--------
be made by the Banks simultaneously and in the amount of their respective
Pro-Rata Shares.
The obligations of the Banks for Advances are independent and no Bank
shall be responsible for any default by any other Bank with respect to such
other Bank's obligation to make Advances hereunder, nor shall the obligation
of any Bank be increased or decreased as a result of the default by any other
Bank in such other Bank's obligation to make Advances hereunder. All
requests by Borrower
6.
<PAGE>
for Advances shall be made in accordance with the provisions of Section 1.4
of the Original Agreement;
(C) L/C's and Acceptances. All Commercial L/C's and Acceptances which
---------------------
are issued or created under the Revolving Credit Facility will be issued by
the Agent or by The First National Bank of Boston or any of its overseas or
domestic affiliates on behalf of the Banks, and shall be administered by
Agent, as agent for the Banks. Each letter of credit issued under the
Revolving Credit Facility by The First National Bank of Boston or its
subsidiaries shall be subject to the terms of the L/C Agreement. The minimum
face amount of each Commercial L/C and each Acceptance shall be $50,000.00.
Standby letters of credit may be issued under the Revolving Credit
Facility only upon the consent of all of the Banks.
Each Commercial L/C issued hereunder shall have an expiration date not
later than 120 days following its date of issuance, and no Commercial L/C
shall have an expiration date later than September 28, 1998.
Notwithstanding the Termination Date, each Bank shall remain obligated
through the expiration date of each Commercial L/C, and the Fleet Standby L/C
issued or outstanding under the Revolving Credit Facility to reimburse the
Agent for such Bank's Pro-Rata Share of a drawing on any such letters of
credit which is not immediately reimbursed by the Borrower.
(D) Borrowing Base. The aggregate amount of outstanding
--------------
Liabilities under the Revolving Credit Facility shall not at any
7.
<PAGE>
time exceed the lesser of (x) the amount of the Regular Commitment or the
Seasonal Commitment, as applicable, or (y) the sum of (i) Eighty (80%)
percent of Eligible Accounts, plus (ii) Fifty (50%) percent of Eligible
Inventory with a maximum limit on availability against Eligible Inventory of
$40,000,000 in effect from September 1 in each year through May 31 of the
following year, and $50,000,000 during the months of June, July and August in
each year, plus (iii) fifty (50%) percent of L/C Inventory, plus (iv) One
Hundred Percent (100%) of cash deposits held in the name of the Borrower or
Fair Stock Limited d/b/a Starter Far East, Ltd. in an interest bearing
savings account at the Hong Kong Branch of the First National Bank of Boston
(the formula contained in this clause (y) is hereinafter referred to as the
"Borrowing Base").
Notwithstanding the preceding paragraph, in the event that the Borrower
attains and continues to maintain the Unrestricted Financial Ratios (as
hereinafter defined), the Liabilities which may be outstanding under the
Revolving Credit Facility will not be limited by the Borrowing Base;
provided, however, that if, having attained the Unrestricted Financial
Ratios, the Borrower thereafter fails to continue to maintain such
Unrestricted Financial Ratios or in the event of the occurrence of any Event
of Default hereunder or any event or condition which, with the passage of
time, the giving of notice or both, would constitute an Event of Default, or
in the event that, in the opinion of Banks holding not less than 66-2/3% of
the Pro Rata Shares, the Borrower has suffered a material adverse change in
its operations, the Agent shall require the
8.
<PAGE>
Liabilities to be limited by the Borrowing Base or such other formula as
shall be approved by Banks holding not less than 66-2/3% of the Pro Rata
Shares in their discretion.
(E) Direct Loan Sublimit: The aggregate amount of Advances and
--------------------
Acceptances to be outstanding at any time shall not exceed the following
amounts (the "Direct Loan Sublimit"): (i) $50,000,000 during the months of
October of each year through April of the following year and (ii) $90,000,000
during the months of May through September in each year.
Notwithstanding the preceding sentence for a period of 30 consecutive
days in each calendar year, the Borrower shall, from cash flow generated from
its continuing operations (as opposed to cash flow resulting from a non-
recurring event), cause the aggregate amount of Advances and Acceptances
outstanding hereunder to be reduced to an amount not to exceed $25,000,000.
(F) Seasonal Overadvance: Notwithstanding the Borrowing Base, the
--------------------
Borrower may have Liabilities outstanding under the Revolving Credit
Facility in excess of the amount which would otherwise be available under the
Borrowing Base in the following amounts at the following times (the "Seasonal
Overadvance"):
Month 1996 1997
----- ---- ----
April $15,000,000 $10,000,000
May, June, July 25,000,000 15,000,000
August 10,000,000 10,000,000
Provided, however, that in no event shall (i) the aggregate total amount
outstanding under the Revolving Credit Facility at any time
9.
<PAGE>
exceed the amount of the Regular Commitment or the Seasonal Commitment, as
applicable, or (ii) the aggregate amount of Advances and Acceptances
outstanding at any time exceed the applicable Direct Debt Sublimit.
2. Interest.
--------
(i) Interest Rate Options. Advances from time to time
---------------------
outstanding under the Revolving Credit Facility shall bear interest at one or
more of the Interest Rate Options selected by the Borrower as provided in
Section 1.3(A) of the Loan Agreement, provided, however, that the terms
"LIBOR Rate" and "Acceptance Rate" shall have the meanings set forth in
Section 9 of this Third Amendment.
(ii) Default Rate. Upon the occurrence of an Event of
------------
Default, the interest rate accruing and payable from and after such Event of
Default shall be a variable rate (the "Default Rate") equal to three hundred
(300) Basis Points per annum above the Comparative Prime Rate which rate
shall change when and as said Comparative Prime Rate changes.
(iii) Late Payment Charge. If any payment required under the
-------------------
Loan Agreement or the Revolving Credit Note shall remain in arrears and
unpaid for a period of ten (10) days after the same shall become payable, the
Borrower shall pay to the Agent the additional sum of five percent (5%) of
the amount of such payment to cover the additional expense of handling such
late payment (the "Late Payment Charge"). The assessment and collection of a
Late
10.
<PAGE>
Payment Charge shall not constitute a waiver of any Event of Default which
results from such late payment.
3. Lock Box Account. Section 1.3(G) of the Loan Agreement is amended
----------------
to add the following paragraph as the final paragraph thereolee
"Notwithstanding anything to the contrary in this Section 1.3(G), during any
period of time in which the Borrower has attained and is continuing to
maintain the Unrestricted Financial Ratios and there exists no Event of
Default hereunder or any event or condition which with the passage of time,
and the giving of notice or both would constitute an Event of Default, and
the Borrower, in the opinion of Banks holdings not less than 66-2/3% of the
Pro Rata Shares, has not suffered a material adverse change in its
operations, payments which are received by the Agent in the lock box account
established pursuant to this Section 1.3(G) shall not be applied by the Agent
on account of sums outstanding under the Revolving Credit Facility but
instead shall be deposited by the Agent into the account which the Borrower
maintains at Bank of Boston pursuant to Section 3.13 of this Agreement."
4. Modification to Financial Reporting Requirements in Certain
-----------------------------------------------------------
Circumstances. Section 3.5(A) of the Loan Agreement is hereby amended by the
-------------
addition of the following subparagraph thereto: "(xii) During any period of
time in which the Borrower has attained and is continuing to maintain the
Unrestricted Financial Ratios and there exists no Event of Default under the
Loan Agreement or any event or condition which with the passage of time, the
giving of notice or both would constitute an Event of
11.
<PAGE>
Default, and the Borrower, in the opinion of Banks holding not less than 66-
2/3% of the Pro Rata Shares, has not suffered a material adverse change in
its operations, the Borrower shall be excused from submitting the reports
required by subparagraphs (iv), (v) and (vi) of this Section 3.5(A) and, in
lieu thereof, the Borrower shall submit to the Agent and the Banks, as soon
as available but in any event not later than twenty (20) days following the
end of each calendar month, the following:
(i) A report of Accounts in the format attached hereto as
Exhibit A;
(ii) A report of Inventory in the format attached hereto
as Exhibit B; and
(iii) Such other information as the Agent may request from
time to time.
5. Modifications to Financial Covenants. Section 3.7 of the
------------------------------------
Loan Agreement, as heretofore amended and restated, is
further amended and restated to read, in full, as follows:
"3.7 Financial Covenants. Borrower shall maintain the
-------------------
following financial performance criteria as shown on the financial statements
required to be provided pursuant to Section 3.5:
12.
<PAGE>
(A) Borrower's Tangible Net Worth, as of the calendar
quarter ending on the specified date, of at least:
(i) March 31, 1996 $ 87,500,000
(ii) June 30, 1996 85,000,000
(iii) September 30, 1996 95,000,000
(iv) December 31, 1996 95,000,000
(v) March 31, 1997 95,000,000
(vi) June 30, 1997 95,000,000
(vii) September 30, 1997 110,000,000
(viii) December 31, 1997 110,000,000
(ix) March 31, 1998 110,000,000
(B) A ratio of Borrower's total Indebtedness to
Borrower's Tangible Net Worth, as of the calendar quarter ending on the
specified date, of not greater than:
(i) March 31, 1996 0.9 to 1.0
(ii) June 30, 1996 1.5 to 1.0
(iii) September 30, 1996 1.5 to 1.0
(iv) December 31, 1996 0.9 to 1.0
(v) March 31, 1997 0.9 to 1.0
(vi) June 30, 1997 1.1 to 1.0
(vii) September 30, 1997 1.1 to 1.0
(viii) December 31, 1997 0.6 to 1.0
(ix) March 31, 1998 0.9 to 1.0
(C) A ratio of (i) EBIT to (ii) Interest Expense
(including without limitation the commissions paid pursuant to paragraph
3.15(C) of the Loan Agreement) accrued during the twelve months ending on the
specified date, of not less than:
(i) March 31, 1996 1.10 to 1.0
(ii) June 30, 1996 1.50 to 1.0
(iii) September 30, 1996 3.20 to 1.0
(iv) December 31, 1996 3.75 to 1.0
(v) March 31, 1997 3.75 to 1.0
(vi) June 30, 1997 3.75 to 1.0
(vii) September 30, 1997 3.75 to 1.0
(viii) December 31, 1997 3.75 to 1.0
(ix) March 31, 1998 3.75 to 1.0
13.
<PAGE>
(D) Working Capital, as of the end of the calendar
quarter ending on the specified date, in an amount not less than:
(i) March 31, 1996 $ 57,000,000
(ii) June 30, 1996 55,000,000
(iii) September 30, 1996 67,500,000
(iv) December 31, 1996 70,000,000
(v) March 31, 1997 65,000,000
(vi) June 30, 1997 65,000,000
(vii) September 30, 1997 75,000,000
(viii) December 31, 1997 75,000,000
(ix) March 31, 1998 70,000,000
(E) A Quick Ratio, as of the end of the calendar
quarter ending on the specified date, of not less than:
(i) March 31, 1996 0.80 to 1.0
(ii) June 30, 1996 0.50 to 1.0
(iii) September 30, 1996 0.85 to 1.0
(iv) December 31, 1996 0.80 to 1.0
(v) March 31, 1997 0.80 to 1.0
(vi) June 30, 1997 0.55 to 1.0
(vii) September 30, 1997 0.90 to 1.0
(viii) December 31, 1997 1.00 to 1.0
(ix) March 31, 1998 0.90 to 1.0
(F) Borrower's net income, determined in accordance with
GAAP, in any fiscal year shall not be less than One Dollar ($1.00).
Borrower acknowledges that it has assisted Agent and the
Banks in the formulation of each of the foregoing financial performance
criteria and fully understands each of said criteria."
6. Inspections; Field Exams. Section 3.8 of the Loan Agreement is
------------------------
hereby amended to add the following paragraph as the final paragraph thereolee
"Notwithstanding anything to the contrary contained in this Section 3.8,
during any period of time in which the Borrower has attained and is
continuing to maintain the
14.
<PAGE>
Unrestricted Financial Ratios and there exists no Event of Default under the
Loan Agreement or any event or condition which with the passage of time, the
giving of notice or both would constitute an Event of Default, and the
Borrower, in the opinion of Banks holding not less than 66-2/3% of the Pro
Rata Shares, has not suffered a material adverse change in its operations,
such field exams and audits as the Agent conducts or causes to be conducted
pursuant to this Section 3.8 shall not be conducted more frequently than once
each calendar year.
7. Deposit Accounts. Section 3.13 of the Original Agreement
----------------
pertaining to the maintenance by the Borrower of its primary deposit and
checking accounts is hereby amended to delete the references to Fleet
contained therein.
8. Fees. Subsection (D) of Section 3.15 of the Original Agreement
----
is hereby amended and restated to read, in full, as follows:
"(D) Facility Fee.
------------
(i) Calendar Quarters ending Prior to October 1, 1996:
-------------------------------------------------
For calendar quarters ending prior to October 1, 1996, the Borrower shall pay
to the Agent quarterly in arrears, for the account of the Banks, a Facility
Fee at the annual rate of thirty-seven and one-half (37.5) Basis Points of
the Commitment for the calendar quarter for which the Facility Fee is being
paid.
(ii) Calendar Quarters Ending Subsequent to September 30,
----------------------------------------------------
1996: For calendar quarters ending subsequent to September 30, 1996, the
----
Borrower shall pay to the Agent, quarterly
15.
<PAGE>
in arrears, for the account of the Banks, a Facility Fee calculated at an
annual rate equal to the Commitment for the calendar quarter for which the
Facility Fee is being paid, multiplied by the applicable number of Basis
Points based upon the Borrower's Indebtedness/EBITDA Ratio as of the last day
of the preceding calendar quarter, as determined from the Borrower's Form 10Q
as filed with the United States Securities and Exchange Commission for said
quarter, as set forth below:
Indebtedness/EBITDA Ratio Annualized Facility Fee
(as hereinafter defined) in Basis Points
------------------------ -----------------------
More than 7.0 to 1.0 50 Basis Points
Equal to or more than 5.0 to 1.0
but not more than 7.0 to 1.0 37.5 Basis Points
Less than 5.0 to 1.0 25 Basis Points
The amount of the Facility Fee payable with respect to a particular
calendar quarter shall be determined by the Agent based upon the figures
contained in the Borrower's Form 10Q as filed with the United States
Securities and Exchange Commission for such quarter. Such Facility Fee shall
be payable on demand.
(iii) Proration of Facility Fee: In each case, the
-------------------------
Facility Fee shall be pro-rated to reflect the actual number of days that the
Regular Commitment and the Seasonal Commitment are in effect during such
calendar quarter."
16.
<PAGE>
9. Definition of Terms.
-------------------
(i) Amended Definitions: Section 9 of the Original
-------------------
Agreement, as heretofore amended, is hereby further amended to amend and
restate the definitions of the following terms:
(a) Acceptance Rate:
---------------
(1) Prior to October 1, 1996. For Acceptances
------------------------
prior to October 1, 1996, a fixed rate equal to the Bank of Boston acceptance
rate for the applicable Acceptance Rate Interest Period plus 162.5 Basis
Points per annum;
(2) Subsequent to September 30, 1996. For
--------------------------------
Acceptances issued subsequent to September 30, 1996, a fixed rate equal to
the Bank of Boston Acceptance Rate for the applicable Acceptance Rate
Interest Period plus the applicable number of Basis Points set forth below
based upon the Borrower's Indebtedness/EBITDA Ratio as of the end of the
preceding calendar quarter commencing with the calendar quarter ending
September 30, 1996 as determined from the Borrower's Form 10Q as filed with
the United States Securities and Exchange Commission for such quarter:
Indebtedness/EBITDA Ratio Spread
------------------------- ------
More than 7.0 to 1.0 200 Basis Points
More than 6.0 to 1.0 but not
more than 7.0 to 1.0 162.5 Basis Points
Equal to or more than 5.0 to 1.0
but not more than 6.0 to 1.0 125 Basis Points
Equal to or more than 3.5 to 1.0
but less than 5.0 to 1.0 100 Basis Points
Less than 3.5 to 1.0 62.5 Basis Points
Provided, however, that the applicable spread hereunder shall be
determined based on the figures contained in the Borrower's Form 10Q as filed
with the United States Securities and Exchange Commission for the applicable
quarter and any change in the applicable spread shall be effective only with
respect to Acceptances issued subsequent to the receipt of such Form 10Q by
the Agent and the Banks.
(b) Banks or Banks: Individually, collectively, or any number of, Bank of
--------------
Boston, Fleet/New Jersey, Chase, People's, BHF, CoreStates, National Bank of
Canada, Sanwa, or any additional bank or institution which subsequently
becomes a lender hereunder.
17.
<PAGE>
(c) EBIT (Earnings Before Interest and Taxes): Income from continuing
-----------------------------------------
operations before payment of interest and taxes which are measured by or
based upon income, as derived from the Borrower's financial statements
determined in accordance with GAAP.
(d) LIBOR Rate:
----------
(1) Prior to October 1, 1996: For LIBOR
------------------------
Advances made prior to October 1, 1996, a fixed rate equal to the LIBOR
Interest Rate for the applicable LIBOR Interest Period plus 162.5 Basis
Points per annum;
(2) Subsequent to September 30, 1996: For
--------------------------------
LIBOR Advances made subsequent to September 30, 1996, the fixed rate equal to
the LIBOR Interest Rate for the applicable LIBOR Interest Period plus the
applicable number of Basis Points set forth below based upon the Borrower's
Indebtedness/EBIT Ratio as of the end of the preceding calendar quarter
commencing with the calendar quarter ending September 30, 1996 as determined
from the Borrower's Form 10Q as filed with the United States Securities and
Exchange Commission for such quarter:
Indebtedness/EBITDA Ratio Spread
------------------------- ------
More than 7.0 to 1.0 200 Basis Points
More than 6.0 to 1.0 but not
more than 7.0 to 1.0 162.5 Basis Points
Equal to or more than 5.0 to 1.0
but not more than 6.0 to 1.0 125 Basis Points
Equal to or more than 3.5 to 1.0
but less than 5.0 to 1.0 100 Basis Points
Less than 3.5 to 1.0 62.5 Basis Points
Provided, however, that the applicable spread hereunder shall be
determined based on the figures contained in the Borrower's Form 10Q as filed
with the United States Securities and Exchange Commission for the applicable
quarter and any change in the applicable spread shall be effective only with
respect to LIBOR Advances made subsequent to the receipt of such Form 10Q by
the Agent and the Banks.
18.
<PAGE>
(e) Termination Date: May 31, 1998.
----------------
(ii) Definitions of Additional Terms: Section 9 of the
-------------------------------
Original Agreement, as heretofore amended, is hereby further amended to
define the following terms:
(a) Default Rate: Shall have the meaning accorded to it in Section 2
------------
of the Third Amendment.
(b) EBITDA (Earnings Before Interest, Taxes, Depreciation and
---------------------------------------------------------
Amortization): Income from continuing operations before the payment of
-------------
interest and taxes which are based on or measured by income plus depreciation
and amortization, all as determined in accordance with GAAP.
(c) Fleet/Connecticut: Fleet National Bank (formerly known as Fleet
-----------------
National Bank of Connecticut and successor by merger to Fleet Bank, National
Association), a national banking association having its principal place of
business in Springfield, Massachusetts.
(d) Fleet/New Jersey: Fleet Bank, National Association, successor by
----------------
merger to NatWest Bank N.A. and having its principal place of business in
Jersey City, New Jersey and an office at 1133 Avenue of the Americas, 39th
Floor, New York, New York 10036-6710.
(e) Fleet Standby L/C: That certain standby letter of credit issued
-----------------
by Fleet for the account of the Borrower designated Letter of Credit
#CS1024403 in the face amount of $500,000 for the benefit of the United
States Olympic Committee issued 11/18/93 and including renewals or
replacements thereof.
(f) Indebtedness/EBITDA Ratio: The ratio of (x) the sum of Indebtedness
-------------------------
as of the end of each of the immediately preceding four quarterly periods
divided by four (4) to (y) EBITDA for the immediately preceding four
quarterly periods.
(g) Late Payment Charge: Shall have the meaning accorded to it in
-------------------
Section 2 of the Third Amendment.
(h) Third Amendment: The Third Amendment to Commercial Revolving
---------------
Loan and Security Agreement dated May 9, 1996 among the Borrower, the Banks,
the Agent and Fleet.
(i) Unrestricted Financial Ratios: Both of the following financial
-----------------------------
ratios which shall be determined on a rolling four quarter basis as of the
end of each calendar quarter, based on the figures contained in the Form 10Q
submitted by the Borrower, as of
19.
<PAGE>
the end of such quarter, to the United States Securities and Exchange
Commission:
(x) EBIT/Interest Expense: A ratio of EBIT to Interest Expense
---------------------
of (a) not less than 3.3 to 1.0 for calendar quarters
ending on or before September 30, 1996 and (b) not less
than 3.75 to 1.0 for calendar quarters ending after
September 30, 1996; and
(y) Indebtedness/EBITDA Ratio: An Indebtedness/EBITDA Ratio
-------------------------
which is not in excess of 4.0 to 1.0.
10. Assignment of the Fleet Standby L/C. Fleet/Connecticut hereby
-----------------------------------
assigns and delegates to Fleet/New Jersey all of the liabilities and
obligations of Fleet/Connecticut under the Fleet Standby L/C, and Fleet/New
Jersey hereby assumes such liabilities and obligations. Fleet/Connecticut
hereby further assigns to Fleet/New Jersey all of Fleet/Connecticut's rights,
privileges and remedies under any reimbursement agreement or other agreement
between Fleet/Connecticut and the Borrower pertaining to the Fleet Standby
L/C.
11. Withdrawal of Fleet/Connecticut. Fleet/Connecticut hereby
-------------------------------
withdraws from the Revolving Credit Facility and shall no longer have any Pro
Rata Share of the Revolving Credit Facility. The Borrower and the Banks
consent to such withdrawal. Fleet/Connecticut acknowledges that, except
that the Fleet Standby L/C remains outstanding, it has received payment in
full of all sums owing to it under the Loan Agreement and the other
Documents.
12. Reaffirmation of Representations and Warranties. The Borrower
-----------------------------------------------
hereby restates and reaffirms continuing accuracy of the
20.
<PAGE>
Representations and Warranties set forth in Section 2 of the Original
Agreement as of the date hereof.
13. Corporate Authority. The Borrower represents and warrants that it
-------------------
has the corporate power to execute, deliver and carry out the terms and
provisions of this Agreement and the other Documents to which it is a party
and has taken all necessary corporate and legal action with respect thereto
and this Agreement and such other Documents to which it is a party have been
duly authorized, executed and delivered by the Borrower and each constitutes
its valid, legal and binding agreement and obligation enforceable in
accordance with the terms thereof and the Agent and the Banks are entitled to
the benefits thereof in accordance with such terms.
14. Reaffirmation of Loan Agreement and Documents. In all other
---------------------------------------------
respects, the Loan Agreement and the other Documents as herein modified,
shall be and remain in full force and effect.
15. Effective Date. This Third Amendment shall become effective upon
--------------
the execution hereof.
21.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement on the day first above mentioned.
BANK OF BOSTON CONNECTICUT, as Agent
By /s/ Christina I. Clad
--------------------------------
Its Vice President
FLEET BANK, NATIONAL ASSOCIATION
(formerly known as NatWest Bank N.A.)
By /s/ [ILLEGIBLE]
--------------------------------
Its Vice President
THE CHASE MANHATTAN BANK, N.A.
By /s/ [ILLEGIBLE]
--------------------------------
Its Vice President
PEOPLE'S BANK
By [ILLEGIBLE]
--------------------------------
Its Vice President
BHF-BANK AKTIENGELLESCHAFT
By [ILLEGIBLE]
--------------------------------
Its Vice President
and
By [ILLEGIBLE]
--------------------------------
Its Assistant Vice President
CORESTATES BANK, N.A.
By Ann B. [ILLEGIBLE]
--------------------------------
Its Vice President
22.
<PAGE>
NATIONAL BANK OF CANADA
By [ILLEGIBLE]
--------------------------------
Its Vice President
and
By [ILLEGIBLE]
--------------------------------
Its Assistant Vice President
THE SANWA BANK LIMITED
By [ILLEGIBLE]
--------------------------------
Its Assistant Vice President
BANK OF BOSTON CONNECTICUT
By Christina I. Clad
--------------------------------
Its Vice President
FLEET NATIONAL BANK (formerly
known as Fleet National Bank of
Connecticut successor by merger
to Fleet Bank, National Association)
By [ILLEGIBLE]
--------------------------------
Its Vice President
STARTER CORPORATION
By [ILLEGIBLE]
--------------------------------
Its Senior Vice President
23.
<PAGE>
Schedule A
----------
REVOLVING CREDIT NOTE
---------------------
$150,000,000.00 New Haven, Connecticut
May 17, 1996
FOR VALUE RECEIVED, STARTER CORPORATION, a Delaware corporation with a
place of business in New Haven, Connecticut,
("Borrower"), promises to pay to the order of BANK OF BOSTON CONNECTICUT, a
savings bank existing under the laws of the State of Connecticut having a
place of business at 127 Church Street, New Haven, Connecticut, as Agent for
Fleet Bank, National Association (successor by merger to NatWest Bank N.A.),
("Fleet/New Jersey"), The Chase Manhattan Bank, N.A., People's Bank, BHF-Bank
Aktiengelleschaft (formerly known as BHF-Bank), CoreStates Bank, N.A.,
National Bank of Canada, The Sanwa Bank Limited, Bank of Boston Connecticut,
and any other financing institution which may from time to time become a
party to the Loan Agreement (as hereinafter defined) ("Agent"), or other
holder of this Note the principal sum of ONE HUNDRED FIFTY MILLION
($150,000,000) DOLLARS, or so much thereof as shall from time to time be
advanced by the Banks through the Agent to the Borrower and remain
outstanding, as conclusively evidenced by the books and records of Agent
absent manifest error, together with interest on the outstanding balance
hereof before and after maturity, at the rate(s) hereinafter set forth until
this Note shall have been fully paid, all as hereinafter provided. Advances
hereunder shall be repaid by Borrower and readvanced by the Banks through the
Agent in accordance with the terms of the Commercial Revolving Loan and
<PAGE>
Security Agreement among the Agent the Borrower, Fleet Bank, National
Association (now known as Fleet National Bank "Fleet/Connecticut"), NatWest
Bank N.A., The Chase Manhattan Bank, N.A., People's Bank and Bank of Boston
Connecticut dated as of March 30, 1995 as amended by a First Amendment to
Commercial Revolving Loan and Security Agreement among the Agent, the
Borrower, Fleet/Connecticut, NatWest Bank N.A., The Chase Manhattan Bank,
N.A., People's Bank, BHF-Bank, CoreStates Bank, N.A., National Bank of
Canada, The Sanwa Bank Limited and Bank of Boston Connecticut, dated as of
June 14, 1995, a Second Amendment to Commercial Revolving Loan and Security
Agreement dated as of January 31, 1996 and a Third Amendment to Commercial
Revolving Loan and Security Agreement dated as of even date herewith among
the Agent, the Borrower, Fleet/New Jersey, The Chase Manhattan Bank, N.A.,
People's Bank, BHF-Bank Aktiengelleschaft, CoreStates Bank, N.A., National
Bank of Canada, The Sanwa Bank Limited and Bank of Boston Connecticut (the
"Loan Agreement"). Capitalized terms used herein but not defined shall have
the meaning ascribed to such terms in the Loan Agreement.
At or before the time of each Advance by the Banks through the Agent to
Borrower hereunder, Borrower shall select an Interest Rate Option which shall
be applicable to each such Advance hereunder.
In the event that no Interest Rate Option election is made by Borrower
with respect to a particular Advance hereunder, such Advance shall bear
interest at the Comparative Prime Rate.
2.
<PAGE>
Interest on the entire unpaid balance hereof shall be payable as
follows:
(i) for all amounts outstanding hereunder which bear interest at the
Comparative Prime Rate, interest shall be payable monthly on the first (1st)
day of each and every month, in arrears, commencing on the first (1st) day of
the first (1st) month after the date hereof; and
(ii) for all amounts outstanding hereunder which bear interest at the
LIBOR Rate, interest shall be payable in full, with respect to each LIBOR
Advance hereunder, at the end of the respective LIBOR Interest Period
applicable to such LIBOR Advance.
(iii) for all amounts outstanding hereunder which bear interest at the
Acceptance Rate, interest shall be payable in full, with respect to each
Acceptance Rate Advance hereunder, at the end of the respective Acceptance
Rate Interest Period applicable to such Acceptance Rate Advance.
Interest hereunder shall be charged on the basis of a three hundred
sixty (360) day year, but for the actual number of days elapsed.
On May 31, 1998 (the "Maturity Date"), the entire unpaid principal
balance of this Note, together with accrued and unpaid interest hereon and
all other sums owing hereunder and/or under the Loan Agreement, shall become
due and payable without notice or demand, except as otherwise provided in the
Loan Agreement with respect to any letter of credit which remains outstanding
on that date.
3.
<PAGE>
Certain mandatory prepayments of principal are required hereunder in the
amounts, at the times and under the circumstances set forth in the Loan
Agreement.
Any prepayment (whether in whole or in part) of any outstanding LIBOR
Advance or Acceptance Rate Advance hereunder, shall be subject to a
prepayment premium, as more particularly set forth in the Loan Agreement.
If any payment specified herein shall remain in arrears and unpaid for a
period of ten (10) days after the same shall become due, the Borrower agrees
to pay to the Agent the Late Payment Charge.
Upon the occurrence of any Event of Default, interest shall accrue and
be payable hereunder at the Default Rate and this Note shall, at the option
of the Agent or subsequent holder hereof, and upon the request of Banks
holding, in the aggregate, not less than 66 2/3% of the Pro Rata Shares,
become forthwith due and payable without presentment, demand, protest or
notice of any kind, all of which being hereby expressly waived by the
undersigned.
All payments hereon shall be applied in accordance with and as specified
in the Loan Agreement. Said sums shall be payable together with all lawful
taxes and assessments levied thereon, or upon this Note, or upon the Agent
with respect to the same, and together with all costs and expenses related to
collecting this Note and together with all costs and expenses of foreclosing
or protecting or sustaining the lien on any security which may be given to
secure the payment of this Note, and/or in any litigation
4.
<PAGE>
or controversy arising from or connected with this Note or any Collateral
securing this Note or the Loan Agreement or incurred in any action brought by
the holder of a mortgage or lien in which the Agent or Banks are a party
defendant, including without limitation reasonable attorneys' fees. Said
obligation to pay the reasonable attorneys' fees of the Agent and the Banks
in connection with protecting, enforcing or realizing of the rights and
remedies above described shall exist whether or not proceedings are
instituted or court appearance is made on behalf of the Agent and the Banks.
Upon the occurrence of an Event of Default and at any time thereafter
while it continues, the Agent and each Bank shall have and may exercise a
right of set-off for the payment of this Note and the aforesaid costs and
expenses against, and Borrower hereby gives and grants to Agent and to each
Bank a security interest (perfected by Agent's or such Bank's possession
thereof) in, all deposits, monies, securities and property left with the
Agent or any Bank by the Borrower or otherwise to the credit of or belonging
to the Borrower, and the Agent shall have full power and authority at any
time and without notice to sell, assign and deliver any such property at
public or private sale, and apply the proceeds in satisfaction hereof.
This Note is issued under and pursuant to the terms of the Loan
Agreement.
This Note is issued in substitution for and replacement of the Revolving
Credit Note in the principal amount of $150,000,000 dated June 14, 1995
executed by the Borrower in favor of Bank of Boston
5.
<PAGE>
Connecticut as Agent for Fleet/Connecticut, NatWest Bank N.A., The Chase
Manhattan Bank, N.A., People's Bank, BHF-Bank, CoreStates Bank, N.A.,
National Bank of Canada, The Sanwa Bank Limited and Bank of Boston
Connecticut (the "June 14, 1995 Note") which June 14, 1995 Note is cancelled.
If the Agent shall deem applicable to this Note (including, in each
case, the borrowed and the unused portion thereof, if any) any requirement of
any law of the United States of America, any regulation, order,
interpretation, ruling, official directive or guideline (whether or not
having the force of law) of the Board of Governors of the Federal Reserve
System, the Comptroller of the Currency, the Federal Deposit Insurance
Corporation or any other board or governmental or administrative agency of
the United States of America which shall impose, increase, modify or make
applicable to this Note or cause this Note to be included in, any reserve,
special deposit, calculation used in the computation of regulatory capital
standards, assessment or other requirement which imposes on the Agent or any
Bank any cost that is attributable to the maintenance thereof, then, and in
each such event, the Borrower shall promptly pay the Agent or such Bank, upon
its demand, such amount as will compensate the Agent or such Bank for any
such cost. In the event any such cost is a continuing cost, a fee payable to
the Agent or such Bank may be imposed upon the Borrower periodically for so
long as any such cost is deemed applicable by the Agent or such Bank, in an
amount determined by the Agent or such Bank to be necessary to compensate the
Agent or such Bank for
6.
<PAGE>
any such cost, which determination may be based upon the Agent's or such
Bank's reasonable allocation of the aggregate of such costs resulting from
such events. The determination by the Agent or such Bank of the existence
and amount of any such costs shall, in the absence of manifest error, be
conclusive.
The Borrower hereby waives presentment, demand, protest, notice of
protest or other notice or notice of dishonor of any kind.
BORROWER ACKNOWLEDGES THAT THIS NOTE EVIDENCES A COMMERCIAL TRANSACTION
AS THAT TERM IS DEFINED IN CONNECTICUT GENERAL STATUTES SECTION 52-278a(a)
AND PURSUANT TO CONNECTICUT GENERAL STATUTES SECTIONS 52-278b AND 52-278f,
BORROWER DOES HEREBY WAIVE ITS RIGHTS TO NOTICE AND HEARING OR THE POSTING OF
ANY BOND PRIOR TO THE ISSUANCE BY THE AGENT OF ANY PREJUDGMENT REMEDY, AND
BORROWER FURTHER WAIVES ANY RIGHTS AS MAY EXIST UNDER FEDERAL LAW OR UNDER
ANY PROVISIONS OF THE CONNECTICUT OR UNITED STATES CONSTITUTION TO ANY NOTICE
OR HEARING PRIOR TO THE AGENT'S OBTAINING AND EXERCISING ANY PREJUDGMENT
REMEDY.
ADDITIONALLY, BORROWER AND AGENT HEREBY EACH WAIVES THE RIGHT TO TRIAL
BY JURY IN ANY ACTION, DEFENSE, COUNTERCLAIM, CROSSCLAIM AND/OR ANY FORM OF
PROCEEDING BROUGHT IN CONNECTION WITH THIS NOTE OR RELATING TO ANY
INDEBTEDNESS EVIDENCED HEREBY OR ANY COLLATERAL NOW OR HEREAFTER SECURING
THIS NOTE.
THIS NOTE HAS BEEN MADE, EXECUTED AND DELIVERED IN THE STATE OF
CONNECTICUT AND SHALL BE CONSTRUED AND ENFORCED UNDER AND IN ACCORDANCE WITH
THE LAWS OF THE STATE OF CONNECTICUT.
7.
<PAGE>
STARTER CORPORATION
By /s/ John C. Warfel
------------------------------------------
John C. Warfel, Its Senior Vice President
(Duly Authorized)
- -------------------------------
8.
<PAGE>
Exhibit A
ACCOUNTS RECEIVABLE
Beginning accounts receivable balance as of __/__/__ $________________
Add: Gross Sales ________________
Other debits ________________
Total additions _________________
Deduct: Cash collections ________________
other credits ________________
Total deductions _________________
Ending accounts receivable balance $________________
Other Receivables Information:
Accounts over 60 days past due ________________
Intercompany ________________
Foreign A/R not backed by L/C ________________
<PAGE>
Exhibit B
INVENTORY
Raw Materials ________________
Work in Process ________________
In-Transit Inventory ________________
Finished Goods ________________
TOTAL INVENTORY $_______________
OUTSTANDING LETTERS OF CREDIT ________________
Inventory on consignment ________________
Inventory at Outlet stores ________________
EXHIBIT 10.31
BANK OF BOSTON
CONNECTICUT
- --------------
July 24, 1996
Mr. John Warfel
SVP-Finance
Starter Corporation
370 James Street
New Haven, CT. 06513
RE: Amendment of Starter Corporation's Commercial Revolving Loan and Security
Agreement dated March 30, 1995, as amended by a First Amendment dated June 14,
1995; a Second Amendment dated January 31, 1996; and a Third Amendment dated May
17, 1996, the "Agreement".
John,
The undersigned Banks, the Bank of Boston Connecticut, Fleet Bank, N.A., The
Chase Manhattan Bank, N.A., People's Bank, Corestates Bank, N.A., BHF Bank-
Aktiengelleschaft, National Bank of Canada, and The Sanwa Bank Limited, hereby
acknowledge their consent to amend, as detailed below, the Agreement subject to
the receipt of a fee of $50,000 payable to the Agent, for the account of the
Banks, upon execution of this letter, the "Letter Agreement":
(1) The maximum limit on availability against Eligible Inventory as
outlined in Section 1 (D)(ii) will be $60,000,000 for June, July and August
of 1996.
(2) The Direct Loan Sublimit as defined in Section 1(E)(ii) will be
$110,000,000 for July and August of 1996.
(3) The Quick Ratio as of June 30, 1996 [Section 3.7(E)(ii)] will be
amended to .35x.
In all other respects, the Agreement, as herein modified, shall be and remain in
full force and effect.
BANK OF BOSTON CONNECTICUT, as Agent
By
----------------------------
Its
FLEET BANK, NATIONAL ASSOCIATION
By
----------------------------
Its
<PAGE>
THE CHASE MANHATTAN BANK, N.A.
By
----------------------------
Its
PEOPLE'S BANK
By
----------------------------
Its
CORESTATES BANK, N.A.
By
----------------------------
Its
BHF-BANK AKTIENGELLESCHAFT
By
----------------------------
Its
By
----------------------------
Its
NATIONAL BANK OF CANADA
By
----------------------------
Its
By
----------------------------
Its
THE SANWA BANK LIMITED
By
----------------------------
Its
BANK OF BOSTON CONNECTICUT
By
----------------------------
Its
STARTER CORPORATION
By
----------------------------
Its
EXHIBIT 11
STARTER CORPORATION
-------------------
Statement re: Computation of Net Loss Per Share
(in thousands, except per share data)
<TABLE><CAPTION>
Net Loss per Share
Three Months Ended Six Months Ended
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Average shares outstanding 26,840,977 26,823,620 26,838,528 26,822,722
Net loss $ (3,224) $ (4,129) $ (5,199) $ (6,361)
============ ============ ============ ============
Per share amount $ (.12) $ (.15) $ (.19) $ (.24)
======== ========= ======= =======
</TABLE>
Exhibit 18
August 8, 1996
Mr. Lawrence C. Longo, Jr.
Chief Financial Officer
Starter Corporation
New Haven, Connecticut 06513
Dear Mr. Longo:
Note 2 of Notes to consolidated financial statements of Starter Corporation
included in its Form 10-Q for the six months ended June 30, 1996 describes
a change in the method of accounting for inventories from the last-in, first-out
(LIFO) method to the first-in, first-out (FIFO) method. You have advised us
that you believe that the change is to a preferable method in your circumstances
primarily because the carrying costs of inventory have declined below LIFO costs
and are not expected to increase in the foreseeable future.
There are no authoritative criteria for determining a "preferable" method of
costing inventories based on the particular circumstances, however we conclude
that the change in the method of accounting for inventories from LIFO to FIFO
is to an acceptable alternative method which, based on your business judgment
to make this change for the reasons cited above, is preferable in your
circumstances. We have not conducted an audit in accordance with generally
accepted auditing standards of any financial statements of the Company as of
any date or for any period subsequent to December 31, 1995, and therefore we do
not express any opinion on any financial statements of Starter Corporation
subsequent to that date.
Very truly yours,
Ernst & Young LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of STARTER Corporation for the quarter ended June 30, 1996,
as set forth in its quarterly report on Form 10-Q for such quarter, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> $2,008
<SECURITIES> 0
<RECEIVABLES> 46,794
<ALLOWANCES> (3,000)
<INVENTORY> 103,673
<CURRENT-ASSETS> 170,191
<PP&E> 32,700
<DEPRECIATION> (7,315)
<TOTAL-ASSETS> 199,987
<CURRENT-LIABILITIES> 103,223
<BONDS> 7,056
0
0
<COMMON> 268
<OTHER-SE> 89,440
<TOTAL-LIABILITY-AND-EQUITY> 199,987
<SALES> 122,060
<TOTAL-REVENUES> 123,458
<CGS> 84,025
<TOTAL-COSTS> 45,697
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 590
<INTEREST-EXPENSE> 1,762
<INCOME-PRETAX> (8,616)
<INCOME-TAX> (3,417)
<INCOME-CONTINUING> (5,199)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,199)
<EPS-PRIMARY> (.19)
<EPS-DILUTED> 0
</TABLE>
