-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HdFUm2CZyUJQNGUFUI1dMWRIeA7oj/t1C77zJSIoz1l1N9MDfsGltMFtZx8ZhjBF pEF6F3PIO2PP+hlZlgLH4g== 0000950109-96-001029.txt : 19960223 0000950109-96-001029.hdr.sgml : 19960223 ACCESSION NUMBER: 0000950109-96-001029 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960222 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERCO INC CENTRAL INDEX KEY: 0000050957 STANDARD INDUSTRIAL CLASSIFICATION: HOUSEHOLD FURNITURE [2510] IRS NUMBER: 430337683 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-00091 FILM NUMBER: 96524282 BUSINESS ADDRESS: STREET 1: 101 S HANLEY RD STE 1900 CITY: ST LOUIS STATE: MO ZIP: 63105 BUSINESS PHONE: 3148631100 FORMER COMPANY: FORMER CONFORMED NAME: INTERNATIONAL SHOE CO DATE OF NAME CHANGE: 19690313 10-K/A 1 FORM 10-K/A SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A-1 (Mark one) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (Fee required) For the fiscal year ended December 31, 1995 or ----------------- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 (No fee required) For the transition period from_________________ to __________________ Commission file number I-91 ---- INTERCO INCORPORATED - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 43-0337683 - -------------------------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 101 South Hanley Road, St. Louis, Missouri 63105 - ------------------------------------------ --------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 314/863-1100 --------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: Name of each exchange on Title of each class which registered ------------------- -------------------------- Common Stock - $1.00 Stated Value New York Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None - -------------------------------------------------------------------------------- (Title of Class) 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, and (2) has been subject to such filing requirements for the past 90 days. Yes x No -------- -------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant as of December 31, 1995, was approximately 140,924,800. APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES X NO ---------- ---------- Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. 50,120,079 shares as of December 31, 1995 DOCUMENTS INCORPORATED BY REFERENCE Portions of Definitive Proxy Statement for Annual Meeting of Stockholders on April 23, 1996................... Part III Item 6. Selected Financial Data - -------------------------------
YEAR ENDED FIVE MONTHS ENDED(1) YEAR ENDED DECEMBER 31, --------------- --------------------------- ------------------------------ FEBRUARY 29, AUGUST 2, | DECEMBER 31, 1992 1992 | 1992 1993 1994 1995 --------------- ------------ | ------------ -------- ---------- ---------- (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) | SUMMARY OF OPERATIONS: | Net sales.............. $ 819,359 $ 356,705 | $394,873 $980,532 $1,072,696 $1,073,889 Gross profit........... 229,219 96,849 | 108,858 275,323 298,712 291,237 Interest expense....... 88,310 29,689 | 16,358 38,621 37,886 33,845 Earnings (loss) before | income tax expense | (benefit), | discontinued | operations, | extraordinary item and | cumulative effect of | accounting change..... (39,087) 247,716 | 18,045 37,266 48,841 57,038 Income tax expense | (benefit)............. (3,589) (1,206) | 6,807 15,924 20,908 22,815 Net earnings (loss) | from continuing | operations............ (35,498) 248,922 | 11,238 21,342 27,933 34,223(4) Discontinued | operations............ (13,394) (136,347) | 10,088 24,026 10,339 -- Extraordinary item..... -- 1,075,466 | -- -- -- (5,815) Cumulative effect of | accounting change..... -- (1,719) | -- -- -- -- | Net earnings (loss) | applicable to | common stock.......... $ (48,892) $1,186,322 | $ 21,326 $ 45,368 $ 38,272 $ 28,408 | Per share of common | stock--fully diluted: | Net earnings (loss) | from continuing | operations.......... $ (0.92) $ 6.42 | $ 0.23 $ 0.41 $ 0.54 $ 0.65(4) Discontinued | operations.......... (0.34) (3.52) | 0.20 0.47 0.20 -- Extraordinary item... -- 27.72 | -- -- -- (0.11) Cumulative effect of | accounting change... -- (0.04) | -- -- -- -- | Net earnings (loss) | applicable to common | stock................. $ (1.26) $ 30.58 | $ 0.43 $ 0.88 $ 0.74 $ 0.54 | Weighted average common | and common equivalent | shares outstanding-- | fully diluted (in | thousands)............ 38,731 38,796 | 50,000 51,397 51,506 52,317 Other Information | (continuing | operations): | Working capital........ $ 426,852 $ 261,357 | $261,967 $271,588 $ 308,323 $ 455,036 Property, plant and | equipment, net........ 114,239(2) 189,039(2)| 186,046 191,581 181,393 306,406 Capital expenditures... 20,099 7,041 | 8,850 30,197 21,108 35,616 Total assets........... 800,840 893,012 | 870,115 858,163 881,735 1,291,739 Long-term debt......... --(3) 443,165 | 407,898 403,255 409,679 705,040 Shareholders' equity | (deficit)............. $(1,186,522) $ 275,400 | $293,114 $338,557 $ 275,394 $ 301,156
(1) Effective December 31, 1992, the Company changed its fiscal year to end on December 31. The Company's adoption of fresh-start reporting required reporting calendar 1992 results in two 22 week periods. (2) In connection with the adoption of fresh-start reporting, property, plant and equipment was adjusted to fair value resulting in an increase of approximately $77,500 as of August 2, 1992. (3) Long-term debt (including debt pertaining to discontinued operations) totaling $1,055,132 was reclassified to liabilities subject to compromise as of February 29, 1992. (4) Net earnings from continuing operations before gain on insurance settlement, net of income tax expense, and net earnings per common share from continuing operations before gain on insurance settlement, net of income tax expense, were $29,463 and $0.56, respectively. 1 PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION The following pro forma condensed consolidated statement of operations reflects the acquisition of Thomasville, which was consummated on December 29, 1995, and the incurrence of indebtedness by the Company in connection therewith and in connection with the refinancing of a portion of the Company's then- existing indebtedness as of the beginning of the period presented. Management believes that the assumptions used provide a reasonable basis on which to present the pro forma condensed consolidated statement of operations. The pro forma condensed consolidated statement of operations is presented for informational purposes only and is not necessarily indicative of the combined results of operations in the future or of what the combined results of operations would have been if the foregoing transactions had actually been consummated as of such date. In addition, the pro forma condensed consolidated statement of operations does not give effect to profit improvement opportunities, if any, which may be realized by the Company as a result of the acquisition of Thomasville. The pro forma condensed consolidated statement of operations has been prepared on the basis of assumptions described in the notes thereto and include assumptions relating to the allocation of the consideration paid for the Thomasville acquisition to its respective assets and liabilities based on preliminary estimates of their respective fair values. The actual allocation of such consideration may differ from that reflected in the pro forma condensed consolidated statement of operations after valuations and other studies to be performed pursuant to post-closing adjustments related to the acquisition have been completed. 2
Year Ended December 31, 1995 ----------------------------------------------------------- Historical Thomasville Acquisition ---------------------------- --------------------------- The Pro Forma Company Thomasville Adjustments Pro Forma ---------- ----------- ----------- --------- (Dollars in thousands, except per share data) Net sales...................................... $1,073,889 $550,227 $ -- $1,624,116 Costs and expenses: Cost of operations........................... 760,393 428,497 1,252 (a) 1,190,142 Selling, general and administrative expenses................................... 198,321 70,661 3,600 (b) (1,159)(c) 271,423 Restructuring charges........................ -- 404 (404)(d) -- Depreciation and amortization................ 36,104(k) 12,557 (257)(e) 2,644 (f) 1,005 (g) 52,053(k) ---------- -------- -------- ---------- Earnings from operations....................... 79,071 38,108 (6,681) 110,498 Interest expense............................... 33,845 12,919 12,927 (h) 59,691 Other income, net: Gain on insurance settlement................. 7,882 -- -- 7,882 Other........................................ 3,930 2,049 (1,876)(i) 4,103 ---------- -------- -------- ---------- Earnings before income tax expense............. 57,038 27,238 (21,484) 62,792 Income tax expense............................. 22,815 10,773 (8,218)(j) 25,370 ---------- -------- -------- ---------- Net earnings from continuing operations........ $ 34,223 $ 16,465 $(13,266) $ 37,422 ========== ======== ======== ========== Net earnings from continuing operations before gain on insurance settlement net of income tax expense.................................. $ 29,463 $ 32,662 ========== ========== Net earnings per common share from continuing operations (fully diluted)........ $ 0.65(k) $ 0.72(k) ========== ========== Net earnings per common share from continuing operations before gain on insurance settlement, net of income tax expense (fully diluted)...................... $ 0.56(k) $ 0.62(k) ========== ========== Weighted average common and common equivalent shares outstanding (in thousands) (fully diluted).............................. 52,317 52,317
- -------------------- (a) Adjusted to reflect cost of sales based upon first-in, first-out method of accounting for inventory from the last-in, first-out method used by Thomasville in 1995. (b) Adjusted to reflect the estimated pension expense to the Company associated with the formation of the new Thomasville pension plan. (c) Adjusted to reflect the reversal of expenses incurred by Thomasville for certain of its employee benefit plans, which were discontinued at the time of the acquisition by the Company. (d) Adjusted to reflect the reversal of Thomasville's nonrecurring restructuring charge of $404 in 1995 prior to the acquisition by the Company. (e) Adjusted to reverse the amortization of Thomasville's historical excess of cost over net assets acquired for the period prior to the acquisition of Thomasville by the Company. (f) Adjusted to reflect the amortization of the excess of cost over net assets of Thomasville acquired by the Company. (g) Adjusted to reflect increased depreciation expense to the Company resulting from recording property, plant and equipment of Thomasville at estimated fair value. (h) Adjusted to reflect increased interest expense to the Company related to borrowings under the Secured Credit Agreement and Receivables Securitization Facility in connection with the acquisition of Thomasville. (i) Adjusted to reflect reduction in interest income of the Company attributable to cash used by the Company to finance the Thomasville acquisition. (j) Adjusted to record the income tax effect of all adjustments at a combined statutory rate of 38.25%. (k) Includes $15,992 related to the 1992 asset revaluation. This item resulted in a reduction of $12,470 in net earnings from continuing operations and a reduction of $0.24 per share (fully diluted) in net earnings per common share. 3 Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K - -------------------------------------------------------------------------- (a) List of documents filed as part of this report: 1. Financial Statements: Consolidated balance sheets, December 31, 1994 and 1995. Consolidated statements of operations for each of the years in the three-year period ended December 31, 1995. Consolidated statement of cash flows for each of the years in the three-year period ended December 31, 1995. Consolidated statement of shareholders' equity for each of the years in the three-year period ended December 31, 1995. Notes to consolidated financial statements. Independent Auditors' Report 2. Financial Statement Schedules: Valuation and qualifying accounts (Schedule II). All other schedules are omitted as the required information is presented in the consolidated financial statements or related notes or are not applicable. 4 3. Exhibits: 3(a) Restated Certificate of Incorporation of the Company, as amended (Incorporated by reference to Exhibit 4(a) to INTERCO INCORPORATED's Quarterly Report on Form 10-Q for the quarter ended on March 31, 1993.) 3(b) By-Laws of the Company revised and amended to May 5, 1993. (Incorporated by reference to Exhibit 4(b) to INTERCO INCORPORATED's Quarterly Report on Form 10-Q for the quarter ended on March 31, 1993.) 4(a) Credit Agreement, dated as of November 17, 1994, as amended and restated as of December 29, 1995, among the Company, Broyhill Furniture Industries, Inc., The Lane Company, Incorporated, Thomasville Furniture Industries, Inc., Various Banks, Credit Lyonnais New York Branch, as Documentation Agent, Nationsbank, N.A., as Syndication Agent and Bankers Trust Company, as Administration Agent. (Incorporated by reference to Exhibit 99(a) to INTERCO INCORPORATED's Current Report on Form 8-K, dated January 12, 1996.) 4(b) Purchase and Contribution Agreement, dated as of November 15, 1994, as amended and restated as of December 29, 1995 among The Lane Company, Incorporated, Action Industries, Inc., Broyhill Furniture Industries, Inc. and Thomasville Furniture Industries as Sellers and Interco Receivables Corp. as Purchaser. 4(c) Receivables Purchase Agreement, dated as of November 15, 1994, as amended and restated as of December 29, 1995, among Interco Receivables Corp. as the Seller and Atlantic Asset Securitization Corp. as an Investor and Credit Lyonnais New York Branch as the Agent. (Incorporated by reference to Exhibit 99(b) to INTERCO INCORPORATED's Current Report on Form 8-K, dated January 12, 1996.) 4(d) Warrant Agreement, dated as of August 3, 1992, between the Company and Society National Bank, as Warrant Agent. (Incorporated by reference to Exhibit 4.5 to INTERCO INCORPORATED's Current Report on Form 8-K, dated August 18, 1992.) 4(e) Agreement to furnish upon request of the Commission copies of other instruments defining the rights of holders of long-term debt of the Company and its subsidiaries which debt does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis. (Incorporated by reference to Exhibit 4(c) to INTERCO INCORPORATED's Annual Report on Form 10-K for the year ended February 28, 1981.) 5 10(a) INTERCO INCORPORATED's 1992 Stock Option Plan. (Incorporated by reference to Exhibit 10(b) to INTERCO INCORPORATED's Annual Report on Form 10-K for the year ended December 31, 1992.) 10(b) Form of Indemnification Agreement between the Company and Richard B. Loynd, Donald E. Lasater and Lee M. Liberman. (Incorporated by reference to Exhibit 10(h) to INTERCO INCORPORATED's Annual Report on Form 10-K for the year ended February 29, 1988.) 10(c) Consulting Agreement, dated as of September 23, 1992, between the Company and Apollo Advisors, L.P. as amended on February 20, 1995. 10(d) Registration Rights Agreement, dated as of August 3, 1992, between the Company and Apollo Interco Partners, L.P. (Incorporated by reference to Exhibit 10(g) to INTERCO INCORPORATED's Annual Report on Form 10-K for the year ended December 31, 1992.) 10(e) Written description of bonus plan for management personnel of the Lane Company, Incorporated. 10(f) Retirement Plan for directors. (Incorporated by reference to Exhibit 10(g) to INTERCO INCORPORATED's Annual Report on Form 10-K for the year ended December 31, 1994.) 10(g) INTERCO Corporate Executive Incentive Plan. (Incorporated by reference to Exhibit 10(h) to INTERCO INCORPORATED's Annual Report on Form 10-K for the year ended December 31, 1994.) 10(h) Broyhill Furniture Industries, Inc. Executive Incentive Plan. (Incorporated by reference to Exhibit 10(i) to INTERCO INCORPORATED's Annual Report on Form 10-K for the year ended December 31, 1994.) 11 Statement regarding computation of per share earnings. 21 List of Subsidiaries of the Company. 23 Consent of KPMG Peat Marwick LLP. 27 Financial Data Schedule 99(a) Distribution and Services Agreement, dated November 17, 1994, between the Company and Converse Inc. (Incorporated by reference to Exhibit 99(a) to INTERCO INCORPORATED's Annual Report on Form 8-K, dated December 2, 1994.) 99(b) Tax Sharing Agreement, dated November 17, 1994, between the Company and Converse Inc. (Incorporated by reference to Exhibit 99(b) to INTERCO INCORPORATED's Annual Report on Form 8-K, dated December 2, 1994. 99(c) Distribution and Services Agreement, dated November 17, 1994, among the Company, The Florsheim Shoe Company and certain of its subsidiaries. (Incorporated by reference to Exhibit 99(c) to INTERCO INCORPORATED's Annual Report on Form 8-K, dated December 2, 1994. 99(d) INTERCO/Florsheim Tax Sharing Agreement, dated November 17, 1994, among the Company, The Florsheim Shoe Company and certain of its subsidiaries. (Incorporated by reference to Exhibit 99(d) to INTERCO INCORPORATED's Annual Report on Form 8-K, dated December 2, 1994.) 99(e) Amendment to Tax Sharing Agreement, dated as of February 21, 1996, between the Company and Converse Inc.* * Filed herewith (b) Reports on Form 8-K. A Form 8-K was filed on November 27, 1995, reporting the signing of an agreement to acquire Thomasville Furniture Industries, Inc., a Form 8-K was filed on January 12, 1996, as amended by Form 8-K/A-1 filed on January 16, 1996 and Form 8-K/A-2 filed on February 1, 1996, reporting the acquisition of Thomasville Furniture Industries, Inc., summarizing the Company's amended credit agreements and filing the agreements as exhibits thereto and a Form 8-K was filed on January 31, 1996 reporting information in the Company's press releases dated January 30, 1996. SHAREHOLDERS REQUESTING COPIES OF EXHIBITS TO FORM 10-K WILL BE SUPPLIED ANY OR ALL SUCH EXHIBITS AT A CHARGE OF TEN CENTS PER PAGE. 6 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INTERCO INCORPORATED ------------------------- (Registrant) By /s/ Lynn Chipperfield ---------------------- Lynn Chipperfield Vice President and Secretary Date: February 22, 1996 7 EX-99.(E) 2 AMENDMENT TO TAX SHARING AGREEMENT EXHIBIT 99(e) AMENDMENT TO TAX SHARING AGREEMENT This Amendment to Tax Sharing Agreement is dated as of February 21, 1996, by and among INTERCO INCORPORATED, a Delaware Corporation ("Interco"), and Converse Inc., a Delaware corporation ("Converse") and the Converse Subsidiaries. Defined terms used in this Agreement but not herein defined shall have the same meanings set forth in the Tax Sharing Agreement dated as of November 17, 1994 by and among Interco, Converse and the Converse Subsidiaries (the "Tax Sharing Agreement"). WHEREAS, Interco, Converse and the Converse Subsidiaries are parties to the Tax Sharing Agreement; WHEREAS, Section 12 of the Tax Sharing Agreement provides that it may be amended in a writing signed by Interco and Converse; WHEREAS, pursuant to the Tax Sharing Agreement, the consent of both Interco and Converse is required to carryback any Post-Distribution Tax Asset to Pre- Distribution Periods; WHEREAS, Interco will not receive any economic benefit from a Converse Post-Distribution Tax Asset unless Converse forgoes its ability to carry the Tax Asset forward and instead carries it back to Pre-Distribution Periods; WHEREAS, Converse cannot determine with certainty what benefit, if any, it might receive if it carries the Tax Asset forward and it desires to obtain an immediate economic benefit from the Tax Asset; and WHEREAS, in order to carryback certain of Converse's Post-Distribution Tax Assets arising in Converse's tax period ended December 30, 1995 and December 28, 1996, instead of forward, Interco and Converse desire to amend the Tax Sharing Agreement in respect to certain Tax Assets. NOW THEREFORE, in consideration of their mutual promises, the parties hereby agree as follows: 1. Tax Sharing Agreement Not to Apply. Notwithstanding the provisions of ---------------------------------- the Tax Sharing Agreement, including Sections 2(e) and 3 thereof, Interco and Converse agree that Converse shall carryback federal income tax operating losses from its tax period ended December 30, 1995 and December 28, 1996 (the "Subject Post-Distribution Tax Asset") to one or more Pre-Distribution Tax Periods. This Agreement shall apply to the first $41 million of net operating losses carried back for federal income tax purposes arising in Converse's tax years ending December 31, 1995 and 1996 and to the extent such net operating loss carryback available for such years exceed $41 Million ("Excess Tax Assets"), any tax refund arising from such Excess Tax Assets shall be shared on a 50/50 basis between Converse and Interco in accordance with Section 3(a) of the Tax Sharing Agreement and notwithstanding Section 4 hereof, such Excess Tax Assets shall be subject to all other provisions of the Tax Sharing Agreement. 2. Payments. On the first business day following the Effective Date (as -------- herein defined) Interco shall pay to Converse, in cash, the amount of Eight Million Dollars ($8,000,000) in full payment of Converse's share of the benefits expected to arise from such carrybacks. Except for possible payments in respect of Excess Tax Assets, no further payments shall be required to be made to Converse in respect of such carrybacks or any tax benefit therefrom and Converse agrees that any refund received by Interco on account of the Subject Post-Distribution Tax Asset will be solely for Interco's account. In the event Converse receives any payment on account of such refunds, it agrees that it will receive such payment in trust for the account of Interco and will immediately upon receipt turn the payment over to Interco with all necessary endorsements. 3. Representations and Covenants. ----------------------------- (i) Commencing on the date hereof, Interco and Converse shall consult regarding the preparation of the 1995 Converse federal income tax return. Converse shall deliver to Interco on or before March 1, 1996, a working draft of the 1995 Converse federal income tax return. By March 7, 1996, Converse shall provide Interco with a copy of its completed and unfiled federal income tax return for the period ended December 30, 1995, and Interco shall have six days to review and comment on such return. (ii) By March 15, 1996, Converse shall file and provide Interco with a copy of its federal income tax return, as filed, relating to its year ended December 30, 1995. (iii) Interco shall file federal income tax carryback refund claims with respect to all of the losses shown on the return described in Section 3(ii) promptly after receipt of such return and provide Converse with copies of such filings from which Interco may delete any information relevant to its other Subsidiaries so long as sufficient information is made available to Converse to compute any carry forward of Converse from such years. (iv) Converse and Interco agree to cooperate fully with each other in connection with the carrybacks and claims for refund described herein and in connection with any federal tax audits of Converse or Interco in respect of the tax years in which the carried back losses arose or to which such losses were carried. (v) Interco represents that it has not filed any amended returns nor Request for a carryback Refund for the carryback years. (vi) Converse represents that it has not filed any amended returns nor Request for a carryback Refund for the carryback years. 2 (vii) Converse represents and warrants to Interco that: (a) the 1995 federal income tax return to be prepared and filed by Converse pursuant to Section 3(ii) hereof will report a net operating loss aggregating at least $31 million; (b) the 1995 and 1996 federal income tax returns to be prepared and filed by Converse pursuant to Sections 3(ii) and (ix) will report aggregate net operating losses that may be carried back to the Interco consolidated federal income tax return for one or more Pre-Distribution Tax Periods in an amount available to be carried back equal to at least $31 million after the Final Determination of any IRS audit; and (c) Converse shall not settle any federal income tax audit for the 1995 tax year or the 1996 tax year without the written consent of Interco which consent will not be unreasonably withheld. (viii) Converse shall deliver to Interco on or before March 1, 1997, a working draft of the 1996 Converse federal income tax return. By March 7, 1997, Converse shall provide Interco with a copy of its completed and unfiled federal income tax return for the period ended December 28, 1996, and Interco shall have six days to review and comment on such return. (ix) By March 15, 1997, Converse shall file and provide Interco with a copy of its federal income tax return, as filed, relating to its year ended December 28, 1996. (x) Converse covenants and agrees that: (a) the 1995 and 1996 federal tax returns and the 1995 and 1996 records will be prepared consistently with past practice, except for any changes required by law; (b) no extraordinary bookkeeping measures will be taken for the purpose of reducing the amount of tax loss in 1995 or 1996, or for the purpose of shifting any such tax loss to any year other than 1995 or 1996, including, without limitation, the establishment of excessive reserves, the failure to expense a bad debt as and when it becomes recognizable as such, or the shifting of losses from Converse to one of its subsidiaries, if a purpose of such measure is to diminish or defeat Interco's rights hereunder, provided, however, that Converse retains the flexibility to exercise its judgment with respect to tax and business matters and routine tax and business planning; and 3 (c) to the extent allowable under the federal income tax laws, Converse will claim as losses in 1995 and 1996 all losses, including but not limited to the write-off or partial write-off of all advances or loans to Apex, associated with its investment in Apex. (xi) Interco shall file federal refund claims with respect to all of the losses shown on the return described in Section 3(ix) promptly after receipt of such return and provide Converse with copies of such filings from which Interco may delete any information relevant to its other Subsidiaries so long as sufficient information is made available to Converse to compute any carry forward of Converse from such years. (xii) Interco shall not settle any federal income tax audit relating to the claims for refunds described in Section 3(iii) and (xi) without the written consent of Converse (which consent shall not be unreasonably withheld) if the issue involved in such audit, if determined adversely, could result in payment by Converse hereunder or if such issue would reduce the carry forward of Converse from such years. 4. Tax Sharing Agreement to Continue. Except with respect to any matter --------------------------------- relating to or arising out of the carrybacks and refunds described in this Amendment, which shall be governed solely by this Amendment, the Tax Sharing Agreement shall continue in full force and effect. It is specifically agreed that sections 2, 3, 6(a) and 9 of the Tax Sharing Agreement shall not apply to any matter relating to or arising out of the carrybacks and refunds described in this Amendment; provided, however, that the balance of the agreement shall apply. 5. Converse Executive Committee Approval. Any provision herein to the ------------------------------------- contrary notwithstanding, the obligations of the parties hereunder are expressly subject to the approval of this Amendment in its final form by the Executive Committee of Converse's Board of Directors. Converse agrees to provide Interco with notice in writing (the "Notice of Approval") promptly upon such approval, and the date upon which Converse provides such Notice of Approval shall be known as the "Effective Date." On the Effective Date, this Amendment shall be deemed to be fully effective and the obligations of the parties undertaken herein shall be deemed binding. If no Notice of Approval shall have been received by Interco on or prior to March 15, 1996, this Amendment shall be considered null and void and the original Tax Sharing Agreement shall be deemed to be in full force and effect without amendment. Notwithstanding the foregoing, and regardless of whether or not the Notice of Approval has yet been given, between the date hereof and the earlier of (a) March 15, 1996 or (b) the date upon which Converse notifies Interco in writing of its intention not to provide the Notice of Approval, Converse shall comply with its obligations under Sections 3(i), (ii) and (x) hereof, and the satisfaction of those obligations (to the extent the date for performance of same predates the Notice of Approval) shall be a condition precedent to Converse's right to give valid Notice of Approval. 4 IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the day and year first above written. INTERCO INCORPORATED Converse Inc. By: /s/ Lynn Chipperfield By: /s/ Donald J. Camacho --------------------- --------------------- Its: Vice President Senior Vice President and Secretary Converse Star I, Inc. Converse Germany, Inc. By: /s/ Donald J. Camacho By: /s/ Donald J. Camacho --------------------- --------------------- Vice President Vice President Converse EMEA, Ltd. Converse Benelux Holding Company, Inc. By: /s/ Donald J. Camacho By: /s/ Donald J. Camacho --------------------- --------------------- Vice President Vice President Converse Europe, Inc. Converse Iberia, Inc. By: /s/ Donald J. Camacho By: /s/ Donald J. Camacho --------------------- --------------------- Vice President Vice President Converse Benelux, Inc. Converse France, Inc. By: /s/ Donald J. Camacho By: /s/ Donald J. Camacho --------------------- --------------------- Vice President Vice President Converse Italy, Inc. By: /s/ Donald J. Camacho --------------------- Vice President 5 -----END PRIVACY-ENHANCED MESSAGE-----