<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (Fee required)
For the fiscal year ended December 31, 1995 or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No fee required)
For the transition period from_________________ to __________________
Commission file number I-91
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INTERCO INCORPORATED
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(Exact name of registrant as specified in its charter)
Delaware 43-0337683
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 South Hanley Road, St. Louis, Missouri 63105
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 314/863-1100
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange on
Title of each class which registered
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Common Stock - $1.00 Stated Value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of December 31, 1995, was approximately 140,924,800.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES X NO
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Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
50,120,079 shares as of December 31, 1995
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Definitive Proxy Statement for Annual Meeting
of Stockholders on April 23, 1996................... Part III
<PAGE>
PART I
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Item 1. Business
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BUSINESS
GENERAL
INTERCO INCORPORATED, which is to be renamed Furniture Brands International,
Inc., is the largest manufacturer of residential furniture in the United States.
The Company markets its products through its three operating subsidiaries,
Broyhill Furniture Industries, Inc., The Lane Company Incorporated and
Thomasville Furniture Industries, Inc. As used herein, unless the context
indicates otherwise, (i) the "Company" refers to INTERCO INCORPORATED and its
subsidiaries, (ii) "Broyhill" refers to Broyhill Furniture Industries, Inc.,
(iii) "Lane" refers to The Lane Company Incorporated and its subsidiaries, (iv)
"Thomasville" refers to Thomasville Furniture Industries, Inc. and (v) "Action
Industries" refers to Action Industries, Inc., a subsidiary of Lane.
On December 29, 1995, the Company completed the acquisition of Thomasville
from Armstrong World Industries, Inc. for approximately $339 million, consisting
of $331 million in cash and $8 million in assumed indebtedness. The cash portion
of the acquisition of Thomasville was financed through funds obtained under a
secured credit agreement (the "Secured Credit Agreement") and an amended
receivables securitization facility (the "Receivables Securitization Facility").
PRODUCTS
The Company manufactures and distributes (i) case goods, consisting of
bedroom, dining room and living room furniture, (ii) occasional furniture,
consisting of wood tables and accent items and freestanding home entertainment
centers and (iii) upholstered products, consisting of sofas, loveseats,
sectionals, chairs and (iv) recliners, motion furniture and sleep sofas.
The Company's brand name positioning by price and product category are shown
below.
<TABLE>
<CAPTION>
STATIONARY MOTION/
PRICING CATEGORY CASE GOODS OCCASIONAL UPHOLSTERY RECLINER
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<S> <C> <C> <C> <C>
PREMIUM Thomasville Thomasville Thomasville
Lane Lane
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BEST Thomasville Thomasville Thomasville Thomasville
Lane Lane Lane Lane
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BETTER Lane Lane Lane Lane
Broyhill Broyhill Broyhill Broyhill
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GOOD Broyhill Broyhill Broyhill
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PROMOTIONAL(1) Armstrong
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RTA(1) Armstrong
</TABLE>
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(1) Promotional and RTA furniture is currently sold by Thomasville under the
Armstrong name. See "Thomasville Furniture Industries" below.
1
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BROYHILL FURNITURE INDUSTRIES
Broyhill produces collections of medium price bedroom, dining room,
upholstered and occasional furniture aimed at middle-income consumers.
Broyhill's wood furniture offerings consist primarily of bedroom, dining room
and living room furniture, occasional tables, accent items and free standing
home entertainment centers. Upholstered products include sofas, sleep sofas,
loveseats, sectionals and chairs, all offered in a variety of fabrics and
leathers. Broyhill's residential furniture divisions produce a wide range of
furnishings in colonial, country, traditional and contemporary styles.
The widely recognized Broyhill trademarks include Broyhill, Broyhill Premier
and Highland House. The flagship Broyhill product line concentrates on bedroom,
dining room, upholstered and occasional furniture designed for the "good" and
"better" price categories. The Broyhill Premier product line enjoys an
excellent reputation for classically styled, complete furniture collections in
the "better" price category. Highland House also manufactures upholstered
products in the "better" price category.
THE LANE COMPANY
Lane manufactures and markets a broad range of high quality furniture
targeting the "better," "best" and "premium" price categories. Lane targets
niche markets with its seven operating divisions, which participate in such
segments of the residential furniture market as 19th century reproductions,
motion furniture, wicker and rattan, cedar chests and finely tailored
upholstered furniture. Using its recently installed, state-of-the-art finishing
system, Lane produces quality high sheen and enhanced grain finishes at
attractive prices.
The Lane Division of Lane manufactures and sells cedar chests, occasional
living room tables, bedroom and dining room furniture, wall systems, desks,
console tables and mirrors and other occasional wood pieces. The Lane Division
has teamed up with widely recognized designers such as Dakota Jackson, as well
as design institutions such as the American Museum of Folk Art in New York, to
design and market furniture collections. The Lane Division furniture is sold in
the "better" and "best" price categories.
Action Industries, a subsidiary of Lane, manufactures and markets reclining
chairs and motion furniture in the "good," "better" and "best" price categories
under the Action by Lane brand name. Motion furniture consists of sofas and
loveseats with recliner-style moving parts and comfort features, wall saver
recliners, pad-over chaise recliners, and motion sectionals. Lane's Royal
Development Company designs and manufactures the mechanisms used in Action
Industries' reclining furniture products.
The Hickory Chair division manufactures and markets traditional styles of
upholstered furniture, dining room chairs and occasional tables in the "best"
and "premium" price categories. The Hickory Chair division has been crafting
fine reproductions of 18th century furniture for over 80 years. For example,
Hickory Chair offers the James River collection which features reproductions of
fine furnishings from Virginia plantations, and more recently the new Mount
Vernon collection, which features reproductions from George Washington's home.
The Pearson division has been manufacturing and selling contemporary and
traditional styles of finely tailored upholstered furniture including sofas,
love seats, chairs and ottomans for over 50 years. Pearson manufactures the
Viceroy collection, which features fine furnishings from the award winning
designer Victoria Moreland. Pearson furniture sells in the "premium" price
category and is distributed to high end furniture stores and interior
designers.
The Lane Upholstery division includes two product lines, one of which is
composed of contemporary and modern upholstered furniture and metal and glass
occasional and dining tables, and the other of which is composed of traditional
and contemporary upholstered furniture, primarily sofas, love seats, chairs and
ottomans.
The Venture Furniture division manufactures and markets moderately priced
wicker, rattan and bamboo upholstered furniture, tables, occasional wood pieces
and other home furnishings accessories. The division manufactures a line of
outdoor and patio furniture featuring fast drying upholstered cushions under
the name WeatherMaster, which has developed significant consumer acceptance.
Hickory Business Furniture manufactures and sells a line of office furniture,
including chairs, tables, conference tables, desks and credenzas, in the upper-
medium price range.
2
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THOMASVILLE FURNITURE INDUSTRIES
Thomasville manufactures and markets wood furniture, upholstered products and
RTA/promotional furniture. Thomasville markets its products primarily under the
Thomasville brand name. Thomasville offers an assortment of upholstery under the
Thomasville brand name that targets the "best" and "premium" price categories.
Upholstery is primarily marketed in three major styles: Traditional, American
Traditional/Country and Casual Contemporary. Upholstery style is determined by
both frame style and fabric or leather selection. Thomasville's frame assortment
allows the consumer to select from over 90 different styles within the general
style categories, and as much as 45% of the Thomasville fabric offering changes
in a 12 month period, insuring that the latest styles are available.
Thomasville's RTA/Promotional division offers assembled bedroom sets,
bookcases and home entertainment centers as well as RTA furniture consisting of
home entertainment centers, audio cabinets, television/VCR carts, room
dividers, bookcases, bedroom and kitchen/utility furniture, microwave carts,
computer desks and storage armoires. These products are primarily constructed
from fibreboard or particleboard and are printed or covered with laminated
paper in a variety of finishes and colors.
Thomasville's RTA/Promotional division markets products under the Armstrong
brand name to a variety of retailers for sale to consumer end-users and certain
contract customers. The Company has the right to continue to use the Armstrong
name for 18 months after the closing of the Thomasville acquisition. Management
does not believe that the loss of the Armstrong name will have a material
adverse effect on the Company's sales of RTA and promotional furniture.
DISTRIBUTION
The Company's strategy of targeting diverse distribution channels such as
furniture centers, independent dealers, national and local chain stores,
department stores, specialty stores and decorator showrooms is supported by
dedicated sales forces covering each of these distribution channels. The
Company is also exploring opportunities to expand international sales and to
distribute through non-traditional channels such as electronic retailers,
wholesale clubs, catalog retailers and television home shopping.
The Company's breadth of product and national scope of distribution enable it
to service effectively national retailers such as J.C. Penney, Sears and Levitz
and key regional retailers such as Haverty's and Heilig-Meyers. These large
retailers are commanding an increasing presence in the consolidating furniture
retailing industry and management believes that the Company is better
positioned than its competitors to meet their needs. Additionally, the
consolidation of the retail furniture industry has made access to distribution
channels an important competitive advantage for manufacturers. The Company has
developed dedicated distribution channels by expanding its gallery program and
the network of independently-owned dedicated retail locations, such as
Thomasville Home Furnishings stores. The Company distributes its products
through a diverse network of independently-owned retail locations, which
includes approximately 80 free-standing stores, more than 680 galleries and
more than 410 furniture centers.
Broyhill, Lane and Thomasville have all developed gallery programs with
dedicated dealers displaying furniture in complete room ensembles. These
retailers employ a consistent showcase gallery concept wherein products are
displayed 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. As a result, galleries tend to have higher sales per square foot
as well as faster inventory turns than non-gallery locations. The Company
recognizes the importance of the gallery network to its long-term success, and
has developed and maintains close relationships with its dealers. The Company
offers substantial services to retailers to support their marketing efforts,
including coordinated national advertising, merchandising and display programs
and extensive dealer training.
The Thomasville Home Furnishings stores are free-standing retail locations
that exclusively feature Thomasville furniture. The Company believes
distributing its products through dedicated free-standing stores strengthens
brand awareness, provides well-informed and focused sales personnel and
encourages the purchase of multiple items per visit. Management is currently
evaluating similar opportunities to market Lane and Broyhill products.
Showrooms for the national furniture market are located in High Point, North
Carolina and for regional markets in Dallas, Texas, Atlanta, Georgia, Chicago,
Illinois, and San Francisco, California.
3
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BROYHILL FURNITURE INDUSTRIES
Broyhill distributes its products through an extensive distribution network of
more than 6,200 independently-owned retail locations. One of Broyhill's
principal distribution channels is the Broyhill Showcase Gallery Program. This
program, developed over the past twelve years, involves more than 330
participating dealer locations. Each dealer in the Broyhill Showcase Gallery
Program owns the gallery and the Broyhill furniture inventory. The program
incorporates a core merchandise program, advertising material support, in-store
merchandising events and educational opportunities for the retail store sales
and management personnel. The average Broyhill Showcase Gallery consists of
7,500 square feet of display space within a 30,000 square foot store. Furniture
is displayed in complete and fully accessorized room settings instead of as
individual pieces.
For the retailer that is currently not a participant in the gallery program,
Broyhill offers the Independent Dealer Program. This concept, initiated in
1987, is designed to strengthen Broyhill's relationship with these retailers
by assisting them in overcoming some of the significant difficulties in
running an independent furniture business. The Company seeks to develop these
relationships so that these retailers may become participants in the Broyhill
Showcase Gallery Program. Participating retailers in the Independent Dealer
Program commit to a minimum pre-selected lineup of Broyhill merchandise and,
in return, receive a detailed, step-by-step, year-round advertising and
merchandising plan. The program includes four major sales events per year,
monthly promotional themes and professionally prepared advertising and
promotional materials at nominal cost in order to help increase consumer
recognition on the local level. As part of the Independent Dealer Program,
Broyhill offers the Broyhill Furniture Center Program for retailers that have
committed at least 2,000 square feet exclusively to Broyhill products. This
program includes all of the benefits of the Independent Dealer Program, plus
additional marketing, designing and advertising assistance.
The Company is currently exploring opportunities to expand its distribution
channels for Broyhill through free-standing retail stores similar to the
Thomasville Home Furnishings stores. A retailer in Memphis, Tennessee recently
opened an independently-owned Broyhill store.
THE LANE COMPANY
Lane distributes its products nationally through a well established network
of approximately 16,000 retail locations. A diverse distribution network is
utilized in keeping with Lane's strategy of supplying customers highly
specialized products in selected niche markets. This distribution network
primarily consists of independent furniture stores, regional chains such as
Haverty's and Art Van, and department store companies such as J.C. Penney,
Sears, May Department Stores, Federated Department Stores and Dillard
Department Stores. Lane has an established specialty gallery program with more
than 200 participating dealers.
THOMASVILLE FURNITURE INDUSTRIES
Thomasville products are offered at more than 680 independently-owned retail
locations, including more than 410 Thomasville Galleries, approximately 80
Thomasville Home Furnishings stores and more than 180 selected furniture
chains and retailers. The Thomasville Gallery concept was initiated in 1983.
Each Thomasville Gallery has an average 7,500 square feet of retail space
specifically dedicated to the display, promotion and sale of Thomasville
products. Management believes that the gallery concept results in increased
sales of Thomasville products by encouraging the consumer to purchase a
complete collection as opposed to individual pieces from different
manufacturers. The first Thomasville Home Furnishings store opened in 1988.
The typical Thomasville Home Furnishings store is a 15,000 square foot
independently-owned store offering a broad range of Thomasville products,
presented in a home-like setting by specially trained salespersons.
Thomasville's management believes that the gallery and dedicated store
programs have helped create one of the most efficient distribution systems in
the industry.
4
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Thomasville's RTA/Promotional division sells promotional and RTA furniture
to a variety of retailers for sale to consumer end-users and certain contract
customers. Promotional furniture is sold to retail chains such as Wal-Mart and
Levitz, as well as independent furniture stores. Promotional furniture is also
sold in the hospitality and health care markets of Thomasville's contract
business. RTA customers include national chains such as Wal-Mart and Ames,
catalog showrooms, discount mass merchandisers, warehouse clubs and home
furnishings retailers.
MARKETING AND ADVERTISING
The Company continues to strengthen its valuable brand names through ongoing
investment in innovative consumer advertising. The Company is one of the
largest advertisers in the residential furniture industry.
Advertising is used to increase consumer awareness of its brand names and is
targeted to specific customer segments through leading shelter magazines. Each
operating company uses focused advertising in major markets to create buying
urgency around specific sale and location information, enabling retailers to be
listed jointly in advertisements for maximum advertising efficiency and shared
costs. The Company seeks to increase consumer buying and strengthen
relationships with retailers through cooperative advertising and selective
promotional programs. The Company focuses its marketing efforts on prime
potential customers utilizing information from databases and from callers to
each operating company's toll-free telephone number. Each of the operating
companies also advertises selectively on television in conjunction with
dealers, and Action and Thomasville also use television advertising
independently.
BROYHILL FURNITURE INDUSTRIES
Broyhill's advertising programs focus on translating its strong consumer
awareness into increased sales.
Broyhill's current marketing strategy features a national print advertising
program in addition to traditional promotional programs such as furniture
"giveaways" on television gameshows and dealer-based promotions such as product
mailings and brochures. The national print advertising program, which consists
of multi-page lay-outs, is designed to appeal to the consumer's desire for
decorating assistance and increased confidence in making the decision to
purchase a big ticket product such as furniture. These advertisements are run
in publications such as Good Housekeeping and Country Living which appeal to
Broyhill's customer base. Game show promotions, a long-standing Broyhill
tradition, include popular programs such as Wheel of Fortune and The Price is
Right.
THE LANE COMPANY
Lane became a well-known brand name through Lane's initial use in the 1920s of
creative advertising to promote its cedar chests. Since then, Lane has continued
to use advertising programs to generate consumer awareness of the Lane brand
name. Through Lane's in-house advertising agency, recent programs have been
developed for print campaigns in national publications such as Country Home,
Country Living, House Beautiful and Architectural Digest. Action Industries is
engaged in selective national and regional television advertising.
5
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The Lane Keepsake program has made the Lane cedar chest one of the best-known
furniture products in the industry and contributes to the high level of
consumer recognition. The program enables the 1,100 participating dealers to
establish early personal contact with a large number of women who are about to
enter the bridal market as potential buyers of home furnishings. Information
regarding a graduation gift of a miniature Lane cedar chest, available at the
local participating furniture store, is sent to the parents of graduating high
school women. This Keepsake program is believed to be instrumental in building
consumer recognition and promoting the Lane brand name.
Lane markets its products through the use of well-known designers and
affiliation with institutions. For example, Lane has teamed up with widely
recognized designers such as Mark Hampton and Dakota Jackson, as well as design
institutions such as the American Museum of Folk Art in New York, to design and
market furniture collections.
THOMASVILLE FURNITURE INDUSTRIES
Thomasville's current advertising campaign, featured in household magazines
and periodic television commercials, emphasizes single dramatic, high quality
wood and upholstery pieces to support the emphasis on higher quality.
Thomasville invests in image advertising by placing advertisements in up-front
positions in national household magazines, such as Better Homes and Gardens,
Good Housekeeping and House Beautiful. Thomasville also utilizes focused
advertising in major markets to create buying urgency around specific sale and
location information, enabling retailers to be listed jointly in advertisements
for maximum advertising efficiency and shared costs.
To reach additional customers, Thomasville uses promotional discounts and
dealer cooperative advertising support. Thomasville has two major retailer
promotions, the Winter and Summer Thomasville Sales, which coincide with
traditional industry sale periods and are supported by eight page color
circulars and full page advertisements in USA Today. Typically, six to eight
million circulars are mailed by retailers during these periods to draw
customers to Thomasville Galleries and Thomasville Home Furnishings stores.
MANUFACTURING
Broyhill operates 16 finished case goods and upholstery production and
warehouse facilities totalling over 4.9 million square feet of manufacturing
and warehouse space. All finished goods plants are located in North Carolina.
Broyhill pioneered the use of mass production techniques in the furniture
industry and continues to be a leader in this area by utilizing longer
production runs to achieve economies of scale. Short set-up times and long
production runs have allowed for a reduction of both manufacturing cost and
overhead over the last five years. Broyhill recently completed construction of
a state-of-the-art particleboard manufacturing facility that provides a
captive, cost-effective source of high quality particleboard, a primary
material used in the Company's products.
6
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Lane operates 15 finished case goods and upholstery production and warehouse
facilities in Virginia, North Carolina and Mississippi. Since the late 1980s,
significant capital expenditures have been made to acquire technologically
advanced manufacturing equipment which has increased factory productivity. In
1993, Lane completed a new 396,000 square foot plant, located in Mississippi,
which manufactures motion furniture as well as a new sleep sofa product line.
This facility added approximately $100 million of annual production capacity.
Lane recently installed a state-of-the-art flat-line finishing system that
produces quality high sheen and enhanced grain finishes at attractive prices.
Thomasville manufactures or assembles its products at 16 finished case goods
and upholstery production and warehouse facilities located in North Carolina,
Virginia, Tennessee and Mississippi, close to sources of raw materials and
skilled craftsmen. Each plant is specialized, manufacturing limited product
categories, allowing longer, more efficient production runs and economies of
scale. During recent years, Thomasville has focused on reducing manufacturing
costs by closing less efficient plants, reducing labor costs and establishing
process improvement programs.
The manufacturing process for Thomasville's RTA/promotional product line is
highly automated. Large fiberboard and particleboard sheets are machine-
finished in long production runs, then stored and held for assembly using
highly automated assembly lines. Completed goods are stored in an automated
warehouse to provide quicker delivery to customers. All plant operations use
automated manufacturing processes and inventory management systems. Ninety
percent of Thomasville's RTA/promotional products are shipped within 14 days
of production.
RAW MATERIALS AND SUPPLIERS
The raw materials used by the Company in manufacturing its products are
lumber, veneers, plywood, fiberboard, particleboard, paper, hardware,
adhesives, finishing materials, glass, mirrored glass, fabrics, leathers and
upholstered filling material (such as synthetic fibers, foam padding and
polyurethane cushioning). The various types of wood used in the Company's
products include cherry, oak, maple, pine and pecan, which are purchased
domestically, and mahogany, which is purchased abroad. Fabrics, leathers and
other raw materials are purchased both domestically and abroad. Management
believes that its supply sources for those materials are adequate.
The Company has no long-term supply contracts and has experienced no
significant problems in supplying its operations. Although the Company has
strategically selected suppliers of raw materials, the Company believes that
there are a number of other sources available, contributing to its ability to
obtain competitive pricing for raw materials. Raw materials prices fluctuate
over time depending upon factors such as supply, demand and weather. Increases
in prices may have a short-term impact on the Company's margins for its
products.
The majority of supplies for RTA and promotional products is purchased
domestically, although paper and certain hardware is purchased abroad.
Management believes, however, that its proximity to and relationships with
suppliers are advantageous for the sourcing of such materials. In addition, by
combining the purchase of various raw materials (such as foam, cartons,
springs and fabric) and services, Lane and Broyhill have been able to realize
cost savings. Management believes that the Company's position as the largest
residential furniture manufacturer will create opportunities for additional
cost savings.
7
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ENVIRONMENTAL MATTERS
The Company is subject to a wide-range of federal, state and local laws and
regulations relating to protection of the environment, worker health and
safety and the emission, discharge, storage, treatment and disposal of
hazardous materials. These laws include the Clean Air Act of 1970, as amended,
the Resource Conservation and Recovery Act, the Federal Water Pollution
Control Act and the Comprehensive Environmental, Response, Compensation and
Liability Act ("Superfund"). Certain of the Company's operations use glues and
coating materials that contain chemicals that are considered hazardous under
various environmental laws. Accordingly, management closely monitors the
Company's environmental performance at all of its facilities. Management
believes that the Company is in substantial compliance with all environmental
laws.
Under the provisions of the Clean Air Act Amendments of 1990 (the "CAA"), in
December 1995, the Environmental Protection Agency (the "EPA") promulgated air
emission standards for the wood furniture industry. These regulations, known
as National Emission Standards for Hazardous Air Pollutants ("NESHAPs"),
govern the levels of emission of certain designated chemicals into the air and
will require that the Company reduce emissions of certain volatile organic
compounds ("VOCs") by November 1997. Management is investigating and evaluating
techniques to meet these standards at all facilities to which the NESHAPs
standards will apply. While the Company may be required to make capital
investments at some of its facilities to ensure compliance, the Company believes
that it will meet all applicable requirements in a timely fashion and that the
amount of money required to meet the NESHAP requirements will not materially
affect its financial condition or its results of operations.
The Company has been identified as a potentially responsible party ("PRP") at
a number of superfund sites. The Company believes that its liability with
respect to most of the sites is de minimis, and the Company is entitled to
indemnification by others with respect to liability at certain sites. The
Company also accrued a reserve for such environmental liabilities in connection
with the acquisition of Thomasville. Management believes that any liability as a
PRP with regard to the superfund sites will not have a material adverse effect
on the financial condition or results of operations of the Company.
COMPETITION
The furniture manufacturing industry is highly competitive. The Company's
products compete with products made by a number of furniture manufacturers,
including Masco Corporation, La-Z-Boy Chair Company, Ladd Furniture, Inc.,
Bassett Furniture Industries, Inc., and Ethan Allen Interiors, Inc., as well
as approximately 600 smaller producers. The elements of competition include
pricing, styling, quality and marketing.
8
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EMPLOYEES
As of December 31, 1995, the Company employed approximately 20,700 people.
None of the Company's employees is represented by a union.
BACKLOG
The combined backlog of the Company's operating companies as of December 31,
1995 aggregated approximately $194 million, compared to approximately $209
million as of December 31, 1994. The backlog calculations for each year have
been adjusted to include the backlog for Thomasville. Substantially all of the
decrease in backlog is attributable to a change in the Company's method of
calculating backlog with regard to certain operations. Management believes
that if it had reported its backlog on a consistent basis, the year end
backlog would have been substantially the same for each of the years ended
December 31, 1994 and 1995.
Item 2. Properties
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The Company owns or leases the following principal plants, offices and
warehouses:
<TABLE>
<CAPTION>
Floor Owned
Type of Space or
Division Location Facility (Sq. Ft.) Leased
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<S> <C> <C> <C> <C>
INTERCO St. Louis, MO Headquarters 26,800 Leased
Broyhill Lenoir, NC Headquarters 136,000 Leased
Broyhill Lenoir, NC Plant/Warehouse 312,632 Owned
Broyhill Newton, NC Plant/Warehouse 382,626 Owned
Broyhill Lenoir, NC Plant/Warehouse 628,000 Owned
Broyhill Rutherfordton, NC Plant/Warehouse 575,656 Owned
Broyhill Lenoir, NC Plant/Warehouse 419,000 Owned
Broyhill Lenoir, NC Plant/Warehouse 364,000 Owned
Broyhill Conover, NC Plant/Warehouse 316,542 Owned
Broyhill Lenoir, NC Plant 345,439 Owned
Broyhill Lenoir, NC Plant 165,640 Owned
Broyhill Lenoir, NC Plant/Warehouse 252,380 Owned
Broyhill Taylorsville,NC Plant/Warehouse 212,754 Owned
Broyhill Lenoir, NC Plant 124,700 Leased
Broyhill Hickory, NC Plant/Warehouse 215,500 Leased
Broyhill Marion, NC Plant 22,712 Owned
Broyhill Lenoir, NC Warehouse 96,000 Owned
Broyhill Lenoir, NC Warehouse 503,250 Leased
Lane Altavista, VA Plant/Warehouse 1,091,600 Owned
Lane Altavista, VA Headquarters 62,000 Owned
Lane Conover, NC Plant/Warehouse 212,000 Owned
Lane Conover, NC Plant/Warehouse 348,180 Owned
Lane Conover, NC Plant 150,130 Owned
Lane Hickory, NC Plant/Warehouse 641,214 Owned
Lane Hickory, NC Plant/Warehouse 169,902 Owned
Lane High Point, NC Plant 187,162 Owned
Lane High Point, NC Plant/Warehouse 156,000 Owned
</TABLE>
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<TABLE>
<CAPTION>
Floor Owned
Type of Space or
Division Location Facility (Sq. Ft.) Leased
- -------- -------- -------- --------- ------
<S> <C> <C> <C> <C>
Lane Pontotoc, MS Plant/Warehouse 352,740 Owned
Lane Rocky Mount, VA Plant/Warehouse 598,962 Owned
Lane Verona, MS Plant/Warehouse 395,050 Owned
Lane Saltillo, MS Plant/Warehouse 567,500 Owned
Lane Tupelo, MS Plant/Warehouse 396,175 Owned
Lane Rocky Mount, VA Plant 50,300 Owned
Lane Smyrna, TN Plant 28,300 Owned
Thomasville Thomasville, NC Office 256,000 Owned
Thomasville Thomasville, NC Plant/Warehouse 599,600 Owned
Thomasville Thomasville, NC Plant 240,000 Owned
Thomasville Thomasville, NC Plant 387,624 Owned
Thomasville Thomasville, NC Plant 374,490 Owned
Thomasville Lenoir, NC Plant/Warehouse 828,000 Owned
Thomasville Winston-Salem, NC Plant/Warehouse 706,000 Owned
Thomasville West Jefferson, NC Plant/Warehouse 223,545 Owned
Thomasville Brookneal, VA Plant 195,260 Owned
Thomasville Johnson City, TN Plant/Warehouse 284,120 Owned
Thomasville Statesville, NC Plant 155,000 Owned
Thomasville Troutman, NC Plant 211,295 Owned
Thomasville Conover, NC Plant 120,250 Owned
Thomasville Hickory, NC Plant 84,384 Owned
Thomasville Hickory, NC Plant 93,500 Owned
Thomasville Appomattox, VA Plant/Warehouse 808,000 Owned
Thomasville Carysbrook, VA Plant 188,750 Owned
</TABLE>
- ------------------
Substantially all of the owned properties listed above are encumbered by a first
priority lien and mortgage pursuant to the Secured Credit Agreement. In
addition, the Tupelo, Mississippi facility is encumbered by a mortgage and first
lien securing industrial revenue bonds.
The Company believes its properties are generally well maintained, suitable for
its present operations and adequate for current production requirements.
Productive capacity and extent of utilization of the Company's facilities are
difficult to quantify with certainty because in any one facility maximum
capacity and utilization varies periodically depending upon the product that is
being manufactured, the degree of automation and the utilization of the labor
force in the facility. In this context, the Company estimates that overall its
production facilities were effectively utilized during calendar 1995 at
moderate to high levels of productive capacity and believes that in general its
facilities have the capacity, if necessary, to expand production to meet
anticipated product requirements.
Item 3. Legal Proceedings
- --------------------------
The Company is or may become a defendant in a number of pending or
threatened legal proceedings in the ordinary course of business. In the
opinion of management, the ultimate liability, if any, of the Company from
all such proceedings will not have a material adverse effect upon the
consolidated financial position or results of operations of the Company and
its subsidiaries.
The Company is also subject to regulation regarding environmental matters,
and is a party to certain actions related thereto. For information
regarding environmental matters, see "Item 1. Business -- Environmental
Matters."
10
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
Not applicable.
Part II
-------
Item 5. Market for The Registrant's Common Equity and Related Stockholder
- --------------------------------------------------------------------------
Matters
- -------
As of December 31, 1995, there were approximately 3,000 holders of record
of Common Stock.
Shares of the Company's Common Stock are traded on the New York Stock
Exchange. The reported high and low sale prices for the Company's Common
Stock on the New York Stock Exchange is included in Note 16 to the
consolidated financial statements of the Company.
The Company has not paid cash dividends on its Common Stock during the two
years ended December 31, 1994 and December 31, 1995.
A discussion of restrictions on the Company's ability to pay cash dividends
is included in Note 10 to the consolidated financial statements of the
Company.
11
<PAGE>
Item 6. Selected Financial Data
- -------------------------------
<TABLE>
<CAPTION>
YEAR ENDED FIVE MONTHS ENDED(1) YEAR ENDED DECEMBER 31,
--------------- --------------------------- ------------------------------
FEBRUARY 29, AUGUST 2, | DECEMBER 31,
1992 1992 | 1992 1993 1994 1995
--------------- ------------ | ------------ -------- ---------- ----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> | <C> <C> <C> <C>
SUMMARY OF OPERATIONS: |
Net sales.............. $ 819,359 $ 356,705 | $394,873 $980,532 $1,072,696 $1,073,889
Gross profit........... 229,219 96,849 | 108,858 275,323 298,712 291,237
Interest expense....... 88,310 29,689 | 16,358 38,621 37,886 33,845
Earnings (loss) before |
income tax expense |
(benefit), |
discontinued |
operations, |
extraordinary item and |
cumulative effect of |
accounting change..... (39,087) 247,716 | 18,045 37,266 48,841 57,038
Income tax expense |
(benefit)............. (3,589) (1,206) | 6,807 15,924 20,908 22,815
Net earnings (loss) |
from continuing |
operations............ (35,498) 248,922 | 11,238 21,342 27,933 34,223(4)
Discontinued |
operations............ (13,394) (136,347) | 10,088 24,026 10,339 --
Extraordinary item..... -- 1,075,466 | -- -- -- (5,815)
Cumulative effect of |
accounting change..... -- (1,719) | -- -- -- --
|
Net earnings (loss) |
applicable to |
common stock.......... $ (48,892) $1,186,322 | $ 21,326 $ 45,368 $ 38,272 $ 28,408
|
Per share of common |
stock--fully diluted: |
Net earnings (loss) |
from continuing |
operations.......... $ (0.92) $ 6.42 | $ 0.23 $ 0.41 $ 0.54 $ 0.65(4)
Discontinued |
operations.......... (0.34) (3.52) | 0.20 0.47 0.20 --
Extraordinary item... -- 27.72 | -- -- -- (0.11)
Cumulative effect of |
accounting change... -- (0.04) | -- -- -- --
|
Net earnings (loss) |
applicable to common |
stock................. $ (1.26) $ 30.58 | $ 0.43 $ 0.88 $ 0.74 $ 0.54
|
Weighted average common |
and common equivalent |
shares outstanding-- |
fully diluted (in |
thousands)............ 38,731 38,796 | 50,000 51,397 51,506 52,317
Other Information |
(continuing |
operations): |
Working capital........ $ 426,852 $ 261,357 | $261,967 $271,588 $ 308,323 $ 455,036
Property, plant and |
equipment, net........ 114,239(2) 189,039(2)| 186,046 191,581 181,393 306,406
Capital expenditures... 20,099 7,041 | 8,850 30,197 21,108 35,616
Total assets........... 800,840 893,012 | 870,115 858,163 881,735 1,291,739
Long-term debt......... --(3) 443,165 | 407,898 403,255 409,679 705,040
Shareholders' equity |
(deficit)............. $(1,186,522) $ 275,400 | $293,114 $338,557 $ 275,394 $ 301,156
</TABLE>
(1) Effective December 31, 1992, the Company changed its fiscal year to end on
December 31. The Company's adoption of fresh-start reporting required
reporting calendar 1992 results in two 22 week periods.
(2) In connection with the adoption of fresh-start reporting, property, plant
and equipment was adjusted to fair value resulting in an increase of
approximately $77,500 as of August 2, 1992.
(3) Long-term debt (including debt pertaining to discontinued operations)
totaling $1,055,132 was reclassified to liabilities subject to compromise as
of February 29, 1992.
(4) Net earnings from continuing operations before gain on insurance settlement,
net of income tax expense, and net earnings per common share from continuing
operations before gain on insurance settlement, net of income tax expense,
were $29,463 and $0.56, respectively.
12
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Conditions and Results
- --------------------------------------------------------------------------------
of Operstions
- -------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following analysis of the financial condition and results of operations
of the Company should be read in conjunction with the consolidated financial
statements and related notes included elsewhere in this document. In addition
management believes that the following four factors have had a significant
effect on its recent financial statements.
Acquisition of Thomasville. During the year ended December 31, 1995, the
Company had two primary operating subsidiaries, Broyhill and Lane. On December
29, 1995, the Company acquired Thomasville. The transaction was accounted for
as a purchase and, since the acquisition occurred as of the last business day
of 1995, has been reflected in the Company's consolidated balance sheet. The
Company's results of operations for 1995 do not include any of the operations
of Thomasville. The cash portion of the acquisition of Thomasville was financed
through funds obtained under the Secured Credit Agreement and the Receivables
Securitization Facility.
Recent Industry Conditions. During 1995, residential furniture manufacturers'
results were adversely affected by industry-wide price discounting and
promotional activity in response to weaker consumer demand for durable goods.
The Company believes that it minimized the impact of these factors on its
operations by introducing new products and continued support of its brand
names.
1994 Spin-Off Transactions. In order to focus on its core furniture
operations, the Company completed a spin-off of its footwear subsidiaries in
1994. On November 17, 1994, the Company simultaneously refinanced the majority
of its outstanding indebtedness and distributed to its stockholders all the
stock of its former footwear subsidiaries, Converse Inc. and The Florsheim Shoe
Company. Upon completion of this restructuring, the Company retained no
ownership interest in or management control of the footwear businesses.
Accordingly, the financial results of the footwear businesses have been
reflected as discontinued operations for all applicable periods.
1992 Asset Revaluation (Fresh-Start Reporting). Included in the Company's
statement of operations are depreciation and amortization charges related to
adjustments of assets and liabilities to fair value made in 1992. These
adjustments are a result of the Company's 1992 reorganization and the adoption
of AICPA SOP 90-7, "Financial Reporting by Entities in Reorganization under the
Bankruptcy Code" (commonly referred to as "fresh-start" reporting) and are not
the result of historical capital expenditures.
13
<PAGE>
RESULTS OF OPERATIONS
As an aid to understanding the Company's results of operations on a
comparative basis, the following table has been prepared to set forth certain
statements of operations and other data for fiscal 1993, 1994 and 1995. The
results for these periods do not include any of the operations of Thomasville.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1993 DECEMBER 31, 1994 DECEMBER 31, 1995
-------------------- ----------------- --------------------
% OF NET % OF NET % OF NET
DOLLARS SALES DOLLARS SALES DOLLARS SALES
--------- --------- -------- -------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $ 980.5 100.0% $1,072.7 100.0% $1,073.9 100.0%
Cost of operations...... 685.7 69.9 752.5 70.2 760.4 70.8
Selling, general and ad-
ministrative expenses.. 186.2 19.0 199.3 18.6 198.3 18.5
Depreciation and amorti-
zation................. 34.5 3.5 35.8 3.3 36.1 3.3
--------- -------- -------- ----- -------- -----
Earnings from opera-
tions.................. 74.1 7.6 85.1 7.9 79.1 7.4
Interest expense........ 38.6 3.9 37.9 3.5 33.9 3.2
Other income, net:
Gain on insurance set-
tlement.............. -- -- -- -- 7.9 0.7
Other................. 1.8 0.1 1.6 0.1 3.9 0.4
--------- -------- -------- ----- -------- -----
Earnings before income
tax expense, discontin-
ued operations and ex-
traordinary item....... 37.3 3.8 48.8 4.5 57.0 5.3
Income tax expense...... 15.9 1.6 20.9 1.9 22.8 2.1
--------- -------- -------- ----- -------- -----
Net earnings from
continuing operations.. $ 21.4 2.2% $ 27.9 2.6% $ 34.2(2) 3.2%
========= ======== ======== ===== ======== =====
Gross profit (1)........ $275.3 28.1% $ 298.7 27.8% $ 291.2 27.1%
</TABLE>
- --------
(1) The Company believes that gross profit provides useful information
regarding a company's financial performance. Gross profit should not be
considered in isolation or as an alternative to net earnings, an indicator
of the Company's operating performance, or an alternative to the Company's
cash flow from operating activities as a measure of liquidity. Gross profit
has been calculated by subtracting cost of operations and the portion of
depreciation associated with cost of goods sold from net sales.
(2) Net earnings from continuing operations before gain on insurance settlement,
net of income tax expense was $29.5 million.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1993 1994 1995
------ -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Net sales......................................... $980.5 $1,072.7 $1,073.9
Cost of operations................................ 685.7 752.5 760.4
Depreciation (associated with cost of goods
sold)............................................ 19.5 21.5 22.3
------ -------- --------
Gross profit...................................... $275.3 $ 298.7 $ 291.2
====== ======== ========
</TABLE>
14
<PAGE>
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net sales for 1995 were $1.07 billion, approximately unchanged from 1994. The
Company was able to maintain comparable net sales despite soft industry
conditions and weaker consumer demand for durable goods through new product
introductions at both Broyhill and Lane and continued support of its brand
names.
Cost of operations for 1995 was $760.4 million, compared to $752.5 million
for 1994, an increase of 1.0%. The increase in cost of operations as a
percentage of net sales from 70.2% in 1994 to 70.8% in 1995, was primarily the
result of unfavorable overhead absorption rates reflecting the Company's effort
to maintain manufacturing utilization rates at levels necessary to balance
inventory with incoming orders.
Selling, general and administrative expenses decreased to $198.3 million in
1995 from $199.3 million in 1994, a reduction of 0.5%. In 1995, such expenses
included $2.7 million non-cash expense related to stock options. As a percentage
of net sales, selling, general and administrative expenses were 18.5% in 1995
compared to 18.6% in 1994, reflecting the Company's successful implementation of
its ongoing cost reduction programs.
Depreciation and amortization for 1995 was $36.1 million, compared to $35.8
million in 1994, an increase of 0.9%. The amount of depreciation and
amortization attributable to the "fresh-start" reporting was $15.9 million and
$16.9 million, in 1995 and 1994, respectively.
Interest expense for 1995 totaled $33.9 million and reflects twelve months
of interest expense on the Company's debt structure, which was substantially
refinanced as of December 29, 1995. Interest expense for 1995 was not
comparable to interest expense for 1994 as a result of the previous
refinancing of substantially all of the Company's debt in November 1994.
Other income, net for 1995 totaled $11.8 million, compared to $1.6 million
in 1994. For 1995, other income, consisted of a gain on insurance settlement
of $7.9 million pertaining to the November 1994 destruction of a particleboard
plant, interest income on short-term investments of $2.4 million and other
miscellaneous income and (expense) items totaling $1.5 million.
For 1995, the Company provided for income taxes totaling $22.8 million on
earnings before income tax expense, discontinued operations and extraordinary
item, producing an effective tax rate of 40.0%, compared to an effective tax
rate for 1994 of 42.8%. The effective tax rates for such years were adversely
impacted by certain nondeductible expenses incurred and provisions for state
and local income taxes. The effective income tax rate for 1995 was favorably
impacted by special state income tax incentives granted in connection with the
issuance of certain industrial revenue bonds on behalf of one of the Company's
subsidiaries.
Net earnings per common share for continuing operations on a fully diluted
basis were $0.65 and $0.54 for 1995 and 1994, respectively. Net earnings per
common share for continuing operations before gain on insurance settlement net
of income tax expense on a fully diluted basis was $0.56 and $0.54 for 1995
and 1994, respectively.
Weighted average shares used in the calculation of primary and fully diluted
net earnings per common share for 1995 were 50,639,000 and 52,317,000,
respectively.
Gross profit for 1995 was $291.2 million, compared to $298.7 million for
1994, a decrease of 2.5%. Gross profit as a percentage of net sales declined
from 27.8% in 1994 to 27.1% in 1995, and was primarily a result of lower
factory utilization rates at certain of the Company's manufacturing facilities
to balance inventories with incoming orders.
15
<PAGE>
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Net sales for 1994 were $1.07 billion, representing an increase of 9.4% over
net sales of $980.5 million in 1993. The net sales increase for 1994 reflected
an improving U.S. economy and favorable industry conditions as well as new
product offerings and marketing programs that were well received by customers.
Cost of operations for 1994 was $752.5 million, compared to $685.7 million for
1993, an increase of 9.7%. The increase in cost of operations as a percentage of
net sales from 69.9% in 1993 to 70.2% in 1994, was primarily the result of
start-up costs at a new motion upholstery manufacturing facility, the testing of
a new state-of-the-art finishing facility and the impact of an explosion and
fire that destroyed a particleboard plant in November 1994, partially offset by
favorable factory utilization rates.
Selling, general and administrative expenses for 1994 was $199.3 million,
representing an increase of 7.0% over selling, general and administrative
expenses for 1993 of $186.2 million. Selling, general and administrative
expenses as a percentage of net sales, decreased to 18.6% from 19.0%. The
reduction in selling, general and administrative expenses as a percentage of
net sales was attributable to the Company's emphasis on control and reduction
of operating expenses, as well as a nonrecurring $2.6 million charge included
in 1993 related to the Company's 1992 reorganization.
Depreciation and amortization for 1994 was $35.8 million, compared to $34.5
million in 1993, an increase of 3.8%. The amount of depreciation and
amortization attributed to the "fresh-start" reporting was $16.9 million and
$16.5 million, in 1994 and 1993, respectively.
Interest expense for 1994 totaled $37.9 million compared to $38.6 million in
1993. The reduction in interest expense was primarily due to refinancing the
Company's long-term debt in conjunction with the November 17, 1994 spin-off
distribution to shareholders of the Company's footwear segment.
Other income, net for 1994 and 1993 totaled $1.6 million and $1.8 million,
respectively.
The Company's effective tax rate for 1994 and 1993 was 42.8% and 42.7%,
respectively. The effective tax rates for such years were adversely impacted by
certain nondeductible expenses incurred and provisions for state and local
income taxes.
Net earnings per common share from continuing operations on a fully diluted
basis were $0.54 and $0.41 for 1994 and 1993, respectively.
Gross profit for 1994 was $298.7 million, representing an increase of 8.5%
over gross profit for 1993 of $275.3 million. The increase resulted from an
increase in net sales, partially offset by a reduction in gross profit margin.
The reduction in gross profit margin, to 27.8% in 1994 from 28.1% for 1993, was
primarily a result of start-up costs at a new motion upholstery manufacturing
facility, the testing of a state-of-the-art finishing facility and the impact
of an explosion and fire that destroyed a particleboard plant in November 1994,
partially offset by favorable factory utilization rates.
16
<PAGE>
FINANCIAL CONDITION AND LIQUIDITY
Cash and cash equivalents at December 31, 1995 totaled $26.4 million,
compared to $32.1 million at December 31, 1994. For 1995, net cash provided by
operating activities totaled $92.0 million. Net cash used by investing
activities totaled $370.5 million, including $335.4 million related to the
acquisition of Thomasville and $35.6 million of capital expenditures incurred
to add, upgrade or replace property, plant and equipment. Net cash provided by
financing activities during 1995 totaled $272.8 million.
Working capital was $455.0 million at December 31, 1995, compared to $308.3
million at December 31, 1994. The current ratio was 4.4 to 1 at December 31,
1995, compared to 4.2 to 1 at December 31, 1994. The increase in working
capital between years is primarily the result of the acquisition of
Thomasville.
At December 31, 1995, long-term debt, including current maturities, totaled
$723.7 million, compared to $426.3 million at December 31, 1994. The increase
in long-term debt resulted from entering into the Secured Credit Agreement and
the Receivables Securitization Facility in conjunction with the December 29,
1995 Thomasville acquisition. The Company's debt-to-capitalization ratio was
70.6% at December 31, 1995, compared to 60.8% at December 31, 1994.
To meet short-term working capital and other financial requirements, the
Company maintains a $180 million revolving credit facility as part of its
Secured Credit Agreement with a group of financial institutions. The revolving
credit facility allows for both issuance of letters of credit and cash
borrowings. Letter of credit outstandings are limited to no more than $60.0
million. Cash borrowings are limited only by the facility's maximum availability
less letters of credit outstanding. See Note 8 of the notes to consolidated
financial statements for additional information. At December 31, 1995, there was
$71.0 million of cash borrowings outstanding under the revolving credit facility
and $28.3 million in letters of credit outstanding, leaving an excess of $80.7
million available under the revolving credit facility.
In addition to the revolving credit facility, the Company also had $20.5
million of excess availability under its Receivables Securitization Facility
as of December 31, 1995.
The Company believes its revolving credit facility, together with cash
generated from operations, will be adequate to meet liquidity requirements for
the foreseeable future.
The Company maintains a significant capital expenditure program focusing on
increasing manufacturing efficiency and expanding capacity as required. The
Company's total capital expenditures were $35.6 million, $21.1 million and $30.2
million for the years ended December 31, 1995, 1994 and 1993, respectively.
These figures do not include the capital expenditures of Thomasville.
Significant new projects during the past three years included a new upholstery
manufacturing facility at Action Industries to meet the increased demand for the
Company's recliners, motion furniture and sleep sofas and a state-of-the-art
flat line finishing system at Lane. The capital expenditures for 1995 include
$18.2 million to construct a new state-of-the-art particleboard manufacturing
facility at Broyhill, which was funded by proceeds from an insurance settlement,
to replace the Company's facility that was destroyed by fire in November 1994.
The Company believes that as a result of the availability of excess capacity in
the Lane and Thomasville manufacturing facilities, the Company will be able to
pursue its growth strategy over the next several years without the necessity of
making significant additional capital expenditures to expand capacity.
17
<PAGE>
ACCOUNTING STANDARDS NOT YET IMPLEMENTED
In October 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). Under SFAS
No. 123, companies can either measure the compensation cost of equity
instruments issued under employee compensation plans using a fair value based
method, or can continue to recognize compensation cost under the provisions of
Accounting Principles Board Opinion No. 25 ("Opinion No. 25"). However, if the
provisions of Opinion No. 25 are continued, pro forma disclosures of net income
and earnings per share must be presented in the financial statements as if the
fair value method had been applied. The Company intends to continue to recognize
compensation costs under the provisions of Opinion No. 25, and upon adoption of
SFAS No. 123 as of January 1, 1996, will disclose the effects of SFAS No. 123 on
net earnings and earnings per share for 1995 and 1996.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No. 121").
SFAS No. 121 requires that long-lived assets, certain identifiable intangibles
and goodwill to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate the carrying amount of an
asset may not be recoverable. SFAS No. 121 is effective for the Company in 1996.
The Company believes the adoption of this accounting standard will not have a
material impact on its operating results or financial condition.
18
<PAGE>
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 32,145 $ 26,412
Receivables, less allowances of $5,062 and $20,724
at December 31, 1994 and 1995 (Note 9)............. 202,270 276,116
Inventories (Note 6)................................ 155,031 269,677
Prepaid expenses and other current assets........... 14,325 17,888
-------- ----------
Total current assets.............................. 403,771 590,093
Property, plant and equipment:
Land................................................ 11,933 16,635
Buildings and improvements.......................... 111,076 166,214
Machinery and equipment............................. 115,407 206,580
-------- ----------
238,416 389,429
Less accumulated depreciation....................... 57,023 83,023
-------- ----------
Net property, plant and equipment................. 181,393 306,406
Intangible assets (Note 7)........................... 275,767 370,307
Other assets......................................... 20,804 24,933
-------- ----------
$881,735 $1,291,739
======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt (Note 9)....... $ 16,574 $ 18,639
Accounts payable.................................... 37,721 53,093
Accrued employee compensation....................... 19,771 29,020
Accrued interest expense............................ 1,652 1,304
Other accrued expenses.............................. 19,730 33,001
-------- ----------
Total current liabilities......................... 95,448 135,057
Long-term debt, less current maturities (Note 9)..... 409,679 705,040
Other long-term liabilities.......................... 101,214 150,486
Shareholders' equity:
Preferred stock, authorized 10,000,000 shares, no
par value--issued, none............................ -- --
Common stock, authorized 100,000,000 shares, $1.00
stated value (no par value)--issued 50,076,515 and
50,120,079 shares at December 31, 1994 and 1995
(Note 10).......................................... 50,076 50,120
Paid-in capital..................................... 220,788 218,156
Retained earnings................................... 4,530 32,880
-------- ----------
Total shareholders' equity........................ 275,394 301,156
-------- ----------
$881,735 $1,291,739
======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1993 1994 1995
------------- -------------- ---------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net sales...................... $ 980,532 $ 1,072,696 $ 1,073,889
Costs and expenses:
Cost of operations........... 685,749 752,528 760,393
Selling, general and
administrative expenses..... 186,205 199,333 198,321
Depreciation and amortization
(includes $16,463, $16,900
and $15,922 related to fair
value adjustments).......... 34,455 35,776 36,104
------------- --------------- ---------------
Earnings from operations....... 74,123 85,059 79,071
Interest expense............... 38,621 37,886 33,845
Other income, net:
Gain on insurance settlement
(Note 15)................... -- -- 7,882
Other........................ 1,764 1,668 3,930
------------- --------------- ---------------
Earnings before income tax
expense, discontinued
operations and extraordinary
item.......................... 37,266 48,841 57,038
Income tax expense (Note 11)... 15,924 20,908 22,815
------------- --------------- ---------------
Net earnings from continuing
operations.................... 21,342 27,933 34,223
Discontinued operations (Note
4):
Earnings from operations, net
of taxes.................... 24,026 25,443 --
Loss on distribution, net of
taxes....................... -- (15,104) --
------------- --------------- ---------------
Net earnings before
extraordinary item............ 45,368 38,272 34,223
Extraordinary item--early
extinguishment of debt,
net of tax benefit (Note 5)... -- -- (5,815)
------------- --------------- ---------------
Net earnings................... $ 45,368 $ 38,272 $ 28,408
============= =============== ===============
Net earnings per common share--
primary (Note 3):
Net earnings from continuing
operations ................. $ 0.41 $ 0.54 $ 0.67
Discontinued operations...... 0.47 0.20 --
Extraordinary item--early
extinguishment of debt...... -- -- (0.11)
------------- --------------- ---------------
Net earnings per common share--
primary....................... $ 0.88 $ 0.74 $ 0.56
============= =============== ===============
Net earnings per common share--
fully diluted (Note 3):
Net earnings from continuing
operations.................. $ 0.41 $ 0.54 $ 0.65
Discontinued operations...... 0.47 0.20 --
Extraordinary item--early
extinguishment of debt...... -- -- (0.11)
------------- --------------- ---------------
Net earnings per common share--
fully diluted................. $ 0.88 $ 0.74 $ 0.54
============= =============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1993 1994 1995
-------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net earnings.................................. $ 45,368 $ 38,272 $ 28,408
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Net loss on early extinguishment of debt.... -- -- 5,815
Net earnings from discontinued operations... (24,026) (10,339) --
Depreciation of property, plant and
equipment.................................. 24,304 25,675 26,371
Amortization of intangible and other
assets..................................... 10,151 10,101 9,733
Noncash interest and other expense.......... 2,097 196 2,150
(Increase) decrease in receivables.......... (3,237) (27,979) 165
(Increase) decrease in inventories.......... (11,072) (20,553) 3,340
(Increase) decrease in prepaid expenses and
other assets............................... (714) 2,648 1,179
Increase (decrease) in accounts payable,
accrued interest expense and other accrued
expenses................................... (3,866) 15,788 6,133
Increase (decrease) in income taxes......... 3,938 (17,021) 8,661
Increase (decrease) in net deferred tax
liabilities................................ 969 7,904 (211)
Increase (decrease) in other long-term
liabilities................................ (886) (2,676) 246
-------- --------- --------
Net cash provided by continuing operations.... 43,026 22,016 91,990
Net cash used by discontinued operations...... (11,993) (16,695) --
-------- --------- --------
Net cash provided by operating activities..... 31,033 5,321 91,990
-------- --------- --------
Cash Flows from Investing Activities:
Acquisition of business (Note 2).............. -- -- (335,438)
Proceeds from the disposal of assets.......... 358 5,621 519
Additions to property, plant and equipment.... (30,197) (21,108) (35,616)
-------- --------- --------
Net cash used by investing activities......... (29,839) (15,487) (370,535)
-------- --------- --------
Cash Flows from Financing Activities:
Payments for debt issuance costs.............. -- (11,455) (14,026)
Additions to long-term debt................... -- 423,000 576,000
Payments of long-term debt.................... (20,940) (404,741) (286,574)
Proceeds from the issuance of common stock.... 42 698 201
Payments for the repurchase of common stock
warrants..................................... -- -- (2,789)
-------- --------- --------
Net cash provided (used) by financing
activities................................... (20,898) 7,502 272,812
-------- --------- --------
Net decrease in cash and cash equivalents....... (19,704) (2,664) (5,733)
Cash and cash equivalents at beginning of
period......................................... 54,513 34,809 32,145
-------- --------- --------
Cash and cash equivalents at end of period...... $ 34,809 $ 32,145 $ 26,412
======== ========= ========
Supplemental Disclosure:
Cash payments for income taxes, net........... $ 11,115 $ 37,127 $ 14,386
======== ========= ========
Cash payments for interest.................... $ 38,454 $ 39,345 $ 32,010
======== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------- -------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance December 31, 1992.............. $50,000 $225,400 $ 17,714 $ 293,114
Net earnings........................... 45,368 45,368
Common stock activity:
Stock option grants and exercises
(Note 10)........................... 4 988 992
Warrant exercises--282 shares........ 3 3
Foreign currency translations.......... (920) (920)
------- -------- -------- ---------
Balance December 31, 1993.............. 50,004 226,391 62,162 338,557
Net earnings........................... 38,272 38,272
Common stock activity:
Stock option exercises (Note 10)..... 71 615 686
Warrant exercises--983 shares........ 1 11 12
Foreign currency translations.......... 2,659 2,659
Distribution of discontinued operations
to shareholders....................... (6,229) (98,563) (104,792)
------- -------- -------- ---------
Balance December 31, 1994.............. 50,076 220,788 4,530 275,394
Net earnings........................... 28,408 28,408
Common stock activity:
Stock option exercises (Note 10)..... 43 153 196
Warrant exercises--564 shares........ 1 4 5
Warrants purchased--1,489,422
shares.............................. (2,789) (2,789)
Foreign currency translations.......... (58) (58)
------- -------- -------- ---------
Balance December 31, 1995.............. $50,120 $218,156 $ 32,880 $ 301,156
======= ======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
INTERCO INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. THE COMPANY
INTERCO INCORPORATED (the "Company") is a major manufacturer of residential
furniture. During the year ended December 31, 1995, the Company had two
primary operating subsidiaries, Broyhill Furniture Industries, Inc. and The
Lane Company, Incorporated. On December 29, 1995, the Company acquired
Thomasville Furniture Industries, Inc. ("Thomasville"). In conjunction with
the acquisition, the Company refinanced its Secured Credit Agreement and
amended its Receivables Securitization Facility.
Substantially all of the Company's sales are made to unaffiliated furniture
retailers. The Company has a diversified customer base with no one customer
accounting for 10% or more of consolidated sales and no particular
concentration of credit risk in one economic section. Foreign operations and
sales are not material.
On November 17, 1994, the Company simultaneously refinanced the majority of
its outstanding indebtedness and distributed to holders of its common stock
the common stock of The Florsheim Shoe Company and the common stock of
Converse Inc. (which, in aggregate, represented the Company's footwear
segment). Upon completion of this restructuring, the Company retained no
ownership interest or management control of the footwear businesses.
Accordingly, the financial results of the footwear businesses have been
reflected as discontinued operations for all applicable periods.
2. ACQUISITION OF BUSINESS
On December 29, 1995, the Company acquired all of the outstanding stock of
Thomasville Furniture Industries, Inc. The purchase price totaled $331,200
plus the assumption of $8,000 of long-term debt. The purchase price, including
capitalized expenses which approximated $4,200, was paid in cash. The
transaction was accounted for as a purchase and, since the acquisition
occurred as of the last business day of 1995, has been reflected in the
Company's consolidated balance sheet. The Company's results of operations for
1995 do not include any of the operations of Thomasville. The total
acquisition cost exceeded the estimated fair value of the net assets acquired
by $105,764 with such amount being recorded as an intangible asset.
The following unaudited summary, prepared on a pro forma basis, combines the
consolidated results of operations of the Company for 1994 and 1995 with those
of Thomasville as if the transaction occurred at the beginning of each year
presented.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Net sales.......................................... $1,599,339 $1,624,116
Net earnings from continuing operations............ 30,963 37,422
Net earnings....................................... 41,302 31,607
Net earnings per common share--fully diluted:
Continuing operations............................ 0.60 0.72
Total............................................ 0.80 0.61
</TABLE>
The pro forma data has been adjusted, net of income taxes, to reflect
interest expense and the amortization of the excess of cost over net assets
acquired. Such pro forma amounts are not necessarily indicative of what the
actual consolidated results of operations might have been if the acquisition
had been effective at the beginning of each year presented.
23
<PAGE>
INTERCO INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies of the Company are set forth below.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management 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
reported period. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and all its subsidiaries, the majority of which are wholly owned. All material
intercompany transactions are eliminated in consolidation. The Company's
fiscal year ends on December 31. The operating companies included in the
consolidated financial statements report their results of operations as of the
Saturday closest to December 31. Accordingly, the results of operations will
periodically include a 53 week fiscal year. 1993, 1994 and 1995 all represent
52 week fiscal years.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity
of three months or less to be cash equivalents. Short-term investments are
recorded at amortized cost, which approximates market.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost when acquired.
Expenditures for improvements are capitalized while normal repairs and
maintenance are expensed as incurred. When properties are disposed of, the
related cost and accumulated depreciation or amortization are removed from the
accounts, and gains or losses on the dispositions are reflected in results of
operations. For financial reporting purposes, the Company utilizes both
accelerated and straight-line methods of computing depreciation and
amortization. Such expense is computed based on the estimated useful lives of
the respective assets, which generally range from 3 to 45 years for buildings
and improvements and from 3 to 12 years for machinery and equipment.
Intangible Assets
The Company emerged from Chapter 11 reorganization effective with the
beginning of business on August 3, 1992. In accordance with generally accepted
accounting principles, the Company was required to adopt "fresh-start"
reporting which included adjusting all assets and liabilities to their fair
values as of the effective date. The ongoing impact of the adoption of fresh-
start reporting is reflected in the financial statements for all years
presented.
As a result of adopting fresh-start reporting, the Company recorded
reorganization value in excess of amounts allocable to identifiable assets of
approximately $146,000. This intangible asset is being amortized on a
straight-line basis over a 20 year period.
Also in connection with the adoption of fresh-start reporting, the Company
recorded approximately $156,800 in fair value of trademarks and trade names
based upon an independent appraisal. Such trademarks and trade names are being
amortized on a straight-line basis over a 40 year period.
24
<PAGE>
INTERCO INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The excess of cost over net assets acquired in connection with the
acquisition of Thomasville totaled approximately $105,764. This intangible
asset is being amortized on a straight-line basis over a 40 year period.
Income Tax Expense
Income tax expense is based on results of operations before discontinued
operations and extraordinary items. Deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year in
which those temporary differences are expected to be recovered or settled. The
effect of a change in tax rates on deferred tax assets and liabilities is
recognized in income in the period that includes the enactment date.
Extraordinary Item
In conjunction with the December 29, 1995 acquisition of Thomasville, the
Company refinanced its Secured Credit Agreement and amended its Receivables
Securitization Facility. As a result thereof, the Company charged to results
of operations, as an extraordinary item, the deferred financing fees and
expenses pertaining to such credit facilities.
Net Earnings Per Common Share
Net earnings per common share is based on the weighted average number of
shares of common stock and common stock equivalents outstanding during the
year. The stock options and warrants outstanding (Note 10) are considered
common stock equivalents. Weighted average shares used in the calculation of
primary and fully diluted net earnings per common share for 1995 were
50,639,000 and 52,317,000, respectively.
Reclassification
Certain 1993 and 1994 amounts have been reclassified to conform to the 1995
presentation.
4. DISCONTINUED OPERATIONS
On November 17, 1994, the Company distributed the common stock of each of
The Florsheim Shoe Company and Converse Inc. (which, in aggregate, represented
the Company's footwear segment) to its shareholders. In accordance with
generally accepted accounting principles, the financial results for the
footwear segment are reported as "Discontinued Operations" and the Company's
financial results of prior periods were restated. Condensed results of the
discontinued operations were as follows:
<TABLE>
<CAPTION>
ELEVEN MONTHS
YEAR ENDED ENDED
DECEMBER 31, NOVEMBER 17,
1993 1994
------------ -------------
<S> <C> <C>
Net sales............................................ $ 676,282 $663,637
========= ========
Earnings before income tax expense................... $ 38,706 $ 40,047
Income tax expense................................... 14,680 14,604
--------- --------
Net earnings......................................... $ 24,026 $ 25,443
========= ========
Loss on distribution, net of taxes of $4,564......... $ -- $(15,104)
========= ========
</TABLE>
25
<PAGE>
INTERCO INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The loss on distribution reflects expenses related to: the distribution of
the common stock of The Florsheim Shoe Company and Converse Inc. to the
Company's shareholders, including certain expenses associated with
establishing the capital structure of each company; compensation expense
accrued as a result of adjustments required to be made to exercisable employee
stock options; interest expense on certain long-term debt defeased, net of
estimated interest income to be received from the trustees; and applicable
income taxes.
Prior to the distribution of the common stock of The Florsheim Shoe Company
to its shareholders, the Company had guaranteed certain of Florsheim's retail
store operating leases. At December 31, 1995, the Company had guarantees
outstanding on 101 retail store leases with a contingent liability totaling
approximately $37,400. The Florsheim Shoe Company has agreed to indemnify the
Company against any losses incurred as a result of the lease guarantees.
5. EXTRAORDINARY ITEM--EARLY EXTINGUISHMENT OF DEBT
In conjunction with the December 29, 1995 acquisition of Thomasville, the
Company refinanced its Secured Credit Agreement and amended its Receivables
Securitization Facility. As a result thereof, the Company charged to results
of operations $5,815, net of taxes of $3,478, representing the deferred
financing fees and expenses pertaining to such credit facilities. The charge
was recorded as an extraordinary item.
6. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Finished products.................................. $ 66,445 $114,857
Work-in-process.................................... 36,365 51,259
Raw materials...................................... 52,221 103,561
-------- --------
$155,031 $269,677
======== ========
</TABLE>
7. INTANGIBLE ASSETS
Intangible assets include the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Intangible assets, at cost:
Reorganization value in excess of amounts
allocable to identifiable assets............... $146,063 $146,063
Trademarks and trade names...................... 156,828 156,828
Excess of cost over net assets acquired......... -- 105,764
-------- --------
302,891 408,655
Less accumulated amortization..................... 27,124 38,348
-------- --------
$275,767 $370,307
======== ========
</TABLE>
8. SHORT-TERM FINANCING
In conjunction with the December 29, 1995 acquisition of Thomasville and
related refinancing of certain long-term debt, the Company entered into a
$630,000 Secured Credit Agreement which includes a $180,000
26
<PAGE>
INTERCO INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
revolving credit facility. The revolving credit facility allows for issuance
of letters of credit and cash borrowings. Letter of credit outstandings are
limited to no more than $60,000, with cash borrowings limited only by the
facility's maximum availability less letters of credit outstanding. On
December 29, 1995, $71,000 in cash borrowings were outstanding under the
revolving credit facility as a result of the acquisition of Thomasville. Cash
borrowings from the revolving credit facility have no fixed amortization and,
since the facility does not mature until December 2001, are classified as
long-term debt.
As part of the Secured Credit Agreement, the revolving credit facility is
secured by a first priority lien on and security interest in substantially all
of the Company's assets except for trade receivables. See Note 9--Long-Term
Debt for further information regarding the Secured Credit Agreement.
The outstanding cash borrowings under the revolving credit facility bear
interest at a base rate plus 1.125% or at an adjusted Eurodollar rate plus
2.125%, depending upon the type of loan the Company executes. The "spread" or
margin over the base rate and Eurodollar rate is subject to a "step-down" or
reduction when the Company achieves certain financial performance ratios. At
December 31, 1995, there was $71,000 of cash borrowings outstanding under the
revolving credit facility, all of which are classified as long-term debt.
Under the letter of credit facility, a fee of 2.125% per annum (subject to
the same "step-down" as noted earlier) is assessed for the account of the
lenders ratably. A further fee of 0.25% is assessed on stand-by letters of
credit representing a facing fee. A customary administrative charge for
processing letters of credit is also payable to the relevant issuing bank.
Letter of credit fees are payable quarterly in arrears. At December 31, 1995,
there were $28,300 in letters of credit outstanding under the revolving credit
facility.
9. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Secured credit agreement........................... $285,000 $521,000
Receivables securitization facility................ 130,000 185,000
Other.............................................. 11,253 17,679
-------- --------
426,253 723,679
Less current maturities............................ 16,574 18,639
-------- --------
$409,679 $705,040
======== ========
</TABLE>
On December 29, 1995, in conjunction with the acquisition of Thomasville,
the Company refinanced its Secured Credit Agreement by entering into a new
$630,000 facility with a group of financial institutions. The Company also
amended its Receivables Securitization Facility to increase its maximum
availability to $225,000. Proceeds from these loan facilities were used to
repay the existing secured credit facility and to acquire Thomasville.
The following discussion summarizes certain provisions of the long-term
debt.
Secured Credit Agreement
The common stock of the Company's principal subsidiaries, substantially all
of the Company's cash, working capital (other than trade receivables) and
property, plant and equipment, have been pledged or mortgaged as security for
the Secured Credit Agreement. The Secured Credit Agreement contains a number
of restrictive covenants and events of default, including covenants limiting
capital expenditures and incurrence of debt, and requires the Company to
achieve certain financial ratios, some of which become more restrictive over
time.
27
<PAGE>
INTERCO INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Secured Credit Agreement consists of the revolving credit facility
discussed in Note 8 and three term loan facilities with the following terms:
<TABLE>
<CAPTION>
INTEREST RATE MARGIN
-------------------------
DECEMBER 31, 1995 MATURITY
BALANCE DATE BASE RATE EURODOLLAR RATE
----------------- ----------------- --------- ---------------
<S> <C> <C> <C> <C>
Term loan "A" facility.. $250,000 December 29, 2001 1.125% 2.125%
Term loan "B" facility.. 100,000 March 29, 2003 1.625% 2.625%
Term loan "C" facility.. 100,000 March 29, 2004 2.125% 3.125%
</TABLE>
Similar to the revolving credit facility, the "spread" or margin over the
base rate and Eurodollar rate is subject to a "step-down" or reduction when
the Company achieves certain financial performance ratios. Interest is payable
based upon the type (base rate or Eurodollar rate) of the loan the Company
executes; however, interest is payable quarterly at a minimum. At December 31,
1995, all loans outstanding under the Secured Credit Agreement were based on
the Eurodollar rate.
Mandatory principal payments of the term loan "A" facility are semi-annual
(last business day of June and December). Mandatory principal payments of the
term loan "B" facility are semi-annual through 2001 and convert to quarterly
payments beginning in March 2002. Mandatory principal payments of the term
loan "C" facility are semi-annual through 2002 and convert to quarterly
payments beginning in June 2003. Annual mandatory principal payments are as
follows:
<TABLE>
<CAPTION>
TERM LOAN FACILITY
-----------------------
YEAR A B C TOTAL
---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
1996......................................... $15,000 $ 1,000 $ 1,000 $17,000
1997......................................... 20,000 1,000 1,000 22,000
1998......................................... 25,000 1,000 1,000 27,000
1999......................................... 50,000 1,000 1,000 52,000
2000......................................... 65,000 1,000 1,000 67,000
2001......................................... 75,000 1,000 1,000 77,000
2002......................................... -- 75,200 1,000 76,200
2003......................................... -- 18,800 69,750 88,550
2004......................................... -- -- 23,250 23,250
</TABLE>
In addition to mandatory principal payments, the term loan facilities
require principal payments from excess cash flow (as defined in the Secured
Credit Agreement), and a portion of the net proceeds realized from (i) the
sale, conveyance or other disposition of collateral securing the debt or (ii)
the sale by the Company for its own account of additional subordinated debt
and/or shares of its preferred and/or common stock. The revolving credit
facility has no mandatory principal payments prior to its maturity date.
Receivables Securitization Facility
The amended Receivables Securitization Facility is an obligation of the
Company which matures on December 29, 2000 and is secured by substantially all
of the Company's trade receivables. The facility operates through use of a
special purpose subsidiary (Interco Receivables Corp.) which "buys" trade
receivables from the operating companies and "sells" interests in same to a
third party financial institution, which uses the interests as collateral for
borrowings in the commercial paper market to fund the purchases. The Company
accounts for this facility as long-term debt.
The Company pays a commercial paper index rate on all funds received
(outstanding) on the facility. In addition, a program fee of 0.75% per annum
on the entire $225,000 facility is payable on a monthly basis. The balance
outstanding
28
<PAGE>
INTERCO INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
at December 31, 1995 was $185,000. The Company may increase or decrease its
use of the facility on a monthly basis subject to the availability of
sufficient trade receivables and the facility's maximum amount ($225,000). As
of December 31, 1995, the Company had $20,474 in excess availability under the
facility.
Other
Other long-term debt consists of various industrial revenue bonds and other
debt instruments with interest rates ranging from approximately 4.0% to 9.0%.
Annual mandatory principal payments are required through 2004.
Other Information
Maturities of long-term debt are $18,639, $23,709, $28,531, $52,800 and
$252,800 for years 1996 through 2000, respectively.
10. COMMON STOCK
The Company's restated certificate of incorporation includes authorization
to issue up to 100.0 million shares of common stock with a $1.00 per share
stated value. As of December 31, 1995, 50,120,079 shares of common stock were
issued and outstanding. It is not presently anticipated that dividends will be
paid on common stock in the foreseeable future and certain of the debt
instruments to which the Company is a party restrict the payment of dividends.
Shares of common stock were reserved for the following purposes at December
31, 1995:
<TABLE>
<CAPTION>
NUMBER
OF SHARES
----------
<S> <C>
Common stock options:
Granted......................................................... 2,498,000
Available for grant............................................. 740,000
Common stock warrants............................................. 6,907,198
----------
10,145,198
==========
</TABLE>
Under the Company's 1992 Stock Option Plan, certain key employees may be
granted nonqualified options, incentive options or combinations thereof.
Nonqualified and incentive options may be granted to expire up to ten years
after the date of grant. Options granted become exercisable at varying dates
depending upon the achievement of certain performance targets and/or the
passage of certain time periods.
The 1992 Stock Option Plan authorizes grants of options to purchase common
shares at less than fair market value on the date of grant. During 1993, an
option grant of 250 thousand common shares was made by the Company at less
than market value resulting in a credit to paid-in capital and a charge to
compensation expense of approximately $1.0 million.
Changes in options granted and outstanding are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1993 DECEMBER 31, 1994 DECEMBER 31, 1995
------------------ ------------------- ------------------
AVERAGE AVERAGE AVERAGE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- ------- ---------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Beginning of period..... 2,500,000 $7.00 2,915,000 $ 7.39 2,643,000 $4.64
Granted................. 461,000 9.58 917,000 7.85 125,000 6.42
Exercised............... (4,000) 7.00 (71,250) 7.00 (43,000) 3.38
Cancelled............... (42,000) 7.92 (1,117,750) 7.82 (227,000) 4.68
--------- ---------- ---------
End of period........... 2,915,000 $7.39 2,643,000 $ 4.64 2,498,000 $4.75
========= ===== ========== ====== ========= =====
Exercisable at end of
period................. 586,750 954,750 1,346,750
========= ========== =========
</TABLE>
29
<PAGE>
INTERCO INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As a result of the November 17, 1994 distribution of the common stock of The
Florsheim Shoe Company and Converse Inc. to the Company's shareholders,
options granted to the employees of those operating companies were cancelled.
In addition, the exercise prices of the remaining options were adjusted to
reflect the distribution in accordance with the antidilution provisions of the
1992 Stock Option Plan.
As of December 31, 1995, the Company had outstanding approximately 6.9
million warrants to purchase common stock. Each warrant entitles the holder
thereof to purchase one share of common stock at $7.13 per share (as adjusted
for the November 17, 1994 distribution to shareholders of the Company's former
footwear segment). The warrants, which expire on August 3, 1999, were issued
in two series; Series 1 warrants include a five year call protection, whereas
Series 2 warrants do not include such a feature. All other terms and
conditions of the two series of warrants are identical. The warrants trade on
the over-the-counter market.
11. INCOME TAXES
Income tax expense was comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Current:
Federal........................................... $11,788 $10,095 $20,499
State and local................................... 3,167 2,909 2,527
------- ------- -------
14,955 13,004 23,026
Deferred............................................ 969 7,904 (211)
------- ------- -------
$15,924 $20,908 $22,815
======= ======= =======
</TABLE>
The following table reconciles the differences between the Federal corporate
statutory rate and the Company's effective income tax rate:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Federal corporate statu-
tory rate.............. 35.0% 35.0% 35.0%
State and local income
taxes, net of Federal
tax benefit............ 4.2 2.9 2.6
Amortization of excess
reorganization value... 6.8 5.2 4.5
Other................... (3.3) (0.3) (2.1)
---- ---- ----
Effective income tax
rate................... 42.7% 42.8% 40.0%
==== ==== ====
</TABLE>
30
<PAGE>
INTERCO INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The sources of the tax effects for temporary differences that give rise to
the deferred tax assets and liabilities were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Deferred tax assets:
Employee postretirement benefits other than
pensions...................................... $ 833 $ 10,954
Expense accruals............................... 6,109 9,267
Valuation reserves............................. 3,027 5,147
Inventory costs capitalized.................... 1,534 1,785
Other.......................................... 1,571 919
-------- --------
Total gross deferred tax assets.............. 13,074 28,072
Valuation allowance............................ -- --
-------- --------
Total net deferred tax assets................ 13,074 28,072
Deferred tax liabilities:
Fair value adjustments......................... (70,690) (84,263)
Employee pension plans......................... (6,139) (1,990)
Depreciation................................... (4,441) (9,029)
Other.......................................... (7,575) (8,350)
-------- --------
Total deferred tax liabilities............... (88,845) (103,632)
-------- --------
Net deferred tax liabilities................. $(75,771) $(75,560)
======== ========
</TABLE>
The net deferred tax liabilities are included in the consolidated balance
sheets as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Prepaid expenses and other current assets.......... $ 11,292 $ 14,328
Other long-term liabilities........................ (87,063) (89,888)
-------- --------
$(75,771) $(75,560)
======== ========
</TABLE>
The Federal income tax returns of the Company and its major subsidiaries
have been examined by the Internal Revenue Service ("IRS") through February
23, 1991.
12. EMPLOYEE BENEFITS
The Company sponsors or contributes to retirement plans covering
substantially all employees. The total cost of all plans for 1993, 1994 and
1995 was $5,716, $6,303 and $7,070, respectively.
Company-Sponsored Defined Benefit Plans
Annual cost for defined benefit plans is determined using the projected unit
credit actuarial method. Prior service cost is amortized on a straight-line
basis over the average remaining service period of employees expected to
receive benefits.
It is the Company's practice to fund pension costs to the extent that such
costs are tax deductible and in accordance with ERISA. The assets of the
various plans include corporate equities, government securities,
31
<PAGE>
INTERCO INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
corporate debt securities and insurance contracts. The table below summarizes
the funded status of the Company-sponsored defined benefit plans.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation...................... $179,006 $217,879
======== ========
Accumulated benefit obligation................. $182,903 $222,256
======== ========
Projected benefit obligation................... $202,148 $254,815
Plan assets at fair value........................ 217,535 252,810
-------- --------
Projected benefit obligation less than (greater
than) plan assets............................... 15,387 (2,005)
Unrecognized net loss............................ 3,886 5,211
Unrecognized prior service cost.................. (515) 1,267
-------- --------
Prepaid pension cost............................. $ 18,758 $ 4,473
======== ========
</TABLE>
Net periodic pension cost for 1993, 1994 and 1995 includes the following
components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Service cost-benefits earned during the peri-
od.......................................... $ 4,575 $ 4,758 $ 3,544
Interest cost on the projected benefit obli-
gation...................................... 12,818 13,682 17,005
Actual return on plan assets................. (16,863) (159) (49,272)
Net amortization and deferral................ 1,377 (16,297) 31,566
-------- -------- --------
Net periodic pension cost.................... $ 1,907 $ 1,984 $ 2,843
======== ======== ========
</TABLE>
Employees are covered primarily by noncontributory plans, funded by Company
contributions to trust funds, which are held for the sole benefit of
employees. Monthly retirement benefits are based upon service and pay with
employees becoming vested upon completion of five years of service.
The expected long-term rate of return on plan assets was 8.0%-9.5% in 1993
and 1994 and 8.5% in 1995. Measurement of the projected benefit obligation was
based upon a weighted average discount rate of 7.25%, 8.0% and 7.25% and a
long-term rate of compensation increase of 4.5%, 4.5% and 4.5% for 1993, 1994
and 1995, respectively.
Other Retirement Plans and Benefits
In addition to defined benefit plans, the Company makes contributions to a
defined contribution plan and sponsors employee savings plans. The cost of
these plans is included in the total cost for all plans reflected above.
In addition to pension and other supplemental benefits, certain employees
and retirees are currently provided with specified health care and life
insurance benefits. Eligibility requirements generally state that benefits are
available to employees who retire after a certain age with specified years of
service if they agree to contribute a portion of the cost. The Company has
reserved the right to modify or terminate these benefits. Health care and life
insurance benefits are provided to both retired and active employees through
medical benefit trusts, third-party administrators and insurance companies.
32
<PAGE>
INTERCO INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth the financial status of postretirement
benefits other than pensions as of December 31, 1995. Until the acquisition of
Thomasville as of December 29, 1995, postretirement benefits other than
pensions were considered immaterial and not previously reported.
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................... $ 9,546
Fully eligible plan participants............................ 2,094
Other active plan participants.............................. 20,181
-------
Total..................................................... 31,821
Plan assets at fair value..................................... --
-------
Accumulated postretirement benefit obligation in excess of
plan assets.................................................. 31,821
Unrecognized net gain......................................... 85
-------
Accrued postretirement benefit obligation..................... $31,906
=======
</TABLE>
For measurement purposes, a 11.0% annual rate of increase in the cost of
health care benefits for pre-age 65 retirees and 11.0% for post-age 65
retirees was assumed for 1995. For 1995, the rates are assumed to decrease
gradually to 6.0% in the year 2000 and remain at those levels thereafter.
Increasing the assumed health care cost trend rates by one point in each year
would have resulted in an increase in the accumulated postretirement benefit
obligation as of December 31, 1995 of approximately $3,098 and the net
periodic cost by $6 for the year.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25% for 1995.
13. LEASE COMMITMENTS
Certain of the Company's real properties and equipment are operated under
lease agreements expiring at various dates through the year 2005. Leases
covering equipment generally require, in addition to stated minimums,
contingent rentals based on usage. Generally, the leases provide for renewal
for various periods at stipulated rates.
Rental expense under operating leases was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Basic rentals........................................ $10,704 $11,553 $11,516
Contingent rentals................................... 570 385 779
------- ------- -------
11,274 11,938 12,295
Less sublease rentals................................ 132 54 54
------- ------- -------
$11,142 $11,884 $12,241
======= ======= =======
</TABLE>
Future minimum lease payments under operating leases, reduced by minimum
rentals from subleases of $616 at December 31, 1995, aggregate $36,023. Annual
minimum payments under operating leases are $10,715, $7,840, $6,470, $5,005
and $2,852 for 1996 through 2000, respectively.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company considers the carrying amounts of cash and cash equivalents,
receivables and accounts payable to approximate fair value because of the
short maturity of these financial instruments.
33
<PAGE>
INTERCO INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Amounts outstanding under the Secured Credit Agreement and Receivables
Securitization Facility are also considered to be carried on the financial
statements at their estimated fair values because they were entered into
recently and both accrue interest at rates which generally fluctuate with
interest rate trends.
Amounts outstanding under the other long-term debt is considered special
purpose financing as an incentive to acquire specific real estate and for
settlement of certain claims. Accordingly, the Company believes the carrying
amounts approximate fair value given the circumstances under which such
financings were acquired.
15. GAIN ON INSURANCE SETTLEMENT
On November 20, 1994, an explosion and fire destroyed a particleboard plant
owned and operated by the Company. During 1995, the Company rebuilt the plant
with proceeds received from the insurance settlement. As a result thereof, a
gain on insurance settlement, totaling $7,882, was recorded during the fourth
quarter of 1995. The gain includes all costs associated with the claim with no
further expenses or liability anticipated.
16. LITIGATION
The Company is or may become a defendant in a number of pending or
threatened legal proceedings in the ordinary course of business. In the
opinion of management, the ultimate liability, if any, of the Company from all
such proceedings will not have a material adverse effect upon the consolidated
financial position or results of operations of the Company and its
subsidiaries.
34
<PAGE>
INTERCO INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Following is a summary of unaudited quarterly information:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Year ended December 31,
1994:
Net sales............. $ 268,753 $ 272,203 $ 254,496 $ 277,244
Gross profit.......... 74,184 75,894 71,697 76,937
Net earnings:
Continuing opera-
tions.............. 5,908 5,863 5,366 10,796
Discontinued opera-
tions.............. 9,769 5,480 7,042 (11,952)
Total............. $ 15,677 $ 11,343 $ 12,408 $ (1,156)
Net earnings per
common share--primary
and fully diluted:
Continuing opera-
tions.............. $ 0.11 $ 0.12 $ 0.10 $ 0.21
Discontinued opera-
tions.............. 0.19 0.10 0.14 (0.23)
Total............. $ 0.30 $ 0.22 $ 0.24 $ (0.02)
Common stock price
range (High-Low)..... $15 3/4-13 1/8 $14 7/8-12 3/8 $15 3/4-13 3/4 $14 7/8-6 1/8
============== ============== ============== =============
Year ended December 31,
1995:
Net sales............. $ 285,904 $ 250,336 $ 258,626 $ 279,023
Gross profit.......... 76,349 67,399 70,557 76,932
Net earnings:
Continuing opera-
tions.............. 7,743 5,487 6,196 14,797
Extraordinary item.. -- -- -- (5,815)
Total............. $ 7,743 $ 5,487 $ 6,196 $ 8,982
Net earnings per com-
mon share--primary:
Continuing opera-
tions.............. $ 0.15 $ 0.11 $ 0.12 $ 0.29
Extraordinary item.. -- -- -- (0.11)
Total............. $ 0.15 $ 0.11 $ 0.12 $ 0.18
Net earnings per
common share--fully
diluted:
Continuing opera-
tions.............. $ 0.15 $ 0.11 $ 0.12 $ 0.27
Extraordinary item.. -- -- -- (0.11)
Total............. $ 0.15 $ 0.11 $ 0.12 $ 0.16
Common stock price
range (High-Low)..... $ 6 1/8-7 1/8 $ 5 3/4-6 7/8 $ 5 3/4-8 1/8 $ 7-9 1/8
============== ============== ============== =============
</TABLE>
The 1994 fourth quarter common stock price range reflects the impact of the
November 17, 1994 distribution of the discontinued operations to the Company's
shareholders.
The Company has not paid cash dividends on its common stock during the two
years ended December 31, 1995. The closing market price of the Company's common
stock on December 31, 1995 was $9.00 per share.
35
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
- -----------------------------------------------------------
The section entitled "Nominees and Continuing Directors" of the Company's
Definitive Proxy Statement for the Annual Meeting of Stockholders on April 23,
1996 is incorporated herein by reference.
Executive Officers of the Registrant
Current Appointed
Name Age Position Positions or Elected
---- --- -------- --------- ----------
*Richard B. Loynd 68 Chairman of the Board of
the Former Subsidiary -
Converse Inc. 1982
Vice President 1987
Director X 1987
President X 1989
Chief Operating Officer 1989
Chief Executive Officer X 1989
Chairman of the Board X 1990
Brent B. Kincaid 64 President and Chief Exec-
utive Officer of the Sub-
sidiary - Broyhill Furni-
ture Industries, Inc. X 1992
Frederick B. Starr 63 President and Chief Exec-
utive Officer of the Sub-
sidiary - Thomasville
Furniture Industries, Inc. X 1982
K. Scott Tyler, Jr. 56 President of the Subsidiary
- The Lane Company, In-
corporated X 1989
Chief Executive Officer of
the Subsidiary - The Lane
Company, Incorporated X 1991
David P. Howard 45 Controller 1990
Vice-President X 1991
Chief Financial Officer X 1994
Lynn Chipperfield 44 General Counsel X 1993
Vice-President and
Secretary X 1996
Steven W. Alstadt 41 Controller X 1994
The following officer retired on January 30, 1996
Duane A. Patterson 63 Secretary 1973
Director 1991
Vice-President 1992
_________________________
* Member of the Executive Committee
There are no family relationships between any of the executive officers of
the Registrant.
The executive officers are elected at the organizational meeting of the
Board of Directors which follows the annual meeting of stockholders and
serve for one year and until their successors are elected and qualified.
Each of the executive officers has held the same position or other
positions with the same employer during the past five years.
36
<PAGE>
Item 11. Executive Compensation
- --------------------------------
The sections entitled "Executive Compensation", "Executive Compensation and
Stock Option Committee Report on Executive Compensation", "Compensation
Committee Interlocks and Insider Participation", "Stock Options", "Retirement
Plans", "Employment and Incentive Agreements" and "Performance Graph" of the
Company's Definitive Proxy Statement for the Annual Meeting of Stockholders on
April 23, 1996, are incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
The section entitled "Security Ownership" of the Company's Definitive Proxy
Statement for the Annual Meeting of Stockholders on April 23, 1996, is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
The section entitled "Certain Business Relationships" of the Company's
Definitive Proxy Statement for the Annual Meeting of Stockholders on April 23,
1996, is incorporated herein by reference.
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- --------------------------------------------------------------------------
(a) List of documents filed as part of this report:
1. Financial Statements:
Consolidated balance sheets, December 31, 1994 and 1995.
Consolidated statements of operations for each of the years in the
three-year period ended December 31, 1995.
Consolidated statement of cash flows for each of the years in the
three-year period ended December 31, 1995.
Consolidated statement of shareholders' equity for each of the years in
the three-year period ended December 31, 1995.
Notes to consolidated financial statements.
Independent Auditors' Report
2. Financial Statement Schedules:
Valuation and qualifying accounts (Schedule II).
All other schedules are omitted as the required information is presented in
the consolidated financial statements or related notes or are not
applicable.
37
<PAGE>
3. Exhibits:
3(a) Restated Certificate of Incorporation of the Company, as amended
(Incorporated by reference to Exhibit 4(a) to INTERCO
INCORPORATED's Quarterly Report on Form 10-Q for the quarter
ended on March 31, 1993.)
3(b) By-Laws of the Company revised and amended to May 5, 1993.
(Incorporated by reference to Exhibit 4(b) to INTERCO
INCORPORATED's Quarterly Report on Form 10-Q for the quarter
ended on March 31, 1993.)
4(a) Credit Agreement, dated as of November 17, 1994, as amended and
restated as of December 29, 1995, among the Company, Broyhill
Furniture Industries, Inc., The Lane Company, Incorporated,
Thomasville Furniture Industries, Inc., Various Banks, Credit
Lyonnais New York Branch, as Documentation Agent, Nationsbank,
N.A., as Syndication Agent and Bankers Trust Company, as
Administration Agent. (Incorporated by reference to Exhibit 99(a)
to INTERCO INCORPORATED's Current Report on Form 8-K, dated
January 12, 1996.)
4(b) Purchase and Contribution Agreement, dated as of November 15,
1994, as amended and restated as of December 29, 1995 among The
Lane Company, Incorporated, Action Industries, Inc., Broyhill
Furniture Industries, Inc. and Thomasville Furniture Industries
as Sellers and Interco Receivables Corp. as Purchaser.
4(c) Receivables Purchase Agreement, dated as of November 15, 1994, as
amended and restated as of December 29, 1995, among Interco
Receivables Corp. as the Seller and Atlantic Asset Securitization
Corp. as an Investor and Credit Lyonnais New York Branch as
the Agent. (Incorporated by reference to Exhibit 99(b) to
INTERCO INCORPORATED's Current Report on Form 8-K, dated January
12, 1996.)
4(d) Warrant Agreement, dated as of August 3, 1992, between the
Company and Society National Bank, as Warrant Agent.
(Incorporated by reference to Exhibit 4.5 to INTERCO
INCORPORATED's Current Report on Form 8-K, dated August 18,
1992.)
4(e) Agreement to furnish upon request of the Commission copies of
other instruments defining the rights of holders of long-term
debt of the Company and its subsidiaries which debt does not
exceed 10% of the total assets of the Company and its
subsidiaries on a consolidated basis. (Incorporated by reference
to Exhibit 4(c) to INTERCO INCORPORATED's Annual Report on Form
10-K for the year ended February 28, 1981.)
38
<PAGE>
10(a) INTERCO INCORPORATED's 1992 Stock Option Plan. (Incorporated by
reference to Exhibit 10(b) to INTERCO INCORPORATED's Annual
Report on Form 10-K for the year ended December 31, 1992.)
10(b) Form of Indemnification Agreement between the Company and Richard
B. Loynd, Donald E. Lasater and Lee M. Liberman. (Incorporated by
reference to Exhibit 10(h) to INTERCO INCORPORATED's Annual
Report on Form 10-K for the year ended February 29, 1988.)
10(c) Consulting Agreement, dated as of September 23, 1992, between the
Company and Apollo Advisors, L.P. as amended on February 20,
1995.
10(d) Registration Rights Agreement, dated as of August 3, 1992,
between the Company and Apollo Interco Partners, L.P.
(Incorporated by reference to Exhibit 10(g) to INTERCO
INCORPORATED's Annual Report on Form 10-K for the year ended
December 31, 1992.)
10(e) Written description of bonus plan for management personnel of the
Lane Company, Incorporated.
10(f) Retirement Plan for directors. (Incorporated by reference to
Exhibit 10(g) to INTERCO INCORPORATED's Annual Report on Form
10-K for the year ended December 31, 1994.)
10(g) INTERCO Corporate Executive Incentive Plan. (Incorporated by
reference to Exhibit 10(h) to INTERCO INCORPORATED's Annual
Report on Form 10-K for the year ended December 31, 1994.)
10(h) Broyhill Furniture Industries, Inc. Executive Incentive Plan.
(Incorporated by reference to Exhibit 10(i) to INTERCO
INCORPORATED's Annual Report on Form 10-K for the year ended
December 31, 1994.)
11 Statement regarding computation of per share earnings.
21 List of Subsidiaries of the Company.
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
99(a) Distribution and Services Agreement, dated November 17, 1994,
between the Company and Converse Inc. (Incorporated by reference
to Exhibit 99(a) to INTERCO INCORPORATED's Annual Report on Form
8-K, dated December 2, 1994.)
99(b) Tax Sharing Agreement, dated November 17, 1994, between the
Company and Converse Inc. (Incorporated by reference to Exhibit
99(b) to INTERCO INCORPORATED's Annual Report on Form 8-K, dated
December 2, 1994.
99(c) Distribution and Services Agreement, dated November 17, 1994,
among the Company, The Florsheim Shoe Company and certain of its
subsidiaries. (Incorporated by reference to Exhibit 99(c) to
INTERCO INCORPORATED's Annual Report on Form 8-K, dated December
2, 1994.
99(d) INTERCO/Florsheim Tax Sharing Agreement, dated November 17, 1994,
among the Company, The Florsheim Shoe Company and certain of its
subsidiaries. (Incorporated by reference to Exhibit 99(d) to
INTERCO INCORPORATED's Annual Report on Form 8-K, dated December
2, 1994.)
(b) Reports on Form 8-K.
A Form 8-K was filed on November 27, 1995, reporting the signing of an
agreement to acquire Thomasville Furniture Industries, Inc., a Form 8-K
was filed on January 12, 1996, as amended by Form 8-K/A-1 filed on January
16, 1996 and Form 8-K/A-2 filed on February 1, 1996, reporting the
acquisition of Thomasville Furniture Industries, Inc., summarizing the
Company's amended credit agreements and filing the agreements as exhibits
thereto and a Form 8-K was filed on January 31, 1996 reporting information
in the Company's press releases dated January 30, 1996.
SHAREHOLDERS REQUESTING COPIES OF EXHIBITS TO FORM 10-K
WILL BE SUPPLIED ANY OR ALL SUCH EXHIBITS AT A CHARGE OF
TEN CENTS PER PAGE.
39
<PAGE>
INTERCO INCORPORATED AND SUBSIDIARIES
Index to Consolidated Financial Statements and Schedule
<TABLE>
<CAPTION>
PAGE
CONSOLIDATED FINANCIAL STATEMENTS: ----
<S> <C>
Consolidated Balance Sheets as of December 31, 1994 and 1995 19
Consolidated Statements of Operations for each of the years in the three
year period ended December 31, 1995..................................... 20
Consolidated Statement of Cash Flows for each of the years in the three
year period ended December 31, 1995..................................... 21
Consolidated Statement of Shareholders' Equity for each of the years in
the three year period ended December 31, 1995........................... 22
Notes to Consolidated Financial Statements............................... 23
Financial Statement Schedule............................................. 41
Independent Auditors' Report............................................. 42
</TABLE>
40
<PAGE>
INTERCO INCORPORATED AND SUBSIDIARIES
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
(Dollars in Thousands)
------------------------------------------------------------------
Additions
Balance at Charged to Deductions Balance at
Beginning Costs and from Acquired End of
Description of Period Expenses Reserves Company Period
- ----------- --------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1995
- ----------------------------
Allowances deducted from
receivables on balance sheet:
Allowance for doubtful accounts $ 4,814 $ 1,672 $(1,475) (a) $12,950 $17,961
Allowance for cash discounts/chargebucks 248 271 (278) (b) 2,522 2,763
------- ------- -------- ------- -------
$ 5,062 $ 1,943 $(1,753) $15,472 $20,724
======= ======= ======== ======= =======
Year Ended December 31, 1994
- ----------------------------
Allowances deducted from
receivables on balance sheet
Allowance for doubtful accounts $ 3,847 $ 3,372 $ (2,405) (a) $ 4,814
Allowance for cash discounts 213 306 (271) (b) 248
------- ------- -------- -------
$ 4,060 $ 3,678 $ (2,676) $ 5,062
======= ======= ======== =======
Year Ended December 31, 1993
- ----------------------------
Allowances deducted from
receivables on balance sheet:
Allowance for doubtful accounts $ 3,372 $ 1,723 $ (1,248) (a) $ 3,847
Allowance for cash discounts 385 103 (275) (b) 213
------- ------- -------- -------
$ 3,757 $ 1,826 $ (1,523) $ 4,060
======= ======= ======== =======
</TABLE>
(a) Uncollectible accounts written off, net of recoveries.
(b) Cash discounts taken by customers.
See accompanying independent auditors' report.
41
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
INTERCO INCORPORATED:
We have audited the consolidated financial statements of INTERCO INCORPORATED
and subsidiaries as listed in the accompanying index. In connection with our
audits of the consolidated financial statements, we also have audited the
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of INTERCO INCORPORATED
and subsidiaries as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
KPMG Peat Marwick LLP
St. Louis, Missouri
January 30, 1996
42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
INTERCO INCORPORATED
-------------------------
(Registrant)
By Richard B. Loynd
----------------------
Richard B. Loynd
Chairman of the Board
Date: February 1, 1996
Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on February 1, 1996.
Signature Title
--------- -----
Richard B. Loynd Chairman of the Board,
- ----------------------------- President and Director
(Richard B. Loynd) (Principal Executive Officer)
Donald E. Lasater Director
- -----------------------------
(Donald E. Lasater)
Lee M. Liberman Director
- -----------------------------
(Lee M. Liberman)
Leon D. Black Director
- -----------------------------
(Leon D. Black)
Joshua J. Harris Director
- -----------------------------
(Joshua J. Harris)
Michael S. Gross Director
- -----------------------------
(Michael S. Gross)
John J. Hannan Director
- -----------------------------
(John J. Hannan)
Bruce A. Karsh Director
- -----------------------------
(Bruce A. Karsh)
John H. Kissick Director
- -----------------------------
(John H. Kissick)
John J. Ryan III Director
- -----------------------------
(John J. Ryan III)
Michael D. Weiner Director
- -----------------------------
(Michael D. Weiner)
David P. Howard Vice President
- ----------------------------- (Principal Financial Officer)
(David P. Howard)
Steven W. Alstadt Controller
- ----------------------------- (Principal Accounting Officer)
(Steven W. Alstadt)
43
<PAGE>
Exhibit 4(b)
EXECUTION COPY
PURCHASE AND CONTRIBUTION AGREEMENT
Dated as of November 15, 1994
As Amended and Restated as of December 29, 1995
Among
THE LANE COMPANY, INCORPORATED,
ACTION INDUSTRIES, INC.,
BROYHILL FURNITURE INDUSTRIES, INC.,
and
THOMASVILLE FURNITURE INDUSTRIES, INC.
as Sellers
----------
and
INTERCO RECEIVABLES CORP.
as Purchaser
------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PRELIMINARY STATEMENTS....................................... 1
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms......................... 1
Adverse Claim................................. 1
Affiliate..................................... 1
Aged Trial Balance............................ 2
Agreement Documents........................... 2
Apollo Entity................................. 2
Bank Credit Agreement......................... 2
Business Day.................................. 2
Capitalized Lease Obligations................. 2
CL Sale Agreement............................. 2
Collections................................... 3
Consolidated EBIT............................. 3
Consolidated EBITDA........................... 3
Consolidated Net Income....................... 3
Consolidated Net Interest Coverage Ratio...... 3
Consolidated Net Interest Expense............. 3
Contract...................................... 4
Contributed Receivable........................ 4
CP Rate....................................... 4
Credit and Collection Policy.................. 5
Daily Settlement Trigger...................... 5
Default Ratio................................. 5
Defaulted Receivable.......................... 6
Designated Obligor............................ 6
Dilution...................................... 7
Discount...................................... 7
Effective Date................................ 7
Eligible Foreign Receivable................... 7
Eligible Receivable........................... 8
ERISA......................................... 10
Event of Termination.......................... 10
Facility...................................... 10
Facility Termination Date..................... 10
Indebtedness.................................. 11
Indemnified Amounts........................... 11
Initial Purchase Date......................... 11
Interco....................................... 11
Interco Agreement............................. 11
Intercreditor Agreement....................... 12
Interest Rate Protection Agreement............ 12
Invested Amount............................... 12
Lock-Box Account.............................. 12
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
Lock-Box Agreement............................ 12
Lock-Box Bank................................. 13
Maximum Purchase Limit........................ 13
Monthly Report................................ 13
Net Dilution Ratio............................ 13
Original Sellers.............................. 13
Original PCA.................................. 13
Obligor....................................... 13
Originator Receivables........................ 13
Outstanding Balance........................... 14
Person........................................ 14
Pro Forma Basis............................... 14
Purchase...................................... 15
Purchase Date................................. 15
Purchased Receivable.......................... 15
Receivable.................................... 16
Receivables Purchase Request.................. 16
Related Security.............................. 16
Servicer...................................... 16
Servicer Default.............................. 16
Servicer Fee.................................. 17
Subsidiary.................................... 18
Transferred Receivable........................ 18
UCC........................................... 18
SECTION 1.02 Other Terms................................... 18
SECTION 1.03 Computation of Time Periods................... 18
ARTICLE II
AMOUNTS AND TERMS OF PURCHASES AND CONTRIBUTIONS
SECTION 2.01 Facility...................................... 19
SECTION 2.02 Making Purchases.............................. 19
SECTION 2.03 Collections................................... 20
SECTION 2.04 General Settlement Procedures................. 21
SECTION 2.05 Payments and Computations, Etc................ 21
SECTION 2.06 Contributions................................. 22
ARTICLE III
CONDITIONS OF PURCHASES
SECTION 3.01 Conditions Precedent to Initial Purchase from
the Original Sellers Under the Original PCA... 22
SECTION 3.01A Conditions Precedent to Effectiveness of
Amended and Restated Agreement................ 24
SECTION 3.02 Conditions Precedent to All Purchases......... 26
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01 Representations and Warranties of the Sellers. 28
ARTICLE V
COVENANTS
SECTION 5.01 Affirmative Covenants of the Sellers.......... 32
SECTION 5.02 Reporting Requirements of the Sellers......... 35
SECTION 5.03 Negative Covenants of the Sellers............. 37
SECTION 5.04 Affirmative Covenant of the Sellers and the
Purchaser..................................... 39
SECTION 5.05 Grant of Security Interest.................... 39
ARTICLE VI
ADMINISTRATION AND COLLECTION
SECTION 6.01 Designation of Servicer....................... 39
SECTION 6.02 Duties of The Servicer........................ 40
SECTION 6.03 Servicer Fee.................................. 42
SECTION 6.04 Rights of the Purchaser....................... 42
SECTION 6.05 Responsibilities of the Sellers............... 43
SECTION 6.06 Further Assurances............................ 44
SECTION 6.07. Transfer of Records to Purchaser.............. 45
ARTICLE VII
EVENTS OF TERMINATION
SECTION 7.01 Events of Termination 45
ARTICLE VIII
INDEMNIFICATION
SECTION 8.01 Indemnities by the Sellers 48
ARTICLE IX
MISCELLANEOUS
SECTION 9.01 Amendments, Etc................................ 50
SECTION 9.02 Notices, Etc................................... 50
SECTION 9.03 No Waiver; Remedies............................ 50
SECTION 9.04 Binding Effect; Assignability.................. 51
SECTION 9.05 GOVERNING LAW.................................. 51
SECTION 9.06 Costs, Expenses and Taxes...................... 51
SECTION 9.07 No Proceedings................................. 52
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
SECTION 9.08 Confidentiality................................ 52
SECTION 9.09 Independent Decision........................... 53
SECTION 9.10 Third Party Beneficiary........................ 53
SECTION 9.11 Execution in Counterparts, Etc................. 53
</TABLE>
iv
<PAGE>
SCHEDULES AND EXHIBITS
SCHEDULE I List of Offices of the Sellers Where Records
Are Kept
SCHEDULE II List of Lock-Box Banks Holding One or More
Lock-Box Accounts
EXHIBIT A Form of Opinion of Counsel for the Sellers
and Interco
EXHIBIT B Credit and Collection Policy
EXHIBIT C Form of Amendment No. 1 to the Interco Agreement
EXHIBIT D Form of Intercreditor Agreement
v
<PAGE>
PURCHASE AND CONTRIBUTION AGREEMENT
Dated as of November 15, 1994
as Amended and Restated
as of December 29, 1995
THE LANE COMPANY, INCORPORATED, a Virginia corporation ("Lane"),
ACTION INDUSTRIES, INC., a Virginia corporation ("Action"), BROYHILL FURNITURE
INDUSTRIES, INC., a North Carolina corporation ("Broyhill") and THOMASVILLE
FURNITURE INDUSTRIES, INC., a Pennsylvania corporation ("Thomasville") (Lane,
Action, Broyhill, and Thomasville, individually, a "Seller", and collectively,
the "Sellers"), and INTERCO RECEIVABLES CORP., a Delaware corporation (the
"Purchaser"), agree as follows:
PRELIMINARY STATEMENTS. (1) Certain terms which are capitalized and
used throughout this Agreement (in addition to those defined above) are defined
in Article I of this Agreement.
(2) Lane, Action and Broyhill (collectively, the "Original Sellers")
and the Purchaser entered into a Purchase and Contribution Agreement dated as of
November 15, 1994 (the "Original PCA") pursuant to which each of the Sellers has
sold and contributed Receivables to the Purchaser. The parties hereto desire to
add Thomasville as an additional Seller under the Original PCA and to amend
certain provisions of the Original PCA in connection therewith.
NOW, THEREFORE, the Original PCA is hereby amended and restated in its
entirety, effective as of the Effective Date, and the parties agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"Adverse Claim" means a lien, security interest, or other charge or
encumbrance, or any other type of preferential arrangement.
"Affiliate" means, as to any Person, any other Person that, directly
or indirectly, is in control of, is
1
<PAGE>
controlled by or is under common control with such Person; provided,
however, that with respect to Broyhill, Lane, Action, Thomasville and the
Purchaser, the term "Affiliate" shall be deemed not to include any Apollo
Entity.
"Aged Trial Balance" of a Seller on any date means such Seller's
accounts receivable trial balance (whether in the form of a computer
printout, magnetic tape or diskette) on such date, listing Obligors and the
Receivables respectively owed by such Obligors on such date together with
the aged Outstanding Balances of such Receivables, in form and substance
satisfactory to the Purchaser.
"Agreement Documents" has the meaning assigned to that term in Section
4.01(c).
"Apollo Entity" means any of (i) Apollo Advisors, L.P., (ii) Lion
Advisors, L.P., (iii) any accounts managed by Apollo Advisors, L.P. or Lion
Advisors, L.P. and (iv) any Person directly or indirectly in control of,
controlled by, or under common control with, Apollo Advisors, L.P. or Lion
Advisors, L.P., other than Broyhill, Lane, Action, Thomasville, the
Purchaser or Interco and any of their respective Subsidiaries.
"Bank Credit Agreement" means the Credit Agreement dated as of
November 17, 1994, as amended and restated as of December 29, 1995, among
Interco, Broyhill, Lane, Thomasville, the banks named therein and Bankers
Trust Company, as agent.
"Business Day" means a day of the year on which banks are not required
or authorized to close in New York City.
"Capitalized Lease Obligations" of any Person shall mean all rental
obligations which, under generally accepted accounting principles, are or
will be required to be capitalized on the books of such Person, in each
case taken at the amount thereof accounted for as indebtedness in
accordance with such principles.
"CL Sale Agreement" means, collectively, (i) the Alternate Receivables
Purchase Agreement, dated as of November 15, 1995, as amended and restated
as of the Effective Date, among the Purchaser, as seller, Credit Lyonnais
New York Branch, as purchaser and Credit Lyonnais New York Branch, as agent
for itself and certain banks identified therein and (ii) the Receivables
Purchase Agreement, dated as of November 15, 1995, as amended and restated
as of the Effective Date, among the Purchaser, as
2
<PAGE>
seller, Atlantic Asset Securitization Corp., as purchaser, and Credit
Lyonnais New York Branch, as agent, in each case as further amended or
restated from time to time in accordance with the terms thereof.
"Collections" means, with respect to any Receivable, (a) all funds
which are received by a Seller or Servicer in payment of any amounts owed
in respect of such Receivable (including, without limitation, purchase
price, finance charges, interest and all other charges), or applied to
amounts owed in respect of such Receivable (including, without limitation,
insurance payments, payments under letters of credit with respect to such
Receivable and net proceeds of the 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), (b) all funds deemed to have been received by a
Seller or any other Person as a Collection pursuant to Section 2.04 and (c)
all other proceeds of such Receivable.
"Consolidated EBIT" shall mean, for any period, the Consolidated Net
Income of Interco and its Restricted Subsidiaries, determined on a
consolidated basis, before Consolidated Net Interest Expense (to the extent
deducted in arriving at Consolidated Net Income) and provision for taxes or
gains or losses from sales of assets other than inventory sold in the
ordinary course of business, in each case that were included in arriving at
Consolidated Net Income.
"Consolidated EBITDA" shall mean, for any period, Consolidated EBIT,
adjusted by adding thereto the amount of all amortization of intangibles
and depreciation, in each case that were deducted in arriving at
Consolidated EBIT for such period.
"Consolidated Net Income" shall mean, for any period, the net after
tax income of Interco and its Restricted Subsidiaries determined on a
consolidated basis, minus cash Dividends paid in respect of Disqualified
Preferred Stock, without giving effect to any extraordinary gains or
losses.
"Consolidated Net Interest Coverage Ratio" for any period shall mean
the ratio of Consolidated EBITDA to Consolidated Net Interest Expense for
such period.
"Consolidated Net Interest Expense" shall mean, for any period, the
total consolidated interest expense of Interco and its Restricted
Subsidiaries for such period (calculated without regard to any limitations
on the payment thereof)
3
<PAGE>
plus, without duplication, that portion of Capitalized Lease Obligations of
Interco and its Restricted Subsidiaries representing the interest factor
for such period, and capitalized interest expense, plus, (i) all cash fees,
service charges and other costs, as well as all collections or other
amounts retained by the Agent, the Banks and Atlantic (each as defined in
the CL Sale Agreement) which are in excess of amounts paid to the Purchaser
under the CL Sale Agreement for the purchase of receivables thereunder and
(ii) the product of (x) the amount of all cash Dividend requirements
(whether or not declared or paid) on Disqualified Preferred Stock paid,
accrued or scheduled to be paid or accrued during such period times (y) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current effective consolidated, Federal, state, local and
foreign tax rate (expressed as a decimal number between one and zero) of
Interco as reflected in the audited consolidated financial statements of
Interco for its most recently completed Fiscal Year, which amounts
described in the preceding clauses (i) and (ii) shall be treated as
interest expense of Interco and its Restricted Subsidiaries for purposes of
this definition regardless of the treatment of such amounts under generally
accepted accounting principles, in each case net of the total consolidated
cash interest income of Interco and its Restricted Subsidiaries for such
period, but excluding the amortization of any deferred financing costs and
all amounts in respect of the Interest Rate Protection Agreements, all
determined on a consolidated basis.
"Contract" means an agreement between an Obligor and any Seller,
pursuant to or under which such Obligor shall be obligated to make payments
to such Seller for merchandise, insurance or services from time to time.
"Contributed Receivable" has the meaning specified in Section 2.06.
"Courtesy Receivable" means a Receivable which arises out of the
provision of transportation services but does not arise out of the
transportation of goods shipped by a Seller to an Obligor.
"CP Rate" means an interest rate per annum equal to the per annum
yield equivalent to the published discount for one-month commercial paper
issued by firms whose bonds are rated AA by Standard & Poors Corporation
(or the equivalent), which is reported in "Selected Interest Rates"
(Publication H. 15 (519)), Federal Reserve Statistical Release, published
by the Board of Governors of the Federal
4
<PAGE>
Reserve System (or successor publication) (or, if such yield is not
published, such other rate as the Sellers and the Purchaser shall agree to
in writing).
"Credit and Collection Policy" means collection policies and practices
relating to Contracts and Receivables described in Exhibit B, as modified
without violating this Agreement.
"Cumulative Consolidated EBITDA" means, at any date, an amount
determined on a cumulative basis of Consolidated EBITDA for each Fiscal
Year ending on or prior to such date, beginning with Fiscal Year 1996.
"Daily Settlement Trigger" means the occurrence of any of the
following:
(a) The Consolidated Net Interest Coverage Ratio for any period of
four consecutive fiscal quarters (or, if shorter, the period beginning on
January 1, 1996 and ended on the last day of a fiscal quarter ended after
the Effective Date), in each case taken as one accounting period, ended on
the last day of a fiscal quarter set forth below, shall be less than the
amount set forth opposite such period below:
<TABLE>
<CAPTION>
Fiscal Quarter Ratio
-------------- ---------
<C> <C>
March 1996 1.83:1.00
June 1996 2.07:1.00
September 1996 2.51:1.00
December 1996 2.51:1.00
March 1997 2.62:1.00
June 1997 2.62:1.00
September 1997 2.62:1.00
December 1997 2.92:1.00
March 1998 3.00:1.00
June 1998 3.09:1.00
September 1998 3.19:1.00
December 1998 3.29:1.00
March 1999 3.37:1.00
June 1999 3.42:1.00
September 1999 3.47:1.00
December 1999 3.57:1.00
March 2000 3.66:1.00
June 2000 3.71:1.00
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
<C> <C>
September 2000 3.76:1.00
December 2000 and
thereafter 3.86:1.00
</TABLE>
(b) The Consolidated EBITDA for any period of four consecutive fiscal
quarters (or, if shorter, the period beginning on January 1, 1996 and ended
on the last day of a fiscal quarter ended after the Effective Date), in
each case taken as one accounting period, ended on the last day of a fiscal
quarter set forth below, shall be less than the amount set forth opposite
such period below:
<TABLE>
<CAPTION>
Fiscal Quarter Amount
-------------- ------------
<S> <C>
March 1996 $ 30,000,000
June 1996 $ 65,000,000
September 1996 $105,000,000
December 1996 $145,000,000
March 1997 $147,500,000
June 1997 $150,000,000
September 1997 $152,500,000
December 1997 $155,000,000
March 1998 $158,000,000
June 1998 $162,000,000
September 1998 $166,000,000
December 1998 $170,000,000
March 1999 $172,500,000
June 1999 $175,000,000
September 1999 $177,500,000
December 1999 $180,000,000
March 2000 $182,500,000
June 2000 $185,000,000
September 2000 $187,500,000
December 2000 and thereafter $190,000,000
</TABLE>
(c) The Leverage Ratio at any time shall be greater than the ratio set
forth opposite the fiscal quarter most recently ended as set forth below:
<TABLE>
<CAPTION>
Fiscal Quarter Ratio
-------------- ---------
<C> <C>
December 1996 4.52:1.00
March 1997 4.52:1.00
June 1997 4.29:1.00
September 1997 4.29:1.00
December 1997 4.08:1.00
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Fiscal Quarter Ratio
-------------- ---------
<C> <C>
March 1998 4.06:1.00
June 1998 3.86:1.00
September 1998 3.86:1.00
December 1998 3.65:1.00
March 1999 3.62:1.00
June 1999 3.62:1.00
September 1999 3.62:1.00
December 1999 3.41:1.00
March 2000 3.37:1.00
June 2000 3.17:1.00
September 2000 2.96:1.00
December 2000 and
thereafter 2.96:1.00
</TABLE>
(d) The Cumulative Consolidated EBITDA ending during any Fiscal Year
(beginning with Fiscal Year 1997) set forth below, shall be less than the
amount set forth opposite such period below:
<TABLE>
<CAPTION>
Period Amount
------ ------------
<S> <C>
1997 $315,000,000
1998 $490,000,000
1999 $665,000,000
2000 and thereafter $890,000,000
</TABLE>
provided that, from and after the first date upon which Interco or any of
the Sellers shall have used more than $50,000,000 of Net Cash Proceeds from
sales or issuances of equity of Interco (including pursuant to any exercise
of the Interco Warrants, any exercise of any stock options and the issuance
of any Preferred Stock) to repay Term Loans under the Bank Credit Agreement
pursuant to Sections 4.01, 4.02(e) and/or 4.02(f) of the Bank Credit
Agreement, and shall have furnished a certificate to the Administrative
Agent under the Bank Credit Agreement (with a copy to the Purchaser)
showing in reasonable detail the amount of such applications pursuant to
the respective such Sections, then each of the amounts required by this
clause (d) shall be reduced (i) by $15,000,000 if the principal amount of
Term Loans so repaid with such Net Cash Proceeds from equity issuances is
greater than $50,000,000 but less than or equal to $75,000,000 or (ii) by
$20,000,000 if the principal amount of Term Loans so repaid with such Net
Cash Proceeds from equity issuances is greater than $75,000,000;
(e) The Net Dilution Ratio shall be greater than 7%;
(f) The Default Ratio shall be greater than 7%;
7
<PAGE>
(g) Any Event of Termination shall occur under Section 7.01(e) or (g)
of this Agreement; or
(h) The Sellers shall have repurchased Receivables (pursuant to
indemnity provisions or otherwise) from the Purchaser and/or the
Purchaser's assignees in an aggregate amount exceeding $17,500,000 in any
Fiscal Year.
"Default Ratio" means the ratio (expressed as a percentage) computed
as of the last day of each fiscal month of the Sellers by dividing (i) the
aggregate Outstanding Balance of all Receivables that met the requirements
of clause (i) of the definition of Defaulted Receivable on such day by (ii)
the aggregate Outstanding Balance of all Receivables on such day. For
purposes of this definition, the term "Receivables" shall mean only those
Receivables which constituted Eligible Receivables when they were
transferred to the Purchaser, or which would have constituted Eligible
Receivables if they had been transferred to the Purchaser.
"Defaulted Receivable" means a Receivable:
(i) as to which any payment, or part thereof, remains unpaid
for over 90 days from the original due date for such payment;
(ii) which is not a Priority DIP Receivable and as to which the
Obligor thereof or any other Person obligated thereon or owning any
Related Security in respect thereof has taken any action, or suffered
any event to occur, of the type described in Section 7.01(g); or
(iii) which, consistent with the Credit and Collection Policy, is
deemed uncollectible.
"Designated Obligor" means, at any time, each Obligor except any such
Obligor as to which the Purchaser has, at least three Business Days prior
to the date of determination, given notice to the relevant Seller that such
Obligor shall not be considered a Designated Obligor by reason of the fact
that in the reasonable opinion of the Purchaser any one of the following
shall exist as to such Obligor: (i) the timely collectibility of the
Receivables of such Obligor has been impaired by reason of a material
adverse change in the financial condition, business, operations or
prospects of such Obligor, or (ii) such Obligor has demonstrated an
inconsistent payment history and in the reasonable opinion of the Purchaser
such inconsistent
8
<PAGE>
payment history materially impairs the Purchaser's ability to rely on
timely payment by such Obligor in the future, or (iii) such Obligor is in a
class of Obligors which do not meet criteria of purchasers generally
applicable to obligors for companies which are similarly situated as the
relevant Seller and which are selling receivables or undivided interests
therein in similar transactions. Unless the Purchaser shall hereafter
notify the relevant Seller to the contrary, Trimble-Western Furniture Inc.
shall not be a Designated Obligor.
"Dilution" means, with respect to any Receivable, the aggregate amount
of (i) any reductions or adjustments in the Outstanding Balance of such
Receivable as a result of any defective, rejected, returned, repossessed or
foreclosed merchandise or services or any cash discount, credit memo,
rebate, cooperative advertising, chargeback or other adjustment, dispute or
setoff and (ii) any unresolved disputes relating to such Receivable, which
have not yet resulted in the reduction or adjustment of the Outstanding
Balance of such Receivable.
"Discount" means, in respect of each Purchase, 2% of the Outstanding
Balance of the Receivables that are the subject of such Purchase; provided,
however, the foregoing Discount may be revised by request of any of the
parties hereto provided that such revision is consented to by all of the
parties (it being understood that each party agrees to duly consider such
request but shall have no obligation to give such consent).
"Effective Date" means December 29, 1995.
"Eligible Foreign Receivable" means a Receivable meeting all of the
criteria set forth in either of the following clauses:
(i) the payment of such Receivable is fully supported by a
letter of credit issued by an office or branch located in the United
States of an Eligible LOC Bank, the Purchaser or its assignee holds a
first priority, perfected security interest in such letter of credit
and the issuer of such letter of credit has been notified of such
security interest; or
(ii) the Obligor of such Receivable is a Canadian resident, the
Purchaser or its assignee holds a first priority, perfected security
interest in such Receivable which is enforceable under applicable
Canadian law, the Purchaser or its assignee has
9
<PAGE>
received an opinion of Canadian counsel for the Seller, in form and
substance satisfactory to the Purchaser or its assignee, as to
perfection, enforcement, taxes and such other matters as the Purchaser
or its assignee may reasonably request, and such Receivable satisfies
any other requirements as to which the Purchaser or its assignee has
notified the Sellers in writing;
provided, however, that the aggregate Outstanding Balance of Eligible Foreign
Receivables which shall be considered Eligible Receivables shall not at any time
exceed an amount equal to 10% of the Total Commitment (as defined in the CL Sale
Agreement).
"Eligible LOC Bank" means a commercial bank which (i) has an office or
branch in the United States and (ii) has combined capital and surplus of at
least $250,000,000.
"Eligible Receivable" means a Receivable:
(i) which was generated in the ordinary course of the relevant
Seller's business and does not constitute a Courtesy Receivable;
(ii) which constitutes an account or general intangible as defined
in the applicable UCC;
(iii) the Obligor of which is a United States resident (unless
such Receivable is an Eligible Foreign Receivable), is not an
Affiliate of any of the parties hereto, and is not a government or a
governmental subdivision or agency;
(iv) the Obligor of which, at the time of the transfer of such
Receivable under this Agreement, is a Designated Obligor;
(v) which, at the time of the transfer thereof to the Purchaser
under this Agreement, is not a Defaulted Receivable;
(vi) the sale of which does not contravene or conflict with any
law;
(vii) which is denominated and payable only in United States
dollars in the United States;
(viii) which arises under a Contract that is substantially in the
form of the form of contract or the form of invoice (in the case of an
open account agreement) previously approved by the Purchaser and
10
<PAGE>
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 and is not subject to any dispute, offset,
counterclaim or defense whatsoever (except payments for cooperative
advertising and the discharge in bankruptcy of such Obligor);
(ix) which, together with the Contract related thereto, does not
contravene in any material respect any laws, rules or regulations
applicable thereto (including, without limitation, laws, rules and
regulations relating to usury, truth in lending, fair credit billing,
fair credit reporting, equal credit opportunity, fair debt collection
practices and privacy) and with respect to which no party to the
Contract related thereto is in violation of any such law, rule or
regulation in any material respect if such violation would impair the
collectibility of such Receivable;
(x) which satisfies all applicable requirements of the Credit and
Collection Policy, as the same may be modified in accordance with the
terms of the CL Sale Agreement;
(xi) which, according to the Contract related thereto, is required
to be paid in full (A) within 120 days of the original billing date
therefor, (B) later than 120 days but within 150 days of the original
billing date therefor, but only (x) if such Receivable was originated
by Lane or Action and (y) to the extent that the Outstanding Balance
of such Receivable at the time of transfer thereof under this
Agreement, when aggregated with the Outstanding Balance of all other
Transferred Receivables originated by Lane or Action and having
similar payment terms, does not exceed $23,000,000, or (C) later than
150 days but within 180 days of the original billing date therefor,
but only (x) if such Receivable was originated by Lane or Action and
(y) to the extent that the Outstanding Balance of such Receivable at
the time of transfer thereof under this Agreement, when aggregated
with the Outstanding Balance of all other Transferred Receivables
originated by Lane or Action and having similar payment terms, does
not exceed $7,000,000; and
(xii) which is in a class of Receivables which complies with such
other criteria and requirements as
11
<PAGE>
Purchaser may from time to time specify to the Sellers following 30
days' notice; provided that such criteria and requirements are
specified in good faith, take into account current market conditions,
and are for the purpose of not permitting the condition of the
Receivables, taken as a whole, to drop below the condition thereof as
at the date of the execution of this Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"Event of Termination" has the meaning assigned to that term in
Section 7.01.
"Facility" means the willingness of the Purchaser to consider making
Purchases of Receivables from the Sellers from time to time pursuant to the
terms of this Agreement.
"Facility Termination Date" means the earliest of (i) December 29,
2000, (ii) the date of termination of the Facility pursuant to Section 7.01
and (iii) the date which the Seller designates by at least five Business
Days' notice to the Purchaser.
"Fiscal Year" means each fiscal year of Interco ending on December 31
of each calendar year.
"Indebtedness" shall mean, as to any Person, without duplication, (i)
all indebtedness (including principal, interest, fees and charges) of such
Person for borrowed money or for the deferred purchase price of property or
services, (ii) the maximum amount available to be drawn under all letters
of credit issued for the account of such Person and all unpaid drawings in
respect of such letters of credit, (iii) all Indebtedness of the types
described in clause (i), (ii), (iv), (v), (vi) or (vii) of this definition
secured by any Adverse Claim on any property owned by such Person, whether
or not such Indebtedness has been assumed by such Person (to the extent of
the value of the respective property), (iv) the aggregate amount required
to be capitalized under leases under which such Person is the lessee, (v)
all obligations of such Person to pay a specified purchase price for goods
or services, whether or not delivered or accepted, i.e., take-or-pay and
similar obligations, (vi) all obligations of such Person under direct or
indirect guaranties in respect of, and obligations (contingent or
otherwise) to purchase or otherwise acquire,
12
<PAGE>
or otherwise to assure a creditor against loss in respect of, indebtedness
or obligations of others of kinds referred to in clauses (i) through (v)
above or in clause (vii), and (vii) all obligations under any Interest Rate
Protection Agreement or under any similar type of agreement. In addition
to the foregoing, for the purposes of calculating Consolidated Debt, and
making adjustments on a Pro Forma Basis, the "Invested Amount" under the CL
Sale Agreement shall constitute Indebtedness.
"Indemnified Amounts" has the meaning assigned to that term in Section
8.01.
"Initial Purchase Date" means November 17, 1994; provided, however,
that when used in connection with Receivables originated by Thomasville,
"Initial Purchase Date" shall mean the Effective Date.
"Interco" means Interco Incorporated, a Delaware corporation.
"Interco Agreement" means an agreement in the form of Exhibit C to the
Original PCA, made by Interco in favor of the Purchaser, as amended by
Amendment No. 1 thereto dated as of the Effective Date, as the same may be
further amended, modified or restated from time to time.
"Intercreditor Agreement" means an agreement substantially in the form
of Exhibit D hereto among Bankers Trust Company, as agent, the Purchaser
and Credit Lyonnais New York Branch, as agent, as the same may be amended,
modified or restated from time to time.
"Interest Rate Protection Agreement" shall mean any interest rate swap
agreement, interest rate cap agreement, interest collar agreement, interest
rate hedging agreement, interest rate floor agreement or other similar
agreement or arrangement.
"Invested Amount" with respect to a Seller means the sum of amounts
paid by the Purchaser to such Seller for each Purchase of Receivables from
such Seller pursuant to Section 2.02, reduced from time to time by
Collections of such Receivables actually received by the Purchaser net of
the applicable portion of the Discount representing yield (assumed to be
0.75% unless otherwise mutually agreed); provided, however, that such
Invested Amount shall not be reduced by any Collections to the extent that
at any time such Collections are rescinded or must otherwise be returned
for any reason.
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"Leverage Ratio" means on any date the ratio of (i) Consolidated Debt
on such date to (ii) Consolidated EBITDA for the period of four consecutive
fiscal quarters most recently ended on or prior to such date, in each case
taken as one accounting period.
"Lock-Box Account" means one or more accounts, under the exclusive
ownership and control of the Purchaser (or its assigns or designees),
maintained for the purpose of receiving Collections.
"Lock-Box Agreement" means an agreement among a Seller, the Purchaser
(or its assigns or designees) and any Lock-Box Bank in form and substance
satisfactory to the Purchaser (or its assigns or designees).
"Lock-Box Bank" means any of the banks or other financial institutions
holding one or more Lock-Box Accounts.
"Maximum Purchase Limit" means $225,000,000.
"Monthly Report" means a report, in form and substance satisfactory to
the Purchaser, furnished by the Servicer to the Purchaser pursuant to
Section 6.02(b).
"Net Dilution Ratio" means on any date the ratio (expressed as a
percentage) computed as of the last day of the preceding fiscal month of
the Sellers, by dividing (i) the balance of all Originator Receivables
representing resolved or unresolved Dilutions (other than Dilutions arising
out of cooperative advertising payments or discounts for early payment)
during such month by (ii) the aggregate Outstanding Balance of all
Originator Receivables on such day; provided, however, that the balance of
all Originator Receivables originated by Thomasville representing resolved
or unresolved Dilutions (other than Dilutions arising out of cooperative
advertising payments or discounts for early payment) during any fiscal
month shall be deemed to be an amount equal to the sum, for the prior seven
months, of the amount deducted for Dilution (other than Dilution arising
out of cooperative advertising payments or discounts for early payment)
from the Outstanding Balance of all Originator Receivables originated by
Thomasville. For purposes of this definition, the term "Outstanding
Balance" shall be interpreted as if all references in the definition
thereof to "Receivables" were references to "Originator Receivables."
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"Original Bank Credit Agreement" means the Bank Credit Agreement as
defined in the Original PCA, without giving effect to the amendment and
restatement thereof as of the Effective Date.
"Original Sellers" has the meaning assigned to that term in the
Preliminary Statements.
"Original PCA" has the meaning assigned to that term in the
Preliminary Statements.
"Obligor" means a Person obligated to make payments to any Seller
pursuant to a Contract.
"Originator Receivables" means, collectively, all receivables created
by each of the Sellers (regardless of whether such receivables have been
transferred to the Purchaser or any assignee or transferee of the
Purchaser).
"Outstanding Balance" of any Receivable at any time means the then
outstanding principal balance thereof; provided, however, that in the case
of any Receivable originated by Broyhill which is subject to a third-party
guarantee and entitled to a cash discount for quick payment, the
Outstanding Balance of such Receivable shall be reduced by the amount of
such cash discount.
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association,
joint venture or other entity, or a government or any political subdivision
or agency thereof.
"Priority DIP Receivable" means a Receivable:
(i) the Obligor of which is the subject of a federal bankruptcy
case; and
(ii) the indebtedness of which constitutes a priority under 11
U.S.C. (S) 507(a)(1).
"Pro Forma Basis" shall mean, as to any Person, for any of the
following events which occur subsequent to the commencement of a period for
which the financial effect of such event is being calculated, and giving
effect to the event for which such calculation is being made, such
calculation as will give pro forma effect to such event as if same had
occurred at the beginning of such period of calculation, and
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(i) for purposes of the foregoing calculation, the transaction
giving rise to the need to calculate the pro forma effect to any of
the following events shall be assumed to have occurred on the first
day of the four fiscal quarter period last ended before the occurrence
of the respective event for which such pro forma effect is being
determined (the "Reference Period"), and
(ii) in making any determination with respect to the incurrence or
assumption of any Indebtedness or issuance of any Disqualified
Preferred Stock during the Reference Period or subsequent to the
Reference Period and on or prior to the date of the transaction
referenced in clause (i) above (the "Transaction Date"), (w) all
Indebtedness or Disqualified Preferred Stock (including the
Indebtedness or Disqualified Preferred Stock incurred or assumed and
for which the financial effect is being calculated) incurred or
permanently repaid during the Reference Period shall be deemed to have
been incurred or repaid at the beginning of such period, (x)
Consolidated Net Interest Expense of such Person attributable to
interest or dividends on any Indebtedness or Disqualified Preferred
Stock, as the case may be, bearing floating interest rates should be
computed on a pro forma basis as if the rate in effect on the
Transaction Date had been the applicable rate for the entire period,
(y) Consolidated Net Interest Expense of such Person attributable to
interest on any Indebtedness under any revolving credit facility which
was in effect during the respective Reference Period shall be computed
on a pro forma basis based upon the average daily balance of such
Indebtedness outstanding during the applicable period (or, if shorter,
the portion of the period during which the revolving credit facility
was in effect) and (z) Consolidated Net Interest Expense will be
increased or reduced by the net cost (including amortization of
discount) or benefit (after giving effect to amortization of discount)
associated with the Interest Rate Protection Agreements, which will
remain in effect for the twelve-month period after the Transaction
Date and which shall have the effect of fixing the interest rate on
the date of computation, and
(iii) in making any determination of Consolidated EBITDA, pro
forma effect shall be given to any acquisition of part or all of a
business or division of another Person or any Significant Divestiture
which occurred during the Reference Period or subsequent to
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the Reference Period and prior to the Transaction Date, Consolidated
EBITDA shall be determined as if such acquisition or Significant
Divestiture occurred on the first day of the Reference Period, taking
into account cost savings and expenses which would otherwise be
accounted for as an adjustment pursuant to Article 11 of Regulation S-
X under the Securities Act of 1933, as amended, as if such cost
savings or expenses were realized on the first day of the Reference
Period.
"Purchase" means a purchase by the Purchaser of Receivables from a
Seller pursuant to Article II.
"Purchase Date" has the meaning assigned to that term in Section
2.02(a).
"Purchased Receivable" means any Receivable which, pursuant to the
procedure described in Section 2.02(c), has been identified as a Purchased
Receivable.
"Receivable" means the indebtedness of any Obligor under a Contract
(including the right to payment of any interest or finance charges and
other obligations of such Obligor with respect thereto).
"Receivables Purchase Request" has the meaning assigned to that term
in Section 2.02(a).
"Related Security" means with respect to any Receivable:
(i) all of the relevant Seller's right, title and interest in and
to all Contracts or other agreements that relate to such Receivable;
(ii) all of the relevant Seller's interest in the merchandise
(including returned merchandise), if any, relating to the sale which
gave rise to such Receivable;
(iii) all other security interests or liens and property subject
thereto from time to time purporting to secure payment of such
Receivable, whether pursuant to the Contract related to such
Receivable or otherwise, together with all financing statements signed
by an Obligor describing any collateral securing such Receivable;
(iv) all guarantees, insurance and other agreements or
arrangements of whatever character from
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time to time supporting or securing payment of such Receivable whether
pursuant to the Contract related to such Receivable or otherwise; and
(v) all other books, records and other information (including,
without limitation, computer programs, tapes, discs, punch cards, data
processing software and related property and rights) relating to such
Receivable and the related Obligor.
"Servicer" means at any time the Person(s) then authorized pursuant to
Article VI to service, administer and collect Transferred Receivables.
"Servicer Default" means the occurrence or existence of one or more of
the following events or conditions:
(a) The Servicer (i) shall fail to make any payment or deposit
to be made by it hereunder when due and such failure shall remain
unremedied for two Business Days, (ii) shall fail to deliver any
Monthly Report when required hereunder and such failure shall remain
unremedied for three Business Days, or (iii) shall fail to perform or
observe any other term, covenant or agreement hereunder and such
failure shall remain unremedied for ten days after the earlier of the
Servicer's actual knowledge thereof or written notice to the Servicer
thereof; or
(b) Any information or report delivered by the Servicer under or
in connection with this Agreement, including any Monthly Report shall
prove to have been incorrect or untrue in any material respect when
made or delivered and (if correctable) shall remain incorrect or
untrue for ten days after the earlier of actual knowledge by the
Servicer of such incorrectness or untruth or written notice thereof
shall have been given by the Purchaser to the Servicer; or
(c) The Servicer shall make a general assignment for the benefit
of creditors; or any proceeding shall be instituted by or against the
Servicer seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee, custodian or other similar
official for it or for any substantial part of
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its property and, in the case of any such proceeding instituted
against the Servicer (but not instituted by the Servicer), either such
proceeding shall remain undismissed or unstayed for a period of 60
days, or any of the actions sought in such proceeding (including,
without limitation, the entry of an order for relief against, or the
appointment of a receiver, trustee, custodian or other similar
official for, it or for any substantial part of its property) shall
occur; or the Servicer shall take any corporate action to authorize
any of the actions set forth above in this subsection (c).
"Servicer Fee" has the meaning assigned to that term in Section 6.03.
"Settlement Date" means the tenth day of each month (or if such day is
not a Business Day, the immediately succeeding Business Day); provided,
however, that following the occurrence of an Event of Termination,
Settlement Dates shall occur on such days as are selected from time to time
by the Purchaser or its designee in a written notice to the Servicer.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, association, joint venture, or other business entity of which
more than 50% of the total voting power of shares of stock or other
ownership interests entitled (without regard to the occurrence of any
contingency) to vote in the election of the Person or Persons (whether
directors, managers, trustees or other persons performing similar
functions) having the power to direct or cause the direction of the
management and policies thereof is at all times owned or controlled,
directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof.
"Transferred Receivable" means a Purchased Receivable or a Contributed
Receivable.
"UCC" means the Uniform Commercial Code as from time to time in effect
in the specified jurisdiction.
SECTION 1.02. Other Terms. The terms "Cash Equivalents",
"Consolidated Debt", "Disqualified Preferred Stock", "Dividends", "Interco
Warrants", "Net Cash Proceeds", "Preferred Stock", "Restricted Subsidiaries",
"Significant Divestiture", "Term Loans" and "Transaction" shall have the
meanings attributed thereto in the Bank Credit Agreement as in effect on the
date hereof, without giving effect to any further
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amendments to the Bank Credit Agreement (unless the Purchaser and any assignee
of the Purchaser shall have consented to such amendments in writing), and
regardless of any subsequent expiration or termination of the Bank Credit
Agreement. All accounting terms not specifically defined herein shall be
construed in accordance with generally accepted accounting principles. 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.
SECTION 1.03. 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 means "to but excluding".
ARTICLE II
AMOUNTS AND TERMS OF PURCHASES AND CONTRIBUTIONS
SECTION 2.01. Facility. On the terms and conditions hereinafter set
forth and without recourse (except to the extent as is specifically provided
herein), the Purchaser may purchase from any Seller Eligible Receivables of such
Seller from time to time during the period from the Initial Purchase Date to the
Facility Termination Date. Under no circumstances shall the Purchaser make any
Purchase if, after giving effect to such Purchase, the aggregate outstanding
Invested Amount would exceed the Maximum Purchase Limit.
SECTION 2.02. Making Purchases.
(a) Purchases. Each Purchase from a Seller shall be made (x) in the
case of a Purchase for a proposed purchase price in excess of $20,000,000, on at
least three Business Days' notice from such Seller to the Purchaser (except on
the Initial Purchase Date), and (y) in the case of a Purchase for a proposed
purchase price of $20,000,000 or less, on notice from such Seller to the
Purchaser given no later than 10:00 A.M. (New York City time) on the date of
such Purchase. Each such request for a Purchase (each a "Receivables Purchase
Request") shall specify the date of such Purchase (which shall be a Business
Day) and the proposed purchase price (as determined in Section 2.02(b)) for such
Purchase. The Purchaser shall promptly notify the relevant Seller whether it
has determined to make such Purchase. On the date of each Purchase (each a
"Purchase Date"), the Purchaser shall, upon satisfaction of the applicable
conditions set forth in Article III, pay the purchase price for such Purchase by
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deposit of such amount in same day funds to the relevant Seller's account
designated by such Seller.
(b) Determination of Purchase Price. The purchase price for the
Receivables that are the subject of any Purchase hereunder shall be determined
on or prior to the date of such Purchase, and shall be equal to the Outstanding
Balance of such Receivables as set forth in the relevant Seller's Aged Trial
Balance, minus the Discount for such Purchase.
(c) Identification of Purchased Receivables; Related Security. On
each Purchase Date, a sufficient number of Eligible Receivables (that do not
already constitute Transferred Receivables hereunder) of the pertinent Seller
shall be identified as Purchased Receivables so that the Outstanding Balance of
such Purchased Receivables so identified shall result in the purchase price
determined in accordance with Section 2.02(b). The Purchased Receivables will
be identified by reference to the Aged Trial Balance of such Seller. Starting
with the first Obligor listed on the Aged Trial Balance, each Eligible
Receivable owed by such Obligor (that does not already constitute a Transferred
Receivable hereunder) shall constitute a Purchased Receivable. Additional
Purchased Receivables shall be identified in a similar manner by proceeding down
the Aged Trial Balance of such Seller, in numerical sequence for subsequent
Obligors.
(d) Absolute Sale. On each Purchase Date, after giving effect to
each Purchase, the Purchaser shall own the Purchased Receivables which have been
identified according to the procedure described in subsection (c) above. The
Purchase of any Receivable shall include all Related Security with respect to
such Receivable. It is the intention of the parties hereto that each Purchase
of Receivables to be made hereunder shall constitute a sale of such Receivables
by the relevant Seller to the Purchaser for all purposes, such sale vesting in
the Purchaser all right, title to and interest in the Receivables so purchased
and the Related Security with respect thereto. Each Seller agrees to note in
its financial statements and master data processing records that the Purchased
Receivables have been sold to the Purchaser.
(e) Reconstruction of Trial Balance. If at any time any Seller fails
to generate its Aged Trial Balance, the Purchaser shall have the right to
reconstruct such Aged Trial Balance so that a determination of the Purchased
Receivables can be made pursuant to Section 2.02(c). Each Seller agrees to
cooperate with such reconstruction of the Aged Trial Balance, including, without
limitation, the delivery to the Purchaser,
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upon the Purchaser's request, of copies of all Contracts and all records
relating to the Contracts and the Receivables.
SECTION 2.03. Collections. (a) The Purchaser agrees to provide to
the Sellers, upon request, access to all information received by the Purchaser
from any Lock-Box Bank. In the event that any Seller believes that Collections
which are not Collections of Transferred Receivables have been deposited into a
Lock-Box Account, such Seller shall so advise the Purchaser and, on the Business
Day following such identification, the Purchaser shall remit all Collections so
deposited which are identified, to the Purchaser's satisfaction, to be
Collections of Receivables which are not Transferred Receivables to the Seller
that originated such Transferred Receivable.
(b) Any Collections of Transferred Receivables received by any Seller
shall be remitted directly to one of the Lock-Box Accounts within one Business
Day of such Seller's receipt.
SECTION 2.04. General Settlement Procedures. (a) If on any day the
Outstanding Balance of any Purchased Receivable is (i) reduced as a result of
any defective, rejected, returned repossessed or foreclosed merchandise or
services or any cash discount, credit memo, rebate, cooperative advertising,
chargeback or other adjustment by the Sellers, or (ii) reduced or canceled as a
result of a set-off or dispute in respect of any claim by the Obligor thereof
against the Seller which originated such Purchased Receivable (whether such
claim arises out of the same or a related transaction or an unrelated
transaction but excluding adjustments, reductions or cancellations in respect of
such Obligor's bankruptcy), the relevant Seller shall be deemed to have received
on such day a Collection of such Purchased Receivable in the amount of such
reduction or cancellation. If such Seller is not the Servicer, such Seller
shall pay to the Servicer on or prior to the next Settlement Date all amounts
deemed to have been received pursuant to this subsection.
(b) Upon discovery by any Seller or the Purchaser of a breach of any
of the representations and warranties made by any Seller in Section 4.01(l) with
respect to any Receivable, such party shall give prompt written notice thereof
to the Purchaser or such Seller, as the case may be, as soon as practicable and
in any event within three Business Days following such discovery. The Seller
which made such representation or warranty shall, upon not less than two
Business Days' notice from the Purchaser or its assignee or designee, repurchase
such Receivable on the next succeeding Settlement Date for a repurchase price
equal to the Outstanding Balance of such Receivable. Each repurchase of a
Receivable shall include the Related Security with respect to
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such Receivable. The proceeds of any such repurchase shall be deemed to be a
Collection in respect of such Receivable. If the repurchasing Seller is not the
Servicer, such Seller shall pay to the Servicer on or prior to the next
Settlement Date the repurchase price required to be paid pursuant to this
subsection.
(c) Except as stated in subsection (a) of this Section 2.04 or as
otherwise required by law or the underlying Contract, all Collections from an
Obligor of any Transferred Receivable shall be applied to Transferred
Receivables (originated by the relevant Seller) then outstanding of such Obligor
in the order of the age of such Transferred Receivables, starting with the
oldest such Transferred Receivable, unless such Obligor designates its payment
for application to specific Transferred Receivables.
SECTION 2.05. Payments and Computations, Etc. (a) All amounts to be
paid or deposited by a Seller hereunder shall be paid or deposited in accordance
with the terms hereof no later than 11:00 A.M. (New York City time) on the day
when due in lawful money of the United States of America in same day funds to
the relevant Lock-Box Account.
(b) Each Seller shall, to the extent permitted by law, pay to the
Purchaser interest on all amounts not paid or deposited by such Seller when due
hereunder at 1.5% per annum above the CP Rate, payable on demand, provided,
however, that such interest rate shall not at any time exceed the maximum rate
permitted by applicable law.
(c) All computations of interest and all computations of fees
hereunder and under the separate fee agreement shall be made on the basis of a
year of 360 days for the actual number of days (including the first but
excluding the last day) elapsed.
SECTION 2.06. Contributions. Each Seller may from time to time
during the period from the Initial Purchase Date to the Facility Termination
Date, at its option, by notice to the Purchaser, identify Receivables which it
proposes to contribute to the Purchaser as a capital contribution. Such
Receivables shall be identified by reference to the relevant Seller's Aged Trial
Balance. On the date of each such contribution and after giving effect thereto,
the Purchaser shall own the Receivables so identified and contributed
(collectively, the "Contributed Receivables") and all Related Security with
respect thereto. Unless the relevant Seller shall notify the Purchaser to the
contrary as to any specified Receivables, the Seller represents to the Purchaser
that each Contributed Receivable is an Eligible Receivable as of the date of its
contribution.
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ARTICLE III
CONDITIONS OF PURCHASES
SECTION 3.01. Conditions Precedent to Initial Purchase from the
Original Sellers Under the Original PCA. The initial Purchase of Receivables
from the Original Sellers under the Original PCA was subject to the conditions
precedent that the Purchaser shall have received on or before the Initial
Purchase Date the following, each (unless otherwise indicated) dated such date,
in form and substance satisfactory to the Purchaser:
(a) A copy of the resolutions adopted by the Board of Directors of
each Original Seller authorizing specified officers of such Seller to enter
into, and to perform all necessary actions in connection with, the Original
PCA and the transactions contemplated by the Original PCA, certified by
such Seller's Secretary or Assistant Secretary;
(b) A certificate of the Secretary or Assistant Secretary of each
Original Seller certifying the names and true signatures of the officers
authorized on its behalf to sign the Original PCA and the other documents
to be delivered by it thereunder;
(c) Acknowledgment copies of proper Financing Statements (Form UCC-
1), duly filed on or before the date of the initial Purchase from each
Original Seller, naming each Original Seller as the debtor and the
Purchaser as the secured party, or other similar instruments or documents,
as may be necessary or, in the opinion of the Purchaser, advisable under
the UCC of all appropriate jurisdictions or other applicable law to perfect
the Purchaser's ownership of and security interest in the Receivables and
Related Security and Collections with respect thereto;
(d) Certified copies of Requests for Information or Copies (Form UCC-
11) (or a similar search report certified by a party acceptable to the
Purchaser), dated a date reasonably near to the date of such initial
Purchase, listing all effective financing statements (including those
referred to in Section 3.01(c)) which name any Original Seller (under its
present name and any previous name) as debtor and which are filed in the
jurisdictions in which filings were made pursuant to Section 3.01(c),
together with copies of such financing statements (none of which (except
those filed pursuant to Section 3.01(c)) shall cover any property which may
be Receivables, or Related Security or Collections with respect thereto;
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(e) Acknowledgment copies of proper Financing Statements (Form UCC-
3), if any, necessary to release all security interests and other rights of
any Person in the Receivables previously granted by any Original Seller;
(f) Lock-Box Agreements in respect of each Lock-Box Account relating
to Collections of Receivables originated by the Original Sellers, duly
executed by the Lock-Box Bank holding such Lock-Box Account;
(g) A favorable opinion of Morgan Lewis & Bockius, counsel for the
Original Sellers and Interco, reasonably acceptable to the Purchaser, in
each case in substantially the form of Exhibit A to the Original PCA, and,
in each case, as to such other matters as the Purchaser may reasonably
request;
(h) A good standing certificate for each Original Seller issued by
the Secretary of State of such Seller's state of incorporation;
(i) The Articles of Incorporation of each Original Seller, duly
certified by the Secretary of State of such Seller's respective state of
incorporation, as of a recent date acceptable to Purchaser, together with a
copy of the By-laws of each Original Seller, duly certified by the
Secretary or an Assistant Secretary of such Seller;
(j) A copy of the resolutions adopted by the Board of Directors of
Interco authorizing specified officers of Interco to enter into, and to
perform all necessary actions in connection with, the Interco Agreement,
certified by Interco's Secretary or Assistant Secretary;
(k) A certificate of the Secretary or Assistant Secretary of Interco
certifying the names and true signatures of the officers authorized on its
behalf to sign the Interco Agreement and the other documents to be
delivered by it thereunder;
(l) The Articles of Incorporation of Interco, duly certified by the
Secretary of State of Delaware, as of a recent date acceptable to
Purchaser, together with a copy of the By-laws of Interco, duly certified
by the Secretary or an Assistant Secretary of Interco;
(m) The Interco Agreement;
(n) A certificate of the Secretary or Assistant Secretary of Lane and
Broyhill certifying that attached
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thereto is a true and complete copy of the Original Bank Credit Agreement
and the Security Agreement referred to therein; and
(o) The Intercreditor Agreement, duly executed by the parties thereto.
SECTION 3.01A. Conditions Precedent to Effectiveness of Amended and
Restated Agreement. The effectiveness of this Agreement and the initial
Purchase of Receivables from Thomasville hereunder are each subject to the
conditions precedent that the Purchaser shall have received on or before the
Effective Date the following, each (unless otherwise indicated) dated such date,
in form and substance satisfactory to the Purchaser:
(a) A copy of the resolutions adopted by the Board of Directors of
each Seller authorizing specified officers of such Seller to enter into,
and to perform all necessary actions in connection with, this Agreement and
the transactions contemplated by this Agreement, certified by such Seller's
Secretary or Assistant Secretary;
(b) A certificate of the Secretary or Assistant Secretary of each
Seller certifying the names and true signatures of the officers authorized
on its behalf to sign this Agreement and the other documents to be
delivered by it hereunder;
(c) Acknowledgment copies of proper Financing Statements (Form UCC-
1), duly filed on or before the date of the initial Purchase from
Thomasville, naming Thomasville as the debtor and the Purchaser as the
secured party, or other similar instruments or documents, as may be
necessary or, in the opinion of the Purchaser, advisable under the UCC of
all appropriate jurisdictions or other applicable law to perfect the
Purchaser's ownership of and security interest in the Receivables and
Related Security and Collections with respect thereto;
(d) Certified copies of Requests for Information or Copies (Form UCC-
11) (or a similar search report certified by a party acceptable to the
Purchaser), dated a date reasonably near to the date of such initial
Purchase from Thomasville, listing all effective financing statements
(including those referred to in Section 3.01A(c)) which name Thomasville
(under its present name and any previous name) as debtor and which are
filed in the jurisdictions in which filings were made pursuant to Section
3.01A(c), together with copies of such financing statements (none of which
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(except those filed pursuant to Section 3.01A(c)) shall cover any property
which may be Receivables, or Related Security or Collections with respect
thereto;
(e) Acknowledgment copies of proper Financing Statements (Form UCC-
3), if any, necessary to release all security interests and other rights of
any Person in the Receivables previously granted by Thomasville;
(f) Lock-Box Agreements with Corestates Bank, N.A. and Wachovia Bank
of North Carolina relating to Collections of Receivables originated by
Thomasville, duly executed by such Lock-Box Banks;
(g) A favorable opinion of Morgan Lewis & Bockius, counsel for the
Sellers and Interco, reasonably acceptable to the Purchaser, in each case
in substantially the form of Exhibit A, and, in each case, as to such other
matters as the Purchaser may reasonably request;
(h) A good standing certificate for Thomasville issued by the
Secretary of State of such Seller's state of incorporation;
(i) The Articles of Incorporation of Thomasville, duly certified by
the Secretary of State of such Seller's state of incorporation, as of a
recent date acceptable to Purchaser, together with a copy of the By-laws of
Thomasville, duly certified by the Secretary or an Assistant Secretary of
such Seller;
(j) A copy of the resolutions adopted by the Board of Directors of
Interco authorizing specified officers of Interco to enter into, and to
perform all necessary actions in connection with, Amendment No. 1 to the
Interco Agreement, certified by Interco's Secretary or Assistant Secretary;
(k) A certificate of the Secretary or Assistant Secretary of Interco
certifying (i) the names and true signatures of the officers authorized on
its behalf to sign the Interco Agreement and the other documents to be
delivered by it thereunder and (ii) that there have been no changes to
Interco's Articles of Incorporation or By-laws since November 15, 1994;
(l) Amendment No. 1 to the Interco Agreement, in the form of Exhibit C
hereto;
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(m) A certificate of the Secretary or Assistant Secretary of Lane,
Broyhill and Thomasville certifying that attached thereto is a true and
complete copy of the Bank Credit Agreement and the Security Agreement
referred to therein;
(n) The Intercreditor Agreement, duly executed by the parties thereto;
and
(o) An intercompany agreement between Thomasville and Thomasville
Upholstery, Inc. regarding the sale to Thomasville of all inventory of
Thomasville Upholstery, Inc.
SECTION 3.02. Conditions Precedent to All Purchases. Each Purchase
(including the initial Purchase on the Initial Purchase Date) hereunder shall be
subject to the further conditions precedent that:
(a) with respect to any such Purchase, on or prior to the date of such
Purchase, each Seller shall have delivered to the Purchaser, if requested
by the Purchaser, (i) such Seller's Aged Trial Balance (which if in
magnetic tape or diskette format shall be compatible with the Purchaser's
computer equipment) as of a date not more than 31 days prior to the date of
such Purchase, and (ii) a written report identifying, among other things,
the Receivables to be included in such Purchase and the then outstanding
Purchased Receivables originated by such Seller and the aged balance
thereof, in each case correlated to Purchases;
(b) with respect to any such Purchase, on or prior to the date of
such Purchase, the Servicer shall have delivered to the Purchaser, in form
and substance satisfactory to the Purchaser, a completed Monthly Report for
the most recently ended reporting period for which information is required
pursuant to Section 6.02(b) and containing such additional information as
may be reasonably requested by the Purchaser;
(c) Each Seller shall have marked its master data processing records
and, at the request of the Purchaser, each Contract (other than any invoice
sent to the Obligor under such Contract) giving rise to Purchased
Receivables and all other relevant records evidencing the Receivables which
are the subject of such Purchase with a legend, acceptable to the
Purchaser, stating that such Receivables, the Related Security with respect
thereto, and Collections with respect thereto and other proceeds thereof,
have been sold in accordance with this Agreement; and
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(d) on the date of such Purchase the following statements shall be
true (and each Seller, by accepting the amount of such Purchase, shall be
deemed to have certified that):
(i) On the Effective Date such Seller's representations and
warranties contained in Section 4.01 are correct on and as of such day
as though made on and as of such date, and on the date of each
subsequent Purchase such Seller's representations and warranties
contained in Section 4.01(l) and (n)-(s) are correct on and as of such
day as though made on and as of such date,
(ii) No event has occurred and is continuing, or would result
from such Purchase, which constitutes an Event of Termination or would
constitute an Event of Termination but for the requirement that notice
be given or time elapse or both, and
(iii) The Purchaser shall not have delivered to such Seller a
notice that the Purchaser shall not make any further Purchases
hereunder, and
(iv) No event described in paragraph (g) of Section 7.01 has
occurred and is continuing (without giving effect to the 30-day period
provided therein for dismissal or stay); and
(e) the Purchaser shall have received such other approvals, opinions
or documents as the Purchaser may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Sellers. Each
Seller represents and warrants, as of the Effective Date, as to itself, as
follows:
(a) Such Seller has been duly organized and is validly existing as a
corporation in good standing under the laws of its respective jurisdiction
of 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, and had at all relevant times, and now
has, all necessary power, authority, and legal right to acquire and own the
Receivables.
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(b) Such Seller is duly qualified to do business and is in good
standing, and has obtained all necessary licenses and approvals, in all
jurisdictions in which the ownership or lease of property or the conduct of
its business requires such qualification, licenses or approvals.
(c) Such Seller has (i) all necessary power, authority and legal right
to (1) execute and deliver this Agreement and the documents to be executed
and delivered in connection herewith (together, the "Agreement Documents"),
(2) carry out the terms of the Agreement Documents, (3) sell, assign and
contribute Receivables on the terms and conditions herein provided and (ii)
duly authorized such sale, assignment and contribution to Purchaser by all
necessary corporate action; and such Seller has duly authorized by all
necessary corporate action the execution, delivery, and performance of this
Agreement and the other Agreement Documents.
(d) This Agreement constitutes a valid sale, transfer, and assignment
of the Transferred Receivables to Purchaser, enforceable against creditors
of, and purchasers from, such Seller; and this Agreement constitutes, and
each other Agreement Document to be signed by such Seller when duly
executed and delivered will constitute, a legal, valid and binding
obligation of such Seller enforceable in accordance with its terms. Such
Seller shall have no remaining property interest in any Transferred
Receivable.
(e) The consummation of the transactions contemplated by this
Agreement and the other Agreement Documents and the fulfillment of the
terms hereof will not conflict with, result in any breach of any of the
terms and provisions of, or constitute (with or without notice or lapse of
time) a default under, the articles of incorporation or by-laws of such
Seller, or any indenture, loan agreement, mortgage, deed of trust, or other
agreement or instrument to which such Seller is a party or binding on or
affecting such Seller or its property, or result in the creation or
imposition of any Adverse Claim upon any of its properties pursuant to the
terms of any such indenture, loan agreement, mortgage, deed of trust, or
other agreement or instrument, other than this Agreement, or violate any
law or any order, rule, or regulation applicable to such Seller of any
court or of any federal or state regulatory body, administrative agency, or
other governmental instrumentality having jurisdiction over such Seller or
any of its properties.
(f) There are no proceedings or investigations pending, or threatened,
before any court, regulatory body,
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administrative agency, or other tribunal or governmental instrumentality
(A) asserting the invalidity of this Agreement or any other Agreement
Document, (B) seeking to prevent the consummation of any of the
transactions contemplated by this or any other Agreement Document, or (C)
seeking any determination or ruling that could reasonably be expected to
materially and adversely affect (i) the performance by such Seller or
Servicer of its obligations under this Agreement, or (ii) the validity or
enforceability of this Agreement, any other Agreement Document, the
Receivables or the Contracts.
(g) No transaction contemplated hereby requires compliance with any
bulk sales act or similar law.
(h) 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 of this
Agreement or any other Agreement Document except for the filing of the UCC
Financing Statements referred to in Article III, all of which, at the time
required in Article III, shall have been duly made and shall be in full
force and effect.
(i) (i) The audited consolidated and consolidating financial
statements of Interco and its Subsidiaries (including the consolidated
balance sheet, and the related statements of income and cash flow and
changes in shareholders' equity) as at December 31, 1994 and (ii) the
unaudited consolidated and consolidating financial statements of Interco
and its Subsidiaries as at September 30, 1995, copies of which have been
furnished to the Purchaser, have been prepared in conformity with generally
accepted accounting principles consistently applied and fairly present the
financial condition of Interco and its Subsidiaries as at such dates and
the results of the operations of Interco and its Subsidiaries for the
periods then ended.
(j) Since September 30, 1995, there has been no material adverse
change in the financial condition, operations or prospects of Interco and
its Subsidiaries.
(k) No injunction, decree or other decision has been issued or made by
any court, government or agency or instrumentality thereof that prevents,
and no threat by any person has been made, to the best of such Seller's
knowledge, to attempt to obtain any such decision that can reasonably be
expected to prevent, such Seller from conducting a significant part of its
business operations.
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(l) Each Receivable purported to be sold by such Seller hereunder is
an Eligible Receivable, and each such Receivable and each Transferred
Receivable, together with the related Contract and all purchase orders and
other agreements related to such Receivable, is owned by such Seller free
and clear of any Adverse Claim (other than any Adverse Claim arising solely
as the result of any action taken by the Purchaser) except as provided
herein; when Purchaser makes a Purchase it shall acquire valid and
perfected first priority ownership of each Purchased Receivable and the
Related Security and Collections with respect thereto free and clear of any
Adverse Claim (other than any Adverse Claim arising solely as the result of
any action taken by the Purchaser) except as provided hereunder; and no
effective financing statement or other instrument similar in effect
covering any Transferred Receivable, any interest therein, the Related
Security or Collections with respect thereto is on file in any recording
office except such as may be filed in favor of Purchaser in accordance with
this Agreement or in connection with any Adverse Claim arising solely as
the result of any action taken by the Purchaser.
(m) No Monthly Report (if prepared by such Seller, or to the extent
that information contained therein was supplied by such Seller),
information, exhibit, financial statement, document, book, record or report
furnished or to be furnished by such Seller to the Purchaser in connection
with this Agreement was or will be inaccurate in any material respect as of
the date it was or will be dated or (except as otherwise disclosed to the
Purchaser) as of the date so furnished, or contained or will contain any
material misstatement of fact or omitted or will omit to state a material
fact or any fact necessary to make the statements contained therein not
materially misleading.
(n) The chief place of business and chief executive office of such
Seller and the offices where such Seller keeps all its books, records and
documents evidencing Receivables, the related Contracts and all purchase
orders and other agreements related to such Receivables are located at the
addresses specified in Schedule I (or at such other locations, notified to
the Purchaser in accordance with Section 5.01(f), in jurisdictions where
all action required by Section 6.06 has been taken and completed).
(o) The names and addresses of all the Lock-Box Banks, together with
the account number of the Lock-Box Accounts of such Seller at such Lock-Box
Banks, are specified in
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Schedule II (or at such other Lock-Box Banks and/or with such other Lock-
Box Accounts as have been notified to the Purchaser in accordance with
Section 5.03(d)).
(p) With respect to any programs used by such Seller in the servicing
of the Receivables, no sublicensing agreements are necessary in connection
with the designation of a new Servicer pursuant to Section 6.01(b) so that
such new Servicer shall have the benefit of such programs (it being
understood that, however, the Servicer, if other than such Seller, shall be
required to be bound by a confidentiality agreement reasonably acceptable
to such Seller).
(q) The transfers of Transferred Receivables by such Seller to the
Purchaser pursuant to this Agreement, and all other transactions between
such Seller and the Purchaser, have been and will be made in good faith and
for fair consideration or reasonably equivalent value and without intent to
hinder, delay or defraud creditors of such Seller.
(r) Such Seller will use the proceeds of sales of its Receivables
hereunder to repay Indebtedness on which it is primarily obligated and for
its own working capital and general corporate purposes, including without
limitation the payment of dividends on its capital stock, provided that
such dividends are properly authorized by all requisite corporate action
and are in compliance with applicable law.
(s) If less than all of the Receivables of such Seller have been
transferred to the Purchaser pursuant to this Agreement, no selection
procedure was utilized by such Seller in selecting the Receivables to be
transferred to the Purchaser hereunder which is adverse to the interests of
the Purchaser or would reasonably be expected to result in a Default Ratio
or Net Dilution Ratio, calculated for such Transferred Receivables, which
is greater than the Default Ratio or Net Dilution Ratio, calculated for all
Receivables.
ARTICLE V
COVENANTS
SECTION 5.01. Affirmative Covenants of the Sellers. From the Initial
Purchase Date until the first day following the Facility Termination Date on
which all of the Transferred Receivables are either collected in full or become
Defaulted Receivables, each Seller will, unless the Purchaser shall otherwise
consent in writing:
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(a) Compliance with Laws, Etc. Comply in all material respects with
all applicable laws, rules, regulations and orders with respect to the
Receivables and related Contracts.
(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 materially adversely affect (i) the interests of the
Purchaser hereunder or (ii) the ability of such Seller or the Servicer to
perform their respective obligations hereunder.
(c) Audits. At any time and from time to time during regular business
hours (but subject to reasonable notice at any time when no Event of
Termination exists), permit the Purchaser, or its agents, representatives
or assigns, (i) 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 Receivables and Related Security, and (ii) to visit the offices and
properties of such Seller for the purpose of examining such materials
described in clause (i) above, and to discuss matters relating to
Receivables originated by such Seller and the Related Security or such
Seller's performance hereunder or under the Contracts with any of the
officers or employees of such Seller having knowledge of such matters.
(d) Keeping of Records and Books of Account. Maintain and implement
administrative and operating procedures (including, without limitation, an
ability to recreate records evidencing Receivables 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 Receivables (including, without limitation, records
adequate to permit the daily identification of each new Receivable and all
Collections of and adjustments to each existing Receivable). Each Seller
shall make a notation in its books and records, including its computer
files, to indicate which Receivables have been sold or contributed to the
Purchaser hereunder.
(e) Performance and Compliance with Transferred Receivables and
Contracts. At its expense timely and fully perform and comply with all
material provisions, covenants
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and other promises required to be observed by it under the Contracts
related to the Transferred Receivables originated by such Seller and all
purchase orders and other agreements relating to such Transferred
Receivables.
(f) Location of Records. Keep its chief place of business and chief
executive office, and the offices where it keeps its records concerning the
Receivables and all related Contracts and all purchase orders and other
agreements related to Receivables (and all original documents relating
thereto), at the address(es) of such Seller referred to in Section 4.01(n)
or, upon 30 days prior written notice to the Purchaser, at such other
locations in jurisdictions where all action required by Section 6.06 shall
have been taken and completed.
(g) Credit and Collection Policy. Comply in all material respects
with the Credit and Collection Policy in regard to each Transferred
Receivable and the Related Contract.
(h) Collections. Instruct all Obligors to cause all Collections of
Receivables to be deposited directly to a Lock-Box Account. Each Seller
will not deposit or otherwise credit, or cause or permit to be so deposited
or credited, to any Lock-Box Account cash or cash proceeds other than
Collections of Receivables.
(i) Audit. At such Seller's expense as at or about February 1, 1996
and each February 1 thereafter, permit the Purchaser to conduct through
Deloitte & Touche LLP an audit, satisfactory to the Purchaser, of the
Purchased Receivables and matters related thereto.
(j) Daily Settlement Trigger. From and after the fifth day after the
occurrence of a Daily Settlement Trigger, and so long as any Daily
Settlement Trigger is continuing, (a) cause the Servicer to submit daily
reports in form and substance satisfactory to the Purchaser listing the
aggregate Outstanding Balance of all Eligible Receivables generated by such
Seller on the preceding Business Day, (b) use its best efforts to cause
each Lock-Box Bank to submit daily reports to the Purchaser listing the
aggregate amount of all Collections received in the Lock-Box Account(s) at
such Lock-Box Bank on the preceding Business Day and (c) cause all
Collections (and only Collections) to be deposited daily into an account
(the "Concentration Account") maintained in a bank acceptable to the
Purchaser in the name of the Purchaser and/or the Purchaser's assignee. No
funds in the Concentration Account
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shall be distributed to or for the benefit of any Seller until the
Purchaser and the Purchaser's assignee (if any) each notifies the bank in
which the Concentration Account is located to release funds therein to such
persons. The funds in the Concentration Account shall be invested in a
manner acceptable to the Purchaser and/or the Purchaser's assignee. If all
events constituting a Daily Settlement Trigger shall have been cured or
shall no longer be continuing, and no Event of Termination shall then
exist, the Sellers and Servicer may resume processing Collections and
delivering reports as they did immediately prior to the occurrence of a
Daily Settlement Trigger.
(k) Separate Records. Maintain separate corporate records and books
of account from those of the Purchaser.
(l) Separate Conduct of Business. (i) Conduct its business from an
office separate from that of the Purchaser (but which office may be located
in the same facility as the Purchaser); (ii) ensure that all oral and
written communications, including without limitation, letters, invoices,
purchase orders, contracts, statements and applications, will be made
solely in its own name; (iii) have stationery and other business forms and
mailing address and a telephone number separate from those of the
Purchaser; (iv) not hold itself out as having agreed to pay, or as being
liable for, the obligations of the Purchaser; (v) not engage in any
transaction with the Purchaser except as contemplated by this Agreement or
as permitted by the CL Sale Agreement (vi) continuously maintain as
official records the resolutions, agreements and other instruments
underlying the transactions contemplated by this Agreement; (vii) disclose
on its annual financial statements (A) the effects of the transactions
contemplated by this Agreement in accordance with generally accepted
accounting principles; and (B) that the assets of the Purchaser are not
available to pay its creditors; and (viii) comply with (and cause to be
true and correct) each of the facts and assumptions contained in paragraphs
(a) - (r) on pages [3 - 6] of the opinion of Morgan Lewis & Bockius
delivered pursuant to Section 3.01(g) of the Original PCA and Section
3.01A(g) of this Agreement.
SECTION 5.02. Reporting Requirements of the Sellers. From the date
hereof until the first day following the Facility Termination Date on which all
of the Transferred Receivables are either collected in full or become Defaulted
Receivables, each Seller will, unless the Purchaser shall otherwise consent in
writing, furnish to the Purchaser:
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(a) Audit Report. Within 90 days after each fiscal year of Interco a
copy of an annual audit report of Interco and its Subsidiaries prepared in
conformity with generally accepted accounting principles consistently
(except as specifically noted therein) applied, duly certified without
qualifications (as to going concern or other matters which in the
Purchaser's reasonable opinion might adversely affect the ability of any
Seller to perform its obligations under this Agreement) by Peat Marwick or
other independent certified public accountants of recognized standing
selected by the Sellers and reasonably acceptable to the Purchaser;
provided, however, that the requirements of this clause (a) may be
satisfied by delivery of Interco's form 10-K filed with the Securities and
Exchange Commission.
(b) Interim Reports. As soon as available, but no later than 45 days
after each fiscal quarter, a copy of unaudited consolidated and
consolidating financial statements of Interco and its Subsidiaries prepared
otherwise in the same manner as the audited financial statements referred
to in clause (a) of this Section 5.02; provided, however, that the
requirements of this clause (b) may be satisfied by delivery of Interco's
form 10-Q filed with the Securities and Exchange Commission.
(c) Auditor's Materials. Promptly upon receipt thereof, copies of all
detailed financial and management reports regarding such Seller to the
extent relating to the Receivables submitted to such Seller by independent
public accountants in connection with each annual or interim report made by
such accountants.
(d) Termination Events. As soon as possible and in any event within
five days after the occurrence of each Event of Termination or each event
which, with the giving of notice or lapse of time or both, would constitute
an Event of Termination, a written statement of the chief financial officer
or chief accounting officer of such Seller setting forth details of such
event and the action that such Seller proposes to take with respect
thereto.
(e) Litigation. As soon as possible and in any event within 10
Business Days of such Seller's knowledge thereof, notice of (i) any
litigation, investigation or proceeding which may exist at any time which
could reasonably be expected to have a material adverse effect on the
business, operations, property or financial condition of such Seller or
impair the ability of such Seller or the Servicer to perform its
obligations under this Agreement and (ii) any
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material adverse development in previously disclosed litigation.
(f) Other Information. Promptly, from time to time, such other
information, documents, records or reports respecting the Receivables or
the conditions or operations, financial or otherwise, of such Seller or any
Subsidiary as the Purchaser may from time to time reasonably request in
order to protect the Purchaser's interests under or as contemplated by this
Agreement.
(g) Haverty Furniture Companies, Inc. Promptly (and in any event
within ten Business Days) after such Seller's receipt thereof, a copy of
the quarterly and annual financial statements of Haverty Furniture
Companies, Inc.
(h) Daily Settlement Trigger. Promptly (and in any event within five
Business Days) after an executive officer of such Seller obtains knowledge
thereof, notice of the occurrence of any event which constitutes a Daily
Settlement Trigger.
(i) Officer's Certificate. At the time of the delivery of the
financial statements provided for in clauses (a) and (b) of this paragraph,
a certificate of the chief financial officer of such Seller to the effect
that, to the best of such officer's knowledge, no Event of Termination or
Daily Settlement Trigger has occurred and is continuing or, if any Event of
Termination or Daily Settlement Trigger has occurred and is continuing,
specifying the nature and extent thereof, which certificate shall set forth
the calculations required to establish compliance with the ratios and tests
set forth in clauses (a), (b), (c), (d) and (h) of the definition of Daily
Settlement Trigger.
SECTION 5.03. Negative Covenants of the Sellers. From the Initial
Purchase Date until the date following the Facility Termination Date on which
all of the Transferred Receivables are either collected in full or become
Defaulted Receivables, each Seller will not, without the written consent of the
Purchaser:
(a) Sales, Liens, Etc. Except as otherwise provided herein or in the
Intercreditor Agreement, create or suffer to exist (by operation of law or
otherwise) or otherwise dispose of, or create or suffer to exist any
Adverse Claim upon or with respect to any Receivable or related Contract or
Related Security, or upon or with respect to any Lock-Box Account or other
collection account to which any Collections of Receivables are sent, or
assign any right to receive income in respect thereof.
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(b) Extension or Amendment of Transferred Receivables. Except for
extensions, amendments or other modifications which (i) do not decrease the
Outstanding Balance of or adversely affect the collectibility of a
Transferred Receivable or (ii) are otherwise permitted pursuant to Section
6.02(c), extend, amend or otherwise modify the terms of any Transferred
Receivable, or amend, modify or waive any term or condition of any Contract
related thereto.
(c) Change in Business or Credit and Collection Policy. (i) Make any
change in the character of its business or in the Credit and Collection
Policy that would, in either case, materially adversely affect the
collectibility of the Transferred Receivables or the ability of such Seller
to perform its obligations under this Agreement, or (ii) in the case of
Thomasville, make any change prior to December 31, 1996 relating to its
treatment of reserves for Receivables which, consistent with the Credit and
Collection Policy, are deemed uncollectible, without the prior written
consent of the Purchaser (or its assigns). Such Seller shall not make any
other change without 30 Business Days prior written notice to the Purchaser
(or its assigns).
(d) Change in Payment Instructions to Obligors. Add or terminate any
bank as Lock-Box Bank from those listed in Schedule II, or make any change
in its instructions to Obligors regarding payments to be made to any Lock-
Box Bank, unless the Purchaser shall have received notice of such addition,
termination or change and copies of Lock-Box Agreements with each new Lock-
Box Bank; provided, however, that within sixty (60) days following the date
hereof, the Purchaser shall have received copies of executed Lock-Box
Agreements, in form and substance satisfactory to the Purchaser, relating
to the Lock-Box Accounts of Thomasville which are maintained at Mellon
Bank, N.A. and Bank of America as of the date hereof.
(e) Change in Corporate Name, Etc. Make any change to its name or
structure, or use any tradenames, fictitious names, assumed names or "doing
business as" names, unless, in the case of each such name change or use and
prior to the effective date thereof, such Seller delivers to the Purchaser
such financing statements or amendments to financing statements (Forms UCC-
1 and UCC-3) executed by such Seller which the Purchaser may request to
reflect such name change or use, together with such other documents and
instruments that the Purchaser may reasonably request in connection
therewith.
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(f) Certain Changes in Bank Credit Agreement. Amend or modify the
financial covenants (or the related definitions) contained in the Bank
Credit Agreement so as to make the same more restrictive than the
previously existing provisions with respect thereto, unless concurrently
therewith the Sellers enter into an amendment of this Agreement, in form
and substance reasonably satisfactory to the Purchaser and any assignee of
the Purchaser, modifying the ratios (and, if appropriate, the related
definitions) referred to in clauses (a), (b), (c) and (d) of the definition
of "Daily Settlement Trigger" hereunder so as to be proportionately more
restrictive.
(g) Thomasville Subsidiaries. In the case of Thomasville, permit any
Subsidiary of Thomasville to sell any of its goods or services to any
person other than Thomasville.
SECTION 5.04. Affirmative Covenant of the Sellers and the Purchaser.
Each Seller and the Purchaser shall record each Purchase as a sale or purchase,
as the case may be, on its books and records, and reflect each Purchase in its
financial statements and tax returns as a sale or purchase, as the case may be.
SECTION 5.05. Grant of Security Interest. To secure all obligations
of the Sellers arising in connection with this Agreement, and each other
agreement entered into in connection with this Agreement, whether now or
hereafter existing, due or to become due, direct or indirect, or absolute or
contingent, including, without limitation, Indemnified Amounts, payments on
account of Collections received or deemed to be received, and any other amounts
due the Purchaser hereunder, each Seller hereby assigns and grants to Purchaser,
effective on the Initial Purchase Date, a security interest in all of such
Seller's right, title and interest now or hereafter existing in, to and under
all Receivables which do not constitute Transferred Receivables, the Related
Security and all Collections with regard thereto.
ARTICLE VI
ADMINISTRATION AND COLLECTION
SECTION 6.01. Designation of Servicer. (a) The servicing,
administering and collection of the Transferred Receivables originated by each
Seller shall be conducted by such Person (the "Servicer") so designated from
time to time in accordance with this Section 6.01; provided, however, that the
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Servicer shall not have any rights to withdraw any amounts in any Lock-Box
Account or any bank account of the Purchaser.
(b) Until the Purchaser gives notice (the "Successor Notice") to any
Seller of a designation of a new Servicer for such Seller's Transferred
Receivables, Lane is hereby designated as Servicer for Transferred Receivables
originated by Lane or Action, Broyhill is hereby designated as Servicer for
Transferred Receivables originated by Broyhill and Thomasville is hereby
designated as Servicer for Transferred Receivables originated by Thomasville.
Lane, Broyhill and Thomasville each hereby agrees to perform the duties and
obligations of the Servicer for such Transferred Receivables pursuant to the
terms hereof. The Successor Notice may only be given following the occurrence
and during the continuation of a Servicer Default. Any Servicer other than such
Seller shall execute any confidentiality agreement reasonably requested by such
Seller in connection with the designation of a new Servicer.
(c) Upon receipt by Lane, Broyhill or Thomasville of a Successor
Notice, such Seller agrees that it will terminate its activities as Servicer
hereunder in a manner which the Purchaser (or its designee) believes will
facilitate the transition of the performance of such activities to the new
Servicer, and such Seller shall use its best efforts to assist the Purchaser (or
its designee) to take over the servicing, administering and collection of the
Transferred Receivables.
(d) The Servicer may, with the prior consent of the Purchaser,
subcontract with any other Person for servicing, administering or collecting
Transferred Receivables, provided that the Servicer shall remain liable for the
performance of the duties and obligations of the Servicer for the Transferred
Receivables pursuant to the terms hereof.
SECTION 6.02. Duties of The Servicer. (a) The Servicer shall take
or cause to be taken all such actions as may be necessary or advisable to
collect each Transferred Receivable originated by the relevant Seller from time
to time, all in accordance with applicable laws, rules and regulations, with
reasonable care and diligence, and in accordance with the appropriate Credit and
Collection Policy. The Purchaser hereby appoints the Servicer, from time to
time designated pursuant to Section 6.01 for the Transferred Receivables
originated by the relevant Seller, as agent to enforce its ownership and other
rights in such Transferred Receivables, the Related Security and the Collections
with respect thereto and other proceeds thereof. The Servicer shall, in
performing its duties as Servicer, exercise the same care and apply the same
policies as it would
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exercise and apply if it owned the Transferred Receivables and shall act in the
best interests of the Purchaser.
(b) No later than the tenth day (or next Business Day if such day is
not a Business Day) of each month, the Servicer shall prepare and forward to the
Purchaser (i) a Monthly Report, relating to all then outstanding Transferred
Receivables originated by the relevant Seller, and the Related Security and
Collections with respect thereto, in each case, as of the close of business of
the Servicer on the last day of the immediately preceding fiscal month, and (ii)
a listing by Obligor of all Transferred Receivables originated by the relevant
Seller correlating Purchased Receivables and Purchases, together with (x) an
aging report of such Transferred Receivables, (y) a listing of each Obligor the
total Receivables of which are in excess of 2% of the aggregate of all
Transferred Receivables (other than those Obligors referred to in the succeeding
clause (z)) and (z) the total Receivables of each of J.C. Penney Company, Inc.,
Sears Roebuck & Co., Haverty Furniture Companies, Inc. and Wal-Mart Stores, Inc.
(c) If no Event of Termination or event that but for notice or lapse
of time or both would constitute an Event of Termination shall have occurred and
be continuing, each Seller, while it or its parent company is the Servicer, may
extend the maturity or adjust the Outstanding Balance of any Transferred
Receivable originated by such Seller as such Seller deems appropriate to
maximize Collections thereof; provided, however, that such extension or
adjustment shall either (x) be in accordance with the relevant Credit and
Collection Policy or (y) adjust the Outstanding Balance of any Transferred
Receivable to reflect the reductions or cancellations described in Section
2.04(a).
(d) Each Seller shall deliver to the applicable Servicer, and the
Servicer shall hold in trust for such Seller and the Purchaser in accordance
with their respective interests, all documents, instruments and records
(including, without limitation, computer tapes or diskettes) that evidence or
relate to Transferred Receivables originated by such Seller.
(e) The Servicer shall hold in trust and legend appropriately for the
relevant Seller and the Purchaser, in accordance with their respective
interests, all computer tapes or diskettes that evidence or relate to
Transferred Receivables.
(f) The Servicer shall as soon as practicable following receipt turn
over to the relevant Seller any cash collections or other cash proceeds
deposited to a Lock-Box Account which are not Collections of Transferred
Receivables,
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less, in the event the Seller is not the Servicer, all reasonable and
appropriate out-of-pocket costs and expenses of the Servicer of servicing,
collecting and administering the Receivables to the extent not covered by the
Servicer Fee received by it; provided, however, if the relevant Seller has
failed to pay or perform any of its obligations hereunder, the Servicer shall
retain any such collections which relate to Receivables which are not
Transferred Receivables and, at the direction of the Purchaser or its assignee,
apply the same to the payment or performance of such obligations.
(g) The Servicer also shall perform the other obligations of the
"Servicer" set forth in this Agreement with respect to the Transferred
Receivables originated by the relevant Seller.
SECTION 6.03. Servicer Fee. The Purchaser shall pay to the Servicer,
so long as it is acting as the Servicer hereunder, a periodic collection fee
(the "Servicer Fee") of 0.75 of 1% per annum on the average daily amount of
outstanding Invested Amount with respect to the Purchased Receivables originated
by the relevant Seller, payable on the tenth day of each month (or, if such day
is not a Business Day, the immediately succeeding Business Day) or such other
day during each calendar month as the Purchaser and the relevant Servicer shall
agree.
SECTION 6.04. Rights of the Purchaser. (a) The Purchaser may, at
any time, give notice of ownership and/or direct the Obligors of Transferred
Receivables and any Person obligated on any Related Security, or any of them,
that payment of all amounts payable under any Transferred Receivable be made
directly to the Purchaser or its designee. Each Seller hereby transfers to the
Purchaser (and its assigns or designees) the exclusive ownership and control of
the Lock-Box Accounts maintained by such Seller for the purpose of receiving
Collections.
(b) Each Seller shall, at any time upon the Purchaser's request and
at such Seller's expense, give notice of such ownership to each Obligor of
Transferred Receivables originated by such Seller and direct that payments of
all amounts payable under such Transferred Receivables be made directly to the
Purchaser or its designee.
(c) Each Seller shall, at the Purchaser's request, assemble all of
the documents, instruments and other records (including, without limitation,
computer tapes and diskettes) which evidence the Transferred Receivables
originated by such Seller, and the related Contracts and Related Security, or
which
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are otherwise necessary or desirable to collect the Transferred Receivables, and
the Related Security and Collections with respect thereto, and shall make the
same available to the Purchaser at a place selected by the Purchaser or its
designee. The Purchaser shall also have the right to make copies of all such
documents, instruments and other records at any time.
(d) Each Seller hereby authorizes the Purchaser to take any and all
steps in such Seller's name and on behalf of each such Seller necessary or
desirable, in the determination of the Purchaser, to collect all amounts due
under any and all Transferred Receivables originated by such Seller, including,
without limitation, endorsing such Seller's name on checks and other instruments
representing Collections of Transferred Receivables originated by such Seller
and enforcing such Transferred Receivables and the Related Contracts.
SECTION 6.05. Responsibilities of the Sellers. Anything herein to
the contrary notwithstanding:
(a) Each Seller shall, prior to the initial Purchase from such Seller,
transfer to the Purchaser (or its designee) legal and beneficial ownership
of the collection accounts such Seller then maintains to receive
Collections on the Receivables originated by such Seller which will be the
subject of such Purchase (all of which accounts are identified on Schedule
II), and furnish to the Purchaser (or is designee) a Lock-Box Agreement
with respect to each such collection account, duly acknowledged by the bank
holding each such collection account. Thereupon each such collection
account shall, without further action, become a Lock-Box Account, and such
Lock-Box Accounts thereafter shall be under the irrevocable and exclusive
ownership and control of the Purchaser or its designee;
(b) Each Seller shall perform all of its obligations under the
Contracts related to the Transferred Receivables originated by such Seller
to the same extent as if such Seller had not sold or contributed
Receivables hereunder and the exercise by the Purchaser of its rights
hereunder shall not relieve such Seller from such obligations or its
obligations with respect to the Transferred Receivables originated by such
Seller;
(c) The Purchaser shall not have any obligation or liability with
respect to any Transferred Receivables or related Contracts, nor shall the
Purchaser be obligated to perform any of the obligations of any Seller
thereunder;
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(d) Each Seller shall cooperate with the relevant Servicer in
collecting amounts due from Obligors in respect of the Transferred
Receivables; and
(e) Each Seller hereby grants to 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
Purchaser (whether or not from Seller) in connection with any Receivable.
SECTION 6.06. Further Assurances. (a) 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 Purchaser may
reasonably request in order to perfect, protect or more fully evidence the
ownership of and security interest in the Receivables, and the Related Security
and Collections with respect thereto, or to enable the Purchaser to exercise or
enforce any of its respective rights hereunder.
(b) Without limiting the generality of the foregoing, each Seller
will upon the Purchaser's request:
(i) 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;
(ii) deliver to the Purchaser copies of all Contracts and all
records relating to the Contracts and the Receivables, whether in hard
copy or in magnetic tape or diskette format (which if in magnetic tape
or diskette format shall be compatible with the Purchaser's computer
equipment); and
(iii) mark conspicuously each invoice or other agreement
evidencing each Receivable originated by such Seller and the related
Contract with a legend, acceptable to the Purchaser, stating that such
Receivables and the Related Security and Collections with respect
thereto have been sold, or a security interest therein has been
granted, in accordance with this Agreement.
(c) Each Seller hereby authorizes the Purchaser to file one or more
financing or continuation statements, and amendments thereto and assignments
thereof, relative to all or
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any of the Receivables originated by such Seller and the Related Security now
existing or hereafter arising without the signature of such Seller where
permitted by law. A photocopy or other reproduction of this Agreement shall be
sufficient as a financing statement where permitted by law.
(d) If any Seller fails to perform any of its agreements or
obligations under this Agreement, the Purchaser may (but shall not be required
to) itself perform, or cause performance of, such agreement or obligation, and
the expenses of the Purchaser incurred in connection therewith shall be payable
jointly and severally by the Sellers as provided in Section 8.01 or Section
9.06, as applicable.
SECTION 6.07. Transfer of Records to Purchaser. Each Purchase and
contribution of Receivables hereunder shall include the transfer to the
Purchaser of all of the relevant Seller's right and title to and interest in the
records relating to such Receivables and shall include an irrevocable non-
exclusive license to the use of such Seller's computer software system to access
and create such records. Such license shall be without royalty or payment of
any kind, is coupled with an interest, and shall be irrevocable until all of the
Transferred Receivables are either collected in full or become Defaulted
Receivables.
Each Seller shall take such action requested by the Purchaser, from
time to time hereafter, that may be necessary or appropriate to ensure that the
Purchaser has an enforceable ownership interest in the records relating to the
Transferred Receivables and rights (whether by ownership, license or sublicense)
to the use of such Seller's computer software system to access and create such
records.
In recognition of each Seller's need to have access to the records
transferred to the Purchaser hereunder, the Purchaser hereby grants to each
Seller an irrevocable license to access such records in connection with any
activity arising in the ordinary course of such Seller's business or in
performance of its duties as Servicer, provided that (i) such Seller shall not
disrupt or otherwise interfere with the Purchaser's use of and access to such
records during such license period and (ii) such Seller consents to the
assignment and delivery of the records (including any information contained
therein relating to such Seller or its operations) to any assignees or
transferees of the Purchaser provided they agree to hold such records
confidential.
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ARTICLE VII
EVENTS OF TERMINATION
SECTION 7.01. Events of Termination. If any of the following events
("Events of Termination") shall occur and be continuing:
(a) A Servicer Default shall have occurred; or
(b) Any Seller, any Affiliate of any Seller, or any designee of any
Seller, as the case may be, shall fail (i) to transfer to the Purchaser
when requested any rights which such Seller, such Affiliate or such
designee, as the case may be, then has as Servicer within ten Business Days
of the Purchaser's giving the notice referred to in Section 6.01(b)
designating a new Servicer to succeed such Seller, such Affiliate or such
designee, as the case may be, as Servicer, or (ii) to comply with the
requirements of Section 2.03(b); or
(c) Any representation or warranty made or deemed made by any Seller
or Interco under or in connection with this Agreement, the Original PCA or
the Interco Agreement or any information or report delivered by any Seller
or Interco under or in connection with this Agreement, the Original PCA or
the Interco Agreement or any Monthly Report or other information or report
delivered pursuant hereto or thereto or the Interco Agreement shall prove
to have been incorrect or untrue in any material respect when made or
deemed made or delivered and (if correctable) shall remain incorrect or
untrue for ten days after the earlier of actual knowledge by such Seller or
Interco, as the case may be, of such incorrectness or untruth or written
notice to such Seller or Interco thereof, as the case may be; or
(d) (i) Any Seller shall fail to perform or observe any covenant
contained in Section 5.01, paragraph (a), (b), (d), (e), (f) or (g) of this
Agreement and any such failure shall remain unremedied for twenty days
after the earlier of such Seller's actual knowledge thereof or written
notice to such Seller thereof, or (ii) any Seller or Interco shall fail to
perform or observe any other term, covenant or agreement contained in this
Agreement or the Interco Agreement (other than as described in paragraph
(a) above or clause (i) of this paragraph (d)) or in any other agreement
delivered in connection herewith on such Seller's or Interco's part to be
performed or observed and any such failure shall remain unremedied for ten
days after the
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earlier of such Seller's or Interco's actual knowledge thereof or written
notice thereof shall have been given by the Purchaser to such Seller or
Interco, as the case may be; or
(e) Any Seller or Interco or any of its Subsidiaries shall fail to pay
any principal of or premium or interest on any of its Indebtedness which is
outstanding in a principal amount of at least $10,000,000 in the aggregate
when the same becomes due and payable (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise), or any other event
shall occur or condition shall exist under any agreement or instrument
relating to any such Indebtedness, and such failure to pay, event or
condition shall continue after the applicable grace period, if any,
specified in such agreement or instrument, and as a result thereof, the
maturity of such Indebtedness is accelerated; or any such Indebtedness
shall be declared to be due and payable, or required to be prepaid in full
(other than by a regularly scheduled required prepayment), redeemed,
purchased or defeased, or an offer to repay, redeem, purchase or defease
such Indebtedness in full shall be required to be made, in each case prior
to the final stated maturity thereof; or any such Indebtedness shall fail
to be paid at the final stated maturity thereof; or
(f) Any Purchase or contribution of Receivables hereunder, the Related
Security with respect thereto, and the Collections with respect thereto,
shall for any reason cease to constitute valid and perfected ownership of
such Receivables, Related Security and Collections free and clear of any
Adverse Claim except as provided for herein; provided, however, that no
Event of Termination shall occur under this paragraph (f) if (i) the
aggregate Outstanding Balance of the Receivables described above in this
paragraph (f) does not exceed $250,000 at any time and (ii) the relevant
Seller or Sellers repurchase all of such Receivables in accordance with the
terms of Section 2.04(b) on or prior to the next Settlement Date; or
(g) Any Seller or Interco shall make a general assignment for the
benefit of creditors; or any proceeding shall be instituted by or against
any Seller or Interco seeking to adjudicate it a bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors,
or seeking the entry of an order for relief or the appointment of a
receiver, trustee, custodian or other similar official for it or for
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any substantial part of its property and, in the case of any such
proceeding instituted against any Seller or Interco (but not instituted by
any of them), either such proceeding shall remain undismissed or unstayed
for a period of 30 days, or any of the actions sought in such proceeding
(including, without limitation, the entry of an order for relief against,
or the appointment of a receiver, trustee, custodian or other similar
official for, it or for any substantial part of its property) shall occur;
or any Seller or Interco shall take any corporate action to authorize any
of the actions set forth above in this subsection (g); or
(h) an Event of Termination shall have occurred under the CL Sale
Agreement; or
(i) Interco shall cease to own, directly or indirectly, a number of
shares of any Seller sufficient to elect a majority of the board of
directors of such Seller;
then, and in any such event, the Purchaser may, by notice to the Sellers,
declare the Facility Termination Date to have occurred, except that, in the case
of any event described above in subsection (g) with respect to any Seller, the
Facility Termination Date shall be deemed to have occurred automatically upon
the occurrence of such event. Upon any such termination of the Facility, the
Purchaser shall have, in addition to all the rights and remedies under this
Agreement, all other rights and remedies with respect to the Receivables
provided after default under the UCC of the applicable jurisdiction and under
other applicable laws, which rights and remedies shall be cumulative.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.01. Indemnities by the Sellers. Without limiting any other
rights which the Purchaser may have hereunder or under applicable law, the
Sellers hereby jointly and severally agree to indemnify the Purchaser and its
assigns and transferees (each, an "Indemnified Party") 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 Indemnified Party arising out of or as a result of:
(i) reliance on any representation or warranty made by any Seller
under or in connection with this Agreement, any Monthly Report or any other
information or report delivered
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by any Seller pursuant hereto, which shall have been incorrect in any
material respect when made;
(ii) the failure by any Seller to comply with any applicable law, rule
or regulation with respect to any Receivable originated by such Seller or
the related Contract; or the failure of any Receivable or the related
Contract to conform to any such applicable law, rule or regulation;
(iii) the failure to vest in the Purchaser absolute ownership of the
Receivables that are, or that purport to be, the subject of a Purchase or
contribution under this Agreement and the Related Security and Collections
in respect thereof, free and clear of any Adverse Claim;
(iv) the failure of any Seller to have filed, 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 Receivables that are, or that purport to be, the subject of a Purchase
under this Agreement and the Related Security and Collections in respect
thereof, whether at the time of any Purchase or at any subsequent time;
(v) the existence of any dispute, claim, offset or defense (other
than discharge in bankruptcy of the Obligor) of the Obligor to the payment
thereof (including, without limitation, a defense based on such Receivable
or the related Contract not being a legal, valid and binding obligation of
such Obligor enforceable against it in accordance with its terms), or of
any other claim resulting from the sale of the products or services related
to such Receivable or from the furnishing or failure to furnish such
products or services; provided, however, this clause (v) shall not be
deemed to include any dispute, claim, set-off or defense to the payment of
any Receivable arising after the transfer of such Receivable to the
Purchaser hereunder and arising solely as a result of actions taken by the
Purchaser or its assigns;
(vi) any failure of any Seller, as Servicer or otherwise, to perform
its duties or obligations in accordance with the provisions of Article VI
or to perform its duties or obligations under any Contract related to a
Transferred Receivable;
(vii) any products liability or other claim arising out of or in
connection with merchandise, insurance or services which are the subject of
any Contract;
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(viii) any commingling of Collections of Receivables by any Seller, an
Affiliate of any Seller, or a designee of any Seller, as Servicer or
otherwise, at any time with other funds of such Seller or an Affiliate;
(ix) any investigation, litigation or proceeding related to this
Agreement or the use of proceeds of Purchases or the ownership of
Receivables, or the Related Security, or Collections with respect thereto
or in respect of any Receivable, Related Security or Contract;
(x) any claim brought by any Person other than an Indemnified Party
arising from any activity by any Seller or any Affiliate thereof in
servicing, administering or collecting any Receivable; or
(xi) any Dilution with respect to any Transferred Receivable.
It is expressly agreed and understood by the parties (i) that the foregoing
indemnification is not intended to, and shall not, constitute a guarantee of the
collectibility or payment of the Transferred Receivables and (ii) that nothing
in this Section 8.01 shall require any Seller to indemnify any Indemnified Party
(A) for Receivables which are not collected, not paid or uncollectible on
account of the insolvency, bankruptcy, or financial inability to pay of the
applicable Obligor, (B) for damages, losses, claims or liabilities or related
costs or expenses resulting from such Indemnified Party's gross negligence or
willful misconduct, (C) for any income tax or franchise tax imposed on such
Indemnified Party by (i) the jurisdiction under the laws of which such
Indemnified Party is organized (or any political subdivision thereof), (ii) any
jurisdiction in which an office of such Indemnified Party maintaining the
ownership of the Transferred Receivables is located (or any political
subdivision thereof), or (iii) any jurisdiction in which such Indemnified Party
is already subject to tax, and arising out of or as a result of this Agreement
or in respect of any Receivable or any Contract.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Amendments, Etc. No amendment or waiver of any
provision of this Agreement nor consent to any departure by any Seller therefrom
shall in any event be effective unless the same shall be in a writing signed by
the Purchaser and, in the case of an amendment, the Sellers, and then such
amendment,
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waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.
SECTION 9.02. Notices, Etc. (a) All notices and other
communications provided for hereunder shall, unless otherwise stated herein, be
in writing (including facsimile communication) and be telefaxed or delivered, to
each party hereto, at its address set forth under its name on the signature
pages hereof or at such other address as shall be designated by such party in a
written notice complying with the requirements of this Section 9.02 to the other
parties hereto.
(b) Notices and communications by facsimile shall be effective upon
confirmation (which may be verbal) of receipt.
SECTION 9.03. No Waiver; Remedies. No failure on the part of the
Purchaser 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 any remedies provided by law.
SECTION 9.04. Binding Effect; Assignability. (a) This Agreement
shall be binding upon and inure to the benefit of the Sellers, the Purchaser and
their respective successors and assigns; provided, however, that no Seller may
assign its rights or obligations hereunder or any interest herein without the
prior written consent of the Purchaser. In connection with any sale or
assignment by the Purchaser of all or a portion of the Transferred Receivables,
the buyer or assignee, as the case may be, shall, to the extent of its purchase
or assignment, have all rights of the Purchaser under this Agreement (as if such
buyer or assignee, as the case may be, were the Purchaser hereunder) except to
the extent specifically provided in the agreement between the Purchaser and such
buyer or assignee, as the case may be.
(b) 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 such time, after the Facility Termination Date,
when all of the Transferred Receivables are either collected in full or become
Defaulted Receivables; provided, however, that rights and remedies with respect
to any breach of any representation and warranty made by any Seller pursuant to
Article IV and the provisions of Article VIII and Sections 9.06, 9.07 and 9.08
shall be continuing and shall survive any termination of this Agreement.
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SECTION 9.05. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, EXCEPT TO
THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE PURCHASER'S OWNERSHIP OF OR
SECURITY INTEREST IN THE RECEIVABLES, OR REMEDIES HEREUNDER IN RESPECT THEREOF,
ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK.
SECTION 9.06. Costs, Expenses and Taxes. (a) In addition to the
rights of indemnification granted to the Purchaser pursuant to Article VIII
hereof, the Sellers jointly and severally shall pay on demand all costs and
expenses in connection with the preparation, execution, delivery and
administration of this Agreement and the other documents to be delivered
hereunder, including, without limitation, the reasonable fees and out-of-pocket
expenses of counsel for the Purchaser with respect thereto and with respect to
advising the Purchaser as to its rights and remedies under this Agreement, and
the Sellers jointly and severally agree to pay all costs and expenses, if any
(including reasonable counsel fees and expenses), in connection with the
enforcement of this Agreement and the other documents to be delivered hereunder
excluding, however, any costs of enforcement or collection of Transferred
Receivables.
(b) In addition, the Sellers jointly and severally agree to pay any
and all stamp and other taxes and fees payable in connection with the execution,
delivery, filing and recording of this Agreement or the other documents to be
delivered hereunder, and the Sellers jointly and severally agree to indemnify
the Purchaser against any liabilities with respect to or resulting from any
delay in paying or omission to pay such taxes and fees.
SECTION 9.07. No Proceedings. Each Seller hereby agrees that it will
not institute against the Purchaser any proceeding of the type referred to in
Section 7.01(g) so long as there shall not have elapsed one year plus one day
since the later of (i) the Facility Termination Date and (ii) the date upon
which all of the Transferred Receivables are either collected in full or become
Defaulted Receivables.
SECTION 9.08. Confidentiality. The Purchaser agrees to use
reasonable efforts to keep confidential any financial reports or other
information relating to the Transferred Receivables previously or from time to
time supplied to it by the Sellers hereunder to the extent that such information
is not and does not become publicly available through or with the consent or
acquiescence of the relevant Seller and will use such financial reports and
other information only in connection with the
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transactions contemplated by this Agreement and for no other purpose, provided
that the Purchaser may disclose any such information (a) to any party to the CL
Sale Agreement and any agreement executed in connection therewith, (b) to the
extent required by applicable law, (c) to counsel for any party to the CL Sale
Agreement and any agreement executed in connection therewith, or to their
respective accountants, each of whom shall also be bound by the confidentiality
obligations set forth herein, (d) to agents, examiners and auditors and
appropriate government examining authorities, (e) to the extent necessary or
appropriate in connection with any litigation to which the Purchaser or any
party to the CL Sale Agreement and any agreement executed in connection
therewith, is a party or (f) to any actual or prospective holder, participant in
or assignee of all or any part of the Transferred Receivables provided that each
such actual or prospective holder, participant or assignee has agreed in writing
that it will comply with the restrictions contained in this Section 9.08 to the
same extent as if it were the Purchaser. The determination by the Purchaser as
to the application of the circumstances described in the foregoing clauses (a)
through (f) shall be conclusive if made in good faith.
SECTION 9.09. Independent Decision. Each Seller acknowledges that it
has, independently and without reliance upon the Purchaser and based upon such
documents and information as it has deemed appropriate, made its own analysis
and decision to enter into this Agreement.
SECTION 9.10. Third Party Beneficiary. Each of the parties hereto
hereby acknowledges that the Purchaser may assign all or any portion of its
rights under this Agreement and the Interco Agreement and that such assignees
may (except as otherwise agreed to by such assignees) further assign their
rights under this Agreement and the Interco Agreement, and each Seller hereby
consents to any such assignments. All such assignees, including parties to the
CL Sale Agreement in the case of assignment to such parties, shall be third
party beneficiaries of, and shall be entitled to enforce the Purchaser's rights
and remedies under, this Agreement and the Interco Agreement to the same extent
as if they were parties thereto, except to the extent specifically limited under
the terms of their assignment.
SECTION 9.11. Execution in Counterparts, Etc. (a) This Agreement may
be executed in any number of counterparts and by 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.
54
<PAGE>
(b) Delivery of an executed counterpart of a signature page to this
Agreement by facsimile shall be effective as delivery of a manually executed
counterpart of this Agreement.
55
<PAGE>
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.
SELLERS: THE LANE COMPANY, INCORPORATED
By: David P. Howard
------------------------------
Name: David P. Howard
Title: Vice President
Address:
The Lane Company, Incorporated
c/o Interco Incorporated
101 South Hanley Road
St. Louis, Missouri 63105
Attention: Lynn Chipperfield,
Assistant Secretary
Facsimile No.: (314) 863-5306
ACTION INDUSTRIES, INC.
By: David P. Howard
------------------------------
Name: David P. Howard
Title: Vice President
Address:
Action Industries, Inc.
c/o Interco Incorporated
101 South Hanley Road
St. Louis, Missouri 63105
Attention: Lynn Chipperfield,
Assistant Secretary
Facsimile No.: (314) 863-5306
56
<PAGE>
BROYHILL FURNITURE INDUSTRIES, INC.
BY: David P. Howard
------------------------------
Name: David P. Howard
Title: Vice President
Address:
Broyhill Furniture Industries, Inc.
c/o Interco Incorporated
101 South Hanley Road
St. Louis, Missouri 63105
Attention: Lynn Chipperfield,
Assistant Secretary
Facsimile No.: (314) 863-5306
THOMASVILLE FURNITURE INDUSTRIES, INC.
By: David P. Howard
------------------------------
Name:
Title:
Address:
Thomasville Furniture Industries, Inc.
c/o Interco Incorporated
101 South Hanley Road
St. Louis, Missouri 63105
Attention: Lynn Chipperfield,
Assistant Secretary
Facsimile No.: (314) 863-5306
57
<PAGE>
PURCHASER: INTERCO RECEIVABLES CORP.
By: Lynn Chipperfield
-----------------------------
Name: Lynn Chipperfield
Title: Vice President
Address:
Interco Receivables Corp.
101 South Hanley Road
St. Louis, Missouri 63105
Attention: Lynn Chipperfield,
Secretary
Facsimile No.: (314) 863-5306
58
<PAGE>
EXHIBIT 10(c)
CONSULTING AGREEMENT
--------------------
CONSULTING AGREEMENT made and entered into as of this 23rd day of
September, 1992, by and between INTERCO INCORPORATED, a Delaware corporation
("INTERCO"), and APOLLO ADVISORS, L.P., a Delaware limited partnership (the
"Advisor"). INTERCO and its subsidiaries are referred to herein collectively as
the "Companies."
RECITALS
--------
A. The Advisor has certain knowledge and experience in corporate
management and financial matters.
B. INTERCO desires to avail itself of the Advisor's expertise for the
benefit of the Companies and is willing to do so on the terms and conditions set
forth herein.
C. The Advisor is willing to render services to the Companies on the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. Retention of Advisor.
--------------------
(a) Subject to the terms and conditions of this Agreement, INTERCO
hereby retains the Advisor, and the Advisor hereby agrees to render services to
the Companies, as a consultant in respect of the business of the Companies.
(b) The Advisor shall at all times be and conduct itself as an
independent contractor in respect of the Companies, and shall not, under any
circumstances, create or purport to create any obligation on behalf of the
Companies.
2. Duties of Advisor. The Advisor shall provide corporate advisory,
-----------------
financial and other consulting services with respect to the affairs and
activities of the Companies in the ordinary course of their businesses, at such
times and from time to time as reasonably requested by the Companies. Such
services for the Companies, shall include participation in periodic operational
reviews of the Companies and assistance in the determination of the business
strategies of the operating Companies. Upon the request of INTERCO, the Advisor
shall also provide advice as to (i) the direction of
<PAGE>
financial markets, (ii) changes in interest rates, (iii) international business
trends, and (iv) alternative sources of financing. The Advisor shall have the
full cooperation of management to review and make recommendations concerning all
material business transactions of whatever type effected or proposed to be
effected by the Companies, and to review and make recommendations concerning all
matters relating to the manner, method and timing of corporate financing and
other transactions. This Agreement shall not preclude the payment of additional
compensation to the Advisor for services performed by the Advisor that are
beyond the scope of the Advisor's duties hereunder, provided that the parties
agree in advance in writing that the Advisor is entitled to any such additional
compensation.
3. Confidentiality. All confidential information concerning the
---------------
Companies that is obtained by the Advisor in the course of its activities under
the Agreement shall be maintained as confidential and will not be disclosed to
any other person or entity (other than to partners, affiliates, employees,
agents or representatives of the Advisor who agree to maintain the
confidentiality thereof), except as may be required by law.
4. Fees. As consideration for the Advisor's services hereunder, INTERCO
----
shall pay the Advisor a fee for each full fiscal year of the Company at the
annual rate of $650,000. The fee shall accrue from the effective date of
INTERCO's Plan of Reorganization and be payable in equal monthly installments in
advance with the first such payment to be made on October 1, 1992, and
subsequent payments to be made on the first day of each month thereafter,
provided that if a Default or an Event of Default (as defined in INTERCO's
credit agreements or other debt instruments) shall have occurred and be
continuing on the scheduled date of such payment, such payment may be deferred
by INTERCO until such Default or Event of Default is cured or waived.
5. Expenses. All reasonable out-of-pocket expenses incurred by the
--------
Advisor in connection with the Advisor's services hereunder shall be borne by
INTERCO or reimbursed to the Advisor.
6. Duration. This Agreement shall become effective as of the date hereof
--------
and shall continue in effect until December 31, 1993, but this Agreement shall
thereafter automatically renew for successive one-year terms unless written
notice of termination is given by INTERCO to the Advisor at the direction of
members of the Board of Directors who would be entitled to approve this
Agreement at the time such notice is given or by the Advisor to INTERCO, in each
case at least 120 days prior to the close of the then-current one-year period.
7. Notices. All notices relating to this Agreement shall be in writing
-------
and shall be addressed to the other party at its address stated below, or to
such changed address as the other party may have been given by notice. All
notices shall be effective upon receipt.
-2-
<PAGE>
If to INTERCO:
INTERCO INCORPORATED
101 South Hanley Road
St. Louis, MO 63015
FAX: 314/863-5306
Attn: Secretary
If to the Advisor:
Apollo Advisors, L.P.
Two Manhattanville Road
Purchase, NY 10577
FAX: 914/694-8032
8. Binding Effect; Assignability. This Agreement shall be binding upon
-----------------------------
and shall inure to the benefit of the parties hereto and their respective
successors. This Agreement and the rights and obligations hereunder shall not
be assignable or delegable by the parties hereto.
9. Indemnification. INTERCO agrees to indemnify and hold harmless the
---------------
Advisor, the partners of the Advisor, and their agents, employees and affiliates
from and against all claims, actions or demands that arise out of this Agreement
and the services provided hereunder or in connection herewith and any expenses
(including reasonable attorneys' fees), losses or damages resulting from such
claims, actions and demands, including amounts paid in settlement or compromise
thereof; provided, however, that this indemnity shall not extend to conduct of
such indemnified parties not undertaken in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the Companies.
10. Entire Agreement. This Agreement sets forth the entire agreement
----------------
between the parties relating to the subject matter hereof. None of the terms,
covenants or conditions hereof may be waived or amended except by a written
instrument signed by the party to be charged therewith.
11. Governing Law. This Agreement shall be governed in all respects by
-------------
the law of the State of Delaware.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
INTERCO INCORPORATED
By: /s/ Richard B. Loynd
--------------------------------------
Chairman
APOLLO ADVISORS, L.P.
By: Apollo Capital Management, Inc.,
general partner
By: /s/ Michael S. Gross
--------------------------------------
Vice President
-4-
<PAGE>
FIRST AMENDMENT
TO
CONSULTING AGREEMENT
--------------------
This First Amendment to the Consulting Agreement is made this 20th day of
February 1995 by and between INTERCO INCORPORATED (hereinafter "INTERCO") and
Apollo Advisors, L.P. (hereinafter "Advisor").
WHEREAS, INTERCO and Advisor entered into a Consulting Agreement dated
September 23, 1992 and are desirous of amending said agreement in the respects
hereinafter noted;
NOW THEREFORE, and in consideration of the mutual covenants herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree to amend the
Consulting Agreement as follows:
1. The annual consulting fees noted in Paragraph 4 of the Consulting Agreement
in the amount of $650,000 are hereby reduced effective March 1, 1995 to
$500,000.
2. All other terms, conditions and agreements contained in said Consulting
Agreement shall remain and continue to be effective.
IN WITNESS WHEREOF, the parties have executed this First Amendment as of
the date first set forth above.
INTERCO INCORPORATED
By: /s/ Richard B. Loynd
---------------------------------------
Chairman of the Board, President
and Chief Executive Officer
APOLLO ADVISORS, L.P.
By: Apollo Capital Management, Inc.,
general partner
By: /s/ Michael S. Gross
---------------------------------------
Vice President
<PAGE>
Exhibit 10(e)
INTERCO INCORPORATED
Summary of Terms of Bonus Plan
------------------------------
BONUS PLAN WITH
THE LANE COMPANY, INCORPORATED
A bonus plan was in effect during the calendar year ended December 31, 1995
whereby all management personnel of The Lane Company, Incorporated, including K.
Scott Tyler, were entitled to receive a bonus equal to a predetermined
percentage of the pre-tax earnings of The Lane Company, Incorporated.
<PAGE>
Exhibit 11
INTERCO INCORPORATED
STATEMENT RE COMPUTATION OF NET EARNINGS PER COMMON SHARE
---------------------------------------------------------
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
December 31, December 31, December 31,
1995 1994 1993
Primary: ------------ ------------ ------------
<S> <C> <C> <C>
Weighted average common shares outstanding during the
period.................................................... 50,114,034 50,035,868 50,001,110
Common shares issuable on exercise of stock options (1)..... 524,545 789,958 850,349
Common shares issuable on exercise of warrants (2).......... - 669,006 523,991
Weighted average common and common equivalent shares ---------- ---------- ----------
outstanding for primary calculation....................... 50,638,579 51,494,832 51,375,450
========== ========== ==========
Fully diluted:
Weighted average common and common equivalent shares
outstanding for primary calculation....................... 50,638,579 51,494,832 51,375,450
Common shares issuable on exercise of stock options (3)..... 242,985 11,519 21,216
Common shares issuable on exercise of warrants (4).......... 1,435,163 - -
Weighted average common and common equivalent shares ---------- ---------- ----------
outstanding for fully diluted calculation................. 52,316,727 51,506,351 51,396,666
========== ========== ==========
</TABLE>
<PAGE>
INTERCO INCORPORATED
NOTES TO STATEMENT RE COMPUTATION OF NET EARNINGS PER COMMON SHARE
(1) Includes common stock options, the exercise of which would result in
dilution of net earnings per common share. Such common stock options have
been considered as exercised and the proceeds therefrom were used to
purchase common stock at the average common stock market price, if the
average common stock market price was higher than the common stock option
exercise price during the period.
(2) Includes common stock warrants, the exercise of which would result in
dilution of net earnings per common share. Such common stock warrants have
been considered as exercised and the proceeds therefrom were used to
purchase common stock at the average common stock market price, if the
average common stock market price was higher than the common stock warrant
exercise price during the period.
(3) Additional common shares issuable resulting from the application of the
same principles described in Note (i), except that the proceeds from
assumed common stock options exercised were used to purchase common stock
at the month end common stock market price, if the month end common stock
market price was higher than the average common stock market price during
the period.
(4) Additional common shares issuable resulting from the application of the
same principles described in Noter (2), except that the proceeds from
assumed common stock warrants exercised were used to purchase common stock
at the month end common stock market price, if the month end common stock
market price was higher than the average common stock market price during
the period.
<PAGE>
Exhibit 21
List of Subsidiaries of INTERCO
<TABLE>
<CAPTION>
Jurisdiction of
Name of Subsidiary Incorporation
------------------ ---------------
<S> <C>
Action Transport, Inc. Delaware
Action Industries, Inc. Virginia
Broyhill Furniture Industries, Inc. North Carolina
Broyhill Transport, Inc. North Carolina
Fayette Enterprises, Inc. Mississippi
Gordon's, Inc. Delaware
Interco Receivables Corp. Delaware
Interfashions Industries, Inc., S.A. Costa Rica
Lane Advertising, Inc. Virginia
The Lane Company, Incorporated Virginia
Textilera Tres Rios, S.A. Costa Rica
Thomasville Furniture Latin America, S.A. Panama
Thomasville Furniture Industries, Inc. Pennsylvania
Thomasville Home Furnishings, Inc. Delaware
Thomasville Upholstery, Inc. Delaware
</TABLE>
<PAGE>
EXHIBIT 23
Independent Auditors' Consent
The Board of Directors
INTERCO INCORPORATED:
We consent to incorporation by reference in registration statement (No.
33-65714) on Form S-8 of INTERCO INCORPORATED of our report dated January 30,
1996, relating to the consolidated balance sheets of INTERCO INCORPORATED and
subsidiaries as of December 31, 1994 and 1995, and the related consolidated
statements of operations, shareholders' equity, and cash flows and related
schedule for each of the years in the three-year period ended December 31, 1995,
which report appears in the December 31, 1995 annual report on Form 10-K of
INTERCO INCORPORATED.
KPMG Peat Marwick LLP
St. Louis, Missouri
February 1, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 26,412
<SECURITIES> 0
<RECEIVABLES> 296,840
<ALLOWANCES> 20,724
<INVENTORY> 269,677
<CURRENT-ASSETS> 590,093
<PP&E> 389,429
<DEPRECIATION> 83,023
<TOTAL-ASSETS> 1,291,739
<CURRENT-LIABILITIES> 135,057
<BONDS> 705,040
<COMMON> 50,120
0
0
<OTHER-SE> 218,156
<TOTAL-LIABILITY-AND-EQUITY> 1,291,739
<SALES> 1,073,889
<TOTAL-REVENUES> 1,073,889
<CGS> 760,393
<TOTAL-COSTS> 760,393
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,672
<INTEREST-EXPENSE> 33,845
<INCOME-PRETAX> 57,038
<INCOME-TAX> 22,815
<INCOME-CONTINUING> 34,223
<DISCONTINUED> 0
<EXTRAORDINARY> (5,815)
<CHANGES> 0
<NET-INCOME> 28,408
<EPS-PRIMARY> 0.56
<EPS-DILUTED> 0.54
</TABLE>
