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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1998 Commission File Number: 333-11905
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LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
(Exact Name of Registrant as Specified in its Charter)
Delaware 56-1977928
(State of Incorporation) (I.R.S. Employer Identification No.)
4000 Lifestyle Court, High Point, NC 27265
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (336) 878-7000
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act: None
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 a 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. |X|
The registrant is a privately held corporation. As such, there is no practicable
method to determine the aggregate market value of the voting stock held by
non-affiliates of the registrant.
Number of shares outstanding of the registrant's
Common Stock at March 1, 1999:
100 shares of Common Stock, par value $.01 per share
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TABLE OF CONTENTS
Item Page No.
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PART I
1. Business............................................................... 1
2. Properties............................................................. 12
3. Legal Proceedings...................................................... 12
4. Submission of Matters to a Vote of Security Holders.................... 13
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters.. 14
6. Selected Historical Financial Data..................................... 15
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 17
8. Financial Statements................................................... 27
9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure................................................. 57
PART III
10. Directors and Executive Officers of the Registrant..................... 58
11. Executive Compensation................................................. 60
12. Security Ownership of Certain Beneficial Owners and Management......... 62
13. Certain Relationships and Related Transactions......................... 65
PART IV
14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K........ 66
15. Signatures............................................................. 69
FINANCIAL STATEMENT SCHEDULE
LIFESTYLE FURNISHINGS INTERNATIONAL LTD. Financial Statement Schedule...... 71
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PART I
Item 1. BUSINESS
General
LIFESTYLE FURNISHINGS INTERNATIONAL LTD. ("LifeStyle") is the largest
manufacturer and marketer of home furnishings (fine furniture, including
decorative accessories, and decorative home furnishings fabrics) in the U.S.,
with 1998 net sales of $2.0 billion. Fine furniture represented approximately
87% of LifeStyle's net sales in 1998 and decorative home furnishing fabrics
represented approximately 13%. LifeStyle attributes its market leadership
position to the following key factors:
o Fashionable and innovative product designs with an emphasis on
style, quality and value
o Comprehensive product offerings that provide retailers and consumers
with a broad range of price points and styles
o Multi-channel distribution to a customer base of over 50,000
accounts, providing LifeStyle's products to consumers wherever they
choose to shop
o Established brand names, such as Henredon(R) and Drexel Heritage(R),
as well as partnerships with leading fashion designers, brands and
artists, such as Ralph Lauren, Nautica and Bob Timberlake
o Commitment to improving retailer and consumer satisfaction levels
with the home furnishings buying experience
o An experienced and innovative management team with significant
equity ownership and a commitment to continuous improvement
LifeStyle is restructuring its manufacturing base, reengineering its
manufacturing and business processes and incorporating technology into its
product design and business processes in order to achieve sustainable operating
efficiencies, dramatically shorten order-to-ship times and enhance LifeStyle's
ability to satisfy its customers and consumers. Once implemented, LifeStyle
expects these restructuring and reengineering initiatives to increase operating
margins, reduce working capital, increase market share, improve retailer
profitability and strengthen LifeStyle's leadership position in the home
furnishings industry.
Fine Furniture. LifeStyle designs, manufactures and markets a full range
of quality wood and upholstered furniture to furnish any room of a home in
virtually any style, under such well-known brand names as Henredon(R), Drexel
Heritage(R), Lexington(R), Universal(R), Berkline(R) and BenchCraft(R), and a
wide range of furniture accessories under the Maitland-Smith(TM) and La Barge(R)
brand names.
Decorative Home Furnishing Fabrics. LifeStyle designs, markets and
distributes over 25,000 decorative home furnishing fabrics, such as fabrics for
upholstery and draperies, under such well-known brand names as Robert Allen(TM),
Sunbury(TM) and Beacon Hill(R).
FURNISHINGS INTERNATIONAL INC. ("Holdings"), LifeStyle's parent, has filed
a Registration Statement on Form S-1 (File No. 333-58655) relating to the
initial public offering of its common stock (the "Offerings"). In connection
with the Offerings, LifeStyle will be merged with and into Holdings, which will
then change its name to LifeStyle Furnishings International Ltd. In addition,
LifeStyle has commenced a cash tender offer to acquire all of its outstanding
subordinated notes. For a further discussion of the initial public offering and
related transactions, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
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Products
LifeStyle believes it offers the most comprehensive product line in the
home furnishings industry, including bedroom, dining room, living room, family
room and home-office case goods; stationary upholstered products such as sofas,
love seats, sectionals and chairs; upholstered recliners, motion furniture and
sleep sofas; occasional furniture such as home entertainment centers, lamps,
chairs, tables, mirrors and other accent items; outdoor furniture; and
decorative home furnishing fabrics.
Fine Furniture
The product category "Fine Furniture" includes wood and upholstered
residential furniture (other than "ready-to-assemble" products), as well as
occasional tables, decorative mirrors, lighting and other related furnishings.
LifeStyle designs, manufactures and markets a full range of quality wood and
upholstered furniture to furnish any room of a home in virtually any style,
under such well-known brand names as Henredon(R), Drexel Heritage(R),
Lexington(R), Universal(R), Berkline(R) and BenchCraft(R), and a wide range of
specialty furniture and accessories under the Maitland-Smith(TM) and La Barge(R)
brand names. LifeStyle offers these products across all major price categories,
from "promotional" to "premium," and in every major style category, including
American Traditional, Country, Eighteenth Century, European Country, European
Traditional, Transitional, Casual, Mission, Arts and Crafts, Contemporary,
Oriental, Home Office, Youth and Outdoor.
The following table illustrates the product and price category coverage
of LifeStyle's fine furniture brands. The residential furniture industry
generally classifies its products by several price categories ranging from
"promotional" to "premium." Products in successively higher price categories are
made using more expensive raw materials, have higher quality finishes, and often
involve higher labor costs.
<TABLE>
<CAPTION>
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Price Category Product Category
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Stationary Motion/
Case Goods Upholstery Recliner Occasional
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<S> <C> <C> <C> <C>
Premium Henredon(R) Beacon Hill(R) Henredon(R)
Maitland-Smith(TM) Henredon(R) La Barge(R)
Maitland-Smith(TM)
------------------------------------------------------------------------------------------------------------
Best Drexel Heritage(R) Beacon Hill(R) Drexel Heritage(R) Drexel Heritage(R)
Henredon(R) Drexel Heritage(R) Henredon(R)
Maitland-Smith(TM) Henredon(R) La Barge(R)
Maitland-Smith(TM)
------------------------------------------------------------------------------------------------------------
Better Drexel Heritage(R) BenchCraft(R) BenchCraft(R) Drexel Heritage(R)
Lexington(R) Drexel Heritage(R) Berkline(R) Lexington(R)
Universal(R) Lexington(R) Drexel Heritage(R)
Universal(R)
------------------------------------------------------------------------------------------------------------
Good Lexington(R) BenchCraft(R) BenchCraft(R) Universal(R)
Universal(R) Universal(R) Berkline(R)
------------------------------------------------------------------------------------------------------------
Promotional Universal(R) BenchCraft(R) BenchCraft(R) Universal(R)
Berkline(R)
------------------------------------------------------------------------------------------------------------
</TABLE>
Shaded area indicates product category does not exist.
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Henredon(R)
Henredon designs and manufactures wood, upholstered and occasional
furniture for the bedroom, dining room, living room, family room and home
office. Its products are in the "best" and "premium" price categories.
Henredon's product line is designed to appeal largely to the "replacement"
market, where customers typically trade up in price as they seek top quality
materials and craftsmanship. Product design and development represent an
important element of Henredon's success, and its name is considered to be one of
the premier brands in the industry. Henredon currently markets 18 collections
(including the Ralph Lauren Home Collection(TM) and Henredon Registry(TM)), each
aimed at a specific segment of the upper end market. In order to stay current
with developing lifestyles, Henredon introduces approximately four new
collections each year. Current product offerings cover all major categories,
including Anglo Traditional, European Traditional, Contemporary, Transitional
and Casual. Since 1993, Henredon has manufactured and marketed a line of
products for the Ralph Lauren Home Collection(TM) under an exclusive licensing
arrangement with The Ralph Lauren Home Collection, Inc. This comprehensive
collection provides an excellent complement to the regular Henredon line. Recent
successful new introductions include Alfresco(TM) (Euro traditional),
Carlyle(TM) (Anglo traditional) and the launch of the Henredon Leather
Company(TM).
Drexel Heritage(R)
Drexel Heritage designs and manufactures wood, upholstered, motion and
occasional furniture for the bedroom, dining room, living room, family room and
home office in the "better" and "best" price categories. Drexel Heritage(R)
products are primarily marketed and distributed through dedicated, independently
owned Drexel Heritage Home Inspirations(R) stores and Drexel Heritage Galleries.
Drexel Heritage currently produces 26 collections of wood and upholstered
furniture. Approximately four to six new collections are offered each year.
Drexel Heritage's product styles include American Traditional, Country,
Eighteenth Century, European Traditional, Mission, Contemporary and
Transitional. Drexel Heritage licenses two branded collections--the Pinehurst
Collection(TM) (case goods and upholstery) and Lillian August(R)
(upholstery)--and has an exclusive endorsement agreement with Golden Bear Golf,
Inc. to furnish all country club and resort developments associated with
Nicklaus Design. Drexel Heritage also produces furniture for sale to the
hospitality and government markets. Recent successful new introductions include
the comprehensive Pinehurst Collection(TM) (sophisticated yet casual--a
lifestyle collection) and Solutions Contemporary(TM) and Solutions Casual(TM)
(contemporary, casual, functional, youth-oriented with a point of view).
Lexington(R)
Lexington designs and manufactures wood, upholstered, occasional, wicker
and metal furniture for the bedroom, dining room, living room, family room, home
entertainment, home office, youth and casual dining market segments. Lexington's
product line provides a comprehensive diversified assortment of furniture in the
"good" and "better" price categories. LifeStyle believes that Lexington's
marketing and design teams, which consistently win industry awards, represent an
integral part of Lexington's success. With the introduction of Lynn Hollyn at
Home(TM) in 1989, Lexington pioneered "lifestyle" and designer
collections--full-line collections of eclectic (rather than matching) designs
that draw inspiration from a recognized brand name or lifestyle theme. Current
lifestyle collections include The World of Bob Timberlake(R), The Palmer Home
Collection, Weekend Retreat(TM) and Seaside Retreat(TM), Vestiges(TM), Atlantic
Overtures(TM), American Mix(TM), Nautica Home collection, Warren Kimble's
America(TM), and Bob Timberlake's newest success story, An Arts and Crafts
Collection(TM) from Bob Timberlake(R). Style categories include American and
European Traditional, Eighteenth Century, Transitional and both Sophisticated
and Relaxed Country and Casual. Lexington's line of approximately 50 collections
includes lifestyle collections, youth collections and several home entertainment
and home office programs. Recent successful new introductions include Nautica
Home (contemporary, Caribbean-inspired, featuring mixed materials), Betsy
Cameron's Storybook(TM) (female youth), and Seaside Retreat(TM) (casual,
coastal-inspired).
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Universal(R)
Universal's products include dining room, bedroom, upholstered and
occasional furniture in the "promotional," "good" and "better" price categories.
A substantial portion of Universal products are manufactured in Asia, where
LifeStyle is the only U.S.-based manufacturer with significant manufacturing
operations. Universal also has access to a highly skilled, low-cost work force,
expert in such areas as intricate veneering and hand carving, and to scarce raw
materials such as Chinese oak, wicker, rattan and certain exotic woods.
Universal currently sells approximately 60 collections of furniture, including
styles such as Eighteenth Century, Traditional, Transitional, Oriental and
Country, and introduces approximately four to six new collections a year.
Universal's Alexander Julian Home Colours(R) and American Generations(R)
collections are among the industry's best selling "mega collections." Recent
successful new introductions include Habitat(TM) (functional, decorative kitchen
and bedroom products), Decorum(TM) (Regency-influenced traditional) and American
Heirlooms(TM) (innovative transitional dining room and bedroom).
Berkline(R)
A specialist in "motion" products, Berkline designs and manufactures a
wide range of reclining chairs, reclining sofas and loveseats, reclining
sectionals and modular seating and sleep sofas, primarily in the "good" and
"better" price categories. Berkline is an industry leader and the Berkline(R)
brand name is well known in the growing market for upholstered modular and
motion furniture and freestanding recliners. Berkline offers a wide range of
styles, fabrics and leathers for these products, as well as popular innovative
features such as massage mechanisms, hidden cup holders and built-in tables.
Successful new product introductions include Room Solutions(TM) (motion
upholstery and correlated occasional tables); sleeker, smaller scale recliners;
and innovative "shiatsu" and "whisper quiet" massage recliners.
BenchCraft(R)
BenchCraft designs and manufactures a comprehensive line of upholstered
furniture, including leather, stationary, motion, wicker and rattan products.
BenchCraft competes in the "promotional," "good" and "better" price categories,
and its products are marketed as fashionable, affordable furniture for "casual
living." Successful new product introductions include new leather styles and
contemporary lifestyle sofas as well as more fashionable new motion sofas and
table correlates.
Maitland-Smith(TM)
Maitland-Smith is the leading designer and manufacturer of an innovative
line of "best" and "premium" hand-crafted, antique-inspired furniture,
accessories and lighting, utilizing a wide range of unique materials, including
distinctive leather, fancy faced veneer, stone and hand-painted metal.
Maitland-Smith also manufactures signature pieces and intricately carved chairs
for other LifeStyle divisions at its factories in the Philippines and Indonesia.
Successful new introductions include more than 500 product additions across
Maitland-Smith's eclectic lines, including the London Explorer Club(TM)
collection featuring British expatriate design inspiration.
La Barge(R)
La Barge designs and sells decorative mirrors, occasional tables, bedroom
and dining room statement pieces, decorative lighting and related accessories in
the "best" and "premium" price categories under four brand names: La Barge(R),
Marbro(TM), entree(TM) and Magellan(TM). La Barge designs its products, and
contracts their manufacture with highly skilled artisans around the world who
produce high quality, specialty decorative products.
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Decorative Home Furnishing Fabrics
LifeStyle designs, manufactures, sources, markets and sells a
comprehensive range of decorative fabrics to a broad array of customers under
the well-known industry brands of Beacon Hill(R), Ramm, Son & Crocker(TM),
Sunbury(TM), Robert Allen(TM) and Ametex(TM). The fabrics group consists of The
Robert Allen Group, Sunbury, and LifeStyle Fabrics Europe, each creating
exclusive fabric designs for targeted segments of the market. The following
table illustrates the price category coverage of LifeStyle's decorative home
furnishing fabric brands:
<TABLE>
<CAPTION>
--------------------------------------------------------------
Price Category Brand
--------------------------------------------------------------
<S> <C>
Premium Beacon Hill(R)
Ramm, Son & Crocker(TM)
--------------------------------------------------------------
Best Beacon Hill(R)
Ramm, Son & Crocker(TM)
Robert Allen(TM)
Sunbury(TM)
--------------------------------------------------------------
Better Ametex(TM)
Robert Allen(TM)
Sunbury(TM)
--------------------------------------------------------------
Good Ametex(TM)
--------------------------------------------------------------
</TABLE>
The Robert Allen Group
The Robert Allen Group is the largest designer and marketer of home
furnishing fabrics to the North American design community. The Robert Allen
Group designs, markets and sells a wide range of textiles under the Beacon
Hill(R), Robert Allen(TM) and Ametex(TM) brands.
Beacon Hill(R) is a classic, stylish line of luxurious fabrics, using the
finest quality materials and advanced manufacturing techniques. Fabrics are
organized in collections by color or fabric type. Many of the Beacon Hill(R)
fabrics are sourced overseas, offering distinctive looks to the U. S. market.
The Beacon Hill(R) collections are sold exclusively through high-end interior
designers, architects and LifeStyle's own Beacon Hill(R) showrooms. Combined
marketing programs for Beacon Hill(R) fabrics and furniture have made the brand
a powerful name in the high-end design community.
The Robert Allen(R) line includes an extensive collection of home
furnishings fabrics cut to order on a just-in-time basis for designers,
decorators and specialty retailers. Robert Allen markets its over 24,000 fabrics
to more than 30,000 customers in four key collections: Color Library(TM),
Essentials(TM), Editions(TM) and Passementerie(TM). Color Library(TM) is a color
coordinated collection of upholstery and multi-purpose fabrics that create a
total look for the home, updated each spring and fall with the latest colors and
constructions. Essentials(TM) delivers fabric basics such as sheers, velvets and
stripes in fashionable and affordable collections. Editions(TM) arranges print
and woven fabrics into lifestyle collections. Passementerie(TM) is an extensive
collection of decorative trim products used to accessorize upholstery and
drapery.
The Ametex(TM) product line includes a broad array of printed and woven
fabrics in the "good" and "better" price points. These designs are developed in
Ametex's in-house design studio, and manufactured by a global network of
contractors. Ametex sells its products to furniture manufacturers, window and
bedding product manufacturers, fabric retailers and ancillary industries. Ametex
employs a computer-aided design system to customize fabrics to customer needs.
Over the past year, Ametex has repositioned its product line to focus on
lifestyle collections in the "better" price points.
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Sunbury(TM)
Sunbury designs, manufactures and markets a comprehensive line of
proprietary decorative upholstery fabrics in the "better" and "best" price
categories. It is recognized as a leader in quality, service and design. Sunbury
sells fabrics principally to furniture manufacturers and fabrics distributors.
Sunbury's jacquard weaving operation employs advanced computer-aided design and
manufacturing equipment. All of Sunbury's products are woven to customer order,
which allows it to maintain smaller inventories and reduce obsolescence costs.
In addition, Sunbury's ability to create exclusive designs for sale in small
quantities sets it apart from the competition.
LifeStyle Fabrics Europe
LifeStyle Fabrics Europe, based in the United Kingdom, is the European
distribution network for the Beacon Hill(R), Robert Allen(TM) and Ametex(TM)
brands. In addition, it utilizes its own design studio and extensive fabric
archive to create upper-end products under the Ramm, Son & Crocker(TM) name
tailored to the European marketplace.
Distribution
LifeStyle distributes its fine furniture products through an extensive
worldwide distribution network that includes (i) more than 22,000 independent
retail locations, including national and regional chains; (ii) department
stores; (iii) specialty stores and more than 1,500 galleries
(LifeStyle-dedicated floor space) within retail stores; (iv) more than 80
independent stores selling LifeStyle products exclusively; (v) hospitality,
government, model home and other contract distribution channels; and (vi) 13
LifeStyle-operated Beacon Hill(R) designer-exclusive showrooms. Worldwide,
LifeStyle sells its fine furniture products primarily through approximately 580
commissioned independent representatives. LifeStyle has recently begun offering
product information through non-traditional channels such as the Internet. In
addition, LifeStyle is participating in the non-traditional direct mail channel
with Sharper Image Home Collection(TM), Neiman-Marcus(R) and Horchow(R).
LifeStyle distributes over 25,000 different decorative home furnishing
fabrics through numerous distribution channels, including its Beacon Hill(R)
showrooms, to an extensive customer base consisting of over 30,000 retailers,
decorators and designers worldwide. LifeStyle also sells decorative home
furnishing fabrics to furniture manufacturers.
LifeStyle's extensive distribution network permits it to offer home
furnishings products to consumers wherever they choose to shop.
LifeStyle has also been actively pursuing mutually beneficial partnership
arrangements and alliances with selected retailers for several years, most
recently with HomeLife (formerly Sears HomeLife). LifeStyle expects that these
arrangements will permit it to capitalize on the ongoing concentration of the
retailer distribution base and the growth of large regional and national
furniture retailers.
In 1998, LifeStyle's 20 largest customers represented approximately 20% of
net sales, with no single customer representing as much as 4.0%. LifeStyle
believes it has more active accounts than any other manufacturer in the home
furnishings industry.
Fine Furniture
LifeStyle believes that it is the most comprehensive and complete resource
in the residential furniture industry, capable of supplying up to 75% of the
product demands of many furniture retailers, whether local, regional or national
in scope. This, in turn, enables LifeStyle to secure additional display space
from retailers, who increasingly are relying on a smaller number of larger
suppliers. LifeStyle offers substantial services to retailers to support their
marketing efforts, including national advertising, merchandising and display
programs. LifeStyle also displays its fine furniture products at the semi-annual
International Home Furnishings Market in High Point, North Carolina.
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The following table illustrates the distribution of LifeStyle's fine
furniture products by brand:
<TABLE>
<CAPTION>
Distribution Channel
--------------------------------------------------------------------------------------------------
Independent Retailers Galleries Dedicated Stores Designer Showrooms
---------------------- --------------------- -------------------- -----------------------
<S> <C> <C> <C>
BenchCraft(R) Berkline(R) Drexel Heritage(R) Beacon Hill(R)
Berkline(R) Drexel Heritage(R) Drexel Heritage(R)
Drexel Heritage(R) Henredon(R) Henredon(R)
Henredon(R) La Barge(R) La Barge(R)
La Barge(R) Lexington(R) Lexington(R)
Lexington(R) Maitland-Smith(TM) Maitland-Smith(TM)
Maitland-Smith(TM)
Universal(R)
</TABLE>
Furniture retailers remain the most significant distribution channel in
the industry, and LifeStyle is committed to maintaining these important
relationships. LifeStyle's diverse product offerings and national distribution
enable it to effectively service national retailers such as Federated Department
Stores, Heilig-Meyers, J.C. Penney, Rhodes and HomeLife (formerly Sears
HomeLife), and large regional retailers such as Baers Furniture, Breuners,
Homestead House, Kittles Furniture and Art Van, as well as independent single
store retailers nationwide. As the furniture retailing industry consolidates,
large retailers are an increasing presence, and management believes that
LifeStyle is better positioned than its competitors to meet their needs.
LifeStyle has developed gallery programs for its Henredon(R), Drexel
Heritage(R), Lexington(R), Berkline(R), Maitland-Smith(TM) and La Barge(R)
product lines, and has approximately 1,500 galleries in total. Galleries are
dedicated space within a larger retail store that display products in complete
and fully accessorized room settings instead of as individual pieces. This
presentation format encourages consumers to purchase an entire room of furniture
instead of individual pieces from different manufacturers. LifeStyle believes
that stores with galleries result in higher sales per square foot than furniture
stores without galleries.
LifeStyle also sells its products through more than 80 independently owned
and operated stores that offer LifeStyle's products exclusively. Drexel
Heritage(R) products are sold through Drexel Heritage(R) showcase stores and
Drexel Heritage Home Inspirations(TM) stores. Each store employs a consistent,
but not identical, lifestyle concept, with products displayed in complete rooms
and eclectic settings, which include furnishings, wall decor, window treatments
and accessories. Henredon's Ralph Lauren Home Collection(TM) products are sold
through specialty retail stores owned or licensed by the Polo Ralph Lauren
Corporation.
Beacon Hill(R) showrooms comprise a national network of 13 showrooms,
principally in design centers in major U.S. cities, dedicated to marketing and
selling furniture, accessories and fabric exclusively to interior designers and
architects, primarily in the "best" and "premium" price categories. Beacon Hill
is one of only two national networks of designer-exclusive furniture showrooms,
and has approximately 213,000 square feet of space dedicated to furniture and
accessories, and 75,000 square feet dedicated to fabrics. Approximately 45% of
furniture sales at the showrooms consist of LifeStyle products, principally
Henredon(R), Maitland-Smith(TM), La Barge(R) and Drexel Heritage(R). The balance
is from other well respected companies in the upper-end of the market, including
Kindel, John Widdicomb and Guy Chaddock. In 1998, Beacon Hill added furniture
from the Ralph Lauren Home Collection(TM).
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Decorative Home Furnishing Fabrics
LifeStyle distributes its Robert Allen(TM) products through numerous
distribution channels, including its own showroom and more than 70 commissioned
independent representatives, to over 30,000 retailers, decorators and designers
worldwide. LifeStyle sells its Ametex(TM) products through over 10 commissioned
independent representatives, primarily to furniture manufacturers, bedding and
drapery manufacturers and contract purchasing agents. Sunbury(TM) products are
sold to furniture manufacturers and distributors of decorative home furnishing
fabrics in the U.S. and Canada by eight commissioned sales representatives.
LifeStyle's decorative home furnishing fabrics are also sold to decorators and
designers through LifeStyle's Beacon Hill(R) Showrooms, which offer Robert
Allen(TM) and Ramm, Son & Crocker(TM) fabrics on a commission basis. Fabrics
Europe, based in the United Kingdom, is the European distribution network for
the Beacon Hill(R), Robert Allen(TM) and Ametex(TM) brands.
Marketing and Advertising
In partnership with its selected retailers, LifeStyle works to strengthen
its brand equity with consumers and increase their purchases of LifeStyle
products. These consumers are carefully profiled through marketing research and
are then targeted through advertising programs on the national and local levels,
comprehensive cataloging, education through focused marketing events and
selected promotional programs. Retailers are also carefully selected to market
LifeStyle's products to a wide range of consumers. These retailers, in turn, are
supported with innovative training for their sales people, design assistance for
their retail displays of LifeStyle products, noted speakers and planning support
for their focused marketing events, visually stimulating point of purchase
materials, catalogs and sales materials, direct communications linkage to the
manufacturers for timely stock and status information and promotional support.
Architects, designers and decorators who specify and sell LifeStyle
products receive exclusive sales support through Beacon Hill showrooms. Value
added services such as continuing education and special events with shelter
publications draw new designers into the showrooms and build designer loyalty.
LifeStyle builds brand equity and increases awareness among consumers and
designers through television advertising, advertising in newspapers and leading
shelter magazines, as well as editorial coverage. Targeting specific consumer
demographics, advertisements are placed in publications that include
Architectural Digest, Country Home, Country Living, Elle Decor, House Beautiful,
House & Garden, Martha Stewart Living, Metropolitan Home, Traditional Home,
Southern Accents and Victoria. The combined volume of advertising from all
product lines gives LifeStyle leverage in purchasing advertising. Innovative
products continue to draw the attention of editors for major shelter magazines.
Their valuable editorial coverage favorably positions products with consumers
and designers at no cost to LifeStyle.
Responding to consumers' desire for home furnishings information,
LifeStyle has created interactive sites on the Internet which allow users to
browse its product lines, learn more about LifeStyle and be directed to local
retailers. Purchasing and design professionals in the hospitality, government,
model home and other contract markets receive specialized services through
LifeStyle's Contract division. From initial presentation through project
completion, LifeStyle's Contract division supports these customers with a global
sales and marketing network, extensive cataloging, customized products and
specialized delivery services.
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Manufacturing
LifeStyle operates 71 strategically located, well equipped facilities in
North America, Asia, and Europe, with over 23 million square feet of
manufacturing and distribution space. During the past five years, LifeStyle
invested approximately $234 million in its facilities in order to meet
anticipated demand, reduce operating costs and maximize operating flexibility.
As the largest U.S. furniture manufacturer in Asia, LifeStyle also has access to
a highly skilled, low-cost workforce, expert in such areas as intricate
veneering and hand carving, and to scarce raw materials such as Chinese oak,
wicker, rattan and certain exotic woods. LifeStyle believes that its global
facilities enable it to serve its worldwide customer base efficiently and to
allocate capacity to best meet its manufacturing requirements. Because of
LifeStyle's recent modernization, and the productivity enhancements that it is
currently implementing, LifeStyle does not expect to incur significant increases
in its capital expenditures during the next several years.
LifeStyle is implementing "short-cycle" management methodologies and is
committed to a continuous improvement work ethic enterprise-wide. Implementation
of short-cycle management methodologies requires a reexamination,
rationalization and reengineering of LifeStyle's operations and business
systems, with a focus on eliminating non-value-added activities. Across all of
LifeStyle's furnishings companies, approximately one-third of the products are
currently shipped in two to three weeks, and the majority of all order-to-ship
times are expected to attain these levels over the next 12 to 24 months. More
than 50% of LifeStyle's plants are now implementing short-cycle management
methodologies, and these "best practices" will be implemented enterprise-wide.
When implemented, these methodologies are expected to dramatically reduce
manufacturing and administrative throughput times, resulting in efficient
order-to-ship cycles, quality enhancements and a better value for LifeStyle's
customers. LifeStyle's continuous improvement initiatives are multi-faceted, and
include:
o Process mapping and re-layout
o Quick change tooling and setups
o Converting from "push," or batch manufacturing, to more efficient
"pull," or assemble-to-order processing
o Implementation of "cellular" manufacturing, "just-in-time" logistics
and other modern production methods
o Company-wide product design and development software
o Enterprise-wide, Oracle-based software platform
LifeStyle utilizes certain specialized facilities dedicated to
manufacturing a limited number of products, as well as carefully selected
sub-contract manufacturing facilities. LifeStyle also promotes inter-company
sourcing of products and components. These steps help LifeStyle balance its
global manufacturing capacity and increase its operating efficiency.
LifeStyle's fine furniture lines are produced and distributed in domestic
manufacturing and distribution facilities located in North Carolina, Tennessee,
Mississippi, South Carolina, and California, and internationally in facilities
located in Canada, China, Hong Kong, Indonesia, Malaysia, the Philippines,
Taiwan, Thailand and several European countries. Substantially all of
LifeStyle's Robert Allen(TM) and Ramm, Son & Crocker(TM) decorative home
furnishing fabrics are manufactured for LifeStyle by third parties.
At the end of 1997, LifeStyle completed an in-depth evaluation of its
global manufacturing and distribution base, and recorded a $58.5 million charge
to rationalize and restructure its worldwide operations, focusing principally on
its Universal Furniture business unit. The majority of Universal Furniture's
restructuring activity occurred in Asia, where facilities with approximately 1.3
million square feet of manufacturing and distribution space have been
eliminated, as production has been consolidated into existing, lower-cost Asian
facilities.
9
<PAGE> 12
Raw Materials and Suppliers
LifeStyle sources globally, and the principal raw materials used by
LifeStyle in the manufacture of its products include lumber, finishing products
(stains, sealants and lacquers), glue, steel, leather, cotton, wool, synthetic
and vinyl fabrics, polyester batting and polyurethane foam. The various types of
wood used in LifeStyle's products are purchased both domestically and
internationally. Management believes that its supply sources of those materials
are adequate. LifeStyle has ongoing relationships with numerous suppliers of raw
materials, and believes that there are a number of reliable vendors available,
contributing to its ability to obtain competitive pricing for raw materials.
LifeStyle is also actively pursuing partnership arrangements with suppliers in
order to reduce long lead times and ultimately to improve customer satisfaction
levels.
Competition
The furniture and home furnishing fabrics industries are highly
competitive, and include a large number of domestic and foreign manufacturers.
These industries are highly fragmented, and no one company is dominant.
Competition is generally based on product quality, brand name recognition,
price, timeliness of delivery and service. LifeStyle's furniture products
compete with products made by a number of furniture manufacturers, including
Furniture Brands International, Inc., La-Z-Boy Incorporated, Klaussner Furniture
Industries Inc., Ethan Allen, Ashley, LADD Furniture, Inc. and Bassett Furniture
Industries, Inc., as well as numerous smaller producers. In decorative home
furnishing fabrics, competition is based upon design, price, style, timeliness
of delivery and quality, and competitors include Schumacher/Waverly, P/Kaufmann,
Richloom and Mastercraft.
Employees
As of December 31, 1998, LifeStyle employed approximately 30,000 persons.
Virtually all are non-union, although approximately 30%, most of whom are
employed in Asia, are subject to certain government-mandated terms of
employment. LifeStyle believes it has good relations with its employees.
Intellectual Property
LifeStyle considers its intellectual property rights to be among its most
valuable assets. These rights include trademarks, trade names, copyrights,
patents and rights licensed from third parties. LifeStyle believes that these
intellectual property rights are important to LifeStyle because they are well
recognized and associated with quality and value in the home furnishings
industry. LifeStyle aggressively protects its intellectual property rights.
Environmental Matters and Governmental Regulations
LifeStyle is subject to a wide and frequently changing range of federal,
state, local and foreign environmental and worker health and safety laws and
regulations, including those relating to the storage, handling, generation,
treatment, emission, release, discharge and disposal of certain substances and
wastes and the clean up of contamination in soil or groundwater. Breaches of
such laws or regulations can result in the imposition of fines and penalties
(any of which may be material) or the cessation of operations of the affected
facility. Based on currently available information, LifeStyle does not
anticipate making any material capital expenditures for environmental control
facilities in the reasonably foreseeable future.
LifeStyle may also be subject to liability, due to its current or past
ownership or operation of real property or disposal of hazardous waste, for the
cost of cleaning up or removing contamination caused by hazardous or toxic
materials. Such liability may be imposed without regard to fault or the legality
of the original actions, and may be joint and several with other parties.
10
<PAGE> 13
As a result of historical operations, spills and releases of hazardous
substances may have occurred at or near several of LifeStyle's sites and
facilities. These sites and facilities may in the future undergo investigation,
including soil and groundwater sampling, to determine if there are any hazardous
substances in the soil or groundwater which LifeStyle could be required to
investigate and remediate. Based on currently available information, LifeStyle
does not believe that the costs associated with investigating or remediating
these releases will have a material adverse effect on LifeStyle's financial
condition, operating expenses or earnings. There can be no assurance, however,
that material costs relating to these matters will not be incurred in the
future.
LifeStyle has been named as a potentially responsible party at a number of
non-owned contaminated sites, including Superfund sites. LifeStyle presently
believes that any potential liability relating to these sites will not have a
material adverse effect on LifeStyle's earnings, capital expenditures or
competitive position. However, there can be no assurance that material
liabilities or costs relating to such matters will not be incurred in the
future.
Other Government Regulations
LifeStyle's operations must meet extensive federal, state, and local
regulatory standards in the areas of health and safety. Historically, these
standards have not had any material adverse effect on LifeStyle's sales or
operations.
Backlog
The combined backlog of LifeStyle as of December 31, 1998 aggregated
approximately $327 million, compared to approximately $314 million as of
December 31, 1997.
11
<PAGE> 14
Item 2. PROPERTIES
The following list includes LifeStyle's principal manufacturing facilities
by location as of December 31, 1998:
<TABLE>
<CAPTION>
<S> <C>
California City of Industry and Whittier
Mississippi Baldwin, Blue Mountain, New Albany and Ripley(2)
North Carolina Black Mountain, Drexel, Goldsboro, Hickory, High Point(3), Hildebran(2),
Lexington(5), Linwood, Longview, Marion(2), Mocksville, Morganton(4),
Mt. Airy, Shelby, and Spruce Pine(2)
Pennsylvania Sunbury
South Carolina Kingstree
Tennessee Lenoir City, Livingston, Morristown(6) and Rockwood
Canada Mississauga, Ontario; and Ville D'Anjou, Quebec
China (P.R.C.) Chang Chung, Guangzhou and Tianjin
Great Britain Silsden, England; and Aberdare, Wales
Indonesia Semarang
Malaysia Johor and Kedah(2)
Philippines Cebu
Sweden Skene
Taiwan Kaohsiung, Ping Tung and Tao Yuan Hsian
</TABLE>
Note: The parentheticals denote multiple facilities in that location.
LifeStyle operates manufacturing and distribution facilities, showrooms,
and retail and office space with a total area of approximately 26 million square
feet. LifeStyle owns approximately 19 million square feet and leases
approximately 7 million square feet.
LifeStyle's corporate headquarters is currently located in High Point,
North Carolina and is leased by the Company.
LifeStyle's buildings, machinery and equipment have been generally
well-maintained, are in good operating condition, and are adequate for current
production requirements.
Item 3. LEGAL PROCEEDINGS
LifeStyle is involved in various routine legal proceedings incident to the
ordinary course of its business. LifeStyle believes that the outcome of all
pending legal proceedings in the aggregate will not have a material adverse
effect on the consolidated financial condition or results of operations of
LifeStyle.
12
<PAGE> 15
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
-----------
13
<PAGE> 16
Part II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established trading market for the common stock of LifeStyle.
As of December 31, 1998, Holdings was the only holder of the common stock
of LifeStyle. Holdings is a privately owned company, the capital stock of which
is held by members of management, Masco, 399 Ventures, Inc. and other private
investors.
On November 13, 1998, LifeStyle declared a cash dividend, payable January
1999, of $16.5 million to Holdings.
Holdings has filed a Registration Statement on Form S-1 (File No.
333-58655) relating to the initial public offering of its common stock. In
connection with the Offerings, LifeStyle will be merged with and into Holdings,
which will then change its name to LifeStyle Furnishings International Ltd. In
addition, LifeStyle has commenced a cash tender offer to acquire all of its
outstanding subordinated notes. For a further discussion of the initial public
offering and related transactions, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
14
<PAGE> 17
Item 6. SELECTED HISTORICAL FINANCIAL DATA
Selected Historical Financial Data
(In millions)
<TABLE>
<CAPTION>
LifeStyle Predecessor(1)
---------------------------------------- ---------------------------------------
Year Ended Period Period Year Ended
December 31, from from December 31,
------------------------- 8/6/96 to to 1/1/96 ------------------------
1998 1997 12/31/96 8/5/96 1995 1994
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales ................................ $ 2,001.9 $ 1,959.8 $ 857.5 $ 1,147.9 $ 1,992.6 $ 1,897.5
Cost of sales ............................ 1,510.6 1,453.8 638.2 870.7 1,501.0 1,434.0
Restructuring charge(2) .................. -- 14.5 -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Gross profit .......................... 491.3 491.5 219.3 277.2 491.6 463.5
Selling, general, and
administrative(3) ..................... 354.4 347.5 144.5 222.2 397.8 386.8
Restructuring charge(2) .................. -- 44.0 -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Operating profit ...................... 136.9 100.0 74.8 55.0 93.8 76.7
---------- ---------- ---------- ---------- ---------- ----------
Interest expense ......................... 31.6 41.9 20.0 52.7 94.8 87.1
Other, net(4) ............................ 11.3 15.1 6.7 3.5 8.2 7.3
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income
taxes and extraordinary
item ............................... 94.0 43.0 48.1 (1.2) (9.2) (17.7)
Income taxes ............................. 23.5 13.8 16.8 6.8 7.0 6.1
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before
extraordinary item ................. 70.5 29.2 31.3 (8.0) (16.2) (23.8)
Extraordinary item(5) .................... -- (11.6) -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) ........................ $ 70.5 $ 17.6 $ 31.3 $ (8.0) $ (16.2) $ (23.8)
========== ========== ========== ========== ========== ==========
Other Financial Data:
EBITDA, as defined(6) .................... $ 174.3 $ 178.1 $ 87.7 $ 91.8 $ 160.1 $ 139.5
EBITDA margin ............................ 8.7% 9.1% 10.2% 8.0% 8.0% 7.4%
Adjusted EBITDA, as defined(7) ........... $ 210.8 $ 198.5 $ 87.7 $ 91.8 $ 160.1 $ 139.5
Adjusted EBITDA margin ................... 10.5% 10.1% 10.2% 8.0% 8.0% 7.4%
Adjusted operating profit(7) ............. $ 173.4 $ 158.5 $ 74.8 $ 55.0 $ 93.8 $ 76.7
Adjusted operating profit margin ......... 8.7% 8.1% 8.7% 4.8% 4.7% 4.0%
Depreciation & amortization(8) ........... $ 39.3 $ 38.4 $ 15.4 $ 39.3 $ 67.9 $ 66.4
Capital expenditures ..................... 41.4 32.7 13.8 16.5 61.0 68.8
Fabric sample book expenditures .......... 18.5 14.3 3.3 9.2 15.0 14.1
Cash provided by operating
activities ............................ 154.2 139.8 109.0 48.8 49.3 13.4
Cash used for investing
activities ............................ (87.3) (50.2) (708.8) (25.6) (72.5) (67.2)
Cash provided by (used for)
financing activities .................. (63.2) (107.8) 622.1 (21.9) 15.8 53.1
Balance Sheet Data:
Working capital(9) ....................... $ 449.9 $ 440.8 $ 496.1 $ 732.1 $ 723.4
Total assets ............................. 1,126.3 1,140.0 1,190.7 1,903.9 1,907.5
Total debt ............................... 314.7 354.6 444.6 27.7 15.2
Total liabilities ........................ 636.7 702.6 737.4 282.9 274.4
Masco net investment &
advances(10) .......................... -- -- -- 1,621.0 1,633.1
Stockholder's equity ..................... 489.6 437.4 453.4 -- --
</TABLE>
- ----------
(footnotes on following page)
15
<PAGE> 18
Footnotes to Selected Historical Financial Data:
1. LifeStyle acquired the Masco Home Furnishings Group, the Predecessor, as
of August 5, 1996.
2. As a result of LifeStyle's evaluation of its global manufacturing and
distribution base, LifeStyle incurred a $58.5 million charge in 1997 to
rationalize and restructure its worldwide operations principally focusing
on its Universal business unit. See Note 7 to the Financial Statements.
3. Included in selling, general and administrative expenses of the
Predecessor are general corporate expenses which represent certain
corporate staff support and administrative services provided by Masco.
These expenses, which were charged to the Predecessor by Masco, consisted
of $9.4 million for the period January 1, 1996 to August 5, 1996, $16.0
million and $12.7 million in 1995 and 1994, respectively.
4. Other, net includes receivables securitization costs of $9.1 million, $9.8
million and $4.4 million and amortization of deferred financing costs of
$2.2 million, $3.9 million and $1.7 million for the years ended December
31, 1998 and 1997 and the period August 6, 1996 to December 31, 1996,
respectively.
5. An extraordinary loss of $19.4 million ($11.6 million net of tax) was
recorded in connection with the August 1997 replacement of LifeStyle's
former revolving credit facility, Tranche A term loan and Tranche B term
loan with LifeStyle's current $400.0 million senior secured revolving
credit facility. The loss consisted of the write-off of unamortized
deferred financing costs related to the early extinguishment of debt.
6. EBITDA is defined as net income (loss) before interest expense,
receivables securitization costs, income taxes, depreciation and
amortization expense (including amortization of fabric sample book
expenditures), extraordinary items, and certain other non-cash charges and
is computed as follows:
<TABLE>
<CAPTION>
LifeStyle Predecessor
------------------------------------ --------------------------------------
Year Ended Period Period Year Ended
December 31, from from December 31,
---------------------- 8/6/96 to 1/1/96 to -----------------------
1998 1997 12/31/96 8/5/96 1995 1994
-------- -------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) ....... $ 70.5 $ 17.6 $ 31.3 $ (8.0) $ (16.2) $ (23.8)
Interest expense ........ 31.6 41.9 20.0 52.7 94.8 87.1
Income taxes ............ 23.5 13.8 16.8 6.8 7.0 6.1
Depreciation and
amortization ......... 39.3 38.4 15.4 39.3 67.9 66.4
Extraordinary item ...... -- 11.6 -- -- -- --
Receivables
securitization costs . 9.1 9.8 4.4 -- -- --
Other non-cash .......... 0.3 45.0 (0.2) 1.0 6.6 3.7
-------- -------- ------- ------- -------- --------
EBITDA .................. $ 174.3 $ 178.1 $ 87.7 $ 91.8 $ 160.1 $ 139.5
======== ======== ======= ======= ======== ========
</TABLE>
(a) The $45.0 million non-cash item in 1997 includes a non-cash
restructuring charge of $38.1 million, a non-cash loss on foreign
currency remeasurement of $7.0 million and certain other non-cash
items.
LifeStyle believes that EBITDA provides additional information for
determining its ability to meet debt service requirements. EBITDA does not
represent and should not be considered as an alternative to net income or
cash flow from operations as determined by generally accepted accounting
principles, and EBITDA does not necessarily indicate whether cash flow
will be sufficient for cash requirements. Not every company calculates
EBITDA in exactly the same fashion. As a result, EBITDA as presented above
may not necessarily be comparable to similarly titled measures of other
companies.
7. Adjusted EBITDA for the year ended December 31, 1997 excludes the $20.4
million cash portion of the restructuring charges and adjusted operating
profit for 1997 excludes the $58.5 million of restructuring charges.
Adjusted EBITDA and adjusted operating profit for the year ended December
31, 1998 exclude $30.0 million of transition costs related to the
restructuring and reengineering initiatives, $4.0 million of costs related
to the development and implementation of Year 2000 compliance measures and
$2.5 million of costs related to the computer system implementation at The
Robert Allen Group. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." LifeStyle utilizes adjusted EBITDA
and adjusted operating profit when interpreting operating trends and
results of operations of its core business operations. Accordingly,
LifeStyle believes that these measures provide additional information for
understanding and evaluating our financial condition, results of
operations and cash flows. However, adjusted EBITDA and adjusted operating
profit do not represent, and should not be considered as alternatives to,
net income, cash flow from operations or operating profit as determined by
generally accepted accounting principles, and do not necessarily indicate
whether cash flow will be sufficient to meet cash requirements. Not every
company calculates adjusted EBITDA or adjusted operating profit in exactly
the same fashion. As a result, adjusted EBITDA and adjusted operating
profit as presented above may not necessarily be comparable to similarly
titled measures of other companies.
8. Depreciation and amortization includes depreciation of property and
equipment, amortization of fabric sample books and amortization of
deferred financing costs.
9. Working capital is defined as total current assets (excluding cash and
cash investments and deferred taxes) less total current liabilities
(excluding current maturities of long-term debt).
10. Advances from Masco were $1,195.0 and $1,192.0 at December 31, 1995 and
1994, respectively.
16
<PAGE> 19
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information contained herein contains "forward-looking statements" which
can be identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," or "anticipates" or the negative thereof or
other similar terminology, or by discussions of strategy. LifeStyle's actual
results could differ materially from those anticipated by any such
forward-looking statements as a result of certain factors, including matters
discussed herein and factors affecting the home furnishings industry in general,
fluctuations in the price and supply of raw materials, competition and the
dependence of LifeStyle on its managerial, manufacturing and sales and marketing
personnel. No assurance can be given that the future results covered by the
forward-looking statements will be achieved. The following discussion and
analysis of the consolidated financial condition and results of operations
should be read in conjunction with the Financial Statements.
General
LifeStyle is the largest manufacturer and marketer of home furnishings
(fine furniture, including decorative accessories, and decorative home
furnishing fabrics) in the U.S., with 1998 net sales of $2.0 billion. Fine
furniture represented approximately 87% of LifeStyle's net sales in 1998 and
decorative home furnishing fabrics represented approximately 13%.
On August 5, 1996, Holdings acquired the Predecessor from Masco for
approximately $1.1 billion. The acquisition was accounted for using the purchase
method of accounting and, accordingly, the purchase price was allocated to the
acquired assets and assumed liabilities based upon estimated fair values as of
the closing date of the acquisition. This allocation resulted in a reduction of
non-current assets, principally property and equipment. As a result of the
acquisition and new basis of accounting, LifeStyle's financial statements for
periods subsequent to the acquisition are not comparable to the Predecessor's
financial statements for periods prior to the acquisition. See Note 2 to the
Financial Statements.
At the time of the acquisition from Masco, LifeStyle embraced a strategic
vision designed to dramatically improve the satisfaction of its customers and
consumers with their home furnishings buying experience. LifeStyle also
recognized that there were significant opportunities to improve its performance
by rationalizing its substantial asset base and by making major improvements in
its business processes. LifeStyle redirected its previous financial objective of
maximizing sales growth to focus on enhancing cash flow, reducing operating
costs and increasing profitability. LifeStyle also added senior managers with
diverse manufacturing, marketing and other relevant expertise, including a
number from outside the furniture industry, to complement LifeStyle's
industry-experienced management team.
LifeStyle adopted at the time of the acquisition an initial $28.3 million
restructuring plan. This plan, which was substantially implemented in 1997,
included the reduction of LifeStyle's manufacturing and distribution facilities
from 89 to 82, provisions for severance costs associated with the closure of
these facilities and the elimination of certain product lines that did not meet
performance targets. As permitted by Emerging Issues Task Force ("EITF") Issue
95-3 "Recognition of Liabilities in Connection with a Purchase Business
Combination," the total cost of the plan of approximately $28.3 million was
included as part of the purchase price allocation for LifeStyle's acquisition.
LifeStyle also introduced coordinated, company-wide purchasing practices,
improved its working capital management and reduced capital expenditure levels
in light of significant previous investments.
At the end of 1997, LifeStyle completed an in-depth evaluation of its
global manufacturing and distribution base, and recorded a $58.5 million charge
to rationalize and restructure its worldwide operations, focusing principally on
LifeStyle's Universal Furniture business unit. The majority of Universal
Furniture's restructuring activity occurred in Asia, where facilities with
approximately 1.3 million square feet of manufacturing and distribution space
have been eliminated, as production has been consolidated into existing,
lower-cost Asian facilities. As a result of the restructuring, significant
non-recurring costs have been incurred to sever lease obligations, provide for
employee severance, and provide for the impairment of inventory and fixed
assets. The restructuring initiatives included a reduction in workforce,
eliminating approximately 3,000 positions by the end of 1998. The positions
eliminated consist primarily of production and supervisory personnel.
The activities discontinued consist of furniture and component parts
manufacturing plants that supply other manufacturing operations. The activities
previously performed at these facilities have been shifted to other facilities
where
17
<PAGE> 20
existing production capacity can be more efficiently utilized. As such, the
operations discontinued did not have separately identifiable revenues or
operating income.
As a result of the restructuring, inventory with a carrying value of $14.5
million was written off. Property and equipment, consisting primarily of real
property, machinery and equipment at facilities to be closed, were written down,
resulting in an impairment loss of $17.6 million. The fair value of these assets
was determined based upon independent appraisals and analysis of comparable
sales in the affected regions.
This restructuring is expected to provide cost savings in future periods
through reduced employee compensation and other operating costs, although no
assurances can be given with regard to financial performance in any future
period. These savings will continue to be offset for the next several quarters
by production inefficiencies and other costs related to the restructuring and
reengineering initiatives discussed below.
Operating profit for 1997 included total non-recurring charges of $58.5
million, including the $14.5 million of inventory write-offs referred to above
which are included in gross profit. The following table presents LifeStyle's
restructuring activities for the periods indicated (in millions):
<TABLE>
<CAPTION>
Asset Contractual Employee
write-downs obligations severance Other Total
------------- ------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
December 31, 1997 ... $ 38.1 $ 9.8 $ 8.8 $ 1.8 $ 58.5
Activity during 1998:
Non-cash items . (38.1) -- -- -- (38.1)
Cash items ..... -- (8.5) (8.8) (1.8) (19.1)
------- ------ ------ ------ -------
December 31, 1998 ... $ -- $ 1.3 $ -- $ -- $ 1.3
======= ====== ====== ====== =======
</TABLE>
Further, in pursuit of LifeStyle's strategic vision and its goal of
becoming its customers' and consumers' "favorite" home furnishings company,
LifeStyle has undertaken a comprehensive reexamination of its methods of
production, marketing, distribution and customer fulfillment with the objective
of becoming operationally excellent by fundamentally improving the way orders
are processed and goods are manufactured and delivered to customers. The key
focus of these reengineering initiatives involves converting the furniture
industry's historic "cuttings" or batch processing methodology into the more
efficient make-to-order (or "Pull") methodology. Overall, these reengineering
initiatives are designed to cut order-to-ship cycles dramatically - with a goal
of being able to ship product in two weeks or less - as well as to reduce
inventory, eliminate waste (add value) and improve product quality. LifeStyle
has also implemented enhanced coordination across business units, including
purchasing, manufacturing, marketing and technology.
Principally as a result of these actions, LifeStyle improved its EBITDA
margin from 8.0% in 1995 to 9.0% in 1996 and 9.1% in 1997 (10.1% in 1997 after
adjustment to exclude restructuring charges). In 1998, LifeStyle significantly
accelerated the reengineering-driven conversion of its manufacturing and
business processes, which necessarily caused temporary disruption at certain
plants and resulted in additional costs. Despite order growth of approximately
5.3% in 1998, LifeStyle's net sales increased by only 2.1% and its EBITDA margin
declined from 9.1% to 8.7% as compared with 1997, primarily because of the
reengineering initiatives described above. Exclusive of transition costs related
to its restructuring and reengineering initiatives, costs related to the
development and implementation of Year 2000 compliance measures and costs
related to the computer system implementation at The Robert Allen Group,
however, LifeStyle's adjusted EBITDA margin increased to 10.5% for 1998 from
10.1% for 1997. Further, LifeStyle's cash flow from operating activities
increased from $49.3 million in 1995 to $154.2 million in 1998.
In addition, from August 1996 through December 31, 1998, LifeStyle reduced
working capital by $81.1 million to $449.9 million primarily through improved
management of its inventories and accounts payable. This reduction in working
capital, together with LifeStyle's operating cash flow, enabled it to reduce
long-term debt by $238.7 million through 1998.
Across all of LifeStyle's furnishings companies, approximately one-third
of its products are currently shipped in two to three weeks, and the majority of
all order-to-ship times are expected to attain these levels over the next 12 to
24 months. More than 50% of LifeStyle's plants are now implementing short-cycle
management methodologies, and these "best practices" will
18
<PAGE> 21
be implemented enterprise-wide. LifeStyle believes that, once implemented, these
reengineering initiatives will reduce manufacturing costs, significantly
increase customer satisfaction and result in higher market share, sales and
margins.
As certain of these operational initiatives are implemented, they
temporarily negatively impact existing manufacturing and business processes,
resulting in additional costs and time inefficiencies. However, as the resultant
benefits are realized, they increasingly come to exceed transition costs and
yield net efficiency gains. The total transition costs related to reengineering
and restructuring initiatives, net of efficiency gains, are expected to be
approximately $48.0 million, of which $30.0 million was incurred during 1998 and
the remaining approximately $18.0 million is expected to be incurred during
1999.
Results of Operations
The following table has been prepared to set forth certain results of
operations and other data as a percentage of net sales:
<TABLE>
<CAPTION>
LifeStyle Predecessor
----------------------------------------- ------------------------------
Year Ended
December 31, Period from Period from Year Ended
------------------------ 8/6/96 to 1/1/96 to December 31,
1998 1997 12/31/96 8/5/96 1995
---------- ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales....................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit margin............. 24.5% 25.1% 25.6% 24.1% 24.7%
Selling, general, and
administrative expenses...... 17.7% 17.7% 16.9% 19.4% 20.0%
Operating profit margin......... 6.8% 5.1% 8.7% 4.8% 4.7%
Interest expense................ 1.6% 2.1% 2.3% 4.6% 4.8%
Net income (loss)............... 3.5% 0.9% 3.7% (0.7)% (0.8)%
Other Financial Data:
Adjusted operating profit(1).... 8.7% 8.1% 8.7% 4.8% 4.7%
Adjusted EBITDA(1).............. 10.5% 10.1% 10.2% 8.0% 8.0%
</TABLE>
(1) Adjusted operating profit and adjusted EBITDA for 1997 exclude
restructuring charges. Adjusted operating profit and adjusted EBITDA
for 1998 exclude the transition costs related to the restructuring
and reengineering initiatives, costs related to the development and
implementation of Year 2000 compliance measures and costs related to
the computer system implementation at The Robert Allen Group.
LifeStyle utilizes adjusted EBITDA and adjusted operating profit
when interpreting operating trends and results of operations of its
core business operations. Accordingly, LifeStyle believes that these
measures provide additional information for understanding and
evaluating our financial condition, results of operations and cash
flows. However, adjusted EBITDA and adjusted operating profit do not
represent, and should not be considered as alternatives to, net
income, cash flow from operations or operating profit as determined
by generally accepted accounting principles, and do not necessarily
indicate whether cash flow will be sufficient to meet cash
requirements. Not every company calculates adjusted EBITDA or
adjusted operating profit in exactly the same fashion. As a result,
adjusted EBITDA and adjusted operating profit as presented above may
not necessarily be comparable to similarly titled measures of other
companies.
Comparison of the Year Ended December 31, 1998 to the Year Ended December 31,
1997
Net sales were $2,001.9 million for the year ended December 31, 1998, an
increase of $42.1 million, or 2.1%, from $1,959.8 million for 1997. Net sales of
fine furniture increased 3.0% to $1,744.7 million for the year ended December
31, 1998 from $1,693.6 million for 1997. Fine furniture orders for the year
ended 1998 increased 6.3% over 1997, reflecting strong demand. While orders were
strong, LifeStyle's net sales of fine furniture were negatively impacted as the
implementation of planned restructuring, reengineering and logistics initiatives
combined to temporarily limit product availability. This negative impact is
likely to continue over the next several quarters, although at a reduced rate.
Net sales of decorative home furnishing fabrics decreased 3.4% to $257.2 million
for the year ended December 31, 1998 from $266.2 million for 1997. Decorative
home furnishing fabric sales were lost due to shipping delays incurred during
the implementation of a more sophisticated computer system at The Robert Allen
Group. This computer system is now on-line and 24 hour order-to-ship
availability with additional functionality is being achieved. In addition,
fabric sales continue to be negatively
19
<PAGE> 22
impacted by customers migrating to leather, but new fabric product introductions
are expected to recover some of the lost volume.
Gross profit was $491.3 million for the year ended December 31, 1998,
essentially flat, from $491.5 million for 1997. Gross profit margin decreased to
24.5% for the year ended December 31, 1998 from 25.1% for 1997. Although there
was no non-recurring restructuring charge recorded in 1998 as in 1997, gross
profit margin was negatively impacted by transition costs related to LifeStyle's
restructuring and reengineering initiatives associated with implementation of
"Pull" manufacturing processes, as well as temporary production inefficiencies,
increased expenses associated with the successful introduction of an unusually
large number of new products, inventory reduction programs and the costs related
to the computer system implementation at The Robert Allen Group. LifeStyle is
reengineering its manufacturing processes in order to reduce order-to-ship
cycles, improve product quality and value, reduce inventories and broadly
improve LifeStyle's responsiveness to customers and consumers. Gross profit is
expected to be unfavorably impacted, although at a reduced rate, through the
next several quarters as additional costs continue in support of these
restructuring and reengineering initiatives.
Selling, general and administrative expenses were $354.4 million for the
year ended December 31, 1998, an increase of $6.9 million, or 2.0%, from $347.5
million for 1997. As a percentage of net sales, selling, general and
administrative expenses were 17.7% for the year ended December 31, 1998, the
same as in 1997. Selling expense was 10.8% of net sales as compared to 10.9% for
1997, and general and administrative expenses were 6.9% of net sales compared to
6.8% in 1997. General and administrative expenses increased due to higher
consulting fees, Year 2000 compliance costs and other administrative costs,
partially offset by reduced bad debt expense.
Operating profit was $136.9 million for the year ended December 31, 1998,
an increase of $36.9 million, or 36.9%, from $100.0 million for 1997. As a
percentage of net sales, operating profit margin increased to 6.8% for the year
ended December 31, 1998 from 5.1% for 1997. Operating profit was impacted by the
aforementioned planned restructuring and reengineering initiatives, which
necessarily caused disruption at certain plants and resulted in additional costs
in 1998 and the restructuring charge in 1997. In addition, LifeStyle incurred
costs related to Year 2000 compliance measures and the computer system
implementation at The Robert Allen Group during 1998. Operating profit is
expected to be unfavorably impacted, although at a reduced rate, through the
next several quarters as additional costs continue in support of these
restructuring and reengineering initiatives.
Operating profit for the fine furniture segment increased $39.2 million to
$110.9 million for the year ended December 31, 1998 from $71.7 million for 1997
due primarily to the $58.5 million restructuring charge taken in 1997 (no
comparable charge was taken in 1998) partially offset by the reengineering and
Year 2000 costs incurred in 1998 as discussed above. Operating profit for the
fabric segment decreased $2.3 million to $26.0 million from $28.3 million for
1997 due primarily to the computer system implementation discussed above.
Exclusive of transition costs related to LifeStyle's restructuring and
reengineering initiatives, Year 2000 compliance costs and costs related to the
computer system implementation at The Robert Allen Group, adjusted operating
profit was $173.4 million, an increase of $14.9 million, or 9.4%, as compared to
the year ended December 31, 1997. As a percentage of net sales, adjusted
operating profit margin increased to 8.7% for the year ended December 31, 1998
from 8.1% for 1997.
Interest expense was $31.6 million for the year ended December 31, 1998, a
decrease of $10.3 million, or 24.6%, from 1997. This decrease was a result of
lower average debt outstanding during the year ended December 31, 1998 and
reduced interest rates obtained when LifeStyle refinanced its revolving credit
facility in August 1997.
Comparison of the Results of Operations of LifeStyle and the Predecessor
As a result of LifeStyle's acquisition from Masco and resulting new basis
of accounting, the results of operations of LifeStyle are not directly
comparable to those of the Predecessor. However, LifeStyle believes it is
beneficial to analyze the results of operations for periods with a consistent
number of months because the business continued to be operated by substantially
the same management team as the Predecessor and the principal effects were the
reduction in the carrying value of assets and the corresponding reduction in
post-acquisition depreciation. For purposes of the discussion regarding net
sales, gross profit and selling, general and administrative expenses that
follow, we have combined the results of LifeStyle with those of the Predecessor
to present a 12 month period ended December 31, 1996.
20
<PAGE> 23
Comparison of Year Ended December 31, 1997 to Year Ended December 31, 1996
Net sales were $1,959.8 million for the year ended December 31, 1997, a
decrease of $45.6 million, or 2.3%, from $2,005.4 million for the year ended
December 31, 1996. Net sales of fine furniture decreased 2.3% to $1,693.6
million for the year ended December 31, 1997 from $1,733.3 million for the year
ended December 31, 1996. Fine furniture sales were negatively impacted by
LifeStyle's strategy of exiting less profitable products and by relatively soft
major retailer sales, including reduced shipments to two large customers which
filed for protection under Chapter 11 of the United States Bankruptcy Code. Net
sales of decorative home furnishing fabrics decreased 2.2% to $266.2 million for
the year ended December 31, 1997 from $272.1 million for the year ended December
31, 1996, as the continuing growth of leather as a replacement for fabric in
upholstered furniture negatively impacted fabric sales. Reduced shipments to the
two large customers that filed for protection under Chapter 11 and the
elimination of less profitable products had a short-term negative impact on
sales volume. However, LifeStyle believes that during 1998 it has substantially
replaced the lost sales volume with product sales to other retail customers.
Gross profit was $491.5 million for the year ended December 31, 1997, a
decrease of $5.0 million, or 1.0%, from $496.5 million for the year ended
December 31, 1996. Excluding the non-recurring restructuring charge of $14.5
million, gross profit increased by $9.5 million or 1.9% to $506.0 million. Gross
profit margin, excluding this restructuring charge, increased to 25.8% in 1997
from 24.8% in 1996. This increase in gross profit margin was primarily
attributable to LifeStyle's continuous improvement initiatives and the benefit
of lower depreciation expense, partially offset by the impact of lower sales
volume.
Selling, general and administrative expenses were $347.5 million for the
year ended December 31, 1997, a decrease of $19.2 million, or 5.2%, from $366.7
million for the year ended December 31, 1996. The decrease in general and
administrative expenses reflects the benefits of LifeStyle's cost reduction
initiatives, elimination of goodwill amortization, and the net decrease in
general and administrative expenses that LifeStyle has incurred on a stand-alone
basis compared to the management fees previously charged by Masco. These
reductions were partially offset by higher bad debt expenses resulting from the
bankruptcy filings previously mentioned. As a percentage of net sales, selling,
general and administrative expenses improved to 17.7% for the year ended
December 31, 1997 from 18.3% for the year ended December 31, 1996. Selling
expense was 10.9% of net sales as compared to 11.0% for 1996, and general and
administrative expenses decreased to 6.8% of net sales from 7.3% in 1996.
Operating profit margin was 5.1% for the year ended December 31, 1997,
compared with 8.7% for the period from August 6 through December 31, 1996. The
decrease occurred for the reasons described in the two preceding paragraphs.
Operating profit margins were 3.9% and 10.2% for the year ended December
31, 1997 compared with 7.6% and 10.5% for the period from August 6 through
December 31, 1996 for the fine furniture segment and the fabric segment,
respectively. The decrease in operating profit margins occurred for the reasons
described above.
Interest expense was $41.9 million for the year ended December 31, 1997, a
decrease of $30.8 million, or 42.4%, from the year ended December 31, 1996. This
decrease was a result of lower average debt outstanding during the year and
reduced interest rates obtained when LifeStyle refinanced its revolving credit
facility in August 1997.
Comparison of Year Ended December 31, 1996 to Year Ended December 31, 1995
Net sales were $2,005.4 million for the year ended December 31, 1996, an
increase of $12.8 million, or 0.6%, from $1,992.6 million for the year ended
December 31, 1995. Net sales of fine furniture increased 0.7% to $1,733.3
million for the year ended December 31, 1996 from $1,721.2 million for the year
ended December 31, 1995. Net sales of fine furniture grew primarily due to new
product introductions and modest increased industry demand, offset by the
elimination of less profitable product lines. Net sales of decorative home
furnishing fabrics increased 0.3% to $272.1 million for the year ended December
31, 1996 from $271.4 million for the year ended December 31, 1995, primarily due
to strength in the woven
21
<PAGE> 24
segment of the market and improved business conditions, largely offset by lower
demand for printed fabrics and reduced demand as leather increased its market
share.
Gross profit was $496.5 million for the year ended December 31, 1996, an
increase of $4.9 million, or 1.0%, from $491.6 million for the year ended
December 31, 1995. Gross profit was enhanced from August 6, 1996 to December 31,
1996 by reduced depreciation expense, but this improvement was offset by
increased expenditures which were primarily the result of temporary plant
closings due to bad weather and start-up costs related to substantial new
product introductions. Overall, gross profit margins increased from 24.7% in
1995 to 24.8% in 1996.
Selling, general and administrative expenses were $366.7 million for the
year ended December 31, 1996, a decrease of $31.1 million, or 7.8%, from $397.8
million for the year ended December 31, 1995. As a percentage of net sales,
selling, general and administrative expenses improved to 18.3% for the year
ended December 31, 1996 from 20.0% for the year ended December 31, 1995. Selling
expense was 11.0% of net sales as compared to 11.8% for 1995, and general and
administrative expenses decreased to 7.3% of net sales from 8.2% in 1995. The
decrease in general and administrative expenses reflects the benefits of
LifeStyle's cost reduction initiatives implemented in late 1995, combined with
the net decrease in general and administrative expenses incurred since August 6,
1996 as a stand alone company when compared to the management fees previously
charged to the Predecessor by Masco.
Operating profit margin increased to 4.8% for the period from January 1
through August 5, 1996, compared with 4.7% for the year ended December 31, 1995.
This improvement was achieved primarily for the reasons discussed in the two
preceding paragraphs.
Interest expense was $72.6 million for the year ended December 31, 1996, a
decrease of $22.2 million, or 23.4%, from the year ended December 31, 1995. This
decrease was a result of lower average debt outstanding during the period from
August 6 through December 31, 1996. Proceeds from debt issued in connection with
the acquisition were used to repay, in part, the funds previously advanced by
Masco. The decrease in interest expense as a result of the lower average debt
outstanding was partially offset by higher average borrowing rates from August 6
through December 31, 1996.
Liquidity and Capital Resources
LifeStyle's liquidity needs arise primarily from debt service, working
capital needs and the funding of capital expenditures. LifeStyle's principal
source of cash to fund its liquidity needs is its net cash from operating
activities and availability of borrowings under its current $400.0 million
Credit Facility.
During the year ended December 31, 1998, net cash from operating
activities totaled $154.2 million, net cash used for investing activities
totaled $87.3 million, and net cash used for financing activities totaled $63.2
million. For the year ended December 31, 1997, net cash from operating
activities totaled $139.8 million, net cash used for investing activities
totaled $50.2 million, and net cash used for financing activities totaled $107.8
million. Cash dividends of $16.5 million and $23.3 million were paid to Holdings
during January 1999 and 1998, respectively.
Capital expenditures totaled $41.4 million for the year ended December 31,
1998, compared to $32.7 million for the comparable period of 1997. LifeStyle
believes that no significant increase in capital expenditure levels will be
required during the next several years. Fabric sample book expenditures totaled
$18.5 million for the year ended December 31, 1998, an increase of $4.2 million
over the comparable period of 1997.
LifeStyle made net principal payments on its long-term debt of $39.9
million during 1998 and $90.1 million during 1997. Total long-term debt
decreased to $314.7 million as of December 31, 1998 as compared to $354.6
million at December 31, 1997. As of December 31, 1998, the amount available
under the Credit Facility was $272.1 million (net of face amount of existing
letters of credit of $15.4 million).
22
<PAGE> 25
On February 1, 1999, using borrowings under its Credit Facility, LifeStyle
purchased a subordinated note in the principal amount of $35.0 million from HL
Holding Corporation ("HL"), an affiliate of one of Holdings' stockholders, in
connection with HL's acquisition of the HomeLife furniture retailing division of
Sears. The note is unsecured, will accrue interest at an annual rate of 11.0%
(or 11.5% if this interest is paid in kind at the option of HL) and is due in
2004. The note is subordinated in payment to $10.0 million of senior debt of HL,
the guarantee by HL of a $95.0 million credit facility of its subsidiary and any
other guarantee by HL of subsidiary debt. The HomeLife division being acquired
by HL has been a long-time customer of LifeStyle. It is expected that following
this acquisition, LifeStyle and HomeLife will enjoy an enhanced business
relationship on an on-going basis.
LifeStyle replaced its current receivables securitization facility with a
new facility in 1999. The new facility provides LifeStyle with increased
financial flexibility by providing more favorable terms and conditions,
including higher funding amounts (an increase of approximately $30.0 million),
reduced reserve requirements, and a lower total cost of funds.
Holdings has filed a Registration Statement on Form S-1 (File No.
333-58655) relating to the initial public offering of its common stock. In
connection with the planned initial public offering of Holdings, LifeStyle will
be merged with and into Holdings, which will then change its name to LifeStyle
Furnishings International Ltd. The timing of the proposed Offerings has not yet
been determined.
LifeStyle currently has outstanding $200.0 million principal amount of
subordinated notes. In connection with the Offerings, LifeStyle commenced a cash
tender offer to acquire all the subordinated notes. LifeStyle expects to incur
indebtedness to finance the purchase of the subordinated notes. As part of the
Tender Offer, LifeStyle has solicited consents from the holders of the
subordinated notes to remove substantially all of the covenants from the
indenture governing the Subordinated Notes. In connection with the repurchase of
the subordinated notes, LifeStyle expects to incur an extraordinary charge of
approximately $29.0 million after tax.
Upon completion of the Offerings, Masco has agreed to provide LifeStyle
with a $100.0 million senior unsecured revolving line of credit, bearing
interest at 50 basis points over LifeStyle's borrowing rate from time to time
under its Credit Facility (or any successor facility), and maturing on the third
anniversary of the completion of the Offerings. LifeStyle does not anticipate an
immediate need for these funds.
In connection with the Offerings, LifeStyle intends to obtain an
additional revolving line of credit prior to the consummation of the Offerings.
LifeStyle believes that cash generated from operations, together with the
amounts available under the Credit Facility, the new receivables securitization
facility and the new revolving lines of credit, will be adequate to fund its
debt service requirements, working capital needs and capital expenditures for
the foreseeable future, although no assurance can be given in this regard.
On August 15, 1997, LifeStyle replaced the former revolving credit
facility, Tranche A term loan and Tranche B term loan with its current Credit
Facility. The Credit Facility provides LifeStyle with increased financial
flexibility by eliminating quarterly principal payment requirements, reducing
financing costs and reducing the number of restrictive covenants. In connection
with the repayment of the former revolving credit and term loan facilities,
LifeStyle recorded an extraordinary non-cash charge of $19.4 million ($11.6
million net of tax), consisting of the write-off of unamortized deferred
financing costs.
In connection with the issuance of the senior subordinated notes,
LifeStyle's domestic operating subsidiaries fully and unconditionally guarantee
LifeStyle's performance under the subordinated notes on a joint and several
basis. There are no restrictions under LifeStyle's financing arrangements on the
ability of LifeStyle's domestic operating subsidiaries to distribute funds to
LifeStyle in the form of cash dividends, loans or advances.
23
<PAGE> 26
Year 2000 Issues
Year 2000 issues are the result of computer programs that were written
using two digits rather than four to define the applicable year. For example,
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failure or miscalculations
causing disruptions of operations, including, among other material adverse
consequences, a temporary inability to process transactions or engage in similar
normal business activities.
LifeStyle and its operating subsidiaries are evaluating their computerized
systems on an internal basis, and making corrective plans where required. Such
evaluations are designed to cover all financial and operational systems, and
LifeStyle has begun to make the necessary changes. LifeStyle has hired a Year
2000 Project Director who is charged with Year 2000 planning and remediation,
and it has established a committee comprised of senior managers to review its
Year 2000 implementation strategy and to oversee Year 2000 compliance measures.
LifeStyle has also contracted with a computer systems consulting firm to conduct
a review of all of its computer systems and to issue a report on the necessary
compliance measures. LifeStyle intends to complete remediation, testing and
implementation by the middle of 1999. LifeStyle currently anticipates that the
development and implementation of Year 2000 compliance measures will cost
approximately $12 million, all of which will be expensed. In 1998, LifeStyle
incurred and expensed approximately $4 million on these measures. In addition,
during 1997, LifeStyle began implementing a company-wide, Oracle-based software
platform that is designed to be Year 2000 compliant.
In addition to LifeStyle's internal information technology ("IT") systems,
it also has certain non-IT systems (e.g., machinery and equipment) that utilize
embedded technology such as microcontrollers. LifeStyle does not believe that
its operations depend significantly on the technology contained in any non-IT
systems that are subject to Year 2000 compliance issues. As noted above,
however, LifeStyle has initiated an assessment of its computerized systems that
will cover any material non-IT systems.
Because of the interdependent nature of business systems, LifeStyle and
its operating subsidiaries could also be materially adversely affected if
utilities, private businesses and governmental entities with which they do
business or from which they obtain essential goods and services are not Year
2000 compliant. In order to determine how LifeStyle would be affected if a third
party failed to resolve its own Year 2000 issues, LifeStyle is communicating
with suppliers, customers and other third parties about the compliance of their
own systems. LifeStyle currently believes that a significant portion of this
third party risk relates to its operations outside the United States.
If LifeStyle and its business partners fail to achieve Year 2000
compliance on a timely basis, the possible material consequences include, among
other things, temporary plant closings, delays in the delivery of products,
delays in the receipt of supplies, invoice and collection errors, and inventory
and supply obsolescence. As a result of such Year 2000 issues, LifeStyle's
business and its results of operations could be materially adversely affected by
a temporary inability to conduct business in the ordinary course for a period of
time during and around the year 2000. However, LifeStyle believes that its Year
2000 compliance readiness program should significantly reduce the adverse effect
of any such disruptions, and LifeStyle is in the process of developing a
contingency plan to address any such disruptions.
International Operations
LifeStyle conducts operations in a number of foreign countries including
Canada, China, Hong Kong, Indonesia, Malaysia, the Philippines, Taiwan, Thailand
and several European countries.
LifeStyle's international operations may be subject to volatility because
of currency fluctuations, inflation and changes in political and economic
conditions in these countries. The financial position and results of operations
of LifeStyle's foreign subsidiaries are remeasured using the U.S. dollar or
translated using the local currency as the functional currency depending on the
nature of the operations. However, LifeStyle's revenue is generated primarily in
the United States and, accordingly, is not significantly impacted by the Asian
devaluation. LifeStyle does not engage in foreign currency hedging.
24
<PAGE> 27
During 1998, LifeStyle recorded a $2.5 million loss on remeasurement and
foreign currency transactions and a $1.9 million translation adjustment to
stockholder's equity. During 1997, LifeStyle recorded a $7.0 million loss on
remeasurement and foreign currency transactions and a $10.2 million translation
adjustment to stockholder's equity because of the significant devaluation of the
Asian currencies against the U.S. dollar.
Financial information concerning LifeStyle's foreign operations, including
the net sales and assets that are attributable to LifeStyle's operations in the
United States and in foreign countries, are set forth in Note 15 to the
Financial Statements.
Quantitative and Qualitative Disclosures About Market Risk
LifeStyle is exposed to a variety of market risks, including the effects
of changes in foreign currency exchange rates, interest rates and commodity
prices. LifeStyle does not engage in foreign currency hedging or the use of
derivatives to manage commodity price fluctuations or for speculative purposes.
LifeStyle is exposed to risks associated with changes in interest rates under
its various debt arrangements and the receivables securitization facility. In
order to manage its exposure to this market risk, LifeStyle maintains interest
rate collar arrangements on $250.0 million of long-term debt. LifeStyle's
exposure to changes in interest rates is summarized as follows:
<TABLE>
<CAPTION>
Expected maturity Date
------------------------------------------------------------------------------------
2004 and Fair
1999 2000 2001 2002 2003 Thereafter Total Value
-------- ------- ------- -------------- ---------- ----------- -------------- --------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long term debt:
Variable Rate (Credit
Facility)............ $ 2.5 $ 75.0 $ 35.0 $ $ 112.5 $ 112.5
Weighted average rate... 8.750% 5.875% 5.875% 5.940%
Fixed Rate
(Subordinated Notes). $ 200.0 $ 200.0 $ 221.0
Weighted average rate... 10.875% 10.875%
Interest rate collars:
Notional amount (1)..... $ 250.0 $ 250.0 $ (2.1)
Ceiling/floor........... 6.750%/4.885% 6.750%/4.885%
Off-balance sheet
financial
instruments:
Receivables facility.... $ 150.0 $ 150.0 $ 150.0
Weighted average rate... 5.789% 5.789%
</TABLE>
(1) The notional amount represents the contract amount, not the amount at
risk.
Inflation
LifeStyle does not believe that inflation has had a material impact on its
financial position or results of operations during the periods covered by the
Financial Statements.
Seasonality
LifeStyle does not believe that its results of operations fluctuate
materially due to seasonality.
25
<PAGE> 28
Recently Issued Statements of Financial Accounting Standards ("SFAS")
SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information," became effective in 1998. This Statement establishes standards for
reporting information about operating segments in annual financial statements
and requires that enterprises report selected information about operating
segments in interim financial reports. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
This Statement requires that LifeStyle report financial and descriptive
information about its reportable operating segments on the basis that is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. Comparative disclosures which include prior period
information have been restated to conform with the provisions of SFAS No. 131.
SFAS No. 132 "Employers' Disclosure about Pensions and Other
Postretirement Benefits," became effective in 1998. This Statement standardizes
the disclosure requirements for pensions and postretirement benefits and
requires changes in disclosures of benefit obligations and fair values of plan
assets. Comparative disclosures which include prior period information have been
restated to conform with the provisions of SFAS No. 132.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," will become effective for fiscal years beginning after June 15,
1999. This Statement standardizes the disclosure requirements for derivative
instruments and requires that all derivatives be recognized as assets or
liabilities and measured at fair value. LifeStyle does not believe that its
adoption will have a material impact on its financial statements.
26
<PAGE> 29
Item 8. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
We have audited the accompanying consolidated balance sheets of LIFESTYLE
FURNISHINGS INTERNATIONAL LTD. and subsidiaries ("LifeStyle") as of December 31,
1998 and 1997 and the related consolidated statements of operations,
comprehensive income and cash flows for each of the two years in the period
ended December 31, 1998 and for the period from August 6, 1996 to December 31,
1996. We have also audited the combined statements of operations, comprehensive
income and cash flows of the Masco Home Furnishings Group (certain subsidiaries
of Masco Corporation, as described in Note 2, and the LifeStyle's predecessor)
for the period from January 1, 1996 to August 5, 1996. These financial
statements are the responsibility of the LifeStyle's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of LIFESTYLE
FURNISHINGS INTERNATIONAL LTD. and subsidiaries as of December 31, 1998 and
1997, and the consolidated results of their operations and their cash flows for
each of the two years in the period ended December 31, 1998 and for the period
from August 6, 1996 to December 31, 1996, and the combined results of operations
and cash flows of the Masco Home Furnishings Group for the period from January
1, 1996 to August 5, 1996, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the financial statements, the combined financial
statements for the periods ended prior to August 6, 1996 do not reflect the new
basis of accounting established by the acquisition of the Masco Home Furnishings
Group and are presented on the historical cost basis existing prior to the
acquisition period.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Greensboro, North Carolina
February 1, 1999
27
<PAGE> 30
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash investments .................................................. $ 7,740 $ 4,140
Trade receivables .......................................................... 46,870 64,480
Investment in receivables trust ............................................ 92,220 64,010
Other receivables .......................................................... 41,200 40,710
Inventories ................................................................ 478,940 510,110
Prepaid expenses ........................................................... 39,760 35,440
Deferred income taxes ...................................................... 28,010 38,530
----------- -----------
Total current assets .................................................. 734,740 757,420
Property and equipment, net ................................................... 359,110 337,390
Other assets .................................................................. 32,470 45,160
----------- -----------
Total assets .......................................................... $ 1,126,320 $ 1,139,970
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Long-term debt, current .................................................... $ 3,160 $ 2,970
Accounts payable ........................................................... 137,410 124,000
Accrued liabilities ........................................................ 111,640 149,940
----------- -----------
Total current liabilities ............................................. 252,210 276,910
Long-term debt ................................................................ 311,520 351,600
Deferred income taxes ......................................................... 21,230 20,000
Other long-term liabilities ................................................... 51,780 54,070
----------- -----------
Total liabilities ..................................................... 636,740 702,580
----------- -----------
Stockholder's equity:
Common stock, $.01 par value, 3,000 shares authorized, 100 shares issued and
outstanding ............................................................. -- --
Additional paid-in capital ................................................. 421,050 421,050
Retained earnings .......................................................... 79,560 25,510
Foreign currency translation ............................................... (11,030) (9,170)
----------- -----------
Total stockholder's equity ............................................ 489,580 437,390
----------- -----------
Total liabilities and stockholder's equity ............................ $ 1,126,320 $ 1,139,970
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
28
<PAGE> 31
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
LifeStyle Predecessor
------------------------------------------------------- ---------------
Year Ended Period from Period from
December 31, Aug. 6, 1996 Jan. 1, 1996
-------------------------------- to to
1998 1997 Dec. 31, 1996 Aug. 5, 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales ................................ $ 2,001,930 $ 1,959,780 $ 857,490 $ 1,147,890
Cost of sales ............................ 1,510,630 1,453,770 638,140 870,650
Restructuring charge ..................... -- 14,480 -- --
----------- ----------- ----------- -----------
Gross profit .......................... 491,300 491,530 219,350 277,240
Selling, general and administrative
expenses .............................. 354,380 347,550 144,580 222,230
Restructuring charge ..................... -- 44,020 -- --
----------- ----------- ----------- -----------
Operating profit ...................... 136,920 99,960 74,770 55,010
----------- ----------- ----------- -----------
Other expense, net:
Interest expense ...................... 31,580 41,900 19,930 970
Interest expense, Masco ............... -- -- -- 51,720
Other, net ............................ 11,350 15,110 6,730 3,480
----------- ----------- ----------- -----------
42,930 57,010 26,660 56,170
----------- ----------- ----------- -----------
Income (loss) before income taxes and
extraordinary item ................. 93,990 42,950 48,110 (1,160)
Income taxes ............................. 23,450 13,750 16,840 6,830
----------- ----------- ----------- -----------
Income (loss) before extraordinary item 70,540 29,200 31,270 (7,990)
Extraordinary item - loss on early
extinguishment of debt (net of income
taxes of $7,750) ...................... -- (11,620) -- --
----------- ----------- ----------- -----------
Net income (loss) ..................... $ 70,540 $ 17,580 $ 31,270 $ (7,990)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
29
<PAGE> 32
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
LifeStyle Predecessor
------------------------------------------------------- ---------------
Year Ended Period from Period from
December 31, Aug. 6, 1996 Jan. 1, 1996
-------------------------------- to to
1998 1997 Dec. 31, 1996 Aug. 5, 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income (loss) ..................... $ 70,540 $ 17,580 $ 31,270 $ (7,990)
Other comprehensive income, net of tax:
Foreign currency translation ........ (1,860) (10,210) 1,040 (830)
-------- -------- -------- --------
Comprehensive income (loss) ........... $ 68,680 $ 7,370 $ 32,310 $ (8,820)
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
30
<PAGE> 33
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
LifeStyle Predecessor
--------------------------------------------------- ---------------
Year Ended Period from Period from
December 31, Aug. 6, 1996 Jan. 1, 1996
------------------------------ to to
1998 1997 Dec. 31, 1996 Aug. 5, 1996
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Operating Activities:
Net income (loss) ........................ $ 70,540 $ 17,580 $ 31,270 $ (7,990)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization .......... 25,650 24,160 9,610 29,790
Fabric sample book amortization ........ 13,660 14,250 5,820 9,470
Bad debt provision ..................... 2,580 6,080 1,580 2,250
Deferred income taxes .................. 11,750 (6,680) (5,890) (2,610)
Extraordinary loss, net of tax ......... -- 11,620 -- --
Restructuring charge ................... -- 58,500 -- --
Changes in operating assets and liabilities:
Receivables ............................ 13,780 16,570 (3,710) 39,550
Inventories ............................ 31,170 1,710 34,460 (17,480)
Prepaid expenses and other assets ...... 5,390 (5,190) (9,740) 2,470
Accounts payable ....................... 13,410 30,970 9,420 (1,890)
Other liabilities ...................... (33,760) (29,750) 36,220 (4,720)
--------- --------- --------- ---------
Net cash provided by operating
activities ........................ 154,170 139,820 109,040 48,840
--------- --------- --------- ---------
Investing Activities:
Capital expenditures ...................... (41,410) (32,650) (13,820) (16,520)
Fabric sample book expenditures ........... (18,540) (14,280) (3,260) (9,190)
Net investments in receivables trust ...... (28,210) (12,890) (51,120) --
Issuance of notes receivable .............. (1,040) (3,990) -- --
Collection of notes receivable ............ 7,440 16,650 1,670 2,790
Acquisition of businesses, net of
cash acquired ....................... -- -- (645,430) --
Other, net ................................ (5,580) (3,080) 3,200 (2,640)
--------- --------- --------- ---------
Net cash used for investing
activities ........................ (87,340) (50,240) (708,760) (25,560)
--------- --------- --------- ---------
Financing Activities:
Proceeds from long-term debt .............. 47,500 234,000 525,000 87,760
Repayments of long-term debt .............. (87,000) (325,000) (108,690) (87,090)
Net proceeds (repayments) from other
debt ................................. (390) 950 -- --
Net proceeds (repayments) from accounts
receivable transactions ............ -- (17,000) 167,000 --
Capital contribution ...................... -- -- 76,400 --
Deferred financing costs .................. -- (790) (37,590) --
Dividends paid ............................ (23,340) -- -- --
Decrease in Masco net investment and
advances ............................. -- -- -- (22,600)
--------- --------- --------- ---------
Net cash provided by (used for)
financing activities .............. (63,230) (107,840) 622,120 (21,930)
--------- --------- --------- ---------
Cash and Cash Investments:
Increase (decrease) for the period ........ 3,600 (18,260) 22,400 1,350
Balance, beginning of period .............. 4,140 22,400 -- 17,310
--------- --------- --------- ---------
Balance, end of period .................... $ 7,740 $ 4,140 $ 22,400 $ 18,660
========= ========= ========= =========
Supplemental Disclosure of Cash Flow
Information:
Cash paid for:
Interest .................................. $ 31,830 $ 44,450 $ 6,200 $ 52,700
========= ========= ========= =========
Income taxes .............................. $ 12,050 $ 28,300 $ 7,000 $ 10,000
========= ========= ========= =========
</TABLE>
Non-cash transactions:
On November 13, 1998, LifeStyle declared a cash dividend, payable January
1999, of $16.5 million to Holdings.
On December 12, 1997, LifeStyle declared a cash dividend, payable January
1998, of $23.3 million to Holdings.
In addition to the acquisition consideration reflected above, Holdings
issued $285.0 million in notes and $60.0 million in equity securities to Masco
during 1996.
The accompanying notes are an integral part of the financial statements.
31
<PAGE> 34
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS
1. The Company
LIFESTYLE FURNISHINGS INTERNATIONAL LTD. ("LifeStyle") was formed in May
1996 for the purpose of acquiring (the "acquisition") the Masco Home Furnishings
Group (the "Predecessor") from Masco Corporation ("Masco"). In the formation of
LifeStyle, 100 shares of common stock were issued to FURNISHINGS INTERNATIONAL
INC. ("Holdings"), LifeStyle's sole stockholder. On August 5, 1996, Holdings
acquired the Predecessor from Masco for approximately $1.1 billion and
contributed substantially all of the businesses acquired to LifeStyle, its
wholly owned subsidiary. The purchase price of $1.1 billion was financed by: (i)
senior bank facilities ($325.0 million); (ii) the senior subordinated notes
($200.0 million); (iii) equity contribution ($421.0 million); and (iv) proceeds
from sale of accounts receivable ($155.0 million). (See Note 8 Receivables
Facility and Note 9 Long-Term Debt).
The acquisition was accounted for using the purchase method of accounting
and, accordingly, the purchase price, which was $650 million less than the
historical carrying amount of the net assets of the Predecessor, was allocated
to the acquired assets and assumed liabilities based upon estimated fair values
as of the closing of the acquisition. This allocation resulted in the
elimination of goodwill and a reduction of non-current assets, principally
property and equipment.
As a result of the acquisition and new basis of accounting, LifeStyle's
financial statements for the periods subsequent to the acquisition are not
comparable to the Predecessor's financial statements for the periods prior to
the acquisition.
Holdings has filed a Registration Statement on Form S-1 (File No.
333-58655) relating to the initial public offering of its common stock (the
"Offerings"). In connection with the Offerings, LifeStyle Furnishings
International Ltd. will be merged with and into Furnishings International Inc.,
which will then change its name to LifeStyle Furnishings International Ltd. The
timing of the planned Offerings has not yet been determined.
2. Basis of Presentation and Accounting Policies
Basis of Presentation. LifeStyle is engaged in the business of
manufacturing and marketing home furnishings, including fine furniture and
decorative home furnishing fabrics. Revenue is recognized when products are
shipped to customers. The Financial Statements include the accounts of LifeStyle
and its subsidiary companies. The Financial Statements presented herein include
those of the Predecessor for the period prior to August 6, 1996 and LifeStyle
subsequent to that date. Intercompany accounts and transactions are eliminated.
In the Notes to the Financial Statements, all dollar amounts are shown in
thousands unless otherwise stated.
The financial information for the periods ended on or prior to August 5,
1996 refers to the Predecessor as it existed prior to the acquisition. The
Predecessor was not a legal entity and included certain Masco subsidiaries whose
operations consisted of the manufacture and sale of home furnishings, including
fine furniture and decorative home furnishing fabrics. The results of operations
of the Predecessor, as presented herein, may not be the same as would have
occurred had the Predecessor been an entity independent of Masco.
In connection with the acquisition, the purchase price allocation resulted
in the elimination of historical goodwill and a reduction of non-current assets,
principally property and equipment. This allocation was a result of the
historical carrying amount of the net assets of the Predecessor being in excess
of the purchase price paid by LifeStyle. Prior to the acquisition and in
accordance with Masco's accounting policy note, Masco periodically assessed
whether there had been an impairment of assets primarily by comparing current
and projected annual sales, operating income and annual cash flows on an
undiscounted basis with the related annual amortization expense. As of December
31, 1995 and through the date of the acquisition by LifeStyle, the goodwill and
property and equipment of the Predecessor had been subjected to an evaluation
for impairment based on this policy. The results of these cash flow tests
indicated that there was no impairment.
32
<PAGE> 35
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS (Continued)
2. Basis of Presentation and Accounting Policies (Continued)
Included in selling, general and administrative expenses of the
Predecessor are general corporate expenses which represent certain corporate
staff support and administrative services previously provided by Masco. These
expenses were charged to the Predecessor by Masco based upon approximately one
percent of sales of most domestic Predecessor operations. Because these services
were never contracted with outsiders nor bids obtained, it is not practical to
disclose estimates of what the cost would have been on a stand alone basis. In
addition, the Predecessor participated in certain programs provided by Masco
including various insurance programs and incentive compensation plans; related
costs of these programs that exceed amounts included in general corporate
expenses were separately charged to the Predecessor by Masco.
Use of Estimates in the Preparation of Financial Statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires LifeStyle to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from such estimates and assumptions.
Cash and Cash Investments. LifeStyle considers all highly liquid
investments with an original maturity of three months or less to be cash and
cash investments.
Receivables. Trade and other receivables are presented net of aggregate
allowances for doubtful accounts of $2.8 million at December 31, 1998 and $3.9
million at December 31, 1997.
Deferred Charges. Deferred charges, which consist primarily of debt
issuance costs associated with the acquisition from Masco are amortized over the
terms of the related debt using the effective interest method. Deferred charges
totaling $13.8 million, net of accumulated amortization of $5.2 million, and
$16.0 million, net of accumulated amortization of $3.0 million, were included in
Other Assets in the accompanying balance sheets as of December 31, 1998 and
1997, respectively. In August 1997, LifeStyle wrote off $19.4 million of
unamortized deferred financing costs related to the early extinguishment of
debt.
Property and Equipment. Property and equipment are stated at acquisition
cost as determined under APB Opinion No. 16 "Business Combinations." Assets
acquired subsequent to the acquisition, including significant betterments to
existing facilities, are recorded at cost. Upon retirement or disposal, the cost
and accumulated depreciation are removed from the accounts and any gain or loss
is included in income. LifeStyle reviews property and equipment for impairment
and write down to fair value whenever events or circumstances indicate that the
carrying value may not be recoverable through undiscounted cash flows. Fair
value is determined based on comparable market values, when available, or
discounted cash flows.
Depreciation and Amortization. Depreciation is computed principally using
the straight line method over the estimated useful lives of the assets.
LifeStyle generally uses estimated useful lives ranging from 15 to 40 years for
buildings and land improvements, and 3 to 8 years for machinery and equipment.
Purchased software and direct external costs related to the implementation of
the software are capitalized and amortized over a range of three to six years.
Depreciation expense was $23.4 million during 1998, $20.2 million during 1997,
$7.6 million for the period August 6, 1996 to December 31, 1996 and $21.5
million for the period January 1, 1996 to August 5, 1996.
LifeStyle produces fabric sample books which are used to market some of
its products. LifeStyle capitalizes the cost of these sample books and amortizes
their cost over three years as a selling expense. The unamortized net cost of
the sample books is included in other assets and prepaid expenses and at
December 31, 1998 and 1997 aggregated $22.7 million and $17.9 million,
respectively, and the related amounts charged to selling expense were $13.7
million during 1998, $14.3 million during 1997, $5.8 million for the period
August 6, 1996 to December 31, 1996 and $9.5 million for the period January 1,
1996 to August 5, 1996.
33
<PAGE> 36
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS (Continued)
2. Basis of Presentation and Accounting Policies (Continued)
Joint Ventures. LifeStyle has investments in several fifty-fifty joint
ventures in Asia which are accounted for on the equity method. At December 31,
1998 and 1997, LifeStyle's investment in these joint ventures totaled $5.5
million and $7.3 million, respectively, and is included in other assets. In
connection with certain of these investments, LifeStyle has guaranteed a minimum
return on investment to its joint venture partners if certain annual financial
targets are not achieved. LifeStyle records a liability for these guarantees
when payment is both probable and estimable.
Receivables Facility. LifeStyle accounts for its receivables facility in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 125
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities." SFAS No. 125 allows LifeStyle to derecognize the trade
receivables transferred to LFI Receivables Corporation (Note 8).
Fair Value of Financial Instruments and Concentrations of Credit Risk. The
carrying value of financial instruments reported in the balance sheets for
current assets and current liabilities approximates fair value. The carrying
values of notes receivable, revolving credit facilities, investment in
receivables trust and the forward contract to sell accounts receivable
approximate fair value as the floating rates inherent in the related financial
instruments reflect changes in overall market interest rates. The fair value of
the senior subordinated notes was approximately $221 million and $222 million as
of December 31, 1998 and 1997, respectively, based on quoted market values,
compared to a carrying value of $200.0 million. LifeStyle's residual interest
retained in securitized receivables is presented at cost, which equals the face
amount of the underlying securitized receivables. The fair value of the
investment in receivables trust, representing LifeStyle's residual interest
retained in securitized receivables, approximates cost due to the current nature
of the underlying accounts.
LifeStyle's interest rate collar arrangements, which result in $250.0
million of LifeStyle's long-term debt being subject to a LIBOR ceiling of 6.75%
and a LIBOR floor of 4.89%, had a fair value of approximately $(2.1) and $(0.4)
million at December 31, 1998 and 1997, respectively, with a carrying value of
zero.
Foreign Currency Translation. Assets and liabilities of LifeStyle's
foreign subsidiaries, where the local currency is the functional currency, are
translated at the balance sheet date exchange rates and statement of operations
accounts are translated at the average rates prevailing during the year.
Adjustments resulting from the translation are recorded as a separate component
of stockholder's equity.
The following table reconciles the changes from period to period:
<TABLE>
<CAPTION>
December 31,
----------------------
1998 1997
-------- --------
<S> <C> <C>
Balance, beginning of period ....... $ (9,170) $ 1,040
Translation adjustment ............. (1,860) (10,210)
Income tax effect .................. -- --
-------- --------
Balance, end of period ............. $(11,030) $ (9,170)
======== ========
</TABLE>
Assets and liabilities of LifeStyle's foreign subsidiaries, where the U.S.
dollar is the functional currency, are remeasured at balance sheet date exchange
rates, except for non-monetary assets and liabilities, which are remeasured
using historical exchange rates. The resulting gains and losses are included in
"Other, net" in the statement of operations.
34
<PAGE> 37
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS (Continued)
2. Basis of Presentation and Accounting Policies (Continued)
During 1998, LifeStyle recorded a $2.5 million loss on remeasurement and
foreign currency transactions and a $1.9 million translation adjustment to
stockholder's equity. During 1997, LifeStyle recorded a $7.0 million loss on
remeasurement and foreign currency transactions and a $10.2 million translation
adjustment to stockholder's equity because of the significant devaluation of the
Asian currencies against the U.S. dollar.
Reclassifications. Certain prior period amounts have been reclassified to
conform with current period presentation.
Recently Issued Accounting Standards. SFAS No. 131 "Disclosures about
Segments of an Enterprise and Related Information," became effective in 1998.
Comparative disclosures which include prior period information have been
restated to conform with the provisions of this Statement. (Note 15)
SFAS No. 132 "Employers' Disclosure about Pensions and Other
Postretirement Benefits," became effective in 1998. Comparative disclosures
which include prior period information have been restated to conform with the
provisions of this Statement. (Note 10)
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," will become effective for fiscal years beginning after June 15,
1999. This Statement standardizes the disclosure requirements for derivative
instruments and requires that all derivatives be recognized as assets or
liabilities and measured at fair value. LifeStyle does not believe that its
adoption will have a material impact on its financial statements.
3. Inventories
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1997
-------- --------
<S> <C> <C>
Finished goods ............... $212,730 $216,360
Raw material ................. 192,680 216,010
Work in process .............. 73,530 77,740
-------- --------
$478,940 $510,110
======== ========
</TABLE>
Inventories are stated at the lower of cost or net realizable value, with
cost determined principally by use of the first-in, first-out method.
4. Property and Equipment
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1997
-------- --------
<S> <C> <C>
Land and improvements ................ $ 36,350 $ 32,600
Buildings ............................ 205,660 204,920
Machinery and equipment .............. 157,480 121,550
-------- --------
399,490 359,070
Less accumulated depreciation ........ 48,580 21,680
-------- --------
$350,910 $337,390
======== ========
</TABLE>
35
<PAGE> 38
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS (Continued)
4. Property and Equipment (Continued)
LifeStyle leases various facilities and equipment under non-cancelable
lease arrangements. Rent expense was $16.8 million during 1998, $19.4 million
during 1997, $8.4 million for the period August 6, 1996 to December 31, 1996 and
$12.3 million for the period January 1, 1996 to August 5, 1996.
At December 31, 1998, future minimum rental commitments for operating
leases with non-cancelable terms in excess of one year are as follows:
1999-$21.3 million; 2000-$18.4 million; 2001-$14.8 million; 2002-$12.0 million;
2003-$10.1 million; and thereafter-$11.9 million.
5. Notes Receivable
LifeStyle has notes receivable from certain of its customers which are
included in Other Receivables and Other Assets in the accompanying balance
sheets. Generally, these notes require periodic payments of principal and
interest and are collateralized by inventory and personal guarantees of the
customers. These notes bear interest based predominantly on the prevailing prime
rate. Approximately $2.1 million of these notes are due from one customer at
December 31, 1998. Although LifeStyle does not currently foresee a material
credit risk associated with this receivable, repayment is dependent upon the
financial stability of this customer.
On February 1, 1999, using borrowings under its Credit Facility, LifeStyle
purchased a subordinated note in the principal amount of $35.0 million from HL
Holding Corporation ("HL"), an affiliate of one of Holdings' stockholders, in
connection with HL's acquisition of the HomeLife furniture retailing division of
Sears. The note is unsecured, will accrue interest at an annual rate of 11.0%
(or 11.5% if this interest is paid in kind at the option of HL) and is due in
2004. The note is subordinated in payment to $10.0 million of senior debt of HL,
the guarantee by HL of a $95.0 million credit facility of its subsidiary and any
other guarantee by HL of subsidiary debt.
6. Accrued Liabilities
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1997
-------- --------
<S> <C> <C>
Salaries, wages and commissions .............. $ 30,550 $ 26,780
Employee retirement plans .................... 2,760 8,390
Interest ..................................... 10,370 11,170
Advertising and sales promotion .............. 9,420 9,550
Insurance .................................... 5,050 7,120
Warranty reserve ............................. 2,500 2,500
Property, payroll and other taxes ............ 3,660 2,900
Restructuring ................................ 1,300 28,510
Dividend ..................................... 16,490 23,340
Other ........................................ 29,540 29,680
-------- --------
$111,640 $149,940
======== ========
</TABLE>
36
<PAGE> 39
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS (Continued)
7. Restructuring Initiatives
At the end of 1997, LifeStyle completed an in-depth evaluation of its
global manufacturing and distribution base, and recorded a $58.5 million charge
to rationalize and restructure its worldwide operations, focusing principally on
LifeStyle's Universal Furniture business unit. The majority of Universal
Furniture's restructuring activity occurred in Asia, where facilities with 1.3
million square feet of manufacturing and distribution space have been
eliminated, as production has been consolidated into existing, lower-cost Asian
facilities. As a result of the restructuring, significant non-recurring costs
have been incurred to sever lease obligations, provide for employee severance,
and provide for the impairment of inventory and property and equipment. The
restructuring initiatives included a reduction in workforce, eliminating
approximately 3,000 positions by the end of 1998. The positions eliminated
consist primarily of production and supervisory personnel.
The activities discontinued consist of furniture and component parts
manufacturing plants that supply other manufacturing operations. The activities
previously performed at these facilities have been shifted to other facilities
where existing production capacity can be more efficiently utilized. As such,
the operations discontinued did not have separately identifiable revenues or
operating income.
As a result of the restructuring, inventory with a carrying value of $14.5
million has been written-off. Property and equipment, consisting primarily of
real property, machinery and equipment at facilities to be closed, have been
written down, resulting in an impairment loss of $17.6 million. The fair value
of these assets was determined based upon independent appraisals and analysis of
comparable sales in the affected regions.
Operating profit for 1997 included total non-recurring charges of $58.5
million, including the $14.5 million of inventory write-offs referred to above
which are included in gross profit. The following represents LifeStyle's
restructuring activities for the periods indicated (in millions):
<TABLE>
<CAPTION>
Asset Contractual Employee
write-downs obligations severance Other Total
----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
December 31, 1997 ... $ 38.1 $ 9.8 $ 8.8 $ 1.8 $ 58.5
Activity during 1998:
Non-cash items . (38.1) -- -- -- (38.1)
Cash items ..... -- (8.5) (8.8) (1.8) (19.1)
----------- ---------- ---------- ---------- -----------
December 31, 1998 ... $ -- $ 1.3 $ -- $ -- $ 1.3
=========== ========== ========== ========== ===========
</TABLE>
In connection with the August 5, 1996 acquisition of the Predecessor,
management developed a restructuring plan. As permitted by EITF 95-3
"Recognition of Liabilities in Connection with a Purchase Business Combination,"
the total cost of the plan of approximately $28.3 million was included as part
of the purchase price allocation. This restructuring plan which provided for
severance costs associated with the closure of various facilities, costs
associated with the relocation of equipment and office facilities and other
closure related expenses was completed in early 1998.
8. Receivables Facility
In connection with LifeStyle's $200.0 million Receivables Facility, LFI
Receivables Corporation (the "Receivables Subsidiary"), a special-purpose,
bankruptcy remote subsidiary of LifeStyle, purchases, on a revolving basis,
substantially all domestic trade receivables generated by LifeStyle. The
Receivables Subsidiary transfers and assigns all its rights in substantially all
those receivables to the LFI Receivables Master Trust (the "Master Trust").
LifeStyle continues to service the receivables. The servicing assets and
liabilities related to this arrangement are not significant.
37
<PAGE> 40
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS (Continued)
8. Receivables Facility (Continued)
A syndicate of banks and other financial institutions (the "Participants")
may purchase investor certificates representing fractional undivided senior
interests in the assets of the Master Trust ("Senior Investor Certificates").
The Receivables Subsidiary also retains an investment in the Master Trust equal
to the face value of receivables transferred to the Master Trust, but not sold
to the Participants, comprised of: i) a fractional, undivided senior interest in
trade receivables; and ii) a fractional, undivided subordinated interest in
trade receivables.
As of December 31, the balance of trade receivables and cash held by the
Master Trust, as well as the fractional, undivided senior and subordinated
interests in the assets of the Master Trust, were as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Senior interests sold to Participants ........................ $150,000 $150,000
Senior interests retained by the Receivables Subsidiary ...... 23,900 --
Subordinated interests retained by the Receivables Subsidiary 68,320 64,010
-------- --------
Balance of trade receivables and cash held by the Master Trust $242,220 $214,010
======== ========
</TABLE>
The Senior Investor Certificates bear interest at LIBOR plus .125% to
.625% and there is a commitment fee of .175% per annum on the unused commitment
under the facility. The cost of this facility amounted to $9.1 million during
1998, $9.8 million during 1997 and $4.4 million for the period August 6, 1996 to
December 31, 1996, and is included in "Other, net" in the accompanying
Statements of Operations.
This arrangement places certain restrictions on LifeStyle and the
Receivables Subsidiary, including placing liens on LifeStyle's trade
receivables. At December 31, 1998, LifeStyle was in compliance with these
covenants.
9. Long-Term Debt
As of December 31, the outstanding balances of long-term debt were as
follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Revolving credit facility ........ $112,500 $152,000
Senior subordinated notes ........ 200,000 200,000
Other borrowings ................. 2,180 2,570
-------- --------
314,680 354,570
Less current portion ............. 3,160 2,970
-------- --------
$311,520 $351,600
======== ========
</TABLE>
LifeStyle may periodically guarantee loans, leases or other credit
facilities for its customers and joint venture partners. At December 31, 1998,
the outstanding balance of these guarantees approximated $3.6 million.
At December 31, 1998, the maturities of long-term debt during each of the
next five years were approximately as follows: 1999-$3.2 million; 2000-$1.5
million; 2001-$0 million; 2002-$75.0 million; 2003 - $35.0 million; and 2004 and
thereafter $200.0 million.
38
<PAGE> 41
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS (Continued)
9. Long-Term Debt (Continued)
Revolving Credit Facility. On August 15, 1997, LifeStyle replaced the
existing Revolving credit facility, Tranche A term loan and Tranche B term loan
with a six year $400 million senior secured revolving credit facility. The
revolving credit facility provides LifeStyle with increased financial
flexibility by eliminating quarterly principal payment requirements, reducing
financing costs and reducing a number of restrictive covenants. The revolving
credit facility bears interest at a floating rate equal to LIBOR plus an
applicable percentage based upon LifeStyle's debt coverage ratio at the end of
each quarter. In connection with the repayment of the existing revolving credit
and term loan facilities, LifeStyle recorded an extraordinary loss of $19,370
($11,620 net of tax), consisting of the write-off of unamortized deferred
financing costs, related to the early extinguishment of debt.
The obligation under the revolving credit facility is unconditionally
guaranteed, jointly and severally, by Holdings and substantially all domestic
subsidiaries of LifeStyle, and is collateralized by substantially all the fixed
assets of LifeStyle and the guarantors. The revolving credit facility contains
restrictive covenants including minimum interest coverage ratios, maximum
leverage ratios, and annual capital expenditures limitations. At December 31,
1998, LifeStyle was in compliance with these covenants.
Senior Subordinated Notes. In connection with the acquisition, LifeStyle
issued, in a private placement, $200 million unsecured senior subordinated notes
maturing August 1, 2006 ("Notes"). Interest on the Notes is payable semiannually
at 10.875% per annum commencing on February 1, 1997. On November 8, 1996,
LifeStyle's registration statement on Form S-4 (No. 333-11905) became effective
under the Securities Act of 1933, providing for the exchange of the Notes for
new Notes. All old Notes were exchanged for new Notes on December 13, 1996. The
new Notes are identical in all material respects to the Notes issued through the
private placement except that they are registered under the Securities Act, thus
allowing, subject to certain limitations, transfer pursuant to the Securities
Act.
The Notes may be redeemed by LifeStyle subsequent to August 1, 2001 at
premiums which begin at 5.438% and decline each year to 0% for redemptions
taking place after August 1, 2004. In addition, at any time prior to August 1,
1999, LifeStyle may redeem up to 33.33% of the original aggregate principal
amount of the Notes with the proceeds of one or more public equity offerings at
a redemption price of 110.875%. Also, upon a qualifying change of control, the
Notes may be redeemed at the option of LifeStyle at the Applicable Premium (as
defined), or in certain instances at the option of the Note holders at a premium
of 1%. The Notes contain certain restrictive covenants which, among others,
limit the incurrence of additional indebtedness and restrict capital
transactions, distributions, and asset dispositions of certain subsidiaries. At
December 31, 1998, LifeStyle was in compliance with these covenants.
LifeStyle's domestic operating subsidiaries (the "Guarantor Subsidiaries")
fully and unconditionally guarantee LifeStyle's performance under the Notes on a
joint and several basis (see Note 16 Guarantor Financial Statements).
In 1999, LifeStyle commenced a cash tender offer to acquire all of the
outstanding Notes. In connection with the acquisition of the Notes, LifeStyle
expects to pay a premium of approximately $30.8 million.
39
<PAGE> 42
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS (Continued)
10. Employee Retirement Plans
LifeStyle sponsors qualified defined benefit and defined contribution
retirement plans for most of its employees. LifeStyle also maintains a
non-qualified, defined benefit retirement plan for certain key executives.
LifeStyle's funding policy with respect to the qualified defined benefit plans
is to contribute amounts to the plan sufficient to meet minimum funding
requirements as set by law. The non-qualified plan is unfunded. LifeStyle's
defined contribution plans, available to most domestic employees, contain a
savings provision that permits pre-tax employee contributions and, at certain
locations, a limited employer match. Aggregate charges to income under these
plans were $10.8 million during 1998, $11.1 million during 1997, $4.4 million
for the period August 6, 1996 to December 31, 1996 and $4.0 million for the
period January 1, 1996 to August 5, 1996.
Net periodic pension cost for LifeStyle's pension plans includes the
following components:
<TABLE>
<CAPTION>
LifeStyle Predecessor
--------------------------------------------------- -------------
Year Ended
December 31, Aug. 6, 1996 Jan. 1, 1996
-------------------------------- to to
1998 1997 Dec. 5, 1996 Aug. 5, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Service cost-benefits earned during
the year ....................... $ 8,120 $ 7,680 $ 2,630 $ 4,480
Interest cost on projected benefit
obligation ..................... 13,980 13,500 5,430 7,550
Actual return on assets ........... (13,980) (13,530) (1,690) (8,410)
Net amortization and deferral ..... 150 230 (3,750) 970
------------- ------------- ------------- -------------
Net periodic pension cost ......... $ 8,270 $ 7,880 $ 2,620 $ 4,590
============= ============= ============= =============
</TABLE>
Major assumptions used in accounting for LifeStyle's pension plans are as
follows:
<TABLE>
<CAPTION>
LifeStyle
-----------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Discount rate for obligations .................. 7.25% 7.50% 7.50%
Rate of increase in compensation levels ........ 5.0% 5.0% 5.0%
Expected long-term rate of return on plan assets 10.0% 10.0% 10.0%
</TABLE>
40
<PAGE> 43
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS (Continued)
10. Employee Retirement Plans (Continued)
The change in projected benefit obligation, the change in fair value of
plan assets and the funded status of LifeStyle's pension plans at December 31 is
summarized as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
---------------------------------
1998 1997
--------------- -------------
<S> <C> <C>
Change in projected benefit obligation:
Projected benefit obligation at beginning of year............... $ 191,000 $ 184,400
Service cost.................................................... 8,120 7,680
Interest cost................................................... 13,980 13,500
Actuarial (gain)/loss........................................... 9,230 (5,930)
Benefits paid................................................... (11,470) (8,650)
-------------- ------------
Projected benefit obligation at end of year.................. $ 210,860 $ 191,000
-------------- ------------
Change in fair value plan assets:
Fair value of plan assets at beginning of year ................. $ 142,330 $ 134,820
Actual return on plan assets.................................... 13,030 9,050
Employer contribution........................................... 7,380 7,110
Benefits paid................................................... (11,470) (8,650)
-------------- ------------
Fair value of plan assets at end of year .................... $ 151,270 $ 142,330
-------------- ------------
Funded status................................................... $ (59,590) $ (48,670)
Unrecognized transition asset .................................. (930) (1,120)
Unrecognized net actuarial loss ................................ 30,280 20,410
Unrecognized prior service cost ................................ 290 320
-------------- ------------
Accrued benefit cost......................................... $ (29,950) $ (29,060)
============== ============
</TABLE>
11. Stockholder's Equity
<TABLE>
<CAPTION>
Additional Foreign Total
Common Paid-in Retained Currency Stockholder's
Stock Capital Earnings Translation Equity
----------- ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at August 5, 1996....... $ -- $ -- $ -- $ -- $ --
Contribution of businesses
from Holdings.............. -- 421,050 -- -- 421,050
Net income................... -- -- 31,270 -- 31,270
Foreign exchange............. -- -- -- 1,040 1,040
----------- ------------ ----------- ------------ -------------
Balance at December 31, 1996.... -- 421,050 31,270 1,040 453,360
----------- ------------ ----------- ------------ -------------
Net income................... -- -- 17,580 -- 17,580
Dividend declared............ -- -- (23,340) -- (23,340)
Foreign exchange............. -- -- -- (10,210) (10,210)
----------- ------------ ----------- ------------ -------------
Balance at December 31, 1997.... -- 421,050 25,510 (9,170) 437,390
----------- ------------ ----------- ------------ -------------
Net income................... -- -- 70,540 -- 70,540
Dividend declared............ -- -- (16,490) -- (16,490)
Foreign exchange............. -- -- -- (1,860) (1,860)
=========== ============ =========== ============ =============
Balance at December 31, 1998.... $ -- $ 421,050 $ 79,560 $ (11,030) $ 489,580
=========== ============ =========== ============ =============
</TABLE>
On November 13, 1998, LifeStyle declared a cash dividend, payable January
1999, of $16.5 million to Holdings.
41
<PAGE> 44
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS (Continued)
12. Income Taxes
<TABLE>
<CAPTION>
LifeStyle Predecessor
----------------------------------------------- -------------
Year Ended
December 31, Aug. 6, 1996 Jan. 1, 1996
-------------------------- to to
1998 1997 Dec. 31, 1996 Aug. 5, 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Income (loss) before
income taxes and
extraordinary item:
Domestic .............................. $ 73,740 $ 76,310 $ 48,640 $ (350)
Foreign ............................... 20,250 (33,360) (530) (810)
-------- -------- -------- --------
$ 93,990 $ 42,950 $ 48,110 $ (1,160)
======== ======== ======== ========
Provision (credit) for income taxes:
Currently payable:
Federal - U.S. income ............... $ 3,580 $ 4,820 $ 16,240 $ 3,680
- Certain foreign earnings .. 5,940 3,360 1,640 2,510
State and local ..................... 1,130 3,650 3,840 1,950
Foreign ............................. 1,900 1,110 1,010 1,300
Deferred:
Domestic ............................ 10,900 9,190 (5,890) (2,600)
Foreign ............................. -- (8,380) -- (10)
-------- -------- -------- --------
$ 23,450 $ 13,750 $ 16,840 $ 6,830
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
December 31,
----------------------------------
1998 1997
------- -------
<S> <C> <C>
Deferred tax assets:
Inventories ................................................ $ 9,480 $ 8,850
Accrued liabilities ........................................ 34,300 40,930
------- -------
Gross deferred tax assets ................................ 43,780 49,780
------- -------
Deferred tax liabilities:
Property and equipment ..................................... 35,710 29,960
Other ...................................................... 1,290 1,290
------- -------
Gross deferred tax liabilities ........................... 37,000 31,250
------- -------
Net deferred tax asset ........................................... $ 6,780 $18,530
======= =======
</TABLE>
The following is a reconciliation of tax computed at the U.S. federal
statutory rate to the provision for income taxes allocated to income (loss)
before income taxes:
<TABLE>
<CAPTION>
LifeStyle Predecessor
-------------------------------------------------- -------------
Year Ended
December 31, Aug. 6, 1996 Jan. 1, 1996
--------------------------- to to
1998 1997 Dec. 31, 1996 Aug. 5, 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
U.S. federal statutory rate ................. 35% 35% 35% 35%
Tax (credit) at U.S. federal statutory rate . $ 32,900 $ 15,030 $ 16,840 $ (410)
Higher taxes on foreign earnings ............ 750 7,560 2,870 4,080
Amortization in excess of tax ............... -- -- 140 2,620
State and local taxes, net of federal tax
benefit .................................. 1,730 3,470 1,820 1,270
Reduction from tax sharing agreement ........ (12,460) (12,760) (4,970) --
Other ....................................... 530 450 140 (730)
Income taxes .......................... $ 23,450 $ 13,750 $ 16,840 $ 6,830
======== ======== ======== ========
</TABLE>
42
<PAGE> 45
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS (Continued)
12. Income Taxes (Continued)
LifeStyle and its subsidiaries are included in the consolidated federal
tax return of Holdings. Pursuant to LifeStyle's tax sharing agreement with
Holdings, LifeStyle will be required to make tax sharing payments to Holdings
with respect to LifeStyle's pro rata share of consolidated federal and combined
state and local income tax liabilities.
Under SFAS No. 109, deferred income taxes are provided to recognize the
effect of temporary differences between financial reporting and income tax
reporting. Realization of deferred tax assets is dependent upon the ability to
carryback reversing deductible temporary differences to offset actual taxable
income in the carryback period or to offset taxable temporary differences as
scheduled reversals are projected to occur. No valuation allowance was required
at December 31, 1998 or 1997.
The Predecessor was included in the consolidated federal and state tax
returns of Masco. Accordingly, substantially all income tax-related assets and
liabilities were due to or from Masco. Income taxes and credits were computed on
a separate return basis.
13. Related Party Transactions
As a part of the acquisition of the Predecessor, LifeStyle and Holdings
entered into a Management Agreement pursuant to which Holdings provides
LifeStyle certain executive management, corporate support, administrative, data
processing, human resources, legal, environmental, audit, treasury, tax and
other management-related services. Those costs approximated $20.7 million during
1998, $15.9 million during 1997 and $6.6 for the period August 6, 1996 to
December 31, 1996, or which approximately $6.6 million and $1.5 million was
included in accrued liabilities at December 31, 1998 and 1997, respectively.
LifeStyle sells furniture and accessories to certain distribution
businesses owned by Holdings. LifeStyle's sales to Holdings were $49.8 million
during 1998, $38.6 million during 1997 and $21.2 million for the period August
6, 1996 to December 31, 1996. As a result of these sales transactions, LifeStyle
had accounts receivable totaling $14.7 million and $15.0 million at December 31,
1998 and 1997, respectively.
14. Commitments and Contingencies
In the ordinary course of business, LifeStyle may become exposed to
potential liabilities resulting from spills and releases of hazardous substances
at its sites and facilities. LifeStyle also has been named as a potentially
responsible party at a number of non-owned contaminated sites, including
Superfund sites. LifeStyle does not believe that costs associated with
investigating or remediating these releases or costs related to these sites will
have a material adverse effect on LifeStyle's financial condition, cash flows,
operating expenses or earnings. However, there can be no assurance that material
costs relating to these matters will not be incurred in the future.
From time to time, LifeStyle is a party to various legal actions in the
normal course of its business. LifeStyle is not currently a party to any
litigation which, if adversely determined, would have a material adverse effect
on the liquidity or results of operations of LifeStyle.
43
<PAGE> 46
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS (Continued)
15. Operating Segments
Effective December 31, 1998, LifeStyle adopted SFAS No.131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS No. 131
establishes standards for the way public business enterprises report information
about operating segments. SFAS No. 131 also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
The adoption of SFAS No. 131 did not affect LifeStyle's results of operations or
financial position.
LifeStyle is the largest manufacturer and marketer of home furnishings in
the U.S. It generates revenue from two operating segments: fine furniture
(including decorative accessories) and decorative home furnishings fabrics.
Management has determined these to be LifeStyle's operating segments based on
the nature of their products. The fine furniture segment is principally involved
in the manufacture, sale and distribution of home furnishing products to
independent and franchised retailers. These products consist of casegoods,
upholstered products, accessories, casual furniture and indoor/outdoor
furniture. The decorative home furnishings fabrics segment is principally
involved in the manufacture and sale of woven and printed fabrics to jobbers and
furniture manufacturers.
The accounting policies of the segments are the same as those described in
Note 2. LifeStyle evaluates performance based on operating profit or loss.
Revenues from transactions between operating segments are not material.
LifeStyle allocates corporate overhead to each segment.
The following represents selected financial information for LifeStyle's
operating segments for the periods indicated (in thousands):
<TABLE>
<CAPTION>
LifeStyle Predecessor
------------------------------------------------- -------------
Year Ended
December 31, Aug. 6, 1996 Jan. 1, 1996
-------------------------------- to to
1998 1997 Dec. 31, 1996 Aug. 5, 1996
-------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
Net sales:
Fine furniture............................... $ 1,871,000 $ 1,814,000 $ 803,000 $ 1,070,000
Fabric....................................... 268,000 277,000 119,000 163,000
Intrasegment elimination and other........... (137,000) (131,000) (65,000) (85,000)
-------------- --------------- --------------- -------------
Total net sales................................. $ 2,002,000 $ 1,960,000 $ 857,000 $ 1,148,000
============== =============== =============== =============
Net sales to external customers:
Fine furniture............................... $ 1,745,000 $ 1,694,000 $ 741,000 $ 991,000
Fabric....................................... 257,000 266,000 116,000 157,000
-------------- --------------- --------------- -------------
Total net sales to external customers........... $ 2,002,000 $ 1,960,000 $ 857,000 $ 1,148,000
============== =============== =============== =============
Operating profit (loss):
Fine furniture............................... $ 115,000 $ 71,000 $ 63,000 $ 54,000
Fabric....................................... 26,000 28,000 13,000 13,000
Intrasegment elimination and other........... (4,000) 1,000 (1,000) (12,000)
-------------- --------------- --------------- -------------
Total operating profit.......................... $ 137,000 $ 100,000 $ 75,000 $ 55,000
============== =============== =============== =============
Depreciation and amortization expense:
Fine furniture............................... $ 21,000 $ 17,000 $ 9,000 $ 17,000
Fabric....................................... 17,000 16,000 7,000 12,000
Intrasegment elimination and other........... -- -- -- 2,000
-------------- --------------- --------------- -------------
Total depreciation and amortization expense..... $ 38,000 $ 33,000 $ 16,000 $ 31,000
============== =============== =============== =============
</TABLE>
44
<PAGE> 47
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS (Continued)
15. Operating Segments
<TABLE>
<CAPTION>
LifeStyle Predecessor
------------------------------------------------- -------------
Year Ended
December 31, Aug. 6, 1996 Jan. 1, 1996
-------------------------------- to to
1998 1997 Dec. 31, 1996 Aug. 5, 1996
-------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
Additions to long-lived assets:
Fine furniture............................... $ 38,000 $ 30,000 $ 13,000 $ 13,000
Fabric....................................... 22,000 17,000 4,000 12,000
Intrasegment elimination and other........... - - - 1,000
-------------- --------------- --------------- -------------
Total additions to long-lived assets............ $ 60,000 $ 47,000 $ 17,000 $ 26,000
============== =============== =============== =============
</TABLE>
<TABLE>
<CAPTION>
LifeStyle
--------------------------------
Dec. 31, 1998 Dec. 31, 1997
--------------- ---------------
<S> <C> <C>
Total assets:
Fine furniture............................... $ 898,000 $ 935,000
Fabric....................................... 153,000 147,000
Intrasegment elimination and other........... 75,000 58,000
--------------- ---------------
Total assets.................................... $ 1,126,000 $ 1,140,000
=============== ===============
</TABLE>
The following geographic information represents LifeStyle's trade revenues
after elimination of intercompany sales based on product shipment location and
total assets based on physical location for the regions and for the periods
indicated (in thousands):
<TABLE>
<CAPTION>
LifeStyle Predecessor
------------------------------------------------- ---------------
Year Ended
December 31,
--------------------------------- Aug. 6, 1996 Jan. 1, 1996
to to
1998 1997 Dec. 31, 1996 Aug. 5, 1996
-------------- ---------------- ------------- ---------------
<S> <C> <C> <C> <C>
United States................................... $ 1,848,000 $ 1,770,000 $ 769,000 $ 1,030,000
Pacific Rim..................................... 87,000 115,000 58,000 76,000
European Union and other foreign countries...... 67,000 75,000 30,000 42,000
-------------- ---------------- ------------- ---------------
Total net sales..................... $ 2,002,000 $ 1,960,000 $ 857,000 $ 1,148,000
============== ================ ============= ===============
</TABLE>
<TABLE>
<CAPTION>
LifeStyle
--------------------------------
Dec. 31, 1998 Dec. 31, 1997
---------------- -------------
<S> <C> <C>
Total assets:
United States................................... $ 936,000 $ 906,000
Pacific Rim..................................... 151,000 193,000
European Union and other foreign countries...... 39,000 41,000
---------------- -------------
Total assets........................ $ 1,126,000 $ 1,140,000
================ =============
</TABLE>
45
<PAGE> 48
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS (Continued)
16. Guarantor Financial Statements
In connection with the issuance of its 10 7/8% Senior Subordinated Notes
due 2006 (the "Notes"), the Company's domestic operating subsidiaries
("Guarantor Subsidiaries") fully and unconditionally guaranteed the Company's
performance under the Notes on a joint and several basis. The Guarantor
Subsidiaries are direct or indirect wholly owned subsidiaries of the Company.
The remaining subsidiaries are direct or indirect subsidiaries of the Guarantor
Subsidiaries. There are no restrictions under the Company's financing
arrangements on the ability of the Guarantor Subsidiaries to distribute funds to
the Company in the form of cash dividends, loans or advances. The following
financial data provides information regarding the financial position, results of
operations and cash flows of the Guarantor Subsidiaries (condensed consolidating
financial data). Separate financial statements and other disclosures concerning
the Guarantor Subsidiaries are not presented because management has determined
that such information would not be material to the holders of the Notes.
For purposes of the condensed consolidating financial data, the Guarantor
Subsidiaries include substantially all domestic subsidiaries of the Company
(other than special purpose subsidiaries formed in connection with the Company's
receivables financing facility (the "Receivables Subsidiaries") and certain
subsidiaries with substantially no assets or operations). The Guarantor
Subsidiaries account for their investments in the non-guarantor subsidiaries on
the equity method. The Company also accounts for its investments in the
Guarantor Subsidiaries and the Receivables Subsidiaries on the equity method.
The principal elimination entries are to eliminate the investments in
subsidiaries and intercompany balances and transactions.
46
<PAGE> 49
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS (Continued)
16. Guarantor Financial Statements (Continued)
LifeStyle
Condensed Consolidating Balance Sheet
December 31, 1998
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
----------- ------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash investments.......... $ -- $ (1,960) $ 9,700 $ -- $ 7,740
Trade receivables.................. -- 7,880 38,990 -- 46,870
Investment in receivables trust.... -- -- 92,220 -- 92,220
Other receivables.................. -- 25,530 15,670 -- 41,200
Inventories........................ -- 418,870 60,070 -- 478,940
Prepaid expenses................... -- 34,170 5,590 -- 39,760
Deferred income taxes.............. -- 21,970 6,040 -- 28,010
Intercompany account............... -- 245,410 -- (245,410) --
----------- ------------- --------------- --------------- --------------
Total current assets.......... -- 751,870 228,280 (245,410) 734,740
Property and equipment, net.............. -- 282,110 77,000 -- 359,110
Other assets............................. -- 41,410 6,980 (15,920) 32,470
Investments in affiliates................ 489,580 (49,090) -- (440,490) --
----------- ------------- --------------- --------------- --------------
Total assets.................. $ 489,580 $ 1,026,300 $ 312,260 $ (701,820) $ 1,126,320
=========== ============= =============== =============== ==============
Liabilities and Stockholder's Equity
Current liabilities:
Long-term debt, current............ $ -- $ 3,140 $ 20 $ -- $ 3,160
Accounts payable................... -- 111,620 25,790 -- 137,410
Accrued liabilities................ -- 76,120 35,520 -- 111,640
Intercompany account............... -- -- 245,410 (245,410) --
----------- ------------- --------------- --------------- --------------
Total current liabilities..... -- 190,880 306,740 (245,410) 252,210
Long-term debt........................... -- 311,520 -- -- 311,520
Deferred income taxes.................... -- 37,150 -- (15,920) 21,230
Other long-term liabilities.............. -- 49,740 2,040 -- 51,780
----------- ------------- --------------- --------------- --------------
Total liabilities............. -- 589,290 308,780 (261,330) 636,740
Stockholder's equity..................... 489,580 437,010 3,480 (440,490) 489,580
----------- ------------- --------------- --------------- --------------
Total liabilities and stockholder's
equity..................... $ 489,580 $ 1,026,300 $ 312,260 $ (701,820) $ 1,126,320
=========== ============= =============== =============== ==============
</TABLE>
47
<PAGE> 50
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS (Continued)
16. Guarantor Financial Statements (Continued)
LifeStyle
Condensed Consolidating Balance Sheet
December 31, 1997
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
----------- ------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash investments.......... $ -- $ (7,050) $ 11,190 $ -- $ 4,140
Trade receivables.................. -- 23,860 40,620 -- 64,480
Investment in receivables trust.... -- -- 64,010 -- 64,010
Other receivables.................. -- 30,540 10,170 -- 40,710
Inventories........................ -- 444,140 65,970 -- 510,110
Prepaid expenses................... -- 23,170 12,270 -- 35,440
Deferred income taxes.............. -- 28,700 9,830 -- 38,530
Intercompany account............... -- 257,070 -- (257,070) --
----------- ------------- --------------- --------------- --------------
Total current assets.......... -- 800,430 214,060 (257,070) 757,420
Property and equipment, net.............. -- 265,440 71,950 -- 337,390
Other assets............................. -- 54,510 1,900 (11,250) 45,160
Investments in affiliates................ 437,390 (79,830) -- (357,560) --
----------- ------------- --------------- --------------- --------------
Total assets.................. $ 437,390 $ 1,040,550 $ 287,910 $ (625,880) $ 1,139,970
=========== ============= =============== =============== ==============
Liabilities and Stockholder's Equity
Current liabilities:
Long-term debt, current............ $ -- $ 2,200 $ 770 $ -- $ 2,970
Accounts payable................... -- 103,180 20,820 -- 124,000
Accrued liabilities................ -- 102,920 47,020 -- 149,940
Intercompany account............... -- -- 257,070 (257,070) --
----------- ------------- --------------- --------------- --------------
Total current liabilities..... -- 208,300 325,680 (257,070) 276,910
Long-term debt........................... -- 351,600 -- -- 351,600
Deferred income taxes.................... -- 31,250 -- (11,250) 20,000
Other long-term liabilities.............. -- 51,890 2,180 -- 54,070
----------- ------------- --------------- --------------- --------------
Total liabilities............. -- 643,040 327,860 (268,320) 702,580
Stockholder's equity..................... 437,390 397,510 (39,950) (357,560) 437,390
----------- ------------- --------------- --------------- --------------
Total liabilities and stockholder's
equity..................... $ 437,390 $ 1,040,550 $ 287,910 $ (625,880) $ 1,139,970
=========== ============= =============== =============== ==============
</TABLE>
48
<PAGE> 51
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS (Continued)
16. Guarantor Financial Statements (Continued)
LifeStyle
Condensed Consolidating Statement of Operations and Comprehensive Income
for the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
--------------- --------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net sales.............................. $ -- $ 1,851,340 $ 549,470 $ (398,880) $ 2,001,930
Cost of sales.......................... -- 1,425,670 479,130 (394,170) 1,510,630
--------------- --------------- -------------- --------------- ---------------
Gross profit........................ -- 425,670 70,340 (4,710) 491,300
Selling, general and administrative
expenses............................ -- 314,670 39,710 -- 354,380
--------------- --------------- -------------- --------------- ---------------
Operating profit.................... -- 111,000 30,630 (4,710) 136,920
Other (income) expense, net............ (75,260) 34,070 (14,270) 98,390 42,930
--------------- --------------- -------------- --------------- ---------------
Income before income taxes.......... 75,260 76,930 44,900 (103,100) 93,990
Income taxes........................... -- 14,390 9,060 -- 23,450
--------------- --------------- -------------- --------------- ---------------
Net income......................... 75,260 62,540 35,840 (103,100) 70,540
--------------- --------------- -------------- --------------- ---------------
Other comprehensive income, net of tax:
Foreign currency translation....... -- -- (10,060) -- (10,060)
--------------- --------------- -------------- --------------- ---------------
Comprehensive income............... $ 75,260 $ 62,540 $ 25,780 $ (103,100) $ 60,480
=============== =============== ============== =============== ===============
</TABLE>
49
<PAGE> 52
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS (Continued)
16. Guarantor Financial Statements (Continued)
LifeStyle
Condensed Consolidating Statement of Operations and Comprehensive Income
for the Year Ended December 31, 1997
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------------- -------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net sales............................. $ -- $ 1,777,970 $ 439,180 $ (257,370) $ 1,959,780
Cost of sales......................... -- 1,342,540 368,600 (257,370) 1,453,770
Restructuring charge.................. -- -- 14,480 -- 14,480
-------------- -------------- --------------- --------------- ---------------
Gross profit....................... -- 435,430 56,100 491,530
Selling, general and administrative
expenses........................... -- 297,970 49,580 -- 347,550
Restructuring charge.................. -- 9,000 35,020 -- 44,020
-------------- -------------- --------------- --------------- ---------------
Operating profit................... -- 128,460 (28,500) -- 99,960
Other, net............................ (17,580) 98,980 (4,680) (19,710) 57,010
-------------- -------------- --------------- --------------- ---------------
Income (loss) before income taxes and
extraordinary item................. 17,580 29,480 (23,820) 19,710 42,950
Income taxes.......................... -- 7,910 5,840 -- 13,750
-------------- -------------- --------------- --------------- ---------------
Income (loss) before extraordinary
item............................ 17,580 21,570 (29,660) 19,710 29,200
Extraordinary item-loss on early
extinguishment of debt (net of
income taxes of $7,750)......... -- (11,620) -- -- (11,620)
-------------- -------------- --------------- --------------- ---------------
Net income (loss).................. 17,580 9,950 (29,660) 19,710 17,580
-------------- -------------- --------------- --------------- ---------------
Other comprehensive income (loss), net of tax:
Foreign currency translation....... -- -- (10,210) -- (10,210)
-------------- -------------- --------------- --------------- ---------------
Comprehensive income (loss)........ $ 17,580 $ 9,950 $ (39,870) $ 19,710 $ 7,370
============== =============== =============== =============== ===============
</TABLE>
50
<PAGE> 53
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS (Continued)
16. Guarantor Financial Statements (Continued)
LifeStyle
Condensed Consolidating Statement of Operations and Comprehensive Income
for the Period August 6, 1996 to December 31, 1996
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
---------------- -------------- ----------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Net sales........................... $ -- $ 774,540 $ 200,490 $ (117,540) $ 857,490
Cost of sales....................... -- 590,190 165,490 (117,540) 638,140
---------------- -------------- ----------------- -------------- ----------------
Gross profit..................... -- 184,350 35,000 -- 219,350
Selling, general and administrative
expenses......................... -- 123,850 20,730 -- 144,580
---------------- -------------- ----------------- -------------- ----------------
Operating profit................. -- 60,500 14,270 -- 74,770
Other, net.......................... (31,270) 16,880 8,650 32,400 26,660
---------------- -------------- ----------------- -------------- ----------------
Income before income taxes....... 31,270 43,620 5,620 (32,400) 48,110
Income taxes........................ -- 14,580 2,260 -- 16,840
---------------- -------------- ----------------- -------------- ----------------
Net income....................... 31,270 29,040 3,360 (32,400) 31,270
---------------- -------------- ----------------- -------------- ----------------
Other comprehensive income (loss),
net of tax:
Foreign currency translation.... -- -- 1,040 -- 1,040
---------------- -------------- ----------------- -------------- ----------------
Comprehensive income (loss)..... $ 31,270 $ 29,040 $ 4,400 $ (32,400) $ 32,310
================ ============== ================ ============== ================
</TABLE>
51
<PAGE> 54
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS (Continued)
16. Guarantor Financial Statements (Continued)
Predecessor
Condensed Combining Statements of Operations
for the Period January 1, 1996 to August 5, 1996
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Subsidiaries Subsidiaries Eliminations Combined
---------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Net sales............................... $ 1,014,270 $ 294,360 $ (160,740) $ 1,147,890
Cost of sales........................... 780,000 251,390 (160,740) 870,650
---------------- --------------- --------------- --------------
Gross profit......................... 234,270 42,970 -- 277,240
Selling, general and administrative
expenses............................. 182,510 39,720 -- 222,230
---------------- --------------- --------------- --------------
Operating profit..................... 51,760 3,250 -- 55,010
Other, net.............................. 44,570 9,280 2,320 56,170
---------------- --------------- --------------- --------------
Income (loss) before income taxes.... 7,190 (6,030) (2,320) (1,160)
Income taxes (credit)................... 8,910 (2,080) -- 6,830
---------------- --------------- --------------- --------------
Net loss............................. (1,720) (3,950) (2,320) (7,990)
---------------- --------------- --------------- --------------
Other comprehensive income (loss),
net of tax:
Foreign currency translation....... -- (830) -- (830)
---------------- --------------- --------------- --------------
Comprehensive income (loss)........ $ (1,720) $ (4,780) $ (2,320) $ (8,820)
================ ================ =============== ==============
</TABLE>
52
<PAGE> 55
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS (Continued)
16. Guarantor Financial Statements (Continued)
LifeStyle
Condensed Consolidating Statement of Cash Flows
for the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------------- ---------------- ----------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Net Cash Provided By
Operating Activities:..... $ -- $ 96,720 $ 57,450 $ -- $ 154,170
-------------- ---------------- ----------------- --------------- --------------
Investing Activities:
Capital expenditures......... -- (33,150) (8,260) -- (41,410)
Fabric sample book
expenditures.............. -- (18,540) -- -- (18,540)
Net investments in
receivables trust......... -- -- (28,210) -- (28,210)
Issuance of notes receivable. -- (1,040) -- -- (1,040)
Collection of notes
receivable................ -- 7,440 -- -- 7,440
Other, net................... -- 4,480 (10,060) -- (5,580)
-------------- ---------------- ----------------- --------------- --------------
Net cash used for
investing activities. -- (40,810) (46,530) -- (87,340)
-------------- ---------------- ----------------- --------------- --------------
Financing Activities:
Proceeds from long-term debt. -- 47,500 -- -- 47,500
Repayments of long-term debt. -- (87,000) -- -- (87,000)
Net proceeds (repayments) of
other debt................ -- 360 (750) -- (390)
Dividends paid............... -- (23,340) -- -- (23,340)
Intercompany accounts, net... -- 11,660 (11,660) -- --
-------------- ---------------- ----------------- --------------- --------------
Net cash used for
financing activities. -- (50,820) (12,410) -- (63,230)
-------------- ---------------- ----------------- --------------- --------------
Cash and Cash Investments:
Increase (decrease) for the
period.................... -- 5,090 (1,490) -- 3,600
Balance, beginning of period. -- (7,050) 11,190 -- 4,140
-------------- ---------------- ----------------- --------------- --------------
Balance, end of period....... $ -- $ (1,960) $ 9,700 $ -- $ 7,740
============== ================ ================= =============== ==============
</TABLE>
53
<PAGE> 56
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS (Continued)
16. Guarantor Financial Statements (Continued)
LifeStyle
Condensed Consolidating Statement of Cash Flows
for the Year Ended December 31, 1997
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------------- -------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Cash Provided By Operating
Activities:....................... $ -- $ 89,700 $ 50,120 $ -- $ 139,820
------------- -------------- ---------------- ------------- -------------
Investing Activities:
Capital expenditures........... -- (26,970) (5,680) -- (32,650)
Fabric sample book expenditures -- (14,280) -- -- (14,280)
Net investments in receivables
trust........................ -- -- (12,890) -- (12,890)
Issuance of notes receivable... -- (3,990) -- (3,990)
Collection of notes receivable. -- 16,650 -- -- 16,650
Other, net..................... -- 7,130 (10,210) -- (3,080)
------------- -------------- ---------------- ------------- -------------
Net cash used for investing
activities................ -- (21,460) (28,780) -- (50,240)
------------- -------------- ---------------- ------------- -------------
Financing Activities:
Proceeds from long-term debt... -- 234,000 -- -- 234,000
Repayments of long-term debt... -- (322,930) (2,070) -- (325,000)
Net proceeds of other debt..... -- 950 -- -- 950
Net repayments of accounts
receivable transactions...... -- -- (17,000) -- (17,000)
Deferred financing costs....... -- (790) -- -- (790)
Intercompany accounts, net..... -- 8,970 (8,970) -- --
------------- -------------- ---------------- ------------- -------------
Net cash used for financing
activities................ -- (79,800) (28,040) -- (107,840)
------------- -------------- ---------------- ------------- -------------
Cash and Cash Investments:
Decrease for the period.............. -- (11,560) (6,700) -- (18,260)
Balance, beginning of period......... -- 4,510 17,890 -- 22,400
------------- -------------- ---------------- ------------- -------------
Balance, end of period............... $ -- $ (7,050) $ 11,190 $ -- $ 4,140
============= ============== ================ ============= =============
</TABLE>
54
<PAGE> 57
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS (Continued)
16. Guarantor Financial Statements (Continued)
LifeStyle
Condensed Consolidating Statement of Cash Flows
for the Period August 6, 1996 to December 31, 1996
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------------ -------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Cash Provided By (Used For)
Operating Activities:................ $ -- $ 132,200 $ (23,160) $ -- $ 109,040
------------ -------------- --------------- ------------- -------------
Investing Activities:
Capital expenditures................. -- (11,250) (2,570) -- (13,820)
Fabric sample book expenditures...... -- (3,260) -- -- (3,260)
Net investments in receivables trust. -- -- (51,120) -- (51,120)
Collection of notes receivable....... -- 1,670 -- -- 1,670
Acquisition of businesses, net of
cash acquired..................... -- (645,430) -- -- (645,430)
Other, net........................... -- 3,200 -- -- 3,200
------------ -------------- --------------- ------------- -------------
Net cash used for investing
activities................... -- (655,070) (53,690) -- (708,760)
------------ -------------- --------------- ------------- -------------
Financing Activities:
Proceeds from long-term debt......... -- 525,000 -- -- 525,000
Repayments of long-term debt......... -- (85,350) (23,340) -- (108,690)
Net proceeds from accounts
receivable transactions........... -- -- 167,000 -- 167,000
Capital contribution................. -- 76,400 -- -- 76,400
Deferred financing costs............. -- (37,590) -- -- (37,590)
Intercompany accounts, net........... -- 48,920 (48,920) -- --
------------ -------------- --------------- ------------- -------------
Net cash provided by
financing activities...... -- 527,380 94,740 -- 622,120
------------ -------------- --------------- ------------- -------------
Cash and Cash Investments:
Increase for the period................. -- 4,510 17,890 -- 22,400
Balance, beginning of period............ -- -- -- -- --
------------ -------------- --------------- ------------- -------------
Balance, end of period.................. $ -- $ 4,510 $ 17,890 $ -- $ 22,400
============ ============== =============== ============= =============
</TABLE>
55
<PAGE> 58
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
NOTES TO FINANCIAL STATEMENTS (Continued)
16. Guarantor Financial Statements (Continued)
Predecessor
Condensed Combining Statement of Cash Flows
for the Period January 1, 1996 to August 5, 1996
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Subsidiaries Subsidiaries Eliminations Combined
------------- -------------- ------------ -----------
<S> <C> <C> <C> <C>
Net Cash Provided By Operating Activities:....... $ 31,080 $ 20,110 $ (2,350) $ 48,840
------------- -------------- ------------ -----------
Investing Activities:
Capital expenditures.......................... (14,130) (2,390) -- (16,520)
Fabric sample book expenditures............... (9,190) -- -- (9,190)
Collection of notes receivable................ 1,450 1,340 -- 2,790
Other, net.................................... (4,530) 7,290 (5,400) (2,640)
------------- -------------- ------------ -----------
Net cash provided by (used for)
investing activities.................. (26,400) 6,240 (5,400) (25,560)
------------- -------------- ------------ -----------
Financing Activities:
Proceeds from long-term debt.................. 800 86,960 -- 87,760
Repayments of short-term debt................. (800) (86,290) -- (87,090)
Decrease in Masco Corporation net investment
and advances............................... (4,900) (25,450) 7,750 (22,600)
------------- -------------- ------------ -----------
Net cash used for financing activities... (4,900) (24,780) 7,750 (21,930)
------------- -------------- ------------ -----------
Cash and Cash Investments:
Increase (decrease) for the period............... (220) 1,570 -- 1,350
Balance, beginning of period..................... 4,540 12,770 -- 17,310
------------- -------------- ------------ -----------
Balance, end of period........................... $ 4,320 $ 14,340 $ -- $ 18,660
============= ============== ============ ===========
</TABLE>
56
<PAGE> 59
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
57
<PAGE> 60
PART III
Item 10. EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT
The following table sets forth certain information as of December 31, 1998
concerning the directors and executive officers of LifeStyle:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Wayne B. Lyon................. 66 Chairman of the Board, President and Chief Executive Officer
Donald L. Barefoot............ 44 Executive Vice President--Operations
Douglas C. Barnard............ 40 Vice President, General Counsel and Secretary
Alan D. Cole.................. 49 Executive Vice President
Ronald J. Hoffman............. 54 Vice President, Treasurer and Chief Financial Officer
Richard M. Cashin, Jr......... 45 Director
David L. Johnston............. 57 Director
Robert C. Larson.............. 64 Director
David F. Thomas............... 49 Director
Martin D. Walker.............. 66 Director
</TABLE>
Mr. Lyon has been Chairman of the Board, President and Chief Executive
Officer of LifeStyle since 1996. He has been a director of Masco for more than
the past five years, and was Masco's President and Chief Operating Officer until
retiring in 1996. Mr. Lyon is also a director of Comerica Incorporated and Emco
Limited.
Mr. Barefoot has been Executive Vice President Operations of LifeStyle
since 1997. He was President and Chief Executive Officer of ASC Incorporated
from 1994 to 1997. Previously, Mr. Barefoot was President of the Wiegand
Industrial Division of Emerson Electric Company from 1991 to 1994.
Mr. Barnard has been Vice President, General Counsel and Secretary of
LifeStyle since 1996. He was an Associate Corporate Counsel of Masco from 1992
to 1996. Previously, Mr. Barnard was a partner at the law firm of Kirkland &
Ellis in Chicago.
Mr. Cole has been Executive Vice President of LifeStyle since 1997. He was
Group Vice President of LifeStyle's Berkline and BenchCraft units from 1994 to
1997, and President of Berkline from 1991 to 1997. Mr. Cole has served in
various executive marketing and general management positions in the furniture
industry since 1972.
Mr. Hoffman has been Vice President, Treasurer and Chief Financial Officer
of LifeStyle since 1996. Mr. Hoffman was Vice President and Group Controller of
Masco's Home Furnishings Group from 1993 to 1996, and a Group Controller of
Masco prior to joining the Home Furnishings Group.
Mr. Cashin has been a Director of LifeStyle since 1996. He has been
President since 1994, and a Managing Director for more than the past five years,
of Citicorp Venture Capital, Ltd. In addition, Mr. Cashin serves as a director
of Cable Systems International, Delco Remy International, Euramax International
plc, Fairchild Semiconductor, Freedom Forge, Gerber Childrenswear, Hoover Group,
Levitz Furniture Incorporated, MSX International, Thermal Engineering and Titan
Wheel International Inc.
Mr. Johnston has been a Director of LifeStyle since 1997. He has been a
professor of law at McGill University, Montreal, Canada, since 1979, and was the
Principal of McGill from 1979 to 1994. Mr. Johnston is a director of Seagram
Company, Canada Trust, Emco Limited and CGI Ltd.
58
<PAGE> 61
Mr. Larson has been a Director of LifeStyle since 1997. He has been
Chairman of the Taubman Realty Group, which owns, develops and operates regional
shopping centers, for more than the past five years. In addition, Mr. Larson has
been Vice Chairman of the Board of Directors of Taubman Centers, Inc., the
managing partner of the Taubman Realty Group, since its inception in 1992. Mr.
Larson also serves as non-executive director of Bass plc, the London based group
operating in hotels, leisure retailing and branded drinks.
Mr. Thomas has been a Director of LifeStyle since 1996. He has been
President of 399 Venture Partners, Inc. since 1994 and has been a Managing
Director of Citicorp Venture Capital, Ltd. for more than the past five years.
Mr. Thomas is a director of American Commercial Lines, L.L.C., Anvil Knitwear,
Inc., Galey & Lord Incorporated, Neenah Corporation, Plainwell Inc. and Stage
Stores, Inc.
Mr. Walker has been a Director of LifeStyle since 1996. He is Principal of
MORWAL Investments, a private investment firm. Mr. Walker was the Chairman and
Chief Executive Officer of M.A. Hanna Company from 1986 until his retirement in
1997, and has recently reassumed his position. He is a director of Comerica
Incorporated, The Goodyear Tire & Rubber Company, M.A. Hanna Company, Lexmark
International Group, Inc., Meritor Automotive, Inc., The Reynolds & Reynolds
Company, Textron Inc. and The Timken Company.
59
<PAGE> 62
Item 11. EXECUTIVE COMPENSATION
The following tables and notes summarize the annual and long-term
compensation of LifeStyle's chief executive officer and the other four most
highly paid executive officers (collectively, the "named executive officers")
for the years ended December 31, 1998 and 1997 and the period from August 6,
1996 to December 31, 1996. The named executive officers did not receive any
compensation from LifeStyle prior to August 6, 1996.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation Awards
---------------------------------- -------------------------------------------
Restricted
Other Annual Stock All Other
Name and Principal Compensation Awards Compensation
Position Year Salary Bonus (1) (2) (3)
-------------------------- -------- --------- --------- -------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Wayne B. Lyon 1998 $519,231 $166,500 $129,078 $ -- $ 33,550
Chairman of the Board, 1997 500,000 250,000 107,661 -- 27,370
President and Chief Executive 1996 192,308 380,000(4) -- 108,805 14,838
Officer
Donald L. Barefoot(5) 1998 369,600 60,300 -- 11,840 129,916
Executive Vice President-- 1997 148,077 180,000 -- 21,760 2,457
Operations
Douglas C. Barnard 1998 193,727 33,300 -- -- 10,444
Vice President, General Counsel 1997 172,150 27,000 -- -- 24,509
and Secretary 1996 63,462 40,000 15,955 10,880 24,946
Alan D. Cole(6) 1998 369,600 60,300 -- -- 19,048
Executive Vice President 1997 324,635 225,000 -- 5,440 47,764
Ronald J. Hoffman 1998 200,335 35,000 -- -- 12,246
Vice President, Treasurer and 1997 177,200 27,750 -- -- 11,228
Chief Financial Officer 1996 65,385 45,000 -- 13,600 6,301
</TABLE>
- ----------
(1) This column includes the following: (i) tax reimbursement payments;
(ii) personal use of the LifeStyle airplane (for 1998: Mr.
Lyon--$66,451) and (iii) personal use of a LifeStyle automobile.
(2) The dollar amounts included in the table are based on an assumed
value of $5.44 per share, which was the book value per share
attributable to the Common Stock on August 5, 1996 (or, in the case
of the 1998 award to Mr. Barefoot, $5.92 per share, which was the
comparable book value per share on August 31, 1997). The recipients
of the Restricted Stock are parties to the Stockholders Agreement
which, among other things, provides that the Restricted Stock will
vest in increments of 20% per year so long as the holder of such
stock remains employed by LifeStyle. In certain events, the vesting
will be accelerated. Dividends, if any, are payable to the holders
as and when declared and paid. Because Holdings does not have
publicly-traded capital stock, there has not been any market
determination of the dollar value of the Restricted Stock as of
December 31, 1998.
(3) This column includes the following: (i) LifeStyle contributions and
allocations under LifeStyle's defined contribution retirement plans
for the accounts of each of the named executive officers (for 1998:
Mr. Lyon--$7,730, Mr. Barefoot--$7,730, Mr. Barnard--$7,730, Mr.
Cole--$7,730, Mr. Hoffman--$7,730); (ii) LifeStyle contributions to
the group term life insurance plan for each of the named executive
officers (for 1998: Mr. Lyon--$8,820, Mr. Barefoot--$714, Mr.
Barnard--$714, Mr. Cole--$1,218, Mr. Hoffman--$2,016); (iii)
LifeStyle contributions and allocations under LifeStyle's Benefit
Restoration Plan (for 1998: Mr. Lyon--$17,000, Mr.
Barefoot--$10,100, Mr. Barnard--$2,000, Mr. Cole--$10,100 and Mr.
Hoffman--$2,500); and (iv) in the case of Mr. Barefoot $111,372,
received in 1998 as reimbursement in connection with his relocation.
(4) This figure includes an amount Mr. Lyon received in connection with
his efforts in securing bank debt, subordinated debt and securitized
receivables financing for LifeStyle's acquisition in August 1996 of
the Predecessor.
(5) Includes amounts since Mr. Barefoot joined LifeStyle on July 21,
1997.
(6) Includes amounts Mr. Cole received from LifeStyle's Berkline
subsidiary prior to his joining LifeStyle in his present capacity on
February 17, 1997. In connection with Mr. Cole's relocation to
LifeStyle, LifeStyle made a loan to Mr. Cole in the principal amount
of $160,000, payable on demand; such loan bears interest at a rate
of 6.0% per annum.
60
<PAGE> 63
Management Stock Ownership
Approximately 180 of our senior managers currently own approximately 21%
of LifeStyle's Common Stock on a diluted basis (assuming conversion of all
convertible stock and vesting of all management stock).
Pension Plan Table
The named executive officers participate in pension plans maintained by
LifeStyle for certain of its salaried employees. The following table shows
estimated annual retirement benefits payable for life at age 65 for various
levels of compensation and service under these plans.
<TABLE>
<CAPTION>
Years of Service (1)
-----------------------------------------------------------------------------
Remuneration (2) 5 10 15 20 25 30
---------------------- -------- ---------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
$100,000 $ 5,645 $11,290 $ 16,935 $ 22,580 $ 28,225 $ 33,870
200,000 11,290 22,580 33,870 45,161 56,451 67,741
300,000 16,935 33,870 50,806 67,741 84,676 101,611
400,000 22,580 45,161 67,741 90,321 112,902 135,482
500,000 28,225 56,451 84,676 113,902 141,127 169,352
600,000 33,870 67,741 101,611 135,482 169,352 203,223
</TABLE>
(1) The plans provide credit for employment with LifeStyle and, except for Mr.
Lyon, for prior employment with Masco and certain affiliates of Masco.
Vesting occurs after five full years of employment or upon retirement at
or after attaining age 65. The benefit amounts set forth in the table
above have been converted from the plans' calculated five-year certain and
life benefit and are not subject to reduction for Social Security benefits
or for other offsets, except to the extent that pension or equivalent
benefits are payable, other than to Mr. Lyon, under a Masco plan or a plan
of certain affiliates of Masco. The table does not depict limitations
under the Internal Revenue Code of 1986, as amended (the "Code"), on
tax-qualified plans because one of the plans is a non-qualified plan
established by LifeStyle to restore, for certain salaried employees
(including the named executive officers), benefits that are otherwise
limited by the Code. For each year of credited service prior to July 1,
1971, there is an additional annual benefit equal to 0.2% of final average
earnings in excess of $9,000. Approximate years of credited service for
the named executive officers participating in the plan are: Mr. Lyon--3;
Mr. Barefoot--2; Mr. Barnard--7; Mr. Cole--10 and Mr. Hoffman--30.
(2) For purposes of determining benefits payable, remuneration is equal to the
average of the highest five consecutive January 1 annual base salary rates
paid by LifeStyle prior to retirement.
Director Compensation
The directors of LifeStyle who are officers or employees of LifeStyle do
not presently receive compensation for their services as directors. Directors of
LifeStyle are entitled to reimbursement of their reasonable out-of-pocket
expenses in connection with their travel to and attendance at meetings of the
Board of Directors or committees thereof. The directors of LifeStyle who are not
also officers or employees of LifeStyle receive an annual fee of $25,000 plus
$1,000 for each meeting attended. Fees payable by LifeStyle to such firm for
financial advisory services for 1998, and for services provided in connection
with the offerings and other related transactions, total $750,000, plus
expenses.
61
<PAGE> 64
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
LifeStyle's authorized capital stock consists of 3,000 shares of common
stock, par value $.01 per share, 100 shares of which are issued and outstanding
and owned by Holdings.
Holdings' authorized capital stock consists of 6,000,000 shares of Class A
Common Stock, par value $.01 per share (the "Class A Common Stock") (consisting
of four series, 1,000,000 shares of Series A-1 Common Stock, 1,000,000 shares of
Series A-2 Common Stock, 1,000,000 shares of Series A-3 Common Stock and
3,000,000 shares of Series I Common Stock (which will only be issuable after the
occurrence of a public offering meeting certain criteria as set forth in the
Stockholders Agreement (as defined below) (a "Qualifying Offering"))), 6,000,000
shares of Class B Common Stock, par value $.01 per share (the "Class B Common
Stock") (consisting of four series, 1,000,000 shares of Series B-1 Common Stock,
1,000,000 shares of Series B-2 Common Stock, 1,000,000 shares of Series B-3
Common Stock and 3,000,000 shares of Series II Common Stock (which will only be
issuable after a Qualifying Offering)), 116,100 share of Class C Common Stock,
par value $.01 per share (the "Class C Common Stock," together with the Class A
Common Stock and Class B Common Stock, the "Holdings' Common Stock"), and
4,000,000 share of Preferred Stock, par value $.01 per share, of which the
following has been designated: 1,103,320 shares of Series A-1 Preferred Stock,
stated value $.01 per share (the "Series A-1 Preferred Stock"), 96,681 shares of
Series A-2 Preferred Stock, stated value $.01 per share (the Series A-2
Preferred Stock" together with the Series A-1 Preferred Stock, the "Senior
Preferred Stock"), 303,503 shares of Series B Convertible Preferred Stock,
stated value $6.02 per share (the "Series B Preferred Stock"), and 102,622
shares of Series C Convertible Preferred Stock, stated value $6.02 per share
(the "Series C Preferred Stock," and together with the Series B Preferred Stock,
the "Convertible Preferred Stock"). There is no established public trading
market for the securities of Holdings.
The stockholders of Holdings are party to a Stockholders Agreement, dated
as of August 5, 1996, as amended (the "Stockholders Agreement"), pertaining to
such matters as (i) the compensation of the board of directors of Holdings; (ii)
corporate governance; and (iii) restrictions on the transfer of such stock.
The table below sets forth certain information as of December 31, 1998 (i)
by each person known by LifeStyle to own beneficially more than 5% of the
outstanding Class A Common Stock, Class B Common Stock, Series B Convertible
Preferred Stock or Series C Convertible Preferred Stock, (ii) by each director
of LifeStyle, (iii) by each of the named executive officers of LifeStyle, and
(iv) by all executive officers and directors of LifeStyle as a group. Each
holder of Class A Common Stock and each holder of Class B Common Stock holds an
equal number of shares of each series thereof (other than Series I or Series
II). Certain of the securities of Holdings are convertible into other
securities. Except as noted in the footnotes to the table, the information in
the table assumes no such conversion.
62
<PAGE> 65
CAPITALIZATION OF HOLDINGS
<TABLE>
<CAPTION>
Class A Class B Class C Series A-1 Series A-2 Series B Series C
Name and Address Common Common Common Preferred Preferred Preferred Preferred
- ---------------- ------ ------ ------ --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
399 Venture Partners, Inc. (1) 38,685 198,060 - 436,252 - - 81,339
(and certain affiliates) 38.9% 52.4% - 39.5% - - 79.3%
399 Park Avenue
New York, NY
Masco Corporation (2) 15,000 71,490 - 550,090 - 303,503 -
21001 Van Born Road 15.1% 18.9% - 49.9% - 100.0% -
Taylor, MI
CCT Partners III, L.P. (3) 5,961 30,825 - 67,206 - - 12,227
399 Park Avenue 6.0% 8.2% - 6.1% - - 11.9%
New York, NY
Wayne B. Lyon 32,766 90,561 - 550,090 23,085 303,503 -
including Common and 33.0% 24.0% - 49.9% 28.3% 100.0% -
Preferred Stock owned by
Masco Corporation (4)
4000 Lifestyle Court
High Point, NC
Donald L. Barefoot - * 4,000 - - - -
4000 Lifestyle Court - * 3.5% - - - -
High Point, NC
Douglas C. Barnard 35,379 54,855 115,168 - * - -
individually 2nd as voting 35.6% 14.5% 100.0% - * - -
trustee for the
management investors (5)
4000 Lifestyle Court
High Point, NC
Alan D. Cole * * 6,000 - 1,443 - -
4000 Lifestyle Court * * 5.2% - 1.8% - -
High Point, NC
Ronald J. Hoffman * * 2,500 - * - -
4000 Lifestyle Court * * 2.2% - * - -
High Point, NC
Richard M. Cashin, Jr. (7) 34,846 180,185 - 392,844 - - 71,474
399 Park Avenue. 35.0% 47.7% - 35.6% - - 69.6%
New York, NY
David L. Johnston - * - - * - -
3690 Peel Street - * - - * - -
Montreal, Quebec Canada
Robert C. Larson (6) - * - - * - -
200 East Long Lake Road - * - - * - -
Bloomfield Hills, MI
David F. Thomas (7) 34,846 180,185 - 392,844 - - 71,474
399 Park Avenue 35.0% 47.7% - 68.2% - - 69.6%
New York, NY
Martin D. Walker - * - - * - -
200 Public Square - * - - * - -
Suite 36-5000
Cleveland, Ohio
Directors and named 86,086 311,820 115,168 954,944 26,779 303,503 73,659
executive officers of 86.6% 82.5% 100.0% 86.6% 32.9% 100.0% 71.8%
LifeStyle, as a group
(ten persons) (8)
</TABLE>
- ----------
* Less than 1.0%. (footnotes on following page)
63
<PAGE> 66
Footnotes to Capitalization of Holdings
(1) 399 Venture Partners, Inc. ("399") is a wholly-owned subsidiary of
Citigroup Inc.
(2) Masco has advised LifeStyle that Masco is restricted from holding more
than 19.9% of Holdings' Common Stock.
(3) CCT Partners III, L.P. ("CCT") is a limited partnership, the partners of
which consist of Messrs. Cashin and Thomas and other officers and key
employees of Citigroup Inc. and its subsidiaries, including 399. Shares
held by CCT are not included in the table as shares beneficially owned by
399.
(4) Amounts shown consist of shares of Class A Common Stock and Class B Common
Stock held by an estate planning trust for the benefit of Mr. Lyon's
family members, all of which shares may be deemed to be beneficially owned
by Mr. Lyon. Mr. Lyon disclaims beneficial ownership of all such shares.
(5) Amounts shown consist of shares held by Mr. Barnard individually and as
voting trustee for the members of management. Mr. Barnard has no pecuniary
interest in such shares other than 203 shares of Class A Common Stock, 218
shares of Class B Common Stock and 2,000 shares of Class C Common Stock.
In addition, Mr. Barnard holds less than 1.0% of the Series A-2 Preferred
Stock. Mr. Barnard disclaims beneficial ownership of shares held by
himself as voting trustee for other management investors.
(6) Amounts shown consist of shares held by a limited partnership for the
benefit of Mr. Larson's family members.
(7) Amounts shown include shares held by 399, which may be deemed to be
beneficially owned by Messrs. Cashin and Thomas. Messrs. Cashin and Thomas
disclaim beneficial ownership of such shares. In addition, amounts shown
for Messrs. Cashin and Thomas include 1,065 shares of Class A Common
Stock, 5,509 shares of Class B Common Stock, 12,011 shares of Series A-1
Preferred Stock and 2,185 shares of Series C Convertible Preferred Stock
held directly by each. Amounts shown for Messrs. Cashin and Thomas exclude
shares held by CCT, a limited partnership in which each has an indirect
economic interest as a limited partner.
(8) Amounts shown include: shares held by 399, which may be deemed to be
beneficially owned by Messrs. Cashin and Thomas; shares held by Masco and
by an estate planning trust for the benefit of Mr. Lyon's family members,
which may be deemed to be beneficially owned by Mr. Lyon, and shares held
by Mr. Barnard as voting trustee for the management investors, which may
be deemed to be beneficially owned by Mr. Barnard; Messrs. Cashin and
Thomas disclaim beneficial ownership of shares held by 399, Mr. Lyon
disclaims beneficial ownership of shares held by Masco and of shares owned
by an estate planning trust for the benefit of Mr. Lyon's family members,
and Mr. Barnard disclaims beneficial ownership of shares held by himself
as voting trustee for other management investors.
64
<PAGE> 67
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Business Arrangements with Holdings
As a part of the acquisition of the Predecessor, LifeStyle and Holdings
entered into a Management Agreement pursuant to which Holdings provides
LifeStyle certain executive management, corporate support, administrative, data
processing, human resources, legal, environmental, audit, treasury, tax and
other management-related services. Those costs approximated $20.7 million during
1998, $15.9 million during 1997 and $6.6 for the period August 6, 1996 to
December 31, 1996, or which approximately $6.6 million and $1.5 million was
included in accrued liabilities at December 31, 1998 and 1997, respectively.
LifeStyle sells furniture and accessories to certain distribution
businesses owned by Holdings. LifeStyle's sales to Holdings were $49.8 million
during 1998, $38.6 million during 1997 and $21.2 million for the period August
6, 1996 to December 31, 1996. As a result of these sales transactions, LifeStyle
had accounts receivable totaling $14.7 million and $15.0 million at December 31,
1998 and 1997, respectively.
Acquisition Arrangements
Certain provisions of the Acquisition Agreement survive the consummation
of acquisition of the Predecessor and continue for a period as contractual
obligations between Masco and Holdings. The following summarizes the provisions
of the Acquisition Agreement.
Masco has made various representations, warranties and covenants
respecting the Home Furnishings Group, and the Acquisition Agreement provides
for the indemnification by Masco for periods of one to three years in the event
of any breach of such representations, warranties or covenants. With certain
exceptions, Masco will not be obligated to make payments for the first $15.0
million of indemnifiable claims nor be obligated to make payments of more than
$100.0 million. The Acquisition Agreement provides that Masco has the exclusive
right to undertake certain activities relating to environmental matters
pertaining to LifeStyle for which Masco may be responsible under the
indemnification provisions with the prior written consent of Holdings, such
consent not to be unreasonably withheld. Holdings will cooperate with Masco
regarding these activities and, with certain exceptions, reimburse Masco for
reasonable costs and expenses until Holdings has incurred damages in specified
amounts.
Masco has agreed that it will not on or prior to August 5, 2001 engage in
the design or manufacture of certain furniture and fabric products (the
"Restricted Activities") or acquire an interest in an entity that would result
in Masco having annual revenues from Restricted Activities that exceed certain
levels.
Purchase of Stock from 399 Venture Partners, Inc.
In March 1997, pursuant to an option granted by 399 Venture Partners, Inc.
as part of the acquisition of the Predecessor, Holdings acquired (i) 4,842
shares of Class A Common Stock (divided equally among the series thereof) at
$5.44 per share; (ii) 5,199 shares of Class B Common Stock (divided equally
among the series thereof) at $5.44 per share; and (iii) 13,770 shares of Series
A-2 Preferred Stock at $100 per share plus accreted dividends. Such shares were
issued to certain members of management (but not any of the named executive
officers in Item 11) pursuant to a Management Investment Plan.
Tax Sharing Agreement
Holdings, LifeStyle and its United States subsidiaries are included in the
consolidated United States federal income tax return of Holdings. Holdings,
LifeStyle and certain of LifeStyle's United States subsidiaries have entered
into a Tax Sharing Agreement whereby LifeStyle pays Holdings (or Holdings pays
LifeStyle) its pro rata share of the total tax liability, as set out in the Tax
Sharing Agreement. In the event LifeStyle is included in a joint, combined or
unitary state or local income or franchise tax return with Holdings, LifeStyle
shall make payments to Holdings, and Holdings shall make payments to LifeStyle,
in a matter consistent with that described above for federal tax purposes.
LifeStyle paid $1.2 million and $22.8 million to Holdings pursuant to such
Agreement in 1998 and 1997, respectively.
65
<PAGE> 68
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No.
- -----------
3.1 Certificate of Incorporation of LifeStyle Furnishings International
Ltd. (1).
3.2 By-Laws of LifeStyle Furnishings International Ltd. (1).
4.1 Indenture between LFI and IBJ Schroder Bank & Trust Company, as
Trustee, dated August 5, 1996(1).
4.2 Supplemental Indenture dated December 20, 1996(2).
10.1 Acquisition Agreement between Furnishings International Inc. and
Masco Corporation dated as of March 29, 1996(1).
10.2 Amendment No. 1 to Acquisition Agreement dated as of June 21,
1996(1).
10.3 Amendment No. 2 to Acquisition Agreement dated as of August 5,
1996(1).
10.4 Restated Credit Agreement dated as of August 15, 1997 among
Furnishings International Inc., LifeStyle Furnishings International
Ltd., the subsidiary borrowers named therein, the lenders named
therein and The Chase Manhattan Bank, as Swingline Lender,
Administrative Agent and Collateral Agent, The First National Bank
of Chicago as Issuing Bank and Co-Agent and CIBC, as Co-Agent (the
"Credit Agreement")(4), First Amendment to the Restated Credit
Agreement dated as of September 15, 1997(5) and Second Amendment to
the Restated Credit Agreement dated as of July 23, 1998*, and
Consent, Waiver and Restated Agreement dated as of February 12,
1999*.
10.5 Receivables Purchase Agreement dated as of March 23, 1999 among LFI
Receivables Corporation, LFI Servicing Corporation, Blue Ridge Asset
Funding Corporation and Wachovia Bank, N.A., as Administrator.*
10.6 Purchase and Sale Agreement dated as of March 23, 1999 between LFI
Receivables Corporation and the Sellers named therein*.
66
<PAGE> 69
Exhibit No.
- -----------
10.11 Stockholders Agreement, dated as of August 5, 1996, among Masco
Corporation, Furnishings International Inc., 399 Venture Partners,
Inc., Associated Madison Companies, Inc., and the other stockholders
named therein (the "Stockholders Agreement")(1).
10.12 Amendment No. 1 to the Stockholders Agreement dated as of December
17, 1996(2).
10.13 Amendment No. 2 to the Stockholders Agreement dated as of March 26,
1997(2).
10.14 Amendment No. 3 to the Stockholders Agreement dated as of July 15,
1997(3).
10.15 Amendment No. 4 to the Stockholders Agreement dated as of July 7,
1998.*
10.16 Registration Rights Agreement, dated as of August 5, 1996, among
Masco Corporation, Furnishings International Inc., 399 Venture
Partners, Inc., Associated Madison Companies, Inc., and the other
stockholders named therein(1).
10.17 Management Agreement, dated as of August 5, 1996, by and between
Furnishings International Inc. and LifeStyle Furnishings
International Ltd.(1).
10.18 Tax Sharing Agreement, dated as of the 5th day of August 1996, by
and between Furnishings International Inc., LifeStyle Furnishings
International Ltd. and LFI Receivables Corporation(1).
10.19 Letter Agreement, dated as of April 28, 1997, by and between
Furnishings International Inc. and Masco Corporation(1).
10.20 12.0% Senior Payment-in-Kind Note of Furnishings International Inc.
dated August 5, 1996(1).
10.21 Purchase Agreement dated July 31, 1996 between LifeStyle Furnishings
International Ltd., Chase Securities Inc., Merrill Lynch, Pierce,
Fenner & Smith Incorporated and the Guarantors named therein(1).
10.22 LifeStyle's Retirement Benefit Restoration Plan(2).
10.23 Restricted Stock Plan(5).
10.24 Management Investment Plan(5).
10.25 Director Investment Plan(5).
21.1 Subsidiaries of LifeStyle Furnishings International Ltd.+
27 Financial Data Schedule.*
* Filed herewith.
(1) Incorporated by reference to the Registration Statement of LifeStyle
Furnishings International Ltd. on Form S-4 (No. 333-11905).
(2) Incorporated by reference to the Annual Report of LifeStyle Furnishings
International Ltd. on Form 10-K for the year ended December 31, 1996.
(3) Incorporated by reference to the Form 10-Q of LifeStyle Furnishings
International Ltd. for the quarter ended June 30, 1997.
(4) Incorporated by reference to the Form 10-Q of LifeStyle Furnishings
International Ltd. for the quarter ended September 30, 1997.
(5) Incorporated by reference to the Annual Report of LifeStyle Furnishings
International on Form 10-K for the year ended December 31, 1997.
(6) Incorporated by reference to the Form 10-Q of LifeStyle Furnishings
International Ltd. for the quarter ended March 31, 1998.
67
<PAGE> 70
(b) Financial Statement Schedule
Schedule II--Valuation and Qualifying Accounts.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
(c) Reports on Form 8-K
No reports on Form 8-K were filed by the registrant during the three
months ended December 31, 1998.
68
<PAGE> 71
Item 15. SIGNATURES.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the Registrant has duly caused this Report to be signed on its behalf
by the undersigned, thereto duly authorized, in the City of High Point, State of
North Carolina, March 30, 1999.
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
BY:
/s/ WAYNE B. LYON
-------------------------------------
Wayne B. Lyon
Chairman of the Board,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this Report
has been signed below by the following persons in the capacities and on the date
indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ WAYNE B. LYON
- ----------------------------- Chairman of the Board, President and Chief
Wayne B. Lyon Executive Officer (principal executive officer) March 30, 1999
/s/ RONALD J. HOFFMAN
- ----------------------------- Vice President, Treasurer and Chief Financial
Ronald J. Hoffman Officer (principal financial and accounting officer) March 30, 1999
/s/ RICHARD M. CASHIN, JR.
- -----------------------------
Richard M. Cashin, Jr. Director March 30, 1999
/s/ DAVID L. JOHNSTON
- -----------------------------
David L. Johnston Director March 30, 1999
/s/ ROBERT C. LARSON
- -----------------------------
Robert C. Larson Director March 30, 1999
/s/ DAVID F. THOMAS
- -----------------------------
David F. Thomas Director March 30, 1999
/s/ MARTIN D. WALKER
- -----------------------------
Martin D. Walker Director March 30, 1999
</TABLE>
69
<PAGE> 72
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of LIFESTYLE FURNISHINGS INTERNATIONAL LTD.:
Our report on the consolidated financial statements of LIFESTYLE FURNISHINGS
INTERNATIONAL LTD. and subsidiaries and the combined financial statements of the
Masco Home Furnishings Group is included on page 27 of this Form 10-K. In
connection with our audits of such financial statements, we have also audited
the related financial statement schedule listed in the index on page 66 of this
Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Greensboro, North Carolina
February 1, 1999
70
<PAGE> 73
LIFESTYLE FURNISHINGS INTERNATIONAL LTD.
Schedule II. Valuation and Qualifying Accounts
(In millions)
<TABLE>
<CAPTION>
Column C
-------------------------------
Column A Column B Additions Column D Column E
------------------------------------ ------------- ------------------------------- ------------ ------------
Charged
Balances at Charged to (Credited) to Balance at
Beginning of Costs and Other End of
Period Expenses Accounts(a) Deductions Period
------------- ------------ ----------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts,
deducted from accounts
receivable in the balance sheets
Year ended December 31, 1998....... $ 3.9 $ 2.6 $ (2.5) $ 1.2 $ 2.8
============= ============ ================= ============ ============
Year ended December 31, 1997....... $ 4.8 $ 6.1 $ 0.7 $ 7.7 $ 3.9
============= ============ ================= ============ ============
Aug. 6, 1996 to Dec. 31, 1996...... $ 9.3 $ 1.6 $ (5.6) $ 0.5 $ 4.8
============= ============ ================= ============ ============
Jan. 1, 1996 to Aug. 5, 1996....... $ 9.0 $ 2.3 $ -- $ 2.0 $ 9.3
============= ============ ================= ============ ============
</TABLE>
(a) In connection with the accounts receivable securitization, the portion of
the allowance for doubtful accounts related to sold receivables is credited to
accrued liabilities.
71
<PAGE> 1
CONFORMED COPY
AMENDMENT No. 2, CONSENT AND WAIVER dated as of
July 23, 1998 (this "Amendment"), to the Restated Credit
Agreement dated as of August 15, 1997 (as the same has
heretofore been and may be further amended, restated or
modified from time to time, the "Credit Agreement"),
among LIFESTYLE FURNISHINGS INTERNATIONAL LTD., a
Delaware corporation (the "Parent Borrower"); each
subsidiary of the Parent Borrower (each, a "Subsidiary
Borrower" and collectively, the "Subsidiary Borrowers";
the Parent Borrower and the Subsidiary Borrowers are
collectively referred to herein as the "Borrowers");
FURNISHINGS INTERNATIONAL INC., a Delaware corporation
("Holdings"); the Lenders from time to time party
thereto; THE CHASE MANHATTAN BANK, a New York banking
corporation, as swingline lender (in such capacity, the
"Swingline Lender"), as administrative agent (in such
capacity, the "Administrative Agent") and as collateral
agent (in such capacity, the "Collateral Agent") for the
Lenders; THE FIRST NATIONAL BANK OF CHICAGO, as issuing
bank (in such capacity, the "Issuing Bank") and as
Co-Agent; and CIBC, as Co-Agent.
A. Pursuant to the Credit Agreement, the Lenders have extended and
agreed to extend credit to the Borrowers on the terms and subject to the
conditions set forth therein.
B. The Parent Borrower has advised the Administrative Agent that it
wants to repurchase and redeem up to $200,000,000 face principal amount of
Subordinated Notes (including the payment of interest accrued thereon and the
payment of any premium in connection therewith, the "Subdebt Prepayment") and to
solicit consents to and make effective an amendment to the Indenture governing
the Subordinated Notes that would eliminate substantially all of the covenants
set forth therein (including the payment of a consent fee in connection
therewith, the "Consent Solicitation" and, together with the Subdebt Prepayment,
the "Subdept Prepayment and Consent Solicitation").
C. The Borrowers have requested that the Required Lenders (i)
consent to the Subdebt Prepayment and Consent Solicitation, (ii) agree to waive
certain provisions of the Credit Agreement, in each case to the extent, but only
to the extent, necessary to
<PAGE> 2
permit the Subdebt Prepayment and Consent Solicitation and (iii) agree that,
notwithstanding any provision of the Credit Agreement to the contrary, none of
the payments made in connection with the Subdebt Prepayment and Consent
Solicitation shall constitute a "Restricted Payment" for any purpose.
D. The Required Lenders are willing to grant such consents and
waivers on the terms and subject to the conditions set forth herein.
E. Capitalized terms used and not otherwise defined herein shall
have the meanings assigned to them in the Credit Agreement.
Accordingly, in consideration of the mutual agreements herein
contained and other good and valuable consideration, the sufficiency and receipt
of which are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Consent. The Required Lenders hereby consent to the
Subdebt Prepayment and Consent Solicitation and agree that, notwithstanding any
provision of the Credit Agreement to the contrary, none of the payments made in
connection with the Subdebt Prepayment and Consent Solicitation shall constitute
a "Restricted Payment" for any purpose.
SECTION 2. Waiver. The Required Lenders hereby waive the provisions
of Section 6.08 of the Credit Agreement to the extent, but only to the extent,
necessary to permit the Subdebt Prepayment and Consent Solicitation, without
treating any of the payments made in connection therewith as a "Restricted
Payment" for any purpose.
SECTION 3. Representations and Warranties. To induce the other
parties hereto to enter into this Amendment, each of the Borrowers represents
and warrants to each other party hereto that, after giving effect to this
Amendment, (a) the representations and warranties set forth in Article III of
the Credit Agreement will be true and correct in all material respects on and as
of the date hereof, except to the extent such representations and warranties
expressly relate to an earlier date, and (b) no Default or Event of Default will
have occurred and be continuing.
SECTION 4. Conditions to Effectiveness. This Amendment shall become
effective at such time as the Administrative Agent shall have received
counterparts hereof which, when taken together, bear the signatures of the
Borrowers and the Required Lenders.
SECTION 5. Effect of Amendment. Except as expressly set forth
herein, this Amendment shall not by implication or otherwise limit, impair,
constitute a waiver of, or otherwise affect, the rights and remedies of the
Lenders or the Agents under the Credit Agreement or any other Loan Document, and
shall not alter, modify, amend or in any way affect any of the terms,
conditions, obligations, covenants or agreements contained in the Credit
Agreement or any other Loan Document, all of which are ratified and affirmed in
all respects and shall continue in full force and effect. Nothing herein
<PAGE> 3
2
shall be deemed to entitle the Borrowers to a consent to, or a waiver,
amendment, modification or other change of, any of the terms, conditions,
obligations, covenants or agreements contained in the Credit Agreement or any
other Loan Document in similar or different circumstances. This Amendment shall
apply and be effective only with respect to the provisions of the Loan Documents
specifically referred to herein. This Amendment shall constitute a Loan Document
for all purposes of the Credit Agreement.
SECTION 6. Expenses. The Borrowers agree to pay the reasonable
out-of-pocket costs and expenses incurred by the Administrative Agent in
connection with the preparation of this Amendment, including reasonable
attorneys' fees.
SECTION 7. Counterparts. This Amendment may be executed in any
number of counterparts and by different parties hereto on separate counterparts,
each of which when so executed and delivered shall be deemed an original, but
all of which together shall constitute a single instrument. Delivery of an
executed counterpart of a signature page of this Amendment by facsimile
transmission shall be as effective as delivery of a manually executed
counterpart hereof.
SECTION 8. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 9. Headings. The headings of this Amendment are for purposes
of reference only and shall not limit or otherwise affect the meaning hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed by their duly authorized officers, all as of the date and year
first above written.
LIFESTYLE FURNISHINGS INTERNATIONAL
LTD., as the Parent Borrower,
by
/s/ Ronald J. Hoffman
--------------------------------------
Name: Ronald J. Hoffman
Title: Vice President, Treasurer and
Chief Financial Officer
<PAGE> 4
3
THE BERKLINE CORPORATION,
DREXEL HERITAGE FURNISHINGS INC.,
HENREDON FURNITURE INDUSTRIES, INC.,
INTRO EUROPE, INC.,
LA BARGE, INC.,
LEXINGTON FURNITURE INDUSTRIES, INC.,
MAITLAND-SMITH, INC.,
MARBRO LAMP COMPANY,
THE ROBERT ALLEN GROUP, INC.,
ROBERT ALLEN FABRICS OF N.Y., INC.,
SUNBURY TEXTILE MILLS, INC.,
UNIVERSAL FURNITURE LIMITED,
each as a Subsidiary Borrower,
by
/s/ Ronald J. Hoffman
--------------------------------------
Name: Ronald J. Hoffman
Title: Vice President
LIFESTYLE HOLDINGS, LTD.,
by
--------------------------------------
/s/ Ronald R. Kass
Name: Ronald R. Kass
Title: President
FURNISHINGS INTERNATIONAL INC.,
by
/s/ Ronald J. Hoffman
--------------------------------------
Name: Ronald J. Hoffman
Title: Vice President
<PAGE> 5
THE CHASE MANHATTAN BANK,
individually and as Administrative
Agent, Collateral Agent and
Swingline Lender,
by
/s/ William J. Caggiano
--------------------------------------
Name: William J. Caggiano
Title: Managing Director
THE FIRST NATIONAL BANK OF CHICAGO,
individually and as Issuing Bank,
by
/s/ Kristen H. Hertel
--------------------------------------
Name: Kristen H. Hertel
Title: Vice President
CIBC, individually and as Co-Agent,
by
/s/ Katherine Bass
--------------------------------------
Name: Katherine Bass
Title: Executive Director
CIBC Oppenheimer Corp.,
as Agent
WACHOVIA BANK,
by
/s/ Susan F. Holmes
--------------------------------------
Name: Susan F. Holmes
Title: Assistant Vice President
<PAGE> 6
COMERICA BANK,
by
/s/ Dan M. Roman
--------------------------------------
Name: Dan M. Roman
Title: Vice President
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY,
by
--------------------------------------
Name:
Title:
CREDIT LYONNAIS,
by
--------------------------------------
Name:
Title:
DRESDNER BANK,
by
/s/ B. Craig Erickson
--------------------------------------
Name: B. Craig Erickson
Title: Vice President
by
/s/ Deborah Slusarczyk
--------------------------------------
Name: Deborah Slusarczyk
Title: Vice President
<PAGE> 7
FIRST UNION NATIONAL BANK,
by
/s/ Richard J. Rizzo
--------------------------------------
Name: Richard J. Rizzo
Title: Vice President
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED, New York Branch,
by
/s/ Koji Sasayama
--------------------------------------
Name: Koji Sasayama
Title: Deputy General Manager
THE MITSUBISHI TRUST & BANKING
CORPORATION,
by
/s/ Beatrice E. Kossodo
--------------------------------------
Name: Beatrice E. Kossodo
Title: Senior Vice President
SANWA BANK LTD.,
by
--------------------------------------
Name:
Title:
THE BANK OF NEW YORK,
by
/s/ Ann Marie Hughes
--------------------------------------
Name: Ann Marie Hughes
Title: Vice President
<PAGE> 8
THE BANK OF SCOTLAND,
by
--------------------------------------
Name:
Title:
BANQUE NATIONALE DE PARIS,
by
--------------------------------------
Name:
Title:
DG BANK,
by
--------------------------------------
Name:
Title:
DAI ICHI KANGYO BANK LTD.,
by
/s/ Nobuyasu Fukatsu
--------------------------------------
Name: Nobuyasu Fukatsu
Title: Vice President
FIRST AMERICAN NATIONAL BANK,
by
/s/ H. Hope Stewart
--------------------------------------
Name: H. Hope Stewart
Title: Assistant Vice President
<PAGE> 9
SAKURA BANK LTD.,
by
--------------------------------------
Name:
Title:
THE SUMITOMO BANK, LIMITED
by
/s/ Gary Franke
--------------------------------------
Name: Gary Franke
Title: Vice President & Manager
SUNTRUST BANKS INC.,
by
/s/ Frank R. Callison
--------------------------------------
Name: Frank R. Callison
Title: Vice President
by
/s/ Charles C. Pick
--------------------------------------
Name: Charles C. Pick
Title: Vice President
PNC BANK, National Association,
by
--------------------------------------
Name:
Title:
<PAGE> 1
Exhibit 10.5
================================================================================
RECEIVABLES PURCHASE AGREEMENT
Dated as of March 23, 1999
Among
LFI RECEIVABLES CORPORATION
as the Seller
and
LFI SERVICING CORPORATION
as the Master Servicer
and
BLUE RIDGE ASSET FUNDING CORPORATION
as the Purchaser
and
WACHOVIA BANK, N.A.
as the Administrator
================================================================================
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE I PURCHASES AND REINVESTMENTS..........................................2
SECTION 1.1. COMMITMENTS TO PURCHASE; LIMITS ON PURCHASER'S OBLIGATIONS.......2
SECTION 1.2. PURCHASE PROCEDURES; ASSIGNMENT OF PURCHASER'S INTERESTS.........2
SECTION 1.3. REINVESTMENTS OF CERTAIN COLLECTIONS; PAYMENT OF REMAINING
COLLECTIONS......................................................3
SECTION 1.4. ASSET INTEREST...................................................5
ARTICLE II COMPUTATIONAL RULES.................................................6
SECTION 2.1. SELECTION OF ASSET TRANCHES......................................6
SECTION 2.2. COMPUTATION OF INVESTED AMOUNT AND PURCHASER'S TRANCHE
INVESTMENT.......................................................6
SECTION 2.3. COMPUTATION OF CONCENTRATION LIMITS AND OUTSTANDING BALANCE......7
SECTION 2.4. COMPUTATION OF EARNED DISCOUNT...................................7
SECTION 2.5. ESTIMATES OF EARNED DISCOUNT RATE, FEES, ETC.....................8
ARTICLE III SETTLEMENTS........................................................8
SECTION 3.1. SETTLEMENT PROCEDURES............................................8
SECTION 3.2. DEEMED COLLECTIONS; REDUCTION OF INVESTED AMOUNT, ETC...........11
SECTION 3.3. PAYMENTS AND COMPUTATIONS, ETC..................................12
SECTION 3.4. TREATMENT OF COLLECTIONS AND DEEMED COLLECTIONS.................13
ARTICLE IV FEES AND YIELD PROTECTION..........................................13
SECTION 4.1. FEES............................................................13
SECTION 4.2. YIELD PROTECTION................................................13
SECTION 4.3. FUNDING LOSSES..................................................16
ARTICLE V CONDITIONS OF PURCHASES.............................................16
SECTION 5.1. CONDITIONS PRECEDENT TO INITIAL PURCHASE........................16
SECTION 5.2. CONDITIONS PRECEDENT TO ALL PURCHASES AND REINVESTMENTS.........18
ARTICLE VI REPRESENTATIONS AND WARRANTIES.....................................19
SECTION 6.1. REPRESENTATIONS AND WARRANTIES OF THE SELLER PARTIES............19
ARTICLE VII GENERAL COVENANTS OF SELLER PARTIES...............................23
SECTION 7.1. AFFIRMATIVE COVENANTS OF THE SELLER PARTIES.....................23
SECTION 7.2. REPORTING REQUIREMENTS OF THE SELLER PARTIES....................25
SECTION 7.3. NEGATIVE COVENANTS OF THE SELLER PARTIES........................26
SECTION 7.4. SEPARATE CORPORATE EXISTENCE OF THE SELLER......................29
ARTICLE VIII ADMINISTRATION AND COLLECTION....................................30
SECTION 8.1. DESIGNATION OF MASTER SERVICER..................................30
SECTION 8.2. DUTIES OF MASTER SERVICER.......................................31
SECTION 8.3. SERVICER ADVANCES...............................................32
SECTION 8.4. SERVICER DEFAULTS...............................................33
SECTION 8.5. RIGHTS OF THE ADMINISTRATOR.....................................34
SECTION 8.6. RESPONSIBILITIES OF THE SELLER PARTIES..........................35
SECTION 8.7. FURTHER ACTION EVIDENCING PURCHASES AND REINVESTMENTS...........35
SECTION 8.8. APPLICATION OF COLLECTIONS......................................36
ARTICLE IX SECURITY INTEREST..................................................37
SECTION 9.1. GRANT OF SECURITY INTEREST......................................37
SECTION 9.2. FURTHER ASSURANCES..............................................37
i
<PAGE> 3
SECTION 9.3. REMEDIES........................................................37
ARTICLE X LIQUIDATION EVENTS..................................................37
SECTION 10.1. LIQUIDATION EVENTS..............................................37
SECTION 10.2. REMEDIES........................................................40
ARTICLE XI THE ADMINISTRATOR..................................................40
SECTION 11.1. AUTHORIZATION AND ACTION........................................40
SECTION 11.2. ADMINISTRATOR'S RELIANCE, ETC...................................40
SECTION 11.3. WACHOVIA AND AFFILIATES.........................................41
ARTICLE XII ASSIGNMENT OF PURCHASER'S INTEREST................................41
SECTION 12.1. RESTRICTIONS ON ASSIGNMENTS.....................................41
SECTION 12.2. RIGHTS OF ASSIGNEE..............................................42
SECTION 12.3. TERMS AND EVIDENCE OF ASSIGNMENT................................42
SECTION 12.4. RIGHTS OF COLLATERAL AGENT......................................42
ARTICLE XIII INDEMNIFICATION..................................................43
SECTION 13.1. INDEMNITIES BY THE SELLER.......................................43
SECTION 13.2. INDEMNITIES BY MASTER SERVICER..................................45
ARTICLE XIV MISCELLANEOUS.....................................................46
SECTION 14.1. AMENDMENTS, ETC.................................................46
SECTION 14.2. NOTICES, ETC....................................................46
SECTION 14.3. NO WAIVER; REMEDIES.............................................47
SECTION 14.4. BINDING EFFECT; SURVIVAL........................................47
SECTION 14.5. COSTS, EXPENSES AND TAXES.......................................47
SECTION 14.6. NO PROCEEDINGS..................................................48
SECTION 14.7. CONFIDENTIALITY OF THE SELLER INFORMATION.......................48
SECTION 14.8. CONFIDENTIALITY OF PROGRAM INFORMATION..........................51
SECTION 14.9. CAPTIONS AND CROSS REFERENCES...................................52
SECTION 14.10. INTEGRATION...................................................53
SECTION 14.11. GOVERNING LAW..................................................53
SECTION 14.12. WAIVER OF JURY TRIAL...........................................53
SECTION 14.13. CONSENT TO JURISDICTION; WAIVER OF IMMUNITIES..................53
SECTION 14.14. EXECUTION IN COUNTERPARTS......................................54
SECTION 14.15. NO RECOURSE AGAINST OTHER PARTIES..............................54
ii
<PAGE> 4
APPENDICES
APPENDIX A Definitions
SCHEDULES
SCHEDULE I Initial Originators and Servicers
SCHEDULE II Special Obligors and Special Obligor Concentration Limits
SCHEDULE 6.1(f) List of Proceedings
SCHEDULE 6.1(n) List of Offices of the Servicers and the Seller where
Records Are Kept
SCHEDULE 6.1(o) List of Lock-Box Banks
SCHEDULE 14.2 Notice Addresses
EXHIBITS
EXHIBIT 1.2(a) Form of Purchase Notice
EXHIBIT 3.1(a) Form of Settlement Report
EXHIBIT 5.1(h) Form of Opinion of Special Counsel for the Seller
Parties
EXHIBIT 7.2(c) Form of Audit Report
EXHIBIT A-1 Form of Lock-Box Agreement
EXHIBIT B Form of Certificate of Financial Officer
iii
<PAGE> 5
RECEIVABLES PURCHASE AGREEMENT
Dated as of March 23, 1999
THIS IS A RECEIVABLES PURCHASE AGREEMENT, among:
(1) LFI RECEIVABLES CORPORATION, a Delaware corporation (together with its
successors and permitted assigns, "LFI Receivables" and the "Seller"),
(2) LFI SERVICING CORPORATION, a Delaware corporation (together with its
successors, "LFI Servicing"), as Master Servicer hereunder (in such capacity,
together with any successor Master Servicer appointed pursuant to Section 8.1,
the "Master Servicer"; LFI Servicing, in its capacity as the Master Servicer,
together with the Seller, each a "Seller Party" and collectively the "Seller
Parties"),
(3) BLUE RIDGE ASSET FUNDING CORPORATION, a Delaware corporation (together
with its successors and assigns, the "Purchaser"),
(4) WACHOVIA BANK, N.A., a national banking association ("Wachovia"), as
administrative agent for the Purchaser (in such capacity, together with any
successors thereto in such capacity, the "Administrator").
Unless otherwise indicated, capitalized terms used in this Agreement are
defined in Appendix A and in the Sale Agreement.
Background
1. The Seller is a wholly-owned, direct Subsidiary of LifeStyle Holdings
Ltd. a Delaware corporation ("Holdings"), which is a wholly-owned direct
Subsidiary of LifeStyle Furnishings International Ltd., a Delaware corporation
("LFI"), which is a wholly-owned, direct subsidiary of Furnishings International
Inc., a Delaware corporation ("FII").
2. FII and the other Originators are engaged in the business of
manufacturing and selling furniture and other products in the home furnishings
industry.
3. The Seller Parties and the Originators are currently parties to a
securitization arrangement with respect to Receivables previously originated by
the Originators (the "Existing Securitization") pursuant to which The Chase
Manhattan Bank serves as the trustee (the "Trustee"). The Existing
Securitization will be terminated in connection with the implementation of the
transactions contemplated in this Agreement.
4. Each of the Originators and the Seller have entered into the Sale
Agreement pursuant to which each Originator will transfer to the Seller all of
its right, title and interest in and to Receivables originated by such
Originator and certain related property.
5. The Seller has requested the Purchaser, and the Purchaser has agreed,
subject to the terms and conditions contained in this Agreement, to purchase
from the Seller from time to
<PAGE> 6
time an undivided percentage interest, referred to herein as the Asset Interest,
in Pool Receivables and related property.
6. The Seller and the Purchaser also desire that, subject to the terms and
conditions of this Agreement, certain of the daily Collections in respect of the
Asset Interest be reinvested in Pool Receivables, which reinvestment shall
constitute part of the Asset Interest.
7. Wachovia has been requested, and is willing, to act as the
Administrator under this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the parties hereto hereby agree as follows:
ARTICLE I
PURCHASES AND REINVESTMENTS
Section 1.1. Commitments to Purchase; Limits on Purchaser's Obligations.
Upon the terms and subject to the conditions of this Agreement (including,
without limitation, Article V), from time to time prior to the Termination Date,
the Seller may request that the Purchaser purchase from the Seller ownership
interests in Pool Receivables and Related Assets, and the Purchaser shall make
such purchase (each being a "Purchase"); provided that no Purchase shall be made
by the Purchaser if, after giving effect thereto, either (a) the sum of (i) the
then Invested Amount and (ii) the aggregate of the CP Discounts of all
Commercial Paper Notes then outstanding would exceed $190,000,000 (as adjusted
pursuant to Section 3.02(b)) (the "Purchase Limit"), or (b) the Asset Interest,
expressed as a percentage of Net Pool Balance, would exceed 100% (the
"Allocation Limit"); and provided, further that each Purchase made pursuant to
this Section 1.1 shall have a purchase price equal to at least $1,000,000 and
shall be an integral multiple of $100,000 and shall, if applicable, be an amount
discounted from the amount requested in the notice of proposed Purchase
delivered pursuant to Section 1.2(a) by the aggregate of the CP Discounts of all
Commercial Paper Notes issued to fund such Purchase.
Section 1.2. Purchase Procedures; Assignment of Purchaser's Interests.
(a) Purchase Request. Each Purchase from the Seller by the Purchaser shall
be made on notice from the Seller to the Administrator (who is acting on behalf
of the Purchaser) received by the Administrator not later than 12:00 noon (New
York City time) on the Business Day next preceding the date of such proposed
Purchase. Each such notice of a proposed Purchase shall be substantially in the
form of Exhibit 1.2(a) and shall specify, among other items, the desired amount
and date of such Purchase. The Administrator shall promptly upon receipt notify
the Purchaser of any such notice.
(b) Funding of Purchase. On the date of each Purchase, the Purchaser
shall, upon satisfaction of the applicable conditions set forth in Article V,
make available to the Seller the amount of its Purchase in same day funds by
wire transfer to an account designated in writing by the Seller.
2
<PAGE> 7
(c) Assignment of Asset Interest. The Seller hereby sells, assigns and
transfers to the Purchaser, effective on and as of the date of each Purchase and
each Reinvestment by the Purchaser hereunder, the Asset Interest in the Pool
Receivables and Related Assets.
Section 1.3. Reinvestments of Certain Collections; Payment of Remaining
Collections.
(a) On the close of business on each day during the period from the date
of the first Purchase to the Final Payout Date, the Master Servicer will, out of
all Collections received on such day from Pool Receivables and Related Assets:
(i) determine the portion of such Collections attributable to the
Asset Interest by multiplying (A) the amount of such Collections times (B)
the Purchaser's Share;
(ii) out of the portion of such Collections allocated to the Asset
Interest pursuant to clause (i), identify and be deemed to hold in trust
for the benefit of the Purchaser an amount equal to the sum of (A) the
estimated amount (based on the rate information provided by the
Administrator pursuant to Section 2.5) of Earned Discount accrued in
respect of each Asset Tranche, (B) all other amounts due to the Purchaser
or the Administrator hereunder and (C) the Purchaser's Share of the
Servicer's Fee (in each case, accrued through such day) and not so
previously accounted for; and
(iii) apply the remainder of such Collections to the purchase by the
Purchaser from the Seller of ownership interests in Pool Receivables and
Related Assets (each such purchase being a "Reinvestment"); provided that:
(A) if (I) the then Asset Interest would exceed the Allocation
Limit or (II) the sum of (a) the then Invested Amount and (b) the
aggregate of the CP Discounts of all Commercial Paper Notes then
outstanding would exceed the Purchase Limit, then the Master Servicer
shall not make such Reinvestment to the extent of such excess, but shall
identify and be deemed to hold in trust for the benefit of the Purchaser,
a portion of such Collections which, together with other Collections
previously so identified and then so held, shall equal the amount
necessary to reduce the sum of (a) the then Invested Amount and (b) the
aggregate of the CP Discounts of all Commercial Paper Notes then
outstanding to the Purchase Limit and the Asset Interest to the Allocation
Limit; and
(B) if any of the conditions precedent to Reinvestment in
clause (a), (b) and (d) of Section 5.2, subject to the proviso set forth
in Section 5.2, are not satisfied, then the Master Servicer shall not
reinvest any of such remaining Collections, but shall identify them and
shall be deemed to hold them in trust for the benefit of the Purchaser, in
accordance with the provisions of Section 1.3(b);
(iv) out of the portion of Collections not allocated to the Asset
Interest pursuant to clause (i), pay to the Master Servicer the Seller's
Share of the Servicer's Fee accrued through such day and not previously
paid; and
3
<PAGE> 8
(v) pay to the Seller (A) the remaining portion of Collections not
allocated to the Asset Interest pursuant to clause (i) net of the amount
paid to the Master Servicer pursuant to clause (iv), and (B) the
Collections applied to Reinvestment pursuant to clause (iii).
(b) Unreinvested Collections. The Master Servicer shall identify and be
deemed to hold in trust for the benefit of the Purchaser all Collections
allocated to the Asset Interest pursuant to clause (i) of Section 1.3(a) which,
pursuant to clause (iii) of Section 1.3(a), may not be reinvested in the Pool
Receivables and Related Assets, provided that unless otherwise requested by the
Administrator after a Liquidation Event, such Collections need not be held in a
segregated account. If, prior to the date when such Collections are required to
be paid to the Administrator for the benefit of the Purchaser pursuant to
Section 1.3(c)(iv), (1) the amount of Collections so set aside exceeds the
greater of (x) the amount, if any, necessary to reduce the sum of (i) the then
Invested Amount and (ii) the aggregate of the CP Discounts of all Commercial
Paper Notes then outstanding to the Purchase Limit and (y) the Asset Interest to
the Allocation Limit, and (2) the conditions precedent to Reinvestment set forth
in clauses (a), (b) and (d) of Section 5.2, subject to the proviso set forth in
Section 5.2, are satisfied, then the Master Servicer shall apply such
Collections (or, if less, a portion of such Collections equal to the amount of
such excess) to the making of a Reinvestment.
(c) Payment of Amounts. The Master Servicer shall deposit into the
Collection Account on each Settlement Date Collections identified and deemed
held for the benefit of the Purchaser under clauses (a) and (b) of Section 1.3,
and shall distribute them to the Administrator for the account of the Purchaser
as follows:
(i) The Master Servicer shall pay all amounts identified pursuant to
Section 1.3(a)(ii) in respect of Earned Discount on an Asset Tranche
funded by a Liquidity Funding to the Administrator, on the Purchaser's
behalf, on the last day of the then current Yield Period for such Asset
Tranche, as provided in Section 3.1.
(ii) The Master Servicer shall pay all amounts of Collections
identified pursuant to Section 1.3(a)(ii) in respect of Earned Discount on
any Asset Tranche funded by Commercial Paper Notes to the Administrator,
on the Purchaser's behalf, on the last day of the then current CP Tranche
Period for such Asset Tranche, as provided in Section 3.1.
(iii) The Master Servicer shall pay all amounts of Collections
identified pursuant to Section 1.3(a)(ii) and not applied pursuant to
clauses (i) or (ii) above to the Administrator, on the Purchaser's behalf,
on each Settlement Date for each Settlement Period, as provided in Section
3.1.
(iv) The Master Servicer shall pay all other amounts identified and
deemed held in trust for the benefit of the Purchaser pursuant to Section
1.3(a) (iii) to the Administrator for the account of the Purchaser (A) on
the last day of the then current Yield Period for any Asset Tranche funded
by a Liquidity Funding, as provided in Section 3.1(b), in an amount not
exceeding the Purchaser's Tranche Investment of such Asset Tranche, and
(B) on the last day of the then current CP Tranche Period for any
4
<PAGE> 9
Asset Tranche funded by Commercial Paper Notes, as provided in Section
3.1(b), in an amount not exceeding the Purchaser's Tranche Investment of
such Asset Tranche; provided, however, no payment shall be made under
clause (B) above unless the Purchaser's Tranche Investments of all Asset
Tranches, if any, funded by Liquidity Fundings shall have been reduced to
zero.
(d) If, on any day any payment is required to be made pursuant to any of
the provisions of Section 1.3(c), the Seller does not have sufficient available
funds to make any such payment, the Master Servicer may make a Servicer Advance
in an amount necessary for the payment, subject to the restrictions set forth in
Section 8.3.
(e) Notwithstanding anything herein to the contrary, the Master Servicer
may recover any Servicer Advance that it has made in respect of any Receivable
or related Contract from amounts received in respect of such Receivable or
related Contract or otherwise from the relevant Obligor. If the Master Servicer
has previously made a Servicer Advance which it later determines to be
nonrecoverable, the Master Servicer may, following delivery of an officer's
certificate to the Agent detailing the Master Servicer's determination that such
Servicer Advance is nonrecoverable, recover the amount of such Servicer Advance
from Collections. Any amount so recovered by the Master Servicer shall not be a
Collection for purposes of this Section 1.3.
Section 1.4. Asset Interest.
(a) Components of Asset Interest. On any date the Asset Interest will
represent the Purchaser's undivided percentage ownership interest in all then
outstanding Pool Receivables and all Related Assets with respect to such Pool
Receivables as at such date.
(b) Computation of Asset Interest. On any date, the Asset Interest will be
equal to the percentage equivalent of :
PTI+RR
------
NPB
where:
PTI = the then Invested Amount,
RR = the then Required Reserve, and
NPB = the then Net Pool Balance;
provided, however, that the Asset Interest during the Liquidation Period
shall equal 100%.
(c) Frequency of Computation. The Asset Interest shall be (x) computed (i)
as provided in Section 3.1, as of the Cut-Off Date for each Settlement Period,
and (ii) on the Settlement Date following each Reporting Date, after giving
effect to the payments made on such date pursuant to Section 3.1 and (y) deemed
recomputed on each day. In addition, at any time
5
<PAGE> 10
that the Administrator has reason to believe that the quality of the Pool
Receivables has degraded since the last such Settlement Report, the
Administrator, on the Purchaser's behalf, may require the Master Servicer to
provide a Settlement Report, based on the information then available to the
Master Servicer, for purposes of computing the Asset Interest or the Purchase
Limit as of any other date, and Servicer agrees to do so within five (5) (or
three (3), if a Liquidation Event has occurred and is continuing) Business Days
of its receipt of the Administrator's request.
ARTICLE II
COMPUTATIONAL RULES
Section 2.1. Selection of Asset Tranches.
The Administrator shall, from time to time for purposes of computing
Earned Discount, divide the Asset Interest into Asset Tranches. The applicable
Earned Discount Rate may be different for each Asset Tranche. The total Invested
Amount shall be allocated to the Asset Tranches by the Administrator, on the
Purchaser's behalf, to reflect the funding sources for the Asset Interest such
that the total amount of the Purchaser's Tranche Investments of such Asset
Tranches shall equal the Invested Amount, and so that:
(a) there will be an Asset Tranche with a Purchaser's Tranche Investment
equal to the excess of the Invested Amount over the aggregate amount allocated
at such time pursuant to clause (b) below, which Asset Tranche shall reflect the
portion of the Asset Interest funded by Commercial Paper Notes; and
(b) there will be one or more Asset Tranches, each with such Purchaser's
Tranche Investments selected by the Administrator, on the Purchaser's behalf,
reflecting the portion or portions of the Asset Interest funded by outstanding
Liquidity Fundings (if any).
Section 2.2. Computation of Invested Amount and Purchaser's Tranche
Investment.
In making any determination of the Invested Amount and any Purchaser's
Tranche Investment, the following rules shall apply:
(a) the Invested Amount shall not be considered reduced by any allocation,
setting aside or distribution of any portion of Collections unless such
Collections shall have been actually delivered hereunder to the Administrator,
on the Purchaser's behalf;
(b) the Invested Amount shall not be considered reduced by any
distribution of any portion of Collections if at any time such distribution is
rescinded or must otherwise be returned for any reason; and
(c) if there is any reduction in the Invested Amount, there shall be a
corresponding reduction in a Purchaser's Tranche Investment with respect to one
or more Asset Tranches selected by the Administrator, on the Purchaser's behalf,
in its discretion.
6
<PAGE> 11
Section 2.3. Computation of Concentration Limits and Outstanding Balance.
Except in the case of HomeLife Corporation, the Obligor Concentration
Limits and the aggregate Outstanding Balance of Pool Receivables of any Obligor
and its Affiliated Obligors (if any) shall be calculated as if such Obligor and
such Affiliated Obligors were one Obligor.
Section 2.4. Computation of Earned Discount.
In making any determination of Earned Discount, the following rules shall
apply:
(a) the Administrator, on the Purchaser's behalf, shall determine the
Earned Discount accruing with respect to each Asset Tranche, and each CP Tranche
Period therefor (or, in the case of any Asset Tranche funded by Liquidity
Fundings, each Yield Period), in accordance with the definition of Earned
Discount;
(b) no provision of this Agreement shall require the payment or permit the
collection of Earned Discount in excess of the maximum permitted by applicable
law;
(c) the Earned Discount for any Asset Tranche shall not be considered paid
by any distribution if at any time such distribution is rescinded or must
otherwise be returned for any reason; and
(d) prior to the Termination Date, the Administrator, on the Purchaser's
behalf, will choose the applicable CP Tranche Periods in consultation with the
Seller.
It is the intent of the Purchaser to fund the Asset Interest by the
issuance of Commercial Paper Notes. If the Purchaser is unable, or determines
that it is undesirable, to issue Commercial Paper Notes to fund the Asset
Interest, or is unable to repay such Commercial Paper Notes upon the maturity
thereof, the Purchaser will draw on Liquidity Fundings to fund the Asset
Interest to the extent Liquidity Fundings are available.
Section 2.5. Estimates of Earned Discount Rate, Fees, Etc.
For purposes of determining the amounts required to be set aside by the
Master Servicer pursuant to Section 1.3, the Administrator, on the Purchaser's
behalf, shall notify the Master Servicer (and, if LFI Servicing is not the
Master Servicer, the Seller) from time to time of the Purchaser's Tranche
Investment of each Asset Tranche, the Earned Discount Rate applicable to each
Asset Tranche and the rates at which fees and other amounts are accruing
hereunder. It is understood and agreed that (i) the Earned Discount Rate for any
Asset Tranche may change from one applicable Yield Period or CP Tranche Period
to the next, and the Bank Rate used to calculate the Earned Discount Rate may
change from time to time during an applicable Yield Period, (ii) certain rate
information provided by the Administrator to the Master Servicer shall be based
upon the Administrator's good faith estimate, (iii) the amount of Earned
Discount actually accrued with respect to an Asset Tranche during any CP Tranche
Period (or, in the case of the Asset Tranche funded by Liquidity Fundings, any
Yield Period) may exceed, or be less than, the amount set aside with respect
thereto by the Master Servicer, and (iv) the amount of fees or other amounts
payable by the Seller hereunder which have accrued hereunder with respect to any
7
<PAGE> 12
Settlement Period may exceed, or be less than, the amount set aside with respect
thereto by the Master Servicer. Failure to set aside any amount so accrued shall
not relieve the Master Servicer of its obligation to remit Collections to the
Administrator, for the benefit of the Purchaser, with respect to such accrued
amount, as and to the extent provided in Section 3.1.
ARTICLE III
SETTLEMENTS
Section 3.1. Settlement Procedures.
The parties hereto will take the following actions with respect to each
Settlement Period:
(a) Settlement Report. On the 10th day of each month (each a "Reporting
Date"), the Master Servicer shall deliver to the Administrator, on the
Purchaser's behalf, a report in the form of Exhibit 3.1(a) (each, an "Settlement
Report").
(b) Earned Discount; Other Amounts Due. On or before 12:00 noon, Atlanta,
Georgia, time on the Business Day before the last day of each CP Tranche Period
or Yield Period, as the case may be, the Administrator shall notify the Master
Servicer of the amount of Earned Discount accrued with respect to any Asset
Tranche corresponding to such CP Tranche Period or Yield Period, as the case may
be. The Master Servicer shall pay to the Administrator for the benefit of the
Purchaser the amount of such Earned Discount before 12:00 noon, Atlanta,
Georgia, time on the last day of such CP Tranche Period or Yield Period. On or
before 12:00 noon, Atlanta, Georgia, time on the Business Day before each
Reporting Date, the Administrator, on the Purchaser's behalf, shall notify the
Master Servicer of all fees and other amounts accrued and payable by the Seller
under this Agreement during the prior calendar month (other than amounts
described in clause (c) below). The Master Servicer shall pay to the
Administrator, for the benefit of the Purchaser, the amount of fees and other
amounts on the Settlement Date for such month. Such payments shall be made out
of amounts set aside pursuant to Section 1.3 for such payment; provided,
however, that to the extent that Collections attributable to the Asset Interest
during such Settlement Period are not sufficient to make such payment, the
shortfall shall be paid from amounts paid to the Seller pursuant to Section
1.3(a)(v) and, if such amounts are not sufficient to fully cover such shortfall,
the Master Servicer shall make a Servicer Advance in the amount of such
remaining shortfall in accordance with, and subject to the provisions of Section
8.3.
(c) Asset Interest Computations.
(i) On the Reporting Date for each Settlement Period, the Master
Servicer shall compute, as of the related Cut-Off Date and based upon the
assumptions in the next sentence, (A) the Asset Interest, (B) the amount
of the reduction or increase (if any) in the Invested Amount and the
percentage interest represented by the Asset Interest since the
immediately preceding Cut-Off Date, (C) the excess (if any) of the Asset
Interest over the Allocation Limit, and (D) the excess (if any) of the sum
of (1) the Invested Amount and (2) the aggregate of the CP Discounts of
all Commercial Paper Notes then outstanding over the Purchase Limit. Such
calculations shall be based upon the assumptions that
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(x) the information in the Settlement Report is correct, and (y)
Collections set aside pursuant to Section 1.3(b) will be paid to the
Administrator, for the benefit of the Purchaser, on the Settlement Date
for such Settlement Period.
(ii) If, according to the computations made pursuant to clause (i)
above, either (x) the Asset Interest exceeds the Allocation Limit or (y)
the sum of (A) the Invested Amount and (B) the aggregate of the CP
Discounts of all Commercial Paper Notes then outstanding exceeds the
Purchase Limit, then on the Settlement Date for such Settlement Period,
either (I) the Master Servicer shall pay to the Administrator, for the
benefit of the Purchaser, (to the extent of Collections during the related
Settlement Period attributable to all Asset Tranches and not previously
paid to the Administrator and from other funds of the Seller and from
Servicer Advances, if any) the amount necessary to reduce both (A) the sum
of the Invested Amount and the aggregate of the CP Discounts of all
Commercial Paper Notes then outstanding to the Purchase Limit and (b) the
Asset Interest to the Allocation Limit, subject, however, to the proviso
to Section 1.3(c)(iv) or (II) the Seller shall otherwise cure such
deficiencies in a manner acceptable to the Administrator. Any such payment
shall be made out of amounts identified pursuant to Section 1.3 for such
purpose or from other funds of the Seller and from Servicer Advances, if
any.
(iii) In addition to the payments described in clause (ii) above,
during the Liquidation Period, the Master Servicer shall pay to the
Administrator, for the benefit of the Purchaser, all amounts identified
pursuant to Section 1.3, (A) on the last day of the current Yield Period
for any Asset Tranche funded by a Liquidity Funding, in an amount not
exceeding the Purchaser's Tranche Investment of such Asset Tranche, and
(B) after reduction to zero of the Purchaser's Tranche Investments of the
Asset Tranches, if any, funded by Liquidity Fundings, on the last day of
each CP Tranche Period, in an amount not exceeding the Purchaser's Tranche
Investment of the Asset Tranche funded by Commercial Paper Notes.
(d) Order of Application. Upon receipt by the Administrator, on the
Purchaser's behalf, of funds distributed pursuant to this Section 3.1, the
Administrator shall apply them to the items specified in the subclauses below,
in the order of priority of such subclauses:
(i) to the Master Servicer on each Settlement Date, the amount of
any unreimbursed Servicer Advance to the extent provided in Section
1.3(e);
(ii) to the Purchaser on the dates described in Section 3.1(b), to
accrued Earned Discount, plus any previously accrued Earned Discount not
paid;
(iii) to the Master Servicer on each Settlement Date, the
Purchaser's Share of the accrued and unpaid Servicer's Fee (if the Master
Servicer is not the Seller or an Affiliate of the Seller);
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(iv) to the Purchaser on each Settlement Date, the Facility Fee and
the Usage Fee accrued during such Settlement Period, plus any previously
accrued Facility Fee and Usage Fee not paid on a prior Settlement Date;
(v) to the Purchaser on each Settlement Date or other date described
in Section 3.1(c), for the reduction of the Invested Amount, to the extent
such reduction is required under Section 3.1(c);
(vi) to the Purchaser or the Administrator on each Settlement Date,
for the payment of other accrued and unpaid amounts owing to the Purchaser
or the Administrator hereunder (except Earned Discount on any Asset
Tranche which has accrued but is not yet overdue under Section 1.3(c));
and
(vii) to the Master Servicer on each Settlement Date, the
Purchaser's Share of the accrued and unpaid Servicer's Fee (if the Master
Servicer is the Seller or an Affiliate of the Seller).
(e) Non-Distribution of Servicer's Fee. The Administrator hereby consents
(which consent may be revoked at any time by written notice after the occurrence
and during the continuance of a Liquidation Event) to the retention by the
Master Servicer of the amounts (if any) set aside pursuant to Section 1.3 in
respect of the Purchaser's Share of the Servicer's Fee, in which case no
distribution shall be made in respect of the Purchaser's Share of the Servicer's
Fee pursuant to clause (d) above.
(f) Delayed Payment. If any payment due on any day described in this
Section 3.1 (or in Section 1.3(c) in respect of accrued Earned Discount on Asset
Tranches funded by Liquidity Fundings or by the issuance of Commercial Paper
Notes), cannot be made because Collections during the relevant CP Tranche Period
or Yield Period were less than the aggregate amounts payable, then the Master
Servicer may, but shall not be required to, make any such payment otherwise
required. To the extent the Master Servicer elects not to make such payment, by
a Servicer Advance or otherwise, the next available Collections in respect of
the Asset Interest shall be applied to such payment, and no Reinvestment shall
be permitted hereunder to the extent such amount payable has not been paid in
full on the date of such proposed Reinvestment.
Section 3.2. Deemed Collections; Reduction of Invested Amount, Etc.
(a) Deemed Collections. If on any day
(i) the Outstanding Balance of any Pool Receivable is (without
duplication)
(A) reduced or cancelled as a result of any Dilution
Adjustment, or
(B) reduced or cancelled as a result of a setoff in respect of
any claim by the Obligor thereof (whether such claim arises out of the
same or a related or an unrelated transaction), or
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(C) reduced or cancelled as a result of any tariff or other
governmental or regulatory action, or
(D) less than the amount included in calculating the Net Pool
Balance for purposes of any Settlement Report (for any reason other than
such Receivable becoming a Defaulted Receivable), or
(ii) any of the representations or warranties of the Seller set
forth in Section 6.1(l) or (p) were not true when made with respect to any
Pool Receivable, or any of the representations or warranties of the Seller
set forth in Section 6.1(l) are no longer true with respect to any Pool
Receivable, or any Pool Receivable is repurchased by the Originator
pursuant to the Sale Agreement,
then, on such day, the Seller shall be deemed to have received a Collection
of such Pool Receivable
(I) in the case of clause (i) above, in the amount of such
Dilution Adjustment or such other reduction or cancellation or such
difference between the actual Outstanding Balance and the amount
included in calculating such Net Pool Balance, as applicable; and
(II) in the case of clause (ii) above, in the amount of the
Outstanding Balance of such Pool Receivable.
Collections deemed received by the Seller under this Section 3.2(a) are herein
referred to as "Deemed Collections." In the event that the Seller receives a
Deemed Collection with respect to the full Outstanding Balance of a Pool
Receivable, the Administrator, on the Purchaser's behalf, shall be deemed to
have reconveyed such Receivable and Related Rights with respect thereto (after
application of the Deemed Collection as provided elsewhere in this Agreement) to
the Seller, without recourse, representation or warranty, but free and clear of
all Liens created solely by the Administrator, and such reconveyed Receivable
and all Related Rights with respect thereto shall no longer be subject to the
terms of this Agreement.
(b) Seller's Optional Reduction of Invested Amount. The Seller may at any
time elect to reduce the Invested Amount as follows:
(i) the Seller shall give the Administrator, on the Purchaser's
behalf, at least five (5) Business Days' prior written notice of such
reduction (including the amount of such proposed reduction and the
proposed date on which such reduction will commence),
(ii) on the proposed date of commencement of such reduction and on
each day thereafter, the Master Servicer shall refrain from reinvesting
Collections pursuant to Section 1.3 until the amount thereof not so
reinvested shall equal the desired amount of reduction, and
(iii) the Master Servicer shall hold such Collections in trust for
the Purchaser, pending payment to the Administrator, as provided in
Sections 1.3 and 3.1;
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provided that:
(A) the amount of any such reduction shall be in (1) an amount
of at least $1,000,000, and in integral multiples of $100,000 if in excess
of $1,000,000 or (2) an amount equal to the remaining Invested Amount,
(B) the Seller shall use reasonable efforts to attempt to
choose a reduction amount, and the date of commencement thereof, so that
such reduction shall commence and conclude in the same Settlement Period,
and
(C) unless the Invested Amount will be reduced to zero, after
giving effect to such reduction, the Invested Amount will be at least
$25,000,000.
Section 3.3. Payments and Computations, Etc.
(a) Payments. All amounts to be paid to the Administrator or any other
Person or deposited by the Seller or the Master Servicer hereunder (other than
amounts payable under Section 4.2) shall be paid or deposited in accordance with
the terms hereof no later than 12:00 noon (Atlanta, Georgia time) on the day
when due in lawful money of the United States of America in same day funds to
the Purchaser in care of Wachovia Bank, N.A., ABA #053100494, Account
#8735-098787, for credit: Blue Ridge Asset Funding Corporation, Reference: LFI
Receivables Corporation, Attention: Administrative Assistant, (404) 332-6520, or
to such other account at the bank named therein or at such other bank as the
Administrator on behalf of the Purchaser may designate by written notice to the
Person making such payment.
(b) Late Payments. The Seller or the Master Servicer, as applicable,
shall, to the extent permitted by law, pay to the Person to whom payment is due
interest on all amounts not paid or deposited when due hereunder at 1% per annum
above the Alternate Base Rate, payable on demand, provided, however, that such
interest rate shall not at any time exceed the maximum rate permitted by
applicable law.
(c) Method of Computation. All computations of interest, Earned Discount,
any fees payable under Section 4.1 and any other fees payable by the Seller to
the Purchaser or the Administrator hereunder shall be made on the basis of a
year of 360 days for the actual number of days (including the first day but
excluding the last day) elapsed.
Section 3.4. Treatment of Collections and Deemed Collections.
The Seller shall forthwith deliver to the Master Servicer all Deemed
Collections, and the Master Servicer shall hold or distribute such Deemed
Collections as Earned Discount, accrued Servicer's Fee, repayment of Invested
Amount, and to other accrued amounts owing hereunder to the same extent as if
such Deemed Collections had actually been received on the date of such delivery
to the Master Servicer. If Collections are then being paid to the Administrator,
on the Purchaser's behalf, or its designee, or to lock boxes or accounts
directly or indirectly owned or controlled by the Administrator, the Master
Servicer shall forthwith cause such Deemed Collections to be paid to the
Administrator, on the Purchaser's behalf, or its designee or to such lock boxes
or accounts, as applicable, or as the Administrator shall request. So long as
the Seller
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shall hold any Collections (including Deemed Collections) required to be paid to
the Master Servicer, the Administrator or the Collateral Agent, it shall hold
such Collections in trust for the benefit of the Administrator, on behalf of the
Purchaser, and shall clearly mark its records to reflect such trust; provided
that unless the Administrator shall have requested it in writing to do so, the
Seller shall not be required to hold such Collections in a separate deposit
account containing only such Collections.
ARTICLE IV
FEES AND YIELD PROTECTION
Section 4.1. Fees.
The Seller shall pay to the Purchaser certain fees from time to time in
amounts and payable on such dates as are set forth in the letter dated on or
about the date hereof (as amended from time to time, the "Fee Letter") among the
Seller, the Purchaser and the Administrator.
Section 4.2. Yield Protection.
(a) If (i) Regulation D or (ii) any Regulatory Change occurring after the
date hereof
(A) shall subject an Affected Party to any tax, duty or other
charge with respect to the Asset Interest or any Asset Tranche owned by or
funded by it, or any obligations or right to make Purchases or
Reinvestments or to provide funding therefor, or shall change the basis of
taxation of payments to the Affected Party of any Invested Amount,
Purchaser's Tranche Investment or Earned Discount owned by, owed to or
funded in whole or in part by it or any other amounts due under this
Agreement in respect of the Asset Interest or any Asset Tranche owned by
or funded by it or its obligations or rights, if any, to make Purchases or
Reinvestments or to provide funding therefor (except for Excluded Taxes);
or
(B) shall impose, modify or deem applicable any reserve
(including, without limitation, any reserve imposed by the Federal Reserve
Board, but excluding any reserve included in the determination of Earned
Discount), special deposit or similar requirement against assets of any
Affected Party, deposits or obligations with or for the account of any
Affected Party or with or for the account of any holding company of any
Affected Party; or
(C) shall change the amount of capital maintained or required
or requested or directed to be maintained by any Affected Party; or
(D) shall impose any other condition affecting any Asset
Interest owned or funded in whole or in part by any Affected Party, or its
obligations or rights, if any, to make Purchases or Reinvestments or to
provide funding therefor; or
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(E) shall change the rate for, or the manner in which the
Federal Deposit Insurance Corporation (or a successor thereto) assesses,
deposit insurance premiums or similar charges;
and the result of any of the foregoing is or would be
(x) to increase the cost to or to impose a cost on (I) the
funding, making or maintaining of Purchases or Reinvestments by any
Affected Party, any purchases, reinvestments, or loans or other extensions
of credit under the Liquidity Agreement, or any commitment of such
Affected Party with respect to any of the foregoing, or (II) the
Administrator for continuing its or the Seller's relationship with the
Purchaser, in each case, in an amount deemed to be material by such
Affected Party,
(y) to reduce the amount of any sum received or receivable by
an Affected Party under this Agreement or under the Liquidity Agreement,
or
(z) in the reasonable determination of such Affected Party, to
reduce the rate of return on the capital of an Affected Party as a
consequence of its obligations hereunder or arising in connection herewith
to a level below that which such Affected Party could otherwise have
achieved,
then, within ten (10) days after demand by such Affected Party (which demand
shall be accompanied by a certificate setting forth, in reasonable detail, the
basis of such demand and the methodology for calculating, and the calculation
of, the amounts claimed by the Affected Party), the Seller shall pay directly to
such Affected Party such additional amount or amounts as will compensate such
Affected Party for such additional or increased cost or such reduction;
provided, however, that such compensation shall not include duplication of
amounts taken into account with respect to the Earned Discount Rate or any other
amounts previously charged to and paid by any Seller Party as fees, expenses or
items for reimbursement.
(b) Failure or delay on the part of any Affected Party to demand
compensation pursuant to this Section 4.2 shall not constitute a waiver of such
Affected Party's right to demand such compensation; provided, that the Seller
shall not be required to compensate an Affected Party pursuant to this Section
4.2 for any increased costs or reductions incurred more than 270 days prior to
the date that such Affected Party notifies the Seller of the event giving rise
to such increased costs or reductions and of such Affected Party's intention to
claim compensation therefor. The protection of this Section 4.2 shall be
available to each Affected Party regardless of any possible contention of the
invalidity or inapplicability of the law, rule, regulation, guideline or other
change or condition that shall have occurred or been imposed; provided, however,
that the Sellers shall be entitled to reimbursement of any compensation paid to
any Affected Party under this Section 4.2 for costs that are ultimately
reimbursed or credited to such Affected Party.
(c) In determining any amount provided for or referred to in this Section
4.2, an Affected Party may use any reasonable averaging and attribution methods
(consistent with its ordinary business practices) that it (in its reasonable
discretion) shall deem applicable. Any Affected Party when making a claim under
this Section 4.2 shall submit to the Seller the
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certificate (referenced in subsection (a) above) as to such increased cost or
reduced return (including calculation thereof in reasonable detail), which
statement shall, in the absence of manifest error, be conclusive and binding
upon the Seller.
(d) The Purchaser and each Affected Party shall take commercially
reasonable measures to minimize the amounts payable by the Seller pursuant to
this Section 4.2. If a Liquidity Bank other than Wachovia makes a claim under
this Section 4.2 (the "Claiming Liquidity Bank"), then the Seller may notify the
Administrator in writing that the Seller proposes a replacement Liquidity Bank
that is not subject to the change in circumstances that is affecting the
Claiming Liquidity Bank, and, if such proposed replacement Liquidity Bank is
acceptable to the Administrator and the Liquidity Agent, the Liquidity Agent
shall so notify the Purchaser and the Purchaser shall exercise its right under
the Liquidity Agreement to replace the Claiming Liquidity Bank with such
proposed replacement Liquidity Bank, pursuant to the terms and provisions
contained in the Liquidity Agreement. Notwithstanding its replacement under the
above circumstances, such Claiming Liquidity Bank shall be entitled to amounts
due it under this Section 4.2 incurred during its tenure as a Liquidity Bank. No
Affected Party that is a participant of another Affected Party (the "Primary
Affected Party") shall be entitled to any amounts under this Section 4.2 unless
such amounts would have inured to the Primary Affected Party but for such
participation.
Section 4.3. Funding Losses.
In the event that any Liquidity Bank shall actually incur any loss or
expense (including any loss or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by such Liquidity Bank to make
any Liquidity Funding or maintain any Liquidity Funding) as a result of (i) any
settlement with respect to the Purchaser's Tranche Investment of any Asset
Tranche funded by a Liquidity Funding being made on any day other than the
scheduled last day of an applicable Yield Period with respect thereto (it being
understood that the foregoing shall not apply to any portion of the Purchasers'
Total Investment that is accruing Earned Discount calculated by reference to the
Alternate Base Rate), or (ii) any Purchase to be funded by a Liquidity Funding
not being made in accordance with a request therefor under Section 1.2, then,
upon written notice from the Administrator to the Seller and the Master
Servicer, the Seller shall pay to the Master Servicer, and the Master Servicer
shall pay to the Administrator for the account of such Liquidity Bank, the
amount of such loss or expense, to the extent not reimbursed through the Earned
Discount, and provided that any such loss shall not include loss of the Bank
Rate Spread. Such written notice (which shall include the methodology for
calculating, and the calculation of, the amount of such loss or expense, in
reasonable detail) shall, in the absence of demonstrable error, be conclusive
and binding upon the Seller and the Master Servicer.
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ARTICLE V
CONDITIONS OF PURCHASES
Section 5.1. Conditions Precedent to Initial Purchase.
The initial Purchase pursuant to this Agreement is subject to the
condition precedent that the Administrator, on the Purchaser's behalf, shall
have received, on or before the date of such initial Purchase, the following,
each (unless otherwise indicated) dated such date and in form and substance
reasonably satisfactory to the Administrator:
(a) The Sale Agreement, duly executed by the parties thereto (and the
Seller Note, as defined in the Sale Agreement, duly executed by the Seller);
(b) A certificate of the Secretary or Assistant Secretary of each Seller
Party certifying the names and true signatures of the officers authorized on its
behalf to sign this Agreement and the other Transaction Documents to be
delivered by it hereunder (on which certificate the Administrator and the
Purchaser may conclusively rely until such time as the Administrator, on the
Purchaser's behalf, shall receive from such Seller Party a revised certificate
meeting the requirements of this subsection (b)) and certifying a copy of the
resolutions of the Board of Directors of each Seller Party approving the
Transaction Documents to be delivered by it and the transactions contemplated
hereby and thereby;
(c) The Articles or Certificate of Incorporation of each Seller Party,
duly certified by the Secretary of State of such Seller Party's state of
incorporation, as of a recent date acceptable to Administrator, on the
Purchaser's behalf, in each case together with a copy of the by-laws of such
Seller Party, duly certified by the Secretary or an Assistant Secretary of such
Seller Party;
(d) Copies of good standing certificates for each Seller Party, issued by
the Secretaries of State of the state of incorporation of such Seller Party and
the state where such Seller Party's principal place of business is located;
(e) Executed and completed (i) financing statements (Form UCC-1), in such
form as the Administrator, on the Purchaser's behalf, may reasonably request,
naming each of the Originators as the debtor and seller of the Receivables and
Related Rights, the Seller as the secured party and purchaser thereof and the
Purchaser as assignee, and (ii) financing statements (Form UCC-1), in such form
as the Administrator, on the Purchaser's behalf, may reasonably request, naming
the Seller as the debtor and seller of an undivided percentage interest in the
Pool Receivables and Related Assets and the Purchaser as the secured party and
purchaser thereof, or other, similar instruments or documents, as may be
necessary or, in the opinion of the Administrator, on the Purchaser's behalf,
desirable under the UCC or any comparable law of all appropriate jurisdictions
to perfect the sale by each Originator to the Seller of, and the Purchaser's
undivided percentage interest in, the Pool Receivables and Related Assets;
(f) Search reports provided in writing to the Administrator, on the
Purchaser's behalf, (i) listing all effective financing statements that name any
Seller Party as debtor and that are filed in the jurisdictions in which filings
were made pursuant to subsection (e) above and in such other
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jurisdictions that the Administrator shall reasonably request, together with
copies of such financing statements (none of which (other than any of the
financing statements with respect to the Existing Securitization for which UCC-3
termination statements shall have been executed and delivered by the Trustee
thereunder) shall cover any Receivables or Related Assets), and (ii) listing all
tax liens and judgment liens (if any) filed against any debtor referred to in
clause (i) above in the jurisdictions described therein and showing no such
Liens;
(g) Favorable opinions of local counsel to the Seller Parties, in form and
substance satisfactory to the Administrator;
(h) Favorable opinions of Davis Polk & Wardwell, special counsel to the
Originators and the Seller Parties, and of internal counsel to the Originators
and the Seller Parties, in substantially the form of Exhibit 5.1(h);
(i) A favorable opinion of Davis Polk & Wardwell, special counsel to the
Originators and the Seller Parties, as to
(i) the existence of a "true sale" of the Receivables from the
Originators to the Seller under the Sale Agreement; and
(ii) the inapplicability of the doctrine of substantive
consolidation to the Seller in connection with any bankruptcy proceeding
involving any of the Originators or Holdings;
(j) A pro forma Settlement Report, prepared as of February 28, 1999 (which
shall include the Existing Receivables);
(k) A report in form and substance satisfactory to the Administrator, on
the Purchaser's behalf, from the Initial Due Diligence Auditor as to a
pre-closing due diligence audit by the Initial Due Diligence Auditor;
(l) The Liquidity Agreement, in form and substance satisfactory to the
Administrator, on the Purchaser's behalf, duly executed by the Purchaser, the
Liquidity Agent and each Liquidity Bank;
(m) With respect to FII, a consolidated balance sheet, income statement
and statement of shareholders' equity as at December 31, 1998 and with respect
to the Seller, a balance sheet and income statement as at December 31, 1998,
each of the foregoing together with a certification of the chief financial
officer or treasurer in the form attached hereto as Exhibit B;
(n) such other agreements, instruments, certificates, opinions and other
documents as the Administrator may reasonably request; and
(o) the structuring fee set forth in the letter dated March 1, 1999,
between LFI and Wachovia (the "Mandate Letter").
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Section 5.2. Conditions Precedent to All Purchases and Reinvestments.
Each Purchase (including the initial Purchase) and each Reinvestment shall
be subject to the further conditions precedent that on the date of such Purchase
or Reinvestment the following statements shall be true (and the Seller, by
accepting the amount of such Purchase or by receiving the proceeds of such
Reinvestment, and each other Seller Party, upon such acceptance or receipt by
the Seller, shall be deemed to have certified that):
(a) the representations and warranties contained in Section 6.1 are
correct in all material respects on and as of such day as though made on and as
of such day (or, if not true and correct, they are eligible for and subject to a
thirty (30) day cure period that has not expired pursuant to Section 10.1(b))
and shall be deemed to have been made on such day,
(b) no event has occurred and is continuing, or would result from such
Purchase or Reinvestment, that constitutes a Liquidation Event or Unmatured
Liquidation Event,
(c) after giving effect to each proposed Purchase or Reinvestment, the sum
of (i) the Invested Amount and (ii) the aggregate of the CP Discounts of all
Commercial Paper Notes then outstanding will not exceed the Purchase Limit and
the Asset Interest will not exceed the Allocation Limit,
(d) the Termination Date shall not have occurred, and
(e) in the case of a Purchase, the Administrator shall have timely
received an appropriate notice of the proposed Purchase in accordance with
Section 1.2(a);
provided, however, the absence of the occurrence and continuance of an Unmatured
Liquidation Event shall not be a condition precedent to any Reinvestment or any
Purchase that does not cause the Invested Amount, after giving effect to such
Reinvestment or Purchase, to exceed the Invested Amount as of the opening of
business on the day of such Reinvestment or Purchase.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
Section 6.1. Representations and Warranties of the Seller Parties.
Each Seller Party represents and warrants as to itself, except as
specifically provided, in which case, the specified Seller Party represents and
warrants as so provided, as follows:
(a) Organization and Good Standing. Such Seller Party has been duly
organized and is validly existing as a corporation in good standing under the
laws of the state of its incorporation, with power and authority to own its
properties and to conduct its business as presently conducted. The Seller had at
all relevant times, and now has, all corporate power and authority to acquire
and own the Pool Receivables and Related Assets. Such Seller Party has the
corporate power and authority to execute, deliver and perform its obligations
under this Agreement and the other Transaction Documents to which it is a party
and, in the case of the
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Master Servicer, to service the Pool Receivables and the Related Assets in
accordance with this Agreement and the Sale Agreement and, in the case of the
Seller, to sell and assign the Asset Interest on the terms and conditions herein
provided, except in each case where the failure to satisfy any of the above
could not reasonably be expected to result in a Material Adverse Effect. The
Master Servicer is duly qualified to do business as a foreign corporation in
good standing in all jurisdictions in which the conduct of its business requires
such qualification except where the failure to be so qualified and in good
standing could not reasonably be expected to result in a Material Adverse
Effect. The Seller is duly qualified to do business and is in good standing in
the jurisdiction of its chief executive office and principal place of business
and in such other jurisdictions in which the conduct of its business requires
such qualification except where the failure to be so qualified and in good
standing in such other jurisdictions could not reasonably be expected to have a
Material Adverse Effect.
(b) [Reserved]
(c) Due Authorization. Such Seller has duly authorized by all necessary
corporate action the execution, delivery and performance of this Agreement and
the other Transaction Documents and, in the case of the Seller, the sales and
assignments referred to in (a) above.
(d) Valid Sale; Binding Obligations. (i) This Agreement effects a valid
sale, transfer, and assignment of the Asset Interest to the Purchaser (or a
valid security interest in the Pool Receivables), enforceable against creditors
of, and purchasers from, the Seller, and (ii) this Agreement and each other
Transaction Document to which such Seller Party is a party constitutes, a legal,
valid and binding obligation of such Seller Party, enforceable in accordance
with its terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws from time to time
in effect affecting the enforcement of creditors' rights generally and by
general principles of equity, regardless of whether such enforceability is
considered in a proceeding in equity or at law.
(e) No Violation. The execution, delivery and performance by each Seller
Party of this Agreement and the other Transaction Documents to which it is a
party do not (i) conflict with, result in any breach of any of the terms and
provisions of, or constitute (with or without notice or lapse of time or both) a
default under, the articles or certificate of incorporation or by-laws of such
Seller Party, or any material indenture, loan agreement, receivables purchase
agreement, mortgage, deed of trust, or other agreement or instrument to which
such Seller Party is a party or by which it or any of its properties is bound,
(ii) result in the creation or imposition of any Lien upon any of the Pool
Receivables, or, with respect to the Seller, any other properties of the Seller,
pursuant to the terms of any such material indenture, loan agreement,
receivables purchase agreement, mortgage, deed of trust, or other agreement or
instrument, other than this Agreement and the other Transaction Documents, or
(iii) violate any law or any order, rule, or regulation applicable to such
Seller Party of any court or of any federal or state regulatory body,
administrative agency, or other governmental instrumentality having jurisdiction
over such Seller Party or any of its properties, except where any such conflict,
breach or default referred to in clause (i) (with respect only to the Master
Servicer) or (iii), individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
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(f) No Proceedings. Except (with respect only to the Master Servicer) as
set forth on Schedule 6.1(f), there are no actions, suits or proceedings now
pending, or, to such Seller Party's knowledge, threatened against such Seller
Party, before any court, regulatory body, administrative agency, or other
tribunal or governmental instrumentality (i) asserting the invalidity of this
Agreement or any other Transaction Document to which such Seller Party is a
party, (ii) seeking to prevent the sale and assignment of the Pool Receivables
under the Sale Agreement or of the Asset Interest under this Agreement or the
consummation of any of the other transactions contemplated by this Agreement or
any other Transaction Document, or (iii) that could reasonably be expected to
have a Material Adverse Effect.
(g) Bulk Sales Act. The sale, transfer and assignment of the Asset
Interest does not require compliance with any bulk sales act or similar law in
the States of North Carolina or Delaware.
(h) Government Approvals. No authorization or approval or other action by,
and no notice to or filing with, any governmental authority or regulatory body
is required for the due execution, delivery and performance by such Seller Party
of this Agreement and each other Transaction Document to which it is a party,
except, (i) in the case of the Seller, for (A) the filing of the UCC financing
statements referred to in Article V, and (B) the filing of any UCC continuation
statements and amendments from time to time required in relation to any UCC
financing statements filed in connection with this Agreement, as provided in
Section 8.7, all of which, at the time required in Article V or Section 8.7, as
applicable, shall have been duly made and shall be in full force and effect and
(ii) such authorizations, approvals, notices, filings or other actions the
failure of which to obtain or make could not reasonably be expected to result in
a Material Adverse Effect; provided however, that with respect to Pool
Receivables (if any) owing by government Obligors, any failure to comply with
the United States Federal Non-Assignment Act, 41 U.S.C. ss.15 or Assignment of
Claims Act, 31 U.S.C. ss.3727 or with any similar federal or state legislation
shall not constitute a breach of this representation and warranty.
(i) [Reserved].
(j) [Reserved].
(k) Margin Regulations. The Seller will not use any funds obtained by the
Seller hereunder (x) to acquire any equity security of a class that is
registered pursuant to Section 12 of the Exchange Act or (y) for "purchasing" or
"carrying" any "margin stock" within the respective meanings of each of the
quoted terms under Regulation U of the Federal Reserve Board as now and from
time to time hereafter in effect. If requested by the Administrator at any time,
the Seller will furnish to the Administrator a statement in conformity with the
requirements of FR Form U-1 referred to in Regulation U.
(l) Quality of Title. (i) Each Pool Receivable, together with the Related
Assets, is owned by the Seller free and clear of any Lien (other than any
Permitted Lien); (ii) when the Purchaser makes a Purchase or Reinvestment, it
shall acquire and shall at all times thereafter continuously have a valid and
perfected first priority undivided percentage ownership interest to the extent
of the Asset Interest in each Pool Receivable, and each Related Asset with
respect
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thereto, free and clear of any Lien (other than any Permitted Lien); and (iii)
no financing statement or other instrument similar in effect covering any Pool
Receivable, any interest therein, or the Related Assets with respect thereto is
on file in any recording office except such as may be filed (1) in favor of the
Seller hereunder in connection with the Sale Agreement, (2) in favor of the
Purchaser or the Administrator in accordance with this Agreement or in
connection with any Lien arising solely as the result of any action taken by the
Purchaser (or any assignee thereof) or by the Administrator, (3) in favor of the
Collateral Agent, or (4) with respect to the Existing Securitization (as to
which UCC-3 Termination Statements have been executed by the relevant purchaser
and secured party and delivered to the Administrator on or before the date of
the initial Purchase hereunder).
(m) Accurate Reports. No Settlement Report (if prepared by such Seller
Party, or to the extent information therein was supplied by such Seller Party)
or other information, exhibit, financial statement, document, book, record or
report furnished, in each case in writing, by or on behalf of such Seller Party
to the Administrator or the Purchaser pursuant to this Agreement taken as a
whole was inaccurate in any material respect as of the date it was dated or
(except as otherwise disclosed to the Administrator or the Purchaser at such
time) as of the date so furnished, or contained any material misstatement of
fact or omitted to state a material fact necessary to make the statements
contained therein not materially misleading in light of the circumstances made
or presented.
(n) Offices. The principal places of business and chief executive offices
of the Master Servicer and the Seller are located at the respective addresses
set forth on Schedule 14.2, and the offices where the Master Servicer and the
Seller keep all their books, records and documents evidencing Pool Receivables,
any related Contracts and all purchase orders and other agreements related to
such Pool Receivables are located at the addresses specified in Schedule 6.1(n)
(or at such other locations, notified to the Administrator, on the Purchaser's
behalf, in accordance with Section 7.1(f), in jurisdictions where all action
required by Section 8.7 has been taken or is being taken and will be completed
within thirty (30) days after the transfer to any such other location).
(o) Lock-Box Accounts. The names and addresses of all the Lock-Box Banks,
together with the account numbers of the accounts of the Originators or the
Seller at such Lock-Box Banks, are specified in Schedule 6.1(o) (or have been
notified to and approved by the Administrator, on the Purchaser's behalf, in
accordance with Section 7.3(d) and all action required by Section 8.5 has been
taken or is being taken and will be completed within the required time periods
as set forth in Section 8.5).
(p) Eligible Receivables; No Excluded Receivables. Each Receivable
included in the Net Pool Balance as an Eligible Receivable on the date of any
Purchase, Reinvestment or computation of the Net Pool Balance is an Eligible
Receivable on such date. The Receivables Pool does not contain any Excluded
Receivable.
(q) [Reserved].
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(r) From and after September 30, 1999, the Seller reasonably believes that
it is Year 2000 Compliant and Ready.
(s) Compliance with Credit and Collection Policy. With respect to each
Pool Receivable, each Seller Party has complied in all material respects with
the Credit and Collection Policy.
(t) Payments to Originators. With respect to each Pool Receivable
transferred to the Seller by the Originators pursuant to the Sale Agreement, the
Seller has given reasonably equivalent value to each Originator in consideration
for the Pool Receivables originated by it and the Related Assets with respect
thereto and such transfer was not made for or on account of antecedent debt.
(u) Names. In the past five years, the Seller has not used any corporate
names, trade names or assumed names other than the name in which it has executed
this Agreement.
(v) Ownership of the Seller. FII or its permitted successors owns,
directly or indirectly, 100% of the issued and outstanding capital stock of the
Seller, free and clear of any Lien. Such capital stock is validly issued, fully
paid and nonassessable, and there are no options, warrants or other rights to
acquire securities of the Seller.
(w) Investment Company. The Seller is not an "investment company" within
the meaning of the Investment Company Act of 1940, as amended from time to time,
or any successor statute.
(x) Taxes. Each Seller Party has filed all material tax returns and
reports required by law to have been filed by it and has paid all taxes and
governmental charges thereby shown to be owing, except to the extent any failure
to file such returns or reports or pay such taxes or charges could not
reasonably be expected to result in a Material Adverse Effect.
ARTICLE VII
GENERAL COVENANTS OF SELLER PARTIES
Section 7.1. Affirmative Covenants of the Seller Parties.
From the date hereof until the Final Payout Date, unless the Administrator
(on the Purchaser's behalf) shall otherwise consent in writing:
(a) Compliance With Laws, Etc. Each Seller Party will comply in all
material respects with all laws, rules, regulations and orders applicable to
such Person, including those with respect to the Pool Receivables and any
related Contracts (and, to the extent a Receivable is owed by an individual,
including but not limited to Consumer Credit Laws), except where the failure to
do so would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect.
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(b) Preservation of Corporate Existence. Each Seller Party will preserve
and maintain its corporate existence except as otherwise expressly permitted by
Section 7.3(l).
(c) Audits. Each Seller Party will (i) at any time and from time to time
upon not less than five (5) Business Days' notice (unless a Liquidation Event
has occurred and is continuing (or the Administrator, on the Purchaser's behalf,
believes in good faith that a Liquidation Event has occurred and is continuing),
in which case two (2) Business Days' notice shall be required) during regular
business hours, permit the Administrator, on the Purchaser's behalf, or any of
its agents or representatives, (A) to examine and make copies of and abstracts
from all books, records and documents (including, without limitation, computer
tapes and disks) in the possession or under the control of such Seller Party
relating to Pool Receivables, including, without limitation, the related
Contracts and purchase orders and other agreements (if any), and (B) to visit
the offices and properties of such Seller Party for the purpose of examining
such materials described in clause (i)(A) next above, and to discuss matters
relating to Pool Receivables or such Seller Party's performance hereunder with
any of the officers or employees of such Seller Party having knowledge of such
matters provided that the rights provided in this clause (i) shall not be
exercised more than two (2) times in any one (1) calendar year so long as no
Liquidation Event has occurred and is continuing; (ii) permit the Administrator
or any of its agents or representatives, upon not less than five (5) Business
Days' notice from the Administrator (unless a Liquidation Event has occurred and
is continuing (or the Administrator believes in good faith that a Liquidation
Event has occurred and is continuing) in which case one (1) Business Day's prior
notice shall be required), to meet with the independent auditors of such Seller
Party to review such auditors' work papers and otherwise to review with such
auditors the books and records of such Seller Party with respect to the Pool
Receivables and Related Assets; and (iii) without limiting the provisions of
clause (i) or (ii) next above, from time to time, at the expense of such Seller
Party, permit PricewaterhouseCoopers LLP or other auditors acceptable to the
Administrator to conduct a review of such Seller Party's books and records with
respect to the Pool Receivables and Related Assets; provided, that, so long as
no Liquidation Event has occurred and is continuing, (x) such reviews shall not
be done more than two (2) times in any one calendar year and (y) the Seller
Parties shall be responsible for the costs and expenses of only one such review
in any one calendar year. The Purchaser and the Administrator agree (i) to
comply, and to ensure that their respective agents and representatives acting
under this Agreement comply, with each Seller Party's reasonable security and
confidentiality requirements, (ii) to protect and maintain the confidentiality
of all information disclosed or made available to the Purchaser, the
Administrator and/or their respective agents or representatives and (iii) to use
such information only for the purpose of determining compliance with the
provisions of this Agreement and for no other purpose. The Purchaser and the
Administrator and their respective agents and representatives shall return to
the Seller Parties upon request all tangible items and written documents
provided to, made or compiled by, or otherwise acquired by the Purchaser, the
Administrator and/or their respective agents and representatives, including
notes, samples, models, summaries, memoranda, records and other documents, and
all copies thereof.
(d) Keeping of Records and Books of Account. The Master Servicer will
maintain and implement administrative and operating procedures (including,
without limitation, an ability to recreate records evidencing Pool Receivables
in the event of the destruction of the originals thereof), and keep and maintain
all documents, books, records and other information reasonably
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necessary or advisable for the collection of all Pool Receivables (including,
without limitation, records adequate to permit the daily identification of
Outstanding Balances by Obligor and related debit and credit details of the Pool
Receivables).
(e) Performance and Compliance with Receivables and Contracts. Each Seller
Party will, at its expense, timely and fully perform and comply with all
material provisions, covenants and other promises, if any, required to be
observed by it under the Contracts related to the Pool Receivables and all
agreements (if any) related to the Pool Receivables, the breach of which
provisions, covenants or promises could reasonably be expected to have a
Material Adverse Effect.
(f) Location of Records. Each Seller Party will keep its chief place of
business and chief executive office, and the offices where it keeps its records
concerning the Pool Receivables, any related Contracts and all agreements (if
any) related to such Pool Receivables (and all original documents relating
thereto), at the address(es) of the applicable Servicer and the Seller referred
to in Section 6.1(n) or, upon 30 days' prior written notice to the
Administrator, at such other locations in jurisdictions where all action
required by Section 8.7 shall have been or is being taken and will be completed
within thirty (30) days after any such relocation.
(g) Credit and Collection Policies. Each Seller Party will comply in all
material respects with the Credit and Collection Policy in regard to each Pool
Receivable and any related Contract.
(h) Sale Agreement. The Seller will perform and comply in all material
respects with all of its covenants and agreements set forth in the Sale
Agreement, and will enforce the performance by the Originators of their
respective obligations under the Sale Agreement.
(i) Lock-Box Agreement and Lock-Box Accounts. The Seller and the Master
Servicer shall instruct all Obligors to deposit all Collections to the Lock-Box
Accounts. The Seller will not give any contrary or conflicting instructions, and
will, upon the request of Master Servicer or the Administrator, confirm such
instructions by Master Servicer or take such other action as may be reasonably
required to give effect to such instructions.
(j) Year 2000 Compliance. Each Seller Party will be Year 2000 Compliant
and Ready not later than September 30, 1999, and will deliver certification
thereof to the Administrator on or before September 30, 1999.
Section 7.2. Reporting Requirements of the Seller Parties.
From the date hereof until the Final Payout Date, unless the
Administrator, on the Purchaser's behalf, shall otherwise consent in writing:
(a) Liquidation Events, Etc. Promptly and in any event within five
Business Days after obtaining knowledge of the occurrence of any Liquidation
Event, each Seller Party will furnish to the Administrator, on the Purchaser's
behalf, a written statement of the chief financial officer, treasurer or chief
accounting officer of such Seller Party setting forth details of such event and
the action that the applicable Seller Party will take with respect thereto.
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(b) Litigation. As soon as possible and in any event within ten Business
Days of any Seller Party's knowledge thereof, such Seller Party will furnish to
the Administrator, on the Purchaser's behalf, notice of (i) any litigation,
investigation or proceeding which may exist at any time with respect to the
Seller, and if with respect to the Master Servicer, which could reasonably be
expected to have a Material Adverse Effect and (ii) any development in
previously disclosed litigation which development could reasonably be expected
to have a Material Adverse Effect.
(c) Audit of Pool Receivables. As soon as available and in any event
within 90 days after the end of each fiscal year of the Seller, the Seller will
furnish to the Administrator, on the Purchaser's behalf, an audit report,
prepared by a Person reasonably acceptable to the Administrator, as of the end
of such fiscal year, substantially in the form of the report attached hereto as
Exhibit 7.2(c) and covering such other matters as the Administrator may
reasonably request in order to protect the interests of the Administrator or the
Purchaser under or as contemplated by this Agreement.
(d) Change in Credit and Collection Policy. At least ten (10) Business
Days' prior to its effective date, each Seller Party will furnish to the
Administrator, on the Purchaser's behalf, notice of (i) any material change in
the character of such Seller Party's business, and (ii) any material change in
the Credit and Collection Policy.
(e) Other. Promptly, from time to time, each Seller Party will furnish to
the Administrator, on the Purchaser's behalf, such other information, documents,
records or reports respecting the Receivables or the operations, business
affairs or financial condition of such Seller Party as the Administrator may
from time to time reasonably request in order to protect the interests of the
Administrator or the Purchaser under or as contemplated by this Agreement.
Section 7.3. Negative Covenants of the Seller Parties.
From the date hereof until the Final Payout Date, without the prior
written consent of the Administrator (on the Purchaser's behalf):
(a) Sales, Liens, Etc. (i) The Seller will not, except as otherwise
provided herein and in the other Transaction Documents, sell, assign (by
operation of law or otherwise) or otherwise dispose of, or create any Lien
(other than Permitted Liens) upon or with respect to, any Pool Receivable or any
Related Asset, or any interest therein, or any account to which any Collections
of any Pool Receivable are sent, or any right to receive income or proceeds from
or in respect of any of the foregoing (except, prior to the execution of
Lock-Box Agreements, set-off rights of any bank at which any such account is
maintained), and (ii) the Master Servicer will not assert any interest in the
Pool Receivables, except as Servicer.
(b) Extension or Amendment of Receivables. No Seller Party will, except as
otherwise permitted in Section 8.2(c), extend, amend or otherwise modify the
terms of any Pool Receivable, or amend, modify or waive any material term or
condition of any Contract related thereto in any way that adversely affects the
collectibility of any Pool Receivable or the Purchaser's rights therein.
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(c) Change in Business or Credit and Collection Policy. No Seller Party
will make or permit to be made any change in the character of its business or in
the Credit and Collection Policy, which change would, in either case, impair the
collectibility of any significant portion of the Pool Receivables or otherwise
have a Material Adverse Effect, unless with respect to any material change in
accounting policies relating to Receivables, such change is made in accordance
with GAAP.
(d) Change in Payment Instructions to Obligors. No Seller Party will add
or terminate any bank as a Lock-Box Bank from those listed in Schedule 6.1(o)
or, after Lock-Box Accounts have been delivered pursuant to Section 7.1(i), make
any change in its instructions to Obligors regarding the account to which
payments are to be made (except for a change in instructions solely for the
purpose of directing Obligors to make such payments to another existing Lock-Box
Bank), unless the Administrator shall have received prior written notice of such
addition, termination or change, and the Administrator shall have received duly
executed copies of Lock-Box Agreements with each new Lock-Box Bank.
(e) Deposits to Collection Account. No Seller Party will deposit or
otherwise credit, or cause or permit to be so deposited or credited, to the
Collection Account, any cash or cash proceeds other than Collections of Pool
Receivables.
(f) Changes to Other Documents. Without the prior, written consent of the
Administrator, on behalf of the Purchaser, the Seller will not enter into any
amendment or modification of, or supplement to (i) the Sale Agreement, except to
reflect the addition or deletion of Originators as permitted by Article IX of
the Sale Agreement or (ii) to Articles FIRST, THIRD, SIXTH, NINTH, ELEVENTH,
TWELFTH or THIRTEENTH of the Seller's Certificate of Incorporation.
(g) Restricted Payments by the Seller; Net Worth. (a) The Seller will not
purchase or redeem any shares of the capital stock of the Seller, declare or pay
any dividends thereon (other than stock dividends), make any distribution to
stockholders or set aside any funds for any such purpose, except that the Seller
may make any such purchase, redemption, declaration, payment or distribution or
set aside any such funds on the Settlement Date for any Settlement Period, after
making any payment required to be made by the Seller on such Settlement Date in
accordance with the last sentence of Section 3.1(c)(ii) and Section 3.1(c)(iii)
if after giving effect to such purchase, redemption, declaration, payment,
distribution or setting aside of funds (A) the sum of (i) the Invested Amount
and (ii) the aggregate of the CP Discounts of all Commercial Paper Notes then
outstanding does not exceed the Purchase Limit, (B) the Asset Interest does not
exceed the Allocation Limit and (C) the Seller's net worth (determined in
accordance with GAAP) is not less than an amount (the "Minimum Amount") equal to
three percent (3%) of the Purchase Limit, as the Purchase Limit may be adjusted
from time to time.
(b) The Seller's net worth (determined in accordance with GAAP) will
at all times be at least equal to the Minimum Amount.
(h) Seller Indebtedness. The Seller will not incur or permit to exist any
indebtedness or liability on account of deposits or advances or for borrowed
money or for the deferred purchase price of any property or services, except (A)
indebtedness of the Seller to the
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Originators incurred in accordance with the Sale Agreement, (B) current accounts
payable arising under or permitted by the Transaction Documents and tax
liabilities of the Seller, neither of which are overdue, (C) indebtedness or
liability of the Seller to any Affiliate in the ordinary course of business as
permitted by the Transaction Documents and (D) other current accounts payable
arising in the ordinary course of business and not overdue, in an aggregate
amount at any time outstanding not to exceed $4,500.
(i) Negative Pledges. No Seller Party will enter into or assume any
agreement (other than this Agreement and the other Transaction Documents)
prohibiting the creation or assumption of any Lien upon any Receivables or
Related Assets, whether now owned or hereafter acquired, except as contemplated
by the Transaction Documents.
(j) Change of Name. The Seller will not change its name or corporate
structure, or commence the use of any new trade name unless it has given the
Administrator at least 30 days' prior written notice thereof and has taken all
steps necessary to continue the perfection of the Purchaser's interest,
including the filing of amendments to the UCC financing statements described in
Section 5.1(e).
(k) Certain Pool Receivables Not to be Evidenced by Promissory Notes. No
Seller Party will take any action to cause or permit any Pool Receivable that is
an Eligible Receivable to become evidenced by any "instrument" (as defined in
the applicable UCC), except in connection with the collection of any Pool
Receivable which is overdue, provided that the original of such instrument is
delivered to the Administrator, duly endorsed.
(l) Mergers and Consolidations.
(i) The Master Servicer will not merge into or consolidate with any
other Person, or permit any other Person to merge into or consolidate with it
other than mergers or consolidations which, immediately after giving effect
thereto, do not result in any Liquidation Event or Unmatured Liquidation Event,
including but not limited to any Change in Control with respect to the Master
Servicer. In the case of any such merger or consolidation in which the Master
Servicer is not the surviving entity, the surviving entity shall assume in
writing the prior, existing and ongoing obligations of the Master Servicer under
this Agreement and each other Transaction Document and shall deliver to the
Administrator such legal opinions related to such transactions as the
Administrator shall reasonably require.
(ii) The Seller will not merge into or consolidate with any other
Person, or permit any other Person to merge into or consolidate with it, or
purchase, lease or otherwise acquire (in one transaction or a series of
transactions) all or substantially all of the assets of any other Person
(whether directly by purchase, lease or other acquisition of all or
substantially all of the assets of such Person or indirectly by Purchase or
other acquisition of all or substantially all of the capital stock of such other
Person) other than the acquisition of the Pool Receivables and Related Assets
pursuant to the Sale Agreement and the sale of an interest in the Pool
Receivables and Related Assets hereunder.
(m) Disposition of Assets. The Master Servicer will not sell, lease,
transfer, assign or otherwise dispose of (in one transaction or in a series of
transactions), in any fiscal year, assets
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(whether now owned or hereafter acquired) which exceed 10% of the assets of the
Master Servicer as of the end of the most recent fiscal year, computed and
consolidated in accordance with GAAP consistently applied.
Section 7.4. Separate Corporate Existence of the Seller.
Each Seller Party hereby acknowledges that the Purchaser and the
Administrator are entering into the transactions contemplated hereby in reliance
upon the Seller's identity as a legal entity separate from the Master Servicer
and its other Affiliates. Therefore, each Seller Party shall take all steps
specifically required by this Agreement or reasonably required by the
Administrator to continue the Seller's identity as a separate legal entity and
to make it apparent to third Persons that the Seller is an entity with assets
and liabilities distinct from those of its Affiliates, and is not a division of
the Master Servicer, any of the Originators or any other Person. Without
limiting the foregoing, the Seller will:
(i) Maintain its own deposit account or accounts, separate from
those of any Affiliate, with commercial banking institutions and ensure
that the funds of the Seller will not be diverted to any other Person or
for other than corporate uses of the Seller, nor will such funds be
commingled with the funds of any Originator or any Subsidiary or Affiliate
of any Originator;
(ii) To the extent that it shares the same officers or other
employees as any of its stockholders or Affiliates, the salaries of and
the expenses related to providing benefits to such officers and other
employees shall be fairly allocated among such entities, and each such
entity shall bear its fair share of the salary and benefit costs
associated with all such common officers and employees;
(iii) To the extent that it jointly contracts with any of its
Affiliates to do business with vendors or service providers or to share
overhead expense, the costs incurred in so doing shall be allocated fairly
among such entities, and each such entity shall bear its fair share of
such costs. To the extent that the Seller contracts or does business with
vendors or service providers where the goods and services provided are
partially for the benefit of any Affiliate, the costs incurred in so doing
shall be fairly allocated to or among such entities for whose benefit the
goods or services are provided, and each such entity shall bear its fair
share of such costs. All material transactions between the Seller and any
of its Affiliates, whether currently existing or hereafter entered into,
shall be only on an arm's length basis;
(iv) To the extent that the Seller and any of its stockholders or
Affiliates have offices in the same location, overhead costs shall be
allocated fairly among them, and each such entity shall bear its fair
share of such expenses;
(v) Issue separate financial statements prepared not less frequently
than quarterly and prepared in accordance with GAAP;
(vi) Conduct its affairs strictly in accordance with its certificate
of incorporation and observe all necessary, appropriate and customary
corporate formalities,
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including, but not limited to, holding all regular and special
stockholders' and directors' meetings appropriate to authorize all
corporate action, keeping separate and accurate minutes of its meetings,
passing all resolutions or consents necessary to authorize actions taken
or to be taken, and maintaining accurate and separate books, records and
accounts, including, but not limited to, payroll and intercompany
transaction accounts;
(vii) Not assume or guarantee any of the liabilities of any
Originator, the Master Servicer or any Affiliate thereof; and
(viii) Take, or refrain from taking, as the case may be, all other
actions that are necessary to be taken or not to be taken in order to (x)
ensure that the assumptions and factual recitations (including those
contained in the factual certificate referred to in such opinion) set
forth in the legal opinion of Davis Polk and Wardwell relating to certain
bankruptcy matters delivered on the date of the initial Purchase remain
true and correct with respect to the Seller and (y) comply with those
procedures described in such provisions which are applicable to the
Seller.
ARTICLE VIII
ADMINISTRATION AND COLLECTION
Section 8.1. Designation of Master Servicer.
(a) LFI Servicing as Initial Master Servicer. The servicing,
administration and collection of the Pool Receivables shall be conducted by the
Person designated as Master Servicer hereunder from time to time in accordance
with this Section 8.1. Until the Administrator, on the Purchaser's behalf, gives
to LFI Servicing a Successor Notice (as defined in Section 8.1(b)), LFI
Servicing is hereby designated as, and hereby agrees to perform the duties and
obligations of, Master Servicer pursuant to the terms hereof. Each of the
Originators named in the Sale Agreement, with the exception of Drexel Heritage
Home Inspirations, Inc., agrees to act as subservicer for the purpose of
performing certain duties and obligations with respect to all Receivables
purchased by the Seller from such Originator pursuant to the terms of the Sale
Agreement. In so acting as subservicer, each of such Originators shall comply
with, and agrees to be bound by, all of the terms and provisions of this
Agreement applicable to such Originator in the performance of its duties as
subservicer; provided, however, that each such Originator (i) shall cease to act
as subservicer upon the Administrator's delivery of a Successor Notice to LFI
Servicing (with a copy to each such Originator), (ii) shall not be entitled to
receive any Servicer's Fee provided for herein, and (iii) shall not be bound by,
or be deemed to have made, any of the representations, warranties or covenants
in Articles VI and VII applicable to the "Seller Parties," except as expressly
provided in the Sale Agreement.
(b) Successor Notice; Servicer Transfer Events. Upon LFI Servicing's
receipt of a notice from the Administrator of the Administrator's designation,
on the Purchaser's behalf, of a new Master Servicer (a "Successor Notice"), LFI
Servicing agrees that it will terminate its activities as Master Servicer
hereunder in a manner that the Administrator believes will facilitate the
transition of the performance of such activities to the new Master Servicer, and
the Administrator (or its designee) shall assume each and all of LFI Servicing's
obligations to
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service and administer the Pool Receivables, on the terms and subject to the
conditions herein set forth, and LFI Servicing shall use its best efforts to
assist the Administrator (or its designee) in assuming such obligations. Without
limiting the foregoing, LFI Servicing agrees, at its expense, to take all
actions necessary to provide the new Master Servicer with access to all computer
software necessary or useful in collecting or billing Pool Receivables, solely
for use in collecting and billing Pool Receivables. The Administrator agrees not
to give LFI Servicing a Successor Notice until after the occurrence and during
the continuance of any Liquidation Event or Servicer Default (any such event
being herein called a "Servicer Transfer Event"), in which case such Successor
Notice may be given at any time in the Administrator's discretion. If LFI
Servicing disputes the occurrence of a Servicer Transfer Event, LFI Servicing
may take appropriate action to resolve such dispute; provided that LFI Servicing
must terminate its activities hereunder as Master Servicer and allow the newly
designated Master Servicer to perform such activities on the date provided by
the Administrator as described above, notwithstanding the commencement or
continuation of any proceeding to resolve the aforementioned dispute, if the
Administrator, on the Purchaser's behalf, reasonably determines, in good faith,
that such termination is necessary or advisable to protect the Purchaser's
interests hereunder.
(c) Subcontracts. The Master Servicer may, with the prior consent of the
Administrator, subcontract with any other Person (including the Originators) for
servicing, administering or collecting the Pool Receivables, provided that the
Master Servicer shall remain liable for the performance of the duties and
obligations of the Master Servicer pursuant to the terms hereof and such
subservicing arrangement may be terminated at the Administrator's request, on
the Purchaser's behalf, at any time after a Successor Notice has been given.
Section 8.2. Duties of Master Servicer.
(a) Appointment; Duties in General. Each of the Seller, the Purchaser and
the Administrator hereby appoints as its agent the Master Servicer, as from time
to time designated pursuant to Section 8.1, to enforce its rights and interests
in and under the Pool Receivables and the Related Security. The Master Servicer
shall take or cause to be taken all such actions as may be necessary or
advisable to collect each Pool Receivable from time to time, all in accordance
with applicable laws, rules and regulations, with reasonable care and diligence,
and in accordance with the Credit and Collection Policy.
(b) Allocation of Collections; Segregation. The Master Servicer shall
identify for the account of the Seller and the Purchaser their respective
allocable shares of the Collections of Pool Receivables in accordance with
Section 1.3 but shall not be required to segregate the funds constituting such
portions of such Collections prior to the remittance thereof in accordance with
said Section.
(c) Modification of Pool Receivables. The Master Servicer shall not
extend, rescind, cancel, amend or otherwise modify, or attempt or purport to
extend, rescind, cancel, amend or otherwise modify, the terms of, or grant any
Dilution Adjustment to, any Pool Receivable, or otherwise take any action that
is intended to cause or permit a Pool Receivable that is an Eligible Receivable
to cease to be an Eligible Receivable, except in any such case (but only so long
as the Master Servicer is an Affiliate of the Seller) (i) in accordance with the
terms of the Credit and
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Collection Policy, (ii) as required by any requirement of law or (iii) in the
case of any Dilution Adjustments, upon the payment by or on behalf of the Seller
of a Deemed Collection in the amount of such Dilution Adjustment pursuant to
Section 3.4 of this Agreement.
(d) Documents and Records. Each Seller Party shall deliver to the Master
Servicer, and the Master Servicer shall hold in trust for the Seller and the
Purchaser in accordance with their respective interests, all documents,
instruments and records (including, without limitation, computer tapes or disks)
that evidence or relate to Pool Receivables.
(e) Certain Duties to the Seller. The Master Servicer shall, as soon as
practicable following receipt, (i) turn over to the Seller that portion of
Collections of Pool Receivables representing its undivided percentage interest
therein, less the Seller's Share of the Servicer's Fee, and, in the event that
neither LFI Servicing nor any other Seller Party or Affiliate thereof is the
Master Servicer, all reasonable and appropriate out-of-pocket costs and expenses
of the Master Servicer of servicing, collecting and administering the Pool
Receivables to the extent not covered by the Servicer's Fee received by it, and
(ii) turn over to the applicable Originator the Collections of any Receivable
which is not a Pool Receivable. The Master Servicer, if other than LFI Servicing
or any other Seller Party or Affiliate thereof, shall, as soon as practicable
upon demand, deliver to the Seller all documents, instruments and records in its
possession that evidence or relate to Receivables of the Seller other than Pool
Receivables, and copies of documents, instruments and records in its possession
that evidence or relate to Pool Receivables.
(f) Termination. The Master Servicer's authorization under this Agreement
shall terminate upon the Final Payout Date.
(g) Power of Attorney. The Seller hereby grants to the Master Servicer an
irrevocable power of attorney, with full power of substitution, coupled with an
interest, to take in the name of the Seller all steps which are necessary or
advisable to endorse, negotiate or otherwise realize on any writing or other
right of any kind held or transmitted by the Seller or transmitted or received
by the Purchaser (whether or not from the Seller) in connection with any Pool
Receivable.
Section 8.3. Servicer Advances.
If on any day the Master Servicer determines that any payment (or portion
thereof) which was due and payable pursuant to a Pool Receivable or a Contract
in the Receivables Pool was not received on the date due prior to the end of
such Settlement Period, the Master Servicer may make an advance on any day
pursuant to Section 1.3(d) in an amount up to the amount of such delinquent
payment (or portion thereof) (any such advance, a "Servicer Advance"). The
Master Servicer may elect not to make a Servicer Advance with respect to any
Pool Receivable or related Contract if the Master Servicer determines (such
determination to be conclusive and binding) in good faith that such Servicer
Advance will not ultimately be recoverable from future collections on, or the
liquidation of, the Receivables Pool (herein referred to as "nonrecoverable").
The Master Servicer will deposit any Servicer Advances into the Collection
Account on or prior to 12:00 p.m. (Atlanta, Georgia time) on the date necessary
to make any
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payment required to be made under Section 3.1. All Servicer Advances shall be
made by wire transfer in immediately available funds.
Section 8.4. Servicer Defaults.
If any one of the following events (a "Servicer Default") shall occur and
be continuing:
(a) any failure by the Master Servicer to make any payment, transfer or
deposit or to give instructions or notice to the Administrator as required by
this Agreement including, without limitation, delivery of any Settlement Report
and, (i) in the case of failure to deliver a Settlement Report, such failure
shall remain unremedied for two (2) Business Days after the earlier to occur of
(A) written notice thereof by the Administrator to the Master Servicer or (B)
knowledge by the Master Servicer of such failure and (ii) in the case of failure
to make any payment, transfer or deposit to be made by the Master Servicer or to
give instructions or notice to the Administrator (other than delivery of any
Settlement Report) such failure shall remain unremedied for one (1) Business Day
after the earlier to occur of (A) written notice thereof by the Administrator to
the Master Servicer or (B) knowledge by the Master Servicer of such failure;
(b) any failure on the part of the Master Servicer duly to observe or
perform in any material respect any other covenants or agreements of the Master
Servicer set forth in this Agreement or the Sale Agreement, which continues
unremedied for a period of 30 days after the first to occur of (i) the date on
which written notice of such failure requiring the same to be remedied shall
have been given to the Master Servicer by the Administrator and (ii) the date on
which the Master Servicer obtains knowledge of such failure;
(c) any representation, warranty or certification made by the Master
Servicer in this Agreement or in any certificate delivered pursuant to this
Agreement shall prove to have been incorrect when made, which continues to be
unremedied for a period of 30 days after the first to occur of (i) the date on
which written notice of such incorrectness requiring the same to be remedied
shall have been given to the Master Servicer by the Administrator and (ii) the
date on which the Master Servicer obtains knowledge of such incorrectness;
(d) any Event of Bankruptcy occurs with respect to the Master Servicer (if
other than LFI Servicing or its Affiliates); or
(e) any merger or consolidation of the Master Servicer in which the Master
Servicer is not the surviving entity, except as provided in Section 7.3(l).
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Notwithstanding anything herein to the contrary, so long as any such Servicer
Default shall not have been remedied, the Administrator, by written notice to
the Master Servicer (a "Termination Notice"), may terminate all of the rights
and obligations of the Master Servicer as Master Servicer under this Agreement
and appoint a successor Master Servicer satisfactory to the Administrator (in
the Administrator's sole discretion).
Section 8.5. Rights of the Administrator.
(a) Notice to Obligors. At any time when a Liquidation Event has occurred
and has not been waived by the Administrator, the Administrator may notify the
Obligors of Pool Receivables, or any of them, of the ownership of the Asset
Interest by the Purchaser.
(b) Notice to Lock-Box Banks. At any time following the occurrence of a
Liquidation Event, if Lock-Box Agreements have been executed, the Administrator
is hereby authorized to give notice to the Lock-Box Banks, as provided in the
Lock-Box Agreements, of the transfer to the Administrator of dominion and
control over the lock-boxes and related accounts to which the Obligors of Pool
Receivables make payments. The Seller and the Master Servicer hereby transfer to
the Administrator, effective when the Administrator shall give notice to the
Lock-Box Banks as provided in the Lock-Box Agreements, the exclusive dominion
and control over such lock-boxes and accounts, and shall take any further action
that the Administrator may reasonably request to effect such transfer.
(c) Rights on Servicer Transfer Event. At any time following the
designation of a Master Servicer other than LFI Servicing pursuant to Section
8.1:
(i) The Administrator may direct the Obligors of Pool Receivables,
or any of them, to pay all amounts payable under any Pool Receivable
directly to the Administrator or its designee.
(ii) Any Seller Party shall, at the Administrator's request and at
such Seller Party's expense, give notice of the Purchaser's ownership and
security interests in the Pool Receivables to each Obligor of Pool
Receivables and direct that payments be made directly to the Administrator
or its designee.
(iii) Each Seller Party shall, at the Administrator's request, (A)
assemble all of the documents, instruments and other records (including,
without limitation, computer programs, tapes and disks) which evidence the
Pool Receivables, and the Related Security (if any), or which are
otherwise necessary or desirable to collect such Pool Receivables, and
make the same available to the successor Master Servicer at a place
selected by the Administrator, and (B) segregate all cash, checks and
other instruments received by it from time to time constituting
Collections of Pool Receivables in a manner acceptable to the
Administrator and promptly upon receipt, remit all such cash, checks and
instruments, duly endorsed or with duly executed instruments of transfer,
to the successor Master Servicer.
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(iv) Each Seller Party and the Purchaser hereby authorizes the
Administrator, on the Purchaser's behalf, and grants to the Administrator
an irrevocable power of attorney (which shall terminate on the Final
Payout Date), to take any and all steps in such Seller Party's name and on
behalf of the Seller Parties and the Purchaser which are necessary or
desirable, in the determination of the Administrator, to collect all
amounts due under any and all Pool Receivables, including, without
limitation, endorsing any Seller Party's name on checks and other
instruments representing Collections and enforcing such Pool Receivables
and the related Contracts.
Section 8.6. Responsibilities of the Seller Parties.
Anything herein to the contrary notwithstanding:
(a) Contracts. Each Seller Party shall remain responsible for performing
all of its obligations (if any) under any Contracts related to the Pool
Receivables and under any related agreements to the same extent as if the Asset
Interest had not been sold hereunder, and the exercise by the Administrator or
its designee of its rights hereunder shall not relieve any Seller Party from
such obligations.
(b) Limitation of Liability. The Administrator and the Purchaser shall not
have any obligation or liability with respect to any Pool Receivables, the
Contracts (if any) related thereto or any other related agreements, nor shall
any of them be obligated to perform any of the obligations of any Seller Party
or any Originator thereunder.
Section 8.7. Further Action Evidencing Purchases and Reinvestments.
(a) Further Assurances. Each Seller Party agrees that from time to time,
at its expense, it will promptly execute and deliver all further instruments and
documents, and take all further action that the Administrator or its designee
may reasonably request in order to perfect, protect or more fully evidence the
Purchases hereunder and the resulting Asset Interest, or to enable the Purchaser
or the Administrator or its designee to exercise or enforce any of their
respective rights hereunder or under any Transaction Document in respect
thereof. Without limiting the generality of the foregoing, each Seller Party
will:
(i) upon the request of the Administrator, execute and file such
financing or continuation statements, or amendments thereto or assignments
thereof, and such other instruments or notices, as may be necessary or
appropriate, in accordance with the terms of this Agreement;
(ii) [reserved];
(iii) within 60 days after the date hereof, (A) mark its master data
processing records evidencing such Pool Receivables and related Contracts
(if any) with a legend, acceptable to the Administrator, that appears on
the initial log-in screen for all users who have access to such records
evidencing that the Asset Interest has been sold in accordance with this
Agreement and (B) file all printed reports in binders bearing the same
legend.
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(b) Additional Financing Statements; Performance by Administrator. Each
Seller Party hereby authorizes the Administrator, on the Purchaser's behalf, or
its designee to file one or more financing or continuation statements, and
amendments thereto and assignments thereof, relative to all or any of the Pool
Receivables and the Related Assets now existing or hereafter arising. If any
Seller Party fails to promptly execute and deliver to the Administrator, on the
Purchaser's behalf, any financing statement or continuation statement or
amendment thereto or assignment thereof requested by the Administrator, on the
Purchaser's behalf, each Seller Party hereby authorizes the Administrator, on
the Purchaser's behalf, to execute such statement on behalf of such Seller
Party. If any Seller Party fails to perform any of its agreements or obligations
under this Agreement, the Administrator or its designee may (but shall not be
required to) itself perform, or cause performance of, such agreement or
obligation, and the reasonable expenses of the Administrator or its designee
incurred in connection therewith shall be payable by the Seller Parties as
provided in Section 14.5.
(c) Continuation Statements; Opinion. Without limiting the generality of
subsection (a), the Seller will, not earlier than six (6) months and not later
than three (3) months prior to the fifth anniversary of the date of filing of
the financing statements referred to in Section 5.1(e) or any other financing
statement filed pursuant to this Agreement or in connection with any Purchase
hereunder, if the Final Payout Date shall not have occurred:
(i) execute and deliver and file or cause to be filed an appropriate
continuation statement with respect to such financing statement; and
(ii) deliver or cause to be delivered to the Administrator an
opinion of the counsel for the Seller Parties, in form and substance
reasonably satisfactory to the Administrator, confirming and updating the
opinions delivered pursuant to Section 5.1(h) to the effect that the Asset
Interest hereunder continues to be a valid and perfected ownership or
security interest, subject to no other Liens of record except as provided
herein or otherwise permitted hereunder.
Section 8.8. Application of Collections.
Any payment by an Obligor in respect of any indebtedness owed by it to the
Originator or the Seller shall, except as otherwise specified by such Obligor or
required by the underlying Contract or law, be applied, first, as a Collection
of any Pool Receivable or Receivables then outstanding of such Obligor in the
order of the age of such Pool Receivables, starting with the oldest of such Pool
Receivables and, second, to any other indebtedness of such Obligor.
ARTICLE IX
SECURITY INTEREST
Section 9.1. Grant of Security Interest.
To secure all obligations of the Seller arising in connection with this
Agreement and each other Transaction Document, whether now or hereafter
existing, due or to become due, direct or indirect, or absolute or contingent,
including, without limitation, all Indemnified Amounts,
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payments on account of Collections received or deemed to be received and fees,
in each case pro rata according to the respective amounts thereof, the Seller
hereby assigns and pledges to the Purchaser and its successors and assigns, for
the benefit of the Secured Parties, and hereby grants to the Purchaser, for the
benefit of the Secured Parties, a security interest in, all of the Seller's
right, title and interest now or hereafter existing in, to and under (a) all the
Pool Receivables and Related Assets (and including specifically any undivided
interest therein retained by the Seller hereunder), (b) the Sale Agreement and
the other Transaction Documents and (c) all proceeds of any of the foregoing.
Section 9.2. Further Assurances.
The provisions of Section 8.7 shall apply to the security interest granted
under Section 9.1 as well as to the Purchases, Reinvestments and all the Asset
Interests hereunder.
Section 9.3. Remedies.
Upon the occurrence of a Liquidation Event, the Purchaser shall have, with
respect to the collateral granted pursuant to Section 9.1, and in addition to
all other rights and remedies available to the Purchaser or the Administrator
under this Agreement and the other Transaction Documents or other applicable
law, all the rights and remedies of a secured party upon default under the UCC.
ARTICLE X
LIQUIDATION EVENTS
Section 10.1. Liquidation Events. The following events shall be
"Liquidation Events" hereunder:
(a) The Master Servicer (if any Seller Party or Affiliate thereof is the
Master Servicer) or the Seller (i) shall fail to perform or observe any term,
covenant or agreement that is an obligation of the Master Servicer hereunder
(other than as referred to in clause (ii) below or in other paragraphs of this
Section 10.1) and such failure shall remain unremedied for thirty (30) days
after written notice thereof shall have been given by the Administrator to the
Master Servicer, (ii) shall fail to make any payment or deposit to be made by it
pursuant to Section 3.1(b) when due which failure shall continue for two (2)
Business Days after the due date therefor, or (iii) shall fail to make any other
payment or deposit to be made by it hereunder when due which failure shall
continue for five (5) Business Days after the due date therefor; or
(b) Any representation or warranty made by any Seller Party or any
Originator (or any of its officers) under this Agreement or any other
Transaction Document or any Settlement Report or other information or report
delivered pursuant hereto shall prove to have been false or incorrect in any
material respect when made; provided, however, that except as provided in this
clause (b), if such representation or warranty that shall have proven to have
been false or incorrect in a material respect when made is susceptible of a
cure, such representation or warranty is not so cured by the earlier of (i)
thirty (30) days from the date that the party making such representation or
warranty becomes aware of its incorrectness, or (ii) thirty (30) days from
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the date such party is given notice thereof; provided, further, however, that
such cure period shall not be available for the representations and warranties
made in Sections 6.1(d), 6.1(l), 6.1(p), 6.1(v) and 6.1(w) hereof, and the
representations and warranties made in Sections 5.1(d), 5.1(l) or 5.1(p) of the
Sale Agreement; and provided, further, however, that a Liquidation Event shall
not be deemed to have occurred under this Section 10.1(b) if the incorrectness
of such representation or warranty gives rise to an obligation by the Seller to
repurchase or make an adjustment payment in respect of the related Receivables
and the Seller has repurchased or made such adjustment payment in respect of the
related Receivable or all such Receivables, if applicable, in accordance with
the provisions of this Agreement within ten (10) Business Days of when the
Seller was obligated to do so; or
(c) Any Seller Party or any Originator shall fail to perform or observe
any other term, covenant or agreement contained in this Agreement or any of the
other Transaction Documents on its part to be performed or observed and any such
failure shall remain unremedied for thirty (30) days after written notice
thereof shall have been given by the Administrator to such Seller Party or
Originator; or
(d) (i) Either Seller Party shall (A) fail to pay any principal or
interest, regardless of amount, due in respect of any Indebtedness when the
aggregate unpaid principal amount is in excess of $10,000.00, when and as the
same shall become due and payable (after expiration of any applicable grace
period) or (B) fail to observe or perform any other term, covenant, condition or
agreement (after expiration of any applicable grace period) contained in any
agreement or instrument evidencing or governing any such Indebtedness if the
effect of any failure referred to in this clause (B) is to cause, or permit the
holder or holders of such Indebtedness or a trustee on its or their behalf (with
or without the giving of notice, the lapse of time or both) to cause, such
Indebtedness to become due prior to its stated maturity, or (ii) any Originator
shall (A) fail to pay any principal or interest, regardless of amount, due in
respect of any Indebtedness under the Restated Credit Agreement dated as of
August 15, 1997 (as amended, restated or otherwise modified from time to time,
the "Credit Agreement") among LFI, FII, the subsidiary borrowers party thereto,
and the lenders and agents party thereto, when and as the same shall become due
and payable (after expiration of any applicable grace period) or (B) fail to
observe or perform any other term, covenant, condition or agreement (after
expiration of any applicable grace period) contained in the Credit Agreement if
the effect of any failure referred to in this clause (ii) is to
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cause, the holder or holders of such Indebtedness, or a trustee on its or their
behalf to cause, such Indebtedness to become due prior to its stated maturity.
(e) An Event of Bankruptcy shall have occurred and remain continuing with
respect to any Seller Party or any Originator; or
(f) The Dilution Ratio at any Cut-Off Date exceeds 6.3%; or
(g) The Default Ratio at any Cut-Off Date exceeds 2.0%; or
(h) The Delinquency Ratio at any Cut-Off Date exceeds 2.55%; or
(i) On any Settlement Date, after giving effect to the payments made under
Section 3.1(c), (i) the Asset Interest exceeds 100% or (ii) the sum of (A) the
Invested Amount and (B) the aggregate of the CP Discounts of all Commercial
Paper Notes then outstanding exceeds the Purchase Limit, and such event
continues for two (2) Business Days following such Settlement Date; or
(j) There shall have occurred any event which would reasonably be expected
to materially adversely affect (i) the ability of the Seller, the Master
Servicer, or any Originator to perform its obligations under this Agreement or
any other Transaction Document or (ii) the perfection, priority or
enforceability of the Seller's interest in any transferred Receivable or the
Purchaser's interest in the Receivables Pool; or
(k) Any Seller Party or any Originator is subject to a Change in Control,
except in the case of an Originator subject to a Change in Control as to which a
Mandatory Seller Termination Date or Permissive Seller Termination Date has been
declared; or
(l) The Internal Revenue Service shall file notice of a lien in an amount
equal to or greater than $1,000,000 pursuant to Section 6323 of the Internal
Revenue Code with regard to any of the Receivables or Related Assets or against
the Seller (regardless of amount) and such lien shall not have been released
within seven (7) days, or the Pension Benefit Guaranty Corporation shall file
notice of a lien pursuant to Section 4068 of the Employee Retirement Income
Security Act of 1974 with regard to any of the Receivables or Related Assets or
against the Seller; or
(m) Any material adverse change in the Credit and Collection Policy (or,
if different, in the policies as to origination of Receivables) without prior
written notice to and consent by the Administrator; or
(n) The Purchaser, for any reason, does not have a valid, perfected first
priority interest in the Pool Receivables and the Related Assets.
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Section 10.2. Remedies.
(a) Optional Liquidation. Upon the occurrence of a Liquidation Event
(other than a Liquidation Event described in subsection (e) of Section 10.1 with
respect to the Seller), the Administrator shall, at the request, or may with the
consent, of the Purchaser, by notice to the Seller declare the Purchase
Termination Date to have occurred and the Liquidation Period to have commenced.
(b) Automatic Liquidation. Upon the occurrence of a Liquidation Event
described in subsection (e) of Section 10.1 with respect to the Seller, the
Purchase Termination Date shall occur and the Liquidation Period shall commence
automatically.
(c) Additional Remedies. Upon any Purchase Termination Date pursuant to
this Section 10.2, no Purchases or Reinvestments thereafter will be made, and
the Administrator, the Purchaser and Wachovia shall have, in addition to all
other rights and remedies under this Agreement or otherwise, all other rights
and remedies provided under the UCC of each applicable jurisdiction and other
applicable laws, which rights shall be cumulative.
ARTICLE XI
THE ADMINISTRATOR
Section 11.1. Authorization and Action.
Pursuant to agreements entered into with the Administrator, the Purchaser
has appointed and authorized the Administrator (or its designees) to take such
action as agent on its behalf and to exercise such powers under this Agreement
as are delegated to the Administrator by the terms hereof, together with such
powers as are reasonably incidental thereto.
Section 11.2. Administrator's Reliance, Etc.
The Administrator and its directors, officers, agents or employees shall
not be liable for any action taken or omitted to be taken by it or them in good
faith under or in connection with the Transaction Documents (including, without
limitation, the servicing, administering or collecting of Pool Receivables as
Master Servicer pursuant to Section 8.1), except for its or their own breach of
the applicable terms of the Transaction Documents or its or their own gross
negligence or willful misconduct. Without limiting the generality of the
foregoing, the Administrator: (a) may consult with legal counsel (including
counsel for the Seller), independent certified public accountants and other
experts selected by it and shall not be liable for any action taken or omitted
to be taken in good faith by it in accordance with the advice of such counsel,
accountants or experts; (b) makes no warranty or representation to the Purchaser
or any other holder of any interest in Pool Receivables and shall not be
responsible to the Purchaser or any such other holder for any statements,
warranties or representations made by any Seller Party in or in connection with
any Transaction Document; (c) shall not have any duty to ascertain or to inquire
as to the performance or observance of any of the terms, covenants or conditions
of any Transaction Document on the part of any Seller Party or to inspect the
property (including the books and records) of any Seller Party; (d) shall not be
responsible to the Purchaser or any other
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holder of any interest in Pool Receivables for the due execution, legality,
validity, enforceability, genuineness, sufficiency or value of any Transaction
Document; and (e) shall incur no liability under or in respect of this Agreement
by acting upon any notice (including notice by telephone where permitted
herein), consent, certificate or other instrument or writing (which may be by
facsimile or telex) in good faith believed by it to be genuine and signed or
sent by the proper party or parties.
Section 11.3. Wachovia and Affiliates.
Wachovia and any of its Affiliates may generally engage in any kind of
business with any Seller Party or any Obligor, any of their respective
Affiliates and any Person who may do business with or own securities of any
Seller Party or any Obligor or any of their respective Affiliates, all as if
Wachovia were not the Administrator, and without any duty to account therefor to
the Purchaser or any other holder of an interest in Pool Receivables, but in any
event subject to Section 14.7.
ARTICLE XII
ASSIGNMENT OF PURCHASER'S INTEREST
Section 12.1. Restrictions on Assignments.
(a) Except as provided in this Section 12.1, no Seller Party may assign
its rights, or delegate its duties hereunder or any interest herein without the
prior written consent of the Administrator. The Purchaser may not assign its
rights hereunder (although it may delegate its duties hereunder as expressly
indicated herein) or the Asset Interest (or any portion thereof) to any Person
without the prior written consent of the Seller, which consent shall not
unreasonably be withheld; provided, however, that
(i) The Purchaser may assign all of its rights and interests in the
Transaction Documents, together with all its interest in the Asset
Interest, to any Liquidity Bank, Wachovia, or any Affiliate thereof, or to
any "bankruptcy remote" special purpose entity, the business of which is
administered by Wachovia or any Affiliate thereof (which assignee shall
then be subject to this Article XII) (provided, that the Purchaser and
Wachovia agree to retain control of at least 51 percent of the Asset
Interest and agree to notify the Seller of any proposed assignment and
consult with the Seller regarding any objections the Seller may have with
respect to any assignee of the Purchaser or Wachovia);
(ii) The Purchaser may assign and grant a security interest in all
of its rights in the Transaction Documents, together with all of its
rights and interest in the Asset Interest, to the Collateral Agent, to
secure the Purchaser's obligations under or in connection with the
Commercial Paper Notes, the Liquidity Agreement, and certain other
obligations of the Purchaser incurred in connection with the funding of
the Purchases and Reinvestments hereunder, which assignment and grant of a
security interest (and any subsequent assignment by the Collateral Agent)
shall not be considered an "assignment"
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for purposes of Section 12.1(b) or, prior to the enforcement of such
security interest, for purposes of any other provision of this Agreement
(other than Section 12.3); and
(iii) the Master Servicer may delegate its duties provided herein to
any Originator who agrees to act as a Servicer hereunder and assumes in
writing the obligations of the Master Servicer hereunder with respect to
that portion of the Pool Receivables originated by such Originator.
(b) The Seller agrees to advise the Administrator, within five Business
Days after notice to the Seller of any proposed assignment by the Purchaser of
the Asset Interest (or any portion thereof) not otherwise permitted under
subsection (a), of the Seller's consent or non-consent to such assignment, and
if it does not consent, the reasons therefor. If the Seller does not consent to
such assignment, the Purchaser may immediately or at any time thereafter assign
such Asset Interest (or portion thereof) to any Person or Persons permitted
under clause (i) of Section 12.1(a).
Section 12.2. Rights of Assignee.
Upon the assignment by the Purchaser in accordance with this Article XII,
the assignee receiving such assignment shall have all of the rights of the
Purchaser with respect to the Transaction Documents and the Asset Interest (or
such portion thereof as has been assigned).
Section 12.3. Terms and Evidence of Assignment.
Any assignment of the Asset Interest (or any portion thereof) to any
Person that is otherwise permitted under this Article XII shall be upon such
terms and conditions as the Purchaser and the assignee may mutually agree, and
may be evidenced by such instrument(s) or document(s) as may be satisfactory to
the Purchaser, the Administrator and the assignee.
Section 12.4. Rights of Collateral Agent.
The Seller hereby agrees that, upon notice to the Seller, the Collateral
Agent or the Liquidity Banks (as provided in the Liquidity Agreement) may
exercise all the rights of the Administrator and the Purchaser hereunder, with
respect to the Asset Interest (or any portions thereof), and Collections with
respect thereto, which are owned by the Purchaser, and all other rights and
interests of the Purchaser in, to or under this Agreement or any other
Transaction Document. Without limiting the foregoing, upon such notice or at any
time thereafter (but subject to any conditions applicable to the exercise of
such rights by the Administrator), the Collateral Agent or the Liquidity Banks
(as provided in the Liquidity Agreement) may request the Master Servicer to
segregate the Purchaser's allocable shares of Collections from the Seller's
allocable share, may give a Successor Notice pursuant to and in accordance with
Section 8.1(b), may give or require the Administrator to give notice to the
Lock-Box Banks as referred to in Section 8.5(b) and may direct the Obligors of
Pool Receivables to make payments in respect thereof directly to an account
designated by them, in each case, to the same extent as the Administrator might
have done.
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ARTICLE XIII
INDEMNIFICATION
Section 13.1. Indemnities by the Seller.
(a) General Indemnity. Without limiting any other rights which any such
Person may have hereunder or under applicable law, but without duplication for
amounts paid by the Master Servicer under Section 13.2, the Seller hereby agrees
to indemnify each of Wachovia, both individually and as the Administrator, the
Purchaser, the Liquidity Banks, the Liquidity Agent, each of their respective
Affiliates, and all successors, transferees, participants and assigns and all
officers, directors, shareholders, controlling persons, employees and agents of
any of the foregoing (each an "Indemnified Party"), forthwith on demand, from
and against any and all damages, losses, claims, liabilities and related costs
and expenses, including reasonable attorneys' fees and disbursements (all of the
foregoing being collectively referred to as "Indemnified Amounts") awarded
against or incurred by any of them in connection with or relating to the
Transaction Documents or the ownership or funding of the Asset Interest or in
respect of any Pool Receivable or any related Contract, excluding, however, (a)
Indemnified Amounts to the extent determined by a court of competent
jurisdiction to have resulted from gross negligence or willful misconduct on the
part of such Indemnified Party or (b) recourse (except as otherwise specifically
provided in this Agreement) for nonpayment due to credit problems of the
Obligor. Without limiting the foregoing but subject to the foregoing exclusion,
the Seller shall indemnify each Indemnified Party for Indemnified Amounts
relating to:
(i) the transfer by any Seller Party of any interest in any Pool
Receivable other than the transfer of Pool Receivables and related
property by the Originator to the Seller pursuant to the Sale Agreement,
the transfer of the Asset Interest to the Purchaser pursuant to this
Agreement and the grant of a security interest to the Purchaser pursuant
to Section 9.1;
(ii) any representation or warranty made by any Seller Party (or any
of its officers) under or in connection with any Transaction Document, any
Settlement Report or any other information or report delivered by or on
behalf of any Seller Party pursuant hereto, which shall have been false,
incorrect or misleading in any material respect when made or deemed made
or delivered, as the case may be;
(iii) the failure by any Seller Party to comply with any applicable
law, rule or regulation with respect to any Pool Receivable or any related
Contract, or the nonconformity of any Pool Receivable or any related
Contract with any such applicable law, rule or regulation, or the failure
of the Seller to be qualified as a foreign corporation in good standing in
jurisdictions in which the conduct of its business requires such
qualification;
(iv) the failure to vest and maintain vested in the Purchaser an
undivided percentage ownership interest, to the extent of the Asset
Interest, in the Receivables in, or purporting to be in, the Receivables
Pool, free and clear of any Lien, other than (x) Permitted Liens or (y) a
Lien arising solely as a result of an act of the Purchaser or the
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Administrator, whether existing at the time of any Purchase or
Reinvestment of the Asset Interest or at any time thereafter;
(v) the failure by any Seller Party to file, or any delay by any
Seller Party in filing, financing statements or other similar instruments
or documents under the UCC of any applicable jurisdiction or other
applicable laws with respect to any Receivables in, or purporting to be
in, the Receivables Pool, whether at the time of any Purchase or
Reinvestment or at any time thereafter;
(vi) any dispute, claim, offset or defense (other than nonpayment
due to credit problems of the Obligor) of the Obligor to the payment of
any Receivable in, or purporting to be in, the Receivables Pool
(including, without limitation, a defense based on such Receivables or the
related Contract not being a legal, valid and binding obligation of such
Obligor enforceable against it in accordance with its terms), or any other
claim resulting from the sale of the merchandise or services related to
such Receivable or the furnishing or failure to furnish such merchandise
or services;
(vii) any matter described in clause (i) or (ii) of Section 3.2(a);
(viii) any failure of any Seller Party, as Master Servicer or
otherwise, to perform its duties or obligations in accordance with the
provisions of Article III or Article VIII;
(ix) any products liability claim arising out of or in connection
with merchandise or services that are the subject of any Pool Receivable;
(x) any claim of breach by any Seller Party of any related Contract
(if any) with respect to any Pool Receivable; or
(xi) any tax or governmental fee or charge (but not including
Excluded Taxes), all interest and penalties thereon or with respect
thereto, and all out-of-pocket costs and expenses, including the
reasonable fees and expenses of counsel in defending against the same,
which may arise by reason of the purchase or ownership of any Asset
Interest, or any other interest in the Pool Receivables or in any Related
Security;
provided, that for purposes of clauses (i), (ii), (iii), (v), (viii) and (x)
above, the term "Seller Party" shall only include the Master Servicer to the
extent it is an Affiliate of the Seller.
(b) Contest of Tax Claim. If any Indemnified Party shall have notice of
any attempt to impose or collect any tax or governmental fee or charge for which
indemnification will be sought from any Seller Party under Section 13.1(a)(xi),
such Indemnified Party shall give prompt and timely notice of such attempt to
the Seller and, unless such assumption or participation would be inappropriate
due to actual or potential differing interests between the Seller and such
Indemnified Party, the Seller shall have the right, at its expense and upon
written notice to the Indemnified Party, to assume the control of or participate
in the proceedings resisting or objecting to the imposition or collection of any
such tax, governmental fee or charge with counsel of the Seller's choice at its
expense, provided that such counsel shall be reasonably satisfactory to the
Indemnified Party.
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(c) Contribution. If for any reason the indemnification provided above in
this Section 13.1 (and subject to the exceptions set forth therein) is
unavailable to an Indemnified Party or is insufficient to hold an Indemnified
Party harmless, then the Seller shall contribute to the amount paid or payable
by such Indemnified Party as a result of such loss, claim, damage or liability
in such proportion as is appropriate to reflect not only the relative benefits
received by such Indemnified Party on the one hand and the Seller on the other
hand but also the relative fault of such Indemnified Party as well as any other
relevant equitable considerations.
Section 13.2. Indemnities by Master Servicer.
Without limiting any other rights which any Indemnified Party may have
hereunder or under applicable law, the Master Servicer hereby agrees to
indemnify each of the Indemnified Parties forthwith on demand, from and against
any and all Indemnified Amounts awarded against or incurred by any of them
arising out of or relating to the Master Servicer's performance of, or failure
to perform, any of its obligations under or in connection with any Transaction
Document, or any representation or warranty made by the Master Servicer (or any
of its officers) under or in connection with any Transaction Document, any
Settlement Report or any other information or report delivered by or on behalf
of the Master Servicer, which shall have been false, incorrect or misleading in
any material respect when made or deemed made or delivered, as the case may be,
or the failure of the Master Servicer to comply with any applicable law, rule or
regulation with respect to any Pool Receivable or any related Contract.
Notwithstanding the foregoing, in no event shall any Indemnified Party be
awarded any Indemnified Amounts (a) to the extent determined by a court of
competent jurisdiction to have resulted from gross negligence or willful
misconduct on the part of such Indemnified Party or (b) recourse for nonpayment
due to credit problems of the Obligor.
If for any reason the indemnification provided above in this Section 13.2
(and subject to the exceptions set forth therein) is unavailable to an
Indemnified Party or is insufficient to hold an Indemnified Party harmless, then
the Master Servicer shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, claim, damage or liability in such
proportion as is appropriate to reflect not only the relative benefits received
by such Indemnified Party on the one hand and the Master Servicer on the other
hand but also the relative fault of such Indemnified Party as well as any other
relevant equitable considerations.
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ARTICLE XIV
MISCELLANEOUS
Section 14.1. Amendments, Etc.
No amendment or waiver of any provision of this Agreement nor consent to
any departure by any Seller Party therefrom shall in any event be effective
unless the same shall be in writing and signed by (a) each Seller Party, the
Administrator and the Purchaser (with respect to an amendment), or (b) the
Administrator and the Purchaser (with respect to a waiver or consent by them) or
any Seller Party (with respect to a waiver or consent by it), as the case may
be, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given. The parties acknowledge
that, before entering into such an amendment or granting such a waiver or
consent, the Purchaser may also be required to obtain the approval of some or
all of the Liquidity Banks (as provided in Section 7 of the Liquidity Agreement
provided that Section 7(a) of the Liquidity Agreement may not be amended without
the prior written consent of the Seller) or to obtain confirmation from certain
rating agencies that such amendment, waiver or consent will not result in a
withdrawal or reduction of the ratings of the Commercial Paper Notes.
Notwithstanding the foregoing, the Administrator and the Purchaser may effect an
amendment of Sections 10.1(f), 10.1(g) or 10.1(h) together with the definitions
in Appendix A that are applicable to such Sections and the form of Monthly
Report and any other reports required to be delivered hereunder that relate to
or are affected by such Sections to the extent necessary to reflect the payment
characteristics, default characteristics, delinquency characteristics and other
similar characteristics of a terminating Originator, without the consent or
signature of either Seller Party in connection with an exercise of the right to
terminate an Originator under Section 9.3 of the Sale Agreement, such amendment
to be provided in writing by the Administrator to the Seller Parties within
thirty (30) days following the date on which the Administrator is notified of
such termination.
Section 14.2. Notices, Etc.
All notices and other communications provided for hereunder shall, unless
otherwise stated herein, be in writing (including facsimile communication) and
shall be personally delivered or sent by express mail or courier or by certified
mail, postage prepaid, or by facsimile, to the intended party at the address or
facsimile number of such party set forth on Schedule 14.2 or at such other
address or facsimile number as shall be designated by such party in a written
notice to the other parties hereto. All such notices and communications shall be
effective, (a) if personally delivered, sent by express mail or courier, or sent
by certified mail, when received, and (b) if transmitted by facsimile, when
sent, receipt confirmed by telephone or electronic means.
Section 14.3. No Waiver; Remedies.
No failure on the part of the Administrator, any Affected Party, any
Indemnified Party, the Purchaser or any other holder of the Asset Interest (or
any portion thereof) to exercise, and no delay in exercising, any right
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise thereof
or the exercise of any other right. The remedies herein provided are cumulative
and not exclusive of
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any remedies provided by law. Without limiting the foregoing, each of Wachovia,
individually, and as Administrator, the Collateral Agent, and each Liquidity
Bank is hereby authorized by the Seller at any time and from time to time, to
the fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by Wachovia, the Collateral Agent and such
Liquidity Bank to or for the credit or the account of the Seller, now or
hereafter existing under this Agreement, to the Administrator, any Affected
Party, any Indemnified Party or the Purchaser, or their respective successors
and assigns.
Section 14.4. Binding Effect; Survival.
This Agreement shall be binding upon and inure to the benefit of each
Seller Party, the Administrator, the Purchaser and their respective successors
and assigns, and the provisions of Section 4.2 and Article XIII shall inure to
the benefit of the Affected Parties and the Indemnified Parties, respectively,
and their respective successors and assigns; provided, however, nothing in the
foregoing shall be deemed to authorize any assignment not permitted by Section
12.1. This Agreement shall create and constitute the continuing obligations of
the parties hereto in accordance with its terms, and shall remain in full force
and effect until the Final Payout Date. The rights and remedies with respect to
any breach of any representation and warranty made by the Seller pursuant to
Article VI and the indemnification and payment provisions of Article XIII and
Sections 4.2, 14.5, 14.6, 14.7, 14.8 and 14.15 shall be continuing and shall
survive any termination of this Agreement.
Section 14.5. Costs, Expenses and Taxes.
In addition to their obligations under Article XIII, the Seller Parties
jointly and severally agree to pay on demand (subject to such limitations
contained in the Mandate Letter and the Fee Letter):
(a) all costs and expenses incurred by the Administrator, the Collateral
Agent, any Liquidity Bank, the Purchaser and their respective Affiliates in
connection with
(i) the negotiation, preparation, execution and delivery of this
Agreement, the other Transaction Documents or the Liquidity Agreement, any
amendment of or consent or waiver under any of the Transaction Documents
which is requested or proposed by any Seller Party (whether or not
consummated), or the enforcement by any of the foregoing Persons of, or
any actual or claimed breach of, this Agreement or any of the other
Transaction Documents, including, without limitation, the reasonable fees
and expenses of counsel to any of such Persons incurred in connection with
any of the foregoing or in advising such Persons as to their respective
rights and remedies under any of the Transaction Documents in connection
with any of the foregoing, and
(ii) the administration (including periodic auditing as provided for
herein) of this Agreement and the other Transaction Documents, including,
without limitation, all reasonable out-of-pocket expenses (including
reasonable fees and expenses of independent accountants), incurred in
connection with any review of any Seller Party's
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books and records either prior to the execution and delivery hereof or
pursuant to Section 7.2(a) or 7.1(c)(iii); and
(b) all stamp and other taxes and fees payable or determined to be payable
in connection with the execution, delivery, filing and recording of this
Agreement or the other Transaction Documents (and the Seller Parties jointly and
severally agree to indemnify each Indemnified Party against any liabilities with
respect to or resulting from any delay in paying or omission to pay such taxes
and fees).
Section 14.6. No Proceedings.
The Master Servicer hereby agrees that it will not institute against the
Seller, or join any Person in instituting against the Seller, and each Seller
Party, the Master Servicer and Wachovia (individually or as Administrator) each
hereby agrees that it will not institute against the Purchaser, or join any
other Person in instituting against the Purchaser, any insolvency proceeding
(namely, any proceeding of the type referred to in the definition of Event of
Bankruptcy) so long as any Commercial Paper Notes issued by the Purchaser shall
be outstanding or there shall not have elapsed one year plus one day since the
last day on which any such Commercial Paper Notes shall have been outstanding.
Section 14.7. Confidentiality of the Seller Information.
(a) Confidential Seller Information. Each of the Purchaser and the
Administrator acknowledges that certain of the information provided to it by or
on behalf of the Seller Parties in connection with this Agreement and the
transactions contemplated hereby is or may be confidential, and each such party
severally agrees that, unless a Seller Party or an Affiliate thereof shall
otherwise agree in writing, and except as provided in subsection (b), such party
will not disclose to any other person or entity and will take reasonable action
to ensure that its Affiliates, officers, directors, employees, agents and
advisors will not disclose to any other person or entity:
(i) any information regarding, or copies of, any nonpublic financial
statements, reports, schedules and other information about the Seller
Parties, their Affiliates, or their respective businesses, operations,
assets, finances, customers, methods, systems, current and future plans,
and other information relating to the transactions contemplated herein,
furnished by any Originator or any Seller Party or any Affiliate thereof
to the Purchaser or the Administrator; or
(ii) any other information regarding any Originator or any Seller
Party which is designated by any Originator or any Seller Party to such
party in writing as confidential.
(the information referred to in clauses (i) and (ii) above, whether furnished by
any Originator or any Seller Party or any Affiliate thereof or any attorney for
or other representative thereof (each a "Seller Information Provider"), is
collectively referred to as the "Seller Information"); provided, however, the
Seller Information shall not include any information (i) which was publicly
known, or otherwise known by the recipient of such information without
obligation of confidentiality at
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the time of receipt, (ii) which subsequently becomes publicly known through no
act or omission by the recipient of such information, or (iii) which otherwise
becomes known to the recipient of such information other than through disclosure
by a Seller Information Provider or a source actually known to be bound by a
confidentiality agreement or other legal or contractual obligation of
confidentiality with respect to such information.
(b) Disclosure. Notwithstanding subsection (a), each of the Purchaser and
the Administrator may disclose any Seller Information:
(i) to any of such party's officers, directors, employees,
independent attorneys, consultants, advisors, accountants and auditors,
who (A) in the sole discretion of such party, have a need to know such
Seller Information, and (B) are informed by such party of the confidential
nature of the Seller Information and the terms of this Section 14.7 and
have agreed, verbally or otherwise, to be bound by the provisions of this
Section 14.7 (but such party may not disclose Seller Information to any
securities analysts;
(ii) to any Liquidity Bank, any actual or potential assignee of, or
participant in, any rights or obligations of the Purchaser, any Liquidity
Bank or the Administrator under or in connection with this Agreement, who
has agreed to be bound by the provisions of this Section 14.7;
(iii) to any rating agency that maintains a rating for the
Purchaser's commercial paper or is considering the issuance of such a
rating, for the purposes of reviewing the credit of the Purchaser in
connection with such rating;
(iv) to any other party to this Agreement (and any independent
attorneys, consultants and auditors of such party), for the purposes
contemplated hereby; (v) subject to subsection (c), as may be required by
any municipal, state, federal or other regulatory body having or claiming
to have jurisdiction over such party, in order to comply with any law,
order, regulation, regulatory request or ruling applicable to such party;
(vi) subject to subsection (c), in the event such party is legally
compelled (by interrogatories, requests for information or copies,
subpoena, civil investigative demand or similar process) to disclose such
Seller Information; or
(vii) in connection with the enforcement of this Agreement or any
other Transaction Document.
In addition, the Purchaser and the Administrator may disclose on a "no name"
basis (and not disclosing the relative size or market share of the Originators'
businesses in the furniture industry) to any dealer or placement agent for or to
any actual or potential investor in the Purchaser's Commercial Paper Notes
information regarding the nature of this Agreement, the basic terms hereof
(including without limitation the amount and nature of the Purchaser's
commitment and Invested Amount with respect to the Asset Interest and any other
credit enhancement provided by any Seller Party hereunder), the nature, amount
and status of the Pool
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Receivables, and the current and/or historical ratios of losses to liquidations
and/or outstandings with respect to the Receivables Pool.
(c) Legal Compulsion. In the event that the Purchaser or the Administrator
or any of its representatives is required by law or is requested or becomes
legally compelled (by interrogatories, requests for information or documents,
subpoena, civil investigative demand or similar process) to disclose any of the
Seller Information, such party will (or will cause its representatives to):
(i) provide LFI Servicing with prompt written notice so that (A) LFI
Servicing or an Affiliate thereof may seek a protective order or other
appropriate remedy, or (B) LFI Servicing or such Affiliate may, if it so
chooses, agree that such party (or its representatives) may disclose such
Seller Information pursuant to such request or legal compulsion;
(ii) unless LFI Servicing or such Affiliate agrees that such Seller
Information may be disclosed, make a timely objection to the request or
compulsion to provide such Seller Information on the basis that such
Seller Information is confidential and subject to the agreements contained
in this Section 14.7; and
(iii) upon the request of LFI Servicing or such Affiliate, exercise
such rights, if any, available to such party to assist LFI Servicing or
such Affiliate in seeking such protective order or other appropriate
remedy to delay, prevent or limit such disclosure.
In the event such protective order or remedy is not obtained, or LFI Servicing
or such Affiliate agrees that such Seller Information may be disclosed, such
party will furnish only that portion of the Seller Information which (in such
party's good faith judgment) is legally required to be furnished and will
exercise reasonable efforts to obtain reliable assurance that confidential
treatment will be afforded the Seller Information.
(d) Survival. This Section 14.7 shall survive termination of this
Agreement.
(e) Specific Performance. The Purchaser and the Administrator agree that
money damages will not be a sufficient remedy for any breach of this Section
14.7 and that the Seller Parties shall be entitled to specific performance as a
remedy for any such breach. Such remedy shall not be deemed to be the exclusive
remedy for such breach but shall be in addition to all other remedies available
at law or in equity.
Section 14.8. Confidentiality of Program Information.
(a) Confidential Information. Each party hereto acknowledges that
Wachovia, individually and in its capacity as Administrator, regards the
structure of the transactions contemplated by this Agreement to be proprietary,
and each such party agrees that:
(i) it will not disclose without the prior consent of Wachovia
(other than to the directors, employees, auditors, counsel or affiliates
(collectively, "representatives") of such party, each of whom shall be
informed by such party of the confidential nature of
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the Program Information (as defined below) and of the terms of this
Section 14.8), (A) any information (including but not limited to pricing)
in, or copies of, this Agreement, any other Transaction Document including
the Mandate Letter and the term sheet attached thereto or any transaction
contemplated hereby or thereby, (B) any information regarding the
organization, business or operations of the Purchaser generally or the
services performed by Wachovia as the Administrator for the Purchaser, or
(C) any information which is furnished by Wachovia to such party and which
is designated by Wachovia to such party in writing or otherwise as
confidential or not otherwise available to the general public (the
information referred to in clauses (A), (B) and (C) is collectively
referred to as the "Program Information"); provided, however, that such
party may disclose any such Program Information (I) to any other party to
this Agreement (and any independent attorneys, consultants and auditors of
any such party) for the purposes contemplated hereby, (II) as may be
required by any municipal, state, federal or other regulatory body having
or claiming to have jurisdiction over such party, including, without
limitation, the Securities and Exchange Commission, (III) in order to
comply with any law, order, regulation, regulatory request or ruling
applicable to such party, (IV) subject to subsection (c), in the event
such party is legally compelled (by interrogatories, requests for
information or copies, subpoena, civil investigative demand or similar
process) to disclose any such Program Information, or (V) in financial
statements as required by GAAP;
(ii) it will use the Program Information solely for the purposes of
evaluating, administering and enforcing the transactions contemplated by
this Agreement and making any necessary business judgments with respect
thereto; and
(iii) it will, upon demand, return (and cause each of its
representatives to return) to Wachovia, all documents or other written
material received from Wachovia in connection with (a)(i)(B) or (C) above
and all copies thereof made by such party which contain the Program
Information.
(b) Availability of Confidential Information. This Section 14.8 shall be
inoperative as to such portions of the Program Information which are or become
generally available to the public or such party on a nonconfidential basis from
a source other than Wachovia or were known to such party on a nonconfidential
basis prior to its disclosure by Wachovia.
(c) Legal Compulsion to Disclose. Except as otherwise permitted by this
Section 14.8, in the event that any party or anyone to whom such party or its
representatives transmits the Program Information is requested or becomes
legally compelled (by interrogatories, requests for information or documents,
subpoena, civil investigative demand or similar process) to disclose any of the
Program Information, such party will
(i) provide Wachovia with prompt written notice so that Wachovia may
seek a protective order or other appropriate remedy and/or, if it so
chooses, agree that such party may disclose such Program Information
pursuant to such request or legal compulsion;
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(ii) unless Wachovia agrees that such Program Information may be
disclosed, make a timely objection to the request or confirmation to
provide such Program Information on the basis that such Program
Information is confidential and subject to the agreements contained in
this Section 14.8; and
(iii) upon the request of Wachovia, exercise such rights, if any,
available to such party to assist Wachovia in seeking such protective
order or other appropriate remedy to delay, prevent or limit such
disclosure.
In the event that such protective order or other remedy is not obtained, or
Wachovia agrees that such Program Information may be disclosed, such party will
furnish only that portion of the Program Information which (in such party's good
faith judgment) is legally required to be furnished and will exercise reasonable
efforts to obtain reliable assurance that confidential treatment will be
accorded the Program Information. In the event any Seller Party is required to
file a copy of the Fee Letter with the SEC or any other governmental authority,
it will (A) provide Wachovia with prompt written notice of such requirement and
(B) exercise reasonable efforts to obtain reliable assurance that such
governmental authority will give confidential treatment to the Fee Letter.
(d) Survival. This Section 14.8 shall survive termination of this
Agreement.
(e) Specific Performance. The Seller Parties agree that money damages will
not be a sufficient remedy for any breach of this Section 14.8 and that Wachovia
shall be entitled to specific performance as a remedy for any such breach. Such
remedy shall not be deemed to be the exclusive remedy for such breach but shall
be in addition to all other remedies available at law or in equity.
Section 14.9. Captions and Cross References.
The various captions (including, without limitation, the table of
contents) in this Agreement are provided solely for convenience of reference and
shall not affect the meaning or interpretation of any provision of this
Agreement. Unless otherwise indicated, references in this Agreement to any
Section, Appendix, Schedule or Exhibit are to such Section of or Appendix,
Schedule or Exhibit to this Agreement, as the case may be, and references in any
Section, subsection, or clause to any subsection, clause or subclause are to
such subsection, clause or subclause of such Section, subsection or clause.
Section 14.10. Integration.
This Agreement and the other Transaction Documents contain a final and
complete integration of all prior expressions by the parties hereto with respect
to the subject matter hereof and shall constitute the entire understanding among
the parties hereto with respect to the subject matter hereof, superseding all
prior oral or written understandings.
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Section 14.11. Governing Law.
THIS AGREEMENT, INCLUDING THE RIGHTS AND DUTIES OF THE PARTIES HERETO,
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
STATE OF NEW YORK WITHOUT REFERENCE TO PRINCIPLES OF CONFLICTS OF LAW, EXCEPT TO
THE EXTENT THAT THE PERFECTION OF THE INTERESTS OF PURCHASER IN THE POOL
RECEIVABLES OR RELATED PROPERTY IS GOVERNED BY THE LAWS OF A JURISDICTION OTHER
THAN THE STATE OF NEW YORK.
Section 14.12. Waiver Of Jury Trial.
EACH PARTY HERETO HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN
ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT,
ANY OTHER TRANSACTION DOCUMENT OR UNDER ANY AMENDMENT, INSTRUMENT OR DOCUMENT
DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR
ARISING FROM ANY BANKING OR OTHER RELATIONSHIP EXISTING IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT AND AGREES THAT ANY SUCH ACTION OR
PROCEEDING SHALL NOT BE TRIED BEFORE A JURY.
Section 14.13. Consent To Jurisdiction; Waiver Of Immunities.
EACH SELLER PARTY HEREBY ACKNOWLEDGES AND AGREES THAT:
(a) IT IRREVOCABLY (i) SUBMITS TO THE NONEXCLUSIVE JURISDICTION, OF ANY
UNITED STATES FEDERAL COURT, OR, IF FEDERAL JURISDICTION IS NOT AVAILABLE, OF
ANY NEW YORK STATE COURT, IN EITHER CASE SITTING IN NEW YORK COUNTY, NEW YORK,
IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, (ii)
AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND
DETERMINED IN SUCH NEW YORK STATE OR FEDERAL COURT, AND (iii) WAIVES, TO THE
FULLEST EXTENT IT MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO
THE MAINTENANCE OF SUCH ACTION OR PROCEEDING; AND
(b) TO THE EXTENT THAT IT HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM
THE JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE
OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID TO EXECUTION,
EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, IT HEREBY
IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER OR IN
CONNECTION WITH THIS AGREEMENT.
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Section 14.14. Execution in Counterparts.
This Agreement may be executed in any number of counterparts and by the
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which when taken together
shall constitute one and the same Agreement.
Section 14.15. No Recourse Against Other Parties.
The obligations of the Purchaser under this Agreement are solely the
corporate obligations of the Purchaser. No recourse shall be had for the payment
of any amount owing by the Purchaser under this Agreement or for the payment by
the Purchaser of any fee in respect hereof or any other obligation or claim of
or against the Purchaser arising out of or based upon this Agreement, against
Wachovia or against any employee, officer, director, incorporator or stockholder
of the Purchaser. For purposes of this Section 14.15, the term "Wachovia" shall
mean and include Wachovia Bank, N.A. and all affiliates thereof and any
employee, officer, director, incorporator, stockholder or beneficial owner of
any of them; provided, however, that the Purchaser shall not be considered to be
an affiliate of Wachovia for purposes of this paragraph. Each of the Seller, the
Master Servicer and the Administrative Agent agrees that the Purchaser shall be
liable for any claims that such party may have against the Purchaser only to the
extent the Purchaser has excess funds and to the extent such assets are
insufficient to satisfy the obligations of the Purchaser hereunder, the
Purchaser shall have no liability with respect to any amount of such obligations
remaining unpaid and such unpaid amount shall not constitute a claim against the
Purchaser. Any and all claims against the Purchaser or the Administrative Agent
shall be subordinate to the claims of the holders of Commercial Paper Notes and
the Liquidity Banks.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective officers thereunto duly authorized, as of the date first
above written.
LFI RECEIVABLES CORPORATION,
as the Seller
By:______________________________________
Title:
LFI SERVICING CORPORATION,
as the Master Servicer
By:______________________________________
Title:
BLUE RIDGE ASSET FUNDING CORPORATION,
as the Purchaser
By:______________________________________
Title:
WACHOVIA BANK, N.A., as the
Administrator
By:______________________________________
Title:
<PAGE> 59
APPENDIX A
DEFINITIONS
This is Appendix A to the Receivables Purchase Agreement dated as of March 15,
1999, among LFI Receivables Corporation, as the Seller, LFI Servicing
Corporation, as the Master Servicer, Blue Ridge Asset Funding Corporation, as
the Purchaser, and Wachovia Bank, N.A., as the Administrator (as amended,
supplemented or otherwise modified from time to time, this "Agreement"). Each
reference in this Appendix A to any Section, Appendix or Exhibit refers to such
Section of or Appendix or Exhibit to this Agreement.
A. Defined Terms. As used in this Agreement, unless the context requires a
different meaning, the following terms have the meanings indicated herein below:
Adjusted Dilution Ratio: On any day, the ratio (expressed as a decimal) computed
as of the most recent Cut-Off Date by dividing (a) the sum of the Dilution
Ratios at each of the twelve (12) consecutive Cut-Off Dates ending with such
Cut-Off Date by (b) twelve (12).
Administrator: As defined in the preamble.
Administrator's Office: The office of the Administrator at 191 Peachtree Street,
Suite 423, Atlanta, Georgia 30303, Attention: Administrative Assistant, Asset
Backed Finance, or such other address as shall be designated by the
Administrator in writing to the Seller and the Purchaser.
Affected Party: Each of the Purchaser, each Liquidity Bank, any participant of
the Purchaser or Liquidity Bank, Wachovia, any successor to Wachovia, as
Administrator, any sub-agent of the Administrator, the Collateral Agent and any
co-agent or sub-agent of the Collateral Agent.
Affiliate: With respect to a Person, any other Person controlling, controlled
by, or under common control with, such Person; provided, that neither HomeLife
Corporation nor HL Holding Corporation shall be considered an Affiliate for any
purpose under this Agreement. For the purposes of this definition, "control"
when used with respect to any specified Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" or "controlled" have meanings correlative to the foregoing.
Affiliated Obligor: In relation to any Obligor means an Obligor that is an
Affiliate of such Obligor.
Allocation Limit: As defined in Section 1.1.
Alternate Base Rate: On any day, the rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to the higher, as of such day, of (a)
the Prime Rate in effect on such day, and (b) one-half of one percent above the
Federal Funds Rate. For purposes of determining the Alternate Base Rate for any
day, changes in the Prime Rate or the Federal Funds Rate shall be
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effective on the date of each such change. The Alternate Base Rate is not
necessarily intended to be the lowest rate of interest determined by Wachovia in
connection with extensions of credit.
Asset Interest: The Purchaser's undivided percentage ownership interest,
determined from time to time as provided in Section 1.4(b), in (i) all then
outstanding Pool Receivables and (ii) all Related Assets.
Asset Tranche: At any time a portion of the Asset Interest selected by the
Administrator pursuant to Section 2.1.
Bank Rate: For any Yield Period:
(a) in the case of any Yield Period other than a Yield Period described in
clause (b), an interest rate per annum equal to, at the election of the Seller
prior to the Termination Date and otherwise as elected by the Administrator on
the Purchaser's behalf, either (i) the sum of (x) the Bank Rate Spread per
annum, plus (y) the Eurodollar Rate (Reserve Adjusted) for such Yield Period or
(ii) the Alternate Base Rate in effect from time to time during such Yield
Period;
(b) in the case of
(i) any Yield Period commencing on or prior to the first day of
which the Purchaser or any Liquidity Bank shall have notified the Administrator
that (A) the introduction of or any change in or in the interpretation of any
law or regulation makes it unlawful, or any central bank or other governmental
authority asserts that it is unlawful, for such Person to fund such Asset
Tranche at the rate described in clause (a)(i), or (B) due to market conditions
affecting the interbank eurodollar market, funds are not reasonably available to
such Person in such market in order to enable it to fund such Asset Tranche at
the rate described in clause (a)(i) (and in the case of subclause (A) or (B),
such Person shall not have subsequently notified the Administrator that such
circumstances no longer exist), or
(ii) any Yield Period as to which the Administrator does not receive
notice or determine, by no later than 12:00 noon (Atlanta, Georgia time) on the
third Business Day preceding the first day of such Yield Period, that the
related Asset Tranche will be funded by Liquidity Fundings and not by the
issuance of Commercial Paper Notes,
an interest rate per annum equal to the Alternate Base Rate in effect from time
to time during such Yield Period; it being understood that, in the case of
paragraph (b)(i) above, such rate shall only apply to the Person affected by the
circumstances described in such paragraph (b)(i).
Bank Rate Spread: As defined in the Fee Letter.
Business Day: (i) With respect to any matters relating to the Eurodollar Rate, a
day on which banks are open for business in New York, New York and in Atlanta,
Georgia and on which dealings in Dollars are carried on in the London interbank
market and (ii) for all other purposes, any day other than a Saturday, Sunday or
other day on which banking institutions or trust companies in New York, New York
or Atlanta, Georgia are authorized or obligated by law, executive order or
governmental decree to be closed.
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Capital Lease Obligations: Of any Person, the obligations of such Person to pay
rent or other amounts under any lease of (or other arrangement conveying the
right to use) real or personal property, or a combination thereof, which
obligations are required to be classified and accounted for as capital leases on
a balance sheet of such Person under GAAP and, for the purposes of this
Agreement, the amount of such obligations at any time shall be the capitalized
amount thereof at such time determined in accordance with GAAP.
Change in Control:
(a) In relation to any Originator, the acquisition by any person or group
of persons (within the meaning of Section 13 or 14 of the Exchange Act ) (the
"acquiring Person"), of beneficial ownership (within the meaning of Rule 13d-3
promulgated by the Securities and Exchange Commission under the Exchange Act) of
issued and outstanding shares of the capital stock of such Person entitled
(without regard to the occurrence of any contingency) to vote for the election
of members of the board of directors of such Person and having a then present
right to exercise 50% or more of the voting power for the election of members of
the board of directors of such Person attached to all such outstanding shares of
capital stock of such Person, unless such acquiring Person is FII or a
Subsidiary of FII or unless otherwise agreed in writing by the Administrator;
and
(b) in relation to the Master Servicer (so long as the Master Servicer is
an Affiliate of the Seller), the failure of FII to own directly or indirectly
100% of the issued and outstanding shares of the capital stock (including all
warrants, options, conversion rights, and other rights to purchase or convert
into such stock) of the Master Servicer on a fully diluted basis; and
(c) in relation to the Seller, the failure of Holdings to own directly
100% of the issued and outstanding shares of the capital stock (including all
warrants, options, conversion rights, and other rights to purchase or convert
into such stock) of the Seller on a fully diluted basis; provided that such
occurrence shall not be deemed a Change in Control of the Seller if (i) any
subsequent direct owner of the capital stock of the Seller is a Subsidiary of
FII and (ii) a nonconsolidation opinion with respect to such subsequent owner in
form and substance satisfactory to the Administrator is delivered to the
Administrator prior to or concurrently with the acquisition of such capital
stock by such subsequent owner.
Code: The Internal Revenue Code of 1986, as the same may be amended from time to
time.
Collateral Agent: Such Person as may be appointed as collateral agent from time
to time by the Purchaser, which Person may be the Administrator.
Collection Account: The account number 8736031249 maintained with Wachovia Bank,
N.A., titled "Wachovia Bank, N.A., as Administrator."
Collections: With respect to any Receivable, all funds which either (a) are
received by the Seller, the Originator or the Master Servicer from or on behalf
of the related Obligor in payment of any amounts owed (including, without
limitation, purchase prices, finance charges, interest and all other charges) in
respect of such Receivable, or applied to such amounts owed by such Obligor
(including, without limitation, insurance payments that the Seller, the
Originator or the Master
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Servicer applies in the ordinary course of its business to amounts owed in
respect of such Receivable and net proceeds of sale or other disposition of
repossessed goods or other collateral or property of the Obligor or any other
party directly or indirectly liable for payment of such Receivable and available
to be applied thereon), or (b) are Deemed Collections.
Commercial Paper Notes: The commercial paper promissory notes, if any, issued by
or on behalf of the Purchaser or that fund the Purchase by the Purchaser of an
Asset Tranche funded at the CP Rate.
Consumer Credit Laws: As defined in clause (h) of the definition of "Eligible
Receivables."
Contract: A contract between the Seller or the Originator and any Person, or an
invoice sent or to be sent by the Seller or the Originator, pursuant to or under
which a Receivable shall arise or be created, or which evidences a Receivable. A
`related Contract' or similar reference means rights to payment, collection and
enforcement, and other rights under a Contract to the extent directly related to
a Receivable in the Receivables Pool, but not any other rights under such
Contract.
CP Discount: The Face Amount of any Commercial Paper Note, net of proceeds
received by the Purchaser with respect to such Commercial Paper Note.
CP Rate: With respect to any CP Tranche Period, the rate equivalent to the rate
(or if more than one rate, the weighted average of the rates) at which
Commercial Paper Notes having a term equal to such CP Tranche Period are sold
plus the amount of any placement agent or commercial paper dealer fees incurred
in connection with such sale.
CP Tranche Period: A period of up to 270 days commencing on a Business Day
determined by the Administrator in consultation with the Seller pursuant to
Section 2.4. If such CP Tranche Period would end on a day which is not a
Business Day, such CP Tranche Period shall end on the preceding Business Day.
Credit Agreement: As defined in Section 10.1(d).
Credit and Collection Policy: Those credit and collection policies and practices
of each Originator relating to Contracts and Receivables as in effect on the
date of this Agreement, as modified without violating Section 7.3(c), but
subject to compliance with applicable tariffs or state regulations in effect
from time to time.
Cut-Off Date: The last day of each Settlement Period.
Days Sales Outstanding or DSO: On any day, the product of (a) 360 and (b) the
amount obtained by dividing (a) the aggregate Outstanding Balance of Pool
Receivables as of the most recent Cut-Off Date, by (b) the aggregate Outstanding
Balance of Pool Receivables created during the twelve Settlement Periods
immediately preceding, and ending on, such Cut-Off Date.
Deemed Collections: As defined in Section 3.2(a).
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Default Horizon: 132 days.
Default Horizon Ratio: On any day, the ratio (expressed as a decimal) computed
as of the most recent Cut-Off Date by dividing (a) the aggregate Dollar amount
of sales of the Originators (exclusive of sales relating to Excluded
Receivables) during the Default Horizon ending on such Cut-Off Date by (b) the
aggregate Outstanding Balance of Eligible Receivables on such Cut-Off Date.
Default Ratio: On any day, the ratio (expressed as a decimal) computed as of the
most recent Cut-Off Date by dividing (a) the aggregate Outstanding Balance of
all Pool Receivables which became Defaulted Receivables during the Settlement
Period ending on such Cut-Off Date by (b) the aggregate sales (in U.S. Dollars)
of the Originators (exclusive of sales relating to Excluded Receivables) during
the Settlement Period occurring five (5) months prior to the Settlement Period
ending on such Cut-Off Date.
Defaulted Receivable: A Receivable (a) as to which any payment, or part thereof,
remains unpaid for more than 120 days from the original due date for such
payment; (b) as to which an Event of Bankruptcy has occurred and remains
continuing with respect to the Obligor thereof; (c) as to which collection
proceedings have been commenced; (d) which has been, or, consistent with the
Credit and Collection Policy, would be written off the Seller's, the applicable
Originator's or the Master Servicer's books as uncollectible; or (e) the Obligor
of which is the Obligor of other Receivables more than thirty-five percent (35%)
of the aggregate balance of which Receivables are Defaulted Receivables by
reason of any one or more of clauses (a) through (d) above.
Delinquency Ratio: On any day, the ratio (expressed as a decimal) computed as of
the most recent Cut-Off Date by dividing (a) the aggregate Outstanding Balance
of all Pool Receivables that are Delinquent Receivables on such Cut-Off Date by
(b) the aggregate Outstanding Balance of Pool Receivables on such Cut-Off Date.
Delinquent Receivable: A Receivable (a) that is not a Defaulted Receivable or a
Pre-Defaulted Receivable and (b) as to which any payment, or part thereof,
remains unpaid for 60 days or more from the original due date for such payment.
Dilution: The amount of any reduction or cancellation of all or any portion of
the Outstanding Balance of a Pool Receivable as described in Section 3.2(a),
such amount to be expressed in U.S. Dollars.
Dilution Adjustment. Any payments, rebates, discounts, refunds or adjustments
(including without limitation, as a result of the application of any special or
other discounts or any reconciliations) of any Receivable, the amount owing for
any returns (including, without limitation, as a result of the return of any
defective goods) or cancellations and the amount of any other reduction of any
payment under any Receivable, in each case granted or made by the Master
Servicer or any Servicer to the related Obligor; provided, however, a Dilution
Adjustment does not include any Receivable that has been written-off as
uncollectible in accordance with the applicable Credit and Collection Policy.
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Dilution Horizon: 90 days.
Dilution Horizon Ratio: On any day, the ratio (expressed as a decimal) computed
as of the most recent Cut-Off Date of (a) the aggregate sales (in U.S. Dollars)
of the Originators (exclusive of sales relating to Excluded Receivables) during
the Dilution Horizon ending on such Cut-Off Date divided by (b) the Eligible
Receivables.
Dilution Reserve: On any day, the product of (a) the sum of (i) two (2) times
the Adjusted Dilution Ratio and (ii) the Dilution Volatility Component and (b)
the Dilution Horizon Ratio.
Dilution Ratio: On any day, the ratio (expressed as a decimal) computed as of
the most recent Cut-Off Date by dividing (a) Dilution for the Settlement Period
ending on such Cut-Off Date by (b) the aggregate Dollar amount of sales of the
Originators (exclusive of sales relating to Excluded Receivables) during the
month occurring three (3) months prior to the month ending on such Cut-Off Date.
Dilution Volatility Component: On any day, the amount (expressed as a decimal)
computed as of the most recent Cut-Off Date equal to the product of (a) the
positive difference between (i) the highest three month rolling average Dilution
Ratio occurring during the immediately preceding 12 months ending on such
Cut-Off Date and (ii) the Adjusted Dilution Ratio as of such Cut-Off Date and
(b) a fraction, the numerator of which is equal to the amount calculated
pursuant to clause (a)(i) of this definition and the denominator of which is
equal to the amount calculated pursuant to clause (a)(ii) of this definition.
Dollars: Dollars in lawful money of the United States of America.
Downgraded Liquidity Bank: A Liquidity Bank which has been the subject of a
Downgrading Event.
Downgrading Event: With respect to any Person, the lowering of the rating with
regard to the short-term securities of such Person to below (i) A-1 by S&P, or
(ii) P-1 by Moody's.
Earned Discount: For any Yield Period or CP Tranche Period, as applicable, for
any Asset Tranche:
PTI x ER x ED + LF
------------------
360
where:
PTI = the daily average (calculated at the close of business each day) of
the Purchaser's Tranche Investment in such Asset Tranche during such Yield
Period or CP Tranche Period, as applicable,
ER = the Earned Discount Rate for such Yield Period or CP Tranche Period,
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ED = the actual number of days elapsed during such Yield Period or CP
Tranche Period, and
LF = the Liquidation Fee, if any, during such Yield Period or CP Tranche
Period.
Earned Discount Rate: For any Yield Period or any CP Tranche Period, as
applicable, for any Asset Tranche:
(a) in the case of an Asset Tranche funded by a Liquidity Funding, the
Bank Rate for such Asset Tranche and such Yield Period; and
(b) in the case of an Asset Tranche funded by Commercial Paper Notes, the
CP Rate for such CP Tranche Period;
provided, however, that on any day when any Liquidation Event shall have
occurred and be continuing, the Earned Discount Rate for each Asset Tranche
shall mean a rate per annum equal to the Alternate Base Rate plus 2% per annum.
Eligible Receivable: At any time, a Receivable:
(a) which is a Pool Receivable constituting a valid bona fide account
arising out of the sale of goods or the rendering of services by an Originator
in the ordinary course of its business that has been sold or contributed to the
Seller pursuant to the Sale Agreement in a "true sale" or "true contribution"
transaction;
(b) as to which the perfection of the Purchaser's undivided ownership
interest therein is governed by the laws of a jurisdiction where the Uniform
Commercial Code - Secured Transactions is in force, and which constitutes an
"account" or a "general intangible" and which is not evidenced by an
"instrument" as such terms are defined in the Uniform Commercial Code as in
effect in such jurisdiction;
(c) the Obligor of which is resident of the United States, or any of its
possessions or territories (or, if not a resident of the United States, the
Obligor has posted, and the Purchaser has obtained perfection in, a letter of
credit provided by a United States financial institution rated at least A-1/P-1
short term or A+/A1 on a long term basis or accounts receivable insurance in
form reasonably satisfactory to the Administrative Agent, which insurance is to
be provided by an insurer rated at least A-1/P-1 short term or A+/A1 on a long
term basis and name the Purchaser as the loss payee and additional insured) and
is not an Affiliate of any Seller Party except that up to 5% of the aggregate
Outstanding Balance of all Pool Receivables may be Receivables of Canadian
Obligors;
(d) which is not a Defaulted Receivable or a Delinquent Receivable at such
time;
(e) with regard to which the warranty of the Seller in Section 6.1(l) is
true and correct in all material respects;
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(f) the sale of an undivided interest in which does not contravene or
conflict with any law applicable to the Seller or the relevant Originator;
(g) which is denominated and payable only in U.S. Dollars;
(h) which, together with the Contract related thereto (if any), does not
contravene in any material respect any laws, rules or regulations applicable to
the Seller or the relevant Originator and, at the time such Receivable (if such
Receivable is owed by an individual) was originated, did not contravene in any
material respect any requirements of applicable federal, state and local laws,
and regulations thereunder (including, without limitation, usury laws, the
Federal Truth-in-Lending Act, the Equal Credit Opportunity Act, the Fair Credit
Billing Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices
Act, the Federal Trade Commission Act, the Moss-Magnuson Warranty Act, the
Federal Reserve Board's Regulation B, the Soldiers' and Sailors' Civil Relief
Act of 1940, as amended, and state adaptations of the National Consumer Act and
of the Uniform Consumer Credit Code and other consumer credit laws and equal
credit opportunity and disclosure laws, collectively, "Consumer Credit Laws");
(i) which satisfies in all material respects all applicable requirements
of the applicable Credit and Collection Policy and the collection practices used
with respect such Receivable (if such Receivable is owed by an individual) have
been in all material respects legal and customary in the consumer credit
servicing business;
(j) which is due and payable within 60 days from the invoice date of such
Receivable (however, up to $20,000,000 in Outstanding Balance of otherwise
Eligible Receivables may have terms of up to 180 days provided that the ratios
utilized in the Reserve calculation are proportionally adjusted to accommodate
such increase in term);
(k) the original term of which has not been extended more than once;
(l) which, if it arises under a Contract, arises under a Contract that has
been duly authorized and which Contract, together with such Receivable, is in
full force and effect and constitutes the legal, valid and binding obligation of
the Obligor of such Receivable enforceable against such Obligor in accordance
with its terms, except as may be limited by bankruptcy, insolvency, fraudulent
conveyance, moratorium and other similar laws relating to or affecting
creditors' rights generally and to general principles of equity, and such
Receivable or Contract is not subject to any dispute, offset, counterclaim or
defense other than credits, returns, discounts, allowances and deductions in the
ordinary course of business; provided, however, that if such dispute, offset,
counterclaim or defense affects only a portion of the unpaid balance of such
Receivable then such Receivable may be deemed an Eligible Receivable to the
extent of the portion of such unpaid balance which is not so affected, and
provided, further, that the Receivables of any Obligor which has any accounts
payable by the Originator (thus giving rise to a potential offset against such
Receivables) may be treated as Eligible Receivables to the extent that the
Obligor of such Receivable has agreed pursuant to a written agreement in form
and substance satisfactory to the Administrator, that such Receivables shall not
be subject to such offset;
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(m) as to which the Internal Revenue Service shall not have filed notice
of a lien pursuant to Section 6323 of the Internal Revenue Code and as to which
the Pension Benefit Guaranty Corporation shall not have filed, or shall not have
indicated its intention to file, notice of a lien pursuant to Section 4068 of
the Employee Retirement Income Security Act of 1974; and
(n) the Obligor of which is not a governmental Obligor, except that up to
two percent (2%) of the aggregate Outstanding Balance of all Eligible
Receivables may be owing by a governmental Obligor.
ERISA: The U.S. Employee Retirement Income Security Act of 1974, as amended from
time to time.
ERISA Affiliate: Any trade or business (whether or not incorporated) that is a
member of a group of which FII is a member and which is treated as a single
employer under Section 414 of the Code.
Eurodollar Business Day: A day of the year as defined in clause (i) of the
definition of Business Day.
Eurodollar Rate: For any Yield Period, the rate per annum determined on the
basis of the offered rate for deposits in Dollars of amounts equal or comparable
to the principal amount of the related Liquidity Funding offered for a term
comparable to such Yield Period, which rates appear on the Telerate Page 3750
effective as of 11:00 A.M., London time, two Eurodollar Business Days prior to
the first day of such Yield Period, provided that if no such offered rates
appear on such page, the Eurodollar Rate for such Yield Period will be the
arithmetic average (rounded upwards, if necessary, to the next higher 1/100th of
1%) of rates quoted by not less than two major banks in New York City, selected
by the Administrator, at approximately 10:00 A.M., New York City time, two
Eurodollar Business Days prior to the first day of such Yield Period, for
deposits in Dollars offered by leading European banks for a period comparable to
such Yield Period in an amount comparable to the principal amount of such
Liquidity Funding.
Eurodollar Rate (Reserve Adjusted): With respect to any Yield Period, a rate per
annum equal to the quotient obtained (rounded upwards, if necessary, to the next
higher 1/100th of 1%) by dividing (i) the applicable Eurodollar Rate for such
Interest Period by (ii) 1.00 minus the Eurodollar Reserve Percentage.
Eurodollar Reserve Percentage: With respect to any Yield Period, the maximum
reserve percentage, if any, applicable to the Liquidity Bank under Regulation D
during such Yield Period (or if more than one percentage shall be applicable,
the daily average of such percentages for those days in such Yield Period during
which any such percentage shall be applicable) for determining the Liquidity
Bank's reserve requirement (including any marginal, supplemental or emergency
reserves) with respect to liabilities or assets having a term comparable to such
Yield Period consisting or included in the computation of "Eurocurrency
Liabilities" pursuant to Regulation D. Without limiting the effect of the
foregoing, the Eurodollar Reserve Percentage shall reflect any other reserves
required to be maintained by the Liquidity Bank by reason of any Regulatory
Change against (a) any category of liabilities which includes deposits by
reference to
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which the "London Interbank Offered Rate" or "LIBOR" is to be determined or (b)
any category of extensions of credit or other assets which include LIBOR-based
credits or assets.
Event of Bankruptcy: Shall be deemed to have occurred with respect to a Person
if either:
(a) a case or other proceeding shall be commenced, without the application
or consent of such Person, in any court, seeking the liquidation,
reorganization, debt arrangement, dissolution, winding up, or composition or
readjustment of debts of such Person, the appointment of a trustee, receiver,
custodian, liquidator, assignee, sequestrator or the like for such Person or all
or substantially all of its assets, or any similar action with respect to such
Person under any law relating to bankruptcy, insolvency, reorganization, winding
up or composition or adjustment of debts, and such case or proceeding shall
continue undismissed, or unstayed and in effect, for a period of 60 consecutive
days; or an order for relief in respect of such Person shall be entered in an
involuntary case under the federal bankruptcy laws or other similar laws now or
hereafter in effect; or
(b) such Person shall commence a voluntary case or other proceeding under
any applicable bankruptcy, insolvency, reorganization, debt arrangement,
dissolution or other similar law now or hereafter in effect, or shall consent to
the appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator (or other similar official) for, such Person or
for any substantial part of its property, or shall make any general assignment
for the benefit of creditors, or shall be adjudicated insolvent, or admit in
writing its inability to, pay its debts generally as they become due, or, if a
corporation or similar entity, its board of directors shall vote to implement
any of the foregoing.
Excess Concentration Amount: On any date, the sum of the amounts by which the
aggregate Outstanding Balance of Pool Receivables of each Obligor (together with
those of its Affiliates) exceeds the Obligor Concentration Limit for such
Obligor.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Excluded Note: Any indebtedness and payment obligations of any Person to any
Originator arising from a sale of merchandise or the rendering of services by
such Obligor (a "receivable") (i) which is or will be evidenced by an instrument
payable to the Originator who will administer such receivable, (ii) which will
be treated as an account receivable on the books and records of such Originator
until an instrument is executed in favor of the Originator who will administer
such receivable and thereafter will be treated as a note receivable on the books
of such administering Originator and (iii) for which payments are not at any
time to be made to a Lock-Box Account.
Excluded Receivable: As of any date of determination, any indebtedness and
payment obligations of any Person to any Originator arising from a sale of
merchandise or the rendering of services by such Originator that has the
attributes set forth in any of the following paragraphs:
(a) it is owing by an Obligor that is an Affiliate of the Seller;
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(b) it is owing by an Obligor that is not "located" (within the meaning of
Section 9-103 (3) (d) of the UCC as in effect in the State of New York) in the
United States or in Canada and it is not supported by a letter of credit meeting
the criteria set forth in clause (c) of the definition of Eligible Receivable;
(c) it is an Excluded Note;
(d) it is originated by the Beacon Hill division of Robert Allen Fabrics,
Inc.; or
(e) it is owing by Levitz Furniture Incorporated or any Affiliate thereof.
Excluded Taxes: Any taxes, duties, impositions or charges imposed by the United
States of America, by the jurisdiction in which such Affected Party's principal
executed office is located, or by any United States or foreign jurisdiction in
which such Affected Party is now conducting or may hereafter conduct business,
that are (1) based on, measured by or determined by reference to the net or
gross income, net or gross receipts, or net or gross profits of any Affected
Party, or changes in the rate of tax on or determined by reference to the net or
gross income, net or gross receipts or net or gross profits of any Affected
Party, including any minimum taxes, withholding taxes, items of tax preference
or taxes on, measured by or in the nature of capital, net worth, or excess
profits, or taxes assessed with respect to any fee, charge or payment received
hereunder or under the Fee Letter, (2) capital stock, franchise, business
privilege or doing business taxes, (3) taxes, impositions or charges relating to
periods prior to the date hereof or after the Final Payout Date of this
Agreement, (4) taxes, impositions or charges to the extent that any Affected
Party actually receives a credit (or otherwise has a reduction in a liability
for taxes) in respect thereof against taxes that are not indemnified under this
Agreement, and (5) taxes that would have been imposed in the absence of the
transactions contemplated by this Agreement or as a result of activities of any
Affected Party unrelated to the transactions contemplated hereby.
Existing Receivable: As defined in the Sale Agreement.
Existing Securitization: As defined in the background.
Face Amount: With respect to any Commercial Paper Notes, the face amount stated
thereon in the case of any Commercial Paper Note issued on a discount basis, and
the principal amount stated thereon plus the amount of all interest scheduled to
accrue on such Commercial Paper Note through its stated maturity date in the
case of any Commercial Paper Note issued on an interest bearing basis.
Facility Fee: As defined in the Fee Letter.
Federal Funds Rate: For any day, the rate per annum (rounded upwards, if
necessary, to the next higher 1/16 of 1%) equal to the weighted average of the
rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers on such day, as published by
the Federal Reserve Bank of New York on the Domestic Business Day next
succeeding such day, provided that (i) if the day for which such rate is to be
determined is not a Domestic Business Day, the Federal Funds Rate for such day
shall be such rate on such transactions on the next preceding Domestic Business
Day as so published on the next
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succeeding Domestic Business Day, and (ii) if such rate is not so published for
any day, the Federal Funds Rate for such day shall be the average rate charged
to the Administrator on such day on such transactions, as reasonably determined
by the Administrator.
Federal Reserve Board: The Board of Governors of the Federal Reserve System, or
any successor thereto or to the functions thereof.
Fee Letter: As defined in Section 4.1.
FII: As defined in the background.
Final Payout Date: The date following the Termination Date on which the Invested
Amount shall have been reduced to zero and all other amounts due and payable by
the Seller to the Purchaser, any Liquidity Bank, the Administrator, the
Collateral Agent, the Indemnified Parties, the Affected Parties, and the
Lock-Box Banks under the Transaction Documents shall have been paid in full.
GAAP: Generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such accounting
profession, which are applicable to the circumstances as of the date of
determination.
Governmental Authority: Any Federal, state, local or foreign court or
governmental agency, authority, instrumentality or regulatory body.
Guarantee: Of or by any Person, any obligation, contingent or otherwise, of such
Person guaranteeing or having the economic effect of guaranteeing any
Indebtedness of any other Person (the "primary obligor") in any manner, whether
directly or indirectly, and including any obligation of such Person, direct or
indirect, (a) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or to purchase (or to advance or supply funds for
the purchase of) any security for the payment of such Indebtedness, (b) to
purchase property, securities or services for the purpose of assuring the owner
of such Indebtedness of the payment of such Indebtedness or (c) to maintain
working capital, equity capital or other financial statement condition or
liquidity of the primary obligor so as to enable the primary obligor to pay such
Indebtedness; provided however that the term Guarantee shall not include
endorsements for collection or deposit, in either case, in the ordinary course
of business.
Holdings: As defined in the background.
Indebtedness: Of any Person, without duplication, (a) all obligations of such
Person for borrowed money or with respect to deposits or advances of any kind,
(b) all obligations of such Person evidenced by bonds, debentures, notes or
similar instruments, (c) all obligations of such Person upon which interest
charges are customarily paid, (d) all obligations of such Person under
conditional sale or other title retention agreements relating to property or
assets purchased by such Person, (e) all obligations of such Person issued or
assumed as the deferred purchase price of property or services (other than trade
payables incurred in the ordinary course of business), (f)
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all Indebtedness of others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien on property owned or acquired by such Person, whether or not the
obligations secured thereby have been assumed, but limited, if such obligations
are without recourse to such Person, to the lesser of the principal amount of
such Indebtedness or the fair market value of such property, (g) all Guarantees
by such Person of Indebtedness of others, (h) all Capital Lease Obligations of
such Person, (i) all obligations of such Person in respect of interest rate
protection agreements, foreign currency exchange agreements or other interest or
exchange rate hedging arrangements (the amount of any such obligation to be the
amount that would be payable upon the acceleration, termination or liquidation
thereof) and (j) all obligations of such Person as an account party in respect
of letters of credit and bankers' acceptances. The Indebtedness of any Person
shall include the Indebtedness of any partnership in which such Person is a
general partner.
Indemnified Amounts: As defined in Section 13.1.
Indemnified Party: As defined in Section 13.1.
Initial Due Diligence Auditor: Commercial Lending Consultants, Inc. of Downers
Grove, Illinois.
Invested Amount: On any day with respect to the Asset Interest an amount equal
to (a) the aggregate of the amounts theretofore paid to the Seller for Purchases
pursuant to Section 1.1 and 1.2, minus (b) the aggregate amount (in U.S.
Dollars) of Collections theretofore received and actually distributed to the
Purchaser on account of such Invested Amount pursuant to Section 1.3.
LFI: As defined in the background.
LFI Receivables: As defined in the preamble.
LFI Servicing: As defined in the preamble.
Lien: Any security interest, lien, encumbrance, pledge, assignment, title
retention, similar claim, right or interest.
Liquidation Event: As defined in Section 10.1.
Liquidation Fee: For each Asset Tranche (or portion thereof) for each day in any
Yield Period (computed without regard to clause (iii) of the proviso of the
definition of "Yield Period") or CP Tranche Period, the amount, if any, by
which:
(a) the additional Earned Discount (calculated without taking into account
any Liquidation Fee) which would have accrued on the reductions of the
Purchaser's Tranche Investment with respect to such Asset Tranche during such
Yield Period (as so computed) or CP Tranche Period if such reductions had not
been made, exceeds
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(b) the income, if any, received by the Purchaser from investing the
proceeds of such reductions of the Purchaser's Tranche Investment.
Liquidation Period: The period commencing on the date on which the conditions
precedent to Purchases and Reinvestment set forth in Section 5.2 are not
satisfied (or expressly waived by the Purchaser) and the Administrator shall
have notified the Seller and Servicer in writing that the Liquidation Period has
commenced, and ending on the Final Payout Date.
Liquidity Agent: Wachovia, as agent for the Liquidity Banks under the Liquidity
Agreement, or any successor to Wachovia in such capacity.
Liquidity Agreement: Includes the Liquidity Asset Purchase Agreement dated as of
the date hereof among the Purchaser, Wachovia, as Administrator, Wachovia, as
Liquidity Agent, and Wachovia and/or one or more other banks or other financial
institutions, as Liquidity Banks, as such Liquidity Asset Purchase Agreement may
be amended, supplemented, restated or otherwise modified from time to time.
Liquidity Bank or Liquidity Banks: Any one of or all of, the commercial lending
institutions that are at any time parties to the Liquidity Agreement as
liquidity providers thereunder, and the successors and assigns.
Liquidity Funding: A purchase made by the Liquidity Bank (or simultaneous
purchases made by the Liquidity Banks) pursuant to the Liquidity Agreement.
Lock-Box Account: Any bank account into which Collections are deposited or
transferred.
Lock-Box Agreement: A letter agreement, in substantially the form of Exhibit
A-1, among the Master Servicer, the Purchaser, the Administrator, the Seller and
any Lock-Box Bank.
Lock-Box Bank: Any of the banks holding one or more lock-boxes or Lock-Box
Accounts receiving Collections from Pool Receivables.
Loss Reserve: On any day, the product of (a) two (2) and (b) the greatest
rolling three month average Sales Based Default Ratio to have occurred during
the most recently ended twelve consecutive month period times (c) the most
recently calculated Default Horizon Ratio.
Mandate Letter: As defined in Section 5.1(o).
Master Servicer: As defined in the preamble.
Material Adverse Effect: (a) Any material impairment of the collectibility of
the Receivables or a material impairment of the interests, rights or remedies of
the Purchaser under or with respect to the Transaction Documents (without
limiting the generality of the foregoing, any effect, result or circumstance
that adversely affects the collectibility of Receivables accounting for 5% or
more of the Net Pool Balance shall be deemed to be a Material Adverse Effect).
(b) (i) Any material impairment of the Seller's ability to perform any of
its material obligations or to comply with or conduct its business in accordance
with any of its material
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representations, warranties, covenants or agreements under any Transaction
Document or (ii) any material impairment of the interests, rights or remedies of
the Seller under any Transaction Document.
(c) (i) Any material impairment of any Originator's ability to perform any
of its material obligations or to comply with or conduct its business in
accordance with any of its material representations, warranties, covenants or
agreements under any Transaction Document or (ii) any material impairment of the
interests, rights or remedies of the Seller against or with respect to such
Originator under any Transaction Document, including any interests, rights or
remedies of the Purchaser as an assignee of the Seller under, or a third-party
beneficiary of, the Sale Agreement.
(d) (i) Any material impairment of the Master Servicer's or any Servicer's
ability to perform any of its material obligations or to comply with or conduct
its business in accordance with any of its material representations, warranties,
covenants or agreements under any Transaction Document or (ii) any material
impairment of the interests, rights or remedies of the Purchaser against or with
respect to such Person under any Transaction Document.
Moody's: Moody's Investors Service, Inc.
Net Pool Balance: On any day, an amount equal to (a) the aggregate Outstanding
Balance of all Eligible Receivables in the Receivables Pool on such day, minus
(b) the Excess Concentration Amount on such day.
Obligor: A Person obligated to make payments with respect to a Receivable,
including any guarantor thereof.
Obligor Concentration Limit: On any day:
(i) for Obligors who have a short term unsecured debt rating
currently assigned to them by either S&P or Moody's, the applicable
concentration limit shall be determined according to the following table (and,
if such Obligor is rated by both agencies and has a split rating, the applicable
rating will be the lower of the two):
<TABLE>
<CAPTION>
Allowable
% of
Eligible
S&P Rating and Moody's Rating Receivables
---------- ------------------ -----------
<S> <C> <C>
A-1+ P-1 15%
A-1 P-1 8%
A-2 P-2 6%
A-3 P-3 3.5%
Less than A-3 and P-3 or no short-term
unsecured rating: 3%.
</TABLE>
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(ii) the Obligor Concentration Limit for any Special Obligor shall be the
Special Obligor Concentration Limit for such Special Obligor.
Originator: Each Person (1) listed as an Originator on Schedule I hereto, as
such Schedule I may be modified from time to time pursuant to this Agreement and
(2) who is a "Seller" under the Sale Agreement, in its capacity as Seller of
Receivables under the Sale Agreement.
Outstanding Balance: With respect to any Receivable at any time, the unpaid
amount thereof.
Permitted Liens: Liens (i) created pursuant to this Agreement or the Sale
Agreement and (ii) with respect to any state or local sales taxes arising in
connection with a Receivable as to which the Obligor is an end-user and payable
by the applicable Originator but not yet due, and with respect to which reserves
in conformity with GAAP have been provided on the books of such Originator.
Person: An individual, partnership, corporation (including a business trust),
joint stock company, trust, unincorporated association, joint venture,
government or any agency or political subdivision thereof or any other entity.
Plan: Any pension plan subject to the provisions of Title IV of ERISA or Section
412 of the Code which is maintained for employees of any ERISA Affiliate.
Pool Receivable: A Receivable in the Receivables Pool.
Pre-Defaulted Receivable: A Pool Receivable (a) that is not a Defaulted
Receivable and (b) as to which any payment, or part thereof, remains unpaid for
90 days or more from the original due date for such payment.
Prime Rate: That interest rate so denominated and set by Wachovia from time to
time as an interest rate basis for borrowings. The Prime Rate is but one of
several interest rate bases used by Wachovia. Wachovia lends at interest rates
above and below the Prime Rate.
Program Information: As defined in Section 14.8(a)(i).
Purchase: As defined in Section 1.1.
Purchase Limit: As defined in Section 1.1.
Purchase Termination Date: That day on which a Liquidation Event has occurred
and is continuing, and
(a) the Administrator declares a Purchase Termination Date in a notice to
the Seller in accordance with Section 10.2(a); or
(b) in accordance with Section 10.2(b), becomes the Purchase Termination
Date automatically.
Purchaser: As defined in the preamble.
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Purchaser's Share: On any day, the lesser of (i) the percentage represented by
the most recently calculated Asset Interest and (ii) 100%.
Purchaser's Tranche Investment: In relation to any Asset Tranche, the amount of
the Invested Amount allocated by the Administrator to that Asset Tranche
pursuant to Section 2.1, provided, that at all times the aggregate amounts
allocated to all Asset Tranches shall equal the Invested Amount.
Qualifying Liquidity Bank: A Liquidity Bank with a rating of its short-term
securities equal to or higher than (i) A-1 by S&P and (ii) P-1 by Moody's.
Receivable: Any right to payment from a Person, whether constituting an account,
chattel paper, instrument or general intangible, arising from the sale of goods
or the rendering of services by an Originator, which may be billed or may be an
Unbilled Receivable and includes the right to payment of any interest, finance
charges, sales taxes, shipping charges, returned check or late charges. and
other amounts with respect thereto; provided that the terms "Receivable" and
"Receivables" do not include any Excluded Receivable.
Receivables Pool: At any time all then outstanding Receivables which have been
sold or contributed as capital, or purported to have been sold or contributed as
capital, by the Originators to the Seller (including the Existing Receivables,
as defined in the Sale Agreement), other than those reconveyed or deemed to be
reconveyed to the Originator pursuant to Section 3.5 of the Sale Agreement.
Regulation: Any specified Regulation of the Federal Reserve Board, as the same
may be amended or supplemented from time to time.
Regulatory Change: Any change after the date of this Agreement in United States
(federal, state or municipal) laws or regulations (including Regulation D) or
foreign laws or regulations or the adoption or making after such date of any
interpretations, directives or requests applying to a class of banks (including
the Liquidity Bank) of or under any United States (federal, state or municipal)
or foreign, laws, or regulations (whether or not having the force of law) by any
court or governmental or monetary authority charged with the interpretation or
administration thereof.
Reinvestment: As defined in Section 1.3(a)(iii).
Related Assets: All (a) rights to, but not any obligations under, all Related
Security related to any Pool Receivables (if any), (b) rights and interests of
the Seller under the Sale Agreement in relation to any Pool Receivables, (c)
books and records relating to any Pool Receivables, (d) Lock-Box Accounts and
all cash and investments therein, to the extent constituting or representing the
items in the following clause (e), and (e) Collections in respect of, and other
proceeds of, any Pool Receivables or any other Related Assets.
Related Security: With respect to any Pool Receivable, all of the Seller's (in
the case of usage in the Receivables Purchase Agreement) or the applicable
Originator's (in the case of usage of the term "Related Security" in the Sale
Agreement) right, title and interest in and to: (a) all Contracts, if any, that
relate to such Pool Receivable; (b) all merchandise (including returned
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merchandise), if any, covered by a Receivable, relating to the sale that gave
rise to such Pool Receivable; (c) all security deposits and other security
interests or liens and property subject thereto from time to time purporting to
secure payment of such Pool Receivable, whether pursuant to the Contract (if
any) related to such Pool Receivable or otherwise; (d) all UCC financing
statements covering any collateral securing payment of such Pool Receivable (but
only to the extent of the interest of the Purchaser in the respective Pool
Receivable); (e) all guarantees and other agreements or arrangements of whatever
character from time to time supporting or securing payment of such Pool
Receivable whether pursuant to the Contract (if any) related to such Pool
Receivable or otherwise; and (f) all insurance policies, and all claims
thereunder, related to such Pool Receivable, in each case to the extent directly
related to rights to payment, collection and enforcement, and other rights with
respect to such Pool Receivable. The interest of the Purchaser in any Related
Security is only to the extent of the Purchaser's undivided percentage interest,
as more fully described in the definition of Asset Interest.
Reportable Event: Any reportable event as defined in Section 4043(b) of ERISA or
the regulations issued thereunder with respect to a Plan (other than a Plan
maintained by an ERISA Affiliate which is considered an ERISA Affiliate only
pursuant to subsection (m) or (o) of Section 414 of the Code).
Reporting Date: As defined in Section 3.1(a).
Required Reserve: On any day, an amount equal to the product of (a) the Required
Reserve Factor on such day times (b) the Net Pool Balance on such day.
Required Reserve Factor: On any day, the decimal equivalent of the greater of
(a) (i) 15% plus (ii) an amount equal to the product of the Adjusted Dilution
Ratio and the Dilution Horizon Ratio and (b) the sum of (i) the Loss Reserve,
(ii) the Dilution Reserve, (iii) the Yield Reserve and (iv) the Servicing
Reserve.
S&P: Standard & Poor's Ratings Service.
Sale Agreement: The Purchase and Sale Agreement dated as of March 23, 1999,
among the Master Servicer, the Originators and the Seller, as initial purchaser,
as it may be amended, supplemented or otherwise modified in accordance with
Section 7.3(f).
Sales Based Default Ratio: On any day, the ratio (expressed as a decimal)
calculated as of the most recent Cut-Off Date by dividing (a) the aggregate
Outstanding Balance of all Receivables that became Defaulted Receivables during
the Settlement Period that ended on such Cut-Off Date by (b) the aggregate
Dollar amount of sales (exclusive of sales of Excluded Receivables) of the
Originator during the month occurring five months prior to the month that ended
on such Cut-Off Date.
Scheduled Termination Date: March 20, 2000 (or, if such day is not a Business
Day, the next preceding Business Day), or such like date to which the Scheduled
Termination Date shall have been extended with the consent of the Purchaser in
its sole discretion.
SEC: The Securities and Exchange Commission.
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Secured Parties: The Purchaser, the Administrator, the Indemnified Parties and
the Affected Parties
Seller: As defined in the preamble.
Seller Information: As defined in Section 14.7(a).
Seller Information Provider: As defined in Section 14.7(a).
Seller Party and Seller Parties: As defined in the preamble.
Seller's Share: On any day, the percentage equal to 100% minus the Purchaser's
Share on such day.
Servicer: Initially, each Servicer identified in Schedule I to this Agreement,
and after any Service Transfer, the Successor Servicer with respect to such
Servicer.
Servicer Advance: As defined in Section 8.3.
Servicer Default: As defined in Section 8.4.
Service Transfer: As defined in Section 8.1(b).
Servicer Transfer Event: As defined in Section 8.1(b).
Servicer's Fee: For any day in a Settlement Period:
(a) an amount equal to the product of (i) the Servicing Fee Rate, (ii) the
aggregate Outstanding Balance of the Pool Receivables at the close of business
on the first day of such Settlement Period, and (iii) 1/360; or
(b) on and after the Master Servicer's reasonable request made at any time
when LFI Servicing shall no longer be the Master Servicer, an alternative amount
specified by the Master Servicer not exceeding (x) 110% of the Master Servicer's
costs and expenses of performing its obligations under the Agreement during the
Settlement Period when such day occurs, divided by (y) the number of days in
such Settlement Period.
Servicing Fee Rate: 1.0% per annum.
Servicing Reserve: On any day, the product of (a) the Servicing Fee Rate and (b)
a fraction, the numerator of which is the highest Days Sales Outstanding
calculated for each of the most recent 12 Settlement Periods and the denominator
of which is 360.
Settlement Date: The second Business Day following each Reporting Date.
Settlement Period: The period beginning on:
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(a) the date of the initial Purchase to and including the last day of the
calendar month in which such date occurs; and
(b) thereafter, beginning on, but excluding the last day of the
immediately preceding Settlement Period to and including the last day of the
next following calendar month;
provided, however, that the last Settlement Period shall end on, but exclude the
Final Payment Date.
Settlement Report: As defined in Section 3.1(a).
Special Obligor: On any day, any Obligor approved as a Special Obligor by the
Administrator and listed on Schedule II.
Special Obligor Concentration Limit: For any Special Obligor, the Special
Obligor Concentration Limit set forth on Schedule II.
Subsidiary: With respect to any specified Person (i) a corporation more than 50%
of whose stock of any class or classes having by the terms thereof ordinary
voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned or controlled by such Person,
directly or indirectly through Subsidiaries, and (ii) any partnership,
association, joint venture or other entity in which such Person, directly or
indirectly through Subsidiaries, has more than a 50% equity interest at the
time; provided, that neither HomeLife Corporation nor HL Holding Corporation
shall be considered a Subsidiary for any purpose under this Agreement.
Successor Notice: As defined in Section 8.1(b).
Termination Date: The earliest of
(a) the date of termination (whether by scheduled expiration, occurrence
of a Liquidation Event or otherwise) of the Liquidity Banks' commitments under
the Liquidity Agreement (unless such commitments are renewed, extended or
replaced on or before such date);
(b) the Purchase Termination Date;
(c) the date designated by the Seller as the "Termination Date" on not
less than five (5) Business Days' notice to the Administrator, provided that on
or prior to such date the Invested Amount has been reduced to zero, all accrued
Earned Discount and fees have been paid in full and all other amounts due to the
Purchaser and the Administrator have been paid in full;
(d) the Scheduled Termination Date; and
(e) the date on which the Seller shall become an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
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Transaction Documents: This Agreement, the Lock-Box Agreements, the Sale
Agreement, the Fee Letter, the Mandate Letter and the other documents to be
executed and delivered in connection herewith.
Trustee: As defined in the background.
UCC: The Uniform Commercial Code as from time to time in effect in the
applicable jurisdiction or jurisdictions.
Unbilled Receivable: Each Receivable that has been earned by performance, but
for which the Originator has not sent out an invoice.
Unmatured Liquidation Event: Any event which, with the giving of notice or lapse
of time, or both, would become a Liquidation Event.
Usage Fee: As defined in the Fee Letter.
Year 2000 Compliant and Ready: With respect to any Person, (a) its hardware and
software systems with respect to the operation of its business and its general
business plan will: (i) handle date information involving any and all dates
before, during and/or after January 1, 2000, including accepting input,
providing output and performing date calculations in whole or in part; (ii)
operate, accurately without interruption on and in respect of any and all dates
before, during and/or after January 1, 2000 and without any change in
performance; and (iii) store and provide date input information without creating
any ambiguity as to the century except to the extent that any failure of its
software systems to operate as set forth in clause (i) through (iii) would not
be likely to have a Material Adverse Effect, and (b) it does not have knowledge
that any third party with which it has any material contractual relationship has
identified any similar risk in its own computer applications which it is not
addressing and which, if not properly addressed would be likely to have a
Material Adverse Effect.
Yield Period: With respect to any Asset Tranche funded by a Liquidity Funding
means
(a) the period commencing on the date of the initial Purchase of the Asset
Interest, the making of such Liquidity Funding or the creation of such Asset
Tranche pursuant to Section 2.1 (whichever is latest) and ending such number of
days thereafter as the Administrator shall select; and
(b) each period commencing on the last day of the immediately preceding
Yield Period for the related Asset Tranche and ending such number of days
thereafter as the Administrator shall select;
provided, however, that
(i) any such Yield Period (other than a Yield Period consisting of
one day) which would otherwise end on a day that is not a Business Day shall be
extended to the next succeeding Business Day (unless the related Asset Tranche
shall be accruing Earned Discount at a rate determined by reference to the
Eurodollar Rate (Reserve Adjusted), in which case if such
A-21
<PAGE> 80
succeeding Business Day is in a different calendar month, such Yield Period
shall instead be shortened to the next preceding Business Day);
(ii) in the case of Yield Periods of one day for any Asset Tranche,
(A) the initial Yield Period shall be the date such Yield Period commences as
described in clause (a) above; and (B) any subsequently occurring Yield Period
which is one day shall, if the immediately preceding Yield Period is more than
one day, be the last day of such immediately preceding Yield Period, and if the
immediately preceding Yield Period is one day, shall be the next day following
such immediately preceding Yield Period; and
(iii) in the case of any Yield Period for any Asset Tranche which
commences before the Termination Date and would otherwise end on a date
occurring after such Termination Date, such Yield Period shall end on such
Termination Date and the duration of each such Yield Period which commences on
or after the Termination Date for such Asset Tranche shall be of such duration
as shall be selected by the Administrator.
Yield Reserve: On any day, an amount equal to the product of (a) 1.5, (b) the
Alternate Base Rate and (c) a fraction the numerator of which is the 12-month
high Days Sales Outstanding and the denominator of which is 360.
B. Other Terms. All accounting terms not specifically defined herein shall
be construed in accordance with GAAP. All terms used in Article 9 of the UCC in
the State of New York, and not specifically defined herein, are used herein as
defined in such Article 9.
C. Computation of Time Periods. Unless otherwise stated in this Agreement,
in the computation of a period of time from a specified date to a later
specified date, the word "from" means "from and including" and the words "to"
and "until" each mean "to but excluding."
A-22
<PAGE> 81
SCHEDULE I
INITIAL ORIGINATORS AND SERVICERS
<PAGE> 82
SCHEDULE II
SPECIAL OBLIGORS
AND
SPECIAL OBLIGOR
CONCENTRATION LIMITS
<TABLE>
<CAPTION>
Special Obligor
Special Obligor Concentration Limit
--------------- -------------------
<S> <C>
Heilig-Meyers Company 6%
HomeLife 3.5%*
</TABLE>
* The reserve floor calculation will be increased by 1% to accommodate HomeLife,
solely with respect to the HomeLife Receivables.
<PAGE> 1
Exhibit 10.6
================================================================================
PURCHASE AND SALE AGREEMENT
Dated as of March 23, 1999
between
each of
THE SELLERS NAMED HEREIN
and
LFI RECEIVABLES CORPORATION
==============================================================================
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE I AGREEMENT TO SELL....................................................3
SECTION 1.1 SALES AND CONTRIBUTIONS..........................................3
SECTION 1.2 TIMING OF PURCHASES..............................................5
SECTION 1.3 CONSIDERATION FOR PURCHASES......................................5
SECTION 1.4 SALE TERMINATION DATE............................................5
ARTICLE II CALCULATION OF PURCHASE PRICE.......................................5
SECTION 2.1 PURCHASE REPORTS; CALCULATION OF PURCHASE PRICE..................5
ARTICLE III PAYMENT OF PURCHASE PRICE..........................................8
SECTION 3.1 INITIAL PURCHASE PRICE PAYMENT...................................8
SECTION 3.2 SUBSEQUENT PURCHASE PRICE PAYMENTS...............................8
SECTION 3.3 SETTLEMENT AS TO SPECIFIC RECEIVABLES............................9
SECTION 3.4 SETTLEMENT AS TO DILUTION........................................9
SECTION 3.5 RECONVEYANCE OF RECEIVABLES.....................................10
ARTICLE IV CONDITIONS OF PURCHASES............................................10
SECTION 4.1 CONDITIONS PRECEDENT TO INITIAL PURCHASE........................10
SECTION 4.2 CERTIFICATION AS TO REPRESENTATIONS AND WARRANTIES..............12
ARTICLE V REPRESENTATIONS AND WARRANTIES......................................12
SECTION 5.1 REPRESENTATIONS OF THE SELLERS..................................12
ARTICLE VI COVENANTS OF THE SELLERS...........................................16
SECTION 6.1 AFFIRMATIVE COVENANTS...........................................16
SECTION 6.2 REPORTING REQUIREMENTS..........................................18
SECTION 6.3 NEGATIVE COVENANTS..............................................19
ARTICLE VII ADDITIONAL RIGHTS AND OBLIGATIONS IN RESPECT OF THE TRANSFERRED
RECEIVABLES...................................................................20
SECTION 7.1 RIGHTS OF THE COMPANY...........................................20
SECTION 7.2 RESPONSIBILITIES OF THE SELLERS.................................20
SECTION 7.3 RESPONSIBILITIES OF THE SELLERS.................................21
SECTION 7.4 APPLICATION OF COLLECTIONS......................................21
ARTICLE VIII INDEMNIFICATION.................................................22
SECTION 8.1 INDEMNITIES BY THE SELLERS......................................22
ARTICLE IX ADDITION AND TERMINATION OF SELLERS................................23
SECTION 9.1 ADDITION OF SELLERS.............................................23
SECTION 9.2 CONDITIONS PRECEDENT TO THE ADDITION OF A SELLER................24
SECTION 9.3 TERMINATION OF A SELLER.........................................25
ARTICLE X MISCELLANEOUS.......................................................26
SECTION 10.1 AMENDMENTS, ETC.................................................26
SECTION 10.2 NOTICES, ETC....................................................27
SECTION 10.3 NO WAIVER; CUMULATIVE REMEDIES..................................27
SECTION 10.4 BINDING EFFECT; ASSIGNABILITY...................................27
SECTION 10.5 GOVERNING LAW...................................................28
SECTION 10.6 COSTS, EXPENSES AND TAXES.......................................28
SECTION 10.7 SUBMISSION TO JURISDICTION......................................29
i
<PAGE> 3
SECTION 10.8 WAIVER OF JURY TRIAL............................................29
SECTION 10.9 CAPTIONS AND CROSS REFERENCES; INCORPORATION BY REFERENCE.......29
SECTION 10.10 EXECUTION IN COUNTERPARTS.......................................30
SECTION 10.11 ACKNOWLEDGMENT AND AGREEMENT....................................30
SECTION 10.12 NO PROCEEDINGS..................................................30
ii
<PAGE> 4
EXHIBITS AND SCHEDULES
EXHIBIT A FORM OF PURCHASE REPORT
EXHIBIT B FORM OF SELLER NOTE
EXHIBIT C OFFICE LOCATIONS
EXHIBIT D FORM OF ADDITIONAL SELLER SUPPLEMENT
EXHIBIT 6.2(C) FORM OF AUDIT REPORT
SCHEDULE I LIST OF SELLERS
SCHEDULE 5.1(O) LIST OF LOCK-BOX ACCOUNTS
SCHEDULE 5.1(W) PRIOR LEGAL NAMES
SCHEDULE 10.2 NOTICE ADDRESSES OF SELLERS
iii
<PAGE> 5
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (as amended, supplemented or modified
from time to time, this "Agreement"), dated as of March 23, 1999, is between the
seller parties named herein (each such party being a "Seller" and collectively,
the "Sellers"), as sellers, and LFI RECEIVABLES CORPORATION, a Delaware
corporation (the "Company"), as purchaser.
DEFINITIONS
Unless otherwise indicated, certain terms that are capitalized and used
throughout this Agreement are defined in Appendix A to the Receivables Purchase
Agreement of even date herewith (as amended, supplemented or otherwise modified
from time to time, the "Receivables Purchase Agreement"), among the Company, LFI
Servicing Corporation, as master servicer ("LFI Servicing"), Blue Ridge Asset
Funding Corporation, as purchaser (the "Purchaser"), and Wachovia Bank, N.A., as
Administrator for the Purchaser (the "Administrator"). The following terms have
the respective meanings indicated below:
Available Funds: As defined in Section 3.2 hereof.
Deemed Collections: Amounts payable by the Sellers pursuant to Section 3.3 or
3.4. hereof.
Existing Receivable: As defined in the background.
Ineligible Receivable: As defined in Section 3.3 hereof.
Initial Cut-Off Date: The Business Day immediately preceding the Initial
Purchase Date.
Initial Purchase Date: As defined in Section 1.2 hereof.
Lock-Box Accounts: One or more lock-box accounts held in Lock-Box Banks for
receiving Collections from Pool Receivables.
Mandatory Seller Termination Date: As defined in Section 9.3(a) hereof.
Payment Date: The Initial Purchase Date and each Business Day thereafter that
any Seller is open for business.
Permissive Seller Termination Date: As defined in Section 9.3(b) hereof.
Purchase Price: As defined in Section 2.1 hereof.
Purchase Report: As defined in Section 2.1 hereof.
Related Rights: As defined in Section 1.1(a) hereof.
<PAGE> 6
Sale Indemnified Amounts: As defined in Section 8.1 hereof.
Sale Indemnified Party: As defined in Section 8.1 hereof.
Sale Termination Date: As defined in Section 1.4 hereof.
Seller Addition Date: As defined in Section 9.2 hereof.
Seller Material Adverse Effect: Any material impairment of any Seller's ability
to perform any of its material obligations or to comply with or conduct its
business in accordance with any of its material representations, warranties,
covenants or agreements under any Transaction Document or any material
impairment of the interests, rights or remedies of the Purchaser against or with
respect to such Seller or Sellers (individually or in the aggregate) under any
Transaction Document, including any interests, rights or remedies of the
Purchaser as an assignee of the Company under, or a third-party beneficiary of,
this Agreement.
Seller Note: As defined in Section 3.1 hereof.
Solvent: With respect to any Seller, on any date of determination:
(i) the fair value of the assets of such Seller at a fair valuation
will exceed the debts and liabilities, subordinated, contingent or
otherwise, of such Seller;
(ii) the present fair salable value of the property of such Seller
will be greater than the amount that will be required to pay the probable
liability of such Seller on its debts and other liabilities, subordinated,
contingent or otherwise, as such debts and other liabilities become
absolute and matured;
(iii) such Seller will be able to pay its debts and liabilities,
subordinated, contingent or otherwise, as such debts and liabilities
become absolute and matured; and
(iv) such Seller will not have unreasonably small capital with which
to conduct the business in which it is engaged as such business is now
conducted and is proposed to be conducted.
For all purposes of clauses (i) through (iv) above, the amount of contingent
liabilities at any time shall be computed as the amount that, in the light of
all the facts and circumstances existing at such time, represents the amount
that can reasonably be expected to become an actual or matured liability.
Transferred Receivable: At any time, (i) any Receivable sold to the Company by
any Seller pursuant to, and in accordance with the terms of this Agreement, and
(ii) any Existing Receivable, but (in the case of clause (i) or (ii)) not any
Receivable that has been reconveyed by the Company to a Seller pursuant to
Section 3.5. hereof.
2
<PAGE> 7
Background
1. The Company is a limited purpose corporation, which is a wholly-owned
Subsidiary of Holdings, which is a wholly-owned Subsidiary of LFI, which is a
wholly-owned Subsidiary of FII.
2. The Company is the owner of certain Receivables as the result of the
termination of the Existing Securitization and the acquisition of such
Receivables by the Company (each such Receivable, an "Existing Receivable").
3. The Sellers wish to sell Receivables and Related Rights to the Company,
and the Company is willing, on the terms and subject to the conditions set forth
herein, to purchase Receivables and Related Rights from the Sellers.
4. The Company intends to sell to the Purchaser from time to time
undivided interests in the Transferred Receivables and Related Rights pursuant
to the Receivables Purchase Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the parties hereto agree as follows:
ARTICLE I
AGREEMENT TO SELL
Section 1.1.Sales and Contributions.
(a) Agreement to Sell. On the terms and subject to the conditions set
forth in this Agreement (including Article V), and in consideration of the
Purchase Price, on each day from and including the Initial Purchase Date to but
excluding the Sale Termination Date, each Seller agrees to sell, assign and
transfer, and does hereby sell, assign and transfer to the Company, and the
Company agrees to purchase, and does hereby purchase, from each Seller, such
Seller's right, title and interest in and to:
(i) each Receivable (if any) of such Seller that existed and was
owing to such Seller as of the close of such Seller's business on the
Initial Cut-Off Date;
(ii) each Receivable created or originated by such Seller after the
close of such Seller's business on the Initial Cut-Off Date, to and
including the Sale Termination Date;
(iii) all rights to, but not the obligations under, all of the
related Contracts (if any) and other Related Security (if any) related to
such Receivables originated by such Seller whether now existing or
hereafter acquired;
(iv) all monies due or to become due with respect to the foregoing;
3
<PAGE> 8
(v) all books and records related to any of the foregoing whether
now existing or hereafter acquired;
(vi) all Lock-Box Accounts, all amounts on deposit therein and all
related agreements between such Seller and the Lock-Box Banks, in each
case to the extent constituting or representing items described in
paragraph (vii) below; and
(vii) all Collections in respect of, and other proceeds (as defined
in the UCC) of, any of the foregoing received on or after the Initial
Cut-Off Date including, without limitation, all funds which either are
received by such Seller, the Company or the Master Servicer from or on
behalf of the Obligors in payment of any amounts owed (including, without
limitation, finance charges, interest and all other charges) in respect of
such Receivables, or are applied to such amounts owed by the Obligors
(including without limitation, insurance payments, if any, that such
Seller or the Master Servicer (if other than such Seller) applies in the
ordinary course of its business to amounts owed in respect of such
Receivable and net proceeds of sale or other disposition of repossessed
goods or other collateral or property of the Obligors or any other party
directly or indirectly liable for payment of such Receivable and available
to be applied thereon).
All purchases hereunder shall be made without recourse, but shall be made
pursuant to and in reliance upon the representations, warranties and covenants
of the Sellers, each in its respective capacity as a seller of Receivables, set
forth in each Transaction Document. The proceeds and rights described in
subsections (iii) through (vii) of this Section 1.1(a) are herein collectively
called the "Related Rights."
(b) [Reserved].
(c) Absolute Transfer. It is the intention of the parties hereto that the
conveyance of the Receivables and Related Rights by each Seller to the Company
as provided in this Section 1.1 be, and be construed as, an absolute sale,
without recourse, of such Receivables and Related Rights by such Seller to the
Company. Furthermore, it is not intended that such conveyance be deemed a pledge
of such Receivables and Related Rights by such Seller to the Company to secure a
debt or other obligation of such Seller. If, however, notwithstanding the
intention of the parties, the conveyance provided for in this Section 1.1 is
determined to be a transfer for security, then this Agreement shall also be
deemed to be a "security agreement" within the meaning of Article 9 of the UCC
and such Seller hereby grants to the Company a "security interest" within the
meaning of Article 9 of the UCC in all of such Seller's right, title and
interest in and to such Receivables and Related Rights, now existing and
hereafter created, to secure a loan in an amount equal to the aggregate Purchase
Prices therefor and each of such Seller's other payment obligations under this
Agreement.
Section 1.2.Timing of Purchases.
(a) Initial Purchase Date Purchases. On the date of the first Purchase
under the Receivables Purchase Agreement (the "Initial Purchase Date") each
Seller shall sell to the Company, and the Company shall purchase, pursuant to
Section 1.1, each Seller's entire right,
4
<PAGE> 9
title and interest in (i) each of such Seller's Receivables that existed and
were owing to such Seller as of the opening of such Seller's business on the
Initial Purchase Date, and (ii) all Related Rights with respect thereto.
(b) Subsequent Purchases. After the Initial Purchase Date, and continuing
until the Sale Termination Date, each Receivable described in Section 1.1(a)(ii)
hereof, and all the Related Rights with respect thereto, created or originated
by a Seller shall be sold by such Seller to the Company (without any further
action) upon the creation or origination of such Receivable. All such
Receivables shall be sold to the Company on such date.
Section 1.3.Consideration for Purchases.
On the terms and subject to the conditions set forth in this Agreement,
the Company agrees to make all Purchase Price payments to each Seller in
accordance with Article III.
Section 1.4.Sale Termination Date.
The "Sale Termination Date" shall be the earlier to occur of (i) with
respect to a particular Seller, the date (if any) that is such Seller's
Mandatory Seller Termination Date or Permissive Seller Termination Date, and
(ii) the Purchase Termination Date under the Receivables Purchase Agreement.
ARTICLE II
CALCULATION OF PURCHASE PRICE
Section 2.1.Purchase Reports; Calculation of Purchase Price.
On each Reporting Date (commencing with the first Reporting Date following
the Initial Purchase Date), the Sellers shall deliver to the Company, LFI
Servicing and the Administrator a combined report in substantially the form of
Exhibit A (such report being herein called a "Purchase Report") with respect to
the Company's purchases of Receivables from the Sellers:
(a) that arose on the Initial Purchase Date (in the case of the first
Purchase Report to be delivered hereunder, and
(b) that arose during the Settlement Period immediately preceding such
Reporting Date.
Each Purchase Report shall designate the amount of such Transferred Receivables
that were Eligible Receivables on the date of origination (or, in the case of
Existing Receivables and Receivables sold or transferred on the Initial Purchase
Date, on the Initial Purchase Date).
5
<PAGE> 10
The "Purchase Price" (to be paid to a Seller for Receivables and the Related
Rights sold by it in accordance with the terms of Article III) for the
Receivables and the Related Rights sold by such Seller shall be determined in
accordance with the following formula:
PP = AOB - (AOB X FMVD)
where:
PP = the Purchase Price as calculated as of the relevant
purchase date or Reporting Date, as applicable.
AOB = (i) for purposes of calculating the Purchase Price for
Receivables sold or transferred by such Seller on the
Initial Purchase Date, the aggregate Outstanding Balance
of all Receivables that existed and were owing to the
relevant Seller as measured as at the Initial Purchase
Date, and
(ii) for purposes of calculating the Purchase Price for
Receivables sold or transferred by such Seller after the
Initial Purchase Date, the aggregate Outstanding Balance
thereof on the date of such sale or transfer.
FMVD = Fair Market Value Discount Factor, which is the sum of
the Loss Discount and the Cost Discount, in each case as
calculated on the Initial Purchase Date or the most
recent Reporting Date, as applicable, as set forth in
the definitions below. With respect to each calculation
set forth above, the calculation of the FMVD shall
remain in effect from and including the Initial Purchase
Date to but excluding the following Reporting Date and
thereafter to but excluding each subsequent Reporting
Date.
"Loss Discount" as measured on the Initial Purchase Date or any Reporting
Date means the ratio, expressed as a percentage, of (i) the losses (i.e.
write-offs to the bad debt reserve or other write-offs consistent with the
Credit and Collection Policy, in each case, net of recoveries) recognized for
all Pool Receivables during the period equal to twelve (12) successive months
ending on the Initial Purchase Date or such Reporting Date, as the case may be
(or, until the Reporting Date that is eleven (11) months following the first
Reporting Date hereunder, during the period beginning on the Initial Purchase
Date and ending on such Reporting Date), divided by (ii) the Collections on all
Pool Receivables received during such period; provided that the Loss Discount
for the Initial Purchase Date and the first Reporting Date thereafter shall be
0.10%.
"Cost Discount" as measured on the Initial Purchase Date or any Reporting
Date means a percentage determined in accordance with the following formula:
CD = (TD/360) x CR
where:
6
<PAGE> 11
CD = the Cost Discount as measured on the Initial Purchase Date or such
Reporting Date;
TD = the Turnover Days, as set forth in the most recent Purchase Report;
and
CR = the Cost Rate as measured on the Initial Purchase Date or such
Reporting Date.
"Cost Rate" as measured on the Initial Purchase Date or any Reporting Date
means a per annum percentage rate equal to the sum of (i) the LIBO Rate for the
Initial Purchase Date or the related Settlement Period, as the case may be, plus
(ii) the Applicable Spread. "Applicable Spread" means 9.65% per annum, as
adjusted from time to time according to the following two sentences. It is the
intent of the parties that the Purchase Price paid hereunder continue to be an
appropriate amount representing adequate consideration for the sale and purchase
of Receivables and Related Rights hereunder. To this end, the parties agree to
review on not less than a quarterly basis whether the per annum percentage rate
then specified as the Applicable Spread would continue to result in a Purchase
Price (which is otherwise determined in accordance with the terms hereof) that
represents fair value for Receivables and Related Rights to be sold to the
Company and to adjust such per annum percentage rate as they, in their
discretion, deem necessary or advisable to achieve such objectives.
"LIBO Rate" for the Initial Purchase Date or any Settlement Period (other
than the initial Settlement Period) means the offered rate per annum (rounded
upwards, if necessary, to the nearest 1/16th of one percent) appearing in The
Wall Street Journal for three month LIBOR loans on the Initial Purchase Date or
the first Business Day of such Settlement Period, as the case may be.
"Turnover Days" means the product of (a) the quotient of (i) the aggregate
Outstanding Balance of the Transferred Receivables as of the Initial Purchase
Date or the first day of the Settlement Period next preceding such Reporting
Date, divided by (ii) the aggregate amount of Collections received on all
Transferred Receivables during such next preceding Settlement Period, times (b)
the number of days in such next preceding Settlement Period (provided that
Turnover Days for the Initial Purchase Date and the first Reporting Date
thereafter shall be 51);
ARTICLE III
PAYMENT OF PURCHASE PRICE
Section 3.1 Initial Purchase Price Payment.
On the terms and subject to the conditions set forth in this Agreement,
the Company agrees to pay to the applicable Sellers on the Initial Purchase Date
the Purchase Price for the Receivables of such Seller existing on the Initial
Purchase Date (a) in cash to the extent of the amount received by the Company in
connection with the first Purchase made pursuant to the Receivables Purchase
Agreement (provided that if the aggregate of the Purchase Prices exceeds
7
<PAGE> 12
the amount of cash so received by the Company, the Company shall apply such
amount of cash ratably among the Purchase Prices payable to such Sellers) and
(b) by the issuance of a promissory note in the form of Exhibit B to the Sellers
(such promissory note, as it may be amended, supplemented, endorsed or otherwise
modified from time to time in substitution therefor or renewal thereof in
accordance with the Transaction Documents, being herein called the "Seller
Note") in an initial aggregate principal amount equal to the sum of the
outstanding principal amount of the "Seller Note" of the Sellers issued in
respect of the Existing Securitization plus the remainder (if any) of the
Purchase Prices owing on the Initial Purchase Date to the Sellers, after
subtracting the amount paid in cash.
Section 3.2 Subsequent Purchase Price Payments.
On each Business Day after the Initial Purchase Date on which a Seller
sells any Receivables to the Company, until the termination of this Agreement
pursuant to Section 10.4 hereof, the Company shall pay to such Seller the
Purchase Price of such Receivables (i) by depositing into such account as such
Seller shall specify immediately available funds from monies then held by or on
behalf of the Company solely to the extent that such monies do not constitute
Collections that are required to be identified or are deemed to be held by the
Master Servicer pursuant to the Receivables Purchase Agreement or required to be
distributed to the Administrator or the Purchaser pursuant to the Receivables
Purchase Agreement or required to be paid to the Master Servicer as the
Servicer's Fee, or otherwise necessary to pay current expenses of the Company
(in its reasonable discretion) (such available monies, the "Available Funds")
and provided that such Seller has paid all amounts then due by such Seller
hereunder or (ii) by increasing the principal amount owed to such Seller under
the Seller Note. The outstanding principal amount owed to any Seller under the
Seller Note may be reduced from time to time (i) as provided in Section 3.3 or
3.4 hereof or (ii) by payments made by the Company from Available Funds,
provided that such Seller has paid all amounts then due by such Seller
hereunder.
Each Seller shall make all appropriate record keeping entries with respect
to amounts due to such Seller under the Seller Note to reflect payments by the
Company thereon and such Seller's books and records shall constitute rebuttable
presumptive evidence of the principal amount of and accrued interest owed to
such Seller under the Seller Note. The Sellers shall return the Seller Note to
the Company upon the final payment of all amounts due to each Seller thereunder
after the termination of this Agreement pursuant to Section 9.4 hereof.
Section 3.3 Settlement as to Specific Receivables.
If an officer of any Seller obtains knowledge or receives notice from the
Company or the Administrator that (a) on the day that any Receivable purchased
or transferred hereunder was created or originated by such Seller (or, in the
case of Existing Receivables or Receivables purchased or transferred on the
Initial Purchase Date, on the Initial Purchase Date), any of the representations
or warranties set forth in Section 5.1(l) was not true with respect to such
Receivable, or such Receivable was designated as an Eligible Receivable on the
related Purchase Report (or, in the case of Existing Receivables, on the pro
forma Settlement Report) and was not
8
<PAGE> 13
an Eligible Receivable or (b) on any day any of the representations or
warranties set forth in Section 5.1(l) are no longer true with respect to a
Transferred Receivable (each such Receivable, an "Ineligible Receivable"), then
the Outstanding Balance of such Ineligible Receivable as of such day shall be
applied to reduce the Purchase Price payable with respect to Receivables sold or
transferred on such day or to reduce the outstanding principal amount owed to
such Seller under the Seller Note; provided that if such Purchase Price and the
outstanding principal amount owed to such Seller under the Seller Note have been
reduced to zero, such Seller shall pay to the Company the remaining amount of
the Outstanding Balance of such Ineligible Receivable that has not been so
applied, in immediately available funds, not later than the relevant Settlement
Date; provided, further, that if the Company receives payment on account of
Collections due with respect to any such Ineligible Receivable after the date of
such application or payment, the Company promptly shall deliver such funds to
such Seller. The enforcement of the obligations of the Sellers set forth in this
Section 3.3 shall be the sole remedy of the Company with respect to Ineligible
Receivables.
Section 3.4 Settlement as to Dilution.
Each Purchase Report shall include, in respect of the Receivables
previously sold or transferred by the related Seller (and the pro forma
Settlement Report shall include in respect of the Existing Receivables), a
calculation of the aggregate reduction in the aggregate Outstanding Balance of
such Receivables owed by particular Obligors on account of any Dilution
Adjustment or any setoffs in respect of any claims by the Obligor(s) thereof
(whether such claims arise out of the same or a related or unrelated
transaction), during the most recent Settlement Period. The aggregate amount of
such reduction shall be applied to reduce the outstanding principal amount owed
to such Seller under the Seller Note, effective as of the relevant Settlement
Date, and, if the outstanding principal amount owed to such Seller under the
Seller Note has been reduced to zero, such Seller shall pay to the Company the
remaining amount of such aggregate reduction that has not been so applied, in
immediately available funds, not later than the relevant Settlement Date.
Section 3.5 Reconveyance of Receivables.
In the event that any Seller has paid (by effecting a Purchase Price
reduction or otherwise) to the Company the full Outstanding Balance of a
Transferred Receivable pursuant to Section 3.3 or 3.4, the Company shall
reconvey and shall be deemed to have reconveyed such Receivable and all Related
Rights with respect thereto to such Seller, without recourse, representation or
warranty, but free and clear of all Liens created solely by the Company; such
reconveyed Receivables and all Related Rights shall no longer be subject to the
terms of this Agreement (including any obligation to turn over Collections with
respect thereto) other than the obligation of the Company to deliver Collections
received with respect to any such reconveyed Receivable.
ARTICLE IV
CONDITIONS OF PURCHASES
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Section 4.1 Conditions Precedent to Initial Purchase.
The initial purchase and contribution hereunder is subject to the
condition precedent that the Company shall have received, on or before the
Initial Purchase Date, the following, each (unless otherwise indicated) dated
the Initial Purchase Date, and each in form, substance and date reasonably
satisfactory to the Company and the Administrator:
(a) A copy of the resolutions of the Board of Directors of each Seller
approving the Transaction Documents to be delivered by it and the transactions
contemplated hereby and thereby, certified by its Secretary or Assistant
Secretary;
(b) Good standing certificate for each Seller issued as of a recent date
by the Secretary of State of the jurisdiction of its incorporation and its
principal place of business;
(c) A certificate of the Secretary or Assistant Secretary of each Seller
certifying the names and true signatures of the officers authorized on such
Seller's behalf to sign the Transaction Documents to be delivered by it (on
which certificate the Company, the Master Servicer and the Administrator may
conclusively rely until such time as the Company, the Master Servicer and the
Administrator shall receive from such Seller a revised certificate meeting the
requirements of this subsection (c);
(d) The articles of incorporation of each Seller, duly certified by the
Secretary of State of the jurisdiction of its incorporation as of a recent date,
together with a copy of its by-laws, duly certified by its Secretary or an
Assistant Secretary;
(e) Any documents (including, without limitation, financing statements)
required by the Administrator to be filed, registered or recorded in order to
create, for the benefit of the Company (and the Administrator on behalf of the
Purchaser, as assignee of the Company), a first priority perfected ownership
interest in all Transferred Receivables and Related Rights in which the
ownership interest may be assigned to it hereunder, in each office in each
jurisdiction in which such filings, registration and recordations are required
or, in the Administrator's opinion, desirable to perfect such ownership
interest, and the Administrator shall be satisfied that all such filings,
registrations and recording will be completed promptly following the Initial
Purchase Date and that all necessary filing, registration, recording and other
fees and all taxes and expenses related to such filings, registrations and
recordings will be promptly paid in full by the Sellers;
(f) A written search report from a Person satisfactory to the Master
Servicer and the Administrator listing all effective financing statements that
name any Seller as debtor or assignor and that are filed in the jurisdictions in
which filings are to be made pursuant to the foregoing subsection (e), together
with copies of such financing statements (none of which, except for those
described in the foregoing subsection (e) and those relating to the Existing
Securitization shall cover any Transferred Receivable or any Related Right
related to any such Receivable), and tax and judgment lien search reports from a
Person satisfactory to the Master Servicer and the Administrator showing no
evidence of such liens filed against any Seller;
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(g) Evidence (i) of the execution and delivery by each of the parties
thereto of each of the other Transaction Documents to be executed and delivered
in connection herewith and (ii) that each of the conditions precedent to the
execution, delivery and effectiveness of such other Transaction Documents has
been satisfied to the Company's and the Administrator's satisfaction; and
(h) A certificate from an officer of each Seller to the effect that the
Master Servicer and such Seller have taken all steps reasonably necessary to
ensure that there shall be placed on all summary master control data processing
reports generated after the Initial Purchase Date the following legend (or the
substantive equivalent thereof): "THE RECEIVABLES DESCRIBED HEREIN OTHER THAN
CERTAIN EXCLUDED RECEIVABLES HAVE BEEN SOLD TO LFI RECEIVABLES CORPORATION PER
THAT PURCHASE AND SALE AGREEMENT, DATED AS OF MARCH 23, 1999, AS AMENDED,
RESTATED OR REPLACED FROM TIME TO TIME, AND AN OWNERSHIP AND SECURITY INTEREST
IN SUCH RECEIVABLES HAS BEEN GRANTED TO BLUE RIDGE ASSET FUNDING CORPORATION,
PER THAT RECEIVABLES PURCHASE AGREEMENT DATED AS OF MARCH 23, 1999, AS AMENDED,
RESTATED OR REPLACED FROM TIME TO TIME. CONTACT WACHOVIA BANK, N.A.,
ADMINISTRATOR, FOR FURTHER INFORMATION.
Section 4.2 Certification as to Representations and Warranties.
Each Seller, by accepting the Purchase Price related to each purchase of
Receivables (and Related Rights), shall be deemed to have certified that the
representations and warranties contained in Article V are true and correct on
and as of the day of such purchase, with the same effect as though made on and
as of such day.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Section 5.1 Representations of the Sellers.
In order to induce the Company to enter into this Agreement and to make
purchases hereunder, each Seller, in its capacity as a seller of Receivables
under this Agreement, hereby makes the following representations and warranties:
(a) Organization and Good Standing; Ownership. It has been duly organized
and is validly existing as a corporation in good standing under the laws of the
State of its incorporation, with power and authority to own its properties and
to conduct its business as such properties are presently owned and such business
is presently conducted. It had at all relevant times, and now has, all necessary
power, authority, and legal right to create and own the Receivables and Related
Rights.
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(b) Due Qualification. It is duly qualified to do business as a foreign
corporation in good standing in all jurisdictions in which the conduct of its
business requires such qualification, except where the failure to be so
qualified could not reasonably be expected to have a Seller Material Adverse
Effect.
(c) Power and Authority; Due Authorization. It (i) has all corporate power
and authority (A) to execute and deliver this Agreement and the other
Transaction Documents to which it is a party, (B) to perform each of its
obligations under each of the Transaction Documents to which it is a party and
(C) to service the Transferred Receivables and Related Rights originated by it
and (ii) has duly authorized by all necessary corporate action the execution,
delivery and performance of this Agreement and the other Transaction Documents
to which it is a party.
(d) Valid Sale; Binding Obligations. This Agreement and each other
Transaction Document to which it is a party constitutes its legal, valid and
binding obligation, enforceable against such Seller in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws from time to time in effect
affecting the enforcement of creditors' rights generally and by general
principles of equity, regardless of whether such enforceability is considered in
a proceeding in equity or at law.
(e) No Violation. The execution, delivery, and performance by such Seller
of this Agreement and the other Transaction Documents to which it is a party do
not (i) conflict with, result in any breach of any of the terms and provisions
of, or constitute (with or without notice or lapse of time or both) a default
under, its articles or certificate of incorporation or by-laws, or any material
indenture, loan agreement, receivables purchase agreement, mortgage, deed of
trust, or other material agreement or instrument to which it is a party or by
which it or any of its properties is bound, (ii) result in the creation or
imposition of any Lien upon any of the Transferred Receivables pursuant to the
terms of any such material indenture, loan agreement, receivables purchase
agreement, mortgage, deed of trust, or other material agreement or instrument,
other than this Agreement and the other Transaction Documents to which it is a
party, or (iii) violate any law or any order, rule, or regulation applicable to
it of any court or of any federal or state regulatory body, administrative
agency, or other governmental instrumentality having jurisdiction over it or any
of its properties, except where any such conflict, breach or default referred to
in clause (i) or (iii), individually or in the aggregate, could not reasonably
be expected to have a Seller Material Adverse Effect.
(f) No Proceedings. There are no actions, suits or proceedings or
investigations pending, or, to its knowledge, threatened, against such Seller
before any court, regulatory body, administrative agency, or other tribunal or
governmental instrumentality (i) asserting the invalidity of this Agreement or
any other Transaction Document, (ii) seeking to prevent the sale and assignment
of the Receivables under this Agreement or of the Asset Interest under the
Receivables Purchase Agreement or the consummation of any of the other
transactions contemplated by this Agreement or any other Transaction Document,
or (iii) that could reasonably be expected to have a Seller Material Adverse
Effect.
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(g) Bulk Sales Act. The sale, transfer and assignment by such Seller of
Receivables hereunder does not require compliance with any bulk sales act or
similar law in the state of its incorporation and (if different) the state of
its principal place of business.
(h) Government Approvals. Except for (i) the filing of the UCC financing
statements referred to in Article IV, all of which, at the time required in
Article IV, shall have been duly made and shall be in full force and effect, and
(ii) such authorizations, approvals, notices, filings or other actions the
failure of which to obtain or make could not reasonably be expected to result in
a Seller Material Adverse Effect, no authorization or approval or other action
by, and no notice to or filing with, any governmental authority or regulatory
body is required for its due execution, delivery and performance of any
Transaction Document to which it is a party; provided however, that with respect
to Transferred Receivables (if any) owing by governmental Obligors, any failure
to comply with the United States Federal Non-Assignment Act, 41 U.S.C. ss.15 or
Assignment of Claims Act, 31 U.S.C. ss.3727 or with any similar federal or state
legislation shall not constitute a breach of this representation and warranty.
(i) [Reserved].
(j) [Reserved].
(k) [Reserved].
(l) Quality of Title. (i) Each Transferred Receivable originated by it,
together with the Related Rights, was, immediately prior to the transfer by it
hereunder (or, in the case of Existing Receivables, at the time transferred by
such Seller to the Company under the Existing Securitization), owned by it free
and clear of any Lien (other than (x) in the case of any Existing Receivable,
any Lien permitted pursuant to the Existing Securitization or (y) in the case of
any other Receivable, any Permitted Lien) created pursuant to the Transaction
Documents) and (ii) no financing statement or other instrument similar in effect
covering any such Receivable, any interest therein or the Related Rights with
respect thereto is on file in any recording office except such as may be filed
(1) in favor of the Company in connection with this Agreement, (2) in favor of
Purchaser or the Administrator in accordance with the Receivables Purchase
Agreement or in connection with any Lien arising solely as the result of any
action taken by the Purchaser (or any assignee thereof) or by the Administrator,
(3) in favor of the Collateral Agent or (4) with respect to the Existing
Securitization (as to which UCC-3 Termination Statements have been executed by
the relevant purchaser and secured party and delivered on the Initial Purchase
Date to the Administrator).
(m) Accurate Reports. No Settlement Report (if prepared by it, or to the
extent information therein was supplied by it) or other information, exhibit,
financial statement, document, book, record or report furnished, in each case in
writing, by or on its behalf to the Administrator or the Purchaser pursuant to
this Agreement taken as a whole was inaccurate in any material respect as of the
date it was dated or (except as otherwise disclosed to the Administrator or the
Purchaser at such time) as of the date so furnished, or contained any material
misstatement of fact or omitted to state a material fact necessary to make the
statements contained therein not materially misleading in light of the
circumstances made or presented.
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(n) Offices. Its principal place of business and chief executive office is
located at the address set forth in Exhibit C and the offices where such Seller
keeps all its books, records and documents evidencing the Transferred
Receivables originated by it, the related Contracts, if any, and all other
agreements related to such Receivables are located at the address specified in
Exhibit C (or at such other locations, notified to the Master Servicer, the
Company and the Administrator in accordance with Section 6.1(f), in
jurisdictions where all action required by Section 7.3 has been taken or is
being taken and will be completed within the time period required by Section
6.1(f)).
(o) Lock-Box Accounts. The names and addresses of all the Lock-Box Banks,
together with the account numbers of the accounts at such Lock-Box Banks, are
specified in Schedule 5.1(o) (or have been notified to and approved by the
Administrator, on the Purchaser's behalf, in accordance with Section 7.3(d) of
the Receivables Purchase Agreement and all action required by Section 8.5 of the
Receivables Purchase Agreement has been taken or is being taken and will be
completed within the required time periods as set forth in such Section 8.5).
(p) Eligible Receivables; No Excluded Receivables. Each Receivable sold or
transferred by it to the Company hereunder (and each Existing Receivable
originated by it) and included in the Net Pool Balance as an Eligible Receivable
on the date hereof or on the date of any Purchase, Reinvestment or computation
of Net Pool Balance is an Eligible Receivable on such date. No such Receivable
is an Excluded Receivable.
(q) [Reserved].
(r) Year 2000. From and after September 30, 1999, such Seller reasonably
believes that it is Year 2000 Compliant and Ready.
(s) Compliance with Credit and Collection Policy. With respect to each
Transferred Receivable originated by it, it has complied in all material
respects with its Credit and Collection Policy.
(t) Payments to Originators. With respect to each Transferred Receivable
originated by it, the Company has given reasonably equivalent value to it in
consideration therefor and for the Related Rights with respect thereto and such
transfer was not made for or on account of antecedent debt.
(u) Taxes. It has filed all material tax returns and reports required by
law to have been filed by it and has paid all taxes and governmental charges
thereby shown to be owing, except to the extent any failure to file such returns
or reports or pay such taxes or charges could not reasonably be expected to
result in a Seller Material Adverse Effect.
(v) Financial Condition. On the date hereof it is, and on the date of each
transfer of a new Receivable hereunder (both before and after giving effect to
such transfer), it shall be Solvent.
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(w) Prior Legal Names. From and after the date that fell five (5) years
before the date hereof, it has not been known by any legal name other than its
corporate name as of the date hereof, nor has it been the subject of any merger
or similar change in corporate structure, except as disclosed on Schedule
5.1(w).
(x) Compliance with Applicable Laws. It is in compliance, in all material
respects, with the requirements of all applicable laws, rules, regulations, and
orders of all governmental authorities applicable to the Transferred Receivables
originated by it and related Contracts, if any, (including, to the extent a
Transferred Receivable is owed by an individual, Consumer Credit Laws) except
where the failure to do so would not, individually or in the aggregate,
reasonably be expected to have a Seller Material Adverse Effect.
(y) Reliance on Separate Legal Identity. It is aware that the Purchaser,
the Liquidity Banks and the Administrator are entering into the transactions
contemplated by the Transaction Documents and the Liquidity Agreement in
reliance upon the Company's identity as a legal entity separate from it and each
of its other Affiliates.
ARTICLE VI
COVENANTS OF THE SELLERS
Section 6.1 Affirmative Covenants.
From the date hereof until the Final Payout Date, each Seller will, unless
the Company and the Administrator shall otherwise consent in writing:
(a) Compliance with Laws, Etc. Comply in all material respects with all
applicable laws, rules, regulations and orders, including those with respect to
the Transferred Receivables originated by it and the Contracts, if any, and
other agreements related thereto (including, to the extent a Transferred
Receivable is owed by an individual, Consumer Credit Laws), except where the
failure to do so would not, individually or in the aggregate, reasonably be
expected to have a Seller Material Adverse Effect.
(b) Preservation of Corporate Existence. Preserve and maintain its
corporate existence, rights, franchises and privileges in the jurisdiction of
its incorporation, and qualify and remain qualified in good standing as a
foreign corporation in each jurisdiction where the failure to preserve and
maintain such existence, rights, franchises, privileges and qualification would
have a Seller Material Adverse Effect; provided, however, that this Section
6.1(b) shall not prevent any merger or consolidation of such Seller with or into
(i) any direct or indirect wholly-owned Subsidiary of FII or (ii) any other
Person if a Mandatory Seller Termination Date or Permissive Seller Termination
Date has been declared with respect to such Seller.
(c) Receivables Review. At any time and from time to time upon not less
than five (5) Business Days' notice (unless a Liquidation Event has occurred and
is continuing (or the Administrator, on the Purchaser's behalf, believes in good
faith that a Liquidation Event has
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occurred and is continuing), in which case two (2) Business Days' notice shall
be required) (i) during regular business hours, permit the Administrator, on the
Purchaser's behalf, or any of its agents or representatives (A) to examine and
make copies of and abstracts from all books, records and documents (including,
without limitation, computer tapes and disks) in the possession or under the
control of such Seller relating to the Transferred Receivables originated by it,
including, without limitation, the related Contracts, if any, and purchase
orders and other agreements (if any), and (B) to visit the offices and
properties of such Seller for the purpose of examining such materials described
in clause (i)(A) next above, and to discuss matters relating to the Transferred
Receivables originated by it or such Seller's performance hereunder with any of
the officers or employees of such Seller having knowledge of such matters;
provided that the rights provided in this clause (i) shall not be exercised more
than two (2) times in any one (1) calendar year so long as no Liquidation Event
has occurred and is continuing; (ii) permit the Company and the Administrator or
any of its agents or representatives, upon not less than five (5) Business Days'
notice from the Administrator (unless a Liquidation Event has occurred and is
continuing (or the Administrator believes in good faith that a Liquidation Event
has occurred and is continuing) in which case one (1) Business Day's prior
notice shall be required) to meet with the independent auditors (which, as of
the Initial Purchase Date, is PricewaterhouseCoopers LLP) of such Seller to
review such auditors' work papers and otherwise to review with such auditors the
books and records of such Seller with respect to the Transferred Receivables
generated by it and Related Rights; and (iii) without limiting the provisions of
clause (i) or (ii) next above, from time to time, at the expense of such Seller,
permit PricewaterhouseCoopers LLP or other auditors acceptable to the
Administrator to conduct a review of such Seller's books and records with
respect to the Transferred Receivables generated by it and Related Rights;
provided, that, so long as no Liquidation Event has occurred and is continuing,
(x) such reviews shall not be done more than two (2) times in any one calendar
year and (y) such Seller shall be responsible for the costs and expenses of only
one such review in any one calendar year. The Administrator agrees (i) to
comply, and to ensure that its respective agents and representatives acting
under this Agreement comply, with each Seller's reasonable security and
confidentiality requirements, (ii) to protect and maintain the confidentiality
of all information disclosed or made available hereunder and (iii) to use such
information only for the purpose of determining compliance with the provisions
of this Agreement and for no other purpose. The Administrator and its respective
agents and representatives shall return to the respective Seller upon request
all tangible items and written documents provided to, made or compiled by, or
otherwise acquired hereunder, including notes, samples, models, summaries,
memoranda, records and other documents, and all copies thereof.
(d) Keeping of Records and Books of Account. Maintain and implement
administrative and operating procedures (including, without limitation, an
ability to recreate records evidencing the Transferred Receivables originated by
it in the event of the destruction of the originals thereof), and keep and
maintain all documents, books, records and other information reasonably
necessary or advisable for the collection of all Transferred Receivables
originated by it (including, without limitation, records adequate to permit the
daily identification of Outstanding Balances by Obligor and related debit and
credit details of the Transferred Receivables originated by it).
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(e) Performance and Compliance with Receivables and Contracts. At its
expense timely and fully perform and comply in all material respects with all
provisions, covenants and other promises required to be observed by it under all
Contracts and all purchase orders and other agreements, if any, related to the
Transferred Receivables originated by it, the breach of which provisions,
covenants and other promises could reasonably be expected to have a Seller
Material Adverse Effect.
(f) Location of Records. Keep its chief place of business and chief
executive office, and the offices where it keeps its records concerning the
Transferred Receivables originated by it, any related Contracts and all
agreements (if any) related to such Transferred Receivables originated by it
(and all available original documents relating thereto), at its address(es)
referred to in Section 5.1(n) or, upon 30 days' prior written notice to the
Administrator, at such other locations in jurisdictions where all action
required by Section 7.3 shall have been or is being taken and completed within
the time periods prescribed by Section 7.3.
(g) Credit and Collection Policies. Comply in all material respects with
its Credit and Collection Policy in connection with the Transferred Receivables
originated by it and all Contracts, if any, related thereto transferred by it
hereunder.
(h) Separate Corporate Existence of the Company. Take such actions as
shall be required in order to maintain the separate identity of the Company
separate and apart from it and any of its other Affiliates, including those
actions applicable to such Seller set forth in Section 7.4 of the Receivables
Purchase Agreement.
(i) Accurate Reports. Each Settlement Report (if prepared by it, or to the
extent information therein was supplied by it) and all other information,
exhibits, financial statements, documents, books, records or reports furnished,
in each case in writing, by or on its behalf to the Administrator or the
Purchaser pursuant to this Agreement taken as a whole will not be inaccurate in
any material respect as of the date it was dated or as of the date so furnished,
or contain any material misstatement of fact or omit to state a material fact
necessary to make the statements contained therein not materially misleading in
light of the circumstances made or presented.
(j) Year 2000 Compliance: Each Seller will be Year 2000 Compliant and
Ready not later than September 30, 1999, and will deliver certification thereof
to the Administrator not later than September 30, 1999.
Section 6.2 Reporting Requirements.
From the date hereof until the Final Payout Date, each Seller will, unless
the Company and the Administrator shall otherwise consent in writing, furnish to
the Company and the Administrator:
(a) Liquidation Events, Etc. Promptly and in any event within five
Business Days after obtaining knowledge of the occurrence of any Liquidation
Event, furnish to the Administrator, on the Purchaser's behalf, a written
statement of the chief financial officer,
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treasurer or chief accounting officer of such Seller setting forth details of
such event and the action that the applicable Seller will take with respect
thereto.
(b) Proceedings. As soon as possible and in any event within ten Business
Days after it has knowledge thereof, written notice to the Company and the
Administrator of (i) all pending proceedings and investigations of the type
described in Section 5.1(f) not previously disclosed to the Company and/or the
Administrator and (ii) any development in previously disclosed litigation which
development could reasonably be expected to have a Seller Material Adverse
Effect;
(c) Audit of Receivables. As soon as available and in any event within 90
days after the end of each fiscal year, furnish to the Company and the
Administrator, on the Purchaser's behalf, an audit report, prepared by
independent auditors of the Sellers (which, as of the Initial Purchase Date, is
PricewaterhouseCoopers LLP), as of the end of such fiscal year, substantially in
the form of the report attached hereto as Exhibit 6.2(c) and covering such other
matters as the Administrator may reasonably request in order to protect the
interests of the Administrator or the Purchaser under or as contemplated by this
Agreement.
(d) Credit and Collection Policy. At least ten (10) Business Days prior to
its effective date, notice of any material change in the character of its
business or in its Credit and Collection Policy; and
(e) Other. Promptly, from time to time, such other information, documents,
records or reports respecting the Transferred Receivables originated by it or
its performance as a Seller hereunder that the Company or the Administrator may
from time to time reasonably request in order to protect the interests of the
Company, the Purchaser, the Administrator, or any other Affected Party under or
as contemplated by the Transaction Documents.
Section 6.3 Negative Covenants.
From the date hereof until the Final Payout Date, each Seller agrees that,
unless the Administrator shall otherwise consent in writing, it shall not:
(a) Sales, Liens, Etc. Except as otherwise provided herein or in any other
Transaction Document, sell, assign (by operation of law or otherwise) or
otherwise dispose of, or create any Lien upon or with respect to, any
Transferred Receivable or Related Right, or any interest therein, or any account
to which any Collections of any Transferred Receivable are sent, or any right to
receive income or proceeds from or in respect of any of the foregoing (except,
prior to the execution of Lock-Box Agreements, set-off rights of any bank at
which any such account is maintained).
(b) Change in Business; Credit and Collection Policy. Make or permit to be
made any change in the character of its business or in its Credit and Collection
Policy, which change would, in either case, impair the collectibility of any
significant portion of the Transferred Receivables generated by it or otherwise
have a Seller Material Adverse Effect, unless with
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respect to any material change in accounting policies relating to Transferred
Receivables, such change is made in accordance with GAAP.
(c) Receivables Not to be Evidenced by Promissory Notes. Take any action
to cause or permit any Transferred Receivable originated by it to become
evidenced by any "instrument" (as defined in the applicable UCC), except in
connection with the collection of overdue Receivables, provided that the
original of such instrument is delivered to the Administrator, duly endorsed.
ARTICLE VII
ADDITIONAL RIGHTS AND OBLIGATIONS IN
RESPECT OF THE TRANSFERRED RECEIVABLES
Section 7.1 Rights of the Company.
Each Seller hereby authorizes the Company and the Master Servicer or their
respective designees to take any and all steps in such Seller's name necessary
or desirable, in their respective determination, to collect all amounts due
under any and all Transferred Receivables originated by it, including, without
limitation, endorsing such Seller's name on checks and other instruments
representing Collections and enforcing such Transferred Receivables and the
provisions of the related Contracts, if any, that concern payment and/or
enforcement of rights to payment.
Section 7.2 Responsibilities of the Sellers.
Anything herein to the contrary notwithstanding:
(a) Collection Procedures. Each Seller agrees to direct the Obligors, as
promptly as practicable after a Liquidation Event, to make payments of
Transferred Receivables originated by it directly to a Lock-Box Account that is
the subject of a Lock-Box Agreement at a Lock-Box Bank. Each Seller further
agrees to transfer any Collections (including any security deposits applied to
the Outstanding Balance of any Transferred Receivable) that it receives directly
to the Master Servicer within two Business Days after receipt thereof, and
agrees that all such Collections shall be deemed to be received in trust for the
Company; provided that, to the extent permitted to be paid to such Seller
pursuant to Section 3.2, each Seller may retain such Collections as a portion of
the Purchase Price then payable.
(b) Performance Under Contract. Each Seller shall remain responsible for
performing its obligations hereunder and under the Contracts, if any, related to
any Transferred Receivable originated by it, and the exercise by the Company or
its designee of its rights hereunder shall not relieve such Seller from such
obligations.
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(c) Power of Attorney. Each Seller hereby grants to the Master Servicer an
irrevocable power of attorney, with full power of substitution, coupled with an
interest, to take in the name of such Seller all steps necessary or advisable to
endorse, negotiate or otherwise realize on any writing or other right of any
kind held or transmitted by such Seller or transmitted or received by the
Company (whether or not from such Seller) in connection with any Transferred
Receivable originated by it hereunder.
(d) Sellers as Servicers. The Master Servicer hereby appoints each Seller
(other than Drexel Heritage Home Inspirations, Inc.) as, and each such Seller
hereby agrees to act as, servicer with respect to any Transferred Receivables
for which such Seller is the originator (and Drexel Heritage Furnishings, Inc.
hereby agrees to act as servicer with respect to any Transferred Receivables
originated by Drexel Heritage Home Inspirations, Inc.), and, with respect
thereto shall be a "Servicer" under the Receivables Purchase Agreement.
Accordingly, in connection with such Receivables, each Seller hereby assumes all
of the responsibilities and obligations under the Receivables Purchase Agreement
of the Master Servicer with respect to the servicing of all Transferred
Receivables originated by it.
Section 7.3 Responsibilities of the Sellers.
Each Seller agrees that from time to time, at its expense, it will
promptly execute and deliver all further instruments and documents, and take all
further action that the Company may reasonably request in order to perfect,
protect or more fully evidence the Company's ownership of the Transferred
Receivables (and the Related Rights), or to enable the Company to exercise or
enforce any of its rights hereunder or under any other Transaction Document.
Without limiting the generality of the foregoing, upon the request of the
Company, each Seller will:
(a) execute and file such financing or continuation statements, or
amendments thereto or assignments thereof, and such other instruments or
notices, as may be necessary or appropriate; and
(b) mark the summary master control data processing records with the
legend set forth in Section 4.1(h).
Each Seller hereby authorizes the Company or its designee to file one or more
financing or continuation statements, and amendments thereto and assignment
thereof, relative to all or any of the Transferred Receivables (and the Related
Rights) now existing or hereafter sold or transferred by such Seller. If any
Seller fails to perform any of its agreements or obligations under this
Agreement, the Company or its designee may (but shall not be required to)
itself, on behalf of such Seller, perform, or cause performance of, such
agreement or obligation, and the expenses of the Company or its designee
incurred in connection therewith shall be payable by such Seller as provided in
Section 10.6.
Section 7.4 Application of Collections.
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Any payment by an Obligor in respect of any indebtedness owed by it to any
Seller in respect of any Contract shall, except as otherwise specified by such
Obligor or otherwise required by contract or law, be applied first, as a
Collection of the Transferred Receivables of such Obligor, in the order of the
age of such Receivables, starting with the oldest of such Receivables, and
second, to any other indebtedness of such Obligor.
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Indemnities by the Sellers.
Without limiting any other rights which the Company may have hereunder or
under applicable law, each Seller hereby agrees to indemnify the Company and
each of its permitted assigns, officers, directors, employees and agents (each
of the foregoing Persons being individually called a "Sale Indemnified Party"),
on demand, from and against any and all damages, losses, claims, judgments,
liabilities and related costs and expenses, including reasonable attorneys' fees
and disbursements (all of the foregoing being collectively called "Sale
Indemnified Amounts") awarded against or incurred by any of them arising out of
or as a result of the following:
(a) the transfer by such Seller of an interest in any Transferred
Receivable or Related Right to any Person other than the Company, except in
connection with (i) any reconveyance of a Receivable under Section 3.5 or (ii)
any transfer or disposition of a Transferred Receivable by such Seller in its
capacity as a Servicer on behalf of the Company;
(b) the breach of any representation or warranty made by such Seller under
or in connection with this Agreement or any other Transaction Document, or any
written information or report delivered by such Seller pursuant hereto or
thereto which shall have been false or incorrect in any material respect when
made or deemed made;
(c) the failure by such Seller to comply with any applicable law, rule or
regulation with respect to any Transferred Receivable or the related Contract,
or the nonconformity of any Transferred Receivable generated by it or the
related Contract with any such applicable law, rule or regulation;
(d) the failure to vest and maintain vested in the Company an ownership
interest in the Transferred Receivables generated by it and the Related Rights
free and clear of any Lien, other than a Lien arising solely as a result of an
act of the Company, the Purchaser or the Administrator, whether existing at the
time of the purchase of such Receivables or at any time thereafter;
(e) the failure of such Seller to file with respect to itself, or any
delay in filing, financing statements or other similar instruments or documents
under the UCC of any applicable jurisdiction or other applicable laws with
respect to any Transferred Receivables originated by it
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or purported Transferred Receivables originated by such Seller, whether at the
time of any purchase or at any subsequent time;
(f) any dispute, claim, offset or defense (other than nonpayment due to
credit problems of the Obligor) of the Obligor to the payment of any Transferred
Receivable or purported Transferred Receivable originated by such Seller
(including, without limitation, a defense based on such Receivables or the
related Contracts, if any, not being a legal, valid and binding obligation of
such Obligor enforceable against it in accordance with its terms), or any other
claim resulting from the services or merchandise related to any such Receivable
or the furnishing of or failure to furnish such services or merchandise;
(g) any product liability claim arising out of or in connection with
services or merchandise that are the subject of any Transferred Receivable
originated by such Seller;
(h) any tax or governmental fee or charge (but not including Excluded
Taxes), all interest and penalties thereon or with respect thereto, and all
out-of-pocket costs and expenses, including the reasonable fees and expenses of
counsel in defending against the same, which may arise by reason of the purchase
or ownership of the Transferred Receivables originated by such Seller or any
Related Right connected with any such Receivables; and
(i) the failure of such Seller to comply with any of the obligations
contained in this Agreement or any other Transaction Document applicable to it,
including its obligations as a Servicer;
excluding, however, (i) Sale Indemnified Amounts to the extent resulting from
gross negligence or willful misconduct on the part of such Sale Indemnified
Party, and (ii) any indemnification which has the effect of recourse to such
Seller for non-payment of the Transferred Receivables due to credit problems of
the Obligors.
If for any reason the indemnification provided above in this Section 8.1
is unavailable to a Sale Indemnified Party or is insufficient to hold such Sale
Indemnified Party harmless, then such Seller shall contribute to the amount paid
or payable by such Sale Indemnified Party to the maximum extent permitted under
applicable law.
ARTICLE IX
ADDITION AND TERMINATION OF SELLERS
Section 9.1 Addition of Sellers.
Subject to Section 9.2, from time to time one or more Subsidiaries who are
100% owned, directly or indirectly, by FII may become Sellers hereunder and
parties hereto. If any such Subsidiary wishes to become an additional Seller or
if FII or any Seller desires to acquire any Person as a new wholly-owned
Subsidiary and cause such Subsidiary to be an additional Seller at the time such
acquisition is consummated, it shall submit a request to such effect in writing
to the Company and the Administrator. If the Company (which, for purposes of
this provision shall not
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include any assignee under Section 10.11) shall have agreed to any such request,
such Subsidiary shall become an additional Seller hereunder and a party hereto
on the related Seller Addition Date upon the satisfaction of the conditions set
forth in Section 9.2.
Section 9.2 Conditions Precedent to the Addition of a Seller.
No Subsidiary of FII approved by the Company as an additional Seller
pursuant to Section 9.1 shall be added as a Seller hereunder unless the
conditions set forth below shall have been satisfied on or before the date
designated for the addition of such Seller (the "Seller Addition Date"):
(a) the Company and the Administrator shall have received copies of
duly adopted resolutions of the Board of Directors of such Seller, as in
effect on the related Seller Addition Date, authorizing this Agreement,
the execution of a supplement to this Agreement and the Seller Note,
substantially in the form of Exhibit D, making such Seller a "Seller"
herein and thereunder, the documents to be delivered by such Seller
hereunder and under any other Transaction Document and the transactions
contemplated hereby, certified by the Secretary or Assistant Secretary of
such Seller;
(b) the Company and the Administrator shall have received duly
executed certificates of the Secretary or an Assistant Secretary of such
Seller, dated the related Seller Addition Date, certifying the names and
true signatures of the officers authorized on behalf of such Seller to
sign any instruments or documents in connection with the addition of such
Seller as a "Seller" under this Agreement or any other Transaction
Document;
(c) a Lock-Box Account with respect to the Transferred Receivables
and Related Rights to be sold by such Seller shall have been established
and approval of the Administrator has been obtained pursuant to Section
7.3(d) of the Receivables Purchase Agreement;
(d) the Company and the Administrator shall have received
acknowledgment copies (or other evidence of filing reasonably acceptable
to the Administrator, on the Purchaser's behalf,) of (i) proper financing
statements (Form UCC-1), in such form as the Administrator, on the
Purchaser's behalf, may reasonably request, naming such Seller as the
debtor and seller of Transferred Receivables and Related Rights to be sold
by such Seller, the Company as the secured party and purchaser thereof and
the Purchaser as assignee, and (ii) financing statements (Form UCC-1), in
such form as the Administrator, on the Purchaser's behalf, may reasonably
request, naming the Company as the debtor and seller of an undivided
percentage interest in the Transferred Receivables and Related Rights to
be sold by such Seller and the Purchaser as the secured party and
purchaser thereof, or other, similar instruments or documents, as may be
necessary or, in the opinion of the Administrator, on the Purchaser's
behalf, desirable under the UCC or any comparable law of all appropriate
jurisdictions to perfect the sale by such Seller to the Company of, and
the Purchaser's undivided percentage interest in, Transferred Receivables
and Related Rights to be sold by such Seller;
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(e) the Company and the Administrator, on the Purchaser's behalf,
shall have received search reports (i) listing all effective financing
statements that name such Seller as debtor and that are filed in the
jurisdictions in which filings were made pursuant to subsection (e) above
and in such other jurisdictions that the Administrator shall reasonably
request, together with copies of such financing statements (none of which
(other than any of the financing statements described in subsection (e)
above) shall cover any Transferred Receivables or Related Rights unless
appropriate releases and/or termination statements with respect thereto
are executed and delivered to the Company and the Administrator), and (ii)
listing all tax liens and judgment liens (if any) filed against any debtor
referred to in clause (i) above in the jurisdictions described therein and
showing no such Liens;
(f) such Seller shall have delivered or transmitted to the Company,
with respect to the Transferred Receivables originated by it, a computer
tape, diskette or data transmission reasonably acceptable to the Company
showing, as of a date no later than five Business Days preceding the
related Seller Addition Date, the information required to be contained in
a Purchase Report as to all Transferred Receivables to be transferred by
such Seller to the Company on the related Seller Addition Date; and
(g) the Company and the Administrator shall have received such other
approvals, opinions or documents as the Company or the Administrator, as
the case may be, shall reasonably request.
Section 9.3 Termination of a Seller.
(a) Any Seller (other than FII) shall be terminated as a Seller hereunder
by the Company and with prior written notice to the Administrator, on behalf of
the Purchaser, on the date such Seller ceases to be a wholly-owned direct or
indirect Subsidiary of FII (a "Mandatory Seller Termination Date"); provided
that (i) the aggregate Outstanding Balance of the Transferred Receivables of any
such Sellers which so cease to be wholly-owned Subsidiaries at such time
(together with the aggregate Outstanding Balance of Transferred Receivables of
all Sellers which have been terminated pursuant to this Section 9.3 within the
preceding 90 days) shall not exceed 10% of the aggregate Outstanding Balance of
all Transferred Receivables at such time and (ii) the Purchase Termination Date
has not occurred and no Purchase Termination Date would occur as a result
thereof. From and after any Mandatory Seller Termination Date, the Company shall
cease buying Receivables and other Related Rights from the related Seller. Each
such Seller shall be released as a Seller party hereto for all purposes and
shall cease to be a party hereto on the 90th day after the date on which there
are no amounts outstanding with respect to Transferred Receivables previously
sold by such Seller to the Company, whether such amounts have been collected or
written off in accordance with the Credit and Collection Policy of such Seller.
Prior to such day, such Seller shall be obligated to perform its servicing and
other obligations hereunder and under the Transaction Documents to which it is a
party with respect to Transferred Receivables previously sold by such Seller to
the Company, including, without limitation, its obligation to direct the deposit
of Collections into the appropriate Lock-Box Account.
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(b) From time to time, the Sellers, or the Master Servicer on behalf of
the Sellers, may request in writing (with a copy to the Administrator) that the
Company designate one or more Sellers as Sellers that shall cease to be parties
to this Agreement (a "Permissive Seller Termination"); provided that no Purchase
Termination Date has occurred or will occur as a result thereof. Promptly after
receipt of any such designation by the Company, the Administrator and each other
Seller, such Seller shall select a date, which date shall not be earlier than 30
days after the date of receipt by the Administrator of written notice of such
designation, as such Seller's "Permissive Seller Termination Date"; provided
that such Permissive Seller Termination may not occur with respect to a Seller
without the written consent of the Administrator, on behalf of the Purchaser, if
the aggregate Outstanding Balance of the Transferred Receivables of such Seller
exceeds 10% of the aggregate Outstanding Balance of all Transferred Receivables
on the Reporting Date immediately preceding the date of such notice to the
Administrator. From and after any Permissive Seller Termination Date, the
Company shall cease buying Receivables and other Related Rights from the related
Seller. Each such Seller shall be released as a Seller party hereto for all
purposes and shall cease to be a party hereto on the 90th day after the date on
which there are no amounts outstanding with respect to Transferred Receivables
previously sold by such Seller to the Company, whether such amounts have been
collected or written off in accordance with the Credit and Collection Policy of
such Seller. Prior to such day, such Seller shall be obligated to perform its
servicing and other obligations hereunder and under the Transaction Documents to
which it is a party with respect to Transferred Receivables previously sold by
such Seller to the Company, including, without limitation, its obligation to
direct the deposit of Collections into the appropriate Lock-Box Account.
(c) A terminated Seller shall have no obligation to repurchase any
Transferred Receivables previously sold by it to the Company, but will have
continuing obligations with respect such Receivables (including, without
limitation, paying any Sale Indemnified Amounts) to the extent such obligations
arise hereunder or under any Transaction Document to which such Seller is a
party, and shall be entitled to receive any Collections or reconveyed
Receivables or other amounts pursuant to the provisions of Article III.
ARTICLE X
MISCELLANEOUS
Section 10.1 Amendments, Etc.
(a) The provisions of this Agreement may from time to time be amended,
modified or waived, if such amendment, modification or waiver is in writing and
consented to by each Seller, the Company, the Administrator and the Master
Servicer.
(b) No failure or delay on the part of the Company, the Master Servicer,
any Seller or any third party beneficiary in exercising any power or right
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power or right preclude any other or further exercise
thereof or the exercise of any other power or right. No notice to or demand on
the Company, the Master Servicer, or any Seller in any case shall entitle it to
any notice or
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demand in similar or other circumstances. No waiver or approval by the Company
or the Master Servicer under this Agreement shall, except as may otherwise be
stated in such waiver or approval, be applicable to subsequent transactions. No
waiver or approval under this Agreement shall require any similar or dissimilar
waiver or approval thereafter to be granted hereunder.
Section 10.2 Notices, Etc.
All notices and other communications provided for hereunder shall, unless
otherwise stated herein, be in writing (including facsimile communication) and
shall be personally delivered or sent by express mail or courier or by certified
mail, postage-prepaid, or by facsimile, to the intended party at the address or
facsimile number of such party set forth below, or to such other address as may
be hereafter notified by the respective parties hereto:
(a) The Company:
LFI RECEIVABLES CORPORATION
4000 Lifestyle Court
High Point, NC 27265
Attention: Ronald J. Hoffman and Richard J. Kennett
Telephone: (336) 878-7100
Fax: (336) 878-7005
(b) The Sellers:
to the addresses set forth in Schedule 10.2.
All such notices and communications shall be effective, (i) if personally
delivered or sent by express mail or courier or if sent by certified mail, when
received, and (ii) if transmitted by facsimile, when sent, receipt confirmed by
telephone or electronic means.
Section 10.3 No Waiver; Cumulative Remedies.
The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
Section 10.4 Binding Effect; Assignability.
This Agreement shall be binding upon and inure to the benefit of the
Company, the Sellers and their respective successors and permitted assigns. No
Seller may assign its rights hereunder or any interest herein except to another
wholly-owned direct or indirect subsidiary of FII that has been admitted as a
Seller hereunder without the prior written consent of the Company and the
Administrator; subject to Section 10.11, the Company may not assign its rights
hereunder or any interest herein without the prior written consent of the
Sellers and the Administrator. The Agreement shall create and constitute the
continuing obligations of the
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parties hereto in accordance with its terms, and shall remain in full force and
effect until the date after the Sale Termination Date on which each Seller has
received payment in full for all Transferred Receivables originated by it and
Related Rights conveyed pursuant to Section 1.1 hereof and has paid and
performed all of its obligations hereunder in full. The rights and remedies with
respect to any breach of any representation and warranty made by the Sellers
pursuant to Article V and the indemnification and payment provisions of Article
VIII and Section 10.6 shall be continuing and shall survive any termination of
this Agreement for the applicable statute of limitations period.
Section 10.5 Governing Law.
THIS AGREEMENT, INCLUDING THE RIGHTS AND DUTIES OF THE PARTIES HERETO,
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
STATE OF NEW YORK WITHOUT REFERENCE TO PRINCIPLES OF CONFLICTS OF LAW, EXCEPT TO
THE EXTENT THAT THE PERFECTION OF THE INTERESTS OF THE COMPANY IN THE
TRANSFERRED RECEIVABLES OR RELATED RIGHTS IS GOVERNED BY THE LAWS OF A
JURISDICTION OTHER THAN THE STATE OF NEW YORK.
Section 10.6 Costs, Expenses and Taxes.
In addition to the obligations of the Sellers under Article VIII, each
Seller agrees to pay on demand:
(a) all reasonable costs and expenses, including attorneys' fees, in
connection with any amendment, waiver, restatement or other modification of this
Agreement or the other Transaction Documents executed by it and/or the
enforcement against such Seller of this Agreement and the other Transaction
Documents executed by it after the occurrence of a Liquidation Event which has
not been cured or waived; and
(b) all stamp and other similar taxes and fees payable or determined to be
payable in connection with the execution, delivery, filing and recording of this
Agreement or the other Transaction Documents, and agrees to indemnify each Sale
Indemnified Party against any liabilities with respect to or resulting from any
delay in paying or omission to pay such taxes and fees.
Section 10.7 Submission to Jurisdiction.
EACH PARTY HERETO HEREBY IRREVOCABLY (A) SUBMITS TO THE NON-EXCLUSIVE
JURISDICTION OF ANY NEW YORK STATE OR UNITED STATES FEDERAL COURT SITTING IN THE
STATE OF NEW YORK, OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
ANY TRANSACTION DOCUMENT; (B) AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION
OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH STATE OR UNITED STATES FEDERAL
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COURT; (C) WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER
APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH
ACTION OR PROCEEDING; (D) CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN ANY
SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES OF SUCH PROCESS TO SUCH
PERSON AT ITS ADDRESS SPECIFIED IN SCHEDULE 10.2; AND (E) TO THE EXTENT ALLOWED
BY LAW, AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR
IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS SECTION 10.7 SHALL AFFECT
THE COMPANY'S RIGHT TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW
OR TO BRING ANY ACTION OR PROCEEDING AGAINST ANY SELLER OR ITS PROPERTY IN THE
COURTS OF ANY OTHER JURISDICTIONS.
Section 10.8 Waiver of Jury Trial.
EACH PARTY HERETO EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY
ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, ANY
OTHER TRANSACTION DOCUMENT, OR UNDER ANY AMENDMENT, INSTRUMENT OR DOCUMENT
DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR
ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT OR ANY
OTHER TRANSACTION DOCUMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL
BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
Section 10.9 Captions and Cross References; Incorporation by Reference.
The various captions (including, without limitation, the table of
contents) in this Agreement are included for convenience only and shall not
affect the meaning or interpretation of any provision of this Agreement.
References in this Agreement to any underscored Section or Exhibit are to such
Section or Exhibit of this Agreement, as the case may be. The Exhibits hereto
are hereby incorporated by reference into and made a part of this Agreement.
Section 10.10 Execution in Counterparts.
This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which so executed
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
Section 10.11 Acknowledgment and Agreement.
By execution below, each Seller expressly acknowledges and agrees that all
of the Company's rights, title, and interests in, to, and under this Agreement
shall be assigned by the
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Company to the Purchaser pursuant to the Receivables Purchase Agreement (and the
Purchaser may further assign such rights in accordance with the Receivables
Purchase Agreement), and each Seller consents to such assignment. Each of the
parties hereto acknowledges and agrees that the Administrator and the Purchaser
are third party beneficiaries of the rights of the Company arising hereunder and
under the other Transaction Documents to which such Seller is a party as seller.
Section 10.12 No Proceedings.
Each Seller agrees that it shall not institute against the Company, or
join any other Person in instituting against the Company, or join any other
Person in instituting against the Company, any insolvency proceeding (namely,
any proceeding of the type referred to in the definition of Event of Bankruptcy)
as long as there shall not have elapsed one year plus one day since the Final
Payout Date. The foregoing shall not limit any Seller's right to file any claim
in or otherwise take any action with respect to any insolvency proceeding that
was instituted by any Person other than such Seller.
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<PAGE> 34
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective officers thereunto duty authorized, as of the date first
above written.
THE BERKLINE CORPORATION
By:_________________________________
Name:____________________________
Title:___________________________
DREXEL HERITAGE FURNISHINGS, INC.
By:_________________________________
Name:____________________________
Title:___________________________
DREXEL HERITAGE HOME INSPIRATIONS INC.
By:_________________________________
Name:____________________________
Title:___________________________
FURNISHINGS INTERNATIONAL INC.
By:_________________________________
Name:____________________________
Title:___________________________
HENREDON FURNITURE INDUSTRIES, INC.
By:_________________________________
Name:____________________________
Title:___________________________
LEXINGTON FURNITURE INDUSTRIES, INC.
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By:_________________________________
Name:____________________________
Title:___________________________
MAITLAND-SMITH, INC.
By:_________________________________
Name:____________________________
Title:___________________________
THE ROBERT ALLEN GROUP, INC.
By:_________________________________
Name:____________________________
Title:___________________________
UNIVERSAL FURNITURE LIMITED
By:_________________________________
Name:____________________________
Title:___________________________
LFI RECEIVABLES CORPORATION
By:_________________________________
Name:____________________________
Title:___________________________
31
<PAGE> 36
Sale Agreement
EXHIBIT A
PURCHASE REPORT
[NAME OF SELLER]
LFI RECEIVABLES CORPORATION
As of (DATE)
A-1
<PAGE> 37
Sale Agreement
EXHIBIT B
PROMISSORY NOTE
(NON-NEGOTIABLE
SELLER NOTE)
March 23, 1999
FOR VALUE RECEIVED, the undersigned, LFI RECEIVABLES CORPORATION, a
Delaware corporation (the "Company"), promises to pay to each Seller set forth
from time to time on Schedule I hereto (each, a "Seller" and collectively, the
"Sellers"), on the terms and subject to the conditions set forth herein and in
the Purchase Agreement referred to below, the principal amount from time to time
owing by the Company to such Seller as determined in accordance with Article III
of the Purchase Agreement referred to below and Section 3 hereof, which
principal amount shall be shown in the records of such Seller.
1. Purchase Agreement. This promissory note (this "Seller Note") is the
Seller Note described in, and is subject to the terms and conditions set forth
in, that certain Purchase and Sale Agreement of even date herewith (as the same
may be amended or otherwise modified from time to time, the "Purchase
Agreement"), between the Sellers from time to time parties thereto and the
Company. Reference is hereby made to the Purchase Agreement for a statement of
certain other rights and obligations of the Sellers and the Company.
2. Definitions. Capitalized terms used (but not defined) herein have the
meanings assigned thereto in the Purchase Agreement and in Appendix A to the
Receivables Purchase Agreement dated as of even date herewith among LFI
Servicing Corporation, as Master Servicer, the Company, Blue Ridge Asset Funding
Corporation and Wachovia Bank, N.A., as Administrator (as it may be amended or
otherwise modified from time to time, the "Receivables Purchase Agreement"). In
addition, as used herein, the following terms have the following meanings:
Bankruptcy Proceedings: As defined in clause (b) of paragraph 9 hereof.
Final Maturity Date: The date that is one year and one day following the Final
Payout Date.
Interest Period: The period from and including a Reporting Date or, in the case
of the first Interest Period, the date hereof) to but excluding the next
Reporting Date.
Senior Interest: Collectively, (i) the obligation of the Company and the Master
Servicer to set aside, and to turn over, Collections and other proceeds of the
Asset Interest acquired by Purchaser pursuant to the Receivables Purchase
Agreement, (ii) any Indemnified Amounts and (iii) all other obligations of the
Company that are due and payable to any Affected Party, together with all
interest accruing on any such amounts after the commencement of any Bankruptcy
B-1
<PAGE> 38
Proceedings, notwithstanding any provision or rule of law that might restrict
the rights of any Senior Interest Holder, as against the Company of anyone else,
to collect such interest.
Senior Interest Holders: Collectively, the Purchaser, the Administrator, the
other Affected Parties and the Indemnified Parties.
3. Interest. Subject to the provisions set forth below, the Company
promises to pay interest on the aggregate principal amount hereunder from time
to time outstanding during any Interest Period at a rate per annum equal to the
Eurodollar Rate as in effect from time to time on the first Business Day of each
Settlement Period, as determined by the Master Servicer, plus .50%, but in no
event in excess of the maximum rate permitted by law, provided that interest not
paid on the first Business Day of a Settlement Period may be added to the
principal amount of this Seller Note or may be paid in a subsequent period. In
the event that, contrary to the intent of the Sellers and the Company, the
Company pays interest hereunder at a rate determined to be in excess of the then
legal maximum rate, then that portion of any interest payment by the Company
representing an amount in excess of the then legal maximum rate shall be deemed
a payment of principal and applied against the principal then due hereunder.
Such deemed payment of principal shall be applied ratably to the outstanding
principal amount owed to each Seller.
4. Interest Payment Dates. Subject to the provisions set forth below, the
Company shall pay accrued interest on this Seller Note on each Settlement Date,
and shall pay accrued interest on the amount of each principal payment made in
cash on a date other than a Settlement Date at the time of such principal
payment. Interest accrued but not paid on any Settlement Date shall not be a
default hereunder but may be added to the principal amount of this Seller Note
or may be payable on the next succeeding Settlement Date or Dates until paid.
5. Basis of Computation. Interest accrued hereunder shall be computed for
the actual number of days elapsed on the basis of a 365- or 366-day year.
6. Principal Payment Dates. Subject to the provisions set forth below,
payments of the principal amount owing to any Seller under this Seller Note
shall be made as follows:
(a) The principal amount owing to any Seller under this Seller Note shall
be reduced from time to time pursuant to Sections 3.2, 3.3 and 3.4 of the
Purchase Agreement;
(b) The entire remaining outstanding principal amount owing to each Seller
under this Seller Note shall be paid on the Final Payout Date.
To the extent that amounts available to make any payments due hereunder on any
date are insufficient to make such payments in full, each Seller shall receive a
ratable portion of such available amounts based upon the respective outstanding
principal amounts owed to the Sellers on such date under this Seller Note.
Subject to the provisions set forth below, the principal amount of and accrued
interest owing to any Seller under this Seller Note may be prepaid on any
Business Day without premium or penalty.
B-2
<PAGE> 39
7. Payments. All payments of principal and interest hereunder are to be
made in lawful money of the United States of America.
8. Enforcement Expenses. In addition to and not in limitation of the
foregoing, but subject to the provisions set forth below and to any limitation
imposed by applicable law, the Company agrees to pay all expenses, including
reasonable attorneys' fees and legal expenses, incurred by any Seller in seeking
to collect any amounts payable hereunder which are not paid when due.
9. Provisions Regarding Restrictions on Payment. The Company covenants and
agrees, and each Seller, by its acceptance of this Seller Note, likewise
covenants and agrees on behalf of itself and any holder of this Seller Note,
that the payment of the principal amount of, and interest on, this Seller Note
is hereby expressly subject to certain restrictions set forth in the following
clauses of this paragraph 9:
(a) No payment or other distribution of the Company's assets of any kind
or character, whether in cash, securities, or other rights or property, shall be
made on account of this Seller Note except to the extent such payment or other
distribution is permitted under the Purchase Agreement and the Receivables
Purchase Agreement;
(b) In the event of any dissolution, winding up, liquidation,
readjustment, reorganization or other similar event relating to the Company,
whether voluntary or involuntary, partial or complete, and whether in
bankruptcy, insolvency or receivership proceedings, or upon an assignment for
the benefit of creditors, or any other marshalling of the assets and liabilities
of the Company or any sale of all or substantially all of the assets of the
Company (such proceedings being herein collectively called "Bankruptcy
Proceedings"), the Senior Interest shall first be paid and performed in full and
in cash before the Sellers shall be entitled to receive and to retain any
payment or distribution in respect to this Seller Note. In order to implement
the foregoing, the Sellers hereby irrevocably agree that the Administrator, in
the name of the Sellers or otherwise, may demand, sue for, collect, receive and
receipt for any and all such payments or distributions, and the file, prove and
vote or consent in any such Bankruptcy Proceedings with respect to any and all
claims of the Sellers relating to this Seller Note, in each case until the
Senior Interests shall have been paid and performed in full and in cash;
(c) In the event that any Seller receives any payment or other
distribution of any kind or character from the Company or from other source
whatsoever, in respect of this Seller Note, other than as expressly permitted by
the terms of this Seller Note, such payment or other distribution shall be
received for the benefit of the Senior Interest Holders to the extent of the
Senior Interest and shall be turned over by such Seller to the Administrator
(for the benefit of the Senior Interest Holders) forthwith;
(d) Each Seller agrees that no payment or distribution to such Seller
pursuant to the provisions set forth in this Section 9 shall entitle such Seller
to exercise any right of subrogation until the Senior Interest has been
indefeasibly paid in full in cash;
B-3
<PAGE> 40
(e) The provisions set forth in this Section 9 are intended for the
purpose of defining the relative rights of the Sellers, on the one hand, and the
Senior Interest Holders on the other hand;
(f) No Seller shall, until the Final Maturity Date, transfer, pledge or
assign, or commence legal proceedings to enforce or collect this Seller Note or
any rights in respect hereof, except to a permitted assignee that assumes all of
such Seller's rights and obligations under the Purchase Agreement;
(g) The Sellers shall not, without the advance written consent of the
Administrator, commence, take any action to cause any other Person to commence,
or join with any other Person in commencing, any Bankruptcy Proceedings with
respect to the Company until the Final Maturity Date shall have occurred;
(h) If, at any time, any payment (in whole or in part) of any Senior
Interest is rescinded or must be restored or returned by a Senior Interest
Holder (whether in connection with Bankruptcy Proceedings or otherwise), these
provisions shall continue to be effective or shall be reinstated, as the case
may be, as though such payment had not been made;
(i) Each Seller hereby waives: (i) notice of acceptance of these
provisions by any of the Senior Interest Holders; (ii) notice of the existence,
creation, non-payment or non-performance of all or any of the Senior Interests;
and (iii) all diligence in enforcement, collection or protection of, or
realization upon, the Senior Interests, or any thereof, or any security
therefor, other than the exercise of commercial reasonableness and ordinary
care;
(j) These provisions constitute a continuing offer from the holders of
this Seller Note to all Senior Interest Holders; and these provisions are made
for the benefit of the Senior Interest Holders, and the Administrator or the
Purchaser may proceed to enforce such provisions on behalf of each of such
Persons.
10. General. No failure or delay on the part of any Seller in exercising
any power or right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power of right preclude any other or
further exercise thereof or the exercise of any other power or right. No
amendment, modification or waiver of, or consent with respect to, any provision
of this Seller Note shall in any event be effective unless (i) the same shall be
in writing and signed and delivered by the Company and the Sellers and (ii) all
consents required for such actions under the Transaction Documents shall have
been received by the appropriate Persons.
11. No Negotiation. This Seller Note is not negotiable.
12. Governing Law. THIS PROMISSORY NOTE SHALL BE DEEMED TO BE A CONTRACT
MADE UNDER AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
13. Captions. Paragraph captions used in this Seller Note are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Seller Note.
B-4
<PAGE> 41
LFI RECEIVABLES CORPORATION
By:_________________________________
Name:____________________________
Title:___________________________
B-5
<PAGE> 42
Sale Agreement
SCHEDULE I
List of Sellers
The Berkline Corporation
Drexel Heritage Furnishings, Inc.
Drexel Heritage Home Inspirations Inc.
Furnishings International Inc.
Henredon Furniture Industries, Inc.
Lexington Furniture Industries, Inc.
Maitland-Smith, Inc.
The Robert Allen Group, Inc.
Universal Furniture Limited
B-6
<PAGE> 43
Sale Agreement
EXHIBIT C
OFFICE LOCATION WHERE RECORDS ARE KEPT
Seller
Master Servicer
C-1
<PAGE> 44
Sale Agreement
EXHIBIT D
[FORM OF ADDITIONAL SELLER SUPPLEMENT]
SUPPLEMENT, dated [___________________], to the Purchase and Sale
Agreement, dated as of March 23, 1999 (as amended, supplemented or otherwise
modified from time to time in accordance with its terms, the "Sale Agreement"),
among LFI Receivables Corporation and the Sellers named therein. Capitalized
terms used herein and not otherwise defined shall have the meanings set forth in
the Sale Agreement.
W I T N E S S E T H:
WHEREAS, the Sale Agreement provides that any wholly owned, direct or
indirect, Subsidiary of Furnishings International Inc., although not originally
a Seller thereunder, may become a Seller under the Sale Agreement upon the
satisfaction of each of the conditions precedent set forth in Sections 9.2 of
the Sale Agreement and any applicable provisions of any Supplement; and
WHEREAS, the undersigned was not an original Seller under the Sale
Agreement and the Seller Note or an original Servicer but now desires to become
a Seller and a Servicer, respectively, thereunder.
NOW, THEREFORE, the undersigned hereby agrees as follows:
The undersigned agrees to be bound by all of the provisions of each of the
Sale Agreement and the Receivables Purchase Agreement applicable to a Seller and
a Servicer, respectively, thereunder and agrees that it shall, on the date this
Supplement is accepted by the Company, become (a) in the case of the Sale
Agreement, a Seller, (b) in the case of the Receivables Purchase Agreement, a
Servicer, and (c) in the case of the Seller Note, a Seller, for all purposes of
the Sale Agreement, the Receivables Purchase Agreement and the Seller Note,
respectively, to the same extent as if originally a party thereto. Schedule I to
each of the Sale Agreement, the Receivables Purchase Agreement and the Seller
Note are each hereby deemed amended to add the undersigned thereto.
[The remainder of this page intentionally left blank]
D-1
<PAGE> 45
IN WITNESS WHEREOF, the undersigned has caused this Supplement to be
executed and delivered by a duly authorized officer on the date first above
written.
[Insert name of Seller/Servicer]
By:_________________________________________
Title:
Accepted as of the date
first above written:
LFI RECEIVABLES CORPORATION
By:___________________________________
Title:
Acknowledged as of the date
first above written:
WACHOVIA BANK, N.A.,
as Administrator
By:___________________________________
Title:
D-2
<PAGE> 46
Sale Agreement
SCHEDULE 5.1 (w)
Prior Legal Names of Each Seller
<PAGE> 47
Sale Agreement
SCHEDULE 10.2
Notice Addresses of Sellers
The Berkline Corporation Drexel Heritage Furnishings, Inc.
One Berkline Drive 101 North Main Street
P.O. Box 6003 Drexel, NC 25619
Morristown, TN 37815 Attention: Don Biggerstaff
Attention: Larry Musick Fax: (828) 433-3148
Fax: (423) 585-4420
Drexel Heritage Home Inspirations Inc. Furnishings International Inc.
101 North Main Street 4000 Lifestyle Court
Drexel, NC 25619 High Point, NC 27265
Attention: Don Biggerstaff Attention: Jeff Sims
Fax: (828) 433-3148 Fax: (336) 476-5631
Henredon Furniture Industries, Inc. Lexington Furniture Industries, Inc.
400 Henredon Road 411 S. Salisbury
Morganton, NC 28655 Lexington, NC 27252
Attention: Tom O'Connell Attention: Bryan Milleson
Fax: (828) 437-9076 Fax: (336) 249-5203
Maitland-Smith, Inc. The Robert Allen Group, Inc.
2427 Penny Road 55 Cabot Blvd.
Suite 101 Mansfield, MA 02048
High Point, NC 27265 Attention: Paul Luba
Attention: Fran Kelch Fax: (508) 339-5546
Fax: (336) 888-6955
Universal Furniture Limited
2622 Uwharrie Road
High Point, NC 27262
Attention: Tom Lyons
Fax: (336) 431-2124
<PAGE> 1
Exhibit 10.15
FOURTH AMENDMENT TO
STOCKHOLDERS' AGREEMENT
Fourth Amendment to Stockholders' Agreement (this "Amendment") dated as of
July 7, 1998 by and among FURNISHINGS INTERNATIONAL INC., a Delaware corporation
(the "Company"), Masco Corporation, a Delaware corporation ("Masco"), 399
Venture Partners, Inc., a Delaware corporation ("399") and Douglas C. Barnard,
as Voting Trustee under the Voting Trust Agreement (the "Trustee").
RECITALS
WHEREAS, the Company, Masco, 399 and the Management Stockholders are
parties to the Stockholders' Agreement dated as of August 5, 1996 by and among
the Company and its stockholders (as previously amended, the "Agreement");
(capitalized terms not otherwise defined herein are used as defined in the
Agreement);
WHEREAS, 399 has the right as the holder of HFG Common Stock representing
more than fifty percent (50%) of the HFG Common Stock on a Fully-Diluted Basis
then held by the Institutional Stockholders as a group, pursuant to Section
7.4(a)(i) of the Agreement to take action on behalf of the Institutional
Stockholders;
WHEREAS, the Trustee has the right pursuant to Section 7.4(a)(iii) of the
Agreement to take action on behalf of the Management Stockholders; and
WHEREAS, the parties hereto desire to amend the Agreement to provide for a
board of directors of the Company comprised of seven (7) persons instead of
eleven (11), to effect changes in the weighted voting of such directors and to
effect certain other amendments.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
SECTION 1. Amendments.
1.1 Board of Directors. Section 5.1(a) of the Agreement is hereby amended and
restated- in its entirety so that it reads as follows:
(a) From and after the date hereof, each of the Stockholders shall
vote or cause to be voted all of its shares of voting Common Stock (in the
Series or Class as described below), at any regular or special meeting of
stockholders called for the purpose of filling positions on the Board, or
to execute a written
<PAGE> 2
Fourth Amendment
consent in lieu of such a meeting of stockholders for the purpose of
filling positions on the board, and shall take all actions necessary, to
ensure that the Board consists of seven (7) members as follows:
(i) shares of Series A-1 Common Stock shall be voted so as
to elect two (2) individuals (individually, an
"Institutional Director" and collectively, the
"Institutional Directors") to be designated by the
Institutional Stockholders for so long as the
Institutional Stockholders own (x) shares of Series A-1
Preferred or (y) at least ten percent (10%) of the
outstanding HFG Common Stock on a Fully-Diluted Basis,
and thereafter by the Nominating Committee; provided,
that, at any time, and from time to time, the
Institutional Stockholders, in their sole discretion,
may determine not to designate one or all of the
Institutional Directors, in which case such
Institutional Directors shall be designated by the
Nominating Committee;
(ii) two (2) individuals to be designated by vote of a
majority of the outstanding shares of Class C Common,
voting separately as a class (individually, a
"Management Director," and collectively, the "Management
Directors") each of whom must be either (A) the Chief
Executive Officer (or President), the Chief Operating
Officer, the Secretary, the General Counsel, the Chief
Financial Officer (or Treasurer) or the Chief Accounting
Officer of the Company, (B) a holder of Class C Common
or (C) with the consent of the Nominating Committee, any
person other than the persons described in clause (A) or
clause (B);
(iii) shares of Series A-2 Common Stock shall be voted as to
elect one (1) individual (the "Masco Director") to be
designated by the Masco Stockholders, for so long as the
Masco Stockholders own (x) shares of Series A-1
Preferred, (y) at least five percent (5%) of the
outstanding HFG Common Stock on a Fully-Diluted Basis or
(2) any Senior Notes; provided, that, at any time, and
from time to time, the Masco Stockholders, in their sole
discretion, may determine not to designate the Masco
Director, in which case such Masco Director shall be
designated by the Nominating Committee; and
(iv) subject to the exercise of the Regulatory Right under
Section 5.9, shares of Series A-3 Common Stock shall be
2
<PAGE> 3
Fourth Amendment
voted so as to elect two (2) individuals (each
individual, a "Disinterested Director", and collectively
"Disinterested Directors") each of whom is not (A) an
Affiliate of 399, (B) employed by the Company or any
Subsidiary of the Company or (C) a Stockholder or an
Affiliate of any Stockholder, such Disinterested
Directors to be designated by the Nominating Committee.
povided, however, that (x) effective at the Closing, the Board shall consist of
the individuals set forth on Exhibit C hereto in the categories shown thereon
and (y) the Stockholders shall cause the Institutional Directors, the Masco
Director and the Management Directors named thereon to be designated and elected
as directors, and not to be removed by any Stockholder without cause, until
January 1, unless such person resigns, is otherwise unable to serve or ceases to
qualify as a Management Director under Section 5.1(a)(ii). The Nominating
Committee shall initially consist of one (1) Management Director, one (1)
Institutional Director and one (1) Disinterested Director (collectively, the
"Nominating Committee"), and upon the Closing the Nominating Committee shall
consist of the individuals set forth on Exhibit C hereto in the categories shown
thereon. The Nominating Committee shall act by majority vote, provided that, if
for any reason there shall be less than three (3) directors on the Nominating
Committee, it shall act by unanimous vote of the remaining director(s) on the
Nominating Committee. In the event that for any reason a Disinterested Director
on the Nominating Committee resigns or is removed from the Nominating Committee
or from the Board, the Nominating Committee shall (acting by the unanimous vote
of the remaining directors on the Nominating Committee) replace such
Disinterested Director with the other Disinterested Director. In the event that
the Management Stockholders do not designate either of the Management Directors,
the Nominating Committee will select one (1) additional Disinterested Director
who shall also serve on the Nominating Committee which will then consist of two
(2) Disinterested Directors and one (1) Institutional Director.
1.2 Weighted Board Voting. Section 5.4(a) of the Agreement is hereby
amended and restated in its entirety so that it reads as follows:
(a) The directors on the Board shall have weighted votes which
together total 1,000 votes, with each director having number of such votes
equal to the percentage set forth below:
(i) each Management Director will have a weighted vote of
10.5%, except that in the event that Wayne B. Lyon is
one of the Management Directors, his weighted vote will
be shifted to 3.5% and the other Management Director's
weighted vote will be shifted to 17.5%, unless and until
(A) the Company receives a notice from Mr. Lyon or Masco
that Mr. Lyon is no longer a member of the board
3
<PAGE> 4
Fourth Amendment
of directors of Masco or (B) Wayne B. Lyon is no longer
a Management Director, at which time the weighted votes
of both of the Management Directors will shift back to
their original positions of 10.5% each;
(ii) the Masco Director will have a weighted vote of 15%;
(iii) each of the Institutional Directors will have a weighted
vote of 24.5%, except that in the event there are more
than 50 stockholders of the Company, such weighting
shall, upon notice to the Company from the Institutional
Stockholders, be shifted to 9.5% each, with a
corresponding shift in the weighting of each of the
Disinterested Director's weighted vote from 7.5% to
22.5%; (and thereafter the Institutional Stockholders
shall have the right upon notice to the Company to
increase the weighting back to its original position);
and
(iv) each Disinterested Director will have a weighted vote of
7.5% (subject to shifting as described in clause (iii)
above); such weighting shall be unaffected if one or
more of the Disinterested Directors is replaced or
designated by the Institutional Stockholders pursuant to
the Regulatory Right.
SECTION 2. Amendments.
2.1 Further Actions. Each of the parties hereto shall cooperate and shall
take further action and shall execute and deliver such further documents as may
be reasonably requested by any other party in order to carry out the amendments
set forth herein.
2.2 Governing Law. This Amendment shall be governed and construed in
accordance with the laws of the State of New York, without giving effect to any
choice of law or conflict of law provision or rule that would cause the
application of the laws of any jurisdiction other than the State of New York,
except to the extent that the General Corporation Law of the State of Delaware
applies as a result of the Company being incorporated in the State of Delaware,
in which case such General Corporation Law shall apply.
2.3 Headings. The headings used in this Amendment have been inserted for
convenience of reference only and do not define or limit the provisions hereof.
4
<PAGE> 5
Fourth Amendment
2.4 Counterparts. This Amendment may be executed in any number of
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
2.5 Consent to Jurisdiction; Service of Process; Waiver of Jury trial. The
provisions of Sections 7.18 and 7.19 of the Agreement shall apply to this
Amendment as if repeated herein.
[Remainder of Page Intentionally Left Blank]
5
<PAGE> 6
Fourth Amendment
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment as of the date first above written.
FURNISHINGS INTERNATIONAL INC.
By:__________________________________
Name: Douglas C. Barnard
Title: Vice President
MASCO CORPORATION
By:__________________________________
Name:
Title:
399 VENTURE PARTNERS, INC.
By:__________________________________
Name: Douglas C. Barnard
Title: Vice President
_____________________________________
Douglas C. Barnard, as Voting Trustee
6
<PAGE> 7
Fourth Amendment
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment as of the date first above written.
FURNISHINGS INTERNATIONAL INC.
By:__________________________________
Name: Douglas C. Barnard
Title: Vice President
MASCO CORPORATION
By:__________________________________
Name:
Title:
399 VENTURE PARTNERS, INC.
By:__________________________________
Name: Douglas C. Barnard
Title: Vice President
_____________________________________
Douglas C. Barnard, as Voting Trustee
7
<PAGE> 8
Fourth Amendment
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment as of the date first above written.
FURNISHINGS INTERNATIONAL INC.
By:__________________________________
Name: Douglas C. Barnard
Title: Vice President
MASCO CORPORATION
By:__________________________________
Name:
Title:
399 VENTURE PARTNERS, INC.
By:__________________________________
Name: Douglas C. Barnard
Title: Vice President
_____________________________________
Douglas C. Barnard, as Voting Trustee
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
AND SUCH IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 7,740
<SECURITIES> 92,220
<RECEIVABLES> 88,070<F1>
<ALLOWANCES> 0
<INVENTORY> 478,940
<CURRENT-ASSETS> 734,740
<PP&E> 359,110<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,126,320
<CURRENT-LIABILITIES> 252,210
<BONDS> 200,000
0
0
<COMMON> 0
<OTHER-SE> 489,580
<TOTAL-LIABILITY-AND-EQUITY> 1,126,320
<SALES> 2,001,930
<TOTAL-REVENUES> 2,001,930
<CGS> 1,510,630
<TOTAL-COSTS> 1,510,630
<OTHER-EXPENSES> 11,350
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,580
<INCOME-PRETAX> 93,990
<INCOME-TAX> 23,450
<INCOME-CONTINUING> 70,540
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 70,540
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Receivables and property and equipment are presented net of allowances for
doubtful accounts and accumulated depreciation and amortization, respectively.
</FN>
</TABLE>
