Exhibit 10.3
FOURTH SUPPLEMENT TO NOTE PURCHASE AGREEMENTS
AND STANDSTILL AGREEMENT
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This FOURTH SUPPLEMENT TO NOTE PURCHASE AGREEMENTS AND STANDSTILL AGREEMENT
(the "Fourth Supplemental Agreement") is made and dated as of October 27, 2000,
by and among Converse Inc. (the "Company"), and Libra Investments, Inc.
("Libra"), Foothill Partners III, L.P. ("Foothill"), DDJ Canadian High Yield
Fund ("DDJ Canadian"), and B III Capital Partners, L.P. ("DDJ Capital") (Libra,
Foothill, DDJ Canadian, and DDJ Capital collectively the "Purchasers" or
individually a "Purchaser").
WITNESSETH:
WHEREAS, the Company and the Purchasers are parties to several
substantially identical Note Purchase Agreements dated as of September 16, 1998,
pursuant to which the Company issued and sold its 15% senior secured notes, in
two series, in the aggregate principal amount of $28,642,687, as more fully set
forth therein (the "Secured Notes"), which Note Purchase Agreements have been
amended and modified in a Supplement to Note Purchase Agreements dated as of
November 23, 1999, a Second Supplement to Note Purchase Agreements dated as of
May 16, 2000, and a Third Supplement to Note Purchase Agreements dated as of
June 30, 2000 (the Note Purchase Agreements, as amended and modified by the
Supplement, the Second Supplement and the Third Supplement collectively the
"Note Purchase Agreements" or individually a "Note Purchase Agreement"); and
WHEREAS, the Company is a party to a Credit Agreement among the Company,
the lenders from time to time party thereto (the "Lenders"), and BT Commercial
Corporation as Agent (the "Bank Agent"), dated as of May 21, 1997, as amended
and modified to date and as the same may hereafter be further amended and
modified from time to time (the "Revolving Credit Agreement"); and
WHEREAS, the Purchasers, BT Commercial Corporation as collateral agent (the
"Collateral Agent"), and the Bank Agent are parties to a Collateral Agency and
Intercreditor Agreement dated as of September 16, 1998 (the "Intercreditor
Agreement"); and
WHEREAS, on or about May 21, 1997, the Company issued its 7% Convertible
Subordinated Notes due 2004 (the "Subordinated Notes") pursuant to an Indenture
dated as of May 21, 1997 between the Company and First Union National Bank as
Trustee (the "Indenture Trustee"), as amended and modified to date and as the
same may hereafter be further amended and modified from time to time (the
"Convertible Note Indenture"); and
WHEREAS, the Company has been and continues to be in default under the Note
Purchase Agreements, and by notice dated as of August 21, 2000 (the "August
Notice of
Actionable Default") the Purchasers have given notice to the Collateral Agent
under Sections 5.1 and 5.3 of the Intercreditor Agreement preliminary to the
exercise by the Collateral Agent of remedies under the Note Purchase Agreement
and the Ancillary Documents; and
WHEREAS, the Company and the Purchasers desire to further supplement the
Note Purchase Agreements and desire to agree to forbearance with respect to the
exercise of remedies under the Note Purchase Agreements and the Ancillary
Documents, as more fully set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, and for other good and valuable consideration, the adequacy
and sufficiency of which are hereby acknowledged, and on and subject to the
terms and conditions hereof, the parties agree as follows:
SECTION 1. DEFINITIONS. Unless otherwise defined herein, all capitalized
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terms used in this Fourth Supplemental Agreement shall have the respective
meanings assigned to such terms in the Note Purchase Agreements.
SECTION 2. CERTIFICATIONS OF PURCHASERS. The Purchasers severally
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represent and warrant as follows:
(a) Libra. Libra is (i) the purchaser and remains the holder of that
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Series A Secured Note in the original principal amount of $4,142,931 and (ii)
the party in interest as "Purchaser" under the related Supplemented Note
Purchase Agreement, and in such capacity Libra is authorized to extend consents,
waivers, and amendments with respect to its Supplemented Note Purchase Agreement
as set forth herein.
(b) Foothill. Foothill is (i) the purchaser and remains the holder of that
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Series A Secured Note in the original principal amount of $10,357,328 and (ii)
the party in interest as "Purchaser" under the related Supplemented Note
Purchase Agreement, and in such capacity Foothill is authorized to extend
consents, waivers, and amendments with respect to its Supplemented Note Purchase
Agreement as set forth herein.
(c) DDJ Canadian. DDJ Canadian is (i) the purchaser and remains the holder
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of that Series A Secured Note in the original principal amount of $4,045,408 and
that Series B Secured Note in the original principal amount of $1,478,400 and
(ii) the party in interest as "Purchaser" under the related Supplemented Note
Purchase Agreement, and in such capacity DDJ Canadian is authorized to extend
consents, waivers and amendments with respect to its Supplemented Note Purchase
Agreement as set forth herein.
(d) DDJ Capital. DDJ Capital is (i) the purchaser and remains the holder
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of that Series A Secured Note in the original principal amount of $6,311,920 and
that Series B Secured Note in the original principal amount of $2,306,700 and
(ii) the party in interest as "Purchaser" under the related Supplemented Note
Purchase Agreement, and in
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such capacity DDJ Capital is authorized to extend consents, waivers and
amendments with respect to its Supplemented Note Purchase Agreement as set forth
herein.
The Purchasers further represent and warrant that, as of the date of this
Fourth Supplemental Agreement, Libra, Foothill, DDJ Canadian, and DDJ Capital
collectively own 100% of the principal outstanding in respect of the Secured
Notes, and therefore constitute all of the Purchasers, as well as the "Required
Holders" as such term is defined in the Intercreditor Agreement.
SECTION 3. ACKNOWLEDGMENT OF COMPANY. The Company acknowledges, as of
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the date of this Fourth Supplemental Agreement, the following Defaults or Events
of Default under the Note Purchase Agreements:
(a) Failure to pay the principal balance of the Series A Secured
Notes and Series B Secured Notes on the Initial Maturity Date, which
failure is continuing (the "Principal Default").
(b) Failure to pay interest due and payable to date with respect to
the Series A Secured Notes and Series B Notes, which failure is continuing
(the "Interest Default").
(c) Failure to maintain the minimum EBITDA as required pursuant to
Section 9.7 of the Note Purchase Agreements, which failure is continuing
(the "EBITDA Default"), failure to maintain the required reserve amount of
$5,750,000 pursuant to Section 9.15 of the Note Purchase Agreements, which
failure is continuing (the "Reserve Default"), and failure to furnish
financial information, reports and notices pursuant to subsections (a)(i),
(a)(ii), (a)(iii) and (c) of Section 8.1 of the Note Purchase Agreements,
which failure is continuing (the "Financial Information Defaults").
(d) Default under the Credit Agreement, which default is continuing
(the "Credit Agreement Cross Default").
(e) Default under the Convertible Note Indenture, which default is
continuing (the "Indenture Cross Default").
The Credit Agreement Cross Default and the Indenture Cross Default, together
with such additional defaults as may have occurred or as may hereafter occur
under the Credit Agreement or the Convertible Note Indenture, and together with
such Defaults or Events of Default as may have occurred or as may hereafter
occur under Section 10.1(f) of the Note Purchase Agreements, are hereinafter
sometimes collectively referred to as the "Cross Defaults". The Cross Defaults
and the Principal Default are hereinafter sometimes collectively referred to as
the "Continuing Defaults". The Principal Default and the Interest Default
constitute "Actionable Payment Defaults" as such term is defined under the
Intercreditor Agreement. The EBITDA Default, the Reserve Default, the
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Financial Information Defaults and the Cross Defaults constitute "Actionable
Other Defaults" as such term is defined under the Intercreditor Agreement.
SECTION 4. CONDITIONS. The effectiveness of the amendments and
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modification, waivers, and forbearance set forth herein is subject to
satisfaction, on the date of this Fourth Supplemental Agreement, of the
following conditions:
(a) The Company shall pay the Purchasers all interest accrued to date
and to accrue to and including October 31, 2000 under the Secured Notes,
calculated at the pre-default and pre-maturity rate of interest
notwithstanding the Defaults and Events of Default existing as of and
continuing after the date of this Fourth Supplemental Agreement.
(b) The Company shall pay the Purchasers a supplement fee in the
aggregate sum of $71,607, to be distributed among the Purchasers such that
the amount remitted to each such Purchaser as its share of the supplement
fee shall be determined by multiplying $71,607 by the percentage calculated
by dividing the principal amount of the Secured Notes held by such
Purchaser as of the date hereof by the aggregate principal amount of the
Secured Notes held by all the Purchasers as of the date hereof.
SECTION 5. AMENDMENT AND WAIVER. The Purchasers and the Company
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agree to amend and modify and waive the terms and conditions of the Note
Purchase Agreements, as of the date of this Fourth Supplemental Agreement, as
follows:
(a) From and after the date hereof and upon satisfaction of the
conditions set forth in Section 4 of this Fourth Supplemental Agreement,
(i) the EBITDA Default is hereby waived by the Purchasers, and compliance
with Section 9.7 of the Note Purchase Agreements is waived by the
Purchasers until (but only until) the Forbearance Termination Date, (ii)
the Reserve Default is hereby waived by the Purchasers, and the provisions
of Section 9.15 of the Note Purchase Agreements are deleted in their
entirety, and (iii) the Financial Information Defaults are hereby waived by
the Purchasers, and compliance with Section 8.1(a)(iii) of the Note
Purchase Agreements with respect to any statement concerning the Continuing
Defaults and the EBITDA Default is hereby waived by the Purchasers until
(but only until) the Forbearance Termination Date.
(b) From and after the date hereof and upon satisfaction of the
conditions set forth in Section 4 of this Fourth Supplemental Agreement,
the Interest Defaults are hereby waived by the Purchasers, and until the
Forbearance Termination Date (as determined pursuant to Section 6 of this
Fourth Supplemental Agreement) interest accruing on and after November 1,
2000 under the Secured Notes shall be calculated at the pre-maturity and
pre-default rate of interest notwithstanding the Defaults and Events of
Default existing as of and continuing after the date of this Fourth
Supplemental Agreement, and such interest shall be paid, in arrears,
monthly instead of quarterly, on the last day of each calendar month or, if
sooner, on the Forbearance Termination Date.
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(c) The provisions of Section 8.8 of the Note Purchase Agreements are
deleted in their entirety and hereby replaced with the following
provisions:
The Company (i) except as otherwise permitted pursuant to Section 9.5,
shall maintain its corporate existence, shall maintain in full force
and effect all material licenses, bonds, franchise, leases,
qualifications to do business, trademarks, patents, contracts and
other rights necessary for the conduct of the businesses from time to
time operated by the Company, (ii) shall continue in, and limit its
operations to, the same general lines of business as that presently
conducted by it and reasonable extensions thereof, except that the
Company may discontinue its North American manufacturing operations in
connection with the conversion to a primary business focus on
licensing and brand management, and (iii) shall comply with all
applicable laws and regulations of any federal, state or local
governmental authority, except in each case when noncompliance with
the foregoing would not, in the aggregate, have a Material Adverse
Effect.
(d) The provisions of Section 9.5 of the Note Purchase Agreements are
hereby amended by deleting the parenthetical phrase at the end of
subsection (b) and replacing the same with the following parenthetical
phrase: "(so long as the Company shall continue to be operated in the same
general types of licensing and branding businesses as now conducted and
reasonable extensions thereof, in accordance with Section 8.8)".
SECTION 6. FORBEARANCE. Subject to the conditions set forth in
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Section 4 hereof, from and after the date hereof and until the Forbearance
Termination Date, the Purchasers agree as follows:
(a) to forbear from exercising remedies under or in connection with
the Note Purchase Agreements,
(b) to forbear from exercising remedies, or rights preliminary or
prerequisite to remedies, under or in connection with the Intercreditor
Agreement and the Ancillary Documents, including but not limited to any
right to (i) give any "Notice of Actionable Default" (as such term is
defined under the Intercreditor Agreement), (ii) give or direct the giving
of notices to account debtors, or (iii) request or direct any exercise of
remedies with respect to the Collateral under the Intercreditor Agreement
by reason of any Actionable Payment Default or Actionable Other Default,
and
(c) to advise the Collateral Agent to take no action under or in
connection with the Intercreditor Agreement or the Ancillary Documents by
reason of any Actionable Payment Default or Actionable Other Default.
The "Forbearance Termination Date" shall be the earliest to occur of: (i)
January 31, 2001; (ii) an Event of Default other than the Continuing Defaults
under the Note Purchase Agreements, as amended and modified by this Fourth
Supplemental Agreement; (iii) declaration of acceleration,
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by the lenders under the Credit Agreement or the Bank Agent (as such term is
defined in the Intercreditor Agreement), of all of the obligations owed to the
lenders under the Credit Agreement by reason of an event of default thereunder;
(iv) refusal by the lenders under the Credit Agreement or the Bank Agent to make
loans and advances requested by the Company for more than five (5) consecutive
Business Days as a result of an event of default under the Credit Agreement; and
(v) or other exercise by such lenders or the Bank Agent of any material rights
and remedies with respect to foreclosure or realization on the Collateral.
From and after the Forbearance Termination Date, however, the
Purchasers shall be free to proceed to enforce any or all of rights and remedies
that the Purchasers may have under or in respect of the Note Purchase
Agreements, as amended and modified by the Fourth Supplemental Agreement, or
under or in respect of the Ancillary Documents or the Intercreditor Agreement.
SECTION 7. EXPENSES. The Company agrees to pay Purchasers (i) any
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and all reasonable out-of-pocket costs or expenses (including reasonable legal
fees and disbursements of counsel to the Purchasers) incurred as a result of the
negotiation and documentation of this Fourth Supplemental Agreement and (ii)
from time to time any and all reasonable out-of-pocket costs or expenses
(including reasonable legal fees and disbursements) hereafter incurred or
sustained by the Purchasers in connection with the preservation of or
enforcement of their rights under the Note Purchase Agreements or in respect of
Company's other obligations to the Purchasers; and in connection with such
agreements the Company shall remit to the Purchasers on the date hereof payment
of an outstanding invoice for legal fees and disbursements dated October 17,
2000 in the amount of $8,923.94 and an advance (subject to refund to the Company
to the extent not hereafter applied) of $25,000 in respect of such out-of-pocket
costs and expenses hereafter incurred. The Company agrees to pay future
invoices for legal fees and disbursements within ten (10) days of receipt by the
Company.
SECTION 8. OBLIGATIONS IN FULL FORCE AND EFFECT; RECITALS. Except as
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herein amended and modified or otherwise herein expressly provided (by consent
or waiver), the Note Purchase Agreements, as supplemented by this Fourth
Supplemental Agreement, and the Ancillary Documents shall remain in full force
and effect. All of the recitals to this Fourth Supplemental Agreement are hereby
affirmed by each of the parties hereto as true statements of fact and hereby by
reference are made part of this Fourth Supplemental Agreement as if fully set
out herein.
SECTION 9. COUNTERPARTS. This Fourth Supplemental Agreement may be
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executed in counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same documents.
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IN WITNESS WHEREOF, the parties hereto have executed this Fourth
Supplemental Agreement as of the day and year specified above.
COMPANY: PURCHASERS:
CONVERSE INC. LIBRA INVESTMENTS, INC.
By:/s/ James E. Lawlor By:/s/ Jeffrey D. Benjamin
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Name: Name:________________________
Title: Senior Vice President and CFO Title:_______________________
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FOOTHHILL PARTNERS III, L.P.
By:_____________________________
Name:________________________
Title:_______________________
DDJ CANADIAN HIGH YIELD FUND
By: DDJ Capital Management, LLC,
its attorney-in-fact
By: /s/Judy K. Mencher
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Name:________________________
Title:_______________________
B III CAPITAL PARTNERS, L.P.
By: DDJ Capital III, LLC,
its General Partner
By: DDJ Capital Management,
LLC, Manager
By:/s/ Judy K. Mencher
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Name:________________________
Title:_______________________
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