<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1993
---------------------------------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to
--------------------- ---------------------
Commission file number 0-18446
-----------------------------------------------------
Fairwood Corporation, formerly MHS Holdings Corporation
-----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3472113
- ------------------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Mohasco Corporation
4401 Fair Lakes Court, Fairfax, VA 22033
- ------------------------------------------- --------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 703-968-8015
-------------------------
Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ------------------------
None Not Applicable
Securities registered pursuant to Section 12 (g) of the Act:
Warrants to Purchase Common Stock
---------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was zero as of February 28, 1994.
On February 28, 1994, the registrant had outstanding 500 shares of Class A
Voting common stock, $.01 par value and 999,800 shares of Class B Non-Voting
common stock, $.01 par value.
The Exhibit Index is located on sequential page numbers 48-51.
<PAGE> 2
PART I
ITEM 1. BUSINESS
Fairwood Corporation, formerly MHS Holdings Corporation ("Fairwood" or the
"Company"), is a privately-held Delaware corporation organized in 1988 by
investors including Citicorp Venture Capital Limited ("CVCL") for the purpose
of acquiring all of the common stock of Mohasco Corporation ("Mohasco").
In 1988 Fairwood, through its wholly-owned subsidiary MHS Acquisition
Corporation ("Acquisition"), acquired by tender offer a majority of the common
stock of Mohasco. In September 1989, Acquisition was merged with Mohasco (the
"Merger") and Mohasco thereby became a wholly-owned subsidiary of Fairwood.
The principal executive offices of the Company are located at c/o Mohasco
Corporation, 4401 Fair Lakes Court, Suite 100, Fairfax, Virginia 22033. The
Company's primary asset is all of the common stock of Mohasco.
On December 31, 1988, Mohasco sold all of the issued and outstanding
capital stock of its wholly owned subsidiaries, Mohasco Carpet Corporation
("Carpet") and Cort Furniture Rental Corporation ("Rental"). In connection
with the sale of the capital stock of Rental, the Company received an
aggregate amount of approximately $151.1 million, in the form of promissory
notes and assumption of long-term indebtedness and lease obligations of
Rental. Approximately $21.0 million of the promissory notes was prepaid in
December 1989 and the balance was prepaid in January 1990.
In an effort to better meet the service and delivery requirements of West
Coast customers and to further penetrate the large West Coast regional market,
the Company opened an upholstered furniture manufacturing plant in Ontario,
California in the last quarter of 1990 and expanded this operation by adding a
warehouse in 1992. Correspondingly, the Company's Clinton, North Carolina
plant was closed in 1991 due to a shift in the geographical demand for the
Company's upholstered furniture and such plant is under contract for sale.
Clinton production was shifted to New Albany and Okolona, Mississippi and
Ontario, California.
On March 10, 1992, Mohasco, the Company's principal operating subsidiary,
entered into two Agreements and Plans of Merger, which provided for the
disposition of two wholly owned subsidiaries, Chromcraft Corporation
("Chromcraft") and Peters-Revington Corporation ("Peters-Revington") to
Chromcraft Revington, Inc., an affiliate. The mergers were consummated on
April 23, 1992 and the proceeds of the disposition were used by Mohasco to
repay long-term debt owed to Court Square Capital Limited ("CSCL"), an
affiliate of CVCL, under Mohasco's Credit Agreement with CSCL (the "Credit
Agreement").
Through its subsidiaries, the Company manufactures upholstered stationary
and motion furniture, furniture mechanisms for motion furniture, such as
sleepers, recliners and rockers and mechanisms for office furniture, hospital
beds and related health care products.
- 2 -
<PAGE> 3
OPERATIONS
The Company, through its subsidiary, Mohasco, and Mohasco's subsidiaries,
serves selected segments of the highly diversified $19+ billion residential
furniture market. The Company's operations engage in the manufacture and sales
of a diversified line of upholstered furniture under several brand names, as
well as furniture mechanisms. While most of its products are moderately priced
and designed to appeal to a wide range of furniture buyers, certain products
have been successfully targeted to a more selective, higher priced market. The
products are sold nationally to furniture retailers and department stores
mainly through commissioned sales forces.
Mohasco entered the furniture industry through a series of acquisitions
commencing in 1964. There are currently three separate operating companies,
organized as two subsidiaries of Mohasco. Each company markets and
manufactures one or more specific brands of furniture. The Stratford Company
("Stratford") makes and sells mid-priced upholstered stationary and motion
furniture under the brand names of Stratford, Stratolounger, Stratopedic and
Avon. The Barcalounger Company ("Barcalounger") manufactures and sells
higher-priced motion furniture and is well known for its high-quality
recliners. Super Sagless Corporation ("Super Sagless") is a major fabricator
of recliner, incliner, rocker, glider and sleeper mechanisms which are sold
throughout the furniture industry. In 1992, Super Sagless added the tilt
swivel for office chairs to its line of mechanisms and entered the hospital bed
market with a portable hospital bed for home use as well as a line of beds for
hospitals and related products.
The furniture industry is affected to a substantial degree by style, value
and fashion. The subsidiaries of Mohasco participate in important furnishings
market showings held during the year in a number of larger cities to acquaint
retailers with the significant number of new products introduced each year.
The Company frequently reviews its product lines to evaluate whether minor or
major restyling of such lines is warranted. To generate new product and style
ideas based upon consumer and retailer response, the companies maintain
in-house design staffs and contract with outside designers. The designers
consult with manufacturing management to analyze the economic feasibility of
producing new products based on their designs.
The marketing strategy of Stratford is to maintain and increase its market
share in the upholstered furniture market by anticipating trends in furniture
fashions and responding to the many changes in consumer and retailer demand.
Stratford's goal is to provide moderate pricing and to offer selling support at
the retail level for customers in the form of sales aids, promotions,
advertising plans and programs as well as training for the retail customers'
salespeople. Accordingly, management must develop product lines with appealing
style, in various targeted price ranges that provide good value via efficient
production methods and technologies. This adaptive process requires market
sensitivity, a close and empathetic relationship with retailers, and tight
controls with flexibility in the manufacturing process. Stratford is extremely
proud of its reputation as an innovator in modular and motion upholstery
furniture designs and the high-quality tailoring of its products compared to
similarly and higher-priced competitive furniture.
Barcalounger targets a selected market for its high-end recliner chair and
living room motion furniture. Barcalounger sells mainly to furniture stores
- 3 -
<PAGE> 4
that carry more expensive products and provide interior design services
directly or indirectly. Barcalounger gives extensive warranties for its
products. The value and fine quality of their furniture is apparent as only
hardwood frames are used and only the finest leathers and fabrics are offered.
Barcalounger has significant brand recognition and has a reputation of having
one of the best product lines in terms of value, quality, design and service in
the more expensive segment of the motion furniture industry. They have the
distinction of introducing the latest technology in motion mechanisms which
they design, develop and tool for their own exclusive use.
Approximately 30%, 25% and 28% in 1993, 1992 and 1991, respectively, of
Super Sagless' production of mechanisms were sold to other Mohasco subsidiaries
and the remainder were sold to other furniture manufacturers who do not
manufacture their own mechanisms. The health care product line is sold to
dealers. Super Sagless operates a large metal fabrication plant with low, well
controlled costs. Super Sagless' marketing strategy is to press this advantage
to expand their sales to motion furniture and office chair manufacturing while
continuing to seek other related metal fabrication sales in other industries
and developing and expanding their health care product line business.
Stratford and Barcalounger are well known in the furniture industry
which is characterized by a large number of relatively small manufacturers.
The following are among the Company's larger competitors: Masco Corporation,
Interco Industries, La-Z-Boy, Sealy, LADD Furniture, and Bassett.
Competition is intense at all levels, stressing price, style, fabric and
product finish.
FACTORS AFFECTING THE HOME FURNISHINGS INDUSTRY
The furniture industry as a whole is affected by demographics, household
formations, the level of personal discretionary income, household mobility and
the rate of new home construction. There exists a substantial replacement
market that is relatively less affected by these factors.
RESEARCH AND DEVELOPMENT
Since the furniture industry is characterized by active competition among
a large number of companies, many of which also have substantial facilities
and resources, the Company believes that the maintenance of high product
quality and the development of new products are essential to maintaining its
competitive position. In support of these goals, the Company conducts
research and development activities which are decentralized and directed by
the individual operating companies.
The operating divisions, excluding Chromcraft and Peters-Revington,
expended a total of $22,030,000 in the past five years for research and
development programs of which $4,043,000, $3,853,000 and $4,325,000 were
expended in 1993, 1992 and 1991, respectively.
EMPLOYEES
The Company and its subsidiaries employed 3,539 persons at December 31,
1993. Mohasco has a long record of generally harmonious relations with
employees.
- 4 -
<PAGE> 5
BACKLOG
The backlog of orders among the Company's furniture operations was
approximately $26,345,000 at December 31, 1993 and approximately $24,110,000
at December 31, 1992. It is expected that the backlog at December 31, 1993
will be filled in the current year. The Company does not consider backlog
to be a significant indicator of the sales outlook for its products beyond
the period of a few months.
SEASONALITY AND CUSTOMERS
There are seasonal factors which affect the Company's business. Spring
and fall are generally considered periods of increased interest by consumers
in interior furnishings since these are periods of increased real estate
activity involving relocation of families. The Christmas holiday season and
other special occasions usually generate increased sales of some of the
Company's furniture lines. On the other hand, inclement weather in mid-winter
generally discourages the purchase of interior furnishings. Similarly, the
closedown of a portion of the Company's activities for vacation periods of one
or two weeks in July has a limiting effect on production as well as sales. The
Company maintains adequate levels of inventory to meet seasonal demands.
Sears accounted for approximately sixteen, thirteen and nine percent of the
Company's furniture sales during the years 1993, 1992 and 1991, respectively.
Export sales have not been significant.
ENVIRONMENTAL AND RAW MATERIALS
In 1993, there were no significant effects upon the capital expenditures,
earnings and competitive position of the Company and its subsidiaries
occasioned by compliance with provisions of federal, state and local laws
regulating the discharge of materials into the environment, or otherwise
relating to the protection of the environment.
Raw materials purchased by the Company are all procured in the open market
from a number of suppliers. In general, no major difficulties have been
experienced in obtaining raw materials.
PATENTS
Patents are not a significant consideration in the manufacture of most of
the Company's products. The Company does not believe that its operating
income is materially dependent on any one patent or license or group of
related patents or licenses.
ITEM 2. PROPERTIES
The furniture manufacturing activities of the Company are conducted in
modern facilities of suitable construction. These facilities are in good
operating condition, reasonably maintained and contain reasonably modern
equipment. All of the principal items of machinery and equipment located in
these facilities are owned by the subsidiaries of Mohasco.
- 5 -
<PAGE> 6
The Company's subsidiaries also lease showroom and warehouse space
throughout the United States for display and storage of products. Mohasco
owned until March 1993 an office building located in Fairfax, Virginia. Office
space is now leased.
The Company believes that the plants and facilities, in the aggregate, are
adequate, suitable and of sufficient capacity for purposes of conducting its
current business.
As of December 31, 1993, the Company's subsidiaries have twelve plants and
furniture facilities located in three states, California, North Carolina and
Mississippi, occupying a total of approximately 3.0 million square feet. Of
these plants and facilities, a total of approximately .1 million square feet of
floor space is owned by the subsidiaries of Mohasco. A total of 2.9 million
square feet is leased under long-term leases with various municipalities and
counties with various expiration dates extending to 2048.
Substantially all of the assets of Mohasco and its subsidiaries are subject
to a lien in favor of CSCL granted in connection with the Credit Agreement.
ITEM 3. LEGAL PROCEEDINGS
The Internal Revenue Service ("IRS") has completed the audit examination of
the consolidated Federal income tax returns of the Company and its
subsidiaries, including Mohasco (the "Consolidated Group"), for the years ended
December 31, 1988 through December 31, 1991, and has delivered to the Company a
"30-day letter" and Revenue Agent's Report ("RAR") proposing to adjust the
Company's taxable income in the years in issue and in prior years to which net
operating losses of the Consolidated Group were carried back. The cumulative
proposed deficiency in Federal income tax arising from the proposed adjustments
is approximately $63 million, before applicable statutory interest. The
Company estimates that the aggregate proposed liability would, together with
statutory interest through the year ended December 31, 1993, and net of any
applicable deduction for such interest, total $90 million. The principal
issues addressed in the RAR are (i) the proposed disallowance of approximately
$164 million of interest expense claimed by the Consolidated Group with respect
to debt incurred in connection with the 1988 acquisition of Mohasco by the
Company under the theory that such debt should be recharacterized as equity for
tax purposes, (ii) the proposed disallowance of approximately $18 million of
investment banking, legal and other fees incurred by the Consolidated Group and
deducted in the years in issue under the theory that such expenses are capital
in nature and related theories, and (iii) the proposed disallowance of
approximately $4 million of compensation expense deducted by the Consolidated
Group under the theory that such expense constitutes non-deductible "golden
parachute" payments. The Company believes that the proposed adjustments are in
error and intends to contest vigorously this matter. Under available
administrative procedures, the Company will protest the proposed adjustments
and request a conference or conferences with the IRS Appeals division.
Depending upon the outcome of discussions of the issues with the IRS Appeals
division, the Company may litigate one or more of the issues.
On October 14, 1993, Mohasco was served with a complaint filed in U.S.
District Court in Philadelphia by third party plaintiffs against Mohasco and
its former subsidiary, Sloane Blabon Corporation, which engaged in the linoleum
business, U.S. vs. Berks Associates, et al., Civ. No. 91-4868, U.S.D.C., E.D.
PA.
- 6 -
<PAGE> 7
The original complaint in the case was filed by the Environmental Protection
Agency against Berks Associates and others to recover over $200 million from
twelve defendants (not including Mohasco) for costs incurred or to be incurred
in connection with the investigation and remediation of a Super Fund site in
Douglasville, PA. The original defendants then sued over 600 third party
defendants to share in the liability, if any. Sloane Blabon is alleged to have
disposed of benzine at the site from 1949 through May, 1953, when Sloane Blabon
sold the relevant assets to Congoleum Corporation. During that period, Sloane
Blabon disposed of substantial quantities of benzine to Berks Associates at the
Douglasville site. The Company does not believe its disposals were toxic as
alleged. The damages sought from Sloane Blabon and Mohasco are unspecified.
On November 1, 1993, the Company filed a Notice and Certification denying the
charges. The Company believes the charges are without merit and that it has
valid defenses to the claims. At present, no trial date has been set.
As of the date hereof, there are certain other legal proceedings pending,
which arise out of the normal course of the Company's business, the financial
risk of which is not considered material in relation to the consolidated
financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREOWNER
MATTERS
The Registrant's common stock is privately held. At year end 1993 and
1992, there were three shareowners of the Company's common stock. No dividends
were declared on the Company's common stock in 1993 and 1992. The ability of
the Company to pay dividends and make distributions in respect of its common
stock is restricted by instruments relating to the Company's debt. Futhermore,
the ability of Mohasco and its subsidiaries to transfer monies to the Company
(including without limitation by dividend or distribution) is restricted by
instruments relating to Mohasco's and its subsidiaries' debt, including the
Credit Agreement. See Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Liquidity and Capital Resources"
and Note 4 to the Company's Consolidated Financial Statements set forth in Item
8.
Common stock purchase warrants issued by the Registrant in connection with
the Merger are held by the public. The common stock purchase warrants become
exercisable in September 1994. See Note 4 to the Company's Consolidated
Financial Statements set forth in Item 8. The warrant exercise price is $1
per share (subject to adjustment). There is no established market for the
Registrant's common stock purchase warrants.
- 7 -
<PAGE> 8
ITEM 6. SELECTED FINANCIAL DATA
FAIRWOOD CORPORATION AND SUBSIDIARIES
Five Year Summary of Financial Data
(Dollar Amounts in Millions Except Per Share Data)
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $ 261.4 267.0 341.4 335.2 397.0
Loss from continuing
operations ( 46.9) (159.1) ( 49.9) ( 37.5) ( 19.0)
Loss from discontinued
operations - - - ( 28.5) ( 4.8)
Loss before extraordinary
items ( 46.9) (159.1) ( 49.9) ( 66.0) ( 23.8)
Extraordinary items - 1.9 - - ( .1)
Net loss ( 46.9) (157.2) ( 49.9) ( 66.0) ( 23.9)
Total assets 113.6 105.1 277.8 291.4 414.5
Long-term debt, including
current maturities 386.0 330.8 370.8 330.4 383.0
Redeemable preferred stock .1 .1 .1 .1 .1
Dividends per common share - - - - -
</TABLE>
The Company acquired Mohasco in a purchase transaction deemed to be effective
as of July 3, 1988. In 1992, the excess of purchase cost over fair value of
assets acquired in the purchase of Mohasco was written off due to the
determined unrecoverability of these costs. Also in 1992, operations data
includes the activities of Chromcraft and Peters-Revington for the period ended
April 23, 1992. Accordingly, the data presented for 1993 and 1992 is not
comparable with one another or prior periods.
The provision for income taxes associated with Rental's prepayment of
promissory notes in 1989 and 1990 are reflected in discontinued operations.
For additional information, see the Company's Consolidated Financial Statements
included with this report, including Notes 3 and 12 thereto regarding certain
tax and liquidity matters.
- 8 -
<PAGE> 9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table indicates the percentage of sales accounted for by
certain items in the Consolidated Statements of Operations.
<TABLE>
<CAPTION>
Percentage of Sales
---------------------------------
Year Ended December 31,
---------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Net sales 100.0% 100.0 100.0
Cost of sales 84.7 87.6 85.2
----- ----- -----
15.3 12.4 14.8
Selling, administrative
and general expenses 14.5 19.3 18.3
----- ----- -----
Operating income (loss) .8 ( 6.9) ( 3.5)
Interest income .1 .1 .1
Interest on indebtedness 17.9 16.4 13.1
Restructuring charge - 32.2 -
Other expenses, net 1.4 2.5 .3
----- ----- -----
Loss before income taxes (18.4) (57.9) (16.8)
Provision for income
taxes (benefit) ( .5) 1.7 ( 2.2)
----- ----- -----
Loss before net operating
loss carryforward (17.9) (59.6) (14.6)
Net operating loss carryforward - .7 -
----- ----- -----
Net loss (17.9)% (58.9) (14.6)
===== ===== =====
</TABLE>
1993 VS 1992
Net sales of approximately $261.4 million for 1993 decreased slightly from
1992 net sales of approximately $267.0 million, due to the disposition of
Chromcraft and Peters-Revington in April 1992. Excluding Chromcraft and
Peters-Revington, net sales for 1993 were approximately $261.4 million as
compared to approximately $231.5 million for 1992, an increase of approximately
13%, primarily due to an increase in the number of units sold of upholstered
furniture in 1993.
Cost of sales decreased in 1993 to approximately $221.5 million from
approximately $233.8 million in 1992, primarily due to the disposition of
Chromcraft and Peters-Revington. Excluding Chromcraft and Peters-Revington,
cost of sales were approximately $221.5 million and $206.9 million for 1993 and
1992, respectively, or 84.7% and 89.4% of sales for 1993 and 1992,
respectively. The 4.7% reduction in cost of sales as a
- 9 -
<PAGE> 10
percentage of sales from 1992 to 1993, while sales increased approximately 13%,
was primarily due to favorable manufacturing variances associated with higher
volume of production and cost reduction and quality improvement programs at all
subsidiary company manufacturing facilities. These programs include the
streamlining of work flows, utilization of cellular production techniques,
establishment of focused factory systems and implementation of benchmarking
methods to lower and control both unit and factory overhead costs.
Selling, administrative and general expenses decreased to approximately
$38.0 million in 1993 from approximately $51.7 million in 1992, in part due to
the disposition of Chromcraft and Peters-Revington. Excluding Chromcraft and
Peters-Revington, selling, administrative and general expenses were
approximately $38.0 million and $46.5 million for 1993 and 1992, respectively.
This decrease in selling, administrative and general expenses from 1992 to 1993
is primarily due to more effective utilization of resources and reduction of
personnel due to the consolidation of administrative functions.
Other expenses, net, decreased approximately $2.4 million to approximately
$4.3 million in 1993 from approximately $6.7 million in 1992, primarily due to
recording in 1992 anticipated losses in connection with the sale, completed in
March 1993, of the Company's Fairfax, Virginia office building, and the
transfer of corporate functions to the operating companies, which were
partially offset by 1993 losses on sales of property and costs associated with
divested operations.
1992 VS 1991
Net sales for 1992 decreased from 1991 sales of approximately $341.4
million to approximately $267.0 million, primarily due to the disposition of
Chromcraft and Peters-Revington. Excluding Chromcraft and Peters-Revington,
net sales for 1992 were approximately $231.5 million compared to approximately
$225.3 million for 1991, an increase of approximately 2.8% primarily due to the
number of units sold of upholstered furniture in 1992.
Cost of sales for 1992 decreased to approximately $233.8 million from
approximately $290.9 million in 1991, primarily due to the disposition of
Chromcraft and Peters-Revington. Excluding Chromcraft and Peters-Revington,
cost of sales were approximately $206.9 million and $203.8 million for 1992 and
1991, respectively, or 89.4% and 90.5% of sales for 1992 and 1991,
respectively. The improvement in the percentage of sales is primarily due to
favorable manufacturing variances associated with higher volume of production
and a cost reduction program.
Selling, administrative and general expenses decreased to approximately
$51.7 million in 1992 from approximately $62.4 million in 1991, primarily due
to the disposition of Chromcraft and Peters-Revington. Excluding Chromcraft
and Peters-Revington, selling, administrative and general expenses were
approximately $46.5 million and $46.4 million in 1992 and 1991, respectively.
Other expenses increased approximately $5.8 million to approximately $6.7
million in 1992 from approximately $.9 million in 1991, primarily due to
anticipated losses in connection with the sale, completed in March 1993, of the
Company's Fairfax, Virginia office building and the transfer of many corporate
functions to the operating companies.
- 10 -
<PAGE> 11
A restructuring charge of approximately $85.9 million in 1992 was due to
the write-off of the excess of purchase cost over the fair value of assets
acquired in the 1988 purchase of Mohasco due to the unrecoverability of these
costs. The Company determined that the write up in assets resulting from the
1988 purchase was unrecoverable due to the continuing significant losses of the
operating companies, and a lower of cost or market analysis of the Company's
assets.
PROVISION FOR INCOME TAXES
An income tax refund receivable, included in other accounts and notes
receivable on the balance sheet, of approximately $1.4 million was recorded in
1993 due to an operating loss carryback. A cumulative effect of change in
accounting principle of $2.1 million was recorded in 1993, which is described
in Note 1, Summary of Significant Accounting Policies, in the Notes to
Consolidated Financial Statements. Due to the taxable income generated as a
result of the disposition of Chromcraft and Peters-Revington, the Company
provided for taxes of approximately $4.5 million in 1992, which were partially
offset by the utilization of a net operating loss carry-forward of
approximately $1.9 million, shown as an extraordinary item on the Consolidated
Statements of Operations, yielding a net provision of approximately $2.6
million. The Company had a tax benefit of approximately $7.4 million in 1991
due to an operating loss carryback. Please refer to Note 3, Income Taxes, in
the Notes to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Capital requirements for operations during 1993 and 1992 were provided by
financing channels and operating cash flow.
The Company had working capital of approximately $43.3 million and $23.1
million at December 31, 1993 and 1992, respectively. At December 31, 1993, the
Company had long-term debt of approximately $386.0 million of which $.2 million
was current. Long-term debt at December 31, 1992 was approximately $330.8
million of which $.1 million was current. In April 1992, the proceeds to
Mohasco from the disposition of Chromcraft and Peters-Revington were used to
repay secured, senior debt of Mohasco and its subsidiaries in the approximate
amount of $83 million. All outstanding debt at December 31, 1993 and 1992,
excluding the merger debentures and capitalized lease obligations, is payable
to CSCL, which is an indirect subsidiary of Citicorp, a bank holding company,
and an affiliate of CVCL. The Company will attempt either to refinance, or
negotiate an extension of, the debt payable to CSCL when due, although there
can be no assurance that such attempts will be successful. Interest on the
revolving credit loan of Mohasco and its subsidiaries is payable quarterly at 1
1/2% above the prime rate, which prime rate was 6.0% at December 31, 1993.
Interest on the senior subordinated debentures of Mohasco is payable
semi-annually at 18%. Interest on the senior subordinated pay-in-kind
debentures and merger debentures of Fairwood is payable semi-annually at 15
1/2% and 16 7/8%, respectively. The Company has the option until April 1, 1995
to pay interest on its senior subordinated pay-in-kind debentures and merger
debentures either by cash or by the distribution of additional securities.
Additional securities were issued in lieu of the cash payments of interest due
April 1, 1993 and October 1, 1993 on both the senior subordinated pay-in-kind
debentures and merger debentures. Accordingly, the principal amount of the
Company's senior subordinated pay-in-kind debentures and merger debentures
increased by $12.6 million and $8.0 million, respectively, since December 31,
1992. For further details on financing and debt see Note 4 to Consolidated
Financial Statements.
Capital additions were approximately $4.2 million, $3.2 million and $4.4
million for the years 1993, 1992 and 1991, respectively. Additions for 1994
are budgeted at approximately $5.1 million, primarily for the purchase of new
manufacturing equipment.
- 11 -
<PAGE> 12
Mohasco is expected in 1994 to service debt from its cash flow from
operations and available credit facilities. Throughout 1993, 1992 and 1991,
Mohasco funded interest obligations related to long-term indebtedness through
increased borrowings from CSCL. However, during 1992 the proceeds to Mohasco
from the disposition of Chromcraft and Peters-Revington of approximately $83
million were used to repay debt of Mohasco and its subsidiaries.
The Company is dependent upon CSCL for funding of its debt service costs.
Instruments relating to the revolving credit facility and senior subordinated
debentures have been amended and certain provisions thereof waived at various
times through March 1994 to provide more favorable terms to Mohasco and, in
certain instances, to avoid defaults thereunder. Under the Credit Agreement,
relating to the revolving credit facility, Mohasco and its subsidiaries are
generally restricted from transferring monies to the Company (including without
limitation by dividend or distribution) with the exception of amounts for (a)
specified administrative expenses of the Company not exceeding $275,000 per
year and (b) payment of income taxes. Futhermore, Mohasco is subject to
additional restrictions on transferring monies to the Company (including
without limitation by dividend or distribution) under its senior subordinated
debentures, which generally require the satisfaction of certain financial
conditions for such transfers. Fairwood is subject to additional restrictions
on payment or transfer of monies (including without limitation by dividend or
distribution) under its senior subordinated pay-in-kind debentures and merger
debentures, which generally require the satisfaction of certain financial
conditions for such transfers. The Company anticipates that funds provided by
operations and available credit facilities will be adequate in 1994 for the
capital addition program, working capital requirements and any cash payments
then due on the Company's debt.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and supplementary data are filed as a
part of this report:
Independent Auditors' Report
Consolidated Balance Sheets at December 31, 1993 and 1992
Consolidated Statements of Operations for the Years ended December 31, 1993,
1992 and 1991
Consolidated Statements of Common Stock and Other Shareowners' Equity (Deficit)
for the Years ended December 31, 1993, 1992 and 1991
Consolidated Statements of Cash Flows for the Years ended December 31, 1993,
1992 and 1991
Notes to Consolidated Financial Statements
- 12 -
<PAGE> 13
Independent Auditors' Report
The Shareowners and Board of Directors
Fairwood Corporation and Subsidiaries:
We have audited the consolidated financial statements of Fairwood Corporation
and subsidiaries as listed in the accompanying index. In connection with our
audits of the consolidated financial statements, we also have audited the
financial statement schedules as listed in the accompanying index. These
consolidated financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements and financial statement
schedules 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 Fairwood
Corporation and subsidiaries as of December 31, 1993 and 1992, and the results
of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1993, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
As discussed in Note 3 to the consolidated financial statements, the Company
has been notified by the Internal Revenue Service of proposed adjustments to
its Federal income tax returns for the years 1988 through 1991. Such
adjustments would result in a net tax cost to the Company of approximately $90
million, including interest, through the year ended December 31, 1993. The
Company has indicated that it disagrees with the proposed adjustments and
intends to contest vigorously the positions taken by the Internal Revenue
Service. The ultimate outcome of these proposed adjustments cannot presently
be determined. Accordingly, no provision for any liability that may result upon
ultimate resolution of these proposed adjustments has been recognized in the
accompanying consolidated financial statements.
As discussed in Notes 1 and 3 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes, as of January 1, 1993.
/s/ KPMG Peat Marwick
KPMG Peat Marwick
Washington, D.C.
February 7, 1994, except as to note (4)
which is as of March 25, 1994
- 13 -
<PAGE> 14
FAIRWOOD CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1993 and 1992
(In thousands except share data)
<TABLE>
<CAPTION>
Assets (note 4) 1993 1992
- ------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,968 5,993
------- -------
Accounts and notes receivable:
Trade 47,734 38,406
Other 1,718 651
------- -------
49,452 39,057
Less allowance for discounts and doubtful accounts 4,062 3,157
------- -------
45,390 35,900
------- -------
Inventories (note 1) 31,175 23,958
Prepaid expenses and other current assets (note 3) 3,678 398
------- -------
Total current assets 84,211 66,249
------- -------
Property, plant and equipment, at cost:
Land 233 1,617
Buildings and improvements 20,685 29,046
Machinery and equipment 28,916 27,079
Leasehold improvements 2,633 2,555
Construction in progress 1,961 896
------- -------
54,428 61,193
Less accumulated depreciation and amortization 28,685 26,778
------- -------
25,743 34,415
------- -------
Other assets 3,601 4,487
------- -------
$ 113,555 105,151
======= =======
</TABLE>
<TABLE>
<CAPTION>
Liabilities and Deficit 1993 1992
- ----------------------- ---- ----
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt (notes 4 and 8) $ 150 145
Accounts payable:
Trade 9,135 7,402
Other (includes claims payable of $2,263 in
1993 and $2,484 in 1992) 4,810 6,833
Accrued expenses (includes interest of $9,431 in
1993 and $8,612 in 1992) 21,070 26,880
Federal and state income taxes 5,709 1,920
------- -------
Total current liabilities 40,874 43,180
------- -------
Long-term debt, less current maturities (notes 4 and 8):
Revolving credit 160,427 125,730
Senior subordinated debentures 80,000 80,000
Senior subordinated pay-in-kind debentures 91,173 78,529
Merger debentures 53,517 45,512
Capitalized lease obligations 700 850
------- -------
385,817 330,621
------- -------
Deferred Federal income taxes (note 3) 2,827 -
Other liabilities (note 7) 3,816 4,206
------- -------
6,643 4,206
------- -------
Redeemable preferred stock (note 5):
Par value $.01 per share, authorized 100,000 shares:
Junior preferred, cumulative, issued and outstanding
1,000 shares. Liquidation value $100 per share. 100 100
------- -------
Common stock and other shareowners' deficit:
Common stock, par value $.01 per share (notes 4 and 6):
Class A voting, authorized 3,000,000 shares; issued
and outstanding 500 shares. - -
Class B non-voting, authorized 3,000,000 shares;
issued and outstanding 999,800 shares. 10 10
Additional paid-in capital 55,938 55,938
Retained Deficit (375,827) (328,904)
------- -------
(319,879) (272,956)
------- -------
Commitments and contingencies (notes 3, 8, 11 and 12)
$ 113,555 105,151
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
- 14 -
<PAGE> 15
FAIRWOOD CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years ended
-----------------------------------------
December 31, December 31, December 31,
1993 1992 1991
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Net sales $ 261,451 267,043 341,362
------- ------- -------
Cost of sales 221,519 233,824 290,914
Selling, administrative
and general expenses 37,985 51,652 62,356
------- ------- -------
259,504 285,476 353,270
------- ------- -------
Operating income (loss) 1,947 ( 18,433) ( 11,908)
Interest income 205 225 393
Interest on indebtedness (note 4) 46,846 43,781 44,900
Restructuring charge (note 1) - 85,945 -
Other expenses, net 4,296 6,711 925
------- ------- -------
Loss before income taxes,
cumulative effect of change
in accounting principle and
extraordinary item ( 48,990) (154,645) ( 57,340)
Provision for income
taxes (benefit) (note 3) - 4,512 ( 7,439)
------- -------- -------
Net loss before cumulative
effect of change in accounting
principle and extraordinary item ( 48,990) (159,157) ( 49,901)
Cumulative effect of change in
accounting principle (note 1) 2,100 - -
Extraordinary item (note 3):
Reduction of income taxes
arising from carryforward of
prior year operating losses - ( 1,925) -
------- ------- -------
Net loss $ ( 46,890) (157,232) ( 49,901)
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
- 15 -
<PAGE> 16
FAIRWOOD CORPORATION AND SUBSIDIARIES
Consolidated Statements of Common Stock and
Other Shareowners' Equity (Deficit)
Years Ended December 31, 1993, 1992 and 1991
(In thousands)
<TABLE>
<CAPTION>
Common
Common Stock Additional Shareowners'
---------------- Paid-in Retained Equity
Class A Class B Capital Deficit (Deficit)
------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance January 1, 1991 $ - 10 24,990 (121,717) ( 96,717)
Net loss ( 49,901) ( 49,901)
Preferred stock dividends ( 26) ( 26)
------ ------ ------ -------- ---------
Balance December 31, 1991 - 10 24,990 (171,644) (146,644)
Capital contribution (note 2) 30,948 30,948
Net loss (157,232) (157,232)
Preferred stock dividends ( 28) ( 28)
------ ------ ------ -------- ---------
Balance December 31, 1992 - 10 55,938 (328,904) (272,956)
Net loss ( 46,890) ( 46,890)
Preferred stock dividends ( 33) ( 33)
------ ------ ------ -------- ---------
Balance December 31, 1993 $ - 10 55,938 (375,827) (319,879)
====== ====== ====== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
- 16 -
<PAGE> 17
FAIRWOOD CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended
-----------------------------------------
December 31, December 31, December 31,
1993 1992 1991
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Loss before extraordinary item and cumulative effect $ ( 48,990) (159,157) ( 49,901)
Gain from extraordinary item - 1,925 -
Cumulative effect of change in accounting principle 2,100 - -
-----------------------------------------
Net loss ( 46,890) (157,232) ( 49,901)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 3,905 8,417 10,209
Amortization of goodwill - 1,956 2,376
Restructuring charge - 85,945 -
Loss on sale of property, plant and equipment 431 87 170
Loss, recognized in prior year, on sale of property 4,562 - -
Deferred income taxes 2,827 - ( 176)
Proceeds from pension plan reversion - 69 -
Current period conversions of PIK debentures 15,686 13,433 4,599
Changes in assets and liabilities:
Accounts receivable ( 9,490) 10,884 ( 13,740)
Inventories ( 7,217) ( 636) 8,900
Prepaid expenses and other current assets ( 3,280) ( 12) 8,688
Accounts payable ( 290) 1,986 ( 2,537)
Accrued expenses ( 847) 4,560 8,802
Federal and state income taxes 3,789 1,920 ( 6,148)
Other, net 496 ( 229) 2,306
-----------------------------------------
Cash used - operating activities ( 36,318) ( 28,852) ( 26,452)
-----------------------------------------
Cash flows from investing activities:
Purchases of property, plant and equipment ( 4,206) ( 3,223) ( 4,359)
Proceeds from disposition of property,
plant and equipment 3,980 398 189
Proceeds from disposition of Chromcraft and
Peters-Revington - 50,525 -
-----------------------------------------
Cash provided (used) - investing activities ( 226) 47,700 ( 4,170)
-----------------------------------------
Cash flows from financing activities:
Proceeds from long-term debt 48,202 36,022 40,115
Repayment of long-term debt ( 13,650) ( 61,039) ( 8,325)
Dividends ( 33) ( 28) ( 26)
-----------------------------------------
Cash provided (used) - financing activities 34,519 ( 25,045) 31,764
-----------------------------------------
Increase (decrease) in cash and cash equivalents ( 2,025) ( 6,197) 1,142
Cash and cash equivalents:
Beginning of period 5,993 12,190 11,048
-----------------------------------------
End of period $ 3,968 5,993 12,190
=========================================
Supplemental schedule of cash flow information
- ----------------------------------------------
Cash paid during year for:
Interest $ 25,372 25,273 30,255
Income taxes 978 2,185 2,808
Conversion of accrued interest to PIK debentures 20,649 17,697 8,525
Non-cash portion of proceeds from disposition of
Chromcraft and Peters-Revington and debt repayment - 32,579 -
</TABLE>
See accompanying notes to consolidated financial statements.
- 17 -
<PAGE> 18
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements represent a consolidation of the
financial statements of Fairwood Corporation ("Fairwood" or the "Company"), and
Mohasco Corporation ("Mohasco") and all of its subsidiaries. All inter-
company balances, transactions and profits have been eliminated in
consolidation.
Inventories
All inventories (materials, labor and overhead) are valued at the lower of
cost or market using the last-in, first-out (LIFO) method.
A LIFO liquidation occurred during 1992 and 1991 but did not result in any
significant reduction of cost of sales.
The components of inventory at December 31 are as follows:
<TABLE>
<CAPTION>
1993 1992
---- ----
(In thousands)
<S> <C> <C>
Raw materials $ 20,371 13,555
In process 9,487 9,154
Finished goods 14,346 13,214
------- -------
Inventories at first-in, first-out 44,204 35,923
LIFO reserve 13,029 11,965
------- -------
Inventories at LIFO $ 31,175 23,958
======= =======
</TABLE>
See "Restructuring Charge".
Property, Plant and Equipment
Depreciation and amortization of property, plant and equipment is provided
principally on a straight-line basis over the estimated useful lives as
follows: buildings and buildings capitalized under long-term leases
from 30 to 45 years; machinery and equipment from 3 to 14 years; and leasehold
improvements over the term of related leases.
Long-term leases for manufacturing and warehousing facilities which were
constructed by various local governmental bodies have been capitalized.
Statements of Cash Flows
Cash and cash equivalents include cash in banks and highly liquid
short-term investments having a maturity of three months or less on the date of
purchase.
- 18 -
<PAGE> 19
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Income Taxes
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes, ("Statement 109"). Statement 109 requires a change from the deferred
method of accounting for income taxes to the asset and liability method. Under
the asset and liability method of Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between 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 expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under Statement 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date of the change in tax rates.
Effective January 1, 1993, the Company adopted Statement 109. The adoption
of Statement 109 resulted in a cumulative effect adjustment of $2,100,000 which
reduced the net loss for 1993, and which is reflected in the 1993 statement of
operations.
Under the deferred method, which was applied in 1992 and prior years,
deferred income taxes are recognized for income and expense items that are
reported in different years for financial reporting and tax purposes using the
tax rate applicable for the year of the calculation. Under the deferred
method, deferred taxes are not adjusted for subsequent changes in tax rates.
Restructuring Charge
In December 1992, the excess of purchase cost over the fair value of assets
acquired in the 1988 and 1989 purchase of Mohasco was written off due to the
unrecoverability of these costs. The charge includes the following costs:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Inventories $ 13,633
Property, plant and equipment 9,618
Tradenames and goodwill 62,694
------
$ 85,945
======
</TABLE>
The Company determined that the write up in assets resulting from the
purchase was unrecoverable due to the continuing significant losses of the
operating companies, and a lower of cost or market analysis of the Company's
assets.
- 19 -
<PAGE> 20
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Divestitures
The disposition of Chromcraft Corporation ("Chromcraft") and Peters-
Revington Corporation ("Peters-Revington") to Chromcraft Revington, Inc., an
affiliate, occurred in April 1992. The proceeds from the disposition amounted
to approximately $83.1 million, approximately $30.9 million greater than the
net book value of the net assets of Chromcraft and Peters-Revington. Due to
the affiliated nature of the transaction, the $30.9 million was accounted for
as contributed capital. The proceeds were used to repay long-term debt owed
Court Square Capital Limited ("CSCL"), an affiliate, under Mohasco's Credit
Agreement with CSCL (the "Credit Agreement") relating to Mohasco's revolving
credit facility. The disposition generated taxable income which resulted in a
tax provision for the year 1992.
During the four months ended April 23, 1992, Chromcraft and Peters-
Revington generated net earnings of approximately $700,000. For 1991
Chromcraft and Peters-Revington generated net earnings of approximately
$1,900,000.
- 20 -
<PAGE> 21
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Income Taxes
As discussed in note 1, the Company adopted Statement 109 as of January 1,
1993, which resulted in a cumulative effect adjustment of $2,100,000 which
decreased the net loss for the year 1993. The effect of Statement 109 on the
provision for income taxes for the year 1993 was not material.
Components of the provision for income taxes (benefit) are summarized, in
thousands, as follows:
<TABLE>
<CAPTION>
Years ended
---------------------------------------
December 31, December 31, December 31,
1993 1992 1991
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Federal $ - 3,225 (11,280)
State and local - 1,287 ( 1,728)
------ ------ ------
- 4,512 (13,008)
Deferred - - 5,569
------ ------ ------
Total provision for income
taxes (benefit) before
utilization of net operating
loss carryforward - 4,512 ( 7,439)
Net operating loss
carryforward - ( 1,925) -
------ ------ ------
Total provision for income
taxes (benefit) $ - 2,587 ( 7,439)
====== ====== ======
</TABLE>
The differences between the actual taxes (benefit) and taxes (benefit)
computed at the U.S. Federal Income tax rate of 34% are summarized as follows:
<TABLE>
<CAPTION>
Years ended
--------------------------------------
December 31, December 31, December 31,
1993 1992 1991
------------ ------------ ------------
(In thousands)
<S> <C> <C> <C>
Tax benefit computed at U.S. rate $(16,657) (52,579) (19,496)
Increase in valuation allowance 19,320 - -
Net operating loss available for
carryforward - - 2,848
Taxable gain on disposition (note 2) - 21,675 -
State taxes, net of Federal benefit ( 2,499) 850 ( 1,140)
Net deferred tax benefits realized - - 5,569
Non-deductible depreciation from
purchase accounting adjustments - 1,448 2,932
Goodwill amortization and
restructuring charge - 29,886 808
Other ( 164) 3,232 1,040
------ ------ ------
- 4,512 ( 7,439)
Utilization of net operating
loss carryforward - ( 1,925) -
------ ------ ------
Total provision for income taxes
(benefit) $ - 2,587 ( 7,439)
====== ====== ======
</TABLE>
- 21 -
<PAGE> 22
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The tax effects of temporary differences as of December 31, 1993, in
thousands, are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards $ 18,356
Accounts receivable 1,138
Vacation and holiday pay 655
Accrued expenses 4,551
Interest on merger debentures 4,494
Valuation allowance (26,367)
------
$ 2,827
======
Deferred tax liabilities:
Property, plant and equipment $ 2,827
======
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1993
was $7,047,000. The net change in the total valuation allowance for the
year ended December 31, 1993 was an increase of $19,320,000.
At December 31, 1993, the Company's net operating loss carryforwards of
approximately $48,356,000 expire in 2008.
Certain timing differences exist which cause current income taxes
actually payable to differ from the amounts provided as follows:
<TABLE>
<CAPTION>
Years ended
-------------------------
December 31, December 31,
1992 1991
------------ ------------
(In thousands)
<S> <C> <C>
Relocation costs $ - 175
Co-Op Advertising - 402
Vacation and holiday pay - 998
Excess of tax over book depreciation - (1,368)
Reserves and allowances, net - 1,134
Interest - 1,596
Contingencies - 987
Pension and retirement expense - 438
Deferred compensation and fees - 781
Other - 426
----- -----
Total deferred income tax
expense (benefit) $ - 5,569
===== =====
</TABLE>
Current deferred income tax benefits of $2,827,000 at December 31, 1993
are included in other current assets in the accompanying consolidated balance
sheets.
The Internal Revenue Service ("IRS") has examined the Company's Federal
income tax returns for the years 1988 through 1991 and is challenging certain
deductions, of which the most significant involves an effort to recharacterize
interest deductions as dividend distributions. The IRS has delivered proposed
adjustments that approximate a net tax cost of $90 million, including interest
through the year ended December 31, 1993. The Company believes the IRS's
position with respect to these issues is incorrect and plans to contest
vigorously the proposed adjustments. The Company cannot predict the ultimate
outcome nor the impact on its financial statements, if any.
- 22 -
<PAGE> 23
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Long-term Debt
In conjunction with the Company's acquisition of Mohasco by merger on
September 22, 1989, certain bridge loans were refinanced with new debt, and in
exchange for the approximately 6.85% of Mohasco common stock then outstanding,
the Company issued $33.5 million of subordinated pay-in-kind merger debentures
and 918,170 warrants (as discussed below) to purchase, in the aggregate,
142,900 shares of the Company's Class A common stock. The assets of Mohasco
and its subsidiaries are pledged as security for a portion of the new debt.
Certain instruments related to the new debt were amended through March 1994.
Among other things, these amendments extended certain debt due dates, increased
certain debt limits and credit lines and modified selected financial covenant
tests. Certain provisions of these instruments were waived at various times
through April 1993. Proceeds from the disposition of Chromcraft and
Peters-Revington were used to repay a portion of the new secured debt owed
CSCL.
The outstanding debt at December 31 was as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1993
Debt 1993 1992 Interest Rates Due
---- ---- ---- -------------- ---
<S> <C> <C> <C> <C>
Revolving credit $ 160,427 125,730 7 1/2% 1996
Senior subordinated
debentures 80,000 80,000 18% 1996
Senior subordinated pay-
in-kind debentures 91,173 78,529 15 1/2% 2001
Merger debentures 53,517 45,512 16 7/8% 2004
Other 850 995 6% 1998
------- -------
385,967 330,766
Less current maturities 150 145
------- -------
$ 385,817 330,621
======= =======
</TABLE>
All outstanding debt at December 31, 1993 with the exception of the merger
debentures and other is payable to CSCL. Substantially all of the Company's
debt instruments restrict the payment of dividends and the Credit Agreement
with CSCL, relating to Mohasco's revolving credit facility, contains certain
financial covenant tests. The Company plans to attempt to refinance, or
negotiate an extension of, the debt payable to CSCL when due. The Company has
the option until April 1, 1995 to pay interest on the senior subordinated
pay-in-kind debentures and merger debentures either by cash or by the
distribution of additional securities. Through October 1, 1993, the Company
has issued additional securities in lieu of cash payments of interest.
The aggregate maturities of long-term debt (including capitalized lease
obligations) during the next five years and thereafter are as follows:
$150,000 in 1994; $160,000 in 1995; $240,597,000 in 1996; $180,000 in
1997; $190,000 in 1998; and $144,690,000 subsequent to 1998.
The warrants issued with the merger debentures, discussed above, are
exercisable during the one-year period beginning on the earliest to occur of:
(1) 180 days after the public offering by the Company of common stock meeting
certain conditions, (2) the closing of a merger, consolidation or other
business combination or a purchase of assets in which the Company is the
surviving corporation meeting certain conditions, or (3) September 22, 1994.
The warrant exercise price is $1 per share (subject to adjustment).
- 23 -
<PAGE> 24
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Redeemable Preferred Stock
The Company issued 1,000 shares of junior preferred stock, par value $.01,
in exchange for $100,000, which are held by CSCL. Dividends are accrued at
$18 per share annually. As of December 31, 1993, dividends payable are approx-
imately $110,000.
(6) Common Stock
Holders of Class A common stock are entitled to convert their shares to an
equal number of Class B common stock and holders of Class B common stock are
entitled to convert their shares to an equal number of Class A common stock.
(7) Employee Benefit Plans
All salaried employees, excluding certain key executives, and hourly paid
employees of the Company with one year of service were covered by non-contribu-
tory defined benefit retirement plans through May 31, 1993, at which time
further benefit accruals ceased. Benefits for the plans are determined using
the projected unit credit actuarial cost method. The cost of the retirement
plans is accrued annually; funding is in accordance with actuarial requirements
of the plans, subject to the Employee Retirement Income Security Act of 1974.
Pension expense, in thousands, is as follows:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Current service cost $1,506 1,992 2,591
Interest cost 956 856 582
Return on assets ( 630) ( 407) ( 115)
Amortization of prior service cost 99 212 212
Special curtailment charge due to
cessation of benefit accruals as of
May 31, 1993 and disposition of
Chromcraft and Peters-Revington in
April 1992. 927 914 -
----- ----- -----
$2,858 3,567 3,270
===== ===== =====
</TABLE>
- 24 -
<PAGE> 25
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Information with respect to the retirement plans for 1993 and 1992 has been
determined by consulting actuaries. The following table sets forth the plans'
funded status at December 31, 1993 and September 30, 1992, respectively, and
reconciles amounts recognized in the consolidated balance sheets at December
31, 1993 and 1992, respectively (in thousands):
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Actuarial present value of obligations:
Vested $11,787 8,241
Nonvested 642 1,304
------ ------
Accumulated benefit obligation 12,429 9,545
Effect of projected future compensation levels-
benefit accruals ceased May 31, 1993 - 766
------ ------
Projected benefit obligation 12,429 10,311
Assets at fair value at December 31 9,033 6,231
------ ------
Projected benefit obligation in excess of assets 3,396 4,080
Unrecognized transition obligation - (1,902)
Unrecognized net gain (loss) ( 3) 24
Adjustment to recognize minimum liability - 1,439
------ ------
Accrued pension cost at December 31 $ 3,393 3,641
====== ======
Assumptions:
Interest rates for obligations 7.25% 8.50%
Long-term rate of return 9.00 9.00
Salary increase rate N/A 5.00
</TABLE>
As a result of the disposition of Chromcraft and Peters-Revington in April
1992, all employees of Chromcraft and Peters-Revington were vested in their
retirement benefits under the plans.
Effective June 1, 1993, the following defined contribution plans were
adopted by the Company's operating companies:
BARCALOUNGER RETIREMENT PLAN, designed to provide income at retirement,
covers all Barcalounger employees with one or more years of service and
is non-contributory. Annual company contributions are based on
individual participant's earnings and length of service. For the
period June 1, 1993 to December 31, 1993, company contributions were
$115,000.
BARCALOUNGER SAVINGS PLAN, designed to provide a savings vehicle for
Barcalounger employees with one or more years of service who may elect
to participate by saving on a before-tax and/or after-tax basis in one
or more of four investment funds available. Annual company
contributions match 25% of participants' contributions of up to four
percent of earnings. For the period June 1, 1993 to December 31, 1993,
company matching contributions were $35,000.
STRATFORD RETIREMENT PLAN, designed to provide income at retirement,
covers all Stratford employees with one or more years of service and is
non-contributory. Annual company contributions are based on
individual participant's earnings and length of service. For the
period June 1, 1993 to December 31, 1993, company contributions were
$630,000.
- 25 -
<PAGE> 26
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
SUPER SAGLESS RETIREMENT-SAVINGS PLAN is a retirement income plan fully
financed by the company combined with an employee savings plan. All
employees with one or more years of service are participants in the
retirement income part of the plan and also may elect to invest on a
before-tax and/or after-tax basis in one or more of four funds
available in the savings part of the plan. Annual company
contributions to the retirement income part of the plan are based on
individual particpant's earnings and length of service and the company
matches 100% of participants' before-tax savings of up to two percent
of earnings in the savings part of the plan. For the period June 1,
1993 to December 31, 1993, aggregate company contributions to the plan
were $492,000.
The Company also maintained a non-qualified retirement plan for certain
key executives, who were excluded from participation in Mohasco's Salaried
Retirement Plan. Benefits of the executive retirement plan were substantially
the same as the Salaried Retirement Plan. The executive retirement plan ceased
benefit accruals in December 1992. The cost of this plan was approximately
$751,000 in 1992 and $520,000 in 1991. As of December 31, 1993, the plan
liabilities are approximately $401,000, and are included in other long-term
liabilities.
Under various incentive compensation plans, certain employees earned
bonuses for reaching specific performance criteria amounting to $964,000 in
1993, $346,000 in 1992 and $1,038,000 in 1991.
The Company has an investment plan for all employees. The plan previously
covered all employees but, since the adoption of the Barcalounger and Super
Sagless plans, noted above, now covers all employees not covered by such plans.
Since the time of adoption of the Barcalounger and Super Sagless plans,
Barcalounger and Super Sagless participants' account balances were transferred
to the Barcalounger and Super Sagless plans. Company contributions to the
Company's investment plan were $50,000 in 1993, $177,000 in 1992 and $606,000
in 1991.
- 26 -
<PAGE> 27
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) Rental Commitments
The Company and its subsidiaries lease certain manufacturing and ware-
housing facilities (capitalized leases), equipment (primarily transportation
equipment), and warehouse and showroom facilities (operating leases).
Future minimum lease payments at December 31, 1993 under all
non-cancellable leases are as follows:
<TABLE>
<CAPTION>
Period Capital Operating
------ ------- ---------
(In thousands)
<S> <C> <C>
1994 $ 197 2,900
1995 197 2,000
1996 197 1,700
1997 197 1,500
1998 196 1,100
After 1998 - 1,400
----- ------
Total minimum lease payments 984 10,600
======
Less amounts representing interest 134
-----
Total capitalized lease
obligations 850
Less current maturities of
capitalized lease obligations 150
-----
Capitalized lease obligations
net of current maturities $ 700
=====
</TABLE>
It is expected that, in the normal course of business, non-cancellable
leases that expire will be renewed or replaced.
Rental expense was as follows:
<TABLE>
<CAPTION>
Years ended
----------------------------------------------
December 31, December 31, December 31,
1993 1992 1991
------------ ------------ ------------
(In thousands)
<S> <C> <C> <C>
Minimum Rentals
(including cancell-
able leases) $ 4,276 5,502 6,448
Contingent rentals
(principally mileage
charges) 362 452 480
Sublease rentals ( 425) ( 674) ( 613)
----- ----- -----
$ 4,213 5,280 6,315
===== ===== =====
</TABLE>
- 27 -
<PAGE> 28
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Supplemental Income Statement Information
Amounts charged to costs and expenses in the consolidated financial
statements include the following:
<TABLE>
<CAPTION>
Years ended
-------------------------------------------
December 31, December 31, December 31,
1993 1992 1991
------------ ------------ ------------
(In thousands)
<S> <C> <C> <C>
Maintenance & Repairs $ 4,112 6,619 8,325
Advertising 4,511 6,830 6,641
Research & Development 4,043 4,052 5,066
Taxes other than income
taxes
Payroll 7,576 7,759 9,049
Other 1,092 1,660 2,486
</TABLE>
(10) Financial Information by Industry Segments
The Company is engaged in only one segment of business, the manufacture of
furniture. Sears Roebuck and Co. accounted for approximately sixteen percent,
thirteen percent and nine percent of the Company's sales in each of the years
1993, 1992 and 1991, respectively.
(11) Contingencies
There were contingent liabilities at December 31, 1993 consisting of
purchase commitments and legal proceedings arising in the ordinary course of
business. The financial risk involved in connection with all contingent
liabilities, except the proposed adjustments delivered by IRS, see note 3, is
not considered material in relation to the consolidated financial position of
the Company.
- 28 -
<PAGE> 29
FAIRWOOD CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) Liquidity
Mohasco is expected to service its long-term debt under the Credit
Agreement, relating to the revolving credit facility, and senior subordinated
debentures from its cash flow from operations and available credit facilities.
Interest on Fairwood's senior subordinated pay-in-kind debentures and merger
debentures is expected to be paid by distribution of additional securities
through September 1994. Fairwood has substantially no assets other than the
common stock of Mohasco, and Mohasco and its subsidiaries have pledged
substantially all of their assets to secure their obligations under the Credit
Agreement. Throughout 1993, 1992 and 1991, Mohasco did not generate sufficient
funds from operations to fully meet its interest obligations related to its
long-term indebtedness. Mohasco funded these interest obligations through
increased borrowings from CSCL under the Credit Agreement. However, during
1992 the proceeds to Mohasco from the disposition of Chromcraft and
Peters-Revington of approximately $83 million were used to repay debt of
Mohasco and its subsidiaries under the Credit Agreement.
The Company is dependent upon CSCL for funding of its debt service costs.
CSCL has in the past increased its revolving credit line to Mohasco under the
Credit Agreement which has enabled Mohasco to meet its debt service
obligations. Under the Credit Agreement, Mohasco and its subsidiaries are
generally restricted from transferring monies to the Company with the
exception of amounts for (a) specified administrative expenses of the Company
not exceeding $275,000 per year and (b) payment of income taxes. The senior
subordinated debentures, senior subordinated pay-in-kind debentures and merger
debentures also have certain restrictions as to payment and transfer of monies.
Management believes that cash flow from operations and funding from CSCL will
be adequate for its working capital requirements and any cash payments due on
the Company's debt through December 31, 1994.
- 29 -
<PAGE> 30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The name, age and position or principal occupation during the past five
years of each member of the Board of Directors and executive officer of the
Company are set forth below. Directors serve for a term of one year and
until their successors are elected and qualified. Officers are elected
annually by the Board of Directors to serve for the ensuing year and until
their respective successors are elected.
<TABLE>
<CAPTION>
Director Position and Principal Occupation or
Name Age Since Employment Held During Last 5 Years
---- --- -------- ------------------------------------
<S> <C> <C> <C>
John B. Sganga 62 1992 Chief Financial Officer, Executive
Vice President, Secretary and
Treasurer since February 1993.
Mr. Sganga is also, inter alia,
Chief Financial Officer, Executive
Vice President, Secretary and
Treasurer of Mohasco and Vice
President, Treasurer and Secretary
of each of Mohasco's subsidiaries.
From December 1988 to February 1993,
Mr. Sganga served the Company and its
subsidiaries in various officer
positions. Mr. Sganga is also a
director of Mohasco.
M. Saleem Muqaddam 47 1992 Vice President, CVCL, an affiliate
of the Company, since 1989.
Previously, Mr. Muqaddam spent 15
years with Citibank, N.A., an
affiliate of the Company, in senior
managerial positions. Mr. Muqaddam
is also a director of Mohasco,
Chromcraft Revington, Inc., Pamida
Holdings, Inc. and Plantronics, Inc.
Randolph I. Thornton, Jr. 48 1992 Vice President, Citibank, N.A., an
affiliate of the Company. Mr.
Thornton is also a director of
Mohasco.
</TABLE>
- 30 -
<PAGE> 31
<TABLE>
<CAPTION>
Director Position and Principal Occupation or
Name Age Since Employment Held During Last 5 Years
---- --- -------- ------------------------------------
<S> <C> <C> <C>
L. David Callaway 54 1992 Consultant to CVCL, an affiliate of the
Company, Chairman of the Board of
Express Messengers Systems, Inc. and
from 1988 to 1993 Vice President, CVCL.
</TABLE>
The following are subsidiary presidents and may be deemed to be executive
officers of the Company.
<TABLE>
<CAPTION>
Date Assumed
Name Age Present Position Present Position
---- --- ---------------- ----------------
<S> <C> <C> <C>
Stephen R. Lake 47 President and Chief September 1991
Executive Officer
Super Sagless Corporation
Robert M. Shaughnessy 53 President of Mohasco July 1992
Upholstered Furniture
Corporation and President
and Chief Executive
Officer Stratford
Division of Mohasco
Upholstered Furniture
Corporation
Wayne T. Stephens 43 President and Chief October 1992
Executive Officer
Barcalounger Division of
Mohasco Upholstered
Furniture Corporation
</TABLE>
There are no family relationships among any of the Company's directors or
officers.
The following is a brief account of the business experience during the past
five years of each of the subsidiary presidents:
Mr. Lake has been employed by the Company since September 1991 in his
present position. From prior to 1989 to February 1991 he was Vice President
and General Manager of Clark Components N.A.
Mr. Shaughnessy has been employed by the Company since July 1992 in his
present position. From February 1991 to July 1992 he was Vice President,
Marketing, Outboard Marine Corporation, from June 1990 to February 1991 he
worked as a consultant and from prior to 1989 to June 1990 he was Senior Vice
President, Navistar.
In connection with services provided by The Finley Group, a management
consulting firm, Mr. Stephens, a principal of that firm, has acted as president
of a number of companies; he was president from September 1989 to January 1990
of Southwest Elevator Corporation, from January 1990 to January 1991 of
Munford, Inc., from January 1991 to October 1991 of Specialty Paperboard, Inc.,
from January 1992 to October 1992 of Docktor Pet, Inc. and from October 1992 to
April 1993 as President and Chief Executive Officer of the Barcalounger
Division of Mohasco Upholstered Furniture Corporation. While continuing in his
role as President and Chief Executive Officer of the Barcalounger division, in
April 1993, Mr. Stephens became a direct consultant to the Company and in
January 1994 an employee of Mohasco Upholstered Furniture Corporation. Prior
to joining The Finley Group in September 1989, Mr. Stephens was a partner with
Deloitte & Touche, a public accounting firm.
- 31 -
<PAGE> 32
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE OFFICERS' COMPENSATION
Information concerning the compensation earned by the above named executive
officers is set forth in the Summary Compensation Table.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-term
Compensation
Name and Annual Compensation ------------
Principal ------------------- LTIP All Other
Position Year Salary Bonus Payouts Compensation
- --------- ---- ------ ----- ------- ------------
<S> <C> <C> <C> <C> <C>
John B. Sganga 1993 $190,729 $ - $ - $ 1,907 (1)
Executive VP 1992 192,500 34,235 11,392 (2) 157,835 (1)
and CFO 1991 192,500 78,348 - 1,925 (1)
Stephen R. Lake 1993 170,000 172,975 - 15,809 (3)
President & CEO 1992 153,750 112,468 - 413 (3)
Super Sagless 1991 43,750 63,581 - -
Robert M. Shaughnessy
President 1993 235,231 141,934 - -
Stratford 1992 101,667 110,000 - -
Wayne T. Stephens
President & CEO 1993 (4)
Barcalounger 1992 (4)
</TABLE>
(1) 1993 and 1991 amounts represent company contributions to the Investment
Plan. 1992 includes $150,510 distribution under the Executive Retirement
Plan, $5,400 excess of book value over purchase price of company car, and
$1,925 company contribution to Salaried Investment Plan.
(2) Deferred executive incentive award given in 1989 and payable in 1992. No
deferred awards have been given since 1989.
(3) 1993 includes $12,916 distribution under the Executive Retirement Plan,
$1,518 company contribution to the Super Sagless Retirement-Savings Plan,
and $1,375 company contribution to Investment Plan. 1992 amount
represents the company contribution to Investment Plan.
(4) For the period October 1992 to April 1993, $155,682 was paid to The Finley
Group for services it rendered through Mr. Stephens. For the period May
1993 to December 1993, $200,000 was paid to Mr. Stephens as a consultant.
EMPLOYMENT AGREEMENT
Mohasco entered into an employment agreement with Mr. Sganga, who is named
in the summary compensation table, effective December 15, 1993, which provides
for an annual salary, plus such bonuses as may be awarded in the discretion of
the Board of Directors. This agreement will remain in effect through December
31, 1995 unless terminated sooner with or without cause by the Board of
Directors. If employment is terminated without cause, other than due to death
or disability or other incapacity, Mr. Sganga will be entitled to receive a
severance payment in an amount equal to the lesser of (i) $150,000 and (ii) an
amount equal to sum of the base salary payments that he would have received had
he remained in the employ of the Company until December 31, 1995. No severance
will be paid if termination is for cause, or due to death, disability or other
incapacity.
- 32 -
<PAGE> 33
RETIREMENT PLAN
Messrs. Sganga, Lake, Shaughnessy and Stephens, who are named in the
Summary Compensation Table, are not participants in the Salaried and Sales
Employees Retirement Plan of Mohasco, which ceased further benefit accruals as
of May 31, 1993.
Mohasco adopted in 1990 a non-qualified non-contributory Executive
Retirement Plan for certain of its executives in the operating companies and
corporate office, including Messrs. Sganga and Lake. Participants in this plan
are not eligible to participate in the Mohasco Salaried and Sales Employees
Retirement Plan. Executives designated as participants begin to accrue
retirement benefits following completion of one year of employment. Benefits
accrued under the plan are reduced by any benefits to which the individual may
be entitled under a prior or current defined benefit pension or supplemental
retirement plan of Mohasco.
In December 1992, benefit accruals were ceased to the Executive Retirement
Plan and Messrs. Sganga and Lake received payment in full settlement of the
accrued benefit obligation under the plan. Mr. Sganga received $150,510 in
1992 and Mr. Lake received $12,916 in 1993. Messrs. Shaughnessy and Stephens
were not eligible to participate in the Executive Retirement Plan.
SALARIED INVESTMENT PLAN
Officers of Mohasco are eligible to participate in its tax-qualified
Investment Plan for Salaried and Sales Employees. Directors who are not
officers are not eligible. Mohasco may, but is not obligated to, contribute up
to 100% of any savings of a participant not exceeding 4% of salary.
The full value of a participant's investment in the plan becomes payable
upon retirement, disability or death. Upon termination of employment for other
reasons, a participant is entitled to the accumulated value of his or her
savings, and to varying amounts of Mohasco's contributions depending on years
of membership in the plan, with 100% thereof payable if years of membership are
5 or more.
During 1993, such contributions for Mr. Sganga were $1,907 and for Mr. Lake
were $1,375. In June 1993, the following defined contribution plans were
adopted: Barcalounger Retirement Plan, Barcalounger Savings PLan, Stratford
Retirement Plan, and Super Sagless Retirement-Savings Plan. Please refer to
note 7, Employee Benefit Plans, in the Notes to Consolidated Financial
Statements. The company contribution for Mr. Lake in the Super Sagless
Retirement-Savings Plan was $1,518. Mr. Shaughnessy is not a member of the
Stratford Retirement Plan and Mr. Stephens was not eligible for membership in
the Barcalounger Retirement Plan nor the Barcalounger Savings Plan.
INCENTIVE PLAN
Mohasco maintains an executive incentive (bonus) plan implemented to
provide individual awards for attainment of specified business objectives.
Under the executive incentive plan, each of Mohasco's profit centers is
assigned certain business goals annually, which for 1993 were based on earnings
and cash flow. Awards are made to profit center participants based upon the
extent to which their respective profit centers attain their goals. Total
awards made for the 1993 Plan Year were $964,000, including awards of $172,975
for Mr. Lake and $141,934 for Mr. Shaughnessy.
DIRECTORS' COMPENSATION
As of the date of this Annual Report on Form 10-K, the Company has not
determined what compensation directors who are not officers of the Company will
receive for their service as director. No compensation was paid to directors
for their services as directors in 1993.
- 33 -
<PAGE> 34
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's board of directors does not have a separate compensation
committee. Accordingly, the entire board of directors considers executive
compensation matters, except that any executive officer who is a director does
not take part in executive compensation matters regarding that executive
officer.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
The Company's common stock consists of both voting stock and non-voting
stock. The table below sets forth, as of February 28, 1994, certain
information regarding each person who owns of record or beneficially 5% or
more of the outstanding shares of common stock. Such beneficial owners own
their shares directly and have sole voting and investment power with respect
to their shares.
<TABLE>
<CAPTION>
Percentage of
Number of Outstanding Shares
Name and Address Shares of Company's of Company's Percentage of
of Beneficial Owner Common Stock Common Stock Voting Power
------------------- ------------------- ------------------ -------------
<S> <C> <C> <C>
Citicorp Venture Capital 1,000,100 99.98% 60%
Ltd. *
399 Park Avenue
New York, NY 10043
Thomas F. Creamer 100 0.01% 20%
Anthony C. Howkins 100 0.01% 20%
</TABLE>
- ---------------------------
* Owns 999,800 shares of the Company's Class B Non-Voting Common Stock and
300 shares of the Company's Class A Voting Common Stock. Under the
Company's Certificate of Incorporation, the Class B Non-Voting Common Stock
is convertible into Class A Voting Common Stock, so long as the holder of
the Class B Stock would be permitted to hold the resulting Class A Stock
under applicable law. On December 31, 1990, CVCL and Holdings entered into
an Agreement and Plan to Relinquish Control pursuant to which CVCL
converted 200 shares of Class B Stock into 200 shares of Class A Stock and
increased its ownership of the outstanding Class A Stock from 33-1/3% to
60%. Under this Agreement, CVCL is required to convert a sufficient number
of shares of Class A Stock into Class B Stock to reduce CVCL's ownership of
Class A Stock such that CVCL will no longer be presumed to have control of
Holdings under the regulations of the Small Business Administration upon
the earlier of (i) the date on which the Company's ratio of earnings before
interest, taxes and depreciation to interest expense on a consolidated
basis has been 1.5 to 1 for three consecutive fiscal quarters or (ii)
December 31, 1997 (or such later date as may be consented to by the Small
Business Administration). The Agreement has been accepted by the Small
Business Administration. CVCL is a subsidiary of Citibank, N.A., a
national bank which is owned by Citicorp a publicly owned bank holding
company, and is an affiliate of CSCL.
OWNERSHIP BY DIRECTORS AND OFFICERS
As of February 28, 1994, no shares of the Company's common stock were
beneficially held by any director or officer.
- 34 -
<PAGE> 35
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As further described in the Company's financial statements in Item 8, a
large majority of the Company's long-term debt at December 31, 1993 is payable
to CSCL, an affiliate of CVCL, the Company's majority shareowner. M. Saleem
Muqaddam, a director of the Company, is a vice president of CVCL and CSCL.
During 1993, the largest aggregate amount of indebtedness outstanding that was
payable to CSCL was approximately $332.1 million; as of February 28, 1994, the
aggregate amount of such indebtedness was approximately $330.1 million. See
Note 4, Long-term Debt, in the Notes to Consolidated Financial Statements set
forth in Item 8.
On December 13, 1989 and January 18, 1990 Rental, a wholly-owned subsidiary
of Cort Holdings Corporation ("Cort Holdings"), paid to Mohasco, in cash,
approximately $21.5 million and $131.2 million, respectively, as prepayment on
all remaining indebtedness outstanding on the promissory notes issued as part
of the consideration for the sale of Rental in December 1988. At the time of
the payments, CVCL and certain of its affiliates were significant investors in
the Company, Mohasco, Rental and Cort Holdings.
399 Venture Partners, Inc., an affiliate of CVCL, owns approximately 49% of
Chromcraft Revington, Inc. M. Saleem Muqaddam, vice president of CVCL and
director of the Company, is a director of Chromcraft Revington, Inc.
- 35 -
<PAGE> 36
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(A) 1. FINANCIAL STATEMENTS PAGE
-------------------- ----
<S> <C>
The following financial statements and supplementary data are
included in Part II, Item 8:
Independent Auditors' Report.................................... 13
Consolidated Balance Sheets at December 31, 1993 and 1992....... 14
Consolidated Statements of Operations for the Years ended December
31, 1993, 1992 and 1991 ...................................... 15
Consolidated Statements of Common Stock and Other Shareowners'
Equity (Deficit) for the Years ended December 31, 1993, 1992 and
1991 ......................................................... 16
Consolidated Statements of Cash Flows for the Years ended December
31, 1993, 1992 and 1991 ...................................... 17
Notes to Consolidated Financial Statements ..................... 18-29
2. FINANCIAL STATEMENT SCHEDULES
-----------------------------
For the three years ended December 31, 1993:
Schedule V-- Property, Plant and Equipment ................... 41
Schedule VI-- Accumulated Depreciation and Amortization
of Property, Plant and Equipment .............. 42
Schedule VIII--Valuation and Qualifying Accounts
and Reserves................................... 43
</TABLE>
Other schedules are omitted because of the absence of conditions under
which they are required or because the required information is given
in the financial statements or notes thereto.
- 36 -
<PAGE> 37
3. EXHIBITS
--------
Exhibits are listed by numbers corresponding to the Exhibit Table of
Item 601 in Regulation S-K
(3.1) Certificate of Incorporation of the Registrant, as amended
(incorporated by reference to Exhibit 3.3 of the Registrant's
Registration Statement on Form S-4 (the "Form S-4")).
(3.2) By-Laws of the Registrant (incorporated by reference to
Exhibit 3.4 of the Form S-4).
(3.3) Certificate of Amendment of Certificate of Incorporation,
dated March 22, 1993 (incorporated by reference to Exhibit 3.3
of the Registrant's annual report on Form 10-K for the year
ended December 31, 1992 (the "1992 Form 10-K"))
(4.1) Indenture, dated as of August 15, 1989, between Fairwood
Corporation, formerly MHS Holdings Corporation (the "Company")
and Bankers Trust Company, as Trustee, relating to the 16-7/8%
Subordinated Pay-In-Kind Debentures due 2004 (the "Merger
Debentures"), (incorporated by reference to Exhibit 4.1 of the
Registrant's third quarter report on Form 10-Q for the quarter
ended September 30, 1989 (the "1989 Third Quarter 10-Q")).
(4.2) Form of Merger Debentures, included as Exhibit A to Exhibit
4.1, (incorporated by reference to Exhibit 4.2 of the 1989
Third Quarter 10-Q).
(4.3) Pledge and Security Agreement, dated as of August 15, 1989,
made by the Company to Bankers Trust Company, as Trustee,
(incorporated by reference to Exhibit 4.3 of the 1989 Third
Quarter 10-Q).
(4.4) Warrant Agreement, dated as of August 15, 1989, between the
Company and Pittsburgh National Bank, as Warrant Agent,
(incorporated by reference to Exhibit 4.4 of the 1989 Third
Quarter 10-Q).
(4.5) Form of Warrants, included as Exhibit A to Exhibit 4.4,
(incorporated by reference to Exhibit 4.5 of the 1989 Third
Quarter 10-Q).
(4.6) 15-1/2% Senior Subordinated Pay-In-Kind Debentures of the
Company, dated as of September 22, 1989, issued to Citicorp
Capital Investors Ltd. (incorporated by reference to Exhibit
4.6 of the 1989 Third Quarter 10-Q).
(4.7) Pledge and Security Agreement, dated September 22, 1989, made
by the Company to Citicorp Capital Investors Ltd., as Agent,
(incorporated by reference to Exhibit 4.7 of the 1989 Third
Quarter 10-Q).
(4.8) Credit Agreement dated as of September 22, 1989 among Mohasco
Corporation ("Mohasco"), Mohasco Upholstered Furniture
Corporation, Chromcraft Corporation, Super Sagless
Corporation, Choice Seats Corporation and Peters Revington
Corporation and Citicorp Capital Investors Ltd. (the "Credit
Agreement"), (incorporated by reference to Exhibit 4.8 of the
Registrant's annual report on Form 10-K for the year ended
December 31, 1989 (the "1989 Form 10-K")).
(4.9) Amendment, dated December 15, 1989, to the Credit Agreement,
(incorporated by reference to Exhibit 4.9 of the 1989 Form
10-K).
(4.10) Amendment, dated March 13, 1990, to the Credit Agreement,
(incorporated by reference to Exhibit 4.10 of the 1989 Form
10-K).
- 37 -
<PAGE> 38
(4.11) Notice of Election and Waiver, dated March 13, 1990, to the
Credit Agreement, (incorporated by reference to Exhibit 4.11
of the Registrant's annual report on Form 10-K for the year
ended December 31, 1990 (the "1990 Form 10-K")).
(4.12) Term Note B, dated March 13, 1990, issued to Court Square
Capital Limited, (incorporated by reference to Exhibit 4.12
of the 1989 Form 10-K).
(4.13) Agreement and Waiver, dated August 15, 1990, to the Credit
Agreement, (incorporated by reference to Exhibit 4.13 of the
1990 Form 10-K).
(4.14) Agreement and Waiver, dated September 5, 1990, to the Credit
Agreement, (incorporated by reference to Exhibit 4.14 of the
1990 Form 10-K).
(4.15) Agreement and Waiver, dated September 15, 1990, to the Credit
Agreement, (incorporated by reference to Exhibit 4.16 of the
1990 Form 10-K).
(4.16) Waiver and Amendment, dated September 15, 1990, to the Credit
Agreement and letter, dated September 15, 1990, related
thereto, (incorporated by reference to Exhibit 4.16 of the
1990 Form 10-K).
(4.17) Waiver and Fourth Amendment, dated as of December 31, 1990,
to the Credit Agreement, (incorporated by reference to Exhibit
4.17 of the 1990 Form 10-K).
(4.18) Revolving Credit Note, dated September 22, 1989, amended and
restated as of September 15, 1990, issued to Court Square
Capital Limited, and Endorsement No. 1 thereto, dated as of
December 31, 1990, (incorporated by reference to Exhibit 4.18
of the 1990 Form 10-K).
(4.19) Increasing Rate Senior Subordinated Debentures of Mohasco
Corporation dated as of September 22, 1989 issued to Citicorp
Capital Investors Ltd. (the "Senior Subordinated Debentures"),
(incorporated by reference to Exhibit 4.13 of the 1989 Form
10-K).
(4.20) Amendment, dated March 30, 1990, to the Senior Subordinated
Debentures, (incorporated by reference to Exhibit 4.14 of the
1989 Form 10-K).
(4.21) Second Amendment, dated as of December 31, 1990, to the Senior
Subordinated Debentures, (incorporated by reference to Exhibit
4.21 of the 1990 Form 10-K).
(4.22) Endorsement No. 1, dated as of December 31, 1990, to the
Senior Subordinated Debentures, (incorporated by reference to
Exhibit 4.22 of the 1990 Form 10-K).
(4.23) Waiver, dated as of June 29, 1991, to the Credit Agreement,
(incorporated by reference to Exhibit 4.23 of the Registrant's
annual report on Form 10-K for the year ended December 31,1991
(the "1991 Form 10-K")).
(4.24) Waiver, dated as of October 31, 1991, to the Credit Agreement,
(incorporated by reference to Exhibit 4.24 of the 1991 Form
10-K).
(4.25) Letter Agreement, dated as of October 31, 1991, between the
Company and Manufacturers Hanover, as Warrant Agent and
letter from Pittsburgh National Bank, dated October 28, 1991,
related thereto, (incorporated by reference to Exhibit 4.25
of the 1991 Form 10-K).
(4.26) Waiver and Fifth Amendment, dated as of March 27, 1992, to
Credit Agreement, (incorporated by reference to Exhibit 4.26
of the 1991 Form 10-K).
- 38 -
<PAGE> 39
(4.27) Third Amendment, dated as of March 27, 1992, to the Senior
Subordinated Debentures, (incorporated by reference to
Exhibit 4.27 of the 1991 Form 10-K).
(4.28) Endorsement No. 2, dated as of March 27, 1992, to the Senior
Subordinated Debentures, (incorporated by reference to
Exhibit 4.28 of the 1991 Form 10-K).
(4.29) Sixth Amendment, dated as of April 23, 1992, to Credit
Agreement, (incorporated by reference to Exhibit 4.1 of the
Registrant's second quarter report on Form 10-Q for the
quarter ended June 27, 1992 (the "1992 Second Quarter 10-Q")).
(4.30) Seventh Amendment, dated as of April 23, 1992, to Credit
Agreement, (incorporated by reference to Exhibit 4.2 of the
1992 Second Quarter 10-Q).
(4.31) Eighth Amendment, dated as of September 26, 1992, to Credit
Agreement, (incorporated by reference to Exhibit 4.1 of the
Registrant's third quarter report on Form 10-Q for the quarter
ended September 26,1992 (the "1992 Third Quarter 10-Q")).
(4.32) Waiver and Ninth Amendment, dated as of February 4, 1993, to
Credit Agreement, (incorporated by reference to Exhibit 4.32
of the 1992 Form 10-K.
(4.33) Tenth Amendment, dated as of March 22, 1993, to Credit
Agreement, (incorporated by reference to Exhibit 4.33 of the
1992 Form 10-K.
(4.34) Recision of Waiver, dated as of April 30, 1993, to Credit
Agreement, (incorporated by reference to Exhibit 4.1 of the
Registrant's first quarter report on Form 10-Q for the quarter
ended April 3, 1993 (the "1993 First Quarter 10-Q")).
(4.35) Eleventh Amendment, dated as of March 25, 1994, to Credit
Agreement.
(4.36) Fourth Amendment, dated as of January 3, 1994, to the Senior
Subordinated Debentures.
(10.1) Employment Agreement, between Mohasco and Robert W. Hatch,
dated September 21, 1989, (incorporated by reference to
Exhibit 10.1 of the 1989 Form 10-K).
(10.2) Supplemental Executive Retirement Agreement, between Mohasco
and Robert W. Hatch, dated September 27, 1990, (incorporated
by reference to Exhibit 10.2 of the 1990 Form 10-K).
(10.3) Mohasco Executive Retirement Plan, (incorporated by reference
to Exhibit 10.5 of the 1990 Form 10-K).
(10.4) Mohasco Corporation Executive Incentive Plan, (incorporated
by reference to Exhibit 10.6 of the 1990 Form 10-K).
(10.5) Amendment, dated December 31, 1991, to the Mohasco Executive
Retirement Plan, (incorporated by reference to Exhibit 10.6
of the 1991 Form 10-K).
(10.6) Merger Agreement dated March 10, 1992 among Chromcraft
Revington, Inc., Chromcraft Merger Subsidiary, Inc., Mohasco
Corporation, Chromcraft Corporation and the Company,
(incorporated by reference to Exhibit 10.1 of the March 17,
1992 Form 8-K).
(10.7) Merger Agreement dated March 10, 1992 among Chromcraft
Revington, Inc., PR Merger Subsidiary, Inc., Mohasco
Corporation, Peters-Revington Corporation and the Company,
(incorporated by reference to Exhibit 10.2 of the March 17,
1992 Form 8-K).
(10.8) Employment Agreement, between Mohasco and John B. Sganga,
dated December 15, 1993.
(21.1) List of Subsidiaries of the Registrant.
- 39 -
<PAGE> 40
The Company agrees to furnish the Securities and Exchange Commission, upon
request, a copy of any instrument defining the rights of holders of long term
debt of the Company and its consolidated subsidiaries.
(B) REPORTS ON FORM 8-K
No reports were filed on Form 8-K for the three months ended
December 31, 1993.
- 40 -
<PAGE> 41
Schedule V
FAIRWOOD CORPORATION AND SUBSIDIARIES
Property, Plant and Equipment
Years ended December 31, 1993, 1992 and 1991
(In Thousands)
<TABLE>
<CAPTION>
Balance at Retire- Balance
beginning Additions ments at close
Classification of period at cost or sales of period
-------------- ---------- --------- -------- ---------
<S> <C> <C> <C> <C>
1993
----
Land $ 1,617 - 1,384 233
Buildings, including
buildings capitalized under
long-term leases 29,046 42 8,403 20,685
Machinery and equipment 27,079 2,991 1,154 28,916
Leasehold improvements 2,555 108 30 2,633
Construction in progress 896 1,065 (1) - 1,961
------- ------- ------- -------
$ 61,193 4,206 10,971 54,428
======= ======= ======= =======
1992
----
Land $ 2,499 - 882 1,617
Buildings, including
buildings capitalized under
long-term leases 42,520 - 13,474 29,046
Machinery and equipment 46,539 177 19,637 27,079
Leasehold improvements 4,404 - 1,849 2,555
Construction in progress 579 771 (1) 454 896
------- ------- ------- -------
$ 96,541 948 36,296 (2) 61,193
======= ======= ======= =======
1991
----
Land $ 2,540 - 41 2,499
Buildings, including
buildings capitalized under
long-term leases 42,554 449 483 42,520
Machinery and equipment 43,339 3,730 530 46,539
Leasehold improvements 4,048 356 - 4,404
Construction in progress 754 ( 175)(1) - 579
------- ------- ------- -------
$ 93,235 4,360 1,054 96,541
======= ======= ======= =======
</TABLE>
Notes:
(1) Represents the difference between expenditures for new construction
during the year and the cost of completed projects transferred to
appropriate captions.
(2) Includes adjustments relating to the disposition of Chromcraft and
Peters-Revington of $24,371 and restructuring charge of $9,618.
- 41 -
<PAGE> 42
Schedule VI
FAIRWOOD CORPORATION AND SUBSIDIARIES
Accumulated Depreciation and Amortization of Property, Plant and Equipment
Years ended December 31, 1993, 1992 and 1991
(In Thousands)
<TABLE>
<CAPTION>
Other
Balance at Charged Retire- Changes- Balance
beginning to ments add (deduct) at close
Description of period earnings or sales describe of period
----------- ---------- -------- -------- ------------ ---------
<S> <C> <C> <C> <C> <C>
1993
----
Buildings, including
buildings capitalized under
long-term leases $ 10,131 603 1,256 - 9,478
Machinery and equipment 14,771 3,175 718 - 17,228
Leasehold improvements 1,876 127 24 - 1,979
------- ------- ------- ------- -------
$ 26,778 3,905 1,998 - 28,685
======= ======= ======= ======= =======
1992
----
Buildings, including
buildings capitalized under
long-term leases $ 9,877 2,981 666 ( 2,061) 10,131
Machinery and equipment 19,000 4,967 1,074 ( 8,122) 14,771
Leasehold improvements 2,110 470 81 ( 623) 1,876
------- ------- ------- ------- -------
$ 30,987 8,418 1,821 ( 10,806)(1) 26,778
======= ======= ======= ======= =======
1991
----
Buildings, including
buildings capitalized under
long-term leases $ 5,353 4,723 199 - 9,877
Machinery and equipment 14,503 4,992 495 - 19,000
Leasehold improvements 1,616 494 - - 2,110
------- ------- ------- ------- -------
$ 21,472 10,209 694 - 30,987
======= ======= ======= ======= =======
</TABLE>
Notes:
(1) Represents adjustments relating to the disposition of Chromcraft and
Peters-Revington.
- 42 -
<PAGE> 43
Schedule VIII
FAIRWOOD CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
Years ended December 31, 1993, 1992 and 1991
(In Thousands)
<TABLE>
<CAPTION>
Balance at Additions Deductions Balance
beginning charged to from at close
Description of period earnings reserves of period
----------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Valuation and qualifying
accounts and reserves
deducted from accounts
and notes receivable:
1993
----
Allowance for discounts $ 185 1,705 1,631 259
Allowance for doubtful
accounts 2,454 1,433 1,134 2,753
Allowance for estimated
loss on claims 518 1,192 660 1,050
------ ------ ------ ------
$ 3,157 4,330 3,425 4,062
====== ====== ====== ======
1992
----
Allowance for discounts $ 161 1,570 1,546 185
Allowance for doubtful
accounts 3,150 1,367 2,063 2,454
Allowance for estimated
loss on claims 276 525 283 518
------ ------ ------ ------
$ 3,587 3,462 3,892 3,157
====== ====== ====== ======
1991
----
Allowance for discounts $ 139 1,326 1,304 161
Allowance for doubtful
accounts 2,577 1,881 1,308 3,150
Allowance for estimated
loss on claims 223 83 30 276
------ ------ ------ ------
$ 2,939 3,290 2,642 3,587
====== ====== ====== ======
</TABLE>
- 43 -
<PAGE> 44
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
FAIRWOOD CORPORATION
By: /s/ John B. Sganga
---------------------------
John B. Sganga
Chief Financial Officer,
Executive Vice President,
Secretary and Treasurer
Date: March 29, 1994
--------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 29, 1994 by the following persons on
behalf of the Registrant and in the capacities indicated.
Title
-----
/s/ John B. Sganga Director and Chief
- ---------------------------
John B. Sganga Financial Officer,
Executive Vice President,
Secretary and Treasurer
(principal executive,
financial and accounting
officer)
- 44 -
<PAGE> 45
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 29, 1994 by the following person on
behalf of the Registrant and in the capacity indicated.
Title
-----
/s/ M. Saleem Muqaddam Director
- --------------------------------
M. Saleem Muqaddam
- 45 -
<PAGE> 46
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 29, 1994 by the following person on
behalf of the Registrant and in the capacity indicated.
Title
-----
/s/ Randolph I. Thornton, Jr. Director
- ----------------------------------
Randolph I. Thornton, Jr.
- 46 -
<PAGE> 47
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 29, 1994 by the following person on
behalf of the Registrant and in the capacity indicated.
Title
-----
/s/ L. David Callaway
- -----------------------------------
L. David Callaway Director
- 47 -
<PAGE> 48
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequential
No. Description Page No.
- ------- ----------- ----------
<S> <C> <C>
(3.1) Certificate of Incorporation of the Registrant, as
amended.*
(3.2) By-Laws of the Registrant.*
(3.3) Certificate of Amendment of Certificate of
Incorporation, dated March 22, 1993.*
(4.1) Indenture, dated as of August 15, 1989, between Fairwood
Corporation, formerly MHS Holding Corporation (the
"Company") and Bankers Trust Company, as Trustee,
relating to the 16-7/8% Subordinated Pay-In-Kind
Debentures due 2004 (the "Merger Debentures").*
(4.2) Form of Merger Debentures, included as Exhibit A to
Exhibit 4.1.*
(4.3) Pledge and Security Agreement, dated as of August 15,
1989, made by the Company to Bankers Trust Company, as
Trustee.*
(4.4) Warrant Agreement, dated as of August 15, 1989, between
the Company and Pittsburgh National Bank, as Warrant
Agent.*
(4.5) Form of Warrants, included as Exhibit A to Exhibit 4.4.*
(4.6) 15-1/2% Senior Subordinated Pay-In-Kind Debentures of
the Company, dated as of September 22, 1989, issued to
Citicorp Capital Investors Ltd.*
(4.7) Pledge and Security Agreement, dated September 22, 1989,
made by the Company to Citicorp Capital Investors Ltd.,
as Agent.*
(4.8) Credit Agreement dated as of September 22, 1989 among
Mohasco Corporation ("Mohasco"), Mohasco Upholstered
Furniture Corporation, Chromcraft Corporation, Super
Sagless Corporation, Choice Seats Corporation and Peters
Revington Corporation and Citicorp Capital Investors
Ltd. (the "Credit Agreement").*
(4.9) Amendment, dated December 15, 1989, to the Credit
Agreement.*
(4.10) Amendment, dated March 13, 1990, to the Credit
Agreement.*
(4.11) Notice of Election and Waiver, dated March 13, 1990, to
the Credit Agreement.*
</TABLE>
- 48 -
<PAGE> 49
<TABLE>
<CAPTION>
Exhibit Sequential
No. Description Page No.
- ------- ----------- ----------
<S> <C> <C>
(4.12) Term Note B, dated March 13, 1990, issued to Court Square
Capital Limited.*
(4.13) Agreement and Waiver, dated August 15, 1990, to the Credit
Agreement.*
(4.14) Agreement and Waiver, dated September 5, 1990, to the Credit
Agreement.*
(4.15) Agreement and Waiver, dated September 15, 1990, to the Credit
Agreement.*
(4.16) Waiver and Amendment, dated September 15, 1990, to the Credit
Agreement and letter, dated September 15, 1990 related thereto.*
(4.17) Waiver and Fourth Amendment, dated as of December 31, 1990, to
the Credit Agreement.*
(4.18) Revolving Credit Note, dated September 22, 1989, amended and
restated as of September 15, 1990, issued to Court Square
Capital Limited, and Endorsement No. 1 thereto, dated as of
December 31, 1990.*
(4.19) Increasing Rate Senior Subordinated Debentures of Mohasco
Corporation dated as of September 22, 1989 issued to Citicorp
Capital Investors Ltd. (the "Senior Subordinated Debentures").*
(4.20) Amendment, dated March 30, 1990, to the Senior Subordinated
Debentures.*
(4.21) Second Amendment, dated as of December 31, 1990, to the
Senior Subordinated Debentures.*
(4.22) Endorsement No. 1, dated as of December 31, 1990, to the Senior
Subordinated Debentures.*
(4.23) Waiver, dated as of June 29, 1991, to the Credit
Agreement.*
(4.24) Waiver, dated as of October 31, 1991, to the Credit
Agreement.*
(4.25) Letter Agreement, dated as of October 31, 1991, between the
Company and Manufacturers Hanover, as Warrant Agent and
letter from Pittsburgh National Bank, Dated October 28,
1991, related thereto.*
(4.26) Waiver and Fifth Amendment, dated as of March 27, 1992,
to Credit Agreement.*
(4.27) Third Amendment, dated as of March 27, 1992, to the
Senior Subordinated Debentures.*
</TABLE>
- 49 -
<PAGE> 50
<TABLE>
<CAPTION>
Exhibit Sequential
No. Description Page No.
- ------- ----------- ----------
<S> <C> <C>
(4.28) Endorsement No. 2, dated as of March 27, 1992, to the
Senior Subordinated Debentures.*
(4.29) Sixth Amendment, dated as of April 23, 1992, to Credit
Agreement.*
(4.30) Seventh Amendment, dated as of April 23, 1992, to Credit
Agreement.*
(4.31) Eighth Amendment, dated as of September 26, 1992, to Credit
Agreement.*
(4.32) Waiver and Ninth Amendment, dated as of February 4, 1993,
to Credit Agreement.*
(4.33) Tenth Amendment, dated as of March 22, 1993, to Credit
Agreement.*
(4.34) Recision of Waiver, dated as of April 30, 1993, to Credit
Agreement.*
(4.35) Eleventh Amendment, dated as of March 25, 1994, to Credit
Agreement.
(4.36) Fourth Amendment, dated as of January 3, 1994, to the
Senior Subordinated Debentures.
(10.1) Employment Agreement, between Mohasco and Robert W. Hatch,
dated September 21, 1989.*
(10.2) Supplemental Executive Retirement Agreement, between
Mohasco and Robert W. Hatch, dated September 27, 1990.*
(10.3) Mohasco Executive Retirement Plan.*
(10.4) Mohasco Corporation Executive Incentive Plan.*
(10.5) Amendment, dated December 31, 1991, to the Mohasco
Executive Retirement Plan.*
(10.6) Merger Agreement, dated March 10, 1992 among Chromcraft
Revington, Inc., Chromcraft Merger Subsidiary, Inc.,
Mohasco Corporation, Chromcraft Corporation and the
Company.*
(10.7) Merger Agreement, dated March 10, 1992 among Chromcraft
Revington, Inc., PR Merger Subsidiary, Inc., Mohasco
Corporation, Peters-Revington Corporation and the
Company.*
(10.8) Employment Agreement, between Mohasco and John B. Sganga,
dated December 15, 1993.
(21.1) Subsidiaries of the Registrant.
</TABLE>
- 50 -
<PAGE> 51
* These items are incorporated by reference as described in Item 14(a)(3)
of this report.
- 51 -
<PAGE> 1
ELEVENTH AMENDMENT Exhibit 4.35
TO CREDIT AGREEMENT
THIS ELEVENTH AMENDMENT TO CREDIT AGREEMENT, dated as of March
25, 1994 (the "Eleventh Amendment"), is among Court Square Capital Limited
(formerly known as Citicorp Capital Investors Ltd.) (the "Lender") and Mohasco
Corporation, Mohasco Upholstered Furniture Corporation (on its behalf and on
behalf of each of its Stratford/Avon and Barcalounger operating units), Super
Sagless Corporation and Choice Seats Corporation (collectively, the
"Borrowers"). The Stratford/Avon operating unit is referred to herein as
"Stratford/Avon," the Barcalounger operating unit is referred to herein as
"Barcalounger."
BACKGROUND
A. The Lender and the Borrowers are parties to a Credit
Agreement dated as of September 22, 1989, as amended (the "Credit Agreement").
All capitalized terms used in this Eleventh Amendment and not otherwise defined
herein shall have the respective meanings specified in the Credit Agreement.
B. The Borrowers have requested that the Credit
Agreement be amended as set forth herein, and the Lender has agreed, subject to
the terms and conditions of this Eleventh Amendment, to such amendment.
TERMS
In consideration of the mutual covenants and agreements
contained herein, and intending to be legally bound, the Lender and the
Borrowers hereby agree as follows:
Section 1 - Revolving Credit Note.
Exhibit 1.1.3 of the Credit Agreement is hereby amended as set
forth in Endorsement No. 4 thereto, which endorsement shall be in the form of
Annex A hereto. The Lender is hereby authorized to attach to the Revolving
Credit Note such Endorsement No. 4 as duly executed and delivered by authorized
officers of each of the Borrowers on the date hereof and to insert on the face
of the Revolving Credit Note the following legend:
THIS SECURITY SHALL BE DEEMED TO INCLUDE ENDORSEMENT NO. 4
DATED AS OF MARCH 25, 1994 WHICH IS ATTACHED HERETO.
Section 2 - Revolving Credit Loans.
Section 1.1.10 of the Credit Agreement is hereby amended and
restated in its entirety to read as follows:
1.1.10 Subline Limits. The Borrowers agree that Mohasco
shall not make available any amount of Revolving Credit Loan advances
made by the Lender on or after January 1, 1994 to Barcalounger or
Super Sagless. The Borrowers further agree that the amount of
Revolving Credit Loan advances made by the Lender on or after January
1, 1994 that Mohasco makes available to Stratford/Avon ("1994
Stratford Advances") shall not exceed, in the aggregate, $9,000,000;
provided, that at no time on or after January 1, 1994 shall the amount
of outstanding 1994 Stratford Advances
<PAGE> 2
exceed $7,000,000.
Section 3 - Financial Covenants.
Section 4.1. of the Credit Agreement is hereby amended and
restated in its entirety to read as follows:
SECTION 4.1. Financial Covenants of the Borrowers.
The Borrowers shall not at any time:
4.1.1 Current Ratio. Permit the ratio of
Consolidated Current Assets to Consolidated Current Liabilities to be
less than 2.0 to 1 on the last day of any fiscal quarter.
4.1.2 [Intentionally Omitted]
4.1.3 [Intentionally Omitted]
4.1.4 [Intentionally Omitted]
4.1.5 Consolidated Net Worth. Permit Consolidated
Net Worth during any month of Fiscal Year 1994 to be less than the
number set forth opposite each such month below:
January $(178,000,000)
February $(180,000,000)
March $(182,500,000)
April $(184,400,000)
May $(186,000,000)
June $(188,500,000)
July $(191,000,000)
August $(192,000,000)
September $(193,000,000)
October $(194,000,000)
November $(194,500,000)
December $(197,500,000)
; and $(197,500,000) at any time after December 31, 1994.
4.1.6 Working Capital. Permit Working Capital to
be less than (a) $32,000,000 on the last day of the first fiscal
quarter of 1994, (b) $40,000,000 on the last day of the second fiscal
quarter of 1994, (c) $40,000,000 on the last day of the third fiscal
quarter of 1994 and (d) $50,000,000 on the last day of the fourth
fiscal quarter of 1994 and of any fiscal quarter thereafter.
4.1.7 Total Debt. Permit Consolidated Indebtedness
to exceed (a) $255,000,000 at any time during the first fiscal quarter
of 1994, (b) $265,000,000 at any time during the second fiscal quarter
of 1994, (c) $275,000,000 at any time during the third fiscal quarter
of 1994, (d) $280,000,000 at any time during the fourth fiscal quarter
of 1994 and (e) $280,000,000 at any time thereafter.
<PAGE> 3
Section 4 - Overadvance Amount.
The definition of "Overadvance Amount" in Section 6.1 of the
Credit Agreement is hereby amended and restated to read in its entirety as
follows:
"Overadvance Amount" means $130,000,000 during the
first fiscal quarter of 1994, $135,000,000 during the second
fiscal quarter of 1994, $148,000,000 during the third fiscal
quarter of 1994 and $145,000,000 during the fourth fiscal
quarter of 1994 and thereafter.
Section 5 - Revolving Credit Commitment.
The definition of "Revolving Credit Commitment" in Section 6.1
of the Credit Agreement is hereby amended and restated to read in its entirety
as follows:
"Revolving Credit Commitment" means $175,000,000
during the first fiscal quarter of 1994, $185,000,000 during
the second fiscal quarter of 1994, $195,000,000 during the
third fiscal quarter of 1994 and $200,000,000 during the
fourth fiscal quarter of 1994 and thereafter.
Section 6 - Revolving Credit Maturity Date.
The definition of "Revolving Credit Maturity Date" in Section
6.1 of the Credit Agreement is hereby amended and restated to read in its
entirety as follows:
"Revolving Credit Maturity Date" means January 2,
1996, when the Revolving Credit Note shall be due and payable
in full.
Section 7 - Conditions to Effectiveness.
This Eleventh Amendment shall be effective when, and only
when, the Lender shall have received counterparts of this Eleventh Amendment
executed by each of the Borrowers and copies of such approvals, opinions or
documents as the Lender may reasonably request.
Section 8 - Representations and Warranties.
The Borrowers hereby jointly and severally represent and
warrant to the Lender that the execution, delivery and performance by each of
the Borrowers of this Eleventh Amendment:
(a) are within each of the Borrower's respective
corporate powers;
(b) have been duly authorized by all necessary
corporate actions of each of the Borrowers;
(c) do not and will not:
- 3 -
<PAGE> 4
(i) violate any requirement of law;
(ii) conflict with or result in the
breach of, or constitute a default under, any indenture, mortgage,
deed of trust, lease, agreement or other instrument binding on or
affecting any of the Borrowers; or
(iii) require the consent or approval of,
authorization by or notice to or filing or registration with any
governmental authority or other person other than those which have
been obtained and copies of which have been delivered pursuant to
Section 7 hereof to the Lender, each of which is in full force and
effect.
Section 9 - Borrowing Base Certificate.
Exhibit 6.1(b) of the Credit Agreement is hereby amended and
restated in its entirety as set forth in Annex B hereto.
Section 10 - Miscellaneous.
(a) The Credit Agreement, as amended hereby,
shall be binding upon and shall inure to the benefit of the Lender and
the Borrowers and their respective successors and assigns.
(b) This Eleventh Amendment may be executed in
any number of counterparts, each counterpart constituting an original
but altogether one and the same instrument and contract.
(c) This Eleventh Amendment shall be construed in
connection with and as part of the Credit Agreement, and all terms,
conditions and covenants contained in the Credit Agreement except as
herein modified shall remain in full force and effect.
(d) Any and all notices, requests, certificates
and other instruments executed and delivered after the execution and
delivery of this Eleventh Amendment may refer to the "Credit Agreement
dated as of September 22, 1989" without making specific reference to
the Eleventh Amendment, but nevertheless all such references shall be
deemed to include this Eleventh Amendment unless the context shall
otherwise require.
[SIGNATURE PAGES FOLLOW]
- 4 -
<PAGE> 5
IN WITNESS WHEREOF, the Lender and the Borrowers have caused
this instrument to be executed and delivered by their duly authorized officers
as of the date and year first above written.
COURT SQUARE CAPITAL LIMITED
By: /s/ M. Saleem Muqaddam
-------------------------
M. Saleem Muqaddam
Vice President
MOHASCO CORPORATION
By: /s/ John B. Sganga
-------------------------
John B. Sganga
Executive Vice President,
Chief Financial Officer,
Treasurer and Controller
MOHASCO UPHOLSTERED FURNITURE
CORPORATION
By: /s/ John B. Sganga
-------------------------
John B. Sganga
Vice President,
Treasurer and Secretary
SUPER SAGLESS CORPORATION
By: /s/ Stephen R. Lake
-------------------------
Stephen R. Lake
President
CHOICE SEATS CORPORATION
By: /s/ John B. Sganga
-------------------------
John B. Sganga
Vice President,
Treasurer and Secretary
- 5 -
<PAGE> 6
STRATFORD/AVON, an operating
unit of Mohasco Upholstered
Furniture Corporation
By: /s/ Robert M. Shaughnessy
-------------------------
Robert M. Shaughnessy
President
BARCALOUNGER, an operating
unit of Mohasco Upholstered
Furniture Corporation
By: /s/ Wayne T. Stephens
-------------------------
Wayne Stephens
President
- 6 -
<PAGE> 7
Annex A
FORM OF ENDORSEMENT NO. 4
MOHASCO CORPORATION, MOHASCO UPHOLSTERED FURNITURE
CORPORATION, SUPER SAGLESS CORPORATION AND CHOICE SEATS CORPORATION, AND COURT
SQUARE CAPITAL LIMITED hereby agree that the promissory note, as amended, to
which this Endorsement No. 4 is attached (the "Revolving Credit Note") shall be
and hereby is amended as follows:
A. Each occurrence of the amount "$167,000,000" on page
1 of the Revolving Credit Note is deleted and the amount "$200,000,000" is
inserted in lieu thereof.
B. The words "One Hundred Sixty-Seven Million" are
deleted from the first paragraph of the Revolving Credit Note and the words
"Two Hundred Million" are inserted in lieu thereof.
Date: March 25, 1994
COURT SQUARE CAPITAL LIMITED
By:
-----------------------------
M. Saleem Muqaddam
Vice President
MOHASCO CORPORATION
By:
-----------------------------
John B. Sganga
Executive Vice President,
Chief Financial Officer,
Treasurer and Controller
MOHASCO UPHOLSTERED FURNITURE
CORPORATION
By:
-----------------------------
John B. Sganga
Vice President,
Treasurer and Secretary
SUPER SAGLESS CORPORATION
By:
-----------------------------
John B. Sganga
Vice President
Treasurer and Secretary
CHOICE SEATS CORPORATION
By:
-----------------------------
John B. Sganga
Vice President,
Treasurer and Secretary
A-1
<PAGE> 8
Annex B
Exhibit 6.1(b)
MOHASCO CORPORATION
Accounts Receivable and Inventory
BORROWING BASE CERTIFICATE
Borrowing Base #
------------
Date
-----------------------------
To induce Court Square Capital Limited (formerly known as Citicorp Capital
Investors Ltd. and herein called the "Lender") to make a loan of $------------
pursuant to the Credit Agreement, dated as of September 22, 1989 between the
undersigned and Lender, and any amendments thereto (as the same may be amended,
the "Agreement"), the undersigned hereby specifically confirm the Lender's
security interest in each of its existing inventories and the cash and non-cash
proceeds thereof (except as permitted to be excepted under the Agreement),
specifically assign to the Lender each of its existing Contract Rights and
Accounts and the cash and non-cash proceeds thereof, and hereby certify, as of
the date below, as follows:
1) The Borrowing Base, determined in accordance with the Agreement, is as
follows:
B-1
<PAGE> 9
<TABLE>
<CAPTION>
Inter-
Super Choice Company Mohasco
Mufco Sagless Seats Eliminations Total
----- ------- ------ ------------ -------
<S> <C> <C> <C> <C> <C> <C>
a) Aggregate amount owed on all of
its Accounts Receivable as of
---------------, 199-.
b) Less amounts owing on such of its
accounts included in item (a)
which fail to constitute Eligible
Accounts (see attached Schedule
"A")
c) Net amount of Eligible Accounts
(a) - (b)
d) 85% of item (c)
e) Aggregate amount of Inventory as
of ---------, 199- per Inventory
Certificate
f) Less inventory included in item
(e) which fails to constitute
Eligible Inventory (see attached
Schedule "B")
g) Net amount of Eligible Inventory
h) 50% of item (g)
i) Total Borrowing Base
(d) + (h)
j) Total Revolving Credit Loans
outstanding
</TABLE>
B-2
<PAGE> 10
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
k) Amount of Revolving Credit Loan
requested
l) Available Borrowing Base (i) -
((j) + (k))
</TABLE>
B-3
<PAGE> 11
2) The amount of the loan hereby requested which is being allocated to:
A. Stratford/Avon is $----------------,
B. Barcalounger is $----------------, and
C. Super Sagless is $----------------.
The amount of Revolving Credit Loan advances made by the Lender on or
after January 1, 1994 that Mohasco has heretofore made available to
Stratford/Avon ("1994 Stratford Advances") is, in the aggregate,
$--------------, and the amount of outstanding 1994 Stratford Advances
as of the date hereof is $----------------.
3) The unpaid principal amount of Revolving Credit Loans which will be
outstanding under the Agreement after (i) the granting of the loan
hereby requested, and (ii) the application of the proceeds thereof to
the principal of any prior loans outstanding under the Agreement will
not exceed the amount of the Borrowing Base stated above, plus the
applicable Overadvance Amount.
B-4
<PAGE> 12
4) The undersigned are not in default under the Agreement, including
without limitation the provisions of Section 1.1.10 with respect to
subline limits, or on any of the undersigned's liabilities to the
Lender.
Date: MOHASCO CORPORATION
-----------------------
By:
-----------------------
Title:
--------------------
MOHASCO UPHOLSTERED
FURNITURE CORPORATION
By:
-----------------------
Title:
--------------------
SUPER SAGLESS CORPORATION
By:
-----------------------
Title:
--------------------
CHOICE SEATS CORPORATION
By:
-----------------------
Title:
--------------------
Loan Balance
------------------
Previous Loan Balance
---------
Today's Credit
----------------
B-5
<PAGE> 13
MOHASCO CORPORATION
SCHEDULE "A"
Amounts owing on such accounts which fail to constitute eligible
accounts:
<TABLE>
<CAPTION>
Super Choice Mohasco
Mufco Sagless Seats Total
----- ------- ----- ------
<S> <C> <C> <C> <C>
Accounts
over 90
days
Inter-
company
(less than
90 days)
Service
Charges
Prebillings
(Account
Receivable,
WIP)
---------- ---------- ---------- ----------
Total ========== ========== ========== ==========
</TABLE>
B-6
<PAGE> 14
MOHASCO CORPORATION
SCHEDULE "B"
Inventory which fails to constitute eligible inventory:
<TABLE>
<CAPTION>
Super Choice Mohasco
Mufco Sagless Seats Total
----- ------- ------ -------
<S> <C> <C> <C> <C>
Work-In
Process
Slow
Moving
Reserve
Inventory
Not
Pledged ------- -------- -------- --------
Total
======= ======== ======== ========
</TABLE>
B-7
<PAGE> 15
Inventory Certificate
I, the undersigned, being the duly authorized ------------------ of Mohasco
Corporation located at 4401 Fair Lakes Court, Fairfax, in the Commonwealth of
Virginia, do hereby certify to Court Square Capital Limited of New York, New
York, that the valuation (on a FIFO basis using the lower of cost or market) of
the inventories of the companies shown below as well as inventories stored at
the locations set forth on Exhibit 1 was in the amount of:
<TABLE>
<CAPTION>
Inter-
Super Choice Co. Mohasco
Mufco Sagless Seats Elims Total
----- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
Raw
Material
Finished
Goods
Work In
Process
</TABLE>
for a total inventory valuation of .................
The above inventory reporting is as of the close of business this ---- day of
- ------------, 199-, and is subject to a first-lien under the Security Agreement
referred to in the Credit Agreement dated as of September 22, 1989 among
Mohasco and its subsidiaries and Court Square Capital Limited, as amended.
B-8
<PAGE> 16
This certificate is given to the Lender as an inducement for cash advances made
and to be made by the Lender to Mohasco Corporation and its subsidiaries
pursuant to the terms and provisions of such Credit Agreement.
MOHASCO CORPORATION
By:
----------------------
Title:
-------------------
Date:
------------------
B-9
<PAGE> 1
Exhibit 4.36
FOURTH AMENDMENT
FOURTH AMENDMENT, dated as of January 3, 1994, to the Increasing Rate
Senior Subordinated Debentures due January 3, 1994 of Mohasco Corporation (the
"Borrower") issued in the original principal amount of $80,000,000 to Court
Square Capital Limited (formerly known as Citicorp Capital Investors Ltd.) (the
"Lender") dated as of September 22, 1989, as amended (the "Security") and the
indenture attached as Exhibit A thereto (the "Indenture"). Capitalized terms
used herein without definition shall have the same meaning as ascribed to such
terms in the Security and Indenture.
Background
Pursuant to the terms of the Security and Section 9.2 of the
Indenture, the Borrower and the trustee under the Indenture may effect
amendments to the Security and the Indenture with the consent of all the
Securityholders. Pursuant to the terms of the Security and Section 11.16 of
the Indenture, if a trustee has not been appointed under the Indenture, the
Borrower, with the consent of all the Securityholders, may effect such
amendments without the consent of a trustee. The Lender is the sole
Securityholder and no trustee has been appointed under the Indenture. The
parties have agreed to amend the Security and the Indenture to extend the
maturity date of the Security from January 3, 1994 to January 2, 1996.
Terms
In consideration of the foregoing premises and the agreements and
covenants contained herein, and intending to be legally bound, the parties
hereto agree as follows:
Section 1. Amendments.
1.1. The Security shall be amended as set forth in Endorsement
No. 3 thereto, which Endorsement shall be in the form of Annex A hereto. The
Lender is hereby authorized to attach to its Security such Endorsement No. 3
executed by a duly authorized officer of the Borrower, and to insert on the
face of its Security the following legend:
"THIS SECURITY SHALL BE DEEMED TO INCLUDE ENDORSEMENT NO. 3
DATED AS OF JANUARY 3, 1994 WHICH IS ATTACHED HERETO."
1.2. The Indenture is hereby amended as follows:
(a) The date "January 3, 1994" is deleted from the fourth
line of the cover page of the Indenture and the date "January 2, 1996" is
inserted in lieu thereof.
(b) The date "January 3, 1994" is deleted from the second
paragraph on page 1 of the Indenture and the date "January 2, 1996" is inserted
in lieu thereof.
<PAGE> 2
(c) The date "January 3, 1994" is deleted from the
definition of "Securities" in section 1.1 of the Indenture and the date
"January 2, 1996" is inserted in lieu thereof.
Section 2. Conditions to Effectiveness. This Fourth Amendment shall
become effective when the Endorsement No. 3 in the form of Annex A hereto is
executed on behalf of the parties hereto and delivered to the Lender.
Section 3. Effect of Amendment on Security and Indenture.
3.1. Except as specifically amended above, the Security and the
Indenture shall remain in full force and effect and hereby are ratified and
confirmed. As used in the Security and the Indenture, the terms "Security" or
"Indenture", "this Security" or "this Indenture", "herein", "hereinafter",
"hereunder", "hereto", and the words of similar import shall, unless the
context requires otherwise, mean the Security and the Indenture as amended by
this Fourth Amendment.
3.2. The execution, delivery and effectiveness of this Fourth
Amendment shall not, except as expressly provided herein, operate as a waiver
of any right, power or remedy of the Lender under the Security of the
Indenture.
Section 4. Execution and Counterparts. This Fourth Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which together shall constitute one and the
same instrument.
Section 5. Governing Law. This Fourth Amendment shall be governed
by the laws of the State of New York applicable to contracts to be performed
wholly in the State of New York, without regard to the conflicts of laws rules
thereof.
Section 6. Headings. Section headings in this Fourth Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Fourth Amendment for any other purpose.
- 2 -
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Fourth
Amendment to be duly executed by their respective officers as of the date first
above written.
MOHASCO CORPORATION
By: /s/ John B. Sganga
-------------------------
John B. Sganga
Executive Vice President
By: /s/ John B. Sganga
-------------------------
John B. Sganga
Chief Financial Officer,
Treasurer and Controller
COURT SQUARE CAPITAL LIMITED
By: /s/ M. Saleem Muqaddam
-------------------------
M. Saleem Muqaddam
Vice President
- 3 -
<PAGE> 4
ANNEX A
FORM OF ENDORSEMENT NO. 3
MOHASCO CORPORATION and COURT SQUARE CAPITAL LIMITED hereby agree
that the promissory note to which this Endorsement No. 3 is attached (the
"Debentures") shall be and hereby is amended as follows:
A. Delete the words "January 3, 1994" appearing on the front of the
Debentures and substitute therefor the words "January 2, 1996."
B. Delete the words "due January 3, 1994" appearing on the first
page of the back of the Debentures and substitute therefor the words "due
January 2, 1996."
MOHASCO CORPORATION
Dated: January 3, 1994 By:
-------------------------
John B. Sganga
Executive Vice President
Dated: January 3, 1994 By:
-------------------------
John B. Sganga
Chief Financial Officer,
Treasurer and Controller
COURT SQUARE CAPITAL LIMITED
Dated: January 3, 1994 By:
-------------------------
M. Saleem Muqaddam
Vice President
A-1
<PAGE> 1
Exhibit 10.8
MOHASCO CORPORATION
4401 Fair Lakes Court
Fairfax, VA 22033
December 15, 1993
Mr. John B. Sganga
c/o Mohasco Corporation
4401 Fair Lakes Court
Fairfax, VA 22033
Dear John:
This letter sets forth the mutual understanding between
Mohasco Corporation (the "Company") and you regarding the terms and conditions
of your employment by the Company.
The Company hereby employs you, and you, by signing in the
space provided below, hereby accept employment and agree to remain in the
employ of the Company during the Employment Period, as defined below, upon the
terms and conditions provided in this letter. During the Employment Period,
you will serve as the Chief Financial Officer and Executive Vice President of
the Company and Fairwood Corporation, formerly known as MHS Holdings
Corporation ("Fairwood"), and will have such additional titles, duties,
authority and responsibilities with respect to Fairwood and its subsidiaries as
the Board of Directors of the Company may from time to time reasonably
prescribe or request; provided that such additional duties and responsibilities
on the whole will not, with your other duties and responsibilities, require
substantially more travel or work time than required with respect to your
employment during 1993 for Fairwood and its subsidiaries; and provided further
that you shall not be required to accept any such additional titles of director
or officer without substantially similar protections from the Company as you
are currently provided. You agree to perform diligently and competently all
such duties and responsibilities. During the Employment Period, you will not
engage (whether or not during normal business hours) in any other substantial
business or professional activity, whether or not such activity is pursued for
gain, profit or other pecuniary advantage, unless such activity and its scope
are approved in advance in writing by the Board of Directors of the Company.
During the Employment Period, you will be compensated for the
performance of your duties pursuant to the terms and conditions set forth in
this letter at an annual rate of $150,000 (the "Base Salary"). The Board of
Directors may from time to time, in its sole discretion, grant bonuses to you.
During the Employment Period, you will be entitled to participate in the normal
employee benefit plans and programs of the Company to the extent that your
position, tenure, salary and other qualifications make you eligible to
participate in accordance with their rules and regulations and the standard
eligibility and vesting requirements of the Company, including without
limitation the Company's Investment Plan for Salaried and Sales Employees.
<PAGE> 2
Mr. John B. Sganga
December 15, 1993
Page 2
Without limiting the generality of the foregoing, during the Employment Period
you will be entitled to the following:
A. The use for business purposes of a vehicle leased by the Company.
Any imputed taxable income associated with your personal use of such
vehicle will be included in the your annual W-2 statement. You will
maintain such records relating to personal usage of the vehicle as are
required under the Internal Revenue Code of 1986, as amended and as
may be amended, and the rules and regulations thereunder, and provide
copies of such records to the Company upon request. Within 30 days
after the Expiration Date, the Company will, at your cost and upon
your request, exercise any right which the Company may have to
purchase the vehicle under such lease and convey all of its right,
title and interest (without warranty) in such vehicle to you after any
such purchase.
B. Reimbursement for the costs of an annual, routine physical
examination administered by a physician of your choosing.
C. Reimbursement for the reasonable costs of preparation of your
personal federal, state and local income tax returns.
The period of your employment pursuant to this letter will
commence December 15, 1993 and will, unless sooner terminated as set forth
below, continue through December 31, 1995 (such period as it may be earlier
terminated being herein referred to as the "Employment Period"). The last day
of the Employment Period shall be referred to in this letter as the "Expiration
Date." The Board of Directors of the Company may at any time terminate your
employment with or without cause. The term "cause" as used herein shall mean
(i) dishonesty, (ii) gross incompetence in the performance of your duties,
responsibilities and obligations, (iii) your conviction for any crime involving
moral turpitude, (iv) wilful refusal to carry out, in all material respects,
the reasonable and proper directions of the Board of Directors of the Company
or (v) a material breach by you of the terms or conditions set forth in this
letter. If your employment is terminated by the Company without cause on or
before December 31, 1995 (other than due to death or disability or other
incapacity), you will be entitled to receive a severance payment in an amount
equal to the lesser of (i) $150,000 and (ii) an amount equal to sum of the Base
Salary payments that you would have received after the Expiration Date had you
remained in the employ of the Company until December 31, 1995, which severance
payment amount shall be payable in 12 equal monthly installments commencing 30
days after the Expiration Date. If your employment is terminated by the
Company at any time for cause or due to your death or disability or other
incapacity, you will not be entitled to receive any severance payment. The
Employment Period shall terminate on the date of your death. In addition, the
Employment Period may be terminated by the Company upon fourteen (14) days
written notice to you if you become physically or mentally disabled or
incapacitated to such an extent that you cannot adequately perform your duties
for a period of 90 consecutive calendar days or
<PAGE> 3
Mr. John B. Sganga
December 15, 1993
Page 3
for an aggregate of 60 working days during any three-month period. In the
event that the Employment Period is terminated due to your disability or other
incapacity, the Company will cooperate with you, your family and your legal
representative in ascertaining amounts payable to you hereunder or in
accordance with any Company benefits to which you are entitled. In the event
that the Employment Period is terminated due to your disability or other
incapacity, you authorize the Company to disclose such information to such
persons.
From the Expiration Date until December 31, 1996, the Company
will expend up to $3,000 per annum to provide you with medical benefits
coverage comparable to that provided to you during the Employment Period. If
the annual cost of such medical benefits coverage exceeds $3,000, you will be
entitled to receive from the Company (to the extent not previously expended by
the Company for such coverage) cash during such period at rate of $3,000 per
annum for medical benefits coverage.
By reason of your employment by the Company and your services
hereunder, you will have access to proprietary business information regarding
the Company, Fairwood, and Fairwood' direct and indirect subsidiaries and
operating companies (together, referred to herein as the "Fairwood Group"),
including without limitation information and knowledge pertaining to sales and
profit figures, products, marketing information, methods of operation and lists
and relationships between and among the Fairwood Group and its customers,
suppliers and others who have business dealings with the Fairwood Group
(collectively, "Proprietary Business Information"); provided, however, that
Proprietary Business Information shall be deemed to not include information (i)
generally available or that becomes generally available to the public other
than as a result of a disclosure by you or (ii) which becomes available to you
from a source (other than the Company or its affiliates or any of their
respective directors, officers, employees, advisors or other representatives),
provided that such source is not known by you (nor should reasonably have been
known by you) to be bound by a confidentiality agreement with, or other
obligation of confidentiality to, the Company or another party. You will not,
during or after your employment with the Company, use for yourself or others or
disclose to others any Proprietary Business Information about the Fairwood
Group, except as may be necessary for the performance of your duties hereunder.
All correspondence, memoranda, notes, records, reports, plans, designs,
studies, and any other papers or items received or made by you in connection
with your employment by the Company will be the property of the Company, and
you will deliver the original and all copies thereof to the Company on
termination of your employment or on request.
The terms and conditions contained in this letter may be
amended only by a writing executed and delivered by both the Company and you.
The validity, performance, construction and effect of this letter agreement
shall be governed by the laws of the state of New York without giving effect to
the conflicts of laws principles thereof. This letter embodies the entire
agreement and understanding between the Company and you and supersedes all
prior
<PAGE> 4
Mr. John B. Sganga
December 15, 1993
Page 4
agreements and understandings related to the subject matter hereof. The
Company, on behalf of the Fairwood Group, and you agree that all prior
agreements or understandings related to your employment with the Company or
with any other member of the Fairwood Group are hereby terminated and shall be
of no further force and effect, including without limitation any such
agreements or understandings set forth in the letters to you dated, September
30, 1988, August 12, 1991 and February 27, 1992, respectively, from Fairwood
Corporation, Robert M. Hatch and Robert M. Hatch, respectively. In case any
one or more of the provisions contained in this letter or in any instrument
contemplated hereby, or any application thereof, shall be invalid, illegal or
unenforceable in any respect, under the laws of any jurisdiction, the validity,
legality and enforceability of the remaining provisions contained herein, and
any other application thereof, shall not in any way be affected or impaired
thereby or under the laws of any other jurisdiction.
If this letter correctly sets forth your understanding of our
agreement, please indicate your acceptance and agreement in the space provided
below.
Very truly yours,
MOHASCO CORPORATION
By: /s/ M. Saleem Muqaddam
--------------------------
M. Saleem Muqaddam,
Authorized Signatory
ACCEPTED AND AGREED:
/s/ John B. Sganga
- -------------------------
John B. Sganga
Dated: December 15, 1993
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
State of
incorporation
or other
jurisdiction
in which
Name organized
---- -------------
<S> <C>
Mohasco Corporation New York
Choice Seats Corporation Delaware
Mohasco Upholstered Furniture Corporation Delaware
Super Sagless Corporation Delaware
</TABLE>
Each of the above subsidiaries is 100% owned by the Registrant or a
subsidiary (as indicated by indentation) and are included in the consolidated
financial statements of the Registrant.
