<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 6, 1996
REGISTRATION NO. 333-13427
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
FURNITURE BRANDS INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 43-0337683
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
101 SOUTH HANLEY ROAD
ST. LOUIS, MISSOURI 63105
(314) 863-1100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
----------------
LYNN CHIPPERFIELD, ESQUIRE
VICE-PRESIDENT, GENERAL COUNSEL AND SECRETARY
FURNITURE BRANDS INTERNATIONAL, INC.
101 SOUTH HANLEY ROAD
ST. LOUIS, MISSOURI 63105
(314) 863-1100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S AGENT FOR SERVICE OF PROCESS)
----------------
COPIES OF ALL COMMUNICATIONS TO:
PETER S. SARTORIUS, ESQUIRE JOHN T. GAFFNEY, ESQUIRE
MORGAN, LEWIS & BOCKIUS LLP CRAVATH, SWAINE & MOORE
2000 ONE LOGAN SQUARE WORLDWIDE PLAZA
PHILADELPHIA, PENNSYLVANIA 19103 825 EIGHTH AVENUE
(215) 963-5000 NEW YORK, NEW YORK 10019-7475
(212) 474-1122
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable on or after this Registration Statement is
declared effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUBJECT TO COMPLETION, DATED NOVEMBER 6, 1996
12,000,000 SHARES
[LOGO OF FURNITURE BRANDS INTERNATIONAL APPEARS HERE]
COMMON STOCK
--------
[LOGO] Broyhill Lane Thomasville
All of the shares of Common Stock, no par value (the "Common Stock"), of
Furniture Brands International, Inc. (the "Company") offered hereby are being
sold by the Selling Stockholders, as defined herein. The Company will not
receive any of the proceeds from the sale of the Common Stock offered hereby.
Of the 12,000,000 shares of Common Stock offered hereby, a total of 9,600,000
shares are being offered hereby for sale in the United States and Canada (the
"U.S. Offering") by the U.S. Underwriters (as defined) and a total of 2,400,000
shares are being offered by the Managers (as defined) in a concurrent
international offering outside the United States and Canada (the "International
Offering" and, together with the U.S. Offering, the "Offerings"). The Common
Stock is listed on the New York Stock Exchange under the symbol "FBN." On
November 5, 1996, the last reported sale price of the Common Stock on the New
York Stock Exchange was $12 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND SELLING
PUBLIC COMMISSIONS(1) STOCKHOLDERS(2)
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- ---------------------------------------------------------------------
Total(3) $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) For information regarding indemnification of the U.S. Underwriters and
the Managers, see "Underwriting."
(2) Before deducting expenses estimated at $ payable by the Company.
(3) The Selling Stockholders have granted the U.S. Underwriters a 30-day
option to purchase up to 1,800,000 additional shares of Common Stock
solely to cover over-allotments, if any. If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions
and Proceeds to the Selling Stockholders will be $ , $ and $ ,
respectively.
--------
The shares of Common Stock are being offered by the several U.S. Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
November , 1996, at the office of Smith Barney Inc., 333 West 34th Street, New
York, New York 10001.
--------
SMITH BARNEY INC.
CS FIRST BOSTON
DILLON, READ & CO. INC.
MERRILL LYNCH & CO.
WHEAT FIRST BUTCHER SINGER
November , 1996
<PAGE>
[BROYHILL LOGO APPEARS HERE]
[ARTWORK APPEARS HERE] [ARTWORK APPEARS HERE]
Fontana has combined the best Broyhill products include a wide variety
elements of European antiques of styles, one of which is the classic
and American country classics 18th century Cherry Hill collection shown
to make it the leading with traditional-style upholstery.
collection in the American
Casual category and one of the
most popular designs in
Broyhill's history.
[ARTWORK APPEARS HERE] [ARTWORK APPEARS HERE]
A strong consumer advertising program
has established Broyhill as the best-
known brand of any full-line
manufacturer. Stylish advertising
featuring popular Broyhill collections
appears in numerous consumer magazines
such as Better Homes and Gardens,
House Beautiful and HOME.
Broyhill Premier offers retailers
versatile and stylish collections
targeted to consumers who are seeking
the details and refinements usually
found in products from higher-end
manufacturers as demonstrated by the
Center Place dining room.
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-
COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE>
[LOGO OF LANE APPEARS HERE]
[ARTWORK APPEARS HERE] [ARTWORK APPEARS HERE]
Lane Upholstery joins Lane in the Cedar chests were Lane's first
launch of all major collections. product line and have been
Being able to offer both wood and continuously promoted and nationally
upholstered product for a "complete advertised in leading consumer
collection" is an advantage Lane has magazines.
over many of its competitors.
[ARTWORK APPEARS HERE] [ARTWORK APPEARS HERE]
Venture's WeatherMaster collection Hickory Chair offers consumers many
continues to capture an increasing fine traditional collections,
share of the market. The compelling including its most famous -- the
benefit to the consumer is the historical James River collection,
patented cushions that are very now in its 55th year. There are over
comfortable yet allow water to pass 1,750 styles in the Hickory Chair
right through for quick drying. line for living rooms, dining rooms
and bedrooms.
[ARTWORK APPEARS HERE] [ARTWORK APPEARS HERE]
Editors look to Lane as an industry Many retailers consider Pearson a
leader for new and exciting leader in traditional designs and
merchandise to share with their fabrics, capturing looks that are
readers. Lane's Hudson River Views popular today. The trend now is
collection was selected for Country toward comfortable, casual living as
Living's House of the Year in their depicted in this national ad
February 1996 issue. setting.
<PAGE>
[LOGO OF ACTION FURNITURE BY LANE APPEARS HERE]
[ARTWORK APPEARS HERE]
As the leading manufacturer of motion furniture, Action Lane offers a variety of
styles ranging from traditional to transitional and from country to
contemporary. Options include fully reclining love seats, supportive sleep
sofas, sofas with fully reclining end units, and modular units that can be
designed to fit any shape.
[ARTWORK APPEARS HERE] [ARTWORK APPEARS HERE]
Action Lane has introduced the Action Lane's latest addition to its
new Snuggler series, which features recliner line is the new and
a chair and a half design scaled innovative Premier Glider Recliner.
to fit into smaller spaces than The glider mechanism has been
a love seat or sofa and reinvented to offer smoother, more
offers the added convenience comfortable gliding action in
of a hidden twin-size bed. reclining chairs.
---------------------
DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS
PARTICIPATING IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN
ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS IN THE COMMON STOCK PURSUANT TO
EXEMPTIONS FROM RULES 10b-6, 10b-7, and 10b-8 UNDER THE SECURITIES EXCHANGE
ACT OF 1934.
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain information appearing elsewhere in this
Prospectus. Reference is made to, and this summary is qualified in its entirety
by, the more detailed information and financial statements, including the notes
thereto, contained elsewhere or incorporated by reference in this Prospectus.
As used in this Prospectus, unless the context indicates otherwise, (i) the
"Company" refers to Furniture Brands International, Inc. and its subsidiaries,
(ii) "Broyhill" refers to Broyhill Furniture Industries, Inc. and its
subsidiaries, (iii) "Lane" refers to The Lane Company Incorporated and its
subsidiaries, (iv) "Thomasville" refers to Thomasville Furniture Industries,
Inc. and its subsidiaries and (v) "Action Industries" refers to Action
Industries, Inc., a subsidiary of Lane. Unless otherwise indicated, the
information in this Prospectus assumes that the U.S. Underwriters' over-
allotment option is not exercised.
THE COMPANY
The Company believes that it is the largest manufacturer of residential
furniture in the United States based on revenues. The Company markets its
products under three of the best known brand names in the industry--Broyhill,
Lane and Thomasville. The Company is a quality and style leader across a broad
spectrum of price categories from "premium" priced home furnishings to lower
priced ready-to-assemble ("RTA") furniture. The Company distributes its
products through a diverse network of national, regional and local retailers,
including the largest system of independently-owned dedicated retail outlets in
the residential furniture industry. Management believes that the acquisition of
Thomasville in December 1995 significantly enhances the Company's competitive
strengths and positions the Company to increase its market share, sales and
earnings.
The Company is organized into three primary operating subsidiaries of similar
size which target particular product and price categories as described below:
BROYHILL. Broyhill is a leader in the "good" and "better" price categories,
which are two of the largest segments of the residential furniture market.
Management believes Broyhill is the largest manufacturer of residential
furniture under one brand name, and Broyhill has been rated the number one
brand in the industry in terms of brand awareness by several recent consumer
surveys. The Company believes that the Broyhill Fontana collection has been the
best selling furniture collection in the industry for the last three years.
Broyhill distributes its products through an extensive distribution network of
more than 6,200 independently-owned retail locations, including approximately
330 dedicated Broyhill Showcase Galleries and approximately 425 dedicated
Broyhill Furniture Centers.
LANE. Lane manufactures specialty products for niche markets in the "better,"
"best" and "premium" price categories. Lane is the largest domestic
manufacturer of cedar chests. In addition, Lane, through Action Industries, its
largest operating unit, is the largest manufacturer of motion furniture and the
second largest manufacturer of recliners in the United States. Lane is one of
the most widely recognized brands in the residential furniture industry and has
established a reputation for innovative marketing and quality designs. Lane
distributes its products through an extensive distribution network of more than
16,000 independently-owned retail locations, including approximately 280
dedicated furniture galleries.
THOMASVILLE. Thomasville is the largest residential furniture manufacturer
under one brand name in the "premium" price category and manufactures furniture
which embodies the widely recognized "Thomasville Look" for both the "best" and
"premium" price categories. Thomasville has been rated the "highest quality"
brand by several recent consumer surveys. Management believes that the
Collector's Cherry and the Mahogany Collection have consistently been among the
best selling collections in the industry. Thomasville distributes its products
through approximately 635 independently-owned retail locations, including
approximately 245
3
<PAGE>
dedicated Thomasville Galleries and approximately 80 free-standing Thomasville
Home Furnishings stores, which exclusively feature Thomasville furniture. The
company also produces a separate line of lower priced RTA and promotional
furniture.
The Company believes that in addition to its substantial size relative to
most of its competitors, the Company's competitive strengths include its: (i)
widely recognized brand names; (ii) broad range of product offerings across all
price categories; (iii) extensive distribution networks, including dedicated
galleries located in independently-owned retail locations; (iv) innovative,
high quality products; (v) highly efficient, low cost manufacturing
capabilities; and (vi) experienced management teams. Management believes that
these competitive strengths position the Company to continue to increase its
market share in the highly-fragmented residential furniture manufacturing
industry.
GROWTH STRATEGY
The Company seeks to grow both sales and profits and increase its market
share by means of the following strategies:
ENHANCING BRAND NAME STRENGTH. Brand name recognition is a critical factor in
consumer purchases of furniture. The Company believes that consumer recognition
of its brand names is a key to increasing its market share. The Company has
three of the six most recognized brand names in the residential furniture
industry--Broyhill, Lane and Thomasville. The Company is committed to continue
to strengthen its brand names through advertising in various media including
network and cable television and highly read consumer magazines such as People,
Reader's Digest, Sports Illustrated, Architectural Digest and Better Homes and
Gardens among several others, in addition to its dealer cooperative advertising
program.
EXPANDING DEDICATED DISTRIBUTION CHANNELS. Dedicated distribution outlets,
such as galleries, tend to have higher sales per square foot and faster
inventory turns than non-gallery locations. The Company has generated increased
sales volume by distributing its products through independently-owned dedicated
retail outlets. In addition, the Company believes that it strengthens its
manufacturer/retailer alliances through gallery relationships. The Company
continues to expand these distribution channels by attracting additional
retailers in new and existing geographic markets to participate in the
Company's gallery programs. Furthermore, the Company is expanding the network
of free-standing Thomasville Home Furnishings stores.
INCREASING SALES TO NATIONAL AND LARGE REGIONAL RETAILERS. The Company is
well positioned to benefit from the increasing presence of national and large
regional retailers in the residential furniture industry. According to
Furniture/Today, in 1995 the top 10 furniture retailers represented 16% of
total sales versus 10% in 1985. The Company's overall size, breadth of product,
strength of brands and national scope of distribution enable it to service
national retailers, such as J.C. Penney, Sears, Levitz and Heilig-Meyers, and
key regional companies, such as Breuner's, Haverty's and Roberds, more
effectively than the Company's smaller competitors. The Company intends to
continue to build its relationships with these key retailers.
PENETRATING NEW MARKETS. The Company is actively pursuing sales opportunities
in new markets. In the United States, management is targeting key furniture
retailers in important geographic territories, particularly portions of the
West Coast and New England. In addition, the Company has developed a program
designed to increase sales to the contract market, which includes hotels,
motels and health care facilities. The Company is also actively pursuing the
international export market, particularly Canada, Europe, Japan and the Middle
East, where the Company believes there are significant opportunities for
growth.
4
<PAGE>
EMPHASIZING NEW AND GROWING PRODUCT AREAS. The Company emphasizes development
of new high margin products in growing product areas. For example, the Company
has become a leader in the fast growing motion furniture and recliner segments.
The Company has also introduced a sleeper sofa incorporating a unique sleep
deck designed to be more comfortable, both as a sofa and a bed, than
competitive product offerings. Furthermore, the Company is currently designing
innovative new products for the growing home office and home entertainment
center markets.
CAPITALIZING ON DEMOGRAPHIC TRENDS. Management believes that demographic
trends will continue to drive long-term growth in the furniture industry. In
particular, as "baby boomers" (people born between 1946 and 1964) mature to the
35-64 year age group over the next decade, they will be reaching their highest
earnings power. It is currently estimated that the 35-64 year age group will
increase by approximately 11 million persons by the year 2000. According to
Furniture/Today, such age group includes the largest consumers of residential
furniture. Furthermore, statistics show that the average size of new homes has
increased in recent years, which generally results in increased purchases of
furniture per home. The Company believes that it is well positioned to
capitalize on these demographic trends as a result of its broad range of
product offerings and widely-recognized brand names.
MAXIMIZING OPERATING MARGINS. The Company's Gross Profit Management Program
consists of twelve specific "building blocks" that management uses in its
strategic and operational planning to maximize gross profit margins and,
thereby, provide the Company with additional funds for purposes such as
increased advertising and product development. These "building blocks" include
continuous product profitability review, new product introductions, pricing
strategies and management incentive programs. Management believes that this
program has contributed to the Company achieving among the highest EBITDA (as
hereinafter defined) margins of publicly-owned U.S. residential furniture
manufacturing companies in recent years. Management believes opportunities
exist to increase the EBITDA margins of its operating companies through
continued implementation of the Gross Profit Management Program. The Company
has recently initiated this program at Thomasville, from which it expects to
benefit beginning in 1997.
EXPANDING OPERATING COMPANY COORDINATION. The Company has historically
managed its operating units on a stand-alone basis. Increasingly since the
acquisition of Thomasville, the Company has concentrated on enhancing the
coordination among its operating companies. As a result of this enhanced
coordination, the Company has begun to achieve operating efficiencies and
believes it has the opportunity to further improve operating efficiencies and
results. These opportunities include (i) cost savings generated through volume
purchasing; (ii) reductions in future capital expenditures through better
utilization of existing capacity; (iii) complementary sales and marketing
activities; (iv) joint international sourcing; and (v) shared operating
experience and expertise.
RECENT DEVELOPMENTS
SUCCESSION. On October 1, 1996, Wilbert G. (Mickey) Holliman became President
and Chief Executive Officer of the Company. Mr. Holliman was previously
President and Chief Executive Officer of Action Industries, a subsidiary of the
Company, which he founded over 25 years ago. Since the founding of Action
Industries, Mr. Holliman built this start-up company into an industry leader,
with compound sales and earnings growth of approximately 20% a year and total
sales that approach $400 million annually. In addition, Action Industries has
consistently been one of the most profitable operating units of the Company.
Under Mr. Holliman's leadership, Action Industries entered the motion furniture
business five years ago and has become the largest manufacturer of motion
furniture in the United States through innovative marketing and new product
introductions. The Company believes that Mr. Holliman's leadership and industry
experience will enable it to continue to execute successfully its established
growth strategies.
5
<PAGE>
RECENT FINANCIAL RESULTS. Fully diluted net earnings per share before an
extraordinary item were $0.22 and $0.59 for the three and nine months ended
September 30, 1996, representing increases of 83.3% and 55.3%, respectively,
over the comparable periods in 1995. Net sales increased 6.7% to $417.9 million
for the three months ended September 30, 1996 and 4.9% to $1,262.6 million for
the nine months ended September 30, 1996 over the comparable periods in 1995 on
a pro forma basis assuming that Thomasville had been acquired at the beginning
of 1995. In the three and nine months ended September 30, 1996, EBITDA
increased 26.7% and 14.9%, respectively, to $47.0 million and $135.3 million,
respectively, over the comparable periods in 1995 on a pro forma basis assuming
that Thomasville had been acquired at the beginning of 1995. As a percentage of
net sales, for the three and nine months ended September 30, EBITDA increased
to 11.2% and 10.7%, respectively, in 1996, as compared to 9.5% and 9.8%,
respectively, in 1995 on a pro forma basis assuming that Thomasville had been
acquired at the beginning of 1995. The Company's order backlog at September 30,
1996 was $213.5 million, which represents a 9.4% increase over the previous
year, pro forma for the acquisition of Thomasville.
CREDIT AGREEMENT AND ACCOUNTS RECEIVABLE SECURITIZATION REFINANCING. On
September 6, 1996, the Company completed a refinancing (the "1996 Refinancing")
involving execution of a new secured credit agreement ("Secured Credit
Agreement") and modifications to its accounts receivable securitization
facility ("Receivables Securitization Facility"). The 1996 Refinancing will
result in a substantial reduction in interest expense, which, at current debt
levels, will favorably affect annual results by approximately $3.7 million, or
$0.05-$0.06 per share.
WARRANT REDEMPTION AND REPURCHASES. On July 30, 1996 the Company announced
that its Board of Directors authorized the repurchase of the Company's
outstanding Common Stock and Series 1 Warrants in a total amount up to $30
million over the next 12 months (the "1996 Warrant Repurchase") , subject to
restrictions in the Company's secured credit agreement. As of September 30,
1996, the Company had repurchased a total of 3,212,392 Series 1 Warrants for an
aggregate purchase price of approximately $18.7 million, and there were
2,043,131 Series 1 Warrants remaining outstanding. Additionally, in June,
following a call by the Company of its Series 2 Warrants, substantially all of
the outstanding Series 2 Warrants were either exercised or repurchased in
negotiated transactions. The Company estimates that the foregoing repurchases
will favorably affect annual results by approximately $0.02 per share.
THE OFFERINGS
<TABLE>
<S> <C>
Common Stock offered in
the Offerings:
U.S. Offering......... 9,600,000 shares(1)
International
Offering............. 2,400,000 shares
Total............... 12,000,000 shares(1)
Common Stock
outstanding............ 61,426,281 shares(2)
Use of proceeds......... All of the proceeds from the sale of the shares will be
received by the Selling Stockholders
New York Stock Exchange
symbol................. FBN
</TABLE>
- --------
(1) Excludes 1,800,000 shares that may be offered under an over-allotment
option granted by the Selling Stockholders. See "Underwriting."
(2) Excludes, as of September 30, 1996, 5,918,007 shares of Common Stock
issuable pursuant to warrants or stock options, consisting of 2,043,131
shares issuable pursuant to warrants exercisable at $7.13 per share and
3,874,876 shares issuable pursuant to management stock options, 1,330,850
of which are currently exercisable.
6
<PAGE>
Information contained or incorporated by reference in this Prospectus
contains "forward-looking statements" which can be identified by the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should," or "anticipates" or the negative thereof or other variations thereon
or comparable terminology, or by discussions of strategy. See, e.g., "Growth
Strategy" and "Recent Developments" in this Prospectus Summary, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business-Growth Strategy." No assurance can be given that the future results
covered by the forward-looking statements will be achieved. The Risk Factors
beginning on page 10 constitute cautionary statements identifying important
factors with respect to such forward-looking statements, including certain
risks and uncertainties, that could cause actual results to vary materially
from the future results covered in such forward-looking statements. Other
factors could also cause actual results to vary materially from the future
results covered in such forward-looking statements. The Company undertakes no
obligation to publicly release any revisions to these forward-looking
statements to reflect any future events or occurrences.
----------------
The Company was incorporated in Delaware in 1921. Its principal executive
offices are located at 101 South Hanley Road, St. Louis, Missouri 63105-3493,
and its telephone number at such location is (314) 863-1100.
7
<PAGE>
SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
DATA
The following summary consolidated historical and pro forma condensed
consolidated financial data of the Company are derived from and should be read
in connection with the historical consolidated financial statements of the
Company (the "Consolidated Financial Statements") and Thomasville and the pro
forma condensed consolidated financial information and the notes thereto of the
Company, in each case included elsewhere or incorporated by reference in this
Prospectus. The pro forma condensed consolidated financial and other data is
presented for comparative purposes only and is not necessarily indicative of
the combined results of operations in the future or of what the combined
results of operations would have been had the transactions assumed therein been
consummated at the beginning of the period for which the statement is
presented. In addition, the pro forma condensed consolidated statement of
operations does not give effect to profit improvement opportunities, if any,
which may be realized by the Company as a result of the acquisition of
Thomasville.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------- -------------------
1995
1993 1994 1995 PRO FORMA(1) 1995 1996
-------- ---------- ---------- ------------ -------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.............. $980,532 $1,072,696 $1,073,889 $1,624,116 $794,866 $1,262,610
Costs and expenses:
Cost of operations..... 685,749 752,528 760,393 1,190,142 562,479 913,207
Selling, general and
administrative
expenses.............. 186,205 199,333 198,321 271,423 149,101 214,038
Depreciation and
amortization(2)....... 34,455 35,776 36,104 52,053 28,387 41,411
-------- ---------- ---------- ---------- -------- ----------
Earnings from
operations............ 74,123 85,059 79,071 110,498 54,899 93,954
Interest expense....... 38,621 37,886 33,845 52,010 25,409 35,672
Other income, net:
Gain on insurance
settlement(3)......... -- -- 7,882 7,882 -- --
Other.................. 1,764 1,668 3,930 4,103 3,352 1,978
-------- ---------- ---------- ---------- -------- ----------
Earnings before income
tax expense,
discontinued
operations and
extraordinary item.... 37,266 48,841 57,038 70,473 32,842 60,260
Income tax expense..... 15,924 20,908 22,815 28,308 13,416 23,467
-------- ---------- ---------- ---------- -------- ----------
Net earnings from
continuing
operations(4)......... $ 21,342 $ 27,933 $ 34,223 $ 42,165 $ 19,426 $ 36,793
======== ========== ========== ========== ======== ==========
Net earnings from
continuing operations
before gain on
insurance settlement,
net of income tax
expense(3)(4)......... $ 21,342 $ 27,933 $ 29,463 $ 37,404 $ 19,426 $ 36,793
======== ========== ========== ========== ======== ==========
Per share of common
stock--fully diluted:
Net earnings from
continuing
operations(4)......... $ 0.41 $ 0.54 $ 0.65 $ 0.68 $ 0.38 $ 0.59(5)
======== ========== ========== ========== ======== ==========
Net earnings from
continuing operations
before gain on
insurance settlement,
net of income tax
expense(3)(4)......... $ 0.41 $ 0.54 $ 0.56 $ 0.60 $ 0.38 $ 0.59(5)
======== ========== ========== ========== ======== ==========
Weighted average common
shares outstanding
(fully diluted) (in
thousands)............ 51,397 51,506 52,317 62,317 51,404 62,765
OTHER DATA:
Earnings from
operations............ $ 74,123 $ 85,059 $ 79,071 $ 110,498 $ 54,899 $ 93,954
Depreciation and
amortization:
1992 Asset Revaluation
(fresh-start)......... 16,463 16,900 15,922 15,922 11,836 12,277
Excess of cost over net
assets acquired....... -- -- -- 2,644 -- 1,706
-------- ---------- ---------- ---------- -------- ----------
Adjusted earnings from
operations............ 90,586 101,959 94,993 129,064 66,735 107,937
Depreciation and
amortization (other
than fresh-start and
excess of cost over
net assets acquired).. 17,992 18,876 20,182 33,487 16,551 27,428
-------- ---------- ---------- ---------- -------- ----------
EBITDA (earnings from
operations before
depreciation and
amortization)(6)...... $108,578 $ 120,835 $ 115,175 $ 162,551 $ 83,286 $ 135,365
======== ========== ========== ========== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................... $ 26,412 $ 21,456
Working capital..................................... 455,036 459,312
Total assets........................................ 1,291,739 1,268,565
Long-term debt, including current maturities........ 723,679 579,400
Total shareholders' equity.......................... 301,156 402,941
</TABLE>
8
<PAGE>
- --------
(1) Pro forma to reflect the acquisition of Thomasville and the consummation
of the Company's public offering of 10,000,000 shares of common stock
completed on March 1, 1996 (the "1996 Company Equity Sale") and the
application of the net proceeds therefrom, as if such transactions
occurred on January 1, 1995.
(2) 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 Statement of Position
("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. Fair value adjustments
included the write up of property, plant and equipment, trademarks and
reorganization value in excess of identifiable assets. Due to the
significance of these items, management believes that it is useful to
isolate their impact on the statement of operations as shown below. This
information does not represent and should not be considered an alternative
to net earnings, any other measure of performance as determined by
generally accepted accounting principles or as an indicator of operating
performance. See "Intangible Assets" in Note 3 to the Company's
Consolidated Financial Statements and related notes included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
--------------------------------------- --------------------
1995
1993 1994 1995 PRO FORMA 1995 1996
-------- -------- -------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Depreciation and
amortization--
fresh-start............ $(16,463) $(16,900) $(15,922) $(15,922) $ (11,836) $ (12,277)
After-tax impact on net
earnings............... (12,799) (13,051) (12,470) (12,470) (9,247) (9,515)
Impact on earnings per
share-fully diluted.... (0.25) (0.25) (0.24) (0.20) (0.18) (0.15)
</TABLE>
(3) Gain on insurance settlement related to the November 1994 fire at the
Company's particleboard plant.
(4) 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 the Company's
shareholders. The financial results of the Footwear Segment are reported
as discontinued operations, and as such the Company's historical results
of operations were restated.
(5) Had the 1996 Refinancing, the 1996 Company Equity Sale and the 1996 Warrant
Repurchase been accomplished at the beginning of 1996, earnings as shown
for the nine months ended September 30, 1996 would have been $0.63 per
share.
(6) EBITDA is defined as earning from operations before depreciation and
amortization and therefore does not include other income, net. EBITDA is
not intended to represent cash flows for the period as measured in
accordance with generally accepted accounting principles. Nor has it been
presented as an alternative to net income from operations as an indicator
of operating performance, and it should not be considered in isolation or
as a substitute for measures of performance prepared in accordance with
generally accepted accounting principles. EBITDA is presented solely as
supplemental disclosure because the Company believes that it is a good
measure of the operating cash flow generated by the Company to enable it
to make capital expenditures and meet its other obligations. The Company
believes that EBITDA may be a better indicator for this purpose than
earnings from operations because of the significant fresh-start
depreciation and amortization charges described in Note 2 above. Because
all companies and analysts do not calculate EBITDA in an identical manner,
however, EBITDA as presented above may not necessarily be comparable to
similarly-titled measures of other companies. See "Selected Consolidated
Historical and Pro Forma Financial Information" for other measures of cash
flows.
9
<PAGE>
RISK FACTORS
Prospective purchasers should carefully consider the following factors,
together with other information contained and incorporated by reference in
this Prospectus, in evaluating an investment in the shares of Common Stock.
ECONOMIC CONDITIONS
The furniture industry historically has been cyclical, fluctuating with
general economic cycles. During economic downturns, the furniture industry
tends to experience longer periods of recession and greater declines than the
general economy. The Company believes that the industry is significantly
influenced by economic conditions generally and particularly by consumer
behavior and confidence, the level of personal discretionary spending, housing
activity, interest rates, credit availability, demographics and overall
consumer confidence. These factors not only affect the ultimate consumer, but
also impact retailers, the Company's primary direct customers. There can be no
assurance that a prolonged economic downturn would not have a material adverse
effect on the Company. See "Business."
COMPETITION
The residential furniture manufacturing business is highly competitive and
fragmented. Because of the Company's broad product lines, its products compete
with products made by a number of major furniture manufacturers. The elements
of competition include pricing, styling, quality and marketing. See
"Business--Competition."
LEVERAGE
The Company has a capital structure that contains leverage. The Company's
Secured Credit Agreement consists of a reducing revolving credit facility
totaling $475 million. In addition, the Company has the Receivables
Securitization Facility of $225 million. As of September 30, 1996, the
Company's debt totaled approximately $579 million, and the Company's debt to
equity ratio on that date was 1.44:1. This substantial indebtedness could
reduce the Company's ability to respond to changing business and economic
conditions by impairing access to additional financing and requiring a
significant portion of the Company's cash flow from operations to be used to
service debt. The ability of the Company to further reduce its debt and
increase its equity will be dependent upon the future performance of the
Company, which will be subject to prevailing economic conditions and to
financial, business and other factors, including factors beyond the control of
the Company that affect its business and operations. In February 1996, in
order to reduce the impact of changes in interest rates on its floating rate
long-term debt, the Company entered into three-year interest rate swap
agreements having a total notional amount of $300 million.
RESTRICTIVE COVENANTS IN CERTAIN DEBT INSTRUMENTS
The Secured Credit Agreement to which the Company is a party contains a
number of covenants that restrict, among other things, the ability of the
Company to incur additional indebtedness, make capital expenditures, pay
dividends, repurchase capital stock, create liens, dispose of certain assets,
enter into sale and leaseback transactions, or engage in mergers. In addition,
under the Secured Credit Agreement, the Company is required to maintain
certain interest coverage and other financial ratios. Unfavorable operating
results could affect the Company's ability to pay debt service on its
outstanding indebtedness or to meet its debt covenants. The indebtedness under
the Secured Credit Agreement is secured by most of the assets of the Company.
Among other consequences, the terms of the Secured Credit Agreement could
increase the Company's vulnerability to adverse general economic conditions
and could impair the Company's ability to obtain additional financing in the
future and to take advantage of significant business opportunities that may
arise.
10
<PAGE>
GOVERNMENTAL REGULATIONS
The Company's operations must meet federal, state, and local regulatory
standards in the areas of safety, health, and environmental pollution
controls. Historically, these standards have not had any material adverse
effect on the Company's sales or operations. If the Company fails to comply
with such regulations, the Company could be subject to liability ranging from
monetary damages to injunctive action, which could adversely affect the
Company. Future changes to such regulations could also have a material adverse
effect on the Company. See "Business--Environmental Matters."
CONTROLLING STOCKHOLDERS
Apollo Investment Fund, L.P. ("Apollo") and Lion Advisors, L.P., on behalf
of an investment account under management ("Lion"), which are the Selling
Stockholders, together beneficially own approximately 55.1% of the outstanding
Common Stock of the Company, and will still beneficially own approximately
35.6% of the outstanding Common Stock of the Company after the Offerings.
Apollo and Lion are affiliated companies. By reason of their ownership of
shares of Common Stock, Apollo and Lion currently have, and will continue to
have after the Offerings, the power effectively to control or influence
control of the Company, including in elections of the Board of Directors and
other matters submitted to a vote of the Company's stockholders, including
extraordinary corporate transactions. Apollo and Lion may exercise such
control from time to time. A majority of the Board of Directors consists of
individuals associated with affiliates of Apollo and Lion. See "Management"
and "Selling Stockholders."
SHARES ELIGIBLE FOR FUTURE SALE
The Company, certain of its officers and directors and the Selling
Stockholders have agreed not to sell any shares of Common Stock other than the
shares offered hereby, for a period of 120 days following the consummation of
the Offerings without the prior written consent of Smith Barney Inc., as
representative of the Underwriters. After expiration of the lock-up period,
the Company, such officers and directors and the Selling Stockholders may sell
shares of Common Stock without regard to any such limitations. The sale of a
substantial number of shares by such persons could adversely affect the market
price of the Common Stock.
ABSENCE OF DIVIDENDS
The Company does not anticipate paying any cash dividends in the foreseeable
future, and the Secured Credit Agreement to which the Company is a party
restricts the payment of dividends. See "Price Range of Common Stock and
Dividend Policy."
ANTI-TAKEOVER PROVISIONS
The Company's Restated Certificate of Incorporation contains certain
provisions, including authorization to issue "blank check" preferred stock
("Preferred Stock"), prohibition of stockholder action by written consent and
the requirement of 75% ("supermajority") stockholder vote to alter, amend,
repeal or adopt certain provisions of the Restated Certificate of
Incorporation. In addition, the Company's Restated Certificate of
Incorporation contains provisions limiting the ability of any person who is
the beneficial owner of more than 10% of the outstanding voting stock to
effect certain transactions involving the Company unless approved by a
majority of the Disinterested Directors (as defined in the Restated
Certificate of Incorporation of the Company). Such provisions could impede any
merger, consolidation, takeover or other business combination involving the
Company or discourage a potential acquiror from making a tender offer or
otherwise attempting to obtain control of the Company. See "Description of
Capital Stock."
11
<PAGE>
USE OF PROCEEDS
All of the shares of Common Stock being offered hereby are being offered by
the Selling Stockholders. The Company will not receive any of the proceeds
from the sale of such shares.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is listed and traded on the New York Stock
Exchange under the symbol "FBN." The following table sets forth for the
periods indicated the high and low sales prices of the Common Stock, as
reported on the New York Stock Exchange Composite Tape.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1994:
Fourth Quarter (November 21 through December 31)............... $8 3/8 $6 1/8
1995:
First Quarter.................................................. 7 1/4 5 3/4
Second Quarter................................................. 6 7/8 5 5/8
Third Quarter.................................................. 8 1/8 5 1/2
Fourth Quarter................................................. 9 1/4 7
1996:
First Quarter.................................................. 10 1/4 8 1/4
Second Quarter................................................. 12 1/8 9
Third Quarter.................................................. 14 5/8 9 3/4
Fourth Quarter (through November 5, 1996)...................... 15 12
</TABLE>
The price range of the Common Stock prior to November 21, 1994 has not been
included because on November 17, 1994 the Company distributed to its
stockholders all the stock of its former footwear subsidiaries, Converse Inc.
and The Florsheim Shoe Company. November 21, 1994 was the first day of trading
reflecting such distribution and prices prior to November 21, 1994 are not
comparable.
On November 5, 1996, the last reported sale price of the Common Stock on the
New York Stock Exchange was $12 per share. As of September 30, 1996 there were
approximately 3,000 holders of record of the Company's Common Stock.
The Company does not anticipate paying any cash dividends in the foreseeable
future, and the Secured Credit Agreement to which the Company is a party
restricts the payment of dividends. Any future payment of dividends will
depend upon the financial condition, capital requirements and earnings of the
Company, as well as upon other factors that the Board of Directors may deem
relevant.
12
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of September 30, 1996. The information in the table below is
qualified in its entirety by, and should be read in conjunction with, the
Consolidated Financial Statements of the Company included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Cash and cash equivalents............................... $ 21,456
=========
Secured credit agreement................................ $ 365,000
Receivables securitization facility..................... 200,000
Other................................................... 14,400
---------
Long-term debt, including current maturities........ 579,400
---------
Shareholders' equity:
Preferred stock, 10,000,000 shares authorized, no par
value, none issued and outstanding................... --
Common stock, 100,000,000 shares authorized, $1.00
stated value (no par value), 61,426,281 shares issued
and outstanding...................................... 61,426
Paid-in capital....................................... 279,273
Retained earnings..................................... 62,242
---------
Total shareholders' equity.......................... 402,941
---------
Total capitalization.................................... $ 982,341
=========
</TABLE>
13
<PAGE>
SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following selected consolidated historical financial data of the Company
should be read in conjunction with the Consolidated Financial Statements and
related notes included elsewhere and incorporated by reference in this
Prospectus. The selected consolidated historical financial data as of December
31, 1994 and 1995, and for the years ended December 31, 1993, 1994 and 1995
are derived from the Consolidated Financial Statements of the Company, which
have been audited by KPMG Peat Marwick LLP, independent certified public
accountants, as indicated in the report included elsewhere and incorporated by
reference in this Prospectus. The selected pro forma condensed consolidated
financial data as of December 31, 1995 and for the year then ended are derived
from the pro forma condensed consolidated financial information of the Company
which have been examined by KPMG Peat Marwick LLP, independent certified
public accountants, as indicated in the report included elsewhere in this
Prospectus.
The selected consolidated financial data for the nine months ended September
30, 1995 and September 30, 1996 are unaudited but include all adjustments
(consisting of normal recurring adjustments) which the management of the
Company considers necessary for a fair presentation of the results of the
periods. The results for the nine months ended September 30, 1996 are not
necessarily indicative of the results to be expected for the full year.
In 1992, the Company was required to adopt "fresh-start" reporting
principles in accordance with AICPA SOP 90-7, "Financial Reporting by Entities
in Reorganization under the Bankruptcy Code," which resulted in the
revaluation of all assets and liabilities to reflect the Company's estimated
reorganization value.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
---------------------------------------------- --------------------
1995
1993 1994 1995 PRO FORMA(1) 1995 1996
-------- ---------- ---------- ------------ -------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.............. $980,532 $1,072,696 $1,073,889 $1,624,116 $794,866 $1,262,610
Costs and expenses:
Cost of operations.... 685,749 752,528 760,393 1,190,142 562,479 913,207
Selling, general and
administrative
expenses............. 186,205 199,333 198,321 271,423 149,101 214,038
Depreciation and
amortization(2)...... 34,455 35,776 36,104 52,053 28,387 41,411
-------- ---------- ---------- ---------- -------- ----------
Earnings from
operations............ 74,123 85,059 79,071 110,498 54,899 93,954
Interest expense....... 38,621 37,886 33,845 52,010 25,409 35,672
Other income, net:
Gain on insurance
settlement(3)......... -- -- 7,882 7,882 -- --
Other.................. 1,764 1,668 3,930 4,103 3,352 1,978
-------- ---------- ---------- ---------- -------- ----------
Earnings before income
tax expense,
discontinued
operations and
extraordinary item.... 37,266 48,841 57,038 70,473 32,842 60,260
Income tax expense..... 15,924 20,908 22,815 28,308 13,416 23,467
-------- ---------- ---------- ---------- -------- ----------
Net earnings from
continuing
operations(4)......... $ 21,342 $ 27,933 $ 34,223 $ 42,165 $ 19,426 $ 36,793
======== ========== ========== ========== ======== ==========
Net earnings from
continuing operations
before gain on
insurance settlement,
net of income tax
expense(3)(4)......... $ 21,342 $ 27,933 $ 29,463 $ 37,404 $ 19,426 $ 36,793
======== ========== ========== ========== ======== ==========
Per share of common
stock--fully diluted:
Net earnings from
continuing
operations(4)......... $ 0.41 $ 0.54 $ 0.65 $ 0.68 $ 0.38 $ 0.59(5)
======== ========== ========== ========== ======== ==========
Net earnings from
continuing operations
before gain on
insurance settlement,
net of income tax
expense(3)(4)......... $ 0.41 $ 0.54 $ 0.56 $ 0.60 $ 0.38 $ 0.59(5)
======== ========== ========== ========== ======== ==========
Weighted average common
and common equivalent
shares outstanding--
fully diluted (in
thousands)............ 51,397 51,506 52,317 62,317 51,404 62,765
OTHER DATA:
Gross profit(6)........ $275,323 $ 298,712 $ 291,237 $ 399,308 $214,305 $ 320,846
======== ========== ========== ========== ======== ==========
Earnings from
operations............ $ 74,123 $ 85,059 $ 79,071 $ 110,498 $ 54,899 $ 93,954
Depreciation and
amortization:
1992 Asset Revaluation
(fresh-start)......... 16,463 16,900 15,922 15,922 11,836 12,277
Excess of cost over net
assets acquired....... -- -- -- 2,644 -- 1,706
-------- ---------- ---------- ---------- -------- ----------
Adjusted earnings from
operations............ 90,586 101,959 94,993 129,064 66,735 107,937
Depreciation and
amortization (other
than fresh-start and
excess of cost over
net assets acquired).. 17,992 18,876 20,182 33,487 16,551 27,428
-------- ---------- ---------- ---------- -------- ----------
EBITDA (earnings from
operations before
depreciation and
amortization)(7)...... $108,578 $ 120,835 $ 115,175 $ 162,551 $ 83,286 $ 135,365
======== ========== ========== ========== ======== ==========
Net cash provided by
continuing operating
activities............ $ 43,026 $ 22,016 $ 91,990 $ 67,859 $ 95,173
======== ========== ========== ======== ==========
Net cash used by
investing activities.. $(29,839) $ (15,487) $ (370,535) $(12,164) $ (21,790)
======== ========== ========== ======== ==========
Net cash provided
(used) by financing
activities............ $(20,898) $ 7,502 $ 272,812 $(26,465) $ (78,339)
======== ========== ========== ======== ==========
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------- AT SEPTEMBER 30,
1994 1995 1996
-------- ---------- ----------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................ $ 32,145 $ 26,412 $ 21,456
Working capital.......................... 308,323 455,036 459,312
Total assets............................. 881,735 1,291,739 1,268,565
Long-term debt, including current
maturities.............................. 426,253 723,679 579,400
Total shareholders' equity............... 275,394 301,156 402,941
</TABLE>
- --------
(1) Pro forma to reflect the acquisition of Thomasville, the consummation of
the 1996 Company Equity Sale and the application of the proceeds therefrom
as if such transactions occurred on January 1, 1995.
(2) 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. Fair value adjustments included the write
up of property, plant and equipment, trademarks and reorganization value in
excess of identifiable assets. Due to the significance of these items,
management believes that it is useful to isolate their impact on the
statement of operations as shown below. This information does not represent
and should not be considered an alternative to net earnings, any other
measure of performance as determined by generally accepted accounting
principles or as an indicator of operating performance. See "Intangible
Assets" in Note 3 to the Company's Consolidated Financial Statements and
related notes included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------ ------------------
1995
1993 1994 1995 PRO FORMA(1) 1995 1996
-------- -------- -------- ------------ -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Depreciation and
amortization--fresh-
start.................. $(16,463) $(16,900) $(15,922) $(15,922) $(11,836) $(12,277)
After-tax impact on net
earnings............... (12,799) (13,051) (12,470) (12,470) (9,247) (9,515)
Impact on earnings per
share--fully diluted... (0.25) (0.25) (0.24) (0.20) (0.18) (0.15)
</TABLE>
(3) Gain on insurance settlement related to the November 1994 destruction of
the Company's particleboard plant.
(4) 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 the Company's
shareholders. The financial results of the Footwear Segment are reported as
discontinued operations, and as such the Company's historical results of
operations were restated.
(5) Had the 1996 Refinancing, the 1996 Company Equity Sale and the 1996 Warrant
Repurchase been accomplished at the beginning of 1996, earnings as shown
for the nine months ended September 30, 1996 would have been $0.63 per
share.
(6) 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. Pro forma
information reflects the adjustments set forth in footnote 1.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- -----------------
1995
1993 1994 1995 PRO FORMA(1) 1995 1996
------ -------- -------- ------------ -----------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $980.5 $1,072.7 $1,073.9 $1,624.1 $ 794.9 $ 1,262.6
Cost of operations...... 685.7 752.5 760.4 1,190.1 562.5 913.2
Depreciation (associated
with cost of goods
sold).................. 19.5 21.5 22.3 34.7 18.1 28.6
------ -------- -------- -------- ------- ---------
Gross profit............ $275.3 $ 298.7 $ 291.2 $ 399.3 $ 214.3 $ 320.8
====== ======== ======== ======== ======= =========
</TABLE>
(7) EBITDA is defined as earning from operations before depreciation and
amortization and therefore does not include other income, net. EBITDA is
not intended to represent cash flows for the period as measured in
accordance with generally accepted accounting principles. Nor has it been
presented as an alternative to net income from operations as an indicator
of operating performance, and it should not be considered in isolation or
as a substitute for measures of performance prepared in accordance with
generally accepted accounting principles. EBITDA is presented solely as
supplemental disclosure because the Company believes that it is a good
measure of the operating cash flow generated by the Company to enable it to
make capital expenditures and meet its other obligations. The Company
believes that EBITDA may be a better indicator for this purpose than
earnings from operations because of the significant fresh-start
depreciation and amortization charges described in Note 2 above. Because
all companies and analysts do not calculate EBITDA in an identical manner,
however, EBITDA as presented above may not necessarily be comparable to
similarly-titled measures of other companies.
15
<PAGE>
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 Prospectus. In
addition, management believes that the following factors have had a
significant effect on its recent financial statements. The historical
financial statements of the Company presented herein do not reflect the impact
of the 1996 Refinancing or the repurchases of Series 1 Warrants, which were
accomplished in the third quarter of 1996. See "Financial Condition and
Liquidity" herein.
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 for approximately $339 million,
consisting of $331 million in cash and $8 million in assumed indebtedness. 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 originally financed through funds obtained
by borrowing under the Company's secured credit agreement and the Receivables
Securitization Facility. On March 1, 1996, the Company completed a public
offering of 10,000,000 Shares of Common Stock, generating net cash proceeds of
approximately $81.3 million, which were used to repay a portion of this debt.
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. The impact of such
adjustments is that pro forma earnings per share is $0.20 less than it would
have been without "fresh-start" reporting. See "Selected Consolidated
Historical and Pro Forma Financial Information--Impact of 1992 Asset
Revaluation (Fresh-Start Reporting)."
16
<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
statement of operations and other data for fiscal 1993, 1994 and 1995 and the
nine months ended September 30, 1995 and September 30, 1996. The results for
these periods (other than the nine months ended September 30, 1996) do not
include any of the operations of Thomasville.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------- ----------------------------------
1993 1994 1995 1995 1996
---------------- ----------------- ----------------- ---------------- -----------------
% OF NET % OF NET % OF NET % OF NET % OF NET
DOLLARS SALES DOLLARS SALES DOLLARS SALES DOLLARS SALES DOLLARS SALES
------- -------- -------- -------- -------- -------- ------- -------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $980.5 100.0% $1,072.7 100.0% $1,073.9 100.0% $794.9 100.0% $1,262.6 100.0%
Cost of operations...... 685.7 69.9 752.5 70.2 760.4 70.8 562.5 70.8 913.2 72.3
Selling, general and
administrative
expenses............... 186.2 19.0 199.3 18.6 198.3 18.5 149.1 18.7 214.0 17.0
Depreciation and
amortization........... 34.5 3.5 35.8 3.3 36.1 3.3 28.4 3.6 41.4 3.3
------ ----- -------- ----- -------- ----- ------ ----- -------- -----
Earnings from
operations............. 74.1 7.6 85.1 7.9 79.1 7.4 54.9 6.9 94.0 7.4
Interest expense........ 38.6 3.9 37.9 3.5 33.9 3.2 25.4 3.2 35.7 2.8
Other income, net:
Gain on insurance
settlement............ -- -- -- -- 7.9 0.7 -- -- -- --
Other.................. 1.8 0.1 1.6 0.1 3.9 0.4 3.3 0.4 2.0 0.2
------ ----- -------- ----- -------- ----- ------ ----- -------- -----
Earnings before income
tax expense,
discontinued operations
and extraordinary
item................... 37.3 3.8 48.8 4.5 57.0 5.3 32.8 4.1 60.3 4.8
Income tax expense...... 15.9 1.6 20.9 1.9 22.8 2.1 13.4 1.7 23.5 1.9
------ ----- -------- ----- -------- ----- ------ ----- -------- -----
Net earnings from
continuing operations.. $ 21.4 2.2% $ 27.9 2.6% $ 34.2 3.2% $ 19.4 2.4% $ 36.8 2.9%
====== ===== ======== ===== ======== ===== ====== ===== ======== =====
Gross profit(1)......... $275.3 28.1% $ 298.7 27.8% $ 291.2 27.1% $214.3 27.0% $ 320.8 25.4%
EBITDA (earnings from
operations before
depreciation and
amortization)(2)....... 108.6 11.1 120.9 11.3 115.2 10.7 83.3 10.5 135.4 10.7
</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.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ ---------------
1993 1994 1995 1995 1996
------ -------- -------- ------ --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales......................... $980.5 $1,072.7 $1,073.9 $794.9 $1,262.6
Cost of operations................ 685.7 752.5 760.4 562.5 913.2
Depreciation (associated with cost
of goods sold)................... 19.5 21.5 22.3 18.1 28.6
------ -------- -------- ------ --------
Gross profit...................... $275.3 $ 298.7 $ 291.2 $214.3 $ 320.8
====== ======== ======== ====== ========
</TABLE>
(2) EBITDA is defined as earning from operations before depreciation and
amortization and therefore does not include other income, net. EBITDA is
not intended to represent cash flows for the period as measured in
accordance with generally accepted accounting principles. Nor has it been
presented as an alternative to net income from operations as an indicator
of operating performance, and it should not be considered in isolation or
as a substitute for measures of performance prepared in accordance with
generally accepted accounting principles. EBITDA is presented solely as
supplemental disclosure because the Company believes that it is a good
measure of the operating cash flow generated by the Company to enable it to
make capital expenditures and meet its other obligations. The Company
believes that EBITDA may be a better indicator for this purpose than
earnings from operations because of the significant fresh-start
depreciation and amortization charges described herein. Because all
companies and analysts do not calculate EBITDA in an identical manner,
however, EBITDA as presented above may not necessarily be comparable to
similarly-titled measures of other companies.
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September
30, 1995
Net sales for the nine months ended September 30, 1996 increased to $1,262.6
million from $794.9 million for the nine months ended September 30, 1995. The
improved sales performance resulted primarily from the
17
<PAGE>
acquisition of Thomasville. Had Thomasville been acquired at the beginning of
1995, net sales for the nine months ended September 30, 1996 would have
increased 4.9% over those for the nine months ended September 30, 1995.
Cost of operations for the nine months ended September 30, 1996 was $913.2
million, compared to $562.5 million for the nine months ended September 30,
1995. The large increase was a result of the Company's acquisition of
Thomasville. Cost of operations as a percentage of net sales increased from
70.8% for the nine months ended September 30, 1995 to 72.3% for the nine
months ended September 30, 1996. This increase was due to the acquisition of
Thomasville which had higher cost of operations as a percentage of net sales
than the Company's other operating subsidiaries. Had Thomasville been included
on a pro forma basis for the nine months ended September 30, 1995, cost of
operations as a percentage of net sales would have been 73.3%.
Selling, general and administrative expenses increased to $214.0 million for
the nine months ended September 30, 1996 from $149.1 million for the nine
months ended September 30, 1995. The large increase was a result of the
Company's acquisition of Thomasville. As a percentage of net sales, selling,
general and administrative expenses were 17.0% for the nine months ended
September 30, 1996 compared to 18.7% for the nine months ended September 30,
1995, reflecting the Company's acquisition of Thomasville.
Depreciation and amortization for the nine months ended September 30, 1996
was $41.4 million, compared to $28.4 million for the nine months ended
September 30, 1995. The large increase was a result of the Company's
acquisition of Thomasville. The amount of depreciation and amortization
attributable to the "fresh-start" reporting was $12.3 million and $11.8
million for the nine months ended September 30, 1996 and September 30, 1995,
respectively.
Interest expense for the nine months ended September 30, 1996 totaled $35.7
million, compared to $25.4 million for the prior year comparable period. The
increase in interest expense reflects additional debt incurred for the
acquisition of Thomasville.
Other income, net for the nine months ended September 30, 1996, totaled $2.0
million compared to $3.3 million for the nine months ended September 30, 1995.
For the nine months ended September 30, 1996, other income consisted of
interest on short term investments of $1.1 million and other miscellaneous
income and (expense) items totaling $0.9 million.
For the nine months ended September 30, 1996, the Company provided for
income taxes totaling $23.5 million on earnings before income tax expense and
extraordinary item, producing an effective tax rate of 38.9%, compared to an
effective tax rate for the prior year comparable period of 40.9%. The
effective tax rates for such periods 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 $0.59 for the nine months ended September 30, 1996 compared with
$0.38 for the prior year comparable period. Weighted average shares
outstanding used in the calculation of net earnings per common share on a
primary and fully diluted basis were 61,227,000 and 62,765,000 in 1996 and
50,598,000 and 51,404,000 in 1995.
Gross profit for the nine months ended September 30, 1996 was $320.8
million, representing an increase of 49.7% over gross profit for the prior
year comparable period of $214.3 million. The increase resulted primarily from
the acquisition of Thomasville. The decrease in gross profit margin to 25.4%
for the nine months ended September 30, 1996 from 27.0% for the comparable
period for the prior year was due to the acquisition of Thomasville, which had
lower gross profit margins than the Company's other operating subsidiaries.
Had Thomasville been included on a pro forma basis in 1995, gross profit
margin would have been 24.5% for the nine months ended September 30, 1995.
EBITDA for the nine months ended September 30, 1996 was $135.4 million,
representing an increase of 62.5% over EBITDA of $83.3 million for the
comparable period of the prior year. This increase resulted
18
<PAGE>
primarily from the acquisition of Thomasville. EBITDA as a percentage of net
sales increased to 10.7% for the nine months ended September 30, 1996 from
10.5% for the comparable period for the prior year. Had Thomasville been
included on a pro forma basis for the 1995 period, EBITDA as a percentage of
net sales would have been 9.8% for the nine months ended September 30, 1995.
This increase in EBITDA margin reflects efficient manufacturing activity as
well as the Company's continuing efforts to enhance profitability.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net sales for 1995 were $1.07 billion, approximately unchanged from 1994.
During 1995, residential furniture manufacturers' results were adversely
affected by industry-wide price discounting and promotional activity in
response to weaker demand for durable goods. The Company was able to maintain
comparable net sales despite these conditions through new product
introductions at both Broyhill and Lane and continued advertising 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 a $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 were $0.56 and $0.54 for 1995
and 1994, respectively. Weighted average shares outstanding used in the
calculation of net earnings per common share on a primary and fully diluted
basis were 50,639,000 and 52,317,000 in 1995, and 51,495,000 and 51,506,000 in
1994.
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, primarily as a result of lower
19
<PAGE>
factory utilization rates at certain of the Company's manufacturing facilities
reflecting the Company's effort to balance inventories with incoming orders.
EBITDA for 1995 was $115.2 million, compared to $120.9 million for 1994, a
decrease of 4.7%. EBITDA as a percentage of net sales decreased from 11.3% in
1994 to 10.7% in 1995, primarily as a result of lower factory utilization
rates at certain of the Company's manufacturing facilities reflecting the
Company's efforts to balance inventories with incoming orders.
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.
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.
Selling, general and administrative expenses for 1994 were $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.
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. Weighted average
shares outstanding used in the calculation of net earnings per common share on
a primary and fully diluted basis were 51,495,000 and 51,506,000 in 1994, and
51,375,000 and 51,397,000 in 1993.
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.
EBITDA for 1994 was $120.9 million, representing an increase of 11.3% over
EBITDA for 1993 of $108.6 million. The increase in EBITDA as a percentage of
net sales, to 11.3% in 1994 from 11.1% for 1993, was
20
<PAGE>
primarily 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.
FINANCIAL CONDITION AND LIQUIDITY
Liquidity. Cash and cash equivalents at September 30, 1996 totaled $21.5
million, compared to $26.4 million at December 31, 1995. For the nine months
ended September 30, 1996, net cash from operating activities totaled $95.2
million. Net cash used in investing activities totaled $21.8 million. Net cash
used in financing activities totaled $78.3 million, including the net
repayment of $144.3 million of long-term debt, the receipt of $81.3 million of
net proceeds from the sale of Common Stock pursuant to the 1996 Company Equity
Sale, the receipt of $9.2 million from the exercise of warrants to purchase
shares of Common Stock, $19.9 million for the repurchase of warrants and $4.6
million in debt issuance costs associated with the 1996 Refinancing.
Working capital was $459.3 million at September 30, 1996, compared to $455.0
million at December 31, 1995. The current ratio was 4.0 to 1 at September 30,
1996, compared to 4.4 to 1 at December 31, 1995. The modest increase in
working capital was due to the Company's focus on efficient management of
individual working capital components.
As of September 30, 1996, long term debt, including current maturities,
totaled $579.4 million compared to $723.7 million at December 31, 1995. This
reduction of indebtedness of $144.3 million was funded by $81.3 million from
the 1996 Company Equity Sale with the remainder funded by cash flow from
operations and warrant exercise proceeds.
During 1995, net cash provided by operating activities totaled $92.0
million. Net cash used in investing activities totaled $370.5 million,
including $335.4 million used for 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 totaled $272.8
million during 1995.
For 1994, net cash provided by continuing operating activities totaled $22.0
million. Net cash used by investing activities totaled $15.5 million,
including $21.1 million of capital expenditures incurred to add, upgrade or
replace property, plant, and equipment. Net cash provided by financing
activities during 1994 totaled $7.5 million.
Financing Arrangements. On September 6, 1996, the Company completed the 1996
Refinancing involving execution of the Secured Credit Agreement and
modifications incorporated in the Receivables Securitization Facility. The
Secured Credit Agreement replaces a secured credit agreement that had been
entered into in connection with the acquisition of Thomasville. The 1996
Refinancing will result in a substantial reduction in interest expense, which
at current debt levels will favorably impact annual results by approximately
$3.7 million, or $0.05 to $0.06 per share. Had the 1996 Refinancing, the 1996
Company Equity Sale and the 1996 Warrant Repurchase been completed at the
beginning of 1996, earnings for the nine months ended September 30, 1996 would
have increased by $0.04 per share.
The Secured Credit Agreement is a $475.0 million reducing revolving credit
facility. The interest rate on borrowings is based on selected credit ratios
set forth in the Secured Credit Agreement and as of September 30, 1996 was
6.375%. The Secured Credit Agreement allows for both the issuance of letters
of credit and cash borrowings. Letters of credit are limited to no more than
$60.0 million. Cash borrowings are limited to the facility's maximum
availability less letters of credit outstanding. As of September 30, 1996 the
Company had $365.0 million of cash borrowings drawn under the Secured Credit
Agreement and had excess availability of approximately $84.0 million. The
Secured Credit Agreement contains customary covenants, including financial
covenants with respect to the Company's leverage and interest coverage. The
leverage coverage (a ratio of net debt to cash flows) and interest coverage (a
ratio of cash flows to interest expense) covenants are the most restrictive
covenants contained in the Secured Credit Agreement. The Company is currently
and expects to continue to be in compliance with all restrictive covenants in
the Secured Credit Agreement.
21
<PAGE>
The Receivables Securitization Facility is a $225.0 million facility
pursuant to which the Company sells interests in the trade receivables of its
operating companies to a third party financial institution. The Company
accounts for the Receivables Securitization Facility as long-term debt. The
Company's cost of borrowing is based on a commercial paper index rate plus a
program fee and as of September 30, 1996 was 6.045%. At September 30, 1996 the
Company had approximately $17.0 million of excess availability under the
Receivables Securitization Facility.
In February 1996, in order to reduce the impact of changes in interest rates
on its floating rate long-term debt, the Company entered into three-year
interest rate swap agreements having a total notional amount of $300 million.
The swap agreements effectively convert a portion of the Company's floating
rate long-term debt to a fixed rate. The Company pays the counterparties a
fixed rate of 5.14% per annum and receives payments based upon the floating
three month London interbank offered rate (LIBOR).
The Company believes that the Secured Credit Agreement and the Receivables
Securitization Facility, together with cash generated from operations, will be
adequate to meet liquidity requirements for the foreseeable future.
Capital Expenditures. 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
$23.9 million, $35.6 million, $21.1 million and $30.2 million for the nine
months ended September 30, 1996 and the years ended December 31, 1995, 1994
and 1993, respectively. The annual figures do not include the capital
expenditures of Thomasville ($15.2 million, $14.1 million and $10.0 million
for the years ended December 31, 1995, 1994 and 1993, respectively). The
Company estimates that total capital expenditures will be approximately $40.0
million in both 1996 and 1997. 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.
22
<PAGE>
BUSINESS
GENERAL
The Company believes that it is the largest manufacturer of residential
furniture in the United States based on revenues. The Company markets its
products under three of the best known brand names in the industry--Broyhill,
Lane and Thomasville. The Company is a quality and style leader across a broad
spectrum of price categories from "premium" priced home furnishings to lower
priced RTA furniture. The Company distributes its products through a diverse
network of national, regional and local retailers, including the largest
system of independently-owned dedicated retail outlets in the residential
furniture industry. Management believes that the acquisition of Thomasville in
December 1995 significantly enhances the Company's competitive strengths and
positions the Company to increase its market share, sales and earnings.
The Company is organized into three primary operating subsidiaries of
similar size which target particular product and price categories as described
below:
BROYHILL. Broyhill is a leader in the "good" and "better" price categories,
which are two of the largest segments of the residential furniture market.
Management believes Broyhill is the largest manufacturer of residential
furniture under one brand name, and Broyhill has been rated the number one
brand in the industry in terms of brand awareness by several recent consumer
surveys. The Company believes that the Broyhill Fontana collection has been
the best selling furniture collection in the industry for the last three
years. Broyhill distributes its products through an extensive distribution
network of more than 6,200 independently-owned retail locations, including
approximately 330 dedicated Broyhill Showcase Galleries and approximately 425
dedicated Broyhill Furniture Centers.
LANE. Lane manufactures specialty products for niche markets in the
"better," "best" and "premium" price categories. Lane is the largest domestic
manufacturer of cedar chests. In addition, Lane, through Action Industries,
its largest operating unit, is the largest manufacturer of motion furniture
and the second largest manufacturer of recliners in the United States. Lane is
one of the most widely recognized brands in the residential furniture industry
and has established a reputation for innovative marketing and quality designs.
Lane distributes its products through an extensive distribution network of
more than 16,000 independently-owned retail locations, including approximately
280 dedicated furniture galleries.
THOMASVILLE. Thomasville is the largest residential furniture manufacturer
under one brand name in the "premium" price category and manufactures
furniture which embodies the widely recognized "Thomasville Look" for both the
"best" and "premium" price categories. Thomasville has been rated the "highest
quality" brand by several recent consumer surveys. Management believes that
the Collector's Cherry and the Mahogany Collection have consistently been
among the best selling collections in the industry. Thomasville distributes
its products through approximately 635 independently-owned retail locations,
including approximately 245 dedicated Thomasville Galleries and approximately
80 free-standing Thomasville Home Furnishings stores, which exclusively
feature Thomasville furniture. The company also produces a separate line of
lower priced RTA and promotional furniture.
COMPETITIVE STRENGTHS
In addition to its substantial size relative to most of its competitors, the
Company believes that its focus on the following elements has contributed to
its leading position in the residential furniture industry:
BRAND NAME STRENGTH. According to a recent consumer survey conducted by
America's Research Group and commissioned by the Company, Broyhill, Lane and
Thomasville are three of the six best known brand names in the retail
furniture industry. According to this survey, Broyhill was rated the number
one brand in the industry in terms of consumer awareness, and Thomasville was
rated the "highest quality" brand and the leading brand in the "best" price
category.
23
<PAGE>
BROAD RANGE OF PRODUCT OFFERINGS. The Company offers consumers a wide range
of products from the "premium" to "RTA" price categories across virtually all
residential furniture segments including: bedroom, dining room, living room,
motion/recliner, stationary upholstery, occasional table and rattan/wicker.
The acquisition of Thomasville has strengthened the Company's position across
the "premium" and "best" price categories of the market.
DEDICATED DISTRIBUTION CHANNELS. The Company distributes its products
through a diverse network of independently-owned retail locations which
includes approximately 855 galleries dedicated to Broyhill, Lane and
Thomasville products, approximately 425 Broyhill Furniture Centers, and
approximately 80 free-standing Thomasville Home Furnishings stores. The
gallery concept displays products in complete room ensembles, which include
furnishings, wall decor, window treatments, floor coverings, accents and
accessories. According to Furniture/Today, the median sales per square foot of
galleries exceeds that of non-galleries by 27%. The Broyhill Furniture Centers
are participants in a gallery program developed for smaller dealers, which
enables retailers to commit less area to Broyhill products than a gallery. The
Thomasville Home Furnishings stores are dedicated solely to the display,
promotion and sale of Thomasville products. See "Distribution."
INNOVATIVE, HIGH QUALITY PRODUCTS. The Company focuses on designing
innovative and stylish furniture, by regularly introducing new and updated
collections and designs. For example, management believes that the Broyhill
Fontana collection has been the best selling furniture collection, and the
Thomasville Collector's Cherry collection has been the best selling dining
room collection in the industry for the last three years. In addition, Lane
has teamed up with innovative, widely recognized designers such as Mark
Hampton and Dakota Jackson to design and market furniture collections. Each of
these companies strives to differentiate its products with design elements
that include special detailing, innovative finishes and unique hardware.
Lane's Action Industries subsidiary has developed new technologies that have
enhanced its position in the growing motion furniture segment, such as an
innovative deck mechanism for sleeper sofas.
MANUFACTURING EXPERTISE. The Company is a leader in automated furniture
manufacturing. Modern state-of-the-art technology and economies of scale have
made the Company a very efficient producer. The Company consistently
modernizes its manufacturing facilities through capital investment. For
example, Lane recently completed a state-of-the-art flat line finishing plant
for more efficient production of high sheen and enhanced grain finishes and
has invested in additional advanced-technology manufacturing equipment to
increase productivity. In addition, Broyhill recently completed construction
of a state-of-the-art particleboard manufacturing facility.
EXPERIENCED MANAGEMENT TEAMS. The Company believes that an experienced,
dedicated management team is a critical factor in achieving success. Effective
on October 1, 1996, Wilbert G. (Mickey) Holliman became President and Chief
Executive Officer of the Company. Mr. Holliman was previously the President
and Chief Executive Officer of Action Industries, a subsidiary of the Company,
which he founded over 25 years ago. Since the founding of Action Industries,
Mr. Holliman has built this start-up company into an industry leader, with
compound sales and earnings growth of approximately 20% a year and total sales
that approach $400 million annually. In addition, Action Industries has
consistently been one of the most profitable operating units of the Company.
The management teams for each of the operating subsidiaries of the Company
also have extensive experience in the furniture industry. The Chief Executive
Officers of Broyhill, Lane and Thomasville have an average of more than 28
years of experience with their respective companies.
GROWTH STRATEGY
The Company seeks to grow in both sales and profits and increase its market
share by means of the following elements:
ENHANCING BRAND NAME STRENGTH. Brand name recognition is a critical factor
in consumer purchases of furniture. The Company believes that consumer
recognition of its brand names is a key to increasing its market share. The
Company has three of the six most recognized brand names in the residential
furniture industry--
24
<PAGE>
Broyhill, Lane and Thomasville. The Company is committed to continue to
strengthen its brand names through advertising in various media including
network and cable television and highly read consumer magazines such as
People, Reader's Digest, Sports Illustrated, Architectural Digest and Better
Homes and Gardens among several others, in addition to its dealer cooperative
advertising program.
EXPANDING DEDICATED DISTRIBUTION CHANNELS. Dedicated distribution outlets,
such as galleries, tend to have higher sales per square foot and faster
inventory turns than non-gallery locations. The Company has generated
increased sales volume by distributing its products through independently-
owned dedicated retail outlets. In addition, the Company believes that it
strengthens its manufacturer/retailer alliances through gallery relationships.
The Company continues to expand these distribution channels by attracting
additional retailers in new and existing geographic markets to participate in
the Company's gallery programs. Furthermore, the Company is expanding the
network of free-standing Thomasville Home Furnishings stores.
INCREASING SALES TO NATIONAL AND LARGE REGIONAL RETAILERS. The Company is
well positioned to benefit from the increasing presence of national and large
regional retailers in the residential furniture industry. According to
Furniture/Today, in 1995 the top 10 furniture retailers represented 16% of
total sales versus 10% in 1985. The Company's overall size, breadth of
product, strength of brands and national scope of distribution enable it to
service national retailers, such as J.C. Penney, Sears, Levitz and Heilig-
Meyers, and key regional companies, such as Breuner's, Haverty's and Roberds,
more effectively than the Company's smaller competitors. The Company intends
to continue to build its relationships with these key retailers.
PENETRATING NEW MARKETS. The Company is actively pursuing sales
opportunities in new markets. In the United States, management is targeting
key furniture retailers in important geographic territories, particularly
portions of the West Coast and New England. In addition, the Company has
developed a program designed to increase sales to the contract market, which
includes hotels, motels and health care facilities. The Company is also
actively pursuing the international export market, particularly Canada,
Europe, Japan and the Middle East, where the Company believes there are
significant opportunities for growth.
EMPHASIZING NEW AND GROWING PRODUCT AREAS. The Company emphasizes
development of new high margin products in growing product areas. For example,
the Company has become a leader in the fast growing motion furniture and
recliner segments. The Company has also introduced a sleeper sofa
incorporating a unique sleep deck designed to be more comfortable, both as a
sofa and a bed, than competitive product offerings. Furthermore, the Company
is currently designing innovative new products for the growing home office and
home entertainment center markets.
CAPITALIZING ON DEMOGRAPHIC TRENDS. Management believes that demographic
trends will continue to drive long-term growth in the furniture industry. In
particular, as "baby boomers" (people born between 1946 and 1964) mature to
the 35-64 year age group over the next decade, they will be reaching their
highest earnings power. It is currently estimated that the 35-64 year age
group will increase by approximately 11 million persons by the year 2000.
According to Furniture/Today, such age group includes the largest consumers of
residential furniture. Furthermore, statistics show that the average size of
new homes has increased in recent years, which generally results in increased
purchases of furniture per home. The Company believes that it is well
positioned to capitalize on these demographic trends as a result of its broad
range of product offerings and widely-recognized brand names.
MAXIMIZING OPERATING MARGINS. The Company's Gross Profit Management Program
consists of twelve specific "building blocks" that management uses in its
strategic and operational planning to maximize gross profit margins and
thereby provide the Company with additional funds for purposes such as
increased advertising and product development. These "building blocks" include
(a) introducing new high quality products with above average profit margins,
(b) marketing products to new customers, (c) developing new markets, (d)
implementing a well-defined pricing strategy to maximize the effectiveness of
price increases and decreases, (e) focusing on cost control and cost reduction
programs that target a minimum savings of 3% of cost of goods sold each year,
(f) reviewing product and purchasing strategies, and (g) implementing other
management and personnel
25
<PAGE>
strategies. Management believes that this program has contributed to the
Company achieving among the highest EBITDA margins of publicly-owned
residential furniture manufacturing companies in recent years. Management
believes opportunities exist to increase the EBITDA margins of its operating
companies through implementation of the Gross Profit Management Program. The
Company has recently initiated this program at Thomasville, from which it
expects to benefit beginning in 1997.
EXPANDING OPERATING COMPANY COORDINATION. The Company has historically
managed its operating units on a stand-alone basis. Increasingly since the
acquisition of Thomasville, the Company has concentrated on enhancing the
coordination among its operating companies. As a result of this enhanced
coordination, the Company has begun to achieve operating efficiencies and
believes it has the opportunity to further improve operating efficiencies and
results. These opportunities include (i) cost savings generated through volume
purchasing; (ii) reductions in future capital expenditures through better
utilization of existing capacity; (iii) complementary sales and marketing
activities; (iv) joint international sourcing; and (v) shared operating
experience and expertise.
THE FURNITURE INDUSTRY
The domestic residential furniture industry had approximately $19 billion in
shipments during 1995 according to the American Furniture Manufacturers
Association (the "AFMA"). According to Furniture/Today, the industry is
comprised of an estimated 600 manufacturers, of which the top 10 accounted for
approximately 39% of industry sales, representing an increase from 23% in
1985. The residential furniture market consists of three principal product
categories: wood, upholstery and metal. Of these categories, wood is the
largest, representing approximately half of total industry sales, while
upholstery represents approximately 40% of total industry sales and metal and
other products account for the balance.
The domestic residential furniture manufacturing industry in which the
Company operates is affected by the residential furniture retail industry. The
retail furniture industry had approximately $37.5 billion in total revenues in
1995, according to Furniture/Today. The industry has experienced significant
consolidation in the past decade. For example, according to Furniture/Today,
the top 10 furniture retailers in 1995 represented a 16% market share, versus
10% in 1985. Additionally, over the past twelve months, this consolidation of
the retail furniture industry has continued, as evidenced by recently
announced or completed mergers and acquisitions.
The access to diverse distribution channels has become increasingly
important over the past decade. Home centers, mass merchants, national chains
and specialty stores have emerged as increasingly important distribution
channels for residential furniture manufacturers. Management believes that
these retailers require suppliers that offer broad product lines combined with
substantial marketing and advertising resources. In addition, the direct
display of products to the consumer has become more important to residential
furniture manufacturers. As a result, the "gallery" concept and other
dedicated distribution outlets have become increasingly important to
manufacturers because they have provided them with dedicated retail space and
have historically generated greater sales per square foot than other
distribution outlets. Galleries are large display areas within independently-
owned retail furniture locations which are committed to the products of a
single manufacturer. A gallery generally takes up a significant portion of a
retailer's floor space and has complete room settings and fully accessorized
displays that help customers visualize their room. In return for featuring a
manufacturer's merchandise, the retailer receives layout designs, cooperative
promotions and other assistance from the manufacturer.
The residential furniture industry is cyclical, fluctuating with the general
economy. Periods of decline, however, have been brief, with annual industry
shipments declining in only four of the past twenty-four years. The Company
believes furniture sales are influenced by a number of macroeconomic factors
including existing home sales, housing starts, consumer confidence, interest
rates and demographic trends. Management believes favorable fundamental home
building and demographic trends will continue to drive long-term growth in the
furniture industry with AFMA expecting shipments to increase 3.1% in 1996 and
4.0% in 1997.
26
<PAGE>
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 free standing home
entertainment centers and home office items, (iii) stationary upholstered
products, consisting of sofas, loveseats, sectionals, chairs and (iv)
recliners, motion furniture and sleep sofas. The Company's product strategy,
which is enhanced by the acquisition of Thomasville, is to be the quality and
style leader across a broad spectrum of price categories in the residential
furniture industry from "premium" to "RTA" home furnishings. The Company
believes that its products are well-positioned in terms of selection, quality
and value within each of the major style categories in home furnishings
including American Traditional/Country, 18th Century, European Traditional,
Casual Contemporary and Oriental. The Company's positioning by price and
product category are shown below.
<TABLE>
<CAPTION>
CASE STATIONARY MOTION/
PRICING CATEGORY GOODS OCCASIONAL UPHOLSTERY RECLINER
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Premium Thomasville Thomasville Thomasville
Lane Lane
- ---------------------------------------------------------------------------
Best Thomasville Thomasville Thomasville Thomasville
Lane Lane Lane Lane
Broyhill
- ---------------------------------------------------------------------------
Better Lane Lane Lane Lane
Broyhill Broyhill Broyhill Broyhill
- ---------------------------------------------------------------------------
Good Broyhill Broyhill Broyhill
- ---------------------------------------------------------------------------
Promotional Founders*
- ---------------------------------------------------------------------------
RTA CreativeInteriors*
</TABLE>
- --------
* Previously Armstrong.
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" and "best" price category. In addition, management
believes that the Broyhill Fontana collection has been the best selling
furniture collection for the past three years.
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.
The Lane Division of Lane is the leading manufacturer of cedar chests in the
United States. It also manufactures and sells occasional living room tables,
bedroom and dining room furniture, wall systems, desks,
27
<PAGE>
console tables and mirrors and other occasional wood pieces. The Lane Division
has teamed up with widely recognized designers such as Raymond Waite, Mark
Hampton, Dakota Jackson, Blake Tovin and Sandra Nunnerley, 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, high-leg recliners, sleep
sofas and motion sectionals. Lane's Royal Development Company designs and
manufactures the mechanisms used in Action Industries' reclining furniture
products. Management believes that Action Industries currently commands an
approximately 14% market share position in the motion furniture and an
approximately 22% market share in the reclining chair market.
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.
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. Management believes Thomasville products
contain special design elements which embody the famous "Thomasville Look." In
wood furniture, these elements include special details, high sheen finishes,
original design hardware, hand selected veneers and fancy face veneer patterns
and decorative carvings that are made possible by the unique manufacturing
techniques that have been developed by Thomasville and the skills of its
experienced employees. In upholstery, these elements include a wide range of
frames, fabrics and leathers combined with fringes, cords, pillows, exposed
frame finishes and seating options.
Management believes that Thomasville's wood products are well positioned in
terms of selection, quality and value within each of the major style
categories in home furnishings. In 1996, Thomasville has introduced two major
new collections, Renaissance and Carlton Hall. Additionally, Collector's
Cherry and the Mahogany Collection have consistently been among the most
successful collections in the industry.
28
<PAGE>
Thomasville offers an assortment of upholstery under one 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 lines are produced in highly
automated facilities. Thomasville's RTA/Promotional division markets products
under the CreativeInteriors and Founders brand names (previously having used
Armstrong) to a variety of retailers for sale to consumer end-users and
certain contract customers.
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,
Levitz and Heilig-Meyers and key regional retailers such as Breuner's,
Haverty's and Roberds. 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,
approximately 855 galleries and approximately 425 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. According
to Furniture/Today, the median sales per square foot of galleries exceeds that
of non-galleries by 27%. 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.
29
<PAGE>
BROYHILL FURNITURE INDUSTRIES
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 in the United States and seven
galleries in foreign countries. 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. 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 arranged in gallery-type room settings. The Company seeks to
develop relationships with these Broyhill Furniture Center retailers, which
may become participants in the Broyhill Showcase Gallery Program. This program
includes all of the benefits of the Independent Dealer Program, plus
additional marketing, designing and advertising assistance.
THE LANE COMPANY
Lane distributes its products nationally through a well established network
of more than 16,000 retail locations. A diverse distribution network is
utilized in keeping with Lane's strategy of supplying customers with 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 established specialty galleries with approximately
280 participating dealers. This includes approximately 175 Comfort Showcase
Galleries established by Action Industries since October 1995 in connection
with a newly created gallery program. Action Industries anticipates that it
will continue to expand significantly its Comfort Showcase Gallery program.
The Action Industries' galleries average approximately 3,500 square feet of
retail space specifically dedicated to the display, promotion and sale of
Action Industries' products. Lane's other gallery programs call for the
display of Lane wood and upholstered furniture in settings that range from
less than 3,000 to approximately 5,000 square feet.
THOMASVILLE FURNITURE INDUSTRIES
Thomasville products are offered at approximately 635 independently-owned
retail locations, including approximately 245 Thomasville Galleries,
approximately 80 Thomasville Home Furnishings stores and approximately 310
authorized Thomasville dealers. The foregoing figures reflect a review and
reclassification by Thomasville of its distribution network that became
effective on July 1, 1996. The Thomasville Gallery concept was initiated in
1983. Thomasville Galleries have 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.
30
<PAGE>
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 and popular magazines such
as Sports Illustrated, People and Reader's Digest. 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
Industries and Thomasville also use television advertising independently.
BROYHILL FURNITURE INDUSTRIES
Broyhill's advertising programs focus on translating its strong consumer
awareness into increased sales. According to the recent consumer survey
conducted for the Company by America's Research Group, Broyhill was rated the
number one brand in the industry in terms of brand awareness. In addition, a
survey of readers by Better Homes and Gardens found that 92.5% of people
recognized the name in an aided name recognition test, and a nationwide survey
by Elegant Bride magazine found that when consumers were asked to name a
furniture brand, Broyhill had the highest unaided name recognition of any
residential furniture manufacturer (14% of the people in the survey named
Broyhill as a furniture brand). In aided name recognition tests, consumers are
given a list of furniture brand names and are asked to identify the names
listed which they recognize. In an unaided name recognition test, consumers
are not provided with a list of names from which to choose and are asked to
name brands with which they are familiar.
Broyhill's current marketing strategy features a national print advertising
program in addition to traditional promotional programs such as furniture
"giveaways" on television game shows 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 Better Homes and Gardens,
Country Living and HOME magazine, 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. An extensive public
relations campaign also exposes Broyhill products in leading magazine and
newspaper editorial features. In addition, Broyhill expects to begin a
regional television advertising program in 1997.
THE LANE COMPANY
Management believes that Lane was the first residential furniture
manufacturer to institute a national advertising campaign. 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.
31
<PAGE>
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 Raymond Waite, Mark Hampton, Dakota Jackson,
Blake Tovin and Sandra Nunnerley, as well as design institutions such as the
American Museum of Folk Art in New York, to design and market furniture
collections.
In 1996, Action Industries increased its advertising expenditures
significantly and emphasized the use of fully integrated advertising programs.
These campaigns are aimed at the promotion of selected products at coordinated
times through all the various advertising channels employed by Action
Industries, including shelter magazines, popular magazines and television.
THOMASVILLE FURNITURE INDUSTRIES
According to a recent consumer survey conducted by America's Research Group,
Thomasville is consistently rated the "highest quality" residential furniture
brand. Management seeks to enhance this brand identification through
advertising programs. Thomasville's current 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, three to four
million 32- to 36-page "magalogs" are mailed by retailers during these periods
to draw customers to Thomasville Galleries and Thomasville Home Furnishings
stores.
MANUFACTURING
Management believes that the Company is one of the world's most advanced
producers of furniture products and a leader in automated manufacturing. The
Company has sophisticated and computerized manufacturing facilities that are
run by a well-trained, non-union work force. Management believes that the
Company is one of the lowest cost producers in the furniture industry. In
addition to cost efficiency, the high degree of automation results in
substantial additional capacity, which can be accessed by implementing
selected departmental second and third shifts. Management believes that the
Company is well positioned to respond to an increase in demand for furniture
products. As a result of the availability of some excess capacity in Lane and
Thomasville manufacturing facilities, management believes that it will be able
to meet its manufacturing requirements over the next several years without the
necessity of making significant additional capital expenditures to expand
capacity.
Broyhill operates 17 finished case goods and upholstery production and
warehouse facilities totaling over 5.0 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
32
<PAGE>
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. In
1995, Broyhill 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. In
1996, Broyhill added a new upholstery manufacturing facility with
approximately $25.0 million of annual production capacity.
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's Action Industries subsidiary 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.
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 in the United States will create
opportunities for additional cost savings.
33
<PAGE>
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 NESHAPs 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 Lifestyle Furnishings International, Ltd. (formerly the home
furnishings group of Masco Corporation), La-Z-Boy, Inc., Ladd Furniture, Inc.,
Bassett Furniture Industries, Inc., and Ethan Allen Interiors, as well as
approximately 600 smaller producers. The elements of competition include
pricing, styling, quality and marketing.
EMPLOYEES
As of September 30, 1996, the Company employed approximately 20,600 people.
None of the Company's employees is represented by a union.
BACKLOG
The combined backlog of the Company's operating companies as of September
30, 1996 aggregated approximately $213.5 million, compared to approximately
$195.2 million as of September 30, 1995. The backlog for September 30, 1995
has been adjusted to include the backlog for Thomasville. The Company expects
that substantially all of the Company's order backlog as of September 30, 1996
will be filled before the end of the year.
34
<PAGE>
MANAGEMENT
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION AND PRINCIPAL OCCUPATION
---- --- ---------------------------------
<S> <C> <C>
Richard B. Loynd........ 68 Chairman of the Board of the Company
Wilbert G. Holliman,
Jr..................... 59 President, Chief Executive Officer and Director of
the Company
Brent B. Kincaid........ 65 President and Chief Executive Officer of Broyhill
K. Scott Tyler, Jr...... 56 President and Chief Executive Officer of Lane
Frederick B. Starr...... 63 President and Chief Executive Officer of
Thomasville
David P. Howard......... 45 Vice-President, Chief Financial Officer and
Treasurer of the Company
Lynn Chipperfield....... 44 Vice-President, General Counsel and Secretary of
the Company
Steven W. Alstadt....... 42 Controller and Chief Accounting Officer of the
Company
Leon D. Black........... 45 Director of the Company; Officer and director of
Apollo Capital Management, Inc. and Lion Capital
Management, Inc.
Michael S. Gross........ 35 Director of the Company; Officer of Apollo Capital
Management, Inc. and Lion Capital Management,
Inc.
John J. Hannan.......... 43 Director of the Company; Officer and director of
Apollo Capital Management, Inc. and Lion Capital
Management, Inc.
Joshua J. Harris........ 31 Director of the Company; Officer of Apollo Capital
Management, Inc. and Lion Capital Management,
Inc.
Bruce A. Karsh.......... 40 Director of the Company; President of Oaktree
Capital Management, LLC
John H. Kissick......... 54 Director of the Company; Officer of Lion Capital
Management, Inc. and advisor to Apollo Capital
Management, Inc.
Donald E. Lasater....... 70 Director of the Company; Retired, formerly
Chairman and Chief Executive Officer of
Mercantile Bancorporation, Inc.
Lee M. Liberman......... 74 Director of the Company; Retired, formerly
Chairman and Chief Executive Officer of Laclede
Gas Company
Marc J. Rowan........... 34 Director of the Company; Officer of Apollo Capital
Management, Inc. and Lion Capital Management,
Inc.
John J. Ryan III........ 69 Director of the Company; Director of Artemis S.A.
and Financiere Pinault S.A.
Michael D. Weiner....... 43 Director of the Company; Officer of Apollo Capital
Management, Inc. and Lion Capital Management,
Inc.
</TABLE>
Apollo Capital Management, Inc. ("Apollo Capital") and Lion Capital
Management, Inc. ("Lion Capital") are affiliates of Apollo and Lion, which
together beneficially own approximately 55.1% of the outstanding Common Stock
of the Company. See "Selling Stockholders" below. Apollo Capital and Lion
Capital are the general partners of Apollo Advisors, L.P. ("Apollo Advisors")
and Lion, respectively. Apollo Advisors is the managing general partner of
Apollo, AIF II, L.P. and, together with an affiliate, Apollo Investment Fund
III, L.P., each a private securities investment fund. Lion acts as financial
advisor to and representative of certain institutional investors with respect
to securities investments.
MR. LOYND was the President and Chief Executive Officer of the Company until
he was succeeded by Mr. Holliman on October 1, 1996. Mr. Loynd was originally
elected Vice-President and member of the Board of
35
<PAGE>
Directors of the Company in 1987. He was named President of the Company in
March 1989 and became Chief Executive Officer in November 1989 and Chairman of
the Board in June 1990. Previously, Mr. Loynd was Chairman of the Board of
Converse Inc. from 1982 to 1989. He is a director of Emerson Electric Company,
Converse Inc. and The Florsheim Shoe Company.
MR. HOLLIMAN became President and Chief Executive Officer of the Company on
October 1, 1996. Previously, Mr. Holliman was employed by Action Industries
for more than 25 years, having been one of the founders of that company in
1970. He was Executive Vice President of Action Industries until January 1989,
when he became President and Chief Operating Officer. Mr. Holliman
subsequently became President and Chief Executive Officer commencing in 1993.
MR. KINCAID has served as President and Chief Executive Officer of Broyhill
since 1992. Previously, Mr. Kincaid held several positions within Broyhill,
including Executive Vice President (1991 to 1992), Vice President--Operations
(1987 to 1991) and Vice President-Purchasing (1982 to 1987).
MR. TYLER has served as Chief Executive Officer of Lane since 1991 and
President of Lane since 1989. From 1987 to 1989, Mr. Tyler served as President
of the Lane Division, and has been a Vice President of Lane since 1986.
MR. STARR was named President and Chief Executive Officer of Thomasville in
1982. From 1977 to 1982, Mr. Starr served as Senior Vice President and General
Sales Manager of Thomasville.
MR. HOWARD joined the Company in July 1984 as Director of Internal Audit. He
was promoted to Controller in March 1990, elected Vice-President in April 1991
and appointed Chief Financial Officer in July 1994.
MR. CHIPPERFIELD has served as General Counsel of the Company since January
1993, and as Vice-President and Secretary of the Company since January 1996.
From 1986 to 1993, Mr. Chipperfield served as Assistant General Counsel of the
Company.
MR. ALSTADT joined the Company in June 1979 as a member of the Internal
Audit Department. He was named Manager, Financial Reporting and Analysis in
1990 and was elected Controller and appointed Chief Accounting Officer in
1994.
CERTAIN TRANSACTIONS
The Company is party to a consulting agreement with Apollo Advisors, an
affiliate of the Company's controlling stockholders (the "Consulting
Agreement"), pursuant to which Apollo Advisors provides corporate advisory,
financial and other consulting services to the Company. Fees under the
Consulting Agreement are payable at an annual rate of $500,000, plus out-of-
pocket expenses. The Consulting Agreement is for a term currently expiring on
December 31, 1997 and is automatically renewable for successive one-year terms
unless terminated by independent members of the Board of Directors. Apollo and
Lion will continue to have registration rights with respect to shares of
Common Stock which will be owned by them after the Offerings.
SELLING STOCKHOLDERS
This Prospectus relates to 12,000,000 shares of Common Stock, one-half of
which are being offered by Apollo and one-half of which are being offered by
Lion (the "Selling Stockholders"). This Prospectus also relates to an
additional 1,800,000 shares of Common Stock which may be offered by the
Selling Stockholders solely to cover over-allotments. Assuming the Selling
Stockholders sell all of such 12,000,000 shares of Common Stock (approximately
19.5% of the outstanding Common Stock as of September 30, 1996) and the U.S.
Underwriters exercise their over-allotment option in full, the Selling
Stockholders will thereafter beneficially own 20,181,920 shares of Common
Stock (approximately 32.7% of the outstanding Common Stock
36
<PAGE>
of the Company as of September 30, 1996). Assuming the U.S. Underwriters do
not exercise their over-allotment option, the Selling Stockholders will
beneficially own 21,981,920 shares of Common Stock (approximately 35.6% of the
outstanding Common Stock of the Company as of September 30, 1996). Shares
beneficially owned by the Selling Stockholders include 290,821 shares issuable
upon the exercise of Series 1 Warrants.
Pursuant to a Registration Rights Agreement dated August 3, 1992, the
Company has agreed to pay the expenses of the Offerings incurred by the
Company (other than underwriting discounts and commissions). The Selling
Stockholders and the Company have each agreed to indemnify the other against
certain liabilities which may arise from the Offerings.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 100,000,000 shares
of Common Stock, no par value, and 10,000,000 shares of Preferred Stock, no
par value. The Common Stock has a stated value of $1.00 per share.
As of September 30, 1996, there were 61,426,281 shares of Common Stock
outstanding held of record by approximately 3,000 persons, 3,874,876 shares of
Common Stock reserved for issuance upon the exercise of outstanding stock
options having an average exercise price of $6.63 per share and 2,043,131
shares of Common Stock reserved for issuance upon the exercise of outstanding
warrants at an exercise price of $7.13 per share. All of the outstanding
shares of Common Stock, including the shares of Common Stock to be sold in the
Offering by the Selling Stockholders, are fully paid and non-assessable. No
shares of Preferred Stock have been issued by the Company, and the Company has
no current plans to issue any Preferred Stock.
COMMON STOCK
Holders of shares of the Company's Common Stock are entitled to one vote per
share on all matters to be voted upon by the stockholders and are not entitled
to cumulate votes for the election of directors. Subject to preferences that
may be applicable to any outstanding Preferred Stock, holders of shares of
Common Stock are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. In the event of liquidation, dissolution or winding up of
the Company, the holders of shares of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to prior
distribution rights of Preferred Stock, if any, then outstanding. Shares of
Common Stock have no preemptive, conversion or other subscription rights and
there are no redemption or sinking fund provisions applicable to the Common
Stock.
PREFERRED STOCK
The Restated Certificate of Incorporation of the Company provides that the
Company may issue up to 10,000,000 shares of Preferred Stock. The Board of
Directors has the authority to issue Preferred Stock in one or more series and
to fix the rights, preferences, privileges and restrictions, including the
dividend, conversion, voting, redemption (including sinking fund provisions),
and other rights, liquidation preferences, and the number of shares
constituting any series and the designations of such series, without any
further vote or action by the stockholders of the Company. Because the terms
of the Preferred Stock may be fixed by the Board of Directors of the Company
without stockholder action, the Preferred Stock could be issued quickly with
terms calculated to defeat a proposed takeover of the Company, or to make the
removal of management of the Company more difficult. Under certain
circumstances this could have the effect of decreasing the market price of the
Common Stock. Management of the Company is not aware of any such threatened
transaction to obtain control of the Company.
CERTAIN RESTATED CERTIFICATE OF INCORPORATION AND BY-LAW PROVISIONS
Transactions with Substantial Stockholders. The Restated Certificate of
Incorporation of the Company contains provisions limiting the ability of any
person who is the beneficial owner of more than 10% of the
37
<PAGE>
outstanding voting stock of the Company (a "Substantial Stockholder") to
effect certain transactions involving the Company unless approved by a
majority of the Disinterested Directors of the Company (as defined in the
Restated Certificate of Incorporation). If there are no Disinterested
Directors, the transaction must be approved by the holders of a majority of
the shares voting on such transaction of which the Substantial Stockholder is
not a beneficial owner. Approval will also be required by the holders of a
majority of the shares voting on such transaction not owned by the Substantial
Stockholder, if the transaction is required to be approved by stockholders
under applicable law (provided that such stockholder approval requirement will
not be required if the Substantial Stockholder is the record owner of at least
90% of the outstanding Common Stock).
Transactions covered by these provisions include (a) the merger or
consolidation of the Company with a Substantial Stockholder, (b) the sale,
exchange, mortgage, pledge, lease or transfer of assets to a Substantial
Stockholder, (c) the issuance or transfer by the Company of any securities or
other property to a Substantial Stockholder, (d) the reclassification of
securities of the Company or the recapitalization or merger of the Company
with any of its subsidiaries if the transaction would, directly or indirectly,
increase the proportionate share of any class of equity or convertible
securities of the Company or a subsidiary owned by a Substantial Stockholder,
or (e) any other transaction with a Substantial Stockholder, including without
limitation payment of compensation and management fees (but not including
customary directors' fees and expense reimbursements). Covered transactions
will not, however, include (1) bona fide loans by the Substantial Stockholder
not exceeding $10.0 million in any 12-month period, (2) participation by the
Substantial Stockholder in bona fide offerings of equity, convertible or
equity-related securities by the Company to the extent required to allow the
Substantial Stockholder to avoid dilution of its percentage interest in the
Common Stock, (3) repurchases of securities either pursuant to certain open
market transactions or on terms identical to those being offered to all other
holders of the same securities, (4) the preparation and filing of registration
statements with respect to securities received by any Substantial Stockholder
pursuant to the Plan of Reorganization and the payment of reasonable expenses
associated therewith, and (5) other immaterial transactions in the ordinary
course of business.
Repurchase of Stock. The Restated Certificate of Incorporation of the
Company provides that, except under certain circumstances, the Company may not
repurchase its stock at a price greater than the Market Price (as defined in
the Company's Restated Certificate of Incorporation) or for consideration
other than cash from a 5% or more stockholder who has held such shares for
less than two years, unless the repurchase is authorized by a majority of all
shares entitled to vote generally in the election of directors, excluding the
shares held by such stockholder.
No Stockholder Action by Written Consent; Special Meetings. The Company's
Restated Certificate of Incorporation and By-Laws provide that stockholder
action can be taken only at an annual or special meeting of stockholders, and
prohibit stockholder action by written consent in lieu of a meeting. The
Company's Restated Certificate of Incorporation and By-Laws provide that
special meetings of stockholders can only by called (i) pursuant to a
resolution adopted by a majority of the entire Board of Directors or (ii) upon
the request of stockholders holding 20% or more the Company's voting stock
outstanding at that time. Any call for a special meeting of stockholders must
specify the matters to be acted upon at such a meeting and only those
specified matters may be acted upon at such special meeting.
Supermajority Vote Requirements. The Company's Restated Certificate of
Incorporation contains provisions requiring the affirmative vote of the
holders of at least a majority of all shares voting, excluding the shares
owned by a Substantial Stockholder, to approve an Affiliate Transaction (as
defined in the Company's Restated Certificate of Incorporation) and requiring
the affirmative vote of the holders of at least a majority of all shares
entitled to vote generally in the election of directors, excluding the shares
owned by an Interested Stockholder (as defined in the Company's Restated
Certificate of Incorporation), to approve a Stock Repurchase (as defined in
the Company's Restated Certificate of Incorporation) from an Interested
Stockholder.
The Company's Restated Certificate of Incorporation contains provisions
requiring the affirmative vote of the holders of at least 75% of all shares
entitled to vote generally in the election of directors and, in addition, the
affirmative votes of the holders of at least 50% of the shares voting,
excluding the shares owned by a Substantial
38
<PAGE>
Stockholder, to alter, amend, repeal or adopt provisions inconsistent with
present provisions providing for action by stockholders only during duly
called annual or special meetings and not by consent, the calling of special
meeting of stockholders, defining the phrase "Substantial Stockholder" and
approving Affiliate Transactions.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is KeyCorp Shareholder
Services Inc.
CERTAIN U.S. TAX CONSEQUENCES TO NON-U.S. STOCKHOLDERS
The following is a general discussion of the material Federal income and
estate tax consequences of the ownership and disposition of a share of Common
Stock by beneficial owner of such shares that is not a U.S. person for U.S.
Federal income tax purposes (a "non-U.S. holder"). For purposes of this
discussion, a "U.S. person" means a citizen or resident of the United States,
a corporation or partnership created or organized in the United States or
under the laws of the United States or of any State or political subdivision
of the foregoing, or any estate or trust whose income is includible in gross
income for U.S. Federal income tax purposes regardless of its source. The
discussion does not address all aspects of Federal income and estate taxation
nor any aspects of state, local, or foreign tax laws. The discussion does not
consider any specific facts or circumstances that may apply to particular non-
U.S. holders (including insurance companies, tax-exempt organizations,
financial institutions, broker dealers or certain U.S. expatriates).
Furthermore, the following discussion is based on current provisions of the
Code, the regulations promulgated thereunder and administrative and judicial
interpretations as of the date hereof, all of which are subject to change,
possibly with retroactive effect. Treasury regulations were recently proposed
that would, if adopted in their present form, revise in certain respects the
rules applicable to non-U.S. holders of Common Stock (the "Proposed
Regulations"). The Proposed Regulations are generally proposed to be effective
with respect to payments made after December 31, 1997. It is not certain
whether, or in what form, the Proposed Regulations will be adopted as final
regulations. Each prospective investor is urged to consult its own tax adviser
as to its personal tax situation with respect to the U.S. Federal, state and
local consequences of owning and disposing of a share of Common Stock, as well
as any tax consequences arising under the laws of any other taxing
jurisdiction.
U.S. INCOME TAX CONSEQUENCES
It is not currently contemplated that the Company will pay dividends on the
Common Stock in the foreseeable future. If the Company were to pay a dividend
in the future, such a dividend paid to a non-U.S. holder would be subject to
U.S. withholding tax at a 30% rate, or if applicable, a lower treaty rate,
unless the dividend is effectively connected with the conduct of a trade or
business in the United States by a non-U.S. holder (and, if certain tax
treaties apply, is attributable to a United States permanent establishment
maintained by such non-U.S. holder). A dividend that is effectively connected
with the conduct of a trade or business in the United States by the non-U.S.
holder (and, if certain tax treaties apply, is attributable to a United States
permanent establishment maintained by such non-U.S. holder) will generally be
exempt from the withholding tax described above and subject instead (i) to the
U.S. Federal income tax on net income that applies to U.S. persons and (ii)
with respect to corporate holders under certain circumstances, a 30% (or, if
applicable, lower treaty rate) branch profits tax that in general is imposed
on its "effectively connected earnings and profits" (within the meaning of the
Code) for the taxable year, as adjusted for certain items.
Under current Treasury Regulations, dividends paid to an address in a
foreign country are presumed to be paid to a resident of that country (unless
the payor has knowledge to the contrary) for purposes of the withholding
discussed above and, under the current interpretation of the Treasury
Regulations, for purposes of determining the applicability of a tax treaty
rate. Under the Proposed Regulations, however, a non-U.S. holder of Common
Stock who wishes to claim the benefit of an applicable treaty rate would be
required to satisfy applicable certification and other requirements. In the
case of a foreign partnership, the certification requirement would generally
be applied to the partners of the partnership. In addition, the Proposed
Regulations also would require
39
<PAGE>
the partnership to provide certain information, including a United States
taxpayer identification number, and would provide look-through rules for
tiered partnerships. A non-U.S. holder that is eligible for a reduced rate of
U.S. withholding tax pursuant to an income tax treaty may obtain a refund of
any excess amounts withheld by filing an appropriate claim for refund with the
Internal Revenue Service (the "IRS").
Under current law, a non-U.S. holder generally will not be subject to U.S.
Federal income tax on any gain recognized on a sale or other disposition of a
share of Common Stock unless (i) the gain is effectively connected with the
conduct of a trade or a business within the United States of the non-U.S.
holder and, if certain tax treaties apply, is attributable to a United States
permanent establishment maintained by the non-U.S. holder, (ii) the gain is
not described in clause (i) above, the non-U.S. holder is an individual who
holds the share as a capital asset, is present in the United States for 183
days or more in the taxable year of the disposition and either (a) such
individual has a "tax home" (as defined for U.S. Federal income tax purposes)
in the United States or (b) the gain is attributable to an office or other
fixed place of business maintained in the United States by such individual, or
(iii) the Company is or has been a United States real property holding
corporation (a "USRPHC") for United States federal income tax purposes (which
the Company does not believe that it is or is likely to become) at any time
within the shorter of the five year period preceding such disposition or such
non-U.S. holder's holding period. If the Company were to become a USRPHC,
gains realized upon a disposition of Common Stock by a non-U.S. holder which
did not directly or indirectly own more than 5% of the Common Stock during the
shorter of the periods described above generally would not be subject to
United States federal income tax, provided that the Common Stock is "regularly
traded" on an established securities market. In case of a non-U.S. holder that
is described under clause (i) above, its gain will be subject to the U.S.
Federal income tax on net income that applies to U.S. persons and, in
addition, if such non-U.S. holder is a foreign corporation, it may be subject
to the branch profits tax as described in the preceding paragraph. An
individual non-U.S. holder that is described under clause (ii) above will be
subject to a flat 30% tax on the gain derived from the sale, which may be
offset by certain U.S. capital losses (notwithstanding the fact that he or she
is not considered a resident of the United States). Thus, individual non-U.S.
holders who have spent 183 days or more in the United States in the taxable
year in which they contemplate a sale of the Common Stock are urged to consult
their tax advisers as to the tax consequences of such sale.
U.S. ESTATE TAX CONSEQUENCES
Shares of Common Stock owned at the time of his or her death by an
individual non-U.S. holder will be includible in his or her gross estate for
U.S. Federal estate tax purposes unless an applicable estate tax treaty
provides otherwise, and may be subject to U.S. Federal estate tax.
BACK-UP WITHHOLDING AND INFORMATION REPORTING
Dividends
Except as provided below, the Company must report annually to the IRS and to
each non-U.S. holder the amount of dividends paid to and the tax withheld with
respect to such holder. These information reporting requirements apply
regardless of whether withholding was reduced or eliminated by an applicable
tax treaty. Copies of these information returns may also be available under
the provisions of a specific treaty or agreement with the tax authorities in
the country in which the non-U.S. holder resides. In general, backup
withholding at a rate of 31% and additional information reporting will apply
to dividends paid on shares of Common Stock to holders that are not "exempt
recipients" and that fail to provide in the manner required certain
identifying information (such as the holder's name, address and taxpayer
identification number). Generally, individuals are not exempt recipients,
whereas corporations and certain other entities generally are exempt
recipients. However, dividends that are subject to U.S. withholding tax at the
30% statutory rate or at a reduced tax treaty rate are exempt from backup
withholding of U.S. Federal income tax and such additional information
reporting.
Broker Sales
If a non-U.S. holder sells shares of Common Stock through a U.S. office of a
U.S. or foreign broker, the broker is required to file an information return
and is required to withhold 31% of the sale proceeds unless the
40
<PAGE>
non-U.S. holder is an exempt recipient or has provided the broker with the
information and statements, under penalties of perjury, necessary to establish
an exemption from backup withholding. If payment of the proceeds of the sale
of a share by a non-U.S. holder is made to or through the foreign office of a
broker, that broker will not be required to backup withhold or, except as
provided in the next sentence, to file information returns. In the case of
proceeds from a sale of a share by a non-U.S. holder paid to or through the
foreign office of a U.S. broker or a foreign office of a foreign broker that
is (i) a controlled foreign corporation for U.S. tax purposes or (ii) a person
50% or more of whose gross income for the three-year period ending with the
close of the taxable year preceding the year of payment (or for the part of
that period that the broker has been in existence) is effectively connected
with the conduct of a trade or business within the United States (a "Foreign
U.S. Connected Broker"), information reporting is required unless the broker
has documentary evidence in its files that the payee is not a U.S. person and
certain other conditions are met, or the payee otherwise establishes an
exemption.
Refunds
Any amounts withheld under the backup withholding rules from a payment to a
non-U.S. holder may be refunded or credited against the non-U.S. holder's U.S.
Federal income tax liability, provided that the required information is
furnished to the IRS.
41
<PAGE>
UNDERWRITING
Upon the terms and subject to the conditions stated in the U.S. Underwriting
Agreement dated the date hereof (the "U.S. Underwriting Agreement"), each of
the underwriters of the U.S. Offering named below (the "U.S. Underwriters"),
for whom Smith Barney Inc., CS First Boston Corporation, Dillon, Read & Co.
Inc., Merrill Lynch, Pierce Fenner & Smith Incorporated and Wheat, First
Securities, Inc. are acting as the representatives (the "Representatives"),
has severally agreed to purchase from the Selling Stockholders the number of
shares of Common Stock set forth opposite the name of such U.S. Underwriter
below.
<TABLE>
<CAPTION>
U.S. UNDERWRITERS NUMBER OF SHARES
- ----------------- ----------------
<S> <C>
Smith Barney Inc...............................................
CS First Boston Corporation....................................
Dillon, Read & Co. Inc.........................................
Merrill Lynch, Pierce Fenner & Smith
Incorporated..................................................
Wheat, First Securities, Inc...................................
---------
Total........................................................ 9,600,000
=========
</TABLE>
Under the terms and subject to the conditions contained in the International
Underwriting Agreement dated the date hereof (the "International Underwriting
Agreement"), each of the managers of the concurrent International Offering
named below (the "Managers"), for whom Smith Barney Inc., CS First Boston
Limited, Dillon, Read & Co. Inc., Merrill Lynch International and Wheat, First
Securities, Inc. are acting as lead managers (the "Lead Managers"), has
severally agreed to purchase from the Selling Stockholders the numbers of
shares of Common Stock set forth opposite the name of such Manager below.
<TABLE>
<CAPTION>
MANAGERS NUMBER OF SHARES
- -------- ----------------
<S> <C>
Smith Barney Inc...............................................
CS First Boston Limited........................................
Dillon, Read & Co. Inc.........................................
Merrill Lynch International....................................
Wheat, First Securities, Inc...................................
---------
Total........................................................ 2,400,000
=========
</TABLE>
Each of the U.S. Underwriting Agreement and the International Underwriting
Agreement provides that the obligations of the several U.S. Underwriters and
the several Managers to pay for and accept delivery of the shares of Common
Stock offered hereby are subject to the approval of certain legal matters by
counsel and to certain other conditions. The U.S. Underwriters and the
Managers are obligated to take any pay for all shares of Common Stock offered
hereby (other than those covered by the over-allotment option described below)
if any such shares are taken.
The U.S. Underwriters and the Managers (collectively, the "Underwriters")
initially propose to offer part of the shares offered hereby directly to the
public at the public offering price set forth on the cover page of this
Prospectus and part of the shares offered hereby to certain dealers at a price
which represents a concession not in excess of $ per share under the price
to public. The U.S. Underwriters and the Managers may allow, and such dealers
may reallow, a concession not in excess of $ per share to other U.S.
Underwriters or Managers, respectively, or to certain other dealers. The
Representatives and the Managers have advised the Company that the U.S.
Underwriters and the Managers do not intend to confirm any shares to accounts
over which they exercise discretionary authority.
The Selling Stockholders have granted the U.S. Underwriters an option,
exercisable at any time and from time to time during a 30-day period from the
date of this Prospectus, to purchase up to an aggregate of 1,800,000
42
<PAGE>
additional shares of Common Stock at the public offering price set forth on
the cover page hereof less underwriting commissions. The U.S. Underwriters may
exercise such option to purchase additional shares solely for the purpose of
covering over-allotments, if any, incurred in connection with the sales of the
shares of Common Stock offered hereby. To the extent such option is exercised,
each U.S. Underwriter will be obligated, subject to certain conditions, to
purchase approximately the same percentage of such additional shares as the
number of shares set forth opposite each U.S. Underwriter's name in the
preceding U.S. Underwriters table bears to the total number of shares of
Common Stock offered by the U.S. Underwriters hereby.
The Company, certain of its officers and directors and the Selling
Stockholders have agreed that, for a period of 120 days from the date of this
Prospectus, they will not, without the prior written consent of Smith Barney
Inc., offer, sell, contract to sell, or otherwise dispose of, any shares of
Common Stock of the Company or any securities convertible into, or exercisable
or exchangeable for, Common Stock of the Company, or grant any options or
warrants to purchase Common Stock, except in certain circumstances.
The U.S. Underwriters and the Managers have entered into an Agreement
between U.S. Underwriters and Managers pursuant to which each U.S. Underwriter
has agreed that as part of the distribution of the shares offered in the U.S.
Offering (i) it is not purchasing any such shares for the account of anyone
other than a U.S. or Canadian Person, and (ii) it has not offered or sold, and
will not offer, sell, resell or deliver, directly or indirectly, any of such
shares or distribute any prospectus relating to the U.S. Offering outside the
United States or Canada or to anyone other than a U.S. or Canadian Person. In
addition, each Manager has agreed that as part of the distribution of the
shares offered in the International Offering: (i) it is not purchasing any
such shares for the account of any U.S. or Canadian Person, and (ii) it has
not offered or sold, and will not offer, sell, resell or deliver, directly or
indirectly, any of such shares or distribute any prospectus relating to the
International Offering in the United States or Canada or to any U.S. or
Canadian Person. Each Manager has also agreed that it will offer to sell
shares only in compliance with all relevant requirements of any applicable
laws.
The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the U.S. Underwriting Agreement, the
International Underwriting Agreement and the Agreement Between U.S.
Underwriters and Managers, including (i) certain purchases and sales between
the U.S. Underwriters and the Managers, (ii) certain offers, sales, resales,
deliveries or distributions to or through investment advisors or other persons
exercising investment discretion, (iii) purchases, offers or sales by a U.S.
Underwriter who is also acting as a Manager or by a Manager who is also acting
as a U.S. Underwriter, and (iv) other transactions specifically approved by
the Representatives and the Lead Managers. As used herein, "U.S. or Canadian
Person" means any resident or national of the United States or Canada, any
corporation, partnership or other entity created or organized in or under the
laws of the United States or Canada or any estate or trust the income of which
is subject to U.S. or Canadian income taxation regardless of the source of its
income (other than the foreign branch of any U.S. or Canadian Person), and
includes any U.S. or Canadian branch of a person other than a U.S. or Canadian
Person.
Any offer of shares in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the relevant province of Canada
in which such offer is made.
Each Manager has represented and agreed that (i) it has not offered or sold
and will not offer or sell in the United Kingdom, by means of any document,
any shares other than to persons whose ordinary business it is to buy or sell
shares or debentures, whether as principal or agent or in circumstances which
do not constitute an offer to the public within the meaning of the Public
Offering of Securities Regulation 1995, (ii) it has complied and will comply
with all applicable provisions of the Financial Services Act 1986 with respect
to anything done by it in relation to the shares in, from, or otherwise
involving, the United Kingdom, and (iii) it has only issued or passed on and
will only issue or pass on to any person in the United Kingdom any document
received by it in connection with the issue of the shares if that person is of
a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 or is a person to whom the
document may otherwise lawfully be issued or passed on.
43
<PAGE>
No action has been or will be taken in any jurisdiction by the Company, the
U.S. Underwriters or the Managers that would permit any offering to the
general public of the Common Stock offered hereby in any jurisdiction other
than the United States.
Purchasers of the Common Stock offered hereby may be required to pay stamp
taxes and other charges in accordance with the laws and practices of the
country of purchase in addition to the offering price set forth on the cover
page hereof.
Pursuant to the Agreement Between U.S. Underwriters and Managers, sales may
be made between the U.S. Underwriters and the Managers of such number of
shares of Common Stock as may be mutually agreed. The price of shares so sold
shall be the public offering price as then in effect for Common Stock being
sold by the U.S. Underwriters and the Managers, less all or any part of the
selling concession, unless otherwise determined by mutual agreement. To the
extent that there are sales between the U.S. Underwriters and the Managers
pursuant to the Agreement Between U.S. Underwriters and Managers, the number
of shares initially available for sale by the U.S. Underwriters and by the
Managers may be more or less than the number of shares appearing on the front
cover of this Prospectus.
Smith Barney Inc. has from time to time performed various investment banking
services for the Company, including in connection with the Company's
acquisition of Thomasville, and has received customary fees in respect of such
services.
The Company, the Selling Stockholders, the U.S. Underwriters and the
Managers have agreed to indemnify each other against certain liabilities,
including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the shares offered hereby will be passed upon for the
Company by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania. Certain
legal matters will be passed upon for the Selling Stockholders by Akin, Gump,
Strauss, Hauer & Feld, LLP, New York, New York and for the Underwriters by
Cravath, Swaine & Moore, New York, New York.
EXPERTS
The consolidated financial statements and financial statement schedule of
the Company and subsidiaries as of December 31, 1995 and 1994, and for each of
the years in the three-year period ended December 31, 1995, have been audited
by KPMG Peat Marwick LLP, independent certified public accountants. The pro
forma adjustments appearing in the Company's pro forma condensed consolidated
statement of operations for the year ended December 31, 1995, included herein
have been examined by KPMG Peat Marwick LLP, independent certified public
accountants. Such financial statements, schedule, and pro forma adjustments
have been included and incorporated by reference herein and in the
Registration Statement in reliance upon the reports of KPMG Peat Marwick LLP,
appearing elsewhere and incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Thomasville as of December 31, 1994
and 1993 and for each of the years in the three-year period ended December 31,
1994, have been incorporated by reference herein, and in the Registration
Statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing. The report of
KPMG Peat Marwick LLP refers to changes in accounting for post employment
benefits, post retirement benefits and income taxes.
44
<PAGE>
In addition, the consolidated balance sheet of Thomasville as of December
29, 1995 and the related consolidated statement of operations for the year
then ended, have been incorporated by reference herein, and in the
Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein,
and upon the authority of said firm as experts in accounting and auditing. The
report of KPMG Peat Marwick LLP refers to the omission, in the consolidated
financial statements of the Company, of the consolidated statements of
shareholder's equity and cash flows for the year ended December 29, 1995 and
notes to the consolidated financial statements which are required by generally
accepted accounting principles and results in an incomplete presentation. The
report also refers to Thomasville's acquisition by the Company on December 29,
1995. The acquisition was accounted for under the purchase method of
accounting. The accompanying consolidated financial statements do not include
the effects of push down accounting.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities of the Commission, Judiciary Plaza,
450 Fifth Street, N.W., Washington, DC 20549, as well as at the following
Commission Regional Offices: Seven World Trade Center, 13th Floor, New York,
NY 10048; and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies can be obtained from the Commission by mail at
prescribed rates. Requests should be directed to the Commission's Public
Reference Branch, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC
20549. Such material can be inspected and copied at the offices of the New
York Stock Exchange, 20 Broad Street, New York, New York, 10005, on which the
Company's Common Stock is listed. Such material may also be accessed
electronically by means of the Commission's home page on the Internet
(http://www.sec.gov).
This Prospectus constitutes a part of a registration statement on Form S-3
(herein, together with all exhibits thereto, referred to as the "Registration
Statement") filed by the Company with the Commission under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the securities
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. Reference is
hereby made to the Registration Statement and to the exhibits thereto for
further information with respect to the Company and the securities offered
hereby. Copies of the Registration Statement and the exhibits thereto are on
file at the offices of the Commission and may be obtained upon payment of the
prescribed fee or may be examined without charge at the public reference
facilities of the Commission described above. Statements contained herein
concerning the provisions of documents are necessarily summaries of such
documents, and each statement is qualified in its entirety by reference to the
copy of the applicable document filed with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission (File No.
I-91) are incorporated by reference in this Prospectus:
(1) Annual Report on Form 10-K for the year ended December 31, 1995 as
amended by Form 10-K/A-1 filed February 22, 1996;
(2) Quarterly reports on Form 10-Q for the quarters ended March 31, 1996,
June 30, 1996 and September 30, 1996;
(3) Current Report on Form 8-K filed January 12, 1996 as amended by Form
8-K/A-1 filed January 16, 1996, and Form 8-K/A-2 filed February 1, 1996,
Current Report on Form 8-K filed January 31, 1996 and Current Report on
Form 8-K filed October 18, 1996; and
45
<PAGE>
(4) the description of the Company's Common Stock contained in its Form 8
filed with the Commission on June 29, 1992.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the Offering shall be deemed to be incorporated by
reference into this Prospectus.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. These documents (not including exhibits to the
documents incorporated by reference unless such exhibits are specifically
incorporated by reference into the information that the Prospectus
incorporates) are available without charge to each person to whom a Prospectus
is delivered upon written or oral request. Requests should be directed to
Furniture Brands International, Inc., 101 South Hanley Road, St. Louis,
Missouri 63105-3493, Attention: Secretary (telephone number (314) 863-1100).
46
<PAGE>
FURNITURE BRANDS INTERNATIONAL, INC.
INDEX TO CONSOLIDATED AND PRO FORMA FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheet as of December 31, 1994 and 1995.............. F-3
Consolidated Statement of Operations for the Years Ended December 31,
1993, 1994 and 1995..................................................... F-4
Consolidated Statement of Cash Flows for the Years Ended December 31,
1993, 1994 and 1995..................................................... F-5
Consolidated Statement of Shareholders' Equity for the Years Ended
December 31, 1993, 1994
and 1995................................................................ F-6
Notes to Consolidated Financial Statements............................... F-7
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheet as of September 30, 1996...................... F-20
Consolidated Statement of Operations for the Nine Months Ended September
30, 1995 and
September 30, 1996...................................................... F-21
Consolidated Statement of Cash Flows for the Nine Months Ended September
30, 1995 and
September 30, 1996...................................................... F-22
Notes to Consolidated Financial Statements............................... F-23
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Report............................................. F-25
Pro Forma Condensed Consolidated Statement of Operations for the Year
Ended December 31, 1995................................................. F-26
Notes to Pro Forma Condensed Consolidated Financial Statements........... F-27
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders Furniture Brands International, Inc.:
We have audited the accompanying consolidated balance sheets of Furniture
Brands International, Inc. (formerly, INTERCO INCORPORATED) and subsidiaries
(the "Company") as of December 31, 1994 and 1995, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Furniture
Brands International, Inc. 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.
KPMG Peat Marwick LLP
St. Louis, Missouri
January 30, 1996
F-2
<PAGE>
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.
F-3
<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 adminis-
trative 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 extraordi-
nary 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 ex-
tinguishment 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 ex-
tinguishment 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.
F-4
<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 equip-
ment...................................... 24,304 25,675 26,371
Amortization of intangible and other as-
sets...................................... 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 li-
abilities................................. 969 7,904 (211)
Increase (decrease) in other long-term lia-
bilities.................................. (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 activi-
ties........................................ (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 peri-
od............................................ 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.
F-5
<PAGE>
CONSOLIDATED STATEMENT 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.
F-6
<PAGE>
FURNITURE BRANDS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. THE COMPANY
Furniture Brands International, Inc. (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 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.
F-7
<PAGE>
FURNITURE BRANDS INTERNATIONAL, INC.
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.
Name Change
Effective March 1, 1996, the Company changed its name from INTERCO
INCORPORATED to Furniture Brands International, Inc.
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.
F-8
<PAGE>
FURNITURE BRANDS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
Revenue Recognition
The Company recognizes revenue when finished products are shipped with
appropriate provisions for returns and uncollectible accounts.
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.
F-9
<PAGE>
FURNITURE BRANDS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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>
YEAR ENDED ELEVEN MONTHS ENDED
DECEMBER 31, 1993 NOVEMBER 17, 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>
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>
F-10
<PAGE>
FURNITURE BRANDS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 al-
locable
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 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.
F-11
<PAGE>
FURNITURE BRANDS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
F-12
<PAGE>
FURNITURE BRANDS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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:
TERM LOAN FACILITY
<TABLE>
<CAPTION>
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 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.
F-13
<PAGE>
FURNITURE BRANDS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
------------------------ ------------------------- ------------------------
SHARES AVERAGE PRICE SHARES AVERAGE PRICE SHARES AVERAGE 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
Canceled................ (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>
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 canceled.
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.
F-14
<PAGE>
FURNITURE BRANDS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
======= ======= =======
The following table reconciles the differences between the Federal corporate
statutory rate and the Company's effective income tax rate:
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Federal corporate statutory 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>
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, 1994 DECEMBER 31, 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>
F-15
<PAGE>
FURNITURE BRANDS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The net deferred tax liabilities are included in the consolidated balance
sheets as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 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, corporate
debt securities and insurance contracts. The table below summarizes the funded
status of the Company-sponsored defined benefit plans.
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 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
period................................... $ 4,575 $ 4,758 $ 3,544
Interest cost on the projected benefit
obligation............................... 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>
F-16
<PAGE>
FURNITURE BRANDS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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 ex-
cess 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.
F-17
<PAGE>
FURNITURE BRANDS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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 (representing the insurance
proceeds received minus the book value of the assets destroyed), 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.
F-18
<PAGE>
FURNITURE BRANDS INTERNATIONAL, INC.
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 com-
mon 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 com-
mon share--fully di-
luted:
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)..... $ 7 1/8-6 1/8 $ 6 7/8-5 3/4 $ 8 1/8-5 3/4 $ 9 1/8-7
============== ============== ============== =============
</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.
F-19
<PAGE>
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 21,456
Receivables, less allowance of $25,349................ 292,669
Inventories (Note 3).................................. 280,977
Prepaid expenses and other current assets............. 17,608
----------
Total current assets................................ 612,710
Property, plant and equipment........................... 410,553
Less accumulated depreciation......................... 114,763
----------
Net property, plant and equipment................... 295,790
Intangible assets....................................... 345,383
Other assets............................................ 14,682
----------
$1,268,565
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued expenses........... $ 150,937
Accrued interest expense.............................. 2,461
----------
Total current liabilities........................... 153,398
Long-term debt, less current maturities................. 578,600
Other long-term liabilities............................. 133,626
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 61,426,281 shares
at September 30, 1996 (Note 4)....................... 61,426
Paid-in capital....................................... 279,273
Retained earnings..................................... 62,242
----------
Total shareholders' equity.......................... 402,941
----------
$1,268,565
==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-20
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
1995 1996
----------- -----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Net sales......................................... $ 794,866 $ 1,262,610
Costs and expenses:
Cost of operations.............................. 562,479 913,207
Selling, general and administrative expenses.... 149,101 214,038
Depreciation and amortization (includes $11,836
and $12,277 related to fair value
adjustments)................................... 28,387 41,411
----------- -----------
Earnings from operations.......................... 54,899 93,954
Interest expense.................................. 25,409 35,672
Other income, net................................. 3,352 1,978
----------- -----------
Earnings before income tax expense and
extraordinary item............................... 32,842 60,260
Income tax expense................................ 13,416 23,467
----------- -----------
Net earnings before extraordinary item............ 19,426 36,793
Extraordinary item--early extinguishment of debt,
net of tax benefit............................... -- (7,417)
----------- -----------
Net earnings...................................... $ 19,426 $ 29,376
=========== ===========
Net earnings per common share--primary:
Net earnings before extraordinary item.......... 0.38 0.60
Extraordinary item--early extinguishment of
debt........................................... -- (0.12)
----------- -----------
Net earnings per common share--primary.......... $ 0.38 $ 0.48
=========== ===========
Net earnings per common share--fully diluted:
Net earnings before extraordinary item.......... $ 0.38 $ 0.59
Extraordinary item--early extinguishment of
debt........................................... -- (0.12)
----------- -----------
Net earnings per common share--fully diluted.... $ 0.38 $ 0.47
=========== ===========
Weighted Average Common and Common Equivalent
Shares Outstanding:
Primary......................................... 50,597,623 61,227,139
=========== ===========
Fully Diluted................................... 51,403,855 62,764,804
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-21
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1995 1996
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash Flows from Operating Activities:
Net earnings........................................ $ 19,426 $ 29,376
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Net loss on early extinguishment of debt ......... -- 7,417
Depreciation of property, plant and equipment..... 21,087 32,406
Amortization of intangible and other assets....... 7,300 9,005
Noncash interest expense.......................... 1,670 1,756
Increase in receivables........................... (4,085) (16,553)
Increase in inventories........................... (2,386) (11,300)
Decrease in prepaid expenses and intangible and
other assets..................................... 2,783 17,179
Increase in accounts payable, accrued interest
expense and other accrued expenses............... 25,250 42,502
Decrease in net deferred tax liabilities.......... (3,173) (605)
Decrease in other long-term liabilities........... (13) (16,010)
---------- -----------
Net cash provided by operating activities........... 67,859 95,173
---------- -----------
Cash Flows from Investing Activities:
Proceeds from the disposal of assets................ 147 2,140
Additions to property, plant and equipment.......... (12,311) (23,930)
---------- -----------
Net cash used by investing activities............... (12,164) (21,790)
---------- -----------
Cash Flows from Financing Activities:
Payments for debt issuance costs.................... -- (4,630)
Additions to long-term debt......................... -- 380,000
Payments of long-term debt.......................... (23,875) (524,279)
Proceeds from sale of common stock.................. -- 81,292
Proceeds from the issuance of common stock.......... 199 9,239
Payments for the repurchase of common stock war-
rants.............................................. (2,789) (19,961)
---------- -----------
Net cash used by financing activities............... (26,465) (78,339)
---------- -----------
Net increase (decrease) in cash and cash equivalents.. 29,230 (4,956)
Cash and cash equivalents at beginning of period...... 32,145 26,412
---------- -----------
Cash and cash equivalents at end of period............ $ 61,375 $ 21,456
========== ===========
Supplemental Disclosure:
Cash payments for income taxes, net................. $ 6,549 $ 20,225
========== ===========
Cash payments for interest expense.................. $ 22,548 $ 32,834
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) The financial statements are unaudited but include all adjustments
(consisting of normal recurring adjustments) which the management of the
Company considers necessary for a fair presentation of the results of the
period. The results for the nine months ended September 30, 1996 are not
necessarily indicative of the results to be expected for the full year.
(2) In October 1995, the Financial Accounting Standards Board 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") with pro forma disclosures of net income and earnings per share as if
the fair value method had been applied. The Company adopted SFAS No. 123
as of January 1, 1996 and has elected to, as permitted under the
statement, continue recognition of compensation costs under the provisions
of Opinion No. 25 with appropriate disclosure, if material. The effect on
net earnings for the nine-month period ended September 30, 1996 is not
material and, accordingly, no disclosure has been made. Further, based on
current and anticipated use of stock options for the foreseeable future,
it is not envisioned that the impact of the pronouncement would be
material in subsequent periods.
(3) Inventories are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Finished products.................................. $124,094
Work-in-process.................................... 54,017
Raw materials...................................... 102,866
--------
$280,977
========
</TABLE>
(4) On March 1, 1996, the Company completed its offering of ten million common
shares generating net cash proceeds of $81.3 million which were used to
repay long-term debt. This long-term debt payment was applied in reverse
order of maturity to the term loan "C" facility of the Company's secured
credit agreement.
(5) In February 1996, the Company entered into interest rate swap agreements
with two financial institutions to reduce the impact of changes in
interest rates on its floating rate long-term debt. The two agreements,
having a total notional principal amount of $300.0 million, mature in
three years. The swap agreements effectively convert a portion of the
Company's floating rate long-term debt to a fixed rate. The Company pays
the counterparties a fixed rate of 5.14% per annum and receives payments
based upon the floating three month London interbank offered rate (LIBOR).
The Company is exposed to credit loss in the event of nonperformance by
the counterparties; however, the Company does not anticipate
nonperformance by the counterparties.
(6) On September 6, 1996, the Company refinanced its secured credit agreement.
The new secured credit agreement is a five-year, reducing revolving credit
facility with an initial commitment totaling $475.0 million. The revolving
credit facility has no mandatory principal payments; however, the
commitment is reduced to $400.0 million on September 30, 1999, $300.0
million on September 29, 2000, with remaining commitment maturing on
September 15, 2001.
The revolving credit facility allows for issuance of letters of credit and
cash borrowings. Letter of credit outstandings are limited to no more than
$60.0 million, with cash borrowings limited only by the facility's maximum
availability less letters of credit outstanding. On September 30, 1996,
$365.0 million in cash borrowings were outstanding under the revolving
credit facility.
F-23
<PAGE>
Cash borrowings under the revolving credit facility bear interest at a base
rate or at an adjusted Eurodollar rate plus an applicable margin which
varies, depending upon the type of loan the Company executes. The applicable
margin over the base rate and Eurodollar rate is subject to adjustment based
upon certain financial performance ratios. At September 30, 1996, all cash
borrowings were Eurodollar loans having an interest rate of 6.375%, which
included an applicable margin of 0.875%.
(7) In conjunction with the September 6, 1996 refinancing of the secured
credit agreement, the Company charged to results of operations $7.4
million, net of taxes of $4.5 million, representing the deferred financing
fees and expenses pertaining to such credit facilities. The charge was
recorded as an extraordinary item.
F-24
<PAGE>
INDEPENDENT AUDITORS' REPORT
We have examined the pro forma adjustments reflecting the transactions
described in the notes to the pro forma condensed consolidated financial
statements (the "Notes") and the application of those adjustments to the
historical amounts in the accompanying pro forma condensed consolidated
statement of operations of Furniture Brands International, Inc. (the
"Company") for the year ended December 31, 1995. The historical condensed
consolidated statement of operations is derived from the historical
consolidated statement of operations of the Company, which was audited by us
appearing elsewhere herein. The historical condensed consolidated statement of
operations of Thomasville Furniture Industries, Inc. ("Thomasville") is
derived from the historical consolidated statement of operations of
Thomasville which was audited by us and incorporated by reference herein. Such
pro forma adjustments are based upon management's assumptions described in the
Notes. Our examination was made in accordance with standards established by
the American Institute of Certified Public Accountants and, accordingly,
included such procedures as we considered necessary in the circumstances.
The objective of this pro forma condensed financial information is to show
what the significant effects on the historical information might have been had
these transactions occurred at an earlier date. However, the pro forma
condensed consolidated statement of operations is not necessarily indicative
of the results of operations that would have been attained had the above-
mentioned transactions actually occurred earlier.
In our opinion, management's assumptions provide a reasonable basis for
presenting the significant effects directly attributable to the above-
mentioned transactions described in the Notes, the related pro forma
adjustments give appropriate effect to those assumptions, and the pro forma
columns reflect the proper application of those adjustments to the historical
consolidated financial statement amounts in the pro forma condensed
consolidated statement of operations for the year ended December 31, 1995.
KPMG Peat Marwick LLP
St. Louis, Missouri
September 25, 1996
F-25
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
The following pro forma condensed consolidated statement of operations
reflects the acquisition of Thomasville, which was consummated on December 29,
1995, the incurrence of indebtedness by the Company in connection therewith
and in connection with the refinancing of a portion of the Company's then-
existing indebtedness, the sale of 10,000,000 shares of Common Stock completed
on March 1, 1996 and the application of the net proceeds therefrom ($81.3
million), in each case as if each of such transactions had occurred on January
1, 1995.
The pro forma condensed consolidated statement of operations should be read
in connection with the historical financial statements of the Company and
Thomasville presented elsewhere in this Prospectus or incorporated herein by
reference.
Management believes that the assumptions used provide a reasonable basis on
which to present the pro forma condensed consolidated statement of operations.
The pro forma condensed consolidated statement of operations is presented for
informational purposes only and is not necessarily indicative of the combined
results of operations in the future or of what the combined results of
operations would have been if the foregoing transactions had actually been
consummated as of such dates. In addition, the pro forma condensed
consolidated statement of operations does not give effect to profit
improvement opportunities, if any, which may be realized by the Company as a
result of the acquisition of Thomasville.
The pro forma condensed statement of operations has been prepared on the
basis of assumptions described in the notes thereto and include assumptions
relating to the allocation of the consideration paid for the Thomasville
acquisition to its respective assets and liabilities based on preliminary
estimates of their respective fair values. The actual allocation of such
consideration may differ from that reflected in the pro forma condensed
consolidated financial statements after valuations and other studies to be
performed pursuant to post-closing adjustments related to the acquisition have
been completed.
F-26
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------
PRO FORMA
THE COMPANY THOMASVILLE ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales................ $1,073,889 $550,227 $ -- $1,624,116
Costs and expenses:
Cost of operations...... 760,393 428,497 1,252(a) 1,190,142
Selling, general and 198,321 70,661 3,600 (b)
administrative (1,159)(c)
expenses............... 271,423
Restructuring charges... -- 404 (404)(d) --
Depreciation and 36,104(k) 12,557 (257)(e)
amortization........... 2,644 (f)
1,005 (g) 52,053(k)
---------- -------- ------- ----------
Earnings from opera-
tions................... 79,071 38,108 (6,681) 110,498
Interest expense......... 33,845 12,919 5,246 (h) 52,010
Other income, net:
Gain on insurance
settlement............. 7,882 -- -- 7,882
Other................... 3,930 2,049 (1,876)(i) 4,103
---------- -------- ------- ----------
Earnings before income
tax expense............. 57,038 27,238 (13,803) 70,473
Income tax expense....... 22,815 10,773 (5,280)(j) 28,308
---------- -------- ------- ----------
Net earnings from contin-
uing operations......... $ 34,223 $ 16,465 $(8,523) $ 42,165
========== ======== ======= ==========
Net earnings per common
share from continuing
operations (fully
diluted)................ $ 0.65(k) $ 0.68(k)
========== ==========
Weighted average common
and common equivalent
shares outstanding
(in thousands) (fully
diluted)................ 52,317 62,317
</TABLE>
- --------
(a) Adjusted to reflect cost of sales based upon first-in, first-out method of
accounting for inventory from the last-in, first-out method used by
Thomasville in 1995.
(b) Adjusted to reflect the estimated pension expense to the Company
associated with the formation of the new Thomasville pension plan.
(c) Adjusted to reflect the reversal of expenses incurred by Thomasville for
certain of its employee benefit plans, which were discontinued at the time
of the acquisition by the Company.
(d) Adjusted to reflect the reversal of Thomasville's nonrecurring
restructuring charge of $404 in 1995 relating primarily to severance
payments for employees who did not continue as employees after the
acquisition of Thomasville.
(e) Adjusted to reverse the amortization of Thomasville's historical excess of
cost over net assets acquired for the period prior to the acquisition of
Thomasville by the Company.
(f) Adjusted to reflect the amortization of the excess of cost over net assets
of Thomasville acquired by the Company.
(g) Adjusted to reflect increased depreciation expense to the Company
resulting from recording property, plant and equipment of Thomasville at
estimated fair value.
(h) Adjusted to reflect increased interest expense to the Company of $12,927
related to borrowings under its secured credit agreement and receivables
securitization facility in connection with the acquisition of Thomasville
and further adjusted to reflect reduced interest expense of $7,681 for the
application of the net proceeds of the 1996 Company Equity Sale to repay a
portion of such indebtedness.
(i) Adjusted to reflect reduction in interest income of the Company
attributable to cash used by the Company to finance the Thomasville
acquisition.
(j) Adjusted to record the income tax effect of all adjustments at a combined
statutory rate of 38.25%.
(k) Includes $15,922 related to the 1992 asset revaluation. This item resulted
in a reduction of $12,470 in net earnings from continuing operations and a
reduction of $0.24 per share (fully diluted) and $0.20 per share (fully
diluted) in net earnings per common share and pro forma net earnings per
common share, respectively. See Note 3 to the Consolidated Financial
Statements of the Company included elsewhere in this Prospectus.
F-27
<PAGE>
[LOGO OF THOMASVILLE APPEARS HERE]
[ARTWORK APPEARS HERE] [ARTWORK APPEARS HERE]
Stylish casual and exceedingly Thomasville's collection of home
comfortable design leadership is entertainment units meets the
fueling growth in upholstery growing demand for home theater and
and occasional furniture as shown by contemporary entertainment systems.
the Signature collection.
[ARTWORK APPEARS HERE] [ARTWORK APPEARS HERE]
Shelter magazine ads like The elegant Grand Classics
this featured Elysee collection collection appeals to consumers
bedroom represent the who want a more sophisticated home.
Thomasville brand effectively The collection is part of a wide
in more than a dozen publications. assortment of case goods in major
style categories.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN AS CONTAINED HEREIN AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO PURCHASE ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER
TO, OR SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT INFORMATION
PROVIDED HEREIN IS CORRECT AT ANY TIME SUBSEQUENT TO ITS DATE.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 10
Use of Proceeds.......................................................... 12
Price Range of Common Stock and Dividend Policy.......................... 12
Capitalization........................................................... 13
Selected Consolidated Historical and Pro Forma Financial Information..... 14
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 16
Business................................................................. 23
Management............................................................... 35
Certain Transactions..................................................... 36
Selling Stockholders..................................................... 36
Description of Capital Stock............................................. 37
Certain U.S. Tax Consequences to Non-U.S. Stockholders................... 39
Underwriting............................................................. 42
Legal Matters............................................................ 44
Experts.................................................................. 44
Available Information.................................................... 45
Incorporation of Certain Documents by Reference.......................... 45
Index to Consolidated and Pro Forma Financial Statements................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
12,000,000 SHARES
[LOGO OF FURNITURE BRANDS INTERNATIONAL APPEARS HERE]
COMMON STOCK
[LOGO] Broyhill
Lane
Thomasville
--------
PROSPECTUS
NOVEMBER , 1996
--------
SMITH BARNEY INC.
CS FIRST BOSTON
DILLON, READ & CO. INC.
MERRILL LYNCH & CO.
WHEAT FIRST BUTCHER SINGER
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE +
+WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES +
+LAWS OF ANY SUCH JURISDICTION. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[INTERNATIONAL PROSPECTUS ALTERNATE PAGE]
PROSPECTUS SUBJECT TO COMPLETION, DATED NOVEMBER 6, 1996
12,000,000 SHARES
[LOGO OF FURNITURE BRANDS INTERNATIONAL APPEARS HERE]
COMMON STOCK
--------
[LOGO OF BROYHILL Lane Thomasville
APPEARS HERE]
All of the shares of Common Stock, no par value (the "Common Stock"), of
Furniture Brands International, Inc. (the "Company") offered hereby are being
sold by the Selling Stockholders, as defined herein. The Company will not
receive any of the proceeds from the sale of the Common Stock offered hereby.
Of the 12,000,000 shares of Common Stock offered hereby, a total of 2,400,000
shares are being offered hereby in an international offering outside the United
States and Canada (the "International Offering") by the Managers (as defined)
and a total of 9,600,000 shares are being offered by the U.S. Underwriters (as
defined) in a concurrent offering in the United States and Canada (the "U.S.
Offering" and, together with the International Offering, the "Offerings"). The
Common Stock is listed on the New York Stock Exchange under the symbol "FBN."
On November 5, 1996, the last reported sale price of the Common Stock on the
New York Stock Exchange was $12 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND SELLING
PUBLIC COMMISSIONS(1) STOCKHOLDERS(2)
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- ---------------------------------------------------------------------
Total(3) $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) For information regarding indemnification of the U.S. Underwriters and
the Managers, see "Underwriting."
(2) Before deducting expenses estimated at $ payable by the Company.
(3) The Selling Stockholders have granted the U.S. Underwriters a 30-day
option to purchase up to 1,800,000 additional shares of Common Stock
solely to cover over-allotments, if any. If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions
and Proceeds to the Selling Stockholders will be $ , $ and $ ,
respectively.
--------
The shares of Common Stock are being offered by the several U.S. Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
November , 1996, at the office of Smith Barney Inc., 333 West 34th Street, New
York, New York 10001.
--------
SMITH BARNEY INC.
CS FIRST BOSTON
DILLON, READ & CO. INC.
MERRILL LYNCH INTERNATIONAL
WHEAT FIRST BUTCHER SINGER
November , 1996
<PAGE>
[INTERNATIONAL PROSPECTUS ALTERNATE PAGE]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN AS CONTAINED HEREIN AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO PURCHASE ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO,
OR SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT INFORMATION PROVIDED
HEREIN IS CORRECT AT ANY TIME SUBSEQUENT TO ITS DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 10
Use of Proceeds.......................................................... 12
Price Range of Common Stock and Dividend Policy.......................... 12
Capitalization........................................................... 13
Selected Consolidated Historical and Pro Forma Financial Information..... 14
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 16
Business................................................................. 23
Management............................................................... 35
Certain Transactions..................................................... 36
Selling Stockholders..................................................... 36
Description of Capital Stock............................................. 37
Certain U.S. Tax Consequences to Non-U.S. Stockholders................... 39
Underwriting............................................................. 42
Legal Matters............................................................ 44
Experts.................................................................. 44
Available Information.................................................... 45
Incorporation of Certain Documents by Reference.......................... 45
Index to Consolidated and Pro Forma Financial Statements................. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
12,000,000 SHARES
[LOGO OF FURNITURE BRANDS INTERNATIONAL APPEARS HERE]
COMMON STOCK
[LOGO] Broyhill
Lane
Thomasville
-------
PROSPECTUS
NOVEMBER , 1996
-------
SMITH BARNEY INC.
CS FIRST BOSTON
DILLON, READ & CO. INC.
MERRILL LYNCH INTERNATIONAL
WHEAT FIRST BUTCHER SINGER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table shows the estimated expenses of the issuance and
distribution of the securities offered hereby, other than underwriting
discounts and commissions:
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee....................... $ 59,842
National Association of Securities Dealers, Inc. filing fee......... 20,248
Printing expenses................................................... 120,000
Legal fees and expenses............................................. 100,000
Accounting fees and expenses........................................ 100,000
Blue sky filing fees and expenses (including counsel fees).......... 5,000
Miscellaneous expenses.............................................. 4,910
--------
Total............................................................... $410,000
========
</TABLE>
15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 ("Section 145") of the Delaware General Corporation Law permits
indemnification of directors, officers, agents and controlling persons of a
corporation under certain conditions and subject to certain limitations.
Section 145 empowers a corporation to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that such person is or was a director,
officer or agent of the corporation or another enterprise if serving at the
request of the corporation. Depending on the character of the proceeding, a
corporation may indemnify against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with such action, suit or proceeding if the person
indemnified acted in good faith and in a manner such person reasonably
believed to be in or not opposed to, the best interests of the corporation,
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe such person's conduct was unlawful. In the case of an action
by or in the right of the corporation, no indemnification may be made with
respect to any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine that despite the adjudication of liability such person is
fairly and reasonably entitled to indemnity for such expenses which the court
shall deem proper. Section 145 further provides that to the extent a director
or officer of a corporation has been successful in the defense of any action,
suit or proceeding referred to above or in the defense of any claim, issue or
matter therein, such person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
therewith.
The Company's By-laws contain provisions for indemnification of directors,
officers, employees and agents which are substantially the same as Section 145
and also permit the Company to purchase insurance on behalf of any such person
against any liability asserted against such person and incurred by such person
in any such capacity, or arising out of such person's status as such, whether
or not the Company would have the power to indemnify such person against such
liability under the foregoing provision of the By-laws. The Company maintains
such insurance.
Certain of the directors and former directors of the Company have entered
into and are the beneficiaries of indemnification agreements with the Company.
These agreements provide indemnity protection for such persons which is
substantially the same as that authorized by the Delaware General Corporation
Law and provided for in the Company's By-Laws.
The Underwriting Agreement, included as Exhibit 1 hereto, provides that each
of the Underwriters will indemnify the directors and officers of the Company
against certain liabilities, including liabilities under the Securities Act
1933, as amended.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBITS
<TABLE>
<C> <S>
1(a) Form of U.S. Underwriting Agreement.*
1(b) Form of International Underwriting Agreement.*
3(a) Restated Certificate of Incorporation of the Company, as amended
(incorporated by reference to Exhibit 3(a) to the Company's Report on
Form 10-Q for the quarter ended September 30, 1996).
3(b) By-Laws of the Company revised and amended to April 23, 1996
(incorporated by reference to Exhibit 3(b) to the Company's Report on
Form 10-Q for the quarter ended September 30, 1996).
5 Opinion of Morgan, Lewis & Bockius LLP as to the validity of the
securities.**
23.1 Consents of KPMG Peat Marwick LLP.*
23.2 Consent of Morgan, Lewis & Bockius LLP (included in exhibit 5).**
24 Powers of Attorney.**
</TABLE>
- --------
* Filed herewith.
** Previously filed.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan, annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the undersigned
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
The registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE COUNTY OF ST. LOUIS, STATE OF MISSOURI ON
NOVEMBER 6, 1996.
FURNITURE BRANDS INTERNATIONAL, INC.
By: /s/ Wilbert G. Holliman, Jr.
---------------------------------
WILBERT G. HOLLIMAN, JR. PRESIDENT
AND CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON THE DATES INDICATED BELOW.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Wilbert G. Holliman, Jr. President, Chief November 6, 1996
- ------------------------------------- Executive Officer
WILBERT G. HOLLIMAN, JR. and Director
/s/ David P. Howard Vice-President and November 6, 1996
- ------------------------------------- Chief Financial
DAVID P. HOWARD Officer
/s/ Steven W. Alstadt Controller and Chief November 6, 1996
- ------------------------------------- Accounting Officer
STEVEN W. ALSTADT
* Director November 6, 1996
- -------------------------------------
LEON D. BLACK
* Director November 6, 1996
- -------------------------------------
MICHAEL S. GROSS
* Director November 6, 1996
- -------------------------------------
JOHN J. HANNAN
* Director November 6, 1996
- -------------------------------------
JOSHUA J. HARRIS
* Director November 6, 1996
- -------------------------------------
BRUCE A. KARSH
* Director November 6, 1996
- -------------------------------------
JOHN H. KISSICK
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director November 6, 1996
- -------------------------------------
DONALD E. LASATER
* Director November 6, 1996
- -------------------------------------
LEE M. LIBERMAN
* Director November 6, 1996
- -------------------------------------
RICHARD B. LOYND
* Director November 6, 1996
- -------------------------------------
MARC J. ROWAN
* Director November 6, 1996
- -------------------------------------
JOHN J. RYAN, III
* Director November 6, 1996
- -------------------------------------
MICHAEL D. WEINER
</TABLE>
*By: /s/ Lynn Chipperfield
--------------------------------
LYNN CHIPPERFIELD, ATTORNEY-IN-FACT
NOVEMBER 6, 1996
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ----
<C> <S> <C>
1(a) Form of U.S. Underwriting Agreement.*
1(b) Form of International Underwriting Agreement.*
3(a) Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3(a) to the Company's
Report on Form 10-Q for the quarter ended September 30,
1996).
3(b) By-Laws of the Company revised and amended to April 23,
1996 (incorporated by reference to Exhibit 3(b) to the
Company's Report on Form 10-Q for the quarter ended
September 30, 1996).
5 Opinion of Morgan, Lewis & Bockius LLP as to the validity
of the securities.**
23.1 Consents of KPMG Peat Marwick LLP.*
23.2 Consent of Morgan, Lewis & Bockius LLP (included in exhibit
5).**
24 Powers of Attorney.**
</TABLE>
- --------
* Filed herewith.
** Previously filed.
<PAGE>
Exhibit 1(a)
[Draft--10/29/96]
9,600,000 Shares
FURNITURE BRANDS INTERNATIONAL, INC.
Common Stock
U.S. UNDERWRITING AGREEMENT
---------------------------
November __, 1996
SMITH BARNEY INC.
CS FIRST BOSTON CORPORATION
DILLON, READ & CO. INC.
MERRILL LYNCH, PIERCE FENNER & SMITH INCORPORATED
WHEAT, FIRST SECURITIES, INC.
As Representatives of the Several U.S. Underwriters
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
Certain stockholders named in Schedule II hereto (the "Selling
Stockholders") of Furniture Brands International, Inc. (the "Company"), propose
to sell an aggregate of 9,600,000 shares (the "Firm Shares") of the common
stock, no par value per share of the Company (the "Common Stock"), to the
several Underwriters named in Schedule I hereto (the "U.S. Underwriters"). The
Selling Stockholders also propose to sell to the U.S. Underwriters, upon the
terms and conditions set forth in Section 2 hereof, up to an additional
1,800,000 shares (the "Additional Shares") of Common Stock. The Firm Shares and
the Additional Shares are hereinafter collectively referred to as the "Shares".
It is understood that the Company and the Selling Stockholders are
currently entering into an International Underwriting Agreement, dated the date
hereof (the "International Underwriting Agreement"), providing for the sale of
2,400,000 shares of the Common Stock by the Selling Stockholders (the
"International Shares"), through arrangements with certain underwriters outside
the United States and Canada (the "Managers"), for whom Smith Barney Inc., CS
First Boston Limited, Dillon, Read & Co. Inc., Merrill Lynch International and
Wheat, First Securities, Inc. are acting as lead managers (the "Lead Managers").
The
<PAGE>
2
International Shares and the Shares, collectively, are herein called the
"Underwritten Shares".
The Company and the Selling Stockholders also understand that the
Representatives and the Lead Managers have entered into an agreement (the
"Agreement Between U.S. Underwriters and Managers") contemplating the
coordination of certain transactions between the U.S. Underwriters and the
Managers and that, pursuant thereto and subject to the conditions set forth
therein, the U.S. Underwriters may purchase from the Managers a portion of the
International Shares or sell to the Managers a portion of the Shares. The
Company and the Selling Stockholders understand that any such purchases and
sales between the U.S. Underwriters and the Managers shall be governed by the
Agreement Between U.S. Underwriters and Managers and shall not be governed by
the terms of this Agreement or the International Underwriting Agreement.
The Company and the Selling Stockholders wish to confirm as follows their
respective agreements with you (the "Representatives") and the other several
U.S. Underwriters on whose behalf you are acting, in connection with the several
purchases of the Shares by the U.S. Underwriters.
1. Registration Statement and Prospectus. The Company has prepared and
-------------------------------------
filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"Act"), a registration statement on Form S-3 under the Act (the "registration
statement"), including a prospectus subject to completion relating to the
Underwritten Shares. The term "Registration Statement" as used in this
Agreement means the registration statement (including all financial schedules
and exhibits), as amended at the time it becomes effective, or, if the
registration statement became effective prior to the execution of this
Agreement, as supplemented or amended prior to the execution of this Agreement.
If it is contemplated, at the time this Agreement is executed, that a post-
effective amendment to the registration statement will be filed and must be
declared effective before the offering of the Shares may commence, the term
"Registration Statment" as used in this Agreement means the registration
statement as amended by said post-effective amendment. If an abbreviated
registration statement is prepared and filed with the Commission in accordance
with Rule 462(b) under the Act ("a
<PAGE>
3
Rule 462(b) Registration Statement"), the term "Registration Statement" as used
in this Agreement includes the Rule 462(b) Registration Statement. The term
"Prospectuses" as used in this Agreement means the prospectuses in the form
included in the Registration Statement, or, if the prospectuses included in the
Registration Statement omit information in reliance on Rule 430A under the Act
and such information is included in prospectuses filed with the Commission
pursuant to Rule 424(b) under the Act, the term "Prospectuses" as used in this
Agreement means the prospectuses in the form included in the Registration
Statement as supplemented by the addition of the Rule 430A information contained
in the prospectuses filed with the Commission pursuant to Rule 424(b). The term
"Prepricing Prospectuses" as used in this Agreement means the prospectuses
subject to completion in the form included in the registration statement at the
time of the initial filing of the registration statement with the Commission,
and as such prospectuses shall have been amended from time to time prior to the
date of the Prospectuses. Any reference in this Agreement to the registration
statement, the Registration Statement, any Prepricing Prospectus or the
Prospectuses shall be deemed to refer to and include the documents incorporated
by reference therein pursuant to Item 12 of Form S-3 under the Act, as of the
date of the registration statement, the Registration Statement, such Prepricing
Prospectus or the Prospectuses, as the case may be, and any reference to any
amendment or supplement to the registration statement, the Registration
Statement, any Prepricing Prospectus or the Prospectuses shall be deemed to
refer to and include any documents filed after such date under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") which, upon filing, are
incorporated by reference therein, as required by paragraph (b) of Item 12 of
Form S-3. As used herein, the term "Incorporated Documents" means the documents
which at the time are incorporated by reference in the registration statement,
the Registration Statement, any Prepricing Prospectus, the Prospectuses, or any
amendment or supplement thereto.
It is understood that two forms of Prepricing Prospectus and two forms of
Prospectus are to be used in connection with the offering and sale of the
Underwritten Shares: a Prepricing Prospectus and a Prospectus relating to the
Shares that are to be offered and sold in the United States (as defined herein)
or Canada (as defined herein) to U.S. or Canadian Persons (the "U.S. Prepricing
Prospectus" and the "U.S. Prospectus", respectively), and a Prepricing
<PAGE>
4
Prospectus and a Prospectus relating to the International Shares which are to be
offered and sold outside the United States and Canada to persons other than U.S.
or Canadian Persons (the "International Prepricing Prospectus" and the
"International Prospectus", respectively). The U.S. Prospectus and the
International Prospectus are herein collectively called the "Prospectuses," and
the U.S. Prepricing Prospectus and the International Prepricing Prospectus are
herein collectively called the "Prepricing Prospectuses". For purposes of this
Agreement: "U.S. or Canadian Person" means any resident or national of the
United States or Canada, any corporation, partnership or other entity created or
organized in or under the laws of the United States or Canada or any estate or
trust the income of which is subject to United States or Canadian income
taxation regardless of the source of its income (other than the foreign branch
of any U.S. or Canadian Person), and includes any United States or Canadian
branch of a person other than a U.S. or Canadian Person; "United States" means
the United States of America (including the states thereof and the District of
Columbia) and its territories, its possessions and other areas subject to its
jurisdiction; and "Canada" means Canada and its territories, its possessions and
other areas subject to its jurisdiction.
2. Agreements to Sell and Purchase. Subject to such adjustments as you
-------------------------------
may determine in order to avoid fractional shares, each Selling Stockholder
agrees, severally and not jointly, subject to all the terms and conditions set
forth herein, to sell to each U.S. Underwriter and, upon the basis of the
representations, warranties and agreements of the Company and the Selling
Stockholders herein contained and subject to all the terms and conditions set
forth herein, each U.S. Underwriter, severally and not jointly, agrees to
purchase from each Selling Stockholder at a price per share of $_____(the
"purchase price per share") the number of Firm Shares which bears the same
proportion to the number of Firm Shares set forth opposite the name of such
Selling Stockholder in Schedule II hereto as the number of Firm Shares set forth
opposite the name of such U.S. Underwriter in Schedule I hereto (or such number
of Firm Shares increased as set forth in Section 12 hereof) bears to the
aggregate number of Firm Shares to be sold by the Selling Stockholders.
Each Selling Stockholder also agrees, subject to all the terms and
conditions set forth herein, to sell to the U.S. Underwriters, and, upon the
basis of the
<PAGE>
5
representations, warranties and agreements of the Company and the Selling
Stockholders herein contained and subject to all the terms and conditions set
forth herein, the U.S. Underwriters shall have the right to purchase from the
Selling Stockholders, at the purchase price per share, pursuant to an option
(the "over-allotment option") which may be exercised at any time and from time
to time prior to 9:00 P.M., New York City time, on the 30th day after the date
of the U.S. Prospectus (or, if such 30th day shall be a Saturday or Sunday or a
holiday, on the next business day thereafter when the New York Stock Exchange is
open for trading), up to an aggregate of 1,800,000 Additional Shares.
Additional Shares may be purchased only for the purpose of covering over-
allotments made in connection with the offering of the Firm Shares. Upon any
exercise of the over-allotment option, each U.S. Underwriter, severally and not
jointly, agrees to purchase from each Selling Stockholder, and each Selling
Stockholder agrees, severally and not jointly, to sell to each U.S. Underwriter,
the number of Additional Shares (subject to such adjustments as you may
determine in order to avoid fractional shares) which bears the same proportion
to the total number of Additional Shares as the number of Firm Shares sold by
such Selling Stockholder to such U.S. Underwriter pursuant to the preceding
paragraph bears to the total number of Firm Shares.
Each U.S. Underwriter represents, warrants, covenants and agrees that,
except as contemplated under Section 2 of the Agreement Between U.S.
Underwriters and Managers dated the date hereof (as described in the
Prospectuses under "Underwriting"), (i) it is not purchasing any Shares for the
account of anyone other than a U.S. or Canadian Person, (ii) it has not offered
or sold, and will not offer, sell, resell or deliver, directly or indirectly,
any Shares or distribute any U.S. Prospectus outside the United States or Canada
or to anyone other than a U.S. or Canadian Person, and (iii) any offer of Shares
in Canada will be made only pursuant to an exemption from the requirement to
file a prospectus in the relevant province of Canada in which such offer is made
and any such offer will not result in the Company being required to take any
action under any national, provincial and local law in Canada, except for the
filing with the securities regulatory authority of each province in which the
sale of the Shares are made of a trade report in the prescribed form, together
with the applicable fee.
<PAGE>
6
3. Terms of Public Offering. The Company and the Selling Stockholders
------------------------
have been advised by you that the U.S. Underwriters propose to make a public
offering of their respective portions of the Shares as soon after the
Registration Statement and this Agreement have become effective as in your
judgment is advisable and initially to offer the Shares upon the terms set forth
in the U.S. Prospectus.
4. Delivery of the Shares and Payment Therefor. Delivery to the U.S.
-------------------------------------------
Underwriters of and payment for the Firm Shares shall be made at the office of
Smith Barney Inc., 388 Greenwich Street, New York, NY 10013, at 10:00 A.M., New
York City time, on November ___, 1996 (the "Closing Date"). The place of
closing for the Firm Shares and the Closing Date may be varied by agreement
among you, the Company and the Selling Stockholders.
Delivery to the U.S. Underwriters of and payment for any Additional Shares
to be purchased by the U.S. Underwriters shall be made at the aforementioned
office of Smith Barney Inc. at such time on such date (the "Option Closing
Date"), which may be the same as the Closing Date but shall in no event be
earlier than the Closing Date nor earlier than two nor later than ten business
days after the giving of the notice hereinafter referred to, as shall be
specified in a written notice from you on behalf of the U.S. Underwriters to the
Selling Stockholders of the U.S. Underwriters' determination to purchase a
number, specified in such notice, of Additional Shares. The place of closing
for any Additional Shares and the Option Closing Date for such Shares may be
varied by agreement among you, the Company and the Selling Stockholders.
Certificates for the Firm Shares and for any Additional Shares to be
purchased hereunder shall be registered in such names and in such denominations
as you shall request prior to 9:30 A.M., New York City time, on the second
business day preceding the Closing Date or any Option Closing Date, as the case
may be. Such certificates shall be made available to you in New York City for
inspection and packaging not later than 9:30 A.M., New York City time, on the
business day next preceding the Closing Date or the Option Closing Date, as the
case may be. The certificates evidencing the Firm Shares and any Additional
Shares to be purchased hereunder shall be delivered to you on the Closing Date
or the Option Closing Date, as the case may be, against payment
<PAGE>
7
of the purchase price therefor in immediately available funds.
5. Agreements of the Company. The Company agrees with the several U.S.
-------------------------
Underwriters as follows:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the Registration Statement or a post-effective amendment thereto
or any Rule 462(b) Registration Statement to be declared effective before the
offering of the Shares may commence, the Company will endeavor to cause the
Registration Statement or such post-effective amendment to become effective as
soon as possible and will advise you promptly and, if requested by you, will
confirm such advice in writing, when the Registration Statement or such post-
effective amendment has become effective.
(b) The Company will advise you promptly and, if requested by you,
will confirm such advice in writing: (i) of any request by the Commission for
amendment of or a supplement to the Registration Statement, any Prepricing
Prospectus or the Prospectuses or for additional information; (ii) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the suspension of qualification of the Shares for
offering or sale in any jurisdiction or the initiation of any proceeding for
such purpose; and (iii) within the period of time referred to in paragraph (f)
below, of any change in the Company's condition (financial or other), business,
prospects, properties, net worth or results of operations, or of the happening
of any event, which makes any statement of a material fact made in the
Registration Statement or the Prospectuses (as then amended or supplemented)
untrue or which requires the making of any additions to or changes in the
Registration Statement or the Prospectuses (as then amended or supplemented) in
order to state a material fact required by the Act or the regulations thereunder
to be stated therein or necessary in order to make the statements therein not
misleading, or of the necessity to amend or supplement the Prospectuses (as then
amended or supplemented) to comply with the Act or any other law. If at any
time the Commission shall issue any stop order suspending the effectiveness of
the Registration Statement, the Company will make every reasonable effort to
obtain the withdrawal of such order at the earliest possible time.
<PAGE>
8
(c) The Company will furnish to you, without charge (i) six copies of
the registration statement as originally filed with the Commission and of each
amendment thereto, including financial statements and all exhibits to the
Registration Statement, and of any Rule 462(b) Registration Statement and any
amendment thereto, (ii) such number of conformed copies of the Registration
Statement as originally filed and of each amendment thereto, but without
exhibits, as you may reasonably request, (iii) such number of copies of the
Incorporated Documents, without exhibits, and of any Rule 462(b) Registration
Statement and any amendment thereto, as you may reasonably request, and (iv) six
copies of the exhibits to the Incorporated Documents.
(d) The Company will not file any amendment to the Registration
Statement, any Rule 462(b) Registration Statement or amendment thereto, or make
any amendment or supplement to the Prospectuses or, prior to the end of the
period of time referred to in the first sentence in subsection (f) below, file
any document which, upon filing becomes an Incorporated Document, of which you
shall not previously have been advised or to which, after you shall have
received a copy of the document proposed to be filed, you shall reasonably
object.
(e) Prior to the execution and delivery of this Agreement, the Company
has delivered to you, without charge, in such quantities as you have requested,
copies of each form of the U.S. Prepricing Prospectus. The Company consents to
the use, in accordance with the provisions of the Act and with the securities or
Blue Sky laws of the jurisdictions in which the Shares are offered by the
several U.S. Underwriters and by dealers, prior to the date of the U.S.
Prospectus, of each U.S. Prepricing Prospectus so furnished by the Company.
(f) As soon after the execution and delivery of this Agreement as
possible and thereafter from time to time for such period as in the opinion of
counsel for the U.S. Underwriters a prospectus is required by the Act to be
delivered in connection with sales by any U.S. Underwriter or dealer, the
Company will expeditiously deliver to each U.S. Underwriter and each dealer,
without charge, as many copies of the U.S. Prospectus (and of any amendment or
supplement thereto) as you may reasonably request. The Company consents to the
use of the U.S. Prospectus (and of any amendment or supplement thereto) in
accordance with the
<PAGE>
9
provisions of the Act and with the securities or Blue Sky laws of the
jurisdictions in which the Shares are offered by the several U.S. Underwriters
and by all dealers to whom Shares may be sold, both in connection with the
offering and sale of the Shares and for such period of time thereafter as the
U.S. Prospectus is required by the Act to be delivered in connection with sales
by any U.S. Underwriter or dealer. If during such period of time any event
shall occur that in the judgment of the Company or in the opinion of counsel for
the U.S. Underwriters is required to be set forth in the U.S. Prospectus (as
then amended or supplemented) or should be set forth therein in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary to supplement or amend the U.S.
Prospectus (or to file under the Exchange Act any document which, upon filing,
becomes an Incorporated Document) in order to comply with the Act or any other
law, the Company will forthwith prepare and, subject to the provisions of
paragraph (d) above, file with the Commission an appropriate supplement or
amendment thereto (or to such document), and will expeditiously furnish to the
U.S. Underwriters and dealers a reasonable number of copies thereof. In the
event that the Company and you, as Representatives of the several U.S.
Underwriters, agree that the U.S. Prospectus should be amended or supplemented,
the Company, if requested by you, will promptly issue a press release announcing
or disclosing the matters to be covered by the proposed amendment or supplement.
(g) The Company will cooperate with you and with counsel for the U.S.
Underwriters in connection with the registration or qualification of the Shares
for offering and sale by the several U.S. Underwriters and by dealers under the
securities or Blue Sky laws of such jurisdictions as you may designate and will
file such consents to service of process or other documents necessary or
appropriate in order to effect such registration or qualification; provided that
in no event shall the Company be obligated to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action which would
subject it to service of process in suits, other than those arising out of the
offering or sale of the Shares, in any jurisdiction where it is not now so
subject.
(h) The Company will make generally available to its security holders
a consolidated earnings statement, which need not be audited, covering the
period specified by
<PAGE>
10
Section 11(a) of the Act and Rule 158 thereunder, as soon as reasonably
practicable, which consolidated earnings statement shall satisfy the provisions
of Section 11(a) of the Act and Rule 158 thereunder.
(i) During the period of five years hereafter, the Company will
furnish to you (i) upon your request, at such address as you may specify, as
soon as available, a copy of each report of the Company mailed to stockholders
or filed with the Commission, and (ii) from time to time such other information
concerning the Company as you may reasonably request.
(j) If this Agreement shall terminate or shall be terminated after
execution pursuant to any provisions hereof (otherwise than pursuant to the
second paragraph of Section 12 hereof or by notice given by you terminating this
Agreement pursuant to Section 12 or Section 13 hereof) or if this Agreement
shall be terminated by the U.S. Underwriters because of any failure or refusal
on the part of the Company or any of the Selling Stockholders to comply with the
terms or fulfill any of the conditions of this Agreement, the Company agrees to
reimburse the Representatives for all out-of-pocket expenses (including
reasonable fees and expenses of counsel for the U.S. Underwriters) incurred by
you in connection herewith.
(k) If Rule 430A of the Act is employed, the Company will timely file
the Prospectuses pursuant to Rule 424(b) under the Act and will advise you of
the time and manner of such filing.
(l) Except as provided in this Agreement, the Company will not sell,
contract to sell or otherwise dispose of any Common Stock (except shares issued
upon exercises of options outstanding under the Company's 1992 stock option plan
or upon exercise of outstanding warrants) or any securities convertible into or
exercisable or exchangeable for Common Stock, or grant any options (except any
options granted under the Company's 1992 stock option plan) or warrants to
purchase Common Stock, for a period of 120 days after the date of the U.S.
Prospectus, without the prior written consent of Smith Barney Inc.
(m) The Company has furnished or will furnish to you "lock-up"
letters, in form and substance satisfactory to you, signed by each of its
current officers and directors listed on Schedule III hereto.
<PAGE>
11
(n) Except as stated in this Agreement and in the Prepricing
Prospectuses and Prospectuses, the Company has not taken, nor will it take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of the Shares.
(o) The Company will use all reasonable efforts to satisfy on or
before the Closing Date or any Option Date, as the case may be, all conditions
to the U.S. Underwriters' obligations to purchase the Shares.
6. Agreements of the Selling Stockholders. Each of the Selling
--------------------------------------
Stockholders agrees with the several U.S. Underwriters as follows:
(a) Such Selling Stockholder will cooperate to the extent necessary
to cause the registration statement or any post-effective amendment thereto to
become effective at the earliest possible time.
(b) Such Selling Stockholder will pay all Federal and other taxes, if
any, on the transfer or sale of such Shares that are sold by the Selling
Stockholder to the U.S. Underwriters.
(c) Such Selling Stockholder will do or perform all things required
to be done or performed by the Selling Stockholder prior to the Closing Date or
any Option Closing Date, as the case may be, to satisfy all conditions precedent
to the delivery of the Shares pursuant to this Agreement.
(d) Except as provided in this Agreement and in the lock-up letter
referred to in paragraph (e) below, such Selling Stockholder will not sell or
otherwise dispose of any Common Stock for a period of 120 days after the date of
the U.S. Prospectus, without the prior written consent of Smith Barney Inc.
(e) Such Selling Stockholder has furnished or will furnish to you a
"lock-up" letter, in form and substance satisfactory to you.
(f) Except as stated in this Agreement and the International
Underwriting Agreement and in the Prepricing Prospectuses and the Prospectuses,
such Selling Stockholder
<PAGE>
12
has not taken, nor will it take, directly or indirectly, any action designed to
or that might reasonably be expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or resale
of the Shares.
7. Representations and Warranties of the Company. The Company represents
---------------------------------------------
and warrants to each U.S. Underwriter and Selling Stockholder that:
(a) Each U.S. Prepricing Prospectus included as part of the
registration statement as originally filed or as part of any amendment or
supplement thereto, or filed pursuant to Rule 424 under the Act, complied when
so filed in all material respects with the provisions of the Act; except that
this representation and warranty does not apply to statements in or omissions
from such U.S. Prepricing Prospectus (or any amendment or supplement thereto)
made in reliance upon and in conformity with information relating to any Selling
Stockholder or to any U.S. Underwriter or Manager furnished to the Company in
writing by a U.S. Underwriter through the Representatives or by a Manager
through the Lead Managers or by a Selling Stockholder expressly for use therein.
The Commission has not issued any order preventing or suspending the use of any
Prepricing Prospectus.
(b) The Company and the transactions contemplated by this Agreement
meet the requirements for using Form S-3 under the Act. The registration
statement in the form in which it became or becomes effective and also in such
form as it may be when any post-effective amendment thereto or any Rule 462(b)
Registration Statement or amendment thereto shall become effective and the U.S.
Prospectus and any supplement or amendment thereto when filed with the
Commission under Rule 424(b) under the Act, complied or will comply in all
material respects with the provisions of the Act and will not at any such times
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading; except that this representation and warranty does not apply to
statements in or omissions from the Registration Statement or the U.S.
Prospectus made in reliance upon and in conformity with information relating to
any Selling Stockholder or to any U.S. Underwriter or Manager furnished to the
Company in writing by a U.S. Underwriter through the Representatives or
<PAGE>
13
by a Manager through the Lead Managers or by a Selling Stockholder expressly for
use therein.
(c) The Incorporated Documents included in the Registration Statement
heretofore filed, when they were filed (or, if any amendment with respect to any
such document was filed, when such amendment was filed), conformed in all
material respects with the requirements of the Exchange Act and the rules and
regulations thereunder, and any further Incorporated Documents so filed will,
when they are filed, conform in all material respects with the requirements of
the Exchange Act and the rules and regulations thereunder; no such document when
it was filed (or, if an amendment with respect to any such document was filed,
when such amendment was filed), contained an untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein not misleading; and no such further
document, when it is filed, will contain an untrue statement of a material fact
or will omit to state a material fact required to be stated therein or necessary
in order to make the statements therein not misleading.
(d) All the outstanding shares of Common Stock of the Company,
including the Underwritten Shares, have been duly authorized and validly issued,
are fully paid and nonassessable and are free of any preemptive or similar
rights; and the capital stock of the Company conforms to the description thereof
in the Registration Statement and the Prospectuses.
(e) The Company is a corporation duly organized and validly existing
in good standing under the laws of the State of Delaware with full corporate
power and authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement and the Prospectuses, and is
duly registered and qualified to conduct its business and is in good standing in
each jurisdiction or place where the nature of its properties or the conduct of
its business requires such registration or qualification, except where the
failure so to register or qualify does not, individually or in the aggregate,
have a material adverse effect on the condition (financial or other), business,
properties, net worth or results of operations of the Company and the
Subsidiaries (as hereinafter defined) taken as a whole (a "Material Adverse
Effect").
<PAGE>
14
(f) All the Company's subsidiaries (collectively, the "Subsidiaries")
are listed in an exhibit to the Company's Annual Report on Form 10-K which is
incorporated by reference into the Registration Statement (except for certain
immaterial subsidiaries formed since the filing thereof). Each of Action
Industries, Inc., Broyhill Furniture Industries, Inc., The Lane Company,
Incorporated, and Thomasville Furniture Industries, Inc. (the "Material
Subsidiaries") is a corporation duly organized, validly existing and in good
standing in the jurisdiction of its incorporation, with full corporate power and
authority to own, lease and operate its properties and to conduct its business
as described in the Registration Statement and the Prospectuses, and is duly
registered and qualified to conduct its business and is in good standing in each
jurisdiction or place where the nature of its properties or the conduct of its
business requires such registration or qualification, except where the failure
so to register or qualify does not, individually or in the aggregate, have a
Material Adverse Effect; all the outstanding shares of capital stock of each of
the Material Subsidiaries have been duly authorized and validly issued, are
fully paid and nonassessable, and are owned by the Company, free and clear of
any lien, adverse claim, security interest, equity, or other encumbrance,
except as described in the Registration Statement.
(g) There are no legal or governmental proceedings pending or, to the
knowledge of the Company, threatened, against the Company or any of the
Subsidiaries, or to which the Company or any of the Subsidiaries, or to which
any of their respective properties is subject, that are required to be described
in the Registration Statement or the Prospectuses but are not described as
required, and there are no agreements, contracts, indentures, leases or other
instruments that are required to be described in the Registration Statement or
the Prospectuses or to be filed as an exhibit to the Registration Statement or
any Incorporated Document therein that are not described or filed as required by
the Act or the Exchange Act.
(h) Neither the Company nor any of the Subsidiaries is in violation of
its certificate or articles of incorporation or by-laws, or other organizational
documents, or of any law, ordinance, administrative or governmental rule or
regulation applicable to the Company or any of the Subsidiaries or of any decree
of any court or governmental agency or body having jurisdiction over the
<PAGE>
15
Company or any of the Subsidiaries, except any violations which will not,
individually or in the aggregate, have a Material Adverse Effect, or in default
in any material respect in the performance of any material obligation, agreement
or condition contained in any bond, debenture, note or any other evidence of
indebtedness or in any material agreement, indenture, lease or other instrument
to which the Company or any of the Subsidiaries is a party or by which any of
them or any of their respective properties may be bound (except where any such
default or defaults would not, individually or in the aggregate, have a Material
Adverse Effect).
(i) Neither the sale of the Underwritten Shares, the execution,
delivery or performance of this Agreement by the Company nor the consummation by
the Company of the transactions contemplated hereby (i) requires any consent,
approval, authorization or other order of or registration or filing with, any
court, regulatory body, administrative agency or other governmental body, agency
or official (except such as may be required for the registration of the Shares
under the Act and compliance with the securities or Blue Sky laws of various
jurisdictions, both of which have been or will be effected in accordance with
this Agreement) or conflicts or will conflict with or constitutes or will
constitute a breach of, or a default under, the certificate or articles of
incorporation or bylaws, or other organizational documents, of the Company or
any of the Subsidiaries or (ii) conflicts or will conflict with or constitutes
or will constitute a breach of, or a default under, any agreement, indenture,
lease or other instrument to which the Company or any of the Subsidiaries is a
party or by which any of them or any of their respective properties may be
bound, or violates or will violate any statute, law, regulation or filing
(except the securities or Blue Sky laws of the various jurisdictions, as to
which no representation or warranty is made) or judgment, injunction, order or
decree applicable to the Company or any of the Subsidiaries or any of their
respective properties, or will result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any of the
Subsidiaries pursuant to the terms of any agreement or instrument to which any
of them is a party or by which any of them may be bound or to which any of the
property or assets of any of them is subject.
(j) The accountants, KPMG Peat Marwick LLP, who have certified or
shall certify the financial statements
<PAGE>
16
included or incorporated by reference in the Registration Statement and the
Prospectuses (or any amendment or supplement thereto) are independent public
accountants as required by the Act.
(k) The financial statements, together with related schedules and
notes, included or incorporated by reference in the Registration Statement and
the Prospectuses (and any amendment or supplement thereto), present fairly, in
all material respects, the consolidated financial position, results of
operations and changes in financial position of the Company and the Subsidiaries
on the basis stated in the Registration Statement at the respective dates or for
the respective periods to which they apply; such statements and related
schedules and notes have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved,
except as disclosed therein; and the other financial and statistical information
and data relating to the Company and the Subsidiaries included or incorporated
by reference in the Registration Statement and the Prospectuses (and any
amendment or supplement thereto) are accurately presented in all material
respects and prepared on a basis consistent with such financial statements and
the books and records of the Company and the Subsidiaries.
(l) The execution and delivery of, and the performance by the Company
of its obligations under, this Agreement have been duly and validly authorized
by the Company, and this Agreement has been duly executed and delivered by the
Company and constitutes the valid and legally binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as rights
to indemnity and contribution hereunder may be limited by federal or state
securities laws and subject to the qualification that the enforceability of the
Company's obligations hereunder may be limited by bankruptcy, fraudulent
conveyance, insolvency, reorganization, moratorium, and other laws relating to
or affecting creditors' rights generally, and by general equitable principles.
(m) Except as disclosed in the Registration Statement and the
Prospectuses (or any amendment or supplement thereto), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectuses (or any amendment or supplement thereto), neither
the Company nor any of the
<PAGE>
17
Subsidiaries has incurred any liability or obligation, direct or contingent, or
entered into any transaction, not in the ordinary course of business, that is
material to the Company and the Subsidiaries taken as a whole, and there has not
been any change in the capital stock of the Company, or material increase in the
short-term debt or long-term debt of the Company or any of the Subsidiaries, or
any material adverse change, or any development involving or which may
reasonably be expected to involve, a prospective material adverse change, in the
condition (financial or other), business, net worth or results of operations of
the Company and the Subsidiaries taken as a whole.
(n) With only such exceptions as would not, individually or in the
aggregate, have a Material Adverse Effect, each of the Company and the
Subsidiaries has good and, in the case of real property, marketable title to all
property (real and personal) described in the Prospectuses as being owned by it,
free and clear of all liens, claims, security interests or other encumbrances
except such as are described in the Registration Statement and the Prospectuses
or in a document filed as an exhibit to the Registration Statement and all the
property described in the Prospectuses as being held under lease by each of the
Company and the Subsidiaries is held by it under valid, subsisting and
enforceable leases.
(o) The Company has not distributed and, prior to the later to occur
of (i) the Closing Date and (ii) completion of the distribution of the Shares,
will not distribute any offering material in connection with the offering and
sale of the Shares other than the Registration Statement, the Prepricing
Prospectuses, the Prospectuses or other materials, if any, permitted by the Act.
(p) The Company and each of the Subsidiaries has such material
permits, licenses, franchises and authorizations of governmental or regulatory
authorities ("permits") as are necessary to own its respective properties and to
conduct its business in all material respects in the manner described in the
Prospectuses, subject to such qualifications as may be set forth in the
Prospectuses; the Company and each of the Subsidiaries has fulfilled and
performed all its material obligations with respect to such permits and no event
has occurred which allows, or after notice or lapse of time would allow,
revocation or termination thereof or results in any other material impairment of
the rights of the holder of any such
<PAGE>
18
permit, subject in each case to such qualification as may be set forth in the
Prospectuses; and, except as described in the Prospectuses, none of such permits
contains any restriction that is materially burdensome to the Company or any of
the Subsidiaries.
(q) The properties, assets and operations of the Company and its
Subsidiaries comply with all applicable Environmental Laws (as defined below),
except to the extent that failure so to comply would not, individually or in the
aggregate, have a Material Adverse Effect. Except as specifically described in
the Prospectuses, none of the property, assets or operations of the Company or
its Subsidiaries is the subject of any investigation by any federal, state,
local or foreign governmental agency evaluating whether any remedial action is
needed to respond to a release of any Hazardous Materials (as defined below)
into the environment or a release of any Hazardous Materials that is in
contravention of any federal, state, local or foreign law, order or regulation,
in each case that is likely to have a Material Adverse Effect, and neither the
Company nor any Subsidiary has received notice of any such investigation.
Except as described in the Prospectuses, neither the Company nor any Subsidiary
has received any notice or claim, nor are there pending, reasonably anticipated
or, to the best knowledge of the Company, threatened lawsuits against any of
them, with respect to violations of an Environmental Law or in connection with
any release of any Hazardous Materials into the environment that, if adversely
determined, could have a Material Adverse Effect. Except as disclosed in the
Prospectuses, with respect to the business of the Company or its Subsidiaries,
including any previously or currently owned, leased, or used properties or
operations, there are no past, present, or, to the best knowledge of the
Company, reasonably anticipated future events, conditions, circumstances,
activities, practices, incidents, actions or plans that may interfere with or
prevent compliance or continued compliance with the Environmental Laws in any
material respect. As used herein, "Environmental Laws" means any federal,
state, local or foreign law, common law, doctrine, rule, order, decrees,
judgment, injunction, license, permit or regulation relating to environmental
matters, and "Hazardous Materials" means those substances that are regulated by
or form the basis of liability under any Environmental Laws.
(r) The Company and each other person or entity that, together with
the Company, is treated as a single
<PAGE>
19
employer under Section 414 of the Internal Revenue Code of 1986, as amended (the
"Code") (each such person or entity being an "ERISA Affiliate"), complies in all
material respects with the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and the Code with respect to each pension plan (as defined in
Section 3(2) of ERISA) maintained by the Company or such ERISA Affiliate, and
none of the Company or any of its ERISA Affiliates has incurred any material
liability under Title IV of ERISA to any pension plan or to the Pension Benefit
Guaranty Corporation that has not been fully paid as of the date hereof.
(s) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(t) To the knowledge of the Company, neither the Company nor any of
its Subsidiaries nor any employee or agent of the Company or any Subsidiary has
made any payment of funds of the Company or any Subsidiary or received or
retained any funds in violation of any law, rule or regulation, which payment,
receipt or retention of funds is of a character required to be disclosed in the
Prospectuses.
(u) The Company and each of the Subsidiaries have filed all material
tax returns required to be filed, which returns are complete and correct in all
material respects, and neither the Company nor any Subsidiary is in default in
the payment of any taxes which were payable pursuant to said returns or any
assessments with respect thereto.
(v) No holder of any security of the Company has any right (except as
has been satisfied or waived) to require registration of shares of Common Stock
or any other security of the Company because of the filing of the registration
statement or consummation of the transactions contemplated by this Agreement.
<PAGE>
20
(w) The Company and the Subsidiaries own or possess all patents,
trademarks, trademark registrations, service marks, service mark registrations,
trade names, copyrights, licenses, inventions, trade secrets and rights
described in the Prospectuses as being owned by them or any of them or to the
Company's knowledge necessary for the conduct of their respective businesses,
and the Company is not aware of any claim to the contrary or any challenge by
any other person to the rights of the Company and the Subsidiaries with respect
to the foregoing which will have a Material Adverse Effect.
(x) The Company has complied with all provisions of Florida Statutes,
(S)517.075, relating to issuers doing business with Cuba.
8. Representations and Warranties of the Selling Stockholders. Each
----------------------------------------------------------
Selling Stockholder represents and warrants to each U.S. Underwriter and the
Company that:
(a) Such Selling Stockholder now has, and on the Closing Date and any
Option Closing Date will have, full legal right, power and authorization, and
any approval required by law, to sell, assign, transfer and deliver such Shares
in the manner provided in this Agreement, and upon delivery of and payment for
such Shares hereunder, the several U.S. Underwriters will acquire valid and
marketable title to such Shares free and clear of any lien, claim, security
interest, or other encumbrance.
(b) The execution and delivery of, and the performance by such
Selling Stockholder of its obligations under, this Agreement have been duly and
validly authorized by such Selling Stockholder, and this Agreement has been duly
executed and delivered by such Selling Stockholder and constitutes the valid and
legally binding agreement of such Selling Stockholder, enforceable against such
Selling Stockholder in accordance with its terms, except as limited by federal
or state securities laws and subject to the qualification that the
enforceability of the Selling Stockholder's obligations hereunder may be limited
by bankruptcy, fraudulent conveyance, insolvency reorganization, moratorium, and
other laws relating to or affecting creditors' rights generally, and by general
equitable principles.
(c) Neither the sale of the Shares nor the execution, delivery or
performance of this Agreement by or
<PAGE>
21
on behalf of such Selling Stockholder nor the consummation by or on behalf of
such Selling Stockholder of the transactions contemplated hereby (i) requires
any consent, approval, authorization or other order of, or registration or
filing with, any court, regulatory body, administrative agency or other
governmental body, agency or official (except such as may be required for the
registration of the Shares under the Act or compliance with the securities or
Blue Sky laws of various jurisdictions), or (ii) conflicts or will conflict with
or constitutes or will constitute a breach of, or a default under, any
agreement, indenture, lease or other instrument to which such Selling
Stockholder is a party or by which such Selling Stockholder is or may be bound,
or violates or will violate any statute, law, regulation or filing or judgment,
injunction, order or decree applicable to such Selling Stockholder, or will
result in the creation or imposition of any lien, charge or encumbrance upon any
property or assets of such Selling Stockholder pursuant to the terms of any
agreement or instrument to which such Selling Stockholder is a party or by which
such Selling Stockholder may be bound or to which any of the property or assets
of such Selling Stockholder is subject.
(d) The Registration Statement and the Prospectuses, insofar as they
contain information relating to such Selling Stockholder, do not and will not
contain an untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading.
(e) Such Selling Stockholder has not taken, directly or indirectly,
any action designed to or that might reasonably be expected to cause or result
in stabilization or manipulation of the price of the Common Stock to facilitate
the sale or resale of the Shares, except for the lock-up arrangements referred
to in the Prospectuses.
(f) Such Selling Stockholder (without undertaking any independent
investigation) does not have any knowledge that the Registration Statement or
the Prospectuses (or any amendment or supplement thereto) contains any untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading.
9. Indemnification and Contribution. (a) The Company agrees to indemnify
--------------------------------
and hold harmless each of you and each
<PAGE>
22
other U.S. Underwriter and each person, if any, who controls any U.S.
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act from and against any and all losses, claims, damages, liabilities
and expenses (including reasonable costs of investigation) arising out of or
based upon any untrue statement or alleged untrue statement of a material fact
contained in any U.S. Prepricing Prospectus or in the Registration Statement or
the U.S. Prospectus or in any amendment or supplement thereto, or arising out of
or based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages, liabilities or
expenses arise out of or are based upon any untrue statement or omission or
alleged untrue statement or omission which has been made therein or omitted
therefrom in reliance upon and in conformity with the information relating to
such U.S. Underwriter or Manager furnished in writing to the Company by or on
behalf of any U.S. Underwriter through you or by or on behalf of any Manager
through a Lead Manager expressly for use in connection therewith; provided,
however, that the indemnification contained in this paragraph (a) with respect
to any U.S. Prepricing Prospectus shall not inure to the benefit of any U.S.
Underwriter (or to the benefit of any person controlling such U.S. Underwriter)
on account of any such loss, claim, damage, liability or expense arising from
the sale of the Shares by such U.S. Underwriter to any person if a copy of the
U.S. Prospectus shall not have been delivered or sent to such person within the
time required by the Act and the regulations thereunder, and the untrue
statement or alleged untrue statement or omission or alleged omission of a
material fact contained in such U.S. Prepricing Prospectus was corrected in the
U.S. Prospectus, provided that the Company has delivered the U.S. Prospectus to
the several U.S. Underwriters in requisite quantity on a timely basis to permit
such delivery or sending. The foregoing indemnity agreement shall be in
addition to any liability which the Company may otherwise have.
(b) Each Selling Stockholder agrees, severally and not jointly, to
indemnify and hold harmless you and each other U.S. Underwriter and each person,
if any, who controls any U.S. Underwriter within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act with the same exceptions and to the
same extent as the foregoing indemnity from the Company to each U.S.
Underwriter, but only with respect to information relating to such Selling
Stockholder furnished
<PAGE>
23
in writing by or on behalf of such Selling Stockholder expressly for use in the
Registration Statement, the U.S. Prospectus or any U.S. Prepricing Prospectus,
or any amendment or supplement thereto. The foregoing indemnity agreement shall
be in addition to any liability which any Selling Stockholder may otherwise
have.
(c) If any action, suit or proceeding shall be brought against any U.S.
Underwriter or any person controlling any U.S. Underwriter in respect of which
indemnity may be sought against the Company, any Selling Stockholder or both,
such U.S. Underwriter or such controlling person shall promptly notify in
writing the parties against whom indemnification is being sought (the
"indemnifying parties"), and such indemnifying parties shall assume the defense
thereof, including the employment of counsel and payment of all fees and
expenses. Such U.S. Underwriter or any such controlling person shall have the
right to employ separate counsel in any such action, suit or proceeding and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such U.S. Underwriter or such controlling person
unless (i) the indemnifying parties have agreed in writing to pay such fees and
expenses, (ii) the indemnifying parties have failed to assume the defense and
employ counsel, or (iii) the named parties to any such action, suit or
proceeding (including any impleaded parties) include both such U.S. Underwriter
or such controlling person and the indemnifying parties and such U.S.
Underwriter or such controlling person shall have been advised by its counsel in
writing, with a copy furnished to the Company upon request, that representation
of such indemnified party and the indemnifying parties by the same counsel would
be inappropriate under applicable standards of professional conduct (whether or
not such representation by the same counsel has been proposed) due to actual or
potential differing interests between them (in which case the indemnifying
parties shall not have the right to assume the defense of such action, suit or
proceeding on behalf of such U.S. Underwriter or such controlling person). It
is understood, however, that the indemnifying parties shall, in connection with
any one such action, suit or proceeding or separate but substantially similar or
related actions, suits or proceedings in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the reasonable fees
and expenses of only one separate firm of attorneys (in addition to any local
counsel) at any time for all such U.S. Underwriters and controlling persons not
having actual or potential differing interests with you or
<PAGE>
24
among themselves, which firm shall be designated in writing by Smith Barney
Inc., and that all such fees and expenses shall be reimbursed as they are
incurred. The indemnifying parties shall not be liable for any settlement of
any such action, suit or proceeding effected without its written consent, but if
settled with such written consent, or if there be a final judgment for the
plaintiff in any such action, suit or proceeding, the indemnifying parties agree
to indemnify and hold harmless any U.S. Underwriter, to the extent provided in
the preceding paragraph, and any such controlling person from and against any
loss, claim, damage, liability or expense by reason of such settlement or
judgment.
(d) Each U.S. Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement, any person who controls the Company within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act and the Selling
Stockholders, to the same extent as the foregoing indemnity from the Company and
the Selling Stockholders to each U.S. Underwriter, but only with respect to
information relating to such U.S. Underwriter furnished in writing by or on
behalf of such U.S. Underwriter through you expressly for use in the
Registration Statement, the U.S. Prospectus or any U.S. Prepricing Prospectus,
or any amendment or supplement thereto. If any action, suit or proceeding shall
be brought against the Company, any of its directors, any such officer, any such
controlling person or any Selling Stockholder based on the Registration
Statement, the U.S. Prospectus or any U.S. Prepricing Prospectus, or any
amendment or supplement thereto, and in respect of which indemnity may be sought
against any U.S. Underwriter pursuant to this paragraph (d), such U.S.
Underwriter shall have the rights and duties given to the Company and the
Selling Stockholders by paragraph (c) above (except that if the Company or the
Selling Stockholders shall have assumed the defense thereof such U.S.
Underwriter shall not be required to do so, but may employ separate counsel
therein and participate in the defense thereof, but the fees and expenses of
such counsel shall be at such U.S. Underwriter's expense), and the Company, its
directors, any such officer, any such controlling person and the Selling
Stockholders shall have the rights and duties given to the U.S. Underwriters by
paragraph (c) above. The foregoing indemnity agreement shall be in addition to
any liability which any U.S. Underwriter may otherwise have.
<PAGE>
25
(e) If the indemnification provided for in this Section 9 is unavailable to
an indemnified party under paragraphs (a), (b) or (d) hereof in respect of any
losses, claims, damages, liabilities or expenses referred to therein, then an
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or expenses (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company and
the Selling Stockholders on the one hand and the U.S. Underwriters on the other
hand from the offering of the Shares, or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and the Selling Stockholders on
the one hand and the U.S. Underwriters on the other in connection with the
statements or omissions that resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company and the Selling Stockholders on
the one hand and the U.S. Underwriters on the other shall be deemed to be in the
same proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company and the Selling Stockholders bear to the total
underwriting discounts and commissions received by the U.S. Underwriters, in
each case as set forth in the table on the cover page of the U.S. Prospectus;
provided that, in the event that the U.S. Underwriters shall have purchased any
Additional Shares hereunder, any determination of the relative benefits received
by the Company, the Selling Stockholders or the U.S. Underwriters from the
offering of the Shares shall include the net proceeds (before deducting
expenses) received by the Company and the Selling Stockholders, and the
underwriting discounts and commissions received by the U.S. Underwriters, from
the sale of such Additional Shares, in each case computed on the basis of the
respective amounts set forth in the notes to the table on the cover page of the
U.S. Prospectus. The relative fault of the Company and the Selling Stockholders
on the one hand and the U.S. Underwriters on the other hand shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company and the Selling
Stockholders on the one hand or by the U.S. Underwriters on the other hand and
the parties' relative intent, knowledge,
<PAGE>
26
access to information and opportunity to correct or prevent such statement or
omission.
(f) The Company, the Selling Stockholders and the U.S. Underwriters agree
that it would not be just and equitable if contribution pursuant to this Section
9 were determined by a pro rata allocation (even if the U.S. Underwriters were
treated as one entity for such purpose) or by any other method of allocation
that does not take account of the equitable considerations referred to in
paragraph (e) above. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities and expenses referred to in
paragraph (e) above shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating any claim or defending any such action,
suit or proceeding. Notwithstanding the provisions of this Section 9, no U.S.
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price of the Shares underwritten by it and distributed to the
public exceeds the amount of any damages which such U.S. Underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The U.S. Underwriters' obligations to contribute pursuant to
this Section 9 are several in proportion to the respective numbers of Firm
Shares set forth opposite their names in Schedule I hereto (or such numbers of
Firm Shares increased as set forth in Section 12 hereof) and not joint.
(g) No indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened action,
suit or proceeding in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the subject matter of
such action, suit or proceeding.
(h) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 9 shall be paid by the indemnifying party to the indemnified party
<PAGE>
27
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 9 and the
representations and warranties of the Company and the Selling Stockholders set
forth in this Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any U.S. Underwriter
or any person controlling any U.S. Underwriter, the Company, its directors or
officers or the Selling Stockholders, any director, officer or partner of a
Selling Stockholder or any person controlling the Company or any Selling
Stockholder, (ii) acceptance of any Shares and payment therefor hereunder, and
(iii) any termination of this Agreement. A successor to any U.S. Underwriter or
any person controlling any U.S. Underwriter, or to the Company, its directors or
officers, or to a Selling Stockholder, any director, officer or partner of a
Selling Stockholder or any person controlling the Company or any Selling
Stockholder shall be entitled to the benefits of the indemnity, contribution and
reimbursement agreements contained in this Section 9.
10. Conditions of U.S. Underwriters' Obligations. The several obligations
--------------------------------------------
of the U.S. Underwriters to purchase the Firm Shares hereunder are subject to
the following conditions:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the registration statement or a post-effective amendment thereto
(or a Rule 462(b) Registration Statement) to be declared effective before the
offering of the Shares may commence, the registration statement or such post-
effective amendment or Rule 462(b) Registration Statement shall have become
effective not later than 5:30 P.M., New York City time, on the date hereof, or
at such later date and time as shall be consented to in writing by you, and all
filings, if any, required by Rules 424 and 430A under the Act shall have been
timely made; no stop order suspending the effectiveness of the registration
statement shall have been issued and no proceeding for that purpose shall have
been instituted or, to the knowledge of the Company or any U.S. Underwriter,
threatened by the Commission, and any request of the Commission for additional
information (to be included in the registration statement or the Prospectuses or
otherwise) shall have been complied with to your reasonable satisfaction.
<PAGE>
28
(b) Subsequent to the effective date of this Agreement, there shall
not have occurred (i) any change, or any development involving a prospective
change, in or affecting the condition (financial or other), business,
properties, net worth, or results of operations of the Company or the
Subsidiaries not contemplated by the Prospectuses, which in your reasonable
opinion, as Representatives of the several U.S. Underwriters, would materially,
adversely affect the market for the Shares, or (ii) any event or development
relating to or involving the Company or any officer or director of the Company
which makes any statement made in the Prospectuses untrue or which, in the
opinion of the Company and its counsel or the U.S. Underwriters and their
counsel, requires the making of any addition to or change in the Prospectuses in
order to state a material fact required by the Act or any other law to be stated
therein or necessary in order to make the statements therein not misleading, if
amending or supplementing the Prospectuses to reflect such event or development
would, in your reasonable opinion, as Representatives of the several U.S.
Underwriters, materially adversely affect the market for the Shares.
(c) You shall have received on the Closing Date, an opinion of Morgan,
Lewis & Bockius LLP, counsel for the Company, dated the Closing Date and
addressed to you, as Representatives of the several U.S. Underwriters, to the
effect that:
(i) The Company is a corporation validly existing in good standing
under the laws of the State of Delaware with corporate power and authority to
own, lease and operate its properties and to conduct its business as described
in the Registration Statement and the Prospectuses (and any amendment or
supplement thereto);
(ii) Each of the Material Subsidiaries is a corporation validly
existing in good standing under the laws of the jurisdiction of its
organization, with corporate power and authority to own, lease, and operate its
properties and to conduct its business as described in the Registration
Statement and the Prospectuses (and any amendment or supplement thereto);
(iii) The authorized and outstanding capital stock of the Company is
as set forth under the caption "Capitalization" in the Prospectuses; and the
authorized capital stock of the Company conforms in all material
<PAGE>
29
respects as to legal matters to the description thereof contained in the
Prospectuses under the caption "Description of Capital Stock";
(iv) All the outstanding shares of capital stock of the Company have
been duly authorized and validly issued, and are fully paid and nonassessable;
(v) The Registration Statement and all post-effective amendments, if
any, have become effective under the Act and, to the knowledge of such counsel,
no stop order suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose are pending before or
contemplated by the Commission; and any required filing of the Prospectuses
pursuant to Rule 424(b) has been made in accordance with Rule 424(b);
(vi) The Company has corporate power and authority to enter into this
Agreement and this Agreement has been duly authorized, executed and delivered by
the Company and is a valid, legal and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as
enforcement of rights to indemnity and contribution hereunder may be limited by
Federal or state securities laws or principles of public policy and subject to
the qualification that the enforceability of the Company's obligations hereunder
may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization,
moratorium, and other laws relating to or affecting creditors' rights generally,
and by general equitable principles;
(vii) Neither the offer, sale or delivery of the Shares, the
execution, delivery or performance of this Agreement, compliance by the Company
and the Selling Stockholders with the provisions hereof nor consummation by the
Company and the Selling Stockholders of the transactions contemplated hereby
conflicts or will conflict with or constitutes or will constitute a breach of,
or a default under, the certificate or articles of incorporation or bylaws, or
other organizational documents, of the Company or any of the Material
Subsidiaries or any agreement, indenture, lease or other instrument to which the
Company or any of the Material Subsidiaries is a party or by which any of them
or any of their respective properties is bound that is an exhibit to the
Registration Statement or to any Incorporated Document, or is known to such
counsel, or will
<PAGE>
30
result in the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any of the Material Subsidiaries, nor will
any such action result in any violation of any existing law, regulation, ruling
(assuming compliance with all applicable state securities and Blue Sky laws),
judgment, injunction, order or decree known to such counsel, applicable to the
Company, the Material Subsidiaries or any of their respective properties;
(viii) The Registration Statement and the Prospectuses and any
supplements or amendments thereto (except for the financial statements and the
notes thereto and the schedules and other financial and statistical data
included therein, as to which such counsel need not express any opinion) comply
as to form in all material respects with the requirements of the Act; and each
of the Incorporated Documents included in the Registration Statement (except for
the financial statements and the notes thereto and the schedules and other
financial and statistical data included therein, as to which counsel need not
express any opinion) complies as to form in all material respects with the
Exchange Act and the rules and regulations of the Commission thereunder;
(ix) To the knowledge of such counsel, (A) other than as described or
contemplated in the Prospectuses (or any supplement thereto), there are no legal
or governmental proceedings pending or threatened against the Company or any of
the Subsidiaries, or to which the Company or any of the Subsidiaries, or any of
their property, is subject, which are required to be described in the
Registration Statement or Prospectuses (or any amendment or supplement thereto)
and (B) there are no agreements, contracts, indentures, leases or other
instruments, that are required to be described in the Registration Statement or
the Prospectuses (or any amendment or supplement thereto) or to be filed as an
exhibit to the Registration Statement or any Incorporated Document that are not
described or filed as required, as the case may be;
(x) The following statements in the Prospectuses, insofar as they are
descriptions of contracts, agreements or other legal documents, or refer to
statements of law or legal conclusions, are accurate and present fairly the
information required to be shown: on page 10, under "Risk Factors - Leverage",
the second sentence relating to the Secured Credit Agreement amount, the third
sentence relating
<PAGE>
31
to the Receivables Securitization Facility amount and the last sentence relating
to the interest rate swap agreement amounts; on page 10, under "Risk Factors -
Restrictive Covenants in Certain Debt Instruments", the entire paragraph; on
page 11, under "Risk Factors - Absence of Dividends", the first sentence
relating to restrictions on the payment of dividends under the Secured Credit
Agreement; on page 11, under "Risk Factors - Anti-Takeover Provisions", the
entire paragraph; on page 12, under "Price Range of Common Stock and Dividend
Policy", the first sentence of the last paragraph relating to restrictions on
the payment of dividends under the Secured Credit Agreement; on page 16, under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - General", the third sentence of the third paragraph relating to no
ownership interest or management control of the footwear business upon the
completion of the restructuring; on page 21, under Management's Discussion and
Analysis of Financial Condition and Results of Operations - Financial Condition
and Liquidity", the first five sentences of the fourth paragraph on the page
relating to the Secured Credit Agreement, the first three sentences of the fifth
paragraph on the page relating to the Receivables Securitization Facility and
the entire sixth paragraph on the page; on page 33, under "Business -
Environmental Matters", the entire first and second paragraphs; on page 35,
under "Certain Transactions", the entire paragraph; on page 36, under "Selling
Stockholders", the entire second paragraph on the page; on page 36, under
"Description of Capital Stock", the entire section; on page 38, under "Certain
U.S. Tax Consequences to Non-U.S. Stockholders", the entire section; on page 41,
under "Underwriting", the first sentence of the third paragraph relating to the
obligations of the several underwriters; and
(xi) Although counsel has not undertaken, except as otherwise
indicated, to determine independently, and does not assume any responsibility
for, the accuracy or completeness of the statements in the Registration
Statement, such counsel has participated in the preparation of the Registration
Statement and the Prospectuses, including review and discussion of the contents
thereof (including review and discussion of the contents of all Incorporated
Documents), and nothing has come to the attention of such counsel that has
caused them to believe that the Registration Statement (including the
Incorporated Documents) at the time the Registration Statement became effective,
or the Prospectuses, as of the date thereof and
<PAGE>
32
as of the Closing Date or the Option Closing Date, as the case may be, contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading or that any amendment or supplement to the Prospectuses, as of the
respective date thereof, and as of the Closing Date or the Option Closing Date,
as the case may be, contained any untrue statement of a material fact or omitted
to state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading (it
being understood that such counsel need express no belief with respect to the
financial statements and the notes thereto and the schedules and other financial
and statistical data included in the Registration Statement or the Prospectuses
or any Incorporated Document).
In rendering such opinion as aforesaid, counsel may limit their
opinion to the federal laws of the United States, the General Corporation Law of
the State of Delaware, and the laws of the States of New York and Pennsylvania,
and may assume that the laws of the Commonwealth of Virginia and the State of
North Carolina are in all relevant respects the same as the Delaware General
Corporation Law.
(d) You shall have received on the Closing Date an opinion from Akin,
Gump, Strauss, Hauer & Feld, LLP, counsel for the Selling Stockholders, dated
the Closing Date and addressed to you, as Representatives of the several U.S.
Underwriters to the effect that:
(i) This Agreement has been duly executed and delivered by or on
behalf of each of the Selling Stockholders;
(ii) Each Selling Stockholder has full legal right, power and
authorization, and any approval required by law, to sell, assign, transfer
and deliver good and marketable title to the Shares which such Selling
Stockholder has agreed to sell pursuant to this Agreement; and
(iii) The execution and delivery of this Agreement by the Selling
Stockholders and the consummation of the transactions contemplated hereby
will not conflict with, violate, result in a breach of or constitute a
default under the terms or provisions of the
<PAGE>
33
partnership agreement of any Selling Stockholder, or, to such counsel's
knowledge, any agreement, indenture, lease or other instrument to which any
Selling Stockholder is a party or by which any of them or any of their
assets or property is bound, or violate any statute, law, regulation, court
order or decree known to such counsel to be applicable to any Selling
Stockholder or to any of the property or assets of any Selling Stockholder,
except for any such conflicts, breaches, defaults or violations that would
not, individually or in the aggregate, have a Material Adverse Effect on
the ability of such Selling Stockholder to consummate the transactions
contemplated by this Agreement.
In rendering their opinion as aforesaid, counsel may, as to factual matters,
rely upon written certificates or statements of officers of the Selling
Stockholders and, as to matters of law, may limit their opinion to the federal
laws of the United States, the General Corporation Law of the State of Delaware
and the laws of the State of New York.
(e) You shall have received on the Closing Date, an opinion of Lynn
Chipperfield, Esq., general counsel for the Company, dated the Closing Date and
addressed to you, as Representatives of the several U.S. Underwriters, to the
effect that:
(i) The Company and each of the Subsidiaries has corporate power and
authority, and, to such counsel's knowledge, all necessary governmental
authorizations, approvals, orders, licenses, certificates, franchises and
permits of and from all governmental regulatory officials and bodies (except
where the failure so to have any such authorizations, approvals, orders,
licenses, certificates, franchises or permits, individually or in the aggregate,
would not have a Material Adverse Effect), to own their respective properties
and to conduct their respective businesses as now being conducted, as described
in the Prospectuses;
(ii) Each of the Company and the Material Subsidiaries is duly
qualified to transact business as a foreign corporation in good standing in the
jurisdictions listed in an attached schedule, which are all jurisdictions in
which they own, lease or operate manufacturing facilities;
<PAGE>
34
(iii) Neither the Company nor any of the Material Subsidiaries is in
violation of its respective certificate or articles of incorporation or bylaws,
or other organizational documents, to the knowledge of such counsel, or is in
default in the performance of any material obligation, agreement or condition
contained in any bond, debenture, note or other evidence of indebtedness, to the
knowledge of such counsel, except as may be disclosed in the Prospectuses;
(iv) Except as disclosed in the Prospectuses, the Company owns of
record, directly or indirectly, all the outstanding shares of capital stock of
each of the Subsidiaries free and clear of any lien, adverse claim, security
interest, equity, or other encumbrance, and all the outstanding shares of
capital stock of each of the Subsidiaries have been duly authorized and validly
issued, are fully paid and nonassessable;
(v) Other than as described or contemplated in the Prospectuses (or
any supplement thereto), to such counsel's knowledge after reasonable inquiry,
there are no legal or governmental proceedings pending or threatened against the
Company or any of the Subsidiaries, or to which the Company or any of the
Subsidiaries, or any of their property, is subject, which are required to be
described in the Registration Statement or Prospectuses (or any amendment or
supplement thereto);
(vi) To such counsel's knowledge after reasonable inquiry, there are
no agreements, contracts, indentures, leases or other instruments, that are
required to be described in the Registration Statement or the Prospectuses (or
any amendment or supplement thereto) or to be filed as an exhibit to the
Registration Statement or any Incorporated Document therein that are not
described or filed as required, as the case may be;
(vii) The Company and the Subsidiaries own all patents, trademarks,
trademark registrations, service marks, service mark registrations, trade names,
copyrights, licenses, inventions, trade secrets and rights described in the
Prospectuses as being owned by them or any of them or, to the knowledge of such
counsel, necessary for the conduct of their respective businesses, and such
counsel is not aware of any claim to the contrary or any challenge by any other
person to the rights of the Company and the Subsidiaries with respect to the
foregoing;
<PAGE>
35
(viii) To such counsel's knowledge after reasonable inquiry, neither
the Company nor any of the Subsidiaries is in violation of any law, ordinance,
administrative or governmental rule or regulation applicable to the Company or
any of the Subsidiaries or of any decree of any court or governmental agency or
body having jurisdiction over the Company or any of the Subsidiaries except for
violations that would not, individually or in the aggregate, have a Material
Adverse Effect;
(ix) Except as described in the Prospectuses, there are no
outstanding options, warrants or other rights calling for the issuance of, and
such counsel does not know of any commitment, plan or arrangement to issue, any
shares of capital stock of the Company or any security convertible into or
exchangeable or exercisable for capital stock of the Company; and
(x) Except as described in the Prospectuses, there is no holder of
any security of the Company or any other person who has the right, contractual
or otherwise, to cause the Company to sell or otherwise issue to them, or to
permit them to underwrite the sale of, the Shares or the right to have any
Common Stock or other securities of the Company included in the registration
statement or the right, as a result of the filing of the registration statement,
to require registration under the Act of any shares of Common Stock or other
securities of the Company.
(f) You shall have received on the Closing Date an opinion of Cravath,
Swaine & Moore, counsel for the U.S. Underwriters, dated the Closing Date and
addressed to you, as Representatives of the several U.S. Underwriters, with
respect to the matters as you may reasonably request.
(g) You shall have received letters addressed to you, as Representatives of
the several U.S. Underwriters, and dated the date hereof and the Closing Date
from KPMG Peat Marwick LLP, independent certified public accountants,
substantially in the forms heretofore approved by you.
(h)(i) No stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall have
been taken or, to the knowledge of the Company, shall be contemplated by the
Commission at or prior to the Closing Date; (ii) there shall not have been any
material change in the capital stock of the Company nor any material increase in
the short-term or
<PAGE>
36
long-term debt of the Company (other than in the ordinary course of business)
from that set forth or contemplated in the Registration Statement or the
Prospectuses (or any amendment or Supplement thereto); (iii) there shall not
have been, since the respective dates as of which information is given in the
Registration Statement and the Prospectuses (or any amendment or supplement
thereto), except as may otherwise be stated in the Registration Statement and
Prospectuses (or any amendment or supplement thereto), any material adverse
change in the condition (financial or other), business, prospects, properties,
net worth or results of operations of the Company and the Subsidiaries taken as
a whole; (iv) the Company and the Subsidiaries shall not have any liabilities or
obligations, direct or contingent (whether or not in the ordinary course of
business), that are material to the Company and the Subsidiaries, taken as a
whole, other than those reflected in the Registration Statement or the
Prospectuses (or any amendment or supplement thereto); and (v) all the
representations and warranties of the Company contained in this Agreement shall
be true and correct on and as of the date hereof and on and as of the Closing
Date as if made on and as of the Closing Date, and you shall have received a
certificate of the Company, dated the Closing Date and signed on behalf of the
Company by the chief executive officer and the chief financial officer of the
Company (or such other officers as are acceptable to you), to the effect set
forth in this Section 10(h) and in Section 10(i) hereof.
(i) The Company shall not have failed at or prior to the Closing Date to
have performed or complied with any of its agreements herein contained and
required to be performed or complied with by it hereunder at or prior to the
Closing Date.
(j) All the representations and warranties of the Selling Stockholders
contained in this Agreement shall be true and correct on and as of the date
hereof and on and as of the Closing Date as if made on and as of the Closing
Date and you shall have received a certificate, dated the Closing Date, signed
by or on behalf of each Selling Stockholder to the effect set forth in this
Section 10(j) and in Section 10(k) hereof.
(k) The Selling Stockholders shall not have failed at or prior to the
Closing Date to have performed or complied with any of their agreements
contained in this Agreement and
<PAGE>
37
required to be performed or complied with by them at or prior to the Closing
Date.
(l) The Company and the Selling Stockholders shall have furnished or caused
to be furnished to you such further certificates and documents as you shall have
reasonably requested.
(m) The closing under the International Underwriting Agreement shall have
occurred on the Closing Date concurrently with the closing hereunder.
All such opinions, certificates, letters and other documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
in form and substance to you and your counsel.
Any certificate or document signed by any officer of the Company or by any
Selling Stockholder and delivered to you, as Representatives of the U.S.
Underwriters, or to counsel for the U.S. Underwriters, shall be deemed a
representation and warranty by the Company or such Selling Stockholder to each
U.S. Underwriter as to the statements made therein.
The several obligations of the U.S. Underwriters to purchase Additional
Shares hereunder are subject to the satisfaction on and as of any Option Closing
Date of the conditions set forth in this Section 10, except that, if any Option
Closing Date is other than the Closing Date, the certificates, opinions and
letters referred to in paragraphs (c) through (k) shall be dated the Option
Closing Date in question and the opinions called for by paragraphs (c), (d), (e)
and (f) shall be revised to reflect the sale of Additional Shares.
11. Expenses. The Company and the Selling Stockholders agree to pay the
--------
following costs and expenses and all other costs and expenses incident to the
performance by them of their obligations hereunder: (i) the preparation,
printing or reproduction, and filing with the Commission of the registration
statement (including financial statements and exhibits thereto), each of the
Prepricing Prospectuses, the Prospectuses, and each amendment or supplement to
any of them; (ii) the printing (or reproduction) and delivery (including
postage, air freight charges and charges for counting and packaging) of such
copies of the registration statement, each U.S.
<PAGE>
38
Prepricing Prospectus, the U.S. Prospectus, and all amendments or supplements to
any of them as may be reasonably requested for use in connection with the
offering and sale of the Shares; (iii) the preparation, printing,
authentication, issuance and delivery of certificates for the Shares, including
any stamp taxes in connection with the original issuance and sale of the Shares;
(iv) the cost of production (or reproduction) and delivery of this Agreement,
the preliminary and supplemental Blue Sky Memoranda and all other agreements,
memoranda, correspondence and other documents printed (or reproduced) and
delivered in connection with the original issuance and sale of the Shares; (v)
the registration or qualification of the Shares for offer and sale under the
securities or Blue Sky laws of the several jurisdictions as provided in Section
5(g) hereof (including the reasonable fees, expenses and disbursements of
counsel for the U.S. Underwriters and Managers relating to the preparation,
printing or reproduction, and delivery of the preliminary and supplemental Blue
Sky Memoranda and such registration and qualification); (vi) the filing fees in
connection with any filings required to be made with the National Association of
Securities Dealers, Inc.; (vii) the transportation and other expenses incurred
by or on behalf of representatives of the Company in connection with
presentations to prospective purchasers of the Shares; (viii) the fees and
expenses of the Company's accountants and the fees and expenses of counsel
(including local and special counsel) for the Company and the Selling
Stockholders; (ix) the underwriting discounts and commissions (in proportion to
the number of Shares being offered by each Selling Stockholder, including any
Additional Shares that the U.S. Underwriters have elected to purchase); and (x)
the performance by the Company and the Selling Stockholders of their other
obligations under this Agreement.
12. Effective Date of Agreement. This Agreement shall become
---------------------------
effective: (i) upon the execution and delivery hereof by the parties hereto; or
(ii) if, at the time this Agreement is executed and delivered, it is necessary
for the registration statement or a post-effective amendment thereto to be
declared effective before the offering of the Shares may commence, when
notification of the effectiveness of the registration statement or such post-
effective amendment has been released by the Commission. Until such time as
this Agreement shall have become effective, it may be terminated by the Company
or the Selling Stockholders, by notifying you, or by you, as Representatives of
the several U.S.
<PAGE>
39
Underwriters, by notifying the Company and the Selling Stockholders.
If any one or more of the U.S. Underwriters shall fail or refuse to
purchase Shares which it or they are obligated to purchase hereunder on the
Closing Date, and the aggregate number of Shares which such defaulting U.S.
Underwriter or U.S. Underwriters are obligated but fail or refuse to purchase is
not more than one-tenth of the aggregate number of Shares which the U.S.
Underwriters are obligated to purchase on the Closing Date, each non-defaulting
U.S. Underwriter shall be obligated, severally, in the proportion which the
number of Firm Shares set forth opposite its name in Schedule I hereto bears to
the aggregate number of Firm Shares set forth opposite the names of all non-
defaulting U.S. Underwriters or in such other proportion as you may specify in
accordance with Section 20 of the Master Agreement Among Underwriters of Smith
Barney Inc., to purchase the Shares which such defaulting U.S. Underwriter or
U.S. Underwriters are obligated, but fail or refuse, to purchase. If any one or
more of the U.S. Underwriters shall fail or refuse to purchase Shares which it
or they are obligated to purchase on the Closing Date and the aggregate number
of Shares with respect to which such default occurs is more than one-tenth of
the aggregate number of Shares which the U.S. Underwriters are obligated to
purchase on the Closing Date and arrangements satisfactory to you and the
Selling Stockholders for the purchase of such Shares by one or more non-
defaulting U.S. Underwriters or other party or parties approved by you and the
Selling Stockholders are not made within 36 hours after such default, this
Agreement will terminate without liability on the part of any non-defaulting
U.S. Underwriter, the Company or any Selling Stockholder. In any such case
which does not result in termination of this Agreement, either you or the
Company shall have the right to postpone the Closing Date, but in no event for
longer than seven days, in order that the required changes, if any, in the
Registration Statement and the Prospectuses or any other documents or
arrangements may be effected. Any action taken under this paragraph shall not
relieve any defaulting U.S. Underwriter from liability in respect of any such
default of any such U.S. Underwriter under this Agreement. The term "U.S.
Underwriter" as used in this Agreement includes, for all purposes of this
Agreement, any party not listed in Schedule I hereto who, with your approval and
the approval of the Company,
<PAGE>
40
purchases Shares which a defaulting U.S. Underwriter is obligated, but fails or
refuses, to purchase.
Any notice under this Section 12 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
13. Termination of Agreement. This Agreement shall be subject to
------------------------
termination in your absolute discretion, without liability on the part of any
U.S. Underwriter to the Company or any Selling Stockholder by notice to the
Company, if prior to the Closing Date or any Option Closing Date (if different
from the Closing Date and then only as to the Additional Shares), as the case
may be, (i) trading in securities generally on the New York Stock Exchange, the
American Stock Exchange or the Nasdaq National Market shall have been suspended
or materially limited, (ii) a general moratorium on commercial banking
activities in New York shall have been declared by either federal or state
authorities, or (iii) there shall have occurred any outbreak or escalation of
hostilities or other international or domestic calamity, crisis or change in
political, financial or economic conditions, the effect of which on the
financial markets of the United States is such as to make it, in your judgment,
impracticable or inadvisable to commence or continue the offering of the Shares
at the offering price to the public set forth on the cover page of the U.S.
Prospectus or to enforce contracts for the resale of the Shares by the U.S.
Underwriters. Notice of such termination may be given to the Company and the
Selling Stockholders by telegram, telecopy or telephone and shall be
subsequently confirmed by letter.
14. Information Furnished by the U.S. Underwriters. The statements set
----------------------------------------------
forth in the last paragraph on the cover page, the stabilization legend on the
inside front cover, and the statements in the first, second, fourth, seventh,
eighth, ninth, tenth and thirteenth paragraphs under the caption "Underwriting"
in any U.S. Prepricing Prospectus and in the U.S. Prospectus, constitute the
only information furnished by or on behalf of the U.S. Underwriters through you
as such information is referred to in Sections 7(b) and 9 hereof.
15. Miscellaneous. Except as otherwise provided in Sections 5, 12 and 13
-------------
hereof, notice given pursuant to any provision of this Agreement shall be in
writing and shall be delivered (i) if to the Company, at the office of the
<PAGE>
41
Company at Furniture Brands International, Inc., 101 South Hanley Road, St.
Louis, Missouri 63105, Attention: Lynn Chipperfield, Esq., General Counsel; (ii)
if to the Selling Stockholders, at Apollo Investment Fund, L.P., care of CICB
Bank and Trust Company (Cayman) Limited, Edward Street, Georgetown, Grand
Cayman, Cayman Islands, British West Indies and Lion Advisors, L.P., Two
Manhattanville Road, Purchase, New York 10577; or (iii) if to you, as
Representatives of the several U.S. Underwriters, care of Smith Barney Inc., 388
Greenwich Street, New York, New York 10013, Attention: Manager, Investment
Banking Division.
This Agreement has been and is made solely for the benefit of the several
U.S. Underwriters, the Company, its directors and officers, and the other
controlling persons referred to in Section 9 hereof and the Selling Stockholders
and their respective successors and assigns, to the extent provided herein, and
no other person shall acquire or have any right under or by virtue of this
Agreement. Neither the term "successor" nor the term "successors and assigns"
as used in this Agreement shall include a purchaser from any U.S. Underwriter of
any of the Shares in his status as such purchaser.
16. Applicable Law; Counterparts. This Agreement shall be governed by and
----------------------------
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed within the State of New York.
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
<PAGE>
42
Please confirm that the foregoing correctly sets forth the agreement among
the Company, the Selling Stockholders and the several U.S. Underwriters.
Very truly yours,
FURNITURE BRANDS INTERNATIONAL, INC.
By
------------------------
Vice President
APOLLO INVESTMENT FUND, L.P.
By: Apollo Advisors, L.P.,
Managing General Partner
By: Apollo Capital Management,
Inc., General Partner
By
------------------------
Vice President
LION ADVISORS, L.P.,
on behalf of an investment account
under management
By: Lion Capital Management, Inc.
General Partner
By
------------------------
Vice President
Confirmed as of the date first
<PAGE>
43
above mentioned on behalf of
themselves and the other several
U.S. Underwriters named in Schedule I
hereto.
SMITH BARNEY INC.
CS FIRST BOSTON CORPORATION
DILLON, READ & CO. INC
MERRILL LYNCH, PIERCE FENNER & SMITH INCORPORATED
WHEAT, FIRST SECURITIES, INC.
As Representatives of the Several U.S. Underwriters
By SMITH BARNEY INC.
By
------------------------
<PAGE>
44
SCHEDULE I
FURNITURE BRANDS INTERNATIONAL, INC.
U.S. Underwriter Number of
---------------- Firm Shares
-----------
Smith Barney Inc......................
CS First Boston Corporation...........
Dillon, Read & Co. Inc................
Merrill Lynch, Pierce Fenner & Smith
Incorporated........................
Wheat, First Securities, Inc..........
-----------
Total........................... 9,600,000
===========
<PAGE>
45
SCHEDULE II
FURNITURE BRANDS INTERNATIONAL, INC.
Selling Stockholders
--------------------
Name Number of
- ---- Firm Shares
-----------
Apollo Investment Fund, L.P........ 4,800,000
Lion Advisors, L.P., on behalf of 4,800,000
an investment account under
management.........................
---------
Total 9,600,000
=========
<PAGE>
46
SCHEDULE III
FURNITURE BRANDS INTERNATIONAL, INC.
Required Stockholder Lock-Ups
-----------------------------
1. Richard B. Loynd
2. Wilbert G. Holliman, Jr.
3. Brent B. Kincaid
4. K. Scott Tyler, Jr.
5. Frederick B. Starr
6. David P. Howard
7. Lynn Chipperfield
8. Steven W. Alstadt
<PAGE>
Exhibit 1(b)
[DRAFT -- 10/31/96]
2,400,000 Shares
FURNITURE BRANDS INTERNATIONAL, INC.
Common Stock
INTERNATIONAL UNDERWRITING AGREEMENT
------------------------------------
November __, 1996
SMITH BARNEY INC.
CS FIRST BOSTON LIMITED
DILLON, READ & CO. INC.
MERRILL LYNCH INTERNATIONAL
WHEAT, FIRST SECURITIES, INC.
As Lead Managers for the Several Managers
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
Certain stockholders named in Schedule II hereto (the "Selling
Stockholders") of Furniture Brands International, Inc. (the "Company"), propose
to sell an aggregate of 2,400,000 shares (the "Shares") of the common stock, no
par value per share of the Company (the "Common Stock"), to the several Managers
named in Schedule I hereto (the "Managers").
It is understood that the Company and the Selling Stockholders are
currently entering into a U.S. Underwriting Agreement, dated the date hereof
(the "U.S. Underwriting Agreement"), providing for the sale of 9,600,000 shares
of the Common Stock by the Selling Stockholders (the "U.S. Shares"), through
arrangements with certain underwriters in the United States and Canada (the
"U.S. Underwriters"), for whom Smith Barney Inc., CS First Boston Corporation,
Dillon, Read & Co. Inc., Merrill Lynch, Pierce Fenner & Smith Incorporated and
Wheat, First Securities, Inc. are acting as representatives (the
"Representatives"). The Shares and the U.S. Shares, collectively, are herein
called the "Underwritten Shares".
The Company and the Selling Stockholders also understand that the Lead
Managers and the Representatives
<PAGE>
2
have entered into an agreement (the "Agreement Between U.S. Underwriters and
Managers") contemplating the coordination of certain transactions between the
Managers and the U.S. Underwriters and that, pursuant thereto and subject to the
conditions set forth therein, the Managers may purchase from the U.S.
Underwriters a portion of the U.S. Shares or sell to the U.S. Underwriters a
portion of the Shares. The Company and the Selling Stockholders understand that
any such purchases and sales between the Managers and the U.S. Underwriters
shall be governed by the Agreement Between U.S. Underwriters and Managers and
shall not be governed by the terms of this Agreement or the U.S. Underwriting
Agreement.
The Company and the Selling Stockholders wish to confirm as follows their
respective agreements with you (the "Lead Managers") and the other several
Managers on whose behalf you are acting, in connection with the several
purchases of the Shares by the Managers.
1. Registration Statement and Prospectus. The Company has prepared and
-------------------------------------
filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"Act"), a registration statement on Form S-3 under the Act (the "registration
statement"), including a prospectus subject to completion relating to the
Underwritten Shares. The term "Registration Statement" as used in this
Agreement means the registration statement (including all financial schedules
and exhibits), as amended at the time it becomes effective, or, if the
registration statement became effective prior to the execution of this
Agreement, as supplemented or amended prior to the execution of this Agreement.
If it is contemplated, at the time this Agreement is executed, that a post-
effective amendment to the registration statement will be filed and must be
declared effective before the offering of the Shares may commence, the term
"Registration Statment" as used in this Agreement means the registration
statement as amended by said post-effective amendment. If an abbreviated
registration statement is prepared and filed with the Commission in accordance
with Rule 462(b) under the Act ("a Rule 462(b) Registration Statement"), the
term "Registration Statement" as used in this Agreement includes the Rule 462(b)
Registration Statement. The term "Prospectuses" as used in this Agreement means
the prospectuses in the form included in the Registration Statement, or, if the
prospectuses included in the Registration Statement omit
<PAGE>
3
information in reliance on Rule 430A under the Act and such information is
included in prospectuses filed with the Commission pursuant to Rule 424(b) under
the Act, the term "Prospectuses" as used in this Agreement means the
prospectuses in the form included in the Registration Statement as supplemented
by the addition of the Rule 430A information contained in the prospectuses filed
with the Commission pursuant to Rule 424(b). The term "Prepricing Prospectuses"
as used in this Agreement means the prospectuses subject to completion in the
form included in the registration statement at the time of the initial filing of
the registration statement with the Commission, and as such prospectuses shall
have been amended from time to time prior to the date of the Prospectuses. Any
reference in this Agreement to the registration statement, the Registration
Statement, any Prepricing Prospectus or the Prospectuses shall be deemed to
refer to and include the documents incorporated by reference therein pursuant to
Item 12 of Form S-3 under the Act, as of the date of the registration statement,
the Registration Statement, such Prepricing Prospectus or the Prospectuses, as
the case may be, and any reference to any amendment or supplement to the
registration statement, the Registration Statement, any Prepricing Prospectus or
the Prospectuses shall be deemed to refer to and include any documents filed
after such date under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") which, upon filing, are incorporated by reference therein, as
required by paragraph (b) of Item 12 of Form S-3. As used herein, the term
"Incorporated Documents" means the documents which at the time are incorporated
by reference in the registration statement, the Registration Statement, any
Prepricing Prospectus, the Prospectuses, or any amendment or supplement thereto.
It is understood that two forms of Prepricing Prospectus and two forms of
Prospectus are to be used in connection with the offering and sale of the
Underwritten Shares: a Prepricing Prospectus and a Prospectus relating to the
Shares that are to be offered and sold outside the United States (as defined
herein) or Canada (as defined herein) to persons other than U.S. or Canadian
Persons (the "International Prepricing Prospectus" and the "International
Prospectus", respectively), and a Prepricing Prospectus and a Prospectus
relating to the U.S. Shares which are to be offered and sold in the United
States and Canada to U.S. or Canadian Persons (the "U.S. Prepricing Prospectus"
and the "U.S. Prospectus", respectively). The International Prospectus and the
U.S. Prospectus are herein collectively
<PAGE>
4
called the "Prospectuses," and the International Prepricing Prospectus and the
U.S. Prepricing Prospectus are herein collectively called the "Prepricing
Prospectuses". For purposes of this Agreement: "U.S. or Canadian Person" means
any resident or national of the United States or Canada, any corporation,
partnership or other entity created or organized in or under the laws of the
United States or Canada or any estate or trust the income of which is subject to
United States or Canadian income taxation regardless of the source of its income
(other than the foreign branch of any U.S. or Canadian Person), and includes any
United States or Canadian branch of a person other than a U.S. or Canadian
Person; "United States" means the United States of America (including the states
thereof and the District of Columbia) and its territories, its possessions and
other areas subject to its jurisdiction; and "Canada" means Canada and its
territories, its possessions and other areas subject to its jurisdiction.
2. Agreements to Sell and Purchase. Subject to such adjustments as you
-------------------------------
may determine in order to avoid fractional shares, each Selling Stockholder
agrees, severally and not jointly, subject to all the terms and conditions set
forth herein, to sell to each Manager and, upon the basis of the
representations, warranties and agreements of the Company and the Selling
Stockholders herein contained and subject to all the terms and conditions set
forth herein, each Manager, severally and not jointly, agrees to purchase from
each Selling Stockholder at a price per share of $_____(the "purchase price per
share") the number of Shares which bears the same proportion to the number of
Shares set forth opposite the name of such Selling Stockholder in Schedule II
hereto as the number of Shares set forth opposite the name of such Manager in
Schedule I hereto (or such number of Shares increased as set forth in Section 12
hereof) bears to the aggregate number of Shares to be sold by the Selling
Stockholders.
Each Manager represents, warrants, covenants and agrees that, except as
contemplated under Section 2 of the Agreement Between U.S. Underwriters and
Managers dated the date hereof (as described in the Prospectuses under
"Underwriting"), (i) it is not purchasing any Shares for the account of a U.S.
or Canadian Person and (ii) it has not offered or sold, and will not offer,
sell, resell or deliver, directly or indirectly, any Shares or distribute any
International Prospectus in the United States or Canada or to a U.S. or Canadian
Person.
<PAGE>
5
3. Terms of Public Offering. The Company and the Selling Stockholders
------------------------
have been advised by you that the Managers propose to make a public offering of
their respective portions of the Shares as soon after the Registration Statement
and this Agreement have become effective as in your judgment is advisable and
initially to offer the Shares upon the terms set forth in the International
Prospectus.
4. Delivery of the Shares and Payment Therefor. Delivery to the Managers
-------------------------------------------
of and payment for the Shares shall be made at the office of Smith Barney Inc.,
388 Greenwich Street, New York, NY 10013, at 10:00 A.M., New York City time, on
November ___, 1996 (the "Closing Date"). The place of closing for the Shares
and the Closing Date may be varied by agreement among you, the Company and the
Selling Stockholders.
Certificates for the Shares shall be registered in such names and in such
denominations as you shall request prior to 9:30 A.M., New York City time, on
the second business day preceding the Closing Date. Such certificates shall be
made available to you in New York City for inspection and packaging not later
than 9:30 A.M., New York City time, on the business day next preceding the
Closing Date. The certificates evidencing the Shares and shall be delivered to
you on the Closing Date, against payment of the purchase price therefor in
immediately available funds.
5. Agreements of the Company. The Company agrees with the several
-------------------------
Managers as follows:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the Registration Statement or a post-effective amendment thereto
or any Rule 462(b) Registration Statement to be declared effective before the
offering of the Shares may commence, the Company will endeavor to cause the
Registration Statement or such post-effective amendment to become effective as
soon as possible and will advise you promptly and, if requested by you, will
confirm such advice in writing, when the Registration Statement or such post-
effective amendment has become effective.
(b) The Company will advise you promptly and, if requested by you,
will confirm such advice in writing: (i) of any request by the Commission for
amendment of or a supplement to the Registration Statement, any Prepricing
<PAGE>
6
Prospectus or the Prospectuses or for additional information; (ii) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the suspension of qualification of the Shares for
offering or sale in any jurisdiction or the initiation of any proceeding for
such purpose; and (iii) within the period of time referred to in paragraph (f)
below, of any change in the Company's condition (financial or other), business,
prospects, properties, net worth or results of operations, or of the happening
of any event, which makes any statement of a material fact made in the
Registration Statement or the Prospectuses (as then amended or supplemented)
untrue or which requires the making of any additions to or changes in the
Registration Statement or the Prospectuses (as then amended or supplemented) in
order to state a material fact required by the Act or the regulations thereunder
to be stated therein or necessary in order to make the statements therein not
misleading, or of the necessity to amend or supplement the Prospectuses (as then
amended or supplemented) to comply with the Act or any other law. If at any
time the Commission shall issue any stop order suspending the effectiveness of
the Registration Statement, the Company will make every reasonable effort to
obtain the withdrawal of such order at the earliest possible time.
(c) The Company will furnish to you, without charge (i) six copies of
the registration statement as originally filed with the Commission and of each
amendment thereto, including financial statements and all exhibits to the
Registration Statement, and of any Rule 462(b) Registration Statement and any
amendment thereto, (ii) such number of conformed copies of the Registration
Statement as originally filed and of each amendment thereto, but without
exhibits, as you may reasonably request, (iii) such number of copies of the
Incorporated Documents, without exhibits, and of any Rule 462(b) Registration
Statement and any amendment thereto, as you may reasonably request, and (iv) six
copies of the exhibits to the Incorporated Documents.
(d) The Company will not file any amendment to the Registration
Statement, any Rule 462(b) Registration Statement or amendment thereto, or make
any amendment or supplement to the Prospectuses or, prior to the end of the
period of time referred to in the first sentence in subsection (f) below, file
any document which, upon filing becomes an Incorporated Document, of which you
shall not
<PAGE>
7
previously have been advised or to which, after you shall have received a copy
of the document proposed to be filed, you shall reasonably object.
(e) Prior to the execution and delivery of this Agreement, the Company
has delivered to you, without charge, in such quantities as you have requested,
copies of each form of the International Prepricing Prospectus. The Company
consents to the use, in accordance with the provisions of the Act and with the
securities laws of the jurisdictions in which the Shares are offered by the
several Managers and by dealers, prior to the date of the International
Prospectus, of each International Prepricing Prospectus so furnished by the
Company.
(f) As soon after the execution and delivery of this Agreement as
possible and thereafter from time to time for such period as in the opinion of
counsel for the Managers a prospectus is required by the Act to be delivered in
connection with sales by any Manager or dealer, the Company will expeditiously
deliver to each Manager and each dealer, without charge, as many copies of the
International Prospectus (and of any amendment or supplement thereto) as you may
reasonably request. The Company consents to the use of the International
Prospectus (and of any amendment or supplement thereto) in accordance with the
provisions of the Act and with the securities laws of the jurisdictions in which
the Shares are offered by the several Managers and by all dealers to whom Shares
may be sold, both in connection with the offering and sale of the Shares and for
such period of time thereafter as the International Prospectus is required by
the Act to be delivered in connection with sales by any Manager or dealer. If
during such period of time any event shall occur that in the judgment of the
Company or in the opinion of counsel for the Managers is required to be set
forth in the International Prospectus (as then amended or supplemented) or
should be set forth therein in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, or if it
is necessary to supplement or amend the International Prospectus (or to file
under the Exchange Act any document which, upon filing, becomes an Incorporated
Document) in order to comply with the Act or any other law, the Company will
forthwith prepare and, subject to the provisions of paragraph (d) above, file
with the Commission an appropriate supplement or amendment thereto (or to such
document), and will expeditiously furnish to the Managers and dealers a
reasonable number of copies thereof. In the event that the
<PAGE>
8
Company and you, as Lead Managers for the several Managers, agree that the
International Prospectus should be amended or supplemented, the Company, if
requested by you, will promptly issue a press release announcing or disclosing
the matters to be covered by the proposed amendment or supplement.
(g) The Company will cooperate with you and with counsel for the
Managers in connection with the registration or qualification of the Shares for
offering and sale by the several Managers and by dealers under the securities
laws of such jurisdictions as you may designate and will file such consents to
service of process or other documents necessary or appropriate in order to
effect such registration or qualification; provided that in no event shall the
Company be obligated to qualify to do business in any jurisdiction where it is
not now so qualified or to take any action which would subject it to service of
process in suits, other than those arising out of the offering or sale of the
Shares, in any jurisdiction where it is not now so subject.
(h) The Company will make generally available to its security holders
a consolidated earnings statement, which need not be audited, covering the
period specified by Section 11(a) of the Act and Rule 158 thereunder, as soon as
reasonably practicable, which consolidated earnings statement shall satisfy the
provisions of Section 11(a) of the Act and Rule 158 thereunder.
(i) During the period of five years hereafter, the Company will
furnish to you (i) upon your request, at such address as you may specify, as
soon as available, a copy of each report of the Company mailed to stockholders
or filed with the Commission, and (ii) from time to time such other information
concerning the Company as you may reasonably request.
(j) If this Agreement shall terminate or shall be terminated after
execution pursuant to any provisions hereof (otherwise than pursuant to the
second paragraph of Section 12 hereof or by notice given by you terminating this
Agreement pursuant to Section 12 or Section 13 hereof) or if this Agreement
shall be terminated by the Managers because of any failure or refusal on the
part of the Company or any of the Selling Stockholders to comply with the terms
or fulfill any of the conditions of this Agreement, the Company agrees to
reimburse the Lead Managers for all out-of-pocket
<PAGE>
9
expenses (including reasonable fees and expenses of counsel for the Managers)
incurred by you in connection herewith.
(k) If Rule 430A of the Act is employed, the Company will timely file
the Prospectuses pursuant to Rule 424(b) under the Act and will advise you of
the time and manner of such filing.
(l) Except as provided in this Agreement, the Company will not sell,
contract to sell or otherwise dispose of any Common Stock (except shares issued
upon exercises of options outstanding under the Company's 1992 stock option plan
or upon exercise of outstanding warrants) or any securities convertible into or
exercisable or exchangeable for Common Stock, or grant any options (except any
options granted under the Company's 1992 stock option plan) or warrants to
purchase Common Stock, for a period of 120 days after the date of the
International Prospectus, without the prior written consent of Smith Barney Inc.
(m) The Company has furnished or will furnish to you "lock-up"
letters, in form and substance satisfactory to you, signed by each of its
current officers and directors listed on Schedule III hereto.
(n) Except as stated in this Agreement and in the Prepricing
Prospectuses and Prospectuses, the Company has not taken, nor will it take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of the Shares.
(o) The Company will use all reasonable efforts to satisfy on or
before the Closing Date all conditions to the Managers' obligations to purchase
the Shares.
6. Agreements of the Selling Stockholders. Each of the Selling
--------------------------------------
Stockholders agrees with the several Managers as follows:
(a) Such Selling Stockholder will cooperate to the extent necessary
to cause the registration statement or any post-effective amendment thereto to
become effective at the earliest possible time.
(b) Such Selling Stockholder will pay all Federal and other taxes, if
any, on the transfer or sale of such
<PAGE>
10
Shares that are sold by the Selling Stockholder to the Managers.
(c) Such Selling Stockholder will do or perform all things required
to be done or performed by the Selling Stockholder prior to the Closing Date to
satisfy all conditions precedent to the delivery of the Shares pursuant to this
Agreement.
(d) Except as provided in this Agreement and in the lock-up letter
referred to in paragraph (e) below, such Selling Stockholder will not sell or
otherwise dispose of any Common Stock for a period of 120 days after the date of
the International Prospectus, without the prior written consent of Smith Barney
Inc.
(e) Such Selling Stockholder has furnished or will furnish to you a
"lock-up" letter, in form and substance satisfactory to you.
(f) Except as stated in this Agreement and the U.S. Underwriting
Agreement and in the Prepricing Prospectuses and the Prospectuses, such Selling
Stockholder has not taken, nor will it take, directly or indirectly, any action
designed to or that might reasonably be expected to cause or result in
stabilization or manipulation of the price of the Common Stock to facilitate the
sale or resale of the Shares.
7. Representations and Warranties of the Company. The Company represents
---------------------------------------------
and warrants to each Manager and Selling Stockholder that:
(a) Each International Prepricing Prospectus included as part of the
registration statement as originally filed or as part of any amendment or
supplement thereto, or filed pursuant to Rule 424 under the Act, complied when
so filed in all material respects with the provisions of the Act; except that
this representation and warranty does not apply to statements in or omissions
from such International Prepricing Prospectus (or any amendment or supplement
thereto) made in reliance upon and in conformity with information relating to
any Selling Stockholder or to any Manager or U.S. Underwriter furnished to the
Company in writing by a Manager through the Lead Managers or by a U.S.
Underwriter through the Representatives or by a Selling Stockholder expressly
for use therein. The Commission has
<PAGE>
11
not issued any order preventing or suspending the use of any Prepricing
Prospectus.
(b) The Company and the transactions contemplated by this Agreement
meet the requirements for using Form S-3 under the Act. The registration
statement in the form in which it became or becomes effective and also in such
form as it may be when any post-effective amendment thereto or any Rule 462(b)
Registration Statement or amendment thereto shall become effective and the
International Prospectus and any supplement or amendment thereto when filed with
the Commission under Rule 424(b) under the Act, complied or will comply in all
material respects with the provisions of the Act and will not at any such times
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading; except that this representation and warranty does not apply to
statements in or omissions from the Registration Statement or the International
Prospectus made in reliance upon and in conformity with information relating to
any Selling Stockholder or to any Manager or U.S. Underwriter furnished to the
Company in writing by a Manager through the Lead Managers or by a U.S.
Underwriter through the Representatives or by a Selling Stockholder expressly
for use therein.
(c) The Incorporated Documents included in the Registration Statement
heretofore filed, when they were filed (or, if any amendment with respect to any
such document was filed, when such amendment was filed), conformed in all
material respects with the requirements of the Exchange Act and the rules and
regulations thereunder, and any further Incorporated Documents so filed will,
when they are filed, conform in all material respects with the requirements of
the Exchange Act and the rules and regulations thereunder; no such document when
it was filed (or, if an amendment with respect to any such document was filed,
when such amendment was filed), contained an untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein not misleading; and no such further
document, when it is filed, will contain an untrue statement of a material fact
or will omit to state a material fact required to be stated therein or necessary
in order to make the statements therein not misleading.
<PAGE>
12
(d) All the outstanding shares of Common Stock of the Company,
including the Underwritten Shares, have been duly authorized and validly issued,
are fully paid and nonassessable and are free of any preemptive or similar
rights; and the capital stock of the Company conforms to the description thereof
in the Registration Statement and the Prospectuses.
(e) The Company is a corporation duly organized and validly existing
in good standing under the laws of the State of Delaware with full corporate
power and authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement and the Prospectuses, and is
duly registered and qualified to conduct its business and is in good standing in
each jurisdiction or place where the nature of its properties or the conduct of
its business requires such registration or qualification, except where the
failure so to register or qualify does not, individually or in the aggregate,
have a material adverse effect on the condition (financial or other), business,
properties, net worth or results of operations of the Company and the
Subsidiaries (as hereinafter defined) taken as a whole (a "Material Adverse
Effect").
(f) All the Company's subsidiaries (collectively, the "Subsidiaries")
are listed in an exhibit to the Company's Annual Report on Form 10-K which is
incorporated by reference into the Registration Statement (except for certain
immaterial subsidiaries formed since the filing thereof). Each of Action
Industries, Inc., Broyhill Furniture Industries, Inc., The Lane Company,
Incorporated, and Thomasville Furniture Industries, Inc. (the "Material
Subsidiaries") is a corporation duly organized, validly existing and in good
standing in the jurisdiction of its incorporation, with full corporate power and
authority to own, lease and operate its properties and to conduct its business
as described in the Registration Statement and the Prospectuses, and is duly
registered and qualified to conduct its business and is in good standing in each
jurisdiction or place where the nature of its properties or the conduct of its
business requires such registration or qualification, except where the failure
so to register or qualify does not, individually or in the aggregate, have a
Material Adverse Effect; all the outstanding shares of capital stock of each of
the Material Subsidiaries have been duly authorized and validly issued, are
fully paid and nonassessable, and are owned by the Company, free and clear
<PAGE>
13
of any lien, adverse claim, security interest, equity, or other encumbrance,
except as described in the Registration Statement.
(g) There are no legal or governmental proceedings pending or, to the
knowledge of the Company, threatened, against the Company or any of the
Subsidiaries, or to which the Company or any of the Subsidiaries, or to which
any of their respective properties is subject, that are required to be described
in the Registration Statement or the Prospectuses but are not described as
required, and there are no agreements, contracts, indentures, leases or other
instruments that are required to be described in the Registration Statement or
the Prospectuses or to be filed as an exhibit to the Registration Statement or
any Incorporated Document therein that are not described or filed as required by
the Act or the Exchange Act.
(h) Neither the Company nor any of the Subsidiaries is in violation of
its certificate or articles of incorporation or by-laws, or other organizational
documents, or of any law, ordinance, administrative or governmental rule or
regulation applicable to the Company or any of the Subsidiaries or of any decree
of any court or governmental agency or body having jurisdiction over the Company
or any of the Subsidiaries, except any violations which will not, individually
or in the aggregate, have a Material Adverse Effect, or in default in any
material respect in the performance of any material obligation, agreement or
condition contained in any bond, debenture, note or any other evidence of
indebtedness or in any material agreement, indenture, lease or other instrument
to which the Company or any of the Subsidiaries is a party or by which any of
them or any of their respective properties may be bound (except where any such
default or defaults would not, individually or in the aggregate, have a Material
Adverse Effect).
(i) Neither the sale of the Underwritten Shares, the execution,
delivery or performance of this Agreement by the Company nor the consummation by
the Company of the transactions contemplated hereby (i) requires any consent,
approval, authorization or other order of or registration or filing with, any
court, regulatory body, administrative agency or other governmental body, agency
or official (except such as may be required for the registration of the Shares
under the Act and compliance with the securities or Blue Sky laws of various
jurisdictions, both of which have
<PAGE>
14
been or will be effected in accordance with this Agreement) or conflicts or will
conflict with or constitutes or will constitute a breach of, or a default under,
the certificate or articles of incorporation or bylaws, or other organizational
documents, of the Company or any of the Subsidiaries or (ii) conflicts or will
conflict with or constitutes or will constitute a breach of, or a default under,
any agreement, indenture, lease or other instrument to which the Company or any
of the Subsidiaries is a party or by which any of them or any of their
respective properties may be bound, or violates or will violate any statute,
law, regulation or filing (except the securities or Blue Sky laws of the various
jurisdictions, as to which no representation or warranty is made) or judgment,
injunction, order or decree applicable to the Company or any of the Subsidiaries
or any of their respective properties, or will result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of the
Company or any of the Subsidiaries pursuant to the terms of any agreement or
instrument to which any of them is a party or by which any of them may be bound
or to which any of the property or assets of any of them is subject.
(j) The accountants, KPMG Peat Marwick LLP, who have certified or
shall certify the financial statements included or incorporated by reference in
the Registration Statement and the Prospectuses (or any amendment or supplement
thereto) are independent public accountants as required by the Act.
(k) The financial statements, together with related schedules and
notes, included or incorporated by reference in the Registration Statement and
the Prospectuses (and any amendment or supplement thereto), present fairly, in
all material respects, the consolidated financial position, results of
operations and changes in financial position of the Company and the Subsidiaries
on the basis stated in the Registration Statement at the respective dates or for
the respective periods to which they apply; such statements and related
schedules and notes have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved,
except as disclosed therein; and the other financial and statistical information
and data relating to the Company and the Subsidiaries included or incorporated
by reference in the Registration Statement and the Prospectuses (and any
amendment or supplement thereto) are accurately presented in all material
respects and prepared on a basis
<PAGE>
15
consistent with such financial statements and the books and records of the
Company and the Subsidiaries.
(l) The execution and delivery of, and the performance by the Company
of its obligations under, this Agreement have been duly and validly authorized
by the Company, and this Agreement has been duly executed and delivered by the
Company and constitutes the valid and legally binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as rights
to indemnity and contribution hereunder may be limited by federal or state
securities laws and subject to the qualification that the enforceability of the
Company's obligations hereunder may be limited by bankruptcy, fraudulent
conveyance, insolvency, reorganization, moratorium, and other laws relating to
or affecting creditors' rights generally, and by general equitable principles.
(m) Except as disclosed in the Registration Statement and the
Prospectuses (or any amendment or supplement thereto), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectuses (or any amendment or supplement thereto), neither
the Company nor any of the Subsidiaries has incurred any liability or
obligation, direct or contingent, or entered into any transaction, not in the
ordinary course of business, that is material to the Company and the
Subsidiaries taken as a whole, and there has not been any change in the capital
stock of the Company, or material increase in the short-term debt or long-term
debt of the Company or any of the Subsidiaries, or any material adverse change,
or any development involving or which may reasonably be expected to involve, a
prospective material adverse change, in the condition (financial or other),
business, net worth or results of operations of the Company and the Subsidiaries
taken as a whole.
(n) With only such exceptions as would not, individually or in the
aggregate, have a Material Adverse Effect, each of the Company and the
Subsidiaries has good and, in the case of real property, marketable title to all
property (real and personal) described in the Prospectuses as being owned by it,
free and clear of all liens, claims, security interests or other encumbrances
except such as are described in the Registration Statement and the Prospectuses
or in a document filed as an exhibit to the Registration Statement and all the
property described in the Prospectuses
<PAGE>
16
as being held under lease by each of the Company and the Subsidiaries is held by
it under valid, subsisting and enforceable leases.
(o) The Company has not distributed and, prior to the later to occur
of (i) the Closing Date and (ii) completion of the distribution of the Shares,
will not distribute any offering material in connection with the offering and
sale of the Shares other than the Registration Statement, the Prepricing
Prospectuses, the Prospectuses or other materials, if any, permitted by the Act.
(p) The Company and each of the Subsidiaries has such material
permits, licenses, franchises and authorizations of governmental or regulatory
authorities ("permits") as are necessary to own its respective properties and to
conduct its business in all material respects in the manner described in the
Prospectuses, subject to such qualifications as may be set forth in the
Prospectuses; the Company and each of the Subsidiaries has fulfilled and
performed all its material obligations with respect to such permits and no event
has occurred which allows, or after notice or lapse of time would allow,
revocation or termination thereof or results in any other material impairment of
the rights of the holder of any such permit, subject in each case to such
qualification as may be set forth in the Prospectuses; and, except as described
in the Prospectuses, none of such permits contains any restriction that is
materially burdensome to the Company or any of the Subsidiaries.
(q) The properties, assets and operations of the Company and its
Subsidiaries comply with all applicable Environmental Laws (as defined below),
except to the extent that failure so to comply would not, individually or in the
aggregate, have a Material Adverse Effect. Except as specifically described in
the Prospectuses, none of the property, assets or operations of the Company or
its Subsidiaries is the subject of any investigation by any federal, state,
local or foreign governmental agency evaluating whether any remedial action is
needed to respond to a release of any Hazardous Materials (as defined below)
into the environment or a release of any Hazardous Materials that is in
contravention of any federal, state, local or foreign law, order or regulation,
in each case that is likely to have a Material Adverse Effect, and neither the
Company nor any Subsidiary has received notice of any such investigation.
Except as described in the Prospectuses,
<PAGE>
17
neither the Company nor any Subsidiary has received any notice or claim, nor are
there pending, reasonably anticipated or, to the best knowledge of the Company,
threatened lawsuits against any of them, with respect to violations of an
Environmental Law or in connection with any release of any Hazardous Materials
into the environment that, if adversely determined, could have a Material
Adverse Effect. Except as disclosed in the Prospectuses, with respect to the
business of the Company or its Subsidiaries, including any previously or
currently owned, leased, or used properties or operations, there are no past,
present, or, to the best knowledge of the Company, reasonably anticipated future
events, conditions, circumstances, activities, practices, incidents, actions or
plans that may interfere with or prevent compliance or continued compliance with
the Environmental Laws in any material respect. As used herein, "Environmental
Laws" means any federal, state, local or foreign law, common law, doctrine,
rule, order, decrees, judgment, injunction, license, permit or regulation
relating to environmental matters, and "Hazardous Materials" means those
substances that are regulated by or form the basis of liability under any
Environmental Laws.
(r) The Company and each other person or entity that, together with
the Company, is treated as a single employer under Section 414 of the Internal
Revenue Code of 1986, as amended (the "Code") (each such person or entity being
an "ERISA Affiliate"), complies in all material respects with the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and the Code with
respect to each pension plan (as defined in Section 3(2) of ERISA) maintained by
the Company or such ERISA Affiliate, and none of the Company or any of its ERISA
Affiliates has incurred any material liability under Title IV of ERISA to any
pension plan or to the Pension Benefit Guaranty Corporation that has not been
fully paid as of the date hereof.
(s) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable
<PAGE>
18
intervals and appropriate action is taken with respect to any differences.
(t) To the knowledge of the Company, neither the Company nor any of
its Subsidiaries nor any employee or agent of the Company or any Subsidiary has
made any payment of funds of the Company or any Subsidiary or received or
retained any funds in violation of any law, rule or regulation, which payment,
receipt or retention of funds is of a character required to be disclosed in the
Prospectuses.
(u) The Company and each of the Subsidiaries have filed all material
tax returns required to be filed, which returns are complete and correct in all
material respects, and neither the Company nor any Subsidiary is in default in
the payment of any taxes which were payable pursuant to said returns or any
assessments with respect thereto.
(v) No holder of any security of the Company has any right (except as
has been satisfied or waived) to require registration of shares of Common Stock
or any other security of the Company because of the filing of the registration
statement or consummation of the transactions contemplated by this Agreement.
(w) The Company and the Subsidiaries own or possess all patents,
trademarks, trademark registrations, service marks, service mark registrations,
trade names, copyrights, licenses, inventions, trade secrets and rights
described in the Prospectuses as being owned by them or any of them or to the
Company's knowledge necessary for the conduct of their respective businesses,
and the Company is not aware of any claim to the contrary or any challenge by
any other person to the rights of the Company and the Subsidiaries with respect
to the foregoing which will have a Material Adverse Effect.
(x) The Company has complied with all provisions of Florida Statutes,
(S)517.075, relating to issuers doing business with Cuba.
8. Representations and Warranties of the Selling Stockholders. Each
----------------------------------------------------------
Selling Stockholder represents and warrants to each Manager and the Company
that:
(a) Such Selling Stockholder now has, and on the Closing Date will
have, full legal right, power and authorization, and any approval required by
law, to sell,
<PAGE>
19
assign, transfer and deliver such Shares in the manner provided in this
Agreement, and upon delivery of and payment for such Shares hereunder, the
several Managers will acquire valid and marketable title to such Shares free and
clear of any lien, claim, security interest, or other encumbrance.
(b) The execution and delivery of, and the performance by such
Selling Stockholder of its obligations under, this Agreement have been duly and
validly authorized by such Selling Stockholder, and this Agreement has been duly
executed and delivered by such Selling Stockholder and constitutes the valid and
legally binding agreement of such Selling Stockholder, enforceable against such
Selling Stockholder in accordance with its terms, except as limited by federal
or state securities laws and subject to the qualification that the
enforceability of the Selling Stockholder's obligations hereunder may be limited
by bankruptcy, fraudulent conveyance, insolvency reorganization, moratorium, and
other laws relating to or affecting creditors' rights generally, and by general
equitable principles.
(c) Neither the sale of the Shares nor the execution, delivery or
performance of this Agreement by or on behalf of such Selling Stockholder nor
the consummation by or on behalf of such Selling Stockholder of the transactions
contemplated hereby (i) requires any consent, approval, authorization or other
order of, or registration or filing with, any court, regulatory body,
administrative agency or other governmental body, agency or official (except
such as may be required for the registration of the Shares under the Act or
compliance with the securities laws of various jurisdictions), or (ii) conflicts
or will conflict with or constitutes or will constitute a breach of, or a
default under, any agreement, indenture, lease or other instrument to which such
Selling Stockholder is a party or by which such Selling Stockholder is or may be
bound, or violates or will violate any statute, law, regulation or filing or
judgment, injunction, order or decree applicable to such Selling Stockholder, or
will result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of such Selling Stockholder pursuant to the terms of
any agreement or instrument to which such Selling Stockholder is a party or by
which such Selling Stockholder may be bound or to which any of the property or
assets of such Selling Stockholder is subject.
<PAGE>
20
(d) The Registration Statement and the Prospectuses, insofar as they
contain information relating to such Selling Stockholder, do not and will not
contain an untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading.
(e) Such Selling Stockholder has not taken, directly or indirectly,
any action designed to or that might reasonably be expected to cause or result
in stabilization or manipulation of the price of the Common Stock to facilitate
the sale or resale of the Shares, except for the lock-up arrangements referred
to in the Prospectuses.
(f) Such Selling Stockholder (without undertaking any independent
investigation) does not have any knowledge that the Registration Statement or
the Prospectuses (or any amendment or supplement thereto) contains any untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading.
9. Indemnification and Contribution. (a) The Company agrees to indemnify
--------------------------------
and hold harmless each of you and each other Manager and each person, if any,
who controls any Manager within the meaning of Section 15 of the Act or Section
20 of the Exchange Act from and against any and all losses, claims, damages,
liabilities and expenses (including reasonable costs of investigation) arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact contained in any International Prepricing Prospectus or in the
Registration Statement or the International Prospectus or in any amendment or
supplement thereto, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses arise out of or are based upon
any untrue statement or omission or alleged untrue statement or omission which
has been made therein or omitted therefrom in reliance upon and in conformity
with the information relating to such Manager or U.S. Underwriter furnished in
writing to the Company by or on behalf of any Manager through you or by or on
behalf of any U.S. Underwriter through a Representative expressly for use in
connection therewith; provided, however, that the indemnification contained in
this paragraph (a) with respect to any International Prepricing Prospectus shall
not inure
<PAGE>
21
to the benefit of any Manager (or to the benefit of any person controlling such
Manager) on account of any such loss, claim, damage, liability or expense
arising from the sale of the Shares by such Manager to any person if a copy of
the International Prospectus shall not have been delivered or sent to such
person within the time required by the Act and the regulations thereunder, and
the untrue statement or alleged untrue statement or omission or alleged omission
of a material fact contained in such International Prepricing Prospectus was
corrected in the International Prospectus, provided that the Company has
delivered the International Prospectus to the several Managers in requisite
quantity on a timely basis to permit such delivery or sending. The foregoing
indemnity agreement shall be in addition to any liability which the Company may
otherwise have.
(b) Each Selling Stockholder agrees, severally and not jointly, to
indemnify and hold harmless you and each other Manager and each person, if any,
who controls any Manager within the meaning of Section 15 of the Act or Section
20 of the Exchange Act with the same exceptions and to the same extent as the
foregoing indemnity from the Company to each Manager, but only with respect to
information relating to such Selling Stockholder furnished in writing by or on
behalf of such Selling Stockholder expressly for use in the Registration
Statement, the International Prospectus or any International Prepricing
Prospectus, or any amendment or supplement thereto. The foregoing indemnity
agreement shall be in addition to any liability which any Selling Stockholder
may otherwise have.
(c) If any action, suit or proceeding shall be brought against any Manager
or any person controlling any Manager in respect of which indemnity may be
sought against the Company, any Selling Stockholder or both, such Manager or
such controlling person shall promptly notify in writing the parties against
whom indemnification is being sought (the "indemnifying parties"), and such
indemnifying parties shall assume the defense thereof, including the employment
of counsel and payment of all fees and expenses. Such Manager or any such
controlling person shall have the right to employ separate counsel in any such
action, suit or proceeding and to participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such Manager or
such controlling person unless (i) the indemnifying parties have agreed in
writing to pay such fees and expenses, (ii) the indemnifying parties have
<PAGE>
22
failed to assume the defense and employ counsel, or (iii) the named parties to
any such action, suit or proceeding (including any impleaded parties) include
both such Manager or such controlling person and the indemnifying parties and
such Manager or such controlling person shall have been advised by its counsel
in writing, with a copy furnished to the Company upon request, that
representation of such indemnified party and the indemnifying parties by the
same counsel would be inappropriate under applicable standards of professional
conduct (whether or not such representation by the same counsel has been
proposed) due to actual or potential differing interests between them (in which
case the indemnifying parties shall not have the right to assume the defense of
such action, suit or proceeding on behalf of such Manager or such controlling
person). It is understood, however, that the indemnifying parties shall, in
connection with any one such action, suit or proceeding or separate but
substantially similar or related actions, suits or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of only one separate firm of
attorneys (in addition to any local counsel) at any time for all such Managers
and controlling persons not having actual or potential differing interests with
you or among themselves, which firm shall be designated in writing by Smith
Barney Inc., and that all such fees and expenses shall be reimbursed as they are
incurred. The indemnifying parties shall not be liable for any settlement of
any such action, suit or proceeding effected without its written consent, but if
settled with such written consent, or if there be a final judgment for the
plaintiff in any such action, suit or proceeding, the indemnifying parties agree
to indemnify and hold harmless any Manager, to the extent provided in the
preceding paragraph, and any such controlling person from and against any loss,
claim, damage, liability or expense by reason of such settlement or judgment.
(d) Each Manager agrees, severally and not jointly, to indemnify and hold
harmless the Company, its directors, its officers who sign the Registration
Statement, any person who controls the Company within the meaning of Section 15
of the Act or Section 20 of the Exchange Act and the Selling Stockholders, to
the same extent as the foregoing indemnity from the Company and the Selling
Stockholders to each Manager, but only with respect to information relating to
such Manager furnished in writing by or on behalf of such Manager through you
expressly for use in the Registration
<PAGE>
23
Statement, the International Prospectus or any International Prepricing
Prospectus, or any amendment or supplement thereto. If any action, suit or
proceeding shall be brought against the Company, any of its directors, any such
officer, any such controlling person or any Selling Stockholder based on the
Registration Statement, the International Prospectus or any International
Prepricing Prospectus, or any amendment or supplement thereto, and in respect of
which indemnity may be sought against any Manager pursuant to this paragraph
(d), such Manager shall have the rights and duties given to the Company and the
Selling Stockholders by paragraph (c) above (except that if the Company or the
Selling Stockholders shall have assumed the defense thereof such Manager shall
not be required to do so, but may employ separate counsel therein and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at such Manager's expense), and the Company, its directors, any such
officer, any such controlling person and the Selling Stockholders shall have the
rights and duties given to the Managers by paragraph (c) above. The foregoing
indemnity agreement shall be in addition to any liability which any Manager may
otherwise have.
(e) If the indemnification provided for in this Section 9 is unavailable to
an indemnified party under paragraphs (a), (b) or (d) hereof in respect of any
losses, claims, damages, liabilities or expenses referred to therein, then an
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or expenses (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company and
the Selling Stockholders on the one hand and the Managers on the other hand from
the offering of the Shares, or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company and the Selling Stockholders on the one
hand and the Managers on the other in connection with the statements or
omissions that resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Selling Stockholders on the one hand
and the Managers on the other shall be deemed to be in the same proportion as
the total net proceeds from the offering (before deducting expenses) received by
the Company and the
<PAGE>
24
Selling Stockholders bear to the total underwriting discounts and commissions
received by the Managers, in each case as set forth in the table on the cover
page of the International Prospectus. The relative fault of the Company and the
Selling Stockholders on the one hand and the Managers on the other hand shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company and the Selling
Stockholders on the one hand or by the Managers on the other hand and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
(f) The Company, the Selling Stockholders and the Managers agree that it
would not be just and equitable if contribution pursuant to this Section 9 were
determined by a pro rata allocation (even if the Managers were treated as one
entity for such purpose) or by any other method of allocation that does not take
account of the equitable considerations referred to in paragraph (e) above. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities and expenses referred to in paragraph (e) above
shall be deemed to include, subject to the limitations set forth above, any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating any claim or defending any such action, suit or
proceeding. Notwithstanding the provisions of this Section 9, no Manager shall
be required to contribute any amount in excess of the amount by which the total
price of the Shares underwritten by it and distributed to the public exceeds the
amount of any damages which such Manager has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Managers'
obligations to contribute pursuant to this Section 9 are several in proportion
to the respective numbers of Shares set forth opposite their names in Schedule I
hereto (or such numbers of Shares increased as set forth in Section 12 hereof)
and not joint.
(g) No indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened action,
suit or
<PAGE>
25
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such action,
suit or proceeding.
(h) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 9 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 9 and the
representations and warranties of the Company and the Selling Stockholders set
forth in this Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any Manager or any
person controlling any Manager, the Company, its directors or officers or the
Selling Stockholders, any director, officer or partner of a Selling Stockholder
or any person controlling the Company or any Selling Stockholder, (ii)
acceptance of any Shares and payment therefor hereunder, and (iii) any
termination of this Agreement. A successor to any Manager or any person
controlling any Manager, or to the Company, its directors or officers, or to a
Selling Stockholder, any director, officer or partner of a Selling Stockholder
or any person controlling the Company or any Selling Stockholder shall be
entitled to the benefits of the indemnity, contribution and reimbursement
agreements contained in this Section 9.
10. Conditions of Managers' Obligations. The several obligations of the
-----------------------------------
Managers to purchase the Shares hereunder are subject to the following
conditions:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the registration statement or a post-effective amendment thereto
(or a Rule 462(b) Registration Statement) to be declared effective before the
offering of the Shares may commence, the registration statement or such post-
effective amendment or Rule 462(b) Registration Statement shall have become
effective not later than 5:30 P.M., New York City time, on the date hereof, or
at such later date and time as shall be consented to in writing by you, and all
filings, if any, required by Rules 424 and 430A under the Act shall have been
timely made; no stop order suspending the effectiveness of the registration
statement shall have been issued and no
<PAGE>
26
proceeding for that purpose shall have been instituted or, to the knowledge of
the Company or any Manager, threatened by the Commission, and any request of the
Commission for additional information (to be included in the registration
statement or the Prospectuses or otherwise) shall have been complied with to
your reasonable satisfaction.
(b) Subsequent to the effective date of this Agreement, there shall
not have occurred (i) any change, or any development involving a prospective
change, in or affecting the condition (financial or other), business,
properties, net worth, or results of operations of the Company or the
Subsidiaries not contemplated by the Prospectuses, which in your reasonable
opinion, as Lead Managers for the several Managers, would materially, adversely
affect the market for the Shares, or (ii) any event or development relating to
or involving the Company or any officer or director of the Company which makes
any statement made in the Prospectuses untrue or which, in the opinion of the
Company and its counsel or the Managers and their counsel, requires the making
of any addition to or change in the Prospectuses in order to state a material
fact required by the Act or any other law to be stated therein or necessary in
order to make the statements therein not misleading, if amending or
supplementing the Prospectuses to reflect such event or development would, in
your reasonable opinion, as Lead Managers for the several Managers, materially
adversely affect the market for the Shares.
(c) You shall have received on the Closing Date, an opinion of Morgan,
Lewis & Bockius LLP, counsel for the Company, dated the Closing Date and
addressed to you, as Lead Managers for the several Managers, to the effect that:
(i) The Company is a corporation validly existing in good standing
under the laws of the State of Delaware with corporate power and authority to
own, lease and operate its properties and to conduct its business as described
in the Registration Statement and the Prospectuses (and any amendment or
supplement thereto);
(ii) Each of the Material Subsidiaries is a corporation validly
existing in good standing under the laws of the jurisdiction of its
organization, with corporate power and authority to own, lease, and operate its
properties and to conduct its business as described in the Registration
Statement and the Prospectuses (and any amendment or supplement thereto);
<PAGE>
27
(iii) The authorized and outstanding capital stock of the Company is
as set forth under the caption "Capitalization" in the Prospectuses; and the
authorized capital stock of the Company conforms in all material respects as to
legal matters to the description thereof contained in the Prospectuses under the
caption "Description of Capital Stock";
(iv) All the outstanding shares of capital stock of the Company have
been duly authorized and validly issued, and are fully paid and nonassessable;
(v) The Registration Statement and all post-effective amendments, if
any, have become effective under the Act and, to the knowledge of such counsel,
no stop order suspending the effectiveness of the Registration Statement has
been issued and no proceedings for that purpose are pending before or
contemplated by the Commission; and any required filing of the Prospectuses
pursuant to Rule 424(b) has been made in accordance with Rule 424(b);
(vi) The Company has corporate power and authority to enter into this
Agreement and this Agreement has been duly authorized, executed and delivered by
the Company and is a valid, legal and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as
enforcement of rights to indemnity and contribution hereunder may be limited by
Federal or state securities laws or principles of public policy and subject to
the qualification that the enforceability of the Company's obligations hereunder
may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization,
moratorium, and other laws relating to or affecting creditors' rights generally,
and by general equitable principles;
(vii) Neither the offer, sale or delivery of the Shares, the
execution, delivery or performance of this Agreement, compliance by the Company
and the Selling Stockholders with the provisions hereof nor consummation by the
Company and the Selling Stockholders of the transactions contemplated hereby
conflicts or will conflict with or constitutes or will constitute a breach of,
or a default under, the certificate or articles of incorporation or bylaws, or
other organizational documents, of the Company or any of the Material
Subsidiaries or any agreement, indenture, lease or other instrument to which the
Company or
<PAGE>
28
any of the Material Subsidiaries is a party or by which any of them or any of
their respective properties is bound that is an exhibit to the Registration
Statement or to any Incorporated Document, or is known to such counsel, or will
result in the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any of the Material Subsidiaries, nor will
any such action result in any violation of any existing law, regulation, ruling
(assuming compliance with all applicable state securities and Blue Sky laws),
judgment, injunction, order or decree known to such counsel, applicable to the
Company, the Material Subsidiaries or any of their respective properties;
(viii) The Registration Statement and the Prospectuses and any
supplements or amendments thereto (except for the financial statements and the
notes thereto and the schedules and other financial and statistical data
included therein, as to which such counsel need not express any opinion) comply
as to form in all material respects with the requirements of the Act; and each
of the Incorporated Documents included in the Registration Statement (except for
the financial statements and the notes thereto and the schedules and other
financial and statistical data included therein, as to which counsel need not
express any opinion) complies as to form in all material respects with the
Exchange Act and the rules and regulations of the Commission thereunder;
(ix) To the knowledge of such counsel, (A) other than as described or
contemplated in the Prospectuses (or any supplement thereto), there are no legal
or governmental proceedings pending or threatened against the Company or any of
the Subsidiaries, or to which the Company or any of the Subsidiaries, or any of
their property, is subject, which are required to be described in the
Registration Statement or Prospectuses (or any amendment or supplement thereto)
and (B) there are no agreements, contracts, indentures, leases or other
instruments, that are required to be described in the Registration Statement or
the Prospectuses (or any amendment or supplement thereto) or to be filed as an
exhibit to the Registration Statement or any Incorporated Document that are not
described or filed as required, as the case may be;
(x) The following statements in the Prospectuses, insofar as they are
descriptions of contracts, agreements or other legal documents, or refer to
statements of law or
<PAGE>
29
legal conclusions, are accurate and present fairly the information required to
be shown: on page 10, under "Risk Factors - Leverage", the second sentence
relating to the Secured Credit Agreement amount, the third sentence relating to
the Receivables Securitization Facility amount and the last sentence relating to
the interest rate swap agreement amounts; on page 10, under "Risk Factors -
Restrictive Covenants in Certain Debt Instruments", the entire paragraph; on
page 11, under "Risk Factors - Absence of Dividends", the first sentence
relating to restrictions on the payment of dividends under the Secured Credit
Agreement; on page 11, under "Risk Factors - Anti-Takeover Provisions", the
entire paragraph; on page 12, under "Price Range of Common Stock and Dividend
Policy", the first sentence of the last paragraph relating to restrictions on
the payment of dividends under the Secured Credit Agreement; on page 16, under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - General", the third sentence of the third paragraph relating to no
ownership interest or management control of the footwear business upon the
completion of the restructuring; on page 21, under Management's Discussion and
Analysis of Financial Condition and Results of Operations - Financial Condition
and Liquidity", the first five sentences of the fourth paragraph on the page
relating to the Secured Credit Agreement, the first three sentences of the fifth
paragraph on the page relating to the Receivables Securitization Facility and
the entire sixth paragraph on the page; on page 33, under "Business -
Environmental Matters", the entire first and second paragraphs; on page 35,
under "Certain Transactions", the entire paragraph; on page 36, under "Selling
Stockholders", the entire second paragraph on the page; on page 36, under
"Description of Capital Stock", the entire section; on page 38, under "Certain
U.S. Tax Consequences to Non-U.S. Stockholders", the entire section; on page 41,
under "Underwriting", the first sentence of the third paragraph relating to the
obligations of the several underwriters; and
(xi) Although counsel has not undertaken, except as otherwise
indicated, to determine independently, and does not assume any responsibility
for, the accuracy or completeness of the statements in the Registration
Statement, such counsel has participated in the preparation of the Registration
Statement and the Prospectuses, including review and discussion of the contents
thereof (including review and discussion of the contents of all Incorporated
Documents), and nothing has come to the
<PAGE>
30
attention of such counsel that has caused them to believe that the Registration
Statement (including the Incorporated Documents) at the time the Registration
Statement became effective, or the Prospectuses, as of the date thereof and as
of the Closing Date, contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading or that any amendment or supplement to the
Prospectuses, as of the respective date thereof, and as of the Closing Date,
contained any untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading (it being understood
that such counsel need express no belief with respect to the financial
statements and the notes thereto and the schedules and other financial and
statistical data included in the Registration Statement or the Prospectuses or
any Incorporated Document).
In rendering such opinion as aforesaid, counsel may limit their
opinion to the federal laws of the United States, the General Corporation Law of
the State of Delaware, and the laws of the States of New York and Pennsylvania,
and may assume that the laws of the Commonwealth of Virginia and the State of
North Carolina are in all relevant respects the same as the Delaware General
Corporation Law.
(d) You shall have received on the Closing Date an opinion from Akin,
Gump, Strauss, Hauer & Feld, LLP, counsel for the Selling Stockholders, dated
the Closing Date and addressed to you, as Lead Managers for the several Managers
to the effect that:
(i) This Agreement has been duly executed and delivered by or on
behalf of each of the Selling Stockholders;
(ii) Each Selling Stockholder has full legal right, power and
authorization, and any approval required by law, to sell, assign, transfer
and deliver good and marketable title to the Shares which such Selling
Stockholder has agreed to sell pursuant to this Agreement; and
(iii) The execution and delivery of this Agreement by the Selling
Stockholders and the consummation of the transactions contemplated hereby
will not conflict
<PAGE>
31
with, violate, result in a breach of or constitute a default under the
terms or provisions of the partnership agreement of any Selling
Stockholder, or, to such counsel's knowledge, any agreement, indenture,
lease or other instrument to which any Selling Stockholder is a party or by
which any of them or any of their assets or property is bound, or violate
any statute, law, regulation, court order or decree known to such counsel
to be applicable to any Selling Stockholder or to any of the property or
assets of any Selling Stockholder, except for any such conflicts, breaches,
defaults or violations that would not, individually or in the aggregate,
have a Material Adverse Effect on the ability of such Selling Stockholder
to consummate the transactions contemplated by this Agreement.
In rendering their opinion as aforesaid, counsel may, as to factual matters,
rely upon written certificates or statements of officers of the Selling
Stockholders and, as to matters of law, may limit their opinion to the federal
laws of the United States, the General Corporation Law of the State of Delaware
and the laws of the State of New York.
(e) You shall have received on the Closing Date, an opinion of Lynn
Chipperfield, Esq., general counsel for the Company, dated the Closing Date and
addressed to you, as Lead Managers for the several Managers, to the effect that:
(i) The Company and each of the Subsidiaries has corporate power and
authority, and, to such counsel's knowledge, all necessary governmental
authorizations, approvals, orders, licenses, certificates, franchises and
permits of and from all governmental regulatory officials and bodies (except
where the failure so to have any such authorizations, approvals, orders,
licenses, certificates, franchises or permits, individually or in the aggregate,
would not have a Material Adverse Effect), to own their respective properties
and to conduct their respective businesses as now being conducted, as described
in the Prospectuses;
(ii) Each of the Company and the Material Subsidiaries is duly
qualified to transact business as a foreign corporation in good standing in the
jurisdictions listed in an attached schedule, which are all jurisdictions in
which they own, lease or operate manufacturing facilities;
<PAGE>
32
(iii) Neither the Company nor any of the Material Subsidiaries is in
violation of its respective certificate or articles of incorporation or bylaws,
or other organizational documents, to the knowledge of such counsel, or is in
default in the performance of any material obligation, agreement or condition
contained in any bond, debenture, note or other evidence of indebtedness, to the
knowledge of such counsel, except as may be disclosed in the Prospectuses;
(iv) Except as disclosed in the Prospectuses, the Company owns of
record, directly or indirectly, all the outstanding shares of capital stock of
each of the Subsidiaries free and clear of any lien, adverse claim, security
interest, equity, or other encumbrance, and all the outstanding shares of
capital stock of each of the Subsidiaries have been duly authorized and validly
issued, are fully paid and nonassessable;
(v) Other than as described or contemplated in the Prospectuses (or
any supplement thereto), to such counsel's knowledge after reasonable inquiry,
there are no legal or governmental proceedings pending or threatened against the
Company or any of the Subsidiaries, or to which the Company or any of the
Subsidiaries, or any of their property, is subject, which are required to be
described in the Registration Statement or Prospectuses (or any amendment or
supplement thereto);
(vi) To such counsel's knowledge after reasonable inquiry, there are
no agreements, contracts, indentures, leases or other instruments, that are
required to be described in the Registration Statement or the Prospectuses (or
any amendment or supplement thereto) or to be filed as an exhibit to the
Registration Statement or any Incorporated Document therein that are not
described or filed as required, as the case may be;
(vii) The Company and the Subsidiaries own all patents, trademarks,
trademark registrations, service marks, service mark registrations, trade names,
copyrights, licenses, inventions, trade secrets and rights described in the
Prospectuses as being owned by them or any of them or, to the knowledge of such
counsel, necessary for the conduct of their respective businesses, and such
counsel is not aware of any claim to the contrary or any challenge by any other
person to the rights of the Company and the Subsidiaries with respect to the
foregoing;
<PAGE>
33
(viii) To such counsel's knowledge after reasonable inquiry, neither
the Company nor any of the Subsidiaries is in violation of any law, ordinance,
administrative or governmental rule or regulation applicable to the Company or
any of the Subsidiaries or of any decree of any court or governmental agency or
body having jurisdiction over the Company or any of the Subsidiaries except for
violations that would not, individually or in the aggregate, have a Material
Adverse Effect;
(ix) Except as described in the Prospectuses, there are no
outstanding options, warrants or other rights calling for the issuance of, and
such counsel does not know of any commitment, plan or arrangement to issue, any
shares of capital stock of the Company or any security convertible into or
exchangeable or exercisable for capital stock of the Company; and
(x) Except as described in the Prospectuses, there is no holder of
any security of the Company or any other person who has the right, contractual
or otherwise, to cause the Company to sell or otherwise issue to them, or to
permit them to underwrite the sale of, the Shares or the right to have any
Common Stock or other securities of the Company included in the registration
statement or the right, as a result of the filing of the registration statement,
to require registration under the Act of any shares of Common Stock or other
securities of the Company.
(f) You shall have received on the Closing Date an opinion of Cravath,
Swaine & Moore, counsel for the U.S. Underwriters, dated the Closing Date and
addressed to you, as Lead Managers for the several Managers, with respect to the
matters as you may reasonably request.
(g) You shall have received letters addressed to you, as Lead Managers for
the several Managers, and dated the date hereof and the Closing Date from KPMG
Peat Marwick LLP, independent certified public accountants, substantially in the
forms heretofore approved by you.
(h)(i) No stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall have
been taken or, to the knowledge of the Company, shall be contemplated by the
Commission at or prior to the Closing Date; (ii) there shall not have been any
material change in the capital stock of the Company nor any material increase in
the short-term or
<PAGE>
34
long-term debt of the Company (other than in the ordinary course of business)
from that set forth or contemplated in the Registration Statement or the
Prospectuses (or any amendment or Supplement thereto); (iii) there shall not
have been, since the respective dates as of which information is given in the
Registration Statement and the Prospectuses (or any amendment or supplement
thereto), except as may otherwise be stated in the Registration Statement and
Prospectuses (or any amendment or supplement thereto), any material adverse
change in the condition (financial or other), business, prospects, properties,
net worth or results of operations of the Company and the Subsidiaries taken as
a whole; (iv) the Company and the Subsidiaries shall not have any liabilities or
obligations, direct or contingent (whether or not in the ordinary course of
business), that are material to the Company and the Subsidiaries, taken as a
whole, other than those reflected in the Registration Statement or the
Prospectuses (or any amendment or supplement thereto); and (v) all the
representations and warranties of the Company contained in this Agreement shall
be true and correct on and as of the date hereof and on and as of the Closing
Date as if made on and as of the Closing Date, and you shall have received a
certificate of the Company, dated the Closing Date and signed on behalf of the
Company by the chief executive officer and the chief financial officer of the
Company (or such other officers as are acceptable to you), to the effect set
forth in this Section 10(h) and in Section 10(i) hereof.
(i) The Company shall not have failed at or prior to the Closing Date to
have performed or complied with any of its agreements herein contained and
required to be performed or complied with by it hereunder at or prior to the
Closing Date.
(j) All the representations and warranties of the Selling Stockholders
contained in this Agreement shall be true and correct on and as of the date
hereof and on and as of the Closing Date as if made on and as of the Closing
Date and you shall have received a certificate, dated the Closing Date, signed
by or on behalf of each Selling Stockholder to the effect set forth in this
Section 10(j) and in Section 10(k) hereof.
(k) The Selling Stockholders shall not have failed at or prior to the
Closing Date to have performed or complied with any of their agreements
contained in this Agreement and
<PAGE>
35
required to be performed or complied with by them at or prior to the Closing
Date.
(l) The Company and the Selling Stockholders shall have furnished or
caused to be furnished to you such further certificates and documents as you
shall have reasonably requested.
(m) The closing under the U.S. Underwriting Agreement shall have occurred
on the Closing Date concurrently with the closing hereunder.
All such opinions, certificates, letters and other documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
in form and substance to you and your counsel.
Any certificate or document signed by any officer of the Company or by any
Selling Stockholder and delivered to you, as Lead Managers for the Managers, or
to counsel for the Managers, shall be deemed a representation and warranty by
the Company or such Selling Stockholder to each Manager as to the statements
made therein.
11. Expenses. The Company and the Selling Stockholders agree to pay the
--------
following costs and expenses and all other costs and expenses incident to the
performance by them of their obligations hereunder: (i) the preparation,
printing or reproduction, and filing with the Commission of the registration
statement (including financial statements and exhibits thereto), each of the
Prepricing Prospectuses, the Prospectuses, and each amendment or supplement to
any of them; (ii) the printing (or reproduction) and delivery (including
postage, air freight charges and charges for counting and packaging) of such
copies of the registration statement, each International Prepricing Prospectus,
the International Prospectus, and all amendments or supplements to any of them
as may be reasonably requested for use in connection with the offering and sale
of the Shares; (iii) the preparation, printing, authentication, issuance and
delivery of certificates for the Shares, including any stamp taxes in connection
with the original issuance and sale of the Shares; (iv) the cost of production
(or reproduction) and delivery of this Agreement, the preliminary and
supplemental Blue Sky Memoranda and all other agreements, memoranda,
correspondence and other documents printed (or reproduced) and delivered in
connection with the original issuance and
<PAGE>
36
sale of the Shares; (v) the registration or qualification of the Shares for
offer and sale under the securities or Blue Sky laws of the several
jurisdictions as provided in Section 5(g) hereof (including the reasonable fees,
expenses and disbursements of counsel for the Managers and U.S. Underwriters
relating to the preparation, printing or reproduction, and delivery of the
preliminary and supplemental Blue Sky Memoranda and such registration and
qualification); (vi) the filing fees in connection with any filings required to
be made with the National Association of Securities Dealers, Inc.; (vii) the
transportation and other expenses incurred by or on behalf of representatives of
the Company in connection with presentations to prospective purchasers of the
Shares; (viii) the fees and expenses of the Company's accountants and the fees
and expenses of counsel (including local and special counsel) for the Company
and the Selling Stockholders; (ix) the underwriting discounts and commissions
(in proportion to the number of Shares being offered by each Selling
Stockholder; and (x) the performance by the Company and the Selling Stockholders
of their other obligations under this Agreement.
12. Effective Date of Agreement. This Agreement shall become
---------------------------
effective: (i) upon the execution and delivery hereof by the parties hereto; or
(ii) if, at the time this Agreement is executed and delivered, it is necessary
for the registration statement or a post-effective amendment thereto to be
declared effective before the offering of the Shares may commence, when
notification of the effectiveness of the registration statement or such post-
effective amendment has been released by the Commission. Until such time as
this Agreement shall have become effective, it may be terminated by the Company
or the Selling Stockholders, by notifying you, or by you, as Lead Managers for
the several Managers, by notifying the Company and the Selling Stockholders.
If any one or more of the Managers shall fail or refuse to purchase
Shares which it or they are obligated to purchase hereunder on the Closing Date,
and the aggregate number of Shares which such defaulting Manager or Managers are
obligated but fail or refuse to purchase is not more than one-tenth of the
aggregate number of Shares which the Managers are obligated to purchase on the
Closing Date, each non-defaulting Manager shall be obligated, severally, in the
proportion which the number of Shares set forth opposite its name in Schedule I
hereto bears to the aggregate number of Shares set forth opposite the names of
all non-defaulting
<PAGE>
37
Managers or in such other proportion as you may specify in accordance with
Section 20 of the Master Agreement Among Underwriters of Smith Barney Inc., to
purchase the Shares which such defaulting Manager or Managers are obligated, but
fail or refuse, to purchase. If any one or more of the Managers shall fail or
refuse to purchase Shares which it or they are obligated to purchase on the
Closing Date and the aggregate number of Shares with respect to which such
default occurs is more than one-tenth of the aggregate number of Shares which
the Managers are obligated to purchase on the Closing Date and arrangements
satisfactory to you and the Selling Stockholders for the purchase of such Shares
by one or more non-defaulting Managers or other party or parties approved by you
and the Selling Stockholders are not made within 36 hours after such default,
this Agreement will terminate without liability on the part of any non-
defaulting Manager, the Company or any Selling Stockholder. In any such case
which does not result in termination of this Agreement, either you or the
Company shall have the right to postpone the Closing Date, but in no event for
longer than seven days, in order that the required changes, if any, in the
Registration Statement and the Prospectuses or any other documents or
arrangements may be effected. Any action taken under this paragraph shall not
relieve any defaulting Manager from liability in respect of any such default of
any such Manager under this Agreement. The term "Manager" as used in this
Agreement includes, for all purposes of this Agreement, any party not listed in
Schedule I hereto who, with your approval and the approval of the Company,
purchases Shares which a defaulting Manager is obligated, but fails or refuses,
to purchase.
Any notice under this Section 12 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
13. Termination of Agreement. This Agreement shall be subject to
------------------------
termination in your absolute discretion, without liability on the part of any
Manager to the Company or any Selling Stockholder by notice to the Company, if
prior to the Closing Date (i) trading in securities generally on the New York
Stock Exchange, the American Stock Exchange or the Nasdaq National Market shall
have been suspended or materially limited, (ii) a general moratorium on
commercial banking activities in New York shall have been declared by either
federal or state authorities, or (iii) there shall have occurred any outbreak or
escalation of hostilities or other international or domestic calamity, crisis or
change
<PAGE>
38
in political, financial or economic conditions, the effect of which on the
financial markets of the United States is such as to make it, in your judgment,
impracticable or inadvisable to commence or continue the offering of the Shares
at the offering price to the public set forth on the cover page of the
International Prospectus or to enforce contracts for the resale of the Shares by
the Managers. Notice of such termination may be given to the Company and the
Selling Stockholders by telegram, telecopy or telephone and shall be
subsequently confirmed by letter.
14. Information Furnished by the Managers. The statements set forth in
-------------------------------------
the last paragraph on the cover page, the stabilization legend on the inside
front cover, and the statements in the first, second, fourth, seventh, eighth,
ninth, tenth and thirteenth paragraphs under the caption "Underwriting" in any
International Prepricing Prospectus and in the International Prospectus,
constitute the only information furnished by or on behalf of the Managers
through you as such information is referred to in Sections 7(b) and 9 hereof.
15. Miscellaneous. Except as otherwise provided in Sections 5, 12 and 13
-------------
hereof, notice given pursuant to any provision of this Agreement shall be in
writing and shall be delivered (i) if to the Company, at the office of the
Company at Furniture Brands International, Inc., 101 South Hanley Road, St.
Louis, Missouri 63105, Attention: Lynn Chipperfield, Esq., General Counsel; (ii)
if to the Selling Stockholders, at Apollo Investment Fund, L.P., care of CICB
Bank and Trust Company (Cayman) Limited, Edward Street, Georgetown, Grand
Cayman, Cayman Islands, British West Indies and Lion Advisors, L.P., Two
Manhattanville Road, Purchase, New York 10577; or (iii) if to you, as Lead
Managers for the several Managers, care of Smith Barney Inc., 388 Greenwich
Street, New York, New York 10013, Attention: Manager, Investment Banking
Division.
This Agreement has been and is made solely for the benefit of the several
Managers, the Company, its directors and officers, and the other controlling
persons referred to in Section 9 hereof and the Selling Stockholders and their
respective successors and assigns, to the extent provided herein, and no other
person shall acquire or have any right under or by virtue of this Agreement.
Neither the term "successor" nor the term "successors and assigns" as used in
this Agreement shall include a purchaser from any Manager of any of the Shares
in his status as such purchaser.
<PAGE>
39
16. Applicable Law; Counterparts. This Agreement shall be governed by and
----------------------------
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed within the State of New York.
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
<PAGE>
40
Please confirm that the foregoing correctly sets forth the agreement among
the Company, the Selling Stockholders and the several Managers.
Very truly yours,
FURNITURE BRANDS INTERNATIONAL, INC.
By
------------------------
Vice President
APOLLO INVESTMENT FUND, L.P.
By: Apollo Advisors, L.P.,
Managing General Partner
By: Apollo Capital Management,
Inc., General Partner
By
------------------------
Vice President
LION ADVISORS, L.P.,
on behalf of an investment account under management
By: Lion Capital Management, Inc.
General Partner
By
------------------------
Vice President
Confirmed as of the date first
<PAGE>
41
above mentioned on behalf of
themselves and the other several
Managers named in Schedule I
hereto.
SMITH BARNEY INC.
CS FIRST BOSTON LIMITED
DILLON, READ & CO. INC
MERRILL LYNCH INTERNATIONAL
WHEAT, FIRST SECURITIES, INC.
As Lead Managers for the Several Managers
By SMITH BARNEY INC.
By
--------------------------
<PAGE>
42
SCHEDULE I
FURNITURE BRANDS INTERNATIONAL, INC.
<TABLE>
<CAPTION>
Number of
Manager Shares
------- ----------
<S> <C>
Smith Barney Inc.......................
CS First Boston Limited................
Dillon, Read & Co. Inc.................
Merrill Lynch International............
Wheat, First Securities, Inc...........
----------
Total........................... 2,4000,000
==========
</TABLE>
<PAGE>
43
SCHEDULE II
FURNITURE BRANDS INTERNATIONAL, INC.
<TABLE>
<CAPTION>
Selling Stockholders
--------------------
Name Number of
---- Shares
---------
<S> <C>
Apollo Investment Fund, L.P............. 1,200,000
Lion Advisors, L.P., on behalf of
an investment account under
management.............................. 1,200,000
---------
Total 2,400,000
=========
</TABLE>
<PAGE>
44
SCHEDULE III
FURNITURE BRANDS INTERNATIONAL, INC.
Required Stockholder Lock-Ups
-----------------------------
1. Richard B. Loynd
2. Wilbert G. Holliman, Jr.
3. Brent B. Kincaid
4. K. Scott Tyler, Jr.
5. Frederick B. Starr
6. David P. Howard
7. Lynn Chipperfield
8. Steven W. Alstadt
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Furniture Brands International, Inc.:
We consent to the use of our reports included and incorporated by reference
in the registration statement and to the reference to our firm under the
headings "Experts" and "Selected Consolidated Historical and Pro Forma
Financial Information" in the Prospectus.
KPMG Peat Marwick LLP
St. Louis, Missouri
November 6, 1996
<PAGE>
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Thomasville Furniture Industries, Inc.:
We consent to the incorporation by reference in the registration statement
on Form S-3 of Furniture Brands International, Inc. of our report dated
January 20, 1995, except as to note 1, which is as of April 7, 1995, with
respect to the consolidated balance sheets of Thomasville Furniture
Industries, Inc. and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of operations, shareholder's equity, and cash
flows for each of the years in the three-year period ended December 31, 1994,
which report appears in the Form 8-K/A-1 of Furniture Brands International,
Inc. dated January 16, 1996 and to the reference to our firm under the heading
"Experts" in the Prospectus.
Our report refers to changes in accounting for postemployment benefits,
postretirement benefits and income taxes.
KPMG Peat Marwick LLP
Greensboro, North Carolina
November 6, 1996
<PAGE>
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Thomasville Furniture Industries, Inc.:
We consent to the incorporation by reference in the registration statement
on Form S-3 of Furniture Brands International, Inc. of our report dated
January 19, 1996, with respect to the consolidated balance sheet of
Thomasville Furniture Industries, Inc. and subsidiaries ("Thomasville") as of
December 29, 1995, and the related consolidated statement of operations for
the year then ended, which report appears in the Form 8-K/A-2 of Furniture
Brands International, Inc. dated February 1, 1996 and to the reference to our
firm under the heading "Experts" in the Prospectus.
Our report refers to the omission in the consolidated financial statements
of Thomasville, of the consolidated statements of shareholder's equity and
cash flows for the year ended December 29, 1995 and notes to the consolidated
financial statements which are required by generally accepted accounting
principles and results in an incomplete presentation.
Our report also refers to Thomasville's acquisition by Furniture Brands
International, Inc. on December 29, 1995. The acquisition was accounted for
under the purchase method of accounting. The accompanying consolidated
financial statements do not include the effects of push down accounting.
KPMG Peat Marwick LLP
Greensboro, North Carolina
November 6, 1996
